8x8, Inc. Common Stock 2027 Q1 Earnings Call

Good afternoon, everyone. Today's agenda will include a review of our results for the first quarter of fiscal 2027 with Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks, there will be a question and answer session. In addition to our prepared remarks, we have posted a more detailed letter to shareholders in the quarterly results section of our investor relations website. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including investments in innovation and our focus on profitability and cash flow, as well as statements regarding our business, products, 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 reports filed with the SEC. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today. We have no plans or obligations to update them. Further, all financial metrics that will be discussed on this call are non-GAAP, unless otherwise noted. These non-GAAP metrics, together with year-over-year comparisons in some cases, were not prepared in accordance with the U.S. generally accepted accounting principles, or GAAP. A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings press release and earnings presentation slides, which are available on 8x8's investor relations website at investors.8x8.com.

With that, I will turn the call over to our Chief Executive Officer, Samuel Wilson.

Good afternoon, everyone, and thank you for joining us. We delivered a strong start to fiscal 2027. We achieved record service revenue, our fifth consecutive quarter of year-over-year revenue growth, and exceeded our guidance ranges for service and total revenue, non-GAAP operating margin, and operating cash flow. What matters most isn't simply the quarter we delivered. It's the growing evidence that the investments we've made over the past several years are beginning to translate into broader customer adoption and stronger business performance. We began seeing those trends emerge last fiscal year, and especially in the fourth quarter. This quarter gave us additional evidence that they're continuing to build. Our focus isn't on managing the business for one quarter. It's on building a company that can create durable value over the long term. One observation keeps sticking with me.

When I met with customers and partners around the world, I often hear a version of the same comment, "I didn't know you did that." Sometimes they're talking about 8x8 AI Studio, our native agentic AI builder platform. Sometimes it's our programmable customer engagement capabilities and purpose-built solutions like proactive outreach. Sometimes it's our embedded 8x8 Workforce Management available to Contact Center customers at no additional cost. Sometimes it's as simple as accurate call and meeting transcription across a variety of languages and accents. I actually think of this as both a validation and a challenge. It's a validation because it tells me we've built a platform with more capabilities than people realize. It's also a reminder that innovation only creates value if customers understand how it can help them solve real business problems. I think that observation says a lot about where 8x8 is today.

If you followed 8x8 over the last several years, you've seen us make a series of deliberate investments. Those investments weren't designed to maximize a single quarter. They're designed to build a stronger platform and therefore a stronger company. We've built a unified platform that brings together enterprise voice, Unified Communications, Contact Center, CPaaS, and AI. Along the way, we strengthened our global voice infrastructure, invested in enterprise-grade security and reliability, and created a platform designed for where the market's going, not where it's been. Looking back, I think we've made the right decisions, because today, organizations everywhere are asking the same question: how do we use AI to improve our business? Our answer has never been to build AI for its own sake. Our answer is to make AI useful, and that starts with making complexity simple. I think it's one of the biggest challenges organizations face today.

Our customers don't need more technology. They need less complexity. They want to improve customer experiences. They want employees to be more productive. Always, they want to move faster, and they want to compete more effectively. Our customers don't need more technology. They need less complexity. They want to improve customer experiences. They want employees to be more productive. They want to move faster, and they want to compete more effectively. Our job is to remove the complexity that gets in the way. That's what our unified platform is designed to do. That's what 8x8 AI Studio is designed to do. It's ultimately how we create long-term value for our customers. One of the reasons I believe we're well-positioned is because AI actually increases the value of communications. Every AI agent still has to communicate with customers, with employees, with other business applications, increasingly with other AI agents.

