UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



	FORM	10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number ~~000-21783~~001-38312

8X8, INC.

(Exact name of Registrant as Specified in its Charter)



Delaware	77-0142404
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

2125 O'Nel Drive

San Jose, CA 95131

(Address of Principal Executive Offices)

(408) 727-1885

(Registrant's Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.001 PER SHARE	EGHT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~Yes ☐ NONo ☒ The number of shares of the Registrant's Common Stock outstanding as of ~~July 24, 2019~~January 30, 2020 was ~~99,287,508.~~102,458,236.

FORM 10-Q

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	Page No.
PART I. FINANCIAL INFORMATION	35
Item 1. Financial Statements (unaudited):	35
Condensed Consolidated Balance Sheets at ~~June 30,~~December 31, 2019 and March 31, 2019	35
Condensed Consolidated Statements of Operations for the three and nine months ended ~~June 30,~~December 31, 2019 and 2018	46
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended ~~June 30,~~December 31, 2019 and 2018	57
Condensed Consolidated Statements of ~~Stockholders~~Stockholders' Equity for the three and nine months ended ~~June 30,~~December 31, 2019 and 2018	68
Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~June 30,~~December 31, 2019 and 2018	710
Notes to Unaudited Condensed Consolidated Financial Statements	811
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1923
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2430
Item 4. Controls and Procedures	2431
PART II. OTHER INFORMATION	2531
Item 1. Legal Proceedings	2531
Item 1A. Risk Factors	2531
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4931
Item 3. Defaults Upon Senior Securities	4932
Item 4. Mine Safety Disclosures	4932
Item 5. Other Information	4932
Item 6. Exhibits	5133
Signature	5234

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Forward-Looking Statements and Risk Factors

Statements contained in this quarterly report on Form 10-Q, or Quarterly Report, regarding our expectations, beliefs, estimates, intentions or strategies are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Actual results and trends may differ materially from historical results and those projected in any such forward-looking statements depending on a variety of factors. These factors include, but are not limited to:

market acceptance of new or ~~modified~~ existing services and features we may offer from time to ~~time,~~time;

customer acceptance and demand for our cloud communication and collaboration services, including voice, contact center, video, messaging, and communication ~~APIs,~~APIs;

competitive market pressures, and any changes in the competitive dynamics of the markets in which we ~~compete,~~compete;

the quality and reliability of our ~~services,~~services;

customer cancellations and rate of ~~churn,~~customer churn;

our ability to scale our ~~business,~~business;

customer acquisition ~~costs,~~costs;

our reliance on infrastructure of third-party network services ~~providers,~~providers;

risk of failure in our physical ~~infrastructure,~~infrastructure;

risk of defects or bugs in our ~~software,~~software;

our ability to maintain the compatibility of our software with third-party applications and mobile ~~platforms,~~platforms;

continued compliance with industry standards and regulatory, including privacy, requirements in the United States and foreign countries in which we make our cloud software and services solutions available, and the costs of such ~~compliance,~~compliance;

risks relating to the acquisition and integration of businesses we have acquired ~~(most recently,~~(for example, Wavecell Pte. Ltd.) or may acquire in the future, particularly if the acquired business operates in a different product market space from us or is based in a region where we do not have significant ~~operations,~~operations;

the amount and timing of costs associated with recruiting, training and integrating new ~~employees,~~employees;

timing and extent of improvements in operating results from increased spending in marketing, sales, and research and ~~development,~~development;

upfront investments, including the cost to support new strategic initiatives such as our cloud migration program with Poly and Scansource, to acquire more customers may not result in additional revenue from new or existing customers;

introduction and adoption of our cloud software solutions in markets outside of the United ~~States,~~States;

risk of cybersecurity ~~breaches,~~breaches;

risks related to our senior convertible notes and the related capped call ~~transactions,~~transactions;

general economic conditions that could adversely affect our business and operating ~~results,~~results;

implementation and effects of new accounting standards and policies in our reported financial ~~results,~~results; and

potential future intellectual property infringement claims and other litigation that could adversely impact our business and operating results.

~~The forward-looking statements may also be impacted by~~Please refer to the "Risk Factors" section of our annual report on Form 10-K for the fiscal year ended March 31, 2019, and subsequent Securities and Exchange Commission ("SEC") filings for additional ~~risks faced by us as described in this Quarterly Report, including those set forth under the section entitled "Risk Factors."~~factors that could materially affect our financial performance. All forward-looking statements included in this Quarterly Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this Quarterly Report, refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2020 refers to the fiscal

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year ended March 31, 2020). Unless the context requires otherwise, references to "we," "us," "our," "8x8" and the "Company" refer to 8x8, Inc. and its consolidated subsidiaries.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

8X8, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	June 30, 2019			March 31, 2019			December 31, 2019			March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	269,025		$	276,583		$	184,794		$	276,583
Restricted cash, current							3,459			—
Short-term investments	27,486			69,899			30,283			69,899
Accounts receivable, net	23,361			20,181			37,384			20,181
Deferred sales commission costs	16,815			15,601			20,749			15,601
Other current assets	20,441			15,127			25,712			15,127
Total current assets	357,128			397,391			302,381			397,391
Property and equipment, net	57,717			52,835			89,776			52,835
Operating lease, right-of-use assets	18,058			—			77,062			—
Intangible assets, net	10,125			11,680			26,455			11,680
Goodwill	39,403			39,694			131,000			39,694
Long-term investments	21,667			—			20,126			—
Restricted cash	8,100			8,100
Restricted cash, non-current							15,558			8,100
Deferred sales commission costs, non-current	36,843			33,693			48,656			33,693
Other assets	9,452			2,965			21,485			2,965
Total assets	$	558,493		$	546,358		$	732,499		$	546,358
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	32,723		$	32,280		$	50,334		$	32,280
Accrued compensation	22,088			18,437			24,392			18,437
Accrued taxes	11,602			13,862			11,670			13,862
Operating lease liabilities, current	7,063			—			4,320			—
Deferred revenue	4,088			3,336			7,216			3,336
Other accrued liabilities	11,270			6,790			23,704			6,790
Total current liabilities	88,834			74,705			121,636			74,705

Operating lease liabilities, non-current	12,044			—			86,187			—
Convertible senior notes, net	219,208			216,035			287,464			216,035
Other liabilities, non-current	8,260			6,228			17,721			6,228
Total liabilities	328,346			296,968			513,008			296,968
Commitments and contingencies (Note 7)
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock	97			96			101			96
Additional paid-in capital	522,501			506,949			598,525			506,949
Accumulated other comprehensive loss	(7,884		)	(7,353		)	(6,565		)	(7,353		)
Accumulated deficit	(284,567		)	(250,302		)	(372,570		)	(250,302		)
Total stockholders' equity	230,147			249,390			219,491			249,390
Total liabilities and stockholders' equity	$	558,493		$	546,358		$	732,499		$	546,358

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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8X8, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts; unaudited)


	Three Months Ended June 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018			2019			2018
Service revenue	$	92,372		$	78,121		$	113,566		$	85,911		$	310,467		$	245,378
Product revenue	4,303			5,104			5,001			4,001			14,292			13,441
Total revenue	96,675			83,225			118,567			89,912			324,759			258,819
Cost of revenue and operating expenses:
Cost of service revenue	31,967			24,549			49,326			27,632			124,488			78,383
Cost of product revenue	5,724			6,281			6,893			5,318			19,119			16,996
Research and development	18,331			13,050			19,870			16,886			57,635			43,999
Sales and marketing	53,599			40,495			63,099			46,276			174,593			128,451
General and administrative	19,607			14,833			22,547			18,038			62,589			53,198
Total operating expenses	129,228			99,208			161,735			114,150			438,424			321,027
Loss from operations	(32,553		)	(15,983		)	(43,168		)	(24,238		)	(113,665		)	(62,208		)
Other (expense) income, net	(1,564		)	719			(3,623		)	579			(7,919		)	1,933
Loss before provision for income taxes	(34,117		)	(15,264		)	(46,791		)	(23,659		)	(121,584		)	(60,275		)
Provision for income taxes	148			91			280			112			684			333
Net loss	$	(34,265	)	$	(15,355	)	$	(47,071	)	$	(23,771	)	$	(122,268	)	$	(60,608	)
Net loss per share:
Basic and diluted	$	(0.36	)	$	(0.16	)	$	(0.47	)	$	(0.25	)	$	(1.23	)	$	(0.64	)
Weighted-average common shares outstanding:
Basic and diluted	96,429			93,064			99,922			95,370			99,082			94,093

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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8X8, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)


	Three Months Ended June 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018			2019			2018
Net loss	$	(34,265	)	$	(15,355	)	$	(47,071	)	$	(23,771	)	$	(122,268	)	$	(60,608	)
Other comprehensive loss, net of tax
Unrealized gain on investments in securities	121			113
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities							(12		)	(101		)	106			160
Foreign currency translation adjustment	(652		)	(1,672		)	4,587			(549		)	682			(2,600		)
Comprehensive loss	$	(34,796	)	$	(16,914	)	$	(42,496	)	$	(24,421	)	$	(121,480	)	$	(63,048	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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8X8, ~~INC.~~Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares, unaudited)


	Common Stock		Additional Paid-in Capital	Accumulated Other Comprehensive Loss		Accumulated Deficit		Total		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
	Shares	Amount								Shares	Amount
Balance at March 31, 2019	96,119,888	96	506,949	(7,353	)	(250,302	)	249,390		96,119,888	$	96	$	506,949		$	(7,353	)	$	(250,302	)	$	249,390
Issuance of common stock under stock plans, less withholding	451,308	1	1,493	—		—		1,494		451,308	1		1,493			—			—			1,494
Stock-based compensation expense	—	—	14,059	—		—		14,059		—	—		14,059			—			—			14,059
Unrealized investment gain (loss)	—	—	—	121		—		121
Unrealized investment gain										—	—		—			121			—			121
Foreign currency translation adjustment	—	—	—	(652	)	—		(652	)	—	—		—			(652		)	—			(652		)
Net loss	—	—	—	—		(34,265	)	(34,265	)	—	—		—			—			(34,265		)	(34,265		)
Balance at June 30, 2019	96,571,196	97	522,501	(7,884	)	(284,567	)	230,147		96,571,196	97		522,501			(7,884		)	(284,567		)	230,147
Issuance of common stock under stock plans, less withholding										1,761,483	2		(790		)	—			—			(788		)
Stock-based compensation expense										—	—		17,867			—			—			17,867
Issuance of common stock related to acquisitions										1,476,009	1		35,838			—			—			35,839
Unrealized investment loss										—	—		—			(3		)	—			(3		)
Foreign currency translation adjustment										—	—		—			(3,253		)	—			(3,253		)
Net loss										—	—		—			—			(40,932		)	(40,932		)
Balance at September 30, 2019										99,808,688	100		575,416			(11,140		)	(325,499		)	238,877
Issuance of common stock under stock plans, less withholding										976,272	1		139			—			—			140
Stock-based compensation expense										—	—		19,881			—			—			19,881
Equity component of convertible senior notes, net of issuance costs										—	—		3,089			—			—			3,089
Unrealized investment loss										—	—		—			(12		)	—			(12		)
Foreign currency translation adjustment										—	—		—			4,587			—			4,587
Net loss										—	—		—			—			(47,071		)	(47,071		)
Balance at December 31, 2019										100,784,960	$	101	$	598,525		$	(6,565	)	$	(372,570	)	$	219,491

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Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Shares Amount
Balance at March 31, 2018 92,847,354
93
425,790
(5,645 ) (201,464 ) 218,774
Issuance of common stock under stock plans, less withholding 403,377
—
777
—
—
777
Stock-based compensation expense —
—
9,304
—
—
9,304
Unrealized investment gain (loss) —
—
—
113
—
113
Foreign currency translation adjustment —
—
—
(1,672 ) —
(1,672 )
Adjustment from adoption of ASU 2016-9 —
—
—
—
39,901
39,901
Net loss —
—
—
—
(15,355 ) (15,355 )
Balance at June 30, 2018 93,250,731
93
435,871
(7,204 ) (176,918 ) 251,842

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~8X8, Inc.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands, unaudited)~~

Three Months Ended June 30,
2019 2018
Cash flows from operating activities:

Net loss $ (34,265 ) $ (15,355 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation 2,325
2,061
Amortization of intangible assets 1,524
1,432
Amortization of capitalized software 3,805
1,685
Amortization of debt discount and issuance costs 3,173
—
Amortization of deferred sales commission costs 4,189
3,253
Operating lease expense, net of accretion 2,085
—
Non-cash lease expenses —
1,200
Stock-based compensation 13,597
8,911
Other 1,026
372
Changes in assets and liabilities:
Accounts receivable, net (3,765 ) (1,497 )
Deferred sales commission costs (8,707 ) (5,052 )
Other current and non-current assets (5,740 ) (419 )
Accounts payable and accruals (588 ) 3,905
Deferred revenue 832
293
          Net cash (used in) provided by operating activities (20,509 ) 789
Cash flows from investing activities:
Purchases of property and equipment (1,984 ) (1,223 )
Purchase of businesses —
(2,625 )
Capitalized software development costs (7,738 ) (5,112 )
Proceeds from maturities of investments 4,600
18,400
Proceeds from sales of investments 29,793
11,914
Purchases of investments (13,500 ) (19,534 )
          Net cash provided by investing activities 11,171
1,820
Cash flows from financing activities:
Finance lease payments (130 ) (277 )
Tax-related withholding of common stock (23 ) (229 )
Proceeds from issuance of common stock under employee stock plans 1,520
1,007
          Net cash provided by financing activities 1,367
501
Effect of exchange rate changes on cash 413
(256 )
Net (decrease) increase in cash and cash equivalents, and restricted cash (7,558 ) 2,854
Cash, cash equivalents, and restricted cash at the beginning of the period 284,683
39,803
Cash, cash equivalents, and restricted cash at the end of the period $ 277,125
$ 42,657
Supplemental cash flow information
Income taxes paid $ 218
$ 127



	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
	Shares	Amount
Balance at March 31, 2018	92,847,354	$	93	$	425,790		$	(5,645	)	$	(201,464	)	$	218,774
Issuance of common stock under stock plans, less withholding	403,377	—		777			—			—			777
Stock-based compensation expense	—	—		9,304			—			—			9,304
Unrealized investment gain	—	—		—			113			—			113
Foreign currency translation adjustment	—	—		—			(1,672		)	—			(1,672		)
Adjustment from adoption of ASU 2016-9	—	—		—			—			39,901			39,901
Net loss	—	—		—			—			(15,355		)	(15,355		)
Balance at June 30, 2018	93,250,731	93		435,871			(7,204		)	(176,918		)	251,842
Issuance of common stock under stock plans, less withholding	1,840,387	1		(596		)	—			—			(595		)
Stock-based compensation expense	—	—		9,829			—			—			9,829
Unrealized investment gain	—	—		—			149			—			149
Foreign currency translation adjustment	—	—		—			(379		)	—			(379		)
Net loss	—	—		—			—			(21,482		)	(21,482		)
Balance at September 30, 2018	95,091,118	94		445,104			(7,434		)	(198,400		)	239,364
Issuance of common stock under stock plans, less withholding	418,105	1		(281		)	—			—			(280		)
Stock-based compensation expense	—	—		13,066			—			—			13,066
Unrealized investment loss	—	—		—			(101		)	—			(101		)
Foreign currency translation adjustment	—	—		—			(549		)	—			(549		)
Net loss	—	—		—			—			(23,771		)	(23,771		)
Balance at December 31, 2018	95,509,223	$	95	$	457,889		$	(8,084	)	$	(222,171	)	$	227,729

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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8X8, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



	Nine Months Ended December 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(122,268	)	$	(60,608	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	6,801			6,464
Amortization of intangible assets	6,149			4,551
Amortization of capitalized software	13,263			6,452
Amortization of debt discount and issuance costs	9,987			—
Amortization of deferred sales commission costs	13,805			—
Operating lease expense, net of accretion	10,676			—
Non-cash lease expenses	—			3,601
Stock-based compensation	50,305			31,574
Other	2,671			873
Changes in assets and liabilities:
Accounts receivable, net	(8,776		)	(3,965		)
Deferred sales commission costs	(33,651		)	(7,234		)
Other current and non-current assets	(24,780		)	(2,565		)
Accounts payable and accruals	7,876			13,198
Deferred revenue	5,106			986
Net cash used in operating activities	(62,836		)	(6,673		)
Cash flows from investing activities:
Purchases of property and equipment	(22,853		)	(5,778		)
Purchase of businesses	(58,853		)	(5,625		)
Capitalized software development costs	(22,784		)	(18,210		)
Proceeds from maturities of investments	16,195			44,850
Proceeds from sales of investments	33,117			41,780
Purchases of investments	(29,658		)	(52,353		)
Net cash (used in) provided by investing activities	(84,836		)	4,664
Cash flows from financing activities:
Finance lease payments	(312		)	(771		)
Tax-related withholding of common stock	(6,186		)	(7,631		)
Proceeds from issuance of common stock under employee stock plans	7,035			7,372
Net proceeds from issuance of convertible senior notes	65,305			—
Net cash provided by (used in) financing activities	65,842			(1,030		)
Effect of exchange rate changes on cash	958			(339		)
Net decrease in cash and cash equivalents, and restricted cash	(80,872		)	(3,378		)
Cash, cash equivalents, and restricted cash at the beginning of the period	284,683			39,803
Cash, cash equivalents, and restricted cash at the end of the period	$	203,811		$	36,425
Supplemental cash flow information
Income taxes paid	$	719		$	290
Interest paid	647			—
Right of use assets obtained in exchange for new operating lease liabilities	64,869			—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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8X8, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

8x8, Inc. ("8x8" or the "Company") was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company conducts its operations through ~~one~~1 reportable segment.

The Company is a leading cloud provider of enterprise Software-as-a-Service ~~(SaaS)~~("SaaS") communications solutions, that enable businesses of all sizes to communicate faster and smarter across voice, contact center, video meetings, ~~chat~~messaging, and ~~contact centers,~~communication APIs, transforming both employee and customer experiences with communications that work simply, integrate seamlessly, and perform reliably. From one proprietary cloud technology platform, customers have access to unified communications, team collaboration, video conferencing, contact center, data and analytics, communication APIs, and other services. Since fiscal 2004, substantially all revenue has been generated from the sale of communications services and related hardware. Prior to fiscal 2003, the Company's main business was Voice over Internet Protocol semiconductors.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2020 refers to the fiscal year ending March 31, 2020).

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2019 with the exception of new lease accounting guidance discussed in the recently adopted accounting principles section below. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the ~~Securities and Exchange Commission (the "SEC"),~~SEC, regarding interim financial reporting.

In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations, and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2019 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and does not include all of the disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2019 and notes thereto included in the Company's fiscal 2019 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

~~The condensed consolidated financial statements include the accounts of 8x8 and its subsidiaries. All material intercompany accounts and transactions have been eliminated.~~

USE OF ESTIMATES

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to bad debts, returns reserve for expected cancellations, fair value of and/or potential impairment of goodwill and intangible assets, capitalization of internally developed software, benefit period for deferred commissions, stock-based compensation, discount rate used to calculate operating lease liabilities, income and sales tax liabilities, ~~stock-based compensation, and~~ convertible senior notes fair value, litigation, and other contingencies. The Company bases its estimates on known facts and circumstances, historical experience,

and on various other assumptions. Actual results could differ from those estimates under different assumptions or conditions.

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RECLASSIFICATIONS AND OTHER CHANGES

Certain prior year amounts in the ~~statement~~statements of cash flows have been reclassified to conform with current year presentation.

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on May 21, 2019, and there have been no changes to the Company's significant accounting policies during the three and nine months ended ~~June 30,~~December 31, 2019 except for the accounting policies described below that were updated as a result of adopting Accounting Standards Update ("ASU") 2016-02, Leases. All amounts and disclosures set forth herein are in compliance with this standard.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Effective April 1, 2019, the Company adopted ASU No. 2016-02 (“ASU 2016-02”), Leases using the modified retrospective transition approach utilizing the effective date as the date of initial application. ASU 2016-02 establishes a new lease accounting model for leases, which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet, but lease expense will be recognized on the income statement in a manner similar to previous requirements. Prior years presented have not been adjusted for ASU 2016-02 and continue to be reported in accordance with our historical accounting policy.

