RingCentral Inc.

10/23/2026 | Press release | Distributed by Public on 10/23/2026 04:01

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 27, 2026, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As discussed in the section entitled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ significantly from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in the section entitled "Risk Factors" included under Part II, Item 1A below.
Overview
Over the past 27 years, RingCentral, Inc., a global leader in AI-powered customer engagement, has transformed business communications, leading the shift from on-premises legacy communications to the cloud. Today, the company has an AI-powered, multi-product portfolio including Unified Communications as a Service ("UCaaS"), Contact Center as a Service ("CCaaS"), RingCentral AI solutions, Video and Events. RingCentral's core tenets include: a) Trust: We provide a carrier-grade, cloud-based communications platform that businesses can trust with reliability, security, and privacy; b) Innovation: We have invested over $250 million in research and development in 2026 to execute through focused and strategic innovation, setting the bar in the industry for many market firsts; c) Partnerships: We have a diverse set of strategic partners, global service providers, channel partners, and third-party developers. RingCentral is designed for intelligent, connected, and effortless business communications, making employee and customer experiences more productive and efficient.
Our cloud-based offerings, including RingEX, Customer Engagement Bundle, RingCX, and RingCentral Contact Center, are primarily subscription based and made available at different rates varying by the specific functionalities, services, and number of users. Our AI-led products including AI Receptionist (AIR) and AI Conversation Expert (ACE) are offered on either a usage-based or seat-based pricing model.
Our subscription plans have monthly, annual, or multi-year contractual terms. We believe that this flexibility in contract duration is important to meet the different needs of our customers. For the three and nine months ended September 30, 2026, and 2025, subscriptions revenues accounted for over 90% of our total revenues. Other revenues are comprised of product revenues from the sale of pre-configured phones and professional services. We do not develop or manufacture physical phones and only offer them as a convenience to our customers. We rely on third-party providers to develop and manufacture these devices and fulfillment partners to successfully serve our customers.
As of September 30, 2026, we had customers from a range of industries, including healthcare, financial and professional services, retail, state and local government, education, legal services, real estate, technology, insurance, construction and hospitality, among others. For the three and nine months ended September 30, 2026, and 2025, the vast majority of our total revenues were generated in the U.S. and Canada.
The growth of our business and our future success depend on many factors, including our ability to add new customers, retain and expand within our existing customer base, continue to innovate and successfully monetize our AI-led product portfolio, increase sales and revenues from our existing and new products, and execute efficiently on our go-to-market strategy.
We have been actively implementing various measures to enhance operational efficiencies, expand margins and free cash flows while optimizing our working capital requirements. These measures include disciplined hiring and stock grants, expanded use of offshore service providers, vendor consolidation, optimization of our go-to-market motions, and increased internal deployment of AI tools to drive productivity.
During the three months ended September 30, 2026, we released $544.9 million of the valuation allowance against our U.S. deferred tax assets, which resulted in a non-cash income tax benefit in the period. Refer to Note 12, Income Taxes, in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Macroeconomic Conditions and Other Factors
Our business is subject to risks and exposures caused by the macroeconomic environment. Macroeconomic factors include persistent inflation, elevated interest rates, change in government administrations, supply chain disruptions, the imposition of tariffs and other non-tariff trade barriers, decreased economic output, geopolitical conflict and fluctuations in currency exchange rates, all of which can cause uncertainty. The overall macroeconomic environment may affect buying behavior from our customers, potentially reducing demand for our products and adversely impacting our results. We have in the past and may in the future experience lower upsell and increased downsell within our existing base as customers may slow hiring and rationalize their employee counts or lower average revenue per user. We continuously monitor the impact of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape. The implications of macroeconomic conditions on our business, results of operations, and overall financial position remains uncertain.
