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What changed in 8X8 INC /DE/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of 8X8 INC /DE/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+364 added−323 removedSource: 10-K (2024-05-21) vs 10-K (2023-05-25)

Top changes in 8X8 INC /DE/'s 2024 10-K

364 paragraphs added · 323 removed · 232 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Solutions Through our integrated technology platform, we offer our customers a portfolio of contact center, voice, video, contact center, chat and team collaboration, embeddable communication APIs, and business analytics solutions, which include: • 8x8 Work: a self-contained, feature-rich, end-to-end United Communications as a service ("UCaaS") solution that delivers enterprise-grade voice with PSTN connectivity, secure video meetings, and unified messaging including direct messages, public and private team messaging rooms, and short and multimedia services ("SMS/MMS") . • 8x8 Contact Center: a multi-channel cloud-based contact center solution that enables both large and small contact centers to build the same tailored customer experiences and achieve agent productivity benefits previously available only to large contact centers at a much higher cost. • 8x8 CPaaS: a comprehensive set of global communications platform-as-a-service ("CPaaS") capabilities that enable businesses to directly integrate our platform services within their websites, mobile apps and business systems for personalized customer engagement at a high scale.
Biggest changeOur portfolio of solutions includes: • 8x8 Work: a self-contained, feature-rich, end-to-end unified communications as a service solution that delivers enterprise-grade voice services, secure video meetings, and unified messaging including direct messages, public and private team messaging rooms, and peer-to-peer short and multimedia messaging, or SMS/MMS.
We take a lifecycle approach to customer support, supporting customers from on-boarding to deployment, and through the renewal process, to drive greater user adoption of 8x8 XCaaS solutions. For our larger enterprise customers, our implementation methodology utilizes a deployment management team and provides active support through the "go-live" date at each customer site.
We take a lifecycle approach to customer support, supporting customers from on-boarding to deployment, and through the renewal process, to drive greater user adoption of 8x8 solutions. For our larger enterprise customers, our implementation methodology utilizes a deployment management team and provides active support through the "go-live" date at each customer site.
Regulatory Matters In the United States, at the federal level, we are subject to regulation by the Federal Communications Commission (the "FCC") as a provider of Voice over Internet Protocol ("VoIP"), as well as state and local regulations applicable to VoIP providers.
Regulatory Matters In the United States, at the federal level, we are subject to regulation by the Federal Communications Commission (the "FCC") as a provider of Voice over Internet Protocol, or VoIP, as well as state and local regulations applicable to Voice over Internet Protocol providers.
Rewards: We strive to provide competitive total rewards packages to hire and retain the key talent we need to achieve our growth and profitability objectives. This includes competitive cash compensation, equity grants of restricted stock units ("RSUs") and performance-based stock units ("PSUs").
Rewards - We strive to provide competitive total rewards packages to hire and retain the key talent we need to achieve our growth and profitability objectives. This includes competitive cash compensation, equity grants of restricted stock units, or RSUs, and performance-based stock units, or PSUs.
We also have a premium success program, and for certain customers, a dedicated customer engagement manager as a single point of contact for every aspect of the post-sale relationship. Finally, we offer a variety of training classes through 8x8 University, either through instructor-led classes or self-paced online learning.
We also have a premium success program, and for certain customers, a dedicated customer success manager as a focal point of contact for every aspect of the post-sale relationship. Finally, we offer a variety of training classes through 8x8 University, either through instructor-led classes or self-paced online learning.
Key elements of our operations infrastructure include customer quoting and ordering capabilities, customer provisioning, customer access control, fraud control, network security, video, voice and SMS message routing, quality monitoring, media processing and normalization, call reliability, detailed call record and message storage, transactional metering for usage-based services, product interfaces and billing and integration with third-party applications.
Key elements of our operations infrastructure include customer quoting and ordering capabilities, customer provisioning, customer access control, fraud control, network security, video, voice and short messaging service message routing, quality monitoring, media processing and normalization, call reliability, detailed call record and message storage, transactional metering for usage-based services, product interfaces and billing and integration with third-party applications.
Interconnection Agreements: We have agreements with SMS, voice, and mobile network operators worldwide. Pursuant to these agreements, we can provide inbound and outbound telephone and SMS messaging services to traditional telecommunication systems and mobile networks worldwide through our platform via these carriers.
Interconnection Agreements: We have agreements with short messaging service, voice, and mobile network operators worldwide. Pursuant to these agreements, we can provide inbound and outbound telephone and short messaging services to traditional telecommunication systems and mobile networks worldwide through our platform via these carriers.
These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, registration statements, proxy statements, and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC.
These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, registration statements, proxy statements, and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the Securities and Exchange Commission.
Denny is a member of the State Bar of California. He graduated from University of California, Irvine with a Bachelor of Arts and from Columbia Law School with a Juris Doctorate. Suzy Seandel, Chief Accounting Officer. Suzy Seandel, age 58, was appointed and has served as Chief Accounting Officer since May 2022. From February 2019 to May 2022 Ms.
Denny is a member of the State Bar of California. He graduated from University of California, Irvine with a Bachelor of Arts and from Columbia Law School with a Juris Doctorate. Suzy Seandel, Chief Accounting Officer. Suzy Seandel, age 59, has served as Chief Accounting Officer since May 2022. From February 2019 to May 2022 Ms.
Our software platform manages the admission, control, rating, and routing of calls and SMS messages to their appropriate destinations. The platform and its assets have been built to offer connectivity, redundancy, security, and scalability. Our tools and processes aim at maximizing communications range, quality, and reliability.
Our software platform manages the admission, control, rating, and routing of calls and short messaging service messages to their appropriate destinations. The platform and its assets have been built to offer connectivity, redundancy, security, and scalability. Our tools and processes aim at maximizing communications range, quality, and reliability.
X Series service plans allow customers to match features and functionality to each user's customer engagement profile, paying for only those capabilities the business needs, while providing businesses with an upgrade path over time as their needs evolve and grow.
Our detailed service plans allow our customers to match features and functionality to each user's customer engagement profile, paying for only those capabilities the business needs, while providing businesses with an upgrade path over time as their needs evolve and grow.
In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including 8x8. Information About Our Executive Officers Our executive officers as of the date of this report are listed below. Samuel Wilson, Interim Chief Executive Officer .
In addition, the Securities and Exchange Commission maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission, including 8x8. 10 Information About Our Executive Officers Our executive officers as of the date of this report are listed below. Samuel Wilson, Chief Executive Officer .
Customer and Technical Support: 8x8 maintains a global customer support organization with operations in the United States, United Kingdom, Philippines, Singapore, and Romania. Customers can access 8x8 customer support services directly from the company website, or receive multi-channel technical support via phone, chat, web, and email. Emergency support is available on a 24/7 basis.
Customer and Technical Support: 8x8 maintains a global customer support organization with operations in the United States, United Kingdom, Philippines, Singapore, Australia, India, and Romania. Customers can access 8x8 customer support services directly from the company website, or receive multi-channel technical support via phone, chat, web, and short messaging service. Emergency support is available on a 24/7 basis.
Our indirect sales channel consists of global and regional networks of value-added resellers ("VARs") and carriers, as well as a partner network consisting of master agents and the sub-agent community, independent software vendors ("ISVs"), system integrators, and service providers selling 8x8 solutions to small, mid-market, and enterprise businesses.
Our indirect sales channel consists of partners with multiple operating models, including global and regional networks of value-added resellers and carriers, as well as a partner network consisting of master agents and the sub-agent community, independent software vendors, system integrators, and service providers selling 8x8 solutions to small, mid-market, and enterprise businesses.
In many countries, it is not clear how laws that have historically been applied to traditional telecommunications providers will be applied to providers of VoIP services like us.
In many countries, it is not clear how laws that have historically been applied to traditional telecommunications providers will be applied to providers of Voice over Internet Protocol services like us.
Seandel also held positions of increasing responsibility at several other publicly traded companies and spent nearly five years at Deloitte & Touche LLP in assurance and audit services. Ms. Seandel holds a Bachelor of Science degree in Finance from Santa Clara University.
Seandel also held positions of increasing responsibility at several other publicly traded companies and spent nearly five years at Deloitte & Touche LLP in assurance and audit services. Ms. Seandel holds a Bachelor of Science degree in Finance from Santa Clara University and is a Certified Public Accountant in the state of California. 11
The CCPA and the CPRA impose new obligations on qualifying for-profit companies, like us, doing business in California and substantially increases potential liability for such companies for failure to comply with data protection rules applicable to California residents. In addition, Virginia, Colorado, Connecticut and Utah have passed new privacy laws that will become effective in 2023.
The CCPA and the CPRA impose new obligations on qualifying for-profit companies, like us, doing business in California and substantially increases potential liability for such companies for failure to comply with data protection rules applicable to California residents. In addition, Virginia, Colorado, Connecticut and Utah enacted new comprehensive privacy laws.
We also use software components in our platform that are licensed to the public under open-source licenses. See the section entitled “Risks Related to Intellectual Property” in Part I, Item 1A "Risk Factors" for more information on our intellectual property risks.
We also use software components in our platform that are licensed to the public under open-source licenses. See the section entitled “Risks Related to Intellectual Property” in Part I, Item 1A "Risk Factors" for more information on our intellectual property risks. Competition The cloud communications industry is competitive and rapidly evolving.
From September 2017 until January 2020, Mr. Wilson served as Senior Vice President responsible for e-commerce, global small business, and United States mid-market sales. Prior to joining 8x8, Mr.
Wilson served as Chief Customer Officer and Managing Director of EMEA from January 2020 until June 2020. From September 2017 until January 2020, Mr. Wilson served as Senior Vice President responsible for e-commerce, global small business, and United States mid-market sales. Prior to joining 8x8, Mr.
These values define how we work, infuse our daily culture and make us individually and collectively accountable for our progress. They also serve as the framework for our onboarding program for new hires and ongoing training and support for all employees. We recently launched Team8s, our employee engagement and branding campaign.
These values define how we work, infuse our daily culture, and make us individually and collectively accountable for our progress. They also serve as the framework for our extensive onboarding program for new hires and ongoing employee training and support.
Our SMS, Chat App, Video Interaction, 8x8 Jitsi-as-a-Service, and Voice APIs enable companies to reach their customers anywhere with a proven, reliable global network.
Our short messaging service, Chat App, Video Interaction, 8x8 Jitsi-as-a-Service, and Voice application program interfaces enable companies to reach their 5 customers anywhere with a proven, reliable global network.
Available Information We maintain a corporate Internet website at the address http://www.8x8.com. The contents of this website are not incorporated in or otherwise to be regarded as part of this Annual Report. We file reports with the Securities and Exchange Commission (the "SEC"), which are available on our website free of charge.
The contents of this website are not incorporated in or otherwise to be regarded as part of this Annual Report. We file reports with the Securities and Exchange Commission, or the SEC, which are available on our website free of charge.
Our commitment to diversity is visible from the board room to the server rooms, and we have put in place a number of programs to ensure that we are continuously improving, including establishing diversity councils, embedding overcoming unconscious bias training in our performance feedback process, and maintaining open "rooms" on the 8x8 Work app that serve as discussion forums for diversity, equity and inclusion topics.
We have put in place several programs to ensure that we are continuously improving, including establishing a diversity council, embedding overcoming unconscious bias training in our company wide training curriculum and performance feedback process, and maintaining open "rooms" on the 8x8 Work app that serve as discussion forums for diversity, equity and inclusion topics.
No single customer represented 10% or more of our revenue in fiscal 2023, 2022, and 2021. Marketing and Promotional Activities We market our services directly to end users through a variety of means, including industry conferences, trade shows, webinars, and digital advertising channels targeting mid-market and enterprise customers.
Marketing and Promotional Activities We market our services directly to end users through a variety of means, including industry conferences, trade shows, webinars, local and digital advertising channels targeting mid-market and enterprise customers.
Samuel Wilson, age 53, was appointed and has served as Interim Chief Executive Officer since November 2022. Mr. Wilson previously served as our Chief Financial Officer from June 2020 to November 2022. Prior to his appointment, Mr. Wilson served as Chief Customer Officer and Managing Director of EMEA from January 2020 until June 2020.
Samuel Wilson, age 55, has served as Chief Executive Officer since May 2023 and previously served as Interim Chief Executive Officer from November 2022 to May 2023. Mr. Wilson previously served as our Chief Financial Officer from June 2020 to November 2022. Prior to his appointment, Mr.
Designated X1 through X8, the 8x8 X Series offers the following service plans and capabilities: • X1 through X4 service plans provide enterprise-grade voice, unified communications, video meetings, and team collaboration functionality, as well as contact center-like features for users with direct customer engagement.
The capabilities of our communications and contact center solutions are packaged into comprehensive service offerings called the 8x8 “X Series." Generally, X1 through X4 Series service plans provide enterprise-grade voice, unified communications, video meetings, and team collaboration functionality, as well as contact center-like features for users with direct customer engagement. and X5 through X8 Series service plans include provide the features of X1 through X4, plus contact center functionality.
Our Customers We have a diverse and growing customer base of more than 60,000 customers, with more than 2.5 million paid business licenses, with users in over 180 countries, including small business, mid-market and enterprise customers, and across a wide range of industries and use cases.
Our Customers We have a diverse customer base of more than 57,000 customers, with more than 3.0 million paid business licenses, with users in over 160 countries, including small business, mid-market and enterprise customers, and across a wide range of industries and use cases. No single customer represented 10% or more of our revenue in fiscal 2024, 2023, or 2022.
Intellectual Property As of March 31, 2023, we held more than 330 patents, with more than 125 United States and foreign patent applications pending. Our portfolio of patents, with expiration dates through 2042, and patent applications cover diverse aspects of our unified communications, video, API, collaboration and contact center services, and infrastructure and UX design and functionality.
Intellectual Property As of March 31, 2024, we hold at least 372 patents, with another 97 United States and foreign patent applications pending. Our portfolio of patents, with expiration dates through 2042, and patent applications cover diverse aspects of our unified communications, video, application program interface and integrations, collaboration, contact center services, infrastructure, and user experience design and functionality.
See the section entitled “Risks Related to Regulatory Matters” in Part I, Item 1A "Risk Factors" for more information on these risks. Geographic Areas We have one reportable segment.
See the section entitled “Risks Related to Regulatory Matters” in Part I, Item 1A "Risk Factors" for more information on these risks. Geographic Areas We have one reportable segment. Financial information relating to revenue generated in different geographic areas are set forth in Note 12 , Geographical Information, in the Notes to Consolidated Financial Statements contained in this Annual Report.
Kevin Kraus, Interim Chief Financial Officer. Kevin Kraus, age 54, was appointed and has served as Interim Chief Financial Officer since November 2022. Mr. Kraus previously served as our Senior Vice President of Finance from October 2019 to 8 November 2022, with responsibility for overseeing the Company’s financial reporting, planning, and procurement functions. From February 2018 to May 2019, Mr.
