8X8 INC /DE/ (EGHT Q2 FY2025 earnings call

• Transformation initiatives include accelerating contact center innovation, leading in CPaaS in APAC, focusing on SMBs, improving platform win rates, enhancing customer experience, and building a fortress balance sheet.
• CPaaS had a strong quarter with platform usage revenue up over 20% YOY and highest single platform usage revenue day ever. Engagement through public APIs increased, and non-SMS product sales grew over 50% YOY.
• Invested 15% of revenue in R&D, with sales of new products and AI-based new products showing significant growth. AI is focused on 4 core pillars: comprehensive data processing, ecosystem of best-in-class AI apps, AI insights for CX deployment, and expanding AI consulting services.
• Customer loyalty and revenue retention on the 8x8 platform are at multiyear highs. Received awards and had large customer wins, including a leading specialty retailer and Coronis Health.
• Expanded partner relationships, including reseller programs and technology partner ecosystem, with new partners like Descope and Regal.io.

Service revenue in Q2 2025 was $175.1 million. Revenue from customers remaining on the Fuze platform was 7% of service revenue in fiscal Q2 2025, down from 12% in fiscal Q2 2024. Communications Platform as a Service (CPaaS) usage revenue was up over 20% year-over-year, with non-SMS product sales growing more than 50% year-over-year. Sales of new products were up more than 60% year-over-year, and sales of AI-based new products increased more than 50% sequentially and over 200% year-over-year.

• Fiscal Q3 2024 guidance: Service revenue $171M-$174M, total revenue $177M-$182M, operating margin 10%-11%.
• Fiscal 2025 guidance: Service revenue $690M-$701M, total revenue $714M-$727M, full-year operating margin 10.25%-11%, non-GAAP EPS $0.32-$0.35, cash flow from operations $59M-$64M.
• Expect interest expense and cash paid for interest to vary by quarter based on debt balance and interest rates.

• Uncertainties in forward-looking statements may cause actual results to differ.
• FX fluctuations could impact revenue and expenses.
• Potential gross margin compression in the short-term due to launching more AI usage-based products.
• Challenges in accelerating the Fuze platform migration pace.

Q: Pleased to see services revenue sequential growth improvement. What drove these results and their sustainability?

A: Kevin Kraus said it was multifaceted including robust platform usage revenue and core business growth on the 8x8 platform. Samuel Wilson added strong gross retention is key.

Q: What's driving 200% YOY growth in sales of AI-based solutions and customer adoption?

A: Samuel Wilson said customers are more willing to adopt as AI is turning into solving business outcomes like summarization and fraud detection.

Q: Walk through what could move full-year targets up and return to growth.

A: Samuel Wilson said core 8x8 growth, new products becoming larger part of revenue, and Fuze migration reducing headwind will drive growth.

Q: Unpack gross margin. Is it mix driven?

A: Kevin Kraus said platform business acceleration this quarter had lower margin, mix driven. Underlying UCaaS, CCaaS margin remains steady. Samuel Wilson added short-term gross margin suppression due to launching AI usage-based products.

Q: Channel expansion and Fuze transition?

A: Samuel Wilson said direct business was a source of new logo business, and Fuze transition was okay but they want to accelerate it.

Q: CPaaS strength sustainability and sequential service revenue guide?

A: Samuel Wilson said CPaaS was stronger-than-expected but cautious due to factors like carrier pricing changes. Kevin Kraus mentioned FX tailwind could flip.

Q: Macro customer spending and sales cycle?

A: Samuel Wilson said some competitors have strange behavior, but pipeline is up and product portfolio shows market fit.

Q: Migration from Fuze to 8x8 platform and monetization of AI usage?

A: Kevin Kraus said about $5.5 million in Q2 '25 from Fuze upgrades moving to 8x8. Samuel Wilson discussed multiple monetization ways for AI, including sell-with and sell-through models.

Q: RPO visibility and CPaaS international APAC markets?

A: Samuel Wilson said RPO is increasing but usage-based businesses have less contracted revenue visibility. He said APAC carriers haven't pushed big price increases recently but are bullish on RCS innovation.