Welcome to the 8x8 Incorporated Fourth Quarter and Year-End Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference may be recorded. Now it’s my pleasure to turn the call over to Joan Citelli, 8x8’s Director of Corporate Communications.

Today I’m joined by 8x8’s Chief Executive Officer and Chairman of the Board, Bryan Martin; and 8x8’s Chief Financial Officer, Dan Weirich, to discuss our results for 8x8’s fourth fiscal quarter and full fiscal year ended March 31, 2012. If you have not yet seen today’s financial results, the press release is available on the investor’s tab of 8x8’s website at www.8x8.com. Following our comments there will be an opportunity for questions. 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 risk factors sections of our annual report on Form 10K, in our quarterly reports on Form 10Q, 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. With that, I’ll turn the call over to Bryan Martin, Chief Executive Officer and Chairman of the Board of 8x8.

I’d like to begin by providing an overview of our fourth quarter and full year fiscal 2012 results which will be followed by Dan’s discussion of the financial details. We will then open the line for any questions you may have. 8x8 closed its fiscal year ended March 31, 2012 with a solid quarter fueled by strong new sales for our business communication and cloud data services. I’m pleased to report that total revenue for the March quarter increased 33% year-over-year to a record $24.2 million, while revenue from business customers increased 44% year-over-year to $22.8 million or 94% of total revenue. For the full fiscal year, total revenue was a record $85.8 million, a 22% increase over revenue of $70.2 million for fiscal 2011. In fact, if we had announced our year-end numbers prior to the April 21 publication of the San Jose Mercury News Silicon Valley 150 which annually ranks Silicon Valley 150 largest publically traded companies by revenue, 8x8 would have been included on the list for the very first time. For now, we’ll have to be satisfied with our inclusion in the Russell 3000 Index this year, but it’s a great sign of our future potential that we have become one of Silicon Valley’s largest technology companies with our emerging cloud communication and data cloud service offerings. 8x8 added approximately 1,000 net new business customers in the March quarter and ended the fiscal year with 28,671 business customers. All of the trends and metrics we referenced in last quarter’s call regarding the adoption of 8x8 cloud communication services by larger mid market businesses continued their respective growth and trends in the March quarter, with average monthly revenue per business customer growing to $244 per month versus $204 per month in the same period last year. And…

All of the key indicators of our business were record or near record setting this quarter. Service margin remains strong at 76%, our 12th consecutive quarter with hosted service margin greater than 75%. For the full fiscal year service margins were 77%. Throughout fiscal 2012, we made significant infrastructure and personnel investments in our operations team which is included in our cost of service revenue line on our income statement. We did this to build more redundancy into our network. As these infrastructure investments near completion, we expect that service margins will began an upward trend through fiscal 2013. GAAP net income for the year was $69.2 million. This included a tax benefit of $62.1 million primarily associated with the release of a deferred tax asset valuation allowance in the fourth quarter. The March quarter was negatively impacted by the 100% write off of a $356,000 strategic investment in Stonyfish that we made at the beginning of fiscal 2011 related to the sale of our former French subsidiary. We are introducing non-GAAP metrics this quarter for the following reasons. The $62.1 million tax benefit is very unlikely to recur in the future and including a benefit this large makes it difficult to compare our current to historical operating results. Second, stock based compensation expense is difficult to predict and is affected by market factors that are largely not within the control of management. The third reason for introducing non-GAAP metrics is amortization of acquired intangibles is a non-cash expense that we do not consider part of ongoing operations when assessing our financial performance. The final reason is acquisition related and facility exit expenses can be large dollar amounts that make comparisons with our historical operating results difficult. We define non-GAAP net income as net income for GAAP plus loss on…

For your reference and convenience we have posted a transcript of these prepared remarks on the events and presentation section of 8x8’s investor website which is at investors.8x8.com. We have a busy month ahead of us in terms of investor events. For those attending, we are presenting at B. Riley’s 13th Annual Investor Conference in Santa Monica on May 23rd, Craig-Hallum’s 9th Annual Institutional Conference in Minneapolis on May 30th, and Benchmark’s 3rd Annual Investor One-on-One Conference in Milwaukee on May 31st. Please contact your representative at these firms if you’d like to schedule a meeting with us at any of these events. With that we’d be happy to take any questions you may have. Operator, please open the lines.

