Good evening. My name is Jessie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the 8x8, Inc. Fiscal Fourth Quarter and Full Year 2019 Earnings Conference Call. I'll now turn the call over to Victoria Hyde-Dunn, Head at Investor Relations.

Thank you, Jessie. Good afternoon, and welcome to 8x8's Fourth Fiscal Quarter and Full Year 2019 Earnings Conference Call. Joining me today 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 for fiscal our full year 2020. After these prepared remarks, we look forward to taking your questions. Before we get started, just a reminder that during this conference call, any forward-looking statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and our actual results could materially differ as a result of a variety of factors. Additional information concerning these risk factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website. As a reminder, we adopted the new revenue recognition standard, ASC 606, in February 2018. For certain income statements, we have provided the fourth fiscal quarter 2019 results as they would have been under the old standard, ASC 605. Reconciliations of ASC 606 and 605 results are included with our earnings press release. In addition, some financial metrics 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 close comparable measures is provided with our earnings press release and PowerPoint presentation deck, which are available on our Investor Relations website. Additionally, we will be discussing new metrics around customer size and revenue composition. The new metrics are discussed in the press release and included in a newly published financial and operating metrics worksheet that is posted on the Investor Relations website. With that, let me turn the call over to Vik.

Thank you, Victoria. Good afternoon, and thank you to everyone for joining us today as we review our fourth quarter and full year results. I have three major points to make. First, as you will recall from our last call, we have been focused on improving sales and marketing execution, particularly in the mid-market end channel. I am delighted to report that in the fiscal fourth quarter, our channel bookings grew 91% year-over-year compared to 23% in the prior quarter. Similarly, bookings from mid-market and enterprise customers grew 34% year-over-year compared to 13% in the prior quarter. In addition to strong performance from our North America mid-market and channel teams, our U.K. business also executed extremely well, delivering record bookings performance for the U.K. Overall, fiscal 2019 finished with us exceeding total revenue expectations for the full year, and we had our best quarter ever for pipeline generation from both direct marketing and channel sources. I am very proud of our team and what we have accomplished. While there is still work to do, we have come further and faster than expected since our last earnings call. Second, our customers and partners are telling us that our single platform cloud strategy is indeed the winning play. We are seeing it in the response from our competitors as they race to acquire or partner for technology that we already have. In fact, our single technology platform allows us to innovate faster and uniquely positions us to pursue three massive markets, which are all shifting to the cloud: unified communications; contact center; and video collaboration. Unlike our major competitors and other siloed vendors, by owning all of our own technology, we're able to pursue all of these markets on both a stand-alone basis and on a bundled mix-and-match basis with our X…

Thanks, Vik. Good afternoon, everyone. We appreciate you joining us. I just completed my first full quarter as CFO year at 8x8 and see this as an important quarter from a financial perspective, that's because of the growing business traction and pipeline that we're seeing and it's because of how we're viewing and investing in the opportunity in front of us. Accordingly, we're making some changes in how we measure and report our progress, and in that regard, I'd like to cover 4 key topics with you today. First, review our Q4 and full year fiscal 2019 financial results. Second, provide additional clarity into our sales efficiency around demand generation, channel spend and sales activities with the reclassification of certain expenses on our P&L. Third, drive increased transparency and accountability around our business with the introduction of new ARR-based metrics and the publication of a financial and operating metrics worksheet. And fourth, layout our overall approach and philosophy to guidance and provide our financial outlook for Q1 and fiscal 2020. We'll, of course, wrap up by opening the call to your questions. Let's start with our financial results. Fiscal 2019 was an important milestone year for 8x8. We launched our new single technology platform, we reorganized our go-to-market capabilities in channel and marketing, we continued to invest in R&D, and we posted accelerating revenue growth. The compelling takeaway from our perspective is that our financial results reflect the inherent strength, both in the demand profile that we're seeing in the market and in our SaaS model. Total revenue for the fourth quarter grew to $93.8 million and for the full fiscal year 2019 came in at $352.6 million for 18% and 19% year-over-year growth, respectively. Total services revenue for the quarter was $89.1 million, an increase of 18% year-over-year, and…

[Operator Instructions] Your first question comes from Matt Van Vliet with Stifel. Your line is open.

