Earnings Call Transcript - EGHT Q2 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to the 8x8 Inc. Second Quarter 2026 Earnings Conference Call. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Patterson, Vice President of Finance. Please go ahead.

Kate Patterson, Vice President of Finance

Thank you, operator, and good afternoon, everyone. Today's agenda will include a review of our results for the second quarter of fiscal 2026 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. 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, and we have no plans or obligations to update them. 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 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'll turn the call over to our Chief Executive Officer, Samuel Wilson.

Samuel Wilson, Chief Executive Officer

Thank you all for joining us today. As we mentioned last quarter, we are transitioning our conference call format. We're moving away from reading lengthy prepared remarks and instead are posting a detailed quarterly letter complete with business and financial highlights to the Investor Relations website in the Quarterly Results section. This quarter, Kevin and I will share brief remarks highlighting a few important points. Q2 was another strong quarter for 8x8, and the results reflect the progress we're making in the business. We are continuing to execute against our priorities for the year, returning to growth, expanding our use of AI to improve both customer and employee outcomes, completing the Fuze platform shutdown and driving stronger retention through cross-sell and multiproduct adoption. But the real story this quarter is innovation. It is transforming how customers experience 8x8 and what is powering our growth. We've embedded AI throughout our platform to make communications smarter, faster and more personal from real-time call summarization and contact center to AI-powered transcription work and 8x8 work to new agentless payment capabilities to digital channels like Viber and RCS in 8x8 Engage. Engage is our AI-powered CX solution that extends contact center capabilities to all customer-facing employees. Internally, we're using AI to work smarter, automating processes, improving forecasting and helping our teams deliver faster, higher-quality customer experiences. We view AI as elevating and enhancing the work of our employees, making us more efficient. We are also transforming how we take our innovation to market, aligning our sales, marketing and partner motions around customer outcomes. And I'm excited to share that Stephen Hamil has stepped into the role of Chief Revenue Officer to lead this next phase. Stephen successfully drove our CPaaS API usage in the Asia-Pacific region and around the world. So, some key points. Today, we announced 8x8 Workforce Management available starting next week to all contact center customers at no additional cost through our new 8x8 App Store. Yes, you heard that right. We're making Workforce Management available free of charge to all of our contact center customers, existing and new ones. We already have customers running it in production. This is a big moment for two reasons. First, this is our first product-led growth or PLG launch. We've introduced a high-value solution designed to drive adoption with a premium version planned for future release. Workforce Management is available to everyone. Second, it marks the beginning of a broader expansion. We'll be adding more applications to the 8x8 App Store shortly, giving customers a modern, flexible, self-service way to activate new capabilities. We're expecting strong demand for 8x8 Workforce Management, so we've begun a progressive rollout starting next week. The 8x8 App Store and PLG strategy was implemented to better support the accelerating pace of AI-native product innovation, and it reflects our commitment to delivering outcomes that matter. We have new apps teed up for both UC and CC in the near future. Switching gears, I want to highlight how we're changing the lives of our customers. One example is one of the largest automotive dealerships in the U.K. Before working with 8x8, they were juggling nine different communication systems across its dealerships, creating complexity and slow response times. By moving to 8x8, they consolidated everything, voice, video, contact center analytics to one integrated platform. The impact has been transformational. The dealer group now uses 8x8 contact center, video elevation, Conversational IQ with a strong adoption of web chat and digital engagement. They're also piloting smart assistant and intelligent customer assistant to automate quality assurance and bring real-time AI analytics to their service teams. Their IT leader summed it up well when he said, 8x8 helps us focus on what matters most, providing the best experience to our customers. In short, we went from nine vendors down to one, unlocking better visibility, faster response times and stronger connection with every customer. Across the Atlantic, a multi-hundred-million-dollar software company uses 8x8 as another powerful example of how our innovation drives measurable business outcomes. They are using multiple 8x8 products, including UCaaS and CCaaS as well as Engage, Secure Pay and Conversational IQ to deliver a seamless, data-driven customer experience across their network. Their team has fully embraced 8x8 as a strategic platform, not just for communication, but for business transformation. They're leveraging analytics and engagement insights from 8x8 Engage to refine the sales and service workflows to connect all customer-facing employees in and out of the contact center. They're also piloting Smart Assist to improve mystery shopper scores and coach their frontline teams in real-time. It's a deep collaborative relationship from executive leadership to frontline users built on trust, measurable outcomes and shared success. This software vendor exemplifies what we mean when we talk about long-term customer partnerships built on a comprehensive portfolio of products. These are the kinds of outcomes that define our innovation story, outcomes that are measurable, transformational and rooted in customer success. They show what makes 8x8 different. We're not just delivering new features or chasing trends. We're helping organizations simplify their technology, empower their employees and create experiences their customers remember. Whether it's a service provider and an auto dealership resolving an issue in one interaction or a software team using analytics and automation to raise customer satisfaction scores, these are real examples of 8x8 innovation in action. That's what makes this journey so exciting, innovation that creates lasting impact for our customers, our people and ultimately, our shareholders. With that, I turn it over to Kevin to share a few highlights from the quarter.

