Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RNG > SEC Filings for RNG > Form 10-Q on 13-Nov-2013All Recent SEC Filings

Show all filings for RINGCENTRAL INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for RINGCENTRAL INC


13-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Prospectus filed on September 27, 2013, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act") with the SEC. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below.

Overview

RingCentral, Inc. (the "Company", "we", "us" or "our") is a leading provider of software-as-a-service ("SaaS"), solutions for business communications. We believe that our innovative, cloud-based approach disrupts the large market for business communications solutions by providing flexible and cost-effective services that support distributed workforces, mobile employees and the proliferation of "bring-your-own" communications devices. We enable convenient and effective communications for our customers, across all their locations, all their employees, all the time, thus enabling a more productive and dynamic workforce. RingCentral Office, our flagship service, is a multi-user, enterprise-grade communications solution that enables our customers and their employees to communicate via voice, text and fax, on multiple devices, including smartphones, tablets, PCs and desk phones.

We founded our business in 1999 and currently offer three services: RingCentral Office, RingCentral Professional, and RingCentral Fax. Prior to 2009, substantially all of our revenues were derived from RingCentral Professional, which we previously sold as RingCentral Mobile, and, RingCentral Fax and Extreme Fax, a discontinued service. In 2009, we began selling RingCentral Office, our current flagship service, to deliver an enterprise-grade SaaS multi-user communications solution, with advanced inbound and outbound voice, text and fax capabilities, delivered as a scalable solution.

We primarily generate revenues by selling subscriptions for our RingCentral Office, RingCentral Professional, and RingCentral Fax offerings. RingCentral Office is offered at monthly subscription rates, varying with the specific functionalities and services and the number of users. RingCentral Professional is offered at monthly subscription rates that vary based on the desired number of minutes usage and extensions allotted to the plan. RingCentral Fax is offered at monthly subscription rates that vary based on the desired number of pages and phone numbers allotted to the plan. RingCentral Office customers generally pay higher monthly subscription rates than customers of our other service offerings. Our subscription plans have historically had monthly or annual contractual terms, although we also have subscription plans with multi-year contractual terms, generally with larger customers. We believe that this flexibility in contract duration and termination is important to meet the different needs of our customers. Generally, our fees for subscription plans have been billed in advance. However, as the number of RingCentral Office customers grows, we expect to bill more customers through commercial invoices with customary payment terms and, accordingly, our levels of accounts receivable may increase. For the three and nine months ended September 30, 2013 and 2012, services revenues were equal to or greater than 90% of our total revenues. The remainder of our revenues are comprised of product revenues from the sale of pre-configured office phones, which we offer as a convenience to our customers in connection with subscriptions to our services.

We make significant upfront investments to acquire customers. Until 2009, we acquired most of our customer subscriptions through e-commerce transactions on our website driven by online marketing channels. Beginning in 2009, in connection with our introduction of RingCentral Office, we established a direct, inside sales force. Since then, we have continued investing in our direct, inside sales force while also developing indirect sales channels to market our brand and our service offerings. Our indirect sales channel consists of a network of over 1,000 resellers, including American Telephone and Telegraph, Inc. ("AT&T"). We intend to continue to foster this network and to expand our network with other resellers. Beginning in 2011, we also began expanding into more traditional forms of media advertising, such as radio and billboard advertising.


Our revenue growth has primarily been driven by our flagship RingCentral Office service offering, which has resulted in an increased number of customers, increased average subscription revenues per customer, and increased retention of our existing customer and user base. We define a "customer" as one individual billing relationship for the subscription to our services, which generally correlates to one company account per customer. We define a user as one person within a customer who has been granted a subscription license to use our services, such that the number of users per customer generally correlates closely to the number of employees within a customer account. For the three and nine months ended September 30, 2013 and 2012, no single customer accounted for more than 10% of our total revenues, and our 10 largest non-reseller customers accounted for less than 10% of our total revenues. As of September 30, 2013, we had over 300,000 customers from industries including advertising, finance, healthcare, legal services, non-profit organizations, real estate, retail and technology, and ranging in size from businesses with fewer than 10 users to more than 500 users. For the three and nine months ended September 30, 2013 and 2012, 99% of our total revenues were generated in the U.S. and Canada, although we expect the percentage of our total revenues derived outside of the U.S. and Canada to grow as we expand internationally.

