Company Quick10K Filing
Quick10K
8X8
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$24.47 96 $2,356
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-K 2019-03-31 Annual: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-K 2018-03-31 Annual: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-K 2016-03-31 Annual: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-K 2015-03-31 Annual: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2014-03-31 Annual: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-10-30 Earnings, Exhibits
8-K 2019-08-01 Shareholder Vote
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-07-17 Enter Agreement, M&A, Sale of Shares
8-K 2019-07-03 Off-BS Arrangement
8-K 2019-06-19 Officers, Exhibits
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-05-06 Officers, Exhibits
8-K 2019-04-30 Enter Agreement, Leave Agreement
8-K 2019-02-19 Enter Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2019-02-12 Other Events, Exhibits
8-K 2019-02-05 Officers
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-10-29 Earnings, Exhibits
8-K 2018-10-23 Officers
8-K 2018-10-05 Officers
8-K 2018-08-07 Shareholder Vote
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-24 Earnings, Exhibits
8-K 2018-01-25 Earnings, Exhibits
8-K 2018-01-23 Enter Agreement, Off-BS Arrangement
GLOB Globant 3,454
BILI Bilibili 3,193
NTCT Netscout Systems 1,660
MDRX Allscripts Healthcare Solutions 1,528
FORTY Formula Systems 841
RBBN Ribbon Communications 567
MTEC MTech Acquisition 58
WYY Widepoint 29
SOHU Sohu.com Limited 0
AABA Altaba 0
EGHT 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II -- Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311-8x8093019.htm
EX-31.2 exhibit312-8x893019.htm
EX-32.1 exhibit321-8x893019.htm
EX-32.2 exhibit322-8x893019.htm

8X8 Earnings 2019-09-30

EGHT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 September 30, 2019
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 000-21783
a8x8logoa24.jpg
8X8, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware
77-0142404
(State or Other Jurisdiction of Incorporation or Organization) 
(I.R.S. Employer Identification Number)
2125 O'Nel Drive
San Jose, CA  95131
(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 class
Trading Symbol
Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.001 PER SHARE
EGHT
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      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 filer
Accelerated filer  
Non-accelerated filer 
Smaller reporting company  
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes           No    The number of shares of the Registrant's Common Stock outstanding as of October 21, 2019 was 100,225,912.



Table of Contents

FORM 10-Q
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. You should not place undue reliance on these forward-looking statements. Actual results and trends may differ materially from historical results and those projected in any such forward-looking statements depending on a variety of factors. These factors include, but are not limited to:
market acceptance of new or existing services and features we may offer from time to time;
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;
the quality and reliability of our services;
customer cancellations and rate of customer churn;
our ability to scale our business;
customer acquisition costs;
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;
our ability to maintain the compatibility of our software with third-party applications and mobile platforms;
continued compliance with industry standards and regulatory requirements in the United States and foreign countries in which we make our cloud software and services solutions available, and the costs of such compliance;
risks relating to the acquisition and integration of businesses we have acquired (most recently, Wavecell Pte. Ltd.) or may acquire in the future, particularly if the acquired business operates in a different product market space from us or is based in a region where we do not have significant operations;
the amount and timing of costs associated with recruiting, training and integrating new employees;
timing and extent of improvements in operating results from increased spending in marketing, sales, and research and development;
introduction and adoption of our cloud software solutions in markets outside of the United States;
risk of cybersecurity breaches;
risks related to our senior convertible notes and the related capped call transactions;
general economic conditions that could adversely affect our business and operating results;
implementation and effects of new accounting standards and policies in our reported financial results; and
potential future intellectual property infringement claims and other litigation that could adversely impact our business and operating results.
Please refer to the "Risk Factors" section of our annual report on Form 10-K for the fiscal year ended March 31, 2019, and subsequent Securities and Exchange Commission ("SEC") filings for additional factors that could materially affect our financial performance. All forward-looking statements included in this Quarterly Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this Quarterly Report, refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2020 refers to the fiscal year ended March 31, 2020). Unless the context requires otherwise, references to "we," "us," "our," "8x8" and the "Company" refer to 8x8, Inc. and its consolidated subsidiaries.

