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8-K - FORM 8-K - RingCentral, Inc.d491553d8k.htm

Exhibit 99.1

 

LOGO

RingCentral Announces Third Quarter 2017 Results

Software Subscriptions ARR surpasses half billion dollars

Software Subscriptions Revenue up 30%

RingCentral Office ARR up 37%

Belmont, Calif. – November 8, 2017 – RingCentral, Inc. (NYSE: RNG), a leading provider of global enterprise cloud communications and collaboration solutions, today announced financial results for the third quarter ended September 30, 2017.

Third Quarter Financial Highlights

 

    Total revenue grew 34% year-over-year to $129.8 million.

 

    Software subscriptions revenue grew 30% year-over-year to $119.4 million.

 

    Total annualized exit recurring software subscriptions (ARR) grew 32% year-over-year to $513.7 million.

 

    RingCentral Office® annualized exit recurring software subscriptions (ARR) grew 37% year-over-year to $433.7 million.

 

    GAAP software subscriptions gross margin was 80.8%, up 1.7 points year-over-year, while Non-GAAP software subscriptions gross margin was 81.8%, up 1.7 points year-over-year.

 

    GAAP operating margin was (4.8%), up 2.5 points year-over-year, while Non-GAAP operating margin was 3.7%, up 1.4 points year-over-year.

 

    Net monthly subscriptions dollar retention: RingCentral Office over 100% and overall subscriptions over 99%.

“We had an outstanding quarter led again by growth in our mid-market and enterprise business, as well as strong growth from our channel partners.” said Vlad Shmunis, RingCentral’s Chairman and CEO. “We are excited to cross the $500 million mark in Software Subscriptions ARR as we reach toward our $1 billion target. RingCentral is the clear market share leader in UCaaS and we continue to extend our lead.”

Financial Results for the Third Quarter 2017

 

    Revenue and Gross Margin: Total revenue was $129.8 million for the third quarter of 2017, up from $96.8 million in the third quarter of 2016, representing 34% growth. Total gross margin was 76.3% for the third quarter of 2017, up 0.5% points compared to 75.8% in the third quarter of 2016.

As of January 1, 2017, RingCentral transitioned from an agency model to a direct phone sales model, under which RingCentral will be recognizing the full sale price and cost of the product instead of receiving a commission for phone sales. Adjusting for the new direct model on a comparable basis, total revenue grew 31% year over year and the total gross margin would have been 2.2% higher year over year.

 

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    Net Income (Loss) Per Share: GAAP net loss per share was ($0.07) for the third quarter of 2017 compared with ($0.11) for the third quarter of 2016. Non-GAAP net income per diluted share was $0.06 for the third quarter of 2017, compared with $0.03 per diluted share for the third quarter of 2016.

 

    Balance Sheet: Total cash and cash equivalents at the end of the third quarter of 2017 was $172.3 million, compared with $167.0 million at the end of the second quarter of 2017.

Recent Business Highlights

 

      Industry Awards

 

    For the third consecutive year, Gartner recognized RingCentral as a Leader in the Magic Quadrant for Unified Communications as a Service (UCaaS), Worldwide. In this year’s Magic Quadrant, RingCentral continues to be positioned furthest to the right on completeness of vision.

 

    Frost & Sullivan again named RingCentral 2017 Company of the Year in Hosted IP Telephony and UCaaS North America for its complete communications and collaboration capabilities and keen insight into the customer experience.

 

    Aragon Research named RingCentral a leader in The Aragon Research Globe for Unified Communications and Collaboration, 2017, recognizing our flagship UCaaS solutions as well as our team messaging and collaboration platform, RingCentral GlipTM.

 

      Innovation Highlights

 

    In October, RingCentral hosted our second annual user conference, ConnectCentral 2017. With triple the attendance of our first user conference, we brought together customers, prospects, channel partners and our open platform developers. At the conference, we showcased the latest RingCentral innovations highlighted below.

