8x8 Announces Sale Of Dedicated Server Hosting Business To The IRC Company, Inc. (dba Black Lotus Communications)

8x8, Inc. (NASDAQ:EGHT), provider of innovative cloud communications and computing solutions, today announced it has sold its dedicated server hosting business to The IRC Company, Inc. (dba Black Lotus Communications) for $3 million in cash. The transaction signed and closed on September 30, 2013.

The dedicated server hosting business, acquired by 8x8 in May 2010, provided managed hosting services on dedicated servers to 288 customers as of June 30, 2013. For the fiscal year ended March 31, 2013, this business generated revenue of approximately $3.8 million and $753,000 in the first quarter of fiscal 2014. 8x8’s Infrastructure as a Service (IaaS) and Desktop as a Service (DaaS) cloud hosting business is not included in this transaction. The Company will report a gain of approximately $1 million related to this transaction in the second quarter of fiscal 2014.

“The sale of our dedicated server hosting business enables 8x8 to sharpen its focus on the continued innovation and adoption of our core, cloud-based business service offerings,” said 8x8 CEO Vik Verma. “At the same time, this strategic transaction will have a positive effect on our gross margins and growth rates, further illustrating the success and profitability of our cloud-based business model.”

Excluding revenue from the dedicated server hosting business, reported revenue from business customers in the first quarter of fiscal 2014 increased 24% from the amount reported for the first quarter of fiscal 2013, compared with the previously announced growth rate of 22%. Gross margin in the first quarter of fiscal 2014 was 72%, excluding dedicated server hosting revenue and cost of sales, compared with 71%, including dedicated server hosting revenue and cost of sales. Income from operations for the dedicated server hosting business was approximately $251,000 in the first quarter of fiscal 2014 and approximately $823,000 in fiscal 2013.

“Black Lotus is looking forward to working with our new clients in supporting their needs,” said Shawn Marck, Chief Technology Officer of Black Lotus. “Our culture is driven by exceeding expectations and delivering business solutions through technology. We now have three data centers in the United States; Los Angeles, Silicon Valley and Northern Virginia.”

NCC International represented 8x8, Inc. on an exclusive basis and provided financial advisory services during the transaction.

8x8 is providing the following unaudited pro forma consolidated statements of income as additional information for investors to consider with this release.

About 8x8, Inc.

8x8, Inc. (NASDAQ:EGHT) empowers business conversations for more than 33,000 businesses with cloud communications services that include hosted PBX telephony, unified communications, call center software and video conferencing solutions. The company has been delivering business communications services since 2004 and has garnered a reputation for technical excellence and outstanding reliability. In 2012, 8x8 was named a market “leader” in Gartner’s Magic Quadrant for Unified Communications as a Service (UCaaS) in North America and was recognized as the No. 1 Provider of Hosted IP Telephony by Frost & Sullivan and Synergy Research Group. For additional information, visit  www.8x8.com, or connect with 8x8 on Google+, Facebook, LinkedIn and Twitter.

About Black Lotus Communications

Black Lotus Communications is a California based security innovator which pioneered the first commercially viable DDoS mitigation solutions in 1999, weeks after the first known DDoS attacks. These advanced solutions enhance the security posture of SMB and Enterprise clients while reducing capital expenditures, managing risk, ensuring compliance, and improving earnings and retention. Breakthrough developments at Black Lotus include the world's first DDoS protected hosting network, the first IPv6 DDoS mitigation environment, and the first highly effective Layer 7 attack mitigation strategy. Black Lotus is expanding and recently secured its first financing round led by Industry Capital. For more information, visit www.blacklotus.net or follow Black Lotus on Twitter at https://twitter.com/ddosprotection.

About NCC International

NCC International is among the nation’s leading M&A and financial advisory firms specializing in the Internet, Web Hosting, Telecom and SaaS sectors. Over the past 20 years NCC has completed over 300 assignments. Its clients range from NASDAQ firms to small privately owned companies. For more information contact Tom Millitzer at 239-282-5550 or visit www.com-broker.com.