Yes, hi. Thanks for taking my questions. Really appreciate it. Just I guess digging into some of the drivers on the channel side. Obviously, it was a little bit of a hiccup last quarter as you guys got the launch out there. But just curious in terms of both performance throughout the quarter and into fiscal '20 here, and what do you think are the biggest key drivers for those partners continuing to sign up at quite a clip?

Yes. So one, I think, to a large degree, I attribute it to our team and our leadership there as well as the strength of X Series platform. I've had the opportunity to now meet with a lot of our channel partners and several of the CEOs and Presidents of our various masters. And there is clear sense that our X Series is resonating because it's easy to sell. You can sell it stand-alone, which is you can sell just the contact center or you can sell just the business communication system or you can sell just a video collaboration solution or you can sell it altogether. So they're finding it easier to train their sales force, and they feel like we have now done a good job with the partner portal of basically being responsive them and making sure that we can give them visibility, and we have also finally eliminated any form of channel conflict that existed in the past. So a lot of what we were trying to do happened a little bit faster than I expected and our key is to keep doing more of the same.

And then as you look at the stronger performance on some of the larger customers and you've given us a lot of detail around that which is helpful. But curious in terms of how much you would place that on the ability for X Series to drive incremental sort of revenue from those customers? And how it's impacting your overall sort of ARPU or ASP metric?

All of those, both ARPU, average revenue per customer is up, I think, quite materially. X Series, we feel for the larger customers, this mix and match is extremely critical. And I think you're seeing it just in the strength of the customers we're winning and we're winning them globally. You are often finding customers will buy just the contact center and then evolve to telephony or they may buy just our business communication system and then evolve to the contact center, and then over time, they have plan to add in video collaboration. So from that perspective, this gives them essentially a future proof system. So we have seen our big deals accelerate quite dramatically, and as I said, globally. All of those, both ARPU, average revenue per customer is up, I think, quite materially. X Series, we feel for the larger customers, this mix and match is extremely critical. And I think you're seeing it just in the strength of the customers we're winning and we're winning them globally. You are often finding customers will buy just the contact center and then evolve to telephony or they may buy just our business communication system and then evolve to the contact center, and then over time, they have plan to add in video collaboration. So from that perspective, this gives them essentially a future proof system. So we have seen our big deals accelerate quite dramatically, and as I said, globally. And the good news for us has always been that upsell has always been about 50% of our bookings. This quarter, it was a little lower, and that was mainly because new logos were significantly higher. So new logos were about 60% of our new bookings versus about 40% -- and 40% were add on. But the great thing about having new logos is each of them will add on, and so over time, you keep building stronger and stronger book of business. But I cannot overemphasize enough how proud I am of the ability to sell contact center. Our team sold contact center -- I mean I'll give you 3, 4 examples of customers, a large elevator manufacturer that everybody has heard about, a very large government agency in Britain, a very large international university, they bought us for a contact center stand-alone, and then over time, will migrate to our business communication system. That's unique for us. 40% of our bookings for mid-market and enterprise was contact center, either bundled or stand-alone. And so that says, in essence, what was essentially a company that basically sold business communication systems and then combo deals where we added on contact center, now can sell contact center stand-alone and contact center can potentially pull in our business communication system. And right after that, we're ready for video collaboration, so we've built three best-of-breed technologies under one single platform.

Okay. Thank you.

Your next question comes from Meta Marshall with Morgan Stanley. Your line is open.

Great, thanks. I just wanted to kind of dive a little bit into guidance and kind of understanding what you're doing as far as setting a more conservative bar and that really the 25% kind of implied a 200 to 300 basis points. But just kind of stepping into fiscal Q1, you had mapped out that the year would kind of build an acceleration from 50 to 75 basis point kind of acceleration each quarter and that's how we should think of kind of building revenue growth throughout the year. And just is there anything particular to Q1 where you are seeing any sort of weaker performance? Or is it just really kind of setting a lower bar? And then I have a follow-up question, but I maybe start with that one?

