8x8 Inc

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

Thank you. Good afternoon and welcome to 8x8's Second Quarter Fiscal 2020 Earnings Conference Call. Joining me today are Vic Verma, Chief Executive Officer, and Steven Gadoff, Chief Financial Officer. During today's call, Vic will begin with business highlights of our second 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 and 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. With that, let me turn the call over to Vic.

Thank you, Victoria. Good afternoon and thank you for joining us today. We delivered strong second quarter results with service revenue up 28.5% year-over-year and total revenue up 27.8% year-over-year, exceeding the high end of our financial outlook. These results were driven by our upmarket focus on mid-market and enterprise customers, continued strong channel performance, good early CPaaS contributions, and accelerating traction internationally. These results reflect improved go-to-market execution across our business. We have seen solid growth in both direct and channel pipeline creation, and good execution by our sales team in all geographies and for customers of all sizes. Our strategy of owning a single global cloud technology platform enables us to innovate faster to disrupt four massive markets. Unified communications, contact center, video meetings and now communications platform as a service. Today, I would like to focus my remarks on three topics. Bookings performance, competitive environment, and platform innovation. First, total Q2 organic bookings grew 35% year over year and reached a new quarterly record. Bookings growth was strong across the board, and our results in mid-market and enterprise were particularly encouraging. Based on these strong bookings and contributions from CPAS, mid-market ARR grew 53% year-over-year and enterprise ARR grew 83% year-over-year. Contact center bookings represented about a quarter of our total new bookings and grew 41% year-over-year. All geographies had strong bookings growth this quarter, but our UK business was particularly notable with an excess of 100% bookings growth year over year. We closed a number of large global deals, including a record eight-figure TCV deal with more than 30,000 seats. A significant contribution to our strong organic bookings performance came from our global channel partners. We had several important channel accomplishments this quarter. Channel bookings grew 80% year over year, and channel partners were involved in seven of our top 10 deals. We expanded our channel program to 19 strategic masters, including the addition of telecom consulting group and converged network services group. Our channel program now has over 900 active partners. 8x8 was honored to be named the Partners Choice Award Top Overall Supplier by Intellisys for demonstrating the highest level of excellence, dedication, support, and value to Intellisys and its sales partners. 8x8 was also honored with the Top Vendor Sales Award at AVANCE Special Forces Summit Europe event last week. We know our channel partners are critical to our ongoing success, and we remain focused on winning together. Our partners confirm that our fully owned global technology platform is driving the market to 8x8. A great channel win this quarter is an over 5,000-seat deployment with Indeed, a leading U.S. job search firm with a presence in over 60 countries. They have been experiencing tremendous business growth and were looking for a technology provider that could scale and rapidly deploy solutions to their expanding global offices and replace a legacy on-premise ShoreTel system. Indeed considered several other cloud providers and in the end chose the 8x8x series, including Contact Center. I also want to highlight recent momentum in the government vertical. In the UK, we secured a 3,000-plus seat win with a local government service which supports libraries, social services, and a local education authority. 8x8 was able to replace legacy systems with 8x8x series including contact center. In the U.S., we have been awarded a place on a cooperative government contract by NASPO, the National Association of State Procurement Officers. This NASPO value point contract for SLED agencies, state, local, education and special districts, empowers 8x8 channel partners to work with these organizations through a simplified procurement process. They are now able to purchase cloud communication solutions, including voice, chat, contact center, video meetings, and team messaging directly from 8x8. Early channel conversations indicate that the SLED market is ripe for cloud adoption. Another contributor to Booking's growth was an expansion of more than 20% in the number of new logos added during the quarter. A major driver of this result was the launch of 8Bite Express, our e-commerce offering that provides an easy self-service path for small businesses to instantly move their communications to the cloud. 8Bite Express will be launching in the UK in the near future as well. As a final comment on bookings, I'm delighted to see the land and expand continues to be the norm with our mid-market and enterprise customers as they see immediate value from initial deployments and look to standardize globally. A great example of this is the eight-figure TCB deal I mentioned earlier. This customer started with us a year ago with 1,000 seats and this quarter they signed for another 30,000 seats globally on the 8x8 X-Series platform. The second topic I want to address is the evolving competitive environment. There have been a number of interesting developments in the competitive landscape over the past few weeks from a cloud UCAS vendor linking arms with a legacy provider to a cloud video meetings provider that partners with the same UCAS vendor announcing a competitive offer in the UCAS space. We have been asked whether any of these ecosystem changes create headwinds for 8Bytes disruption of the $60 billion market available to us. The short answer is quite the opposite. If anything, These changes are accelerating our opportunity. Let me explain why. First, anytime a legacy on-premise provider with a large install base announces that the future for their customers is cloud, it brings more opportunities to us for those of us who are in the cloud to begin with. Anytime customers make a change and moving to cloud is a change, they want a choice. Pushing more customers to change just pushes more customers into evaluations with 8x8. It is increasing the number of at-bats that we are getting. Second, for customers considering a shift to cloud, the benefits of a single cloud platform technology are clear. Do you want a unified data model so you can optimize across your business? Are you confident that your cloud roadmap is protected from future technology changes? How would you like it if your UCAS provider changed its contact center partner just after you made a purchase? How can you be sure that your video meetings will integrate well with your communication services? We have a consistent strategy and a consistent technology platform. It helps us when other providers change horses mid-race and when former partners begin to compete with each other. Third, something else we know is that migrating smoothly to the cloud requires a close partnership between the customer, cloud provider, and