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, 20162017

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 or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

      If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

      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 30, 201726, 2018 was 90,932,838.92,162,543.

FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page No.
Item 1. Financial Statements:Statements (unaudited):
Condensed Consolidated Balance Sheets at December 31, 20162017 and March 31, 20162017	2
Condensed Consolidated Statements of Operations for the three and nine            months ended December 31, 20162017 and 20152016	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine            months ended December 31, 20162017 and 20152016	4
Condensed Consolidated Statements of Cash Flows for the nine months            ended December 31, 20162017 and 20152016	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2016
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2723
Item 4. Controls and Procedures	2823
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	2824
Item 1A. Risk Factors	2824
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 5. Other Information	2925
Item 6. Exhibits	2925
Signature	3026

1

Part I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

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

2

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

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

3

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

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

4

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

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

5

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

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

8x8, Inc. (8x8 or the Company) is a leading provider of cloud-based, enterprise-class softwareglobal cloud communications and customer engagement solutions that transform the way businesses communicate and collaborate globally.to over a million business users worldwide. The Company's integrated, "pure-cloud" offering combines global voice,suite of products weaves together cloud communications, conferencing, collaboration and contact center software, conferencing, messagingsolutions so today's organization can deliver exceptional employee and video withcustomer experiences. 8x8 technology provides one integrated workflowsplatform for employees and bigcustomers engagement solutions, as well as a real-time data analytics on a single platform to enable increased team productivity, better customer engagementfor constant learning and real-time insights into business performance.improvement.

BASIS OF PRESENTATION

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 ended March 31 of the calendar year indicated (for example, fiscal 20172018 refers to the fiscal year endedending March 31, 2017)2018).

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended March 31, 2016.2017. In the opinion of the Company's management, these interim condensed consolidated 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, 20162017 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. These condensed consolidated 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, 20162017 and notes thereto included in the Company's fiscal 20162017 Annual Report on Form 10-K.

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

RECLASSIFICATION

Certain software development costs capitalized in accordance with ASC 350-40,Internal Use Software (ASC 350-40), that were presented in other long-term assets in the Company's consolidated balance sheets as of March 31, 2017 are presented as property and equipment for the condensed consolidated balance sheet as of December 31, 2017. Assets in the amount of $7.7 million, net of accumulated amortization, have been reclassified in the balance sheet as of March 31, 2017 to conform to the current period presentation. The reclassification had no impact on the Company's previously reported consolidated net income (loss), cash flows, or basic or diluted net income per share amounts.

Certain amounts previously reported within the Company's condensed consolidated balance sheets and condensed consolidated statements of cash flows have been reclassified within each financial statement section to conform to the current period presentation. The reclassification had no impact on the Company's previously reported net loss, cash flows, or basic or diluted net loss per share amounts.

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DXI

Acquisition

In May 2015, the Company entered into a share purchase agreement with the shareholders of DXI Limited for a purchase price of $22.5 million, consisting of $18.7 million in cash paid to the DXI shareholders at closing and $3.8 million in cash deposited into escrow to be held for two years as security against indemnity claims made by the Company after the closing date. During the fiscal quarter ended June 30, 2017, $1.4 million of the cash held in escrow was returned to the Company and the escrow fund was closed. Since the purchase accounting for the acquisition was finalized by March 31, 2016, the proceeds are realized as a gain and reported as other income in the consolidated statements of operations.

Impairment

The Company performs its annual goodwill impairment test on January 1 of each year and during the year, whenever a triggering event for such an assessment is identified. During the third quarter of fiscal year 2018, the Company changed its product and marketing strategy for the use of DXI's technology and re-assessed the profitability outlook which triggered the requirement that the Company test the recorded goodwill for impairment in accordance with ASC 350-20-35, as amended by ASU 2017-04 (see Footnote 1, Recently Adopted Accounting Pronouncements). First, the Company estimated the fair value of its three reporting units using the market approach. Under the market approach, the Company utilized the market capitalization of its publicly-traded shares and comparable company information to determine revenue multiples which were used to determine the fair value of the reporting unit. Based on this approach, the Company determined that there was an indication of impairment for its DXI reporting unit in the UK as the carrying value including goodwill exceeded the estimated fair value. As largely independent cash flows could not be attributed to any assets individually the Company evaluated DXI's assets and liabilities as one asset group. Then the Company estimated the fair value of DXI's assets and liabilities as one asset group using discounted cash flow methods to determine the implied fair value of goodwill. The difference between this implied fair value of the goodwill and its carrying value was recorded as impairment. The outcome of the analysis resulted in a non-cash expense for impairment of property and equipment, intangible assets and goodwill of $0.3 million, $1.2 million and $8.0 million, respectively, which was recorded during the third quarter of fiscal year 2018 as a separate line item in the Company's Condensed Consolidated Statements of Operations.

