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8x8, Inc. Announces Financial Results for Fourth Quarter and Full-Year Fiscal 2013

  8x8, Inc. Announces Financial Results for Fourth Quarter and Full-Year
  Fiscal 2013

Record Fiscal 2013 Revenue of $107.6 Million; Revenue from Business Customers
        Increases 32%; Fourth Quarter Service Gross Margin Reaches 80%

Business Wire

SAN JOSE, Calif. -- May 22, 2013

8x8, Inc. (NASDAQ: EGHT), provider of innovative cloud communications and
computing solutions, today announced operating results for the fourth quarter
and fiscal year ended March 31, 2013.

The Company posted total revenue of $107.6 million for its fiscal year ending
March 31, 2013, the first time 8x8 has exceeded $100 million of annual
revenue. GAAP net income for fiscal 2013 was $13.9 million, or $0.19 per
diluted share. Non-GAAP net income for the year was $14.7 million, or $0.20
per share, an increase of 42% compared with fiscal 2012.

Fourth Quarter Fiscal 2013 Financial Results

  *Revenue from business customers increased 23% year over year to $28.0
    million.
  *For new customers added during the March quarter, the average number of
    subscribed services grew to 18.1 from 13.6 in the same period last year.
  *Average number of subscribed services per business customer grew to 11.5
    from 9.8 in the same period last year.
  *Average monthly revenue per business customer was $263, compared with $244
    in the same period last year.
  *Business service revenue churn was 1.5%, compared with 1.6% in the same
    period last year; business customer churn was 1.7%, compared with 2.0% in
    the same period last year.
  *Service margin was 80%, compared with 76% in the same period a year ago;
    gross margin was 71%, compared with 68% in the same year ago period.
  *GAAP net income for the fourth quarter of fiscal 2013 was $1.7 million,
    $0.02 per diluted share, compared with $63.9 million, or $0.87 per diluted
    share, in the same period last year (includes a one-time non-cash income
    tax benefit of $62.1 million associated with the release of a deferred tax
    asset valuation allowance in the fourth fiscal quarter).
  *Non-GAAP net income (as outlined in the reconciliation table below) was
    $3.8 million, or $0.05 per diluted share, compared with $3.0 million, or
    $0.04 per diluted share, in the same period last year.
  *Received an additional $1 million during the fourth quarter related to the
    license of the patent family the Company sold in the first quarter of
    fiscal 2013.
  *Cash, cash equivalents and investments increased $5.7 million in the
    fourth quarter of fiscal 2013 to $52.3 million.

Full Year Fiscal 2013 Financial Results

  *Revenue from business customers was $104.0 million, a 32% increase over
    revenue of $79.0 million in fiscal 2012.
  *Total revenue for fiscal 2013 was $107.6 million, a 25% increase over
    revenue of $85.8 million for fiscal 2012.
  *GAAP net income for fiscal 2013 was $13.9 million, $0.19 per diluted
    share, compared with $69.2 million, or $0.99 per diluted share for fiscal
    2012 (includes a one-time non-cash income tax benefit of $62.1 million
    associated with the release of a deferred tax asset valuation allowance in
    the fourth fiscal quarter).
  *Non-GAAP net income (as outlined in the reconciliation table below)
    increased 42% to $14.7 million, or $0.20 per diluted share, compared with
    $10.3 million, or $0.15 per diluted share, for fiscal 2012.
  *Gross margin for fiscal 2013 was 68%, compared with 67% for fiscal 2012.
  *Cash, cash equivalents and investments increased 114% in fiscal 2013 to
    $52.3 million, compared with $24.4 million in the same period last year.

"I am pleased to report another solid year of record revenue growth and margin
expansion," said 8x8 Chairman & CEO Bryan Martin. "While the growth of our
core business communications offerings to small businesses remained strong,
increased interest from mid-market customers who are deploying these services
in much larger, distributed environments further validated our efforts to move
upmarket and our credibility as an enterprise-class cloud services provider.
These accomplishments were heightened by new SaaS licensing partnerships with
SoftBank and CoSentry, centered around our subscription-based virtualized
cloud data services, as well as the formal launch of our services in Canada,
phase one of our Global Reach initiative.”

