Good day and welcome to the 8x8 Inc. Fourth Quarter and Full Year Fiscal 2021 Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Victoria Hyde-Dunn, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to 8x8's fourth quarter and full year fiscal 2021 earnings conference call. Today's agenda will include a review of our fourth quarter results with Dave Sipes, Chief Executive Officer, and Sam Wilson, Chief Financial Officer. Following our earnings discussion, Dave and Sam will share greater details on 8x8's strategic priorities for fiscal '22 and the company's long-term financial framework. Following their prepared remarks there will be a question-and-answer session. Before we get started, just a reminder that our discussion today includes forward-looking statements about 8x8's future financial performance as well as its business, products, and growth strategies, including the impact of the 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 and our reports filed with the SEC. Any forward-looking statements made on this call and 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 year-over-year comparisons, in some cases, were not prepared in accordance with US Generally Accepted Accounting Principles or GAAP. A reconciliation of those non-GAAP measures to the closest comparable GAAP measures is provided in our earnings press release and with earnings presentation slides, which are available on 8x8's Investor Relations website. Additionally, we posted a set of presentation slides we will refer to when discussing our strategic priorities titled business review. During today's call we will introduce fiscal 2022 guidance and our long-term financial framework. These accompanying slides will be added to both presentation slides and reposted on the Investor Relations website following the conclusion of the call. And with that, I will now turn the call over to Dave.

Thank you, Victoria. Good afternoon, everyone and thank you for joining us today. Our fourth quarter results exceeded expectations with both service revenue and total revenue growing above the high end of our guidance range at 19% year-over-year. Key drivers of growth were strong demand for our integrated UCaaS and CCaaS offerings, continued upmarket focus on enterprise, and general execution. We are driving operational excellence throughout the organization and a culture that is committed to a CPT mindset: customer first, product first, team first. We strengthened our cash position and improved operating efficiency, becoming non-GAAP pre-tax profitable in the fourth quarter and ahead of schedule. And we crossed an important milestone and have surpassed $500 million in ARR.

Thanks Dave and good afternoon. We appreciate you joining us as we report fourth quarter and full-year financial results. We are pleased to have delivered results that exceed guidance, improved operating leverage, and achieved profitability one quarter earlier than expected. Overall results were driven by better than expected performance from UCaaS, CCaaS, CPaaS, and the integrated offerings. Total revenue for the quarter was $144.7 million, an increase of 19% year-over-year and above our $138.5 million to $140.5 million guidance while service and other revenue performed better than expected. Looking at service revenue, we generated $133.8 million, an increase of 19% year-over-year and above the $130.8 million to $131.8 million guidance. Total ARR was $518 million at quarter end, an increase of 22% year-over-year. Our continued movement upmarket into larger enterprises and strategic investments in the channel and product innovation are delivering strong results. Fourth quarter non-GAAP gross margin was 61.2%, a 150 basis point sequential improvement driven by improvement in both service margin and other margin.

