Financial Data and Key Metrics Changes - Total revenue for Q2 2023 was $187.4 million, a 24% increase year-over-year, within the guidance range of $185 million to $188 million [28] - Service revenue was $178.6 million, up 25% year-over-year, also in line with guidance [28] - Non-GAAP gross margin was 70.1%, up nearly 600 basis points year-over-year [33] - Non-GAAP operating profit was $9.1 million, reflecting a year-over-year increase but a slight sequential decline [36] Business Line Data and Key Metrics Changes - Enterprise ARR grew more than 40% year-over-year, accounting for 58% of total ARR [10] - XCaaS ARR continued to grow at approximately 40% year-over-year, representing over 35% of total ARR [10] - CPaaS business faced challenges with a sequential decline for the third consecutive quarter, impacted by currency fluctuations and macroeconomic headwinds [11][27] Market Data and Key Metrics Changes - The strengthening dollar negatively impacted total revenue by about $1 million for the quarter [29] - Small business ARR showed modest sequential growth, reflecting good retention and upsell in the U.S. and U.K. [12] Company Strategy and Development Direction - The company is focusing on profitability and cash flow generation, increasing operating margin guidance to above 5% for the year [13] - Continued investment in innovation and customer experience is emphasized, particularly in the contact center and unified communications sectors [9][50] - The company aims to leverage its unified XCaaS platform as a competitive advantage, especially in a cautious spending environment [14] Management's Comments on Operating Environment and Future Outlook - Management noted that while revenue may fluctuate due to foreign exchange, operating income and cash flow remain less impacted [43] - The company is optimistic about achieving double-digit operating margins in fiscal year 2024 through improved efficiency and cost containment [13][45] Other Important Information - The Fuze acquisition has exceeded expectations and contributed positively to operating margins [9] - The company has made significant progress in refinancing its debt, enhancing financial flexibility [39][40] - Cash from operations was approximately $13 million for the quarter, indicating solid cash flow management [41] Q&A Session Summary Question: Can you discuss the slight change in revenue guidance related to FX and CPaaS? - Management confirmed that the change in guidance is primarily due to foreign exchange effects, with CPaaS stabilizing [52][54] Question: How is the channel business shaping up, particularly with XCaaS? - The channel is a significant driver of new business, with over half of new business coming from partners selling XCaaS [59] Question: Are you seeing reductions in headcount within your existing customer base? - Management indicated that while there are occasional reductions during renewals, most enterprise customers have well-structured contracts [66] Question: What trends are seen in the enterprise segment and visibility for the second half of the fiscal year? - The enterprise segment is performing well, with FX being a significant headwind; visibility remains consistent with past performance [72][73] Question: How is the integration of Fuze progressing? - The integration is on track, with plans to launch seamless upgrades to the XCaaS platform early next year [81]

[Forward-Looking Statements and Risk Factors](index=3&type=section&id=Forward%2DLooking%20Statements%20and%20Risk%20Factors) This section outlines the forward-looking nature of statements within the report and details various factors that could cause actual results to differ materially from projections - The report contains forward-looking statements regarding industry trends, customer numbers, revenue, expenses, profitability, cash flow, and the impact of the COVID-19 pandemic[9](index=9&type=chunk) - Key risk factors include economic downturns (including COVID-19 and Russia-Ukraine conflict impacts), cost increases and inflationary pressure, customer churn, competitive market pressures, service quality and reliability, ability to scale, customer acquisition costs, reliance on channel partners and third-party infrastructure, cybersecurity breaches, regulatory compliance, and acquisition integration risks (e.g., Fuze, Inc.)[9](index=9&type=chunk) - A new risk factor highlights that cost reduction initiatives, particularly in sales and marketing, may not achieve anticipated savings or could inadvertently lead to a reduction in revenue[147](index=147&type=chunk) [Part I. Financial Information](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Part I presents the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls for the quarter ended June 30, 2022 [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section provides unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric | June 30, 2022 (in thousands) | March 31, 2022 (in thousands) | Change (in thousands) | Percentage Change | | :--------------------- | :--------------------------- | :---------------------------- | :-------------------- | :---------------- | | Total Assets | $889,147 | $910,268 | $(21,121) | -2.32% | | Total Liabilities | $755,625 | $727,902 | $27,723 | 3.81% | | Total Stockholders' Equity | $133,522 | $182,366 | $(48,844) | -26.78% | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the Company's financial performance, including revenue, operating loss, and net loss over specific periods | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Change (in thousands) | Percentage Change | | :--------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------- | :---------------- | | Total Revenue | $187,620 | $148,327 | $39,293 | 26.49% | | Loss from Operations | $(26,754) | $(38,827) | $12,073 | -31.10% | | Net Loss | $(26,043) | $(43,906) | $17,863 | -40.68% | | Net Loss per Share (Basic and Diluted) | $(0.22) | $(0.40) | $0.18 | -45.00% | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section presents the Company's comprehensive loss, including net loss and other comprehensive income/loss items | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------- | | Net Loss | $(26,043) | $(43,906) | $17,863 | | Unrealized loss on investments in securities | $(94) | $(33) | $(61) | | Foreign currency translation adjustment | $(8,384) | $283 | $(8,667) | | Comprehensive Loss | $(34,521) | $(43,656) | $9,135 | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in the Company's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit | Equity Component | Balance at March 31, 2022 (in thousands) | Balance at June 30, 2022 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------- | | Common Stock | $118 | $120 | $2 | | Additional Paid-in Capital | $956,599 | $895,602 | $(60,997) | | Accumulated Other Comprehensive Loss | $(7,913) | $(16,391) | $(8,478) | | Accumulated Deficit | $(766,438) | $(745,809) | $20,629 | | Total Stockholders' Equity | $182,366 | $133,522 | $(48,844) | - The decrease in Additional Paid-in Capital and increase in Accumulated Deficit are significantly impacted by the adoption of ASU 2020-06, which resulted in a **$92.8 million decrease to additional paid-in capital** and a **$46.7 million decrease to accumulated deficit** (effectively an increase in equity)[18](index=18&type=chunk)[32](index=32&type=chunk)[65](index=65&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the Company's cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Change (in thousands) | | :----------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------- | | Net cash provided by operating activities | $5,841 | $4,032 | $1,809 | | Net cash used in investing activities | $(5,841) | $(11,146) | $5,305 | | Net cash provided by financing activities | $65 | $3,435 | $(3,370) | | Effect of exchange rate changes on cash | $(6,685) | $436 | $(7,121) | | Net decrease in cash, cash equivalents and restricted cash | $(6,620) | $(3,243) | $(3,377) | | Cash, cash equivalents and restricted cash, end of year | $94,094 | $117,929 | $(23,835) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on the Company's business, significant accounting policies, revenue recognition, fair value measurements, intangible assets, leases, commitments, convertible senior notes, stock-based compensation, income taxes, net loss per share, geographical information, and recent acquisitions [Note 1. The Company and Significant Accounting Policies](index=11&type=section&id=Note%201.%20The%20Company%20and%20Significant%20Accounting%20Policies) - 8x8, Inc. is a leading Software-as-a-Service (SaaS) provider of contact center, voice, video, chat, and enterprise-class API solutions, powered by a global cloud communications platform, with a majority of revenue from communication services subscriptions and platform usage[24](index=24&type=chunk) - Effective April 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective approach, which significantly impacted the accounting for convertible senior notes[30](index=30&type=chunk)[32](index=32&type=chunk) | Impact of ASU 2020-06 Adoption (in thousands) | Amount | | :-------------------------------------------- | :---------- | | Decrease to accumulated deficit | $46,700 | | Decrease to additional paid-in capital | $92,800 | | Increase to convertible senior notes, net | $46,200 | - Out-of-period adjustments of approximately **$3.3 million** were recorded, including a **$2.1 million increase in subscription revenue** and a **$1.2 million decrease in bad debt provision**[29](index=29&type=chunk) [Note 2. Revenue Recognition](index=12&type=section&id=Note%202.%20Revenue%20Recognition) | Contract Balance (in thousands) | June 30, 2022 | March 31, 2022 | | :------------------------------ | :------------ | :------------- | | Accounts receivable, net | $55,441 | $57,400 | | Contract assets, current | $11,402 | $10,514 | | Contract assets, non-current | $13,574 | $15,171 | | Deferred revenue, current | $34,064 | $34,262 | | Deferred revenue, non-current | $11,023 | $11,430 | - Approximately **$43.6 million of revenue** included in deferred revenue at the beginning of the fiscal year was recognized during the three months ended June 30, 2022[35](index=35&type=chunk) - Remaining performance obligations totaled approximately **$700.0 million** as of June 30, 2022, with **80% expected to be recognized over the next 36 months**[36](index=36&type=chunk) | Amortization of Deferred Sales Commission Costs (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :------------------------------------------------------------- | :------------------------------- | :------------------------------- | | Amortization Expense | $9,200 | $8,200 | [Note 3. Fair Value Measurements](index=13&type=section&id=Note%203.%20Fair%20Value%20Measurements) | Asset Category (in thousands) | June 30, 2022 (Estimated Fair Value) | March 31, 2022 (Estimated Fair Value) | | :---------------------------- | :----------------------------------- | :------------------------------------ | | Total Assets | $143,039 | $148,230 | | Cash and Cash Equivalents | $92,686 | $91,205 | | Short-Term Investments | $48,945 | $44,845 | | Long-Term Investments | $0 | $2,671 | - The estimated fair value of the Company's Convertible Senior Notes was **$427.7 million** as of June 30, 2022, down from **$470.5 million** as of March 31, 2022[42](index=42&type=chunk) [Note 4. Intangible Assets and Goodwill](index=14&type=section&id=Note%204.