8X8, INC. OVERVIEW
We are a leading SaaS provider of voice, video, contact center, and communication APIs powered by a 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 up-market focus on the mid-market and enterprise customer sectors. 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 communications services subscriptions and platform usage. We generate other revenue from professional services and the sale of office phones and other hardware equipment. 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 suite of UCaaS and 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 ourJuly 2019 acquisition ofWavecell Pte. Ltd. , anAsia -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 in scope. We expect to continue integrating these services into our platform, as we believe in the value of the collective solutions. Throughout fiscal 2021, the Company incurred professional services and related engineering costs to upgrade our customers to the 8x8 X Series platform. As ofMarch 31, 2021 , we have upgraded substantially all of our customers to X Series, and intend to complete remaining upgrades in fiscal 2022. 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. SUMMARY AND OUTLOOK In fiscal 2021, our total service revenue grew approximately 20% year-over-year to$496.0 million . We continued to show an increase in our average annualized service revenue per customer, which grew to$8,439 in fiscal 2021, from$7,876 in fiscal 2020, as we are selling more to mid-market and enterprise customers. Annual service revenue from mid-market and enterprise customers represented 47% of total annual service revenue and grew 31% over the prior year. We also increased the number of deals where customers purchase our integrated communications and contact center solutions, which we have referred to as bundled deals, 67% of our new bookings greater than$12,000 of annualized recurring revenue were from customers that selected bundled UCaaS and CCaaS, as compared to 60% one year ago. 27 -------------------------------------------------------------------------------- Table of Contents Our continued business focus is on achieving improved operating efficiencies while delivering revenue growth. In fiscal 2021, while we continued to make important investments in our products and technology platform, management recognized the importance of driving toward profitability for sustainable scale. We focused on key areas of spend in our go-to-market strategy and improving gross margin and operating margin through increased spend discipline. Additionally, we looked to drive improved efficiencies in our customer acquisition and operations, and focused on expanding our business upmarket with mid-market and enterprise customers. We believe that this approach 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 cashflow improvement. In prior years, we made strategic investments in R&D and marketing, which we considered necessary and important for delivering a robust platform to our customers and establishing the appropriate demand generation channels to connect our customers to our solutions. In fiscal 2019, we launched 8x8 X Series, our single-technology platform, and re-aligned our channel and marketing functions to support a more scalable, higher-growth, go-to-market strategy, in response to the shift of businesses from legacy on-premise communication solutions to cloud-based services. We believe that this industry trend continued throughout our fiscal 2021. Accordingly, we continued to invest in our business, but with a concurrent focus on scale and managing costs with the goal of driving to profitability. In fiscal 2022, we plan to continue making investments in activities to acquire more customers, including investing in our marketing efforts, internal and field sales capacity, and research and development. We also intend to continue investing in our indirect channel programs to acquire more third-party selling agents to help sell our solutions, including VARs and master agent programs. NEW CEO APPOINTMENT OnDecember 10, 2020 , we appointedDavid Sipes as Chief Executive Officer and a member of the board of directors. 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 an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, 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 has spent significant time working from home and travel has been curtailed for our employees as well as our customers. Small and medium-sized customers have been particularly impacted by the COVID-19 pandemic. We have also experienced significant increases in usage by existing customers as our customers' workforces are required to work from home in response to the COVID-19 pandemic accelerating trends we have seen in distributed workforces increasingly relying on cloud communication systems like ours. While we anticipate that the global health crisis caused by COVID-19 and the measures enacted to slow its spread will negatively impact business activity across the globe, it is not clear what its potential effects will be on our business, including the effects on our customers, suppliers or vendors, or on our financial results. 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 driving our business to increase service revenue through a combination of increased sales and marketing efforts, geographic expansion of our customer base outsidethe United States , innovation in product and technology, and through strategic acquisitions of technologies and businesses. Other Revenue Other revenue consists of revenues from professional services, primarily in support of deployment of our solutions and/or platform, and revenues from sales and rentals of IP telephones in conjunction with our cloud telephony service. 