Earnings Call
8X8 Inc /De/ (EGHT)
Earnings Call Transcript - EGHT Q4 2020
Operator, Operator
Good evening. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the 8x8, Inc. Fiscal Fourth Quarter 2020 Earnings Conference Call. I will now turn the call over to Victoria Hyde-Dunn, Head of Investor Relations.
Victoria Hyde-Dunn, Head of Investor Relations
Thank you. Good afternoon, and welcome to 8x8's fourth quarter and full year fiscal 2020 earnings conference call. Joining me virtually today, as we are all working from home, are Vik Verma, Chief Executive Officer; and Steven Gatoff, Chief Financial Officer. During today's call, Vik will begin with business highlights of our fourth quarter performance. Following this, Steven will provide details on our financial results and guidance. After these prepared remarks, we look forward to taking your questions. 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 reflect our analysis as of today, and we have no plans or duty to update them. In addition, some financial measures that will be discussed on this call, 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 non-GAAP measures to the closest comparable GAAP measures is provided with our earnings press release and PowerPoint presentation deck, which are available on our Investor Relations website. With that, let me turn the call over to Vik.
Vik Verma, CEO
Thank you, Victoria. Good afternoon everyone and thank you for joining us today. We are living in truly unprecedented times as the COVID-19 pandemic has impacted the world in unexpected ways. Let me begin by extending my hope that everybody on the call and your families and loved ones are healthy and staying safe. As COVID-19 spread around the globe, we took decisive actions early on to safeguard our over 1,600 person global workforce by putting into action a business continuity plan essentially overnight and using our own technology to remain productive from home instantly and seamlessly. This not only protected our employees but put us in a great position to immediately respond to our customers' needs in this challenging time. We believe the world of work has now fundamentally changed. Flexible work from anywhere on any device and in any digital form is now not just a nice to have; it is a critical business continuity imperative. Fortunately, we are ready. We've had the investment conviction over the last few years to engineer our platform into a unified, scalable, full-featured cloud platform with voice, video, chat and contact center. The last ten weeks have accelerated our platform penetration by many months, if not years. Let me give you a few examples. Over the course of ten days, we worked with e-School to bring Italy's secondary school system online. We worked with big and small telehealth organizations like the UK's Bionica Solutions, government health agencies, customer service organizations like Acer in North and South America, financial institutions in India and state and local governments to tackle call volume for health lines and unemployment claims. We onboarded new customers efficiently and without any of our employees or partners having to go onsite. We launched a number of new initiatives to better help customers and prospects worldwide. The 8x8 rapid expansion program allowed us to quickly provision additional seats and services to existing customers and with our self-service e-commerce offering 8x8 Express, Jitsi Meet and 8x8 meetings, we provisioned and served tens of millions of free and paid customers and were able to scale quickly and securely. As you saw through the numerous press releases over the last month or if you tracked our global usage map on the 8x8.com/live website, our free Jitsi and 8x8 video meeting solutions skyrocketed to now more than 20 million monthly active users. In just a few short months, Jitsi and 8x8 video meetings are now credible, secure alternatives to Zoom and more importantly, a strategic on-ramp for the 8x8 X series platform. And the growth was not just standalone video meetings. From February through April, the 8x8 X series platform scalability and usage have also been unprecedented. We nearly tripled the number of app downloads as well as messages exchanged and more than quadrupled bundled video conferencing. We also roughly doubled the total number of app-based phone calls in this period. This is extraordinary and we are working to capitalize on this dramatic growth of use on the X series platform by customers of all sizes. With that backdrop, I'd like to focus today on three topics. First, I'll briefly review highlights from our fourth quarter results. Second, I'd like to provide an update on recent product innovation and strategic partnership announcements including the launch of our meetings pro-video solution and our recently signed Virgin Media business partnership, and lastly, I'd like to discuss our long-term strategy as we move through fiscal 2021. Let me start with our financial results. We delivered solid fourth quarter results leading to a great close for the year. Service revenue and total revenue grew 30% year-over-year in the fourth quarter, both exceeding the high end of our financial outlook. Key drivers of the quarter's growth performance include continued success with mid-market and enterprise customers and channel partners. We grew our enterprise customer base with a record 42 new deals closed with ARR greater than $100,000 and 5 of our top 10 wins were Avaya replacements who selected our X series platform solution. X series now represents 43% of our customer base, up from 37% last quarter. Our single technology platform continues to be an important differentiator as we replace legacy on-premise systems and single point solution providers. Seventy-one percent of our new bookings greater than $12,000 ARR were from customers that selected bundled UCaaS and CCaaS compared to 52% one year ago. Contact center bookings grew 76% year-over-year and represented 30% of our total new bookings this quarter. More importantly, all of our top 10 deals included contact center which demonstrates the criticality of having contact center as part of a single scalable technology platform. Turning to the channel. Our execution was strong again in Q4 with channel bookings up 63% year-over-year. Our channel drove 54% of new bookings overall, including 8 of our top 10 deals. Demand generation was strong in the channel as well and we had over 1,000 channel partners registered deals in the quarter. We are continuing to expand our channel footprint with VARs and master-agents with multiple advances in the past month. We recently signed a strategic partnership with Virgin Media business, one of the UK's largest business data network providers with services to over 50,000 UK businesses to accelerate the cloud adoption of voice, video meetings, chat and contact center solutions to private and public sector businesses. Virgin Media views 8x8 as a truly disruptive business with innovative products that fit naturally into Virgin's cloud strategy. CloudFuel, our partnership with Scansource and Poly is progressing well. ScanSource is Avaya's largest distributor with more than 30,000 VARs in its portfolio. Sales in VARs training have been underway since February and we closed our first deals in Q4 as expected. We still have a lot of joint work and opportunity ahead of us as we systematically onboard new VARs and drive broad coverage across the Avaya install base. Comstar Technologies, an international IT services firm with more than 30 years of experience reselling technology solutions, added our UCaaS, CCaaS and video meeting solution to its product portfolio and has already moved thousands of customer seats to 8x8’s platform. Finally, we enhanced our relationship with channel master agent advanced communications which deployed our