OVERVIEW
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How can you use the 8D problem-solving method to prevent recurrence?What countries need to consider when dual exchange rates are a problemAn overview of the 8D problem-solving method - LogRocket BlogWe are a leading SaaS provider of voice, video, contact center, andcommunication APIs powered by a global cloud communications platform. From ourproprietary cloud technology platform, organizations across all their locationsand employees have access to unified communications, team collaboration, videoconferencing, contact center, data and analytics, communication APIs, and otherservices, enabling them to be more productive and responsive to their customers.Our customers range from small businesses to large enterprises and their usersare spread across more than 150 countries. In recent years, we have increasedour up-market focus on the mid-market and enterprise customer sectors.We have a portfolio of cloud-based offerings that are subscription based, madeavailable at different rates varying by the specific functionalities, servicesand number of users. We generate service revenue from communications servicessubscriptions and platform usage. We generate other revenue from professionalservices and the sale of office phones and other hardware equipment. We define a"customer" as one or more legal entities to which we provide services pursuantto a single contractual arrangement. In some cases, we may have multiple billingrelationships with a single customer (for example, where we establish separatebilling accounts for a parent company and each of its subsidiaries).Our flagship service is our 8x8 X Series, a suite of UCaaS and CCaaS solutions,which consist of service plans of increasing functionality designated X1, X2,etc., through X8. With 8x8 X Series, we provide enterprise-grade voice, unifiedcommunications, video meetings, team collaboration, and contact centerfunctionalities from a single platform. We also offer standalone SaaS servicesfor contact center, video meetings, and enterprise communication APIs. ThroughourJuly 2019 acquisition ofWavecell Pte. Ltd. , anAsia -based globalcommunication platform as a service CPaaS provider of SMS, messaging, voice andvideo APIs to enterprises, we expanded our API offerings both geographically andin scope. We expect to continue integrating these services into our platform, aswe believe in the value of the collective solutions.Throughout fiscal 2021, the Company incurred professional services and relatedengineering costs to upgrade our customers to the 8x8 X Series platform. As ofMarch 31, 2021 , we have upgraded substantially all of our customers to X Series,and intend to complete remaining upgrades in fiscal 2022. While we may not beable to recover these costs from our customers, we believe that we will realizeother benefits including reducing the number of platforms that we are requiredto support and improved customer retention.SUMMARY AND OUTLOOKIn fiscal 2021, our total service revenue grew approximately 20% year-over-yearto$496.0 million . We continued to show an increase in our average annualizedservice revenue per customer, which grew to$8,439 in fiscal 2021, from$7,876 in fiscal 2020, as we are selling more to mid-market and enterprise customers.Annual service revenue from mid-market and enterprise customers represented 47%of total annual service revenue and grew 31% over the prior year. We alsoincreased the number of deals where customers purchase our integratedcommunications and contact center solutions, which we have referred to asbundled deals, 67% of our new bookings greater than$12,000 of annualizedrecurring revenue were from customers that selected bundled UCaaS and CCaaS, ascompared to 60% one year ago. 27-------------------------------------------------------------------------------- Table of ContentsOur continued business focus is on achieving improved operating efficiencieswhile delivering revenue growth. In fiscal 2021, while we continued to makeimportant investments in our products and technology platform, managementrecognized the importance of driving toward profitability for sustainable scale.We focused on key areas of spend in our go-to-market strategy and improvinggross margin and operating margin through increased spend discipline.Additionally, we looked to drive improved efficiencies in our customeracquisition and operations, and focused on expanding our business upmarket withmid-market and enterprise customers. We believe that this approach will enablethe Company to grow and capture market share during this phase of industrydisruption, in a cost-effective way, and support the Company in pursuit of itspath to profitability and operating cashflow improvement.In prior years, we made strategic investments in R&D and marketing, which weconsidered necessary and important for delivering a robust platform to ourcustomers and