8x8, Inc.
8X8 INC /DE/ (Form: 10-Q, Received: 07/26/2013 17:24:06)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 000-21783

8X8, INC.
(Exact name of Registrant as Specified in its Charter)

 

Delaware
77-0142404
  (State or Other Jurisdiction of Incorporation or Organization) 
(I.R.S. Employer Identification Number)

2125 O'Nel Drive
San Jose, CA    95131

(Address of Principal Executive Offices)

(408) 727-1885
(Registrant's Telephone Number, including Area Code)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    x YES      ¨ NO   

      Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES   x     NO   ¨

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ¨

Accelerated filer    x

Non-accelerated filer    ¨
(Do not check if a smaller reporting company)

Smaller reporting company    ¨

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES    ¨        NO    x

      The number of shares of the Registrant's Common Stock outstanding as of July 24, 2013 was 72,766,173.



FORM 10-Q      PDF as a courtesy
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION Page No.
     
Item 1. Financial Statements:
 
     
           Condensed Consolidated Balance Sheets at June 30, 2013 and March 31, 2013
3
     
           Condensed Consolidated Statements of Income for the three
           months ended June 30, 2013 and 2012
4
     
           Condensed Consolidated Statements of Comprehensive Income for the three
           months ended June 30, 2013 and 2012
5
     
           Condensed Consolidated Statements of Cash Flows for the three
           months ended June 30, 2013 and 2012
6
     
           Notes to Unaudited Condensed Consolidated Financial Statements
7
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
23
     
Item 4. Controls and Procedures
23
     
PART II. OTHER INFORMATION
 
     
Item 1. Legal Proceedings
24
     
Item 1A. Risk Factors
24
     
Item 6. Exhibits
25
     
Signature
26

2


Part I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

8X8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

       June 30,      March 31,
      2013     2013
ASSETS            
Current assets:            
     Cash and cash equivalents   $ 55,915    $ 50,305 
     Short-term investments     1,899      1,964 
     Accounts receivable, net     3,595      3,880 
     Inventory     567      511 
     Deferred cost of goods sold     152      182 
     Deferred tax asset     5,049      6,096 
     Other current assets     955      732 
          Total current assets     68,132      63,670 
Property and equipment, net     6,636      6,673 
Intangible assets, net     9,854      10,194 
Goodwill     25,150      25,150 
Non-current deferred tax asset     46,526      46,352 
Other assets     983      572 
               Total assets   $ 157,281    $ 152,611 
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
     Accounts payable   $ 5,500    $ 5,644 
     Accrued compensation     3,711      3,629 
     Accrued warranty     474      452 
     Accrued taxes     2,104      1,912 
     Deferred revenue     1,609      1,236 
     Other accrued liabilities     905      862 
          Total current liabilities     14,303      13,735 
             
Non-current liabilities     1,767      1,817 
Other non-current liabilities     21      26 
          Total liabilities     16,091      15,578 
             
Commitments and contingencies (Note 7)            
             
Stockholders' equity:            
     Common stock     73      72 
     Additional paid-in capital     248,258      246,176 
     Accumulated other comprehensive loss     (101)     (36)
     Accumulated deficit     (107,040)     (109,179)
          Total stockholders' equity     141,190      137,033 
               Total liabilities and stockholders' equity   $ 157,281    $ 152,611 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts; unaudited)

      Three Months Ended
      June 30,
      2013     2012
Service revenue   $ 27,252    $ 23,172 
Product revenue     2,752      2,080 
          Total revenue     30,004      25,252 
             
Operating expenses:            
     Cost of service revenue     5,221      5,686 
     Cost of product revenue     3,347      2,710 
     Research and development     2,336      1,826 
     Sales and marketing     13,121      10,541 
     General and administrative     2,790      2,064 
     Gain on patent sale         (11,965)
          Total operating expenses     26,815      10,862 
Income from operations     3,189      14,390 
Other income, net     15     
Income before provision for income taxes     3,204      14,398 
Provision for income taxes     1,065      5,781 
Net income   $ 2,139    $ 8,617 
             
Net income per share:            
     Basic   $ 0.03    $ 0.12 
     Diluted   $ 0.03    $ 0.12 
             
Weighted average number of shares:            
     Basic     72,510      70,717 
     Diluted     75,756      74,110 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)

      Three Months Ended
      June 30,
      2013     2012
Net income   $ 2,139    $ 8,617 
Other comprehensive income, net of tax            
     Unrealized gain (loss) on investments in securities     (65)     26 
Comprehensive income   $ 2,074    $ 8,643 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