%20Intangible%20Assets%20and%20Goodwill) | Intangible Asset (in thousands) | June 30, 2022 (Net Carrying Amount) | March 31, 2022 (Net Carrying Amount) | | :------------------------------ | :---------------------------------- | :----------------------------------- | | Technology | $24,506 | $26,875 | | Customer relationships | $97,956 | $100,938 | | Trade names and domains | $275 | $400 | | Total acquired identifiable intangible assets | $122,737 | $128,213 | | Goodwill (in thousands) | Amount | | :---------------------- | :---------- | | Balance at March 31, 2022 | $266,867 | | Foreign currency translation | $(1,838) | | Balance at June 30, 2022 | $265,029 | - Estimated annual amortization of intangible assets for fiscal year 2023 is **$15.6 million**, with a total of **$122.7 million** remaining[44](index=44&type=chunk) [Note 5. Leases](index=15&type=section&id=Note%205.%20Leases) | Lease Metric (in thousands) | June 30, 2022 | March 31, 2022 | | :----------------------------------- | :------------ | :------------- | | Operating lease, right-of-use assets | $59,859 | $63,415 | | Operating lease liabilities, current | $14,424 | $15,485 | | Operating lease liabilities, non-current | $71,806 | $74,518 | | Total operating lease liabilities | $86,230 | $90,003 | | Lease Expense (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--------------------------- | :------------------------------- | :------------------------------- | | Operating lease expense | $3,121 | $3,459 | | Variable lease expense | $1,587 | $750 | - Cash outflows from operating leases were **$4.8 million** for the three months ended June 30, 2022, compared to **$4.2 million** for the same period in 2021[47](index=47&type=chunk) [Note 6. Commitments and Contingencies](index=16&type=section&id=Note%206.%20Commitments%20and%20Contingencies) - The Company is involved in various legal proceedings, including a wage and hour class action and PAGA lawsuit, for which a preliminary settlement was approved on June 13, 2022[53](index=53&type=chunk) | Contingent Indirect Tax Liabilities (in thousands) | June 30, 2022 | March 31, 2022 | | :------------------------------------------------- | :------------ | :------------- | | Accrued Liabilities | $16,700 | $17,200 | - The Company has purchase obligations with third-party customer support and network service providers, including minimum monthly commitments[52](index=52&type=chunk) [Note 7. Convertible Senior Notes and Capped Calls](index=17&type=section&id=Note%207.%20Convertible%20Senior%20Notes%20and%20Capped%20Calls) - The Company has **$500.0 million** aggregate principal amount of 0.50% convertible senior notes due February 1, 2024, with an initial conversion price of approximately **$25.68 per share**[58](index=58&type=chunk)[59](index=59&type=chunk) - Upon conversion, the Company intends to settle the principal amount of the Notes in cash[62](index=62&type=chunk) | Convertible Senior Notes (in thousands) | June 30, 2022 | March 31, 2022 | | :-------------------------------------- | :------------ | :------------- | | Principal | $500,000 | $500,000 | | Unamortized debt discount and issuance costs | $(5,556) | $(52,548) | | Net carrying amount | $494,444 | $447,452 | | Interest Expense (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Contractual interest expense | $625 | $453 | | Amortization of debt discount and issuance costs | $831 | $4,393 | | Total interest expense | $1,456 | $4,846 | - The decrease in amortization of debt discount and issuance costs is a direct result of adopting ASU 2020-06, which eliminated the separate equity component accounting for the convertible notes[65](index=65&type=chunk)[66](index=66&type=chunk) - The Company entered into capped call transactions covering approximately **14.1 million shares**, with an initial strike price of **$25.68 per share** and cap prices of **$39.50 per share**, to partially offset potential dilution from the Initial and First Additional Notes[68](index=68&type=chunk) [Note 8. Stock-Based Compensation and Stockholders' Equity](index=19&type=section&id=Note%208.%20Stock%2DBased%20Compensation%20and%20Stockholders%27%20Equity) | Stock-Based Compensation Expense (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | | Cost of service revenue | $2,664 | $1,968 | | Cost of other revenue | $1,111 | $1,071 | | Research and development | $8,044 | $8,698 | | Sales and marketing | $8,107 | $14,326 | | General and administrative | $7,888 | $10,524 | | Total | $27,814 | $36,587 | | Restricted Stock Units (RSUs) Activity (in thousands) | Number of Shares | Weighted Average Grant Date Fair Value | | :---------------------------------------------------- | :--------------- | :------------------------------------- | | Balance at March 31, 2022 | 9,375 | $20.41 | | Granted | 8,528 | $6.36 | | Vested and released | (1,657) | $21.00 | | Forfeited | (780) | $17.94 | | Balance at June 30, 2022 | 15,466 | $12.72 | - As of June 30, 2022, total unrecognized compensation cost related to RSUs was **$130.7 million**, and for Performance Stock Units (PSUs) was **$32.1 million**[77](index=77&type=chunk)[81](index=81&type=chunk) [Note 9. Income Taxes](index=21&type=section&id=Note%209.%20Income%20Taxes) | Income Tax Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :---------------- | :------------------------------- | :------------------------------- | | Effective Tax Rate | (1.6)% | (0.6)% | | Provision for Income Taxes (in thousands) | $405 | $256 | - The Company maintains a full valuation allowance against its deferred tax assets, primarily due to the uncertainty of realizing these benefits through future taxable income[84](index=84&type=chunk) [Note 10. Net Loss Per Share](index=22&type=section&id=Note%2010.%20Net%20Loss%20Per%20Share) | Net Loss Per Share (in thousands, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | | Net Loss | $(26,043) | $(43,906) | | Weighted average common shares outstanding - basic and diluted | 119,721 | 109,925 | | Net loss per share - basic and diluted | $(0.22) | $(0.40) | - Potentially dilutive common shares totaling **18,632 thousand** for Q2 2022 (vs. **14,340 thousand** for Q2 2021) were excluded from diluted EPS calculation as their inclusion would have been anti-dilutive[86](index=86&type=chunk) [Note 11. Geographical Information](index=22&type=section&id=Note%2011.%20Geographical%20Information) | Revenue by Geography (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :---------------------------------- | :------------------------------- | :------------------------------- | | United States | $136,120 | $103,658 | | International | $51,500 | $44,669 | | Total Revenue | $187,620 | $148,327 | | Property and Equipment, Net by Geography (in thousands) | June 30, 2022 | March 31, 2022 | | :------------------------------------------------------ | :------------ | :------------- | | United States | $69,469 | $73,967 | | International | $4,407 | $5,049 | | Total Property and Equipment, Net | $73,876 | $79,016 | [Note 12. Acquisitions](index=22&type=section&id=Note%2012.%20Acquisitions) - On January 18, 2022, the Company acquired 100% of Fuze, Inc. for **$213.8 million in cash and stock**[88](index=88&type=chunk) - Fuze, Inc. contributed **$29.5 million in revenue** during the first quarter of fiscal 2023[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, including an overview of its business, key metrics, and detailed analysis of revenue, expenses, liquidity, and capital resources for the quarter ended June 30, 2022 [Overview](index=23&type=section&id=Overview) - 8x8 is a leading SaaS provider of cloud communications, including UCaaS, CCaaS, and communication APIs, serving customers across over 170 countries, with an increasing focus on mid-market and enterprise sectors[91](index=91&type=chunk) - The flagship offering is the 8x8 XCaaS platform, which unifies communications and contact center solutions, integrating with over 50 third-party applications like Microsoft Teams[92](index=92&type=chunk) - The acquisition of Fuze, Inc. in January 2022 expanded the enterprise customer base and accelerated innovation on the XCaaS platform[93](index=93&type=chunk) [Summary and Outlook](index=23&type=section&id=Summary%20and%20Outlook) | Metric | Q1 Fiscal 2023 (in thousands) | YoY Growth | | :----------------------------------------- | :---------------------------- | :--------- | | Total Revenue | $187,600 | 26% | | Total Revenue (excluding Fuze) | N/A | 7% | | Annualized Recurring Subscriptions and Usage Revenue (ARR) | Percentage of Total ARR | YoY Change | | :------------------------------------------------------- | :---------------------- | :--------- | | Strategic Mid-Market and Enterprise Customers | 77% | 45% | | Small Business Customers | 23% | -7% | - The Company's long-term strategy focuses on increasing profitability and cash flow by reducing service delivery costs, improving operating efficiency, and increasing revenue from XCaaS and enterprise customers[97](index=97&type=chunk) - Plans include increasing investment in research and development for competitive advantage, reducing unit costs to improve gross profit margin, and decreasing sales and marketing expenses as a percentage of revenue to enhance efficiency[98](index=98&type=chunk) [Impact of COVID-19](index=24&type=section&id=IMPACT%20OF%20COVID%2D19) - The long-term impact of the COVID-19 pandemic on the Company's business, operations, and financial results remains uncertain and difficult to predict[100](index=100&type=chunk) [Key Business Metrics](index=24&type=section&id=KEY%20BUSINESS%20METRICS) - Annualized Recurring Subscriptions and Usage Revenue (ARR) is defined as the sum of the most recent month's recurring subscription amounts and platform usage charges for CPaaS customers (with a minimum billing threshold for at least six consecutive months), multiplied by 12[102](index=102&type=chunk) [Components of Results of Operations](index=24&type=section&id=COMPONENTS%20OF%20RESULTS%20OF%20OPERATIONS) - Service revenue primarily comes from communication services subscriptions, platform usage, and related fees from UCaaS, CCaaS, and CPaaS offerings[103](index=103&type=chunk) - Other revenue is generated from professional services and sales/rentals of IP telephones[104](index=104&type=chunk) - Cost of service revenue includes network operations, technology licenses, amortization of internal-use software, third-party carrier services, and customer support[105](index=105&type=chunk) - Operating expenses are categorized into Research and Development, Sales and Marketing, and General and Administrative, with allocated IT and facilities costs[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [Results of Operations](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed comparative analysis of the Company's revenue, cost of revenue, operating expenses, other income/expense, and income taxes for the three months ended June 30, 2022, compared to the same period in 2021, highlighting the impact of the Fuze acquisition and accounting changes [Revenue](index=25&type=section&id=Revenue) | Revenue Type (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (in thousands) | Percentage Change | | :-------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :---------------- | | Service