Financial Highlights - 8x8's total ARR reached $703 million, demonstrating a 2% year-over-year growth[6, 90] - Enterprise ARR accounted for $405 million, reflecting a 3% year-over-year increase[90] - The company's cash and investments amounted to $137.6 million[90] - Non-GAAP operating margin was 13.5% for the quarter ended March 31, 2023[69, 86] - Service revenue for fiscal year 2023 reached $710 million, an 18% year-over-year growth[73] Product and Customer Metrics - 8x8 Voice for MS Teams achieved 60% total ARR[6] - The company has over 2500000 paid business licenses[23, 45] - 8x8 supports full PSTN replacement in 58 countries/territories[6] Debt and Financial Management - The company reduced the principal amount of debt by over 10% since August 2022[107] - 8x8 repurchased an additional $5 million in aggregate principal amount of the 2024 Notes[84] - The company issued approximately $201.9 million aggregate principal amount of 4% convertible senior notes due 2028[154]

Financial Data and Key Metrics Changes - Full year non-GAAP operating profit was $62.3 million, up nearly 500% year-over-year [1][13] - Cash from operations for fiscal 2023 was approximately $49 million, an increase of 41% from fiscal 2022 [2][14] - Total revenue for Q4 was $184.5 million, with service revenue at $176.6 million, both increasing 2% year-over-year [46] Business Line Data and Key Metrics Changes - Service revenue growth was 2% in Q4, with enterprise and XCaaS ARR both up year-over-year, XCaaS increasing in the mid-teens percentage [42] - Fuze accounted for $26.7 million of service revenue in Q4, with its performance exceeding initial expectations [48] - Remaining performance obligation (RPO) was approximately $775 million, up from $750 million in Q3 [50] Market Data and Key Metrics Changes - The CPaaS business saw a year-over-year decline but modestly increased sequentially from Q3 [46] - Customer retention rates were the highest in four years, reflecting strong performance across the customer base [50] Company Strategy and Development Direction - The company is committed to building a sustainable and profitable growth business, with a focus on product innovation and channel go-to-market model [6] - Plans to invest over $100 million annually in R&D for future development, targeting innovations in AI and customer experience [10][43] - The strategy includes leveraging partnerships and focusing on high-quality pipeline opportunities [106][124] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in repaying remaining convertible notes and generating positive cash flow [4][15] - The company anticipates solid profitability to continue throughout fiscal 2024, with gross margin expected to remain consistent [8][62] - Management acknowledged economic headwinds but noted high retention rates and strong collections as positive indicators [68][74] Other Important Information - The company achieved a non-GAAP operating margin of 13.5% in Q4, exceeding the 10% guidance [56] - Total cash, cash equivalents, and restricted cash ended Q4 at approximately $139 million, despite higher cash interest expenses [3] Q&A Session Summary Question: What levels of churn are being seen and how much is attributable to macro factors? - Management noted high retention rates and expects enterprise growth to continue, with new products anticipated to drive revenue acceleration in the back half of the year [85][86] Question: Can you provide insight into customer renewals and any changes due to macro conditions? - Retention rates were at record highs, with no significant changes in renewals attributed to macro conditions [92][93] Question: What initiatives are being taken for sustainable margin expansion? - Continuous improvements in automation and efficiency in sales and marketing are being implemented to maintain or increase operating margins [78] Question: How is the pipeline looking and are there any changes? - Pipeline numbers are positive, suggesting potential revenue reacceleration, although timing remains a factor [105] Question: What is the strategy regarding internal versus external R&D? - The company plans to focus on internal development for core competencies while partnering with specialists for other areas [126][128]

[Forward-Looking Statements and Risk Factors](index=3&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section outlines forward-looking statements and various risk factors that could impact the company's actual results [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section identifies forward-looking statements, cautioning that actual results may differ materially due to various factors - Forward-looking statements are identified by words such as 'may,' 'will,' 'should,' 'estimates,' 'predicts,' 'potential,' 'continue,' 'strategy,' 'believes,' 'anticipates,' 'plans,' 'expects,' 'intends,' and similar expressions[8](index=8&type=chunk) - Examples of forward-looking statements include those regarding industry trends, customer numbers, service revenue, cost of service revenue, R&D expenses, gross profit margin, debt and interest expense, hiring, sales and marketing expenses, G&A expenses, impact of COVID-19, and foreign currency/interest rate fluctuations[8](index=8&type=chunk) [Risk Factors](index=3&type=section&id=Risk%20Factors) The company highlights various factors that could cause actual results to differ from projections, including economic downturns, debt, and cybersecurity risks - Key risk factors include economic downturns (including COVID-19 impact), inflationary pressures, supply chain disruptions, increased interest expense from new debt, customer cancellations and churn, and geopolitical volatility (e.g., Russia's invasion of Ukraine)[9](index=9&type=chunk) - Other significant risks