Cloud-based communications expert RingCentral (RNG 3.46%) reported earnings after the closing bell on Monday. After posting a classic beat-and-raise report, RingCentral saw its shares end the after-hours trading session 8.6% higher. Let's take a closer look at this market-moving report.
RingCentral's third-quarter results by the numbers
|
Metric |
Q3 2019 |
Q3 2018 |
Change |
|---|---|---|---|
|
Revenue |
$233 million |
$174 million |
34% |
|
GAAP net income (loss) |
($12.8 million) |
($9.5 million) |
(35%) |
|
Adjusted earnings per diluted share |
$0.22 |
$0.19 |
16% |
Data source: RingCentral. GAAP = generally accepted accounting principles.
What's new with RingCentral?
- The top end of management's guidance for this quarter stopped at revenues of $222 million and adjusted earnings of $0.20 per share. RingCentral exceeded both of these benchmarks, along with analyst estimates that had been sitting just below those top-of-range limits, by a generous margin.
- The company started a new partnership with Avaya (AVYA) during this quarter, under which RingCentral becomes the exclusive provider of unified communications as a service (UCaaS) to the business communications giant. At the same time, telecom mastodon AT&T (T 1.17%) extended its existing RingCentral relationship. The move brings tighter integration and wider availability of this company's communications solutions to Ma Bell's Office@Hand corporate solutions platform.
- Noncash charges for share-based compensation added up to $27.4 million in the third quarter, more than enough to make the difference between a taxable net income and a nearly tax-free net loss. RingCentral recorded a total tax benefit of $148,000 this time in GAAP terms, up from a tax charge of $108,000 in the year-ago quarter. Either way, RingCentral's tax considerations are a virtual rounding error next to top-line revenues of $233 million. Paying your employees partly in freshly printed shares can be an extremely tax-efficient strategy.
- On the downside, RingCentral increased its GAAP share count by 4% over the last year in order to support that tax-reducing idea. It's hard to complain, since the stock has more than doubled over the last 52 weeks, but it's something for value-conscious investors to keep in mind.
Image source: Getty Images.
Color commentary from the corner office
On the earnings call, chief operating officer Dave Sipes sketched out the growing scale of RingCentral's base of enterprise-class customers. In these remarks, TCV stands for total contract value:
Our unified platform, which integrates voice, video, and team messaging with an open platform and strong global footprint, is resonating with large enterprise customers. ... In Q3, over 70% of our $1 million TCV wins cited our open platform as a key differentiator. Our open platform ecosystem now has nearly 3,000 certified integrations and over 25,000 developers. Additionally, over 50% of these wins cited integrated team messaging as another influencing factor.
RingCentral recorded "over 30" million-dollar TCV deals in this quarter, up from exactly 30 in the second quarter and 10 of them two years ago.
Looking ahead
Based on these results and current business trends, RingCentral boosted its full-year revenue guidance by 1.5% while lifting its bottom-line target by 4%. In both cases, the new guidance figures landed above the current analyst views, which hew closely to the midpoint of the old guidance ranges.
It's no surprise to see RingCentral's shares jumping on solid results and an optimistic management view of the near future. Do bear in mind that the stock trades in Wall Street's nosebleed section, sporting valuation ratios such as 180 times adjusted earnings and 233 times free cash flows. We're talking about a classic growth stock, valued more for its ability to post rapid and sustained top-line improvements than for its profit-taking abilities.
