Michael Quinn, PartnerQAdvisors

An Investment Banking Partnership

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Cloud Communications AllianceOctober 2014

Maximizing Value in a Consolidating Market

Deep Cloud Communications Industry Knowledge & Client Base

Firm Profile

Founded in 2001 to provide financial advisory services

Focused on technology and communications

Most active managed and cloud-based services bank inthe industry, based on the number of active clients and deals closed

Significant experience in structuring and negotiatingM&A and financing transactions for private and publiccompanies:- Sell-side and buy-side engagements- Debt and equity financings- Strategic financial advisory engagements

Serve clients globally

Closed over 130 transactions since inception- Total transaction value approaching $8.0 billion- Average transaction size of approximately $60 million

Offices in Denver and San Francisco

Team of 16 professionals

November 2013

Cloud Transactions

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Cloud Managed Services – Recent Transaction Activity

Looking Forward – Q4 2014 & 2015LTM M&AActivity Steady stream of managed cloud acquisitions over the past

five years

Though the market continues to consolidate in 2014, it still remains highly fragmented with over 100 service providers

First half 2014 deal volume for the broader technology and telecom industries outpaced key growth industries

- Technology focused acquirers were the most active in theU.S. market by deal volume

- Traditional IT service providers and premise PBX-based vendors key acquirers

• Mitel acquisition of Aastra (N/A)

• Ricoh acquisition of MindShift (N/A)

Notable deals in the last twelve months in the cloud unified communications-as-a-service (“UCaaS”) sector include:

- NTT – Arkadin (N/A)

- GTT – UNSI (0.7x Annualized Rev.)

- Vonage – Vocalocity (2.9x LTM Rev.)

- Fusion – Broadvox (1.0x LTM Rev.)

- Spire Capital Partners – Telekenex (6.0x LTM EBITDA)

- WideOpenWest Networks – Bluemile (2.2x LTM Rev.)

Q4 2014 – 2015 M&AActivity Significant wave of consolidation and possible emergence

of UCaaS market leaders to occur over coming year

- The sheer number of current buyers and willing sellers is unprecedented

- Select strategic players on the hunt for acquisitions over thefollowing year include the following:

• Arkadin (NTT) is currently seeking acquisition targets postrecent acquisition of a Microsoft Lync service provider

• GTT utilizing strategic acquisitions to expand customer baseand footprint

• Motivating factors that will continue to fuel transactions in theUCaaS sector include:

- Rising acceptance of UCaaS in SMB and enterprise marketsegments

- Convergence of traditional service providers all seeking tobe a single source solution

- Expansion into new geographic territories

• 8x8 acquisition of VoiceNet Solutions in the UK (N/A)

- Integration into vertical market segments to better serve customer needs

• West purchase of Reliance Comm. (2.8x LTM Rev.)

2

Public Trading Comparables – Unified Communications-as-a-Service

Public Trading Comparables – Unified Communications-as-a-Service

3

Trading Multiples as of 10/6/2014; (US$ in Millions)

Unified Communications-as-a-Service

Sources: Capital IQ, SEC Filings, P ress Releases and Q A dviso rs LLC Estimates

Operating Metrics Margins (LTM) Growth TEV Multiple

Com parable Com panies TEV Market Cap.

LTM CY 2014Revenue Revenue

LTM EBITDA

CY 2014 EBITDA

Gross Profit

EBITDA 1 Yr. LTM CY 2014Revenue Revenue Revenue

LTM EBITDA

CY 2014 EBITDA

Mean 65.6 % 16.2 % 15.9 % 3.0x 2.7x 12.3x 11.9x

Median 70.5 % 22.8 % 12.8 % 3.0x 2.8x 10.8x 9.6x

Citrix Systems, Inc. $11,904.0 $11,447.1 $3,047.5 $3,188.5 $724.9 $976.3 85.5% 23.8 % 12.8 % 3.9x 3.7x 16.4x 12.2x

