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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, 2020
OR
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
eght-20201231_g1.jpg
8x8, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware77-0142404
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
675 Creekside Way
Campbell, CA 95008
(Address of principal executive offices)
(408) 727-1885
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
COMMON STOCK, PAR VALUE $.001 PER SHAREEGHTNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒ Yes      ☐ No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated 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 22, 2021 was 107,486,374.


Table of Contents




8X8, INC
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Page No.
1

Table of Contents




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:
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 or downsell;
benefits that can be realized from 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 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;
our ability to scale our business;
customer acquisition costs;
our reliance on a network of channel partners to provide substantial new customer demand;
investments, including the cost to support strategic initiatives 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, 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 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
potential future intellectual property infringement claims and other litigation that could adversely impact our business and operating results.
2

Table of Contents




Please refer to the "Risk Factors" section of our Form 10-K for the fiscal year ended March 31, 2020, as modified by the "Risk Factors" section of our Quarterly Report for the three months 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 2021 refers to the fiscal year ending on March 31, 2021). Unless the context requires otherwise, references to "we," "us," "our," "8x8" and the "Company" refer to 8x8, Inc. and its consolidated subsidiaries.
3

Table of Contents




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
8X8, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31, 2020March 31, 2020
ASSETS  
Current assets:  
Cash and cash equivalents$106,877 $137,394 
Restricted cash, current6,996 10,376 
Short-term investments41,738 33,458 
Accounts receivable, net50,404 37,811 
Deferred sales commission costs, current28,684 22,444 
Other current assets39,565 35,679 
Total current assets274,264 277,162 
Property and equipment, net94,480 94,382 
Operating lease, right-of-use assets70,443 78,963 
Intangible assets, net18,426 24,001 
Goodwill132,067 128,300 
Restricted cash, non-current8,562 8,641 
Long-term investments3,878 16,083 
Deferred sales commission costs, non-current69,859 53,307 
Other assets20,832 19,802 
Total assets$692,811 $700,641 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$32,337 $40,261 
Accrued compensation29,993 22,656 
Accrued taxes14,299 10,251 
Operating lease liabilities, current12,691 5,875 
Deferred revenue, current18,015 7,105 
Other accrued liabilities20,419 37,277 
Total current liabilities127,754 123,425 
Operating lease liabilities, non-current85,379 92,452 
Convertible senior notes, net304,111 291,537 
Other liabilities, non-current8,164 2,496 
Total liabilities525,408 509,910 
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock107 103 
Additional paid-in capital716,820 625,474 
Accumulated other comprehensive loss(3,503)(12,176)
Accumulated deficit(546,021)(422,670)
Total stockholders' equity167,403 190,731 
Total liabilities and stockholders' equity$692,811 $700,641 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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8X8, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended December 31,Nine Months Ended December 31,
 2020201920202019
Service revenue$127,107 $110,363 $362,232 $301,547 
Other revenue9,578 8,204 25,393 23,212 
Total revenue136,685 118,567 387,625 324,759 
Operating expenses:
Cost of service revenue47,044 40,786 132,843 101,899 
Cost of other revenue13,364 15,433 36,194 41,708 
Research and development23,702 19,870 66,763 57,635 
Sales and marketing63,986 63,099 185,535 174,593 
General and administrative23,844 22,547 72,403 62,589 
     Total operating expenses171,940 161,735 493,738 438,424 
Loss from operations(35,255)(43,168)(106,113)(113,665)
Other expense, net(4,669)(3,623)(13,772)(7,919)
Loss before provision for income taxes(39,924)(46,791)(119,885)(121,584)
Provision for income taxes301 280 666 684 
Net loss$(40,225)$(47,071)$(120,551)$(122,268)
Net loss per share:
Basic and diluted$(0.38)$(0.47)$(1.15)$(1.23)
Weighted-average common shares outstanding:
Basic and diluted106,641 99,922 104,961 99,082 
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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8X8, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
Three Months Ended December 31,Nine Months Ended December 31,
 2020201920202019
Net loss$(40,225)$(47,071)$(120,551)$(122,268)
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities(73)(12)306 106 
Foreign currency translation adjustment4,537 4,587 8,367 682 
Comprehensive loss$(35,761)$(42,496)$(111,878)$(121,480)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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8X8, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except shares)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesAmount
Balance at March 31, 2020103,178,621 $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 withholding688,414 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, 2020103,867,035 104 657,014 (10,869)(467,383)178,866 
Issuance of common stock under stock plans2,119,196 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, 2020105,986,231 106 688,116 (7,967)(505,796)174,459 
Issuance of common stock under stock plans1,149,752 1 1,346 — — 1,347 
Stock-based compensation expense— — 27,358 — — 27,358 
Unrealized investment loss— — — (73)— (73)
Foreign currency translation adjustment— — — 4,537 — 4,537 
Net loss— — — — (40,225)(40,225)
Balance at December 31, 2020107,135,983 $107 $716,820 $(3,503)$(546,021)$167,403 

