Q2 2025 8x8 Inc Earnings Call

Thomson Reuters StreetEvents11-05

Participants Kate Patterson; VP of Finance; 8x8 Inc Samuel Wilson; Chief Executive Officer, Director; 8x8 Inc Kevin Kraus; Chief Financial Officer; 8x8 Inc Eamon Coughlin; Analyst; Barclays Investment...

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Good day and thank you for standing by. Welcome to the second-quarter 2025 8x8 Inc earnings conference call. At this time, all participants are in a listen-only mode.  Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Kate Patterson, VP of Finance. Please go ahead.Good afternoon, everyone. Thank you for joining us today to discuss our results for the second quarter of fiscal 2025. I am delighted to share that we delivered a quarter of solid performance doing better than expected for key financial metrics like service and total revenue and non-GAAP operating income. Also, I am very pleased to report that we generated an operating profit on a GAAP basis.I believe our results this quarter are a testament to the increasing effectiveness of our go to market strategies and the strength of","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"EGHT":"8x8 Inc"},"translate_title":"2025年第二季度8x8 Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"EGHT":1},"content_text":"Participants\nKate Patterson; VP of Finance; 8x8 Inc\nSamuel Wilson; Chief Executive Officer, Director; 8x8 Inc\nKevin Kraus; Chief Financial Officer; 8x8 Inc\nEamon Coughlin; Analyst; Barclays Investment Bank\nMichael Turin; Analyst; Wells Fargo Securities\nSiti Panigrah; Analyst; Mizuho Securities\nMeta Marshall; Analyst; Morgan Stanley\nWilliam Power; Analyst; Baird\nMichael Funk; Analyst; BofA Securities\nPeter Levine; Analyst; Evercore ISI\nRyan Koontz; Analyst; Needham & Company\nPresentation\nOperator\n Good day and thank you for standing by. Welcome to the second-quarter 2025 8x8 Inc earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Kate Patterson, VP of Finance. Please go ahead.\nKate Patterson\n Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for the second quarter of fiscal 2025 with Samuel Wilson, our Chief Executive Officer; and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks there will be a question and answer session.Before we get started, let me remind you that our discussion today includes forward-looking statements about future financial performance, including investments in innovation and our focus on profitability and cash flow as well as statements regarding our business, products and growth strategies. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from forward-looking statements, as described in our risk factors in our report filed with the SEC.Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today and we have no plans or obligations to update them. All financial metrics that will be discussed on this call are non-GAAP unless otherwise noted. These non-GAAP metrics together with year over year comparisons in some cases were not prepared in accordance with US generally accepted accounting principles or GAAP.A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings press release and earnings presentation slides which are available on 8x8 investor relations website at investors.8x8.com.With that, I'll turn the call over to Samuel Wilson.\nSamuel Wilson\n Good afternoon, everyone. Thank you for joining us today to discuss our results for the second quarter of fiscal 2025. I am delighted to share that we delivered a quarter of solid performance doing better than expected for key financial metrics like service and total revenue and non-GAAP operating income. Also, I am very pleased to report that we generated an operating profit on a GAAP basis.I believe our results this quarter are a testament to the increasing effectiveness of our go to market strategies and the strength of our product offerings. While it is still early, we are seeing important indications that our transformation strategies are working. Reinforcing my conviction is the fact that revenue generated by customers on the 8x8 platform which excludes revenue from customers still on Fuze was up on a year over year and quarter over quarter basis.We first outlined our transformation initiatives nearly two years ago and we saw accelerating progress against one this quarter. Briefly these are, one, accelerate innovation and contact center while maintaining leadership in cloud telephony. Two, establish leadership in our communications platform as a service offerings in the Asia Pacific and leverage these capabilities globally.Three, focus on small and mid sized enterprises. Four, improve platform win rates and sales productivity. Five, maintain an outstanding experience for our customers. And six, build a fortress balance sheet by reducing debt and remaining vigilant in maintaining our costs, allowing us to deliver value to our investors, customers and partners.Starting with communications platform as a service. We posted a strong quarter in Q2 with platform usage revenue up more than 20% year over year and close to an all time high. Notably, we achieved our highest single platform usage revenue day ever in early September as we continue to extend our leadership, particularly in the Asia Pacific and European regions. Engagement through our public APIs continues to increase and sales of non-SMS products grew more than 50% year over year. We recently added d-scope a customer identification and authentication management solution as our first technology partner ecosystem member to integrate with our communications platform as a service.The customer response in a series of Asia Pacific Innovation Road shows was fantastic. Neuren Group, a leading Malaysia based e-commerce and digital content provider is a great example of how our expanded solutions are addressing more complex requirements with more than 5,000 merchants and 5 million plus active users across three countries. They chose 8x8's whatsapp business APIs to deliver bulk messaging automated communications and real time engagement to their community.I believe innovation is the spark that gets the growth engine started. It enables new conversations and creates new opportunities. This is why we continue to invest 