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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 June 30, 2023
OR
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)
_________________________________________________________
Delaware94-3322844
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common StockRNGNew 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 filerxAccelerated 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 August 1, 2023, there were 84,760,029 shares of Class A Common Stock issued and outstanding and 9,924,538 shares of Class B Common Stock issued and outstanding.



TABLE OF CONTENTS
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Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

Table of Contents
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;
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;
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;
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;
our ability to protect our intellectual property and rely on open source licenses;
our expectations regarding the growth and reliability of the internet infrastructure;
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;
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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 retain key employees and to attract qualified personnel; 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)
June 30,
2023
December 31,
2022
Assets  
Current assets  
Cash and cash equivalents$225,351 $269,984 
Accounts receivable, net322,191 311,318 
Deferred and prepaid sales commission costs170,536 158,865 
Prepaid expenses and other current assets85,465 55,849 
Total current assets803,543 796,016 
Property and equipment, net185,806 185,400 
Operating lease right-of-use assets31,339 35,433 
Deferred and prepaid sales commission costs, non-current403,714 438,579 
Goodwill54,575 54,335 
Acquired intangibles, net457,434 528,051 
Other assets23,949 35,848 
Total assets$1,960,360 $2,073,662 
Liabilities, Temporary Equity, and Stockholders' Deficit
Current liabilities
Accounts payable$36,739 $62,721 
Accrued liabilities308,402 380,113 
Current portion of long-term debt, net20,000  
Deferred revenue227,211 209,725 
Total current liabilities592,352 652,559 
Long-term debt, net1,558,794 1,638,411 
Operating lease liabilities16,596 20,182 
Other long-term liabilities65,010 45,848 
Total liabilities2,232,752 2,357,000 
Commitments and contingencies (Note 8)
Series A convertible preferred stock199,449 199,449 
Stockholders' deficit
Common stock9 10 
Additional paid-in capital1,143,124 1,059,880 
Accumulated other comprehensive loss(5,197)(8,781)
Accumulated deficit(1,609,777)(1,533,896)
Total stockholders' deficit(471,841)(482,787)
Total liabilities, temporary equity and stockholders’ deficit$1,960,360 $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
June 30,
Six Months Ended
June 30,
2023202220232022
Revenues    
Subscriptions$513,632 $462,984 $1,021,926 $902,911 
Other25,673 23,912 51,068 51,641 
Total revenues539,305 486,896 1,072,994 954,552 
Cost of revenues
Subscriptions136,067 131,022 272,492 260,711 
Other28,350 27,168 52,601 52,953 
Total cost of revenues164,417 158,190 325,093 313,664 
Gross profit374,888 328,706 747,901 640,888 
Operating expenses
Research and development80,280 96,518 165,521 186,792 
Sales and marketing264,443 265,398 524,655 519,853 
General and administrative75,227 74,554 157,318 145,549 
Total operating expenses419,950 436,470 847,494 852,194 
Loss from operations(45,062)(107,764)(99,593)(211,306)
Other income (expense), net
Interest expense(5,118)(1,203)(7,330)(2,435)
Other income (expense)35,651 (49,500)41,080 (94,719)
Other income (expense), net30,533 (50,703)33,750 (97,154)
Loss before income taxes(14,529)(158,467)(65,843)(308,460)
Provision for income taxes6,953 1,048 10,038 2,027 
Net loss$(21,482)$(159,515)$(75,881)$(310,487)
Net loss per common share
Basic and diluted$(0.23)$(1.68)$(0.79)$(3.27)
Weighted-average number of shares used in computing net loss per share
Basic and diluted95,339 95,130 95,528 94,854 
See accompanying notes to condensed consolidated financial statements
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RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net loss$(21,482)$(159,515)$(75,881)$(310,487)
Other comprehensive income (loss)
Foreign currency translation adjustments, net(1,570)(8,182)190 (10,244)
Unrealized gain on derivative instruments3,394  3,394  
Comprehensive loss$(19,658)$(167,697)$(72,297)$(320,731)
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 StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance as of December 31, 202295,385 $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 withholdings1,108 — (1,641)— — (1,641)
