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RingCentral (NYSE:RNG)
Q2 2020 Earnings Call
Aug 03, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the RingCentral second-quarter 2020 earnings conference call. [Operator instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Ryan Goodman, head of investor relations. Thank you.

You may begin.

Ryan Goodman -- Head of Investor Relations

Thank you. Good afternoon, and welcome to RingCentral's second-quarter 2020 earnings conference call. I am Ryan Goodman, RingCentral's head of investor relations. Joining me today are Vlad Shmunis, founder, chairman, and CEO; Anand Eswaran, president and chief operating officer; and Mitesh Dhruv, chief financial officer.

Our format today will include prepared remarks by Vlad, Anand and Mitesh, followed by Q&A. Some of our discussions and responses to your questions will contain forward-looking statements, including our third quarter and full year 2020 financial outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements.

A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today's discussion. In particular, our business is currently being impacted by the COVID-19 pandemic. The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic as well as actions taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call.

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 deck. I encourage you to visit our investor relations website at ir.ringcentral.com to access our earnings release, slide deck, our GAAP to non-GAAP reconciliations, our periodic SEC reports, a webcast replay of today's call and to learn more about RingCentral. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our investor relations website.

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

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Good afternoon, and thank you for joining our second-quarter earnings conference call. We hope all of you are safe and in good health. The pandemic has created unprecedented global challenges and is having a transformative impact on how businesses operate now and in the future. Cloud transformation of business communications platform has become a priority as companies adapt to a work-from-anywhere environment.

Businesses of all sizes now require communication solutions where employees can work productively with customers, partners and peers from anywhere on any device and in any model. We embarked on this journey of enabling cloud migration of business communications over a decade ago. RingCentral is now uniquely positioned to meet this demand with our enterprise program, global and trusted unified Message Video Phone, or MVP, platform. The results speak for themselves.

We delivered a strong second quarter as we continue to benefit from strong contributions from mid-market, enterprise and our channel partners. Let me highlight some recent key events. First, we announced an expansion of our strategic partnership with Atos. Second, together with Avaya, we announced a further global rollout of Avaya Cloud Office by RingCentral.

Third, we saw good uptake on our new RCV offering, which we launched in early April. We'll talk more about this later. And lastly, we were humbled to learn last quarter that RingCentral has been named to the fourth Global 2000 list, putting us alongside the biggest and most valuable companies in the world. As to our financial performance, revenue and non-GAAP EPS exceeded our guidance.

Key drivers continue to be mid-market, enterprise and channel. We delivered a record number of 7-figure TCV wins this quarter. Several of these large wins were in our targeted verticals of healthcare, financial services and education, and also included in multiple international wins. Key metrics for Q2 were solid across the board.

Total revenue grew to $278 million. This is a 29% increase year over year and is above the high end of our guidance range. Importantly, total annual return revenue, or ARR, grew 33% year over year to $1.1 billion. The difference between overall revenue growth and higher ARR growth is driven by higher adoption of RingCentral app relative to sale of new desktop device.

We believe the strong Q2 results serve to validate RingCentral as the leading platform in the global UCaaS market. We look forward to building on this momentum and expanding our market reach to maximize the opportunity ahead. On that note, we recently announced that RingCentral will be the exclusive UCaaS provider to Atos Unify. Unify, formerly Siemens Enterprise Communications, was acquired by Atos in 2016.

Approximately 60% of their on-premise installed base of 40 million users is in Europe, with a strong presence in Germany. This opportunity is in addition to our system integrated relationship announced earlier as part of the Atos digital work-based portfolio. Importantly, during the last few months, Atos and RingCentral saw a pent-up demand to address Unify installed base together. Atos has accelerated its reseller outreach efforts and now has more than 90 channel partners trained to sell the new Unify Office by RingCentral, or UO.

We expect to be live with UO in 11 countries by the end of the year. This includes Germany, France, Spain, Italy, Netherlands, Austria, Belgium, Ireland, U.S., U.K. and Australia. We are also excited to welcome Atos as a direct customer to the Unify Office solution.

Atos will start with deploying UO to the 5,000-strong employee base of its Atos UCC division, formerly Unify. Atos will later expand UO to their entire base of over 100,000 employees. As to Avaya, based on joint channel enablement efforts and first joint customer wins with Avaya Cloud Office, or ACO, we are quite pleased with the early progress of this partnership. There are now over 2,000 channel partners onboard.

There is a robust pipeline building and several important large deals already on the books. An example of a large joint win was the selection of our platform by a large BPO that support the U.K. government's COVID-19 tracing program to control the spread of the virus. In this highly urgent and critical use case, the solution leveraged RingCentral's open API platform and was rolled out to multiple thousands of users in approximately six weeks.

In June, ACO was launched in Australia, Canada and the U.K. Several new features and additional migration tools were also released in June, which will make cloud migration even more seamless moving forward for large customers. Of course, our success with these great partnerships is rooted in our leading, comprehensive Message Video Phone, or MVP, platform. It is only by enabling the employees to communicate via any mode from any device and from anywhere that businesses can stay productive during these trying times.