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. Cost of Service Revenue Cost of service revenue consists primarily of costs associated with network operations and related personnel, technology licenses, amortization of capitalized internal-use software, other communication origination and termination services provided by third-party carriers and outsourced customer service call center operations, and other costs such as customer service, and technical support costs. 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. 28 -------------------------------------------------------------------------------- Table of Contents 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, 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, software and equipment costs necessary for us to conduct our product, 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, including those to the channel, trade shows, advertising and other marketing, demand generation, 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, corporate administrative costs, tax and regulatory fees, 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, investments, and foreign exchange gain/losses. Provision for Income Taxes Provision for income taxes consists primarily of foreign income taxes and state minimum taxes inthe United States . As we expand the scale of our international business activities, any changes in theU.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for ourU.S. deferred tax assets, including federal and state net operating loss carryforwards ("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 inthe United States . RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. We have minimal seasonality in our business, but typically, sales of new subscriptions in our fourth fiscal quarter are greater than in any of the first three quarters of the fiscal year. We believe this occurs because the customers we target tend to spend a relatively greater portion of their annual capital budgets at the beginning of the calendar year compared with each of the last three quarters of the year. Revenue Service revenue For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019 Service revenue$495,985 $414,078 $325,305 $ 81,907 19.8 %$ 88,773 27.3 % Percentage of total revenue 93.2 % 92.8 % 92.3 % Service revenue increased for fiscal 2021, as compared with fiscal 2020, primarily due to a net increase in our customer 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 CCaaS deals, globally, to our mid-market and enterprise customers. The increase in service revenue was also attributable to growth in usage revenue generated by our CPaaS products primarily in the APAC region. Our service subscriber base grew from approximately 55,000 customers onMarch 31, 2020 to approximately 58,000 customers onMarch 31, 2021 . Service revenue increased for fiscal 2020, as compared with fiscal 2019, primarily due to a net increase in our customer subscriber base, with the largest part of the increase coming from our mid-market and enterprise customers, who are our fastest growing customer sector, contributing to an increase in the average annual service revenue per customer. This increase was primarily due to organic growth and, to a lesser extent, CPaaS revenue generated in connection with our acquisition of Wavecell inJuly 2019 . Our service subscriber base grew from approximately 52,000 customers onMarch 31, 2019 to approximately 55,000 customers onMarch 31, 2020 . 29
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We expect total service revenue to grow over time with our diverse platform
offering as our business continues to expand globally and across broader
customer categories.
Other revenue
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Other revenue $36,359 $32,159 $27,281 $ 4,200 13.1 % $ 4,878 17.9 %
Percentage of total revenue 6.8 % 7.2 % 7.7 %
Other revenue increased in fiscal 2021, as compared to fiscal 2020, primarily
due to increased professional services revenue resulting from the overall growth
in our business and customer base, partially offset by a decrease in product
revenue as a result of a shift toward our hardware rental program.
Other revenue increased in fiscal 2020, as compared to fiscal 2019, primarily
due to increased professional services revenue resulting from the overall growth
in our business and customer base and increased product revenue.
We expect other revenue to grow over time as our customer base grows,
particularly in mid-market and enterprise, as we focus on delivering enhanced
platform offerings to existing and new customers.
No single customer represented more than 10% of our total revenues during fiscal
years 2021, 2020, or 2019.
Revenues are attributed to countries based on the shipment destination and the
customer's service address. The following table illustrates our revenues by
geographic area:
For the years ended March 31,
2021 2020 2019
United States 73 % 79 % 86 %
International 27 % 21 % 14 %
Total 100 % 100 % 100 %
Revenue generated from international customers increased in fiscal years 2021
and 2020, as compared to fiscal 2019 due to expansion in both EMEA and APAC
regions, including those added in connection with our acquisition of Wavecell.
Cost of Revenue
Cost of service revenue
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Cost of service revenue $180,082 $145,013 $86,122 $ 35,069 24.2 % $ 58,891 68.4 %
Percentage of service
revenue 36.3 % 35.0 % 26.5 %
Cost of service revenue increased in fiscal 2021, as compared to fiscal 2020,
primarily due to a $33.6 million increase in communication infrastructure costs
incurred to deliver our services, including those in connection with CPaaS, a
$6.4 million increase in amortization of capitalized internal-use software, and
a $3.4 million increase in stock-based compensation expense. These increases
were partially offset by a decrease of $5.3 million in employee and consulting
related expenditures and a decrease of $2.5 million in depreciation and
amortization of intangible assets.
