8X8 INC /DE/ Q1 FY2021 earnings

8x8 reported first quarter fiscal 2021 revenue of $121.8 million, up 26.0% year over year. Gross profit rose 18.1% to $69.7 million, but gross margin slipped to 57.2%, down 3.8 percentage points. The company posted an operating loss of $37.8 million, and that loss widened. Net loss was $41.9 million, also wider than the prior-year quarter. Diluted EPS was -$0.40. Operating margin was -31.0%, an improvement of 2.7 percentage points from the prior-year quarter. The top line and ARR growth stood out, while profitability remained under pressure.

Operational metrics show the mix shifting upmarket. Total ARR reached $432.2 million, up 30% from the same period last year. The company had 606 customers with ARR greater than $100,000, compared with 449 a year earlier, a 35% increase. It closed 38 new customer deals with ARR above $100,000, and those deals represented 43% of new bookings, compared with 31% a year ago. Channel bookings grew 47% and made up 62% of new bookings. Contact center bookings represented 32% of total new bookings and grew 194% year over year. By customer size, small business was 55% of total ARR and grew 16%; mid-market was 26% and grew 40%; enterprise was 19% and grew 72%. Product launches included the 8x8 Open Communications Platform, 8x8 Voice for Microsoft Teams, and CPaaS programmable applications and APIs. The company ended the quarter with 237 patents awarded. It also promoted Samuel Wilson to Chief Financial Officer and announced global expansion of the 8x8 Open Channel Program with more than 1,000 active partners worldwide.

Average annual service revenue per customer increased across the board. Small business averaged $4,623, up 1% from $4,596. Mid-market averaged $41,963, up 15% from $36,498. Enterprise averaged $167,000, up 11% from $150,653. Bundled deals also rose; 55% of new bookings greater than $12,000 of annualized recurring revenue came from customers selecting bundled UCaaS and CCaaS, compared with 51% one year ago.

Cash flow improved. Operating cash flow was -$9.25 million, up 54.9% from the prior-year quarter. Capital expenditures were $2.45 million, up 23.6%. Deferred revenue rose 155.9% to $10.63 million. Remaining performance obligations stood at $290.00 million, up 52.6%. The MD&A states that existing cash, cash equivalents, and investment balances should be sufficient for the next 12 months. The company plans to keep investing in customer acquisition, global expansion, direct marketing, sales force, e-commerce, outbound marketing, and indirect channel programs.

Guidance covers the second quarter of fiscal 2021 ending September 30, 2020. Management pointed to sequential revenue growth for both total and service revenue in that period and guided to a non-GAAP pre-tax loss of approximately $7.5 million. The company is not providing full-year fiscal 2021 guidance because of continued uncertainty around COVID-19. Risks include the pandemic's uneven impact on small business and mid-size customers, lower-than-expected CPaaS usage in APAC during the quarter, customer churn, competitive pressure, reliance on third-party network providers, cybersecurity threats, Wavecell integration, privacy regulation, and the convertibles. Management also warned that upfront investments in channel and marketing may not produce additional revenue, and cost efficiency efforts may not yield meaningful savings. The MD&A notes that small business and mid-size customers have been more affected by COVID-19 than enterprise customers, and that CPaaS usage was lower than expected in APAC during the quarter, though positive trends appeared late in the period. Management expects operating expenses to increase in absolute dollars in future periods, even as it targets operating efficiencies.