X series UCaaS solution for their own use to enable their U.S. and UK employees to work from anywhere at any time with no loss of productivity. Across every business segment, we won a record number of new customer logos in the quarter representing 58% of total bookings. In the fourth quarter alone we onboarded 5,500 new paying customers, nearly doubling the number a year ago and 35% higher sequentially. More than 2,000 of these logos came from our e-commerce offering, all self-provisioned and completely online. I'd like to highlight a few notable wins that exemplify the extraordinary work that our team did with customers this quarter. In North America, an important channel partner led a seven-digit deal for an Avaya on-premise replacement with a leading global manufacturer. This included more than 5,500 seats of 8x8 X series including both UC and contact center. We displayed several competitors during the RFP process because of our global deployment capabilities, voice quality, and maturity of our technology platform. In the UK we secured both a 2,200 seat Avaya replacement and a 5,000-plus seat win with two local government service boroughs. Another great win out of EMEA is with MSC Mediterranean shipping company, one of the world's leading container shipping companies headquartered in Geneva, Switzerland. Before selecting 8x8, MSC was using several disparate global communication systems and was looking to consolidate them into a single platform for unified communication and contact center. They needed enhanced workforce collaboration to support disaster recovery and business resilience initiatives as well as offer omni-channel communication options to its customers. MSC selected 8x8 because of the experience with global solution deployment as well as compatibility with Microsoft teams. Our CPaaS integration is going well as we continue to build traction with large multinational customers. New use cases of CPaaS for SMS registration and notifications include a provider of modern mass rapid transportation in Indonesia and an online game publisher in Thailand expanding into Vietnam, Philippines, and Malaysia. I'll finish up with a land and expand example from my install base that I'm particularly proud of. As India mandated a shift into work from home mode with little warning at the end of March, a widely recognized banking financial services provider needed to rapidly scale a work from home contact center operation for 7,000 employees. We were able to meet the requirements and activated 1,000 seats just over a weekend. Moving on to my second topic, I'd like to provide highlights from our product innovation and strategic partnerships. Let me first focus on the strategic importance of video meetings. In the last eight weeks, video meetings have become a mainstay of business communications. Online searches are up roughly 90,000%. Teachers, government, healthcare providers, and companies of all sizes are leveraging video meetings as a way to stay connected and work productively, and from the start we've offered our video meeting products for free with our Jitsi open source project, our standalone 8x8 meetings, and integrated into our X series offerings. To put this in perspective, in November of last year, just six months ago, we launched our first product based on the Jitsi open source video meetings. In the course of the last ten weeks we built a strategic asset with over 20 million monthly active users, albeit primarily free users. The Jitsi community itself is over 2,000 developers strong built on a foundation of strong encryption, ease of use and privacy. This is important as over the last month we've seen that secure video meetings and strong encryption is a critical differentiator. In response to these extraordinary market events in the first half of April, we released our first standalone paid meeting product at $9.99 per month and are now offering it exclusively via e-commerce. Nearly a million times a day, a splash screen at the end of every Jitsi meeting promotes 8x8 paid video meetings and other 8x8 offerings. We also publicly demonstrated end-to-end video meetings encryption and published a spec for open comments to the Jitsi community. As you can imagine as a result of all of this activity, our video traffic climbed to more than 1.5 petabytes per day leading us to evaluate hosting options. To put this in perspective this is equivalent to uploading 10 billion new photographs to Facebook every day. We selected Oracle for its top-tier security and price performance. 8x8's video meeting solution, including our free and paid offerings along with Jitsi.org are now live on the Oracle cloud infrastructure. We also joined the Oracle partner network and, as a result, our video meeting solutions are now available in the Oracle cloud marketplace where hundreds of thousands of Oracle customers can now buy 8x8 meetings pro. And as you saw this morning via press release, we are now beginning to jointly promote our work together worldwide. As I mentioned previously, the last few weeks have been extraordinary and have provided us with an incredible asset that helps build 8x8's brand, drives potential new customers to our website, and is starting to grow a new revenue stream, all while helping our communities and customers including governments and first responders to communicate in these difficult times. We are also continuing to advance our platform differentiation through a number of new initiatives including integration with important third-party partners. Next month we will formally introduce 8x8 voice for Microsoft Team, a cloud-based integration that provides enterprise-grade telephony and global PSTN connectivity to customers that want to retain Microsoft Teams as the collaboration interface. Voice for Teams is currently available for select enterprise accounts with broad availability planned for all regions later in the summer. This capability was critical to our win with MSC as I mentioned earlier. This quarter we will also be formally launching our CPaaS offering globally. We've seen strong interest and have already closed initial deals in the UK and Europe and we are ramping our CPaaS pipeline in both the U.S. and UK including many cross-sell opportunities within our UCaaS and CCaaS customer base. We look forward to sharing more details in the near future. The third and final topic I'd like to discuss is our long-term strategy as we look ahead to fiscal 2021. While the COVID-19 crisis remains fluid, 8x8 continues to focus on using our technology to help people around the globe stay safe and productive no matter where they are. We believe that 8x8 has never been in a better position than we are today for three reasons. First, flexible work from home is accelerating around the world. The combination of rapidly scaling remote contact centers and virtual offices with the need to provide all workers with the ability to move seamlessly from chat to voice to video will soon be the norm. Our single cloud platform including secure video is the right answer. As more and more customers see the benefit from having all of their communications delivered from the same platform, it only validates our strategy and furthers our competitive advantage. Second, our customers are relying on 8x8 as a single platform for transformation and resilience in the face of current and future challenges. Our product portfolio has never been stronger, a better position with X series technology platform and standalone voice, contact center, video meetings and enterprise APIs. The overall adoption of our softphone applications for both mobile and desktop in particular has been nothing short of extraordinary. Third, what we are seeing is that communications is a critical service even more important than physical offices. It is the first and last thing