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.

* 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.

* 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.

* 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.

Contacts

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

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