“According to the North America Business VoIP Service Leadership Scorecard
published this month by Infonetics Research and a similar market share report
by Synergy Research, 8x8 remains one of the top hosted VoIP providers in North
America,” continued Martin. “We are committed to maintaining our leadership in
the Unified Communications as a Service industry as we expand and deliver a
broad range of services to our customers, both new and current, through our
internal development efforts, partnerships, and acquisitions.”

Additional Fourth Quarter and Full Year Business Highlights:

  *Number of new services sold during the fourth quarter increased to 50,728
    vs. 44,391 in the prior quarter and 39,221 in the same period last year.
  *Ended the quarter with 32,535 business customers compared with 31,473
    customers in the prior quarter and 28,671 customers in the same period a
    year ago.
  *Signed subscription-based software licensing agreements with Softbank
    Telecom Corporation and CoSentry for virtualized cloud data services.
  *Awarded seven new U.S. patents during fiscal 2013.
  *Monetized a family of U.S. legacy patents.
  *Named a market “Leader” in Gartner 2012 Magic Quadrant for UCaaS.
  *Named #1 Provider of Hosted IP Telephony by Frost & Sullivan.
  *Introduced Virtual Office Mobile hosted PBX and videoconferencing app for
    Apple iOS and Android smartphones and tablets.
  *Launched Virtual Office hosted PBX, unified communications and contact
    center services in Canada as the initial phase of Global Reach®
    initiative.
  *Relocated to new corporate headquarters in San Jose, Calif.
  *Named to NASDAQ Global Select Market.

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. In
the fourth quarter of fiscal 2012, we released a $62.1 million deferred tax
valuation allowance that reflects tax deferrals accumulated over many years.
This $62.1 million release is very unlikely to recur in the future and is a
non-cash transaction. 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.

Conference Call Information

Management will host a conference call to discuss these results and other
matters related to the Company’s business today, May 22, 2013 at 4:30 pm 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 #44150738)
                   (404) 537-3406, international (Conference ID #44150738)
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/Q4FY2013Earnings.

Participants should plan to dial in or log on ten minutes prior to the start
time. A telephonic replay of the call will be available three hours after the
conclusion of the call until midnight May 28, 2013. The webcast will be
archived on 8x8’s website for a period of one year. For additional
information, visit http://investors.8x8.com.

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 byFrost &
Sullivan. 8x8 has been delivering business communications services since 2004
and has garnered a reputation for technical excellence and outstanding
reliability. For additional information, visitwww.8x8.com, or connect with
8x8 onFacebookandTwitter.

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.

                                                              
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts; unaudited)
                                                                     
                            Three Months Ended         Twelve Months Ended
                            March 31,                  March 31,
                            2013         2012          2013          2012
Service revenue           $ 25,905     $ 22,148      $ 98,212      $ 78,382
Product revenue             2,746       2,051        9,402        7,421   
Total revenue               28,651      24,199       107,614      85,803  
                                                                     
Operating expenses:
Cost of service revenue     5,217        5,301         22,201        18,065
Cost of product revenue     3,216        2,355         11,801        9,822
Research and                2,174        1,843         8,147         6,745
development
Sales and marketing         13,042       10,904        46,244        37,980
General and                 2,349        1,640         8,619         6,012
administrative
Gain on patent sale         (1,000 )     -            (12,965 )     -       
Total operating             24,998      22,043       84,047       78,624  
expenses
Income from operations      3,653        2,156         23,567        7,179
Other income (loss),        15          (363    )     105          (305    )
net
Income before provision
(benefit) for income        3,668        1,793         23,672        6,874
taxes
Provision (benefit) for     2,007       (62,070 )     9,733        (62,354 )
income taxes
Net income                $ 1,661     $ 63,863     $ 13,939     $ 69,228  
                                                                     