that a company turns on and off during times of uncertainty. The digital transformation from on-premise to cloud was a business imperative before COVID-19 and we believe will continue to accelerate in this environment. We continue to see strong demand for our communication solutions and our secure video meeting strategy has created a new on-ramp for customers to be introduced to our platform. Looking ahead to fiscal 2021, our focus remains on strategically managing the company for the long term including providing increased support to our customers and partners as we all navigate the uncertain future ahead. In this context let me tell you how we are improving CAC and LTV to drive scale across the business. First, we're building brand recognition by capitalizing on the dramatic growth of our video meeting space. Today, thousands of new logos are being introduced to 8x8 through e-commerce, Jitsi, and 8x8 video meetings at a very low cost. Essentially, this massive base of new users is a marketing asset that will continue to accelerate new customer growth at a very low cost. We will continue to monetize this growing user base through X series and standalone solutions on our platform, thereby lowering our CAC over the long term. Second, in our install base, we are rapidly migrating legacy customers to the X series platform. We are targeting to have over 80% of our installed base migrated by the end of the calendar year. Through the development of advanced automation by engineering teams, we have accelerated the migration of our customer base from legacy platforms. Every quarter, we are now migrating thousands of customers to the 8x8 X series platform. This will not only reduce our support costs but also increase customer lifetime value and we have found that platform customers have significantly less risk of churn and materially higher net dollar retention. Third, we are improving our overall customer mix. As we all know, small business has traditionally been both expensive for us from a CAC standpoint as well as the highest risk for customer churn. We have made strides in scaling our marketing automation infrastructure and databases and accelerating our e-commerce offerings to increasingly transact work group and micro businesses online with attractive self-service support offerings. Additionally, over the last few quarters, we have moved our ARR mix up-market to the enterprise and mid-market with 79% and 55% growth respectively. Not only are we onboarding more attractive customers but we're able to service them better with new self-service offerings and new premium support offerings. However, this transaction will take time as we continue to manage our churn exposure by migrating more of our legacy small business customers to the X series platform throughout the fiscal year. All of the initiatives are detailed above will make a difference as we manage through some near-term pressure on our year end, year-over-year growth rates. Additionally, we will continue to restructure operations for improved efficiencies, reduced product subsidies, and take advantage of reduced travel and event costs. As Steven will go through shortly, we're on track with our goal to achieve non-GAAP profitability exiting this fiscal year. Furthermore, while we are in an unprecedented near-term macro environment, we can build upon our ability to drive revenue growth coming out of this difficult period based on our complete and integrated technology platform and our unique partner ecosystem that consists of channel master agents, value added resellers, technology partners, and global carrier relationships. To wrap up, I would like to express my sincere appreciation to the 8x8 employees for their extraordinary efforts during this quarter. I would also like to thank our partners and customers for their close collaboration through this period and for their ongoing support in trusting us. With that, let me turn the call over to Steven.
Steven Gatoff, CFO
Thanks, Vik. Good afternoon everyone. We appreciate you joining us. I'd like to echo the comments that the health and safety of our employees and their families is our top priority along with the health of our business and our customers alike around the globe. Well, it's been a rough few months living through this pandemic. I have to tell you that it's been a pretty rewarding time to be here at 8x8 to see that what we do every day is directly helping make people's lives better and supporting businesses to work better every day. With that, I will cover three topics with you today. First, our financial results and key SaaS performance metrics for the fourth quarter of fiscal 2020 that just ended on March 31. Second, as part of our financial results discussion I'll provide additional visibility to the gross margin profile of our core business that you can see more clearly with the reporting of professional services move from service revenue into other revenue. And third, I'll provide some color on the path ahead, with the near-term guidance for the current first fiscal quarter ending June 30, 2020. We'll of course wrap up with Q&A. Starting with our Q4 financials, we are pleased to deliver results that again beat our Q4 and full-year fiscal 2020 guidance. We've seen positive contributions from both new and existing customers from our UCaaS and CCaaS subscription model and from our usage-based CPaaS offerings. Total revenue for the fourth quarter grew to $121.5 million and full fiscal year 2020 came in at $446.2 million for 30% and 20% year-over-year growth respectively. Looking at service revenue, we changed the reporting classification of professional services this quarter in order to provide more visibility to our core subscription business. I'll talk more about this re-class in a few minutes but for Q4 on an apples-to-apples basis it's consistent with our guidance and historical revenue reporting. Service revenue was $116 million which is a 30% year-over-year growth. Similarly, service revenue on a pre-reclassified basis for the full fiscal 2020 year ended March 31, 2020 grew 28% to $426.5 million. Non-GAAP pre-tax loss was approximately $12.7 million for Q4 and $58.6 million for the full fiscal year, both coming in better than guidance. There were two primary drivers of our Q4 financial results that you've heard us continue to talk about the past several quarters. One was continued execution in our go-to-market initiatives that are centered on demand generation and solid pipeline coverage with particular strengths from our channel partners, and two was continued momentum moving up-market with mid-market and large enterprise customers. With these customers delivering higher growth and becoming a larger part of our portfolio. These operational strengths are seen in new bookings growth of 20% in Q4, with a reminder that this is bookings for our UCaaS and CCaaS offerings and does not include any CPaaS. Looking at our SaaS and business metrics performance, total ARR came in at $426 million at quarter-end, a 34% growth year over year and the result of a combination of organic growth and UCaaS and CCaaS contributions from CPaaS offerings. As for yield size and garnering increasing customer economics, we closed the fiscal year with an overall 611 customers generating ARR greater than $100,000. That's 50% year-over-year growth and reflects our continued traction moving up-market into larger enterprises, as I mentioned. To add more visibility into customer economics and our revenue growth rate going forward, I also wanted to provide some color on the dynamics around churn through one of the metrics that we use, net dollar retention or NDR. Churn levels are higher than we'd like, primarily in legacy small business VoIP customers. This is reflected in our net dollar retention rate and as I'll get into in a few minutes