[Operator Instructions] Your first question comes from Mike Crawford -- B. Riley & Company, Inc.

You did mention in your prepared remarks something about global plans, could you elaborate a bit on that please?

It's Bryan. We, through the acquisition of Contactual, have acquired a significant number of customers with primarily call centers but again, some of these are starting to buy telephony services from us as well, that are in locations that are outside of the U.S. As you know, historically 8x8 has only provided telephone numbers and in some regulatory tax senses, services within the U.S. So we are now -- I think the transaction rapidly accelerated our desire to expand into some of these international markets. Some of the customer concentrations are in places like the Philippians, the UK, and Canada. And so we have been engaging rapidly with partners in those markets so we can offer local services, localization of the services, and maybe even better feet on the street as we develop these markets so we have support and sales people in those markets. And so that’s what the reference was to.

The second question is really in 2 parts, you say that you’re pleased with the progress with the channels, but it’s still a small portion of the revenue. First, can you quantify what portion of the revenue you’re getting from the channel today and maybe where you would like to be for the current fiscal year?

It’s still a small percentage of contribution of new MRR. I’ll see if Dan can give you kind of a less than some percent. While he’s looking that up, the channel has basically been up and running, let’s call if for a year now and we are at a point where we’re starting to get some steady deal flow. The channel partners that we’re signing up are of a much better quality and credibility maybe and financial backing than some of the partners we signed up in the very early days when we started this effort last spring. So yes, I’m still convinced this is the right way to get in front of these mid market customers and quote our services because we just don’t have the brand recognition or familiarity that a Cisco or Via [ph] or Mytel have to have these types of customers calling us. So we are starting to close those deals and we’re still making progress on that.

In the quarter, Mike -- MRR, what Bryan said, means monthly recurring revenue and so in the quarter from our channel side it was approximately 6% of the company’s new bookings.

Then maybe you don’t want to talk about what the goal would be for next year, but one thing for modeling purposes I’m curious as to what trend we should expect for SG&A given the number of hires as well as the number of conferences sponsored which looks like to be a pretty full slate for the remainder of the year?

We’re very popular. The conferences are relatively inexpensive fortunately so I don’t think that’s going to have a material impact on SG&A. Do you want to comment on the other?

As you can see, comparing the December quarter to the March quarter we’ve included a new table on the non-GAAP reconciliations, it’s the last table in the press release. And our non-GAAP net income percentage of revenue in the December quarter was 16% of revenue and it was 12% in the March quarter so you can definitely see that we’ve invested more in this most recent quarter. Our goals are to continue to invest in various product, sales and marketing related areas to accelerate our top line growth. What we’re seeing is we see absolutely huge interest in what we’re doing. Every day and every month things are getting better in the marketplace. Many of these premise based providers are hitting 52 week lows and they’re continuing to come out with announcements that they’re missing their numbers because many people are looking at cloud based solutions and seeing that there’s no cap ex required and that’s a way they can potentially go. We’re seeing strong momentum in larger and larger businesses, and it’s reflected in our ARPU figure which is up $5 sequentially. This is a big, big shift that is occurring and we expect that it’s going to last many, many years. We’re not providing guidance as to where the investments are going to go but we definitely are looking to hire, as you can see, on our careers page on our website. But all of the investments will be into profitable growth.

Just final point of clarification, by conferences I meant NetSuite’s SuiteWorld which you’re at now, GSA Expo coming up, Exchange Solutions, IT Expo, these types of events that’s what I was talking about.

Those are all types of conferences where we can reach the mid market customer base that we’re targeting and channel partners.

Your next question comes from Mike Latimore -- Northland Capital.

