8x8, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2022 (8x8 fiscal 2023 first quarter). Financial figures below are in U.S. dollars; millions are used unless stated otherwise.
Business context
8x8 provides cloud-based voice, video, contact center, collaboration and communications API services. Subscription and platform-usage services generate most revenue. The quarter includes Fuze, acquired in January 2022; the prior-year comparison does not.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total revenue | $187.6 million | $148.3 million |
| Operating loss | $26.8 million | $38.8 million |
| Net loss | $26.0 million; $0.22 per share | $43.9 million; $0.40 per share |
| Cash from operations | $5.8 million | $4.0 million |
| Cash, cash equivalents and investments | $141.6 million, plus $1.4 million restricted cash | — |
- Service revenue was $179.2 million, up 30.0%; other revenue was $8.5 million, down 19.7%. Reported total revenue rose 26.5%. Excluding approximately $29.5 million of Fuze revenue, management reported total revenue growth of 7%.
- Gross profit was approximately $121.0 million, or 64.5% of revenue, compared with $88.6 million, or 59.7%, in the prior-year quarter. Service cost was 29.9% of service revenue, versus 33.4%.
- Operating expenses were $214.4 million, up 14.5%. R&D rose 37.7% to $35.0 million; sales and marketing rose 10.0% to $83.5 million; general and administrative rose 12.0% to $29.2 million.
- At June 30, cash and cash equivalents were $92.7 million and short-term investments were $48.9 million. Current assets were $272.7 million and current liabilities were $175.4 million.
- Convertible notes had $500 million principal and a $494.4 million net carrying amount, due February 2024. Operating lease liabilities totaled $86.2 million. Stockholders’ equity was $133.5 million.
Material changes and unusual items
- Fuze contributed approximately $29.5 million in revenue, including $29.3 million of service revenue. Excluding Fuze, growth was materially lower than reported growth.
- Effective April 1, 2022, 8x8 adopted ASU 2020-06 for convertible debt. Adoption increased the notes’ carrying amount by $46.2 million, reduced additional paid-in capital by $92.8 million and reduced accumulated deficit by $46.7 million. The change also reduced debt-amortization expense.
- The company recorded approximately $3.3 million of out-of-period adjustments: $2.1 million of previously deferred subscription revenue and a $1.2 million reduction in bad-debt reserves. These adjustments benefited the quarter.
- Foreign currency translation reduced comprehensive income by $8.4 million. Net cash, cash equivalents and restricted cash declined $6.6 million during the quarter, including a $6.7 million adverse exchange-rate effect.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management said it expects service revenue to grow over time, plans to increase R&D investment versus fiscal 2022, reduce service-delivery unit costs and improve sales-and-marketing efficiency. It expects these efforts to support margins and cash flow, but cautioned that cost reductions could also reduce revenue.
- Management said existing liquidity and anticipated operating cash flow should cover working capital and obligations for the next 12 months and foreseeable future, while noting it expects to refinance the $500 million notes before their February 2024 maturity.
- Risks highlighted include economic weakness, inflationary cost pressures, customer churn, competition, service reliability and cybersecurity, third-party network reliance, acquisition integration, COVID-19, Russia’s invasion of Ukraine, and refinancing risk.
- Accrued contingent indirect tax liabilities were $16.7 million. A California wage-and-hour class/PAGA settlement received preliminary court approval; administration was ongoing. The company said litigation outcomes remain uncertain and could materially affect results in a particular period.
- Disclosure-control effectiveness was reported at the reasonable-assurance level. Fuze was excluded from the internal-control assessment following its acquisition.
Key facts for investors to verify
- How much of reported growth and the improving operating loss reflects Fuze, and how underlying organic growth develops.
- Whether enterprise ARR growth and the shift toward mid-market and enterprise customers translate into sustained revenue growth and retention.
- Whether management’s planned cost efficiencies improve operating margin and cash generation without weakening demand or growth.
- Liquidity and the company’s ability to refinance or otherwise address the $500 million notes before February 2024.
- The resolution and potential financial effects of indirect-tax exposures, the wage-and-hour settlement, and other contingencies.