Office and call centre communications software provider RingCentral (NYSE:RNG) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 14.1% year on year to $533.7 million. The company expects that next quarter's revenue would be around $536 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. RingCentral made a GAAP loss of $54.4 million, improving on its loss of $151 million, in the same quarter last year.
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RingCentral (RNG) Q1 FY2023 Highlights:
- Revenue: $533.7 million vs analyst estimates of $528 million (1.07% beat)
- EPS (non-GAAP): $0.76 vs analyst estimates of $0.69 (9.79% beat)
- Revenue guidance for Q2 2023 is $536 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed revenue guidance for the full year, at $2.2 billion at the midpoint
- Free cash flow of $54 million, up from negative free cash flow of $13.6 million in previous quarter
- Gross Margin (GAAP): 69.9%, up from 66.8% same quarter last year
“We had a good first quarter, as we exceeded the high end of guidance across key metrics,” said Vlad Shmunis, RingCentral’s founder, chairman and CEO.
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.
Work 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 Growth
As you can see below, RingCentral's revenue growth has been strong over the last two years, growing from quarterly revenue of $352.4 million in Q1 FY2021, to $533.7 million.
This quarter, RingCentral's quarterly revenue was once again up 14.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $8.94 million in Q1, compared to $15.7 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates RingCentral is expecting revenue to grow 10.1% year on year to $536 million, slowing down from the 28.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 9.55% over the next twelve months.
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Profitability
What 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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 69.9% in Q1.
That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it trending up over the last year this would still be considered low gross margin for a SaaS company and we have no doubt shareholders would like to see the improvements continue.
Key Takeaways from RingCentral's Q1 Results
With a market capitalization of $2.58 billion RingCentral is among smaller companies, but its more than $274.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
RingCentral topped analysts’ revenue expectations this quarter, even if just narrowly. And the strong free cash flow was another positive. Zooming out, we think this was a decent quarter, showing the company is staying on target. The company is up 9.1% on the results and currently trades at $28.89 per share.
Should you invest in RingCentral right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.