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Form 10-Q 8X8 INC /DE/ For: Jun 30

August 1, 2022 6:07 AM
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Table of Contents
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 June 30, 2022
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-20220630_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 July 25, 2022 was 119,964,673.


Table of Contents
8X8, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
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Table of Contents
Forward-Looking Statements and Risk Factors
Statements contained in this quarterly report on Form 10-Q, or this "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 ( the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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; service revenue; cost of service revenue; research and development expenses; whether we will increase research and development spending relative to fiscal 2022; reduce unit costs and improve gross profit margin, operating margin or drive sustained growth and increasing profitability and cash flow; hiring of employees; sales and marketing expenses; and 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;
the impact of cost increases and general inflationary pressure on our operating expenses, including for bandwidth and labor;
customer cancellations and rate of customer churn;
the impact of Russia’s invasion of Ukraine and any macro-economic impact that may have;
customer acceptance and demand for our new and existing cloud communication and collaboration services and features, 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;
the quality and reliability of our services;
our ability to scale our business;
customer acquisition costs;
our reliance on a network of channel partners to provide substantial new customer demand;
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 service 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 and privacy requirements, globally;
introduction and adoption of our cloud software solutions in markets outside of the United States;
risks that any reduction in spending may not achieve the desired result or may result in a reduction in revenue;
risks relating to the acquisition and integration of businesses we have acquired or may acquire in the future, including most recently, Fuze, Inc.;
risks related to our senior convertible notes and the related capped call transactions, including the impact any refinancing thereof could have on our stock price; 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, 2022 (the "Form 10-K"), as modified by the "Risk Factors" section of this Quarterly Report, 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.
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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 2023 refers to the fiscal year ended March 31, 2023). Unless the context requires otherwise, references to "we," "us," "our," "8x8," and the "Company" refer to 8x8, Inc. and its consolidated subsidiaries.
All dollar amounts within this Quarterly Report are in thousands of United States Dollars ("Dollars") unless otherwise noted.
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Table of Contents
PART I. Financial Information
ITEM 1. Financial Statements
8X8, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 2022March 31, 2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$92,686 $91,205 
Restricted cash, current590 8,691 
Short-term investments48,945 44,845 
Accounts receivable, net55,441 57,400 
Deferred sales commission costs, current36,510 35,482 
Other current assets38,545 37,999 
Total current assets272,717 275,622 
Property and equipment, net73,876 79,016 
Operating lease, right-of-use assets59,859 63,415 
Intangible assets, net122,737 128,213 
Goodwill265,029 266,867 
Restricted cash, non-current818 818 
Long-term investments 2,671 
Deferred sales commission costs, non-current76,083 75,668 
Other assets, non-current18,028 17,978 
Total assets$889,147 $910,268 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$42,584 $49,721 
Accrued compensation33,713 36,319 
Accrued taxes31,864 32,573 
Operating lease liabilities, current14,424 15,485 
Deferred revenue, current34,064 34,262 
Other accrued liabilities18,767 23,167 
Total current liabilities175,416 191,527 
Operating lease liabilities, non-current71,806 74,518 
Convertible senior notes, net494,444 447,452 
Deferred revenue, non-current11,023 11,430 
Other liabilities, non-current2,936 2,975 
Total liabilities 755,625 727,902 
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock  
Common stock120 118 
Additional paid-in capital895,602 956,599 
Accumulated other comprehensive loss(16,391)(7,913)
Accumulated deficit(745,809)(766,438)
Total stockholders' equity133,522 182,366 
Total liabilities and stockholders' equity$889,147 $910,268 
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 June 30,
 20222021
Service revenue$179,161 137,796 
Other revenue8,459 10,531 
Total revenue187,620 148,327 
Operating expenses:
Cost of service revenue53,547 46,010 
Cost of other revenue13,126 13,746 
Research and development34,955 25,392 
Sales and marketing83,527 75,915 
General and administrative29,219 26,091 
Total operating expenses214,374 187,154 
Loss from operations(26,754)(38,827)
Other income (expense), net1,116 (4,823)
Loss before provision for income taxes(25,638)(43,650)
Provision for income taxes405 256 
Net loss$(26,043)$(43,906)
Net loss per share: 
Basic and diluted$(0.22)$(0.40)
Weighted average number of shares:
Basic and diluted119,721 109,925 