To that end, we saw double-digit growth in messaging and triple-digit growth in video and mobile voice minutes on our MVP platform quarter over quarter. Speaking of video, our new open standard-based RingCentral Video, or RCV platform, has been quickly evolving since its launch since the beginning of April. Feedback and customer reception has been very positive, and we already have over 10,000 paid RingCentral Office accounts enabled with RingCentral Video. Building on the successful launch of RingCentral Video in June, we announced the initial release of RingCentral Rooms.

This extends the power of RingCentral Video to conference rooms and meeting spaces, which remains important even in these trying times. Overall, we are proud to be able to assist in the fight against the global pandemic. Our mobile-first enterprise communications platform, combined with our open integration APIs, has enabled major institutions, like State of West Virginia, to rapidly deploy our solutions with embedded communications capabilities for thousands of contact tracing to reduce the impact of the pandemic. In summary, RingCentral has always been committed to enabling workforces to productively communicate and collaborate via any mode on any device from anywhere.

And with the new world order, working from anywhere is no longer a nice-to-have. It is now a necessity. RingCentral is now becoming a platform for business continuity. With our well-proven entity global solutions and our rapidly evolving strategic partners and reseller ecosystem, we are confident that the cloud will continue to win, and RingCentral will continue to win in the cloud.

Now I will turn the call over to our president and chief operating officer, Anand Eswaran.

Anand Eswaran -- President and Chief Operating Officer

Thank you, Vlad. Good afternoon, everyone. Operationally, Q2 was a very strong quarter. We are laying the foundation for the next phase of sustainable multiyear growth.

The business is thriving, and the demand for our cloud-based business communication solutions is higher than ever. Our open integrated MVP platform enabled us to add more new customers in Q2 than any other quarter in history. Interestingly, this was accomplished without requiring much physical travel for our sales and professional services organization. There was broad strength across a number of important segments and initiatives.

In the enterprise segment, we saw a record number of seven-figure TCV wins. We also had a very strong quarter for our contact center portfolio, which was included in approximately half of our seven-figure wins. Our channel plays a strong role in our success. Channel ARR increased 60% year over year to $375 million.

As we continue to grow to pick up a multibillion-dollar revenue company, we are expanding our strong foundational focus on the four Ps: products, people, processes and partners. These efforts will enable us to serve our customers' needs even better, especially in targeted vertical markets. Let me share some more detail. First, in the product area, innovation was and remains our first principle.

We launched RingCentral Video, RingCentral Rooms. And together with Avaya, we launched Avaya Cloud Office by RingCentral with subsequent international expansion. I would also like to highlight that this velocity of innovation happened with most of our development teams working remotely. Second, on the people front, we have continued to expand our management team, attracting top talent, including incredible industry leaders like chief revenue officer, Phil Sorgen; and our chief people officer, Gunjan Aggarwal, who we announced recently.

Attracting and retaining a strong and diverse pool of talent is so wanted to our long-term success, and it is a priority for our management team. On that note, highly congratulations to Vlad for recently been named among the top two CEOs for diversity and among the best CEOs for women in the annual comparably survey covering 60,000 organizations. Regarding business processes, we are making great progress to automate and digitize our end-to-end process and operations as a foundation for scale. This will enable us to apply AI and machine learning to better predict customer needs and deliver enhanced and proactive value to our customers.

Now let's talk partners. First, Vlad shared the details on the strategic partner front with Avaya and Atos, which helps us to further scale our global reach and capture the massive opportunity ahead. Second, we continue to see strong performance from our service provider partnerships led by a renewed momentum with AT&T. And finally, we also continue to invest in our channel partner ecosystem.

During the quarter, we launched IGNITE, a new partner program. This program enables partners to own the entire sales cycle with their customers. Overall, our partners contributed to over 70% of our seven-figure wins in the quarter. Let me bring that to life with a few great customer examples.

One example of a marquee channel win in Q2 is Marvell Technology, a leading global semiconductor company. Marvel needed a highly reliable scalable and a global communications platform to replace their legacy on-premise systems. Our mobile-first platform, our global coverage and integrations with other enterprise solutions were important differentiators in securing the 6,500-plus user wins spread across 20-plus countries, including India and China. Another notable channel win was with one of the largest custom print apparel companies.

They needed a tightly integrated, cloud-based communications and contact center solution. This is an 800-plus user UCaaS win, combined with over 250 RingCentral contact center seats. As we expand our go-to-market motions, we are finding compelling new opportunities across several important verticals. In healthcare, we had a seven-figure upsell win at a leading U.S.

provider of behavioral healthcare services. This important customer is using our Unified Communications platform to better operationalize their business across the country. In Q2, we expanded by 50% to over 7,500 users as they continue to roll out RingCentral across their increasingly distributed workforce. In education, a large, globally renowned U.S.

university expanded their use of RingCentral Office with an additional 1,500 users added during Q2. This is a great example of the opportunities emerging due to COVID where we saw an accelerated deployment cycle at this university with tens of thousands of potential users still ahead of us. There is higher usage of our RingCentral apps versus desktop phones, which is a positive indicator of better user engagement. In addition, the implementation has been accelerated to ensure seamless continuity for the upcoming school year.

In financial services, we secured a 2,500-user win across 15 countries with a large private equity firm. For this customer, our rich platform capabilities, service quality, security and global reach were key competitive differentiators. Finally, last year, we highlighted an ENGAGE digital win with a large air transportation company. Over the past year, we have demonstrated the value of our RingCentral platform in helping to transform the company.

