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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 December 31, 2012
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)
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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):
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Large accelerated filer ¨ |
Accelerated filer x |
Non-accelerated filer
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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
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NO
x
The number of shares of the Registrant's Common Stock outstanding as of January 23, 2013 was 71,847,417.
FORM 10-Q
PDF as a courtesy
2
Part I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
8X8, Inc.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
8X8, Inc.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
8X8, Inc.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
8X8, Inc.
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 December 31, 2012, the Company had approximately 31,500 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 consolidated
financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2013 refers to the fiscal
year ending March 31, 2013).
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 financial statements for the fiscal year ended March 31, 2012. 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, 2012 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 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, 2012 and notes thereto included in the Company's fiscal 2012 Annual Report on Form 10-K.
The results of operations and cash flows for the interim periods included in these financial statements are not necessarily indicative
of the results to be expected for any future period or the entire fiscal year.
VoIP Service and Product Revenue
The Company's VoIP service and product revenue is derived from the sale of communications services and IP business
telephones, respectively.
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. In addition, arrangement consideration must be allocated among the separate units of accounting based on their
relative fair values, with certain limitations. The provisioning of the 8x8 service with the accompanying 8x8 IP telephone constitutes a
revenue arrangement with multiple deliverables. In accordance with the guidance of ASC 605-25, the Company allocates 8x8 revenues,
including activation fees, among the 8x8 IP telephones and subscriber services. Revenues allocated to these devices are recognized
as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. All other
revenues are recognized as license and service revenues when the related services are provided. The Company records revenue net
of any sales-related taxes that are billed to its customers. The Company believes this approach results in financial statements that are
more easily understood by users.
7
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.
Product Revenue
The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to
partners and end users 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 partner and end user sales are recorded at the time of shipment.
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.
Goodwill and Other 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):
At December 31, 2012, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives,
is estimated to be the following (in thousands):
8
Deferred Rent
In April 2012, the Company entered into an 87-month lease agreement for its new
headquarters. Under the terms of the lease agreement:
The Company also received a $1.7 million allowance for tenant improvements. In accordance with the guidance in ASC 840-20,
Leases, the Company accounts for its headquarters facility operating lease as follows:
Rent Holidays. The Company recognizes the related rent expense on a straight-line basis at the earlier of the first rent
payment or the date of possession of the leased property. The difference between the amounts charged to expense and the rent paid is
recorded as deferred lease incentives and amortized over the lease term.
Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term. The
difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the
lease term.
Tenant Improvement Allowance. The tenant improvement allowance is deferred and amortized on a straight-line basis over
the life of the lease as a reduction to rent expense.
In the second quarter of fiscal 2013, the Company received a $1.7 million reimbursement for the cost of tenant improvements that
the Company included in cash flows from operating activities. At December 31, 2012, total deferred rent included in Other accrued
liabilities and Non-current liabilities was $0.1 million and $1.9 million, respectively.
Stock Purchase Right/Restricted Stock Unit and Option Activity
Stock purchase right/restricted stock unit activity since March 31, 2012 is summarized as follows:
9
Option activity since March 31, 2012 is summarized as follows:
The following table summarizes the stock options outstanding and exercisable at December 31, 2012:
10
Stock-based Compensation Expense
The following table summarizes the classification of stock-based compensation expense for the three and nine months ended
December 31, 2012 and 2011 (in thousands):
As of December 31, 2012, there was $7.4 million of unamortized stock-based compensation expense related to unvested options
and stock awards which is expected to be recognized over a weighted average period of 3.14 years.
To value option grants and stock purchase rights/restricted stock units 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 and nine month periods ended December 31, 2012 and 2011, the Company used the historical volatility of the Company's stock
over a period equal to the expected life of the options. 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 estimate the fair value of stock options to employees and directors for the
three and nine months ended December 31, 2012 and 2011:
11
Employee Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan, 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, subject to a calendar year maximum total purchase price per employee of $25,000. The Company accounts for the Employee
Stock Purchase Plan as a compensatory plan and recorded compensation expense of $115,000 and $117,000 for the three months
ended December 31, 2012 and 2011 and $356,000 and $312,000 for the nine months ended December 31, 2012 and 2011,
respectively, in accordance with ASC 718.
