RingCentral Announces First Quarter 2019 Results

May 6, 2019 4:02 PM

Total Revenue up 34%

Enterprise ARR up 95%

Channel ARR surpasses $200 million

BELMONT, Calif.--(BUSINESS WIRE)-- RingCentral, Inc. (NYSE: RNG), a leading provider of global enterprise cloud communications, collaboration, and contact center solutions, today announced financial results for the first quarter ended March 31, 2019.

First Quarter Financial Highlights

“We are pleased with the first quarter. Enterprise delivered solid growth, with continued contributions from channel and international, including a 45,000 seat win with a major UK retailer,” said Vlad Shmunis, RingCentral’s founder, chairman and CEO. “We continue to expand our industry leading cloud communications suite, broaden our open platform developer network, and extend our global delivery footprint. We believe we are well-positioned to satisfy the demands of our enterprise customers to replace their aging on-premises PBX infrastructure with a fully-featured cloud-based unified communications solution.”

Financial Results for the First Quarter 2019

Recent Highlights

Financial Outlook

Full Year 2019 Guidance:

Second Quarter 2019 Guidance:

For a reconciliation of our forecasted non-GAAP operating margin, see “Reconciliation of Forecasted Operating Margin GAAP Measures to Non-GAAP Measures.” We have not reconciled our forecasted non-GAAP EPS to GAAP EPS because we do not provide guidance on it. We do not provide guidance on forecasted GAAP EPS because of the inherent uncertainty and complexity involved in forecasting the intercompany remeasurement gain (loss) and provision (benefit) from income taxes, which could be significant reconciling items between the non-GAAP and respective GAAP measures. The intercompany remeasurement gain (loss) is affected by the movement in various exchange rates relative to the U.S. Dollar, which is difficult to predict and subject to constant change. We do not provide guidance on forecasted GAAP tax rates as we do not forecast discrete tax items as they are difficult to predict. The provision (benefit) from income taxes, excluding discrete items, is expected to have an immaterial impact to our GAAP EPS. We utilized a projected long-term tax rate in our computation of the non-GAAP income tax provision. For fiscal 2019, we have determined the projected non-GAAP tax rate to be 22.5%. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.

Conference Call Details:

Investor Presentation Details

An investor presentation providing additional information and analysis can be found at http://ir.ringcentral.com/.

About RingCentral

RingCentral, Inc. (NYSE: RNG) is a leading provider of global enterprise cloud communications, collaboration, and contact center solutions. More flexible and cost-effective than legacy on-premises systems, the RingCentral platform empowers employees to Work as OneTM from any location, on any device, and via any mode to better serve customers, improving business efficiency and customer satisfaction. The company provides unified voice, video meetings, team messaging, digital customer engagement, and integrated contact center solutions for enterprises globally. RingCentral’s open platform integrates with leading business apps and enables customers to easily customize business workflows. RingCentral is headquartered in Belmont, California, and has offices around the world.

©2019 RingCentral, Inc. All rights reserved. RingCentral, RingCentral Office, RingCentral Contact Center, RingCentral Persist, RingCentral Embeddable, RingCentral Engage, Connect First, and the RingCentral logo are trademarks of RingCentral, Inc.