Sure, sure. It's Steven. So thanks Meta for the question. So what you said still stands, there has been no change in view, vision or confidence. And so what we're communicating that over the course of the year, on average, we see quarterly growth at 50 to 70 basis points. And as we spoke with you about some quarters there'll be a little more, some quarters there'll be a little less. But in the context of the year, we saw that as an appropriate benchmark to think about sequential growth. That dynamic is built into and can be found in the map of our annual guidance for fiscal 2020. Q1 in the near term that we're obviously half way through is a different dynamic. And so we -- as we said, we won't micromanage to the near term our guidance philosophy has admittedly changed as we look to build the foundation. And so that's the guidance we've set up for Q1, but the economics of growth over the long term have not changed on an annual basis.

And I'll add to that one, Meta, because to a large degree the goal for us as a company has been over the years continuous improvement. Setting expectation and guidance has not necessarily been a strength of ours and it's something we can obviously get better at. Steven comes from a SaaS background as former CFO of Rapid7, Todd Ford comes from Coupa Software. And so I think with that team, I think, we'll much more measured in the way we do guidance, and I think we'll just get better at it.

Got it. That's helpful. And then maybe a follow-up question from me. Just - I know obviously Enterprise Connect is kind of the video product and the Jitsi product is an exciting introduction you guys have planned for the second half of the year. Is that built into the acceleration or -- kind of into your expectations for the year or could that be potential upside?

Yes. Nothing has built. So we have built in nothing for -- very little for video collaboration for couple of reasons. One, by the way, I shout out to our video collaboration team, which is now a integrated team of several folks includes Romania as well as London and Austin. They've done a phenomenal job. We are launching the integrated video collaboration solution as part of our X Series in July. That stuff's really cool. But the part that is the great thing about having the single platform is we will also launch it as a stand-alone meetings product, which can then pull in other things over time. We also are doing a soft launch of our e-commerce platform in the next few days, definitely by end of March time frame, we'll have a couple of months to kind of let it soak for a while, and initially we will use it, so people that are our small micro customers will be able to login by support, deploy everything, all completely automated from our e-commerce platform. And then by October, November time frame, the intent is to add stand-alone video collaboration to that e-commerce platform as well. So again, all of this is on one platform and the ability to sell stuff stand-alone or sell it as part of our X series is I think truly a need for us as a company.

Got it. Thanks. I’ll pass on.

Your next question comes from Dmitry Netis with Stephens Inc. Your line is open.

Great. Thanks, guys. Well, first of all, I appreciate the added transparency on demand gen with this new mid-market and enterprise, they are bookings frameworks that you're providing. And I also like to commend you for this reclass of customer support cost out of the sales marketing and into COGS. I think that's the right approach, and it's probably more accurate representation of your sales and marketing spend, so good start there. But to clarify, R&D and G&A basically staying the same and gross margin is moving lower by about 11 percentage points primarily due to that cost of support -- customer support that's moving out of the sales and marketing line, just confirming that?

Yes. It's Steven. Spot on. That's right. There is some small amount that got moved to R&D and G&A, but crux of it, you just summarized well.

Good. And then on R&D, I think you're just trying to kind of dispel the fears that maybe your R&D spending is lower than some of your competitors because you're capitalizing about 30% of R&D costs?

Again, spot on. That's right.

Okay. Very good. And then let me move on to some of the other kind of questions here. First of all, on the channel, it's good to see channel improving and exceeding expectations here sooner than you'd expected. Would you be able to tell us what percentage of overall bookings channel represent today? And I think you had a count of 23, 24 folks of channel enablement team. Is there any updated to that number, kind of wanted to kind of get that? And I think you'd mentioned that you expect channel to firing within roughly 6 months. Do you see feel it's firing on all cylinders right now?

So I don't know if you have disclosed the exact percentage of channels. It started to become a much more appreciable portion of our overall bookings. The part I can tell you is, it's starting to fire on multiple cylinders. And I was just -- we were just awarded yesterday the TBI UCaaS and CCasS Partner of the year. TBI is obviously a very important partner. Also met with CEOs of Intellisys, MicroCorp, AVANT and a few others, and we're starting to see a lot of traction. There is a view that X Series is almost made for the channel because it can basically go and you basically train one person on a platform and then they can sell either mix or match or stand-alone. And we have hired in the neighborhood of 30-odd channel folks over the last six months or so that are now finally starting to get all productive, and it's an awesome team. I think if you were to go, reach out to channel partners, I think you'll get a sense that we have done a very good job of definitely blanketing the 12 masters. And the final comment is on that the metric that we provided of the number of active channel partners, that is people who have actually registered a deal with us. So those are people who are actually registering deals and it's now 698 people and 12 masters with just adding a quarter ago, it was, I think, 10 masters and 400-and-something -- I think, 490 people. So again you're starting to see that level of traction continue. My challenge to the channel team is, it needs to be keep going quarter-after-quarter.

