8x8, Inc.
Oct 26, 2017

8x8, Inc. Announces Second Quarter Fiscal 2018 Financial Results

Mid-Market/Enterprise Service Revenue Increases 28%, Grows to 58% of Total Service Revenue

GAAP Net Loss of $546K; Non-GAAP Pre-Tax Income of $4.2 Million

SAN JOSE, Calif.--(BUSINESS WIRE)-- 8x8, Inc. (NASDAQ:EGHT), the leading provider of truly unified communications, today reported financial results for the second quarter of fiscal 2018 ended September 30, 2017.

"8x8's financial results for the second quarter of fiscal 2018 demonstrate the continued strength of our core business and the impact of our competitive differentiation in the enterprise segment, illustrated by the 13 large enterprise deals, including one with a total contract value of approximately $7 million, closed during the quarter. Our technology ownership, integrated services platform, unparalleled quality of service and global service delivery capabilities are the primary reasons 8x8 continues to be a leading choice by a growing number of enterprise customers," said 8x8 CEO Vik Verma. "With our compelling suite of services and world class sales and marketing leadership teams now in place, 8x8 is well poised to accelerate our market position and revenue growth in fiscal 2019 and beyond."

Second Quarter Financial Results:

Additional Business Metrics and Highlights:

Financial Outlook

Mr. Verma added, "Given our recent realignment of the business and new additions to the sales and marketing executive leadership team, we feel it is prudent to reset the bar on our revenue expectations for fiscal 2018 while maintaining our commitment to achieving 25% service revenue growth exiting fiscal 2019."

For the full fiscal 2018 year, 8x8 has revised its revenue outlook and maintains its previous non-GAAP pre-tax income guidance:

Revenue:

Non-GAAP Pre-tax Income:

The Company does not reconcile its forward-looking non-GAAP net income to the corresponding GAAP measures of GAAP net income (loss) due to the significant variability of, and difficulty in making accurate forecasts and projections with regards to, the various expenses we exclude. For example, although future hiring and retention needs may be reasonably predictable, stock-based compensation expense depends on variables that are largely not within the control of nor predictable by management, such as the market price of 8x8 common stock, and may also be significantly impacted by events like acquisitions, the timing and nature of which are difficult to predict with accuracy. Similarly, acquisition and other expenses are difficult to predict as they depend on future events. The actual amounts of these excluded items could have a significant impact on the Company's GAAP net income (loss). Accordingly, management believes that reconciliations of this forward-looking non-GAAP financial measure to the corresponding GAAP measure is not available without unreasonable effort.

8x8 also announced that on October 24, 2017, it awarded restricted stock units (RSUs) to acquire an aggregate of 306,415 shares of the Company's common stock to 42 new employees under the 8x8, Inc. 2017 New Employee Inducement Incentive Plan, adopted by the Board of Directors on the same date. In addition, two newly hired senior vice presidents received performance share units (PSUs) representing the right to receive, at target, up to an aggregate of 82,307 shares of common stock (based on the performance of 8x8's common stock relative to the Russell 2000 during specified measurement periods). These equity awards were approved unanimously by the independent directors of the Board of Directors, and each award was granted as an inducement material to the recipient's entering into employment with 8x8, in accordance with Nasdaq Market Place Rule 5635(c)(4). Each of the awards is subject to vesting pursuant to the terms of the plan and the recipient's award agreement, including a requirement that the recipient be employed through each vesting date. Other terms of the RSU and PSU awards are substantially the same as those applicable to RSUs and PSUs previously granted by the Company in the current fiscal year.

Conference Call Information:

Management will host a conference call to discuss these results and other matters related to the Company's business today, October 26, 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 # 93371947)
(404) 537-3406, International (Conference ID # 93371947)
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 November 2, 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. (EGHT), the leading provider of truly unified cloud communications, powers over a million business users worldwide. 8x8's suite of products seamlessly weaves together unified cloud communications, messaging, meeting and contact center solutions so today's modern organization can communicate at the speed of employee and customer expectations. 8x8 uniquely combines one unified management platform, one seamless communications experience for employees and customers, and one real-time data analytics platform for constant learning and improvement. For additional information, visit www.8x8.com, 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 the Company's 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.

