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.

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 they 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.

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 a customer's 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, scaleable full-featured cloud platform with voice, video, chat and contact center. The last 10 weeks has accelerated our platform penetration by many months if not years.Let me give you a few examples. Over the course of 10 days we worked with e-School to bring Italy secondary school system online. We work 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 on-boarded 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…

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 there's been a pretty rewarding time to be here at 8x8 to see that what we do for every day is directly helping make people's lives meaningfully 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 we will set out financial guidance for the current first fiscal quarter ending June 30, 2020, I'll also provide some insights on the revenue growth profile for fiscal 2021. We will 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 physical 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…

[Operator Instructions] Your first question comes from the line of Matthew VanVliet with BTIG, your line is open.

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 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?

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 get all the training material. We just launched partner exchange 4.0 which allows people to do a full provisioning for the entire stack with 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 tradition. 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 VAR is 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 upload them to voice, video chat, etc. and there will be other VARs along the way.

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.?

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 and the interesting dynamic as I mentioned earlier is that we saw both surge and interest both from existing customers who said, hey I want to hurry up and get my deployments done or I actually want to expand, do more and new customers they came 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 have closed in March, did push a little bit into April and 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 and so far as how they are handling payments and transactions and sign up for longer dated contracts in exchange for some payment relief upfront and 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.

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 a businesses of all sizes that started buying an 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 has 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.

All right. Great. Thanks you take my questions.

Thanks.

Your next question comes from the line of Ryan MacWilliams with Stephens Inc. Your line is open.

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?

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, is 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 comms stack that gives us the ability to really juice the value prop of that offering in a really nice way.

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?

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 a gross margins as you noted it 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.

So I'll add to that one, Steven. One, our DevOps team and our finance team, a huge debt of gratitude. I've never seen anything like this. We were at a 150,000 monthly active users in the February time frame maybe January/February timeframe, and you just saw that client. I mean 20 million plus monthly active users. I mean I used the example of we're suddenly doing the up 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 as Jitsi Meet, 8x8 meetings and then bundled into our X series, every one of them now ends with upload into 8x8, so basically 8x8 pop-up shows up 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 been seen quite a bit of uptick. We're now up to, I think almost a between meetings and X Express we're almost up to a hundred logos a day. So the level of brand recognition that Jitsi did for 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, pretty much 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 recognize that because the adoption was just spectacular.

Excellent. Really appreciate the color. Thanks guys.

Your next question comes from the line of Michael Turrin with Wells Fargo. Your line isopen.

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?

So I'll give you the puts and takes and then Steven can provide more color. The puts and takes is quite interesting because -- so we started to see large customers certain industries obviously started to pull back. Travel got hit pretty hard. Hospitality got hit pretty hard and retail got hit pretty hard. So those are the ones where you started to see a few downgrades and ordeals that's a well a long road kind of pull back. You saw others really pull forward and this one is a sad one where we saw a lot of local and state governments sign up for our contact center in some instances replacing Avaya with because of the huge influx of unemployment claims and COVID related claims in terms of information.So small business hard to tell. It's early-early days but this is one of those things where I'm trying to what the impact of small business is going to be going forward particularly our legacy small business customers that were used to just pure fixed-line. I think the more modern small business customers that are on our platform I think will kind of weather through it but the guys that were just pure fixed-line customers we have some concerns about. Steven do you want to add any more color to that?

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 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.

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?

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 a subscription basis and we wanted the service revenue to also be a subscription basis to go along with it. So it's all apples-to-apple.

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 that's 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 are maybe going to be impacted by some of this, from that perspective the adoption of the soft bone has been particularly gratifying to see because that has been a huge-huge jump up in volume on smartphone usage.

Helpful. Thanks. Stay safe and good luck.

[Operator Instructions] Your next question comes from the line of Tim Horan withOppenheimer. Your line is open.

Thanks guys. So the whole concept of one platform and five/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 is your closest competitor with that platform?

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 book 5 out of 10 or 5 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 has 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 about 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.

Thank you.

Your next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open. Meta Marshall with Morgan Stanley your line is open. Your next question comes from the line of Will Power with Baird. Your line is open.

