8x8, Inc.
Jan 25, 2017

8x8, Inc. Reports Third Quarter Fiscal 2017 Financial Results

Service Revenue Increases 23%

Mid-Market and Enterprise Service Revenue Increases 36%

GAAP Net Loss of ($1.3 Million); Non-GAAP Net Income of $5.8 Million

Cash from Operating Activities of $8.8 Million

SAN JOSE, Calif.--(BUSINESS WIRE)-- 8x8, Inc. (NASDAQ:EGHT), the leading provider of Enterprise Communications as a Service (ECaaS), today reported financial results for the third quarter of fiscal 2017 ended December 31, 2016.

Third Quarter Fiscal 2017 Financial Results:

"Our financial results for the third quarter of fiscal 2017 were very strong with solid revenue growth and increasing gross and non-GAAP net income margins. Adjusting for constant currency and the discontinued segment of our UK business which we previously reported, service revenue increased 28% and total revenue increased 24%," said 8x8 CEO Vik Verma. "We are continuing to see enterprise customers transition their communications infrastructure to the cloud, evidenced this quarter by the addition of two new enterprise logos, including one Fortune 50 corporation."

"As we prepare for our next phase of growth, we are focused on enhancing our global systems and worldwide customer support organization to better serve the needs of our multinational customers," Verma continued. "We are also further expanding the breadth and capabilities of our platform with a new, recently completed technology acquisition in the collaboration space that will be unveiled in March at the Enterprise Connect Conference."

Additional Third Quarter and Year-to-Date Highlights:

8x8 maintained its annual guidance of revenue for fiscal 2017 in the range of $251.0 million to $254.0 million and raised non-GAAP net income guidance to a range of $18.0 to $20.0 million, representing non-GAAP net income as a percent of revenue of 7.0% to 8.0%, from previously issued non-GAAP net income guidance in the range of $16.0 million to $20.0 million.

Conference Call Information:

Management will host a conference call to discuss these results and other matters related to the Company's business today, January 25, 2017 at 4:30 pm ET. 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 #46149120)
(404) 537-3406, international (Conference ID #46149120)
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 February 1, 2017. 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 enterprise cloud communications solutions to more than 45,000 businesses operating in over 100 countries across six continents. 8x8's out-of-the-box cloud solutions replace traditional on-premises 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 conferencing. For additional information, visit www.8x8.com, www.8x8.com/UK or connect with 8x8 on LinkedIn, Twitter, Google+ and Facebook.

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. This reconciliation 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, impairment of long-lived assets, and acquisition-related costs. Non-cash tax adjustments represent the difference 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 estimates and assumptions about future events, such as our future common stock price and the duration of employee service, as well as valuations that are affected by market factors largely outside management's control. 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 impairment of long-lived assets because we consider it to be an isolated transaction and believe it is not reflective of our ongoing operations, and it reduces comparability of periodic operating results when it is included. We have excluded acquisition-related 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.

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, risks regarding compliance with regulations in the United States and foreign jurisdictions in which our services are provided, 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 OPERATIONS
(In thousands, except per share amounts; unaudited)
 
Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
Service revenue $ 60,149 $ 48,948 $ 173,162 $ 140,068
Product revenue 3,527   4,220   13,738   11,935  
Total revenue 63,676   53,168   186,900   152,003  
 
Operating expenses:
Cost of service revenue (1) 10,525 9,713 31,597 27,359
Cost of product revenue 4,240 5,087 15,527 14,065
Research and development (2) 7,095 6,404 20,310 17,930
Sales and marketing (3) 35,667 27,585 101,049 78,138
General and administrative (4) 7,852   6,888   21,400   18,614  
Total operating expenses 65,379   55,677   189,883   156,106  
Loss from operations (1,703 ) (2,509 ) (2,983 ) (4,103 )
Other income, net 408   272   1,209   710  
Loss from operations before provision (benefit) for income taxes (1,295 ) (2,237 ) (1,774 ) (3,393 )
Provision (benefit) for income taxes 30   (557 ) 52   651  
Net loss $ (1,325 ) $ (1,680 ) $ (1,826 ) $ (4,044 )
 
Net loss per share:
Basic $ (0.01 ) $ (0.02 ) $ (0.02 ) $ (0.05 )
Diluted $ (0.01 ) $ (0.02 ) $ (0.02 ) $ (0.05 )
 
Weighted average number of shares:
Basic 90,774 88,289 90,062 88,812
Diluted 90,774 88,289 90,062 88,812
 
(1)(2)(3)(4) - See reconciliation of GAAP measures to non-GAAP measures.
       