Issuance of common stock in connection with strategic partnership arrangement1,265 — 42,585 — — 42,585 
Repurchases of common stock(2,160)— (74,776)— — (74,776)
Share-based compensation— — 97,303 — — 97,303 
Changes in other comprehensive loss— — — 1,760 — 1,760 
Net loss— — — — (54,399)(54,399)
Balance as of March 31, 202395,598 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 withholdings1,978 — 8,542 — — 8,542 
Issuance of common stock in connection with strategic partnership arrangement42812,42912,429
Repurchases of common stock(3,320)(1)(100,505)— — (100,506)
Share-based compensation— — 99,307 — — 99,307 
Changes in other comprehensive loss— — — 1,824 — 1,824 
Net loss— — — — (21,482)(21,482)
Balance as of June 30, 202394,684 $9 $1,143,124 $(5,197)$(1,609,777)$(471,841)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance as of December 31, 202194,309 $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 withholdings588 — (120)— — (120)
Share-based compensation— — 98,424 — — 98,424 
Changes in other comprehensive income— — — (2,062)— (2,062)
Net loss— — — — (150,972)(150,972)
Balance as of March 31, 202294,897 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 withholdings842 — 7,827 — — 7,827 
Repurchases of common stock(421)— (25,004)— — (25,004)
Share-based compensation— — 98,402 — — 98,402 
Changes in other comprehensive loss— — — (8,182)— (8,182)
Net loss— — — — (159,515)(159,515)
Balance as of June 30, 202295,318 $9 $937,119 $(9,600)$(965,217)$(37,689)

See accompanying notes to condensed consolidated financial statements
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RINGCENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30,
20232022
Cash flows from operating activities  
Net loss$(75,881)$(310,487)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization115,556 122,201 
Share-based compensation202,851 198,119 
Unrealized loss on investments1,646 98,045 
Amortization of deferred and prepaid sales commission costs65,160 50,068 
Amortization of debt discount and issuance costs2,398 2,232 
Gain on early extinguishment of debt(31,107) 
Reduction of operating lease right-of-use assets10,175 9,857 
Provision for bad debt4,940 7,103 
Other(1,632)1,736 
Changes in assets and liabilities:
Accounts receivable(15,813)(27,832)
Deferred and prepaid sales commission costs(62,153)(108,349)
Prepaid expenses and other assets(2,773)(1,984)
Accounts payable(38,890)28,494 
Accrued and other liabilities17,459 20,147 
Deferred revenue17,486 30,594 
Operating lease liabilities(10,198)(10,271)
Net cash provided by operating activities199,224 109,673 
Cash flows from investing activities
Purchases of property and equipment(13,160)(15,489)
Capitalized internal-use software(25,964)(26,232)
Purchases of intangible assets and long-term investments (3,990)
Net cash used in investing activities(39,124)(45,711)
Cash flows from financing activities
Proceeds from issuance of stock in connection with stock plans10,887 10,889 
Payments for taxes related to net share settlement of equity awards(3,986)(3,182)
Payments for repurchase of common stock(174,570)(25,004)
Proceeds from issuance of term loan, net of issuance costs394,394  
Payments for repurchase of convertible senior notes(427,304) 
Repayment of financing obligations(3,291)(3,092)
Payment of contingent consideration(973)(1,538)
Net cash used in financing activities(204,843)(21,927)
Effect of exchange rate changes110 (2,700)
Net increase (decrease) in cash, cash equivalents, and restricted cash(44,633)39,335 
Cash, cash equivalents, and restricted cash
Beginning of period269,984 267,162 
End of period$225,351 $306,497 
Supplemental disclosure of cash flow data:
Cash paid for interest$3,429 $220 
Cash paid for income taxes, net of refunds$7,654 $1,717 
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$3,452 $9,599 
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 June 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 June 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 six months ended June 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 six months ended June 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
June 30,
Six Months Ended
June 30,
 2023202220232022
Primary geographical markets    
North America90 %90 %90 %90 %
Others10 10 10 10 
Total revenues100 %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 six months ended June 30, 2023 and 2022. For the three and six months ended June 30, 2023 and 2022, RingCentral customer engagement solutions represented over 10% of total revenues.