The new standard provides a number of optional practical expedients in transition. The Company has elected ~~the package of~~certain practical expedients permitted under the new lease standard, which among other things, allows the carryforward of the historical lease classification. As a result, there was no impact to opening retained earnings. The new standard also provides a practical expedient for an entity’s ongoing accounting. The Company has elected such practical expedient to not separate lease and non-lease components for all leases. It also made an accounting policy election to not recognize right-of-use assets and lease liabilities on the balance sheet for leases with a term of 12 months or less and will recognize lease payments as an expense on a straight-line basis over the lease term.

The adoption of the new lease standard resulted in the recognition of right-of-use assets and lease liabilities of approximately $20.0 million and $21.4 million, respectively, for existing operating leases. The Company does not have significant finance lease right-of-use assets or liabilities. The adoption of the new lease standard did not have a material impact on the Company's accumulated deficit as of April 1, 2019. For additional information on leases and the impact of the new lease standard, refer to Note 6.7.

RECENT ACCOUNTING PRONOUNCEMENTS

In ~~August 2018,~~December 2019, the Financial Accounting Standards Board ~~("FASB"~~(the "FASB") issued ASU 2019-02, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020, which is fiscal 2022 for the Company; early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In November 2019, the FASB issued ASU 2019-08, Compensation - Stock Compensation (Topic 718). The amendment requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The amendments in this update are effective for fiscal years beginning after December 15, 2019, which is fiscal 2021 for the Company; early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which makes modifications to disclosure requirements on fair value measurements. The amendment is effective for public companies with fiscal years beginning after December 15, ~~2019. Early~~2019, which is fiscal 2021 for the Company; early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its ~~condensed~~ consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40), which reduces complexity for the accounting for costs of implementing a cloud computing service arrangement. The amendment is effective for public companies with fiscal years beginning after December 15, ~~2019. Early~~

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2019, which is fiscal 2021 for the Company; early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its ~~condensed~~consolidated financial statements.

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward‑looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018‑19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments—Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies treatment of certain credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief, which permits an entity, upon adoption of ASU 2016-13, to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets measured at amortized cost basis. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which included various narrow-scope improvements and clarifications. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). These ASUs are effective for annual and interim periods beginning after December 15, 2019, which is fiscal 2021 for the Company; early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

3. REVENUE RECOGNITION

Revenue Recognition

The Company recognizes service revenue, mainly from subscription services to its cloud-based voice, ~~call~~contact center, video, collaboration and ~~collaboration~~communication APIs solutions using the five-step model as prescribed by ASC ~~606:~~606, Revenue from Contracts with Customers:

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the contract;

• Determination of the transaction price;

• Allocation of the transaction price to the performance obligations in the contract; and

• Recognition of revenue when or as the Company satisfies a performance obligation.

The Company identifies performance obligations in contracts with customers, which may include subscription services and related usage, ~~product revenue~~products, and professional services. The transaction price is determined based on the amount the Company expects to be entitled to receive in exchange for transferring the promised services or products to the customer. The transaction price in the contract is allocated to each distinct performance obligation in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. Revenues are recorded based on the transaction price, excluding amounts collected on behalf of third parties such as sales and telecommunication taxes, which are collected on behalf of and remitted to governmental authorities. The Company usually bills its customers on a monthly basis. Contracts typically range from annual to multi-year agreements with payment terms of net ~~30 days~~30-days or less. The Company occasionally allows a 30-day period to cancel a subscription and return products shipped for a full refund.

Judgments and Estimates

The estimation of variable consideration for each performance obligation requires the Company to make subjective judgments. The Company has service-level agreements with customers warranting defined levels of uptime reliability and performance. Customers may get credits or refunds if the Company fails to meet such levels. If the services do not meet certain criteria, fees are subject to adjustment or refund representing a form of variable consideration. The Company may impose minimum revenue commitments ("MRC") on its customers at the inception of the contract. Thus, in estimating variable consideration for each of these performance obligations, the Company assesses both the probability of MRC occurring and the collectability of the MRC, of which both represent a form of variable consideration.

The Company enters into contracts with customers that regularly include promises to transfer multiple services and products, such as subscriptions, products, and professional services. For arrangements with multiple services, the

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Company evaluates whether the individual services qualify as distinct performance obligations. In its assessment of whether a service is a distinct performance obligation, the Company determines whether the customer can benefit from the service on its own or with other readily available resources, and whether the service is separately identifiable from other services in the contract. This evaluation requires the Company to assess the nature of each individual service offering and how the services are provided in the context of the contract, including whether the services are significantly integrated, highly interrelated, or significantly modify each other, which may require judgment based on the facts and circumstances of the contract.

When agreements involve multiple distinct performance obligations, the Company allocates arrangement consideration to all performance obligations at the inception of an arrangement based on the relative standalone selling prices ("SSP") of each performance obligation. Usage fees deemed to be variable consideration meet the allocation exception for variable consideration. Where the Company has standalone sales data for its performance obligations which are indicative of the price at which the Company sells a promised good or service separately to a customer, such data is used to establish SSP. In instances where standalone sales data is not available for a particular performance obligation, the Company estimates SSP by the use of observable market and cost-based inputs. The Company continues to review the factors used to establish list price and will adjust standalone selling price methodologies as necessary on a prospective basis.

Service Revenue

Service revenue from subscriptions to the Company's cloud-based technology platform is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Usage fees from our unified communications as a service ("UCaaS") and contact center as a service ("CCaaS") offerings, either bundled or not bundled, are recognized as revenue when ~~the Company has~~earned. Usage fees for our communication platform as a ~~right to invoice.~~service ("CPaaS") offerings are typically invoiced monthly in arrears and recognized as revenues when earned. Professional services for configuration, system integration, optimization, customer training or education are primarily billed on a fixed-fee basis and are performed by the Company directly or, alternatively, customers may also choose to perform these services themselves or engage their own third-party service providers. Professional services revenue is recognized over time as the services are rendered.

When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded as operating expenses against the contract asset (Accounts Receivable). In the normal course of business, the Company records revenue reductions for customer credits.

Product Revenue

The Company recognizes product revenue for telephony equipment at a point in time, when transfer of control has occurred, which is generally upon shipment. Sales returns are recorded as a reduction to revenue estimated based on historical experience.

Contract Assets

Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services or equipment for a reduced consideration at the onset of an arrangement, for example, when the initial month's services or equipment are discounted. Contract assets are included in other current or non-current assets in the condensed consolidated balance sheets, depending on if their reduction will be recognized during the succeeding twelve-month period or beyond.

Deferred Revenue

Deferred revenues represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services and professional and training services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues in the condensed consolidated balance sheets, with the remainder recorded as other non-current liabilities in the condensed consolidated balance sheets.

Costs to Obtain a Customer Contract

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized as current or non-current assets and amortized on a straight-line basis over the anticipated benefit period, which is five years. The benefit period was estimated by taking into consideration the

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length of customer contracts, technology lifecycle, and other factors. This amortization expense is recorded in sales and marketing expense within the Company's condensed consolidated statement of operations.

Disaggregation of Revenue

The Company disaggregates its revenue by geographic region. See Note 1213 for more information.

Contract Balances

The following table provides information about receivables, contract assets and deferred revenues from contracts with customers (in thousands):


	June 30, 2019		December 31, 2019
Accounts receivable, net	$	23,361	$	37,384
Contract assets	$	9,375
Contract assets - current			$	10,507
Contract assets - non-current			$	8,413
Deferred revenue - current	$	4,088	$	7,216
Deferred revenue - non-current	$	67	$	1,411

Changes in the contract assets and the deferred revenue balances during the ~~three~~nine months ended ~~June 30,~~December 31, 2019 are as follows (in thousands):


	June 30, 2019		March 31, 2019		$ Change		December 31, 2019		March 31, 2019		$ Change
Contract assets	$	9,375	$	5,717	$	3,658	$	18,920	$	5,717	$	13,203
Deferred revenue	$	4,155	$	3,342	$	813	$	8,627	$	3,342	$	5,285

The change in contract assets was primarily driven by the recognition of revenue that has not yet been ~~billed.~~billed, net of amounts billed during the period. The increase in deferred revenues was due to billings in advance of performance obligations being ~~satisfied.~~satisfied, net of revenue recognized for services rendered during the period. Revenues of ~~$2.7~~$2.9 million were recognized during the ~~three~~nine months ended ~~June 30,~~December 31, 2019, of which were included in the deferred revenues balance at the beginning of the period, which was offset by additional deferrals during the period.

Remaining Performance Obligations

The Company's subscription terms typically range from one to four years. Contract revenue as of ~~June 30,~~December 31, 2019 that has not yet been recognized was approximately ~~$190.0~~$245.0 million. This excludes contracts with an original expected length of one year or less. The Company expects to recognize revenue on most of the remaining performance obligation over the next 36 months.

4. FAIR VALUE MEASUREMENTS

Cash, cash equivalents, and available-for-sale investments (in thousands):


	Amortized		Gross Unrealized		Gross Unrealized			Estimated		Cash and Cash		Short-Term		Long-Term		Amortized		Gross Unrealized				Estimated		Cash and Cash		Short-Term		Long-Term
As of June 30, 2019	Costs		Gain		Loss			Fair Value		Equivalents		Investments		Investments
As of December 31, 2019																Costs		Gain		Loss		Fair Value		Equivalents		Investments
Cash	$	23,533	$	—	$	—		$	23,533	$	23,533	$	—	$	—	$	22,722	$	—	$	—	$	22,722	$	22,722	$	—	$	—
Level 1:
Money market funds	240,905		—		—			240,905		240,905		—		—		157,401		—		—		157,401		157,401		—		—
Treasury securities	2,910		2		—			2,912		—		—		2,912		6,498		13		—		6,511		—		—		6,511
Subtotal	267,348		2		—			267,350		264,438		—		2,912		186,621		13		—		186,634		180,123		—		6,511
Level 2:
Corporate bonds	40,128		122		(3		)	40,247		—		23,613		16,634		36,181		93		—		36,274		—		22,659		13,615
Commercial paper	6,176		—		(2		)	6,174		4,587		1,587		—		8,835		1		—		8,836		4,671		4,165		—
Municipal securities	2,098		23		—			2,121		—		—		2,121		1,345		—		—		1,345		—		1,345		—
Agency bond	2,289		—		(3		)	2,286		—		2,286		—
Agency bonds																2,099		15		—		2,114		—		2,114		—
Subtotal	50,691		145		(8		)	50,828		4,587		27,486		18,755		48,460		109		—		48,569		4,671		30,283		13,615
Total assets	$	318,039	$	147	$	(8	)	$	318,178	$	269,025	$	27,486	$	21,667	$	235,081	$	122	$	—	$	235,203	$	184,794	$	30,283	$	20,126

Amortized
Gross
Unrealized

Gross
Unrealized
Estimated
Cash and
Cash
Short-Term
As of March 31, 2019 Costs Gain Loss Fair Value Equivalents Investments
Cash $ 25,364
$ —
$ —
$ 25,364
$ 25,364
$ —
Level 1:
Money market funds 251,219
—
—
251,219
251,219
—
     Subtotal 276,583
—
—
276,583
276,583
—
Level 2:
Corporate debt 46,516
51
(29 ) 46,538
—
46,538
Municipal securities 5,511
17
—
5,528
—
5,528
Asset backed securities 13,596
9
(17 ) 13,588
—
13,588
Agency bond 4,260
—
(15 ) 4,245
—
4,245
     Subtotal 69,883
77
(61 ) 69,899
—
69,899
     Total assets $ 346,466
$ 77
$ (61 ) $ 346,482
$ 276,583
$ 69,899
15

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~~Contractual maturities of investments as of June 30, 2019 are set forth below (in thousands):~~

Estimated
Fair Value
Due within one year $ 27,486
Due after one year 21,667
Total $ 49,153



	Amortized		Gross Unrealized		Gross Unrealized			Estimated		Cash and Cash		Short-Term
As of March 31, 2019	Costs		Gain		Loss			Fair Value		Equivalents		Investments
Cash	$	25,364	$	—	$	—		$	25,364	$	25,364	$	—
Level 1:
Money market funds	251,219		—		—			251,219		251,219		—
Subtotal	276,583		—		—			276,583		276,583		—
Level 2:
Corporate debt	46,516		51		(29		)	46,538		—		46,538
Municipal securities	5,511		17		—			5,528		—		5,528
Asset backed securities	13,596		9		(17		)	13,588		—		13,588
Agency bonds	4,260		—		(15		)	4,245		—		4,245
Subtotal	69,883		77		(61		)	69,899		—		69,899
Total assets	$	346,466	$	77	$	(61	)	$	346,482	$	276,583	$	69,899

Historically, the Company had maintained all investments as short-term investments on its balance sheet, as the Company could liquidate these investments at any time and did not limit its liquidation of investments by contractual maturity date. Given the recent issuance of the convertible senior ~~note,~~notes, and the associated increased cash, cash equivalents and investment ~~balances. The~~balances, the Company expects to hold certain investments for at least ~~12-months~~12 months from the reporting date and ~~will record~~records these investments in ~~either short-term or~~ long-term investments in ~~alignment~~accordance with the contractual maturity dates.

As of ~~June 30,~~December 31, 2019, the estimated fair value of the Company's outstanding convertible senior notes ~~(the Notes)~~("the Notes") was ~~$219.2~~$362.3 million. The estimated fair value of the Notes was determined based on the closing price for the Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

5. ~~INTANGIBLE ASSETS AND GOODWILL~~BUSINESS COMBINATIONS

~~The carrying value of intangible assets consisted of the following (in thousands):~~

June 30, 2019 March 31, 2019
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount
Technology $ 19,894
$ (10,911 ) $ 8,983
$ 25,702
$ (15,409 ) $ 10,293
Customer relationships 6,125
(4,983 ) 1,142
9,467
(8,080 ) 1,387
Total acquired identifiable intangible assets $ 26,019
$ (15,894 ) $ 10,125
$ 37,277
$ (25,597 ) $ 11,680

~~At June 30, 2019, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):~~

Amount
Remaining 2020 $ 4,573
2021 3,557
2022 1,766
2023 229
Total $ 10,125

~~The following table provides a summary of the changes in the carrying amounts of goodwill (in thousands):~~

Total
Balance at March 31, 2019 $ 39,694
Foreign currency translation (291 )
Balance at June 30, 2019 $ 39,403

~~6. RIGHT-OF-USE ASSETS AND LEASES~~

The Company primarily leases facilities for office and data center space under non-cancellable operating leases for its U.S. and international locations that expire at various dates through 2026. For leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability based on the present value of lease payments over the lease term. The Company’s leases have remaining terms of one to seven years and some of the leases include a Company option to extend the lease term for one to five years, or more, which if reasonably certain to exercise, the Company includes in the determination of lease payments. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide a readily determinable implicit rate, the Company uses the incremental borrowing rate at lease commencement, which was determined using a portfolio approach, based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the implicit rate when a rate is readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-term leases is recognized on a straight-line basis over the lease term. Common area maintenance fees (or CAMs) and other charges related to these leases continue to be expensed as incurred. Short-term lease expense was not material to the Company’s condensed consolidated statements of operations for the three months ended June 30, 2019. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred.

~~The following table provides the components of the Company's lease right-of-use assets and liabilities as of June 30, 2019 (in thousands):~~

June 30, 2019
Assets
Operating lease, right-of-use assets $ 18,058

Liabilities
Operating lease liabilities, current $ 7,063
Operating lease liabilities, non-current 12,044
Total operating lease liabilities $ 19,107

During the three months ended June 30, 2019, operating lease expense was approximately $2.1 million. Variable lease cost and short-term lease cost were immaterial during the three months ended June 30, 2019.

~~The following table presents supplemental information for the three months ended June 30, 2019 (in thousands, except for weighted average):~~

Weighted average remaining lease term 3.9 years
Weighted average discount rate 4.0%
Cash paid for amounts included in the measurement of lease liabilities $ 2,252
Operating cash flow from operating leases $ 2,252

~~The following table presents maturity of lease liabilities under the Company's non-cancelable operating leases as of June 30, 2019 (in thousands):~~

Remaining 2020 $ 6,008
2021 5,666
2022 4,275
2023 1,381
2024 1,111
Thereafter 2,221
Total lease payments $ 20,662
Less: imputed interest (1,555 )
Present value of lease liabilities $ 19,107

As of June 30, 2019, the Company does not have any additional operating leases that have not yet commenced and as such, have not yet been recognized on the Company’s condensed condensed consolidated balance sheet.

The Company's lease agreement (the "Agreement") with CAP Phase I, a Delaware limited liability company (the "Landlord") for the Coleman property is not included in the right-of-use assets and operating lease liabilities as of June 30, 2019. On April 30, 2019, the Company entered into an assignment and assumption of the Company's previously executed lease agreement with the Landlord, and Roku Inc., a Delaware corporation ("Roku"), whereby the Company assigned to Roku this lease that had been executed between the Company and the Landlord on January 23, 2018. Pursuant to the Agreement, the Company expects to be released from all of its obligations under the Lease and related standby letter of credit by the end of the Company’s fiscal year ending March 31, 2022 or shortly thereafter. The Company has entered into a new lease for its headquarters in Campbell, California, see note 13.

~~7. COMMITMENTS AND CONTINGENCIES~~

~~Other Commitments, Indemnifications and Contingencies~~

From time to time, the Company receives inquiries from various state and municipal taxing agencies with respect to the remittance of sales, use, telecommunications, excise, and income taxes. Several jurisdictions currently are conducting tax audits of the Company's records. The Company collects from its customers or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the

~~accruals established by the Company. The Company adjusts its accrued taxes when facts relating to specific exposures warrant such adjustment.~~

~~Legal Proceedings~~

The Company, from time to time may be involved in a variety of claims, lawsuits, investigations and other proceedings, including patent infringement claims, employment litigation, regulatory compliance matters and contractual disputes, that can arise in the normal course of the Company's operations.

Litigation is inherently unpredictable and subject to significant uncertainties, and there can be no assurances that favorable final outcomes will be obtained. Future litigation could be costly to defend, could impose significant burdens on employees and cause the diversion of management's attention, and could upon resolution have a material adverse effect on the Company's business, results of operations, financial condition and cash flows.

~~8. CONVERTIBLE SENIOR NOTES AND CAPPED CALL~~

~~Convertible Senior Notes~~

In February 2019, the Company issued $287.5 million aggregate principal amount of 0.50% convertible senior notes (the "Notes") due 2024 in a private placement, including the exercise in full of the initial purchasers' option to purchase additional notes. The Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2019. The Notes will mature on February 1, 2024, unless earlier repurchased, redeemed, or converted. The total net proceeds from the debt offering, after deducting initial purchase discounts, debt issuance costs, and costs of the capped call transactions described below, were approximately $245.8 million.

Each $1,000 principal amount of the Notes is initially convertible into 38.9484 shares of the Company’s common stock, par value $0.001, which is equivalent to an initial conversion price of approximately $25.68 share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of certain corporate events that occur prior to the maturity date or following the Company's issuance of a notice of redemption, in each case as described in the Indenture, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Notes in connection with such a corporate event or during the relevant redemption period.

The Notes will be convertible at certain times and upon the occurrence of certain events in the future. Further, on or after October 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, regardless of the foregoing circumstances.

Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at the Company's election. The Company’s current intent is to settle the principal amount of the Notes in cash upon conversion.

~~During the three months ended June 30, 2019, the conditions allowing holders of the Notes to convert were not met.~~

~~The Company may not redeem the Notes prior to February 4, 2022. On or after February 4, 2022, the~~ Company may redeem for cash all or part of the Notes, at the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice. If a fundamental change (as defined in the indenture governing the notes) occurs at any time, holders of Notes may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment with the Company’s existing and future liabilities that are not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

~~The net carrying amount of the liability component of the Notes was as follows (in thousands):~~

June 30, 2019 March 31, 2019
Principal $ 287,500
$ 287,500
Unamortized debt discount (67,730 ) (70,876 )
Unamortized issuance costs (562 ) (589 )
Net carrying amount $ 219,208
$ 216,035

~~Interest expense related to the Notes was as follows (in thousands):~~

Three Months Ended June 30, 2019
Contractual interest expense $ 359
Amortization of debt discount 3,146
Amortization of issuance costs 26
Total interest expense $ 3,531

~~Capped Call~~

In connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions ("Capped Calls") with certain counterparties. The Capped Calls each have an initial strike price of approximately $25.68 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $39.50 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Common Stock upon any conversion of the Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 11.2 million shares of the Company’s Common Stock. The Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $33.7 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.

