8x8, Inc. Announces Financial Results for Second Quarter Fiscal 2014

  8x8, Inc. Announces Financial Results for Second Quarter Fiscal 2014

Business Revenue Increases a Record 25%; Total Revenue Increases a Record 22%

Business Wire

SAN JOSE, Calif. -- October 23, 2013

8x8, Inc. (NASDAQ:EGHT), provider of cloud communications and collaboration
solutions, today announced operating results for the second quarter ended
September 30, 2013.

The Company posted record revenue of $30.8 million for its second quarter of
fiscal 2014, excluding $0.7 million in revenue related to the Company’s
dedicated server hosting business that was divested on September 30, 2013.
This represents an increase of 22% from comparable revenue for the second
quarter of fiscal 2013. The divested business has been classified as
discontinued operations.

GAAP net income for the second quarter of fiscal 2014 was $2.2 million, or
$0.03 per diluted share. Non-GAAP net income for the quarter was $4.1 million,
or $0.05 per share, an increase of 10% compared with the second quarter of
fiscal 2013.

Second Quarter Fiscal 2014 Financial Results:

  *Revenue from business customers increased 25% year-over-year to a record
    $30.3 million and represented 98% of total revenue.
  *GAAP net income was $2.2 million, or $0.03 per diluted share, compared
    with $1.7 million, or $0.02 per diluted share, for the same period last
    year.
  *Non-GAAP net income (as outlined in the reconciliation table below) was
    $4.1 million, or $0.05 per diluted share, compared with $3.7 million, or
    $0.05 per diluted share, in the same period last year.
  *Service margin was 81%, compared with 77% in the same period a year ago;
    overall gross margin was 71%, compared with 69% in the same year ago
    period.
  *Average number of subscribed services per new business customer added
    during the quarter grew to 17.7 from 14.7 in the same period last year.
  *Average number of subscribed services per business customer over 8x8’s
    entire customer base grew to 12.2 from 10.8 in the same period last year.
  *Average monthly service revenue per business customer was $268, compared
    with $247 in the same period last year.
  *Channel and mid-market sales comprised 33% of new monthly recurring
    revenue sold in the quarter, compared with 21% in the same period last
    year, an 80% year over year increase.
  *Monthly business customer churn was a 1.5%, compared with 2.4% in the
    second quarter of fiscal 2013; monthly business service revenue churn was
    1.2%, compared to 0.9% in the same period last year.
  *Cash, cash equivalents and investments increased $3.4 million in the
    second quarter of fiscal 2014 to $61.3 million, without including $3
    million in proceeds from the sale of the dedicated hosting business during
    the quarter which was received on October 1, 2013.

“8x8 delivered a solid quarter with a record 25% increase in revenue from
business customers, a record 22% increase in overall revenue and a record
$30.8 million in total revenue,” said 8x8 CEO Vik Verma. “Our mid-market and
channel teams set a new quarterly record comprising 33% of our new revenue
sold during the quarter, an 80% increase compared with the same period last
year. At the same time, we saw further improvements in our customer operating
metrics as our existing customers continue to subscribe to increasing numbers
of services each quarter.”

“Going forward, we will continue to focus on revenue growth by leveraging our
proven strength in the domestic SMB and mid-market segments, upselling our
existing customers with new products and services and expanding our market
internationally,” Verma continued. “To accomplish this, we will be increasing
our investments in R&D, sales and marketing and will target non-GAAP net
income as a percentage of revenue in the high single digit range. As always,
we remain committed to profitable growth and maximizing shareholder value.”

Additional Second Quarter and Year-to-Date Business Activities:

  *Number of new services sold during the second quarter was a record 52,412
    vs. 47,318 in the prior quarter and 42,853 in the same period last year.
  *Ended the quarter with 34,674 business customers, compared with 33,374
    customers in the prior quarter and 30,191 customers in the same period a
    year ago.
  *Introduced our cloud Virtual Desktop Infrastructure (VDI) solution, an
    enterprise-grade management platform for desktop virtualization.
  *Launched our private-label VDI service offering with telecom partner
    SoftBank.
  *Awarded three new U.S. patents related to distributed conferencing,
    communications technologies, and contact center technologies.
  *Extended the reach of our cloud services to Europe with the opening of a
    new data center facility in London.
  *Named to Forbes 2013 list of “America’s Best Small Companies.”
  *Announced appointment of Ian Potter to the Board of Directors.
  *Transitioned senior leadership and streamlined management structure: named
    Vik Verma as CEO and Bryan Martin as CTO; announced departure of Kim
    Niederman as President.
  *Sold dedicated server hosting business to The IRC Company, Inc. (dba Black
    Lotus Communications).