Deferred revenue
During the three and six months ended June 30, 2023, the Company recognized revenue of $43.0 million and $169.2 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 June 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 $11.5 million and $11.2 million for the three months ended June 30, 2023 and 2022, respectively, and $21.8 million and $22.6 million for the six months ended June 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):
June 30, 2023December 31, 2022
Cash$81,690 $88,153 
Money market funds143,661 181,831 
Total cash and cash equivalents$225,351 $269,984 
As of June 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):
June 30, 2023December 31, 2022
Accounts receivable$242,947 $242,650 
Unbilled accounts receivable90,761 78,249 
Allowance for doubtful accounts(11,517)(9,581)
Accounts receivable, net$322,191 $311,318 
Prepaid expenses and other current assets consisted of the following (in thousands):
June 30, 2023December 31, 2022
Prepaid expenses$34,914 $23,306 
Inventory1,126 1,209 
Other current assets49,425 31,334 
Total prepaid expenses and other current assets$85,465 $55,849 
Property and equipment, net consisted of the following (in thousands):
June 30, 2023December 31, 2022
Computer hardware and software$232,193 $221,727 
Internal-use software development costs228,711 199,642 
Furniture and fixtures8,836 8,937 
Leasehold improvements13,955 13,889 
Total property and equipment, gross483,695 444,195 
Less: accumulated depreciation and amortization(297,889)(258,795)
Property and equipment, net$185,806 $185,400 
Total depreciation and amortization expense related to property and equipment was $20.5 million and $17.6 million for the three months ended June 30, 2023 and 2022, respectively, and $40.8 million and $34.5 million for the six months ended June 30, 2023 and 2022, respectively.
The carrying value of goodwill is as follows (in thousands):
Balance at December 31, 2022$54,335 
Foreign currency translation adjustments240 
Balance at June 30, 2023$54,575 
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The carrying values of intangible assets are as follows (in thousands):
June 30, 2023December 31, 2022
Weighted-Average Remaining Useful LifeCostAccumulated
Amortization and Impairment
Acquired
Intangibles, Net
CostAccumulated
Amortization and Impairment
Acquired
Intangibles, Net
Customer relationships
0.3 years
$20,954 $20,230 $724 $20,855 $19,090 $1,765 
Developed technology
3.3 years
818,737 362,027 456,710 814,614 288,328 526,286 
Total acquired intangible assets$839,691 $382,257 $457,434 $835,469 $307,418 $528,051 
Amortization expense from acquired intangible assets for the three months ended June 30, 2023 and 2022 was $37.5 million and $43.7 million, respectively, and $74.7 million and $87.7 million for the six months ended June 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)$74,594 
2024135,159 
2025134,289 
2026112,980 
2027 onwards412 
Total estimated amortization expense$457,434 
Accrued liabilities consisted of the following (in thousands):
June 30, 2023December 31, 2022
Accrued compensation and benefits$42,175 $53,419 
Accrued sales, use, and telecom related taxes39,181 37,836 
Accrued marketing and sales commissions58,667 127,940 
Operating lease liabilities, short-term16,992 17,513 
Other accrued expenses151,387 143,405 
Total accrued liabilities$308,402 $380,113 
Deferred and Prepaid Sales Commission Costs
Amortization expense for the deferred and prepaid sales commission costs was $32.9 million and $26.9 million for the three months ended June 30, 2023 and 2022, respectively, and $65.2 million and $50.1 million for the six months ended June 30, 2023 and 2022, respectively. There was no impairment loss in relation to the deferred commissions costs capitalized for the periods presented.
During the six months ended June 30, 2023, the Company recorded a gain of $4.5 million in other income (expense), pursuant to an amended agreement with a strategic partner.
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 June 30, 2023, the Company’s outstanding financing obligations related to such arrangements were $5.8 million, of which $3.5 million and $2.3 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.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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
June 30, 2023
Level 1Level 2Level 3
Cash equivalents:    
Money market funds$143,661 $143,661 $ $ 
Other assets:
Interest rate swap derivatives
$5,728 $ $5,728 $ 
Other long-term liabilities:
Interest rate swap derivatives
$2,334 $ $2,334 $ 
Fair Value at
December 31, 2022
Level 1Level 2Level 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.
Fair Value of Long-Term Debt
As of June 30, 2023, the fair value of the 0% convertible senior notes due 2026 (the “2026 Notes”) was approximately $540.0 million, and the fair value of the 0% convertible senior notes due 2025 (the “2025 Notes”) was approximately $485.3 million. The fair value for the 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 June 30, 2023, the carrying amount of the Term Loan was $400.0 million. As there are no embedded features or other variable features, the fair value of the Term Loan approximated its carrying value.