Yes, and the numbers are orders of magnitude, happy to share that with you. I'm understanding that's probably the first time we're just talking to this. But orders of magnitude when we are looking at our bookings for a given quarter is roughly 60-40 insofar as direct and channel orders of magnitude. Obviously, revenue is much less to the whole discussion. Our channel ramp has really taken off and accelerated insofar as execution in the past 3 months, really. And so revenue contribution from channel is meaningfully lower, but obviously, we're looking for that to grow as the bookings is a nice contribution model.

Great, great. And if I may, Steven, one more for you. As you this -- as you bring in this expense onto the kind of 2020 guide, additional expense, right, just trying to understand, is the incremental revenue that you're booking coming at a bigger expense to your contribution margin? Or is it staying about the same? And I appreciate kind of the focus as you move to the channel and focusing more on the channel. I presume that may be a near-term spend for you, but if you can address that issue, that would be interesting.

Sure. I think you grasped it, which is in the near term, essentially this quarter, Q1, you would see a higher marginal cost of building demand and closing deals as we continue the ramp. Vik talked to the reorg of channels, the sales organization changes that we said would take a quarter or two are off to a great start, but we still have a little more work. And so Q1 is an investment quarter for that. But we do see marginal efficiency in Q2, 3 and 4. So we see our expense-to-revenue ratios for sales and marketing, specifically, beginning to improve as we can drive higher marginal contribution revenue dollars coming out of Q1.

Very good. Thank you so much.

Yes, sure. Thanks.

Your next question comes from Rich Valera with Needham & Co. Your line is open.

Thank you. You've mentioned your success with contact center a few times and that your gross margin profile would probably skew more towards a company with a heavy contact center sort of kind of exposure. So just wondering if you're willing to share sort of roughly how much revenue or bookings are coming from contact center at this point.

We -- I think what I shared was that 40% of our Mid-market/Enterprise bookings came from contact center. So that is a very significant jump up. And just in the last 90 days, about 21 sales and marketing people from companies such as Five9, inContact and Talkdesk just joined 8x8. We see the ability to sell stand-alone contact center as an area that we think will continue to accelerate.

Got it. And then I wanted to revisit the 25% target. And I think, Steve, what you said was you kind of add 200 to 300 basis points to kind of the GAAP number to kind of get the equivalent in the adjusted. And if I look the way your numbers would appear to trend from starting from Q1 where it looks like you're at around kind of a 17% year-over-year growth GAAP-wise, it seems like it'd be real tough to get to north of 20%, 21% in the second fiscal quarter, which is kind of what the target was to kind of to hit that 25% target. So I just want to make sure I was thinking about that the right way and if you're still looking for that target in the second quarter.

Sure. Very natural question, totally get it. What we would offer, though, is a little bit of mixing apples and oranges. And what I mean by that is we got a little wrapped around the axle previously by issuing guidance that was our spot point target of what we absolutely dead-on expected to do and so would differentiate between the 200 to 300 basis point improvement, which we were talking fundamental improvement and anticipated business result, and guidance that we are setting, right? Guidance that we set for Q1 is our guidance number with a little different philosophy. And so it's difficult to connect the dots from a more measured guidance approach with the legacy view of the improvement, right? The whole notion is that guidance, as we're setting it out, does not equal the target that we're trying to provide a little color on, right? We're basically trying to not hide the nut and just stay transparent with what we've said in the past. We've talked about this 25% metric. It's on this squirrelly adjusted revenue yada-yada-ya [ph] And so we're moving to a very simple, straightforward GAAP metric, and so we're saying the improvement that we would have seen of 200 to 300 basis points on the convoluted adjusted metric look for that same improvement. Full stop. Period. And then we set guidance in a different MO. And so I would disassociate those 2 things.