The estimated fair value of stock purchase rights granted under the Employee Stock Purchase Plan was estimated at the date of
grant using Black-Scholes pricing model with the following weighted average assumptions:
As of December 31, 2012, there was $84,000 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.
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 and nine months ended December 31, 2012 and 2011.
Segment Reporting
No customer represented greater than 10% of the
Company's total revenue for the three and nine months ended December 31, 2012 or 2011. Revenue from technology licensing and
related software and customers outside the United States was not material for the three and nine months ended December 31, 2012 or
2011.
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 December 31, 2012 and March 31, 2012 (in thousands):
(1) The fair value of mutual funds is determined based
on published net asset values. The Company uses such pricing data as the primary input to make its assessments and determinations
as to the ultimate valuation of its investment portfolio.
13
4. BALANCE SHEET DETAIL
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 warrants and under the employee stock purchase plan.
The following shares attributable to outstanding stock
options and stock purchase rights/restricted stock units were excluded from the calculation of diluted earnings per share because their
inclusion would have been anti-dilutive (in thousands):
14
6. INCOME TAXES
For the three and nine months ended December 31, 2012, the Company recorded a provision for income taxes of $0.9 million
and $7.7 million, respectively, which was primarily attributable to net income from operations, including gain on the sale of patents. For
the three and nine months ended December 31, 2011, the Company recorded
accruals for state gross receipt and franchise taxes and
released a portion of its valuation allowance against the deferred tax asset as the Company deemed it was more likely than
not it would be used to offset the $0.3 million deferred tax liability recorded in connection with the acquisition of Zerigo.
During the period ended December 31, 2011, the provision for income taxes
was not significant due to the valuation allowance.
At March 31, 2012, there was $2.5 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 and nine
month periods ended December 31, 2012 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 2012 may be subject to examination
by the Internal Revenue Service, California and various other states. As of January 22, 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):
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 through 2016. At December 31, 2012, future minimum annual payments under these third party network service contracts were
as follows (in thousands):
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.
On March 15, 2011, the Company was named as a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al.,
along with more than 20 other defendants. On August 17, 2011, the suit against the Company was dismissed without prejudice 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 filed a motion to dismiss the complaint on October 11,
2011. On May 2, 2012, the Judicial Panel on Multidistrict Litigation ordered the suit against the Company and
over a dozen related cases, to be coordinated or consolidated for pretrial proceedings. On August 27, 2012, the Court denied
several defendants' motions to dismiss the complaint including the Company's. On October 11, 2012, the Company answered the
complaint and alleged three counterclaims as well as affirmative defenses.
The Company believes it has factual and legal defenses to these claims and intends to litigate the case vigorously.
The Company cannot estimate potential liability or expense in this case at this early stage of litigation.
16
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. On November 1, 2011, Klausner dismissed the complaint voluntarily and filed new complaints
separating the defendants, including a new complaint against the Company.
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. 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, 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 needs for and the availability of adequate
working capital, our ability to innovate technologically, the timely supply of products by our contract manufacturers, potential future
intellectual property infringement claims that could adversely affect our business and operating results, and our ability to retain our
listing on the NASDAQ Capital Market. 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 those factors discussed
elsewhere in this Form 10-Q, see the Risk Factors discussion in Item 1A of our 2012 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 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. We also provide managed hosting and
cloud-based computing services. As of December 31, 2012, we had approximately 31,500 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 2013 refers to the fiscal year ending March 31, 2013).
No customer represented greater than 10% of our total revenue for the three and nine months ended
December 31, 2012 and 2011. Revenue from customers outside the United States was not material for the three and nine months
ended December 31, 2012 or 2011.
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, 2012. As of December 31, 2012, there had been no material changes to our critical accounting policies and
estimates.