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.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 5. Long-Term Debt
The following table sets forth the net carrying amount of the outstanding long-term debt (in thousands):
Maturity DateJune 30, 2023December 31, 2022
2025 Notes (1)
March 1, 2025$539,296 $1,000,000 
2026 NotesMarch 15, 2026650,000 650,000 
Term Loan under Credit AgreementFebruary 14, 2028400,000  
Revolving Credit Facility under Credit Agreement (2)
February 14, 2028  
Total principal amount1,589,296 1,650,000 
Less: unamortized debt discount and issuance costs(10,502)(11,589)
Less: current portion of Term Loan (3)
(20,000) 
Net carrying amount of long-term debt$1,558,794 $1,638,411 
(1)The Company repurchased $460.7 million principal amount of the 2025 Notes in the second quarter of 2023 using $400.0 million of proceeds drawn in May 2023 from the Term Loan and $27.3 million of other available cash resulting in a $31.1 million gain on early debt extinguishment, net of debt issuance costs.
(2)Of the $200.0 million available for borrowing, the Company has not drawn down any amount under the Revolving Credit Facility as of June 30, 2023.
(3)The Term Loan requires quarterly principal payments equal to 1.25% of the original aggregate principal amount with balance due at maturity.
As of June 30, 2023, the Company was in compliance with all covenants under the Credit Agreement and the indentures governing the 2025 Notes and 2026 Notes.
Credit Agreement
On February 14, 2023, the Company entered into a Credit Agreement with certain lenders. The Credit Agreement provides 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”). The obligations under the Credit Agreement and the other loan documents 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.
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 outstanding Term Loan of $400.0 million is due and payable through 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 0.50% per annum, and (iii) an adjusted term SOFR rate determined on the basis of a one-month interest period, plus 1.00%, in each case, plus a margin of between 1.00% and 2.00%; and (b) an adjusted term SOFR rate (based on one, three or six month interest periods), plus a margin of between 2.00% and 3.00%. 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 June 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 will be amortized on straight-line basis over the term of the Credit Agreement, while the remaining amount was expensed in the period incurred.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Future minimum principal payments of the Term Loan as of June 30, 2023 are presented in the table below (in thousands):

2023 (remaining)$10,000 
202420,000 
202520,000 
202620,000 
2027 onwards330,000 
Total$400,000 
Partial Repurchase of 2025 Notes
In May 2023, the Company used the entire proceeds from the drawdown of the $400.0 million Term Loan to repurchase $460.7 million principal amount of the 2025 Notes for $427.3 million in cash (the “Partial Repurchase of 2025 Notes”), including third-party costs. Immediately after the partial repurchase, the carrying value of the 2025 Notes, net of unamortized debt issuance costs, was $536.6 million. As of June 30, 2023, $539.3 million of principal remained outstanding on the 2025 Notes.
Convertible Senior Notes
In March 2020, the Company issued $1.0 billion aggregate principal amount of the 2025 Notes in a private placement to qualified institutional buyers. The 2025 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 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 2026 Notes in a private placement to qualified institutional buyers. The 2026 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 initial purchase discounts and debt issuance costs, were approximately $640.2 million.
The 2025 Notes and 2026 Notes (collectively, the “Notes”) are senior, unsecured obligations of the Company that do not bear regular interest, and the principal amount of the Notes do not accrete. The Notes may bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the indentures governing each of the Notes (collectively, the “Notes Indentures”) or if the Notes are not freely tradeable as required by each respective Notes Indenture.
Other Terms of the Notes
2025 Notes2026 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 Notes Indentures, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
The 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 Notes, and December 15, 2025 for the 2026 Notes, until the close of business on the scheduled trading day immediately preceding the relevant maturity date, holders of the Notes may convert all or a portion of their notes regardless of these conditions. Pursuant to the terms of the respective Notes Indentures, effective January 1, 2022, the Company made an irrevocable election to settle the principal portion of the Notes only in cash, with the conversion premium to be settled in cash or shares.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the three and six months ended June 30, 2023, the conditions allowing holders of the 2025 Notes and 2026 Notes to convert were not met. The Notes may be convertible thereafter if one or more of the conversion conditions specified in the indentures are satisfied during future measurement periods.
The Company may redeem the Notes at its option, on or after March 5, 2022 for the 2025 Notes, and March 20, 2023 for the 2026 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 Notes.
Upon the occurrence of a fundamental change (as defined in each respective Notes Indentures) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2025 Notes or 2026 Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.
Capped Calls
In connection with the offering of the Notes, the Company entered into privately-negotiated capped call transactions relating to each series of notes with certain counterparties (collectively the “Capped Calls”). The initial strike price of the Notes corresponds to the initial conversion price of each of the 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 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 Notes:
2025 Notes2026 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)2.81.5
Settlement commencement date1/31/20242/13/2025
Settlement expiration date2/28/20243/13/2025
All of the capped call transactions were outstanding as of June 30, 2023.