These assets are reported within the Company's Europe (primarily UK) reporting segment (Footnote 9). The inputs used to measure the estimated fair value of goodwill are classified as a Level 3 fair value measurement due to the significance of unobservable inputs based on company specific information.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include the accounts of 8x8 and its subsidiaries. All material intercompany accounts and transactions have been eliminated.

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 20162017 filed with the SEC on May 31, 2016,30, 2017, and there have been no changes to the Company's significant accounting policies during the nine months ended December 31, 2016,2017, except as described in the "Recently Adopted Accounting Pronouncements" section below.

6

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In AprilJuly 2015, the FASB issued ASU 2015-11,Simplifying the Measurement of Inventory. Under this guidance, entities utilizing the first-in-first-out or average cost method should measure inventory at the lower of cost or net realizable value, where net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of this standard did not have a material impact to the Company's consolidated financial statements.

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-5, 2016-09,"Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)Compensation - Stock Compensation (Topic 718): Customer'sImprovements to Employee Stock-based Payment Accounting for Fees Paid in a Cloud Computing Arrangement." This update provides guidance in evaluating whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element, which simplified certain aspects of the arrangement should be accounted for as an acquisition of a software license. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance does not change generally accepted accounting principles for a customer's accounting for service contracts. This update is effective for annual periods,stock-based payment transactions, including interim periods within those annual periods, beginning after December 15, 2015. Therefore, the Company has prospectively adopted this new standard on April 1, 2016. The adoption of this standard did not have a material impact on our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17,Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740). This ASU requires all deferred tax liabilities and assets to be presented in the balance sheet as noncurrent. As permitted, the Company early adopted this standard prospectively during the quarter ended June 30, 2016. The adoption of this standard resulted in reclassifying current deferred income tax assets to noncurrent deferred income tax assets and current deferred income tax liabilities to noncurrent deferred income tax liabilities. No prior periods were retrospectively adjusted.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers, along with amendments issued in 2015 and 2016, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will become effective for the Company on April 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method. The Company is currently assessing the impact of this pronouncement and its amendments to its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15,Presentation of Financial Statements: Going Concern (Subtopic 205-40), this ASU provides guidance regarding management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern. Certain disclosures will be required if conditions give rise to substantial doubt about an entity's ability to continue as a going concern. The amendment is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company will apply the requirements of ASU 2014-15 during the fiscal year ended March 31, 2017.

In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides guidance for measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendment is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its Consolidated Statements of Cash Flows.

In October 2016, the FASB has issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which provides guidance on how an entity should recognize the income tax consequences, classification of awards as either equity or liabilities, an intra-entity transfer of an asset other than inventory when the transfer occurs. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this pronouncementoption to its consolidated financial statements.

7

In November 2016, the FASB has issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), which provides guidance on how restricted cash or restricted cash equivalents should be includedrecognize gross stock compensation expense with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shownactual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This amendmentThe following is effectivea summary of the impact the adoption of this ASU on the Company's consolidated financial statements:

7

• In recording stock-based compensation expense, the ASU allows companies to make a policy election as to whether they will include an estimate of awards expected to be forfeited or whether they will account for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.forfeitures as they occur. The Company is currently assessinghas elected to continue to include an estimate of forfeitures in its stock-based compensation expense. Therefore, the ASU had no impact to the Company's consolidated financial statements.

• The ASU requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows. Previously, the Company already included these cash flows in financing activities. Therefore, the adoption of the ASU had no impact.

• The ASU requires previously unrecognized excess tax benefits from stock-based compensation to be recognized on a modified retrospective basis. Unrecognized tax benefits result when a deduction for stock-based compensation does not reduce taxes payable. The impact of the ASU on the Company's deferred tax assets is disclosed in Note 7.