involve customer acceptance of new services, competitive market pressures, service quality and reliability, ability to scale, customer acquisition costs, reliance on channel partners, and the timing/extent of operating result improvements from increased spending[9](index=9&type=chunk) - Operational and compliance risks include reliance on third-party infrastructure, physical infrastructure failure, software defects, cybersecurity breaches, compatibility with third-party applications, and global regulatory/privacy compliance[9](index=9&type=chunk) [PART I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited):) This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows decreased total assets and equity, and increased liabilities, due to a new term loan and convertible senior notes changes Condensed Consolidated Balance Sheets | Metric | December 31, 2022 (in thousands) | March 31, 2022 (in thousands) | | :--------------------------------- | :------------------------------- | :------------------------------ | | Cash and cash equivalents | $92,960 | $91,205 | | Total current assets | $254,577 | $275,622 | | Total assets | $836,107 | $910,268 | | Total current liabilities | $164,769 | $191,527 | | Convertible senior notes | $264,443 | $447,452 | | Term loan | $231,202 | — | | Total liabilities | $746,080 | $727,902 | | Total stockholders' equity | $90,027 | $182,366 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show increased total revenue for both periods, with a reduced net loss Condensed Consolidated Statements of Operations | Metric (in thousands, except per share) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $184,400 | $156,874 | $559,409 | $456,758 | | Loss from operations | $(18,081) | $(37,618) | $(69,825) | $(113,602) | | Net loss | $(26,030) | $(43,571) | $(63,712) | $(129,801) | | Net loss per share (Basic and diluted) | $(0.23) | $(0.38) | $(0.55) | $(1.16) | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The comprehensive loss statements indicate a net loss for both periods, with foreign currency translation adjustments impacting comprehensive income Condensed Consolidated Statements of Comprehensive Loss | Metric (in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(26,030) | $(43,571) | $(63,712) | $(129,801) | | Foreign currency translation adjustment | $10,244 | $895 | $(6,688) | $(971) | | Comprehensive loss | $(15,817) | $(42,739) | $(70,530) | $(130,883) | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from **$182,366 thousand** to **$90,027 thousand**, primarily due to ASU 2020-06 adoption, share repurchases, and net losses Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands) | March 31, 2022 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Total Stockholders' Equity (Balance) | $182,366 | $90,027 | | Adjustment related to adoption of ASU 2020-06 | $(46,160) | — | | Stock-based compensation expense | — | $77,804 | | Shares repurchase | — | $(60,214) | | Net loss | — | $(63,712) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased, investing activities provided cash, and financing activities used cash due to debt refinancing and share repurchases Cash Flow Summary (Nine Months Ended December 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :-------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $35,164 | $18,154 | | Net cash provided by (used in) investing activities | $433 | $(30,122) | | Net cash used in financing activities | $(36,275) | $99,959 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(6,425) | $87,821 | | Cash, cash equivalents and restricted cash, end of year | $94,289 | $208,993 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's business, accounting policies, revenue, fair value, asset changes, lease obligations, and debt and equity activities [1. The Company and Significant Accounting Policies](index=12&type=section&id=1.%20THE%20COMPANY%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) 8x8, Inc. is a leading SaaS provider of cloud communication solutions, adopting ASU 2020-06 on April 1, 2022, impacting its financial statements - 8x8, Inc. is a leading Software-as-a-Service (SaaS) provider of contact center, voice, video, chat, and enterprise-class API solutions powered by one global cloud communications platform[32](index=32&type=chunk) - Effective April 1, 2022, the Company adopted ASU 2020-06 using a modified retrospective approach, resulting in a decrease to accumulated deficit of **$46.7 million**, a decrease to additional paid-in capital of **$92.8 million**, and an increase to convertible senior notes, net of **$46.2 million**[39](index=39&type=chunk) [2. Revenue Recognition](index=13&type=section&id=2.%20REVENUE%20RECOGNITION) The company disaggregates revenue by region, reporting **$750.0 million** in remaining performance obligations, with increased deferred sales commission amortization - Contract revenue from remaining performance obligations not yet recognized was approximately **$750.0 million** as of December 31, 2022. The company expects to recognize approximately **80%** of this over the next **36 months**[45](index=45&type=chunk) Amortization of deferred sales commission costs (in thousands) | Metric (in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Amortization of deferred sales commission costs | $9,700 | $8,700 | $28,500 | $25,600 | [3. Fair Value Measurements](index=14&type=section&id=3.