Thank you, Sam. We at 8x8 reported strong results today and crossed a very significant milestone of $0.5 billion in ARR, an impressive feat not many SaaS companies have ever achieved. Now is the time to look forward and set our sights higher as we build a path to a $1 billion plus business, enjoying even more rarefied ARR and joining a very select group of SaaS companies. What has gotten us to $0.5 billion won't suffice alone to get us to our next milestone. We will need to build upon our success and add additional capabilities and additional muscle. We have already started down this path aggressively and yet we have a lot more to do in the coming quarters and years. We have already added new key team members, changed the way we organize, coordinate and attack initiatives, as well as emphasizing the culture of putting the customer first. The excitement and energy internally is powerful as we begin these endeavors. Today I'd like to share with you, our investors, what we're doing differently to build the next great profitable $1 billion SaaS business. I came to 8x8 as an industry veteran because I could see the tremendous potential and the huge market demand for 8x8's unique offering and the company's potential to capitalize on this through greater focus, execution, and operational rigor. Five months in, the original thesis remains true in spades. Let's revisit this now. First, we operate in a massive market with tens of billions of dollars in market opportunity. Digital transformation has only accelerated with work from home and work from anywhere becoming the norm. Second, 8x8 has a differentiated cloud technology stack which is being consistently recognized and is a key reason I came here. Third, having an integrated communications platform is resonating with key buyers as witnessed by our top wins in this quarter. And fourth, we are capitalizing on this market opportunity by reaching customers through multiple routes to market and enabling partners with flexibility in how they choose to go to market. These combined with operational improvements we are enacting provide a path to building a $1 billion business through profitable growth. The total addressable market is undeniably large, no matter how you look at it. Here on this slide, IDC is predicting the cloud communications market to be over $75 billion by 2023. The largest circle on this chart is a combination of UCaaS, CCaaS, and CPaaS, all segments 8x8 competes in today. Pulling that down one layer, the UCaaS and CCaaS subsegment make up $60 billion of this market, areas where 8x8 has strong product recognition and a decade of experience, experience that is invaluable and impossible to replicate quickly for single product competitors looking to expand their portfolio. Breaking that down even further, our checks show approximately 25% of that market prefers a single vendor solution across UCaaS and CCaaS, an area where limited solutions exist today and 8x8 is consistently recognized as a leader. This is 8x8's sweet spot within the huge cloud communications market in which we compete, an obvious area to apply greater focus, execution, and operational rigor. Why is this market so large? The market is so sizable because IT leaders have an immense challenge of delivering effective solutions for an evolving and increasingly more complicated workforce needs. Let's look at the issue. Getting a 360-degree view of your customer has been a long-time measure as it makes organizations more effective by leveraging the power of information. Wouldn’t that 360 view be great, not only customer communications, but also employee communications? However, megatrends are making this harder. They are working against it, such as texting, social media, and other digital communication mediums, resulting in fragmented communications. Additionally, multiple device and work-from-multiple-locations create further challenges to obtain that 360-degree view of both employees and customers. This poses a challenging task for IT leaders to provide effective enterprise communication tools. Cloud communication tools today are helping solve key parts of this puzzle by enabling digital communications and work-from-anywhere. On the left side of the chart, you'll see an employee experience of phone, messaging, and video, all coming together in one application empowering employee communications. On the right side is the customer experience of cloud contact center, inbound, digital, and outbound, but they've broken the link between the two. A unified solution is not ideal, as it puts undue burden on the IT organizations that support multiple disparate solutions which fail to spread information quickly and effectively throughout an organization. The ramifications are significant as customer communications are siloed. Large organizations only talk to their customers through their lowest-paid employees in the contact center, making it difficult to be responsive to changing customer needs. 8x8's core X Series offerings bring these two experiences together, and this is where our strategy really comes together. X Series by 8x8 merges employee experience and customer experience together. It frees information at the call center, unleashing the ability to create great customer experiences through our integrated solution that builds upon a common platform. Looking at the bottom of the slide, we provide analytics and AI across the entire workforce. Additionally, one integrated platform provides uniform integrations for both, saves on implementation time, and is cheaper to maintain across the enterprise. With the addition of CPaaS, these experiences can be further customized, especially in the contact center with more robust omnichannel possibilities. One platform powering personalized end-user needs is what's required to enable all employees throughout the organization. For example, a British retailer of car parts, camping and touring equipment has 450 retail stores, 300 auto centers, and 10,000 employees. They want to replace the longtime system; they use 8x8's UCaaS and CCaaS across 10,000 employees and have 3,500 using Microsoft Teams, a very white-collar back office. The frontline workers are using the 8x8 app while the contact center uses Salesforce. Only with one real-time communication platform that enables different apps can you empower the entire workforce of an organization today. Additionally, 8x8 is the recognized leader in this area. 8x8 is consistently recognized as the 9-time Unified Communications and Service Leader and 6-time Contact Center as a Service Challenger in the Gartner Magic Quadrant. We are the only Gartner Unified Communications as a Service Magic Quadrant Leader in the Contact Center as a Service Magic Quadrant. We own the IP and provide an integrated experience direct series with the most seamless integration between UCaaS and CCaaS in the market today. I often get asked, what can an integrated UCaaS and CCaaS system provide that cannot be achieved with a two-vendor solution? There are many things. You can see it here on the chart, but first, we can guarantee high availability and superior quality on a global basis. There is no finger-pointing and no gaps. For example, 8x8 provides an industry-leading four 9s platform-wide SLA that cannot be promised credibly in any two-vendor scenario. Second is the ability for company-wide collaboration; not just back office workers, but integrating the organization’s frontline workers, contact center receptionists, and other personas. An example of this is, we have a car insurance company that uses 8x8 for UCaaS and CCaaS who improved in-office customer experience by adding Video-as-a-Service enabled kiosks that allowed clients waiting in a local office to interact with video, with agents available at other offices to resolve issues faster. A third area is unified admin capability that cannot be done through a combination of best-of-breed solutions. This gives a single source for license management, mix and match user types, and a single pane of glass for monitoring. Fourth is extensible integrations that will allow you to have just one integration with your core applications, whether they are CRM, collaboration endpoints, or productivity endpoints like Microsoft Teams. Lastly, the ability to bring analytics and AI across the entire organization with real-time reporting, speech analytics throughout the organization. All of these capabilities make it possible to deliver a unified employee-customer experience that companies can rely on to exceed their own customer and employee expectations. Remember, this is what it used to be before the cloud and now the cloud is just catching up. How do we reach this integrated IT buyer? We let them buy the way they want to, the routes they want, and we reach them where they're at. On the horizontal axis at the bottom, you see different business sizes, small business on the left, enterprises on the right. We reach the smallest of organizations through 8x8 eCommerce, and the investments made in the past allow us to redirect future investments which are core strategic to market or mid-market enterprise buyers. Mid-market customers are reached through our inside sales and channel relationships, and for the largest customers, a Field Sales organization works with our channel partners and strategic alliances. Half of our top 10 deals in Q4 were brought to us by channel partners, so obviously this mix is important. Our X Integrated UCaaS and CCaaS solutions solve unique needs, and the numbers show it. It represented over 30% of total ARR in Q4 and is growing at twice the market growth rate. Buyers of our Integrated UCaaS and CCaaS product tend to stay with us longer and have better upsell potential with 33% lower churn. Lastly, they contributed 80% of top deals last year and were a part of 9 of the top 10 deals in Q4. Greater focus and execution against this segment is key for lifting the overall growth and effectiveness of our sales and marketing efforts. I'll go into the things we are doing to increase focus and execution to grow our X Integrated Solutions faster, but first let me address refinements in our CPaaS strategy. CPaaS is a small portion of the business today but operates in a quickly growing and attractive category. To drive success in CPaaS, we will focus on three initiatives. First, we'll build upon our regional advantage in Southeast Asia where we experience a competitive edge in carrier coverage and quality of service with superior message rate deliverability. We will extend and identify our already significant sales presence as represented on this slide. Second, we will pursue selective contact center omnichannel opportunities globally, as demonstrated by the win with DMV Veterinary Center in Canada which is utilizing 8x8 CPaaS SMS in addition to 8x8 Contact Center for digital customer interactions. Lastly, we are winding down our unprofitable wholesale CPaaS business, the business for selling messaging and connectivity to carriers at little to no margin and redirecting those resources to focus on our enterprise CPaaS business and X Integrated Solutions.

