Q4 2020 Earnings Call
At this time I would like to welcome everyone to the eight by eight Inc. fiscal fourth quarter 2020, <unk> earnings Conference call.
I'll now turn the call over to the Toria Hi, Dan.
Customer relations.
Thank you good afternoon, and welcome to eat by fourth quarter and full year fiscal 2020, <unk> earnings Conference call.
Joining me virtually today as we're all working from home or Vik Verma, Chief Executive Officer, and Steven Gail Chief Financial Officer.
During today's call Vic will begin with business highlights of our fourth quarter performance.
Following this Stephen will provide details on our financial results and guidance.
After these prepared remarks, we look forward to taking your question.
Before we get started just a reminder, that our discussion today includes forward looking statements about eight by its future financial performance as well as its business products and growth strategies, including the impact of the cobot 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 in our reports filed with the FCC.
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, we're not prepared in accordance with U.S. generally accepted accounting principles or gap.
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 back.
Thank you Victoria, a good afternoon, everyone and thank you for joining us today.
We are living and truly unprecedented times as the cobot 19 pandemic has impacted the world and unexpected ways.
Let me begin by extending my hope that everybody on the call than your families and loved ones are healthy and staying safe.
As couldn't 19 spread around the globe, we took decisive actions early on to safeguard our over 1600 person global workforce by putting into action of business continuity plan, essentially overnight and using our own technology to remain productive from home instantly and seamlessly.
This not only protected I 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 any any digital form is now not just a nice to have it is a critical business continuity imperative.
Fortunately we are ready.
As you know we've had been that investment conviction over the last few years to engineer our platform into a unified scalable full featured cloud platform with voice video chat and contact center.
The last 10 weeks has accelerated.
In accretion by many months if not years.
Let me give you a few examples.
Over the course of 10 days, we worked with each school to bring Italy's secondary school system online.
We work with big and small tele health organizations like the Ukase Bionicle solutions.
Gum health agencies.
Customer service organizations like Afes are in North and South America.
Financial institutions, India, and state and local governments to Taco call volume for help lines and unemployment claims.
We onboarded new customers.
Patiently and without any of our employees all partners having to go on site.
We launched a number of new initiatives to better help customers and prospects worldwide.
The eight by either a rapid expansion program allowed us to quickly provision additional seats and services to existing customers.
And with our self service E Commerce offering a fight express just see meat and eight by meetings, we provisioned and serve tens of millions of free and paid customers and were able to ER and were able to scale quickly and securely.
As you sold to the numerous press releases over the last month or or if you track our global usage map on the eight by Dot Com slashed live website <unk>.
We just see an eight by video meeting solution Sky Rocketed to now more than 20 million monthly active users.
In just a few short months Gypsy and eight by video meetings are now credible secure alternatives to zoom and more importantly, a strategic on ramp for the eight by X series platform.
And the growth was not just standalone video meetings.
From February to April eight by X series block from scalability and usage has also been unprecedented.
We nearly tripled the number of app downloads as well as messages exchanged and more than quadrupled bundled video conferencing.
We also roughly double the total number of copies phone calls and this period.
This is extraordinary and we're working to capitalize on this dramatic growth of views on the X series block from by customers of all sizes.
With that backdrop I'd like to focus today on three topics.
First.
I'll briefly review highlights from our fourth quarter results.
Second I'd like to provide an update on recent product innovation and strategic partnership announcements, including the launch of far meetings broke video solution and our recently signed Virgin media business partnership.
And lastly, I'd like to discuss our long term strategy as we move through fiscal 2021.
Let me start with our financial results.
We delivered solid fourth quarter results, leading to a great close for the year.
Service revenue and total revenue grew 30% year over year in the fourth quarter.
Both exceeding the high end of our financial outlook.
Key drivers of the quarter's growth performance include continued success with Midmarket and enterprise customers and channel partners.
We grew our enterprise customer base with <unk> record 42, new deals closed with HR are greater than 100000.
And by our top 10, when we're a by a replacement who selected our X series platform solution.
X series now represents 43% of our customer base up from 37% last quarter.
Our single technology platform continues to be an important differentiator as we replaced legacy on premise systems and single point solution providers.
71% up our new bookings greater than one at 12000 dollar E. R. R.
Were from customers that selected bundled you cash and see cast.
As compared to 52% one year ago.
Contact center bookings grew 76% year over year and represented 30% about total new bookings this quarter.
More importantly, all of our top 10 deals included contact center, which demonstrates the criticality of having contact center as part of a single scalable technology platform.
Turning to the channel our execution was strong again in Q4 with channel bookings up 63% year over year.
Our channel drove 54% of new bookings overall, including eight of our top 10 deals.
Demand generation was strong in the channel as well and we had over 1000 channel partners registered deals in the quarter.
And we are continuing to expand our channel footprint with bars and master agents with multiple advances in the past month.
We recently signed a strategic partnership with Virgin Media business.
One of the UK largest business data network providers with services to over 50000, UK businesses to accelerate the cloud adoption of voice video meetings chat and contact center solution to private and public sector businesses.
Virgin media abuse eight by as he truly disruptive business with innovative products that fit naturally into virgins cloud strategy.
Cloud fuel our partnership with Scansource and poly is progressing well.
Scansource is a buyer's largest distributor with more than 30000 vars and its portfolio.
Sales in bar training have been underway since February and we closed a first deals in Q4 as expected.