Cost of service revenue increased in fiscal 2020, as compared to fiscal 2019,
primarily due to a $33.8 million increase in communication infrastructure costs
incurred to deliver our services, including those in connection with CPaaS, a
$7.1 million increase in amortization of capitalized internal-use software
costs, a $6.5 million increase in facilities and other allocated expenses, a
$6.8 million increase in employee and consulting related expenditures, $1.9
million increase in amortization of intangibles, and a $1.1 million increase in
software expense.
We expect cost of service revenue will increase in absolute dollars in future
periods as revenue continues to grow.
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Cost of other revenue
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Cost of other revenue $ 50,068 $ 56,215 $ 43,850 $ (6,147) (10.9) % $ 12,365 28.2 %
Percentage of other revenue 137.7 % 174.8 % 160.7 %
Cost of other revenue decreased in fiscal 2021, as compared to fiscal 2020,
primarily due to reductions in hardware shipment volume, improved pricing, and
increase in our hardware rental program, which has better margins than hardware
sales.
Cost of other revenue increased in fiscal 2020, as compared to fiscal 2019,
primarily due to increased product shipments and personnel and other costs
associated with customer deployments.
Operating Expenses
Research and development
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Research and development
18.3 % $ 15,727 25.3 %
Percentage of total revenue 17.3 % 17.4 % 17.6 %
Research and development expenses increased in fiscal 2021, as compared to fiscal 2020, primarily due to an$11.9 million increase in stock-based compensation expense, a$3.0 million reduction in capitalized internal-use software costs, and a$1.2 million increase in depreciation and amortization of software. These increases were partially offset by a$1.2 million decrease in travel related costs. Research and development expenses increased in fiscal 2020, as compared to fiscal 2019, primarily due to an$8.6 million increase in stock-based compensation expenses, a$3.7 million increase in payroll and related expenses, net of capitalized internal-use software costs, a$2.2 million increase in amortization of capitalized internal-use software costs, and a$1.5 million increase in software expenses. 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. Sales and marketing For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019 Sales and marketing$256,231 $240,013 $177,976 $ 16,218 6.8 %$ 62,037 34.9 % Percentage of total revenue 48.1 % 53.8 % 50.5 % Sales and marketing expenses increased in fiscal 2021, as compared to fiscal 2020, primarily due to a$14.9 million increase in channel commissions, a$13.7 million increase in stock-based compensation expense, a$8.3 million increase in amortization of deferred sales commission costs, a$3.7 million increase in marketing software and application costs, and a$3.2 million increase in employee and consulting related expenditures. These increases were partially offset by a decrease of$27.2 million in marketing program and public cloud expenses due to gained efficiencies in lead generation and brand awareness, along with a reduction in travel related costs. Sales and marketing expenses increased in fiscal 2020, as compared to fiscal 2019, primarily due to a$20.4 million increase in advertising and marketing expenses, a$16.1 million increase in payroll and related expenses from expansion of our sales force, an$8.3 million increase in stock-based compensation expenses, a$7.2 million increase in commission expenses, a$5.3 million increase in amortization of deferred sales commissions, a$1.5 million increase in recruiting and outside services, a$1.3 million increase in licenses and fees, and a$0.9 million increase in depreciation and amortization of intangibles. 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. 31 --------------------------------------------------------------------------------
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General and administrative
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
General and administrative $100,078 $87,025 $72,208 $ 13,053 15.0 % $ 14,817 20.5 %
Percentage of total revenue 18.8 % 19.5 % 20.5 %
General and administrative expenses increased in fiscal 2021, as compared to
fiscal 2020, primarily due to a $6.4 million increase in stock-based
compensation expense, a $5.7 million increase in professional services and
payroll and related expenses, including CEO succession costs, a $1.3 million
higher allowance for credit losses, partially in response to external market
factors and uncertainties in connection with the COVID-19 pandemic, and a $1.8
million increase in depreciation expense. These increases were partially offset
by a $2.2 million decrease in acquisition and integration costs.