Got it. And I wanted to revisit your comment, Steve, about, you said exiting fiscal '20 -- fiscal 2021 on, I think, a non-GAAP breakeven basis. And I just wanted to make sure I got that right and, frankly, try to understand why you might not get to breakeven before that. I mean if you just look at the trajectory throughout fiscal '20, that appears to be implied in the guidance. It would seem that you would be getting reasonably close to that exiting 2020, and it would seem to take a whole another year to get to a breakeven quarter seems like kind of a long time. I just wanted to understand what exactly you were saying there.

Yes, we -- so thanks, good takeaway. The message really is several fold. One, it is to really clearly stay -- say that this is not a path to hell insofar as spending hand over fist that we're investing right now, but we see leverage and efficiency in the model and we see increasing returns so that while the headline of the spend number is a big dollar number for fiscal 2020, we see improvement pretty quickly. And to your point, the majority of our spend is headcount, right, and so we very much can control and throttle expenses as we see demand pick up and do well. And if it takes a quarter or two longer, we can hold off as well. And so your point is a fair one and a valid one that -- and we would not profess to know within the specific quarter which one it's going to be at this point, but it's just a message to folks that we are very much on top of the breakeven nature both from a cash burn standpoint as well as the profitability in the model, and we're managing to that on a time frame that is not years and years away.

Got it. Thanks for the clarification, Steve.

Sure. Good questions. Thanks.

Your next question comes from Nandan Amladi with Guggenheim Partners. Your line is open.

Hi, good afternoon. Thanks for taking my question. So the acceleration on the bookings from the channel, how different is this new go-to-market approach that you've developed versus earlier? What are the key parameters that you had to change?

The most fundamental thing is it's always the simple blocking and tackling. Leadership is new. Team is energized. They are out there. They go visit channel partners to spend a significant amount of time, effort, energy in education enabling, training, coselling. Literally, I would love to tell you it was some big bang thing. It really -- it just comes down to execution. We brought on board a -- over the last 6 to 9 months, we have brought onboard 30-odd new channel people. We have now gotten them trained on our products. They have phenomenal relationships with the channel partners, and we've gone out there, and we are sitting shoulder to shoulder with them in all their facilities, visiting with them on all of their customers and systematically eliminating all channel conflicts. Additionally, I think this partner portal is going to be a huge deal for us because it accelerates the ability to do deal registrations but also provides channel partners with essentially a 360-degree view of how that particular deal is being prosecuted from a sales perspective, and then eventually they'll have full visibility on the full life cycle of the customer. So again, blocking and tackling is, I guess, the simplest way of saying it. And my hats off to our team. They took the flood last quarter as a personal challenge, and I don't think several of them have even been home since then. And they've done a phenomenal job for us. And now the bar is higher, and they need to keep doing more and more of the same.

And a quick follow-up for Steven, if I might. How long does it take to convert bookings to ARR, particularly now that you're moving upmarket? How will that cadence essentially shift in the conversion process?

Yes, it really shifted when we rolled out the new platform, where we moved from a deployment-centric model to what you and others know as a very traditional SaaS platform, where you book a deal in this month and you start taking revenue on the core platform part of the business next month. For certain types of customers where it might be municipal or federal or overseas customers that ties specifically billing and availability of platform to certain milestones, that might be different, but that's the exception, not the rule. And that is the shift for us and that something that we decidedly drove and are now able to do. So to Vik's point earlier, looking and growing up to be a real SaaS company out of a telecom services orientation is -- now allows us to do that.

Thank you.

Sure. Thank you.

Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.

Hi, guys. Thanks for taking the question. I'm Onan for Mike Latimore. Which version of your X Series is getting the most traction?

Actually, fascinatingly, both the X2 and the X8, which is basically the telephony piece, the simple business communication piece, as well as the contact center. It's almost like a reverse gaussian curve. Those are the two getting the max amount of traction.

And like how should we model the product gross margins going forward?

Yes, so we haven't given specific guidance on that so would be reluctant to go off the reservation. But while we are talking about is as we move through the year and as you see revenue traction and expense efficiency, we would expect to move through the year with some base level of efficiency and a combination of gross margin, probably even more specifically in operating margin through sales and marketing and R&D and a little bit of D&A efficiency pickup.

Okay. Thank you. That’s all I had.

Thank you.

Your next question comes from the line of George Sutton from Craig-Hallum. Your line is open.

