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8x8, Inc. Announces Third Quarter Fiscal 2013 Results



  8x8, Inc. Announces Third Quarter Fiscal 2013 Results

Record Revenue of $27.3 Million; Average Number of Subscribed Services per New
       Business Customer Increases Quarter-over-Quarter from 14.7 to 17

Business Wire

SAN JOSE, Calif. -- January 24, 2013

8x8, Inc. (NASDAQ: EGHT), provider of innovative cloud-based business
communications and computing solutions, today announced record financial
operating results for the third quarter of fiscal 2013 ended December 31,
2012.

Third Quarter Fiscal 2013 Financial Highlights:

  * Total revenue for the quarter increased 17% year-over-year to a record
    $27.3 million from $23.3 million in the same period of fiscal 2012.
  * Revenue from business customers grew 22.2% during the quarter from the
    same period last year and comprised 97% of total revenue for the quarter.
  * Overall gross margin was 68.3% compared with 67.8% in the prior quarter
    and 67.9% in the same period last year.
  * Service gross margin was 78.1%, compared with 75.9% in the prior quarter
    and 76.9% in the same period last year.
  * GAAP net income was $1.9 million, or $0.03 per diluted share, compared
    with $2.6 million, or $0.04 per share, for the same period last year.
  * Non-GAAP net income (as outlined in the reconciliation table below) was
    $3.8 million, or $0.05 per diluted share, compared with $3.7 million, or
    $0.05 per diluted share, in the same period a year ago.
  * Ended the quarter with $46.5 million in cash, cash equivalents and
    investments compared with $40.1 million in the prior quarter and $21.9
    million on December 31, 2011.
  * Cash flow from operating activities was $6.6 million for the quarter
    compared with $3.2 million in the same period last year.

“I am pleased to report another quarter of record revenue along with a
substantial uptick in our service margins,” said 8x8 Chairman & CEO Bryan
Martin. “Our focus on service margin improvement combined with our continued
double-digit revenue growth and consistent profitability are a testament to
8x8’s ability to deliver advanced cloud-based services in a highly efficient
and profitable manner to a continually growing base of larger customers.”

Third Quarter Fiscal 2013 Operating Metrics and Other Business Highlights:

  * Average revenue per business customer increased to $260 per month,
    compared with $256 in the prior quarter and $239 in the same period last
    year.
  * For new customers added during the December quarter, the average number of
    subscribed services grew to 17.0 from 14.7 in the prior quarter and 14.1
    in the same period last year.
  * Average number of subscribed services per business customer grew to 11.2
    from 10.6 services in the prior quarter and 9.4 in the same period last
    year.
  * Monthly business customer count churn for the quarter was 1.6% compared
    with 2.4% in the prior quarter and 2.0% in the same period last year;
    monthly business service revenue churn for the December quarter increased
    to 2.6% from 1.0% in the prior quarter, compared with 1.9% in the same
    period last year.
  * Ended the quarter with 31,473 business customers, up from 30,498 business
    customers in the prior quarter, a net increase of 975 business customers
    for the quarter.
  * Awarded two new U.S. communications patents related to network and mobile
    technologies; the company has been awarded 85 U.S. patents since
    inception.
  * Recognized in the “Leaders” quadrant of Gartner’s 2012 Magic Quadrant for
    Unified Communications as a Service (UCaaS) (see
    http://business.8x8.com/OL-Research-GartnerMagicQuadrant.html).
  * Launched our complete suite of hosted telephony and unified communications
    services in Canada as phase one of our Global Reach initiative.

“The significant jump in the number of services subscribed to by our new
customers this quarter clearly shows the success 8x8 is having in penetrating
the upper end of the small and medium business segment,” Martin continued.
“The trust that larger businesses are placing in 8x8 by allowing us to provide
mission critical services not only underscores the cost savings and innovation
we provide, but also our ability to provide these advanced services in a high
quality and highly available manner. The inclusion of 8x8 as one of the
leaders in Gartner’s Magic Quadrant further confirms our leading position in
the UCaaS industry.”

