RingCentral, Inc. (RNG) Q1 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to the RingCentral First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Ryan Goodman. You may begin.

Thank you. Good afternoon and welcome to RingCentral’s first quarter 2021 earnings conference call. I am Ryan Goodman, RingCentral’s Head of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Anand Eswaran, President and Chief Operating Officer; and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Anand and Mitesh followed by Q&A. Some of our discussions and responses to your questions will contain forward-looking statements, including our second quarter and full year 2021 financial outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. 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. In particular, our business is currently being impacted by the COVID-19 pandemic. The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, the success of vaccination efforts as well as actions taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. 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. I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our earnings release, slide deck, our GAAP to non-GAAP reconciliations, our periodic SEC reports, a webcast replay of today’s call and to learn more about RingCentral. 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, let me turn the call over to Vlad.

Good afternoon and thank you for joining our first quarter earnings conference call. We hope all of you are safe and in good health. First quarter was an exceptional start to 2021. RingCentral Office ARR, which includes both UCaaS and CCaaS grew 40% year-over-year to $1.3 billion. We last saw similar growth 5 years ago on a base that was sub-$300 million or less than one-quarter of our current level. And we are seeing the strong performance on all fronts. Avaya and Atos are continuing to gain momentum. RingCentral Office ARR with direct and partners, including all of our key partnerships, grew 33% year-over-year to $817 million. This is an acceleration in growth of 3 points sequentially and 8 points year-over-year. As the work environment turns hybrid for many businesses, RingCentral’s any device, any mode, anywhere, message video phone or MVP platform continues to gain steam. RingCentral was always about work from anywhere. And with our recent performance and accelerating pipeline, we see clear evidence that our solution is right for the emerging post-pandemic world. We saw this manifest in our strong Q1 performance across the board. We saw exceptional strength in our enterprise business, with a record number of Q1, $1 million plus TCV wins and 2 $10 million plus TCV deals. Also, I am pleased to share a new milestone. Our Global 2000 and Fortune 1000 Enterprise business now stands at over $100 million ARR and has closed to have tripled year-over-year. So, why do we win? RingCentral business successes are underpinned by our industry leading modern, pure-cloud, mobile-first global unified communications as a service platform. It all starts with trust. High reliability, security, data privacy and regulatory compliance are essential to establish a relationship of trust with enterprises worldwide. First, reliability, business communication solutions are the hard bit of any organization. In the hybrid work environment, reliability of business communications platform is more critical than ever before. RingCentral’s consistent delivery of five nines uptime continues to be an important differentiator. This translates to less than 30 seconds per month of downtime. Very few cloud competitors can consistently provide this level of reliability. Another key requirement is security and data privacy. Our security and customer data privacy track record is a meaningful differentiator between us and some of our competitors. And this continues to be a focus area of our investments. For example, in Q1, we acquired Kindite, a developer of leading cryptographic technologies. This provides us with enhanced security capabilities such as end-to-end encryption that we intend to rollout later this year. Additionally, enterprises demand full regulatory compliance and centralized connectivity management across their entire global footprint. RingCentral allows our customers to concentrate on their business with RingCentral, taking care of their global connectivity needs in a centralized regulatory compliant manner. This continues to be a strong competitive differentiator for us. Sometimes we get the question who even needs a phone system? Why don’t companies just rely on video and mobile phones for their employees? The answer begins with the fact that there must be a clear well-defined ways for people to reach a business and its employees. While video is clearly very important for meetings, most people use phone and voice to reach companies. This means that on the company side, there is a need for centralized business identity, combined with sophisticated workflows and call flows, auditability enterprise-wide analytics, and of course, security and regulatory compliance for all of the internal and external communications. And this is what traditional PBXs that are now being replaced by modern cloud-based phone systems like RingCentral came into play. As to mobile phones, they are an important endpoint to RingCentral, similar to softphones and traditional desktop phones. And now with ever more distributed mobile and remote workforces and the new work-from-anywhere paradigm, use of mobile phones and softphones connected via RingCentral is growing at approximately 60% year-over-year. This outpatient use of mobile phones as endpoints on RingCentral proves our original thesis that mobile phones are our friend, not a foe. Doubling down with this trend and further extending our technology leadership, RingCentral has recently collaborated with AT&T to deliver office and hand wireless, a pioneering native integration between the pure cloud PBX and the major mobile carriers network. This enables fixed mobile convergence whereby users can use their mobile phone number with their desktop phones as well and with full access to cloud PBX capabilities. We believe this new technology will further supercharge AT&T’s momentum in converting their mobile business users to UCaaS. Along with supporting a variety of endpoints, it is more important than ever to provide a seamless user experience across various communications modes of messaging, video and phone, or MVP. With the introduction last year of RingCentral Video, we are incredibly proud of our pace of innovation, with over 100 new features delivered since the launch. And we recently announced new capabilities such as breakout rooms, video virtual backgrounds, presenter overlay and picture and picture. At this point, all of our new customers and key partners are delivered only RingCentral Video as part of MVP. We have a rich roadmap ahead and are committed to meeting all of our customers and partners’ needs through outpaced innovation and product excellence. Further complementing our MVP UCaaS product is the RingCentral contact center portfolio. By adopting an integrated UCaaS and CCaaS solution from a single leading provider, our customers can drive higher employee and agent productivity and improved customer satisfaction. In Q1, we saw exceptional demand for our CCaaS solutions across the entire portfolio. Contact center was included in over 60% of our $1 million plus TCV wins, including our largest contact center win to-date of over $10 million TCV. In closing, we believe work from anywhere is here to stay. The global pandemic has pulled forward years of UCaaS structural awareness and RingCentral is in the pole position with our differentiated trusted platform, accelerating pipeline and the unique partnership network that we believe will be getting even stronger. Stay tuned for upcoming exciting news on that front. With this backdrop, we are confident that we can continue to lead in this $50 billion plus global market. With that, I will now turn the call over to our President and Chief Operating Officer, Anand Eswaran, for additional color on our recent progress. Thank you.