~~9. STOCK-BASED COMPENSATION~~

The following tables summarize information pertaining to the stock-based compensation expense from stock options and stock awards (in thousands, except weighted-average grant-date fair value and recognition period):

Three Months Ended June 30,
2019 2018
Cost of service revenue $ 1,731
$ 1,026
Research and development 3,864
2,194
Sales and marketing 3,921
2,398
General and administrative 4,081
3,293
Total $ 13,597
$ 8,911

Three Months Ended June 30,
2019 2018
Stock options outstanding at the beginning of the period: 3,114
3,998
Options granted —
81
Options exercised (124 ) (115 )
Options canceled and forfeited (16 ) (73 )
Options outstanding at the end of the period: 2,974
3,891
Weighted-average fair value of grants during the period $ —
$ 8.57
Total intrinsic value of options exercised during the period $ 1,402
$ 1,186
Weighted-average remaining recognition period at period-end (in years) 2.46
2.35

Stock awards outstanding at the beginning of the period: 7,820
5,939
Stock awards granted 1,147
948
Stock awards vested (329 ) (299 )
Stock awards canceled and forfeited (445 ) (168 )
Stock awards outstanding at the end of the period: 8,193
6,420
Weighted-average fair value of grants during the period $ 22.40
$ 22.20
Weighted-average remaining recognition period at period-end (in years) 2.11
2.40
Total unrecognized compensation expense at period-end $ 109,422
$ 67,025

~~Stock Repurchases~~

In May 2017, the Company's board of directors authorized the Company to purchase up to $25.0 million of its common stock from time to time (the "2017 Repurchase Plan"). The 2017 Repurchase Plan expires when the maximum purchase amount is reached, or upon the earlier revocation or termination by the board of directors. The remaining amount available under the 2017 Repurchase Plan at June 30, 2019 was approximately $7.1 million. There were no stock repurchases under the 2017 Repurchase Plan during the three month period ended June 30, 2019.

~~10. INCOME TAXES~~

The Company's effective tax rate was -0.4% and -0.6% for the three months ended June 30, 2019 and 2018, respectively. The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company continues to maintain against its deferred tax assets. The effective tax rate is calculated by dividing the income tax provision by net loss before income tax expense.

~~11. NET LOSS PER SHARE~~

~~The following table summarizes the computation of basic and diluted net loss per share (in thousands, except share and per share data):~~

Three Months Ended June 30,
2019 2018
Numerator:
Net loss available to common stockholders $ (34,265 ) $ (15,355 )
Denominator:
Common shares - basic and diluted 96,429
93,064
Net loss per share
Basic and diluted $ (0.36 ) $ (0.16 )

The following shares attributable to outstanding stock options and stock awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

Three Months Ended June 30,
2019 2018
Stock options 2,974
3,891
Stock awards 8,188
6,420
Potential shares to be issued from ESPP 636
620
Total anti-dilutive shares 11,798
10,931

~~12. GEOGRAPHICAL INFORMATION~~

~~The following tables set forth the geographic information for each period (in thousands):~~

Three Months Ended June 30,
2019 2018
Revenue by geographic area:
Americas (principally US) $ 86,736
$ 74,865
Europe (principally UK) 9,939
8,360
$ 96,675
$ 83,225

June 30, 2019 March 31, 2019
Property and equipment by geographic area:
Americas (principally US) $ 50,866
$ 45,639
Europe (principally UK) 6,851
7,196
$ 57,717
$ 52,835

~~13. SUBSEQUENT EVENTS~~

~~New Company Headquarters~~

On July 3, 2019, the Company entered into a lease for a new company headquarters to rent approximately 177,815 square feet of office space as the sole tenant in a new five-story office building located at 675 Creekside Way, Campbell, CA 95008. The Company plans to move to this new location by March 31, 2020.

The lease is for a 132-month term, anticipated to begin on January 1, 2020. The Company has the option to extend the lease for two additional five-year terms, on substantially the same terms and conditions as the prior term, but with the base rent rate adjusted to fair market value at that time.

Base rent is approximately $657,900 per month for the first 12 months of the lease, with the rate increasing by approximately 3% on each anniversary of the lease. The Company is responsible for paying its share of building and common area expenses. The Company is entitled to full rent abatement during the first 12 months of the lease term. The Company is also entitled to a tenant improvement allowance of approximately $15.4 million. The Company will pay to the landlord a security deposit in the amount of approximately $2 million, which may be drawn down in the event the Company defaults under the lease.

Wavecell Acquisition

On July 17, 2019, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Wavecell Pte. Ltd., a corporation incorporated under the laws of the Republic of Singapore (“Wavecell”), the equity holders of Wavecell (collectively, the “Sellers”), and Qualgro Partners Pte. Ltd., in its capacity as the representative of the equity holders of Wavecell. Pursuant to the Share Purchase Agreement, the Company acquired all of the outstanding shares and other equity interests of Wavecell (the “Transaction”) ~~for~~. This Transaction extends 8x8’s technology advantage as a fully-owned, cloud technology platform with UCaaS, CCaaS, video communication as a service ("VCaaS") and CPaaS solutions able to natively offer pre-packaged communications, contact center and video solutions and open APIs to embed these and other communications into an organization’s core business processes.

The total fair value of the purchase consideration of approximately ~~$125~~$117.1 million was comprised of approximately ~~$69.0~~$72.8 million in cash and ~~$56~~$44.3 million in shares of common stock of the Company, of which approximately $10.4 million in cash and $8.5 million in equity have been heldback to cover potential indemnity claims made by the Company after the closing date. One-third of these heldback amounts are eligible to be released in twelve months from the date of the Transaction and the remainder in eighteen months from the date of the Transaction. The heldback cash of $3.5 million and $6.9 million are recorded in restricted cash, current and restricted cash, non-current, respectively and other accrued liabilities and other liabilities, non-current, respectively, in the Company's condensed consolidated balance sheet. The holdback of $8.5 million in equity, of which $2.8 million is included in current other accrued liabilities, and $5.7 million is included in other liabilities, non-current, is reflected in the Company's condensed consolidated balance sheet. Additionally, in connection with the Transaction, the Company issued $13.2 million in time-based restricted stock awards and $6.6 million in performance based restricted stock awards all of which vest over the next three years, and which the Company will expense over the same such period.

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The major classes of assets and liabilities to which the Company has preliminarily allocated the fair value of purchase consideration were as follows (in thousands):



	July 17, 2019
Cash	$	4,473
Accounts receivable	9,438
Intangible assets	21,010
Other assets	787
Goodwill	91,060
Accounts payable	(9,548		)
Deferred revenue	(90		)
Total consideration	$	117,130

The acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair value on the acquisition date. The fair value of assets acquired and liabilities assumed from the acquisition of Wavecell is based on a preliminary valuation and, as such, the Company's estimates and allocations to certain assets, liabilities, and tax estimates are subject to change within the measurement period as additional information becomes available. The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of Wavecell and is not expected to be deductible for income tax purposes.

The preliminary value of the acquired intangible assets acquired are as follows (in thousands):



	Fair Value		Useful life (in Years)
Trade and domain names	$	990	3
Developed technology	13,830		7
Customer relationships	6,190		7
Total intangible assets	$	21,010

The Company incurred costs related to this acquisition of approximately $1.8 million during the nine months ended December 31, 2019. All acquisition related costs were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statements of operations.

The revenue and earnings of the acquired business have been included in the Company’s results since the acquisition date and are not material to the Company’s condensed consolidated financial results. Pro forma results of operations for this acquisition have not been presented, as the financial impact to the Company’s condensed consolidated financial statements is not material.

Jitsi Acquisition

On October 29, 2018, the Company entered into an Asset Purchase Agreement with Atlassian Corporation PLC ("Atlassian") through which the Company purchased certain assets from Atlassian. The asset purchase from Atlassian did not contribute materially to revenue or net loss from the date of acquisition to December 31, 2018.

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6. INTANGIBLE ASSETS AND GOODWILL

The carrying value of intangible assets consisted of the following (in thousands):



	December 31, 2019							March 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	33,685	$	(14,497	)	$	19,188	$	25,702	$	(15,409	)	$	10,293
Customer relationships	11,601		(5,297		)	6,304		9,467		(8,080		)	1,387
Trade and domain names	1,128		(165		)	963		2,108		(2,108		)	—
Total acquired identifiable intangible assets	$	46,414	$	(19,959	)	$	26,455	$	37,277	$	(25,597	)	$	11,680

At December 31, 2019, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):



	Amount
Remaining 2020	$	2,326
2021	6,755
2022	4,946
2023	3,162
2024	2,851
Thereafter	6,415
Total	$	26,455

The following table provides a summary of the changes in the carrying amounts of goodwill (in thousands):



	Total
Balance at March 31, 2019	$	39,694
Additions due to acquisitions	91,060
Foreign currency translation	246
Balance at December 31, 2019	$	131,000

7. RIGHT-OF-USE ASSETS AND LEASES

The Company primarily leases facilities for office and data center space under non-cancellable operating leases for its U.S. and international locations that expire at various dates through 2030. For leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability based on the present value of lease payments over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred. The Company’s leases have remaining terms of one to eleven years and some of the leases include a Company option to extend the lease term for less than twelve months to five years, or more, which if reasonably certain to exercise, the Company includes in the determination of lease payments. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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balance sheet information related to leases as of December 31, 2019 (in thousands):



	December 31, 2019
Assets
Operating lease, right-of-use assets	$	77,062

Liabilities
Operating lease liabilities, current	$	4,320
Operating lease liabilities, non-current	86,187
Total operating lease liabilities	$	90,507

During the three and nine months ended December 31, 2019, operating lease expense was approximately $4.4 million and $10.7 million, respectively. Variable lease cost and short-term lease cost were immaterial during the three and nine months ended December 31, 2019.

The following table presents supplemental information for the nine months ended December 31, 2019 (in thousands, except for weighted average):



Weighted average remaining lease term	9.2 years
Weighted average discount rate	4.0		%
Cash paid for amounts included in the measurement of lease liabilities	$	7,207
Operating cash flow from operating leases	$	7,207

The following table presents maturity of lease liabilities under the Company's non-cancellable operating leases as of December 31, 2019 (in thousands):



Remaining 2020	$	2,674
2021	8,609
2022	14,324
2023	11,724
2024	11,765
Thereafter	69,554
Total lease payments	$	118,650
Less: imputed interest	(22,003		)
Less: lease incentives receivable	(6,140		)
Present value of lease liabilities	$	90,507

The Company entered into an operating lease for an office space that has not yet commenced and as such, have not yet been recognized on the Company's condensed consolidated balance sheet as of December 31, 2019. The contractual obligation for this lease is $2.9 million.

The Company's lease agreement (the "Agreement") with CAP Phase I, a Delaware limited liability company (the "Landlord") for the Coleman property is not included in the right-of-use assets and operating lease liabilities as of December 31, 2019. On April 30, 2019, the Company entered into an assignment and assumption of the Company's previously executed lease agreement with the Landlord, and Roku Inc., a Delaware corporation ("Roku"), whereby the Company assigned to Roku this lease that had been executed between the Company and the Landlord on January 23, 2018. Pursuant to the Agreement, the Company expects to be released from all of its obligations under the lease and related standby letter of credit by the end of the Company’s fiscal year ending March 31, 2022, or shortly thereafter.

On July 3, 2019, the Company entered into a lease for a new company headquarters to rent 177,815 square feet of office space as the sole tenant in a new 5-story office building located in Campbell, California.

The lease is for a 132-month term that started on January 1, 2020. The Company has the option to extend the lease for 2 additional five-year terms, on substantially the same terms and conditions as the prior term, with the base rent rate adjusted to fair market value at that time.

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Base rent is approximately $0.7 million per month for the first 12 months of the lease, with the rate increasing by approximately 3% on each anniversary of the lease. The Company is responsible for paying its share of building and common area expenses. The Company is entitled to full rent abatement during the first 12 months of the lease term. The Company is also entitled to a tenant improvement allowance of approximately $15.4 million. The Company paid to the landlord a security deposit in the amount of $2.0 million, which may be drawn down in the event the Company defaults under the lease. The Company recognized an operating lease right-of-use asset and operating lease liability during second quarter of fiscal 2020, when the Company was given full access to the leased property. This new lease increased our operating lease right-of-use assets by $56.8 million and our operating lease liabilities by $56.1 million.

8. COMMITMENTS AND CONTINGENCIES

Other Commitments, Indemnifications and Contingencies

From time to time the Company receives inquiries from various state and municipal taxing agencies with respect to the remittance of sales, use, telecommunications, excise, and income taxes. Several jurisdictions currently are conducting tax audits of the Company's records. The Company collects from its customers or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company. The ~~Transaction~~Company adjusts its accrued taxes when facts relating to specific exposures warrant such adjustment.

Legal Proceedings

The Company from time to time may be involved in a variety of claims, lawsuits, investigations and other proceedings, including patent infringement claims, employment litigation, regulatory compliance matters and contractual disputes, that can arise in the normal course of the Company's operations. The Company accrues a liability when management believes information available prior to the issuance of the financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Legal costs are expensed as incurred.

As of December 31, 2019, the Company does not have any material provisions for any such lawsuits, claims and proceedings and believes it is not probable that a loss had been incurred. Litigation is inherently unpredictable and subject to significant uncertainties. While there can be no assurances that favorable final outcomes will be obtained, the Company believes it has valid defenses with respect to legal matters pending against it. Future litigation could be costly to defend, could impose significant burdens on employees and cause the diversion of management's attention, and could upon resolution have a material adverse effect on the Company's business, results of operations, financial condition and cash flows.

9. CONVERTIBLE SENIOR NOTES AND CAPPED CALL

Convertible Senior Notes

In February 2019, the Company issued $287.5 million aggregate principal amount of 0.50% convertible senior notes (the "Initial Notes") due 2024 in a private placement, including the exercise in full of the initial purchasers' option to purchase additional notes. The Initial Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2019. The Initial Notes will mature on February 1, 2024, unless earlier repurchased, redeemed, or converted. The total net proceeds from the debt offering, after deducting initial purchase discounts, debt issuance costs, and costs of the capped call transactions described below, were approximately $245.8 million.

In November 2019, the Company issued an additional $75 million aggregate principal amount of 0.50% convertible senior notes (the "Additional Notes" and together with the Initial Notes, the "Notes") due 2024 in a registered offering under the same indenture as the Initial Notes.The total net proceeds from the Additional Notes, after deducting underwriting discounts, debt issuance costs, and costs of the capped call transactions described below, were approximately $64.6 million. The Additional Notes constitute a further issuance of, and form a single series with, the Company’s outstanding 0.50% convertible senior notes due 2024 issued in February 2019 in the aggregate principal amount of $287.5 million.Immediately after giving effect to the issuance of the Additional Notes, the Company has $362.5 million aggregate principal amount of convertible senior notes.

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The Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2020. The Notes will mature on February 1, 2024, unless earlier repurchased, redeemed, or converted.

Each $1,000 principal amount of the Notes are initially convertible into 38.9484 shares of the Company’s common stock, par value $0.001, which is equivalent to an initial conversion price of approximately $25.68 per share. The conversion rate is subject to ~~customary purchase price adjustments~~adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and ~~escrow and holdback arrangements~~unpaid interest. In addition, upon the occurrence of certain corporate events that occur prior to the maturity date or following the Company's issuance of a notice of redemption, in each case as ~~provided~~described in the ~~Share Purchase Agreement. Upon~~Indenture, the ~~closing~~Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Notes in connection with such a corporate event or during the relevant redemption period.

Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of common stock, or a ~~wholly-owned subsidiary~~combination of cash and shares of common stock, at the Company's election. The Company’s current intent is to settle the principal amount of the ~~Company.~~ Notes in cash upon conversion.

During the three and nine months ended December 31, 2019, the conditions allowing holders of the Notes to convert were not met.

The ~~Share Purchase Agreement contains representations, warranties~~Company may not redeem the Notes prior to February 4, 2022. On or after February 4, 2022, the Company may redeem for cash all or part of the Notes, at the redemption price equal to 100% of the principal amount thereof, plus accrued and ~~covenants customary~~unpaid interest, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for ~~acquisitions~~at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of ~~this type.~~such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice. If a fundamental change (as defined in the indenture governing the notes) occurs at any time, holders of Notes may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes, equal in right of payment with the Company’s existing and future liabilities that are not so subordinated, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

~~8x8 issued~~The net carrying amount of the liability component of the Notes was as follows (in thousands):



	December 31, 2019			March 31, 2019
Principal	$	362,500		$	287,500
Unamortized premium	1,323			—
Unamortized debt discount	(75,315		)	(70,876		)
Unamortized issuance costs	(1,043		)	(589		)
Net carrying amount	$	287,465		$	216,035

Interest expense related to the Notes was as follows (in thousands):



	Three Months Ended			Nine Months Ended
	December 31, 2019			December 31, 2019
Contractual interest expense	$	400		$	1,119
Amortization of debt premium	(31		)	—
Amortization of debt discount	3,582			9,926
Amortization of issuance costs	40			92
Total interest expense	$	3,991		$	11,137

Capped Call

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In connection with the pricing of the Initial Notes and Additional Notes, the Company entered into privately negotiated capped call transactions ("Capped Calls") with certain counterparties. The Capped Calls each have an ~~aggregate~~initial strike price of ~~2,628,761~~approximately $25.68 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $39.50 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Common Stock upon any conversion of the Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 14.1 million shares of the Company’s Common Stock. The Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $33.7 million incurred to purchase the Capped Calls in connection with the Initial Notes and $9.3 million in connection with the Additional Notes were recorded as a reduction to additional paid-in capital and will not be remeasured.

10. STOCK-BASED COMPENSATION



	Three Months Ended December 31,				Nine Months Ended December 31,
	2019		2018		2019		2018
Cost of service revenue	$	2,226	$	1,562	$	5,896	$	3,967
Research and development	5,535		3,570		13,616		8,587
Sales and marketing	5,197		3,798		14,458		8,402
General and administrative	6,359		3,605		16,335		10,619
Total	$	19,317	$	12,535	$	50,305	$	31,575



	Nine Months Ended December 31,
	2019			2018
Stock options outstanding at the beginning of the period:	3,114			3,998
Options granted	—			222
Options exercised	(391		)	(641		)
Options canceled and forfeited	(55		)	(192		)
Options outstanding at the end of the period:	2,668			3,387
Weighted-average fair value of grants during the period	$	—		$	8.27
Total intrinsic value of options exercised during the period	$	4,844		$	9,148
Weighted-average remaining recognition period at period-end (in years)	2.16			2.53

Stock awards outstanding at the beginning of the period:	7,820			5,939
Stock awards granted	5,886			4,993
Stock awards vested	(2,860		)	(2,123		)
Stock awards canceled and forfeited	(1,056		)	(700		)
Stock awards outstanding at the end of the period:	9,790			8,109
Weighted-average fair value of grants during the period	$	22.35		$	20.05
Weighted-average remaining recognition period at period-end (in years)	2.13			2.40
Total unrecognized compensation expense at period-end	$	143,593		$	112,970

Stock Repurchases

In May 2017, the Company's board of directors authorized the Company to purchase up to $25.0 million of its common stock ~~in connection with~~from time to time (the "2017 Repurchase Plan"). The 2017 Repurchase Plan expires when the ~~closing~~maximum purchase amount is reached, or upon the earlier revocation or termination by the board of directors. The remaining amount available under the 2017 Repurchase Plan at December 31, 2019 was approximately $7.1

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million. There were 0 stock repurchases under the 2017 Repurchase Plan during the three and nine months ended December 31, 2019.

11. INCOME TAXES

The Company's effective tax rate was (0.6)% and (0.5)% for the three months ended December 31, 2019 and 2018, and (0.6)% and for each of the ~~Transaction, including certain~~nine months ended December 31, 2019 and 2018. The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company continues to maintain against its deferred tax assets. The effective tax rate is calculated by dividing the income tax provision by net loss before income tax expense.