• The ASU also requires excess tax benefits to be presented as an operating activity on the statement of cash flows rather than as a financing activity on either a retrospective or prospective basis. The Company has elected to apply this pronouncement to its Consolidated Statementsprovision of Cash Flows.the ASU only on a prospective basis beginning with the first quarter of fiscal 2018.

In January 2017, the FASB has issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In January 2017, the FASB has issued ASU No. 2017-04,Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill but rather requireand instead requires an entity to record an impairment charge based on the excess of a reporting unit's carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has elected to early and prospectively adopt the provisions of ASU 2017-04 in the third quarter of fiscal 2018. The early adoption resulted in the Company recognizing goodwill impairment of the amount by which a reporting unit's carrying value exceeds its fair value.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, along with amendments issued in 2015, 2016, and 2017, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will become effective for the Company on April 1, 2018 and permits the use of either the full retrospective or modified retrospective transition method. The Company has preliminarily selected the modified retrospective method as the transition method.

The Company is currentlyin the middle stages of assessing the impact of this pronouncementthe new standard on the Company's accounting policies, processes and system requirements. The Company has assigned internal resources and engaged third-party service providers to itsassist with the assessment and implementation. The Company currently believes the most significant impact will be to the allocation of consideration in a contract between product and service performance obligations and allocations to professional services performance obligations, as well as the deferral of certain sales commission as capitalized contract costs, which are expensed under current accounting principles.

In May 2017, the FASB issued ASU No. 2017-09,Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718,Compensation-Stock Compensation. The amendments are effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. Upon adoption, the amendment is not expected to have a material impact to the consolidated financial statements.

8

2. FAIR VALUE MEASUREMENTS

Cash, cash equivalents, and available-for-sale investments, and contingent consideration were (in thousands):

8

Contractual maturities of investments as of December 31, 2016,2017 are set forth below (in thousands):

9

Contingent Consideration and Escrow Liability

The Company's contingent consideration liability, and escrow liability, included in other accrued liabilities and noncurrent liabilities on the condensed consolidated balance sheets as of March 31, 2017, was associated with the Quality Software Corporation (QSC) acquisition made in the first quarter of fiscal year 2016. Amounts held in escrow were measured at fair value using present value computations. TheThis contingent considerationliability was measured at fair value using a probability weighted average of the potential payment outcomes that would occur should certain contract milestones be reached. There is no market data available to use in valuing the contingent consideration; therefore, the Company developed its own assumptions related to the achievement of the milestones to evaluateclassified as level 3 within the fair value hierarchy. The remaining liability of the liability. As such, the contingent consideration is classified within Level 3$0.1 million was settled and paid as described below.

9

The items are classified as Level 3 within the valuation hierarchy, consisting of contingent consideration and escrow liability related to the QSC acquisition, were valued based on an estimate of the probability of success of the milestones being achieved and present value computations, respectively. The table below presents a roll-forward of the contingent consideration and escrow liability valued using a Level 3 input (in thousands):December 31, 2017.

3. INVENTORIES

4. INTANGIBLE ASSETS AND GOODWILL

The carrying value of intangible assets consisted of the following (in thousands):

At December 31, 2016,2017, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following (in thousands):

10

Impairment of Long-Lived Assets

During the three months ended December 31, 2016,first quarter of fiscal year 2018, the Company decided to discontinue a certain customer segmentdetermined that the tradename/domains no longer have an indefinite life and has assigned those assets an estimated life of its United Kingdom based platform-as-a-service (DXI PaaS) that was acquiredtwo years. Amortization expenses associated with tradename/domains are included in fiscal 2016 as part of the DXI acquisition. The Company evaluated long-lived assets related to the DXI reporting unit including the technology, customer relationships,selling and trade name intangible assets for impairment. The Company determined it was appropriate to record an impairment charge equal to the remaining value of the impaired DXI PaaS customer relationship intangiblemarketing expenses in the third fiscal quarter. The impairment recorded during the fiscal year was immaterial to thecondensed consolidated statements of operations. Revenues and net income (loss) from DXI PaaS were not material for all periods presented.

