8x8 Inc

Good evening. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the 8x8 Inc. Fiscal Fourth 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 Fourth Quarter and Full Year Fiscal 2020 Earnings Conference Call. Joining me virtually today as we are all working from home are Vic Verma, Chief Executive Officer, and Steven Gadoff, Chief Financial Officer. During today's call, Vic will begin with business highlights of our fourth 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 forward-looking statements about 8x8's future financial performance as well as its business, product, and growth strategies including the impact of the COVID-19 pandemic. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties. They may cause actual results to vary materially from the four looking statements as described in our risk factors in our reports filed with the SEC. Any four 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 US 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, everyone, and thank you for joining us today. We are living in truly unprecedented times as the COVID-19 pandemic has impacted the world in unexpected ways. Let me begin by extending my hope that everybody on the call and your families and loved ones are healthy and staying safe. As COVID-19 spread around the globe, we took decisive actions early on to safeguard our over 16 Thank you. Thank you. flexible work from anywhere on any device and in any digital form is now not just a nice to have, it is a critical business continuity imperative. Fortunately, we are ready. As you know, we've had the investment conviction over the last few years to engineer our platform into a unified, scalable, full-featured cloud platform with voice, Video, Chat, and Contact Center. The last 10 weeks has accelerated platform penetration by many months, if not years. Let me give you a few examples. Over the course of 10 days, we worked with WeSchool to bring Italy's secondary school system online. We work with big and small telehealth organizations like the UK's Bionicle Solutions government health agencies, customer service organizations like ACER in North and South America, financial institutions in India, and state and local governments to tackle call volume for helplines and unemployment claims. We onboarded new customers efficiently and without any of our employees or partners having to go on site. We launched a number of new initiatives to better help customers and prospects worldwide. The 8x8 rapid expansion program allowed us to quickly provision additional seats and services to existing customers. And with our self-service e-commerce offering, 8x8 Express, Jitsi Meet, and 8x8 Meetings, we provisioned and served tens of millions of free and paid customers and were able to scale quickly and securely. As you saw through the numerous press releases over the last month or if you tracked our global usage map on the 8by8.com slash live website, our free Jitsi and 8by8 video meeting solutions skyrocketed to now more than 20 million monthly active users. In just a few short months, Jitsi and 8x8 video meetings are now credible, secure alternatives to Zoom, and more importantly, a strategic on-ramp for the 8x8 X-Series platform. And the growth was not just standalone video meetings. From February through April, 8x8 X-Series platform scalability and usage has also been unprecedented. We nearly tripled the number of app downloads as well as messages exchanged and more than quadrupled bundled video conferencing. We also roughly doubled the total number of app-based phone calls in this period. This is extraordinary and we are working to capitalize on this dramatic growth of use on the X-Series platform by customers of all sizes. With that backdrop, I'd like to focus today on three topics. First, I'll briefly review highlights from our fourth quarter results. Second, I'd like to provide an update on recent product innovation and strategic partnership announcements, including the launch of our Meetings Pro video solution and our recently signed Virgin Media business partnership. And lastly, I'd like to discuss our long-term strategy as we move through fiscal 2021. Let me start with our financial results. We delivered solid fourth quarter results leading to a great close for the year. Service revenue and total revenue grew 30% year over year in the fourth quarter, both exceeding the high end of our financial outlook. Key drivers of the quarter's growth performance include continued success with mid-market and enterprise customers and channel partners. We grew our enterprise customer base with a record 42 new deals closed with ARR greater than 100,000, and five of our top 10 wins were Avaya Replacements, who selected our X-Series platform solution. X-Series now represents 43% of our customer base, up from 37% last quarter. Our single technology platform continues to be an important differentiator as we replace legacy on-premise systems and single point solution providers. 71% of our new bookings greater than $12,000 ARR were from customers that selected bundled UCaaS and CCaaS as compared to 52% one year ago. Contact Center bookings grew 76% year over year and represented 30% of our total new bookings this quarter. More importantly, all of our top 10 deals included Contact Center, which demonstrates the criticality of having Contact Center as part of a single scalable technology platform. Turning to the channel, our execution was strong again in Q4, with channel bookings up 63% year over year. Our channel drove 54% of new bookings overall, including eight of our top 10 deals. Demand generation was strong in the channel as well, and we had over 1,000 channel partners register deals in the quarter. And we are continuing to expand our channel footprint with VARs and master agents with multiple advances in the past month. We recently signed a strategic partnership with Virgin Media Business, one of the UK's largest business data network providers with services to over 50,000 UK businesses, to accelerate the cloud adoption of voice, video meetings, chat, and contact center solutions to private and public sector businesses. Virgin Media views 8x8 as a truly disruptive business with innovative products that fit naturally into Virgin's cloud strategy. CloudFuel, our