Net income per share:
Basic                     $ 0.02       $ 0.91        $ 0.20        $ 1.04
Diluted                   $ 0.02       $ 0.87        $ 0.19        $ 0.99
                                                                     
Weighted average number
of shares:
Basic                       71,998       70,205        71,390        66,413
Diluted                     75,053       73,648        74,700        70,149

                                                        
8x8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
                                                             
                                                             
                                               March 31,     March 31,
                                               2013         2012
ASSETS
Current assets
Cash and cash equivalents                    $ 50,305      $ 22,426
Investments                                    1,964         1,942
Accounts receivable, net                       3,880         2,279
Inventory                                      511           581
Deferred tax assets                            6,096         7,730
Other current assets                           914           928
Total current assets                           63,670        35,886
Property and equipment, net                    6,673         3,820
Intangible assets, net                         10,194        11,622
Goodwill                                       25,150        25,150
Deferred tax assets, non-current               46,352        53,977
Other assets                                   572           278
Total assets                                 $ 152,611     $ 130,733
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable                             $ 5,644       $ 5,476
Accrued compensation                           3,629         3,105
Accrued warranty                               452           387
Deferred revenue                               1,236         891
Other accrued liabilities                      2,774         2,356
Total current liabilities                      13,735        12,215
                                                             
Other liabilities                              1,843         68
Total liabilities                              15,578        12,283
                                                             
Total stockholders' equity                     137,033       118,450
Total liabilities and stockholders' equity   $ 152,611     $ 130,733

                                                                
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
                                                                     
                                                        Twelve Months Ended
                                                        March 31,
                                                        2013         2012
Cash flows from operating activities:
Net income                                            $ 13,939     $ 69,228
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation                                            2,523        1,535
Amortization                                            1,428        788
Stock-based compensation                                2,634        1,506
Tax benefit from stock-based compensation               (49    )     -
Deferred income tax provision (benefit)                 9,308        (62,422 )
Other                                                   616          561
Changes in assets and liabilities:
Accounts receivable, net                                (2,171 )     (1,059  )
Inventory                                               27           1,535
Other current and noncurrent assets                     (30    )     489
Deferred cost of goods sold                             (60    )     1
Accounts payable                                        410          (1,214  )
Accrued compensation                                    524          128
Accrued warranty                                        65           25
Accrued taxes and fees                                  440          (356    )
Deferred revenue                                        345          (197    )
Other current and noncurrent liabilities                1,839       (1,337  )
Net cash provided by operating activities               31,788      9,211   
                                                                     
Cash flows from investing activities:
Purchases of property and equipment                     (5,678 )     (2,300  )
Cost of capitalized software                            (190   )     -
Restricted cash decrease                                -            28
Acquisition of businesses, net of cash acquired         -           (713    )
Net cash used in investing activities                   (5,868 )     (2,985  )
                                                                     
Cash flows from financing activities:
Capital lease payments                                  (86    )     (275    )
Repurchase of common stock                              (419   )     (2,934  )
Tax benefit from stock-based compensation               49           -
Proceeds from issuance of common stock, net of issuance (43    )     (60     )
costs
Proceeds from issuance of common stock under            2,458       2,995   
employee stock plans
Net cash provided by (used in) financing activities     1,959       (274    )
Net increase in cash and cash equivalents               27,879       5,952
                                                                     
Cash and cash equivalents at the beginning of the       22,426      16,474  
period
Cash and cash equivalents at the end of the period    $ 50,305    $ 22,426  

                                                              
8x8, Inc.
Selected Operating Statistics
                Three Months Ended
                March 31,    June 30,     Sept. 30,    Dec. 31,     March 31,
                2012         2012         2012         2012         2013
Gross
business          2,892        2,943        2,915        2,617        2,808
customer
additions (1)
Number of new
services sold     39,221       41,146       42,920       44,391       50,728
(1)(2)
Average
number of
subscribed        13.6         14.0         14.7         17.0         18.1
services per
new business
customer (3)
Business
subscriber
acquisition     $ 99         $ 97         $ 89         $ 98         $ 92
cost per
service (4)
                                                                    
