8x8 Inc (EGHT) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the 8x8, Incorporated first-quarter fiscal 2013 earnings conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder this conference is being recorded. I would now like to introduce your host for today, Ms. Joan Citelli, Director of Corporate Communications. Ma'am, please go ahead.

Thank you and welcome everyone to our call.

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 first quarter of fiscal year 2013 ended June 30, 2012. If you have 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 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 provisions 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 factor sections of our annual report on form 10K 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 will turn the call over to Bryan Martin, Chief Executive Officer and Chairman of the Board of 8x8.

Thank you Joan and good afternoon everyone.

I would like to begin today by providing an overview of our first-quarter of fiscal 2013 which will then be followed by Dan's discussion of the financial details and metrics. We will then open the lines for any questions you may have. 8x8 closed the first fiscal quarter ended June 30 with the achievement of a new milestone -- exceeding a run rate of $100 million in annual revenue for the first time. We reported $25.3 million in revenue for the June quarter, a 36% increase in revenue over the same period last year.

The trends and metrics regarding the adoption of 8x8 cloud communication services by larger midmarket businesses continued their respective growth in the June quarter. During the quarter 8x8 added 1,242 net new business customers to its services and we ended the quarter with 29,913 business customers. The average business customer paid $250 in average recurring monthly revenue compared to $200 a year ago and they subscribed to 10.1 lines and services compared to 8.4 services a year ago. The average new customer brought on during the June quarter subscribed to 14 lines and services. The growing adoption of our services in the SMB market was recently substantiated by industry research firm, Frost & Sullivan, in a newly published report that identified 8x8 as the hosted IP telephony and UC services provider with the largest installed customer base.

8x8 also announced several key customer wins in the quarter, including McLarens Young International, a large insurance industry service provider, Irving Materials, the largest privately held construction company in the United States, and transportation industry services provider, TMW Systems. Our channel partner program also expanded during the quarter with 94 partners under contract as of June 30, 2012. Product margins modestly declined from negative15% in the March quarter to negative 30% in the June quarter. Gross margin was 67% in the first fiscal quarter, with service margin coming in at 75%. Cash, cash equivalents, and investments were $38.2 million at June 30, 2012, the highest level of liquidity on the Company's balance sheet since it began operating as a service provider.

As we always like to point out, our balance sheet contains no debt. A significant portion of the cash increase on our balance sheet can be attributed to the sale of a family of 8x8's United States legacy patents to a third-party during the quarter, and Dan is going to have additional details on the accounting treatment of this transaction in just a moment. We were also pleased to report the issuance of two new patents during the quarter related to contact and call center technology, as well as videoconferencing technologies. 8x8 has been awarded 81 United States patents covering a variety of voice and video communications, signaling, processing, and storage technologies, and we are pleased to report a significant success in monetizing a subset of the Company's portfolio of intellectual property at the end of June.

Finally, last week 8x8 was named the number one provider of hosted IP telephony and unified communications by industry research firm Frost & Sullivan. The July 2012 report entitled, "Analysis of the Hosted IP Telephony and UC Services Market," declared 8x8 with a market share of 7.9%, the quote, clear leader over several other well-known providers of communications services for businesses.

Together the top five hosted IP telephony and unified communication service providers contributed 32.1% of the total installed base in 2011, and 8x8 lead with about 220,000 users, which represented a 67% growth rate over our 2010 members. Increased brand recognition, reduced churn, and the adoption by larger-sized business customers and helped 8x8 gain this leadership position.

We were obviously pleased to see validation of our leadership in the hosted telephony and unified communications space from a research firm like Frost & Sullivan, along with an objective assessment of the relative market positions of other companies and service providers in the cloud communication sector. We were also encouraged by new FCC data published in June, which reiterated how underpenetrated the technologies and services we are offering are in the United States business telephony market, with just over an 8% market adoption rate, as measured by business access line technology by businesses of all sizes in the US as of June 2011.

To us that data implies that more than 90% of the US business market could be converted to cloud-based business communication services like ours, which would enable those businesses to operate with more efficiency and capabilities, while reducing the complexity of their information technology and communications infrastructure. 8x8 services empower these businesses to spend less time and money managing such resources, while elevating the business conversations between people and groups on any device from any network and from any location.

