RingCentral's Q3 2025 Earnings Call: Contradictions Emerge on Branded Products Market, Pricing Power, Free Cash Flow, Acquisitions, and Revenue Growth

Date of Call: September 30, 2025

Financials Results

• Revenue: $138,000,000, up 7% YOY (transcript contains a conflicting earlier CEO remark referencing a 7% YOY decline)
• EPS: $0.18 per diluted share, up from $0.10 sequentially, down from $0.33 YOY
• Gross Margin: 38.3%, down from 40.4% year-ago, sequentially consistent with Q2

Guidance:

• Full-year revenue guidance narrowed to $560,000,000–$570,000,000 (prior range $550,000,000–$575,000,000), raising the midpoint.
• Expect sequential sales build Q3→Q4, driven primarily by Branded Products; December expected to be the largest month.
• Continue expense discipline while selectively investing to convert pipeline opportunities as macro uncertainty dissipates.

Business Commentary:

• Revenue and Segment Performance:
• Superior Group of Companies' consolidated revenue was $138,000,000 in Q3, down 7% year-on-year, while the Branded Products segment reported $85,000,000 in revenue, down from $93,000,000 in the previous year.

• The decline was attributed to factors such as sales pull forward, lower employee turnover among customers, smaller average order sizes, and delayed ordering, as well as a shift in trade policies and macroeconomic uncertainties.

• Cost Management and Expense Reduction:

• The company achieved a SG&A expense reduction of 7% or $3,900,000 in Q3, with improvements seen across all three segments.

• This was due to tight expense management and cost-saving initiatives implemented during Q2, which were fully realized in Q3.

• Profitability and EBITDA:

• Superior Group's EBITDA for Q3 was $7,500,000, up sequentially from $6,100,000 in the prior quarter but down from $11,700,000 in the previous year.

• The sequential improvement in EBITDA was due to reduced SG&A expenses and cost-saving measures, despite the revenue decline.

• Branded Products and Market Positioning:

• The Branded Products segment's gross margin rate was 34.8%, down 140 basis points due to changes in customer sales mix.

• Despite macroeconomic headwinds, the company remains focused on expanding market share by recruiting more sales representatives and leveraging software automation for sales efficiency.

• Updated Revenue Outlook:

• Superior Group adjusted its full-year revenue outlook range to $560,000,000 to $570,000,000, with a higher midpoint, reflecting a more optimistic outlook on market conditions.
• This update was based on strong pipeline opportunities and expectation of improved sales conversion rates as economic uncertainties dissipate.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted sequential improvement and tightened guidance with a higher midpoint ("earnings were solid...sequential improvement"; "new range of $560M to $570M"), but repeatedly cited ongoing customer caution and macro uncertainty across segments ("significant level of uncertainty and caution among our customers").

Q&A:

• Question from Michael Kupinski (NOBLE Capital Markets): Can you describe the environment in Branded Products — is it hesitancy due to trade policy or normalizing? Where are you in working off inventory purchased earlier and thoughts on future inventory cost increases? And can you quantify the impact of the lost call-center client and comment on the contact-center pipeline and prospects for growth?
  Response: Tariff-driven uncertainty pressured branded-sales but recent tariff clarity is positive; the company has been opportunistically sourcing (including domestic/Haiti) and communicating with clients to manage inventory; the lost call-center client is roughly a couple million dollars annualized, and the contact-center pipeline shows early green shoots with expected benefits in 2026.

• Question from Jim Sidoti (Sidoti and Company): Do you have pricing power — can you maintain or raise prices to offset cost increases? Also, is the implied Q4 revenue build (midpoint) primarily in Branded Products or spread across segments and is it seasonal?
  Response: Company can largely pass through tariff-driven cost increases via order-specific pricing and implemented healthcare price increases in July/August to offset tariffs; Q4 growth is expected mainly in Branded Products driven by strong bookings and pipeline.

• Question from Keegan Cox (D.A. Davidson): Can you give color on sales trends by month and which areas are showing strength? What is your view on acquisition opportunities now? And how much did the cost-savings program contribute this quarter?
  Response: Sales should build month-to-month with December the largest month (Q4 build concentrated in Branded Products); acquisition activity is robust with attractive valuations especially in Branded Products; cost savings drove roughly half of the $4M year-over-year G&A reduction this quarter and management targets ~$13M annualized savings.

