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 First Quarter 2021 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 Quarter Fiscal 2021 Earnings Conference Call. Joining me today are Vic Verma, Chief Executive Officer and Samuel Wilson, Chief Financial Officer. During today's call, Vic will begin with business highlights of our first quarter performance. Following this, Sam 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 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 are 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, everyone, and thank you for joining us today. We continue to experience unprecedented times, and I hope you and your families are staying safe and healthy. Before we begin, I would like to welcome Sam Wilson, our new CFO, to the call. Sam has been part of the 8x8 team for almost three years in various executive leadership roles, including spending the previous six months transforming 8x8's cost structure through self-service and automation initiatives as Chief Customer Officer. Sam has also led our small business and mid-market sales, professional services, implementation, and customer support functions. As you will see, Sam has quickly come up to speed in the CFO role, and we are pleased to have his financial leadership and operational acumen as we accelerate into our next phase of growth and profitability. And now to today's business. I will focus my remarks on four core topics. First quarter results, go-to market execution, platform strategy, and finally, our path to profitability exiting fiscal 2021. At 8x8, our mission is to help businesses Thank you for joining us. Our team had strong execution against the accelerating cloud transformation opportunity in today's challenging environment. We started our fiscal year 2021 strong with solid service and total revenue growth and improved operating performance, each exceeding the high end of our financial guidance for the first quarter. Total ARR grew 30% year over year with consistent performance across our platform offerings. New bookings accelerated to 33% year-over-year, excluding CPAS. We achieved our second sequential quarter of solid progress towards profitability, beating our bottom-line guidance and reducing our non-GAAP pre-tax loss by $5 million from the previous quarter. As a result, we reaffirm our path to delivering non-GAAP pre-tax break-even Exiting the fourth fiscal 2021 quarter and our cash usage continues to improve as we cut our cash burn by more than half from the prior quarter. As we have previously discussed, we have made substantial investments in our go-to market over the past two years that are now bearing fruit. This quarter, we saw improved deal execution, continued channel strength, and robust pipeline growth with significantly lower customer acquisition costs overall. Specifically, we expanded our enterprise customer base with 38 new ARR deals greater than $100,000, including a new eight-figure total contract value deal. Combined, mid-market and enterprise ARR grew 52% year-over-year as compared to 39% growth in Q1 last fiscal year. We delivered a record-high bookings quarter overall, led by channel bookings that grew 47% year-over-year. 62% of overall new bookings and 9 of our top 10 deals came from channel partners. Our cloud-fueled partnership with ScanSource and Poly continue to sign new value-added reseller partners that are focused primarily on accessing 15 million on-premise Avaya seats. One notable addition is Allegiant Technology, Avaya's 2019 Cloud Partner of the Year, who joined the ScanSource and Poly Cloud Fuel Bar program. They were particularly impressed with a newly developed 8x8 voice for Microsoft Teams integration, which provides them with a unique value proposition to access the upper mid-market and enterprise markets. Other new ScanSource VARs added to the CloudFuel program include Gage Telecom, Shamrock Communications, and StackAid Technologies. We're also pleased to have Lantana Communications join our U.S. VAR program. In the U.K., Virgin Media Business is ramping ahead of expectations, and we have multiple high-value deals in the pipeline. Globally, We launched our new website and are already seeing improved awareness, a notable improvement in marketing CAC, and increased overall pipeline production. Finally, 68% of our customer base is on the X Series platform, up from 43% last quarter. And we now expect to have more than 85% of our customer base on the platform by the end of the calendar year, ahead of our prior target of 80%. Turning to customers, new customer logos in the quarter represented 64% of new bookings, up from 57% a year ago. Customers in key verticals such as healthcare, manufacturing, public sector, and financial services responded to the pandemic by purchasing X-Series. We saw an improvement in our business performance and channel dynamics in May and June as economies gradually began to reopen in domestic and global markets. Let me highlight a few notable examples. Six of our top 10 new deals were Avaya replacements from customers who selected our X series solution after conducting competitive RFPs with other cloud providers. Two