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 ~~December 31, 2019~~September 30, 2020

☐ 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 001-38312

~~8X8,~~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~~675 Creekside Way

~~San Jose~~, Campbell, CA~~95131~~ 95008

(Address of ~~Principal Executive Offices)~~principal executive offices)

(~~408~~) (408) 727-1885

(Registrant's ~~Telephone Number,~~telephone number, including ~~Area Code)~~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 ~~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 ~~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 ☐ ☐No ☒ The number of shares of the Registrant's Common Stock outstanding as of ~~January 30,~~October 22, 2020 was ~~102,458,236.~~106,321,438.

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8X8, INC

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

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	Page No.
Forward-Looking Statements and Risk Factors		2
PART I. FINANCIAL INFORMATION		54
Item 1. Financial Statements (unaudited):		54
Condensed Consolidated Balance Sheets ~~at December 31, 2019 and March 31, 2019~~		54
Condensed Consolidated Statements of Operations ~~for the three and nine months ended December 31, 2019 and 2018~~		65
Condensed Consolidated Statements of Comprehensive Loss ~~for the three and nine months ended December 31, 2019 and 2018~~		76
Condensed Consolidated Statements of Stockholders' Equity ~~for the three and nine months ended December 31, 2019 and 2018~~		87
Condensed Consolidated Statements of Cash Flows ~~for the nine months ended December 31, 2019 and 2018~~		108
Notes to Unaudited Condensed Consolidated Financial Statements		1110
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		2319
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3026
Item 4. Controls and Procedures		3127
PART II. OTHER INFORMATION		3128
Item 1. Legal Proceedings		3128
Item 1A. Risk Factors		3128
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3128
Item 3. Defaults Upon Senior Securities		3228
Item 4. Mine Safety Disclosures		3228
Item 5. Other Information		3228
Item 6. Exhibits		3329
Signature		3430

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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. These forward-looking statements include, but are not limited to, statements regarding: industry trends; our number of customers; average annual service revenue per customer; cost of service revenue and other revenue; research and development expenses; hiring of employees; sales and marketing expenses; general and administrative expenses in future periods; and the impact of the COVID-19 pandemic. 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~~•the impact of ~~new or existing services~~economic downturns on us and ~~features we may offer~~our customers, including the impacts of the COVID-19 pandemic;

•customer cancellations and rate of customer churn;

•benefits that can be realized from ~~time to time;~~migrating customers from legacy products, including reducing the number of supported platforms and improved customer churn;

•customer acceptance and demand for our cloud communication and collaboration services, including voice, contact center, video, messaging, and communication ~~APIs;~~application programming interfaces ("APIs");

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

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

•the quality and reliability of our products and services;

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

•our ability to scale our business;

•customer acquisition costs;

•our reliance on a network of channel partners to provide substantial new customer demand;

•upfront investments, including the cost to support new strategic initiatives such as our cloud migration program with value-added resellers ("VARs") and other partners, to acquire more customers may not result in additional revenue from new or existing customers;

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

•the amount and timing of costs associated with recruiting, training and integrating new employees and retaining existing employees;

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

•risk of failure in our physical infrastructure;

•risk of defects or bugs in our software;

•risk of cybersecurity breaches;

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

•continued compliance with industry standards and regulatory requirements, 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;

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

•risks relating to the acquisition and integration of businesses we have acquired (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;

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

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

~~risk of cybersecurity breaches;~~

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

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

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

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

Please refer to the "Risk Factors" section of our annual report on Form 10-K for the fiscal year ended March 31, ~~2019,~~2020 as modified by the "Risk Factors" section of our Quarterly Report for the three-month period ended June 30, 2020, and subsequent Securities and Exchange Commission ("SEC") filings for additional 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~~2021 refers to the fiscal

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year ~~ended~~ending on March 31, ~~2020)~~2021). 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.~~INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In ~~thousands, unaudited)~~thousands)


	December 31, 2019			March 31, 2019				September 30, 2020		March 31, 2020
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	184,794		$	276,583		Cash and cash equivalents	$	121,848	$	137,394
Restricted cash, current	3,459			—			Restricted cash, current	6,917		10,376
Short-term investments	30,283			69,899			Short-term investments	31,381		33,458
Accounts receivable, net	37,384			20,181			Accounts receivable, net	42,971		37,811
Deferred sales commission costs	20,749			15,601
Deferred sales commission costs, current							Deferred sales commission costs, current	26,334		22,444
Other current assets	25,712			15,127			Other current assets	39,088		35,679
Total current assets	302,381			397,391			Total current assets	268,539		277,162
Property and equipment, net	89,776			52,835			Property and equipment, net	96,185		94,382
Operating lease, right-of-use assets	77,062			—			Operating lease, right-of-use assets	72,841		78,963
Intangible assets, net	26,455			11,680			Intangible assets, net	19,959		24,001
Goodwill	131,000			39,694			Goodwill	130,152		128,300
Restricted cash, non-current							Restricted cash, non-current	8,641		8,641
Long-term investments	20,126			—			Long-term investments	6,181		16,083
Restricted cash, non-current	15,558			8,100
Deferred sales commission costs, non-current	48,656			33,693			Deferred sales commission costs, non-current	64,061		53,307
Other assets	21,485			2,965			Other assets	20,685		19,802
Total assets	$	732,499		$	546,358		Total assets	$	687,244	$	700,641
LIABILITIES AND STOCKHOLDERS' EQUITY							LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	50,334		$	32,280		Accounts payable	$	35,278	$	40,261
Accrued compensation	24,392			18,437			Accrued compensation	28,698		22,656
Accrued taxes	11,670			13,862			Accrued taxes	11,574		10,251
Operating lease liabilities, current	4,320			—			Operating lease liabilities, current	9,498		5,875
Deferred revenue	7,216			3,336
Deferred revenue, current							Deferred revenue, current	9,452		7,105
Other accrued liabilities	23,704			6,790			Other accrued liabilities	21,913		37,277
Total current liabilities	121,636			74,705			Total current liabilities	116,413		123,425

Operating lease liabilities, non-current	86,187			—			Operating lease liabilities, non-current	87,462		92,452
Convertible senior notes, net	287,464			216,035			Convertible senior notes, net	299,853		291,537

Other liabilities, non-current	17,721			6,228			Other liabilities, non-current	9,057		2,496
Total liabilities	513,008			296,968			Total liabilities	512,785		509,910
Commitments and contingencies (Note 8)							Commitments and contingencies (Note 8)
Stockholders' equity:							Stockholders' equity:
Common stock	101			96			Common stock	106		103
Additional paid-in capital	598,525			506,949			Additional paid-in capital	688,116		625,474
Accumulated other comprehensive loss	(6,565		)	(7,353		)	Accumulated other comprehensive loss	(7,967)		(12,176)
Accumulated deficit	(372,570		)	(250,302		)	Accumulated deficit	(505,796)		(422,670)
Total stockholders' equity	219,491			249,390			Total stockholders' equity	174,459		190,731
Total liabilities and stockholders' equity	$	732,499		$	546,358		Total liabilities and stockholders' equity	$	687,244	$	700,641

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 OPERATIONS

(Unaudited)

(In thousands, except per share ~~amounts; unaudited)~~amounts)

Three Months Ended December 31, Nine Months Ended December 31,
2019 2018 2019 2018
Service revenue $ 113,566
$ 85,911
$ 310,467
$ 245,378
Product revenue 5,001
4,001
14,292
13,441
Total revenue 118,567
89,912
324,759
258,819
Cost of revenue and operating expenses:
Cost of service revenue 49,326
27,632
124,488
78,383
Cost of product revenue 6,893
5,318
19,119
16,996
Research and development 19,870
16,886
57,635
43,999
Sales and marketing 63,099
46,276
174,593
128,451
General and administrative 22,547
18,038
62,589
53,198
Total operating expenses 161,735
114,150
438,424
321,027
Loss from operations (43,168 ) (24,238 ) (113,665 ) (62,208 )
Other (expense) income, net (3,623 ) 579
(7,919 ) 1,933
Loss before provision for income taxes (46,791 ) (23,659 ) (121,584 ) (60,275 )
Provision for income taxes 280
112
684
333
Net loss $ (47,071 ) $ (23,771 ) $ (122,268 ) $ (60,608 )
Net loss per share:
Basic and diluted $ (0.47 ) $ (0.25 ) $ (1.23 ) $ (0.64 )
Weighted-average common shares outstanding:
Basic and diluted 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 December 31, Nine Months Ended December 31,
2019 2018 2019 2018
Net loss $ (47,071 ) $ (23,771 ) $ (122,268 ) $ (60,608 )
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities (12 ) (101 ) 106
160
Foreign currency translation adjustment 4,587
(549 ) 682
(2,600 )
Comprehensive loss $ (42,496 ) $ (24,421 ) $ (121,480 ) $ (63,048 )


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Service revenue	$	120,942	$	101,345	$	235,125	$	191,184
Other revenue	8,191		8,172		15,815		15,008
Total revenue	129,133		109,517		250,940		206,192
Operating expenses:
Cost of service revenue	44,803		35,813		85,799		61,113
Cost of other revenue	11,693		13,884		22,830		26,275
Research and development	21,567		19,434		43,061		37,765
Sales and marketing	61,399		57,895		121,549		111,494
General and administrative	22,769		20,435		48,559		40,042