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 June 30,
20222021
Net loss$(26,043)$(43,906)
Other comprehensive income (loss), net of tax
Unrealized loss on investments in securities(94)(33)
Foreign currency translation adjustment(8,384)283 
Comprehensive loss$(34,521)$(43,656)

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)

 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesAmount
Balance at March 31, 2022117,863 $118 $956,599 $(7,913)$(766,438)$182,366 
Adjustment related to adoption of ASU 2020-06— — (92,832)— 46,672 (46,160)
Issuance of common stock under stock plans, less withholding1,796 2 63 — — 65 
Stock-based compensation expense— — 31,807 — — 31,807 
Unrealized investment loss— — — (94)— (94)
Foreign currency translation adjustment— — (35)(8,384)— (8,419)
Net loss— — — — (26,043)(26,043)
Balance at June 30, 2022119,659 $120 $895,602 $(16,391)$(745,809)$133,522 

 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
 SharesAmount
Balance at March 31, 2021109,135 $109 $755,643 $(4,193)$(591,055)$160,504 
Issuance of common stock under stock plans, less withholding1,562 2 3,438 — — 3,440 
Stock-based compensation expense— — 36,508 — — 36,508 
Unrealized investment loss— — — (33)— (33)
Foreign currency translation adjustment— — — 283 — 283 
Net loss— — — — (43,906)(43,906)
Balance at June 30, 2021110,697 $111 $795,589 $(3,943)$(634,961)$156,796 














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)
 Three Months Ended June 30,
20222021
Cash flows from operating activities:  
Net loss$(26,043)$(43,906)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation2,789 2,922 
Amortization of intangible assets5,476 1,285 
Amortization of capitalized internal-use software costs5,964 7,243 
Amortization of debt discount and issuance costs831 4,393 
Amortization of deferred sales commission costs9,166 8,245 
Allowance for credit losses695 383 
Operating lease expense, net of accretion3,121 3,459 
Stock-based compensation expense27,814 36,587 
Other456 713 
Changes in assets and liabilities:
Accounts receivable(99)924 
Deferred sales commission costs(9,246)(11,615)
Other current and non-current assets(692)(2,550)
Accounts payable and accruals(13,786)(5,063)
Deferred revenue(605)1,012 
Net cash provided by operating activities5,841 4,032 
Cash flows from investing activities:
Purchases of property and equipment(971)(878)
Capitalized internal-use software costs(2,309)(6,546)
Purchases of investments(18,838)(28,721)
Sales of investments 1,937 10,299 
Proceeds from maturities of investments 15,590 14,700 
Acquisition of business(1,250) 
Net cash provided by (used in) investing activities(5,841)(11,146)
Cash flows from financing activities:
Finance lease payments (4)
Tax-related withholding of common stock (99)
Proceeds from issuance of common stock under employee stock plans65 3,538 
Net cash provided by financing activities65 3,435 
Effect of exchange rate changes on cash(6,685)436 
Net decrease in cash, cash equivalents and restricted cash(6,620)(3,243)
Cash, cash equivalents and restricted cash, beginning of year100,714 121,172 
Cash, cash equivalents and restricted cash, end of year$94,094 $117,929 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Supplemental and non-cash disclosures:
For the years ended June 30,
20222021
Income taxes paid$461 $337 

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
 As of June 30,
20222021
Cash and cash equivalents$92,686 $109,288 
Restricted cash, current590 8,179 
Restricted cash, non-current818 462 
Total cash, cash equivalents and restricted cash$94,094 $117,929 



