RingCentral Inc (RNG) 2013 Q3 法說會逐字稿

Greetings, and welcome to the RingCentral third-quarter 2013 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Lawson, Investor Relations and Treasurer for RingCentral. Thank you, Mr. Lawson. You may begin.

Thanks, Doug. Good afternoon, and welcome to RingCentral's third-quarter 2013 earnings conference call. Joining me on today's call are Vlad Shmunis, Founder, Chairman and CEO; Clyde Hosein, Chief Financial Officer; and David Berman, President.

Our format today will include prepared remarks by Vlad, David and Clyde, followed by Q&A. The primary purpose of today's call is to provide you with information regarding our third-quarter 2013 performance, in addition to our financial outlook for our fourth-quarter and full-year 2013.

Some of our discussion and responses to your questions may contain forward-looking statements. Including statements regarding our expected financial results for the fourth quarter of 2013, trends in the business communications market, our expectations regarding our current and future partnerships. Our growth strategies, and our estimates about the current and potential future markets in which we may compete.

These statements are subject to risks, uncertainties and assumptions. Actual results may differ materially from our statements and projections for a variety of reasons. Including but not limited to general economic and market conditions, such as the global macro economic environment and the effects of competition and technological change. And matters specific to our business, such as customer demand for and acceptance of our products and services.

A discussion of the risks and uncertainties related to our business is contained in our perspectives filed with the Securities and Exchange Commission on September 27, 2013, and is incorporated by reference into today's discussion. Should any of these risks or uncertainties materialize, or should any of our assumptions as outlined in our earnings release and documents referred to in that release prove to be incorrect, actual Company results could differ materially from these forward-looking statements.

I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our third-quarter press release, our non-GAAP to GAAP reconciliation, periodic SEC reports, a webcast replay of today's call, or to learn more about RingCentral. With that, let me turn the call over to Vlad.

Thank you, Bob. Welcome, everyone, and thank you for joining us on RingCentral's first earnings call as a public Company. It has been a productive couple of months for RingCentral, with our successful IPO in September, the launch of RingCentral Office in the UK, and the completion of another strong quarter.

Financially, we had an excellent quarter, with strong results on both the top and bottom lines. Revenue for the third quarter was a record $41.9 million, up 42% year over year.

The growth was driven by RingCentral Office, our flagship service offerings with annualized edited monthly recurring subscriptions of over $100 million, which is up 59% year over year. And we are getting leverage in the business model, with a nearly 2 point increase in non-GAAP service gross margin.

Clyde will explain our financial results and provide guidance later in this call. But these results are continued evidence that our innovative cloud-based approach is disrupting the large markets for business communications.

Since some of you may be new to our story, let me describe the opportunity in front of us in more detail. We are replacing legacy phone systems with SaaS-based cloud solutions that are built for mobile and distributed workforces. We deliver rich and powerful functionality through the cloud in a easy-to-buy, easy-to-set-up, easy-to-use and easy-to-own package.

Substantial value has already been created by moving major business applications into the cloud. We see business communications as the next frontier. This may be the last large opportunity in the [cloud at 22]. The reason is, we have to integrate a number of core cloud software technologies with extremely rigorous out time and quality of service requirements.

This may be the largest opportunity yet. Remember, every employee in every business needs access to business communications.

We are disrupting a $15 billion-plus global market with a pure play deep technology SaaS platform. We also have an integrated Internet-driven customer acquisition engine, which allows us to acquire more than 300,000 business customers with no direct field sales. Approximately 90% of our revenues are recurring, with good retention and extremely attractive unit economics.

The PBX replacement market is very large. There are probably 60 million people in the US workforce who are currently connected to traditional PBX.

By taking our low, advertised price of $20 per user, per month, this represents an approximately $15 billion annual market opportunity in the US alone. We view this as a replacement market segment. This does not include the greenfield segment of workers not currently connected to a traditional system, which we believe to be quite significant as well. We have been historically successful in penetrating both the replacement and greenfield segments.

