10-Q 1 rng-20220630.htm 10-Q rng-20220630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-36089
_________________________________________________________
RingCentral, Inc.
(Exact Name of Registrant as Specified in its Charter)
_________________________________________________________
Delaware94-3322844
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
20 Davis Drive
Belmont, California 94002
(Address of principal executive offices)
(650) 472-4100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common StockRNGNew York Stock Exchange
par value $0.0001
_________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No   x
As of August 1, 2022, there were 85,363,024 shares of Class A Common Stock issued and outstanding and 9,955,674 shares of Class B Common Stock issued and outstanding.



TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates”, “believes”, “could”, “seeks”, “estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “will”, “would” or similar expressions and the negatives of those terms. Forward-looking statements include, but are not limited to, statements about:
our progress against short-term and long-term goals;
our future financial performance;
our anticipated growth, growth strategies and our ability to effectively manage that growth and effect these strategies;
our reliance on our third-party product and service providers, particularly in light of Russia’s ongoing invasion of Ukraine on our software development, quality assurance and customer support operations;
the political environment and stability in the regions in which we or our subcontractors operate, particularly in light of Russia’s ongoing invasion of Ukraine;
the impact of the current macroeconomic environment on us and our customers;
the impact of foreign currencies on our non-U.S. business as we expand our business internationally;
our ability to defend our systems and our customer information from fraud and cyber-attack;
our success in the enterprise market;
anticipated trends, developments and challenges in our business and in the markets in which we operate, as well as general macroeconomic conditions;
our ability to scale to our desired goals, particularly the implementation of new processes and systems and the addition to our workforce;
the impact of competition in our industry and innovation by our competitors;
our ability to anticipate and adapt to future changes in our industry;
our ability to predict subscriptions revenues, formulate accurate financial projections, and make strategic business decisions based on our analysis of market trends;
our ability to anticipate market needs and develop new and enhanced solutions and subscriptions to meet those needs, and our ability to successfully monetize them;
maintaining and expanding our customer base;
maintaining, expanding and responding to changes in our relationships with other companies;
maintaining and expanding our distribution channels, including our network of sales agents and resellers, and our strategic partnerships;
our success with our carrier partners;
our ability to sell, market, and support our solutions and services;
our ability to expand our business to larger customers as well as expanding domestically and internationally;
our ability to realize increased purchasing leverage and economies of scale as we expand;
the impact of seasonality on our business;
the impact of any failure of our solutions or solution innovations;
3

the potential effect on our business of litigation to which we may become a party;
our liquidity and working capital requirements;
the impact of changes in the regulatory environment;
our ability to protect our intellectual property and rely on open source licenses;
our expectations regarding the growth and reliability of the internet infrastructure;
the timing of acquisitions of, or making and exiting investments in, other entities, businesses or technologies;
our ability to successfully and timely execute on, integrate, and realize the benefits of any acquisition, investment, strategic partnership, or other strategic transaction we may make or undertake;
our capital expenditure projections;
our capital allocation plans, including expected allocations of cash and timing for any share repurchases and other investments;
the estimates and estimate methodologies used in preparing our condensed consolidated financial statements;
our ability to prevent the use of fraudulent payment methods for our solutions; and
our ability to retain key employees and to attract qualified personnel.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be significantly different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be significantly different from what we expect.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ significantly from those anticipated in these forward-looking statements, even if new information becomes available in the future.
4

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
RINGCENTRAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30,
2022
December 31,
2021
Assets  
Current assets  
Cash and cash equivalents$306,497 $267,162 
Accounts receivable, net253,571 232,842 
Deferred and prepaid sales commission costs126,854 102,572 
Prepaid expenses and other current assets52,376 48,165 
Total current assets739,298 650,741 
Property and equipment, net178,240 166,910 
Operating lease right-of-use assets40,515 47,294 
Long-term investments113,220 210,445 
Deferred and prepaid sales commission costs, non-current758,687 723,448 
Goodwill53,780 55,490 
Acquired intangibles, net628,559 716,606 
Other assets7,122 8,105 
Total assets$2,519,421 $2,579,039 
Liabilities, Temporary Equity, and Stockholders' Equity
Current liabilities
Accounts payable$96,647 $70,022 
Accrued liabilities318,272 279,798 
Deferred revenue207,044 176,450 
Total current liabilities621,963 526,270 
Convertible senior notes, net1,636,175 1,398,489 
Operating lease liabilities25,436 31,812 
Other long-term liabilities74,087 84,052 
Total liabilities2,357,661 2,040,623 
Commitments and contingencies (Note 7)
Series A convertible preferred stock199,449 199,449 
Stockholders' equity
Common stock9 9 
Additional paid-in capital937,119 1,086,870 
Accumulated other comprehensive income (loss)(9,600)644 
Accumulated deficit(965,217)(748,556)
Total stockholders' equity(37,689)338,967 
Total liabilities, temporary equity and stockholders’ equity$2,519,421 $2,579,039 
See accompanying notes to condensed consolidated financial statements
5

RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Revenues    
Subscriptions$462,984 $351,203 $902,911 $676,426 
Other23,912 28,070 51,641 55,203 
Total revenues486,896 379,273 954,552 731,629 
Cost of revenues
Subscriptions131,022 79,243 260,711 152,490 
Other27,168 25,680 52,953 49,414 
Total cost of revenues158,190 104,923 313,664 201,904 
Gross profit328,706 274,350 640,888 529,725 
Operating expenses
Research and development96,518 76,161 186,792 138,837 
Sales and marketing265,398 203,398 519,853 382,647 
General and administrative74,554 68,172 145,549 123,633 
Total operating expenses436,470 347,731 852,194 645,117 
Loss from operations(107,764)(73,381)(211,306)(115,392)
Other income (expense), net
Interest expense(1,203)(15,942)(2,435)(32,220)
Other income (expense)(49,500)(21,223)(94,719)37,320 
Other income (expense), net(50,703)(37,165)(97,154)5,100 
Loss before income taxes(158,467)(110,546)(308,460)(110,292)
Provision for income taxes1,048 410 2,027 850 
Net loss$(159,515)$(110,956)$(310,487)$(111,142)
Net loss per common share
Basic and diluted$(1.68)$(1.22)$(3.27)$(1.22)
Weighted-average number of shares used in computing net loss per share
Basic and diluted95,130 91,181 94,854 90,909 
See accompanying notes to condensed consolidated financial statements
6

RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Net loss$(159,515)$(110,956)$(310,487)$(111,142)
Other comprehensive income (loss)
Foreign currency translation adjustments, net(8,182)1,211 (10,244)(2,201)
Comprehensive loss$(167,697)$(109,745)$(320,731)$(113,343)
See accompanying notes to condensed consolidated financial statements
7

RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance as of December 31, 202194,309 $9 $1,086,870 $644 $(748,556)$338,967 
Cumulative effect of accounting change— — (329,280)— 93,826 (235,454)
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings588 — (120)— — (120)
Share-based compensation— — 98,424 — — 98,424 
Changes in other comprehensive income— — — (2,062)— (2,062)
Net loss— — — — (150,972)(150,972)
Balance as of March 31, 202294,897 9 855,894 (1,418)(805,702)48,783 
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings842 — 7,827 — — 7,827 
Repurchases of common stock(421)— (25,004)— — (25,004)
Share-based compensation— — 98,402 — — 98,402 
Changes in other comprehensive loss— — — (8,182)— (8,182)
Net loss— — — — (159,515)(159,515)
Balance as of June 30, 202295,318 9 937,119 (9,600)(965,217)(37,689)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance as of December 31, 202090,430 $9 $673,950 $6,806 $(372,306)$308,459 
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings438 — (3,708)— — (3,708)
Share-based compensation— — 59,993 — — 59,993 
Equity component from repurchase or redemption of convertible senior notes— — (147,740)— — (147,740)
Temporary equity reclassification— — (338)— — (338)
Changes in other comprehensive income— — — (3,412)— (3,412)
Net loss— — — — (186)(186)
Balance as of March 31, 202190,868 9 582,157 3,394 (372,492)213,068 
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings642 — 10,999 — — 10,999 
Share-based compensation— — 95,685 — — 95,685 
Equity component from repurchase or redemption of convertible senior notes— — (121,844)— — (121,844)
Temporary equity reclassification— — 4,124 — — 4,124 
Changes in other comprehensive income— — — 1,211 — 1,211 
Net loss— — — — (110,956)(110,956)
Balance as of June 30, 202191,510 9 571,121 4,605 (483,448)92,287 

