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8x8 Inc Reports Operating Results (10-Q)

January 23, 2012 | About:
10qk

10qk

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8x8 Inc (EGHT) filed Quarterly Report for the period ended 2011-12-31.

8x8 Inc has a market cap of $295.58 million; its shares were traded at around $4.23 with a P/E ratio of 35.5 and P/S ratio of 4.21.

Highlight of Business Operations:

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 December 31, 2011 increased over the comparable period in the prior fiscal year primarily due to a $0.4 million increase in payroll and related costs, a $0.3 million increase in third party network service fees, a $0.3 million increase in depreciation and amortization expense primarily due to intangibles acquired as part of business combinations, and a $0.2 million increase in consulting and outside service expenses. The increase in cost of service revenue was partially offset by a $0.1 million decrease in license and fee expenses.

Cost of service revenue for the nine months ended December 31, 2011 increased from the comparable period in the prior fiscal year primarily due to a $0.8 million increase in payroll and related costs, a $0.4 million increase in third party network service fees, $0.3 million increase in consulting and outside service expenses, a $0.2 million increase in depreciation expense, a $0.2 million increase in amortization expense primarily due to intangibles acquired as part of business combinations , a $0.1 million increase in support and maintenance expenses and a $0.1 million increase in expensed computer equipment and furniture and fixtures. The increase in cost of service revenue was partially offset by a $0.1 million decrease in license and fee expenses.

Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, customer support, finance, human resources and general management. Such costs also include outsourced customer service call center operations, sales commissions, as well as trade show, advertising and other marketing and promotional expenses. Selling, general and administrative expenses for the three months ended December 31, 2011 increased over the comparable period in the prior fiscal year primarily because of a $1.7 million increase in payroll and related costs primarily due to an increase in headcount as a result of the acquisition of Contactual, a $0.4 million increase in advertising expenses, a $0.1 million increase in facility related expenses primarily due to assumption of Contactual operating lease, a $0.1 million increase in amortization expense primarily due to acquisition of intangibles acquired in business combinations, a $0.1 million increase in temporary employees, consulting and outside service expenses, a $0.1 million increase in travel and meal expenses, and a $0.1 million increase in sales promotion expenses. The increase in expenses was partially offset by a $0.7 million reduction in legal expenses and a $0.2 million reduction in sales and use tax primarily due to settlement and release of accrued sales and use tax related to sales and use tax audit.

Selling, general and administrative expenses for the first nine months of fiscal 2012 increased over the same period in the prior fiscal year primarily because of a $3.1 million increase in payroll and related costs primarily due to an increase in headcount as a result of growth in the business and the acquisition of Contactual, a $0.4 million increase in sales promotion expenses, a $0.3 million increase in advertising expenses, a $0.1 million increase in facility related expenses primarily due to assumption of Contactual operating lease, a $0.1 million increase in amortization expense primarily due to acquisition of intangibles acquired in business combinations, a $0.1 million increase in travel and meal expenses, a $0.1 million increase in credit card processing fees, a $0.1 million increase in bad debt expenses, a $0.1 million increase in tradeshow expenses and a $0.2 million increase in other miscellaneous expenses. The increase in expenses was partially offset by a $0.3 million reduction in legal expenses, a $0.2 million reduction in sales and use tax primarily due to settlement and release of accrued sales and use tax related to sales and use tax audit and a $0.1 million reduction in third party rep commissions.

Net cash provided by operating activities for the nine months ended December 31, 2011 was approximately $6.4 million, compared with $7.0 million for the nine months ended December 31, 2010. The decrease in cash flow was primarily due to an increase in operating expenses in the first nine months of fiscal 2012, including legal fees incurred for the purchase of Contactual ($0.4 million) and liabilities assumed with purchase of Contactual in September 2011, including broker fees of $0.7 million and legal fees of $0.2 million, partially offset by a $0.3 million release of the valuation allowance against the deferred tax asset as the Company has deemed it is more likely than not it will be used to offset the $0.3 million deferred tax liability recorded in connection with the acquisition of Zerigo. 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 depreciation and amortization, the expense associated with stock-based awards and the change in fair value of warrant liability.

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