Q1 2027 8x8 Inc Earnings Call

August 4, 2026

Operator: Good day, thank you for standing by. Welcome to the 8x8, Inc. Q1 2027 Earnings Conference Call. At this time, all participants are in a listening only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kate Patterson, Head of Investor Relations. Kate, please go ahead.

Speaker #1: Good day, and thank you for standing by. Welcome to the 8X8 Incorporated Q1, 2027's earnings conference call. At this time, all participants on our RNL listening-only mode.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 11 on your telephone.

Speaker #1: message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kate Patterson.

Speaker #1: Head of Investor

Speaker #1: Kate, please go ahead.

Speaker #2: Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for the first quarter of fiscal 2027 with Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer.

Kate Patterson: Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for Q1 of fiscal 2027 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. In addition to our prepared remarks, we have posted a more detailed letter to shareholders in the quarterly results section of our investor relations website. 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 and our focus on profitability and cash flow, as well as statements regarding our business, products, and growth strategies.

Kate Patterson: Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for Q1 of fiscal 2027 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. In addition to our prepared remarks, we have posted a more detailed letter to shareholders in the quarterly results section of our Investor Relations website. 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 and our focus on profitability and cash flow, as well as statements regarding our business, products, and growth strategies.

Speaker #2: to shareholders in the quarterly

Speaker #2: to shareholders in the quarterly results section of our Investor Relations website. 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 and our focus on profitability and cash flow, as well as statements regarding our business, products, and growth strategies.

Speaker #2: 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 reports filed with the SEC.

Kate Patterson: 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 reports filed with the SEC. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today. We have no plans or obligations to update them. Further, 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 the US 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 at investors.8x8.com.

Speaker #2: or obligations to update them. Further, 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 the U.S.

Speaker #2: 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 at investors.8x8.com.

Speaker #2: With that, I will turn the call over to our Chief Executive Officer, Samuel Wilson.

Kate Patterson: With that, I will turn the call over to our Chief Executive Officer, Samuel Wilson.

Speaker #3: Good afternoon, everyone, and thank you for joining us. We delivered a strong start to fiscal 2027. We achieved record service revenue, our fifth consecutive quarter of year-over-year revenue growth, and exceeded our guidance ranges for service and total revenue, non-GAAP operating margin, and operating cash flow.

Samuel Wilson: Good afternoon, everyone, and thank you for joining us. We delivered a strong start to fiscal 2027. We achieved record service revenue, our 5th consecutive quarter of year-over-year revenue growth, and exceeded our guidance ranges for service and total revenue, non-GAAP operating margin, and operating cash flow. What matters most isn't simply the quarter we delivered. It's the growing evidence that the investments we've made over the past several years are beginning to translate into broader customer adoption and stronger business performance. We began seeing those trends emerge last fiscal year, and especially in Q4. This quarter gave us additional evidence that they're continuing to build. Our focus isn't on managing the business for 1 quarter. It's on building a company that can create durable value over the long term. 1 observation keeps sticking with me.

Speaker #3: But what matters most isn't simply the quarter we delivered. It's the growing evidence that the investments we've made over the past several years are beginning to translate into broader customer adoption and stronger business performance.

Speaker #3: We began seeing those trends emerge last fiscal year, and especially in the fourth quarter. This quarter gave us additional evidence that there are continuing to build.

Speaker #3: Our focus isn't on managing the business for one quarter. It's on building a company that can create durable value over the long term. One observation keeps sticking with me.

Speaker #3: When I met with customers and partners around the world, I often hear a version of the same comment. I didn't know you did that.

Samuel Wilson: When I met with customers and partners around the world, I often hear a version of the same comment. "I didn't know you did that." Sometimes we're talking about 8x8 AI Studio, our native agentic AI builder platform. Sometimes it's our programmable customer engagement capabilities and purpose-built solutions like proactive outreach. Sometimes it's our embedded 8x8 Workforce Management available to contact center customers at no additional cost. Sometimes it's as simple as accurate call and meeting transcription across a variety of languages and accents. I actually think of this as both a validation and a challenge. It's a validation because it tells me we've built a platform with more capabilities than people realize. It's also a reminder that innovation only creates value if customers understand how it can help them solve real business problems. I think that observation says a lot about where 8x8 is today.