Key Business Metrics
In addition to United States generally accepted accounting principles ("U.S. GAAP") and financial measures such as total revenues, gross margin, and cash flows from operations, we review a number of key business metrics to evaluate growth trends, measure our performance, and make strategic decisions. We discuss revenues and gross margin under "Results of Operations", and cash flow from operations and free cash flow under "Liquidity and Capital Resources." Other key business metrics are discussed below.
Annualized Exit Monthly Recurring Subscriptions
We believe that our Annualized Exit Monthly Recurring Subscriptions ("ARR") is a leading indicator of our anticipated subscriptions revenues. We believe that trends in revenue are important to understanding the overall health of our business, and we use these trends in order to formulate financial projections and make strategic business decisions. Our ARR equals our Monthly Recurring Subscriptions multiplied by 12. Our Monthly Recurring Subscriptions equals the monthly value of all customer recurring charges at the end of a given month. For example, our Monthly Recurring Subscriptions at September 30, 2026 was $233.2 million. As such, our ARR at September 30, 2026 was $2.80 billion compared to $2.63 billion at September 30, 2025.
Net Monthly Subscription Dollar Retention Rate
We believe that our Net Monthly Subscription Dollar Retention Rate provides insight into our ability to retain and grow subscriptions revenues, as well as our customers' potential long-term value to us. We believe that our ability to retain our customers and expand their use of our solutions over time is a leading indicator of the stability of our revenue base and we use these trends in order to formulate financial projections and make strategic business decisions. We define our Net Monthly Subscription Dollar Retention Rate as (i) one plus (ii) the quotient of Dollar Net Change divided by Average Monthly Recurring Subscriptions.
We define Dollar Net Change as the quotient of (i) the difference of our Monthly Recurring Subscriptions at the end of a period minus our Monthly Recurring Subscriptions at the beginning of a period minus our Monthly Recurring Subscriptions at the end of the period from new customers we added during the period, all divided by (ii) the number of months in the period. We define our Average Monthly Recurring Subscriptions as the average of the Monthly Recurring Subscriptions at the beginning and end of the measurement period.
For example, if our Monthly Recurring Subscriptions were $118 at the end of a quarterly period and $100 at the beginning of the period, and $20 at the end of the period from new customers we added during the period, then the Dollar Net Change would be equal to ($0.67), or the amount equal to the difference of $118 minus $100 minus $20, all divided by three months. Our Average Monthly Recurring Subscriptions would equal $109, or the sum of $100 plus $118, divided by two. Our Net Monthly Subscription Dollar Retention Rate would then equal 99.4%, or approximately 99%, or one plus the quotient of the Dollar Net Change divided by the Average Monthly Recurring Subscriptions.
Our key business metrics for the five quarterly periods ended September 30, 2026 were as follows (dollars in billions, except percentages):
September 30, 2026 June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025
Net Monthly Subscription Dollar Retention Rate >99% >99% >99% >99% >99%
Annualized Exit Monthly Recurring Subscriptions $ 2.80 $ 2.76 $ 2.71 $ 2.67 $ 2.63
Results of Operations
The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of total revenues. The historical results presented below are not necessarily indicative of the results that may be expected for any future period (in thousands):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2026 2025 2026 2025
Revenues
Subscriptions $ 652,944 $ 615,821 $ 1,909,759 $ 1,804,661
Other 23,099 22,834 67,494 66,448
Total revenues 676,043 638,655 1,977,253 1,871,109
Cost of revenues
Subscriptions 160,841 153,938 474,753 457,821
Other 20,899 26,388 71,119 81,905
Total cost of revenues 181,740 180,326 545,872 539,726
Gross profit 494,303 458,329 1,431,381 1,331,383
Operating expenses
