RingCentral Inc (RNG) 2015 Q1 法說會逐字稿

Greetings and welcome to the RingCentral first-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Clyde Hosein, Chief Financial Officer for RingCentral. Thank you, Mr. Hosein, you may begin.

Thank you. Good afternoon and welcome to RingCentral's first-quarter 2015 earnings conference call. I am Clyde Hosein, RingCentral's Chief Financial Officer. Joining me on today's call is Vlad Shmunis, Founder, Chairman, and CEO. Our format today will include prepared remarks by Vlad and I, followed by Q&A.

The primary purpose of today's call is to provide you with information regarding our performance for the first quarter of 2015, along with our financial outlook for our second quarter and full year 2015.

Some of our discussions and responses to your questions may contain forward-looking statements, including statements regarding our expected financial results for the second quarter and full year of 2015, our future plans, prospects and opportunities, trends in the business communications market, our expectation regarding our expansion upmarket, and our carrier and other reseller relationships, our RingCentral Connect initiative, our growth strategies, current and future market position, and expected growth.

These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements and projections for a variety of reasons, including but not limited to general economic and market conditions; the effects of competition and technological change; the success of our marketing, sales, and retention efforts; and customer demand for and acceptance of our products and services.

A discussion of the risks and uncertainties related to our business is contained in our 10-K for the year ended December 31, 2014 and filed with the Securities and Exchange Commission, and is incorporated by reference into today's discussion. We disclaim any obligation to update information contained in our forward-looking statements, whether as the result of new information or future events or otherwise.

I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our first-quarter 2015 earnings press release, our non-GAAP to GAAP reconciliation, our periodic SEC reports, a webcast replay of today's call, and to learn more about RingCentral.

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

Thanks, Clyde. Welcome everyone and thank you for joining us on our first-quarter 2015 earnings call.

The first quarter marked a strong start to the year for RingCentral, as we made progress across a number of strategic initiatives and extended our leadership position in the cloud business communications market.

RingCentral's integrated cloud solution addresses key business communications needs, including voice, text, and video and web conferencing. Our easy-to-use carrier-grade SaaS platform continues to be a disruptive force in the large global business communications market, which was historically served by inflexible and expensive on-premise systems. Furthermore, we believe that the release of the RingCentral Connect platform will serve to further differentiate our offerings by integrating business communications into broader business work flows and applications.

Subscription revenues in Q1 grew by 37% year-over-year, again led by the success of our flagship RingCentral Office product. At the end of the quarter, the annualized monthly recurring subscription revenue, or MRS, of RingCentral Office grew by 47% year-over-year to over $185 million. We accomplished this growth while improving both our gross and operating margins.

Our initiatives to expand upmarket is proving fruitful. The revenue and bookings from customers with 50 users and above continued to grow at a rapid pace. Annualized MRS for these customers grew by over 100% year-over-year once again. This category accounted for over 20% of RingCentral Office booking.

We remain focused on further expanding upmarket given the attractive unit economics, the size of the opportunity, and our successes to date. In Q1, we added a number of customers with multiple hundreds of users. For example, our largest win in the quarter was a 1,000-seat deal with Tecta, a commercial roofing company with 52 locations across the US.

After running a pilot with a few thousand users, we were able to prove our superior value and ability to scale, while addressing the needs of their mobile field workforce. This was a great success for our team and it demonstrates our ability to win larger customers. We also saw a strong showing, with multiple wins in the healthcare vertical, made possible by our HIPAA capabilities, including a 300-user win with the Comprehensive Blood & Cancer Center in Southern California.

Our continued rapid pace of innovation is expanding our differentiation in the marketplace. Let me give you a few specific examples. On the last conference call, I mentioned the integration we launched for RingCentral Office with Google for Work. This offering has been well received and we are gaining increased traction with Google resellers as a result. We added several significant customers in the quarter who were influenced by our new integration with Google, including a 500-user win in the education vertical.

More recently we launched the RingCentral Connect platform, and in this, the first effort to fully open a corporate communications solution for seamless integration with other business applications. So far, we have integrations with Google, Salesforce, Zendesk, Zoho, Dropbox, Vox, and Callinize, among others.