establishing the appropriate demand generation channels to connectour customers to our solutions. In fiscal 2019, we launched 8x8 X Series, oursingle-technology platform, and re-aligned our channel and marketing functionsto support a more scalable, higher-growth, go-to-market strategy, in response tothe shift of businesses from legacy on-premise communication solutions tocloud-based services. We believe that this industry trend continued throughoutour fiscal 2021. Accordingly, we continued to invest in our business, but with aconcurrent focus on scale and managing costs with the goal of driving toprofitability.In fiscal 2022, we plan to continue making investments in activities to acquiremore customers, including investing in our marketing efforts, internal and fieldsales capacity, and research and development. We also intend to continueinvesting in our indirect channel programs to acquire more third-party sellingagents to help sell our solutions, including VARs and master agent programs.NEW CEO APPOINTMENTOnDecember 10, 2020 , we appointedDavid Sipes as Chief Executive Officer and amember of the board of directors.IMPACTS OF COVID-19The full extent of the impact of the COVID-19 pandemic on our business,operations and financial results will depend on numerous evolving factors thatwe may not be able to accurately predict, including those set forth under thesection entitled "Risk Factors." In an effort to contain COVID-19 or slow itsspread, governments around the world have enacted various measures, includingorders to close non-essential businesses, isolate residents to their homes, andpractice social distancing. To protect the health and safety of our employees,our workforce has spent significant time working from home and travel has beencurtailed for our employees as well as our customers. Small and medium-sizedcustomers have been particularly impacted by the COVID-19 pandemic. We have alsoexperienced significant increases in usage by existing customers as ourcustomers' workforces are required to work from home in response to the COVID-19pandemic accelerating trends we have seen in distributed workforces increasinglyrelying on cloud communication systems like ours. While we anticipate that theglobal health crisis caused by COVID-19 and the measures enacted to slow itsspread will negatively impact business activity across the globe, it is notclear what its potential effects will be on our business, including the effectson our customers, suppliers or vendors, or on our financial results.COMPONENTS OF RESULTS OF OPERATIONSService RevenueService revenue consists of communication services subscriptions, platform usagerevenue, and related fees from our UCaaS, CCaaS, and CPaaS offerings. We plan tocontinue driving our business to increase service revenue through a combinationof increased sales and marketing efforts, geographic expansion of our customerbase outsidethe United States , innovation in product and technology, andthrough strategic acquisitions of technologies and businesses.Other RevenueOther revenue consists of revenues from professional services, primarily insupport of deployment of our solutions and/or platform, and revenues from salesand rentals of IP telephones in conjunction with our cloud telephony service.Other revenue is dependent on the number of customers who choose to purchase orrent an IP telephone in conjunction with our service instead of using thesolution on their cell phone, computer or other compatible device, and/or chooseto engage our services for implementation and deployment of our cloud services.Cost of Service RevenueCost of service revenue consists primarily of costs associated with networkoperations and related personnel, technology licenses, amortization ofcapitalized internal-use software, other communication origination andtermination services provided by third-party carriers and outsourced customerservice call center operations, and other costs such as customer service, andtechnical support costs. We allocate overhead costs such as IT and facilities tocost of service revenue, as well as to each of the operating expense categories,generally based on relative headcount. Our IT costs include costs for ITinfrastructure and personnel. Facilities costs primarily consist of officeleases and related expenses. 