Research and development 88,065 79,908 252,579 239,430
Sales and marketing 282,918 281,558 830,668 820,041
General and administrative 69,434 66,056 193,935 193,802
Total operating expenses 440,417 427,522 1,277,182 1,253,273
Income from operations 53,886 30,807 154,199 78,110
Other income (expense), net
Interest expense (17,134) (13,940) (50,611) (46,521)
Other (expense) income (8,738) 179 786 (3,239)
Other expense, net (25,872) (13,761) (49,825) (49,760)
Income before income taxes 28,014 17,046 104,374 28,350
(Benefit from) provision for income taxes (541,686) (513) (535,059) 7,926
Net income $ 569,700 $ 17,559 $ 639,433 $ 20,424
Percentage of Total Revenues*
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2026 2025 2026 2025
Revenues
Subscriptions 97 % 96 % 97 % 96 %
Other 3 4 3 4
Total revenues 100 100 100 100
Cost of revenues
Subscriptions 24 24 24 24
Other 3 4 4 4
Total cost of revenues 27 28 28 29
Gross profit 73 72 72 71
Operating expenses
Research and development 13 13 13 13
Sales and marketing 42 44 42 44
General and administrative 10 10 10 10
Total operating expenses 65 67 65 67
Income from operations 8 5 8 4
Other income (expense), net
Interest expense (3) (2) (3) (2)
Other (expense) income (1) - - -
Other expense, net (4) (2) (3) (3)
Income before income taxes 4 3 5 2
(Benefit from) provision for income taxes (80) - (27) -
Net income 84 % 3 % 32 % 1 %
* Percentages may not add up due to rounding.
Comparison of the Three and Nine Months Ended September 30, 2026 and 2025
Revenues
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
Revenues
Subscriptions $ 652,944 $ 615,821 $ 37,123 6 % $ 1,909,759 $ 1,804,661 $ 105,098 6 %
Other 23,099 22,834 265 1 67,494 66,448 1,046 2
Total revenues $ 676,043 $ 638,655 $ 37,388 6 % $ 1,977,253 $ 1,871,109 $ 106,144 6 %
Percentage of revenues
Subscriptions 97 % 96 % 97 % 96 %
Other 3 4 3 4
Total 100 % 100 % 100 % 100 %
Subscriptions revenues. Subscriptions revenues increased by $37.1 million, or 6%, for the three months ended September 30, 2026, and $105.1 million, or 6%, for the nine months ended September 30, 2026, as compared to the respective prior year period. Subscriptions revenues increased primarily due to acquisition of new customers and upsell of our products, including new AI-led products.
Other revenues. Other revenues increased by $0.3 million, or 1%, for the three months ended September 30, 2026, and $1.0 million, or 2%, for the nine months ended September 30, 2026, as compared to the respective prior year period. The increase in other revenues was primarily driven by higher device sales as a result of overall growth in business, partially offset by lower professional services revenues.
Although we expect to continue to add new customers for our products, including new product sales, and increase the usage of our products for existing customers, we will continue to monitor the macroeconomic factors that could impact customer buying behavior and demand, including contract duration, timing of customer purchases, pricing changes, churn, upsell and down-sell, renewals, payment terms, and credit card declines, all of which could cause variability in our revenue.
Cost of Revenues and Gross Margin
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
Cost of revenues
Subscriptions $ 160,841 $ 153,938 $ 6,903 4 % $ 474,753 $ 457,821 $ 16,932 4 %
Other 20,899 26,388 (5,489) (21) 71,119 81,905 (10,786) (13)
Total cost of revenues $ 181,740 $ 180,326 $ 1,414 1 % $ 545,872 $ 539,726 $ 6,146 1 %
Gross margins
Subscriptions 75 % 75 % 75 % 75 %
Other 10 % (16) % (5) % (23) %
Total gross margin % 73 % 72 % 72 % 71 %
Subscriptions cost of revenues and gross margin. Cost of subscriptions revenues increased by $6.9 million, or 4%, for the three months ended September 30, 2026, as compared to the respective prior year period. The increase was primarily driven by a $7.0 million increase in infrastructure support costs.
Cost of subscriptions revenues increased by $16.9 million, or 4%, for the nine months ended September 30, 2026, as compared to the respective prior year period. The increase was primarily driven by a $22.7 million increase in infrastructure support costs, partially offset by a $5.1 million decrease in third-party costs and professional fees to support our solution offerings.
