8X8, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q. As discussed in the section titled "Forward-Looking
Statements," the following discussion and analysis contains forward-looking
statements that involve risks and uncertainties, as well as assumptions that, if
they never materialize or prove incorrect, could cause our results to differ
materially from those expressed or implied by such forward-looking
statements. Factors that could cause or contribute to these differences include,
but are not limited to, those discussed below and elsewhere in this report,
particularly those set forth under the section entitled "Risk Factors" in our
Annual Report on Form 10-K ("Form 10-K") for the fiscal year ended March 31,
2020 , as modified by those in Part II, Item 1A of our Quarterly Report for the
three months ended June 30, 2020 on Form 10-Q under the heading "Risk Factors."
BUSINESS OVERVIEW
We are a leading software-as-a-service ("SaaS") provider of voice, video, chat,
contact center, and enterprise-class application programming interface ("API")
solutions powered by one global cloud communications platform. From our
proprietary cloud technology platform, organizations across all their locations
and employees globally have access to unified communications, team
collaboration, video conferencing, contact center, data and analytics,
communication APIs, and other services, enabling them to be more productive and
responsive to their customers.
Our customers represent companies ranging from small businesses to large
multinational enterprises, and their users are spread across more than 150
countries. In recent years, we have increased our focus on the mid-market and
enterprise customer categories.
We have a portfolio of cloud-based offerings made available at different rates
varying by the specific functionalities, services, and number of users. We
generate service revenue from communication services subscriptions and platform
usage. We generate other revenues from the sales and rentals of office phones
and other hardware equipment, and professional services. We define a "customer"
as one or more legal entities to which we provide services pursuant to a single
contractual arrangement. In some cases, we may have multiple billing
relationships with a single customer (for example, where we establish separate
billing accounts for a parent company and each of its subsidiaries).
Our flagship service is our 8x8 X Series, a next generation suite of unified
communications as a service ("UCaaS") and contact center as a service ("CCaaS")
solutions, which consist of service plans of increasing functionality designated
X1, X2, etc., through X8. With 8x8 X Series, we provide enterprise-grade voice,
unified communications, video meetings, team collaboration, and contact center
functionalities from a single platform. We also offer standalone SaaS services
for contact center, video meetings, and enterprise communication APIs. Through
our July 2019 acquisition of Wavecell Pte. Ltd. , an Asia -based global
communication platform as a service ("CPaaS") provider of SMS, messaging, voice
and video APIs to enterprises, we expanded our API offerings both geographically
and functionally. We expect to continue integrating these services into our
platform, as we believe in the value of the collective solutions.
As of December 31, 2020 , over 90% of our customers have been migrated to the 8x8
X Series platform and we intend to migrate substantially all of our remaining
customers through the end of the fiscal year. These migrations may require us to
incur professional services and related engineering costs. While we may not be
able to recover these costs from our customers, we believe that we will realize
other benefits including reducing the number of platforms that we are required
to support and improved customer retention.
SUMMARY AND OUTLOOK
In the third quarter of fiscal 2021, our total service revenue grew 15.2%
year-over-year to $127.1 million . We continued to show an increase in our
average annualized service revenue per customer, which grew to $8,705 in the
third quarter of fiscal 2021, compared with $8,248 in the same period of fiscal
2020, as we are selling more to mid-market and enterprise customers. Service
revenue from mid-market and enterprise customers represented 48% of total
service revenue and grew 25% compared to the same three-month period in the
prior year. We increased the number of bundled deals where customers purchase
our integrated communications and contact center solutions.
Our continued business focus is on achieving improved operating efficiencies
while delivering revenue growth. We continue to make important investments in
our products and technology platform, and focus on key areas of spend in our
go-to-market strategy. Additionally, we aim to drive efficiencies in our small
business customer acquisition and operations, and are focused on expanding our
business upmarket with mid-market and enterprise customers. We believe that
effective execution will enable the Company to grow and capture market share,
during this phase of industry disruption, in a cost-effective way and support
the Company in pursuit of its path to profitability and operating cash flow
improvement.