Kraus previously served as our Senior Vice President of Finance from October 2019 to November 2022, with responsibility for overseeing the Company’s financial reporting, planning, and procurement functions. From February 2018 to May 2019, Mr. Kraus served as Vice President, Finance for Imperva, a cybersecurity software company. From January 2015 to September 2017, Mr.
We conduct quarterly employee surveys to gain insight into trends in employee engagement and prioritize new benefits and programs. Analysis of prior engagement surveys pointed to three areas of need: clarity on strategic direction, clarity of expectations, and learning and development.
We conduct quarterly employee surveys to gain insight into trends in employee engagement and prioritize new benefits and programs. Based on the results of engagement surveys, we increased communications on our strategic direction, developed programs to provide greater clarity on expectations, and expanded learning and development programs.
None of our employees are represented by a labor union or are subject to a collective bargaining arrangement. As a leading provider of software-as-a-service solutions for contact center, voice communications, video meetings, employee collaboration and embeddable communication application program interfaces (“APIs”), we are thoughtful about our impact on our stockholders, our customers, our people, and the planet.
As a leading provider of software-as-a-service solutions for contact center, voice communications, video meetings, employee collaboration and embeddable communication application program interfaces, we are thoughtful about our impact on our stockholders, our customers, our people, and the planet. We conduct our business ethically and are committed to strong corporate governance, universal human rights, and sustainable business practices.
In the European Union (the "EU"), the General Data Protection Regulation (the "GDPR") imposes obligations on all companies like us that collect, store, and process many types of data, including personal data, and substantially increases potential liability for all companies, including us, for failure to comply with data protection rules.
In the European Union (the "EU"), the General Data Protection Regulation (the "GDPR") imposes obligations on all companies like us that collect, store, and process many types of data, including personal data, and substantially increases potential liability for all companies, including us, for failure to comply with data protection rules. 8 The effect of any future laws, regulations, and orders or any changes in existing laws or their enforcement, including the application of new taxes and regulations on communication applications like ours running over the internet, on our operations cannot be determined.
Diversity, Equity and Inclusion: As a communications company with a growing international presence, it is vital that our workforce be as diverse as the customers we serve.
With the evaluation complete, we now offer these platforms to our technical teams globally. Diversity, Equity, Inclusion, and Belonging – As a communications company with a growing international presence, it is vital that our workforce be as diverse as the customers we serve. Our commitment to diversity is visible from the boardroom to the server rooms.
Middleton earned his Ph.D. in Physics from Princeton University and holds a master’s degree in management from the Kellogg Graduate School of Business at Northwestern University. Laurence Denny, Chief Legal Officer. Laurence Denny, age 50, was appointed and has served as Chief Legal Officer and Corporate Secretary since December 2022. Mr.
Prior to that, Mr. Middleton served as the Head of Product Management at Google for Work Systems and led the Google Apps Enterprise product team. Mr. Middleton earned his Ph.D. in Physics from Princeton University and holds a master’s degree in management from the Kellogg Graduate School of Business at Northwestern University. Laurence Denny, Chief Legal Officer.
When hiring we strive to keep our candidate pools as diverse as possible in order to bring new viewpoints into the 8x8 team. Additionally, we conducted a role and gender pay equity audit to ensure pay equity by position.
Employee resource groups are also being formed to serve the interests of women, LGBTQ+ individuals, and women in technical roles. When hiring, we strive to keep our candidate pools as diverse as possible to bring new viewpoints into the 8x8 team. Additionally, we conduct role and gender pay equity audits to ensure pay equity by position.
Iowa and Indiana have also enacted new privacy laws that become effective on January 1, 2025 and January 1, 2026, respectively. 6 Internationally, we are subject to a complex patchwork of regulations that vary from country to country. Countries have adopted laws that impose stringent licensing obligations on providers of VoIP services like ours.
Internationally, we are subject to a complex patchwork of regulations that vary from country to country. Countries have adopted laws that impose stringent licensing obligations on providers of Voice over Internet Protocol services like ours.
From February 2016 to September 2017, Mr. Middleton served as Vice President and Head of Product Management for Jive Software, Inc., an enterprise social collaboration application provider. Prior to that, Mr. Middleton served as the Head of Product Management at Google for Work Systems and led the Google Apps Enterprise product team. Mr.
Hunter Middleton, age 57, has served as Chief Product Officer since August 2021. Mr. Middleton previously served as our SVP of Product and Design from March 2018 to August 2021. From February 2016 to September 2017, Mr. Middleton served as Vice President and Head of Product Management for Jive Software, Inc., an enterprise social collaboration application provider.
Under the Team8s umbrella, we have planned quarterly global activities, a Team8s award program, and Boomerang recognition for employees who left 8x8 and have elected to return. We continue to seek out new ways to leverage our 8x8 Work communication and collaboration platform to keep our employees connected to each other and maintain a positive and supportive work culture.
We support a hybrid work environment and continue to seek out innovative ways to leverage our 8x8 Work communication and collaboration platform to keep our employees connected to each other and maintain a positive and supportive work culture. In fiscal 2023 we launched Team8s, our branded employee engagement program, and we continue to expand initiatives under the Team8s umbrella.
Other activities in fiscal 2023 included: • Regular meetings of the Employee Diversity, Equity, and Inclusion ("DEI") Council and the formation of a Leadership Steering Committee to serve as the sounding board for the Employee DEI Council. • Activities to celebrate International Women's Day in locations around the world and Veterans Day in U.S. locations. • Creation of a video of our employees speaking to the importance and value of supporting and enabling our female employees. • Work with Society of Women Engineers and Women in Technology International to establish local chapters for our women in technical roles.
Other activities in fiscal 2024 included: • Regular meetings of the employee diversity, equity, inclusion, and belonging council and the formation of a Leadership Steering Committee to provide executive support for and serve as the sounding board for the employee diversity, equity, inclusion and belonging council. • Pages dedicated to diversity, equity, inclusion and belonging on our internal Team8s site providing employees to provide employees with access to further information on our initiatives and resources. • Activities to celebrate International Women's Day in locations worldwide and Veterans Day in U.S. locations, including videos of our employees speaking to the importance and value of supporting diversity, equity, inclusion and belonging in the workplace.
Our Elevate channel program supports multiple routes to market for partners, including both resale (wholesale) and agency models, and also offers 8x8 sales and technical certifications.
Our Elevate channel program supports multiple routes to market for partners, including both resale (wholesale) and agency models, and also offers 8x8 sales and technical certifications. In addition to direct and indirect sales motions, we jointly go-to-market with some of our technology partner ecosystem partners through a 3-tiered program based on the degree of platform integration.
He holds a bachelor’s degree in accounting from Rutgers, The State University of New Jersey-New Brunswick and an MBA from the Pennsylvania State University. Hunter Middleton, Chief Product Officer. Hunter Middleton, age 56, has served as Chief Product Officer since August 2021. Mr. Middleton previously served as our SVP of Product and Design from March 2018 to August 2021.
Kraus served as Senior Director, Finance for Gigamon, a network visibility and traffic monitoring technology company. Mr. Kraus is a Certified Public Accountant. He holds a bachelor’s degree in accounting from Rutgers, The State University of New Jersey-New Brunswick and an MBA from the Pennsylvania State University. Hunter Middleton, Chief Product Officer.
All employees have an opportunity to become stakeholders in 8x8 through our Employee Stock Purchase Plan, which allows employees to purchase up to $25,000 in market value per year of 8x8 stock through payroll deductions. We recently revamped our compensation programs to increase the portion of compensation paid in cash versus equity for the majority of our employees.
All employees can become stakeholders in 8x8 through our Employee Stock Purchase Plan, which allows employees to purchase up to $25,000 in market value per year of 8x8 stock through payroll deductions. Available Information We maintain a corporate Internet website at the address http://www.8x8.com.
We conduct our business socially and ethically and are committed to strong corporate governance, universal human rights, and sustainable business practices. We strive to create a work environment and culture that embraces creativity and diversity and is financially and personally rewarding for our people. Culture and Engagement: 8x8 is transforming modern business communications.
We strive to create a work environment and culture that embraces creativity and diversity and is financially and personally rewarding for our people. Culture and Engagement: 8x8 is transforming modern business communications. We take pride in our innovations that empower employees and enable our customers to build more agile workplaces. Our efforts are anchored by our value system.
These service plans deliver tailored employee and customer experiences through integrated cloud communication, contact center software, and video meetings solutions.
These service plans deliver tailored employee and customer experiences through integrated cloud communication, contact center software, and video meetings solutions. The advanced features and analytics of the 8x8 contact center service plans allow organizations to deliver personalized customer experiences, while scaling their contact center capacity though artificial intelligence-based self-service bots, and intelligent call routing.
Operations Our operations infrastructure consists of data management, monitoring, control, and billing systems that support the portfolio of communication and contact center services plans provided by our XCaaS platform. We invest substantial resources to develop and implement our service monitoring real-time call management information system.
See the section entitled “Risks Related to Our Business and Industry” in Part I, Item 1A "Risk Factors" for more information on our risks related to competition. 7 Operations Our operations infrastructure consists of data management, security, quality monitoring and control, and billing systems that support the portfolio of communication and contact center services plans provided by our XCaaS platform.
ITEM 1. BUSINESS Overview 8x8 is a leading provider of software-as-a-service solutions for contact center, voice communications, video meetings, employee collaboration, and embeddable communication APIs, powered by our global cloud-native communications platform. Together, our communications platform solutions comprise the 8x8 XCaaS platform.
ITEM 1. BUSINESS Overview 8x8 is a leading global provider of contact center as-a-service, or CCaaS, and unified communications as-a-service, or UCaaS, software, powered by our secure cloud-native communications platform. We also provide embeddable communications platform as-a-service, or CPaaS, allowing customers to seamlessly integrate video and messaging to deliver tailored omni-channel customer experiences that increase customer engagement, loyalty and retention.
We also make 8x8 Work and 8x8 Contact Center solutions available independently to introduce customers to our platform and expand their platform engagement over time. Routes to Market We sell directly to customers or through indirect sales channels.
Routes to Market We sell directly to customers or through indirect sales channels.
Financial information relating to revenue generated in different geographic areas are set forth in Note 11 , Geographical Information , in the Notes to Consolidated Financial Statements contained in this Annual Report. Employees and Human Capital As of March 31, 2023, we had 1,921 full-time employees operating around the world, of which 65% are located outside of the United States.
Employees and Human Capital As of March 31, 2024, we had 1,948 full-time employees operating around the world, of which 67% are located outside of the United States. None of our employees are represented by a labor union or are subject to a collective bargaining arrangement.
For organizations that have adopted Microsoft Teams for internal team messaging and meetings, we offer 8x8 Voice for Microsoft Teams, a direct routing solution that allows users to make and receive calls over the public switched telephone network (PSTN) without exiting the Microsoft Teams desktop, mobile or mobile app, and 8x8 Contact Center for Microsoft Teams, a Microsoft certified solution that leverages the Connect model to provide omnichannel contact center functionality. 8x8 integrations for Microsoft Teams provide reliable, integrated, global telephony and customer engagement capabilities to Microsoft Teams users, including value added services such as integrated business messaging, conversational AI, and advanced analytics. 3 • Integration with Third-Party Business Applications and AI-Based Solutions to Automate Workflows.
Campaign management features include scheduling, advanced routing, reporting and analytics and more. • Solutions for Microsoft Teams: integrations with Microsoft Teams that provide reliable, integrated global telephony and customer engagement capabilities to Microsoft Teams users, including value added services such as integrated business messaging, conversational artificial intelligence, and advanced analytics. 8x8 offers one of the broadest set of enterprise voice integrations with Microsoft Teams.
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The XCaaS platform empowers workforces worldwide by connecting individuals and teams so they can collaborate faster, work smarter, and better serve customers, from most devices, locations or time zones.
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Together, these solutions comprise the 8x8 XCaaS platform. Our XCaaS platform has been deployed by a broad range of customers, ranging from small businesses to very large enterprises.
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The platform also delivers real-time business analytics and intelligence across most interactions and communication channels, giving customers unique insights so they can build, deploy and adapt tailored user experiences that delight end-customers and accelerate their business. 8x8 has more than 2.5 million paid business licenses with users in more than 180 countries.
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At the end of fiscal 2024, more than 43% of our annualized recurring and usage revenue, or ARR (see the section entitled “Key Business Metrics” in Part II, Item 7 "MD&A" for how we define and use annualized recurring and usage revenue) was generated by customers deploying both contact center as-a-service and unified communications as-a-service solutions, compared to 40% from the end of fiscal 2023.
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The 8x8 XCaaS Platform Strategy Our XCaaS platform is a highly scalable and configurable cloud communications platform that includes solutions for contact center, voice communications, team chat and collaboration, video meetings, embeddable communication APIs, and AI-based analytics.
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We had more than 3.0 million paid licensed users at more than 57,000 customers worldwide at the end of the fiscal year.
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It is designed to meet the needs of mid-market and enterprise businesses who want to make employees more productive and delight their customers with tailored experiences but lack in-house resources to build a fully custom enterprise-grade contact center.
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Since mid-fiscal 2023, we have focused a significant portion of our investment in innovation on enhancing our contact center as-a-service solution and expanding our product portfolio to address the requirements of small- and mid-sized enterprises, which we define as enterprise customers with 100 to 10,000 employees.
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These customers often start with an individual service or combination of services (for example, with video conferencing or phone services), and scale their usage over time by enabling additional services, capabilities and analytics offerings when ready. The key attributes of the 8x8 solution include: • Unified Communications, Collaboration, and Contact Center on a Single, Modern Technology Platform.
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These customers want fully integrated solutions that deliver business outcomes, rather than point products from multiple vendors that they must integrate themselves and that create data silos and analytics gaps.
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We believe that a common platform for communication, collaboration and customer interaction drives more efficient employee and customer engagement, greater business productivity and improved employee and customer experiences.
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Our routes to market include indirect sales through a variety of channels, including value-added resellers, or VARs, system integrators and technology partners, as well as direct sales to new and existing customers. We have also invested in expanding our customer success organization to drive increased customer satisfaction and retention.
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Our modern, microservices-based platform enables rapid innovation, broad integration with third-party applications, Unlike many of our principal competitors, we own the core technology that drives and manage the communications platform that powers our solutions.
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Our Strategy We believe there is a large market opportunity to provide solutions for small- and mid-sized enterprises that bridge the gaps in communications and customer experience that result from siloed communications and contact center environments.
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Control over our entire platform enables us to deliver a more consistent and seamless experience for our customers across all aspects of the service, from the user interface to the technical support experience. • AI/ML Workflow Automation and Self-Service.
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Our solutions are intentionally engineered to enable information technology, or IT, teams and customer experience leaders to improve customer satisfaction, increase efficiency and drive better business outcomes for our customers. We have prioritized investments in: • High Levels of Customer Satisfaction.
