8x8, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2021. Amounts below are in U.S. dollars; financial statement figures are unaudited. 8x8 provides cloud communications SaaS, including voice, video, chat, contact center and API services.
Key financial results
| Metric | Quarter ended Dec. 31, 2021 | Prior-year quarter | Nine months ended Dec. 31, 2021 | Prior-year nine months |
|---|---|---|---|---|
| Total revenue | $156.9 million | $136.7 million | $456.8 million | $387.6 million |
| Service revenue | $149.4 million | $127.1 million | $429.6 million | $362.2 million |
| Operating loss | $37.6 million | $35.3 million | $113.6 million | $106.1 million |
| Net loss | $43.6 million | $40.2 million | $129.8 million | $120.6 million |
| Diluted loss per share | $0.38 | $0.38 | $1.16 | $1.15 |
- Quarterly revenue rose 14.8% year over year; service revenue increased 17.5%. Management reported ARR of $572 million, up from $494 million a year earlier; mid-market and enterprise ARR was 72% of total ARR and grew 24%.
- Service cost was 32.6% of service revenue, versus 37.0% a year earlier, implying service gross margin of 67.4%, up from 63.0%. Total operating expenses increased to $194.5 million from $171.9 million.
- Operating margin was approximately -24.0% for the quarter, compared with -25.8% a year earlier. Net margin was approximately -27.8%, compared with -29.4%.
- For the nine months, operating cash flow was positive $18.2 million, versus cash used of $14.9 million in the prior-year period. Investing activities used $30.1 million; financing activities provided $100.0 million.
- At December 31, cash and cash equivalents were $200.4 million, and short- and long-term investments totaled $51.5 million. Management cited $251.8 million in cash, cash equivalents and investments, plus $8.6 million of restricted cash. Current assets were $368.4 million and current liabilities $121.5 million.
- Convertible notes had $500 million principal outstanding, due 2024, with a 0.50% coupon; their net carrying amount was $441.0 million. The company issued $137.5 million principal of additional notes in December, receiving approximately $134.3 million net proceeds.
Changes and notable items
- Quarterly service revenue grew strongly, while other revenue fell 21.9% to $7.5 million, primarily due to lower product revenue, a shift toward hardware rentals and global supply shortages.
- Sales and marketing expense rose 20.0% year over year to $76.8 million; research and development increased 17.8% to $27.9 million. Stock-based compensation was $33.7 million for the quarter and $106.2 million for the nine months.
- In December, 8x8 repurchased 2.34 million shares for $45.0 million, funded in connection with the additional convertible-note issuance.
- On January 18, 2022, after quarter-end, 8x8 completed its Fuze acquisition. Estimated consideration at closing was approximately $211.9 million, comprising $132.9 million cash and $79.0 million stock, subject to adjustments. Fuze results are expected to be included beginning in fiscal fourth quarter; purchase-price allocation was incomplete at filing.
Outlook, risks and contingencies
- No numerical financial guidance is provided in the supplied filing text. Management expects service revenue to grow over time and says it will continue investing in sales, marketing, channels and product development, while pursuing greater operating efficiency, margin improvement and a path to profitability and improved operating cash flow.
- Management believes existing cash, investments and anticipated operating cash flows are sufficient for working capital and expenditures for the next 12 months. It expects research and development spending may initially rise as a percentage of revenue while integrating Fuze.
- Key risks include customer demand and churn, competition, economic and COVID-19 effects, supply-chain disruption, execution and integration of Fuze, employee retention, potential dilution or selling pressure from acquisition shares, and the possibility that expected acquisition benefits are not realized.
- The company reported a preliminary settlement of California wage-and-hour class and PAGA actions, pending completion. It also disclosed ongoing tax audits and accrued contingent indirect-tax liabilities of $1.8 million. Management cautions that litigation outcomes are uncertain and could materially affect results in a particular period.
Important facts for investors to verify
- Whether ARR growth converts into sustained recognized revenue, and whether service-margin gains persist as usage and infrastructure costs rise.
- Progress on Fuze integration, purchase accounting, expected synergies, acquisition-related costs and the effects of cash and stock consideration.
- Operating-expense trajectory, stock-based compensation and the company’s ability to reduce operating losses and generate durable positive operating cash flow.
- Convertible-note terms and future cash or share settlement exposure, along with remaining dilution from acquisition shares and equity awards.
- Resolution and financial impact of the wage-and-hour matters, tax audits and contingent indirect-tax exposures.