Q3 2025 Summary
Published Feb 25, 2025, 3:35 PM UTC- Excluding FX headwinds, 8x8's service revenue is growing quarter-over-quarter and year-over-year, indicating positive underlying performance.
- Customers using 3 or more products have deal sizes 3 times larger than those with 2 products, leading to higher retention rates and improved financial metrics, demonstrating the success of 8x8's multiproduct strategy.
- After reducing debt by 35%, 8x8 is now investing in growth initiatives, including leveraging AI to enhance customer experience and operational efficiency, positioning the company for future growth.
- The company's service revenue growth is effectively flat, even after adjusting for FX headwinds, indicating challenges in achieving revenue growth.
- During the migration of Fuze customers to 8x8's platform, the company retains only about 60% of the Fuze base revenue, resulting in a significant revenue loss that may impact overall growth.
- The CEO acknowledged macroeconomic challenges, including a 14-year high in customer bankruptcies, which has led to some customers entering bankruptcy proceedings and could negatively affect customer retention and revenues.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Down about 1.1% (from $181.01M to $178.9M) | Slight decreases across segments: Service revenue fell by approximately 0.9% and Other revenue dropped nearly 9%, which indicates pressure on non-core income streams; this modest overall decline reflects a mixed performance where minor setbacks in revenue diversification have impacted total revenue despite stable core operations. |
Service Revenue | Down roughly 0.9% (from $175.07M to $173.5M) | Stable core operations with minor pressure: The small decline suggests that while the core service revenue remained resilient, there was a slight downturn possibly from competitive pressures or market shifts, but the overall performance underscores recurring business strength. |
Other Revenue | Down nearly 9% (from $5.94M to $5.4M) | Significant drop in non-service income: The steep decline in Other revenue points to challenges in ancillary business lines such as product or professional services, thereby narrowing revenue diversification. |
Operating Income | From a loss of $9.39M to a gain of $8.98M | Dramatic turnaround driven by cost efficiencies: The swing of over $18–20M reflects aggressive expense management—especially reductions in SG&A costs—and improved operating margins that have more than offset the slight revenue declines. |
Net Income | From a loss of $21.22M to a gain of $3.02M | Recovery due to operational turnaround: Enhanced cost management and improved operating performance turned net losses into positive income, demonstrating a significant recovery despite subdued top-line growth. |
EPS | Improved from -$0.18 to $0.02 | Enhanced profitability at the per-share level: The positive EPS shift mirrors the turnaround in operating income and net profit improvements, resulting from effective expense reductions and tighter cost control measures. |
SG&A Expenses | Reduced by over 10% (from $91.42M to $82.27M) | Efficient cost management and reduced non-core expenses: A decrease exceeding $9M in SG&A expenses, driven by lower stock-based compensation, reduced legal and marketing spending, and other cost-saving measures, significantly contributed to improving operating margins. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Service Revenue (Quarterly) | Q4 2025 | no prior guidance | $170 million to $175 million | no prior guidance |
Total Revenue (Quarterly) | Q4 2025 | no prior guidance | $175 million to $181 million | no prior guidance |
Operating Margin (Quarterly) | Q4 2025 | no prior guidance | 9% to 10% | no prior guidance |
Service Revenue (Annual) | FY 2025 | $690 million to $701 million | $691.3 million to $696.3 million | lowered |
Total Revenue (Annual) | FY 2025 | $714 million to $727 million | $713 million to $719 million | lowered |
Operating Margin (Annual) | FY 2025 | 10.25% to 11% | 10.7% to 11% | raised |
Non-GAAP Operating Income (Annual) | FY 2025 | $73 million to $80 million | Approximately $77.5 million | raised |
Interest Expense (Annual) | FY 2025 | $5.3 million in Q4 | $5.3 million in Q4 | no change |
Cash Paid for Interest (Annual) | FY 2025 | Approximately $7.2 million in Q4 | Approximately $7 million in Q4 2025 | lowered |
Fully Diluted Non-GAAP EPS (Annual) | FY 2025 | $0.32 to $0.35 | $0.35 to $0.37 | raised |
Cash Flow from Operations (Annual) | FY 2025 | $59 million to $64 million | $61 million to $65 million | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Service Revenue Growth Performance | Q4 2024 guidance projected flat-to-slightly growing revenue. Q1 2025 focused on year‑over‑year growth and noted reliance on CPaaS and Fuze migration. Q2 2025 emphasized sequential growth in subscription/usage despite Fuze headwinds. | Q3 2025 reported service revenue of $173.5 million with FX headwinds and a further reduction of Fuze’s share to 5%. The call highlighted sequential and YoY gains in subscription/usage revenue. | Moderate improvement driven by stronger core revenue even as legacy Fuze revenue declines, with FX challenges partially offset by growth in higher‑margin products. |