General and administrative expenses increased in fiscal 2020, as compared to
fiscal 2019, primarily due to an $11.8 million increase in payroll and related
expenses, a $7.9 million increase in stock-based compensation expenses, a $3.5
million increase in rent expense related to additional office spaces, a $2.4
million increase in bad debt expense, and a $2.4 million increase in acquisition
and integration related expenses. These increases were partially offset by a
decrease in allocated costs of $7.0 million , and the non-recurrence of sales and
use tax expenses of $7.6 million that the Company recognized in fiscal 2019.
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.
Other income (expense), net
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Other income (expense), net $(18,593) $ (11,717) $ 1,463 $ (6,876) 58.7 % $ (13,180) (900.9) %
Percentage of total revenue (3.5) % (2.6) % 0.4 %
The change in Other income (expense), net in fiscal 2021, as compared to fiscal
2020, was primarily due to $4.0 million of lower interest income and a $3.1
million increase in expense related to contractual interest, amortization of
debt discount, and amortization of issuance costs associated with additional
convertible notes issued in November 2019 . These amounts were partially offset
by an increase in other income of $0.6 million .
The change in Other income (expense), net in fiscal 2020, as compared to fiscal
2019, primarily related to recognition of interest, amortization of debt
discount, and amortization of issuance costs associated with our convertible
senior notes issued in the fourth quarter of fiscal 2019 and the third quarter
of fiscal 2020, which totaled $15.6 million in fiscal 2020, as compared to $1.5
million in fiscal 2019. This increase in other expense was partially offset by
an increase in interest income of $1.6 million .
With the recognition of interest expense and amortization of debt discount and
issuance costs in connection with our convertible senior notes, we expect Other
income (expense), net to continue to be in a net expense position for the
foreseeable future.
Provision for income taxes
For the years ended March 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Provision for income taxes $ 843 $ 832 $ 569 $ 11 1.3 % $ 263 46.2 %
Percentage of total revenue 0.2 % 0.2 % 0.2 %
For the years ended March 31, 2021 and 2020, we recorded income tax expense of
$0.8 million and $0.8 million , respectively, mostly related to the current tax
liabilities of profitable foreign subsidiaries and U.S. state minimum taxes. Our
effective tax rate for each period differs from the statutory rate primarily due
to a full valuation allowance against our deferred tax assets.
We record deferred taxes based on differences between the financial statement
basis and tax basis of assets and liabilities and available tax loss and credit
carryforwards. In evaluating our ability to utilize our deferred tax assets, we
consider available evidence, both positive and negative, in determining future
taxable income on a jurisdiction-by-jurisdiction basis. We record a valuation
allowance against deferred tax assets if, based on the weight of the evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. A significant item of objective negative evidence
considered was the historical three-year cumulative pretax loss reached in
fiscal 2018. We continue to remain in a cumulative pretax loss position, and
therefore, continued to maintain a full valuation allowance against our U.S. ,
U.K. , and Singapore deferred tax assets.
Liquidity and Capital Resources
As of March 31, 2021 , we had $152.9 million of cash and cash equivalents and
short-term investments. In addition, we had $8.6 million in restricted cash in
support of letters of credit securing leases for office facilities in California
and New York . During fiscal 2021, $10.4 million previously held in escrow for
our acquisition of Wavecell was released.
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As of March 31, 2020 , we had $170.9 million of cash and cash equivalents and
short-term investments. In addition, we had $19.0 million in restricted cash, of
which $8.6 million was in support of letters of credit securing leases for
office facilities in California and New York and $10.4 million was held in
escrow for our acquisition of Wavecell, pursuant to the terms of the acquisition
agreement.
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 reduced
cash usage by approximately $5.0 million through December 31, 2020 , of which
approximately $2.5 million will be remitted to tax authorities during the third
quarter of fiscal 2022 and the remaining amount due will be remitted in the
third quarter of fiscal 2023. 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 cash flows during fiscal
2021.
In June 2020 , the Company offered its employees an opportunity to receive a
portion of their future cash salary for fiscal 2021 in shares of the Company's
common stock, which resulted in lower cash usage from payroll compensation of
approximately $4 million during fiscal 2021. In addition, for fiscal 2021, the
Company's executives received performance share units in place of a cash bonus
plan and 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.
During the fourth quarter of fiscal 2021, we received $6.4 million of operating
cash inflows from our Lease Assignment. Refer to Note 5. Leases, in the Notes to
Consolidated Financial Statements included in this Annual Report.