Our subscription gross margin remained consistent for the three and nine months ended September 30, 2026, as compared to the respective prior year period.
Cost of other revenues and gross margin. Cost of other revenues decreased by $5.5 million, or 21%, and gross margins improved, for the three months ended September 30, 2026, as compared to the respective prior year period, primarily due to $2.9 million decrease in professional fees, and $2.3 million reduction in personnel costs.
Cost of other revenues decreased by $10.8 million, or 13%, and gross margins improved, for the nine months ended September 30, 2026, as compared to the respective prior year period, primarily due to $6.7 million reduction in personnel costs, and $2.8 million decrease in professional fees.
Our Other gross margins improved due to continued disciplined personnel and vendor spending.
Research and Development
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
Research and development $ 88,065 $ 79,908 $ 8,157 10 % $ 252,579 $ 239,430 $ 13,149 5 %
Percentage of total revenues 13 % 13 % 13 % 13 %
Research and development expenses increased by $8.2 million, or 10%, for the three months ended September 30, 2026, as compared to the respective prior year period, primarily driven by a $4.6 million increase in personnel costs and a $3.8 million increase in overhead costs.
Research and development expenses increased by $13.1 million, or 5%, for the nine months ended September 30, 2026, as compared to the respective prior year period, primarily driven by a $10.7 million increase in personnel costs and a $6.1 million increase in overhead costs. These increases were partially offset by a $3.2 million reduction in share-based compensation expense due to lower new grant activity.
We believe that investment in our products, including new AI-led products, is important for our future growth, and our research and development expenses may fluctuate as a percentage of our total revenues from period to period depending on the timing of these expenses.
Sales and Marketing
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
Sales and marketing $ 282,918 $ 281,558 $ 1,360 - % $ 830,668 $ 820,041 $ 10,627 1 %
Percentage of total revenues 42 % 44 % 42 % 44 %
Sales and marketing expenses increased by $1.4 million, or less than 1%, for the three months ended September 30, 2026, as compared to the respective prior year period. The increase was primarily driven by a $12.6 million increase in commissions and a $4.3 million increase in personnel cost. These increases were partially offset by a $12.3 million reduction in overhead costs, and a $1.9 million reduction in share-based compensation due to lower new grant activity.
Sales and marketing expenses increased by $10.6 million, or 1%, for the nine months ended September 30, 2026, as compared to the respective prior year period. The increase was primarily driven by a $27.8 million increase in commissions and a $9.5 million increase in personnel costs. These increases were partially offset by a $15.7 million reduction in share-based compensation due to lower new grant activity, and a $12.0 million reduction in overhead costs.
We expect to incur incremental sales and marketing expenses to support our growth while driving operational efficiencies.
General and Administrative
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
General and administrative $ 69,434 $ 66,056 $ 3,378 5 % $ 193,935 $ 193,802 $ 133 - %
Percentage of total revenues 10 % 10 % 10 % 10 %
General and administrative expenses increased by $3.4 million, or 5% for the three months ended September 30, 2026, as compared to the respective prior year period. The increase was primarily driven by a $3.7 million increase in personnel cost.
General and administrative expenses increased by $0.1 million, or less than 1%, for the nine months ended September 30, 2026, as compared to the respective prior year period. General and administrative expenses increased by a $6.7 million in overhead costs, that was partially offset by a $4.9 million reduction in share-based compensation resulting from lower new grant activity.
We expect the general and administrative expenses to reflect the impact of our operational efficiency measures as we continue to realign our hiring strategies and rationalize our discretionary spending.
