RingCentral, Inc. - Annual Report: 2019 (Form 10-K)

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•	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;

•	our success with our carrier partners;

•	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;

•	our capital expenditure projections;

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•	the estimates and estimate methodologies used in preparing our 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.

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•	Location Independence.    Our cloud-based solutions are designed to be location independent. We seamlessly connect distributed and mobile users, enabling employees to communicate with a single identity whether working from a central location, a branch office, on the road, or at home.

•	Global.    Our RingCentral Global Office capabilities support multinational enterprise workforces. RingCentral Global Office connects multinational workforces globally, while reducing the complexity and high costs of maintaining multiple legacy PBX systems with a single global cloud solution.

•	Device Independence.    Our solutions are designed to work with a broad range of devices, including smartphones, tablets, PCs, and desk phones, enabling businesses to successfully implement a “bring-your-own” communications device strategy.

•	Instant Activation and Easy Account Management.    Our solutions are designed for rapid deployment and ease of management. Our intuitive graphical user interfaces allow administrators and users to set up and manage their business communications system with little or no IT expertise, training, or dedicated staffing.

•	Scalability.    Our cloud-based solutions scale easily and efficiently with the growth of our customers. Customers can add users, regardless of their location, without having to purchase additional infrastructure hardware or software upgrades.

•	Lower Cost of Ownership.    We believe that our customers experience significantly lower cost of ownership compared to legacy on-premise systems. Using our cloud-based solutions, our customers can avoid the significant

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Seamless and Intuitive Integration with Other Applications.    Applications are proliferating within businesses of all sizes. Integration of these business applications with legacy on-premise systems is typically complex and expensive, which limits the ability of businesses to leverage cloud-based applications. Our platform provides seamless and intuitive integration with multiple popular cloud-based business applications such as Microsoft productivity tools, Google G-Suite, Salesforce CRM, Oracle, Okta, Zendesk, Box, and Workday, as well as customer lines-of business applications.

•	Cloud-Based Business Communications Solutions.    We offer multi-user, multi-extension, cloud-based business communications solutions that do not require installation, configuration, management, or maintenance of on-premise hardware and software. Our solutions are instantly activated and deliver a rich set of functionalities across multiple locations and devices.

•	Collaboration.    We offer team messaging and collaboration solutions which allow diverse teams to stay connected through multiple modes of communication. In addition to team messaging and communications, teams can share tasks, notes, group calendars, and files.

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Mobile-Centric Approach.    Our solution includes smartphone and tablet mobile applications that customers can use to set up and manage company, department, and user settings from anywhere. Our applications turn iOS and Android smartphones and tablets into business communication devices. Users can change their personal settings instantly and communicate via voice, text, team messaging and collaboration, HD video and web conferencing, and fax. Personal mobile devices are fully integrated into the customer’s cloud-based communication solution, using the company’s numbers, and displaying one of the company’s caller ID for calls made through our mobile applications.

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Easy Set-Up and Control.    Our user interfaces provide a consistent user experience across smartphones, tablets, PCs, and desk phones, making it intuitive and easy for our customers to quickly discover and use our solution across devices. Among other capabilities, administrators can specify and modify company, department, user settings, auto-receptionist settings, call-handling, and routing rules, and add, change, and customize users and departments.

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Flexible Call Routing.    Our solution includes an auto-attendant to easily customize call routing for the entire company, departments, groups, or individual employees. It includes a robust suite of communication management options, including time of day, caller ID, call queuing, and sophisticated routing rules for complex call handling for the company, departments, groups, and individual employees.

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Integrated Voice, HD Video and Web Conferencing, Text and Fax Communications with One Business Number.    By eliminating the need for multiple business numbers, users are able to easily control how, when, and where they conduct their business communications through routing logic with one number. Employees can stay connected, thus increasing efficiency, productivity, and responsiveness to their customers. Having one business number also enables users to keep personal mobile numbers private. RingCentral Rooms and Rooms Connector bring a cloud web conferencing solution to meeting rooms and support for large meetings and Webinars for a monthly per license add-on fee.

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Cloud-based Business Application Integrations.    Our solution seamlessly integrates with other cloud-based business applications such as Salesforce CRM, Google Cloud, Box, Dropbox, Office365, Outlook, Oracle, Okta, Zendesk, Jira, Asana, and others. For example, our integration with Salesforce CRM brings up customer records immediately based on inbound caller IDs, resulting in increased productivity and efficiency. Our open platform is supported by APIs and software developers’ kits (“SDKs”) that allows developers to integrate our solution with leading business applications or with other custom applications to customize their own business workflows.