18
RECENT ACCOUNTING PRONOUNCEMENTS
See Item 1 of Part I, "Financial Statements - Note 2 - Basis of Presentation - Recent Accounting Pronouncements."
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:
(1)
Does not include customers of Virtual Office Solo or Zerigo, Inc. ("Zerigo").
(2)
Business customer churn is calculated by dividing the number of business customers that
terminated (after the expiration of the 30-day trial) during that period by the simple average number of business customers during the
period and dividing the result by the number of months in the period. The simple average number of business customers during the
period 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. 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%.
(3)
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.
(4)
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.
(5)
Business subscriber acquisition cost per service is defined as the combined costs of advertising,
marketing, promotions, sales commissions and equipment subsidies for business services sold during the period divided by the number
of gross business services added during the period.
(6)
Total new services sold in the period divided by gross business customer additions.
19
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto.
Service revenue consists primarily of revenue attributable to the provision of our 8x8 VoIP services and royalties earned
under our VoIP technology licenses. We expect that 8x8 service revenues will continue to comprise nearly all
of our service revenues for the foreseeable future. 8x8 service revenue increased in the third quarter of fiscal 2013 primarily due to the
increase in our business customer subscriber base. Our business subscriber base grew from 27,677 business customers on
December 31, 2011, to 31,473 on December 31, 2012. The increase for the first nine months of fiscal 2013 also was primarily
attributable to the increase in our business customer base from approximately 24,000 businesses on April 1, 2011 to 31,473 on
December 31, 2012. 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.
Product revenue consists primarily of revenue from sales of IP telephones attributable to our 8x8 service. Product revenue
increased for the three and nine months ended December 31, 2012 primarily due to an increase in equipment sales to business
customers.
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, 2012 increased over the comparable period in the prior fiscal year primarily due to a
$0.5 million increase in third party network service expenses as a result of the increase in our business subscriber base, a $0.2 million
increase in depreciation expense, and a $0.1 million increase in payroll and related costs. The increase in expense was partially offset
by a $0.1 million reduction in expensed license and fees and a $0.1 million reduction in temporary personnel, consulting and outside
service expenses.
20
Cost of service revenue for the nine months ended December 31, 2012 increased from the comparable period in the prior fiscal
year primarily due to a $2.7 million increase in third party network service fees as a result of the increase in our business subscriber
base, a $0.8 million increase in payroll and related costs, a $0.5 million increase in depreciation expense, a $0.4 million increase in
amortization expense due to intangibles acquired in acquisition of businesses, and a $0.1 million increase in consulting and outside
service expenses. The increase in expense was partially offset by a $0.3 million reduction in expensed license and fees.
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 December 31, 2012
increased over the comparable period in the prior fiscal year primarily due to a $0.5 million increase in the shipment of equipment to
customers and a $0.1 million increase in warranty expense.
The cost of product revenue for the nine months ended December 31, 2012 increased over the comparable period in the prior fiscal
year due to a $0.9 million increase in the shipment of equipment to customers, a $0.1 million increase in warranty expense and a $0.1
million increase in freight expenses.
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. We expense research
and development costs as they are incurred. The research and development expenses for the three months ended December 31, 2012
increased over the comparable period in the prior fiscal year primarily due to a $0.1 million increase in payroll and related costs and a
$0.1 million increase in other research and development expenses.
The research and development expenses for the nine months ended December 31, 2012 increased over the comparable period in
the prior fiscal year due to a $0.8 million increase in payroll and related costs, a $0.1 million increase in recruiting expenses and a $0.2
million increase in other research and development expenses.
21
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 three months
ended December 31, 2012 increased over the same quarter in the prior fiscal year primarily because of a $1.4 million increase in
payroll and related costs, a $0.1 million increase in third party sales commissions, a $0.1 million increase in bad debt expenses, a $0.1
million increase in credit card processing fees, and a $0.3 million increase in other miscellaneous sales and marketing expenses. The
increase in expense was partially offset by a $0.2 million reduction in temporary personnel, consulting and outside service
expenses.