2

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
8X8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
 
September 30, 2019
 
March 31, 2019
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
162,219

 
$
276,583

Restricted cash, current
 
3,459

 

Short-term investments
 
29,324

 
69,899

Accounts receivable, net
 
30,743

 
20,181

Deferred sales commission costs
 
18,572

 
15,601

Other current assets
 
22,803

 
15,127

     Total current assets
 
267,120

 
397,391

Property and equipment, net
 
64,776

 
52,835

Operating lease, right-of-use assets
 
78,147

 

Intangible assets, net
 
28,410

 
11,680

Goodwill
 
131,879

 
39,694

Long-term investments
 
20,448

 

Restricted cash, non-current
 
15,558

 
8,100

Deferred sales commission costs, non-current
 
42,139

 
33,693

Other assets
 
18,133

 
2,965

          Total assets
 
$
666,610

 
$
546,358

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
42,134

 
$
32,280

Accrued compensation
 
25,847

 
18,437

Accrued taxes
 
12,175

 
13,862

Operating lease liabilities, current
 
5,292

 

Deferred revenue
 
4,270

 
3,336

Other accrued liabilities
 
19,329

 
6,790

     Total current liabilities
 
109,047

 
74,705

 
 
 
 
 
Operating lease liabilities, non-current
 
75,221

 

Convertible senior notes, net
 
222,432

 
216,035

Other liabilities, non-current
 
21,033

 
6,228

Total liabilities
 
427,733

 
296,968

Commitments and contingencies (Note 8)
 


 


Stockholders' equity:
 
 
 
 
Common stock
 
100

 
96

Additional paid-in capital
 
575,416

 
506,949

Accumulated other comprehensive loss
 
(11,140
)
 
(7,353
)
Accumulated deficit
 
(325,499
)
 
(250,302
)
     Total stockholders' equity
 
238,877

 
249,390

          Total liabilities and stockholders' equity
 
$
666,610

 
$
546,358

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
(In thousands, except per share amounts; unaudited)
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Service revenue
 
$
104,529

 
$
81,346

 
$
196,901

 
$
159,467

Product revenue
 
4,988

 
4,336

 
9,291

 
9,440

     Total revenue
 
109,517

 
85,682

 
206,192

 
168,907

Cost of revenue and operating expenses:
 
 
 
 
 
 
 
 
Cost of service revenue
 
43,195

 
26,202

 
75,162

 
50,751

Cost of product revenue
 
6,502

 
5,397

 
12,226

 
11,678

Research and development
 
19,434

 
14,064

 
37,765

 
27,114

Sales and marketing
 
57,895

 
41,680

 
111,494

 
82,175

General and administrative
 
20,435

 
20,326

 
40,042

 
35,159

     Total operating expenses
 
147,461

 
107,669

 
276,689

 
$
206,877

Loss from operations
 
(37,944
)
 
(21,987
)
 
(70,497
)
 
$
(37,970
)
Other (expense) income, net
 
(2,732
)
 
635

 
(4,296
)
 
1,354

Loss before provision for income taxes
 
(40,676
)
 
(21,352
)
 
(74,793
)
 
(36,616
)
Provision for income taxes
 
256

 
130

 
404

 
221

Net loss
 
$
(40,932
)
 
$
(21,482
)
 
$
(75,197
)
 
$
(36,837
)
Net loss per share:
 
 
 
 
 
 
 
 
Basic and diluted
 
$
(0.42
)
 
$
(0.23
)
 
$
(0.77
)
 
$
(0.39
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic and diluted
 
98,353

 
93,831

 
97,356

 
93,449

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


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8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, unaudited)
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net loss
 
$
(40,932
)
 
$
(21,482
)
 
(75,197
)
 
(36,837
)
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
Unrealized gain (loss) on investments in securities
 
(3
)
 
149

 
118

 
262

Foreign currency translation adjustment
 
(3,253
)
 
(379
)
 
(3,905
)
 
(2,051
)
Comprehensive loss
 
$
(44,188
)
 
$
(21,712
)
 
(78,984
)
 
(38,626
)
  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
(In thousands, except shares, unaudited)
 
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
 
Shares
Amount
Balance at March 31, 2019
96,119,888

$
96

$
506,949

$
(7,353
)
$
(250,302
)
$
249,390

Issuance of common stock under stock plans, less withholding
451,308

1

1,493



1,494

Stock-based compensation expense


14,059



14,059

Unrealized investment gain



121


121

Foreign currency translation adjustment



(652
)

(652
)
Net loss




(34,265
)
(34,265
)
Balance at June 30, 2019
96,571,196

97

522,501

(7,884
)
(284,567
)
230,147

Issuance of common stock under stock plans, less withholding
1,761,483

2

(790
)


(788
)
Stock-based compensation expense


17,867



17,867

Issuance of common stock related to acquisitions
1,476,009

1

35,838



35,839

Unrealized investment loss



(3
)

(3
)
Foreign currency translation adjustment



(3,253
)

(3,253
)
Net loss




(40,932
)
(40,932
)
Balance at September 30, 2019
99,808,688

$
100

$
575,416

$
(11,140
)
$
(325,499
)
$
238,877


 
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
 
Shares
Amount
Balance at March 31, 2018
92,847,354

$
93

$
425,790

$
(5,645
)
$
(201,464
)
$
218,774

Issuance of common stock under stock plans, less withholding
403,377


777



777

Stock-based compensation expense


9,304



9,304

Unrealized investment gain



113


113

Foreign currency translation adjustment



(1,672
)

