8x8, Inc. Announces Third Quarter Fiscal 2014 Financial Results

8x8, Inc. (NASDAQ:EGHT), a provider of cloud-based unified communication and collaboration solutions, today announced operating results for the third quarter of fiscal 2014 ended December 31, 2013.

The Company generated record revenue of $32.7 million for the third quarter of fiscal 2014, an increase of 24% over revenue of $26.4 million for the third quarter of fiscal 2013. The number of new services sold during the quarter was a record 61,286, an increase of 38% from 44,366 new services sold in the same period last year.

GAAP net income for the third quarter of fiscal 2014 was $89,000, or $0.00 per diluted share, with $3.2 million of stock-based compensation expense in the quarter, approximately half of which is related to management transitions. Non-GAAP net income for the quarter was $2.5 million, or $0.03 per diluted share, representing 8% of revenue.

“8x8’s results for the third quarter of fiscal 2014 displayed continued momentum, with a 24% increase in total revenue and a significant uptick in the number of new services sold during the quarter,” said 8x8 CEO Vik Verma. “Mid-market adoption of cloud-based communication and collaboration solutions is accelerating, and 8x8’s comprehensive suite of services is resonating well with these customers.”

Third Quarter Fiscal 2014 Financial Results:

• Revenue from business customers increased 26% year-over-year to a record $32.3 million and represented 99% of total revenue.
• Number of new services sold during the third quarter was a record 61,286 vs. 44,366 in the same period last year.
• Average number of subscribed services per new business customer added during the quarter grew 20% to a record 20.4 from 17.0 in the same period last year.
• Average monthly service revenue per business customer was a record $274, compared with $252 in the same period last year.
• Channel and mid-market sales comprised a record 35% of new monthly recurring revenue sold in the quarter, a 57% increase compared with the same period last year.
• Service margin was 81%, compared with 80% in the same period a year ago; overall gross margin was 71%, compared with 69% in the same year ago period.
• Monthly business service revenue churn was 1.5%, compared with 2.3% in the same period last year; monthly business customer churn was 1.6%, unchanged from the third quarter of fiscal 2013.
• Cash, cash equivalents and investments were $174.0 million in the third quarter of fiscal 2014, compared with $46.5 million in the same period last year.

“With the acquisition of Voicenet now complete, our Global Reach initiative moving forward with data center infrastructure deployed in London and Hong Kong, and a successful stock offering, 8x8 remains favorably positioned to capture the increasing worldwide demand we see for our cloud communication and collaboration services,” Verma continued. “As we continue to expand domestically and internationally, we will maintain our increased investment in R&D, sales and marketing while targeting non-GAAP net income as a percentage of revenue in the high-single digit range.”

Additional Third Quarter and Year-to-Date Business Highlights:

• Ended the quarter with 36,753 business customers, compared with 31,177 customers in the same period a year ago.
• Acquired Voicenet Solutions, one of the UK’s leading providers of cloud telephony and unified communication solutions.
• Completed a common stock offering with net proceeds of $126 million.
• Named to Forbes 2013 List of 100 Best Small Companies in America
• Named a Market ‘Leader’ by Gartner Inc. in its Magic Quadrant for Unified Communications as a Service (UCaaS) in North America.
• Recognized As ‘Cloud Partner of the Year’ By Insight Enterprises.
• Awarded new Virtual Contact Center patent for a total of 92 issued patents

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, management transition and gain on escrow settlement. We have excluded gain on patent sale, gain on disposal of discontinued operations and gain on escrow settlement 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 attributable to non-routine transactions and are not part of ongoing operations that we measure for internal management reporting purposes. 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, January 22, 2014 at 4:30 pm ET. The call is accessible via the following numbers and webcast links:

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 January 28, 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 a provider of cloud-based unified communication and collaboration (UCC) solutions to small and medium businesses and mid-market and distributed enterprises. The company delivers a broad suite of UCC services to in-office and mobile devices spanning cloud business phone service, virtual meeting web conferencing, contact center software and virtual desktop through our proprietary unified software as a service, or SaaS, platform. For additional information, visit www.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, 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 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; the amount and timing of costs associated with recruiting, training and integrating new employees; introduction and adoption of our cloud communication and collaboration services in markets outside of the United States; and general economic conditions. 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.