The growth of our business and our future success depend on many factors, including our ability to expand our customer base to medium-sized and larger customers, continue to innovate, grow revenues from our existing customer base, expand our distribution channels and scale internationally. While these areas represent significant opportunities for us, they also pose risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results. In addition, there has been substantial litigation in the areas in which we operate regarding intellectual property rights, including third parties claiming patent infringement which is further described under "Item 1-Legal Proceedings" and Note 5 to our condensed consolidated financial statements. We cannot assure you that we will be successful in defending against any such claims or that we will be able to settle any ongoing or future claims or that any such settlement would be on terms that are favorable to us.

We have experienced significant growth in recent periods, with total revenues of $50.2 million, $78.9 million and $114.5 million in 2010, 2011 and 2012, respectively, generating year-over-year increases of 57% and 45%, respectively. We have continued to make significant expenditures and investments, including those in research and development, infrastructure and operations and incurred net losses of $7.3 million, $13.9 million and $35.4 million, in 2010, 2011 and 2012, respectively. For the three months ended September 30, 2013 and 2012, our total revenues were $41.9 million and $29.6 million, respectively, representing a year-over-year increase of 42%. For the nine months ended September 30, 2013 and 2012, our total revenues were $115.2 million and $81.4 million, respectively, representing a year-over-year increase of 41%. For the three and nine months ended September 30, 2013 and 2012, our net losses were $8.9 million, $9.6 million, $32.7 million and $28.3 million, respectively.


Results of Operations

The following tables show our results of operations in dollars and as a percentage of our total revenues. The historical results presented below are not necessarily indicative of the results that may be expected for any future period (in thousands):

                                             Three Months Ended                 Nine Months Ended
                                               September 30,                      September 30,
                                           2013              2012             2013             2012
Revenues:
Services                                $   37,925        $   27,290       $  104,669       $   74,989
Product                                      4,009             2,298           10,494            6,412
Total revenues                              41,934            29,588          115,163           81,401
Cost of revenues:
Services                                    12,080             9,191           34,178           26,310
Product                                      3,888             2,041           10,189            6,223
Total cost of revenues                      15,968            11,232           44,367           32,533
Gross profit                                25,966            18,356           70,796           48,868
Operating expenses:
Research and development                     8,150             6,544           24,260           17,582
Sales and marketing                         18,889            13,781           52,355           39,625
General and administrative                   7,078             7,069           24,859           19,147
Total operating expenses                    34,117            27,394          101,474           76,354
Loss from operations                        (8,151 )          (9,038 )        (30,678 )        (27,486 )
Other income (expense), net:
Interest expense                              (995 )            (553 )         (2,222 )           (784 )
Other income (expense), net                    348                48              102               20
Other income (expense), net                   (647 )            (505 )         (2,120 )           (764 )
Loss before provision (benefit) for
income taxes                                (8,798 )          (9,543 )        (32,798 )        (28,250 )
Provision (benefit) for income taxes            54                25              (66 )             57
Net loss                                $   (8,852 )      $   (9,568 )     $  (32,732 )     $  (28,307 )


Percentage of Total Revenues:





                                             Three Months Ended                 Nine Months Ended
                                               September 30,                      September 30,
                                           2013              2012             2013             2012
Revenues:
Services                                        90 %              92 %             91 %             92 %
Product                                         10                 8                9                8
Total revenues                                 100               100              100              100
Cost of revenues:
Services                                        29                31               30               32
Product                                          9                 7                9                8
Total cost of revenues                          38                38               39               40
Gross profit                                    62                62               61               60
Operating expenses:
Research and development                        19                22               21               22
Sales and marketing                             45                47               45               49
General and administrative                      17                24               22               23
Total operating expenses                        81                93               88               94
Loss from operations                           (19 )             (31 )            (27 )            (34 )
Other income (expense), net:
Interest expense                                (2 )              (1 )             (2 )             (1 )
Other income (expense), net                     -                 -                -                -
Other income (expense), net                     (2 )              (1 )             (2 )             (1 )
Loss before provision (benefit) for
income taxes                                   (21 )             (32 )            (29 )            (35 )
Provision (benefit) for income taxes            -                 -                -                -
Net loss                                       (21 )%            (32 )%           (29 )%           (35 )%

Comparison of the Three and Nine Months Ended September 30, 2013 and 2012 (dollars in thousands):

Revenues





                                            Three Months                                                       Nine Months
                                         Ended September 30,                                               Ended September 30,
(in thousands, except percentages)      2013            2012          $ Change         % Change            2013            2012          $ Change         % Change
Revenues:
Services                              $  37,925       $  27,290       $  10,635               39 %      $  104,669       $  74,989       $  29,680               40 %
Product                                   4,009           2,298           1,711               74 %          10,494           6,412           4,082               64 %
Total revenues                        $  41,934       $  29,588       $  12,346               42 %      $  115,163       $  81,401       $  33,762               41 %
Percentage of revenues:
Services                                     90 %            92 %                                               91 %            92 %
Product                                      10               8                                                  9               8
Total                                       100 %           100 %                                              100 %           100 %