Six Months Year to Date Fiscal 2014 Financial Highlights:

  *Total revenue for the six months ended September 30, 2013 increased 21%
    year over year to $60.1 million, from $49.6 million in the same period of
    fiscal 2013.
  *Non-GAAP net income (as outlined in the reconciliation table below) for
    the six months ended September 30, 2013, was $8.3 million, or $0.11 per
    diluted share, compared with $7.1 million, or $0.10 per diluted share, for
    the same period last year.
  *GAAP net income for the six months ended September 30, 2013, was $4.4
    million, or $0.06 per diluted share, compared with $10.4 million, or $0.14
    per diluted share, for the same period last year.
  *Gross margin for the six months ended September 30, 2013 was 71% compared
    with 68%, for the same period last year.
  *Cash, cash equivalents and investments increased $9 million in the six
    months ended September 30, 2013 to $61.3 million, not including
    approximately $3 million proceeds from the sale of the dedicated hosting
    business during the second quarter.

8x8 also reported, in accordance with NASDAQ Listing Rule 5635(c)(4), that
employment inducement awards were granted to five new employees in connection
with their recent hiring. The employees were granted restrictive stock units
for 23,750 shares of common stock, 25% of which shall vest on each of the
first four anniversaries of the vesting start dates, subject to continued
employment and other conditions.

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 non-cash tax
adjustments, stock-based compensation, amortization of acquired intangible
assets, acquisition-related costs, facility exit costs, gain on patent sale,
gain on disposal of discontinued operations and management transition. We have
excluded gain on patent sale and gain on disposal of discontinued operations
because we consider these to have been isolated transactions and believe these
are not reflective of our ongoing operations, and this reduces comparability
of periodic operating results when these are included. 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 an acquired facility, and management transition expenses
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, October 23, 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 #73341096)
                     (404) 537-3406, international (Conference ID #73341096)
Webcast:             http://investors.8x8.com
                     

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 October 30, 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) offers a comprehensive portfolio of unified
cloud-based communications and collaboration solutions that include hosted
cloud telephony, office communications, contact center, video conferencing and
virtual desktop software and services. The company has been delivering
business services to SMB, mid-market and distributed enterprises since 2004
and has garnered a reputation for technical excellence and outstanding
reliability. In 2012, 8x8 was named a market "leader" in Gartner's Magic
Quadrant for Unified Communications as a Service (UCaaS) in North America and
was recognized as the No. 1 Provider of Hosted IP Telephony by Frost &
Sullivan and Synergy Research Group. For additional information,
visitwww.8x8.com, or connect with 8x8 on Google+, Facebook, LinkedIn 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.

                                                              
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts; unaudited)
                                                                     
                                   Three Months Ended     Six Months Ended
                                   September 30,          September 30,
                                   2013        2012       2013       2012    
Service revenue                  $ 27,826    $ 23,101   $ 54,325   $ 45,291
Product revenue                    2,989       2,194      5,741      4,274   
Total revenue                      30,815      25,295     60,066     49,565  
                                                                     
Operating expenses: (1)
Cost of service revenue            5,209       5,216      9,995      10,294
Cost of product revenue            3,783       2,672      7,130      5,382
Research and development           2,640       2,030      4,976      3,856
Sales and marketing                13,745      10,800     26,817     21,068
General and administrative         3,125       2,054      5,897      4,107
Gain on patent sale                -           -          -          (11,965 )
Total operating expenses           28,502      22,772     54,815     32,742  
Income from operations             2,313       2,523      5,251      16,823
Other income, net                  1           9          16         17      
Income from continuing
operations before provision        2,314       2,532      5,267      16,840
for income taxes
Provision for income taxes         826         935        1,787      6,680   
Income from continuing             1,488       1,597      3,480      10,160
operations
Income from discontinued
operations, net of income tax      154         144        301        198
provision
Gain on disposal of
discontinued operations, net       589         -          589        -       
of income tax provision of
$463
Net Income                       $ 2,231     $ 1,741    $ 4,370    $ 10,358  
                                                                     
