10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 000-21783

8X8, INC.
(Exact name of Registrant as Specified in its Charter)

 

Delaware	77-0142404
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

2125 O'Nel Drive
San Jose, CA    95131
(Address of Principal Executive Offices)

(408) 727-1885
(Registrant's Telephone Number, including Area Code)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    x YES      ¨ NO   

      Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES  x     NO  ¨

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ¨ Accelerated filer    x Non-accelerated filer    ¨
(Do not check if a smaller reporting company) Smaller reporting company    ¨

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES    ¨        NO    x

      The number of shares of the Registrant's Common Stock outstanding as of January 23, 2013 was 71,847,417.

FORM 10-Q     PDF as a courtesy
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at December 31, 2012 and March 31, 2012	3
Condensed Consolidated Statements of Income for the three and nine            months ended December 31, 2012 and 2011	4
Condensed Consolidated Statements of Comprehensive Income for the three and nine            months ended December 31, 2012 and 2011	5
Condensed Consolidated Statements of Cash Flows for the nine            months ended December 31, 2012 and 2011	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 6. Exhibits	26
Signature	27

2

Part I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

8X8, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

		December 31,		March 31,
		2012		2012
ASSETS
Current assets:
Cash and cash equivalents	$	44,557	$	22,426
Short-term investments		1,965		1,942
Accounts receivable, net		3,605		2,279
Inventory		573		581
Deferred cost of goods sold		140		122
Deferred tax asset		284		7,730
Other current assets		736		806
Total current assets		51,860		35,886
Property and equipment, net		6,922		3,820
Intangible assets, net		10,551		11,622
Goodwill		25,150		25,150
Non-current deferred tax asset		54,065		53,977
Other assets		395		278
Total assets	$	148,943	$	130,733
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,170	$	5,476
Accrued compensation		3,768		3,105
Accrued warranty		422		387
Accrued taxes		1,967		1,472
Deferred revenue		952		891
Other accrued liabilities		791		884
Total current liabilities		13,070		12,215
Non-current liabilities		1,894		68
Total liabilities		14,964		12,283
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock		72		71
Additional paid-in capital		244,782		241,555
Accumulated other comprehensive income (loss)		(35)		(58)
Accumulated deficit		(110,840)		(123,118)
Total stockholders' equity		133,979		118,450
Total liabilities and stockholders' equity	$	148,943	$	130,733

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts; unaudited)

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Service revenue	$	24,958	$	21,200	$	72,307	$	56,234
Product revenue		2,382		2,078		6,656		5,370
Total revenue		27,340		23,278		78,963		61,604
Operating expenses:
Cost of service revenue		5,473		4,890		16,984		12,764
Cost of product revenue		3,203		2,584		8,585		7,467
Research and development		2,117		1,955		5,973		4,902
Sales and marketing		11,651		9,816		33,202		27,076
General and administrative		2,136		1,481		6,270		4,372
Gain on patent sale		-		-		(11,965)		-
Total operating expenses		24,580		20,726		59,049		56,581
Income from operations		2,760		2,552		19,914		5,023
Other income, net		73		49		90		58
Income before provision (benefit) for income taxes		2,833		2,601		20,004		5,081
Provision (benefit) for income taxes		913		15		7,726		(284)
Net income	$	1,920	$	2,586	$	12,278	$	5,365
Net income per share:
Basic	$	0.03	$	0.04	$	0.17	$	0.08
Diluted	$	0.03	$	0.04	$	0.16	$	0.08
Weighted average number of shares:
Basic		71,611		69,445		71,197		65,165
Diluted		74,988		73,214		74,483		69,013

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Net income	$	1,920	$	2,586	$	12,278	$	5,365
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on investments in securities		(44)		(8)		23		(15)
Comprehensive income	$	1,876	$	2,578	$	12,301	$	5,350

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

8X8, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

		Nine Months Ended
		December 31,
		2012		2011
Cash flows from operating activities:
Net income	$	12,278	$	5,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		1,816		1,101
Amortization		1,071		431
Stock-based compensation		1,827		1,013
Deferred income tax provision (benefit)		7,359		(336)
Other		409		130
Changes in assets and liabilities
Accounts receivable, net		(1,700)		(642)
Inventory		(25)		1,596
Other current and noncurrent assets		(48)		405
Deferred cost of goods sold		(18)		(6)
Accounts payable		(38)		(2,059)
Accrued compensation		663		319
Accrued warranty		35		34
Accrued taxes and fees		495		(396)
Deferred revenue		61		(75)
Other current and noncurrent liabilities		1,806		(472)
Net cash provided by operating activities		25,991		6,408
Cash flows from investing activities:
Purchases of property and equipment		(5,245)		(1,743)
Acquisition of businesses, net of cash acquired		-		(713)
Net cash used in investing activities		(5,245)		(2,456)
Cash flows from financing activities:
Capital lease payments		(73)		(273)
Repurchase of common stock		(285)		(1,038)
Proceeds from issuance of common stock, net of issuance costs		-		(60)
Proceeds from issuance of common stock under employee stock plans		1,743		949
Net cash provided by (used in) financing activities		1,385		(422)
Net increase in cash and cash equivalents		22,131		3,530
Cash and cash equivalents at the beginning of the period		22,426		16,474
Cash and cash equivalents at the end of the period	$	44,557	$	20,004
Supplemental cash flow information
Issuance of common stock in connection with acquisitions	$	-	$	31,358
Fair value of options assumed in connection with acquisitions		-		274
Acquisition of net assets in connection with acquisitions		-		372
Transfer of net assets in purchase of strategic investment		-		297

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

8X8, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets cloud-based business communications services encompassing internally developed Voice over Internet Protocol ("VoIP") technologies. These services enable telephony and video applications as well as web-based conferencing and unified communications capabilities. The Company also provides managed hosting and cloud-based computing services. As of December 31, 2012, the Company had approximately 31,500 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2013 refers to the fiscal year ending March 31, 2013).

2. BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual financial statements for the fiscal year ended March 31, 2012. In the opinion of the Company's management, these financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2012 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and do not include all of the disclosures required by U.S. generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2012 and notes thereto included in the Company's fiscal 2012 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

VoIP Service and Product Revenue

The Company's VoIP service and product revenue is derived from the sale of communications services and IP business telephones, respectively.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. The provisioning of the 8x8 service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables. In accordance with the guidance of ASC 605-25, the Company allocates 8x8 revenues, including activation fees, among the 8x8 IP telephones and subscriber services. Revenues allocated to these devices are recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. All other revenues are recognized as license and service revenues when the related services are provided. The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in financial statements that are more easily understood by users.

7

Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Product Revenue

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to partners and end users provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for partner and end user sales are recorded at the time of shipment.

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

Goodwill and Other Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. The carrying values of intangible assets were as follows (in thousands):

		December 31, 2012						March 31, 2012
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	8,242	$	(1,050)	$	7,192	$	8,242	$	(432)	$	7,810
Customer relationships		3,305		(903)		2,402		3,305		(450)		2,855
Trade names/domains		957		-		957		957		-		957
Total acquired identifiable
intangible assets	$	12,504	$	(1,953)	$	10,551	$	12,504	$	(882)	$	11,622

At December 31, 2012, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

		Amount
Remaining 2013	$	357
2014		1,334
2015		1,325
2016		1,325
2017		1,318
Thereafter		3,935
Total	$	9,594

8

Deferred Rent

In April 2012, the Company entered into an 87-month lease agreement for its new headquarters. Under the terms of the lease agreement:

• the Company received a three month rent holiday from rental payments;
• base rent is $130,821 for the 15 months after the rent holiday; and
• rent expense increases 3% each year thereafter.

The Company also received a $1.7 million allowance for tenant improvements. In accordance with the guidance in ASC 840-20, Leases, the Company accounts for its headquarters facility operating lease as follows:

Rent Holidays. The Company recognizes the related rent expense on a straight-line basis at the earlier of the first rent payment or the date of possession of the leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Tenant Improvement Allowance. The tenant improvement allowance is deferred and amortized on a straight-line basis over the life of the lease as a reduction to rent expense.

In the second quarter of fiscal 2013, the Company received a $1.7 million reimbursement for the cost of tenant improvements that the Company included in cash flows from operating activities. At December 31, 2012, total deferred rent included in Other accrued liabilities and Non-current liabilities was $0.1 million and $1.9 million, respectively.

Stock Purchase Right/Restricted Stock Unit and Option Activity

Stock purchase right/restricted stock unit activity since March 31, 2012 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2012	966,400	$	2.50	2.61
Granted	409,936		5.65
Released	(281,938)		2.16
Forfeited	(80,244)		2.72
Balance at December 31, 2012	1,014,154	$	3.85	2.62

9

Option activity since March 31, 2012 is summarized as follows:

				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2012	375,546	6,034,335	$	1.90
Change in options available for grant	4,100,000	-		-
Granted - options	(932,000)	932,000		5.80
Stock purchase rights/restricted stock units	(409,936)	-		-
Exercised	-	(777,487)		1.48
Canceled/forfeited	135,133	(135,133)		4.01
Termination of plans	(43,004)	-		-
Balance at December 31, 2012	3,225,739	6,053,715	$	2.51

The following table summarizes the stock options outstanding and exercisable at December 31, 2012:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
			Price	Contractual		Intrinsic			Price		Intrinsic
	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$0.55 - $1.26	1,781,500	$	1.04	5.0	$	11,299,025	1,781,500	$	1.04	$	11,299,025
$1.27 - $1.72	1,504,919	$	1.53	2.6		8,806,130	1,504,919	$	1.53		8,806,130
$1.73 - $3.35	1,326,608	$	2.56	5.6		6,396,028	886,007	$	2.43		4,382,974
$3.36 - $5.87	1,398,688	$	5.29	8.9		2,919,012	204,018	$	5.04		477,705
$5.88 - $5.89	42,000	$	5.89	9.8		62,580	1,750	$	5.89		2,608
	6,053,715				$	29,482,775	4,378,194			$	24,968,442

10

Stock-based Compensation Expense

The following table summarizes the classification of stock-based compensation expense for the three and nine months ended December 31, 2012 and 2011 (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Cost of service revenues	$	63	$	41	$	149	$	87
Cost of product revenues		-		-		1		-
Research and development		125		72		295		176
Sales and marketing		355		255		979		610
General and administrative		222		50		403		140
Total stock-based compensation expense related to
employee stock options and employee stock purchases, pre-tax		765		418		1,827		1,013
Tax benefit		-		-		-		-
Stock based compensation expense related to employee
stock options and employee stock purchases, net of tax	$	765	$	418	$	1,827	$	1,013

As of December 31, 2012, there was $7.4 million of unamortized stock-based compensation expense related to unvested options and stock awards which is expected to be recognized over a weighted average period of 3.14 years.

To value option grants and stock purchase rights/restricted stock units for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock price volatility, expected life, risk-free interest rates and future dividend payments. During the three and nine month periods ended December 31, 2012 and 2011, the Company used the historical volatility of the Company's stock over a period equal to the expected life of the options. The expected life assumptions represent the weighted-average period the stock-based awards are expected to remain outstanding. These expected life assumptions are established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payouts.