%20FAIR%20VALUE%20MEASUREMENTS) The company's cash, cash equivalents, and investments totaled **$131,734 thousand**, with fair values disclosed for debt and warrants Asset Category (in thousands) | Asset Category (in thousands) | December 31, 2022 Fair Value | March 31, 2022 Fair Value | | :---------------------------- | :--------------------------- | :-------------------------- | | Cash and Cash Equivalents | $92,960 | $91,205 | | Restricted Cash | $1,329 | $9,509 | | Short-Term Investments | $37,445 | $44,845 | | Long-Term Investments | — | $2,671 | | Total Assets | $131,734 | $148,230 | - As of December 31, 2022, the estimated fair value of the Company's 2024 Notes was **$61.3 million**, 2028 Notes was **$181.2 million**, and Term Loan was **$224.3 million**[53](index=53&type=chunk) Warrants Fair Value and Valuation Inputs (as of December 31, 2022) | Metric | Value | | :-------------- | :-------- | | Fair Value | $5,393 | | Stock volatility | **60.5 %** | | Risk-free rate | **4.0 %** | | Expected term | **4.6 years** | [4. Property and Equipment, Net](index=15&type=section&id=4.%20PROPERTY%20AND%20EQUIPMENT,%20NET) During the three and nine months ended December 31, 2022, the company wrote off **$3.7 million** in net book value of certain internally developed software - During the three and nine months ended December 31, 2022, the Company wrote off certain internally developed software with a net book value of **$3.7 million**[54](index=54&type=chunk) [5. Intangible Assets and Goodwill](index=15&type=section&id=5.%20INTANGIBLE%20ASSETS%20AND%20GOODWILL) The net carrying amount of acquired identifiable intangible assets decreased to **$112,236 thousand**, with goodwill adjusted for the Fuze acquisition and foreign currency translation Acquired Identifiable Intangible Assets (in thousands) | Asset Category | December 31, 2022 Net Carrying Amount | March 31, 2022 Net Carrying Amount | | :---------------------- | :------------------------------------ | :--------------------------------- | | Technology | $20,218 | $26,875 | | Customer relationships | $91,993 | $100,938 | | Trade names and domains | $25 | $400 | | Total | $112,236 | $128,213 | Estimated Annual Amortization of Intangible Assets (in thousands) | Year | Amount | | :-------- | :------- | | 2023 | $5,124 | | 2024 | $20,395 | | 2025 | $19,095 | | 2026 | $13,895 | | 2027 | $11,757 | | Thereafter | $41,970 | | Total | $112,236 | Changes in Goodwill Carrying Amounts (in thousands) | Metric | Amount | | :-------------------------- | :------- | | Balance at March 31, 2022 | $266,867 | | Adjustments (Fuze acquisition) | $(754) | | Foreign currency translation | $(535) | | Balance at December 31, 2022 | $265,578 | [6. Leases](index=16&type=section&id=6.%20LEASES) Operating lease right-of-use assets and liabilities decreased, and operating lease expense also decreased for both periods Operating Lease Balance Sheet Information (in thousands) | Metric | December 31, 2022 | March 31, 2022 | | :---------------------------- | :---------------- | :------------- | | Operating lease, right-of-use assets | $55,269 | $63,415 | | Operating lease liabilities, current | $12,537 | $15,485 | | Operating lease liabilities, non-current | $68,358 | $74,518 | | Total operating lease liabilities | $80,895 | $90,003 | Operating Lease Expense (in thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease expense | $2,742 | $3,367 | $8,667 | $10,162 | [7. Commitments and Contingencies](index=17&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) The company has various commitments, faces legal proceedings, and has accrued **$16.2 million** for contingent indirect tax liabilities - A wage and hour class action lawsuit (Rivas v. 8x8, Inc.) was preliminarily settled in September 2021, with final court approval granted on November 4, 2022. The company deposited settlement amounts with the administrator on January 17, 2023[65](index=65&type=chunk)[66](index=66&type=chunk) - As of December 31, 2022, the Company had accrued contingent indirect tax liabilities of **$16.2 million**, a slight decrease from **$16.7 million** at March 31, 2022[67](index=67&type=chunk) [8. Convertible Senior Notes, Term Loan and Capped Calls](index=18&type=section&id=8.%20CONVERTIBLE%20SENIOR%20NOTES,%20TERM%20LOAN%20AND%20CAPPED%20CALLS) The company refinanced **$403.8 million** of 2024 Notes with 2028 Notes and cash, funded by a new **$250.0 million** term loan, resulting in a **$16.1 million** debt extinguishment gain - On August 10, 2022, the Company borrowed **$250.0 million** in a senior secured term loan facility (Term Loan) due August 3, 2027, bearing interest at Term SOFR plus **6.50%**[79](index=79&type=chunk) - The company issued detachable warrants to affiliates of Francisco Partners to purchase **3.1 million shares** of common stock with a **five-year** term and an exercise price of **$7.15** per share, classified as liabilities at fair value[85](index=85&type=chunk) - On August 11, 2022, the Company issued **$201.9 million** aggregate principal amount of **4.00%** convertible senior notes due 2028 (2028 Notes) as part of an exchange transaction[87](index=87&type=chunk)[91](index=91&type=chunk) - The Exchange Transaction involved refinancing approximately **$403.8 million** of 2024 Notes for **$201.9 million** in 2028 Notes plus **$181.8 million** in cash, resulting in a **$16.1 million** gain on debt extinguishment[88](index=88&type=chunk)[89](index=89&type=chunk) - The company repurchased an additional **$27.8 million** in aggregate principal amount of 2024 Notes in Q2 and Q3 FY23, bringing the outstanding 2024 Notes to approximately **$68.3 million** as of December 31, 2022[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) [9. Stock-Based Compensation and Stockholders' Equity](index=22&type=section&id=9.