Forward-Looking Statements

This press release contains “forward-looking statements,” including but not limited to, statements regarding our future financial results, our GAAP and non-GAAP guidance, the expansion of our communications suite, the broadening of our open platform developer network, the extension of our global delivery footprint, our ability to satisfy the requirements of enterprises, and our market opportunity. 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 successfully and timely integrate, and realize the benefits of any significant acquisition we may make; 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-K for the year ended December 31, 2018, 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 and financial outlook include certain Non-GAAP financial measures, including Non-GAAP software subscriptions gross margin, Non-GAAP other gross margin, Non-GAAP operating margin, Non-GAAP operating income (loss), Non-GAAP net income (loss) and Non-GAAP net income (loss) per diluted share. Non-GAAP software subscriptions gross margin is defined as Non-GAAP subscriptions gross profit divided by GAAP subscriptions revenue. Non-GAAP other gross margin is defined as Non-GAAP other gross profit divided by GAAP other revenue. Non-GAAP operating income (loss) is defined as operating income (loss) excluding share-based compensation, amortization of acquisition intangibles, and acquisition related matters including transaction costs, integration costs, restructuring costs, and acquisition-related retention payments, as well as changes in the fair value of contingent consideration obligations. 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 GAAP net income (loss) excluding share-based compensation, intercompany remeasurement gains or losses, acquisition related matters, amortization of acquisition intangibles, non-cash interest expense associated with amortization of debt discount and issuance costs related to our convertible senior notes, tax benefit from release of valuation allowance, and the related income tax effect of these adjustments.

Non-GAAP diluted shares outstanding include the impact on shares used in per share calculations of our outstanding capped call transactions. Our outstanding capped call transactions are anti-dilutive in GAAP earnings per share but are expected to mitigate the dilutive effect of our convertible notes and therefore are included in the calculations of non-GAAP diluted shares outstanding.

We have included Non-GAAP software subscriptions gross margin, Non-GAAP other gross margin, Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income (loss) per diluted share in this press release because they are key measures used by us to understand and evaluate our 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 software subscriptions gross margin, Non-GAAP other gross margin, Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income (loss) per diluted share provide useful measure for period-to-period comparisons of our business.

Although Non-GAAP software subscriptions gross margin, Non-GAAP other gross margin, Non-GAAP operating margin, Non-GAAP net income (loss), and Non-GAAP net income (loss) 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 non-GAAP financial measures 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 annualized exit monthly recurring subscriptions, RingCentral Office® annualized exit monthly recurring subscriptions, mid-market and enterprise and enterprise annualized exit monthly recurring subscriptions, channel partner annualized exit monthly recurring subscriptions, and net monthly subscriptions dollar retention. We define our annualized exit monthly recurring subscriptions as our monthly recurring subscriptions multiplied by 12. Our monthly recurring subscriptions equal the monthly value of all customer recurring charges contracted 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 annualized exit monthly recurring subscriptions, except that only customer subscriptions from RingCentral Office and RingCentral Contact Center solutions customers are included when determining monthly recurring subscriptions for the purposes of calculating this key business metric. We calculate mid-market and enterprise annualized exit monthly recurring subscriptions in the same manner as we calculate our annualized exit monthly recurring subscriptions, except that only customer subscriptions from customers generating $25,000 or more in annual recurring revenue are included. We calculate enterprise annualized exit monthly recurring subscriptions in the same manner as we calculate our annualized exit monthly recurring subscriptions, except that only customer subscriptions from customers generating $100,000 or more in annual recurring revenue are included. We calculate channel annualized exit monthly recurring subscriptions in the same manner as we calculate our annualized exit monthly revenue subscriptions, except that only customer subscriptions generated from channel partners are included. 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)

March 31, December 31,
2019 2018
Assets
Current assets
Cash and cash equivalents $ 549,030 $ 566,329
Accounts receivable, net 100,706 94,375
Deferred sales commission costs 24,924 23,038
Prepaid expenses and other current assets 29,708 23,772
Total current assets 704,368 707,514
Property and equipment, net 74,203 70,205
Operating lease right-of-use assets 31,719
Deferred sales commission costs, non-current 59,098 55,735
Goodwill 55,373 31,238
Acquired intangibles, net 30,634 19,480
Other assets 10,307 10,154
Total assets $ 965,702 $ 894,326
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 19,366 $ 10,145
Accrued liabilities 115,363 100,687
Deferred revenue 93,828 88,527
Total current liabilities 228,557 199,359
Convertible senior notes, net 371,534 366,552
Operating lease liabilities 23,693
Other long-term liabilities 10,694 10,806
Total liabilities 634,478 576,717
Stockholders' equity:
Common stock 8 8
Additional paid-in capital 571,426 551,078
Accumulated other comprehensive income 1,851 2,226
Accumulated deficit (242,061 ) (235,703 )
Total stockholders' equity $ 331,224 $ 317,609
Total liabilities and stockholders' equity $ 965,702 $ 894,326

The Company adopted new accounting standards related to leases (Topic 842) effective January 1, 2019.