The following unaudited pro forma condensed consolidated statements of income of the Company give effect to the sale of its dedicated server hosting business, which occurred on September 30, 2013.

The historical financial information of the Company set forth below has been derived from the unaudited condensed consolidated statements of income of the Company included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2012, September 30, 2012, December 31, 2012 and June 30, 2013 and the historical audited consolidated statement of income of the Company included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013.

The unaudited pro forma condensed consolidated statements of income were prepared as if the sale had occurred on March 31, 2012. Pro forma condensed consolidated statements of income for the five most recently completed quarters and the most recently completed fiscal year are presented because the treatment of the dedicated server hosting business has not yet been reflected as discontinued operations in the Company’s historical information, except as noted above.

The unaudited pro forma condensed consolidated statements of income have been prepared by the Company’s management for illustrative purposes only and is not necessarily indicative of the results of operations in future periods or the results that actually would have been realized had the Company sold the dedicated server hosting business during the specified periods. The pro forma adjustments are based upon assumptions that the Company’s management believes are reasonable. The pro forma adjustments are based on the information available at the time of the preparation of the unaudited pro forma condensed consolidated statements of income. These statements, including any notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements of the Company included in its Annual Report on Form 10-K for the year ended March 31, 2013 and Quarterly Reports on Form 10-Q for the three months ended June 30, 2012, September 30, 2012, December 31, 2012 and June 30, 2013 filed with the Securities and Exchange Commission.

           
8x8, Inc.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended June 30, 2013
(In thousands, except per share amounts)
 
Pro Forma
As Reported Adjustments (1) Pro Forma
Service revenue $ 27,252 $ 753 $ 26,499
Product revenue 2,752 - 2,752
Total revenue 30,004 753 29,251
 
Operating expenses:
Cost of service revenue 5,221 435 4,786
Cost of product revenue 3,347 - 3,347
Research and development 2,336 - 2,336
Sales and marketing 13,121 49 13,072
General and administrative 2,790 18 2,772
Gain on patent sale - - -
Total operating expenses 26,815 502 26,313
Income from operations 3,189 251 2,938
Other income, net 15 - 15
Income before provision for income taxes 3,204 251 2,953
Provision for income taxes 1,065 104 961
Net income $ 2,139 $ 147 $ 1,992
 
Net income per share:
Basic $ 0.03 $ 0.03
Diluted $ 0.03 $ 0.03
 
Weighted average number of shares:
Basic 72,510 72,510
Diluted 75,756 75,756
 
8x8, Inc.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
Twelve Months Ended March 31, 2013
(In thousands, except per share amounts)
           
Pro Forma
As Reported Adjustments (1) Pro Forma
Service revenue $ 98,212 $ 3,828 $ 94,384
Product revenue 9,402   - 9,402  
Total revenue 107,614   3,828 103,786  
 
Operating expenses:
Cost of service revenue 22,201 2,273 19,928
Cost of product revenue 11,801 - 11,801
Research and development 8,147 - 8,147
Sales and marketing 46,244 671 45,573
General and administrative 8,619 61 8,558
Gain on patent sale (12,965 ) - (12,965 )
Total operating expenses 84,047   3,005 81,042  
Income from operations 23,567 823 22,744
Other income, net 105   - 105  
Income before provision for income taxes 23,672 823 22,849
Provision for income taxes 9,733   334 9,399  
Net income $ 13,939   $ 489 $ 13,450  
 
Net income per share:
Basic $ 0.20 $ 0.19
Diluted $ 0.19 $ 0.18
 
Weighted average number of shares:
Basic 71,390 71,390
Diluted 74,700 74,700
 
8x8, Inc.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended June 30, 2012
(In thousands, except per share amounts)
           
Pro Forma
As Reported Adjustments (1) Pro Forma
Service revenue $ 23,172 $ 982 $ 22,190
Product revenue 2,080   - 2,080  
Total revenue 25,252   982 24,270  
 