We still have a lot of joint work an opportunity ahead of us as we systematically onboard new bars and drive broad coverage across the year by installed base.
Gone Star technologies, and international IP services firm with more than 30 years of experience reselling technology solutions added are you can see cast and video meeting solution to its product portfolio and has already moved thousands of customers seats to eight bites platform.
Finally, we enhanced our relationship with channel Master agent Avant communications, which deployed our X series Ucas solution for their own use to enable the U.S. in UK employees to work from anywhere anytime with no loss of productivity.
[noise] across every business segment, we want a record number of new customer logos in the quarter, representing 58% of total bookings.
In the fourth quarter alone, we Onboarded 5500, new paying customers nearly doubled the number a year ago and 35% higher sequentially.
More than 2000 of these logos came from our ecommerce offering all self provisioned and completely online.
I'd like to highlight a few notable wins that exemplify the extraordinary work that our team did with customers this quarter.
In North America, and important channel partner led a seven digit deal for in a buyer on premise replacement with a leading global manufacturer.
This included more than 5500 seats up eight by X series.
Oh, you see and contact center.
We display several competitors during the RFP process, because if a global deployment capabilities voice quality and maturity of our technology platform.
In the UK, we secured both the 2200 seat EVIA replacement and a 5000 plus seat win with two local government service boroughs.
Another great win out of EMEA is with MSC Mediterranean shipping company, one of the world leading container shipping companies headquartered in Geneva, Switzerland.
Before selecting eight by eight M.S.C. was using several disparate global communications systems, and we're looking to consolidate them into a single platform for unified communication and contact center.
They needed enhanced workforce collaboration to support disaster recovery in business resilience initiatives as well as offer omni channel communication options to its customers.
MSC selected Eightxeight because of the experience a global solution deployments as well as compatibility with Microsoft teams.
Our sea bass integration is going well as we continue to build traction with large multinational customers.
New use cases of sea bass for SMS registration and notifications include a provider of modern mass rapid transportation in Indonesia, and an online game publisher in Thailand, expanding into Vietnam, Philippines and Malaysia.
I'll finish up with a land and expand example from installed base that I'm, particularly proud.
As India mandated a shift into work from home mode with little warning at the end of March a widely recognized banking financial services provided needed to rapidly scale a work from home contact center operation for 7000 employees.
We were able to meet the requirements and activated 1000 seat just over a weekend.
Moving onto my second topic I'd like to provide highlights from a product innovation and strategic partnerships.
Let me first focus on the strategic importance of video meetings.
In the last eight weeks video meetings have become a mainstay of business communications.
Online searches are up roughly 90000%.
Teachers government health care providers and companies of all sizes are leveraging video meetings as a way to stay connected and work productively.
And as you know from the start we've offered our video meeting products for free without just see open source project.
Our standalone eight by meetings and integrated into our X series offerings.
[noise] to book this in perspective in November of last year, just six months ago, We launched a first product based on the Jutzi open source video meetings.
In the course of the last 10 weeks, we've built a strategic asset with over 20 million monthly active users.
Albeit primarily free users.
The just see community itself is over 2000 developers strong built on a foundation of strong encryption ease of use and privacy.
This is important as over the last month, we've seen that secure video meetings and strong encryption is a critical differentiator.
In response to these extraordinary market events in the first half of April we released our first Standalone paid meeting product at $9. A 99 cents per month and are now offering it exclusively via E Commerce.
Nearly a million times a day a splash screen at the end of every just see meeting promote eight by paid video meetings or other a bite offerings.
We also publicly demonstrated end to end video meetings encryption and published a spec for open comments to the Gypsy community.
As you can imagine as a result of all of this activity our video traffic climb to more than 1.5 Hedda bites per day.
Leading us to evaluate hosting options.
To put this in perspective this is equivalent to uploading 10 billion, new photographs to Facebook every day.
We selected Oracle for its top tier security and price performance.
Eight bites video meeting solution, including a free and paid offerings, along with GE Si dot or are now live on the Oracle cloud infrastructure.
We also joined the Oracle partner network and as a result, our video meeting solution are now available in the Oracle cloud marketplace, where hundreds of thousands of Oracle customers can now by eight by meetings pro.
And as you saw this morning via press release, we're now beginning to jointly promote our work together worldwide.
As I mentioned previously the last few weeks have been extraordinary and has provided us with an incredible asset that helps build a bites bran drives potential new customers, who are website and is starting to grow a new revenue stream.
All while helping our communities and customers, including governments and first responders to communicate in these difficult times.
We're also continuing to advance our platform differentiation through a number of new initiatives, including integration with important third party partners.
Next month, we will formally introduce eight by voice for Microsoft team a cloud based integration that provides enterprise grade telephony and global PST and connectivity to customers that want to retain Microsoft teams as the collaboration interface.
Voice for teams is currently available for select enterprise accounts with broad availability plan to all regions later in the summer.
This capability was critical to our win with MSC as I mentioned earlier.
This quarter, we will also be formally launching our sea bass offering globally.
We've seen strong interest and have already closed initial deals in the UK and Europe.
And we are ramping our see past pipeline in both the U.S. and UK, including many cross sell opportunities within our Ucas and see cast customer base.
We look forward.
We look forward to sharing more detailed in the near future.
The third and final topic I'd like to discusses our long term strategy as we look ahead to fiscal 2021.
While the covert 19 crisis remains fluid eight by it continues to focus on using our technology to help people around the globe stay safe and productive no matter where they are.