28-------------------------------------------------------------------------------- Table of ContentsCost of Other RevenueCost of other revenue consists primarily of direct and indirect costs associatedwith the purchasing of IP telephones as well as the scheduling, shipping andhandling, personnel costs, expenditures incurred in connection with theprofessional services associated with the deployment and implementation of ourproducts, and allocated IT and facilities costs.Research and DevelopmentResearch and development expenses consist primarily of personnel and relatedcosts, third-party development, software and equipment costs necessary for us toconduct our product, platform development and engineering efforts, and allocatedIT and facilities costs.Sales and MarketingSales and marketing expenses consist primarily of personnel and related costs,sales commissions, including those to the channel, trade shows, advertising andother marketing, demand generation, promotional expenses, and allocated IT andfacilities costs.General and AdministrativeGeneral and administrative expenses consist primarily of personnel and relatedcosts, professional services fees, corporate administrative costs, tax andregulatory fees, and allocated IT and facilities costs.Other Income (Expense), netOther income (expense), net, consists primarily of interest expense related tothe convertible notes, offset by income earned on our cash, cash equivalents,investments, and foreign exchange gain/losses.Provision for Income TaxesProvision for income taxes consists primarily of foreign income taxes and stateminimum taxes inthe United States . As we expand the scale of our internationalbusiness activities, any changes in theU.S. and foreign taxation of suchactivities may increase our overall provision for income taxes in the future. Wehave a valuation allowance for ourU.S. deferred tax assets, including federaland state net operating loss carryforwards ("NOLs"). We expect to maintain thisvaluation allowance until it becomes more likely than not that the benefit ofour federal and state deferred tax assets will be realized by way of expectedfuture taxable income inthe United States .RESULTS OF OPERATIONSThe following discussion should be read in conjunction with our consolidatedfinancial statements and related notes included elsewhere in this Annual Report.We have minimal seasonality in our business, but typically, sales of newsubscriptions in our fourth fiscal quarter are greater than in any of the firstthree quarters of the fiscal year. We believe this occurs because the customerswe target tend to spend a relatively greater portion of their annual capitalbudgets at the beginning of the calendar year compared with each of the lastthree quarters of the year.RevenueService revenue For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Service revenue$495,985 $414,078 $325,305 $ 81,907 19.8 %$ 88,773 27.3 %Percentage of total revenue 93.2 % 92.8 % 92.3 %Service revenue increased for fiscal 2021, as compared with fiscal 2020,primarily due to a net increase in our customer base, expanded offerings toexisting customers, and growth in related usage; service revenue from newcustomers was primarily driven by sales of standalone and bundled UCaaS andCCaaS deals, globally, to our mid-market and enterprise customers. The increasein service revenue was also attributable to growth in usage revenue generated byour CPaaS products primarily in the APAC region. Our service subscriber basegrew from approximately 55,000 customers onMarch 31, 2020 to approximately58,000 customers onMarch 31, 2021 .Service revenue increased for fiscal 2020, as compared with fiscal 2019,primarily due to a net increase in our customer subscriber base, with thelargest part of the increase coming from our mid-market and enterprisecustomers, who are our fastest growing customer sector, contributing to anincrease in the average annual service revenue per customer. This increase wasprimarily due to organic growth and, to a lesser extent, CPaaS revenue generatedin connection with our acquisition of Wavecell inJuly 2019 . Our servicesubscriber base grew from approximately 52,000 customers onMarch 31, 2019 toapproximately 55,000 customers onMarch 31, 2020 . 29
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Table of ContentsWe expect total service revenue to grow over time with our diverse platformoffering as our business continues to expand globally and across broadercustomer categories.Other revenue For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Other revenue$36,359 $32,159 $27,281 $ 4,200 13.1 %$ 4,878 17.9 %Percentage of total revenue 6.8 % 7.2 % 7.7 %Other revenue increased in fiscal 2021, as compared to fiscal 2020, primarilydue to increased professional services revenue resulting from the overall growthin our business and customer base, partially offset by a decrease in productrevenue as a result of a shift toward our hardware rental program.Other revenue increased in fiscal 2020, as compared to fiscal 2019, primarilydue to increased professional services revenue resulting from the overall growthin our business and customer base and increased product revenue.We expect other revenue to grow over time as our customer base grows,particularly in mid-market and enterprise, as we focus on delivering enhancedplatform offerings to existing and new customers.No single customer represented more than 10% of our total revenues during fiscalyears 2021, 2020, or 2019.Revenues are attributed to countries based on the shipment