8x8 Inc

Thank you ladies and gentlemen for joining and welcome to the 8x8 fiscal Q3 2022 earnings conference call. My name is Selina and I'll be facilitating your call today. If you wish to ask a question, you'll have the opportunity to do so at the end of the presentation. Please press star followed by one on your telephone keypad if you wish to ask a question. To remove a question, please press star followed by two. I now have the pleasure of handing over to your host today, Kate Patterson, VP of Investor Relations to begin. Kate, please go ahead.

Thank you, and good afternoon. Today's agenda will include a review of our third quarter results with Dave Sipes, our Chief Executive Officer, and Sam Wilson, our Chief Financial Officer. Following our prepared remarks, there will be a question and answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including the impact of the FUSE acquisition, as well as our business, product, and growth strategies. 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 forward-looking statements as described in our risk factors in our report filed with the SEC. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today and we have no plans or obligation to update them. Certain financial measures that will be discussed on this call, together with the 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 in our earnings press release and our earnings presentation slides, which are available on 8x8's investor relations website at investors.8x8.com. With that, I'll turn the call over to our CEO, Dave Seitz.

Thank you, Kate. Good afternoon, everyone, and thank you for joining us today. Let's turn to a review of our third quarter, an update on our acquisition of FUSE, and our progress and plans for the future. In fiscal Q3, we delivered service and total revenue above the high end of our guidance ranges. Additionally, we delivered positive operating cash flow for the fourth consecutive quarter and achieved our year-end operating margin target a quarter ahead of plan. We also announced our acquisition of Fuse, which increases our enterprise customer base and adds resources for innovation. This transaction closed on January 18th. The market opportunity to migrate business communications to the cloud is massive. We are beginning to see the impact of our focused investments in XCAS, go-to-market, and especially channel and the global coverage in our Q3 results. We have built a strong foundation for growth. I believe we are well positioned as the market evolves. I will frame my comments today around three pillars of our competitive advantage, our XCAS platform, our leadership with 8x8 voice for Microsoft Teams, and our global coverage. Turning to a discussion of XCAS first, capitalizing on the demand for integrated UCAS, CCAS, and CPaaS offerings, XCAS provides a single platform for customer and employee engagement. XCAS eliminates silos and speeds information flow across the enterprise, enabling organizations to be more agile and responsive to customer needs while operating at a lower cost of ownership. 8x8 XCAS was recently awarded the 2021 CRN Tech Innovator Award. Additionally, we were named a leader in the IDC MarketScape Worldwide Unified Communication and Collaboration 2021 Vendor Assessment. XCAS ARR is now more than 35% of total ARR and continues to grow at more than 35% year-over-year. On a dollar basis, we delivered our best-ever sequential and year-over-year growth in XCAS ARR. Adoption of XCAS, often with our 8-byte Voice for Teams capability, is gaining momentum across a broad range of industrial verticals and geographic regions, including the public sector. A few recent examples of both new logo and land and expand XCAS deals include Kubota, North America, a leading manufacturer of agricultural construction equipment, implemented their one Kubota initiative to bring multiple business units onto a single communication platform. Following a successful pilot led by 8x8 Center of Excellence, Kubota selected 8x8 XCAS for 1,000 UC and 200 contact center seats to enable streamlined business communications across the organization. A second win was the London Bureau of Newham, which provides service for more than 350,000 residents in East London. They most recently expanded their 8x8 contact center by more than 90%, bringing the total number to over 220 CCAS seats. 8x8xCAS is deployed across more than one-third of London's 32 bureaus now. Hays County in the Austin, Texas metro area is one of the fastest-growing counties in the U.S. with more than 240,000 residents. The local government sought a single cloud communications platform with high availability. Working with a channel partner, they selected 8x8xCAS with voice for Microsoft Teams to support nearly 1,000 users. Looking now at 8x8 Voice for Teams, we are seeing increased adoption as organizations seek to provide their distributed workforces with the ability to interact with colleagues. In September, we announced that we had surpassed 100,000 business users for our Teams integration, and we continue to see strong momentum. In the third quarter, we experienced business user growth of more than 30% quarter over quarter as a growing number of new and existing customers adopt 8x8 Voice for Teams. Customers choosing 