RingCentral Inc (RNG) 2017 Q2 法說會逐字稿

Greetings, and welcome to the RingCentral Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Paul Thomas, Senior Director of Investor Relations for RingCentral.

Thank you, Mr. Thomas.

You may begin.

Thank you.

Good afternoon, and welcome to RingCentral's Second Quarter 2017 Earnings Conference Call.

I am Paul Thomas, RingCentral's Senior Director of Investor Relations.

Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Dave Sipes, Chief Operating Officer; and Mitesh Dhruv, Chief Financial Officer.

Our format today will include prepared remarks by Vlad, David and Mitesh, followed by Q&A.

Some of our discussions and responses to your questions may contain forward-looking statements.

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.

RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call.

I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our earnings release, slide presentation, our non-GAAP to 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 on our Investor Relations website.

With that, let me turn the call over to Vlad.

Good afternoon, and thank you for joining our second quarter earnings conference call.

We delivered another strong quarter of results, highlighted by continued industry acceptance of our unique collaborative communications platform.

Overall revenues for the quarter grew to $119 million, up 30% year-over-year.

This was driven by strength in mid-market and enterprise, supported by breakout growth from our channel partners.

Our mid-market and enterprise segment continues to surge.

It is now $131 million annualized business, up 80% year-over-year.

This quarter, we closed 7 deals, over $1 million in total contract value, up from 6 last quarter and 5 in the fourth quarter of 2016.

This quarter's large deals included a $5 million TCV with a Fortune 1000 global retailer and wins with Marketo, ExtraSpace Storage, Pacific Dental and ChenMed, amongst others.

From an industry perspective, the struggles of legacy on-premise systems vendors are becoming well documented.

They're either struggling financially like Avaya or consolidating like the recent announcement from Mitel and ShoreTel.

The legacy systems simply cannot effectively meet the communication and collaboration needs of a mobile and globally distributed workforces.

The customers are taking notice.

So far, the data from Synergy Research Group indicate that legacy on-premise unified communications providers saw a high single-digit decline in year-over-year revenue.

At the same time, cloud-based solutions saw double-digit gains, with RingCentral growing at approximately double that rate.

Within the cloud segment, Synergy recognized RingCentral as the #1 worldwide market share leader with 19% of the UCaaS market.

RingCentral was the largest market share gainer over the last year in the UCaaS segment.

The data clearly shows we are now pulling away from competition.

In addition to Synergy, we also received 4 other industry recognitions this quarter.

This included Infonetics who ranked RingCentral as the leader in its 2017 North American UCaaS Scorecard.

Put simply, cloud is winning, and RingCentral is winning in the cloud.

Fundamentally, we are winning because of our core differentiators.

One, our industry-leading open platform with broad integration capabilities; two, our unique integrated communications and collaboration capabilities; three, our superior mobile first user experience; and four, our extensive global coverage.

No other competitor provides all these capabilities in a single, integrated, open collaborative communications platform.

This gives us a strong position as a massive installed base of legacy on-premise systems shifts to the cloud.

Our broad platform enables our customers to replace multiple products and services from vendors like Cisco, Avaya, WebEx, Slack, Five9 and others with a single unified solution from RingCentral.

As the market shifts, reseller channel partners that previously only sold legacy on-premise systems are increasingly switching to selling cloud solutions.

In Q2, we saw a significant increase in new business from these channel partners, now contributing 85% of the total indirect bookings mix, up from about 40% a year ago.

In addition, we signed 3 more of Avaya SKU resellers, and we are in active conversations with many more.

With our differentiated offering, our growing enterprise opportunity and momentum with our channel partners accelerating, I feel confident in achieving our $1 billion target by year 2020.

Now for some additional color, I will pass it over to our COO, Dave Sipes.

Thank you, Vlad.

We had another great quarter led by our mid-market and enterprise segments and supported by significant momentum in our indirect channel.

As Vlad mentioned, our open platform with integration capabilities, unique collaboration tools and our global coverage continue to help us win key deals.

Our enterprise segment had a strong booking quarter.

Enterprise bookings tripled from a year ago, and the enterprise pipeline has grown even faster.

Our channel partners this quarter delivered 4 of our 7 largest deals.

Bookings from our channel partners, again, grew over 100% year-over-year.

As legacy vendors continue to struggle and channel partners continue to shift towards cloud solutions, we anticipate continued success working with our partners.