In addition, this release may provide certain financial measures that have been adjusted to exclude the impact of the discontinuation of a non-core, legacy DXI business (based on a voice message broadcasting service), as first reported in the third quarter of the Company's 2017 fiscal year. To adjust for the discontinued business, revenue figures for each period being compared exclude all revenue attributable to the discontinued business. None of the financial measures presented in this release reflect adjustments for comparison on a constant currency basis. Management concluded that the impact of currency fluctuations between current and comparative prior periods was not material for any of the financial results presented in this release.

Management has used these adjusted financial measures internally in evaluating the financial performance of the Company's business and believes they provide investors an additional, useful assessment of the Company's growth for these periods.

Non-GAAP Pre-Tax Income, Non-GAAP Net Income and Non-GAAP Net Income Per Share

The Company has defined non-GAAP net income as net income for GAAP plus amortization of acquired intangible assets, stock-based compensation, other income and expenses, and the provision for or benefit from income taxes. Amortization of acquired intangible assets is excluded because it is a non-cash expense that management does not consider part of ongoing operations when assessing the Company's financial performance. Stock-based compensation expense has been excluded because it is a non-cash expense and relies on valuations based on future events, such as the market price of 8x8 common stock, that are difficult to predict and are affected by market factors that are largely not within the control of management. Certain other income and expense items, such as acquisition-related expenses, have been excluded because management considers them to be isolated transactions and believes they are not reflective of the Company's ongoing operations, reduce comparability of periodic operating results when included, are difficult to predict, and are often one-time. GAAP provision (benefit) for income taxes has been excluded as it is also a non-cash expense that management does not consider part of its analysis of the performance of ongoing operations. Non-GAAP net income before tax is then reduced by a projected annual non-GAAP effective tax rate in order to provide better consistency across the interim financial reporting periods. The Company's non-GAAP effective tax rate for the first and second quarters of fiscal 2018 was 36%. The projected annual effective tax rate may fluctuate over the interim periods for a variety of reasons, including significant changes in the geographic earnings mix, changes in the estimates of tax credits and deductions or changes in tax law in major jurisdictions where the Company operates. Management will evaluate and assess the appropriateness of this rate periodically, considering the impacts of significant events and changes in the operations of the Company.

The Company defines non-GAAP net income per share as non-GAAP net income divided by the weighted-average diluted shares outstanding which includes the effect of potentially dilutive stock options and awards. The Company defines non-GAAP net income percentage of revenue as non-GAAP net income divided by non-GAAP revenue. Management believes that such exclusions facilitate comparisons to the Company's historical operating results and to the results of other companies in the same industry, and provides investors with information that management uses in evaluating the Company'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:

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
September 30,
Six Months Ended
September 30,
2017 2016 2017 2016
Service revenue $ 68,123 $ 57,717 $ 133,214 $ 113,013
Product revenue 4,360 5,466 8,367 10,211
Total revenue 72,483 63,183 141,581 123,224
 
Operating expenses:
Cost of service revenue 12,757 10,837 24,419 21,072
Cost of product revenue 5,098 5,782 9,982 11,287
Research and development 8,311 6,505 16,254 13,215
Sales and marketing 41,163 33,691 82,273 65,382
General and administrative 9,616 6,747 18,572 13,548
Total operating expenses 76,945 63,562 151,500 124,504
Loss from operations (4,462) (379) (9,919) (1,280)
Other income, net 463 391 2,515 801
Income (loss) from operations before provision (benefit) for income taxes (3,999) 12 (7,404) (479)
Provision (benefit) for income taxes (3,453) (15) (4,689) 22
Net income (loss) $ (546) $ 27 $ (2,715) $ (501)
 
Net income (loss) per share:
Basic $ (0.01) $ 0.00 $ (0.03) $ (0.01)
Diluted $ (0.01) $ 0.00 $ (0.03) $ (0.01)
 