8x8 Voice for Teams in Q3 included the financial ombudsman service in the UK, which investigates and settles complaints between consumers and businesses that provide financial services. Working with our partner, Virgin Media O2 Financial Ombudsman Service selected 8x8 XCAS with over 1,000 UCAS seats and several hundred CCAS seats. Our ability to help them advance their digital strategy combined with our tight integration with Microsoft Teams and direct agent routing were integral in their decision to select 8x8. InPro. which is a global manufacturer of high-performance architectural products for commercial buildings. They selected 8x8 XCAS and Voice for Microsoft Teams to support more than 600 employees around the world. They chose XCAS for composed experiences such as front desk, which will empower receptionists with advanced call handling capabilities and for tight integration with Salesforce. Turning to our global coverage, which further differentiates our solutions and creates a strong competitive advantage with multinational organizations, in the third quarter, we expanded our coverage to include the Philippines, another industry first, and also to Panama. The Philippines expansion follows our announcements earlier this year of delivering an industry first integrated cloud phone and contact center solution in China and Russia. Our regulatory-compliant cloud-based global UCaaS solution is now available in 48 countries and territories, up from 41 a year ago. Our global reach service now covers more than 80% of the world's GDP. Examples of new and expanding global customer wins include Beam Suntory, a great example of a customer that is standardized on XCaaS with 8x8 voice for Teams on a global basis. Beam Suntory is one of the world's largest producers of distilled beverages, including the world's best-selling bourbon, Jim Beam. An 8x8 customer since 2020, Beam Suntory most recently added more UC and Teams licenses in Scotland and Germany to now support over 2,600 employees in 35 sites across 17 countries. Headquartered in Brisbane, Australia, ALS Limited provides testing, inspection, certification, and verification services for over 370 sites across 65 countries. They continue to increase their global 8x8 investment, most recently adding another 800 users with Microsoft Teams integration to support employees in Australia, Canada, New Zealand, and the U.S. Integral to our global strategy is growing our CPaaS share in the Asia-Pacific region. CPaaS revenue continued strong year-over-year growth as we added new customers across the region. For example, SellHere, a leading e-commerce platform with more than 6 million users in Thailand, uses 8x8 SMS APIs for its marketing campaigns, as well as updates and notifications to boost customer experience. Ula, Indonesia's leading e-commerce marketplace for more than 70,000 traditional small and micro retailers, uses 8x8 SMS APIs to enhance its customer experience with marketing promotions, notifications, as well as one-time passwords. Welsh Water, the only not-for-profit water company in England and Wales, uses 8x8 video interaction APIs to provide. With our XCAS strategy, Teams integration, and global coverage, our shift-up market is well underway. Enterprise ARR now accounts for 54% of total ARR and increased 30% year-over-year. The shift to enterprise is also evident in our third quarter retention metrics, which were the best we've seen in the last several years. This performance reflects our customer-first culture and changes we've implemented in our customer success organization. Our focus on enterprise customers and global approach to the market are among the reasons the FUSE acquisition makes so much sense. With the acquisition now closed, we increased our installed base of enterprise customers by about 30%. and created a large cross-sell opportunity for our contact center solution. In the two weeks since the acquisition closed, we're already talking with a number of customers who are excited about the additional solutions 8x8 can provide. In particular, we see the potential for many customers to add 8x8's contact center solution even before they upgrade to an overall XGAS platform. Many customers have also inquired about 8x8's solution for Microsoft Teams. Finally, few partners, many of whom were already 8x8 partners, are excited about the prospect of delivering more complete solutions for our mutual customers. Although it's still early in the integration process, we are excited by the response we're seeing from customers and partners. I am also pleased to report that our R&D and customer success teams are working together and mapping out strategies to accelerate our product roadmap that will increase XCAS adoption worldwide. We have already integrated the FUSE development teams and redeployed FUSE engineers to fuel our innovation. Watch for some of the exciting XCAS and contact center announcements later this quarter. In summary, in the third quarter, we delivered strong revenue performance, demonstrated continued operational discipline and excellence, and expanded our base of enterprise customers. As the customer wins show, it is often the combination of all three competitive advantages, XCAS, 8x8 voice routines, and our unparalleled global coverage,