This quarter, we won a $5 million TCV with a Fortune 1000 global retailer.

This is just one example of our success in the enterprise segment with channel partners.

The customer needed to replace legacy on-premise Avaya systems and evaluated many alternative legacy vendors and other cloud competitors.

They chose RingCentral because of our unique global capabilities, our open platform enabling easy integration with their existing applications and our ability to deliver an integrated contact center solution.

The customer is deploying our solution across the retail and corporate offices globally, totaling over 5,000 users.

Another example from our large deal wins is ExtraSpace Storage, the second-largest operator of self-storage facilities in the U.S. Their employees needed a mobile solution so they could move around their facilities and still remain available to customers.

They also needed collaboration capabilities that would help employees stay efficiently connected to managers.

Additionally, they wanted a capability to centrally administer the solution for their large and growing footprint of locations.

ExtraSpace Storage is deploying RingCentral across the U.S. footprint, reaching 3,000 users.

We also had other large wins where our integrated collaboration capabilities and our office product was key to winning.

For example, Pacific Dental Services, one of the largest dental service companies in America, was looking for communication solution for 500 U.S. locations right across 17 states.

Interestingly, Glip collaboration became the primary communication vehicle during the sales cycle.

When fully ramped, Pacific Dental Services will have 4,000 RingCentral Office users.

Our contact center against our strong quarter of adoption as customers overwhelmingly choose an end-to-end solution with best-in-class capabilities.

ChenMed, a recently announced takeaway from a cloud competitor, added over 300 contact center seats to their 1,900 office seats.

The advanced routing, queuing and call distribution of contact center closely integrated with RingCentral Office helps ChenMed deliver better patient services.

This integration enables a seamless experience that keeps help desk agents connected with customers and other employees across the entire enterprise.

In addition to winning large deals upfront, we continue to seed land-and-expand opportunities for customers initially subscribed for only a portion of their total employee base.

For example, this quarter, we won a 400-user deal with a major media and entertainment company, which has a total base of over 13,000 employees, creating a significant future upsell opportunity.

To extend our competitive lead, we continue to invest more than twice as much in our platform and products compared to our nearest competitor.

These investments are bearing fruit.

For example, we recently launched RingCentral Live Reports, an add-on capability to office, which enables customers to monitor, in real time, the service quality being delivered to their customers.

Live Reports is already seeing traction in the marketplace.

This quarter, Carvana, a leading e-commerce automotive platform, added 500 licenses of Live Reports to its existing 700 office users.

We also launched Business MMS, enabling customers to send and receive images and multimedia files from the RingCentral business number.

This capability is unique among our largest competitors.

On the service provider side, we expanded our relationship with TELUS Canada with the release of TELUS Business Connect Mobile, which brings enterprise-grade communication capabilities to smartphones and tablets.

In summary, Q2 was a great quarter.

With our strengthening product advantages and momentum in enterprise and channel, we are well positioned to extend our market leadership.

Now to discuss our financial results, I will pass the call over to our CFO, Mitesh Dhruv.

Thanks, Dave.

Good afternoon, everyone.

Before I begin with the results, I want to ask that you refer to the slide deck posted on our IR website, which will help summarize the key points in our call today as well as provide some supplemental information.

Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons.

A reconciliation of GAAP to non-GAAP results was provided with our earnings press release issued earlier today and the slide deck posted on our IR website.

Q2 was another great quarter for RingCentral.

We delivered total revenue and operating margin above the high end of our guidance range, along with year-over-year improvements in EPS.

In Q2, our software subscription revenue grew 28%.

Normalizing for the decrease in AT&T sales, consistent with our expectations, our core subscription revenue growth rate was 31%.

Total annualized monthly recurring subscriptions, or ARR, grew to approximately $478 million, up 31% year-over-year and up 6% sequentially.

ARR for RingCentral Office grew to approximately $399 million, up 37% year-over-year and up 7% sequentially.

This was at the high end of our expectations outlined on our last call of between 6% and 7% sequentially.

Underpinning our growth rate was strong momentum in our mid-market and enterprise execution.

As Vlad mentioned, our mid-market and enterprise segments combined are now over $131 million business and grew 80% year-over-year.

These segments represented around 50% of our new sales for RingCentral Office, up from 45% last quarter.

Many investors ask how our mid-market and enterprise revenues compare if we were to cast it as customers with over 1,000 MRR.

