Ringcentral Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: RingCentral secured a multi-year extension with NICE to continue offering deeply integrated UCaaS and CCaaS solutions, reinforcing its position in enterprise contact center markets.
  • Positive Sentiment: AT&T expanded its decade-long relationship by adding RingCentral’s AI-first products, RingCX and conversational intelligence, broadening RingCentral’s reach into AT&T’s customer base.
  • Positive Sentiment: In Q2, RingCentral delivered 5% year-over-year revenue growth to $320 million, generated record free cash flow, and reported positive GAAP operating and net income for the first time.
  • Positive Sentiment: AI-driven products—AIR, DreamSense, and DreamCX—saw rapid adoption with customer counts tripling or growing double-digit quarter-over-quarter, on track toward a $100 million ARR goal.
  • Positive Sentiment: The newly appointed CFO raised full-year free cash flow guidance to $515–$520 million, increased non-GAAP EPS to $4.20–$4.32, cut stock-based compensation, and upped the share buyback authorization to $500 million.
AI Generated. May Contain Errors.
Earnings Conference Call
Ringcentral Q2 2025
00:00 / 00:00

Transcript Sections

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Operator

Greetings and welcome to the RingCentral Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Durang Shah, SVP of Growth. Thank you. You may begin.

Devang Shah
Devang Shah
SVP - Growth at RingCentral

Thank you. Good afternoon, and welcome to RingCentral's second quarter twenty twenty five earnings call. Joining me today are Vlad Muniz, Founder, Chairman and CEO, Keera Makagon, President and COO, and Vaibhav Agarwal, CFO. Our format today will include prepared remarks by Vlad, Keera and Vaibhav, followed by Q and 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.

Devang Shah
Devang Shah
SVP - Growth at RingCentral

Some of our discussions and responses to your questions will contain forward looking statements regarding company's business operations, financial performance, and outlook. These statements are subject to risks, 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 risks and uncertainties related to our business, please refer to information contained in our filings with 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.

Devang Shah
Devang Shah
SVP - Growth at RingCentral

A reconciliation of all GAAP to non GAAP results is provided with our earnings release and in the slide deck. With that, I'll turn the call over to Vlad.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Good afternoon, and welcome to our second quarter conference call. Before we get into operational details, I have a few important announcements. I want to start by announcing Veebhav Agarwal as our new chief financial officer.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

I also wanna thank Abay Lamba for his contribution, and I look forward to working with him in his new role as an executive adviser. Weber has been a key leader at RingCentral for over nine years, and has played an instrumental role in our financial transformation, including prior roles as chief accounting officer, chief transformation officer, and deputy chief financial officer. VayBab has played a critical role in helping scale the company from $400,000,000 in revenue to a $2,600,000,000 run rate business, while meaningfully increasing profitability. As CFO, his deep understanding of our business and proven financial leadership sets us up well for our next phase of profitable growth. Now, on to additional important news.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Today, we announced a multi year extension of our long standing partnership with NICE. Under this extended agreement, we will continue to sell and support RingCentral Contact Center, followed by NICE CXone mPOWER. RingCentral Contact Center customers will continue to benefit from the deep integration between two recognized Gartner Magic Quadrant leaders for UCaaS and CCaaS. We look forward to working with a nice team offering a best in class integrated AI powered cloud telephony and contact center suite that is the ideal choice for enterprises with complex and advanced use cases. We are also thrilled to have announced yesterday that AT and T is expanding its decade long relationship with RingCentral.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

In addition to AT and T Office at Hand, powered by RingCentral, AT and T will now be adding two of our new AI first products to their portfolio, RingCentral and Ring CX. This enables AT and T to start offering RingCentral's cloud contact center and conversational intelligence to their customers. Thus, elevating customer engagement and experiences through AI enabled technologies. Moving on to the financial results. Q2 was another solid quarter, with all key metrics coming in at or above the high end of our guidance.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

We are executing on our strategy of accelerating innovation, while delivering sustainable profitable growth. Total revenue grew 5% year over year to $320,000,000 which is at the high end of our guidance. Our performance was driven by strong execution in our core business, combined with continued momentum in our new product portfolio, which includes AI receptionist or AIR, RingCentral Conversational Intelligence, and RingCentral Cloud Contact Center. Delivering on our commitment to profitable growth, we delivered another quarter of record free cash flow, while materially reducing stock based compensation and debt. Most notably, we achieved both positive GAAP operating income and GAAP net income for the first time in RingCentral's history.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Given our financial strength, our board has approved an increase to our stock repurchase authorization to $500,000,000 Our success is rooted in our strong leadership in business voice. With the advent of AI, it has been said that voice is a new UI, and we see strong proof points of that in our own business. Voice is the fastest, most expressive, and natural way to engage with AI, making those interactions feel seamless and intuitive. It also remains the most preferred channel for customers to connect with businesses. As a global leader in voice, RingCentral is uniquely positioned to benefit.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

