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8X8 Inc. (NASDAQ:EGHT)

Special Call

September 10, 2013 05:00 PM ET

Executives

Joan Citelli - Director of Corporate Communications

Bryan Martin - Chairman and CTO

Vic Verma - CEO

Dan Weirich - CFO

Analysts

Raghavan Sarathy - Dougherty & Company

Mike Latimore - Northland Capital

Brad Henry - Stephens Inc.

George Sutton - Craig Hallum

Greg Burns - Sidoti & Company

Operator

Good day, ladies and gentlemen, and thank you, for standing by, and welcome to the 8x8 Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct the question-and-answer session and instructions will be given at that time. As a reminder, today’s conference maybe recorded.

It’s now my pleasure to introduce your host for today, Ms. Joan Citelli, 8x8’s Director of Corporate Communications. Please go ahead.

Joan Citelli

Thank you operator and good afternoon everyone. Thank you for joining us especially given the short notice of today’s call. Joining me here today are 8x8’s Chairman of the Board and Chief Technology Officer, Bryan Martin; our newly appointed Chief Executive Officer, Vic Verma; and our Chief Financial Officer, Dan Weirich. This call is being webcast and an audio version of the call will be available on our website for one year. In addition a telephonic replay of this call will be available until midnight September 15th. The details for accessing the replay are included in the press release we issued earlier this afternoon which is available on the Investors tab of 8x8’s website at www.8x8.com.

Before I turn the call over to Bryan, I would like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the Safe Harbor provision of the private securities litigation reform act of 1995. Expressions of future goals including financial guidance and similar expressions including without limitation, expressions using the terminology may, will, believe, expect, plans, anticipates, predicts, forecasts, and expressions which reflect something other than historical fact are intended to identify forward-looking statements.

These forward-looking statements involve a number of risks and uncertainties including factors discussed in the Risks Factors section of our annual report on Form 10-K and our quarterly reports on Form 10-Q, and in our other SEC filings and company releases. Our actual results may differ materially from any forward-looking statements due to such risks and uncertainties. The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call except as required by law. Thank you.

And with that I’ll turn the call over to Bryan Martin, 8x8’s Chairman of the Board and Chief Technology Officer.

Bryan Martin

All right, thank you very much, Joan. Good afternoon, everyone, and thank you, for joining us. Today 8x8 announced a management addition that I believe greatly strengthens our team and paves the way for the Company’s next stage of growth. Effectively immediately Vic Verma, the current member of 8x8’s Board of Directors will be taking over as CEO and I will assume a new role at 8x8 as Chief Technology Officer while remaining Chairman of the Board. This change in management will add new levels of expertise to the Company and build upon its current market leading position to accelerate growth on both a domestic and international basis.

I am very pleased with the success 8x8 has experienced to-date, and attribute much of that to the very talented individuals and industry pioneers we’ve been able to employ over the years. With this as a foundation, we are now in a unique position to accelerate the execution of our strategic initiatives and seize the growing worldwide demand for our services.

Accordingly the 8x8 Board of Directors and I have identified that Vic with his global expertise guiding growth technology companies and experience delivering large network based technology solutions to customers worldwide has the background, track record and shared passion to lead 8x8 to the next level. During his 18 months of service on our board Vic has been instrumental in working with management on numerous operational and strategic issues and it became evident early on that he could make a much more significant contribution to 8x8’s future. As you know 8x8 has completed the first phase of our global reach initiative with the introduction of our services in Canada and has laid out the planned roll out of our services in Europe, Asia and South America.

Simultaneously we've made very good progress moving up market to serve the needs of larger business customers here in the United States and we remain committed to both initiatives. I am very proud of the accomplishments our team has achieved and I am truly excited to continue working with Vic and the rest of the 8x8 team on our path to becoming the worldwide leader in the unified communications as a service industry. Now it is my great pleasure to introduce to you 8x8’s new Chief Executive Officer, Vic Verma.

Vic Verma

Thank you Bryan. Bryan’s accomplishment as CEO, leading the company from its early days as a voice over IP pioneer to becoming the leading provider of unified communications as a service are phenomenal as anyone who know this industry will attest. While dozens of competitors have come and gone during this period, Bryan and the rest of the 8x8 team have managed to build a very healthy profitable and financially successful business with over 33,000 business customers. As Bryan mentioned we believe the time is right to build upon this success and accelerate our efforts to further penetrate the market here in the U.S., while simultaneously tapping into the vast and growing international market.

No one in this business is better equipped than 8x8 to take on this challenge. 8x8 has all the ingredients needed to become a global leader in this industry. Beginning with a sound and reliable technology platform, a compelling suite of service offerings, years of knowhow in developing and delivering these services and a huge untapped market combined as with the entrepreneurial spirit, fiscal discipline and drive that remains a core part of our corporate culture and what you have in my view is an ideal opportunity to become the dominant player in our industry. I look forward to working shoulder to shoulder with Bryan, the rest of the management team and our employees to deliver the best possible communication services and solutions to business customers of all sizes across the globe.