We believe that eight bite has never been in a better positioned than we aren't are in today for three reasons.
First.
Flexible work from home is accelerating around the world.
The combination of rapidly scaling remote contact centers and virtual offices with the need to provide all workers with the ability to move seamlessly from chat to voice to video will soon be the norm.
Our single cloud platform, including secure video is the right answer.
As more and more customers see the benefit from having all of their communications delivered from the same platform. It only validates our strategy and furthers our competitive advantage.
Second our customers are relying on eight bite at a single platform for transformation and resilience in the face of current and future challenges.
Our product portfolio has never been stronger a better position with X series technology platform and Standalone voice contact center video meetings the enterprise Npis.
The overall adoption of us softphone applications for both mobile and desktop in particular has been nothing short of extraordinary.
Third.
What we're seeing is that communications as a critical service, even more important than physical offices.
It is the first one last thing that accompany turned on and off during times of uncertainty.
The digital transformation from on premise to cloud was a business imperative before corporate 19, and we believe we'll continue to accelerate in this environment.
We continue to see strong demand for our communication solutions and our secure video meeting strategy has created a new on ramp for customers to be introduced to our platform.
Looking ahead to fiscal 2021, our focus remains on strategically managing the company for the long term, including providing increased support to our customers and partners as we all navigate the on certain future ahead.
In this context, let me tell you, how we are improving CAC and LTV to drive scale across the business.
First we are building brand recognition by capitalizing in the dramatic growth of our video meetings base.
Today, thousands of new logos are being introduced to eight by through E Commerce, Jesse and eight by video meetings at a very low cost.
Essentially this massive base of new users is a marketing assets that will continue to accelerate new customer growth at very low cost.
We will continue to monetize.
This growing user base through X series, and Standalone solutions on our platform.
Thirdly, lowering our CAC over the long term.
Second in our installed base, we are rapidly migrating our legacy customers to the X series platform.
We're targeting to have over 80% of our installed base migrated by the end of the calendar year.
Through the development of advanced automation by engineering teams, we have accelerated the migration of our customer base from legacy platforms.
Every quarter, we're now migrating thousands of customers to the eight by X series platform.
This will not only to reduce our support costs, but also increased customer lifetime value and we have found that platform customers have significantly less risk of churn and materially higher net dollar retention.
Third we are improving our overall customer mix.
As we all know small business has traditionally been both expensive for us from a CAC standpoint, as well as the highest risk for customer churn.
We have made strides in scaling our marketing automation infrastructure and databases and accelerating our E commerce offerings to increasingly transact work group in micro businesses online with attractive self service support offerings.
Additionally over the last few quarters, we have moved our our mix up market to the enterprise and Midmarket with 79% and 55% growth respectively.
Not only are we onboarding more attractive customers, but we are able to service them better with new self service offering and new premium support offerings.
However, this transaction will take time as we continue to manage our churn exposure by migrating more up our legacy small business customers to the X series platform throughout the fiscal year.
All of the initiatives that detailed about will make a difference as you managed through some near term pressure on our year end year over year growth rates.
Additionally, we will continue to restructure operations for improved efficiencies reduce product subsidies and take advantage of reduced travel and have been costs as Stephen will go through shortly were on track with our goal to achieve non-GAAP profitability exiting this fiscal year.
Furthermore, while we are an unprecedented near term macro environment, we can build upon our ability to drive revenue growth coming out of this difficult period based on a complete an integrated technology platform and our unique partner ecosystem that consists of channel master agents value added resellers technology partner.
As on global carrier relationships.
To wrap up I would like to express my sincere appreciation to the eight bite employees for the extraordinary efforts during this quarter.
I would also like to thank our partners and customers for their close collaboration through this period and for their ongoing support and trust in US with that let me turn the call over to Steven.
Thanks. 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.
While it's been a rough few months living through this pandemics I have to tell you that been a pretty rewarding time to be here at eight by eight to see that what we do for everyday is directly helping make people's lives meaningfully better and supporting businesses to work better every day.
With that to cover three topics with you today first our financial results and key SaaS performance metrics for the fourth quarter fiscal 2020 that just ended on March 30 Onest.
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 moved from service revenue into other revenue.
And third I'll provide some color on the path ahead for the near term will set up financial guidance for the current first fiscal quarter ending June Thirtyth 2020 also provides them insights on the revenue growth profile for fiscal 2021, well of course wrap up with Q and <unk>.
Starting with our Q4 financials were pleased to deliver results that again beat our Q4 and full year fiscal 2020 guidance, we've seen positive contributions from both new and existing customers from our you can see cast subscription model and from our usage based see pass 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 quarter in order to provide more visibility to our course subscription business I'll talk more about this reclass and a few minutes, but for Q4 on an apples to apples basis, thats consistent with our guidance and historical revenue reporting.
Service revenue was $116 million, 30% year over year growth. Similarly service revenue on a pre reclass basis for the full fiscal 2020 year ended March 30, Onest 2020 grew 28% to $426.5 million.
Non-GAAP pre tax loss was approximately $12.7 million for Q4 and $58.6 million for the full fiscal year, both coming in better than guidance.
There are two primary drivers of our Q4 financial results that you've heard us.
As continuing themes talk about the past several quarters. One continued execution in our go to market initiatives that are centered on demand generation and solid pipeline coverage with particular strength from our channel partners and to continued momentum moving up market with mid market and large enterprise customers with these customers delivery.
