RingCentral Announces Fourth Quarter 2018 Results

Total Revenue up 34%

Mid-market and Enterprise ARR up 73%

Enterprise ARR up 99%

BELMONT, Calif.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24RNG&src=ctag” target=”_blank”gt;$RNGlt;/agt; lt;a href=”https://twitter.com/hashtag/RingCentral?src=hash” target=”_blank”gt;#RingCentrallt;/agt;–RingCentral,
Inc.
(NYSE: RNG), a leading provider of global enterprise cloud
communications, collaboration, and contact center solutions, today
announced financial results for the fourth quarter ended December 31,
2018.

Fourth Quarter Financial Highlights

  • Total revenue increased 34% year over year to $189 million.
  • Software subscriptions revenue increased 32% year over year to $172
    million.
  • Annualized Exit Monthly Recurring Subscriptions (ARR) increased 33%
    year over year to $726 million.
  • RingCentral Office® ARR increased 38% year over year to $644 million.
  • Mid-market and Enterprise ARR increased 73% year over year to $309
    million.
  • Enterprise ARR increased 99% year over year to $171 million.

“Fourth quarter results were outstanding, and we finished 2018 with
strong momentum, capped with our first eight-figure customer deal. Our
growth was driven by our mid-market and enterprise business, supported
by strong contributions from channel and international,” said Vlad
Shmunis, RingCentral’s founder, chairman and CEO. “We continue to
rapidly innovate and expand our industry leading cloud communications
platform that empowers enterprises to improve their business
productivity and customer satisfaction.”

New Accounting Standard

The Company adopted the new standard related to revenue recognition
(Topic 606) effective January 1, 2018. The financial information in this
press release is prepared in accordance with Topic 606, and the
comparison period amounts used to calculate growth rates are based on
amounts that have been adjusted from previously reported amounts to
conform to the requirements of Topic 606.

Financial Results for the Fourth Quarter 2018

  • Revenue: Total revenue was $189 million for the fourth quarter
    of 2018, up from $141 million in the fourth quarter of 2017,
    representing 34% growth.
  • Operating Margin: GAAP operating margin was (1.8%), compared to
    (0.2%) in the fourth quarter of 2017, primarily driven by higher
    stock-based compensation and acquisition related expenses. Non-GAAP
    operating margin was 9.2%, compared to 8.1% in the year ago period.
  • Net Income (Loss) Per Share: GAAP net loss per share was
    ($0.07) for the fourth quarter of 2018 compared with breakeven for the
    fourth quarter of 2017, primarily driven by higher stock-based
    compensation, amortization of debt discount and issuance costs, and
    acquisition related expenses. Non-GAAP net income per diluted share
    was $0.23 for the fourth quarter of 2018, compared with $0.14 per
    diluted share for the fourth quarter of 2017.
  • Balance Sheet: Total cash and cash equivalents at the end of
    the fourth quarter of 2018 was $566 million, which reflects
    approximately $26 million net cash payment for the acquisition of
    Dimelo. This compares with $577 million at the end of the third
    quarter of 2018.

Recent Highlights

  • Announced the acquisition of Connect First, a cloud-based
    outbound/blended customer engagement platform for midsize and
    enterprise companies. With the acquisition, the RingCentral Customer
    Engagement portfolio now includes RingCentral Contact Center for
    inbound communications and Workforce Optimization, RingCentral Engage
    for digital customer engagement, and Connect First for
    outbound/blended customer interactions.
  • Announced availability of the new RingCentral unified mobile app, an
    entirely reimagined collaboration-centric experience for enterprise
    communications. The RingCentral unified mobile app eliminates the need
    for multiple applications, and unites voice, team messaging, video
    meetings, and other key features into a single user experience.
  • Introduced RingCentral Engage, a leading digital customer engagement
    platform based on the recent acquisition of Dimelo, as well as the
    upcoming integration of RingCentral Engage with RingCentral’s team
    messaging and video solutions.
  • Announced agreements with three major government contracting vehicles
    including NASPO ValuePoint, TIPS USA, and New York State Office of
    General Services Technology Umbrella Contract. These vehicles are
    aimed at streamlining the purchasing process for state agencies, local
    municipalities, counties, cities, and districts, as well as school
    districts and higher education institutions across the country.
  • Announced artificial intelligence (AI) partnerships with Gong.io,
    ThetaLake, and Velvetech, bringing real-time and post-call voice
    analytics services to global customers.