is putting pressure on our anticipated fiscal 2021 revenue growth rate. The encouraging news is that we've made good operational progress recently such that the March quarter came in at the lowest churn level of fiscal 2020. As we've mentioned, the majority of our churn is in the small business customer segments and mostly with customers on our legacy offerings. Our strategy has been to optimize acquisition support costs with small business customers as we decidedly invest in and continue to grow with our X series platform across mid-market and enterprise customers. As we've driven this transformation in the business we're managing these legacy small business customers that have a very different feature, scalability and growth profile that are primarily fixed phone voice only. The friction around primarily legacy small business customers has manifested itself in Q4 total net dollar retention coming in at just under 100%. Good gains and expansion of mid-market and enterprise customers were offset by churn in small business. These higher attainment levels and our larger customers drove Q4 mid-market and enterprise NDR to come in marginally higher at just under 110% in Q4. We believe we can continue to grow NDR over time as we continue to have success selling into the mid-market and enterprise base and migrating customers to the X series platform. You can see this improvement in our higher net dollar retention for customers who are on the new platform where small business and mid-market enterprise customers that are on the X series have net dollar retention rates in excess of 110% and 140% respectively. We've also made good progress reducing our customer portfolio concentration and small business ARR as we've been optimizing the efficiency of serving this customer segment. We're driving small business operations away from the historically high touch legacy offerings to a more efficient self-service e-commerce model. This is what's driving improved CAC and therefore better LTV to CAC. We've moved from a human being touching small business transactions in all three parts of the customer lifecycle of sales, deployment, and support to an efficient nearly all online experience. These programs and tangible operational improvements are geared toward delivering higher net dollar retention across the business. With that, let's look at Q4 operating expenses. We're pleased with our ability to have driven cost structure efficiencies through a combination of operational expense management, moving certain functions and activities to lower cost geographies, and outright cost elimination in Q4. We reiterate our commitment and the path to exit this coming Q4 non-GAAP breakeven profitability and we continue to expect to do so through continued operating expense discipline that's delivering leverage. One element of our cost structure; however, that is seeing some marginal pressure is the dynamic from a huge uptake and increase in our Jitsi open source video conference usage. As Vik discussed, scaling the Jitsi platform from several hundred thousand users to over 20 million monthly active users in a matter of weeks has been extraordinary. It has also generated some additional costs in the near term. It's fundamentally a terrific problem to have. We're managing it well and we're excited about the monetization opportunity that we are now happily embarking upon. What we believed would be an 18 to 24-month ramp is a meaningful scale and a foundational base of users on our free video meetings product as a lead source happened in a matter of weeks. This presents us with a terrific opportunity and a rapidly accelerated timeline to monetize these users which accelerated our launch last month of our new standalone paid meetings offering that Vik talked about as well as the expansion of our 8x8 Express e-commerce offering in the UK. And as for the operational cost of supporting the bulk of this increased video usage, these brand and business development costs are recorded in sales and marketing expense and our team has already taken measures to manage the scale and delivery costs more effectively as you've heard with our partnership with Oracle. Let's turn to the second discussion topic about the reporting classification of professional services and how service revenue and into other revenue. The purpose of this reclass is to provide additional transparency and clarity with regard to our core subscription business. It's service revenue profile and it’s service margin profile. This reporting reclass has no impact on total revenue, no impact on the amount of expenses recorded in the P&L, no impact on total gross margin, and no impact on the bottom line. It is simply reporting professional services in a separate revenue line and as revenue along with product revenue so we can see and communicate more information on the underlying solid performance of the core subscription business. While our professional services are a low single-digit percentage of revenue, they have historically run at a meaningfully negative gross margin. As such they've been an outsized drag on overall total gross margin and specifically for service margin. We made these investments intentionally in order to grow the business in the early stages. Now that we're moving into our next stage of development with enhanced automation, we are more focused on overall margins and efficiently scaling. We focused our attention on our professional services business and have implemented new deployment tools, reorganized technical account people and restructured its operations. We're already seeing the benefits of this focus with new service offerings, year-over-year growth in revenue and improving margin profile. We expect to see further growth in professional services and improvement as we move through fiscal 2021. And so with regard to both the GAAP and non-GAAP financial presentation on the P&L, we are reclassifying two items. First, professional services, which has historically been included in service revenue is now reported in a new line called other revenue. The associated expenses that had previously been included in cost services revenue are now included in cost of other revenue. And second, product revenue, which was historically reported as a standalone line item is now also included in other revenue and cost of other revenue along with professional services and separating out professional services from the core subscription-related revenue, allows you to see how the professional services pulled service revenue margin down more than 500 basis points in Q4. The historical reporting classification shows service revenue margin as 61% for Q4. Moving professional services out to other revenue allows you to see that the new service revenue reporting provides stability to the underlying core business that's generating a solid service revenue margin of 67% in Q4. I'd like to highlight that we provided a full reconciliation table for the professional services reporting reclass for all historical quarters of fiscal 2020 and the fourth quarter and full year of fiscal 2019 in our earnings press release and on our website so you have the ability and transparency to the numbers. We're also providing guidance for both metrics for Q1 and will report out on the results of both on our next earnings call. But please note that we will not be using the legacy reporting of professional services beyond Q1. Moving on to my third topic on the path ahead and guidance. Like others around us, we're a bit uncertain as to how things in the global macro environment will play out. On the one hand, we've seen surges of interest in using 8x8 UCaaS and CCaaS offerings to enable remote workers both from new and existing customers. At the same time, we've seen some customers and prospective customers, particularly businesses, negatively