Multiproduct Strategy and Cross‑Selling | Q1 2025 saw multiple–product deals and strong cross‑selling opportunities. Q2 2025 emphasized expanding multiproduct sales and new logo wins. Q4 2024 focused on the strategy to improve retention and add new revenue through bundled solutions. | Q3 2025 reiterated success with a 10% MRR increase among customers using three or more products, demonstrating deeper cross‑sell and higher retention. | Consistently positive; increasing emphasis as bundled solutions become more central to revenue growth and customer retention. |
Debt Reduction and Investment in Growth Initiatives | Q4 2024 noted progress in principal repayments and plans to lower interest costs. Q1 2025 celebrated a major term loan repayment and signaled reinvestment in innovation. Q2 2025 reported further debt reduction efforts alongside strategic investments in R&D and AI. | Q3 2025 emphasized a 35% reduction in debt from the 2022 peak, record Q3 operating cash flow of $27.2 million used for debt repayment, and strategic investments targeting AI integration and platform enhancements. | Steady progress in lowering debt coupled with reinvestment in growth areas, reflecting a strengthened balance sheet and commitment to long‑term innovation. |
Artificial Intelligence Adoption and Its Dual Impact | Q4 2024 discussed integrating AI through products like Intelligent Customer Assistant and highlighted positive self‑service metrics. Q1 2025 and Q2 2025 noted growing AI use in contact centers and agent productivity with strong sales growth. | Q3 2025 reported 60% YoY growth in new AI product revenue, with AI features broadly embedded across the platform, enhancing tools (e.g. call transcription, analytics) and driving customer adoption. | Rapid acceleration; dual benefits are emerging as AI boosts both operational efficiency and customer outcomes, positioning it as an increasingly important growth lever. |
Communications Platform as a Service (CPaaS) Growth vs Volatility | Q4 2024 reported seasonal declines but 9% YoY growth. Q1 2025 documented a 25% increase in interactions and 60%+ growth in non‑SMS sales. Q2 2025 highlighted record single‑day usage and 20%+ YoY revenue growth. | Q3 2025 emphasized strong international growth (notably in Europe and APAC with record deals) while noting early stage growth in the U.S., with consumption‑based pricing continuing to drive the model. | Steady international growth with ongoing volatility in usage‑based segments; overall contribution is increasing, though U.S. growth remains at a nascent stage. |
Contact Center/CCaaS Expansion | Q4 2024 highlighted pipeline growth and innovative AI‑driven CC solutions. Q1 2025 stressed growing momentum in large enterprise deals and pipeline increases. Q2 2025 featured significant large‑customer wins and AI integration drives. | Q3 2025 showcased record follow‑on deals with major U.S. retailers, diversified product integration, and international expansion in CCaaS offerings with enhanced AI tools. | Increasing momentum with expanding pipeline and bigger wins, highlighting contact centers as a key strategic growth pillar. |
Fuze Customer Migration Challenges | Q4 2024 noted downsells and ARR headwinds due to rightsizing during migration. Q1 2025 described less than 8% revenue from Fuze as migration accelerates, enabling cross‑selling opportunities. Q2 2025 showed a reduction from 12% to 7% of revenue, with efforts to accelerate migration. | Q3 2025 reported further decline in Fuze share to 5%, with persistent customer resistance and revenue retention at around 60% during migration, alongside anticipated operational cost savings. | Gradual improvement as the Fuze base diminishes, though challenges persist in customer resistance and timing; long‑term benefits are expected from cost savings and cross‑sell opportunities. |
Competitive Pricing Pressures in SMB and Enterprise Markets | Q4 2024 expressed concerns about the sustainability of high per‑seat pricing and urged low‑cost solutions. Q1 2025 indicated aggressive discounting in SMB while noting competitive pressures in the enterprise segment. Q2 2025 mentioned “bad shit crazy pricing” from competitors affecting deal cycles. | Q3 2025 emphasized that contact center–led deals helped mitigate UC pricing pressures, and international markets demonstrated less aggressive pricing than the U.S., although competitive tactics remain a factor. | Persistent but managed; while pricing pressures continue—especially in SMB—the strategic shift toward integrated, contact center‑driven deals and favorable international dynamics are lessening the competitive impact. |
Macroeconomic Headwinds and Customer Financial Distress | Q4 2024 described a “not pretty” environment with cost‐scrutiny by CFOs and geopolitical uncertainty. Q1 2025 briefly noted macro uncertainties influencing CPaaS growth. Q2 2025 offered limited direct commentary on financial distress, focusing more on competitor behavior. | Q3 2025 discussed a 14‑year high in U.S. bankruptcies and noted selective cutbacks by customers in Europe, though small business credit default rates remained steady, suggesting limited material impact. | Ongoing external challenges; while macro headwinds and financial distress in certain segments persist, their overall impact on operations remains limited, with a balanced approach maintained. |