The following table summarizes the assumptions used to estimate the fair value of stock options to employees and directors for the three and nine months ended December 31, 2012 and 2011:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Expected volatility		68%		75%		68%		76%
Expected dividend yield		-		-		-		-
Risk-free interest rate		0.68%		0.44%		0.70%		0.35%
Weighted average expected option term		4.50 years		3.25 years		5.28 years		3.04 years
Weighted average fair value of options granted	$	3.18	$	1.96	$	3.32	$	2.20

11

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, eligible employees can participate and purchase common stock semi-annually through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each one-year offering period or the end of the applicable six-month purchase period within that offering period, whichever is lower. The contribution amount may not exceed 10% of an employee's base compensation, including commissions but not including bonuses and overtime, subject to a calendar year maximum total purchase price per employee of $25,000. The Company accounts for the Employee Stock Purchase Plan as a compensatory plan and recorded compensation expense of $115,000 and $117,000 for the three months ended December 31, 2012 and 2011 and $356,000 and $312,000 for the nine months ended December 31, 2012 and 2011, respectively, in accordance with ASC 718.

The estimated fair value of stock purchase rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using Black-Scholes pricing model with the following weighted average assumptions:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Expected volatility		-		-		34%		68%
Expected dividend yield		-		-		-		-
Risk-free interest rate		-		-		0.16%		0.10%
Weighted average expected option term		-		-		0.75 years		0.75 years
Weighted average fair value of options granted	$	-	$	-	$	1.45	$	1.49

As of December 31, 2012, there was $84,000 of total unrecognized compensation cost related to employee stock purchases. These costs are expected to be recognized over a weighted average period of 0.5 years.

The future realization of tax benefits related to stock-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation charges incurred during the three and nine months ended December 31, 2012 and 2011.

Segment Reporting

No customer represented greater than 10% of the Company's total revenue for the three and nine months ended December 31, 2012 or 2011. Revenue from technology licensing and related software and customers outside the United States was not material for the three and nine months ended December 31, 2012 or 2011.

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3. FAIR VALUE MEASUREMENT

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and March 31, 2012 (in thousands):

		Quoted Prices
		in Active
		Markets		Other		Significant
		for Identical		Observable		Unobservable		Balance at
		Assets		Inputs		Inputs		December 31,
		(Level 1)		(Level 2)		(Level 3)		2012
Cash equivalents:
Money market funds	$	14,373	$	-	$	-	$	14,373
Short-term investments:
Mutual funds (1)		-		1,965		-		1,965
Total	$	14,373	$	1,965	$	-	$	16,338

		Quoted Prices
		in Active
		Markets		Other		Significant
		for Identical		Observable		Unobservable		Balance at
		Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2012
Cash equivalents:
Money market funds	$	14,366	$	-	$	-	$	14,366
Short-term investments:
Mutual funds (1)		-		1,942		-		1,942
Total	$	14,366	$	1,942	$	-	$	16,308

(1) The fair value of mutual funds is determined based on published net asset values. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio.

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4. BALANCE SHEET DETAIL

		December 31,		March 31,
		2012		2012
Inventory (in thousands):
Work-in-process	$	24	$	55
Finished goods		549		526
	$	573	$	581

5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and warrants and under the employee stock purchase plan.

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
		(in thousands, except per share amounts)				(in thousands, except per share amounts)
Numerator:
Net income available to common stockholders	$	1,920	$	2,586	$	12,278	$	5,365
Denominator:
Common shares		71,611		69,445		71,197		65,165
Denominator for basic calculation		71,611		69,445		71,197		65,165
Employee stock options		3,023		3,364		2,947		3,413
Stock purchase rights		336		385		339		409
Employee stock purchase plan		18		20		-		26
Denominator for diluted calculation		74,988		73,214		74,483		69,013
Net income per share
Basic	$	0.03	$	0.04	$	0.17	$	0.08
Diluted	$	0.03	$	0.04	$	0.16	$	0.08

The following shares attributable to outstanding stock options and stock purchase rights/restricted stock units were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2012	2011	2012	2011
Employee stock options and awards	885	604	878	637
	885	604	878	637

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6. INCOME TAXES

For the three and nine months ended December 31, 2012, the Company recorded a provision for income taxes of $0.9 million and $7.7 million, respectively, which was primarily attributable to net income from operations, including gain on the sale of patents. For the three and nine months ended December 31, 2011, the Company recorded accruals for state gross receipt and franchise taxes and released a portion of its valuation allowance against the deferred tax asset as the Company deemed it was more likely than not it would be used to offset the $0.3 million deferred tax liability recorded in connection with the acquisition of Zerigo. During the period ended December 31, 2011, the provision for income taxes was not significant due to the valuation allowance.

At March 31, 2012, there was $2.5 million of unrecognized tax benefits that, if recognized, would have affected the effective tax rate. The Company does not believe that there has been any significant change in the unrecognized tax benefits in the three and nine month periods ended December 31, 2012 and does not believe it is reasonably possible that the unrecognized tax benefit will materially change in the next 12 months. To the extent that the unrecognized tax benefits are ultimately recognized they may have an impact on the effective tax rate in future periods.

The Company is subject to taxation in the U.S., California and various other states and foreign jurisdictions in which it has or had a subsidiary or branch operations or it is collecting sales tax. All tax returns from fiscal 1995 to fiscal 2012 may be subject to examination by the Internal Revenue Service, California and various other states. As of January 22, 2013, there were no active federal or state income tax audits. Returns filed in foreign jurisdictions may be subject to examination for the fiscal years 2009 to 2010.

7. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company indemnifies other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. Under these arrangements, the Company typically agrees to hold the other party harmless against losses arising from a breach of representations or covenants, intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.

It is not possible to determine the maximum potential amount of the Company's exposure under these indemnification agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company's operating results, financial position or cash flows. Under some of these agreements, however, the Company's potential indemnification liability might not have a contractual limit.

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Product Warranties

The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue recognition. Changes in the Company's product warranty liability, which is included in cost of product revenue in the condensed consolidated statements of income were as follows (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Balance at beginning of period	$	376	$	391	$	387	$	362
Accruals for warranties		168		106		445		374
Settlements		(122)		(101)		(410)		(340)
Balance at end of period	$	422	$	396	$	422	$	396

Minimum Third Party Customer Support Commitments

In the third quarter of fiscal 2010, the Company amended a contract with one of its third party customer support vendors containing a minimum monthly commitment of approximately $430,000. The agreement requires a 150-day notice to terminate. The total remaining obligation under the amended contract is $2.2 million.

Minimum Third Party Network Service Provider Commitments

The Company entered into contracts with multiple vendors for third party network services that expire on various dates in fiscal 2013 through 2016. At December 31, 2012, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:
2013	$	629
2014		2,155
2015		1,579
2016		52
Total minimum payments	$	4,415

Legal Proceedings

From time to time, the Company may become involved in various legal claims and litigation that arise in the normal course of its operations. While the results of such claims and litigation cannot be predicted with certainty, the Company is not currently aware of any such matters that it believes would have a material adverse effect on its financial position, results of operations or cash flows.

On March 15, 2011, the Company was named as a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al., along with more than 20 other defendants. On August 17, 2011, the suit against the Company was dismissed without prejudice under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, the Company was sued again by Bear Creek Technologies, Inc. in the United States District Court for the District of Delaware. The Company filed a motion to dismiss the complaint on October 11, 2011. On May 2, 2012, the Judicial Panel on Multidistrict Litigation ordered the suit against the Company and over a dozen related cases, to be coordinated or consolidated for pretrial proceedings.  On August 27, 2012, the Court denied several defendants' motions to dismiss the complaint including the Company's. On October 11, 2012, the Company answered the complaint and alleged three counterclaims as well as affirmative defenses. The Company believes it has factual and legal defenses to these claims and intends to litigate the case vigorously. The Company cannot estimate potential liability or expense in this case at this early stage of litigation.

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On October 25, 2011, the Company was named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al., along with 30 other defendants. On November 1, 2011, Klausner dismissed the complaint voluntarily and filed new complaints separating the defendants, including a new complaint against the Company. The Company filed a motion to dismiss the complaint on February 23, 2012, which was granted in part by the Court on September 11, 2012.  On September 25, 2012, the plaintiff filed an amended complaint to which the Company responded by filing another motion to dismiss on October 11, 2012. That motion as well as another motion for a change in venue filed by the Company on August 23, 2012 are pending. The Company has not answered the complaint and believes it has meritorious defenses to this lawsuit. The Company intends to defend the case vigorously. The Company cannot estimate potential liability or expense in this case at this early stage of litigation.

State and Municipal Taxes

From time to time, the Company has received inquiries from a number of state and municipal taxing agencies with respect to the remittance of taxes. The Company collects or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company.

8. PATENT SALE

On June 22, 2012, the Company entered into a patent purchase agreement and sold a family of patents to a third party for $12.0 million plus a future payment of up to a maximum of $3.0 million based on future license agreements entered into by the third party purchaser. Under the terms and conditions of the patent purchase agreement, the Company has retained certain limited rights to continue to use the patents. The patent purchase agreement contains representations and warranties customary for transactions of this type.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Management Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Actual results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors. These factors include, but are not limited to, customer acceptance and demand for our voice over Internet protocol, or VoIP, telephony products and services, the reliability of our services, the prices for our services, customer renewal rates, customer acquisition costs, actions by our competitors, including price reductions for their telephone services, potential federal and state regulatory actions, compliance costs, potential warranty claims and product defects, our needs for and the availability of adequate working capital, our ability to innovate technologically, the timely supply of products by our contract manufacturers, potential future intellectual property infringement claims that could adversely affect our business and operating results, and our ability to retain our listing on the NASDAQ Capital Market. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In addition to those factors discussed elsewhere in this Form 10-Q, see the Risk Factors discussion in Item 1A of our 2012 Form 10-K. The forward-looking statements included in this Form 10-Q are made only as of the date of this report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

BUSINESS OVERVIEW

We develop and market cloud-based business communications services encompassing internally developed Voice over Internet Protocol ("VoIP") technologies. These services enable telephony and video applications as well as web-based conferencing and unified communications capabilities. We also provide managed hosting and cloud-based computing services. As of December 31, 2012, we had approximately 31,500 business customers. Since fiscal 2004, substantially all of our revenue has been generated from the sale, license and provision of VoIP products, services and technology. Prior to fiscal 2003, our focus was on our VoIP semiconductor business.

Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this report refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2013 refers to the fiscal year ending March 31, 2013).

No customer represented greater than 10% of our total revenue for the three and nine months ended December 31, 2012 and 2011. Revenue from customers outside the United States was not material for the three and nine months ended December 31, 2012 or 2011.

CRITICAL ACCOUNTING POLICIES & ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012. As of December 31, 2012, there had been no material changes to our critical accounting policies and estimates.

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RECENT ACCOUNTING PRONOUNCEMENTS

See Item 1 of Part I, "Financial Statements - Note 2 - Basis of Presentation - Recent Accounting Pronouncements."