revenue | $179,161 | $137,796 | $41,365 | 30.0% | | Other revenue | $8,459 | $10,531 | $(2,072) | -19.7% | | Total revenue | $187,620 | $148,327 | $39,293 | 26.5% | - Service revenue increased primarily due to growth in mid-market and enterprise customers, expanded deployments, increased telecom usage, and a **$29.3 million contribution from the Fuze, Inc. acquisition**[114](index=114&type=chunk) - Other revenue decreased due to supply chain issues affecting hardware product sales and a decline in professional services revenue[116](index=116&type=chunk) [Cost of Revenue](index=26&type=section&id=Cost%20of%20Revenue) | Cost of Revenue (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (in thousands) | Percentage Change | | :----------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :---------------- | | Cost of service revenue | $53,547 | $46,010 | $7,537 | 16.4% | | Percentage of service revenue | 29.9% | 33.4% | -3.5 pp | | | Cost of other revenue | $13,126 | $13,746 | $(620) | -4.5% | | Percentage of other revenue | 155.2% | 130.5% | 24.7 pp | | - Cost of service revenue increased due to higher communication infrastructure costs (**$9.1M**), employee/consulting costs (**$1.8M**), and depreciation/amortization (**$1.0M**), partially offset by a decrease in stock-based compensation and amortization of intangibles (**$4.3M**)[119](index=119&type=chunk) - Cost of other revenue decreased due to lower product costs from reduced shipments, but its percentage of other revenue increased due to a larger decline in other revenue itself[120](index=120&type=chunk) [Operating Expenses](index=26&type=section&id=Operating%20Expenses) | Operating Expense (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (in thousands) | Percentage Change | | :------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :---------------- | | Research and development | $34,955 | $25,392 | $9,563 | 37.7% | | Percentage of total revenue | 18.6% | 17.1% | 1.5 pp | | | Sales and marketing | $83,527 | $75,915 | $7,612 | 10.0% | | Percentage of total revenue | 44.5% | 51.2% | -6.7 pp | | | General and administrative | $29,219 | $26,091 | $3,128 | 12.0% | | Percentage of total revenue | 15.6% | 17.6% | -2.0 pp | | - R&D expenses increased due to higher personnel/consulting costs (**$4.5M**), reduced capitalized internal-use software costs (**$3.2M**), and increased software license/amortization (**$1.6M**), reflecting increased investment in the XCaaS platform and the Fuze acquisition[121](index=121&type=chunk) - Sales and marketing expenses increased due to higher channel commissions (**$8.6M**) and amortization of intangibles (**$2.9M**), but decreased as a percentage of revenue due to overall revenue growth, including from Fuze[124](index=124&type=chunk) - General and administrative expenses increased due to higher legal/regulatory costs (**$1.9M**) and facilities costs (**$1.6M**), but decreased as a percentage of revenue due to higher revenue and improved operational efficiency[126](index=126&type=chunk) [Other income (expense), net](index=27&type=section&id=Other%20income%20%28expense%29%2C%20net) | Other Income (Expense), Net (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (in thousands) | Percentage Change | | :----------------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :---------------- | | Other income (expense), net | $1,116 | $(4,823) | $5,939 | 123.1% | | Percentage of total revenue | 0.6% | (3.3)% | 3.9 pp | | - The significant increase in other income (expense), net, was primarily driven by a **$3.4 million decrease in debt amortization costs** due to ASU 2020-06 adoption and **$2.8 million in foreign currency gains**[128](index=128&type=chunk) [Provision for Income Taxes](index=27&type=section&id=Provision%20for%20income%20taxes) | Provision for Income Taxes (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (in thousands) | Percentage Change | | :---------------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :---------------- | | Provision for income taxes | $405 | $256 | $149 | 58.2% | | Percentage of total revenue | 0.2% | 0.2% | 0.0 pp | | - There was no material change to the provision for income taxes for the three months ended June 30, 2022, and no material changes are anticipated for the remainder of fiscal year 2023[129](index=129&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2022, the Company had **$143.0 million in cash, cash equivalents, and investments**[130](index=130&type=chunk) - Management believes existing cash and anticipated cash flows will be sufficient for the next 12 months and foreseeable future, but expects to refinance its **$500 million convertible senior notes** prior to their February 1, 2024 maturity[130](index=130&type=chunk) [Period-over-Period Changes (Cash Flows)](index=28&type=section&id=Period%2Dover%2DPeriod%20Changes) | Cash Flow Activity (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | | Net cash provided by operating activities | $5,841 | $4,032 | $1,809 | | Net cash used in investing activities | $(5,841) | $(11,146) | $5,305 | | Net cash provided by financing activities | $65 | $3,435 | $(3,370) | - Operating cash flow was positively impacted by **$56.3 million in non-cash charges**, including stock-based compensation and depreciation/amortization, partially offset by **$24.4 million in working capital adjustments**[133](index=133&type=chunk) - Investing cash outflow decreased due to lower internally developed software capitalization, net investments, and a **$1.3 million payout related to the Fuze acquisition cash holdback**[133](index=133&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - No significant changes to critical accounting policies and estimates were made during the three months ended June 30, 2022, other than the adoption of ASU 2020-06[136](index=136&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's exposure to market risks, specifically interest rate fluctuation risk and foreign currency exchange risk, and how these risks are managed [Interest Rate Fluctuation Risk](index=28&type=section&id=Interest%20Rate%20Fluctuation%20Risk) - The Company's investment policy prioritizes capital preservation and liquidity, investing in highly rated securities with limited credit exposure to any single issuer other than the U.S. government[137](index=137&type=chunk) - A hypothetical **10% change in interest rates** would not materially impact the value of cash, cash equivalents, or available-for-sale investments[137](index=137&type=chunk) - The fair value of the **$500.0 million convertible senior notes** is subject to interest rate and market risk, but these changes do not impact the Company's financial position, cash flows, or results of operations due to the fixed nature of the debt[138](index=138&type=chunk) [Foreign Currency Exchange Risk](index=29&type=section&id=Foreign%20Currency%20Exchange%20Risk) - The Company has foreign currency risks related to revenue and operating expenses denominated primarily in British Pounds and Euros[140](index=140&type=chunk) - A hypothetical **10% decrease in all foreign currencies** against the U.S. dollar would not result in a material foreign currency loss on foreign-denominated balances as of June 30, 2022[141](index=141&type=chunk) - The Company does not currently use financial instruments to hedge foreign currency exchange risk but may do so in the future as foreign operations expand[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures and internal control over financial reporting, including any changes and inherent limitations [Evaluation of Disclosure Controls and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[143](index=143&type=chunk) - The evaluation excluded the disclosure controls and internal control over financial reporting related to Fuze, Inc., which was acquired on January 18, 2022[143](index=143&type=chunk) [Changes in Internal Control Over Financial Reporting](index=29&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There were no material changes in internal control over financial reporting during the three months ended June 30, 2022[144](index=144&type=chunk) [Limitations on the Effectiveness of Controls](index=29&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) - Management acknowledges that no control system can prevent all errors and fraud, providing only reasonable, not absolute, assurance due to inherent limitations and resource constraints[145](index=145&type=chunk) [Part II. Other Information](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) Part II includes additional information not covered in Part I, such as legal proceedings, updated risk factors, details on equity securities, defaults, mine safety disclosures, and a list of exhibits [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the legal proceedings information detailed in Note 6 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 6, 'Commitments and Contingencies,' in the Notes to Unaudited Condensed Consolidated Financial Statements[146](index=146&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors outlined in the annual report on Form 10-K and highlights a new risk related to the potential impact of cost reduction initiatives on revenue - Investors should consider risk factors from the annual report on Form 10-K, as modified by this Quarterly Report[147](index=147&type=chunk) - A new risk factor emphasizes that efforts to reduce spending for profitability and cash flow generation, particularly in sales and marketing, may not achieve desired cost savings or could lead to a reduction in revenue[147](index=147&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item reports that there were no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds to report[147](index=147&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[149](index=149&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[149](index=149&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) This item reports that there is no other information to disclose - There is no other information to disclose[149](index=149&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and amendments to the Company's organizational documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 and 18 U.S.C. 1350[152](index=152&type=chunk) - The report also includes the Certificate of Amendment to the Restated Certificate of Incorporation and Amended and Restated By-Laws of 8x8, Inc.[154](index=154&type=chunk) [Signature](index=33&type=section&id=Signature) This section contains the signature of the Company's Principal Accounting Officer, certifying the filing of the Quarterly Report on Form 10-Q - The Quarterly Report on Form 10-Q was signed by Suzy Seandel, Principal Accounting Officer and Duly Authorized Officer, on July 29, 2022[157](index=157&type=chunk)[158](index=158&type=chunk)

8x8, Inc. (NASDAQ:EGHT) Q1 2023 Earnings Conference Call July 27, 2022 4:30 PM ET Company Participants Kate Patterson - Head, Investor Relations David Sipes - Chief Executive Officer Hunter Middleton - Chief Product Officer Samuel Wilson - Chief Financial Officer Conference Call Participants Sitikantha Panigrahi - Mizuho Securities Ryan MacWilliams - Barclays Meta Marshall - Morgan Stanley Matthew VanVliet - BTIG Peter Levine - Evercore ISI James Breen - William Blair Timothy Horan - Oppenheimer Charles Erl ...