“While we often see some seasonality for increased churn in the December
quarter due to the end of the tax year, business customer churn was at its
lowest quarterly levels ever at 1.6%. Revenue churn, which generally lags
customer churn, did increase during the third fiscal quarter due primarily to
specific issues with a handful of customers unrelated to 8x8 service,”
continued Martin. “Overall, our revenue and customer growth continues to
vastly outpace our churn, and, as evident in our operating metrics, we
continue to see expanding growth opportunities with both new and current
customers as they take on additional services.”

Nine Months Year to Date Fiscal 2013 Financial Highlights:

  * Total revenue for the nine months ended December 31, 2012, increased 28%
    year over year to $79 million from $62 million in the same period of
    fiscal 2012.
  * GAAP net income for the nine months ended December 31, 2012, was $12.3
    million, or $0.16 per diluted share, compared with $5.4 million, or $0.08
    per diluted share, for the same period last year.
  * Non-GAAP net income (as outlined in the reconciliation table below) for
    the nine months ended December 31, 2012, was $10.9 million, or $0.15 per
    diluted share, compared with $7.3 million, or $0.11 per diluted share, for
    the same period last year.

Management will host a conference call to discuss these results and other
matters related to the Company’s business today, January 24, 2013, at 4:30
p.m. EDT. The call is accessible via the following numbers and webcast links:

Dial In:   (877) 843-0417, domestic
           (408) 427-3791, international
Replay:    (855) 859-2056, domestic (Conference ID #85539163)
           (404) 537-3406, international (Conference ID #85539163)
Webcast:   http://investors.8x8.com

Supplemental financial slides will be presented through 8x8’s Virtual Meeting
web conferencing portal, which can be accessed at:
http://virtualmeeting.8x8.com/Q3FY2013Earnings.

Non-GAAP Measures

We have provided in this release financial information that has not been
prepared in accordance with Generally Accepted Accounting Principles (GAAP).
We use these non-GAAP financial measures internally in analyzing our financial
results and believe they are useful to investors, as a supplement to GAAP
measures, in evaluating our ongoing operational performance. We believe that
the use of these non-GAAP financial measures provides an additional tool for
investors to use in evaluating our ongoing operating results and trends and in
comparing our financial results with other companies in our industry, many of
which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as
a substitute for, financial information prepared in accordance with GAAP.
Investors are encouraged to review the reconciliation of these non-GAAP
financial measures to their most directly comparable GAAP financial measures
below. A reconciliation of our non-GAAP financial measures to their most
directly comparable GAAP measures has been provided in the financial statement
tables included below in this press release.

Non-GAAP net income and non-GAAP net income per share

We have defined non-GAAP net income as net income for GAAP plus loss on
investment, non-cash tax adjustments, stock-based compensation, amortization
of acquired intangible assets, acquisition-related costs, facility exit costs
and gain on patent sale. We have excluded loss on a strategic investment in
another company and gain on patent sale because we consider these to be
isolated transactions and believe these are not reflective of our ongoing
operations. Non-cash tax adjustments represent the differences between the
amount of taxes we expect to pay and our GAAP tax provision each period. We
have excluded stock-based compensation expense because it relies on valuations
based on future events, such as the market price of our common stock, that are
difficult to predict and are affected by market factors that are largely not
within the control of management. Amortization of acquired intangible assets
is excluded because it is a non-cash expense that we do not consider part of
ongoing operations when assessing our financial performance, as it relates to
accounting for certain purchased assets. We have excluded acquisition-related
expenses, including expenses to exit facilities, because these expenses are
difficult to predict and are often one-time. We define non-GAAP net income per
share as non-GAAP net income divided by the weighted-average diluted shares
outstanding. We define non-GAAP net income percentage of revenue as non-GAAP
net income divided by revenue. The GAAP and non-GAAP weighted average number
of diluted shares to calculate GAAP and non-GAAP earnings per share are the
same. We believe that such exclusions facilitate comparisons to our historical
operating results and to the results of other companies in the same industry,
and provides investors with information that we use in evaluating management’s
performance on a quarterly and annual basis.