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 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesAmount
Balance at March 31, 201996,119,888 $96 $506,949 $(7,353)$(250,302)$249,390 
Issuance of common stock under stock plans, less withholding451,308 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, 201996,571,196 97 522,501 (7,884)(284,567)230,147 
Issuance of common stock under stock plans, less withholding1,761,483 2 (790)— — (788)
Stock-based compensation expense— — 17,867 — — 17,867 
Issuance of common stock related to acquisitions1,476,009 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, 201999,808,688 100 575,416 (11,140)(325,499)238,877 
Issuance of common stock under stock plans, less withholding976,272 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, 2019100,784,960 $101 $598,525 $(6,565)$(372,570)$219,491 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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8X8, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended December 31,
 20202019
Cash flows from operating activities:  
Net loss$(120,551)$(122,268)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation8,529 6,801 
Amortization of intangible assets5,590 6,149 
Amortization of capitalized software20,021 13,263 
Amortization of debt discount and issuance costs12,574 9,987 
Amortization of deferred sales commission costs20,040 13,805 
Allowance for credit losses3,950 1,323 
Operating lease expense, net of accretion11,469 10,676 
Stock-based compensation74,940 50,305 
Other517 1,348 
Changes in assets and liabilities:
Accounts receivable, net(13,277)(8,776)
Deferred sales commission costs(41,187)(33,651)
Other current and non-current assets(8,939)(24,780)
Accounts payable and accruals(338)7,876 
Deferred revenue11,797 5,106 
          Net cash used in operating activities(14,865)(62,836)
Cash flows from investing activities:
Purchases of property and equipment(4,975)(22,853)
Purchase of businesses(3,459)(58,853)
Cost of capitalized software(22,858)(22,784)
Proceeds from maturities of investments40,771 16,195 
Proceeds from sales of investments 219 33,117 
Purchases of investments (36,840)(29,658)
          Net cash used in investing activities(27,142)(84,836)
Cash flows from financing activities:
Finance lease payments(74)(312)
Tax-related withholding of common stock(69)(6,186)
Proceeds from issuance of common stock under employee stock plans6,058 7,035 
Purchases of capped calls (9,288)
Net proceeds from issuance of convertible senior notes 74,593 
          Net cash provided by financing activities5,915 65,842 
Effects of currency exchange rates on cash, cash equivalent, and restricted cash2,116 958 
Net decrease in cash, cash equivalents, and restricted cash(33,976)(80,872)
Cash, cash equivalents, and restricted cash at the beginning of the period156,411 284,683 
Cash, cash equivalents, and restricted cash at the end of the period$122,435 $203,811 
Supplemental and non-cash disclosures:
Income taxes paid$761 $719 
Interest paid$906 $647 
Right of use assets obtained in exchange for new or modified operating lease liabilities$ $64,869 
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Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets (in thousands):
December 31,
20202019
Cash and cash equivalents$106,877 $184,794 
Restricted cash, current6,996 3,459 
Restricted cash, non-current8,562 15,558 
Total cash, cash equivalents, and restricted cash$122,435 $203,811 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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8X8, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
8x8, Inc. ("8x8" or the "Company") was incorporated in California in February 1987, and was reincorporated in Delaware in December 1996.
The 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, video meetings, chat, and 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, and other services. Substantially all revenue 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 delivery of our integrated technology platform.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. The March 31, 2020 year-end condensed consolidated balance sheet disclosures in this document were derived from audited consolidated financial statements and do not include all 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, 2020, and notes thereto included in the Company's fiscal 2020 Annual Report on Form 10-K ("Form 10-K"). There were no material changes during the three and nine months ended December 31, 2020, to our significant accounting policies as described in the Company's Form 10-K for the fiscal year ended March 31, 2020, except for the accounting policies described herein 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 periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future periods or the entire fiscal year.