destination and thecustomer's service address. The following table illustrates our revenues bygeographic area: For the years ended March 31, 2021 2020 2019United States 73 % 79 % 86 %International 27 % 21 % 14 %Total 100 % 100 % 100 %Revenue generated from international customers increased in fiscal years 2021and 2020, as compared to fiscal 2019 due to expansion in both EMEA and APACregions, including those added in connection with our acquisition of Wavecell.Cost of RevenueCost of service revenue For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Cost of service revenue$180,082 $145,013 $86,122 $ 35,069 24.2 %$ 58,891 68.4 %Percentage of servicerevenue 36.3 % 35.0 % 26.5 %Cost of service revenue increased in fiscal 2021, as compared to fiscal 2020,primarily due to a$33.6 million increase in communication infrastructure costsincurred to deliver our services, including those in connection with CPaaS, a$6.4 million increase in amortization of capitalized internal-use software, anda$3.4 million increase in stock-based compensation expense. These increaseswere partially offset by a decrease of$5.3 million in employee and consultingrelated expenditures and a decrease of$2.5 million in depreciation andamortization of intangible assets.Cost of service revenue increased in fiscal 2020, as compared to fiscal 2019,primarily due to a$33.8 million increase in communication infrastructure costsincurred to deliver our services, including those in connection with CPaaS, a$7.1 million increase in amortization of capitalized internal-use softwarecosts, a$6.5 million increase in facilities and other allocated expenses, a$6.8 million increase in employee and consulting related expenditures,$1.9million increase in amortization of intangibles, and a$1.1 million increase insoftware expense.We expect cost of service revenue will increase in absolute dollars in futureperiods as revenue continues to grow. 30--------------------------------------------------------------------------------
Table of ContentsCost of other revenue For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Cost of other revenue$ 50,068 $ 56,215 $ 43,850 $ (6,147) (10.9) %$ 12,365 28.2 %Percentage of other revenue 137.7 % 174.8 % 160.7 %Cost of other revenue decreased in fiscal 2021, as compared to fiscal 2020,primarily due to reductions in hardware shipment volume, improved pricing, andincrease in our hardware rental program, which has better margins than hardwaresales.Cost of other revenue increased in fiscal 2020, as compared to fiscal 2019,primarily due to increased product shipments and personnel and other costsassociated with customer deployments.Operating ExpensesResearch and development For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019
Research and development
18.3 %$ 15,727 25.3 %Percentage of total revenue 17.3 % 17.4 %
17.6 %
Research and development expenses increased in fiscal 2021, as compared tofiscal 2020, primarily due to an$11.9 million increase in stock-basedcompensation expense, a$3.0 million reduction in capitalized internal-usesoftware costs, and a$1.2 million increase in depreciation and amortization ofsoftware. These increases were partially offset by a$1.2 million decrease intravel related costs.Research and development expenses increased in fiscal 2020, as compared tofiscal 2019, primarily due to an$8.6 million increase in stock-basedcompensation expenses, a$3.7 million increase in payroll and related expenses,net of capitalized internal-use software costs, a$2.2 million increase inamortization of capitalized internal-use software costs, and a$1.5 million increase in software expenses.We plan to continue to invest in research and development to support our effortsto expand the capabilities and scope of our platform and to enhance the userexperience. While we expect to continue to improve our cost structure andachieve operational efficiencies, we expect that research and developmentexpenses will increase in absolute dollars in future periods as we continue toinvest in our development efforts, and vary from period-to-period as apercentage of revenue.Sales and marketing For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Sales and marketing$256,231 $240,013 $177,976 $ 16,218 6.8 %$ 62,037 34.9 %Percentage of total revenue 48.1 % 53.8 % 50.5 %Sales and marketing expenses increased in fiscal 2021, as compared to fiscal2020, primarily due to a$14.9 million increase in channel commissions, a$13.7million increase in stock-based compensation expense, a$8.3 million increase inamortization of deferred sales commission costs, a$3.7 million increase inmarketing software and application costs, and a$3.2 million increase inemployee and consulting related expenditures. These increases were partiallyoffset by a decrease of$27.2 million in marketing program and public cloudexpenses due to gained efficiencies in lead generation and brand awareness,along with a