By that measure, our mid-market and enterprise business is now approximately $165 million business and grew over 60% year-over-year.

Our indirect business contributed 28% of ARR in Q2.

It showed sequential improvement as we were able to offset AT&T headwinds with strong contributions from the channel partners.

In Q2, these channel partners delivered record bookings, which more than doubled year-over-year.

As Vlad mentioned, these bookings now represent more than 85% of our total indirect bookings, up from 40% a year ago.

Now this shift has positive impacts to our financial model.

On spend, upfront sales and marketing expenses are lower as channel partners are mostly compensated on a recurring basis after a transaction.

This also helps lower churn as channel partners are incentivized to help regain the customer, resulting in about 40% lower gross churn compared with our direct deals.

Moving to the income statement.

Total revenue for the second quarter was $119 million, up from $92 million in 2Q a year ago, representing 30% year-over-year growth, adjusting to the direct phone sales model resulted in a 3-point tailwind to our total revenue growth in Q2 but had no impact on our subscription growth rate.

Software subscriptions gross margin was over 81%, amongst the best-in-class SaaS companies.

This is consistent with last quarter and represents over 1 point of improvement year-over-year, demonstrating the leverage inherent in our model.

Total gross margin was 76.2%, down 50 basis points year-over-year.

On a comparable basis, adjusting for the change to the direct phone sales model, total gross margin would have been 140 basis points higher.

Sales and marketing expenses were about $57 million for the quarter or 48% of revenues.

This was up from 47% in the second quarter a year ago and down from 49% last quarter.

The decline from Q1 was due to seasonality of certain expenses.

Now let me double click on sales and marketing.

Our investment focus is in the mid-market and enterprise segments, which have positive long-term impacts to the business models.

Mid-market and enterprise customers have roughly half the gross churn rate versus small business customers.

Also, penetrating large accounts seeds our land-and-expand pipeline.

In Q2, over 40% of our new office business came from existing customers.

The combination of these 2 effects results in higher overall net retention.

In fact, our annualized net retention for our mid-market and enterprise business exceeds 125%, underscoring the significant opportunity we are capturing.

Continuing down the income statement.

R&D expenses were $16 million for the quarter or 13% of revenues, down from 16% in Q2 a year ago and roughly flat with last quarter.

G&A expenses were $15 million for the quarter or 12% of revenues, roughly flat with Q2 a year ago and last quarter.

G&A expenses include investments in our systems to support our future growth rate, and we expect to see more leverage over time.

Now as we continue realizing leverage, our operating profit was $3.5 million, resulting in an operating margin of 2.9%, above the top end of our guidance range of 2% to 2.5%.

This is up from 1.9% in both Q1 and the year ago quarter.

Net income improved to 2 -- $3.6 million compared to $1.5 million in Q2 of last year and $2.1 million last quarter.

EPS was $0.04, at the high end of our Q2 guidance of $0.02 to $0.04.

Share count was 82 million fully diluted shares.

On a GAAP basis, our Q2 net loss was $7 million or a loss of $0.09 per share.

The difference between our GAAP and non-GAAP results was $0.13 per share, primarily driven by stock-based compensation.

We ended Q2 with cash and short-term investments of $167 million compared to $150 million at the end of Q1.

Free cash flow was $3.2 million in Q2, up from $1.9 million in Q1.

Now guidance for the third quarter.

We expect software subscription revenue of $116 million to $117 million or an annual growth of 26% to 27%.

We expect total revenue of $125 million to $127 million or an annual growth of 29% to 31%.

Adjusted for the direct phone sales model, growth would be 3 points lower.

We expect non-GAAP operating margin of 2.5% to 3%.

We expect non-GAAP EPS of $0.03 to $0.05 based on 83 million fully diluted shares.

The difference between our Q3 GAAP and non-GAAP EPS is expected to be approximately $0.13, mainly due to stock-based compensation.

This excludes any effects from currency remeasurement, which is difficult to forecast.

Now moving to our outlook for the full year 2017.

We are raising our software subscription revenue guidance to $453 million to $457 million or an annual growth of 27% to 28%.

This is up from a prior guidance of $450 million to $456 million.

We are raising our total revenue guidance to $489 million to $496 million or an annual growth rate of 29% to 31%.

This is up from a previous guidance of $486 million to $494 million.

Adjusted for the direct phone sales model, growth will be 3 points lower.

We are raising our non-GAAP operating margin to 2.8% to 3% from our prior range of 2.5% to 3%.

