8×8, Inc. Reports Fourth Quarter and Fiscal 2019 Financial Results

8×8, Inc. (NYSE: EGHT), a leading cloud provider of voice, video, chat
and contact center solutions for over one million users worldwide, today
reported financial results for the fourth quarter and full-year fiscal
2019 ended March 31, 2019.

Fourth Quarter Fiscal 2019 Financial Results:

• Total revenue increased 18% year-over-year to $93.8 million. Adjusting
  for constant currency and excluding legacy DXI revenue, total revenue
  increased 20% year-over-year.
• Service revenue increased 18% year-over-year to $89.1 million.
  Adjusted service revenue increased 22% year-over-year.
• Service revenue from mid-market and enterprise customers billing
  greater than $1,000 in monthly recurring revenue (MRR), adjusting for
  constant currency and excluding legacy DXI revenue, increased 29%
  year-over-year and represents 63% of total service revenue.
• Service revenue from mid-market and enterprise customers billing
  greater than $10,000 in MRR, adjusting for constant currency and
  excluding legacy DXI revenue, increased 51% year-over-year and
  represents 30% of total service revenue.
• GAAP net loss was $28.1 million or $(0.29) per diluted share.
• Non-GAAP net loss was $8.4 million or $(0.09) per diluted share.

“We finished 2019 with strong execution from our mid-market and channel
teams. We have the only technology platform in the market today that can
deliver both stand-alone and mix-and-match bundling of solutions across
three distinct but complementary high-growth markets of business
communications, contact center, and video collaboration. This positions
8×8 for continued growth in fiscal 2020 and beyond as each of these
markets shifts to the cloud,” said Vik Verma, Chief Executive Officer at
8×8, Inc.

Full-Year Fiscal 2019 Financial Results:

• Total revenue increased 19% year-over-year to $352.6 million.
  Adjusting for constant currency and excluding legacy DXI revenue,
  total revenue increased 21% year-over-year.
• Service revenue increased 19% year-over-year to $334.4 million.
  Adjusted service revenue increased 22% year-over-year.
• Service revenue from mid-market and enterprise customers billing
  greater than $1,000 in MRR, adjusting for constant currency and
  excluding legacy DXI revenue, increased 30% year-over-year and
  represents 62% of total service revenue.
• Service revenue from mid-market and enterprise customers billing
  greater than $10,000 in MRR, adjusting for constant currency and
  excluding legacy DXI revenue, increased 57% year-over-year and
  represents 28% of total service revenue.
• GAAP net loss was $88.7 million or $(0.94) per diluted share.
• Non-GAAP net loss was $21.3 million, or $(0.22) per diluted share.

Additional Fourth Quarter Business Metrics and
Company Highlights:

Business Metrics

• Bookings from mid-market and enterprise customers (greater than $1K in
  MRR) increased 34% year-over-year, compared with 13% in the prior
  quarter.
• Channel bookings grew 91% year-over-year, compared with 23% in the
  prior quarter.
• Average monthly service revenue per business customer was $516,
  compared with $469 in the same period last year, a 10% increase
  year-over-year. Mid-market and enterprise average monthly service
  revenue per business customer was $5,364, compared with $4,899 in the
  same period last year, a 9% year-over-year increase.
• Issued $287.5 million of 0.50% coupon Convertible Senior Notes due in
  2024. In conjunction with the issuance of the convertible notes, 8×8
  also entered into a capped call transaction to eliminate dilution up
  to a $39.50 stock price, or 100% above the share price at issuance.
• Cash used in operating activities was $8.2 million. Cash, restricted
  cash and investments were $354.6 million at March 31, 2019, including
  $245.8 million raised from the issuance of new convertible notes.

Please note that going forward the Company will be reporting annual
recurring revenue (ARR) based metrics in place of MRR. Additionally, the
Company is providing new metrics which offer business insights around
customer segmentation and revenue composition. The Company will also be
reporting and guiding to GAAP-based revenue metrics rather than
historical adjusted service revenue metrics which are in constant
currency, exclude legacy DXI and ASC 606 adjustments. The new metrics
are discussed in this press release and included in a newly-published
financial and operating metrics worksheet that is posted on the
Company’s investor relations website.