About 8x8, Inc.

8x8 Inc. (NASDAQ: EGHT) empowers business conversations for more than 30,000
small and medium sized businesses with cloud communications services that
include hosted PBX telephony, unified communications, contact center and video
conferencing solutions. In 2012, the company was recognized in the "Leaders"
quadrant of Gartner's 2012 Magic Quadrant for Unified Communications as a
Service and was named No. 1 Provider of Hosted IP Telephony by Frost &
Sullivan. 8x8 has been delivering business communications services since 2004
and has garnered a reputation for technical excellence and outstanding
reliability. For additional information, visit www.8x8.com, or connect with
8x8 on Facebook and Twitter.

Forward Looking Statements

This news release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934. These statements include, without limitation,
information about future events based on current expectations, potential
product development efforts, near and long-term objectives, potential new
business, strategies, organization changes, changing markets, future business
performance and outlook. Such statements are predictions only, and actual
events or results could differ materially from those made in any
forward-looking statements due to a number of risks and uncertainties. Actual
results and trends may differ materially from historical results or those
projected in any such forward-looking statements depending on a variety of
factors. These factors include, but are not limited to, customer acceptance
and demand for our products and services, the reliability of our services, the
prices for our services, customer renewal rates, customer acquisition costs,
actions by our competitors, including price reductions for their telephone
services, potential federal and state regulatory actions, compliance costs,
potential warranty claims and product defects, our needs for and the
availability of adequate working capital, our ability to innovate
technologically, the timely supply of products by our contract manufacturers,
potential future intellectual property infringement claims that could
adversely affect our business and operating results, and our ability to retain
our listing on the NASDAQ Capital Market. For a discussion of such risks and
uncertainties, which could cause actual results to differ from those contained
in the forward-looking statements, see “Risk Factors” in the Company’s reports
on Forms 10-K and 10-Q, as well as other reports that 8x8, Inc. files from
time to time with the Securities and Exchange Commission. All forward-looking
statements are qualified in their entirety by this cautionary statement, and
8x8, Inc. undertakes no obligation to update publicly any forward-looking
statement for any reason, except as required by law, even as new information
becomes available or other events occur in the future.

NOTE: 8x8, the 8x8 logo, and 8x8 Virtual Office are trademarks of 8x8, Inc.
All other trademarks are the property of their respective owners.

                                                                   
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts; unaudited)
                                                                       
                                 Three Months Ended     Nine Months Ended
                                 December 31,           December 31,
                                 2012        2011       2012          2011    
Service revenue                $ 24,958    $ 21,200   $ 72,307      $ 56,234
Product revenue                  2,382       2,078      6,656         5,370   
Total revenue                    27,340      23,278     78,963        61,604  
                                                                       
Operating expenses:
Cost of service revenue          5,473       4,890      16,984        12,764
Cost of product revenue          3,203       2,584      8,585         7,467
Research and development         2,117       1,955      5,973         4,902
Sales and marketing              11,651      9,816      33,202        27,076
General and administrative       2,136       1,481      6,270         4,372
Gain on patent sale              -           -          (11,965 )     -       
Total operating expenses         24,580      20,726     59,049        56,581  
Income from operations           2,760       2,552      19,914        5,023
Other income, net                73          49         90            58      
Income before provision          2,833       2,601      20,004        5,081
(benefit) for income taxes
Provision (benefit) for          913         15         7,726         (284   )
income taxes
Net income                     $ 1,920     $ 2,586    $ 12,278      $ 5,365   
                                                                       
Net income per share:
Basic                          $ 0.03      $ 0.04     $ 0.17        $ 0.08
Diluted                        $ 0.03      $ 0.04     $ 0.16        $ 0.08
                                                                       
Weighted average number of
shares:
Basic                            71,611      69,445     71,197        65,165
Diluted                          74,988      73,214     74,483        69,013