And we believe the global opportunity is approximately three times larger. Given the size of the market and our current momentum, we see a long run rate for strong growth.

Our primary competition is in traditional on-premise solutions based on proprietary hardware and software. These legacy communications solutions were generally designed for single office environments. And they do not easily connect multiple occasions nor generally work well with modern smartphones and tablets. They are also hard to scale as the customer's business grows.

In contrast, our RingCentral cloud-based office solution was built specifically to address the modern use of mobile and distributed businesses. The mobile first approach embraces bring your own device, or BYOD, and scales easily.

Our customers never outgrow us. With no upfront costs, we offer substantially lower total cost of ownership as well. We enable employees to be productively connected from any location, on any device, at any time. We connect people, not devices.

Our flagship product, RingCentral Office, is a richly featured business communication solution delivered through the cloud. RingCentral Office is our primary focus. It is an approximately $100 million annual recurrent revenue run rate business that is growing at well over 60% year over year. It represents over 90% of our net new recurrent subscriptions, and we expect it to drive our growth going forward.

RingCentral Office delivers rich enterprise-grade functionality and scales nicely to larger organizations. It works with smartphones and traditional desk phones, and delivers integrated voice, SMS and fax capabilities.

Our approach is mobile service, as we view mobile devices as viable alternatives to traditional business phones. In particular, we offer a number of business features re-imagined for modern smartphones and tablets.

We also allow for complete system administration from a mobile device. Also, as a cloud-based solution, we provide seamless out-of-the-box integration with other leading SaaS acquisitions, including sales of [a dot-com], box, job box and Google drive.

While we designed our software for the non-technical end-user and made it exceptionally easy to buy, set up and use, it was not easy to build. What we have under the hood is a multi-tenant, high visability, fully redundant SaaS platform built over the course of 10 years, with more than 80 patents issued or pending.

It is a high visibility, layered, open APR architecture that is device and transfer independent. We are also able to scale it [win] early in a cost-effective manner to meet growing customer demand.

Competitively, we see ourselves as a leading pure play cloud platform for business communications. Our primary competitors are legacy on-premise hardware and software providers. They are the companies that currently own the $15 billion US replacement market that is ripe for disruption. We are able to compete extremely effectively based on our cloud-based mobile service platform-as-a-service approach.

To bring this product to market, we used a combination of an inside sales force that drives our direct business and channel partnerships. Currently, our direct business is driven entirely by our inside sales force. We generate leads through our website, through a combination of search engine marketing, [radia], referral and brand advertising.

Importantly, an increasing portion of our leads are coming directly to our website, a testament to the growing power of our brand. We have a very efficient customer acquisition engine, with sales cycles that typically less than two weeks.

On the channel or Internet side, we have relationships with AT&T, which sells a core-branded version of our product called RingCentral Office@Hand from AT&T, as well as more than 1,000 other sales agents and resellers. We have over 3,000 total business customers today.

We started in the small business segment, but have methodically been expanding up-market, currently targeting customers with up to 1,000 users. Two years ago, our largest customer had approximately 200 users. Today our largest customer is over 800 users.

Customers typically turn to us for a variety of reasons. Their existing systems cannot easily handle mobility, they open new locations, their existing systems are reaching end-of-life, or they just what a more robust, affordable and easier to use business communication solution. Our President, Dave Berman, will highlight a few of the customers we acquired in the quarter and explain our growth strategy.

Thanks, Vlad. Let me share a few examples from the quarter of how we are helping tens of thousands of customers. In the real estate sector, we added 170 user franchisee of the Coldwell Banker. The customer had a legacy PBX system that lacked the capability to adequately connect employees across several offices. They chose RingCentral to cost-effectively integrate everyone under the same business communications umbrella and enable their mobile workers.

Another new customer, FinFit, gives personal financial coaching to employees of its client companies. They have 250 employees in 67 locations, and needed a centrally managed solution to link all these locations. Within 45 days, we have gotten 75% of their employees using RingCentral, and will soon have the remaining locations onboard.