(1,672
)
Adjustment from adoption of ASU 2016-9




39,901

39,901

Net loss




(15,355
)
(15,355
)
Balance at June 30, 2018
93,250,731

93

435,871

(7,204
)
(176,918
)
251,842

Issuance of common stock under stock plans, less withholding
1,840,387

1

(596
)


(595
)
Stock-based compensation expense


9,829



9,829

Unrealized investment gain



149


149

Foreign currency translation adjustment



(379
)

(379
)
Net loss




(21,482
)
(21,482
)
Balance at September 30, 2018
95,091,118

$
94

$
445,104

$
(7,434
)
$
(198,400
)
$
239,364


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
(In thousands, unaudited)
 
 
Six Months Ended September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net loss
 
$
(75,197
)
 
$
(36,837
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation
 
4,599

 
4,231

Amortization of intangible assets
 
3,827

 
2,857

Amortization of capitalized software
 
8,242

 
3,749

Amortization of debt discount and issuance costs
 
6,397

 

Amortization of deferred sales commission costs
 
8,718

 
6,664

Operating lease expense, net of accretion
 
6,234

 

Non-cash lease expenses
 

 
2,401

Stock-based compensation
 
30,988

 
19,040

Other
 
1,634

 
538

Changes in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(2,563
)
 
(3,347
)
Deferred sales commission costs
 
(20,498
)
 
(11,339
)
Other current and non-current assets
 
(17,418
)
 
(1,452
)
Accounts payable and accruals
 
(400
)
 
8,131

Deferred revenue
 
922

 
814

          Net cash used in operating activities
 
(44,515
)
 
(4,550
)
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(7,138
)
 
(2,878
)
Purchase of businesses
 
(58,741
)
 
(2,625
)
Capitalized software development costs
 
(14,339
)
 
(11,386
)
Proceeds from maturities of investments
 
8,545

 
35,455

Proceeds from sales of investments
 
30,639

 
23,604

Purchases of investments
 
(18,890
)
 
(42,437
)
          Net cash used in investing activities
 
(59,924
)
 
(267
)
Cash flows from financing activities:
 
 
 
 
Finance lease payments
 
(227
)
 
(525
)
Tax-related withholding of common stock
 
(5,426
)
 
(8,183
)
Proceeds from issuance of common stock under employee stock plans
 
6,134

 
6,720

          Net cash provided by (used in) financing activities
 
481

 
(1,988
)
Effect of exchange rate changes on cash
 
511

 
(221
)
Net decrease in cash and cash equivalents, and restricted cash
 
(103,447
)
 
(7,026
)
Cash, cash equivalents, and restricted cash at the beginning of the period
 
284,683

 
39,803

Cash, cash equivalents, and restricted cash at the end of the period
 
$
181,236

 
$
32,777

Supplemental cash flow information
 
 
 
 
Income taxes paid
 
$
361

 
$
250

Interest paid
 
647

 

Right of use assets obtained in exchange for new operating lease liabilities
 
62,832

 

 
 
 
 
 
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 unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company conducts its operations through one reportable segment.
The Company is a leading cloud provider of enterprise Software-as-a-Service (SaaS) communications solutions, that enable businesses of all sizes to communicate faster and smarter across voice, contact center, video meetings, messaging, and communication APIs, transforming both employee and customer experiences with communications that work simply, integrate seamlessly, and perform reliably. From one proprietary cloud technology platform, customers have access to unified communications, team collaboration, video conferencing, contact center, data and analytics, communication APIs, and other services. Since fiscal 2004, substantially all revenue has been generated from the sale of communications services and related hardware. Prior to fiscal 2003, the Company's main business was Voice over Internet Protocol semiconductors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2020 refers to the fiscal year ending March 31, 2020).
The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2019 with the exception of new lease accounting guidance discussed in the recently adopted accounting principles section below. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC, regarding interim financial reporting.
In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations, and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
The March 31, 2019 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and does not include all of the disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2019 and notes thereto included in the Company's fiscal 2019 Annual Report on Form 10-K.
The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.
USE OF ESTIMATES
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to bad debts, returns reserve for expected cancellations, income and sales tax liabilities, stock-based compensation, litigation and other contingencies. The Company bases its estimates on historical experience and on various other assumptions. Actual results could differ from those estimates under different assumptions or conditions.
RECLASSIFICATIONS AND OTHER CHANGES

