8X8 INC /DE/ - Annual Report: 2020 (Form 10-K)

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•	the impact of economic downturns on us and our customers, including the impacts of the COVID-19 pandemic;

•	customer cancellations and rate of customer churn;

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

•	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 ("VAR") 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, 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;

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

•	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.

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Unified Communications, Collaboration, and Contact Center on a single, API-based Cloud Technology Platform. We believe that a common platform for communication and collaboration drives more efficient employee and customer engagement and greater business productivity. Unlike many of our principal competitors, we own the core technology and manage the platform behind all of our services: voice, video meetings, contact center, chat and team collaboration and communications APIs. We believe having control over our entire platform enables us to deliver a more consistent and seamless experience for our customers across all aspects of the service from the user interface to the technical support experience. For example, our 8x8 team messaging technology helps our customers tear down information silos by providing instant access to all employees within a global directory and real-time interoperability among multiple third-party collaboration tools.

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Big Data, Analytics, and Artificial Intelligence. We have developed a suite of web-based analytics tools to help customers make informed decisions based on underlying communications data associated with 8x8 services and supported devices. We continue to make strategic investments in Artificial Intelligence (AI) and Machine Learning (ML) to develop new capabilities and features for our customers such as context-rich customer engagements, intelligent call routing and faster first-call resolution.

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Global Reach®. 8x8's Global Reach® technology provides enterprise-grade quality of service, reliability, security and support for our multinational customers. Our platform utilizes intelligent geo-routing technology and leverages data centers across globally dispersed regions - North America, South America, Continental Europe, Asia, and Australia - to provide consistently high call quality to customers worldwide.

•	Intuitive User Experience. Our web, desktop and mobile interfaces act as the communications portal for all 8x8 services and provide customers with a familiar, consistent and integrated user experience across all endpoints.

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Configurability and Flexibility. Each service plan in our flagship offering, X Series, is designed for the different roles in a company so customers only pay for the features each role needs. No matter what the business communication or contact center needs are now, X Series has a service plan designed to meet them, while giving customers an easy way to expand and upgrade their communications options in the future. The simplicity and ease of configuration and deployment is due to all solutions being owned by 8x8 and sharing the same platform.

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Rapid Deployment. Business agility in the global, modern economy is a competitive necessity, and we embrace the notion that communication services should be deployable as quickly as possible, including across highly distributed businesses with multiple facilities or remote workforces. Our services can generally be provisioned in minutes from web-based administrative tools, and we continue to increase the automation across our deployment, billing, and support systems to provide greater speed and flexibility for our customers. To ensure consistency and quality across our services and customer base, we have developed a standard, yet flexible, deployment methodology. We apply this systematic approach to all of our deployments, regardless of size or complexity.

•	Integration with Third-Party Business Applications. Our software uses a combination of open APIs and pre-built integrations to retrieve contextually relevant data from, and to enhance the functionality of, a wide variety of customers' third-party applications, including Salesforce, Microsoft Dynamics, Google, NetSuite, Okta, Zendesk, Oracle Sales Cloud, Bullhorn, Aryaka, and Hubspot.

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The Jitsi Open Source Project. 8x8 is the sponsor and primary contributor to the Jitsi secure video conferencing open source project. We operate jitsi.org and the Jitsi Meet service, and we develop our Video Meetings portfolio based on this code. The Jitsi community includes thousands of developers who either use the Jitsi Meet service or run independent instances of the Jitsi code. 8x8 offers the Jitsi community an intuitive upgrade path to rich, supported communications applications.

•	Committed Service Quality over the Public Internet. We currently offer our qualifying enterprise customers an "end-to-end" service level agreement (SLA), with meaningful uptime and voice quality commitments, backed by service credits and a no-penalty early termination right for the customer under specified conditions.

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Emphasis on Security and Compliance. Our security program is designed to protect the confidentiality, integrity and availability of our customers data. We believe we have created a top-down culture of security and compliance, including a commitment to secure architecture and development. As such, we have made significant investments in achieving compliance with various industry standards for data security and related third-party certifications.

•	8x8 Virtual Office: a self-contained, feature-rich, end-to-end solution that delivers high quality voice, secure video meetings and unified communications-as-a-service globally.

•	8x8 Contact Center: a multi-channel cloud-based contact center solution that enables both large and small contact centers to enjoy the same customer experience and agent productivity benefits previously available only to large contact centers at a much higher cost.

•	8x8 Meetings: a cloud-based video conferencing and collaboration solution that enables secure, continuous collaboration with borderless high definition (HD) video and audio communications from mobile and desktop devices anywhere in the world.

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8x8 Team Messaging: an integrated open team messaging platform to facilitate modern modes of communication with support for direct messages, public and private team messaging rooms, short messaging service ("SMS"), presence, emojis, and “@ mentions” (i.e., embedded links directed at named users). With our team messaging technology, our customers can collaborate across more than twenty third-party messaging solutions.