15% of our revenue in R&D on a non-GAAP basis. The results of our investment R&D are visible across our CX solutions.Let me share a few data points. Sales of new products were up more than 60% year over year, an acceleration from the prior quarter, sales of artificial intelligence based new products including intelligent customer assistant and other solutions from our technology partner ecosystem increase more than 50% sequentially and more than 200% year over year. We have hosted more than 1 million interactions since these products were introduced and usage is accelerating.I believe this growth reflects our differentiated approach to AI which is built on four core pillars, each focused on enhancing customer experience through powerful, reliable AI capabilities. First, we prioritize comprehensive AI driven data processing across all voice and digital interactions on our platform, which can deliver accurate transcriptions, summaries, sentiment analysis, and topic tagging while keeping enterprise data secure and compliant.Second, we developed an ecosystem of what we believe to be best in class AI applications integrated seamlessly into our CX solutions. This approach allows our customers to achieve consistent AI driven insights without duplicating costly processing efforts like real time transcription.Third, we're investing in AI insights that assess the full CX deployment, identifying operational optimizations across both human and AI elements benefiting both native 8x8 tools and third party components.Finally, our professional services team is expanding its AI consulting services providing clients with hands on support to drive value from their AI solutions swiftly and sustainably. AI is just a tool, but we are focused on turning our AI technologies into the business outcomes that our customers want.Our focus on business outcomes is leading to an acceleration in new logo business coupled with an increase in multi product lands. New logo business accounted for an increased percentage of our bookings in the second quarter. It is worth noting that the percentage of bookings from new logos has increased in each of the last three quarters.Once again, the majority of our top 20 new logo deals included contact center as a service in the initial commitment and several included more than four products. If innovation is the spark that ignites the growth engine. Our relentless focus on customer success is the accelerator.Our customer loyalty and revenue retention for customers on the 8x8 platform is at multi year highs. Our customers are being deployed faster with a higher level of satisfaction and a shorter time to value. Our support organization has maintained world class satisfaction metrics for seven consecutive quarters. And our proactive white glove coverage of our top 1,000 revenue generating accounts has increased customer loyalty and reduced customer churn.We have seen public recognition of our success in the awards we have received. One of our largest wins this quarter demonstrates what I mean, a leading specialty retailer chose 8x8 to help them move from a piecemeal Cisco on premise solution to a scalable single integrated UC and CC cloud platform. Their implementation will ultimately span 1,600 locations and more than 20,000 employees. A critical factor in their decision process was the recommendation of an affiliated in store service provider who had used our UC and CC solutions for four years.The ability to integrate the two solutions to enable a seamless customer experience was a clear differentiator, but we would not have had a chance to prove it if the service partner had not been satisfied with their 8x8 solution.Their recommendation is not unique. This quarter we earned the customers love us badge on G2 the customer review site because they do. Cronus Health, a leading provider of health care revenue cycle management solutions is another example of how our investments in customer success are paying off. A few customer using teams for collaboration they chose to upgrade to the 8x8 platform after an extensive proof of concept period supported by a cross functional center of excellence team. This was one of several Q2 deals representing more than a $1 million in annual recurring revenue.Speaking of our portfolio of teams integrations 8x8 is proud to be the only Gartner UC magic quadrant leader besides Microsoft itself to be accepted into the operator connect program. Leveraging our trusted and strategic partnership with Microsoft to deliver comprehensive integrated team solutions.Scandinavian Designs, a brand with 40 plus showrooms across 16 states shows 8x8 contact center with operator connect for Microsoft teams to migrate to a single cloud platform. Differentiated features like teams chat federation and presence visibility in agent workspace were key factors in their decision. They also liked our robust analytics and dashboards with call transcriptions and evaluation capabilities thrown in.8x8 now supports more than 500,000 teams users and our team's base continues to grow quarter over quarter and year over year. Another important aspect of our growing momentum has been our commitment to expanding our partner relationships, including both our reseller partner programs and our technology partner ecosystem. Both programs are closely aligned with our commitment to go beyond technology to deliver outcomes to our customers.New partner Buchanan industries embraces this vision on multiple levels. A leading managed IT service provider focused on mid market and enterprise organizations. Buchanan believes in delivering business outcomes by turning their technology into a powerful competitive business advantage. Not only did they sign up as an 8x8 value added reseller, they are also migrating their legacy on prem system to 8x8 contact center as a service solution for their nearly 300 contact center agents.They chose 8x8 for our shared values and vision. Our comprehensive omni channel solutions, our seven by 24 agent support and our exceptional partner relationships.Our technology partner ecosystem has also been a clear win for us and our customers by offering tightly integrated solutions with a carefully curated community of what we believe are