Key Points

Sales of RingCentral's artificial intelligence-powered tools are expanding quickly.
The company increased its cash distributions to investors by 67%.

Shares of RingCentral (NYSE: RNG) rose sharply over the past week after the cloud communications software provider reported strong advances in free cash flow and raised its dividend.

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AI-fueled growth

RingCentral's revenue increased 5.9% year over year to $657 million in the second quarter.

The business messaging specialist has positioned itself to lead in artificial intelligence (AI)-powered customer engagement solutions. It offers phone, text, and video messaging tools, as well as contact center support. RingCentral's AI agents can automate calls, offer real-time assistance, and deliver a more personalized customer experience.

Sales of these AI tools doubled over the past year and now represent 13% of RingCentral's annual recurring revenue.

"Powered by our global voice network, rich customer interaction data, and ability to orchestrate AI and human agents, RingCentral is uniquely positioned to lead the future of customer engagement," CEO Vlad Shmunis said.

Better still, RingCentral is growing more profitable as it integrates AI throughout its organization. Its adjusted operating margin improved to 23.4% from 22.5% in the year-ago quarter. That contributed to a 15% jump in adjusted earnings per share to $1.22.

RingCentral, in turn, is becoming a cash-generating machine. The company's operating and free cash flow climbed 23.3% and 24.8%, respectively, to $206 million and $180 million. That amounted to an impressive free cash flow margin of 27.4%.

This robust cash generation enabled RingCentral to boost its recently initiated quarterly dividend by 67% to $0.125 per share.

Raised guidance

These encouraging results also prompted RingCentral to lift its full-year financial forecast. Management now expects adjusted earnings per share of $4.96 to $5.10 and free cash flow of $615 million to $625 million in 2026.

"RingCentral is in a unique position, with a strong recurring core business, a widening moat, increasing momentum from AI-led products, and a financial profile that continues to strengthen," chief financial officer Vaibhav Agarwal said.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.