      Three Months Ended
      June 30,
      2013     2012
Cash flows from operating activities:            
Net income   $ 2,139    $ 8,617 
Adjustments to reconcile net income to net cash            
     provided by operating activities:            
          Depreciation     675      505 
          Amortization     340      357 
          Stock-based compensation     907      556 
          Deferred income tax provision     873      5,778 
          Other     158      75 
Changes in assets and liabilities:            
          Accounts receivable, net     132      (626)
          Inventory     (61)     (19)
          Other current and noncurrent assets     (306)     (148)
          Deferred cost of goods sold     30      (14)
          Accounts payable     (316)     (35)
          Accrued compensation     82      (22)
          Accrued warranty     22      18 
          Accrued taxes and fees     192      112 
          Deferred revenue     373      (183)
          Other current and noncurrent liabilities     (7)     (45)
          Net cash provided by operating activities     5,233      14,926 
             
Cash flows from investing activities:            
     Purchases of property and equipment     (466)     (1,048)
     Cost of capitalized software     (328)    
          Net cash used in investing activities     (794)     (1,048)
             
Cash flows from financing activities:            
     Capital lease payments     (5)     (43)
     Repurchase of common stock     (120)     (74)
     Proceeds from issuance of common stock under employee stock plans     1,296      87 
          Net cash provided by (used in) financing activities     1,171      (30)
Net increase in cash and cash equivalents     5,610      13,848 
             
Cash and cash equivalents at the beginning of the period     50,305      22,426 
Cash and cash equivalents at the end of the period   $ 55,915    $ 36,274 
             

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


8X8, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets cloud-based business communications services encompassing internally developed Voice over Internet Protocol ("VoIP") technologies. These services enable telephony and video applications as well as web-based conferencing and unified communications capabilities. The Company also provides managed hosting and cloud-based computing services. As of June 30, 2013, the Company had approximately 33,700 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2014 refers to the fiscal year ending March 31, 2014).

2. BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2013. In the opinion of the Company's management, these financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2013 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and do not include all of the disclosures required by U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2013 and notes thereto included in the Company's fiscal 2013 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Service and Product Revenue

The Company recognizes service revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed or determinable and collectability is reasonably assured. The Company defers recognition of service revenues in instances when cash receipts are received before services are delivered and recognizes deferred revenues ratably as services are provided.

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to customers provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for customer sales are recorded at the time of shipment. In accordance with the ASC 985-605, the Company records shipments to distributors, retailers, and resellers, where the right of return exists, as deferred revenue. The Company defers recognition of revenue on sales to distributors, retailers, and resellers until products are resold to the customer.

7


The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in consolidated financial statements that are more easily understood by users. Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Multiple Element Arrangements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria.  The provisioning of the 8x8 VoIP service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables.  For arrangements with multiple deliverables, the Company allocates the arrangement consideration to all deliverables based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the relative selling price to be used for allocating arrangement consideration to deliverables as follows: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of selling price ("TPE"), and (iii) best estimate of the selling price ("BESP").

VSOE generally exists only when the Company sells the deliverable separately, on more than a limited basis, at prices within a relatively narrow range.  When VSOE cannot be established, the Company attempts to establish the selling price of deliverables based on relevant TPE. TPE is determined based on manufacturer's prices for similar deliverables when sold separately, when possible. When the Company is unable to establish selling price using VSOE or TPE, it uses a BESP for the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company determines BESP for a product or service by considering multiple factors including, but not limited to:

  • the price list established by its management which is typically based on general pricing practices and targeted gross margin of products and services sold; and
  • analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.

In accordance with the guidance of ASC 605-25, when the Company enters into revenue arrangements with multiple deliverables the Company allocates arrangement consideration, including activation fees, among the 8x8 IP telephones and subscriber services based on the their relative selling prices. Arrangement consideration allocated to the IP telephones is recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. Arrangement consideration allocated to subscriber services is recognized ratably as service revenues as the related services are provided, which is generally over the initial contract term.

No customer represented greater than 10% of the Company's total revenue for the three months ended June 30, 2013 or 2012. Revenue from technology licensing and related software and customers outside the United States was not material for the three months ended June 30, 2013 or 2012.

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

8


Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. The carrying values of intangible assets were as follows (in thousands):

    June 30, 2013     March 31, 2013
    Gross                 Gross            
    Carrying     Accumulated     Net Carrying     Carrying     Accumulated     Net Carrying
    Amount     Amortization     Amount     Amount     Amortization     Amount
Technology $ 8,242    $ (1,462)   $ 6,780    $ 8,242    $ (1,256)   $ 6,986 
Customer relationships   3,305      (1,188)     2,117      3,305      (1,054)     2,251 
Trade names/domains   957          957      957          957 
Total acquired identifiable                                  
     intangible assets $ 12,504    $ (2,650)   $ 9,854    $ 12,504    $ (2,310)   $ 10,194 

At June 30, 2013, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

      Amount
Remaining 2014   $ 994 
2015     1,325 
2016     1,325 
2017     1,318 
2018     1,070 
Thereafter     2,865 
Total   $ 8,897 

Research, Development and Software Costs

The Company accounts for software to be sold or otherwise marketed in accordance with ASC 985-20, Costs of Software to be Sold, Leased or Marketed which requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company defines establishment of technological feasibility as the completion of a working model. Software development costs for software to be sold or otherwise marketed incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the product are capitalized, if material.