See accompanying notes to condensed consolidated financial statements
8

RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30,
20222021
Cash flows from operating activities  
Net loss$(310,487)$(111,142)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization122,201 50,724 
Share-based compensation198,119 150,323 
Amortization of deferred and prepaid sales commission costs50,068 33,398 
Amortization of debt discount and issuance costs2,232 32,082 
Loss on early extinguishment of debt 1,736 
Repayment of convertible senior notes attributable to debt discount (10,131)
Reduction of operating lease right-of-use assets9,857 8,778 
Unrealized loss (gain) on investments98,045 (34,361)
Provision for bad debt7,103 3,743 
Other1,736 70 
Changes in assets and liabilities:
Accounts receivable(27,832)(26,589)
Deferred and prepaid sales commission costs(108,349)(86,378)
Prepaid expenses and other assets(1,984)6,562 
Accounts payable28,494 3,490 
Accrued and other liabilities20,147 24,912 
Deferred revenue30,594 23,359 
Operating lease liabilities(10,271)(9,105)
Net cash provided by operating activities109,673 61,471 
Cash flows from investing activities
Purchases of property and equipment(15,489)(14,385)
Capitalized internal-use software(26,232)(19,600)
Purchases of intangible assets and long-term investments(3,990)(9,623)
Net cash used in investing activities(45,711)(43,608)
Cash flows from financing activities
Payments for repurchase or redemption of convertible senior notes (333,632)
Payments for repurchase of common stock(25,004) 
Proceeds from issuance of stock in connection with stock plans10,889 18,857 
Payments for taxes related to net share settlement of equity awards(3,182)(11,566)
Payment for contingent consideration for business acquisition(1,538)(3,600)
Repayment of financing obligations(3,092)(2,295)
Net cash used in financing activities(21,927)(332,236)
Effect of exchange rate changes(2,700)(183)
Net increase (decrease) in cash, cash equivalents, and restricted cash39,335 (314,556)
Cash, cash equivalents, and restricted cash
Beginning of period267,162 639,853 
End of period$306,497 $325,297 
Supplemental disclosure of cash flow data:
Cash paid for interest$220 $203 
Cash paid for income taxes, net of refunds$1,717 $369 
Non-cash investing and financing activities
Equipment and capitalized internal-use software purchased and unpaid at period end$9,599 $7,333 
See accompanying notes to condensed consolidated financial statements
9

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
RingCentral, Inc. (the “Company”) is a provider of software-as-a-service (“SaaS”) solutions that enables businesses to communicate, collaborate and connect. The Company was incorporated in California in 1999 and was reincorporated in Delaware on September 26, 2013.
Basis of Presentation and Consolidation
The Company's unaudited condensed consolidated financial statements and accompanying notes reflect all adjustments (all of which are normal, recurring in nature and those discussed in these notes) that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2022. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”).
The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made by management affect revenues, the allowance for doubtful accounts, valuation of long-term investments, deferred and prepaid sales commission costs, goodwill, useful lives of intangible assets, share-based compensation, capitalization of internally developed software, return reserves, provision for income taxes, uncertain tax positions, loss contingencies, sales tax liabilities, and accrued liabilities. Management periodically evaluates these estimates and will make adjustments prospectively based upon the results of such periodic evaluations. Actual results may differ from these estimates.
Segment Information
The Company has determined that the chief executive officer is the chief operating decision maker. The Company’s chief executive officer reviews financial information presented on a consolidated basis for purposes of assessing performance and making decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single reportable segment.
Concentrations
As of June 30, 2022 and December 31, 2021, none of the Company’s customers accounted for more than 10% of the Company’s total accounts receivable.
Long-lived assets by geographic location are based on the location of the legal entity that owns the asset. As of June 30, 2022 and December 31, 2021, approximately 95% of the Company’s consolidated long-lived assets were located in the U.S. No other single country outside of the U.S. represented more than 10% of the Company’s consolidated long-lived assets.
10

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments in this ASU are not expected to have a material impact on the Company's consolidated financial statements.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This update simplifies the accounting for convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in cash. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This update also eliminates the treasury stock method and instead requires entities to calculate the impact of convertible instruments on diluted earnings per share when the instruments may be settled in cash or shares. The required use of the if-converted method did not impact the diluted net loss per share as the Company was in a net loss position.
The Company adopted this update, effective January 1, 2022, using the modified retrospective method. Upon adoption, the Company is no longer recording the conversion feature of its convertible senior notes in equity. Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to debt and amortized as interest expense. Accordingly, the Company recorded a decrease to accumulated deficit of approximately $93.8 million, a decrease to additional paid-in capital of $329.3 million, and an increase to convertible senior notes, net of approximately $235.5 million. Prior period financial statements were not restated.
Note 2. Revenue
The Company derives its revenues primarily from subscriptions, sale of products, and professional services. Revenues are recognized when control of these services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
Disaggregation of revenue
The following table provides information about disaggregated revenue by primary geographical markets:
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Primary geographical markets    
North America90 %88 %90 %88 %
Others10 12 10 12 
Total revenues100 %100 %100 %100 %
The Company derived over 90% of subscriptions revenues from RingCentral MVP and RingCentral customer engagement solutions products for each of the three and six months ended June 30, 2022 and 2021. RingCentral customer engagement solutions represented over 10% of total revenues for all periods presented.
Deferred revenue
During the three and six months ended June 30, 2022, the Company recognized revenue of $37.9 million and $143.1 million, respectively, that was included in the corresponding deferred revenue balance at the beginning of the year.
Remaining performance obligations
The typical subscription contract term ranges from one month to five years. Contract revenue as of June 30, 2022 that has not yet been recognized was approximately $1.9 billion. This excludes contracts with an original expected length of less
11