Other Expense, Net
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
Interest expense $ (17,134) $ (13,940) $ (3,194) 23 % $ (50,611) $ (46,521) $ (4,090) 9 %
Other (expense) income (8,738) 179 (8,917) nm 786 (3,239) 4,025 nm
Other expense, net $ (25,872) $ (13,761) $ (12,111) 88 % $ (49,825) $ (49,760) $ (65) - %
*nm - not meaningful
Interest expense. Interest expense increased by $3.2 million, or 23%, and $4.1 million, or 9%, for the three and nine months ended September 30, 2026, respectively, as compared to the respective prior year, primarily attributable to interest incurred on the incremental Term Loan.
Other (expense) income. Other (expense) income decreased by $8.9 million for the three months ended September 30, 2026, as compared to the respective prior year, primarily due to an $8.3 million increase in loss on debt extinguishment recognized in connection with the repurchase of $150.0 million principal amount of our 2030 Senior Notes.
Other (expense) income increased by $4.0 million for the nine months ended September 30, 2026, as compared to the respective prior year, primarily due to a $15.0 million net gain recognized in connection with an amended agreement with a partner, partially offset by a $9.7 million increase in loss on debt extinguishment recognized in connection with the repurchase of $250.0 million principal of our 2030 Senior Notes.
Other (expense) income, net, can fluctuate in the future due to changes in interest rates on our money market funds, interest expense on our Credit Agreement, and fluctuations in currency exchange rates in the current macroeconomic environment.
(Benefit From) Provision For Income Taxes
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 $ Change % Change
(Benefit from) provision for income taxes (541,686) (513) (541,173) nm (535,059) 7,926 (542,985) nm
Percentage of total revenues (80) % - % (27) % - %
*nm - not meaningful
Benefit from income taxes increased by $541.2 million and $543.0 million, for the three and nine months ended September 30, 2026, respectively, as compared to the respective prior year. The increase was primarily attributable to the partial release of our valuation allowance on certain of our U.S. federal and state deferred tax assets in the three months ended September 30, 2026, which generated a $544.9 million income tax benefit. For further detail, refer to Note 12, Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Liquidity and Capital Resources
Liquidity is a measure of our ability to generate sufficient cash flows to meet the short-term and long-term cash requirements of our business operations, and debt obligations as they become due.
We finance our operations primarily through sales to our customers, which could be billed either monthly or annually one year in advance. For customers with annual or multi-year contracts and those who opt for annual invoicing, we generally invoice only one annual period in advance and revenue is deferred for such advanced billings. As of September 30, 2026, and December 31, 2025, we had cash and cash equivalents of $110.1 million and $132.6 million, respectively. These amounts include restricted cash of $8.4 million and $8.4 million, respectively, held as a bank deposit for issuance of a foreign bank guarantee. As of September 30, 2026, we have access to additional liquidity of $305.0 million available under our Revolving Credit Facility.
For the nine months ended September 30, 2026, net cash provided by operating activities was $550.4 million. During the nine months ended September 30, 2026, we generated $477.6 million of free cash flow, a non-GAAP financial measure defined as net cash provided by operating activities less capital expenditures (see below for a reconciliation to GAAP). Our capital allocation strategy includes investing in innovation, reducing debt, and returning capital to shareholders through share repurchases and dividends. For the nine months ended September 30, 2026, we repurchased 5.2 million common shares for $193.0 million, repaid $244.4 million of our debt, used $7.9 million of cash for business combinations, and used $23.3 million to pay quarterly cash dividend of $0.075 per share in each of the first and second quarters and $0.125 per share in the third quarter of our outstanding capital stock.
