Good afternoon, ladies and gentlemen, and welcome to the 8x8 First Quarter Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Joan Citelli, Director of Corporate Communications.

Thanks, and welcome everyone to our call. Today, I am joined by 8x8's Chief Executive Officer, Vik Verma; and 8x8's Chief Financial Officer, Dan Weirich, to discuss our results for 8x8's first fiscal quarter of 2015 ended June 30, 2014. If you’ve not yet seen today's financial results, the press release is available on the Investors 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 Vik, 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 limitations, 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 Factor sections of our Annual Report on Form 10-K, in 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 Vik Verma, Chief Executive Officer of 8x8.

Thank you, Joan, and welcome everyone to 8x8's first quarter of fiscal 2015 earnings call. I'd like to begin by reviewing some of our high level financial results and business activities for the quarter. Following my remarks, our CFO, Dan Weirich, will discuss the results and metrics in greater detail. We will then be happy to answer any questions that you may have for us today. As you can see from our fiscal 2015 Q1 results, this has been a very strong quarter for 8x8. Total revenue for the quarter grew 30% year-over-year to a record $37.9 million and non-GAAP net income for the quarter was $3 million or 8% of revenue. This is the 17th consecutive quarter in which 8x8 has generated non-GAAP net income alongside increasing revenue. Additionally, we continue to demonstrate accelerating penetration into the mid market, our primary target segment with new sales from our mid-market and channel teams increasing 94% from the same period a year ago. Revenues from mid-market now represent 41% of service revenues compared with 34% for the same period a year ago. As we've discussed before, one of the primary drivers of our accelerating penetration in the mid-market is that these customers are looking for a single provider to deliver a broad range of communication capabilities that include cloud-based telephony, contact center, mobile apps and web conferencing. We see ourselves as significantly differentiated in this market in several key ways. Number one, our position as the only cloud-based provider with a native UC and contact center offering. Number two, our ability to provide services globally through our global reach initiative. Number three, our leadership position in security and compliance notably HIPAA and FISMA. Number four, our proprietary technology that enables us to meet stringent security and compliance requirements with exceptional reliability…

Thank you, Vik. We started the year strong with revenue increasing 30% compared with the same period last year. We're beginning to see acceleration in our revenue growth as we successfully sign up and deploy larger customers. Our 30% increase in revenue compared with a 29% increase in revenue for the fourth quarter of fiscal 2014, 41% of our service revenue in the first quarter was from customers who generated more than $1,000 in month of recurring revenue or MRR, compared with 39% in the fourth quarter of fiscal 2014. As Vik noted, our sales were robust in the quarter with record new MRR, our channel and mid-market sales teams generated 44% of our new sales, compared with 39% in the prior quarter and 30% in the same period a year ago. New MRR sold by our channel and mid-market sales teams increased 94% compared with the same period last year. This 94% increase in MRR compares with 47% growth in the fourth quarter of fiscal 2014 and 73% in the same period a year ago. All of our sales channels experienced an increase in MRR sold in the quarter. Non-GAAP net income was strong at $3 million, which is $0.03 per share or 8% of revenue. Gross margin was strong at 71% with 80% service margin and negative 9% product margin. This compares to 70% gross margin with 79% service margin and negative 23% product margin in the fourth quarter of fiscal 2014. Cash, cash equivalents and investments were $182 million at June 30, 2014, up $3.6 million in the quarter; capital expenditures were $1 million in the quarter or 2.7% of revenue. We ended the quarter with 39,340 customers, an increase of 1,407 in the quarter and 5,966 compared to the same period a year ago. Average revenue…

Thanks, Dan. As evidenced by our results over the past two quarters, we’re seeing more and more businesses transitioning their communications infrastructure from legacy premises-based system to cloud-based alternatives. As a result of our cloud-only focus since day one and the investments we've made over the years in R&D, engineering, security, reliability, customer support, sales and marketing, 8X8 has made great strides in this industry and I’m looking forward to many more exciting years of growth ahead. With that, we will be happy to take any questions you may have for us today. Operator, please open the lines for any questions.

Thank you, Mr. Verma. (Operator Instructions) Our first question comes from the line of Amir Rozwadowski with Barclays. Your line is now open. Please proceed with your question.

Hi. This is Arindam on behalf of Amir Rozwadowski. So, one question was that, it seems you’re increasingly crossing parts with premise-based competitors. So just wanted to get some color in terms of what kind of competitive response have you seen if any from them? And what’s your strategy going forward, because increasingly I guess you’ll be coming up against them?

