Market Overview

RingCentral Announces Second Quarter 2018 Results

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Total Revenue up 34%

Total ARR crosses $600 million milestone

Enterprise business ARR up over 110%

RingCentral,
Inc.
(NYSE:RNG), a leading provider of global enterprise cloud
communications and collaboration solutions, today announced financial
results for the second quarter ended June 30, 2018.

Second Quarter Financial Highlights

  • Total revenue increased 34% year over year to $161 million.
  • Software subscriptions revenue increased 32% year over year to $146
    million.
  • Annualized Exit Monthly Recurring Subscriptions (ARR) increased 32%
    year over year to $630 million.
  • RingCentral Office® ARR increased 37% year over year to $548 million.
  • Enterprise ARR increased over 110% year over year to $122 million.
  • GAAP operating margin was (2.9%), down 0.7 points year over year,
    while non-GAAP operating margin was 8.8%, up 1.8 points year over year.

"We had an outstanding second quarter, led by continuing strength in our
mid-market and enterprise businesses and momentum from our channel
partners. Our enterprise business again grew triple digits with
significant wins from landing new logos and expanding into existing
enterprise accounts," said Vlad Shmunis, RingCentral's founder, chairman
and CEO. "We believe our relentless focus on product innovation
continues to differentiate us in the marketplace and it underpins our
broad-based momentum. With our growing lead in the cloud communications
industry and the large underpenetrated market opportunity in front of
us, we believe we are well positioned to achieve our goal of exceeding
$1 billion in revenue in 2020."

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 Second Quarter 2018

  • Revenue and Gross Margin: Total revenue was $161 million for
    the second quarter of 2018, up from $120 million in the second quarter
    of 2017, representing 34% growth. Total GAAP gross margin was 76.3%
    for the second quarter of 2018, up 1.0 points compared to 75.3% in the
    second quarter of 2017.
  • Net Income (Loss) Per Share: GAAP net loss per share was
    ($0.10) for the second quarter of 2018 compared with ($0.03) for the
    second quarter of 2017. Non-GAAP net income per diluted share was
    $0.19 for the second quarter of 2018, compared with $0.10 per diluted
    share for the second quarter of 2017.
  • Balance Sheet: Total cash and cash equivalents at the end of
    the second quarter of 2018 was $567 million, compared with $555
    million at the end of the first quarter of 2018.

Recent Highlights

  • RingCentral was added to the Russell 1000 index after equity markets
    closed on June 22, 2018. The Russell 1000 index is comprised of the
    largest 1,000 companies across various Russell indexes. The Russell
    Indexes are widely used by investment managers and institutional
    investors as index funds and benchmarks for both active and passive
    investment strategies. Approximately $8.6 trillion in assets are
    benchmarked against the Russell indexes.
  • RingCentral added Japanese and Brazilian Portuguese language support
    to its end points and admin portal. This provides fully localized
    experience for end users and administrators located in global offices
    in Japan and Brazil.
  • Announced RingCentral has been ranked #1 in IHS Markit's 2018 North
    American Unified Communications as a Service (UCaaS) Scorecard. Named
    the leader for the second consecutive year, RingCentral achieved this
    recognition due to its market share position, business growth, product
    capabilities, and continued traction among mid-market and large
    enterprise businesses.
  • RingCentral Glip® was recognized as an industry leader in the 2018
    Aragon Research Globe for Mobile Collaboration report. Glip was chosen
    as an industry leader because of its mobile first design,
    best-in-class user experience and ability to serve as a digital
    communications hub and increase workforce productivity.
  • RingCentral won the 2018 API Award for best in communication APIs,
    given by API World. RingCentral was recognized for technical
    innovation and adoption by the developer community.