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Certain prior year amounts in the statement of cash flows have been reclassified to conform with current year presentation.
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on May 21, 2019, and there have been no changes to the Company's significant accounting policies during the three and six months ended September 30, 2019 except for the accounting policies described below that were updated as a result of adopting Accounting Standards Update ("ASU") 2016-02, Leases. All amounts and disclosures set forth herein are in compliance with this standard.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective April 1, 2019, the Company adopted ASU No. 2016-02 (“ASU 2016-02”), Leases using the modified retrospective transition approach utilizing the effective date as the date of initial application. ASU 2016-02 establishes a new lease accounting model for leases, which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet, but lease expense will be recognized on the income statement in a manner similar to previous requirements. Prior years presented have not been adjusted for ASU 2016-02 and continue to be reported in accordance with our historical accounting policy.
The new standard provides a number of optional practical expedients in transition. The Company has elected the package of practical expedients permitted under the new lease standard, which among other things, allows the carryforward of the historical lease classification. As a result, there was no impact to opening retained earnings. The new standard also provides a practical expedient for an entity’s ongoing accounting. The Company has elected such practical expedient to not separate lease and non-lease components for all leases. It also made an accounting policy election to not recognize right-of-use assets and lease liabilities on the balance sheet for leases with a term of 12 months or less and will recognize lease payments as an expense on a straight-line basis over the lease term.
The adoption of the new lease standard resulted in the recognition of right-of-use assets and lease liabilities of approximately $20.0 million and $21.4 million, respectively, for existing operating leases. The Company does not have significant finance lease right-of-use assets or liabilities. The adoption of the new lease standard did not have a material impact on the Company's accumulated deficit as of April 1, 2019. For additional information on leases and the impact of the new lease standard, refer to Note 7.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, Fair Value Measurement (Topic 820), which makes modifications to disclosure requirements on fair value measurements. The amendment is effective for public companies with fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40), which reduces complexity for the accounting for costs of implementing a cloud computing service arrangement. The amendment is effective for public companies with fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016‑13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward‑looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018‑19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments—Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies treatment of certain credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief, which permits an entity, upon adoption of ASU 2016-13, to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets measured at amortized cost basis. These ASUs are effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its condensed consolidated financial statements.

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Table of Contents

3. REVENUE RECOGNITION
Revenue Recognition
The Company recognizes service revenue, mainly from subscription services to its cloud-based voice, call center, video, collaboration and communication APIs solutions using the five-step model as prescribed by ASC 606:
Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when or as the Company satisfies a performance obligation.
The Company identifies performance obligations in contracts with customers, which may include subscription services and related usage, product revenue and professional services. The transaction price is determined based on the amount the Company expects to be entitled to receive in exchange for transferring the promised services or products to the customer. The transaction price in the contract is allocated to each distinct performance obligation in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. Revenues are recorded based on the transaction price excluding amounts collected on behalf of third parties such as sales and telecommunication taxes, which are collected on behalf of and remitted to governmental authorities. The Company usually bills its customers on a monthly basis. Contracts typically range from annual to multi-year agreements with payment terms of net 30-days or less. The Company occasionally allows a 30-day period to cancel a subscription and return products shipped for a full refund.
Judgments and Estimates
The estimation of variable consideration for each performance obligation requires the Company to make subjective judgments. The Company has service-level agreements with customers warranting defined levels of uptime reliability and performance. Customers may get credits or refunds if the Company fails to meet such levels. If the services do not meet certain criteria, fees are subject to adjustment or refund representing a form of variable consideration. The Company may impose minimum revenue commitments ("MRC") on its customers at the inception of the contract. Thus, in estimating variable consideration for each of these performance obligations, the Company assesses both the probability of MRC occurring and the collectability of the MRC, of which both represent a form of variable consideration.
The Company enters into contracts with customers that regularly include promises to transfer multiple services and products, such as subscriptions, products, and professional services. For arrangements with multiple services, the Company evaluates whether the individual services qualify as distinct performance obligations. In its assessment of whether a service is a distinct performance obligation, the Company determines whether the customer can benefit from the service on its own or with other readily available resources, and whether the service is separately identifiable from other services in the contract. This evaluation requires the Company to assess the nature of each individual service offering and how the services are provided in the context of the contract, including whether the services are significantly integrated, highly interrelated, or significantly modify each other, which may require judgment based on the facts and circumstances of the contract.
When agreements involve multiple distinct performance obligations, the Company allocates arrangement consideration to all performance obligations at the inception of an arrangement based on the relative standalone selling prices ("SSP") of each performance obligation. Usage fees deemed to be variable consideration meet the allocation exception for variable consideration. Where the Company has standalone sales data for its performance obligations which are indicative of the price at which the Company sells a promised good or service separately to a customer, such data is used to establish SSP. In instances where standalone sales data is not available for a particular performance obligation, the Company estimates SSP by the use of observable market and cost-based inputs. The Company continues to review the factors used to establish list price and will adjust standalone selling price methodologies as necessary on a prospective basis.
Service Revenue
Service revenue from subscriptions to the Company's cloud-based technology platform is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Usage fees for our UCaaS and CCaaS offerings, either bundled or not bundled, are recognized as

