RNG
$42.45
Ringcentral
($.30)
(.70%)
Earnings Details
2nd Quarter June 2017
Wednesday, August 2, 2017 4:01:47 PM
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Summary

RingCentral Updates Guidance

Ringcentral (RNG) reported a 2nd Quarter June 2017 loss of $0.10 per share on revenue of $119.4 million. The consensus estimate was a loss of $0.09 per share on revenue of $118.1 million. Revenue grew 30.0% on a year-over-year basis.

The company said in its earnings slides it expects third quarter non-GAAP earnings of $0.03 to $0.05 per share on revenue of $125.0 million to $127.0 million. The current consensus earnings estimate is $0.04 per share on revenue of $125.2 million for the quarter ending September 30, 2017. The company said it expects 2017 earnings of $0.16 to $0.18 per share on revenue of $489.0 million to $496.0 million. The company's previous guidance was earnings of $0.14 to $0.18 per share on revenue of $486.0 million to $494.0 million and the current consensus earnings estimate is $0.16 per share on revenue of $489.8 million for the year ending December 31, 2017.

RingCentral Inc., provides software-as-a-service, or SaaS, solutions for business communications. Its solutions can be used in multiple devices including Smartphones, Tablets, PC’s and Desk Phones which allow communication across multiple channels.

Results
Reported Earnings
($0.10)
Earnings Whisper
-
Consensus Estimate
($0.09)
Reported Revenue
$119.4 Mil
Revenue Estimate
$118.1 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

RingCentral Announces Second Quarter 2017 Results

RingCentral Office(R) ARR up 37%

--GAAP Software Subscriptions Gross Margin of 80.3%; Non-GAAP: 81.3%

RingCentral, Inc. (RNG), a leading provider of global enterprise cloud communications and collaboration solutions, today announced financial results for the second quarter ended June 30, 2017.

Second Quarter Financial Highlights

Software subscriptions revenue grew 28% year-over-year to $110.4 million.

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

RingCentral Office(R) annualized exit recurring software subscriptions (ARR) grew 37% year-over-year to $398.9 million.

Total annualized exit recurring software subscriptions (ARR) grew 31% year-over-year to $478.0 million.

GAAP software subscriptions gross margin was 80.3%, up 1.4 points year-over-year, while Non-GAAP software subscriptions gross margin was 81.3%, up 1.3 points year-over-year.

GAAP operating margin was (6.3%), up 0.6 points year-over-year, while Non-GAAP operating margin was 2.9%, up 1.0 point year-over-year.

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

"We delivered another great quarter of results driven by strength in our mid-market and enterprise segments, as well as breakout growth from our channel partners," said Vlad Shmunis, RingCentral’s Chairman and CEO. "The struggles of legacy on-premise system vendors are becoming well documented. At the same time, cloud based solutions are gaining acceptance and RingCentral is increasing its market share. Put simply, cloud is winning and RingCentral is winning in the cloud."

Financial Results for the Second Quarter 2017

Revenue and Gross Margin: Total revenue was $119.4 million for the second quarter of 2017, up from $91.8 million in the second quarter of 2016, representing 30% growth. Total gross margin was 75.2% for the second quarter of 2017, 0.5% lower compared to 75.7% in the second 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 27% year over year and the total gross margin would have been 1.4% higher year over year.

Net Income (Loss) Per Share: GAAP net loss per share was ($0.09) for the second quarter of 2017 compared with ($0.11) for the second quarter of 2016. Non-GAAP net income per diluted share was $0.04 for the second quarter of 2017, compared with $0.02 per diluted share for the second quarter of 2016.

Balance Sheet: Total cash and cash equivalents at the end of the second quarter of 2017 was $167.0 million, compared with $149.7 million at the end of the first quarter of 2017.

Recent Business Highlights

Recognized by Synergy Research Group, an independent market research firm, as the #1 worldwide market share leader in both revenue and subscriber seats for Unified Communications as a Service (UCaaS).

Recognized as a market leader by IHS Markit in the 2017 North American UCaaS Scorecard.

Signed seven customer accounts which each have total contract value (TCV) of seven digits, including ChenMed and ExtraSpace Storage.

Expanded TELUS’ cloud communications portfolio for Canadian businesses with the introduction of TELUS Business Connect Mobile which makes the features of an enterprise-grade PBX phone system available on smartphones and tablets.

Released RingCentral Live Reports which enables RingCentral Office customers to monitor in real time the service quality being delivered to their customers.

Launched Business Multimedia Messaging Service (MMS) capabilities enabling customers to send and receive images and multimedia files from their RingCentral business numbers. This capability is unique among our largest competitors.

