RingCentral, Inc. [RNG] Filings

10-Q 1 rng-20230930.htm 10-Q rng-20230930

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 September 30, 2023


☐			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)

_________________________________________________________


Delaware			94-3322844
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock

RNG

New 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 filer

Accelerated 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 November 1, 2023, there were 83,822,528 shares of Class A Common Stock issued and outstanding and 9,924,538 shares of Class B Common Stock issued and outstanding.

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		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Stockholders' Deficit	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 3.	Default Upon Senior Securities	84
Item 4.	Mine Safety Disclosures	84
Item 5.	Other Information	84
Item 6.	Exhibits	86
Signatures

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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 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 and geopolitical conflicts;

•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;

•our ability to successfully incorporate artificial intelligence and machine learning powered features into our solutions;

•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 strategic partners and global service providers;

•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, including our innovations relating to artificial intelligence (AI);

•our reliance on our third-party product and service providers;

•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 including with respect to AI;

•our ability to protect our intellectual property and rely on open source licenses;

•our expectations regarding the growth and reliability of the internet infrastructure;

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•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;

•our Credit Agreement, including both the Term Loan and the Revolving Credit Facility (each as defined below);

•the estimates and estimate methodologies used in preparing our condensed consolidated financial statements;

•the political environment and stability in the regions in which we or our subcontractors operate;

•the impact of economic downturns on us and our customers;

•our ability to defend our systems and our customer information from fraud and cyber-attack;

•our ability to prevent the use of fraudulent payment methods for our solutions;

•our ability to successfully manage the transition of our new Chief Executive Officer and retain key employees and to attract qualified personnel;

•our ability to successfully implement our plans for reductions in workforce or otherwise achieve the anticipated cost reductions; and

•the impact of foreign currencies on our non-U.S. business as we expand our business internationally.

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.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

RINGCENTRAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)


	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	432,352	$	269,984
Accounts receivable, net	347,912		311,318
Deferred and prepaid sales commission costs	176,197		158,865
Prepaid expenses and other current assets	95,858		55,849
Total current assets	1,052,319		796,016
Property and equipment, net	183,593		185,400
Operating lease right-of-use assets	32,477		35,433
Deferred and prepaid sales commission costs, non-current	394,020		438,579
Goodwill	66,482		54,335
Acquired intangibles, net	431,920		528,051
Other assets	21,683		35,848
Total assets	$	2,182,494	$	2,073,662
Liabilities, Temporary Equity, and Stockholders' Deficit
Current liabilities
Accounts payable	$	43,311	$	62,721
Accrued liabilities	310,752		380,113
Current portion of long-term debt, net	20,000		—
Deferred revenue	231,247		209,725
Total current liabilities	605,310		652,559
Long-term debt, net	1,781,252		1,638,411
Operating lease liabilities	18,577		20,182
Other long-term liabilities	62,362		45,848
Total liabilities	2,467,501		2,357,000

Commitments and contingencies (Note 9)

Series A convertible preferred stock	199,449		199,449

Stockholders' deficit
Common stock	9		10
Additional paid-in capital	1,170,672		1,059,880
Accumulated other comprehensive loss	(3,244)		(8,781)
Accumulated deficit	(1,651,893)		(1,533,896)
Total stockholders' deficit	(484,456)		(482,787)
Total liabilities, temporary equity and stockholders’ deficit	$	2,182,494	$	2,073,662

See accompanying notes to condensed consolidated financial statements

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RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Subscriptions	$	531,030	$	483,229	$	1,552,956	$	1,386,140
Other	27,134		25,803		78,202		77,444
Total revenues	558,164		509,032		1,631,158		1,463,584
Cost of revenues
Subscriptions	141,172		134,372		413,664		395,083
Other	27,802		33,102		80,403		86,055
Total cost of revenues	168,974		167,474		494,067		481,138
Gross profit	389,190		341,558		1,137,091		982,446
Operating expenses
Research and development	85,444		86,700		250,965		273,492
Sales and marketing	270,767		261,914		795,422		781,767
General and administrative	87,154		72,261		244,472		217,810
Asset write-down charge	—		103,242		—		103,242
Total operating expenses	443,365		524,117		1,290,859		1,376,311
Loss from operations	(54,175)		(182,559)		(153,768)		(393,865)
Other income (expense), net
Interest expense	(12,162)		(1,178)		(19,492)		(3,613)
Other income (expense)	20,441		(100,006)		61,521		(194,725)
Other income (expense), net	8,279		(101,184)		42,029		(198,338)
Loss before income taxes	(45,896)		(283,743)		(111,739)		(592,203)
(Benefit from) provision for income taxes	(3,780)		873		6,258		2,900
Net loss	$	(42,116)	$	(284,616)	$	(117,997)	$	(595,103)
Net loss per common share
Basic and diluted	$	(0.45)	$	(2.98)	$	(1.24)	$	(6.26)

Weighted-average number of shares used in computing net loss per share
Basic and diluted	94,593		95,575		95,213		95,097

See accompanying notes to condensed consolidated financial statements

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RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(42,116)	$	(284,616)	$	(117,997)	$	(595,103)
Other comprehensive income (loss)
Foreign currency translation adjustments	(3,588)		(8,362)		(3,398)		(18,606)
Unrealized gain on derivative instruments	5,541		—		8,935		—

Total other comprehensive income (loss)	1,953		(8,362)		5,537		(18,606)
Comprehensive loss	$	(40,163)	$	(292,978)	$	(112,460)	$	(613,709)

See accompanying notes to condensed consolidated financial statements

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RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited, in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity

	Shares	Amount
Balance as of December 31, 2022	95,385	$	10	$	1,059,880	$	(8,781)	$	(1,533,896)	$	(482,787)
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings	1,108	—		(1,641)		—		—		(1,641)
Issuance of common stock in connection with strategic partnership arrangement	1,265	—		42,585		—		—		42,585
Repurchases of common stock	(2,160)	—		(74,776)		—		—		(74,776)
Share-based compensation	—	—		97,303		—		—		97,303
Other comprehensive income	—	—		—		1,760		—		1,760
Net loss	—	—		—		—		(54,399)		(54,399)
Balance as of March 31, 2023	95,598	10		1,123,351		(7,021)		(1,588,295)		(471,955)
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings	1,978	—		8,542		—		—		8,542
Issuance of common stock in connection with strategic partnership arrangement	428	—		12,429		—		—		12,429
Repurchases of common stock	(3,320)	(1)		(100,505)		—		—		(100,506)
Share-based compensation	—	—		99,307		—		—		99,307
Other comprehensive income	—	—		—		1,824		—		1,824
Net loss	—	—		—		—		(21,482)		(21,482)
Balance as of June 30, 2023	94,684	9		1,143,124		(5,197)		(1,609,777)		(471,841)
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings, and other commercial arrangements	1,551	—		(3,071)		—		—		(3,071)

Repurchases of common stock	(2,489)	—		(75,292)		—		—		(75,292)
Share-based compensation	—	—		105,911		—		—		105,911
Other comprehensive income	—	—		—		1,953		—		1,953
Net loss	—	—		—		—		(42,116)		(42,116)
Balance as of September 30, 2023	93,746	$	9	$	1,170,672	$	(3,244)	$	(1,651,893)	$	(484,456)

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	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity

	Shares	Amount
Balance as of December 31, 2021	94,309	$	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 withholdings	588	—		(120)		—		—		(120)
Share-based compensation	—	—		98,424		—		—		98,424
Other comprehensive loss	—	—		—		(2,062)		—		(2,062)
Net loss	—	—		—		—		(150,972)		(150,972)
Balance as of March 31, 2022	94,897	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 withholdings	842	—		7,827		—		—		7,827
Repurchases of common stock	(421)	—		(25,004)		—		—		(25,004)
Share-based compensation	—	—		98,402		—		—		98,402
Other comprehensive loss	—	—		—		(8,182)		—		(8,182)
Net loss	—	—		—		—		(159,515)		(159,515)
Balance as of June 30, 2022	95,318	9		937,119		(9,600)		(965,217)		(37,689)
Issuance of common stock in connection with Equity Incentive and Employee Stock Purchase plans, net of tax withholdings, and other commercial arrangements	967	1		11,165		—		—		11,166
Repurchases of common stock	(419)	—		(20,000)		—		—		(20,000)
Share-based compensation	—	—		94,625		—		—		94,625
Other comprehensive loss	—	—		—		(8,362)		—		(8,362)
Net loss	—	—		—		—		(284,616)		(284,616)
Balance as of September 30, 2022	95,866	$	10	$	1,022,909	$	(17,962)	$	(1,249,833)	$	(244,876)

See accompanying notes to condensed consolidated financial statements

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RINGCENTRAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(117,997)	$	(595,103)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	174,723		184,166
Share-based compensation	314,533		293,777
Unrealized loss on investments	1,646		176,218
Asset write-down charge	—		124,904
Amortization of deferred and prepaid sales commission costs	100,618		81,536
Amortization of debt discount and issuance costs	3,465		3,350
Non-cash interest expense	4,156		—
Gain on early extinguishment of debt	(42,891)		—

Reduction of operating lease right-of-use assets	15,272		14,887
Provision for bad debt	5,200		7,103
Other	723		3,688
Changes in assets and liabilities:
Accounts receivable	(39,641)		(40,247)
Deferred and prepaid sales commission costs	(103,773)		(185,049)
Prepaid expenses and other assets	(7,251)		(689)
Accounts payable	(31,664)		19,384
Accrued and other liabilities	9,383		47,001
Deferred revenue	15,309		32,970
Operating lease liabilities	(15,993)		(15,963)
Net cash provided by operating activities	285,818		151,933
Cash flows from investing activities
Purchases of property and equipment	(17,515)		(23,828)
Capitalized internal-use software	(38,241)		(39,638)
Cash paid for business combination, net of cash acquired	(14,709)		—
Proceeds from sale of marketable equity investments	—		3,223
Purchases of intangible assets and long-term investments	—		(3,990)
Net cash used in investing activities	(70,465)		(64,233)
Cash flows from financing activities
Proceeds from issuance of stock in connection with stock plans	10,954		10,892
Payments for taxes related to net share settlement of equity awards	(7,124)		(5,180)
Payments for repurchase of common stock	(249,568)		(45,004)
Proceeds from issuance of long-term debt, net of issuance costs	786,311		—
Payments for the repurchase of convertible senior notes	(580,960)		—
Repayments of principal on term loan	(5,000)		—
Repayments for financing obligations	(4,738)		(3,950)
Payments for contingent consideration	(1,673)		(1,538)
Net cash used in financing activities	(51,798)		(44,780)
Effect of exchange rate changes	(1,187)		(4,699)
Net increase in cash, cash equivalents, and restricted cash	162,368		38,221
Cash, cash equivalents, and restricted cash
Beginning of period	269,984		267,162
End of period	$	432,352	$	305,383
Supplemental disclosure of cash flow data:
Cash paid for interest, net of interest rate swap	$	10,166	$	272
Cash paid for income taxes, net of refunds	$	9,291	$	2,895
Non-cash investing and financing activities
Common stock issued in connection with strategic partnership arrangement	$	55,014	$	—
Equipment and capitalized internal-use software purchased and unpaid at period end	$	4,172	$	9,355
Contingent consideration	$	7,461	$	—

Equipment acquired under financing obligations	$	2,997	$	—

See accompanying notes to condensed consolidated financial statements

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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, 2023. 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, 2022, filed with the SEC on February 23, 2023.