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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8X8, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
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 Software-as-a-Service ("SaaS") provider of contact center, voice, video, chat, and enterprise-class API solutions powered by one global cloud communications platform. 8x8 empowers workforces worldwide by connecting individuals and teams so they can collaborate faster and work smarter from anywhere. 8x8 provides real-time business analytics and intelligence, giving its customers unique insights across all interactions and channels on its platform, so they can support a distributed and hybrid working model while delighting their end-customers and accelerating their business. A majority of 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 its integrated technology platform.
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 ("U.S. GAAP") and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, certain information and disclosures normally included in the Company's annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. 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, 2022, and notes thereto included in the Form 10-K. There were no material changes during the three months ended June 30, 2022, to the Company's significant accounting policies as described in the Form 10-K.
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. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending March 31, 2023.
All dollar amounts herein are in thousands of United States Dollars ("Dollars") unless otherwise noted.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity, disclosure of contingent assets and liabilities at the date of the 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 current expected credit losses, returns reserve for expected cancellations, fair value of and/or potential impairment of goodwill and intangible assets, capitalized internal-use software costs, benefit period for deferred commissions, stock-based compensation, incremental borrowing rate used to calculate operating lease liabilities, income and sales tax liabilities, convertible senior notes fair value, 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.
OUT OF PERIOD ADJUSTMENTS
During the three months ended June 30, 2022, the Company recorded out of period adjustments of approximately $3.3 million including $2.1 million in subscription revenue related to a contract with one customer which was deferred in previous years, and $1.2 million of excess amounts reserved against bad debt during the fourth quarter of fiscal 2022. The impact of these adjustments was a $2.1 million increase in service revenue and decrease in contract assets, and a $1.2 million decrease in provision for bad debts and reduction in reserves.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective
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or a full retrospective approach. Effective April 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resulted in a decrease to accumulated deficit of $46.7 million, a decrease to additional paid-in capital of $92.8 million, and an increase to convertible senior notes, net of $46.2 million.
Interest expense in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to U.S. GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR"), which is expected to be discontinued, to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance. Effective April 1, 2022, the Company adopted ASU 2020-04 on a prospective basis. The impact of the adoption was immaterial to the Company's consolidated financial statements.
2. REVENUE RECOGNITION
Disaggregation of Revenue
The Company disaggregates its revenue by geographic region. See Note 11. Geographical Information.
Contract Balances
The following table provides amounts of receivables, contract assets, and deferred revenue from contracts with customers:
 June 30, 2022March 31, 2022
Accounts receivable, net$55,441 $57,400 
Contract assets, current11,402 10,514 
Contract assets, non-current13,574 15,171 
Deferred revenue, current34,064 34,262 
Deferred revenue, non-current11,023 11,430 
Contract assets, current, contract assets, non-current, deferred revenue, current and deferred revenue, non-current are recorded on the Consolidated Balance Sheets in Other current assets, Other assets, and Other liabilities, non-current, respectively.
During the three months ended June 30, 2022, the Company recognized revenues of approximately $43.6 million that were included in deferred revenue at the beginning of the fiscal year.
Remaining Performance Obligations
The Company's subscription terms typically range from one to five years. Contract revenue from the remaining performance obligations that had not yet been recognized as of June 30, 2022 was approximately $700.0 million. This amount excludes contracts with an original expected length of less than one year. The Company expects to recognize revenue on approximately 80% of the remaining performance obligations over the next 36 months and approximately 20% over the remainder of the contract period.