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
than one year. Of these remaining performance obligations, the Company expects to recognize revenue of 54% of this balance over the next 12 months and 46% thereafter.
Other revenues
Other revenues are primarily comprised of product revenue from the sale of pre-configured phones and professional services. Product revenues from the sale of pre-configured phones were $11.2 million and $12.5 million for the three months ended June 30, 2022 and 2021, respectively, and $22.6 million and $24.2 million for the six months ended June 30, 2022 and 2021, respectively.
Note 3. Financial Statement Components
Cash and cash equivalents consisted of the following (in thousands):
June 30, 2022December 31, 2021
Cash$83,919 $91,499 
Money market funds222,578 175,663 
Total cash and cash equivalents$306,497 $267,162 
As of June 30, 2022, $5.5 million in the cash balance above represents restricted cash, which is held in the form of a bank deposit for issuance of a foreign bank guarantee.
Accounts receivable, net consisted of the following (in thousands):
June 30, 2022December 31, 2021
Accounts receivable$196,941 $193,192 
Unbilled accounts receivable66,567 47,676 
Allowance for doubtful accounts(9,937)(8,026)
Accounts receivable, net$253,571 $232,842 
Prepaid expenses and other current assets consisted of the following (in thousands):
June 30, 2022December 31, 2021
Prepaid expenses$28,490 $26,254 
Inventory4,564 5,655 
Other current assets19,322 16,256 
Total prepaid expenses and other current assets$52,376 $48,165 
Property and equipment, net consisted of the following (in thousands):
June 30, 2022December 31, 2021
Computer hardware and software$209,455 $197,395 
Internal-use software development costs170,671 140,424 
Furniture and fixtures8,838 8,660 
Leasehold improvements13,713 13,533 
Total property and equipment, gross402,677 360,012 
Less: accumulated depreciation and amortization(224,437)(193,102)
Property and equipment, net$178,240 $166,910 
Total depreciation and amortization expense related to property and equipment was $17.6 million and $14.2 million for the three months ended June 30, 2022 and 2021, respectively, and $34.5 million and $27.2 million for the six months ended June 30, 2022 and 2021, respectively.
12

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The carrying value of goodwill is as follows (in thousands):
Balance at December 31, 2021$55,490 
Foreign currency translation adjustments(1,710)
Balance at June 30, 2022$53,780 
The carrying values of intangible assets are as follows (in thousands):
June 30, 2022December 31, 2021
Weighted-Average Remaining Useful LifeCostAccumulated
Amortization
Acquired
Intangibles, Net
CostAccumulated
Amortization
Acquired
Intangibles, Net
Customer relationships
1.1 years
$20,625 $17,088 $3,537 $21,333 $15,725 $5,608 
Developed technology
4.2 years
814,576 189,554 625,022 814,873 103,875 710,998 
Total acquired intangible assets$835,201 $206,642 $628,559 $836,206 $119,600 $716,606 
Amortization expense from acquired intangible assets for the three months ended June 30, 2022 and 2021 was $43.7 million and $12.0 million, respectively, and $87.7 million and $23.6 million for the six months ended June 30, 2022 and 2021, respectively. Amortization of developed technology is included in cost of revenues and amortization of customer relationships is included in sales and marketing expenses in the Condensed Consolidated Statements of Operations.
Estimated amortization expense for acquired intangible assets for the following fiscal years is as follows (in thousands):
2022 (remaining)$84,910 
2023150,543 
2024147,102 
2025132,932 
2026 onwards113,072 
Total estimated amortization expense$628,559 
Accrued liabilities consisted of the following (in thousands):
June 30, 2022December 31, 2021
Accrued compensation and benefits$47,439 $48,911 
Accrued sales, use, and telecom related taxes36,458 30,463 
Accrued marketing55,243 52,547 
Operating lease liabilities, short-term17,875 18,686 
Other accrued expenses161,257 129,191 
Total accrued liabilities$318,272 $279,798 
Deferred and Prepaid Sales Commission Costs
Amortization expense for the deferred and prepaid sales commission costs was $26.9 million and $17.8 million for the three months ended June 30, 2022 and 2021, respectively, and $50.1 million and $33.4 million for the six months ended June 30, 2022 and 2021, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.
13