21--------------------------------------------------------------------------------
Table of Contents
In the remainder of fiscal 2021, we plan to continue making investments in
activities to acquire more customers, including global expansion and investing
in our direct marketing efforts, sales force, e-commerce, and outbound marketing
efforts. We also intend to continue investing in our indirect channel programs
to acquire more third-party selling agents to help sell our solutions, including
investments in our value added resellers ("VARs") and master agent programs.
Should these investments not result in additional revenue from new or existing
customers, including as result of adverse impacts from the COVID-19 pandemic,
and/or these cost reduction and efficiency efforts do not result in meaningful
savings, our operating results may be adversely impacted.
NEW CEO APPOINTMENT
On December 10, 2020 , we appointed David Sipes as Chief Executive Officer and a
member of the board of directors.
IMPACTS OF COVID-19
The full extent of the impact of the COVID-19 pandemic on our business,
operations and financial results will depend on numerous evolving factors that
we may not be able to accurately predict, including those set forth under the
section entitled "Risk Factors" in our Form 10-K for the fiscal year ended
March 31, 2020 , as modified by the "Risk Factors" section of our Quarterly
Report on Form 10-Q for the three months ended June 30, 2020 . In an effort to
contain COVID-19 or slow its spread, governments around the world have enacted
various measures, some of which have been subsequently rescinded, modified or
reinstated, including orders to close non-essential businesses, isolate
residents to their homes, and practice social distancing. To protect the health
and safety of our employees, our workforce continues to spend a significant
amount of time working from home with many of our offices around the world
remaining closed and travel being curtailed for our employees, as well as our
customers, as the number of COVID-19 cases continues to surge and retreat in
various locations globally. These restrictions have altered the ways we conduct
sales activities and market to current and prospective customers and how we
conduct our ongoing business operations, resulting in reductions in travel
related expenses and, by some measures, has resulted in improved employee
productivity in certain areas. Small business and mid-size customers have been
more impacted by the COVID-19 pandemic than enterprise customers, which has
necessitated greater flexibility and responsiveness to our customers' evolving
needs. While we anticipate that the global health crisis caused by COVID-19,
including any resurgences, and the measures enacted to slow its spread will
negatively impact certain business activity across the globe combined with the
limited availability of vaccines, to date, it has not resulted in as significant
a negative impact on our business, as initially anticipated. We continue to
proactively and closely monitor the health of our customers and suppliers and
other impacts of the pandemic to determine whether risks of loss or other
negative impacts upon our business exist. The effects of COVID-19 have also been
considered in management's judgments around credit loss impairments.
COMPONENTS OF RESULTS OF OPERATIONS
Service Revenue
Service revenue consists of communication services subscriptions, platform usage
revenue, and related fees from our UCaaS, CCaaS, and CPaaS offerings. We plan to
continue to drive our business to increase service revenue through a combination
of increased sales and marketing efforts, geographic expansion of our customer
base outside the United States , innovation in product and technology, and
through strategic partnerships and other business development.
Other Revenue
Other revenue consists primarily of revenues from sales and rentals of IP
telephones in conjunction with our cloud telephony service, and revenues from
professional services, primarily in support of deployment of our solutions
and/or platform. Other revenue is dependent on the number of customers who
choose to purchase or rent an IP telephone in conjunction with our service
instead of using the solution on their cell phone, computer, or other compatible
device, and/or choose to engage our services for implementation and deployment
of our cloud services.
Cost of Service Revenue
Cost of service revenue consists primarily of costs associated with network
operations and related personnel, technology licenses, amortization of
internally developed software, other communication origination and termination
services provided by third-party carriers and outsourced customer service call
center operations, and other costs such as customer service, and technical
support costs. We allocate overhead costs such as IT and facilities to cost of
service revenue, as well as to each of the operating expense categories,
generally based on relative headcount. Our IT costs include costs for IT
infrastructure and personnel. Facilities costs primarily consist of office
leases and related expenses.
Cost of Other Revenue
Cost of other revenue consists primarily of direct and indirect costs associated
with the purchasing of IP telephones as well as the scheduling, shipping and
handling, personnel costs and related expenditures incurred in connection with
the professional services associated with the deployment and implementation of
our products, and allocated IT and facilities costs.