And higher growth and becoming a larger part of our portfolio.
These operational trends are seeing a new bookings growth of 20% in Q4 with a reminder, that this is bookings for our you cats and see Cas offerings and does not include any see pass.
Looking at our SaaS and business metrics performance total ARR came in at $426 million at quarter end, 34% growth year over year and the result of a combination of organic growth and you can see Cas and contributions from our see pass offerings.
And so far as deal size and garnering increasing customer economics, we closed the fiscal year with an overall 611 customers generating air are greater than $100000.
50% year over year growth and reflects our continued traction moving upmarket into larger enterprises as I mentioned.
To add more visibility into customer economics, and our revenue growth rate going forward. I also wanted to provide some color on the dynamics around churn through one of the metrics that we use net dollar retention or NDR.
Turning levels are higher than we'd like primarily in legacy small business what customers.
This is reflected in our net dollar retention rate and I'll get into in a few minutes is putting pressure on our anticipated fiscal 2021 revenue growth rate.
Encouraging news is that we've made good operational progress recently such that the March quarter came in at the lowest churn level of fiscal 2020.
As we've mentioned the majority of our churn is in the small business customer segment, and mostly with customers on our legacy offerings. Our strategy has been optimize aquas support cost with small business customers as we decidedly invest in and continue to grow with our X series platform and across Midmarket and enterprise customers.
As we've driven this transformation in the business. We're managing these legacy small business customers that have a very different features scalability and growth profile that are primarily fixed fall voice only.
The friction around primarily legacy small business customers have manifested itself in Q4 total net dollar retention coming in at just under 100%.
Good gains and expansion of Midmarket and enterprise customers were offset by churn in small business.
These higher attainment levels in our larger customers drove Q4, Midmarket and enterprise MDR to come in marginally higher at just under 110% in Q4. We believe we can continue to grow NDR overtime as we continue to have selling into the midmarket and enterprise space and migrating cost.
Summers to the answer is platform you can see this improvement in our higher net dollar retention for customers, who are on the new platform, where small business and mid market enterprise customers that are on X series have net dollar retention rate in excess of 110% and 140.
Percent respectively.
We've also made good progress, reducing our customer portfolio concentration small business. They are as we've been optimizing the efficiency of serving this customer segment, we're driving small business operations away from the historically high touch legacy offerings to a more efficient self service E Commerce model.
This is what's driving improved cat and therefore, better LTV to CAC, we've moved from a human being touching small business transactions in all parts of the customer lifecycle sale deployment and support to an efficient nearly all online experience.
The programs and tangible operational improvements are together geared toward delivering higher net dollar retention across the business.
With that let's look at Q4 operating expenses were pleased with our ability to have driven cost structure efficiencies through a combination of operational expense management moving certain functions and activity is to lower cost geographies and outright cost elimination in Q4, we reiterate our commitment.
And path exiting this coming Q4, non-GAAP breakeven profitability and we continue to expect to do so through continued operating expense discipline, that's delivering leverage.
One element of our cost structure. However that is seen some marginal pressure is the dynamic from a huge uptake and increase in our Cissy open source video conference usage as Vic discussed scaling the just the platform from several hundred thousand users to over 20 million monthly active users in a matter of weak.
Has been extraordinary.
It is also generated some additional cost in the near term, it's fundamentally a terrific problem to have we're managing it well and we're excited about the monetization opportunity that we're now happily embarking upon.
Well, we believed would be an 18 to 24 month ramp the meaningful scale and the foundational base of users on our free video meetings, such as a lead source happened in a matter weeks.
This presents us with a terrific opportunity and a rapidly accelerate a timeline to monetize these users, which accelerated our launched last month of our new Standalone paid meetings offering that Dick talked about as well as the expansion of our eight by at express ecommerce offering in the UK.
And so far the operational costs of supporting the bulk of this increased video usage. These brand and business development costs are recorded in sales and marketing expense and our team has already taken measures to manage the scale and delivery costs more effectively as you've heard was our partnership with Oracle.
Let's turn to the second discussion topic about the reporting classification of professional services out of service revenue in into other revenue. The purpose of this reclass is to provide additional transparency and clarity with regard to our core subscription business. Its service revenue profile and service margin profile.
This reporting Reclass has no impact on total revenue no impact on the amount of expenses recorded in the PML no impact on total gross margin and no impact on the bottom line. It is simply reporting professional services and a separate revenue line.
Revenue along with product revenue, so we can see and communicate more information on the underlying solid performance of the core subscription business.
While our professional services are a low single digit percentage of revenue that historically run at a meaningfully negative gross margin as such they have been an outsized drag to overall total gross margin and specifically core service margin.
We made these investments intentionally in order to grow the business in the early stages now that we're moving into our next stage of development with enhanced automation, we're more focused on overall margins and efficiently scaling.
We focused our attention on our Prof services business and have implemented new deployment tools reorganize technical account people and restructured its operations. We're already seeing the benefits of this focus with new service offerings year over year growth in revenue and improving margin profile, we expect to see further growth in professional services.
And improvement as we move through fiscal 2021.
And so with regard to both the GAAP and non-GAAP financial presentation on the PNNT. We are reclassifying two items first professional services, which has historically included and service revenue.
Is now reported in a new line called other revenue the associated expenses that had previously been included in cost services revenue are now included in cost of other revenue.