Thank you, Vlad. Good afternoon, everyone. As Vlad said, Q1 was a very strong quarter. ARR growth was strong. New business from every key partner contributed to accelerated growth in our mid-market and enterprise segments. The enterprise segment was exceptionally strong for a Q1 quarter driven by accelerated awareness of the need to modernize their legacy communication systems. Small business was also strong as we are seeing the positive impact of the economic recovery in the segment. Our pipeline exiting the quarter was at a record level across our integrated portfolio of cloud-based unified communications and contact center solutions. I will start with some key highlights. First, RingCentral Office ARR with direct and partners, grew 33% year-over-year to $817 million, and more importantly, accelerated 8 points year-over-year. To provide better transparency into the business, we have provided this metric which incorporates contributions from our strategic partners, including Avaya, Atos and Alcatel-Lucent Enterprise, our service provider partners, including AT&T, BT, TELUS, Vodafone business and other non-channel partners as well as our direct business. Second, our channel community delivered ARR growth of 53% year-over-year, surpassing $500 million with a record level of pipe generation. Third, we closed significant opportunities and we have built a large pipeline, where enterprises want RingCentral Office integrated with Microsoft Team’s direct routing. And last but not the least, demand for our deeply integrated UCaaS and CCaaS platform was a critical factor in contact center posting a standout quarter with triple-digit year-over-year growth in new logo business. Let me now dive into some detail. I will begin with our strategic partnerships where we saw great momentum. In Q1, we saw solid growth in Avaya Cloud Office seats, new accounts and transaction volume. ACO has proven to win deals in all segments, including up-market. We are seeing strength across multiple verticals, including continued traction in education and healthcare. Atos had a very strong Q1 and exited the quarter with pipeline up roughly 3x sequentially. With new campaigns underway and continued channel enablement, we are excited at the opportunity ahead. We also introduced a new co-branded offering called unified video by RingCentral. This innovative and integrated video with team messaging solution equips Atos to expand their addressable market and meet growing need for smart meetings. Alcatel-Lucent Enterprise launched Rainbow Office powered by RingCentral in 8 countries right on schedule. We look forward to ramping the go-to-market motion in additional geographies in coming quarters. While still early, we are encouraged with the initial pipeline generation. Our global service providers delivered a strong quarter and we had some exciting recent announcements. I will start with AT&T. We continue to see positive trends in the new business growth, particularly in up-market. Trends at BT and TELUS were also very strong in terms of both year-over-year growth and pipeline generation. We are particularly pleased to see BT starting to contribute CCaaS wins and elevated up-market traction, since the expanded partnership was announced in Q4. We also continue to expand strategic partnerships with new global service partners, including Vodafone Business, which is on track to launch this year in multiple countries across Europe. As for our channel community, it was another strong quarter. Time and again, our channel partners are proving effective in demonstrating the differentiated value proposition of the RingCentral platform. One channel success story was with Equifax, a leading consumer credit reporting agency. Equifax unified 10,000 users across 24 global locations with RingCentral. Interestingly, channel partners also often drive RingCentral wins even with customers who want tight integration with their other cloud-based solutions. In Q1, we had multiple million dollar plus channel sourced wins, where direct routing with Microsoft Teams to the RingCentral platform was critical. For example, a channel partner provided a great 7,000 user direct routing win with a leading financial services company across over 60 locations. When working with CIOs and IT decision-makers, the conversation begins with reliability, security and platform capabilities. It’s about providing a global platform that can meet very broad and different comprehensive user communications requirements. A great example of this is our win with the American Cancer Society. They had a range of use cases across corporate offices, retail stores and hope lodges for cancer patients. We are incredibly humbled and proud that this inspirational organization selected RingCentral to meet their diverse needs with a single cloud-based platform for nearly 3,000 users across over 100 locations. Our focus on selling a comprehensive communications platform versus point solutions was further demonstrated with a strong demand for our CCaaS solutions in the form of both up-sell to existing customers and new logo business. On that note, we are proud to say we won our largest contact center deal ever, a leading mortgage originator and servicer wanted to replace a mix of older solutions with a single-integrated UCaaS and CCaaS solution for over 6,000 office employees and over 2,000 contact center agents. I am so proud of the many accomplishments of our team in Q1. I would like to extend my thanks to all of our employees and partners for their hard work and dedication and of course, thank you to our customers for trusting us to be a key part of their digital transformation journeys. It is an exciting time in the RingCentral story and I truly believe the best is yet to come. With that, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv.