Kevin Kraus, Chief Financial Officer

Thanks, Sam. Good afternoon, everyone, and I also want to thank you for joining us for our fiscal Q2 2026 earnings call. Detailed financial results are available in our press release and in the trended financials on our Investor Relations site. As Sam mentioned, we're introducing a slightly different format this quarter, and I have also posted a shareholder letter and financial highlights alongside our quarterly materials. With that information already available, I'll focus my remarks on a few key highlights. Unless otherwise noted, all figures other than revenue and cash flow are presented on a non-GAAP basis. Q2 marked our second consecutive quarter of year-over-year revenue growth, reflecting healthy usage trends and disciplined execution. Total revenue was $184.1 million, and service revenue was $179.1 million, with both exceeding the high end of guidance by roughly $4 million and growing 1.7% and 2.3% year-over-year, respectively, driven by continued strength in our usage-based offerings. Excluding revenue from Fuze customers, whether on the 8x8 platform or not, service revenue grew nearly 6% year-over-year, higher growth than we achieved last quarter and our fourth quarter of acceleration. Service revenue remaining on the Fuze platform declined to approximately 3% of total service revenue, down from approximately 7% in Q2 '25. We are on track to move the remaining Fuze customers onto the 8x8 platform by calendar year-end. Usage revenue, which includes our CPaaS communication API, saw another record performance totaling approximately 19% of service revenue compared to approximately 13% in Q2 '25. Gross profit for the quarter was $120.9 million, about $2 million above our implied guidance midpoint, reflecting strong execution and revenue outperformance. Gross margin was 65.7%, down sequentially due to the continued mix shift toward our usage revenue, which carries a lower margin profile but will add meaningful profit dollars as usage revenue continues to scale. Operating income came in at $17.3 million, exceeding expectations and resulting in a 9.4% operating margin, above the high end of guidance. Fully diluted EPS landed at $0.09 per share, $0.01 above the high end of our guidance range. Cash flow from operations was $8.8 million for the quarter, above the high end of guidance. We ended the quarter with $76.7 million in cash, cash equivalents and restricted cash. We continue to allocate capital to debt reduction. During the quarter, we made a $10 million term loan prepayment. And subsequent to quarter end, we made an additional $5 million term loan payment. With these actions, we have reduced our debt principal by $224 million or 41% since the August 2022 peak debt of $548 million. Our next required term loan payment of $2 million isn't due until June 30, 2026. These proactive deleveraging actions demonstrate our continued commitment to disciplined capital management. Stock-based compensation as a percentage of revenue was 2.9%, another multi-year low for the company. This continues a clear downward trend, reflecting our ongoing focus on prudent equity management. While our diluted sharecount has grown, the year-over-year increase declined notably versus the prior quarter's growth for the second quarter in a row. We are committed to minimizing dilution over time and managing compensation costs in a thoughtful and sustainable manner. Looking to Q3, our revenue guidance reflects a sequential decline following record usage revenue in Q2 and the ongoing wind down of Fuze-related revenue. Customer engagement remains healthy, but we are forecasting usage-based revenue growth more cautiously given potential variability in consumption patterns. As usage continues to represent a larger share of total revenue, we have incorporated this dynamic into our outlook with an appropriately measured approach. Given the rapid growth of our usage revenue, we are guiding to lower gross margins for the remainder of the year. Importantly, this mix shift reflects increasing engagement with our platform and expanding use cases across our customer base. We are actively managing this evolution through disciplined execution and targeted go-to-market initiatives, and we remain confident in our ability to deliver durable long-term growth and profitability. For fiscal Q3 '26, we are providing the following guidance. Service revenue is expected to be between $172 million and $177 million. Total revenue is anticipated to be between $177 million and $182 million. We anticipate gross margin between 64% and 66%, and we anticipate operating margin between 9% and 10%. In fiscal Q3, we expect contractual interest expense, which excludes amortization of debt issuance costs, to be approximately $4.2 million based on current interest rates and the principal outstanding on our term loan and 2028 convertible notes. We expect to make cash interest payments of approximately $2.2 million, which reflects only the term loan interest payment as the semiannual interest on our 2028 convertible notes is payable during Q2 and Q4 only. Our term loan interest rate assumption is approximately 7%, reflecting SOFR plus 3%. We anticipate fully diluted non-GAAP earnings per share in the range of $0.08 to $0.09 per share based on approximately 143.5 million fully diluted shares outstanding. We anticipate cash flow from operations to be between $10 million and $14 million, driven by the timing of cash interest payments and other payments we make in the normal course of business. For the full fiscal year 2026, we are updating our guidance as follows: Service revenue is anticipated to be between $692 million and $706 million. Total revenue is anticipated to be between $712 million and $726 million. We anticipate gross margin to be between 65% and 66%. Full year operating margin is projected between 8.5% and 9.5%, translating to non-GAAP operating income of approximately $65 million at the midpoint of our full year revenue and operating margin guidance. Although operating margin is expected to decline year-over-year due to mix-related gross margin pressure, we expect non-GAAP net income to remain relatively stable, supported by significantly lower interest expense compared to fiscal 2025. We expect fully diluted non-GAAP earnings per share to be in the range of $0.31 to $0.33 for the year, assuming approximately 143 million average diluted shares outstanding, and we anticipate cash flow from operations to be between $38 million and $42 million for the full year. In summary, Q2 reflected steady execution, consistent profitability and ongoing progress in strengthening our balance sheet. With disciplined expense management and a clear focus on profitable growth, we enter the second half of the fiscal year with strong momentum and confidence in our ability to deliver sustained shareholder value. With that, I will turn the call over for Q&A.