Thank you. Steven, I wonder if you have looked at some of the prior investments that have been made to grow the business and looked at the resultant ROI. And I'm not suggesting you answer that here, but I would like to talk about it. But I'm curious if you've looked at the ROI expected from these investments, and when would you expect to achieve those returns?

Sure. When you say investments, do you mean the companies acquired? Or do you mean operating spend?

Operating spend resulting in additional business.

Yes, so good question. The thing that I feel good about here is that there's a very good discipline around the table now that candidly was probably different insofar as what we looked at 4, 5 months ago and so far as for the tight cadence around metrics and statistics that drive revenue. And what I mean by that is we go through as an executive team every Monday all of the channel deal reg, pipeline, conversion rate, channel versus direct metrics insofar as what is happening as an outcome and then we inspect the spend and we look at the efficiency of our digital demand spend. We look at the efficiency of our marketing campaigns and brand development campaigns. And so I have a lot of confidence that the way we're spending our money now is absolutely with a clear ROI expectation. We hold ourselves accountable with all of you on the metrics that we're providing. And candidly, the culture at 8x8 is very accountability-driven, where, for example, we just closed our annual plan for fiscal 2020 and so there's a page in our deck where all of the expected outcomes that we guess w for product and marketing and channel has an executive's name next to it and everybody signed up for their deliverable. So the culture here is definitely oriented toward that.

Got you. And just one quick for Vik. On video, and I appreciate you're excited about Jitsi and sort of what that can become. You're obviously entering a very competitive market with some very good players. What are going to be the differentiators? Or what's the logic of sort of really building it out yourself versus partnering?

Oh, very easy. One, because I think, as you may find out from another partner, if Zoom starts to enter into the video -- from the video to the UCaaS, that obviously, if you're partnering with them, you're basically opening yourselves up a little bit. But remember, this is WebRTC so it's an open standard and it uses it 8x8 audio. So you've got the best of both worlds. WebRTC developed by Atlassian combined with audio which 8x8 developed over the last 10-plus years, all delivered over an e-commerce platform, frankly gives us a nontrivial competitive edge. And this is the part going back to your comment on investments. A huge amount of investments by 8x8 have been made on a technology platform. So guess what? That same technology platform that is used to deliver business communication systems, then deliver at contact center and contact center now stand-alone is winning on its own without the crutch of basically of our business communication. It can stand on its own two feet, and it can win. Then you got video collaboration with -- through a combination of Atlassian plus the work that we've done with our own audio. Combining those 2 together, you get something truly differentiated. And there's a white paper on our website that does the comparison of the two technologies. Just to put it in perspective, the competitor's a $20 billion market cap competitor on a revenue that's roughly comparable to ours. So now go from there one other aspect. Anything that is developed like speech transcription for our contact center or for a business communication now can also be applied to over video. Anything we develop from AIML that we -- for a contact center applies also to video. That's what our customers are finding pretty compelling. So they can buy video stand-alone or they can buy it as part of a bundle, but most importantly, anything I develop for our contact center or our business communication or videoconferencing apply to the other. That leverage is massive. That's why you build one platform. That's what we've invested to do.

Got you, great. Thanks, Vik.

Your next question comes from the line of Will Power from Baird. Your line is open.

Great, thanks. Just a couple of questions. Maybe just coming back to the bookings trends. As you look at Mid-market/Enterprise, I think you reported 34% bookings growth. It's not the number you asked a lot of quite a bit over the few quarters. Do you think you have better line of sight on that now to sustaining a 30% number? And are there any comp issues coming up that we should be aware of there?

And actually, Will, on that one, the comp issues are actually built in. If you think about it, last year what we guided to is we said bookings for Mid-market/Enterprise for the year on an average would be 30% over the previous year. Guess what? That's exactly where we ended up. And so there were some quarters where it was more, some quarters where it was less, but we ended up at exactly 30% increase in Mid-market/Enterprise bookings year-over-year on an average basis. So will the number fluctuate up or down? Absolutely. Do I feel that you're starting to see a much better rhythm and cadence develop? Yes. I mean we've done it in -- if you think about it, the company invested a huge amount into building out a platform, then we started to get into go-to-market, particularly channel. We're a little late to the party on channel, but clearly, it has recovered very quickly, and we think it's sustainable. Mid-market has started to accelerate. Now you've got additional capabilities coming online with both video collaboration as well as e-commerce, which aren't necessarily baked into our numbers. So in the end, the whole idea is build one platform, get the leverage from that one platform and then build a channel that can sell everything on the entire platform. And I think once you do that, you're able to get a nontrivial lift and nontrivial leverage.

