8×8, Inc. Reports Second Quarter Fiscal 2023 Financial Results

8×8, Inc. (NYSE: EGHT), a leading integrated cloud communications platform provider, today reported financial results for the second quarter of fiscal 2023 ended September 30, 2022.

Second Quarter Fiscal 2023 Financial Results:

• Total revenue increased 24% year-over-year to $187.4 million, including Fuze revenue of $28.4 million.
• Service revenue increased 25% year-over-year to $178.6 million, including Fuze revenue of $27.9 million.
• GAAP operating loss was $25.0 million, compared to operating loss of $37.2 million in the second quarter of fiscal 2022.
• Non-GAAP operating profit was $9.1 million, an increase of 368% compared to non-GAAP operating profit of $1.9 million in the second quarter of fiscal 2022.

“Our second quarter results reflected our increased emphasis on profitability and cash flow generation. Non-GAAP gross margin was above 70% and non-GAAP operating profit and operating cash flow exceeded our expectations,” said Dave Sipes, 8×8 Chief Executive Officer. “As a result, we are once again raising our non-GAAP operating margin targets for the year and believe we have line of sight to double-digit operating margins on a non-GAAP basis in fiscal 2024.”

“We believe we can achieve these results while continuing to invest in innovation on our XCaaS platform and providing an outstanding customer experience that enables our customers to make every interaction an opportunity to delight. Our unified XCaaS platform delivers this advantage to customers at a lower total cost of ownership,” added Sipes.

Second Quarter Fiscal 2023 Financial Metrics and Recent Business Highlights:

Financial Metrics

• Annual Recurring Subscriptions and Usage Revenue (ARR):
  • Total ARR grew to $692 million, an increase of 25% from the end of the same period last year.
  • Enterprise ARR of $401 million increased 42% year-over-year and represented 58% of total ARR.
  • 1,291 customers generated ARR greater than $100,000, compared to 871 at the end of the second quarter of fiscal 2022.
• GAAP gross margin was 67%, compared to 61% in the same period last year. Non-GAAP gross margin was 70%, compared to 64% in the same period last year.
• GAAP service revenue gross margin was 71%, compared to 67% in the same period last year. Non-GAAP service gross margin was 74%, compared to 69% in the same period last year.
• Cash provided by operating activities was $13.8 million for the second quarter, compared to $5.1 million in the second quarter of fiscal 2022.
• Cash, cash equivalents, restricted cash and investments were $132.3 million on September 30, 2022, compared to $145.6 million on March 31, 2022.

A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and other information relating to non-GAAP measures is included in the supplemental reconciliation at the end of this release.

Recent Business Highlights:

Product Innovation Highlights

• Released an update to the 8×8 XCaaS™ (eXperience Communications as a Service™) platform. Highlights included:
  • A new 8×8 phone app for Microsoft Teams, providing customers with additional options for enabling cost-effective PSTN calling in the Teams apps.
  • Full cloud PSTN support extended to 56 countries and territories, now including Estonia and Lithuania.
  • Expanded customer experience analytics with new visual interaction flow diagrams, enhanced reporting into digital interactions and new advanced search and filter capabilities.
• 8×8 Work is now Chrome Enterprise recommended for the Communications solution track, ensuring that 8×8 Work is optimized for ChromeOS environments. With this, organizations that standardize on ChromeOS have the peace of mind to deploy the 8×8 XCaaS platform across all users, from the contact center to the front desk.

Industry Recognition

• Singapore’s Cyber Security Agency (CSA) recognized 8×8 CPaaS for its strong cybersecurity practices with the Cyber Trust mark certification, one of the first companies to be awarded the certification.
• Recognized in the 2022 Gartner® Magic Quadrant™ for Contact Center as a Service for the eighth year in a row.
• Awarded a Gold Stevie® Award in the Customer Service Executive of the Year category and a Silver Stevie® Award in the Customer Service Department of the Year category in The 19th Annual International Business Awards®.
• Received the Comms Council UK Awards 2022 for Best ITSP Large Enterprise and Best Innovation for 8×8 Agent Workspace.
• Awarded the 2022 Best Overall Supplier for Canada by Telarus.
• Recognized as the Top International Vendor and Fifth Top Overall Vendor by Avant Special Forces.