12. NET LOSS PER SHARE

The following table summarizes the computation of basic and diluted net loss per share (in thousands, except share and per share data):



	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
Numerator:
Net loss available to common stockholders	$	(47,071	)	$	(23,771	)	$	(122,268	)	$	(60,608	)
Denominator:
Common shares - basic and diluted	99,922			95,370			99,082			94,093
Net loss per share
Basic and diluted	$	(0.47	)	$	(0.25	)	$	(1.23	)	$	(0.64	)



	Three Months Ended December 31,		Nine Months Ended December 31,
	2019	2018	2019	2018
Stock options	2,668	3,387	2,668	3,387
Stock awards	9,790	8,109	9,790	8,109
Contingently issuable shares (hold-back shares)	350	—	350	—
Potential shares to be issued from ESPP	387	—	387	—
Total anti-dilutive shares	13,195	11,496	13,195	11,496

13. GEOGRAPHICAL INFORMATION

The following tables set forth the geographic information for ~~employee retention purposes subject to vesting based on time-based and performance-based criteria for Wavecell employees.~~each period (in thousands):



	Three Months Ended December 31,				Nine Months Ended December 31,
	2019		2018		2019		2018
Revenue by geographic area:
United States	$	90,171	$	77,606	$	258,847	$	223,690
International	28,396		12,306		65,912		35,129
	$	118,567	$	89,912	$	324,759	$	258,819



	December 31, 2019		March 31, 2019
Property and equipment by geographic area:
United States	$	82,790	$	45,639
International	6,986		7,196
	$	89,776	$	52,835

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those ~~identified~~discussed below and elsewhere in this report, particularly those ~~discussed in “Forward-Looking Statements” and those discussed~~incorporated by reference into this Quarterly Report on Form 10-Q in the section ~~titled~~entitled “Risk Factors” discussed under Part II, Item 1A ~~in this Quarterly Report on Form 10-Q.~~below.

BUSINESS OVERVIEW

We are a leading ~~cloud~~software-as-a-service (“SaaS”) provider of voice, video, chat, contact center, and enterprise-class API solutions powered by one global cloud communications platform. From ~~one~~our proprietary cloud technology platform, ~~customers~~organizations across all their locations and employees have access to unified communications, team collaboration, video conferencing, contact center, data and analytics, communication APIs, and other ~~services.~~services, enabling them to be more productive and responsive to their customers.

~~As of June 30, 2019, our~~Our customers ~~are spread across more than 150 countries and~~ range from small businesses to large enterprises ~~with~~and their users are spread across more than ~~10,000 employees.~~150 countries. In recent years, we have increased our up-market focus on the mid-market and enterprise customer ~~sectors,~~sectors.

We have a portfolio of cloud-based offerings that are subscription based, made available at different rates varying by the specific functionalities, services and ~~for the three months ended June 30, 2019, we generated a majority~~number of ~~our new subscription services~~users. We generate service revenue from ~~customers in these business sectors.~~

software service subscriptions, platform usage, and professional services. We generate ~~revenue primarily from the sale of subscriptions to our software services to customers. The remainder of our revenues has historically been comprised of professional services revenue and~~ product revenues from the sale of office phones and other hardware equipment. We define a “customer” as one or more legal entities to which we provide services pursuant to a single contractual arrangement. In some cases, we may have multiple billing relationships with a single customer (for example, where we establish separate billing accounts for a parent company and each of its subsidiaries).

~~Historically, our~~Our flagship ~~services have been Virtual Office, a unified communications solution, and Virtual Contact Center, a contact center solution. In 2018, we began selling~~service is our 8x8 X Series, ~~our~~a next generation suite of ~~services,~~UCaaS and CCaaS solutions, which consist of service plans designated X1, X2, etc., through X8. With 8x8 X Series, we provide ~~both unified communications~~global voice, chat, video and contact center ~~functionality~~functionalities from a single platform, with a single interface, in the high-end set of our service plans (X5 through X8). We also offer more basic, cost-efficient ~~unified communications services~~UCaaS in X1 through ~~X4. During~~X4 and a stand-alone CCaaS offering called 8x8 Contact Center. In July 2019, we acquired Wavecell Pte. Ltd., an Asian-based global CPaaS provider of SMS, messaging, voice and video APIs to enterprises. Also in July 2019, we launched a new self-service e-commerce platform called 8x8 Express.

Prior to the ~~three months ended June 30, 2019, nearly all~~launch of ~~our new customers purchased service plans for~~ 8x8 X Series ~~although we continue to have a significant number of~~in 2018, our customers subscribed to ~~our~~ Virtual Office and Virtual Contact Center ~~platforms.~~solutions. We have now begun migrating these customers from ~~our~~these legacy ~~platforms~~solutions to our 8x8 X Series product suite, and we intend to accelerate the pace of migrations during the remainder of fiscal ~~years~~ 2020 and into fiscal 2021. These migrations ~~will~~may require us to incur professional services costs that we may not be able to recover from our customers, ~~and there is also a risk~~but we believe we will realize other benefits by reducing the number of platforms that we ~~will experience an increase in churn during this migration period.~~are required to support.

SUMMARY AND OUTLOOK

Our ~~first~~third quarter fiscal 2020 results illustrate the fundamental strength in our ~~business as~~cloud communications service revenue, which for the quarter was ~~$92.4~~$113.6 million, including revenue from our CPaaS offerings, and ~~grew 18.2%~~reflects growth of 32.2% year-over-year. We continued to show an increase in our average ~~monthly~~annual service revenue per customer, ~~("ARPC"),~~ as we are selling more to mid-market and enterprise customers.

~~Since~~In the ~~beginning~~second half of fiscal 2018, we ~~have~~ de-emphasized profitability as a short-term corporate goal ~~and have~~ focused instead on making investments necessary to accelerate revenue growth. This decision was based, in part, on our belief that the communications market is at an inflection point in the shift of businesses from legacy on-premise solutions to ~~cloud~~cloud-based services. We believe that this industry trend will continue in fiscal 2020 and beyond. Accordingly, we believe that it is in the Company's interest to continue to invest ~~heavily~~ in our ~~business--in particular,~~business to ~~build our technology platform further, grow internationally, and expand our sales and marketing activities, particularly~~drive revenue growth. With recent successes driving growth in the ~~channel--in order~~business, we are also now focused on managing the business to ~~allow us~~achieve operating efficiencies. We believe that this enables the Company to scale ~~efficiently~~ and capture market share during this phase of industry ~~disruption.~~

disruption in a cost effective way and support the Company in pursuit of its path to profitability.

We plan to continue making significant ~~upfront~~ investments in activities to acquire more ~~customers. We plan to continue~~customers, including investing in our direct marketing efforts, ~~which includes our~~ sales force, ~~new~~ e-commerce, ~~solutions,~~ and ~~digital~~outbound marketing ~~spend.~~efforts. We also intend to continue investing in our indirect channel to acquire more third-party selling agents to help sell our ~~solutions.~~solutions, including

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investments in our value added resellers ("VARs") and master agent programs. Should these upfront investments not result in additional revenue from new or existing customers, and/or these cost reduction and efficiency efforts not result in meaningful savings, our operating results may be adversely impacted.

COMPONENTS OF RESULTS OF OPERATIONS

Service Revenue

Service revenue consists ~~primarily~~ of ~~our cloud communication and collaboration subscription services, and to a lesser extent,~~software service subscriptions, platform usage revenue, and professional services ~~fees.~~revenue from our UCaaS, CCaaS and CPaaS offerings.

We plan to continue to drive ~~and increased~~our business to increase service revenue through a combination of increased sales and marketing efforts, geographic expansion of our ~~platform~~customer base outside the United States, and through strategic acquisitions of ~~new~~ technologies and businesses.

Product Revenue

Product revenue consists primarily of revenues from hardware sales of IP telephones in conjunction with our cloud telephony service. Product revenue is dependent on the number of customers who choose to purchase an IP telephone in conjunction with our service instead of using the solution on their cell phone, computer or other compatible ~~device.~~devices.

Cost of Service Revenue

Cost of service revenue consists primarily ~~consists~~ of costs associated with network operations and related personnel, technology licenses, amortization of internally developed software, and other costs such as customer service, ~~which includes~~ deployment and technical support costs. Cost of service revenue also includes other communication origination and termination services provided by third-party carriers and outsourced customer service call center operations. We also allocate overhead costs such as facilities and IT to cost of service, as well as to each of the operating expense categories. Our facilities costs primarily include lease and related expenses and IT costs include costs for IT infrastructure and compensation of IT personnel. We expect that cost of service revenue will increase in absolute dollars in future periods and vary from period-to-period as a percentage of revenue.

Cost of Product Revenue

~~The cost~~Cost of product revenue consists primarily of IP telephones, estimated warranty obligations and direct and indirect costs associated with product purchasing, scheduling, shipping and handling.

Research and Development

Research and development expenses consist primarily of personnel and related costs, consulting, third-party development work and equipment costs necessary for us to conduct our development and engineering efforts.

We plan to continue to hire employees to support our research and development efforts to expand the capabilities and scope of our platform and enhance the user experience. WeWhile we expect to continue to improve our cost structure and achieve operational efficiencies, we expect that research and development expenses will increase in absolute dollars in future periods and vary from period-to-period as a percentage of revenue.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel and related ~~overhead~~ costs, ~~for sales and marketing. Such costs also include~~ sales commissions, trade shows, advertising and other marketing, demand generation, channel, and promotional expenses. We plan to continue to invest in sales and marketing to attract and retain customers on our platform and increase our brand awareness. WeWhile we expect to continue to improve our cost structure and achieve operational efficiencies, we expect that sales and marketing expenses will increase in absolute dollars in future periods and vary from period-to-period as a percentage of revenue.

General and Administrative

General and administrative expenses consist primarily of personnel and related costs for finance, human resources, legal and general management, as well as professional ~~services~~ fees. WeWhile we expect to continue to improve our cost structure and achieve operational efficiencies, we expect that our general and administrative expenses will increase in absolute dollars in future periods as we grow our business and vary from period-to-period as a percentage of revenue.

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Other (Expense) Income, net

Other (expense) income, net, consists primarily ~~consisted~~ of interest expense related to the convertible notes, offset by income earned on our cash, cash equivalents and investments.

Provision for Income Taxes

~~Our provision~~Provision for income taxes consists primarily of state minimum taxes in the United States. As we expand the scale of our international business activities, any changes in the U.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for our U.S. deferred tax assets, including federal and state net operating loss carryforwards, or NOLs. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto.

Revenue


	Three Months Ended June 30,						Dollar		Percent		December 31,						Dollar		Percent
Service revenue	2019			2018			Change		Change		2019			2018			Change		Change
	(dollar amounts in thousands)										(dollar amounts in thousands)
Three months ended	$	92,372		$	78,121		$	14,251	18.2	%	$	113,566		$	85,911		$	27,655	32.2	%
Percentage of total revenue	95.5		%	93.9		%					95.8		%	95.6		%
Nine months ended											$	310,467		$	245,378		$	65,089	26.5	%
Percentage of total revenue											95.6		%	94.8		%

Service revenue increased for the three and nine months ended ~~June 30,~~December 31, 2019 compared with the same ~~period~~periods of the previous fiscal year primarily due to an increase in our business customer subscriber base (net of customer churn), ~~and~~ an increase in the average service revenue from each customer on a monthly basis ~~in the three months ended June 30, 2019~~and, to a lesser extent, revenue associated with our newly acquired products as compared to the same prior year period.


	Three Months Ended June 30,						Dollar			Percent		December 31,						Dollar		Percent
Product revenue	2019			2018			Change			Change		2019			2018			Change		Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	4,303		$	5,104		$	(801	)	(15.7	)%	$	5,001		$	4,001		$	1,000	25.0	%
Percentage of total revenue	4.5		%	6.1		%						4.2		%	4.4		%
Nine months ended												$	14,292		$	13,441		$	851	6.3	%
Percentage of total revenue												4.4		%	5.2		%

Product revenue ~~decreased~~increased during the three and nine months ended ~~June 30,~~December 31, 2019 compared with the same period in the prior fiscal year primarily due to ~~decreased~~increased equipment unit sales to customers ~~combined with product discounts and promotions~~ during the three months ended ~~June 30,~~December 31, 2019.

No customer represented greater than 10% of the Company's total ~~revenues~~revenue for the three and nine months ended ~~June 30,~~December 31, 2019 or 2018.

Cost of Revenue


	Three Months Ended June 30,						Dollar		Percent		December 31,						Dollar		Percent
Cost of service revenue	2019			2018			Change		Change		2019			2018			Change		Change
	(dollar amounts in thousands)										(dollar amounts in thousands)
Three months ended	$	31,967		$	24,549		$	7,418	30.2	%	$	49,326		$	27,632		$	21,694	78.5	%
Percentage of service revenue	34.6		%	31.4		%					43.4		%	32.2		%
Nine months ended											$	124,488		$	78,383		$	46,105	58.8	%
Percentage of service revenue											40.1		%	31.9		%

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Cost of service revenue for the three months ended ~~June 30,~~December 31, 2019 increased over the same prior year period and faster than revenue growth ~~primarily~~ due to increases related to our newly acquired CPaaS products combined with increased overhead allocation expense, as well as a ~~$2.7~~$2.5 million increase in personnel and related costs, a ~~$1.8~~$2.3 million increase in amortization of intangibles and capitalized software expenses and a ~~$0.8~~$0.6 million increase in stock-based compensation costs, as well as other smaller increases.

Cost of service revenue for the nine months ended December 31, 2019 increased over the same prior year period and faster than revenue growth due to increases related to our newly acquired CPaaS products combined with increased overhead allocation expense, a $7.4 million increase in personnel and related costs, a $6.4 million increase in amortization of intangibles and capitalized software expenses, a $1.7 million increase in stock-based compensation costs, and a $1.6 million increase in consulting and outside ~~services. These increases were partially offset by a decrease of $0.8 million in third-party network~~ services, ~~expenses.~~as well as other smaller increases.


	Three Months Ended June 30,						Dollar			Percent		December 31,						Dollar		Percent
Cost of product revenue	2019			2018			Change			Change		2019			2018			Change		Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	5,724		$	6,281		$	(557	)	(8.9	)%	$	6,893		$	5,318		$	1,575	29.6	%
Percentage of product revenue	133.0		%	123.1		%						137.8		%	132.9		%
Nine months ended												$	19,119		$	16,996		$	2,123	12.5	%
Percentage of product revenue												133.8		%	126.4		%

~~The cost~~Cost of product revenue for the three and nine months ended ~~June 30,~~December 31, 2019 ~~decreased~~increased over the same prior year ~~period~~periods primarily due to the ~~decrease~~increase in the number of telephones shipped to customers. The increase in negative margin

was due to the product discounts and promotions during the three and nine months ended ~~June 30,~~December 31, 2019.

Operating Expenses


	Three Months Ended June 30,						Dollar		Percent		December 31,						Dollar		Percent
Research and development	2019			2018			Change		Change		2019			2018			Change		Change
	(dollar amounts in thousands)										(dollar amounts in thousands)
Three months ended	$	18,331		$	13,050		$	5,281	40.5	%	$	19,870		$	16,886		$	2,984	17.7	%
Percentage of total revenue	19.0		%	15.7		%					16.8		%	18.8		%
Nine months ended											$	57,635		$	43,999		$	13,636	31.0	%
Percentage of total revenue											17.7		%	17.0		%

Research and development expenses for the three months ended ~~June 30,~~December 31, 2019 increased over the same prior year period primarily due to a ~~$4.2~~$2.3 million increase in stock-based compensation expense, a $1.0 million increase in personnel and related costs, and a ~~$2.0~~$0.5 million increase in ~~stock-based compensation expense, as well as other smaller cost increases.~~amortization of capitalized software expenses. These increases were partially offset by ~~a $2.2 million increase in costs that were capitalized for~~capitalization of internally developed ~~software.~~

Three Months Ended June 30, Dollar Percent
Sales and marketing 2019 2018 Change Change
(dollar amounts in thousands)
Three months ended $ 53,599
$ 40,495
$ 13,104
32.4 %
Percentage of total revenue 55.4 % 48.7 %
software costs.

~~Sales~~Research and ~~marketing~~development expenses for the ~~three~~nine months ended ~~June 30,~~December 31, 2019 increased over the same prior year period primarily due to a ~~$6.5~~$7.4 million increase in personnel and related costs, a ~~$7.1~~$5.9 million increase in stock-based compensation expense, and a $1.8 million increase in amortization of capitalized software expenses, as well as other smaller cost increases. These increases were partially offset by capitalization of internally developed software costs.



	December 31,						Dollar		Percent
Sales and marketing	2019			2018			Change		Change
	(dollar amounts in thousands)
Three months ended	$	63,099		$	46,276		$	16,823	36.4	%
Percentage of total revenue	53.2		%	51.5		%
Nine months ended	$	174,593		$	128,451		$	46,142	35.9	%
Percentage of total revenue	53.8		%	49.6		%

Sales and marketing expenses for the three months ended December 31, 2019 increased over the same prior year period primarily due to a $5.4 million increase in third-party commission expenses, a $4.5 million increase in personnel and related costs, a $4.4 million increase in advertising and marketing expenses, and a ~~$2.7~~$1.2 million

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increase in stock-based compensation costs, as well as other smaller cost increases. These cost increases were partially offset by $4.6 million in commission costs that were capitalized.

Sales and marketing expenses for the nine months ended December 31, 2019 increased over the same prior year period primarily due to a $15.7 million increase in advertising and marketing expenses, a $14.3 million increase in third-party commission expenses, a $9.3 million increase in personnel and related costs, and a $5.4 million increase in stock-based compensation costs, as well as other smaller cost increases. These cost increases were partially offset by ~~$2.7~~$13.6 million in commission costs that were capitalized.


	Three Months Ended June 30,						Dollar		Percent		December 31,						Dollar		Percent
General and administrative	2019			2018			Change		Change		2019			2018			Change		Change
	(dollar amounts in thousands)										(dollar amounts in thousands)
Three months ended	$	19,607		$	14,833		$	4,774	32.2	%	$	22,547		$	18,038		$	4,509	25.0	%
Percentage of total revenue	20.3		%	17.8		%					19.0		%	20.1		%
Nine months ended											$	62,589		$	53,198		$	9,391	17.7	%
Percentage of total revenue											19.3		%	20.6		%

General and administrative expenses for the three months ended ~~June 30,~~December 31, 2019 increased slightly as compared to the same prior year period due to a $3.0 million increase in personnel and related costs, a $2.7 million increase in stock-based compensation costs, and a $0.5 million increase in consulting and outside services, as well as other smaller increases. These increases were partially offset by a reduction in sales and use tax expenses of $1.5 million that the Company recognized in the three months ended December 31, 2018, as well as other smaller decreases.

General and administrative expenses for the nine months ended December 31, 2019 increased over the same prior year period primarily due to a ~~$2.9~~$9.1 million increase related to personnel and related costs, ~~and $1.2~~a $5.7 million increase in ~~expenses incurred related~~stock-based compensation costs, a $1.8 million increase in costs associated with our recent ~~acquisition. Refer to Part I, Note 13~~acquisition, and a $0.5 million increase in consulting and outside services, as well as other smaller increases. These increases were partially offset by a reduction in sales and use tax expenses of ~~Notes to Unaudited Consolidated Financial Statements.~~$6.5 million that the Company recognized in the nine months ended December 31, 2018, as well as other smaller decreases.


	Three Months Ended June 30,						Dollar			Percent		December 31,						Dollar			Percent
Other (expense) income, net	2019			2018			Change			Change		2019			2018			Change			Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	(1,564	)	$	719		$	(2,283	)	(317.5	)%	$	(3,623	)	$	579		$	(4,202	)	(725.7	)%
Percentage of total revenue	(1.6		)%	0.9		%						(3.1		)%	0.6		%
Nine months ended												$	(7,919	)	$	1,933		$	(9,852	)	(509.7	)%
Percentage of total revenue												(2.4		)%	0.7		%

Other (expense) income, net changed for the three and nine months ended ~~June 30,~~December 31, 2019 over the same prior year ~~period~~periods primarily due to an increase of ~~$3.5~~$3.9 million and $11.1 million, respectively, related to contractual interest expense, amortization of debt discount, and amortization of issuance costs associated with our convertible ~~notes~~Initial and Additional Notes issued in ~~the fourth quarter of fiscal year 2019.~~February 2019 and November 2019, respectively. These increases were partially offset by an increase in interest income. Refer to Part 1, Note 89 of Notes to Unaudited Condensed Consolidated Financial Statements. We had no such similar costs in the same prior year period.


