The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q. As discussed in the section titled "Forward-Looking
Statements," the following discussion and analysis contains forward-looking
statements that involve risks and uncertainties, as well as assumptions that, if
they never materialize or prove incorrect, could cause our results to differ
materially from those expressed or implied by such forward-looking
statements. Factors that could cause or contribute to these differences include,
but are not limited to, those discussed below and elsewhere in this report,
particularly those set forth under the section entitled "Risk Factors" in our
annual report on Form 10-K for the fiscal year ended March 31, 2020 as modified
by those in Part II, Item 1A of our Quarterly Report for the three-month period
ended June 30, 2020 on Form 10-Q under the heading "Risk Factors."
BUSINESS OVERVIEW
We are a leading software-as-a-service ("SaaS") provider of voice, video, chat,
contact center, and enterprise-class application programming interfaces ("API")
solutions powered by one global cloud communications platform. From our
proprietary cloud technology platform, organizations across all their locations
and employees have access to unified communications, team collaboration, video
conferencing, contact center, data and analytics, communication APIs, and other
services, enabling them to be more productive and responsive to their customers.
Our customers range from small businesses to large enterprises and their users
are spread across more than 150 countries. In recent years, we have increased
our focus on the mid-market and enterprise customer categories.
We have a portfolio of cloud-based offerings that are subscription based, made
available at different rates varying by the specific functionalities, services
and number of users. We generate service revenue from communication services
subscriptions and platform usage. We generate other revenues from the sales and
rentals of office phones and other hardware equipment, and professional
services. We define a "customer" as one or more legal entities to which we
provide services pursuant to a single contractual arrangement. In some cases, we
may have multiple billing relationships with a single customer (for example,
where we establish separate billing accounts for a parent company and each of
its subsidiaries).
Our flagship service is our 8x8 X Series, a next generation suite of unified
communications as a service ("UCaaS") and contact center as a service ("CCaaS")
solutions, which consist of service plans of increasing functionality designated
X1, X2, etc., through X8. With 8x8 X Series, we provide enterprise-grade voice,
unified communications, video meetings, team collaboration, and contact center
functionalities from a single platform. We also offer standalone SaaS services
for contact center, video meetings, and enterprise communication APIs. Through
our July 2019 acquisition of Wavecell Pte. Ltd., an Asia-based global
communication platform as a service ("CPaaS") provider of SMS, messaging, voice
and video APIs to enterprises, we expanded our API offerings both geographically
and functionally. We expect to continue integrating these services into our
platform, as we believe in the value of the collective solutions.
As of September 30, 2020, over 90% of our customer base has been migrated to the
8x8 X Series platform and we intend to migrate the remaining customer base
through the end of the fiscal year. These migrations may require us to incur
professional services and related engineering costs. While we may not be able to
recover these costs from our customers, we believe that we will realize other
benefits including reducing the number of platforms that we are required to
support and improved customer retention.
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SUMMARY AND OUTLOOK
In the second quarter of fiscal 2021, our total service revenue grew 19.3%
year-over-year to $120.9 million. We continued to show an increase in our
average annualized service revenue per customer, which grew to $8,052 in the
second quarter of fiscal 2021, compared with $7,957 in the same period of fiscal
2020, as we are selling more to mid-market and enterprise customers. Service
revenue from mid-market and enterprise customers represented 46% of total
service revenue and grew 29% over the prior year. We increased the number of
bundled deals where customers purchase our integrated communications and contact
center solutions.
Our continued business focus is on achieving improved operating efficiencies
while delivering revenue growth. We continue to make important investments in
our products and technology platform, and focus on key areas of spend in our
go-to-market strategy. Additionally, we aim to drive efficiencies in our small
business customer acquisition and operations, and are heavily focused on
expanding our business upmarket with mid-market and enterprise customers. We
believe that effective execution will enable the Company to grow and capture
market share, during this phase of industry disruption, in a cost-effective way
and support the Company in pursuit of its path to profitability and operating
cash flow improvement.
In the remainder of fiscal 2021, we plan to continue making investments in
activities to acquire more customers, including global expansion and investing
in our direct marketing efforts, sales force, e-commerce, and outbound marketing
efforts. We also intend to continue investing in our indirect channel programs
to acquire more third-party selling agents to help sell our solutions, including
investments in our value added resellers ("VARs") and master agent programs.
Should these upfront investments not result in additional revenue from new or
existing customers, including as result of adverse impacts from the COVID-19
pandemic, and/or these cost reduction and efficiency efforts do not result in
meaningful savings, our operating results may be adversely impacted.
IMPACTS OF COVID-19
The full extent of the impact of the COVID-19 pandemic on our business,
operations and financial results will depend on numerous evolving factors that
we may not be able to accurately predict, including those set forth under the
section entitled "Risk Factors" in our annual report on Form 10-K for the fiscal
year ended March 31, 2020 as modified by the "Risk Factors" section of our