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, deferred and prepaid sales commission costs, goodwill, useful lives of intangible assets, share-based compensation, capitalization of internally developed software, return reserves, derivative instruments, 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 September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, approximately 94% 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.

Significant Accounting Policies

The Company’s significant accounting policies are described in Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes to these policies that have had a material impact on the condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2023, other than the derivative instruments and hedging policy described below.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Derivative Instruments and Hedging

The Company measures its derivative financial instruments at fair value and recognizes them as assets and liabilities in the Condensed Consolidated Balance Sheets. The Company records changes in the fair value of derivative financial instruments designated as cash flow hedges in other comprehensive income (loss). When a hedged transaction affects earnings, the Company subsequently reclassifies the net derivative gain or loss within earnings into the same line as the hedged item on the Condensed Consolidated Statements of Operations to offset the changes in the hedged transaction.

The cash flow effects related to derivative financial instruments designated as cash flow hedges are included within operating activities on the Condensed Consolidated Statements of Cash Flows.

Recent Accounting Pronouncements Not Yet Adopted

There are no material recent accounting pronouncements not yet adopted during the three and nine months ended September 30, 2023 that are significant or potentially significant to the Company.

Note 2. Revenue

The Company derives its revenues primarily from subscriptions, sale of products, and professional services. Revenues are recognized when control 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Primary geographical markets
North America	90	%	90	%	90	%	90	%
Others	10		10		10		10
Total revenues	100	%	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 nine months ended September 30, 2023 and 2022. For the three and nine months ended September 30, 2023 and 2022, RingCentral customer engagement solutions represented over 10% of total revenues.

Deferred revenue

During the three and nine months ended September 30, 2023, the Company recognized revenue of $26.5 million and $195.7 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 September 30, 2023 that has not yet been recognized was approximately $2.3 billion. This excludes contracts with an original expected length of less than one year. Of these remaining performance obligations, the Company expects to recognize revenue of 53% of this balance over the next 12 months and 47% 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 $11.9 million and $12.6 million for the three months ended September 30, 2023 and 2022, respectively, and $33.7 million and $35.2 million for the nine months ended September 30, 2023 and 2022, respectively.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 3. Financial Statement Components

Cash and cash equivalents consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Cash	$	121,888	$	88,153
Money market funds	310,464		181,831
Total cash and cash equivalents	$	432,352	$	269,984

As of September 30, 2023 and December 31, 2022, $1.1 million and $5.5 million in the cash balance above, respectively, 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):


	September 30, 2023		December 31, 2022
Accounts receivable	$	264,968	$	242,650
Unbilled accounts receivable	95,111		78,249
Allowance for doubtful accounts	(12,167)		(9,581)
Accounts receivable, net	$	347,912	$	311,318

Prepaid expenses and other current assets consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Prepaid expenses	$	34,521	$	23,306
Inventory	1,165		1,209
Other current assets	60,172		31,334
Total prepaid expenses and other current assets	$	95,858	$	55,849

Property and equipment, net consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Computer hardware and software	$	234,723	$	221,727
Internal-use software development costs	239,670		199,642
Furniture and fixtures	8,818		8,937
Leasehold improvements	14,133		13,889
Total property and equipment, gross	497,344		444,195
Less: accumulated depreciation and amortization	(313,751)		(258,795)
Property and equipment, net	$	183,593	$	185,400

Total depreciation and amortization expense related to property and equipment was $21.0 million and $18.3 million for the three months ended September 30, 2023 and 2022, respectively, and $61.8 million and $52.8 million for the nine months ended September 30, 2023 and 2022, respectively.

The carrying value of goodwill is as follows (in thousands):


Balance at December 31, 2022	$	54,335
Acquisitions (Note 7)	12,428
Foreign currency translation adjustments	(281)
Balance at September 30, 2023	$	66,482

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The carrying values of intangible assets are as follows (in thousands):


		September 30, 2023						December 31, 2022
	Weighted-Average Remaining Useful Life	Cost		Accumulated Amortization and Impairment		Acquired Intangibles, Net		Cost		Accumulated Amortization and Impairment		Acquired Intangibles, Net
Customer relationships	2.7 years	$	26,138	$	20,813	$	5,325	$	20,855	$	19,090	$	1,765
Developed technology	3.0 years	825,952		399,357		426,595		814,614		288,328		526,286
Total acquired intangible assets		$	852,090	$	420,170	$	431,920	$	835,469	$	307,418	$	528,051

Amortization expense from acquired intangible assets for the three months ended September 30, 2023 and 2022 was $38.2 million and $43.7 million, respectively, and $112.9 million and $131.4 million for the nine months ended September 30, 2023 and 2022, 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):


2023 (remaining)	$	38,152
2024	139,391
2025	138,522
2026	115,448
2027 onwards	407
Total estimated amortization expense	$	431,920

Accrued liabilities consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Accrued compensation and benefits	$	47,622	$	53,419
Accrued sales, use, and telecom related taxes	38,898		37,836
Accrued marketing and sales commissions	59,066		127,940
Operating lease liabilities, short-term	15,451		17,513

Other accrued expenses	149,715		143,405
Total accrued liabilities	$	310,752	$	380,113

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Deferred and Prepaid Sales Commission Costs

Amortization expense for the deferred and prepaid sales commission costs was $35.5 million and $31.5 million for the three months ended September 30, 2023 and 2022, respectively, and $100.6 million and $81.5 million for the nine months ended September 30, 2023 and 2022, respectively. There was no impairment loss in relation to the deferred commissions costs capitalized for the periods presented.

