8x8, Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: Three months ended June 30, 2021 (fiscal Q1 2022); comparative period is the three months ended June 30, 2020. 8x8 provides cloud communications SaaS, including voice, video, chat, contact center and communications APIs. Unless otherwise stated, amounts below are in millions of U.S. dollars.
Financial performance
| Metric | Q1 FY22 | Q1 FY21 | Change |
|---|---|---|---|
| Service revenue | $137.8 | $114.2 | +20.7% |
| Other revenue | $10.5 | $7.6 | +38.1% |
| Total revenue | $148.3 | $121.8 | +21.8% |
| Gross profit | $88.6 | $69.7 | +27.1% |
| Gross margin | 59.7% | 57.2% | +2.5 percentage points |
| Operating loss | $(38.8) | $(37.8) | Loss widened $1.1 |
| Net loss | $(43.9) | $(41.9) | Loss widened $2.0 |
| Net loss per share, diluted | $(0.40) | $(0.40) | No change |
| Cash from operating activities | $4.0 | $(9.3) | Improved $13.3 |
| Cash used in investing activities | $(11.1) | $(11.9) |
Service cost was 33.4% of service revenue, down from 35.9%. Other revenue remained loss-making after direct costs: cost of other revenue was 130.5% of that revenue, versus 146.1% a year earlier. Sales and marketing expense rose 26.2% to $75.9 million; research and development rose 18.1% to $25.4 million. Stock-based compensation increased to $36.6 million from $22.8 million.
Financial position and liquidity
- At June 30, 2021, cash and cash equivalents were $109.3 million, short- and long-term investments were $43.9 million, and restricted cash was $8.6 million. Management reported $153.2 million of cash, cash equivalents and investments, plus restricted cash.
- Current assets were $266.2 million and current liabilities were $121.2 million. Working capital was approximately $145.0 million.
- Convertible senior notes had $362.5 million principal outstanding and a net carrying value of $312.8 million. The notes bear 0.50% interest and mature February 2024. Their disclosed estimated fair value was $450.7 million.
- Operating lease liabilities totaled $92.2 million. Cash, cash equivalents and restricted cash declined $3.2 million during the quarter to $117.9 million.
Material changes and business metrics
- Management attributed service revenue growth to customer additions, expanded offerings and usage, especially XCaaS and standalone UCaaS/CCaaS sales to mid-market and enterprise customers, and CPaaS usage growth in APAC.
- ARR, a company-defined non-GAAP operating metric, was $536 million, compared with $432 million a year earlier. Mid-market and enterprise customers represented 68% of ARR, up 34% year over year.
- International revenue increased to $44.7 million from $28.6 million; U.S. revenue rose to $103.7 million from $93.2 million.
- Operating cash flow turned positive, although it reflected substantial non-cash expenses, including $36.6 million of stock-based compensation, and was partly offset by cash outflows for sales commissions.
Outlook, risks and contingencies
- No specific quarterly or full-year revenue or earnings guidance is provided in this filing. Management expects revenue to grow over time, while continuing investment in sales, marketing, R&D and channel programs. It expects certain expense categories to rise in absolute dollars, and stated a focus on operating efficiency, margin improvement and progress toward profitability and better operating cash flow.
- Management believes existing cash, investments and anticipated operating cash flows will meet working-capital and expenditure needs for at least the next 12 months.
- The effects of COVID-19 and its variants on customers, suppliers, business activity and results remain uncertain. Other cited risks include churn, competition, service reliability, cybersecurity, third-party infrastructure, international expansion, acquisitions, convertible notes and litigation.
- A former employee’s California wage-and-hour class and PAGA actions were pending; joint mediation was scheduled for September 2021. The company said it had recorded adequate provisions but noted outcomes could materially affect results in a particular period.
- Accrued contingent indirect tax liabilities were $2.8 million at June 30, 2021. The company also reported ongoing tax audits and inquiries. Fully amortized intangible assets with $13.1 million gross carrying value were written off, with no net financial-statement impact.
- Disclosure controls were judged effective as of June 30, 2021; no material changes in internal control over financial reporting were reported.
Important facts for investors to verify
- Whether ARR growth converts to recognized revenue and sustainable cash generation; ARR assumes a sustained level of customer usage and may not be comparable across companies.
- Drivers and persistence of the operating loss, including rising sales and marketing expense and stock-based compensation.
- Cash-flow quality, including the contribution of non-cash expenses and working-capital timing, and the funding needs of continued software development and customer acquisition.
- Convertible-note terms, potential conversion or cash-settlement requirements, and the relationship between principal, carrying value and disclosed fair value.
- Developments in the wage-and-hour litigation, indirect-tax exposures and the continuing effects of COVID-19.