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RingCentral Announces Third Quarter 2016 Results

October 25, 2016 4:06 PM

Software Subscriptions Revenue up 31%

RingCentral Office® ARR up 39%

GAAP Software Subscriptions Gross Margin of 79%; Non-GAAP: 80%

BELMONT, Calif.--(BUSINESS WIRE)-- RingCentral, Inc. (NYSE: RNG), a leading provider of cloud business communications and collaboration solutions, today announced financial results for the third quarter ended September 30, 2016.

Third Quarter Financial Highlights

“In the third quarter, we executed well by balancing revenue growth, investments in enterprise, and expanding margins to drive results at the high-end or above our outlook,” said Vlad Shmunis, RingCentral’s Chairman and CEO. “Growth in our enterprise pipeline has accelerated meaningfully over the past three quarters, which we believe demonstrates the success of our focus on innovation and the investments we have made with our comprehensive go-to-market strategy. We were also honored to once again be placed in the leader’s quadrant and furthest to the right on vision in Gartner’s 2016 Magic Quadrant for UCaaS, further extending our leadership position.”

Financial Results for the Third Quarter 2016

Third Quarter 2016 and Recent Business Highlights

Conference Call Details:

About RingCentral

RingCentral, Inc. (NYSE: RNG) is a leading provider of cloud-based business communications and collaboration solutions. RingCentral’s cloud solution is easier to manage, and more flexible and cost-efficient than legacy on-premises communications systems. It meets the needs of modern distributed and mobile workforces spanning SMB to Enterprises globally. RingCentral, Business Communications Made Simple. RingCentral is headquartered in Belmont, California. RingCentral, RingCentral Office, and the RingCentral logo are registered trademarks of RingCentral, Inc.

Forward-Looking Statements

This press release contains “forward-looking statements,” including but not limited to, statements regarding our future, our GAAP and non-GAAP guidance, our markets and strategic opportunities, our expectations regarding the growth in our enterprise pipeline, and our planned investments and innovation. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on assumptions that may prove to be incorrect, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are: our ability to grow at our expected rate of growth; our ability to add and retain larger and enterprise customers and enter new geographies and markets; our ability to continue to release, and gain customer acceptance of, new and improved versions of our services; our ability to compete successfully against existing and new competitors; our ability to enter into and maintain relationships with carriers and other resellers; our ability to manage our expenses and growth; and general market, political, economic, and business conditions, as well as those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-Q for the quarter ended June 30, 2016, filed with the Securities and Exchange Commission; and in other filings we make with the Securities and Exchange Commission from time to time.

All forward-looking statements in this press release are based on information available to RingCentral as of the date hereof, and we undertake no obligation to update these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current financial quarter.

Non-GAAP Financial Measures

Our reported financial results include certain Non-GAAP financial measures, including Non-GAAP operating income (loss), Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income per diluted share. Non-GAAP operating income (loss) is defined as operating income (loss) excluding share-based compensation, amortization of acquisition intangibles, and acquisition related matters. Non-GAAP operating margin is defined as Non-GAAP operating income (loss) divided by total GAAP revenue. Non-GAAP net income (loss) is defined as net income (loss) excluding stock-based compensation, intercompany remeasurement gains or losses, acquisition related matters, amortization of acquisition intangibles, and tax benefit for release of valuation allowance.

We have included Non-GAAP operating income (loss), Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income per diluted share in this press release because they are key measures used by us to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating Non-GAAP operating income (loss), Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income per diluted share can provide a useful measure for period-to-period comparisons of our core business.

Although Non-GAAP operating income (loss), Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income per diluted share are frequently used by investors in their evaluations of companies, these non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Because of these limitations, these non-GAAP financial measures should be considered alongside other financial performance measures. Reconciliations of the Company’s historical non-GAAP financial measures and key metrics to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release.

Other Measures

Our reported results also include our total annualized exit monthly recurring subscriptions, RingCentral Office® annualized exit monthly recurring subscriptions, and net monthly subscriptions dollar retention. We define our total annualized exit monthly recurring subscriptions as our total monthly recurring subscriptions multiplied by 12. Our total monthly recurring subscriptions equal the monthly value of all customer subscriptions in effect at the end of a given month. We believe this metric is a leading indicator of our anticipated subscriptions revenue. We calculate our RingCentral Office® annualized exit monthly recurring subscriptions in the same manner as we calculate our total annualized exit monthly recurring subscriptions, except that only customer subscriptions from RingCentral Office® customers are included when determining monthly recurring subscriptions for the purposes of calculating this key business metric. We define Dollar Net Change as the quotient of (i) the difference of our Monthly Recurring Subscriptions at the end of a period minus our Monthly Recurring Subscriptions at the beginning of a period minus our Monthly Recurring Subscriptions at the end of the period from new customers we added during the period, (ii) all divided by the number of months in the period. We define our Average Monthly Recurring Subscriptions as the average of the Monthly Recurring Subscriptions at the beginning and end of the measurement period.