And second product revenue, which was historically reported as a Standalone line item is now also included in other revenue and cost of other revenue along with professional services.
And separating out professional services from the core subscription related revenue you can see the Prof services pull service revenue margin down more than 500 basis points in Q4, the historical reporting classification shows service revenue margin as 61% for Q4.
And moving Prof services out to other revenue you can see that the new service revenue reporting provide quality to the underlying core business, that's generating a solid service revenue margin of 67% in Q4.
I'd like to highlight that we provided a full reconciliation table for the professional services reporting reclassed for all historical quarters of fiscal 2020, and the fourth quarter and full year fiscal 2019 in our earnings press release and on our website. So the facility and transparency to the numbers. We're also providing guidance for both.
Metrics for Q1, and we will report out on the results of both on our next earnings call.
Please note that we will not be using the legacy reporting of professional services beyond Q1.
Moving on my third topic on the path ahead and guidance like others around us were a bit uncertain as to how things in the global macro environment will play out on the one hand, we've seen surges of interest and using eight by you can see Cas offerings to enable remote workers, both from new and existing customers.
At the same time, we've seen some customers perspective customers, particularly.
Businesses be negatively impacted by Covance 19, this was evident in sectors like tail travel and hospitality, where there was pressure on some customers payment abilities and or adjustments to their service levels.
In our see pest business, we anticipate a somewhat slower growth rate due to the slowdown that we've seen from the Shelton place for years and most of southeast Asia.
As such we feel it's appropriate to focus on providing guidance for our standard set of detailed financial metrics for the current quarter, while will not be issuing all of the financial guidance metrics for the full fiscal year 2021. There are two things that we didn't want to get in front of you.
First based on what we see today, we are reaffirming our continued commitment to exit this fiscal year at breakeven non-GAAP profitability.
It's something that we continue to have the ability to control and that we remain fixed on achieving.
And second we want to provide some indication of the overall revenue growth rate trajectory for fiscal 2021.
So for the first quarter fiscal 2021, ending June Thirtyth 2020.
We anticipate total revenue to be in the range of $120 million to $121 million, representing 24% to 25% year over year growth.
We anticipate service revenue as newly defined and reported to exclude professional services to be in the range of $112.5 million to $113.5 million, representing 25% to 26% year over year growth on a reclassified apples to apples basis.
This equates to the legacy historical reporting of services revenue that includes professional services to be in the range of $116 million to $117 million, representing 26% to 27% year over year growth also on an apples to apples basis.
And we anticipate non-GAAP pre tax loss to be approximately $12 million for Q1 fiscal 2021.
We wanted to provide some color as I mentioned on how we see the revenue growth rate profile for fiscal 2021, particularly given the coming anniversary of the wave sell acquisition in late July wave. So certainly a terrific. Strategic addition for US it contributed an important platform technology and cloud offering that is.
Uniquely positioning a buy in the market today as the anniversary the acquisition, though we expect service revenue growth rates to come down as we move out of Q1 through fiscal 2021.
Every metric will improve every quarter, but on average we expect to improve as we progress.
We hope that everyone remain safe and healthy throughout this time and with that we thank you for your support and we're glad to open the call to any questions operator.
In order to ask a question you will need depressed are one on your telephone to withdraw your question press the pound or hash key please stand by while we compiled a cue in a roster.
Your first question comes from the line I'm, Matt Vanvliet with P.T.I.G. Your line is open.
That's how I got thanks for checking the question and nice job when the quarter given all the uncertainty I guess looking at the the developments of the cloud fuel partnership. Obviously, it's then sort of in the works in building. The last several months and you talked about find the closing some of the the first skills Ah.
In there so I guess a two part question on that you know where do you stand in terms of sort of full operation.
You know sort of hitting a full run rate here are we still a couple of quarters away or or is that getting pretty close and then the thousand plus channel partners that you have now what's what sort of the mix or how many of those or sort of encompassed under the umbrella of of the cloud fuel program.
So let's start at the back end of the question. This is <unk>. So the thousand are the master sub just the traditional.
Reseller channel not the reseller, but just the traditional referral channel that we have used cloud feel does not encompass that club <unk> ramping I mean, the way we started needed to the handful of bars get all the training material. We just launched partner exchange Fort Auto, which allows people to do a full of provisioning for the entire.
A stack with particularly unified communications, which is how will reaching out.
And so we'll start to see that Ram continue I mean, so far so good but the part that is the most exciting is when you start to look at the bar.
One of the things we haven't been trying to do at eight by eight is we believe we had the most complete comprehensive and differentiated Platte from India industry.
Our goal has been to get to market status tradition, I mean, we've had in the past a somewhat lacko brand recognition.
So scansource is a biased largest distributor answer ramping them not put them up is absolutely critical and wrapping up there of ours is absolutely critical and we started to see early successes as we indicated.
Virgin Media is another very interesting one because they I have about 45000 business customers in about 5000 public sector customers into U.K. and then one of the largest bandit providers in the U.K. they want to take us to market would be 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 as bars is just the beginning that's to go after the by install base, we are going to use Virgin media to go after all the Virgin media is installed base to m- upload them to to avoid avoid voice video chat to set or and there'll be other bars, along the way.
Great and then looking at the the trends maybe through the quarter and as they've sort of exited and you've gotten through at least April and then to make here, maybe just help us think about how the the overall pace of growth on maybe a logo basis was what sort of projecting through January February.
And then how that.