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Our platform integrates artificial intelligence and machine learning of our technology and our third party partners with a focus on simplifying and automating workflows for our customers. We continue to make strategic investments in artificial intelligence and machine learning to develop new capabilities and features for our customers, such as context-rich customer engagements, intelligent call routing and faster first-call resolution.
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Our customer success organization is dedicated to driving positive business outcomes through a lifetime engagement model, leading to consistently high customer satisfaction levels. Our approach is built on three foundational pillars: unified product experiences across all channels, rapid value realization via a modular approach and smooth onboarding, and proactive engagement strategies to foster long-term customer value.
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In late fiscal 2023, we integrated generative AI natural language learning models from OpenAI across our platform and launched an early adopter program for our Intelligent Customer Assistant offering. • Platform-Wide Data Capture and Real-Time Analytics.
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These initiatives have led to high customer satisfaction scores among enterprise customers and recognition for our leadership and support. • Continuous Innovation of our Advanced Cloud-Native XCaaS Platform. Utilizing a micro-services architecture, our software-as-a-service, or SaaS, platform ensures high availability and supports the rapid deployment of new features and functionalities, including artificial intelligence-based features and applications.
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We have developed a suite of web-based analytics tools to help our customers capture data on customer interactions across multiple channels and services integrated within our XCaaS platform. Using built-in analytics, customers can leverage real-time business intelligence to improve customer experiences across the range of self-service, AI-assisted, and agent engagements. • Intuitive User Interface (UX).
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Our innovation efforts are centered around key customer experience differentiators, including artificial intelligence-powered shared services, comprehensive capture and synchronization of customer interaction data, artificial intelligence-powered analytics, user experience/user interface, and enhanced contact center functionalities accessible to all customer-facing employees. • Enabling a Solution Approach to Artificial Intelligence .
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Our web, desktop, and mobile interfaces act as the communications portal for all 8x8 services and provide users with a familiar, consistent, and integrated experience across all endpoints. Tailored workspaces for agents, supervisors and other users meet the communication requirements of users based on their customer engagement profile to drive increased productivity and scale resources. • Microsoft Teams Integrations.
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We implement artificial intelligence natively at the platform layer for shared services and integrate purpose-built applied artificial intelligence products from our technology partner ecosystem at the data layer and in our user interface for a native-like user experience.
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Our open platform enables deep integration with AI-based solutions purposely built for specific vertical markets or tasks to simplify and automate workflows for our customers. Our ecosystem of AI technology partners includes organizations focused on conversational AI, CRM, workforce engagement, automation and enterprise collaboration.
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Our approach allows customers to implement best-of-breed solutions tailored to specific use cases without the burden of integrating products from multiple vendors. • Driving Multi-Product Adoption. Multi-product adoption significantly enhances customer revenue, satisfaction, and retention.
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Additionally, our software uses a combination of open APIs and pre-built integrations to retrieve contextually relevant data from, and to enhance the functionality of, a wide variety of customers' third-party applications, such as Salesforce, Microsoft Dynamics, Google, NetSuite, Okta, Zendesk, Oracle Sales Cloud, Bullhorn, Aryaka, and HubSpot. • Emphasis on Security and Compliance.
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As we broaden our product offerings through internal development and strategic technology partnerships, we are able to deliver complete solutions that deliver rapid time to value while reducing total cost of ownership. Our business development teams work with our customer success managers to identify and actively pursue cross-sell opportunities within our existing customer base. • Acquiring New Customers.
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Our security program is designed to protect the confidentiality, integrity and availability of our customers data. We believe we have created a top-down culture of security and compliance, including a commitment to secure architecture and development processes.
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There is a substantial opportunity to transition small and mid-sized enterprises from on-premise to our cloud-based communications and contact center solutions. We are refining our lead-generation tactics and market strategies across various channels, including direct sales, e-commerce, resellers, and strategic partners, to enhance solution awareness and grow our customer base. • Expanding our Technology Partner Ecosystem.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese include, but are not limited to: • changes in market demand; • customer cancellations, subscription downgrades, and/or service credits; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; • lengthy sales cycles and/or regulatory approval cycles; • new product introductions by us or our competitors; • unpredictability of CPaaS business at times, as it is mainly usage-based revenue and does not involve long-term subscription commitments; • the mix of our customer base, sales channels, and services sold; • the number of additional customers, on a net basis; • the amount and timing of costs associated with recruiting, training and integrating new employees; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure; • price increases which we are unable to pass along to our customers; • continued compliance with industry standards and regulatory requirements; • decline in usage related to increases in return to office; • material security breaches or service interruptions due to cyberattacks or infrastructure failures or unavailability; and • introduction and adoption of our cloud software solutions in markets outside of the United States.
Biggest changeThese include, but are not limited to: • changes in the markets we compete in, including reductions in market growth or consolidation among competitors, channel partners, or customers; • changes in customer demand, including cancellations, subscription downgrades, or substitution of our lower-priced, less feature-full products for our higher-priced, more feature-full products; • changes in the competitive dynamics in our markets, including competitors increasing compensation payable to channel partners or increasing discounts or credits issued to customers; • lengthy sales cycles; • changes in regulatory requirements or lengthy regulatory approval cycles; • new product introductions by us or our competitors; • unpredictability of usage-based revenue products that do not involve long-term subscription commitments; • the mix of our customer base, sales channels, and services sold; • the number of additional customers, on a net basis; 13 • the amount and timing of costs associated with recruiting, training, and integrating new employees; • the retention of our senior management and other key employees, their ability to execute on our business plan and the loss of services of senior management or other key employees, whether in the past or in the future; • unforeseen costs and expenses related to the expansion of our business, operations, and infrastructure; • our dependency on third-party vendors of hardware, software, and services that we resell to our customers, including the effects of supplier price increases which we are unable to pass along to our customers; • our ability to execute our operating plans successfully, including back-office system optimizations and increases in execution speed while also reducing costs and optimizing our operating margin; • continued compliance with industry standards and regulatory requirements; • decline in usage related to increases in return to office; • material security breaches or service interruptions due to cyberattacks or infrastructure failures or unavailability; and • introduction and adoption of our cloud software solutions in markets outside of the United States.
In particular, cyberattacks and other malicious internet-based activity continue to increase in frequency and in magnitude both generally and specifically against us and other cloud-service providers. For example, during the second quarter of fiscal 2023, in real time, we detected an unauthorized third party in our network as well as as the malware they deployed to establish persistent access.
In particular, cyberattacks and other malicious internet-based activity continue to increase in frequency and in magnitude both generally and specifically against us and other cloud-service providers. For example, during the second quarter of fiscal 2023, in real time, we detected an unauthorized third party in our network as well as the malware they deployed to establish persistent access.
Our restated certificate of incorporation and amended and restated by-laws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things: 24 • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by a majority vote of our board of directors or by stockholders holdings share of our common stock representing in the aggregate a majority of votes then outstanding, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; • the ability of our board of directors, by majority vote, to amend our by-laws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.
Our restated certificate of incorporation and amended and restated by-laws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things: • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by a majority vote of our board of directors or by stockholders holdings share of our common stock representing in the aggregate a majority of votes then outstanding, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; • the ability of our board of directors, by majority vote, to amend our by-laws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.
Our ability to make scheduled payments of the principal of, pay interest on, or refinance our indebtedness, including the amounts payable under the 2024 Notes, the 2028 Notes and the Term Loan, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control, such as recent and potential future disruptions in access to bank deposits or lending commitments due to bank failure, as well as in the event of sustained deterioration in the liquidity, or failure, of our clearing, cash management and custodial financial institutions.
Our ability to make scheduled payments of the principal of, pay interest on, or refinance our indebtedness, including the amounts payable under the 2028 Notes and the Term Loan, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control, such as recent and potential future disruptions in access to bank deposits or lending commitments due to bank failure, as well as in the event of sustained deterioration in the liquidity, or failure, of our clearing, cash management and custodial financial institutions.
If our existing anti-fraud procedures are not adequate or effective, consumer fraud and theft of service could have a material adverse effect on our business, financial condition, and operating results. 20 Similarly, bad actors may use our products to promote their goals and encourage users to engage in improper or illegal activities.
If our existing anti-fraud procedures are not adequate or effective, consumer fraud and theft of service could have a material adverse effect on our business, financial condition, and operating results. Similarly, bad actors may use our products to promote their goals and encourage users to engage in improper or illegal activities.
We also may have to delay revenue recognition on some of these transactions until the customer's technical or implementation requirements have been met. 13 The market for cloud software solutions is subject to rapid technological change, and we depend on new product and service introductions in order to maintain and grow our business.
We also may have to delay revenue recognition on some of these transactions until the customer's technical or implementation requirements have been met. The market for cloud software solutions is subject to rapid technological change, and we depend on new product and service introductions in order to maintain and grow our business.
As our target markets mature, or as competitors introduce lower cost and/or more differentiated products or services that compete or are perceived to compete with ours, we may be unable to attract new customers, on favorable terms, or at all, which could have an adverse effect on our revenue and growth.
As our target markets mature, or as competitors introduce lower cost and/or more differentiated products or services that compete or are perceived to compete with ours, we may be unable to attract new customers, on favorable terms, or at all, which could have an adverse effect on our revenue.
Our ability to grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver communications and collaboration solution services at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.
Our ability to maintain or grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver communications and collaboration solution services at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.
Any of these events could have a material adverse impact on our business, causing us to incur significant expenses, lose substantial amounts of revenue, suffer damage to our reputation, and lose customers. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any of these events could have a material adverse impact on our business, causing us to incur significant expenses, lose substantial amounts of revenue, suffer damage to our reputation, and lose customers. 29 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any failure of a depository institution to return any of our deposits, or any other adverse conditions in the financial or credit markets affecting depository institutions, could impact access to our invested cash or cash equivalents and could adversely impact our operations, liquidity and operating results.
Any failure of a depository institution to return any of our deposits, or 27 any other adverse conditions in the financial or credit markets affecting depository institutions, could impact access to our invested cash or cash equivalents and could adversely impact our operations, liquidity and operating results.
As a result of these potential problems and risks, among others, businesses that we may acquire or invest in may not produce the revenue, competitive advantages, or business synergies that we anticipate, and the results and effects of any such acquisition may not be favorable enough to justify the amount of consideration we pay or the other investments we make in the acquired business. 18 If we do not or cannot maintain the compatibility of our communications and collaboration software with third-party applications and mobile platforms that our customers use in their businesses, our revenue could decline.
As a result of these potential problems and risks, among others, businesses that we may acquire or invest in may not produce the revenue, competitive advantages, or business synergies that we anticipate, and the results and effects of any such acquisition may not be favorable enough to justify the amount of consideration we pay or the other investments we make in the acquired business. 21 If we do not or cannot maintain the compatibility of our communications and collaboration software with third-party applications and mobile platforms that our customers use in their businesses, our revenue could decline.
We may not be able to scale our business efficiently or quickly enough to meet our customers' growing needs, leading to increased customer churn and damage to reputation and brand, each of which could harm our operating results.
We may not be able to scale our business operations efficiently or quickly enough to meet our customers' growing needs, leading to increased customer churn and damage to reputation and brand, each of which could harm our operating results.
Customers may use our services to store, process, and transmit a wide variety of confidential and sensitive information, such as credit card, bank account, and other financial information, proprietary information, trade secrets, or other data that may be protected by sector-specific laws and regulations, like intellectual property laws, laws addressing the protection of personally identifiable information (or personal data in the EU), as well as the Federal Communications Commission’s, or the FCC’s, customer proprietary network information (“CPNI”) rules.
Customers may use our services to store, process, and transmit a wide variety of confidential and sensitive information, such as credit card, bank account, and other financial information, proprietary information, trade secrets, or other data that may be protected by sector-specific laws and regulations, like intellectual property laws, laws addressing the protection of personally identifiable information (or personal data in the EU), as well as the Federal Communications Commission’s, or the FCC’s, customer proprietary network information, or CPNI, rules.
The costs associated with any material defects or errors in our software or other performance problems may be substantial and could materially adversely affect our operating results. 15 Our physical infrastructure is concentrated in a few facilities (i.e., data centers and public cloud providers), and any failure in our physical infrastructure or service outages could lead to significant costs and/or disruptions and could reduce our revenue, harm our business reputation and have a material adverse effect on our financial results.
The costs associated with any material defects or errors in our software or other performance problems may be substantial and could materially adversely affect our operating results. 18 Our physical infrastructure is concentrated in a few facilities (i.e., data centers and public cloud providers), and any failure in our physical infrastructure or service outages could lead to significant costs and/or disruptions and could reduce our revenue, harm our business reputation and have a material adverse effect on our financial results.
The risks and challenges associated with sales and other operations outside the United States are different in some ways from those associated with our operations in the United States, and we have a limited history addressing those risks and meeting those challenges.
The risks and challenges associated with sales and other operations outside the United States are different in 19 some ways from those associated with our operations in the United States, and we have a limited history addressing those risks and meeting those challenges.
To the extent that we cannot quickly port telephone numbers out when a customer leaves our service to go to another provider, we could be subject to regulatory enforcement action. 19 Risks Related to Regulatory Matters Cyber intrusions, breaches of our networks or systems or those of our service and cloud storage providers, and other malicious acts could adversely impact our business.
To the extent that we cannot quickly port telephone numbers out when a customer leaves our service to go to another provider, we could be subject to regulatory enforcement action. 22 Risks Related to Regulatory Matters Cyber intrusions, breaches of our networks or systems or those of our service and cloud storage providers, and other malicious acts could adversely impact our business.
We may have difficulty attracting or retaining senior management and other personnel with the industry experience and technical skills necessary to support our growth.
We may have difficulty attracting or retaining senior management and other personnel with the industry experience and technical skills necessary to support our desired growth.
During our fiscal year ending March 31, 2024, we intend to continue to invest in sales and marketing and research and development, among other areas of our business, to compete more successfully for the business of companies that are transitioning to cloud communications and otherwise position ourselves to take advantage of long-term revenue-generating opportunities.
During our fiscal year ending March 31, 2025, we intend to continue to invest in sales and marketing and research and development, among other areas of our business, to compete more successfully for the business of companies that are transitioning to cloud communications and otherwise position ourselves to take advantage of long-term revenue-generating opportunities.
Currently, several jurisdictions are conducting audits of 8x8; in the event our positions are unsuccessful, we may be subject to tax payments, interest, and penalties in excess of those that we have accrued for. As of March 31, 2023, we have paid or accrued for state or local taxes, fees, and surcharges that we believe are required to be remitted.
Currently, several jurisdictions are conducting audits of 8x8; in the event our positions are unsuccessful, we may be subject to tax payments, interest, and penalties in excess of those that we have accrued for. As of March 31, 2024, we have paid or accrued for state or local taxes, fees, and surcharges that we believe are required to be remitted.
The investments we have made in fiscal 2023 and beyond may not generate the returns that we anticipate, which could adversely impact our financial condition and make it more difficult for us to grow revenue and/or achieve profitability in the time period that we expect, or not at all.