SELECTED OPERATING STATISTICS

We periodically review certain key business metrics, within the context of our articulated performance goals, in order to evaluate the effectiveness of our operational strategies, allocate resources and maximize the financial performance of our business. The selected operating statistics include the following:

	Three Months Ended
	Dec 31,	Sept. 30,	June 30,	March 31,	Dec 31,
	2012	2012	2012	2012	2011
Gross business customer additions (1)	2,617	2,915	2,943	2,892	2,836
Gross business customer
cancellations (less cancellations
within 30 days of sign-up)	1,504	2,149	1,458	1,697	1,642
Business customer churn (less
cancellations within 30 days
of sign-up) (2)	1.6%	2.4%	1.7%	2.0%	2.0%
Business service revenue churn	2.6%	1.0%	2.3%	1.6%	1.9%
Total business customers (3)	31,473	30,498	29,913	28,671	27,677
Business customer average monthly
service revenue per customer (4)	$ 260	$ 256	$ 250	$ 244	$ 239
Overall service margin	78%	76%	75%	76%	77%
Overall product margin	-34%	-22%	-30%	-15%	-24%
Overall gross margin	68%	68%	67%	68%	68%
Business subscriber acquisition cost
per service (5)	$ 98	$ 89	$ 97	$ 99	$ 92
Average number of subscribed services
per business customer	11.2	10.6	10.1	9.8	9.4
Average number of subscribed services
per new business customer (6)	17.0	14.7	14.0	13.6	14.1

(1)	Does not include customers of Virtual Office Solo or Zerigo, Inc. ("Zerigo").
(2)	Business customer churn is calculated by dividing the number of business customers that terminated (after the expiration of the 30-day trial) during that period by the simple average number of business customers during the period and dividing the result by the number of months in the period. The simple average number of business customers during the period is the number of business customers on the first day of the period plus the number of business customers on the last day of the period divided by two. In the second quarter of fiscal 2013, an affiliate with 411 business customers representing approximately $9,000 of monthly service revenue cancelled service. Excluding these 411 cancellations, business customer churn (less cancellations within 30 days of sign-up) was 1.9%.
(3)	Business customers are defined as customers paying for service. Customers that are currently in the 30- day trial period are considered to be customers that are paying for service. Customers subscribing to Virtual Office Solo or Zerigo services are not included as business customers.
(4)	Business customer average monthly service revenue per customer is service revenue from business customers in the period divided by the number of months in the period divided by the simple average number of business customers during the period.
(5)	Business subscriber acquisition cost per service is defined as the combined costs of advertising, marketing, promotions, sales commissions and equipment subsidies for business services sold during the period divided by the number of gross business services added during the period.
(6)	Total new services sold in the period divided by gross business customer additions.

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RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto.

		December 31,				Dollar	Percent
Service revenue		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	24,958	$	21,200	$	3,758	17.7%
Percentage of total revenue		91.3%		91.1%
Nine months ended	$	72,307	$	56,234	$	16,073	28.6%
Percentage of total revenue		91.6%		91.3%

Service revenue consists primarily of revenue attributable to the provision of our 8x8 VoIP services and royalties earned under our VoIP technology licenses. We expect that 8x8 service revenues will continue to comprise nearly all of our service revenues for the foreseeable future. 8x8 service revenue increased in the third quarter of fiscal 2013 primarily due to the increase in our business customer subscriber base. Our business subscriber base grew from 27,677 business customers on December 31, 2011, to 31,473 on December 31, 2012. The increase for the first nine months of fiscal 2013 also was primarily attributable to the increase in our business customer base from approximately 24,000 businesses on April 1, 2011 to 31,473 on December 31, 2012. The increase was partially offset by a decrease in customers of our residential services. These changes were consistent with the redirection of our marketing efforts toward our business customer service. We expect the trends to continue in future periods.

		December 31,				Dollar	Percent
Product revenue		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	2,382	$	2,078	$	304	14.6%
Percentage of total revenue		8.7%		8.9%
Nine months ended	$	6,656	$	5,370	$	1,286	23.9%
Percentage of total revenue		8.4%		8.7%

Product revenue consists primarily of revenue from sales of IP telephones attributable to our 8x8 service. Product revenue increased for the three and nine months ended December 31, 2012 primarily due to an increase in equipment sales to business customers.

		December 31,				Dollar	Percent
Cost of service revenue		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	5,473	$	4,890	$	583	11.9%
Percentage of service revenue		21.9%		23.1%
Nine months ended	$	16,984	$	12,764	$	4,220	33.1%
Percentage of service revenue		23.5%		22.7%

The cost of service revenue primarily consists of costs associated with network operations and related personnel, telephony origination and termination services provided by third party carriers and technology license and royalty expenses. Cost of service revenue for the three months ended December 31, 2012 increased over the comparable period in the prior fiscal year primarily due to a $0.5 million increase in third party network service expenses as a result of the increase in our business subscriber base, a $0.2 million increase in depreciation expense, and a $0.1 million increase in payroll and related costs. The increase in expense was partially offset by a $0.1 million reduction in expensed license and fees and a $0.1 million reduction in temporary personnel, consulting and outside service expenses.

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Cost of service revenue for the nine months ended December 31, 2012 increased from the comparable period in the prior fiscal year primarily due to a $2.7 million increase in third party network service fees as a result of the increase in our business subscriber base, a $0.8 million increase in payroll and related costs, a $0.5 million increase in depreciation expense, a $0.4 million increase in amortization expense due to intangibles acquired in acquisition of businesses, and a $0.1 million increase in consulting and outside service expenses. The increase in expense was partially offset by a $0.3 million reduction in expensed license and fees.

		December 31,				Dollar	Percent
Cost of product revenue		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	3,203	$	2,584	$	619	24.0%
Percentage of product revenue		134.5%		124.4%
Nine months ended	$	8,585	$	7,467	$	1,118	15.0%
Percentage of product revenue		129.0%		139.1%

The cost of product revenue consists of costs associated with systems, components, system manufacturing, assembly and testing performed by third-party vendors, estimated warranty obligations and direct and indirect costs associated with product purchasing, scheduling, quality assurance, shipping and handling. The amount of revenue allocated to product revenue based on the relative selling price is less than the cost of the IP phone equipment. The cost of product revenue for the three months ended December 31, 2012 increased over the comparable period in the prior fiscal year primarily due to a $0.5 million increase in the shipment of equipment to customers and a $0.1 million increase in warranty expense.

The cost of product revenue for the nine months ended December 31, 2012 increased over the comparable period in the prior fiscal year due to a $0.9 million increase in the shipment of equipment to customers, a $0.1 million increase in warranty expense and a $0.1 million increase in freight expenses.

		December 31,				Dollar	Percent
Research and development		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	2,117	$	1,955	$	162	8.3%
Percentage of total revenue		7.7%		8.4%
Nine months ended	$	5,973	$	4,902	$	1,071	21.8%
Percentage of total revenue		7.6%		8.0%

Historically, our research and development expenses have consisted primarily of personnel, system prototype design, and equipment costs necessary for us to conduct our development and engineering efforts. We expense research and development costs as they are incurred. The research and development expenses for the three months ended December 31, 2012 increased over the comparable period in the prior fiscal year primarily due to a $0.1 million increase in payroll and related costs and a $0.1 million increase in other research and development expenses.

The research and development expenses for the nine months ended December 31, 2012 increased over the comparable period in the prior fiscal year due to a $0.8 million increase in payroll and related costs, a $0.1 million increase in recruiting expenses and a $0.2 million increase in other research and development expenses.

		December 31,				Dollar	Percent
Sales and marketing		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	11,651	$	9,816	$	1,835	18.7%
Percentage of total revenue		42.6%		42.2%
Nine months ended	$	33,202	$	27,076	$	6,126	22.6%
Percentage of total revenue		42.0%		44.0%

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Sales and marketing expenses consist primarily of personnel and related overhead costs for sales, marketing, and customer service. Such costs also include outsourced customer service call center operations, sales commissions, as well as trade show, advertising and other marketing and promotional expenses. Sales and marketing expenses for the three months ended December 31, 2012 increased over the same quarter in the prior fiscal year primarily because of a $1.4 million increase in payroll and related costs, a $0.1 million increase in third party sales commissions, a $0.1 million increase in bad debt expenses, a $0.1 million increase in credit card processing fees, and a $0.3 million increase in other miscellaneous sales and marketing expenses. The increase in expense was partially offset by a $0.2 million reduction in temporary personnel, consulting and outside service expenses.

Sales and marketing expenses for the first nine months of fiscal 2013 increased over the same period in the prior fiscal year primarily because of a $4.7 million increase in payroll and related costs, a $0.3 million increase in third party sales commissions, a $0.2 million increase in amortization of customer relationship intangibles, a $0.2 million increase in bad debt expense, a $0.1 million increase in credit card processing fees, and a $1.1 million increase in other sales and marketing expenses. The increase in expenses was partially offset by a $0.5 million reduction in temporary personnel, consulting and outside service expenses.

		December 31,				Dollar	Percent
General and administrative		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	2,136	$	1,481	$	655	44.2%
Percentage of total revenue		7.8%		6.4%
Nine months ended	$	6,270	$	4,372	$	1,898	43.4%
Percentage of total revenue		7.9%		7.1%

General and administrative expenses consist primarily of personnel and related overhead costs for finance, human resources and general management. General and administrative expenses for the three months ended December 31, 2012 increased over the same quarter in the prior fiscal year primarily because of a $0.2 million increase in payroll and related costs, a $0.2 million increase in facility rent and maintenance expenses, a $0.1 million increase in temporary personnel, consulting and outside service expenses, a $0.1 million increase in depreciation expense, and a $0.1 million increase in recruiting expenses.

General and administrative expenses for the first nine months of fiscal 2013 increased over the same period in the prior fiscal year primarily because of a $0.8 million increase in temporary personnel, consulting and outside service expenses, a $0.6 million increase in payroll and related costs, a $0.5 million increase in facility rent and maintenance expenses, a $0.2 million increase in depreciation expense, and a $0.1 million increase in recruiting expenses. The increase in expense was partially offset by a $0.2 million reduction in legal expenses and a $0.1 million reduction in other general and administrative expenses.

		December 31,				Dollar	Percent
Gain on patent sale		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	-	$	-	$	-	0.0%
Percentage of total revenue		0.0%		0.0%
Nine months ended	$	(11,965)	$	-	$	(11,965)	100.0%
Percentage of total revenue		-15.2%		0.0%

In June 2012, we entered into a patent purchase agreement for the sale of a family of United States patents for $12.0 million in cash. We recognized a gain of slightly less than $12.0 million, net of transaction costs, which has been recorded as a reduction of operating expenses in the consolidated statements of operations.

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		December 31,				Dollar	Percent
Other income, net		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	73	$	49	$	24	49.0%
Percentage of total revenue		0.3%		0.2%
Nine months ended	$	90	$	58	$	32	55.2%
Percentage of total revenue		0.1%		0.1%

In the nine months ended December 31, 2012, other income, net consisted of interest expense, distribution of capital gains on investments and interest income earned on our cash, cash equivalents and investments.

		December 31,				Dollar	Percent
Provision (benefit) for income tax		2012		2011		Change	Change
		(dollar amounts in thousands)
Three months ended	$	913	$	15	$	898	5986.7%
Percentage of income
before provision for income taxes		32.2%		0.6%
Nine months ended	$	7,726	$	(284)	$	8,010	-2820.4%
Percentage of income before
provision (benefit) for income taxes		38.6%		-5.6%

For the three and nine months ended December 31, 2012, we recorded a provision for income taxes of $0.9 million and $7.7 million, respectively, which was primarily attributable to net income from operations, including the gain on patent sale. For the three and nine months ended December 31, 2011, we released a portion of our valuation allowance against the deferred tax asset as we deemed it was more likely than not it would be used to offset the $0.3 million deferred tax liability recorded in connection with the acquisition of Zerigo.