Thanks, Anand. Good afternoon, everyone. Q1 was a strong start to the year across the board. All key metrics came in above the high-end of guidance. Subscription revenue grew 34% year-over-year, up from 33% last year and non-GAAP operating margin was above 9%, putting us again well above the rule of 40. We have consistently achieved this metric for the last several years and it is a key metric that we, as a management team track, for profitable growth. Particularly exciting was standout growth in office ARR of 40%, an acceleration of 4 points versus prior year. This growth was driven by strong momentum with enterprise customers. Enterprise ARR grew 62% year-over-year and surpassed $500 million for the first time. We are also seeing a trend of large enterprises increasingly embracing the entire UCaaS plus CCaaS platform. In PCB deals over $1 million, we saw the number of wins increase more than 50% year-over-year and the average ARR per deal more than doubled. The more new customers are buying from us and these customers are buying more from us. There are several factors that are driving this up-market growth. We believe that the global pandemic is proving to be a catalyst for a meaningful pull forward of awareness and adoption of cloud communication solutions, which is benefiting RingCentral. We are also witnessing higher up-sell. Looking from existing up-market customers, once again surpassed 40% of new business. This is driven by broader implementations of UCaaS as well as the record level of CCaaS up-sell into our integrated solution. And contributions from our diversified go-to-market partner networks are kicking in. As Vlad and Anand noted, we saw an 8 point year-over-year acceleration in direct and partner office ARR. These partners give us preferential access to roughly half of the 400 million user market. Looking ahead, as more users from partners come online throughout the year, we expect strong incremental contributions. We believe this is just a precursor of sustainable multiyear trends. The market opportunity is massive and under-penetrated. We are excited to see continued traction in this thriving market. Along with the large TAM, the underpinnings of a long-term sustainable SaaS model are always hinged on favorable unit economics to drive healthy long-term margins and I am pleased to highlight several drivers here as well. First, with a larger mix of up-market customers with solid up-sell potential and a sub-5% annual gross churn rate, we are benefiting from a higher lifetime value. Second, as average deal size expands, we are seeing higher sales productivity. Third, RingCentral’s unique strategic partnerships and global service provider partnerships, not only expand our global market reach, but also lower customer acquisition costs. We can leverage a highly experienced sales force from partners as well as lower our upfront marketing dollars. This dynamic is even more pronounced in international markets, where we are seeing increasing contribution from partners. And finally, as all new office sales are with our own RingCentral Video or RCV, we see higher gross margin potential long-term. With that backdrop of structural macro tailwinds, solid UCaaS plus CCaaS performance, momentum from partners and favorable unit economics, we are raising the outlook for 2021. We are increasing subscriptions revenue growth to 28% to 29%, up from 26% to 27%. We are increasing total revenue growth to 27% to 28%, up from 25% to 26%. We expect non-GAAP operating margin of 10% to 10.1%. And we are raising our non-GAAP EPS to $1.24 to $1.27, up from $1.20 to $1.24. We expect to benefit from a slightly lower share count from lower dilution as we redeemed the outstanding 2023 convertible debt. Beyond 2021, we expect to layer on more growth as partners like Alcatel-Lucent Enterprise fully ramped and Vodafone Business starts to contribute. We continue to invest in R&D, growth partnerships and quota-carrying resources. This will enable us to further drive product innovation and build pipeline to capture this large opportunity ahead of us. Multiyear structural tailwinds for UCaaS and CCaaS are still in early days. We believe that we are well-positioned to deliver long-term profitable growth on our path to becoming a multibillion dollar revenue company. Before I turn the call back to the operator, I’d also like to give a big thanks to all the employees at RingCentral. Thank you for your consistent execution. With that, let’s open the call to Q&A.

[Operator Instructions] And our first question is from Terry Tillman with Truist. Please proceed with your question.

Yes. Hey, everyone. Congratulations. Can you hear me okay?

Yes, we can.

Okay, great. Thanks and congrats on the Office ARR acceleration, I guess, a two-part question. Mitesh, first, if you could just touch on the stock ranking if you will of the Office ARR acceleration and kind of picking that apart in terms of the stock ranking the drivers there? And then I’d love to get an update. I don’t usually ask this question, but I’d love to hear about the competitive landscape from Vlad? Thank you.

Sure, Terry. So on the acceleration for Office to 40%, so let’s parse out the strength in two elements: the macro and then there are RingCentral-specific trends. So, let’s start with the macro. So on the macro, what we are seeing is a shift in the overall spend environment for cloud communications. I mean, if you recall, you have covered us for a long time, the biggest issue right for the space was lack of awareness and urgency on both. And here we are broken years of inertia of our demand. So, that’s on the macro side. On the RingCentral specific side, we are seeing couple of drivers here. The first one is new business trend, where our new logos are up 50% year-over-year on a very tough compare from last year. So that’s one. The combo of UCaaS plus CCaaS is – I am hearing my own echo, if somebody can go on mute. The combination of UCaaS plus CCaaS is also turning out to be a clear differentiator with a lot of pull-through both ways with multiple on-ramps for us, especially for enterprise customers. Churn has normalized to pre-pandemic levels. And finally, partner contributions from Avaya, Atos and AT&T are kicking in. So overall, I think what we are seeing is the denominator right for the 400 million seats coming to cloud PBX is growing at a rapid clip. And we, with our product stack, are able to capture this demand, along with our distribution partnership. So, that’s some of the drivers.