noteworthy examples include a 5,000-plus seat win with a global financial software firm in the UK and a 2,000-plus seat win with a manufacturing company in the US. Both of these deals were channel partner-led and included a bundled 8x8 UCaaS and CCaaS suite. Our newly announced Voice for Microsoft Teams solution made a strong debut last quarter in a number of deals. One example is a global manufacturing company headquartered in Europe that needed a solution that interconnected with Microsoft Teams to enhance their sales and service experience. We won with our 8x8 X-Series, UCAS, and CCAS suite with secure pay. We saw strong momentum in the state, local, education, and special district segments, also known as SLED, in both the US and UK as agencies responded to increasing COVID-19 impacts. Manchester City Council is one of these and a prime example of how 8x8 was able to keep vital services running safely for its more than half a million residents throughout the UK's lockdown. We also won two major US state contact center deals in this quarter. Our largest win was in North America with an important channel partner who led a new eight-figure total contract value deal with a healthcare provider. This on-premise replacement win included more than 20,000 seats of 8x8x series. Continuing with healthcare, we are proud to support providers and employees working on mitigating the impact of the COVID-19 pandemic. We were especially pleased to assist Let's Get Checked a COVID-19 home test kit services provider with remote contact centers in the US and Europe. Within 10 days, we enable Let's Get Checks contact center agents to work remotely and continue providing an uninterrupted customer experience at this critical time. Finally, last quarter, I spoke about a global financial services customer who needed to rapidly scale a work-from-home contact center operation for employees based in India. We enabled 1,000 seats over a weekend. This past quarter, we deployed another 4,000 X-Series UCAS and CCAS seats throughout offices in South America and EMEA. This enterprise customer's relationship with 8x8 has expanded to over 11,000 seats within nine months. All of these wins are a direct result of the ongoing investments we have made in our go-to-market capabilities. Enterprise have witnessed that on-premise legacy systems do not have the ability to tailor a communication and contact center strategy that adapts to a work-from-home COVID-19 environment. As we continue to reap the benefits of our open communication platform and strategy, we believe this will further position us to deliver sustainable, Long-term growth and profitability. Now let's move on to our platform advancement and market penetration strategy. The 8x8 open communication platform is arguably the industry's most complete portfolio of operate from anywhere enterprise communications. It uniquely brings together all the essential digital workplace elements required for enterprise communications, combining voice, TeamChat, video meetings, contact center applications, and API solutions fueled by shared intelligent communication services like AI-driven expert routing and predictive analytics, all on a single platform. Our Voice for Microsoft Teams solution is an enterprise-class global cloud telephony solution that is the first to fully integrate with Teams without changing the experience for end-users. It works natively with both the Microsoft Teams mobile and desktop applications with no downloads required from 8x8. Other Microsoft Teams integrations either change the end-user experience or do not provide global coverage. The benefits of Microsoft Teams and cloud telephony exist in virtually every organization that requires collaboration and communications and is further accentuated when it is integrated with a world-class contact center solution. One of Microsoft's largest UK channel partners is working with us on a program to bring 8x8 solution to their thousands of existing Microsoft customers. In the US, nearly 1,000 channel partners registered for our kickoff webinar, and we are already seeing a strong pipeline of opportunities for this product with those partners. Due to our continued investment in the business, we own all the essential elements of an integrated platform, resulting in three volume on-ramps that are driving sustainable revenue growth. The first on-ramp is our core technology platform with UCaaS and CCaaS bundled offerings. More and more customers see the benefits from having all of their communications delivered from the same platform. 