Corporate Highlights

• The Company retired approximately $404 million in aggregate principal amount of its convertible notes due in 2024 in exchange for the issuance of $202 million new senior convertible notes due in 2028 and $182 million in cash out of the proceeds from a $250 million term loan due in 2027.
• Concurrent with the convertible notes exchange, the company repurchased 10.7 million shares of its common stock for approximately $60 million.
• Subsequent to the debt exchange, the Company repurchased $6 million aggregate principal amount of its convertible senior notes due 2024 in an open market transaction. Following the convertible debt exchange and repurchase, approximately $90 million in aggregate principal amount of the convertible senior notes due 2024 remains outstanding.

“By simultaneously executing a term loan, convertible debt exchange, and share repurchase, we extended the maturity of more than 80 percent of our 2024 convertible debt while limiting the potential dilutive impact to existing shareholders,” said Sam Wilson, 8×8 Chief Financial Officer. “These transactions further strengthen our already solid financial foundation, which includes more than $130 million in cash and investments. Our emphasis on profitability is generating increased cash flow, and we believe we will have more than sufficient resources to fund our operations and repurchase the remaining $90 million in aggregate principal amount of the 2024 Notes on or before maturity.”

Leadership Update

The company announced the appointment of Jeanette Winters as Chief Human Resources Officer of 8×8. Dr. Winters holds a doctorate in Public Administration from University of Southern California and has more than 25 years experience leading corporate talent management, diversity and inclusion, organizational development, and enterprise learning functions at global Fortune 500 organizations, including Intel, American Express, Pitney Bowes and Amgen. Immediately prior to her appointment at 8×8, Dr. Winters was chief talent officer and managing partner at Winters Advisory Group, an HR consultancy, and served as 8×8’s Interim Chief Human Resources Officer.

Dr. Winters was granted restricted stock units (RSUs) for up to 100,000 of the company’s common stock and performance stock units (PSUs) for up to 200,000 shares of the company’s common stock. The RSUs and PSUs will vest over periods of three years, subject to Dr. Winters’ continuing employment or other association with 8×8 or any of its subsidiaries and, in the case of the PSUs, subject to the achievement of certain performance criteria. The awards were approved by a majority of 8×8’s independent directors as material inducements to Dr. Winters’ hiring, in accordance with New York Stock Exchange Rule 303A.08 and 8×8’s 2017 New Employee Inducement Incentive Plan.

Third Quarter and Updated Fiscal 2023 Financial Outlook:

Management provides expected ranges for total revenue, service revenue and non-GAAP operating margin based on its evaluation of the current business environment and foreign current exchange rates prevailing as of the announcement date of the prior quarters’ financial results. The Company emphasizes that these expectations are subject to various important cautionary factors referenced in the section entitled “Forward-Looking Statements” below.

Third Quarter Fiscal 2023 Ending December 31, 2022

• Service revenue in the range of $178 million to $180 million, representing year-over-year growth of approximately 20% at the midpoint.
• Total revenue in the range of $185 million to $188 million, representing year-over-year growth of approximately 19% at the midpoint.
• Non-GAAP operating margin in the range of 5.0 to 5.8%.

Fiscal Year 2023 Ending March 31, 2023

• Service revenue in the range of $712 million to $720 million, representing year-over-year growth of 19% at the midpoint.
• Total revenue in the range of $745 million to $755 million, representing year-over-year growth of approximately 18% at the midpoint.
• Non-GAAP operating margin of approximately 5.5%, with a goal of exiting fiscal 2023 with non-GAAP operating margin of at least 6.5%.