Total operating expenses	162,231		147,461		321,798		276,689
Loss from operations	(33,098)		(37,944)		(70,858)		(70,497)
Other expense, net	(5,178)		(2,732)		(9,103)		(4,296)
Loss before provision for income taxes	(38,276)		(40,676)		(79,961)		(74,793)
Provision for income taxes	137		256		365		404
Net loss	$	(38,413)	$	(40,932)	$	(80,326)	$	(75,197)
Net loss per share:
Basic and diluted	$	(0.37)	$	(0.42)	$	(0.77)	$	(0.77)
Weighted-average common shares outstanding:
Basic and diluted	104,620		98,353		104,116		97,356

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~~COMPREHENSIVE LOSS

(Unaudited)

(In ~~thousands, except shares, unaudited)~~thousands)

Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Shares Amount
Balance at March 31, 2019 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
Stock-based compensation expense —
—
14,059
—
—
14,059
Unrealized investment gain —
—
—
121
—
121
Foreign currency translation adjustment —
—
—
(652 ) —
(652 )
Net loss —
—
—
—
(34,265 ) (34,265 )
Balance at June 30, 2019 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 —
—
—
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


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(38,413)	$	(40,932)	$	(80,326)	$	(75,197)
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities	(43)		(3)		379		118
Foreign currency translation adjustment	2,945		(3,253)		3,830		(3,905)
Comprehensive loss	$	(35,511)	$	(44,188)	$	(76,117)	$	(78,984)

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

(Unaudited)

(In thousands, except shares)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Shares	Amount
Balance at March 31, 2020	103,178,621	$	103	$	625,474	$	(12,176)	$	(422,670)	$	190,731
Adjustment to opening balance for change in accounting principle	—	—		—		—		(2,800)		(2,800)
Issuance of common stock under stock plans, less withholding	688,414	1		(67)		—		—		(66)
Stock-based compensation expense	—	—		23,118		—		—		23,118
Issuance of common stock related to acquisition	—	—		8,489		—		—		8,489
Unrealized investment gain	—	—		—		422		—		422
Foreign currency translation adjustment	—	—		—		885		—		885
Net loss	—	—		—		—		(41,913)		(41,913)
Balance at June 30, 2020	103,867,035	104		657,014		(10,869)		(467,383)		178,866
Issuance of common stock under stock plans	2,119,196	2		4,706		—		—		4,708
Stock-based compensation expense	—	—		26,396		—		—		26,396

Unrealized investment gain/loss	—	—		—		(43)		—		(43)
Foreign currency translation adjustment	—	—		—		2,945		—		2,945
Net loss	—	—		—		—		(38,413)		(38,413)
Balance at September 30, 2020	105,986,231	$	106	$	688,116	$	(7,967)	$	(505,796)	$	174,459


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Shares	Amount
Balance at March 31, 2019	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
Stock-based compensation expense	—	—		14,059		—		—		14,059
Unrealized investment gain	—	—		—		121		—		121
Foreign currency translation adjustment	—	—		—		(652)		—		(652)
Net loss	—	—		—		—		(34,265)		(34,265)
Balance at June 30, 2019	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		—		0		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

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

(Unaudited)

(In ~~thousands, unaudited)~~thousands)


	Six Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(80,326)	$	(75,197)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	5,690		4,599
Amortization of intangible assets	4,055		3,827
Amortization of capitalized software	12,893		8,242
Amortization of debt discount and issuance costs	8,317		6,397
Amortization of deferred sales commission costs	12,764		8,718
Allowance for credit losses	2,994		944
Operating lease expense, net of accretion	7,585		6,234
Stock-based compensation	48,101		30,988
Other	467		690
Changes in assets and liabilities:
Accounts receivable, net	(6,290)		(2,563)
Deferred sales commission costs	(26,811)		(20,498)
Other current and non-current assets	(7,532)		(17,418)
Accounts payable and accruals	1,350		(400)
Deferred revenue	3,675		922
Net cash used in operating activities	(13,068)		(44,515)
Cash flows from investing activities:
Purchases of property and equipment	(4,171)		(7,138)
Purchase of businesses	(3,459)		(58,741)
Cost of capitalized software	(16,158)		(14,339)
Proceeds from maturities of investments	30,071		8,545
Proceeds from sales of investments	219		30,639
Purchases of investments	(17,968)		(18,890)

Net cash used in investing activities	(11,466)		(59,924)
Cash flows from financing activities:
Finance lease payments	(70)		(227)

Tax-related withholding of common stock	(69)		(5,426)
Proceeds from issuance of common stock under employee stock plans	4,710		6,134

Net cash provided by financing activities	4,571		481
Effects of currency exchange rates on cash, cash equivalent, and restricted cash	958		511
Net decrease in cash, cash equivalents, and restricted cash	(19,005)		(103,447)
Cash, cash equivalents, and restricted cash at the beginning of the period	156,411		284,683
Cash, cash equivalents, and restricted cash at the end of the period	$	137,406	$	181,236
Supplemental and non-cash disclosures:
Income taxes paid	$	406	$	361
Interest paid	$	906	$	647
Right of use assets obtained in exchange for new or modified operating lease liabilities	$	0	$	62,832

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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
—

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets (in thousands):


	September 30,
	2020		2019
Cash and cash equivalents	$	121,848	$	162,219
Restricted cash, current	6,917		3,459
Restricted cash, non-current	8,641		15,558
Total cash, cash equivalents, and restricted cash	$	137,406	$	181,236

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

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8X8, ~~Inc.~~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 1 reportable segment.1996.

The Company is a leading cloud provider of enterprise Software-as-a-Service ("SaaS") communications solutions that enable businesses of all sizes to communicate faster and smarter across voice, ~~contact center,~~ video meetings, ~~messaging,~~chat, and ~~communication APIs,~~contact centers, 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~~Substantially all revenue ~~has been~~is generated from communication services subscriptions and platform usage. The Company also generates revenue from sales of hardware and professional services, which are complementary to the ~~sale~~delivery of ~~communications services and related hardware. Prior to fiscal 2003, the Company's main business was Voice over Internet Protocol semiconductors.~~our integrated technology platform.

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 ~~SEC,~~Securities and Exchange Commission ("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~~2020 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~~2020 and notes thereto included in the Company's fiscal ~~2019 Annual Report~~2020 annual report on Form 10-K.

There have been no material changes in our significant accounting policies as described in the Company's annual report on Form 10-K for the year ended March 31, 2020 during the three and six months ended September 30, 2020, except for the accounting policies described below that were updated as a result of adopting Accounting Standards Update ("ASU") 2016-03, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, further amended by various ASUs and ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). 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~~periods or the entire fiscal year.

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 1 reportable segment.

USE OF ESTIMATES

The preparation of the condensed consolidated financial statements in conformity with ~~accounting principles generally accepted in the United States~~GAAP 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,~~allowance for credit losses, returns reserve for expected cancellations, fair value of and/or ~~potential~~evaluation for impairment of goodwill and ~~intangible~~other long-lived assets, capitalization of internally developed software, benefit period for deferred ~~commissions,~~sales commission costs, stock-based compensation ~~discount~~expense, incremental borrowing rate used to calculate operating lease liabilities, income and sales tax liabilities, fair value of convertible senior notes, ~~fair value,~~ litigation, and other contingencies. The Company bases its estimates on known facts and circumstances, historical experience, and various other assumptions. Actual results could differ from those estimates under different assumptions or conditions.

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RECLASSIFICATIONS AND OTHER CHANGES

~~Certain~~During the fourth quarter of fiscal 2020, the Company determined that presenting service revenue as revenue from the Company's core communication services would provide transparency and clarity to the users of the financial statements. As such, the Company reclassified certain revenue and cost of revenue on its condensed consolidated statement of operations for the three and six months ended September 30, 2019. Professional services revenue and cost of professional services revenue previously reported in service revenue and cost of service revenue are now reported in other revenue and cost of other revenue. Product revenue and cost of product revenue are also now reported in other revenue and cost of other revenue. The reclassifications did not have any impact on total revenue, consolidated net loss, or cash flows.

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In addition, certain prior year amounts in the condensed consolidated statements of cash flows have been reclassified to conform with the 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 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,~~In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the existing impairment model with a forward-looking expected loss method. Under this update, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity's current estimate of credit losses expected to be incurred over the life of the financial instrument. For trade receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model to recognize credit losses that are probable. The Company adopted ASU ~~No. 2016-02 (“ASU 2016-02”),~~ ~~Leases~~ ~~using the~~2016-13 on a modified retrospective ~~transition approach utilizing~~basis as of April 1, 2020 through a cumulative-effect adjustment to the ~~effective date as~~Company's beginning accumulated deficit balance; the ~~date~~impact of ~~initial application. ASU 2016-02 establishes a new lease accounting model for leases, which requires lessees~~the adoption was not material to ~~recognize right-of-use assets~~the Company's consolidated financial statements. Credit losses are not expected to be significant based on historical collection trends, the financial condition of the Company’s customers, and ~~lease liabilities on~~external market factors, including those related to the ~~balance sheet, but lease expense~~COVID-19 pandemic. The Company 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.~~actively monitor the impact of the recent COVID-19 pandemic on expected credit losses.

