RingCentral(RNG) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents RingCentral's unaudited condensed consolidated financial statements, highlighting a 5% revenue increase and improved net loss and operating cash flow Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $1.63 billion, liabilities decreased to $1.97 billion, and stockholders' deficit slightly improved to $541.2 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $154,436 | $242,811 | | Total current assets | $780,242 | $871,122 | | Total assets | $1,631,592 | $1,779,873 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $1,208,296 | $748,799 | | Long-term debt, net | $736,250 | $1,347,881 | | Total liabilities | $1,973,340 | $2,131,343 | | Total stockholders' deficit | ($541,197) | ($550,919) | Condensed Consolidated Statements of Operations Total revenues increased 5% to $612.1 million, with operating income of $10.3 million and a narrowed net loss of $10.3 million Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $612,056 | $584,211 | | Gross profit | $431,606 | $413,732 | | Income (loss) from operations | $10,340 | ($10,899) | | Net loss | ($10,328) | ($28,494) | | Net loss per share (Basic & Diluted) | ($0.11) | ($0.31) | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $149.7 million, while financing activities used $219.9 million due to debt settlement and share repurchases Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $149,662 | $96,094 | | Net cash used in investing activities | ($19,486) | ($19,409) | | Net cash used in financing activities | ($219,881) | ($94,665) | | Net decrease in cash | ($88,375) | ($19,065) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, $2.6 billion in remaining performance obligations, $161.3 million convertible note settlement, and $7.1 million in restructuring costs - The company's remaining performance obligations, which represent contracted revenue not yet recognized, were approximately $2.6 billion as of March 31, 2025. 53% of this is expected to be recognized in the next 12 months[38] - In March 2025, the company settled the remaining $161.3 million principal of its 2025 Convertible Notes in cash upon maturity[60][70] - During Q1 2025, the company incurred restructuring costs of $7.1 million, primarily for severance and employee benefits, as part of broader efforts to optimize its cost structure[113][114] - The company operates as a single reportable segment, with the CEO acting as the chief operating decision maker (CODM)[116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transformation to an AI-powered multi-product portfolio, highlighting 5% revenue growth, improved operating income, and strong liquidity despite debt settlement - RingCentral has transformed into an AI-powered multi-product company with offerings like RingEX (UCaaS), RingCX (CCaaS), and RingSense AI solutions, focusing on trust, innovation, and partnerships[124][126] - The company is actively implementing measures to enhance operational efficiencies, including stricter spending discipline, increased productivity, and optimizing go-to-market strategies[129] Key Business Metrics | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Annualized Exit Monthly Recurring Subscriptions (ARR) | $2.53 billion | $2.37 billion | | Net Monthly Subscription Dollar Retention Rate | >99% | >99% | Results of Operations Total revenues grew 5% to $612.1 million, driven by subscription revenue, with operating expenses decreasing, leading to improved operating income and a narrowed net loss Revenue Comparison (in thousands) | Revenue Type | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Subscriptions | $590,112 | $557,487 | 6% | | Other | $21,944 | $26,724 | (18)% | | Total revenues | $612,056 | $584,211 | 5% | Operating Expense Comparison (in thousands) | Expense Category | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $81,983 | $80,528 | 2% | | Sales and marketing | $274,898 | $272,730 | 1% | | General and administrative | $64,385 | $71,373 | (10)% | - The improvement in net loss by $18.2 million was largely due to a $21.2 million reduction in loss from operations, driven by higher subscription revenues and disciplined spending, including a $10.3 million reduction in share-based compensation[156] Liquidity and Capital Resources The company maintains strong liquidity with $154.4 million cash, $149.7 million operating cash flow, and available credit, despite significant debt and share repurchases - In Q1 2025, the company repurchased 1.8 million shares for $50.0 million. As of March 31, 2025, $218.1 million remained authorized for future repurchases[159] - The company has future minimum principal payments for long-term debt totaling $1.37 billion, with a significant portion ($629.1 million) due in 2026 related to the 2026 Convertible Notes and Term Loan[160] Non-GAAP Free Cash Flow Reconciliation (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $149,662 | $96,094 | | Capitalized expenditures | ($19,486) | ($19,409) | | Non-GAAP free cash flow | $130,176 | $76,685 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency and interest rates, with most sales in USD and interest rate swaps mitigating variable debt exposure - The majority of sales are denominated in