The increase in income tax expense for the three months ended December 31, 2012 was primarily attributable to net income from operations.

The increase in income tax expense for the nine months ended December 31, 2012 compared with the same period in the prior fiscal year was due to the provision for income tax of $7.7 million which was primarily attributable to net income from operations, including the gain on patent sale.

The effective tax rate is calculated by dividing the income tax provision by net income before income tax expense. We estimate our annual effective tax rate at the end of each quarter. The fiscal 2013 estimated annual effective tax rate is expected to be approximately 40%, but may fluctuate each quarter due to the timing of other discrete period transactions. In estimating the annual effective tax rate, we, in consultation with our tax advisors, consider, among other things, annual pre-tax income, permanent tax differences, changes to tax rates, state apportionment, and the application and interpretations of existing tax laws.

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Liquidity and Capital Resources

As of December 31, 2012, we had approximately $46.5 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities for the nine months ended December 31, 2012 was approximately $26.0 million, compared with $6.4 million for the nine months ended December 31, 2011. The increase in cash flow resulted primarily from a $12.0 million gain on the sale of a patent family in June 2012, a $1.7 million reimbursement from landlord for tenant improvements, and an increase in service and product revenue in the first nine months of fiscal 2012. Cash provided by operating activities has historically been affected by the amount of net income, sales of subscriptions, changes in working capital accounts particularly in deferred revenue due to timing of annual plan renewals, add-backs of non-cash expense items such as the use of deferred tax assets, depreciation and amortization and the expense associated with stock-based awards.

Net cash used in investing activities was $5.2 million during the nine months ended December 31, 2012, compared with $2.5 million used in investing activities for the nine months ended December 31, 2011. The increase in cash used in investing activities during the nine months ended December 31, 2012 is primarily related to an increase in the purchase of additional equipment, furniture and fixtures and leasehold improvements ($5.2 million). The increase in cash used for the purchase of furniture and fixtures and leasehold improvements is primarily due to the Company's move to its new headquarters facility in San Jose, California.

Our financing activities for the nine months ended December 31, 2012 consisted primarily of cash from the issuance of shares due to exercise of employee stock options ($1.7 million) offset by cash used to repurchase shares of our common stock ($0.3 million).

Contractual Obligations

We lease our headquarters facility in San Jose, California under an operating lease agreement that expires in October 2019. The lease is an industrial net lease with monthly base rent of $130,821 for the first 15 months with a 3% increase each year thereafter, and requires us to pay property taxes, utilities and normal maintenance costs.

We entered into a series of noncancelable capital lease agreements for office equipment bearing interest at various rates. Assets under capital lease at December 31, 2012 totaled $110,000 with accumulated amortization of $64,000.

In the third quarter of 2010, we amended the contract with one of our third party customer support vendors containing a minimum monthly commitment of approximately $430,000. The agreement requires a 150-day notice to terminate. At December 31, 2012, the total remaining obligation under the contract was $2.2 million.

We have entered into contracts with multiple vendors for third party network services. At December 31, 2012, future minimum annual payments under these third party network service contracts were $629,000 in 2013, $2,155,000 in 2014, $1,579,000 in 2015 and $52,000 in 2016.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency

Our financial market risk consists primarily of risks associated with international operations and related foreign currencies. We derive a portion of our revenue from customers in Europe and Asia. In order to reduce the risk from fluctuation in foreign exchange rates, the vast majority of our sales are denominated in U.S. dollars. In addition, almost all of our arrangements with our contract manufacturers are denominated in U.S. dollars. We have not entered into any currency hedging activities. To date, our exposure to exchange rate volatility has not been significant and was not material for the three and nine months ended December 31, 2012 or 2011.

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Investments

We maintain an investment portfolio of various holdings, types and maturities. These marketable securities and investments are generally classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss). Part of this portfolio includes investments in mutual funds.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Disclosure Controls") that are designed to ensure that information we are required to disclose in reports filed or submitted under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our Disclosure Controls. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our Disclosure Controls were effective as of December 31, 2012.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. Legal Proceedings

Descriptions of our legal proceedings are contained in Part I, Item 1, Financial Statements — Notes to Condensed Consolidated Financial Statements — "Note 7".

ITEM 1A. Risk Factors

We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. We have disclosed a number of material risks under Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended March 31, 2012, which we filed with the Securities and Exchange Commission on May 24, 2012.

25

ITEM 6. EXHIBITS

Exhibit Number	Description
10.19*	Management Incentive Bonus Plan      (PDF as a courtesy)
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.      (PDF as a courtesy)
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.      (PDF as a courtesy)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.      (PDF as a courtesy)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.      (PDF as a courtesy)
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase
*	Indicates management contract or compensatory plan arrangement
**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

26

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: January 25, 2013

8X8, INC. 

(Registrant) 

By: /s/ DANIEL WEIRICH          

Daniel Weirich 

Chief Financial Officer
(Principal Financial and Chief Accounting Officer and Duly Authorized Officer)

27

EX-10.19 2 exh10-19.htm MANAGEMENT INCENTIVE BONUS PLAN

Exhibit 10.19

8X8, INC.
MANAGEMENT INCENTIVE BONUS PLAN

1. PURPOSE

The purpose of this Management Incentive Bonus Plan (the "Plan") is to promote the success of 8X8, Inc. (the "Company") by providing financial incentives to eligible Employees (individually a "Participant" and collectively the "Participants") to strive for more effective operation of the Company's business. The Company intends to use this Plan to link the interest of stockholders of the Company and Plan Participants by motivating Participants to focus on profitable revenue growth, product quality, completing individual objectives that support the Company's overall business strategy, to attract and retain Participants' services and to create a variable compensation plan that is competitive with our other companies in our market.

2. DEFINITIONS

The following definitions shall be applicable throughout the Plan:

1. "Annual Period" means the twelve-month period representing the Company's fiscal year starting April 1 and ending March 31.

b. "Award" means the amount of cash paid to a Participant under the Plan with respect to Annual and Quarter Periods.

3. "Award Determination Date" means the date following the end of each Annual Period and each Quarter Period that the Compensation Committee of the Company's Board of Directors (the "Committee") meets to review individual and Company performance, which shall in any event be no later than 45 days from the end of each Quarter Period and no later than 60 days from the end of each Annual Period.
4. "Effective Date" means June 22, 2012.
5. "Employee" means any individual, including an officer, who is a full service employee of the Company or any entity in which the Company owns more than 50% of the outstanding ownership interests entitled to vote for the election of directors or the equivalent managing body of such entity, determined on a worldwide basis.
6. "Participant" means any individual who meets the requirements of Section 4 of the Plan.
7. "Participation Date" means 90 days from the Employee's date of hire
8. "Quarter Period" means the three-month period representing the Company's fiscal quarter. The quarters begin on April 1st, July 1st, October 1st, and January 1st.
9. "Term of the Plan" means the period during which the Plan is effective. This period shall begin on the Effective Date and end on a date to be determined in accordance with Section 10 of the Plan.

1

3. POWERS AND ADMINISTRATION
1. Administration by the Committee. Subject to any powers to be exercised by the Company's board of directors, in its discretion, the Committee shall administer the Plan and have such powers and duties as are conferred upon it under this Plan, or any amendments thereto, or by the Board of Directors of the Company. The Committee shall have the authority and complete discretion to (i) prescribe, amend and rescind rules relating to the Plan; (ii) select Participants to receive Awards; (iii) construe and interpret the Plan; (iv) make changes in relation to the Term of the Plan; (v) correct any defect or omission, or reconcile any inconsistency in the Plan; (vi) authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Award; and (vii) make all other determinations deemed necessary or advisable for the administration of the Plan.
2. Committee's Interpretation Final. The Committee's interpretation and construction of any provision of the Plan shall be final and binding on all persons claiming an interest in an Award granted or issued under the Plan. Neither the Committee nor any director shall be liable for any action or determination made in good faith with respect to the Plan. The Company, in accordance with its bylaws, shall indemnify and defend such parties to the fullest extent provided by law and such bylaws.
3. Nontransferability of Awards. An award granted a Participant shall not be assignable or transferable in whole or in part, either voluntarily or by operation of law or otherwise. In the event of the Participant's death, an Award is transferable by the Participant only by will or the laws of descent and distribution. Any attempted assignment, transfer or attachment by any creditor in violation of this Subsection 3(c) shall be null and void.
4. ELIGIBILITY AND PARTICIPATION
1. Eligibility. All executive officers of the Company and other Employees deemed eligible by the Committee shall be eligible to participate in the Plan. The Participation Date for an eligible employee will be 90 days from the employee's date of hire or the date the Committee deems the Participant eligible to participate in the Plan. Participants hired after the beginning of the Annual Period shall receive a pro-rated Award based on the number of days eligible to participate in the Plan versus the number of days available during the Annual Period. For instance, a person hired on April 15^th will have a Participant Date of July 15^th and have 260 (365 eligible days less 105 non-eligible days) eligible days to participate in the Plan. Participants must be eligible to participate in the Plan at the beginning of the Quarter Period to receive a quarterly Award. For instance, a person must be employed by April 1^st to participate in quarterly award for quarter beginning July 1^st.
2. Employment Requirement. Participants must be employed with the Company on the Award Determination Date and the date Award is paid to be eligible for an Award under the Plan.
3. Participation and Approval. For each Annual Period, the Chief Executive Officer shall present to the Committee a list of recommended Participants and a recommended target Award for each Participant for the fiscal year, which recommendations may be submitted after the commencement of the current Annual Period. The Committee shall review the Chief Executive Officer's report, make any adjustments the Committee deems necessary, and approve target Awards for the Annual Period. The Committee or the Chief Executive Officer shall communicate to each Participant his or her participation in the Plan and his or her individual objectives and targets.

2

5. CALCULATION OF AWARDS
   1. Awards Based on Objectives. Awards for the Annual Period shall be based on successful completion of approved individual objectives for such period and the Company's performance against predetermined metrics set forth at the beginning of the fiscal year. Awards for the Quarter Period shall be based on the Company's performance in meeting specific quarterly targets as set forth at the beginning of the fiscal year.
   2. Determination of Award Target. Target amounts for Awards for Participants are determined by competitive market information relevant to the job the individual is performing for the Company, the job function of the individual and the individuals' expected contributions to the Company. The target amounts may be a specified cash amount or a percentage of base pay.
6. PAYMENT

All payments are to be made in cash, less applicable federal, state, local and FICA taxes, as soon as practicable after the Award Determination Date, but in all events within 75 days after it.

7. AMENDMENT OF THE PLAN

The Committee may, from time to time, terminate, suspend, or discontinue the Plan, in whole or part, or revise or amend it in any respect whatsoever.

8. SOURCE OF FUNDS

The Plan is funded by a portion of profits in excess of minimum profit targets set forth annually by the Committee. All awards paid under the Plan are paid from the general assets of the Company and are not liabilities of the Company at any time prior to the time when payment is made. Nothing contained in the Plan shall require the Company to segregate any monies from its general funds, or to create any trust or make any special deposit in respect of any amounts payable under the Plan to or for any Participant or group of Participants.

9. RIGHTS AS AN EMPLOYEE

The Plan shall not be construed to give any individual the right to remain in the employ of the Company or to affect the right of the Company to terminate such individual's status as an Employee. Participation in the Plan will not affect participation in any other compensatory plan maintained by the Company.