%20STOCK-BASED%20COMPENSATION%20AND%20STOCKHOLDERS'%20EQUITY) The company approved a new 2022 Equity Incentive Plan, reserving **8.0 million shares**, reported decreased stock-based compensation, and repurchased **10.7 million shares** for **$60 million** - The 2022 Equity Incentive Plan was approved, reserving **8.0 million shares** for issuance, with **6.7 million shares** remaining available for future grants as of December 31, 2022[106](index=106&type=chunk) Stock-Based Compensation Expense (in thousands) | Metric (in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total | $21,081 | $33,737 | $73,516 | $106,159 | - As of December 31, 2022, there was **$93.4 million** of total unrecognized compensation cost related to RSUs and **$10.6 million** related to PSUs[114](index=114&type=chunk)[116](index=116&type=chunk) - In August 2022, the Company repurchased **10,695,000 shares** of its common stock for approximately **$60 million** in privately negotiated transactions[119](index=119&type=chunk) [10. Income Taxes](index=25&type=section&id=10.%20INCOME%20TAXES) The company's effective tax rate was negative for both periods, primarily due to a full valuation allowance against deferred tax assets and foreign tax liabilities Effective Tax Rate | Period | Effective Tax Rate | | :---------------------------- | :----------------- | | Three Months Ended Dec 31, 2022 | **(0.1)%** | | Three Months Ended Dec 31, 2021 | **(0.2)%** | | Nine Months Ended Dec 31, 2022 | **(1.7)%** | | Nine Months Ended Dec 31, 2021 | **(0.4)%** | [11. Net Loss Per Share](index=25&type=section&id=11.%20NET%20LOSS%20PER%20SHARE) The basic and diluted net loss per share improved to **$(0.23)** for three months and **$(0.55)** for nine months, compared to prior year Net Loss Per Share (Basic and Diluted) | Metric (in thousands, except per share) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss per share - basic and diluted | $(0.23) | $(0.38) | $(0.55) | $(1.16) | [12. Geographical Information](index=26&type=section&id=12.%20GEOGRAPHICAL%20INFORMATION) Total revenue increased for both periods, with significant US growth, while property and equipment, net, decreased in both regions Geographical Revenue (in thousands) | Region | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $133,891 | $106,849 | $406,543 | $315,114 | | International | $50,509 | $50,025 | $152,866 | $141,644 | | Total revenue | $184,400 | $156,874 | $559,409 | $456,758 | Property and Equipment, Net by Region (in thousands) | Region | December 31, 2022 | March 31, 2022 | | :------------ | :---------------- | :------------- | | United States | $56,998 | $73,967 | | International | $3,917 | $5,049 | | Total | $60,915 | $79,016 | [13. Acquisitions](index=26&type=section&id=13.%20ACQUISITIONS) On January 18, 2022, the company acquired Fuze, Inc. for **$213.8 million** in cash and stock, integrating its operations and revenue into the consolidated financial statements - On January 18, 2022, the Company acquired **100%** of Fuze, Inc. for a total consideration of **$213.8 million**, consisting of **$132.9 million** in cash and **$80.9 million** in common stock[124](index=124&type=chunk) - The results of Fuze, Inc.'s operations, including revenue, have been included in the Company's consolidated financial statements for the three and nine months ended December 31, 2022[124](index=124&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial performance, strategic initiatives, and operational results, highlighting revenue growth, profitability, and liquidity [OVERVIEW](index=26&type=section&id=OVERVIEW) 8x8 is a leading SaaS provider of cloud communication solutions, focusing on mid-market and enterprise customers with its integrated XCaaS platform - 8x8 is a leading SaaS provider of voice, video, contact center, and communication APIs powered by a global cloud communications platform[126](index=126&type=chunk) - The company has increased its focus on mid-market and enterprise customer sectors, with its flagship 8x8 XCaaS platform offering unified UCaaS and CCaaS solutions[127](index=127&type=chunk)[129](index=129&type=chunk) [SUMMARY AND OUTLOOK](index=28&type=section&id=SUMMARY%20AND%20OUTLOOK) Total revenue grew **18%** for Q3 FY23 and **22%** for nine months, boosted by Fuze, with a focus on increasing profitability, cash flow, and enterprise ARR through R&D and workforce reductions Total Revenue Growth (YoY) | Period | Total Revenue Growth | Total Revenue Growth (Excluding Fuze) | | :------------------------------------ | :------------------- | :------------------------------------ | | Three Months Ended December 31, 2022 | **18%** | **1%** | | Nine Months Ended December 31, 2022 | **22%** | **4%** | - Annualized Recurring Subscriptions and Usage Revenue (ARR) from mid-market and enterprise customers increased **30%** year-over-year, representing **76%** of total ARR[136](index=136&type=chunk) - The company conducted two workforce reductions in October 2022 and January 2023, involving approximately **300 employees**, primarily in sales, marketing, and G&A, to improve operational efficiency and align resources[140](index=140&type=chunk) - Approximately **two-thirds** of R&D investment is focused on extending contact center capabilities of the XCaaS platform, with plans to reduce unit costs and improve gross profit margin[139](index=139&type=chunk) [IMPACT OF COVID-19](index=28&type=section&id=IMPACT%20OF%20COVID-19) The long-term impact of the COVID-19 pandemic on the company's business and financial results remains uncertain, with a significant portion of the workforce still remote - The full extent of the long-term impact of the COVID-19 pandemic on the business, operations, and financial results is uncertain and depends on evolving factors[141](index=141&type=chunk) - The company's workforce continues to spend significant time working from home, even as travel for employees begins to return to pre-COVID-19 levels[141](index=141&type=chunk) [KEY BUSINESS METRICS](index=29&type=section&id=KEY%20BUSINESS%20METRICS) Management uses Annualized Recurring Subscriptions