Interest Expense on Long-Term Debt
The following table sets forth the total interest expense recognized related to long-term debt (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Contractual interest expense$3,286 $ $3,286 $ 
Amortization of debt discount and issuance costs1,279 1,116 2,398 2,232 
Total interest expense related to long-term debt$4,565 $1,116 $5,684 $2,232 
The Term Loan effective interest rate was 8.2% for the three months ended June 30, 2023.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 June 30, 2023, the interest rate swap agreement had a notional amount of $400.0 million. As of June 30, 2023, the Company estimates the net amount related to the interest rate swaps expected to be reclassified into earnings over the next 12 months is approximately $5.7 million. The Company does not hold its interest rate swap agreement for trading or speculative purposes.
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 will recognize its interest rate derivative designed 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.
Note 7. 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 June 30, 2023, non-cancellable leases expire on various dates between 2023 and 2029.
The components of leases are as follows (in thousands):
June 30, 2023December 31, 2022
Operating leases
Operating lease right-of-use assets$31,339 $35,433 
Accrued liabilities$16,992 $17,513 
Operating lease liabilities16,596 20,182 
Total operating lease liabilities$33,588 $37,695 

Six Months Ended June 30,
20232022
Supplemental Cash Flow Information (in thousands)
Operating cash flows resulting from operating leases:
Cash paid for amounts included in the measurement of lease liabilities$11,197 $11,348 
New ROU assets obtained in exchange of lease liabilities:
Operating leases$6,089 $3,804 
Note 8. 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.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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, 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.
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 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. 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 June 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 $117.8 million remained outstanding as of June 30, 2023.
Note 9. 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 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 million of our outstanding Class A Common Stock, also subject to certain limitations. 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.
During the six months ended June 30, 2023, the Company repurchased and subsequently retired 5.5 million shares of its Class A Common Stock, for an aggregate amount of approximately $175 million. As of June 30, 2023, approximately $125 million remained authorized and available under the Company’s share repurchase programs for future share repurchases.
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
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 June 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 10. 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
June 30,
Six Months Ended
June 30,
 2023202220232022
Cost of revenues$8,870 $8,650 $17,604 $17,697 
Research and development22,888 23,282 46,093 46,480 
Sales and marketing40,026 38,964 76,761 78,841 
General and administrative32,876 29,615 62,393 55,101 
Total share-based compensation expense$104,660 $100,511 $202,851 $198,119 
A summary of share-based compensation expense by award type is as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Employee stock purchase plan rights$2,430 $2,012 $4,681 $4,428 
Performance stock units (“PSUs”) 3,767 345 4,336 512 
Restricted stock units (“RSUs”) 98,463 98,154 193,834 193,179 
Total share-based compensation expense$104,660 $100,511 $202,851 $198,119 
Equity Incentive Plans
As of June 30, 2023, a total of 14,280,478 shares remained available for grant under the RingCentral, Inc. Amended and Restated 2013 Equity Incentive Plan (“2013 Plan”).
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
A summary of option activity under all of the Company’s equity incentive plans as of June 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, 202222 $12.53 0.5$509 
Exercised(14)10.75 
Canceled/Forfeited  
Outstanding as of June 30, 20238 $15.55 0.3$142 
Vested and expected to vest as of June 30, 20238 $15.55 0.3$142 
Exercisable as of June 30, 20238 $15.55 0.3$142 
There were no options granted during the three and six months ended June 30, 2023 and 2022. The total intrinsic value of options exercised during the three and six months ended June 30, 2023 was immaterial, and during the three and six months ended June 30, 2022 was $1.8 million and $13.3 million, respectively. There is no remaining unamortized share-based compensation expense.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase shares of the Company’s Class A Common Stock at a discounted price through payroll deductions.
