Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- 8x8 Inc (EGHT, Financial) delivered results within guidance ranges for service revenue, total revenue, and non-GAAP operating margin.
- Cash flow for the quarter was better than anticipated at $18 million, bringing cash flow from operations for the trailing 12-month period to $71 million.
- The company achieved an important milestone by reducing debt with the repayment of a $225 million term loan.
- Significant momentum in the enterprise contact center business, with larger customers showing the highest growth.
- Sales of new products increased more than 40% year-on-year, and there is a dramatic increase in the number of interactions using self-service bots, digital messaging, and video in the contact center.
Negative Points
- The market has become incrementally more competitive, affecting sales cycles.
- The company is seeing less demand for physical phones than historic norms, impacting other revenue.
- Gross profit saw a slight sequential decrease to 70.6% from 70.8% in the prior quarter.
- The company has decided to discontinue ARR as a key business metric, which may affect visibility into performance.
- There is potential for increased attrition as the company accelerates the upgrade program for remaining customers on the Fuze platform.
Q & A Highlights
8x8 Inc (EGHT) Q1 2025 Earnings Call Highlights
Q: As you talk about seeing more usage or consumption-based revenue going forward, especially with the integration of CPaaS components, where do you feel this will show up most quickly? How is this developing in the sales pipeline?
A: Samuel Wilson, CEO: We launched two products focused on contact center integration: a one-way SMS/WhatsApp system and a two-way messaging system. These products are gaining good pipeline traction. Additionally, we are seeing an uptick in customized CPaaS solutions. We will also launch an emergency notification product this quarter. Usage revenue, now 10-12% of our total revenue, is increasing across various products, including voice masking and AI components.
Q: Can you help us understand the strength of the CPaaS business in APAC? Is it due to macro recovery or better sales productivity?
A: Samuel Wilson, CEO: The growth is driven by a combination of factors, including a more stable macro environment and improved go-to-market strategies. We replaced the management team 18 months ago, revamped our sales approach, and focused on enterprise business. This has led to a strong performance in the last quarter.
Q: You mentioned 15 of your top 20 new logo deals involved contact centers. Were these displacements of legacy systems or upgrades?
A: Samuel Wilson, CEO: These were primarily on-prem to cloud migrations. The transition to a contact center-led story is resonating well in the market. While it’s still early, the increased pipeline indicates that our strategy is working. Most of these deals were new logos, not expansions.
Q: Can you provide trends on the Engage product versus traditional CCaaS products? Also, how are you dealing with NICE's competitive pricing?
A: Samuel Wilson, CEO: Engage is still in beta but receiving positive feedback. We are seeing more momentum with our contact center products, especially for larger accounts. Regarding NICE, their lower-priced products slow down the sales cycle but are not as feature-rich. We are winning deals against competitors by leveraging our integrated platform and technology partner ecosystem.
Q: Can you describe customer engagement activity over the last month and any near-term catalysts for decision-making?
A: Samuel Wilson, CEO: We see a bit more cautiousness in deal signings but are still closing deals. Digital transformation remains a key driver. Our integrated solutions, like proactive outreach and Remote Fix, are helping customers reduce costs and improve efficiency, which will drive future growth.
Q: What are the ARPU trends in CCaaS given the competitive landscape?
A: Samuel Wilson, CEO: Our average revenue per customer is up year-over-year and quarter-over-quarter. While some customers may buy fewer seats due to bots, the overall trend is positive. We believe usage and consumption-based pricing will become more common, making ARPU less relevant compared to average revenue per customer.
Q: What is the average penetration of products per customer, and what is the upside potential?
A: Samuel Wilson, CEO: Most customers currently use one or two products. We have thousands of customers using three to five products. The upside potential is significant, with an incremental $100 million to $150 million in annual revenue if we achieve higher product penetration.
Q: How much of the Fuze customer base has migrated, and is there an uplift in pricing post-migration?
A: Samuel Wilson, CEO: About 8% of our revenue comes from Fuze customers, down from 20% at acquisition. We typically charge the same price post-migration but can cross-sell additional products, which opens up new revenue opportunities.
Q: What are the expenses associated with maintaining the Fuze platform, and how will this change post-migration?
A: Samuel Wilson, CEO: The cost to service the Fuze platform is in the single-digit millions. While not massive, it is a distraction. Migrating customers to our platform will allow us to redeploy resources more effectively.
Q: Are you seeing more incentives or discounting in the competitive environment, especially for SMB customers?
A: Samuel Wilson, CEO: The increased incentives and discounting are more about industry competition than customer demand. Smaller companies and single-product vendors are using price to gain traction, which elongates the sales cycle but doesn't necessarily entice customers.
Q: What is your sense of customer overlap with NICE?
A: Samuel Wilson, CEO: While NICE's UCaaS product was not aimed at us, we do compete with them in the contact center space. We are holding our own and winning deals against them, thanks to our integrated platform and technology partner ecosystem.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
