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TMCNet:  8x8, Inc. Reports First Quarter Fiscal 2015 Financial Results

[July 23, 2014]

8x8, Inc. Reports First Quarter Fiscal 2015 Financial Results

SAN JOSE, Calif. --(Business Wire)--

8x8, Inc. (NASDAQ:EGHT), a provider of cloud-based unified communications, contact center and collaboration solutions, today reported financial results for the first quarter of fiscal 2015 ended June 30, 2014.

First Quarter Fiscal 2015 Financial Results:

  • Total revenue for the quarter increased 30% year-over-year to a record $37.9 million.
  • Channel and mid-market sales increased 94% year-over-year, representing 44% of new monthly recurring revenue sold in the quarter.
  • Average monthly service revenue per business customer was $293, up 11% compared with $263 in the same period last year.

"8x8 delivered a very strong quarter with profitable 30% revenue growth driven largely by the continued adoption of our services by mid-market and distributed enterprise customers," said 8x8 CEO Vik Verma. "With a 94% year-over-year increase in new mid-market and channel sales and 41% of our service revenues coming from the mid-market, 8x8 is clearly expanding its leadership position in this valuable market segment."

Mr. Verma continued. "Given our strong first quarter performance, we now expect revenue to grow by at least 25% for the current fiscal year, with non-GAAP net income as a percentage of revenue in the high-single digit range."

Additional First Quarter Results:

  • GAAP net income for the first quarter of fiscal 2015 was $8,000, or $0.00 per diluted share, compared with GAAP net income of $2.1 million, or $0.03 per diluted share, in the first quarter of fiscal 2014.
  • Non-GAAP net income was $3.0 million, $0.03 per diluted share, compared with $4.3 million, $0.06 per diluted share, for the same period last year.
  • Service margin was 80%, compared with 79% in the prior quarter and 82% in the same period a year ago; overall gross margin was 71%, compared with 70% in the prior quarter and 72% in the same period last year.
  • Monthly business service revenue churn was 0.4%, compared with 1.2% in the same period last year.
  • Cash, cash equivalents and investments increased sequentially by $3.6 million for a total of $182.0 million in the first quarter of fiscal 2015, compared with a total of $57.8 million in the same period last year.
  • Ended the quarter with 39,340 business customers, up 1,407 customers sequentially and 5,966 compared with the same period a year ago.
  • Announced new channel partnerships with master agent MicroCorp and technology services distributor Telecom Brokerage Inc. to deliver cloud communications solutions to enterprise customers through a combined network of 3,500+ agents, system integrators, and VARs.
  • Accepted as a supplier on UK G-Cloud 5 Framework, a UK Government initiative to encourage the adoption of cloud services across the public sector.
  • Ranked #1 on Infonetics Research Sixth Annual "North American Business VoIP Service Leadership Scorecard."

On July 22, 2014, 8x8's Board of Directors authorized the repurchase of up to an aggregate of $15.0 million of our Common Stock. The repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The repurchase program is expected to continue until July 22, 2015, unless extended or shortened by the Board of Directors.

8x8 also reported, in accordance with NASDAQ Listing Rule 5635(c)(4), that employment inducement awards were granted to 26 new employees in connection with their recent hiring. The employees received restrictive stock units for 136,769 shares of the Company's Common Stock, subject to their continued employment and other conditions. In addition, stock option grants for 96,684 shares were awarded.