TABLE 1
RINGCENTRAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30, 2016 December 31, 2015
Assets
Current assets
Cash and cash equivalents $ 152,390 $ 137,588
Accounts receivable, net 23,583 19,163
Inventory 84 2,317
Prepaid expenses and other current assets 16,644 11,978
Total current assets 192,701 171,046
Property and equipment, net 31,139 28,160
Goodwill 9,393 9,393
Acquired intangibles, net 2,500 3,266
Other assets 3,064 2,948
Total assets $ 238,797 $ 214,813
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 4,701 $ 5,196
Accrued liabilities 46,368 34,702
Current portion of capital lease obligation 181 269
Current portion of long-term debt 14,528 3,750
Deferred revenue 42,738 36,657
Total current liabilities 108,516 80,574
Long-term debt 1,250 14,840
Sales tax liability 3,527 3,670
Capital lease obligation - 181
Other long-term liabilities 3,402 5,416
Total liabilities 116,695 104,681
Stockholders' equity
Common stock 7 7
Additional paid-in capital 351,784 319,792
Accumulated other comprehensive income 2,868 527
Accumulated deficit (232,557 ) (210,194 )
Total stockholders' equity 122,102 110,132
Total liabilities and stockholders' equity $ 238,797 $ 214,813
TABLE 2
RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Revenues
Software subscriptions $ 91,853 $ 70,321 $ 257,898 $ 194,713
Other 4,986 6,459 17,323 18,076
Total revenues 96,839 76,780 275,221 212,789
Cost of revenues
Software subscriptions 19,211 17,084 54,107 49,503
Other 4,244 5,249 13,452 14,906
Total cost of revenues 23,455 22,333 67,559 64,409
Gross profit 73,384 54,447 207,662 148,380
Operating expenses
Research and development 16,490 13,475 48,097 37,612
Sales and marketing 50,306 34,878 137,796 101,473
General and administrative 13,649 11,922 41,114 34,231
Total operating expenses 80,445 60,275 227,007 173,316
Loss from operations (7,061 ) (5,828 ) (19,345 ) (24,936 )
Other income (expense), net
Interest expense (176 ) (245 ) (585 ) (927 )
Other income (expense), net (696 ) (319 ) (2,280 ) (637 )
Other income (expense), net (872 ) (564 ) (2,865 ) (1,564 )
Loss before provision (benefit) for income taxes (7,933 ) (6,392 ) (22,210 ) (26,500 )
Provision (benefit) for income taxes 46 (56 ) 153 (1,342 )
Net loss $ (7,979 ) $ (6,336 ) $ (22,363 ) $ (25,158 )
Net loss per common share
Basic and diluted $ (0.11 ) $ (0.09 ) $ (0.31 ) $ (0.36 )
Weighted-average number of shares used in computing net loss
per share
Basic and diluted 73,285 70,580 72,669 69,614
TABLE 3
RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
2016 2015
Cash flows from operating activities
Net loss $ (22,363 ) $ (25,158 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 10,749 9,935
Share-based compensation 22,603 15,790
Foreign currency remeasurement loss 2,450 315
Tax benefit from release of valuation allowance — (1,411 )
Non-cash interest expense and other expenses related to debt — 156
Net accretion of discount and amortization of premium on available-for-sale securities — 602
Provision for bad debt 458 152
Deferred income taxes (4 ) 5
Others 464 220
Changes in assets and liabilities:
Accounts receivable (4,878 ) (7,688 )
Inventory 2,233 (577 )
Prepaid expenses and other current assets (4,667 ) (3,907 )
Other assets 201 173
Accounts payable (2,470 ) (61 )
Accrued liabilities 13,737 4,758
Deferred revenue 6,080 8,700
Other liabilities (2,157 ) 204
Net cash provided by operating activities 22,436 2,208
Cash flows from investing activities
Purchases of property and equipment (9,634 ) (11,106 )
Capitalized internal-use software (1,515 ) (1,836 )
Cash paid in business combination, net of cash acquired — (4,670 )
Proceeds from the maturity of available-for-sale securities — 25,760
Proceeds from the maturity of restricted investments — 100
Net cash provided by (used in) investing activities (11,149 ) 8,248
Cash flows from financing activities
Proceeds from issuance of stock in connection with stock plans 8,268 12,040