During the three months ended December 31, 2015,third quarter of fiscal 2018, the Company decided to end-of-life its hosted virtual desktop service (Zerigo). The Company evaluated long-lived assets related to Zerigo including the technology, customer relationships, and trade name intangible assets for impairment. The Company determined it was appropriate to recordrecorded an impairment charge equal tofor technology and tradenames/domains associated with the remaining value of the impaired long-lived assets in the third fiscal quarter. The impairment recorded during the fiscal year was $0.6 million, of which $0.4 million and $0.2 million was recorded in cost of service and sales and marketing, respectively, in the consolidated statements of operations. Revenues and net income (loss) from Zerigo were not materialDXI acquisition. See Footnote 1 for all periods presented.further discussion.

4. GOODWILL

The following table provides a summary of the changes in the carrying amounts of goodwill by reporting segment (in thousands):

5. RESEARCH, DEVELOPMENT AND SOFTWARE COSTS

InDuring the first nine monthsthird quarter of fiscal 2017 and 2016,2018, the Company expensed all research and development costs in accordance with ASC 985-20,Costs of Software to be Sold, Leased or Marketed (ASC 985-20).

The Company accountsrecorded an impairment charge for computer software developed or obtained for internal use in accordance with ASC 350-40,Internal Use Software (ASC 350-40). Capitalized costs are classified as either long-term assets or property and equipment on the consolidated balance sheets.

Other Long-Term Assets

In the first nine months of fiscal 2017, the Company capitalized $3.9 million as other long-term assets. In the first nine months of fiscal 2016, the Company capitalized $1.1 million as other long-term assets. At December 31, 2016 and March 31, 2016, total completed capitalized software development cost included in other long-term assets was approximately $1.7 million. At December 31, 2016 and March 31, 2016, accumulated amortization costgoodwill related to completed capitalized software in other long term assets was approximately $0.4 million and $0, respectively.

Property and Equipmentits DXI reporting unit. See Footnote 1 for further discussion.

In the first nine months of fiscal 2017, the Company capitalized $0.7 million as property and equipment. In the first nine months of fiscal 2016, the Company capitalized $0.2 million as property and equipment. At December 31, 2016 and March 31, 2016, total completed capitalized software cost included in property and equipment was approximately $2.5 million and $1.2 million, respectively. At December 31, 2016 and March 31, 2016, accumulated amortization cost related to completed capitalized software in property and equipment was approximately $0.6 million and $0.2 million, respectively.

1110

6.5. COMMITMENTS AND CONTINGENCIES

Facility and Equipment Leases

The Company leases its 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. The Company also leases facilities for office space under non-cancelable operating leases for itsin various domestic and international locations. Future minimum annual lease payments as of December 31, 2017 were as follows (in thousands):

The Company has entered into a series of noncancelable capital lease agreements for data center and office equipment bearing interest at various rates. Assets under capital lease at December 31, 2016 totaled $2.3 million with accumulated amortization of $0.8 million.

Guarantees

Other Commitments, Indemnifications and Contingencies

InWith the normal course of business, the Company may agree to indemnify other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters such as breaches of representations or covenants or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amountexception of the claim. In addition, the Company has entered intonew San Jose, California headquarter lease (Footnote 10), there were no material changes in our other commitments under contractual obligations, 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 prior 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 revenues in the consolidated statements of operations, were as follows (in thousands):

Minimum Third Party Customer Support Commitments

In the third quarter of 2010, the Company amended its contract with one of its third party customer support vendors containing a minimum monthly commitment of approximately $0.4 million effective April 1, 2010. The agreement requires a 150-day notice to terminate. At Decemberother contingencies since March 31, 2016, the total remaining obligation upon a termination of the contract was $2.2 million.2017.

12

Minimum Third Party Network Service Provider Commitments

The Company has entered into contracts with multiple vendors for third party network service which expire on various dates in fiscal 2017 through 2020. At December 31, 2016, future minimum annual payments under these third party network service contracts were as follows (in thousands):

Legal Proceedings

The Company, from time to time, is involved in various legal claims or litigation, including patent infringement claims that can arise in the normal course of the Company's operations. Pending or future litigation could be costly, could cause the diversion of management's attention and could upon resolution, have a material adverse effect on the Company's business, results of operations, financial condition and cash flows.