We process tens of billions of minutes per year on our platform, with average voice usage per user remaining stable year over year, and SMS usage growing. While our traditional UCaaS and CCaaS markets are large and robust, the new outside growth opportunity lies with AI powered customer experiences. RingCentral services are often the first point of contact between businesses and their customers. As such, we are in a unique position to deploy AI agents from the very onset and throughout the customer journey. With a proven robust global platform to leverage, and a significant portion of our R and D now dedicated to our new AI products, we are well positioned to play a leadership role in this rapidly emerging market.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

We're investing over a quarter billion dollars annually in innovation, with a significant and growing share now dedicated to AI. As a proof point, our new AI first products, Ring CX, Ring Sense, and our newest AI receptionists are already contributing meaningfully to our ARR growth. We are well on our way to meeting the $100,000,000 ARR new products goal for this year, and we expect these new products to comprise a meaningful portion of our overall revenues in a few years. Kiera will share additional details on our product portfolio and progress. Now, let me share some insights on our key customer cohorts.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

While we are providing these details again today, to highlight progress and performance, please note that we may not be updating them regularly going forward. We continue to see particularly strong momentum with small business customers, defined as businesses with under 100 employees, as well as with global service providers. Between these two, we now have a billion dollar plus ARR business growing in double digits, with average time to breakeven in under eighteen months. Speaking of GSPs, this particular quarter, we're very excited about a couple marquee customer wins. RingCentral and Vodafone Ireland have secured Ryanair, the largest European airline, planning to deploy across 172 locations in 25 countries.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

In addition, RingCentral and Vodafone have won a top 10 European bank, with seats in excess of 10,000 across their organization. These marquee wins underscore the value of our differentiated service provider partnerships, as well as our ability to serve even the largest global enterprises. In general, in larger businesses with more than 100 employees, we continue to hold our own, as we add new logos and our retention patterns remain stable. We also see continuous demand from larger customers, with $1,000,000 plus TCV deals remaining stable quarter over quarter. Of note, is our particularly strong traction in our golden verticals, that include healthcare, financial services, retail, travel and hospitality, and professional services, where voice is the key mode of communications.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Importantly, many of these large customers are adopting multiple products from RingCentral, thus proving the value of our multi product platform approach. Kiera will share more details and customer examples. Additionally, our Microsoft Teams integration remains a key differentiator for larger businesses. Our RingCentral team's embedded app seamlessly integrates RingCentral's best in class cloud PBX into the Teams environment. RingCentral's Teams accounts are growing in strong double digits, with monthly active users doubling year over year.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

In conclusion, our core business remains strong, and our new AI source products are gaining momentum with double digit growth quarter over quarter. We are innovating rapidly, while driving profitable growth and expanding free cash flow, all while lowering SBC, paying down debt, and improving operating margin. Our success is rooted in our robust platform, a talented and talented team, and unique deep partnerships that are growing and expanding. I am very excited about what lies ahead, as we continue to lead in the new era of AI communications and customer experiences. We will share more details on our product and our strategy at our upcoming Innovation Day at the New York Stock Exchange on November 5.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

A formal invitation will be extended soon, and we look forward to seeing you there. With that, I'll turn this call over to Kira. Thank you.

Kira Makagon
Kira Makagon
President & COO at RingCentral

Thank you, Vlad. Let me start by congratulating Wybof on his appointment as CFO. Wybof is a trusted partner, and I forward to working with him as we execute on our AI driven growth strategy. I'm also excited about our extended partnerships with NICE, as well as AT and T broadening their portfolio with additional products from Incentral. Both of these developments represent new opportunities for Incentral, and I look forward to working closely with each of these partners.

Kira Makagon
Kira Makagon
President & COO at RingCentral

At Essential, we're not just adapting to this new era of AI. We are shaping it. Our AI first platform is redefining customer communications by enabling smarter, faster, and more intuitive interactions. Our priorities are to extend our leadership in voice with AI and expand our AI powered customer experiences. Let's start with AIR.

Kira Makagon
Kira Makagon
President & COO at RingCentral

AI receptionist has seen strong momentum now used by over 3,000 customers, tripling the number since our last earnings report. The rapid adoption is driven by its core value proposition. AIR leverages powerful AI to ensure no important call is missed, yet it's very easy for everyone to deploy and use regardless of their technical expertise. Today, as part of our AIR Everywhere announcement, we launched new capabilities. AIR Everywhere brings AI powered call handling beyond Ring EX to third party telephony systems, both on premises and cloud.

Kira Makagon
Kira Makagon
President & COO at RingCentral

Additionally, RingCentral AIR now includes appointment booking with Google Calendar and Microsoft Outlook and supports British and Australian English, Spanish, and French to cater to a wider customer base. RingCentral Air will also be available in UK and Australia later this quarter. The top vertical categories where AIR is seeing the most traction include healthcare, professional services, construction and real estate, financial services, and retail. For example, by leveraging AIR, Access Mental Health grew new patient intakes by 60 resulting in projecting 1,700,000.0 in incremental revenue. And AIR success is not limited just to our golden verticals.