partnership with ScanSource and Poly is progressing well. ScanSource is Avaya's largest distributor with more than 30,000 VARs in its portfolio. Sales and VAR training have been underway since February and we closed our first deals in Q4 as expected. We still have a lot of joint work and opportunity ahead of us as we systematically onboard new VARs and drive broad coverage across the Avaya install base. Comstar Technologies, an international IT services firm with more than 30 years of experience reselling technology solutions, added our UCaaS, CCaaS, and video meeting solution to its product portfolio and has already moved thousands of customer seats to aid by its platform. Finally, we enhanced our relationship with channel master agent Avant Communications, which deployed our X-Series UCAS solution for their own use to enable their US and UK employees to work from anywhere at any time with no loss of productivity. Across every business segment, we want a record number of new customer logos in the quarter, representing 58% of total bookings. In the fourth quarter alone, we onboarded 5,500 new paying customers, nearly doubled the number a year ago and 35% higher sequentially. More than 2,000 of these logos came from our e-commerce offering, all self-provisioned and completely online. I'd like to highlight a few notable wins that exemplify the extraordinary work that our team did with customers this quarter. In North America, an important channel partner led a seven-digit deal for an Avaya on-premise replacement with a leading global manufacturer. This included more than 5,500 seats of 8x8x series, including both UC and Contact Center. We displaced several competitors during the RFP process because of our global deployment capabilities, voice quality, and Maturity of our technology platform. In the UK, we secured both a 2,200 seat Avaya replacement and a 5,000 plus seat win with two local government service boroughs. Another great win out of EMEA is with MSC Mediterranean Shipping Company, one of the world's leading container shipping companies headquartered in Geneva, Switzerland. Before selecting 8x8, MSC was using several disparate global communication systems and were looking to consolidate them into a single platform for unified communication and contact center. They needed enhanced workforce collaboration to support disaster recovery and business resilience initiatives as well as offer omni-channel communication options to its customers. MSC selected 8x8 because of the experience with global solution deployments as well as compatibility with Microsoft Teams. Our CPaaS integration is going well as we continue to build traction with large multinational customers. New use cases of CPaaS for SMS registration and notifications include a provider of modern mass rapid transportation in Indonesia and an online game publisher in Thailand expanding into Vietnam, Philippines and Malaysia. I'll finish up with a land and expand example from my install base that I'm particularly proud of. As India mandated a shift into work from home mode with little warning at the end of March, a widely recognized banking financial services provider needed to rapidly scale a work from home contact center operation for 7,000 employees. We were able to meet the requirements and activated 1,000 seats just over a weekend. Moving on to my second topic, I'd like to provide highlights from our product innovation and strategic partnerships. Let me first focus on the strategic importance of video meetings. In the last eight weeks, video meetings have become a mainstay of business communications. Online searches are up roughly 90,000%. Teachers, governments, Healthcare providers and companies of all sizes are leveraging video meetings as a way to stay connected and work productively. And as you know, from the start, we have offered our video meeting products for free with our Jitsi open source project, our standalone 8x8 meetings, and integrated into our X-Series offerings. To put this in perspective, in November of last year, just six months ago, We launched our first product based on the Jitsi open source video meetings. In the course of the last 10 weeks, we built a strategic asset with over 20 million monthly active users, albeit primarily free users. The Jitsi community itself is over 2,000 developers strong, built on a foundation of strong encryption, ease of use, and privacy. This is important as over the last month, we've seen that secure video meetings and strong encryption is a critical differentiator. In response to these extraordinary market events, in the first half of April, we released our first standalone paid meeting product at $9.99 per month and are now offering it exclusively via e-commerce. Nearly a million times a day, A splash screen at the end of every Jitsi meeting promotes 8x8 paid video meetings or other 8x8 offerings. We also publicly demonstrated end-to-end video meetings encryption and published a spec for open comments to the Jitsi community. As you can imagine, as a result of all of this activity, our video traffic climbed to more than 1.5 petabytes per day leading us to evaluate hosting options. To put this in perspective, this is equivalent to uploading 10 billion new photographs to Facebook every day. We selected Oracle for its top-tier security and price performance. 8x8's video meeting solution, including our free and paid offerings, along with Jitsi.org are now live on the Oracle Cloud infrastructure. We also joined the Oracle Partner Network and as a result, our video meeting solution are now available in the Oracle Cloud Marketplace where hundreds of thousands of Oracle customers can now buy 8x8 Meetings Pro. And as you saw this morning via press release, we're now beginning to jointly promote our work together worldwide. As I mentioned previously, the last few weeks have been extraordinary and have provided us with an incredible asset that helps build 8x8's brand drives potential new customers to our website and is starting to grow a new revenue stream, all while helping our communities and customers, including governments and first responders, to communicate in these difficult times. We are also continuing to advance our platform differentiation through a number of new initiatives, including integration with