Metrics Disclosure and Micro/Small Business Segment Challenges | Q4 2024 flagged that fluctuations in CPaaS revenue were distorting ARR, prompting a metrics review. Q1 2025 announced discontinuing ARR in favor of cash flow as a “north star”. Q2 2025 shifted focus to enterprise and XCaaS customers, with micro‑ and small business segments receiving less attention. | Q3 2025 continued to emphasize cash flow per share as the key metric and acknowledged challenges in the micro/small business segment amid economic stress and competitive dynamics. | Metric focus shifted away from ARR to cash flow, while challenges in the micro/small segment persist due to intense competition and economic pressures, reinforcing a strategic focus on enterprise growth. |
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Margin Outlook and Investments Q: Why will margins be lower next year? A: Management anticipates lower margins next year due to strategic investments in go-to-market initiatives aimed at driving growth, given the market opportunity and competitive position. They believe these investments will yield strong ROI but aren't disclosing specifics. They're also focusing on improving operational efficiency.
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Fuze Platform Shutdown and Savings Q: What's the impact of shutting down Fuze? A: The Fuze platform, now down to 5% of revenue, will be shut down by fiscal year-end, resulting in hard savings of mid-single-digit millions of dollars, potentially double when considering intangible savings like reduced compliance costs. Migrated customers often extend contract life, and while there may be an initial revenue step-down, net revenue retention is substantially above corporate average over time.
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Growth from AI Products Q: How are AI products contributing to growth? A: AI product revenue is growing over 60%, but still represents single-digit millions per quarter. While not yet significantly impacting overall revenue, the company aims to return to growth next year through new product growth and multi-product customers. Interest in AI solutions like voice bots is high, and deploying AI increases average revenue per customer even if seat counts are flat or down.
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Macroeconomic Impact on Customers Q: How are macro conditions affecting customers? A: There's been some impact from increased bankruptcies among larger customers, but it's not material. Credit card default rates among smaller customers remain stable. In Europe, trends vary by vertical, with some sectors reducing spending while others increase.
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Multi-Product Customers and Deal Size Q: What's the effect of customers adopting more products? A: Customers with three products have an average deal size that's 3 times larger than those with two products. Additions often include UC, CC, digital messaging, bots, and Engage. Cross-selling multiple products boosts revenue, enhances customer retention, and better solves customer problems.
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Pricing and Competition in UC Market Q: How is the competitive environment in UC? A: Aggressive pricing in the UC space has been noted, especially in Q4. 8x8 navigates this by focusing on customer experience solutions and contact center-led deals, viewing UC as an add-on. Their CX messaging is resonating, leading to more platform wins.
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CPaaS Growth and US Traction Q: What's the status of CPaaS growth in the US? A: The CPaaS business is performing well internationally, particularly in Europe. In the US, they've begun acquiring CPaaS customers, though it's early stages. They offer capabilities like SMS, WhatsApp, and voice, making progress despite initial growing pains.
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International Opportunities Q: How significant is the international market? A: The international market offers strong opportunities, with CPaaS and platform usage businesses doing exceptionally well. The company's presence in Europe is expanding, and they experience less irrational competitive behavior compared to the US market.
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Partnership with Salesforce Q: How do you view Salesforce as a partner? A: 8x8 sees Salesforce as a valuable partner, not a competitor. They're a large Salesforce customer and partner, utilizing their products extensively and are interested in further collaboration in the future.
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Focus on Cash Flow and Valuation Q: How are you addressing market undervaluation? A: Management focuses on maximizing cash flow from operations per share as their North Star, aiming to deliver strong future cash flows and reduce debt. They've significantly reduced debt and increased shareholder equity, believing the market will eventually recognize the company's value.