Sam will cover the topline impact of winding down this $15 million business, but it is the smart thing to do as it will create greater focus and success in our enterprise CPaaS business without sacrificing any profit or gross margin for the company.

This greater focus we're applying to our CPaaS business will improve the long-term growth trajectory of this business, allowing it to become a larger and more meaningful contributor to our overall business in future years. Taking all this together, our focus on fiscal 2022 centers around four strategic pillars. First, we're working aggressively to expand our platform advantage, specifically at the intersection of UCaaS and CCaaS and ruthlessly focusing on R&D investments to enhance the enterprise-grade elements of our contact center and maximize the interaction and unique use cases between UCaaS and CCaaS. Second, we will make 8x8 the easiest company to do business with and win together across channel partner relationships by leveraging our differentiated billing models and partner-first mentality. Third, we will drive operational excellence throughout the organization. I personally know what it takes to develop a highly efficient and effective organization. I see many opportunities for improvement in this area, so we definitely aren't waiting and have already taken numerous meaningful steps, yet more to come. Lastly, expanding and defending our base of 1.8 million paid business users. We have a leading enterprise-grade UCaaS product and a leading integrated UCaaS and CCaaS product. We should never lose a customer to a competitor product. Improving our customer focus and eliminating dissatisfaction triggers will allow us to better capitalize on our tremendous existing customer base. Let me expand on each pillar. R&D has already been reprioritized and reorganized since I started to focus on the strategic integrated UCaaS and CCaaS buyer's needs. Furthermore, over the next 18 months, we will quadruple our contact center investment without sacrificing our commitment to profitable growth. Of course, streamlines have been created and responsible individuals assigned to key areas that will generate enterprise-leading CCaaS and UCaaS features and maximize the intersection of the path. Focusing on platform capabilities enables us to more efficiently leverage our already sizable R&D team, allowing us to compete more effectively against our largest single-product competitors. Results are already bearing fruit and today we announced an industry-first enabling mainland China offices of multinational organizations. In connection with our partnership with China Mobile International, we were able to add mainland China to our Global Reach program. This brings our Global Reach program to over 43 countries. If you have a China office and you want them on your core corporate communications platform, 8x8 is your answer. As part of our go-to-market sales motions, we will leverage partners to win together and create a world-class global partner experience. Channel routes to market represented 40% of total ARR and grew 38% year-over-year in the fourth quarter. Between our VAR and agent network, we now have over 6,000 channel partners across the globe and a dedicated 8x8 channel team working together. Over the coming quarters, we will reeducate these partners on our integrated UCaaS and CCaaS positioning and ongoing investments. Additionally, with Geo segment our inside sales team, to better align with the regional nature of our partners. Furthermore, we will enable and seek partners with opportunities to upsell and cross-sell our X Integrated Solution to upmarket customers and integrate partners into our renewal sales process. Lastly, we are deepening our engagement with strategic partnerships such as Bell Canada and Virgin Media Business, strengthening executive alignment and assigning dedicated farming resources to these strategics. Profitable growth is a mantra as we are a scaled fast cloud business, and we're dedicated to predictable and gradually improving profit performance. To drive superior performance, improving overall efficiency and go-to-market effectiveness is an imperative. This is an area that I bring 20 years of operational and executional expertise to the organization, and it starts with leadership and team. Recently we announced the addition of a new Chief Marketing Officer, Amritesh Chaudhuri, and new Chief Customer Officer, Walt Weisner, who will help drive improvements in our marketing efficiency and customer satisfaction and retention, and help align the organization to our core mid-market enterprise IT buyers. We have also instituted a rigorous OKR process that the company has rallied around, which aligns the organization around the most critical and leverageable activities exclusively. These improvements will compound over the next several quarters as we generate momentum towards achieving our strategic goals. Lastly, a laser-focused approach on our core combo prospects will improve our sales and marketing efficiencies, allowing us to reinvest in profitable growth. Our fourth strategic priority this year is defending and expanding the base. Previously there hasn't been enough focus on customer satisfaction. We now have prioritized high availability initiatives and are currently working on resolving customer dissatisfaction pain points. These efforts will pay off greatly down the road. Additionally, we are seeing significant increases in stickiness with UC-only customers when they adopt our contact center product. So, we are ingraining that cross-sell motion across the organization throughout the customer lifecycle. Finally, with respect to retention, we're adopting a posture of extreme customer focus throughout the full customer lifecycle, from initial contact, through sales, delivery, and all future renewals. We should never lose a customer due to a competitive solution and should be willing to do what it takes to get every customer happy. Fiscal year 2022 will be a year of instituting increased strategic focus, operational rigor, and establishing ourselves as the X Integrated market leader. As we look beyond fiscal 2022, several additional drivers of growth are worth mentioning. First, enterprise expansion will occur as larger and larger enterprises adopt cloud communication solutions. Actions we are taking today, along with investments in enterprise-grade capabilities, will enable us to capitalize on this trend as we move upmarket. Second, our investments in Contact Center will improve the robustness, scalability, and completeness of our X Integrated product, which will improve win rates and allow us to tap incremental revenue streams within Contact Center and improve the attach rate of Contact Centers to UC-only deals. Third, our CPaaS business will benefit from the broader adoption of our APIs, increased usage from current customers as we grow when they succeed, and natural growth of the dynamic economies that we play within. Additionally, the new additions of our high-value CPaaS offerings such as call monitoring and video meetings provide differentiated, high-margin growth opportunities. Lastly, we will steadily expand our global footprint. International revenue represents 27% of total revenue and grew 48% year-over-year. We operate a strong business base in the UK and have numerous opportunities to leverage success there, including relationships with pan-European partners to grow into additional European countries. In order to execute successfully, we will focus on three core tenets: customer, product, and team. We are aligned to IT buyers and mid-market enterprise customers that we know value integrated solutions for all the reasons we've discussed. We align our go-to-market and delivery approach to serve the needs of these customers better than anyone else in the industry. Our R&D prioritization and investments will extend the leadership of our combined offering and maximize the intersection of customer and employee experience. Finally, I'm confident in the team we have on board, and I have the experience to drive continuous improvement across the organization. I fully expect these efforts to move us closer to world-class benchmarks in every part of the organization. That is my expectation of the team. It's an exciting time for 8x8. We sit at the intersection of massive markets migrating quickly to the cloud with a differentiated offering in which to capitalize on the secular tailwinds. Improvements we are making today will compound over the coming quarters and allow us to more efficiently grow while maintaining a profitable growth mindset. Scaling a fast business to a $1 billion plus business while demonstrating profitable growth can be tremendously rewarding. I know I've done it before and I fully intend to do it again. With that, I'll turn it over to Sam to detail the financial path ahead.