channel partners. This is what we do every day, migrating customers from Avaya, Cisco, Shortel, Mitel, and other provider on-premise solutions to our unified cloud platform. There are more than 350 million legacy seats out there, and we have solutions available today to migrate them to the cloud. No need to wait for announcements to maybe turn into a product sometime in the future. Finally, we can do even more to help these customers successfully move to cloud solutions. This morning, we announced a strategic partnership with two industry leaders, Poly and ScanSource. This joint global program named CloudFuel will accelerate the process of replacing legacy on-premise communications infrastructure while ensuring organizations have proven technology to meet all of their needs across unified communications, collaboration, and contact centers. This is the first time a comprehensive, frictionless hardware replacement and cloud migration program will be offered to the VAR community. In addition to the agent community, which remains a major focus of our efforts going forward, we strongly believe that VARs are an important and distinct path to the legacy install base. The VARs have developed long-term relationships with end customers and continue to serve as their trusted advisors as the world shifts to cloud, regardless of the original equipment vendor. Using 8byte's award-winning unified communications and contact center solution on 8byte's single technology platform, along with best-in-class equipment from Poly and an extensive ScanSoft network of more than 35,000 resellers, CloudFuel will provide access to hundreds of thousands of customers across the globe. Importantly, this program will allow VARs to continuously to sell the way they are used to selling. For the first time, bringing true cloud communication services into the bar model in a natural way. This offering includes the full range of 8x8x series and standalone solutions and will leverage frictionless migration tools and deployment services. 8x8, alongside our partners, intends to invest in this partnership through various forms of incentives, equipment buyback programs, joint development funds, dedicated resources, and migration tools. Since the product exists today and the ScanSource sales team are already familiar with 8x8 Solutions, we will be able to begin selling under this program in December. This is a game changer for the industry. and we are honored to partner with both Poly and ScanSource to help accelerate customers' move to the cloud. The last topic I would like to highlight is the accelerating pace of innovation on our single cloud platform. Since we own the technology and have built it into a single platform, we can now innovate much faster than ever to deliver the future of business communications. Let me touch on a few recent high points. In September, we launched 8x8 Video Meetings, a completely reimagined meeting solution available for all X-Series and Express customers and provided complimentary as part of their service subscriptions. We have received very positive early customer feedback and recently rolled out 8x8 Video Meetings to all classic customers as well. We are also working with early access customers and video conferencing equipment partners to launch our 8x8 meetings room solution. The goal is to bring easy video collaboration to every huddle and conference room space with an intuitive interface and smart pairing technology to connect to devices. This will be yet another opportunity for our partners and especially our VAR community as many businesses prefer to have on-site installation handled by a reseller working directly with their cloud communications provider. Next month, we will also be launching a standalone 8x8 video meeting service for new customers. This new standalone service allows users to easily schedule, start, and join audio and HD video and audio conferencing from any device or room without the need to register or download software. 8x8 Video Meetings will provide personalized meeting IDs and meetings rooms, screen sharing, remote keyboard and mouse control, host and participant collaboration tool, and meeting control for all participants and it will support meetings of any duration. In this initial phase, we plan to offer video meetings free to new customers to encourage adoption. The natural expansion opportunity is to then sell those customers soft phones, voice, chat, or contact center solutions via our X-Series offerings on the same platform. Turning to CPaaS, I'm pleased that integration of the WaveCell acquisition is ahead of schedule. In fact, we have seen cross-sell opportunities in both directions materialize faster than we expected. We are in discussions with several large 8x8 customers in both the US and UK who are interested in leveraging CPaaS APIs to customize and extend our voice, chat, video, and contact center capabilities across their businesses. This is in line with our strategy of tightly coupling CPaaS capabilities with our pre-packaged contact center solutions to enable a new level of customer engagement. As we discussed when we announced the acquisition, this customization further increases both customer value and stickiness, which is why the land and expand part of our market becomes such a huge opportunity for us in our install base. We also continue to sign exciting new CPaaS customers onto the platform, such as one of the fastest growing global hospitality companies, with over 23,000 locations in over 800 cities. This customer is using our platform to differentiate and enhance their customer experiences with messaging that provides directions, booking confirmations, cancellation, and payment services. Finally, I am pleased to highlight industry recognition that further validates 8x8's leadership. 8x8 was named a leader in the 2019 Gartner Magic Quadrant for Unified Communications as a Service worldwide for the eighth year in a row. Unique in our industry. We were also named a challenger for the fifth consecutive year in the Gartner Managed Magic Quadrant for Contact Center as a Service North America. Also, 8x8 was named the 2019 Best Cloud Communications Provider by UC Today which recognizes organizations that have proven market success and continue to push the boundaries of innovation. These awards speak to the success of our strategy of innovation and how our single cloud technology platform helps companies to transform communications and unify the needs of a global mobile workforce to enhance productivity for both employee and customer engagement. Overall, approximately 32% of our installed base is on the 8x8x series platform, up from 26% last quarter. In summary, I am pleased with our Q2 results. Our cloud technology platform and go-to-market execution are driving strong results across our business. We see more customers turning to cloud and looking to us for solutions that are available today. We're excited about CloudFuel. our partnership with ScanSource and Poly. I'm excited about the accelerating pace of innovation on our platform. Building on this momentum, we look forward to the second half of our fiscal year. I also want to take this opportunity to thank our 1,800 global employees for their hard work and dedication, as well as our customers and partners for their continued loyalty and support. On to Steven.