Okay. All right. And then just maybe along those lines, you called out contact center couple of times in terms of strength on the quarter, I think, with 40% of bookings growing significantly year-over-year, what does that imply for kind of the core you see or UCaaS product? I mean are you able to kind of break out kind of what you're seeing there in terms of bookings growth? Because it's not like contact center is growing even faster than the core UC product.

No, actually, in all areas we are seeing growth. So if you think about it, our unified communications, which is where we came from, we have kind of evolved where, initially, we had unified communications just by itself, and that was growing at a reasonable clip. Then we added unified communications plus contact center as combo deals. That started to grow at a very healthy clip. Now we're starting to see contact centers stand-alone grow at a healthy clip. And so I think the only reason why some of the numbers work out the way they do is a lot of our customers are buying both our unified communications and contact center. The vast majority of our customers by both of those products. And the part that is interesting is, normally, it was always our unified communication that dragged on the contact center. Now what we're finding is you can win on contact center, and that drags along the unified communication, which means, in essence, we've opened up the second front. One of the that wraps had always been that, hey, you have to put best-of-breed together because, you know what, you -- otherwise you're getting this bundled solution in the contact center is just a social contact center. We are taking on the very best in the world in contact center, and we're than holding our own. There's a reason why 21 people from some of the top companies came here, because they see a contact center here that not only can hold on its own, it can take on anybody stand-alone, and now we can drag on unified communication. It also helps that contact center sells for approximately 5 times more than a UC solution. So I think, over time, we will continue to see ARPU continue to increase.

Okay. Thank you.

Your next question comes from the line of James Breen from William Blair. Your line is open.

Thanks for taking the question. Just in terms of your confidence going forward in the growth and what you're seeing in the channel as well as with the customers you're adding, can you just talk a little bit about how much you think you have with some of your customers' spend now and the ability to grow in your existing customer base?

A small fraction. What we're seeing is, as I indicated, on an average, 40% to 50% of our bookings -- new bookings is from upselling existing customers. And increasingly, we're finding that -- I think that number will go up over time because, increasingly, we're finding that we can upsell not just contact center, but over time, both video collaboration to our unified communications customers and/or unified communications and video collaboration now to our contact center customers. So I think you will see our land and expand -- we are evolving to a SaaS company. We were essentially a unified communication company that added on contact center. The wrap was the contact center was okay but not great. Now the contact center is as close to best-of-breed is you're going to get. Now we've added best-of-breed video call collaboration, but all of them are on one platform. So it's very logical for customers to go to one vendor, and you've, in essence, future proofed the technology.

And then just could you talk about the sales cycle in general and how as you're making this move to be more SaaS-based, how does that change the sort of investment cycle from the customers and how long it takes to close deals?

So that's a fascinating question because what we're seeing as a trend is the initial sales is, for one, it is shortening, but it's -- we saw the mid-market shorten by about 25%. And part of the reason it shortened is because, in essence, you can sell them just one solution and then do a land and expand from there. So again, the company is evolving much more to a SaaS company, where you're able to go in with 1 portion of your solution, and over time, you can add in additional portions to the solution.

Great. Thank you.

Your next question comes from the line of Josh Nichols from B. Riley. Your line is open.

Yes, hi. Thanks for taking my question. I do want to ask -- good to see some of the additional disclosures for the company. But I want to -- as far as the churn, another kind of key metric, have you seen that hold relatively stable at least as it pertains to the country's larger customers like NetSuite and what not?

Yes, so it's a good question, and we'll likely be coming out with more color and visibility around renewals and retention as we move forward. Some of the churn has started to pick up a little bit vis-à-vis our success in moving legacy customers to the new platform, right? Moving legacy customers is a little bit disruptive and so we see a little bit of that now but nothing phenomenally alarming, just more of the standpoint of things that we want to focus on.