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RingCentral Global Office.  Our solution includes RingCentral Global Office, a single global Unified Communications as a Service (“UCaaS”) solution designed for multinational enterprises that allows these companies to support distributed offices and employees globally with a single cloud solution. With RingCentral Global Office, multinational enterprises can operate in other countries while also acting as one integrated business, with capabilities including local phone numbers, local caller ID, worldwide extension-to-extension dialing, and included minute bundles for international calling.

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RingCentral CloudConnect.  RingCentral CloudConnect is a service that allows enterprises to leverage their dedicated and secure connections to exchange data directly with the RingCentral cloud. Customers use their preferred network service provider to connect to the RingCentral cloud through a secure data exchange enabling lower latency, greater network reliability and availability, and added security.

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Marketing.    Our marketing efforts include search engine marketing, search engine optimization, affiliates, list buys, shared leads, content leads, appointment setting, radio advertising, online display advertising, sports sponsorships, billboard advertising, tradeshows and events, and other forms of demand generation. We track and measure our marketing costs closely across all channels so that we can acquire customers in a cost-efficient manner.

•	Direct Sales.    We primarily sell our solutions and subscriptions through direct inbound and outbound sales efforts. We have direct sales representatives located in the U.S. and internationally.

•	Indirect Sales.    Our indirect sales channel consists of global and regional networks of resellers, carriers including AT&T, TELUS and BT. Our indirect sales channels help broaden the adoption of our solutions without the need for a large direct sales force.

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Customer Support and Services.    While our intuitive and easy-to-use user interface serves to reduce our customers’ need for support and services, we provide online chat and phone customer support, as well as post-sale implementation support, as an option to help customers configure and use our solution. We track and measure our customer satisfaction and our support costs closely across all channels to provide a high level of customer service in a cost-efficient manner.

•	Strategic Partnerships. We have strategic partnerships with several third parties including Avaya and Atos.

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•	subscription features and capabilities;

•	system reliability, availability, and performance;

•	speed and ease of activation, setup, and configuration;

•	ownership and control of the underlying technology;

•	open platform;

•	integration with mobile devices;

•	brand awareness and recognition;

•	simplicity of the pricing model; and

•	total cost of ownership.

•	traditional on-premise, hardware business communications providers such as Alcatel-Lucent Enterprise, Avaya Inc., Cisco Systems, Inc., Mitel Networks Corporation, NEC Corporation, and Siemens Enterprise Networks, LLC, any of which may now or in the future also host their solutions through the cloud;

•	software providers such as Microsoft Corporation and Cisco Systems, Inc. that generally license and/or host their software solutions, and their resellers including major carriers and cable companies;

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established communications providers that resell on-premise hardware, software, and hosted solutions, such as AT&T, Verizon Communications Inc., Sprint Corporation, and Comcast Corporation in the United States, TELUS and others in Canada, and BT, Vodafone Group Plc, and others in the U.K., all of whom have significantly greater resources than us and do now or may in the future also develop and/or host their own or other solutions through the cloud;

•	other cloud companies such as 8x8, Inc., Amazon.com, Inc., DialPad, Inc., Fuze Inc., StarBlue, Inc., Intermedia.net, Inc., J2 Global, Inc., LogMeIn, Inc, Microsoft Corporation, Nextiva, Inc., Twilio Inc., Vonage Holdings Corp., West Corporation, and Zoom Video Communications, Inc.;

•	other large internet companies such as Alphabet Inc. (Google Voice), Facebook, Inc., Oracle Corporation, and salesforce.com, Inc., any of which might launch its own cloud-based business communication services or acquire other cloud-based business communications companies in the future;

•	providers of communications platform as a service solutions and messaging software platforms with APIs such as Twilio Inc., Vonage Holding Corp., and Slack Technologies, Inc., on which customers can build diverse solutions by integrating cloud communications into business applications;

•	contact center and customer relationship management providers such as Amazon.com, Inc., Aspect Software, Inc., Avaya Inc., Five9, Inc., NICE InContact, Genesys Telecommunications Laboratories, Inc., Serenova, LLC, Talkdesk, Inc., Vonage Holdings Corp., Salesforce.com, Inc., and Twilio Inc.; and

•	Digital engagement vendors such as Brand Embassy Ltd, eGain Corporation, Lithium Technologies, LLC, LivePerson, Inc., SparkCentral Inc., among others named above that may offer similar features.