We look forward to continuing to update you on our progress as this migration of businesses around the world to IP communications continues. With that I'm going to turn the call over to Dan Weirich, the Company's Chief Financial Officer, who is going to walk you through our detailed financial results and provide additional information regarding our business. Dan?

Thank you, Brian.

Revenue growth was strong in the quarter, with revenue from business customers increasing 46% compared to the first quarter of fiscal 2012. Service revenue from our cloud PBX business, which represented approximately 70% of our total revenue, increased 23% year-over-year. This is a new metric we're providing in response to questions we have received about organic growth since we acquired Contactual on September 15, 2011. Between the fourth quarter of fiscal 2011 and 2012 our year-over-year organic growth rate in our cloud PBX business was 22%. As you can see, we are experiencing acceleration in our growth rate.

Non-GAAP net income for the quarter was $3.4 million, a 76% increase, compared with $1.9 million in the same period a year ago. Non-GAAP net income per diluted share was $0.05 for the quarter, compared with $0.03 per share in the same period of fiscal 2012. Non-GAAP net income as a percentage of revenue was 13% in the quarter, compared with 10% in the same period a year ago. Service margin was 75%, our 13th consecutive quarter with hosted service margin at or greater than 75%.

As noted last quarter we have made significant infrastructure and personnel investments in our operations team over the past six quarters, which is included in our cost of service to build more redundancy into our network and throughout calendar 2012 we have experienced increases in our outbound calling cost structure due to the merger of two of our largest vendors. Both of these factors have resulted in a decline in our service margins. We are aggressively working to bring on new outbound calling vendors to reduce our overall direct cause for terminations.

As I have stated in the past, our goal is to grow service margins to 80% over time, and we expect to see our service margins increase throughout the remainder of this fiscal year. In the second quarter we sold a family of patents for $12 million. This is recorded in our statement of income as a reduction of expensive net of $35,000 of transaction fees incurred in the period. We have deducted the benefit from this transaction from our non-GAAP net income.

Capital expenditures were $1.048 million for the quarter with $437,000 related to the tenant improvement investments we are making at our new facility in San Jose. Excluding the tenant improvement investments, capital expenditures were 2.4% of revenue. As mentioned last quarter, we will be relocating our headquarters from Sunnyvale to San Jose in August. The San Jose facility is twice the size of our current facility, and will increase our annual operating expenses by approximately $1.2 million compared to our current real estate expense.

In the first half of fiscal 2013, we expect capital expenditures net of tenant improvement dollars provided by the landlord of approximately $2 million, and a one-time relocation and facility exit expenses to be approximately $200,000. Business subscriber acquisition costs per service was $97 per service compared to $99 in the fourth quarter of fiscal 2012 and $89 in the same period a year ago.

Our reported churn was a record low of 1.7% with 53% of our cancellations due to business closure and economic environment reasons. Revenue churn in the quarter was 2.3% compared with 1.8% and 1.6% in third and fourth quarters of fiscal 2012. The increase in revenue churn is attributable to increases in cancellations of our data cloud product. Our PBX revenue churn was 1.7% in the quarter.

Revenue churn is a volatile figure and we expect it to decline in subsequent quarters. Finally, we expect to incur cash taxes between $400,000 and $500,000 this fiscal year primarily due to alternative minimum taxes and state taxes. This is a significant increase from what I mentioned quarter ago, because the patent sale had not closed at that time. Our GAAP tax rate is approximately 40%.

That concludes my prepared remarks and I will now turn the call back over to Bryan.

Thank you Dan.

For your reference and convenience we have posted a transcript of our prepared remarks on the events and presentations section of 8x8's investor website which you can find at investors.8x8.com. As a reminder, 8x8's annual meeting of shareholders will take place on Tuesday, July 24, at the Company's headquarters in Sunnyvale, California at 2.00 PM Pacific time. We will also be presenting on August 14 at the 15th annual Oppenheimer Technology, Internet, and Communications Conference in Boston, Massachusetts. We look forward to seeing you at one of these events. With that, we will be happy to take any questions you have for us today. Karen, if you could please open the lines for any questions.

(Operator Instructions)

Mike Crawford, B. Riley & Company.

Thank you. Regarding the reduction in churn down to 1.7%, is that something you see as sustainable or was there something that you are doing differently now to achieve that result?