Sales and marketing expenses for the first nine months of fiscal 2013 increased over the same period in the prior fiscal year
primarily because of a $4.7 million increase in payroll and related costs, a $0.3 million increase in third party sales commissions, a $0.2
million increase in amortization of customer relationship intangibles, a $0.2 million increase in bad debt expense, a $0.1 million increase
in credit card processing fees, and a $1.1 million increase in other sales and marketing expenses. The increase in expenses was
partially offset by a $0.5 million reduction in temporary personnel, consulting and outside service expenses.
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 three months ended December 31,
2012 increased over the same quarter in the prior fiscal year primarily because of a $0.2 million increase in payroll and related costs, a
$0.2 million increase in facility rent and maintenance expenses, a $0.1 million increase in temporary personnel, consulting and outside
service expenses, a $0.1 million increase in depreciation expense, and a $0.1 million increase in recruiting expenses.
General and administrative expenses for the first nine months of fiscal 2013 increased over the same period in the prior fiscal year
primarily because of a $0.8 million increase in temporary personnel, consulting and outside service expenses, a $0.6 million increase in
payroll and related costs, a $0.5 million increase in facility rent and maintenance expenses, a $0.2 million increase in depreciation
expense, and a $0.1 million increase in recruiting expenses. The increase in expense was partially offset by a $0.2 million reduction in
legal expenses and a $0.1 million reduction in other general and administrative expenses.
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 gain of slightly less than $12.0 million, net of transaction costs, which has been
recorded as a reduction of operating expenses in the consolidated statements of operations.
22
In the nine months ended December 31, 2012, other income, net consisted of interest expense, distribution of capital gains on
investments and interest income earned on our cash, cash equivalents and investments.
For the three and nine months ended December 31,
2012, we recorded a provision for income taxes of $0.9 million and $7.7 million, respectively, which was primarily attributable to net
income from operations, including the gain on patent sale. For the three and nine months ended December 31, 2011, we
released a portion of our valuation allowance against the deferred tax asset as we deemed it was more likely
than not it would be used to offset the $0.3 million deferred tax liability recorded in connection with the acquisition of
Zerigo.
The increase in income tax expense for the three months ended December 31, 2012 was primarily
attributable to net income from operations.
The increase in income tax expense for the nine months ended December 31, 2012 compared with the same period in the prior
fiscal year was due to the provision for income tax of $7.7 million which was primarily attributable to net income from operations,
including the gain on patent sale.
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. The fiscal 2013 estimated annual effective tax rate is expected to be approximately
40%, but may fluctuate each quarter due to the timing of other discrete period transactions. 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, changes to
tax rates, state apportionment, and the application and interpretations of existing tax laws.
23
Liquidity and Capital Resources
As of December 31, 2012, we had approximately $46.5 million in cash, cash equivalents and short-term investments.
Net cash provided by operating activities for the nine months ended December 31, 2012 was approximately $26.0 million,
compared with $6.4 million for the nine months ended December 31, 2011. The increase in cash flow resulted primarily from a $12.0
million gain on the sale of a patent family in June 2012, a $1.7 million reimbursement from landlord for tenant improvements, and an
increase in service and product revenue in the first nine months of fiscal 2012. 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.
Net cash used in investing activities was $5.2 million during the nine months ended December 31, 2012, compared with $2.5 million
used in investing activities for the nine months ended December 31, 2011. The increase in cash used in investing activities during the
nine months ended December 31, 2012 is primarily related to an increase in the purchase of additional equipment, furniture and fixtures
and leasehold improvements ($5.2 million). The increase in cash used for the purchase of furniture and fixtures and leasehold
improvements is primarily due to the Company's move to its new headquarters facility in San Jose, California.
Our financing activities for the nine months ended December 31, 2012 consisted primarily of cash from the issuance of shares due
to exercise of employee stock options ($1.7 million) offset by cash used to repurchase shares of our common stock ($0.3 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 December 31, 2012 totaled $110,000
with accumulated amortization of $64,000.