22--------------------------------------------------------------------------------
Table of Contents Research and Development Research and development expenses consist primarily of personnel and related costs, third-party development and related work, software and equipment costs necessary for us to conduct our product and platform development and engineering efforts, and allocated IT and facilities costs. Sales and Marketing Sales and marketing expenses consist primarily of personnel and related costs, sales commissions, trade shows, advertising and other marketing, demand generation, channel costs, promotional expenses, and allocated IT and facilities costs. General and Administrative General and administrative expenses consist primarily of personnel and related costs, professional services fees, human resources, legal, employee recruiting, general management, and allocated IT and facilities costs. Other Expense, net Other expense, net consists primarily of interest expense related to the convertible notes, offset by income earned on our cash, cash equivalents, and investments, and foreign exchange gains/losses. Provision for Income Taxes Provision for income taxes consists primarily of state minimum taxes inthe United States and foreign income taxes. As we expand the scale of our international business activities, any changes in theU.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for ourU.S. deferred tax assets, including federal and state net operating loss carryforwards, or NOLs. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income inthe United States . RESULTS OF OPERATIONS The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto. All dollar amounts herein are in thousands unless otherwise noted. Revenue Service revenue 2020 2019
Change
Three months ended
93.0 % 93.1 %
Nine months ended
93.4 % 92.9 %
Service revenue increased for the three and nine months ended December 31, 2020 ,
compared with the same period of the previous fiscal year primarily due to a net
increase in our customer base, expanded offerings to existing customers, and
growth in related usage; service revenue from new customers was primarily driven
by sales of standalone and bundled UCaaS and CCaaS deals, globally, to our
mid-market and enterprise customers. The increase in service revenue was also
attributable to growth in usage revenue generated by our CPaaS products
primarily in the APAC region.
We expect total service revenue to grow over time with our expanding platform
offering as our business continues to expand globally and across broader
customer categories.
Other revenue 2020 2019 Change
Three months ended
7.0 % 6.9 %
Nine months ended December 31, $ 25,393 $ 23,212 $ 2,181 9.4 %
Percentage of total revenue 6.6 % 7.1 %
23--------------------------------------------------------------------------------
Table of Contents Other revenue increased during the three months and nine months endedDecember 31, 2020 , compared with the same period in the prior fiscal year. The increase was driven by professional services revenue resulting from the overall growth in our business and customer base, partially offset by a decrease in product revenue as a result of shift towards hardware rental program. We expect other revenue to grow over time, while we focus on delivering higher margin platform offerings to existing and new customers. No customer represented greater than 10% of the Company's total revenue for the three and nine months endedDecember 31, 2020 or 2019. Cost of Revenue Cost of service revenue 2020 2019
Change
Three months ended
37.0 % 37.0 %
Nine months ended
36.7 % 33.8 %
Cost of service revenue for the three months ended December 31, 2020 , increased
compared to the same period in the prior fiscal year period, primarily due to a
$5.1 million increase in communication infrastructure costs incurred to deliver
our services resulting from growth in usage across our platform including those
in connection with CPaaS, a $1.7 million increase in amortization of capitalized
software, and a $1.1 million increase in stock-based compensation expense. These
increases were partially offset by a $0.8 million decrease in depreciation and
amortization of intangible assets and a $0.6 million decrease in employee and
consulting related expenditures.
Cost of service revenue for the nine months ended December 31, 2020 , increased
over the same prior fiscal year period, primarily due to $25.4 million increase
in communication infrastructure costs incurred to deliver our services,
primarily due to growth in usage across our platform including those in
connection with CPaaS, a $5.6 million increase in amortization of capitalized
software, and a $3.1 million increase in stock-based compensation expense. These
increases were partially offset by a decrease of $1.7 million in employee and
consulting related expenditures and a decrease of $1.5 million in depreciation
and amortization of intangible assets.
We expect that cost of service revenue will increase in absolute dollars over
time as revenue continues to grow.
Cost of other revenue 2020 2019 Change
Three months ended
139.5 % 188.1 %
Nine months ended
142.5 % 179.7 %
Cost of other revenue for the three and nine months ended December 31, 2020 ,
decreased compared to the same periods in the prior fiscal year, primarily due
to a decrease in cost of products as a result of decrease in hardware shipment
volume, improved pricing, and increase in our hardware rental program, which has
better margins than hardware sales.