West Corporation $5,982.6 $2,431.9 $2,720.2 $2,801.1 $681.5 $714.0 52.7% 25.1 % 1.8 % 2.2x 2.1x 8.8x 8.4xj2 Global, Inc. $2,357.0 $2,421.0 $544.7 $591.9 $226.3 $258.2 82.9% 41.5 % 40.2 % 4.3x 4.0x 10.4x 9.1xEnghouse Systems Limited $845.0 $950.0 $205.1 $230.9 $46.7 $58.9 70.8% 22.8 % 25.5 % 4.1x 3.7x 18.1x 14.4xPremiere Global Services, Inc. $802.1 $581.1 $552.7 $569.1 $74.4 $103.0 57.7% 13.5 % 4.3 % 1.5x 1.4x 10.8x 7.8xVonage Holdings Corporation $740.2 $694.1 $854.8 $872.6 $70.6 $104.9 70.9% 8.3 % (2.4)% 0.9x 0.8x 10.5x 7.1xRingCentral, Inc. $736.3 $856.5 $188.3 $214.9 ($38.6) ($21.9) 62.5% (20.5)% 40.1 % 3.9x 3.4x NM NMAmcomTelecommunications Ltd. $504.5 $512.5 $170.4 $178.4 $46.0 $49.8 37.2% 27.0 % 0.2 % 3.0x 2.8x 11.0x 10.1x8x8 Inc. $392.1 $574.1 $137.3 $154.5 $6.4 $14.9 70.5% 4.6 % 20.4 % 2.9x 2.5x NM 26.3x

Precedent Transactions – Unified Communications-as-a-Service

(US$ in Millions)

Unified Communications-as-a-Service

Sources: Capital IQ, SEC Filings, P ress Releases and Q Adviso rs LLC Estimates

Precedent Transactions (2011 – Present)

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Operating Metrics TEV Multiple

Date Buyer Target Im plied TEV

LTMRevenue

LTM EBITDA

LTMRevenue

LTM EBITDA

Mean 3.1x 13.5xMedian 2.8x 6.9x

04/21/2014 West Corporation Reliance Communications $75.0 $27.0 NA 2.8x NA

01/27/2014 Spire Capital Partners Telekenex NA NA NA NA 6.0x01/15/2014 Viatek Services Pty LTD CN Group Pty LTD NA NA NA NA NA12/31/2013 Fusion Telecommunications Broadvox $32.1 $30.9 $5.4 1.0x 5.9x12/02/2013 8x8 Inc. VoiceNet Solutions $18.4 NA NA NA NA11/15/2013 Vonage Holding Corporation Vocalocity Inc. $129.5 $44.5 NA 2.9x NA09/27/2013 WideOpenWest Netw orks BlueMile $20.0 $8.9 $2.9 2.2x 6.9x08/30/2013 Intermedia.net Telanetix $49.7 $33.9 $3.3 1.5x 14.9x12/31/2012 Bright House Netw orks Telovations NA NA NA NA NA07/10/2012 Masergy Communications Broadcore Communications NA NA NA 2.2x NA07/02/2012 Consolidated Communications SureWest Communications $564.6 $248.1 $86.0 2.3x 6.6x05/01/2013 InteliCloud, Inc. Slice Netw orks, LLC NA NA NA NA NA03/23/2012 ShoreTel M5 Netw orks $183.9 $48.2 NM 3.8x NA03/01/2012 j2 Global Zintel Communications $12.9 NA NA NA NA10/13/2011 Microsof t Skype $9,082.4 $859.8 $192.9 10.6x 47.1x09/15/2011 8x8 Inc. Contactual $27.1 $9.0 ($0.7) 3.0x -37.6x08/23/2011 Vocalocity Aptela NA NA NA NA NA08/05/2011 Warw ick Valley Telephone Alteva $17.8 $6.4 $0.4 2.8x 44.6x07/05/2011 Telovations FeatureTel NA NA NA NA NA06/06/2011 West Corporation Smoothstone $120.0 $30.0 $4.6 4.0x 26.1x05/02/2011 Shared Technologies Cross Telecom NA NA NA NA NA03/02/2011 Earthlink STS Telecom $34.8 $22.9 $5.2 1.5x 6.7x