10

Table of Contents

revenue when earned. Usage fees for our CPaaS offerings are typically invoiced monthly in arrears and recognized as revenues when earned. Professional services for configuration, system integration, optimization, customer training or education are primarily billed on a fixed-fee basis and are performed by the Company directly or, alternatively, customers may also choose to perform these services themselves or engage their own third-party service providers. Professional services revenue is recognized over time as the services are rendered.
When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded as operating expenses against the contract asset (Accounts Receivable). In the normal course of business, the Company records revenue reductions for customer credits.
Product Revenue
The Company recognizes product revenue for telephony equipment at a point in time, when transfer of control has occurred, which is generally upon shipment. Sales returns are recorded as a reduction to revenue estimated based on historical experience.
Contract Assets
Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services or equipment for a reduced consideration at the onset of an arrangement, for example, when the initial month's services or equipment are discounted. Contract assets are included in other current or non-current assets in the condensed consolidated balance sheets, depending on if their reduction will be recognized during the succeeding twelve-month period or beyond.
Deferred Revenue
Deferred revenues represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services and professional and training services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues in the condensed consolidated balance sheets, with the remainder recorded as other non-current liabilities in the condensed consolidated balance sheets.
Costs to Obtain a Customer Contract
Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized as current or non-current assets and amortized on a straight-line basis over the anticipated benefit period, which is five years. The benefit period was estimated by taking into consideration the length of customer contracts, technology lifecycle, and other factors. This amortization expense is recorded in sales and marketing expense within the Company's condensed consolidated statement of operations.
Disaggregation of Revenue
The Company disaggregates its revenue by geographic region. See Note 13 for more information.
Contract Balances
The following table provides information about receivables, contract assets and deferred revenues from contracts with customers (in thousands):
 
September 30, 2019
Accounts receivable, net
$
30,743

Contract assets
$
13,490

Deferred revenue - current
$
4,270

Deferred revenue - non-current
$
43

Changes in the contract assets and the deferred revenue balances during the six months ended September 30, 2019 are as follows (in thousands):
 
 
September 30, 2019
 
March 31, 2019
 
$ Change
Contract assets
 
$
13,490

 
$
5,717

 
$
7,773

Deferred revenue
 
$
4,313

 
$
3,342

 
$
971




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The change in contract assets was primarily driven by the recognition of revenue that has not yet been billed. The increase in deferred revenues was due to billings in advance of performance obligations being satisfied. Revenues of $2.8 million were recognized during the six months ended September 30, 2019, a portion of which were included in the deferred revenues balance at the beginning of the period, which was offset by additional deferrals during the period.
Remaining Performance Obligations
The Company's subscription terms typically range from one to four years. Contract revenue as of September 30, 2019 that has not yet been recognized was approximately $220.0 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 obligation over the next 36 months.
4. FAIR VALUE MEASUREMENTS
Cash, cash equivalents, and available-for-sale investments (in thousands):
 
Amortized
Gross
Unrealized
Gross
Unrealized
Estimated
Cash and
Cash
Short-Term
Long-Term
As of September 30, 2019
Costs
Gain
Loss
Fair Value
Equivalents
Investments
Investments
Cash
$
25,673

$

$

$
25,673

$
25,673

$

$

Level 1:
 
 
 
 
 
 
 
Money market funds
132,551



132,551

132,551



Treasury securities
6,578

7

(5
)
6,580



6,580

     Subtotal
164,802

7

(5
)
164,804

158,224


6,580

Level 2:
 
 
 
 
 
 
 
Corporate bonds
37,858

123

(3
)
37,978


24,110

13,868

Commercial paper
5,592



5,592

3,995

1,597


Municipal securities
2,099

19


2,118


2,118


Agency bonds
1,499



1,499


1,499


     Subtotal
47,048

142

(3
)
47,187

3,995

29,324

13,868

     Total assets
$
211,850

$
149

$
(8
)
$
211,991

$
162,219

$
29,324

$
20,448

 
Amortized
Gross
Unrealized
Gross
Unrealized
Estimated
Cash and
Cash
Short-Term
As of March 31, 2019
Costs
Gain
Loss
Fair Value
Equivalents
Investments
Cash
$
25,364

$

$

$
25,364

$
25,364

$

Level 1:
 
 
 
 
 
 
Money market funds
251,219



251,219

251,219


     Subtotal
276,583



276,583

276,583


Level 2:
 
 
 
 
 
 
Corporate debt
46,516

51

(29
)
46,538


46,538

Municipal securities
5,511

17


5,528


5,528

Asset backed securities
13,596

9

(17
)
13,588


13,588

Agency bonds
4,260


(15
)
4,245


4,245

     Subtotal
69,883

77

(61
)
69,899


69,899

     Total assets
$
346,466

$
77

$
(61
)
$
346,482

$
276,583

$
69,899


Historically, the Company had maintained all investments as short-term investments on its balance sheet, as the Company could liquidate these investments at any time and did not limit its liquidation of investments by contractual maturity date. Given the recent issuance of the convertible senior notes, and the associated increased cash, cash equivalents and investment balances, the Company expects to hold certain investments for at least 12 months from the reporting date and records these investments in long-term investments in accordance with the contractual maturity dates.