For purposes of this disclosure, the Company excludes contracts with an original expected length of less than one year. Since the new and renewal contracts entered into with customers are generally for terms of one year or longer, updating this disclosure to include contracts with a term of one year or more presents a more appropriate measure of the Company's remaining performance obligations.
Deferred Sales Commission Costs
Amortization of deferred sales commission costs for the three months ended June 30, 2022 and 2021 was $9.2 million and $8.2 million, respectively. There were no material write-offs during the three months ended June 30, 2022 and 2021.
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3. FAIR VALUE MEASUREMENTS
Cash, cash equivalents, and available-for-sale investments were as follows:
As of June 30, 2022Amortized
Costs
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Estimated
Fair Value
Cash and
Cash
Equivalents
Restricted Cash
(Current & Non-current)
Short-Term
Investments
Long-Term
Investments
Cash$77,885 $— $— $77,885 $77,885 $ $— $— 
Level 1:
Money market funds8,003 — — 8,003 8,003  — — 
Treasury securities3,157  (6)3,151   3,151  
Subtotal89,045  (6)89,039 85,888  3,151  
Level 2:
Certificate of deposit1,408   1,408  1,408   
Commercial paper24,604  (30)24,574 6,798  17,776  
Corporate debt28,232 2 (216)28,018   28,018  
Subtotal54,244 2 (246)54,000 6,798 1,408 45,794  
Total assets$143,289 $2 $(252)$143,039 $92,686 $1,408 $48,945 $ 
As of March 31, 2022Amortized
Costs
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Estimated
Fair Value
Cash and
Cash
Equivalents
Restricted Cash
(Current & Non-current)
Short-Term
Investments
Long-Term
Investments
Cash$70,095 $— $— $70,095 $70,095 $ $— $— 
Level 1:
Money market funds12,865 — — 12,865 12,865  — — 
Treasury securities4,573  (7)4,566   4,566  
Subtotal87,533  (7)87,526 82,960  4,566  
Level 2:
Certificate of deposit9,509   9,509  9,509   
Commercial paper23,950  (34)23,916 800  16,471  
Corporate debt27,442  (163)27,279 7,445  23,808 2,671 
Subtotal60,901  (197)60,704 8,245 9,509 40,279 2,671 
Total assets$148,434 $ $(204)$148,230 $91,205 $9,509 $44,845 $2,671 
Certificate of deposit represents the Company's letters of credit securing leases for office facilities, the balance of which is included in Restricted cash, current and Restricted cash, non-current on the Company's Consolidated Balance Sheet.
The Company considers its investments available to support its current operations and has classified investments in debt securities 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 June 30, 2022, 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 June 30, 2022, the Company did not record any allowance for credit losses on its investments.
As of June 30, 2022 and March 31, 2022, the estimated fair value of the Company's Notes was $427.7 million and $470.5 million, respectively, which was determined based on the closing price for the Notes on the last trading day of the reporting period and is considered to be Level 2 in the fair value hierarchy due to limited trading activity of the Notes. See Note 7, Convertible Senior Notes and Capped Call.
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4. INTANGIBLE ASSETS AND GOODWILL
The carrying value of intangible assets consisted of the following:
 June 30, 2022March 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Technology$46,714 $(22,208)$24,506 $46,727 $(19,852)$26,875 
Customer relationships105,821 (7,865)97,956 105,827 (4,889)100,938 
Trade names and domains580 (305)275 583 (183)400 
Total acquired identifiable intangible assets$153,115 $(30,378)$122,737 $153,137 $(24,924)$128,213 
As of June 30, 2022, the weighted average remaining useful life for technology, customer relationships, and trade names and domains was 3.0 years, 8.5 years, and 0.8 years, respectively.
As of June 30, 2022, annual amortization of intangible assets, based upon existing intangible assets and current useful lives, is estimated to be the following:
 Amount
2023$15,625 
202420,395 
202519,095 
202613,895 
2027 and thereafter53,727 
Total$122,737 
The following table provides a summary of the changes in the carrying amounts of goodwill:
 Amount
Balance at March 31, 2022$266,867 
Additions due to acquisitions 
Foreign currency translation(1,838)
Balance at June 30, 2022$265,029 
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5. LEASES
Operating Leases
The following table provides balance sheet information related to operating leases:
 June 30, 2022March 31, 2022
Assets
Operating lease, right-of-use assets$59,859 $63,415 
Liabilities
Operating lease liabilities, current$14,424 $15,485 
Operating lease liabilities, non-current71,806 74,518 
Total operating lease liabilities$86,230 $90,003 
The components of lease expense were as follows:
Three Months Ended June 30,
20222021
Operating lease expense$3,121 $3,459 
Variable lease expense$1,587 $750 
Short-term lease expense was immaterial during the three months ended June 30, 2022 and 2021.