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company conducts its operations through one reportable segment.
In the opinion of the Company's management, these condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the Company's financial position, results of operations, and cash flows for the periods presented.
USE OF ESTIMATES
The preparation of the condensed consolidated financial statements in conformity with 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 allowance for credit losses, returns reserve for expected customer credits or cancellations, fair value of and/or evaluation for impairment of goodwill and other long-lived assets, capitalization of internally developed software, benefit period for deferred sales commission costs, stock-based compensation expense, discount rate used to calculate operating lease liabilities, income and sales tax liabilities, fair value of convertible senior notes, 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.
RECLASSIFICATIONS AND OTHER CHANGES
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 nine months ended December 31, 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.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
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 2016-13 on a modified retrospective basis as of April 1, 2020, through a cumulative-effect adjustment to the Company's beginning accumulated deficit balance; the impact of the adoption was not material to 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 external market factors, including those related to the COVID-19 pandemic. The Company will continue to actively monitor the impact of the recent COVID-19 pandemic on expected credit losses.
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 adopted ASU 2018-13 on April 1, 2020. The impact of the 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 cloud computing service arrangement. The Company adopted this guidance on a prospective basis effective April 1, 2020. The impact of the adoption was immaterial to the Company's consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In December 2019, the FASB issued ASU 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 August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies accounting for convertible instruments by eliminating two of the 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 effective for fiscal years beginning after December 15, 2021, which is fiscal 2023 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
Disaggregation of Revenue
The Company presents disaggregated revenue by geographic regions in Note 13. Geographical Information.
Contract Balances
The following table provides information about receivables, contract assets, and deferred revenues from contracts with customers (in thousands):
 December 31, 2020March 31, 2020
Accounts receivable, net$50,404 $37,811 
Contract assets, current, net (included in Other current assets)$12,002 $10,425 
Contract assets, non-current, net (included in Other assets)$15,688 $13,698 
Deferred revenue, current$18,015 $7,105 
Deferred revenue, non-current (included in Other liabilities, non-current)$2,768 $1,119 
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Changes in the contract assets and deferred revenue balances during the nine months ended December 31, 2020 are as follows (in thousands):
 December 31, 2020March 31, 2020Change
Contract assets$27,690 $24,123 $3,567 
Deferred revenue$20,783 $8,224 $12,559 
The increase in contract assets was primarily driven by the recognition of revenue that had not yet been billed, net of amounts billed during the period, and the reserve for credit losses. The increase in deferred revenue was due to billings in advance of performance obligations being satisfied, net of revenue recognized for services rendered during the period. Revenue of $0.7 million and $5.7 million was recognized during the three and nine months ended December 31, 2020, respectively, which was included in the deferred revenue balance at the beginning of the period.
Remaining Performance Obligations
The Company's subscription terms typically range from one to five years. Contract revenue from remaining performance obligations that had not yet been recognized as of December 31, 2020, was approximately $365 million. This excludes contracts with an original expected length of one year or less. The Company expects to recognize revenue on most of the remaining performance obligations over the next 36 months.
Deferred Sales Commission Costs
Amortization of deferred sales commission costs was $7.3 million and $5.1 million for the three months ended December 31, 2020 and 2019, respectively, and $20.1 million and $13.8 million, for the nine months ended December 31, 2020 and 2019, respectively. There were no material write-offs of deferred sales commission costs during these periods.
