Third Quarter 2026 Earnings Script

Thank you. Good afternoon and welcome to RingCentral's third quarter 2026 conference call. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, Kira Makagon, President and COO, and Vaibhav Agarwal, CFO.

Our remarks today include forward-looking statements regarding the Company's business operations, financial performance, and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control, and are not guarantees of future performance. Actual results may differ materially from our

forward-looking statements and we undertake no obligation to update these statements after this call. If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission, as well as today's earnings release.

Unless otherwise indicated, all measures that follow are non-GAAP with year over year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide presentation, which you can find under the Financial Results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Good afternoon and thank you for joining us.

We delivered another strong quarter in Q3, with subscription and total revenue above the high end of our guidance. We also achieved record GAAP and non-GAAP operating margins. Free cash flow generation remains strong, which enabled us to reach an important milestone of reducing gross debt to under $1 billion as of today, which is ahead of schedule.

These results reflect RingCentral's leadership in Agentic Voice AI, healthy demand, and our continued focus on expanding operating margins through disciplined execution. We are building on this momentum by investing in innovation that strengthens our market position and brings AI and human agents together on a complete, integrated customer engagement platform.

Our strong momentum with Agentic Voice AI has been recognized by Business Insider which named RingCentral to its America's Most Innovative Businesses list.

Innovation has always been a driving force behind RingCentral's success. We pioneered the shift from legacy communications systems to the cloud. The megatrend of AI represents an even larger opportunity and a powerful tailwind for RingCentral. We are leading this next transformation with Agentic Voice AI, making customer interactions more efficient, intelligent, and actionable.

Our AI results provide strong proof points for our building success.

AI Receptionist, or AIR, now has more than 22,000 customers, up nearly 4x year over year. ACE, our AI Conversation Expert, is approaching 7,000 customers, up 60% year over year. And our newest lightweight contact center offering, CEB, or customer engagement business solutions, has reached more than 14,000 paying customers,

growing nearly 50% quarter over quarter. Nearly two thirds of CEB customers have also purchased one or more AI products.

Importantly, RCAI, which we define as customers using at least one native paid AI product now represents approximately 15% of total ARR, or over $400 million, doubling year over year. This cohort of customers also has meaningfully higher ARPU and net retention. These trends demonstrate how AI is expanding wallet share, strengthening retention, and creating a more durable foundation for profitable growth.

The momentum we are seeing is rooted in our well established position as a leader in consumer to business communications.

Voice and SMS remain central to how consumers engage with their business providers, such as doctors, bankers, insurance agents and a host of other service providers.

RingCentral is a leader in consumer to business communications with the platform carrying approximately 40 billion minutes, 14 billion calls, and 4 billion text messages annually. Importantly, our customers can utilize the rich context in their own conversations to generate actionable insights, automate tasks, and drive resolution through the use of our AI products.

Our carrier grade network, global scale, security, and decades of operating expertise in voice creates an opportunity for us to become a critical infrastructure layer for business communications and is a significant barrier to entry.

Our ability to connect consumers with their service providers at scale well positions us to deploy AI agents across all stages of a consumer business interaction, whether it be human to human, human to AI, or human to AI and back to human, otherwise known as human in the loop.

For a little more color, AI agents can handle routine inquiries, automate workflows, and

resolve issues autonomously. When judgment, empathy, or specialized expertise is required, a human can step in. In healthcare, for example, AI can help manage routine interactions while bringing in a qualified professional when a patient needs medical advice.

Another strong competitive moat for us is our distribution reach.

Alongside our direct sales force, we have a global ecosystem of more than 16,000

channel partners and resellers, including some of leading global service providers, such as AT&T, British Telecom, Charter Communications, Optus, Telus, and Vodafone amongst others. Our GSP and channel partners are increasingly incorporating our AI portfolio into their product lines. Their established customer relationships and local expertise create a distribution advantage that is difficult to replicate.

Let me close with three key points.

First, RingCentral has a deep and defensible moat in a large and expanding market. Our global voice infrastructure, billions of calls, text messages, and minutes that we process every year, and integrated customer engagement platform provide a distinct foundation for strengthening our leadership through Agentic Voice AI. Our partner ecosystem gives us the reach to scale these capabilities globally.

Second, our investments in Agentic Voice AI strategy are delivering tangible results. Growing paid adoption, broader use of our portfolio, and stronger customer economics demonstrate how AI is expanding the value of our platform and accelerating our business.

Third, our large and growing TAM combined with disciplined execution and operating model leverage is resulting in a strong and improving financial profile. We are growing

revenue, expanding profitability, and generating substantial free cash flow and free cash

flow per share. With our gross debt now below our stated $1 billion target, we have the balance sheet strength to continue investing in innovation and delivering sustained long term shareholder value via share buybacks and dividends..

I want to thank our employees for their innovation and execution, our customers and partners for their trust, and our shareholders for their continued support. I am excited about the opportunity ahead and confident in our ability to deliver.