	Three Months Ended June 30,						Dollar		December 31,						Dollar
Provision for income taxes	2019			2018			Change		2019			2018			Change
	(dollar amounts in thousands)								(dollar amounts in thousands)
Three months ended	$	148		$	91		$	57	$	280		$	112		$	168
Percentage of loss before provision for income taxes	-0.4		%	-0.6		%			(0.6		)%	(0.5		)%
Nine months ended									$	684		$	333		$	351
Percentage of loss before provision for income taxes									(0.6		)%	(0.6		)%

For the three months ended ~~June 30,~~December 31, 2019 and 2018, we recorded income tax expense of ~~$0.1~~$0.3 million and $0.1 million, ~~respectively,~~respectively. For the nine months ended December 31, 2019 and 2018, we recorded income tax expense of $0.7 million and $0.3 million, respectively. These taxes were related to state minimum taxes and income taxes from our foreign operations.

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Our effective tax rate was ~~-0.4%~~(0.6)% and ~~-0.6%~~(0.5)% for the three months ended ~~June 30,~~December 31, 2019 and 2018, ~~respectively. The change in our effective tax rate was primarily due to~~respectively, and (0.6)% each of the ~~full valuation allowance we continue to maintain against our deferred tax asset.~~

nine months ended December 31, 2019 and 2018.

We estimate our annual effective tax rate at the end of each quarter. In estimating the annual effective tax rate, we consider, among other things, annual pre-tax income, permanent tax differences, the geographic mix of pre-tax income and the application and interpretations of existing tax laws. We record the tax effect of certain discrete items, which are unusual or occur infrequently, in the interim period in which they occur, including changes in judgment about deferred tax valuation allowances. The determination of the effective tax rate reflects tax expense and benefit generated in certain domestic and foreign jurisdictions. However, jurisdictions with a year-to-date loss where no tax benefit can be recognized are excluded from the annual effective tax rate.

Liquidity and Capital Resources

As of ~~June 30,~~December 31, 2019, we had ~~$318.2~~$235.2 million of cash, cash equivalents and investments. In addition, we had ~~$8.1~~$19.0 million ~~in deposits~~ as restricted cash, $8.6 million in support of a letter of ~~credit,~~credits securing ~~a lease~~leases for office facilities in California and New York, and $10.4 million held in escrow for our recent acquisition of Wavecell, pursuant to the ~~Coleman facility in San Jose, California.~~terms of the acquisition agreement. By comparison, at March 31, 2019, we had $346.5 million of cash, cash equivalents and investments as well as ~~the~~a $8.1 million in deposit as restricted cash. ~~These cash, cash equivalents, restricted cash and investments balances as of June 30, 2019 do not reflect cash payments made for our recent acquisition of WaveCell.~~ We believe that our existing cash, cash equivalents, and investment balances, and our anticipated cash flows from operations will be sufficient to meet our working capital and expenditure requirements for the next ~~12-months.~~12 months.

Historically, the Company ~~had~~ maintained all investments as short-term investments on its balance sheet, as the Company could liquidate these investments at any time and did not limit its liquidation of investments by contractual maturity date. Given the recent issuance of the convertible senior ~~note,~~notes, and the associated increased cash, cash equivalents and investment ~~balances. The~~balances, the Company expects to hold certain investments for at least ~~12-months~~12 months from the reporting date and ~~will record~~records these investments in ~~either short-term or~~ long-term investments in alignment with the contractual maturity dates.

Period-over-Period Changes

Net cash used in operating activities for the ~~three~~nine months ended ~~June 30,~~December 31, 2019 was ~~$20.5~~$62.8 million, ~~compared with $0.8~~primarily due to making investments necessary to accelerate revenue growth. For comparison, $6.7 million ~~provided by~~was used in operating activities for the ~~three~~nine months ended ~~June 30,~~December 31, 2018. Cash used in ~~or provided by~~ operating activities has historically been affected by:

•the amount of net income or loss;

the amount of non-cash expense items such as depreciation and amortization;

the amortization associated with deferred ~~income tax, depreciation, amortization~~sales commissions, debt discount and ~~impairments;~~issuance costs;

•the expense associated with stock options and stock-based awards; and

changes in working capital accounts, particularly in the timing of collections from receivable and payments of obligations.

Net cash ~~provided by~~used in investing activities was ~~$11.2~~$84.8 million in the ~~three~~nine months ended ~~June 30,~~December 31, 2019, compared with ~~$1.8~~$4.7 million provided by investing activities in ~~three~~nine months ended ~~June 30,~~December 31, 2018. The cash ~~provided by~~used in investing activities during the ~~three~~nine months ended ~~June 30,~~December 31, 2019 was primarily related to ~~$20.9~~$58.9 million used in the acquisition of Wavecell, a $0.9 million payment released from escrow held for MarianalQ acquisition in the first quarter of fiscal 2019, combined with purchases of $22.9 million of property and equipment investments and capitalized internal software development costs of $22.8 million. These amounts were partially offset by $19.7 million of proceeds from sales and maturities of investments, net of purchases of investments. ~~This was partially offset by $2.0 million of property and equipment investments and capitalized internal software development costs of $7.7 million.~~

Net cash provided by financing activities was ~~$1.4~~$65.8 million in the ~~three~~nine months ended ~~June 30,~~December 31, 2019, compared with ~~$0.5~~$1.0 million ~~provided~~used by financing activities in the ~~three~~nine months ended ~~June 30,~~December 31, 2018. Our financing activities for the ~~three~~nine months ended ~~June 30,~~December 31, 2019 provided cash of ~~$1.5~~$65.3 million from the issuance of convertible debt, and $7.0 million from the issuance of common stock under employee incentive plans. These inflows were partially offset by ~~$0.1~~$6.2 millionof deemed repurchases of our common stock related to shares withheld for payroll taxes combined with $0.3 million in payments for finance lease obligations.

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Contractual Obligations


	Payments due by Period					Payments due by Period
Contractual Obligations	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Senior convertible notes	287,500	—	—	287,500	—	$	362,500	$	—	$	—	$	362,500	$	—
Interest on senior convertible notes	7,116	1,366	2,875	2,875	—	8,156		1,813		3,625		2,718		—
Operating leases that commence after June 30, 2019	95,058	248	12,729	18,436	63,645
Operating leases						121,508		8,801		28,192		23,594		60,921
Total Contractual Obligations	95,058	248	12,729	18,436	63,645	$	492,164	$	10,614	$	31,817	$	388,812	$	60,921

CRITICAL ACCOUNTING POLICIES & ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related ~~disclosure~~disclosures of assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes during the three and nine months ended ~~June 30,~~December 31, 2019 to our critical accounting policies and estimates previously disclosed in our Form 10-K for the fiscal year ended March 31, 2019, except for our adoption of ASU 2016-02 as discussed in Notes 2 and 67 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Item 1 of Part I, "Notes to Unaudited Condensed Consolidated Financial Statements - Note 2 - Summary of Significant Accounting ~~Pronouncements.~~Policies."

RECENT ACCOUNTING PRONOUNCEMENTS

See Item 1 of Part I, "Notes to Unaudited Condensed Consolidated Financial Statements - Note 2 - Summary of Significant Accounting ~~Pronouncements.~~Policies."

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Fluctuation Risk

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we may maintain our portfolio of cash equivalents and investments of short durations in a variety of securities, including commercial paper, money market funds, debt securities and certificates of deposit.

As of ~~June 30,~~December 31, 2019, we had ~~$219.2~~$287.5 million outstanding on our 0.50% convertible senior notes due 2024. The values of the Notes are exposed to interest rate risk. Generally, the fair market value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair ~~values~~market value of the Notes ~~are~~is affected by our stock price. The fair market value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. However, we carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only.

We do not believe that a hypothetical 10% change in interest rates would have a material impact on our interest income or expenses, convertible senior notes, or financial statements for any periods presented.

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the British Pound, causing both our revenue and our operating results to be impacted by fluctuations in the exchange rates.

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Gains or losses from the translation of certain cash balances, accounts receivable balances and intercompany balances that are denominated in these currencies impact our ~~net income (loss).~~other comprehensive income. A hypothetical decrease in all foreign currencies against the US dollar of 10%, would not result in a material foreign currency loss on foreign-denominated balances, at ~~June 30,~~December 31, 2019. 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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Disclosure Controls) that are designed to ensure that information we are required to disclose in reports filed or submitted under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our Disclosure Controls. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our Disclosure Controls were effective as of ~~June 30,~~December 31, 2019.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting

During the ~~first~~third quarter of fiscal year 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART ~~II --~~II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 7,8, “Legal Proceedings” of Notes to Unaudited Condensed Consolidated Financial Statements under ITEM 1. FINANCIAL STATEMENTS of PART I is incorporated by reference in response to this item.

ITEM 1A. RISK FACTORS

~~If any of~~There have been no material changes from the ~~following risks actually occur,~~risk factors previously disclosed in our ~~business, results of operations and financial condition could suffer significantly.~~

~~Our success depends~~annual report on ~~acquiring new customers and retaining and selling additional services to existing customers.~~

Our future success depends on our ability to significantly increase revenue generated from sales of our cloud software solutions to business customers, including small and mid-size businesses (SMBs) as well as mid-market and larger enterprises. To increase our revenue, we must add new customers and encourage existing customers to continue their subscriptions (on terms favorable to us), increase their usage of our services, and/or purchase additional services from us. For customer demand and adoption of our cloud communications solutions to grow, the quality, cost and feature benefits of these services must compare favorably to those of competing services. For example, our cloud unified communications and contact center services must continue to evolve so that high-quality service and features can be consistently offered at competitive prices. 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 renew or extend our agreements with existing customers or attract new customers, or new business from existing customers, on favorable terms, or at all, which could have an adverse effect on our revenue and growth.

The rate at which our existing customers purchase any new or enhanced services we may offer depends on a number of factors, including general economic conditions, the importance of these additional features and services to our customers, the quality and performance of our cloud communications solutions, and the price at which we offer them. If our customers react negatively to our new or enhanced service offerings, such as our recently launched X Series suite of services or our recently acquired communications API platform-as-a-service (CPaaS) product, or our efforts to upsell are otherwise not as successful as we anticipate, our business may suffer. Our sales strategies must also continue to evolve and adapt as our market matures, for example through the offering of additional customer self-service tools and automationForm 10-K for the ~~SMB sector and the development of new and more sophisticated sales channels that leverage the strengths of our partners. In addition, marketing and selling new and~~

enhanced features and services may require increasingly sophisticated and costly sales and marketing efforts that may require us to incur additional expenses and negatively impact the results of our operations.

To support the successful marketing and sale of our services to new and existing customers, we must continue to offer high-quality training, implementation, and customer support. Providing these services effectively requires that our customer support personnel have industry-specific technical knowledge and expertise, which may make it difficult and costly for us to locate and hire qualified personnel, particularly in the competitive labor market in Silicon Valley where we are headquartered. Our support personnel also require extensive training on our products and services, which may make it difficult to scale up our support operations rapidly or effectively. The importance of high-quality customer support will increase as we expand our business globally and pursue new mid-market and enterprise customers. If we do not help our customers quickly resolve post-implementation issues and provide effective ongoing support, our ability to sell additional features and services to existing customers will sufferfiscal year ended March 31, 2019 and our ~~reputation may be harmed.~~

~~If the emerging market for cloud communications services does not continue to grow and if we do not increase our market share, our future business could be harmed.~~

The market for cloud communications services is evolving rapidly and is characterized by an increasing number of market entrants. As is typical of a rapidly evolving industry, the demand for and market acceptance of, cloud communications services is uncertain. Our success will depend to a substantial extentquarterly reports on the widespread adoption of cloud communications services as a replacement for legacy on-premise systems. Many larger organizations have invested substantial technical and financial resources and personnel to integrate legacy on-premise communications systems into their businesses and, therefore, may be reluctant or unwilling to migrate to cloud communications services such as ours. It is difficult to predict client adoption rates and demand for our solution, the future growth rate and size of the cloud communications service market, or the entry of competitive products and services. The expansion of the cloud communications services market depends on a number of factors, including the refresh rate for legacy on-premise systems, cost, performance and perceived value associated with cloud communications services, as well as the ability of providers of cloud communications solutions to address security, stability and privacy concerns. If we or other cloud communications service providers experience security incidents, loss of client data, disruptions in service or other problems, the market for cloud communications services as a whole, including our services, may be harmed. If the demand for cloud communications services fails to develop or develops more slowly than we anticipate, it could significantly harm our business.

Our success in the cloud communications market depends in part on developing and maintaining effective distribution channels. If we fail to develop and maintain these channels, it could harm our ability to increase our revenues.

A portion of our revenue is generated through our direct sales. This channel is driven largely by sales agents—including inside and field-based sales agents—who market and sell our services products and services to customers. Our future success requires continuing to develop and maintain a successful direct sales organization that identifies and closes a significant portion of sales opportunities in the market for cloud communications services. If we fail to do so, or if our sales agents are not successful in their sales efforts, we may be unable to meet our revenue growth targets.

A portion of our business revenue is generated through indirect channel sales. These channels consist of master agents, independent software vendors (ISVs), system integrators, value-added resellers (VARs), and service providers. We typically contract directly with the end customer and use these channel partners to identify, qualify and manage prospects throughout the sales cycle—although we also have arrangements with a number of partners who resell our services to their own customers, with whom we do not contract or contract only to a limited extent. These channels may generate an increasing portion of our revenue in the future. Our continued success requires continuing to develop and maintain successful relationships with these channel partners and increasing the portion of sales opportunities that they refer to us. If we fail to do so, or if our channel partners are not successful in their sales efforts, we may be unable to meet our revenue growth targets.

~~As we increase sales to enterprise customers, our average sales cycle has become longer and more challenging.~~

We currently derive a majority of our revenues from sales of our cloud software solutions to mid-market and larger enterprises, and we believe that increasing our sales to these customers is key to our future growth. 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. 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 SMB customers. As a result, we may be required to divert more sales and engineering resources to a smaller number of large transactions than we have in the past, which means that we will have less personnel available to support other sectors, or that we will need to hire additional personnel, which would increase our operating expenses.

It is often difficult for us to forecast when a potential enterprise sale will close, the size of the customer's initial service order and the period over which the implementation will occur, any of which may impact the amount of revenue we recognize or the timing of revenue recognition. Enterprise customers may delay their purchases from one quarter to another as they assess their budget constraints, negotiate early contract terminations with their existing providers or wait for us to develop new features. Any delay in closing, or failure to close, a large enterprise sales opportunity in a particular quarter or year could significantly harm our projected growth rates and cause the amount of new sales we book to vary significantly from quarter to quarter. We also may have to delay revenue recognition on some of these transactions until the customer's technical or implementation requirements have been met.

In some cases, we may enter into a contract with a large enterprise customer, such as a preferred vendor agreement, that has little or no minimum purchase commitment but establishes the terms on which the customer's affiliates, clients or franchisees (as the case may be) may order services from us in the future. We may expend significant time and resources becoming a preferred vendor without booking significant sales from the opportunity until months or years after we sign the initial agreement. If we are unsuccessful in selling our services to the prospective purchasers under these agreements, we may not recognize revenue in excess of the expenses we incur in pursuing these opportunities, which could adversely impact our results of operations and cash flow.

We face significant risks in implementing and supporting the services we sell to mid-market and larger enterprises and, if we do not manage these efforts effectively, our recurring service revenue may not grow at the rate we expected, and our business and results of operations could be harmed.

~~We have a limited history of selling our services to larger businesses and have experienced, and may continue to experience, new challenges in configuring and providing ongoing support~~Form 10-Q for the ~~solutions we sell to large customers.~~

Larger customers' networks are often more complex than those of smaller customers, and the configuration of our services for these customers generally require participation from the customer’s information technology (IT) team. There is no guaranty that the customer will make available to us the necessary personnel and other resources for a successful configuration of services. The lack of local resources may prevent us from properly configuring our services for the customer, which can in turn adversely impact the quality of services that we deliver over our customers' networks, and/or may result in delays in the implementation of our services. This may create a public perception that we are unable to deliver high quality of service to our customers, which could harm our reputation and make it more difficult to attract new customers and retain existing customers. Moreover, larger customers tend to require higher levels of customer service and individual attention (including periodic business reviews and in-person visits, for example), which may increase our costs for implementing and delivering services. If a customer is unsatisfied with the quality of services we provide or the quality of work performed by us or a third party, we may decide to incur costs beyond the scope of our contract with the customer in order to address the situation and protect our reputation, which may in turn reduce or eliminate the profitability of our contract with the customer. In addition, negative publicity related to our larger customer relationships, regardless of its accuracy, could harm our reputation and make it more difficult for us to compete for new business with current and prospective customers.

We also face challenges building and training an integrated sales force capable of addressing the services and features of our comprehensive service suite, as well as a staff of expert engineering and customer support personnel capable of addressing the full range of implementation and configuration issues that tend to arise more frequently with larger customers. Also, we have only limited experience in developing and managing sales channels and distribution arrangements for larger businesses. If we fail to effectively execute the sale, configuration and ongoing support of our services to mid-market and larger enterprises, our results of operations and our overall ability to grow our customer base could be materially and adversely affected.

Intense competition in the markets in which we compete could prevent us from increasing or sustaining our revenue growth and increasing or maintaining profitability and cause us to incur losses, which could harm our business.

~~The cloud communications industry is competitive, and we expect it to become increasingly competitive in the future. We may also face competition from companies in adjacent or overlapping industries.~~

In connection with our unified communication services, we face competition from other providers of cloud communication services, such as RingCentral, Zoom, Fuze, Vonage, Dialpad, Nextiva and Shoretel (acquired by Mitel in 2017). In connection with our cloud contact center services, we face competition from other providers of cloud and premise-based contact center software services, such as NICE/inContact, Five9 and Interactive Intelligence.

In addition, because many of our target customers have historically purchased communications services from incumbent telephone companies along with legacy on-premises communication equipment, we compete with these customers' existing providers. These competitors include, for example, AT&T, CenturyLink, Comcast and Verizon Communications in the United States, as well as local incumbent communications providers in the international markets where we operate, such as Vodafone, Telefonica, Orange, America Movil and Deutsche Telekom, all in conjunction with on-premises hardware solutions from companies like Avaya, Cisco and Mitel. We may face competition from large Internet and cloud service companies such as Google Inc., Amazon Inc., Oracle Corporation and Microsoft Corporation, any of which might launch a new cloud-based business communications service, expand its existing offerings or acquire other cloud-based business communications companies in the future.

Many of our current and potential competitors have longer operating histories, significantly greater resources and brand awareness, and a larger base of customers than we have. As a result, these competitors may have greater credibility with our existing and potential customers. They also may adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products and services. Our competitors may also offer bundled service arrangements that present a more differentiated or better integrated product and services to customers. Increased competition could require us to lower our prices, reduce our sales revenue, lower our gross profits or cause us to incur losses and/or cause us to lose market share. In addition, many of our customers are not subject to long-term contractual commitments and have the ability to switch from our services to our competitors' offerings on relatively short notice. Given the significant price competition in the markets for our services, we may be at a disadvantage compared with those competitors who have substantially greater resources than us or may otherwise be better positioned to withstand an extendedquarterly period of downward pricing pressure. The adverse impact of a shortfall in our revenues may be magnified by our inability to adjust our expenses to compensate for such shortfall. Announcements, or expectations, as to the introduction of new products and technologies by our competitors or us could cause customers to defer purchases of our existing products and services, which also could have a material adverse effect on our business, financial condition or operating results.

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, including in particular our recently launched X Series service line.

We operate in an emerging market that is characterized by rapid changes in customer requirements, frequent introductions of new and enhanced products and services, and continuing and rapid technological advancement. To compete successfully in this emerging market, we must continue to design, develop, manufacture, and sell highly scalable new and enhanced cloud software solutions products and services that provide higher levels of performance and reliability at lower cost. If we are unable to develop new products and services that address our customers' needs, to deliver our cloud software solution applications in one seamless integrated service offering that addresses our customers' needs, or to enhance and improve our products and services in a timely manner, we may not be able to achieve or maintain adequate market acceptance of our services. Our ability to grow is also subject to the risk of future disruptive technologies. Access and use of our products and services is provided via the cloud, which, itself, has been disruptive to the previous premises-based model.