```markdown Part I [Business](index=4&type=section&id=Item%201.%20Business) 8x8, Inc. provides a global cloud communications platform (XCaaS) integrating UCaaS and CCaaS for over 60,000 organizations - 8x8 operates as a leading Software-as-a-Service (SaaS) provider with its 8x8 XCaaS (eXperience Communications as a Service) open communications platform, which integrates Unified Communications as a Service (UCaaS) and Contact Center as a Service (CCaaS)[13](index=13&type=chunk)[15](index=15&type=chunk) - The company's core solutions include 8x8 Work (enterprise voice, video meetings, messaging), 8x8 Contact Center (multi-channel cloud solution), and 8x8 CPaaS (embeddable communication APIs for SMS, chat, video, and voice)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - 8x8 serves a diverse customer base of over 60,000 organizations with more than **2.5 million** paid business users in over 170 countries. No single customer accounted for **10%** or more of revenue in fiscal 2022[13](index=13&type=chunk)[35](index=35&type=chunk) - The company utilizes a dual go-to-market strategy, selling directly to customers through its sales organization and indirectly through a global network of value-added resellers (VARs), master agents, and system integrators[34](index=34&type=chunk)[36](index=36&type=chunk) - As of March 31, 2022, the company had **2,216** full-time employees, with **1,245** located outside the United States. It holds over **283** patents with expiration dates through 2040[39](index=39&type=chunk)[59](index=59&type=chunk) [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks including operating losses, intense competition, international operations, substantial debt, cybersecurity, and acquisition integration - The company has a history of losses, recording an operating loss of approximately **$154.1 million** for the year ended March 31, 2022, and an accumulated deficit of **$766.4 million**. Continued investment in sales, marketing, and R&D is expected to result in ongoing losses in the near future[83](index=83&type=chunk)[84](index=84&type=chunk) - 8x8 faces intense competition from other cloud service providers like RingCentral and Zoom, internet giants such as Microsoft (Teams) and Google, and legacy equipment providers like Cisco and Avaya[95](index=95&type=chunk)[97](index=97&type=chunk) - The business is susceptible to risks from international operations, including regulatory complexities, data security regulations (like GDPR), and geopolitical instability. The conflict between Russia and Ukraine poses a specific risk to the company's significant engineering and operations presence in neighboring Romania[129](index=129&type=chunk)[130](index=130&type=chunk) - The recent acquisition of Fuze, Inc. presents risks, including difficulties in integration, retaining key employees and customers, and the possibility of not realizing anticipated growth opportunities and synergies[109](index=109&type=chunk)[110](index=110&type=chunk) - The company has substantial debt, with **$500.0 million** in 0.50% convertible senior notes due 2024. There is a risk that cash flow from operations may be insufficient to service this debt[166](index=166&type=chunk) - Operations are vulnerable to cybersecurity breaches, including DDOS attacks, ransomware, and phishing. A security failure could lead to increased costs, liability claims, and reputational harm[143](index=143&type=chunk)[145](index=145&type=chunk) [Unresolved Staff Comments](index=26&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None [Properties](index=26&type=section&id=Item%202.%20Properties) 8x8's principal operations are headquartered in Campbell, California, with leased offices and data centers globally - The company's main operations are located in Campbell, California. It also leases office space internationally in the UK, Romania, Canada, Portugal, and Singapore for various functions including sales, support, and R&D[188](index=188&type=chunk) - 8x8 leases space from third-party data center hosting facilities in the United States and globally, including in South America, Europe, and the Asia Pacific region[189](index=189&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 6, "Commitments and Contingencies," in the Consolidated Financial Statements - Details regarding legal proceedings can be found in Note 6 of the Consolidated Financial Statements within this report[190](index=190&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable Part II [Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%20and%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) 8x8's common stock trades on the NYSE under "EGHT"; the company has never paid cash dividends and does not plan to in the foreseeable future - The company's common stock is listed on the New York Stock Exchange (NYSE) under the trading symbol "EGHT"[194](index=194&type=chunk) - 8x8 has never paid cash dividends on its common stock and has no plans to do so in the foreseeable future[194](index=194&type=chunk) - On December 14, 2021, the company sold an additional **$137.5 million** of its 0.50% Convertible Senior Notes due 2024, increasing the total outstanding aggregate principal amount to **$500 million**[198](index=198&type=chunk)[201](index=201&type=chunk) - In December 2021, the company repurchased approximately **$45.0 million** of its common stock from certain investors in a private placement related to the issuance of the additional notes[207](index=207&type=chunk) [Reserved](index=29&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2022 service revenue grew **21%** to **$602.4 million**, driven by mid-market/enterprise expansion and the Fuze acquisition, focusing on efficiency and profitability - Total service revenue for fiscal 2022 increased by **21% YoY** to **$602.4 million**[213](index=213&type=chunk) - Annualized Recurring Subscriptions and Usage Revenue (ARR) from mid-market and enterprise customers grew **33%** over the prior year and constituted **76%** of total ARR[213](index=213&type=chunk) - The acquisition of Fuze in January 2022 contributed approximately **$23.9 million** in service revenue for fiscal 2022 and is expected to accelerate XCaaS innovation and expand the enterprise customer base[212](index=212&type=chunk)[234](index=234&type=chunk) - The company is focused on improving operating efficiencies and managing costs to support its path to profitability and positive operating cash flow[213](index=213&type=chunk) [Results of Operations](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) Fiscal 2022 total revenue reached **$638.1 million** (20% increase), with an operating loss of **$154.1 million** due to continued growth investments Revenue Performance (FY2022 vs. FY2021) | Revenue Type | FY2022 (in thousands) | FY2021 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Service Revenue | $602,357 | $495,985 | $106,372 | 21.4% | | Other Revenue | $35,773 | $36,359 | $(586) | -1.6% | Cost of Revenue Performance (FY2022 vs. FY2021) | Cost Type | FY2022 (in thousands) | FY2021 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- |\n| Cost of Service Revenue | $195,909 | $180,082 | $15,827 | 8.8% | | Cost of Other Revenue | $51,649 | $50,068 | $1,581 | 3.2% | Operating Expenses (FY2022 vs. FY2021) | Expense Category | FY2022 (in thousands) | FY2021 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and Development | $112,387 | $92,034 | $20,353 | 22.1% | | Sales and Marketing | $314,223 | $256,231 | $57,992 | 22.6% | | General and Administrative | $118,103 | $100,078 | $18,025 | 18.0% | - International revenue grew to **31%** of total revenue in fiscal 2022, up from **27%** in 2021 and **21%** in 2020, indicating successful global expansion[240](index=240&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2022, 8x8 had **$136.1 million** in cash, cash equivalents, and short-term investments, generating **$34.7 million** in operating cash flow - The company ended fiscal 2022 with **$136.1 million** in cash, cash equivalents, and short-term investments[261](index=261&type=chunk) Cash Flow Summary (Fiscal Year Ended March 31) | Cash Flow Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $34.7 | $(14.1) | | Net cash used in investing activities | $(160.0) | $(36.3) | | Net cash provided by financing activities | $105.4 | $13.2 | Contractual Obligations as of March 31, 2022 | Obligation | Total (in thousands) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Convertible senior notes | $500,000 | $— | $500,000 | $— | $— | | Operating lease obligations | $104,914 | $18,692 | $26,234 | $21,371 | $38,617 | | Purchase obligations | $33,517 | $13,398 | $19,990 | $129 | $— | | **Total** | **$638,431** | **$32,090** | **$546,224** | **$21,500** | **$38,617** | [Critical Accounting Policies and Estimates](index=36&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) Key accounting policies involve significant judgment in revenue recognition, credit loss allowance, business acquisition valuation, and internal-use software capitalization - Revenue recognition requires significant judgment in identifying performance obligations, determining transaction prices, and allocating prices based on relative standalone selling prices (SSP)[276](index=276&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk) - The allowance for credit losses is estimated using the Current Expected Credit Loss (CECL) model, which considers historical data, current conditions, and forecasts of future economic conditions[282](index=282&type=chunk)[346](index=346&type=chunk) - Business acquisitions require significant estimates to determine the fair value of acquired assets (like intangible assets) and assumed liabilities[283](index=283&type=chunk) - Capitalization of internal-use software costs involves judgment in determining when the application development stage begins. These costs are amortized over an estimated useful life of three years[284](index=284&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rate fluctuations and foreign currency exchange rates, but does not currently hedge these exposures - The company's primary market risks are interest rate fluctuations and foreign currency exchange risk[285](index=285&type=chunk)[288](index=288&type=chunk) - Interest rate risk impacts the value of cash, investments, and the fair value of its **$500.0 million** in convertible senior notes. However, due to the fixed nature of the debt obligation, it does not impact the company's financial position or results of operations[285](index=285&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk) - Foreign currency risk is related to revenues and expenses denominated primarily in the British Pound and Euro. The company does not currently hedge this exposure[288](index=288&type=chunk)[289](index=289&type=chunk) [Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal year 2022, including the auditor's report and key financial statements - The independent auditor, Moss Adams LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting. The audit of internal controls excluded the recently acquired Fuze, Inc., as permitted[296](index=296&type=chunk)[300](index=300&type=chunk) Consolidated Statement of Operations Highlights (Year Ended March 31) | Metric (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $638,130 | $532,344 | $446,237 | | Loss from Operations | $(154,141) | $(146,149) | $(159,819) | | Net Loss | $(175,383) | $(165,585) | $(172,368) | | Net Loss Per Share | $(1.55) | $(1.57) | $(1.72) | Consolidated Balance Sheet Highlights (As of March 31) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $275,622 | $276,533 | | Total Assets | $910,268 | $678,409 | | Total Current Liabilities | $191,527 | $121,378 | | Total Liabilities | $727,902 | $517,905 | | Total Stockholders' Equity | $182,366 | $160,504 | - A critical audit matter identified was the valuation of intangible assets (customer relationships and developed technology) related to the acquisition of Fuze, Inc., due to the significant management judgment involved in determining their fair value[305](index=305&type=chunk)[306](index=306&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=74&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None [Controls and Procedures](index=74&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of March 31, 2022, excluding the Fuze acquisition - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[478](index=478&type=chunk) - Management's report on internal control over financial reporting concluded that such controls were effective as of March 31, 2022[479](index=479&type=chunk)[480](index=480&type=chunk) - The assessment of internal controls excluded Fuze, Inc., which was acquired on January 18, 2022, in accordance with SEC guidance for newly acquired businesses[479](index=479&type=chunk) [Other Information](index=74&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters](index=75&type=section&id=Items%2010%2C%2011%2C%2012%2C%2013%2C%20and%2014) Information for Items 10-14 (directors, executive compensation, etc.) is incorporated by reference from the 2022 Proxy Statement - Information for Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership), Item 13 (Certain Relationships and Related Transactions), and Item 14 (Principal Accountant Fees and Services) is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[484](index=484&type=chunk)[485](index=485&type=chunk)[486](index=486&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=76&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and exhibits, including Schedule II detailing allowance for credit losses activity for the past three fiscal years Schedule II: Valuation and Qualifying Accounts (Allowance for Credit Losses) | Fiscal Year Ended March 31 | Beginning Balance | Additions Charged to Expenses | Deductions (Write-offs) | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | 2020 | $864 | $3,067 | $(825) | $3,106 | | 2021 | $3,106 | $7,374 | $(2,302) | $8,178 | | 2022 | $8,178 | $1,997 | $(3,658) | $6,517 | [Form 10-K Summary](index=78&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for this item - None ```

Financial Data and Key Metrics Changes - Total revenue for Q4 2022 was $181.4 million, a 25% year-over-year increase, within the guidance range of $180 million to $182 million [41] - Service revenue was $172.8 million, a 29% year-over-year increase, but slightly below the guidance range of $173.5 million to $175.5 million [41][11] - Non-GAAP operating profit grew to $4.3 million quarter-over-quarter, reflecting a focus on higher-margin business segments [48] - Gross margin for the fourth quarter was 66.7%, with service gross margin at 72.2% [47] Business Line Data and Key Metrics Changes - XCaaS ARR growth accelerated to over 35% year-over-year, now accounting for approximately 35% of combined 8x8 Fuze ARR [8][10] - Enterprise ARR now makes up 57% of total ARR, up 55% year-over-year, while small business ARR declined by 1% year-over-year [45] - CPaaS revenue experienced a significant drop due to lower usage from a few large customers, resulting in a sequential decline of several million dollars [15][40] Market Data and Key Metrics Changes - The company expanded its global reach to 50 countries, up from 41 a year ago, covering more than 85% of the world's GDP [25] - The adoption of XCaaS has been broad across various industry verticals and geographic regions, including public sector clients [17][18] Company Strategy and Development Direction - The company is focused on operational discipline and investing in XCaaS innovation to drive operating leverage and increased cash flows [12][38] - The integration of Fuze is progressing well, with strong customer retention and revenue performance exceeding expectations [27][43] - The company aims to balance growth with improving profitability, targeting operating margins in the 2% to 3% range for fiscal 2023 [58] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the CPaaS and small business segments but emphasized broad improvements in gross margin and solid operating income [40] - The company remains confident in its strategy and market opportunity, expecting continued growth in fiscal 2023 [59] - Management noted that the competitive environment remains stable, with a focus on integrating Teams users with enterprise communication platforms [60][61] Other Important Information - The company reported cash from operations of over $16 million for the quarter, remaining free cash flow positive for the second consecutive quarter [53] - Deferred revenue climbed to over $45 million, up 90% year-over-year [53] Q&A Session Summary Question: How would you characterize the competitive environment with Microsoft Teams? - Management noted that customers are looking to integrate Teams users with their enterprise communication platforms, and their direct routing solution is performing well against competitors [60][61] Question: What lessons were learned from the drop in usage by large customers? - Management indicated that the drop was due to several large customers pulling back on marketing campaigns, and they are working to reintroduce these campaigns when market conditions improve [68][69] Question: What is the expected impact of Fuze on future revenue? - Management stated that Fuze's revenue contribution was better than expected, with strong retention rates and integration progressing smoothly [70][71] Question: How is the company addressing the challenges in the CPaaS segment? - Management is diversifying the customer base and leveraging regional scale to drive lower costs and support performance [69] Question: What are the expectations for organic growth post-Fuze acquisition? - Management suggested a conservative estimate of mid-teens growth for organic growth after the Fuze integration [78] Question: How is the international market performing? - Management reported robust growth in the UK and APAC regions, particularly in the CPaaS business, without adverse effects from macroeconomic trends [80]

8x8, Inc. (NASDAQ:EGHT) Q3 2022 Earnings Conference Call February 2, 2022 5:00 PM ET Company Participants Kate Patterson - Vice President, Investor Relations Dave Sipes - Chief Executive Officer Sam Wilson - Chief Financial Officer Conference Call Participants Matt Diamond - Mizuho Matt VanVliet - BTIG Ryan MacWilliams - Barclays Austin Williams - Wells Fargo Peter Levine - Evercore Meta Marshall - Morgan Stanley Michael Latimore - Northland Capital Markets George Sutton - Craig Hallum James Breen - William ...

Revenue Growth - Service revenue for Q3 fiscal 2022 grew approximately 18% year-over-year to $149 million, up from $127 million in Q3 fiscal 2021[83] - Total Annualized Recurring Subscriptions and Usage (ARR) increased to $572 million in Q3 fiscal 2022, a 16% rise from $494 million in the same period of fiscal 2021[83] - ARR from mid-market and enterprise customers represented 72% of total ARR in Q3 fiscal 2022, growing 24% compared to the same period in fiscal 2021[83] - The company anticipates continued growth in service revenue driven by global expansion and deeper penetration into customer categories[99] - Service revenue for the nine months ended December 31, 2021, was $429.6 million, an 18.6% increase from $362.2 million in the same period of 2020[99] Acquisitions and Investments - The company completed the acquisition of Fuze, Inc. for approximately $211.9 million, expected to enhance research and development and expand the customer base[82] - The company plans to invest in marketing, sales capacity, and research and development to acquire more customers[85] - The company expects to continue investing in research and development to enhance platform capabilities and user experience, anticipating an increase in expenses in absolute dollars[106] - The company plans to continue investing in sales and marketing to attract and retain customers, expecting expenses to increase in absolute dollars in future periods[107] Revenue and Expense Analysis - Other revenue for Q3 fiscal 2022 decreased by 21.9% to $7.5 million, primarily due to a shift towards hardware rental and supply chain shortages[100] - Other revenue for the nine months ended December 31, 2021, increased by 7.1% to $27.2 million, driven by growth in professional services revenue[102] - Cost of service revenue for the three months ended December 31, 2021, was $48.763 million, an increase of 3.7% from $47.044 million in the same period of 2020[103] - Cost of other revenue decreased by 17.2% for the three months ended December 31, 2021, totaling $11.071 million compared to $13.364 million in 2020[104] Operating Expenses - Research and development expenses increased by 17.8% for the three months ended December 31, 2021, amounting to $27.911 million, up from $23.702 million in 2020[106] - Sales and marketing expenses rose by 20.0% for the three months ended December 31, 2021, reaching $76.797 million compared to $63.986 million in 2020[107] - General and administrative expenses increased by 25.6% for the three months ended December 31, 2021, totaling $29.950 million, up from $23.844 million in 2020[108] - Other expense, net for the three months ended December 31, 2021, was $5.866 million, a 25.6% increase from $4.669 million in 2020[111] - Provision for income taxes for the three months ended December 31, 2021, was $87, a decrease of 71.1% from $301 in 2020[112] Cash Flow and Financial Position - As of December 31, 2021, the company had $251.8 million in cash, cash equivalents, and investments, compared to $152.9 million as of March 31, 2021[113] - Net cash provided by operating activities for the nine months ended December 31, 2021, was $18.2 million, compared to a net cash used of $14.9 million in the same period of 2020[116] - The net loss for the nine months ended December 31, 2021, was $129.8 million, with stock-based compensation expense amounting to $106.2 million[116] - Net cash used in investing activities was $30.1 million for the nine months ended December 31, 2021, primarily due to capitalized internal-use software development costs of $15.6 million[116] - Net cash provided by financing activities was $100.0 million for the nine months ended December 31, 2021, significantly up from $5.9 million in the same period of 2020[116] - As of December 31, 2021, the company had cash, cash equivalents, restricted cash, and investments totaling $260.5 million[119] - The company had $500.0 million in aggregate principal amount of convertible senior notes outstanding, with an estimated fair value of $495.8 million[121] Risk Management - The company is exposed to foreign currency risks primarily related to revenue and operating expenses denominated in currencies other than the U.S. dollar, particularly the British Pound[122] - A hypothetical 10% decrease in all foreign currencies against the U.S. dollar would not result in a material foreign currency loss for the three and nine months ended December 31, 2021[122] - The company may consider entering into financial instruments in the future to hedge foreign currency exchange risk as its foreign operations expand[122]

8x8, Inc. (NASDAQ:EGHT) Q2 2022 Earnings Conference Call November 2, 2021 5:00 PM ET Company Participants Kate Patterson - VP, IR David Sipes - CEO Samuel Wilson - CFO Conference Call Participants Chirag Ved - Evercore ISI Michael Tulin - Wells Fargo Meta Marshall - Morgan Stanley Ryan Koontz - Needham & Company Will Power - Baird Alex Kim - Mizuho Securities George Sutton - Craig Hallum Tim Horan - Oppenheimer James Breen - William Blair Rachel Freeman - BTIG Operator Good afternoon. My name is Tania, and ...