                                                             
8x8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
                                                                 
                                                                 
                                               December 31,     March 31,
                                               2012             2012
ASSETS
Current assets
Cash and cash equivalents                    $ 44,557         $ 22,426
Investments                                    1,965            1,942
Accounts receivable, net                       3,605            2,279
Inventory                                      573              581
Deferred tax assets                            284              7,730
Other current assets                           876              928
Total current assets                           51,860           35,886
Property and equipment, net                    6,922            3,820
Intangible assets, net                         10,551           11,622
Goodwill                                       25,150           25,150
Deferred tax assets, non-current               54,065           53,977
Other assets                                   395              278
Total assets                                 $ 148,943        $ 130,733
                                                                 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable                             $ 5,170          $ 5,476
Accrued compensation                           3,768            3,105
Accrued warranty                               422              387
Deferred revenue                               952              891
Other accrued liabilities                      2,758            2,356
Total current liabilities                      13,070           12,215
                                                                 
Other liabilities                              1,894            68
Total liabilities                              14,964           12,283
                                                                 
Total stockholders' equity                     133,979          118,450
Total liabilities and stockholders' equity   $ 148,943        $ 130,733

                                                                   
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
                                                                       
                                                         Nine Months Ended
                                                         December 31,
                                                         2012         2011    
Cash flows from operating activities:
Net income                                             $ 12,278     $ 5,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation                                             1,816        1,101
Amortization                                             1,071        431
Stock-based compensation                                 1,827        1,013
Deferred income tax provision (benefit)                  7,359        (336   )
Other                                                    409          130
Changes in assets and liabilities:
Accounts receivable, net                                 (1,700 )     (642   )
Inventory                                                (25    )     1,596
Other current and noncurrent assets                      (48    )     405
Deferred cost of goods sold                              (18    )     (6     )
Accounts payable                                         (38    )     (2,059 )
Accrued compensation                                     663          319
Accrued warranty                                         35           34
Accrued taxes and fees                                   495          (396   )
Deferred revenue                                         61           (75    )
Other current and noncurrent liabilities                 1,806        (472   )
Net cash provided by operating activities                25,991       6,408   
                                                                       
Cash flows from investing activities:
Purchases of property and equipment                      (5,245 )     (1,743 )
Acquisition of businesses, net of cash acquired          -            (713   )
Net cash used in investing activities                    (5,245 )     (2,456 )
                                                                       
Cash flows from financing activities:
Capital lease payments                                   (73    )     (273   )
Repurchase of common stock                               (285   )     (1,038 )
Proceeds from issuance of common stock, net of           -            (60    )
issuance costs
Proceeds from issuance of common stock under             1,743        949     
employee stock plans
Net cash provided by (used in) financing activities      1,385        (422   )
Net increase in cash and cash equivalents                22,131       3,530
                                                                       
Cash and cash equivalents at the beginning of the        22,426       16,474  
period
Cash and cash equivalents at the end of the period     $ 44,557     $ 20,004  

 
8x8, Inc.
Selected Operating Statistics
 
                Three Months Ended
                Dec. 31,     March 31,    June 30,     Sept. 30,    Dec. 31,
                2011         2012         2012         2012         2012
Gross
business          2,836        2,892        2,943        2,915        2,617
customer
additions (1)
Gross
business
customer
cancellations
(less             1,642        1,697        1,458        2,149        1,504
cancellations
within 30
days of
sign-up)
Business
customer
churn (less
cancellations     2.0    %     2.0    %     1.7    %     2.4    %     1.6    %
within 30
days of
sign-up) (2)
Business
service           1.9    %     1.6    %     2.3    %     1.0    %     2.6    %
revenue churn
Total
business          27,677       28,671       29,913       30,498       31,473
customers (3)
                                                                     
Business
customer
average
monthly         $ 239        $ 244        $ 250        $ 256        $ 260
service
revenue per
customer (4)
                                                                     