and Usage Revenue (ARR) as a key business metric to evaluate operations and drive financial performance - Annualized Recurring Subscriptions and Usage Revenue (ARR) is defined as the sum of the most recent month of (i) recurring subscription amounts and (ii) platform usage charges for all CPaaS customers (subject to a minimum billings threshold for a period of at least **six consecutive months**), multiplied by **12**[144](index=144&type=chunk) [COMPONENTS OF RESULTS OF OPERATIONS](index=29&type=section&id=COMPONENTS%20OF%20RESULTS%20OF%20OPERATIONS) This section outlines the primary components of the company's revenue and various operating expenses, including cost of service, R&D, sales and marketing, and G&A - Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from UCaaS, CCaaS, and CPaaS offerings[145](index=145&type=chunk) - Other revenue is generated from professional services (deployment support) and sales/rentals of IP telephones and other hardware equipment[146](index=146&type=chunk) - Operating expenses include Cost of service revenue (network operations, technology licenses, amortization), Cost of other revenue (hardware, professional services personnel), Research and development (personnel, software, equipment), Sales and marketing (personnel, commissions, advertising), and General and administrative (personnel, professional fees, corporate costs)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) The company's results show increased total revenue, driven by the Fuze acquisition, and a reduction in operating loss, with cost of service revenue decreasing as a percentage [Revenue](index=30&type=section&id=Revenue) Service revenue increased significantly for both periods, largely due to the Fuze acquisition and expanded customer deployments Service Revenue (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Three Months Ended December 31 | $175,765 | $149,396 | $26,369 | **17.7 %** | | Nine Months Ended December 31 | $533,482 | $429,568 | $103,914 | **24.2 %** | - Nearly all service revenue growth for the three months ended December 31, 2022, was attributable to the acquisition of Fuze, Inc., which contributed approximately **$26.5 million** and **$83.7 million** in service revenue for the three and nine months, respectively[156](index=156&type=chunk) Other Revenue (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :-------- | :-------- | :-------- | :------- | | Three Months Ended December 31 | $8,635 | $7,478 | $1,157 | **15.5 %** | | Nine Months Ended December 31 | $25,927 | $27,190 | $(1,263) | **(4.6)%** | [Cost of Revenue](index=31&type=section&id=Cost%20of%20Revenue) Cost of service revenue decreased in dollars and as a percentage for three months, and increased in dollars but decreased as a percentage for nine months, while cost of other revenue decreased for both periods Cost of Service Revenue (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Three Months Ended December 31 | $47,335 | $48,763 | $(1,428) | **(2.9)%** | | Percentage of service revenue | **26.9 %** | **32.6 %** | | | | Nine Months Ended December 31 | $151,920 | $141,971 | $9,949 | **7.0 %** | | Percentage of service revenue | **28.5 %** | **33.0 %** | | | Cost of Other Revenue (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :-------- | :-------- | :-------- | :------- | | Three Months Ended December 31 | $10,176 | $11,071 | $(895) | **(8.1)%** | | Percentage of other revenue | **117.8 %** | **148.0 %** | | | | Nine Months Ended December 31 | $34,302 | $37,086 | $(2,784) | **(7.5)%** | | Percentage of other revenue | **132.3 %** | **136.4 %** | | | [Operating Expenses](index=31&type=section&id=Operating%20Expenses) Research and development expenses increased significantly due to the Fuze acquisition. Sales and marketing expenses increased in dollars but decreased as a percentage, while G&A expenses saw mixed changes Research and Development Expenses (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Three Months Ended December 31 | $38,791 | $27,911 | $10,880 | **39.0 %** | | Percentage of total revenue | **21.0 %** | **17.8 %** | | | | Nine Months Ended December 31 | $109,765 | $81,801 | $27,964 | **34.2 %** | | Percentage of total revenue | **19.6 %** | **17.9 %** | | | Sales and Marketing Expenses (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Three Months Ended December 31 | $79,021 | $76,797 | $2,224 | **2.9 %** | | Percentage of total revenue | **42.9 %** | **49.0 %** | | | | Nine Months Ended December 31 | $243,035 | $229,438 | $13,597 | **5.9 %** | | Percentage of total revenue | **43.4 %** | **50.2 %** | | | General and Administrative Expenses (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Three Months Ended December 31 | $27,158 | $29,950 | $(2,792) | **(9.3)%** | | Percentage of total revenue | **14.7 %** | **19.1 %** | | | | Nine Months Ended December 31 | $90,212 | $80,064 | $10,148 | **12.7 %** | | Percentage of total revenue | **16.1 %** | **17.5 %** | | | [Other income (expense), net](index=33&type=section&id=Other%20income%20(expense),%20net) Other income (expense), net, shifted from a net expense to a net income for the nine months, primarily driven by a significant gain from debt extinguishment, foreign exchange, and asset sales Other Income (Expense), Net (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :-------- | :---------- | :---------- | :------- | | Three Months Ended December 31 | $(7,912) | $(5,866) | $(2,046) | **34.9 %** | | Nine Months Ended December 31 | $7,154 | $(15,623) | $22,777 | **(145.8)%** | - The nine-month increase was primarily due to an **$18.2 million** gain from debt extinguishment, **$2.4 million** gain from foreign exchange transactions, **$1.8 million** gain from sale of intangibles, and **$0.5 million** gain