Speaker #3: Sometimes they're talking about AI Studio, our native agentic AI builder platform. Sometimes it's our programmable customer engagement capabilities, and purpose-built solutions like proactive outreach.

Speaker #3: And sometimes it's our embedded workforce management, available to contact center customers at no additional cost. Sometimes it's as simple as accurate call and meeting transcription across a variety of languages and accents.

Speaker #3: I actually think of this as both a validation and a challenge. It's a validation because it tells me we've built a platform with more capabilities than people realize.

Speaker #3: But it's also a reminder that innovation only creates value if customers understand how it can help them solve real business problems. I think that observation says a lot about where 8X8 is today.

Speaker #3: If you followed 8X8 over the last several years, you've seen us make a series of deliberate investments. Those investments weren't designed to designed to build a stronger platform, and therefore a stronger company.

Samuel Wilson: If you followed 8x8 over the last several years, you've seen us make a series of deliberate investments. Those investments weren't designed to maximize a single quarter. They're designed to build a stronger platform and therefore a stronger company. We've built a unified platform that brings together enterprise voice, unified communications, contact center, CPaaS, and AI. Along the way, we strengthened our global voice infrastructure, invested in enterprise-grade security and reliability, and created a platform designed for where the market's going, not where it's been. Looking back, I think we've made the right decisions, because today, organizations everywhere are asking the same question: How do we use AI to improve our business? Our answer has never been to build AI for its own sake. Our answer is to make AI useful, and that starts with making complexity simple. I think it's 1 of the biggest challenges organizations face today.

Speaker #3: We've built a unified platform that brings together enterprise voice, unified communications, contact center, CPaaS, and AI, along the way we strengthened our global voice infrastructure, invested in enterprise-grade security and reliability, and created a platform designed for where the market's going, not where it's been.

Speaker #3: Looking back, I think we've made the right decisions. Because today, organizations everywhere are asking the same question. How do we use AI to improve our business?

Speaker #3: Our answer has never been to build AI for its own sake. Our answer is to make AI useful, and that starts with making complexity simple.

Speaker #3: I think it's one of the biggest challenges organizations face today. Our customers don't need more technology; they need less complexity. They want to improve customer experiences.

Samuel Wilson: Our customers don't need more technology. They need less complexity. They want to improve customer experiences. They want employees to be more productive, always, they want to move faster, and they want to compete more effectively. Our customers don't need more technology. They need less complexity. They want to improve customer experiences. They want employees to be more productive. They want to move faster, and they want to compete more effectively. Our job is to remove the complexity that gets in the way. That's what our unified platform is designed to do. That's what 8x8 AI Studio is designed to do. It's ultimately how we create long-term value for our customers. 1 of the reasons I believe we're well-positioned is because AI actually increases the value of communications. Every AI agent still has to communicate with customers, with employees, with other business applications, increasingly with other AI agents.

Speaker #3: They want employees to be more productive. And always, they want to move faster. And they want to be and they want to compete more effectively.

Speaker #3: Our customers don't need more technology. They need less complexity. They want to improve customer experiences. They want employees to be more productive. They want to move faster.

Speaker #3: And they want to compete more effectively. Our job is to remove the complexity that gets in the way. That's what our unified platform is designed to do.

Speaker #3: That's what AI Studio is designed to do. And it's ultimately how ultimately how we create long-term value for our customers. One of the reasons I believe we're well-positioned is because AI actually increases the value of communications.

Speaker #3: Every AI agent still has to communicate. With customers, with employees, with other business applications. Increasingly, with other AI agents. Voice, messaging, digital engagement become the interface between people and intelligent software.

