Good day, and thank you for standing by. Welcome to the 8x8 Inc. Q1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Patterson, Vice President of Finance. Please go ahead.

Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for the first quarter of fiscal 2026 with Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks, there will be a question-and-answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including investments in innovation, our focus on profitability and cash flow, as well as statements regarding our business products and growth strategies. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from forward-looking statements as described in our risk factors in our report filed with the SEC. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligation to update them. All financial metrics that will be discussed on this call are non-GAAP, unless otherwise noted. These non-GAAP metrics, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings press release and earnings presentation slides, which are available on 8x8's Investor Relations website @investors.8x8.com. With that, I will turn the call over to Samuel Wilson.

Good afternoon, everyone, and thank you for joining us. Before I dive in, I want to take a moment to acknowledge our global 8x8 team. Your focus, your commitment, and your drive are what power this transformation. And to our customers and partners, thank you. Your feedback and trust are foundational to everything we do. This quarter marked a big milestone. In Q1, we returned to year-over- year growth for the first time in 9 quarters. We exceeded the midpoint of our service revenue guidance by more than $3 million. This growth was fueled by strong growth for our CPaaS solutions, continued momentum in platform adoption, a steady shift towards usage-based consumption models, and a small tailwind on FX. And we're now seeing the headwinds from the Fuze upgrade continue to recede. 8x8 is aligned with how the market is evolving. Enterprises are shifting away from fixed-seat licenses and towards usage-based intelligent platforms. They're prioritizing solutions that are flexible, AI-enabled, and easy to integrate across their stack. Metrigy research really tells the story. Over 50% of CX leaders now prefer consumption-based pricing. Average handle times in live contact centers are increasing because automation is deflecting simpler requests, allowing agents to focus on higher-value conversations like upsells and account reviews. More than 50% of companies are using multiple AI tools, and over 70% expect to expand their usage in the coming year. Despite macro pressures, only 17% of enterprises plan to reduce customer engagement budgets. It's clear that customer experience is undergoing a foundational shift. Enterprises are moving towards intelligent engagement models that combine AI-driven self-service with seamless human interaction, balancing scale and efficiency with trust and empathy. But change at this scale doesn't happen quietly. Legacy vendors are responding with aggressive pricing and long-term lock-ins, trying to slow the pace…

Thanks, Sam. Good afternoon, everyone, and thank you for joining us on our first quarter fiscal 2026 earnings call. We delivered solid revenue performance in Q1, including a new record in communications platform usage revenue, solid profit margins, and another quarter of positive cash flow from operations. Q1 marked our 18th consecutive quarter of both positive cash flow from operations and non-GAAP operating income, further underscoring the durability of our financial model. During the quarter, we used operational discipline and strategic focus to navigate a complex macro and competitive landscape. Our platform usage revenue continues to grow at a faster rate, emphasizing our expanding market relevance and growing customer preference for consumption-based pricing models. This stream also provides a source of stability as we remain focused on accelerating momentum in UC and contact center, particularly through AI-driven innovation and automation. As we've discussed previously, our communications platform revenue, while strategically valuable, has a different margin profile, and its accelerated growth is starting to influence our overall gross margin. I'll speak more to this dynamic later. We continued our thoughtful approach to debt reduction, making a $15 million term loan prepayment during Q1. With this action, plus another $10 million repayment made just last week, we have reduced our debt principal by $219 million or 40% since the August 2022 peak debt of $548 million. On July 29, subsequent to the end of Q1, we amended our term loan agreement to provide greater operational and financial flexibility. The amendment maintains our total leverage covenant at its current level, consistent with the fixed nature of the secured leverage ratio, and also introduces a $25 million basket that allows for strategic acquisitions independent of a more restrictive leverage ratio embedded in the original agreement. While we have no imminent acquisitions pending, the added…

[Operator Instructions] Our first question comes from Josh Nichols with B. Riley.