TABLE 2

RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

Three Months Ended
March 31,
2019 2018
Revenues
Software subscriptions $ 182,708 $ 136,960
Other 18,781 13,383
Total revenues 201,489 150,343
Cost of revenues
Software subscriptions 35,334 24,526
Other 15,501 11,148
Total cost of revenues 50,835 35,674
Gross profit 150,654 114,669
Operating expenses
Research and development 29,787 22,651
Sales and marketing 99,551 71,920
General and administrative 28,779 21,449
Total operating expenses 158,117 116,020
Loss from operations (7,463 ) (1,351 )
Other income (expense), net
Interest expense (5,032 ) (1,411 )
Other income, net 3,051 73
Other income (expense), net (1,981 ) (1,338 )
Loss before income taxes (9,444 ) (2,689 )
Provision for (benefit from) income taxes (3,086 ) 27
Net loss $ (6,358 ) $ (2,716 )
Net loss per common share
Basic and diluted $ (0.08 ) $ (0.03 )
Weighted-average number of shares used in computing net loss per share
Basic and diluted 81,400 78,341

TABLE 3

RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Three months ended
March 31,
2019 2018
Cash flows from operating activities
Net loss $ (6,358 ) $ (2,716 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 7,696 5,542
Share-based compensation 19,398 13,267
Amortization of deferred sales commission costs 6,228 3,984
Amortization of debt discount and issuance costs 4,982 1,370
Foreign currency remeasurement (gain) loss (11 ) 267
Provision for bad debt 337 554
Deferred income taxes (235 ) (6 )
Tax benefit from release of valuation allowance (3,245 )
Other 1,347 206
Changes in assets and liabilities:
Accounts receivable (5,267 ) (9,243 )
Deferred sales commission costs (11,477 ) (7,478 )
Prepaid expenses and other current assets (5,834 ) (2,270 )
Other assets (83 ) 337
Accounts payable 7,757 (2,816 )
Accrued liabilities (103 ) 6,079
Deferred revenue 5,301 5,120
Other liabilities (236 ) (12 )
Net cash provided by operating activities 20,197 12,185
Cash flows from investing activities
Purchases of property and equipment (6,862 ) (4,587 )
Capitalized internal-use software (3,543 ) (2,759 )
Cash paid for business combination, net of cash acquired (27,870 )
Cash paid for acquisition of intangible assets (18,470 )
Net cash used in investing activities (38,275 ) (25,816 )
Cash flows from financing activities
Proceeds from issuance of convertible senior notes, net of issuance costs 449,457
Payments for capped call transactions and costs (49,910 )
Repurchase of common stock (15,000 )
Proceeds from issuance of stock in connection with stock plans 2,666 3,688
Taxes paid related to net share settlement of equity awards (1,934 ) (1,014 )
Net cash provided by financing activities 732 387,221
Effect of exchange rate changes 47 181
Net increase (decrease) in cash, cash equivalents and restricted cash (17,299 ) 373,771
Cash, cash equivalents and restricted cash
Beginning of period 566,329 181,192
End of period $ 549,030 $ 554,963

TABLE 4

RINGCENTRAL, INC.

