Moody's rates RingCentral Ba3, notes B1

Moody's Investors Service said it assigned a first-time Ba3 corporate family rating and Ba3-PD probability of default rating to RingCentral, Inc. The agency also rated the company's planned senior unsecured notes B1. The outlook is stable.

“The Ba3 CFR reflects RingCentral's scale, growth profile and market position. RingCentral is among the largest unified communications & collaboration as-a-service (UCaaS) providers by revenue. Annual recurring subscription revenue (ARR) was in excess of $2.2 billion at June 30, 2023, having grown approximately 12% year over year. ARR growth has averaged nearly 30% over the past 10 years. Over 40% of ARR comes from small and medium businesses (SMB), enabling RingCentral to maintain premium average revenue per user (ARPU) in excess of $30 since 2019,” the agency said in a press release.

However, Moody’s noted “The credit profile is limited by RingCentral's high expense base driven in part by sizable stock-based compensation expense, which has resulted in breakeven to negative Moody's adjusted EBITDA margins and non-meaningful leverage measures historically. Operating expense inclusive of R&D has averaged in excess of 80% while stock-based compensation expense was approximately $390 million in the LTM period ended June 30, 2023 or nearly 20% of revenue. While not uncommon for a high growth technology company, high levels of stock-based compensation are likely unsustainable on a long-term basis.”

Moody's said it projects that RingCentral's revenues will increase in the low double-digit range over the next 12 to 18 months.

The proceeds will be used for general corporate purposes including to repurchase or repay a portion of the company's convertible senior notes.

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