RingCentral (RNG) Q2 2021 Earnings Call Transcript

RingCentral (RNG -1.21%)
Q2 2021 Earnings Call
Aug 03, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the RingCentral's second-quarter 2021 earnings conference call webcast. [Operator instructions] As a remainder, this conference being recorded. It's now my pleasure to turn the floor over to Ryan Goodman, head of investor relations. Please go ahead, sir.

Ryan Goodman -- Head of Investor Relations

Thank you. Good afternoon and welcome to RingCentral's second-quarter 2021 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 2021 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, the success of vaccination efforts, 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 have established a track record of consistent quarter-over-quarter growth for 30 quarters and counting. And Q2 2021 was no exception. RingCentral delivered another great quarter with RingCentral Office ARR growing 41% year over year to $1.4 billion.

This is our highest level of growth infive years. It is also an acceleration in growth of 5 points year over year off a base of over $1 billion. We also delivered a record number of $1 million-plus TCV wins including one with over $10 million. So what is driving this performance? Customers are looking for cloud solutions to manage two things: their communications needs and their collaboration needs, each with distinct characteristics.

For businesses, it all begins with communications capabilities, the central nervous system of any enterprise. The market opportunity is massive, with over 400 million legacy PBX users in play. Table stakes to deliver in this space are exceptionally high. Rich functionality, security, five-nines reliability, quality of service, platform analytics, enterprise apps integrations, and regulatory compliance are staples of an enterprise grade PBX system.

Businesses require all of these core capabilities, but also require them on a mobile-friendly platform. Selecting a communications platform is a critical, enterprisewide decision. Just as companies have a single corporatewide email platform, companies usually choose one communications platform for the entire company. The communications platform may not be a disparate siloed line of business decision.

A purchasing decision requires a rigorous proof of concept and analysis which is where RingCentral excels based on our proven industry leadership and track record of excellent delivery. With over three-quarters of on-premise sales historically done through channels and global carrier partners, the customer buying preference for cloud solutions continues to be through these trusted partners. And RingCentral leads here with our unique go-to-market partnership network. And as a definitive proof-point, over two-thirds of our seven figure TCV wins were brought in by the channel and partners.

As to collaboration, there is team messaging and video conferencing. Team messaging improves internal message interactions and file sharing. Use of these capabilities has increased with modern, mobile, distributed, and hybrid working environments. As we all learned over the past 18 months, video conferencing provides a viable alternative to in-person meetings.

Users require an easy and reliable way to connect with high quality video, audio, and screen share, along with core features like waiting rooms, breakout rooms, virtual backgrounds, etc. Additionally, as the world returns back to the office, video conference room solutions that support hybrid meetings are a must have. RingCentral is well-positioned to address both communications and collaboration needs of modern enterprises with our differentiated Message Video Phone or MVP, platform. This is complemented by our unique GTM strategy that now includes some of the world's best-known incumbent PBX providers and leading carriers among our strategic partners.

So, why do we win? Here is a tip. It's about trust, innovation, and partnerships. First, trust. Trust with enterprises is established over multiple years with consistent delivery of reliability, security, and data privacy.

RingCentral has delivered a track record of five nines uptime over the last 12 quarters. This equates to aroundfive minutes of downtime a year, with no exclusions for maintenance windows. This track record is simply unmatched in the industry and it is literally 100 times better than the three nines or close to nine hours of downtime, that many of our competitors offer. As to security and data privacy, we will let our clean multi-year record speak for itself.

Through continual investments in security, reliability, and data privacy, we have built one of the world's most trusted global communications platforms. Next, innovation. RingCentral has always been committed to a rapid pace of innovation. Our years of outsized R&D investing in a modern scalable cloud-based architecture have enabled us to meet the stringent requirements expected of a leading enterprise communications system.

Crucially, in addition, we have a complete portfolio of cloud contact center solutions that includes our proprietary digital-first Engage platform, as well as solutions from our partnership with NICE inContact. Recently, we extended and expanded our relationship with NICE inContact to include additional WFO and WFM capabilities which is contributing now to our significant contact center win momentum in large enterprises. Next on the topic of collaboration, we now have the next-generation, award-winning video conferencing solution, RingCentral Video, with over 250 new features introduced since launch in April last year. These include virtual backgrounds, waiting rooms, closed captioning, and many more.

And we are now beginning to leapfrog with innovative new capabilities like team huddles, advanced web-browser support, and live switching between devices, with more to come on this front soon. Rooted in this innovation and product strengths, momentum for RCV is picking up across multiple fronts. First, all new customers get the integrated MVP platform with RingCentral Video. And customer response has been excellent.

In fact, customers choose us for the integrated MVP platform, and many of the $1 million-plus TCV wins cited RCV as a key influencing capability in their decision to go with RingCentral MVP. Second, we're making solid progress on migrating our installed base accounts of MVP customers from prior generation video to RingCentral Video. We recently crossed the halfway mark in this transition. As a case in point, C&S Wholesale, the largest wholesale grocery supply company in the U.S., is now in the process of upgrading its user base of over 5,000 RingCentral MVP users to RCV.

Third, our partners. Early in Q2, Atos announced a video solution based on RCV. And later in Q2, Deutsche Telekom selected RingCentral Video for its own cobranded video solution for its customers. We're optimistic that this trend will continue and additional strategic partners will line up and endorse RCV.

And on that note, our partnerships. Our partnership-oriented go-to-market strategy is enabling us to quickly and efficiently scale our global market reach. In Q2, our Direct and Partner ARR which includes contributions from Avaya, Atos, AT&T, British Telecom, and Telus, grew 34% year over year to $860 million. This is a strong acceleration in growth of 9 points year over year.