That was all. Our next question is from Bhavan Suri with William Blair. Please proceed with your question.

Thank you and Vlad, Mitesh and for whole team, congratulations. What a great result. I want to touch about the partners. And Mitesh, you just touched on this, so maybe you will help us walk through it. But the contribution partners, especially Avaya and maybe Atos, what has that been, like what was it in the quarter? And more importantly, what have you assumed in the guide, I’d love to understand some clarity or color around that?

Sure. So, absolutely. So we will start out with – we will double click on the partners’ contribution from Avaya and Atos. If you say, Atos, Bhavan, to a French person, they will get really mad. So it’s Atos. So I will try to stick to that.

Atos. Atos, understood. Yes.

I am just kidding with you. Yes. So, again, clearly, we are very pleased with the progress on both fronts there. It’s clearly a very heavy lift to make it a reality. So, let’s start with Avaya. Avaya, we continue to build strength every quarter. This quarter, again, we saw multiple million dollar deals happen this quarter. And Atos is off to a good start. We are already offering the solution in a dozen countries and we have more countries coming up in 2021. Anand also mentioned the Atos spike is up 3x sequentially. So, we are off to a really good start. So in terms of the contribution, we did try to provide more transparency this time, carving out a metric called RingCentral Office direct and partners, which does capture these key partners and that segment accelerated by 8 points to 33%. And along with our direct contribution, these partnerships are definitely an element there. So, we are starting to see the benefits clearly. One thing to note though and that this benefit is not like a won and done from these partnerships, it’s not that you get a benefit in one quarter, one year and then the falloff, we will continue to see the benefits way beyond 2021. And so that’s sort of the contribution part in terms of the – what’s in the guide that’s again, it’s a good way of framing it. Look, progress is good till date. And as usual, we have taken a bit of a prudent approach in our guidance. If we assume continued success at this clip, we have left some optionality left in the guide, so not baked in everything. And also, one thing to clarify is that we have not baked in much for Alcatel-Lucent and Vodafone, which will be some nice layering for 2022.

Got it. Got it. Very, very helpful. Let me turn the conversation a little differently to competitive environment, right. And we have heard a lot of things. There is a Zoom overhang. We heard from Zoom people that the free RingCentral video has been an impact to them. So, maybe for Anand, as you look at the sales process, you talk to the people in the field, how are you feeling about a competitive environment? And has anything changed, especially as you look at the partnership, some exclusive and some are not and how should we think about that?

Well, it’s a great question. So this is what I’d say.

Not fairly, but don’t worry.

No, no, this is – this call is coming through. So yes, so from a compete standpoint if I look at the – just look at the macro indicators, our win rates have sort of held steady. In fact, we saw a really meaningful acceleration of win rates in the enterprise. That’s the first thing I will tell you. The second thing, which I’ll tell you is, part of what we saw, which is the ability to have MVP message video phone integrated together in a connected way, is actually making a meaningful difference. That was one more layer of why you saw that strong office ARR plus 40% growth. The third thing I am going to tell you is this, this is an interesting metric from Metrigy, which they had said that for – increasingly, customers are making joint UCaaS and CCaaS decisions and almost 62% of those companies are using the same provider. So, this joint UCaaS CCaaS story, which we have through our partnerships with inContact and our own portfolios, is making a huge difference. Over 60% of our large deals included the contact center. In fact, putting it differently, the number of deals with contact center more than doubled year-on-year. So, that UC plus CC story is actually making a huge difference. And then the partners, end of the day, it all comes down to this, 400 million plus on-premise seats. And now with Avaya, Atos, Alcatel-Lucent Enterprise and our service provider partners, we pretty much have reach across to the 400 million plus on-premise users. And so these partnerships are starting to execute and starting to create new layers of growth. And all that put together, the sales fundamentals are showing that progress, which is accelerating pipe, deal velocity, close rates, bringing it all back, we feel really good about the competitive environment. We feel really good about win rates and all of that is translating into the numbers.

Great. Appreciate the color. Thank you, guys.

And Bhavan, I got confused. So, I just want to call you back.

I don’t even worry about it at all. Sterling and I are brothers from another mother. So I appreciate it. Thank you for the color.

And our next question is from Sterling Auty with JPMorgan. Please proceed with your question.

That’s great timing. So, Bhavan and I are texting back and forth and I am claiming identity theft. I do want to touch upon something that he went into, which is – but I am going to go the Microsoft route. And in terms of – you called out the interest in the integration into Teams, that’s the other area that we have heard from investors is concerned about Microsoft competition on top of Zoom competition, but maybe you can walk us through what that pipeline generation and interest from Microsoft customers for that integration and pull-through looks like at this point?

