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