Dramatically changed in in March as everyone tried to send their 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 <unk> and post in the U.S.
Yeah sure. So so we've been pretty thoughtful about how we're thinking about that right. We we are fortunate to have a bit that encompasses both small business and medmarc in an enterprise and.
The the interesting dynamic as I mentioned early that we saw both the surge in interest well from existing customers, who said you know hey, I want to hurry up and get my deployments down or you know I actually want to expand do more and new customers. They came in we also saw as we move more.
Through April we saw some customers pause a little bit some large skills that we were hoping would close I suppose in March did push a little bit into April and current period, and and nothing massive but you know something to to keep it.
I ought to be thoughtful about.
And then small businesses, we see engaging with pretty constructively insofar as how they are handling payments and transactions and sign up for a longer dated contracts in exchange for some payment relief up front and so all in all it it seems like there's no.
Oh.
Chaos for us in our business is pretty thoughtful and and and and we're seeing a little bit of each one and like everyone else, we'll we'll see what happens over the coming week.
I'll have one other interesting point that to Stevens. Good point, we saw a real surgeon E. commerce I mean, the number of people that started buying and surprisingly businesses of all sizes and started buying on E. commerce searched for somewhat obvious reasons. We also saw a larger customers starting to move rapidly into work from home.
S. Stevens said those people that had large retail presents a set are pushed out a little bit and some pushed out much longer. So all in all as we we showed bookings growth in quarter for off 26% on a total organic basis. So that was reasonable I mean I've considered are pretty solid result.
A great. Thanks to take my question.
<unk>.
Your next question comes from the line, Brian Mcwilliams with <unk>.
They stick my question beyond normal seasonality from the third quarter to fourth quarter, how his waist sell impacted by some of the Lockdowns in Singapore in Indonesia, and how are you thinking about see past revenues as lockdowns diminish in these areas.
Yeah, but hey, right. They they were definitely impacted like most businesses globally I <unk> recall correctly, Singapore actually went into lock down a little bit earlier than the states to and so they saw also saw a mixed bag of results. They saw some pulled back in business now.
Obviously impacted by locked down but at the same time, they saw an uptick in business from logistics and delivery.
<unk> as well and so a little bit of of ball from that business in the near term. The thing that we're probably most excited about for the C. past business is is two things is one that geographical expansion. So turning on the business in the U.K. and the U.S. and too.
The <unk> <unk> <unk> technology into the broader comp stat.
That gives us the the ability to to really choose the value prop of that offering a really nice one.
Great and I thought it was also good to see non gaffe gross margins and upper income improve and step in the right direction.
Just on the just the increase just usage and moving over 20 million users. You know can you quantify that impact to the newly reclassified noncat gross margins on that usage and how is just see helped bring a new customers since Kobe started.
Sure. So they can I will take team or not as usual.
The financial statement impact of the incremental costs in March from usage is is.
Minimalist you you wouldn't see we see it because we are busy man. It closely you know every.
So we're yeah, but for two weeks three weeks and most in March do you really wouldn't see it on a meaningful margin impact.
In in in the P.N.L. starts to it starts to become more of a topic and Q1 and moving forward, but as we mentioned we.
For the video piece for just see we entered into a really nice transaction with Oracle, where we have a a much more efficient cost structure that scale as well and so it shouldn't be an outsized cost and and so we've talked about this a bit right you saw a gross margins as you noted expand in Q.
And we would expect a bit of expansion into one as well despite.
Despite the increased costs for the commercial offering which is in Cogs in more gross margin and the cost of G.S.C. isn't sales and marketing. So that's where you would see that.
So I'll add add to that one Steven one R.I.O.R. Dev ops team and our finance team a huge debt of gratitude I've never seen anything like this we were at 150000 monthly active users into February time frame, maybe January February time frame and you just saw that Kline I mean to 20 million.
Plus monthly active users I mean I use. The example of we're suddenly doing the equivalent of 10 billion face uploads to Facebook a photograph a day. So the the the part that is the most exciting part of Gypsy and it's composed of three parts as just see meat eight by meetings and then bundled into.
X. series every one of them now ends with Oh upload into eight by so basically by you know pop up shows up says Hey, you can use are paid meetings.
We launched paid meetings less than about a month I'm sorry, two weeks ago and already I think we've had a thousand plus <unk>.
Subscriber sign up for it good express, which is R.E. commerce offering has also been seen quite a bit of uptake. We're now up to I think almost.
Between meetings and <unk> Expressway almost up to 100, so goes a day. So the the level of brand recognition that just see did for us is unprecedented but the other part is.
Impact we had on a lot of our communities and customers and we had hospitals start using it we had an H.S. start using it pretty much everybody started using it because it's a skit secure video conferencing capability, which is hugely different created in the industry and you can kind of tell from the fact that people recognize that because the adoption was.
Spectacular.
Excellent really appreciate the color print next guys.
Your next question comes from the line of Michael turn with Wells Fargo Your lines Okay.
Hey, there thanks good afternoon.
Hoping to revisit some of the the puts it takes around what you're seeing in the current environment.
Particular, how're you doing the increased demand for clout dot dot backdrop to comes out and that sort of prepared remarks.
Small business tourist industry exposure, and and and wondering more specifically what sort of assumptions when it you pull together the initial grove outlook, you're providing for the year.
So I'll give you the puts and takes and then doing it provide more color. What's it takes it is quite interesting because so we started to see large customers certain industries. Obviously, you started to pull back travel got hit pretty hard hospitality got hit pretty hard and and retail got hit pretty hard to those are the ones.