We also developed a relationship in the quarter with an infrastructure construction company with nearly 11,000 employees and 40 operating subsidiaries. Each subsidiary in this location has its own unique business communication system.

After signing a master service agreement at the end of 2012, the company has implemented RingCentral Office for more than 500 users so far, in 23 of more than 400 locations, with additional rollouts planned soon. They picked RingCentral Office because we help them deliver a single solution to multiple locations in multiple geographies.

Our partnership with AT&T continues to drive very strong momentum. Among the many new customers added in the quarter through this partnership was a chain of movie theaters with 150 users. The theatre group, which was already subscribed to a bundled service offering through AT&T, was able to incorporate our RingCentral Office@Hand solution, enabling a cost effective and seamless connection across multiple locations.

To continue our business momentum and capitalize on the large market opportunity, we have deployed a three-prong growth strategy -- continuing to move up-market, adding additional distribution channels and expanding globally. We are making very strong progress on all three fronts. Let's walk through each one of them and provide an update on each one.

First, continuing to move up-market. RingCentral has targeted businesses with up to 1,000 employees. As examples I just shared show, we continue to gain traction with larger customers. We are seeing bigger businesses grapple with the growing needs around mobility and employees who use their own devices. And they are increasingly adopting product solutions.

Our second growth initiative is through distribution channels. Our relationship with AT&T and our network of value-added resellers gives us cost-effective feet on the street, and expands our customer reach. We are particularly excited about RingCentral Office@Hand by AT&T, which is growing very rapidly and is accretive to our overall growth rate. We are confident that we will be able to replicate the success and structure of these relationships with other partners over time.

The third leg of our growth strategy is expanding internationally. The first is the launch of the RingCentral Office in the UK in late October. Our team has done a terrific job with the launch. As you may know, we built out our data centers in Amsterdam and Zurich to serve the UK, with the capacity to serve the rest of Europe. We will take what we learned in the UK and apply it elsewhere in Europe and beyond.

The enormous market opportunity and our strong growth on multiple fronts gives me confidence in the long-term growth potential of RingCentral. I will now turn the call over to Clyde to provide more color on the quarter and our forecast for Q4.

Thanks, Dave. Given this is our first call as a public Company, I will begin with a brief overview of our revenue model prior to discussing the details our financial performance for the quarter. We report revenue in two areas -- recurring service or subscription revenue, and product revenue from the past [pre]sale of pre configured third-party desktop phones.

The subscription revenue components is made up of the monthly subscription fees customers pay us for our service, which is based on the number of users and the plan selected. It represents about 90% of total revenue, and is a highly predictable, recurring SaaS revenue stream, with very high retention rates.

Historically, over 90% of each quarter's revenue is driven by customers in place at the end of the prior quarter. Within overall service revenue, the portion coming from RingCentral Office has been increasing rapidly, accounting for more than 60% of total subscriptions and more than 90% of net new subscriptions in recent periods.

Our customer retention is very high, with overall net dollar monthly retentions of about 99%. And with RingCentral Office, the figure is even higher. Projected forward, this retention rate implies an expected average customer life of roughly eight years.

The resulting payback on our sales and marketing investments are very strong, with each dollar spent in sales and marketing driving approximately $8 of revenue and $5 of contribution margin over the projected life of the customer. These economics are extremely favorable. And when combined with the very large and underserved market that Vlad described, you can see why we will continue to invest in growth.

The remaining, much smaller portion of our revenue is product revenue. Our service works at many of today's existing IT desktop phones.

But many customers purchase new desktop phones when they sign up for RingCentral Office. For convenience, we pre configured these phones so customers can simply plug them into an existing broadband connection and use them immediately. This is essentially a pass-through sale, and roughly break even for us.

