Earnings

RingCentral Books $541.7 Million Tax Benefit, Turning A $28.0 Million Pretax Profit Into $569.7 Million Net Income

A $544.9 million valuation allowance release lifted RingCentral's equity from a deficit of $610.4 million to one of $12.4 million.

RingCentral, which sells cloud business phone, messaging, video and contact center software, released $544.9 million of reserves held against its U.S. deferred tax assets in the third quarter, according to its 10-Q. The non-cash move produced a $541.7 million income tax benefit and net income of $569.7 million on pretax income of just $28.0 million.

From reserve to asset

In plain terms, RingCentral has started counting years of past U.S. losses and credits as future tax savings. Management now judges that most of those assets will probably be used, pointing to twelve straight quarters of U.S. pretax income and its earnings outlook.

The write-down reversal mostly covered federal and state operating loss and tax credit carryforwards, plus capitalized R&D spending. A deferred tax asset of $546.9 million now sits on the balance sheet, against $2.1 million at the end of 2025. A remaining U.S. allowance of $43.2 million covers capital losses and certain state losses.

Just last quarter, the 10-Q for the second quarter called a reversal in certain jurisdictions "reasonably possible" while keeping a full allowance.

Diluted earnings per share came to $6.50, versus $0.19 a year earlier. The earnings release put it at $0.28 excluding the allowance release, up 47.4%.

Underneath, revenue rose about 5.9% to $676 million, and subscriptions, which are 97% of revenue, grew about 6.0% to $653 million. Operating income was $53.9 million, against $30.8 million a year earlier. Annualized exit monthly recurring subscriptions reached $2.80 billion, compared with $2.63 billion a year before. The company raised its full-year free cash flow outlook to $620 million to $630 million.

Equity deficit nearly gone, debt shrinking

The gain pulled total stockholders' deficit to $12.4 million at September 30, from $610.4 million at June 30.

RingCentral has also been paying down debt. It repaid its 2026 convertible notes with a term loan and bought back $150.0 million of its 8.5% 2030 notes in the quarter, booking an $8.3 million loss on the extinguishment. Principal stood at $996.9 million as of October 22. A $25.0 million redemption of the 2030 notes is due October 23 and would leave $971.9 million outstanding. The board also approved a $0.125 quarterly dividend, payable November 20 to holders of record on November 6.

A judgment that can change

The company warned that its view on the allowance "may reasonably change in future reporting periods," depending on expectations for U.S. profitability and on tax law changes. It recorded current U.S. income tax expense of $3.9 million for the quarter.

The company's fourth-quarter guidance calls for GAAP operating margin of 13.3% to 14.7%, the next test of the profitability the new tax asset depends on.