That’s a great question, Sterling. So, what we see is – we just talked about it in the prepared remarks, direct routing was a key part of multiple million dollar plus TCV wins for us in Q1, like the 7,000 user Finserv direct routing win I talked about. What we like about the situation we are in is one, when you have a Microsoft installed base, which uses Teams, because it comes as part of E3 and E5, our direct routing solution gives these customers access to the industry leading UCaaS solution. And we see strength in pipe. We see strength in win rates. We feel pretty good about that. And there are instances where we just directly work with the customer. And when we do that and compete head-to-head, we actually have seen our win rates sustain, remain as steady as ever. And so on both instances, whether we compete directly, win rates are steady or when we are accessing Microsoft installed base, it just creates an expansion into a new segment for us almost via RingCentral direct routing to Teams.

Makes sense. And then maybe one follow-up question for you, I often get confused given you have a number of different ARR metrics as we think about the guidance and we think about the guide for the subscription revenue line for the June quarter, what is the starting point? Are we taking total ARR divided by 4 and saying that’s the base and you build on that and that feeds into software subscription revenue? Are we just taking kind of the RingCentral Office component divided by 4? Because if I take total ARR, divide it by 4, it’s greater than what your guidance is. So, just clarify that for us?

Sure, sure, Sterling. So yes, I mean, it is – it should be total ARR divided by 4, because that translates into subscription revenue. Now, there are two or three elements of this, where we do take into account next quarter, so revenue lags ARR for at least two reasons. One is the linearity in the quarter. As we are getting to larger customers, we do bake in a bit of a back-end loaded linearity in the quarter in our guidance. So, we keep it prudent there. And second element is contact center. There is a lag in revenue recognition on contact center, because of the implementation cycle. So, those are the two reasons why you may see the math being the way it is. And this math is not as divergent if you look at previous quarters. So, it’s very similar. And so call it our prudence or conservatism in the way we guide to keep the good news ahead of us.

Excellent. That’s very clear. Thank you.

Thank you, Sterling.

And our next question is from Brian Peterson with Raymond James. Please proceed with your question. Brian, is your line on mute?

Sorry, mute button, two quarters in a row. Apologies, guys. Well, congrats on the strong quarter. So Mitesh, maybe you could help me a little bit just on some of the large deal activity some impressive 7-figure TCV wins. Any help on some of the financial details there?

Sure. We can unpack the financial details on the $1 million TCV. If you’re referring to that strength, so let me unpack it in a couple of different ways. So first, just to level set, we did see what’s a record for Q1 in the $1 million TCV deals. The deals were up 50% year-over-year. And again, it wasn’t on a tougher compare because last year, there was some pull-through from COVID. So we had a tough compare. So we were able to grow 50% on top of that number. We did also have two 8-figure deals. One was from contact center. So I think just an overall lay of the land. Now to add some color, I can add some color for you on a couple of dimensions. Let’s say, three dimensions. One is on the quality of the deals. We will talk about that. We will talk about where the deals come from, the go-to-market motions and the products. So if you look at the quality of the deals, we are getting larger wins, along with the increase in velocity of the deals or volume, the ARR per deal actually doubled. And that in a way, led to this new metric we disclosed of $100 million ARR coming from our global 2,000 companies. So clearly, we are moving up market there and customers realize the value. On the go-to-market….

Great. Sorry, go ahead.

It was broad-based, where 75% of the wins came from channel partners, and we did see multiple wins from the three As. That’s the second part. And third one, on the product side, Anand also touched upon that, over 60% of the wins included contact center. This is a new driver. This is a new – we are seeing this vector emerge because usually, or previously, it would be just more seats that would lead to up-sell. Now we are also seeing a multi-product journey. So all in all, if you put this together, we are turning out to be on our early days of becoming a multi-dimensional company, both on products and the distribution, which ultimately leads to accretive growth and margins brand.

Great. Obviously, there sounds like a lot of drivers there, Mitesh. And so Vlad, one for you, you had a lot of good things to share. And you alluded to some potentially some good news on the hardware side, curious if there is any more thoughts you can share there? And maybe how we should think about the cadence of new partnerships going forward? Thanks guys.

Yes. Yes, definitely. Look, I mean, we are cautiously optimistic that our partnership – or I should say, strategic partnership network will grow sometime in the foreseeable future. And it’s too early to call now, but we think that we’ve proven RingCentral to be a very good partner to many of the industry players, starting with the traditional channel, extending into carriers or global service providers. And of course, most recently, more recently, I should say, traditional PBX manufacturers, your Avaya, Atos, Alcatel enterprise. So not everyone in our segment is taking this partnership oriented approach. But we’re doubling down on this. And profit is the putting. We’ve been asked for a long time. Well, when are you going to start seeing results? When will Avaya start moving the needle for you or AT&T or BT or what have you? And we are now seeing early signs of that. So as I mentioned in prepared remarks, we have and as you can see from the numbers, we are maintaining and even slightly accelerating our growth on a meaningfully larger number. We simply haven’t seen this type of an ad on the iMRR side, percentage wise for several years now, we literally [indiscernible] today, when we lost sources growth. And I can tell you, we would not be there without our partners. So it is a strategic initiative for us, and we will be doubling and tripling down on that. Hope so, answer your question.