During the three and nine months ended September 30, 2023, the Company recorded a gain of $7.0 million and $11.5 million, respectively, in other income (expense) in earnings, pursuant to an amended agreement with a strategic partner. During the three months ended September 30, 2022, as a result of the uncertainty regarding Avaya’s financial condition, the Company recorded a non-cash asset write-down charge of $124.9 million, out of which $21.7 million of this balance was accrued interest and was recorded in other income (expense) in the Condensed Consolidated Statements of Operations.

Supplier Financing Obligations

The Company has established financing arrangements with certain third-party financial institutions and participating suppliers to be repaid over different terms ranging up to five years. As of September 30, 2023, the Company’s outstanding financing obligations related to such arrangements were $4.8 million, of which $2.8 million and $2.0 million were included in accrued liabilities and other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets. Some of these financing arrangements are collateralized against property and equipment.

Note 4. Fair Value of Financial Instruments

The Company measures and reports certain cash equivalents, including money market funds and certificates of deposit, derivative interest rate swap agreements, and 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 instruments carried at fair value were determined using the following inputs (in thousands):


	Fair Value at September 30, 2023		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	310,464	$	310,464	$	—	$	—


Other assets:
Interest rate swap derivatives	$	8,935	$	—	$	8,935	$	—


	Fair Value at December 31, 2022		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	181,831	$	181,831	$	—	$	—


Other assets:

Long-term investments	$	1,646	$	—	$	—	$	1,646

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.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value of Long-Term Debt

As of September 30, 2023, the fair value of the 0% convertible senior notes due 2026 (the “2026 Convertible Notes”) was approximately $512.5 million, and the fair value of the 0% convertible senior notes due 2025 (the “2025 Convertible Notes”) was approximately $382.7 million. The fair value for these 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.

As of September 30, 2023, the carrying amount of the Term Loan was $395.0 million. As there are no embedded features or other variable features, the fair value of the Term Loan approximated its carrying value.

As of September 30, 2023, the fair value of the 8.5% senior notes due 2030 (the “2030 Senior Notes”) was approximately $386.4 million. The fair value for the 2030 Senior 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.

Fair Value of Derivative Instruments

The Company’s interest rate swap derivative, which is considered as Level 2 in the fair value hierarchy, is valued using a discounted cash flow model that utilizes observable inputs including forward interest rate data at the measurement date.

Note 5. Long-Term Debt

The following table sets forth the net carrying amount of the Company’s long-term debt (in thousands):


Debt Instrument	Maturity Date	September 30, 2023		December 31, 2022
2025 Convertible Notes (1)	March 1, 2025	$	413,957	$	1,000,000
2026 Convertible Notes (2)	March 15, 2026	609,065		650,000
Term Loan under Credit Agreement	February 14, 2028	395,000		—
Revolving Credit Facility under Credit Agreement (3)	February 14, 2028	—		—
2030 Senior Notes	August 15, 2030	400,000		—
Total principal amount		1,818,022		1,650,000
Less: unamortized debt discount and issuance costs		(16,770)		(11,589)
Less: current portion of long-term debt (4)		(20,000)		—
Net carrying amount of long-term debt		$	1,781,252	$	1,638,411

(1)The Company repurchased $586.0 million principal amount of the 2025 Convertible Notes during the nine months ended September 30, 2023 using $400.0 million of proceeds from the Term Loan, $118.4 million of proceeds from the 2030 Senior Notes, and $27.3 million of other available cash, resulting in a $37.5 million gain on early debt extinguishment, net of related unamortized debt issuance costs.

(2)The Company repurchased $40.9 million principal amount of the 2026 Convertible Notes during the nine months ended September 30, 2023 using $35.2 million of proceeds from the 2030 Senior Notes, resulting in a $5.4 million gain on early debt extinguishment, net of related unamortized debt issuance costs.

(3)Of the $225.0 million available for borrowing, the Company has not drawn down any amount under the Revolving Credit Facility.

(4)The current portion of long-term debt is related to the Term Loan, which requires quarterly principal payments equal to 1.25% of the original $400.0 million aggregate principal amount with balance due at maturity.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Future minimum principal payments for long-term debt as of September 30, 2023 are presented in the table below (in thousands):


	2025 Convertible Notes		2026 Convertible Notes		Term Loan		2030 Senior Notes		Total
2023 (remaining)	$	—	$	—	$	5,000	$	—	$	5,000
2024	—		—		20,000		—		20,000
2025	413,957		—		20,000		—		433,957
2026	—		609,065		20,000		—		629,065
2027 onwards	—		—		330,000		400,000		730,000
Total principal amount	$	413,957	$	609,065	$	395,000	$	400,000	$	1,818,022

2030 Senior Notes

On August 16, 2023, the Company issued $400.0 million aggregate principal amount of the 2030 Senior Notes in a private offering. The total net proceeds from the debt offering, after deducting $5.5 million initial purchase discounts and $2.6 million debt issuance costs, were approximately $391.9 million. The 2030 Senior Notes are senior unsecured obligations of the Company and bear interest at a rate of 8.5% per annum payable semi-annually in arrears on February 15th and August 15th of each year. The 2030 Senior Notes will mature on August 15, 2030, unless redeemed or repurchased earlier, and are subject to the terms and conditions set forth in the indenture governing the 2030 Senior Notes (the “Senior Notes Indenture”). The Company used a portion of the net proceeds from the offering of its 2030 Senior Notes to repurchase $125.3 million principal amount of the 2025 Convertible Notes and $40.9 million principal amount of the 2026 Convertible Notes. The Company intends to use the remaining net proceeds to repurchase and/or repay an additional portion of its outstanding Convertible Notes and the remainder of the net proceeds, if any, for general corporate purposes.