Quarterly Report on Form 10-Q for the three-month period ended June 30, 2020. In
an effort to contain COVID-19 or slow its spread, governments around the world
have enacted various measures, some of which have been subsequently rescinded,
modified or reinstated, including orders to close non-essential businesses,
isolate residents to their homes, and practice social distancing. To protect the
health and safety of our employees, our workforce continues to spend a
significant amount of time working from home with many of our offices around the
world remaining closed and travel being curtailed for our employees as well as
our customers as the number of COVID-19 cases continues to surge and retreat in
various locations globally, and the availability and reliability of testing
remains inconsistent. These restrictions have altered the ways we conduct sales
activities and market to current and prospective customers and how we conduct
our ongoing business operations, resulting in reductions in travel related
expenses and, by some measures, has resulted in improved employee productivity
in certain areas. Small business and mid-size customers have been more impacted
by the COVID-19 pandemic than enterprise customers, which has necessitated
greater flexibility and responsiveness to our customers evolving needs. While we
anticipate that the global health crisis caused by COVID-19, including any
resurgences, and the measures enacted to slow its spread will negatively impact
certain business activity across the globe, to date, it has not resulted in as
significant a negative impact on our business, as initially anticipated. We
continue to proactively and closely monitor the health of our customers and
suppliers and other impacts of the pandemic to determine whether risks of loss
or other negative impacts upon our business exist. The effects of COVID-19 have
also been considered in management's judgments around credit loss impairments.
COMPONENTS OF RESULTS OF OPERATIONS
Service Revenue
Service revenue consists of communication services subscriptions, platform usage
revenue, and related fees from our UCaaS, CCaaS, and CPaaS offerings. We plan to
continue to drive our business to increase service revenue through a combination
of increased sales and marketing efforts, geographic expansion of our customer
base outside the United States, innovation in product and technology, and
through strategic partnerships and other business development.
Other Revenue
Other revenue consists primarily of revenues from sales and rentals of IP
telephones in conjunction with our cloud telephony service, and revenues from
non-recurring professional services, primarily in support of deployment of our
solutions and/or platform. Other revenue is dependent on the number of customers
who choose to purchase or rent an IP telephone in conjunction with our service
instead of using the solution on their cell phone, computer, or other compatible
device, and/or choose to engage our services for implementation and deployment
of our cloud services.
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Cost of Service Revenue
Cost of service revenue consists primarily of costs associated with network
operations and related personnel, technology licenses, amortization of
internally developed software, and other costs such as customer service, and
technical support costs. Cost of service revenue also includes other
communication origination and termination services provided by third-party
carriers and outsourced customer service call center operations. We allocate
overhead costs such as IT and facilities to cost of service revenue, as well as
to each of the operating expense categories, generally based on relative
headcount. Our IT costs include costs for IT infrastructure and personnel.
Facilities costs primarily consist of office leases and related expenses.
Cost of Other Revenue
Cost of other revenue consists primarily of direct and indirect costs associated
with the purchasing of IP telephones as well as the scheduling, shipping and
handling, personnel costs and related expenditures incurred in connection with
the professional services associated with the deployment and implementation of
our products, and allocated IT and facilities costs.
Research and Development
Research and development expenses consist primarily of personnel and related
costs, third-party development and related work, equipment costs necessary for
us to conduct our product and platform development and engineering efforts, and
allocated IT and facilities costs.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel and related costs,
sales commissions, trade shows, advertising and other marketing, demand
generation, channel costs, promotional expenses, and allocated IT and facilities
costs.
General and Administrative
General and administrative expenses consist primarily of personnel and related
costs, professional services fees, human resources, legal, employee recruiting,
general management, and allocated IT and facilities costs.
Other Income (Expense), net
Other income (expense), net consists primarily of interest expense related to
the convertible notes, offset by income earned on our cash, cash equivalents,
and investments, and foreign exchange gains/losses.
Provision for Income Taxes
Provision for income taxes consists primarily of state minimum taxes in the
United States and foreign income taxes. As we expand the scale of our
international business activities, any changes in the U.S. and foreign taxation
of such activities may increase our overall provision for income taxes in the
future. We have a valuation allowance for our U.S. deferred tax assets,
including federal and state net operating loss carryforwards, or NOLs. We expect
to maintain this valuation allowance until it becomes more likely than not that
the benefit of our federal and state deferred tax assets will be realized by way
of expected future taxable income in the United States.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed
consolidated financial statements and the notes thereto.
Revenue
                                         September 30,
Service revenue                      2020             2019                Change
                                        (dollar amounts in thousands)
Three months ended               $  120,942       $ 101,345       $ 19,597        19.3  %
Percentage of total revenue            93.7  %         92.5  %

