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RingCentral Earnings Beat Expectations; Stock Pops

By Beth McKenna - Feb 11, 2020 at 9:30AM

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RingCentral stock rose more than 3% in after-hours trading after the cloud-based communications solutions provider reported Q4 earnings on Monday.

RingCentral (RNG 9.21%), which provides cloud-based enterprise communication and collaboration solutions, reported fourth-quarter and full-year 2019 results after the market closed on Monday. 

Shares popped 3.2% during Monday's after-hours trading session. We can attribute the market's pleasure to the company's quarterly revenue and earnings beating Wall Street's consensus estimates, along with revenue guidance for the first quarter and full-year 2020 coming in higher than analysts had been expecting.

RingCentral stock is up 29.6% in 2020 and up a whopping 111% for the one year through Monday's regular trading session, compared to the S&P 500's 3.9% and 26.3% returns, respectively, over these periods. Shares of fellow unified communications-as-a-service (UCaaS) company Zoom Video Communications have also zoomed out of the gate this year with their 31.8% gain. (Zoom held its initial public offering, or IPO, in April, so it hasn't traded for a year.)

Here's how the quarter worked out for RingCentral and its investors.

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Image source: Getty Images.

RingCentral's key quarterly numbers

Metric

Q4 2019

Q4 2018

 Change

Revenue

$252.9 million $188.6 million 34%

GAAP operating income

($20.4 million) ($3.4 million) Loss widened 500%

Adjusted operating income

$24.3 million $17.3 million 40%

GAAP net income

($25.3 million) ($5.7 million) Loss widened 344%

Adjusted net income

$20.3 million $20.2 million 0.5%

GAAP earnings per share (EPS)

($0.30) ($0.07) Loss widened 329%
Adjusted EPS $0.22 $0.23 (4%)

Data source: RingCentral. GAAP = generally accepted accounting principles.

Adjusted for one-time items, the company's operating income significantly improved year over year, while its net income and, thus, EPS were close to unchanged. A key reason for this apparent disconnect is that its non-GAAP tax rate was 22.5% in the just-reported quarter compared to nearly 0% in the year-ago period. 

Wall Street was looking for adjusted EPS of $0.21 on revenue of $239.5 million, so RingCentral slightly beat the earnings expectation and comfortably exceeded the top-line consensus.

For full-year 2019, revenue increased 34% to $902.9 million, GAAP loss widened 94% to $0.64 per share, and adjusted EPS grew 7% to $0.82. 

What happened with RingCentral in the quarter?

  • Subscriptions revenue jumped 33% year over year to $229 million.
  • Annualized exit monthly recurring subscriptions (ARR) increased 32% to $960 million.
  • RingCentral Office ARR rose 36% to $877 million.
  • Mid-market and enterprise ARR surged 59% to $479 million.
  • Enterprise ARR soared 71% to $293 million.
  • Channel ARR surged 63% to $300 million.
  • The company closed a record of more than 30 deals that were seven figures or more, with 70% of those deals with new logos, founder and CEO Vlad Shmunis said on the earnings call.
  • Upsell remains strong with more than than 40% of new business coming from existing customers, Shmunis added.
  • After the quarter ended, the company announced that Anand Eswaran, former vice president for Microsoft's global enterprise business, has joined the company as its president and COO. 

What management had to say

Here's what Shmunis had to say in the earnings release:

Fourth-quarter results were outstanding, driven by continued momentum in mid-market and enterprise markets. We are very excited to have surpassed our previous goal of a $1 billion annual revenue run rate ahead of schedule. Our success is rooted in our deep commitment to product excellence and a culture of strategic partnerships, as evidenced by our unique relationships with AT&T, Avaya, and now Atos. These partnerships are a strong validation of our industry leadership and provide additional opportunities for our long-term growth.

First-quarter and full-year 2020 guidance

For Q1 2020, RingCentral guided for revenue of $257 million to $259 million, representing growth of 28% to 29% year over year. It also expects adjusted EPS of $0.18 to $0.19, representing growth of 6% to 12%. Going into the earnings release, Wall Street had been modeling for Q1 adjusted EPS of $0.18 on revenue of $249.2 million. So, the revenue guidance surprised to the upside, while the EPS outlook came in essentially in line. 

For full-year 2020, the company guided for revenue of $1.125 billion to $1.135 billion, representing growth of 25% to 26% year over year. It also anticipates adjusted EPS of $0.93 to $0.94, representing growth of 15% to 16%. The EPS outlook "reflects additional imputed shares from the convertible debt due to stock price appreciation and shares issued to Avaya in November 2019, which if excluded would have increased the guidance range by $0.04."

Going into the earnings release, analysts had been modeling for 2020 adjusted EPS of $0.93 on revenue of $1.1 billion. So, the revenue guidance surprised to the upside, while the EPS outlook came in essentially in line. 

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

RingCentral, Inc. Stock Quote
RingCentral, Inc.
RNG
$52.15 (9.21%) $4.40
Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$114.74 (0.78%) $0.89

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