U.S. dollars, so foreign currency risk is not currently significant. A hypothetical 10% change in exchange rates would not have a material impact[181] - Interest rate risk from the variable-rate Term Loan is managed through a five-year floating-to-fixed interest rate swap agreement, effectively fixing the rate at 3.79% plus a margin[184] - The company's 2026 Convertible Notes and 2030 Senior Notes carry fixed interest rates, so there is no economic exposure to interest rate changes on this debt, though their fair values are affected by market rates[183][185] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level[187] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[188] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in a CIPA class action lawsuit, with a favorable summary judgment currently under appeal, and no estimable potential loss - In the CIPA matter, the court entered a judgment in RingCentral's favor on November 5, 2024, but the plaintiff filed a notice of appeal on January 6, 2025. The company cannot reasonably estimate any potential loss[86] Item 1A. Risk Factors This section details significant risks including a history of losses, intense competition, reliance on partners, technology and security threats, substantial debt, and dual-class stock structure - A summary of key risk factors includes a history of significant losses, intense competition, reliance on channel partners, potential for increased customer turnover, and risks associated with servicing debt[195] Risks Related to Our Business and Our Industry The company faces business and industry risks including a history of losses, intense competition, challenges in customer acquisition and retention, and reliance on brand and key personnel - The company has a history of substantial net losses and may not achieve or sustain profitability due to high costs for development, marketing, and sales, as well as competitive pressures[197] - The company faces intense competition from a wide range of providers, including 8x8, Microsoft, Zoom, Cisco, and others who may have greater resources, brand recognition, and more diversified offerings[221][222] - A substantial portion of revenue is derived from channel partners and GSPs; failure to effectively manage these indirect channels could materially harm revenues[209] Risks Related to Technology and Security The company faces technological and security risks including service interruptions, cyber-attacks, data breaches, and new legal and ethical challenges from evolving AI technologies - The company is vulnerable to service interruptions from its third-party data center hosting facilities, which could impair service delivery, require credits or penalties, and harm the business[231] - Cyber-attacks, information security breaches, or denial of service events pose a significant threat, potentially interrupting service, harming reputation, and subjecting the company to liability[235] - The incorporation of AI technologies like RingSense presents new and evolving legal and business risks, including potential for regulatory scrutiny, intellectual property claims, and data bias[248][249] Risks Related to Our Indebtedness The company's substantial debt, including $609.1 million in 2026 Convertible Notes, poses risks to cash flow for repayment and imposes restrictive covenants - The company may need additional capital to pursue its objectives, but funds may not be available on acceptable terms, or at all, due to market volatility or restrictive covenants in existing debt agreements[312] - Servicing its substantial debt requires significant cash, and the company may not have sufficient cash flow to settle conversions of the 2026 Convertible Notes or repay all indebtedness at maturity[316] - The Credit Agreement contains covenants that limit the ability to incur debt, make investments, dispose of assets, and pay dividends, and requires compliance with maximum leverage and minimum interest coverage ratios[322] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.82 million shares for $50.0 million in Q1 2025, with $218.1 million remaining authorized for future repurchases Share Repurchase Activity - Q1 2025 | Period | Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Feb 1 - Feb 28, 2025 | 174.6 | $28.60 | | Mar 1 - Mar 31, 2025 | 1,647.3 | $27.33 | | Total Q1 2025 | 1,821.9 | N/A | - In February 2025, the board of directors authorized an incremental $100.0 million for the share repurchase program. As of March 31, 2025, $218.15 million remained available for future repurchases[358] Item 5. Other Information Several executive officers, including the CEO, President & COO, and CAO, adopted Rule 10b5-1 trading plans in March 2025 - In March 2025, CEO Vladimir Shmunis, President & COO Kira Makagon, and CAO Tarun Arora each adopted a Rule 10b5-1 trading arrangement for the future sale of shares of Class A common stock[361][363][364] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including an amended executive offer letter, credit agreement amendment, and CEO/CFO certifications - The report includes several exhibits, such as an amended employment agreement for President and COO Kira Makagon, the Fifth Amendment to the Credit Agreement, and CEO/CFO certifications[368]