10. EFFECTIVE DATE OF PLAN

The Plan is effective on the Effective Date and shall remain in effect until such time as the Committee decides to terminate the Plan.

3

EX-31.1 3 exh31-1.htm CEO 302 CERTIFICATE

Exhibit 31.1

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bryan R. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 8x8, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

January 25, 2013

/s/ BRYAN R. MARTIN
Bryan R. Martin
Chairman, Chief Executive Officer and President

EX-10.19

Q3 2013 Exhibit 10.19

EX-31.1

Q3 2013 Exhibit 31.1

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Weirich, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 8x8, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

January 25, 2013

/s/ DANIEL WEIRICH
Daniel Weirich
Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of 8x8, Inc. (the "Company") for the period ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bryan R. Martin, Chairman, Chief Executive Officer and President of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ BRYAN R. MARTIN
Bryan R. Martin
Chairman, Chief Executive Officer and President

January 25, 2013

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of 8x8, Inc. (the "Company") for the period ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Weirich, Chief Financial Officer and Secretary of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DANIEL WEIRICH
Daniel Weirich
Chief Financial Officer and Secretary

January 25, 2013

This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

XML

Income Taxes (Narrative) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Dec. 31, 2011	Dec. 31, 2012	Mar. 31, 2012
Income Taxes Narrative Details
Valuation allowance decrease	$ 0.3
Unrecognized tax benefits		$ 2.5	$ 2.5

XML

Stock-Based Compensation (Schedule Of Stock-Based Compensation Expense By Statement Of Operations) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, pre tax	$ 765	$ 418	$ 1,827	$ 1,013
Tax benefit	0	0	0	0
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, net of tax	765	418	1,827	1,013
Cost of service revenues
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, pre tax	63	41	149	87
Cost of product revenues
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, pre tax	0	0	1	0
Research and development
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, pre tax	125	72	295	176
Sales and marketing
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, pre tax	355	255	979	610
General and administrative
Stock-based employee compensation expense related to employee stock options and emolyee stock purchases, pre tax	$ 222	$ 50	$ 403	$ 140

XML

Basis of Presentation Deferred Rent (Narrative) (Details) (USD $)

9 Months Ended

Dec. 31, 2012

Basis Of Presentation Deferred Rent Narrative Details

April 2012 lease agreement terms

In April 2012, the Company entered into an 87-month lease agreement. Under the terms of the lease agreement:

• the Company received a three month rent holiday from rental payments before;
• base rent is $130,821 for the 15 months after the rent holiday; and
• rent expense increases 3% each year thereafter.

The Company also received a $1.7 million allowance for tenant improvements.

Lease expiration date

October 2019

Tenant improvement allowance

$ 1,700,000

Deferred rent recorded in other accrued liabilities

100,000

Deferred rent recorded in other non-current liabilities

$ 1,900,000

XML

Commitments and Contingencies (CustomerSupport Commitments) (Narrative) (Details) (USD $)	Dec. 31, 2012
Commitments And Contingencies Customersupport Commitments Narrative Details
Third party customer support vendor minimum monthly commitment	$ 430,000
Third party customer support vendor maximum obligation	$ 2,200,000
Advance termination notice required, days	150

XML

Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Net Income Per Share Details
Net income available to common stockholders	$ 1,920	$ 2,586	$ 12,278	$ 5,365
Common shares	71,611	69,445	71,197	65,165
Denominator for basic calculation	71,611	69,445	71,197	65,165
Employee stock options	3,023	3,364	2,947	3,413
Stock purchase rights	336	385	339	409
Employee stock purchase plan	18	20	0	26
Denominator for diluted calculation	74,988	73,214	74,483	69,013
Net income per share
Basic	$ 0.03	$ 0.04	$ 0.17	$ 0.08
Diluted	$ 0.03	$ 0.04	$ 0.16	$ 0.08

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BALANCE SHEET DETAIL - Note 4

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

BALANCE SHEET DETAIL - Note 4

4. BALANCE SHEET DETAIL

		December 31,		March 31,
		2012		2012
Inventory (in thousands):
Work-in-process	$	24	$	55
Finished goods		549		526
	$	573	$	581

XML

Patent Sale (Narrative) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Dec. 31, 2012
Patent Sale Narrative Details
Sale of patents	$ 12.0
Future maximum patent license collection	$ 3.0

XML

Stock-Based Compensation (Schedule Of Stock Purchase Right/Restricted Stock Unit Activity) (Details) (USD $)	9 Months Ended
	Dec. 31, 2012
Stock-Based Compensation Schedule Of Stock Purchase Rightrestricted Stock Unit Activity Details
Balance at March 31, 2012	966,400
Granted	409,936
Released	(281,938)
Forfeited	(80,244)
Balance at December 31, 2012	1,014,154
Weighted-average grant date fair market value, beginning balance	$ 2.50
Weighted-average grant date fair market value of restricted stock rights granted	$ 5.65
Weighted-average grant date fair market value, released during period	$ 2.16
Weighted-average grant date fair market value, forfeited during period	$ 2.72
Weighted-average grant date fair market value, ending balance	$ 3.85
Weighted-average remaining contractual term, in years, beginning balance	2.61
Weighted-average remaining contractual term, in years, ending balance	2.62

XML

Basis of Presentation Goodwill And Other Intangibles (Schedule Of Future Amortization Of Intangibles) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2012
Basis Of Presentation Goodwill And Other Intangibles Schedule Of Future Amortization Of Intangibles Details
Remaining 2013	$ 357
2014	1,334
2015	1,325
2016	1,325
2017	1,318
Thereafter	3,935
Total	$ 9,594

XML

Stock-Based Compensation (Schedule Of Option Activity) (Details) (USD $)	9 Months Ended
	Dec. 31, 2012
Stock-Based Compensation Schedule Of Option Activity Details
Balance at March 31, 2012	6,034,335
Granted - options	932,000
Exercised	(777,487)
Cancelled/forfeited	(135,133)
Termination of plans	0
Balance at December 31, 2012	6,053,715
Shares available for grant, March 31, 2012	375,546
Change in options available for grant	4,100,000
Granted shares available for grant	(932,000)
Stock purchase rights/restricted stock units	(409,936)
Exercised shares available for grant	0
Cancelled/forfeited shares available for grant	135,133
Termination of plans shares available for grant	(43,004)
Shares available for grant, December 31, 2012	3,225,739
Weighted-average exercise price of options granted during period	$ 5.80
Weighted-average exercise price of options exercised during the period	$ 1.48
Weighted-average exercise price of options forfeited, cancelled or expired during the period	$ 4.01
Weighted-average exercise price of options termination of plans during period	$ 0
Weighted-average exercise price of options outstanding, December 31, 2012	$ 2.51

XML

Stock-Based Compensation (Summary Of Stock Options Outstanding And Exercisable) (Details) (USD $)			9 Months Ended
	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2012 $0.55 - $1.26	Dec. 31, 2012 $1.27 - $1.72	Dec. 31, 2012 $1.73 - $3.35	Dec. 31, 2012 $3.36 - $5.87	Dec. 31, 2012 $5.88 - $5.89	Dec. 31, 2012 $0.55 - $5.89
Range of Exercise Prices, Minimum			$ 0.55	$ 1.27	$ 1.73	$ 3.36	$ 5.88	$ 0.55
Range of Exercise Prices, Maximum			$ 1.26	$ 1.72	$ 3.35	$ 5.87	$ 5.89	$ 5.89
Options Outstanding, Number of Shares	6,053,715	6,034,335	1,781,500	1,504,919	1,326,608	1,398,688	42,000	6,053,715
Options Outstanding, Weighted-Average Exercise Price Per Share	$ 2.51		$ 1.04	$ 1.53	$ 2.56	$ 5.29	$ 5.89
Options Outstanding, Weighted-Average Remaining Contractual Term (in years)			5.0	2.6	5.6	8.9	9.8
Options Outstanding, Aggregate Intrinsic Value			$ 11,299,025	$ 8,806,130	$ 6,396,028	$ 2,919,012	$ 62,580	$ 29,482,775
Options Exercisable, Number of Shares			1,781,500	1,504,919	886,007	204,018	1,750	4,378,194
Options Exercisable, Weighted-Average Exercise Price Per Share			$ 1.04	$ 1.53	$ 2.43	$ 5.04	$ 5.89
Options Exercisable, Aggregate Intrinsic Value			$ 11,299,025	$ 8,806,130	$ 4,382,974	$ 477,705	$ 2,608	$ 24,968,442

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FAIR VALUE MEASURMENT - Note 3

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

FAIR VALUE MEASURMENT - Note 3

3. FAIR VALUE MEASUREMENT

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and March 31, 2012 (in thousands):

		Quoted Prices
		in Active
		Markets		Other		Significant
		for Identical		Observable		Unobservable		Balance at
		Assets		Inputs		Inputs		December 31,
		(Level 1)		(Level 2)		(Level 3)		2012
Cash equivalents:
Money market funds	$	14,373	$	-	$	-	$	14,373
Short-term investments:
Mutual funds (1)		-		1,965		-		1,965
Total	$	14,373	$	1,965	$	-	$	16,338

		Quoted Prices
		in Active
		Markets		Other		Significant
		for Identical		Observable		Unobservable		Balance at
		Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2012
Cash equivalents:
Money market funds	$	14,366	$	-	$	-	$	14,366
Short-term investments:
Mutual funds (1)		-		1,942		-		1,942
Total	$	14,366	$	1,942	$	-	$	16,308

(1) The fair value of mutual funds is determined based on published net asset values. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio.

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Stock Plans (Assumptions Used In Black-Scholes Model) (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012 Percent	Dec. 31, 2011 Percent	Dec. 31, 2012 Percent	Dec. 31, 2011 Percent
Option Grants and Stock Purchase Rights
Expected volatility	68.00%	75.00%	68.00%	76.00%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate	0.68%	0.44%	0.70%	0.35%
Weighted average expected option term, in years	4.50	3.25	5.28	3.04
Weighted average fair value of options granted, per share	$ 3.18	$ 1.96	$ 3.32	$ 2.20
Employee Stock Purchase Plan Rights
Expected volatility	0.00%	0.00%	34.00%	68.00%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate	0.00%	0.00%	0.16%	0.10%
Weighted average expected option term, in years	0	0	0.75	0.75
Weighted average fair value of options granted, per share	$ 0	$ 0	$ 1.45	$ 1.49

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Commitments and Contingencies (Product Warranties) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Commitments And Contingencies Product Warranties Details
Balance at beginning of period	$ 376	$ 391	$ 387	$ 362
Accruals for warranties	168	106	445	374
Settlements	(122)	(101)	(410)	(340)
Balance at end of period	$ 422	$ 396	$ 422	$ 396

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Current assets:
Cash and cash equivalents	$ 44,557	$ 22,426
Short-term investments	1,965	1,942
Accounts receivable, net	3,605	2,279
Inventory	573	581
Deferred cost of goods sold	140	122
Deferred tax asset	284	7,730
Other current assets	736	806
Total current assets	51,860	35,886
Property and equipment, net	6,922	3,820
Intangible assets, net	10,551	11,622
Goodwill	25,150	25,150
Non-current deferred tax asset	54,065	53,977
Other assets	395	278
Total assets	148,943	130,733
Current liabilities:
Accounts payable	5,170	5,476
Accrued compensation	3,768	3,105
Accrued warranty	422	387
Accrued taxes	1,967	1,472
Deferred revenue	952	891
Other accrued liabilities	791	884
Total current liabilities	13,070	12,215
Non-current liabilities	1,894	68
Total liabilities	14,964	12,283
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock	72	71
Additional paid-in capital	244,782	241,555
Accumulated other comprehensive income (loss)	(35)	(58)
Accumulated deficit	(110,840)	(123,118)
Total stockholders' equity	133,979	118,450
Total liabilities and stockholders' equity	$ 148,943	$ 130,733

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DESCRIPTION OF THE BUSINESS - Note 1

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

DESCRIPTION OF THE BUSINESS - Note 1

1. DESCRIPTION OF THE BUSINESS

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets cloud-based business communications services encompassing internally developed Voice over Internet Protocol ("VoIP") technologies. These services enable telephony and video applications as well as web-based conferencing and unified communications capabilities. The Company also provides managed hosting and cloud-based computing services. As of December 31, 2012, the Company had approximately 31,500 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2013 refers to the fiscal year ending March 31, 2013).