And we are confident that this is just the beginning of a multi-year successful journey. Our unique go-to-market network continues to expand. We have had several exciting partner updates in recent months. First, we announced a new strategic partnership with Verizon Business.

Verizon Business has already launched RingCentral with Verizon, a co-branded cloud-based UCaaS solution for their enterprise customers. This also speaks to our unique ability to onboard major carriers quickly and efficiently. Second, Alcatel-Lucent Enterprise launched Rainbow Office, powered by RingCentral in the UK. Third, we announced a partnership with Deutsche Telekom, where we'll introduce a stand-alone co-branded video solution based on RingCentral Video.

Of course, all of these partnerships are based on their collective recognition of RingCentral's industry-leading standards of trust and innovation. In closing, we delivered an exceptional Q2. And, with our speed of innovation along with the fact that most of our strategic partnerships are in their early or pre-launch phases, we feel confident that the cloud is winning, and RingCentral will continue to be winning in the cloud. With that, I will now turn the call over to our president and chief operating officer, Anand Eswaran, for additional color on our recent progress.

Thank you.

Anand Eswaran -- Chief Operating Officer

Thank you, Vlad. Good afternoon everyone. Q2 results and execution were exceptional across the board. But before I dive in here, I want to talk about the foundation of RingCentral, our people and our products.

On the product side, we have just been named as the best UC platform and best UCaaS provider, as well as a top two collaboration platform, as part of the UC Awards 2021. As a matter of fact, RingCentral has been named the best UC platform three years in a row now. And our top two finish on the collaboration side is exceptionally gratifying given that we have entered this area relatively recently. Most importantly, as for the people, Comparably's annual survey for large companies recently ranked RingCentral as the number one engineering team and number two sales team, for a total of 11 awards.

Additionally, Vlad was named among the top two CEOs for Diversity and among the top six CEOs for Women. We are incredibly proud and humbled by these awards. A core strength which has contributed to the exceptional success at RingCentral are our people and our exceptional leadership bench strength. On that note, I am proud to share three new executive vice president promotions recognizing exceptional performance and a proven record of success, in addition to the top talent we have attracted to RingCentral.

Carson Hostetter is being promoted to executive vice president and Chief Revenue Officer. Carson has been with the company for over five years, in which time he has built our enterprise business from the very beginning to over $0.5 billion today. Faiza Hughell is being promoted to executive vice president and our first chief customer officer. Faiza, who has been with RingCentral for over 10 years, has a strong track record of building the SMB business for RingCentral with a customer obsession that makes her the ideal candidate for RingCentral's first ever chief customer officer.

Homayoun Razavi is being promoted to executive vice president and Head of Global Service Providers. In 18 months with RingCentral, Homayoun has accelerated our partnerships with AT&T, BT, and Telus, as well as established new strategic relationships with top tier providers including Vodafone Business, Verizon Business, and Deutsche Telekom, among others. All three will be directly reporting to me. We thank Phil Sorgen for his contributions and wish him well as he embarks on a new chapter in his life working with non-profits and the venture community.

We are also excited that Phil will be joining RingCentral's advisory board. Now, onto Q2. I will highlight five key areas of our exceptional quarter. First, partners, where we saw contributions continue to ramp across our strategic and carrier partners.

Second, our channel community which delivered another strong quarter, third, our upmarket customers, where we're winning a higher volume of large deals, the wins are getting bigger, and the sales cycles are improving. Fourth, increasing traction with our integrated UCaaS and CCaaS offering, with both new customers and our installed base. And fifth, accelerating momentum for RingCentral MVP integrated with Microsoft Teams Direct Routing which is effectively opening up incremental upmarket opportunities. Let me now dive into some detail.

I will begin with our strategic partners, where we saw great momentum with multiple $1 million-plus wins across our strategic and carrier partners. This contributed to our record-breaking number of seven figure TCV wins, a notable accomplishment to achieve in a Q2. In Q2, Avaya Cloud Office by RingCentral had another strong quarter of solid growth in new seats, new accounts, and transaction volume. ACO is seeing solid traction with businesses of all sizes and from both new and existing customers including a notable win for over 12,000 seats with a Fortune 500 freight transportation company, who moved from an Avaya on-premise solution to Avaya Cloud Office.

Atos also delivered a solid Q2 with strong ARR growth in our upmarket segment. We are pleased with how this partnership is progressing and look for contributions to continue to ramp. As for Alcatel-Lucent Enterprise, Rainbow Office powered by RingCentral launched in the UK and we will be launching additional countries in coming quarters. As for global service providers, we see a generational opportunity here as many top providers are now looking for their next generation UCaaS platform.

This is especially urgent as GSPs are introducing revolutionary 5G technology to the world. Given our recent successes with top tier providers like Verizon Business, Vodafone Business, and Deutsche Telekom, among others, as well as a strong pipeline of new deals, we believe RingCentral is emerging as the preferred UCaaS platform for this important strategic community. As to AT&T, BT, and Telus, they have all had strong quarters led by upmarket traction and strengths in key verticals including retail, healthcare, and manufacturing. An example of our momentum is our win through BT with The Ardonagh Group, the UK's largest independent insurance distribution platform, where we will together provide integrated UCaaS and CCaaS for over 3,500 users and 800 contact center agents.

We also continue our long-standing momentum with the channel community. Our channel partners delivered another great quarter resulting in robust ARR growth of 52% year over year and reaching $571 million. These strategic and channel partnerships provide RingCentral with an important and effective go-to-market motion that may also prove difficult for others to replicate. They are also essential in reaching our rapidly expanding mid-market and enterprise customers, where we delivered 51% year over year growth to $877 million ARR.