4. FAIR VALUE MEASUREMENTS
Cash, cash equivalents, restricted cash, and available-for-sale investments are as follows (in thousands):
As of December 31, 2020Amortized CostsGross
Unrealized Gain
Gross
Unrealized Loss
Estimated Fair ValueCash and
Cash Equivalents
Restricted Cash (Current & Non-Current)Short-Term InvestmentsLong-Term Investments
Cash$40,656 $— $— $40,656 $33,739 $6,917 $— $— 
Level 1:
Money market funds71,232 — — 71,232 71,232 — — — 
Treasury securities6,181 42  6,223 — — 6,223  
Subtotal118,069 42  118,111 104,971 6,917 6,223  
Level 2:
Certificate of deposit8,641 — — 8,641 — 8,641 —  
Commercial paper16,194  (1)16,193 1,300 — 14,893 — 
Corporate debt25,028 79 (1)25,106 606 — 20,622 3,878 
Subtotal49,863 79 (2)49,940 1,906 8,641 35,515 3,878 
Total assets$167,932 $121 $(2)$168,051 $106,877 $15,558 $41,738 $3,878 
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As of March 31, 2020Amortized CostsGross
Unrealized Gain
Gross
Unrealized Loss
Estimated Fair ValueCash and
Cash Equivalents
Restricted Cash (Current & Non-Current)Short-Term InvestmentsLong-Term Investments
Cash$31,378 $— $— $31,378 $21,002 $10,376 $— $— 
Level 1:
Money market funds110,796 — — 110,796 110,796 — — — 
Treasury securities6,192 116  6,308 — — — 6,308 
Subtotal148,366 116  148,482 131,798 10,376 — 6,308 
Level 2:
Certificate of deposit8,641 — — 8,641 — 8,641 — — 
Commercial paper14,979 6  14,985 5,596 — 9,389 — 
Corporate debt34,153 32 (341)33,844 — — 24,069 9,775 
Subtotal57,773 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 
Certificate of deposit represents the Company's letter of credits securing leases for office facilities, the balance of which is included in Restricted cash, current and Restricted cash, non-current on the Company's Condensed Consolidated Balance Sheet.
The Company considers its investments available to support its current operations and has classified all investments as available-for-sale securities. The Company does not intend to sell any of its investments that are in unrealized loss positions and, as of December 31, 2020, 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 the individual security level by rating agencies and reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As of December 31, 2020, the Company did not have any risk of expected credit losses.
As of December 31, 2020, the estimated fair value of the Company's outstanding convertible senior notes (the "Notes") was $527.8 million, which was determined based on the closing price for the Notes on the last trading day of the reporting period. The estimated fair value is categorized within Level 2 of the fair value hierarchy due to limited trading activity of the Notes.
5. BUSINESS COMBINATIONS
In July 2019, the Company purchased all of the outstanding shares and equity interests of Wavecell, Pte. Ltd. As of September 30, 2020 the fair value of all assets acquired and liabilities assumed in the transaction were finalized. 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 cash and 116,505 shares on the one-year anniversary of the acquisition. The remaining balance was released in January 2021.
6. INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The carrying value of intangible assets consisted of the following (in thousands):
 December 31, 2020March 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Developed technology$33,969 $(20,391)$13,578 $33,932 $(16,312)$17,620 
Customer relationships11,927 (7,079)4,848 11,409 (5,412)5,997 
Trade and domain names989 (989) 983 (599)384 
Total acquired identifiable intangible assets$46,885 $(28,459)$18,426 $46,324 $(22,323)$24,001 
As of December 31, 2020, the weighted average remaining useful life of developed technology and customer relationships was 4.7 years and 5.5 years, respectively.
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As of December 31, 2020, the expected future amortization expense of the intangible assets was as follows (in thousands):
Remainder of 2021$1,296 
20224,708 
20233,156 
20242,851 
20252,851 
Thereafter3,564 
Total$18,426 
Goodwill
The following table provides a summary of the change in the carrying amount of goodwill (in thousands):
Balance at March 31, 2020$128,300 
Foreign currency translation adjustments3,767 
Balance at December 31, 2020$132,067 
7. LEASES
Operating Leases
The Company primarily leases facilities for office and data center space for its U.S. and international locations under non-cancellable operating leases. The leases expire at various dates through 2030.
The following table provides balance sheet information related to leases as of December 31, 2020 (in thousands):
 December 31, 2020March 31, 2020
Assets
Operating lease, right-of-use assets$70,443 $78,963 
Liabilities
