Software Subscriptions ARR surpasses half billion dollars
Software Subscriptions Revenue up 30%
RingCentral Office ARR up 37%
BELMONT, Calif.–—RingCentral, Inc. (NYSE: RNG), a leading provider of global enterprise cloud communications and collaboration solutions, today announced financial results for the third quarter ended September 30, 2017.
Third Quarter Financial Highlights
- Total revenue grew 34% year-over-year to $129.8 million.
- Software subscriptions revenue grew 30% year-over-year to $119.4 million.
- Total annualized exit recurring software subscriptions (ARR) grew 32% year-over-year to $513.7 million.
- RingCentral Office® annualized exit recurring software subscriptions (ARR) grew 37% year-over-year to $433.7 million.
- GAAP software subscriptions gross margin was 80.8%, up 1.7 points year-over-year, while Non-GAAP software subscriptions gross margin was 81.8%, up 1.7 points year-over-year.
- GAAP operating margin was (4.8%), up 2.5 points year-over-year, while Non-GAAP operating margin was 3.7%, up 1.4 points year-over-year.
- Net monthly subscriptions dollar retention: RingCentral Office over 100% and overall subscriptions over 99%.
“We had an outstanding quarter led again by growth in our mid-market and enterprise business, as well as strong growth from our channel partners,” said Vlad Shmunis, RingCentral’s Chairman and CEO. “We are excited to cross the $500 million mark in Software Subscriptions ARR as we reach toward our $1 billion target. RingCentral is the clear market share leader in UCaaS and we continue to extend our lead.”
Financial Results for the Third Quarter 2017
- Revenue and Gross Margin: Total revenue was $129.8 million for the third quarter of 2017, up from $96.8 million in the third quarter of 2016, representing 34% growth. Total gross margin was 76.3% for the third quarter of 2017, up 0.5% points compared to 75.8% in the third 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 31% year over year and the total gross margin would have been 2.2% higher year over year.
- Net Income (Loss) Per Share: GAAP net loss per share was ($0.07) for the third quarter of 2017 compared with ($0.11) for the third quarter of 2016. Non-GAAP net income per diluted share was $0.06 for the third quarter of 2017, compared with $0.03 per diluted share for the third quarter of 2016.
- Balance Sheet: Total cash and cash equivalents at the end of the third quarter of 2017 was $172.3 million, compared with $167.0 million at the end of the second quarter of 2017.
Recent Business Highlights
- For the third consecutive year, Gartner recognized RingCentral as a Leader in the Magic Quadrant for Unified Communications as a Service (UCaaS), Worldwide. In this year’s Magic Quadrant, RingCentral continues to be positioned furthest to the right on completeness of vision.
- Frost & Sullivan again named RingCentral 2017 Company of the Year in Hosted IP Telephony and UCaaS North America for its complete communications and collaboration capabilities and keen insight into the customer experience.
- Aragon Research named RingCentral a leader in The Aragon Research Globe for Unified Communications and Collaboration, 2017, recognizing our flagship UCaaS solutions as well as our team messaging and collaboration platform, RingCentral Glip™.
- In October, RingCentral hosted our second annual user conference, ConnectCentral 2017. With triple the attendance of our first user conference, we brought together customers, prospects, channel partners and our open platform developers. At the conference, we showcased the latest RingCentral innovations highlighted below.
- Introduced Quality of Services Analytics: new real-time analytics capabilities that empower administrators to gain deeper insight into the end-user experience and achieve faster time to resolution. With the new Quality of Service Analytics, administrators can measure quality of every leg of every call on a global basis, and access a comprehensive reporting dashboard that allows them to anticipate and diagnose voice quality of service in real time.
- Enhanced RingCentral ecosystem including new integrations with Google G Suite, Amazon Alexa, and Slack. RingCentral’s integration with Amazon Alexa-powered devices will enable users to interface with RingCentral through voice commands. RingCentral for Gmail is an add-on that intuitively surfaces key contextual RingCentral capabilities within Gmail. RingCentral for Slack brings meetings and calling capabilities into the Slack messaging platform. In addition, we announced new AI and chatbot enhancements for Glip to better automate processes and enable seamless workflows.
- Expansion of RingCentral’s Global Office™ solution in Latin America to include Peru, Brazil, and Argentina. By the end of 2017, the RingCentral Global Office footprint will extend to 37 countries and virtual numbers in over 80 countries.
Conference Call Details:
- What: RingCentral financial results for the third quarter of 2017 and outlook for the fourth quarter and full year of 2017.
- When: Wednesday, November 8, 2017 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: A replay of the call will be available via telephone for seven days, following the completion of 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 13672126.
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.
©2017 RingCentral, Inc. All rights reserved. RingCentral, RingCentral Office, RingCentral Global Office, RingCentral Glip 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 strength in our mid-market and enterprise segments, our growth from our channel partners, our increasing market share, the expected demand for and benefits of our new product capabilities, the expansion of RingCentral Global Office 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 June 30, 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.
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.