Hi Mike, this is Dan. We announced earlier this year that we hired an individual named Eric Goffney to run our customer service department. He joined the Company in January and his background is with much larger companies than 8x8 running customer support divisions so he is definitely a customer service professional. And he has been doing a phenomenal job over the last six months. And it was a massive improvement over last quarter. We have always indicated we think that there is definitely room down for churn, that we could do better. So I think that we will be at or near these levels in the future.

And is that about as good as it gets then or is there some kind of achievable floor in churn.

Eric has been making a lot of changes in the first six months that he's been with the Company and the changes that he has put in place are still in the works and a lot of it just relates to the way that we handle customers' issues when they contact us. Primarily, customer satisfaction is that if they have an issue and they are calling us we need to resolve it as quickly as possible. And so it's what we're working to do is resolve it on the first call and make the customer happy and satisfied so they don't have to call us back. So there is definitely still a lot of work in progress and so I think that potentially there is definitely some room ahead on improving churn.

Okay. Thanks. And then if you could provide cloud data service as a percent of revenue and maybe channel as a percent of new monthly recurring revenue and just give some general comments on your general partners initiative, where you stand? Appreciate it.

Yes. The data cloud revenue was 4% of revenue for the quarter; it was consistent with the prior quarter. The channel side has 94 active partners today. As we mentioned a quarter ago we have begun terminating some of the nonproductive channel partners but the figure as of the end of the quarter was 94. And I am pulling the figure for the amount of sales from our channel. The way that we classify this group is we call it channel and midmarket. And the channel side is when we are selling to companies that we're introduced to through a third-party channel and the midmarket size when our sales folks are actually selling to, typically 100 line and above accounts. In this most recent quarter it represented 9% of our new monthly recurring revenue that we sold. That compares to approximately 6% to 7% in the prior quarter.

Great. Thank you very much.

Thanks, Mike.

Mike Latimore, Northland Capital.

Great, thanks a lot. Just back on churn, great results. What other initiatives could be implemented here to help keep churn where it is or even improve it? What other things are you guys working on?

Mike, this is Bryan. We are hiring some dedicated resources to target support directed at these midmarket customers. I think as we deal with larger and larger customers the support metrics and parameters and kind of the process flow and some of the requirements that they expect to see are a little different from what we deal with at the smaller end of the market. And so we're really trying to transform our support into more of a midmarket organization that will have those characteristics.

We also continue to embrace automation for customers of all sizes but particularly for our smaller customers who would rather be able to -- from our account manager which is the administrative console that you use to control and change settings in your services, we are giving more and more capabilities to those PBX administrators through that web environment. We're finding that is vastly improving customer satisfaction metrics as well. We are pushing on the low-end but we're continuing to vest in the midmarket and what we do with new customers at the higher end of the market.

Great. Then in terms of your compensation structure for your partners, do you feel like that is sort of fully vetted out and the structure is in place, or is there still some tweaking to do on partner count?

No, I think we haven't really done any tweaking to it so I think our program is pretty well set. Customer -- partners always want to be paid more so we entertain a constant influx of requests for accommodation in that regard. But we have pretty much been with the same program now for the past couple of quarters, so I think we are in a good spot there.

Good. Then on Contactual, maybe just any qualitative comments on how that is proceeding? Is it proceeding to plan, performing as expected?

The business is doing very well. It's growing and is very consistent to the PBX growth that we're experiencing. And we are having some pretty good success on selling PBX's along side the contact center product and effectively, what we said last quarter, which was that everything is strong there has continued throughout this quarter.

We rolled out a new version of the software with some additional features that most of our call center customers are now running on and that's gotten very good reviews. We also made some improvements in the network infrastructure and interconnect that we've got -- that we had in place when we acquired the company for our UK-based customers. And that's shown substantial improvements in customer sat as well. I think everything is humming along really good there, Mike.

Okay. Thank you. Last question, just a macro question, I guess. Obviously, companies see the value in using a cloud offering over an on-premise. How about just the theme of mobility or bring your own device. How much of that is a driver of some of your newer deals here?

Yes, I think it is -- especially as you get to the midmarket customers, and I think you been able to see that in some of the quotes and the content of the press releases we did this quarter with a few of those new customers, flexibility and mobility in the field to have full access to your communications infrastructure, as if you were sitting on premise with a hard phone in front of you is one of the most often cited advantages that these IT managers are enjoying with these services. So we think it's a macro trend that plays right into a hosted architecture like what we are providing.