Good to see the company back to service revenue growth. I know you mentioned there's a little bit of FX in there, but presumably help walk me through a little bit. You're getting close to the end of the Fuze migration. It's only 4% of revenue in the quarter. What does that look like in terms of the headwind that you've been seeing on growth more recently? And any color that you can provide on how many customers are left or what the type of churn that you're seeing in this final 4% of the customer base overall that you're looking to work through between now and fiscal year-end?

Josh, thanks. This is Kevin. Yes. So the Fuze, as you heard in my remarks, there's a 5% underlying revenue growth in our business. The Fuze headwind to our growth was about 3% in the last quarter. Yes, we have just under 4% of our service revenue left for the Fuze base. We expect to keep roughly half of that as we migrate over to the 8x8 platform. So the headwinds are actually subsiding quite a bit as we move forward. And as far as the customers left the count, I will say this, we've actually dispositioned all of the Fuze customers. And what I mean by that is the customers have given an indication to us whether they're going to stay or leave. And we're working through the backlog of those customers remaining on the Fuze platform to move them over to the 8x8 system by the end of the calendar year. So we've made a really great amount of progress in the last, I would say, 6 months in accelerating that transition.

And Josh, just to add one thing. So I know the half number seems like, wow, it's a big number that you're losing. But remember, the customers that are staying to the very end, stay at the very end, and the customers that want to migrate off, migrate off. And so that number is declining, while the customers that are staying at the very end stay. And so it's just kind of a math function, less an actual honest to God function. And then next year, we would expect that, just given the comp stuff, it will be about 1.5% of growth headwind for next year overall.

And then just one last question for me. Just to touch on the margin profile. I understand the usage-based margin profile is a bit lower, but admittedly growing much faster. When you look at the mix today, how do you think that's going to evolve between now and, say, like year-end as a percentage of mix for usage-based versus the traditional seat-based model?

That's a great question, and it's a really difficult one to answer. We've been adding about 1% to 2% per quarter overall. I think we're at 17% now of revenue is usage-based. Remember, almost all the new products that are AI-based are usage-based, plus we have our CPaaS business, which is usage-based, et cetera. And so all the tailwinds are really on that usage-based side of the business. And as Metrigy even cited, almost over half of all buyers want to buy in that consumption-based model. So I would expect it to continue to grow maybe 1% to 2% per quarter, but please don't hold me to that. It's a bit of a guess.

Our next question comes from Andrew King with Rosenblatt Securities.

Andrew King on here for Catherine Trebnick. Just recently, we've been seeing with this proliferation of disparate AI solutions that we've been starting to see a lot of other players starting to go out and buy to add to their AI portfolio. Can you just give us an idea of how you weigh buying versus building, especially within the AI portfolio and AI space?

So I would change your question just slightly because there's buy, there's build, and then there's partner. And we've gone the route of build and partner, not necessarily buy. I think when you buy, you're basically buying an asset with a forever time period. And with AI changing so rapidly, we like the optionality of partnering, and we like the optionality of partnering with best-in-breed providers, et cetera, et cetera. And so we offer a platform that either through our in-house AI development, for example, summarization across the board, industry- leading transcription using AI, agent assist, all those kinds of things, and our partnership strategy, giving you the best-in-breed providers on our platform, is the optimal solution for solving the customers' problems today. I want to highlight, it may not be the optimal solution from a Wall Street perspective, but it's absolutely the optimal solution from a customer perspective.

Our next question comes from Michael Turrin with Wells Fargo.

This is Ron on for Michael. Just one on revisiting a conversation that we've been talking about over the last few quarters. But anything you're noticing with legacy migrations? Have you noticed any uptick there from past given we've seen companies like SAP now starting to see their cloud backlog accelerate. Are you seeing anything different on your end?

So, when you say legacy migration, do you mean the on-prem vendors? Or do you mean our older customers?

On-prem vendors.

Sure. I mean, Avaya goes bankrupt every couple of years and then shrinks its EOLs for more products. And so we're seeing that clearly as a tailwind. Mitel just went in and out of bankruptcy; that's a tailwind. So obviously, the legacy vendors going through their trials and tribulations is a tailwind to the overall performance of the industry. I don't think we're the only ones to benefit from that. I think all of us benefit from that. Are we seeing an acceleration? I mean, clearly, if you look at all the emerging AI technologies, they work better with native cloud-native products. And so if you want to adopt AI technologies, it needs to be based on open APIs and all those other things to make it work well, which really you truly need a cloud-native communications platform to do that. And so yes, maybe, I guess, would be the answer.