 

    Introduced Quality of Services Analytics: new real-time analytics capabilities that empower administrators to gain deeper insight into the end-user experience and achieve faster time to resolution. With the new Quality of Service Analytics, administrators can measure quality of every leg of every call on a global basis, and access a comprehensive reporting dashboard that allows them to anticipate and diagnose voice quality of service in real time.

 

    Enhanced RingCentral ecosystem including new integrations with Google G Suite, Amazon Alexa, and Slack. RingCentral’s integration with Amazon Alexa-powered devices will enable users to interface with RingCentral through voice commands. RingCentral for Gmail is an add-on that intuitively surfaces key contextual RingCentral capabilities within Gmail. RingCentral for Slack brings meetings and calling capabilities into the Slack messaging platform. In addition, we announced new AI and chatbot enhancements for Glip to better automate processes and enable seamless workflows.

 

    Expansion of RingCentral’s Global Office™ solution in Latin America to include Peru, Brazil, and Argentina. By the end of 2017, the RingCentral Global Office footprint will extend to 37 countries and virtual numbers in over 80 countries.

 

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Conference Call Details:

 

    What: RingCentral financial results for the third quarter of 2017 and outlook for the fourth quarter and full year of 2017.

 

    When: Wednesday, November 8, 2017 at 2:00PM PT (5:00PM ET).

 

    Dial in: To access the call in the United States, please dial (877) 705-6003, and for international callers dial (201) 493-6725. Callers are encouraged to dial into the call 10 to 15 minutes prior to the start to prevent any delay in joining.

 

    Webcast: http://ir.ringcentral.com/ (live and replay).

 

    Replay: A replay of the call will be available via telephone for seven days, following the completion of the call. To listen to the telephone replay in the U.S., please dial (844) 512-2921 from the United States or (412) 317-6671 internationally with recording access code 13672126.

About RingCentral

RingCentral, Inc. (NYSE:RNG) is a leading provider of global enterprise cloud communications and collaboration solutions. More flexible and cost-effective than legacy on-premises systems, RingCentral empowers today’s mobile and distributed workforce to communicate, collaborate, and connect from anywhere, on any device. RingCentral unifies voice, video, team messaging and collaboration, conferencing, online meetings, and integrated contact center solutions. 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.

©2017 RingCentral, Inc. All rights reserved. RingCentral, RingCentral Office, RingCentral Global Office, RingCentral Glip 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, our GAAP and non-GAAP guidance, our strength in our mid-market and enterprise segments, our growth from our channel partners, our increasing market share, the expected demand for and benefits of our new product capabilities, the expansion of RingCentral Global Office and our anticipated success in the cloud communications and collaboration market. 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, 2017, 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.

 

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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 software subscriptions gross margin, Non-GAAP net income (loss), and Non-GAAP net income (loss) 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 software subscriptions gross margin is defined as Non-GAAP subscriptions gross profit divided by GAAP subscription 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 the related income tax effect of these adjustments.

We have included Non-GAAP operating income (loss), Non-GAAP operating margin, Non-GAAP software subscriptions gross 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 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 software subscriptions gross margin, Non-GAAP net income (loss), and Non-GAAP net income (loss) 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 software subscriptions gross 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 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.

 

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Investor Relations Contact:

Paul Thomas, RingCentral

(650) 458-4462

Paul.Thomas@RingCentral.com

Media Contact:

Jennifer Caukin, RingCentral

650-561-6348

Jennifer.Caukin@ringcentral.com

 

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TABLE 1

RINGCENTRAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

 

     September 30,     December 31,  
     2017     2016  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 172,306     $ 160,355  

Accounts receivable, net

     39,731       30,243  

Prepaid expenses and other current assets

     22,185       15,313  
  

 

 

   

 

 

 

Total current assets

     234,222       205,911  

Property and equipment, net

     41,638       31,994  

Goodwill

     9,393       9,393  

Acquired intangibles, net

     1,612       2,244  

Other assets

     2,575       3,087  
  

 

 

   

 

 

 

Total assets

   $ 289,440     $ 252,629  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Accounts payable