This transformation became more urgent in the face of COVID-19, with the workforce moving to work from home. In Q2, we saw a trifecta. First, the customer extended to our UCaaS solution with 2,400 RingCentral Office users. Then, they further expanded their CCaaS footprint by 60 agents.

And finally, they consolidated all their digital point solutions to the RingCentral platform. It is great to see customers increasingly embracing the value of the full RingCentral portfolio. Today, the cloud transformation of communications is a top priority for every business to meet their enterprise needs at a global scale. With our enhanced focus on products, people, processes and partners, we are in a strong position to be a core part of our customers' digital transformations and address the large opportunity ahead of us.

I've been with RingCentral for a little over six months now. I am humbled by our vision, the company's commitment to innovation and our incredible people-centric culture. I'm excited to be a part of the next phase of RingCentral's growth journey. Now for the financials, I will turn the call over to our chief financial officer, Mitesh Dhruv.

Thank you.

Mitesh Dhruv -- Chief Financial Officer

Thanks, Anand, and good afternoon, everyone. Q2 was a solid quarter on multiple fronts. First, ARR for our flagship UCaaS solution, RingCentral Office, surpassed $1 billion for the first time and grew 36% year over year. Second, our overall subscription revenue grew 32% year over year, along with an overall operating margin of over 10%, demonstrating solid profitable growth.

This is a testament to the large opportunity and our consistent execution. Third, we are winning larger enterprise customers with a record number of seven-figure TCV deals, demonstrating how strong the demand is for our product in the COVID environment. Fourth, ACO is off to a good start, boding well for the long-term opportunity. And finally, we announced UCaaS exclusivity with Atos Unify, further expanding our global reach and complementing our existing partnerships.

Businesses are turning to RingCentral as they transition workforces to a work-from-anywhere environment. Mid-market and enterprise customers, defined as 25,000 or more in ARR, had another strong quarter with ARR up 50%. Underpinning this strength was bookings growth from new enterprise customers with 100,000 or more in ARR, which was up over 50% sequentially. As it relates to our existing customer base, we mentioned in May that small businesses in verticals like retail, travel and hospitality that accounts for less than 10% of our overall installed base saw higher churn.

But as the quarter progressed, the churn rates improved consistently, although still not at historical levels. With overall Q2 on solid footing, let's move on to our 2020 outlook. We are encouraged with recent trends, but in this crisis environment, we continue to make prudent assumptions for the remainder of the year. Given Q2's outperformance and our highly predictable recurring revenue model, we are raising our annual guidance.

We feel confident in executing to our plan. So now on to specifics. We expect subscription revenue growth of 28%, up from 25% to 26% previously. We expect other nonrecurring revenue growth of 8% to 12%, reflecting customer engagement shift from desktop phones to RingCentral apps on laptop and mobile devices.

We expect total revenue growth of 26% to 27%, up from 24% to 25% previously. We expect non-GAAP EPS to be between $0.92 and $0.94, up from $0.91 to $0.94 previously, which includes $0.01 impact from lower interest income. In summary, the global pandemic has provided a structural catalyst for UCaaS adoption, and RingCentral saw stronger demand than ever. Even when COVID is behind us, which we hope happens as quickly as possible, we expect that the new normal for enterprise communications will be cloud-first as on-premise systems have shown to be inadequate for the needs of businesses.

We believe that the market inflection is past the point of no return, and RingCentral is strongly positioned to take advantage of this trend. We have an industry-leading product, a steadfast commitment to innovation velocity as well as a global and diversified go-to-market reach. Our momentum with AT&T, progress with Avaya and expansion with Atos further enables us to scale our market reach and add incremental layers of long-term profitable growth. With that backdrop, we are confident in our ability to lead in this $50 billion-plus UCaaS market.

Of course, this would not be possible without our amazing employees, committed partners and loyal customers. So a huge thank you to all of them. With that, let me turn the call to the operator for Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Brian Peterson with Raymond James.

Brian Peterson -- Raymond James -- Analyst

Thanks. Congrats on a really strong quarter. So Mitesh, maybe I'll start with you. Given the large revenue beat, I think we're kind of used to seeing that, but we actually saw a big beat on the bottom line as well.

So maybe help us understand how you're thinking about the growth or margin balance going forward as you guys head into 2020 and beyond.

Mitesh Dhruv -- Chief Financial Officer

Yes. Thank you, Brian. Yes, the quarter did progress. As you saw, we did beat the quarter pretty handily.

The quarter did progress better than we expected initially throughout the quarter. A lot of the dominoes did fall our way there. So yes, you're right. So we did beat the subscription revenue by about $11-ish million, and then a $5 million of that fell to the bottom line.

So close to a 50% margin flow-through from the revenue. It really, again, speaks to the unit economics and the inherent leverage we have in the business model where you can treat this 50% incremental revenue margin as a proxy for our installed base recurring margin. So really strong unit economics there. And the playbook, Brian, is going to be very, very similar to the way we have been executing, which is that we'll thoughtfully deploy this upside toward innovation and go-to-market for growth.

But meanwhile, we will stay very disciplined with the focus on profitable growth as we have been and promise expansion of 40 to 50 basis points of margin expansion per year.