Where you started to see if you downgrades and or deals that well along the road kind of pulled back you saw others really people forward and this one is a sad one where we saw a lot of local and state governments sign up for a contact centre in in in some instances are placing of I with.
Goes up the huge influx of unemployment claims uncovered related claims in terms of you know information so.
Business hard to tell it's early early days, but you know this is one of those things where I'm trying to understand what the impact of small businesses going to be going forward, particularly our legacy small business customers that were used to just pure fix line I think the more modern small business customers that are on our platform I think we'll kind of whether through it but the guys that would just be.
Fixed line customers, we have some concerns about Stephen do you want to add any more color to that.
Yeah, I think hit all Holy items, we were talking about when we looked at her and how we move forward even in the current environment, we were pretty thoughtful about the dynamics of bookings and where that's coming from and read and geography is with what we said is there is a double edged sword that we experience it's.
When did our sales right now and so far as what we do and demand obviously for remote working enabling platforms like hours with.
Notion that business in 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 bookings impact on it isn't necessarily a P.N.L. impact vis-a-vis our revenue.
We feel like we're in pretty good shape from a balance sheet standpoint on on exposures to these.
Ah sectors, that's that's fairly low and and so we we'll see what happens.
Okay. That's that's good color in in terms of the up market segment, I Wanna, focusing on the customers greater than 100, K. for a moment as well the press release calls out 42, new deals but.
This whole customer number there is maybe a little closer sequentially.
At 611 versus what we would have expected no. There's some reclassification of revenue here. So wondering if those two are all related or if there's any timing or other impacts a you're seeing that a affecting that that sequential number.
No. So all of that is recurring subscription based business that has nothing to do with professional services and so the reclassed was being professional services out of service revenue for this very reason right because booking subscription basis, and we want that service.
Avenue to also be a subscription basis to go along with that and so it's all apple topic.
And and all that color from Yeah, I think you ask from the bookings point of view for larger customers.
For all the wrong reasons. This is a great time for us and and our industry.
When 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 a 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 determine it w. of culture, and you'll 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 in context 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.
You have to be able to do it instantly so you're starting to see more more companies walk away from physical infrastructure and move towards communication infrastructure is absolutely keep so from that perspective me feel very good about it we obviously want to make sure that we take care of a small business customers that are maybe going to be impacted by some of this from that perspective.
Adoption of the soft phone has been particularly gratifying to see because that has been a huge you jump up and volume on smartphone a usage.
Helpful. Thanks stay safe and good luck.
Thanks, you too.
Mm.
As a reminder, we do asked participants to limit themselves to one question. Each your next question comes from the line Tim Horn Oppenheimer Your lines open.
So the whole concept of one platform and five six different services.
The market understands that now you know maybe just some more color around your your when rate around that and you know who the who you've seen as your closest competitor would that would that platform.
<unk> I think I'll pick that one on yeah, I think the market understands that I mean, you saw it and in the adoption, but five out of 10 off our five or a top 10 customers or a buyer replacements and off our topped n. deals. All 10 included both unified communication and contact center.
From that perspective, we are starting to see more and more awfi 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 starting to see a whole bunch of bars come to us, saying, Hey, we want the ability to sell the entire staff, but previously that are common said Oh, we just want to sell you cast. So we just want US out you know video nope. They all want the full stack Virgin media is very representative about the fact that they want the ability to sell the can.
Tire stack to dare and use a customer so <unk> rates were pretty high I mean from our perspective I think they continue to trend in the right direction and from that perspective, I think we would they will continue to trend in the right direction.
Thank you.
Yeah.
Your next question comes from the line met him Marshall with Morgan Stanley Your lines open.
Met a marshal with Morgan Stanley Your lines open.
Your next question comes from the line of Willpower with Baird. Your line is open.
Good. Thanks, Yeah, I guess I wanted to ask on on the booking scrolls commentary I think are just say bookings food you know 20%.
I know last couple of colors, making.
<unk>.
<unk>, Okay gotcha, okay. Okay.
Okay, Yeah, that's closer to 30% I guess.
You have been targeting I guess.
Guess, what I'm trying to understand I guess, if you can help us on pack a little bit what's happening there because it seems like you know enterprise in a channel continue to perform very well for you and I guess I'm just trying to understand what the N.S. a bee.
You know what the different different pieces, there or I mean, I guess, what I'm getting at is you know how much the pressure seeing on N.B.S. it'd be later to <unk>.
Versus you know the shift a x. series and away from your legacy platform, maybe just help us understand the dynamics there.
What we've done as we've really transformed how we engage with a small business customers moving from high touch based transactions to low touch online transactions, we've changed how we engage with the SP world from a lead Gen. How we even get to be connected with SB customers.
I.
Used to be.
Fairly inefficient.
Throw dollars at the problem work the grew small business.
But it was very expensive from ACAC stands and our new CMO and the marketing Legion demand Jen Hsun, a terrific job and changing how we engage with SB customers.
And as we've been more successful to your point into the earlier questions just before on platform acquisition and Odell land and expand mode has.
Has really taken off quite.
Yes, I guess.
No I can add a little more color I mean, when you think about to bifurcate our business, we've been moving up market Midmarket 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, though just primarily Voip customers that we are system.
Radically trying to transition to act so that they can start to use softphone et cetera, but more and more we've been transitioning small business do 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 as more and more of our.