Financial Outlook

Full Year 2019 Guidance:

  • Total revenue guidance between $847 and $859 million, or an annual
    growth rate of 26% to 28%.
  • Software subscriptions revenue between $775 and $785 million, or an
    annual growth rate of 26% to 28%.
  • GAAP operating margin between (4.3%) and (3.2%).
  • Non-GAAP operating margin between 9.0% and 9.3%.
  • Non-GAAP tax rate for 2019 assumed to be 22% to 24%, compared to 0%
    non-GAAP tax rate in our 2018 reporting. No cash taxes expected given
    net operating loss carryforwards.
  • Non-GAAP EPS between $0.69 and $0.73 based on 88.5 million fully
    diluted shares.
  • Stock-based compensation between $99 and $103 million, amortization of
    debt discount of $20 million, and amortization of acquired intangibles
    between $8 and $10 million.

First Quarter 2019 Guidance:

  • Total revenue range of $191.5 to $194.5 million, representing annual
    growth of 27% to 29%.
  • Software subscriptions revenue range of $175.5 to $177.5 million,
    representing annual growth of 28% to 30%.
  • GAAP operating margin range of (4.0%) to (3.0%).
  • Non-GAAP operating margin range of 8.0% to 8.1%.
  • Non-GAAP tax rate assumed to be 22% to 24%, compared to 0% non-GAAP
    tax rate in our 2018 reporting. No cash taxes expected given net
    operating loss carryforwards.
  • Non-GAAP EPS range of $0.14 to $0.16 based on 87.0 million fully
    diluted shares.
  • Stock-based compensation between $19.5 and $20.5 million, amortization
    of debt discount of $5.0 million, and amortization of acquired
    intangibles between $2.0 and $2.5 million.

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 no 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 in the
range of 22-24%. Accordingly, a reconciliation of the non-GAAP financial
measure guidance to the corresponding GAAP measure is not available
without unreasonable effort.

Conference Call Details:

  • What: RingCentral financial results for the fourth quarter of
    2018 and outlook for the first quarter and full year of 2019.
  • When: Monday, February 11, 2019 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: Following the completion of the call through 11:59 PM
    ET on February 18, 2019, a telephone replay will be available by
    dialing (844) 512-2921 from the United States or (412) 317-6671
    internationally with recording access code 13686761.

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, RingCentral
empowers modern mobile and distributed workforces to communicate,
collaborate, and connect from any location, on any device, and via any
mode. RingCentral 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 Engage, Dimelo, 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, our momentum and growth, our strength in the
mid-market and enterprise segments and our channel partner and
international business, our continued innovation and expansion of our
cloud communications platform, 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-Q for the
quarter ended September 30, 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, 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, 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 customer
subscriptions from RingCentral Office, RingCentral Contact Center and
RingCentral Engage 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 with 50 seats or more 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 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.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

   
December 31, December 31,
2018 2017
    *As Adjusted
Assets
Current assets
Cash and cash equivalents $ 566,329 $ 181,192
Accounts receivable, net 94,375 46,690
Deferred sales commission costs 23,038 15,424
Prepaid expenses and other current assets   23,772   21,512
Total current assets 707,514 264,818
Property and equipment, net 70,205 43,298
Deferred sales commission costs, noncurrent 55,735 37,871
Goodwill 31,238 9,393
Acquired intangibles, net 19,480 1,462
Other assets   10,154   2,972
Total assets $ 894,326 $ 359,814
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 10,145 $ 7,322
Accrued liabilities 100,687 54,977
Deferred revenue   88,527   62,917
Total current liabilities 199,359 125,216
Convertible senior notes, net 366,552
Other long-term liabilities   10,806   6,252
Total liabilities 576,717 131,468
Stockholders’ equity:
Common stock 8 8
Additional paid-in capital 551,078 434,840
Accumulated other comprehensive income 2,226 2,998
Accumulated deficit   (235,703 )   (209,500 )
Total stockholders’ equity $ 317,609 $ 228,346
Total liabilities and stockholders’ equity $ 894,326 $ 359,814