Another interesting example of the value unlocked by our platform is the deal we signed with Intuit, to enable Benefit Assist, a feature that allows TurboTax users to submit government benefit assistance applications. No other cloud business communications applications provider offers this breadth of platform capability, and we think it significantly alters the dynamics of the market.

We also launched the latest version of RingCentral Office. This release is targeted at better serving our upmarket customers and it offers a number of key usability improvements. It contains several new capabilities, including voice-to-text for voicemail previews, call monitoring, barge and whisper to enable customer service reps, secure voice, and a visual, multi-level IVR editor.

In addition, yesterday we announced RingCentral Contact Center. This product is enabled by Encounter, the leading provider of cloud contact center solutions. We're excited to bring this integrated offering to the market, to better serve the needs of some of our larger customers. The RingCentral Contact Center offers a simplified pricing and packaging approach similar to our other products.

Moving to the indirect side of our business, we're seeing continued traction across our carrier and reseller network. BT and TELUS have broadly launched our product into their sales channels. While still early, we are pleased with the engagement we are already seeing so far. We also continue to see success with AT&T in the field, with a number of promising large national franchise deals in the trial phase.

We saw further success with our VAR and reseller partners. For example, we had a 300-user win that was brought to us by one of our large VAR partners, and leveraged our model capabilities and Google integration. We also added several new distributors, including Jenne, a top-five North American communications value-added distributor. The indirect channel as a whole continues to grow well and accounts for about 20% of total MRS in the quarter.

We also strengthened our Management team and the Board. We welcomed Al Campa to the newly created position of CMO. Al is a 25-year industry veteran and one of the early SaaS pioneers, with prior roles as the CMO of Taleo and the CEO of Reachable and JasperSoft.

We also added Michelle McKenna Doyle and Mike Kourey to the Board. Michelle is the current CIO of the NFL and held previous senior positions with Disney and Constellation Energy. Mike Kourey is a former CFO of Polycom and a member of Board of Directors at Aruba Networks and various private growth companies. We look forward to the contributions of all three as we continue to scale the Company.

Today, we also announced that Dave Berman will be moving on from the Company as of May 15. I want to thank Dave for his efforts and contributions over the past two years and to wish him all the best in his future endeavors.

With this departure, his direct reports will now report to me. This includes Ryan Azus, who has been our Global Head of Sales since 2009 and has been responsible for building our sales team from scratch, as well as leading our upmarket expansion. With our strong Management team in place, I am confident that we will continue to execute at a high level.

To wrap up, we are proud to be leading the revolution in cloud business communications. Through our integrated cloud offerings and the emerging platform ecosystem, we are enabling communication and improving productivity in ways that are impossible with legacy on-premise solutions. We believe that we are in the early innings of a very large market opportunity and that our compelling value proposition positions us well for continued success.

I will now turn the call over to Clyde for a review of our financials and guidance.

Thanks, Vlad.

The progress we are making across our strategic initiatives is generating both strong top-line growth and significant margin expansion. Total revenue for the first quarter was $65.3 million, up 35% year-over-year, and 6% sequentially from Q4. This was above our previous estimates of $63.5 million to $64.5 million.

Subscriptions revenue grew to $60 million, up 37% year-over-year and 6% sequentially. Excluding the impact from declines in the Canadian dollar and British pound, our year-over-year growth would have been 1 point higher. Product revenues grew to $5.4 million and were a little over 8% of revenue in the quarter.

Total Company annualized exit monthly recurring subscription grew to approximately $254 million, up 35% year over year and 7% sequentially. The annualized exit MRS for our RingCentral Office product grew to approximately $185 million, up 47% year-over-year and 9% sequentially.

This growth is being driven by a continued combination of user and ARPU growth, as larger customers are adopting our higher priced editions. In fact, over 50% of our new bookings this quarter subscribed to either the premium or enterprise edition, a rate which is more than double from the same period a year ago. Our overall net monthly subscription dollar retention rate remained well over 99% in the fourth quarter. Office net monthly subscription dollar retention was about 100% once again.

Before I move further down the income statement, I want to remind you that my commentary will be focused on non-GAAP results. A reconciliation of all non-GAAP to GAAP results is provided with our earning press release issued earlier today. Subscription gross margin improved to 74.2% in the quarter, up 480 basis points from 69.4% in Q1 of last year and 90 basis points from 73.3% in Q4 of last year. This represents our eighth consecutive quarter of improvement.