reduction in travel related costs.Sales and marketing expenses increased in fiscal 2020, as compared to fiscal2019, primarily due to a$20.4 million increase in advertising and marketingexpenses, a$16.1 million increase in payroll and related expenses fromexpansion of our sales force, an$8.3 million increase in stock-basedcompensation expenses, a$7.2 million increase in commission expenses, a$5.3million increase in amortization of deferred sales commissions, a$1.5 million increase in recruiting and outside services, a$1.3 million increase in licensesand fees, and a$0.9 million increase in depreciation and amortization ofintangibles.We plan to continue investing in sales and marketing to attract and retaincustomers on our platform and to increase our brand awareness. While we expectto continue to improve our cost structure and achieve operational efficiencies,we expect that sales and marketing expenses will increase in absolute dollars infuture periods and vary from period-to-period as a percentage of revenue. 31--------------------------------------------------------------------------------
Table of ContentsGeneral and administrative For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019General and administrative$100,078 $87,025 $72,208 $ 13,053 15.0 %$ 14,817 20.5 %Percentage of total revenue 18.8 % 19.5 % 20.5 %General and administrative expenses increased in fiscal 2021, as compared tofiscal 2020, primarily due to a$6.4 million increase in stock-basedcompensation expense, a$5.7 million increase in professional services andpayroll and related expenses, including CEO succession costs, a$1.3 million higher allowance for credit losses, partially in response to external marketfactors and uncertainties in connection with the COVID-19 pandemic, and a$1.8million increase in depreciation expense. These increases were partially offsetby a$2.2 million decrease in acquisition and integration costs.General and administrative expenses increased in fiscal 2020, as compared tofiscal 2019, primarily due to an$11.8 million increase in payroll and relatedexpenses, a$7.9 million increase in stock-based compensation expenses, a$3.5million increase in rent expense related to additional office spaces, a$2.4million increase in bad debt expense, and a$2.4 million increase in acquisitionand integration related expenses. These increases were partially offset by adecrease in allocated costs of$7.0 million , and the non-recurrence of sales anduse tax expenses of$7.6 million that the Company recognized in fiscal 2019.We expect to continue improving our cost structure and achieve operationalefficiencies, and therefore also expect that general and administrative expensesas a percentage of total revenue will decline over time.Other income (expense), net For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Other income (expense), net$(18,593) $ (11,717) $ 1,463 $ (6,876) 58.7 %$ (13,180) (900.9) %Percentage of total revenue (3.5) % (2.6) % 0.4 %The change in Other income (expense), net in fiscal 2021, as compared to fiscal2020, was primarily due to$4.0 million of lower interest income and a$3.1million increase in expense related to contractual interest, amortization ofdebt discount, and amortization of issuance costs associated with additionalconvertible notes issued inNovember 2019 . These amounts were partially offsetby an increase in other income of$0.6 million .The change in Other income (expense), net in fiscal 2020, as compared to fiscal2019, primarily related to recognition of interest, amortization of debtdiscount, and amortization of issuance costs associated with our convertiblesenior notes issued in the fourth quarter of fiscal 2019 and the third quarterof fiscal 2020, which totaled$15.6 million in fiscal 2020, as compared to$1.5million in fiscal 2019. This increase in other expense was partially offset byan increase in interest income of$1.6 million .With the recognition of interest expense and amortization of debt discount andissuance costs in connection with our convertible senior notes, we expect Otherincome (expense), net to continue to be in a net expense position for theforeseeable future.Provision for income taxes For the years ended March 31, Change 2021 2020 2019 2021 vs 2020 2020 vs 2019Provision for income taxes$ 843 $ 832 $ 569 $ 11 1.3 %$ 263 46.2 %Percentage of total revenue 0.2 % 0.2 % 0.2 %For the years endedMarch 31, 2021 and 2020, we recorded income tax expense of$0.8 million and$0.8 million , respectively, mostly related to the current taxliabilities of profitable foreign subsidiaries andU.S. state minimum taxes. Oureffective tax rate for each period differs from the statutory rate primarily dueto a full valuation allowance against our deferred tax assets.We record deferred taxes based on differences between the financial statementbasis and tax basis of assets and liabilities and available tax loss and creditcarryforwards. In