Cloud-based Managed Services Market Observations

5

Cloud-based managed services will continue rate of increased adoption, but are far from reaching ubiquity in terms ofmarket penetration

Though the market is growing and underpenetrated, it is increasingly crowded with additional cloud managed serviceproviders, causing existing players to face increased challenges establishing market leading position

Primary hurdles for cloud managed service providers to overcome in achieving leading market position include:

- Establishing Brand Awareness

- Achieving Platform and Service Automation

- Reaching Inflection Point of Profitability and Scale

Number of strategic buyers and willing sellers in 2014 for cloud managed services is unprecedented

M&A activity and marketwide consolidation have largely been delayed as buyers must survey vastmarket of providers, while only attributing premium valuations for select target profile characteristics

Identifying target characteristics that drive premium valuations will be key to driving growth and further establishing marketshare going forward in the managed cloud services market

Most Active Strategic Acquirers

What These Acquirers Are Looking For:

Scale due to difficulty of organic growth

Differentiated cloud services and products to cross sell into their embedded client bases

Margin enhancement

Contact center solutions

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Valuation Creation: Drivers for Premium Cloud Valuations

Quality of Service

Business Model

Scalability

Differentiated Platform

Robust Capabilities

Enterprise Customer

Base

1. 2. 3. 4. 5.

7

Network and Quality (QoS)

Automation (Self Service Portals)

Proprietary

Reseller

Integration (APIs)

Customization (Vertical Focus)

Mobile Capabilities

ProductInnovation

Size (SMB, Enterprise)

Loyalty (Churn)

2.00x

1.00x

3.00x

4.00x

5.00x

6.00x

7.00x

8.00x

Proprietary UCaaS Providers LTM TEV/Rev Multiple (RNG, 8x8, BroadSoft) vs. S&P 500 and Nasdaq

10.00x

9.00x

8

S&P 500 Index(^SPX)

NASDAQ Composite Index (^COMP)

RingCentral, Inc.(NYSE:RNG)

8x8 Inc. (NasdaqGS:EGHT)

BroadSoft, Inc.(NasdaqGS:BSFT)

Valuation Driver #1: Differentiated Platform

Players with a proprietary platform have continued to receive premium valuations. Additionally, Intermediabought Telanetix at 1.7x LTM Revenue and Spire bought Telekenex at 6.0x EBITDA, in part for the Companies’proprietary platforms

Proprietary platform offered

Innovative recent developments emphasize APIs, supporting customer’s existingbusiness processes

Targets SMB and mid-market enterprises

- Moving up market

- 44% of new MRR comes from mid-market and distributed enterprises

Enabling self-service portals allow users to self-manage their accounts

- Focus on the “ease-of-use” factor

Offerings vary across cloud sector

- Able to cross-sell to existing customers

Vendor Direct Delivery

- Vendor and service provider serving the same company

- Key advantage of this model is agility and a direct relationship with end users

Case Study — 8x8 Inc. (NasdaqCM:EGHT)

Company Overview

What Derives 8x8’s Valuation Premium?

8x8 Inc. (NasdaqCM:EGHT) develops and marketstelecommunications services for IP, telephony, and videoapplications

Historically strong in small business market but increasing midsize and even enterprise accounts.