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As of September 30, 2019, the estimated fair value of the Company's outstanding convertible senior notes (the Notes) was $302.7 million. The fair value of the Notes was determined based on the closing price for the Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

5. BUSINESS COMBINATIONS
Wavecell Acquisition
On July 17, 2019, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Wavecell Pte. Ltd., a corporation incorporated under the laws of the Republic of Singapore (“Wavecell”), the equity holders of Wavecell (collectively, the “Sellers”), and Qualgro Partners Pte. Ltd., in its capacity as the representative of the equity holders of Wavecell. Pursuant to the Share Purchase Agreement, the Company acquired all of the outstanding shares and other equity interests of Wavecell (the “Transaction”). This acquisition extends 8x8’s technology advantage as a fully-owned, cloud technology platform with unified communications ("UCaaS"), contact center ("CCaaS"), video ("VCaaS") and platform communication APIs ("CPaaS") solutions able to natively offer pre-packaged communications, contact center and video solutions and open APIs to embed these and other communications into an organization’s core business processes.
The total fair value of the purchase consideration of approximately $117.1 million was comprised of approximately $72.8 million in cash and $44.3 million in shares of common stock of the Company, of which approximately $10.4 million in cash and $8.5 million in equity have been heldback to cover potential indemnity claims made by the Company after the closing date. One-third of these heldback amounts are eligible to be released in twelve months from the date of acquisition and the remainder in eighteen months from the date of the acquisition. The heldback cash of $3.5 million and $6.9 million are recorded in restricted cash, current and restricted cash, non-current, respectively and other accrued liabilities and other liabilities, non-current, respectively, in the Company's condensed consolidated balance sheet. The holdback of $8.5 million in equity is included in other liabilities, non-current in the Company's condensed consolidated balance sheet. Additionally, in connection with the acquisition, the Company issued $13.2 million in time-based restricted stock awards and $6.6 million in performance based restricted stock awards all of which vest over the next three years, and which the Company will expense over the same such period.
The major classes of assets and liabilities to which the Company has preliminarily allocated the fair value of purchase consideration were as follows (in thousands):
 
 
July 17, 2019
Cash
 
$
4,473

Accounts receivable
 
9,438

Intangible assets
 
21,010

Other assets
 
787

Goodwill
 
94,584

Accounts payable
 
(13,072
)
Deferred revenue
 
(90
)
Total consideration
 
$
117,130


The Company will continue to collect information and reevaluate the estimates and assumptions and will record any adjustments to the Company’s preliminary estimates provided that the Company is within the measurement period. The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of Wavecell and is not expected to be deductible for income tax purposes. The Company determined the fair values of intangible assets acquired and liabilities assumed with the assistance of third-party valuation consultants. Based on this valuation, the intangible assets acquired are preliminarily (in thousands):  
 
 
Fair Value
 
Useful life (in Years)
Trade and domain names
 
$
990

 
3
Developed technology
 
13,830

 
7
Customer relationships
 
6,190

 
7
Total intangible assets
 
$
21,010

 



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The Company incurred costs related to this acquisition of approximately $1.6 million during the six months ended September 30, 2019. All acquisition related costs were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statements of operations.
The revenue and earnings of the acquired business have been included in the Company’s results since the acquisition date and are not material to the Company’s condensed consolidated financial results. Pro forma results of operations for this acquisition have not been presented, as the financial impact to the Company’s condensed consolidated financial statements is not material.
6. INTANGIBLE ASSETS AND GOODWILL
The carrying value of intangible assets consisted of the following (in thousands):
 
 
September 30, 2019
 
March 31, 2019
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Developed technology
 
$
33,466

 
$
(12,706
)
 
$
20,760

 
$
25,702

 
$
(15,409
)
 
$
10,293

Customer relationships
 
11,293

 
(4,534
)
 
6,759

 
9,467

 
(8,080
)
 
1,387

Trade and domain names
 
972

 
(81
)
 
891

 
2,108

 
(2,108
)
 

Total acquired identifiable intangible assets
 
$
45,731

 
$
(17,321
)
 
$
28,410

 
$
37,277

 
$
(25,597
)
 