Just on the product margin, and I guess service margin too, is this kind of a pretty reasonable product margin? It’s improved a lot, is this kind of where we should think about it going forward? Then, you’ve talked about you’ve invested in some of your networking and you might see some leverage there, where could service margins trend going forward?

On your first question on the product margin, it improved roughly 10% in absolute terms from the third quarter to the fourth quarter from negative 24% to negative 15% approximately. We think for the foreseeable future it’s still going to be a subsidy amount and frankly, we don’t have great visibility into whether it’s going to be negative 15% or negative 25%. If you look at that in absolute dollar terms, it’s a very small figure that delta. But I’d say it’s somewhere in that range. On the service margins, we have a goal internally to get it to 80% and we see no reason that we cannot get service margins to 80%. Unfortunately, I don’t have a hard timeline on that, but that’s what we’re shooting for.

Then the churn continues to be very strong improving. I guess you just hired a very top notch customer service person, so I guess is there much more room for them to improve churn?

This is Bryan. I have been very impressed with what Eric has been able to do in the short time he’s been here. He really brings an enterprise class focus and discipline and knowledge of processes to a customer service organization that to be perfectly honestly, was built out of grassroots and home grown. I actually think as that organization and our on boarding in general get better, we’ve been able to hire a senior executive who is focused solely on the on boarding process of these new customers and ways to optimize that and get them up and running even quicker than we are today. I think you will see most of that impact improve our churn in the first 120 days of a customer’s life which is where if you look at the traditional waterfall charts that we’ve talked about in the past, that’s where most of our churn comes from anyways. And so we continue to focus on that and we continue, I’m pleased to report make progress on it. I see a lot of improvement yet to come in that area.

How did Contactual perform in the quarter?

Contactual performed very well. We’re starting to see some good success on cross selling the product into 8x8’s base. So Bryan listed roughly about 6 companies in his prepared remarks and 2 to 3 of those purchased pretty significant contact center deployments during the period. I believe one was an 87 seat contact center deployment, one was roughly 30. And I believe there was another one in the 40 range, so very good success there. And on just going straight to market with the contact center side we’re doing extremely well and added some fairly impressive logos during the quarter.

Last question, what roughly will the cash tax amount be per quarter going forward?

It is going to be in the range of about $15,000 to $25,000 per quarter.

Your next question comes from George Sutton with Craig-Hallum Capital.

Bryan, I was wondering if you could expand upon your suggestion in your prepared comments that competitors are vulnerable? I was just wondering what you were referencing there specifically?

I was looking through these deals that we listed -- just to give you a little more color on some of these. TMW is a large transportation infrastructure company and they had a bid out to replace a Cisco platform in 7 locations. The initial order was about 500 extensions, but we expect that to grow and so we were able to replace that. The reason they were replacing that was really for cost savings and especially the reduced load on the IT staff that they were employing internally to support that. They just viewed this as a way to outsource all of that and free up that staff to go work on other priorities that they have internally that the IT people can work on. Virco was another one I mentioned where this was a competitive RFP, like formal bidding process, we submitted written bids, we did live demos and were head-to-head in that deal amongst others Avai [ph], Shoretel and Mytel. This was 3 locations, 2 in Arkansas, 1 in Torrance, California, 470 extensions. Again, this was another one that Dan mentioned used our contact center. So again, if you ask Virco kind of why they were replacing their existing system -- number one they wanted to get the whole company and all these locations on a single system and number two, it was cost savings. So we just see the knowledge of these cloud based services, and as Dan mentioned, the cap ex advantages really starting to resonate with these mid market customers. And when we can provide a better service for a lower monthly operating price, free up your IT staff and not have you invest in cap ex, I think in this market environment with what these businesses are really trying to do with their spending, I mean it’s resonating very well. We’ve seen some moves during the quarter, we saw one of the on premise providers buy a very small regional player, similar to 8x8, with a very kind of point solution for hosted PBX. It didn’t really go into some of the other areas that we serve and the breadth of our service offerings in conference, and video, and call center and so forth. But we just see this mid market customer really starting to come to us and that’s a significant difference from where we were a year to 2 years ago.