Moving on to the results for the third quarter. As Vlad noted, revenue for the third quarter was $41.9 million, up 11% from Q2, and up 42% from Q3 last year. Service revenues were $37.9 million, up 10% from Q2, and up 39% versus last year. Product revenues were $12.0 million, up 24% versus Q2, and 74% year over year.

We provide three key business metrics each quarter -- annualized exit monthly recurring subscriptions for the Company overall, and for RingCentral Office in particular, and our net monthly subscription dollar retention rates. Total Company annualized exit monthly recurring subscriptions grew to $160.6 million, up $13 million sequentially, and 39% year over year. As Vlad noted, Office annualized exit monthly recurrence subscriptions grew to $100.5 million, up $12 million or 40% percent sequentially, and 69% year over year.

While all of our solutions are growing, RingCentral Office growth is particularly important because of the significant market opportunity it represents. And the fact that our Office subscriptions are increasingly larger and more likely to stay in business and grow with us over time. Lastly, our overall net monthly subscription dollar retention rate in the quarter was 99%, consistent with the last quarter and the same period last year.

Before I move further down the income statement, I want to preface my comments by stating that my commentary will be 4% non-GAAP results. A reconciliation of non-GAAP to GAAP results is provided with our earnings press release received earlier today.

Service gross margin improved to 69% in the quarter, compared to 67% last quarter and the prior-year period, driven primarily by reductions in transport costs. Consolidated gross margins included phones with 62%, up from 61% in the last quarter, and consistent with the same period last year.

Sales and marketing expenses were $18.6 million for the quarter, up 44% of revenues versus $16.1 million or 43% of revenues in Q2. This compares to $13.6 million or 46% of revenues in Q3 last year.

Spending increased in absolute terms as we continued to invest in sales and marketing to drive profitable long-term growth. Our earning expenses were $7.8 million in Q3 or 19% of revenues, was up $8.4 million or 22% of revenues in Q2, and $6.3 million or 21% of revenues last year. The year-over-year increase is primarily from increases in engineering headcount as we invest in our platform and new functionality to address the significant market opportunity in front of us.

The sequential decline in our earnings from Q2 to Q3 reflects the move of certain project costs from our [earnings] production, which is now reflected in our costs. G&A expenses were $6.9 million in Q3, up 16% of revenues, compared to $6.3 million or 17% of revenues in Q2. This compares to $6.7 million or 23% of revenues in Q3 last year. We expect continued leverage in G&A as we grow.

Non-GAAP net loss was $7.8 million, compared to a loss of $8.1 million in Q2, and $8.8 million in the year-ago period. Our average basic share count for the quarter was $24.5 million. Earnings per share was a loss of $0.32 compared to a loss of $0.39 per share in Q3 of last year.

On a GAAP basis, our net loss was $8.9 million or $0.36 per share. The difference between our GAAP and non-GAAP results is $2.2 million or negative $0.09 per share in stock-based compensation. Partly offset by a gain of $1.2 million or $0.05 per share resulting from the financial completion of an IT-related legal matter.

We ended the quarter with cash and equivalents of $25.5 million, compared to $19.4 million at the end of the prior quarter. This balance does not include roughly $100 million of net proceeds from our IPO, which were received in October. For the quarter, our cash flow from operations was negative $8.2 million.

Now to expectations for the balance of the year. For the fourth quarter, we expect revenue of $42.5 million to $43.5 million, a growth of 28% to 31% year over year. While we won't be guiding to the [sub complement] of revenue on an ongoing basis, we expect our past [few] revenue from phones to be modestly down sequentially in Q4.

We expect non-GAAP operating margin of negative 18% to 20%. This would lead to a non-GAAP EPS loss of $0.15 to $0.16 a share, based on $62 million weighted average shares outstanding. For the full fiscal 2013, we expect revenue of $157.5 million to $158.5 million, or growth of approximately 38% year over year.

Non-GAAP operating margin of negative 19% to 20%. This would lead to non-GAAP EPS loss of $1.05 to $1.06 per share, based on $32.9 million weighted average shares outstanding. I will now turn it over to the operator for Q&A. Doug?