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 December 31, 2012, 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 December 31, 2012, future minimum
annual payments under these third party network service contracts were $629,000 in 2013, $2,155,000 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 and was not material for the three and nine months ended December 31, 2012 or 2011.
24
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 income (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.
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 December 31, 2012.
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.
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2012 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
Descriptions of our legal proceedings are contained in Part I, Item 1, Financial Statements — Notes to Condensed
Consolidated Financial Statements — "Note 7".
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, 2012, which we
filed with the Securities and Exchange Commission on May 24, 2012.
25
26
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: January 25, 2013
8X8, INC.
(Registrant)
By: /s/ D
ANIEL
W
EIRICH
Daniel Weirich
Chief Financial Officer
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
December 31, 2012 and March 31, 2012
Condensed Consolidated Statements of Income for the three and nine
months ended December 31, 2012 and 2011
Condensed Consolidated Statements of Comprehensive Income for the three and nine
months ended December 31, 2012 and 2011
Condensed Consolidated Statements of Cash Flows for the nine
months ended December 31, 2012 and 2011
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
Signature
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
December 31,
March 31,
2012
2012
ASSETS
Current assets:
Cash and cash equivalents
$
44,557
$
22,426
Short-term investments
1,965
1,942
Accounts receivable, net
3,605
2,279
Inventory
573
581
Deferred cost of goods sold
140
122
Deferred tax asset
284
7,730
Other current assets
736
806
Total current assets
51,860
35,886
Property and equipment, net
6,922
3,820
Intangible assets, net
10,551
11,622
Goodwill
25,150
25,150
Non-current deferred tax asset
54,065
53,977
Other assets
395
278
Total assets
$
148,943
$
130,733
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
5,170
$
5,476
Accrued compensation
3,768
3,105
Accrued warranty
422
387
Accrued taxes
1,967
1,472
Deferred revenue
952
891
Other accrued liabilities
791
884
Total current liabilities
13,070
12,215
Non-current liabilities
1,894
68
Total liabilities
14,964
12,283
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock
72
71
Additional paid-in capital
244,782
241,555
Accumulated other comprehensive income (loss)
(35)
(58)
Accumulated deficit
(110,840)
(123,118)
Total stockholders' equity
133,979
118,450
Total liabilities and stockholders' equity
$
148,943
$
130,733
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Service revenue
$
24,958
$
21,200
$
72,307
$
56,234
Product revenue
2,382
2,078
6,656
5,370
Total revenue
27,340
23,278
78,963
61,604
Operating expenses:
Cost of service revenue
5,473
4,890
16,984
12,764
Cost of product revenue
3,203
2,584
8,585
7,467
Research and development
2,117
1,955
5,973
4,902
Sales and marketing
11,651
9,816
33,202
27,076
General and administrative
2,136
1,481
6,270
4,372
Gain on patent sale
-
-
(11,965)
-
Total operating expenses
24,580
20,726
59,049
56,581
Income from operations
2,760
2,552
19,914
5,023
Other income, net
73
49
90
58
Income before provision (benefit) for income taxes
2,833
2,601
20,004
5,081
Provision (benefit) for income taxes
913
15
7,726