Contradiction Point 1

Branded Products Market Environment

It involves differing descriptions of the market environment for Branded Products, impacting sales and strategic planning.

What is the current environment for Branded Products? Is it driven by hesitancy, trade policy shifts, or a return to normalization? - Michael Kupinski (NOBLE Capital Markets)

2025Q3: The market has been challenged due to the tariff environment, which affects the industry significantly. Macro uncertainty and tariff volatility influence customer behavior, but recent tariff announcements have brought positive momentum. - Jake Himmelstein(President of Branded Products, Superior Group of Companies)

Can you discuss the Branded business? Is the Branded business performing well? What growth opportunities exist for the Branded business? - Jim Sidoti (Sidoti and Company)

2025Q1: On the Branded side, we believe that we will at least maintain our market share, if not expand it a little bit. And we know that we're going to have cost pressure from inflation and from tariff increases. - Mike Kempel(CFO)

Contradiction Point 2

Pricing Power and Strategy

It shows differing views on the company's pricing strategy and its ability to maintain or increase prices across segments.

Can you discuss your pricing power and ability to maintain or increase prices over the next few quarters? - Jim Sidoti (Sidoti and Company)

2025Q3: In Branded Products, pricing adjustments are made to offset cost increases, and these are largely passed on to customers. For healthcare, price increases since July and August have helped offset tariff impacts. - Jake Himmelstein(President of Branded Products), Mike Kempel(CFO)

How is the Branded business performing, and what growth opportunities exist? - Jim Sidoti (Sidoti and Company)

2025Q1: In terms of pricing, we'll continue to look for the balance between top line and bottom line. It's not a question of taking price to offset costs. It's how do we manage the balance. So we'll continue to look for the right balance there. - Mike Kempel(CFO)

Contradiction Point 3

Free Cash Flow Sustainability

It involves differing perspectives on the sustainability of free cash flow, which is a critical financial metric for investors.

Was the Q4 revenue increase driven mainly by the Branded Products segment or across all segments, and was it due to seasonality? - Jim Sidoti (Sidoti and Company)

2025Q3: Strong bookings, pipeline growth, and customer attrition indicate a positive outlook. New opportunities and aggressive strategies are driving growth. - Jake Himmelstein(President of Branded Products, Superior Group of Companies)

What's driving new product traction, and how sustainable is free cash flow generation? - Kasthuri Gopalan Rangan(Goldman Sachs)

2025Q2: Our free cash flow sustainability is supported by strong operating leverage, efficiency improvements, and continued cost discipline. The quality of free cash flows is improving. - Vaibhav Agarwal(CFO)

Contradiction Point 4

Acquisition Opportunities

It involves differing perspectives on the acquisition opportunities, which could impact strategic decision-making and financial performance.

What are your thoughts on acquisition opportunities? - Keegan Cox(D. A. Davidson)

2025Q3: The acquisition space is rich with opportunities due to uncertainty. Superior Group is being aggressive in consideration, and potential targets include smaller businesses in attractive verticals. - Michael Benstock(CEO, Superior Group of Companies)

What are the key drivers of new product traction, and how sustainable is free cash flow generation? - Kasthuri Gopalan Rangan(Goldman Sachs)

2025Q2: There is a widening gap between the high-growth segments and those that are either flat or experiencing low growth. Given our expertise in AI and our market leadership, we believe we can continue to drive market share gains in the high-growth segments - Vladimir G. Shmunis(Founder, Chairman, CEO)

Contradiction Point 5

Revenue Growth and Market Share

It involves differing statements on revenue growth and market share, which are critical for understanding the company's competitive position and financial performance.

Was the fourth-quarter revenue increase primarily due to the Branded Products segment or other segments, and was it driven by seasonality? - Jim Sidoti (Sidoti and Company)

2025Q3: The midpoint revenue increase is primarily due to the Branded Products segment. Strong bookings, pipeline growth, and customer attrition indicate a positive outlook. - Jake Himmelstein(President of Branded Products, Superior Group of Companies)

What does the market share presentation indicate about RingCentral's competitive position? Will RingCentral begin regaining market share moving forward? - Kasthuri Rangan (Goldman Sachs)

2024Q4: RingCentral has been maintaining a market share of around 20% for several years, not losing share to competitors like Microsoft and Zoom. - Vladimir Shmunis(Chairman and CEO)