Brian Peterson -- Raymond James -- Analyst

Understood. And maybe a follow-up for Vlad. I know you gave some perspective on RingCentral Video. But I guess we're a few quarters in with RCV, I'd be curious how you would gauge your progress so far.

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Yes, Brian. So to be clear, we're one quarter in with RCV. So it's still early. Progress has been quite robust.

We are actually seeing a good number of accounts on RCV now. It's around 10,000 paying accounts at this point. And most new customers are now getting RCV. As we stated when we first launched the product, we expect overall customer base to migrate from RingCentral Meetings, which is powered by another provider, to migrate to RCV over time.

So that's still the plan. And we are working very hard on making this decision a very positive and an easy decision as the product matures. But so far, so good. It's performing well.

Brian Peterson -- Raymond James -- Analyst

Good to hear. Thanks.

Operator

Thank you, our next question comes from Bhavan Suri with William Blair.

Bhavan Suri -- William Blair & Company -- Analyst

Can you hear me OK?

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Yes.

Bhavan Suri -- William Blair & Company -- Analyst

Perfect. Congrats, a solid quarter, gents, all the way around. I got two questions. Maybe first on Mitesh.

Mitesh, you've got a lot of puts and takes here. You've got really solid growth, over 100,000. You got churn improving. Just can you highlight the puts and takes of the quarter and what drove the outperformance.

I'd love to understand sort of the puts and takes through the quarter? And I have a quick follow-up.

Mitesh Dhruv -- Chief Financial Officer

Yes. Sure, Bhavan. So I will say a couple of things. There are two call it, maybe three points.

So on the quarter, let's start with new logo, on the very top. So we did see strength across the board on new logo. If you look at the enterprise segment, 50% sequential growth is what we saw, saw a really good strength there. Even in the TCV deals for one million, we saw 70% of that came from new logos.

So that's sort of point one. Point two, the deal sizes itself are getting larger. And the third one I'd say is customers actually are adopting for longer duration. So those are two or three points on the deal momentum.

If you look at the go-to-market side of it, we are seeing a lot of strength from the channel partners as well, which we grew 60% ARR. So if you just combine it all, if you look at the takeaways for these trends, there are a couple of takeaways, I would say. One is customers are comfortable with a long-term commitment to UCaaS during this environment. Second is COVID is becoming a structural for us, for RingCentral.

And the initial fear, at least when we were modeling the year, was that, hey, there could be this panic buying in Q1 and then the demand fades. We are not seeing that fade. So that's point two. And third is with the demand trends we are seeing, we are definitely adding much higher lifetime-value customers with a lot of potential to land and expand.

Bhavan Suri -- William Blair & Company -- Analyst

That's really helpful, Mitesh. And at some point, it would be great if you revisited the LTV to CAC at the high end of the enterprise. But my second question is for maybe all of you, Anand, Vlad, etc. Microsoft already announced Friday or maybe late last week that they're suspending some of their core features around carriers, around distributing calls by managing that.

They don't want to be a carrier anymore. And they've said it indefinitely. Obviously, you also announced an integration with Teams. And so look, I view it as a massive positive.

But honestly, I'm not sure as to how you all think about what Microsoft announced and the Microsoft partnership from a long-term perspective. I don't care near term. But sort of the view they're stepping back from sort of competing with carriers and integration of RingCentral, which means, Vlad, Anand, how do you guys think about what that means for RingCentral over the next...

Anand Eswaran -- President and Chief Operating Officer

Yes. Vlad, go ahead.

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Yes. Hey, Bhavan. Yes, look, let me do high level and obviously, Anand, being especially from Microsoft can pick up, settle this. Look, at the high level, we think that Microsoft could be a long-term strategic partner for us.

We do feel we're bringing complementary strengths toward moving customers' communications from on-prem to the cloud. Obviously, we're very, very, very strong in the phone system side of this equation. We speak of MVP. So Message Video Phone system...

Bhavan Suri -- William Blair & Company -- Analyst

And Vlad, it was phone, right? That's kind of where they pushed out, right, to be clear?

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Well, no. But I'm saying outside from RingCentral, right? And Microsoft, again, you need to talk to them directly on what their strategy and goals are. But from what we can tell, they're very, very strong on the messaging side with Teams and less so with phone, in particular. So at a high level, it's a positive for us, hopefully positive for the customer as well.

But how the market exactly will take it, I mean, we'll have to see. Anand, anything to add on this?

Anand Eswaran -- President and Chief Operating Officer

No, you said it all, Vlad. I mean for us, it's very simple. As Vlad said, the details, you guys should talk to Microsoft, but we are further partnering with them. Direct routing was great.

It gives their Teams' customers access to the best phone system in the industry. And on top of it, we are investing more in extending that wide moat of enterprise feature depth for what is already a best-in-class system. So net-net, we feel good about it.

Bhavan Suri -- William Blair & Company -- Analyst

I would like to but I want to thank you again. Appreciate it. Congrats.

Operator

Our next question comes from Nikolay Beliov with Bank of America Merrill Lynch.

Nikolay Beliov -- Bank of America Merrill Lynch -- Analyst

Hi. My first question is for Mitesh. Congrats on the results here. Q2 results came in line with our forecast and also a few words pointed around the Microsoft pipeline.