[Forward-Looking Statements and Risk Factors](index=3&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section outlines forward-looking statements and potential risks that could cause actual results to differ from projections - Statements regarding industry trends, customer numbers, revenue growth, expenses, hiring, and the impact of **COVID-19** are considered forward-looking[7](index=7&type=chunk) - Actual results may differ due to factors such as customer adoption, economic downturns (including **COVID-19**), competitive dynamics, supply chain disruptions, intellectual property rights, customer churn rate, and the effectiveness of marketing investments[7](index=7&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents unaudited condensed consolidated financial statements and detailed notes on key financial aspects [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets show a slight decrease in total assets and stockholders' equity, while total liabilities increased Condensed Consolidated Balance Sheet Highlights (Dollars in Thousands) | Metric | September 30, 2021 (unaudited) | March 31, 2021 (audited) | | :------------------------- | :----------------------------- | :----------------------- | | Cash and cash equivalents | $102,989 | $112,531 | | Total current assets | $272,875 | $276,533 | | Total assets | $672,842 | $678,409 | | Total current liabilities | $120,940 | $121,378 | | Total liabilities | $520,291 | $517,905 | | Total stockholders' equity | $152,551 | $160,504 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show increased total revenue and net loss for the periods presented Condensed Consolidated Statements of Operations Highlights (Dollars in Thousands, Except Per Share Data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Service revenue | $142,376 | $120,942 | $280,172 | $235,125 | | Other revenue | $9,181 | $8,191 | $19,712 | $15,815 | | Total revenue | $151,557 | $129,133 | $299,884 | $250,940 | | Loss from operations | $(37,157) | $(33,098) | $(75,984) | $(70,858) | | Net loss | $(42,324) | $(38,413) | $(86,230) | $(80,326) | | Net loss per share (Basic & Diluted) | $(0.38) | $(0.37) | $(0.78) | $(0.77) | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The statements of comprehensive loss show net loss adjusted for other comprehensive income/loss, resulting in increased comprehensive loss Condensed Consolidated Statements of Comprehensive Loss Highlights (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net loss | $(42,324) | $(38,413) | $(86,230) | $(80,326) | | Unrealized (loss) gain on investments | $(15) | $(43) | $(48) | $379 | | Foreign currency translation adjustment | $(2,149) | $2,945 | $(1,866) | $3,830 | | Comprehensive loss | $(44,488) | $(35,511) | $(88,144) | $(76,117) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) The statements of stockholders' equity detail changes in common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity Highlights (Dollars and Shares in Thousands) | Metric | Balance at March 31, 2021 | Balance at September 30, 2021 | | :-------------------------------------- | :------------------------ | :---------------------------- | | Common Shares | 109,135 | 113,416 | | Stock Amount | $109 | $113 | | Additional Paid-in Capital | $755,643 | $835,830 | | Accumulated Other Comprehensive Loss | $(4,193) | $(6,107) | | Accumulated Deficit | $(591,055) | $(677,285) | | Total Stockholders' Equity | $160,504 | $152,551 | - Stock-based compensation expense contributed significantly to the increase in Additional Paid-in Capital, totaling **$36,508 thousand** for the quarter ended **June 30, 2021**, and **$33,483 thousand** for the quarter ended **September 30, 2021**[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The statements of cash flows show a positive shift in operating activities and significant cash outflow from investing activities Condensed Consolidated Statements of Cash Flows Highlights (Dollars in Thousands) | Metric | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :---------------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $9,131 | $(13,068) | | Net cash used in investing activities | $(28,754) | $(11,466) | | Net cash provided by financing activities | $10,192 | $4,571 | | Net decrease in cash, cash equivalents, and restricted cash | $(9,542) | $(19,005) | | Cash, cash equivalents, and restricted cash at end of period | $111,630 | $137,406 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures supporting the condensed consolidated financial statements, covering business and accounting policies [Note 1. DESCRIPTION OF BUSINESS](index=9&type=section&id=Note%201.%20DESCRIPTION%20OF%20BUSINESS) **8x8, Inc.** is a leading **SaaS** provider of cloud communication solutions, primarily generating revenue from subscriptions and platform usage - **8x8, Inc.** is a leading **SaaS** provider of contact center, voice, video, chat, and API solutions, powered by one global cloud communications platform[25](index=25&type=chunk) - A majority of all revenue is generated from communication services subscriptions and platform usage, complemented by sales of hardware and professional services[25](index=25&type=chunk) [Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=Note%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note confirms adherence to U.S. GAAP and SEC regulations, with no material changes to accounting policies from the prior fiscal year - The condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP and SEC interim financial reporting regulations[26](index=26&type=chunk) - There were no material changes to significant accounting policies during the three and six months ended **September 30, 2021**[26](index=26&type=chunk) - The adoption of ASU 2019-12 (Income Taxes) in **fiscal 2022** did not have a material impact, and the company is currently assessing the impact of ASU 2020-06 (Debt with Conversion and Other Options) for **fiscal 2023**[28](index=28&type=chunk)[29](index=29&type=chunk) [Note 3. REVENUE RECOGNITION](index=10&type=section&id=Note%203.%20REVENUE%20RECOGNITION) This note details revenue disaggregation by region, contract balances, and remaining performance obligations totaling approximately **$550.0 million** Contract Balances (Dollars in Thousands) | Metric | September 30, 2021 | March 31, 2021 | | :-------------------------- | :----------------- | :------------- | | Accounts receivable, net | $51,178 | $51,150 | | Contract assets, current | $11,714 | $12,840 | | Contract assets, non-current| $17,045 | $17,987 | | Deferred revenue, current | $22,362 | $20,737 | | Deferred revenue, non-current| $2,296 | $2,999 | - Contract revenue from remaining performance obligations not yet recognized as of **September 30, 2021**, was approximately **$550.0 million**, with about **75%** expected to be recognized over the next **36 months**[32](index=32&type=chunk) Amortization of Deferred Sales Commission Costs (Dollars in Thousands) | Period | Amortization | | :----------------------------------- | :----------- | | Three months ended September 30, 2021 | $8,600 | | Six months ended September 30, 2021 | $16,900 | | Three months ended September 30, 2020 | $6,700 | | Six months ended September 30, 2020 | $12,800 | [Note 4. FAIR VALUE MEASUREMENTS](index=11&type=section&id=Note%204.%20FAIR%20VALUE%20MEASUREMENTS) This note provides estimated fair values of cash, investments, and convertible senior notes, categorized by fair value hierarchy levels Estimated Fair Values of Financial Assets (September 30, 2021, Dollars in Thousands) | Asset Category | Amortized Costs | Gross Unrealized Gain | Gross Unrealized Loss | Estimated Fair Value | | :----------------------- | :-------------- | :-------------------- | :-------------------- | :------------------- | | Cash | $43,131 | — | — | $43,131 | | Money market funds | $58,458 | — | — | $58,458 | | Certificate of deposit | $8,641 | — | — | $8,641 | | Commercial paper | $27,412 | $1 | $(1) | $27,412 | | Corporate debt | $28,828 | $17 | $(5) | $28,840 | | **Total assets** | **$166,470** | **$18** | **$(6)** | **$166,482** | - As of **September 30, 2021**, the estimated fair value of the Company's outstanding convertible senior notes was **$407.9 million**, categorized within **Level 2** of the fair value hierarchy[35](index=35&type=chunk) [Note 5. INTANGIBLE ASSETS AND GOODWILL](index=12&type=section&id=Note%205.%20INTANGIBLE%20ASSETS%20AND%20GOODWILL) This note provides carrying values of intangible assets and goodwill, detailing amortization, changes, and foreign currency adjustments Net Carrying Amount of Intangible Assets (Dollars in Thousands) | Asset Category | September 30, 2021 | March 31, 2021 | | :----------------------- | :----------------- | :------------- | | Developed technology | $10,392 | $12,502 | | Customer relationships | $4,188 | $4,628 | | Trade and domain names | — | — | | **Total identifiable intangible assets** | **$14,580** | **$17,130** | - During the six months ended **September 30, 2021**, the Company wrote off **$6.7 million** in developed technology, **$5.5 million** in customer relationships, and **$0.9 million** in trade and domain names that were fully amortized and no longer in use, with no net impact to financial statements[37](index=37&type=chunk) Goodwill Carrying Amount (Dollars in Thousands) | Metric | Amount | | :---------------------- | :----- | | Balance at March 31, 2021 | $131,520 | | Foreign currency translation adjustments | $(651) | | Balance at September 30, 2021 | $130,869 | [Note 6. LEASES](index=12&type=section&id=Note%206.%20LEASES) This note details operating leases, including right-of-use assets, lease liabilities, expense, and maturity schedule Operating Lease Information (Dollars in Thousands) | Metric | September 30, 2021 | March 31, 2021 | | :----------------------------------- | :----------------- | :------------- | | Operating lease, right-of-use assets | $62,379 | $66,664 | | Operating lease liabilities, current | $13,271 | $12,942 | | Operating lease liabilities, non-current | $77,156 | $82,456 | | Total operating lease liabilities | $90,427 | $95,398 | Operating Lease Expense and Cash Outflows (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Operating lease expense | $3,336 | $3,834 | $6,795 | $7,585 | | Cash outflows from operating leases | $4,254 | $2,100 | $8,454 | $4,200 | - As of **September 30, 2021**, the weighted average remaining lease term for operating leases was **8.0 years**, with a weighted average discount rate of **4.0%**[42](index=42&type=chunk) [Note 7. COMMITMENTS AND CONTINGENCIES](index=13&type=section&id=Note%207.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines legal proceedings, including a preliminary settlement in a wage and hour lawsuit, and discloses contingent tax liabilities - A preliminary settlement has been reached in the wage and hour class action and PAGA lawsuit filed by a former employee, with discovery stayed pending completion of the settlement[44](index=44&type=chunk)[46](index=46&type=chunk) Contingent Indirect Tax Liabilities (Dollars in Thousands) | Date | Amount | | :----------------- | :----- | | September 30, 2021 | $2,500 | | March 31, 2021 | $3,100 | [Note 8. CONVERTIBLE SENIOR NOTES AND CAPPED CALLS](index=14&type=section&id=Note%208.%20CONVERTIBLE%20SENIOR%20NOTES%20AND%20CAPPED%20CALLS) This note details the issuance of **$362.5 million** convertible senior notes, their conversion terms, and associated capped call transactions - The Company has **$362.5 million** aggregate principal amount of **0.50%** convertible senior notes outstanding, due **February 1, 2024**[48](index=48&type=chunk) - Each **$1,000** principal amount of notes is initially convertible into **38.9484 shares** of common stock, equivalent to an initial conversion price of approximately **$25.68 per share**[49](index=49&type=chunk) Net Carrying Amount of Convertible Senior Notes (Dollars in Thousands) | Metric | September 30, 2021 | March 31, 2021 | | :------------------------- | :----------------- | :------------- | | Principal | $362,500 | $362,500 | | Unamortized debt discount | $(44,589) | $(53,323) | | Unamortized issuance costs | $(620) | $(742) | | **Net carrying amount** | **$317,291** | **$308,435** | - Capped call transactions were entered into to partially offset potential dilution from note conversions, covering approximately **14.1 million shares** with an initial strike price of **$25.68** and cap prices of **$39.50 per share**[55](index=55&type=chunk) [Note 9. STOCK-BASED COMPENSATION](index=17&type=section&id=Note%209.