~~The new standard provides a number of optional practical expedients in transition.~~ 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 Company ~~has elected certain practical expedients permitted under~~adopted ASU 2018-13 on April 1, 2020, and the ~~new lease standard, which among other things, allows the carryforward~~impact of the ~~historical lease classification. As~~adoption was immaterial to the Company's 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 ~~result, there was no impact to opening retained earnings. The new standard also provides a practical expedient for an entity’s ongoing accounting.~~cloud computing service arrangement. 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 expenseadopted this guidance on a ~~straight-line~~prospective basis ~~over the lease term.~~

effective April 1, 2020. 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 standardthis guidance 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 7.~~consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In December 2019, the ~~Financial Accounting Standards Board (the "FASB")~~FASB issued ASU ~~2019-02,~~ 2019-12,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,~~August 2020, the FASB issued ASU ~~2019-08,~~2020-06, ~~Compensation~~Debt - ~~Stock Compensation (Topic 718)~~Debt with Conversion and Other Options~~. The amendment requires that an entity measure~~ (Subtopic 470-20) and ~~classify share-based payment awards granted to a customer~~Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies accounting for convertible instruments by ~~applying the guidance in Topic 718. The amount recorded as a reduction~~eliminating two of the ~~transaction price~~three accounting models available for convertible debt instruments and convertible preferred stock. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. The guidance 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,~~2021, which is fiscal ~~2021~~2023 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, 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 2018-15,~~ ~~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,

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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 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, contact center, video, collaboration and communication APIs solutions using the five-step model as prescribed by ~~ASC 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, 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 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 earned. Usage fees for our communication platform as a 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.~~regions. See Note 13 for more information.

Contract Balances

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

December 31, 2019
Accounts receivable, net $ 37,384
Contract assets - current $ 10,507
Contract assets - non-current $ 8,413
Deferred revenue - current $ 7,216
Deferred revenue - non-current $ 1,411


	September 30, 2020		March 31, 2020
Accounts receivable, net	$	42,971	$	37,811
Contract assets, current, net (included in Other current assets)	$	11,712	$	10,425
Contract assets, non-current, net (included in Other assets)	$	14,837	$	13,698
Deferred revenue, current	$	9,452	$	7,105
Deferred revenue, non-current (included in Other liabilities, non-current)	$	2,678	$	1,119

Changes in the contract assets and ~~the~~ deferred revenue balances during the ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 are as follows (in thousands):

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December 31, 2019 March 31, 2019 $ Change
Contract assets $ 18,920
$ 5,717
$ 13,203
Deferred revenue $ 8,627
$ 3,342
$ 5,285


	September 30, 2020		March 31, 2020		Change
Contract assets	$	26,549	$	24,123	$	2,426
Deferred revenue	$	12,130	$	8,224	$	3,906

The change in contract assets was primarily driven by the recognition of revenue that has not yet been billed, net of amounts billed during the ~~period.~~period and reserve for current estimate of credit losses. The increase in deferred ~~revenues~~revenue was due to billings in advance of performance obligations being satisfied, net of revenue recognized for services rendered during the period. ~~Revenues~~Revenue of ~~$2.9~~$1.3 million ~~were~~and $5.0 million was recognized during the ~~nine~~three and six months ended ~~December 31, 2019, of~~September 30, 2020, which were included in the deferred ~~revenues~~revenue 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~~five years. Contract revenue ~~as of December 31, 2019~~ that has not yet been recognized as of September 30, 2020 was approximately ~~$245.0 million.~~$330 million from remaining performance obligations. 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~~obligations over the next 36 months.

Deferred Sales Commission Costs

Amortization of deferred sales commission costs was $6.7 million and $4.5 million for the three months ended September 30, 2020 and 2019, respectively, and $12.8 million and $8.7 million, for the six months ended September 30, 2020 and 2019, respectively. There were no material write-offs relative to the costs capitalized during these periods.

4. FAIR VALUE MEASUREMENTS

Cash, cash equivalents, restricted cash, and available-for-sale investments were as follows (in thousands):


	Amortized		Gross Unrealized				Estimated		Cash and Cash		Short-Term		Long-Term
As of December 31, 2019	Costs		Gain		Loss		Fair Value		Equivalents		Investments
As of September 30, 2020															As of September 30, 2020	Amortized Costs		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Cash and Cash Equivalents		Restricted Cash (Current & Non-Current)		Short-Term Investments		Long-Term Investments
Cash	$	22,722	$	—	$	—	$	22,722	$	22,722	$	—	$	—	Cash	$	32,611	$	—	$	—	$	32,611	$	25,694	$	6,917	$	—	$	—
Level 1:															Level 1:
Money market funds	157,401		—		—		157,401		157,401		—		—		Money market funds	94,354		—		—		94,354		94,354		—		—		—
Treasury securities	6,498		13		—		6,511		—		—		6,511		Treasury securities	6,185		68		0		6,253		—		—		6,253		0
Subtotal	186,621		13		—		186,634		180,123		—		6,511		Subtotal	133,150		68		0		133,218		120,048		6,917		6,253		0
Level 2:															Level 2:
Corporate bonds	36,181		93		—		36,274		—		22,659		13,615
Certificate of deposit															Certificate of deposit	8,641		—		—		8,641		—		8,641		—		0
Commercial paper	8,835		1		—		8,836		4,671		4,165		—		Commercial paper	4,399		0		0		4,399		1,800		—		2,599
Municipal securities	1,345		—		—		1,345		—		1,345		—
Agency bonds	2,099		15		—		2,114		—		2,114		—
Corporate debt															Corporate debt	28,586		124		0		28,710		—		—		22,529		6,181
Subtotal	48,460		109		—		48,569		4,671		30,283		13,615		Subtotal	41,626		124		0		41,750		1,800		8,641		25,128		6,181
Total assets	$	235,081	$	122	$	—	$	235,203	$	184,794	$	30,283	$	20,126	Total assets	$	174,776	$	192	$	0	$	174,968	$	121,848	$	15,558	$	31,381	$	6,181


As of March 31, 2020	Amortized Costs		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Cash and Cash Equivalents		Restricted Cash (Current & Non-Current)		Short-Term Investments		Long-Term Investments
Cash	$	31,378	$	—	$	—	$	31,378	$	21,002	$	10,376	$	—	$	—
Level 1:
Money market funds	110,796		—		—		110,796		110,796		—		—		—
Treasury securities	6,192		116		0		6,308		—		—		—		6,308
Subtotal	148,366		116		0		148,482		131,798		10,376		—		6,308
Level 2:
Certificate of deposit	8,641		—		—		8,641		—		8,641		—		0
Commercial paper	14,979		6		0		14,985		5,596		—		9,389		—
Corporate debt	34,153		32		(341)		33,844		—		—		24,069		9,775
Subtotal	57,773		38		(341)		57,470		5,596		8,641		33,458		9,775
Total assets	$	206,139	$	154	$	(341)	$	205,952	$	137,394	$	19,017	$	33,458	$	16,083

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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,~~

Certificate of deposit represents the Company's letter of credits securing leases for office facilities, and the balance of which is included in restricted cash, non-current in the Company's condensed consolidated balance sheet.

The Company ~~had maintained~~considers its investments as available to support its current operations, and it has classified all investments as ~~short-term~~available-for-sale securities. As of September 30, 2020, for investments ~~on its balance sheet, as~~that were in unrealized loss positions, the Company ~~could liquidate~~does not have the intent to sell any of these investments and has determined that it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis.

The Company regularly reviews the changes to the rating of its securities at ~~any time and~~the individual security level by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As of September 30, 2020, the Company did not ~~limit its liquidation~~have any risk of investments by contractual maturity date. Given the recent issuance of the convertible senior notes, and the associated increased cash, cash equivalents and investment balances, the Company expects to hold certain investments for at least 12 months from the reporting date and records these investments in long-term investments in accordance with the contractual maturity dates.expected credit losses.

As of ~~December 31, 2019,~~September 30, 2020, the estimated fair value of the Company's outstanding convertible senior notes ~~("the Notes"~~(the "Notes") was ~~$362.3 million. The estimated fair value of the Notes~~$336.7 million, which was determined based on the closing price for the Notes on the last trading day of the reporting period and is considered asto be Level 2 in the fair value ~~hierarchy.~~hierarchy due to limited trading activity of the Notes.

5. BUSINESS COMBINATIONS

~~Wavecell Acquisition~~

OnIn 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 acquiredpurchased all of the outstanding shares and ~~other~~ equity interests of Wavecell, (the “Transaction”). 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~~Pte. Ltd. During the purchase consideration of approximately $117.1 million was comprised of approximately $72.8 million in cash and $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 twelvethree 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~~ended September 30, 2020, 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 ofall assets acquired and liabilities assumed ~~from~~in the ~~acquisition~~transaction, were finalized, and did not result in any additional adjustments to the preliminary purchase price allocation in the current quarter. Of the $10.4 million cash and 394,515 shares (equivalent to $8.5 million at acquisition) that were held back, the Company released $3.5 million of ~~Wavecell~~cash and 116,505 shares on the one-year anniversary of the acquisition. The remaining balance 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.~~ released in January 2021.