                                                                     
Income per share - continuing
operations:
Basic                            $ 0.02      $ 0.02     $ 0.05     $ 0.15
Diluted                          $ 0.02      $ 0.02     $ 0.05     $ 0.14
Income per share -
discontinued operations:
Basic                            $ 0.01      $ 0.00     $ 0.01     $ 0.00
Diluted                          $ 0.01      $ 0.00     $ 0.01     $ 0.00
Net income per share:
Basic                            $ 0.03      $ 0.02     $ 0.06     $ 0.15
Diluted                          $ 0.03      $ 0.02     $ 0.06     $ 0.14
Weighted average number of
shares:
Basic                              72,970      71,261     72,788     70,989
Diluted                            76,232      74,558     76,035     74,210
                                                                     
(1) Amounts include
stock-based compensation
expense, as follows:
                                                                     
                                   Three Months Ended     Six Months Ended
                                   September 30,          September 30,
                                   2013        2012       2013       2012    
Cost of service revenue          $ 68        $ 43       $ 136      $ 86
Cost of product revenue            -           -          -          1
Research and development           141         75         295        170
Sales and marketing                393         308        740        624
General and administrative         504         80         842        181     
                                 $ 1,106     $ 506      $ 2,013    $ 1,062   
                                                                     

8x8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
                                                        
                                                             
                                           September 30,     March 31,
                                           2013             2013
ASSETS
Current assets
Cash and cash equivalents                $ 59,345          $ 50,305
Investments                                1,909             1,964
Accounts receivable, net                   4,686             3,880
Inventory                                  403               511
Deferred tax assets                        3,870             6,096
Other current assets                       4,296             914
Total current assets                       74,509            63,670
Property and equipment, net                6,335             6,673
Intangible assets, net                     9,523             10,194
Goodwill                                   23,939            25,150
Deferred tax assets, non-current           46,526            46,352
Other assets                               1,066             572
Total assets                             $ 161,898         $ 152,611
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable                         $ 5,908           $ 5,644
Accrued compensation                       3,646             3,629
Accrued warranty                           552               452
Deferred revenue                           2,197             1,236
Other accrued liabilities                  2,542             2,774
Total current liabilities                  14,845            13,735
                                                             
Other liabilities                          1,733             1,843
Total liabilities                          16,578            15,578
                                                             
Total stockholders' equity                 145,320           137,033
Total liabilities and stockholders'      $ 161,898         $ 152,611
equity

                                                                 
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
                                                                      
                                                         Six Months Ended
                                                         September 30,
                                                         2013         2012
Cash flows from operating activities:
Net income                                             $ 4,370      $ 10,358
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation                                             1,287        1,132
Amortization of intangible assets                        671          714
Amortization of capitalized software                     37           -
Gain on disposal of discontinued operations              (589   )     -
Stock-based compensation                                 2,013        1,062
Deferred income tax provision                            1,589        6,579
Other                                                    390          207
Changes in assets and liabilities:
Accounts receivable, net                                 (1,179 )     (2,050 )
Inventory                                                91           (19    )
Other current and noncurrent assets                      (431   )     (258   )
Deferred cost of goods sold                              (6     )     (3     )
Accounts payable                                         22           (277   )
Accrued compensation                                     17           (58    )
Accrued warranty                                         100          (11    )
Accrued taxes and fees                                   (166   )     205
Deferred revenue                                         961          94
Other current and noncurrent liabilities                 (166   )     1,688  
Net cash provided by operating activities                9,011       19,363 
                                                                      
Cash flows from investing activities:
Purchases of property and equipment                      (1,445 )     (4,730 )
Cost of capitalized software                             (473   )     -      
Net cash used in investing activities                    (1,918 )     (4,730 )
                                                                      
Cash flows from financing activities:
Capital lease payments                                   (10    )     (59    )
Repurchase of common stock                               (257   )     (147   )
Proceeds from issuance of common stock under             2,214       1,255  
employee stock plans
Net cash provided by financing activities                1,947       1,049  
Net increase in cash and cash equivalents                9,040        15,682
                                                                      
Cash and cash equivalents at the beginning of the        50,305      22,426 
period
Cash and cash equivalents at the end of the period     $ 59,345    $ 38,108 

                                                                          
8x8, Inc.
Selected Operating Statistics (1)