All right. Thanks. Great quarter.

Thank you Mike.

George Sutton, Craig-Hallum.

Thank you and good afternoon. Relative to the Frost & Sullivan numbers which I think show the reality of a very large and growing market but also one with a lot of competitors, in that context, how are you looking at yourself as a consolidator within the market versus organic growth opportunities?

Hi George, it's Bryan. Thanks for joining us. The market overall, and I'm not just talking about the hosted UC market, but the business telephony market in the US, and it's probably true worldwide as well, is just extremely fragmented. So if you purchase the Frost & Sullivan report you will get detailed pie chart data and you will see there is a number of very tiny slices in the pie. And I think that is reflective of just the way business communications have been delivered historically in the industry and as voice over IP became a very common methodology or better methodology to deliver better services at lower prices, you see that same sort of fragmentation occurring in our specific sector.

So the number of players doesn't really bother us and never has just because the market is so huge and, as I mentioned with the FCC data, untapped. We continue on a weekly basis to evaluate inorganic growth as part of our strategy but our main thrust, and certainly for the most part these results that we've achieved to date, have all been organic. And so we continue to focus on that. But Dan and I are very active in talking with our peers and other companies in this space so that we know what's out there and those dialogues will continue.

As you bring in new customers, you're obviously bringing in larger companies. Larger in that sense of 14 lines versus 10, but can you discuss the upper end of the tail in terms of how large are you starting to see some of these deals becoming and what kind of opportunities do you see at that upper end of the tail?

Yes, I think the real differentiating aspect that we look for in a customer doesn't really matter how many lines they have. We have customers that are anywhere from 200 lines up to 1500 lines. But really where these technologies become extremely attractive and easy to deliver for us is the more number of locations that a business has the better our type of solution and approach to the market is going to work and it's going to cost a lot less. And so I almost think we would like to segment the market by number of locations a customer has rather than number of lines. The sweet spot in the midmarket for us is certainly in the 200 to 500 extensions, but again, you could have a 2,000 person office that had hundreds of locations with 20 people in each location and these services are going to work fine for that.

Okay. And quick question for Dan relative to the call center cost increases that you are seeking. Explain that in a little more detail and what kind of opportunities do you see for bringing that down?

Yes, what I was referring to is primarily related to our domestic terminations so it's when our customers make an outbound call to the United States. Throughout this calendar year we have seen an increase in, effectively, our cost per minute. It is primarily being driven by two large vendors of ours merged late last year and we are actively working to bring on some new vendors. One of them is a very large big brand name. And we're actually in the testing right now and expect, as I said, that service margins will start trudging upwards towards 80% and we are very comfortable that they are going to be moving upwards. I'm very cognizant of the fact that it's the lowest service margin in 13 quarters and we don't expect this to continue.

Perfect. Okay. Thank you both.

Great, thank you.

Greg Burns, Sidoti & Company.

In regards to the channel and as that grows as a percent of sales, how should we think about that affecting margins?

I think at a macro level, Greg, it's such a small component of new sales it's not going to affect margin short-term. There is a revenue share arrangement on a residual basis with most of these partners and, over time, if that becomes a significant portion of our customer base then we can start talking about how to think about that. But the way I always think about it at a macro level is cost of sales for those types of customers should be lower because we should be able to do less direct advertising to get the customer and, at the end of the day, most of these deals done through the channel, if we didn't have the channel partner in place, we would never have been in front of the customer to pitch them in the first place. It would've been nonexistent revenue. So margins on that side of things are not a concern for us.

Okay. And in terms of the competitive landscape could you just address who you are seeing out there -- anyone getting aggressive on pricing or anything you can give us in terms of what the competitive market looks like?

Yes, I don't think there has been any changes. A typical customer, we're taking them off of an incumbent or a competitive local exchange carrier that they that have had a very long-term relationship, usually since day one of their business and it's the big service provider that's providing long-distance to their PBX today. The -- I think in the direct head-to-head segment we are in, I think the Frost & Sullivan report is probably the most comprehensive study of the universe and they spent a great deal of time talking about the difference in the different services and the technology platforms and how those are delivered to the end customer.

