RingCentral Announces First Quarter 2019 Results

RingCentral,
Inc. (NYSE: RNG), a leading provider of global enterprise cloud
communications, collaboration, and contact center solutions, today
announced financial results for the first quarter ended March 31, 2019.

First Quarter Financial Highlights

• Total revenue increased 34% year over year to $201 million.
• Software subscriptions revenue increased 33% year over year to $183
  million.
• Annualized Exit Monthly Recurring Subscriptions (ARR) increased 32%
  year over year to $777 million.
• RingCentral Office® ARR increased 36% year over year to $694 million.
• Mid-market and Enterprise ARR increased 70% year over year to $346
  million.
• Enterprise ARR increased 95% year over year to $200 million.
• Channel ARR increased 75% year over year to $203 million.

“We are pleased with the first quarter. Enterprise delivered solid
growth, with continued contributions from channel and international,
including a 45,000 seat win with a major UK retailer,” said Vlad
Shmunis, RingCentral’s founder, chairman and CEO. “We continue to expand
our industry leading cloud communications suite, broaden our open
platform developer network, and extend our global delivery footprint. We
believe we are well-positioned to satisfy the demands of our enterprise
customers to replace their aging on-premises PBX infrastructure with a
fully-featured cloud-based unified communications solution.”

Financial Results for the First Quarter 2019

• Revenue: Total revenue was $201 million for the first quarter
  of 2019, up from $150 million in the first quarter of 2018,
  representing 34% growth.
• Operating Profit (Loss): GAAP operating loss was $7.5 million,
  compared to an operating loss of $1.4 million in the same period last
  year, primarily driven by higher stock-based compensation and
  acquisition related expenses. Non-GAAP operating profit was $16.3
  million, compared to a non-GAAP operating profit $13.0 million in the
  same period last year.

• Net Income (Loss) Per Share: GAAP net loss per share was
  ($0.08), compared to ($0.03) in the same period last year, 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 $0.17, compared to $0.16 per
  diluted share in the same period last year. The first quarter of 2019
  reflected a 22.5% non-GAAP tax rate. There were no material cash taxes
  given our net operating loss carryforwards.
• Balance Sheet: Total cash and cash equivalents at the end of
  the first quarter of 2019 was $549 million, which reflects
  approximately $28 million net cash payment for the acquisition of
  Connect First. This compares with $566 million at the end of the
  fourth quarter of 2018.

Recent Highlights

• Introduced RingCentral
  Persist, a new solution that enables enterprise customers to
  maintain communications services in case of an internet failure at a
  customer’s location. RingCentral Persist adds additional resiliency to
  RingCentral’s existing high availability delivery infrastructure for
  the most demanding customer environments, including the
  state-of-the-art Chase Center sports and entertainment complex, the
  new home of the Golden State Warriors, scheduled to open in September
  2019.
• Announced the expansion of RingCentral’s open platform with RingCentral
  Embeddable. Developers now have the ability to easily integrate
  RingCentral’s communications capabilities into any web application
  with just a few lines of code to enhance custom workflows.
• Announced the integration of RingCentral
  Engage, our new digital customer engagement platform, with Google
  Dialogflow. With this integration, RingCentral Engage digital
  customers can now leverage the machine learning and AI capabilities of
  Google Dialogflow. This enables them to deploy chatbot virtual agents
  to manage automated digital customer interactions.
• Announced that CRN
  has given RingCentral a 5-Star rating in its 2019 Partner Program
  Guide. This annual guide identifies the strongest and most successful
  partner programs in the channel today, offered by the top technology
  suppliers for IT products and services. The 5-Star rating recognizes
  an elite subset of companies that offer solution providers the best
  partnering elements in their channel programs.
• Announced that the Oakland
  A’s have named RingCentral as the team’s official business
  communications partner. The business-to-business partnership will
  integrate RingCentral’s technology into the A’s front office in
  combination with a marketing collaboration. Additionally, announced a
  multi-year strategic partnership with Detroit
  Pistons to deploy RingCentral Office and Contact Center in the
  Henry Ford Detroit Pistons Performance Center.

Financial Outlook

Full Year 2019 Guidance:

• Raising total revenue range to $862 to $866 million, representing
  annual growth of 28% to 29%. This is up from our prior range of $847
  to $859 million and annual growth of 26% to 28%.
• Raising software subscriptions revenue range to $786 to $790 million,
  representing annual growth of 28% to 29%. This is up from our prior
  range of $775 to $785 million and annual growth of 26% to 28%.
• GAAP operating margin between (4.4%) and (3.7%).
• Non-GAAP operating margin between 9.0% and 9.3%.
• Non-GAAP tax rate for 2019 assumed to be 22.5%, compared to 0%
  non-GAAP tax rate for 2018. No material cash taxes expected given net
  operating loss carryforwards.
• Raising non-GAAP EPS range to $0.71 to $0.75 based on 88.5 million
  fully diluted shares. This is up from our prior range of $0.69 to
  $0.73.
• Stock-based compensation range of $101 to $104 million, amortization
  of debt discount of $20 million, amortization of acquired intangibles
  of $9 million, and acquisition related matters of $2.5 million.

Second Quarter 2019 Guidance:

• Total revenue range of $203.5 to $205.5 million, representing annual
  growth of 27% to 28%.
• Software subscriptions revenue range of $185.5 to $187.5 million,
  representing annual growth of 27% to 28%.
• GAAP operating margin range of (6.6%) to (5.8%).
• Non-GAAP operating margin range of 8.3% to 8.5%.
• Non-GAAP tax rate assumed to be 22.5%, compared to 0% non-GAAP tax
  rate in 2018. No material cash taxes expected given net operating loss
  carryforwards.
• Non-GAAP EPS range of $0.15 to $0.17 based on 88 million fully diluted
  shares.
• Stock-based compensation range of $27 to $28 million, amortization of
  debt discount of $5 million, and amortization of acquired intangibles
  of $2.3 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 not 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 22.5%.
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 first quarter of
  2019 and outlook for the second quarter and full year of 2019.
• When: Monday, May 6, 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 May 13, 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 13689769.

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, the
RingCentral platform empowers employees to Work as One^TM from
any location, on any device, and via any mode to better serve customers,
improving business efficiency and customer satisfaction. The company
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 Persist, RingCentral
Embeddable, RingCentral Engage, 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, the expansion of our communications suite,
the broadening of our open platform developer network, the extension of
our global delivery footprint, our ability to satisfy the requirements
of enterprises, 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-K for the year ended December 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 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, tax benefit
from release of valuation allowance, 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, channel partner 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 only customer subscriptions from RingCentral
Office and RingCentral Contact Center solutions 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
generating $25,000 or more in annual recurring revenue 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
calculate channel annualized exit monthly recurring subscriptions in the
same manner as we calculate our annualized exit monthly revenue
subscriptions, except that only customer subscriptions generated from
channel partners 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.

The Company adopted new accounting standards related to leases (Topic
842) effective January 1, 2019.

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