Taxes paid related to net share settlement of equity awards (131 ) (105 )
Payment of holdback from Glip acquisition (1,500 ) —
Repayment of debt (2,813 ) (5,205 )
Repayment of capital lease obligations (269 ) (509 )
Net cash provided by financing activities 3,555 6,221
Effect of exchange rate changes on cash and cash equivalents (40 ) 145
Net increase in cash and cash equivalents 14,802 16,822
Cash and cash equivalents
Beginning of period 137,588 113,182
End of period $ 152,390 $ 130,004
TABLE 4
RINGCENTRAL, INC.
RECONCILIATION OF OPERATING INCOME (LOSS)
GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited, in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Revenues
Software subscriptions $ 91,853 $ 70,321 $ 257,898 $ 194,713
Other 4,986 6,459 17,323 18,076
Total revenues 96,839 76,780 275,221 212,789
Cost of revenues reconciliation
GAAP Software subscriptions cost of revenues 19,211 17,084 54,107 49,503
Stock-based compensation (824 ) (535 ) (2,239 ) (1,468 )
Amortization of acquisition intangibles (151 ) - (453 ) -
Non-GAAP Software subscriptions cost of revenues 18,236 16,549 51,415 48,035
GAAP Other cost of revenues 4,244 5,249 13,452 14,906
Stock-based compensation (35 ) - (86 ) -
Non-GAAP Other cost of revenues 4,209 5,249 13,366 14,906
Gross profit and gross margin reconciliation
Non-GAAP Subscriptions 80.1 % 76.5 % 80.1 % 75.3 %
Non-GAAP Other 15.6 % 18.7 % 22.8 % 17.5 %
Non-GAAP Gross profit 76.8 % 71.6 % 76.5 % 70.4 %
Operating expenses reconciliation
GAAP Research and development 16,490 13,475 48,097 37,612
Stock-based compensation (1,996 ) (1,351 ) (5,491 ) (3,745 )
Amortization of acquisition intangibles - (256 ) - (328 )
Acquisition related matters (619 ) (331 ) (1,102 ) (331 )
Non-GAAP Research and development 13,875 11,537 41,504 33,208
As a % of total revenues non-GAAP 14.3 % 15.0 % 15.1 % 15.6 %
GAAP Sales and marketing 50,306 34,878 137,796 101,473
Stock-based compensation (3,023 ) (1,797 ) (7,790 ) (5,333 )
Amortization of acquisition intangibles (105 ) - (315 ) -
Non-GAAP Sales and marketing 47,178 33,081 129,691 96,140
As a % of total revenues non-GAAP 48.7 % 43.1 % 47.1 % 45.2 %
GAAP General and administrative 13,649 11,922 41,114 34,231
Stock-based compensation (2,511 ) (2,069 ) (6,997 ) (5,244 )
Acquisition related matters - (2 ) (59 ) (749 )
Non-GAAP General and administrative 11,138 9,851 34,058 28,238
As a % of total revenues non-GAAP 11.5 % 12.8 % 12.4 % 13.3 %
Income (loss) from operations reconciliation
GAAP loss from operations (7,061 ) (5,828 ) (19,345 ) (24,936 )
Stock-based compensation 8,389 5,752 22,603 15,790
Amortization of acquisition intangibles 256 256 768 328
Acquisition related matters 619 333 1,161 1,080
Non-GAAP Income (loss) from operations $ 2,203 $ 513 $ 5,187 $ (7,738 )
Non-GAAP Operating margin 2.3 % 0.7 % 1.9 % -3.6 %
TABLE 5
RINGCENTRAL, INC.
RECONCILIATION OF NET INCOME (LOSS)
GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Net Income (loss) reconciliation
GAAP Net loss $ (7,979 ) $ (6,336 ) $ (22,363 ) $ (25,158 )
Stock-based compensation 8,389 5,752 22,603 15,790
Amortization of acquisition intangibles 256 256 768 328
Acquisition related matters 619 333 1,161 1,080
Intercompany remeasurement loss 745 257 2,341 332
Tax benefit from release of valuation allowance - - - (1,411 )
Non-GAAP Net income (loss) $ 2,030 $ 262 $ 4,510 $ (9,039 )
Basic and diluted net income (loss) per share
Reconciliation between GAAP and non-GAAP weighted
average shares used in computing basic and diluted net
income / (loss) per common share:
Weighted average number of shares used in computing net
loss per share 73,285 70,580 72,669 69,614
Effect of dilutive securities (stock options and restricted
stock awards) 3,838 3,353 3,355 -
Non-GAAP weighted average shares used in computing
non-GAAP net income per share 77,123 73,933 76,024 69,614
GAAP Net loss per share $ (0.11 ) $ (0.09 ) $ (0.31 ) $ (0.36 )
Non-GAAP Net income (loss) per share $ 0.03 $ 0.00 $ 0.06 $ (0.13 )
TABLE 6
RINGCENTRAL, INC.