New ARR-Based and Financial Metrics

As noted above, the Company is introducing additional financial and
operating metrics in order to provide investors with additional
information and insights into the Company’s performance and evolution as
a high-growth SaaS business. Beginning with the reporting of the fourth
quarter of fiscal 2019, the Company is providing information on
customers generating annual recurring revenue (ARR) greater than
$100,000, and related metrics, as follows:

• TOTAL ARR GREATER THAN $100K: The Company had 408 customers
  that generated ARR greater than $100,000, compared with 283 customers
  in the same period last year, a 44% growth year-over-year.
• BOOKINGS GREATER THAN $100K ARR: The Company closed 35 new
  customer deals in the fourth quarter of fiscal 2019 with ARR greater
  than $100,000, compared with 27 deals in the same period last year, a
  30% growth year-over-year. These deals represented 35% of total
  bookings for the quarter, compared with 31% of total bookings in the
  same period last year.

The Company is also providing the following new revenue metrics by
customer size for the quarter ended March 31, 2019:

• Revenue from Small Business customers (defined as companies whose
  revenue is less than $50 million) comprised 64% of ending annual
  recurring revenue (ARR) and grew 13% year-over-year.
• Revenue from Mid-market customers (defined as companies whose revenue
  is between $50 million and $1 billion) comprised 23% of ending annual
  recurring revenue (ARR) and grew 34% year-over-year.
• Revenue from Enterprise customers (defined as companies whose revenue
  is more than $1 billion) comprised 13% of ending annual recurring
  revenue (ARR) and grew 54% year-over-year.

Product Innovation Highlights

• Announced integration of 8×8 Contact Center with Google Cloud’s new
  Contact Center AI to improve the customer service experience and
  productivity of contact centers.
• Introduced 8×8 X Series in Australia and New Zealand.
• Added new capabilities to the 8×8 X Series platform including advanced
  speech analytics and real-time dashboards for contact centers.
• Launched 8×8 PartnerXchange, an online portal that enables channel
  partners to manage their 8×8-related business and drive sales of 8×8
  solutions.
• Launched 8×8 Flex Hardware Program to help companies take the risk out
  of moving to cloud communications by providing the latest Poly IP
  desktop and conference phones at low monthly lease payments,
  eliminating the need for customers to incur upfront costs.
• Awarded six new patents in the quarter for a total of 183 patents.

Industry Awards

• 8×8 recognized with a CRN Tech Innovator Award for X Series in the
  Unified Communications category for combining UC and contact
  technologies into a single cloud-based platform.
• 8×8 named 2019 Channel Influencer Award winner by Channel Partners and
  Channel Futures.

Reclassification:

The Company reclassified certain expenses on its Consolidated Statement
of Operations effective for the fourth quarter of fiscal 2019. These
expenses are related to servicing our customers and include customer
deployment, technical support, professional services and other costs,
which have been reclassified from Sales & Marketing expense to Cost of
Revenues, Research & Development expenses or General & Administrative
expenses.

The Company believes these classifications provide additional clarity
and insights into the Company’s go-to-market, demand generation and
sales execution activities, and how the total Sales & Marketing spend
drives revenue generation, in light of the recent strategic and
organizational changes impacting the Company’s channel, marketing and
support activities.

The reclassifications did not have any impact on consolidated operating
income (loss), net income (loss) or cash flows. The Company has also
reclassified these expenses for the prior periods presented in order to
provide comparable historical financial information and has included
supplemental tables with this press release.

Giving effect to the reclassifications, Gross and Service Margins for
the fourth quarter of fiscal 2019 are reported as follows:

• Gross Margin: GAAP gross margin was 63%, compared with 63% in
  the same period last year. Non-GAAP gross margin was 66%, compared
  with 65% in the same period last year.
• Service Margin: GAAP service margin was 68% compared with 68%
  in the same period last year. Non-GAAP service margin was 71%,
  compared with 71% in the same period last year.

Please note that additional information on the expense reclassifications
are provided in the form of reconciliation tables for fiscal 2018 and
2019 and are included as a supplemental disclosure to this press release.

Financial Outlook:

In the interest of simplicity and alignment with long-term performance,
going forward the Company will no longer report, or provide guidance
with respect to, adjusted revenue metrics but rather provide GAAP-based
revenue metrics and guidance. For fiscal 2020, the Company is providing
the following guidance:

Q1 Fiscal 2020 Guidance:

• Total Revenue in the range of $95.3 million to $96.3 million,
  representing approximately 15% to 16% year-over-year growth.
• Service Revenue in the range of $91.0 million to $92.0 million,
  representing approximately 16% to 18% year-over-year growth.
• Non-GAAP Pre-tax Loss of approximately $17 million.