(284)
Net income
$
1,920
$
2,586
$
12,278
$
5,365
Net income per share:
Basic
$
0.03
$
0.04
$
0.17
$
0.08
Diluted
$
0.03
$
0.04
$
0.16
$
0.08
Weighted average number of shares:
Basic
71,611
69,445
71,197
65,165
Diluted
74,988
73,214
74,483
69,013
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Net income
$
1,920
$
2,586
$
12,278
$
5,365
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities
(44)
(8)
23
(15)
Comprehensive income
$
1,876
$
2,578
$
12,301
$
5,350
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine Months Ended
December 31,
2012
2011
Cash flows from operating activities:
Net income
$
12,278
$
5,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
1,816
1,101
Amortization
1,071
431
Stock-based compensation
1,827
1,013
Deferred income tax provision (benefit)
7,359
(336)
Other
409
130
Changes in assets and liabilities
Accounts receivable, net
(1,700)
(642)
Inventory
(25)
1,596
Other current and noncurrent assets
(48)
405
Deferred cost of goods sold
(18)
(6)
Accounts payable
(38)
(2,059)
Accrued compensation
663
319
Accrued warranty
35
34
Accrued taxes and fees
495
(396)
Deferred revenue
61
(75)
Other current and noncurrent liabilities
1,806
(472)
Net cash provided by operating activities
25,991
6,408
Cash flows from investing activities:
Purchases of property and equipment
(5,245)
(1,743)
Acquisition of businesses, net of cash acquired
-
(713)
Net cash used in investing activities
(5,245)
(2,456)
Cash flows from financing activities:
Capital lease payments
(73)
(273)
Repurchase of common stock
(285)
(1,038)
Proceeds from issuance of common stock, net of issuance costs
-
(60)
Proceeds from issuance of common stock under employee stock plans
1,743
949
Net cash provided by (used in) financing activities
1,385
(422)
Net increase in cash and cash equivalents
22,131
3,530
Cash and cash equivalents at the beginning of the period
22,426
16,474
Cash and cash equivalents at the end of the period
$
44,557
$
20,004
Supplemental cash flow information
Issuance of common stock in connection with acquisitions
$
-
$
31,358
Fair value of options assumed in connection with acquisitions
-
274
Acquisition of net assets in connection with acquisitions
-
372
Transfer of net assets in purchase of strategic investment
-
297
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 2012
March 31, 2012
Gross
Gross
Carrying
Accumulated
Net Carrying
Carrying
Accumulated
Net Carrying
Amount
Amortization
Amount
Amount
Amortization
Amount
Technology
$
8,242
$
(1,050)
$
7,192
$
8,242
$
(432)
$
7,810
Customer relationships
3,305
(903)
2,402
3,305
(450)
2,855
Trade names/domains
957
-
957
957
-
957
Total acquired identifiable
intangible assets
$
12,504
$
(1,953)
$
10,551
$
12,504
$
(882)
$
11,622
Amount
Remaining 2013
$
357
2014
1,334
2015
1,325
2016
1,325
2017
1,318
Thereafter
3,935
Total
$
9,594
Weighted
Weighted
Average
Average
Grant-Date
Remaining
Number of
Fair Market
Contractual
Shares
Value
Term (in Years)
Balance at March 31, 2012
966,400
$
2.50
2.61
Granted
409,936
5.65
Released
(281,938)
2.16
Forfeited
(80,244)
2.72
Balance at December 31, 2012
1,014,154
$
3.85
2.62
Weighted
Shares
Average
Shares
Subject to
Exercise
Available
Options
Price
for Grant
Outstanding
Per Share
Balance at March 31, 2012
375,546
6,034,335
$
1.90
Change in options available for grant
4,100,000
-
-
Granted - options
(932,000)
932,000
5.80
Stock purchase rights/restricted stock units
(409,936)
-
-
Exercised
-
(777,487)
1.48
Canceled/forfeited
135,133
(135,133)
4.01
Termination of plans
(43,004)
-
-
Balance at December 31, 2012
3,225,739
6,053,715
$
2.51
Options Outstanding
Options Exercisable