Michael Funk, Analyst

I have three questions, if I could. So, first on the service margin comments that you had. I understand you're saying more usage-based revenue. But maybe help us think about the price times the quantity there, how much of that driven by volume versus change in price?

Kevin Kraus, Chief Financial Officer

Right now, it's mostly volume due to the absolute usage volume that we're seeing. Our margins on the application side are very stable and consistent and have been for years. It's primarily a mix issue for the usage-based portion of the service revenue. Currently, it's not so much about price, although we are experiencing some pricing pressures in certain deals; overall, it's not significantly impacting pricing at this moment.

Michael Funk, Analyst

Then just thinking about the revenue trajectory, thank you for the revenue ex-Fuze. But is ex-Fuze, that the right way to think about the revenue trajectory exiting the year as you end of life remaining Fuze customers?

Samuel Wilson, Chief Executive Officer

Yes, but keep in mind that as we transition Fuze customers to the 8x8 platform, it’s not really the end of service for them. We still have a bit of a comparison issue, as they have dropped out of both the numerator and denominator calculations, leaving only the denominator. Therefore, I anticipate a headwind of about 2 points, perhaps slightly lower, affecting next year's growth rate as we complete this transition. After that, we should return to more normalized growth rates, excluding any other factors that may arise.

Michael Funk, Analyst

Do you anticipate you'll give us a pro forma ex-Fuze next year for more comparability?

Samuel Wilson, Chief Executive Officer

That's like two quarters away, Michael, I haven't thought that far in advance yet. Probably, we'll give you numbers if it makes your life easier.

Michael Funk, Analyst

And then last one for me, and then I'll hand it off. So, a number of comments in the letter about the go-to-market changes that you're making. One of the comments was the improvement in pipeline quality. So, I'd love to know how you're measuring the pipeline quality and maybe some of the improvement you've seen there?

Samuel Wilson, Chief Executive Officer

So, we measure pipeline quality as deals that get to Stage 3. So, we run a seven-stage sales process, and we consider anything that's Stage 3 plus to be high quality. That means there's been a first meeting, there's been discovery. There's a vetting process that's been done, etc. And so that's where we're seeing the improvements in quality.

Michael Funk, Analyst

And how have you improved the quality, Sam? Are there more guardrails around what allows a salesperson to enter something into the funnel? What's contributing to the improvement in the quality?

Samuel Wilson, Chief Executive Officer

Look, I'd love to give you a simple answer, but yes, we're using more SDRs. So, they're having ability to weed out some of the stuff. The use of AI in our sales process, I cannot understate how important the use of artificial intelligence has been in improving our GTM efficiency and processes and those things. So, it's a number of contributing factors. It's not death by a thousand cuts; it's improved quality by a thousand paper clips.