$
11,680


During the six months ended September 30, 2019 the Company wrote off approximately $11.3 million of fully amortized intangible assets and the corresponding accumulated amortization.
At September 30, 2019, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):
 
Amount
Remaining 2020
$
4,603

2021
6,673

2022
4,896

2023
3,116

2024
2,807

Thereafter
6,315

Total
$
28,410


The following table provides a summary of the changes in the carrying amounts of goodwill (in thousands):
 
Total
Balance at March 31, 2019
$
39,694

Additions due to acquisitions
94,584

Foreign currency translation
(2,399
)
Balance at September 30, 2019
$
131,879


7. RIGHT-OF-USE ASSETS AND LEASES
The Company primarily leases facilities for office and data center space under non-cancellable operating leases for its U.S. and international locations that expire at various dates through 2030. For leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability based on the present value of lease payments over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred. The Company’s leases have remaining terms of one to eleven years and some of the leases include a Company option to extend the lease term for one to five years, or more, which if reasonably certain to exercise, the Company includes in the determination of lease payments. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As most of the Company's leases do not provide a readily determinable implicit rate, the Company uses the incremental borrowing rate at lease commencement, which was determined using a portfolio approach, based on

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the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the implicit rate when a rate is readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-term leases is recognized on a straight-line basis over the lease term. Common area maintenance fees (or CAMs) and other charges related to these leases continue to be expensed as incurred. The following table provides balance sheet information related to leases as of September 30, 2019 (in thousands):
 
 
September 30, 2019
Assets
 
 
Operating lease, right-of-use assets
 
$
78,147

 
 
 
Liabilities
 
 
Operating lease liabilities, current
 
$
5,292

Operating lease liabilities, non-current
 
75,221

Total operating lease liabilities
 
$
80,513


During the three and six months ended September 30, 2019, operating lease expense was approximately $4.2 million and $6.2 million, respectively. Variable lease cost and short-term lease cost were immaterial during the three and six months ended September 30, 2019.
The following table presents supplemental information for the six months ended September 30, 2019 (in thousands, except for weighted average):
Weighted average remaining lease term
 
9.1 years
Weighted average discount rate
 
4.0%
Cash paid for amounts included in the measurement of lease liabilities
 
$
4,487

Operating cash flow from operating leases
 
$
4,487


The following table presents maturity of lease liabilities under the Company's non-cancellable operating leases as of September 30, 2019 (in thousands):
Remaining 2020
 
$
5,298

2021
 
8,103

2022
 
13,768

2023
 
11,189

2024
 
11,224

Thereafter
 
68,839

Total lease payments
 
$
118,421

Less: imputed interest
 
(22,486
)
Less: lease incentives receivable
 
(15,422
)
Present value of lease liabilities
 
$
80,513


The Company has an operating lease for an office space that has not yet commenced and as such, have not yet been recognized on the Company's condensed consolidated balance sheet as of September 30, 2019. The contractual obligation for this lease is $2.2 million.
The Company's lease agreement (the "Agreement") with CAP Phase I, a Delaware limited liability company (the "Landlord") for the Coleman property is not included in the right-of-use assets and operating lease liabilities as of September 30, 2019. On April 30, 2019, the Company entered into an assignment and assumption of the Company's previously executed lease agreement with the Landlord, and Roku Inc., a Delaware corporation ("Roku"), whereby the Company assigned to Roku this lease that had been executed between the Company and the Landlord on January 23, 2018. Pursuant to the Agreement, 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.