Yes. It does. Great to hear. Thanks a lot.

Great. Thank you.

And our next question is from George Sutton with Craig-Hallum. Please proceed with your question.

Thank you. Vlad, staying on the strategic side, there are a couple of small, but what look like strategically important things that you did this quarter that I just want to get a little bit more clarity on, the innovation center in India and the Cryptographic acquisition that you made. Can you just give us a perspective if we look say, 24 months out what are these going to mean for you?

Sure. We do feel that both are strategic. We haven’t done a non-strategic position, and I don’t see a non-strategic position in the next, as you say, 24 months. Look, I’ll take it in reverse order. The security company, which you call the Cryptographic acquisition, they are deep security experts. There is a very specific milestones that we have to achieve, which is called end-to-end encryption. It’s not the only thing that used to be done to continue providing world-class security, but end-to-end to something that many people can relate to. So as the first deliverable, we would expect and they are planning to announce that later this year. Of course, we will not stop on it, and there will be continued ongoing security improvements. And I also want to remind people that we have relatively recently hired our first Chief Security Officer, who has held a similar role at IBM and she is making a very big difference. Maybe Anand can expand more on that if there is time. Okay. As far as India is concerned, look, it’s simply an amazing source of talent. And RingCentral is an international company. And we have development centers all over the world, but notable by its absence, up until now, it was India, and this is going to change. And I think this is a bigger question here that I’d like to address, which is how are we going to continue this type of growth, hopefully, this level, if not better, even if we are – if you will, striking larger and larger number, as the revenues increase. And our answer is very simple, and I think we’ve been consistent on this. And the answer is twofold. One is product. And the other is partnerships. And the management product and partnerships will deliver as customers as it has been. So we see substantial and continued growth in our commitment to innovation in our product innovation. But obviously, we need to be fiscally frugal, and one way in which we can achieve continue doubling down, if you will, on the product side, without breaking the bank and without eating into our profitability is to offshore is to get world-class talent in areas that are a little bit more affordable. And India is a fantastic place to do that. Obviously, a number of Tier 1 companies have been doing quite well there. We have hired a very, very key Torson extremely well-regarded in India to lead that center. And we are very optimistic. So what’s in 24 months, I would say that we have a substantial, substantial technical, which means R&D and product presence in India as well as potentially some other functions, we can start leveraging analytics, maybe some specific customer service functions, etcetera, but we think it’s going to be a sort of a competitive advantage for us moving forward.

That’s a great answer. You mentioned being frugal, Mitesh, not approval. So I think you’re fine. That’s it for me.

Yes. Yes, we do balance each other out at.

Thank you, George.

[Operator Instructions] Our next question is from Meta Marshall with Morgan Stanley. Please proceed with your question.

Great, thanks. I just given that you’re seeing such high attach of contact center, just how do you see the interplay going of your self-developed tools versus your relationship with NICE? And do you see yourself developing more tools that could help you go upmarket into some of the solutions that NICE offers today?

Correct. Yes. That’s a great question, Meta. This is Anand. So this is the way we look at it. We basically have our partnership with NICE inContact and the contact center solution. And we basically use them for – if you look at Engage Voice and Engage Digital. For digital-first use cases, we start to go down with Engage. For the other use cases, we start to go with NICE inContact. That’s how we approach which customer users which product from our side. And the second thing is, as we also look at larger customers, we work with NICE inContact partnership and product as the primary vehicle for these larger customers as well. So the customer size also sort of dictates who we lead with. Couldn’t be happier with our partnership with NICE inContact at this point in time.

Great, thanks.

Our next question is from Michael Turrin with Wells Fargo Securities. Please proceed with your question.

Hey, there. Thanks. Good afternoon. Mitesh, you mentioned the feeling you’re now on the path towards becoming a multibillion-dollar software company. Can you walk us through the drivers beyond what you’re seeing today on long-term growth and margin? What you’re focused on and maybe how you’re thinking about the sequencing of those beyond 2021? Thank you.

Yes. Sure, Michael. Yes, I did mention to become a multibillion-dollar company, the drivers are clear. And it’s just not the growth drivers. It’s always – as I always mentioned, it’s profitable growth, not just growth. So let’s start with the growth side and will then tie in the profitability. On the growth side, it’s – again, the trick is to just layer on incremental drivers to capture this massive TAM because the TAM is already there. So what are the drivers? One is the product side we have our own video now, which is going to be proving – which will prove to be a new driver for us. We don’t have it yet. And then the combination for UCaaS and CCaaS, that’s one. On the go-to-market side, all our partnerships we have today, plus, in 2022, they will still ramp, but again, we will have more partnerships like Alcatel-Lucent and Vodafone ramp-up in 2022 and beyond. And the third part on the growth side is GEO, international. It is performing really well. And we do expect it to be a increased contributor to becoming a multibillion-dollar company in the future, so plenty of opportunities in the tank here for multiple years ahead. On the profit side, again, the new customers we are onboarding with multiple products and larger enterprises are very sticky, which leads to a high lifetime value. And then on the distribution side, again, we are seeing sales and marketing leverage because we are able to use the experience of our partners’ distribution. So you combine these two of the growth and profit drivers, and you get a really nice profitable growth flywheel going for the years to come.

