RingCentral Inc. (RNG)

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RingCentral Announces Third Quarter 2023 Results
Q3 2023 revenue above high end of guidance

https://www.businesswire.com/news/home/20231106929479/en/

Q3 2023 GAAP and non-GAAP operating margin up strongly

Raising midpoint of 2023 revenue outlook

November 06, 2023 04:03 PM Eastern Standard Time

BELMONT, Calif.--(BUSINESS WIRE)--RingCentral, Inc. (NYSE: RNG), a leading provider of AI-powered global enterprise cloud communications, video meetings, collaboration, and contact center solutions, today announced financial results for the third quarter ended September 30, 2023.

“Reconciliation of Forecasted Operating Margin GAAP Measures to Non-GAAP Measures.”

Third Quarter Financial Highlights

-Total revenue increased 10% year over year to $558 million.
-Subscriptions revenue increased 10% year over year to $531 million.
-Annualized Exit Monthly Recurring Subscriptions (ARR) increased 11% year over year to $2.26 billion.
-Mid-market and Enterprise ARR increased 13% year over year to $1.41 billion.
-GAAP operating margin of (9.7%), compared to (35.9%) in the prior year.
-Non-GAAP operating margin of 19.1%, up 560 basis points year-over-year.
-“RingCentral is leveraging its leading position in Unified Communications to transform into an AI-first, multi-product company with proprietary offerings across UCaaS, CCaaS, Conversation and Revenue Intelligence, and Events, Webinars and Meetings,” said Tarek Robbiati, RingCentral’s CEO. “Our solid third quarter results demonstrate our ability to drive long-term durable, profitable growth.”

Financial Results for the Third Quarter 2023

Revenue: Total revenue was $558 million for the third quarter of 2023, up from $509 million in the third quarter of 2022, representing 10% growth. Adjusted for constant currency, total revenue rose 9%. Subscriptions revenue of $531 million increased 10% year over year and accounted for 95% of total revenue. Adjusted for constant currency, subscriptions revenue rose 10%.
Operating Income (Loss): GAAP operating loss was ($54) million, compared to ($183) million in the same period last year. Non-GAAP operating income was $107 million, or 19.1% of total revenue, compared to $69 million, or 13.5% of total revenue, for the third quarter of 2022.
Adjusted EBITDA: Adjusted EBITDA for the third quarter of 2023 was $128 million, or 22.9% of total revenue, compared to $87 million, or 17.1% of total revenue, for the third quarter of 2022.

Net Income (Loss) Per Share: GAAP net loss per share was ($0.45), compared to ($2.98) in the same period last year. Diluted non-GAAP net income per share was $0.78, compared to $0.55 per share in the same period last year. The third quarters of 2023 and 2022 reflected an approximately 22.5% non-GAAP tax rate. There were no material cash taxes given our net operating loss carryforwards.
Cash and Cash Equivalents: Total cash and cash equivalents at the end of the third quarter of 2023 was $432 million. This compares to $225 million at the end of the second quarter of 2023. Our cash balance reflects the August 2023 issuance of $400 million of senior notes due 2030, with $154 million of the proceeds from this issuance subsequently used during the third quarter of 2023 to repurchase a portion of our 2025 and 2026 convertible notes. The Company also repurchased $75 million in shares during the third quarter of 2023 under the plans announced in February and May of 2023. On November 1, 2023, the company's Board of Directors authorized an incremental $100 million for the repurchase of shares.

Financial Outlook

"We are seeing early traction with our new products such as RingCX, RingSense and RingCentral Events," said Sonalee Parekh, RingCentral's CFO. "Our efficiency initiatives also continue to drive improved non-GAAP operating margins, which we are raising to 19.0%, at the high end of our prior range of 18.5% to 19.0%. We are also raising our free cash flow outlook, and now expect to generate $290 to $300 million of adjusted, unlevered free cash flow in 2023, up from our prior outlook of $270 to $290 million.”

Full Year 2023 Guidance:

Updating subscriptions revenue range to $2.095 to $2.101 billion, representing annual growth of 11%; raising midpoint to $2.098 billion.
Updating total revenue range to $2.198 to $2.205 billion, representing annual growth of 11%; raising midpoint to $2.201 billion.
GAAP operating margin range of (9.3%) to (8.7%) versus (8.0%) to (6.3%) previously, as we continue to streamline the organization and incur restructuring costs.

Raising non-GAAP operating margin range to 19.0%, up from 18.5% to 19.0% previously.

Non-GAAP tax rate assumed to be 22.5%. No material cash taxes expected given net operating loss carryforwards.

Non-GAAP EPS of $3.19 to $3.20 based on 97.0 million fully diluted shares. This compares to $3.11 to $3.25 based on 99.0 million to 98.0 fully diluted shares.

Share-based compensation range of $426 to $431 million.

Amortization of acquired intangibles of $151 million.

Third-party relocation and other costs, net, of $10 million.

Restructuring costs of $23 to $28 million.

Raising adjusted, unlevered free cash flow to $290 to $300 million, up from $270 to $290 million.

Fourth Quarter 2023 Guidance:

Subscriptions revenue range of $542.0 to $548.0 million, representing year-over-year growth of 8% to 9%.

Total revenue range of $566.5 to $573.5 million, representing year-over-year growth of 8% to 9%.

GAAP operating margin range of (8.8%) to (6.7%).

Non-GAAP operating margin of 20.0%.

Non-GAAP tax rate assumed to be 22.5%. No material cash taxes expected given net operating loss carryforwards.

Non-GAAP EPS of $0.82 to $0.83 based on 97.0 to 96.5 million fully diluted shares.

Share-based compensation range of $105 to $110 million.

Amortization of acquired intangibles of $38 million.

Restructuring costs of $10 million to $15 million.

Additional Highlights

Announced in August 2023 the issuance of $400 million aggregate principal amount of senior notes due 2030 (the “2030 Senior Notes”) in a private offering. The 2030 Senior Notes are senior unsecured and bear interest at a rate of 8.5% per annum. We intend to use the net proceeds from the 2030 Senior Notes to repurchase a portion of our outstanding convertible senior notes and the remainder of the net proceeds, if any, for general corporate purposes.

Announced in August 2023 we had entered into individual, privately negotiated repurchase transactions with certain holders of our 0% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”) and 0% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”). We paid $154 million in cash to repurchase approximately $166 million in aggregate principal of the 2025 and 2026 Convertible Notes. The transaction was funded with proceeds from the August 2023 issuance of the 2030 Senior Notes.

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 its respective forecasted GAAP measure 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), gain (loss) associated with investments, gain (loss) on early debt conversions, 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 gain (loss) associated with investments as it is based on future share prices, which are difficult to predict and subject to inherent uncertainties. We do not provide guidance on gain (loss) on debt early conversions as it is based on future conversion requests, future share prices, and interest rates, which are difficult to predict and are subject to inherent uncertainties. 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 2023, 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.

We have not reconciled adjusted, unlevered free cash flow guidance to net cash provided by (used in) operating activities because we do not provide guidance on the reconciling items between net cash provided by (used in) operating activities and adjusted, unlevered free cash flow due to the uncertainty regarding, and the potential variability of, these items. Accordingly, a reconciliation of net cash provided by (used in) operating activities to adjusted, unlevered free cash flow guidance is not available without unreasonable effort.