Six months ended                 $  235,125       $ 191,184       $ 43,941        23.0  %
Percentage of total revenue            93.7  %         92.7  %


Service revenue increased for the three and six months ended September 30, 2020
compared with the same period of the previous fiscal year primarily due to a net
increase in our subscriber base, expanded offerings to existing customers, and
growth in related usage; service revenue from new customers was primarily driven
by sales of standalone and bundled UCaaS and
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CCaaS deals globally to our mid-market and enterprise customers. Increase in
service revenue was also attributable to growth in usage revenue generated by
our CPaaS products primarily in the APAC region.
We expect total service revenue to grow over time with our expanding platform
offering as our business continues to expand globally and across broader
customer categories.
                                            September 30,
Other revenue                         2020                   2019              Change
                                          (dollar amounts in thousands)
Three months ended               $     8,191              $  8,172       $  19       0.2  %
Percentage of total revenue              6.3   %               7.5  %

Six months ended                 $    15,815              $ 15,008       $ 807       5.4  %
Percentage of total revenue              6.3   %               7.3  %


Other revenue remained relatively flat during the three months ended September
30, 2020 compared with the same period in the prior fiscal year the slight
increase was in professional services revenue resulting from the overall growth
in our business and subscriber base, largely offset by a decrease in product
revenue as a result of shift towards hardware rental program and reduced demand
for hardware caused by COVID-19 pandemic with increase in work from home
policies.
Other revenue increased during the six months ended September 30, 2020 compared
with the same period in the prior fiscal year primarily due to an increase in
professional services revenue resulting from the overall growth in our business
and subscriber base, partially offset by a decrease in product revenue as a
result of shift toward hardware rental program and reduced demand for hardware
caused by COVID-19 pandemic with increase in work from home policies.
We expect other revenue to grow over time at a rate lower than our service
revenue as we focus on delivering higher margin platform offerings to existing
and new customers.
No customer represented greater than 10% of the Company's total revenue for the
three and six months ended September 30, 2020 or 2019.
Cost of Revenue
                                           September 30,
Cost of service revenue                 2020            2019                Change
                                          (dollar amounts in thousands)
Three months ended                 $   44,803        $ 35,813       $  8,990        25.1  %
Percentage of service revenue            37.0   %        35.3  %