the best in breed partners. We expanded our offerings and accelerated our time to value for our customers. I already mentioned our new partner d-scope.We also added Regal.io, a leader in marketing campaign management to the exclusive sell with eight tier. We already have a customer using Regal and 8x8 in high volume production. These customer wins and our Q2 results reflect the hard work and dedication of our team over the last two years. They underscore the resonance of our strategic initiatives in the market, increasing my conviction in our path and my confidence in the future of 8x8.In closing, I want to express my gratitude to our customers, partners, employees and you the investors. Your trust and commitment to 8x8 are what empower us to continue our journey of growth and innovation. We are excited about the opportunities ahead and are committed to converting our momentum into increased value for our investors, partners and customers.With that, I will turn the call over to Kevin, who's back this quarter for more details on our financial results.\nKevin Kraus\n Thanks, Sam and good afternoon, everyone. We delivered solid financial performance in fiscal Q2 '25 meeting the high end of our guidance range for total revenue and beating the high end of our guidance range for service revenue and non-GAAP operating margin.Cash flow from operations was also healthy. Fiscal Q2 is our 15 quarter in a row of positive cash flow from operations and non-GAAP operating profit trends we expect to continue. We also repaid $25 million of term loan debt in conjunction with our August refinancing.I am pleased to report that subsequent to September 30, we retired another $33 million of principal value of our term loan debt, reducing our total debt principal balance to $369 million as of today. This represents a debt reduction of over $173 million or 32% since the end of fiscal Q2 '23. And we are doing what we said we would do which is returning value to shareholders primarily through debt repayments.The press release and trended financial results we posted on our investor relations website, provide a comprehensive view of our results, but I will point out a few of the highlights on this call. Before I continue, let me remind you that I will be using non-GAAP metrics except for revenue and cash flow unless otherwise noted. Q2 service revenue was $175.1 million reflecting continued growth in both subscription and usage on the 8x8 platform.This was offset by a decline in revenue from customers remaining on the Fuze platform as expected. The remaining base of customers on the Fuze platform represented approximately 7% of service revenue in fiscal Q2 versus 12% of service revenue in fiscal Q2 '24.We expect this percentage to decline over the next six quarters as we plan to complete the customer upgrades from the Fuze platform to the 8x8 platform by the end of calendar year 2025. I would like to point out that Q2 revenue benefited slightly from favorable foreign exchange rates during the quarter of approximately $1.5 million versus our beginning of quarter expectations. And approximately $2 million on a year over year basis.Excluding this FX favorability, we still achieve service revenue and total revenue above the midpoint of our guidance ranges. Gross margin was 70.2% consistent with our expectations and slightly lower than 70.6% in Q1 '25. As we delivered on our expectations for increased usage on our communication platform as a service business. We continue to operate within our OpEx envelope for Q2 with operating expenses flat with Q1 on a dollar basis at $105.5 million.As we have noted before, we have a natural hedge built into our model where the FX impact on revenue is essentially offset by the FX impact on expenses, minimizing any net impact on operating margin.Our Q2 non-GAAP operating margin was 11.9% sequentially higher than 11.3% in Q1 and above the high end of our guidance range. Due to our strong top line performance. I would like to highlight that Q2 stock based compensation as a percentage of revenue in our GAAP financials was 5.2%. Well, below our peers and at our lowest point in at least five years. The continued progress in stock compensation expense helped us attain GAAP operating profitability in Q2, a milestone that demonstrates our financial discipline.As previously stated, we increased cash compensation in lieu of equity for the majority of our employees. Our intention is to reduce dilution by issuing fewer shares over time but the increased cash compensation gets reflected in our non-GAAP operating margin as it isn't excluded for non-GAAP financials.Turning to the balance sheet and cash flow. Our cash, cash equivalents and restricted cash was $117.9 million at the end of Q2, which was down about 13 million from the end of Q1 reflecting the reduction in our debt balance by $25 million as I noted earlier. You will notice that our current liabilities on the Q2 balance sheet includes $39.4 million of current term loan balance net of unadvertised debt discount and issuance costs.The principal value of this current portion is $40 million which represents the minimum payments required by our term loan credit agreement for the 12 months following September 30, 2024. The $33 million of debt repayments since September 30, lowers the remaining current liability to only $7 million as of today. By the way, the $33 million represents $15 million in required fiscal Q3 '25 principal payments plus $18 million in pre payments.As I stated earlier, the principal value of our total debt outstanding today is $369 million and $202 million of this total is convertible to equity. To provide some perspective on our progress over the last two years in August 2022 we had $548 million of debt and a net debt to trailing 12 month EBITDA ratio of more than 6 times at the end of fiscal Q2 '25.And as of today, our net debt to EBITDA ratio is approximately 2.6 times. With a solid balance sheet and consistent cash flow we have greater flexibility to pursue opportunities that align with our innovation led growth strategy. Accounts receivable and current deferred revenue increase sequentially reflecting improved bookings performance in Q2. Day sales outstanding of 32 days as