As Dave shared earlier, 8x8 is an amazing company and we see tremendous opportunities ahead for us. We had many accomplishments in fiscal 2021 and are on a rarefied path with over $500 million in annual recurring revenue. Our upmarket focused enterprise strategy is working, and the number of paid business users continues to grow. I am particularly pleased with our return to profitability and operating cash flow positive while continuing to grow ARR at healthy rates. Let me share how our financial picture will evolve over the intermediate term and the milestones shareholders should be on the lookout for. The rule of 40 is an important SaaS benchmark for investors measuring revenue growth and profitability. As I mentioned earlier, in fiscal 2021 we focused on returning to profitability, putting one leg of the rule of 40 in place, and now getting us to the mid-teens on this metric. Using revenue growth plus operating margin, we expect to exit fiscal 2022 in the mid-teens, fiscal '23 in the mid-twenties, and fiscal '24 we would like to achieve mid to high thirties with a stretch goal of hitting 40 before we close out fiscal 2024. This will be driven mainly by improving service revenue growth coupled with mildly expanding profitability. In other words, profitable growth. We are biased towards growth given the market size, but we do not want to run non-GAAP operating losses. As part of our focus on improving execution, we've taken decisive cleanup measures to focus our operating spend, eliminate distractions, and maximize returns. We are phasing out our services we sold to other carriers known as wholesale CPaaS and repurposing any spending from that customer segment into the core segments described by Dave. This change will have a direct impact on what we report, specifically the face numbers on the income statement. In 2021, CPaaS Wholesale Services contributed $15 million in service revenue and essentially zero operating margin. Rationalizing these services will be a near-term 300-plus basis point headwind to service revenue growth rates in fiscal 2022 and is already incorporated into the fiscal '22 guidance I will provide shortly. We believe this is the right decision to concentrate our resources on our core market opportunities. Going into fiscal 2022, we are focused on adding demand generation, sales, and engineering to passively, smartly, and efficiently maximize growth, and we want to self-fund this. We are making these investments from a position of strength for long-term value creation. We are significantly increasing our investment in contact center and X Integrated UC and CC solutions, which our estimates suggest are the fastest growing portions of the overall market. We are adding upmarket sales capacity for mid-market and enterprise customers and channel investment will continue to grow, albeit at a slightly slower rate than we have in the past. Since the typical mid-market deals generally take three to four quarters from lead to closing, we would expect the first results of these new investments to show up in our upcoming fourth quarter. These two combined further sharpen our target market as mid-market and enterprise, with LTV to CAC metrics being better. We are very focused on setting the stage for service revenue growth acceleration as we enter fiscal 2023. We want to grow quickly. We want to be cash flow positive so we can fund our growth. We believe this is the best thing we can do for shareholders over the long term, and we are very focused on these three swim lanes. The first is growing the topline as quickly as we can by building the best-integrated UC and CC solutions in the market and enabling sales teams to drive new customer growth in this large market opportunity. Second, we established a more disciplined investment framework and a path forward for increased efficiency across the business functions. We expect to see gross margin improvement over time through our refined go-to-market focus and product rationalization, and we should show unit economic improvements. Lastly, we are committed to strengthening our balance sheet via self-generated cash flow. As we enter 2022, we have good sales funnel metrics and continued strong demand for X Integrated UCaaS, CCaaS solutions, with Microsoft Teams and CPaaS. Offsetting this is the continued work we need to do around operations. Taking all this into account, we are establishing the following guidance for Q1 fiscal 2022 ending June 30, 2021. We anticipate total revenue to be in a range of $142 million to $143.5 million, representing approximately 17% to 18% year-over-year growth. We anticipate service revenue to be in a range of $132.5 million to $133.5 million, representing approximately 16% to 17% growth. We are no longer providing guidance for non-GAAP pre-tax loss since we are now profitable. Instead, we believe that non-GAAP operating margin is a better measure of our ongoing financial performance. We anticipate to be operating margin positive in Q1 and for each quarter of fiscal 2022. We are establishing guidance for full-year fiscal 2022 ending March 31, 2022 as follows. We anticipate total revenue to be in the range of $595 million to $605 million, representing approximately 12% to 14% percent year-over-year growth. We anticipate service revenue to be in the range of $555 million to $565 million, again representing 12% to 14% year-over-year growth. And we anticipate fourth-quarter non-GAAP operating margin to be approximately 2%. As I mentioned earlier, our fiscal 2022 guidance incorporates exiting non-core services, which were approximately $15 million in service revenue in fiscal 2021. Excluding this amount from fiscal 2021, the service revenue guidance would have been in the range of 15% to 17% or approximately 300 basis points higher. Looking specifically at gross profit growth and ARR growth, we believe the year-over-year growth in these segments should be at least 2 to 4 percentage points higher than service revenue growth. For fiscal 2022, we believe gross profit and ARR growth metrics are good milestones to track our progress throughout the year. Next, I'd like to provide some context on our long-term financial framework. With the investments we're making in product innovation and once we lap exiting non-core CPaaS services, our revenue growth rates should bounce higher. We grew total revenue 19% in fiscal 2021 and believe we can return to 20% or greater revenue growth in late fiscal 2023—that’s a goal, not guidance, as there's a lot of time between then and now. As revenue growth trends back up, we plan on bringing in a marginal portion of that growth to the operating margin line. We are focused on further accelerating ARR in a very efficient manner. We also have plans to increase sales and marketing efficiency over time, which is a key theme with investors. Additionally, R&D investments will increase as a percentage of revenue to fund innovation and further expand our product differentiation. We would like to see operating margins in a 5% to 10% range over the intermediate term and believe longer term, say five years out, we can be a 10% to 20% operating margin company with relatively high growth rates. We plan to balance our focus on profitable revenue growth while making sure our efficiency of spend is high. We believe 10% to 20% operating margins is the right range while total penetration of cloud communications relative to legacy on-premise systems remains low. Once cloud communications become the majority of the business, we will focus more on increasing operating margins. Lastly, while we are cash flow positive in operations in the fourth quarter of fiscal 2021, it was based on several nonrecurring items. By the fourth quarter of fiscal 2022, we expect cash from operations to be positive on a regular basis and have the objective of becoming free cash flow positive. The final topic I'd like to discuss is an administrative one, our IR metric sheet. Based on the feedback from discussions we've had with the investment community, we will no longer publish and report bookings metrics beginning next quarter, and we will focus only on annual recurring, ARR based metrics. We believe ARR metrics are a better indicator of our business performance. In closing, we are super excited about the future of 8x8. We have an opportunity to differentiate ourselves in the market with our integrated platform, upmarket focus, and multiple growth opportunities, all inside a large total available market. At the company level, we believe our unit economics can improve, our recurrent business model is an asset, and profitable growth will remain. Thank you to our employees, our customers, our partners, and also importantly you, our shareholders, for your continued support.

