8x8 Inc

Good evening. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the 8x8 Inc. Fiscal Second 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 second quarter fiscal 2021 earnings conference call. Joining me today are Vic Burma, Chief Executive Officer, and Samuel Wilson, Chief Financial Officer. During today's call, Vic will begin with business highlights of our second 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, 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 COVID-19 pandemic. 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 obligation 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 these 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. I hope all of you and your loved ones are healthy and safe. we delivered a strong quarter across the board in Q2. As the only PurePlay integrated UCaaS, CCaaS, and CPaaS provider in the market today, customers are embracing and validating our integrated platform strategy. In fact, Platform customers who have at least two out of our three solution categories grew at twice the rate of the overall market and now represent nearly a third of the company's ARR. Our new voice from Microsoft Team Solutions sold tens of thousands of seats this quarter and is one of our fastest growing new products. We are accelerating acquisition of new logos as e-commerce delivers thousands of new customers per quarter. And our pipeline significantly expanded due to both record partner deal registrations and the strongest conversion ever from our digital channels. In summary, our go-to-market investments are achieving strong returns and our team executed exceptionally well. In parallel, we have also made significant strides unlocking operating leverage in the company. We achieved a third sequential quarter of improved profitability, exceeded top and bottom line guidance, and significantly reduced our non-GAAP pre-tax loss. Steadily improving execution resulted in lower customer acquisition costs, higher operating margins, and better cash management. And we surpassed expectations for migrating off our legacy customer base with more than 90% of our customer base now on the X-Series platform. Most importantly, we remain on track to achieve non-GAAP pre-tax breakeven exiting the fourth quarter and expect to be cash flow positive in the second half of fiscal 2022. Looking ahead, we have a clear line of sight to both profitability and continued growth. As a result, we are comfortable establishing full year guidance and raising our ending cash balance outlook for the fiscal year. Sam will cover more of the financial details later on the call, but he and the finance team have made a significant contribution in improving our operating margin, optimizing our investments and go-to-market, and strengthening our cash position. Let me focus my remaining remarks on highlights from the quarter, the three pillars of our platform strategy, and thoughts on the second half of the fiscal year. With regard to our second quarter business highlights, Our go-to market and channel-first strategy saw improved growth globally, particularly upmarket with mid-market and enterprise customers. We had a record quarter with mid-market and enterprise customers. We closed 48 new deals with ARR greater than $100,000, up from 30 deals a year ago. This includes 22 upsell and cross-sell deals, illustrating the effectiveness of our land and expand platform strategy. At the end of the quarter, we had a total of 670 customers with ARR greater than $100,000, a 25% year-over-year increase. We had a very strong quarter overall for our contact center portfolio, including a seven-figure total contract value, or TCV win, with a global recruiting leader that added more than 800 contact center seats. We also delivered several eight-figure TCV wins this quarter, including a significant international add-on order from a global logistics company that included 1,300 contact center seats and 13,000 voice for Microsoft Teams seats. Channel success is accelerating as our channel program drove nine of our top 10 deals and 59% of overall new bookings. We partnered with master agent Pax8, one of the top suppliers of Microsoft Teams to the MSP community. This is a significant move to drive further adoption of 8x8 voice for Microsoft Teams. Our CloudFuel VAR program continues to ramp with the number of VARs qualified to sell, implement, and support 8x8 after completing our exhaustive certification program. We added dozens of new VAR partners, including SpectroTel in the U.S. and OneCom in EMEA. In the U.K., Virgin Media Business closed several new wins with state, local, education, and special districts, also known as SLED. These included Ashfield District Council purchasing 400 UCAS seats plus voice for Microsoft Teams, and Avon and Wiltshire Mental Health NHS Trust purchasing over 3,000 bundled UCAS and CCAS seats. And we were very honored to receive both the Partner's Choice Award Top Overall Supplier for the second consecutive year from Intellisys and the International Vendor of the Year Award from Avon. In sum, We are seeing an acceleration in sales momentum and healthy pipeline coverage with growth across our domestic and international markets. Customers in key verticals such as healthcare, manufacturing, public sector, and financial services are choosing 8x8 X-Series for their cloud communication needs. Let me highlight a few notable wins. We continue to replace legacy Avaya on-premise systems, including a notable seven-figure TCV win with a global