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Remaining
Aggregate
Exercise
Aggregate
Price
Contractual
Intrinsic
Price
Intrinsic
Shares
Per Share
Life (Years)
Value
Shares
Per Share
Value
$0.55 - $1.26
1,781,500
$
1.04
5.0
$
11,299,025
1,781,500
$
1.04
$
11,299,025
$1.27 - $1.72
1,504,919
$
1.53
2.6
8,806,130
1,504,919
$
1.53
8,806,130
$1.73 - $3.35
1,326,608
$
2.56
5.6
6,396,028
886,007
$
2.43
4,382,974
$3.36 - $5.87
1,398,688
$
5.29
8.9
2,919,012
204,018
$
5.04
477,705
$5.88 - $5.89
42,000
$
5.89
9.8
62,580
1,750
$
5.89
2,608
6,053,715
$
29,482,775
4,378,194
$
24,968,442
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Cost of service revenues
$
63
$
41
$
149
$
87
Cost of product revenues
-
-
1
-
Research and development
125
72
295
176
Sales and marketing
355
255
979
610
General and administrative
222
50
403
140
Total stock-based compensation expense related to
employee stock options and employee stock purchases, pre-tax
765
418
1,827
1,013
Tax benefit
-
-
-
-
Stock based compensation expense related to employee
stock options and employee stock purchases, net of tax
$
765
$
418
$
1,827
$
1,013
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Expected volatility
68%
75%
68%
76%
Expected dividend yield
-
-
-
-
Risk-free interest rate
0.68%
0.44%
0.70%
0.35%
Weighted average expected option term
4.50 years
3.25 years
5.28 years
3.04 years
Weighted average fair value of options granted
$
3.18
$
1.96
$
3.32
$
2.20
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Expected volatility
-
-
34%
68%
Expected dividend yield
-
-
-
-
Risk-free interest rate
-
-
0.16%
0.10%
Weighted average expected option term
-
-
0.75 years
0.75 years
Weighted average fair value of options granted
$
-
$
-
$
1.45
$
1.49
Quoted Prices
in Active
Markets
Other
Significant
for Identical
Observable
Unobservable
Balance at
Assets
Inputs
Inputs
December 31,
(Level 1)
(Level 2)
(Level 3)
2012
Cash equivalents:
Money market funds
$
14,373
$
-
$
-
$
14,373
Short-term investments:
Mutual funds (1)
-
1,965
-
1,965
Total
$
14,373
$
1,965
$
-
$
16,338
Quoted Prices
in Active
Markets
Other
Significant
for Identical
Observable
Unobservable
Balance at
Assets
Inputs
Inputs
March 31,
(Level 1)
(Level 2)
(Level 3)
2012
Cash equivalents:
Money market funds
$
14,366
$
-
$
-
$
14,366
Short-term investments:
Mutual funds (1)
-
1,942
-
1,942
Total
$
14,366
$
1,942
$
-
$
16,308
December 31,
March 31,
2012
2012
Inventory (in thousands):
Work-in-process
$
24
$
55
Finished goods
549
526
$
573
$
581
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
(in thousands, except per share amounts)
(in thousands, except per share amounts)
Numerator:
Net income available to common stockholders
$
1,920
$
2,586
$
12,278
$
5,365
Denominator:
Common shares
71,611
69,445
71,197
65,165
Denominator for basic calculation
71,611
69,445
71,197
65,165
Employee stock options
3,023
3,364
2,947
3,413
Stock purchase rights
336
385
339
409
Employee stock purchase plan
18
20
-
26
Denominator for diluted calculation
74,988
73,214
74,483
69,013
Net income per share
Basic
$
0.03
$
0.04
$
0.17
$
0.08
Diluted
$
0.03
$
0.04
$
0.16
$
0.08
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Employee stock options and awards
885
604
878
637
885
604
878
637
Three Months Ended
Nine Months Ended
December 31,
December 31,
2012
2011
2012
2011
Balance at beginning of period
$
376
$
391
$
387
$
362
Accruals for warranties
168
106
445
374
Settlements
(122)
(101)
(410)
(340)
Balance at end of period
$
422
$
396
$
422
$
396
Year ending March 31:
2013
$
629
2014
2,155
2015
1,579
2016
52
Total minimum payments
$
4,415
Three Months Ended
Dec 31,
Sept. 30,
June 30,
March 31,
Dec 31,