impacted by COVID-19. This was evident in sectors like hotel, travel and hospitality where there was pressure on some customers' payment abilities and/or adjustments to their service levels. In our CPaaS business, we anticipate a somewhat slower growth rate due to the slowdowns that we've seen from shelter-in-place orders in most of Southeast Asia. As such, we feel it's appropriate to focus on providing guidance for our standard set of detailed financial metrics for the current quarter. While we will not be issuing all of the financial guidance metrics for the full fiscal year 2021, there are two things that we did want to get in front of you with. First, based on what we see today, we are reaffirming our continued commitment to exit this fiscal year at breakeven non-GAAP profitability. It's something that we continue to have the ability to control and that we remain fixed on achieving. And second, we want to provide some indication of the overall revenue growth rate trajectory for fiscal 2021. So for the first quarter of fiscal 2021 ending June 30, 2020, we anticipate total revenue to be in the range of $120 million to $121 million representing 24% to 25% year-over-year growth. We anticipate service revenue as newly defined and reported to exclude professional services to be in the range of $112.5 million to $113.5 million representing 25% to 26% year-over-year growth on a reclassified apples-to-apples basis. This equates to the legacy historical reporting of services revenue that includes professional services to be in the range of $116 million to $117 million representing 26% to 27% year-over-year growth also on an apples-to-apples basis. And we anticipate non-GAAP pre-tax loss to be approximately $12 million for Q1 fiscal 2021. We wanted to provide some color as I mentioned on how we see the revenue growth rate profile for fiscal 2021, particularly given the coming anniversary of the Wavecell acquisition in late July. Wavecell was certainly a terrific strategic addition for us. It contributed important platform technology and cloud offering that is uniquely positioning 8x8 in the market today. As the anniversary of the acquisition approaches, we expect service revenue growth rates to come down as we move out of Q1 and through fiscal 2021. And so factoring in this dynamic, the national state of monetizing our video meetings, and some degradation from our view today of the COVID-19 impact, we see the service revenue growth rate for the full year of fiscal 2021 in the area of 17% to 18%. As we continue to transform the company, we will drive the expansion of our various growth and profitability metrics. Not every metric will improve every quarter, but on average we expect to improve as we progress. We hope that everyone remains safe and healthy throughout this time and with that we thank you for your support and we're glad to open the call to any questions.
Operator, Operator
Your first question comes from Matthew VanVliet with BTIG. You may proceed with your question.
Matthew VanVliet, Analyst
Yes. Hi guys. Thanks for taking my question and nice job on the quarter given all the uncertainty. I guess looking at the developments of the CloudFuel partnership, obviously it's been sort of in the works and building the last several months and you talked about finally closing some of the first deals in there. So I guess a two-part question on that. Where do you stand in terms of sort of full operational sort of hitting a full run rate here? Are we still a couple quarters away or is that getting pretty close? And then of the thousand-plus channel partners that you have now, what's sort of the mix or how many of those are sort of encompassed under the umbrella of the CloudFuel program?
Vik Verma, CEO
So let's start with the back end of the question. This is Vik. So the thousand are the master sub; the traditional reseller, not the reseller, but just a traditional referral channel that we have used. CloudFuel does not encompass that. CloudFuel is ramping. I mean the way we started it is with a handful of VARs who get all the training material. We just launched Partner Exchange 4.0 which allows people to do full provisioning for the entire stack, particularly unified communication, which is how we're reaching out. And so we'll start to see that ramp continue. I mean, so far so good. But the part that is the most exciting is when you start to look at VAR; one of the things we have been trying to do at 8x8 is we believe we have the most complete comprehensive and differentiated platform in the industry. Our goal has been to get to market. That is traditional. We've had in the past a somewhat lack of brand recognition. So ScanSource is Avaya's largest distributor and so ramping them up is absolutely critical and ramping up their VARs is absolutely critical and we start to see early successes as we indicated. Virgin Media is another very interesting one because they have about 45,000 business customers and about 5,000 public sector customers in the UK and they're one of the largest bandwidth providers in the UK. They want to take us to market with the entire stack as well. So more and more VARs are going to be an absolutely critical part of our strategy. ScanSource and all of ScanSource's VARs is just the beginning; that's to go after the Avaya's installed base. We're going to use Virgin Media to go after all of Virgin Media's installed base to move them to voice, video, chat, etc. and there will be other VARs along the way.
Matthew VanVliet, Analyst
Great. And then looking at the trends maybe through the quarter and as they've sort of exited and you've gotten through at least April and into May here maybe just help us think about how the overall pace of growth on maybe a logo basis was sort of projecting through January, February and then how that sort of dramatically changed in March as everyone tried to send their employees home and then also if you could comment maybe just on how deal sizes progressed in the quarter if there was any sort of variability between sort of pre-COVID and post in the U.S.?
Steven Gatoff, CFO
Yes. Sure. So we've been pretty thoughtful about how we're thinking about this. We are fortunate to have a bit that encompasses both small business and mid-market and enterprise. The interesting dynamic, as I mentioned earlier, is that we saw both surges in interest from existing customers who said, 'Hey, I want to hurry up and get my deployments done or I actually want to expand,' and we had new customers come in. We also saw as we moved more through April, we saw some customers pause a little bit. Some larger deals that we were hoping would close in March, did push a little bit into the current period and nothing massive but something to keep an eye on and be thoughtful about. And then small businesses we see engaging with us pretty constructively in terms of how they are handling payments and transactions and signing up for longer-dated contracts in exchange for some payment relief upfront. So all in all it seems like there's no chaos for us in our business. It's pretty thoughtful and we're seeing a little bit of each and like everyone else we'll see what happens over the coming weeks.
Vik Verma, CEO
Yes. I'll add one other interesting point to Steven's good point. We saw a real surge in e-commerce. I mean the number of people that started buying and surprisingly businesses of all sizes that started buying on e-commerce surged for somewhat obvious reasons. We also saw larger customers starting to move rapidly into work from home. As Steven said, those people that had large retail presence, etc., pushed out a little bit and some pushed out much longer. So all in all, we showed bookings growth in quarter four of 26% on a total organic basis. So that was reasonable; I mean I considered a pretty solid result.