manufacturing enterprise. With operations in North America and Asia Pacific, this customer needed a tightly integrated cloud-based communication and contact center solution. This is a 2,000-plus-seat UCAS and 400-plus-seat contact center deal in which 8x8 was selected for expertise in global deployment and customer service. A marquee channel win and eight-figure TCV deal is with a large veterinary practice. They were using several disparate communication systems consolidate them into a single platform to help support disaster recovery and business resilience initiatives. We've won this 16,000 plus seed deal after a very competitive RFP with several other cloud providers. We see continued momentum in SLED as government agencies respond to ongoing COVID-19 impacts. A great example is with one of the largest NHS community health providers in England. APIEC replaced multiple legacy telephony solutions with our platform for patient-facing contact center agents and back office clinical experts across 200 locations. This seven-figure TCV deal with 4,000 plus bundled seats builds on a successful 250-seat contact center deployment earlier this spring. Lastly, In financial services, we secured a 7,000 plus feet upsell deal with a longstanding enterprise customer. They continue to turn to 8x8 as a trusted business partner for their global cloud communication and contact center solutions. Moving on to my second topic for discussion. As you know, our open communication platform is the only pure-play integrated technology platform in the market today that includes UCaaS, CCaaS, and CPaaS. We are seeing strong growth across each of these three pillars from customers that want the advantage of an integrated platform. First, we continue to see strong growth for UCaaS solutions with customers that want to modernize their telephony platform. Success with our UCaaS offerings has long been our core business, but recently growth has been powered by success with Microsoft Teams integration, e-commerce, and customers looking for UCaaS and CCaaS combination solutions. With voice from Microsoft Teams, we are seeing strong early adoption. From small businesses to large enterprises, customers are selecting 8byte's global cloud telephony solution that works natively across Microsoft Teams, mobile, web, and desktop applications. 8byte Voice for Microsoft Teams is an enhanced direct routing solution that connects to a customer's tenant on the Microsoft phone system, providing that customer with PSTN connectivity and global calling plans in 42 different countries worldwide. Our solution also integrates 8x8 contact center and third-party enterprise apps, including Salesforce. This quarter, we signed several hundred customers and sold tens of thousands of Voice for Microsoft Teams seats. A great example is with MSC Mediterranean Shipping Company, one of the world's leading container shipping companies, headquartered in Geneva, Switzerland. During our May earnings call, I spoke about MSC previously using 20 disparate global communication systems prior to selecting 8x8 for our integration with Microsoft Teams and global deployment expertise. After experiencing successful rollouts in Germany and the US, MSC expanded their global footprint to include approximately 17,000 UCaaS and CCaaS seats overall. Based on experience with similar customers, we believe that our global voice for Microsoft Teams solution is highly differentiated in the marketplace today. We have also seen accelerating demand for this solution with our channel partners in all geographies. Additionally, our e-commerce platform remains an exciting self-service entry point for small businesses and workgroups. We have nearly doubled e-commerce revenue every quarter since launch and continue to have thousands of new customers each quarter with our 8x8 Express and 8x8 Meet Pro solutions. We are now offering 8x8 Express to several of our channel partners as well as with new affiliates such as Wix. where small and new businesses can easily add UCaaS capabilities as they set up their web presence and purchase other small business services. E-commerce is a high-leverage, economically attractive way for us and our channel partners to bring large quantities of our customers onto the X-Series platform. Moving to our second solution pillar, CCaaS, we see strong acceleration in demand, particularly for bundled UCaaS, CCaaS deals. As businesses aggressively shift to operate anywhere, engage customers remotely, demand for cloud-based contact center has increased sharply. 70% of new bookings, 12,000K or more in ARR were from customers that selected bundled percent a year ago. Nine out of the top 10 deals were UCNCC bundle deals. Overall contact center new bookings grew 62 percent year over year and represented 32 percent of total new bookings this quarter. We saw more large contact center wins, as well as additional expansion of our base, embracing a combined UC and contact center approach to support work-from-home agents, outbound sales, help desk, and field employees. We also started rolling out 8x8 contact center version 9.12. Important updates include new and enhanced functionality, bringing together preview, progressive, and predictive dialing modes. This release helps our customers improve connection rates, maximize revenue opportunities, and meet evolving regulatory requirements in the US and UK. We also expanded our global reach capabilities with added support in Latin America, Europe, Africa, and Central and East Asia, providing an enterprise