The investments we have made in fiscal 2024 and beyond may not generate the returns that we anticipate, which could adversely impact our financial condition and make it more difficult for us to grow revenue and/or achieve profitability in the time period that we expect, or not at all.
The global spread of COVID-19 and its variants has created significant volatility, uncertainty, and economic disruption in the recent past, particularly for small and medium-sized businesses. Many of our existing and prospective customers have experienced or could experience economic hardship caused by current and future variants of COVID-19.
The global spread of COVID-19 and its variants has created significant volatility, uncertainty, and economic disruption in the recent past, particularly for small- and mid-sized businesses. Many of our existing and prospective customers have experienced or could experience economic hardship caused by current and future variants of COVID-19.
There is a risk that due to changes under the Tax Act, regulatory changes, or other unforeseen reasons, the existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities, which could have a material impact on our net income (loss) in future periods.
There is a risk that due to changes under the Tax Act, regulatory changes, or other unforeseen reasons, the existing net operating loss could expire or otherwise be unavailable to offset future income tax liabilities, which could have a material impact on our net income (loss) in future periods.
Given our history of fluctuating revenue and operating losses, we cannot be certain that we will be able to achieve or maintain operating profitability in the future. Our future operating results, including revenue, expenses, losses and profits, may vary substantially from period to period and may be difficult to predict.
Given our history of fluctuating revenue and operating losses, we cannot be certain that we will be able to achieve or maintain operating profitability in the future. Our future operating results, including revenue, expenses, losses, profits, and operating cash flow, may vary substantially from period to period and may be difficult to predict.
We have formed subsidiaries outside the United States, including a subsidiary in Romania that contributes significantly to our research and development efforts. Additionally, through acquisitions, we have expanded into the United Kingdom, the EU, and Southeast Asia.
We have formed subsidiaries outside the United States, including a subsidiary in Romania that contributes significantly to our research and development efforts. Additionally, we have expanded into the United Kingdom, the EU, and Southeast Asia.
If we increase employee compensation (beyond levels that reflect customary performance-based and/or cost-of-living adjustments) in response to competitive pressures, we may sustain greater operating losses than we predicted in the near term, and we may not achieve profitability within the timeframe we had expected, or at all.
If we increase employee compensation (beyond levels that reflect customary performance-based and/or cost-of-living adjustments) in response to the competitive hiring environment, we may sustain greater operating losses than we predicted in the near term, and we may not achieve profitability within the timeframe we had expected, or at all.
Additionally, in connection with the expansion or consolidation of our existing data center facilities from time to time, there is an increased risk that service interruptions may occur as a result of server relocation or other unforeseen construction-related issues. We have experienced interruptions in service in the past.
Additionally, in connection with the expansion or consolidation of our existing data center facilities from time to time, there is an increased risk that service interruptions may occur as a result of server relocation or other unforeseen construction-related issues. We have experienced interruptions in service in the past, including recent outages.
These risks are discussed more fully below and include, but are not limited to: Risks Related to our Business and Industry • Our history of losses and anticipated continued losses. • Unpredictability of our future operating results. • Reductions in either spending or collections may result in reductions in revenue. • Future increases in our customer churn. • Dependence on new customer acquisition and retention and upsell to existing customers. • Intense competition in our industry. • Failure to manage and grow our indirect sales channels. 9 • Complexity and length of enterprise customer sales cycle. • Dependence on new product and services to maintain and grow our business. • Difficulty attracting and retaining key management, technical and sales personnel. • We may not realize all of the anticipated benefits of our acquisition of Fuze, Inc. • Potential past and future liabilities related to federal, state, local and international taxes, fees, surcharges and levees.
These risks are discussed more fully below and include, but are not limited to: Risks Related to our Business and Industry • Our history of losses and anticipated continued losses. • Unpredictability of our future operating results. • Reductions in either spending or collections may result in reductions in revenue. • Future increases in our customer churn. • Dependence on new customer acquisition and retention and upsell to existing customers. • Intense competition in our industry. • Failure to manage and grow our indirect sales channels. • Complexity and length of enterprise customer sales cycle. • Dependence on new product and services to maintain and grow our business. • Difficulty attracting and retaining key management, technical and sales personnel. • We may not realize all of the anticipated benefits of our acquisition of Fuze, Inc. • Potential past and future liabilities related to federal, state, local and international taxes, fees, surcharges and levees. • We may incur impairments to goodwill, intangible assets or long-lived assets.
As usage of our cloud software solutions by mid-market and larger enterprises expands and as customers continue to integrate our services across their enterprises, we are required to devote additional resources to improving our application architecture, integrating our products and applications across our technology platform, integrating with third-party systems, and maintaining infrastructure performance.
As usage of our cloud software solutions by small business, mid-market and enterprise customers expands and as customers continue to integrate our services across their enterprises, we are required to devote additional resources to improving our application architecture, integrating our products and applications across our technology platform, integrating with third-party systems, and maintaining infrastructure performance.
On March 10, 2023, the Federal Deposit Insurance Corporation (“FDIC”) announced that Silicon Valley Bank (“SVB”) had been closed by the California Department of Financial Protection and Innovation; on March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services; and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation.
On March 10, 2023, the Federal Deposit Insurance Corporation, or FDIC, announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation; on March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services; and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation.
Additionally, some of our products and services may require specialized or high-performance component parts that may not be available in quantities or in time frames that meet our requirements. Difficulty executing local number porting requests could negatively impact our business. The FCC and foreign regulators require VoIP providers to support telephone number porting within specified timeframes.
Additionally, some of our products and services may require specialized or high-performance component parts that may not be available in quantities or in time frames that meet our requirements. Difficulty executing local number porting requests could negatively impact our business. The FCC and foreign regulators require Voice over Internet Protocol providers to support telephone number porting within specified timeframes.
We expect to continue to incur losses for at least the next fiscal year and later, and we will need to increase our rate of revenue growth to generate and sustain operating profitability in future periods.
We expect to continue to incur losses for at least the next fiscal year and later, and we will need to increase our revenue to generate and sustain operating profitability in future periods.
As a result, we may fail to meet or exceed the expectations of market analysts or investors, which could negatively impact our stock price. Our historical operating results have fluctuated and will likely continue to fluctuate in the future, and a decline in our operating results could cause our stock price to fall.
As a result, we may fail to meet or exceed the expectations of market analysts or investors, which could negatively impact our stock price. Our historical operating results have fluctuated and are expected to continue to fluctuate in the future. A decline in our operating results could cause our stock price to fall.
Even if we are able to implement the bug fixes and upgrades in a timely manner, any history of defects, or the loss, damage, or inadvertent release of confidential customer data, could cause our reputation to be harmed, and customers may elect not to purchase or renew their agreements with us and subject us to service performance credits, warranty claims or increased insurance costs.
Even if we are able to implement the bug fixes and upgrades in a timely manner, any history of defects, reliance on vulnerable third-party services, or the loss, damage, or inadvertent release of confidential customer data, could cause our reputation to be harmed, and customers may elect not to purchase or renew their agreements with us and subject us to service performance credits, warranty claims or increased insurance costs.
During the second quarter of fiscal 2023, we entered into the following arrangements: (i) on August 10, 2022, we borrowed $250.0 million in a senior secured term loan facility (the “Term Loan”) under the Credit Agreement entered into on August 3, 2022, which term loans will mature on August 3, 2027 and initially bear interest at an annual rate equal to the Term SOFR (which will be subject to a floor of 1.00% and a credit spread adjustment of 0.10%), plus a margin of 6.50%; and (ii) on August 11, 2022, we issued approximately $201.9 million aggregate principal amount of 4.00% convertible senior notes due February 1, 2028 (the “2028 Notes”), which bear interest at a rate of 4.00% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2023, and will mature on February 1, 2028, unless earlier converted, redeemed or repurchased, pursuant to the indenture for the 2028 Notes.
During the second quarter of fiscal 2023, we entered into the following arrangements: (i) on August 10, 2022, we borrowed $250.0 million, (of which $225.0 million remains outstanding following a $25.0 million debt pay-down in June 2023) in a senior secured term loan facility (the “Term Loan”) under the Credit Agreement entered into on August 3, 2022, which term loans will mature on August 3, 2027 and initially bear interest at an annual rate equal to the Standard Overnight Financing Rate, or SOFR, (which will be subject to a floor of 1.00% and a credit spread adjustment of 0.10%), plus a margin of 6.50%; and (ii) on August 11, 2022, we issued approximately $201.9 million aggregate principal amount of 4.00% convertible senior notes due February 1, 2028 (the “2028 Notes”), which bear interest at a rate of 4.00% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2023, and will mature on February 1, 2028, unless earlier converted, redeemed or repurchased, pursuant to the indenture for the 2028 Notes.
As a provider of interconnected VoIP services, we are subject to various international, federal, state, and local requirements applicable to our industry, including those that address, among other matters, acceptable marketing practices, the accessibility of 9-1-1 or other international emergency services, local number porting, robo-calling, and caller ID spoofing.
As a provider of interconnected Voice over Internet Protocol services, we are subject to various international, federal, state, and local requirements applicable to our industry, including those that address, among other matters, acceptable marketing practices, the accessibility of 9-1-1 or other international emergency services, local number porting, robo-calling, and caller ID spoofing.
The current instability in the banking system could adversely impact our operations and operating results, including our cash and cash equivalents if the financial institutions in which we hold our cash and cash equivalents fail.
The instability in the banking system in recent years could adversely impact our operations and operating results, including our cash and cash equivalents if the financial institutions in which we hold our cash and cash equivalents fail.
Because we offer multiple services from a single platform, we compete with businesses in several overlapping industries, including voice, video meetings, chat, team messaging, contact center and enterprise-class API solutions.
Because we offer multiple services from a single platform, we compete with businesses in several overlapping industries, including voice, video meetings, chat, team messaging, contact center and enterprise-class application program interface solutions.
Utilization of our NOL and tax credit carryforwards can become subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions.
Utilization of our net operating loss and tax credit carryforwards can become subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions.
Despite these efforts, our revenue growth may slow, revenue may decline, and/or we may incur significant losses in the future due to inflationary pressures impacting our cost structure, Russia's invasion of Ukraine or other geopolitical events, any further downturn in general economic conditions, increasing competition (including competitive pricing pressures and large competitors moving into our markets), decrease in the adoption or sustained use of the cloud communications market, exiting 10 lines of business, interest rate and foreign currency fluctuations, or our inability to execute on business opportunities.
Despite these efforts, our revenue may continue to decline, and/or we may incur significant losses in the future due to inflationary pressures impacting our cost structure, Russia's invasion of Ukraine, the conflict between Israel and Hamas and Israel and Iran or other geopolitical events, any further downturn in general economic conditions, increasing competition (including competitive pricing pressures and large competitors moving into our markets), decrease in the adoption or sustained use of the cloud communications market, exiting lines of business, interest rate and foreign currency fluctuations, or our inability to execute on business opportunities.
We currently derive a majority of our new revenue growth from sales of our cloud software solutions to mid-market and larger enterprises, and we believe that increasing our sales to these customers is the key to our future growth.
We currently derive a majority of our revenue from sales of our cloud software solutions to mid-market and enterprise customers, and we believe that increasing our sales to these customers is the key to our future growth.
For example, our Credit Agreement contains a minimum adjusted cash Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) financial covenant, a minimum liquidity covenant and a maximum secured leverage ratio financial covenant and contains affirmative and negative covenants customary for transactions of this type, including limitations with respect to indebtedness, liens, investments, dividends, disposition of assets, change in business, and transactions with affiliates; • making it more difficult for us to satisfy our obligations with respect to our indebtedness; • requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes; • limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate; • placing us at a competitive disadvantage compared to any of our less-leveraged competitors; • increasing our vulnerability to both general and industry-specific adverse economic conditions; and • limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.
For example, our Credit Agreement contains a minimum adjusted cash Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) financial covenant, a minimum liquidity covenant and a maximum secured leverage ratio financial covenant and contains affirmative and negative covenants customary for transactions of this type, including limitations with respect to indebtedness, liens, investments, dividends, disposition of assets, change in business, and transactions with affiliates; • making it more difficult for us to satisfy our obligations with respect to our indebtedness; • requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes; • limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate; • placing us at a competitive disadvantage compared to any of our less-leveraged competitors; • increasing our vulnerability to both general and industry-specific adverse economic conditions; • potentially complicating our ability to refinance our debt under favorable conditions, or at all, which could further restrict our operational flexibility and increase our financing costs; • increasing our vulnerability to fluctuations in interest rates, particularly for any variable-rate debt; and • limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.
In addition, under the Tax Cuts and Jobs Act, or the Tax Act, the amount of NOLs that we are permitted to deduct in any taxable year is limited to 80% of the taxable income in such year.
In addition, under the Tax Cuts and Jobs Act, or the Tax Act, the amount of net operating loss that we are permitted to deduct in any taxable year is limited to 80% of the taxable income in such year.
Third-party providers of applications and APIs may change the features of their applications and platforms, restrict our access to their applications and platforms or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner.
Third-party providers of applications and application program interfaces may change the features of their applications and platforms, restrict our access to their applications and platforms or alter the terms governing use of their applications and application program interfaces and access to those applications and platforms in an adverse manner.
If we are unable to do this successfully and in a timely manner, our business and operating results could be materially adversely affected. The conflict between Russia and Ukraine and related sanctions could negatively impact us.
If we are unable to do this successfully and in a timely manner, our business and operating results could be materially adversely affected. The conflict between Russia and Ukraine and related sanctions, as well as other geopolitical conflicts, could negatively impact us.
In connection with our voice, video meetings, chat, team messaging, contact center, and enterprise-class API solutions, we face competition from other cloud service providers such as RingCentral, Inc., Genesys Telecommunications Laboratories, Inc., Zoom Video Communications, Inc., Vonage Holdings Corp.(acquired by Ericsson), Five9, Inc., NICE inContact, Inc., Talkdesk, Inc., and Twilio Inc., among others, as well as from legacy on-premises communications equipment providers, such as Avaya, Inc., Cisco Systems, Inc., and Mitel Networks Corp. 12 We also face competition from Internet and cloud service companies such as Alphabet Inc.
In connection with our voice, video meetings, chat, team messaging, contact center, and enterprise-class application program interface solutions, we face competition from other cloud service providers such as RingCentral, Inc., Genesys Telecommunications Laboratories, Inc., Zoom Video Communications, Inc., Vonage Holdings Corp.(acquired by Ericsson), Five9, Inc., NICE inContact, Inc., Talkdesk, Inc., and Twilio Inc., among others, as well as from legacy on-premises communications equipment providers, such as Avaya, Inc., Cisco Systems, Inc., and Mitel Networks Corp.