Thank you. We will now begin the question and answer session. Our first question comes from Tim Horan with Oppenheimer. Please go ahead.

Hi, thanks guys. On Teams, can you give us a sense of maybe just qualitatively of how voice adoption is going for Teams users? Where do you think they are at this point? How easy is it to adopt many of the different voice options on Teams? And where are we with Contact Center with Teams at a high level? And then I guess lastly, does it matter to these enterprises who the legacy PBX provider was as they do well using new passwords CCaaS for Teams? Thank you.

Hey, thanks Tim. This is Dave Sipes. On Microsoft Teams, we've seen good traction, and this is an area that we were very early in getting a direct connection into Microsoft Teams App. As you saw on our platform, we have an agnostic approach to enabling different personas and different applications, Teams being a key one of those. We have recently been certified as a Contact Center for Microsoft Teams and the first vendor in the Gartner Magic Quadrant for Contact Center as a service to be certified by Microsoft. We also continue to differentiate the product by putting additional capabilities into the Teams app. We talked about last quarter, adding call forwarding rules and account settings, login and out of the call queues and access group voicemail, and we are following that up. In this quarter, we expanded the app functionality to include being able to send and receive SMS, MMS, and fax. So, we continue to create greater capability for those end users. If you remember last quarter, we talked about Hanover Research and a study that we commissioned with them that showed that 70% of deployments on Microsoft Teams plan on bringing in third-party voice into that. So, we can do that with UCaaS and CCaaS and enable those organizations that are moving to Teams, even in hybrid environments, which we talked about, I guess Halfords where a number of users are on Teams, but the bulk of the organization still is not for different reasons, they are just not using that license universally across the organization whether it's Contact Center agents or frontline workers or whatnot. So, we bring all those additional personas and ability to power real-time communications across the whole organization. And we are seeing them and we've had a record pipeline of Microsoft Teams in the quarter. So, we still see tremendous momentum.