With that, I'll turn it over to Kira.

Thank you, Vlad, and good afternoon, everyone.

As Vlad highlighted, RingCentral brings together a complete and integrated customer engagement platform with Agentic Voice AI and humans working together. Our leadership in voice puts us at the heart of consumer to business conversations, and gives RingCentral AI the foundation to turn those conversations into better outcomes.

We are building on that foundation to meet customers wherever they work, including the LLMs they use every day. This quarter, we introduced plugins for OpenAI's ChatGPT and MCP connectors for Anthropic's Claude. We were also selected as a Claude for

Small Business launch partner. RingCentral provides the conversation context, and the AI models provide the reasoning. It's great to see how our innovation is helping our customers turn conversations into action, as part of their everyday workflows. In less than a month, we're already seeing early traction with thousands of active customers.

Enabling humans and AI to work together is core to our strategy, and where we are uniquely positioned because we bring voice, contact center, and AI onto one platform, so AI can either handle the entire task or hand off to humans as needed.

For example, an industrial parts manufacturer and supplier, replaced its fragmented call queues with AI CEB, our Customer Engagement Business Solution, bringing advanced call queues, SMS, live agent tracking, and virtual callbacks into one place.

Customers now spend less time on hold, get issues resolved in fewer handoffs, and report higher satisfaction, which means lower cost to serve, and stronger retention. They're also leveraging ACE, our AI Conversation Expert, for rep scorecard grading and coaching, plus they're deploying AIR, our AI Receptionist, for handling inquiries with context-aware routing.

We see this in action with customers across all segments, including one million TCV deals, such as:

A rapidly growing national fitness operator with millions of members. Already using RingEX, this customer added ACE to identify key call drivers, then AIR to handle a high volume of recurring inquiries. This illustrates our AI flywheel: ACE uncovers opportunities, and AIR automates interactions, giving callers immediate answers while freeing staff to build member relationships, lead club tours, and support membership growth. As they've recognized value, they've expanded their investment with us by 4x.

This past quarter we also saw strong adoption of AIR Pro. AIR Pro extends the value of our Agentic Voice AI, delivering voice-first, omnichannel AI agents that autonomously complete multi-step workflows and bring in human agents when judgment and empathy are needed.

As an example, one of the largest technology, equipment, and procurement providers for senior living in the United States, already uses RingEX, RingCX, and ACE. This quarter, they added AIR Pro to help them take their customer experience to the next level. AIR Pro understands intent and automates more complex workflows.

When a customer calls, AIR Pro verifies the caller's identity, matches the caller to their record, and identifies the reason for the call, then takes action. When needed, AIR Pro hands off to a human with full context, and then follows up. In just the first month, this customer achieved an over 95% accuracy rate in end to end workflow completion.

We're also delighted to see our existing customer, Destination Pet, a nationwide pet care provider, extend their use of RCAI. They started with ACE to analyze call transcripts and identify opportunities to improve service, and recently expanded to AIR Pro to automate workflows around scheduling appointments, sending confirmations, and updating records for customers across locations. This supports Destination Pet's goal of capturing every opportunity, improving customer experience, increasing revenue, and lowering labor costs.

When our solutions work together, as they do for these customers, it creates a virtuous loop where it turns conversation context into action. That's the value of RingCentral's Agentic Voice AI. It's changing the game for businesses - and that is something we're really excited about.

Speaking of changing the game, today we announced the expansion of our decade-long partnership with Golden State Warriors to be named the official Agentic Voice AI platform for fan engagement. Together, the two organizations will work to elevate fan experiences, from ticket inquiries to game-day questions and ongoing engagement.

We continue to expand our Agentic Voice AI solutions to more businesses around the world through a network of 17 Global Service Providers. This quarter, we expanded our partnership with BT Business. This expansion enables BT customers to seamlessly layer native, intelligent automation over their existing telephony setups. Together, we are empowering UK organizations to capture lost revenue and drive operational efficiency.

Additionally, we added two new partners to our GSP portfolio. Digital Island, our first partner in New Zealand, will sell, implement, and support our Agentic Voice AI. In Italy, Allnet.Italia, our first partner there, will bring RingEX with the full suite of RCAI Agents into its network.

These partnerships are key to our overall go-to-market strategy and international reach.

In closing, our customer wins show our vision in action: humans and AI are working together on one platform to turn conversations into better outcomes. With growing AI adoption and expanding global reach, we are bringing that opportunity to more businesses around the world.

With that, I'll hand it to Vaibhav.

Thank you, Kira, and good afternoon, everyone.

Q3 was a solid quarter, with key metrics above the high end of our guidance, reflecting continued execution against the financial framework and commitments we have outlined.

Our core business remains resilient, with growing contributions from our AI portfolio. Just as importantly, we are expanding margins and free cash flow, reducing SBC, and making meaningful progress towards our target of 20% GAAP operating margin and steady-state SBC of 3% to 4% of revenue.