Ryan MacWilliams, Analyst
Thanks for taking my questions. Beyond normal seasonality from third quarter to the fourth quarter how was Wavecell impacted by some of the lockdowns in Singapore and Indonesia and how are you thinking about CPaaS revenues as lockdowns diminish in these areas?
Steven Gatoff, CFO
Hey Ryan. They were definitely impacted like most businesses globally. If I recall correctly, Singapore actually went into lockdown a little bit earlier than the States did and so they also saw a mixed bag of results. They saw some pullback in business that was obviously impacted by lockdown but at the same time they saw an uptick in business from logistics and delivery business as well and so a little bit of both from that business in the near term. The thing that we're probably most excited about for the CPaaS business is two things: one, the geographical expansion, so turning on the business in the UK and the U.S., and two, the integration of CPaaS technology into the broader communications stack that gives us the ability to really enhance the value proposition of that offering in a really nice way.
Ryan MacWilliams, Analyst
Great. And I thought I was also going to see non-GAAP gross margins and operating income improve and step in the right direction. Just on the Jitsi, increased Jitsi usage and moving to over 20 million users, can you quantify that impact through the newly reclassified non-GAAP gross margins on that usage and how has Jitsi helped bring in new customers since COVID started?
Steven Gatoff, CFO
Sure. Vik and I will tag team on that as usual. The financial statement impact of the incremental costs in March from usage is de-minimis. You wouldn't see. We see it because we obviously manage it closely every week. And so we’re but for two weeks, three weeks at most in March, you really wouldn't see it on a meaningful margin impact in the P&L. It starts to become more of a topic in Q1 and moving forward but as we mentioned for the video piece for Jitsi, we entered into a really nice transaction with Oracle where we have a much more efficient cost structure that scales well and so it shouldn't be an outsized cost and so we've talked about this a bit. You saw gross margins, as you noted, expand in Q4 and we would expect a bit of expansion in Q1 as well despite the increased costs for the commercial offering which is in COGs in gross margin and the cost of Jitsi is in sales and marketing. So that's where you would see that.
Vik Verma, CEO
So I'll add to that one, Steven. One, our DevOps team and our finance team, deserve a huge debt of gratitude. I've never seen anything like this. We were at 150,000 monthly active users in the February time frame, maybe January/February timeframe, and you just saw that climb. I mean 20 million-plus monthly active users. I mean I used the example of we're suddenly doing the equivalent of 10 billion uploads to Facebook of photographs a day. So the part that is the most exciting part of Jitsi and it's composed of three parts: Jitsi Meet, 8x8 meetings and then bundled into our X series. Every one of them now ends with a prompt that says, 'Hey, you can use our paid meetings.' We launched paid meetings less than about a month, sorry, two weeks ago and already I think we've had a thousand-plus subscribers sign up for it. Express, which is our e-commerce offering, has also seen quite a bit of uptick. We're now up to, I think almost between meetings and X Express, we've been getting nearly a hundred logos a day. So the level of brand recognition that Jitsi gave us is unprecedented but the other part is the impact we had on a lot of our communities and customers, and we had hospitals started using it. We had NHS started using it, practically everybody started using it because it's a secure video conferencing capability which is hugely differentiated in the industry, and you can kind of tell from the fact that people recognized that because the adoption was just spectacular.
Ryan MacWilliams, Analyst
Excellent. Really appreciate the color. Thanks guys.
Operator, Operator
Your next question comes from the line of Michael Turrin with Wells Fargo. Your line is open.
Michael Turrin, Analyst
Hey there. Thanks. Good afternoon. Hoping to revisit some of the puts and takes around what you're seeing in the current environment and particularly how are you weighing the increase in demand for cloud, that backdrop that comes out and then and sort of the prepared remarks with some of the headwinds around small business turning into industry exposure and wondering more specifically what sort of assumptions went into pulling together the initial growth outlook you’re providing for the year?
Vik Verma, CEO
I will outline the positives and negatives, and then Steven can elaborate. The situation is quite intriguing because we've started to notice that large clients in specific industries have begun to scale back. The travel, hospitality, and retail sectors have been significantly affected, leading to some downgrades and deals that reflect a prolonged reduction in activity. On the other hand, we've seen some sectors advance, particularly concerning local and state governments, which have adopted our contact center solutions, at times replacing Avaya, due to a surge in unemployment claims and COVID-related inquiries. It's still too early to gauge the impact on small businesses; however, I'm particularly concerned about our legacy small business clients who primarily relied on traditional fixed-line phones. I believe the more modern small business customers who are using our platform will manage to navigate through these challenges, but we do have some worries regarding those that continue to depend on fixed lines. Steven, would you like to add anything further to this?
Steven Gatoff, CFO
Yes, I think you hit all the items we were talking about. When we looked at the spur and how we move over to even in the current environment we were pretty thoughtful about the dynamics of bookings and where that's coming from and REITs and geographies with what we said is there's a double-edged sword that we experience. It's the wind in our sails right now, and so far as what we do and the demand obviously for remote working and enabling platforms like ours with the notion that business and the economy is impacted and so like other businesses will potentially see some of that impact as well. So we try to balance that out. That's more of a bookings impact than it is necessarily a P&L impact vis-à-vis our revenue. We feel like we're in pretty good shape from a balance sheet standpoint on exposures to these sectors. That's fairly low and so we will see what happens.
Michael Turrin, Analyst
Okay. That's good color. In terms of the up-market segment, I want to focus in on that customers greater than a 100 K for a moment as well. The press release calls out 42 new deals but the total customer number there is maybe a little closer sequentially at 611 versus what we would have expected. I know there is some reclassification of revenue here. So wondering if those two are all related or if there's any timing or other impacts you're seeing that affecting that sequential number?