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Fair Value Measurement (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Mar. 31, 2012
Cash equivalents:
Money market funds	$ 14,373		$ 14,366
Short-term investments:
Mutual funds (1)	1,965	[1]	1,942	[1]
Total	16,338		16,308
Quoted Prices in Active Markets for Identical Assets (Level 1)
Cash equivalents:
Money market funds	14,373		14,366
Short-term investments:
Mutual funds (1)	0	[1]	0	[1]
Total	14,373		14,366
Other Observable Inputs (Level 2)
Cash equivalents:
Money market funds	0		0
Short-term investments:
Mutual funds (1)	1,965	[1]	1,942	[1]
Total	1,965		1,942
Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	0		0
Short-term investments:
Mutual funds (1)	0	[1]	0	[1]
Total	$ 0		$ 0

[1] The fair value of mutual funds is determined based on published net asset values. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio.

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Commitments And Contingencies (Tables)

9 Months Ended

Dec. 31, 2012

Commitments And Contingencies Tables

Product warranties

Changes in the Company's product warranty liability, which is included in cost of product revenue in the condensed consolidated statements of income were as follows (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Balance at beginning of period	$	376	$	391	$	387	$	362
Accruals for warranties		168		106		445		374
Settlements		(122)		(101)		(410)		(340)
Balance at end of period	$	422	$	396	$	422	$	396

Minimum third party network service provider commitments

The Company entered into contracts with multiple vendors for third party network services that expire on various dates in fiscal 2013 through 2016. At December 31, 2012, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:
2013	$	629
2014		2,155
2015		1,579
2016		52
Total minimum payments	$	4,415

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Balance Sheet Detail (Inventory Components) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Balance Sheet Detail Inventory Components Details
Work-in-process	$ 24	$ 55
Finished goods	549	526
Inventory, net	$ 573	$ 581

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Basis of Presentation Service Revenue (Narrative) (Details)	Dec. 31, 2012
Basis Of Presentation Service Revenue Narrative Details
Trial period offered with all new services, days	30

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BASIS OF PRESENTATION - Note 2

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

BASIS OF PRESENTATION - Note 2

2. BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual financial statements for the fiscal year ended March 31, 2012. In the opinion of the Company's management, these financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2012 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and do not include all of the disclosures required by U.S. generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2012 and notes thereto included in the Company's fiscal 2012 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

VoIP Service and Product Revenue

The Company's VoIP service and product revenue is derived from the sale of communications services and IP business telephones, respectively.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. The provisioning of the 8x8 service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables. In accordance with the guidance of ASC 605-25, the Company allocates 8x8 revenues, including activation fees, among the 8x8 IP telephones and subscriber services. Revenues allocated to these devices are recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. All other revenues are recognized as license and service revenues when the related services are provided. The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in financial statements that are more easily understood by users.

Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Product Revenue

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to partners and end users provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for partner and end user sales are recorded at the time of shipment.

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

Goodwill and Other Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. The carrying values of intangible assets were as follows (in thousands):

		December 31, 2012						March 31, 2012
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	8,242	$	(1,050)	$	7,192	$	8,242	$	(432)	$	7,810
Customer relationships		3,305		(903)		2,402		3,305		(450)		2,855
Trade names/domains		957		-		957		957		-		957
Total acquired identifiable
intangible assets	$	12,504	$	(1,953)	$	10,551	$	12,504	$	(882)	$	11,622

At December 31, 2012, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

		Amount
Remaining 2013	$	357
2014		1,334
2015		1,325
2016		1,325
2017		1,318
Thereafter		3,935
Total	$	9,594

Deferred Rent

In April 2012, the Company entered into an 87-month lease agreement for its new headquarters. Under the terms of the lease agreement:

• the Company received a three month rent holiday from rental payments;
• base rent is $130,821 for the 15 months after the rent holiday; and
• rent expense increases 3% each year thereafter.

The Company also received a $1.7 million allowance for tenant improvements. In accordance with the guidance in ASC 840-20, Leases, the Company accounts for its headquarters facility operating lease as follows:

Rent Holidays. The Company recognizes the related rent expense on a straight-line basis at the earlier of the first rent payment or the date of possession of the leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Tenant Improvement Allowance. The tenant improvement allowance is deferred and amortized on a straight-line basis over the life of the lease as a reduction to rent expense.

In the second quarter of fiscal 2013, the Company received a $1.7 million reimbursement for the cost of tenant improvements that the Company included in cash flows from operating activities. At December 31, 2012, total deferred rent included in Other accrued liabilities and Non-current liabilities was $0.1 million and $1.9 million, respectively.

Stock Purchase Right/Restricted Stock Unit and Option Activity

Stock purchase right/restricted stock unit activity since March 31, 2012 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2012	966,400	$	2.50	2.61
Granted	409,936		5.65
Released	(281,938)		2.16
Forfeited	(80,244)		2.72
Balance at December 31, 2012	1,014,154	$	3.85	2.62

Option activity since March 31, 2012 is summarized as follows:

				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2012	375,546	6,034,335	$	1.90
Change in options available for grant	4,100,000	-		-
Granted - options	(932,000)	932,000		5.80
Stock purchase rights/restricted stock units	(409,936)	-		-
Exercised	-	(777,487)		1.48
Canceled/forfeited	135,133	(135,133)		4.01
Termination of plans	(43,004)	-		-
Balance at December 31, 2012	3,225,739	6,053,715	$	2.51

The following table summarizes the stock options outstanding and exercisable at December 31, 2012:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
			Price	Contractual		Intrinsic			Price		Intrinsic
	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$0.55 - $1.26	1,781,500	$	1.04	5.0	$	11,299,025	1,781,500	$	1.04	$	11,299,025
$1.27 - $1.72	1,504,919	$	1.53	2.6		8,806,130	1,504,919	$	1.53		8,806,130
$1.73 - $3.35	1,326,608	$	2.56	5.6		6,396,028	886,007	$	2.43		4,382,974
$3.36 - $5.87	1,398,688	$	5.29	8.9		2,919,012	204,018	$	5.04		477,705
$5.88 - $5.89	42,000	$	5.89	9.8		62,580	1,750	$	5.89		2,608
	6,053,715				$	29,482,775	4,378,194			$	24,968,442

Stock-based Compensation Expense

The following table summarizes the classification of stock-based compensation expense for the three and nine months ended December 31, 2012 and 2011 (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Cost of service revenues	$	63	$	41	$	149	$	87
Cost of product revenues		-		-		1		-
Research and development		125		72		295		176
Sales and marketing		355		255		979		610
General and administrative		222		50		403		140
Total stock-based compensation expense related to
employee stock options and employee stock purchases, pre-tax		765		418		1,827		1,013
Tax benefit		-		-		-		-
Stock based compensation expense related to employee
stock options and employee stock purchases, net of tax	$	765	$	418	$	1,827	$	1,013

As of December 31, 2012, there was $7.4 million of unamortized stock-based compensation expense related to unvested options and stock awards which is expected to be recognized over a weighted average period of 3.14 years.

To value option grants and stock purchase rights/restricted stock units for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock price volatility, expected life, risk-free interest rates and future dividend payments. During the three and nine month periods ended December 31, 2012 and 2011, the Company used the historical volatility of the Company's stock over a period equal to the expected life of the options. The expected life assumptions represent the weighted-average period the stock-based awards are expected to remain outstanding. These expected life assumptions are established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payouts.

The following table summarizes the assumptions used to estimate the fair value of stock options to employees and directors for the three and nine months ended December 31, 2012 and 2011:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Expected volatility		68%		75%		68%		76%
Expected dividend yield		-		-		-		-
Risk-free interest rate		0.68%		0.44%		0.70%		0.35%
Weighted average expected option term		4.50 years		3.25 years		5.28 years		3.04 years
Weighted average fair value of options granted	$	3.18	$	1.96	$	3.32	$	2.20

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, eligible employees can participate and purchase common stock semi-annually through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each one-year offering period or the end of the applicable six-month purchase period within that offering period, whichever is lower. The contribution amount may not exceed 10% of an employee's base compensation, including commissions but not including bonuses and overtime, subject to a calendar year maximum total purchase price per employee of $25,000. The Company accounts for the Employee Stock Purchase Plan as a compensatory plan and recorded compensation expense of $115,000 and $117,000 for the three months ended December 31, 2012 and 2011 and $356,000 and $312,000 for the nine months ended December 31, 2012 and 2011, respectively, in accordance with ASC 718.

The estimated fair value of stock purchase rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using Black-Scholes pricing model with the following weighted average assumptions:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Expected volatility		-		-		34%		68%
Expected dividend yield		-		-		-		-
Risk-free interest rate		-		-		0.16%		0.10%
Weighted average expected option term		-		-		0.75 years		0.75 years
Weighted average fair value of options granted	$	-	$	-	$	1.45	$	1.49

As of December 31, 2012, there was $84,000 of total unrecognized compensation cost related to employee stock purchases. These costs are expected to be recognized over a weighted average period of 0.5 years.

The future realization of tax benefits related to stock-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation charges incurred during the three and nine months ended December 31, 2012 and 2011.

