8x8, Inc. — Form 10-Q Summary
Business and period: 8x8 provides cloud communications SaaS, including unified communications, contact center, video, messaging, and communications APIs. This filing covers the three months ended June 30, 2023—fiscal 2024 first quarter—not calendar 2023 Q1. Comparisons are with the three months ended June 30, 2022. Amounts below are in millions unless stated otherwise.
Financial results and position
| Metric | Quarter ended June 30, 2023 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $183.3 | $187.6 | Down 2.3% |
| Service revenue | $175.2 | $179.2 | Down 2.2% |
| Operating loss | $(1.4) | $(26.8) | Improved $25.3 |
| Net loss | $(15.3) | $(26.0) | Improved $10.7 |
| Net loss per share, diluted | $(0.13) | $(0.22) | Improved |
| Cash provided by operating activities | $26.5 | $5.8 | Increased $20.6 |
Gross margin was approximately 70.2%, compared with 64.5% a year earlier; service gross margin was 73.6%, versus 70.1%. These are calculated from reported revenue and cost of revenue. Operating cash flow less purchases of property and equipment and capitalized internal-use software was approximately $22.8 million, compared with $2.6 million.
- Liquidity at June 30: Cash and cash equivalents were $122.2 million; short-term investments were $15.9 million; restricted cash was approximately $1.0 million. Cash, cash equivalents, and investments totaled $138.2 million, excluding restricted cash. Current assets were $274.5 million and current liabilities $236.3 million.
- Debt: Principal outstanding was $63.3 million on 0.50% convertible notes due February 2024, $201.9 million on 4.00% convertible notes due February 2028, and $225.0 million on the secured term loan due August 2027. The term loan carries a variable rate; its effective rate was 11.7% at quarter-end. The company prepaid $25.0 million of term-loan principal in May. Reported net carrying value of these debt obligations totaled approximately $469.6 million.
- ARR: Management reported annualized recurring and usage revenue of $703.0 million, up 2% from the end of the prior-year first quarter. Mid-market and enterprise customers accounted for 76% of ARR, up 1%; small businesses accounted for 24%.
Material changes and management commentary
- Revenue declined primarily because of lower usage revenue in Southeast Asia, especially SMS, and churn and down-sell in the acquired customer base. New subscription bookings partly offset those pressures.
- Service costs fell 13.6%, and other-revenue costs fell 36.0%. Sales and marketing expense declined 18.0%, while R&D was broadly flat and G&A fell 10.2%. The resulting operating loss narrowed substantially.
- Other expense shifted to $12.5 million from $1.1 million of other income. Key drivers were increased variable-rate term-loan interest, foreign-exchange losses, and a $1.8 million debt-extinguishment loss tied to the term-loan prepayment.
- Management is focusing sales efforts on mid-market and enterprise customers, expanding partner programs, investing in product development and customer support, and seeking lower service-delivery costs and improved sales efficiency. It expects R&D expense to increase in absolute dollars as it invests in the platform.
- Management stated that existing cash, investments, and anticipated operating cash flows should cover working capital, expenditures, and contractual obligations for the next 12 months and foreseeable future. Capital priorities for the remainder of fiscal 2024 include growth initiatives, software development, and debt repayment. No specific revenue or earnings guidance was provided in the filing.
Risks, contingencies, and unusual items
- The $63.3 million 2024 Notes mature in February 2024; the filing identifies their retirement as a significant cash requirement. The term loan’s floating rate exposes earnings to interest-rate changes, and the company reports substantial indebtedness.
- Economic conditions, customer churn, demand and usage variability, competition, channel-partner reliance, service reliability, cybersecurity, third-party infrastructure, foreign exchange, and acquisition integration—including Fuze—could affect results.
- The company entered a noncancellable three-year hosting-services contract valued at $28.1 million; total contractual minimum purchase commitments were approximately $70.0 million at quarter-end.
- Accrued contingent indirect tax liabilities were $13.8 million. The company disclosed ongoing legal matters and tax audits; outcomes are uncertain and could materially affect results in a particular period.
- Common shares outstanding rose to 119.2 million from 114.7 million at March 31, 2023. Stock-based compensation expense was $18.2 million. Management said disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether service revenue stabilizes, including trends in Southeast Asia SMS usage, customer churn, down-sell, renewals, and new bookings.
- Whether ARR growth converts into recognized revenue and durable cash generation; ARR is a company-defined metric and may not be comparable across companies.
- The company’s plan and funding for the February 2024 Notes maturity, and the effect of variable-rate debt on interest expense and liquidity.
- Whether cost reductions and sales-efficiency measures sustain margin improvement without weakening customer retention or growth.
- Developments in indirect tax audits, litigation, purchase commitments, and dilution from equity compensation and outstanding awards.