Market Overview

8x8, Inc. Reports First Quarter Fiscal 2019 Financial Results

Share:

-- Service revenue increased 20% year-over-year to $78 million

-- Adjusting for constant currency and excluding DXI revenue, service
revenue increased 21% year-over-year, compared to a 20% year-over-year
increase in the previous quarter

8x8, Inc. (NYSE:EGHT), a leading provider of cloud phone, meeting,
collaboration, and contact center solutions, today reported financial
results for the first quarter of fiscal 2019 ended June 30, 2018.

First Quarter Fiscal 2019 Financial Results:

  • Service revenue increased 20% year-over-year to $78.1 million.
    Adjusting for constant currency and excluding DXI revenue, service
    revenue increased 21% year-over-year, compared to a 20% year-over-year
    increase in the previous quarter.
  • Total revenue increased 20% year-over-year to $83.2 million. Adjusting
    for constant currency and excluding DXI revenue, total revenue
    increased 21% year-over-year, compared to a 19% year-over-year
    increase in the previous quarter.
  • GAAP net loss was $15 million or ($0.16) per diluted share.
  • Non-GAAP net loss was $3.5 million or ($0.04) per diluted share.

"Accelerating bookings growth from our mid-market and enterprise
customers, increasing sales velocity from our channel partners, and
strong customer demand for integrated solutions enabled 8x8 to deliver
solid first quarter results that exceeded both top and bottom line
expectations," said Vik Verma, Chief Executive Officer at 8x8, Inc.
"These results are a great indicator of how well-positioned 8x8 is to
disrupt the $40 billion enterprise communications market with the new X
Series, the industry's first cloud solution to integrate voice,
conferencing, collaboration and contact center on a single platform. Now
available, X Series simplifies overly complex communications and contact
center systems into a unified cloud system of intelligence. X Series
provides enterprises with one set of data, one workflow engine, and one
analytics engine inside an integrated solution for voice, meeting, team
collaboration and contact center. Customers such as Applebee's and large
public sector clients like Brent and Lewisham Councils in the U.K. have
purchased X Series to transform their employee and customer engagement."

Additional Business Metrics and Highlights:

  • Margins: GAAP gross margin was 74%, compared with 76% in the same
    period last year. Non-GAAP gross margin was 76%, compared with 78% in
    the same period last year. GAAP service margin was 81%, compared with
    82% in the same period last year. Non-GAAP service margin was 83%,
    compared with 84% in the same period last year.
  • Cash generated from operating activities was $0.8 million. Cash,
    restricted cash and investments were $153 million at June 30, 2018.
  • Service revenue from mid-market and enterprise customers billing
    greater than $1,000 in monthly recurring revenue (MRR) increased 28%
    over the prior year and represents 61% of total service revenue
    compared with 57% in the year ago quarter.
  • Adjusting for constant currency and excluding DXI revenue, service
    revenue from mid-market and enterprise customers billing greater than
    $1,000 in monthly recurring revenue (MRR) increased 30% year-over-year
    and represents 60% of total service revenue.
  • Adjusting for constant currency and excluding DXI revenue, service
    revenue from mid-market and enterprise customers billing greater than
    $10,000 in monthly recurring revenue (MRR) increased approximately 58%
    year-over-year and represents 27% of total monthly recurring revenue.
  • New monthly recurring revenue (MRR) booked from mid-market and
    enterprise customers increased 25% year-over-year and comprised 57% of
    total bookings.
  • Average monthly service revenue by business customer (ARPU): ARPU per
    mid-market and enterprise customers was $4,953, compared with $4,592
    in the same period last year, an 8% year-over-year increase. ARPU per
    business customer grew to $480, compared with $432 in the same period
    last year, an 11% increase year-over-year.
  • 8x8 has been awarded a total of 163 patents through June 30, 2018.
  • Announced general availability of 8x8 X Series – the industry's first
    cloud solution to integrate voice, conferencing, collaboration and
    contact center on a single platform - in the U.S. and U.K.
  • 8x8 was awarded the "Most Revenue Potential in 2018" and "Easiest to
    do Business With" at channel partner AVANT Communications Special
    Forces Summit Awards.

