Business Overview
8×8, Inc. (EGHT) is a leading provider of cloud-based communication and collaboration solutions, serving businesses of all sizes across the globe. With a focus on innovation and customer-centricity, 8×8 has established itself as a pioneer in the cloud communications space, empowering organizations to seamlessly connect their employees and customers through a comprehensive suite of integrated services.
Company History
Founded in February 1987 in California and later reincorporated in Delaware in December 1996, 8×8 has a rich history of driving technological advancements in the communications industry. The company’s journey began with the development of voice-over-IP (VoIP) technology, which revolutionized the way businesses approached their communication needs. In its early years, 8×8 faced significant challenges as it worked to establish its position in the emerging VoIP market and gain traction with customers. However, the company persevered, continuously investing in research and development to enhance its technology and product offerings.
Product Portfolio and Acquisitions
Over the years, 8×8 has expanded its product portfolio, incorporating cutting-edge features such as contact center, video conferencing, and communications platform-as-a-service (CPaaS) capabilities. The company has also made strategic acquisitions, including the 2022 acquisition of Fuze, Inc., to broaden its capabilities and customer base. These moves have solidified 8×8’s position as a true one-stop-shop for businesses’ communication and collaboration requirements, offering a comprehensive suite of software-as-a-service solutions for contact center, voice communications, video meetings, employee collaboration, and embeddable communication application program interfaces.
Revenue Model
One of the key strengths of 8×8’s business model is its diversified revenue stream. The company generates service revenue from subscriptions to its communication services, as well as from the usage of its platform. This includes revenue from unified communications, contact center, and CPaaS offerings. Additionally, 8×8 generates revenue from professional services and the sale of hardware, such as IP phones, further diversifying its top line.
Financials
Financially, 8×8 has demonstrated resilience and a focus on profitability. In the fiscal year 2024, the company reported total revenue of $728.71 million, with a gross profit margin of 69.1%. While the company has faced challenges in recent years, including the impact of the COVID-19 pandemic, it has remained committed to its strategic initiatives, which have included accelerating innovation, expanding its presence in the Asia-Pacific region, and strengthening its focus on mid-market and enterprise customers.
The company’s financial performance in the most recent quarter (Q2 FY 2025) showed a slight decline in revenue, with total revenue of $181.00 million, down 2.2% year-over-year. This decrease was primarily due to a $3.80 million decline in subscription revenue, partially offset by a $1.10 million increase in platform usage revenue. The net income for the quarter was -$14.54 million, while operating cash flow (OCF) was $12.32 million and free cash flow (FCF) was $14.14 million.
8×8’s service revenue, which made up 96.7% of total revenue for the three months ended September 30, 2024, decreased by 2.7 million, or 1.5%, compared to the same period in the prior year. This was driven by a 3.8 million decrease in revenue from subscriptions, primarily due to a decline in revenue from customers on the Fuze platform, partially offset by a 1.1 million increase in platform usage revenue.
The company’s other revenue segment, which includes professional services and hardware sales, made up 3.3% of total revenue for the same period. This segment saw a decrease of 1.3 million, or 17.9%, due to lower professional service and product revenue.
Liquidity and Debt
As of March 31, 2024, 8×8 had cash and cash equivalents of $116.26 million. The company’s debt-to-equity ratio stands at 3.72, indicating a significant amount of leverage. However, 8×8 has access to a $200 million delayed draw term loan facility maturing in August 2027, providing additional financial flexibility. The company’s current ratio and quick ratio both stand at 1.18, suggesting adequate short-term liquidity.
Innovation and R&D
One of the key drivers of 8×8’s growth has been its emphasis on innovation. The company allocates approximately 15% of its revenue to research and development, enabling it to continuously enhance its product offerings and stay ahead of the competition. This has led to the introduction of several new solutions, such as AI-powered contact center capabilities, integrated team collaboration tools, and advanced CPaaS offerings, which have resonated well with customers.
Strategic Partnerships
Furthermore, 8×8 has been actively strengthening its partner ecosystem, forging strategic alliances with leading technology providers. This has allowed the company to offer its customers a more comprehensive and integrated communication solution, seamlessly integrating with popular platforms like Microsoft Teams and various customer relationship management (CRM) systems.
Geographical Presence
In terms of geographical diversification, 8×8 has a strong presence in the United States, the United Kingdom, and other international markets. The company’s ability to cater to the unique communication needs of businesses across various regions has been a key factor in its global expansion.
Challenges and Integration Efforts
One of the challenges 8×8 has faced in recent years is the integration and migration of customers from its acquired Fuze platform. The company has been actively working to transition these customers to its 8×8 platform, which it expects to complete by the end of calendar year 2025. This transition has had a temporary impact on the company’s financial performance, with Fuze platform customers representing approximately 7% of service revenue in Q2 FY 2025 compared to 12% in the prior year period. Despite these challenges, 8×8 remains confident in its ability to successfully integrate these customers and unlock the full potential of its unified platform.
Future Outlook
Looking ahead, 8×8 is well-positioned to capitalize on the growing demand for cloud-based communication and collaboration solutions. The ongoing shift towards remote and hybrid work models, coupled with the increasing adoption of cloud technologies, presents significant opportunities for the company to expand its customer base and deepen its existing relationships.
The cloud communications market is expected to grow at a compound annual growth rate (CAGR) of approximately 16-18% over the next 5 years, driven by increasing demand for unified cloud-based communications and contact center solutions. This industry trend aligns well with 8×8’s strategic focus and product offerings.
Guidance
In its latest guidance, 8×8 has provided detailed projections for the upcoming quarters and fiscal year. For Q3 FY2025 (ending December 31, 2024), the company expects service revenue to be in the range of $171 million to $174 million, with total revenue between $177 million and $182 million. The non-GAAP operating margin is projected to be between 10% and 11%.
For the full fiscal year 2025 (ending March 31, 2025), 8×8 has projected service revenue to be in the range of $690 million to $701 million, with total revenue between $714 million and $727 million. The company expects a non-GAAP operating margin between 10.25% and 11%, non-GAAP earnings per share (EPS) of $0.32 to $0.35, and cash flow from operations of $59 million to $64 million.
Additionally, 8×8 anticipates interest expenses of about $5.5 million in Q3 and $5.3 million in Q4 FY2025, based on current interest rates and their outstanding debt balance. Cash paid for interest is expected to be approximately $3.4 million in Q3 and $7.2 million in Q4.
These projections reflect the company’s confidence in its ability to deliver sustainable growth and profitability, despite the challenges posed by the macroeconomic environment and the ongoing Fuze platform migration.
Conclusion
In conclusion, 8×8, Inc. is a well-established player in the cloud communications industry, with a proven track record of innovation and a commitment to serving the evolving needs of businesses worldwide. Despite facing challenges such as the Fuze platform migration and a slight decline in revenue, the company has demonstrated financial resilience and a clear strategy for future growth. As 8×8 continues to execute on its strategic initiatives, including the transition of Fuze customers to its platform and the expansion of its product offerings, it remains poised to capitalize on the growing demand for integrated communication and collaboration solutions. With a solid financial foundation, a focus on innovation, and a favorable industry outlook, 8×8 is well-positioned to solidify its position as a leading provider in the dynamic cloud communications landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.