RingCentral, Inc. Q3 FY2024 earnings

RingCentral posted positive GAAP operating income for the first time in its history in the third quarter of 2024, though the bottom line stayed in the red. Total revenue was $608.8 million, up 9.1% year over year. GAAP gross profit was $428.6 million, up 10.1%, and gross margin was 70.4%, up 0.7 percentage points. GAAP operating income was $3.3 million, a swing to profit from a loss in the prior-year quarter, and operating margin was 0.5%, up 10.2 percentage points. GAAP net loss was $7.9 million, or $0.09 per diluted share, narrower than the prior-year quarter's loss. Non-GAAP operating margin was 21.0%, up 190 basis points. Non-GAAP operating income was $128 million, adjusted EBITDA was $149 million, or 24.5% of total revenue, and non-GAAP net income per diluted share was $0.95. Stock-based compensation fell to 14.0% of total revenue, down 630 basis points year over year.

Demand for new products and the core UCaaS business drove the top line. Subscriptions revenue accounted for 96% of total revenue. Annualized exit monthly recurring subscriptions rose 9% year over year to $2.48 billion, and enterprise ARR rose 11% year over year to $1.07 billion. The Net Monthly Subscription Dollar Retention Rate stayed above 99%. RingCentral pointed to RingCX, its AI-powered contact center, as a key contributor. The quarter brought new RingCX features, including a real-time AI assistant for agents and supervisors, AI-based coaching insights, and a framework that lets customers plug in their own intelligent virtual agent. A partnership with Verint gives RingCX customers access to workforce engagement management and CX automation tools. RingEX, the flagship platform, now includes RingCentral AI Assistant at no additional cost. The company also received a PAN-India license covering all 22 telecommunications circles, renewed its agreement with AT&T, and launched a joint offering with Zayo. Gartner named RingCentral a Leader in the 2024 Magic Quadrant for Unified Communications as a Service for the tenth year in a row and ranked it first in three of six use case categories.

Cash generation improved sharply. Net cash provided by operating activities was $127.2 million, up 46.9% from a year earlier. Capital expenditures were $7.4 million, up 70.6%. Free cash flow, a non-GAAP measure, was $105 million, up 51%, equal to a 17.3% margin. Contracted backlog also grew. Deferred revenue, current portion, was $261.0 million, up 12.9% year over year, and remaining performance obligations were $2.60 billion, up 13.0%. The company repurchased shares during the quarter under programs previously authorized by its board.

Guidance moved higher. Management raised its full-year 2024 total revenue guidance to a range representing annual growth of 9%, and raised its subscriptions revenue guidance to a range also representing annual growth of 9%. Non-GAAP operating margin guidance was maintained at 21.0%, non-GAAP earnings per diluted share guidance was raised to $3.69, and the non-GAAP tax rate assumption stayed at 22.5%. No material cash taxes are expected given net operating loss carryforwards. Full-year free cash flow guidance moved up to $400 to $405 million from $395 to $400 million. For the fourth quarter of 2024, guidance calls for total revenue growth of 7% and subscriptions revenue growth of 7% to 8%, a non-GAAP operating margin of 21.2%, and non-GAAP earnings per diluted share of $0.96 to $0.97.

Risks still weigh on the story. RingCentral cited persistent inflation, higher interest rates, supply chain disruptions, decreased economic output, geopolitical conflict and swings in currency exchange rates. Those conditions could change buying behavior among larger customers. The company also warned that customers may keep slowing hiring and rationalizing employee counts, which would lower upsell and raise downsell. Other named risks include contract duration, the timing of customer purchases, churn, renewals, payment terms, credit card declines, competition, integration of acquisitions, and reliance on resellers, carriers, channel partners and strategic partners. Debt maturities include convertible notes due March 1, 2025 and March 15, 2026, a term loan due February 14, 2028, and senior notes due August 15, 2030. RingCentral said it was in compliance with all debt covenants as of September 30, 2024 and has additional liquidity available through a delayed draw-down term loan and a revolving credit facility. The company also named Abhey Lamba as its Chief Financial Officer.