Thank you.

Our next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Great, thanks. Maybe just start with for Dave, you talked about some changes to the sales force or channel training whether that be geo-segmentation or just better training of the channel on the joint CCaaS, UCaaS products and a full portfolio of products. Just how long do you see that training or those changes needing to take place and when do you think you could start to see traction in some of that? And then maybe a follow-up question for Sam, you grew service revenue almost 20% in the last fiscal year, and I understand that 300 basis point headwind from getting out of some of the Wavecell business. But that would still leave a couple of hundred basis points of deceleration in the fiscal '22 guide, and so just trying to get a sense of whether that is conservatism or what leads to that deceleration on the services line. Thanks.

Great, thanks Meta. I'll answer your first part and then I'll let Sam address your second part. On education, there is a focused strategy on CCaaS and UCaaS customers. It's an area that we're already seeing benefits from when we look at our pipeline generation, but as you mentioned, there is a training element that we are embarking on those for our direct sellers as well as our channel sellers. I would say that's going to go on and we are going full shoulder into that over the next two quarters. We're very focused on honing those areas at the intersection of CCaaS and UCaaS, the benefits to customers, as well as elements like our platform advantage and our 99.99% SLA that we announced today, among many others.

I will now take the second part of that. So let me first give you a bit of a technical answer. So, if you look at Q1-Q2 of fiscal '21, they were both influenced by the Wavecell acquisition because we hadn't lapped it yet. So if you look at just the back half of fiscal '21, you'll see 15% to 19% growth, about an average of 17%. We guided toward a pro forma 17%. The core business we expect to be flat to up going into next year, if you take out the business because that 17% had some of that growth in it from the non-core services CPaaS, and we're expecting 17% growth in the core business.

No, that makes more sense. Got it, thank you.

Our next question comes from Ryan MacWilliams with Stephens, Inc. Please go ahead.

Thanks for the questions. I have a question for Dave and one for Sam. So, great to hear about the path forward for 8x8 and the opportunities you see ahead and the combo UC CC deals. As you think about approaching the rule of 40 in fiscal 2024 and beyond, what do you think the main thing, a) If I need to get right in order to get there, and then maybe what improvements they can look for in the next few quarters? And then for Sam, in your presentation it said, channel ARR grew 38% year-over-year. It looks like new bookings growth improved just 7%. Can you help us reconcile the difference between those metrics? Thanks, guys.

Sure, thanks Ryan. On the improvements that we have been selling UC and CC, if you look across our go-to-market and how we go back educating back to the previous question, how we educate our direct sellers and indirect sellers. The onboarding of Amrit and Walt, along with our strong current team on the go-to-market side, is enhancing our efforts over the upcoming quarters. Additionally, the increased focus on R&D related to new Contact Center initiatives will intersect with these improvements. As we invest more in Contact Center, we expect to see better win rates for UC-only deals, strengthen our land-and-expand approach for the installed base, and create additional revenue streams within the Contact Center.

Yes, I’m sorry. And then let me reconcile the channels bookings versus channel ARR. So channel ARR is obviously a cumulative four-quarter metric versus channel bookings which is a one-quarter metric. If you look at channel bookings the quarter before, we were up 64%, this quarter we are up 7%, so that's an average of 35%. We will be close to that 38% number, with some timing associated with that. So it's really just an update of mathematics there. There is nothing special. This is one of the reasons we're getting rid of the bookings numbers in general because you do see some volatility in them quarter-to-quarter. They have a tendency to throw off investors when the realities of the last two quarters we were up 35% in bookings and 38% ARR, which are really close together.

I appreciate the color and looking forward to see what's next. Good luck, guys.

Our next question comes from Matt VanVliet with BTIG. Please go ahead.

Yes, thanks for taking the question, a lot kind of just here, but maybe first on sort of the new announcement around the entry into China, sort of what's catalyzing that? Why now? What has been the impediment in the past? Obviously a lot of companies, especially in software, tend to shy away from some of the issues around the Chinese market, but just kind of curious what kind of growth rates you may see there. And then sort of ducktailing off that, a lot of investments in some of these R&D initiatives that you're talking about Sam, but just I guess from a headcount perspective how much you're expecting that to be versus some new projects and just kind of thinking about that longer-term, I know it kind of fits in the framework there? Thanks.