The 2030 Senior Notes are or will be, as applicable, fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future domestic subsidiaries that guarantee indebtedness of the Company under the Credit Agreement.

The Senior Notes Indenture also requires compliance with certain covenants, including the ability to create certain liens on assets to secure debt, the ability to grant subsidiary guarantees of certain debt without also providing guarantees of the 2030 Senior Notes by such subsidiary and certain change of control transactions, events of default, and other customary provisions. As of September 30, 2023, the Company was in compliance with all covenants under the Senior Notes Indenture.

The Company may redeem the 2030 Senior Notes, in whole or in part, at any time prior to August 15, 2026 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest, if any. The Company may redeem the 2030 Senior Notes, in whole or in part, on or after August 15, 2026, at the redemption prices set forth in the Senior Notes Indenture, plus, in each case, accrued and unpaid interest thereon, if any. In addition, at any time prior to August 15, 2026, the Company may, on any one or more occasions, redeem up to 40% of the aggregate principal amount of the 2030 Senior Notes outstanding under the Senior Notes Indenture with the net cash proceeds of one or more equity offerings at a redemption price equal to 108.5% of the principal amount of the 2030 Senior Notes to be redeemed, plus accrued and unpaid interest thereon, if any, so long as 50% of the original aggregate amount of the 2030 Senior Notes remains outstanding immediately after such redemption.

If the Company experiences a change of control triggering event (as defined in the Senior Notes Indenture), holders of the 2030 Senior Notes may require the Company to repurchase the 2030 Senior Notes at a repurchase price equal to 101% of the principal amount of the 2030 Senior Notes to be repurchased, plus accrued and unpaid interest, if any.

Debt issuance costs were capitalized in the Condensed Consolidated Balance Sheets and amortized as interest expense using the effective interest rate method over the term of the 2030 Senior Notes. The effective interest rate on the 2030 Senior Notes, which is calculated as the contractual interest rate adjusted for the debt discount and issuance costs was 8.9%.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Credit Agreement

On February 14, 2023, the Company entered into a Credit Agreement with certain lenders. The Credit Agreement originally provided for a $200.0 million revolving loan facility (the “Revolving Credit Facility”), with a $25.0 million sub-limit for the issuance of letters of credit, and a $400.0 million delayed draw term loan facility (the “Term Loan”). On August 15, 2023, the Company entered into the first amendment to the Credit Agreement to increase the Revolving Credit Facility by $25.0 million to an aggregate amount of $225.0 million. The proceeds of the loans under the Revolving Credit Facility may be used for working capital and general corporate purposes. The Revolving Credit Facility commitments terminate, and all outstanding revolving loans thereunder are due and payable, on February 14, 2028. The obligations under the Credit Agreement are guaranteed by certain material domestic subsidiaries of the Company, and secured by substantially all of the personal property of the Company and such subsidiary guarantors. As of September 30, 2023, the Company was in compliance with all covenants under the Credit Agreement.

In the second quarter of 2023, the Company fully drew down the Term Loan of $400.0 million and the proceeds were used to repurchase a portion of the Company’s 2025 Notes, in accordance with the terms of the Credit Agreement. As of September 30, 2023, the Company’s outstanding balance on the Term Loan was $395.0 million, which is due and payable on February 14, 2028. If on any date that is within 91 days prior to the final scheduled maturity date of any series of the Notes, such series of Notes is in an aggregate principal amount outstanding that exceeds an amount equal to 50% of last twelve months EBITDA, calculated as set forth in the Credit Agreement, the maturity date of both the Revolving Credit Facility and Term Loan shall automatically be modified to be such date.

Borrowings under the Credit Agreement will bear interest, at the Company’s option, at either: (a) the fluctuating rate per annum equal to the greatest of (i) the prime rate then in effect, (ii) the federal funds rate then in effect, plus 0.5% per annum, and (iii) an adjusted term SOFR rate determined on the basis of a one-month interest period, plus 1.0%, in each case, plus a margin of between 1.0% and 2.0%; and (b) an adjusted term SOFR rate (based on one, three or six month interest periods), plus a margin of between 2.0% and 3.0%. The applicable margin in each case is determined based on the Company’s total net leverage ratio. Interest is payable quarterly in arrears with respect to borrowings bearing interest at the alternate base rate or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at the term SOFR rate.

As of September 30, 2023, the Company incurred $5.6 million of debt issuance costs in connection with the Credit Agreement, of which $4.9 million was capitalized in the Condensed Consolidated Balance Sheets and amortized primarily using the effective interest rate over the term of the Credit Agreement, while the remaining amount was expensed in the period incurred. The effective interest rate method on the Term Loan, which is calculated as the contractual interest rate adjusted for the debt discount and issuance costs, was 8.3% as of September 30, 2023.

Convertible Notes

In March 2020, the Company issued $1.0 billion aggregate principal amount of the 2025 Convertible Notes in a private placement to qualified institutional buyers. The 2025 Convertible 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 the 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 the 2026 Convertible Notes in a private placement to qualified institutional buyers. The 2026 Convertible Notes will mature on March 15, 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 the initial purchase discounts and debt issuance costs, were approximately $640.2 million.

The Convertible Notes are senior, unsecured obligations of the Company that do not bear regular interest, and the principal amount of the Convertible Notes does not accrete. The Convertible Notes may bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the respective indentures governing each of the Convertible Notes (collectively, the “Convertible Notes Indentures”) or if the Convertible Notes are not freely tradeable as required by each respective Convertible Notes Indenture.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Partial Repurchase of 2025 and 2026 Convertible Notes

In May 2023, the Company used the entire proceeds from the drawdown of the $400.0 million Term Loan and $27.3 million of other available cash to repurchase $460.7 million principal amount of the 2025 Convertible Notes, resulting in a gain on early debt extinguishment of $31.1 million, net of related unamortized debt issuance costs.