Steven Gatoff, CFO
No. So all of that is recurring subscription-based business. That has nothing to do with professional services and so the reclass was between professional services out of service revenue for this very reason because bookings is subscription basis and we wanted the service revenue to also be subscription basis to go along with it. So it's all apples-to-apples.
Vik Verma, CEO
And I will add color from a, I think you asked from the bookings point of view for larger customers. For all the wrong reasons, this is a great time for us and our industry. Even you think about it and think about it for all of us, more than physical infrastructure, only second to your employees, the most important thing becomes your communication infrastructure and the communication infrastructure has to be seamless between voice, video, contact center; every employee has to be on a common platform and that becomes the determinant of your culture and your company more than office locations. So we're seeing more and more companies recognizing that and moving in that direction. And so this concept of one platform that we have spent years building is starting to become more and more prevalent because people want their contact center agent; they want their front office employees; they want their engineers all on a common communication platform and they want to be able to move seamlessly between voice, video, chat and contact center. The second thing is working from home is now no longer a nice-to-have; it is something where you have got to be productive and you have to be able to do it instantly. So you're starting to see more and more companies walk away from physical infrastructure and move towards communication infrastructure is absolutely key. So from that perspective, we feel very good about it. We obviously want to make sure that we take care of our small business customers that may be impacted by some of this; from that perspective, the adoption of the soft phone has been particularly gratifying to see because that has been a huge jump up in volume on soft phone usage.
Michael Turrin, Analyst
Helpful. Thanks. Stay safe and good luck.
Operator, Operator
Your next question comes from Tim Horan with Oppenheimer. Your line is open.
Tim Horan, Analyst
Thanks guys. So the whole concept of one platform and five or six different services, do you think the market understands it now? Maybe just some more color around your win-rate around that and who you're seeing as your closest competitor with that platform?
Steven Gatoff, CFO
So one, I think I'll take that one on. So yes, I think the market understands it. I mean you saw it in the adoption; five of our top 10 customers were Avaya replacements and of our top 10 deals, all 10 included both unified communication and contact center. So from that perspective, we are starting to see more and more of a recognition by the industry that you need this one-stop shop. Video meetings have also become absolutely critical, but the big focus on video meetings is around secure video communications, and so the ability to have an integrated solution with seamless movement from voice, chat, and video plus having the contact center all integrated together from our perspective, the industry has started to fixate on that and also you're starting to see a whole bunch of VARs come to us saying, 'Hey, we want the ability to sell the entire stack,' where previously they’d come and said, 'Oh we just want to sell UCaaS or we just want to sell video.' Nope. They all want the full stack; Virgin Media is very representative of the fact that they want the ability to sell the entire stack to their end-user customers. So win rates were pretty high. I mean from all perspective, I think they continue to trend in the right direction and from that perspective, I think they will continue to trend in the right direction.
Tim Horan, Analyst
Thank you.
Operator, Operator
Your next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open.
Meta Marshall, Analyst
Your next question comes from the line of Will Power with Baird. Your line is open.
Will Power, Analyst
Great. Thanks. Yes, I guess I want to ask on the bookings growth commentary. I think I heard you say bookings grew 20%. I know the last couple of quarters –
Steven Gatoff, CFO
Sorry, 26%.
Will Power, Analyst
Got you. Okay, that's closer than a 30%. I guess what I'm trying to understand is if you can help us unpack a little bit what's happening there because it seems like enterprise and the channel continue to perform very well for you and I guess I'm just trying to understand within S&B, what the different pieces are or I mean, I guess what I'm getting at is how much the pressures seen on S&B related to COVID versus the shift to X series away from the legacy platform. Maybe just help us understand the dynamics there?
Speaker, CFO
Sure. To your points, the dynamics between small and medium businesses and enterprise are indeed different, which affects our go-to-market strategy and sales contracts for both inside and field sales. You can see this reflected in deal sizes, the approach we take to grow our presence, and the economics of those transactions, particularly in what drives purchasing decisions. On the small business side, we have transformed our approach from high-touch, in-person transactions to low-touch, online interactions. We’ve altered our engagement strategies with small business customers, improving lead generation methods to connect with them more effectively. Previously, our approach was somewhat inefficient, relying heavily on spending, which was effective for growth but costly in terms of customer acquisition. Our new Chief Marketing Officer and marketing team have done an excellent job in redefining our engagement with small business customers, leading to greater success, particularly in platform acquisition and the expansion of our services.
Will Power, Analyst
Okay. So I guess. Okay, go ahead.
Vik Verma, CEO
No. I can add little more color. I mean when you think about it bifurcate our business, we've been moving up markets, mid-market and enterprise and you can kind of see it reflected in the growth rate. With regard to small business you would almost break it up into two parts. We've had the legacy small business which is primarily VoIP customers that we are systematically trying to transition to X so that they can start to use softphone, etc. but more and more we've been transitioning small business to an e-commerce no-touch, completely self-provisioning engine; this allows us to offer disruptive prices and allows us to offer a lot of capabilities. And so that transition has been going on. So what you'll continue to see is more and more of our sales engine will be focused on mid-market enterprise and increasingly you'll start to see small business happen through e-commerce which is a great trend because that gives us the right CAC to LTV ratio, which in the past had been definitely a drag on us but now should start to become a huge positive for us going forward.