well within a healthy range for our business.Our remaining performance obligation increased $20 million sequentially, a quarter over quarter and year over year increase of 2.6% reflecting improvement in our multi year customer contract backlog and directionally consistent with the increase in our total deferred revenue. As a largely recurring revenue business our RPO balance covers a significant majority of our future recurring revenue in the next 12 months, which is a strong stabilizing financial force for us.Cash flow from operations was $12.3 million in Q2 and total stockholder equity remained positive.Now, let's discuss a few points about our operating model. Our total cost structure in Q2 '25 on a dollar basis was very similar to our cost structure in Q1 '25. Total operating expenses were virtually identical in Q1 and Q2, we believe that our target cost structure with R&D at about 15% of revenue, sales and marketing between 33% and 34% of revenue and G&A, between 10% and 11% of revenue continues to be the right level of investment to drive innovation and customer adoption of our growing portfolio of our products and services.We still expect service revenue gross margin to remain in the 73% to 74% range but it could vary slightly due to the mix between communication platform as a service usage and subscriptions. We expect gross margin on total revenue to be between 69% and 71% as we include other revenue into the mix. With this operating model context in mind, we establish service revenue, total revenue and operating margin guidance ranges for the fiscal third quarter ending December 31, 2024, as follows.We anticipate service revenue to be in the range of $171 million to $174 million. We anticipate total revenue to be in the range of $177 million to $182 million implying other revenue of $7 million at the guidance midpoint. Note that other revenue can vary based upon customer specific deployment schedules and hardware shipments. So total revenue can vary based on these dynamics.The combination of modestly lower revenue compared to Q2 and slightly higher sequential operating expenses related to specific go to market investments drives our operating margin guidance of 10% to 11% for Q3 '25. For the fiscal year 2025 ending on March 31, 2025, we provide the following guidance ranges. We anticipate service revenue to be in the range of $690 million to $701 million. We anticipate total revenue to be in the range of $714 million to $727 million.We continue to focus on delivering a solid operating margin and anticipate a full year operating margin between 10.25% and 11%. Please remember that our fiscal fourth quarter includes seasonally higher expenses as certain employer taxes and benefits restart in January. At the midpoint of our revenue guidance range this translates into a nongaap operating income of between $73 million and $80 million for the fiscal year.We expect interest expense including amortization of debt issuance costs to be about $5.5 million in Q3 and $5.3 million in Q4, based upon current interest rates and our outstanding debt balance. We expect cash paid for interest to be approximately $3.4 million in Q3 '25 and $7.2 million in Q4 '25 as cash interest on the 2028 convertible debt is due semi-annually. These interest amounts assume that the interest rate on the term loan remains approximately [7.6%] or so plus 3%.Putting all of this together, we expect fully diluted non-GAAP earnings per share to be in the range of $0.32 to $0.35. We anticipate full year cash flow from operations to be between $59 million and $64 million consistent with our prior comments. Note that cash flow from operations typically decreases in fiscal Q4 due to the timing of seasonally increased employer expenses and cash paid for interest.I continue to believe that our vision and strategy will keep us on the path towards profitable growth. Progress does not always happen in a straight line, but I believe that we are doing the right things to get us to where we intend to go. I would like to thank the entire 8x8 team for working together to deliver this quarter's solid results. And I look forward to reporting our progress throughout the remainder of fiscal 2025 operator. We are ready for questions.\nQuestion and Answer Session\nOperator\n (Operator Instructions)Ryan MacWilliams, Barclays.\nEamon Coughlin\n Hey guys, this is Eamon Coughlin on for Ryan. Thanks for the question. (inaudible) services revenue sequential growth improvement compared to the prior quarter. What would you attribute the key factors that drove these results? And how should we think about the sustainability of these trends that drove 2Q results?\nKevin Kraus\n This is Kevin here. Thanks for the question. Yeah, we had a pretty robust platform usage revenue for the core and also our core business on the 8x8 platform grew. So it was multifaceted in terms of the of the growth that we saw this quarter.\nSamuel Wilson\n I think the last thing and Kevin just missed it. Look our gross retention was great. It was fantastic. So for any recurring business model, the better the gross retention does, the better we have a strong foundation off which to grow. So I think as long as gross retention remains high, we continue to see leverage in our new products. There is some positive momentum and I would say we're cautiously optimistic.\nEamon Coughlin\n Got it. Thanks guys and great to see the 200% year over year growth in sales of AI-based solutions. Can you just help us understand what is driving this sale and then are customers more willing to adopt these features today compared to six months ago?\nSamuel Wilson\n I think the answer is yes, they're more willing to adopt in six months ago and it's going to be sort of the -- I'm going to do these in reverse. Right. So, the reason we're seeing more momentum is because we, along with our professional services and our customers themselves are getting to the point where we can turn AI into something that solves the business outcome.I think the first year or so of AI, it was a lot of, you know, having it, write an email for you. But how does this solve a business problem? Now with things like summarization, automatic health scoring, transcription that's being used to improve agent productivity and even detect things like fraud, those kinds of things. We're actually turning AI into meaningful business outcomes. Once we do that, no one has a problem buying it.