Financial Outlook:

On April 1, 2018, 8x8 adopted Accounting Standards Codification (ASC)
606 using the modified retrospective transition method. The guidance
below includes the expected impact of the adoption of this new revenue
standard, which replaced ASC 605.

Full Year Fiscal 2019 Financial Outlook under ASC 606:

  • Service revenue in the range of $333 million to $338 million,
    representing approximately 19% to 21% year-over-year increase.
  • Excluding DXI revenue, service revenue growth in the range of 21% to
    22%.
  • Total revenue in the range of $347 million to $352 million,
    representing approximately 17% to 19% year-over-year increase.
  • Non-GAAP pre-tax loss in the range of $13 million to $17 million.

Second Fiscal Quarter 2019 Financial Outlook under ASC 606:

  • Service revenue in the range of $80 million to $81 million,
    representing approximately 18% to 19% year-over-year increase.
  • Excluding DXI revenue, service revenue growth in the range of 20% to
    21%.
  • Non-GAAP pre-tax loss in the range of $4 million to $5 million.

We do not reconcile our forward-looking estimates of 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,
impairments and other non-recurring items are difficult to predict as
they may depend on future events and external factors outside the
Company's control. 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 are not available without unreasonable effort.

We also announced today that 8x8 had granted awards of restricted stock
units representing the right to acquire up to 229,629 shares of the
Company's common stock and stock options exercisable for up to 44,656
shares of common stock, to a total of 72 new employees. Of these awards,
a small portion of the RSUs (representing the right to acquire 9,130
shares of common stock) vest in full approximately one year after the
date of grant. The remaining awards have vesting schedules and other
terms and conditions substantially the same as those previously
disclosed for RSU and option awards granted to non-executive employees.
The awards were approved by a majority of the Company's independent
directors, as material inducements to the hiring of new employees, in
accordance with New York Stock Exchange Rule 303A.08 and the Company's
2017 New Employee Inducement Incentive Plan.

Conference Call Information:

Management will host a conference call to discuss earnings results on
July 26, 2018 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). The
call is accessible via the following numbers and webcast links:

 
Dial In: (866) 393-4306 Domestic or (734) 385-2616 International; Conference
ID #2393019
 
Replay: (855) 859-2056 Domestic or (404) 537-3406 International; Conference
ID #2393019
 
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 until
August 16, 2018. The webcast will be archived on 8x8's website for a
period of 30 days. For additional information, visit http://investors.8x8.com.

About 8x8, Inc.

8x8, Inc. (NYSE:EGHT) is a leading
provider of cloud phone, meeting, collaboration and contact center
solutions with over a million business users worldwide. 8x8 helps
enterprises engage at the speed of employee and customer expectations by
putting the collective intelligence of the organization in the hands of
every employee. For additional information, visit www.8x8.com,
or follow 8x8 on LinkedIn,
Twitter, 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.

The Company has defined non-GAAP net income (loss) as net income (loss)
under GAAP, plus amortization of acquired intangible assets, impairment
charges, stock-based compensation, other income and expenses, and the
provision for or benefit from income taxes. Amortization of acquired
intangible assets are 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 conditions and events, such as the market
price of 8x8 common stock, that are difficult to predict and/or largely
not within the control of management. Certain other income and expense
items, such as acquisition-related or severance expenses, have been
excluded because management considers them one-time events or otherwise
not indicative of trends in the Company's ongoing operations. For the
first fiscal quarter of fiscal year 2019, the Company has also excluded
non-cash rent expense related to its new headquarter building because
the building remains in the built-out phase.