The increases in services revenues during the three and nine months ended September 30, 2013 were primarily due to growth in the total number of customers and an increase in the number of users per customer. In addition, our services revenues mix contained a higher proportion of RingCentral Office customers for the three and nine months ended September 30, 2013. While the acquisition of new customers and the increase in the number of users within our existing customer base were the primary reasons for the increase, the trends for these factors have varied from period to period as some customers made a small initial user subscription followed by a larger additional user subscription, while other customers made a large initial user subscription followed by a smaller additional user subscription. In addition, the period of time between a customer's initial subscription and the purchase of additional subscriptions also varied significantly, ranging from one month to a few years. The overall growth in our customer base was primarily driven by increased brand awareness of our services, driven by increases in our sales and marketing expenditures of 37% and 32% for the three and nine months ended September 30, 2013, period over period, which include advertising and sales personnel expenditures that we believe helped to facilitate increased customer acceptance of our services.


Product revenues increased for the three and nine months ended September 30, 2013, primarily due to increased phone sales driven by the growth of new customers to RingCentral Office.

Cost of Revenues and Gross Profit





                                            Three Months                                                       Nine Months
                                         Ended September 30,                                               Ended September 30,
(in thousands, except percentages)      2013            2012          $ Change         % Change           2013            2012          $ Change         % Change
Cost of revenues:
Services                              $  12,080       $   9,191       $   2,889               31 %      $  34,178       $  26,310       $   7,868               30 %
Product                                   3,888           2,041           1,847               90 %         10,189           6,223           3,966               64 %
Total cost of revenues                $  15,968       $  11,232       $   4,736               42 %      $  44,367       $  32,533       $  11,834               36 %
Gross profit:
Gross profit %                               62 %            62 %                                              61 %            60 %

Cost of services revenues increased for the three and nine months ended September 30, 2013, primarily due to: (i) increases of $0.9 million and $2.7 million in personnel costs for employees and contractors, respectively;
(ii) increases of $0.5 million and $1.9 million in depreciation expense, respectively; and (iii) increases of $1.0 million and $2.4 million in third-party telecommunications service provider fees, respectively. The higher personnel costs for the three and nine months ended September 30, 2013 were primarily due to 1% and 14% increases in headcount, respectively. The increases in headcount and other expense categories described herein were driven primarily by investments in our infrastructure and capacity to improve the availability of our service offerings, while also supporting the growth in new customers and increased usage of our services by our customer base.

Cost of product revenues increased for the three and nine months ended September 30, 2013 due to an increase in phone sales, which was primarily driven by the growth in new RingCentral Office customers. Phone sales for the three and nine months ended September 30, 2013 increased by 39% and 40%, respectively, compared to the same periods of the prior year.

Our gross profit margin was 62% for the three months ended September 30, 2013 and 2012, respectively, and 61% and 60% for the nine months ended September 30, 2013 and 2012, respectively. The change in gross margin for the three and nine months ended September 30, 2013 was primarily due to a reduction in per usage fees that we paid to third-party telecommunications service providers as a result of increased call traffic, partially offset by increased phone sales.

Research and Development





                                            Three Months                                                      Nine Months
                                        Ended September 30,                                               Ended September 30,
(in thousands, except percentages)      2013            2012         $ Change         % Change           2013            2012          $ Change         % Change
Research and development              $   8,150       $  6,544       $   1,606               25 %      $  24,260       $  17,582       $   6,678               38 %
Percentage of total revenues                 19 %           22 %                                              21 %            22 %

The increases in research and development expenses for the three and nine months ended September 30, 2013 were primarily due to increases in personnel costs for employees and contractors of $1.2 million and $4.8 million, including higher share-based compensation expenses of $0.1 million and $0.3 million, respectively. The higher personnel costs for the three and nine months ended September 30, 2013 were primarily due to 8% and 23% increases in headcount, respectively. The increases in research and development headcount were in support of the development of additional software development projects for our cloud-based and mobile applications.