evaluating our ability to utilize our deferred tax assets, weconsider available evidence, both positive and negative, in determining futuretaxable income on a jurisdiction-by-jurisdiction basis. We record a valuationallowance against deferred tax assets if, based on the weight of the evidence,it is more likely than not that some portion or all of the deferred tax assetswill not be realized. A significant item of objective negative evidenceconsidered was the historical three-year cumulative pretax loss reached infiscal 2018. We continue to remain in a cumulative pretax loss position, andtherefore, continued to maintain a full valuation allowance against ourU.S. ,U.K. , andSingapore deferred tax assets.Liquidity and Capital ResourcesAs ofMarch 31, 2021 , we had$152.9 million of cash and cash equivalents andshort-term investments. In addition, we had$8.6 million in restricted cash insupport of letters of credit securing leases for office facilities inCalifornia andNew York . During fiscal 2021,$10.4 million previously held in escrow forour acquisition of Wavecell was released. 32-------------------------------------------------------------------------------- Table of ContentsAs ofMarch 31, 2020 , we had$170.9 million of cash and cash equivalents andshort-term investments. In addition, we had$19.0 million in restricted cash, ofwhich$8.6 million was in support of letters of credit securing leases foroffice facilities inCalifornia andNew York and$10.4 million was held inescrow for our acquisition of Wavecell, pursuant to the terms of the acquisitionagreement.OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the"CARES Act") was passed into law, which amended portions of relevant tax lawsand provided relief to certain qualifying entities. In connection with the CARESAct, the Company elected to defer certain employer payroll taxes, which reducedcash usage by approximately$5.0 million throughDecember 31, 2020 , of whichapproximately$2.5 million will be remitted to tax authorities during the thirdquarter of fiscal 2022 and the remaining amount due will be remitted in thethird quarter of fiscal 2023. Other jurisdictions around the world have alsoprovided similar tax relief, which the Company has elected to receive, whereapplicable; these benefits have a lesser impact to our cash flows during fiscal2021.InJune 2020 , the Company offered its employees an opportunity to receive aportion of their future cash salary for fiscal 2021 in shares of the Company'scommon stock, which resulted in lower cash usage from payroll compensation ofapproximately$4 million during fiscal 2021. In addition, for fiscal 2021, theCompany's executives received performance share units in place of a cash bonusplan and the timing of bonus payments for all other eligible employees waschanged to semi-annually (in the third and first quarter of each fiscal year)from quarterly as in prior fiscal years.During the fourth quarter of fiscal 2021, we received$6.4 million of operatingcash inflows from our Lease Assignment. Refer to Note 5. Leases, in the Notes toConsolidated Financial Statements included in this Annual Report.InMarch 2021 , the Company offered its employees another opportunity to receivea portion of their fiscal 2022 cash salary and/or cash bonus in shares of theCompany's common stock. Based on employee elected participation, we expect lowercash usage from payroll compensation of over$9 million during fiscal 2022.We believe that our existing cash, cash equivalents and investment balances, andour anticipated cash flows from operations will be sufficient to meet ourworking capital and expenditure requirements for the next 12 months. Although webelieve we have adequate sources of liquidity over the next 12 months, thesuccess of our operations, the global economic outlook, and the pace ofsustainable growth in our markets, in each case, in light of the marketvolatility and uncertainty as a result of the COVID-19 pandemic, among otherfactors, could impact our business and liquidity.Year over Year ChangesNet cash used in operating activities for fiscal 2021 was$14.1 million , ascompared with$93.9 million for fiscal 2020. Cash used in or provided byoperating activities is primarily affected by:•net income or loss;•non-cash expense items such as depreciation, amortization, and impairments;•expense associated with stock options and stock-based awards; and•changes in working capital accounts, particularly in the timing of collectionsfrom receivable and payments of obligations, such as commissions.In fiscal 2021, net cash used in operating activities was primarily related toour net loss of$165.6 million , net cash outflow from sales commissions paymentsand recognition of deferred sales commissions of$25.1 million , and othersmaller working capital changes, which were partially offset by non-cash chargessuch as stock-based compensation expense of$107.6 million , amortization ofcapitalized