telephony solution for organizations in 42 countries across six continents. Our third solution pillar is CPaaS, where we have scaled globally with the expansion of our programmable applications and APIs to North America and EMEA. We achieved double-digit CPaaS revenue growth quarter-over-quarter and see signs of continued improvement in Southeast Asia. We nearly doubled the total number of deals closed quarter-over-quarter, including double-digit wins from the US and UK. New customers included transportation and logistics, retail and e-commerce businesses using our SMS, voice, video, or chat APIs. We are also seeing customers find new ways to add CPaaS to our open platform to extend communication and customer engagements to meet their unique business requirements. One example is a leading UK insurance broker that wanted to extend their X-Series UCAS and CCAS capabilities to further enhance the customer experience. They added our CPAS SMS notifications to provide information to new policyholders and alert existing customers about upcoming policy explorations. We are also seeing demand for real-time performance monitoring to ensure high-quality experiences as the number of virtual events, meetings, and work-from-home requirements continue to increase. CallStats, our WebRTC analytics service, is uniquely positioned to quickly provide administrators with those insights so they can easily address any network-related issues. We saw a record level of account sign-ups for our CallStats solution. We signed a new mobile carrier partnership with Telia for Europe to expand our SMS and voice network connectivity. We have a network of more than 160 carriers delivering coverage globally to enable businesses with our CPaaS solutions. Finally, we will shortly be announcing beta availability of Jitsi as a service, which will be the most reliable, secure, and scalable video meeting as a service solution in the market. Building on the Jitsi open source experience, this solution empowers developers to add and customize video meetings to their website and real-time contactless engagement applications in areas such as telehealth, education, and retail. We have several customers already leveraging the Jitsi as a Service APIs to self-host, embed, and manage video meetings to engage customers online and in mobile applications. We expect to make Jitsi as a Service generally available before the end of the calendar year. As we continue to explore the multiple growth opportunities afforded by our complete platform, we expanded the team throughout our organization marketing, product development, and customer success. During the second quarter, we also welcome Steve Seeger as Chief Revenue Officer. Steve has more than 20 years of experience in revenue leadership roles in prominent companies such as TIBCO Software, SAS, Xerox, and Oracle. He has deep experience in enterprise software and cloud technology, and we believe that he will be instrumental to our progression and growth. The final topic I'd like to discuss are observations for the second half of the year. We have demonstrated that the 8x8 open communication platform is fit for purpose as part of a customer's digital transformation to the cloud. We are uniquely positioned to meet customer demands with our global proven and scalable unified phone, video, messaging, contact center, and enterprise API platform. While the competitive landscape is always changing, the strategy of having a single platform solution has been validated by the market, which will ensure an ongoing source of value for 8x8. We are very pleased with our financial progress and are steadily unlocking operating leverage within the company. We have aligned resources and are investing in innovation and go-to-market initiatives that will provide tailwinds for the remainder of this fiscal year and beyond. A key component of continuing operational improvement and leverage has been our strong success with automating customer migrations. The migration of our legacy customer base is well ahead of plan, and we exceeded our goal of having more than 85% of our customer base on the X-Series platform by the end of the calendar year. In fact, over 90% of our customer base is now on the X-Series platform, up from 68% last quarter, above target and ahead of schedule. And we remain focused in substantially completing our legacy migration program by end of the fiscal year. We have already seen a reduction in churn rates, improved customer satisfaction scores, and a decrease in support costs from customers migrated to the X-Series platform. Most importantly, now that the majority of our logos are on the X-Series platform, it establishes a solid base for platform expansion and upsell. This is a significant accomplishment, and I'd like to thank the engineering and biz apps team for their outstanding work. With continued strength from channel partners, CPaaS rebounding and newer initiatives such as Voice for Microsoft Teams were only scratching the surface in penetrating a $60 billion legacy market with hundreds of millions of seats all up for grabs. In summary, we are seeing market validation of our platform strategy and steadily improving execution across the company reflected in our financial results. We have a clear line of sight to non-GAAP pre-tax breakeven exiting March 2021 with continued strong growth this fiscal year and beyond. I would like to thank all of our employees for their hard work and dedication in achieving these outcomes. I will now turn the call over to Sam.