We are raising our non-GAAP EPS guidance to $0.16 to $0.18, up from $0.14 to $0.18 previously.

This is based on fully diluted shares of 82.5 million.

The difference between our 2017 GAAP and non-GAAP EPS is expected to be $0.53, including $0.51 of stock-based compensation and $0.02 of amortization of intangibles and other items related to Glip acquisition.

This excludes any effects of currency remeasurement, which is difficult to forecast.

We are raising our free cash flow guidance to $10 million to $14 million, up from $8 million to $12 million previously.

Now for some perspective on our long-term business model.

On our last earnings call, we discussed the rule of 40, which is a sum of revenue growth plus free cash flow margin, adding up to at least 40%.

Our goal is to deliver results that meet or exceed that benchmark when we reach our $1 billion target.

The levers for this come from several vectors: number one, scale in various facets of our business; number two, leverage from higher RAM percentage of upmarket sales force and expanding contribution from our channel partners; and third, improved churn and upsell from an increased mix of upmarket and channel within the installed base.

With these drivers in place, we are confident in our ability to deliver a healthy balance of revenue growth and margin expansion over the long term.

One final note before moving on to Q&A.

We would like to invite our investor community to attend our second annual user conference, ConnectCentral, on October 24 and 25 in San Francisco.

The event is focused on educating and empowering our customers, prospects and partners and will feature some exciting guest speakers.

Looking forward to seeing you all there.

With that, I'll turn the call over to the operator for Q&A.

(Operator Instructions) Our first question comes from the line of Bhavan Suri with William Blair.

Mitesh, actually, thank you for the incremental operating metrics and for the clarity on some of op drivers of business, especially given it's top of mind for almost every investor conversation I had, so appreciate that.

I want to focus on one, really, that you broke out for the first time because the net dollar retention rate in your mid- and enterprise markets of about 50 seats.

That's pretty strong, 125% as sort of at the high end of what you see in SaaS.

And given sort of, when I think about communications and deployment and broad-based deployment, I guess, what are the drivers that strengthen this?

And sort of how does it bode for the fourth -- what are sort of the longer-term implications for the model given this metric?

Sure, Bhavan.

So thank you for the question.

It's a good question.

We do get this question quite a lot in terms of what would be the implications of upmarket momentum.

So to answer your question, the drivers behind the annualized net retention of 125% are twofold: number one is gross dollar churn; and number two is our land-and-expand, and I'll give color on both those.

So on gross churn, if you look at the mid-market and enterprise customers, the gross churn rate is about half the rate of our SMB business, so that is driver number one.

And number two, on land-and-expand, about 40% of our new business this quarter came from the existing installed base.

That's another driver, which the mid-market and enterprise is pulling through.

And so if you look at an example, case in point, Dave in the script highlighted that there was a customer we signed up for about 400 seats, which is in the media and entertainment business in North America.

That customer has about 13,000 employees.

So if you can see the potential for deployment over the long period is thousands and thousands of seats.

So that's basically the impact and the drivers of this -- the main net retention.

Now if you look at the long-term implication, the bookings mix coming from these 2 segments is about half of our office new business.

So as these segments get more and more into the installed base, you should expect to see our overall net retention pork up as a result of that.

That's helpful, Mitesh.

And then one quick follow-up.

Obviously, you had a lot of success in the enterprise as you -- in the United States.

Just some color on how you're approaching the international opportunity.

I suspect your customers are thinking broadly internationally because these company are global.

But now given sort of you've got fidelity around the world, how is that playing out from an international expansion basis for RingCentral?

Yes, this is David Sipes.

We -- as you know, we launched our Global Office product 1.5 years ago, and we continue to see success there.

We have about 800 customers on that now at the end of Q2, up from 700 previously.

And we are also putting more go-to-market resources in our U.K. efforts and are -- with the launch of our European currency offer, are signing up partners, indirect partners in those countries that are allowing us to expand sales.

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

I'll echo Bhavan's comments.

Nice job here, guys.

My first question is for David.

Dave, it's great to hear about those large deals and sounds like the market is coming to UCaaS cloud, and you're there.

But are there any other things you need to do to prepare your go-to-market organization to address this enterprise opportunity?

It sounds like you're certainly capturing that today, but are there any other changes you have to make?

Or is it a matter of just scaling your organization as this business builds?