Weighted average number of shares:
Basic 91,689 89,987 91,667 89,171
Diluted 91,689 93,447 91,667 89,171
   
8x8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
September 30,
2017
March 31,
2017
ASSETS
Current assets
Cash and cash equivalents $ 34,570 $ 41,030
Short-term investments 132,480 133,959
Accounts receivable, net 15,179 14,264
Other current assets 11,986 8,101
Total current assets 194,215 197,354
Property and equipment, net 29,600 24,061
Intangible assets, net 14,957 17,038
Goodwill 47,519 46,136
Non-current deferred tax asset 71,135 48,859
Other assets 417 407
Total assets $ 357,843 $ 333,855
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 20,123 $ 18,631
Accrued compensation 15,783 11,508
Accrued taxes 5,286 5,354
Deferred revenue 2,521 2,144
Other accrued liabilities 5,626 5,707

Total current liabilities

49,339 43,344
 
Other liabilities 1,564 1,910
Total liabilities 50,903 45,254
 
Total stockholders' equity 306,940 288,601
Total liabilities and stockholders' equity $ 357,843 $ 333,855
   
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
Six Months Ended
September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (2,715 ) $ (501 )

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

Depreciation 3,962 2,979
Amortization of intangible assets 2,815 1,868
Amortization of capitalized software 581 296
Stock-based compensation expense 13,008 9,559
Deferred income tax benefit (4,862 ) (153 )
Gain on escrow settlement (1,393 ) -
Other 761 499
Changes in assets and liabilities:
Accounts receivable, net (1,183 ) (1,859 )
Other current and noncurrent assets (3,485 ) (2,297 )
Accounts payable and accruals 3,399 2,666
Deferred revenue 286   367  
Net cash provided by operating activities 11,174   13,424  
 
Cash flows from investing activities:
Purchases of property and equipment (4,021 ) (5,230 )
Gain on escrow settlement 1,393 -
Cost of capitalized software (5,203 ) (2,443 )
Proceeds from maturity of investments (57,561 ) 29,225
Sales of investments - available for sale 13,254 26,863
Purchase of investments - available for sale 45,850   (64,517 )
Net cash used in investing activities (6,288 ) (16,102 )
 
Cash flows from financing activities:
Capital lease payments (616 ) (333 )
Payment of contingent consideration (150 ) (200 )
Repurchase and tax-related withholding of common stock (13,842 ) (842 )
Proceeds from issuance of common stock under employee stock plans 2,788   2,600  
Net cash (used in) provided by financing activities (11,820 ) 1,225
 
Effect of exchange rate changes on cash 474   (29 )
Net decrease in cash and cash equivalents (6,460 ) (1,482 )
 
Cash and cash equivalents, beginning of period 41,030   33,576  
Cash and cash equivalents, end of period $ 34,570   $ 32,094  
 
8x8, Inc.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts; unaudited)
                     
Three Months Ended
September 30, 2017
Three Months Ended
September 30, 2016
Six Months Ended
September 30, 2017
Six Months Ended
September 30, 2016
GAAP cost of service revenue $ 12,757 $ 10,837 $ 24,419 $ 21,072
Amortization of acquired intangible assets (710 ) (561 ) (1,507 ) (1,154 )
Stock-based compensation expense (473 ) (440 ) (864 ) (800 )
Non-GAAP cost of service revenue $ 11,574   $ 9,836   $ 22,048   $ 19,118  
Non-GAAP service margin (as a percentage of service revenue) $ 56,549   83.0 % $ 47,881   83.0 % $ 111,166   83.4 % $ 93,895   83.1 %
 
GAAP and Non-GAAP cost of product revenue $ 5,098   $ 5,782   $ 9,982   $ 11,287  
Non-GAAP product margin (as a percentage of product revenue) $ (738 ) -16.9 % $ (316 ) -5.8 % $ (1,615 ) -19.3 % $ (1,076 ) -10.5 %
       