Financial Outlook

Full Year 2018 Guidance:

  • Raising software subscriptions revenue range to $595 to $600 million,
    representing annual growth of 28% to 29%. This is up from our prior
    range of $588 to $594 million and annual growth of 26% to 28%.
  • Raising total revenue range to $649 to $656 million, representing
    annual growth of 29% to 30%. This is up from our prior range of $638
    to $647 million and annual growth of 27% to 28%.
  • Raising GAAP operating margin range to (3.5%) to (2.9%), up from the
    prior range of (4.0%) to (3.4%).
  • Raising non-GAAP operating margin range to 8.2% to 8.4%, up from the
    prior range of 8.1% to 8.3%.
  • Raising non-GAAP EPS range to $0.66 to $0.70 based on 86.0 million
    fully diluted shares. This is up from our prior range of $0.61 to
    $0.65.

Third Quarter 2018 Guidance:

  • Software subscriptions revenue range of $152.0 to $154.0 million,
    representing annual growth of 27% to 28%
  • Total revenue range of $165 to $168 million, representing annual
    growth of 27% to 29%
  • GAAP operating margin range of (4.5%) and (3.5%)
  • Non-GAAP operating margin range of 8.0% and 8.2%
  • Non-GAAP EPS range of $0.15 to $0.17 based on 86.0 million fully
    diluted shares

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), which could be a significant reconciling item between the
non-GAAP and respective GAAP measure. The intercompany remeasurement
gain (loss) is affected by the movement in various exchange rates
relative to the US Dollar, which is difficult to predict and subject to
constant change. 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 second quarter of
    2018 and outlook for the third quarter and full year of 2018.
  • When: Monday, August 6, 2018 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
    Eastern Time on August 13, 2018, a telephone replay will be available
    by dialing (844) 512-2921 from the United States or (412) 317-6671
    internationally with recording access code 13681614.

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 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.

©2018 RingCentral, Inc. All rights reserved. RingCentral, RingCentral
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 financial results, our
GAAP and non-GAAP guidance, our revenue growth and our expectation of
exceeding $1 billion in revenue by the end of 2020, our strength in the
mid-market and enterprise segments, and our channel partner momentum,
our growing lead in the cloud communications industry 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
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 March 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. 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 will be 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, 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 recurring charges 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 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 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 monthly 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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