Thank you.

Our next question is from Samad Samana with Jefferies. Please proceed with your question.

Hi, good afternoon. Thanks for taking my questions. Mitesh, this may be for you, or Anand, but is there a difference in the visibility of the pipeline and deals in any given quarter for direct-led deals versus the pipeline that you have with the, let’s call it, the 3 As, right? Do you guys have just as much visibility or how does that change maybe the guidance framework or impact the guidance framework?

Yes. I can – I can look – yes, why don’t you take the first part, Anand?

I was going to say, let me do the first part of the question. We have pretty good pipeline visibility across the board, Samad. So I have good visibility into our direct. I have good visibility into what’s happening with our VARs, and we have good visibility into what’s happening with all our partners. And this is what I tell you. Our pipe in some way – as we finished the quarter, our five was at the highest levels we have seen. In fact, so far, was good to say, even April was one of the fastest starts we have seen in our history from a pipeline standpoint. So we feel pretty good about that. Mitesh, why don’t you take the second part of the question?

Sure. And so Samad, the way operating, the way the rhythm works is we actually look at our new bookings forecast in pipeline on a daily and weekly basis. There is a weekly meeting that happens for that. And then we probably adjust it when we give guidance. So it’s very, very well fine-tuned, almost scientific to the way we adjust it and then we give our guidance.

Great. Maybe just housekeeping, was linearity different in 1Q? Just as a follow-up to Sterling’s question from earlier?

Yes, it was different. We did have a back-end loaded quarter, and it’s happening more and more. As you see more enterprise wins, it does come in – it does happened more back and noted. So yes, it is – the shape of the curve is a little bit back-end loaded, yes.

Great, thanks. And congrats on the strong start to the year.

And our next question is from Daniel Bartus with Bank of America. Please proceed with your question.

Hey, guys. Thanks for taking my questions here and great to see the Office ARR acceleration as well. I wanted to ask about contact center. I know a lot of questions so far on this. So I wanted to ask kind of a two-part or from a different angle. One, just curious if you can discuss your feelings about how your partner network can help you more with CCaaS going forward? And then two, just discuss your aspirations or potential to compete with CCaaS standalone as well? Thanks.

That’s a great question. So I’ll take that. So a couple of things. One is we do leverage our partners today for CCaaS. For example, the partnership we announced with Vodafone Business back in Q4 was actually UCaaS plus CCaaS coming together. We also talked about BT. We haven’t had much discussion on the details of BT and AT&T and Telus. But as I look at BT, they are already – we announced the expanded partnership in Q4 with UCaaS and CCaaS, and they are already contributing significantly to the CCaaS wins with this new expanded partnership. So we already do that. We already see that, and you can expect to see that more and more going forward. And that’s what is coming – when that allows us to bring it all back together because when you have triple-digit growth, in new logo business. And the average deal size is more than doubling. I mean that’s the result of partners, our bars and our direct sales teams all seeing the momentum on companies making new CNCC decisions together. So that’s the one thing. The second thing is CC, contact center as a stand-alone, we do have contact center only opportunities. But our primary pivot, our primary focus is this increasing set of customers who are making UCaaS and CCaaS decisions together. But we do have customers who have just wanted a contact center solution, and we have successfully competed and won that as well.

Very helpful. Thanks.

Our next question is from Peter Levine with Evercore ISI. Please proceed with your question.

Contracts on a great quarter. I guess I want to dive a little deeper into RCV. I mean, can you give us an update on how that migration is trending? When you think that comes to an end, and then as we think about having a permanent remote-work environment in place, how are companies prioritizing voice and video? Meaning does video voice – how does video or voice rank in terms of importance? Thanks.

Yes. Hi, Vlad here. Let me maybe take a stab and then certainly, Anand can add in. It’s interesting because – so we’re making car mark with what we call Message Videophone, MVP so we certainly believe that all modes of communications are very important. And we also go any mode any device anywhere so any mode is the same MVP. And we absolutely see situations where video is more appropriate, which is situations where voice is more appropriate. For example, whenever a customer or a consumer reaches their provider or manufacturer or what have you, they’ll do this via voice, many internal meetings, are – at least during COVID has been run over the year, and that’s just a very important medium. But interestingly enough, just today, I call it Jamie Dimon saying, that he has done with the meeting season cancel all of them and expecting back to office or they are back to pre-COVID normal. So I think it really will depend on – depends on an organization. I do believe it will depend on a particular leadership style. But from our side, we are not seeing any slowdown in consumption of voice minutes. And I do believe I mentioned in the prepared remarks that we’re not only seeing strong growth there, but particular overweight in mobile minutes runs through our platform, okay? And I think that many times, when people say, well, voice is dead they forget that all mobile calls or best vast majority of mobile coals are voice, okay. So voice is, by far, no dead. So if you were to ask me, it’s – there is a right tool for the right job. So from our perspective, we’re not going to call that that either way. We will simply keep on providing world’s best business voice or enterprise voice, some people call it. And we are gaining very rapidly on the video domain, and we absolutely expect to be in a very competitive and the leadership position there within the foreseeable future. Any thing to add, Anand, Mitesh?