And we are seeing large deal strength in verticals with the most stringent platform requirements like financial services and healthcare. They accounted for about one-quarter of our $1 million-plus TCV wins. Looking ahead, we enter the second half with our enterprise pipeline at a high level, fueled by strong demand for both our UCaaS and CCaaS solutions. On that note, continued traction for our integrated UCaaS and CCaaS platform contributed to triple digit new logo growth for our RingCentral contact center and Engage solutions.

We have recently extended and expanded our partnership with NICE inContact. Our partnership is rooted in years of joint development, integration, and market learnings. RingCentral continues to be uniquely positioned to offer customers the world's only deep integration of Gartner Magic Quadrant leading UCaaS and CCaaS solutions. Based on these strengths, in Q2, we had a great contact center-driven win with AmeriSave, a leading mortgage lender.

AmeriSave selected RingCentral to provide a more scalable, integrated UCaaS and CCaaS platform across nearly 4,000 users including 2,000 contact center agents. Building on this momentum from Q2, the month of July has been a very strong start for our contact center business for Q3. In fact, we have closed multiple deals over $1 million TCV just in the last two weeks. Another area of strength for Q2 was our integration with Microsoft Teams Direct Routing.

Direct routing is proving to be an effective go to market motion that is creating incremental opportunities, particularly in upmarket, where customers require enterprise grade cloud communications and contact center capabilities, and has contributed to multiple $1 million-plus TCV wins last quarter. In conclusion, Q2 was simply a fantastic quarter. And with our continual commitments to trust, innovation, and partnerships, we feel confident in our ability to continue leading in this unique $50 billion-plus market opportunity. With that, I will turn the call over to our chief financial officer, Mitesh Dhruv.

Mitesh Dhruv -- Chief Financial Officer

Thank you, Anand. Good afternoon everyone. We had a great Q2, and all key metrics came in above the high-end of our guidance. Subscriptions revenue grew 37% year over year, up 5 points from the prior year and non-GAAP operating margin was above 10%, 90bps above our guidance, demonstrating the leverage in our model, especially as our partnerships start to scale.

This again puts us well above the Rule of 40 which is particularly rewarding at our $1.5 billion revenue run rate. We've consistently achieved this metric for the last several years and it continues to provide an important measure of our profitable growth success. Our positive growth trends are the result of robust win rates with new customers, as well as strong retention rates with our existing customers. On the new logo front, we had multiple vectors.

First, enterprise new logo strength, this contributed to our Enterprise ARR base getting close to $600 million, and growing 60% year over year. Second, accelerating strategic partner contributions, direct and partner office ARR grew 34%, an acceleration of 9 points versus prior year. And we are just getting started. Avaya is still in its early days.

Atos is just starting to ramp. Alcatel-Lucent Enterprise is in the process of training and rollout. Verizon just launched in the last two weeks. And Vodafone and Deutsche Telecom are still pre-launch.

So, strictly speaking, many of our unique growth vectors have yet to play out. Third, our momentum with international is picking up. We had a record number of international over $1 million TCV wins this quarter. Several of these were joint wins with our key partners which is a testament to the effectiveness of our partner-oriented strategy.

And fourth, contact center, where we continue seeing strong traction for our deeply integrated best of breed UCaaS and CCaaS platform. Our new logo strength, along with contributing to a standout Q2, also seeds future expansion opportunities. As for some of the latest retention trends, cohorts of upmarket customers that we've added over the past completed year have already expanded by greater than 50%. This positive net retention was driven by more seats, more products and low churn.

On that note, gross churn across our entire business was at a multi-year low. This is a result of our stronger focus on customer success, product stickiness, as well as implementation of AI enabled tools which provide predictive analytics on customer health metrics across the entire customer base. In addition to accelerating revenue growth, profitable growth remains a core tenet of our financial model to drive healthy long-term margins. We saw several robust underlying trends in Q2 on that front.

First, ARPU held steady across the business. Second, sales and marketing efficiency improved. This was the result of higher sales rep productivity as well as lower cost-to-book tied to the strategic partner ramps. And third, we benefited from efficiencies of scale in other operating expense items.

These levers provide us the ability to invest in innovation and growth, as well as have a clear path to margin expansion in the long-term. Putting it all together, we are landing more large customer wins, customers are expanding at a high velocity, and the churn is at a multi-year low. These strong and improving unit economics are enabling us to deliver in both revenue growth acceleration as well as margin expansion, defying the typical growth versus margin trade-off associated with SaaS models. With this backdrop of positive momentum, increased visibility and higher confidence, we are raising our 2021 outlook.

We are increasing total revenue growth to 30% to 31%, up from 27% to 28%. We are increasing subscriptions revenue growth to 31% to 32%, up from 28% to 29%. We expect non-GAAP operating margin of 10% to 10.1%. And we are raising our non-GAAP EPS to $1.28 to $1.30, up from $1.24 to $1.27.

We are benefiting from the intersection of a massive opportunity, a structural acceleration in global demand, and a SaaS model with attractive, improving unit economics. Case in point, one year ago, we were slightly over the Rule of 40. Today, with subscriptions growing at 37% and operating margins over 10%, we are operating at nearly a Rule of 50 on a much higher base. Looking ahead, with new growth drivers and multiple margin levers still to come, we believe that we are well-positioned to become a multi-billion-dollar revenue company with profitable growth.

Before I turn the call back to the operator, I'd also like to give a big thanks to all of the employees at RingCentral. Your exceptional work and consistent execution make this all possible. With that, let's open the call for Q&A.

Questions & Answers:

Operator

Ladies and gentlemen, we do apologize for the technical difficulties. Please stand by. One moment, ladies and gentlemen. Please stand by.

We do apologize for technical difficulties. Lines are now live.'

Ryan Goodman -- Head of Investor Relations

Kevin, can you pool for Q&A.