8x8, Inc.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, unaudited)
 

(1) 

Amounts include amortization of acquired intangible assets, impairment of long-lived assets, and stock-based compensation as follows:

Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP cost of service revenue $ 10,525 $ 9,713 $ 31,597 $ 27,359
Amortization of acquired intangible assets (543 ) (618 ) (1,697 ) (1,451 )
Impairment of long-lived assets - (440 ) - (440 )
Stock-based compensation expense (538 ) (346 ) (1,338 ) (828 )
Non-GAAP cost of service revenue $ 9,444   $ 8,309   $ 28,562   $ 24,640  

Non-GAAP cost of service revenue as a percentage of service revenue

15.7 % 17.0 % 16.5 % 17.6 %
 

(2) 

Amounts include stock-based compensation and acquisition related expenses as follows:

Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP research and development $ 7,095 $ 6,404 $ 20,310 $ 17,930
Stock-based compensation expense (1,061 ) (850 ) (2,811 ) (2,107 )
Acquisition related expenses -   -   -   (5 )
Non-GAAP research and development $ 6,034   $ 5,554   $ 17,499   $ 15,818  

Non-GAAP research and development as a percentage of total revenue

9.5 % 10.4 % 9.4 % 10.4 %
 

(3) 

Amounts include amortization of acquired intangible assets, impairment of long-lived assets, stock-based compensation, and acquisition related expenses as follows:

Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP sales and marketing $ 35,667 $ 27,585 $ 101,049 $ 78,138
Amortization of acquired intangible assets (330 ) (384 ) (1,044 ) (1,114 )
Impairment of long-lived assets (15 ) (200 ) (15 ) (200 )
Stock-based compensation expense (2,452 ) (1,689 ) (6,118 ) (4,308 )
Acquisition related expenses -   -   -   (27 )
Non-GAAP sales and marketing $ 32,870   $ 25,312   $ 93,872   $ 72,489  

Non-GAAP sales and marketing as a percentage of total revenue

51.6 % 47.6 % 50.2 % 47.7 %
 

(4) 

Amounts include stock-based compensation, and acquisition related expenses as follows:

Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP general and administrative $ 7,852 $ 6,888 $ 21,400 $ 18,614
Stock-based compensation expense (2,020 ) (1,778 ) (5,363 ) (3,959 )
Acquisition related expenses (78 ) -   (78 ) (1,011 )
Non-GAAP general and administrative $ 5,754   $ 5,110   $ 15,959   $ 13,644  

Non-GAAP general and administrative as a percentage of total revenue

9.0 % 9.6 % 8.5 % 9.0 %
   
8x8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
December 31,
2016
March 31,
2016
ASSETS
Current assets
Cash and cash equivalents $ 33,457 $ 33,576
Short-term investments 139,194 129,274
Accounts receivable, net 13,069 11,070
Inventory 572 520
Deferred tax assets - 5,382
Other current assets 6,191 6,078
Total current assets 192,483 185,900
Property and equipment, net 15,224 12,375
Intangible assets, net 16,726 21,464
Goodwill 44,327 47,420
Non-current deferred tax asset 48,443 43,189
Other assets 6,645 3,104
Total assets $ 323,848 $ 313,452
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 12,537 $ 10,954
Accrued compensation 12,022 10,063
Accrued warranty 290 326
Accrued outside commissions 2,843 2,186
Deferred revenue 2,089 1,925
Other accrued liabilities 8,710 9,280
Total current liabilities 38,491 34,734
 
Other liabilities 3,082 3,412
Total liabilities 41,573 38,146
 
Total stockholders' equity 282,275 275,306
Total liabilities and stockholders' equity $ 323,848 $ 313,452
   