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Greg Dunham, Goldman Sachs.

Hello, yes. And thanks for taking my question, and congratulations on the first quarter post-IPO. First off, I want to hit on the PBX replacement opportunity, the success in larger-sized SMBs. You mentioned the 800 user number in terms of today, versus the 200 user number a couple of years ago.

Where do you think that 800 number can go? And can you talk briefly about how these customers evolve? Do they start small and roll out over time? Or are they buying it in larger sizes upfront?

Yes, hi, Greg. Vlad here. So we see our target market at this point to be small and mid-sized businesses, which we define as businesses with under 8,000 employees. And as you can tell, we have accounts which are pretty close to the high end of that spectrum. So we see continued adoption across the entire spectrum. And we are definitely seeing quite a bit of interest in larger accounts.

As to the second part of your question. Yes, I mean, we see different types of situations. We certainly see people giving us a try at first. And starting with just a few users on our system, and then scaling up from there. But we also see examples to the contrary, whereby a company would come in and buy a reasonable number of ITs right from the get-go.

Okay. And then quickly, the gross margin progression has been steady. It actually outperformed this quarter. You mentioned transport costs, but then you also mentioned that some R&D expenses may shift in the cost of goods sold going forward. How should we think about gross margins on the subscription or services line as you go forward?

So thanks, Greg. This is Clyde. Yes, we have shown incremental improvement over the last year. And we expect that leverage will continue as we scale the Company.

Our target gross margin for subscription is 75%-plus, and making good progress, as you can see, along with that. And overall it's about 70% to 75% when you include essentially the past three phones.

So we expect that to continue to show moderate improvement as we scale the Company, heading towards those targets probably in the near term. Near-term is three years or so.

Okay, perfect. Thanks, guys, and congrats.

Thanks, Greg.

John DiFucci, JP Morgan.

Thank you. And I echo my congrats, guys. It's a -- it was a really impressive quarter. In total growth and Office, it was even more so.

My first question has to do with the UK launch. I know it was just a few days ago, the UK launch of Office. But can you talk about why you expended first into the UK? And what your -- I mean, you have operations in other parts of Europe. How should we be thinking about that international expansion going forward?

Yes. Hi, John. Vlad here again. And thanks for the congrats here. So, why UK? As you recall, the way that we view the market is, we have a pretty good idea of what the US opportunity is like.

And we have been mentioning numbers in the $15 billion range, not counting the greenfield opportunity. And then we made worldwide estimates of about three times that number. So we view Europe, and in particular, EU part of Europe, as being roughly equivalent to the US opportunity.

So for a number of reasons, including some regulatory reasons, we believe and are convinced that the next natural expansion for us needs to be into the EU territories. What we did is, we built out infrastructure, which actually is not situated in the UK. It is in on the continent. And with this infrastructure, we are able to cover essentially the entire south continent, and much of EU with that.

So now, why UK? It's a very natural place for us to go. It's obviously an English-speaking country, so there is less in the way of localization issues. We have had -- we ran a number of studies and some pilots, which proved positive. And we just believe that this was a very reasonable beachhead for us to establish our services on the subcontinent.

I really do want to stress, however, that we remain very positive and upbeat about our chances in the UK. And once we cut our teeth there, we do intend to expand from there and start covering some of the other countries.

That is great, Vlad, that is really very helpful. And if I might, just one follow-up question on competition. I am just wondering if you are seeing any shifts out there. It seems like this opportunity is at a very nascent stage.

But can you talk about what you encounter in deals? Are customers typically looking for PBX replacement?

But what are the usual alternatives that they are considering? I would assume they are considering another PBX. But there are some other vendors out there, too, if you can just talk to that.

Well, firstly, you are absolutely right about this opportunity being in its nascent stage. Again, a very conservative estimate of the market is over $15 billion just for the US. Our penetration is just 1% of that at this point. So there is a lot of room to grow.

