8x8(EGHT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 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] Notes to Unaudited Condensed Consolidated Financial Statements - 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] - 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][77][79] - In August 2022, the company repurchased 10,695,000 shares of its common stock for approximately $60 million in privately negotiated transactions[112] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 24% revenue increase driven by acquisition, strategic focus on enterprise customers, and capital structure changes Summary and Outlook 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] - The company is committed to increasing its investment in research and development in fiscal 2023 compared to fiscal 2022 to drive competitive advantage[127] - 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] Results of Operations - 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] - 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][154] - 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] - 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] Liquidity and Capital Resources - 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] - 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] - 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][174] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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][194] - 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] - 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] Item 4. Controls and Procedures 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] - 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][184] - 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] - The company has a substantial amount of indebtedness, with $516.7 million of total long-term debt outstanding as of September 30, 2022[194] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 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] - The filing includes certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[202]