Josh Nichols, Analyst

Good to see revenue coming in at the top end or above the top end of the range. I was just looking at the guidance breakdown. With Fuze transitioning at calendar year-end, I think the guidance kind of implies that maybe service revenue troughs out in like Q4, but is the expectation that going from there, since you don't have those comps into fiscal '27, you start to see improvements on a sequential basis without the Fuze overhang?

Samuel Wilson, Chief Executive Officer

So, Josh, your question is very relevant. It's just quite difficult to answer since usage currently represents 19% of our revenue. We aim to be very cautious with our usage-based modeling because we are still in the early stages of this transition. I would prefer to have a larger sample size so that no single customer or a small number of customers, or even economic shifts, can greatly impact the results. Therefore, I’m not in a position to predict when you will see that change. It will depend on upcoming renewals, our usage rates, and new bookings we introduce. There are many factors at play. However, I do feel confident that with two quarters of accelerating growth, we are on track to continue growing, and we should be able to move past these year-over-year declines. But at this point, I cannot specify the timing or details.

Josh Nichols, Analyst

I’d like to turn the question around a bit. You mentioned that you have been taking a cautious approach to usage-based revenue. Can you discuss how you are evaluating what you’re observing compared to your guidance?

Samuel Wilson, Chief Executive Officer

So, we primarily take the exit run rate for a quarter and project that into the future indefinitely. While the business is experiencing growth, we do not automatically assume that it will continue to grow. We account for known growth opportunities, such as a significant upcoming deal or holidays, and make adjustments where necessary. However, our baseline always relies on usage. Whatever we observe at the end of the quarter is what we use for our ongoing projections. Currently, as we see growth, particularly with advancements in AI and CPaaS, it tends to exceed our expectations, and we incorporate that into our forecasts.

Kevin Kraus, Chief Financial Officer

Yes. Sam's comment about seasonality in the usage portion of our business is something that can have an impact and that, again, could really.

Samuel Wilson, Chief Executive Officer

It's a great point, Kevin. I was to state that. But like I mean, we are entering the holiday season. So, we see more marketing campaigns. We see, in general, more phone calls, particularly in our retail vertical, our hospitality vertical, those kinds of things. And then we generally see in the March quarter, our fourth quarter, a little bit more seasonal, less usage on the holidays.

Kevin Kraus, Chief Financial Officer

Lunar New Year.

Samuel Wilson, Chief Executive Officer

China Asia shuts down a little bit, right? So, we are starting to see a little bit more seasonality in the business.

Josh Nichols, Analyst

And then last question for me, usage-based up to like close to 20% of revenue. We're seeing very nice acceleration there. I know you talked about the margin outlook, right, and how that's impacting the margin, still really healthy margins, but 65% to 66% non-GAAP. Any idea maybe it's hard to ask or pumps on, but exactly like where that kind of winds up leveling out at as we think a few quarters ahead?

Kevin Kraus, Chief Financial Officer

It really depends on the mix. Like I mentioned from Michael's question about our margins being relatively stable for different portions of the business. It really will boil down to mix. The point I want to make, though, on this is that we look at absolute dollar profitability. And so, if gross margin is positive for that piece of the business, great. And it is a light OpEx model. So more of that flows to the bottom line. So, as we scale, we may see the gross margin deteriorate a little bit, but the bottom line and the cash flow are what we're looking at as well, and that's looking like it could be even improving over time based upon the cost base of that particular portion of the business.

Samuel Wilson, Chief Executive Officer

I just have to step in. I can't stress enough what Kevin is saying for our investors, right? We said this numerous times in the past. We would not be surprised if we saw gross margin come down a little bit as we scale the business while gross profit dollars increase. It's just a mix. It's how customers are adding on AI products or messaging products or these kinds of things. But we know the more products we sell customers, the stickier they are, the higher the lifetime value, the higher the average revenue per customer. It's the right thing to do for the long-term value of the customer, and therefore, it's the long-term value of the shareholders.

Peter Levine, Analyst

Congrats on the deleveraging. I think that was obviously part of the plan for a while. So good to see that. Maybe to go back to a prior question around the pricing pressure that you're seeing. I've heard from some of your competitors that during COVID, prices were high, and now that two, three years as renewals come up, pricing becomes part of the conversation. And you've seen a bit of not a commoditization, but pricing used as a lever. How much of that are you seeing as part of renewals where you're going to have to go through a period of time whereas these renewals that you've had over the past three years come due, like is that part of the equation? Is that some of the headwinds that you guys are dealing with or seeing today?