During the nine months ended September 30, 2026, we reduced our outstanding debt by $244.4 million by repaying in full the remaining $609.1 million outstanding principal of our 2026 Convertible Notes using $600.0 million of proceeds from borrowings under our Term Loan, and cash on hand equal to $9.1 million. We also repaid $250.0 million of principal of 2030 Senior Notes partially using the remaining $50.0 million available under our Term Loan. Further, we made payments aggregating to $35.4 million as part of our regular scheduled quarterly principal repayment obligations under the Credit Agreement. As a result, as of September 30, 2026, the total outstanding Term Loan balance was $916.9 million, the 2030 Senior Notes was $100.0 million and the Revolving Credit Facility balance was zero. As of October 22, 2026, total outstanding principal amount was $996.9 million due to a subsequent repayment. In October 2026, the Company also issued a notice to redeem $25.0 million aggregate principal amount of its 2030 Senior Notes which will be due and payable on October 23, 2026. Following the redemption, the total outstanding principal amount will be $971.9 million. Refer to Note 5, Long-Term Debt, in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our Credit Agreement, and the 2030 Senior Notes.
Under our share repurchase programs, share repurchases may be made at our discretion from time to time in open market transactions, privately negotiated transactions, or other means. The programs do not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares of our Class A Common Stock. The timing and number of any shares repurchased under the programs will depend on a variety of factors, including stock price, trading volume, and general business and market conditions. During the nine months ended September 30, 2026, we repurchased and settled approximately 5.2 million shares of our Class A Common Stock, by paying an aggregate amount of approximately $193.0 million under the plans previously authorized by our board of directors. The authorization under these programs does not expire. As of September 30, 2026, approximately $308.9 million remained authorized and available under our share repurchase programs for future share repurchases. Refer to Note 10, Stockholders' Deficit in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
The following table sets forth the current outstanding debt principal and the future contractual payments as of September 30, 2026 (in thousands):
Term Loan 2030 Senior Notes Total
2026 remaining $ 12,224 $ - $ 12,224
2027 48,901 - 48,901
2028 48,901 - 48,901
2029 48,901 - 48,901
2030 onwards 757,963 100,000 857,963
Total principal amount $ 916,890 $ 100,000 $ 1,016,890
In February 2026, our Board of Directors initiated our first-ever quarterly cash dividend program. During the first and second quarters of 2026, the Company paid a quarterly cash dividend of $0.075 per share of our outstanding capital stock. In July 2026, our Board of Directors approved an increased quarterly cash dividend of $0.125 per share, representing approximately a 67% increase from the previous quarterly dividend of $0.075 per share, which was paid on August 20, 2026. In October 2026, our Board of Directors approved a cash dividend of $0.125 per share of outstanding capital stock. The dividend is payable on November 20, 2026 to stockholders of record as of the close of business on November 6, 2026. We intend to pay a cash dividend on a quarterly basis going forward, subject to market conditions and approval by our Board.
We believe that cash flows from our operations, existing liquidity sources including capital resources and ability to raise cash through additional financing will satisfy our future cash requirements and obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support customer growth, acquisitions and expansions, operating expenses, and capital equipment required to support our headcount and in support of our co-location data center facilities, and our interest payments for both our Term Loan and 2030 Senior Notes. Our capital expenditures in future periods are expected to grow in line with our business. We continually evaluate our capital needs and may decide to raise additional capital to fund the growth of our business for general corporate purposes through public or private equity offerings or through additional debt financing. The timing and amount of any such financing requirements will depend on a number of factors, including the maturity dates of our existing debt. We may from time to time seek to refinance certain of our outstanding debt through issuances of new notes or convertible debt, term loans, exchange transactions or debt repurchases. Such issuances, exchanges or repurchases, if any, will depend on prevailing market conditions, our ability to negotiate acceptable terms, our liquidity position and other factors. We may also from time to time seek to early repay or repurchase our debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such early repayments or repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Refer to risk factors in Part II, Item 1A of this Quarterly Report on Form 10-Q for discussion of risks relating to our liquidity and capital resources.
Cash Flows
The table below provides selected cash flow information for the periods indicated (in thousands):
Nine Months Ended September 30,
2026 2025
Net cash provided by operating activities $ 550,369 $ 468,438
Net cash used in investing activities (80,696) (85,109)
Net cash used in financing activities (491,018) (484,653)
Effect of exchange rate changes (1,101) 3,884
Net decrease in cash and cash equivalents $ (22,446) $ (97,440)
Net Cash Provided By Operating Activities
Cash provided by operating activities is driven by the timing of customer collections, as well as the amount and timing of disbursements to our vendors, the amount of cash we invest in personnel, sales, marketing, innovation and infrastructure costs to support the anticipated growth of our business, payments under strategic arrangements, and interest costs.
