8x8, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021. The filing also reports fourth-quarter results for the three months ended March 31, 2021; this is not a standalone calendar-year 2020 Q4 filing. Unless otherwise noted, financial amounts below are in U.S. dollars.
Business context
8x8 is a SaaS provider of cloud voice, video, team collaboration, contact-center and communications API services. It reported approximately 58,000 business customers in more than 150 countries and approximately 1.8 million paid business users. Its strategy centers on the integrated X Series platform and growth in mid-market and enterprise customers. CEO David Sipes was appointed in December 2020.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $532.3 million | $446.2 million |
| Service revenue | $496.0 million | $414.1 million |
| Net loss | $165.6 million | $172.4 million |
| Net loss per share, diluted | $1.57 | $1.72 |
| Cash used in operating activities | $14.1 million | $93.9 million |
- Total revenue grew 19.3%; service revenue grew 19.8%. International revenue rose to 27% of total from 21%.
- Gross profit was approximately $302.2 million, or 56.8% of revenue, versus $245.0 million, or 54.9%, in FY2020. Operating loss was $146.1 million, compared with $159.8 million; operating margin improved to approximately negative 27.5% from negative 35.8%.
- Service costs increased 24.2%, faster than service revenue, largely reflecting higher communications infrastructure costs. Cost of other revenue declined 10.9%; it remained above other revenue, at 137.7% of that revenue.
- Research and development expense rose 18.3% to $92.0 million; sales and marketing rose 6.8% to $256.2 million; general and administrative rose 15.0% to $100.1 million.
- Cash, cash equivalents and short-term investments totaled $152.9 million at year-end; an additional $8.6 million was restricted cash. Total current assets were $276.5 million and current liabilities were $121.4 million.
- Convertible notes had $362.5 million face value and a $308.4 million net carrying amount. The notes bear 0.50% coupon interest and mature in February 2024. Total liabilities were $517.9 million; stockholders’ equity was $160.5 million.
- Capital expenditures included $28.8 million of capitalized internal-use software and $6.4 million of property and equipment purchases. Cash used in investing was $36.3 million; financing provided $13.2 million.
Fourth-quarter results and changes
FY2021 Q4 revenue was $144.7 million, compared with $121.5 million in FY2020 Q4. Gross profit was $83.6 million versus $63.9 million; operating loss was $40.0 million versus $46.2 million; and net loss was $45.0 million versus $50.1 million. Diluted loss per share was $0.42 versus $0.49.
For the full year, average annualized service revenue per customer increased to $8,439 from $7,876. Annual service revenue from mid-market and enterprise customers grew 31% and represented 47% of service revenue. Of new bookings above $12,000 in annualized recurring revenue, 67% were bundled UCaaS and CCaaS deals, up from 60% a year earlier.
Outlook, risks and unusual items
- Management expects service revenue to grow over time and plans continued investment in marketing, sales capacity, indirect channels and R&D in FY2022, while pursuing cost discipline, improved margins and a path to profitability. It expects operating losses to continue in the near future; no quantified revenue or earnings guidance is provided.
- Management said existing cash, investments and anticipated operating cash flows should cover working capital and expenditures for the next 12 months, while noting uncertainty from COVID-19 and broader market conditions. The filing also identifies potential customer churn, pricing pressure, competition, service interruptions, cybersecurity and privacy issues, regulatory obligations, and reliance on third-party networks as material risks.
- COVID-19 increased usage among some existing customers and accelerated remote-work adoption, but also created risks to customer demand, collections, churn and sales cycles, particularly among small and medium-sized businesses. The longer-term demand effect remained uncertain.
- FY2021 operating cash use improved substantially from FY2020, but the company remained loss-making. Stock-based compensation was $107.6 million, including a significant increase from $70.9 million; this is a material non-cash expense and a potential source of shareholder dilution.
- The company recorded $6.4 million of cash inflow from a lease assignment. It also deferred approximately $5.0 million of employer payroll taxes under the CARES Act, with repayment scheduled in FY2022 and FY2023.
- Pending matters include California wage-and-hour class and PAGA litigation, scheduled for joint mediation in September 2021, and state and local tax audits. Accrued contingent indirect tax liabilities were $3.1 million at year-end. The ultimate outcomes of litigation and audits are uncertain.
- The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting, and reported no critical audit matters. Adoption of the expected-credit-loss accounting standard resulted in an opening accumulated-deficit adjustment; the filing says the adoption impact on the financial statements was not material.
Important facts for investors to verify
- Whether revenue growth, customer retention and expansion in enterprise and bundled offerings continue, and whether growth converts into improved gross and operating margins.
- How quickly operating cash use declines and what liquidity remains after investment needs, lease commitments and the $362.5 million note principal due in 2024.
- The scale and potential dilution from equity compensation: FY2021 stock-based compensation was $107.6 million, and common shares outstanding increased from 103.2 million to 109.1 million during the year.
- Developments in the California wage-and-hour cases, indirect-tax audits and related accruals.
- Whether COVID-19-related usage gains persist as customers return to in-person work, and whether the company can maintain service reliability and manage competition, churn and regulatory requirements.