internal-use software costs of$26.9 million , amortization of debtdiscount of$16.9 million , and operating lease expenses of$15.2 million .In fiscal 2020, net cash used in operating activities was primarily related toour net loss of$172.4 million , net cash outflow from sales commissions of$26.9million , and other smaller working capital changes, which were partially offsetby non-cash charges such as stock-based compensation expense of$70.9 million ,amortization of capitalized internal-use software costs of$19.0 million ,amortization of the debt discount of$14.0 million , and operating lease expensesof$15.0 million .Net cash used in investing activities was$36.3 million in fiscal 2021, ascompared to$106.3 million in fiscal 2020. The cash used in investing activitiesduring fiscal 2021, was primarily related to capitalized internal-use softwaredevelopment costs of$28.8 million , net cash paid of$10.4 million in connectionwith our acquisition of Wavecell, and purchases of property and equipment of$6.4 million . This was partially offset by the proceeds from the sales andmaturities of investments, net of purchases, of$9.3 million .Net cash used in investing activities was$106.3 million during fiscal 2020, ascompared to$10.9 million provided by investing activities in fiscal 2019. Thecash used in investing activities during fiscal 2020 was primarily related topurchases of property and equipment of$35.8 million , largely in connection withthe build out of our corporate office, capitalized internal-use softwaredevelopment costs of$31.6 million , and net cash paid of$59.1 million inconnection with our acquisitions. This was partially offset by proceeds fromsales and maturities of investments, net of purchases, of$20.2 million . 33-------------------------------------------------------------------------------- Table of ContentsNet cash provided by financing activities was$13.2 million in fiscal 2021, ascompared to$72.1 million in fiscal 2020. The cash provided by financingactivities in fiscal 2021, was primarily from the issuance of common stock of$13.3 million , primarily from employee stock purchase plans and employee optionexercises.Net cash provided by financing activities was$72.1 million in fiscal 2020, ascompared to$249.2 million provided by financing activities in fiscal 2019. Thecash provided by financing activities in fiscal 2020, was primarily from theissuance of convertible debt of$73.9 million and from the issuance of commonstock under employee stock purchase plans of$14.3 million . These inflows werepartially offset by$9.3 million in capped call transactions and$6.6 million tosettle payroll tax obligations.Off-Balance Sheet ArrangementsAs ofMarch 31, 2021 , we did not have any off-balance sheet arrangements, asdefined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use ofunconsolidated subsidiaries, structured finance, special purpose entities orvariable interest entities.As set forth below in our contractual obligations table, we do have inventorypurchases and other commitments incurred in the normal course of business. Wemay also agree in the normal course of business to indemnify other parties,including customers, lessors and parties to other transactions with us withrespect to matters such as breaches of representations or covenants orintellectual property infringement or other claims made by third parties. SeeNote 6, Commitments and Contingencies, in the Notes to Consolidated FinancialStatements included in this Annual Report for further information about ourindemnification arrangements.Contractual ObligationsObligations related to our convertible senior notes, operating lease payments,and purchase obligations atMarch 31, 2021 for the next five years were asfollows: Payments Due by Period Less than More than Total 1 year 1-3 years 3-5 years 5 yearsConvertible senior notes$ 362,500 $ -$ 362,500 $ - $ -Operating lease obligations(1) 113,049 16,341 27,000 22,015 47,693Lease assignment contract(1) 868 868 - - -Purchase obligations 18,625 5,051 13,574 - -Total$ 495,042 $ 22,260 $ 403,074 $ 22,015 $ 47,693 (1) See Note 5, Leases, in the Notes to Consolidated Financial Statementsincluded in this Annual Report for further information.CRITICAL ACCOUNTING POLICIES & ESTIMATESOur consolidated financial statements are prepared in accordance withU.S. GAAP.Refer to Note 1, The Company and Significant Accounting Policies, in the Notesto Consolidated Financial Statements included in this Annual Report, whichdescribes the significant accounting policies and methods used in thepreparation of our consolidated financial statements.We have identified the policies below as critical to our business and theunderstanding of our results of operations. These policies may involve a higherdegree of judgment and complexity in their application and represent thecritical accounting policies used in the preparation of our consolidatedfinancial