In the first fiscal quarter of 2014, the Company capitalized $0.3 million of software development costs in accordance with ASC 985-20. At June 30, 2013, total capitalized software development costs included in other long-term assets was approximately $0.5 million and there were no accumulated amortization costs related to capitalized software.

9


Stock Purchase Right/Restricted Stock Unit and Option Activity

Stock purchase right activity for the three months ended June 30, 2013 is summarized as follows:

          Weighted     Weighted
          Average     Average
          Grant-Date     Remaining
    Number of     Fair Market     Contractual
    Shares     Value     Term (in Years)
Balance at March 31, 2013   958,575    $ 4.11      2.52 
Granted            
Released   (85,205)     2.29       
Forfeited   (8,750)     5.30       
Balance at June 30, 2013   864,620    $ 4.27      2.36 

Restricted stock unit activity for the three months ended June 30, 2013 is summarized as follows:

                Weighted
          Weighted     Average
          Average     Remaining
    Number of     Purchase     Contractual
    Shares     Price     Term (in Years)
Balance at March 31, 2013   25,000    $     2.47 
Granted   73,500           
Released            
Forfeited            
Balance at June 30, 2013   98,500    $     2.28 

Option activity for the three months ended June 30, 2013 is summarized as follows:

                Weighted
          Shares     Average
    Shares     Subject to     Exercise
    Available     Options     Price
    for Grant     Outstanding     Per Share
Balance at March 31, 2013   3,175,261      5,991,544    $ 2.52 
     Granted - options   (90,000)     90,000      7.56 
     Stock purchase rights/restricted stock unit (1)   (73,500)        
     Exercised       (575,570)     2.25 
     Canceled/forfeited   10,046      (10,046)     3.83 
     Termination of plans   (1,774)         -  
Balance at June 30, 2013   3,020,033      5,495,928    $ 2.63 

(1) The reduction to shares available for grant includes awards granted of 73,500 shares.

10


The following table summarizes the stock options outstanding and exercisable at June 30, 2013:

    Options Outstanding   Options Exercisable
          Weighted   Weighted               Weighted      
          Average   Average               Average      
          Exercise   Remaining     Aggregate         Exercise     Aggregate
Range of         Price   Contractual     Intrinsic         Price     Intrinsic
Exercise Price   Shares     Per Share   Life (Years)     Value   Shares     Per Share     Value
$0.55 - $1.26   1,760,000    $ 1.04    4.4    $ 12,676,010    1,760,000    $ 1.04    $ 12,676,010 
$1.27 - $1.77   1,112,961    $ 1.49    2.7      7,515,829    1,112,961    $ 1.49      7,515,829 
$1.78 - $3.35   1,205,402    $ 2.61    5.3      6,786,158    880,627    $ 2.54      5,021,497 
$3.36 - $5.87   1,285,565    $ 5.35    8.9      3,711,260    330,931    $ 5.16      1,019,054 
$5.88 - $7.56   132,000    $ 7.03    9.7      159,900    10,749    $ 6.47      18,999 
    5,495,928              $ 30,849,157    4,095,268          $ 26,251,389 

Stock-based Compensation Expense

As of June 30, 2013, there was $7.1 million of unamortized stock-based compensation expense related to unvested stock awards which is expected to be recognized over a weighted average period of 2.74 years.

To value option grants and stock purchase rights for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock price volatility, expected life, risk-free interest rates and future dividend payments. During the three month periods ended June 30, 2013 and 2012, the Company used the historical volatility of the Company's stock over a period equal to the expected life of the options to their fair value. The expected life assumptions represent the weighted-average period the stock-based awards are expected to remain outstanding. These expected life assumptions are established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payouts.

The following table summarizes the assumptions used to compute reported stock-based compensation to employees and directors for the three months ended June 30, 2013 and 2012:

            Three Months Ended
            June 30,
            2013     2012
Expected volatility           66%     70%
Expected dividend yield              
Risk-free interest rate           0.73%     0.60%
Weighted average expected option term           4.50 years     4.30 years
                   
Weighted average fair value of options granted         $ 3.96   $ 2.25

In accordance with ASC 718 - Stock Compensation , the Company recorded $718,000 and $382,000 in compensation expense relative to stock-based awards for the three months ended June 30, 2013 and 2012, respectively.