We've made a lot of those investments over the last 1.5 years in building a strong professional services and deployment teams that are critical and some of the expansion of the team and in building our premium technical support.

That supports the enterprise customers.

And what we're doing now is really a scaling both of the channel of the enterprise as well as our enterprise sales team, which has been growing according to plan, and we've been able to recruit very strong enterprise selves, and industry experts have been very pleased with the quality of the team we've been able to build there.

And through the end of this year, that team will be the size of roughly covering NFL cities.

And looking into future years, we're just scratching the surfaces.

There's going to be a lot more opportunity, both in the U.S. and internationally to grow those teams and scaling further.

So I think we have all the key components in place, and now it's really a function of scaling that.

Okay.

Okay, great.

That shows with some of these wins here.

I guess, my second question maybe for either Vlad or Dave.

This Mitel-ShoreTel combination, Mitel has touted that the acquisition of ShoreTel creates a #2 UCaaS vendor behind you guys.

How do you think this combination could change the competitive landscape?

Do you think when you're -- -- especially in the enterprise, is there still -- are there still some enterprises that are sort of favoring sort of a combo or a hybrid deployment of on-prem versus cloud?

Do you still come across that?

Or are people starting to lean more towards just cloud?

And just any thoughts around that combination and how that could stir things up a bit.

Sure.

Yes.

So Vlad here.

I'll take that.

Look, to be frank, we haven't seen either of them very much prior to the merger.

And I doubt that by tying them together, that's going to change things dramatically.

Fact of the matter is they're both fundamentally legacy systems vendors.

They're both fundamentally facing major headwinds as on-premise overall is going to the cloud.

Issues and challenges are being faced by strong #2 in the field, namely Avaya, have been well documented, and we've talked about that a bunch.

If you look at independent research, all of the on-prem vendors are on the decline, and that includes: number one, Cisco; and number two, Avaya.

And then you get sort of into the long tail, which is both Mitel and ShoreTel.

So we -- to the second part of your question, our thesis has been always and continues to be that there is no hybrid.

Hybrid is a sign of weakness.

It's not something that customers are asking for.

It solves no problem that cannot be solved by pure cloud.

So we see people who talk about hybrid strategy are really those who don't have a true multi-tenant scaled-up cloud platform as they're hiding behind the fact and saying, "Well, why don't you be half pregnant?" Well, it doesn't work that way.

So short answer is no, we don't see this as making any impact whatsoever on cloud business, in general, or us, in particular.

Our next question comes from the line of Sterling Auty from JPMorgan.

So you've had a couple of quarters here of good sign-ups of Avaya partners.

And I'm kind of curious what you're seeing in terms of your early experience with those Avaya partners around customer sign-ups activity, et cetera.

Yes, this is Dave Sipes.

And we were glad to announce we signed up 3 additional key partners, traditional Avaya partners in the quarter, 2 of those which are their highest level, the diamond level.

And these partners have been more traditional hardware resellers, so they have less recurrent revenue experience.

And we go through a process of the sales training as well as the onboarding of those customers that -- where we go out and meet them face-to-face, those resellers, and that takes up to 3 months or so.

And then we build pipeline with those customers.

And that takes 3 to 9 months, depending on the size of accounts.

So I think you start seeing revenue generation from these accounts in the 6-month period with the smaller accounts and a 12-month period with enterprise accounts.

And this is just an indication of where the entire market is going moving towards cloud services.

So we see this as long term, a massive opportunity and tailwind that will exist over many years for us.

Got it.

And then one follow-up.

Looking at the nice upside in the operating margin in the quarter, I guess, the question is, looking, you raised the midpoint of the guidance on operating margin, but is there incremental investments that you're looking to put into the business over the next couple of quarters that would keep the operating margin to the new guidance level?

And if so, where would those investments go?

Sure.

So yes, we did raise the operating margin guidance, and all the investments we are making, Sterling, would -- is -- are dialed into guidance, so it's all reflective.

And the investments we are making, as Dave said earlier, are mostly in 2 things: one is scaling up our [GDM] efforts towards the enterprise segment; and Part 2 is we are beefing up our capabilities in the product side to further position us as the leader in communication and collaboration.

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

I just want to say we appreciate the continuing disclosure of additional metrics to evaluate the business.

That is very helpful.

Mitesh, a question for you is when you -- you talked about in your script about the leverage you get from the channel, the increasing contribution from the channel.