The Company does not reconcile its forward-looking estimates of non-GAAP operating margin to the corresponding GAAP measures of GAAP operating margin due to the significant variability of, and difficulty in making accurate forecasts and projections with regards to, the various expenses it excludes. For example, future hiring and employee turnover may not be reasonably predictable, stock-based compensation expense depends on variables that are largely not within the control of nor predictable by management, such as the market price of 8×8 common stock, and may also be significantly impacted by events like acquisitions, the timing and nature of which are difficult to predict with accuracy. Foreign currency exchange fluctuations may negatively impact our guidance. The actual amounts of these excluded items could have a significant impact on the Company’s GAAP operating margin. Accordingly, management believes that reconciliations of this forward-looking non-GAAP financial measure to the corresponding GAAP measure are not available without unreasonable effort. All projections are on a non-GAAP basis. See the Explanation of GAAP to Non-GAAP Reconciliation below for the definition of non-GAAP operating margin. Our increased emphasis on profitability and cash flow generation may not be successful. The reduction in our total costs as a percentage of revenue may negatively impact our revenue and our business in ways we don’t anticipate and may not achieve the desired outcome.

Conference Call Information:

Management will host a conference call to discuss earnings results on October 27, 2022, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). The conference call will last approximately 60 minutes and is accessible via the following numbers and webcast link:

Dial In: 1-844-200-6205 (U.S.) or 1-929-526-1599 (International)

Passcode: 602771

Webcast: https://investors.8×8.com/events-and-presentations

Participants should plan to dial in or log on 10 minutes prior to the start time. The webcast will be archived on 8×8’s website for a period of at least 30 days. For additional information, visit http://investors.8×8.com.

About 8×8, Inc.

8×8, Inc. (NYSE: EGHT) is transforming the future of business communications as a leading software as a service provider of 8×8 XCaaS™ (eXperience Communications as a Service™), an integrated contact center, voice communications, video, chat, and SMS solution built on one global cloud communications platform. 8×8 uniquely eliminates the silos between unified communications as a service (UCaaS) and contact center as a service (CCaaS) to power the communications requirements of all employees globally as they work together to deliver differentiated customer experiences. For additional information, visit www.8×8.com, or follow 8×8 on LinkedIn, Twitter and Facebook.

Forward Looking Statements:

This news release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements, include but are not limited to: changing industry trends, operational and economic impacts of the COVID-19 pandemic, the impact of foreign currency exchange rate and interest rate fluctuations, new debt, interest expense, and our ability to repay our remaining outstanding convertible senior notes due 2024, new product innovations and integrations, the future impact of the Fuze, Inc. acquisition on our operations and financial results, market demand for our products, channel and e-commerce growth, sales and marketing activities, strategic partnerships, business strategies, customer acquisition and support costs, customer churn, future operating performance and efficiencies, financial outlook, revenue growth, and profitability, including whether we will achieve sustainable growth and profitability.

You should not place undue reliance on such forward-looking statements. Actual results could differ materially from those projected in forward-looking statements depending on a variety of factors, including, but not limited to: a reduction in our total costs as a percentage of revenue may negatively impact our revenues and our business; customer adoption and demand for our products may be lower than we anticipate; the impact of economic downturns on us and our customers, including from the COVID-19 pandemic; ongoing volatility and conflict in the political environment, including Russia’s invasion of Ukraine; risks related to our new secured term loan and outstanding convertible senior notes due in 2024 and 2028; inflationary pressures and rising interest rates; competitive dynamics of the cloud communication and collaboration markets, including voice, contact center, video, messaging, and communication application programming interfaces (“APIs”), in which we compete may change in ways we are not anticipating; impact of supply chain disruptions; third parties may assert ownership rights in our IP, which may limit or prevent our continued use of the core technologies behind our solutions; our customer churn rate may be higher than we anticipate; our investments in marketing, channel and value-added resellers (VARs), e-commerce, new products, and our acquisition of Fuze, Inc. may not result in revenue growth; and we may not achieve our target service revenue growth, or the revenue, earnings, operating margin or other amounts we forecast in our guidance, for a particular quarter or for the full fiscal year.