As of June 30, 2023, there was a total of $2.0 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 0.4 years. As of June 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 June 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, 20225,100 $119.55 $180,577 
Granted10,878 32.73 
Released(2,729)67.23 
Canceled/Forfeited(739)91.10 
Outstanding as of June 30, 202312,510 $57.15 $409,426 
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 June 30, 2023, there was a total of $474.0 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 3.0 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 June 30, 2023, there was a total of $30.1 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 2.6 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 six months ended June 30, 2023, the Company issued 638,732 and 1,153,999 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 $4.7 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 11. Income Taxes
The provision for income taxes was $7.0 million and $1.0 million for the three months ended June 30, 2023 and 2022, respectively, and $10.0 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively. The provision for income taxes for the three and six months ended June 30, 2023 and 2022 consisted primarily of foreign income taxes and state income taxes. For the three and six months ended June 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 right to deduct 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 $5.0 million for the quarter ended June 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 June 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 six months ended June 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 12. 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 six months ended June 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
June 30,
Six Months Ended
June 30,
2023202220232022
Numerator    
Net loss$(21,482)$(159,515)$(75,881)$(310,487)
Denominator
Weighted-average common shares outstanding for basic and diluted net loss per share95,339 95,130 95,528 94,854 
Basic and diluted net loss per share$(0.23)$(1.68)$(0.79)$(3.27)
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
June 30,
Six Months Ended
June 30,
 2023202220232022
Shares of common stock issuable under equity incentive plans outstanding9,745 3,793 7,681 3,523 
Shares of common stock related to convertible preferred stock743 743 743 743 
Potential common shares excluded from diluted net loss per share10,488 4,536 8,424 4,266 
Pursuant to the terms of the respective Notes Indentures, effective January 1, 2022, the Company made an irrevocable election to settle the principal portion of the Notes only in cash, with the conversion premium to be settled in cash or shares.
The denominator for diluted net income per share does not include any effect from the capped call transactions the Company entered into concurrently with the issuance of the 2025 and 2026 Notes as this effect would be anti-dilutive. In the event of conversion of the Notes, if shares are delivered to the Company under the capped call, they will offset the dilutive effect of the shares that the Company would issue under the Notes.
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RINGCENTRAL, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 13. Restructuring Activities
In the fourth quarter of 2022, the Company’s board of directors approved a reduction in force plan (the “Q4’22 Plan”) as part of broader efforts to align the Company’s cost base with its strategic priorities in the current environment. The restructuring costs associated with the Q4’22 Plan primarily consisted of severance payments, employee benefits and related costs.
The following table summarizes the Company’s restructuring costs that were recorded as an operating expense in the accompanying Condensed Consolidated Statement of Operations during the three and six months ended June 30, 2023 (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Cost of revenues$271 $156 $689 $156 
Research and development1,053 89 2,487 339 
Sales and marketing1,370 737 3,969 937 
General and administrative912 594 1,336 1,083 
Total restructuring costs$3,606 $1,576 $8,481 $2,515 
The following table summarizes the Company’s restructuring liability that is included in accrued liabilities in the accompanying Condensed Consolidated Balance Sheets (in thousands):
Balance as of December 31, 2022$5,485 
Restructuring costs8,481 
Cash payments(11,422)
Balance as of June 30, 2023$2,544 
Note 14. Subsequent Events
On July 31, 2023, the Company completed its purchase of certain technology assets and customer relationships from Hopin, Inc. (“Hopin”), a virtual events platform for an upfront purchase consideration of $15 million and an additional consideration of up to $35 million (contingent consideration) based on the achievement of specified performance targets. The acquired technology will be incorporated into RingCentral’s global communications platform, providing customers with enhanced virtual events and webinar experience. Management is currently in the process of evaluating the impact of this transaction on its condensed consolidated financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2023 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As discussed in the section entitled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ significantly from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in the section entitled “Risk Factors” included under Part II, Item 1A below.
Overview
We are a leading provider of AI-powered global enterprise cloud communications, video meetings, collaboration, and contact center software-as-a-service (“SaaS”) solutions. We believe that our innovative, cloud-based communication and contact center solutions disrupt the large market for business communications and collaboration by providing flexible and cost-effective solutions that support mobile and distributed workforces. We enable convenient and effective communications for organizations across all their locations and employees, enabling them to be more productive and more responsive.
Our cloud-based business communications and collaboration solutions are designed to be easy to use, providing a user identity across multiple locations and devices, including smartphones, tablets, PCs and desk phones. Our solutions can be deployed rapidly and configured and managed easily. Our cloud-based solutions are location and device independent and better suited to address the needs of modern mobile and global enterprise workforces than are legacy on-premises systems. Through our open Application Programming Interface (API) platform, we enable third-party developers and customers to integrate our solution with leading business applications to customize their own business workflows.
We offer four key products in our portfolio:
RingCentral MVP (formerly RingCentral Office), a Unified Communications as a Service (“UCaaS”) platform, including team messaging, video meetings, and a cloud phone system;
Customer engagement solutions, including RingCentral Contact Center, RingCentral Engage Digital and Voice;
RingCentral Video, launched in 2020, our branded video meeting solution with team messaging that enables smart video meetings, rooms solutions, and webinar; and
RingSense, announced in March 2023, is an innovative AI platform for enhanced business communications. Leveraging generative AI, RingSense enables organizations to turn their conversation data into powerful insights that will unlock productivity and drive business outcomes.
