Q2 2025 Summary
Published Feb 25, 2025, 3:33 PM UTC- Strong growth in the core 8x8 platform with increased gross retention rates, providing a solid foundation for future revenue growth as migration from the Fuze platform progresses.
- Significant momentum in the Communications Platform as a Service (CPaaS) business due to strategic investments in R&D and innovation, leading to a stronger-than-expected quarter and cautious optimism for sustained growth.
- Rapid adoption of AI-based solutions with a 200% year-over-year increase in sales, demonstrating the company's ability to leverage AI for meaningful business outcomes and potential future growth.
- 8x8 has stopped disclosing certain key metrics like Annual Recurring Revenue (ARR), and is seeing customer counts not keeping pace in the micro and small business segments, indicating potential weaknesses in these areas. Management stated, "we haven't been extensively focused on micro businesses and very small businesses. And so that's where we're generally seeing the customer count not keep up with the change in enterprise."
- Revenue from the Communications Platform as a Service (CPaaS) business is volatile and lacks visibility, as it is usage-based and not contracted. Management cautioned that while the CPaaS revenue was strong this quarter, "we don't have the visibility" and "we take that business month by month." This uncertainty could impact future revenue streams.
- Competitors are engaging in aggressive pricing strategies, which management described as "bad shit crazy pricing," leading to longer deal cycles and potential pressure on sales and margins. This aggressive competition may affect 8x8's ability to close deals efficiently.
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Services Revenue Growth and Sustainability
Q: What drove service revenue growth and is it sustainable?
A: Robust platform usage revenue and growth in our core 8x8 platform drove multifaceted growth this quarter. Our gross retention was fantastic, providing a strong foundation for future growth. As long as gross retention remains high, we see positive momentum and are cautiously optimistic. -
AI-Based Solutions Sales Growth
Q: What's driving the 200% YoY growth in AI solutions?
A: Customers are more willing to adopt AI features than six months ago. We're turning AI into meaningful business outcomes, like summarization, automatic health scoring, and transcription to improve agent productivity and detect fraud. Once AI solves business problems, customers have no issue buying it. -
Future Growth Drivers and Fuze Migration
Q: What will drive future growth and how is Fuze migration impacting it?
A: Core 8x8 customers are up quarter-on-quarter and year-on-year. Future growth will come from new products growing well above corporate average and becoming a meaningful part of revenue. The headwind from Fuze will diminish as we upgrade customers and its revenue shrinks; we're on track to shut down the Fuze platform by end of next calendar year. -
Gross Margin Trends and Mix Shift
Q: What's impacting gross margins and are underlying margins steady?
A: Gross margins are affected by mix shift towards our platform business, which accelerated this quarter but has a lower margin. Underlying UCaaS and CCaaS margins remain very steady. Launching AI usage-based products may cause slight near-term gross margin compression of a few basis points due to mix shift. -
CPaaS Strength and Revenue Guidance
Q: What drove CPaaS strength and is it sustainable given guidance?
A: The CPaaS business was strong and above expectations this quarter. We're investing in R&D, innovation, and sales, which drives future business. While nothing was one-time, usage-based businesses lack contracted revenue, so we're cautious in our guidance and expect possible fluctuations. -
Customer Willingness to Spend and Pipeline Growth
Q: How is customer spending and the competitive landscape?
A: Despite some strange competitor behavior with aggressive pricing, our deal pipeline is up. Our leading indicators are positive, with new products growing 60% year-over-year and record-high RPO. Customers appreciate our product innovations, and we remain cautiously optimistic. -
Impact of AI Adoption on Agent Numbers
Q: How does AI adoption affect customer agent numbers?
A: We're not seeing customers reduce agent numbers due to AI adoption. Instead, AI adds capabilities to make agents more productive, such as shortening training cycles. The primary use case for Agent Assist is reducing training time, which is significant given average contact center attrition. -
Fuze Revenue Migration to Core 8x8
Q: How much Fuze revenue has migrated to core 8x8?
A: Approximately $5.5 million in Q2 '25 of Fuze upgrades moved over to core 8x8. Even without this contribution, core 8x8 grew quarter-over-quarter and year-on-year. -
Competitive Pricing Pressure
Q: What did you mean by competitors' strange behavior?
A: Competitors are engaging in aggressive pricing, which we see as counterproductive. It slows deal cycles, but we usually win deals as customers question the value of overly low-priced products. -
RPO Visibility and Usage-Based Business Impact
Q: How do you view RPO trajectory and visibility?
A: With usage-based businesses lacking contracted revenue, RPO may not grow linearly. We're seeing an increase in RPO, making us cautiously optimistic, but it depends on usage business volumes. Over time, RPO should grow, but it may zig or zag. -
Trends in Seat Count
Q: Any changes in seat count trends over the last 12 months?
A: We are seeing accelerating UC and CC seat sales. This is driven by our improved value proposition and sales organization adjustments, which may be specific to 8x8. -
Monetization of AI Usage
Q: How are you monetizing AI usage growth?
A: We monetize AI through multiple models, including sell-with and sell-through in CPaaS partnerships. We sell customers a platform starting with one use case, leading to expanded use and increased revenues. This approach strengthens our strategic partnership with customers. -
Channel Performance and Direct Sales
Q: Which sales channels are most lucrative recently?
A: The best source of business last quarter was direct sales, not through channel partners. While still a channel-first company, we've seen success closing direct deals, especially with enterprise customers via RFPs. -
CPaaS Charges in International Markets
Q: Are international markets seeing A2P fee increases like in the U.S.?
A: No, carriers in international markets have already raised prices significantly in previous years. We don't expect further significant price pushes from carriers, and we're investing in product innovation like RCS.