\nEamon Coughlin\n Alright. Thanks guys.\nOperator\n Michael Turin, Wells Fargo Securities.\nMichael Turin\n Hey, great. Thanks for taking the questions. Sam, you had a few comments on acceleration throughout the prepared remarks. But teams holding on to the midpoint of the full year target. So maybe just walk us through what it could take to eventually move those up and for the business to see a return to growth from a year-on-year perspective. Is it a better macro? Certain product areas you're focused in on? Or just working through the final (inaudible) migration efforts as you work through the year that could optimally get you there.\nSamuel Wilson\n Well, okay, so I think we we're trying to be pretty clear about this in the script, right. So number one core 8x8, which is the customers on the 8x8 platform up quarter on quarter, year on year. So what's going to drive future growth overall for the whole company is two things.Number one is as our new products become a larger and larger and larger part and that growth, which is well above corporate starts to become meaningful, that will drive the overall, you know, company's revenue.And number two Fuze, which is mid-single digits, high-single digits, whatever mid-single digit right now start continues to shrink as we upgrade to customers that headwind will go away over time. I know it's not today or tomorrow, but I think we're starting to get pretty clear line of sight of getting to stable to growing core 8x8 -- you know, continued growth in the core 8x8 business.And so that's just -- we need to sort of continue to run off the Fuze business and continue to grow the new products business.\nMichael Turin\n Helpful and just maybe one on gross margin. Can you just help us unpack a little bit what we're seeing on the gross margin side? You're obviously outperforming an operating margin. Is the gross margin impact mostly tied to a mix towards CPaaS and any commentary just on underlying gross margins across the product set. If those are holding in fairly consistent or just any further commentary, there is helpful. Thanks.\nKevin Kraus\n Yeah, that's correct. The platform business is accelerated pretty well this quarter and that has a lower margin, so it is mix driven. The underlying UCaaS CCaaS margin if you will, has remained very steady. For us, which is great to see we do a lot of work on that to maintain that gross margin profile in the majority of our business. But you will see the mix having some slight impact as it changes.\nSamuel Wilson\n I would also add one more thing that just we will -- let me care about this because you guys on Wall Street tend to blow out my comments a little too large, but there may be a little suppression of gross margins in the short term as we launch more of these AI usage based products.So the margins improve as the number of customer use cases and the amount of customer adoption increases. So there's an upfront cost to getting a customer up and running, getting the models working, getting it deployed, etcetera.And so as our new product business grows -- as the number of new customers we have on new products gross, there may be some near term gross margin compression. Not in thousands of basis points, right? Just, you know, a few basis points here or there, but it's part of what you're driving at is a little bit of that mix shift. And so I want to make sure that you're sort of aware of that.\nMichael Turin\n No, that makes sense. I appreciate it. Thank you.\nOperator\n Siti Panigrah, Mizuho Securities.\nSiti Panigrah\n Thank you. And it's good to see that improvement in debt to EBITDA ratio. But the question on -- going back to the comment on AI adoption. Sam, so what kind of trends are you seeing from those customers who are adopting this AI solution in terms of their number of human agents and how they're funding this kind of product, any trend that you're seeing or would share?\nSamuel Wilson\n Yeah, right now what we're seeing is -- Okay, so let me take it. So you talk about products that are being adopted on the AI front, right? We're clearly seeing things like agent assists, bots of all sorts voice and chat bots that are AI based. We're seeing campaign management and those kinds of things that are AI based. We're seeing certain things around health scoring, core CIDP those kind of.All those technologies in some form or fashion are being adopted. In terms of agent trends, we're not seeing situations where customers lower the number of agents right now, not saying it's not going to happen in the future. I'm not saying it is going to happen in the future. I'm just saying that right now, we don't see where customers generally lower the number of agents, instead what they're doing is they're adding this on as additional capabilities to make their agents more productive, more useful.And so what we see is that -- I'll give you a simple example, the number one-use case we're seeing with agent assist right now is that it shortens training cycle time. Remember the average contact center is dealing with something like 40% attrition. Those are third party numbers, not mine. And so things like two weeks, shortening of training time is very meaningful when it comes to ramping productivity. And so I think that's a lot of what we see right now. Siti, we're not seeing this sort of raw, replace humans with robot's thing.\nSiti Panigrah\n Okay. That makes sense. And you, you guys stopped disclosing the small mid-market enterprise. But wondering where did you see strength or weakness, any kind of sort of trend by different segments?\nSamuel Wilson\n Yeah, so we last quarter, we stopped the closing ARR for a host of reasons, growth in our usage based business, et cetera. And so yes, it's the same trend we saw in the past, right? We continue to, we're really focused on that enterprise, that multi product sale. And so we've been growing that segment. You know, that sort of headwind to that is, we haven't been extensively focused on micro businesses and very small businesses.And so that's where we're generally seeing the customer count, not keep up with the change in enterprise. So I think Kevin knows the number, but you know, more than half our revenue comes from sort of [ex-cash] type customers. So that's customers that contact center, you see potentially more products than that. And I think that trend will just continue to grow.