And Mitesh, I noticed that the guide for 3Q and the rest of the year was maybe a little bit more conservative than 2Q. Just wondering if you can walk us through what you're seeing, what trends you're seeing in the pipeline or churn or new business that cause this year to be a little bit more conservative than last quarter?

Mitesh Dhruv -- Chief Financial Officer

No. Sure, Nikolay. Yes, so let's start from the top. So the overall assumption, right, for what's being made is that the macro does not significantly get better than what we experienced in Q2 and, to a large extent, the lockdown does continue.

So that's the overall thematic assumption. Now if you take it a click below for guidance, as you pointed out a couple of things, what we have assumed is that the productivity for our salespeople, our sales force, does not improve. We saw quite the contrary trend in Q2 where we did see an expansion of our pipeline. We did see increased conversion rates.

But given the prudent assumptions we always take, we have assumed lower close rates on our pipeline. So that's point one. And point two, as you also asked on churn and net retention, we've made more conservative assumptions in the back half than we saw exiting Q2. Hopefully, we'll do better than that, and the world opens up better.

But for now, we are making these assumptions. So we feel really good about the way we are guiding, and we feel good about executing to our guidance.

Nikolay Beliov -- Bank of America Merrill Lynch -- Analyst

Thank you. And a follow-up for Vlad and Anand, can you guys help us contrast and compare the quality of the installed base of Atos versus Avaya? And secondly, the cost to book new business versus comparing Atos versus Avaya and your direct in channel business? That's it for me.

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

OK. Let me take maybe the first part of the question. So quality, look, users are users. So I don't know how you can say quality.

But the one thing is with Atos is many more of their customers are direct engagements as opposed to through channel. So one I can think that perhaps it would be -- so I don't know if it's an easier motion but made a somewhat shorter motion to get to those customers. Of course, there is a geographical dispersion as well with most of Atos' customers being in Europe, in Germany, in particular. And of course, Avaya is a very international, still a U.S.-centric company.

But I have to say, when we were evaluating this opportunity and deciding to do the extra steps that we've announced, it did seem to be mostly, if not entirely, complementary to Avaya's base. Again, with both cases, the key theme here is converting existing on-prem users to the cloud while keeping their traditional brand affiliation. And in as much as users, we don't see that there are too many, if any, customers who would use both Avaya and Atos at the same time. So from that perspective, it seems to be very, very complementary.

And if Anand and Mitesh can add on some numbers.

Anand Eswaran -- President and Chief Operating Officer

Mitesh should talk about cost to book. I was just...

Mitesh Dhruv -- Chief Financial Officer

I will take that.

Anand Eswaran -- President and Chief Operating Officer

Yes. OK.

Mitesh Dhruv -- Chief Financial Officer

Thank you. No, on cost to book, Nikolay, look, I think that's the key part, right? When we look at all these distribution engines for these partnerships, our cost to book is lower upfront because we don't have to spend the initial sales and marketing. Actually, alongside that, the other vector or the other side of the coin is higher lifetime value because these partners are incented to hang on to the customers, we are seeing not only lower cost to book but also a higher lifetime value. So I think it's a two-pronged approach there.

Nikolay Beliov -- Bank of America Merrill Lynch -- Analyst

Thank you guys.

Mitesh Dhruv -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Sterling Auty with JP Morgan. Please state your question.

Sterling Auty -- J.P. Morgan -- Analyst

Yes. Thanks. Hi guys. So you mentioned the success and you're happy with the performance for Avaya.

But specifically, just want to check in on where you are on the ramp of things like the tools to help the acceleration of deployment, migrations over to RingCentral, whether all of the channel trainings are complete. In other words, are you fully ramped? Or is there still a couple more milestones that we should be looking for to see even bigger contributions coming out of the partnership?

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Yes. Let me take that. So in Q2, so we've been at migrations for a while, as you can imagine, even before the Avaya partnership was done. But in Q2, we actually delivered more automation on the migration scripts.

So as far as migration scripts go, I think we have fully deployed that, working with Avaya, and we feel pretty good about it. And then from a product standpoint, it's a journey. I mean you saw that we launched ACO sort of 2.0. We launched it internationally in U.K.

Canada, Australia, and we launched it more broadly across Europe in H2. So that's a journey.

Sterling Auty -- J.P. Morgan -- Analyst

Got it. And then one follow-up, Mitesh, maybe for you. Looking at the go-to-market motions that you have now, how much savings have you gotten on the travel, etc., from COVID-19? How much of that maybe will you be able to hold on to permanently post COVID given the success you're seeing in the setup and the go-to-market motion you have now?

Mitesh Dhruv -- Chief Financial Officer

Yes. No, I think it's hard to exactly quantify for you, although we have the exact numbers. But look, we do have a lot of discretionary spend, not just travel but events, customer events, employee events, all those are getting repurposed for R&D and go-to-market. So post COVID, yes, I mean, this is going to be a wake-up call for all companies to make sure we look at all discretionary spend and tighten the belt.

So a fair amount of discipline is going to go on, and I think we'll see some more leverage going forward.

Sterling Auty -- J.P. Morgan -- Analyst

Thank you.

Mitesh Dhruv -- Chief Financial Officer

Thank you Sterling.