Recently launched European support in concert with itsacquisition of VoiceNet Solutions (U.K. based)

Relative Performance vs. S&P 500

Financial Snapshot

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%S&P 500 Index (^SPX) 8x8 Inc. (NasdaqGS:EGHT)

In Millions ($) Mar-31-2012A Mar-31-2013A Mar-31-2014A LTM Jun-30-2014A

Total Revenue 83.4 103.8 128.6 137.3Growth Over Prior Year 18.8% 24.5% 23.9% 27.3%

Gross Profit 57.6 72.1 91.0 96.8

Margin % 69.1% 69.4% 70.7% 70.5%

EBITDA 11.0 13.7 8.5 6.4

Margin % 13.1% 13.2% 6.6% 4.6%

EBIT 8.6 9.8 4.3 1.8Margin % 10.4% 9.4% 3.3% 1.3%

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- Higher Churn

Significant portion of Operating Expense dedicated to sales and marketing

What Derives RingCentral’s Valuation Premium?

Proprietary platform offered Off-the-shelf, preconfigured solutions, tailored to SMB markets RingCentral is aggressive in supporting APIs (to such IT applications as

salesforce.com, Marketo, Google, Box and Zendesk) Offering is intuitive and well-suited to mobility and BYOD environments Lower end of SMB market

- Strategic acquisitions required to move up market

- Not profitable

Case Study — RingCentral, Inc. (NYSE:RNG)

Company Overview

Prominent cloud VoIP provider that is particularly strong in thesmall businesses market; Focuses on strong mobility offering to SMBs; now offers services in the U.K.

RingCentral has industrialized processes for inside sales,customer support and technical support.

RingCentral is one of the largest global UCaaS providers withmore than 300,000 companies (many are small) supported

Relative Performance vs. S&P 500

Financial Snapshot

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%RingCentral, Inc. (NYSE:RNG) S&P 500 Index (^SPX)

1

In Millions ($) Dec-31-2012A Dec-31-2013A LTM Jun-30-2014A

Dec-31-2014E

Total Revenue 114.5 160.5 188.3 214.89Growth Over Prior Year 45.2% 40.1% 38.5% 33.88%

Gross Profit 69.6 99.0 117.8 -

Margin % 60.8% 61.7% 62.5% -

EBITDA (26.5) (32.1) (38.6) (21.87)

Margin % (23.2%) (20.0%) (20.5%) -

EBIT (32.7) (41.0) (47.9) -

Margin % (28.6%) (25.6%) (25.4%) -

0

Valuation Driver #1: Differentiated Platform (cont.)

Application Programming Interfaces1

– The most important trend in UCaaS is theadoption of APIs — and the relatedplug-ins, connectors, and softwaredevelopment kits (SDKs) — to integrateUCaaS with a cross section of ITservices (some communications related,others not)

– UCaaS providers often support a core set ofUC services (for example, voice, unifiedmessaging, IM, and presence), and then ties-in with other vendors for additionalcapabilities

– APIs enable UCaaS users to "plug andplay" UCaaS with the "best-of- breed" ITapplications

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Ability to create a “proprietary solution” through integration of cloud UC platform into other embeddedenterprise solutions drives valuation premiums

(1) Gartner

Valuation Driver #2: Robust Capabilities – Addressing Service Gaps

Many key cloud supply/demand gaps continue to exist, creating opportunity to develop unique market position

Security -22.5%

Industry Verticals-24.4%

-15.2%-11.2%

-6.4%-6.9%

-3.2%-3.2%

4.1%3.9%

2.1%2.0%

10.0%9.4%9.1%

14.4%14.8%

20.0%CRMContent Publishing

Collaboration Renting Server HW

Invoicing Project Management Hosted SW Platform

Email Services Renting Hosted DB

Data Backup Web Conferencing

Video ConferencingHosted VoIP

Audio ConferencingAccounting

Storage and Backup

Cloud UC SolutionsExcess Supply Many cloud service offerings have

increasingly marked adoption rates As pricing pressure increases, these

solutions risk becomingcommoditized

Shortage in Offerings SMBs are requesting:

- Vertical industry solutions with compliance solutions

- Enhanced security- More UC solutions offered in a cloud

environment, specifically, video andweb conferencing

SMBSupply

Demand Gap

Surplus Capacity, Increase in Price

Pressure

Supply Shortage,

Market Opportunity

12

No current UCaaS market leader whooffers a full, scalable UC capability

In addition to the basic integrated UCofferings, innovative additional solutionsinclude, but are not limited to:

- Mobile client

- APIs for integration

- Social networking

- WebRTC

- GPS or other locationinformation

- Storage

Expertise and solutions tailored across verticals

Users expect full UC functionality across all mobile platforms

True mobile cloud services are device and OS neutral

Consumerization of IT (BYOD)

Multi-tenant PBX platforms designedspecifically for mobile carriers (i.e. RingCentral and AT&T)

Valuation Driver #2: Robust Capabilities – Addressing Service Gaps

Addressing Service Gaps Through DifferentiationVERTICAL EXPERTISE LEAD WITH MOBILE STRATEGY CLOUD INNOVATION

Highly attractive to large enterprises

Increases customer “stickiness”

Highly distributed organizations in professional verticals demand outsourcedprovider to manage compliance related to(i.e. FISMA, HIPAA, and PCI) industry

(1) RapidScale

Both end-users and ultimately strategic acquirers are paying premiums for vertical solutions that are mobile enabled

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Large EnterpriseMRR (>$5,000)

Middle Market Enterprise (MRR

>$1,000)

SMB (<$1,000 MRR)Abili

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Valuation Driver #3: Enterprise Customer Base

Channel & Direct Focus

14

Direct ChannelFocus

Pros: Multi-location enterprise customers

- High ARPU- Increased upsell potential and

customer “stickiness” Tap channel partners embedded base of

large enterprise customers- White-labeled solutions- Exclusive cloud partner statusCons:

Increased time/bandwidth to provision multi-location enterprise

Requires proper resources to manage/monitor customers- Strong network and OSS/BSS

Pros: SMB Market

- High Growth- Little ongoing support costs- Scale is ultimate differentiatorCons:

High churn, low customer “stickiness” High sales and marketing expense

Valuation Driver #4: Quality of Service and Automation

Role-based, highly automated and intuitive self-service portals, integrated with back office systems create value forthe end user and service provider

Quality of Service

- Cloud-enabled MPLS network ensuresQoS and security

- Enables expansion of services to broad networkof users and entities in large multi-locationenvironments

Self-Service Portals

- Three-tiered, role based• Partner portal (channel relationship driver)

• Customer/User portal

• Internal/IT administrator portal- Advanced enterprise cloud users demand

highly automated, self-serve solutions

Enterprise Self-Service Capabilities Increase with CloudMaturity1

(1) RightScale

21%

32%

39%

68%

18%

35%

40%

71%

Cloud Watchers

Cloud Beginners

Cloud Exporers

Cloud Focused

Provision to Cloud in < 1 Hour Have Self Service Portals

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Valuation Driver #5: Business Model

16

Ability to reach inflection point of profitability and scale business model key to driving enhanced value

Track and measure KPIs over time and gauge impact of incremental investments- Customer acquisition costs (“CAC”)

• Months to recover CAC (cloud-based services should be < three years)

- Lifetime value of customer (“LTV”)

• Moving up market to larger enterprise base increasesARPU and returns higher LTV than SMB

• 8x8 recently highlighted that mid-market customers have ~40x return as that of SMB customers

- Customer churn

• % MRR Churn (Churned MRR/Previous Months MRR)

• % Customer Churn (# Customers Churned/Total # Customers)- Renewal Rate

Improve customer onboarding and operational process to provision new customer- Involves migration of large amounts of data from legacy systems

- Highly automated back office systems increase efficiency and speed from ink to install- Outsourced providers (i.e. VOSS Software) can take inputs from legacy PBXs and then initiate an automated mass

migration to cloud service

Winter is coming…don’t get caught out inthe snow.

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