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
Nine Months Ended
December 31,
2016 2015
Cash flows from operating activities:
Net loss $ (1,826 ) $ (4,044 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation 4,463 3,598
Amortization of intangible assets 2,741 2,565
Impairment of long-lived assets 15 640
Amortization of capitalized software 442 456

Net accretion of discount and amortization of premium on marketable securities

228 584
Stock-based compensation expense 15,630 11,202
Deferred income tax (benefit) provision (104 ) 361
Other 574 467
Changes in assets and liabilities:
Accounts receivable, net (3,267 ) (3,138 )
Inventory (87 ) (122 )
Other current and noncurrent assets (1,065 ) (1,699 )
Deferred cost of goods sold (86 ) (156 )
Accounts payable 1,732 418
Accrued compensation 2,146 3,351
Accrued warranty (36 ) (17 )
Accrued taxes (21 ) 1,837
Deferred revenue 168 (427 )
Accrued outside commissions 657 256
Other current and noncurrent liabilities (84 ) (748 )
Net cash provided by operating activities 22,220   15,384  
 
Cash flows from investing activities:
Purchases of property and equipment (6,509 ) (3,295 )
Purchase of businesses, net of cash acquired - (23,434 )
Cost of capitalized software (3,939 ) (1,275 )
Proceeds from maturity of investments 47,625 38,451
Sales of investments - available for sale 34,821 43,934
Purchase of investments - available for sale (92,647 ) (90,025 )
Net cash used in investing activities (20,649 ) (35,644 )
 
Cash flows from financing activities:
Capital lease payments (460 ) (321 )
Payment of contingent consideration (300 ) (200 )
Repurchase of common stock (2,828 ) (11,628 )
Proceeds from issuance of common stock under employee stock plans 2,694   2,848  
Net cash used in financing activities (894 ) (9,301 )
 
Effect of exchange rate changes on cash (796 ) 317  
Net decrease in cash and cash equivalents (119 ) (29,244 )
 
Cash and cash equivalents, beginning of period 33,576   53,110  
Cash and cash equivalents, end of period $ 33,457   $ 23,866  
         
8x8, Inc.
Selected Operating Statistics
 
Three Months Ended

Dec. 31,
2015

Mar. 31,
2016

Jun. 30,
2016

Sept. 30,
2016

Dec. 31,
2016

 
Business customer average monthly service revenue per customer (1) $ 369 $ 385 $ 399 $ 409 $ 414
Monthly business service revenue churn (2)(3) 1.2% 0.4% 0.5% 0.6% 1.0%
 
Overall service margin 80% 81% 81% 81% 83%
Overall product margin -21% -18% -16% -6% -20%
Overall gross margin 72% 72% 74% 74% 77%
 
(1) 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.
(2) Business customer service revenue churn is calculated by dividing the service revenue lost from business customers (after the expiration of 30-day trial) during the period by the simple average of business customer service revenue during the same period and dividing the result by the number of months in the period.
(3) Excludes DXI business customer service revenue churn for all periods presented.
       
8x8, Inc.
RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP NET INCOME
AND NON-GAAP NET INCOME PER SHARE
(In thousands, except per share amounts; unaudited)
 
Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
Net loss $ (1,325 ) $ (1,680 ) $ (1,826 ) $ (4,044 )
Adjustments:
Non-cash tax adjustments 49 (326 ) (104 ) 361
Amortization of acquired intangible assets 873 1,002 2,741 2,565
Stock-based compensation expense 6,071 4,663 15,630 11,202
Acquisition related expenses 78 - 78 1,043
Impairment of long-lived assets 15   640   15   640  
Non-GAAP net income $ 5,761   $ 4,299   $ 16,534   $ 11,767  
 

Reconciliation between GAAP and non-GAAP weighted average shares used in computing basic and diluted net loss per share:

Denominator for basic calculation 90,774 88,289 90,062 88,812
Effect of dilutive securities:
Employee stock options 1,792 1,614 1,702 1,595
Employee restricted purchase rights 1,407 1,303 1,723 1,048
Employee stock plan purchases 9   14   8   10  
Denominator for diluted calculation 93,982   91,220   93,495   91,465  
 