11


Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, or ESPP, eligible employees can participate and purchase common stock semi-annually through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each one year offering period or the end of the applicable six month purchase period within that offering period, whichever is lower. The contribution amount may not exceed 10% of an employee's base compensation, including commissions but not including bonuses and overtime. The Company accounts for the ESPP as a compensatory plan and recorded compensation expense of $189,000 and $174,000 for the three months ended June 30, 2013 and 2012, respectively, in accordance with ASC 718.

As of June 30, 2013, there was $186,000 of total unrecognized compensation cost related to employee stock purchases. These costs are expected to be recognized over a weighted average period of 0.5 years.

ASC 718 requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow. The future realization of tax benefits related to stock-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation charges incurred during the three months ended June 30, 2013 and 2012.

The following table summarizes the classification of stock-based compensation expense related to employee stock options and employee stock purchases under ASC 718 among the Company's operating functions for the three months ended June 30, 2013 and 2012 which was recorded as follows (in thousands):

      Three Months Ended
      June 30,
      2013     2012
Cost of service revenues   $ 68    $ 43 
Cost of product revenues        
Research and development     154      95 
Sales and marketing     347      316 
General and administrative     338      101 
Total stock-based compensation expense related to             
     employee stock options and employee stock purchases, pre-tax     907      556 
             
Tax benefit        
Stock-based compensation expense related to employee            
     stock options and employee stock purchases, net of tax   $ 907    $ 556 

12


3. FAIR VALUE MEASUREMENT

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2013 and March 31, 2013 (in thousands):

    Quoted Prices                  
    in Active                  
    Markets     Other     Significant      
    for Identical     Observable     Unobservable     Balance at
    Assets     Inputs     Inputs     June 30,
    (Level 1)     (Level 2)     (Level 3)     2013
                       
Cash equivalents:                      
     Money market funds $ 14,378    $ -     $ -     $ 14,378 
                       
Short-term investments:                      
     Mutual funds   1,899      -       -       1,899 
                       
Total $ 16,277    $ -     $ -     $ 16,277 

 

    Quoted Prices                  
    in Active                  
    Markets     Other     Significant      
    for Identical     Observable     Unobservable     Balance at
    Assets     Inputs     Inputs     March 31,
    (Level 1)     (Level 2)     (Level 3)     2013
                       
Cash equivalents:                      
     Money market funds $ 14,376    $ -     $ -     $ 14,376 
                       
Short-term investments:                      
     Mutual funds   1,964      -       -       1,964 
                       
Total $ 16,340    $ -     $ -     $ 16,340 

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4. BALANCE SHEET DETAIL

      June 30,     March 31,
      2013     2013
Inventory (in thousands):            
     Work-in-process   $ 23   $ 23
     Finished goods     544     488
    $ 567   $ 511

5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and under the ESPP.

      Three Months Ended
      June 30,
      2013     2012
      (in thousands, except per share amounts)
Numerator:            
Net income available to common stockholders   $ 2,139    $ 8,617 
             
Denominator:            
Common shares     72,510      70,717 
             
Denominator for basic calculation     72,510      70,717 
Employee stock options      2,911      2,759 
Stock purchase rights     335      309 
Employee stock purchase plan          325 
Denominator for diluted calculation      75,756      74,110 
             
Net income per share            
     Basic    $ 0.03    $ 0.12 
     Diluted    $ 0.03    $ 0.12 

The following shares attributable to outstanding stock options and stock purchase rights were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

      Three Months Ended
      June 30,
      2013     2012
Employee stock options     935      774 
Stock purchase rights        
Total anti-dilutive employee share-based securities     937      777 

14


6. INCOME TAXES

For the three months ended June 30, 2013, the Company recorded a provision for income taxes of $1.1 million which was primarily attributable to net income from operations. For the three months ended June 30, 2012, the Company recorded a provision for income taxes of $5.8 million which was primarily attributable to net income from operations, including the gain on sale of patents.

The effective tax rate is calculated by dividing the income tax provision by net income before income tax expense.

At March 31, 2013, there was $3.0 million of unrecognized tax benefits that, if recognized, would have affected the effective tax rate. The Company does not believe that there has been any significant change in the unrecognized tax benefits in the three-month period ended June 30, 2013 and does not believe it is reasonably possible that the unrecognized tax benefit will materially change in the next 12 months. To the extent that the unrecognized tax benefits are ultimately recognized they may have an impact on the effective tax rate in future periods.

The Company is subject to taxation in the U.S., California and various other states and foreign jurisdictions in which it has or had a subsidiary or branch operations or it is collecting sales tax. All tax returns from fiscal 1995 to fiscal 2013 may be subject to examination by the Internal Revenue Service, California and various other states. As of July 24, 2013, there were no active federal or state income tax audits. Returns filed in foreign jurisdictions may be subject to examination for the fiscal years 2009 to 2010.

7. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company indemnifies other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. Under these arrangements, the Company typically agrees to hold the other party harmless against losses arising from a breach of representations or covenants, intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.

It is not possible to determine the maximum potential amount of the Company's exposure under these indemnification agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company's operating results, financial position or cash flows. Under some of these agreements, however, the Company's potential indemnification liability might not have a contractual limit.

15


Product Warranties

The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue recognition. Changes in the Company's product warranty liability, which is included in cost of product revenue in the condensed consolidated statements of income, were as follows (in thousands):

      Three Months Ended
      June 30,
      2013     2012
Balance at beginning of period   $ 452    $ 387 
     Accruals for warranties     177      171 
     Settlements     (155)     (153)
Balance at end of period   $ 474    $ 405 

Minimum Third Party Customer Support Commitments

In the third quarter of fiscal 2010, the Company amended a contract with one of its third party customer support vendors containing a minimum monthly commitment of approximately $430,000. The agreement requires a 150-day notice to terminate. The total remaining obligation under the amended contract is $2.2 million.

Minimum Third Party Network Service Provider Commitments

The Company entered into contracts with multiple vendors for third party network services that expire on various dates in fiscal 2013 and 2014. At June 30, 2013, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:            
     Remaining 2014         $ 1,732 
     2015           1,579 
     2016           52 
          Total minimum payments         $ 3,363 

Legal Proceedings

From time to time, the Company may become involved in various legal claims and litigation that arise in the normal course of its operations. While the results of such claims and litigation cannot be predicted with certainty, the Company is not currently aware of any such matters that it believes would have a material adverse effect on its financial position, results of operations or cash flows.

16


On February 22, 2011, the Company was named a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al. , along with 20 other defendants. On August 17, 2011, the Company was dismissed without prejudice from this lawsuit under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, the Company was sued again by Bear Creek Technologies, Inc. in the United States District Court for the District of Delaware. The Company believes it has factual and legal defenses to these claims and is presenting a vigorous defense.  Further, on November 28, 2012, the U.S. Patent & Trademark Office initiated a Reexamination proceeding with a Reexamination Declaration explaining that there is a substantial new question of patentability, based on four separate grounds, affecting each claim of the patent which is the basis for the complaint filed against the Company.  On March 26, 2013, the USPTO issued a first Office Action in the Reexamination, with all claims of the '722 patent being rejected on each of the four separate grounds raised in the Request for Reexamination.  On July 10, 2013, the Company filed an informational pleading in support of (and joining) a pending motion to stay the proceeding in the District Court, which granted the motion on July 17, 2013, based on the possibility that at least one of the USPTO rejections will be upheld and considering the USPTO's conclusion that Bear Creek's patent suffers from a defective claim for priority. The Company cannot estimate potential liability in this case at this early stage of litigation.

On October 25, 2011, the Company was named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al. , along with 30 other defendants. The lawsuit alleges infringement of a patent that is now believed to have expired. On November 1, 2011, Klausner dismissed the Complaint voluntarily and filed new complaints separating the defendants, including a new Complaint against 8x8. The Company believes it has factual and legal defenses to these claims and is presenting a vigorous defense. The Company has filed several motions, including a motion to transfer and a motion to dismiss the complaint on February 23, 2012. On March 21, 2013, the District Court granted 8x8's Motion to Change Venue, and has ordered the transfer of the case to the US District Court for the Northern District of California. The Company has not answered the complaint yet and cannot estimate potential liability in this case at this early stage of the litigation.

State and Municipal Taxes

From time to time, the Company has received inquiries from a number of state and municipal taxing agencies with respect to the remittance of taxes. The Company collects or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company.

8. PATENT SALE

On June 22, 2012, the Company entered into a patent purchase agreement and sold a family of patents to a third party for $12.0 million plus a future payment of up to a maximum of $3.0 million based on future license agreements entered into by the third party purchaser. In the fourth quarter of fiscal 2013, the Company recognized a gain of $1.0 million due to the third party purchaser entering into a license agreement. Under the terms and conditions of the patent purchase agreement, the Company has retained certain limited rights to continue to use the patents. The patent purchase agreement contains representations and warranties customary for transactions of this type.