Before we move on to a brief question-and-answer session, let me just mention that during this call we will not be commenting on the current quarter or discussing our financials or forward outlook. We will save that for the next quarterly earnings conference call in October. With that we will be happy to take any questions. Operator, please open the lines.

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions). Our first question will come from the line of R Sarathy with Dougherty & Company, please go ahead, your line is open.

Raghavan Sarathy - Dougherty & Company

I guess question for Bryan, I mean to the extent you can talk about it I know Vic just said you won’t comment on the quarter but when there is the change of CEO mid-quarter, obviously shareholders get nervous about the quarter but can you talk about to the extent, comment on the pipeline or many be indirectly that the changes are the reflection of the business trend.

Bryan Martin

As we have said, we are not going to give you a quarter update here, it’s not really the purpose of today’s call, I will address your concern by answering that this was not an abrupt decision for us, it’s one that the board has been discussing for some time and I know the announcement seems very abrupt and I am sure there is never a good time for investors to get announcements like this but I can just assure you that the actual process we went through as a board was quite long, quite reflective and as we stated the reasons for doing this it really have nothing to do with performance, the performance of the Company has been exceptional and I am very proud of it. It has everything to do with our future plans for scaling our domestic business and growing our business into these international arenas.

Raghavan Sarathy - Dougherty & Company

And then questions for Vic, [indiscernible] that the broader plan of accelerating growth both domestically and internationally, may be can you give us, to the extent you can talk about what are some of the areas you should be focusing on operationally over the next six to 12 months [indiscernible].

Vic Verma

I think as Bryan mentioned, he and I had been working very closely together over the last 18 months so I don’t see any material change in our direction and strategy, we are going to continue to go up market to the mid-market area, we are going to continue to look at international, we are going to continue our work on global reach, we are going to continue working on channels, its fundamentally the same strategy, we just have three of us who are now integrated together to keep moving this company forward.

Operator

Our next question in queue will come from the line of Mike Latimore with Northland Capital. Please go ahead, your line is now open.

Mike Latimore - Northland Capital

I was just curious how are [indiscernible] sort of discussion start around CEO chains and was there a broader kind of executive search involved here as well.

Bryan Martin

The process has been, the discussions and the origins of this change have actually been going for quite a while, I got to tell you, General Hecker, our lead Director who was quoted in the press release today and I recruited Vic 18 months ago. We were both immediately very impressed with Vick’s background, how quickly he learned our business. as we mentioned in the prepared remarks he has been very instrumental to some very challenging situations that we have successfully overcome and profited from in the past year and so I can tell you I was very comfortable to have Vic on board knowing in the back of my head that if I were in a plane crash or run over by a bus, I knew Vic could step in albeit you might have a few things to do with his former employer. But in terms of an outside search, we really got the opportunity to work with Vic and work shoulder to shoulder as Vic said, and there was really no reason to go outside, we have the right candidate here. We had to choose the timing of when we made this change and how we made the change, but the Board is unanimous and quite confident that this is going to take the Company forward for our shareholders and like we said hopefully help us win this market worldwide.

Mike Latimore - Northland Capital

And what about Kim's role, Vic, will you assume any elements of that or how does that role play out I guess because that's a primary role as well.

Vic Verma

I don't envision any major change in Kim's role. I mean fundamentally we have a very good management team already in place. overtime as the markets evolve we'll add to the management and bring in additional expertise, but I think I am very fortunate with this particular situation and particularly with Bryan you have a guy who to a large degree was a technology visionary that pretty much invented the VoIP market for SMBs here. And with Dan as CFO who's basically had four consecutive quarters or four consecutive years of profitable growth, so you’ve got yourself a very strong management team and so I view myself as basically modifying around the edges as market dictates but there is no plan to make any major changes at this time.

Mike Latimore - Northland Capital

And just last one, you talked about accelerating some initiatives, is there anything that you would slow or deemphasize relative to the broader strategy?

Vic Verma

Not really I think one of the great things about this is we have had 18 months to work very closely together. I think this has been a longer courtship than I spent I guess dating my wife. And from my perspective it has been a very useful exercise because I generally feel comfortable with where we're and what we are doing and I have had a hand with Bryan in helping craft all of this going forward.

Operator

Our next question in queue comes from the line Barry with Stephen Incorporated. Please go ahead your line is now open, your questions please.

Brad Henry - Stephens Inc.

This is Brad Henry in for Barry, just a couple of questions. Bryan, I was wondering if you could talk a little bit about what your day to day will look like in the CTO role? And then also Vic could you talk about, I saw in the press release you had some work looking to [indiscernible] and generate revenue from IP in the past. Do you see some opportunities with the existing portfolio to generate additional revenue in that way? Thanks.

Bryan Martin

Thanks Brad, so let me start with your first question, so the initial focus of my day to day will be continuing the technology vision of the company the evangelism of these services in the market as Vic mentioned this market is very, very underpenetrated and evangelism is something I always wished I could do more of as a CEO and this all enabled me to really focus on it. I am going to continue to manage our patents and other IP in our IP portfolio. And I am also going to look from a technology perspective at the various M&A opportunities that we have in this space, really try to assist Vic in defining how those opportunities could be integrated together in a strategic fashion and certainly make everything work from technological perspective and then I’ll let Vic answer the second half of your question on IP.