%20STOCK-BASED%20COMPENSATION) This note details stock-based compensation expense across categories and provides activity summaries for options, RSUs, PSUs, and ESPP Stock-Based Compensation Expense (Dollars in Thousands) | Expense Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Cost of service revenue | $2,345 | $2,410 | $4,313 | $4,224 | | Cost of other revenue | $1,203 | $1,113 | $2,274 | $1,900 | | Research and development | $9,458 | $8,255 | $18,156 | $14,800 | | Sales and marketing | $12,724 | $7,054 | $27,050 | $12,793 | | General and administrative | $10,105 | $6,490 | $20,629 | $14,384 | | **Total** | **$35,835** | **$25,322** | **$72,422** | **$48,101** | - As of **September 30, 2021**, total unrecognized compensation cost related to RSUs was **$138.7 million**, for PSUs was **$24.8 million**, and for the ESPP was approximately **$3.6 million**[59](index=59&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - The Company offered employees an opportunity to receive a portion of their **fiscal 2022** base cash salary and/or cash bonus in common stock, with an estimated **$4.5 million** of unrecognized compensation cost related to this program as of **September 30, 2021**[64](index=64&type=chunk)[67](index=67&type=chunk) [Note 10. INCOME TAXES](index=19&type=section&id=Note%2010.%20INCOME%20TAXES) This note reports the company's negative effective tax rate, primarily due to a full valuation allowance against deferred tax assets Effective Tax Rate | Period | Effective Tax Rate | | :----------------------------------- | :----------------- | | Three months ended September 30, 2021 | (0.6)% | | Three months ended September 30, 2020 | (0.4)% | | Six months ended September 30, 2021 | (0.6)% | | Six months ended September 30, 2020 | (0.5)% | - The difference in the effective tax rate and the U.S. federal statutory rate is primarily due to the full valuation allowance maintained against the Company's deferred tax assets[69](index=69&type=chunk) [Note 11. NET LOSS PER SHARE](index=19&type=section&id=Note%2011.%20NET%20LOSS%20PER%20SHARE) This note presents basic and diluted net loss per share, weighted-average common shares, and excluded anti-dilutive shares Net Loss Per Share (Dollars in Thousands, Except Per Share Data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net loss | $(42,324) | $(38,413) | $(86,230) | $(80,326) | | Weighted average common shares outstanding (Basic & Diluted) | 112,422 | 104,620 | 111,180 | 104,116 | | Net loss per share (Basic & Diluted) | $(0.38) | $(0.37) | $(0.78) | $(0.77) | Total Potential Anti-Dilutive Shares (Thousands) | Category | Three and Six Months Ended Sep 30, 2021 | Three and Six Months Ended Sep 30, 2020 | | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Stock options | 1,155 | 2,210 | | Restricted stock units | 9,821 | 11,472 | | Potential shares attributable to the ESPP | 567 | 529 | | **Total potential anti-dilutive shares**| **11,543** | **14,211** | [Note 12. GEOGRAPHICAL INFORMATION](index=20&type=section&id=Note%2012.%20GEOGRAPHICAL%20INFORMATION) This note disaggregates revenue and property and equipment by geographic area, showing significant international revenue growth Revenue by Geographic Area (Dollars in Thousands) | Region | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | United States | $104,607 | $96,105 | $208,265 | $189,349 | | International | $46,950 | $33,028 | $91,619 | $61,591 | | **Total revenue** | **$151,557** | **$129,133** | **$299,884** | **$250,940** | Property and Equipment, Net by Geographic Area (Dollars in Thousands) | Region | September 30, 2021 | March 31, 2021 | | :------------ | :----------------- | :------------- | | United States | $82,265 | $87,945 | | International | $4,595 | $5,131 | | **Total** | **$86,860** | **$93,076** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and results, discussing business, outlook, **COVID-19** impacts, and key metrics [BUSINESS OVERVIEW](index=21&type=section&id=BUSINESS%20OVERVIEW) The company is a leading **SaaS** provider of cloud communication solutions, focusing on mid-market and enterprise segments - **8x8** is a leading **SaaS** provider of voice, video, chat, contact center, and API solutions powered by one global cloud communications platform[77](index=77&type=chunk) - The company has increased its focus on mid-market (customers generating **$25K** to **$100K ARR**) and enterprise (customers generating more than **$100K ARR**) customer categories[77](index=77&type=chunk) - Flagship service is **8x8 X Series**, a suite of **UCaaS** and **CCaaS** solutions, and the company introduced eXperience Communications as a Service (**XCaaS**) for integrated **UCaaS** and **CCaaS**[77](index=77&type=chunk) [SUMMARY AND OUTLOOK](index=21&type=section&id=SUMMARY%20AND%20OUTLOOK) Service revenue grew **18% YoY** in **Q2 fiscal 2022**, with total **ARR** reaching **$553 million**, driven by mid-market and enterprise growth - Service revenue grew approximately **18%** year-over-year to **$142 million** in the second quarter of **fiscal 2022**[78](index=78&type=chunk) - Total Annualized Recurring Subscriptions and Usage (**ARR**) increased to **$553 million** in **Q2 fiscal 2022**, up from **$467 million** in the prior year, with mid-market and enterprise customers representing **70%** of total **ARR** and growing **27% YoY**[78](index=78&type=chunk) - Strategic focus areas include achieving improved operating efficiencies, delivering revenue growth, increasing spend discipline, and expanding business with mid-market and enterprise customers to drive profitability and operating cash flow improvement[78](index=78&type=chunk)[79](index=79&type=chunk) [IMPACTS OF COVID-19](index=21&type=section&id=IMPACTS%20OF%20COVID-19) The company acknowledges the unpredictable impact of **COVID-19** on its business, operations, and financial results - The full extent of **COVID-19's** impact on business, operations, and financial results remains unpredictable due to evolving factors[80](index=80&type=chunk)[82](index=82&type=chunk) - Measures such as remote work and curtailed travel have been implemented to protect employee health and safety[80](index=80&type=chunk) [KEY BUSINESS METRIC](index=22&type=section&id=KEY%20BUSINESS%20METRIC) This section defines Annualized Recurring Subscriptions and Usage (**ARR**) as a key metric for evaluating operations and future revenues - Annualized Recurring Subscriptions and Usage (**ARR**) is defined as the sum of the most recent month of recurring subscription amounts and platform usage charges for **CPaaS** customers (with a minimum billing threshold for at least six consecutive months), multiplied by **12**[84](index=84&type=chunk) - Management uses **ARR** to evaluate ongoing operations, allocate resources, and drive financial performance, but cautions that there are no uniform standards for its calculation[84](index=84&type=chunk) [COMPONENTS OF RESULTS OF OPERATIONS](index=22&type=section&id=COMPONENTS%20OF%20RESULTS%20OF%20OPERATIONS) This section outlines components contributing to results, including revenue, costs, operating expenses, and income taxes [Service Revenue](index=22&type=section&id=Service%20Revenue%20(Component)) Service revenue is primarily from subscriptions and platform usage, with growth expected through sales, expansion, and innovation - Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from **UCaaS**, **CCaaS**, **XCaaS**, and **CPaaS** offerings[85](index=85&type=chunk) - Growth in service revenue is expected through increased sales and marketing, geographic expansion, product and technology innovation, and strategic acquisitions[85](index=85&type=chunk) [Other Revenue](index=22&type=section&id=Other%20Revenue%20(Component)) Other revenue is from professional services and sales/rentals of IP telephones, varying with customer hardware and implementation choices - Other revenue includes professional services for solution deployment and revenues from sales and rentals of IP telephones[86](index=86&type=chunk) [Cost of Service Revenue](index=22&type=section&id=Cost%20of%20Service%20Revenue%20(Component)) Cost of service revenue includes network operations, technology licenses, software amortization, third-party services, and allocated overhead - Costs include network operations, technology licenses, amortization of capitalized internal-use software, third-party communication services, outsourced customer service, and allocated overhead[87](index=87&type=chunk) [Cost of Other Revenue](index=22&type=section&id=Cost%20of%20Other%20Revenue%20(Component)) Cost of other revenue includes direct and indirect expenses for IP telephones, logistics, personnel, and professional services - Costs include direct and indirect expenses for IP telephone purchasing, scheduling, shipping, handling, personnel, and professional services for deployment, plus allocated IT and facilities costs[88](index=88&type=chunk) [Research and Development](index=22&type=section&id=Research%20and%20Development%20(Component)) Research and development expenses primarily cover personnel, third-party development, software, equipment, and allocated IT/facilities costs - R&D expenses primarily cover personnel, third-party development, software and equipment for product/platform development, and allocated IT/facilities costs[89](index=89&type=chunk) [Sales and Marketing](index=22&type=section&id=Sales%20and%20Marketing%20(Component)) Sales and marketing expenses include personnel, commissions, trade shows, advertising, demand generation, and allocated IT/facilities costs - Sales and marketing expenses include personnel, sales commissions (internal and channel), trade shows, advertising, demand generation, promotional expenses, and allocated IT/facilities costs[90](index=90&type=chunk) [General and Administrative](index=22&type=section&id=General%20and%20Administrative%20(Component)) General and administrative expenses primarily consist of personnel, professional services, corporate administrative costs, and tax/regulatory fees - G&A expenses primarily include personnel, professional services, corporate administrative costs, tax and regulatory fees, and allocated IT/facilities costs[91](index=91&type=chunk) [Other Expense, Net](index=23&type=section&id=Other%20Expense,%20Net%20(Component)) Other expense, net, is mainly interest expense from convertible notes, offset by investment income and foreign exchange gains/losses - Other expense, net, primarily consists of interest expense related to convertible notes, offset by income from cash, cash equivalents, and investments, and foreign exchange gains/losses[93](index=93&type=chunk) [Provision for Income Taxes](index=23&type=section&id=Provision%20for%20Income%20Taxes%20(Component)) Provision for income taxes includes foreign and state minimum taxes, with a full valuation allowance against U.S. deferred tax assets - Provision for income taxes primarily includes foreign income taxes and state minimum taxes in the U.S[94](index=94&type=chunk) - The company maintains a full valuation allowance against its U.S. deferred tax assets, including federal and state net operating loss carryforwards[94](index=94&type=chunk) [RESULTS OF OPERATIONS](index=23&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes financial performance, highlighting changes in revenue, costs, operating expenses, and other net expenses [Revenue](index=23&type=section&id=Revenue%20(Detailed)) Service revenue increased due to customer base expansion and **CPaaS** usage, while other revenue grew from professional services Revenue Performance (Dollars in Thousands) | Revenue Type | Three Months Ended Sep 30, 2021 | YoY Change (%) | Six Months Ended Sep 30, 2021 | YoY Change (%) | | :------------ | :------------------------------ | :------------- | :---------------------------- | :------------- | | Service revenue | $142,376 | 17.7% | $280,172 | 19.2% | | Other revenue | $9,181 | 12.1% | $19,712 | 24.6% | | **Total revenue** | **$151,557** | **17.4%** | **$299,884** | **19.5%** | - Service revenue growth was primarily driven by a net increase in the customer base, expanded offerings to existing customers, and growth in **CPaaS** product usage[96](index=96&type=chunk) - Other revenue increased due to higher professional services revenue, partially offset by a shift towards hardware rental programs and soft phone usage[97](index=97&type=chunk) [Cost of Revenue](index=24&type=section&id=Cost%20of%20Revenue%20(Detailed)) Cost of service revenue increased in dollars but decreased as a percentage, driven by infrastructure costs and software amortization Cost of Service Revenue Performance (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2021 | YoY Change (%) | % of Service Revenue (2021) | % of Service Revenue (2020) | | :-------------------------- | :------------------------------ | :------------- | :-------------------------- | :-------------------------- | | Cost of service revenue | $47,198 | 5.3% | 33.2% | 37.0% | - Cost of service revenue increased due to higher communication infrastructure costs (**$3.8 million** for 3 months, **$9.6 million** for 6 months) and amortization of capitalized internal-use software (**$0.4 million** for 3 months, **$1.0 million** for 6 months), partially offset by decreases in employee and consulting related expenditures[99](index=99&type=chunk) Cost of Other Revenue Performance (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2021 | YoY Change (%) | % of Other Revenue (2021) | % of Other Revenue (2020) | | :-------------------------- | :------------------------------ | :------------- | :------------------------ | :------------------------ | | Cost of other revenue | $12,269 | 4.9% | 133.6% | 142.8% | - Cost of other revenue increased due to higher hardware shipment volume but decreased as a percentage of other revenue due to improved pricing and increased hardware rental revenue[100](index=100&type=chunk) [Operating Expenses](index=25&type=section&id=Operating%20Expenses%20(Detailed)) Operating expenses increased across all categories due to reduced software capitalization, higher employee costs, and stock-based compensation Operating Expenses Performance (Dollars in Thousands) | Expense Category | Three Months Ended Sep 30, 2021 | YoY Change (%) | Six Months Ended Sep 30, 2021 | YoY Change (%) | | :------------------------- | :------------------------------ | :------------- | :---------------------------- | :------------- | | Research and development | $28,498 | 32.1% | $53,890 | 25.1% | | Sales and marketing | $76,726 | 25.0% | $152,641 | 25.6% | | General and administrative | $24,023 | 5.5% | $50,114 | 3.2% | - R&D expenses increased primarily due to a **$3.5 million** reduction in capitalized internal-use software costs, **$2.3 million** in employee/consulting expenditures, **$1.2 million** in stock-based compensation, and **$0.8 million** in public cloud expenses for the three months ended **September 30, 2021**[102](index=102&type=chunk) - Sales and marketing expenses increased due to **$6.9 million** in sales commissions and **$5.7 million** in stock-based compensation for the three months ended **September 30, 2021**[106](index=106&type=chunk) - G&A expenses increased by **$3.6 million** in stock-based compensation for the three months ended **September 30, 2021**, partially offset by decreases in legal/regulatory costs and credit loss allowances[109](index=109&type=chunk) [Other Expense, Net](index=26&type=section&id=Other%20Expense,%20Net%20(Detailed)) Other expense, net, decreased due to foreign exchange fluctuations but is expected to remain a net expense until **fiscal 2024** Other Expense, Net (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2021 | YoY Change (%) | Six Months Ended Sep 30, 2021 | YoY Change (%) | | :---------------- | :------------------------------ | :------------- | :---------------------------- | :------------- | | Other expense, net | $(4,934) | (4.7)% | $(9,757) | 7.2% | - The change in Other expense, net, was primarily due to fluctuations in foreign exchange rates[110](index=110&type=chunk) - Other expense, net, is expected to remain in a net expense position until **fiscal 2024** due to interest expense and amortization of debt discount and issuance costs related to convertible senior notes[110](index=110&type=chunk) [Provision for Income Taxes](index=26&type=section&id=Provision%20for%20Income%20Taxes%20(Detailed)) The provision for income taxes increased for both periods, with no material changes anticipated in the foreseeable future Provision for Income Taxes (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2021 | YoY Change (%) | Six Months Ended Sep 30, 2021 | YoY Change (%) | | :-------------------------- | :------------------------------ | :------------- | :---------------------------- | :------------- | | Provision for income taxes | $233 | 70.1% | $489 | 34.0% | - No material changes to the provision for income taxes are anticipated for the foreseeable future[111](index=111&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) As of **September 30, 2021**, the company had **$157.8 million** in cash and investments, with operating activities generating **$9.1 million** - As of **September 30, 2021**, the company had **$157.8 million** in cash, cash equivalents, and investments, plus **$8.6 million** in restricted cash[113](index=113&type=chunk) Cash Flow Activities (Six Months Ended September 30, Dollars in Thousands) | Activity | 2021 | 2020 | | :------------------------------------------ | :---------- | :----------- | | Net cash provided by (used in) operating activities | $9,131 | $(13,068) | | Net cash used in investing activities | $(28,754) | $(11,466) | | Net cash provided by financing activities | $10,192 | $4,571 | - The company expects existing cash, cash equivalents, investment balances, and anticipated cash flows from operations to be sufficient to meet working capital and expenditure requirements for the next **12 months**[114](index=114&type=chunk) [CRITICAL ACCOUNTING POLICIES & ESTIMATES](index=28&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20%26%20ESTIMATES) No significant changes occurred in critical accounting policies and estimates from those disclosed in the **fiscal 2021** Form 10-K - No significant changes occurred in critical accounting policies and estimates during the three months ended **September 30, 2021**, from those disclosed in the **fiscal 2021** Form 10-K[117](index=117&type=chunk) [NEW ACCOUNTING PRONOUNCEMENTS](index=28&type=section&id=NEW%20ACCOUNTING%20PRONOUNCEMENTS) For details on accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies - For details on recently adopted and not yet adopted accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies[118](index=118&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses market risks, including interest rate and foreign currency exchange risks, with no material impact from a **10%** rate change - As of **September 30, 2021**, the company held **$166.5 million** in cash, cash equivalents, restricted cash, and investments, primarily in money market funds, U.S. treasury, commercial paper, and corporate bonds[119](index=119&type=chunk) - A hypothetical **10%** change in interest rates would not have a material impact on the value of the company's cash, cash equivalents, or available-for-sale investments[119](index=119&type=chunk) - The company has foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the British Pound, but a hypothetical **10%** decrease in foreign currencies against the U.S. dollar would not result in a material foreign currency loss[120](index=120&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls were effective as of **September 30, 2021**, with no material changes in internal control - The company's disclosure controls and procedures were effective as of **September 30, 2021**, based on evaluation by the CEO and CFO[121](index=121&type=chunk) - Management acknowledges that no control system can prevent all errors and fraud, providing only reasonable assurance[123](index=123&type=chunk) - There were no material changes in internal control over financial reporting during the second quarter of **fiscal year 2022**[124](index=124&type=chunk) [PART II. OTHER INFORMATION](index=30&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) Information on legal proceedings is incorporated by reference from Note 7, Commitments and Contingencies - Information on legal proceedings is incorporated by reference from Note 7, Commitments and Contingencies[126](index=126&type=chunk) [Item 1A. Risk Factors](index=30&type=page&id=Item%201A.%20Risk%20Factors) No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for **fiscal year ended March 31, 2021** - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the **fiscal year ended March 31, 2021**[126](index=126&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities and use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report[126](index=126&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities to report during the reporting period - No defaults upon senior securities to report[126](index=126&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures required for the company - No mine safety disclosures to report[126](index=126&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) No other information required to be disclosed under this item - No other information to report[126](index=126&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications - Exhibits include the Restated Certificate of Incorporation, Amended and Restated By-Laws, Indenture for convertible notes, CEO and CFO certifications (pursuant to Sarbanes-Oxley Act), and iXBRL formatted financial statements[128](index=128&type=chunk) [Signature](index=32&type=section&id=Signature) This section contains the official signature block, confirming the due authorization and filing of the report by the registrant - The report was signed by Samuel Wilson, Chief Financial Officer, on **November 3, 2021**, confirming its submission pursuant to the Securities Exchange Act of 1934[133](index=133&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q1 2022 was $148.3 million, an increase of 22% year-over-year, exceeding guidance of $142 million to $143.5 million [21] - Service revenue reached $137.8 million, up 21% year-over-year, also above guidance of $132.5 million to $133.5 million [22] - Total ARR was $536 million at quarter end, reflecting a 24% year-over-year increase [22] - Non-GAAP gross margin improved sequentially from 61.2% to 62.6% [16][23] - Non-GAAP operating margins were positive at 0.9% for the quarter [24] Business Line Data and Key Metrics Changes - XCaaS now accounts for one-third of 8x8's ARR, growing over 30% year-over-year [9] - The CPaaS portfolio performed strongly, with significant wins in Southeast Asia [12] - The enterprise customer segment grew 40% year-over-year, now representing 49% of ARR [14] Market Data and Key Metrics Changes - U.S. revenue was $103.7 million, while international revenue was $44.7 million [42] - Public and government sectors showed strong growth, with notable wins in the U.S. and UK [10][11] Company Strategy and Development Direction - The company focuses on four major areas: expanding platform advantage, winning with partners, driving operational excellence, and expanding the customer base [7] - The launch of XCaaS aims to integrate UCaaS and CCaaS, enhancing customer and employee engagement [8] - The company is exiting the CPaaS wholesale business to concentrate on core market opportunities [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in exceeding financial goals and raising guidance for fiscal year 2022 [19] - The company anticipates continued growth in service revenue and overall gross margins [26][28] - Management highlighted the importance of customer demand for integrated solutions as a driver for future growth [45] Other Important Information - The company has made strategic hires, including a new Chief Customer Officer, to enhance customer experience [18] - Deferred revenue increased to nearly $25 million, up 133% year-over-year [25] Q&A Session Summary Question: What areas are seeing the most success in channel bookings growth? - Management noted strong momentum in XCaaS across all customer segments, particularly in the UK and enterprise sectors [31] Question: Are investments in growth initiatives nearing completion? - Management indicated that investments will continue to support revenue growth, with a gradual increase in operating margins expected [33] Question: What is the impact of exiting the wholesale business on ARR? - Management clarified that the exit had a minimal impact on ARR, with only a small headwind noted [36] Question: What are the plans for improving service gross margins? - Management aims to increase service gross margins over time, with a focus on higher-margin business [39] Question: How is the company responding to competitive pricing pressures? - Management stated that they do not see significant pricing pressure from competitors, emphasizing their value proposition [57] Question: What are the key drivers for bundling UCaaS and CCaaS? - Management highlighted benefits in IT management, simplicity, and enhanced integrations as key drivers for customer interest [59]