8x8 Inc

Good evening. My name is Kavita, and I'll be your conference operator today. At this time, I would like to welcome everyone to the 8x8 Inc. Fiscal First Quarter 2020 Earnings Conference Call. I will now turn the call over to Victoria Hyde Dunn, Head of Investor Relations.

Thank you. Good afternoon, and welcome to 8x8's first Fiscal 2020 Earnings Conference Call. Joining me today are Vic Verma, Chief Executive Officer, and Stephen Gadoff, Chief Financial Officer. During today's call, Vic will begin with business highlights of our first quarter performance. Following this, Steven will provide details on our financial results and guidance. After these prepared remarks, we look forward to taking your questions. Before we get started, just a reminder that our discussion today includes four looking statements about 8x8's future business, product, and growth strategies that are pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. 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 the forward-looking statements as described in our risk factors in our reports filed with the SEC. Any forward-looking statements made on this call reflect our analysis as of today and we have no plans or duty to update them. In addition, some financial measures that will be discussed on this call, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. generally accepted accounting principles or GAAP. A reconciliation of non-GAAP measures to the closest comparable GAAP measures is provided with our earnings press release and PowerPoint presentation deck, which are available on our investor relations website. Additionally, we will be discussing new annual recurring revenue and annual average service revenue per customer metrics. These new metrics are discussed in the press release and included in a financial and operating metrics worksheet that is posted on our investor relations website. With that, let me turn the call over to Vic.

Thank you, Victoria. Good afternoon, and thank you, everyone, for joining us today as we review our first quarter results. I would like to share three points about the quarter that highlight both our business performance and the capabilities of our cloud technology platform that we are using to disrupt the $60 billion market for voice, chat, video, team messaging, contact center, and now enterprise class API solutions. First, mid-market and enterprise customers continue to drive strong revenue growth. With an increasing contribution from our channel partners. As a reminder from our last call, customer segments are not based on how much revenue we get from them, but rather based on industry convention in which mid-market is defined as businesses with revenue greater than $50 million and less than $1 billion, and enterprise customers as businesses with revenue greater than $1 billion. Combined mid-market and enterprise ARR grew at a healthy rate of 39% year over year and was one of the factors why we were able to beat the high end of our guidance. Second, we continue to differentiate eight by eight with the pace of our innovation. We had four major new service announcements, more evidence that our one technology platform is delivering both velocity and innovation and clear differentiation from a shared data model that provides cross-platform analytics. My third point centers around our recent acquisition of WaveCell. We have invested hundreds of millions of R&D dollars over many years into building, transforming and integrating a fully-owned technology platform for global voice, contact center, video and team messaging. With WaveCell, we round out our framework with enterprise-class CPaaS APIs. We have now fully realized our vision of one complete cloud-based technology platform that combines the simplicity of prepackaged solutions with the power and flexibility of enterprise-class APIs to enable global, high-scale, fully personalized customer engagement. This is explicitly what our customers have been asking us for and allows us to take market share from legacy on-premise vendors and further differentiate ourselves from cloud competitors. Let me touch on each of these in a bit more detail. First, our Q1 fiscal year 2020 results illustrate the fundamental strength in our core business with 39% growth in ARR for mid-market and enterprise customers. Total ARR growth for the quarter was 21% year over year. Service revenue for the first quarter was 92.4 million and grew over 18% year over year. Stephen will cover our financial results and guidance in greater detail, but suffice to say we're off to a strong start as we see bookings growth that allow us to increase our full year guidance. We saw improved sales and marketing execution in the first quarter. Pipeline growth was robust with improving coverage ratios across the board. Overall win rates remained strong and consistent with prior quarters. New customer logos in the quarter were 57% of total bookings. Our U.S. enterprise business was a particularly strong contributor with bookings growth of around 95% year over year. Enterprise ARR grew 52% year over year. We saw success not only in our core UCAS market and in combination deals including both UCAS and CCAS, but also with standalone contact center deals. Channel execution was strong again in Q1 with channel bookings growing 86% year over year marking our second consecutive quarter of approximately 90% growth. As we talked about during our last call, we implemented a series of changes six months