8x8, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2022 second quarter ended September 30, 2021; comparative quarter ended September 30, 2020. Six-month figures cover the period from April 1 through September 30. Dollar amounts below are in millions unless noted. The filing describes 8x8 as a SaaS provider of cloud communications, including voice, video, chat, contact center and APIs.
Key financial results
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Total revenue | $151.6 | $129.1 | $299.9 | $250.9 |
| Service revenue | $142.4 | $120.9 | $280.2 | $235.1 |
| Operating loss | $(37.2) | $(33.1) | $(76.0) | $(70.9) |
| Net loss | $(42.3) | $(38.4) | $(86.2) | $(80.3) |
| Net loss per share, diluted | $(0.38) | $(0.37) | $(0.78) | $(0.77) |
- Q2 service revenue rose 17.7% year over year; total revenue rose 17.3%. International revenue was $47.0 million, up from $33.0 million; U.S. revenue was $104.6 million, up from $96.1 million.
- Calculated total gross margin was approximately 60.8%, versus 56.3% a year earlier. Service cost was 33.2% of service revenue, versus 37.0%; cost of other revenue remained above other revenue.
- Q2 operating expenses increased to $188.7 million from $162.2 million. Sales and marketing rose 25.0% to $76.7 million; research and development rose 32.1% to $28.5 million. Stock-based compensation was $35.8 million for the quarter and $72.4 million for the six months, compared with $25.3 million and $48.1 million, respectively, in the prior-year periods.
- For the six months, operating cash flow was positive $9.1 million, compared with cash used of $13.1 million a year earlier. Investing activities used $28.8 million, principally reflecting investment purchases and $11.6 million of capitalized internal-use software costs. Cash, cash equivalents and restricted cash decreased $9.5 million to $111.6 million.
- At September 30, cash and cash equivalents were $103.0 million, restricted cash was $8.6 million, and short- and long-term investments totaled $54.9 million. Management reported $157.8 million of cash, cash equivalents and investments, excluding restricted cash, and said these resources plus anticipated operating cash flows should meet needs for the next 12 months.
- Convertible notes had $362.5 million principal outstanding and a $317.3 million net carrying amount; they mature in February 2024 and bear 0.50% contractual interest. Operating lease liabilities totaled $90.4 million.
Material changes and management commentary
- Management reported ARR of $553 million, versus $467 million in the prior-year quarter. Mid-market and enterprise customers accounted for 70% of ARR, up 27% year over year. ARR is a company-defined metric based on the latest month’s recurring subscriptions and qualifying usage, annualized; it is not necessarily comparable across companies.
- Revenue growth was attributed to customer additions, broader offerings and usage, including XCaaS, UCaaS, CCaaS and CPaaS. Service revenue grew faster than operating costs, but higher research, sales and marketing spending contributed to larger operating and net losses.
- Management intends to keep investing in sales and marketing, product development and indirect sales channels while pursuing operating efficiencies, improved margins and a path to profitability and improved operating cash flow. It expects service revenue to grow over time and expects several expense categories to increase in absolute dollars.
Outlook, risks and contingencies
- The filing provides no quantified revenue or earnings guidance. Management states that future results depend on customer demand, adoption, churn, competition, the effectiveness of sales and product investments, and economic conditions, including the evolving effects of COVID-19 and supply-chain disruptions.
- Management expects other expense to remain a net expense through fiscal 2024, primarily due to interest and amortization associated with the convertible notes. A full valuation allowance against U.S. deferred tax assets contributes to the low effective tax rate.
- A California wage-and-hour class action and related PAGA matter reached a preliminary settlement in September 2021; discovery was stayed pending completion. The company also disclosed ongoing tax audits and accrued contingent indirect tax liabilities of $2.5 million at September 30, 2021. Management believes provisions are adequate, but noted litigation outcomes could materially affect results in a particular period.
- Management identified no material changes to previously disclosed risk factors, stated disclosure controls were effective, and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ARR growth and the reported mid-market and enterprise contribution translate into recognized revenue, retention and sustainable customer economics.
- Whether operating-cost growth—particularly sales and marketing, research and development, and stock-based compensation—can moderate enough to improve profitability and cash generation.
- The sustainability of positive operating cash flow, including the effects of commissions, working capital, capitalized software and employee compensation paid in shares.
- Liquidity and refinancing or conversion considerations for the $362.5 million principal amount of notes due 2024, alongside lease commitments.
- Resolution and potential financial exposure from the preliminary wage-and-hour settlement and indirect-tax audits and contingencies.