2012
2012
2012
2012
2011
Gross business customer additions
(1)
2,617
2,915
2,943
2,892
2,836
Gross business customer
cancellations (less cancellations
within 30 days of sign-up)
1,504
2,149
1,458
1,697
1,642
Business customer churn (less
cancellations within 30 days
of sign-up) (2)
1.6%
2.4%
1.7%
2.0%
2.0%
Business service revenue churn
2.6%
1.0%
2.3%
1.6%
1.9%
Total business customers (3)
31,473
30,498
29,913
28,671
27,677
Business customer average monthly
service revenue per customer (4)
$ 260
$ 256
$ 250
$ 244
$ 239
Overall service margin
78%
76%
75%
76%
77%
Overall product margin
-34%
-22%
-30%
-15%
-24%
Overall gross margin
68%
68%
67%
68%
68%
Business subscriber acquisition cost
per service (5)
$ 98
$ 89
$ 97
$ 99
$ 92
Average number of subscribed services
per business customer
11.2
10.6
10.1
9.8
9.4
Average number of subscribed services
per new business customer (6)
17.0
14.7
14.0
13.6
14.1
December 31,
Dollar
Percent
Service revenue
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
24,958
$
21,200
$
3,758
17.7%
Percentage of total revenue
91.3%
91.1%
Nine months ended
$
72,307
$
56,234
$
16,073
28.6%
Percentage of total revenue
91.6%
91.3%
December 31,
Dollar
Percent
Product revenue
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
2,382
$
2,078
$
304
14.6%
Percentage of total revenue
8.7%
8.9%
Nine months ended
$
6,656
$
5,370
$
1,286
23.9%
Percentage of total revenue
8.4%
8.7%
December 31,
Dollar
Percent
Cost of service revenue
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
5,473
$
4,890
$
583
11.9%
Percentage of service revenue
21.9%
23.1%
Nine months ended
$
16,984
$
12,764
$
4,220
33.1%
Percentage of service revenue
23.5%
22.7%
December 31,
Dollar
Percent
Cost of product revenue
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
3,203
$
2,584
$
619
24.0%
Percentage of product revenue
134.5%
124.4%
Nine months ended
$
8,585
$
7,467
$
1,118
15.0%
Percentage of product revenue
129.0%
139.1%
December 31,
Dollar
Percent
Research and development
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
2,117
$
1,955
$
162
8.3%
Percentage of total revenue
7.7%
8.4%
Nine months ended
$
5,973
$
4,902
$
1,071
21.8%
Percentage of total revenue
7.6%
8.0%
December 31,
Dollar
Percent
Sales and marketing
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
11,651
$
9,816
$
1,835
18.7%
Percentage of total revenue
42.6%
42.2%
Nine months ended
$
33,202
$
27,076
$
6,126
22.6%
Percentage of total revenue
42.0%
44.0%
December 31,
Dollar
Percent
General and administrative
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
2,136
$
1,481
$
655
44.2%
Percentage of total revenue
7.8%
6.4%
Nine months ended
$
6,270
$
4,372
$
1,898
43.4%
Percentage of total revenue
7.9%
7.1%
December 31,
Dollar
Percent
Gain on patent sale
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
-
$
-
$
-
0.0%
Percentage of total revenue
0.0%
0.0%
Nine months ended
$
(11,965)
$
-
$
(11,965)
100.0%
Percentage of total revenue
-15.2%
0.0%
December 31,
Dollar
Percent
Other income, net
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
73
$
49
$
24
49.0%
Percentage of total revenue
0.3%
0.2%
Nine months ended
$
90
$
58
$
32
55.2%
Percentage of total revenue
0.1%
0.1%
December 31,
Dollar
Percent
Provision (benefit) for income tax
2012
2011
Change
Change
(dollar amounts in thousands)
Three months ended
$
913
$
15
$
898
5986.7%
Percentage of income
before provision for income taxes
32.2%
0.6%
Nine months ended
$
7,726
$
(284)
$
8,010
-2820.4%
Percentage of income before
provision (benefit) for income taxes
38.6%
-5.6%
(Principal Financial and Chief Accounting Officer and Duly Authorized Officer)
27