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8x8 APIs: a comprehensive set of global communications platform-as-a-service ("CPaaS") capabilities that enable business to directly integrate our platform services within their websites, mobile apps and business systems for personalized customer engagement at high scale. Our SMS, Chat App, Video Interaction and Voice APIs enable companies to reach their customers anywhere with a proven, reliable global network.

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8x8 Callstats Service: an analytics offering designed for real-time analytical responsiveness at scale. The AI-powered callstats service collects, aggregates and analyzes over 500 metrics every few seconds from each endpoint in a WebRTC session. The real-time dashboard aggregates the data and provides an at-a-glance view of service health and highlights potential issues before they happen to optimize video conferencing, contact center and business phone quality of service.

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X1 through X4 provide enterprise-grade voice, unified communications, video meetings and team collaboration functionality. Delivered from a single platform, these service plans provide more than just PBX replacement by offering one application for business voice, team messaging and meetings so that employees can quickly, easily and with just one click move from a chat message to a phone call to a video conference. Users can access the essential communication and collaboration features through the desktop app, mobile app or a desk phone. As a business grows, the details and features of plans can be mapped to business needs such as a lobby or store floor, a global caller organization, or to supervisor/analyst requirements. Features expected by demanding communications and collaboration customers today, such as: auto attendants; worldwide extension dialing; corporate directory with click-to-call functionality; presence, messaging and chat; call recording; call monitoring; internet fax; and the ability to interact contextually with inbound communication (email, call or chat) can be mixed and matched for customizable packages fit for business to most effectively meet the needs of individual users.

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X5 through X8 generally provide the features of X1 through X4, plus contact center functionality. These service plans deliver employee experience and deep customer engagement through integrated cloud communication, contact center software and video meetings solutions. Whether the customer is managing a startup or a large enterprise, 8x8 X Series provides the communication capabilities that contact center agents need to respond faster using instant access to relevant information and subject matter experts. Designed to ensure that customers pay for only the requirements needed, there are four X Series Cloud Contact Center service plans: the Voice-Focused Contact Center with Predictive Dialer Plan; the Voice-Focused Contact Center with Advanced Reporting Plan; the Multichannel Contact Center with Advanced Reporting Plan; and the Multichannel Contact Center with Advanced Analytics and Predictive Dialer Plan, inclusive of quality management, speech analytics, and outbound predictive AI dialer.

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•	changes in market demand;

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

•	customer cancellations, subscription downgrades and/or service credits;

•	changes in the competitive dynamics of our market, including consolidation among competitors or customers;

•	lengthy sales cycles and/or regulatory approval cycles;

•	new product introductions by us or our competitors;

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

•	the mix of our customer base and sales channels;

•	the mix of services sold;

•	the number of additional customers, on a net basis;

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

•	unforeseen costs and expenses related to the expansion of our business, operations and infrastructure;

•	continued compliance with industry standards and regulatory requirements;

•	material security breaches or service interruptions due to cyber attacks or infrastructure failures or unavailability;

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

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•	changes in the recognition pattern of revenues and operating expenses as a result of new regulations, accounting principles and their interpretations; and

•	general economic conditions.

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

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

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

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

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

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•	localization of our services, including translation into foreign languages and associated expenses;

•	regulation of our services as traditional telecommunications services, requiring us to obtain authorizations or licenses to operate in foreign jurisdictions, or alternatively preventing us from selling our full suite of services, or any services at all, in such jurisdictions;

•	changes in a specific country or region's regulatory requirements, taxes, trade laws, or political or economic conditions;

•	increased competition from regional and global cloud communications competitors in the various geographic markets in which we compete where such markets may have different sales cycles, selling processes, and feature requirements which may limit our ability to compete effectively in different regions globally;

•	more stringent regulations relating to data security and the unauthorized use of, access to, and transfer of, commercial and personal information, particularly in the European Union, or EU;

•	differing labor regulations, especially in the EU and Latin America, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

•	challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

•	difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems;

•	increased travel, real estate, infrastructure and legal compliance costs associated with international operations;

•	different pricing environments, longer sales cycles, longer accounts receivable payment cycles and other collection difficulties;

•	currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

•	limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

•	laws and business practices favoring local competitors or general preferences for local vendors;

•	limited or insufficient intellectual property protection;

•	political instability or terrorist activities;

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

•	continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad, including as a result of the United Kingdom's vote to withdraw from the European Union;

•	regional travel restrictions, business closures and shelter-in-place orders and resulting from COVID-19; and

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

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

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

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

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

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

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

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

•	We may acquire businesses with different revenue models, customer concentration risks, and contractual relationships, such as our acquisition of Wavecell, which bills customers primarily on a usage-based basis, with no long-term contracts or minimum revenue commitments;

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

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

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

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•	license requirements that apply to providers of communications services in many jurisdictions;

•	our obligation to contribute to various Universal Service Fund programs, including at the state level;

•	monitoring and reporting on rural call completion rates;

•	the presentation of information on customer bills;

•	rules concerning access requirements for users with disabilities;

•	our obligation to offer 7-1-1 abbreviated dialing for access to relay services;

•	compliance with the requirements of U.S. and foreign law enforcement agencies, including the Communications Assistance for Law Enforcement Act, or CALEA, and cooperation with local authorities in conducting wiretaps, pen traps and other surveillance activities;

•	the ability to dial 9-1-1 (or corresponding numbers in regions outside the US), auto-locate E-911 calls (or corresponding equivalents) when required, and access emergency services;

•	the transmission of telephone numbers associated with calling parties between carriers and service providers like us;

•	regulations governing outbound dialing, including the Telephone Consumer Protection Act; and

•	FCC and other regulators efforts to combat robo-calling and caller ID spoofing.