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On July 3, 2019, the Company entered into a lease for a new company headquarters to rent 177,815 square feet of office space as the sole tenant in a new five-story office building located in Campbell, California.
The lease is for a 132-month term, anticipated to begin on January 1, 2020. The Company has the option to extend the lease for two additional five-year terms, on substantially the same terms and conditions as the prior term, with the base rent rate adjusted to fair market value at that time. The Company recognized an operating lease right-of-use asset and operating lease liability during second quarter of fiscal 2020, when the Company was given full access to the leased property.
Base rent is approximately $0.7 million per month for the first 12 months of the lease, with the rate increasing by approximately 3% on each anniversary of the lease. The Company is responsible for paying its share of building and common area expenses. The Company is entitled to full rent abatement during the first 12 months of the lease term. The Company is also entitled to a tenant improvement allowance of approximately $15.4 million. The Company paid to the landlord a security deposit in the amount of $2.0 million, which may be drawn down in the event the Company defaults under the lease. This new lease increased our operating lease right-of-use assets by $56.8 million and our operating lease liabilities by $56.1 million.
8. COMMITMENTS AND CONTINGENCIES
Other Commitments, Indemnifications and Contingencies
From time to time the Company receives inquiries from various state and municipal taxing agencies with respect to the remittance of sales, use, telecommunications, excise, and income taxes. Several jurisdictions currently are conducting tax audits of the Company's records. The Company collects from its customers or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company. The Company adjusts its accrued taxes when facts relating to specific exposures warrant such adjustment.
Legal Proceedings
The Company from time to time may be involved in a variety of claims, lawsuits, investigations and other proceedings, including patent infringement claims, employment litigation, regulatory compliance matters and contractual disputes, that can arise in the normal course of the Company's operations. The Company accrues a liability when management believes information available prior to the issuance of the financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Legal costs are expensed as incurred.
As of September 30, 2019, the Company has not recorded any provisions for any such lawsuits, claims and proceedings and believes it is not probable that a loss had been incurred. Litigation is inherently unpredictable and subject to significant uncertainties. While there can be no assurances that favorable final outcomes will be obtained, the Company believes it has valid defenses with respect to legal matters pending against it. Future litigation could be costly to defend, could impose significant burdens on employees and cause the diversion of management's attention, and could upon resolution have a material adverse effect on the Company's business, results of operations, financial condition and cash flows.
9. CONVERTIBLE SENIOR NOTES AND CAPPED CALL
Convertible Senior Notes
In February 2019, the Company issued $287.5 million aggregate principal amount of 0.50% convertible senior notes (the "Notes") due 2024 in a private placement, including the exercise in full of the initial purchasers' option to purchase additional 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 August 1, 2019. The Notes will mature on February 1, 2024, unless earlier repurchased, redeemed, or converted. The total net proceeds from the debt offering, after deducting initial purchase discounts, debt issuance costs, and costs of the capped call transactions described below, were approximately $245.8 million.
Each $1,000 principal amount of the Notes is 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

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Indenture, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Notes in connection with such a corporate event or during the relevant redemption period.
The Notes will be convertible at certain times and upon the occurrence of certain events in the future. Further, on or after October 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, regardless of the foregoing circumstances.
Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at the Company's election. The Company’s current intent is to settle the principal amount of the Notes in cash upon conversion. 
During the three and six months ended September 30, 2019, the conditions allowing holders of the Notes to convert were not met.
The Company may not redeem the Notes prior to February 4, 2022. On or after February 4, 2022, 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.
The Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes, equal in right of payment with the Company’s existing and future liabilities that are not so subordinated, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.
The net carrying amount of the liability component of the Notes was as follows (in thousands):
 
 
September 30, 2019
 
March 31, 2019
Principal
 
$
287,500

 
$
287,500

Unamortized debt discount
 
(64,532
)
 
(70,876
)
Unamortized issuance costs
 
(536
)
 
(589
)
Net carrying amount
 
$
222,432

 
$
216,035

Interest expense related to the Notes was as follows (in thousands):
 
 
Three Months Ended
September 30, 2019
 
Six Months Ended
September 30, 2019
Contractual interest expense
 
$
360

 
$
719

Amortization of debt discount
 
3,198

 
$
6,344

Amortization of issuance costs
 
27

 
$
53

Total interest expense
 
$
3,585

 
$
7,116


Capped Call
In connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions ("Capped Calls") with certain counterparties. The Capped Calls each have an initial strike price of approximately $25.68 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $39.50 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Common Stock upon any conversion of the Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 11.2 million shares of the Company’s Common Stock. The Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions.

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For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $33.7 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.
10. STOCK-BASED COMPENSATION
The following tables summarize information pertaining to the stock-based compensation expense from stock options and stock awards (in thousands, except weighted-average grant-date fair value and recognition period):
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Cost of service revenue
 
$
1,939

 
$
1,379

 
$
3,670

 
$
2,405

Research and development
 
4,217

 
2,823

 
8,081

 
5,017

Sales and marketing
 
5,340

 
2,206

 
9,261

 
4,604

General and administrative
 
5,895

 
3,721

 
9,976

 
7,014

Total
 
$
17,391

 
$
10,129

 
$
30,988

 
$
19,040

 
 
Six Months Ended September 30,
 
 
2019
 
2018
Stock options outstanding at the beginning of the period:
 
3,114

 
3,998

Options granted
 

 
195

Options exercised 
 
(287
)
 
(574
)
Options canceled and forfeited
 
(39
)
 
(97
)
Options outstanding at the end of the period:
 
2,788

 
3,522

Weighted-average fair value of grants during the period
 
$

 
$
8.47

Total intrinsic value of options exercised during the period
 
$
3,726

 
$
8,525

Weighted-average remaining recognition period at period-end (in years) 
 
2.32

 
2.52

 
 
 
 
 
Stock awards outstanding at the beginning of the period:
 
7,820

 
5,939

Stock awards granted
 
5,123

 
2,112

Stock awards vested 
 
(1,945
)
 
(1,720
)
Stock awards canceled and forfeited
 
(663
)
 
(