Operator

[Operator instructions] Our first question today is coming from Brian Peterson from Raymond James. Your line is now live.

Brian Peterson -- Raymond James -- Analyst

Thanks for taking the question and congrats on a really strong results. So the first one, maybe for Mitesh, so you're operating close to the Rule of 50 now, you just raise your applied outlook for the back half of 2021 versus your prior outlook? Maybe unpack what's given you that confidence to raise the outlook in the back half of the year.

Mitesh Dhruv -- Chief Financial Officer

Thanks, Brian. So yes, overall, if you look at the guidance, there's no change to our guidance philosophy. We've always kept a healthy dose of prudence and optionality in the guide, so no different this time as well. I mean, in terms of the bullishness and the upside drivers to the guidance maybe I'll break it out in two buckets a roll forward from the strength we saw in Q2 which is and that's where given the recurring revenue model and then increase visibility we have for the second half.

So on Q2, our enterprise business, if you look at it is now the fastest piece of our business around $600 million and is growing at 60%, it's growing of all the pieces we have. And we're seeing large deal momentum driven by seats and products. And this deal momentum is coming across the board from Avaya, Atos, contact center, International and all our GSPs. So this momentum we expect to continue going forward in the back half.

And then in terms of the second now visibility which is also increased for us, we are seeing a stronger pipe. We are seeing stronger conversions and we are seeing stronger retention trends. And with our partnerships, we're just starting to ramp. So we'll see this benefit even beyond 2021.

So on the heels of a strong Q2 performance, along with the increased visibility we have for the second half, it does give us confidence to raise a guide for Q3 and Q4 and hopefully perform even better.

Brian Peterson -- Raymond James -- Analyst

Looks out, something a lot of good things going on there Mithesh. And so on Anand, maybe just one for you on the channel, we did see the ARR kind of incrementally pickup versus what we've seen in prior quarters, any way to unpack or just describe what's going on there on the channel. Thanks guys.

Anand Eswaran -- Chief Operating Officer

Yes, absolutely, Brian. So I would probably say three quick things. One is the velocity of on boarding new channel partners has continued. So our challenge base is getting larger.

The second thing I would say is, Mithesh talked about this large deal momentum over two-thirds of them actually came from a channel and partners. So we are seeing larger deals come through the channels in a meaningful way. And the third thing I would say which is sort of the icing on the cake is that there's meaningful improvement in velocity and conversion rates that is also helping how they're showing up in quarters. So that's what I probably offer.

Ryan Goodman -- Head of Investor Relations

Can you pull for the next question? Ryan, is there a way for us to look at callers? Seems like the system on their status is crashing.

Operator

Thank you. Our next question comes from Bhavan Suri with William Blair. Please proceed with your question.

Bhavan Suri -- William Blair & Company-- Analyst

Thank you. Can you guys hear me OK.

Anand Eswaran -- Chief Operating Officer

Yes. Now we can, Bhavan.

Bhavan Suri -- William Blair & Company-- Analyst

Great. And maybe it is time to switch to RingCentral. We did that for a while with a video offering. I don't why you guys didn't keep that going, but anyway, maybe next time.

Let me echo my congrats, obviously great numbers across the board. I'm going to be quick here obviously, because we've had a couple of issues. Mitesh really quickly for you, I think you mentioned that the higher and the core analysis of your larger customers, net dollar retention rate was 150%. That's amazing.

Given sort of the product you sell and things like that. It's rare. We haven't seen that at all in the space even from you guys in the early days. So help me sort of understand what's driving that 150% and sort of how customers are driving that growth.

That'd be great to get a little color on.

Mitesh Dhruv -- Chief Financial Officer

Sure, Bhavan. So definitely a very encouraging sign to have an expansion rate of 150% on the most recent cohorts we are seeing, it's a couple of things, either we're seeing more upsells of seats, more cross-sell of UCaaS and CCaaS together and lower churn. And in fact, if you – if I unpack it even one more click the 2020 cohort we've – in that cohort, we've added nearly the same dollar expansion as the combined cohorts for 2018 and 2019. So almost two times expansion there.

Then I would say a couple of three reasons for this. One is these new customers will come onto our system in the last year. They have experienced the full power of the platform, MVP message video phone, and there's tight integration across all modes. So these customers are using all modes.

They're upselling more and they're stickier. So that's point one. Point two is these customers who came on during COVID. They have sort of survived the COVID on slot.

And so the businesses naturally are healthier and tend to have a much higher lifetime value naturally because they survive this whole thing. So as you project forward, these cohorts, as they assimilate in our overall ARR fabric, it should have a positive impact on our net retention going forward. And I do expect that newer cohorts that'll come on will be similar. So, if you think of it, like, the green shoots we planted last year will hopefully turn into like tall trees in a dense forest for some imagery there for you.

Bhavan Suri -- William Blair & Company-- Analyst

Understood and helpful. Thanks for the color there. You touched on people buying multiple products, so UCaaS, CCaaS, you touched on sort of the integrated offerings. Maybe I'll turn this to all three of you, but obviously you saw Zoom acquired Five9 and sort of, the space – you've talked about consolidation space, you've talked about some ARR net dollar retention rates being driven by cross sell and upsell.

I'd love to get sort of your thoughts, whatever you're willing to share about that acquisition, it's competitive pressures and kind of how you see yourself sitting in the space vis-a-vis the Zoom, F9 combination. Thank you.

Anand Eswaran -- Chief Operating Officer

I'll take that. This is Anand. Bhavan, good to talk to you. So this is what I would say, see Zoom and Five9 have been partners for two-plus years and we are actually pretty thrilled about our win rates against them over the last two and a half years.