ago that have driven material improvements. Clearly, our channel strategy is now working and we are seeing consistent execution. Channel was also an important driver behind increasing our reach in the mid-market where ARR grew 32% year over year. Investments in our channel enablement program allowed us to expand to 15 strategic masters and 813 active partners, an increase from 12 strategic masters and 698 partners last quarter. We also launched the Elevate partner program so that 8Bytes channel community has the resources it needs to drive expanded pipeline generation initiatives. Overall, 57% of new bookings were from the channel, including a record high nine of our top 10 deals. Our one technology platform continues to be an important differentiator as we replace legacy on-premise systems and Single Point Solution Providers. And customers continue to ask for cross-platform analytics that can only be delivered from a single platform with a unified data model. This past quarter, we had a number of marquee wins, including a Fortune 500 Global Leader in Financial Services Technologies with clients in over 130 countries. They chose 8x8 to replace their legacy system and they're starting with 15,000 X-Series seats. The company considered several other cloud and on-premise providers, but in the end chose 8x8 for our global presence, voice quality and analytics that require a single technology platform. Another significant win this quarter included Thrive, a leading software company serving more than 400,000 small businesses. Thrive was looking for a single vendor to replace their mix of legacy systems and cloud providers, including Genesis, Cisco, and Five9. The overarching requirements driving their buying decision were to have a single unified communications and context in a cloud platform with global voice quality and to easily manage IT operation and costs. They considered several of the cloud providers but in the end chose to initially move more than 5,000 licensed seats of X-Series including contact center. Another marquee win was Halfords, a British cycling and motoring retailer operating in the United Kingdom and Ireland. Halfords was looking for a single provider to replace Legacy Avaya and various mix of solutions. The business requirements included a cloud provider with one technology platform for voice and contact center, as well as integration with workforce management. Halfords considered several other cloud providers, but in the end, chose to start with a 4,000 seats of X-Series solutions, including contact center to meet their growing retail needs. My second point is that we continue to accelerate the pace of innovation on our platform. We have the advantage of a single platform that can be sold to customers through our inside sales, field sales, and channel, as well as through our newly launched e-commerce store. But a single platform also gives us a key technology advantage in the pace of innovation because any new capability developed for one particular use case is immediately available to other applications on the platform. 8x8 owning a single fully integrated cloud platform will provide us with a lasting competitive advantage in the pace of innovation for years to come. As evidence of this, we would highlight four key product innovation announcements since our last earnings call. First, we launched 8x8 Managed Technical Services, MTS, a service which optimizes and manages local and wide area network performance to ensure world-class voice performance. For some customers, particularly those with limited IT resources, understanding how issues in their local network configuration impact communication services can be difficult. By combining SD-WAN with 8-bytes premium support, we solve this problem for customers of all sizes ensuring optimum voice quality without the need for the customer to dedicate resources to network optimization. Second, we launched a brand new 8x8 Meetings, a next generation WebRTC based cloud video collaboration solution based on Jitsi technology acquired from Atlassian. It allows teams to collaborate effortlessly with high definition video conferencing accessible on mobile, desktop and in-room devices. We believe this solution will drive broader adoption of voice, chat and team messaging capabilities present in X-Series as customers experience the power of seamless multimode communication. Additionally, we are planning to enter the standalone video collaboration market in the late fall. Third, We announced the availability of 8x8 Express, a complete communication system that empowers emerging businesses to quickly and seamlessly establish a professional identity. 8x8 Express is available for purchase exclusively in 8x8's e-commerce store. 