In March 2021 , the Company offered its employees another opportunity to receive
a portion of their fiscal 2022 cash salary and/or cash bonus in shares of the
Company's common stock. Based on employee elected participation, we expect lower
cash usage from payroll compensation of over $9 million during fiscal 2022.
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. Although we
believe we have adequate sources of liquidity over the next 12 months, the
success of our operations, the global economic outlook, and the pace of
sustainable growth in our markets, in each case, in light of the market
volatility and uncertainty as a result of the COVID-19 pandemic, among other
factors, could impact our business and liquidity.
Year over Year Changes
Net cash used in operating activities for fiscal 2021 was $14.1 million , as
compared with $93.9 million for fiscal 2020. Cash used in or provided by
operating activities is primarily affected by:
•net income or loss;
•non-cash expense items such as depreciation, amortization, and impairments;
•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.
In fiscal 2021, net cash used in operating activities was primarily related to
our net loss of $165.6 million , net cash outflow from sales commissions payments
and recognition of deferred sales commissions of $25.1 million , and other
smaller working capital changes, which were partially offset by non-cash charges
such as stock-based compensation expense of $107.6 million , amortization of
capitalized internal-use software costs of $26.9 million , amortization of debt
discount of $16.9 million , and operating lease expenses of $15.2 million .
In fiscal 2020, net cash used in operating activities was primarily related to
our net loss of $172.4 million , net cash outflow from sales commissions of $26.9
million , and other smaller working capital changes, which were partially offset
by non-cash charges such as stock-based compensation expense of $70.9 million ,
amortization of capitalized internal-use software costs of $19.0 million ,
amortization of the debt discount of $14.0 million , and operating lease expenses
of $15.0 million .
Net cash used in investing activities was $36.3 million in fiscal 2021, as
compared to $106.3 million in fiscal 2020. The cash used in investing activities
during fiscal 2021, was primarily related to capitalized internal-use software
development costs of $28.8 million , net cash paid of $10.4 million in connection
with our acquisition of Wavecell, and purchases of property and equipment of
$6.4 million . This was partially offset by the proceeds from the sales and
maturities of investments, net of purchases, of $9.3 million .
Net cash used in investing activities was $106.3 million during fiscal 2020, as
compared to $10.9 million provided by investing activities in fiscal 2019. The
cash used in investing activities during fiscal 2020 was primarily related to
purchases of property and equipment of $35.8 million , largely in connection with
the build out of our corporate office, capitalized internal-use software
development costs of $31.6 million , and net cash paid of $59.1 million in
connection with our acquisitions. This was partially offset by proceeds from
sales and maturities of investments, net of purchases, of $20.2 million .
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Net cash provided by financing activities was $13.2 million in fiscal 2021, as
compared to $72.1 million in fiscal 2020. The cash provided by financing
activities in fiscal 2021, was primarily from the issuance of common stock of
$13.3 million , primarily from employee stock purchase plans and employee option
exercises.
Net cash provided by financing activities was $72.1 million in fiscal 2020, as
compared to $249.2 million provided by financing activities in fiscal 2019. The
cash provided by financing activities in fiscal 2020, was primarily from the
issuance of convertible debt of $73.9 million and from the issuance of common
stock under employee stock purchase plans of $14.3 million . These inflows were
partially offset by $9.3 million in capped call transactions and $6.6 million to
settle payroll tax obligations.
Off-Balance Sheet Arrangements
As of March 31, 2021 , we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of
unconsolidated subsidiaries, structured finance, special purpose entities or
variable interest entities.
As set forth below in our contractual obligations table, we do have inventory
purchases and other commitments incurred in the normal course of business. We
may also agree in the normal course of business to indemnify other parties,
including customers, lessors and parties to other transactions with us with
respect to matters such as breaches of representations or covenants or
intellectual property infringement or other claims made by third parties. See
Note 6, Commitments and Contingencies, in the Notes to Consolidated Financial
Statements included in this Annual Report for further information about our
indemnification arrangements.
