8X8 INC /DE/ Q1 FY2023 earnings

8x8 reported total revenue of $187.6 million for the June 2022 quarter, up 26% from the prior-year quarter, a gain of $39.3 million. Fuze, bought in January 2022, supplied $29.5 million of that, and management said the top line would have grown 7% without the acquisition. The quarter also included an out-of-period adjustment of $2.1 million tied to a single customer contract that had been deferred in earlier years. That detail matters, because it lifted reported growth without reflecting new demand.

The customer mix keeps shifting toward larger accounts. Total ARR reached $688 million, up 28% year over year. Enterprise ARR of $403 million rose 54% and accounted for 59% of the total. The company counted 1,277 customers generating more than $100,000 of ARR, against 824 a year earlier. Small business ARR fell 7% and slipped to 23% of total ARR from 32%. Management is deliberately redirecting sales and marketing spending toward mid-market and enterprise accounts, which sign longer contracts and churn less. 8x8 Voice for Teams passed 200,000 users, and the partner push continued with an expanded resale relationship with Ingram Micro Cloud.

GAAP losses narrowed. The operating loss was $26.8 million, better than the $38.8 million loss a year earlier, and operating margin was negative 14.3%, an improvement of 11.9 percentage points from negative 26.2%. The net loss fell to $26.0 million from $43.9 million, and diluted loss per share improved to $0.22 from $0.40. Non-GAAP operating profit was $10.1 million, against $1.3 million in the prior-year quarter, although management disclosed that roughly $3 million of that came from unusual items, which means the underlying run rate was lower. Non-GAAP gross margin was 69%, up from 63%. The gap between the two sets of numbers stays wide because the non-GAAP adjustments remove amortization of acquired intangible assets and stock-based compensation.

Cash generation was positive but small. Operating cash flow was $5.8 million, up from $4.0 million a year earlier, while capital expenditures were $0.97 million. Current deferred revenue rose 54.9% to $34.1 million from $22.0 million, a lift that reflects longer enterprise commitments as well as the Fuze customer base.

Guidance for the second quarter of fiscal 2023 puts non-GAAP operating margin at 2.5% to 3.0%. For the full fiscal year, management guided to a non-GAAP operating margin of about 4%, with a goal of exiting fiscal 2023 at 5% or better. Research and development spending keeps rising, while sales and marketing is expected to fall as a percentage of revenue, a trade management frames as the route to better operating margins and cash flow.

Risks listed in the release are wide ranging. Foreign currency swings may pressure guidance. Management warned that cutting total costs as a percentage of revenue may hurt revenue and the business in ways the company does not anticipate. Customer churn could come in higher than expected. Competition in voice, contact center, video, messaging and communications APIs could change in unanticipated ways. Supply chain disruptions are already weighing on hardware sales. An economic downturn tied to COVID-19, Russia's invasion of Ukraine, inflation or rising interest rates could cut customer spending. On the balance sheet, 8x8 plans to refinance $500 million of convertible senior notes before they mature on February 1, 2024, and management said existing cash, investments and expected operating cash flow should cover requirements for the next 12 months and beyond, subject to that refinancing.