Stock Story -
What Happened: Shares of business communications software company 8x8 (NYSE:EGHT) jumped 12.9% in the morning session after the company announced that it has secured a new $200 million Term Loan Credit Facility. The company intends to use the proceeds from the loan plus $25 million from existing cash balances to fund the prepayment of the $225 million outstanding under its existing Term Loan maturing August 3, 2027.
The interest rate on the new credit term is expected to be approximately 3.6% lower than its existing term loan. This is a positive for the company as it expects the refinancing to result in "significant cash interest expense savings for the duration of the term loan."
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What is the market telling us: 8x8's shares are very volatile and over the last year have had 47 moves greater than 5%. But moves this big are very rare even for 8x8 and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 14% on the news that the company reported third-quarter results, which missed analysts' expectations for key topline metrics, including revenue, ARR (annual recurring revenue) and billings. Free cash flow also declined significantly.
Notably, ARR grew only 1% year on year and flat sequentially. The company observed churn mostly within smaller customers. Management added during the earnings call, "...we have been devoting additional resources to retention of the Fuze enterprise customers and expect to see an acceleration in upgrades to 8x8, but we probably have at least one more quarter before this headwind to ARR growth begins to dissipate."
Looking ahead, it is not surprising that revenue guidance for the next quarter and the full year both missed Wall Street's estimates. A bright spot was a beat on profit that led to a non-GAAP EPS beat. However, underperformance on revenue guidance is driving the stock performance. Overall, it was a weak quarter for the company.
8x8 is down 21.7% since the beginning of the year, and at $2.88 per share it is trading 40.1% below its 52-week high of $4.81 from July 2023. Investors who bought $1,000 worth of 8x8's shares 5 years ago would now be looking at an investment worth $114.82.