On the competitive angle furthering a little bit, Frost & Sullivan had very complimentary things to say in their report, I’m wondering what kinds of follow through you’re seeing from that?

I can tell you the last few months, not only our sales phones have been ringing off the hook but the investor interest, and analyst interest, and people from Gartner that have been coming through our facility here, I mean we’ve just really seen an uptick in the interest level. I’m waiting for the formal Frost & Sullivan Report to come out, but based on the presentation that they made public at the Enterprise Connection Show down in Florida a few weeks ago -- we had permission to use that data and it should be loaded up on our investor page. So if you take a look at our new investor deck that we’ll be presenting next week at these conferences we’re going to, we’ve got that data included in there. Yes, I thought it was extremely complimentary and I think it is extremely correct. I think they got the analyst analysis right. I’m glad to see the right data getting out into the market versus some of the claims I’ve seen from analysts that may have not done their homework.

If you’re phones are literally ringing off the hook that could be a hardware problem, so you may want to check that out.

No, no in this SAS world it is not a problem. We can actually take all those calls. The interest level has been extremely high, so we think that’s a great thing for the company and our shareholders.

So on the vCloud you had, I believe, deployed that this quarter. Could you give us an update on that?

You’re talking about the enterprise cloud product that we based on the v block?

Yes.

When you say v in front of something that’s usually what it’s referring to. We’re seeing very good interest in the platform. We’re continuing to on board customers on to the platform. We’re actually starting to do some work in regards to putting some of our core technology platforms like the call center on to the v block platform. That v block is actually sitting out on the East Coast in our kind of federal facility if you will in Ashburn, Virginia. And we’re getting some certifications done around that facility later this year that will open us up to even more government bids and ability to serve those needs. Again, with the demand we’re seeing on the contact center side of the house we wanted to make sure we can support those customers under those certifications out of that facility. We believe that that platform is going to be great to deliver even some of those voice services. We’re seeing good crossover there, we’re seeing a good mix, so it’s very, very nice to be able to go into any customer meeting and have something to sell them and offer them.

Last for me relative to your corporate headquarter move, Dan gave the economics behind it in terms of costs. Can you just give us a sense in terms of what this may enable you to do that you might not have been able to do, other than the obvious, with your old headquarters?

Yes, if you visited us any time recently it’s a common complaint that there’s nowhere to park here. And there’s nowhere to park behind the building across the street, and there’s nowhere to park down the street. I had a board member even, we had an in person meeting all day yesterday, a board member had to park so far away he was asking, “Are you sure it’s safe to leave my car out there?” I said, “Yes, it should be fine, that’s where I’m parked.” So number one, in the old days as a chip company we were always looking for warehouse space and a sunken dock where we could ship chips. And the move this time and the search for the new facility really focused on parking spaces and things like cafeteria space and to be very frank, restroom facilities because the line to the men’s room here can get kind of long as well. We accomplished what we think will be all of those needs, the ability to significantly expand our headcount. We’re making a major investment in this facility. We’ll be upgrading our NOC and we signed a 7 year lease there so we expect to be there for some time. It’s also in a corridor that is -- number one has the capability for future expansion should we ever outgrow it, which is a problem I’d love to have. The other thing very attractive about it is it is served by the Light Rail that the county provides here. So that drops you off half a block from the front door of our facility. So we’re looking forward to getting in there and alleviating some of the cramped living conditions that we’re all dealing with here.

[Operator Instructions] Your next question comes from Gregory Burns with Sidoti & Company.

A question about the breakdown of your revenue between virtual office and virtual office pro, or maybe the percentage of customers taking each service?

We don’t provide kind of granular detail to that level. But I’ll just give you -- paint a little picture for you of what a customer looks like. Typically a customer that’s subscribing to our virtual office pro product which is a unified communication product is typically subscribing to our flagship PBX product. A customer like that may have 5 to 6 physical extensions, that’s when you have a physical telephone that you can make and receive telephone calls from and you have voicemail, and all of the features and functionality of a PBX. Then on top of that they typically buy services and so a customer may buy 2 of the unified communication services for the head of the company and the office manager or someone like that. Then they’ll buy a fax line, and maybe a toll-free number, and a virtual number that comes into their PBX so that’s like the voice that answers the phone when you call a business. That’s kind of the makeup of what a 10 line or 10 service customer looks like.