                Three Months Ended
                June 30,     Sept. 30,    Dec. 31,     March 31,    June 30,     Sept. 30,
                2012         2012         2012         2013         2013         2013
Gross
business          2,912        2,908        2,612        2,800        2,693        2,961
customer
additions (2)
Number of new
services sold     40,986       42,853       44,366       50,670       47,318       52,412
(2)(3)
Average
number of
subscribed        14.1         14.7         17.0         18.1         17.6         17.7
services per
new business
customer (4)
Business
subscriber
acquisition     $ 93         $ 86         $ 97         $ 91         $ 96         $ 94
cost per
service (5)
                                                                                 
Total
business          29,593       30,191       31,177       32,242       33,374       34,674
customers
(2)(6)
Average
number of
subscribed        10.2         10.8         11.3         11.6         12.0         12.2
services per
business
customer (7)
Business
customer
average
monthly         $ 242        $ 247        $ 252        $ 256        $ 263        $ 268
service
revenue per
customer (8)
                                                                                 
Monthly
business
customer
churn (less       1.7    %     2.4    %     1.6    %     1.7    %     1.5    %     1.5    %
cancellations
within 30
days of
sign-up) (9)
Monthly
business          2.3    %     0.9    %     2.3    %     1.2    %     1.2    %     1.2    %
service
revenue churn
                                                                                 
Overall
service           77     %     77     %     80     %     81     %     82     %     81     %
margin
Overall
product           -30    %     -22    %     -34    %     -17    %     -22    %     -27    %
margin
Overall gross     68     %     69     %     69     %     71     %     72     %     71     %
margin
                                                                                          

(1) Selected operating statistics table include continuing operations and
excludes dedicated server hosting business sold September 30, 2013.
(2) Does not include customers of Virtual Office Solo, DNS or Cloud VPS.
(3) Number of recurring revenue services sold to business customers during the
period.
(4) Number of new services sold divided by gross business customer additions.
(5) 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.
(6) 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, DNS
or Cloud VPS services are not included as business customers.
(7) 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.
(8) 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.
(9) 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        Six Months Ended
                              September 30,             September 30,
                              2013        2012        2013        2012    
Net income                  $ 2,231      $ 1,741      $ 4,370      $ 10,358
Gain on patent sale           -            -            -            (11,965 )
Gain on disposal of           (589   )     -            (589   )     -
discontinued operations
Non-cash tax adjustments      716          801          1,589        6,579
Amortization of               331          357          671          714
intangible assets
Stock-based compensation      1,106        506          2,013        1,062
expense
Acquisition-related           143          -            143          -
expense
Management transition         133          -            133          -
Facility exit expense         -           296         -           305     
Non-GAAP net income         $ 4,071     $ 3,701     $ 8,330     $ 7,053   
                                                                     
Weighted average number
of shares:
Diluted                       76,232       74,558       76,035       74,210
                                                                     
GAAP net income per share   $ 0.03       $ 0.02       $ 0.06       $ 0.14
- Diluted
Gain on patent sale           -            -            -            (0.16   )
Gain on disposal of           (0.01  )     -            (0.01  )     -
discontinued operations
Non-cash tax adjustments      0.01         0.01         0.02         0.09
Amortization of               -            -            0.01         0.01
intangible assets
Stock-based compensation      0.02         0.01         0.03         0.01
expense
Acquisition-related           -            -            -            -
expense
Management transition         -            -            -            -
Facility exit expense         -           0.01        -           0.01    
Non-GAAP net income per     $ 0.05      $ 0.05      $ 0.11      $ 0.10    
share - Diluted
                                                                     
                                                                     
GAAP net income               7      %     7      %     7      %     21      %
percentage of revenue
Gain on patent sale           -            -            -            -24     %
Gain on disposal of           -2     %     -            -1     %     -
discontinued operations
Non-cash tax adjustments      2      %     3      %     3      %     13      %
Amortization of               1      %     2      %     1      %     1       %
intangible assets
Stock-based compensation      4      %     2      %     4      %     2       %
expense
Acquisition-related           1      %     -            -            -
expense
Management transition         -            -            -            -
Facility exit expense         -           1      %     -           1       %
Non-GAAP net income           13     %     15     %     14     %     14      %
percentage of revenue

Contact:

8x8
Joan Citelli, 408-654-0970 (Investor Relations)
Joan.citelli@8x8.com
 
Press spacebar to pause and continue. Press esc to stop.