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RingCentral (RNG) Q3 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research

RingCentral RNG reported third-quarter 2019 non-GAAP earnings of 22 cents per share, which surpassed the Zacks Consensus Estimate by 15.8%. The figure increased 15.8% on a year-over-year basis.

Net revenues of $233.4 million also beat the consensus mark of $222 million and grew 34.2% from the year-ago quarter. The results reflected a solid demand for RingCentral’s cloud communication solutions.

RingCentral raised 2019 guidance following the third-quarter results. Notably, shares increased 2.7% to close at $161.96 on Nov 5.

RingCentral’s shares have surged 96.4% year to date compared with the industry’s growth of 31.5%.

Year-to-date Performance




Top-Line Details

Software subscription (90.4% of total revenues) revenues grew 33.4% year over year to $210.9 million.

Annualized Exit Monthly Recurring Subscriptions (ARR) increased 31% year over year to $881 million.

RingCentral Office ARR rose 35% year over year to $800 million. Mid-market and Enterprise ARR grew 61% to $426 million.

Moreover, enterprise ARR increased 77% year over year to $259 million. Channel ARR soared 63% year over year to $263 million.

Ringcentral, Inc. Price, Consensus and EPS Surprise

Ringcentral, Inc. Price, Consensus and EPS Surprise

Ringcentral, Inc. price-consensus-eps-surprise-chart | Ringcentral, Inc. Quote

Other revenues (9.6% of total revenues) surged 42.5% year over year to $22.4 million.

Operating Details

In third-quarter 2019, non-GAAP gross margin contracted 220 basis points (bps) from the year-ago quarter to 76%.

On a non-GAAP basis, total operating expenses were $155.7 million, up 27.9%. As a percentage of revenues, operating expenses declined 330 bps on a year-over-year basis to 66.7%.

Research & development (R&D) expenses increased 30.4% to $29.1 million. Sales and marketing expenses were up 26.1% to $98.3 million. General and administrative expenses rose 31.7% to $28.3 million in the reported quarter.

On a non-GAAP basis, operating income was $21.7 million, up 52% year over year. Non-GAAP operating margin expanded 110 bps from the year-ago quarter to 9.3%.

Partnership Details

Notably, RingCentral and AT&T T recently expanded their relationship. Per the latest agreement, AT&T Office@Hand, based on the RingCentral platform, will be a lead UCaaS solution for AT&T.

Additionally, AT&T and RingCentral will jointly develop capabilities and technologies, which will be further integrated with AT&T’s network to improve overall customer experience.

In October, RingCentral inked a partnership with Avaya, per which the former will be an exclusive provider of UCaaS solutions to the latter. Per the agreement, both companies will also introduce a solution, “Avaya Cloud Office by RingCentral.” RingCentral expects to start shipping the solution in the first quarter of 2020.

Moreover, during the reported quarter, the company announced a partnership with SYNNEX Corporation SNX. Per the agreement, RingCentral will deliver unified communications and collaboration, cloud communications, and contact center solutions to SYNNEX’s U.S. channel partners.

RingCentral also inked an agreement with Fujitsu to provide enterprises across EMEA with cloud communications and contact center solutions for enhanced mobility, workforce productivity and customer engagement. Moreover, Fujitsu will offer RingCentral Office and RingCentral Contact Centre as part of Fujitsu Digital Workplace solutions.

Additionally, to expand footprint in the U.K. and Ireland, the company announced Westcon as the master agent.

Guidance

For the fourth quarter of 2019, RingCentral expects revenues between $238 million and $240 million, indicating year-over-year growth of 26-27%.

Moreover, software subscription revenues for the quarter are expected between $217 million and $219 million, indicating year-over-year growth of 26-27%.

Operating Margin is expected to be 9.6% for the fourth quarter. Earnings are expected to be 21 cents per share.

For 2019, RingCentral expects revenues between $888 million and $890 million, rising from the previous guidance of $874-$877 million and indicating year-over-year growth of 32%.

Further, software subscription revenues for the year are expected between $805 million and $807 million, implying year-over-year growth of 31-32%.

Operating Margin is expected between 9.1% and 9.2% for full-year 2019.

Earnings are expected to be 81 cents per share, up from the previous guidance of 77-79 cents.

Zacks Rank & Another Stock to Consider

Currently, RingCentral carries a Zacks Rank #2 (Buy).

Advanced Energy AEIS is another stock worth considering in the broader computer & technology sector. It is set to report quarterly earnings on Nov 12 and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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