17


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Management Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. 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 voice over Internet protocol, or VoIP, telephony products and services, the reliability of our services, the prices for our services, customer renewal rates, customer acquisition costs, our ability to compete effectively in the hosted telecommunications services business, 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 need for and the availability of adequate working capital, our ability to innovate technologically, the timely supply of products by our contract manufacturers, and potential future intellectual property infringement claims and other litigation that could adversely affect our business and operating results. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In addition to the factors discussed elsewhere in this Form 10-Q, see the Risk Factors discussion in Item 1A of our 2013 Form 10-K. The forward-looking statements included in this Form 10-Q are made only as of the date of this report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

BUSINESS OVERVIEW

We develop and market telecommunications services for Internet protocol, or IP, telephony and video applications as well as contact center, web-based conferencing and unified communications services, and cloud-based computing services. As of June 30, 2013, we had approximately 33,700 business customers. Since fiscal 2004, substantially all of our revenue has been generated from the sale, license and provision of VoIP products, services and technology. Prior to fiscal 2003 , our focus was on our VoIP semiconductor business.

Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this report refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2014 refers to the fiscal year ending March 31, 2014).

CRITICAL ACCOUNTING POLICIES & ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013. As of June 30, 2013, there had been no material changes to our critical accounting policies and estimates.

18


SELECTED OPERATING STATISTICS

We periodically review certain key business metrics, within the context of our articulated performance goals, in order to evaluate the effectiveness of our operational strategies, allocate resources and maximize the financial performance of our business. The selected operating statistics include the following:

  Selected Operating Statistics
  June 30,   March 31,   Dec 31,   Sept. 30,   June 30,
  2013   2013   2012   2012   2012
Gross business customer additions (1) 2,702    2,808    2,617    2,915    2,943 
Number of new services sold (1)(2) 47,353    50,728    44,391    42,920    41,146 
Average number of subscribed services                    
     per new business customer (3) 17.5    18.1    17.0    14.7    14.0 
Business subscriber acquisition cost                  
     per service (4) $ 96    $ 92    $ 98    $ 89    $ 97 
                   
Total business customers (5) 33,662    32,535    31,473    30,498    29,913 
Average number of subscribed services                    
     per business customer (6) 11.8    11.5    11.2    10.6    10.1 
Business customer average monthly                   
     service revenue per customer (7) $ 268    $ 263    $ 260    $ 256    $ 250 
                   
Monthly business customer churn (less                   
     cancellations within 30 days                  
     of sign-up) (8) 1.4%   1.7%   1.6%   2.4%   1.7%
Monthly business service revenue churn 1.2%   1.5%   2.6%   1.0%   2.3%
                   
Overall service margin 81%   80%   78%   76%   75%
Overall product margin -22%   -17%   -34%   -22%   -30%
Overall gross margin 71%   71%   68%   68%   67%

 

(1)

Does not include customers of Virtual Office Solo or Zerigo, Inc. ("Zerigo").

(2)

Number of recurring revenue services sold to business customers during the period.

(3)

Number of new services sold divided by gross business customer additions.

(4)

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. 

(5)

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 or Zerigo services are not included as business customers. 

(6)

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. 

(7)

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.

(8)

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%.

 

19


RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto.

      June 30,     Dollar   Percent
Service revenue     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 27,252    $ 23,172    $ 4,080    17.6%
Percentage of total revenue     90.8%     91.8%          

Service revenue consists primarily of revenue attributable to the provision of our 8x8 services and royalties earned under our VoIP technology licenses. We expect that 8x8 service revenues will continue t o comprise nearly all of our service revenues for the foreseeable future. 8x8 service revenues increased in the first quarter of fiscal 2014 primarily due to the increase in our business customer subscriber base. Our business subscriber base grew from approximately 30,000 business customers on June 30, 2012, to approximately 33,700 on June 30, 2013. The increase was partially offset by a decrease in customers of our residential services. These changes were consistent with the redirection of our marketing efforts toward our business customer service. We expect the trends to continue in future periods.

      June 30,     Dollar   Percent
Product revenue     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 2,752    $ 2,080    $ 672    32.3%
Percentage of total revenue     9.2%     8.2%          

Product revenue consists primarily of revenue from sales of IP telephones attributable to our 8x8 service. Product revenue increased in the first quarter of fiscal 2014 primarily due to an increase in equipment sales to business customers.

No customer represented greater than 10% of our total revenue for the three months ended June 30, 2013 and 2012. Revenue from customers outside the United States was not material for the three months ended June 30, 2013 or 2012.

      June 30,     Dollar   Percent
Cost of service revenue     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 5,221    $ 5,686    $ (465)   -8.2%
Percentage of service revenue     19.2%     24.5%          

The cost of service revenue primarily consists of costs associated with network operations and related personnel, telephony origination and termination services provided by third party carriers and technology license and royalty expenses. Cost of service revenue for the three months ended June 30, 2013 decreased over the comparable period in the prior fiscal year primarily due to a $0.3 million reduction in third party network service expenses, a $0.1 million reduction in license and fee expenses and a $0.1 million reduction in other cost of service expenses.