We have a portfolio of cloud-based offerings that are subscription based, made available at different rates varying by the specific functionalities, services, and number of users. We primarily generate revenues from the sale of subscriptions to our offerings. Our subscription plans have monthly, annual, or multi-year contractual terms. We believe that this flexibility in contract duration is important to meet the different needs of our customers. For each of the three and six months ended June 30, 2023 and 2022, subscriptions revenues accounted for 90% or more of our total revenues. The remainder of our revenues has historically been primarily comprised of product revenues from the sale of pre-configured phones and professional services. We do not develop or manufacture physical phones and offer it as a convenience for a total solution to our customers in connection with subscriptions to our services; however, in some cases, we have built “interoperability” between MVP and third-party hardware devices. We rely on third-party providers to develop and manufacture these devices and fulfillment partners to successfully serve our customers.
We continue to support our direct inside sales force while also developing indirect sales channels to market our brand and our subscription offerings. Our indirect sales channels who sell our solutions consist of:
Regional and global network of resellers and distributors;
Strategic partners who market and sell our MVP and solutions, including co-branded solutions. Such partnerships include ALE, Amazon Web Services, Atos/Unify, Avaya, and Mitel.
Global Service Providers including AT&T, TELUS, BT, Vodafone, Verizon, DT, 1&1 Versatel in Germany, Ecotel in Germany, MCM in Mexico, Frontier, Charter Communications and others.
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Our revenue growth has primarily been driven by our flagship RingCentral MVP, RingCentral customer engagement solutions product offering, and recurring license and other fees. Our revenue is derived from sales through our direct and indirect sales channels, including resellers and distributors, strategic partners and global service providers. While average subscription revenue per user remains stable, given competitive pressures in the market and macroeconomic and other factors, we may see a reduction of average subscription revenue per user, and/or a decrease in acquisition and renewal rates, and/or an increase in down-sell and churn in the future. As of June 30, 2023, we had customers from a range of industries, including financial services, education, healthcare, legal services, real estate, retail, technology, insurance, construction, hospitality, and state and local government, among others. For each of the three and six months ended June 30, 2023 and 2022, the vast majority of our total revenues were generated in the U.S. and Canada, although we expect the percentage of our total revenues derived outside of the U.S. and Canada to grow as we continue to expand internationally.
The growth of our business and our future success depend on many factors, including our ability to expand our customer base to larger customers, expand our indirect sales channels, continue to innovate, grow revenues from our existing customer base, expand our distribution channels, and scale internationally.
In the fourth quarter of 2022, our board of directors approved a reduction-in-force plan as part of broader efforts to align our cost base with our strategic priorities in the current environment. In addition, we also implemented other measures to drive operational efficiencies across the business that included increasing automation across the Company, workforce management with disciplined hiring, including hiring in lower cost geographies, optimizing our go-to-market strategies, and rationalizing discretionary expenses.
Macroeconomic Conditions and Other Factors
We are subject to risks and exposures caused by the current macroeconomic environment. Macroeconomic factors include increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates, all of which can cause uncertainty. We have experienced more cautious buying behavior from larger customers manifesting itself in smaller initial deployments. We continue to experience elevated sales cycle times for our up-market customers, as customers required additional approvals before making purchase decisions. We are also seeing less upsell within our existing base as customers have slowed hiring and rationalized their employee counts. We anticipate this behavior may persist until the macroeconomic environment becomes less uncertain. If these conditions continue, they could have an adverse impact on our results. We continuously monitor the impact of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape. The implications of macroeconomic conditions on our business, results of operations and overall financial position, particularly in the long term, remain uncertain.
Key Business Metrics
In addition to United States generally accepted accounting principles (“U.S. GAAP”) and financial measures such as total revenues, gross margin, and cash flows from operations, we regularly review a number of key business metrics to evaluate growth trends, measure our performance, and make strategic decisions. We discuss revenues and gross margin under “Results of Operations”, and cash flow from operations and free cash flows under “Liquidity and Capital Resources.” Other key business metrics are discussed below.