Can you help us understand the impact on sales and marketing expenses over time?

How do you expect that to have the leverage in the business from sales and marketing perspective?

Sure, Nikolay.

It's a good question.

It's top of mind for a lot of investors who are looking at analyzing our business model and trying to understand where the puts and takes of leverage will come from.

So let me start with sales and marketing.

If you look at sales and marketing, optically, there is more than meets the eye when you look at our overall numbers in sales and marketing.

And I'll make 2 points on that.

Point number one is, our existing sales and marketing dollars reflect the investments we are making in the enterprise segment.

And now these investments are in a very early cycle and ramp-up.

So the percentage of our fully ramped-up reps, for example, in the enterprise segment, is very, very small.

Now over time, as we get to $1 billion target, we should see this segment ramp up more.

We should see more scale in that segment, which will get more leverage.

That's point number one.

And point number two is I'll give you a proxy for our SMB business as a proxy for our business model leverage.

If you look at the SMB business, the operating margin, as I have mentioned before, it's running at about 30% operating margin because that's the most ramped-up segment we have.

Now what we are doing is, we are taking that leverage -- those leverage points from the SMB business and redeploying that to further fuel the fire for the upmarket segment given this large opportunity.

So the thesis here we have is that we are going to invest for profitable growth.

And as long as we see the unit economics play out and the high ROI, which we are currently seeing play out, we -- the bias would be to keep redeploying the money to capture even a bigger share of this blue sky market.

Got it.

And as a follow-up, digging deeper into the channel momentum here, Dave, if you can talk about 85% of the indirect business comes from the channel.

I guess, the rest is service provider, and that being declining.

Within the channel, what trends are you seeing?

Are your channel partners mostly small, channel partners, medium, larger size?

If you can give us like that, the underlying trends here, that would be very helpful.

Yes.

As we've really expanded the reseller channel, there has been a focus on the larger segment of the business and enterprise channel itself.

We've developed internally a dedicated channel team just for the enterprise accounts, and those are where we're seeing a lot of the momentum coming from the channels.

So we mentioned in the call, 4 of our 7-figure deals in the quarter came from the channel, and that's a trend that we've seen consistently over the last few quarters.

So that's really giving us some momentum and helping us as we scale those large account teams internally.

Our next question comes from the line of Terry Tillman with SunTrust.

This is [Eric Lemus], on for Terry Tillman.

Wanted to go back to the Global Office.

Can you kind of describe what the ASPs are versus traditional office?

And also, could you quantify the amount of contribution from Global Office in the quarter?

Sure, [Eric].

So let me take a shot of that.

Global Office, we are seeing a lot of traction, Eric , in Global Office.

It's one of the key drivers, metrics of growth for us.

And if you look at the Global Office capability versus the legacy vendors, it is very disruptive to legacy vendors because the legacy players just cannot stitch this all global solution together in an elegant and seamless manner, the way we do it on a global footprint.

Now to give you more color on the Global Office, we have about 800 customers on the Global Office product, which is up from about 700 we had last quarter.

And more importantly, the way to think about the impact of Global Office in sort of ASP is to think about the pull-through the Global Office has from the domestic users.

So for every seat on Global Office that's deployed, about -- it pulls through about 6 to 7 domestic global -- domestic users.

So that's the way to think about Global Office impact.

And if you look at one of the highest TCV deals we had for the quarter, which Dave highlighted, this $5 million deal, Global Office was the key driver to get on the account for Global Office.

And this particular customer is expanding rapidly in -- or it has presence in APAC and EMEA both.

So this was a key factor for us to go win this account.

Okay.

Great.

And then, for my follow-up question, can you guys provide any sort of update on statistics for the platform in terms of API calls or something similar?

And then, any update on the strategy around monetization of the platform?

Sure.

I'll give a -- take a shot at that.

We don't exactly give the numbers.

But directionally, you can think of our API calls in the platform were north of 700 million APIs for the quarter, which is up at least 2 to 3x from last year.

And to provide impact for the platform, it's more so, think of the platform being an open ecosystem where we have hundreds of integration points.

And as we are going to the enterprise segment, a lot of customers are using this -- these platform capabilities to build integrations to the lines of businesses, and there are a lot of use cases for that.

Our next question comes from the line of Meta Marshall with Morgan Stanley.

A couple of questions.

First, just wanted to delve into the AT&T business and just to get a sense of, is there any contributions still coming from that business?