No, the only thing I’d say is on the migration. The only thing, given that was a question as well. We have been on a phased-migration plan. We had put that in motion well before the beginning of this year. And we are into it and we are making meaningful progress on migrating the base. And as it relates to new customers, all of them get RCV as they come on board, and the feedback has been pretty good so far.

Great. Thank you.

Our next question is from Tim Horan with Oppenheimer. Please proceed with your question.

Thanks, guys. Do you have any sense of the 145 million Teams users out there? What percentage have begun to bundle voice with teams and kind of where do you expect it to go? Thanks.

No, you should ask that question of Microsoft, but what we would say is as companies – I mean, Vlad just talked about why voice and UCaaS is important, especially when it comes to security, reliability, five nines, the last I checked, our competitors were somewhere between three and four nines. So the liability, security, data residency, data privacy, all of these things matter that’s why we feel that all head-to-head competes, we are seeing our win rates hold steady. And for customers who – the 145 million users of Teams, that is and expansion of a new segment for us, and we see us doing very well in acquiring some of these Teams users and giving them access to the RingCentral PBX through our direct routing to Team. So we feel pretty good about that.

Thank you.

And our next question is from Jim Fish with Piper Sandler. Please proceed with your question.

Hey, guys. Thanks for squeezing this in. This is Quinton on for Jim. Just a quick one for us. We got the change to the top of the funnel with the new free-Glip offering. We know it’s still early on in the process, but any positive signs from those conversions to paid solutions within your commercial solutions? Thanks.

Too early to really talk about it. Good progress based on the 6 months or 4 months since we launched Glip in December. So it’s still very early. What I tell you is this, it is serving as an incremental lead-gen engine because it gives us that optionality of a freemium solution. The other thing I’d tell you is this, this partner traction. So just recently, we announced that Atos has launched unified video, which is integrated team messaging and RingCentral video together and that is serving as a source of significant customer acquisition for them. So we’re working with our partners on it, too early to share any more data beyond that.

That makes sense. Thanks for the color.

Our next question is from Matt Niknam with Deutsche Bank. Please proceed with your question.

Hey, guys. Thanks for squeezing me in as well. We talked a lot about enterprise, but I’m just wondering, when I think about SMB and mid-market, it seems like year-on-year growth maybe plateaued or stabilized a little bit relative to the really strong acceleration in enterprise. I’m just wondering if you can talk about the competitive backdrop, specifically within SMB and mid-market and how churn is trending within those two specific areas? Thanks.

Yes. I’ll take that. So on SMB, if you look at the model, SMB growth has always been in the mid-teens. And we’ve accelerated, as you said over the last year, and we are at mid-20. So that’s – it’s a very good result in the mid-20s. It’s a very efficient engine. Also, if you look at the incremental bookings we punched through a very strong bookings on what was a very, very hard comp. So, what the drivers behind that is actually efficient e-commerce engine, our recent partnerships which is also helping SMB and in this hybrid environment, no one’s really deploying cloud, so to stay productive. And so that’s especially true in the SMB space. On the mid-market side, we did have quite a few customers that graduated to the enterprise side. So, this is the land and expand motion. And so overall, in terms of churn, overall, the churn remains sub-5% annually in this whole segment, and that will turn out to be an accretive driver in the model going forward.

Perfect. Thanks for the color.

Yes.

And our next question is from Will Power with Robert W. Baird & Company. Please proceed with your question.

Okay, great. Yes, just coming back to the enterprise acceleration, which is great to see. Anand, you had made a comment that you’re seeing improved win rates in enterprise. And I’d love to just kind of understand what’s driving that? What’s really helping set you apart in enterprise specifically to enable that?

Yes. No, it’s a great question. And this is how I would put it. Number one, having an integrated solution across message video phone makes a difference. As companies are coming back or thinking about what the plants need to be to come back to the office or be their hybrid capacity, those integrated and persistent collaboration mechanisms through MVP is actually making a difference. That’s been one huge thing. The second thing is the integrated motions between UCaaS and CCaaS. As I shared some data earlier as well, a 62% of the companies who make a joint UCaaS CCaaS decisions buy from a single vendor. So the ability for us to have a deeply integrated contact center solution with our UCaaS platform is actually making a big difference. So that combination is making a difference. Number three, the partners are starting to execute and starting to create layers of growth. This is a full year now of Avaya, and they have already been up and going. This was the second full quarter on Atos. And we are already pretty excited about what we see there. As I shared, their pipe with Atos doubled, 3x. And so the partners are also making a huge difference, both on the strategic side, the carrier side and also the bars. So that engine is truly humming. That’s making a big difference as well. So that’s how I would look at all of these things coming together.

Thank you.

And ladies and gentlemen, we have reached the end of the question-and-answer session. And also, this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.