Kira Makagon
Kira Makagon
President & COO at RingCentral

The Detroit Pistons are an early adopter and they expect to see significant improvements in their customer support response time. I am excited about where we are taking AIR next. It represents a foundational step toward our vision for agentic AI, enabling businesses to deploy multimodal AI agents that can reason, act autonomously, and drive outcomes. Now let's talk about DreamSense. DreamSense improves business outcomes by using AI to analyze conversations, score calls, identify coaching opportunities, and deliver performance insights across both employee and customer experiences.

Kira Makagon
Kira Makagon
President & COO at RingCentral

We now have more than 3,600 customers using InSense, up from 2,800 last quarter, reflecting solid sequential growth and customer demand. As an example, Endeavor Capital, a leading financial services company, saw a 40% increase in sales using RINCENSE. They saved fifty hours per agent monthly through AI generated follow-up emails and boosted contact center visibility by 100x. This is a clear example of how InSense is driving both efficiency and performance. InSense also transformed operations for books on windows and doors, cutting 600 of mail call listening down to minutes and enabling 100% analysis of customer interactions.

Kira Makagon
Kira Makagon
President & COO at RingCentral

We are making AI central to how businesses serve their customers, and is at the heart of that strategy. Our native AI first contact center, DreamCX, helps businesses engage customers across any channel and create immersive agent experiences. Customers are choosing DreamCX for its powerful AI features, rich omni channel capabilities, and numerous integrations. One example of a key integration we introduced this past quarter is the newly launched Ring CX for Salesforce Service Cloud Voice, which empowers businesses to deliver a unified and streamlined experience for agents by integrating RingCentral's digital channels and voice capabilities into Salesforce. In Q2, we surpassed 1,200 Ring CX customers.

Kira Makagon
Kira Makagon
President & COO at RingCentral

And once again, half of our $1,000,000,000 plus TCV deals included Ring CX, underscoring strong demand. One standout customer win this quarter is a leading restaurant chain with eight fifty locations across The US. They selected DreamCX with our AI quality management solution and thousands of DreamCX seats as part of their digital transformation. With their ambitious growth plans, we are proud to be their customer communication platform of choice. Another great example is a top private university already using GreenGeX to support 5,500 employees and 35,000 students.

Kira Makagon
Kira Makagon
President & COO at RingCentral

They recently added GreenGeX to modernize their contact center and are already seeing 52% perceived cost savings compared to their previous provider, alongside new operational efficiencies driven by AI. In the second quarter, the rapid innovation of Lean CX continued. We launched the controlled availability of customer journey analytics, providing real time visibility into full customer journeys across Ring EX and Ring CX, a key capability in delivering unified experiences. We also made AI agent assist generally available. For example, Claim Solutions Inc reduced call handling time by 50%, doubled agent productivity, and improved first contact resolution by 35%, all driven by surfacing relevant knowledge based content in real time.

Kira Makagon
Kira Makagon
President & COO at RingCentral

And with the beta of AI interaction analytics, we are enabling real time sentiment analysis and predictive CSAT, helping businesses understand customer satisfaction in real time and resolve issues quickly. To sum up, we're rapidly expanding our portfolio with many new AI capabilities. These allow us to deliver tangible outcomes for our customers and contribute to monetization for RingCentral. In closing, we're proud of the rapid AI innovation underway at RingCentral, and the real measurable success our customers are already seeing. As the leader in cloud business voice communications, we are in a unique position to apply AI to every customer interaction before, during, and after a call.

Kira Makagon
Kira Makagon
President & COO at RingCentral

We are supercharging voice with AI and delivering solutions like AIR, which give businesses AI powered customer experiences at scale. And we're just getting started as we execute on our vision of an agentic AI future. With that, let me hand it over to Vaibhav.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Thank you, Kira, and good afternoon, everyone. I'm honored to step into the role of CFO at RingCentral. Over the past nine years, I've had the privilege of working alongside an exceptional team as we have transformed into an AI powered multi product company. My tenure begins with RingCentral in a strong financial position, with approximately 2,600,000,000.0 in ARR, expanding margins, and record free cash flow.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

I want to thank Vlad and the board for the opportunity, and Abbe for his contributions. Before turning to the results, let me briefly outline my focus areas to support our priorities. First, drive sustainable profitable growth through our market leading UCaaS product, and scaling our CCaaS and AI based offerings through targeted investments in new product innovation. Second, expand margins and free cash flows through cost discipline, particularly in sales and marketing, AI driven operational transformation, vendor spend consolidation, and prudent stock based compensation management. Third, execute a balanced capital allocation strategy focused on debt repayment, share buybacks, and reducing share count.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

