Office and call centre communications software provider RingCentral (NYSE: RNG) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.6% year on year to $620.4 million. The company expects next quarter’s revenue to be around $635 million, close to analysts’ estimates. Its non-GAAP profit of $1.06 per share was 3.6% above analysts’ consensus estimates.

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StockStory’s Take

RingCentral delivered a quarter that was well received by the market, with management attributing the performance to continued execution in its core communications platform and growing adoption of new AI-powered products. CEO Vlad Shmunis highlighted expanded partnerships—including the multiyear extension with NiCE and an expanded relationship with AT&T—as key contributors, alongside broad-based customer traction in both small business and enterprise segments. Management also pointed to meaningful growth in the company's AI-driven product suite, with offerings like AIR (AI Receptionist) and RingSense driving tangible customer outcomes and contributing to recurring revenue.

Looking ahead, RingCentral’s updated guidance is influenced by the scaling impact of its AI-first product lineup and ongoing efforts to improve operating efficiency. CFO Vaibhav Agarwal emphasized that disciplined cost management, particularly in sales and marketing and stock-based compensation, will support margin expansion. Management remains focused on sustainable growth through continued investment in AI innovation, with Agarwal stating, "We are well on our way to meeting the $100 million ARR new products goal for this year, and we expect these new products to comprise a meaningful portion of our overall revenues in a few years."

Key Insights from Management’s Remarks

Management identified expanded AI product adoption, strengthened strategic partnerships, and improved operating leverage as central to RingCentral’s recent performance and ongoing strategy.

• AI-powered product traction: RingCentral’s newer AI-first offerings, including AIR, RingSense, and RingCX, are seeing rapid adoption across diverse customer segments. Management cited that over 3,000 customers now use AIR and more than 3,600 use RingSense, with tangible customer benefits like increased efficiency and improved business outcomes.

• Strategic partnerships extended: The company’s multiyear extension with NiCE ensures continued access to a highly integrated contact center solution, particularly valued by enterprise clients with complex needs. Additionally, the expanded partnership with AT&T now includes new AI products, increasing RingCentral’s reach and relevance in AT&T’s customer base.

• Small business and global service provider strength: Management noted that small business customers and global service providers together now represent a $1 billion-plus annual recurring revenue stream, growing in double digits. These segments are benefitting from faster breakeven times and healthy demand trends.

• Microsoft Teams integration: RingCentral’s embedded app for Microsoft Teams continues to differentiate the platform for larger enterprises, with strong double-digit growth in accounts and a doubling of active users year over year. This integration is cited as a significant driver in enterprise deal wins.

• Operating discipline and capital returns: Improved operating margin and free cash flow were attributed to disciplined cost management, specifically reductions in sales and marketing spend and stock-based compensation. The company also increased its share repurchase authorization to $500 million, reflecting confidence in its financial profile and ongoing capital return focus.

Drivers of Future Performance

RingCentral’s outlook is underpinned by scaling AI-driven products, disciplined cost structure, and expanding enterprise partnerships as key drivers for sustained growth and margin improvement.

• AI investment to drive growth: Management is allocating over $250 million annually to research and development, with a significant portion dedicated to AI innovation. The company expects its new AI-first products to materially contribute to future revenue, aiming for $100 million in annual recurring revenue from these offerings by year end.

• Margin expansion focus: The company is prioritizing operating leverage by reducing sales and marketing expenses as a percentage of revenue and lowering stock-based compensation. These actions are designed to support ongoing increases in non-GAAP operating margin and free cash flow per share.

• Partnerships and multiproduct adoption: RingCentral anticipates that deepening partnerships with NiCE and AT&T, as well as multiproduct adoption among large customers, will drive further expansion in enterprise accounts and broaden the company’s market reach. Management highlighted ongoing traction in key verticals such as healthcare, financial services, and retail.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the pace at which RingCentral’s AI-first products gain traction and generate recurring revenue, (2) the impact of expanded partnerships with NiCE and AT&T on enterprise customer wins, and (3) the company’s ability to sustain margin improvements through disciplined cost management. Progress in multiproduct adoption and execution on innovation investments will also be key indicators of long-term success.

RingCentral currently trades at $27.27, up from $23.62 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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