Contractual Obligations
Obligations related to our convertible senior notes, operating lease payments,
and purchase obligations at March 31, 2021 for the next five years were as
follows:
Payments Due by Period
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
Convertible senior notes $ 362,500 $ - $ 362,500 $ - $ -
Operating lease obligations(1) 113,049 16,341 27,000 22,015 47,693
Lease assignment contract(1) 868 868 - - -
Purchase obligations 18,625 5,051 13,574 - -
Total $ 495,042 $ 22,260 $ 403,074 $ 22,015 $ 47,693
(1) See Note 5, Leases, in the Notes to Consolidated Financial Statements
included in this Annual Report for further information.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S. GAAP.
Refer to Note 1, The Company and Significant Accounting Policies, in the Notes
to Consolidated Financial Statements included in this Annual Report, which
describes the significant accounting policies and methods used in the
preparation of our consolidated financial statements.
We have identified the policies below as critical to our business and the
understanding of our results of operations. These policies may involve a higher
degree of judgment and complexity in their application and represent the
critical accounting policies used in the preparation of our consolidated
financial statements. Although we believe our judgments and estimates are
appropriate, actual future results may differ from our estimates. If different
assumptions or conditions were to prevail, the results could be materially
different from our reported results. The impact and any associated risks related
to these policies on our business operations is discussed throughout
Management's Discussion and Analysis of Financial Condition and Results of
Operations where such policies affect our reported and expected financial
results.
Revenue Recognition
Significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if
management made different judgments or utilized different estimates.
Revenue is recognized when performance obligations are satisfied, based on the
transaction price. We generally bill our customers on a monthly basis. Contracts
typically range from annual to multi-year agreements, generally with payment
terms of net 30 days.
We record reductions to revenue for estimated sales returns and customer credits
at the time the related revenue is recognized. Sales returns and customer
credits are estimated based on our historical experience, current trends, and
our expectations regarding future service delivery and platform performance. We
monitor the accuracy of its sales reserve estimates by reviewing actual returns
and credits and adjusts them for its future expectations to determine the
adequacy of its current and future reserve needs. If actual future returns and
credits differ from past experience, additional reserves may be required.
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Service Revenue Recognition
Service revenue from subscriptions to our cloud-based technology platform is
recognized on a ratable basis over the contractual subscription term beginning
on the date that the platform is delivered to the customer until the end of the
contractual period. Payments received in advance of subscription services being
rendered are recorded as deferred revenue; revenue recognized for services
rendered in advance of payments received are recorded as contract assets. Usage
fees, when bundled, are billed in advance and recognized over time on a ratable
basis over the contractual subscription term. Non-bundled usage fees are
recognized as actual usage occurs.
Other Revenue Recognition
Other revenue is primarily comprised of product revenue and professional
services revenue. We recognize product revenue for telephony equipment at a
point in time, when transfer of control has occurred, which is generally upon
shipment. Sales returns are recorded as a reduction to revenue estimated based
on historical experience. Professional services for deployment, configuration,
system integration, optimization, customer training or education are primarily
billed on a fixed-fee basis and are performed by us directly. Professional
services revenue is recognized as services are performed or upon completion of
the deployment.
Allowance for Credit Losses
We account for allowances for credit losses under the current expected credit
loss ("CECL") impairment model for our financial assets, including accounts
receivable, and present the net amount of the financial instrument expected to
be collected. The CECL impairment model requires an estimate of expected credit
losses, measured over the contractual life of an instrument, that considers
forecasts of future economic conditions in addition to information about past
events and current conditions. Using this model, we estimate the adequacy of the
allowance for credit losses at the end of each reporting period based on the
aging of the receivable balance, current and historical customer trends,
communications with customers, and macro-economic conditions. Amounts are
written off after considerable collection efforts have been made and the amounts
are determined to be uncollectible.
Capitalized Internal-Use Software Costs
Certain software development costs for computer software developed internally or
obtained for internal use are capitalized during the application development
stage. We begin to capitalize our costs to develop software when preliminary
development efforts are successfully completed, management has authorized and
committed project funding, and it is probable that the project will be completed
and the software will be used as intended. Once the project has been completed,
these costs are amortized on a straight-line basis over the estimated useful
life of the related asset, generally estimated to be three years. Costs incurred
prior to meeting these criteria together with costs incurred for training and
maintenance are expensed as incurred and recorded in the applicable income
statement category, typically research and development, in our consolidated
statements of operations.
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