Or is it as forecasted kind of gone to zero at this point?

And then the second question is just on Avaya resellers.

Just as you guys kind of approach trying to add them, is the intention to kind of continue to go after the platinum ones or to add a combination of kind of platinum and lower-level resellers?

Just to get a sense of kind of where you're targeting amongst the Avaya resellers.

Let me start with the AT&T impact first, Meta, and then I will let Dave comment on the Avaya partners.

So for AT&T, Meta, it was exactly as we'd expected.

Net new ads have come down to a trickle, and so no surprises there.

And so there's no meaningful contribution in the quarter, and that's the reason we actually called out that our growth rate in subscription revenue, ex AT&T, which is our core business, is about 31% year-over-year.

I'll let Dave chime in on the Avaya thing.

Yes.

The Avaya ecosystem is large.

There's probably 10,000 Avaya partners out there, but it's a very long tail.

So we are taking -- and we'll get those partners as we -- as the customers are pushing for cloudification and the partners are moving in that direction.

But our early efforts are to focus on their -- on the largest partners following the rule of 80-20 and focus on getting those that are the platinum and diamond partners.

Our next question comes from the line of Mike Latimore with Northland Capital Markets.

On the enterprise deals, is there a cloud competitor in pretty much all of your deals now?

Or does it boil down to you guys versus on-premise fair amount of time?

Yes.

So you know how those processes ago.

There is obviously an incumbent legacy provider that's always involved in those accounts, and they're looking to typically either do I continue on legacy path or do I move to cloud?

So -- and those deals will typically have the legacy provider in there, ourselves and then maybe another cloud competitor as they're looking to evaluate the entire universe.

And when customers then will down select and often either take out the incumbent, and that's when we'll be selected.

Our ability of our product and our platform and the global capabilities and the collaborative communications are some of our key differentiators that allow us to win those deals as well as we are experienced at deployment and speed and quality of that.

And we push for proof of concepts that allow our product to get in the hands of customers early in that purchase process and really creates a differentiator for us.

And those processes will typically last.

An enterprise sales process will be 6 to 12 months, typically.

So we're really focused on building that pipeline for enterprise business.

Got it.

And then your platform, obviously, does messaging and video and web conferencing.

Are these -- are any of these -- if you were to sort of take all the nonvoice interactions, are they, I don't know, getting to be close to 10% of total interactions yet?

Yes, Vlad here.

Right.

Look, that's a little bit hard to measure.

We certainly see a very nice ramp in nonvoice transactions.

Majority of them, I would say, will be coming from Glip key messaging and collaboration, which is, just as a reminder, it's a multimodal rich-content environment where people share files and run projects and manage task lists.

So all of this is nonvoice-based.

We haven't really disclosed numbers for Glip.

It's growing very fast, and it's when you got some of our major deals.

We have a much harder time when we think we did not have Glip integrated.

So certainly, there is a shift in that direction at this point.

Our next question comes from the line of Will Power with Robert W. Baird.

I guess, a couple of questions.

First, I wonder if you could provide any more color on traction you're seeing in contact center.

Was that part of the 7 new large deals?

How do you feel about positioning there?

Is that, at some point, an asset you think you need to own, along with the office platform?

Yes, I'll talk about the traction we're seeing.

We are seeing a significant traction.

It is growing as a percent of our new bookings year-over-year.

In the 7-figure deals that becomes important also, we saw at ChenMed where they added 200 contact center seats on to our platform.

And even at the global retailer, the 5 million TCV deal we talked about, contact center was a key decision factor.

So we -- it is an increasing importance of what we do.

Vlad, do you want...

No.

Yes.

I mean, just to add to that is, look, clearly, customers are asking for an integrated solution.

We -- our differentiated approach has been to integrate with best-of-class, which we consider the inContact solution to be, and Gartner concurs with that.

They are -- magic word actually there is very important.

So we are providing a pretty seamless experience even today with single SLA, single sign-on, unified user experience.

It is running on our network.

So all of those checkpoints or all of those check boxes are already being shared.

But having said that, look, longer term, of course, the more we can own outright, the better off.

Just one more thing I need to also want to add, and I think we mentioned it in the prepared comments, is we did introduce Live Reports recently, which has been amazing and well received.

And we don't want to claim that this is a full contact center.

It's not.

But it solves a very major pain point for our customers by providing what's really has always been considered to be part of contact center functionality.