In August 2023, the Company used a portion of the net proceeds from the offering of the 2030 Senior Notes to repurchase $125.3 million and $40.9 million aggregate principal of the 2025 Convertible Notes and 2026 Convertible Notes, respectively, by paying an aggregate amount of $153.7 million in cash, resulting in a gain on early debt extinguishment of $11.8 million, net of related unamortized debt issuance costs. Immediately after the partial repurchase in August 2023, the carrying value of the 2025 and 2026 Notes, net of unamortized debt issuance costs, was $412.2 million and $604.7 million, respectively.

Other Terms of the Convertible Notes


	2025 Convertible Notes		2026 Convertible 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 Convertible Notes Indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or during the relevant redemption period.

The Convertible 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 Convertible Notes, and December 15, 2025 for the 2026 Convertible Notes, until the close of business on the scheduled trading day immediately preceding the relevant maturity date, holders of the Convertible Notes may convert all or a portion of their Convertible Notes regardless of these conditions. Pursuant to the terms of the respective Convertible Notes Indenture, effective January 1, 2022, the Company made an irrevocable election to settle the principal portion of the Convertible Notes only in cash, with the conversion premium to be settled in cash or shares.

During the three and nine months ended September 30, 2023, the conditions allowing holders of the 2025 Convertible Notes and 2026 Convertible Notes to convert were not met. The Convertible Notes of either series may be convertible thereafter if one or more of the conversion conditions specified in the applicable Convertible Notes Indenture is satisfied during future measurement periods.

The Company may redeem the Convertible Notes at its option, on or after March 5, 2022 for the 2025 Convertible Notes, and March 20, 2023 for the 2026 Convertible 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 Convertible Notes.

Upon the occurrence of a fundamental change (as defined in each respective Convertible Notes Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2025 Convertible Notes or 2026 Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.

As of September 30, 2023, the Company was in compliance with all covenants under each of the Convertible Notes Indentures.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Capped Calls

In connection with the offering of the Convertible Notes, the Company entered into privately-negotiated capped call transactions relating to each series of Convertible Notes with certain counterparties (collectively the “Capped Calls”). The initial strike price of the Convertible Notes corresponds to the initial conversion price of each of the Convertible 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 Convertible 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 Convertible Notes:


	2025 Convertible Notes		2026 Convertible Notes
Initial approximate strike price per share, subject to certain adjustments	$	360.43	$	424.03
Initial cap price per share, subject to certain adjustments	$	480.56	$	556.10
Net cost incurred (in millions)	$	60.9	$	41.8
Class A Common Stock covered, subject to anti-dilution adjustments (in millions)	2.8		1.5
Settlement commencement date	1/31/2024		2/13/2025
Settlement expiration date	2/28/2024		3/13/2025

All of the capped call transactions were outstanding as of September 30, 2023.

The following table sets forth the interest expense recognized related to long-term debt (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Contractual interest expense	$	10,869	$	—	$	14,155	$	—
Amortization of debt discount and issuance costs	1,067		1,118		3,465		3,350
Total interest expense related to long-term debt	$	11,936	$	1,118	$	17,620	$	3,350

Note 6. Derivative Instruments

In May 2023, the Company entered into a five-year floating-to-fixed interest rate swap agreement with the objective of reducing exposure to the fluctuating interest rates associated with the Company’s variable rate borrowing program by paying quarterly a fixed interest rate of 3.79%, plus a margin of 2% to 3%. The interest rate swap agreement was effective on June 30, 2023, and terminates on February 14, 2028, consistent with the duration of the maturity of the Term Loan. As of September 30, 2023, the interest rate swap agreement had a notional amount of $395.0 million.

The Company’s interest rate swap agreement is designated as a cash flow hedge under ASC 815, Derivatives and Hedging (“ASC 815”), involving the assumption of variable amounts by a swap counterparty in exchange for the Company making fixed-rate payments to the counterparty over the life of the agreement, without the exchange of the underlying notional amount. These hedges are highly effective in offsetting changes in the Company’s future expected cash flows due to the fluctuation of the Company’s variable rate debt. The Company monitors the effectiveness of its hedges on a quarterly basis. The Company does not hold its interest rate swap agreement for trading or speculative purposes. The Company will recognize its interest rate derivative designated as a cash flow hedge on a gross basis as an asset and a liability at fair value in the Condensed Consolidated Balance Sheets. The unrealized gains and losses on the interest rate swap agreement are included in other comprehensive income (loss) and will be subsequently recognized in earnings within or against interest expense when the hedged interest payments are accrued.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2023, the Company estimates the net amount related to the interest rate swaps under the interest rate swap agreement expected to be reclassified into earnings over the next 12 months is approximately $6.0 million.

Note 7. Business Combinations

On July 31, 2023, the Company completed its acquisition of certain assets of Hopin, Inc. (“Hopin”), a virtual events platform that aims to connect people around the world through immersive and interactive online experiences. The total purchase price consideration of $22.2 million consisted of $14.7 million in cash, and the acquisition date fair-value of contingent consideration of $7.5 million, out of total maximum contingent consideration of $35.0 million based on the achievement of specified performance targets by the Hopin business over multiple years, paid quarterly in cash. The acquired technology will be incorporated into the Company's global communication platform, providing customers with enhanced virtual events and webinar experiences.

The transaction was accounted for as a business combination. The preliminary allocation of the purchase price based on their estimated fair values included $12.7 million for acquired technology, less $3.3 million for net acquired liabilities, with the remaining $12.8 million allocated to goodwill. The amortizable intangible assets have a weighted-average useful life of three years. The goodwill recognized is attributable primarily to the contributions of the acquired technology to the overall corporate strategy and assembled workforce.