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
In October 2019, the Company entered into certain agreements for a strategic partnership with Avaya Holdings Corp. (“Avaya”) and its subsidiaries, including Avaya Inc. In connection with the strategic partnership, the Company paid Avaya an advance, predominantly for future commissions for each qualified unit of Avaya Cloud Office by RingCentral sold during the term of the partnership. The Company evaluated the recoverability of its deferred and prepaid sales commission balance with Avaya in light of a significant decline in their preliminary financial results and market capitalization. As of the date of this filing, the Company believes that the deferred and prepaid sales commissions from Avaya are recoverable. The Company will continue to evaluate the realizability of these assets on an ongoing basis.
Note 4. Fair Value of Financial Instruments
The Company measures and reports certain cash equivalents, including money market funds and certificates of deposit, in addition to its long-term investments at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1:    Observable inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:    Other inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3:    Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques.
The financial assets carried at fair value were determined using the following inputs (in thousands):
Fair Value at
June 30, 2022
Level 1Level 2Level 3
Cash equivalents:    
Money market funds$222,578 $222,578 $ $ 
Non-current assets:
Long-term investments$105,287 $ $ $105,287 
Marketable equity investments
$5,020 $5,020 $ $ 
Fair Value at
December 31, 2021
Level 1Level 2Level 3
Cash equivalents:    
Money market funds$175,663 $175,663 $ $ 
Non-current assets:
Long-term investments$199,965 $ $ $199,965 
Marketable equity investments
$8,600 $8,600 $ $ 
The Company’s other financial instruments, including accounts receivable, accounts payable, and other current liabilities, are carried at cost, which approximates fair-value due to the relatively short maturity of those instruments.
14

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Long-Term Investments
As of June 30, 2022 and December 31, 2021, the fair value of the Company's long-term investments in convertible and redeemable preferred stock issued by Avaya was $105.3 million and $200.0 million, respectively. The Company classifies these investments as Level 3 in the fair value hierarchy based on the nature of the fair value inputs and judgment involved in the valuation process. The Company uses a lattice model to value these investments and relies on observable inputs including share-price, credit spread, and volatility. The model also incorporates judgments relating to the probability of special redemption triggers, the expected holding period of the investment and interest rates. These investments are reported at fair value in long-term investments in the Condensed Consolidated Balance Sheets with net unrealized gain (loss) recorded in other income (expense). The Company recorded a loss of $50.1 million and $23.2 million for the three months ended June 30, 2022 and 2021, respectively. The Company recorded a loss of $96.6 million for the six months ended June 30, 2022 compared to a gain of $33.4 million for the six months ended June 30, 2021. Volatility in the global economic climate and financial markets, including the effects of rising inflation and associated economic slowdown, the ongoing Russian invasion of Ukraine, and the continued effects of the COVID-19 pandemic, could result in a significant change in the underlying share-price of the Company’s investees and their financial position, resulting in a material change in the value of the long-term investments, requiring impairment charges.
Marketable Equity Investments
The Company has certain marketable equity investments in which it does not have a controlling interest or a significant influence. As of June 30, 2022 and December 31, 2021, the fair value of these marketable equity investments, which have readily determinable fair values, were $5.0 million and $8.6 million, respectively. These investments are reported at fair value in long-term investments in the Consolidated Balance Sheets with net unrealized gain (loss) recorded in other income (expense). The Company recorded a loss of $1.8 million and $3.6 million for the three and six months ended June 30, 2022, respectively. There were no sales of marketable equity investments for the three and six months ended June 30, 2022.
Other Non-Marketable Investments
As of June 30, 2022, the Company had an immaterial amount of non-marketable investments held in debt and equity securities without readily determinable fair values in which it had neither a controlling interest nor significant influence. These investments are carried at cost under the measurement alternative as part of long-term investments in the Consolidated Balance Sheets.
Convertible Senior Notes
As of June 30, 2022, the fair value of the 0% convertible senior notes due 2026 (the “2026 Notes”) was approximately $488.9 million, and 0% convertible senior notes due 2025 (the “2025 Notes”) was approximately $825.0 million. The fair value for the convertible notes was determined based on the quoted price for such notes in an inactive market on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.
Note 5. Convertible Senior Notes
In March 2018, the Company issued $460.0 million aggregate principal amount of 0% convertible senior notes due 2023 in a private placement, including the exercise in full of the over-allotment options of the initial purchasers (the "2023 Notes"). The 2023 Notes would have matured on March 15, 2023, unless repurchased or redeemed earlier by the Company or converted pursuant to their terms. The total net proceeds from the debt offering, after deducting initial purchase discounts and debt issuance costs, were approximately $449.5 million. In the second quarter of 2021, the Company redeemed the remaining outstanding principal balance of its 2023 Notes.
In March 2020, the Company issued $1.0 billion aggregate principal amount of 0% convertible senior notes due 2025 in a private placement to qualified institutional buyers (the "2025 Notes"). The 2025 Notes will mature on March 1, 2025, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the debt offering, after deducting initial purchase discounts and debt issuance costs, were approximately $986.5 million.
In September 2020, the Company issued $650.0 million aggregate principal amount of 0% convertible senior notes due 2026 in a private placement to qualified institutional buyers (the "2026 Notes"). The 2026 Notes will mature on March 15,
15