We are continuing to see leverage from scaling our infrastructure and lower transport cost. In addition, this was better than we had previously forecast due to our implementation earlier than expected of certain measures targeted at improving operational efficiency. For the full year 2015, we expect subscription gross margin to improve over 300 basis points compared to 2014.

Overall, this level of subscription gross margin is indicative of the benefits derived from our multi-tenant cloud-based model and is on par with other leading SaaS companies. Our long-term targets for subscriptions gross margin remains 75% to 80%. Product gross margins were 13.7% in the quarter, an 860-basis point increase over Q1 of last year. Although we may see some variability quarter-to-quarter based on product mix, we continue to expect product gross margins in the range of 5% to 10%.

Consolidated gross margin, which includes subscriptions and product, was a record 69.2%, up from 63.5% in Q1 of last year, and 68.3% in the previous quarter. This was driven by substantial improvements in both subscriptions and product gross margin on a year-over-year basis.

Sales and marketing expenses were $30.1 million for the quarter, or 46% of revenues, an improvement of 150 basis points from Q1 of last year. We continue to see attractive unit economics in the model, as we experience strong growth with customers of all sizes. Each dollar of sales and marketing invested continues to contribute $8 of revenue and $5 of contribution margin over the projected life of an Office customer.

R&D expenses were $10.7 million in the first quarter, or 16% of revenues. This is an improvement of over 2 points compared to 19% of revenues in Q1 of last year. G&A expenses were $9.2 million in Q1, or 14% of revenues. This is nearly 2 points of improvement compared to 16% of revenues in Q1 of last year.

We had an operating loss of $4.8 million, which equates to an operating margin of negative 7%. This is an improvement of over 1,100 basis points from Q1 of last year, and 90 basis points from the previous quarter. This was better than our guidance of negative 9% to 11% for the quarter. We continue to target to be at or near break-even in the fourth quarter of this year.

Non-GAAP net loss improved to $5.9 million compared to a net loss of $9.7 million in Q1 of last year. Non-GAAP net loss per share was $0.09 based on a share count of 68.8 million shares. This is better than our earlier guidance of a loss of $0.10 to $0.12 per share.

Similar to the fourth quarter of last year, our earnings per share was negatively impacted by about $0.01 due to currency remeasurement effects on our foreign balance sheet. This amount is embedded in our other income line. On a GAAP basis, our net loss was $10.6 million, or $0.15 per share. The difference between our GAAP and non-GAAP results includes $4.7 million, or $0.06 per share, in stock-based compensation.

We ended Q1 with cash and short-term investments of $136 million compared to $142 million at the end of the prior quarter. Deferred revenue was $28.3 million at the end of the quarter, growing 11% sequentially and 55% year-over-year, as we saw continued traction with both upfront payment terms and longer term contracts.

For the quarter, cash flow from operations improved to negative $700,000 compared to negative $2.5 million in Q1 of a year ago and negative $4.3 million for Q4 of last year. The strength in cash flow from operations came from the improved net income, along with continued growth in deferred revenue and some timing benefits from accrued liability. Similar to the progression we saw from Q1 to Q2 last year, we expect these timing benefits to reverse in the second quarter.

Now turning to our guidance for the second quarter and full year 2015. For the second quarter, we expect revenue of $68 million to $69 million, or growth of about 29% to 31% year-over-year. We expect non-GAAP operating margin of negative 6% to 8%. This should lead to a non-GAAP EPS loss of $0.07 to $0.09 per share, based on 69 million weighted average shares outstanding.

For the full year 2015, revenue of $283 million to $289 million, with growth of 29% to 31% year-over-year, an increase from our prior guidance of $279 million to $286 million. Non-GAAP operating margin of negative 4% to 5%, an improvement from our prior guidance from negative 4% to 6%. This should lead to non-GAAP EPS loss of $0.20 to $0.24 per share, based on 70 million weighted average shares outstanding, an improvement from our prior guidance of a loss of $0.20 to $0.28.

In summary, I'm pleased with our ability to maintain a rapid pace of growth, while simultaneously driving significant margin improvement. Our strong Q1 performance further demonstrates the leverage in our business and brings us one step closer to our target of at or near breakeven by the fourth quarter of this year. We believe that we are the leader in a large and underpenetrated market and have a significant opportunity ahead of us.

