RingCentral, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. RingCentral provides cloud communications, video, collaboration and contact-center SaaS, with revenue primarily from subscriptions.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Total revenue | $1.595 billion | $1.184 billion |
| Subscription revenue | $1.482 billion; up 36% | $1.086 billion |
| Gross profit / gross margin | $1.146 billion / 72% | $860.1 million / 73% |
| Subscription gross margin | 77% | 78% |
| Operating loss | $301.8 million | $113.2 million |
| Net loss | $376.3 million | $83.0 million |
| Operating cash flow | $152.2 million provided | $35.2 million used |
| Non-GAAP free cash flow | $89.6 million | $59.7 million |
| Cash and cash equivalents at year-end | $267.2 million | $639.9 million |
At year-end, current assets were $650.7 million and current liabilities were $526.3 million. Convertible notes had $1.65 billion aggregate principal outstanding, at 0% stated interest: $1.0 billion due 2025 and $650 million due 2026. Their combined net carrying amount was approximately $1.398 billion. Management said existing liquidity and capital resources were expected to cover requirements for at least 12 months.
Material changes and significant transactions
- Revenue rose 35%, driven by customer additions, expansion of seats and offerings, and growth in mid-market and enterprise sales. Annualized exit monthly recurring subscriptions increased to $1.8 billion from $1.3 billion.
- Operating expenses increased 49% to $1.448 billion, led by sales and marketing, research and development, and general and administrative spending. Share-based compensation rose to $358.0 million from $189.6 million.
- Net loss widened substantially. Management attributed the increase in part to higher share-based compensation, investment fair-value losses, acquisition-related costs and convertible-note discount amortization. Other income in 2020 included a large investment gain; 2021 included a net investment loss.
- Operating cash flow improved to positive $152.2 million, while investing cash outflow rose to $396.8 million. This included the Mitel intellectual-property acquisition and capitalized investment in infrastructure and software. Financing cash outflow was $127.1 million, including $333.6 million paid to redeem the 2023 notes; $199.4 million net proceeds from Series A preferred stock partly offset the outflow.
- In November 2021, RingCentral entered a strategic partnership making it Mitel’s exclusive UCaaS provider and acquired intellectual property for $649.4 million, funded with $300 million cash, $299.4 million in stock and $50 million contingent consideration. The acquisition was capitalized as developed technology and will be amortized over five years.
- The company issued $200 million of Series A convertible preferred stock, recorded as temporary equity. It carries a $1,000-per-share liquidation preference and is convertible at $269.22 per share, subject to adjustment.
Outlook, risks and unusual items
- No specific numerical forward guidance is provided in the supplied filing text. Management expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars; it expects subscription gross margin to remain in a relatively similar range.
- Management highlights execution risks in strategic partnerships and enterprise expansion, intense competition and pricing pressure, customer retention, service availability, cybersecurity, third-party network and hosting dependencies, and evolving privacy and telecommunications regulation.
- RingCentral relies on third-party software-development resources in Russia and Ukraine. The filing discusses the potential for geopolitical conflict and sanctions to disrupt those operations, while stating the company did not store customer data there and was not dependent on those locations to continue service.
- COVID-19 effects remained uncertain, including possible impacts on customer demand, payment behavior, sales activity and suppliers. The company also noted a shift toward apps on laptops and mobile devices, affecting demand for desk phones.
- Disclosed litigation included a California privacy class action, a patent matter and a dispute with Bright Pattern; the company said potential losses could not be estimated for these matters. The Zoom dispute was settled and dismissed with prejudice in February 2022, after year-end.
- The board authorized a share-repurchase program of up to $100 million through December 31, 2022; no shares had been repurchased under it by year-end. The company reported no cash dividends paid or planned in the foreseeable future.
- KPMG issued an unqualified audit opinion and reported effective internal control over financial reporting. The audit identified subscription-revenue evidence across multiple IT systems as a critical audit matter.
Most important facts for investors to verify
- Whether strong subscription growth and recurring-revenue expansion can be sustained while operating expenses and share-based compensation remain high.
- The cash-flow and balance-sheet effects of the Mitel acquisition, the $50 million contingent consideration, and future amortization of acquired technology.
- Debt repayment and conversion terms for the 2025 and 2026 notes, including the company’s stated intent to settle principal in cash.
- The terms and potential dilution or liquidity implications of the Series A preferred stock, and actual use of the repurchase authorization.
- Developments in the disclosed litigation, cybersecurity and service-continuity risks, and geopolitical exposure affecting contractors.
- Whether the reported retention metric, disclosed as greater than 99% in each of the five quarterly periods shown, continues to support customer expansion and revenue growth.