•	January 6, 2021 -

•	Providers of fixed interconnected VoIP services must provide automated dispatchable location with each 911 call.

•	On-premises, fixed devices associated with an MLTS must provide automated dispatchable location with 911 calls.

•	January 6, 2022 -

•	Providers of non-fixed interconnected VoIP services and providers of all outbound-only interconnected VoIP services must provide automated dispatchable location if technically feasible.

•	On Premises, non-fixed devices and off-premises devices associated with an MLTS must provide automated dispatchable location with 911 calls when technically feasible.

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•	no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

•	the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

•	the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

•	a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

•	the requirement that a special meeting of stockholders may be called only by a majority vote of our Board of Directors or by stockholders holdings shares of our common stock representing in the aggregate a majority of votes then outstanding, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

•	the ability of our board of directors, by majority vote, to amend our by-laws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition; and

•	advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.

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•	the amount of net income or loss;

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

•	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, such as commissions.

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•	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.

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Obtained an understanding of the Company’s acquisition process and evaluated the design and operating effectiveness of controls as it related to the Company’s valuation process and methodology for acquired intangible assets. This included testing controls over the Company’s estimation process supporting the recognition and measurement of intangible assets, as well as controls over management’s judgments and evaluation of underlying assumptions regarding their valuation.

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Evaluated the Company’s methodology used to estimate the fair value of the trade and domain names, developed technologies, and customer relationships, including involving valuation specialists to assist with our evaluation of the methodology used by the Company and of certain assumptions and conclusions included in the fair value estimates. For example, our valuation specialists performed independent comparative calculations to estimate the acquired entity’s discount rate, useful lives, royalty rate, and internal rate of return as it related to the valuation of the trade and domain names, developed technologies, and customer relationships.

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Evaluated the significant assumptions used by the Company, including projected financial information of the acquired entity, which primarily related to revenue growth rates, including testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Specifically, when evaluating the assumptions related to the revenue growth rates and changes in the business that would drive these forecasted growth rates, we compared the assumptions to industry trends, third party due diligence reports, and subsequent interim period results to evaluate management’s estimates as of the date of the transaction.

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•	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.

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•	As of April 1, 2018, the Company's DXI operations no longer operated on a standalone basis and was integrated into the Company's existing United Kingdom operations, and

•	During the third fiscal quarter of 2019, the Company assessed it had only one Chief Operating Decision Maker, who reviewed financial results on a consolidated basis.

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•	Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

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Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).

•	Level 3 applies to assets or liabilities for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company's own assumptions.

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These PSUs vest (1) 50% on September 17, 2021 and (2) 50% on September 17, 2022, in each case subject to the performance of the Company's common stock relative to the Russell 2000 Index (the benchmark) during the period from grant date through such vesting date. A 2x multiplier will be applied to the total shareholder returns (the "TSR"), such that the number of shares earned will increase or decrease by 2% of the target numbers, for each 1% of positive or negative relative TSR. In the event the Company's common stock performance is below negative 30% relative to the benchmark, no shares will be issued. In no event will the number of shares issued in each tranche exceed 200% of the target for that tranche.

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These PSUs vest (1) 50% on October 23, 2020 and (2) 50% on October 23, 2021, in each case subject to the performance of the Company's common stock relative to the Russell 2000 Index (the benchmark) during the period from grant date through such vesting date. A 2x multiplier will be applied to the TSR, such that the number of shares earned will increase or decrease by 2% of the target numbers, for each 1% of positive or negative relative TSR. In the event the Company's common stock performance is below negative 30% relative to the benchmark, no shares will be issued. In no event will the number of shares issued in each tranche exceed 200% of the target for that tranche.

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These PSUs vest (1) 50% on September 19, 2019 and (2) 50% on September 19, 2020, in each case subject to the performance of the Company's common stock relative to the Russell 2000 Index (the benchmark) during the period from grant date through such vesting date. A 2x multiplier will be applied to the TSR, such that the number of shares earned will increase or decrease by 2% of the target numbers, for each 1% of positive or negative relative TSR. In the event the Company's common stock performance is below negative 30%, relative to the benchmark, no shares will be issued. In no event will the number of shares issued in each tranche exceed 200% of the target for that tranche.

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1.

At any time during any calendar quarter commencing after the fiscal quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

2.	During the five business day period immediately after any ten consecutive trading day period (the measurement period), if the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock on each such trading day and the conversion rate on each such trading day;

3.	If the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

4.	Upon the occurrence of specified corporate events (as set forth in the indenture governing the Notes).

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