Strategic Partnerships and Asset Acquisitions

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Strategic Partnerships and Asset Acquisitions

Note 5. Strategic Partnerships and Asset Acquisitions

Avaya Partnership

In October 2019, the Company entered into certain agreements for a strategic partnership with Avaya Holdings Corp. (“Avaya”) and its subsidiaries, including Avaya Inc. (collectively, “Avaya”). In connection with the strategic partnership, the Company prepaid Avaya in the Company’s class A Common Stock predominantly for future sales commissions to be earned for each qualified unit of Avaya Cloud Office by RingCentral (“ACO”) sold during the term of the partnership. Under the terms of the partnership, the unutilized prepaid sales commissions were payable to the Company at the end of the contractual term.

On December 13, 2022, Avaya filed a Form 8-K disclosing ongoing discussions regarding one or more potential financings, refinancings, recapitalizations, reorganizations, restructurings or investment transactions. Further, on February 14, 2023, Avaya initiated an expedited, prepackaged financial restructuring via Chapter 11 with the support of its financial stakeholders. The Company and Avaya entered into a new extended and expanded agreement, which now includes certain minimum volume commitments and revised go-to-market incentive structure intended to drive migration to Avaya Cloud Office. The Company evaluates the recoverability of its long-term assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. In light of public disclosures about the likelihood of Avaya’s financial restructuring via Chapter 11, the Company recorded a non-cash asset write-down charge of $279.3 million for the year ended December 31, 2022, out of which $21.7 million of this balance was accrued interest and was recorded in other income (expense) in the Consolidated Statement of Operations. No portion of the impairment charge relates to future cash expenditures.

Other Strategic Partnerships

In 2021, the Company entered into strategic arrangements with Mitel US Holdings, Inc. (“Mitel”) whereby the Company would be Mitel’s exclusive provider of UCaaS offerings and cloud communications applications. Under the commercial arrangement, Mitel earns commissions in the form of cash and/or shares of Class A Common stock in connection with the migration of Mitel customers to RingCentral MVP. In connection with the Mitel partnership, the Company purchased certain intellectual property rights for consideration of $649.4 million, of which $300.0 million was paid in cash, $299.4 million was settled in the form of 1,281,504 shares of the Company’s Class A Common Stock, and $50.0 million was held back as a contingent consideration to be settled in the form of cash or shares of the Company’s Class A Common Stock on the achievement of specified performance metrics and also to cover for any potential indemnity claims post-closing. As of December 31, 2022, $5.2 million and $42.6 million of the contingent consideration remained recorded in accrued liabilities and other long-term liabilities, respectively, on the Company’s Consolidated Balance Sheet. Also in connection with the Mitel strategic partnership, the Company closed an Investment Agreement with Searchlight II MLN, L.P. (“Searchlight Investor”), Mitel’s principal shareholder, and Searchlight Investor purchased 200,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Convertible Preferred Stock”), for an aggregate purchase price of $200.0 million. Refer to Note 9 – Stockholders’ Deficit and Convertible Preferred Stock in this Annual Report on Form 10-K for additional information.

The Company previously entered into strategic arrangements with certain strategic partners, under which these partners are engaged in the marketing and sale of the Company’s product offerings. Under these arrangements, the Company had paid approximately $176.1 million, predominantly for future sales commissions. Such advance payments are considered incremental costs to obtain contracts with customers and are included in deferred and prepaid sales commission costs on the Consolidated Balance Sheets. Such pre-paid assets are being amortized to sales and marketing expense over their useful life based on the pattern of benefit.

During the quarter ended December 31, 2022, the Company updated the terms of its arrangement with certain strategic partners. The amended agreements change certain existing rights and obligations under the original contract and, in connection with these changes, a portion of the original advance payments were refunded. Pursuant to these amendments, the Company recorded a non-cash asset write-down charge of $12.4 million for the year ended December 31, 2022, relating to such advance payments included in deferred and prepaid sales commission on the Consolidated Balance Sheets.