These focus areas support continued growth in free cash flow per share, while positioning the company for long term value creation. With that, let me turn to our Q2 highlights. We delivered solid results and executed well across our key metrics. Total revenue was $620,000,000 up 5% year over year, and at the high end of our guidance. Subscription revenue grew 6% to approximately $600,000,000 and ARR increased 7% to approximately 2,600,000,000.0 We have a number of growth drivers that contribute to our top line growth.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

As Vlad noted, our small business customers and GSPs continue to drive above market growth and healthy unit economics. Our new products are contributing to overall growth, reflecting strong execution of our AI led multi product strategy. Now, moving to profitability. Subscription gross margin remained strong at over 80.5%. Operating margin was 22.6%, above the high end of our guidance, up 160 basis points year over year.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Second quarter non GAAP EPS grew 16% to $1.06 per diluted share. We continue to generate year over year margin expansion, driven by continued spending discipline and focus on operating efficiencies. Sales and marketing expenses as a percent of total revenue declined 170 basis points to 37.8%, reflecting continued improvements in GPM efficiencies. We reduced SBC by four fifty basis points year over year as a percent of revenue, with net new grants down 45% in the first half. As a result, we achieved positive GAAP operating income for the fourth consecutive quarter, and also delivered positive GAAP net income.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Overall, we view expanding operating margins in conjunction with reducing stock based compensation, as both ultimately driving higher free cash flow per share. In Q2, we generated $144,000,000 of free cash flow, up 33% versus last year. This was driven by continued focus on efficiency and working capital optimization. Free cash flow per share was $1.57 per diluted share, up 37% year over year. Moving to our balance sheet and capital allocation.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

From a capital allocation perspective, we repaid $105,000,000 of our debt, bringing the remaining gross debt down to $1,270,000,000 and net debt to 1,100,000,000.0 Our net leverage is now at 1.8 times. With our strong free cash flow and access to capital, we have sufficient liquidity to meet our near term and long term obligations. Both Fitch and Moody's recently upgraded our credit ratings, recognizing our improving leverage and free cash flow profile. We believe that share repurchases continue to provide an attractive relative return. In the 2025, we have repurchased a total of approximately 3,000,000 shares under previously authorized plans.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Given our strong financial profile, the Board has now increased our total buyback authorization to $500,000,000 Improving free cash flow per share is a key priority for us. With our strong performance in the 2025, we are raising our full year free cash flow outlook to $515,000,000 to $520,000,000 or a 20.5% margin, 50 basis points above prior guidance. We are also improving our stock based compensation outlook to $285,000,000 to $295,000,000 which is 11.5% of revenue, down 50 basis points from prior guidance. Of note, we remain disciplined in our stock grants. Our annual grants this year are expected to be approximately $150,000,000 or 6% of revenue.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

We expect for overall SBC to trend lower over time towards these levels, as the impact of the prior year grants rolls off. We are reducing our share count projections to 92.5 to 93,000,000 shares for 2025, down from our previous guidance of 93.5 to 94,500,000.0 shares. Our free cash flow per share for 2025 is now expected to be approximately $5.54 to $5.62 per diluted share, which is up 31% year over year at the midpoint. Now, moving to guidance. For the full year 2025, we are reiterating our prior guidance for subscription revenue, total revenue, and operating margins.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Raising our full year free cash flow outlook to $515,000,000 to $520,000,000 improving stock based compensation range to $285,000,000 to $295,000,000 raising non GAAP EPS to $4.2 to $4.32 per diluted share, based on 92,500,000.0 to 93,000,000 shares. For the third quarter, we expect subscription revenues of $611,000,000 to $619,000,000 with year over year growth of 5% to 6%. Total revenue of $631,000,000 to $639,000,000 with year over year growth of 4% to 5%. Non GAAP operating margin of approximately 22.6, up 160 basis points year over year. Share based compensation range of $72,000,000 to $78,000,000 Non GAAP EPS of $1.06 to $1.08 based on 93,000,000 fully diluted shares.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

In summary, let me conclude with key takeaways. We delivered strong Q2 results and are executing well on our key priorities. We continue to lead in business voice with mission critical products, serving over 500,000 customers, while gaining strong traction in our AI led product portfolio, which are contributing to growth, expanding our TAM, and increasing wallet share. We believe we have the building blocks in place for sustainable long term growth. We are making solid progress on expanding margins, generating record free cash flows, and meaningfully reducing SBC.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Our strong profile gives us the flexibility to reduce debt, return capital through share repurchases, and invest in innovation. Year, we expect to deliver over $5.5 in free cash flow per diluted share, which is a compelling yield for our shareholders. Overall, we have the foundation for long term sustainable and profitable growth, and I am truly excited about what lies ahead. With that, let's open up the call for questions.

Operator

Thank you. We will now conduct a question and answer session. You may press star two if you would like to remove yourself from the queue. Indicate your line is first question comes from Marshall with Morgan Stanley. Please proceed.

