Software Subscriptions Revenue up 28%
RingCentral Office® ARR up 38%
GAAP Software Subscriptions Gross Margin of 80%; Non-GAAP: 81%
BELMONT, Calif.–February 13, 2017–RingCentral, Inc. (NYSE: RNG), a leading provider of cloud business communications and collaboration solutions, today announced financial results for the fourth quarter and full year ended December 31, 2016.
Fourth Quarter Financial Highlights
- Software subscriptions revenue grew 28% year-over-year to $98.0 million; total revenue was $104.5 million.
- RingCentral Office® annualized exit recurring software subscriptions (ARR) grew 38% year-over-year to $341.5 million.
- Total annualized exit recurring software subscriptions (ARR) grew 31% year-over-year to $414.4 million.
- GAAP software subscriptions gross margin was 80.2%, up 2.2 points year-over-year, while Non-GAAP software subscriptions gross margin was 81.2%, up 2.5 points year-over-year.
- GAAP operating margin was (6.3%), up 0.9 points year-over-year, while Non-GAAP operating margin was 2.1%, up 1.1 points year-over-year.
- Net monthly subscriptions dollar retention: RingCentral Office® over 100% and overall subscriptions over 99%.
“The fourth quarter was a strong finish to a great year driven by our success with midmarket and enterprise customers. Our technology leadership and strategy of delivering integrated communications and collaboration solutions are paying off handsomely,” said Vlad Shmunis, RingCentral’s Chairman and CEO. “Additionally, the reseller channels are now increasingly switching their focus to cloud solutions and it has enabled us to scale our midmarket and enterprise go-to-market efforts rapidly. These larger customer segments are now an over $100 million business, growing at over 90% year over year. With this momentum and the very large underpenetrated market, I feel confident that we will be a $1 billion revenue company by the end of 2020.”
Financial Results for the Fourth Quarter 2016
- Revenue: Total revenue was $104.5 million for the fourth quarter of 2016, up from $83.4 million in the fourth quarter of 2015. Software subscriptions revenue was $98.0 million for the fourth quarter of 2016, up from $76.5 million in the fourth quarter of 2015.
- Pro Forma1 Revenue Comparison: Total revenue of $104.5 million in the fourth quarter of 2016, up from $80.8 million in the fourth quarter of 2015, representing 29% growth, adjusting for the agency model on a comparable basis.
- Net Income (Loss) Per Share: GAAP net loss per share was ($0.09) for the fourth quarter of 2016 compared with ($0.10) for the fourth quarter of 2015. Non-GAAP net income per diluted share was $0.03 for the fourth quarter of 2016, compared with $0.01 per diluted share for the fourth quarter of 2015.
- Balance Sheet: Total cash and cash equivalents at the end of the fourth quarter of 2016 was $160.4 million, compared with $152.4 million at the end of the third quarter of 2016.
Financial Results for the Full Year 2016
- Revenue: Total revenue was $379.7 million for the full year of 2016, up from $296.2 million in the full year of 2015. Software subscriptions revenue was $355.9 million for the full year of 2016, up from $271.2 million in the full year of 2015.
- Pro Forma1 Revenue Comparison: Total revenue of $378.3 million in the full year of 2016, up from $287.0 million in the full year of 2015, representing 32% growth, adjusting for the agency model on a comparable basis.
- Net Income (Loss) Per Share: GAAP net loss per share was ($0.40) for the full year of 2016 compared with ($0.46) for the full year of 2015. Non-GAAP net income (loss) per diluted share was $0.09 for the full year of 2016, compared with ($0.12) per diluted share for the full year of 2015.
- Balance Sheet: Total cash and cash equivalents at the end of 2016 was $160.4 million, compared with $137.6 million at the end of 2015.
Fourth Quarter 2016 and Recent Business Highlights
- RingCentral Global Office™ has expanded to provide a local experience in over 30 countries and has been adopted by over 600 multinational enterprises.
- Announced that Structural Group has selected RingCentral as its new cloud communications and collaboration solution provider. With more than 1,800 employees across 22 locations in North America, Structural Group needed a new generation of flexible, mobile-first solutions to enhance customer engagement and productivity for its distributed and mobile workforce.
- Announced that Sungevity will replace its existing legacy on-premise PBX system and other applications for over 700 users with RingCentral. RingCentral’s architecture and open platform makes for a seamless integration with Sungevity’s existing business process and software platform. RingCentral will reduce Sungevity’s communication and collaboration solution costs by nearly 50 percent.
- Achieved milestone of issuing 100th U.S. patent, reinforcing RingCentral’s strong commitment to technology development and intellectual property protection.
- RingCentral Connect Platform reached 1.6 million API requests per day and a 300% annual increase in API requests overall.
- Announced the addition of Extended Enterprise Support to the RingCentral Professional Services™ portfolio. This program provides enterprises requiring premium support services a dedicated team of technical account managers and customer success managers.
Conference Call Details:
- What: RingCentral financial results for the fourth quarter and full year of 2016 and outlook for the first quarter and full year of 2017.
- When: Monday, February 13, 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 may provide confirmation number 13653961 to access the call more quickly, and 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 13653961.
RingCentral, Inc. (NYSE: RNG) is a global provider of cloud unified communications and collaboration solutions. More flexible and cost-effective than legacy on-premise systems, RingCentral empowers today’s mobile and distributed workforce to be connected anywhere and on any device through voice, video, team messaging, collaboration, SMS, conferencing, online meetings, contact center, and fax. RingCentral provides an open platform that integrates with today’s leading business apps while giving customers the flexibility to customize their own workflows. RingCentral is a leader in the 2016 Gartner Magic Quadrant for Unified Communications as a Service Worldwide for the second consecutive year. RingCentral is headquartered in Belmont, Calif. RingCentral and the RingCentral logo are trademarks of RingCentral, Inc.
This press release contains “forward-looking statements,” including but not limited to, statements regarding our future, our GAAP and non-GAAP guidance, our markets and strategic opportunities, and our expectations regarding our strategy of providing integrated global open communications and collaboration solutions, our reseller channels, our revenue growth and our momentum to reach $1 billion in revenues. 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 September 30, 2016, 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 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 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 tax benefit for release of valuation allowance.
We have included Non-GAAP operating income (loss), 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 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 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 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.
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.
1 In 1Q’16, RingCentral transitioned direct phone sales to an agency model, in which RingCentral receives a commission for phone sales instead of separately recognizing the full sale price and cost of the product. RingCentral is providing supplemental information on a pro forma basis to provide a clear comparison of the Company’s results with prior periods as-if the Company had transitioned phone sales to the new agency model on January 1, 2015. Carrier phone sales remained under the direct phone sales model.