Full-Year Fiscal 2020 Guidance:

• Total Revenue of approximately $418.0 million, representing
  approximately 19% year-over-year growth.
• Service Revenue of approximately $400.0 million, representing
  approximately 20% year-over-year growth.
• Non-GAAP Pre-tax Loss of approximately $50 million.

We do not reconcile our forward-looking estimates of non-GAAP net income
(loss) 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 8×8 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.

Conference Call Information:

Management will host a conference call to discuss earnings results on
May 14, 2019 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). The
call is accessible via the following numbers and webcast link:

Dial In: (844) 343-9040 Domestic or (647) 689-5131 International;
Conference ID #1557877

Replay: (800) 585-8367 Domestic or (416) 621-4642 International;
Conference ID #1557877

Webcast: http://investors.8×8.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 May
28, 2019. The webcast will be archived on 8×8’s website for a period of
30 days. For additional information, visit http://investors.8×8.com.

About 8×8, Inc.

8×8, Inc. (NYSE: EGHT) cloud solutions help businesses transform their
customer and employee experience. With one system of engagement for
voice, video, chat and contact center and one system of intelligence on
one technology platform, businesses can now communicate faster and
smarter to exceed the speed of customer expectations. For additional
information, visit www.8×8.com, or
follow 8×8 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 8×8’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, certain other income and expenses,
and the provision for income taxes. Amortization of acquired intangible
assets and impairment charges 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 8×8 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 expenses, certain
severance expenses and expenses for tax or litigation risks, have been
excluded because management considers them one-time events or otherwise
not indicative of trends in the Company’s ongoing operations. The
Company has also excluded non-cash rent expense related to its new
headquarter building because the building remains in the built-out phase
and remains unoccupied.

GAAP tax provision 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.

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 by
  the line of products we acquired from 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.
• This release includes revenue figures that excludes adjustments to
  service revenue as a result of the Company adopting Accounting
  Standards Codification Topic 606 (ASC 606), Revenue from Contracts
  with Customers. Management believes the exclusion of ASC 606
  adjustments provides a clearer comparison of service revenue between
  periods presented.

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,
• the timing, extent and results of sales and use tax audits,
• 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
  customer data,
• risks related to our senior convertible notes and the related capped
  call transactions,
• 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 8×8, 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 8×8, 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.

8×8, Inc.
SUPPLEMENTAL INFORMATION
FOR THE
YEAR ENDED MARCH 31, 2019

The Company reclassified certain expenses on its Consolidated Statement
of Operations effective for the fourth quarter of fiscal 2019. The
Company believes these classifications provide additional clarity and
insights into the Company’s go-to-market, demand generation and sales
execution activities, and how the total Sales & Marketing spend drives
revenue generation, in light of the recent strategic and organizational
changes impacting the Company’s channel, marketing and support
activities. These changes in classification also align the Company’s
external presentation of operating-related expenses with the way that
the Company’s chief operating decision maker (CODM) expects to assess
spend and resource allocation decisions around the Company’s sales and
marketing demand generation effectiveness and efficiency. The Company
has reclassified these expenses for the prior periods presented in order
to provide comparable historical financial information.

The reclassifications did not have any impact to consolidated operating
income (loss), net income (loss) or cash flows. The Company has provided
tables showing the reclassifications and financial impact on the various
line items affected on the Consolidated Statement of Operations, as
follows:

• Cost of Revenues: certain expenses for providing training to
  customers, deployment of the Company’s technology platform, customer
  support, and related expenses that were previously classified in Sales
  & Marketing were reclassified to Cost of Revenues.
• Sales & Marketing Expenses: certain expenses related to customer
  service which includes customer deployment, technical support and
  other costs were reclassified from Sales & Marketing expense to Cost
  of Revenues, Research & Development expenses and/or General &
  Administrative expenses.
• Research & Development Expenses: certain expenses related to customer
  deployments that were previously classified in Sales & Marketing
  expenses were reclassified to Research & Development expenses.
• General & Administrative Expenses: certain personnel expenses that
  support billing and collection efforts and other miscellaneous costs
  that were previously classified in Sales & Marketing were reclassified
  to General & Administrative expenses. Also beginning in the fourth
  quarter of fiscal 2019, certain expenses related to recruiting
  activities that had been previously allocated across all departments
  in the first three quarters of fiscal 2019 were reported in General &
  Administrative expenses.

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