* Prior-period information has been adjusted for the adoption of ASU
2014-09, Revenue from Contracts with Customers (Topic 606), which
we adopted on January 1, 2018.

 

TABLE 2

RINGCENTRAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

   
Three Months Ended Year Ended
December 31, December 31,
2018   2017 2018   2017
    *As Adjusted     *As Adjusted
Revenues
Software subscriptions $ 171,901 $ 130,312 $ 612,888 $ 465,254
Other   16,723   10,873   60,736   38,363
Total revenues   188,624   141,185   673,624   503,617
Cost of revenues
Software subscriptions 30,254 24,223 109,454 89,193
Other   13,861   9,397   47,675   32,078
Total cost of revenues   44,115   33,620   157,129   121,271
Gross profit 144,509 107,565 516,495 382,346
Operating expenses
Research and development 27,230 20,362 101,042 75,148
Sales and marketing 91,894 67,992 329,116 240,223
General and administrative   28,789   19,428   102,773   72,313
Total operating expenses   147,913   107,782   532,931   387,684
Loss from operations (3,404 ) (217 ) (16,436 ) (5,338 )
Other income (expense), net
Interest expense (4,939 ) (5 ) (16,102 ) (99 )
Other income, net   2,531   178   6,475   1,491
Other income (expense), net   (2,408 )   173   (9,627 )   1,392
Loss before provision for income taxes (5,812 ) (44 ) (26,063 ) (3,946 )
Provision (benefit) for income taxes   (134 )   77   140   258
Net loss $ (5,678 ) $ (121 ) $ (26,203 ) $ (4,204 )
Net loss per common share
Basic and diluted $ (0.07 ) $ (0.00 ) $ (0.33 ) $ (0.06 )
Weighted-average number of shares used in computing net loss per
share
Basic and diluted   80,638   77,665   79,500   76,281

* Prior-period information has been adjusted for the adoption of ASU
2014-09, Revenue from Contracts with Customers (Topic 606), which
we adopted on January 1, 2018.

 

TABLE 3

RINGCENTRAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 
  Year Ended December 31,
2018   2017
    *As Adjusted
Cash flows from operating activities
Net loss $ (26,203 ) $ (4,204 )
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 23,273 16,214
Share-based compensation 68,088 42,060
Amortization of deferred sales commission costs 19,754 12,623
Amortization of debt discount and issuance costs 15,918
Foreign currency remeasurement (gain) loss 951 (666 )
Provision for bad debt 3,091 1,674
Deferred income taxes (303 ) (47 )
Other 614 181
Changes in assets and liabilities
Accounts receivable (47,877 ) (17,903 )
Deferred sales commission costs (45,232 ) (32,469 )
Prepaid expenses and other current assets (342 ) (6,199 )
Other assets 279 1,533
Accounts payable 2,783 176
Accrued liabilities 33,695 9,918
Deferred revenue 24,780 18,298
Other liabilities   (1,139 )   (24 )
Net cash provided by operating activities   72,130   41,165
Cash flows from investing activities
Purchases of property and equipment (27,123 ) (19,497 )
Capitalized internal-use software (11,421 ) (7,420 )
Cash paid for business combination, net of cash acquired (26,434 )
Cash paid for acquisition of intangible assets (18,470 )
Restricted investment     530
Net cash used in investing activities   (83,448 )   (26,387 )
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 20,621 25,495
Taxes paid related to net share settlement of equity awards (7,172 ) (3,691 )
Repayment of debt (14,840 )
Repayment of capital lease and financing obligations   (741 )   (181 )
Net cash provided by financing activities   397,255   6,783
Effect of exchange rate changes (800 ) (724 )
Net increase in cash, cash equivalents and restricted cash 385,137 20,837
Cash, cash equivalents and restricted cash
Beginning of period   181,192   160,355
End of period $ 566,329 $ 181,192

* Prior-period information has been adjusted for the adoption of ASU
2014-09, Revenue from Contracts with Customers (Topic 606), which
we adopted on January 1, 2018.