Six months ended                   $   85,799        $ 61,113       $ 24,686        40.4  %
Percentage of service revenue            36.5   %        32.0  %


The increase in cost of service revenue for the three months ended September 30,
2020 from the same period in the prior fiscal year was primarily attributable to
a $7.2 million increase in communication infrastructure costs incurred to
deliver our services primarily due to growth in usage across our platform
including those in connection with CPaaS, a $1.9 million increase in
amortization of capitalized software, and a $1.2 million increase in stock-based
compensation expense. These increases were partially offset by a $0.7 million
decrease in employee and consulting related expenditures and a $0.6 million
decrease in depreciation and amortization of intangible assets.
Cost of service revenue for the six months ended September 30, 2020 increased
over the same prior fiscal year period primarily due to $20.2 million increase
in communication infrastructure costs incurred to deliver our services primarily
due to growth in usage across our platform including those in connection with
CPaaS, a $3.9 million increase in amortization of capitalized software, and a
$2.0 million increase in stock-based compensation expense. These increases were
partially offset by a decrease of $1.0 million in employee and consulting
related expenditures and a decrease of $0.6 million in depreciation and
amortization of intangible assets.
We expect that cost of service revenue will increase in absolute dollars in
future periods as revenue continues to grow.
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                                           September 30,
Cost of other revenue                   2020            2019                Change
                                          (dollar amounts in thousands)
Three months ended                 $   11,693        $ 13,884       $ (2,191)      (15.8) %
Percentage of other revenue             142.8   %       169.9  %

Six months ended                   $   22,830        $ 26,275       $ (3,445)      (13.1) %
Percentage of product revenue           144.4   %       175.1  %


Cost of other revenue for the three and six months ended September 30, 2020
decreased compared to the same periods in the prior fiscal year primarily due to
a decrease in cost of products as a result of decrease in hardware shipment
volume, improved pricing, and increase in our hardware rental program, which has
better margins than hardware sales.
Operating Expenses
                                         September 30,
Research and development              2020             2019                Change
                                        (dollar amounts in thousands)
Three months ended               $    21,567        $ 19,434       $ 2,133        11.0  %
Percentage of total revenue             16.7   %        17.7  %

Six months ended                 $    43,061        $ 37,765       $ 5,296        14.0  %
Percentage of total revenue             17.2   %        18.3  %


Research and development expenses for the three months ended September 30, 2020
increased compared to the same prior fiscal year period primarily due to a $4.0
million increase in stock-based compensation expense, and a $0.3 million
increase in public cloud expenses. These increases were partially offset by a
$1.5 million higher allocation to capitalized software costs, and a $0.5 million
decrease in travel related costs.
Research and development expenses for the six months ended September 30, 2020
increased compared to the same prior fiscal year period primarily due to a $6.7
million increase in stock-based compensation expense, a $0.8 million increase in
public cloud expenses, and a $0.5 million increase in employee and consulting
related expenditures. These increases were partially offset by a $1.9 million
higher allocation of capitalized software costs from research and development
expenses during the period and a decrease of $0.9 million in travel related
costs.
We plan to continue to invest in research and development to support our efforts
to expand the capabilities and scope of our platform and to enhance the user
experience. While we expect to continue to improve our cost structure and
achieve operational efficiencies, we expect that research and development
expenses will increase in absolute dollars in future periods as we continue to
invest in our development efforts, and vary from period-to-period as a
percentage of revenue.
                                         September 30,
Sales and marketing                  2020             2019               Change
                                        (dollar amounts in thousands)
Three months ended               $   61,399       $  57,895       $  3,504       6.1  %
Percentage of total revenue            47.5  %         52.9  %

Six months ended                 $  121,549       $ 111,494       $ 10,055       9.0  %
Percentage of total revenue            48.4  %         54.1  %