Operating lease liabilities, current$12,691 $5,875 
Operating lease liabilities, non-current85,379 92,452 
Total operating lease liabilities$98,070 $98,327 
The components of lease expense were as follows (in thousands):
Three Months Ended December 31,Nine Months Ended December 31,
2020201920202019
Operating lease expense$3,886 $4,436 $11,469 $10,677 
Variable lease expense$729 $434 $2,368 $872 
Short-term lease expense was immaterial for the three and nine months ended December 31, 2020 and 2019.
Cash outflows from operating leases were $6.3 million and $7.2 million, respectively, for the nine months ended December 31, 2020 and 2019.
The following table presents supplemental information for the nine months ended December 31, 2020 (in thousands, except for weighted average):
Weighted average remaining lease term8.5 years
Weighted average discount rate4.0%
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The following table presents future payments of lease liabilities under the Company's non-cancellable operating leases as of December 31, 2020 (in thousands):
Remainder of 2021$3,586 
202216,382 
202315,182 
202411,835 
202511,497 
Thereafter58,190 
Total lease payments116,672 
Less: imputed interest(18,602)
Present value of lease liabilities$98,070 
Lease Assignment
In the fourth quarter of fiscal 2018, the Company entered into a 132-month lease agreement (the "Agreement") with CAP Phase I, a Delaware limited liability company (the "Landlord"), to rent approximately 162,000 square feet of office space in a new building in San Jose, California. The lease term began on January 1, 2019. On April 30, 2019, the Company entered into an assignment and assumption (the "Assignment") of the Agreement with the Landlord, and Roku Inc., a Delaware corporation ("Roku"), whereby the Company assigned to Roku the Agreement. Pursuant to the 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. The Company also expects to receive the reimbursement of base rent and direct expenses from Roku by the end of the Company’s fiscal year ending March 31, 2021, in accordance with the Assignment.
Amounts related to the Agreement are not included in the right-of-use asset or lease liabilities as of December 31, 2020 or March 31, 2020. The remaining obligations related to the Assignment of $2.8 million and the termination fee of $0.8 million are recorded in Other accrued liabilities and Other liabilities, non-current, respectively, and the expected receivable of $6.4 million due in February 2021 is recorded in Other current assets, on the Company's Condensed Consolidated Balance Sheets as of both December 31, 2020 and March 31, 2020.
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 conducting tax audits of the Company's records. The Company collects taxes from its customers or has accrued for taxes that it believes are required to be remitted. 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 December 31, 2020 and March 31, 2020, the Company had accrued contingent indirect tax liabilities of $4.6 million and $4.5 million, respectively.
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 recognizes a provision 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 the amount of the provision 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, 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.
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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 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 $75.0 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 Initial Notes. Immediately after giving effect to the issuance of the Additional Notes, the Company had $362.5 million aggregate principal amount of convertible senior notes.
The Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on February 1 and August 1 of each year, beginning on 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.
Prior to the close of business on the business day immediately preceding October 1, 2023, the Notes will be convertible at the option of the holders only under the following circumstances:
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).
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 discretion. The Company’s current intent is to settle the principal amount of the Notes in cash upon conversion. During the nine months ended December 31, 2020, the conditions permitting conversion of the Notes were not met.
The Company may not redeem the Notes prior to February 4, 2022. On or after February 4, 2022, the Company may redeem for cash all or part of the Notes, at the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice. If a fundamental change (as defined in the indenture governing the notes) occurs at any time, holders of Notes may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
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