on remeasurement of warrants[177](index=177&type=chunk) [Provision for income taxes](index=33&type=section&id=Provision%20for%20income%20taxes) The provision for income taxes remained relatively low and stable for both periods, with no material changes anticipated for the remainder of fiscal 2023 Provision for Income Taxes (in thousands) | Period | 2022 | 2021 | Change | % Change | | :---------------------------- | :------ | :------ | :------ | :------- | | Three Months Ended December 31 | $37 | $87 | $(50) | **(57.5)%** | | Nine Months Ended December 31 | $1,041 | $576 | $465 | **80.7 %** | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, the company had **$131.7 million** in cash and investments. Operating cash flow increased, while financing activities used cash due to debt refinancing and share repurchases - As of December 31, 2022, the Company had **$131.7 million** of cash, cash equivalents, and investments[179](index=179&type=chunk) Cash Flow Summary (Nine Months Ended December 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :-------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $35,164 | $18,154 | | Net cash provided by (used in) investing activities | $433 | $(30,122) | | Net cash used in financing activities | $(36,275) | $99,959 | [Critical Accounting Policies and Estimates](index=34&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on management's estimates and judgments, with no significant changes to critical accounting policies other than the adoption of ASU 2020-06 - No significant changes occurred during the three months ended December 31, 2022, to the company's critical accounting policies and estimates previously disclosed in the Form 10-K, other than the adoption of ASU 2020-06[186](index=186&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&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 on its cash, investments, and debt, and foreign currency exchange risk [Interest Rate Fluctuation Risk](index=34&type=section&id=Interest%20Rate%20Fluctuation%20Risk) The company is exposed to interest rate risk through its **$131.7 million** in cash, cash equivalents, and investments, as well as its outstanding convertible senior notes (**$68.3 million** 2024 Notes, **$201.9 million** 2028 Notes) and a **$250.0 million** term loan - As of December 31, 2022, the company had **$131.7 million** in cash, cash equivalents, and investments, primarily in money market funds, U.S. treasury, commercial paper, and corporate bonds[187](index=187&type=chunk) - The company had **$68.3 million** of 2024 convertible senior notes, **$201.9 million** of 2028 convertible senior notes, and a **$250.0 million** senior secured term loan facility outstanding as of December 31, 2022[188](index=188&type=chunk) [Foreign Currency Exchange Risk](index=35&type=section&id=Foreign%20Currency%20Exchange%20Risk) The company faces foreign currency exchange risk from international operations, primarily invoicing and paying expenses in British pounds and Euros, with immaterial historical impacts - The company operates in international markets, invoicing customers and paying expenses primarily in British pounds and Euros, leading to foreign currency exchange rate risk[189](index=189&type=chunk) - Historically, the impacts of foreign currency fluctuations on revenue and expenses have substantially offset one another, resulting in immaterial effects on operating and net income[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective, excluding Fuze, Inc., with no material changes in internal control, acknowledging inherent limitations [Evaluation of Disclosure Controls and Procedures](index=35&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level, excluding the newly acquired Fuze, Inc - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022[192](index=192&type=chunk) - The evaluation excluded an assessment of disclosure controls and internal control over financial reporting related to Fuze, Inc., which was acquired on January 18, 2022[192](index=192&type=chunk) [Changes in Internal Control Over Financial Reporting](index=35&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) There were no material changes in the company's internal control over financial reporting during the three months ended December 31, 2022 - During the three months ended December 31, 2022, there was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[193](index=193&type=chunk) [Limitations on the Effectiveness of Controls](index=35&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 - Management does not expect that disclosure controls or internal control over financial reporting will prevent all errors and all fraud, as a control system can provide only reasonable, not absolute, assurance[194](index=194&type=chunk) [PART II. Other Information](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference information regarding legal proceedings from Note 7, Commitments and Contingencies - Information regarding legal proceedings is incorporated by reference from Note 7, Commitments and Contingencies, in the Notes to Unaudited Condensed Consolidated Financial Statements[195](index=195&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the significant risk of cyber intrusions and breaches, noting a recent incident where an unauthorized third party accessed **one terabyte** of confidential information - Cyber intrusions, breaches of networks or systems, and other malicious acts could adversely impact the business, including misappropriating proprietary information or causing service interruptions[197](index=197&type=chunk) - During the second quarter of fiscal 2023, malware was detected on the network, leading to an intrusion. In December 2022 (Q3 FY23), it was learned that the unauthorized third party