We are increasingly seeing premise-based guys particularly in the mid-market space. The number one thing that makes us obviously very attractive is the fact that I use that one particular example of that medical facility where over five-year period we save this customer which had approximately 1200 VO seats, $5 million. That kind of makes it a no-brainer. The typical response from premise-based guy is cloud vendors are not as secured, they’re not as compliant, they have less up time or they’re not HIPAA compliant. While we are HIPAA compliant and we have 99.997% reliability. So in essence we are able to be 70% or so lower than a premise-based vendor and we can meet them on every one of those other functionalities and then on top cloud enables the level of flexibility in terms of basically being able to adapt your system, add to your system, subtract from your system. So that’s a competition we enjoy.

Okay. And just a quick follow-up, how difficult or easy is it for your cloud-based competitors to secure the same kind of certification the HIPAA compliance that you talked about from a security point of view, so that they can effectively compete with you. Is it a process that takes time or is it something that they can do pretty quickly?

It’s a non-trivial process. You are basically signing a BAA agreement, Business Associates Agreement. It’s a lot of liability, so you have to really go in. You have to have third party validation. You have to reengineer your systems. You have to make sure that you are able to have a level of reliability and compliance. It’s a multi-year process. So, it’s something we have invested a lot of time and energy.

All right. Great, thanks guys.

Thank you.

Our next question comes from the line of Catherine Trebnick with Dougherty. Your line is now open. Please proceed with your question.

Oh hi, thank you for taking my question. Mine is more to do with your commentary on the mid-market. Could you give me an idea of how full of the year -- how robust is the solution because you did mention that it has mobility and other extensions and I guess I’d like to ask, since this is the first time I’ve taken over the call have a good feel for -- is that a strong differentiator in winning against some of your competitors? Thank you.

Yes, Catherine, ultimately the real test of the robustness of our solution is twofold. One is, churn rate and the other is adoption. Mid-market and channel year-over-year in terms of new monthly recurring revenue grew approximately 94%, that’s pretty good. And churn rate as we also noted, were up particularly for the mid-market segment was a record low. So we increasingly see ourselves that all of the money, time, energy that we have spent in building our systems from the ground up making sure they are architected properly, making sure that we didn’t cut corners on security, all of those things are ending up being non-trivial differentiators for us.

Okay, and then one more question on the healthcare market. You indicated that last year you were certified for HIPAA Compliance, is that different than from what I understand from like security? Is it for Voice-over-IP etcetera?

Yes. There is many different types of certifications are adaptation that we received in the summer of 2013 for HIPAA which is kind of one element of security. So, it’s kind of a multi facet effort that took many, many, many years to get in place.

Alright, thanks.

The next question comes from the line of Michael Huang with Needham. Your line is now open. Please proceed with your question.

Thanks very much. Good quarter guys. First question for you, could you drill into kind of a mid-market opportunity and kind of what you’re seeing there? Could you help us understand and maybe how much of that, how much of what you’re seeing there is U.S. and which verticals and stand out ones and maybe kind of how many of those are both – are Vertical Office and Virtual Contact Center?

Yes Michael. I mean primarily we’re seeing it across the Board. The vertical that we've seen a lot of interest in particular has been medical. I think we said three or four of our top four required some level of -- of our top ten customers required some level of HIPAA compliance. Six out of our top ten deals required both Virtual Contact Center and Virtual Office, so that’s increasingly a differentiator. And as I said adoption across the board was strong both here as well as in our Europe facilities. So it seems like -- its early days yet, but it just feels like mid-market is starting to tip over and the adoption is starting to happen in an accelerating manner.

Got you. And how does your success that you are seeing right now in the mid-market, how is that impacting how you are thinking about sales ramps and distribution and so forth?

Yes, so this kind of plays back to our profit expectations of the 6% to 9% range, so we have been investing heavily in sales and marketing. 100% of that investment is being going into mid-market sales and marketing efforts as well as the deployment side. And so throughout this entire fiscal year we have expected ramps in all of those elements of our business and as I noted in my prepared remarks, we're seeing a return on investment of our mid-market customers that's roughly two times using extremely conservative churn rate of our SMB side. So we're very, very, very happy with the performance there and we'll continue to be investing on acquiring customers in the mid-market because they're extremely profitable and have an exceptional return, which is well in excess of things that we've done in the past, which had phenomenal returns as well.

Great. Thanks guys.

Thank you, Mike

Our next question comes from the line of Nikolay Beliov with Bank of America. Your line is now open. Please proceed with your question.