Jamie Hanfling
Jamie Hanfling
Vice President at Morgan Stanley

Hey, this is Jamie on for Meta. I appreciate you taking the question and congrats on the quarter. I think maybe just start off, it'd be great to just get any additional color you can provide as to how the renewed agreement with Knight kind of compares to the legacy arrangement.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Hi, Vlad here. Thanks for the question. Look, it's an extension of that original agreement. We've been doing business for a good number of years, I think, what, six plus years, something like that. And I know that there was a bit of noise in the community about the partnership kind of turned to end.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

That is clearly not the case as we've been flagging all along. To be clear, that original agreement, it never expired. We were still engaged and doing deals and upselling customers, signing up some new deals. But we hope that with this new development, it dispels all kinds of myths and hearsay about where this is going. As I think we said in the prepared remarks, it is an absolutely unique integration, unique in the industry to this day between two clear leaders in our respective segments, RingCentral for UCaaS and NICE inContext for CCaaS.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

They are extremely well received throughout, but especially in higher end enterprises with more complicated needs. And their combination with RingCentral just continues this product, which was really very, very successful since the get go. I believe our first integration actually even predates NICE's acquisition of inContact, and it has done even better under NICE ownership. We're very optimistic. We think that there is a long runway ahead.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And like I say, it continues to be well differentiated and a very strong choice for enterprises who are looking to combine their telephony UCaaS and their customer engagement CCaaS needs under one umbrella.

Jamie Hanfling
Jamie Hanfling
Vice President at Morgan Stanley

Great. Thank you so much. I'll jump back in queue.

Operator

The next question comes from Kash Rangan with Goldman Sachs. Please proceed. Cash, your line is line.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Hi. Thank you. Sorry about that. Blayne, I'm just wondering if you could talk about what's driving new product traction at RingCentral, one for you. Why Bob? Congrats on becoming CFO. Free cash flow generation has been already quite robust. How do you see the sustainability of this going forward?

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Okay, I guess we'll do it in order, high cash. What's driving new products is outstanding demand, and the fact that we are a very strong leader in business telephony, and we are a very natural choice for people to go to when they are looking to start leveraging AI in their workflows. And if you think about it, RingCentral, we are as upstream as it gets in customers interacting with their business providers. We are the ones fielding that phone call, we are the ones terminating this text message. This is the two primary modes of communications between customers, consumers, and businesses.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And we are the ones that are the first line of defense. So it is very natural for us to be adding AI in the form of IVA or AI receptionists or a little bit down the line from that, conversational analytics, we are in a unique position to be able to AI ify the entire workflow before, during and after the call. And given our position in the industry, given our brand, the fact that now we have a pretty complete AI portfolio to ride on top of our well known platform, that is what's allowing us to grow these products double, if not triple digits quarter over quarter. And this is very early. Mean, it's just the beginning. There will be a lot more of that.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

And thank you, Kash. This is Bebov. Thanks for the congrats and debut question. So look, in terms of free cash flow, we are very, very proud of what we've delivered over the past three years. Free cash flow has increased five x over the last three years from a 100 to 500,000,000, and, you know, it comes with durability and sustainability.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

And here are some of the reasons why. Number one, we now have a track record of delivering improvements year over year. I guided to about over 500,000,000 in free cash flows today, which is 30% year over year. And the reason you are seeing the improvement is really due to the operating leverage in the business, you know, the strong gross margins that we have, and the continued cost discipline. And, also, you know, the quality of the free cash flows is improving as operating margins and free cash flows are now converging due to working capital efficiencies.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

And then the last point is we when we look at free cash flows, we also look at SBC in conjunction with that. And we've taken meaningful steps which I outlined in the prepared remarks around SBC, which combined with buybacks will result in a lower share count. So when you put all of these things together, our free cash flow guide for the year is now above $5.50, 30% up year over year, which is a very compelling return from a shareholder standpoint. So overall, I feel like we have a strong foundation to sustain and improve our free cash flows over time.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Thank you so much, Vlad and bye, Bhav.

Operator

The next question comes from Samad Samana with Jefferies. Please proceed.

Billy Fitzsimmons
Billy Fitzsimmons
VP - Equity Research & Enterprise Software at Jefferies

Hey, guys. This is Billy Fitzsimmons on for Samad. Maybe expanding on that free cash flow question. When I look at the guide, the thing that stands out to me is the reduction in SBC expenses that you just mentioned. And over the last couple of years, SBC as a percent of revenue has declined and is kind of continued to expect is continuing to decline.

Billy Fitzsimmons
Billy Fitzsimmons
VP - Equity Research & Enterprise Software at Jefferies

Can you just walk through some of the internal changes you've made to drive that reduction? And what's changed on that line specifically since you provided SBC guidance at the start of the year?