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
2026, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the debt offering, after deducting initial purchase discounts and debt issuance costs, were approximately $640.2 million.
The 2023 Notes, 2025 Notes and 2026 Notes (collectively, the “Notes”) are senior, unsecured obligations of the Company that do not bear regular interest, and the principal amount of the Notes do not accrete. The Notes may bear special interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the indentures governing each of the Notes (collectively, the "Notes Indentures") or if the Notes are not freely tradeable as required by each respective Notes Indenture.
Other Terms of the Notes
2025 Notes2026 Notes
$1,000 principal amount initially convertible into number of the Company’s Class A Common Stock, par value $0.0001
2.7745 shares
2.3583 shares
Equivalent initial approximate conversion price per share
$360.43 $424.03 
The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a make-whole fundamental change or a redemption period, each as defined in the respective Notes Indentures, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
The Notes will be convertible at certain times and upon the occurrence of certain events in the future. Further, on or after December 1, 2024 for the 2025 Notes, and December 15, 2025 for the 2026 Notes, until the close of business on the scheduled trading day immediately preceding the maturity date, holders of the Notes may convert all or a portion of their notes regardless of these conditions. Under the terms of the respective Notes Indentures, effective January 1, 2022, the Company made an irrevocable election to settle the principal portion of the Notes only in cash, with the conversion premium to be settled in cash or shares.
During the three months ended June 30, 2022, the conditions allowing holders of the 2025 Notes and 2026 Notes to convert were not met. The Notes may be convertible thereafter if one or more of the conversion conditions specified in the indentures are satisfied during future measurement periods.
The Company may redeem the Notes at its option, on or after March 5, 2022 for the 2025 Notes, and March 20, 2023 for the 2026 Notes, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid special interest to, but excluding the redemption date, subject to certain conditions. No sinking fund is provided for the Notes.
Upon the occurrence of a fundamental change (as defined in each respective Notes Indentures) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2025 Notes or 2026 Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.
The net carrying amount of the liability component of the Notes as of June 30, 2022 were as follows (in thousands):
2025 Notes2026 Notes
Principal$1,000,000 $650,000 
Unamortized issuance cost(7,230)(6,595)
Net carrying amount (1)
$992,770 $643,405 
(1)The net carrying amount was increased on January 1, 2022 as a result of the adoption of ASU No. 2020-06. Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, in this Quarterly Report on Form 10-Q for further information.
16

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table sets forth the total interest expense recognized related to the Notes (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Amortization of debt discount (1)
$ $15,112 $ $30,523 
Amortization of debt issuance cost (1)
1,116 770 2,232 1,559 
Total interest expense related to the Notes (1)
$1,116 $15,882 $2,232 $32,082 
(1)The decrease in total interest expense during the three and six months ended June 30, 2022 was due to the derecognition of the unamortized debt discount, partially offset by the increase in the amortization of issuance costs previously recognized in equity. These changes were the result of the Company’s adoption of ASU No. 2020-06, as of January 1, 2022, as described in Note 1, Description of Business and Summary of Significant Accounting Policies.
Capped Calls
In connection with the offering of the Notes, the Company entered into privately-negotiated capped call transactions relating to each series of notes with certain counterparties (collectively the “Capped Calls”). The initial strike price of the Notes corresponds to the initial conversion price of each of the Notes. The Capped Calls are generally intended to reduce or offset the potential dilution to the Class A Common Stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event; a tender offer; and a nationalization, insolvency or delisting involving the Company. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including changes in law; insolvency filings; and hedging disruptions. The Capped Call transactions are recorded in stockholders’ equity and are not accounted for as derivatives.
The following table below sets forth key terms and costs incurred for the Capped Calls related to each of the Notes:
2023 Notes2025 Notes2026 Notes
Initial approximate strike price per share, subject to certain adjustments$81.45 $360.43 $424.03 
Initial cap price per share, subject to certain adjustments$119.04 $480.56 $556.10 
Net cost incurred (in millions)$49.9 $60.9 $41.8 
Class A Common Stock covered, subject to anti-dilution adjustments (in millions)5.62.81.5
Settlement commencement date1/13/20231/31/20242/13/2025
Settlement expiration date3/13/20232/28/20243/13/2025
All of the capped call transactions, including the capped call relating to the 2023 Notes, were outstanding as of June 30, 2022.
17