Sales and marketing expenses for the three months ended September 30, 2020
increased over the same prior fiscal year period primarily due to a $2.8 million
increase in channel commissions, a $2.1 million increase in amortization of
deferred sales commission costs, a $1.7 million increase in stock-based
compensation expense, a $0.6 million increase in employee and consulting related
expenditures, and a $0.6 million increase in marketing software and application
related expenditures. These increases were partially offset by a net decrease of
$2.3 million in marketing program and public cloud expenses as we gained
efficiencies in lead generation and brand awareness and a $1.9 million decrease
in travel related costs.
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Sales and marketing expenses for the six months ended September 30, 2020
increased over the same prior fiscal year period primarily due to a $5.4 million
increase in employee and consulting related expenditures, a $4.3 million
increase in channel commissions, a $4.0 million increase in amortization of
deferred sales commission costs, a $3.5 million increase in stock-based
compensation expense, and a $2.2 million increase in marketing software and
application costs. These increases were partially offset by a net decrease of
$7.2 million in marketing program and public cloud expenses as we gained
efficiencies in lead generation and brand awareness, and a $2.7 million decrease
in travel related costs.
We plan to continue investing in sales and marketing to attract and retain
customers on our platform and to increase our brand awareness. While we expect
to continue to improve our cost structure and achieve operational efficiencies,
we expect that sales and marketing expenses will increase in absolute dollars in
future periods and vary from period-to-period as a percentage of revenue.
                                         September 30,
General and administrative            2020             2019                Change
                                        (dollar amounts in thousands)
Three months ended               $    22,769        $ 20,435       $ 2,334        11.4  %
Percentage of total revenue             17.6   %        18.7  %

Six months ended                 $    48,559        $ 40,042       $ 8,517        21.3  %
Percentage of total revenue             19.4   %        19.4  %


General and administrative expenses for the three months ended September 30,
2020 increased as compared to the same prior fiscal year period due to a $0.7
million higher allowance for credit losses recognized partially in response to
external market factors and uncertainties in connection with the COVID-19
pandemic, a $0.7 million increase in employee and consulting related
expenditures, a $0.6 million increase in stock-based compensation expense, and a
$0.7 million increase in facilities and other allocated expenses; these
increases were partially offset by a $0.4 million decrease in acquisition and
integration costs.
General and administrative expenses for the six months ended September 30, 2020
increased over the same prior fiscal year period primarily due to a $4.4 million
increase in stock-based compensation expense, a $2.2 million increase in tax
related expense, a $2.1 million higher allowance for credit losses recognized, a
$1.6 million increase in employee and consulting related expenditures, and a
$1.2 million increase in facilities and other allocated expenses. These
increases were partially offset by a $1.5 million decrease in acquisition and
integration costs and a $1.4 million decrease in contract termination cost.
We expect to continue improving our cost structure and achieve operational
efficiencies, and therefore also expect that general and administrative expenses
as a percentage of total revenue will decline over time.
                                         September 30,
Other expense, net                    2020            2019                Change
                                        (dollar amounts in thousands)
Three months ended               $   (5,178)       $ (2,732)      $ (2,446)       89.5  %
Percentage of total revenue            (4.0)  %        (2.5) %

Six months ended                 $   (9,103)       $ (4,296)      $ (4,807)      111.9  %
Percentage of total revenue            (3.6)  %        (2.1) %