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•	our ability to retain existing customers, resellers, and carriers, and expand our existing customers’ user base, and attract new customers;

•	our ability to introduce new solutions;

•	the actions of our competitors, including pricing changes or the introduction of new solutions;

•	our ability to effectively manage our growth;

•	our ability to successfully penetrate the market for larger businesses;

•	the mix of annual and multi-year subscriptions at any given time;

•	the timing, cost, and effectiveness of our advertising and marketing efforts;

•	the timing, operating cost, and capital expenditures related to the operation, maintenance and expansion of our business;

•	our ability to successfully and timely execute on, integrate, and realize the benefits of any acquisition, investment, strategic partnership, or other strategic transaction or partnership we may make or undertake;

•	service outages or actual or perceived information security breaches and any related impact on our reputation;

•	our ability to accurately forecast revenues and appropriately plan our expenses;

•	our ability to realize our deferred tax assets;

•	costs associated with defending and resolving intellectual property infringement and other claims;

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•	changes in tax laws, regulations, or accounting rules;

•	the timing and cost of developing or acquiring technologies, services or businesses, and our ability to successfully manage any such acquisitions;

•	the impact of foreign currencies on our business as we continue to expand our business internationally; and

•	the impact of worldwide economic, political, industry, and market conditions.

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•	cause a reduction in revenues or delay in market acceptance of our subscriptions;

•	require us to pay penalties or issue credits or refunds to our customers, resellers, or carriers, or expose us to claims for damages;

•	cause us to lose existing customers and make it more difficult to attract new customers;

•	divert our development resources or require us to make extensive changes to our software, which would increase our expenses and slow innovation;

•	increase our technical support costs; and

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•	harm our reputation and brand.

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•	our ability to comply with differing and evolving technical and environmental standards, telecommunications regulations, and certification requirements outside the U.S.;

•	difficulties and costs associated with staffing and managing foreign operations;

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•	our ability to effectively price our subscriptions in competitive international markets;

•	potentially greater difficulty collecting accounts receivable and longer payment cycles;

•	the need to adapt and localize our subscriptions for specific countries;

•	the need to offer customer care in various native languages;

•	reliance on third parties over which we have limited control, including those that market and resell our subscriptions;

•	availability of reliable broadband connectivity and wide area networks in targeted areas for expansion;

•	lower levels of adoption of credit or debit card usage for Internet related purchases by foreign customers and compliance with various foreign regulations related to credit or debit card processing and data protection requirements;

•	difficulties in understanding and complying with local laws, regulations, and customs in foreign jurisdictions;

•	restrictions on travel to or from countries in which we operate or inability to access certain areas;

•	export controls and economic sanctions;

•	changes in diplomatic and trade relationships, including tariffs and other non-tariff barriers, such as quotas and local content rules;

•	U.S. government trade restrictions, including those which may impose restrictions, including prohibitions, on the exportation, re-exportation, sale, shipment or other transfer of programming, technology, components, and/or services to foreign persons;

•	our ability to comply with different and evolving laws, rules, and regulations, including the European General Data Protection Regulation (the “GDPR”) and other data privacy and data protection laws, rules and regulations;

•	compliance with various anti-bribery and anti-corruption laws such as the Foreign Corrupt Practices Act and U.K. Bribery Act of 2010;

•	more limited protection for intellectual property rights in some countries;

•	adverse tax consequences;

•	fluctuations in currency exchange rates;

•	exchange control regulations, which might restrict or prohibit our conversion of other currencies into U.S. Dollars;

•	restrictions on the transfer of funds;

•	new and different sources of competition;

•	political and economic instability created by the U.K.'s departure from the EU ("Brexit"); and

•	deterioration of political relations between the U.S. and other countries in which we operate, particularly Russia, Ukraine, China, and the Philippines; or

•	political or social unrest, economic instability, conflict or war in such countries, or sanctions implemented by the U.S. against these countries, all of which could have a material adverse effect on our operations.

•	the potential failure to achieve the expected benefits of the acquisition, investment, strategic partnership, or other strategic transaction;

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•	unanticipated costs and liabilities;

•	difficulties in integrating new solutions and subscriptions, software, businesses, operations, and technology infrastructure in an efficient and effective manner;

•	difficulties in maintaining customer relations;

•	the potential loss of key employees of any acquired businesses;

•	the diversion of the attention of our senior management from the operation of our daily business;

•	the potential adverse effect on our cash position to the extent that we use cash for the transaction consideration;

•	the potential significant increase of our interest expense, leverage, and debt service requirements if we incur additional debt to pay for an acquisition, investment, strategic partnership, or other strategic transaction;

•	the potential issuance of securities that would dilute our stockholders’ percentage ownership;

•	the potential to incur large and immediate write-offs and restructuring and other related expenses;

•	the potential liability or expenses associated with new types of data stored, existing security obligations or liabilities, unknown weaknesses in our solutions, insufficient security measures in place, and compromise of our networks via access to our systems from assets not previously under our control; and

•	the inability to maintain uniform standards, controls, policies, and procedures.