Sales and Marketing





                                            Three Months                                                     Nine Months
                                         Ended September 30,                                             Ended September 30,
(in thousands, except percentages)      2013            2012          $ Change        % Change          2013            2012          $ Change        % Change
Sales and marketing                   $  18,889       $  13,781       $   5,108              37 %     $  52,355       $  39,625       $  12,730              32 %
Percentage of total revenues                 45 %            47 %                                            45 %            49 %

The increases in sales and marketing expenses for the three and nine months ended September 30, 2013 were primarily due to: (i) increases in personnel costs for employees and contractors of $2.6 million and $6.2 million, including higher share-based compensation expenses of $0.2 million and $0.3 million, respectively; and (ii) increases in other sales and marketing related activities of $1.7 million and $4.8 million, respectively. The higher personnel costs for the three and nine months ended September 30, 2013 were primarily due to headcount increases of 23% and 33%, respectively. The increases in other sales and marketing related activities for the three and nine months ended September 30, 2013 relate primarily to: (i) increases in internet advertising costs of $0.5 million and $1.2 million, respectively; and (ii) increases in third-party sales commissions of $0.9 million and $2.4 million, respectively.
The increases in sales and marketing headcount and other expense categories described herein were necessary to support our growth strategy to acquire new customers and establish brand recognition to achieve greater penetration into the North America market.

General and Administrative





                                            Three Months                                                      Nine Months
                                        Ended September 30,                                               Ended September 30,
(in thousands, except percentages)      2013            2012         $ Change         % Change           2013             2012          $ Change         % Change
General and administrative            $  7,078        $  7,069       $       9               -         $  24,859        $  19,147       $   5,712               30 %
Percentage of total revenue                 17 %            24 %                                              22 %             23 %

General and administrative expenses for the three months ended September 30, 2013 were flat compared to the three months ended September 30, 2012 primarily due to: (i) an increase in personnel costs for employees and contractors of $2.0 million, including share-based compensation expenses of $1.1 million; offset by
(ii) an insurance recovery of $1.2 million related to the CallWave legal settlement; and (iii) lower professional fees of $0.7 million. The higher personnel costs for the three months ended September 30, 2013 were primarily due to headcount increases of 15%. The CallWave legal settlement required the Company to pay CallWave cash consideration which it recognized as general and administrative expense during the second quarter of 2013, as it determined the payment to be a cost to settle a loss contingency, and the amount was probable and estimable. During the third quarter of 2013, the Company paid substantially all of the cash consideration due under the settlement and recorded a credit to general and administrative expense of $1.2 million to reflect the final cost of the settlement net of insurance recovery. The decrease in professional fees was primarily due to certain legal and accounting expenses incurred in 2012 related to efforts for public company readiness that did not recur in 2013.

The increase in general and administrative expenses for the nine months ended September 30, 2013 was primarily due to: (i) an increase in personnel costs for employees and contractors of $5.5 million, including share-based compensation expenses of $1.8 million; and (ii) an increase of $2.1 million related to higher legal settlement costs. These increases for the nine months ended September 30, 2013 were offset by: (i) lower costs of certain taxes on revenue-producing transactions that exceeded amounts collected from customers of $1.3 million; and
(ii) lower professional fees of $1.0 million. The higher personnel costs for the nine months ended September 30, 2013 were primarily due to headcount increases of 31%. The higher legal settlement costs were driven by timing and size of various legal settlements that occurred during the nine months ended September 30, 2013. The decrease in professional fees was primarily due to certain legal and accounting expenses incurred in 2012 related to efforts for public company readiness that did not recur in 2013.


Other Income and Expense, net





                                            Three Months                                                       Nine Months
                                        Ended September 30,                                                Ended September 30,
(in thousands, except percentages)      2013            2012          $ Change          % Change           2013            2012         $ Change          % Change
Other income (expense), net:
Interest expense                      $    (995 )      $  (553 )     $      442                80 %      $  (2,222 )      $  (784 )     $   1,438               183 %
Other income (expense), net           $     348        $    48       $      300               625 %      $     102        $    20       $      82               410 %

Other income (expense), net increased for the periods presented primarily due to higher interest expense. The increase in interest expense for the three and nine months ended September 30, 2013 were primarily due to higher levels of debt outstanding during fiscal 2013 as compared to fiscal 2012. At September 30, 2012, there was $22.3 million of total debt outstanding. At September 30, 2013, there was $37.4 million of total debt outstanding.

Liquidity and Capital Resources

To date, we have financed our operations primarily through private placements of our preferred stock, proceeds from issuance of debt, proceeds from our initial public offering completed in October 2013, and sales to our customers. As of September 30, 2013 and December 31, 2012, we had $37.9 million and $25.5 million, respectively, of cash and cash equivalents.

During 2012, we raised $30.0 million through the private placement of 3.1 million shares of our Series E preferred stock. In October 2013, we raised . . .

  Add RNG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RNG - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.