24--------------------------------------------------------------------------------
Table of Contents Operating Expenses Research and development 2020 2019 Change
Three months ended
17.3 % 16.8 %
Nine months ended
17.2 % 17.7 %
Research and development expenses for the three months ended December 31, 2020 ,
increased compared to the same prior fiscal year period, primarily due to a $2.7
million increase in stock-based compensation expense, a $1.7 million lower
allocation to capitalized software costs, and a $0.4 million increase in
amortization of capitalized software. These increases were partially offset by a
$0.4 million decrease in employee and consulting related expenditures, a $0.4
million decrease in travel related costs, and a $0.2 million decrease in
facility related costs.
Research and development expenses for the nine months ended December 31, 2020 ,
increased compared to the same prior fiscal year period, primarily due to a $9.5
million increase in stock-based compensation expense, a $1.1 million increase in
public cloud expenses, and a $0.9 million increase in amortization of
capitalized software. These increases were partially offset by a $1.4 million
decrease in travel related costs, a $0.6 million decrease in the cost for
computer supplies, and an increase in the capitalization of internally developed
software costs of $0.3 million .
We plan to continue to invest in research and development to support our efforts
to expand the capabilities and scope of our platform and to enhance the user
experience. While we expect to continue to improve our cost structure and
achieve operational efficiencies, we expect that research and development
expenses will increase in absolute dollars in future periods as we continue to
invest in our development efforts, and vary from period-to-period as a
percentage of revenue.
Sales and marketing 2020 2019 Change
Three months ended
46.8 % 53.2 %
Nine months ended
47.9 % 53.8 %
Sales and marketing expenses for the three months ended December 31, 2020 ,
increased slightly over the same prior fiscal year period, primarily due to a
$4.2 million increase in stock-based compensation expense, a $3.4 million
increase in channel commissions, and a $2.2 million increase in amortization of
deferred sales commission costs. These increases were partially offset by a net
decrease of $8.8 million in marketing program and public cloud expenses due to
gained efficiencies in lead generation and brand awareness, travel related
costs, and employee and consulting related expenditures.
Sales and marketing expenses for the nine months ended December 31, 2020 ,
increased over the same prior fiscal year period, primarily due to a $9.5
million increase in channel commissions, a $7.7 million increase in stock-based
compensation expense, a $6.2 million increase in amortization of deferred sales
commission costs, and a $4.8 million increase in employee and consulting related
expenditures, and a $2.3 million increase in marketing software and application
costs. These increases were partially offset by a net decrease of $19.9 million
in marketing program and public cloud expenses due to gained efficiencies in
lead generation and brand awareness and travel related costs.
We plan to continue investing in sales and marketing to attract and retain
customers on our platform and to increase our brand awareness. While we expect
to continue to improve our cost structure and achieve operational efficiencies,
we expect that sales and marketing expenses will increase in absolute dollars in
future periods and vary from period-to-period as a percentage of revenue.
General and administrative 2020 2019 Change
Three months ended
5.8 % Percentage of total revenue 17.4 % 19.0 %
Nine months ended
15.7 %
Percentage of total revenue 18.7 % 19.3 %
25--------------------------------------------------------------------------------
Table of Contents General and administrative expenses for the three months endedDecember 31, 2020 , increased as compared to the same prior fiscal year period, primarily due to a$1.8 million increase in employee and consulting related expenditures, including CEO succession costs, and$0.6 million higher allowance for credit losses, partially in response to external market factors and uncertainties in connection with the COVID-19 pandemic. These increases were partially offset by a$0.8 million decrease in stock-based compensation expense and a$0.5 million decrease in acquisition and integration costs. General and administrative expenses for the nine months endedDecember 31, 2020 , increased over the same prior fiscal year period, primarily due to a$3.6 million increase in stock-based compensation expense, a$3.4 million increase in employee and consulting related expenditures, including CEO succession costs,$2.6 million higher allowance for credit losses, partially in response to external market factors and uncertainties in connection with the COVID-19 pandemic, a$2.3 million increase in tax related expense, and a$1.5 million increase in depreciation expense. These increases were partially offset by a$2.0 million decrease in acquisition and integration costs and a$1.5 million decrease in contract termination costs. We expect to continue improving our cost structure and achieve operational efficiencies, and therefore also expect that general and administrative expenses as a percentage of total revenue will decline over time. Other expense, net 2020 2019
Change
Three months ended
28.9 %
Percentage of total revenue 3.4 % 3.1 %
Nine months ended
73.9 %
Percentage of total revenue 3.6 % 2.4 %
Other expense, net of other income increased for the three months ended
December 31, 2020 , over the same prior fiscal year period, primarily due to $0.7
million of lower interest income and a $0.7 million increase in expense related
to contractual interest, amortization of debt discount, and amortization of
issuance costs associated with additional convertible notes issued in November
2019 . These increases were partially offset by a $0.2 million increase in other
income and impacts from fluctuations in foreign exchange rates.