RECONCILIATION OF OPERATING INCOME (LOSS)

GAAP MEASURES TO NON-GAAP MEASURES

(Unaudited, in thousands)

Three Months Ended
March 31,
2019 2018
Revenues
Software subscriptions $ 182,708 $ 136,960
Other 18,781 13,383
Total revenues 201,489 150,343
Cost of revenues reconciliation
GAAP Software subscriptions cost of revenues 35,334 24,526
Stock-based compensation (1,346 ) (876 )
Amortization of acquisition intangibles (1,010 ) (151 )
Acquisition related matters (50 )
Non-GAAP Software subscriptions cost of revenues 32,928 23,499
GAAP Other cost of revenues 15,501 11,148
Stock-based compensation (295 ) (134 )
Non-GAAP Other cost of revenues 15,206 11,014
Gross profit and gross margin reconciliation
Non-GAAP Subscriptions 82.0 % 82.8 %
Non-GAAP Other 19.0 % 17.7 %
Non-GAAP Gross profit 76.1 % 77.0 %
Operating expenses reconciliation
GAAP Research and development 29,787 22,651
Stock-based compensation (4,262 ) (3,094 )
Acquisition related matters (347 )
Non-GAAP Research and development 25,178 19,557
As a % of total revenues non-GAAP 12.5 % 13.0 %
GAAP Sales and marketing 99,551 71,920
Stock-based compensation (7,608 ) (5,041 )
Amortization of acquisition intangibles (922 ) (916 )
Acquisition related matters (1,642 )
Non-GAAP Sales and marketing 89,379 65,963
As a % of total revenues non-GAAP 44.4 % 43.9 %
GAAP General and administrative 28,779 21,449
Stock-based compensation (5,887 ) (4,122 )
Acquisition related matters (423 )
Non-GAAP General and administrative 22,469 17,327
As a % of total revenues non-GAAP 11.2 % 11.5 %
Income (loss) from operations reconciliation
GAAP loss from operations (7,463 ) (1,351 )
Stock-based compensation 19,398 13,267
Amortization of acquisition intangibles 1,932 1,067
Acquisition related matters 2,462
Non-GAAP Income from operations 16,329 12,983
Non-GAAP Operating margin 8.1 % 8.6 %

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
March 31,
2019 2018
Net (loss) income reconciliation
GAAP net loss $ (6,358 ) $ (2,716 )
Stock-based compensation 19,398 13,267
Amortization of acquisition intangibles 1,932 1,067
Acquisition related matters 2,462
Amortization of debt discount and issuance costs 4,982 1,370
Intercompany remeasurement loss (gain) 126 274
Tax benefit from release of valuation allowance (3,245 )
Income tax expense effects (4,218 )
Non-GAAP net income $ 15,079 $ 13,262
Reconciliation between GAAP and non-GAAP weighted average shares used in computing basic and diluted net (loss) income per common share:
Weighted average number of shares used in

computing basic net (loss) income per share

81,400 78,341
Effect of dilutive securities 5,525 6,629

Non-GAAP weighted average shares used in

computing non-GAAP diluted net income per share

86,925 84,970
Diluted net (loss) income per share
GAAP net loss per share $ (0.08 ) $ (0.03 )
Non-GAAP net income per share $ 0.17 $ 0.16

TABLE 6

RINGCENTRAL, INC.

RECONCILIATION OF FORECASTED OPERATING MARGIN

GAAP MEASURES TO NON-GAAP MEASURES

(Unaudited, in millions)

Q2 2019 FY 2019
Low Range High Range Low Range High Range
GAAP revenues 203.5 205.5 862.0 866.0
GAAP loss from operations (13.4 ) (11.8 ) (37.9 ) (32.0 )
GAAP operating margin (6.6 %) (5.8 %) (4.4 %) (3.7 %)
Stock-based compensation 28.0 27.0 104.0 101.0
Amortization of acquisition intangibles 2.3 2.3 9.0 9.0
Acquisition related matters - - 2.5 2.5
Non-GAAP income from operations 16.9 17.5 77.6 80.5
Non-GAAP operating margin 8.3 % 8.5 % 9.0 % 9.3 %

Investor Relations Contact:

Ryan Goodman, RingCentral

(650) 918-5356

Ryan.Goodman@RingCentral.com

Media Contact:

Mariana Kosturos, RingCentral

(650) 562-6545

Mariana.Kosturos@ringcentral.com

Source: RingCentral, Inc.

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