For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s reports on Forms 10-K and 10-Q, as well as other reports that 8×8, Inc. files from time to time with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement, and 8×8, Inc. undertakes no obligation to update publicly any forward-looking statement for any reason, except as required by law, even as new information becomes available or other events occur in the future.

Explanation of GAAP to Non-GAAP Reconciliation

The Company has provided, in this release, financial information that has not been prepared in accordance with Generally Accepted Accounting Principles (GAAP). Management uses these Non-GAAP financial measures internally to understand, manage, and evaluate the business, and to make operating decisions. Management believes they are useful to investors, as a supplement to GAAP measures, in evaluating the Company’s ongoing operational performance. Management also believes that some of 8×8’s investors use these Non-GAAP financial measures as an additional tool in evaluating 8×8’s ongoing “core operating performance” in the ordinary, ongoing, and customary course of the Company’s operations. Core operating performance excludes items that are non-cash, not expected to recur, or not reflective of ongoing financial results. Management also believes that looking at the Company’s core operating performance provides consistency in period-to-period comparisons and trends.

These Non-GAAP financial measures may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies, which limits the usefulness of these measures for comparative purposes. Management recognizes that these Non-GAAP financial measures have limitations as analytical tools, including the fact that management must exercise judgment in determining which types of items to exclude from the Non-GAAP financial information. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these Non-GAAP financial measures to their most directly comparable GAAP financial measures in the table titled “Reconciliation of GAAP to Non-GAAP Financial Measures”. Detailed explanations of the adjustments from comparable GAAP to Non-GAAP financial measures are as follows:

Non-GAAP Costs of Revenue, Costs of Service Revenue and Costs of Other Revenue

Non-GAAP Costs of Revenue includes: (i) Non-GAAP Cost of Service Revenue, which is Cost of Service Revenue excluding amortization of acquired intangible assets, stock-based compensation expense and related employer payroll taxes, certain legal and regulatory costs, and certain severance, transition and contract termination costs; and (ii) Non-GAAP Cost of Other Revenue, which is Cost of Other Revenue excluding stock-based compensation expense and related employer payroll taxes, certain legal and regulatory costs, and certain severance, transition and contract termination costs.

Non-GAAP Service Revenue Gross Margin, Other Revenue Gross Margin, and Gross Margin

Non-GAAP Service Revenue Gross Margin (and as a percentage of Service Revenue) and Non-GAAP Other Revenue Gross Margin (and as a percentage of Other Revenue) are computed as Service Revenue less Non-GAAP Cost of Service Revenue divided by Service Revenue and Other Revenue less Non-GAAP Cost of Other Revenue divided by Other Revenue, respectively. Non-GAAP Gross Margin (and as a percentage of Revenue) is computed as Revenue less Non-GAAP Cost of Service Revenue and Non-GAAP Cost of Other Revenue divided by Revenue. Management believes the Company’s investors benefit from understanding these adjustments and from an alternative view of the Company’s Cost of Service Revenue and Cost of Other Revenue as well as the Company’s Service, Other and Gross Margins performance as compared to prior periods and trends.

Non-GAAP Operating Expenses

Non-GAAP Operating Expenses includes Non-GAAP Research and Development, Non-GAAP Sales and Marketing, and Non-GAAP General and Administrative, each of which excludes: amortization of acquired intangible assets, stock-based compensation expense and related employer payroll taxes, acquisition and integration expenses, and certain severance, transition and contract termination costs. Management believes that these exclusions provide investors with a supplemental view of the Company’s ongoing operational expenses.

Non-GAAP Operating Profit and Non-GAAP Operating Margin

Non-GAAP Operating Profit excludes: amortization of acquired intangible assets, stock-based compensation expense and related employer payroll taxes, acquisition and integration expenses, certain legal and regulatory costs, and certain severance, transition and contract termination costs from Operating Profit (Loss). Non-GAAP Operating Margin is Non-GAAP Operating Profit divided by Revenue. Management believes that these exclusions provide investors with a supplemental view of the Company’s ongoing operating performance.

