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Office and call centre communications software provider RingCentral (NYSE:RNG) reported Q2 CY2024 results topping analysts' expectations, with revenue up 9.9% year on year to $592.9 million. The company expects next quarter's revenue to be around $602 million, in line with analysts' estimates. It made a non-GAAP profit of $0.91 per share, improving from its profit of $0.83 per share in the same quarter last year.
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RingCentral (RNG) Q2 CY2024 Highlights:
- Revenue: $592.9 million vs analyst estimates of $586.6 million (1.1% beat)
- Adjusted Operating Income: $124.2 million vs analyst estimates of $122 million (1.8% beat)
- EPS (non-GAAP): $0.91 vs analyst estimates of $0.88 (3.6% beat)
- Revenue Guidance for Q3 CY2024 is $602 million at the midpoint, roughly in line with what analysts were expecting
- The company slightly lifted its revenue guidance for the full year from $2.39 billion to $2.40 billion at the midpoint
- Gross Margin (GAAP): 70.2%, in line with the same quarter last year
- Free Cash Flow of $185.5 million, up 142% from the previous quarter
- Billings: $599.7 million at quarter end, up 9.7% year on year
- Market Capitalization: $3.23 billion
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 mediocre over the last three years, growing from $379.3 million in Q2 2021 to $592.9 million this quarter.
RingCentral's quarterly revenue was only up 9.9% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $8.70 million in Q2 compared to $12.94 million in Q1 CY2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that RingCentral is expecting revenue to grow 7.9% year on year to $602 million, slowing down from the 9.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 7.8% over the next 12 months before the earnings results announcement.
Gross Margin & Pricing PowerWhat makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn't cost much to provide it as an ongoing service.
These costs include servers, licenses, and certain personnel, and leverage on them can decide the winners in competitive markets because they determine how much can be invested into new products, sales, and talent.
RingCentral's gross margin is better than the broader software industry and signal that it has competitive products and services. As you can see below, it averaged a decent 70.2% gross margin over the last year. Said differently, RingCentral paid its providers $29.79 for every $100 in revenue to run its products and services.
This quarter, RingCentral's gross profit margin was 70.2%, which is in line with the same quarter last year. Zooming out, RingCentral's full-year margin has been trending up over the past 12 months, increasing by 1.2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).
Key Takeaways from RingCentral's Q2 ResultsIt was encouraging to see RingCentral narrowly top analysts' billings expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. Zooming out, we think this was a decent quarter, showing the company is staying on target. The stock traded up 1.6% to $34 immediately following the results.