GAAP tax provision (benefit) for income taxes has been excluded as
management does not consider taxes in its analysis of the performance of
ongoing operations. Due to the Company's history of tax losses and full
valuation allowance against deferred tax assets, future GAAP and
Non-GAAP effective tax rates are limited to current taxes in certain US
state and foreign jurisdictions. The Company reports these current taxes
as reduction from Non-GAAP pretax net income to derive Non-GAAP net
income after taxes.

The Company defines non-GAAP net income (loss) per share as non-GAAP net
income (loss) divided by the weighted-average basic or 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 (loss) divided by 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.

Although these non-GAAP financial measures adjust expenses, they should
not be viewed as a pro forma presentation reflecting the elimination of
the underlying share-based compensation programs, which are an important
element of the Company's compensation structure. GAAP requires that all
forms of share-based payments should be valued and included in the
results of operations.

In addition, this release includes financial measures that have been
adjusted as follows:

  • This release includes revenue figures adjusted to exclude revenue
    generated by DXI. As first reported in the third quarter of our 2018
    fiscal year, we have de-emphasized the sale of DXI's ContactNow as a
    stand-alone product, and management therefore believes it is useful to
    exclude this revenue from period-to-period comparisons to better
    depict the relative performance of our core business.
  • This release includes revenue figures adjusted for comparison on a
    constant currency basis, when management concluded that the
    elimination of the impact of currency fluctuations between the periods
    being compared would assist with the evaluation of the underlying
    business performance.

We disclose these non-GAAP financial measures to the public as an
additional means by which investors can assess our performance. These
non-GAAP financial measures may be calculated differently from, and
therefore may not be comparable to, similarly titled measures used by
other companies. 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.

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:

  • Customer acceptance and demand for our cloud communication and
    collaboration services,
  • changes in the competitive dynamics of the markets in which we compete,
  • the quality and reliability of our services,
  • customer cancellations and rate of churn,
  • our ability to scale our business,
  • customer acquisition costs,
  • our reliance on infrastructure of third-party network services
    providers,
  • risk of failure in our physical infrastructure,
  • risk of failure of our software,
  • our ability to maintain the compatibility of our software with
    third-party applications and mobile platforms,
  • continued compliance with industry standards and regulatory
    requirements in the United States and foreign countries in which we
    make our software solutions available, and the costs of such
    compliance,
  • risks relating to our strategies and objectives for future operations,
    including the execution of integration plans and realization of the
    expected benefits of our acquisitions,
  • the amount and timing of costs associated with recruiting, training
    and integrating new employees,
  • timing and extent of improvements in operating results from increased
    spending in marketing, sales, and research and development,
  • introduction and adoption of our cloud software solutions in markets
    outside of the United States,
  • risk of cybersecurity breaches and other unauthorized disclosures of
    personal data,
  • general economic conditions that could adversely affect our business
    and operating results,
  • implementation and effects of new accounting standards and policies in
    our reported financial results, and
  • potential future intellectual property infringement claims and other
    litigation that could adversely affect our business and operating
    results.

For a discussion of such risks and uncertainties, which could cause
actual results to differ from those contained in the forward-looking
statements, see "Risk Factors" in the Company's reports on Forms 10-K
and 10-Q, as well as other reports that 8x8, Inc. files from time to
time with the Securities and Exchange Commission. All forward-looking
statements are qualified in their entirety by this cautionary statement,
and 8x8, Inc. undertakes no obligation to update publicly any
forward-looking statement for any reason, except as required by law,
even as new information becomes available or other events occur in the
future.

   
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
 
Three Months Ended
June 30,
2018 2017
Service revenue $ 78,121 $ 65,091
Product revenue 5,104   4,007  
Total revenue 83,225   69,098  
 
Operating expenses:
Cost of service revenue 15,079 11,662
Cost of product revenue 6,281 4,884
Research and development 13,110 7,943
Sales and marketing 53,305 41,110
General and administrative 11,433   8,956  
Total operating expenses 99,208   74,555  
Loss from operations (15,983 ) (5,457 )
Other income, net 719   2,052  
Loss before provision (benefit) for income taxes (15,264 ) (3,405 )
Provision (benefit) for income taxes 91   (1,236 )
Net loss $ (15,355 ) $ (2,169 )
 