Cash outflows from operating leases were $4.8 million and $4.2 million, respectively, for the three months ended June 30, 2022 and 2021.
The following table presents supplemental lease information:
June 30, 2022March 31, 2022
Weighted average remaining lease term7.3 years7.4 years
Weighted average discount rate4.0%4.0%
The following table presents maturity of lease liabilities under the Company's non-cancellable operating leases as of June 30, 2022:
2023$15,380 
202413,639 
202512,481 
202611,292 
202710,008 
Thereafter37,350 
Total lease payments100,150 
Less: imputed interest(13,920)
Present value of lease liabilities$86,230 
Lease Assignment
In the fourth quarter of fiscal 2018, the Company entered into a lease agreement (the "Agreement") with CAP Phase I (the "Landlord"), to rent office space in San Jose, California. The lease term began on January 1, 2019. On April 30, 2019, due to the Company's rapid growth and greater than anticipated future space needs, the Company entered into an assignment and assumption (the "Assignment") of the Agreement with the Landlord and Roku Inc.("Roku"), whereby the Company assigned to Roku the Agreement. Pursuant to the Assignment, the Company was released from all of its obligations under the lease and the related standby letter of credit, which was secured by restricted cash of $0.8 million, was released in May 2022.
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6. COMMITMENTS AND CONTINGENCIES
Indemnifications
In the normal course of business, the Company may agree to indemnify other parties, including customers, lessors, and parties to other transactions with the Company with respect to certain matters, such as breaches of representations or covenants or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.
It is not possible to determine the maximum potential amount of the Company's exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company's operating results, financial position, or cash flows. Under some of these agreements, however, the Company's potential indemnification liability may not have a contractual limit.
Operating Leases
The Company's lease obligations consist of the Company's principal facility and various leased facilities under operating lease agreements. See Note 5. Leases for more information on the Company's leases and the future minimum lease payments.
Purchase Obligations
The Company's purchase obligations include contracts with third-party customer support vendors and third-party network service providers. These contracts include minimum monthly commitments and the requirements to maintain the service level for several months.
Legal Proceedings
The Company may be involved in various claims, lawsuits, investigations, and other legal proceedings, including intellectual property, commercial, regulatory compliance, securities, and employment matters that arise in the normal course of business. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. Actual claims could settle or be adjudicated against the Company in the future for materially different amounts than the Company has accrued due to the inherently unpredictable nature of litigation. Legal costs are expensed as incurred.
The Company believes it has recorded adequate provisions for any such lawsuits and claims and proceedings as of June 30, 2022. The Company believes that damage amounts claimed in these matters are not meaningful indicators of potential liability. Some of the matters pending against the Company involve potential compensatory, punitive, or treble damage claims or sanctions, that, if granted, could require the Company to pay damages or make other expenditures in amounts that could have a material adverse effect on its Consolidated Financial Statements. Given the inherent uncertainties of litigation, the ultimate outcome of the ongoing matters described herein cannot be predicted, and the Company believes it has valid defenses with respect to the legal matters pending against it. Nevertheless, the Consolidated Financial Statements could be materially adversely affected in a particular period by the resolution of one or more of these contingencies.
Wage and Hour Litigation. On September 21, 2020, the Company received a copy of a letter filed by a former employee, Plaintiff Denise Rivas, with the California Labor and Workforce Development Agency (“LWDA”) providing notice of the Plaintiff’s intent to bring a Private Attorney General Act (“PAGA”) claim, on behalf of the Company’s non-exempt employees based in California, for alleged California wage and hour practices violations. On September 25, 2020, the Plaintiff filed a separate class action complaint (the “Class Complaint”) in Santa Clara County Superior Court against the Company in which she alleges 10 causes of action, on behalf of herself and all of the Company’s non-exempt employees based in California for the last four years, related to violations of California state wage and hour practices and the federal Fair Credit Reporting Act. The Class Complaint was served on the Company on September 29, 2020. On October 28, 2020, the Company filed a general denial of all claims and asserted various affirmative defenses. On