GAAP net loss per share - Diluted $ (0.01 ) $ (0.02 ) $ (0.02 ) $ (0.05 )
Adjustments:
Non-cash tax adjustments - - - 0.01
Amortization of acquired intangible assets 0.01 0.01 0.03 0.03
Stock-based compensation expense 0.06 0.05 0.17 0.12
Acquisition related expenses - - - 0.01
Impairment of long-lived assets -   0.01   -   0.01  
Non-GAAP net income per share - Diluted $ 0.06   $ 0.05   $ 0.18   $ 0.13  
 
 
GAAP net income or loss as a percentage of total revenue -2 % -3 % -1 % -3 %
Adjustments:
Non-cash tax adjustments 0 % -1 % 0 % 0 %
Amortization of acquired intangible assets 1 % 2 % 2 % 2 %
Stock-based compensation expense 10 % 9 % 8 % 7 %
Acquisition related expenses 0 % 0 % 0 % 1 %
Impairment of long-lived assets 0 % 1 % 0 % 1 %

Non-GAAP net income as a percentage of total revenue

9 % 8 % 9 % 8 %
 
8x8, Inc.
RECONCILIATION OF GAAP GROSS MARGIN TO NON-GAAP
GROSS MARGIN
(In thousands, unaudited)
       
Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP gross margin $ 48,911 $ 38,368 $ 139,776 $ 110,579
Adjustments:
Amortization of acquired intangible assets 543 618 1,697 1,451
Impairment of long-lived assets - 440 - 440
Stock-based compensation expense 538 346 1,338 828
Non-GAAP gross margin $ 49,992 $ 39,772 $ 142,811 $ 113,298
 
GAAP gross margin as a percentage of total revenue 77% 72% 75% 73%
Adjustments:
Amortization of acquired intangible assets 1% 1% 1% 1%
Impairment of long-lived assets 0% 1% 0% 0%
Stock-based compensation expense 1% 1% 0% 1%
Non-GAAP gross margin as a percentage of total        
revenue 79% 75% 76% 75%
 
8x8, Inc.
RECONCILIATION OF GAAP SERVICE MARGIN TO NON-GAAP
SERVICE MARGIN
(In thousands, unaudited)
       
Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP service margin $ 49,624 $ 39,235 $ 141,565 $ 112,709
Adjustments:
Amortization of acquired intangible assets 543 618 1,697 1,451
Impairment of long-lived assets - 440 - 440
Stock-based compensation expense 538 346 1,338 828
Non-GAAP service margin $ 50,705 $ 40,639 $ 144,600 $ 115,428
 
GAAP service margin as a percentage of service revenue 83% 80% 82% 80%
Adjustments:
Amortization of acquired intangible assets 1% 1% 1% 1%
Impairment of long-lived assets 0% 1% 0% 0%
Stock-based compensation expense 0% 1% 1% 1%
Non-GAAP service margin as a percentage of service        
revenue 84% 83% 84% 82%
       
8x8, Inc.
RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS TO NON-GAAP
INCOME FROM OPERATIONS
(In thousands, unaudited)
 
Three Months Ended
December 31,
Nine Months Ended
December 31,
2016 2015 2016 2015
GAAP loss from operations $ (1,703 ) $ (2,509 ) $ (2,983 ) $ (4,103 )
Adjustments:
Amortization of acquired intangible assets 873 1,002 2,741 2,565
Stock-based compensation expense 6,071 4,663 15,630 11,202
Acquisition related expenses 78 - 78 1,043
Impairment of long-lived assets 15   640   15   640  
Non-GAAP income from operations $ 5,334   $ 3,796   $ 15,481   $ 11,347  
 
GAAP loss from operations as a percentage of total revenue -3 % -5 % -2 % -3 %
Adjustments:
Amortization of acquired intangible assets 1 % 2 % 2 % 2 %
Stock-based compensation expense 10 % 9 % 8 % 7 %
Acquisition related expenses 0 % 0 % 0 % 1 %
Impairment of long-lived assets 0 % 1 % 0 % 0 %
Non-GAAP income from operations as a percentage of total revenue 8 % 7 % 8 % 7 %

8x8, Inc.
Investor Contact:
Joan Citelli, 408-654-0970
joan.citelli@8x8.com
or
Media Contact:
Neha Mirchandani, 669-256-5095
neha.mirchandani@8x8.com

Source: 8x8

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