      June 30,     Dollar   Percent
Cost of product revenue     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 3,347    $ 2,710    $ 637    23.5%
Percentage of product revenue     121.6%     130.3%          

20


The cost of product revenue consists of costs associated with systems, components, system manufacturing, assembly and testing performed by third-party vendors, estimated warranty obligations and direct and indirect costs associated with product purchasing, scheduling, quality assurance, shipping and handling. The amount of revenue allocated to product revenue based on the relative selling price is less than the cost of the IP phone equipment. The cost of product revenue for the three months ended June 30, 2013 increased over the comparable period in the prior fiscal year primarily due to an increase in equipment shipped to customers.

      June 30,     Dollar   Percent
Research and development     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 2,336    $ 1,826    $ 510    27.9%
Percentage of total revenue     7.8%     7.2%          

Historically, our research and development expenses have consisted primarily of personnel, system prototype design, and equipment costs necessary for us to conduct our development and engineering efforts. In the first fiscal quarter of 2014, we capitalized $0.3 million of software development costs in accordance with ASC 985-20. We expensed all other research and development costs as they were incurred. The research and development expenses for the three months ended June 30, 2013 increased over the comparable period in the prior fiscal year primarily due to a $0.2 million increase in payroll and related costs, a $0.2 million consulting and outside service expenses, and a $0.1 million increase in other research and development expenses.

      June 30,     Dollar   Percent
Sales and marketing     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 13,121    $ 10,541    $ 2,580    24.5%
Percentage of total revenue     43.7%     41.7%          

Sales and marketing expenses consist primarily of personnel and related overhead costs for sales, marketing, and customer service. Such costs also include outsourced customer service call center operations, sales commissions, as well as trade show, advertising and other marketing and promotional expenses. Sales and marketing expenses for the first quarter of fiscal 2014 increased over the same quarter in the prior fiscal year primarily because of a $1.6 million increase in payroll and related costs, a $0.3 million increase in advertising expenses, a $0.1 million increase in bad debt expenses, a $0.1 million increase in travel and meal expenses, a $0.1 million increase in credit card discount fees, a $0.1 million increase in indirect channel commission expenses, a $0.1 million increase in tradeshow expenses and a $0.2 million increase in other sales and marketing expenses.

      June 30,     Dollar   Percent
General and administrative     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 2,790    $ 2,064    $ 726    35.2%
Percentage of total revenue     9.3%     8.2%          

General and administrative expenses consist primarily of personnel and related overhead costs for finance, human resources and general management. General and administrative expenses for the first quarter of fiscal 2014 increased over the same quarter in the prior fiscal year primarily because of a $0.6 million increase in payroll and related costs, a $0.2 million increase in rent expenses. The increase in general and administrative expenses was partially offset by a $0.1 million reduction in other general and administrative expenses.

21


      June 30,     Dollar   Percent
Gain on patent sale     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $   $ (11,965)   $ 11,965    -100.0%
Percentage of total revenue     0.0%     -47.4%          

In June 2012, we entered into a patent purchase agreement for the sale of a family of United States patents for $12.0 million in cash. We recognized a $12.0 million gain on this transaction, which has been recorded as a reduction of operating expenses in the consolidated statements of operations. The gain was comprised of the $12.0 million of proceeds, net of transaction costs.

      June 30,     Dollar   Percent
Other income, net     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 15    $   $   87.5%
Percentage of total revenue     0.0%     0.0%          

In the three months ended June 30, 2013 and 2012, other income, net primarily consisted of interest income earned on our cash, cash equivalents and investments.

      June 30,     Dollar   Percent
Provision for income tax     2013     2012     Change   Change
      (dollar amounts in thousands)    
Three months ended   $ 1,065    $ 5,781    $ (4,716)   -81.6%
Percentage of income                      
before provision for income taxes     33.2%     40.2%          

For the three months ended June 30, 2013, we recorded a provision for income taxes of $1.1 million which was primarily attributable to net income from operations, reduced by $0.2 million for a true-up of prior period city income tax returns that was treated as a discrete item for the quarter. For the three months ended June 30, 2012, we recorded a provision for income taxes of $5.8 million which was primarily attributable to net income from operations, including the gain on sale of patents.

The effective tax rate is calculated by dividing the income tax provision by net income before income tax expense. We estimate our annual effective tax rate at the end of each quarter. In estimating the annual effective tax rate, we, in consultation with our tax advisors, consider, among other things, annual pre-tax income, permanent tax differences, the geographic mix of pre-tax income and the application and interpretations of existing tax laws.

Liquidity and Capital Resources

As of June 30, 2013, we had approximately $57.8 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities for the three months ended June 30, 2013 was approximately $5.2 million, compared with $14.9 million for the three months ended June 30, 2012. The decrease in cash flow was primarily due to a $12.0 million gain on the sale of a patent family in June 2012, net of an increase in service and product revenue in the first three months of fiscal 2013. Cash provided by operating activities has historically been affected by the amount of net income, sales of subscriptions, changes in working capital accounts particularly in deferred revenue due to timing of annual plan renewals, add-backs of non-cash expense items such as the use of deferred tax assets, depreciation and amortization and the expense associated with stock-based awards.