Operating expenses:
Cost of service revenue 5,686 608 5,078
Cost of product revenue 2,710 - 2,710
Research and development 1,826 - 1,826
Sales and marketing 10,541 273 10,268
General and administrative 2,064 11 2,053
Gain on patent sale (11,965 ) - (11,965 )
Total operating expenses 10,862   892 9,970  
Income from operations 14,390 90 14,300
Other income, net 8   - 8  
Income before provision for income taxes 14,398 90 14,308
Provision for income taxes 5,781   36 5,745  
Net income $ 8,617   $ 54 $ 8,563  
 
Net income per share:
Basic $ 0.12 $ 0.12
Diluted $ 0.12 $ 0.12
 
Weighted average number of shares:
Basic 70,717 70,717
Diluted 74,110 74,110
 
8x8, Inc.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended September 30, 2012
(In thousands, except per share amounts)
           
Pro Forma
As Reported Adjustments (1) Pro Forma
Service revenue $ 24,177 $ 1,076 $ 23,101
Product revenue 2,194 - 2,194
Total revenue 26,371 1,076 25,295
 
Operating expenses:
Cost of service revenue 5,825 609 5,216
Cost of product revenue 2,672 - 2,672
Research and development 2,030 - 2,030
Sales and marketing 11,010 210 10,800
General and administrative 2,070 16 2,054
Gain on patent sale - - -
Total operating expenses 23,607 835 22,772
Income from operations 2,764 241 2,523
Other income, net 9 - 9
Income before provision for income taxes 2,773 241 2,532
Provision for income taxes 1,032 97 935
Net income $ 1,741 $ 144 $ 1,597
 
Net income per share:
Basic $ 0.02 $ 0.02
Diluted $ 0.02 $ 0.02
 
Weighted average number of shares:
Basic 71,261 71,261
Diluted 74,558 74,558
 
8x8, Inc.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended December 31, 2012
(In thousands, except per share amounts)
           
Pro Forma
As Reported Adjustments (1) Pro Forma
Service revenue $ 24,958 $ 935 $ 24,023
Product revenue 2,382 - 2,382
Total revenue 27,340 935 26,405
 
Operating expenses:
Cost of service revenue 5,473 583 4,890
Cost of product revenue 3,203 - 3,203
Research and development 2,117 - 2,117
Sales and marketing 11,651 90 11,561
General and administrative 2,136 17 2,119
Gain on patent sale - - -
Total operating expenses 24,580 690 23,890
Income from operations 2,760 245 2,515
Other income, net 73 - 73
Income before provision for income taxes 2,833 245 2,588
Provision for income taxes 913 99 814
Net income $ 1,920 $ 146 $ 1,774
 
Net income per share:
Basic $ 0.03 $ 0.02
Diluted $ 0.03 $ 0.02
 
Weighted average number of shares:
Basic 71,611 71,611
Diluted 74,988 74,988
 
8x8, Inc.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended March 31, 2013
(In thousands, except per share amounts)
           
Pro Forma
As Reported Adjustments (1) Pro Forma
Service revenue $ 25,905 $ 835 $ 25,070
Product revenue 2,746   - 2,746  
Total revenue 28,651   835 27,816  
 
Operating expenses:
Cost of service revenue 5,217 473 4,744
Cost of product revenue 3,216 - 3,216
Research and development 2,174 - 2,174
Sales and marketing 13,042 98 12,944
General and administrative 2,349 17 2,332
Gain on patent sale (1,000 ) - (1,000 )
Total operating expenses 24,998   588 24,410  
Income from operations 3,653 247 3,406
Other income, net 15   - 15  
Income before provision for income taxes 3,668 247 3,421
Provision for income taxes 2,007   102 1,905  
Net income $ 1,661   $ 145 $ 1,516  
 
Net income per share:
Basic $ 0.02 $ 0.02
Diluted $ 0.02 $ 0.02
 
Weighted average number of shares:
Basic 71,998 71,998
Diluted 75,053 75,053
 

These unaudited pro forma condensed consolidated statements of income reflect all adjustments that, in the opinion of management, are necessary to present fairly the pro forma results of operations.

(1) Adjustments to remove the historical results of the dedicated server hosting business from continuing operations.

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