•	changes in the valuation of our deferred tax assets and liabilities;

•	expiration of, or lapses in, the research and development tax credit laws;

•	expiration or non-utilization of net operating loss carryforwards;

•	tax effects of share-based compensation;

•	expansion into new jurisdictions;

•	potential challenges to and costs related to implementation and ongoing operation of our intercompany arrangements;

•	changes in tax laws and regulations and accounting principles, or interpretations or applications thereof; and

•	certain non-deductible expenses as a result of acquisitions.

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•	result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;

•	cause us to pay license fees for intellectual property we are deemed to have infringed;

•	cause us to incur costs and devote valuable technical resources to redesigning our subscriptions;

•	cause our cost of revenues to increase;

•	cause us to accelerate expenditures to preserve existing revenues;

•	cause existing or new vendors to require pre-payments or letters of credit;

•	materially and adversely affect our brand in the marketplace and cause a substantial loss of goodwill;

•	cause us to change our business methods or subscriptions;

•	require us to cease certain business operations or offering certain subscriptions or features; and

•	lead to our bankruptcy or liquidation.

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•	our operating and financial performance and prospects and the performance of other similar companies;

•	our quarterly or annual earnings or those of other companies in our industry;

•	conditions that impact demand for our subscriptions;

•	the public’s reaction to our press releases, financial guidance, and other public announcements, and filings with the SEC;

•	changes in earnings estimates or recommendations by securities or research analysts who track our Class A Common Stock;

•	market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

•	strategic actions by us or our competitors, such as acquisitions or restructurings;

•	changes in government and other regulations;

•	changes in accounting standards, policies, guidance, interpretations, or principles;

•	arrival and departure of key personnel;

•	sales of common stock by us, our investors, or members of our management team; and

•	changes in general market, economic, and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, telecommunications failure, cyber-attack, changes in diplomatic or trade relationships, civil unrest in various parts of the world, acts of war, terrorist attacks, or other catastrophic events.

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•	authorize our board of directors to issue, without further action by the stockholders, up to 100,000,000 shares of undesignated preferred stock;

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require that, once our outstanding shares of Class B Common Stock represent less than a majority of the combined voting power of our common stock, any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of our board of directors, or our Chief Executive Officer;

•	establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

•	prohibit cumulative voting in the election of directors;

•	provide that our directors may be removed only for cause, subject to such amendment as provided in our current proxy statement;

•	provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

•	require the approval of our board of directors or the holders of a supermajority of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation; and

•	reflect two classes of common stock, as discussed above.

ITEM 1B.	UNRESOLVED STAFF COMMENTS

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ITEM 2.	PROPERTIES

ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	MINE SAFETY DISCLOSURES

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ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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•	identification of the contract, or contracts, with a customer;

•	identification of the performance obligations in the contract;

•	determination of the transaction price;

•	allocation of the transaction price to the performance obligations in the contract; and

•	recognition of revenue when, or as, the Company satisfies a performance obligation.

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•	assets increased by $33.5 million, representing the recognition of ROU assets; and

•	liabilities increased by $33.5 million, primarily representing the recognition of lease liabilities.

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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.

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ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.	CONTROLS AND PROCEDURES

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ITEM 9B.	OTHER INFORMATION

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ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(1)

Includes shares reserved for issuance under the 2013 Plan and the ESPP. The number of shares reserved for issuance under the 2013 Plan automatically increases on January 1st of each year by the lesser of (i) 6,200,000 shares, or (ii) five percent (5%) of the number of shares of our common stock outstanding on the last day of the immediately preceding fiscal year. During the year ended December 31, 2019, a total of 4,052,295 shares of Class A common stock were added to the 2013 Plan in connection with the annual automatic increase provision. In addition, the number of shares reserved for issuance under the 2013 Plan is increased from time to time in an amount equal to the number of shares subject to outstanding options under the 2003 and 2010 Plans that are subsequently forfeited or terminate for any other reason before being exercised and unvested shares that are forfeited pursuant to the 2003 and 2010 Plans. The number of shares reserved for issuance under the ESPP automatically increases on January 1st of each year by the lesser of (i) 1,250,000 shares, or (ii) one percent (1%) of the number of shares of our common stock outstanding on the last trading day of the immediately preceding fiscal year. During the year ended December 31, 2019, a total of 810,459 shares of Class A common stock were added to the 2013 ESPP Plan in connection with the annual increase provision.

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ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

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Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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(b)	Financial Statements. Our consolidated financial statements are included under Part II, Item 8 of this Annual Report on Form 10-K.

(c)	Financial Statement Schedules. All financial statement schedules are omitted because they are not applicable or the information is included in the Registrant’s consolidated financial statements or related notes.

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