~~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

Intangible Assets

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


	September 30, 2020						March 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	33,952	$	(19,182)	$	14,770	$	33,932	$	(16,312)	$	17,620
Customer relationships	11,614		(6,425)		5,189		11,409		(5,412)		5,997
Trade and domain names	986		(986)		0		983		(599)		384
Total acquired identifiable intangible assets	$	46,552	$	(26,593)	$	19,959	$	46,324	$	(22,323)	$	24,001

As of September 30, 2020, the weighted average remaining useful life for technology and customer relationships was 4.8 years and 5.6 years, respectively.

At ~~December 31, 2019, annual~~September 30, 2020, the expected future amortization expense of these intangible assets ~~based upon our existing intangible assets and current useful lives,~~ is ~~estimated to be the following~~as follows (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


Remainder of 2021	$	2,829
2022	4,708
2023	3,156
2024	2,851
2025	2,851
Thereafter	3,564
Total	$	19,959

Goodwill

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

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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


Balance at March 31, 2020	$	128,300
Foreign currency translation adjustments	1,852
Balance at September 30, 2020	$	130,152

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

Operating 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.

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. The following table provides

~~Table of Contents~~

balance sheet information related to leases as of ~~December 31, 2019~~September 30, 2020 (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~~


	September 30, 2020		March 31, 2020
Assets
Operating lease, right-of-use assets	$	72,841	$	78,963

Liabilities
Operating lease liabilities, current	$	9,498	$	5,875
Operating lease liabilities, non-current	87,462		92,452
Total operating lease liabilities	$	96,960	$	98,327

The components of lease expense were as follows (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Operating lease expense	$	3,833	$	4,156	$	7,583	$	6,241
Variable lease expense	$	857	$	229	$	1,639	$	438

Short-term lease expense was immaterial for the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020 and 2019.

Operating cash outflow from operating lease ~~expense~~ was ~~approximately $4.4~~$4.2 million and ~~$10.7~~$4.5 million, ~~respectively. Variable lease cost and short-term lease cost were immaterial during~~respectively, for the ~~three and nine~~six months ended ~~December 31,~~September 30, 2020 and 2019.

The following table presents supplemental information for the ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 (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


Weighted average remaining lease term						8.6 years
Weighted average discount rate						4.0%

The following table presents maturity of lease liabilities under the Company's non-cancellable operating leases as of ~~December 31, 2019~~September 30, 2020 (in thousands):


Remainder of 2021	$	5,631
2022	16,193
2023	15,007
2024	11,766
2025	11,429
Thereafter	58,122
Total lease payments	$	118,148
Less: imputed interest	(19,542)
Less: lease incentives receivable	(1,646)
Present value of lease liabilities	$	96,960

Lease Assignment

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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~~

In the fourth quarter of fiscal 2018, 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~~a 132-month lease agreement (the "Agreement") with CAP Phase I, a Delaware limited liability company (the "Landlord") ~~for the Coleman property is not included~~, to rent approximately 162,000 square feet of office space in ~~the right-of-use assets and operating~~a new building in San Jose, California. The lease ~~liabilities as of December 31,~~term began on January 1, 2019. On April 30, 2019, due to the Company's rapid growth and greater than anticipated future space needs, the Company entered into an assignment and assumption (the "Assignment") of the ~~Company's previously executed lease agreement~~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.~~Agreement. Pursuant to the ~~Agreement,~~Assignment, 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 also expects to receive the ~~Company entered into a lease for a new company headquarters to~~reimbursement of base rent ~~177,815 square feet~~and direct expenses from Roku by the end of ~~office space as~~ the ~~sole tenant~~Company’s fiscal year ending March 31, 2022 in ~~a new 5-story office building located in Campbell, California.~~accordance with the Assignment.

The obligations related to the Agreement are not included in the right-of-use asset or lease ~~is for a 132-month term that started on January 1,~~liabilities as of September 30, 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 paidremaining obligations related to the ~~landlord a security deposit~~Assignment of $4.8 million and the termination fee of $0.8 million are recorded in other accrued liabilities and other liabilities, non-current, respectively, in the ~~amount~~Company's condensed consolidated balance sheet. The expected receivable of ~~$2.0~~$6.9 million ~~which may be drawn down~~is recorded in other current assets 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.Company's condensed consolidated balance sheet.

8. COMMITMENTS AND CONTINGENCIES

Other Commitments, Indemnifications, and Contingencies

From time to time, the Company receives inquiries from federal and various state and municipal taxing agencies with respect to the remittance of sales, use, telecommunications, excise, payroll, and income taxes. Several jurisdictions are 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. The Company continues to conduct periodic review of the taxability of certain of its services that may be subject to sales, use, telecommunications or other similar indirect taxes in certain jurisdictions. As of September 30, 2020 and March 31, 2020, the Company had accrued contingent indirect tax liabilities of $4.5 million.

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,~~September 30, 2020, 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

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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.

~~Table of Contents~~

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 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 and nine~~six months ended ~~December 31, 2019,~~September 30, 2020, 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, theCompany 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):


	December 31, 2019			March 31, 2019				September 30, 2020		March 31, 2020
Principal	$	362,500		$	287,500		Principal	$	362,500	$	362,500
Unamortized premium	1,323			—
Unamortized debt discount	(75,315		)	(70,876		)	Unamortized debt discount	(61,786)		(69,987)
Unamortized issuance costs	(1,043		)	(589		)	Unamortized issuance costs	(861)		(976)
Net carrying amount	$	287,465		$	216,035		Net carrying amount	$	299,853	$	291,537

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


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Contractual interest expense	$	453	$	360	$	906	$	719
Amortization of debt discount	4,133		3,198		8,201		6,344
Amortization of issuance costs	58		27		115		53
Total interest expense	$	4,644	$	3,585	$	9,222	$	7,116

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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

~~Table of Contents~~

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 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 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

The following tables summarize information pertaining to the stock-based compensation expense ~~from stock options~~(in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Cost of service revenue	$	2,410	$	1,182	$	4,224	$	2,179
Cost of other revenue	1,113		757		1,900		1,491
Research and development	8,255		4,217		14,800		8,081
Sales and marketing	7,054		5,340		12,793		9,261
General and administrative	6,490		5,895		14,384		9,976
Total	$	25,322	$	17,391	$	48,101	$	30,988

Restricted Stock Units (RSU) and ~~stock awards~~Performance Stock Units (PSU)

Activities related to RSU and PSU, collectively Stock Awards, during six months ended September 30, 2020 and 2019 are summarized as follows (in thousands, except weighted-average grant-date fair value and recognition period):


	Six Months Ended September 30,
	2020		2019
Stock awards outstanding at the beginning of the period:	9,191		7,820
Stock awards granted	5,343		5,123
Stock awards vested	(2,498)		(1,945)
Stock awards canceled and forfeited	(564)		(663)
Stock awards outstanding at the end of the period:	11,472		10,335
Weighted-average fair value of grants during the period	$	15.75	$	22.35
Weighted-average remaining recognition period (in years)	1.96		2.28
Total unrecognized compensation expense at period-end	$	144,066	$	127,540

Stock Options

Activities related to Stock Options, during six months ended September 30, 2020 and 2019 are summarized as follows (in thousands, except weighted-average grant-date fair value and recognition period):

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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


	Six Months Ended September 30,
	2020		2019
Stock options outstanding at the beginning of the period:	2,274		3,114
Options granted	0		0
Options exercised	(36)		(287)
Options canceled and forfeited	(28)		(39)
Options outstanding at the end of the period:	2,210		2,788
Weighted-average fair value of grants during the period	$	0	$	0
Total intrinsic value of options exercised during the period	$	302	$	3,726
Weighted-average remaining recognition period (in years)	1.54		2.32
Total unrecognized compensation expense at period-end	$	671	$	1,268

Employee Stock Purchase Plan (ESPP)

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

In July 2020, 329,430 shares were purchased and issued under the ESPP. As of September 30, 2020, there was a total of $2.9 million of unrecognized compensation, net of estimated forfeitures, which will be amortized on a straight line basis over the remaining weighted-average vesting period of 0.57 years. As of September 30, 2020, a total of 3,252,882 shares were available for issuance under the ESPP.

Stock Repurchases

In May 2017, the Company's board of directors authorized the 2017 Repurchase Plan under which the Company tocould 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.stock. The remaining amount available ~~under the 2017 Repurchase Plan~~ at ~~December 31, 2019~~September 30, 2020 was approximately $7.1

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million. There were 0 stock repurchases ~~under the 2017 Repurchase Plan~~ during the three and ~~nine~~six months ended ~~December 31,~~September 30, 2020 and 2019.