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

(Operator Instructions)

Nikolay Beliov, Bank of America.

Congratulations on a nice start to the year.

It's nice to see steady and actually increasing level of innovation from RingCentral and I just wanted to get your thoughts on ways you can monetize the Connect platform. And secondly, entering the call center space, what's the business case, why now, and why partner?

Yes, hello, Nikolay. This is Vlad. I'll take the question. Thank you very much for the kind words and congratulating us. We did have a nice quarter.

As to your question, as far as RingCentral Connect, our platform, is concerned we really see this as a very good way to differentiate what we have inasmuch as, to our knowledge, we are the only true cloud business communications solution that is actually exposing our data to other applications so that actual communications data now can be embedded into work flows, integrated with [CAP] and CRMS, et cetera.

So, we don't view this as a way to generate revenue, per se. It is not a separate product or a tier for us, but it really makes our technology much stickier, much more interesting for higher-end enterprise customers who are interested in developing those custom work flows, and in the end, it just positions us and further cements our position as a market leader. So that is our approach to the platform.

As far as your second part of your question, as far as the contact center, the timing of this is we have a demand from a certain number of customers to deliver a world-class integrated solution, which combines best-of-breed business communications, which is something that we deliver natively, along with a best-in-class cloud-based contact center. Our primary consideration was to deliver it quickly and at the highest quality level possible.

So we have partnered with inContact which is, we believe, an undisputed industry leader in cloud contact center space. So we feel that by combining best with best, we really are able to deliver a very interesting, well-differentiated solution to our upmarket customers. We're very much excited about this opportunity and this new technology and this new offering and look forward to good results.

Thank you.

Brad Zelnick, Jefferies.

Thank you very much, and I echo my congratulations. Nice work, guys.

Vlad, I wanted to focus on the upmarket growth, specifically on the field sales effort. You've invested in field sales in recent quarters, how do you feel about the traction you're seeing there? How do you know it is working and how do you think about additional hiring in the field?

Hi, Brad. And again, thank you for the kind words, as well.

We feel very good about our upmarket effort. As we just announced, we are seeing continued strong traction. We are seeing continued triple-digit growth on what is now a meaningful part of our business. But to be clear, the way we approach upmarket is not solely through field sales.

Basically, most of our salespeople, especially our upmarket salespeople, they are really following a hybrid model. We generate awareness. There is good brand name recognition for RingCentral at this point. We have lots of inbound inquiries and this is from customers of all levels and of all sizes, but we are also now augmenting it with some outbound campaigns and we are very pleased with progress so far. Again, with triple-digit growth in the upmarket segment, frankly, a little bit hard to complain.

It looks like it shows.

And if I can add a follow-up here. Vlad, I have to ask this because I am already getting asked by investors, but can you share a bit about the circumstances around Dave's departure? Do you expect to replace him and how do you feel about your rate of new business growth in Q1 and pipeline going forward? Should we read anything into his departure as it relates to your momentum?

I don't think you should read anything into his departure as it relates to the momentum. We believe we had a very good, very strong quarter. We are quite pleased with our pipeline, as well. Dave resigned to pursue other interests. We wish him well. We value his contributions over the past two years.

But, to be clear, we have a very strong Management team in place already on the go-to-market side, and it includes our Head of Sales, who has been with us for over five years and who has built our sales force and who is spear-heading or taking charge of our upmarket expansion, as well. We have our new CMO who comes with a very strong background from Taleo, and a number of other companies. The Head of Customer Service is also a very strong industry veteran.

And, look, we have, and have had for always an open management style. People interact a lot across levels, so all of Dave's reports, I very much had aligned with as well for a long time and I expect that to continue. So I don't see that there is going to be any type of hiccup or interruption and just look forward to continue forward with this strong team.

That's helpful color. Again, nice job. Keep up the good work, guys.

Thank you.

Brian Peterson, Raymond James.

Congrats again on the quarter.

The deferred revenue, it was up 55% year over year, and it's been accelerating the last few quarters. Clyde, I'm just curious, how much of this is driven by the annual prepayments? What is the mix of that prepayment and should we expect that to continue to increase over the course of 2015?

Yes, most of that is prepay. As we move upmarket, Brian, and we have mentioned this before, those larger customers, in addition to being stickier with lesser churn, better LTV, the ARPU is better because they are buying more premium of our services, what they are also doing is signing longer-term contracts and prepaying.