On FebruaryAugust 22, 2011, the Company was named a defendant in Bear Creek Technologies, Inc. (BCT) v. 8x8, Inc. et al., filed in the U.S. District Court for the District of Delaware (the Delaware Court), along with 20 other defendants.  Collectively this patent litigation is referred to as In re Bear Creek Technologies, Inc. (MDL No.: 2344).  In August 2011, the suit was dismissed without prejudice but then refiled in the Delaware Court against the Company. On November 28, 2012, the USPTO initiated and has since maintained a Reexamination Proceeding in which the claims of a patent (asserted against the Company) were rejected as being invalid based on four separate grounds.  In response to the USPTO invalidity rejections, the Company filed an informational pleading (on July 10, 2013) to join a motion to stay the proceeding in the Delaware Court, which this motion was granted on July 17, 2013. On May 5, 2015 and presumably in light of the Reexamination Proceeding, the Court administratively closed this case with leave to reopen if needed. The Reexamination Proceeding was appealed to the USPTO Patent Trial and Appeal Board ("PTO Board of Appeals"), which affirmed the rejection of all claims in a Decision (December 29, 2015), which is now on appeal before the Court of Appeals for the Federal Circuit.  The matter is briefed and oral argument before the Court of Appeals for the Federal Circuit is scheduled for March 13, 2017.

On November 14, 2016,2017, the Company was named as a defendant in SerenitivaVenadium LLC v. 8x8 Inc., filed in U.S.the District Court for the E.D. of TexasDelaware (Civil Action No. 6:16-cv-1290).1:17-cv-1176-LPS-CJB) along with five other defendants. Plaintiff SerenitivaVenadium LLC is suing sued the Company based onfor alleged patent infringement of U.S. Patent No. 6,865,268 byconcerning alleged Company activities in connection withinvolving the Company's Virtual Contact Center Agent Console (alleged as providing interactive, real-time call tracking and resolutionalleged methods for protecting computer programs. Based on the Company's subscription to certain patent risk management overservices, the Company settled the suit without needing to respond to the Complaint. The settlement amount was immaterial. On October 5, 2017, PlaintiffVenadium LLC filed a communications network). Plaintiff Serenitiva LLC also sued nine other defendants regarding the same patent asserted in the complaint filed against the Company. The Company is currently assessing factual and legal defensesNotice of Voluntary Dismissal of Defendant (with prejudice) pursuant to these claims and expect to present a vigorous defense. The Company has not answered the complaint yet and 8x8 cannot estimate potential liability in this case at this early stageFederal Rule of Civil Procedure 41(a)(1), thereby effecting formal dismissal of the litigation. Plaintiff Serenitivasuit without a Court Order. Accordingly, the lawsuit was resolved and three of these other defendants have already settled/resolved their respective suits.withdrawn before the Company was obligated to respond to the Complaint.

On December 2, 2016,August 25, 2017, the Company was named as a defendant in Paluxy MessagingHublink, LLC v. 8x8 Inc., based on a Complaint filed in U.S.the District Court for the E.D. of Texas, Tyler DivisionDelaware (Civil Action No. 6:16-cv-1346).1:17-cv-1214-GMS) along with four other defendants. Plaintiff Paluxy MessagingHublink, LLC is suing sued the Company based onfor alleged patent infringement U.S. Patent No. 8,411,829 byconcerning alleged activities in connection withinvolving alleged implementations of the Company's usevideophone communications uses and/or offerings. Based on the Company's subscription to certain patent risk management services provided by a third party on October 31, 2017, Plaintiff Hublink, LLC filed a Notice of a voicemail system (alleged in the complaint as providing a system for managing messages). Plaintiff Paluxy Messaging LLC also sued seven other defendants regarding the same patent asserted in the complaint filed against the Company. The Company is currently assessing factual and legal defensesVoluntary Dismissal of Defendant (with prejudice) pursuant to these claims and expect to present a vigorous defense. The Company has not answered the complaint yet and the Company cannot estimate potential liability in this case at this early stageFederal Rule of Civil Procedure 41(a)(1), thereby effecting formal dismissal of the litigation. Plaintiff Paluxy Messagingsuit without a Court Order. Accordingly, the lawsuit was resolved and three of these other defendants have already settled/resolved their respective suits.

On April 16, 2015,withdrawn before the Company was named as a defendant in Slocumb Law Firm v. 8x8, Inc. The Slocumb Law Firm has alleged that it purchased certain business services fromobligated to respond to the Company that did not perform as advertised or expected, and has asserted causes of actions for fraud, breach of contract, violations of the Alabama Deceptive Trade Practices Act and negligence. On May 7, 2015, the Company filed a motion with the U.S. District Court for the Middle District of Alabama, seeking an order compelling the Slocumb Law Firm to arbitrate its claims against the Company in Santa Clara County, California pursuant to a clause mandating arbitration of disputes set forth in the terms and conditions to which Slocumb Law Firm agreed in connection with its purchase of business services from the Company. No briefing schedule or hearing date for the motion has been set as of this time. Discovery has not yet commenced in the case. The Company intends to vigorously defend against the Slocumb Law Firm's claims.Complaint.