If new technologies emerge that are able to deliver communications and collaboration solutions services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete.

If we are unable to develop new features and services internally due to factors such as competitive labor markets, high employee turnover, lack of management ability or a lack of other research and development resources, we may miss market opportunities. Further, many of our competitors have historically spent a greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors' research and development programs. In addition, there is no guaranty that our research and development efforts will succeed, or that our new products and services will enable us to maintain or grow our revenue or recover our development costs. Our failure to maintain adequate research and development resources, to compete effectively with the research and development programs of our competitors and to successfully monetize our research and development efforts could materially and adversely affect our business and results of operations.

We launched our new service line, branded "X Series," in July 2018. We market X Series as an array of packaged offerings (designated X2, X4, etc.), which start at the most basic version of our unified communications solution, and add engagement capabilities at each new level, with the top-tier X Series packages combining unified communications and contact center services into a single offering. Customer demand for our X Series offerings will depend on a number of factors, including, for example, factors inherent to the product itself, such as quality of service, reliability, feature availability, and ease of use; and factors relating to our ability to implement, support and market and sell the service effectively. More fundamentally, the success of X Series may depend on whether the market for unified communications, collaborations and contact center services is trending towards convergence of these three solutions into a single system, as we are predicting. We cannot be certain that this market trend will occur according to the timeline we are expecting, or at all. For example, if the various components of our service were to become commoditized and standardized in a way that diminishes the benefits of a single platform for customers, there may be less demand for a unified suite of services like X Series. Low customer demand could make it more difficult for us to win the business of new customers or gain additional business from existing customers, either of which in turn could cause our service revenue to grow more slowly than we expect, or to remain flat or even decrease in future periods.

~~We have a history of losses and are uncertain of our future profitability.~~

~~We recorded a net operating loss of approximately $34.3 million for the three months~~ ended June 30, 2019 and ended the period with an accumulated deficit of approximately $284.6 million. We expect to continue to incur operating losses in the near future as we continue to invest in growth. During our fiscal year ending March 31, 2020, we intend to increase significantly our investments in sales and marketing (and digital demand generation in particular), and in research and development, among other areas of our business, in order 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.

As we increase our investments in these areas, we will likewise need to increase our rate of revenue growth in order to generate and sustain operating profitability in future periods. The investments we expect to make in fiscal 2020 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 at all. Given our history of fluctuating revenues and operating losses, we cannot be certain that we will be able to achieve or maintain operating profitability in the future.

~~Our churn rate may increase in future periods due to customer cancellations or other factors, which may adversely impact our revenue or require us to spend more money to grow our customer base.~~

Our customers may discontinue their subscriptions for our services after the expiration of their initial subscription period, which typically range from one to four years. In addition, our customers may renew for lower subscription amounts or for shorter contract lengths. We may not accurately predict cancellation rates for our customers. Our cancellation rates may increase or fluctuate as a result of a number of factors, including customer usage, pricing changes, number of applications used by our customers, customer satisfaction with our service, the acquisition of our customers by other companies, the availability of alternative technologies, and deteriorating general economic conditions. If our customers do not renew their subscriptions for our service or decrease the amount they spend with us, our revenue will decline and our business will suffer.

Because of churn, we must acquire new customers on an ongoing basis to maintain our existing level of customers and revenues. As a result, marketing expenditures are an ongoing requirement of our business. If our churn rate increases, we will have to acquire even more new customers in order to maintain our existing revenues. We incur significant costs to acquire new customers, and those costs are an important factor in determining our net profitability. Therefore, if we are unsuccessful in retaining customers or are required to spend significant amounts to acquire new customers beyond those budgeted, our revenue could decrease and our net loss could increase.

Our rate of customer cancellations 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 state of credit markets. In addition, a single, protracted service outage or a series of service disruptions, whether due to our services or those of our carrier partners, may result in a sharp increase in customer cancellations.

Due to the length of our sales cycle, especially in adding new mid-market and larger enterprises as customers, we may also experience delays in acquiring new customers to replace those that have terminated our services. Such delays would be exacerbated if general economic conditions worsen. An increase in churn, particularly in challenging economic times, could have a negative impact on the results of our operations.

~~We may not be able to scale our business efficiently or quickly enough to meet our customers' growing needs, in which case our operating results could be harmed.~~

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. To the extent we increase our customer base and as our customers gain more experience with our services, the number of users and transactions managed by our services, the amount of data transferred, processed and stored by us, the number of locations where our service is being accessed, and the volume of communications managed by our services have in some cases, and may in the future, expand rapidly. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and services and regulatory compliance, to serve our growing customer base. Any failure or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of our cloud software solutions to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service credits, or requested refunds, which could hurt our revenue growth and our reputation. These system upgrades and the expansion of our support and services have been and will continue to be expensive and complex, requiring management time and attention and increasing our operating expenses. We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure and information technology systems. There are inherent risks associated with upgrading, improving and expanding our information technology systems and we cannot be sure that the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all. These efforts may reduce revenue and our margins and adversely impact our financial results.

We face risks related to acquisitions now (such as our recent acquisition of Wavecell Pte. Ltd.) and in the future that may divert our management's attention, result in dilution to our stockholders and consume resources that are necessary to sustain and grow our existing business.

Although we have acquired several small companies and business units in recent years, we have limited experience with purchasing and integrating other businesses. We may not be able to identify suitable acquisition candidates in the future, or negotiate and complete acquisitions on favorable terms.

If appropriate opportunities present themselves, we may decide to acquire such companies, or their products, technologies or assets. Acquisitions involve numerous risks, and there is no guarantee that we will ultimately strengthen our competitive position or achieve other benefits expected from the transaction. Among other risks we may encounter in connection with acquisitions:

We may experience difficulty and delays in integrating the products, technology platform, operations, systems and personnel of the acquired business with our own, particularly if the acquired business is outside of our core competencies and current geographic markets.

We may not be able to manage the acquired business, or the integration process, effectively, which may limit our ability to realize the financial and strategic benefits we expected from the transaction.

~~The acquisition and integration may divert management’s attention from our day-to-day operations and disrupt the ordinary functioning of our ongoing business.~~

We may have difficulty establishing and maintaining appropriate governance, reporting relationships, policies, controls and procedures for the acquired business, particularly if it is based in a country or region where we did not previously operate.

Any failure to successfully manage the integration process may also adversely impact relationships with our employees, suppliers, customers and business partners, or those of the acquired business, and may result in increased churn or the loss of key customers, business partners or employees for our business or those of the acquired business.

We may become subject to new or more stringent regulatory compliance obligations and costs by virtue of the acquisition, including risks related to international acquisitions that may operate in new jurisdictions or geographic areas where we may have no or limited experience;

We may become subject to litigation, investigations, proceedings, fines or penalties arising from or relating to the transaction or the acquired business, and any resulting liabilities may exceed our forecasts.

We may acquire businesses with different revenue models, increased customer concentration risks, and different contractual relationships, such as our recent acquisition of Wavecell which bills customers primarily on an usage-based basis as opposed to a subscription basis.

We may assume long-term contractual obligations, commitments or liabilities (for example, those relating to leased facilities), which could adversely impact our efforts to achieve and maintain profitability and impair our cash flow.

~~We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges.~~

~~The acquisition may create a drag on our overall revenue growth rate or increase our net loss, which could lead analysts and investors to reduce their valuation of our company.~~

In addition, we may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of our capital stock. The sale of equity to finance any such acquisitions could result in dilution to our stockholders. If we incur more debt, it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business.

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.

~~Because our long-term growth strategy involves continued expansion outside the United States, our business will be susceptible to risks associated with international operations.~~

An important component of our growth strategy involves the further expansion of our operations and customer base internationally. We have formed several subsidiaries outside the United States, including a Romanian subsidiary that contributes significantly to our research and development efforts. We have also acquired two UK-based companies and, most recently, a Singapore-based company with operations in Southeast Asia. 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. 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 or region's regulatory requirements, taxes, trade laws, or political or economic conditions;~~

increased competition from regional cloud communications competitors in the various geographic markets in which we compete now and in the future, which 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 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;~~

exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, the UK Bribery Act 2010, trade and export laws such as those enforced by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury, and similar laws and regulations in other jurisdictions; and

~~adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.~~

We have limited experience in operating our business internationally, which increases the risk that any potential future expansion efforts that we may undertake will not be successful. We expect to invest substantial time and resources to expand our international operations. If we are unable to do this successfully and in a timely manner, our business and operating results could be materially adversely affected.

~~To provide our services, we rely on third parties for all of our network connectivity and co-location facilities.~~

We currently use the infrastructure of third-party network service providers, including the services of Equinix, Inc. and CenturyLink, Inc. in the United States, to provide all of our cloud services over their networks rather than deploying our own network connectivity.

We also 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. This decision has resulted in lower capital and operating costs for our business in the short-term, but has reduced our operating flexibility and ability to make timely service changes. If any of these network service providers cease operations or otherwise terminate the services that we depend on, the delay in switching our technology to another network service provider, if available, and qualifying this new service provider could have a material adverse effect on our business, financial condition or operating results. The rates we pay to our network service providers may also increase, which may reduce our profitability and increase the retail price of our service.

There can be no assurance that these service providers will be able or willing to supply cost-effective services to us in the future or that we will be successful in signing up alternative or additional providers. Although we believe that we could replace our current providers, if necessary, our ability to provide service to our subscribers could be impacted during any such transition, which could have an adverse effect on our business, financial condition or results of operations. The loss of access to, or requirement to change, the telephone numbers we provide to our customers also could have a material adverse effect on our business, financial condition or operating results.

Due to our reliance on these service providers, when problems occur in a network, it may be difficult to identify the source of the problem. The occurrence of hardware and software errors, whether caused by our service or products or those of another vendor, may result in the delay or loss of market acceptance of our products and services and any necessary revisions may force us to incur significant expenses. Under the terms of the "end-to-end" service level commitments that we make for the benefit of qualifying customers, we are potentially at risk for service problems experienced by these service providers. Customers who do not qualify for these enhanced service level commitments may nevertheless hold us responsible for these service issues and seek service credits, early termination rights or other remedies. Accordingly, service issues experienced by our service provider partners may harm our reputation as well as our business, financial condition or operating results.

Internet access providers and Internet backbone providers may be able to block, degrade or charge for access to, or the bandwidth use of, certain of our products and services, which could lead to additional expenses and the loss of users.

Our products and services depend on the ability of our users to access the Internet, and certain of our services require significant bandwidth to work effectively. In addition, users who access our services and applications through mobile devices, such as smartphones and tablets, must have a high-speed connection, such as Wi-Fi, 3G, 4G or LTE, to use our services and applications. Currently, this access is provided by companies that have significant and increasing market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies and mobile communications companies. Some of these providers offer products and services that directly compete with our own offerings, which give them a significant competitive advantage. Some of these broadband providers have stated that they may exempt their own customers from data-caps or offer other preferred treatment to their customers. Other providers have stated that they may take measures that could degrade, disrupt or increase the cost of user access to certain of our services by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by charging increased fees to us or our users to provide our offerings, while others, including some of the largest providers of broadband Internet access services, have committed to not engaging in such behavior. These providers have the ability generally to increase their rates, which may effectively increase the cost to our customers of using our cloud software solutions.

On January 4, 2018, the Federal Communications Commission, or FCC, released an order that largely repeals rules that the FCC had in place which prevented broadband internet access providers from degrading or otherwise disrupting a broad range of services provisioned over consumers’ and enterprises’ broadband Internet access lines. The FCC’s order became effective on June 11, 2018. The order has been appealed by numerous parties including: a number of state attorneys’ general, public interest groups, associations, and companies. The appeal is before the U.S. Court of Appeals for the District of Columbia. We cannot predict whether the FCC’s January 4, 2018 order (the "January 4, 2018 Order") will withstand appeal, either in whole or in part, nor when the appeal will be resolved.

Following the adoption of the January 4, 2018 Order, a number of states have passed laws establishing rules similar to those that existed prior to the effective date of the January 4, 2018 Order. States have adopted a variety of approaches in attempting to preserve the rules in place prior to the FCC Order. For example, some states have passed narrow laws where rules addressing degradation or otherwise disrupting the provision of broadband internet access services are limited to parties that offer services to government agencies whereas other states have passed laws that apply generally. For example, California passed legislation of general applicability that would prevent providers of broadband internet access services from degrading and disrupting such services when offered to third parties. The law’s effective date was January 1, 2019.

There is legal uncertainty as to whether states that have passed such laws have the authority to do so if such laws could be interpreted to conflict with the January 4, 2018 Order. Due to this legal uncertainty, the U.S. Department of Justice filed a Motion for Preliminary Injunction on September 30, ~~2018, seeking to prevent California from enforcing its law set to become effective January 1,~~ 2019. In response, California state officials have agreed to delay enforcement of the new law at least until appeal of the January 4, 2018 Order is resolved by the U.S. Court of Appeals for the District of Columbia Circuit.

Many of the largest providers of broadband services, like cable companies and traditional telephone companies, have publicly stated that they will not degrade or disrupt their customers' use of applications and services, like ours. If such providers were to degrade, impair or block our services, it would negatively impact our ability to provide services to our customers, likely result in lost revenue and profits, and we would incur legal fees in attempting to restore our customers' access to our services. Broadband internet access providers may also attempt to charge us or our customers additional fees to access services like ours that may result in the loss of customers and revenue, decreased profitability, or increased costs to our offerings that may make our services less competitive. We cannot predict the potential impact of the January 4, 2018 Order on us at this time.

Our physical infrastructure is concentrated in a few facilities and any failure in our physical infrastructure or services could lead to significant costs and disruptions and could reduce our revenue, harm our business reputation and have a material adverse effect on our financial results.

Our leased network and data centers 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. Because our services do not require geographic proximity of our data centers to our customers, our infrastructure is consolidated into a few large data center facilities. Any failure or downtime in one of our data center facilities could affect a significant percentage of our customers. The total destruction or severe impairment of any of our data center facilities could result in significant downtime of our services and the loss of customer data. Because our ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor interruptions in our service could harm our reputation. 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. While we have not experienced a material increase in customer attrition following these events, the harm to our reputation is difficult to assess. We have taken and continue to take steps to improve our infrastructure to prevent service interruptions, including upgrading our electrical and mechanical infrastructure. However, service interruptions continue to be a significant risk for us and could have a material adverse impact on our business.

~~Any future service interruptions could:~~

~~cause our customers to seek service credits, or damages for losses incurred;~~

~~require us to replace existing equipment or add redundant facilities;~~

~~affect our reputation as a reliable provider of communications services;~~

~~cause existing customers to cancel or elect to not renew their contracts; or~~

~~make it more difficult for us to attract new customers.~~

~~Any of these events could materially increase our expenses or reduce our revenue, which would have a material adverse effect on our operating results.~~

We may be required to transfer our servers to new data center facilities in the event that we are unable to renew our leases on acceptable terms, or at all, or the owners of the facilities decide to close their facilities, and we may incur significant costs and possible service interruption in connection with doing so. In addition, any financial difficulties, such as bankruptcy or foreclosure, faced by our third-party data center operators, or any of the service providers with which we or they contract, may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our increasing needs for capacity, our ability to grow our business could be materially and adversely impacted.

We depend on third-party vendors for IP phones and certain software endpoints, and any delay or interruption in supply by these vendors would result in delayed or reduced shipments to our customers and may harm our business.

We rely on third-party vendors for IP phones and software endpoints required to utilize our service. We currently do not have long-term supply contracts with any of these vendors. As a result, most of these third-party vendors are not obligated to provide products or services to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. The inability of these third-party vendors to deliver IP phones of acceptable quality and in a timely manner, particularly the sole source vendors, could adversely affect our operating results or cause them to fluctuate more than anticipated. 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.

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 will decline.

The functionality and popularity of our cloud software solutions depends, in part, on our ability to integrate our services with third-party applications and platforms, including enterprise resource planning, customer relations management, human capital management and other proprietary application suites. Third-party providers of applications and application programmable interfaces, or 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. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms in conjunction with our services, which could negatively impact our offerings and harm our business. If we fail to integrate our software with new third-party back-end enterprise applications and platforms used by our customers, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and adversely impact our business.

Our services also allow our customers to use and manage our cloud software solutions on smartphones, tablets and other mobile devices. As new smart devices and operating systems are released, we may encounter difficulties supporting these devices and services, and we may need to devote significant resources to the creation, support, and maintenance of our mobile applications. In addition, if we experience difficulties in the future integrating our mobile applications into smartphones, tablets or other mobile devices or if problems arise with our relationships with

~~providers of mobile operating systems, such as those of Apple Inc. or Google Inc., our future growth and our results of operations could suffer.~~

If our software fails due to defects, bugs, vulnerabilities or similar problems, and if we fail to correct any defect or other software problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.

Our customers use our service to manage important aspects of their businesses, and any errors, defects, disruptions to our service or other performance problems with our service could hurt our reputation and may damage our customers' businesses. Our services and the systems infrastructure underlying our cloud communications platform incorporate software that is highly technical and complex. Our software has contained, and may now or in the future contain, undetected errors, bugs, or vulnerabilities, which have caused, and may in the future cause, temporary service outages for some customers. 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. We implement bug fixes and upgrades as part of our regularly scheduled system maintenance, which may lead to system downtime. 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. 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.

~~Vulnerabilities to security breaches, cyber intrusions and other malicious acts could adversely impact our business.~~

Our operations depend on our ability to protect our network from interruption by damage from unauthorized entry, computer viruses or other events beyond our control. In the past, we may have been subject to denial or disruption of service, or DDOS, and we may be subject to DDOS attacks in the future. We cannot assure you that our backup systems, regular data backups, security protocols, DDOS mitigation and other procedures that are currently in place, or that may be in place in the future, will be adequate to prevent significant damage, system failure or data loss.

Critical to our provision of service is the storage, processing, and transmission of our customers' data, which may include confidential and sensitive information. 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 European Union), as well as the Federal Communications Commission’s, or the FCC’s, customer proprietary network information (“CPNI”) rules. We may be targets of cyber threats and security breaches, given the nature of the information we store, process and transmit and the fact that we provide communications services to a broad range of businesses.

In addition, we use third-party vendors which in some cases have access to our data and our customers' data. Despite the implementation of security measures by us or our vendors, our computing devices, infrastructure or networks, or our vendors computing devices, infrastructure or networks may be vulnerable to hackers, computer viruses, worms, other malicious software programs or similar disruptive problems due to a security vulnerability in our or our vendors' infrastructure or network, or our vendors, customers, employees, business partners, consultants or other internet users who attempt to invade our or our vendors' public and private computers, tablets, mobile devices, software, data networks, or voice networks. If there is a security vulnerability in our or our vendors' infrastructure or networks that is successfully targeted, we could face increased costs, liability claims, government investigations, fines, penalties or forfeitures, class action litigation, reduced revenue, or harm to our reputation or competitive position.

Depending on the evolving nature of cyber threats, we may have to significantly increase our investment in maintaining the security of our networks and data, and our profitability may be adversely impacted, or we may have to increase the price of our services which may make our offerings less competitive with other communications providers.

If an individual obtains unauthorized access to our network, or if our network is penetrated, our service could be disrupted and sensitive information could be lost, stolen or disclosed which could have a variety of negative impacts, including legal liability, investigations by law enforcement and regulatory agencies, exposure to fines, penalties, or forfeitures, or class action litigation, any of which could harm our business reputation and have a

material negative impact on our business. In addition, to the extent we market our services as compliant with particular laws governing data privacy and security, such as the Health Insurance Portability and Accountability Act and foreign data protection laws, or provide representations or warranties as to such compliance in our customer contracts, a security breach that exposes protected information may make us susceptible to a number of contractual claims as well as claims related to our marketing. It could also potentially expose us to liability to individuals impacted by such a security breach.

Many governments have enacted laws requiring companies to notify individuals of data security incidents involving certain types of personal data including CPNI, personally identifiable information (or personal data in the European Union), financial account information, government-issued identification numbers, and other information that may lead to harming individuals if subject to an unauthorized disclosure. In addition, some of our customers contractually require notification of any data security compromise. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, federal and state government investigations, regulatory fines, penalties and forfeitures or other causes of action or liability, which could materially and adversely affect our business and operating results.