 
June 30, December 31,
2018 2017
    *As Adjusted
Assets
Current assets
Cash and cash equivalents $ 567,280 $ 181,192
Accounts receivable, net 67,015 46,690
Deferred sales commission costs 19,140 15,424
Prepaid expenses and other current assets   24,643   21,512
Total current assets 678,078 264,818
Property and equipment, net 55,076 43,298
Deferred sales commission costs, noncurrent 47,085 37,871
Goodwill 9,393 9,393
Acquired intangibles, net 21,128 1,462
Other assets   2,569   2,972
Total assets $ 813,329 $ 359,814
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 6,366 $ 7,322
Accrued liabilities 76,382 54,977
Current portion of capital lease obligation 943
Deferred revenue   73,240   62,917
Total current liabilities 156,931 125,216
Convertible senior notes, net 356,788
Capital lease obligation 2,829
Other long-term liabilities   5,757   6,252
Total liabilities 522,305 131,468
Stockholders' equity:
Common stock 8 8
Additional paid-in capital 508,728 434,840
Accumulated other comprehensive income 2,795 2,998
Accumulated deficit   (220,507 )   (209,500 )
Total stockholders' equity $ 291,024 $ 228,346
Total liabilities and stockholders' equity $ 813,329 $ 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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
    *As Adjusted     *As Adjusted
Revenues
Software subscriptions $ 145,959 $ 110,896 $ 282,919 $ 215,026
Other   14,873   9,023   28,256   17,127
Total revenues   160,832   119,919   311,175   232,153
Cost of revenues
Software subscriptions 26,716 21,795 51,242 42,058
Other   11,350   7,766   22,498   14,809
Total cost of revenues   38,066   29,561   73,740   56,867
Gross profit 122,766 90,358 237,435 175,286
Operating expenses
Research and development 24,814 18,617 47,465 35,704
Sales and marketing 79,023 56,361 150,943 110,626
General and administrative   23,583   18,007   45,032   33,812
Total operating expenses   127,420   92,985   243,440   180,142
Loss from operations (4,654 ) (2,627 ) (6,005 ) (4,856 )
Other income (expense), net
Interest expense (4,836 ) (9 ) (6,247 ) (88 )
Other income, net   1,338   578   1,411   700
Other income (expense), net   (3,498 )   569   (4,836 )   612
Loss before income taxes (8,152 ) (2,058 ) (10,841 ) (4,244 )
Provision for income taxes   139   57   166   108
Net loss $ (8,291 ) $ (2,115 ) $ (11,007 ) $ (4,352 )
Net loss per common share
Basic and diluted $ (0.10 ) $ (0.03 ) $ (0.14 ) $ (0.06 )
Weighted-average number of shares used in computing net loss per
share
Basic and diluted   79,089   75,867   78,717   75,278
* 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.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 
Six months ended June 30,
2018   2017
    *As Adjusted
Cash flows from operating activities
Net loss $ (11,007 ) $ (4,352 )
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 11,476 7,842
Share-based compensation 30,864 19,562
Amortization of deferred sales commission costs 8,673 5,543
Amortization of debt discount and issuance costs 6,154 -
Foreign currency remeasurement (gain) loss 778 (463 )
Provision for bad debt 1,137 1,003
Deferred income taxes 11 (12 )
Other 210 113
Changes in assets and liabilities
Accounts receivable (21,462 ) (4,711 )
Deferred sales commission costs (21,603 ) (14,605 )
Prepaid expenses and other current assets (2,795 ) (2,623 )
Other assets (626 ) 501
Accounts payable (499 ) (1,427 )
Accrued liabilities 17,736 3,136
Deferred revenue 10,323 7,969
Other liabilities   (495 )   (24 )
Net cash provided by operating activities   28,875   17,452
Cash flows from investing activities
Purchases of property and equipment (11,856 ) (8,814 )
Capitalized internal-use software (5,367 ) (3,488 )
Cash paid for acquisition of intangible assets (18,470 )
Restricted investment     530
Net cash used in investing activities   (35,693 )   (11,772 )
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 11,729 17,449
Taxes paid related to net share settlement of equity awards (2,986 ) (1,118 )
Repayment of debt (14,840 )
Repayment of capital lease obligations   (741 )   (181 )
Net cash provided by financing activities   392,549   1,310
Effect of exchange rate changes 357 (330 )
Net increase in cash, cash equivalents and restricted cash 386,088 6,660
Cash, cash equivalents and restricted cash
Beginning of period   181,192   160,355
End of period $ 567,280 $ 167,015
* 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

June 30,

Six Months ended

June 30,

2018   2017 2018   2017
    *As Adjusted     *As Adjusted
Revenues
Software subscriptions $ 145,959 $ 110,896 $ 282,919 $ 215,026
Other   14,873   9,023   28,256   17,127
Total revenues   160,832   119,919   311,175   232,153
Cost of revenues reconciliation
GAAP Software subscriptions cost of revenues 26,716 21,795 51,242 42,058
Stock-based compensation (1,136 ) (997 ) (2,012 ) (1,722 )
Amortization of acquisition intangibles   (150 )   (150 )   (301 )   (301 )
Non-GAAP Software subscriptions cost of revenues   25,430   20,648   48,929   40,035
 
GAAP Other cost of revenues 11,350 7,766 22,498 14,809
Stock-based compensation   (165 )   (41 )   (299 )   (73 )
Non-GAAP Other cost of revenues   11,185   7,725   22,199   14,736
Gross profit and gross margin reconciliation
Non-GAAP Subscriptions 82.6 % 81.4 % 82.7 % 81.4 %
Non-GAAP Other 24.8 % 14.4 % 21.4 % 14.0 %
Non-GAAP Gross profit 77.2 % 76.3 % 77.1 % 76.4 %
Operating expenses reconciliation
GAAP Research and development 24,814 18,617 47,465 35,704
Stock-based compensation (3,906 ) (2,342 ) (7,000 ) (4,201 )
Acquisition related matters   -   (178 )   -   (443 )
Non-GAAP Research and development   20,908   16,097   40,465   31,060
As a % of total revenues non-GAAP 13.0 % 13.4 % 13.0 % 13.4 %
 