Great, I'll take the first part of that. On the expansion of our international programs, our global reach program which now goes to 43 countries is a very important element for servicing multinational organizations that want to bring all their employees onto one platform and service all their offices globally. It is an area where there is a lot of demand in many of the largest countries. China is an obvious one where every multinational has a China office, now becomes a potential customer for 8x8. Why now? It is our partnership with and hard work that we've been doing to make that happen, as well as our partnership with China Mobile International enabling us to provide both UCaaS and CCaaS as the first provider into mainland China. This is an area we've always had high demand. We have close to 10,000 seats in employment today from numerous customers and a double-digit number of additional customers in the pipeline, that's all really from our installed base or very new customers. So, we feel this is a very important element in the overall global story and servicing multinational corporations across all their cloud communication needs.

Thanks, Matt. I'm going to change your question just slightly, I apologize, but I really wouldn’t call these new projects. One of the things that Dave has done really clearly is focus it down, so we actually probably have a lot fewer new projects on the board, and we are a lot more focused on the projects that we do have, so Contact Center that he mentioned and core platform technologies that he mentioned. We're repurposing existing dollars from businesses we're getting out of to fund additional headcount in those areas. So you won't see raw headcount going up by a huge amount. It is increasing, no doubt about that, as it is in sales capacity demand and demand generation capacity, but a lot of that is being paid for by repurposing of dollars, and that's why you continue to see operating margin improvement in fiscal 2022.

Right, great, thank you. All very helpful.

Your next question comes from Catharine Trebnick with Colliers. Please go ahead.

All right, thanks for taking my question. Nice quarter, gentlemen. Two things I wanted to hit on, one is a year ago video was a hot topic on the earnings call, where does that fit in, in the four pillars? Thanks.

Thanks, Catharine. Video is an important element of the employee experience offering and is one core element that we had when we were still focusing on innovation. This quarter, we offered video as a CPaaS service and this is a full medium capability with higher-level APIs that go into other products.

Thank you.

Thanks, Catharine.

Your next question comes from Will Power with Baird. Please go ahead.

Hey, guys, thanks for taking the question. This is Charlie Erlikh on for Will. Dave, you mentioned the pipeline a few times, and I was just hoping could you maybe compare the pipeline, first as where it was a quarter ago versus where it was a year ago? In terms of sales KPI, I'd love to hear also how your win rate has been stacking up in the enterprise specifically.

Yes, thanks. As we go, and first one especially about bringing Amrit on board, marketing is a real focus on enterprise pipeline generation. It is an area we've had strong momentum, especially when you look at channel having record channel pipeline generation and a record number of active channel partners. In fact, if you looked even further back over the last three years, active channel partners have gone up 10x in this area. So those are all areas where we've seen increasing momentum and ability to scale out our organization. Sam mentioned some go-to-market strategies. Naturally, we are making investments to capitalize on that pipeline momentum. As far as focusing on our pipeline, and to our core strategy, UCaaS and CCaaS is where we will see improvement in win rates as well as investments in Contact Center that rounds out the robustness and completeness of our product to allow us to close even more CC and UC deals.

And then I'd also love to hear what you are seeing on the pricing front, maybe both in SMB and enterprises. Is there any change in pricing at all or have they been pretty stable overall?

Pricing is something that's, I've been in the business for quite a while and what you normally see is you have some lower per users on the UCaaS side as you move upmarket into larger customers and the addition of additional products, which compensates with expansion in the customer size and the selling and cross-selling of additional products and capabilities.

Got it, thank you.

Thank you.

Your next question comes from Jonathan Kees with Summit Insights Group. Please go ahead.

Great, thanks for taking my questions. I wanted to, I guess, commend you guys for laying out the financial framework. I know you introduced some aspirational goals, but it certainly helps in terms of inspiring more confidence in your fundamentals into your financial outlook and progress going forward. My questions are actually on the carriers. That's great that you got China Mobile. What is, see if you can give an update on how Virgin Mobile Eastern and Virgin Media has been progressing in the UK? And are you guys assuming this is going to become a more recurring thing or will you get more carriers signing up and if this is going to become a material part of your channel?

China Mobile is assisting us in expanding our global reach; Virgin Mobile serves as a reseller of our product in the UK, while Bell Canada acts as a reseller in Canada. Those are areas we’re investing in our team that works those accounts for the expansion in those accounts and penetration of the 8x8 service as they go to their seller network. Our routes to market include carriers as those two in addition to our direct team and our agent and our reseller network. Those are probably the bigger share of our current market, and we see expansion across those as key growth areas for the shorter term line of sight with a faster ROI.

I would like to follow up on your previous answer. Do you anticipate that signing up more resellers and carriers will become more common now with your channel program and outreach?

We see expansion of all our indirect channels. Probably what you'll see sooner is expansion within our agent network and our partner networks. An example of that is the Westcon deal that we announced which is one of the largest distributors in the UK and Ireland that’s selling our product to those markets. I expect to see more of those in the short term, so stay tuned.

Your next question comes from Siti Panigrahi with Mizuho. Please go ahead.

Hi, thanks for taking my question. Dave, you talked about this massive market opportunity, I guess I agree with you and also you’re competitors are also aggressively investing, both in products and go-to-market. I'm wondering what's your view on the competitive landscape, and as you are looking at investment, as you talked about, where do you see 8x8 having a sweet spot?