In contracts with larger enterprises, we often agree to assume liability for security breaches in excess of the amount of committed revenue from the contract. In addition, there can be no assurance that any limitations of liability provisions in our contracts for a security breach would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. Also, certain classes of information, like CPNI and information subject to state data breach notification laws in the U.S., or personal data in the European Union, can expose us to liability in the form of fines, expenses associated with federal and state government investigations, penalties and forfeitures, in addition to civil liability, if such data is breached. We cannot be sure that our existing cybersecurity insurance will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and operating results.

~~Failure to comply with laws and contractual obligations related to data privacy and protection could have a material adverse effect on our business, financial condition and operating results.~~

We are subject to the data privacy and protection laws and regulations adopted by federal, state and foreign governmental agencies, including the European Union’s General Data Protection Regulation ("GDPR") and the California Consumer Privacy Act ("CCPA"). Data privacy and protection is highly regulated in many jurisdictions and may become the subject of additional regulation in the future. For example, lawmakers and regulators worldwide are considering proposals that would require companies, like us, that encrypt users' data to ensure access to such data by law enforcement authorities. Privacy laws restrict our storage, use, processing, disclosure, transfer and protection of personal information, including credit card data, provided to us by our customers as well as data we collect from our customers and employees. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. However, if we fail to comply, we may be subject to fines, penalties and lawsuits, statutory damages at both the federal and state levels in the U.S., substantial fines and penalties under the European Union’s GDPR, class action lawsuits, and our reputation may suffer. We may also be required to make modifications to our data practices that could have an adverse impact on our business.

Governmental entities, class action lawyers and privacy advocates are increasingly examining companies' data collection, processing, use, storing, sharing, transferring and transmitting personal data and data linkable to individuals. Self-regulatory codes of conduct, enforcement actions by regulatory agencies, and lawsuits by private parties could impose additional compliance costs on us, negatively impacting our profitability, as well as subject us to unknown potential liabilities. These evolving laws, rules and practices may also curtail our current business activities which may also result in slimmer profit margins and reduce new opportunities.

We are also subject to the privacy and data protection-related obligations in our contracts with our customers and other third parties. Any failure, or perceived failure, by us to comply with federal, state, or international laws, including laws and regulations regulating privacy, data or consumer protection, or to comply with our contractual obligations related to privacy, could result in proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us, as well as harm our reputation. Additionally, third parties on which we rely enter into contracts to protect and safeguard our customers' data. Should such parties

violate these agreements or suffer a breach, we could be subject to proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation.

On July 12, 2016, the European Commission adopted the “Privacy Shield” which replaced the European Union (“EU”)-U.S. Safe Harbor Framework. We are currently participating in Privacy Shield and we also rely on other methods recognized under relevant EU law to transfer personal data between the EU and the U.S. Additionally, GDPR became effective on May 25, 2018, and replaces the Data Protection Directive 95/46/EC. GDPR imposes new obligations on all companies, including us, and substantially increases potential liability for all companies, including us, for failure to comply with data protection rules.

The regulatory landscape applicable to data transfers between the EU and other countries with similar data protection laws, and the U.S. remains unsettled. There is ongoing litigation in the EU, as well as calls by certain political and governmental bodies in the EU to re-evaluate data transfers between the EU and the U.S., that could negatively impact the existing legally acceptable methods for transferring data between the EU and the U.S. on which we rely as do many other companies. Moreover, while we established alternative methods to transfer data between the EU and U.S. that addressed certain legal uncertainties that previously existed, some independent data regulators have adopted the position that other forms of compliance, including the methods we rely upon now as do many other companies, are also invalid.

Like many other companies, we continue to face uncertainty with respect to the measures we have implemented. Additionally, there is continued uncertainty regarding the legality of transferring certain data between the EU and U.S. caused by: (i) ongoing litigation that could invalidate the existing method that we, along with many other companies, rely upon for compliance with relevant law; and (ii) the possibility that political and other governmental bodies may invalidate the method we, along with many other companies, rely upon to comply with relevant law. We cannot predict how or if this issue will be resolved nor can we evaluate our potential liability at this time.

Although GDPR has already gone into effect, there is still considerable uncertainty as to how to interpret and implement many of its provisions. It is particularly challenging for companies operating in the cloud services space, like us, to interpret and implement GDPR. If we fail to properly implement GDPR for any reason, we may be subject to fines and penalties. GDPR may also change our business operations in ways that we cannot currently predict that could increase our operating costs, decrease our profitability, or result in increased prices for our retail offerings that may make our services less competitive. We cannot evaluate our potential liability at this time.

The CCPA is scheduled to go into effect on January 1, 2020. As the CCPA currently stands, for California residents, it will require us to honor certain data subject rights and make certain disclosures regarding processing of personal information. It also grants California residents, the right to opt out of certain uses of personal information. The California Attorney General would be able to seek substantial monetary penalties and injunctive relief in the event of our noncompliance with the CCPA. In addition, the CCPA allows private lawsuits from California residents in the event of certain data breaches.

~~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. In order to port telephone numbers, we rely on third party telecommunications carriers to complete the process. Often number ports take longer than the specified timeframes. For many potential customers, the ability to quickly port their existing telephone numbers into our service in a timely fashion is a very important consideration. To the extent that we cannot quickly port telephone numbers in, our ability to acquire new customers may be negatively impacted. 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.

~~We could be liable for breaches of security on our website, fraudulent activities by our users, or the failure of third-party vendors to deliver credit card transaction processing services.~~

A fundamental requirement for operating an Internet-based, worldwide cloud software solutions and electronically billing our customers is the secure transmission of confidential information and media over public networks. 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.

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 rely on third-party providers to process and guarantee payments made by our subscribers up to certain limits, and we may be unable to prevent our customers from fraudulently

~~receiving goods and services. Our liability risk will increase if a larger fraction of transactions effected using our cloud-based services involve fraudulent or disputed credit card transactions.~~

We may also experience losses due to subscriber fraud and theft of service. Subscribers have, in the past, obtained access to our service without paying for monthly service and international toll calls by unlawfully using our authorization codes or by submitting fraudulent credit card information. 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.

~~Natural disasters, war, terrorist attacks or malicious conduct could adversely impact our operations and could degrade or impede our ability to offer services.~~

Our cloud communications services rely on uninterrupted connection to the Internet through data centers and networks. Any interruption or disruption to our network, or the third parties on which we rely, could adversely impact our ability to provide service. Our network could be disrupted by circumstances outside of our control including natural disasters, acts of war, terrorist attacks or other malicious acts including, but not limited to, cyber-attacks. Our headquarters, global networks operations center and one of our third-party data center facilities are located in the San Francisco Bay Area, a region known for seismic activity. Should any of these events occur and interfere with our ability to operate our network even for a limited period of time, we could incur significant expenses, lose substantial amounts of revenue, suffer damage to our reputation, and lose customers. Such an event may also impede our customers' connections to our network, since these connections also occur over the Internet, and would be perceived by our customers as an interruption of our services, even though such interruption would be beyond our control. Any of these events could have a material adverse impact on our business.

~~Our infringement of a third party's proprietary technology could disrupt our business.~~

There has been substantial litigation in the communications, cloud communication services, semiconductor, electronics, and related industries regarding intellectual property rights and, from time to time, third parties may claim that we, our customers, our licensees or parties indemnified by us are infringing, misappropriating or otherwise violating their intellectual property rights. Third parties may also claim that our employees have misappropriated or divulged their former employers' trade secrets or confidential information. Our broad range of current and former technology, including IP telephony systems, digital and analog circuits, software, and semiconductors, increases the likelihood that third parties may claim infringement by us of their intellectual property rights. Certain technology necessary for us to provide our services may, in fact, be patented by other parties either now or in the future. If such technology were held under patent by another person, we would have to negotiate a license for the use of that technology, which we may not be able to negotiate at a price that is acceptable or at all. The existence of such a patent, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using such technology and offering products and services incorporating such technology.

If we are found to be infringing on the intellectual property rights of any third-party in lawsuits or proceedings that may be asserted against us, we could be subject to monetary liabilities for such infringement, which could be material. We could also be required to refrain from using, manufacturing or selling certain products or using certain processes, either of which could have a material adverse effect on our business and operating results. We may continue to receive in the future, notices of claims of infringement, misappropriation or misuse of other parties' proprietary rights. There can be no assurance that we will prevail in these discussions and actions or that other actions alleging infringement by us of third-party patents will not be asserted or prosecuted against us. Furthermore, lawsuits like these may require significant time and expense to defend, may divert management's attention away from other aspects of our operations and, upon resolution, may have a material adverse effect on our business, results of operations, financial condition and cash flows.

~~Inability to protect our proprietary technology would disrupt our business.~~

We rely, in part, on patent, trademark, copyright, and trade secret law to protect our intellectual property in the United States and abroad. We seek to protect our software, documentation, and other written materials under trade secret and copyright law, which afford only limited protection. We currently have several United States patent applications pending. We cannot predict whether such pending patent applications will result in issued patents, and if they do, whether such patents will effectively protect our intellectual property. The intellectual property rights we obtain may not be sufficient to provide us with a competitive advantage, and could be challenged, invalidated, infringed or misappropriated. We may not be able to protect our proprietary rights in the United States or internationally (where effective intellectual property protection may be unavailable or limited), and competitors may independently develop technologies that are similar or superior to our technology, duplicate our technology or design around any patent of ours.

We attempt to further protect our proprietary technology and content by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property or technology.

Litigation may be necessary in the future to enforce our intellectual property rights, to determine the validity and scope of our proprietary rights or the rights of others, or to defend against claims of infringement or invalidity. 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.

We also may be required to protect our proprietary technology and content in an increasing number of jurisdictions, a process that is expensive and may not be successful, or which we may not pursue in every location. In addition, effective intellectual property protection may not be available to us in every country, and the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States. Additional uncertainty may result from changes to intellectual property legislation enacted in the United States and elsewhere, and from interpretations of intellectual property laws by applicable courts and agencies. Accordingly, despite our efforts, we may be unable to obtain and maintain the intellectual property rights necessary to provide us with a competitive advantage.

~~We may have difficulty attracting or retaining personnel with the technical skills and experience necessary to support our growth.~~

Companies in the cloud communications industry compete aggressively for top talent in all areas of business, but particularly sales and marketing, professional services and engineering, where employees with industry experience, technical knowledge and specialized skill sets are particularly valued. Demand can be expected to increase if cloud communications continues to gain a greater share of the global communications market. Some of our competitors may respond to these competitive pressures by increasing employee compensation, paying more on average than we pay for the same position. Any such disparity in compensation could make us less attractive to candidates as a potential employer, which in turn may make it more difficult for us to hire and retain qualified employees. Training an individual who lacks prior cloud communications experience to be successful in a sales or technical role can take months or even years.

When an employee of 8x8 leaves to work for a competitor, not only are we impacted by the loss of the individual resource, but we also face the risk that the individual will share our trade secrets with the competitor in violation of their contractual and legal obligations to us. Our competitors have in the past and may in the future target their hiring efforts on a particular department, and if we lose a group of employees to a competitor over a short time period, our day-to-day operations may be impaired. While we may have remedies available to us through litigation, they would likely take significant time and expense and divert management attention from other areas of the business.

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.

~~The United Kingdom's withdrawal from the EU may adversely impact our operations in the United Kingdom and elsewhere.~~

On June 23, 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the EU. The timing of the proposed exit is subject to further change; however, it is currently scheduled for as late as October 31, 2019, with a transition period expected to run through December 31, 2020. The political uncertainty that it has raised extends to regulatory uncertainty associated with the proposed exit from the EU. Since the vote to withdraw from the EU, negotiations and arrangements between the United Kingdom, the EU and other countries outside of the EU have been, and will continue to be, complex and time consuming. The potential withdrawal could adversely impact our UK subsidiary, 8x8 UK Limited (previously referred to as Voicenet Solutions Ltd.), and add operational complexities that did not previously exist. Currently, the most immediate impact may be to the relevant regulatory regimes under which 8x8 UK Limited operates, including the offering of communications services, as well as to data privacy regulations. The impact on regulatory regimes remains uncertain. For example, while the United Kingdom government has announced its intent to introduce domestic legislation that would largely reconcile United Kingdom domestic law with many EU laws, including GDPR, it remains unknown what will actually occur it what the departure from the EU may mean with respect to data privacy regulation including its impact on data transfers from the EU to the United Kingdom, and ~~vice versa, as well as data transfers from the United Kingdom to jurisdictions outside of~~

the EU. Also, it remains unclear what impact a United Kingdom withdrawal may have on taxes which may increase the cost of our services sold in the United Kingdom, or reduce our profit margins, or make our services less competitive with traditional communications service providers, or some combination of any of these potential issues. Additionally, the impending withdrawal of the United Kingdom from the EU has resulted in significant volatility in the international financial currency markets. Although most of our services revenues are denominated in U.S. dollars, we also receive payments in international currencies including the pound and the euro. Like all businesses that derive revenue in differing currencies, we incur risks with respect to currency translation when there are fluctuations in exchange rates and when the U.S. dollar is valued higher as compared to other currencies. While we cannot predict the impact that an actual exit from the EU will have on 8x8 UK Limited, the potential collateral impact it may have on our operations elsewhere including the U.S., nor its potential impact on our financial results, the United Kingdom’s vote to leave the European Union and the uncertainties associated with whether it will be with or without a formal plan has created legal, regulatory, and currency risk that may have a materially adverse impact on our business.

~~Our future operating results may vary substantially from period-to-period and may be difficult to predict.~~

Our historical operating results have fluctuated significantly and will likely continue to fluctuate in the future, and a decline in our operating results could cause our stock price to fall. On an annual and a quarterly basis, there are a number of factors that may affect our operating results, some of which are outside our control. These include, but are not limited to:

~~changes in market demand;~~

~~the timing of customer subscriptions for our cloud software solutions;~~

~~customer cancellations;~~

~~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;~~

~~extent of market acceptance of new or existing services and features;~~

~~the mix of our customer base and sales channels;~~

~~the mix of 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;~~

~~continued compliance with industry standards and regulatory requirements;~~

~~material security breaches or service interruptions due to cyberattacks or infrastructure failures or unavailability;~~

~~introduction and adoption of our cloud software solutions in markets outside of the United States;~~

changes in the recognition pattern of revenues and operating expenses as a result of new regulations, accounting principles and their interpretations, such as Financial Accounting Standards Board's Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606); and

~~general economic conditions.~~

Due to these and other factors, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of our future performance. It is possible that in some future periods our results of operations may be below the expectations of public market analysts and investors. If any of these were to occur, the price of our common stock would likely decline significantly.

In addition, changes in regulatory and accounting principles, and our interpretation of these and judgments used in applying them to our facts and circumstances, could have a material effect on our results of operations and financial

~~condition. We also need to revise our business processes, systems and controls which requires significant management attention and may negatively affect our financial reporting obligations.~~

Our products and services must comply with industry standards, FCC regulations, state, local, country-specific and international regulations, and changes may require us to modify existing products and/or services.

In addition to reliability and quality standards, the market acceptance of telephony over broadband IP networks is dependent upon the adoption of industry standards so that products from multiple manufacturers are able to communicate with each other. Our cloud-based communications and collaboration services rely heavily on communication standards such as SIP, MGCP and network standards such as TCP/IP and UDP to interoperate with other vendors' equipment. There is currently a lack of agreement among industry leaders about which standard should be used for a particular application, and about the definition of the standards themselves. These standards, as well as audio and video compression standards, continue to evolve. We also must comply with certain rules and regulations of the FCC regarding electromagnetic radiation and safety standards established by Underwriters Laboratories, as well as similar regulations and standards applicable in other countries. Standards are frequently modified or replaced. As standards evolve, we may be required to modify our existing services or develop and support new versions of our services. We must comply with certain federal, state and local requirements regarding how we interact with our customers, including marketing practices, consumer protection, privacy, and billing issues, the provision of 9-1-1 or other international emergency services, including location data and the quality of service we provide to our customers. The failure of our products and services to comply, or delays in compliance, with various existing and evolving standards could delay or interrupt volume production of our communications and collaboration services, subject us to fines or other imposed penalties, or harm the perception and adoption rates of our service, any of which would have a material adverse effect on our business, financial condition or operating results.

~~For example:~~

•

Regulation of our services as telecommunications services may require us to obtain authorizations or licenses to operate in foreign jurisdictions and comply with legal requirements applicable to traditional telephony providers. Regulators around the world, including those in the European Union generally do not distinguish between our cloud-based communications services and traditional telephony services. By entering additional international markets we may subject ourselves to significant regulation from foreign telecommunications authorities, including obligations to obtain telecommunications licenses and authorizations, complying with consumer protection laws and cooperating with local law enforcement authorities. This regulation impacts our ability to differentiate ourselves from incumbent service providers and imposes substantial compliance costs on us. Regulation restricts our ability to compete and, in some jurisdictions, it may restrict how we are able to expand our service offerings. Moreover, the regulatory environment is constantly evolving and changes to the applicable regulations may have an adverse effect upon our business by imposing additional compliance costs, modifying our technology and operations and in general affecting our profitability.

•

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 our pricing advantage. The FCC and a number of states are considering reform or other modifications to Universal Service Fund programs. Furthermore, the FCC has ruled that states can require us to contribute to state Universal Service Fund programs. A number of states already require us to contribute, while others are actively considering extending their programs to include the services we provide. At the same time, foreign regulatory authorities may impose regulatory fees or other contributions on our services. Should the FCC, states or foreign regulators adopt new contribution mechanisms or otherwise modify contribution obligations that increase our contribution burden, we will either need to raise the amount we currently collect from our customers to cover these obligations or absorb the costs, which would reduce our profit margins. We currently pass-through Universal Service Fund contributions and certain other fees to our customers, which may result in our services becoming less competitive as compared to those provided by others.


•	~~We may become subject to state regulation for certain service offerings.~~ Certain states take the position that offerings by VoIP providers, like us, are intrastate and therefore subject to state regulation. These states argue that if the beginning and end points of communications are known, and if some of these communications occur entirely within the boundaries of a state, the state can

regulate that offering. We believe that the FCC has preempted states from regulating VoIP services like ours in the same manner as providers of traditional telecommunications services. We cannot predict how this issue will be resolved or its impact on our business at this time.


•	~~The FCC adopted rules concerning call completion rates to rural areas of the United States.~~ It is possible that we, like other providers in the communications marketplace, may be subject to fines or other enforcement actions should the FCC determine that our call completion rates to rural areas are, or have been, unacceptable.


•	~~The FCC and foreign regulators may require providers like us to comply with regulations related to how we present bills to customers.~~ ~~The adoption of such obligations may require us to revise our bills and may increase our costs of providing service which could either result in price increases or reduce our profitability.~~

•

There may be risk associated with our ability to comply with U.S. and foreign rules concerning disabilities access requirements and the FCC and foreign regulators may expand disabilities access requirements to additional services we offer. We cannot predict whether we will be subject to additional accessibility requirements or whether any of our service offerings that are not currently subject to disabilities access requirements will be subject to such obligations. It is possible that we, like other providers in the communications marketplace, may be subject to fines or other enforcement actions if we are found not to be in compliance with the FCC's and foreign accessibility requirements.

•

~~There may be risks associated with our ability to comply with requirements of the Telecommunications Relay Service and similar foreign statutes.~~ The FCC requires providers of interconnected VoIP services to comply with certain regulations pertaining to people with disabilities and to contribute to the Telecommunications Relay Services fund. We are also required to offer 7-1-1 abbreviated dialing for access to relay services. At the same time, several foreign regulators also mandate accessibility requirements for people with disabilities. It is possible that we, like other providers in the communications marketplace, may be subject to fines or other enforcement actions if we are found not to be in compliance with these requirements, including the FCC's 7-1-1 abbreviated dialing obligations.

•

~~There may be risks associated with our ability to comply with the requirements of U.S. and foreign law enforcement agencies.~~ The FCC requires all interconnected VoIP providers to comply with the Communications Assistance for Law Enforcement Act, or CALEA. Similarly, foreign regulatory frameworks require VoIP providers to comply with local law enforcement and cooperate with local authorities in conducting wiretaps, pentraps and other surveillance activities. The FCC and other regulators may allow VoIP providers to comply with CALEA and similar statutes through the use of a service provided by a trusted third-party with the ability to extract call content and call-identifying information from a VoIP provider's network. Regardless of our reliance on a third party for compliance, it is possible that we, like other providers in the communications marketplace, may be subject to fines or other enforcement actions if we are found not to be in compliance with our obligations under CALEA or other similar assistance with law enforcement statutes.

