RingCentral Sees AI Driving Upsell, Growth and Stronger Customer Retention

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AI is becoming a major growth and upsell opportunity for RingCentral, with paid AI customers generating higher net retention and average revenue per user. Only 13% of its customer base has purchased at least one paid AI product, leaving substantial room for expansion.

RingCentral is investing more than $250 million in R&D , primarily on AI, while expanding its customer-engagement strategy through RingCX and a broader partnership with NiCE to reach more enterprise customers.

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RingCentral (NYSE:RNG) Chief Financial Officer Vaibhav Agarwal said IT spending remains healthy, with artificial intelligence taking a growing share of both existing and incremental technology budgets as customers move beyond experimentation and focus on measurable returns.

Speaking at a Piper Sandler event, Agarwal said customers are increasingly seeking AI tools that improve productivity, produce identifiable outcomes and are integrated with their existing software providers rather than assembled from multiple point solutions. He said RingCentral's demand and sales cycles have remained stable, supported by the mission-critical nature of communications and customer-engagement software.

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Agarwal said RingCentral is still in the early stages of monetizing AI across its customer base of more than 600,000 customers. The company previously disclosed that customers that have purchased at least one paid AI product represented 13% of its more than $2.5 billion total base, or roughly $350 million.

"There's a long runway to be had," Agarwal said, adding that customers adopting paid AI products are generating higher net retention rates and higher average revenue per user, largely due to AI-related uplift.

RingCentral's core unified communications-as-a-service, or UCaaS, business accounts for about 80% of the company's business and continues to grow in line with the market, he said. The company's AI product portfolio is growing faster, though from a smaller base. Agarwal said broader AI adoption could eventually improve the company's overall growth profile.

The company is investing more than $250 million in research and development, with a large majority of that spending directed toward AI products, according to Agarwal. RingCentral is also deploying AI internally. He said the company recently ran an OpenAI pilot involving more than 2,000 engineers, who were trained through a case study alongside OpenAI.

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RingCentral is adjusting its marketing investments as customers increasingly discover and evaluate software through AI-driven search tools. Agarwal said the company is broadening spending beyond traditional search engine optimization and reallocating resources to make its branding and content more available for AI-led search.

However, he said RingCentral's customer acquisition strategy is not dependent solely on web traffic. The company also sells directly, upsells its existing customer base and works through channel partners and global service providers. Agarwal said the small- and medium-sized business portion of RingCentral's business is growing at a double-digit rate and is "almost a Rule of 40 business."

He also said RingCentral has more than 16,000 channel partners and 16 global service providers, with each route to market contributing to growth. The global service provider segment is growing at a double-digit rate and is also a Rule of 40 business, he said.

Agarwal described RingCX as a strategic priority within RingCentral's effort to provide a broader customer-engagement platform spanning human-to-human communications, contact center agents and AI agents.

RingCX is intended for customers seeking a simpler, easier-to-deploy and AI-native contact center product, he said. The company views the product as particularly suited to organizations that do not require the full range of capabilities offered by a more complex contact center platform.

For more complex and distributed support operations, RingCentral continues to work with NiCE. Agarwal said the companies expanded their relationship into a bilateral arrangement: RingCentral has been selling NiCE's CXone product, while NiCE will begin selling RingCentral's RingEX offering to its customer base.

The relationship gives both companies greater access to enterprise customers and provides customers with more options for integrated UCaaS and contact-center-as-a-service deployments, according to Agarwal.

Agarwal said RingCentral expects to maintain corporate gross margins of approximately 80% or more, with AI products generally holding near the company average. He said AI product profitability depends on pricing, average revenue per user, model selection, inference efficiency and infrastructure costs.

The company currently uses frontier AI models, but Agarwal said improving inference economics and the potential future use of open-source models could provide cost efficiencies. Greater product scale could also reduce infrastructure costs over time, he said.

RingCentral is pursuing growth alongside margin and free-cash-flow expansion, supported by what Agarwal described as an 80% gross-margin recurring-revenue business. He said the company has continued to increase operating margins by roughly 100 to 200 basis points annually following a larger step-up in an earlier period.

For next year, Agarwal said investors should expect "durable growth" as COVID-related renewal headwinds begin to moderate. He said RingCentral remains focused on its previously stated targets of 3% to 4% stock-based compensation and a 20% GAAP operating margin.

The company's offerings include RingEX, its unified communications platform; RingCentral Video for online meetings and collaboration; RingCentral Events for virtual and hybrid events; and contact center products, including RingCX.

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