Yes, and we're not seeing it at the very large customers. I think the NetSuite you're talking about will see some there because now they're owned by Oracle. But other than, I mean, which is just normal stuff that happens as customers get acquired. But we also find that some of our customers that get acquired end up basically getting parent company to buy our stuff. That's just normal course of business. And we will continue to accelerate the move to X because we think X actually provides better retention because, in essence, you've got this one-platform solution where you can go add video collaboration, contact center as well as unified communication from one platform, which is just a natural evolution on land and expand.

And then last question for me, just want to make sure I had it right, given the reallocation a little bit change for the guidance outlook. So the company is targeting a non-GAAP pretax loss of approximately like 15 -- sorry, 5-0 [ph], $50 million this fiscal year up from $21 million last year, but that also doesn't really include, as you mentioned, the capitalized software and things like that. So total dollars invested for the year is probably going to be close to like $80 million or $90 million, it seems like. Is that reasonable to say?

Yes, your understanding is correct.

Thank you.

Your next question comes from the line of Jonathan Kees from Summit Insights. Your line is open.

Great. Thank you guys for squeezing me in. Thanks for letting me ask questions here. Just kudos in terms of additional metrics, and as you can tell from the Q&A, there's -- people are still grappling with the change in guidance. I just -- I guess my question is really more clarifications. I just want to be clear that or make sure my understanding is clear that the 25%, are we still looking at the apples-to-apples there? That would've still been the target that would have been reached by the time from you had mentioned previously. Is that correct?

So we're decidedly not continuing guidance or commenting on that target, but what we are saying in a very transparent way is that target implied a 200 to 300 basis point improvement in the growth rate, right? And so if you say, okay, well, what metrics are you guys looking at? Hey, we're looking at service revenue. Okay, well, then I, an investor, should take that base GAAP service revenue and put 200 to 300 points on that, and that would be a very natural assumption to transfer the anticipated communication of growth that we had on one metric to the one that we're using. So that is all transparent.

All right. Yes. No, I got to 200 to 300 basis points there. I would think that for this coming -- this new fiscal year here, the DXI, that kind of goes away. And if you assume constant currency, there is not much of a change in terms of the pro forma revenues there. And I guess, the thing is, you might already have the 200 to 300 basis points based on the previous guidance. And it's -- and with the DXI going away and like assuming constant currency, it would still be supportive of -- yes. I mean it doesn't seem like there's much of a change given that you have your change of the guidance there, the nuance of not willing to comment on the 25% there.

Yes, the damn [ph] is right. Over time, DXI was a meaningful number in quarters past. It's still a decent number, but it's going down over the course of the year. And so it becomes not material at all to $90 million, roughly a quarter of revenue. And really, while it had a big impact on a growth percentage basis was irrelevant on a dollar contribution. And so your view and modeling seems about right, that it's more impactful in the near term and certainly less so going forward.

Okay. All right. Modeling questions. Let me change tactics and ask about the wins. The stuff that you highlighted in this call have been more against Avaya and ShoreTel and even their hybrid offering. Is it -- first, are most of your big deals were from the legacy vendors?

Absolutely. Yes, yes. No, most of the deals that any of us in the space are winning is against the legacy vendors. I mean the main point is but they are never uncompeted deals. So the point is for every deal, we're fighting with all the regular cast of characters that we have talked about. And so in contact center deals, we're fighting with the ones that we've talked about that our cloud contact center folks. In the other -- in the telephony deals, we're fighting with people like Ring that we have talked about. So the issue is none of these deals are uncompeted, but ultimately, the incumbent more often than not is one of the legacy vendors. The good news about this entire market, going back to your comment, I mean we're seeing some of Avaya's recent news, et cetera. But look, the main point is even Gartner has acknowledged that unified communication on-premise as a category is disappearing so the entire market is shifting to cloud. So there is an opportunity for all of us. That's one. But as I said, there are no uncompeted deals.

Okay. And I guess your win rates in those uncompeted deals against your cloud peers are still pretty high-step from in the past?

Correct. I mean our win rates are continuing to improve. The big thing for me always has been we need to see more at-bats. And my challenge to our channel team and my marketing team is get us more and more at-bats and life gets much nicer, and they seem to be getting us more at-bats. Now we have to just execute.

Okay, great. All right. Thanks for that and good luck guys. Thank you.

Thank you.

That is all the questions we have. So this concludes our 8x8 conference call. You may now disconnect.