Expanded RingCentral Connect(TM) open platform with new integrations including Microsoft Dynamics and additional integrations with G Suite.

Conference Call Details:

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

-- When: Wednesday, August 2, 2017 at 1:30PM PT (4:30PM 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, beginning two hours after 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 13666007.

About RingCentral

RingCentral, Inc. (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.

(C)2017 RingCentral, Inc. All rights reserved. RingCentral, RingCentral Office, RingCentral Connect 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, 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 March 31, 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.

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(R) 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(R) 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(R) 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.

TABLE 1
RINGCENTRAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30,
December 31,
2017
2016
Assets
Current assets
Cash and cash equivalents
$
167,015
$
160,355
Accounts receivable, net
33,264
30,243
Prepaid expenses and other current assets
17,936
15,313
Total current assets
218,215
205,911
Property and equipment, net
36,613
31,994
Goodwill
9,393
9,393
Acquired intangibles, net
1,763
2,244
Other assets
2,633
3,087
Total assets
$
268,617
$
252,629
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$
5,556
$
7,810
Accrued liabilities
49,720
48,322
Current portion of capital lease obligation
--
181
Current portion of long-term debt
--
14,528
Deferred revenue
53,367
45,159
Total current liabilities
108,643
116,000
Long-term debt
--
312
Sales tax liability
3,077
3,077
Other long-term liabilities
3,175
3,199
Total liabilities
114,895
122,588
Stockholders’ equity
Common stock
8
7
Additional paid-in capital
404,742
366,800
Accumulated other comprehensive income
2,815
2,737
Accumulated deficit
(253,843 )
(239,503 )
Total stockholders’ equity
153,722
130,041
Total liabilities and stockholders’ equity
$
268,617
$
252,629
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,
2017
2016
2017
2016
Revenues
Software subscriptions
$ 110,413
$ 86,067
$ 214,100
$ 166,045
Other
9,023
5,777
17,127
12,337
Total revenues
119,436
91,844
231,227
178,382
Cost of revenues
Software subscriptions
21,795
18,173
42,058
34,896
Other
7,766
4,191
14,809
9,208
Total cost of revenues
29,561
22,364
56,867
44,104
Gross profit
89,875
69,480
174,360
134,278
Operating expenses
Research and development
18,617
16,681
35,704
31,607
Sales and marketing
60,794
45,662
119,688
87,490
General and administrative
18,007
13,441
33,812
27,465
Total operating expenses
97,418
75,784
189,204
146,562
Loss from operations
(7,543 )
(6,304 )
(14,844 )
(12,284 )
Other income (expense), net
Interest expense
(9 )
(193 )
(88 )
(409 )
Other income (expense), net
578
(1,217 )
700
(1,584 )
Other income (expense), net
569
(1,410 )
612
(1,993 )
Loss before income taxes
(6,974 )
(7,714 )
(14,232 )
(14,277 )
Provision for income taxes
57
57
108
107
Net loss
$
(7,031 )
$ (7,771 )
$ (14,340 )
$ (14,384 )
Net loss per common share
Basic and diluted
$
(0.09 )
$
(0.11 )
$
(0.19 )
$
(0.20 )
Weighted-average number of shares used in computing net loss per
share
Basic and diluted
75,867
72,649
75,278
72,380
TABLE 3
RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30,
2017
2016
Cash flows from operating activities
Net loss
$
(14,340 )
$
(14,384 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization
7,842
6,953
Share-based compensation
19,562
14,214
Foreign currency remeasurement (gain) loss
(463 )
1,708
Provision for bad debt
1,003
388
Deferred income taxes
(12 )
(4 )
Other
113
113
Changes in assets and liabilities:
Accounts receivable
(4,024 )
(5,395 )
Prepaid expenses and other current assets
(2,623 )
(452 )
Other assets
501
131
Accounts payable
(1,427 )
(3,911 )
Accrued liabilities
3,136
11,492
Deferred revenue
8,208
5,448
Other liabilities
(24 )
(1,620 )
Net cash provided by operating activities
17,452
14,681
Cash flows from investing activities
Purchases of property and equipment