But we are able to provide it natively using RingCentral-only technology as an add-on, and that's been very, very well received, literarily exceeding expectations.

Our next question comes from the line of Jonathan Kim with Goldman Sachs.

This is Jonathan, online for Heather.

You mentioned the expand opportunity, particularly with customers where the initial contract only represents a portion of the total seat opportunity.

Can you elaborate on how that typically unfolds, whether it's rolled out on an office -- by office spaces or if that second contract typically represents the rest of the available seats?

Just trying to get a sense of how the pace of that growth ends up materializing.

Sure.

And I think there's multiple dimensions in the way this unfolds.

We talked about Hyatt on our last earnings call of capturing headquarters initially and with the opportunity to roll out to global regional offices and then their hospitality assets beyond that.

We talked about the -- in some cases, we'll go in and do a field deployment like a retail deployment and then capture headquarters later.

And then other times, we'll roll out RingCentral Office and then bring in other products later, such as contact center.

And so you see that in all these types of deals, and it depends on how the customer wants to start with us, but they are going in with the intention typically of this is -- they're taking a cloudification approach to all their core enterprise applications.

And they're just -- this is a transitional phase for them on how they get there with us, and that provides us up to -- sometimes it's 6 months, sometimes it goes 1 year, 1.5 years where we roll across those organizations, and it gives us great upsell opportunity within them.

Our next question comes from the line of Brian Peterson with Raymond James.

Just one quick one for me.

So obviously, the channel is pretty strong this quarter and last quarter.

If we think about the longer-term impact of a more channel-centric business, is there anything that you could share there as we look to model this longer term?

Sure, Brian.

It's a good question because our channel partners are clearly taking share.

And if you look at why that's happening is all the channel partners are placing long-term bets on the cloud, especially after the demise of the legacy vendors and some of the other ones being -- that are struggling.

So I think channel is here to stay.

And this quarter, we said that 85% of the mix from the indirect bookings came from the channels.

So it's a very important vector of our growth.

Now if you look at the long-term business implications or business model implications, I think it's a twofold implication in my mind.

Number one is we don't have to pay the channel partners upfront.

So it's a residual model payment where it's pay-as-you-go model.

So it does free up some resources and investments for us to redeploy to the direct site.

So that's vector number one, which is a positive shift where you don't have to have this initial upfront payment.

And the second part where it impacts the business model positively is the gross churn and the net churn both wherein because the channel is incentivized and it's a pay-as-you-go model, they are incentivized to keep the customers, so it does an alignment us and the channels.

And so that has helped us.

In fact, if you look at the gross churn from our channel partners, it's about 40% lower than the direct gross churn.

So as this model takes hold, you can see the overall impact to the gross churn rate.

Our next question comes from the line of Jonathan Kees from Summit Redstone.

I just want to get a sense in terms of the traction that you're getting with various segments there.

You're talking about mid-market enterprise.

You're seeing a lot of growth there.

And you're still seeing some growth there in the SMBs.

Just to get a sense maybe more for my mind here how the -- in terms of the growth rate that you're seeing there, can you -- and maybe some of this is also summing up or putting in a different way some of the qualitative statements you made already, can you give a sense -- give me a sense in terms of how SMB, the growth is, relative to mid-tier, which, using your definition of like 50 to 1,000 seats, versus enterprise, which is 1,000 seats plus, how that's playing against the various groups there for the quarter?

Sure.

This is Dave Sipes.

So that SMB segment is still a very healthy growth we target in the 20% range, which we're achieving in year-over-year growth rates, and that's been pretty consistent over the last several quarters.

And so we still see opportunities for growth and expansion in that category.

And how about the 50 to 1,000 and versus the 1,000-plus?

Sure.

So Jonathan, it's Mitesh.

So what we have done is we've, obviously, provided an aggregated number for this.

So our mid-market and enterprise is $131 million business, growing at 80%.

Now within that, to answer your question between a further disaggregation between mid-market enterprise, as you can probably imagine, enterprise is early.

It's a smaller portion of the $131 million business but the more forward-looking metric is, as you can see with all the 7-figure deals we had, that would take more and more share in the future orders.

That is all the time we have for questions.

I'd like to hand the call back over to management for closing comments.

Thank you for taking the time, and we will see you at our user conference in October.

Ladies and gentlemen, this does conclude today's teleconference.

Thank you for your participation.

You may disconnect your lines at this time, and have a wonderful day.