Yes, so the cloud communication market's math is significant, we're talking about $75 billion across both the UCaaS, CCaaS, and CPaaS. We've been operating in UCaaS and CCaaS for over 10 years with a lot of experience, team knowledge, and feature function capability. The intersection at UC and CC has traditionally been a very strong buyer motivation when you look at legacy solutions. That barrier got broken when we went to cloud, and we provide that today. There are very few competitive sets when you look at that intersection, and I think where we stand out is having been in that space, recognized as a leader. We have more experience, more recognition when you look at our partner ecosystem, the nine-time recognition on UC and six-time recognition on CC, which along with defining those as our core strategy creates more focus than you’ll see anywhere in the market. I think those are the elements that we'll leverage to win at our core sweet spot, which is massive in and of itself at $15 million, and as we move more to product suite in the cloud we will gain share within the cloud.

I see, and if I heard correctly, you mentioned differentiated billing model for channel; could you elaborate on that?

Yes, so we enable both an agency reseller model, where we provide billing to the customer, and utilize percentages to the partner channel. Additionally, we offer a wholesale billing model for our VAR channel, which is a way traditional resellers have operated—especially in Europe—and that’s where we see a lot of traction with that model, but those are two alternative models that aren't typically provided in the cloud communication space that we provide both opportunities in an effort to be easy to do business with and support our partners in the way they want to grow their business.

Thank you. Thanks, Dave.

Your next question comes from Peter Levine with Evercore. Please go ahead.

Great, thanks guys for taking my questions and for the detail on the call. Perhaps can you unpack the $1 billion target? Can you give us a timeframe on that target? I mean how do we get there, meaning, how much of an emphasis is being baked in from expanding leveraging the channel? And are you factoring in any inorganic contributions? Thanks.

All right. Let me get part of that, Dave, and then maybe... It's a number that we put out. If you look at our growth rates, we're expecting to be at about 20-plus percent growth rates here within a couple of years. You should expect that it's achievable within five years and no, we are not expecting inorganic pieces. We reserve the right, at all times, to be able to use shareholder money wisely to acquire inorganic pieces that we want to tuck into our technology portfolio, but it's not built into the plan. We think we have line-of-sight and I'm just highlighting this is not guidance; I'm giving you a rough objective. But we absolutely think it's achievable and have line-of-sight for it.

Your next question comes from Daniel Bartus with Bank of America. Please go ahead.

Hey guys, thanks for taking the question. I wanted to also ask about Microsoft. Just at a high level, when you look forward, how much life is there to coexist on top of Teams? Do you think the market will shift more to UCaaS and CCaaS bundling on top of Teams or do you see a long runway for just better telephony and just a UCaaS piece on top of it? Thanks.

Yes, this is Dave. Capitalizing on the Microsoft Teams opportunity, it's being used as a core team messaging endpoint. I think over 115 million active users at this point. For enabling real-time communications and voice specifically, I believe that is an opportunity, definitely for the employee base. We are certified now for contact center, so it is an additional opportunity for agents to utilize. I think you may see agents usually operating in a more specialized endpoint environment, around things like Salesforce or even the 8x8 Contact Center app, but we will likely see some agents utilizing it as a secondary application for team messaging. So, it's important that we enable all users in the organization to operate through one real-time communication platform that 8x8 enables.

Got it. Thanks for that.

Your next question comes from George Sutton with Craig-Hallum. Please go ahead.

Thank you. This is Adam on for George. Sam and Dave, you called out within — with respect to the increased R&D spend, the intersection of UC and CC. I was hoping you could provide additional detail on what exactly you're focused on, specifically on the near-term objectives and if there are any long-term projects you feel like are going to generate great ROI, but just will take some time to get there?

Yes, I think we highlighted a number of areas, this is a great question and we get asked it all the time. It goes from the most fundamental of having a high availability platform, and we were able to announce a 99.99% financial-backed SLA across our entire platform. So, going with the UC-CC sell, that is so much more powerful when you can do that, than if you’re partnered or you're going with two separate vendors in that situation. So that's one key area. There is also cross-employee collaboration, especially between things like contact center agents, back office employees, and front-office employees that having all on one platform enables. Then there are things like an integration platform that allows an IT organization to implement more cost-effectively and maintain and integrate into core workflows across the organization. We're seeing that across a number of our customers as they go and deploy our X Integrated UCaaS and CCaaS solution.

Our next question comes from Michael Turrin with Wells Fargo Securities. Please go ahead.

Thank you, good afternoon team. Sam, you've just reached breakeven targets. We can all understand the areas you are highlighting for investment, whether it's CCaaS or the go-to-market improvements you are focusing on moving forward. However, why demonstrate any gross margin expansion at all, considering you've hit that initial target in FY '22 instead of further investing in those areas?

Michael, I mean it is a great question. To be fair, we are transitioning from a focus on profitability now to potentially slowing down the profitability increase and really reinvesting dollars. To me, it is just a function of efficiency. As long as we can be incredibly efficient with our investments, we'll always make those first, and as long as we remain profitable. Gross margins are really just a matter of focus on improving our margins across the board. One piece of that is our cost to serve. It is a fairly large number, so it is an easy number to attack. I could pour money out of gross margin and roll that money back into R&D and sales and marketing, which becomes much more toward new revenue generation, both those things are either product differentiation with new revenue or increased sales capacity and demand gen capacity to drive new logo additions and cross-selling.

Thank you.

This concludes our question-and-answer session. It also concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.