important third-party partners. Next month, we will formally introduce 8x8 Voice for Microsoft Teams, a cloud-based integration that provides enterprise-grade telephony and global PSTN connectivity to customers that want to retain Microsoft Teams as their collaboration interface. Voice for Teams is currently available for select enterprise accounts with broad availability planned to all regions later in the summer. This capability was critical to our win with MSC, as I mentioned earlier. This quarter, we will also be formally launching our CPaaS offering globally. We have seen strong interest and have already closed initial deals in the UK and Europe. And we are ramping our CPaaS pipeline in both the US and UK, including many cross-sell opportunities within our UCaaS and CCaaS customer base. We look forward to sharing more details in the near future. The third and final topic I'd like to discuss is our long-term strategy as we look ahead to fiscal 2021. While the COVID-19 crisis remains fluid, 8x8 continues to focus on using our technology to help people around the globe stay safe and productive no matter where they are. We believe that 8x8 has never been in a better position than we are in today for three reasons. Flexible work from home is accelerating around the world. The combination of rapidly scaling remote contact centers and virtual offices with the need to provide all workers with the ability to move seamlessly from chat to voice to video will soon be the norm. Our single cloud platform including secure video is the right answer. As more and more customers see the benefit from having all of their communications delivered from the same platform, It only validates our strategy and furthers our competitive advantage. Second, our customers are relying on 8x8 as the single platform for transformation and resilience in the face of current and future challenges. Our product portfolio has never been stronger or better positioned with X-Series technology platform and standalone voice, contact center, video meetings, and enterprise APIs. The overall adoption of our soft phone applications for both mobile and desktop in particular has been nothing short of extraordinary. Third, what we are seeing is that communications is a critical service, even more important than physical offices. It is the first and last thing that a company turns on and off during times of uncertainty. The digital transformation from on-premise to cloud was a business imperative before COVID-19 and we believe will continue to accelerate in this environment. We continue to see strong demand for our communication solutions and our secure video meeting strategy has created a new on-ramp for customers to be introduced to our platform. Looking ahead to fiscal 2021, our focus remains on strategically managing the company for the long term including providing increased support to our customers and partners as we all navigate the uncertain future ahead. In this context, let me tell you how we are improving CAC and LTV to drive scale across the business. First, we're building brand recognition by capitalizing in the dramatic growth of our video meeting space. Thousands of new logos are being introduced to 8x8 through e-commerce, Jitsi, and 8x8 video meetings at a very low cost. Essentially, this massive base of new users is a marketing asset that will continue to accelerate new customer growth at very low cost. We will continue to monetize this growing user base through X-series and standalone solutions on our platform, steadily lowering our CAC over the long term. Second, in our install base, we are rapidly migrating our legacy customers to the X-Series platform. We're targeting to have over 80% of our install base migrated by the end of the calendar year. Through the development of advanced automation by our engineering teams, we have accelerated the migration of our customer base from legacy platforms. Every quarter, we are now migrating thousands of customers to the 8x8 X-Series platforms. This will not only reduce our support costs but also increase customer lifetime value, and we have found that platform customers have significantly less risk of churn and materially higher net dollar retention. Third, we are improving our overall customer mix. As we all know, small business has traditionally been both expensive for us from a CAC standpoint as well as the highest risk for customer churn. We have made strides in scaling our marketing automation infrastructure and databases and accelerating our e-commerce offerings to increasingly transact workgroup and microbusinesses online with attractive self-service support offerings. Additionally, over the last few quarters, we have moved our ARR mix-up market to the enterprise and mid-market with 79% and 55% growth, respectively. Not only are we onboarding more attractive customers, but we're able to service them better with new self-service offering and new premium support offerings. However, this transaction will take time as we continue to manage our churn exposure by migrating more of our legacy small business customers to the X Series platform throughout the fiscal year. All of the initiatives I've detailed about will make a difference as we manage through some near-term pressure on our year-end year-over-year growth rates. Additionally, we will continue to restructure operations for improved efficiencies, reduce product subsidies, and take advantage of reduced travel and event costs. As Stephen will go through shortly, we're on track with our goal to achieve non-GAAP profitability exiting this fiscal year. Furthermore, while we are in an unprecedented near-term macro environment, We can build upon our ability to drive revenue growth coming out of this difficult period based on a complete and integrated technology platform and a unique partner ecosystem that consists of channel master agents, value-added resellers, technology partners, and global carrier relationships. To wrap up, I would like to express my sincere appreciation to the 8Bite employees for their extraordinary efforts during this quarter. I would also like to thank our partners and customers for their close collaboration through this period and for their ongoing support and trust in us. With that, let me turn the call over to Steven.