October 29, 2020, the Company removed the matter to Federal Court. On December 1, 2020, Plaintiff filed a companion PAGA lawsuit complaint (the “PAGA Complaint”) in Santa Clara County Superior Court against the Company, in which she alleges 6 violations of California state wage and hour practices for all of the Company's current and former non-exempt employees based in California from September 16, 2019 to the present. The PAGA Complaint was served on the Company on December 11, 2020. On January 26, 2021, the Company filed a general denial of all claims and asserted various affirmative defenses to the PAGA Complaint. Both actions were scheduled for a joint mediation in September 2021, and discovery was stayed in both actions pending completion of the mediation. A joint mediation for both actions was held in September 2021 and the parties reached a preliminary settlement of all claims, which was finalized on November 23, 2021. The parties have remanded the Class Complaint matter to Santa Clara County Superior Court in order to consolidate the matter with the PAGA Complaint matter for court approval and administration of the settlement. Plaintiff has filed an unopposed motion for preliminary approval of the settlement on May 17, 2022, and the court issued an order preliminarily approving the settlement on June 13, 2022. The parties are proceeding to gather and provide class list information to the administrator for administration of the settlement.
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State and Local Taxes and Surcharges
From time to time, the Company has received inquiries from a number of state and local 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 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 accrual when facts relating to specific exposures warrant such adjustment. During the second quarter of fiscal 2019, the Company conducted a periodic review of the taxability of its services and determined that certain services may be subject to sales, use, telecommunications or other similar indirect taxes in certain jurisdictions. A similar review was performed on the taxability of services provided by Fuze, Inc. and it was determined that certain services may be subject to sales, use, telecommunications or other similar indirect taxes in certain jurisdictions. Accordingly, the Company recorded contingent indirect tax liabilities. As of June 30, 2022 and March 31, 2022, the Company had accrued contingent indirect tax liabilities of $16.7 million and $17.2 million, respectively.
7. CONVERTIBLE SENIOR NOTES AND CAPPED CALLS
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 "First Additional Notes") due 2024 in a registered offering under the same indenture as the Initial Notes. The total net proceeds from the First Additional Notes, after deducting underwriting discounts, debt issuance costs and costs of the capped call transactions described below, were approximately $64.6 million.
In December 2021, the Company issued an additional $137.5 million aggregate principal amount of its currently outstanding 0.50% convertible senior notes (the "Second Additional Notes", and together with the Initial Notes and the First Additional Notes, the "Notes") due 2024 in a private placement under the same indenture as the Initial Notes and the First Additional Notes. The total net proceeds from the Second Additional Notes, after deducting initial purchase discounts and debt issuance costs, were approximately $134.3 million. The Company did not enter into any capped calls in connection with this transaction. Both the First Additional Notes and Second 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 Second Additional Notes, the Company had $500.0 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 August 1, 2019. The Notes will mature on February 1, 2024, unless earlier repurchased, redeemed, or converted.
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 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 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
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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 months ended June 30, 2022, the conditions allowing holders of the Notes to convert were not met.
Under the terms of the Notes, the Company could 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, 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 following table presents the net carrying amount and fair value of the liability component of the Notes:
 June 30, 2022March 31, 2022
Principal$500,000 $500,000 
Unamortized debt discount(1) and issuance costs
(5,556)(52,548)
Net carrying amount$494,444 $447,452 
(1) The debt discount as of March 31, 2022 represents the discount resulting from the allocation of the equity component (conversion option) from the liability component of the Notes, net of issuance premium, prior to the adoption of ASU 2020-06 on April 1, 2022. Upon the adoption of ASU 2020-06, the equity component was reversed. As a result, June 30, 2022 debt discount represents only the issuance premium, which net against the issuance costs on the same line.