The other thing that I would probably offer up is, if you just look at our strategy we've been working with NICE inContact for six plus years. We saw this UC + CC trend long before it has become fashionable as it is right now. We have a deep integration with inContact. And in fact, what you see is this no other Gartner Magic Quadrant leading deeply integrated UCaaS and CCaaS solution outside of RingCentral contact center.

And that is what is making a difference. And as you know, we just extended our partnership for a long time to come with NICE inContact and we're seeing great pipe. You heard Mitesh talk about our contact center performance. We actually closed multiple million dollar TCV contact center wins in July in the last two weeks after these announcements.

So we feeling pretty good about the value we bring to our customers with our solution.

Bhavan Suri -- William Blair & Company-- Analyst

Got it. That's really helpful. Thanks guys. Congrats.

Operator

Thank you. Our next question today is coming from Terry Tillman from Truist Securities. Your line is now live.

Terry Tillman -- Truist Securities -- Analyst

Yes. Good afternoon and congrats for me as well. Hopefully the rest of the call, we can get to some Four9's or Five9's, but maybe Anand, maybe for you, you talked about Microsoft. That's interesting in terms of what's going on there.

I'm curious, is it sporadic and opportunistic or are you able to create kind of plays here or something programmatic going forward that you have good visibility in terms of maybe the Microsoft opportunity actually growing from what you've seen so far? I'd love to hear a little bit more about that. And then I had a follow-up from Mitesh.

Anand Eswaran -- Chief Operating Officer

No, that's a great question, Terry. So it has – your question has many layers of answers to it, Terry. The first thing is when we compete with them head to head on UCaaS opportunities, our win rates have been holding very good and very stable. So that's one.

The second thing I would say is, I mean, obviously Microsoft has a huge Teams installed base, as we all know, and with the ability to integrate with Microsoft Teams via direct routing that's a tailwind for us. We have multiple million dollar plus TCV wins using direct routing. And so we view that the base, the Teams installed base as an incremental opportunity. It opens up a new segment of the market.

That's very good. And the third thing is as important once we get in, it also gives us the opportunity to upsell to CCaaS to contact center. And so those are the three layers which is actually making us feel pretty good about how we compete with them, when we compete head to head and how we integrate with them and open further upsell opportunities when we connect with them on their install base.

Terry Tillman -- Truist Securities -- Analyst

Got it. Thank you for that. And I guess, Mitesh just a follow up question, as it relates to this accelerating growth at scale that you've been exhibiting here over a number of quarters. I would love to unpack a little bit more in terms of the drivers, particularly international.

And so that's kind of real time on what you've seen recently and going forward. How important is international on this continued high growth scale? Thank you.

Mitesh Dhruv -- Chief Financial Officer

Yes, sure. I mean, if you take a look at it in this overall cloud on-premise market of 400 million seats, half or third of them are – half of them are international. So it becomes a very, very important growth vector for us. And right now, international for ours is called it over 10%, but all the partnerships we have with Alcatel-Lucent, Atos, Vodafone, Deutsche Telekom, I think over time, it would be not unreasonable to expect that our mix of the international piece will be in the high teens over the next couple of years.

So we feel very positive and bullish about the overall international opportunity, because there's a lot of momentum we have there. We had multiple wins this quarter as well, over $1 million in the international front. And there's a lot of work we are doing internationally to increase the mix there and grow rapidly. Operator? Sorry about this folks.

I think the service provider we are using is having some technical difficulties. It seems like some other companies are having still, so apologies for that. Hopefully these guys get the systems back on track in the next couple of minutes here. So apologies about this.

Unfortunately we don't control the queue or anything. Otherwise, we have just done it directly.

Operator

Ladies and gentlemen, please excuse the technical difficulties. Our next question is coming from Sterling Auty from JPMorgan. And we asked you to please limit yourself to one question and return to the queue at the point.

Sterling Auty -- JPMorgan Chase & Co. -- Analyst

Thanks. Hi guys, and Mitesh, yes, my teams on other calls, they're having the same problem. And actually, I only did have one question that I was going to ask, and it's more of a high level longer-term question. And I'm getting it from a number of investors wondering, given the explosion of the use of video solutions, RingCentral Videos, Zoom, etc.

There's a question as to whether we're going to see contraction in the number of business telepany users. So we often talk about over 400 million business phone users that would shift to the cloud. Are you concerned that that number may end up being fraction of that over time? Yes or no. And how do you think that impacts your business over the long-term?

Anand Eswaran -- Chief Operating Officer

I'll take that. So short answer is no, we are not concerned about business contraction by any stretch of imagination, because if you look at the number of seats we have in the cloud, we are still talking about pick your favorite analyst, 14, 15 million seats in the cloud right now. And compare that to the opportunity at hand 400 million, 450 million. There's still a long way to go before we see any sort of contraction.

That's number one. Number two, what we also see is as companies returned to the office, it is about having a way to meaningfully work in an hybrid manner. This is where the power of a unified app across multiple modes message, video and phone is making a huge difference. That's number two.

Number three, we do see the same momentum and velocity, and this is reflected in our pipe. Our pipe is the strongest it has ever been as we exceeded Q2. And that tells us that the amount of companies who are looking at making a communications decision for the future is increasing at the same rate in the same velocity. So all the early trends, we see how it reflects in our pipe and our customer conversations, we feel pretty bullish about the opportunity ahead of us.

Mitesh Dhruv -- Chief Financial Officer

And Sterling if I just may add. Anand, if I can just add two simple points here. It's excellent commentary you give. But overall Sterling, if you take, think about what video conference is doing here, it's in a way it's replacing it's audio conferencing in a pre-planned manner.