statements. Although we believe our judgments and estimates areappropriate, actual future results may differ from our estimates. If differentassumptions or conditions were to prevail, the results could be materiallydifferent from our reported results. The impact and any associated risks relatedto these policies on our business operations is discussed throughoutManagement's Discussion and Analysis of Financial Condition and Results ofOperations where such policies affect our reported and expected financialresults.Revenue RecognitionSignificant management judgments and estimates must be made and used inconnection with the revenue recognized in any accounting period. Materialdifferences may result in the amount and timing of our revenue for any period ifmanagement made different judgments or utilized different estimates.Revenue is recognized when performance obligations are satisfied, based on thetransaction price. We generally bill our customers on a monthly basis. Contractstypically range from annual to multi-year agreements, generally with paymentterms of net 30 days.We record reductions to revenue for estimated sales returns and customer creditsat the time the related revenue is recognized. Sales returns and customercredits are estimated based on our historical experience, current trends, andour expectations regarding future service delivery and platform performance. Wemonitor the accuracy of its sales reserve estimates by reviewing actual returnsand credits and adjusts them for its future expectations to determine theadequacy of its current and future reserve needs. If actual future returns andcredits differ from past experience, additional reserves may be required. 34
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Table of ContentsService Revenue RecognitionService revenue from subscriptions to our cloud-based technology platform isrecognized on a ratable basis over the contractual subscription term beginningon the date that the platform is delivered to the customer until the end of thecontractual period. Payments received in advance of subscription services beingrendered are recorded as deferred revenue; revenue recognized for servicesrendered in advance of payments received are recorded as contract assets. Usagefees, when bundled, are billed in advance and recognized over time on a ratablebasis over the contractual subscription term. Non-bundled usage fees arerecognized as actual usage occurs.Other Revenue RecognitionOther revenue is primarily comprised of product revenue and professionalservices revenue. We recognize product revenue for telephony equipment at apoint in time, when transfer of control has occurred, which is generally uponshipment. Sales returns are recorded as a reduction to revenue estimated basedon historical experience. Professional services for deployment, configuration,system integration, optimization, customer training or education are primarilybilled on a fixed-fee basis and are performed by us directly. Professionalservices revenue is recognized as services are performed or upon completion ofthe deployment.Allowance for Credit LossesWe account for allowances for credit losses under the current expected creditloss ("CECL") impairment model for our financial assets, including accountsreceivable, and present the net amount of the financial instrument expected tobe collected. The CECL impairment model requires an estimate of expected creditlosses, measured over the contractual life of an instrument, that considersforecasts of future economic conditions in addition to information about pastevents and current conditions. Using this model, we estimate the adequacy of theallowance for credit losses at the end of each reporting period based on theaging of the receivable balance, current and historical customer trends,communications with customers, and macro-economic conditions. Amounts arewritten off after considerable collection efforts have been made and the amountsare determined to be uncollectible.Capitalized Internal-Use Software CostsCertain software development costs for computer software developed internally orobtained for internal use are capitalized during the application developmentstage. We begin to capitalize our costs to develop software when preliminarydevelopment efforts are successfully completed, management has authorized andcommitted project funding, and it is probable that the project will be completedand the software will be used as intended. Once the project has been completed,these costs are amortized on a straight-line basis over the estimated usefullife of the related asset, generally estimated to be three years. Costs incurredprior to meeting these criteria together with costs incurred for training andmaintenance are expensed as incurred and recorded in the applicable incomestatement category, typically research and development, in our consolidatedstatements of operations.© Edgar Online, source