Prior to April 1, 2022, the Company accounted for the Notes as separate liability and equity components. On issuance, the carrying amount of the equity components was recorded as a debt discount and subsequently amortized to interest expense. Effective April 1, 2022, we adopted ASU 2020-06 using the modified retrospective approach. As a result, the Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. Adoption of the new standard resulted in a decrease to accumulated deficit of $46.7 million, a decrease to additional paid-in capital of $92.8 million, and an increase to convertible senior notes, net of $46.2 million. The Notes have no original issuance discounts. Unamortized debt discount and issuance costs will be amortized over the remaining life of the Notes, which is approximately 19 months.
Interest expense recognized related to the Notes was as follows:
For the three months ended June 30,
 20222021
Contractual interest expense$625 $453 
Amortization of debt discount and issuance costs831 4,393 
Total interest expense$1,456 $4,846 
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Capped Calls
In connection with the pricing of the Initial and First Additional Notes, the Company entered into privately negotiated capped call transactions (the "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 correspond to the initial conversion price of the Initial and First Additional 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 Initial and First Additional Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 14.1 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. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Initial and First Additional Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The Capped Calls will not be remeasured as long as they continue to meet the conditions for equity classification.
8. STOCK-BASED COMPENSATION AND STOCKHOLDERS' EQUITY
2012 Equity Incentive Plan
In June 2012, the Company's board of directors approved the 2012 Equity Incentive Plan (the "2012 Plan"). The Company's stockholders subsequently adopted the 2012 Plan in July 2012, which became effective in August 2012. The Company reserved 4.1 million shares of the Company's common stock for issuance under this plan. In August 2014, 2016, 2018 and 2019, the 2012 Plan was amended to allow for an additional 6.8 million shares, 4.5 million shares, 16.3 million shares, and 12.0 million shares reserved for issuance, respectively. The 2012 Plan provided for granting incentive stock options to employees and non-statutory stock options to employees, directors or consultants, and granting of stock appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards, and stock grants. The stock option price of incentive stock options granted could not be less than the fair market value on the effective date of the grant. Options, restricted stock, and restricted stock units generally vest over three or four years and expire ten years after grant. The 2012 Plan expired in June 2022.  
2017 New Employee Inducement Incentive Plan
For details on the 2017 New Employee Inducement Incentive Plan ("2017 Plan"), please refer to the Form 10-K. No grants were made under the 2017 Plan during the three months ended June 30, 2022. As of June 30, 2022, 1.8 million shares remained available for future grants under the 2017 Plan.
Stock-Based Compensation
The following table presents stock-based compensation expense (dollars in thousands):
 Three Months Ended June 30,
 20222021
Cost of service revenue$2,664 $1,968 
Cost of other revenue1,111 1,071 
Research and development8,044 8,698 
Sales and marketing8,107 14,326 
General and administrative7,888 10,524 
Total$27,814 $36,587 
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Stock Options
The following table presents the stock option activity (shares in thousands):
Number of
Shares
Weighted Average Exercise Price Per Share
Outstanding at March 31, 2022867 $10.67 
Exercised(11)5.87 
Canceled/Forfeited(2)22.25 
Outstanding at June 30, 2022854 $10.71 
Vested and expected to vest June 30, 2022854 $10.71 
Exercisable at June 30, 2022852 $10.69 
The total intrinsic value of options exercised in the three months ended June 30, 2022 and 2021 was $40.0 thousand and $9.1 million respectively.
As of June 30, 2022, there was $14.0 thousand of total unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of approximately 0.3 years.
The Company did not grant any stock options during the three months ended June 30, 2022 and 2021.
The fair value of each of the Company's option grants has been estimated on the date of grant using the Black-Scholes pricing model. No option grants were made in the three months ended June 30, 2022 and 2021.
Stock Purchase Rights
There were no activities related to stock purchase rights during the three months ended June 30, 2022 and 2021.
As of June 30, 2022, there was no unrecognized compensation cost related to stock purchase rights.
Restricted Stock Units
The following table presents the RSU activity (shares in thousands):
Number of
Shares
Weighted
Average Grant
Date Fair Value
Weighted Average
Remaining Contractual
Term (in Years)
Balance at March 31, 20229,375 $20.41 2.11
Granted8,528 6.36 
Vested and released(1,657)21.00 
Forfeited(780)17.94 
Balance at June 30, 202215,466 $12.72 1.27
As of June 30, 2022, there was $130.7 million of total unrecognized compensation cost related to RSUs.