11. INCOME TAXES

The Company's effective tax rate was ~~(0.6)~~(0.4)% and ~~(0.5)~~(0.6)% for the three months ended ~~December 31,~~September 30, 2020 and 2019, respectively, and ~~2018, and (0.6)~~(0.5)% ~~and~~ for ~~each of~~ the ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 and ~~2018.~~2019. 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 September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net loss available to common stockholders	$	(38,413)	$	(40,932)	$	(80,326)	$	(75,197)
Denominator:
Common shares - basic and diluted	104,620		98,353		104,116		97,356
Net loss per share
Basic and diluted	$	(0.37)	$	(0.42)	$	(0.77)	$	(0.77)

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 September 30,		Six Months Ended September 30,
	2020	2019	2020	2019
Stock options	2,210	2,788	2,210	2,788
Stock awards	11,472	10,334	11,472	10,334
Potential shares to be issued from ESPP	529	387	529	387
Total anti-dilutive shares	14,211	13,509	14,211	13,509

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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 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


	Three Months Ended September 30,				Six Months Ended September 30,
Revenue by geographic area:	2020		2019		2020		2019
United States	$	96,105	$	85,428	$	189,349	$	168,676
International	33,028		24,089		61,591		37,516
Total revenue	$	129,133	$	109,517	$	250,940	$	206,192


Property and equipment by geographic area:	September 30, 2020		March 31, 2020
United States	$	90,493	$	87,673
International	5,692		6,709
Total property and equipment, net	$	96,185	$	94,382

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 discussed below and elsewhere in this report, particularly those ~~incorporated by reference into this Quarterly Report on Form 10-Q in~~set forth under the section entitled ~~“Risk Factors” discussed under~~"Risk Factors" in our annual report on Form 10-K for the fiscal year ended March 31, 2020 as modified by those in Part II, Item 1A ~~below.~~of our Quarterly Report for the three-month period ended June 30, 2020 on Form 10-Q under the heading "Risk Factors."

BUSINESS OVERVIEW

We are a leading software-as-a-service ~~(“SaaS”~~("SaaS") provider of voice, video, chat, contact center, and enterprise-class ~~API~~application programming interfaces ("API") solutions powered by one global cloud communications platform. From our proprietary cloud technology platform, 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, enabling them to be more productive and responsive to their customers.

Our customers range from small businesses to large enterprises and their users are spread across more than 150 countries. In recent years, we have increased our ~~up-market~~ focus on the mid-market and enterprise customer ~~sectors.~~categories.

We have a portfolio of cloud-based offerings that are subscription based, made available at different rates varying by the specific functionalities, services and number of users. We generate service revenue from ~~software service~~communication services subscriptions and platform ~~usage, and professional services.~~usage. We generate ~~product~~other revenues from the ~~sale~~sales and rentals of office phones and other hardware ~~equipment.~~equipment, and professional services. 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).

Our flagship service is our 8x8 X Series, a next generation suite of ~~UCaaS~~unified communications as a service ("UCaaS") and ~~CCaaS~~contact center as a service ("CCaaS") solutions, which consist of service plans of increasing functionality designated X1, X2, etc., through X8. With 8x8 X Series, we provide ~~global~~enterprise-grade voice, ~~chat,~~unified communications, video meetings, team collaboration, and contact center functionalities from a single ~~platform, with a single interface, in the high-end set of our service plans (X5 through X8).~~platform. We also offer ~~more basic, cost-efficient UCaaS in X1 through X4~~standalone SaaS services for contact center, video meetings, and ~~a stand-alone CCaaS offering called 8x8 Contact Center. In~~enterprise communication APIs. Through our July 2019 ~~we acquired~~acquisition of Wavecell Pte. Ltd., an ~~Asian-based~~Asia-based global ~~CPaaS~~communication platform as a service ("CPaaS") provider of SMS, messaging, voice and video APIs to ~~enterprises. Also~~enterprises, we expanded our API offerings both geographically and functionally. We expect to continue integrating these services into our platform, as we believe in ~~July 2019, we launched a new self-service e-commerce platform called 8x8 Express.~~the value of the collective solutions.

~~Prior~~As of September 30, 2020, over 90% of our customer base has been migrated to the ~~launch of~~ 8x8 X Series ~~in 2018, our customers subscribed to Virtual Office and Virtual Contact Center solutions. We have now begun migrating these customers from these legacy solutions to our 8x8 X Series product suite,~~platform and we intend to ~~accelerate~~migrate the ~~pace~~remaining customer base through the end of ~~migrations during~~ the ~~remainder of~~ fiscal ~~2020 and into fiscal 2021.~~year. These migrations may require us to incur professional services ~~costs that~~and related engineering costs. While we may not be able to recover these costs from our customers, ~~but~~ we believe that we will realize other benefits byincluding reducing the number of platforms that we are required to ~~support.~~support and improved customer retention.

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SUMMARY AND OUTLOOK

~~Our third~~In the second quarter of fiscal ~~2020 results illustrate the fundamental strength in~~2021, our ~~cloud communications~~total service revenue ~~which for the quarter was $113.6 million, including revenue from our CPaaS offerings, and reflects growth of 32.2% year-over-year.~~grew 19.3% year-over-year to $120.9 million. We continued to show an increase in our average ~~annual~~annualized service revenue per customer, which grew to $8,052 in the second quarter of fiscal 2021, compared with $7,957 in the same period of fiscal 2020, as we are selling more to mid-market and enterprise customers. Service revenue from mid-market and enterprise customers represented 46% of total service revenue and grew 29% over the prior year. We increased the number of bundled deals where customers purchase our integrated communications and contact center solutions.

~~In the second half of fiscal 2018, we de-emphasized profitability as a short-term corporate goal focused instead~~Our continued business focus is on ~~making investments necessary to accelerate~~achieving improved operating efficiencies while delivering revenue growth. ~~This decision was based,~~We continue to make important investments in ~~part,~~our products and technology platform, and focus on key areas of spend in our ~~belief that the communications market is at an inflection point~~go-to-market strategy. Additionally, we aim to drive efficiencies in ~~the shift of businesses from legacy on-premise solutions to cloud-based services.~~our small business customer acquisition and operations, and are heavily focused on expanding our business upmarket with mid-market and enterprise customers. We believe that ~~this industry trend~~effective execution will continue in fiscal 2020 and beyond. Accordingly, we believe that it is in the Company's interest to continue to invest in our business to drive revenue growth. With recent successes driving growth in the business, we are also now focused on managing the business to achieve operating efficiencies. We believe that this enablesenable the Company to ~~scale~~grow and capture market share, during this phase of industry disruption, in a ~~cost effective~~cost-effective way and support the Company in pursuit of its path to ~~profitability.~~profitability and operating cash flow improvement.

WeIn the remainder of fiscal 2021, we plan to continue making ~~significant~~ investments in activities to acquire more customers, including global expansion and investing in our direct marketing efforts, sales force, e-commerce, and outbound marketing efforts. We also intend to continue investing in our indirect channel programs to acquire more third-party selling agents to help sell our 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, including as result of adverse impacts from the COVID-19 pandemic, and/or these cost reduction and efficiency efforts do not result in meaningful savings, our operating results may be adversely impacted.

IMPACTS OF COVID-19

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including those set forth under the section entitled "Risk Factors" in our annual report on Form 10-K for the fiscal year ended March 31, 2020 as modified by the "Risk Factors" section of our Quarterly Report on Form 10-Q for the three-month period ended June 30, 2020. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, some of which have been subsequently rescinded, modified or reinstated, including orders to close non-essential businesses, isolate residents to their homes, and practice social distancing. To protect the health and safety of our employees, our workforce continues to spend a significant amount of time working from home with many of our offices around the world remaining closed and travel being curtailed for our employees as well as our customers as the number of COVID-19 cases continues to surge and retreat in various locations globally, and the availability and reliability of testing remains inconsistent. These restrictions have altered the ways we conduct sales activities and market to current and prospective customers and how we conduct our ongoing business operations, resulting in reductions in travel related expenses and, by some measures, has resulted in improved employee productivity in certain areas. Small business and mid-size customers have been more impacted by the COVID-19 pandemic than enterprise customers, which has necessitated greater flexibility and responsiveness to our customers evolving needs. While we anticipate that the global health crisis caused by COVID-19, including any resurgences, and the measures enacted to slow its spread will negatively impact certain business activity across the globe, to date, it has not resulted in as significant a negative impact on our business, as initially anticipated. We continue to proactively and closely monitor the health of our customers and suppliers and other impacts of the pandemic to determine whether risks of loss or other negative impacts upon our business exist. The effects of COVID-19 have also been considered in management's judgments around credit loss impairments.

COMPONENTS OF RESULTS OF OPERATIONS

Service Revenue

Service revenue consists of ~~software service~~communication services subscriptions, platform usage revenue, and ~~professional services revenue~~related fees from our UCaaS, CCaaS, and CPaaS offerings.

We plan to continue to drive our business to increase service revenue through a combination of increased sales and marketing efforts, geographic expansion of our customer base outside the United States, innovation in product and technology, and through strategic ~~acquisitions of technologies~~partnerships and ~~businesses.~~other business development.

~~Product~~Other Revenue

~~Product~~Other revenue consists primarily of revenues from ~~hardware~~ sales and rentals of IP telephones in conjunction with our cloud telephony ~~service. Product~~service, and revenues from non-recurring professional services, primarily in support of deployment of our solutions and/or platform. Other revenue is dependent on the number of customers who choose to purchase or rent an IP telephone in conjunction with our service instead of using the solution on their cell phone, computer, or other compatible ~~devices.~~device, and/or choose to engage our services for implementation and deployment of our cloud services.