And then just a follow-up. You talked about RCS a couple of times on the call. Wondering if you're seeing an uptick there, and maybe just like describe the opportunity set of what's ahead?

So, RCS to me is, yes, we are seeing an acceleration in interest in RCS. We're currently in the United States. We'll be in a number of European countries in the next 3 to 4 months. And we're seeing a real uptick in interest in RCS. The fact that it has 2-way capabilities, it's graphical, it allows for carousels and interactions with graphics, and those kinds of things make it really, really super interesting to replace MMS. And actually, we're seeing a resurgence of WhatsApp in certain areas. We're currently carrying traffic in RCS in the U.S. and also, we've got fully integrated in the contact center, which I think makes it extra attractive from a sending you a copy of your travel ticket or sending you detailed information or 2-way conversations or any of those kinds of things. And so I think it's a big opportunity. And for us, what's interesting is an opportunity in the CPaaS business because we have all those capabilities. Obviously, we're a major player in usage in CPaaS in general.

Our next question comes from Jamie Reynolds with Morgan Stanley.

You actually have Meta on. A couple of questions. One, you had talked about increasing OpEx this year to try to reaccelerate growth. And just by your guidance, it doesn't seem like you're raising OpEx by all that much. And so just wondering how you're balancing that profitability versus growth right now. And then maybe the second question, just you noted the CPaaS business growing, we're seeing a lot of growth. Just where, from a geography basis, are you seeing that growth be most meaningful?

Okay. So, 2 questions there, profitability versus growth. I'll start on that one. We'll cover geography, CPaaS geography second, and I'll let Kevin chime in on the first, maybe he fits. Yes, we're not seeing, I mean, a huge increase in OpEx. We are moving it around. We're trying to get it to where it can get the most. As we returned to growth this quarter for the first time in 9 quarters, so plus 1.9% growth overall and plus 5.1-ish percent ex Fuze. So I think we're already on the trend, and we've seen 3 quarters of acceleration ex Fuze. And so I think our reallocation of expenses, where it's finding its highest best use, is on the right path. We have been investing a little bit more in the Fuze migration and overall. I mean, we were running double-digit operating margins just a few quarters ago. We're down slightly in that. Now, FX and everything else will have some influence on that quarter-to-quarter, but you get the idea. I think the idea is we want to grow smartly and grow profitably. And so right now, we're willing to take a little bit of a hit to op margins to get growth. And then as we get growth solidly installed in the system again, we'll attempt to grow revenues faster than we grow expenses and then bring margins back up over time. Kevin, anything you would add?

No, I think you hit the point really, is the reallocation, Meta. And that's reallocation in both the COGS and OpEx line as we look at the usage-based business. So that's the only thing I would highlight.

Okay. And then on CPaaS, look, obviously, I'm going to give you a bit of a tale of 2 cities here answer. In terms of overall growth, obviously, our Asia business is the biggest part of it, and it's growing very rapidly, and it's pretty exciting, over 30% year-over-year. But we're also seeing a lot of traction in the U.K. with multiproduct customers. And as I mentioned earlier, we're carrying RCS traffic in the U.S., which is causing our U.S. business as a percentage to grow fairly quickly. And so we are seeing growth fairly globally in the CPaaS business with the largest raw dollar amount being in Asia.

I'm showing no further questions at this time. I would now like to turn it back to Sam Wilson, CEO, for closing remarks.

Thank you, everyone, for being on the call today. I also want to highlight on our Investor Relations page, we've published 2 letters, a shareholder letter and a financial highlights letter. As we evolve our Investor Relations strategy, we're now publishing letters. This is the first time. Please take a look at it. If you're interested in providing us any feedback, please let us know. Thank you for your time today.

This concludes today's conference call. Thank you for participating. You may now disconnect.