Segment Reporting

No customer represented greater than 10% of the Company's total revenue for the three and nine months ended December 31, 2012 or 2011. Revenue from technology licensing and related software and customers outside the United States was not material for the three and nine months ended December 31, 2012 or 2011.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Condensed Consolidated Statements Of Income
Service revenue	$ 24,958	$ 21,200	$ 72,307	$ 56,234
Product revenue	2,382	2,078	6,656	5,370
Total revenue	27,340	23,278	78,963	61,604
Operating expenses:
Cost of service revenue	5,473	4,890	16,984	12,764
Cost of product revenue	3,203	2,584	8,585	7,467
Research and development	2,117	1,955	5,973	4,902
Sales and marketing	11,651	9,816	33,202	27,076
General and administrative	2,136	1,481	6,270	4,372
Gain on patent sale	0	0	(11,965)	0
Total operating expenses	24,580	20,726	59,049	56,581
Income from operations	2,760	2,552	19,914	5,023
Other income, net	73	49	90	58
Income before provision (benefit) for income taxes	2,833	2,601	20,004	5,081
Provision (benefit) for income taxes	913	15	7,726	(284)
Net income	$ 1,920	$ 2,586	$ 12,278	$ 5,365
Net income per share:
Basic	$ 0.03	$ 0.04	$ 0.17	$ 0.08
Diluted	$ 0.03	$ 0.04	$ 0.16	$ 0.08
Weighted average number of shares:
Basic	71,611	69,445	71,197	65,165
Diluted	74,988	73,214	74,483	69,013

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Distribution of Stock-Based Compensation Plan Expense (Tables)

9 Months Ended

Dec. 31, 2012

Distribution Of Stock-Based Compensation Plan Expense Tables

Schedule Of Stock-Based Compensation Expense By Statement Of Operations Line Item

The following table summarizes the classification of stock-based compensation expense for the three and nine months ended December 31, 2012 and 2011 (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Cost of service revenues	$	63	$	41	$	149	$	87
Cost of product revenues		-		-		1		-
Research and development		125		72		295		176
Sales and marketing		355		255		979		610
General and administrative		222		50		403		140
Total stock-based compensation expense related to
employee stock options and employee stock purchases, pre-tax		765		418		1,827		1,013
Tax benefit		-		-		-		-
Stock based compensation expense related to employee
stock options and employee stock purchases, net of tax	$	765	$	418	$	1,827	$	1,013

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Document and Entity Information	9 Months Ended
	Dec. 31, 2012	Jan. 23, 2013
Document And Entity Information
Entity Registrant Name	8X8 INC /DE/
Entity Central Index Key	0001023731
Document Type	10-Q
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		71,847,417
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2013

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Stock-Based Compensation And Employee Purchase Plans (Tables)

9 Months Ended

Dec. 31, 2012

Employee Stock Purchase Plan

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The estimated fair value of stock purchase rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using Black-Scholes pricing model with the following weighted average assumptions:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Expected volatility		-		-		34%		68%
Expected dividend yield		-		-		-		-
Risk-free interest rate		-		-		0.16%		0.10%
Weighted average expected option term		-		-		0.75 years		0.75 years
Weighted average fair value of options granted	$	-	$	-	$	1.45	$	1.49

Stock Options

Disclosure Of Share-Based Compensation Arrangements By Share-Based Payment Award

Option activity since March 31, 2012 is summarized as follows:

				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2012	375,546	6,034,335	$	1.90
Change in options available for grant	4,100,000	-		-
Granted - options	(932,000)	932,000		5.80
Stock purchase rights/restricted stock units	(409,936)	-		-
Exercised	-	(777,487)		1.48
Canceled/forfeited	135,133	(135,133)		4.01
Termination of plans	(43,004)	-		-
Balance at December 31, 2012	3,225,739	6,053,715	$	2.51

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The following table summarizes the assumptions used to estimate the fair value of stock options to employees and directors for the three and nine months ended December 31, 2012 and 2011:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Expected volatility		68%		75%		68%		76%
Expected dividend yield		-		-		-		-
Risk-free interest rate		0.68%		0.44%		0.70%		0.35%
Weighted average expected option term		4.50 years		3.25 years		5.28 years		3.04 years
Weighted average fair value of options granted	$	3.18	$	1.96	$	3.32	$	2.20

Stock Purchase Rights/Restricted Stock Unit

Disclosure Of Share-Based Compensation Arrangements By Share-Based Payment Award

Stock purchase right/restricted stock unit activity since March 31, 2012 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2012	966,400	$	2.50	2.61
Granted	409,936		5.65
Released	(281,938)		2.16
Forfeited	(80,244)		2.72
Balance at December 31, 2012	1,014,154	$	3.85	2.62

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Statement of Income and Comprehensive Income [Abstract]
Net income	$ 1,920	$ 2,586	$ 12,278	$ 5,365
Other comprehensive income, net of tax
Unrealized gain (loss) on investment in securities	(44)	(8)	23	(15)
Comprehensive income	$ 1,876	$ 2,578	$ 12,301	$ 5,350

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COMMITMENTS AND CONTINGENCIES - Note 7

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

COMMITMENTS AND CONTINGENCIES - Note 7

7. COMMITMENTS AND CONTINGENCIES

Guarantees

Indemnifications

In the normal course of business, the Company indemnifies other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. Under these arrangements, the Company typically agrees to hold the other party harmless against losses arising from a breach of representations or covenants, intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.

It is not possible to determine the maximum potential amount of the Company's exposure under these indemnification agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company's operating results, financial position or cash flows. Under some of these agreements, however, the Company's potential indemnification liability might not have a contractual limit.

Product Warranties

The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue recognition. Changes in the Company's product warranty liability, which is included in cost of product revenue in the condensed consolidated statements of income were as follows (in thousands):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
Balance at beginning of period	$	376	$	391	$	387	$	362
Accruals for warranties		168		106		445		374
Settlements		(122)		(101)		(410)		(340)
Balance at end of period	$	422	$	396	$	422	$	396

Minimum Third Party Customer Support Commitments

In the third quarter of fiscal 2010, the Company amended a contract with one of its third party customer support vendors containing a minimum monthly commitment of approximately $430,000. The agreement requires a 150-day notice to terminate. The total remaining obligation under the amended contract is $2.2 million.

Minimum Third Party Network Service Provider Commitments

The Company entered into contracts with multiple vendors for third party network services that expire on various dates in fiscal 2013 through 2016. At December 31, 2012, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Year ending March 31:
2013	$	629
2014		2,155
2015		1,579
2016		52
Total minimum payments	$	4,415

Legal Proceedings

From time to time, the Company may become involved in various legal claims and litigation that arise in the normal course of its operations. While the results of such claims and litigation cannot be predicted with certainty, the Company is not currently aware of any such matters that it believes would have a material adverse effect on its financial position, results of operations or cash flows.

On March 15, 2011, the Company was named as a defendant in a lawsuit, Bear Creek Technologies, Inc. v. 8x8, Inc. et al., along with more than 20 other defendants. On August 17, 2011, the suit against the Company was dismissed without prejudice under Rule 21 of the Federal Rules of Civil Procedure. On August 17, 2011, the Company was sued again by Bear Creek Technologies, Inc. in the United States District Court for the District of Delaware. The Company filed a motion to dismiss the complaint on October 11, 2011. On May 2, 2012, the Judicial Panel on Multidistrict Litigation ordered the suit against the Company and over a dozen related cases, to be coordinated or consolidated for pretrial proceedings.  On August 27, 2012, the Court denied several defendants' motions to dismiss the complaint including the Company's. On October 11, 2012, the Company answered the complaint and alleged three counterclaims as well as affirmative defenses. The Company believes it has factual and legal defenses to these claims and intends to litigate the case vigorously. The Company cannot estimate potential liability or expense in this case at this early stage of litigation.

On October 25, 2011, the Company was named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al., along with 30 other defendants. On November 1, 2011, Klausner dismissed the complaint voluntarily and filed new complaints separating the defendants, including a new complaint against the Company. The Company filed a motion to dismiss the complaint on February 23, 2012, which was granted in part by the Court on September 11, 2012.  On September 25, 2012, the plaintiff filed an amended complaint to which the Company responded by filing another motion to dismiss on October 11, 2012. That motion as well as another motion for a change in venue filed by the Company on August 23, 2012 are pending. The Company has not answered the complaint and believes it has meritorious defenses to this lawsuit. The Company intends to defend the case vigorously. The Company cannot estimate potential liability or expense in this case at this early stage of litigation.

State and Municipal Taxes

From time to time, the Company has received inquiries from a number of state and municipal taxing agencies with respect to the remittance of taxes. The Company collects or has accrued for taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company.

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INCOME TAXES - Note 6

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

INCOME TAXES - Note 6

6. INCOME TAXES

For the three and nine months ended December 31, 2012, the Company recorded a provision for income taxes of $0.9 million and $7.7 million, respectively, which was primarily attributable to net income from operations, including gain on the sale of patents. For the three and nine months ended December 31, 2011, the Company recorded accruals for state gross receipt and franchise taxes and released a portion of its valuation allowance against the deferred tax asset as the Company deemed it was more likely than not it would be used to offset the $0.3 million deferred tax liability recorded in connection with the acquisition of Zerigo. During the period ended December 31, 2011, the provision for income taxes was not significant due to the valuation allowance.

At March 31, 2012, there was $2.5 million of unrecognized tax benefits that, if recognized, would have affected the effective tax rate. The Company does not believe that there has been any significant change in the unrecognized tax benefits in the three and nine month periods ended December 31, 2012 and does not believe it is reasonably possible that the unrecognized tax benefit will materially change in the next 12 months. To the extent that the unrecognized tax benefits are ultimately recognized they may have an impact on the effective tax rate in future periods.

The Company is subject to taxation in the U.S., California and various other states and foreign jurisdictions in which it has or had a subsidiary or branch operations or it is collecting sales tax. All tax returns from fiscal 1995 to fiscal 2012 may be subject to examination by the Internal Revenue Service, California and various other states. As of January 22, 2013, there were no active federal or state income tax audits. Returns filed in foreign jurisdictions may be subject to examination for the fiscal years 2009 to 2010.

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Description Of Business (Narrative) (Details)	Dec. 31, 2012
Description Of Business Narrative Details
Approximate number of business customers	31500

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Fair Value Measurement (Tables)

9 Months Ended

Dec. 31, 2012

Fair Value Measurement Tables

Fair Value Measurement (Tables)

The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and March 31, 2012 (in thousands):

		Quoted Prices
		in Active
		Markets		Other		Significant
		for Identical		Observable		Unobservable		Balance at
		Assets		Inputs		Inputs		December 31,
		(Level 1)		(Level 2)		(Level 3)		2012
Cash equivalents:
Money market funds	$	14,373	$	-	$	-	$	14,373
Short-term investments:
Mutual funds (1)		-		1,965		-		1,965
Total	$	14,373	$	1,965	$	-	$	16,338

		Quoted Prices
		in Active
		Markets		Other		Significant
		for Identical		Observable		Unobservable		Balance at
		Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2012
Cash equivalents:
Money market funds	$	14,366	$	-	$	-	$	14,366
Short-term investments:
Mutual funds (1)		-		1,942		-		1,942
Total	$	14,366	$	1,942	$	-	$	16,308

(1)The fair value of mutual funds is determined based on published net asset values. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio.

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Intangible Assets (Tables)

9 Months Ended

Dec. 31, 2012

Intangible Assets Tables

Carrying values of intangible assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue. The carrying values of intangible assets were as follows (in thousands):

		December 31, 2012						March 31, 2012
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	8,242	$	(1,050)	$	7,192	$	8,242	$	(432)	$	7,810
Customer relationships		3,305		(903)		2,402		3,305		(450)		2,855
Trade names/domains		957		-		957		957		-		957
Total acquired identifiable
intangible assets	$	12,504	$	(1,953)	$	10,551	$	12,504	$	(882)	$	11,622

At December 31, 2012, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

		Amount
Remaining 2013	$	357
2014		1,334
2015		1,325
2016		1,325
2017		1,318
Thereafter		3,935
Total	$	9,594

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PATENT SALE - Note 8

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

PATENT SALE - Note 8

8. PATENT SALE

On June 22, 2012, the Company entered into a patent purchase agreement and sold a family of patents to a third party for $12.0 million plus a future payment of up to a maximum of $3.0 million based on future license agreements entered into by the third party purchaser. Under the terms and conditions of the patent purchase agreement, the Company has retained certain limited rights to continue to use the patents. The patent purchase agreement contains representations and warranties customary for transactions of this type.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Company

THE COMPANY

8x8, Inc. ("8x8" or the "Company") develops and markets cloud-based business communications services encompassing internally developed Voice over Internet Protocol ("VoIP") technologies. These services enable telephony and video applications as well as web-based conferencing and unified communications capabilities. The Company also provides managed hosting and cloud-based computing services. As of December 31, 2012, the Company had approximately 31,500 business customers.