Thinking more broadly about the opportunities to cross sell, you talked a little bit about that which is some of the contact solutions that you outlined. But just more broadly, to cross sell and up sell the 20 plus subscription services you now have in house, do you feel you have the infrastructure in place or the systems in place to do that effectively or is there ways you can enhance your ability to do that going forward?

On the cross selling and up selling, we definitely have a lot of room for improvement there. We have our inside sales centers broken up into 2 groups, we have account executives which is a little bit more than half of our inside group and they’re the folks responding to the leads. So these are businesses we’ve never done businesses with before, so they’re trying to add new customers. Then we have an account management group that takes over the account a number of months after they’ve initially become a customer. And the account management group is responsible for add ons, up sells, cross selling, et cetera. What we typically see is the initial point of sale, 60% of the monthly recurring revenue is subscribed to at the first point of sale. Then over the next 1 to 1.5 years, we see the customer add on the remaining 40% of their total monthly recurring spend. Some of them buy a system, try it out, and realize that this thing is good to go and they deploy it across the whole company. And some of their customers are deploying across the whole company and then they start adding features and functionality. For example, one of these customers that we mentioned today, TWM Systems, is a company who signed up in the summer of 2011, is a multi 100 line deployment and they are the customer who subscribed to more than 50 contact center seats in this most recent quarter. So that’s an extremely good example of a customer who deployed the PBX, unified their organization across 7 or so locations and then we were really strong with an up sell of an extremely high margin contact center solution on top of that.

Then between say like your communication solutions and your hosted cloud, have you been able to cross sell between those 2 services?

We are actively doing that and it is going both directions. So we’ll have customers that might be a couple hundred dollar PBX customer and then they become a $20,000 managed hosting customer. We’ve seen it kind of vice versa as well.

Switching gears to the government space, how big is the GSA and the NASA contracts? How big are those bid platforms?

The networks contract is roughly $20 billion and then the [indiscernible] contract is $3 billion. And I believe the vast majority of our wins have been on those contracts.

Just more generally how is that space evolving for you? Are you seeing increased demand for hosted in the government space?

Yes. We had a new logo last quarter, we had a new logo this quarter and we are seeing significant increase in activity there. And we have a huge number of bids out there waiting to hear response from -- the number of bids we have out there is a much larger number than we had out there 3 months ago, or 4 months ago when we last spoke.

Then in terms of the quarter, could you just maybe talk about the linearity and we’re pretty deep into the first quarter now, any kind of color you can give on the first couple of months of this quarter?

If you go back and look at our historical customer count chart, we’re in the range of about 1,000 net new customers per quarter for a long time, 20 to 25 quarters straight and it’s not changing.

Interest and sales are strong, I made the reference to ringing off the hooks, so we are not seeing any weakness in our new sales.

You mentioned the percent of sales coming from hosted services and the number of channel partners you currently have signed up?

When you said hosted services, I believe you’re referring to our cloud data product?

Yes, correct.

That represented 4% of the company’s revenue in the fourth quarter. Then the number of channel partners was 82 at the end of March, and that compared to 54 at the end of December.

At this time it looks like this does conclude our time for questions and answers. I’d like to turn the program back over to Bryan Martin for any additional or closing remarks.

Thank you everybody for joining us today and for listening to our presentation. If you’re not already improving your business communication and data services with our solutions, I encourage you to learn more about what we can do to help you improve your business as well as 8x8’s many diversified cloud services. We have all of that information up at our website at www.8x8.com. With that, we will conclude today’s call. Thank you very much.

Ladies and gentlemen this does conclude today’s program. Thank you for your participation and have a wonderful day. Attendees you may now disconnect.