So, if we get a lead-off of a Google search for, I need a new business phone system, then the names of the companies you see on that Google search results will match with the names you see in the Frost report. Haven't seen any pricing pressure in the space. We have certainly not raised or lowered our prices in a number of years and we don't see any pressure to do that.

Okay. And any more color you could give around the patent sale in terms of the number of patents involved, maybe what the patents covered, and are you looking to monetize or entertaining monetizing any other portions of your patent portfolio?

No, I can't give you any more detail. It was a deal term that we agreed to as part of the deal. If you are used to our press releases you know they're usually quite detailed and long and this one was not for that reason. So there is no more color I can give you there and, yes, we are always looking for opportunities to monetize the intellectual property there.

Okay and lastly, in the last quarter we talked about international opportunity. I was just wondering how you are looking at that now; do you have the infrastructure in place now to expand into certain markets or what investments are necessary to accelerate any kind of international expansion for you?

There is new work being done. There is business development work and there is also productization work that needs to be done in that area. We don't have anything to announce on the product side. I did reference that we had put a bunch of investments into our European, our UK, specifically, infrastructure and beefed up some network capabilities over there. But we are not ready today to announce specific products or services, but it is an area we are continuing to work. And we see it as a natural progression as we get more of these midmarket customers, it's very common for them to have employees in international locations. We want to be able to provide the exact same quality of experience and capability in those international locations that we can provide anywhere in the US today and that's the general direction we are going. We will have news on that when we're ready to launch it.

Great. Thank you very much.

All right, thank you.

Dmitry Netis, William Blair.

Nice print, gentlemen.

Thank you Dmitry. Thank you for initiating coverage yesterday.

Glad to be on board. Thank you. Couple question guys. First, since you typically don't provide or don't guide quarterly or yearly, there is sort of no outlook out there for people to catch on to. So curious to see what -- if you could guide us what the organic potentially growth this year, next year might look like, give us some indications for us to get comfortable. And the reason I'm asking, if I look at the consensus numbers, Street's baking in about 23%. That's sort of in line where you are right now in your organic PBX business, but then there is a step down next year to 16%.

So just curious to see whether we're going to see acceleration here or 16% is sort of the right level to be thinking about. If you could provide some commentary there, that would be great. Thank you.

When you are saying 16%, you're referring between fiscal 2013 and fiscal 2014?

Yes. That's right.

We disclose the organic growth rate of our core PBX business, which I mentioned is 70% of our total revenue, and so there is another derivative of that is our product sales which are a derivative of the PBX component and that's another 8% or 9%. So we're talking about almost 80% of our business is growing at 23%. So I think that the consensus numbers out there for this current fiscal year 2013 are pretty good. I think that it's pretty reasonable figures. On years outside of that, we are just not commenting on it. In our opinion, it's a long ways from now and we can't provide you any kind of visibility into that period of time.

Okay that's fair. Do we expect you guys to give guidance for maybe a full year at some point or even quarterly so we can sort of gauge maybe how to think about the numbers or maybe even seasonality in your business? Is that something we could expect to see going forward?

Yes, this is Bryan, Dmitry. I think it's certainly something we discuss regularly around here. I think the main issue we have is most of our new monthly recurring revenue that we are adding is in a very short -- these small businesses that form the majority of our business customer base are sold in a two- to four-week sales cycle, start to finish. And that doesn't give us very much visibility going forward on topline. But I think at a macro level as we move more into the midmarket which has more like a 90- to 180-day sales cycle and I can start getting visibility of the funnel out a quarter, we will reevaluate that. But today, the reason we don't give you topline is just we don't necessarily always have it internal to our systems either.

Okay. All right. Great. And a couple of questions here --

Go ahead.

-- on the data hosting product side. You mentioned revenue churn was a bit higher than in the prior quarter and then it was due to some cancellation of a data cloud product. Could you give a little bit of explanation there what happened and whether we can see that not to reoccur going forward, number one. And give us a sense of where you are. Are we still top of the first inning here with the data cloud product? Is that kind of a fair assessment or are we moving along in that hosting space and could see -- contribute to revenue in more material way?

Yes, so on the second part of your question, first. I mean it was 4% of revenue last quarter, it's 4% in this quarter we just announced. We use this primarily as an upsell to our installed base of customers. And so I wouldn't really categorize it in the first inning. It is just kind of like a derivative of the rest of our business. And frankly, I don't know if it will ever grow above this percentage of our total revenue. But it's consistently growing with the rest of the business.