   $ 9,956     $ 7,810  

Accrued liabilities

     53,668       48,322  

Current portion of capital lease obligation

     —         181  

Current portion of long-term debt

     —         14,528  

Deferred revenue

     57,696       45,159  
  

 

 

   

 

 

 

Total current liabilities

     121,320       116,000  

Long-term debt

     —         312  

Sales tax liability

     2,767       3,077  

Other long-term liabilities

     3,409       3,199  
  

 

 

   

 

 

 

Total liabilities

     127,496       122,588  

Commitments and contingencies (Note 8)

    

Stockholders’ equity

    

Common stock

     8       7  

Additional paid-in capital

     418,588       366,800  

Accumulated other comprehensive income

     2,903       2,737  

Accumulated deficit

     (259,555     (239,503
  

 

 

   

 

 

 

Total stockholders’ equity

     161,944       130,041  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 289,440     $ 252,629  
  

 

 

   

 

 

 

 

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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,  
     2017     2016     2017     2016  

Revenues

        

Software subscriptions

   $ 119,401     $ 91,853     $ 333,501     $ 257,898  

Other

     10,363       4,986       27,490       17,323  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     129,764       96,839       360,991       275,221  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues

        

Software subscriptions

     22,912       19,211       64,970       54,107  

Other

     7,872       4,244       22,681       13,452  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     30,784       23,455       87,651       67,559  

Gross profit

     98,980       73,384       273,340       207,662  

Operating expenses

        

Research and development

     19,082       16,490       54,786       48,097  

Sales and marketing

     67,071       50,306       186,759       137,796  

General and administrative

     19,073       13,649       52,885       41,114  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     105,226       80,445       294,430       227,007  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (6,246     (7,061     (21,090     (19,345

Other income (expense), net

        

Interest expense

     (6     (176     (94     (585

Other income (expense), net

     613       (696     1,313       (2,280
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

     607       (872     1,219       (2,865
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (5,639     (7,933     (19,871     (22,210

Provision for income taxes

     73       46       181       153  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (5,712   $ (7,979   $ (20,052   $ (22,363
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share

        

Basic and diluted

   $ (0.07   $ (0.11   $ (0.26   $ (0.31
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in computing net loss per share

        

Basic and diluted

     76,915       73,285       75,815       72,669  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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TABLE 3

RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

     Nine Months Ended  
     September 30,  
     2017     2016  

Cash flows from operating activities

    

Net loss

   $ (20,052   $ (22,363

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     11,929       10,749  

Share-based compensation

     30,504       22,603  

Foreign currency remeasurement (gain) loss

     (700     2,450  

Provision for bad debt

     1,508       458  

Deferred income taxes

     (18     (4

Other

     123       464  

Changes in assets and liabilities:

    

Accounts receivable

     (10,996     (4,878

Prepaid expenses and other current assets

     (6,872     (2,434

Other assets

     1,419       201  

Accounts payable

     2,168       (2,470

Accrued liabilities

     9,426       13,737  

Deferred revenue

     12,537       6,080  

Other liabilities

     (100     (2,157
  

 

 

   

 

 

 

Net cash provided by operating activities

     30,876       22,436  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property and equipment

     (15,886     (9,634

Capitalized internal-use software

     (5,432     (1,515

Restricted investments

     530       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (20,788     (11,149
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of stock in connection with stock plans

     19,685       8,268  

Payment of holdback from Glip acquisition

     —         (1,500

Taxes paid related to net share settlement of equity awards

     (2,125     (131

Repayment of debt

     (14,840     (2,813

Repayment of capital lease obligations

     (181     (269
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,539       3,555  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (676     (40

Net increase in cash and cash equivalents

     11,951       14,802  

Cash and cash equivalents

    

Beginning of period

     160,355       137,588  
  

 

 

   

 

 

 

End of period

   $ 172,306     $ 152,390  
  

 

 

   

 

 

 

 

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TABLE 4

RINGCENTRAL, INC.