Voice messaging, digital engagement, become the interface between people and intelligent software. We believe communications infrastructure becomes more strategic as AI adoption accelerates. We are one of the only companies with unified communications, contact center, CPaaS's programmable APIs, and native AI development on a single platform. That gives customers one place to orchestrate communications, customer engagement, and AI, rather than stitching together products from multiple vendors. As organizations move beyond AI experimentation and into production, we believe that simplicity becomes a meaningful competitive advantage. One thing I learned over the years is that customers tell you what they think by what they do, not just by what they say. This quarter, we saw encouraging evidence across the business. Adoption of our AI solutions, including AI Studio, Intelligent Customer Assistant, increased 121% year-over-year.

We believe AI Studio, our native AI development environment, changes the game. It levels the playing field for small and mid-sized businesses, giving them enterprise-grade agentic AI capabilities similar to what is available at much larger organizations with much larger price points. Just three and a half months after official launch, more than 200 organizations are building agents with AI Studio. They have created more than 2,900 AI agents. More than half of these customers have moved beyond experimental stage and have become paying customers. These are encouraging metrics. The product is still in beta. Customers using AI Studio span healthcare, IT services, property, retail, insurance, automotive, energy, logistics, and more. They're solving a wide variety of issues, improving IT operations, facilitating insurance policy renewals, role-playing to train human agents in de-escalation. That's the kind of breadth we hope to see.

We're seeing the same momentum across the broader platform. Customers using three or more paid 8x8 products increased 18% year-over-year. Now represent approximately 38% of our recurring revenue. Revenues from our newer products increased 18% year-over-year, driven by strong performance from Engage, AI Solutions, and Analytics. Our channel-generated pipeline grew approximately 25% year-over-year. To me, those metrics all point to the same conclusions. Customers are adopting more of the platform, partners are beginning to bring us into more opportunities. We're building deeper, longer-term customer relationships. That's exactly the kind of durable business model we're working to create. Innovation remains one of our core values and sources of our strength. We measure innovation by customer outcomes, not by the number of features we release. This quarter, we introduced Pulse, helping organizations transform conversations into searchable organizational knowledge.

We also continue expanding AI Studio, making it dramatically easier to build AI applications in almost any language. For enterprises, that accelerates innovation. For small organizations, it levels the playing field by making sophisticated AI accessible without requiring large development teams. For our partners, it creates an entirely new opportunity to develop and deliver differentiated solutions for their customers. Again, our goal is not simply better technology. It's leveraging AI and our unified platform to help customers solve problems faster with less complexity. As we transition to a phase focused on awareness and adoption, our priorities are actually pretty straightforward. Each reinforces the other, creating a flywheel effect. As we have since I became CEO, we will continue to invest in innovation that makes communications smarter, AI easier to deploy, and customer engagement more effective. That hasn't changed. The world of software has.

We believe for the first time in the history of software, innovation cycles are shorter than sales cycles. This makes removing friction from the go-to-market engine increasingly important. We have boiled our fiscal 2027 priorities down to three. First, we will continue strengthening our partner-first go-to-market strategy. Our partners play a critical role in helping customers realize value faster and are the most effective way to deepen and expand our reach. They drive greater adoption at the local and regional level, provide market-specific expertise across new vertical markets, and expand our presence to new geographies. AI Studio creates new opportunities for them to build differentiated solutions on top of our platform. Within the existing sales and marketing cost envelope, we are shifting resources to partner recruitment, training, and enablement. We are building programs that go beyond one-time spiffs to drive durable outcomes for partners as well as for 8x8.

Reinforcing our theme of reducing complexity, we recently introduced our 8x8 small business partner portal for resale partners in the U.K., Ireland, and Australia. In what we believe is an industry first, we have developed a pricing and provisioning platform that breaks out of the traditional SaaS licensing model by enabling consumption-based self-service for small business UCaaS deployments. We are in the early stages of rollout, but we believe this new platform will help partners win more customers, onboard them more effectively, and expand those relationships over time. Second, we remain focused on increasing customer retention. While our retention rates are consistent with industry benchmarks, and actually often a little bit better, we see reducing customer churn as perhaps the single most effective way to drive growth and profitability. We are shifting resources to drive customer success across all customer segments with a focus on awareness and adoption.