 

TABLE 4

RINGCENTRAL, INC.

RECONCILIATION OF OPERATING INCOME (LOSS)

GAAP MEASURES TO NON-GAAP MEASURES

(Unaudited, in thousands)

   
Three Months Ended Year Ended
December 31, December 31,
2018   2017 2018   2017
    *As Adjusted     *As Adjusted
Revenues
Software subscriptions $ 171,901 $ 130,312 $ 612,888 $ 465,254
Other   16,723   10,873   60,736   38,363
Total revenues   188,624   141,185   673,624   503,617
Cost of revenues reconciliation
GAAP Software subscriptions cost of revenues 30,254 24,223 109,454 89,193
Stock-based compensation (1,162 ) (849 ) (4,343 ) (3,552 )
Amortization of acquisition intangibles (277 ) (150 ) (729 ) (602 )
Acquisition related matters   (29 )     (29 )  
Non-GAAP Software subscriptions cost of revenues   28,786   23,224   104,353   85,039
 
GAAP Other cost of revenues 13,861 9,397 47,675 32,078
Stock-based compensation   (194 )   (65 )   (639 )   (183 )
Non-GAAP Other cost of revenues   13,667   9,332   47,036   31,895
Gross profit and gross margin reconciliation
Non-GAAP Subscriptions 83.3 % 82.2 % 83.0 % 81.7 %
Non-GAAP Other 18.3 % 14.2 % 22.6 % 16.9 %
Non-GAAP Gross profit 77.5 % 76.9 % 77.5 % 76.8 %
Operating expenses reconciliation
GAAP Research and development 27,230 20,362 101,042 75,148
Stock-based compensation (3,906 ) (2,751 ) (14,975 ) (9,550 )
Acquisition related matters   (9 )     (9 )   (443 )
Non-GAAP Research and development   23,315   17,611   86,058   65,155
As a % of total revenues non-GAAP 12.4 % 12.5 % 12.8 % 12.9 %
 
GAAP Sales and marketing 91,894 67,992 329,116 240,223
Stock-based compensation (7,645 ) (4,459 ) (27,324 ) (16,015 )
Amortization of acquisition intangibles (726 ) (3,617 ) (180 )
Acquisition related matters   (146 )     (146 )  
Non-GAAP Sales and marketing   83,377   63,533   298,029   224,028
As a % of total revenues non-GAAP 44.2 % 45.0 % 44.2 % 44.5 %
 
GAAP General and administrative 28,789 19,428 102,773 72,313
Stock-based compensation (5,802 ) (3,432 ) (20,807 ) (12,760 )
Acquisition related matters   (794 )     (2,536 )  
Non-GAAP General and administrative   22,193   15,996   79,430   59,553
As a % of total revenues non-GAAP   11.8 %   11.3 %   11.8 %   11.8 %
Income (loss) from operations reconciliation
GAAP loss from operations (3,404 ) (217 ) (16,436 ) (5,338 )
Stock-based compensation 18,709 11,556 68,088 42,060
Amortization of acquisition intangibles 1,003 150 4,346 782
Acquisition related matters   978     2,720   443
Non-GAAP Income from operations   17,286   11,489   58,718   37,947
Non-GAAP Operating margin 9.2 % 8.1 % 8.7 % 7.5 %

Contacts

Investor Relations Contact:
Ryan Goodman, RingCentral
(650)
918-5356
[email protected]

Media Contact:
Mariana Kosturos, RingCentral
(650)
562-6545
Mariana.Kost[email protected]

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