Operator

Our next question comes from Terry Tillman with Chua Securities. Please state your question.

Unknown speaker

Yes. Good afternoon gentlemen and congrats as well for me on the quarter and the outlook. I guess, maybe the first question is, as you're further into the opportunity with Avaya, what have been some of the early learnings? And how do you see this opportunity playing out as it relates to actually driving ARR either this year or next year compared to just months ago? And then I have a follow-up.

Anand Eswaran -- President and Chief Operating Officer

Yes. I'll take the first part, and I'll let Mitesh answer the second part of it. So the first part, early progress is great. We've onboarded 2,000-plus partners.

The pipe is very healthy. And in as little as a quarter, we had several large deals in Q2, which feels good. And it's broad. We had wins in retail, higher-end manufacturing, the BPO space.

So it's a broad vertical landscape. So all the fundamentals are good as we expected, and it continues to be for the second half as well. Mitesh, I'll let you answer the second half on the financials.

Mitesh Dhruv -- Chief Financial Officer

Yes. No, now is the CFO's time for temporary expectations. Thank you, Anand, for doing a marvelous job there in setting great expectations. No, all good what he said.

Look, in terms of the contribution for the quarter, we are $1 billion revenue business, so it doesn't quite move the needle. So it was immaterial in terms of contributions for this quarter. And no change to the expectations. We do expect the ramp to start to take hold in Q4 of this year and then continue in 2021.

Unknown speaker

OK. And Mitesh, I think in your prepared remarks, I like the phrase layers of growth. So whether it is Avaya, Atos, AT&T, Microsoft Teams integration, ENGAGE, I'm sure I'm forgetting about five or 10 of them. But investors ask us lots of questions because they're curious about these opportunities.

How do we frame this as it relates to maybe the growth profile as we move into next year? And do some stand out more than others? Just a little bit of help on all these kind of confluence of all those catalysts? Thank you.

Mitesh Dhruv -- Chief Financial Officer

Yes. Terry. So yes, we do have multiple catalysts going on. But if I can summarize these catalysts in, let's say, two buckets, bucket number one is expansion upmarket and bucket number two is, call it, strategic partnerships.

Both are starting to ramp in this year. So if you look at the move upmarket, if you look at the bookings for mid-market and enterprise, over 60% of our Office bookings came from that segment. We also announced a 100,000-seat win from Atos. And I will tell you that we have more deals of this size in the pipeline.

Timing of these large deals is unpredictable, but customers are evaluating RingCentral for work-from-anywhere environment, I will tell you that. So that's sort of bucket number one, which is more expansion upmarket. And second is let's lump these things together into partnerships: Avaya, AT&T, Atos. I mean the play there is expanding our reach to a broad PBX installed base.

That's one. International diversification is the second one. And Nikolay asked about the cost of acquisition. It does lower our cost of acquisition.

So I think these are the two big long-term layers of growth. And the way we are thinking about this business is it's an organic distribution strategy for us. So going forward, we will give you color on each and every partnership, but it's going to be hard for me to break out individual pieces the way I did for ACO this time. Thank you.

Operator

Our next question comes from George Sutton with Craig-Hallum. Please state your question.

George Sutton -- Craig-Hallum Capital Group LLC -- Analyst

Thank you. I wanted to poke a little bit more at the international expansion opportunity. As you're obviously working with a growing list of both strategic and channel partners around the world, can you give us a sense of kind of where you are and what you see as the duration of growth opportunity? How are you planning to expand outside of the U.S., either through these partners, through your own traditional organic growth means? I think that would be helpful to understand.

Anand Eswaran -- President and Chief Operating Officer

It's a great question. I'll take that. So the first vector is our strategic partnership. That's where Atos Unify makes a big difference in extending our reach internationally.

And we already see joint pipe building up in Europe, which traditionally has not been a place where we play in. But we also have a direct sales presence in U.K., in France, in Australia, and we continue to do well there as well. But the primary vector of growth right now will come from the partnerships.

George Sutton -- Craig-Hallum Capital Group LLC -- Analyst

Got you. Curious, clearly, on the distribution side with the Atoses and AT&Ts and Avayas of the world, you have a distribution advantage. I think what we get challenged by clients on a lot is trying to explain the advantage you have from a product perspective. And for years, Vlad's talked about out-investing everyone.

I wondered if in a world where everyone has a platform of integrated capabilities, how are you trying to define your unique competitive advantages on the product delivery side? Thanks.

Anand Eswaran -- President and Chief Operating Officer

Vlad, do you want to take it? So while Vlad is getting on, so this is how I would put it. We look at this broadly for us. First, it is different modes of Message Video Phone, the whole platform coming together. Phone is mission-critical.

And the level of enterprise feature depth we are adding on the phone system is best-in-class. The second, as I look at it, is elements like the work we are doing on security, on user experience of unified application is a major product differentiator for us. The third thing I'd call out is just trust, the fact that we have been on five nines from a reliability and security standpoint for a few quarters now. Again, it makes a massive difference.

And the fourth thing I would call out is just the international footprint, the geographic footprint we have of where global office is available and works natively is, again, there's a huge and wide moat around it. So all of these come together to make the product clearly differentiated but on top of that, what also works is our ability to work with our partners to quickly create joint products, to quickly make sure that we can meet their security requirements, which are very stringent as well. So those things then finally come together as the icing on the cake to make these partnerships, these distribution models work better than most.