Other expense, net of other income for the nine months ended December 31, 2020 ,
increased over the same prior fiscal year period, primarily due to $3.4 million
of lower interest income and a $2.8 million increase in expense related to
contractual interest, amortization of debt discount, and amortization of
issuance costs associated with additional convertible notes issued in November
2019 . These increases were partially offset by $0.5 million of higher other
income.
With the recognition of interest expense and amortization of debt discount and
issuance costs in connection with our convertible senior notes, we expect to
continue to be in a net expense position for the foreseeable future.
Provision for income taxes 2020 2019 Change
Three months ended December 31, $ 301 $
280
Nine months ended December 31,$ 666 $
684
We estimate our annual effective tax rate at the end of each quarter. In estimating the annual effective tax rate, we consider, among other things, annual pre-tax income, permanent tax differences, the geographic mix of pre-tax income and the application and interpretations of existing tax laws. We record the tax effect of certain discrete items, which are unusual or occur infrequently, in the interim period in which they occur, including changes in judgment about deferred tax valuation allowances. The determination of the effective tax rate reflects tax expense and benefit generated in certain domestic and foreign jurisdictions. However, jurisdictions with a year-to-date loss where no tax benefit can be recognized are excluded from the annual effective tax rate. Liquidity and Capital Resources As ofDecember 31, 2020 , we had$152.5 million of cash, cash equivalents, and investments. In addition, as ofDecember 31, 2020 , we had restricted cash including$8.6 million in support of letter of credits securing leases for office facilities and$6.9 million held in escrow for our acquisition of Wavecell inJuly 2019 , pursuant to the terms of the acquisition agreement. 26
--------------------------------------------------------------------------------
Table of Contents During the three months endedDecember 31, 2020 ,$3.5 million of restricted cash was released, and the remaining amount of$6.9 million held in escrow for our acquisition of Wavecell was released inJanuary 2021 . By comparison, atMarch 31, 2020 , we had$186.9 million of cash, cash equivalents, and investments and$19.0 million of restricted cash. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed into law, which amended portions of relevant tax laws and provided relief to certain qualifying entities. In connection with the CARES Act, the Company elected to defer certain employer payroll taxes, which reduced cash usage by$5.0 million throughDecember 31, 2020 . The amounts deferred will be remitted to tax authorities during the third quarter of fiscal 2022 and fiscal 2023, respectively, when they become due. Other jurisdictions around the world have also provided similar tax relief, which the Company has elected to receive, where applicable; these benefits have a lesser impact to our expected cash flows during fiscal 2021. InJune 2020 , the Company offered its employees a limited opportunity to receive a portion of their cash salary in shares of the Company's common stock. Based on employee elected participation, we expect lower cash usage from payroll compensation of over$4 million during fiscal 2021. In addition, for fiscal 2021, the Company's executives received performance share units in place of a cash bonus plan. The timing of bonus payments for all other eligible employees was changed to semi-annually (in the third and first quarter of each fiscal year) from quarterly as in prior fiscal years. During the fourth quarter of fiscal 2021, we expect to receive$6.4 million of operating cash inflows from our Lease Assignment. Refer to Note 7. Leases in our accompanying condensed consolidated financial statements in Item 1 of this Form 10-Q. We believe that our existing cash, cash equivalents, and investment balances, and our anticipated cash flows from operations will be sufficient to meet our working capital and expenditure requirements for the next 12 months. Period-over-Period Changes Net cash used in operating activities for the nine months endedDecember 31, 2020 , was$14.9 million , compared with$62.8 million in the nine months endedDecember 31, 2019 . Cash used in operating activities was affected by: •the amount of net income or loss; •the amount of depreciation and amortization; •the amortization associated with deferred sales commissions, debt discount and issuance costs; •the expense associated with stock-based compensation; and •changes in working capital accounts, particularly in the timing of collections from receivable and payments of obligations, such as commissions. During the nine months endedDecember 31, 2020 , net cash used in operating activities was primarily related to the net loss of$120.6 million , net cash outflow from sales commissions of$21.1 million , which were partially offset by non-cash charges such as stock-based compensation expense of$74.9 million , depreciation and amortization of$34.1 million , amortization of debt discount of$12.6 million , and operating lease expenses of$11.5 million . Net cash used in investing activities was$27.1 million in the nine months endedDecember 31, 2020 , compared with$84.8 million in the nine months endedDecember 31, 2019 . The cash used in investing activities during the nine months endedDecember 31, 2020 , was related to capitalized internal software development costs of$22.9 million , purchases of$5.0 million of property and equipment, and$3.5 million release of cash held in escrow associated with an acquisition during the second quarter of fiscal 2020, partially offset by$4.2 million of proceeds from maturities and sales of investments, net of purchase. Net cash provided by financing activities was$5.9 million in the nine months endedDecember 31, 2020 , compared with$65.8 million in the nine months endedDecember 31, 2019 . Cash provided by financing activities for the nine months endedDecember 31, 2020 was primarily related to the proceeds from issuance of common stock under the ESPP. CRITICAL ACCOUNTING POLICIES & ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 27
--------------------------------------------------------------------------------
Table of Contents With the exception of changes described within Part I, Item 1, Note 2, "Summary of Significant Accounting Policies", due to the adoption of ASU 2016-03, there have been no significant changes during the three months endedDecember 31, 2020 , to our critical accounting policies and estimates previously disclosed in our Form 10-K for the fiscal year endedMarch 31, 2020 . NEW ACCOUNTING PRONOUNCEMENTS For a discussion of recently adopted accounting pronouncements and recent accounting pronouncements not yet adopted, see Item 1 of Part I, "Notes to Unaudited Condensed Consolidated Financial Statements - Note 2 - Summary of Significant Accounting Policies." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Fluctuation Risk We had cash, cash equivalents, restricted cash, and investments totaling$168.0 million as ofDecember 31, 2020 . Cash equivalents and investments were invested primarily in money market funds,U.S. treasury, commercial paper, and corporate bonds. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than theU.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. A hypothetical 10% change in interest rates would not have a material impact on the value of our cash, cash equivalents, or available-for-sale investments. As ofDecember 31, 2020 , the Company had$362.5 million or aggregate principal amount of convertible senior notes outstanding, which had an estimated fair value was$527.8 million . The fair value of the convertible senior notes is subject to interest rate risk, market risk, and other factors due to the conversion feature. The fair value of the convertible senior notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines. The interest and market value changes affect the fair value of the convertible senior notes but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the convertible senior notes at face value less unamortized discount on our consolidated balance sheets, and we present the fair value for required disclosure purposes only. Foreign Currency Exchange Risk We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than theU.S. dollar, primarily the British Pound, causing both our revenue and our operating results to be impacted by fluctuations in the exchange rates. Gains or losses from the revaluation of certain cash balances, accounts receivable balances, and intercompany balances that are denominated in these currencies impact our net income (loss). A hypothetical decrease in all foreign currencies against the US dollar of 10% would not result in a material foreign currency loss on foreign-denominated balances for the three and nine months endedDecember 31, 2020 . As our foreign operations expand, our results may be more impacted by fluctuations in the exchange rates of the currencies in which we do business. At this time, we do not, but we may in the future, enter into financial instruments to hedge our foreign currency exchange risk.
© Edgar Online, source