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Yeah. Thank you, Billy. This is Bebop. So I'll address that. Look.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Reducing SBC is a key priority for us, and I think we outlined that on the prior earnings call. And we've made a lot of progress on this over the years. You know, SBC as a percent of revenue has come down by almost half. It used to be around 20% of revenue. We are now tracking to about, call it, 11% based on the guidance we provided.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Look, the stock brands continue to be a key tool for us to incentivize employees, so we'll continue to use it, and we want to make sure that the employees interests are aligned with shareholders so it will be a key tool for us to incentivize people however having said that you know we remain disciplined in terms of our net new grant which in our prepared remarks I mentioned will be around 150,000,000 or about 6% of revenue. So as you know, SPC has two components. It has the tail from the prior grants, which were higher and granted at higher prices, and it has the impact of the in year grant. So over time, as the older grants roll off, our SBC run rate will increasingly reflect just the new brand activity significantly.

Billy Fitzsimmons
Billy Fitzsimmons
VP - Equity Research & Enterprise Software at Jefferies

Thank you. And if I could sneak in one more, there there was upside on second quarter revenue, but the full year revenue guide was kept flat. The guide implies kind of similar expectations for like similar expectations around kind of the subscription revenue dollars add in both 3Q and 4Q. So can you just level set for us what assumptions went into the back half guide? And what are you thinking around macro deal activity and renewals in the back half?

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Yeah. Look, in terms of the guide, there is no fundamental change in the overall philosophy or, you know, the approach, if you will. It's consistent with how we've guided in the past, which is we provide prudent guidance around the visibility that we have and based on what we know, but, you know, there are always of this size. So overall, look, from a q two standpoint, we had a good strong quarter. The business is fundamentally strong.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

We have a number of growth drivers. Vlad in his prepared remark had talked about SB and GSV growing in the double digits, so they are showing good demand trends. In terms of our enterprise business, you know, we continue to sign million dollar plus TCV wins. So when you take all of those things together and overlay some prudence on top of it, that's how we ended up on the guide. Overall, look, we reiterated the guidance on the top line while raising free cash flow and operating margins and reducing SVC in a material way.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

So overall, less feel good about the guidance range that we provided.

Billy Fitzsimmons
Billy Fitzsimmons
VP - Equity Research & Enterprise Software at Jefferies

Perfect. Thank you.

Operator

The next question comes from Peter Levine with Evercore. Please proceed.

Peter Levine
Managing Director at Evercore

Great. Thank you for taking my question and for the appointment of CFO. For Wag, maybe share with us, how are you thinking about Ring Connect? You know, again, you did allude to the fact there's a lot of noise in the market around the Ring tips, but obviously, that's that's not going away. So explain to us how are you gonna go to market with Ring CX?

Peter Levine
Managing Director at Evercore

How are your sales reps going to delineate between the Ring CX versus NICE? Just walk us through some of those items.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Yes. Hi, Peter. Yes. No, fair question. Look, it's actually not that hard.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And I think we've been fairly clear about this all along, but I'll reiterate. Look, there are different products, and they are fundamentally aimed at different audiences. So RCECC, NICE and Contact Based, it's a high end enterprise product, sky is the limit, no limit on the number of seats, best in class capabilities, to address any and every complicated use case one can think of. It's a roll choice of a product. And we perceive that our enterprise product is that for cloud PBXs.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And just now this quarter, we've announced Ryanair. I don't know about you all. I see the airplanes all the time in every airport in Europe we go to. So they're pretty big. Think they're largest in Europe.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And this top 10 bank, which is a household name, I wish I could tell you the name, but what did we say, 10,000 plus seats. So we know we can scale up. And we know firsthand that in many of those cases, people actually have a preference of purchasing from a single vendor. And there does not exist a single vendor on the planet today that has its native, both high end Rolls Royce UCaaS and Rolls Royce CCaaS homegrown today does not exist. So this is the next best thing, and there is nothing else even remotely close, Okay?

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

No other pair of vendors have anything like this level of integration, starting for the covering entire customer journey, sign up, billing, care support network, etcetera. That's where CC is, okay? CX is a wonderful product. It does really, really well, but it is fundamentally aimed at smaller and simpler use cases, okay? It will most likely always have more logos, but much lower average agent count than CC.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And we know that in certain cases, you can have a very large company that is a good match for CX. But as they exist, and we've noted some wins with those, but they're rather specific. It's not kind of your it's not right down the middle, which CC, Sonae's and Content, they cover the whole gamut. And CF just scales well way more down, more self serve, AI native product. And guess what, even a better integration with RingCentral with Ring EX than anything else.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

So that's how it's going to bifurcate. We think that there is absolutely room for the two to coexist. And hopefully, we'll be proven right. We know we were able to grow both very effectively until people started kind of questioning the partnership. Hopefully, that's getting resolved as of today, and the channel will be reactivated, we have we're pretty optimistic on both fronts.

