RingCentral(RNG) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Q3 2023 revenues reached $558.2 million, with a net loss of $42.1 million, positive operating cash flow, and debt restructuring Condensed Consolidated Balance Sheets (in thousands) | | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $1,052,319 | $796,016 | | Total assets | $2,182,494 | $2,073,662 | | Liabilities and Stockholders' Deficit | | | | Total current liabilities | $605,310 | $652,559 | | Long-term debt, net | $1,781,252 | $1,638,411 | | Total liabilities | $2,467,501 | $2,357,000 | | Total stockholders' deficit | $(484,456) | $(482,787) | | Total liabilities, temporary equity and stockholders' deficit | $2,182,494 | $2,073,662 | Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $558,164 | $509,032 | $1,631,158 | $1,463,584 | | Gross profit | $389,190 | $341,558 | $1,137,091 | $982,446 | | Loss from operations | $(54,175) | $(182,559) | $(153,768) | $(393,865) | | Net loss | $(42,116) | $(284,616) | $(117,997) | $(595,103) | | Net loss per share, basic and diluted | $(0.45) | $(2.98) | $(1.24) | $(6.26) | Condensed Consolidated Statements of Cash Flows (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $285,818 | $151,933 | | Net cash used by investing activities | $(70,465) | $(64,233) | | Net cash used by financing activities | $(51,798) | $(44,780) | | Net increase in cash, cash equivalents, and restricted cash | $162,368 | $38,221 | | Cash, cash equivalents, and restricted cash, end of period | $432,352 | $305,383 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth and operational efficiencies reduced net loss, with active debt management supporting liquidity for the next 12 months - The company is a leading provider of AI-powered global enterprise cloud communications solutions (UCaaS), including RingCentral MVP, customer engagement solutions, RingCentral Video, and the new AI platform, RingSense[135][138] Key Business Metrics (dollars in millions) | | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Monthly Subscription Dollar Retention Rate | >99% | >99% | >99% | >99% | >99% | | Annualized Exit Monthly Recurring Subscriptions | $2,264.9 | $2,218.7 | $2,161.0 | $2,099.7 | $2,046.9 | Revenue Comparison (in thousands) | Revenue Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscriptions | $531,030 | $483,229 | $47,801 | 10% | | Other | $27,134 | $25,803 | $1,331 | 5% | | Total revenues | $558,164 | $509,032 | $49,132 | 10% | - Net loss decreased by $242.5 million for Q3 2023 compared to Q3 2022, driven by a $128.4 million reduction in loss from operations (due to operational efficiencies and a $103.2 million asset write-down in Q3 2022) and a $109.5 million decrease in other expenses, net[178][179][180] - The company actively managed its debt, using proceeds from a new $400.0 million Term Loan and $400.0 million in 2030 Senior Notes to repurchase $627.0 million of its outstanding 2025 and 2026 Convertible Notes during the first nine months of 2023[186] Non-GAAP Adjusted, Unlevered Free Cash Flow Reconciliation (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $285,818 | $151,933 | | Less: Capitalized expenditures | $(55,756) | $(63,466) | | Less: Strategic partnerships | $(33,250) | — | | Add: Restructuring and other payments | $21,460 | $14,118 | | Add: Cash paid for interest, net of interest rate swap | $10,166 | $272 | | Non-GAAP adjusted, unlevered free cash flow | $228,438 | $102,857 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rates, mitigating the latter with a floating-to-fixed interest rate swap - The majority of sales are denominated in U.S. dollars, but international operations expose the company to foreign currency risk, though a hypothetical 10% change in exchange rates would not have had a material impact[214] - The company has fixed-rate Convertible Notes and Senior Notes, whose fair values are exposed to interest rate changes, and also has a variable-rate Term Loan[216][217][219] - To manage interest rate risk on its $395.0 million Term Loan, the company entered into a five-year floating-to-fixed interest rate swap agreement, effectively paying a fixed rate of 3.79% plus a margin of 2% to 3%[218] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, with no significant changes to internal control over financial reporting - As of September 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[221] - There were no changes during the quarter that have significantly affected, or are reasonably likely to significantly affect, the company's internal control over financial reporting[222] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including patent infringement, class action, and contractual disputes, which it intends to vigorously defend - The company is subject to various legal proceedings and claims, with losses accrued for contingencies deemed probable and reasonably estimable[99][100] - Key legal matters include a patent infringement case filed by Uniloc in 2017, a putative class action lawsuit regarding the California Invasion of Privacy Act (CIPA) filed in 2020, and a dispute with Bright Pattern, Inc. over a potential acquisition[101][102][104] Risk Factors The company faces significant risks including historical losses, intense competition, reliance on third parties, cybersecurity threats, substantial debt, and concentrated voting control - A summary of key risk factors includes: - History of significant losses and uncertainty of future profitability[229] - Reliance on third parties for software development, operations, and customer support, particularly in Georgia and the Philippines[231] - Intense competition from companies with greater resources, such as Microsoft and Cisco[231] - Dependence on strategic partners like Avaya, Amazon, and Mitel for sales, which may not be successful[231] - Risks associated with servicing significant debt obligations and restrictive covenants in debt agreements[231] - Cybersecurity incidents could interrupt service and harm the business[231] - Concentration of voting control with holders of Class B common stock[231] Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2023, the company repurchased 2.5 million shares for $75.3 million, with $50.6 million remaining for future repurchases Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | August 2023 | 1,269.7 | $29.18 | | September 2023 | 1,219.2 | $31.24 | | Total Q3 2023 | 2,488.9 | N/A | - As of September 30, 2023, approximately $50.6 million remained available for repurchase under the company's share repurchase programs, with an additional $100 million authorized on November 1, 2023[432][433] Other Information Key events include a CFO trading plan update, a $75 million Term Loan increase, a Q4 2023 reduction-in-force plan, and an incremental $100 million share repurchase authorization - On November 2, 2023, the company amended its Credit Agreement, increasing the Term Loan by $75.0 million to an aggregate principal amount of $475.0 million[438] - In Q4 2023, the Board of Directors approved a reduction-in-force plan with estimated aggregate incremental restructuring costs of approximately $10.0 million to $15.0 million, to be incurred in Q4 2023 and Q1 2024[442] - On November 1, 2023, the board authorized an incremental $100.0 million for its share repurchase programs, bringing the total available amount to approximately $150.6 million[443]