Samuel Wilson: Voice messaging, digital engagement become the interface between people and intelligent software. That's why we believe communications infrastructure becomes more strategic as AI adoption accelerates. Many companies will say they delivered an integrated platform, but we are one of the only companies with unified communications, contact center, CPaaS's programmable APIs, and native AI development on a single platform. That gives customers one place to orchestrate communications, customer engagement, and an AI, rather than stitching together products from multiple vendors. As organizations move beyond AI experimentation and into production, we believe that simplicity becomes a meaningful competitive advantage. One thing I learned over the years is that customers tell you what they think by what they do, not just by what they say. This quarter, we saw encouraging evidence across the business. Adoption of our AI solutions, including AI Studio, Intelligent Customer Assistant, increased 121% year over year.

Speaker #3: That's why we believe communications and infrastructure becomes more strategic as AI adoption accelerates. Many companies will say they delivered integrated platform. But we are one of the only companies with unified communications, contact center, CPaaS, CPaaS as programmable APIs, and native AI development on a single platform.

Speaker #3: That gives customers one place to orchestrate communications, customer engagement, and AI, rather than stitching together products from multiple vendors. As organizations move beyond AI experimentation and into production, we believe that simplicity becomes a meaningful competitive advantage.

Speaker #3: One thing I learned over the years is that customers tell you what they think by what they do, not just by what they say.

Speaker #3: This quarter we saw encouraging evidence across the business. Adoption of our AI solutions, including AI Studio, intelligent customer assistant, increased 121% year over year.

Speaker #3: We believe AI Studio are native AI development environment changes the game. It levels the playing field for small and mid-sized businesses, giving them enterprise-grade agentic AI capabilities similar to what is available at much larger organizations with much larger price points.

Samuel Wilson: We believe AI Studio, our native AI development environment, changes the game. It levels the playing field for small and mid-sized businesses, giving them enterprise-grade agentic AI capabilities similar to what is available at much larger organizations with much larger price points. Just three and a half months after official launch, more than 200 organizations are building agents with AI Studio, and they have created more than 2,900 AI agents. More than half of these customers have moved beyond experimental stage and have become paying customers. These are encouraging metrics, and the product is still in beta. Customers using AI Studio span healthcare, IT services, property, retail, insurance, automotive, energy, logistics, and more, and they're solving a wide variety of issues, improving IT operations, facilitating insurance policy renewals, role-playing to train human agents in de-escalation. That's the kind of breadth we hope to see.

Speaker #3: Just three and a half months after official launch, more than 200 organizations are building agents with AI Studio, and they have created more than 2,900 AI agents.

Speaker #3: More than half of these customers have moved beyond the experimental stage and have become paying customers. These are encouraging metrics, and the product is still in beta.

Speaker #3: Customers using AI Studio span healthcare, IT services, property, retail, insurance, automotive, energy, logistics, and more. And they're solving a wide variety of issues: improving IT operations, facilitating insurance policy renewals, role-playing to train human agents, and de-escalation.

Speaker #3: That's the kind of breadth we hope to see. We're seeing the same momentum across the broader platform. Customers using three or more paid 8X8 products increased 18% year over year, and now represent approximately 38% of our recurring revenue.

Samuel Wilson: We're seeing the same momentum across the broader platform. Customers using three or more paid 8x8 products increased 18% year over year and now represent approximately 38% of our recurring revenue. Revenues from our newer products increased 18% year over year, driven by strong performance from Engage, AI solutions, and analytics. Our channel-generated pipeline grew approximately 25% year over year. To me, those metrics all point to the same conclusions. Customers are adopting more of the platform, partners are beginning to bring us into more opportunities, and we're building deeper, longer-term customer relationships. That's exactly the kind of durable business model we're working to create. Innovation remains one of our core values and sources of our strength, but we measure innovation by customer outcomes, not by the number of features we release. This quarter, we introduced Pulse, helping organizations transform conversations into searchable organizational knowledge.