So this conference call, right, for example, we are having which is a pre-planned call, next time we'll probably do it on RingCentral Video. It's a pre-planned call, but that does not change the need for customers to communicate with businesses. If I were to read JPMorgan, how would I reach that? I cannot just do a video call with JPMorgan or with Sterling Auty, right. So that central nervous system, like an email system, it's a very different need to have a communication system versus a collaboration tool which is replacing audio conferencing which is very transitory.

So it's two different markets. It's not either or it's – it's not inside off, it's an addition too.

Sterling Auty -- JPMorgan Chase & Co. -- Analyst

That makes sense. Thank you.

Operator

Thank you. Next question is coming from to Meta Marshall from Morgan Stanley. Your line is now live.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thanks. Maybe building on Sterling's question of just the other investor, that investors have been wanting to do over the past couple quarters is just on pricing. So if you could just give any commentary on what you're seeing in pricing in the market? That would be helpful.

Thanks.

Mitesh Dhruv -- Chief Financial Officer

Sure, Meta, I will take that. And thank god there's been no hiccups here between you and Sterling here in conference. Perfect. So pricing overall, I did call out in my script that the pricing overall trends ARPU have held steady.

If I were to further desegregate that in the enterprise side, of course there's a volume discounting factor of life, but on the other side, we are seeing enterprises take on more upper end bundles along with contact center. So what we're seeing is a deal ticket ARPA, average revenue per account is actually going up. And that's helping our overall lifetime value to CAC ratios. And in terms of the SMB side, pricing is holding a very steady.

So net-net, if I look at the ARPU trend that's holding very steady despite, some of the rhetoric you may be hearing outside, so we don't see that.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thanks.

Operator

Thank you. Next question is coming from Samad Samana from Jefferies. Your line is now live.

Samad Samana -- Jefferies -- Analyst

Hi. Good afternoon. So Mitesh, I think during the quarter, you might've mentioned a range of the number of seats that Ring has. But I was just wondering if you could maybe give us an update on maybe more precisely how many seats the company has.

Because if I do the math I didn't get implied, that you've had about 2 million over the last two years yourselves, and I think that may be under appreciated. So just how many seats does the company have? And how does that compare to the two million-ish or so you had when you signed the partnership with Avaya?

Mitesh Dhruv -- Chief Financial Officer

Sure. So, Samad, ultimately in my mind, yes, so we did give a disclosure in the quarter last time between 3.5 million and 4 million seats. But here's the thing, right? We can all get – I understand that – and I totally understand the spirit of your question here about the seats, because other companies are getting out seats. But ultimately we don't quite manage our business to seats.

We do manage our business to ARR, and it's just not about the seats, right? It's about the dollars you get per seats and the value you can extract from the seat. As I was telling Meta, our ARPU has been holding flat. And what I can tell you is that we have added more seats than last year with our differentiated platform, so which has got – which has led to a strong performance for us. Now, if you just take a click up and the big picture here there's 400 million seats here, whether it's 3.5 million or 4 million, the entire cloud market is 15 million seats and we have a straight shot at 180 million preferred access with the three A's.

So I feel, seats aside, we feel really good about how we will compete in the market and gain market share.

Samad Samana -- Jefferies -- Analyst

Great. Congrats for the acceleration again this quarter. Thanks for taking my question.

Operator

Thank you. Next question is coming from George Sutton from Craig-Hallum. Your line is now live.

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

Thank you. You talked earlier about wanting to add even more partners and obviously, I assume part of it is the letters B and beyond, but I'm curious how broad you're thinking about the partner opportunities outside of specifically the telcos?

Anand Eswaran -- Chief Operating Officer

So when we look at partners – this is Anand, and good to talk to George. So when we look at partners, we look at it in three layers. The first is, the channel community which I spoke about early in the call with Terry's question. The second is the global service providers.

And you have carrier partners, but you also have MSOs different flavors of service providers. And that we announced Verizon business, we announced Deutsche Telekom, we announced several regional carrier partners and we feel that's just the beginning. So you're going to see that as a key focus for us global service providers. The third is, what we've talked about which is Avaya, Alcatel-Lucent enterprise and Atos Unify.

So with these three layers of partners, we feel there's a huge amount of opportunity in the years to come to convert their on-premise space to the cloud and they choose a path to the cloud is RingCentral for them.

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

I just want to add to that, George, Vlad here. To what Anand said, if you just look at the GSP opportunity, although there are about 700 service providers in the world BroadSoft a few years ago ended up licensing their software stack to many of them, maybe most of them. But since then they really have not been successful in the cloud – with their cloud offering and obviously ended up selling to Cisco. So at this point, given the momentum we have in the pipeline we have we are pretty optimistic that what we've announced so far which is, frankly pretty remarkable with the Vodafone business.

Like Anand mentioned the regionals but that's the tip of that, but we think there's a little more there. And as far as moving beyond the letter A, well, I do feel that we have exhaustive letter A, but as the other letters in the alphabet. Obviously some are shorter list than with the GSP, but again, I would not necessarily assume that we're done with traditional on-prem PBX providers as far as being a platform of choice for them moving forward. So more to come here.

And as you all know, we have promoted Homayoun, we've announced today to EVP Extremely well deserved, and he has assembled a team that really is borne out in the industry. So we're very bullish there.

Operator

Thank you. Our next question is coming from Michael Turrin from Wells Fargo. Your line is now live.

Michael Turrin -- Wells Fargo Securities -- Analyst

Hey, that might be three in a row – three, four in a row. It's a strong showing, so happy to make it on. Mitesh the metrics here look pretty clean. The one question I do have is just given the uptick in growth, you're seeing maybe the direct and partner ARR split, you broken out isn't maybe surprised it isn't kicking in even a touch more given the number of partnerships we've layered on.

So maybe you could just remind us and help level set what's in that metric and where we are from a timing perspective with some of those partnerships as well. Thank you.

