Office and call center communications software provider RingCentral (NYSE:RNG) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 9.7% year on year to $558.2 million. The company also expects next quarter's revenue to be around $570 million, in line with analysts' estimates. Turning to EPS, RingCentral made a non-GAAP profit of $0.78 per share, improving from its profit of $0.55 per share in the same quarter last year.
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RingCentral (RNG) Q3 FY2023 Highlights:
- Revenue: $558.2 million vs analyst estimates of $554.1 million (small beat)
- EPS (non-GAAP): $0.78 vs analyst estimates of $0.75 (3.9% beat)
- Revenue Guidance for Q4 2023 is $570 million at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 69.7%, up from 67.1% in the same quarter last year
Founded in 1999 during the dot-com era, RingCentral (NYSE:RNG) provides software as a service that unifies phone, text, fax, video calls and chat in one platform.
Video ConferencingWork is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.
Sales GrowthAs you can see below, RingCentral's revenue growth has been strong over the last two years, growing from $414.6 million in Q3 FY2021 to $558.2 million this quarter.
RingCentral's quarterly revenue was only up 9.7% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $18.9 million quarter on quarter, accelerating from $5.6 million in Q2 2023.
Next quarter's guidance suggests that RingCentral is expecting revenue to grow 8.6% year on year to $570 million, slowing down from the 17% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 9.4% over the next 12 months before the earnings results announcement.
ProfitabilityWhat makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. RingCentral's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 69.7% in Q3.
That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite trending up over the last year, RingCentral's gross margin is poor for a SaaS business. We have no doubt that shareholders would like to see its improvements continue.
Key Takeaways from RingCentral's Q3 Results Sporting a market capitalization of $2.7 billion, RingCentral is among smaller companies, but its more than $432.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
It was great to see RingCentral beat analysts' adjusted EBIT and EPS estimates this quarter, driven by better-than-expected subscription revenue and cost efficiencies. Furthermore, it raised its full-year adjusted EBIT and free cash flow guidance. Zooming out, we think this was a good quarter, showing that the company is on target. The stock is up 5.7% after reporting and currently trades at $29.85 per share.
The author has no position in any of the stocks mentioned in this report.