Speaker #3: Revenues from our newer products create increased 18% year over year, driven by strong performance from engage AI solutions and analytics. Our channel-generated pipeline grew approximately 25% year over year.

Speaker #3: To me, those metrics all point to the same conclusions. Customers are adopting more of the platform. Partners are beginning to bring us into more opportunities.

Speaker #3: And we're building deeper, longer-term customer relationships. That's exactly the kind of durable business model we're working to create. Innovation remains one of our core values and sources of our strength.

Speaker #3: But we measure innovation by customer outcomes, not by the number of features we release. This quarter we introduced Pulse, helping organizations transform conversations into searchable organizational knowledge.

Speaker #3: We also continue expanding AI Studio, making it dramatically easier to build AI applications in almost any language. For organizations for enterprises, that accelerates innovation.

Samuel Wilson: We also continue expanding AI Studio, making it dramatically easier to build AI applications in almost any language. For enterprises, that accelerates innovation. For small organizations, it levels the playing field by making sophisticated AI accessible without requiring large development teams. For our partners, it creates an entirely new opportunity to develop and deliver differentiated solutions for their customers. Again, our goal is not simply better technology. It's leveraging AI and our unified platform to help customers solve problems faster with less complexity. As we transition to a phase focused on awareness and adoption, our priorities are actually pretty straightforward, and each reinforces the other, creating a flywheel effect. As we have since I became CEO, we will continue to invest in innovation that makes communications smarter, AI easier to deploy, and customer engagement more effective. That hasn't changed. The world of software has.

Speaker #3: For small organization, it levels the playing field by making sophisticated AI accessible without requiring large development teams. And for our partners, it creates an entirely new opportunity to develop and deliver differentiated solutions for their customers.

Speaker #3: Again, our goal is not simply better technology. It's leveraging AI in our unified platform to help customers solve problems faster, with less complexity. As we transition to a phase-focused on awareness and adoption, our parties are actually pretty straightforward.

Speaker #3: And each reinforces the other creating a flywheel effect. As we have since I became CEO, we will continue to invest in innovation that makes communications smarter, AI easier to deploy, and customer engagement more effective.

Speaker #3: That hasn't changed. But the world of software has. We believe, for the first time in the history of software, innovation cycles are shorter than sales cycles.

Samuel Wilson: We believe for the first time in the history of software, innovation cycles are shorter than sales cycles. This makes removing friction from the go-to-market engine increasingly important. We have boiled our fiscal 2027 priorities down to three. First, we will continue strengthening our partner first go-to-market strategy. Our partners play a critical role in helping customers realize value faster and are the most effective way to deepen and expand our reach. They drive greater adoption at the local and regional level, provide market-specific expertise across new vertical markets, and expand our presence to new geographies. AI Studio creates new opportunities for them to build differentiated solutions on top of our platform. Within the existing sales and marketing cost envelope, we are shifting resources to partner recruitment, training, and enablement. We are building programs that go beyond one-time spiffs to drive durable outcomes for partners, as well as for 8x8.

Speaker #3: This makes removing friction from the go-to-market engine increasingly important. We have boiled our fiscal 27 priorities down to three. First, we will continue strengthening our partner-first go-to-market strategy.

Speaker #3: Our partners play a critical role in helping customers realize value faster and are the most effective way to deepen and expand our reach. They drive greater adoption to local and regional level, provide market-specific expertise across new vertical markets, and expand our presence to new geographies.

Speaker #3: AI Studio creates new opportunities for them to build differentiated solutions on top of our platform. Within the existing sales and marketing cost envelope, we are shifting resources to partner recruitment, training, and enablement.

Speaker #3: We are building programs that go beyond one-time spiffs to drive durable outcomes for partners as well as for 8x8. Reinforcing our theme of reducing complexity, we recently introduced our 8x8 Small Business Partner Portal for resale partners in the UK, Ireland, and Australia.