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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 sales, use, telecommunications, excise, and income taxes. Several jurisdictions currently are conducting tax audits of the Company's records. 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. The Company adjusts its accrual when facts relating to specific exposures warrant such adjustment.

During the period ended December 31, 2016, the City of San Francisco levied an assessment for utility taxes against the Company. The Company plans to vigorously appeal the assessment. Based on historical experience of the Company, management has determined the probable loss relating to this exposure to be approximately $0.4 million, which was recorded in the consolidated financial statements as of December 31, 2016. Although the outcome cannot be predicted, the estimated reasonable additional loss is between $0 to $0.6 million.

7.6. STOCK-BASED COMPENSATION

The following table summarizes information pertaining to the stock-based compensation expense (in thousands):

Stock Options, Stock Purchase Right and Restricted Stock Unit Activity

Stock Option activity under all the Company's stock option plans for the nine months ended December 31, 2016, is summarized as follows:

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Stock Purchase Right activity for the nine months ended December 31, 2016 is summarized as follows:

Restricted Stock Unit activity for the nine months ended December 31, 2016 is summarized as follows:

The following table summarizes stock options outstanding and exercisable at December 31, 2016:

As of December 31, 2016, there was $49.7 million of unamortized stock-based compensation expense related to unvestedfrom stock options and stock awards which is expected to be recognized over a weighted average period of 2.12 years.

Unamortized stock-based compensation expense related to shares issued as part of a prior year acquisition was approximately $1.5 million, which will be recognized over a weighted average period of 2.42 years.

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Assumptions Used to Calculate Stock-Based Compensation Expense

The(in thousands, except weighted-average grant-date fair value of each of the Company's option grants has been estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:and recognition period):

The estimated fair value of options 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:

As of December 31, 2016, there were approximately $0.2 million of total unrecognized compensation cost related to employee stock purchases. This cost is expected to be recognized over a weighted average period of 0.2 years.

Performance Stock Units

During the nine months ended December 31, 2016,2017, the Company issued restricted performance stock units (PSUs) to a group of executives with vesting that is contingent on both market performance and continued service. These PSUs vest (1) 50% on September 22, 201819, 2019 and (2) 50% on September 27, 2019,19, 2020, in each case subject to the performance of the Company's common stock relative to the Russell 2000 Index (the benchmark) during the period from grant date through such vesting date. A 2x multiplier will be applied to the total shareholder returns (TSR) for each 1% of positive or negative relative TSR, and the number of shares earned will increase or decrease at the end of each respective performance measurement period by 2% of the target numbers. In the event 8x8'sthe Company's common stock performance is below negative 30%, relative to the benchmark, no shares will be issued. These PSU grants are included in the restricted stock unit activity disclosure for the nine months ended December 31, 2016.2017.

To value these market-based restricted performance stock unitsPSUs under the Equity Compensation Plans, the Company used a Monte Carlo simulation model on the date of grant. Fair value determined using the Monte Carlo simulation model varies based on the assumptions used for the expected stock price volatility, the correlation coefficient between the Company and the NASDAQ Composite Index, risk free interest rates, and future dividend payments.

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Stock Repurchases

In February 2015,May 2017, the Company's board of directors authorized the Company to purchase up to $20.0$25.0 million of its common stock from time to time until February 29, 2016under the 2017 Repurchase Plan (the "2015 Repurchase"2017 Plan"). In October 2015,The 2017 Plan expires when the Company'smaximum purchase amount is reached, or upon the earlier revocation or termination by the board of directors authorizeddirectors. The remaining amount available under the Company to2017 Plan at December 31, 2017 was approximately $7.1 million.

The stock repurchase activity as of December 31, 2017 is summarized as follows (in thousands):

The total purchase an additional $15.0 millionprice of itsthe common stock from timerepurchased and retired was reflected as a reduction to time until October 20, 2016. There were no stock repurchasesconsolidated stockholders' equity during the nineperiod of repurchase.