Performance Stock Units
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PSUs are issued to a group of executives with vesting that is contingent on both market performance and continued service. The PSUs generally vest over periods ranging from one to three years based on Total Shareholder Return ("TSR"), as measured relative to specified market indices during the period from grant date through vesting date. A 2x multiplier will be applied for each percentage point of positive or negative relative TSR, such that the number of shares of common stock earned will increase or decrease by 2% of the target number of shares, subject to a maximum of 200% of the target number of shares. In the event that the Company’s relative TSR performance is less than negative 30%, relative to the specified index, no shares will be earned for the applicable performance period. All PSU awards vest at the end of the respective performance periods, for those executives with continued service.

The following table presents the PSU activity (shares in thousands):
Number of
Shares
Weighted
Average Grant
Date Fair Value
Weighted Average
Remaining Contractual
Term (in Years)
Balance at March 31, 20221,026 $35.36 0.89
Granted720 7.71 
Granted for performance achievement1
  
Vested and released(128)25.65 
Forfeited(354)37.65 
Balance at June 30, 20221,264 $19.96 1.86
1 Represents additional PSUs awarded as a result of the achievement of performance goals above the performance targets established at grant.
As of June 30, 2022, there was $32.1 million of total unrecognized compensation cost related to PSUs.
Employee Stock Purchase Plan ("ESPP")
As of June 30, 2022, there was approximately $1.7 million of unrecognized compensation cost related to employee stock purchases. This cost is expected to be recognized over a weighted average period of 0.3 years. As of June 30, 2022, a total of 1.0 million shares were available for issuance under the ESPP.
Stock Repurchases
There were no stock repurchases during the three months ended June 30, 2022 and 2021.
9. INCOME TAXES
The Company's effective tax rate was (1.6)% and (0.6)% for the three months ended June 30, 2022 and 2021, respectively. The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company maintains against its deferred tax assets. The effective tax rate is calculated by dividing the Provision for income taxes by the Loss before provision for income taxes.
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10. NET LOSS PER SHARE
The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net loss per share (dollars in thousands, except per share data):
 Three Months Ended June 30,
 20222021
Net loss$(26,043)$(43,906)
Weighted average common shares outstanding - basic and diluted (in thousands)119,721 109,925 
Net loss per share - basic and diluted$(0.22)$(0.40)
The following potentially dilutive common shares were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (shares in thousands):
 Three Months Ended June 30,
 20222021
Stock options854 1,413 
Restricted stock units and Performance stock units16,731 12,483 
Potential shares attributable to the ESPP1,047 444 
Total anti-dilutive shares18,632 14,340 

11. GEOGRAPHICAL INFORMATION
The following tables set forth the geographic information for each period (dollars in thousands):
Three Months Ended June 30,
 20222021
United States$136,120 $103,658 
International51,500 44,669 
Total revenue$187,620 $148,327 
Property and Equipment as of
 June 30, 2022March 31, 2022
United States$69,469 $73,967 
International4,407 5,049 
Total property and equipment, net$73,876 $79,016 
12. ACQUISITIONS
Fuze
On January 18, 2022, the Company acquired 100% of the outstanding shares of common stock of Fuze, Inc. for a total consideration of $213.8 million, which consisted of $132.9 million in cash and $80.9 million in shares of common stock of the Company, of which, approximately $1.3 million in cash and up to 1,153,523 shares were held back as part of the merger agreement, and 346,053 shares were held back (pursuant to indemnity obligations) and reserved for later issuance. Subsequently, in May 2022, the approximately $1.3 million in cash held back was released as part of the working capital adjustment. The results of Fuze, Inc.’s operations have been included in the Company's consolidated financial statements, including $29.5 million of revenue in the first quarter of fiscal 2023.






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