Other expense, net of other income increased for the three months ended
September 30, 2020 over the same prior fiscal year period primarily due to a
$1.1 million of lower interest income and a $1.0 million increase related to
contractual interest expense, amortization of debt discount, and amortization of
issuance costs associated with additional convertible notes issued in November
2019. The remaining increase is attributable to fluctuations in foreign exchange
rates.
Other expense, net of other income for the six months ended September 30, 2020
increased over the same prior fiscal year period primarily due to a $2.6 million
of lower interest income and a $2.1 million increase related to contractual
interest expense, amortization of debt discount, and amortization of issuance
costs associated with additional convertible notes issued in November 2019. The
remaining increase is attributable to fluctuations in foreign exchange rates.
With the recognition of interest expense and amortization of debt discount and
issuance costs in connection with our convertible senior notes, we expect the
net of other income and expense to continue to be in a net expense position in
future periods.
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                                                                September 30,
Provision for income taxes                               2020                    2019                         Change
                                                                 (dollar amounts in thousands)
Three months ended                                $           137           $        256          $   (119)              (46.5) %
Percentage of loss before provision for
income taxes                                                 (0.4)  %               (0.6) %

Six months ended                                  $           365           $        404          $    (39)               (9.7) %
Percentage of loss before provision for
income taxes                                                 (0.5)  %