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Yes. Well, let me just add to that. Anand, you kind of said it, but I'll just double click. Look, firstly, we do believe we have a differentiated platform, Message Video Phone.

If you remember, George and the others, for some time, I was saying, "Well, hey, the only other provider out there with a similar full encompassing vision is Microsoft." But with the latest news Friday and today, it seems that they would be deemphasizing the voice part, if we understand what they're saying. But outside of that, the statement took hold. So we do have a differentiated approach in these modalities. Clearly, we are the strongest on the phone system side, and that keeps on carrying the day for us.

Our wins with AT&T, with Avaya, with Atos and just kind of what you call order here are a testament to that. Do not underestimate our video efforts. We know we're not in the lead now yet, but I can tell you, we are working very hard on it to close all gaps so it will be getting incrementally better and will be a world-class product. And our messaging is pretty good as well.

So net-net, it's far and long ways from being commoditized. But should we ever get to that point, you already said it, we do have this distribution advantage. And all things being equal, I don't know if it will carry the day, but it certainly will help. But all things not being equal, as they are not now, remember, from day one you've known us and until now, our biggest issue is access.

We win way more than we lose in head-to-head comparison or competes against the entire field. So where we don't win is where we're not at the table. And people like AT&T, people like Avaya, people like Atos should make those cases a lot harder to find, to where we're not even at the table, and that's what we're banking on. Again, so far so good.

And especially, I think Anand already mentioned, we have quite a bit of effort in specifically making these partnerships to be much more turnkey, much more streamlined. And also much deeper with migration tools, with custom end point support, with back-office integration that are also part of innovation tools scenario, for example, with Avaya. So there's a lot going on, and we think it's to a good end. So yes, we feel very good about that strategically.

Thank you.

George Sutton -- Craig-Hallum Capital Group LLC -- Analyst

Thank you.

Operator

[Operator instructions] Our next question comes from Michael Turrin with Wells Fargo. Please ask your question.

Michael Turrin -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon. Mitesh, again, I mean, you've referenced it multiple times, showing strength across multiple key metrics. ARR growth in SMB, looks like it picked up a little steam here.

Can you maybe talk through some of the key factors driving the uptick because that one surprised us a bit more than some of the others here?

Mitesh Dhruv -- Chief Financial Officer

Yes. No, I think it's a good observation, Michael. Yes, we did see strength in SMB as well this time, especially in new logos. A couple of things that are happening under the hood, if I were to take it a click below for you, our brand is resonating.

We are seeing strong evidence of growth in e-commerce. And actually, what's happening is we are spending less money in acquiring these new logos in marketing. So I think the combination of these two or three trends is actually helping our CAC being lower and, of course, LTV. But going forward, I think the right bogey to target is about 15-ish percent in the overall SMB space, but near-term trends do indicate that we are seeing some steam in self-serve and e-commerce.

Operator

Our next question comes from Samad Samana with Jefferies. Please state your question.

Samad Samana -- Jefferies -- Analyst

Hi. Good afternoon. Thanks for taking my questions. So I guess I just wanted to follow up on the Atos partnership.

If you initially announced a partnership with them at the beginning of 2020. And now this is a pretty significant expansion. I'm curious maybe what the proof points were in that six-month period that made them want to extend the partnership. And then, Mitesh, as you think about those 100,000-plus seat deals that are in the pipeline, are those following these partnerships that you guys have ramped on? Or were those really already in the pipeline before the ramp of ACO and Atos? Thank you for taking my questions.

Mitesh Dhruv -- Chief Financial Officer

Yes. Go ahead, Anand.

Anand Eswaran -- President and Chief Operating Officer

No, I'll just answer the first part of the question, and then I'll thankfully delegate the second half, Mitesh. So the first half is just, one, the first few months of the partnership, the traction with the joint sales forces, we were a part of the digital workplace portfolio of Atos, and the message to their customers was resonating hugely. And then COVID happened. And so immediately, they saw the difference this could make by extending it across the unified base as well.

So both of those, the traction of the portfolio to their enterprise customers and then COVID both came together, this extension only makes sense. And that's how this, I guess, happened. Mitesh, I'll transition the rest to you.

Mitesh Dhruv -- Chief Financial Officer

Yes, hey, Samad. So I think the second part is that scale begets scale, correct? And yes, it's a mix, actually. We had some in the pipe. We're getting more with these partnerships.

So I think it's starting to spin up a virtuous circle for us here. Thank you.

Operator

Our next question comes from Will Power with Robert W. Baird. Please state your question.

Will Power -- Robert W. Baird -- Analyst

OK. Thanks. I guess I wanted to come back to some of the earlier comments on contact center, that being a key part of roughly 50% of your larger deals. I wonder generally, if you could kind of characterize the demand you're seeing there.

And maybe just talk a little bit about the road map going forward to make sure you're positioned for that demand. Obviously, you've done a lot organically on the digital side, but do you need to do more and bring more of the capabilities in-house as opposed to partnering with inContact and others over time?

