8x8(EGHT) - 2023 Q4 - Annual Report

Part I Business 8x8, Inc. provides the XCaaS platform, integrating UCaaS, CCaaS, and CPaaS solutions for over 60,000 global customers - 8x8 is a leading provider of the XCaaS platform, integrating UCaaS, CCaaS, and CPaaS solutions on a single global cloud-native communications platform[15][16][181] - The company serves over 60,000 customers and 2.5 million paid business licenses globally, with no single customer accounting for 10% or more of fiscal 2023 revenue[15][31] - Key solutions like 8x8 Work (UCaaS), 8x8 Contact Center (CCaaS), and 8x8 CPaaS are bundled into tiered "X Series" plans[24][25][27] - The company faces significant competition from cloud communication providers, internet service vendors, and legacy equipment providers[38][39][40] - As of March 31, 2023, 8x8 had 1,921 full-time employees, with 65% located outside the United States[52] Risk Factors The company faces substantial risks including operating losses, intense competition, cybersecurity, debt, and regulatory compliance - The company has a history of losses, with an operating loss of approximately $66.3 million in fiscal 2023 and an accumulated deficit of $792.9 million[75] - The business is susceptible to cybersecurity breaches, including a Q2 fiscal 2023 incident where approximately one terabyte of confidential information was exfiltrated[127] - The company has substantial indebtedness, including a $250.0 million senior secured term loan and approximately $265.2 million in convertible senior notes[146][147][248] - International operations, especially in Romania, are exposed to risks from the ongoing conflict between Russia and Ukraine[114][116] - The company's ability to use its $1,199.1 million federal net operating loss and tax credit carryforwards is subject to limitations due to ownership changes[107][427] Unresolved Staff Comments The company reports no unresolved staff comments - None[162] Properties The company's principal operations are in Campbell, California, with leased offices and data centers globally - The company's main operations are in Campbell, California, with significant international leased offices[163] - 8x8 leases space from third-party data center hosting facilities across the US, South America, Europe, and Asia Pacific[164] Legal Proceedings The company is involved in various legal proceedings, with provisions recorded, though outcomes could materially affect financial results - The company is involved in various legal proceedings, with recorded provisions, but ultimate outcomes are uncertain and could materially affect financial results[360][361] Mine Safety Disclosures This item is not applicable to the company - Not applicable[166] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'EGHT', has never paid dividends, and repurchased shares in fiscal 2022 - The company's common stock trades under the symbol "EGHT" on the Nasdaq Global Select Market[169] - No cash dividends have ever been paid, and none are planned for the foreseeable future[170] - In August 2022, the company repurchased 10,695,000 shares for approximately $60.0 million in privately negotiated transactions[176] - In August 2022, the company issued 1,015,024 shares of common stock, valued at approximately $5.1 million, to settle financial advisory fees[178] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2023 total revenue grew 16.6% to $743.9 million, driven by the Fuze acquisition and strategic focus on enterprise customers Results of Operations Fiscal 2023 total revenue increased 16.6% to $743.9 million, with service revenue up 17.9%, and operating loss narrowed to $66.3 million Fiscal 2023 vs. Fiscal 2022 Revenue | Revenue Type | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Service Revenue | $710,044 | $602,357 | $107,687 | 17.9% | | Other Revenue | $33,894 | $35,773 | $(1,879) | -5.3% | | Total Revenue | $743,938 | $638,130 | $105,808 | 16.6% | Fiscal 2023 vs. Fiscal 2022 Operating Expenses | Expense Category | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of Service Revenue | $198,871 | $195,909 | $2,962 | 1.5% | | Research & Development | $146,220 | $112,387 | $33,833 | 30.1% | | Sales & Marketing | $311,883 | $314,223 | $(2,340) | -0.7% | | General & Administrative | $110,652 | $118,103 | $(7,451) | -6.3% | - The increase in service revenue was substantially driven by the Fuze acquisition, contributing approximately an $86.5 million increase[212] - Other expense, net decreased by $17.6 million, primarily due to an $18.5 million gain from debt extinguishment, partially offset by a $20.7 million increase in interest expenses[226] Liquidity and Capital Resources As of March 31, 2023, the company had $137.6 million in cash and investments, with net cash from operations at $48.8 million Cash and Liquidity | Metric | As of March 31, 2023 (in thousands) | | :--- | :--- | | Cash and cash equivalents | $111,400 | | Short-term investments | $26,228 | | Total Cash, equivalents, and short-term investments | $137,628 | Cash Flow Summary (Fiscal Year 2023 vs 2022) | Cash Flow Activity | FY 2023 (in thousands) | FY 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $48,786 | $34,680 | | Net cash provided by (used in) investing activities | $6,050 | $(159,978) | | Net cash (used in) provided by financing activities | $(37,784) | $105,425 | - In May 2023, the company voluntarily prepaid $25.0 million of principal on its senior secured term loan, reducing the outstanding principal to $225 million[195][436] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate and foreign currency fluctuations, with no material impact expected from a 10% adverse change - The company has interest rate risk from its $250.0 million variable-rate Term Loan and fixed-rate convertible notes, whose fair value is sensitive to stock price[248] - Foreign currency risk exists from revenues and expenses in British Pound and Euro, but a hypothetical 10% adverse change would not result in a material loss[249][250] - The company does not currently use financial instruments for trading, speculative purposes, or to hedge foreign currency exchange risk[247][251] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal 2023, with an unqualified opinion from Moss Adams LLP Consolidated Balance Sheets As of March 31, 2023, total assets were $841.8 million, total liabilities $741.9 million, and stockholders' equity $99.9 million Consolidated Balance Sheet Summary (in thousands) | | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Total Assets | $841,810 | $910,268 | | Total Current Assets | $273,124 | $275,622 | | Goodwill | $266,863 | $266,867 | | Total Liabilities | $741,904 | $727,902 | | Total Current Liabilities | $229,887 | $191,527 | | Convertible senior notes, non-current | $196,821 | $447,452 | | Term loan | $231,993 | $— | | Total Stockholders' Equity | $99,906 | $182,366 | Consolidated Statements of Operations For fiscal 2023, total revenue was $743.9 million, operating loss narrowed to $66.3 million, and net loss improved to $73.1 million or ($0.63) per share Statement of Operations Summary (in thousands, except per share data) | | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Total Revenue | $743,938 | $638,130 | $532,344 | | Loss from Operations | $(66,292) | $(154,141) | $(146,149) | | Net Loss | $(73,143) | $(175,383) | $(165,585) | | Net Loss Per Share | $(0.63) | $(1.55) | $(1.57) | - Other expense, net, for fiscal 2023 included a gain on debt extinguishment of $18.5 million, significantly reducing the net loss[270] Consolidated Statements of Cash Flows For fiscal 2023, net cash from operations was $48.8 million, investing activities provided $6.1 million, and financing activities used $37.8 million Cash Flow Summary (in thousands) | | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $48,786 | $34,680 | | Net cash provided by (used in) investing activities | $6,050 | $(159,978) | | Net cash (used in) provided by financing activities | $(37,784) | $105,425 | | Net increase (decrease) in cash | $12,015 | $(20,458) | Notes to Consolidated Financial Statements The notes detail accounting policies, the Fuze acquisition, debt instruments including the $250 million Term Loan, and the company's $1.2 billion federal NOLs - As of March 31, 2023, remaining performance obligations were approximately $775.0 million, with 85% expected to be recognized over 24 months[343] - In August 2022, the company borrowed $250.0 million via a senior secured term loan and issued warrants to purchase 3.1 million shares[376][381] - The company exchanged $403.8 million of its 2024 Notes for cash and $201.9 million of new 2028 Convertible Senior Notes, resulting in a $16.1 million debt extinguishment gain[385][386] - As of March 31, 2023, the company had federal net operating loss carryforwards of approximately $1,199.1 million and maintains a full valuation allowance against U.S. deferred tax assets[422][423] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[438] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[440] - Management's assessment concluded that internal control over financial reporting was effective as of March 31, 2023, based on the COSO framework[441][442] - The independent registered public accounting firm, Moss Adams LLP, audited and reported on the effectiveness of internal control over financial reporting[443] Other Information The company reports no other information for this item - None[444] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[445] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information for this item is incorporated by reference from the forthcoming 2023 Proxy Statement[449] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2023 Proxy Statement - Information for this item is incorporated by reference from the forthcoming 2023 Proxy Statement[451] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related matters is incorporated by reference from the 2023 Proxy Statement - Information for this item is incorporated by reference from the forthcoming 2023 Proxy Statement[452] Certain Relationships and Related Transactions and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information for this item is incorporated by reference from the forthcoming 2023 Proxy Statement[453] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Information for this item is incorporated by reference from the forthcoming 2023 Proxy Statement[454] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, Schedule II - Valuation and Qualifying Accounts, and a comprehensive list of exhibits filed with the 10-K Schedule II: Valuation and Qualifying Accounts (Allowance for Credit Losses) | Fiscal Year Ended | Beginning Balance (in thousands) | Additions Charged to Expenses (in thousands) | Deductions (in thousands) | Ending Balance (in thousands) | | :--- | :--- | :--- | :--- | :--- | | March 31, 2021 | $3,106 | $7,374 | $(2,302) | $8,178 | | March 31, 2022 | $8,178 | $1,997 | $(3,658) | $6,517 | | March 31, 2023 | $6,517 | $3,204 | $(4,942) | $4,779 | Form 10-K Summary The company provides no summary for this item - None[467]