Net loss per share:
Basic $ (0.16 ) $ (0.02 )
Diluted $ (0.16 ) $ (0.02 )
 
Weighted average number of shares:
Basic 93,064 91,643
Diluted 93,064 91,643
 
   
8x8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
 
June 30, March 31,
2018   2018
ASSETS
Current assets
Cash and cash equivalents $ 34,557 $ 31,703
Short-term investments 109,903 120,559
Accounts receivable, net 17,725 16,296
Deferred sales commission costs 12,706 -
Other current assets 11,131 10,040
Total current assets 186,022 178,598
Property and equipment, net 38,100 35,732
Intangible assets, net 13,610 11,958
Goodwill 39,651 40,054
Restricted cash 8,100 8,100
Deferred sales commission costs, noncurrent 27,041 -
Other assets 3,027 2,767
Total assets $ 315,551 $ 277,209
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 26,900 $ 23,899
Accrued compensation 16,366 17,412
Accrued taxes 7,930 6,367
Deferred revenue 2,838 2,559
Other accrued liabilities 6,688 6,026
Total current liabilities 60,722 56,263
 
Other liabilities 2,987 2,172
Total liabilities 63,709 58,435
 
Total stockholders' equity 251,842 218,774
Total liabilities and stockholders' equity $ 315,551 $ 277,209
 
   
8x8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
Three Months Ended
June 30,
2018 2017
Cash flows from operating activities:
Net loss $ (15,355 ) $ (2,169 )

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

Depreciation 2,061 1,897
Amortization of intangible assets 1,432 1,522
Amortization of capitalized software 1,685 308
Non-cash lease expenses 1,200 -
Stock-based compensation expense 8,911 6,351
Deferred income tax benefit - (1,492 )
Gain on escrow settlement - (1,393 )
Other 372 101
Changes in assets and liabilities:
Accounts receivable, net (1,497 ) (147 )
Deferred sales commission costs (1,799 ) -
Other current and noncurrent assets (419 ) (1,623 )
Accounts payable and accruals 3,905 2,889
Deferred revenue 293   (61 )
Net cash provided by operating activities 789   6,183  
 
Cash flows from investing activities:
Purchases of property and equipment (1,223 ) (2,293 )
Purchase of business (2,625 ) -
Proceeds from escrow settlement - 1,393
Cost of capitalized software (5,112 ) (2,122 )
Proceeds from maturity of investments 18,400 25,450
Sales of investments 11,914 5,252
Purchase of investments (19,534 ) (21,327 )
Net cash provided by investing activities 1,820   6,353  
 
Cash flows from financing activities:
Capital lease payments (277 ) (351 )
Repurchase and tax-related withholding of common stock (229 ) (1,054 )
Proceeds from issuance of common stock under employee stock plans 1,007   720  

Net cash provided by (used in) financing activities

501   (685 )
 
Effect of exchange rate changes on cash (256 ) 294  
Net increase in cash and cash equivalents 2,854 12,145
 
Cash, cash equivalents and restricted cash, beginning of period 39,803   41,030  
Cash, cash equivalents and restricted cash, end of period $ 42,657   $ 53,175  
 
       
8x8, Inc.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts; unaudited)
 
Three Months Ended Three Months Ended

Reconciliation of GAAP to Non-GAAP
Expenses:

June 30, 2018 June 30, 2017
GAAP cost of service revenue $ 15,079 $ 11,662
Amortization of acquired intangible assets (1,110 ) (797 )
Stock-based compensation expense (458 ) (391 )
Non-GAAP cost of service revenue $ 13,511   $ 10,474  
Non-GAAP service margin (as a percentage of service revenue) $ 64,610   82.7 % $ 54,617   83.9 %
 
GAAP and Non-GAAP cost of product revenue $ 6,281   $ 4,884  
Non-GAAP product margin (as a percentage of product revenue) $ (1,177 ) -23.1 % $ (877 ) -21.9 %
   