Samuel Wilson, Chief Executive Officer

Yes, during the pandemic, there was a surge in demand, particularly from on-premise to cloud systems. As we approach the second and third renewals, these systems are being adjusted. I want to emphasize that while there is indeed pricing pressure, primarily from a particular video conferencing company that often disregards pricing, we are also observing a rationalization of seats influenced by the current economic climate. On the other hand, our AI, messaging, and digital products are helping to balance this out. It's important to note that we anticipated these changes and are managing them appropriately. This has led us to introduce more products into our offerings. Customers might decrease the number of UC seats but are simultaneously adding RCS, which we now provide globally. This accounts for the growth in average revenue per customer on a year-over-year basis, especially as we attract more customers using three, four, or five products. Our retention rates are also improving as we gain more multiproduct customers. Overall, we recognize that this post-COVID adjustment is something we need to navigate, and we are equipped to manage it without concern.

Peter Levine, Analyst

Maybe WFM, obviously, it's a free offering. Maybe walk us through the strategy there. And then I guess if there's a way to handicap what percentage of your customers are actually using you guys today for WFM versus like a point solution. Curious to know what the strategy was behind offering that. Obviously, I think we know some of the drivers, but curious to know what the strategy is and what you do in the next four quarters.

Samuel Wilson, Chief Executive Officer

We identified a significant opportunity in the workforce management (WFM) market. Contrary to popular belief, the most widely used WFM product currently is Excel. With most contact centers in the U.S. averaging around 73 seats and international centers often having 40 to 50 seats, Excel can be effective. Our goal is to develop a product that surpasses Excel in managing WFM, providing our customers with added value and enabling us to engage in product-led growth through a Pro version, which may include improved analytics, better forecasting, or multi-site capabilities. Simply offering a product that replaces Excel can deliver substantial value to our clients, which is our primary focus. We are in a renewal environment and aim to enhance our multi-product lifetime value and facilitate product-led growth through our upcoming App Store, which we are very enthusiastic about. We intend to deliver significant value to our customers quickly, especially considering our competitors charge $20 to $30 a month for solutions that don't seem overly complex. Our aim is to lower costs and adopt a freemium model that aligns with our customers' needs. However, our product isn't intended for large contact centers. We are not looking to compete with companies like Calabrio and Verint, which provide additional features like gamification that most of our basic customers do not require. Instead, we recognized a market demand for a spreadsheet replacement rather than a substitute for comprehensive solutions offered by higher-end providers. For large contact centers with over 1,000 seats, such as those we serve, it would be necessary to use those advanced products since they are built for different purposes and operate differently.

Peter Levine, Analyst

And maybe just squeeze the last one. Obviously, I talked about some of the deleveraging you guys have had. How do you think about M&A, smaller tuck-ins versus organic, right? Obviously, there's a cost to both sides of that. But how do you think about it? And maybe help us understand, are there still any covenants that you have to manage through with the debt levels that you have today? Just help us understand how you're thinking about organic versus kind of tuck-in M&A to kind of accelerate some of the product development.

Samuel Wilson, Chief Executive Officer

Sure. We made a small tuck-in acquisition in the March quarter, which we didn't publicize significantly since it wasn't material. We're actively exploring other opportunities in the market. Debt retirement remains a key strategy for enhancing stakeholder value over time, and we’re focused on that. We are currently operating under a term loan A, which comes with some manageable covenants that are fully disclosed in our filings, so there isn't anything to be concerned about. We prefer not to engage in anything excessive, like large AI acquisitions that may lead to losses. Our company is driven by cash flow, and that’s our main focus. While we are exploring mergers and acquisitions, we consider them an important part of our capital allocation strategy. We aim to acquire tuck-ins to facilitate geographic expansion, product portfolio expansion, or customer expansion. Those are our primary objectives, and we are ready to act when the right opportunity arises.

Kevin Kraus, Chief Financial Officer

Yes, the amendment we did also created a basket for tuck-ins as well, which we articulated last quarter, if you remember. So, we have that freedom in our term loan.

Catharine Trebnick, Analyst

Sam, how are you noticing changes in buying patterns now that AI has become a key topic of discussion? What differences do you observe between traditional brokers and professional service providers? I'd like to hear your thoughts before I share mine.