Hi guys. Congratulations on a good and what looks like improving execution. Two quick questions for me. Can you provide us the organic business services revenue year-over-year growth rate and also give us an update on the desktop. You were making some efforts last year, I just wanted to catch up on what you are doing there?

Hey Nikolay. On the organic revenue, we are starting to see an increase in the organic revenue growth and if you just compare to what we did last quarter, we had 29% revenue growth and in the quarter we just reported, we had 30% revenue growth, while we had increasing backlog during these two periods. And then do you mind expanding a little bit on your desktop question?

You guys gave a front end for desktops that sit in front of Citrix or VMware as part of your platform I am referring to the Softbank relationship. I am just wondering whether you are doing still some more work around this area.

No what I said in the last few quarters, our focus in on virtual office and virtual contact center and VDI is one of those deals where we in essence we cut a deal with Softbank and they are taking it to market and we're kind of at the backend of that. So think of it essentially as an option. Softbank goes off and executes whereof sitting at the background. So that's not been an organic focus for us. That's much more of a deal that we did with Softbank that we've put in place and Softbank is the lead and as Softbank grows the business, we'll start to use more and more of our stuff. They're still at their minimum levels, but again that's not been our focus.

Got it. Thank you.

Thanks Nikolay.

Our next question comes from the line of Mike Crawford with B. Riley & Company. Your line is now open. Please proceed with your question.

Thank you. The revenue churn performance was admirable. You're talking about 1% churn going forward as a good assumption. How low do you think you could possibly be on a sustainable basis probably somewhere between that 1% and the 0.4%.

I think that's probably a longer term range that we could be within. So it's what we're seeing is the vast majority of our cancellations in terms of revenue in the quarter were from our SMB customers, the customers that spend less than $1,000 a month with us and we had little to no revenue churn from our larger customers. So couple things are happening. One is we get a greater percentage of our revenue from these larger more established customers. History kind of continues into the future we just naturally have lower revenue churn and then the other component is that we're seeing a tremendous amount of up-sell and ad-on revenue from existing customers that just -- that can track that $1,000 and they end up spending $105 or so which are benefits to the revenue churn component.

Okay. Thank you. And then the follow-up question relates to operating expense, you guide a 6% to 9% pro forma net margin this year. you did hire I believe 26 people and issued some 137,000 RSU is in the period. Is this a case where you're growing into the revenue base or do you expect to continue to grow operating expenses at a similar rate next year?

We're not commenting on fiscal 2016 yet, but in the 6% to 9% is a percentage of revenues what we guided for, for fiscal 2015. So this has not changed. We stated this range in -- I've had some commentary that's kind of a large range because there are certain variables such as hiring and those things such as [our] (ph) that are kind of hard to predict exactly when they are going to fall in the period. But we're seeing a phenomenal ROI from these larger customers and we're very excited about the kind of their long term revenue potential and so as we continue to have success similar to what 94|% increase in sales from our two sales channels that attack this market we're going to be continuing to invest.

All right. Thank you.

Thank you, Mike.

Our next question comes from the line of Greg Burns with Sidoti & Company. Your line is now open. Please proceed with your question.

Good afternoon. Just a question on the product margins, as much on the subsidies this quarter than in past quarters, is the handset something that you have to subsidize less in the mid-market, is there anything different about the mid-market that's improving the margins on the products. And secondly, I just wanted to hear your thoughts on wholesaling of the platform, is that something of strategic importance or something that you're actively pursuing, thanks?

Hey Greg, it's Dan. So I am going to do the first question and I think Vik will take the second one. On the product margin, we're down to negative 9%. When you just take a step back and look at it from an absolute dollar amount, it's not huge dollars and that we're in kind of the negative 23% range in March and we stepped down to kind of look at that delta from a percentage standpoint looks huge, but dollars is not nearly as big of a number. But it's happening for a couple reasons. One is yes, mid-market customers are less sensitive to the price of the handset and whether they're buying low end or high end phones, it's just not as big of an issue from the relative to the SMB side. Two, we had some improvement in pricing from vendors and three, we kind of enhanced kind of controls and discounting various things like that primarily on our SMB side as we really kind of turned in the ship to focus more on mid-market, going up market phone to larger customers and we're not cutting off signing up the one line customers, but we're not running aggressive handset promos to attract extremely small customers.