Overall
service           77     %     76     %     75     %     76     %     78     %
margin
Overall
product           -24    %     -15    %     -30    %     -22    %     -34    %
margin
Overall gross     68     %     68     %     67     %     68     %     68     %
margin
                                                                     
Business
subscriber
acquisition     $ 92         $ 99         $ 97         $ 89         $ 98
cost per
service (5)
Average
number of
subscribed        9.4          9.8          10.1         10.6         11.2
services per
business
customer
Average
number of
subscribed        14.1         13.6         14.0         14.7         17.0
services per
new business
customer (6)
                                                                     
(1) Does not include customers of Virtual Office Solo or Zerigo, Inc.
("Zerigo").
 
(2) Business customer churn is calculated by dividing the number of business
customers that terminated (after the expiration of the 30-day trial) during
that period by the simple average number of business customers during the
period and dividing the result by the number of months in the period. The
simple average number of business customers during the period is the number of
business customers on the first day of the period plus the number of business
customers on the last day of the period divided by two. In the second quarter
of fiscal 2013, an affiliate with 411 business customers representing
approximately $9,000 of monthly service revenue cancelled service. Excluding
these 411 cancellations, business customer churn (less cancellations within 30
days of sign-up) was 1.9%.
 
(3) Business customers are defined as customers paying for service. Customers
that are currently in the 30- day trial period are considered to be customers
that are paying for service. Customers subscribing to Virtual Office Solo or
Zerigo services are not included as business customers.
 
(4) Business customer average monthly service revenue per customer is service
revenue from business customers in the period divided by the number of months
in the period divided by the simple average number of business customers
during the period.
 
(5) Business subscriber acquisition cost per service is defined as the
combined costs of advertising, marketing, promotions, sales commissions and
equipment subsidies for business services sold during the period divided by
the number of gross business services added during the period.
 
(6) Total new services sold in the period divided by gross business customer
additions.

                                                                   
8x8, Inc.
RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
AND NON-GAAP NET INCOME PER SHARE
(In thousands, except per share amounts; unaudited)
                                                                       
                              Three Months Ended        Nine Months Ended
                              December 31,              December 31,
                              2012         2011         2012          2011    
Net income                  $ 1,920      $ 2,586      $ 12,278      $ 5,365
Gain on patent sale           -            -            (11,965 )     -
Non-cash tax adjustments      780          -            7,359         (336   )
Amortization                  357          357          1,071         431
Stock-based compensation      765          418          1,827         1,013
expense
Acquisition-related           -            241          -             727
expense
Facility exit expense         -            140          305           140     
Non-GAAP net income         $ 3,822      $ 3,742      $ 10,875      $ 7,340   
                                                                       
Weighted average number of
shares:
Diluted                       74,988       73,214       74,483        69,013
                                                                       
GAAP net income per share   $ 0.03       $ 0.04       $ 0.16        $ 0.08
- Diluted
Gain on patent sale           -            -            (0.16   )     -
Non-cash tax adjustments      0.01         -            0.10          -
Amortization                  -            -            0.01          0.01
Stock-based compensation      0.01         0.01         0.03          0.01
expense
Acquisition-related           -            -            -             0.01
expense
Facility exit expense         -            -            0.01          -       
Non-GAAP net income per     $ 0.05       $ 0.05       $ 0.15        $ 0.11    
share - Diluted
                                                                       
                                                                       
GAAP net income percentage    7      %     11     %     16      %     9      %
of revenue
Gain on patent sale           -            -            -15     %     -
Non-cash tax adjustments      3      %     -            9       %     -1     %
Amortization                  1      %     1      %     1       %     1      %
Stock-based compensation      3      %     2      %     2       %     2      %
expense
Acquisition-related           -            1      %     -             1      %
expense
Facility exit expense         -            1      %     1       %     -       
Non-GAAP net income           14     %     16     %     14      %     12     %
percentage of revenue

Contact:

8x8 Inc.
Joan Citelli, 408-654-0970 (Investor Relations)
Joan.citelli@8x8.com
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