\nSiti Panigrah\n Great. Thank you.\nSamuel Wilson\n Thanks, Siti.\nOperator\n Meta Marshall, Morgan Stanley.\nMeta Marshall\n Great. Thanks. You guys noted kind of channel expansion that you were seeing or kind of success with new customer bookings. And I just wanted to get a sense like what channels are you finding kind of most lucrative? Is there a certain vertical or customer type where you're having a lot of success?And then maybe just as a second question, clearly seeing traction in the underlying 8x8 business. Just if you could comment was the Fuze transition kind of slower or faster than you expected this last quarter. Thanks.\nSamuel Wilson\n Okay, so two things, there was kind of channel and our go to market and Fuze. So on the channel, new logo side, actually the best source of business last quarter was [direct]. Not through any channel partners, global reseller continued to see overall improvement. And we're really proud of that. So that's something we are focused on is growing our reseller business, which is a sort of a back door indicator and the growth of our international business.The [direct] business was more driven by North America. We're still a channel first company, but, we've managed to close and do better with our direct business. And so I think that's just a testament to what we're doing. We are seeing more and more enterprise customers come to us directly via RFPs. And so I think we're just starting to benefit from that.On Fuze, was Fuze better or worse than -- and the key media that you used was we. Because I think we, as we expected it was an okay quarter. I was kind of hoping for a little bit more acceleration in the Fuze upgrade cycle. We're continue to make a lot of progress there. We're continuing to really get this put behind us. We're still on track for end of next calendar year to shut down the Fuze platform.But I would certainly like to see us accelerate that if we can. It's one of the reasons our guidance ranges are a little bit wider than you may expect because we don't know what's going to happen, but we are pushing really hard on the teams to, to get the customers moved over and get this behind us.\nMeta Marshall\n Great, thanks.\nSamuel Wilson\n Thank you.\nOperator\n William Power, Baird.\nWilliam Power\n Okay, great. Thanks. You all reference CPaaS strength in the quarter, it sounds like that was one of the sources of upside, maybe just talk to the kind of the key drivers there and really kind of the sustainability of that. I guess -- I just trying to make sure there's not anything that's more one time issue there and I guess just kind of tying into that. I think the guidance is for service revenue to be down a little bit sequentially. So just trying to understand that the drivers of that.\nSamuel Wilson\n All right. On the platform as a service business and usage in general, strong quarter above expectations, obviously, you know, relative to what we're expecting to be in the quarter. Will I love your question on sustainability? Because as I think everyone on the call knows, in general usage based businesses don't have contracted revenue.So this is the part of the call where you guys want me to stick my neck out really far. So I always try to be at least a little cautious. We are doing a number of things in our CPaaS business. We have been spending money on R&D, on innovation, on sales capacity and those kinds of things which drives future business and the team I've got running the CPaaS business, I'm just really impressed with. And so from that front, I think it's great.Number two is our investments over the last year in the platform itself are paying benefits. Our intelligent routing, our omni channel, our packaging or some of our add on bot capabilities in our CPaaS business, definitely resonating with customers and the stuff I talked briefly about on the call in the future around [Dscope] and security. I was so blown away by the positive feedback on a road show we did.That being said, you know, we've got chinese New year, we've got various events. There's always the trials and tribulations coming up in the beginning of the calendar year around changing the pricing, the carriers due to us, those kinds of things.So I would say like the overall business, we're very cautiously optimistic on where the CPaaS business could go. There was nothing one time in the quarter, but I don't want you to like start drawing a linear line. It was a stronger than expected quarter. And we take that business month by month.\nWilliam Power\n So it sounds like there's some conservatism on that piece that perhaps is driving the slightly weaker sequential service revenue guide?\nSamuel Wilson\n Definitely, we are trying to be conservative in our guide. Yes, with CPaaS we don't have the visibility. The other thing is, I just want to be cautious and I know Kevin mentioned it, but we did get a tailwind because of FX and there's always a little bit of cautiousness when we pick up a little bit of a tailwind, I think you said how much it was --\nKevin Kraus\n $1.5 million. And so that could potentially flip to some degree. So we don't know where that's going exactly. We don't forecast FX rates.\nSamuel Wilson\n And when we do forecast FX rates, we're really bad at it. So, that's a little bit will of the other side of the question we want to just be cautious of.\nWilliam Power\n Okay. And maybe just a quick second one, any kind of updated view on what you're seeing just from a broader macro customer willingness to spend, sales cycle perspective, kind of et cetera, you know, versus maybe a quarter or two ago.