Samuel Wilson, Chief Executive Officer

First, I want to divide this into two parts. The first part is about AI technology itself. We're seeing customers focus on specific core use cases, such as Agent Assist, also known as Smart Assist, and our AI receptionists. These are very targeted applications. Most in the industry are extending AI to areas like summarization and analysis, and many of these initial use cases are being adopted. What has changed is that buyers no longer ask, "What AI products do you have?" Instead, they come in looking for an Agent Assist solution and want to know what options we provide. Through our SaaS partnership, we consistently offer excellent choices. The second part is more nuanced. We are ahead of the curve and will continue to be for a significant time, as AI is shifting to a consumption-based model. Unlike traditional SaaS metrics, usage is key. Customers prefer to pay based on their actual consumption, and we are even observing this trend influencing our subscription-based services. Customers want the flexibility to adjust the number of seats after one, two, or three years because they can't predict their future workforce size. I strongly believe that our SaaS industry is moving towards a consumption-based model, which is an inevitable trend. You can debate it as much as you like, but that is the direction we are headed. Currently, usage-based specific cases are what is propelling our business forward.

Catharine Trebnick, Analyst

Because I've been hearing that due to the complexity, the traditional telecom companies are not really equipped to handle a more intricate sale.

Samuel Wilson, Chief Executive Officer

I mean that's true. Our professional services team is constantly booked. We're frequently engaged, and while we could discuss the details for investors, we're beginning to see a shift in the concept of deployment. We're selling more continuous services because these models need ongoing fine-tuning, and there aren't established use cases. Customers prefer to purchase a set number of hours per month through a contract rather than making one large payment upfront.

Unknown Analyst, Analyst

It's Chad on for Siti. Just first, I'd be curious if you could expand on any actions you're taking on sort of the cost side as sort of this lower margin revenue comes through the P&L and sort of what you're looking at to expand operating margins from here?

Samuel Wilson, Chief Executive Officer

Yes, we are actively implementing AI technologies internally. We don't just sell these solutions to our customers; we utilize them ourselves, and we're experiencing returns on investment. Initially, adopting AI can reduce margins because both the existing and new processes operate simultaneously until the new one is fully implemented. This transition results in certain challenges. As we grow and return to expansion, we are exerting pressure on our suppliers to provide competitive pricing, which will eventually have a positive impact. However, much of this is due to our service mix. I've consistently warned investors that as we shift towards a usage-based model, we will likely see revenue growth increase, gross margins decrease, but gross profit dollars rise, ultimately leading to improved operating margins as we become better aligned with our customers. This alignment generates a greater lifetime value over time.

Kevin Kraus, Chief Financial Officer

A little more on what Sam mentioned, which was very well articulated. I want to share an example of how we're utilizing AI internally. We are able to leverage AI to optimize many of our software purchases. For instance, we gain valuable insights into the usage of AI as it relates to each of the licenses, allowing us to avoid overpurchasing when we renew. This is just one example of the many ways we are currently using AI to maintain cost control while still ensuring we operate efficiently within the company. We are beginning to see positive signs in this area.

Unknown Analyst, Analyst

Really appreciate the color. And then just one follow-up from us. If you could talk about sort of how the revenue trends were in the quarter from a domestic U.S. standpoint versus international and how that relates to sort of the better revenue outlook from here?

Samuel Wilson, Chief Executive Officer

It's no surprise that our U.S. business isn’t performing as strongly as our international business. Our business outside the U.K. nearly accounts for 40% of our total, and it's growing considerably faster than in the U.S. The U.S. market is currently facing significant price pressure and competitive challenges compared to the stronger performance we are experiencing in international markets.

Kate Patterson, Vice President of Finance

Also, the customer base is largely U.S.

Samuel Wilson, Chief Executive Officer

Yes, customer base is largely U.S., as Kate just said.

Operator, Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Sam for any further remarks.

Samuel Wilson, Chief Executive Officer

All right. Thank you, everyone. Thank you for the earnings call. Any feedback you want to give the super positive on our new format, please send those to me at samuel.wilson@8x8.com. Any negative feedback you want to give, those go to Kate Patterson. I say that jokingly. But any feedback you want to give us on the new format around a shortened script and a letter and those kinds of things is much appreciated. And with that, we look forward to meeting with all our investors again in 90 days with how we'll do over the next quarter. Thank you, everyone. And if I don't talk to you before then, happy holidays.

Operator, Operator

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.