So this reflection is more accurately reflects the fact that we're moving upmarket. I wouldn't get too hung up quarter over quarter, but trend-wise, you will continue to see that as we move upmarket.

In terms of mix, I'm not sure what you mean by that, but most of this is upmarket trend that is showing visibly on all balance sheets. Small amounts still, but the trend-wise, you can see, is moving consistent with the size of customer that we are addressing.

Okay. Understood.

On the enterprise side, I'm just curious, when you signed some of these customers that are, let's call it, 500, 1,000 seats, what do you have initially in terms of implementation and do you see a tailwind over time, as more of these seats continue to get added to the platform?

Vlad here. I'll take this question.

In many cases, what we see are initial deployment, which would be a few seats or a few dozen seats, and then -- we view these as more of a proof of concept with the customers. As we prove our ability to scale, as well as get people familiar with all of the benefits that we have to offer, mobility, ease-of-use, platform integrations, at that point in time, companies get interested in getting us either to their entire workforce or to a meaningful portion of it.

We have several customers with over 1,000 seats with us. In each and every case, the engagement started with a field trial. So we see this as a viable strategy and we are very comfortable in getting people exposed to our product first on essentially a trial basis because the product stands up well.

Bhavan Suri, William Blair.

Nice job there. Just a couple of quick questions.

First, just when you look at the pipeline for large deals, just some sense of how that is looking compared to, say, a year ago? And then in the 1,000 seat-plus win, who were the competitors and how did that play out? A little more color would be helpful.

So, the pipeline is grown substantially from a year ago. If you recall, it was only just over a year ago before we had this concerted effort to move upmarket. The pipeline has grown, I would say -- gross pipeline, obviously is much higher than overall Company growth or overall Office growth.

Obviously, that gets weeded out, but what I would say is, quarter over quarter, and obviously, year over year, we see meaningful growth in that pipeline coming through. It is an area, as you move upmarket we need to manage, we are managing, we continue to manage closely. The team in that space is doing a good job with it.

In terms of competition, you get most of -- at that space, in the 1,000-person space -- you get more of the bigger PBX guys in that space, you see. And so these are big enterprises that probably have had five to seven years of an old PBX or ancient PBX. They're looking at the replacement cycle.

We do see a few examples where people want to upgrade their services, even if it's a newer PBX, we see them wanting to upgrade and integrate other services in there. So I would say, as you move up, it is shifting a little bit to some of the established guys in that space.

Got it. And then one last one for me. As you look at the pipeline for resellers, the large guys like AT&T and BT and TELUS, just in terms of how that is looking and could we expect maybe an announcement or something for an incremental large reseller this year?

Vlad. I'll take this one.

We actually, interestingly enough, we see quite a bit of pipeline with those indirect channels, and in particular, with AT&T. We are in a number of interesting trials with companies with well-known brands and that is going well. As we just discussed, land and expand is very much a proven strategy for us so we hope that those will converge and result in meaningful business.

It's a little bit earlier with both TELUS and BT. As you know, both of them fully launched just a little bit ago. Again, a little bit early but good engagements both ways and some interesting customers that we think we will be getting out that way.

As far as additional announcements with VARs and resellers, it is hard to preannounce, but, we are very pleased with the way that our VAR channel is developing, and this is -- when I say VAR, I'm sorry, I meant indirect, and that includes VARs, as well as carriers. And other carriers, as well as other VARs that we have not yet signed are well aware of this dynamic. To this point, we have announced recently addition of a major reseller, Jenne, who is specifically well-known for technology sales, so we are pleased with that progress.

Great. Thanks, Vlad. Thanks, Clyde.

Aaron Schwartz, Macquarie.

I just had a question on the platform initiatives. You talked about a number of things you've announced in the quarter and partnerships.

Can you just walk through if you're seeing any change in the lead generation dynamics into the pipeline? And then also, on the 50 end user and above transactions, what are the average sales cycles there relative to the rest of your business? Is there much of change there?

Yes. Hi, Brian.

As far as the platform is concerned, the platform as we have is basically a value-added capability to our customers. It is not so much a lead gen tool for us, but again as a way to cement our relationship with customers, and in particular, with higher-end, larger accounts.