Non-GAAP Measures

The Company has provided in this release financial information that has not been prepared in accordance with Generally Accepted Accounting Principles (GAAP). Management uses these non-GAAP financial measures internally in analyzing our financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating the Company's ongoing operational performance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating 8x8's ongoing operating results and trends and in comparing financial results with other companies in the 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 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 and amortization of acquired intangible assets. 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 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, July 23, 2014, 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 #68270346)
(404) 537-3406, international (Conference ID #68270346)
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 July 29, 2014. 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) is the trusted provider of secure and reliable cloud-based�unified communications�and�virtual contact center solutions to more than 39,000 small, midsize and distributed enterprise organizations operating in over 40 countries across six continents. 8x8's out-of-the-box cloud solutions replace traditional on-premise PBX hardware and software-based systems with a flexible and scalable Software as a Service (SaaS) alternative, encompassing cloud business phone service, contact center solutions, and web conferencing. For additional information, visit�www.8x8.com,�or www.8x8.com/UK�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, market acceptance of new or existing services and features, success of our efforts to target mid-market and larger distributed enterprises, changes in the competitive dynamics of the markets in which we compete, customer cancellations and rate of churn, impact of current economic climate and adverse credit markets on our target customers, our ability to scale our business, our reliance on infrastructure of third-party network services providers, risk of failure in our physical infrastructure, risk of failure of our software, our ability to maintain the compatibility of our software with third-party applications and mobile platforms, continued compliance with industry standards and regulatory requirements, risks relating to our strategies and objectives for future operations, including the execution of integration plans and realization of the expected benefits of our acquisitions, the amount and timing of costs associated with recruiting, training and integrating new employees, introduction and adoption of our cloud communications and collaboration services in markets outside of the United States, and general economic conditions that could adversely affect our business and operating results. 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 June 30, 2014 2013 Service revenue $ 34,276 $ 26,499 Product revenue 3,637 2,752 Total revenue 37,913 29,251 � Operating expenses (1): Cost of service revenue 6,997 4,786 Cost of product revenue 3,969 3,347 Research and development 3,406 2,336 Sales and marketing 19,160 13,072 General and administrative 3,878 2,772 Total operating expenses 37,410 26,313 Income from operations 503 2,938 Other income, net 177 15 Income from operations before provision for income taxes 680 2,953 Provision for income taxes 672 961 Income from continuing operations 8 1,992 Income from discontinued operations, net of income tax provision - 147 Net income $ 8 $ 2,139 � Income per share - continuing operations: Basic $ 0.00 $ 0.03 Diluted $ 0.00 $ 0.03 � Income per share - discontinued operations: Basic $ 0.00 $ 0.00 Diluted $ 0.00 $ 0.00 � Net income per share: Basic $ 0.00 $ 0.03 Diluted $ 0.00 $ 0.03 � Weighted average number of shares: Basic 88,592 72,510 Diluted 91,445 75,756 � � (1) Amounts include stock-based compensation expense, as follows: � Three Months Ended June 30, 2014 2013 Cost of service revenue $ 115 $ 68 Cost of product revenue - - Research and development 314 154 Sales and marketing 744 347 General and administrative 674 338 $ 1,847 $ 907 �
� � � � � � � � � 8x8, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, unaudited) � � June 30, March 31, 20142014 ASSETS Current assets: Cash and cash equivalents $ 55,073 $ 59,159 Short-term investments 126,937 47,181 Accounts receivable, net 5,947 5,503 Inventory 753 811 Deferred tax assets 1,732 2,065 Other current assets 2,307 2,214 Total current assets 192,749 116,933 Long-term investments - 72,021 Property and equipment, net 8,339 7,711 Intangible assets, net 14,670 15,095 Goodwill 38,802 38,461 Non-current deferred tax assets 47,520 47,797 Other assets 1,074 1,185 Total assets $ 303,154 $ 299,203 � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,217 $ 6,789 Accrued compensation 5,264 4,583 Accrued warranty 619 660 Deferred revenue 1,741 1,857 Other accrued liabilities 3,945 4,232 Total current liabilities 19,786 18,121 � Other liabilities 2,627 2,904 Total liabilities 22,413 21,025 � Total stockholders' equity 280,741 278,178 Total liabilities and stockholders' equity $ 303,154 $ 299,203 �
� � � � � � � � � � � � � � � 8x8, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited)Three Months Ended June 30, 20142013Cash flows from operating activities: Net income $ 8 $ 2,139 Adjustments to reconcile net income to net cash provided by operating activities: � Depreciation 755 675 Amortization of intangible assets 567 340 Amortization of capitalized software 85 - Net accretion of discount and amortization of premium on marketable securities 192 - Stock-based compensation 1,847 907 Deferred income tax provision 610 873 Other 9 158 Changes in assets and liabilities: Accounts receivable, net (402 ) 132 Inventory 47 (61 ) Other current and noncurrent assets (175 ) (306 ) Deferred cost of goods sold 157 30 Accounts payable 988 (316 ) Accrued compensation 674 82 Accrued warranty (41 ) 22 Accrued taxes and fees 128 192 Deferred revenue (352 ) 373 Other current and noncurrent liabilities (447 ) (7 ) Net cash provided by operating activities 4,650 � 5,233 � � Cash flows from investing activities: Purchases of property and equipment (1,026 ) (466 ) Cost of capitalized software - (328 ) Proceeds from maturity of investments 3,300 - Sales of investments - available for sale 18,992 - Purchase of investments - available for sale (30,134 ) - � Net cash used in investing activities (8,868 ) (794 ) � Cash flows from financing activities: Capital lease payments (46 ) (5 ) Repurchase of common stock (48 ) (120 ) Proceeds from issuance of common stock under employee stock plans 170 � 1,296 � Net cash provided by financing activities 76 1,171 � Effect of exchange rate changes on cash 56 � - � Net (decrease) increase in cash and cash equivalents (4,086 ) 5,610 � Cash and cash equivalents at the beginning of the period 59,159 � 50,305 � Cash and cash equivalents at the end of the period $ 55,073 � $ 55,915 � �
� � � � � � � � � � � � � � 8x8, Inc. Selected Operating Statistics (1) Three Months Ended

June 30,

2013

Sept. 30,

2013

Dec. 31,

2013

March 31,

2014

June 30,

2014

� Total business customers (2) 33,374 34,674 36,753 37,933 39,340 Business customer average monthly service revenue per customer (3) $ 263 $ 268 $ 274 $ 287 $ 293 Monthly business service revenue churn 1.2 % 1.2 % 1.5 % 1.2 % 0.4 % � Overall service margin 82 % 81 % 81 % 79 % 80 % Overall product margin -22 % -27 % -34 % -23 % -9 % Overall gross margin 72 % 71 % 71 % 70 % 71 % �

(1) Selected operating statistics table include continuing operations and excludes dedicated server hosting business sold September 30, 2013.
(2) 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.
(3) 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.

� � � � � � � � � � � � 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 June 30, 20142013 � Net income $ 8 $ 2,139 Non-cash tax adjustments 610 873 Amortization of acquired intangible assets 567 340 Stock-based compensation expense 1,847 � 907 � Non-GAAP net income $ 3,032 � $ 4,259 � � Weighted average number of shares: Diluted 91,445 75,756 � GAAP net income per share - Diluted $ 0.00 $ 0.03 Non-cash tax adjustments 0.01 0.01 Amortization of acquired intangible assets - 0.01 Stock-based compensation expense 0.02 � 0.01 � Non-GAAP net income per share - Diluted $ 0.03 � $ 0.06 � � � GAAP net income percentage of revenue 0 % 7 % Non-cash tax adjustments 2 % 3 % Amortization of acquired intangible assets 1 % 2 % Stock-based compensation expense 5 % 3 % Non-GAAP net income percentage of revenue 8 % 15 % �


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