\nSamuel Wilson\n Yeah, what I see is, it's a number of companies fiscal fourth quarter, not our fiscal fourth quarter, but a number of other companies, it's their fiscal fourth quarter. And I don't know if they take the irrational pill this quarter on purpose or it's by accident, but there is a little bit more strange behavior by some of the competitors. I think it's very fixated on this quarter and it usually reverses out next quarter. So I am seeing that but I think offsetting that is also the fact that we've talked about in the past is our pipeline is up. That's --our deal pipeline is up.Obviously, you can see from RPO which I think is a record high et cetera that you know, we're having some success. So I think offsetting that is the fact that our product portfolio and our innovation strategy is showing product market fit. We are clearly seeing situations where customers are very appreciative in the products and capabilities we're offering.And so I don't know how much of this desperation is driven by the lack of investment by some of our competitors et cetera, or it's just the fiscal fourth quarter, whatever. But I will tell you that as long as my pipeline is growing and my new products are growing 60% year over year and my RPO is growing, I know that my leading indicators are pointing the right direction.\nWilliam Power\n Okay. That's helpful. Thank you.\nSamuel Wilson\n Thanks, Will.\nOperator\n Michael Funk, Bank of America.\nMichael Funk\n Hey guys, thank you for the questions. So thanks again for percentage of revenue. Service revenue coming from Fuze. I think you said 12% last year and 7% this quarter. So by math is right, that declined, it gets about $9 million to $9.1 million year over year. How much of that migrated to the core 8x8 platform? So Coy Bay grew year over year. But how much of the migration from Fuze?\nKevin Kraus\n Michael hi, it's Kevin. Yeah, let me go get the --\nSamuel Wilson\n Actual while he's looking that up. So the one thing I will tell you is, even without that Core 8x8 still grew. So like he's giving number but if you can find it in one of his 3,000 spreadsheets. But we did look at that ahead of time just to make sure the growth wasn't all just left pocket to right pocket. Core 8x8 grew a quarter over quarter and year on year without any contribution from the Fuze migration upgrade last quarter.\nKevin Kraus\n So it's about $5.5 million or so in Q2 '25, where the Fuze upgrades start moved over.\nMichael Funk\n Okay. That's very helpful in framing the future growth potential. So thank you for that. And then Sam you mentioned fiscal fourth quarter, some companies with their strange behavior. Can you define strange behavior or expand on that comment exactly what you meant by that.\nSamuel Wilson\n I just wonder what they're thinking with some of the bat shit crazy pricing they put in the marketplace. So, I mean, I just I don't understand always what they're thinking when they do this because it's just overall, it's not helpful and it just slows down deal cycles for both of us. In the end I'll be honest with you, we usually win the deals because I think it's counterproductive because the customers ask. If you have to price that low, obviously, your product isn't that good and you're not investing in the future and those kinds of things, but it just slows down deal cycles. And so that's what I meant by strange behavior.\nMichael Funk\n Yeah. Thank you. One really quick one if I could. Have you seen a change in the rate of change in seat count in the last 12 months, either a slowing in decline or reversal in decline in seat count and I appreciate you're selling more products and the customers now as well, but just that old legacy seat count, any change in the rate of change.\nSamuel Wilson\n Okay. So what I'm going to tell you is that, yes. But I'm going to be very -- just give me a second to get the full answer out because I'm going to be very cautious in this answer. We are seeing accelerating UC and CCC sales. But I think that's us. I'm not sure how the industry is working. I think a lot of that's driven by the fact that our value proposition over the last two years is substantially changed. And because my phenomenal CRO is busy restructuring my sales organization for the new world order and both of those could be very macro to 8x8, not necessarily to the industry overall.\nMichael Funk\n Great. Hey Sam, Kevin, thank you so much.\nKevin Kraus\n Thanks, Michael.\nOperator\n Peter Levine, Evercore.\nPeter Levine\n Thanks guys for taking my question. You know, Sam as a follow up to the AI, obviously the stats you gave up 50% quarter to quarter 200% year over year. And you kind of said business outcomes is kind of what you're solving for. Can you help us remind us how you're monetizing the usage? Meaning is there like a value exchange or a value capture you can monitor?I know it's early in the cycle but maybe just talk us through like how much of AI usage is part of that growth acceleration story, excluding Fuze coming off and obviously bigger products becoming more. But help us walk us through like the monetization of AI usage that continues to scale up.\nSamuel Wilson\n Okay. That is a multifaceted question. And I'm sort of shaking because I'm going to try to give you a reasonable answer. But it's a multifaceted question. Okay. So on AI, we monetize it multiple ways. So for our CPaaS partnerships that involve AI, we have the sell with model and the sell through model. So on the sell with model, we'll introduce the prospect to the company that the product or whatever the case may be, that we're jointly selling and we may get a revenue cut or a usage cut based on that in the future.On the sell through model, we're actually putting it on our paper. And so that's pretty common with intelligent customer assistance or some of those things where we buy at a lower price and then to finally sell at a higher price. You were also asking about usage in general, so what we find generally when we land with these models -- these AI based models is, we sell the customer one use case. So and we purposely try to minimize this and make it fairly straightforward.But when we do that, we're selling them a platform. The reason we do that is we really want to get a hard ROI relatively quickly, fast time to value. We get fast time to value the customer likes it. So what happens is we come in, we set up the bot, we get it working, they see very fast time to value and then it sort of turns the what if becomes the