RECONCILIATION OF OPERATING INCOME (LOSS)

GAAP MEASURES TO NON-GAAP MEASURES

(Unaudited, in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  

Revenues

        

Software subscriptions

   $ 119,401     $ 91,853     $ 333,501     $ 257,898  

Other

     10,363       4,986       27,490       17,323  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     129,764       96,839       360,991       275,221  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues reconciliation

        

GAAP Software subscriptions cost of revenues

     22,912       19,211       64,970       54,107  

Stock-based compensation

     (981     (824     (2,703     (2,238

Amortization of acquisition intangibles

     (151     (151     (452     (452
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Software subscriptions cost of revenues

     21,780       18,236       61,815       51,417  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Other cost of revenues

     7,872       4,244       22,681       13,452  

Stock-based compensation

     (45     (35     (118     (86
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Other cost of revenues

     7,827       4,209       22,563       13,366  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit and gross margin reconciliation

        

Non-GAAP Subscriptions

     81.8     80.1     81.5     80.1

Non-GAAP Other

     24.5     15.6     17.9     22.8

Non-GAAP Gross profit

     77.2     76.8     76.6     76.5

Operating expenses reconciliation

        

GAAP Research and development

     19,082       16,490       54,786       48,097  

Stock-based compensation

     (2,598     (1,996     (6,799     (5,491

Acquisition related matters

     —         (619     (443     (1,102
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Research and development

     16,484       13,875       47,544       41,504  
  

 

 

   

 

 

   

 

 

   

 

 

 

As a % of total revenues non-GAAP

     12.7     14.3     13.2     15.1

GAAP Sales and marketing

     67,071       50,306       186,759       137,796  

Stock-based compensation

     (4,105     (3,023     (11,556     (7,791

Amortization of acquisition intangibles

     —         (105     (180     (315
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Sales and marketing

     62,966       47,178       175,023       129,690  
  

 

 

   

 

 

   

 

 

   

 

 

 

As a % of total revenues non-GAAP

     48.5     48.7     48.5     47.1

GAAP General and administrative

     19,073       13,649       52,885       41,114  

Stock-based compensation

     (3,213     (2,511     (9,328     (6,997

Acquisition related matters

     —         —         —         (59
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP General and administrative

     15,860       11,138       43,557       34,058  
  

 

 

   

 

 

   

 

 

   

 

 

 

As a % of total revenues non-GAAP

     12.2     11.5     12.1     12.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations reconciliation

        

GAAP loss from operations

     (6,246     (7,061     (21,090     (19,345

Stock-based compensation

     10,942       8,389       30,504       22,603  

Amortization of acquisition intangibles

     151       256       632       767  

Acquisition related matters

     —         619       443       1,161  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Income from operations

   $ 4,847     $ 2,203     $ 10,489     $ 5,186  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Operating margin

     3.7     2.3     2.9     1.9

 

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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
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  

Net Income (loss) reconciliation

        

GAAP Net loss

   $ (5,712   $ (7,979   $ (20,052   $ (22,363

Stock-based compensation

     10,942       8,389       30,504       22,603  

Amortization of acquisition intangibles

     151       256       632       767  

Acquisition related matters

     —         619       443       1,161  

Intercompany remeasurement loss (gain)

     (392     745       (870     2,341  

Income tax expense effects *

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net income

   $ 4,989     $ 2,030     $ 10,657     $ 4,509  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     76,915       73,285       75,815       72,669  

Effect of dilutive securities

     6,194       3,838       5,784       3,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP weighted average shares used in computing

non-GAAP net income per share

     83,109       77,123       81,599       76,024  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Net loss per share

   $ (0.07   $ (0.11   $ (0.26   $ (0.31
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net income per share

   $ 0.06     $ 0.03     $ 0.13     $ 0.06  
  

 

 

   

 

 

   

 

 

   

 

 

 

* The non-GAAP adjustments do not have an impact on our income tax provision due to our continued history of non-GAAP losses and full valuation allowance.

 

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