Note 8. 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 September 30, 2023, non-cancellable leases are set to expire on various dates between 2023 and 2029.

The balances of the Company’s finance and operating leases were recorded on the Condensed Consolidated Balance Sheets as follows (in thousands):


	September 30, 2023		December 31, 2022
Operating leases
Operating lease right-of-use assets	$	32,477	$	35,433

Accrued liabilities	$	15,451	$	17,513
Other long-term liabilities	18,577		20,182
Total operating lease liabilities	$	34,028	$	37,695


	Nine Months Ended September 30,
	2023		2022
Supplemental Cash Flow Information (in thousands)
Operating cash flows resulting from operating leases:
Cash paid for amounts included in the measurement of lease liabilities	$	17,522	$	17,541

New ROU assets obtained in exchange of lease liabilities:
Operating leases	$	12,467	$	5,653

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 9. 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 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 condensed consolidated financial statements, we estimate the amount of any such loss or range of loss that may occur would be immaterial. 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. 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, and a motion for judgment on the pleadings on January 23, 2023. The Court overruled the Company’s demurrer and motion for judgment on the pleadings, 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 condensed 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.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 $5.0 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. On October 19, 2023, Bright Pattern moved to lift the stay. 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 condensed 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.

Purchase Obligations

During the second quarter of 2023, the Company entered into a commercial arrangement with a total incremental commitment of $19.8 million through January 2025. The entire incremental commitment balance was outstanding as of September 30, 2023.

During the first quarter of 2023, the Company entered into a commercial arrangement with a total commitment of $124.0 million through January 2029, out of which $113.7 million remained outstanding as of September 30, 2023.

Note 10. Stockholders’ Deficit and Convertible Preferred Stock

Share Repurchase Programs

On February 13, 2023, the Company’s board of directors authorized a share repurchase program under which it may repurchase up to $175.0 million of the Company’s outstanding shares of Class A Common Stock, subject to certain limitations. Subsequently, on May 16, 2023, the board of directors authorized an additional share repurchase program under which the Company may repurchase up to an additional $125.0 million of our outstanding Class A Common Stock, also subject to certain limitations, for a total repurchase authorization of up to $300.0 million under these programs. Under these programs, share repurchases may be made at the Company’s discretion from time to time in open market transactions, privately negotiated transactions, or other means, subject to a minimum cash balance. The programs do 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 programs will depend on a variety of factors, including stock price, trading volume, and general business and market conditions. The authorization under these programs is effective until December 31, 2023.

The following table summarizes the share repurchase activity of our Class A Common Stock for the three and nine and months ended September 30, 2023 (in thousands):


	Three Months Ended September 30, 2023			Nine Months Ended September 30, 2023
	Shares	Amount		Shares	Amount
Repurchases under share repurchase programs	2,489	$	74,948	7,969	$	249,409
Amounts for excise tax withholdings and broker’s commissions	—	344			1,164
Total repurchases of common stock	2,489	$	75,292	7,969	$	250,573

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. During the nine months ended September 30, 2023, the Company reflected the applicable excise tax withholdings and broker’s commissions in additional paid in capital as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in accrued liabilities in the Condensed Consolidated Balance Sheets. As of September 30, 2023, approximately $50.6 million remained authorized and available under the Company’s share repurchase programs for future share repurchases.

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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 in the Condensed Consolidated Balance Sheets. As of September 30, 2023, and December 31, 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 11. 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenues	$	9,530	$	8,464	$	27,134	$	26,161
Research and development	24,265		21,830		70,358		68,310
Sales and marketing	37,694		37,548		114,455		116,389
General and administrative	40,193		27,816		102,586		82,917
Total share-based compensation expense	$	111,682	$	95,658	$	314,533	$	293,777

A summary of share-based compensation expense by award type is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Employee stock purchase plan rights (“ESPP”)	$	1,063	$	1,058	$	5,744	$	5,486
Performance stock units (“PSUs”)	10,875		1,313		15,211		1,825
Restricted stock units (“RSUs”)	99,744		93,287		293,578		286,466
Total share-based compensation expense	$	111,682	$	95,658	$	314,533	$	293,777

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Equity Incentive Plans

As of September 30, 2023, a total of 13,005,630 shares remained available for grant under the RingCentral, Inc. Amended and Restated 2013 Equity Incentive Plan (“2013 Plan”).

A summary of option activity under all of the Company’s equity incentive plans as of September 30, 2023, and changes during the period then ended is presented in the following table:


	Number of Options Outstanding (in thousands)	Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022	22	$	12.53	0.5	$	509

Exercised	(19)	11.40
Canceled/Forfeited	—	—
Outstanding as of September 30, 2023	3	$	19.43	0.2	$	32
Vested and expected to vest as of September 30, 2023	3	$	19.43	0.2	$	32
Exercisable as of September 30, 2023	3	$	19.43	0.2	$	32

There were no options granted during the three and nine months ended September 30, 2023 and 2022. The total intrinsic value of options exercised during the three months ended September 30, 2023 and 2022, and nine months ended September 30, 2023, was immaterial. The total intrinsic value of options exercised during the nine months ended September 30, 2022 was $13.3 million. There is no remaining unamortized share-based compensation expense.

Employee Stock Purchase Plan

The Company’s ESPP allows eligible employees to purchase shares of the Company’s Class A Common Stock at a discounted price through payroll deductions.

As of September 30, 2023, there was a total of $0.8 million of unrecognized share-based compensation expense, net of estimated forfeitures, related to the ESPP, which will be recognized on a straight-line basis over the remaining weighted-average vesting period of approximately 0.1 years. As of September 30, 2023, a total of 6,547,384 shares were available for issuance under the ESPP.