And then your comment with regard to I guess use the word wholesaling which I assume you mean white labeling our system, I think what we found is our channel growth has been quite spectacular and what we're finding is there are a few people that would like to white label our system, but generally what we've found is people want to co-sell with us or resell our system and part of the reason is because increasingly our brand name is starting to be synonymous with reliability and compliance and so there is value in the brand name and so we're rarely finding people pushing for in essence white labeling our system. It's much more of a co-sell or resell arrangement.

Thank you.

Thanks Greg.

Our next question comes from the line of Mike Latimore with Northland Capital. Your line is now open. Please proceed with your question.

Yes, great, thanks. Very nice quarter. The Voicenet or the U.K. operations, how much do they contribute to service revenue?

Hey Mike, it's Dan. So that's a number that we're just not disclosing. You can see the number in our 10-K for the fiscal year finishing 2014 and we're just not going to disclose that number going forward. As Vik noted, two of our top 10 deals in the quarter included deployments in the U.S. and in Europe and the systems are kind of totally messed together and we're seeing some good success there, but it's just something that frankly we don't look at internally as separate and on our booking side just one P&L and that's the way to do it.

All right. Got it and then this dynamic of customers ordering more services or adding on additional services, how much of that dynamic adds to new MRR purchase in the quarter?

Yes, and I think you are talking about up-sell versus new logos.

Yes.

It is approximately half and half. I think we like both elements of it and I would love to model is as half and half. We were -- approximately half of it should be bringing new logos and the other half should be up-selling to existing logos because the more you up-sell, the more they get tightly wedded to your system and the more integrated you are and less likely they have to churn. So I think we're quite satisfied with the fact that it seems to be approximately half and half.

Great, thanks.

Thanks Mike.

(Operator instructions) Our next question comes from the line of Dmitry Netis with William Blair. Your line is now open. Please proceed with your question.

Yes, thanks nice quarter guys.

Thanks Dmitry.

While you get on the mid-market side again kind of dig in on that, how many customers do you have in the mid-market that for example you're recognizing revenue from right now?

Mid-market customers are roughly 1200 or so customers in the mid-market and so our definition is of the mid-market customer is just someone who is paying us monthly service bill in excess of $1,000.

Got it. Okay. Great. And then on the backlog I think you had 75 that were in the backlog last quarter, how many do you have this quarter?

We have a greater number of customers in backlog today than we did at March 31. The increase in terms of recurring revenue in backlog has gone up 20% sequentially and we deployed approximately half the backlog on March 31 in the quarter and an additional 15% of that backlog at March 31 has been deployed in the first three weeks of July.

Okay. Great. Thanks and I guess to follow-up on the Voicenet side, I am just curious I know it smashed, but can you talk about sort of the international traction in general, is it meeting your expectations, exceeding your expectations, is there more work to do, can you just give us kind of an overview what you are doing overseas and whether things are kind of firing on all cylinders there?

Yes, no, I am increasingly pleased. In essence, we bought a company November-ish timeframe. It was operational on our system and by that means selling our virtual office products in the February-March timeframe. It's totally integrated. I think there are several deals that were cross-border type deals where there was a U.S. component, a U.K. component, there were two pretty significant deals. I am actually very pleased. We got a very good team out there and I am very -- it's definitely exceeding my expectations.

Great. And what about the other parts Vik? Latin America may be Hong Kong where I know you just began those datacenters?

Right. So as I indicated last quarter, Hong Kong is up and running and we're starting to put several folks in there. Latin America we had not deployed mainly because we were able to serve our Latin America customers at least in the short term through the U.S., but on a case by case basis, we continue to deploy, but again what I try to do is make sure we have very good capacity and customers fill it up relatively quickly and so we'll continue to tell you about areas that we deploy as time goes on.

Any new extension datacenters across the globe that you're thinking about and you're willing to talk about it on this call?

Not yet. I think it's premature to talk about it, but I think one of the -- the part I would emphasize is the U.K. deployment on two levels has been a great model for us and one that has worked out exceedingly well. First we deployed a datacenter, then we acquired a company that leverages that datacenter plus use that datacenter for our existing customers and then transferred some of the ownership of those customers to our U.K. facility and that process has gone quite well. Actually, as I said, it exceeded my expectation. So as we continue to learn from it, we're going to make sure we deploy all of the lessons learnt, so we can keep getting even better and so over time, we will continue to deploy but again, we'll do it in a very planned and thoughtful manner.

And I am showing no further questions at this time. I would now like to turn the conference back to Mr. Vik Verma.

Thank you, everybody for listening to our presentation today. I look forward to seeing all of you in the coming months and at upcoming financial conferences and other industry events. Thanks again.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.