Now, as far as competitive environment is concerned, I don't believe we have seen much change in the last few -- in the last time period, the last few months or even quarters. Our primary competition, just to be very clear, by far and away, are legacy PBX, boxes, which are no longer meeting the needs of current customers.

So they do not scale across multiple office locations. They generally do not work well with mobile devices, with smartphones and tablets. And they are generally based on proprietary and rather arcane hardware and software, with difficult user interfaces, difficult to manage, different to scale and difficult to run.

So that is what we have been seeing, that's what we are seeing. And we are definitely quite pleased with the way that we have been able to compete against them. And our growth speaks for itself.

Thank you very much. Nice job, guys.

Thank you. Thank you again.

Kash Rangan, Merrill Lynch.

Hello. Thank you very much and welcome to public life, guys. I had a question on the AT&T relationship. Any way to quantify the level of business you were able to generate with AT&T? How is it sequentially progressing? And I have a follow-up question. Thank you.

Hi Kash, this is Dave. AT&T is progressing nicely. Currently, it is less than 10% revenue. But we are very pleased with the relationship and the contribution that it is giving us right now. We see tremendous upside with that relationship and other carrier partners.

Great. And also, is the AT&T channel any different in terms of the dollar churn? Is it a lot lower, or how materially different from the gross aggregate of churn that you reported?

Our churn overall is 99% retention, on a monthly basis. And AT&T relationship is in the same range.

Okay, got it. Clyde, I have a question for you, perhaps. If you look at the implications of the business model longer term, you clearly have an Office business that is growing very nicely. And it's going to become the bulk of your business. So wondering how we should think about the potential inflections in revenue growth rate looking out?

And also, looks like the Office business -- the Office subscriber has a higher lifetime value, albeit at a higher cost of acquisition. But I've got to mention that the sooner you let the non-Office business lead off, there is the potential for your operating margins to really start to shine. And it could be a really good combination of revenue growth rate -- very solid, coupled with margins.

But I do not want to get too ahead of myself. I just wanted to hear you on how to think about the implications of the business model longer-term as was [note] in [these stat networks]. Thank you.

I'm glad you do not want to get too far ahead of yourself, because that's probably the right way to think about it. Our non-Office business is important for us. And we will continue to invest. It's not the major focus of the Company. The success of Office speaks for itself. But it is not a business we intend to abandon.

So that will continue to grow, albeit moderately. It runs mostly self-sustaining. There's some management time. And we intend to continue that.

It is also an area where we can defend the low end from people trying to attack us. Low, just like we started off. I want to be clear to you, Kash, and to investors. That's a tricky part of our business, but we continue to do that.

But you are right, Office continues to grow. And as time go on, it grows much faster than the other base, and you will see the benefit of that.

Terry Tillman, Raymond James.

Hello, guys, good afternoon. And I would also say, congratulations and welcome to being a public Company.

I had a list of questions, as well, I was hoping to ask. And I will just throw them out there and you guys can decide who is best suited to answer them.

First question relates to RingCentral Office. Would love some commentary on the average size of new customers that you are seeing or you're winning, for example, in the last quarter. And how you see that trending over time, in terms of the average depiction of a RingCentral Office customer.

Yes. Vlad here. Hi, Terry. So I think what we have been telling people, which is, you know, descriptive for the growth of our business, is that our new Office accounts generally tend to be in the 5-10 user range.

We definitely have outliers, with tens and hundreds of users per account. But the average is in that range, it remains in that range. And we are seeing gradual progression up. But for the time being, we are still in that range.

Got it. Congrats on entering the UK. I'm curious. Is that going to be a digital marketing-heavy go-to-market strategy as well there? Or are you just going to repeat what you have done here in the states?

And then secondly on that, what about telecom providers? Couldn't they potentially help you in markets like the UK or Europe?

Yes, Terry, this is Dave. We are going to use the same play book in the UK as we are in the US. So it's using the same type of cost-effective marketing, inside sales channels, as well as carrier partners and value-added resellers.