Our current international operations and future initiatives, including Southeast Asia, will involve a variety of risks, including: • localization of our services, including translation into foreign languages and associated expenses; 16 • regulation of our services as traditional telecommunications services, requiring us to obtain authorizations or licenses to operate in foreign jurisdictions, or alternatively preventing us from selling our full suite of services, or any services at all, in such jurisdictions; • changes in a specific country's or region's regulatory requirements, taxes, trade laws, or political or economic condition; • increased competition from regional and global cloud communications competitors in the various geographic markets in which we compete, where such markets may have different sales cycles, selling processes, and feature requirements, which may limit our ability to compete effectively in different regions globally; • more stringent regulations relating to data security and the unauthorized use of, access to, and transfer of, commercial and personal information, particularly in the EU; • differing labor regulations, especially in the EU and Latin America, where labor laws are generally more advantageous to employees as compared to those in the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems; • increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; • different pricing environments, longer sales cycles, longer accounts receivable payment cycles, and other collection difficulties; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • laws and business practices favoring local competitors or general preferences for local vendors; • limited or insufficient intellectual property protection; • political instability or terrorist activities; • a military conflict with China and/or Russia that will likely involve cyberattacks on critical infrastructure, including, but not limited to, global data centers, power grids, and communication companies; • exposure to liabilities under anti-corruption and anti-money laundering laws, including the United States Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, trade and export laws such as those enforced by the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury, and similar laws and regulations in other jurisdictions; • continuing uncertainty regarding social, political, immigration, and tax and trade policies in the United States and abroad, including as a result of the United Kingdom's vote to withdraw from the EU; • regional travel restrictions, business closures, government actions and other restrictions in connection with the COVID-19 pandemic; and • adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
Our current international operations and future initiatives, including Southeast Asia, will involve a variety of risks, including: • localization of our services, including translation into foreign languages and associated expenses; • regulation of our services as traditional telecommunications services, requiring us to obtain authorizations or licenses to operate in foreign jurisdictions, or alternatively preventing us from selling our full suite of services, or any services at all, in such jurisdictions; • changes in a specific country's or region's regulatory requirements, taxes, trade policies, tariffs, sanctions, trade laws, or political, or economic condition; • increased competition from regional and global cloud communications competitors in the various geographic markets in which we compete, where such markets may have different sales cycles, selling processes, and feature requirements, and may involve high levels of competition from local vendors that could require aggressive pricing strategies and adaptations to local market demands, which may limit our ability to compete effectively in different regions globally; • more stringent regulations relating to data security and the unauthorized use of, access to, and transfer of, commercial and personal information, particularly in the EU, and potentially conflicting privacy regulations that could complicate data management and compliance; • differing labor regulations, especially in the EU and Latin America, where labor laws are generally more advantageous to employees as compared to those in the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems, which could delay or impede our ability to effectively launch our operations or scale them efficiently; • increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; • different pricing environments, longer sales cycles, longer accounts receivable payment cycles, and other collection difficulties; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • laws and business practices favoring local competitors or general preferences for local vendors; • limited or insufficient intellectual property protection; • political instability or terrorist activities, including the impact of geopolitical tensions in regions like Eastern Europe, the Middle East, and Asia, which could affect market stability and operations, or impact our employees located in those regions; • a military conflict with China and/or Russia or other geopolitical conflicts between nation-states, that will likely involve cyberattacks on critical infrastructure, including, but not limited to, global data centers, power grids, and communication companies; • exposure to liabilities under anti-corruption and anti-money laundering laws, including the United States Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, trade and export laws such as those enforced by the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury, and similar laws and regulations in other jurisdictions; • continuing uncertainty regarding social, political, immigration, and tax and trade policies in the United States and abroad, including as a result of the United Kingdom's withdrawal from the EU; • regional travel restrictions, business closures, government actions and other restrictions in connection with the geopolitical instabilities or pandemics; and • adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
These provisions in our restated certificate of incorporation and amended and restated by-laws and under Delaware law could discourage potential takeover attempts. General Risk Factors Current and future variants of COVID-19 and any economic difficulty they trigger could significantly harm our business.
These provisions in our restated certificate of incorporation and amended and restated by-laws and under Delaware law could discourage potential takeover attempts, potentially reducing liquidity for our shareholders. 28 General Risk Factors Current and future variants of COVID-19 and any economic difficulty they trigger could significantly harm our business.
Such an ownership change, or any future ownership change, could have a material effect on our ability to utilize the NOL or research credit carryforwards.
Such an ownership change, or any future ownership change, could have a material effect on our ability to utilize the net operating loss or research credit carryforwards.
Our business operations, from our internal and service operations to research and development activities, sales and marketing efforts and customer and partner communications, depend on our ability to protect our network from interruption by damage from hackers, social engineering and phishing, ransomware, computer viruses, worms, other malicious software programs, or similar disruptive problems or other events beyond our control.
Our business operations, from our internal and service operations to research and development activities, sales and marketing efforts and customer and partner communications, depend on our ability to protect our network from interruption by damage from hackers, social engineering and phishing, ransomware, computer viruses, worms, other malicious software programs, including vulnerabilities in our network infrastructure such as firewalls, switches and routers, or similar disruptive problems or other events beyond our control.
Following the completion of the acquisition, the surviving corporation possesses not only all of the assets, but also all of the liabilities, of Fuze. It is possible that undisclosed, contingent, or other liabilities or problems may arise in the future of which we 14 were previously unaware.
Following the completion of the acquisition, the surviving corporation possesses not only all of the assets, but also all of the liabilities, of Fuze. We have experienced unexpected liabilities as a result of our Fuze acquisition. It is possible that undisclosed, contingent, or other liabilities or problems may arise in the future of which we were previously unaware.
On an annual and quarterly basis, there are a number of factors that may affect our operating results, some of which are outside our control.
There are a number of factors that may affect our operating results on a quarterly, annual, or longer-term basis, some of which are outside our control.
Our rate of customer cancellations or downgrades in services may increase in future periods due to a number of factors, some of which are beyond our control, such as the financial condition of our customers or the general economic environment.
Our rate of customer cancellations or downgrades in services may increase in future periods due to a number of factors, some of which are beyond our control, such as the financial condition of our customers, the general economic environment, or significant shifts in geopolitical stability that affect global markets.
While we may have remedies available to us through litigation, these would likely take significant time and expense and divert management attention from other areas of the business.
While we may have remedies available to us through litigation, these would likely take significant time and expense and be ineffective to the immediate operational risk as well as divert management attention from other areas of the business.
Our ability to use our net operating losses or research tax credits to offset future taxable income is subject to certain limitations. As of March 31, 2023, we had federal net operating loss (“NOL”) carryforwards of $1,199.1 million, of which $361.0 million are related to years prior to fiscal 2019 and begin to expire in 2034.
Our ability to use our net operating losses or research tax credits to offset future taxable income is subject to certain limitations. As of March 31, 2024, we had federal net operating loss, or NOL, carryforwards of $1,118.7 million, of which $335.5 million are related to years prior to fiscal 2019 and begin to expire in 2034.
Similarly, we typically spend more time and effort determining their requirements and educating these customers about the benefits and uses of our solutions. Enterprise customers also tend to demand more customizations, integrations, and additional features than smaller customers.
Therefore, they typically spend significant time and resources evaluating our solutions before they purchase from us. Similarly, we typically spend more time and effort determining their requirements and educating these customers about the benefits and uses of our solutions. Enterprise customers also tend to demand more customizations, integrations, and additional features than smaller customers.
(Google Voice and Google Meet), Amazon Inc., and Microsoft Corporation. Some of these competitors have developed software solutions for their respective communications and/or collaboration silos, such as Microsoft, which is investing significantly in its Microsoft Teams unified communication and collaboration product.
We also face competition from Internet and cloud service companies such as Alphabet Inc. (Google Voice and Google Meet), Amazon Inc., and Microsoft Corporation. Some of these competitors have developed software solutions for their respective communications and/or collaboration silos, such as Microsoft, which is investing significantly in its Microsoft Teams unified communication and collaboration product.
Regulations to which we may be subject address the following matters, among others: • license requirements that apply to providers of communications services in many jurisdictions; • our obligation to contribute to various Universal Service Fund programs, including at the state level; • monitoring on rural call completion rates; • safeguarding and use of CPNI; • rules concerning access requirements for users with disabilities; • our obligation to offer 7-1-1 abbreviated dialing for access to relay services; • requirements to enable access to services for disabled persons; • compliance with the requirements of United States and foreign law enforcement agencies, including the Communications Assistance for Law Enforcement Act ("CALEA"), and cooperation with local authorities in conducting wiretaps, pen traps and other surveillance activities; • the ability to dial 9-1-1 (or corresponding numbers in regions outside the United States), auto-locate E-911 calls (or corresponding equivalents) when required, and access emergency services; 21 • the transmission of telephone numbers associated with calling parties between carriers and service providers like us; • regulations governing outbound dialing, including the Telephone Consumer Protection Act; and • FCC and other regulators efforts to combat robo-calling and caller ID spoofing.
Regulations to which we may be subject address the following matters, among others: • license requirements that apply to providers of communications services in many jurisdictions; • our obligation to contribute to various Universal Service Fund programs, including at the state level; • monitoring on rural call completion rates; • safeguarding and use of customer proprietary network information; • rules concerning access requirements for users with disabilities; • our obligation to offer 7-1-1 abbreviated dialing for access to relay services; 24 • compliance with the requirements of United States and foreign law enforcement agencies, including the Communications Assistance for Law Enforcement Act, and cooperation with local authorities in conducting wiretaps, pen traps and other surveillance activities; • the ability to dial 9-1-1 (or corresponding numbers in regions outside the United States), auto-locate E-911 calls (or corresponding equivalents) when required, and access emergency services; • the transmission of telephone numbers associated with calling parties between carriers and service providers like us; • regulations governing outbound dialing, including the Telephone Consumer Protection Act; • FCC and other regulators efforts to combat robo-calling and caller ID spoofing; • compliance with data protection regulations such as the GDPR in Europe, which impose stringent requirements on data privacy and security; • compliance with the Telecommunications (Security) Act 2021 in the UK, which imposes strict security requirements on telecom providers to protect the UK's telecoms network from cyber threats and vulnerabilities.
To the extent that we are unable to achieve market acceptance of our UCaaS and CCaaS products and services, including our X Series, we may be unable to recoup our research and development and marketing costs on the schedule we anticipated, and our results of operations may suffer.
To the extent that we are unable to achieve market acceptance of our unified communications as-a-service and contact center as-a-service products and services, including our X Series, we may be unable to recoup our research and development and marketing costs on the schedule we anticipated, and our results of operations may suffer.
Some of our competitors are responding to these competitive pressures by increasing employee compensation, paying more on average than we pay for the same position or offering more attractive equity compensation.
In response to a competitive hiring environment, some of 16 our competitors are responding by increasing employee compensation, paying more on average than we pay for the same position or offering more attractive equity compensation.
Some errors in our software code may not be discovered until after the code has been released. Any errors, bugs, or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of customers, loss of revenue, or liability for service credits or damages, any of which could adversely affect our business and financial results.
Any errors, bugs, or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of customers, loss of revenue, or liability for service credits or damages, any of which could adversely affect our business and financial results.
Future sales of our common stock or equity-linked securities in the public market could lower the market price of our common stock. In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital.
In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital.
However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the new Notes surrendered therefor or the new Notes being converted.
However, due to potential adverse market conditions or changes in the credit markets, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the new Notes surrendered therefor or the new Notes being converted.
We recorded an operating loss of approximately $66.3 million for the year ended March 31, 2023, and ended the period with an accumulated deficit of approximately $792.9 million. We expect to continue to incur operating losses in the near future as we continue to invest in our business.
We recorded an operating loss of approximately $27.6 million for the year ended March 31, 2024, and ended the period with an accumulated deficit of approximately $860.5 million. We expect to continue to incur operating losses in the near future as we continue to invest in our business.
In addition, the reform of federal and state Universal Service Fund programs and payment of regulatory and other fees in international markets could increase the cost of our service to our customers, diminishing or eliminating any pricing advantage we may have. Efforts to address robo-calling and caller ID spoofing could cause us competitive harm.
In addition, the reform of federal and state Universal Service Fund programs and payment of regulatory and other fees in international markets could increase the cost of our service to our customers, diminishing or eliminating any pricing advantage we may have.
In addition, if we are unable to maintain the quality and performance of our service whether due to a lack of feature parity or quality of service relative to the products of our competitors or service outages or disruptions, we could experience potentially sharp increases in customer cancellations and/or downgrades or customer credits which would adversely impact our revenue.
If we are unable to maintain the quality and performance of our service whether due to a lack of feature parity or quality of service relative to the products of our competitors or service outages or disruptions, we could experience potentially sharp increases in customer cancellations and/or downgrades or customer credits which would adversely impact our revenue. 14 Our success hinges on our ability to acquire new customers and retain and sell additional services to our existing customers.
We rely on third-party network service providers to originate and terminate substantially all of the PSTN calls using our cloud-based services. We leverage the infrastructure of third-party network service providers to provide telephone numbers, PSTN call termination and origination services, and local number portability for our customers, rather than deploying our own network throughout the United States and internationally.
We leverage the infrastructure of third-party network service providers to provide telephone numbers, public switched telephone network call termination and origination services, and local number portability for our customers, rather than deploying our own network throughout the United States and internationally.
Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches may subject us to costly breach notification and other mitigation obligations, class action lawsuits, investigations, fines, forfeitures or penalties from governmental agencies that could adversely affect our operating results.
Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches may subject us to costly breach notification and other mitigation obligations, class action lawsuits, investigations, fines, forfeitures or penalties from governmental agencies that could adversely affect our operating results. 23 The law relating to the liability of providers of online payment services is currently unsettled and states may enact their own rules with which we may not comply.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. 23 We may not have the ability to raise the funds necessary to settle conversions of the new notes in cash or repurchase the new notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the new notes.
We may not have the ability to raise the funds necessary to settle conversions of the new notes in cash or repurchase the new notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the new notes.
Such litigation could result in substantial costs and diversion of management time and resources and could have a material adverse effect on our business, financial condition, and operating results.
Such litigation could result in substantial costs and diversion of management time and resources and could have a material adverse effect on our business, financial condition, and operating results. Any settlement or adverse determination in such litigation would also subject us to significant liability.
The harm to our business may be magnified if we are unable to adjust our expenses to compensate for such shortfall, or if we determine that we need to increase our marketing and sales efforts in order to attract new customers and retain existing customers.
The harm to our business may be magnified if we are unable to adjust our expenses to compensate for such shortfall, or if we determine that we need to increase our marketing and sales efforts in order to attract new customers and retain existing customers. 15 Failure to grow and manage our network of indirect sales channels partners could materially and adversely impact our revenue in the future.
Our customers use our communications services to manage important aspects of their businesses, and any errors, defects, outages, or disruptions to our service or other performance problems with our service, could hurt our reputation and may damage our customers' businesses, any of which may result in our granting of credits to customers that in turn would reduce our revenue.