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Cost of Service Revenue

Cost of service revenue consists primarily of costs associated with network operations and related personnel, technology licenses, amortization of internally developed software, and other costs such as customer service, ~~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~~IT and ITfacilities to cost of service revenue, as well as to each of the operating expense ~~categories.~~categories, generally based on relative headcount. Our ~~facilities costs primarily include lease and related expenses and~~ IT costs include costs for IT infrastructure and ~~compensation~~personnel. Facilities costs primarily consist of ~~IT personnel. We expect that cost of service revenue will increase in absolute dollars in future periods~~office leases and ~~vary from period-to-period as a percentage of revenue.~~related expenses.

Cost of ~~Product~~Other Revenue

Cost of ~~product~~other revenue consists primarily of ~~IP telephones, estimated warranty obligations and~~ direct and indirect costs associated with ~~product~~the purchasing of IP telephones as well as the scheduling, shipping and ~~handling.~~handling, personnel costs and related expenditures incurred in connection with the professional services associated with the deployment and implementation of our products, and allocated IT and facilities costs.

Research and Development

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

~~We plan to continue to hire employees to support our research~~efforts, and ~~development efforts to expand the capabilities~~allocated IT and scope of our platform and enhance the user experience. While 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.facilities costs.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel and related costs, sales commissions, trade shows, advertising and other marketing, demand generation, channel costs, promotional expenses, and ~~promotional expenses. We plan to continue to invest in sales~~allocated IT and marketing to attract and retain customers on our platform and increase our brand awareness. While 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.facilities costs.

General and Administrative

General and administrative expenses consist primarily of personnel and related costs, ~~for finance,~~professional services fees, human resources, legal, ~~and~~employee recruiting, general management, ~~as well as professional fees. While we expect to continue to improve our cost structure~~ and ~~achieve operational efficiencies, we expect that our general~~allocated IT 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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facilities costs.

Other Income (Expense) ~~Income,~~, net

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

Provision for Income Taxes

Provision for income taxes consists primarily of state minimum taxes in the United ~~States.~~States and foreign income taxes. 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


	December 31,						Dollar		Percent			September 30,
Service revenue	2019			2018			Change		Change		Service revenue	2020			2019			Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	113,566		$	85,911		$	27,655	32.2	%	Three months ended	$	120,942		$	101,345		$	19,597	19.3	%
Percentage of total revenue	95.8		%	95.6		%					Percentage of total revenue	93.7		%	92.5		%
Nine months ended	$	310,467		$	245,378		$	65,089	26.5	%

Six months ended											Six months ended	$	235,125		$	191,184		$	43,941	23.0	%
Percentage of total revenue	95.6		%	94.8		%					Percentage of total revenue	93.7		%	92.7		%

Service revenue increased for the three and ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 compared with the same ~~periods~~period of the previous fiscal year primarily due to ana net increase in our ~~business customer~~ subscriber base, ~~(net of customer churn), an increase~~expanded offerings to existing customers, and growth in ~~the average~~related usage; service revenue from ~~each customer on a monthly basis~~new customers was primarily driven by sales of standalone and bundled UCaaS and

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CCaaS deals globally to ~~a lesser extent,~~our mid-market and enterprise customers. Increase in service revenue ~~associated~~was also attributable to growth in usage revenue generated by our CPaaS products primarily in the APAC region.

We expect total service revenue to grow over time with our ~~newly acquired products~~expanding platform offering as our business continues to expand globally and across broader customer categories.


	September 30,
Other revenue	2020			2019			Change
	(dollar amounts in thousands)
Three months ended	$	8,191		$	8,172		$	19	0.2	%
Percentage of total revenue	6.3		%	7.5		%

Six months ended	$	15,815		$	15,008		$	807	5.4	%
Percentage of total revenue	6.3		%	7.3		%

Other revenue remained relatively flat during the three months ended September 30, 2020 compared towith the same period in the prior fiscal year ~~period.~~the slight increase was in professional services revenue resulting from the overall growth in our business and subscriber base, largely offset by a decrease in product revenue as a result of shift towards hardware rental program and reduced demand for hardware caused by COVID-19 pandemic with increase in work from home policies.

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

~~Product~~Other revenue increased during the ~~three and nine~~six months ended ~~December 31, 2019~~September 30, 2020 compared with the same period in the prior fiscal year primarily due to ~~increased equipment unit sales~~an increase in professional services revenue resulting from the overall growth in our business and subscriber base, partially offset by a decrease in product revenue as a result of shift toward hardware rental program and reduced demand for hardware caused by COVID-19 pandemic with increase in work from home policies.

We expect other revenue to ~~customers during the three months ended December 31, 2019.~~grow over time at a rate lower than our service revenue as we focus on delivering higher margin platform offerings to existing and new customers.

No customer represented greater than 10% of the Company's total revenue for the three and ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 or ~~2018.~~2019.

Cost of Revenue


	September 30,
Cost of service revenue	2020			2019			Change
	(dollar amounts in thousands)
Three months ended	$	44,803		$	35,813		$	8,990	25.1	%
Percentage of service revenue	37.0		%	35.3		%

Six months ended	$	85,799		$	61,113		$	24,686	40.4	%
Percentage of service revenue	36.5		%	32.0		%

December 31, Dollar Percent
Cost of service revenue 2019 2018 Change Change
(dollar amounts in thousands)
Three months ended $ 49,326
$ 27,632
$ 21,694
78.5 %
Percentage of service revenue 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~~The increase in cost of service revenue for the three months ended ~~December 31, 2019 increased over~~September 30, 2020 from the same period in the prior fiscal year ~~period and faster than revenue growth due~~was primarily attributable to ~~increases related to our newly acquired CPaaS products combined with increased overhead allocation expense, as well as~~ a ~~$2.5~~$7.2 million increase in ~~personnel and related~~communication infrastructure costs incurred to deliver our services primarily due to growth in usage across our platform including those in connection with CPaaS, a ~~$2.3~~$1.9 million increase in amortization of ~~intangibles and~~ capitalized software, ~~expenses~~ and a ~~$0.6~~$1.2 million increase in stock-based compensation ~~costs, as well as other smaller increases.~~expense. These increases were partially offset by a $0.7 million decrease in employee and consulting related expenditures and a $0.6 million decrease in depreciation and amortization of intangible assets.

Cost of service revenue for the ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 increased over the same prior fiscal year period ~~and faster than revenue growth~~primarily due to ~~increases related to our newly acquired CPaaS products combined with increased overhead allocation expense, a $7.4~~$20.2 million increase in ~~personnel and related~~communication infrastructure costs incurred to deliver our services primarily due to growth in usage across our platform including those in connection with CPaaS, a ~~$6.4~~$3.9 million increase in amortization of ~~intangibles and~~ capitalized software, ~~expenses,~~and a ~~$1.7~~$2.0 million increase in stock-based compensation ~~costs,~~expense. These increases were partially offset by a decrease of $1.0 million in employee and consulting related expenditures and a ~~$1.6~~decrease of $0.6 million in depreciation and amortization of intangible assets.

We expect that cost of service revenue will increase in ~~consulting and outside services,~~absolute dollars in future periods as ~~well as other smaller increases.~~revenue continues to grow.

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												September 30,
	December 31,						Dollar		Percent
Cost of product revenue	2019			2018			Change		Change
Cost of other revenue											Cost of other revenue	2020			2019			Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	6,893		$	5,318		$	1,575	29.6	%	Three months ended	$	11,693		$	13,884		$	(2,191)	(15.8)	%
Percentage of other revenue											Percentage of other revenue	142.8		%	169.9		%

Six months ended											Six months ended	$	22,830		$	26,275		$	(3,445)	(13.1)	%
Percentage of product revenue	137.8		%	132.9		%					Percentage of product revenue	144.4		%	175.1		%
Nine months ended	$	19,119		$	16,996		$	2,123	12.5	%
Percentage of product revenue	133.8		%	126.4		%

Cost of ~~product~~other revenue for the three and ~~nine~~six months ended ~~December 31, 2019 increased over~~September 30, 2020 decreased compared to the same periods in the prior fiscal year ~~periods~~ primarily due to ~~the~~a decrease in cost of products as a result of decrease in hardware shipment volume, improved pricing, and 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 December 31, 2019.~~our hardware rental program, which has better margins than hardware sales.

Operating Expenses


	December 31,						Dollar		Percent			September 30,
Research and development	2019			2018			Change		Change		Research and development	2020			2019			Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	19,870		$	16,886		$	2,984	17.7	%	Three months ended	$	21,567		$	19,434		$	2,133	11.0	%
Percentage of total revenue	16.8		%	18.8		%					Percentage of total revenue	16.7		%	17.7		%
Nine months ended	$	57,635		$	43,999		$	13,636	31.0	%

Six months ended											Six months ended	$	43,061		$	37,765		$	5,296	14.0	%
Percentage of total revenue	17.7		%	17.0		%					Percentage of total revenue	17.2		%	18.3		%

Research and development expenses for the three months ended ~~December 31, 2019~~September 30, 2020 increased ~~over~~compared to the same prior fiscal year period primarily due to a $2.3 million increase in stock-based compensation expense, a $1.0 million increase in personnel and related costs, and a $0.5 million increase in amortization of capitalized software expenses. These increases were partially offset by capitalization of internally developed software costs.