Peter Levine
Managing Director at Evercore

Thank you for the color. And maybe just one for you is, if you're thinking about the durability of growth here longer term, how sustainable would you call mid single digit growth with increasing profitability? Maybe walk us through your mindset in terms of managing growth versus profitability. Are you more focused on kind of sustaining growth here that low to mid single digits and just really focused profitability. Just maybe walk us through, give us kind of like a framework to think about the model here longer term if you can, please. Thank you.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Yes, I think in terms of the framework, we are a growth company, so we'll continue to grow and there are multiple growth drivers that are durable. So in the UCaaS space, look, we continue to be the market leaders with steady market share. There are pockets of the business like SMB and GSPs that are growing in the double digits. And in terms of our enterprise space, we are continuing to add million dollar TCV wins. We are adding logos at a decent clip as customers move from on prem to the cloud.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

In addition to that, our new AI products are now gaining traction. So Vlad and Kira in their prepared remarks talked about the multi product portfolio and the strong traction that we are seeing there. Our new products combined are growing in the double digits, and we are well on track to hit the $100,000,000 target by the end of the year that we had laid out. So in my mind, these will all be drivers for sustainable long term growth. In terms of profitability, the framework that I called out in my prepared remarks was to continue to expand both free cash flow as well as operating margins.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

And that will come from two places. They'll continue to be operating leverage in the business, plus we'll be disciplined in terms of our cost management. So together, we will continue to be on that path of margin and free cash flow expansion. And then when you take that together with SBC reduction and share count dilution, our goal is to maximize free cash flow per share, which we think is a key metric to track for shareholders on a go forward basis.

Peter Levine
Managing Director at Evercore

Thank you very much.

Operator

The next question comes from Catherine Trebnick with Rosenblatt. Please proceed.

Catharine Trebnick
Senior Research Analyst at Rosenblatt Securities

Hi. Two quick ones. One, last quarter you noted Microsoft grew 30% year over year. You talked today about Ring CX now piece of it. Can you talk about the size of the deals that you're seeing through the Microsoft partnership? Thank you.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Yeah. So I'm not sure how you got Ring CX in there. We have an integration with Microsoft Teams. We use, a number of APIs that they provide, and we actually have a very good integration. Our embedded client, their terminology, make it seem quite seamless for a Teams user to be using RingCentral's capabilities, which are meaningfully over and above what Microsoft Phone provides.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

It is strong double digit growth, and it's aimed look, it's aimed at larger enterprises, but by the token that most of Teams, they skew larger. So SMB customers, there is meaningfully less Teams usage, so there we will spend alone. But I think we know that half of our enterprise deals include this integration, and it's a big differentiator for us, it's a good asset. So that will continue.

Catharine Trebnick
Senior Research Analyst at Rosenblatt Securities

All right. The follow on quick question is, with this knocking down some debt, what's your capital allocation strategy going forward? Are you looking to do some more acquisitions? How are you planning to or are you planning for some of the cash you have? Thanks.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Yes. Thank you, Catherine, for the question. So look, in terms of capital allocation, the benefit of generating over $500,000,000 in free cash flow is that we'll have a lot of flexibility and we can be opportunistic. So we I laid out in my prepared remarks that we'll continue to look at delevering the balance sheet and strengthening our profile. The case in point in Q2, paid about $100,000,000 of debt.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Our net debt is already at $1,100,000,000 now. So we'll be opportunistic about paying down the debt and we'll strive to get it to under $1,000,000,000 Our net leverage is already improving, it's under 2x and this past quarter given the strength of our EBITDA margins, which is growing in excess of revenues and the net debt position, both Fitch and Moody's upgraded our ratings. So we are now one notch below investment grade, which was a pretty good outcome for us. I continue to feel that at these current stock prices, stock buybacks will continue to be an attractive opportunity for us. So we will continue to on our stock buybacks under our current authorization.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Also our board given the strength of our financial profile increased our stock authorization to $500,000,000 The other uses of cash would of course be we'll continue to invest in innovation. You heard Vlad talk about us spending a $0.02 $5,000,000,000 in R and D. A lot of that is going towards new products, which is where we are seeing good traction and which will be an important growth driver for us. And then from an M and A standpoint, we will also be allocating capital there to the extent we have assets or opportunities that kind of make sense. So I think overall it'll be our approach will be flexible, we'll opportunistic based on the return on investment.

Catharine Trebnick
Senior Research Analyst at Rosenblatt Securities

Thank you very much.

Operator

Thank you. Our next question comes from Michael Funk with Bank of America. Please proceed.