On the churn related to that we had a couple of issues. We had a couple customer cancellations on that side and they were customers that are not buying our voice product and we had a couple of customers just get smaller -- some of these customers are like these Internet, social media type start-up type companies and they can get big and small quickly. And that was the two factors. So as you can see our customer count churn was down below our revenue churn for the first time ever since we started disclosing revenue churn and I wouldn't consider this to be a negative indicator for multiple quarters in the future, the revenue churn. I wouldn't consider that to be a negative leading indicator.

Okay, great and that last question, Dan, on the contribution margin side, you used to give that metric. Would you care to give us that metric again this quarter?

Yes. So we have a presentation up on our website -- we have a slide in there on that and the contribution margin this quarter is 61%. And our definition of contribution margin is our GAAP service margin less two items that are in sales and marketing expenses, which is customer service and billing expenses. So it was 61%.

Okay, excellent. Thank you very much and keep up the good work, guys.

Thank you, Dmitry.

Thanks, Dmitry.

Mark Zinski, 21st Century Equity.

Yes, good afternoon and congratulations on the quarter.

Thanks, Mark.

First question just is in terms of the rural small business segment. A fair amount of rural small businesses still don't have Internet access. And are they generally not lumped in with the overall small business market potential?

I think my perspective, which is based on the prospects that I get involved with when we're selling to the small businesses, is actually most of the small businesses we sell to these days do actually have high-speed Internet and I think a lot of that was driven when the credit card payment companies required them to move their credit card processing machines over to IP. So if you're a business that uses a credit card in your business you pretty much have to have that in order to take credit cards.

If you look at a map that kind of maps where our customers are, it very much correlates with population density. So we have a little more customers in the Western -- specifically California, which we attribute because there is some local effect there as well. But essentially our customers are where the population centers are. And that happens to also correlate pretty well with where the Internet penetration is. But I remember the State of California did a survey in the last year and we were all very surprised by, even in rural regions, how available high-speed Internet was to the vast majority of residents of this state.

Okay. So, recent federal initiatives to stimulate uptake in Internet connections in rural areas, you don't think will give you any kind of appreciable uptick in market potential?

I don't think it will have a large effect, again, operating under the belief that -- more Internet is obviously better but I'm actually -- like I said, I was very surprised by the California results. You can find those on the -- there is a state broadband task force site that maps out our state, which has a huge area and population that is covered or considered a rural area. We were shocked at how much high-speed Internet is out there.

Okay. And then next, in terms of SG&A, only ticked up a little bit sequentially -- is there any kind of inflection point there in terms of operating leverage or any more detail into the prospective SG&A levels going forward would be helpful.

Yes, this is Dan. So as you saw -- sequentially, we saw an increase in our non-GAAP net income as a percentage of total revenue. And it was primarily a factor of revenues increasing, of our gross margin increasing and there is a lower increase in SG&A. As I mentioned earlier on forward-looking statements and guidance, we are not going to give an indication of where that is going but we are very cognizant that we need to make money and generate profits and so we are not going to speak too much to that.

Okay. And then just to clarify, were there any one-time expenses this quarter and what is your estimate for one-time expenses for next quarter?

We have a reconciliation table at the bottom of our press release to the non-GAAP figures, and there was completely nominal one-time expenses related to our facility exit, those $9000. That number is going to be closer to $200,000 in this coming quarter, so I mentioned that in our prepared remarks and it relates completely to our move from Sunnyvale to San Jose. We did have the one-time benefit from the patent sale of $11.965 million, but if you look at our non-GAAP or reconciliation table you can see that figure is spelled out.

Okay. Great. That's it for me. Thanks a lot.

Thank you Mark.

That concludes our question-and-answer session for today. I would like to turn the conference back to Mr. Bryan Martin for any concluding remarks.

Okay. Thank you Karen for hosting the call and thank you everybody for dialing in today and listening. If you are not already a customer of one of our services, as I always like to do, I encourage you to sign up. You can do that on our website or at our direct toll-free number which is on the website. 8x8 delivers a number of diversified cloud services that can help you lower the cost and improve the efficiency of your business and again our website is www.8x8.com. With that, we will conclude today's call. Go ahead, Karen.

Thank you, sir. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may disconnect. Everyone have a great day.