Total
business          28,671       29,913       30,498       31,473       32,535
customers (5)
Average
number of
subscribed        9.8          10.1         10.6         11.2         11.5
services per
business
customer (6)
Business
customer
average
monthly         $ 244        $ 250        $ 256        $ 260        $ 263
service
revenue per
customer (7)
                                                                    
Business
customer
churn (less
cancellations     2.0    %     1.7    %     2.4    %     1.6    %     1.7    %
within 30
days of
sign-up) (8)
Business
service           1.6    %     2.3    %     1.0    %     2.6    %     1.5    %
revenue churn
                                                                    
Overall
service           76     %     75     %     76     %     78     %     80     %
margin
Overall
product           -15    %     -30    %     -22    %     -34    %     -17    %
margin
Overall gross     68     %     67     %     68     %     68     %     71     %
margin
                                                                    
(1) Does not include customers of Virtual Office Solo or Zerigo, Inc.
("Zerigo").
(2) Number of recurring revenue services sold to business customers during the
period.
(3) Number of new services sold divided by gross business customer additions.
(4) The combined costs of advertising, marketing, promotions, sales
commissions and equipment subsidies for new services sold during the period
divided by the number of new services sold during the period.
(5) 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.
(6) The simple average number of subscribed services divided by the simple
average number of business customers during the period. The simple average
number of subscribed services is the number of subscribed services on the
first day of the period plus the number of subscribed services on the last day
of the period divided by two. The simple average number of business customers
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.
(7) 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.
(8) Business customer churn is calculated by dividing the number of business
customers that terminated (after the expiration of the 30-day trial) by the
simple average number of business customers and dividing the result by the
number of months in the period. 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%.

                                                              
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         Twelve Months Ended
                            March 31,                  March 31,
                            2013         2012          2013        2012
Net income                $ 1,661      $ 63,863      $ 13,939      $ 69,228
Gain on patent sale         (1,000 )     -             (12,965 )     -
Loss on investment          -            356           -             356
Non-cash tax                1,949        (62,086 )     9,308         (62,422 )
adjustments
Amortization                357          357           1,428         788
Stock-based                 807          493           2,634         1,506
compensation expense
Acquisition-related         35           12            35            739
expense
Facility exit expense       -           -            305          140     
Non-GAAP net income       $ 3,809     $ 2,995      $ 14,684     $ 10,335  
                                                                     
Weighted average number
of shares:
Diluted                     75,053       73,648        74,700        70,149
                                                                     
GAAP net income per       $ 0.02       $ 0.87        $ 0.19        $ 0.99
share - Diluted
Gain on patent sale         (0.01  )     -             (0.17   )     -
Loss on investment          -            -             -             0.01
Non-cash tax                0.03         (0.84   )     0.12          (0.89   )
adjustments
Amortization                -            -             0.02          0.01
Stock-based                 0.01         0.01          0.04          0.02
compensation expense
Acquisition-related         -            -             -             0.01
expense
Facility exit expense       -           -            -            -       
Non-GAAP net income per   $ 0.05      $ 0.04       $ 0.20       $ 0.15    
share - Diluted
                                                                     
                                                                     
GAAP net income             6      %     264     %     13      %     81      %
percentage of revenue
Gain on patent sale         -4     %     -             -12     %     -
Loss on investment          -            1       %     -             -
Non-cash tax                7      %     -257    %     9       %     -73     %
adjustments
Amortization                1      %     2       %     1       %     1       %
Stock-based                 3      %     2       %     2       %     2       %
compensation expense
Acquisition-related         -            -             -             1       %
expense
Facility exit expense       -           -            1       %     -       
Non-GAAP net income         13     %     12      %     14      %     12      %
percentage of revenue

Contact:

8x8
Joan Citelli, 408-654-0970
Joan.citelli@8x8.com
 
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