Having said that, we are seeing a great number of developer requests and we're not yet to the point where we can share the actual numbers, but this is meaningful, and I would say that there is a very strong demand from people to actually get into our platform and start using our APIs. So again, that is going very well.

And I'm sorry, the second part of your question was?

I was just wondering if you could characterize the sales cycles on the 50 user and above versus the rest of your business?

Yes. They are generally longer. With smaller businesses, we end up talking to the decision-maker almost immediately, so sales cycles could be well under a month or even a few weeks. The larger the company, the longer the sales cycle. It's a different dynamic. We don't talk initially to the decision maker, and the larger the company, the more likely they are to have a formal IT function, so we end up having to deal with CIOs a lot.

But, again, as I've mentioned, this land and expand thing works very well for us in that we are simply able to deploy our technology at a small scale without requiring a large commitment, and then once we prove our colors, then the company as a whole is ready to convert. So we are continuing to see this dynamic.

Secondly, for Clyde, if I can sneak one in.

On sales and marketing expense there, is that increase there just the normal annual wage increase and also staffing in some of the new centers or were there any one-time marketing or campaign items in there? I'm just wondering if you can help out on how we should think about the trend line from here?

There's certainly no one-time thing. Yes, as you are aware, throughout the P&L, there is usually some increases in Q1, I call them accounting related vacation accruals and the like, so there is some of that, but we are continuing to invest, to grow at the rate we expect to, and we've learned investing earlier always gets you leads and the like faster.

So there is no one-time thing. We continue to invest in sales and market and to drive the growth in the business.

Okay. Thank you.

Mike Latimore, Northland Capital.

Very nice quarter. On the new bookings in the quarter, are you seeing -- specifically for the mid-market, are you seeing ARPU continue to increase there?

Yes. Certainly mid-market, even by 50-plus, yes, we said that earlier on the prepared remarks. We are seeing it, Mike. What that is coming from, is as we move up to larger, and larger is obviously fifty-plus, but we had a number of multi-hundred wins and a 1,000-person win during the quarter, so that, during last quarter, did very well with larger deals.

What we have seen with those customers, amongst other things, is they begin to buy the premium and enterprise editions. That is driving the overall Company average revenue per user up. So, yes.

Okay. And then on the contact center offering, did you see opportunities where you are dealing with 50 to 200 call center agents or would you see more opportunities, say, in the under 50 call center scenario?

Hi, Mike. Vlad here.

Look, we have just launched, so it's a little bit too early to see what the trend is going to be. But as I stressed, it was very important for us to come out with a truly world-class solution right out of the gate. In choosing inContact, we were specifically looking for a partner with very well-proven deployments in the multi-hundred seat and above range.

We feel that inContact is as scalable as it gets in cloud contact centers. So we absolutely expect to be able to satisfy requirements and demand from customers of really any size. A very important part of our upmarket strategy.

Yes. Last, on AT&T, is that roughly growing with the overall business or is it faster, slower than the overall?

Mike, it is growing but I can't add much more color than that, given the contractual reasons we have.

Okay. Great. Thanks, Vlad.

Brian Schwartz, Oppenheimer.

Thanks for taking my questions this afternoon. I too will add my congratulations on a very strong quarter out of the gate here.

Thank you, Brian.

Two questions that I had, two topics that have been asked before, but seeing if I can dig in a little deeper here.

Vlad, just wanted to see if you can talk a little bit more about the platform story and the vision you have around the platform. I think what you're doing is clearly becoming more visible this year to investors. But my question is how about the customers?

You clearly have done a lot of innovations. You have added more third-party app integrations to the platform over the last 12 to 18 months. Can you talk about how the conversation with the customer is changing out there, especially as you are moving upmarket with this capability?

Yes. Again, thank you for the kind words here.

This platform initiative, we're introducing it as a game changer. It is something that is unique to the best of our knowledge in our space. As I already mentioned, we have a lot of requests from developers to integrate, so that is probably the best measure of how well received this initiative has been.

As far as us being a better-known story, look, again, numbers speak for themselves. We are growing, primarily by acquiring new customers, new business, and we are able to do this across all segments, starting with very small businesses, and at this point all the way up to 1,000-plus seat engagements with multi-thousand employee enterprises.