PRO FORMA2 STATEMENT OF GROSS MARGIN UNDER AGENCY MODEL

(Unaudited, in thousands)
2015 2016 3Q16

1Q

2Q

3Q

4Q

1Q

2Q

3Q

Q/Q

Y/Y

GAAP Software subscription revenue $ 59,951 $ 64,441 $ 70,321 $ 76,532 $ 79,978 $ 86,067 $ 91,853 7 % 31 %
GAAP Other revenue $ 5,367 $ 6,250 $ 6,459 $ 6,907 $ 6,560 $ 5,777 $ 4,986
Revised Agency Model adjustment (2,222 ) (2,101 ) (2,278 ) (2,597 ) (1,436 ) — —
Pro forma other revenue $ 3,145 $ 4,149 $ 4,181 $ 4,310 $ 5,124 $ 5,777 $ 4,986 (14 %) 19 %
Total pro forma revenue $ 63,096 $ 68,590 $ 74,502 $ 80,842 $ 85,102 $ 91,844 $ 96,839 5 % 30 %
GAAP Software subscription cost of
revenue $ 15,914 $ 16,505 $ 17,084 $ 16,851 $ 16,723 $ 18,173 $ 19,211
Stock-based compensation (457 ) (476 ) (535 ) (586 ) (634 ) (781 ) (824 )
Amortization of acquisition intangibles — — — — (151 ) (151 ) (151 )
Non-GAAP Software subscriptions cost of
revenue $ 15,457 $ 16,029 $ 16,549 $ 16,265 $ 15,938 $ 17,241 $ 18,236
GAAP Other cost of revenue $ 4,633 $ 5,024 $ 5,249 $ 6,011 $ 5,017 $ 4,191 $ 4,244
Stock-based compensation — — — — (19 ) (32 ) (35 )
Non-GAAP Other cost of revenue $ 4,633 $ 5,024 $ 5,249 $ 6,011 $ 4,998 $ 4,159 $ 4,209
Revised Agency Model adjustment (2,222 ) (2,101 ) (2,278 ) (2,597 ) (1,436 ) — —
Pro forma other cost of revenue $ 2,411 $ 2,923 $ 2,971 $ 3,414 $ 3,562 $ 4,159 $ 4,209
Total pro forma cost of revenue $ 17,868 $ 18,952 $ 19,520 $ 19,679 $ 19,500 $ 21,400 $ 22,445 5 % 15 %
Pro forma software subscriptions revenue
gross profit $ 44,494 $ 48,412 $ 53,772 $ 60,267 $ 64,040 $ 68,826 $ 73,617 7 % 37 %
Pro forma other revenue gross profit 734 1,226 1,210 896 1,562 1,618 777 (52 %) (36 %)

Total pro forma gross profit

$ 45,228 $ 49,638 $ 54,982 $ 61,163 $ 65,602 $ 70,444 $ 74,394 6 % 35 %
Pro forma software subscriptions revenue
gross margin 74 % 75 % 76 % 79 % 80 % 80 % 80 %
Pro forma other revenue gross margin 23 % 30 % 29 % 21 % 30 % 28 % 16 %
Total pro forma gross margin 72 % 72 % 74 % 76 % 77 % 77 % 77 %

1In 1Q16 RingCentral transitioned direct phone sales to an agency model, in which RingCentral receives a commission for phone sales instead of separately recognizing the full sale price and cost of the product. RingCentral is providing supplemental information on a pro forma basis to provide a clear comparison of the Company’s results with prior periods as-if the Company had transitioned phone sales to the new agency model on January 1, 2015. Carrier phone sales will remain under the direct phone sales model.

2In 2Q16, RingCentral provided supplemental information on a pro forma basis to provide a clear comparison of the Company’s results with prior periods. The pro forma information reflects results as-if the Company had transitioned to the new agency model for the first quarter of 2016 and for all periods in 2015.

RingCentral

Investor Relations Contact:

Darren Yip, 650-641-2220

[email protected]

or

Media Contact:

Jennifer Caukin, 650-561-6348

[email protected]

Source: RingCentral, Inc.

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