Non-GAAP gross margin (as a percentage of revenue) $ 55,811   77.0 % $ 47,565   75.3 % $ 109,551   77.4 % $ 92,819   75.3 %
 
GAAP research and development $ 8,311 $ 6,505 $ 16,254 $ 13,215
Stock-based compensation expense (1,314 ) (863 ) (2,651 ) (1,750 )
Non-GAAP research and development (as a percentage of revenue) $ 6,997   9.7 % $ 5,642   8.9 % $ 13,603   9.6 % $ 11,465   9.3 %
 
GAAP sales and marketing $ 41,163 $ 33,691 $ 82,273 $ 65,382
Amortization of acquired intangible assets (583 ) (347 ) (1,308 ) (714 )
Stock-based compensation expense (2,568 ) (1,751 ) (5,215 ) (3,666 )
Non-GAAP sales and marketing (as a percentage of revenue) $ 38,012   52.4 % $ 31,593   50.0 % $ 75,750   53.5 % $ 61,002   49.5 %
 
GAAP general and administrative $ 9,616 $ 6,747 $ 18,572 $ 13,548
Stock-based compensation expense (2,302 ) (1,454 ) (4,278 ) (3,343 )
Non-recurring items (250 ) -   (510 ) -  
Non-GAAP general and administrative (as a percentage of revenue) $ 7,064   9.7 % $ 5,293   8.4 % $ 13,784   9.7 % $ 10,205   8.3 %
 
GAAP net income (loss) $ (546 ) $ 27 $ (2,715 ) $ (501 )
Amortization of acquired intangible assets 1,293 908 2,815 1,868
Stock-based compensation expense 6,657 4,508 13,008 9,559
Non-recurring items in operating expenses 250 - 510 -
Non-recurring items in other income (expenses), net - - (1,393 ) -
Provision (benefit) for income taxes (1) (3,453 ) (15 ) (4,689 ) 22  
Non-GAAP net income before taxes (as a percentage of revenue) $ 4,201   5.8 % $ 5,428   8.6 % $ 7,536   5.3 % $ 10,948   8.9 %
Non-GAAP tax expense (2) (1,512 ) (2,063 ) (2,713 ) (4,160 )
Non-GAAP net income after taxes (as a percentage of revenue) $ 2,689   3.7 % $ 3,365   5.3 % $ 4,823   3.4 % $ 6,788   5.5 %
 
(1) The three and six months ended September 30, 2016 amounts have been adjusted to conform with September 30, 2017 presentation.
(2) Calculated at 36% and 38% for September 30, 2017 and 2016, respectively.
 

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

Denominator for basic calculation 91,689 89,987 91,667 89,171
Effect of dilutive securities:
Employee stock options 1,534 1,717 1,588 1,705
Employee restricted purchase rights 1,675   1,743   1,673   1,652  
Denominator for diluted calculation 94,898   93,447   94,928   92,528  
 
GAAP net loss per share - Diluted $ (0.01 ) $ 0.00 $ (0.03 ) $ (0.01 )
Non-GAAP net income before taxes per share - Diluted $ 0.04 $ 0.06 $ 0.08 $ 0.12
Non-GAAP net income after taxes per share - Diluted $ 0.03 $ 0.04 $ 0.05 $ 0.07
 
8x8, Inc.
Selected Operating Statistics
 
  Three Months Ended

Sept. 30,

2016

 

Dec. 31,

2016

 

Mar. 31,

2017

 

June 30,

2017

 

Sept. 30,

2017

 
Business customer average monthly service revenue per customer (1) $ 409 $ 414 $ 426 $ 432 $ 442
Monthly business service revenue churn (2)(3) 0.6 % 1.0 % 0.7 % 0.6 % 0.4 %
 
Overall service margin 81 % 83 % 83 % 82 % 81 %
Overall product margin -6 % -20 % -9 % -22 % -17 %
Overall gross margin 74 % 77 % 77 % 76 % 75 %
 
(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.

Investor Contact:
8x8, Inc.
Victoria Hyde-Dunn, 669-333-5200
victoria.hyde-dunn@8x8.com

Source: 8x8

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