We also reached an important milestone, reducing gross debt to below $1 billion as of now, significantly strengthening our balance sheet while continuing to return capital to shareholders through share repurchases and dividends.

This combination of growth, improving profitability, and disciplined capital allocation is translating into stronger free cash flow per share growth.

With that context, let me turn to our third-quarter performance.

Starting with growth, subscription revenue was approximately $653 million, up 6.0% year over year, while total revenue was approximately $676 million, up 5.9%.

Underlying customer trends remain healthy, with steady new customer additions and monthly net retention above 99%, underscoring the mission-critical nature of our platform. Notably, our RCAI portfolio continues to gain traction, which reinforces the role of AI not only as an incremental growth driver, but also as a meaningful contributor to stronger customer economics.

We believe these trends, combined with our established competitive position, provide a solid foundation for durable growth over time.

Turning to profitability, we delivered another quarter of record GAAP and non-GAAP operating margins, alongside further reductions in SBC.

Subscription gross margin remained strong at above 80%. Non-GAAP operating margin reached 24.7%, up nearly 200 basis points and SBC as a percentage of revenue declined 50 basis points, reflecting our continued discipline around equity compensation.

The combination of stronger non-GAAP margin and lower SBC drove a record GAAP operating margin of 8.0%, an improvement of 320 basis points.

GAAP EPS was $6.50 per share, which included a non-cash benefit of $545 million from the release of a valuation allowance against certain domestic deferred tax assets. This adjustment was driven by improvements in GAAP profitability. The valuation allowance release had no impact on non-GAAP results, and we do not expect material changes to near-term cash taxes as we continue to utilize deferred tax assets.

Excluding this benefit, diluted EPS was $0.28 an improvement of 47% year over year. Non-GAAP EPS increased about 18% to $1.33.

Our margin expansion trend is driven by multiple structural drivers such as strong gross margins, operating leverage, disciplined cost management, broader internal adoption of AI, and a focus on our highest-return investments. Together with SBC reduction, these drivers reinforce our confidence in long-term sustainability and durability of margin expansion while investing for growth.

Turning to cash flow, we generated $157 million in free cash flow in Q3, up 21% year over year. Our recurring revenue model, strong gross margins, and improving operating efficiency continue to translate into substantial cash generation. Reflecting this

performance, we are raising our full-year free cash flow outlook to $625 million at the midpoint, representing nearly 24% of revenue. This represents over $7 of free cash flow per share this year, up about 23% year over year. We believe the durability of our recurring revenue base, AI tailwinds, structural margin expansion, disciplined capital allocation, and continued reduction in SBC provide a strong foundation for sustained free cash flow generation over time.

Turning to capital allocation. In Q3, we prioritized repayment of our highest cost debt, the 8.5% High Yield notes that became callable, reducing gross debt by just over $110 million, and bringing net leverage to 1.3 times. In fact, as of today, our gross debt is now below $1B. As a reminder, there are no debt maturities until 2030 and we have $305 million of undrawn credit capacity.

We also continued to return capital to shareholders, spending approximately $18 million on share repurchases during the quarter and paying a dividend of 12.5 cents per share. Diluted share count declined about 5% year over year to approximately 87.7 million shares. We have over $300 million remaining under our share repurchase authorization.

Our substantial cash generation and stronger balance sheet give us the flexibility on capital allocation, while maintaining a consistent focus on long-term value creation.

With that, let me turn to guidance. For fiscal 2026 we are:

• Raising subscription revenue to be $2.563 billion to $2.569 billion, representing growth of 5.6% to 5.9%

• Raising total revenue to $2,650 billion to $2.657 billion, representing growth of 5.4% to 5.6%

• GAAP operating margin of 9.2% to 9.6%, expanding by 460 basis points.

• Raising non-GAAP operating margin to 24.0% to 24.2%.

• Raising free cash flow to $620 million to $630 million, up 18%.

• SBC in the range of approximately $240 million to $245 million, representing 9 percent of revenues.

• Fully diluted shares count of approximately 87.5 million shares.

• Raising non-GAAP EPS to between $5.07 to $5.12, up about 17%.

• This results in free cash flow per share of $7.09 to $7.20 for the year, up 23%.

  For Q4'26, we expect:

• Subscription revenue of approximately $653 million to $659 million

• Total revenue of approximately $673 million to $680 million

• GAAP operating margin of 13.3% to 14.7%, up 740 basis points

• Non-GAAP operating margin of 25% to 25.5%, up 250 basis points

• Non-GAAP EPS of $1.32 to $1.37, up 14%

• Fully diluted share count of approximately 89 million shares

As we look ahead, our execution is delivering tangible results, with a durable core business, growing momentum across our AI portfolio, and continued improvement in profitability and cash generation.

Together with a stronger balance sheet and disciplined capital allocation, we believe these fundamentals position RingCentral to compound free cash flow per share and drive meaningful long-term shareholder value.

With that, let's open the call for questions.