8x8 Express also includes the new 8x8 meeting solution. Fourth, we announced new capabilities for 8x8 Contact Center including improved IVR functionality and Google AI enabled self-service with the use of automatic speech recognition and natural language processing. Also included is Expert Finder, which combines the value of 8x8's team messaging and 8x8's AI engine to search and rank message rooms based on past chats and expert interactions. Out of the box, Expert Finder interoperates with more than 24 third-party messaging platforms such as Slack, WebEx Teams, and Google Hangouts. These are just a few of our initial AI capabilities for Contact Center, and we expect to announce more as we continue to innovate in the broader AI capabilities across our technology platform. Contact Center, both bundled and standalone, is an increasingly important component of our overall strategy and represented approximately 30% of our mid-market and enterprise bookings in the quarter. X series success is highlighted by the strength of combination deals which include contact center. Seven of our top 10 deals were combination deals. We are also seeing acceleration in standalone contact center deals with ARR growing 35% year over year. My final point is to reinforce our excitement about the WaveCell team and technology joining 8x8. As the leading CPaaS provider in Asia Pacific, WaveCell brings to 8x8 three important strategic advantages. First, this acquisition expands 8x8's market to include CPaaS creating a total addressable market in excess of 60 billion. Second, this acquisition enhances 8Bytes fully owned end-to-end cloud technology platform with API offerings for SMS, chat apps, voice and video as well as a proven API framework that can be extended across the entirety of 8Bytes cloud communication platform. Third, WaveCell expands 8x8's global presence by adding local offices in five Asian countries and enhances 8x8's global voice coverage through existing relationships with more than 190 carriers. The WaveCell founding team will continue to drive 8x8's CPaaS business, which is growing rapidly in Asia, while close collaboration with 8x8's sales, marketing, and engineering teams will accelerate the global expansion of that CPaaS business with additional geographies and services. We have a successful track record of integrating new technologies into our platform and we will pursue a similar approach where we will invest in and grow the existing team in place to minimize distraction while rapidly pursuing shared opportunities globally. I was present at the WaveCell office in Singapore for our day one activities, and I can tell you I am very excited about the talent that we have brought on board and the business they have collectively built. Now, as part of 8x8, I'm confident in our combined teams to grow and innovate even faster. Even in these early days, we are seeing cross of interest in both directions. Immediately following our announcement, we received inbound calls from existing large US and UK 8x8 X-Series customers who wanted to know more about how the WaveCell APIs can extend their existing UCaaS and CCaaS solution to enable highly personalized interactions with end customers. As one example, using the WaveCell APIs together with the 8x8 platform, We were able to quickly demonstrate the delivery of alerts via SMS to shared workspace customers when their facilities and services are available. This enhances the end user experience for those clients and illustrates one of the many personalized interactions WaveCell can deliver on top of 8x8 solutions. We have also received inquiries from WaveCell customers for core 8x8 service offerings like X-Series and Standalone Contact Center. For example, one of WaveCell's insurance customers that leveraged CPaaS capabilities to enhance mobile apps for its claims adjusters now wants a solution for its contact center agents. As WaveCell's customers include some of the largest and fastest growing e-commerce, fintech, and shared logistics providers across Asia, We know there will be immediate opportunities for both UCaaS and CCaaS with those businesses. Reinforcing our strategy and approach, customers want all communications data in one platform so they can drive improved experiences and insights. 8Bytes, one cloud platform, delivers this across all forms of communication, voice, contact center, video, and team messaging. One cloud platform that is API extensible and delivers omni-channel communication services with integrated analytics and AI capabilities is unique in the industry. In summary, we believe our strategy is correct. It is delivering what customers want. It is differentiated, and our results demonstrate we are executing against it. As such, first, we continue to see strong bookings growth driven by mid-market and enterprise businesses helped by our focus on channel partners. Second, our fully owned cloud technology platform allows us to innovate faster and deliver more value to a broader range of customers than bundled competitive offerings. Third, with WaveCell, we expand our total addressable market to greater than 60 billion. We extend our platform to include enterprise class APIs and we immediately grow our global footprint to include offices across Asia. In short, we are proud of the work we've accomplished this quarter to deliver strong results. And as we have continued to execute on our strategy, so too we have had a deliberate strategy to add targeted expertise to our board. Most recently, We brought on board Elizabeth Theophile, the Chief Technology Officer and Digital Officer at Novartis. Elizabeth brings over 30 years of global IT experience in transforming large customer-centric enterprises. I would also like to thank Ian Potter, who will be stepping down from the board after more than five years of distinguished service. Before I turn the call over to Stephen, Let me also thank our more than 1,700 global employees, which now includes the WaveCell team, for their hard work and dedication to excellence, as well as our customers and partners for continued loyalty and support. It is all coming together, and I have never been more excited about the future of 8x8 than I am right now. On to Steven.