Our customers use our communications services to manage important aspects of their businesses, and any errors, defects, outages, or disruptions to our service or other performance problems with our service (such as those we have recently experienced and may encounter again), including those related to artificial intelligence technologies or dependencies on third-party services, could hurt our reputation and may damage our customers' businesses, any of which may result in our granting of credits to customers that in turn would reduce our revenue.
In addition, several additional states have comprehensive privacy laws that will become effective in 2023, including Colorado, Connecticut, and Utah. Privacy laws restrict our processing of personal information, provided to us by our customers as well as data we collect from our customers and employees.
In addition, several additional states have comprehensive privacy laws that will become effective in 2024 or later, including Delaware, Indiana, Iowa, Montana, New Jersey, Oregon, Tennessee and Texas. Privacy laws restrict our processing of personal information, provided to us by our customers as well as data we collect from our customers and employees.
These factors and events include: • our ability to successfully and timely integrate Fuze’s business and operations with ours; • obtaining and maintaining intellectual property rights relating to Fuze technology; • retaining and attracting key employees; • the reaction of Fuze’s customers, business partners and competitors to the acquisition; • consolidating corporate and administrative functions; and • minimizing the diversion of management’s attention from ongoing business concerns.
These factors and events include: • our ability to successfully and timely integrate Fuze’s business and operations with ours; • obtaining and maintaining intellectual property rights relating to Fuze technology; • porting Fuze customers onto our 8x8 platform; • the retention of Fuze’s customers; and • minimizing the diversion of management’s attention from ongoing business concerns.
Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale to that customer, is often lengthy and unpredictable for larger enterprise customers. Many of our prospective enterprise customers do not have prior experience with cloud-based communications and, therefore, typically spend significant time and resources evaluating our solutions before they purchase from us.
Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale to that customer, is often lengthy and unpredictable for larger enterprise customers. Many of our prospective enterprise customers do not have prior experience with cloud-based communications or contact centers, and may not appreciate the benefits of a unified platform for both.
Our leased network and data centers, as well as public cloud infrastructure, are subject to various points of failure. Problems with cooling equipment, generators, uninterruptible power supply, routers, switches, or other equipment, whether or not within our control, could result in service interruptions for our customers as well as equipment damage.
Our leased network and data centers, as well as public cloud infrastructure, are subject to various points of failure. Problems with cooling equipment, generators, uninterruptible power supply, routers, switches, or other equipment, whether or not within our control, often managed by third-party service providers, expose us to cybersecurity risks such as unauthorized access or data breaches.
As of March 31, 2023, we currently have outstanding approximately $63.3 million aggregate principal amount of our 0.50% convertible senior notes due February 1, 2024 (the "2024 Notes"), approximately $201.9 million aggregate principal amount of the 2028 Notes (together with the 2024 Notes, "our notes"), and the $250.0 million Term Loan.
As of March 31, 2024, we currently have approximately $201.9 million aggregate principal amount of the 2028 Notes and the $225.0 million Term Loan outstanding.
If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.
We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.
We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock.
We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. This uncertainty may lead to increased volatility in our share price as investors speculate on the timing and impact of these issuances.
It is possible that as businesses return to in-person work, the demand for some of our products could decline. The ongoing impact of COVID-19 on macroeconomic conditions has at some periods also impacted the functioning of financial and capital markets, foreign currency exchange rates, and interest rates.
The ongoing impact of COVID-19 on macroeconomic conditions has at some periods also impacted the functioning of financial and capital markets, foreign currency exchange rates, and interest rates.
The impact of these measures, as well as potential responses to them by Russia, could adversely affect 17 our business, supply chain, partners, or customers, particularly if the impact were to cause a geographic expansion of the conflict between Russia and Ukraine to surrounding countries.
The impact of these measures, as well as potential responses to them by Russia, or by escalated tensions in the Middle East, particularly the ongoing conflict between Israel and Hamas and Israel and Iran that pose a particular 20 risk given our partnerships with operations in Israel that may be adversely affected by those conflicts, could adversely affect our business, supply chain, partners, or customers, particularly if the impact were to cause a geographic expansion of the conflict between Russia and Ukraine to surrounding countries or intensify disruptions in the Middle East.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOutside the United States our operations are conducted primarily in leased office space located in the United Kingdom (primarily used for sales and customer support in Europe), Romania (primarily used for customer support, and research and development), Canada (primarily used for research and development), Portugal (primarily used for research and development) and Singapore (primarily used for regional sales and marketing, procurement, customer support, and CPaaS).
Biggest changeOutside the United States, our operations are conducted primarily in leased office space located in the United Kingdom (primarily used for sales and customer support in Europe), Romania (primarily used for customer support, and research and development), Canada (primarily used for research and development), Portugal (primarily used for research and development), Singapore (primarily used for regional sales and marketing, procurement, customer support, and communications platform as-a-service), and Philippines (primarily used research and development and customer support).
In addition, we lease space from third-party data center hosting facilities under co-location agreements in the United States, South America, Europe, and the Asia Pacific region. For additional information regarding our obligations under leases, see Note 5 , Leases in the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report.
In addition, we lease space from third-party data center hosting facilities under co-location agreements in the United States, Europe, and the Asia Pacific region. For additional information regarding our obligations under leases, see Note 6 , Leases, in the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Information with respect to this item may be found in Note 6 , Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report, under “Legal Proceedings”, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 26 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS Information with respect to this item may be found in Note 7 , Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report, under “Legal Proceedings”, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn accordance with SEC rules, the performance graph presents both the indices used in the previous year and the newly selected index. 27 March 31, 2018 2019 2020 2021 2022 2023 8x8 $ 100.00 $ 110.68 $ 75.95 $ 177.75 $ 68.99 $ 22.85 Russell 2000 100.00 103.16 77.26 148.78 138.70 120.77 Nasdaq Composite 100.00 112.51 112.08 192.82 206.99 177.90 Nasdaq Telecommunications 100.00 120.28 100.30 141.55 132.11 116.04 NYSE Composite 100.00 184.81 149.95 227.10 242.66 223.79 Issuer Issuances and Purchases of Equity Securities Repurchases In August 2022, the Company repurchased in privately negotiated transactions with a limited number of holders 10,695,000 shares of its common stock for approximately $60.0 million, in connection with the Exchange Transaction and negotiation of the new secured term loan facility, as further described in Part II, Item 8, Note 7 , Convertible Senior Notes, Term Loan and Capped Calls.
Biggest changeIn accordance with Securities and Exchange Commission rules, the performance graph presents both the indices used in the previous year and the newly selected index. 32 March 31, 2019 2020 2021 2022 2023 2024 8x8, Inc. $ 100.00 $ 68.61 $ 160.59 $ 62.33 $ 20.64 $ 13.37 Russell 2000 100.00 74.89 144.21 134.45 117.06 137.98 NASDAQ Composite 100.00 99.62 171.38 183.98 158.12 211.91 NASDAQ Telecommunications 100.00 83.39 117.69 109.84 96.48 97.49 NYSE Composite 100.00 81.14 122.88 131.30 121.09 144.23 Issuer Issuances and Purchases of Equity Securities Repurchases In August 2022, the Company repurchased in privately negotiated transactions with a limited number of holders 10,695,000 shares of its common stock for approximately $60.0 million, in connection with the Exchange Transaction and negotiation of the secured term loan facility, as further described in Part II, Item 8, Note 8 , Convertible Senior Notes and Term Loan.
These shares were issued in a private placement in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Company relied on this exemption based in part on representations made by the financial advisor in its engagement letter and related share payment letter . 28 ITEM 6. [Reserved]
These shares were issued in a private placement in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Company relied on this exemption based in part on representations made by the financial advisor in its engagement letter and related share payment letter . ITEM 6. [Reserved] 33
There was no activity under the 2017 Repurchase Plan for the year ended March 31, 2023.The value of shares that may yet be purchased under the 2017 Repurchase Plan is approximately $7.1 million. Issuances On August 3, 2022, the Company agreed with its financial advisor, J.
There was no activity under the 2017 Repurchase Plan for the year ended March 31, 2024. The value of shares that may yet be purchased under the 2017 Repurchase Plan is approximately $7.1 million. Issuances On August 3, 2022, the Company agreed with its financial advisor, J.
Wood Capital Advisors LLC, to settle 50% of its financial advisory fee for services provided in connection with the Exchange Transaction and negotiation of the new secured term loan facility, as further described in Part II, Item 8, Note 7 , Convertible Senior Notes, Term Loan and Capped Calls, to the consolidated financial statements through the issuance of 1,015,024 shares of the Company's common stock, equivalent to approximately $5.1 million.
Wood Capital Advisors LLC, to settle 50% of its financial advisory fee for services provided in connection with the Exchange Transaction and negotiation of the secured term loan facility, as further described in Part II, Item 8, Note 8 , Convertible Senior Notes and Term Loan, to the consolidated financial statements through the issuance of 1,015,024 shares of the Company's common stock, equivalent to approximately $5.1 million.
Stock Performance Graph Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of 8x8’s common stock shall not be deemed "filed" with the SEC or "soliciting material" under the Exchange Act and shall not be incorporated by reference into any such filings.
Stock Performance Graph Notwithstanding any statement to the contrary in any of our previous or future filings with the Securities and Exchange Commission the following information relating to the price performance of 8x8’s common stock shall not be deemed "filed" with the Securities and Exchange Commission or "soliciting material" under the Exchange Act and shall not be incorporated by reference into any such filings.
Previously, from December 8, 2017 to November 14, 2022, our common stock traded under the symbol "EGHT" and was listed on the New York Stock Exchange (the “NYSE”). Dividend Policy We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future.
Previously, from December 8, 2017 to November 14, 2022, our common stock traded under the symbol "EGHT" and was listed on the New York Stock Exchange, or the “NYSE.” Dividend Policy We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future.
Number of Common Stockholders As of May 18, 2023, there were approximately 308 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Number of Common Stockholders As of May 8, 2024, there were approximately 279 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
The graph below shows the cumulative total stockholder return over a five-year period, assuming the investment of $100 on March 31, 2018 in each of 8x8's common stock, the Nasdaq Composite Index NYSE Composite Index, the Russell 2000 Index, and the Nasdaq Telecommunications Index. The graph is furnished, not filed, and the historical return cannot be indicative of future performance.
The graph below shows the cumulative total stockholder return over a five-year period, assuming the investment of $100 on March 31, 2019 in each of 8x8's common stock, the Nasdaq Composite Index, the New York Stock Exchange Composite Index, the Russell 2000 Index, and the Nasdaq Telecommunications Index.
The NYSE Composite Index was added to the graph below because 8x8 changed the listing of its common stock to the NYSE from the Nasdaq in November 2022.
The graph is furnished, not filed, and the historical return cannot be indicative of future performance. The New York Stock Exchange Composite Index was added to the graph below because 8x8 changed the listing of its common stock to the NYSE from the Nasdaq in November 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

59 edited+35 added−35 removed25 unchanged
Biggest changeOther expense, net For the years ended March 31, Change 2023 2022 2023 vs 2022 Other expense, net $(4,044) $ (21,629) $ 17,585 (81.3) % Percentage of total revenue (0.5) % (3.4) % Other expense, net decreased by $17.6 million in fiscal 2023, as compared to fiscal 2022, primarily due to a $18.5 million gain from debt extinguishment from the 2024 Notes, $16.2 million decrease in debt amortization expenses as a result of exchange and subsequent repurchase of the 2024 Notes, $1.8 million gain from sale of intangibles, $1.0 million gain from foreign exchange transactions, and $0.4 million gain on remeasurement of the Warrants issued in connection with the Term Loan, Our decreases were partially offset by a $20.7 million increase in interest expenses primarily related to our Term Loan.
Biggest changeOther expense, net For the years ended March 31, (in thousands, except percentages) 2024 2023 Change Other expense, net $ (36,347) $ (4,044) $ (32,303) NM Percentage of total revenue (5.0) % (0.5) % We recognized $36.3 million of other expense, net during fiscal 2024 compared to $4.0 million of other expense, net during fiscal 2023 primarily due to $18.5 million gain from debt extinguishment from the 2024 convertible notes recorded in the prior year compared to a $1.8 million loss on debt extinguishment in fiscal 2024, $12.3 million increase in interest expense on our variable-rate term loan entered into in the second quarter of fiscal 2023, an increase of $2.0 million in unrealized foreign exchange losses, and $1.8 million of gain on sale of assets recorded in the prior year.
Other Expense, Net Other expense, net, consists primarily of interest expense related to our convertible notes and term loan, amortization of debt discount and issuance costs, offset by gains on debt extinguishment, as well as other income.
Other Expense, Net Other expense, net, consists primarily of interest expense related to our term loan and convertible notes, amortization of debt discount and issuance costs, offset by gains on debt extinguishment, as well as other income.
OVERVIEW We are a leading provider of software-as-a-service solutions for contact center, voice communications, video meetings, employee collaboration, and embeddable communication application program interfaces ("APIs"). Our solutions empower workforces worldwide by connecting individuals and teams so they can collaborate faster, work smarter, and better serve customers, from any location.
OVERVIEW We are a leading provider of software-as-a-service solutions for contact center, voice communications, video meetings, employee collaboration, and embeddable communication application program interfaces. Our solutions empower workforces worldwide by connecting individuals and teams so they can collaborate faster, work smarter, and better serve customers, from any location.
To support our customers and partners, we are expanding our customer success organization and investing in improvements to our back-office processes in order to increase our operational efficiency over time. We believe that continued innovation is a critical factor in attracting and retaining mid-market and enterprise customers and is an important variable in achieving sustainable growth.
To support our customers and partners, we are expanding our customer success organization and investing in improvements to our back-office processes to increase our operational efficiency over time. We believe that continued innovation is a critical factor in attracting and retaining mid-market and enterprise customers and is an important variable in achieving sustainable growth.
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.
Professional services for deployment, 41 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.
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.
We generate other revenue from professional services and the sale of office phones and other hardware equipment. 34 We define a “customer” as one or more legal entities to which we provide services pursuant to a single contractual arrangement.
Built from core cloud technologies that we own and manage internally and integrated with third-party applications from our technology partners, our XCaaS platform enables agile workplaces and fosters seamless communications and collaboration between an organization’s customers, contact center agents, and employees, regardless of geographic location.
Built with core cloud technologies that we own and manage internally, as well as integrated third-party applications from our technology partners, our XCaaS platform enables agile workplaces and fosters seamless communications and collaboration between an organization’s customers, contact center agents, and employees, regardless of geographic location.
The communications capabilities and advanced AI/ML (artificial intelligence/machine learning) technologies of our contact center, communication and collaboration solutions are integrated into a comprehensive cloud-based offering powered by our global communications platform, which together comprise our 8x8 XCaaS platform solution.