(0.5) %




We estimate our annual effective tax rate at the end of each quarter. In
estimating the annual effective tax rate, we consider, among other things,
annual pre-tax income, permanent tax differences, the geographic mix of pre-tax
income and the application and interpretations of existing tax laws. We record
the tax effect of certain discrete items, which are unusual or occur
infrequently, in the interim period in which they occur, including changes in
judgment about deferred tax valuation allowances. The determination of the
effective tax rate reflects tax expense and benefit generated in certain
domestic and foreign jurisdictions. However, jurisdictions with a year-to-date
loss where no tax benefit can be recognized are excluded from the annual
effective tax rate.
Liquidity and Capital Resources
As of September 30, 2020, we had $159.4 million of cash, cash equivalents, and
investments. In addition, as of September 30, 2020, we had restricted cash
including $8.6 million in support of letter of credits securing leases for
office facilities and $6.9 million held in escrow for our acquisition of
Wavecell in July 2019, pursuant to the terms of the acquisition agreement.
During the three months ended September 30, 2020, $3.5 million of restricted
cash was released, and the remaining amount of $6.9 million held in escrow for
our acquisition of Wavecell is due to be released in January 2021. By
comparison, at March 31, 2020, we had $186.9 million of cash, cash equivalents,
and investments as well as $19.0 million restricted cash.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") was passed into law, which amended portions of relevant tax laws
and provided relief to certain qualifying entities. In connection with the CARES
Act, the Company elected to defer certain employer payroll taxes, which is
expected to reduce cash usage by over $4 million throughout fiscal 2021. The
amounts deferred will be remitted to tax authorities during the third quarter of
fiscal 2022 and fiscal 2023, respectively, when they become due. Other
jurisdictions around the world have also provided similar tax relief, which the
Company has elected to receive, where applicable; these benefits have a lesser
impact to our expected cash flows during fiscal 2021.
In June 2020, the Company offered its employees a limited opportunity to receive
a portion of their cash salary in shares of the Company's common stock. Based on
employee elected participation, we expect lower cash usage from payroll
compensation of over $4 million during fiscal 2021. Currently, the Company does
not expect to offer this program beyond fiscal 2021. In addition, for fiscal
2021, the Company's executives received performance share units in place of a
cash bonus plan. The timing of bonus payments for all other eligible employees
was changed to semi-annually (in the third and first quarter of each fiscal
year) from quarterly as in prior fiscal years.
We believe that our existing cash, cash equivalents, and investment balances,
and our anticipated cash flows from operations will be sufficient to meet our
working capital and expenditure requirements for the next 12 months.
Period-over-Period Changes
Net cash used in operating activities for the six months ended September 30,
2020 was $13.1 million, compared with $44.5 million in the six months ended
September 30, 2019. Cash used in operating activities was affected by:
•the amount of net income or loss;
•the amount of depreciation and amortization;
•the amortization associated with deferred sales commissions, debt discount and
issuance costs;
•the expense associated with stock options and stock-based awards; and
•changes in working capital accounts, particularly in the timing of collections
from receivable and payments of obligations, such as commissions.
During the six months ended September 30, 2020, net cash used in operating
activities was primarily related to the net loss of $80.3 million, net cash
outflow from sales commissions of $14.0 million, which were partially offset by
non-cash charges such
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as stock-based compensation expense of $48.1 million, depreciation and
amortization of $22.6 million, amortization of debt discount of $8.3 million,
and operating lease expenses of $7.6 million.
Net cash used in investing activities was $11.5 million in the six months ended
September 30, 2020, compared with $59.9 million in the six months ended
September 30, 2019. The cash used in investing activities during the six months
ended September 30, 2020 was related to capitalized internal software
development costs of $16.2 million, purchases of $4.2 million of property and
equipment, and $3.5 million release of cash held in escrow associated with an
acquisition during the second quarter of fiscal 2020, partially offset by $12.3
million of proceeds from maturities and sales of investments, net of purchase.
Net cash provided by financing activities was $4.6 million in the six months
ended September 30, 2020, compared with $0.5 million in the six months ended
September 30, 2019. Cash provided by financing activities for the six months
ended September 20, 2020 was primarily related to the proceeds from issuance of
common stock under the ESPP.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
The discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosures of assets and liabilities. On an
on-going basis, we evaluate our critical accounting policies and estimates. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
With the exception of changes described within Part I, Item 1, Note 2, "Summary
of Significant Accounting Policies", due to the adoption of ASU 2016-03, there
have been no significant changes during the three months ended September 30,
2020 to our critical accounting policies and estimates previously disclosed in
our Form 10-K for the fiscal year ended March 31, 2020.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Item 1 of Part I, "Notes to Unaudited Condensed Consolidated Financial
Statements - Note 2 - Summary of Significant Accounting Policies."
RECENT ACCOUNTING PRONOUNCEMENTS
See Item 1 of Part I, "Notes to Unaudited Condensed Consolidated Financial
Statements - Note 2 - Summary of Significant Accounting Policies."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Fluctuation Risk
We had cash, cash equivalents, restricted cash, and investments totaling $175.0
million as of September 30, 2020. Cash equivalents and investments were invested
primarily in money market funds, U.S. treasury, commercial paper, and corporate
bonds. Our investment policy is focused on the preservation of capital and
supporting our liquidity needs. Under the policy, we invest in highly rated
securities, while limiting the amount of credit exposure to any one issuer other
than the U.S. government. We do not invest in financial instruments for trading
or speculative purposes, nor do we use leveraged financial instruments. We
utilize external investment managers who adhere to the guidelines of our
investment policy. A hypothetical 10% change in interest rates would not have a
material impact on the value of our cash, cash equivalents, or
available-for-sale investments.
The Company issued $362.5 million aggregate principal amount of convertible
senior notes of which the estimated fair value as of September 30, 2020 was
$336.7 million. The fair value of the convertible senior notes is subject to
interest rate risk, market risk and other factors due to the conversion feature.
The fair value of the convertible senior notes will generally increase as our
common stock price increases and will generally decrease as our common stock
price declines. The interest and market value changes affect the fair value of
the convertible senior notes but do not impact our financial position, cash
flows, or results of operations due to the fixed nature of the debt obligation.
Additionally, we carry the convertible senior notes at face value less
unamortized discount on our consolidated balance sheets, and we present the fair
value for required disclosure purposes only.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and operating expenses
denominated in currencies other than the U.S. dollar, primarily the British
Pound, causing both our revenue and our operating results to be impacted by
fluctuations in the exchange rates.
Gains or losses from the revaluation of certain cash balances, accounts
receivable balances, and intercompany balances that are denominated in these
currencies impact our net income (loss). A hypothetical decrease in all foreign
currencies against the US dollar of 10% would not result in a material foreign
currency loss on foreign-denominated balances at September 30, 2020. As
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our foreign operations expand, our results may be more impacted by fluctuations in the exchange rates of the currencies in which we do business. At this time, we do not, but we may in the future, enter into financial instruments to hedge our foreign currency exchange risk.

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