The Company was incorporated in California in February 1987 and was reincorporated in Delaware in December 1996. The Company's fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the consolidated financial statements refers to the fiscal year ending March 31 of the calendar year indicated (for example, fiscal 2013 refers to the fiscal year ending March 31, 2013).

Basis of Presentation

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual financial statements for the fiscal year ended March 31, 2012. In the opinion of the Company's management, these financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2012 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and do not include all of the disclosures required by U.S. generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2012 and notes thereto included in the Company's fiscal 2012 Annual Report on Form 10-K.

The results of operations and cash flows for the interim periods included in these financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Service Revenue

VoIP Service and Product Revenue

The Company's VoIP service and product revenue is derived from the sale of communications services and IP business telephones, respectively.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. The provisioning of the 8x8 service with the accompanying 8x8 IP telephone constitutes a revenue arrangement with multiple deliverables. In accordance with the guidance of ASC 605-25, the Company allocates 8x8 revenues, including activation fees, among the 8x8 IP telephones and subscriber services. Revenues allocated to these devices are recognized as product revenues during the period of the sale less the allowance for estimated returns during the 30-day trial period. All other revenues are recognized as license and service revenues when the related services are provided. The Company records revenue net of any sales-related taxes that are billed to its customers. The Company believes this approach results in financial statements that are more easily understood by users.

Under the terms of the Company's typical subscription agreement, new customers can terminate their service within 30 days of order placement and receive a full refund of fees previously paid. The Company has determined that it has sufficient history of subscriber conduct to make a reasonable estimate of cancellations within the 30-day trial period. Therefore, the Company recognizes new subscriber revenue in the month in which the new order was shipped, net of an allowance for expected cancellations.

Product Revenue

Product Revenue

The Company recognizes revenue from product sales for which there are no related services to be rendered upon shipment to partners and end users provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Gross outbound shipping and handling charges are recorded as revenue, and the related costs are included in cost of goods sold. Reserves for returns and allowances for partner and end user sales are recorded at the time of shipment.

Deferred Cost of Goods Sold

Deferred Cost of Goods Sold

Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Amortization expense for the customer relationship intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue.

Deferred Rent

Deferred Rent

In accordance with the guidance in ASC 840-20, Leases, the Company accounts for its headquarters facility operating lease as follows:

Rent Holidays. The Company recognizes the related rent expense on a straight-line basis at the earlier of the first rent payment or the date of possession of the leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Tenant Improvement Allowance. The tenant improvement allowance is deferred and amortized on a straight-line basis over the life of the lease as a reduction to rent expense.

Accounting for Stock-Based Compensation

Accounting for Stock-Based Compensation

To value option grants and stock purchase rights/restricted stock units for stock-based compensation, the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on assumptions used for the expected stock price volatility, expected life, risk-free interest rates and future dividend payments. During the three and nine month periods ended December 31, 2012 and 2011, the Company used the historical volatility of the Company's stock over a period equal to the expected life of the options. The expected life assumptions represent the weighted-average period the stock-based awards are expected to remain outstanding. These expected life assumptions are established through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk-free interest rate is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of future dividend payouts.

Net Income Per Share

Net Income Per Share

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and warrants and under the employee stock purchase plan.

Indemnifications

Indemnifications

In the normal course of business, the Company indemnifies other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. Under these arrangements, the Company typically agrees to hold the other party harmless against losses arising from a breach of representations or covenants, intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.

It is not possible to determine the maximum potential amount of the Company's exposure under these indemnification agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company's operating results, financial position or cash flows. Under some of these agreements, however, the Company's potential indemnification liability might not have a contractual limit.

Product Warranties

Product Warranties

The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue recognition.

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Stock Options Outstanding And Exercisable (Tables)

9 Months Ended

Dec. 31, 2012

Stock Options Outstanding And Exercisable Tables

Summary Of Outstanding And Exercisable Stock Options

The following table summarizes the stock options outstanding and exercisable at December 31, 2012:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
			Price	Contractual		Intrinsic			Price		Intrinsic
	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$0.55 - $1.26	1,781,500	$	1.04	5.0	$	11,299,025	1,781,500	$	1.04	$	11,299,025
$1.27 - $1.72	1,504,919	$	1.53	2.6		8,806,130	1,504,919	$	1.53		8,806,130
$1.73 - $3.35	1,326,608	$	2.56	5.6		6,396,028	886,007	$	2.43		4,382,974
$3.36 - $5.87	1,398,688	$	5.29	8.9		2,919,012	204,018	$	5.04		477,705
$5.88 - $5.89	42,000	$	5.89	9.8		62,580	1,750	$	5.89		2,608
	6,053,715				$	29,482,775	4,378,194			$	24,968,442

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Stock-Based Compensation and Employee Stock Purchase Plan (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Stock-based employee compensation expense	$ 765,000	$ 418,000	$ 1,827,000	$ 1,013,000
Stock-Based Awards
Unamortized stock-based compensation expense related to unvested stock awards	7,400,000		7,400,000
Weighted average period of recognition for unrecognized compensation costs (in years)			3.14
Employee Stock Purchase Plan
Unamortized stock-based compensation expense related to unvested stock awards	84,000		84,000
Weighted average period of recognition for unrecognized compensation costs (in years)			0.5
Stock-based employee compensation expense	115,000	117,000	356,000	312,000
Annual maximum total purchases price amount per employee	$ 25,000		$ 25,000

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Net Income Per Share (Tables)

9 Months Ended

Dec. 31, 2012

Net Income Per Share Tables

Net Income Per Share (Tables)

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and warrants and under the employee stock purchase plan.

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
		(in thousands, except per share amounts)				(in thousands, except per share amounts)
Numerator:
Net income available to common stockholders	$	1,920	$	2,586	$	12,278	$	5,365
Denominator:
Common shares		71,611		69,445		71,197		65,165
Denominator for basic calculation		71,611		69,445		71,197		65,165
Employee stock options		3,023		3,364		2,947		3,413
Stock purchase rights		336		385		339		409
Employee stock purchase plan		18		20		-		26
Denominator for diluted calculation		74,988		73,214		74,483		69,013
Net income per share
Basic	$	0.03	$	0.04	$	0.17	$	0.08
Diluted	$	0.03	$	0.04	$	0.16	$	0.08

The following shares attributable to outstanding stock options and stock purchase rights/restricted stock units were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2012	2011	2012	2011
Employee stock options and awards	885	604	878	637
	885	604	878	637

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Basis of Presentation Segment Reporting (Narrative) (Details) (USD $)	9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Basis Of Presentation Segment Reporting Narrative Details
Sales revenue, major customer, amount	$ 0	$ 0

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Commitments and Contingencies (Service Provider Contracts) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Commitments And Contingencies Service Provider Contracts Details
2013	$ 629
2014	2,155
2015	1,579
2016	52
Total minimum payments	$ 4,415

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net income	$ 12,278	$ 5,365
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation	1,816	1,101
Amortization	1,071	431
Stock-based compensation	1,827	1,013
Deferred income tax provision (benefit)	7,359	(336)
Other	409	130
Changes in assets and liabilities:
Accounts receivable, net	(1,700)	(642)
Inventory	(25)	1,596
Other current and noncurrent assets	(48)	405
Deferred cost of goods sold	(18)	(6)
Accounts payable	(38)	(2,059)
Accrued compensation	663	319
Accrued warranty	35	34
Accrued taxes and fees	495	(396)
Deferred revenue	61	(75)
Other current and noncurrent liabilities	1,806	(472)
Net cash provided by operating activities	25,991	6,408
Cash flows from investing activities:
Purchases of property and equipment	(5,245)	(1,743)
Acquisition of businesses, net of cash acquired	0	(713)
Net cash used in investing activities	(5,245)	(2,456)
Cash flows from financing activities:
Capital lease payments	(73)	(273)
Repurchase of common stock	(285)	(1,038)
Proceeds from issuance of common stock, net of issuance costs	0	(60)
Proceeds from issuance of common stock under employee stock plans	1,743	949
Net cash provided by (used in) financing activities	1,385	(422)
Net increase in cash and cash equivalents	22,131	3,530
Cash and cash equivalents at the beginning of the period	22,426	16,474
Cash and cash equivalents at the end of the period	44,557	20,004
Supplemental cash flow information
Issuance of common stock in connection with acquisitions of businesses	0	31,358
Fair value of options assumed in connection with acquisitions of businesses	0	274
Acquisition of net assets in connection with acquisitions of businesses	0	372
Transfer of net assets in purchase of strategic investment	$ 0	$ 297

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NET INCOME PER SHARE - Note 5

9 Months Ended

Dec. 31, 2012

Notes to Financial Statements

NET INCOME PER SHARE - Note 5

5. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders (numerator) by the weighted average number of vested, unrestricted common shares outstanding during the period (denominator). Diluted net income per share is computed on the basis of the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include shares issuable upon exercise of outstanding stock options and warrants and under the employee stock purchase plan.

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2012		2011		2012		2011
		(in thousands, except per share amounts)				(in thousands, except per share amounts)
Numerator:
Net income available to common stockholders	$	1,920	$	2,586	$	12,278	$	5,365
Denominator:
Common shares		71,611		69,445		71,197		65,165
Denominator for basic calculation		71,611		69,445		71,197		65,165
Employee stock options		3,023		3,364		2,947		3,413
Stock purchase rights		336		385		339		409
Employee stock purchase plan		18		20		-		26
Denominator for diluted calculation		74,988		73,214		74,483		69,013
Net income per share
Basic	$	0.03	$	0.04	$	0.17	$	0.08
Diluted	$	0.03	$	0.04	$	0.16	$	0.08

The following shares attributable to outstanding stock options and stock purchase rights/restricted stock units were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2012	2011	2012	2011
Employee stock options and awards	885	604	878	637
	885	604	878	637

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Basis of Presentation Goodwill And Other Intangibles (Schedule Of Intangibles) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Gross Carrying Amount	$ 12,504	$ 12,504
Accumulated Amortization	(1,953)	(882)
Net Carrying Amount	10,551	11,622
Technology
Gross Carrying Amount	8,242	8,242
Accumulated Amortization	(1,050)	(432)
Net Carrying Amount	7,192	7,810
Customer relationships
Gross Carrying Amount	3,305	3,305
Accumulated Amortization	(903)	(450)
Net Carrying Amount	2,402	2,855
Trade names domains
Gross Carrying Amount	957	957
Accumulated Amortization	0	0
Net Carrying Amount	$ 957	$ 957

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Net Income Per Share (Options and Rights Excluded) (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Anti-dilutive shares	885	604	878	637
Employee stock options
Anti-dilutive shares	885	604	878	637

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Balance Sheet Detail (Tables)

9 Months Ended

Dec. 31, 2012

Balance Sheet Detail Tables

Inventory (Tables)

		December 31,		March 31,
		2012		2012
Inventory (in thousands):
Work-in-process	$	24	$	55
Finished goods		549		526
	$	573	$	581