Net cash provided by operating activities was $550.4 million for the nine months ended September 30, 2026. The cash flow from operating activities was driven by timing of cash receipts from customers, partners and global service providers, offset by cash payments for personnel-related costs and payments to vendors along with interest payments on our debt obligations.
Net cash provided by operating activities for the nine months ended September 30, 2026 increased by $81.9 million, as compared to the respective prior year period, reflecting strong operating performance and continued efficiency gains from further optimization of our working capital requirements. The increase in net cash provided by operating activities is primarily driven by $44.5 million improvement in net income (excluding non-cash benefits from partial release of valuation allowance on U.S. deferred tax assets of $544.9 million and $29.6 million from reduction in stock-based compensation expense) and $37.0 million, net from changes in working capital.
Net Cash Used In Investing Activities
Our primary investing activities consist of our capital expenditures and expenditures for internal-use software, business acquisitions, and cash paid for intellectual property assets.
Net cash used in investing activities was $80.7 million for the nine months ended September 30, 2026, driven by $72.8 million in capital expenditures, including personnel-related costs associated with the development of internal-use software, and $7.9 million in cash paid for business combination.
Net cash used in investing activities for the nine months ended September 30, 2026 decreased by $4.4 million, as compared to the respective prior year period primarily due to $12.8 million decrease in cash paid for business combinations, partially offset by an $8.4 million increase in capital expenditures.
Net Cash Used In Financing Activities
Our primary financing activities include utilizing cash to repurchase Class A Common Stock under our share repurchase programs, paying dividends, servicing and repaying debt, paying contingent consideration, proceeds from issuance under our stock plans, paying taxes related to these plans, and meeting our existing financing commitments.
Net cash used in financing activities was $491.0 million for the nine months ended September 30, 2026. This was primarily driven by the cash settlement of $609.1 million upon the maturity of our 2026 Convertible Notes, partially offset by $650.0 million of Term Loans drawn under our Credit Agreement. Additional outflows included $193.0 million used to repurchase approximately 5.2 million shares of our Class A Common Stock, $261.4 million to repurchase $250.0 million of principal on our 2030 Senior Notes, $35.4 million of principal repayments in respect of our Term Loan, $22.3 million for taxes related to net share settlement of equity awards, and $23.3 million paid for dividends. These outflows were partially offset by $10.0 million in proceeds from issuance of stock in connection with our stock plans.
Net cash used in financing activities increased by $6.4 million, as compared to the respective prior year period. The increase was primarily driven by $23.3 million of dividends paid during the nine months ended September 30, 2026, under first-ever cash dividend program initiated by our Board of Directors in February 2026, and $14.0 million of higher payments for taxes related to net share settlement of equity awards. These increases were partially offset by $30.8 million of lower net debt repayments and $6 million lower payments for repurchase of common stock compared to prior year.
Non-GAAP Free Cash Flow
To supplement our statements of cash flows presented on a U.S. GAAP basis, we use a non-GAAP measure of cash flows to analyze cash flow generated from our operations. We define free cash flow, a non-GAAP financial measure, as U.S. GAAP net cash provided by (used in) operating activities adjusted for capitalized expenditures that include purchases of property and equipment and capitalized internal-use software. We believe information regarding free cash flow provides useful information to management and investors in understanding the strength of liquidity and available cash. A limitation of the use of free cash flow is that it does not represent the total increase or decrease in our cash balance for the period. Free cash flow should not be considered in isolation or as an alternative to cash flows from operations, and should be considered alongside our other U.S. GAAP-based financial liquidity performance measures, such as net cash provided by operating activities and our other U.S. GAAP financial results.