22


Net cash used in investing activities was $0.8 million during the three months ended June 30, 2013, compared with $1.0 million used in investing activities for the three months ended June 30, 2012. The decrease in cash used in investing activities during the three months ended June 30, 2013 is primarily related to a decrease in the purchase of additional equipment ($0.5 million).

Our financing activities for the three months ended June 30, 2013 consisted primarily of cash from the issuance of shares due to exercise of employee stock options ($1.3 million) offset by cash used to repurchase shares of our common stock ($0.1 million).

Contractual Obligations

We lease our headquarters facility in San Jose, California under an operating lease agreement that expires in October 2019. The lease is an industrial net lease with monthly base rent of $130,821 for the first 15 months with a 3% increase each year thereafter, and requires us to pay property taxes, utilities and normal maintenance costs.

We entered into a series of noncancelable capital lease agreements for office equipment bearing interest at various rates. Assets under capital lease at June 30, 2013 totaled $110,000 with accumulated amortization of $73,000.

In the third quarter of 2010, we amended the contract with one of our third party customer support vendors containing a minimum monthly commitment of approximately $430,000. The agreement requires a 150-day notice to terminate. At June 30, 2013, the total remaining obligation under the contract was $2.2 million.

We have entered into contracts with multiple vendors for third party network services. At June 30, 2013, future minimum annual payments under these third party network service contracts were $1,732,000 in 2014, $1,579,000 in 2015 and $52,000 in 2016.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency

Our financial market risk consists primarily of risks associated with international operations and related foreign currencies. We derive a portion of our revenue from customers in Europe and Asia. In order to reduce the risk from fluctuation in foreign exchange rates, the vast majority of our sales are denominated in U.S. dollars. In addition, almost all of our arrangements with our contract manufacturers are denominated in U.S. dollars. We have not entered into any currency hedging activities. To date, our exposure to exchange rate volatility has not been significant; however, there can be no assurance that there will not be a material impact in the future.

Investments

We maintain an investment portfolio of various holdings, types and maturities. These marketable securities and investments are generally classified as available for sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive loss. Part of this portfolio includes investments in mutual funds.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Disclosure Controls") that are designed to ensure that information we are required to disclose in reports filed or submitted under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

23


As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our Disclosure Controls. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our Disclosure Controls were effective as of June 30, 2013.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting

During the first quarter of fiscal 2014, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. Legal Proceedings

Descriptions of our legal proceedings are contained in Part I, Item 1, Financial Statements - Notes to Condensed Consolidated Financial Statements — "Note 7".

ITEM 1A. Risk Factors

We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. We have disclosed a number of material risks under Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended March 31, 2013, which we filed with the Securities and Exchange Commission on May 28, 2013.

24


ITEM 6. EXHIBITS

Exhibit
Number


Description


31.1 

Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       (PDF as a courtesy)

31.2 

Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       (PDF as a courtesy)

32.1 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       (PDF as a courtesy)

32.2 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       (PDF as a courtesy)

101.INS* 

XBRL Instance Document

101.SCH* 

XBRL Taxonomy Extension Schema

101.CAL* 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF* 

XBRL Taxonomy Extension Definition Linkbase

101.LAB* 

XBRL Taxonomy Extension Label Linkbase

101.PRE* 

XBRL Taxonomy Extension Presentation Linkbase

  

 

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

25


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 26, 2013

8X8, INC. 

(Registrant)  

By: /s/ D ANIEL W EIRICH          

Daniel Weirich 

Chief Financial Officer
(Principal Financial and Chief Accounting Officer and Duly Authorized Officer)

 

 

 

 

 

26


Exhibit 31.1

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bryan R. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 8x8, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
  4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

  1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
  2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

July 26, 2013

/s/ B RYAN R. M ARTIN
Bryan R. Martin
Chairman, Chief Executive Officer and President








Exhibit 31.2

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Weirich, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 8x8, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
  4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

  1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
  2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

July 26, 2013

/s/ D ANIEL W EIRICH
Daniel Weirich
Chief Financial Officer and Secretary








Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of 8x8, Inc. (the "Company") for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bryan R. Martin, Chairman, Chief Executive Officer and President of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ B RYAN R. M ARTIN
Bryan R. Martin
Chairman, Chief Executive Officer and President

July 26, 2013

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.








Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of 8x8, Inc. (the "Company") for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Weirich, Chief Financial Officer and Secretary of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ D ANIEL W EIRICH
Daniel Weirich
Chief Financial Officer and Secretary

July 26, 2013

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.