Mitesh Dhruv -- Chief Financial Officer

Yes. Sure, Michael. So the direct end partnership includes our direct business obviously  and all the partnerships we have which is the three As and the GSPs which George was also asking earlier. And look, if you'll take a look at the numbers there, we accelerated 9 points year over year on that metric.

And all our turbo engines are yet to even fire in a way. Right now, what are we seeing here? Like, so we have got Avaya in the early days, Atos just about ramping, Alcatel-Lucent yet to show up in 2022, Verizon just launched. So again, a 2022 story and Vodafone and Deutsche Telekom will also be in 2022 and beyond. So I think this metric over time, this is the upshot, right? We have access to this 180 million seats exclusively, and this is the gift that's going to keep on giving in the long-term because it's not one and done, and we will keep ramping and adding more and more momentum and putting more and more what behind these arrows, so more to come here.

Michael Turrin -- Wells Fargo Securities -- Analyst

That's good context. Thank you.

Operator

Thank you. Our next question is coming from Matt Niknam from Deutsche Bank. Your line is now line.

Matt Niknam -- Deutsche BankAnalyst

Thanks for taking the question. Can you shed some more light on the change that the Chief Revenue Officer level, what drove this? And then maybe secondarily to that, what was the impetus for creating the chief customer officer role and what do you hope to achieve from that in your position? Thanks.

Anand Eswaran -- Chief Operating Officer

That's a good question, Matt. So first thing Phil had just decided to move on to the next chapter of his life journey, and he's going to focus on nonprofits and the venture community. So what we are excited about it, we have been very intentional about succession planning and building a leadership bench. So if you look at the quality of people we have promoted, Carson Hostetter has been here for five years.

He has tens of years of depth in our domain, and he launched our enterprise business, literally from scratch from zero. And as we shared today, it's growing 60%. It's going to touch $600 million. So Carson comes in the dead gravitas and experience and we're excited to have him as a new CRO.

Now Faiza literally did the same thing. She stood up our SMB business, and she comes in with that depth of the customer obsession and the attention to detail which is going to be the right fit for the chief customer officer. And as you know, with any SaaS business, one of the most critical things is net retention. Now, how do you make sure that we have churn to the lowest level possible? How do we make sure that MPS is something every employee lives and dies by? And then, how do we make sure that net retention is constantly proceeding in the right direction? That is what Faiza is going to be accountable for leveraging the organizations of customer support, professional services and professional services, so – and customer success.

So that is a very, very, very important role in the new world. And Vlad already talked about Homayoun. Homayoun in the last 18 months, he accelerated our existing partnerships with AT&T, BT, Telus, but he has also gotten an incredible team with deep relationships across the service provider community, wherein 18 months, we have Vodafone, Verizon, Deutsche Telekom, several regional partners – carrier partners, and many more to come. So we feel really good about the depth of bench we have in the company to actually take this to the next level.

Matt Niknam -- Deutsche BankAnalyst

That's great. Thank you.

Operator

Thank you. Our next question is coming from Matt VanVliet from BTIG. Your line is now live.

Matt VanVliet -- BTIG -- Analyst

Guys, thanks for taking the question. Nice job on the quarter. You highlighted particular success in financial services and healthcare, and I know it's been an area that you've been investing in vertical teams. I guess, do you need more or are you looking at more vertical teams out there? Are there additional investments or are you comfortable with where you're at now in terms of that specialization? And it's really just about execution and efficiency from here.

Anand Eswaran -- Chief Operating Officer

That's a great question, actually. We've talked about financial services and healthcare. Obviously we have also focused on education. We have focused on retail.

So vertical is a continually evolving focus for us. But the reason we also called it out in different places is it's not just a direct teams and our vertical focus which is making a difference. We see vertical traction across every partner. So that's where we called out the vertical traction we have with AT&T, with BT, with Telus, with Avaya, with Atos.

So we're seeing this come across in every single partnership we have, and so it's compounds – that's where success compounds itself in terms of the vertical wins we were able to announce as part of this cycle and going forward.

Matt VanVliet -- BTIG -- Analyst

Great. Thank you.

Operator

Thank you. Our next question is coming from Ryan Koontz from Needham and Company. Your line is now live.

Ryan Koontz -- Needham & Company -- Analyst

Thanks for the question. Wanted to ask about your applications integrations there, and obviously the competitive advantage you have against most of your peers. Can you maybe walk us through a couple of simple use cases on the integrations where you feel like you're differentiated and you can really flex your muscles there. Thank you.

Anand Eswaran -- Chief Operating Officer

Yes. And Vlad feel free to chime in as well. So when we look at integrations, we look at it in two different ways. One, there is – we have a very vibrant ecosystem of developers and integrations.

We have 5,500 integrations, 55,000 developers and growing. And that essentially is self accelerating momentum. That's making a difference. And obviously you have the usual suspects which is well-known like our deeper integrations with Microsoft and Google and Salesforce and Slack and so on and so forth, but many more.

So there's one there. The second thing I will call out which is not so evident is relating back to the last question on vertical strength. This is where we are also starting to integrate with specific vertical applications which are systems of record for each of these verticals. Like when you look at education and we're looking at smart, we're looking at the healthcare specific applications and systems of record and integrating that.

So those are the two layers of integrations. We are doing one through the platform and open ecosystem, and second through a vertical linear.

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

Yes, when compared to that is look, our integration capability and our ecosystem of integrations is – numbers are there, second to none, leading in some areas, but most important things about our integration is not who we integrate with, but what we integrate and what we integrate is RingCentral. And what makes RingCentral interesting to integrate with is the fact that we're work only Five9's fully global, fully distributed. And we done the platform that has not held in Five9, for I think certain quarters now. Whereas, for those of you who are not aware or recently, there is an independent service called the Downdetector, downdetector.com which tracks outages across a good number of major providers.