Sales engine will be focused on mid market enterprise, an increasingly you'll start to see small business happened through E Commerce, which is a great trend because that gives us the right CAC to LTV ratio, which 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, Steven or if you have I guess is there any further color you can provide on.
Hi, 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 koeppen related impacts a little better.
Sure happy to talk to it.
Sure overall only look at it right. There like every company is theres two facets to it there is your existing balance sheet PNM exposure. What do you have an accounts receivable kind of thing and then there is the recurring nature of your business your subscription base or a our base and what's that look like so from a from an industry a high ROI.
Industry will our exposure is in the mid teens kind of levels of our are when you look at travel entertainment retail.
Non profit those together.
It is fairly manageable and so.
We've heard about as earlier the 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 their customer, saying, hey, we we would benefit from extending out six isn't in many instances no but many we've been successful in customer, saying look outlooks that my contract to mature and for this accommodation and so from a working capital standpoint, we've we've engaged.
With some customers on that.
We've also taken some reserves to accommodate for the unknown.
Nothing outlandish or or or frankly, even material.
Well, we feel like we set ourselves up well, whether what happens based on you can see today.
Okay. Thank you.
Yes.
Your next question comes from the line of Rich Valera with Needham and 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 basis today on X series migration.
So current.
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 with this is what gives US a lot of confidence about also the ability to migrate people like a via and mito onto our platform as time goes on our team is.
Done a phenomenal job of automating this process, it's a very complicated process, where you literally have.
Teacher functionality mapped out with existing customers to X series and that when everything turns green than 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.
Is that.
From a customer perspective is there any change in cost for them or is it kind of a push out is that work for the customer.
We tried to make sure that we map it so that it's relatively equal our little less we tried to just make sure that from a customer point of view feature functionalities stays essentially consistent and or added and cost remains approximately the same or little bit less so thats essentially how we've been trying to do this and looked at the tax on the company of being able to go.
Yet 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 thats why this migration has been so critical for us and I'm really pleased with where we're 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.
I will be less will be improved less casualty use.
Any quantification or just where we haven't really laid that out but it should track with the improvement in the.
Non-GAAP pre tax loss, a relatively speaking it's a consistent improvement.
Got it thank you.
Yes.
As.
Question comes from the line Catharine Trebnick with Dougherty Your line is open.
Thanks for taking my question.
Can you describe the sales process and how that's changed since the impact.
Mid March and how much more of it are you seeing opportunity because they're able to do more video you talked about that obviously is 20 million, but I'm really trying to understand has that impacted at all your ability to close sales more people on site to do proof of concepts that now whats.
That wholesales process looks like now in the middle of coal that and what do you think it will evolve to thank you.
That's a great question and to some extent covert has the is the great equalizer for all again the wrong reasons, we always had less people than most others, but what we have always had his great technology and so the good news for US is the 20 odd million.
People using gypsy made or a by meetings they get exposed to eight by so some of that just becomes our 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're seeing more and more onboarding onto the paid web site.
So the ecommerce engine is starting to really.
Hit stride, which then frees up our inside sales team to start selling higher and higher up the stack and our enterprise and Midmarket teams have been essentially sheltering in place I mean, we literally went down to pretty close to full locked down around mid March timeframe, and we are finding out that we are becoming very effective in closing deals with.
Going on site, we are able to use video conferencing, we are able to do proof of concepts on site or without ever going on site and we are now doing more and more deployments. So pretty much. After I think mid March we didnt know deployment of no onsite visits.
And yet we are 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 are built for we were the best users on it because you have a 1600 person company working instantly all upside 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.
Thanks.
My pleasure covered.
Your next question comes from the line James Breen with William Blair Your line so.
Thanks for taking the question Justin.
The near term guidance and just talking about the long term I think Steve talked about.
Service revenue being up 17, 18%.
Fiscal year 21.
As you look at sort of sequential growth rates in service during the last couple of quarters in a couple million. What gives you confidence that that's going to pick up here over the next few quarters is sure to get to those high teens growth rates. Thanks.
Sure. So so there's certainly the pressure in the near term.
Mostly mathematical from the anniversary of wave cell and what we see is.
And our driving two is growth acceleration in the growth in the second half of the year coming out of that.
That obviously factors and what we believe.
As a reasonable perspective on the Covidien, we have baked some of that in so to the extent things are not as bad that provide some lift and things are marginally meaningfully worse than us and everyone else.
Need to deal with that but.
It's really a function of two things that the risk of stating the obvious its consistent demand and bookings growth in the 30% ZIP code and that's important and to US the expansion of our net dollar retention and continuing to improve that ratio. So that you have.
Strong growth.
Base revenue.
Have you seen any.
Significant changes in the channel.
Are you had or some partners that you're engaging in.
Based upon what's happening right now endemic.
So I'll take that one on not materially actually in a lot of ways I think for.
I think there was an interesting comments made by several of our channel partners that this is the Golden age of communication for all of the wrong reasons. So for people there 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 also finding that people want that one stop shop and the single platform. We are also.
We're seeing more and more large companies start to come after the so called var model because they know that their technology in 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 there, but its video conferencing or just ucas. So they want to be able to offer that entire comprehensive service Virgin media as I indicated is probably one of the early 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.
Our legacy base. So all in all we're seeing that.
That channel demand 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 concludes today's conference call. Thank you for participating you may now disconnect.
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