The communications capabilities and advanced artificial intelligence/machine learning technologies of our contact center, communication and collaboration solutions are integrated into a comprehensive cloud-based offering powered by our global communications platform, which together comprise our 8x8 XCaaS platform solution.
As of March 31, 2023, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.
As of March 31, 2024, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.
The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers forecasts of future economic conditions in addition to information about past events and current conditions.
The current expected credit loss impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers forecasts of future economic conditions in addition to information about past events and current conditions.
We plan to increase service revenue through a combination of new customer acquisition, cross-sell of additional products, including those resulting from our increased investment in innovation, to existing customers, geographic expansion of our customer base outside the United States, and innovation in product and technology, and through strategic acquisitions of technologies and businesses.
We plan to increase service revenue through a combination of new customer acquisition, cross-sell of additional products to existing customers, including new products resulting from our increased investment in innovation, geographic expansion of our customer base outside the United States, innovation in our products and technologies, and through strategic acquisitions of technologies and businesses.
For information regarding our expected cash requirements and timing of payments related to leases and noncancellable purchase commitments, see Note 5 , Leases, and Note 6 , Commitments and Contingencies , respectively, to the consolidated financial statements.
For information regarding our expected cash requirements and timing of payments related to leases and noncancellable purchase commitments, see Note 6 , Leases, and Note 7 , Commitments and Contingencies, respectively, to the consolidated financial statements.
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.
We allocate overhead costs, such as information technology and facilities, to cost of service revenue, as well as to each of the operating expense categories, generally based on relative headcount. Our information technology costs include costs for information technology infrastructure and personnel. Facilities costs primarily consist of office leases and related expenses.
Our customers range from small businesses to large enterprises across all vertical markets, with users in more than 180 countries. In recent years, we have increased our focus on mid-market, small and medium enterprise, and public sector customers because these organizations typically have more complex communication and contact center requirements compared to the needs of small business customers.
Our customers range from small businesses to large enterprises across all vertical markets, with users in more than 160 countries. In recent years, we have increased our focus on mid-market, small- and mid-sized enterprise, and public sector customers because these organizations typically have more complex communication and contact center requirements compared to the needs of small business customers.
Cost of Other Revenue Cost of other revenue consists primarily of direct and indirect costs associated with the purchase and shipping and handling of IP telephones as well as the scheduling, shipping and handling, personnel costs, and other expenditures incurred in connection with the professional services associated with the deployment and implementation of our products, and allocated IT and facilities costs.
Cost of Other Revenue Cost of other revenue consists primarily of direct and indirect costs associated with the purchase and shipping and handling of IP telephones as well as the scheduling, shipping and handling, personnel costs, and other expenditures incurred in connection with the professional services associated with the deployment and implementation of our products, and allocated information technology and facilities costs.
In fiscal 2023, we introduced platform-wide integration of generative AI from OpenAI, making it easier for organizations to unlock the potential of generative AI to personalize self-service, bot-based and agent-based customer engagements.
In fiscal 2023, we introduced platform-wide integration of generative artificial intelligence from OpenAI, making it easier for organizations to unlock the potential of generative artificial intelligence to personalize self-service, bot-based and agent-based customer engagements.
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.
Allowance for Credit Losses We account for allowances for credit losses under the current expected credit loss, or CECL, impairment model for our financial assets, including accounts receivable, and present the net amount of the financial instrument expected to be collected.
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, as well as 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, as well as allocated information technology 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, and promotional expenses, as well as 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, and promotional expenses, as well as allocated information technology and facilities costs.
The XCaaS platform also integrates with a growing ecosystem of third-party applications, ranging from purpose-built and vertically-focused AI-based applications to broadly deployed customer relationship management (CRM) platforms and leading customer engagement and workforce management software.
The XCaaS platform also integrates with a growing ecosystem of third-party applications, ranging from purpose-built and vertically-focused artificial intelligence-based applications to broadly deployed customer relationship management platforms and leading customer engagement and workforce management software.
Our open approach to third party integrations and platform-wide enablement of generative AI, combined with flexibility to “mix and match” functionality based on users’ communication requirements and customer engagement profiles, allows organizations of all sizes to design and deploy tailored user experiences previously reserved to very large enterprises.
Our solutions approach to third party integrations and platform-wide enablement of generative artificial intelligence, combined with flexibility to “mix and match” functionality based on users’ communication requirements and customer engagement profiles, allows organizations of all sizes to design and deploy tailored user experiences previously reserved to very large enterprises.
This section discusses items pertaining to and comparisons of financial results between fiscal 2023 and fiscal 2022.
This section discusses items pertaining to and comparisons of financial results between fiscal 2024 and fiscal 2023.
Additionally, refer to Note 7 , Convertible Senior Notes, Term Loan and Capped Calls , to the consolidated financial statements for more information related to our debt obligations and applicable covenants.
Additionally, refer to Note 8 , Convertible Senior Notes and Term Loan, to the consolidated financial statements for more information related to our debt obligations and applicable covenants.
Annualized Recurring Subscriptions and Usage Revenue Our management measures the success of our strategy to attract and retain customers by analyzing trends in ARR and believes ARR may be useful to investors in evaluating our performance.
Annualized Recurring Subscriptions and Usage Revenue Our management has measured the success of our strategy to attract and retain customers, in part, by analyzing trends in annualized recurring and usage revenue, or ARR, and believes annualized recurring and usage revenue may be useful to investors in evaluating our performance.
Significant cash requirements for the upcoming fiscal year include our operating lease obligations, interest payments related to our debt obligations, retirement of our 2024 Notes, and operating and capital purchase commitments.
Significant cash requirements for the upcoming fiscal year include our interest payments related to our debt obligations, operating lease obligations, and operating and capital purchase commitments.
We are committed to maintaining a high level of investment in engineering to deliver product innovation across our XCaaS platform, expand our ecosystem of integrations, and maintain the high availability our customers require.
We are committed to maintaining a high level of investment in engineering to deliver product innovation across our XCaaS platform, expand our ecosystem of integrated third-party applications, and maintain the high availability our customers require.
Because our XCaaS platform includes UCaaS, CCaaS and CPaaS and serves as a single integration framework for communications across an organization, customers can reduce costs associated with provisioning and management, increase customization based on use cases, and facilitate compliance with security and data privacy requirements on a global scale.
Because our XCaaS platform includes unified communications as-a-service, contact center as-a-service and communications platform as-a-service and serves as a single integration framework for communications and customer interactions across an organization, customers can reduce costs associated with provisioning and management, increase customization based on use cases, and facilitate compliance with security and data privacy requirements on a global scale.
Organizations in these sectors – typically with 500 to 10,000 employees -- are more likely to adopt multiple services and realize greater value from our unified, global communications platform and portfolio of AI-enabled solutions. 29 We generate service revenue from subscriptions to our communications services subscriptions and platform usage.
Organizations in these sectors – typically with 500 to 10,000 employees -- are more likely to adopt multiple services and realize greater value from our unified, global communications platform and our growing product portfolio, including artificial intelligence-enabled solutions. We generate service revenue from subscriptions to our communications services subscriptions as well as from usage of our platform.
A discussion of fiscal 2022 items and comparisons between fiscal 2022 and fiscal 2021 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (the “2022 MD&A”), filed with the SEC on May 27, 2022.
A discussion of fiscal 2023 items and comparisons between fiscal 2023 and fiscal 2022 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “2023 MD&A”), filed with the Securities and Exchange Commission on May 25, 2023.
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.
We begin to capitalize costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, it is probable that the project will be completed, and the software will be used as intended. Capitalized internal-use software development costs are included in property and equipment.
In September 2022, December 2022 and February 2023, we repurchased $6.0 million, $21.8 million and $5.0 million in aggregate principal amount of the 2024 Notes, respectively, in separate privately negotiated transactions. Approximately $63.3 million of the 2024 Notes remained outstanding as of March 31, 2023.
In September 2022, December 2022 and February 2023, we repurchased $6.0 million, $21.8 million and $5.0 million in aggregate principal amount of the 2024 Notes, respectively, in separate privately negotiated transactions.
A consistent data layer across the platform powers 8x8 AI/ML algorithms, as well as vertical-specific and purpose-built AI applications from our ecosystem of technology partners, to deliver data-driven business insights and intelligent integrated applications that drive employee productivity, resource optimization, and more effective end-customer interactions through simplified and automated workflows.
A comprehensive data layer across the platform powers 8x8 artificial intelligence/machine learning algorithms, as well as vertical-specific and purpose-built applications from our ecosystem of technology partners. This enables data-driven business insights and intelligent integrated applications that can drive employee productivity, resource optimization, and more effective end-customer interactions through simplified and automated workflows.
As part of our long-term strategy to expand our enterprise customer base, grow our revenue, and increase our profitability and cash flow, we have focused on reducing the cost of delivering our services and improving our sales efficiency while increasing our investment in research and development.
Our service revenue decreased $9.5 million, or approximately 1% year-over-year, to $700.6 million. As part of our long-term strategy to expand our enterprise customer base, grow our revenue, and increase our profitability and cash flow, we have focused on reducing the cost of delivering our services and improving our sales efficiency while increasing our investment in research and development.
Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents. Our current capital deployment strategy for fiscal 2024 is to invest excess cash on hand to support our continued growth initiatives into select markets and planned software development activities, and pay down our debt.
Our current capital deployment strategy for fiscal 2024 is to invest excess cash on hand to support our continued growth initiatives into select markets and planned software development activities, and pay down our debt.
The XCaaS platform delivers our unified communications (UCaaS), contact center (CCaaS) and communication APIs (CPaaS) services and includes AI-driven digital assistance, intuitive user interfaces, and real-time business analytics and intelligence, enabling organizations of all sizes to design, deploy and adapt tailored communications and workflows for differentiated employee and customer experiences. The 8x8 XCaaS platform offers a complete cloud technology stack.
The XCaaS platform delivers our unified communications as-a-service, contact center as-a-service, and communications platform as-a-service services and includes artificial intelligence-driven digital assistance, intuitive user interfaces, and real-time business analytics and intelligence, enabling organizations of all sizes to design, deploy and adapt tailored communications and workflows for differentiated employee and customer experiences.
It delivers the security, scalability, high availability, and ease-of-use of a modern cloud-based architecture while masking the complexity of a global communications infrastructure.
The 8x8 XCaaS platform offers a cloud technology stack for communication, collaboration, and customer interaction. It delivers the security, scalability, high availability, and ease-of-use of a modern cloud-based architecture while masking the complexity of a global communications infrastructure.
The actual results could be significantly different from the estimates. 36 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.
The actual results could be significantly different from the estimates. Capitalized Internal-Use Software Costs Certain costs of software are capitalized during the application development phase.
Although we believe we have adequate sources of liquidity for the next 12 months and the foreseeable future 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 ongoing impact of the COVID-19 pandemic and Russia's invasion of Ukraine, among other factors, could impact our business and liquidity.
Although we believe we have adequate sources of liquidity for the next 12 months and the foreseeable future, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets could impact our business and liquidity.
We expect cost of service revenue will increase in absolute dollars but generally remain consistent or decline as a percentage of revenue in future periods.
These decreases were partially offset by an increase of $2.8 million in costs to deliver our services. We expect cost of service revenue will increase in absolute dollars but generally remain consistent or decline as a percentage of revenue in future periods.
Other revenue For the years ended March 31, Change 2023 2022 2023 vs 2022 Other revenue $33,894 $35,773 $ (1,879) -5.3 % Percentage of total revenue 4.6 % 5.6 % Other revenue decreased by $1.9 million in fiscal 2023, as compared to fiscal 2022, due to a decrease in professional service revenue.
Other revenue For the years ended March 31, (in thousands, except percentages) 2024 2023 Change Other revenue $ 28,126 $ 33,894 $ (5,768) (17.0) % Percentage of total revenue 3.9 % 4.6 % Other revenue decreased by $5.8 million, or 17.0% , in fiscal 2024, as compared to fiscal 2023, due to lower professional service and product revenue of $4.1 million and $1.7 million, respectively.
Sales and marketing For the years ended March 31, Change 2023 2022 2023 vs 2022 Sales and marketing $311,883 $314,223 $ (2,340) (0.7) % Percentage of total revenue 41.9 % 49.2 % Sales and marketing expenses decreased in dollars and as a percentage of revenue in fiscal 2023, as compared to fiscal 2022, primarily due to decreases of $22.3 million in stock-based compensation expense, $6.6 million in employee and consulting costs, and $3.5 million in paid media and marketing services.
Sales and marketing For the years ended March 31, (in thousands, except percentages) 2024 2023 Change Sales and marketing $ 271,944 $ 311,883 $ (39,939) (12.8) % Percentage of total revenue 37.3 % 41.9 % Sales and marketing expenses decreased $39.9 million, or 12.8%, in fiscal 2024 compared to fiscal 2023 primarily due to decreases of $19.3 million in personnel-related and consulting costs, $17.2 million of combined paid media, marketing services and other costs, and $8.4 million in stock-based compensation expense.
These decreases were partially offset by increases of $17.8 million in commissions, $9.1 million in amortization of intangibles, and $3.5 million in amortization of deferred commissions.
These decreases were partially offset by an increase of $5.2 million in channel commissions and amortization of deferred commission.
See Note 7 , Convertible Senior Notes, Term Loan and Capped Calls to our condensed consolidated financial statements for details. In May 2023, we voluntarily prepaid $25.0 million of principal on our senior secured term loan, reducing the total principal outstanding to $225 million.
In May 2023, we voluntarily prepaid $25.0 million of principal on our senior secured term loan, reducing the total principal outstanding to $225.0 million. Due to the adjustable nature of the interest rate on our senior secured term loan, our net income may vary.
We define enterprise customers as customers generating more than $100,000 in ARR, mid-market as customers with ARR between $25,000 and $100,000, and small business as customers with up to $25,000 in ARR. Mid-market customers, often become enterprise customers over time as they expand their deployments and adopt more solutions from our XCaaS portfolio.
We define enterprise customers as customers generating more than $100,000 in annualized recurring and usage revenue, mid-market as customers with annualized recurring and usage revenue between $25,000 and $100,000, and small business as customers with up to $25,000 in annualized recurring and usage revenue. Customers can move between categories over time based on individual annualized recurring and usage revenue.
General and Administrative 31 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.
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 information technology and facilities costs. 36 Impairment of Long-Lived Assets Impairment of long-lived assets consists of non-cash impairment charges for right-of-use assets and capitalized software.
We define ARR as equal to the sum of the most recent month of (i) recurring subscription amounts and (ii) platform usage charges for all CPaaS customers (subject to a minimum billings threshold for a period of at least six consecutive months), multiplied by 12.
We currently define annualized recurring and usage revenue as (A) equal to the sum of the most recent month of (i) recurring subscription amounts and (ii) platform usage charges for all communications platform as-a-service customers that demonstrate consistent monthly usage above a minimum threshold over the prior six-month period, multiplied by 12, and (B) excluding any non-bundled or overage usage fees associated with unified communications as-a-service subscriptions.