•

~~U.S. and foreign regulations may require us to deploy an E-911 or access to emergency service that automatically determines the location of our customers.~~ In 2007, the FCC released a Notice of Proposed Rulemaking, in which it tentatively concluded that all interconnected VoIP providers that allow customers to use their service in more than one location (nomadic VoIP service providers, such as us), must utilize an automatic location technology that meets the same accuracy standards which apply to providers of commercial mobile radio services (mobile phone service providers). Since then, the FCC has been conducting proceedings and inquiries concerning the implementation of such a rule, including possible changes to the manner providers provision E-911 services on mobile applications. At the same time, foreign regulatory authorities, have conducted similar proceedings mandating VoIP providers in the applicable jurisdiction to provide caller location data when completing calls to the local emergency service numbers. The outcome of these proceedings cannot be determined at this time and we may or may not be able to comply with any such obligations that may be adopted. At present, we currently have no means to automatically identify the physical location of one of our customers on the Internet. We cannot guarantee that emergency calling service consistent with the FCC's order and other similar foreign orders will be available to all of our customers, especially those accessing our services from outside of the United States. Compliance with these obligations could result in service price

~~increases and could have a material adverse effect on our business, financial condition or operating results.~~

•

~~The FCC adopted orders reforming the system of payments between regulated carriers that we partner with to interface with the public switch telephone network.~~ The FCC reformed the system under which regulated providers of telecommunications services compensate each other for various types of traffic, including VoIP traffic that terminates on the PSTN and applied new call signaling requirements to VoIP providers and other service providers. The FCC's new rules require, among other things, interconnected VoIP providers, like us, that originate interstate or intrastate traffic destined for the PSTN, to transmit the telephone number associated with the calling party to the next provider in the call path. Intermediate providers must pass calling party number or charge number signaling information they receive from other providers unaltered, to subsequent providers in the call path. While we believe we are in compliance with this rule, to the extent that we pass traffic that does not have appropriate calling party number or charge number information, we could be subject to fines, cease and desist orders, or other penalties. The FCC's Order reforming payments between carriers for various types of traffic may result in increasing the payments we make to underlying carriers to access the PSTN, which may result in us increasing the retail price of our service, potentially making our offering less competitive with traditional providers of telecommunications services, or may reduce our profitability.

~~Our emergency and E-911 calling services are different from those offered by traditional wireline telephone companies and may expose us to significant liability.~~

~~There may be risks associated with limitations of E-911 and other emergency dialing with the 8x8 service.~~

Both our emergency calling service and our E-911 calling service are different, in significant respects, from the emergency calling services offered by traditional wireline telephone companies in the United States and abroad. In each case, the differences may cause significant delays, or even failures, in callers' receipt of the emergency assistance they need.

The FCC may determine that our nomadic emergency calling service does not satisfy the requirements of its VoIP E-911 order because, in some instances, our nomadic emergency calling service requires that we route an emergency call to a national emergency call center instead of connecting our customers directly to a local public-safety answering point through a dedicated connection and through the appropriate selective router. Similarly, foreign telecommunications regulators may determine that our nomadic emergency calling service does not meet applicable local emergency dialing and location requirements.

Delays our customers may encounter when making emergency services calls and any inability of the answering point to automatically recognize the caller's location or telephone number can result in life threatening consequences. Customers may, in the future, attempt to hold us responsible for any loss, damage, personal injury or death suffered as a result of any failure of our E-911 services and other emergency dialing services.

The New and Emerging Technologies 911 Improvement Act of 2008 provides public safety entities, interconnected VoIP providers and others involved in handling 911 calls the same liability protections when handling 911 calls from interconnected VoIP users as from mobile or wired telephone service users. The applicability of the liability protections to our national call center service is unclear at the present time.

Alleged or actual failure of our solutions to comply with regulations governing outbound dialing, including regulations under the Telephone Consumer Protection Act of 1991 and similar foreign statutes, could harm our business, financial condition, results of operations and cash flows.

The legal and contractual environment surrounding calling consumers and wireless phone numbers is complex and evolving. In the United States, two federal agencies, the Federal Trade Commission ("FTC") and the FCC, and various states have enacted laws including, at the federal level, the Telephone Consumer Protection Act of 1991, or TCPA, that restrict the placing of certain telephone calls and texts to residential and wireless telephone subscribers by means of automatic telephone dialing systems, prerecorded or artificial voice messages and fax machines. Internationally, we are also subject to similar laws imposing limitations on marketing calls to wireline and wireless numbers and compliance with do not call rules. These laws require companies to institute processes and safeguards to comply with these restrictions. Some of these laws can be enforced by the FTC, FCC, State Attorneys General, foreign regulators or private party litigants. In these types of actions, the plaintiff may seek damages, statutory penalties, costs and/or attorneys' fees.

It is possible that the FTC, FCC, foreign regulators, state attorneys general, private litigants or others may attempt to hold our customers, or us as a software provider, responsible for alleged violations of these laws. In the event

that litigation is brought, or fines are assessed, against us, we may not successfully enforce or collect upon any contractual indemnities we may have from our customers. Additionally, any changes to these laws or their interpretation that further restrict calling consumers, any adverse publicity regarding the alleged or actual failure by companies, including our customers and competitors, to comply with such laws, or any governmental or private enforcement actions related thereto, could result in the reduced use of our solution by our clients and potential clients, which could harm our business, financial condition, results of operations and cash flows.

~~Failure of our back-end information technology systems to function properly could result in significant business disruption.~~

We rely on IT systems to manage numerous functions of our internal operations, some of which were internally developed IT systems that were not fully integrated among themselves, or with our third-party ERP system. These IT systems require specialized knowledge for which we have to train new personnel, and if we were to experience an unusual increase in attrition of our IT personnel, we may not be adequately equipped to respond to an IT system failure. These IT systems were developed at a time when we provided services primarily to SMB customers and they may not be able to accommodate the requirements of larger enterprises as effectively as more modern and flexible solutions. Continued reliance on these systems may harm us competitively and impede our efforts to sell to larger enterprises.

Although we are in the process of upgrading a number of our IT systems, including our ERP software, our quote-to-cash software and our customer service and support software, we face risks relating to these transitions. For example, we may incur greater costs than we anticipate to train our personnel on the new systems; we may experience more errors in our records during the transition; and we may be delayed in meeting our various reporting obligations. To the extent any of these risks or events impact our customer service, we may experience an increase in customer attrition, which could have a material adverse impact on our results of operations.

~~Our inability to use software licensed from third parties, or our use of open source software under license terms that interfere with our proprietary rights, could disrupt our business.~~

Our technology platform incorporates software licensed from third parties, including some software, known as open source software, which we use without charge. Although we monitor our use of open source software, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our platform to our customers. In the future, we could be required to seek licenses from third parties in order to continue offering our platform, which licenses may not be available on terms that are acceptable to us, or at all. Alternatively, we may need to re-engineer our platform or discontinue use of portions of the functionality provided by our platform. In addition, the terms of open source software licenses may require us to provide software that we develop using such software to others on unfavorable license terms. Our inability to use third-party software could result in disruptions to our business, or delays in the development of future offerings or enhancements of existing offerings, which could impair our business.

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our business.

The applicability of state and local taxes, fees, surcharges or similar taxes to our services is complex, ambiguous and subject to interpretation and change. In the United States, for example, we collect state and local taxes, fees and surcharges based on our understanding of the applicable laws in the relevant jurisdiction. The taxing authorities may challenge our interpretation of the laws and may assess additional taxes, penalties and interests which could have adverse effects on the results of operations and, to the extent we pass these through to our customers, demand for our services. We currently file more than 1,000 state and municipal tax returns monthly. Periodically, we have received inquiries from state and municipal taxing agencies with respect to the remittance of state or municipal taxes, fees or surcharges. Currently, several jurisdictions are conducting audits of 8x8. As of March 31, 2019, we have accrued for state or municipal taxes, fees or surcharges that we believe are required to be remitted.

We have accrued a liability of approximately $8.0 million as our best estimate of the probable amount of taxes, fees and surcharges that may be imposed by states, municipalities and other taxing jurisdictions on our services to date. Historically, the amounts that have been remitted for uncollected state, municipal and other similar indirect taxes, fees, or surcharges have been within the accruals we established. We adjust our accrual when facts relating to specific exposures warrant such adjustment. This accrued contingent liability is based on our analysis of several factors, including the location where our services are used, our nexus to that jurisdiction for tax purposes, and the taxability of our services under the rules and regulations in each state or municipality (as these may be interpreted by regulatory and judicial authorities from time to time). While we have accrued for these potential liabilities based

on our analyses and best estimates at the time, state, municipal and other taxing and regulatory authorities may challenge our position, which could result in us being liable for sales and use taxes, fees, or surcharges, as well as related penalties and interest, above our accrued contingent liability. To the extent we collect or otherwise recover these taxes, fees or surcharges from our customers, our services may become less competitive, our churn rate may increase, and our revenue from new and existing customers may be materially adversely affected.

~~Our ability to use our net operating losses or research tax credits to offset future taxable income may be subject to certain limitations.~~

As of June 30, 2019, we had federal net operating loss (“NOL”) carryforwards related to fiscal year 2019 of approximately $88.6 million which carryforward indefinitely and carryforwards related to prior years of $156.4 million which begin to expire in 2021. As of June 30, 2019, the Company had state net operating loss carryforwards $80.0 million, which expire at various dates between 2029 and 2037. We also had research and development credit carryforwards for federal and California tax purposes of approximately $10.1 million and $11.5 million, respectively. The federal income tax credit carryforwards related to research and development will expire at various dates between 2021 and 2036, while the California income tax credits will carryforward indefinitely. Utilization of our NOL and tax credit carryforwards can become subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of the stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. 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. 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. 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.

~~If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.~~

The Sarbanes-Oxley Act of 2002 requires, among other things, that we establish and maintain internal control over financial reporting and disclosure controls and procedures. In particular, under the current rules of the Securities and Exchange Commission (“SEC”), we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm is also required to report on our internal control over financial reporting. Our and our auditor’s testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective. We have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404. If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to investigations or sanctions by the SEC, The NYSE Stock Market, or other regulatory authorities, or subject to litigation. To the extent any material weaknesses in our internal control over financial reporting are identified in the future, we could be required to expend significant management time and financial resources to correct such material weaknesses or to respond to any resulting regulatory investigations or proceedings.

~~Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported operating results.~~

The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board (the “FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies are being subjected to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements.

~~For example, in May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification 606 or ASC 606~~), which replaces numerous requirements in U.S. GAAP and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The impact of adopting the new standard on our total revenues and deferred revenue has not been and is not expected

to be material. With the adoption of ASC 606 we also adopted ASC 340-40, Other Assets and Deferred Costs—Contracts with Customers, which requires the deferral of incremental costs of obtaining a customer contract which, under the old guidance, were expensed as incurred. Adoption of the new standard resulted in changes to our accounting policies for revenue recognition and deferred commissions.

We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition of subscription revenue and other revenue sources, our operating results could be significantly affected.

~~We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.~~

We may need to pursue financing in the future to make expenditures or investments to support the growth of our business (whether through acquisitions or otherwise) and may require additional capital to pursue our business objectives, respond to new competitive pressures, service our debt, pay extraordinary expenses such as litigation settlements or judgments or fund growth, including through acquisitions, among other potential uses. Additional funds, however, may not be available when we need them on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow and support our business and to respond to business challenges could be significantly limited.

~~Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.~~

On February 19, 2019, we issued $287.5 million aggregate principal amount of our 0.50% convertible senior notes due 2024 in a private placement. Pursuant to an indenture dated as of February 19, 2019 between us and Wilmington Trust, National Association, as trustee, the notes bear interest at a rate of 0.50% per annum, payable semi-annually in arrears in cash on February 1 and August 1 of each year, and they will mature on February 1, 2024, unless earlier converted, redeemed or repurchased.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the amounts payable under the notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. 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.

We may not have the ability to raise the funds necessary to settle conversions of the notes in cash or to repurchase the notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the notes.

Holders of the notes have the right to require us to repurchase their notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of notes surrendered therefor or notes being converted. In addition, our ability to repurchase the notes or to pay cash upon conversions of the notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the occurrence of the fundamental change may also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof.

~~The conditional conversion feature of the notes, if triggered, may adversely affect our financial condition and operating results.~~

In the event the conditional conversion feature of the notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes,

unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of notes do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

~~The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on our reported financial results.~~

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our condensed consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the notes. As a result, we will be required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-20 will require interest to include both the amortization of the debt discount and the instrument’s non-convertible coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the notes.

In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of such notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share could be adversely affected.

~~The capped call transactions entered into in connection with our sale of notes may affect the value of our common stock.~~

In connection with the offer and sale of the notes, we entered into capped call transactions with one or more of the initial purchasers or affiliates thereof and/or other financial institutions (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution upon conversion of the notes at maturity and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.

In capped call transactions similar to the ones we entered into, the option counterparties or their respective affiliates typically enter into various derivative transactions with respect to the issuer's common stock and/or purchase shares of the issuer's common stock concurrently with or shortly after the pricing of the notes. The option counterparties or their respective affiliates in our capped call transactions may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during the valuation period for the capped call transactions, which is expected to occur during the 40 trading day period beginning on the 41st scheduled trading day prior to the maturity of the notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

In addition, if any such capped call transactions fail to become effective, whether or not this offering of notes is completed, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our common stock.

~~Decreasing telecommunications rates and increasing regulatory charges may diminish or eliminate our competitive pricing advantage versus legacy providers.~~

Decreasing telecommunications rates may diminish or eliminate the competitive pricing advantage of our services, while increased regulation and the imposition of additional regulatory funding obligations at the federal, state, local and foreign level could require us to either increase the retail price for our services, thus making us less

competitive, or absorb such costs, thus decreasing our profit margins. International and domestic telecommunications rates have decreased significantly over the last few years in most of the markets in which we operate, and we anticipate these rates will continue to decline in all of the markets in which we do business or expect to do business. Users who select our services to take advantage of the current pricing differential between traditional telecommunications rates and our rates may switch to traditional telecommunications carriers if such pricing differentials diminish or disappear, and we will be unable to use such pricing differentials to attract new customers in the future. Continued rate decreases would require us to lower our rates to remain competitive in the United States and abroad and would reduce or possibly eliminate any gross profit from our services. In addition, we may lose subscribers for our services.

~~Adverse economic conditions may harm our business.~~

Our business depends on the overall demand for cloud communications services and on the economic health of our current and prospective customers, which consist primarily of businesses (both for-profit and non-profit). If economic conditions deteriorate globally or in the jurisdictions that account for a material amount of our revenue (in particular, the United States, Europe and Canada, Australia), the size of our target market may decrease, and existing and prospective customers may delay or reduce their cloud communications spending. If our existing and prospective customers experience economic hardship, this could reduce the demand for our cloud services, delay and lengthen sales cycles, force us to lower the prices for our services, and lead to slower growth or even a decline in our revenues, operating results and cash flows.

We currently rely on small and medium-sized businesses for a significant portion of our revenue. Customers in this market generally have more limited financial resources, and may be affected by economic downturns, to a greater extent than larger or more established businesses. If small and medium-sized businesses experience financial hardship as a result of a weak economy, the demand for our services could be materially and adversely affected, and our revenue may not increase from period-to-period as rapidly as our competitors who have less dependence on sales to these sectors, or may even decrease from period-to-period.

~~Risks Related to Our Common Stock~~

~~Future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock.~~

In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options, upon the vesting and settlement of restricted stock units and performance units, and upon conversion of our notes. 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. The issuance and sale of substantial amounts of common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.

As of June 30, 2019, our directors and executive officers held an aggregate of 1,694,523 shares, or 1.75%, of our common stock outstanding as of such date. In addition, as of June 30, 2019, 11,167,565 shares of our common stock were subject to options, restricted stock units, and performance stock units outstanding, and 10,023,008 shares of our common stock were available for future grant under our equity incentive plans. These shares may be sold in the public market upon issuance and once vested, subject to the restrictions provided under the terms of the applicable plan or award agreement. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

~~We are unable to predict the effect that sales, or the perception that our shares may be available for sale, will have on the prevailing market price of our common stock.~~

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Furthermore, such analysts publish their own projections regarding our actual results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our stock price may

~~decline if we fail to meet analysts’ projections.~~

~~Certain provisions in our charter documents and Delaware law could discourage takeover attempts.~~

Our restated certificate of incorporation and 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 shares 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.

We are also subject to certain anti-takeover provisions under the General Corporation Law of the State of Delaware, or the DGCL. Under Section 203 of the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or (i) our board of directors approves the transaction prior to the stockholder acquiring the 15% ownership position, (ii) upon consummation of the transaction that resulted in the stockholder acquiring the 15% ownership position, the stockholder owns at least 85% of the outstanding voting stock (excluding shares owned by directors or officers and shares owned by certain employee stock plans) or (iii) the transaction is approved by the board of directors and by the stockholders at an annual or special meeting by a vote of 66 2/3% of the outstanding voting stock (excluding shares held or controlled by the interested stockholder). These provisions in our restated certificate of incorporation and by-laws and under Delaware law could discourage potential takeover attempts.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Purchases of Equity Securities.

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Period	(a) Total Number of shares repurchased (1)	(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
October 1, 2019 through October 31, 2019	—	$	—	—	$	7,065,978
November 1, 2019 through November 30, 2019	4,088	$	20.82	—	$	7,065,978
December 1, 2019 through December 31, 2019	—	$	—	—	$	7,065,978

(1) The 4,088 shares purchased represent shares surrendered to the Company to pay the exercise price in connection with the exercise of employee stock options pursuant to the Company's Amended & Restated 2012 Equity Incentive Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit Number		Description
~~2.1+~~1.1		~~Share Purchase~~Underwriting Agreement, dated as of ~~July 17,~~November 18, 2019, ~~by and among,~~between 8x8, Inc.~~, Wavecell Pte. Ltd., the Sellers named herein,~~ and Qualgro Partners Pte. Ltd.*Morgan Stanley & Co. LLC (incorporated by reference to Exhibit 1.1 of Current Report on Form 8-K filed November 21, 2019).
~~10.1+~~4.1		Indenture, dated as of February 19, 2019, between 8x8, Inc. Employee Bonus Plan.**and Wilmington Trust, National Association, as trustee (including form of Note) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed February 19, 2019).
10.1		Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed November 21, 2019).
31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS~~101		~~XBRL Instance Document -~~ The following materials from the ~~instance document does not appear~~8x8, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2019; (ii) Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2019 and 2018; (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended December 31, 2019 and 2018; (iv) Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended December 31, 2019 and 2018; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018; and (vi) notes to unaudited condensed consolidated financial statements.
104		Cover Page Interactive Data File, ~~because its XBRL tags are embedded within the Inline XBRL document.~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase~~
~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase~~formatted in iXBRL and contained in Exhibit 101.



*	Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request.
**	Management contract or compensatory plan or arrangement.
+	Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~July 30, 2019~~February 5, 2020



	8X8, INC.
	(Registrant)
	By: /s/ Steven Gatoff
	Steven Gatoff
	Chief Financial Officer (Principal Financial and Duly Authorized Officer)

5234



	Estimated
	Fair Value
Due within one year	$	27,486
Due after one year	21,667
Total	$	49,153



	Amount
Remaining 2020	$	4,573
2021	3,557
2022	1,766
2023	229
Total	$	10,125



Weighted average remaining lease term	3.9 years
Weighted average discount rate	4.0%
Cash paid for amounts included in the measurement of lease liabilities	$	2,252
Operating cash flow from operating leases	$	2,252



Remaining 2020	$	6,008
2021	5,666
2022	4,275
2023	1,381
2024	1,111
Thereafter	2,221
Total lease payments	$	20,662
Less: imputed interest	(1,555		)
Present value of lease liabilities	$	19,107



	Three Months Ended June 30, 2019
Contractual interest expense	$	359
Amortization of debt discount	3,146
Amortization of issuance costs	26
Total interest expense	$	3,531