Great. Thanks. Yes, I guess I want to ask on the bookings growth commentary. I think Iheard you say bookings grew 20%. I know the last couple of quarters –

Sorry 26%

26%, okay. Got you. Okay. That's closer than a 30% I guess you have been targeting. I guess what I'm trying to understand, I guess 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 there 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 X series away from the legacy platform. Maybe just help us understand the dynamics there?

Sure. We will do. So to your points, the nature and the dynamic is different for sure between SB and [MM ENT] hence the nature of our go-to-market and salesforce contracts of insight sale, field sales essentially. And so you see that in deal sizes, you see that in land and expand motion and you see that in the economics of those transactions Particularly the buying drivers. And so on the small business side what we've done is we've really transformed how we engage with small business customers moving from high touch base transactions to low touch online transactions. We've changed how we engage with the SB world from a lead gen, how we even get to be connected with SB customers. It used to be a fairly inefficient throw dollars at the problem, it worked we grew small business but it was very expensive from a CAC standpoint and our new CMO and the marketing lead gen demand gen done a terrific job in changing how we engage with SB customers and we've been more successful to your point and to the earlier questions just before on platform acquisition and how the land and expand mode has really taken off quite [indiscernible].

Okay. So I guess. Okay go ahead.

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, allows us to offer disruptive prices and allows us to offer a lot of capabilities. And so that transition that 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.

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 kind of 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 whether what happens based on what we can see today.

Okay. Thank you.

Yes. Sure.

Your next question comes from the line of Rich Valera with Needham & Company. Your line is open.

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?

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.

It 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?

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.

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?

It will be less. It will be improved, less cash will be used.

Any quantification or just what?

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.

Got it. Thank you.

Yes. Sure.

Your next question comes from the line of Catharine Trebnick with Dougherty. Your line is open.

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 onsite to do proof of concepts and now. And what's that wholesales process look like now in the middle of COVID and when you think it will evolve too? Thank you.

That's a great question and to some extent COVID has the great equalizer for all again the wrong reasons. We always had less people than most others but what we have always had is great technology and so the good news for us is the 20 odd million people using Jitsi Meet or 8x8 meetings, they get exposed to 8x8 so some of that just becomes a feed into our demand generation engine. Our marketing team has done a great job of basically going away from paid search to much more around databases and other searches like that. So we have seen more and more onboarding onto the 8x8 website. So the e-commerce engine is starting to really hit stride which then frees up our inside sales team to start selling higher and higher of the stack and our enterprise and mid-market teams have been essentially sheltering in place.I mean we literally went down to pretty close to a full lockdown around mid-March timeframe and we're finding out that we are becoming very effective in closing deals without going onsite. We're able to use videoconferencing. We're able to do proof of concepts onsite or without ever going onsite and we're now doing more and more deployments.So pretty much after I think mid-March we did no deployment -- no onsite visits and yet we're able to continue to deploy our customers. So this level of ability to do remote selling, remote deployment, remote support is part and parcel of our DNA that's what our products were built for. We were the best users of it because we have 1,600 person company working instantly all off site. So no real impact. I mean there are some enterprise customers that will push but generally we are finding that customers are actually willing to work with us and as long as you can demonstrate the value of a communications platform I think there is such a need towards being able to have a cloud-based communication platform that most people don't need on-site visits.

Thank you, Vik.

My pleasure Catherine.

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

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.

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.

Have you seen any significant changes in the channel with the partners you had or some partners that you're engaging in based upon what's happening right now in the pandemic?

So I'll take that one on. Not materially. Actually in a lot of ways I think there was an interesting comment made by several of our channel partners that this is the golden age of communication for all of the wrong reasons. So for people they are suddenly finding that they're not having to convince people that you need to move to cloud communications. They're much more open to that. They're also finding that people want that one-stop shop and the single platform. We're also seeing more and more large companies start to come after this so-called VAR model because they know that their technology and their infrastructure is primarily on-premise and they need to be able to service their customers. They're watching one-stop shops going to start to make inroads whether it's video conferencing or just UCaaS. So they want to be able to offer that entire comprehensive service. Virgin Media as I indicated is probably one of the earlier adopters there but I think you'll see more and more people doing that.Similarly I think you'll start to see an acceleration of people moving off the legacy base. So all in all we are seeing that channel demand and the registration has been extremely strong and continues to kind of build on it. So from that perspective we feel this is very good.

Great. Thank you.

Ladies and gentlemen this completes today's conference call. Thank you for participating. You may now disconnect.