next scenario?What if we deploy this use case? What if we deploy that use case? What if we deploy this use case? And then that's where we see the usage really ramp. Almost all of our customers that we landed over the last four or five quarters have all grown their usage significantly quarter on quarter, kind of that concept of same store sales. Same store sales significantly quarter on quarter as they expand out the number of use cases because we've given them the platform, we've given them professional services to continue to drive.And so it's almost like these turn into a simple use case to slightly more complex use case is fully more complex use case, et cetera. And each part along the way, we're monetizing and as that gets -- as the product gets more and more used, we obviously achieve better and better revenues. Hence the greater than 50% growth every year. I would say the other thing that I think is advantageous to us is, we become more and more of a strategic partner to that customer which I think over time should help retention.\nPeter Levine\n I appreciate the color and maybe just one piggyback off of the Fuze dynamics. You kind of talked about 7% in the quarter, call it, $12 million. If you were to analyze that number, is there a line of sight in terms of what percentage of that do you do you expect to capture or transition to the 8 platform, if you're rolling?\nSamuel Wilson\n Yes, yes, there is. And to all my employees listening on this call, any number less than 100% is a discussion with me. But the answer is look, I mean, we're expecting that some of it won't transition for a host of reasons, but we'd like to transition the maximum amount that we can. And we're putting a lot of resources forth to make that happen.\nKevin Kraus\n By the end of calendar '25.\nPeter Levine\n (multiple speakers) that you're -- anything that you're putting in front of your sales books or offer --\nSamuel Wilson\n Yes and yes. Yeah, offers to the customer. Like for example, we're talking about if you transition, we'll give you, for example, tell you customer assistant for a month or two for free, to try out some of our AI technologies and those kinds of things that are available on the 8x8 platform to sort of give them an advantage to go sell it. And there's some incentives to the sales guys to go make the deal happen.\nPeter Levine\n Thank you for the color.\nSamuel Wilson\n Thank you.\nOperator\n Ryan Koontz, Needham & Co.\nRyan Koontz\n Great. Thanks for the question. Nice to see the RPO pick up here. Sam, how's your visibility of that going forward, given the indications to down sequential subscription revenue guide. How should we think about kind of setting those sort of expectations for the trajectory of RPO? Do you think of it kind of lumpy or are you seeing some risks around some of your particular customer segments here in the near term.\nSamuel Wilson\n It's a completely legitimate question. It's the sie in my voice is a bit of a tough question to answer. And let me say -- let me say why. When we get into more of these usage-based businesses, there's not necessarily always contracted revenue. And even if there is contracted revenues, frequently, it's significantly less than the amount of actual usage on the platform.And so I think what we're seeing is, we're seeing an increase in RPO, we're seeing an increase in underlying business momentum. It makes me very cautiously optimistic about the future, but it's not a straight line either, right? Could it zig or zag? Absolutely.And it could zig or zag simply by kind of the definition of RPO which is future contracted revenue or a backlog of contracted revenue where we know intelligent customer assistant may be being used for X number of interactions per month and there's a number significantly smaller that's contracted.And so, I want to say that what I think is RPO will grow over time. It won't be a linear straight line and a lot of it will depend on how much usage business we get in. And some of the other things that we do from a financial model. In general, we are seeing more and more -- I would say customer push or customer request to have a consumption based like pricing or consumption based like commercial opportunities in future deals. And so that's just something that we all need to think about.\nRyan Koontz\n Got it. And just a quick follow up please. On the CPaaS business. Are you seeing some of your international APAC core markets there? Are you seeing any of this A2P fee stuff come along like they do in the US, these big up charges for A2P you know, cloud to person?\nSamuel Wilson\n No. But let's be clear. Those carriers in 2020, 2021 and 2022 pushed through pretty big price increases. So I think unlike what we're seeing here, they don't necessarily need to be that obsessed about pushing through higher prices because I feel like they've already done it to us. They actually -- this year 2024 we saw some of the most mild price increases we've seen in five years because they have pushed up prices so much.And so I don't think we need it. I mean, the US market is a bit of a (inaudible) Goldberg machine right now because of the whole registration thing. I would say we're pretty bullish on RCS coming in the future. So we've got some product innovation going around RCS. You should expect to hear about that shortly. And those kinds of things, but I'm not sure we're going to see much more from the carriers pushing forward.\nRyan Koontz\n Perfect. That's all I've got. Thank you.\nSamuel Wilson\n Thanks, Ryan.\nOperator\n Thank you. At this time. I would now like to turn the conference back over to Samuel Wilson, CEO for closing remarks.\nSamuel Wilson\n All right. Thank you everyone for joining us. I really want to thank our partners, our customers, our employees, and most importantly, our shareholders for taking time out of their busy day to listen to this earnings call. We appreciate it. As I mentioned earlier, we think the company is sort of on the right path. Our transformation is gaining hold, and we look forward to updating you again next quarter. Thank you.\nOperator\n This concludes today's conference call. Thank you for participating. 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