7. INCOME TAXES

EFFECTIVE TAX RATE AND VALUATION ALLOWANCE

The Company's effective tax rate was -400.7% and -2.2% for the three months ended December 31, 2016.2017 and 2016, respectively. The plan expireddifference in October 2016 with an unused authorized repurchase amountthe effective tax rate and the blended U.S. federal statutory rate of $15.0 million.

8. INCOME TAXES

For31.5% for the three months ended December 31, 2017 was due primarily to the recording of a full valuation allowance against our deferred tax assets in the period. The difference in the effective tax rate and the U.S. federal statutory rate of 34% for the three months ended December 31, 2016 was due primarily to the geographic mix of profits and losses.

The Company accounts for income taxes under the asset and liability approach and records deferred taxes based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards. In evaluating the ability to utilize deferred tax assets, management considers available evidence, both positive and negative, in determining future taxable income on a jurisdiction-by-jurisdiction basis. A valuation allowance against deferred tax assets is recorded if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Judgment is required in evaluating this ability to utilize deferred tax assets.

The Company recorded a full valuation allowance against its U.S. deferred tax assets in the period ended December 31, 2017, as it considered its cumulative loss in recent years to be substantial negative evidence for establishing the valuation allowance. As a result, the Company recognized a discrete tax expense of $71 million in the period. The Company will continue to assess the future realization of our deferred tax assets in each applicable jurisdiction and will adjust the valuation allowance accordingly.

ASU 2016-09 IMPACT

As described in Note 1, the Company adopted the updated accounting standard for share-based payment accounting in first quarter of fiscal 2018. As a result, the Company recorded deferred tax assets of approximately $17.6 million with a corresponding increase to retained earnings related to previously unrecognized excess tax benefits. For the first quarter of fiscal 2018, the Company recognized approximately $0.4 million of excess tax benefits within the provision for income taxes. Additionally, the Company elected to prospectively apply the change in presentation of excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Accordingly, prior period classification of cash flows related to excess tax benefits were not adjusted.

THE TAX CUTS AND JOBS ACT ("the Act")

The Act was enacted on December 22, 2017. Among numerous provisions, the Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings.

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Deferred Tax Assets and Liabilities Impact

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. Accordingly, deferred tax assets decreased approximately $22 million in the period ended December 31, 2017. However, because the Company recorded a benefitfull valuation allowance, the decrease in deferred tax assets from income taxes of $30,000, whichthe tax rate change was primarily attributablefully offset by a corresponding decrease in valuation allowance. As a result, there was no impact to loss from operations. For the three months ended December 31, 2015, the Company recorded a provision for income taxes of $0.6 million, which was primarily attributabledue to loss from operations.the change in tax rate.

Foreign Tax Impact

The one-time transition tax on foreign sourced earnings is based on the Company's total post-1986 earnings and profits (E&P) for which U.S. income taxes have been previously deferred. The Company estimated the annual effective rate at the end of each quarterly period, and recorded thedid not record a one-time transition tax effect of certain discrete items, which are unusual or occur infrequently, in the interim period in which they occur, including changes in judgment about deferred tax valuation allowances. The determinationliability for its foreign subsidiaries as it does not have any untaxed foreign accumulated earnings as of the effective tax rate reflects tax expense and benefit generated in certain domestic and foreign jurisdictions. However, jurisdictions with a year-to-date loss where no tax benefit can be recognized are excluded from the annual effective tax rate.measurement dates.

At March 31, 2016, the Company had a liability for unrecognized tax benefits of $2.9 million, all of which, if recognized, would decrease the company's effective tax rate. The Company does not believe that there has been any significant change in the unrecognized tax benefits for the three and nine months ended December 31, 2016, and does not expect the remaining unrecognized tax benefit to change materially in the next 12 months. To the extent that the remaining unrecognized tax benefits are ultimately recognized, they will 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 2013 to fiscal 2016 may be subject to examination by the Internal Revenue Service, California and various other states. Net operating losses and tax credits carried forward to March 31, 2016 may still be subject to adjustment by the taxing authorities until the period is closed to examination. As of January 30, 2017, there were no active federal or state income tax audits. Returns filed in foreign jurisdictions may be subject to examination for the fiscal years 2011 to 2016.

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9.8. NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net loss per share (in thousands, except share and per share data):

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