GAAP Sales and marketing 79,023 56,361 150,943 110,626
Stock-based compensation (7,189 ) (3,926 ) (12,230 ) (7,451 )
Amortization of acquisition intangibles   (1,099 )   (76 )   (2,015 )   (180 )
Non-GAAP Sales and marketing   70,735   52,359   136,698   102,995
As a % of total revenues non-GAAP 44.0 % 43.7 % 43.9 % 44.4 %
 
GAAP General and administrative 23,583 18,007 45,032 33,812
Stock-based compensation   (5,201 )   (3,321 )   (9,323 )   (6,115 )
Non-GAAP General and administrative   18,382   14,686   35,709   27,697
As a % of total revenues non-GAAP 11.4 % 12.2 % 11.5 % 11.9 %
Income (loss) from operations reconciliation
GAAP loss from operations (4,654 ) (2,627 ) (6,005 ) (4,856 )
Stock-based compensation 17,597 10,627 30,864 19,562
Amortization of acquisition intangibles 1,249 226 2,316 481
Acquisition related matters   -   178   -   443
Non-GAAP Income from operations   14,192   8,404   27,175   15,630
Non-GAAP Operating margin 8.8 % 7.0 % 8.7 % 6.7 %
* 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 5

           RINGCENTRAL, INC.

            RECONCILIATION OF NET INCOME (LOSS)

           GAAP MEASURES TO NON-GAAP MEASURES

            (In thousands, except per share data) (Unaudited)

 
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
    *As Adjusted     *As Adjusted
Net Income (loss) reconciliation
GAAP net loss $ (8,291 ) $ (2,115 ) $ (11,007 ) $ (4,352 )
Stock-based compensation 17,597 10,627 30,864 19,562
Amortization of acquisition intangibles 1,249 226 2,316 481
Acquisition related matters 178 443
Amortization of debt discount and issuance costs 4,784 6,154
Intercompany remeasurement loss (gain) 749 (435 ) 1,023 (478 )
Income tax expense effects **        
Non-GAAP net income $ 16,088 $ 8,481 $ 29,350 $ 15,656
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

79,089 75,867 78,717 75,278
Effect of dilutive securities   6,579   6,192   6,604   5,579
Non-GAAP weighted average shares used in

computing non-GAAP net income per share

  85,668   82,059   85,321   80,857
GAAP Net loss per share $ (0.10 ) $ (0.03 ) $ (0.14 ) $ (0.06 )
Non-GAAP Net income per share $ 0.19 $ 0.10 $ 0.34 $ 0.19
* 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.
** 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.
     

TABLE 6

RINGCENTRAL, INC.

RECONCILIATION OF FORECASTED OPERATING MARGIN

GAAP MEASURES TO NON-GAAP MEASURES

(In millions, except per share data)

(Unaudited)

 
Q3 2018 FY 2018
Low Range   High Range Low Range   High Range
GAAP revenues 165.0 168.0 649.0 656.0
 
GAAP loss from operations (7.5 ) (5.9 ) (22.8 ) (18.9 )
GAAP operating margin (4.5 %) (3.5 %) (3.5 %) (2.9 %)
Stock-based compensation 19.4 18.4 71.0 69.0
Amortization of acquisition intangibles   1.3   1.3   5.0   5.0
Non-GAAP income from operations $ 13.2 $ 13.8 $ 53.2 $ 55.1
Non-GAAP operating margin 8.0 % 8.2 % 8.2 % 8.4 %

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