~~Research and development expenses for the nine months ended December 31, 2019 increased over the same prior year period primarily due to a $7.4 million increase in personnel and related costs, a $5.9~~$4.0 million increase in stock-based compensation expense, and a ~~$1.8~~$0.3 million increase in ~~amortization of capitalized software expenses, as well as other smaller cost increases.~~public cloud expenses. These increases were partially offset by ~~capitalization~~a $1.5 million higher allocation to capitalized software costs, and a $0.5 million decrease in travel related costs.

Research and development expenses for the six months ended September 30, 2020 increased compared to the same prior fiscal year period primarily due to a $6.7 million increase in stock-based compensation expense, a $0.8 million increase in public cloud expenses, and a $0.5 million increase in employee and consulting related expenditures. These increases were partially offset by a $1.9 million higher allocation of ~~internally developed~~capitalized software costs from research and development expenses during the period and a decrease of $0.9 million in travel related 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 %
We plan to continue to invest in research and development to support our efforts to expand the capabilities and scope of our platform and to enhance the user experience. While 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 as we continue to invest in our development efforts, and vary from period-to-period as a percentage of revenue.


	September 30,
Sales and marketing	2020			2019			Change
	(dollar amounts in thousands)
Three months ended	$	61,399		$	57,895		$	3,504	6.1	%
Percentage of total revenue	47.5		%	52.9		%

Six months ended	$	121,549		$	111,494		$	10,055	9.0	%
Percentage of total revenue	48.4		%	54.1		%

Sales and marketing expenses for the three months ended ~~December 31, 2019~~September 30, 2020 increased over the same prior fiscal year period primarily due to a $2.8 million increase in channel commissions, a $2.1 million increase in amortization of deferred sales commission costs, a $1.7 million increase in stock-based compensation expense, a $0.6 million increase in employee and consulting related expenditures, and a $0.6 million increase in marketing software and application related expenditures. These increases were partially offset by a net decrease of $2.3 million in marketing program and public cloud expenses as we gained efficiencies in lead generation and brand awareness and a $1.9 million decrease in travel related costs.

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Sales and marketing expenses for the six months ended September 30, 2020 increased over the same prior fiscal year period primarily due to a $5.4 million increase in ~~third-party commission expenses,~~employee and consulting related expenditures, a ~~$4.5~~$4.3 million increase in ~~personnel and related costs,~~channel commissions, a ~~$4.4~~$4.0 million increase in ~~advertising and marketing expenses, and~~amortization of deferred sales commission costs, a ~~$1.2~~$3.5 million

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increase in stock-based compensation ~~costs, as well as other smaller cost increases.~~expense, and a $2.2 million increase in marketing software and application costs. These ~~cost~~ increases were partially offset by ~~$4.6~~a net decrease of $7.2 million in ~~commission costs~~marketing program and public cloud expenses as we gained efficiencies in lead generation and brand awareness, and a $2.7 million decrease in travel related costs.

We plan to continue investing in sales and marketing to attract and retain customers on our platform and to increase our brand awareness. While we expect to continue to improve our cost structure and achieve operational efficiencies, we expect that ~~were capitalized.~~

~~Sales~~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~~will increase in ~~advertising~~absolute dollars in future periods and ~~marketing expenses,~~vary from period-to-period as 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 $13.6 million in commission costs that were capitalized.

percentage of revenue.


	December 31,						Dollar		Percent			September 30,
General and administrative	2019			2018			Change		Change		General and administrative	2020			2019			Change
	(dollar amounts in thousands)											(dollar amounts in thousands)
Three months ended	$	22,547		$	18,038		$	4,509	25.0	%	Three months ended	$	22,769		$	20,435		$	2,334	11.4	%
Percentage of total revenue	19.0		%	20.1		%					Percentage of total revenue	17.6		%	18.7		%
Nine months ended	$	62,589		$	53,198		$	9,391	17.7	%

Six months ended											Six months ended	$	48,559		$	40,042		$	8,517	21.3	%
Percentage of total revenue	19.3		%	20.6		%					Percentage of total revenue	19.4		%	19.4		%

General and administrative expenses for the three months ended ~~December 31, 2019~~September 30, 2020 increased ~~slightly~~ as compared to the same prior fiscal year period due to a ~~$3.0~~$0.7 million higher allowance for credit losses recognized partially in response to external market factors and uncertainties in connection with the COVID-19 pandemic, a $0.7 million increase in ~~personnel~~employee and consulting related ~~costs,~~expenditures, a ~~$2.7~~$0.6 million increase in stock-based compensation ~~costs,~~expense, and a ~~$0.5~~$0.7 million increase in facilities and other allocated expenses; these increases were partially offset by a $0.4 million decrease in acquisition and integration costs.

General and administrative expenses for the six months ended September 30, 2020 increased over the same prior fiscal year period primarily due to a $4.4 million increase in stock-based compensation expense, a $2.2 million increase in tax related expense, a $2.1 million higher allowance for credit losses recognized, a $1.6 million increase in employee and consulting related expenditures, and ~~outside services, as well as~~a $1.2 million increase in facilities and other ~~smaller increases.~~allocated expenses. These increases were partially offset by a ~~reduction in sales and use tax expenses of~~ $1.5 million decrease in acquisition and integration costs and a $1.4 million decrease in contract termination cost.

We expect to continue improving our cost structure and achieve operational efficiencies, and therefore also expect that ~~the Company recognized in~~general and administrative expenses as a percentage of total revenue will decline over time.


	September 30,
Other expense, net	2020			2019			Change
	(dollar amounts in thousands)
Three months ended	$	(5,178)		$	(2,732)		$	(2,446)	89.5	%
Percentage of total revenue	(4.0)		%	(2.5)		%

Six months ended	$	(9,103)		$	(4,296)		$	(4,807)	111.9	%
Percentage of total revenue	(3.6)		%	(2.1)		%

Other expense, net of other income increased for 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~~September 30, 2020 over the same prior fiscal year period primarily due to a ~~$9.1~~$1.1 million ~~increase related to personnel and related costs, a $5.7 million increase in stock-based compensation costs, a $1.8 million increase in costs associated with our recent acquisition,~~of lower interest income and a ~~$0.5~~$1.0 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 $6.5 million that the Company recognized in the nine months ended December 31, 2018, as well as other smaller decreases.

December 31, Dollar Percent
Other (expense) income, net 2019 2018 Change Change
(dollar amounts in thousands)
Three months ended $ (3,623 ) $ 579
$ (4,202 ) (725.7 )%
Percentage of total revenue (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 December 31, 2019 over the same prior year periods primarily due to an increase of $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~~additional convertible ~~Initial and Additional Notes~~notes issued in ~~February 2019 and~~ November ~~2019, respectively. These increases were partially offset by an~~2019. The remaining increase is attributable to fluctuations in ~~interest income. Refer to Part 1, Note 9~~foreign exchange rates.

Other expense, net of ~~Notes to Unaudited Condensed Consolidated Financial Statements. We had no such similar costs in~~other income for the six months ended September 30, 2020 increased over the same prior fiscal year ~~period.~~

December 31, Dollar
Provision for income taxes 2019 2018 Change
(dollar amounts in thousands)
Three months ended $ 280
$ 112
$ 168
Percentage of loss before provision for income taxes (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 December 31, 2019~~period primarily due to a $2.6 million of lower interest income and ~~2018, we recorded income tax expense of $0.3~~a $2.1 million ~~and $0.1 million, 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~~increase related to ~~state minimum taxes~~contractual interest expense, amortization of debt discount, and amortization of issuance costs associated with additional convertible notes issued in November 2019. The remaining increase is attributable to fluctuations in foreign exchange rates.

With the recognition of interest expense and amortization of debt discount and issuance costs in connection with our convertible senior notes, we expect the net of other income ~~taxes from our foreign operations.~~

and expense to continue to be in a net expense position in future periods.

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~~Our effective tax rate was (0.6)% and (0.5)% for the three months ended December 31, 2019 and 2018, respectively, and (0.6)% each of the nine months ended December 31, 2019 and 2018.~~


	September 30,
Provision for income taxes	2020			2019			Change
	(dollar amounts in thousands)
Three months ended	$	137		$	256		$	(119)	(46.5)	%
Percentage of loss before provision for income taxes	(0.4)		%	(0.6)		%

Six months ended	$	365		$	404		$	(39)	(9.7)	%
Percentage of loss before provision for income taxes	(0.5)		%	(0.5)		%

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 ~~December 31, 2019,~~September 30, 2020, we had ~~$235.2~~$159.4 million of cash, cash equivalents, and investments. In addition, as of September 30, 2020, we had ~~$19.0 million as~~ restricted cash including $8.6 million in support of letter of credits securing leases for office facilities ~~in California~~ and ~~New York, and $10.4~~$6.9 million held in escrow for our ~~recent~~ acquisition of Wavecell in July 2019, pursuant to the terms of the acquisition agreement. During the three months ended September 30, 2020, $3.5 million of restricted cash was released, and the remaining amount of $6.9 million held in escrow for our acquisition of Wavecell is due to be released in January 2021. By comparison, at March 31, ~~2019,~~2020, we had ~~$346.5~~$186.9 million of cash, cash equivalents, and investments as well as ~~a $8.1~~$19.0 million ~~in deposit as~~ restricted cash.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed into law, which amended portions of relevant tax laws and provided relief to certain qualifying entities. In connection with the CARES Act, the Company elected to defer certain employer payroll taxes, which is expected to reduce cash usage by over $4 million throughout fiscal 2021. The amounts deferred will be remitted to tax authorities during the third quarter of fiscal 2022 and fiscal 2023, respectively, when they become due. Other jurisdictions around the world have also provided similar tax relief, which the Company has elected to receive, where applicable; these benefits have a lesser impact to our expected cash flows during fiscal 2021.

