8x8, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2022. Although the request references 2021 Q4, this filing reports FY2022 and includes quarterly data for the quarter ended March 31, 2022. Amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
8x8 provides cloud-based voice, video, chat, contact center, collaboration and communications API services through its XCaaS platform. It serves more than 60,000 organizations, with users in over 170 countries, and reported more than 2.5 million paid business users. The company operates as one reportable segment and generates most revenue from subscriptions and platform usage.
On January 18, 2022, 8x8 acquired Fuze for approximately $213.8 million in cash and stock, adding enterprise UCaaS and contact-center customers and expanding its global presence. Fuze contributed about $24.1 million in revenue and $0.7 million in net loss after acquisition during FY2022.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $638.1 | $532.3 | +19.9% |
| Service revenue | $602.4 | $496.0 | +21.4% |
| Gross profit | $390.6 | $302.2 | +29.2% |
| Gross margin | 61.2% | 56.8% | +4.4 percentage points |
| Operating loss | $(154.1) | $(146.1) | Loss widened |
| Net loss | $(175.4) | $(165.6) | Loss widened |
| Net loss per share, diluted | $(1.55) | $(1.57) | Improved $0.02 |
| Operating cash flow | $34.7 | $(14.1) | Improved $48.7 |
Gross margin is calculated from reported revenue less cost of service and cost of other revenue. Operating margin was approximately -24.2% versus -27.5% in FY2021; net margin was approximately -27.5% versus -31.1%. The company remained loss-making despite higher revenue and improved gross margin.
Mid-market and enterprise annualized recurring subscriptions and usage revenue (ARR, as defined by the company) increased 33% year over year and represented 76% of total ARR. Approximately one-third of ARR came from XCaaS customers. Management notes that ARR is a company-defined measure, assumes continuing usage, and may not be comparable with other companies’ measures.
At March 31, 2022, cash and cash equivalents were $91.2 million and short-term investments were $44.8 million, totaling $136.1 million; restricted cash was an additional $9.5 million. Current assets were $275.6 million and current liabilities $191.5 million. The company reported $500.0 million principal amount of 0.50% convertible senior notes due February 2024; their net carrying value was $447.5 million. Total liabilities were $727.9 million and stockholders’ equity was $182.4 million. Management believes liquidity is sufficient for the next 12 months and foreseeable future, subject to refinancing the notes before maturity.
Investing activities used $160.0 million, including $132.9 million cash paid for Fuze, $20.4 million of capitalized software development, and net investment purchases. Financing activities provided $105.4 million, principally from the additional convertible notes, offset partly by a $45.0 million share repurchase. Stock-based compensation was $133.3 million.
Material changes and quarterly results
- FY2022 total revenue rose 19.9%; international revenue reached 31% of total, up from 27% in FY2021. Service revenue growth reflected customer additions and expansion, telecom usage, CPaaS growth, and Fuze.
- Cost of service revenue rose 8.8%, slower than service revenue growth, and fell to 32.5% of service revenue from 36.3%, supporting gross-margin expansion.
- Sales and marketing expense increased 22.6% to $314.2 million, while R&D increased 22.1% to $112.4 million. Higher personnel, channel commission and stock-compensation costs, and Fuze-related spending contributed to expense growth.
- FY2022 fourth-quarter revenue was $181.4 million versus $144.7 million in FY2021’s fourth quarter. Fourth-quarter operating loss was $40.5 million versus $40.0 million, and net loss was $45.6 million versus $45.0 million.
- Fuze increased goodwill by $136.1 million and identifiable intangible assets by $119.4 million. The auditor identified the valuation of Fuze customer relationships and developed technology as a critical audit matter.
Outlook, commentary and risks
Management plans to continue investing in sales and marketing, R&D, sales capacity, indirect channels and cross-selling to 8x8 and Fuze customers in FY2023. It also emphasized operating efficiency, margin improvement and a path to profitability. No specific FY2023 revenue, earnings or cash-flow guidance is provided. Management expected operating losses to continue in the near term.
Key risks include intense competition and pricing pressure; customer churn and uncertain enterprise sales cycles; execution and integration of Fuze; service outages, cybersecurity and reliance on third-party networks and data centers; supply-chain constraints affecting hardware; privacy, telecommunications and tax regulation; inflation and labor costs; COVID-19 and return-to-office effects; and geopolitical disruption related to Russia’s invasion of Ukraine, including potential effects on Romanian operations. The company disclosed $17.2 million of accrued contingent indirect-tax liabilities at March 31, 2022, compared with $3.1 million a year earlier, and ongoing tax audits. Litigation outcomes are uncertain; a California wage-and-hour matter had reached a preliminary settlement, subject to court approval.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded controls were effective, but excluded Fuze from its FY2022 internal-control assessment while integrating the acquired business.
Most important facts for investors to verify
- Whether service revenue, ARR and customer expansion continue growing after including Fuze, and whether Fuze integration delivers expected synergies.
- Whether improved gross margin and operating cash flow can be sustained while 8x8 continues investing and reporting substantial net losses.
- Cash needs and the company’s refinancing plan for the $500 million notes due February 2024, including potential conversion or repurchase obligations.
- Changes in churn, renewal rates, channel commissions, customer acquisition costs and competitive pricing.
- Developments in contingent indirect-tax exposures, ongoing audits and litigation, and the adequacy of related accruals.
- Stock-based compensation and dilution, including the effect of acquisition shares and outstanding equity awards.