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 6. Leases
The Company primarily leases facilities for office and data center space under non-cancelable operating leases for its U.S. and international locations. As of June 30, 2022, non-cancellable leases expire on various dates between 2022 and 2029.
The components of leases are as follows (in thousands):
June 30, 2022December 31, 2021
Operating leases
Operating lease right-of-use assets$40,515 $47,294 
Accrued liabilities$17,875 $18,686 
Operating lease liabilities25,436 31,812 
Total operating lease liabilities$43,311 $50,498 

Six Months Ended June 30,
20222021
Supplemental Cash Flow Information (in thousands)
Operating cash flows resulting from operating leases:
Cash paid for amounts included in the measurement of lease liabilities$11,348 $10,462 
New ROU assets obtained in exchange of lease liabilities:
Operating leases$3,804 $5,793 
Note 7. Commitments and Contingencies
Legal Matters
The Company is subject to certain legal proceedings described below, and from time to time may be involved in a variety of claims, lawsuits, investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters, and other litigation matters relating to various claims that arise in the normal course of business.
The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using reasonably available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Actual claims could settle or be adjudicated against the Company in the future for materially different amounts than the Company has accrued due to the inherently unpredictable nature of litigation. Legal fees are expensed in the period in which they are incurred.
Patent Infringement Matter
On April 25, 2017, Uniloc USA, Inc. and Uniloc Luxembourg, S.A. (together, “Uniloc”) filed in the U.S. District Court for the Eastern District of Texas two actions against the Company alleging infringement of U.S. Patent Nos. 7,804,948; 7,853,000; and 8,571,194 by RingCentral’s Glip unified communications application. The plaintiffs seek a declaration that the Company has infringed the patents, damages according to proof, injunctive relief, as well as their costs, attorney’s fees, expenses and interest. On October 9, 2017, the Company filed a motion to dismiss or transfer requesting that the case be transferred to the United States District Court for the Northern District of California. In response to the motion, plaintiffs filed a first amended complaint on October 24, 2017. The Company filed a renewed motion to dismiss or transfer on November 15, 2017. Although briefing on that motion has been completed, the motion has not yet been decided. On February 5, 2018, Uniloc moved to stay the litigation pending the resolution of certain third-party inter partes review proceedings (“IPRs”) before the
18

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
United States Patent and Trademark Office. On February 9, 2018, the court stayed the litigation pending resolution of the IPRs without prejudice to or waiver of the Company’s motion to dismiss or transfer. This litigation is still in its early stages. Based on the information known by the Company as of the date of this filing and the rules and regulations applicable to the preparation of the Company’s consolidated financial statements, it is not possible to provide an estimated amount of any such loss or range of loss that may occur. The Company intends to vigorously defend against this lawsuit.
CIPA Matter
On June 16, 2020, Plaintiff Meena Reuben (“Reuben”) filed a complaint against the Company for a putative class action lawsuit in California Superior Court for San Mateo County. The complaint alleges claims on behalf of a class of individuals for whom, while they were in California, the Company allegedly intercepted and recorded communications between individuals and the Company’s customers without the individual’s consent, in violation of the California Invasion of Privacy Act (“CIPA”) Sections 631 and 632.7. Reuben seeks statutory damages of $5,000 for each alleged violation of Sections 631 and 632.7, injunctive relief, and attorneys’ fees and costs, and other unspecified amount of damages. On July 7, 2020, the Court granted the parties’ stipulation to extend time for the Company to respond to the Reuben’s complaint. The parties participated in mediation on August 24, 2021. On September 16, 2021, Reuben filed an amended complaint. The Company filed a demurrer to the amended complaint on October 18, 2021. Reuben filed her opposition on November 8, 2021, and the Company filed its reply on November 22, 2021. A hearing was held on January 6, 2022. The Court overruled the Company’s demurrer and the parties are now engaged in discovery. This litigation is still in its early stages. Based on the information known by the Company as of the date of this filing and the rules and regulations applicable to the preparation of the Company’s consolidated financial statements, it is not possible to provide an estimated amount of any such loss or range of loss that may occur. The Company intends to vigorously defend against this lawsuit.
Other Matter
 On June 14, 2019, the Company filed suit in the Superior Court of California, County of Alameda, against Bright Pattern, Inc. and two of its officers, alleging that the defendants negotiated a potential acquisition of Bright Pattern by RingCentral fraudulently and in bad faith. The Company seeks its costs incurred in negotiating under the Letter of Intent (“LOI”) that the parties entered into and damages for lost opportunity as a result of forgoing another acquisition opportunity, and attorneys’ fees and costs. On August 26, 2019, Bright Pattern filed a cross-complaint against the Company and two of its executive officers alleging breach of the LOI as well as tort claims arising from the Company's allegedly inducing Bright Pattern to enter into the LOI and subsequent extensions while allegedly misstating the timeframe for the proposed transaction. As damages, Bright Pattern seeks audit fees it allegedly incurred, a $5 million break-up fee, its alleged “cash burn” during the negotiations, and unspecified lost opportunity damages. The Company filed a demurrer to Bright Pattern’s amended cross-complaint, as well as a related motion to strike. On May 7, 2020, the court denied both the motion to strike and demurrer. On July 19, 2022, the parties filed a joint motion to stay the proceedings, which the court granted on July 20, 2022. Based on the information known by the Company as of the date of this filing and the rules and regulations applicable to the preparation of the Company’s consolidated financial statements, it is not possible to provide an estimated amount of any loss or range of loss that may occur. The Company intends to vigorously prosecute and defend this lawsuit.
Note 8. Stockholders’ Equity and Convertible Preferred Stock
Share Repurchase Program
On December 13, 2021, the Company's board of directors authorized a share repurchase program under which it may repurchase up to $100 million of the Company's outstanding shares of Class A Common Stock. Under the program, share repurchases may be made at the Company's discretion from time to time in open market transactions, privately negotiated transactions, or other means. The program does not obligate the Company to repurchase any specific dollar amount or to acquire any specific number of shares of its Class A Common Stock. The timing and number of any shares repurchased under the program will depend on a variety of factors, including stock price, trading volume, and general business and market conditions. The authorization is effective until December 31, 2022.
During the three and six months ended June 30, 2022, the Company repurchased and subsequently retired 421,041 shares of our Class A Common Stock for an aggregate amount of $25.0 million. As of June 30, 2022, $75.0 million remained available under the Company's share repurchase authorization.
19

RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Series A Convertible Preferred Stock
On November 8, 2021, the Company entered into the Investment Agreement, pursuant to which the Company sold to Searchlight Investor, in a private placement exempt from registration under the Securities Act of 1933, as amended, 200,000 shares of newly-issued Series A Convertible Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $200 million. The Series A Convertible Preferred Stock issued to Searchlight Investor pursuant to the Investment Agreement is convertible into shares of the Company's Class A Common Stock, par value $0.0001 per share, at a conversion price of $269.22 per share, subject to adjustment as provided in the certificate of designations specifying the terms of such shares. The transactions contemplated by the Investment Agreement closed on November 9, 2021. The Series A Convertible Preferred Stock ranks senior to the shares of the Company’s Class A Common Stock and Class B Common Stock with respect to rights on the distribution of assets on any voluntary or involuntary liquidation or winding up of the affairs of the Company. The Series A Convertible Preferred Stock is a zero coupon, perpetual preferred stock, with a liquidation preference of $1,000 per share and other customary terms, including with respect to mandatory conversion and change of control premium under certain circumstances. The shares of Series A Convertible Preferred Stock shall not be redeemable or otherwise mature, other than for a liquidation or a specified change in control event as provided in the certificate of designations specifying the terms of such shares. Holders of Series A Convertible Preferred Stock will be entitled to vote with the holders of the Class A Common Stock and Class B Common Stock on an as-converted basis. Holders of the Series A Convertible Preferred Stock will be entitled to a separate class vote with respect to, among other things, certain amendments to the Company’s organizational documents that have an adverse impact on the rights, preferences, privileges or voting power of the Series A Convertible Preferred Stock, authorizations or issuances of Company capital stock, or other securities convertible into capital stock, that is senior to, or equal in priority with, the Series A Convertible Preferred Stock, and increases or decreases in the number of authorized shares of Series A Convertible Preferred Stock.
As the liquidation or specified change in control event is not solely within the Company’s control, the Series A Convertible Preferred Stock is therefore classified as temporary equity and recorded outside of stockholders’ equity on the Condensed Consolidated Balance Sheet. As of June 30, 2022, there were 200,000 shares of the Company's Series A Convertible Preferred Stock issued and outstanding, and the carrying value, net of issuance costs, was $199.4 million.
Note 9. Share-Based Compensation
A summary of share-based compensation expense recognized in the Condensed Consolidated Statements of Operations is as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Cost of revenues$8,650 $7,669 $17,697 $12,411 
Research and development23,282 21,133 46,480 34,322 
Sales and marketing38,964 37,004 78,841 58,347 
General and administrative29,615 29,555 55,101 45,243 
Total share-based compensation expense$100,511 $95,361 $198,119 $150,323 
A summary of share-based compensation expense by award type is as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Options$ $ $ $1 
Employee stock purchase plan rights2,012 3,085 4,428 5,108 
Restricted stock units98,499 92,276 193,691 145,214 
Total share-based compensation expense$100,511