The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable U.S. GAAP measure, for each of the periods presented (in thousands):
Nine Months Ended
September 30,
2026 2025
Net cash provided by operating activities $ 550,369 $ 468,438
Capitalized expenditures (72,767) (64,355)
Non-GAAP free cash flow $ 477,602 $ 404,083
Remaining Performance Obligations
We have generally signed new customer contracts with typical subscription terms ranging from one month to five years. At any point in the contract term, there can be amounts allocated to services that we have not yet contractually performed, which constitute our remaining performance obligations. Until we meet our performance obligations, we do not recognize them as revenues in our condensed consolidated financial statements. Our remaining performance obligations exclude contracts with an original expected length of less than one year. Contract revenue as of September 30, 2026 that has not yet been recognized was approximately $2.7 billion.
Deferred Revenue
Deferred revenue primarily consists of the unearned portion of monthly or annual invoiced fees for our subscriptions, which we recognize as revenue in accordance with our revenue recognition policy. For customers with multi-year contracts, we generally invoice for monthly or only one annual subscription period in advance. As a result, our deferred revenue balance does not capture the full value of multi-year contracts and may not be a complete indicator of future subscription revenues on a standalone basis, therefore, we do not utilize deferred revenue as a key management metric internally.
Contractual Obligations and Commitments
Except as set forth below, and in Notes 3, 5, 8 and 9 in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no significant changes in our commitments under contractual obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
Contingencies
We are and may be in the future subject to certain legal proceedings and from time to time may be involved in a variety of claims, lawsuits, investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters, and other matters relating to various claims that arise in the normal course of business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount of loss. Such legal proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to be incorrect, it could have a significant impact on our results of operations, financial position, and cash flows.
Off-Balance Sheet Arrangements
During the nine months ended September 30, 2026 and 2025, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Since December 31, 2025, there have been no material changes to our critical accounting policies and estimates, other than income taxes described below.
Income Taxes
We account for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. A valuation allowance reduces deferred tax assets to the amount that we believe is more likely than not to be realized.
We evaluate the realizability of our deferred tax assets each reporting period, considering both positive and negative evidence, which includes cumulative prior twelve quarter U.S. pre-tax income as well as recent and anticipated future earnings, and weighing that evidence based on how objectively it can be verified. Realization of deferred tax assets depends on the generation of future taxable income, the timing and amount of which are uncertain. Determining the need for a valuation allowance requires significant management judgment.
As of September 30, 2026, we demonstrated sustained profitability in the U.S. and we expect to continue to generate U.S. taxable income for the year ending December 31, 2026. Based on our analysis of available positive and negative evidence, we concluded that, as of September 30, 2026, it is more likely than not that a significant portion of our U.S. deferred tax assets, net of the remaining valuation allowance, will be realized. As a result of this change in judgment, we released $544.9 million of our valuation allowance on U.S. deferred tax assets during the three months ended September 30, 2026. This resulted in the recognition of deferred tax assets and an income tax benefit of $544.9 million during the three months ended September 30, 2026. For further detail, refer to Note 12, Income Taxes, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Our judgment regarding the need for a valuation allowance may reasonably change in future reporting periods due to many factors, including changes in expectations of future U.S. profitability and changes in tax laws or regulations. We will continue to maintain a valuation allowance against deferred tax assets where we believe it is more likely than not that they will not be realized.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made by management affect revenues, the allowance for doubtful accounts, deferred and prepaid sales commission costs, goodwill, useful lives of intangible assets, share-based compensation, capitalization of internally developed software, return reserves, derivative instruments, provision for income taxes, uncertain tax positions, valuation allowance related to deferred tax assets, change in the fair value of contingent consideration, loss contingencies, sales tax liabilities and accrued liabilities. Management periodically evaluates these estimates and will make adjustments prospectively based upon the results of such periodic evaluations. Actual results may differ from these estimates.
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