Non-GAAP gross margin (as a percentage of revenue) $ 63,433   76.2 % $ 53,740   77.8 %
 
GAAP research and development $ 13,110 $ 7,943
Stock-based compensation expense (2,194 ) (1,337 )
Non-GAAP research and development (as a percentage of revenue) $ 10,916   13.1 % $ 6,606   9.6 %
 
GAAP sales and marketing $ 53,305 $ 41,110
Amortization of acquired intangible assets (322 ) (725 )
Stock-based compensation expense (3,845 ) (2,647 )
Non-GAAP sales and marketing (as a percentage of revenue) $ 49,138   59.0 % $ 37,738   54.6 %
 
GAAP general and administrative $ 11,433 $ 8,956
Stock-based compensation expense (2,414 ) (1,976 )
Non-recurring items (1,501 ) (260 )
Non-GAAP general and administrative (as a percentage of revenue) $ 7,518   9.0 % $ 6,720   9.7 %
 
 
 
 
 

Reconciliation of GAAP Net Loss to
Non-GAAP Net Income (Loss):

GAAP net loss $ (15,355 ) $ (2,169 )
Amortization of acquired intangible assets 1,432 1,522
Stock-based compensation expense 8,911 6,351
Non-recurring items in operating expenses 1,501 -
Non-recurring items in other income (expenses), net - (1,133 )
Provision (benefit) for income taxes 91   (1,236 )
Non-GAAP net income (loss) before taxes (as a percentage of revenue) $ (3,420 ) -4.1 % $ 3,335   4.8 %
Non-GAAP tax expense (1)(2) 91   100  
Non-GAAP net income (loss) after taxes (as a percentage of revenue) $ (3,511 ) -4.2 % $ 3,235   4.7 %
 

(1) The non-GAAP tax provision in fiscal year 2019 does not have a
deferred income tax impact due to the full valuation allowance
applied against deferred tax assets. The non-GAAP effective tax
rate of -3% for the three months ended June 30, 2018, is based on
current taxes for certain states and foreign jurisdictions, and
excludes the impact of the valuation allowance. For the three
months ended June 30, 2017, the total non-GAAP effective tax rate
was 2.9%.

 
(2) The amount for the three months ended June 30, 2017 has been
adjusted to conform with current period presentation.
 
Shares used in computing non-GAAP net income (loss) per share:
Basic 93,064 91,643
Diluted 93,064 94,786
 
GAAP net loss per share - Diluted $ (0.16 ) $ (0.02 )
Non-GAAP net income (loss) before taxes per share - Diluted $ (0.04 ) $ 0.03
Non-GAAP net income (loss) after taxes per share - Diluted $ (0.04 ) $ 0.03
 
     
8x8, Inc.
RECONCILIATION OF ASC 605 TO ASC 606 STATEMENTS OF OPERATIONS
AND NON-GAAP NET INCOME (LOSS)
(In thousands, except per share amounts; unaudited)
 
Three Months Ended
June 30, 2018
ASC 605 Adjustments ASC 606
Service revenue $ 78,242 $ (121 ) $ 78,121
Product revenue 5,011   93   5,104  
Total revenue $ 83,253 $ (28 ) $ 83,225
Operating expenses:
Sales and marketing $ 55,104 $ (1,799 ) $ 53,305
Loss from operations $ (17,754 ) $ 1,771 $ (15,983 )
Net loss $ (17,126 ) $ 1,771 $ (15,355 )
 
Net loss per share:
Basic and diluted $ (0.18 ) $ 0.02 $ (0.16 )
 
Non-GAAP net loss before taxes $ (5,191 ) $ 1,771 $ (3,420 )
Non-GAAP net loss after taxes $ (5,282 ) $ 1,771 $ (3,511 )
 
Non-GAAP net loss per share:
Basic and diluted $ (0.06 ) $ 0.02 $ (0.04 )
 

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