Vic Verma

Yes. Look I’m impressed with what we have got, we’ve got very broad and very rich patent portfolio and we always look two ways to maximize its value for the benefit of our shareholders so, I don’t have any specific ideas on what I want to do and not vis-à-vis that. But I would tell you, I continue to be very impressed with how broad and rich our patent portfolio is.

Brad Henry - Stephens Inc.

And then Bryan you motioned M&A, is that something that given the statements about accelerating growth where you’re going to be look to be a little more active in that area.

Bryan Martin

I think the last couple of earnings calls, we’ve talked about M&A as a strategic activity to help accelerate some of this international expansion, we continue to - I don’t want you to read into my comments that there is anything. M&A but there is lot of opportunities out there it’s going to require a lot of solid execution from our entire team even when we pull the trigger on any of these and at the end of the day even our service provider, I’ve always thought of it as a technology company and when you’re doing M&A as we’ve experienced both the upsides and the down sides over the years, you’ve really got to have to handle on how that integration of the technology comes together and so that’s kind of what the focus is going to be.

Operator

Our next question is the queue will come from the line of George Sutton with Craig Hallum. Please go ahead with your questions please.

George Sutton - Craig Hallum

Thank you. First Bryan, I’m glad that this call wasn’t precipitated by a plane crash or you getting run over by a bus. So, that’s very good news and second congrats to Vic. So, the word accelerate was used pretty clearly multiple times in your prepared comments and I’m wondering how that might relate to some of the challenges you’ve had, you get the number of new business customers on a quarterly basis to the next level. Vic do you have any thoughts on that specifically?

Vic Verma

Nothing specific I mean the good news is the markets 10% penetrated domestically and probably go slower than that internationally. So, the market is significant and either we will continue to look at ways to get better.

Bryan Martin

Yes, I think one of the things we’ve talked about is how we scale our domestic business, we are the largest provider in the U.S. in this space, we are however not happy with that, we want to get much bigger, we want to accelerate the adoption of these technologies, we think every business out there should be using this as their core communications technologies and it will make them better businesses as a result and I think part of the Board's thinking in bringing Vic in at his juncture is he has scaled over his career lots of different technologies, lots of different companies and it's really what’s going to take 8x8 in the domestic U.S. market to the next level and so I would just add that to Vic said.

George Sutton - Craig Hallum

Lastly from me Bryan I’m curious. So you brought Vic on and he worked on number of projects that made it clear that this role would be great for him, is it that plus I was worried any specific there's or is it more his background and accomplishments that sort of made him right for this role?

Bryan Martin

It is just the combination, right. I mean what is said we have got when we’ve talked about going at the company. I said we didn’t need to because we’ve worked with Vic, Vic a lot of our big accomplishments even this past 12 months that we’ve announced and talked with you over on the earnings call. Vic was involved in helping guidance to those successes at the same time I think when you look at Vic’s resume you’re going find a well global experience that frankly the company did not have in its executive ranks and we really want to make sure we get it right. We really feel that this is a race at this point that needs to happen very quickly and we can afford to not do the global expansion the right way. And there I think Vic is truly bringing a unique skill set and I can’t say how fortunate the company and our shareholders are to have him here.

Operator

Thank you, sir. Our next question in queue will come from the line of Greg Burns with Sidoti & Company. Please go ahead, your question please.

Greg Burns - Sidoti & Company

Thanks for taking the question. As far you get back to idea of accelerating growth, it sounds like the strategy is remaining largely same but in terms of accelerating spending in certain areas particularly talked about in the past really scaling is insight [indiscernible] to grow domestically, is there going to be increase in spending in near term to effect the acceleration of growth that you’re looking for?

Dan Weirich

As you’ve followed this for quite some time you know that we’re pretty predictable in the way that we grow and we’ve always profitably grown. As Vic mentioned, we’ve generated GAAP net income for four consecutive years and for nine consecutive quarters we have generated increasing cash and cash equivalence investment balances and we took out buybacks. We’re probably unlike four to five years of consecutive quarters with free cash flow generation that is something that we expect to continue and the only reason that we would ever get in a situation to where we were not generating for cash flow we’re ever move loss position as if we find a way to radically accelerate growth at a very good economic cost of acquisition models and but that’s something that we would just -- we would definitely communicate.

But on your any concerns that there could be like radical cost expenses increasing things of that sort, I think that you could put all those to rest because as we’ve mentioned multiple times, we’re committed to profitably growing the business.

Operator

And I believe that does conclude our time permission. There are not additional lines in the queue. I’d like to turn the program back over to management for any additional or closing remark.

Vic Verma

Thank you very much for everybody for joining in. We look forward to updating you on our quarterly earnings call next months and I’ll look forward to getting to know all of you better after that.

Operator

Thank you presenters and thank you ladies and gentlemen. Again, this does conclude today’s call. Thank you for your participation and have a wonderful day. Attendees you may now all disconnect.

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