8x8(EGHT) - 2023 Q3 - Quarterly Report

Forward-Looking Statements and Risk Factors This section outlines forward-looking statements and various risk factors that could impact the company's actual results Forward-Looking Statements 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] - 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] Risk Factors 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] - 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] - 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] PART I. Financial Information This part presents the company's unaudited condensed consolidated financial statements and management's discussion Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows, with detailed notes Condensed Consolidated Balance Sheets 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 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 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 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 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 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 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] - 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] 2. Revenue Recognition 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] 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 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] 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 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] 5. Intangible Assets and Goodwill 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 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 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][66] - 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] 8. Convertible Senior Notes, Term Loan and Capped Calls 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] - 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] - 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][91] - 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][89] - 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][100][101][102] 9. Stock-Based Compensation and Stockholders' Equity 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] 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][116] - In August 2022, the Company repurchased 10,695,000 shares of its common stock for approximately $60 million in privately negotiated transactions[119] 10. Income Taxes 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 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 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 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, strategic initiatives, and operational results, highlighting revenue growth, profitability, and liquidity 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] - 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][129] SUMMARY AND OUTLOOK 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] - 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] - 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] IMPACT OF COVID-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] - 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] KEY BUSINESS METRICS 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] COMPONENTS OF RESULTS OF OPERATIONS 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] - Other revenue is generated from professional services (deployment support) and sales/rentals of IP telephones and other hardware equipment[146] - 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][148][149][150][151] RESULTS OF OPERATIONS 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 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] 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 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 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 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] Provision for income taxes 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 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] 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 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 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] - 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] Foreign Currency Exchange Risk 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] - 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] Item 4. Controls and Procedures 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 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] - 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] Changes in Internal Control Over Financial Reporting 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] Limitations on the Effectiveness of Controls 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] PART II. Other Information This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[202] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[202] Item 5. Other Information The company reported no other information for the period - There is no other information to report[203] Item 6. Exhibits 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] - 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] - The report also includes financial statements formatted in Inline XBRL, with detailed tags[206] 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][211]