Our management believes ARR is an important indicator for measuring the overall performance of the business because it encompasses new customer additions, add-on sales, renewals and customer churn in a single metric. Our management uses trends in total ARR and ARR by customer segment to assess our ongoing operations, allocate resources, and drive the financial performance of the business.
Our management believes annualized recurring and usage revenue has been a useful indicator for measuring the overall performance of the business because it includes new customer additions, add-on sales, renewals and customer churn within a single metric.
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.
Once the project has been completed, these costs are amortized to cost of service revenue on a straight-line basis over the estimated useful life of the related asset as noted in Property and Equipment. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded in research and development expense.
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). In January 2022, we acquired Fuze, Inc. ("Fuze"), a competitor in enterprise-grade unified communications-as-a-service (UCaaS), for approximately $213.8 million in stock and cash.
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). SUMMARY AND OUTLOOK In fiscal 2024, our total revenue decreased $15.2 million, or approximately 2% year-over-year, to $728.7 million.
Cost of other revenue For the years ended March 31, Change 2023 2022 2023 vs 2022 Cost of other revenue $ 42,604 $ 51,649 $ (9,045) (17.5) % Percentage of other revenue 125.7 % 144.4 % Cost of other revenue decreased in dollars and as a percentage of other revenue in fiscal 2023, as compared to fiscal 2022, primarily due to decreases in product costs and efficiencies in our professional services.
Cost of other revenue For the years ended March 31, (in thousands, except percentages) 2024 2023 Change Cost of other revenue $ 31,945 $ 42,604 $ (10,659) (25.0) % Percentage of other revenue 113.6 % 125.7 % Cost of other revenue decreased $10.7 million , or 25.0% , in fiscal 2024 compared to fiscal 2023, primarily due to $7.8 million decreased personnel-related costs to deliver our professional services coupled with $2.9 million lower product costs.
In addition, we had $1.3 million in restricted cash in support of letters of credit securing leases for office facilities and certain equipment. 34 Our primary requirements for liquidity and capital are working capital, research and development and marketing activities, principal and interest payments on our outstanding debt and other general corporate needs.
Our primary requirements for liquidity and capital are working capital, research and development and marketing activities, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents.
We expect sales and marketing costs as a percentage of revenue to decrease from fiscal 2023 to fiscal 2024 as we achieve continued efficiencies in sales and marketing. 33 General and administrative For the years ended March 31, Change 2023 2022 2023 vs 2022 General and administrative $110,652 $118,103 $ (7,451) (6.3) % Percentage of total revenue 14.9 % 18.5 % General and administrative expenses decreased both in dollars and as a percentage of revenue in fiscal 2023, as compared to fiscal 2022, primarily due to decreases of $17.7 million in stock-based compensation expenses and $13.2 million in acquisition and integration costs related to the Fuze acquisition in fiscal 2022.
General and administrative For the years ended March 31, (in thousands, except percentages) 2024 2023 Change General and administrative $ 112,209 $ 108,001 $ 4,208 3.9 % Percentage of total revenue 15.4 % 14.5 % General and administrative expenses increased $4.2 million, or 3.9%, in fiscal 2024 compared to fiscal 2023 primarily due a $13.9 million increase primarily due to Fuze regulatory charges and $3.4 million increase of combined acquisition, integration, contract termination and other costs.
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.
Small Business annualized recurring and usage revenue decreased 1% to $167.0 million at the end of fiscal 2024 from $168.0 million at the end of fiscal 2023. COMPONENTS OF RESULTS OF OPERATIONS Service Revenue Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from our unified communications as-a-service, contact center as-a-service, and communications platform as-a-service offerings.
Our business is diversified by vertical market and geography, and no single customer represented more than 10% of our total revenue during fiscal years 2023 and 2022. 32 Cost of Revenue Cost of service revenue For the years ended March 31, Change 2023 2022 2023 vs 2022 Cost of service revenue $198,871 $195,909 $ 2,962 1.5 % Percentage of service revenue 28.0 % 32.5 % Cost of service revenue increased in dollars but decreased as a percentage of service revenue as we achieved operating efficiencies.
Our business is diversified by vertical market and geography, and no single customer represented more than 10% of our total revenue during fiscal years 2024 and 2023.
The cash used in financing activities in fiscal 2023 was primarily driven by $217.3 million of net repayment of the 2024 Notes and $60.2 million of shares repurchased, which were substantially offset by $234.8 million of net proceeds from the Term Loan.
Cash used in financing activities increased by $45.6 million to $83.4 million for fiscal 2024, due to principal repayments of $25.0 million on the term loan and $234.8 million proceeds in fiscal 2023 offset by a reduction in repayment and exchange of $154.0 million on the convertible senior notes and repurchase of common stock of $60.2 million in fiscal 2023.
Research and development For the years ended March 31, Change 2023 2022 2023 vs 2022 Research and development $ 146,220 $ 112,387 $ 33,833 30.1 % Percentage of total revenue 19.7 % 17.6 % Research and development expenses increased in dollars and as percentage of revenue during fiscal 2023, as compared to fiscal 2022, primarily due to increases of $23.8 million in employee and consulting costs, $6.7 million in internally-developed software, $4.8 million in software licenses, and $3.6 million in public cloud hosting costs; primarily as a result of our acquisition of Fuze.
Operating Expenses Research and development For the years ended March 31, (in thousands, except percentages) 2024 2023 Change Research and development $ 136,216 $ 142,491 $ (6,275) (4.4) % Percentage of total revenue 18.7 % 19.2 % Research and development expenses decreased $6.3 million, or 4.4%, in fiscal 2024 compared to fiscal 2023, primarily due to decreases of $6.5 million in stock-based compensation, $1.8 million in amortization of capitalized software $0.6 million in software licenses.
Total ARR at the end of fiscal 2023 was $703 million and increased 2% from the end of fiscal 2022. ARR from mid-market and enterprise customers represented 76% of total ARR and increased 3% compared to the end of fiscal 2022.
Enterprise annualized recurring and usage revenue decreased 1% to $402.0 million at the end of fiscal 2024 from $405.0 million the end of fiscal 2023. Mid-Market annualized recurring and usage revenue decreased 2% to $127.0 million at the end of fiscal 2024 from $130.0 million at the end of fiscal 2023.
IMPACT OF COVID-19 30 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." KEY BUSINESS METRICS Our management periodically reviews certain key business metrics to evaluate our operations, allocate resources, and drive financial performance in our business.
KEY BUSINESS METRICS Our management periodically reviews certain key business metrics to evaluate our operations, allocate resources, and drive financial performance in our business.
We are not aware of any uniform standards for calculating ARR and caution that our presentation may not be consistent with that of other companies. For example, to the extent our ARR is used to evaluate trends in future revenue, such an evaluation would assume a sustained level of usage from existing customers which may fluctuate in future periods.
ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and ARR is not intended to be a substitute for, or combined with, any of these items. We caution that our presentation may not be consistent with that of other companies.
Removed
The acquisition of Fuze increased our installed base of enterprise customers and added research and development resources that enabled us to accelerate innovation on our XCaaS platform. SUMMARY AND OUTLOOK In fiscal 2023, our total revenue grew $105.8 million, or approximately 16.6% year-over-year, to $743.9 million.
Added
On February 1, 2024, we paid the remaining aggregate principal of $63.3 million, and accrued interest of $0.2 million, related to the 2024 Notes, which matured on February 1, 2024. See Note 8 , Convertible Senior Notes and Term Loan to our consolidated financial statements for details.
Removed
Excluding revenue from the Fuze customer base, our total revenue increased approximately 3% for the year ended March 31, 2023. Our service revenue grew $107.7 million, or approximately 17.9% year-over-year, to $710.0 million. Excluding revenue from Fuze customers, our service revenue grew approximately 4% for the year ended March 31, 2023.
Added
However, as the nature of our business is evolving as we launch and grow multiple products that have consumption-based pricing, we are re-evaluating our methodology and key business metrics we use. Our management has historically used trends in annualized recurring and usage revenue to assess our ongoing operations, allocate resources, and drive the performance of the business.
Removed
Approximately two-thirds of our investment in research and development is focused on extending the contact center capabilities of our XCaaS platform, including AI integrations, advanced data capture and analytics. We use annualized recurring and usage revenue ("ARR") to measure the success of our strategy to attract and retain customers.
Added
We have historically analyzed annualized recurring and usage revenue within three separate customer categories: enterprise, mid-market and small business.
Removed
ARR from enterprise customers has increased steadily as a percentage of total ARR, increasing from 35% of total ARR in fiscal 2019 to 58% of total ARR at the end of fiscal 2023.
Added
The Company continues to review annualized recurring and usage revenue growth, as well as changes in the mix, within the enterprise, mid-market and small business categories and relies on the growth percentage as one of the measures of potential future performance within the specific annualized recurring and usage revenue by customer size categories. 35 Total annualized recurring and usage revenue decreased 1% to $697.0 million at the end of fiscal 2024 from $703.0 million at the end of fiscal 2023.
Removed
We have increased our focus on mid-market and enterprise customers because these organizations typically have more complex communication and contact center requirements compared to the needs of small business customers. ARR associated with small business customers was 24% of total ARR for fiscal 2023.
Added
During the third quarter of fiscal year 2024, we partially ceased use of the Company's Headquarters and an international office space. We reviewed the recoverability of the related right-of-use assets and determined an impairment indicator was identified as these events indicated the carrying value of the right-of-use assets may not be recoverable.
Removed
We remain committed to retaining our installed base of small business customers but have reduced sales and marketing investment in attracting new small business UCaaS-only customers. See "Key Business Metrics" section below for further discussion on how we define ARR.
Added
In connection with partially ceasing use of the Company’s Headquarters and an international office space, the Company recorded impairment charges of $9.9 million and $1.1 million, respectively, as the carrying amount of the right-of-use assets related to the leases exceeded its fair value based on the Company’s estimate of future discounted cash flows related to the leased facility.
Removed
To align our resources with our long-term strategy to grow revenue and increase profits and cash flow through increased focus on mid-market and enterprise customers, we conducted two separate workforce reductions involving approximately 300 employees, primarily in the sales and marketing and general and administration functions.
Added
During the year ended March 31, 2024, the non-cash charge of $11.0 million was recorded as an impairment of long-lived assets on the consolidated statements of operations and consisted of an $11.0 million impairment of operating lease right-of-use assets. See Note 1 , The Company and Significant Accounting Policies, for further details.
Removed
We expect these workforce reductions and accompanying organizational restructurings to align our resources to our critical areas of focus, including streamlining sales and marketing, enhancing customer support, accelerating innovation, and strengthening our financial position.
Added
During the year ended March 31, 2023, the impairment charge of $6.4 million was due to capitalized software and right-of-use assets of $3.7 million and $2.7 million, respectively.
Removed
RESULTS OF OPERATIONS Fiscal 2023 includes a full year of Fuze's results of operations. The results of operations for fiscal 2022, includes approximately ten weeks of Fuze's results of operations since its acquisition on January 18, 2022.
Added
RESULTS OF OPERATIONS Revenue Service revenue For the years ended March 31, (in thousands, except percentages) 2024 2023 Change Service revenue $ 700,579 $ 710,044 $ (9,465) (1.3) % Percentage of total revenue 96.1 % 95.4 % Service revenue decreased by $9.5 million, or 1.3%, for fiscal 2024 compared to fiscal 2023, and this change was driven by a decrease in subscription revenue of $9.5 million related to increased customer churn and down-sell.
Removed
Revenue Service revenue For the years ended March 31, Change 2023 2022 2023 vs 2022 Service revenue $710,044 $602,357 $ 107,687 17.9 % Percentage of total revenue 95.4 % 94.4 % Service revenue increased for fiscal 2023, as compared to fiscal 2022, primarily due to a net increase in our installed base of mid-market and enterprise customers, expanded deployments by existing customers, and growth in related telecom usage by our customers.The increase in service revenue reflected increased sales of our UCaaS and CCaaS solutions, and increased adoption of our XCaaS integrated communication and collaboration platform.
Added
We continue to monitor factors that could have an impact on customer buying behavior and demand, including macroeconomic conditions, contract duration, churn, upsell and down-sell, renewals, and payment terms, all of which could cause variability in our revenue.
Removed
A substantial portion of the growth in service revenue for the year ended March 31, 2023 was attributable to Fuze, which contributed approximately an $86.5 million increase compared to the year ended March 31, 2022. The increase was partially offset by a decrease in usage revenue generated by our CPaaS products, primarily in the Asia-Pacific region.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+2 added−3 removed3 unchanged
Biggest changeAdditionally, we carry the 2024 Notes, 2028 Notes and Term Loan at face value, less unamortized discount, on our consolidated balance sheets, and we present the fair value for required disclosure purposes only.
Biggest changeOur 2028 Notes bear a fixed interest rate, and therefore, is not subject to interest rate risk as the 2028 Notes are recorded at face value, less unamortized discount, on our consolidated balance sheets, and we present the fair value for required disclosure purposes only.
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 United States dollar of 10% would not result in a material foreign currency loss on foreign-denominated balances as of March 31, 2023.
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 United States dollar of 10% would not result in a material foreign currency loss on foreign-denominated balances as of March 31, 2024.
As 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. 37
As 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. 43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Fluctuation Risk We had cash, cash equivalents, and investments totaling $137.6 million as of March 31, 2023. Cash equivalents and investments were invested primarily in money market funds, United States treasury, commercial paper, and corporate bonds.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Fluctuation Risk Cash, Cash Equivalents and Short-Term Investments We had cash, cash equivalents, and investments totaling $117.3 million as of March 31, 2024. Cash equivalents and investments were invested primarily in money market funds, United States treasury, commercial paper, and corporate bonds.
Removed
As of March 31, 2023, we have $265.2 million aggregate principal amount of the 2024 Notes and 2028 Notes, and $250.0 million of the Term Loan outstanding. Subsequently, in May 2023, we voluntarily prepaid $25.0 million of principal on the Term Loan, reducing the outstanding principal to $225.0 million.
Added
Term Loan The Company is subject to interest rate risk with the Term Loan as we pay interest on the principal balance at a variable rate. As of March 31, 2024, the aggregate principal of the term loan was $225.0 million.
Removed
The fair value of the 2024 Notes, 2028 Notes, and Term Loan is subject to interest rate risk, market risk, and other factors due to the conversion feature. The fair value of the 2024 Notes and 2028 Notes will generally increase as the Company's common stock price increases and will generally decrease as its common stock price declines.
Added
A hypothetical variable interest rate increase of 10%, would increase our annual interest expense by approximately $2.4 million on our consolidated results of operations. 2028 Notes As of March 31, 2024, we have $201.9 million aggregate principal amount of the 2028 Notes.
Removed
The interest and market value changes affect the fair value of the 2024 Notes and 2028 Notes but do not impact our financial position, cash flows, or results of operations, due to the fixed nature of the debt obligation.

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