Anand Eswaran -- President and Chief Operating Officer

Yes. So it's a good question. I mean our partnership with inContact remains as strong as it has ever been. And obviously, we are investing in integrating Engage Voice and Engage Digital strongly, RCO platform.

So the product efforts are on as we have always we shared with you guys. But as we look at the sales side, simple things like, last year, we had Arch Capital and the UCaaS win there. So now we are basically seeing them not just deploy UCaaS on an accelerated basis, but they're also picking up on needing to deploy a strong CCaaS solution. So that's where our inContact partnership makes a difference because their integration, the voice quality of the RCO platform, the routing capabilities, all of it come together where Arch Capital extended the UCaaS footprint to CCaaS.

That's why you saw that a large percentage of our large deals also then become contact center deals. And that's a key thing. Going forward, I think companies are looking at CCaaS and UCaaS decisions, and we feel we are well poised. Thank you.

Operator

Our next question comes from Meta Marshall with Morgan Stanley. Please state your question.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thanks. Maybe just a question on how you noted that conditions have improved throughout the quarter, but I would I guess that some of your customers are still a little stressed. So are you accommodating them with payment pauses or reducing seat counts? Or has it caused any change to forward contract structures?

Mitesh Dhruv -- Chief Financial Officer

Yes. Hey, Meta, so yes, both are true. We are accommodating. So customers are seeing a couple of things, they are seeing two trends.

Trend number one is the payment deferrals. We did see customers approach us more in April and then subsiding in May and June for payment deferrals. So we are accommodating them. And then in the books, we have taken enough appropriate reserves to cover for the exposure.

And the second part we are seeing actually is an interesting one. It's a bit counterintuitive. We have seen one that you would expect that customers not paying us upfront for annual prepay. That's why you see some headwinds in deferred revenue.

But in fact, customers are signing up for longer-duration contracts, which does bode well for the long-term structural growth of UCaaS. So we are seeing those three trends. And this is how we've accounted in the guidance.

Operator

Our next question comes from Kash Rangan with Bank of America Merrill Lynch. Please state your question.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Thank you very much Michael and congratulations. I'm wondering if you guys have a perspective how in the long term the lifetime value of a customer or a subscriber will change as you have video. How does it change retention, ARPU, uptick, etc.? Just high-level thoughts there because you certainly have reiterated that you have a very unique proposition, which is unlike Zoom and Slack in the marketplace. But how does this play out in the business model super long term? Thank you so much.

Mitesh Dhruv -- Chief Financial Officer

Yes. Let me take that, Kash. Thanks for the surprise cameo effect there. So if you look at the unit economics, right? So it's driven by two things, in my mind.

One is churn and second is upsell and net retention. Once we look at -- if you layer on -- you said two things. One is video and the product, and second is partnerships. So let's take video first or the product itself.

Given that we are expanding a platform with MVP, it does put in more barriers to exit and make our base stickier, which would be an inhibitor of churn, so reduced churn, which would help the lifetime value. So that's part one. Part two, with the partnerships, again, lower cost of acquisition to get these customers. And again, because these partners are incentivized to hang on to the customers, that means less churn and more upsell and retention, so higher lifetime value.

So if you package it all together, long term, our sustainable economic margins are going to be trending up higher than we currently have because of these two long-term trends.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

As always. Thank you so much.

Operator

Our next question comes from Rich Valera with Needham & Company. Please state your question.

Rich Valera -- Needham & Company -- Analyst

Thank you. Let me add my congrats on a nice execution on the quarter, gentlemen. Questions on AT&T. It sounds like momentum continues to build there, but the last couple of quarters, you'd given fairly specific quarter-over-quarter gains that you were seeing there.

Wondering if there's any color you can add on how AT&T bookings trended quarter-over-quarter and if there's anything you're willing to say about at AT&T perhaps transitioning from a headwind, which I believe you said they were in 2019, and when they might become neutral or a tailwind to your overall growth rate.

Mitesh Dhruv -- Chief Financial Officer

Yes. Thanks, Rich. I'll take that. Again, classic again, in Wall Street, if you give a metric once, you've got to be prepared for giving it every single time.

So I will say, yes, we did see strong bookings in AT&T again this quarter. We did see the increase in seller participation. And so both trends, what you saw last quarter, did continue. We are seeing some traction in upmarket as well.

AT&T was supposed to be initially an SMB play, but now we are seeing some upmarket there. And as it relates to the overall guidance, you call it, Rich, overall growth, because of the installed base, still churning and our new bookings not quite offsetting that. For the year, AT&T is turning to be less of a headwind this year, and I think it's going to start to dissipate in 2021.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Ryan Goodman -- Head of Investor Relations

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Anand Eswaran -- President and Chief Operating Officer

Mitesh Dhruv -- Chief Financial Officer

Brian Peterson -- Raymond James -- Analyst

Bhavan Suri -- William Blair & Company -- Analyst

Nikolay Beliov -- Bank of America Merrill Lynch -- Analyst

Sterling Auty -- J.P. Morgan -- Analyst

Unknown speaker

George Sutton -- Craig-Hallum Capital Group LLC -- Analyst

Michael Turrin -- Wells Fargo Securities -- Analyst

Samad Samana -- Jefferies -- Analyst

Will Power -- Robert W. Baird -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Rich Valera -- Needham & Company -- Analyst

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