In June 2020, the Company offered its employees a limited opportunity to receive a portion of their cash salary in shares of the Company's common stock. Based on employee elected participation, we expect lower cash usage from payroll compensation of over $4 million during fiscal 2021. Currently, the Company does not expect to offer this program beyond fiscal 2021. In addition, for fiscal 2021, the Company's executives received performance share units in place of a cash bonus plan. The timing of bonus payments for all other eligible employees was changed to semi-annually (in the third and first quarter of each fiscal year) from quarterly as in prior fiscal years.

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.

Historically, the Company 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 notes, and the associated increased cash, cash equivalents and investment balances, the Company expects to hold certain investments for at least 12 months from the reporting date and records these investments in long-term investments in alignment with the contractual maturity dates.

Period-over-Period Changes

Net cash used in operating activities for the ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 was ~~$62.8~~$13.1 million, ~~primarily due to making investments necessary to accelerate revenue growth. For comparison, $6.7~~compared with $44.5 million ~~was used~~ in ~~operating activities for~~ the ~~nine~~six months ended ~~December 31, 2018.~~September 30, 2019. Cash used in operating activities ~~has historically been~~was 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 sales commissions, debt discount and 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.~~obligations, such as commissions.

During the six months ended September 30, 2020, net cash used in operating activities was primarily related to the net loss of $80.3 million, net cash outflow from sales commissions of $14.0 million, which were partially offset by non-cash charges such

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as stock-based compensation expense of $48.1 million, depreciation and amortization of $22.6 million, amortization of debt discount of $8.3 million, and operating lease expenses of $7.6 million.

Net cash used in investing activities was ~~$84.8~~$11.5 million in the ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, compared with ~~$4.7~~$59.9 million ~~provided by investing activities~~ in ~~nine~~the six months ended ~~December 31, 2018.~~September 30, 2019. The cash used in investing activities during the ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 was ~~primarily~~ related to $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~~$16.2 million, purchases of $4.2 million of property and equipment, and $3.5 million release of cash held in escrow associated with an acquisition during the second quarter of fiscal 2020, partially offset by ~~$19.7~~$12.3 million of proceeds from ~~sales~~maturities and ~~maturities~~sales of investments, net of ~~purchases of investments.~~purchase.

Net cash provided by financing activities was ~~$65.8~~$4.6 million in the ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, compared with ~~$1.0~~$0.5 million ~~used by financing activities~~ in the ~~nine~~six months ended ~~December 31, 2018. Our~~September 30, 2019. Cash provided by financing activities for the ~~nine~~six months ended ~~December 31, 2019 provided cash of $65.3 million~~September 20, 2020 was primarily related to the proceeds 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 $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.~~the ESPP.

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~~Contractual Obligations~~

Payments due by Period
Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years
Senior convertible notes $ 362,500
$ —
$ —
$ 362,500
$ —
Interest on senior convertible notes 8,156
1,813
3,625
2,718
—
Operating leases 121,508
8,801
28,192
23,594
60,921
Total Contractual Obligations $ 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 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~~With the exception of changes described within Part I, Item 1, Note 2, "Summary of Significant Accounting Policies", due to the adoption of ASU 2016-03, there have been no significant changes during the three ~~and nine~~ months ended ~~December 31, 2019~~September 30, 2020 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 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements.~~2020.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Fluctuation Risk

~~The primary objective~~We had cash, cash equivalents, restricted cash, and investments totaling $175.0 million as of September 30, 2020. Cash equivalents and investments were invested primarily in money market funds, U.S. treasury, commercial paper, and corporate bonds. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than the U.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines 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~~policy. A hypothetical 10% change in ~~prevailing~~ interest rates ~~may cause~~would not have a material impact on the value of our cash, cash equivalents, or available-for-sale investments.

The Company issued $362.5 million aggregate 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 December 31, 2019, we had $287.5 million outstanding on our 0.50%~~ convertible senior notes ~~due 2024.~~of which the estimated fair value as of September 30, 2020 was $336.7 million. The ~~values~~fair value of the ~~Notes are exposed~~convertible senior notes is subject to interest rate ~~risk. Generally,~~risk, market risk and other factors due to the conversion feature. 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 market~~ value of the ~~Notes is affected by our stock price. The fair market value of the Notes~~convertible senior notes will generally increase as our common stock price increases and will generally decrease as our common stock price ~~declines in value. However,~~declines. The interest and market value changes affect the fair value of the convertible senior notes but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the ~~Notes~~convertible senior notes at face value less unamortized discount on our consolidated balance ~~sheet,~~sheets, 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~~revaluation of certain cash balances, accounts receivable balances, and intercompany balances that are denominated in these currencies impact our ~~other comprehensive income.~~net income (loss). 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 ~~December 31, 2019.~~September 30, 2020. As

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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 ~~December 31, 2019.~~September 30, 2020.

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 ~~third~~second quarter of fiscal year ~~2020,~~2021, 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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 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

There have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended March 31, ~~2019~~2020 and on our quarterly ~~reports~~report on Form 10-Q for the ~~quarterly~~three-month period ended June 30, ~~2019 and September 30, 2019.~~2020.

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
~~1.1~~3.1						~~Underwriting Agreement,~~Restated Certificate of Incorporation of Registrant, dated ~~as of November 18, 2019, between 8x8, Inc. and Morgan Stanley & Co. LLC~~August 22, 2012 (incorporated by reference to Exhibit ~~1.1~~3.1 to the Annual Report on Form 10-K filed May 27, 2013).
3.2						Amended and Restated By-Laws of 8x8, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed ~~November 21, 2019)~~July 28, 2015).
4.1						Indenture, dated as of February 19, 2019, between 8x8, Inc. 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						8x8, Inc. Amended and Restated 2012 Equity Incentive Plan, effective July 27 , 2020.*+
~~10.1~~10.2						~~Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed November 21, 2019).~~8x8, Inc. Amended and Restated 2017 New Employee Inducement Incentive Plan, effective July 27, 2020.*+
~~31.1~~10.3						8x8, Inc. Amended and Restated 2013 New Employee Inducement Incentive Plan, effective July 27, 2020.*+
10.4						8x8, Inc. Amended and Restated 1996 Employee Stock Purchase Plan, effective August 10, 2020.*+
10.5						Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the Amended & Restated 2012 Equity Incentive Plan.*+
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						The following materials from the 8x8, Inc. Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2019,~~June 30, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~December 31, 2019~~June 30, 2020 and March 31, ~~2019;~~2020; (ii) Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~December 31, 2019~~June 30, 2020 and ~~2018;~~2019; (iii) Condensed Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~December 31, 2019~~June 30, 2020 and ~~2018;~~2019; (iv) Condensed Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~December 31, 2019~~June 30, 2020 and ~~2018;~~2019; (v) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020 and ~~2018;~~2019; and (vi) notes to unaudited condensed consolidated financial statements.
104						Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.




*			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: ~~February 5,~~October 29, 2020


			8X8, INC.

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



	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
Service revenue	$	113,566		$	85,911		$	310,467		$	245,378
Product revenue	5,001			4,001			14,292			13,441
Total revenue	118,567			89,912			324,759			258,819
Cost of revenue and operating expenses:
Cost of service revenue	49,326			27,632			124,488			78,383
Cost of product revenue	6,893			5,318			19,119			16,996
Research and development	19,870			16,886			57,635			43,999
Sales and marketing	63,099			46,276			174,593			128,451
General and administrative	22,547			18,038			62,589			53,198
Total operating expenses	161,735			114,150			438,424			321,027
Loss from operations	(43,168		)	(24,238		)	(113,665		)	(62,208		)
Other (expense) income, net	(3,623		)	579			(7,919		)	1,933
Loss before provision for income taxes	(46,791		)	(23,659		)	(121,584		)	(60,275		)
Provision for income taxes	280			112			684			333
Net loss	$	(47,071	)	$	(23,771	)	$	(122,268	)	$	(60,608	)
Net loss per share:
Basic and diluted	$	(0.47	)	$	(0.25	)	$	(1.23	)	$	(0.64	)
Weighted-average common shares outstanding:
Basic and diluted	99,922			95,370			99,082			94,093



	December 31, 2019		March 31, 2019		$ Change
Contract assets	$	18,920	$	5,717	$	13,203
Deferred revenue	$	8,627	$	3,342	$	5,285



	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



	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



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



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



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



	Payments due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Senior convertible notes	$	362,500	$	—	$	—	$	362,500	$	—
Interest on senior convertible notes	8,156		1,813		3,625		2,718		—
Operating leases	121,508		8,801		28,192		23,594		60,921
Total Contractual Obligations	$	492,164	$	10,614	$	31,817	$	388,812	$	60,921



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