55% of new bookings of $12,000 or more in ARR were from customers that selected bundled UCAS and CCAS. Contact center new bookings grew 194% year over year and represented 32% of total new bookings this quarter. Throughout this pandemic, we've seen many contact centers challenged to handle increased call volumes. Artificial intelligence and automation is increasingly key and we have expanded our operating with conversational AI that captures intent and integrates into Amazon Aurora and an IBR chatbot that offers the ability to send and receive automated SMS messages for instant mobile communication. The second on-ramp is delivering CPaaS globally. We believe that human interaction is redefining the user experience of today's B2B and B2C applications. There are millions of corporate and ISV developers worldwide and we believe that a core competency of the coming years will be the ability to add real-time communications into these applications. Last month, we announced the expansion of our Communications Platform as a Service, or CPaaS, programmable applications and APIs to North America and EMEA. This includes our new, powered by Jitsi, 8x8 Matings APIs. Our network of more than 130 top-tier carriers around the world in 160 countries is powering these APIs and enabling businesses to customize applications and workflows by building in SMS, voice, and video communications into both front and back office customer, partner, HR, and IT solutions. Our CPaaS pipeline in the US and UK is ramping, including many cross-sell opportunities within our UCAS and CCAS customer base. This past quarter we signed more than 50 new CPAS deals globally including more than a dozen clients in the UK. Use cases for new customers include text-to-speech software that turns your text into a voice call and adding SMS messages for customer notification and to enhance security using mobile number verification We also signed a new mobile carrier partnership with Telefonica for Europe and Latin America to expand our SMS and voice network connectivity. Our partnerships with both Oracle and Amazon Web Services, who each have a large share of the developer community worldwide, will be an asset here as we ramp this portfolio to developers worldwide. Our third volume on-ramp is our e-commerce platform as a fully self-service entry point for small businesses and workgroups. In the U.S., U.K., and Australia alone, there are tens of millions of small businesses. Our e-commerce portfolio was created to address these customers with a low-friction buying, provisioning, and support experience. E-commerce is gaining traction and consists of our 8x8 Express and Meeting Pro products. To remind everyone, this is a self-service, 100% online provisioning solution enabling customers to buy the products with a credit card and be up and running in minutes. Since the inception of our e-commerce business, we have doubled e-commerce logos and more than doubled e-commerce revenue every quarter. We are now adding thousands of new customers per quarter. Our Jitsi and 8x8 video meetings growth has now stabilized to the mid-teens in terms of millions of monthly active users, although we do expect increased activity as school returns to session in September. We expect that our path to monetization of our significant Jitsi user and developer base will continue to ramp through our 8x8 Meetings Pro and increasingly our newly announced 8x8 Meetings API. With tens of millions of companies in this business segment, we are optimistic that there is a long runway of growth ahead of this portfolio. I also want to discuss one of the most important investments we have made, which is automating the migration from our legacy products to our X-Series platform. As we continue to make progress on this transition, our X-Series customer satisfaction, churn rates, and support infrastructure are all vast improvements from our legacy base. I'm very pleased to share with you today that X-Series now represents 68% of our customer base, up from 43% last quarter. We have completed our largest automated migration in the first quarter and now expect to have more than 85% of our customer base on the X-Series platform by the end of the calendar year, ahead of our original plan. These strong returns for the quarter were a direct result of our go-to-market investments. Our differentiated platform and continued engineering innovation. The final topic I'd like to discuss is our path to profitability exiting this fiscal year 2021. Over the last two fiscal years, we've invested in developing our platform and building our go-to-market engine and channel infrastructure. The company has transitioned from a mainly small business VOIP offering to a full-featured cloud communications platform that's moving up market. We remain on track to achieve non-GAAP pre-tax break-even exiting our March 4th quarter fiscal 2021. Our operating discipline is delivering results as we optimize our global sales, marketing, and operations for improved efficiencies. We're achieving economies of scale on our multi-year investments as evidenced by our improving gross and operating margins year over year. We remain steadfast in our assertion that work from anywhere will increasingly become a fundamental requirement for businesses of all types and sizes, and we are confident that our 8x8 open communication platform and go-to-market capabilities are well aligned with the market direction. We are pleased with the progress we made this quarter and remain focused on accelerating the execution of our strategic plan. Finally, I want to express my gratitude to all of my 8x8 colleagues for their hard work and continued commitment to our mission. Now, For some additional color on Q1, let me turn the call over to Sam.