(8,814 )
(6,056 )
Capitalized internal-use software
(3,488 )
(961 )
Restricted investments
530
--
Net cash used in investing activities
(11,772 )
(7,017 )
Cash flows from financing activities
Proceeds from issuance of stock in connection with stock plans
17,449
6,168
Payment of holdback from Glip acquisition
--
(1,500 )
Taxes paid related to net share settlement of equity awards
(1,118 )
--
Repayment of debt
(14,840 )
(1,875 )
Repayment of capital lease obligations
(181 )
(177 )
Net cash provided by financing activities
1,310
2,616
Effect of exchange rate changes on cash and cash equivalents
(330 )
(77 )
Net increase in cash and cash equivalents
6,660
10,203
Cash and cash equivalents
Beginning of period
160,355
137,588
End of period
$
167,015
$
147,791
TABLE 4
RINGCENTRAL, INC.
RECONCILIATION OF OPERATING INCOME (LOSS)
GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited, in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Revenues
Software subscriptions
$ 110,413
$ 86,067
$ 214,100
$ 166,045
Other
9,023
5,777
17,127
12,337
Total revenues
119,436
91,844
231,227
178,382
Cost of revenues reconciliation
GAAP Software subscriptions cost of revenues
21,795
18,173
42,058
34,896
Stock-based compensation
(997 )
(780 )
(1,722 )
(1,414 )
Amortization of acquisition intangibles
(150 )
(151 )
(301 )
(301 )
Non-GAAP Software subscriptions cost of revenues
20,648
17,242
40,035
33,181
GAAP Other cost of revenues
7,766
4,191
14,809
9,208
Stock-based compensation
(41 )
(32 )
(73 )
(51 )
Non-GAAP Other cost of revenues
7,725
4,159
14,736
9,157
Gross profit and gross margin reconciliation
Non-GAAP Subscriptions
81.3 %
80.0 %
81.3 %
80.0 %
Non-GAAP Other
14.4 %
28.0 %
14.0 %
25.8 %
Non-GAAP Gross profit
76.2 %
76.7 %
76.3 %
76.3 %
Operating expenses reconciliation
GAAP Research and development
18,617
16,681
35,704
31,607
Stock-based compensation
(2,342 )
(1,857 )
(4,201 )
(3,495 )
Acquisition related matters
(178 )
(242 )
(443 )
(483 )
Non-GAAP Research and development
16,097
14,582
31,060
27,629
As a % of total revenues non-GAAP
13.5 %
15.9 %
13.4 %
15.5 %
GAAP Sales and marketing
60,794
45,662
119,688
87,490
Stock-based compensation
(3,926 )
(2,578 )
(7,451 )
(4,768 )
Amortization of acquisition intangibles
(76 )
(105 )
(180 )
(210 )
Non-GAAP Sales and marketing
56,792
42,979
112,057
82,512
As a % of total revenues non-GAAP
47.6 %
46.8 %
48.5 %
46.3 %
GAAP General and administrative
18,007
13,441
33,812
27,465
Stock-based compensation
(3,321 )
(2,230 )
(6,115 )
(4,486 )
Acquisition related matters
-
(47 )
-
(59 )
Non-GAAP General and administrative
14,686
11,164
27,697
22,920
As a % of total revenues non-GAAP
12.3 %
12.2 %
12.0 %
12.8 %
Income (loss) from operations reconciliation
GAAP loss from operations
(7,543 )
(6,304 )
(14,844 )
(12,284 )
Stock-based compensation
10,627
7,477
19,562
14,214
Amortization of acquisition intangibles
226
256
481
511
Acquisition related matters
178
289
443
542
Non-GAAP Income from operations
$
3,488
$
1,718
$
5,642
$
2,983
Non-GAAP Operating margin
2.9 %
1.9 %
2.4 %
1.7 %
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,
2017
2016
2017
2016
Net Income (loss) reconciliation
GAAP Net loss
$ (7,031 )
$ (7,771 )
$ (14,340 )
$ (14,384 )
Stock-based compensation
10,627
7,477
19,562
14,214
Amortization of acquisition intangibles
226
256
481
511
Acquisition related matters
178
289
443
542
Intercompany remeasurement loss (gain)
(435 )
1,258
(478 )
1,596
Income tax expense effects *
-
-
-
-
Non-GAAP Net income
$
3,565
$
1,509
$
5,668
$
2,479
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
75,867
72,649
75,278
72,380
net loss per share
Effect of dilutive securities
6,192
3,148
5,579
3,128
Non-GAAP weighted average shares used in computing
82,059
75,797
80,857
75,508
non-GAAP net income per share
GAAP Net loss per share
$
(0.09 )
$
(0.11 )
$
(0.19 )
$
(0.20 )
Non-GAAP Net income per share
$
0.04
$
0.02
$
0.07
$
0.03

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

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Investor Relations Contact:
RingCentral
Paul Thomas, 650-458-4462
Paul.Thomas@RingCentral.com
or
Media Contact:
RingCentral
Jennifer Caukin, 650-561-6348
Jennifer.Caukin@ringcentral.com