Restricted and Performance Stock Units

A summary of activity of restricted and performance-based stock units as of September 30, 2023, and changes during the period then ended is presented in the following table:


	Number of RSUs/PSUs Outstanding (in thousands)	Weighted- Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022	5,100	$	119.55	$	180,577
Granted	12,702	32.40
Released	(4,384)	62.99
Canceled/Forfeited	(1,444)	76.28
Outstanding as of September 30, 2023	11,974	$	53.03	$	356,030

Restricted Stock Units

The 2013 Plan provides for the issuance of RSUs to employees, directors, and consultants. RSUs issued under the 2013 Plan generally vest over four years.

As of September 30, 2023, there was a total of $411.2 million of unrecognized share-based compensation expense, net of estimated forfeitures, related to RSUs, which will be recognized on a straight-line basis over the remaining weighted-average vesting period of approximately 2.8 years.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Performance Stock Units

The 2013 Plan provides for the issuance of PSUs. The PSUs granted under the 2013 Plan are contingent upon the achievement of predetermined market, performance, and service conditions. PSU expense is recognized using the accelerated attribution method over the requisite service period. For performance-based metrics, the compensation expense is based on a probability of achievement of the performance conditions. For market-based conditions, if the market conditions are not met but the service conditions are met, the PSUs will not vest; however, any stock-based compensation expense recognized will not be reversed.

As of September 30, 2023, there was a total of $31.2 million unrecognized share-based compensation expense, net of estimated forfeitures, related to these PSUs, which will be recognized over the remaining service period of approximately 2.4 years.

Employee Equity Compensation Plans

The Company’s board of directors adopted employee equity bonus and executive equity compensation plans (“Plans”), which allow the recipients to earn fully vested shares of the Company’s Class A Common Stock upon the achievement of quarterly service and/or performance conditions and in lieu of a portion of base salary. During the three and nine months ended September 30, 2023, the Company issued 577,224 and 1,731,223 RSUs, respectively, under these Plans. The shares under these Plans will be issued from the reserve of shares available for issuance under the 2013 Plan. The total requisite service period of each quarterly equity bonus award is approximately 0.4 years.

The unrecognized share-based compensation expense was approximately $5.0 million, which will be recognized over the remaining service period of 0.1 years. The shares issued under the bonus plan will be issued from the reserve of shares available for issuance under the 2013 Plan.

Note 12. Income Taxes

The (benefit from) provision for income taxes was $(3.8) million and $0.9 million for the three months ended September 30, 2023 and 2022, respectively, and $6.3 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively. The provision for income taxes for the three and nine months ended September 30, 2023 and 2022 consisted primarily of foreign income taxes and state income taxes. For the three and nine months ended September 30, 2023 and 2022, the provision for income taxes differed from the U.S. federal statutory rate primarily due to foreign and state taxes currently payable.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the deduction of research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. Due to this required capitalization of research and development expenditures, the Company has recorded current income tax expense of $0.9 million for the quarter ended September 30, 2023. The current income tax provision is primarily for state taxes we anticipate paying as a result of statutory limitations on our ability to offset expected taxable income with net operating loss carry forwards in certain states.

The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence, the Company does not believe it is more likely than not that certain net deferred tax assets will be realizable. Accordingly, the Company continues to provide a full valuation allowance against the entire domestic and the majority of the foreign net deferred tax assets as of September 30, 2023 and December 31, 2022. The Company intends to maintain the full valuation allowance on the U.S. and certain foreign net deferred tax assets until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

During the three and nine months ended September 30, 2023, there were no material changes to the total amount of unrecognized tax benefits.

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RINGCENTRAL, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 13. Basic and Diluted Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, stock options, restricted stock units, ESPP, convertible senior notes, and convertible preferred stock, to the extent dilutive. For the three and nine months ended September 30, 2023 and 2022, all such common stock equivalents have been excluded from diluted net loss per share as the effect to net loss per share would be anti-dilutive.

The following table sets forth the computation of the Company’s basic and diluted net loss per share of common stock (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator
Net loss	$	(42,116)	$	(284,616)	$	(117,997)	$	(595,103)
Denominator
Weighted-average common shares outstanding for basic and diluted net loss per share	94,593		95,575		95,213		95,097




Basic and diluted net loss per share	$	(0.45)	$	(2.98)	$	(1.24)	$	(6.26)

The following table summarizes the potentially dilutive common shares that were excluded from diluted weighted-average common shares outstanding because including them would have had an anti-dilutive effect (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Shares of common stock issuable under equity incentive plans outstanding	12,598	4,064	9,320	3,703
Shares of common stock related to convertible preferred stock	743	743	743	743

RingCentral, Inc. [RNG] Filings
10-Q	[2023-11-08]
10-Q	[2023-08-07]
S-1	[2023-06-08]
10-Q	[2023-05-09]
S-1	[2023-03-03]
10-K	[2023-02-23]
10-Q	[2022-11-09]
10-Q	[2022-08-08]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-09]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-26]
10-Q	[2020-11-09]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-K	[2020-02-26]
10-Q	[2019-11-12]
10-Q	[2019-08-08]
10-Q	[2019-05-10]
10-K	[2019-02-27]
10-Q	[2018-11-08]
10-Q	[2018-08-07]
10-Q	[2018-05-10]
10-K	[2018-02-26]
10-Q	[2017-11-09]
10-Q	[2017-08-07]
10-Q	[2017-05-05]
10-K	[2017-02-28]
10-Q	[2016-11-07]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-29]
10-Q	[2015-11-06]
10-Q	[2015-08-05]
10-Q	[2015-05-04]
10-K	[2015-02-27]
10-Q	[2014-11-03]
10-Q	[2014-08-04]
10-Q	[2014-05-02]
10-K	[2014-02-26]
S-1	[2014-02-26]
10-Q	[2013-11-13]
S-1	[2013-08-26]