Annualized Exit Monthly Recurring Subscriptions
We believe that our Annualized Exit Monthly Recurring Subscriptions (“ARR”) is a leading indicator of our anticipated subscriptions revenues. We believe that trends in revenue are important to understanding the overall health of our business, and we use these trends in order to formulate financial projections and make strategic business decisions. Our ARR equals our Monthly Recurring Subscriptions multiplied by 12. Our Monthly Recurring Subscriptions equals the monthly value of all customer recurring charges at the end of a given month. For example, our Monthly Recurring Subscriptions at June 30, 2023 was $184.9 million. As such, our ARR at June 30, 2023 was $2.22 billion compared to $1.98 billion at June 30, 2022.
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Net Monthly Subscription Dollar Retention Rate
We believe that our Net Monthly Subscription Dollar Retention Rate provides insight into our ability to retain and grow subscriptions revenue, as well as our customers’ potential long-term value to us. We believe that our ability to retain our customers and expand their use of our solutions over time is a leading indicator of the stability of our revenue base and we use these trends in order to formulate financial projections and make strategic business decisions. We define our Net Monthly Subscription Dollar Retention Rate as (i) one plus (ii) the quotient of Dollar Net Change divided by Average Monthly Recurring Subscriptions.
We define Dollar Net Change as the quotient of (i) the difference of our Monthly Recurring Subscriptions at the end of a period minus our Monthly Recurring Subscriptions at the beginning of a period minus our Monthly Recurring Subscriptions at the end of the period from new customers we added during the period, all divided by (ii) the number of months in the period. We define our Average Monthly Recurring Subscriptions as the average of the Monthly Recurring Subscriptions at the beginning and end of the measurement period.
For example, if our Monthly Recurring Subscriptions were $118 at the end of a quarterly period and $100 at the beginning of the period, and $20 at the end of the period from new customers we added during the period, then the Dollar Net Change would be equal to ($0.67), or the amount equal to the difference of $118 minus $100 minus $20, all divided by three months. Our Average Monthly Recurring Subscriptions would equal $109, or the sum of $100 plus $118, divided by two. Our Net Monthly Subscription Dollar Retention Rate would then equal 99.4%, or approximately 99%, or one plus the quotient of the Dollar Net Change divided by the Average Monthly Recurring Subscriptions.
Our key business metrics for the five quarterly periods ended June 30, 2023 were as follows (dollars in millions):
 June 30, 2023March 31, 2023December 31, 2022September 30, 2022June 30, 2022
Net Monthly Subscription Dollar Retention Rate>99%>99%>99%>99%>99%
Annualized Exit Monthly Recurring Subscriptions$2,218.7 $2,161.0 $2,099.7 $2,046.9 $1,980.7 
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Results of Operations
The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of total revenues. The historical results presented below are not necessarily indicative of the results that may be expected for any future period (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenues    
Subscriptions$513,632 $462,984 $1,021,926 $902,911 
Other25,673 23,912 51,068 51,641 
Total revenues539,305 486,896 1,072,994 954,552 
Cost of revenues    
Subscriptions136,067 131,022 272,492 260,711 
Other28,350 27,168 52,601 52,953 
Total cost of revenues164,417 158,190 325,093 313,664 
Gross profit374,888 328,706 747,901 640,888 
Operating expenses    
Research and development80,280 96,518 165,521 186,792 
Sales and marketing264,443 265,398 524,655 519,853 
General and administrative75,227 74,554 157,318 145,549 
Total operating expenses419,950 436,470 847,494 852,194 
Loss from operations(45,062)(107,764)(99,593)(211,306)
Other income (expense), net    
Interest expense(5,118)(1,203)(7,330)(2,435)
Other income (expense)35,651 (49,500)41,080 (94,719)
Other income (expense), net30,533 (50,703)33,750 (97,154)
Loss before income taxes(14,529)(158,467)(65,843)(308,460)
Provision for income taxes6,953 1,048 10,038 2,027 
Net loss$(21,482)$(159,515)$(75,881)$(310,487)
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Percentage of Total Revenues*
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenues    
Subscriptions95 %95 %95 %95 %
Other
Total revenues100 100 100 100 
Cost of revenues 
Subscriptions25 27 25 27 
Other
Total cost of revenues30 32 30 33 
Gross profit70 68 70 67 
Operating expenses 
Research and development15 20 15 20 
Sales and marketing49 55 49 54 
General and administrative14 15 15 15 
Total operating expenses78 90 79 89 
Loss from operations(8)(22)(9)(22)
Other income (expense), net 
Interest expense(1)— (1)— 
Other income (expense)(10)(10)
Other income (expense), net(10)(10)
Loss before income taxes(3)(33)(6)(32)
Provision for income taxes—