8x8(EGHT) - 2022 Q4 - Annual Report

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