8X8 INC /DE/ Q1 FY2022 earnings

8x8 posted double-digit revenue growth in the first quarter of fiscal 2022, but GAAP losses remained wide. Total revenue rose 21.8% year over year to $148.33 million in the quarter ended June 30, 2021. Gross profit climbed 27.1% to $88.57 million. Gross margin improved by 2.5 percentage points to 59.7%. Operating loss was $38.83 million, with the loss widening from the prior-year quarter. Net loss was $43.91 million, also widening. Diluted EPS was flat at -$0.40. Operating margin improved by 4.8 percentage points to -26.2%, but GAAP operating and net results remained negative.

The adjusted picture was better. Non-GAAP operating profit was $1.3 million, compared with a non-GAAP operating loss of $7.8 million in the same period last year. Non-GAAP gross margin was 62.6%, up from 61.3%. Non-GAAP service margin was 68.9%, up from 67.7%. Management pointed to XCaaS as a way to break down silos between cloud contact center and employee communications. The company also launched a platform-wide 99.999% SLA, added support for 500 active video meeting participants, and extended 8x8 Voice for Microsoft Teams with presence synchronization.

ARR and customer metrics showed upmarket progress. Total ARR grew to $535.8 million, up 24% from the same period last year. Customers generating more than $100K in ARR reached 824, compared with 606, a 36% increase. Enterprise customers made up 49% of total ARR and grew 40% year over year. Mid-market customers represented 19% of total ARR and grew 22%. Small business customers were 32% of total ARR and grew 7%. The mix shift toward larger customers is clear. Cash flow also improved. Operating cash flow was positive $4.03 million, an increase of $13.28 million from the prior-year quarter. Capital expenditures were $0.88 million, down 64.2%. Deferred revenue, current, rose to $21.985 million, up 163.2%.

Guidance points to continued growth but a modest near-term step. For the second quarter of fiscal 2022, total revenue is expected in the range of $147.5 million to $149.0 million, representing approximately 14% to 15% year-over-year growth. Service revenue is expected in the range of $138.5 million to $139.5 million, representing approximately 15% year-over-year growth. The company expects to be operating margin positive on a non-GAAP basis. For the full fiscal year 2022, total revenue guidance was raised to a range of $604 million to $612 million, representing approximately 13% to 15% year-over-year growth. Service revenue guidance was raised to a range of $564 million to $572 million, representing approximately 14% to 15% year-over-year growth. Management maintained its guidance for non-GAAP operating margin to be positive for the remainder of fiscal 2022, with the fourth quarter of fiscal 2022 at roughly 2%.

Risks remain significant. The COVID-19 pandemic and its variants continue to create uncertainty for business activity and customer demand. The company faces customer cancellations and churn, competitive market pressures, and reliance on channel partners for new customer demand. It also depends on third-party network services providers and faces risks from cybersecurity breaches, defects or bugs in its software, regulatory and privacy requirements, and the integration of acquisitions. The convertible senior notes and related capped call transactions add another layer of financial complexity. Litigation and potential intellectual property infringement claims could also affect results. The quarter showed improving margins and strong ARR growth, but GAAP profitability is still not in sight.