8x8, Inc. Q1 FY2026 earnings call

• Q1 marked a return to year-over-year growth for the first time in 9 quarters, exceeding the midpoint of service revenue guidance by over $3 million. Growth was fueled by strong CPaaS solutions, platform adoption, usage-based consumption models, and FX tailwind. - Fuze upgrade headwinds are receding. Enterprises are shifting to usage-based intelligent platforms, and 8x8 is aligned with this trend. - Consumption-based revenue, including CPaaS, grew over 30% y-o-y. There are notable customer success stories, like a U.K. utility using video and CPaaS messaging to reduce on-site visits. - Shifted to outcome-based selling, investing in customer success with active CSMs leading to high NPS and gross retention above 90%. Closed first 7-product customer, with revenue from customers using 3 or more products accounting for ~1/3 of annual subscription revenue. - Focused on product roadmap enhancements including AI-enabled tools, intuitive interface, advanced analytics, and integrations. On track to sunset Fuze platform by fiscal year-end, with upgraded Fuze cohort showing 94% gross retention and over 100% net revenue retention in Q1.

In Q1 2026, service revenue was $176.3 million, which was above the high end of guidance and showed sequential growth and 2% year-over-year improvement. Usage-based revenue was approximately 17% of total service revenue, up from ~12% in Q1 2025. The service revenue remaining on the Fuze platform declined to approximately 4% from ~8% in Q1 2025. Excluding revenue from Fuze customers, service revenue grew just over 5% year-over-year, representing healthy demand for core offerings.

• Fiscal Q2 2026: Service revenue expected $170M-$175M, total revenue $175M-$180M (negatively impacted by ~$1.3M due to unfavorable FX), gross margin 66%-68%, operating margin 8%-9%. Contractual interest expense ~$4.4M, cash interest payments ~$6.4M, non-GAAP EPS $0.06-$0.08, cash flow from operations $3M-$5M. - Full year 2026: Service revenue $685M-$700M, total revenue $706M-$720M, gross margin 66%-68%, operating margin 8.5%-9.5%, non-GAAP EPS $0.28-$0.33, cash flow from operations $35M-$45M. The company is investing in growth, particularly in usage-based portions, with expectations of slower year-over-year non-GAAP net income decline due to lower interest expense.

• Legacy vendors are responding with aggressive pricing and long-term lock-ins, introducing complexity. - FX volatility can impact revenue, as seen in Q2 and full year 2026 guidance. - Debt-related risks, but an amendment to the term loan agreement provides greater operational and financial flexibility, including a $25M basket for strategic acquisitions.

Q: Good to see the company back to service revenue growth. What's the headwind from Fuze migration and churn on the final 4% of the customer base?

A: Kevin Kraus stated the Fuze headwind to growth was ~3% last quarter, with just under 4% of service revenue left for the Fuze base. They expect to keep roughly half of that as they migrate to the 8x8 platform, and have dispositioned all Fuze customers, working to move remaining ones to 8x8 system by year-end. Sam Wilson added the number is declining as customers either stay or migrate off.

Q: Just recently, with proliferation of AI solutions, how do you weigh buying versus building in AI portfolio?

A: Samuel Wilson said they've gone the route of build and partner, not necessarily buy. They offer a platform with in-house AI development and partnership strategy with best-in-breed providers, which is optimal for customers despite not being Wall Street's preferred option.

Q: Any uptick in legacy migrations and on RCS?

A: Samuel Wilson said legacy on-prem vendors like Avaya, Mitel going through trials is a tailwind. On RCS, they're seeing acceleration in interest, with RCS having 2-way capabilities, graphical features, and resurgence in WhatsApp, with opportunity in CPaaS business as they have related capabilities.

Q: You talked about increasing OpEx to reaccelerate growth. How balance profitability vs growth? And where is CPaaS growth most meaningful geographically?

A: Samuel Wilson said they're reallocating expenses to find highest best use, willing to take slight hit to op margins to get growth and plan to bring margins back up as growth is solid. On CPaaS geography, Asia is the biggest part with over 30% y-o-y growth, also seeing traction in U.K. multiproduct customers and U.S. with RCS traffic.