So we have launched the sales team there. It is pretty early. We are getting wins. And we are going to continue to invest there and grow in the UK, and expand accordingly.

As a follow up in terms of -- you have started to leverage a channel here in the States. Any viewpoint on potential channel strategy sooner or later in the UK or Continental Europe?

Yes, we are pursuing carrier relationships in the UK and the rest of Europe, as well as adding to our value-added reseller program there. We had a nice trip over there. And we are very happy with the pipeline that we are recruiting and the quality of partners.

And at this point, you have this sophisticated customer acquisition engine, without even having a field sales force. And I know you probably these PBX opportunities. Some of them may even be kind of opportunistic, that come your way. But any thoughts or commentary on potential timing of actually starting to carve out a field sales force to even go after more quickly some of that juicy PBX replacement market?

Yes, Terry. Vlad here. Look, fair question. But what we really want to remind folks of is, while we do not have field salespeople on our payroll, we do indeed have quite a few [growth and growth] feet on the street. Which, in essence, is what our indirect channel is all about.

So all of our value-added resellers -- AT&T included -- those are our feet on the street. We intend to continue leveraging this ability to address all of the inbound interest with our inbound sales force. And as far as reaching out, frankly, using folks on other people's payrolls. So this seems like a sound strategy for us, and we intend to continue with it.

Okay thanks for taking my questions. Nice job.

Thank you.

Mike Latimore, Northland Capital.

Yes, thanks. Nice results there. Curious on the larger customers that you're getting, say, over 50 seats. Are they typically coming through the reseller channel? Or do you see those coming direct to site as well?

Yes, Mike, this is Dave. We are seeing wins both from the direct side and the indirect side. So we are getting great coverage from our channel partners. We are continuing to expand that program, and they are helping us with our upmarket expansion efforts.

And obviously this is an emerging market you guys have been growing quickly. Do you envision any seasonality throughout the year, where one quarter would be more pronounced than another quarter?

Mike, this is Clyde. We have grown every quarter since the history of the Company, so we need to keep that in perspective. Typically in Q1, you might see a lesser growth rate because of holiday periods in the second half of December.

And then typically, Q3 has been our strongest quarter going into everything. But beyond that -- and these are moderate changes -- that probably best represents a seasonality, if you may.

And how about -- can you report the number of inside salespeople that you have?

We do not disclose that, Mike.

Okay, got it. And then, last question would just be, is there a material portion of the Office customers that are really upgrades from your professional or non Office services?

Yes, Mike, Vlad here. Look, we have over 300,000 business accounts, overall. And that is one of the larger online-sized business communities that we know of. So we see it each and every way. We do see people upgrading. We also see quite a bit of new business.

And as you can tell from the way we are growing -- it is, from what we know, one of the better growth rates, in fact. We have to get it from all sides.

We certainly see upgrade as a very meaningful channel for us. But it's not necessarily just from fax or [Pro]. It's potential Office customers upgrading to higher-level accounts or [aiding seats]. So that is a very good dynamic for us, as well.

And we also see quite a bit of just brand-new business coming in. And also, really wanted me to stress one of the points I made earlier. Which is, we see a lot of people just coming into our website, or just coming into Google and typing www.ringcentral.com. So our brand is growing. And that is really good news for us.

Great. Thank you.

Thank you.

There are no further questions. I would like to hand the call back over to Vlad for closing comments.

Yes, thank you very much. So I would like to thank everyone for joining us on our first earnings call. We feel very good about our performance as a public Company, in our first quarter as a public Company.

And we feel especially good about our progress for our long-term growth initiatives. We believe we are in the early stages of disrupting a very large market. And we are quite optimistic about our future.

I would like to thank all of our new investors for your confidence in us. And also thank all of the prospective investors for your interest. And very importantly, I would like to thank all of our customers, partners, and of course employees, for all your support. And I look forward to speaking to all of you in approximately three months from now.

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.