RingCentral(RNG) - 2022 Q4 - Annual Report

Part I Business RingCentral provides global enterprise cloud communications, video, collaboration, and contact center SaaS solutions - RingCentral is a leading provider of global enterprise cloud communications and collaboration solutions delivered via a Software-as-a-Service (SaaS) model[17] - The company's portfolio is centered around its Message Video Phone (MVP) platform and includes three key products for unified communications, customer engagement, and video meetings[20][21] - Revenues are primarily generated from subscriptions for cloud-based services[21] - The company utilizes a multi-channel sales strategy, including a direct sales force and indirect channels through partners like Mitel, Avaya, AT&T, and Verizon[22][26] - The company has a diverse customer base across many industries, with no single customer representing more than 10% of total revenue in 2022, 2021, or 2020[40] - As of December 31, 2022, the company had 3,902 full-time employees following a reduction in force of approximately 10%[59] Risk Factors The company faces significant financial, operational, competitive, and regulatory risks, including a history of losses and reliance on key third-party partners - The company has a history of significant losses and negative cash flows and anticipates incurring losses for the foreseeable future, making profitability uncertain[74][77] - RingCentral relies on third parties for key operations in countries including Ukraine, where the ongoing conflict has impacted its business[74][86][88] - The success of strategic partnerships is critical, and Avaya's financial restructuring via Chapter 11 led to a $279.3 million non-cash asset write-down in 2022[99][105] - The company faces intense competition from providers like Cisco, Microsoft, 8x8, Zoom, and Twilio[100][101][102] - Cyber-attacks or information security breaches pose a significant risk that could interrupt service and result in significant liability[121] - The business is subject to evolving U.S. and international regulations regarding data privacy, such as the GDPR and CCPA, which may increase costs[169][181][182] - A dual-class stock structure concentrates approximately 54% of the voting power with a limited number of stockholders, including the company's founders[74][222] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[256] Properties The company leases its corporate headquarters in California, along with other global office and data center facilities - The corporate headquarters is located in Belmont, California, consisting of approximately 110,000 square feet of leased office space with leases expiring in July 2026[257] - The company leases additional office space in locations including Denver, London, and Paris[258] - RingCentral leases space from third-party datacenter hosting facilities worldwide to support its cloud infrastructure[258] Legal Proceedings Information regarding legal proceedings is incorporated by reference from the consolidated financial statements - Details on legal proceedings can be found in Note 8 – Commitments and Contingencies of the consolidated financial statements[259] Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable[260] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's Class A Common Stock trades on the NYSE under "RNG" and it actively manages capital through share repurchase programs - The company's Class A Common Stock is listed on the New York Stock Exchange under the symbol "RNG"[263] - RingCentral has never paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for business operations[265] Share Repurchase Activity (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | — | $ — | | Nov 2022 | 1,314,610 | $37.12 | | Dec 2022 | 142,465 | $35.08 | | Total Q4 | 1,457,075 | N/A | - The company completed its $100 million share repurchase program on December 31, 2022, and the Board authorized a new $175 million program in February 2023[269] [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2022 saw 25% revenue growth to $1.99 billion, but a significant net loss of $879.2 million due to asset write-downs and investment losses Key Business Metrics (2021-2022) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Annualized Exit Monthly Recurring Subscriptions (ARR) | $2.1 billion | $1.8 billion | | Net Monthly Subscription Dollar Retention Rate | >99% | >99% | Financial Performance Summary (in thousands) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,988,330 | $1,594,754 | 25% | | Subscriptions Revenue | $1,887,756 | $1,482,080 | 27% | | Gross Profit | $1,346,599 | $1,146,385 | 17% | | Loss from Operations | ($649,475) | ($301,786) | 115% | | Net Loss | ($879,166) | ($376,250) | 134% | - The increase in net loss was primarily driven by a non-cash asset write-down charge of $283.7 million related to the Avaya partnership and unrealized losses of $188.1 million from investments[324][326][328] - Sales and marketing expenses increased by 24% to $1.06 billion in 2022, driven by higher commissions and personnel costs to support growth[319] - Net cash provided by operating activities was $191.3 million for 2022, an increase from $152.2 million in 2021[337][339] - The company ended 2022 with $270.0 million in cash and cash equivalents, compared to $267.2 million at the end of 2021[332] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures relate to foreign currency exchange rates, interest rates, and fluctuations affecting its investments - Growing international operations expose the company to fluctuations in currencies like the British Pound, Euro, and Canadian Dollar[365] - Interest rate risk is primarily associated with cash equivalents and the fair value of its convertible senior notes, though the notes carry a 0% fixed annual interest rate[366][367] - Long-term investments are subject to market-related risks that could impact their fair value[368] - The company does not believe that inflation has had a material effect on its business or results of operations[369] Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and the independent auditor's report for the fiscal year ended December 31, 2022 Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,073,662 | $2,579,039 | | Total Current Assets | $796,016 | $650,741 | | Total Liabilities | $2,357,000 | $2,040,623 | | Total Current Liabilities | $652,559 | $526,270 | | Total Stockholders' (Deficit) Equity | ($482,787) | $338,967 | Consolidated Statement of Operations Data (in thousands) | | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $1,988,330 | $1,594,754 | $1,183,657 | | Gross Profit | $1,346,599 | $1,146,385 | $860,050 | | Loss from Operations | ($649,475) | ($301,786) | ($113,239) | | Net Loss | ($879,166) | ($376,250) | ($82,996) | | Net Loss Per Share | ($9.23) | ($4.10) | ($0.94) | Consolidated Statement of Cash Flows Data (in thousands) | | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $191,305 | $152,151 | ($35,191) | | Net cash used in investing activities | ($87,210) | ($396,829) | ($107,686) | | Net cash provided by (used in) financing activities | ($98,218) | ($127,051) | $437,590 | - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[373] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting principles or financial disclosure - None[548] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[549][551] - Management's annual report concluded that internal controls over financial reporting were effective as of December 31, 2022, based on the COSO framework[552] - There were no material changes in internal control over financial reporting during the fourth quarter of 2022[554] Other Information A director resigned from the board in February 2023 for reasons unrelated to company operations, policies, or practices - Sridhar Srinivasan resigned from the Board of Directors effective February 18, 2023[557] - The resignation was not the result of any disagreement with the company or its management[557] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - None[558] Part III Directors, Executive Officers and Corporate Governance The board consists of eight members, seven of whom are independent, with established audit, compensation, and governance committees - The board is composed of eight members, with seven determined to be independent under NYSE rules[561][587] - Vladimir Shmunis serves as both Chairman and CEO, while Robert Theis serves as the Lead Independent Director[588][590] - The board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee[591] - The report details committee responsibilities, including the designation of four members of the Audit Committee as "audit committee financial experts"[592][594][597][599] - Biographies are provided for all directors and executive officers as of December 31, 2022[563][580] Executive Compensation The executive compensation program ties pay to performance, focusing on revenue growth and Non-GAAP operating margin through a mix of salary and equity - The executive compensation program's objective is to tie executive pay to company performance and align executive and stockholder interests[634] - The 2022 annual bonus plan was based on quarterly achievement of revenues and Non-GAAP operating margin, with payouts made in fully vested RSUs[659][666] - The company offered an Equity Compensation Program allowing NEOs to receive a portion of their 2022 base salary in fully vested RSUs to conserve cash[649] - Long-term incentive compensation is delivered through RSU grants to promote retention and align with long-term stockholder value[669][671][675] - The company has a "double-trigger" change-in-control policy, requiring both a change-in-control and a qualifying termination for vesting acceleration[638][692] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial stock ownership, highlighting significant holdings by company founders and major institutional investors Security Ownership of Major Holders (as of Jan 31, 2023) | Holder | % of Total Voting Power | | :--- | :--- | | Entities affiliated with Vladimir Shmunis | 29.7% | | Entities affiliated with Vlad Vendrow | 16.2% | | Capital World Investors | 7.0% | | Vanguard Group Inc. | 5.3% | | All current executive officers and directors as a group | 31.4% | - The company has a dual-class stock structure where Class A common stock has one vote per share, while Class B common stock has 10 votes per share[773] - As of December 31, 2022, 19.6 million shares were available for future issuance under the 2013 Equity Incentive Plan[778] Certain Relationships and Related Transactions and Director Independence The company discloses transactions with related parties, including an aircraft charter arrangement with the CEO's company and employment of a director's son - The company has an aircraft charter arrangement with RZS, LLC, a company owned by CEO Vladimir Shmunis, paying $170,433 for business use in 2022[785] - David Theis, son of board member Rob Theis, is employed by the company in a non-executive capacity[784] - The company has a policy requiring audit committee review and approval of any related party transaction exceeding $120,000[791] - RingCentral has entered into indemnification agreements with its directors and executive officers[787][788] Principal Accountant Fees and Services This section details fees paid to the independent auditor, KPMG LLP, which were pre-approved by the audit committee Fees Paid to KPMG LLP (in thousands) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $2,178 | $2,597 | | Audit-Related Fees | $— | $350 | | All Other Fees | $111 | $10 | | Total Fees | $2,289 | $2,957 | - The audit committee has a pre-approval policy for all audit and permissible non-audit services provided by the independent auditor[795] - All services provided by KPMG LLP in 2022 and 2021 were pre-approved by the audit committee[796] Part IV Exhibits This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications - Lists key corporate documents, including the Certificate of Incorporation and Bylaws[799] - Includes indentures for the 0% Convertible Senior Notes due 2025 and 2026[799] - Contains various management and compensatory plans, such as the 2013 Equity Incentive Plan and employment letters for named executive officers[799][800] - Includes required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[802]