possessed approximately **one terabyte** of confidential information from back-office servers[198](index=198&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds for the period - There were no unregistered sales of equity securities or use of proceeds to report[201](index=201&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[202](index=202&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[202](index=202&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period - There is no other information to report[203](index=203&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, promotion letters, and certifications - Exhibits include the Certificate of Amendment to the Restated Certificate of Incorporation, Amended and Restated By-Laws, promotion letters for Samuel Wilson and Kevin Kraus, and a separation agreement for David Sipes[206](index=206&type=chunk) - Certifications from the Interim Chief Executive Officer and Interim Chief Financial Officer pursuant to Rule 13a-14 and 18 U.S.C. 1350 are included[206](index=206&type=chunk) - The report also includes financial statements formatted in Inline XBRL, with detailed tags[206](index=206&type=chunk) [Signature](index=39&type=section&id=Signature) The Quarterly Report on Form 10-Q was signed by Suzy Seandel, Principal Accounting Officer and Duly Authorized Officer, on February 6, 2023 - The Quarterly Report on Form 10-Q was signed by Suzy Seandel, Principal Accounting Officer and Duly Authorized Officer, on February 6, 2023[209](index=209&type=chunk)[211](index=211&type=chunk)

8x8, Inc. (NASDAQ:EGHT) Q3 2023 Results Conference Call February 1, 2023 4:30 PM ET Company Participants Kate Patterson - VP of IR Samuel Wilson - Interim CEO Kevin Kraus - Interim CFO Conference Call Participants Matt VanVliet - BTIG Meta Marshall - Morgan Stanley Siti Panigrahi - Mizuho Catharine Trebnick - Roth Capital Partners George Sutton - Craig-Hallum Will Power - Baird Peter Levine - Evercore ISI Ryan Koontz - Needham Ryan MacWilliams - Barclays Austin Williams - Wells Fargo Michael Funk - Bank of ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) The company reported increased revenue and reduced net losses for the quarter, with positive operating cash flow for the six months [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Mar 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $100,512 | $91,205 | | Total current assets | $263,666 | $275,622 | | Goodwill | $262,393 | $266,867 | | Total assets | $855,941 | $910,268 | | **Liabilities & Equity** | | | | Total current liabilities | $168,985 | $191,527 | | Convertible senior notes | $286,682 | $447,452 | | Term loan | $230,049 | $0 | | Total liabilities | $771,159 | $727,902 | | Total stockholders' equity | $84,782 | $182,366 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $187,389 | $151,557 | +23.6% | | Loss from Operations | $(24,990) | $(37,157) | +32.8% | | Net Loss | $(11,639) | $(42,324) | +72.5% | | Net Loss Per Share | $(0.10) | $(0.38) | +73.7% | Six Months Ended Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months 2022 | Six Months 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $375,009 | $299,884 | +25.1% | | Loss from Operations | $(51,744) | $(75,984) | +31.9% | | Net Loss | $(37,682) | $(86,230) | +56.3% | | Net Loss Per Share | $(0.32) | $(0.78) | +59.0% | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19,682 | $9,131 | | Net cash provided by (used in) investing activities | $9,845 | $(28,754) | | Net cash (used in) provided by financing activities | $(16,193) | $10,192 | | **Net increase (decrease) in cash** | **$1,127** | **$(9,542)** | - Key financing activities for the six months ended Sep 30, 2022, included receiving **$232.9 million** in net proceeds from a new term loan, which was used for a **$190.6 million** repayment and exchange of convertible senior notes and a **$60.2 million** repurchase of common stock[22](index=22&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) - As of September 30, 2022, the company had approximately **$715.0 million** in remaining performance obligations, with about **80%** expected to be recognized as revenue over the next 36 months[37](index=37&type=chunk) - In August 2022, the company borrowed **$250.0 million** via a senior secured term loan facility, issued **$201.9 million** in new 4.00% convertible senior notes due 2028, and exchanged/repurchased a significant portion of its 0.50% convertible senior notes due 2024. This resulted in a debt extinguishment gain of **$16.1 million**[68](index=68&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk) - In August 2022, the company repurchased **10,695,000 shares** of its common stock for approximately **$60 million** in privately negotiated transactions[112](index=112&type=chunk) - The acquisition of Fuze, Inc. on January 18, 2022, contributed to the company's financial results for the three and six months ended September 30, 2022[118](index=118&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 24% revenue increase driven by acquisition, strategic focus on enterprise customers, and capital structure changes [Summary and Outlook](index=29&type=section&id=Summary%20and%20Outlook) Q2 FY2023 Revenue Growth | Metric | Amount | YoY Growth | | :--- | :--- | :--- | | Total Revenue | $187.4M | 24% | | Revenue from Fuze | $28.4M | N/A | | Organic Revenue Growth | N/A | 5% | - Annualized Recurring Subscriptions and Usage Revenue (ARR) from strategic mid-market and enterprise customers increased **37% YoY**, representing **76%** of total ARR. ARR from Small Business customers declined **2% YoY**[128](index=128&type=chunk) - The company is committed to increasing its investment in research and development in fiscal 2023 compared to fiscal 2022 to drive competitive