And I would simply urge people to do your own checking. You can compare RingCentral to some of our competitors, some other people in the industry, you can guess your own names, I suppose. I have to say that when you type into RingCentral that you are not unlikely to get a complaint that my doorbell stopped working, obviously people are confusing that with Ring. But beyond that we have not had a noted issue since last February.

OK and that one was minor. This charter is simply unparalleled. So when we talk about again, integration, so we need to understand the world, but as you all know, we're all about partnerships including partnerships with ISVs and other application standards. This is what we are uniquely positioned to provide Five9's reliability on question security, and world's largest global footprint that by the way, is being fortified and extended in real-time through our most recent partnerships with companies like Verizon, like Vodafone, Deutsche Telekom, you can only imagine that that will reach and quality of service that we will be able to provide over and above what we already do as we get further that integrated within each of their networks.

Ryan Koontz -- Needham & Company -- Analyst

Super helpful, Vlad. Thank you.

Operator

Our next question is from Catharine Trebnick with Colliers. You may proceed with your question.

Catharine Trebnick -- Colliers International -- Analyst

Yes. Excellent quarter. Thanks for taking my question. This is probably a pretty much a softball question, but can you discuss how often you really see Zoom, Zoom Phones and some of the channels, because it would speak to the maturity of their channel partners and maturity of how well you're really doing.

I know because everybody's always asking us on the sales side, what the seat count is. So I'm just trying to get another way to zero in on that. Thanks.

Anand Eswaran -- Chief Operating Officer

No, it's a great question, Catherine. And so when we look at UCaaS opportunities in the channel, we see – we don't see them too often there, we are really happy with our current position and our win rates in these head to head UCaaS opportunities. When these opportunities then expand and there are – as we just shared over 60% of a large teams includes the contact center. So when these opportunities expand to be a UCaaS plus CCaaS conversation, we just don't see that at all, because, at that point the combination of inContact and RingCentral, you get to Gartner MQ leading companies as the foundation for RingCentral contact center.

And we are really thrilled with our win rates across the entire industry when it comes to a UCaaS plus CCaaS play. So we're pretty thrilled about where we are – when we compete, we are really good and when it expands, we don't see them at all.

Catharine Trebnick -- Colliers International -- Analyst

All right. Thank you.

Operator

Thank you. Our next question today is coming from Imtiaz Koujalgi from Guggenheim Partners. Your line is now live.

Imtiaz Koujalgi -- Guggenheim Partners -- Analyst

Hey, guys can you hear me? Hello?

Mitesh Dhruv -- Chief Financial Officer

Yes, we can hear you, Imtiaz.

Imtiaz Koujalgi -- Guggenheim Partners -- Analyst

Hey guys. Thanks for taking my question. I have a question about the – about your combined UC and CC. You've been very – you sounded very positive on the strength you saw with contact center and then combined UC and CC deals.

Can you provide some more color on what kind of ASP or I guess, perceived pricing uplift you get when you have a CC deal versus UC, when you have the combined UC and CC deal versus a pure UC deal?

Anand Eswaran -- Chief Operating Officer

Mitesh, you want to take that on pricing?

Mitesh Dhruv -- Chief Financial Officer

Sure. Yes, I can take it. It's hard to provide you exact specific, Imtiaz, but think of the rough math as CC market is about 10% of the UCaaS market. And the ARPU on the seat itself is 2x to 3x higher.

So it's deal specific. It's hard to use one common denominator of what the exact uplift is. But needless to say this combination if you look at the market from a market share point of view, this combination is definitely yielding lot of wins. And the CC alone is growing much faster for us than the overall installed base.

Imtiaz Koujalgi -- Guggenheim Partners -- Analyst

Got it. And have you provided any kind of data points on the mix today I guess CC revenues or CC seats versus your overall – the overall numbers?

Mitesh Dhruv -- Chief Financial Officer

Sure. I think last quarter, when we extended our partnership with inContact, we said that the CC business is over 10% of our overall business. And so that's the last data points we provided.

Imtiaz Koujalgi -- Guggenheim Partners -- Analyst

Got it. That's very helpful, Mitesh. Thank you.

Mitesh Dhruv -- Chief Financial Officer

Yes, of course.

Anand Eswaran -- Chief Operating Officer

Kevin, who do we have next?

Mitesh Dhruv -- Chief Financial Officer

I think, because of these technical difficulties, I apologize. I think we just have to call it a wrap, it goes to 3:15 here. We will definitely follow up one-on-one with everybody else who didn't get a chance to ask the call and next time this is an opportunity for all of these service providers to use platforms like RingCentral. So, sorry about this.

Stay tune and we'll talk soon. Good bye, everybody.

Operator

[Operator signoff]

Duration: 73 minutes

Call participants:

Ryan Goodman -- Head of Investor Relations

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

Anand Eswaran -- Chief Operating Officer

Mitesh Dhruv -- Chief Financial Officer

Brian Peterson -- Raymond James -- Analyst

Bhavan Suri -- William Blair & Company-- Analyst

Terry Tillman -- Truist Securities -- Analyst

Sterling Auty -- JPMorgan Chase & Co. -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

Samad Samana -- Jefferies -- Analyst

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

Michael Turrin -- Wells Fargo Securities -- Analyst

Matt Niknam -- Deutsche BankAnalyst

Matt VanVliet -- BTIG -- Analyst

Ryan Koontz -- Needham & Company -- Analyst

Catharine Trebnick -- Colliers International -- Analyst

Imtiaz Koujalgi -- Guggenheim Partners -- Analyst

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