I would say that the story is getting out nicely. But of course there's always more to do, and to that end, we continue investments across a number of fronts, both technology as well as brand generation.

Thank you, Vlad. One follow up with Clyde.

If I look at, on the financials, both the billings and the subscription revenue growth trajectory, it is remarkable how robust they have been, but also how consistent the growth has been in the high 30%, near 40% here over the last five to seven quarters. As we think about the new growth requirements, clearly that is going to get tougher from the law of large numbers, do you feel that you need to ramp up at all your sales hiring or your advertising spending to maintain these growth rates? Or Clyde, do you feel you have enough capacity right now to achieve the growth targets that you're putting out this year?

Thanks, Brian.

To grow the business as we have been growing, and thank you very much for that observation, there is no question we have got to invest both in sales and separately in marketing. We are hiring people and in this hot labor market, it has been a difficult market, but we are looking to continue to hire sales people, consistent with our growth expectations. We are also looking to invest in market, and similarly, demand for more of that is greater than, obviously, we want to manage right now.

If you recall, we have a trajectory of being at or around break-even exiting the year in Q4. We have had great progress in Q1, a big installment of that, so it gives us some latitude. So we are investing more in sales, we are investing more in marketing. The fact that we invest in indirect with carriers, VARs and distributors, helps stimulate that growth and that's a conscious part of the strategy.

The fact that we are moving upmarket while there is a longer latency, the land-and-expand strategy that Vlad identified earlier, will help kick it in. So it is not just all about pouring money; it is about some conscious strategic initiatives, which we have taken on with indirect carriers, VARs, and the like, with moving upmarket, that also helps leverage that.

Thank you.

One quick question on a metric, Clyde, if you or Mitesh have it. Do you happen have what the FX impact was on your deferred revenue in the quarter? If not, I can take it offline?

1 point? Yes, it is about 1 point.

Thank you.

Heather Bellini, Goldman Sachs.

This is Nicole Hayashi in for Heather. There is a lot changing in the communications landscape with players like Facebook focusing on Messenger for business and video calls. Just any high-level thoughts on how this impacts your market and maybe how you approach your business in that area and partnerships in that space?

Yes. Hi, Nicole. Vlad here. It's a great question.

We feel that when players like Facebook move in, it is a great enabler for us. It's really opens up people's eyes to the value of cloud communications. However, we don't see them playing at all in the business communications market, and WhatsApp for business, it is really still a person-to-person consumer product.

To be very clear, you cannot run a business communications system or a business phone system on any of those products. This, as an example, is why our partnership with Google is so interesting and valuable, in that we are able to add business communications functionality to a well-established business cloud suite and turn it into a complete cloud-based solution.

So again, Facebook, we frankly never see them in our market directly, having said this.

Okay. Great. Thank you.

Terry Tillman, Raymond James.

At the risk of asking a question that was already asked -- I jumped on late because we're jumping around on different calls, so I apologize if this was asked -- but it's a philosophical question, a high-level question, in terms of, here you have this enterprise PBX opportunity that is starting to play out more and more each quarter. You have got more of that greenfield opportunity with small businesses buying Office.

You made a point about being disciplined with your spend, and Clyde, I heard you a little bit when I jumped on the call maybe talking a little bit about the balancing act with investing for growth versus showing some leverage, but if we look out over the next two or three years, is there any thought that maybe you're really leaving a lot of revenue on the table here, particularly with these two big TAM opportunities in front of you?

What I'm getting at is, any potential shift away from just showing operating leverage to the extent you have and maybe investing more for some of these growth opportunities? Thanks.

Thanks, Terry.

First of all, let's understand, at least so far, what we've printed. We've printed mid to high 30%s growth. That is nothing to scorn after, and at the same time, that -- by the way, that is about 2 times the average SaaS company growth, about almost 2 times our nearest competitor. So we should feel really proud about the revenue growth that we've been generating.

At the same time, we are in business to make money and while investing, so we've improved, over the last year or two, about 8 points on the bottom line. Last quarter, we did about 11 points, or 1,100 bps or so, so it demonstrates unit economics, and we have.

But as we sit here, there is no compromise. Having said that, if you're looking at the two-year, three-year horizon, those questions become more relevant, but to date, it has not been as much of a compromise to demonstrate that growth rate.

All right, thanks.

There are no further questions in the queue. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.