Steven Gatoff, CFO
Okay. I guess, yes Steve, I know if you have it but I guess is there any further color you can provide on helping us quantify what the deferred payment numbers look like? Any anticipated bad debt? Any anything on seat count, pushback you're getting at this point just to kind of understand the COVID related impacts a little bit better. Sure. Yes. Happy to talk to it. I mean our exposure overall when we look at it like every company there's two facets to it. There's your existing balance sheet P&L exposure what do you have an account receivable kind of thing and then there's the recurring nature of your business, your subscription base, your ARR base and what's that look like. So from an industry, a high-risk industry if you will our exposure is in the mid-teens kind of levels of our ARR when you look at travel, entertainment, retail non-profit those together is fairly manageable and so we were talking about this earlier, the inbound inquiries that we've received to-date have been very manageable and they're not all chaotic we're going out of business kind of inquiries and engagement. There are customers saying, 'Hey, we would benefit from extending out six days,' and in many instances not all, but many we've been successful in customers saying, 'Look, I'll extend my contract two months sure,' and for this accommodation and so from a working capital standpoint we've engaged with some customers on that. We've also taken some reserves to accommodate for the unknown nothing outlandish or frankly even material but we feel like we set ourselves up well to weather what happens based on what we can see today.
Will Power, Analyst
Okay. Thank you.
Vik Verma, CEO
Yes. Sure.
Operator, Operator
Your next question comes from the line of Rich Valera with Needham & Company. Your line is open.
Rich Valera, Analyst
Thank you. I think you mentioned what percent you expect to be migrated of your customer base migrated to the X series by the end of this calendar year. Can you give us a sense of where the base is today on X series migration?
Vik Verma, CEO
So our current customer installed base is 43% and the target is to get up to 80-plus percent of our installed base by end of this year. I have to give and by the way this is what gives us a lot of confidence that about also the ability to migrate people like Avaya and Mitel onto our platform as time goes on. Our team has done a phenomenal job of automating this process. It's a very complicated process where you literally have feature functionality mapped out with existing customers to X series and then when everything turns green then they get migrated automatically. So we're migrating thousands of customers, I think every month or so and so the intent is to keep that pace going.
Rich Valera, Analyst
Is that from a customer perspective? Is there any change in cost for them or is it kind of a push? How does that work for the customer?
Vik Verma, CEO
We try to make sure that we map it so that it's relatively equal or a little less. We try to just make sure that from a customer point of view feature functionality stays essentially consistent and/or added and cost remains approximately the same or a little bit less. So that's essentially how we've been trying to do this and look the tax on the company of being able to get everybody on a common platform and making sure that from a support point of view and from an engineering point of view is just huge and so that's why this migration has been so critical for us and I'm really pleased with where we are at today.
Rich Valera, Analyst
Sorry just one quick one for you Steve. Cash usage in the first quarter how should we think about that relative to cash usage in the fourth quarter?
Steven Gatoff, CFO
It will be less. It will be improved; less cash will be used.
Rich Valera, Analyst
Any quantification or just what?
Steven Gatoff, CFO
Well, we hadn't really laid that out but it should track with the improvement in the non-GAAP pre-tax loss. So relatively speaking, it's a consistent improvement.
Rich Valera, Analyst
Got it. Thank you.
Operator, Operator
Your next question comes from the line of Catharine Trebnick with Dougherty. Your line is open.
Catharine Trebnick, Analyst
Thank you for taking my questions. Can you describe the sales process and how that's changed since the impact of mid-March and how much more of it are you seeing opportunities because you're able to do more video? You talked about that obviously in 20 million but I'm really trying to understand has that impacted at all your ability to close sales? Do you need more people on-site to do proof of concepts and now what's that wholesales process look like now in the middle of COVID and when you think it will evolve to? Thank you.
Vik Verma, CEO
That's a great question. COVID has been a significant equalizer for everyone, albeit for the wrong reasons. We have always had fewer people compared to many competitors, but we've consistently had superior technology. The positive aspect for us is that with around 20 million users of Jitsi Meet and 8x8 meetings, these users are being introduced to 8x8, which contributes to our demand generation efforts. Our marketing team has shifted from paid searches to focusing more on databases and other search methods, which has increased foot traffic to the 8x8 website. Consequently, our e-commerce operations are gaining momentum, allowing our inside sales team to focus on selling more of our comprehensive offerings. Our enterprise and mid-market teams have been adapting to the situation, as we transitioned to a near-full lockdown around mid-March. We've discovered that we can effectively close deals without on-site visits by utilizing video conferencing and conducting proof of concepts remotely. From mid-March onward, we did not conduct any on-site deployments, yet we successfully continued to implement our solutions for customers. Our proficiency in remote selling, deployment, and support aligns perfectly with our core capabilities, as our products were designed for this environment. Our organization, made up of 1,600 employees working remotely, has not experienced significant disruptions. Although some enterprise clients may have reservations, we've found that most customers are willing to collaborate with us. Demonstrating the value of a communication platform is essential, and the demand for cloud-based communication solutions means that site visits are not always necessary.
Catharine Trebnick, Analyst
Thank you, Vik.
Vik Verma, CEO
My pleasure, Catherine.
Operator, Operator
Your next question comes from the line of James Breen with William Blair. Your line is open.
James Breen, Analyst
Thanks for taking the question. Just on the near-term guidance and just talking about the long term, I think Steve talked about service revenue being up 17%-18% in fiscal year ‘21. As you look at sort of sequential growth rates in service during the last couple quarters and a couple million, what gives you confidence that that's going to pick up here over the next few quarters sort of get to those high teens growth rate? Thanks.
Steven Gatoff, CFO
Sure. So there's certainly the pressure in the near term mostly mathematical from the anniversary of Wavecell and what we see is and are driving to is growth and acceleration in the second half of the year coming out of that. That obviously factors in what we believe is a reasonable perspective on the COVID, and we have baked some of that in. So to the extent things are not as bad that provides some lift and the things that are marginally and meaningfully worse than us, and everyone else will need to deal with that but it's really a function of two things that the risk of stating the obvious. It's consistent demand and bookings growth in the 30% zip code and that's important, and two it's the expansion of our net dollar retention and continuing to improve that ratio, so that you have a strong growth base revenue.
Operator, Operator
Ladies and gentlemen, this completes today's conference call. Thank you for participating. You may now disconnect.