advantage[127](index=127&type=chunk) - In August 2022, the company refinanced approximately **$403.8 million** of its 2024 Notes, took on a new **$250.0 million** term loan, and repurchased **$60.0 million** of its common stock[131](index=131&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) - Service revenue for Q2 FY23 increased by **$36.2 million** YoY, primarily due to the acquisition of Fuze, Inc., which contributed approximately **$27.9 million**. The increase was also driven by growth in UCaaS and CCaaS solutions, partially offset by a decrease in CPaaS usage revenue in the Asia-Pacific region[148](index=148&type=chunk) - Cost of service revenue as a percentage of service revenue improved, decreasing from **33.2%** in Q2 FY22 to **28.6%** in Q2 FY23, indicating better gross margins[152](index=152&type=chunk)[154](index=154&type=chunk) - Sales and marketing expenses increased **4.9%** in absolute dollars but decreased significantly as a percentage of total revenue, from **50.6%** in Q2 FY22 to **43.0%** in Q2 FY23, reflecting improved efficiency[163](index=163&type=chunk) - Other income (expense), net, swung from an expense of **$(4.9) million** in Q2 FY22 to an income of **$14.0 million** in Q2 FY23, primarily due to a **$16.1 million** gain from debt extinguishment[168](index=168&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2022, the company had **$132.3 million** in cash, cash equivalents, and investments. Management believes this is sufficient to meet working capital and expenditure requirements for the next 12 months[171](index=171&type=chunk) - Net cash provided by operating activities for the six months ended September 30, 2022, was **$19.7 million**, a significant improvement compared to **$9.1 million** for the same period in the prior year[172](index=172&type=chunk) - Major financing activities in the period included securing a **$250.0 million** term loan, repaying a significant portion of 2024 convertible notes for **$181.7 million** in cash and **$201.9 million** in new 2028 notes, and repurchasing **$60.2 million** of stock[171](index=171&type=chunk)[174](index=174&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate, market, and foreign currency risks, with the strong U.S. dollar impacting Q2 FY23 revenues - The company's new **$250.0 million** senior secured term loan bears interest at a variable rate (Term SOFR plus a margin), exposing it to interest rate fluctuations[179](index=179&type=chunk)[194](index=194&type=chunk) - The fair value of the company's convertible senior notes is subject to interest rate and market risk, fluctuating with the company's common stock price[179](index=179&type=chunk) - In Q2 FY23, the strengthening U.S. dollar against the British pound and Euro reduced reported revenues by approximately **$1.0 million**. However, the impact on operating and net income was not material due to the offsetting effect on expenses denominated in those currencies[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, excluding the Fuze acquisition, with no material changes to internal controls - The CEO and CFO concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[184](index=184&type=chunk) - The assessment of internal controls over financial reporting excluded Fuze, Inc., which was acquired on January 18, 2022, as permitted by SEC guidance for newly acquired businesses[183](index=183&type=chunk)[184](index=184&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[185](index=185&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a wage and hour class action lawsuit, with a preliminary settlement approved in June 2022 - The company is involved in a wage and hour litigation case (Denise Rivas vs. 8x8, Inc.) filed in September 2020[56](index=56&type=chunk) - A preliminary settlement was reached and received preliminary court approval on June 13, 2022. A motion for final approval was scheduled for November 3, 2022[56](index=56&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from cyber intrusions and its substantial indebtedness of $516.7 million - The company faces significant risk from cyber intrusions. It disclosed that during the second quarter of fiscal 2023, it detected malware on its network that permitted an unauthorized third party to access certain data, but it responded quickly to remove the threat[190](index=190&type=chunk) - The company has a substantial amount of indebtedness, with **$516.7 million** of total long-term debt outstanding as of September 30, 2022[194](index=194&type=chunk) - This high level of debt could make it difficult to satisfy obligations, require a substantial portion of cash flow for debt service, limit flexibility, and place the company at a competitive disadvantage[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued common stock for advisory fees and repurchased 10.7 million shares for $60 million in August 2022 - On August 3, 2022, the company issued **1,015,024 shares** of common stock (approx. **$5.1 million** value) to its financial advisor to settle fees in a private placement, exempt from registration under Section 4(a)(2) of the Securities Act[196](index=196&type=chunk) Common Stock Repurchases (Q2 FY2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | August 2022 | 10,695,000 | $5.61 | | **Total** | **10,695,000** | **$5.61** | [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including debt agreements and required CEO/CFO certifications - Key exhibits filed include the Indenture for the 4.00% Convertible Senior Notes due 2028 and the Term Loan Credit Agreement dated August 3, 2022[203](index=203&type=chunk) - The filing includes certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[202](index=202&type=chunk)

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]