Non-GAAP Other Income (Expense), net

Non-GAAP Other Income (Expense), net excludes: acquisition and integration expenses, certain severance, transition and contract termination costs, debt amortization expense, gain on debt extinguishment, gain or loss on remeasurement of warrants, and sub-lease income from Other Income (Expense), net. Management believes the Company’s investors benefit from this supplemental information to facilitate comparison of the Company’s other income (expense), performance to prior results and trends.

Non-GAAP Net Income

Non-GAAP Net Income excludes: amortization of acquired intangible assets, stock-based compensation expense and related employer payroll taxes, acquisition and integration expenses, certain legal and regulatory costs, certain severance, transition and contract termination costs, debt amortization expense, gain on debt extinguishment, gain or loss on remeasurement of warrants, and sub-lease income. Management believes the Company’s investors benefit from understanding these adjustments and an alternative view of our net income performance as compared to prior periods and trends.

Non-GAAP Net Income Per Share – Basic and Non-GAAP Net Income Per Share – Diluted

Non-GAAP Net Income Per Share – Basic is Non-GAAP Net Income divided by the weighted-average basic shares outstanding. Non-GAAP Net Income Per Share – Diluted is Non-GAAP Net Income divided by the weighted-average diluted shares outstanding. Diluted shares outstanding include the effect of potentially dilutive securities from stock-based benefit plans and convertible senior notes. These potentially dilutive securities are excluded from the computation of net loss per share attributable to common stockholders on a GAAP basis because the effect would have been anti-dilutive. They are added for the computation of diluted net income per share on a non-GAAP basis in periods when 8×8 has net profit on a non-GAAP basis as their inclusion provides a better indication of 8×8’s underlying business performance. Management believes the Company’s investors benefit by understanding our Non-GAAP net income performance as reflected in a per share calculation as ways of measuring performance by ownership in the company. Management believes these adjustments offer investors a useful view of the Company’s diluted net income per share as compared to prior periods and trends.

Management evaluates and makes decisions about its business operations based on Non-GAAP financial information by excluding items management does not consider to be “core costs” or “core proceeds.” Management believes some of its investors also evaluate our “core operating performance” as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations. Management excludes the amortization of acquired intangible assets, which primarily represents a non-cash expense of technology and/or customer relationships already developed, to provide a supplemental way for investors to compare the Company’s operations pre-acquisition to those post-acquisition and to those of our competitors that have pursued internal growth strategies. Stock-based compensation expense has been excluded because it is a non-cash expense and relies on valuations based on future conditions and events, such as the market price of 8×8 common stock, that are difficult to predict and/or largely not within the control of management. The related employer payroll taxes for stock-based compensation are excluded since they are incurred only due to the associated stock-based compensation expense. Acquisition and integration expenses consist of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal and other professional services, due diligence, integration, and other closing costs, which are costs that vary significantly in amount and timing. Legal and regulatory costs include litigation and other professional services, as well as certain tax and regulatory liabilities. Severance, transition and contract termination costs include employee termination benefits, executive severance agreements, cancellation of certain contracts, and lease impairments. Debt amortization expenses relate to the non-cash accretion of the debt discount.

Selected operating metrics presented in this table have not been derived from financial measures that have been prepared in accordance with US Generally Accepted Accounting Principles. 8×8 provides these selected operating metrics to assist investors in evaluating the Company’s operations and assessing its prospects. 8×8’s management periodically reviews the selected operating metrics to evaluate 8×8’s operations, allocate resources, and drive financial performance in the business. Management monitors these metrics together, and not individually, as it does not make business decisions based upon any single metric. 8×8 is not aware of any uniform standards for defining these selected operating metrics and caution that its presentation may not be consistent with that of other companies. Prior period metrics and customer classifications have not been adjusted for current period changes unless noted.

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