Michael Funk
Michael Funk
SVP at Bank of America

Yes. Thank you for taking the questions. I wanted to go back to the NICE and the AT and T extensions and whether or these signal a strategic shift for you in terms of your your go your go to market? I've gained some feedback. I apologize.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Well, look, both, like you say, both are extensions. So I don't know that it signifies, strategic shift, but let's take them one by one. So with NICE inContact, we've just regained a tool that we've had for a number of years that we knew was a very powerful tool, which is this combined high end UC, CC combo. And again, to reiterate, we were always under contract and within our rights to continue selling that product. But given all of the noise and fad in the market, frankly, it was hard to convince people that this product has lagged.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

Now it's a multiyear extension. You're hearing it from me directly that we consider this to be a strategic relationship and are very happy for it to continue. We think that there is a lot of juice still left in that bucket. And hopefully, you'll hear the same from Scott and their management team. So a little bit Back to the Future on NICE and CONTACT.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

As far as far as AT and T, look, it's very momentous. AT and T has been a strong partner of ours for about a decade, if not more. I think that's unique, certainly for us, but maybe even for AT and T. I don't want to speak for them. And the fact that they're choosing to extend their engagement with us, but by now offering our newer products into their portfolio is hugely significant.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

AT and T is obviously one of the top brand names globally. It's a major shareholder in US telecom, but it's not just US. And it's a wonderful channel, wonderful brand. And now they chose our technology to bring their customer base into this new era of AI. So this is Momentous.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

It's not necessarily a change in our GTM, but certainly, we hope it will open up major opportunities for our new products, which, you know, as we all know, include Ring CX, RingSense, and, you know, hopefully, others as they mature.

Michael Funk
Michael Funk
SVP at Bank of America

And just more more specifically, Vlad, when I met with John Stankey recently, he highlighted they wanna actually lean in a little bit harder to SMB. They felt they've given up market there too much in the last few years. So as part of the agreement, will this be more of a push by AT and T and their Salesforce, incorporating your functionality? Or will it be an add on where a customer can elect it but one that's probably part of the core offering? And then final question, if I could, please.

Michael Funk
Michael Funk
SVP at Bank of America

Can you call out any FX benefit or maybe just isolate the constant currency growth during the quarter? And then what you have in your expectations for the remainder of the year for FX, just given the movements in the rates recently?

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

I'll take the first part of the question. Look, as far as AT and T's GTM philosophy or tactics, you have to ask them. I can tell you that it's a deal that we believe is a fair deal. Everyone wins. It's good for us, it's good for AT and T financially.

Vlad Shmunis
Vlad Shmunis
Founder, Chairman & CEO at RingCentral

And of course, it's very good for the customer because remember, these products are about saving people time and money and saving leads and letting calls not drop on the floor, but instead, resolving positive business outcomes. How exactly they're going to do and package it, you would need to talk to them directly. But what John said about them wanting to regain a bit of share in SMB, certainly, we could not be happier to hear that, because it is definitely a strength of us and our offering. Okay? And Weibos will take the rest of the question.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

Yes. In terms of FX, look, there was some benefit in the quarter, nothing meaningful. So nothing specifically to call out there. Overall, look, we had a good strong quarter. We had sales bookings coming in at a healthy clip.

Vaibhav Agarwal
Vaibhav Agarwal
CFO at RingCentral

And overall, we called out the strength of the business in terms of SPs and GSPs growing in the double digits. So overall, we ended strong and reiterated our guide for the year.

Michael Funk
Michael Funk
SVP at Bank of America

Great. Thank you both very much.

Operator

Thank you. At this time, we have time for one more question. The next question comes from Brian Peterson with Raymond James. Please proceed.

Analyst

Hi, thanks for taking the question. This is John on for Brian. On the AIR receptivity there, it's great to hear about the early success with AIR, and I know it's still really early. And you've gotten to some of the prepared remarks, but just curious where you're seeing the most success so far. It sounds like larger customers are really the early adopters there, but are you also seeing positive adoption across mid market and SMB?

Analyst

Sort of said in another way, is AIR adoption running how is it running versus expectations across customers of various sizing? Thanks.

Kira Makagon
Kira Makagon
President & COO at RingCentral

Hi. This is Kara. Look, I think the rate of adoption is very positive and going from 1,000 to 3,000 in a short period of time, just customers, indication of strong demand. In terms of customer cohorts and how they're buying, a lot of the customers are buying actually smaller customers with some very large customers buying as well. The use cases are all similar in a way that it's routing calls.

Kira Makagon
Kira Makagon
President & COO at RingCentral

It's essentially taking for writing it was this digital employee that takes never misses a call. And this is of all sizes need that, especially acute when you're a small business and you need a receptionist and you just don't have one, or you have after hour calls and nobody to mind the shop. In the large businesses, the use cases that we see have to do more with routing calls and figuring out across the organization without having complex IVR rules to be imposed the middle of the flow. And the value is the same. Essentially, it saves you cost, it increases your opportunity for monetization of those incoming calls, It also controls spam.

Kira Makagon
Kira Makagon
President & COO at RingCentral

And it's a much better customer experience across the board. The reason customers are adopting this so easily is because it's really fit to purpose. You don't have to have a complex implementation, Don't have to have technical expertise. Any size, no IT required. You can get going by essentially configuring it for a specific use case.

Analyst

Thank you very much.

Operator

Thank you. At this time, I would like to thank everyone for joining the teleconference. You may now disconnect your lines, and have a great day.

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