Samuel Wilson: Reinforcing our theme of reducing complexity, we recently introduced our 8x8 small business partner portal for resale partners in the UK, Ireland, and Australia. In what we believe is an industry first, we have developed pricing and provisioning platform that breaks out of the traditional SaaS licensing model by enabling consumption-based self-service for small business UCaaS deployments. We are in the early stages of rollout, but we believe this new platform will help partners win more customers, onboard them more effectively, and expand those relationships over time. Second, we remain focused on increasing customer retention. While our retention rates are consistent with industry benchmarks, and actually often a little bit better, we see reducing customer churn as perhaps the single most effective way to drive growth and profitability. We are shifting resources to drive customer success across all customer segments with a focus on awareness and adoption.

Speaker #3: In what we believe is an industry-first, we are developed pricing and provisioning platform that breaks out of the traditional SaaS licensing model by enabling consumption-based self-service for small business UCaaS deployments.

Speaker #3: We are in the early stages of rollout, but we believe this new platform will help partners win more customers, onboard them more effectively, and expand those relationships over time.

Speaker #3: Second, we remain focused on increasing customer retention. While our retention rates are consistent with industry benchmarks, and actually often a little bit better, we are seeing reducing we see reducing customer churn as perhaps the single most effective way to drive growth and profitability.

Speaker #3: We are shifting resources to drive customer success across all customer segments, with a focus on awareness and adoption. We anticipate our channel partners will play a big role in this initiative.

Samuel Wilson: We anticipate our channel partners will play a big role in this initiative. Our customers are using the advanced features of our platform. A customer using the advanced features of our platform is the ideal candidate for multiple products, which brings me to our third priority for fiscal 2027, driving multiple product adoption within our installed base. We have made great progress so far, but I believe recent innovations like AI Studio, 8x8 Workforce Management, and 8x8 Engage can accelerate multi-product adoption. Simplified deployment, usage-based pricing models, and increased partner and customer engagement all drive this initiative. We are working through external metrics that give investors visibility on these initiatives, and I look forward to reporting our progress in the future. Before I turn the call over to Kevin, let me leave you with one final thought. Transformations like the one we're executing rarely happen in a straight line.

Speaker #3: Our customers are using the advanced features of our platform. A customer using the advanced features of our platform is the ideal candidate for multiple products which brings me to our third priority for fiscal 27.

Speaker #3: Driving multiple product adoption within our installed base. We have made great progress so far. But I believe recent innovations like AI Studio, 8X8 Workforce Management, and 8X8 Engage can accelerate multi-product adoption.

Speaker #3: Simplified deployment, usage-based pricing models, and increased partner and customer engagement all drive this initiative. We are working through external metrics that give investors visibility on this initiative's and I look forward to reporting our progress in the future.

Speaker #3: Before I turn the call over to Kevin, let me leave you with one final thought. Transformations like the one we're executing rarely happen in a straight line.

Speaker #3: Customers buying patterns evolve. Large deployments don't always happen the quarter you expect. Markets change. Technology changes. All of these, as well as the timing of things like compensation adjustments, can cause volatility in near-term results.

Samuel Wilson: Customers' buying patterns evolve. Large deployments don't always happen the quarter you expect. Markets change. Technology changes. All of these, as well as the timing of things like compensation adjustments, can cause volatility in near-term results. Our commitment to you, our shareholders, is that we will continue making investments that we believe strengthen our long-term competitive position. That's simply part of building an enduring business. We don't judge our progress by any single quarter. We look for strengthening trends, broadening customer adoption, and deeper partner engagement. Quarter after quarter, we're seeing increasing evidence that those indicators are moving in the right direction. That's why we've had the confidence to increase our revenue outlook for the fiscal year. Not because of one strong quarter, but because our confidence in the underlying trajectory of the business continues to grow. Our strategy hasn't changed. Our confidence in its success has.

Speaker #3: But I'm of commitment to you. Our shareholders. Is that we will continue making investments that we believe strengthen our long-term competitive position. That simply part of building an enduring business.

Speaker #3: So we don't judge our progress by any single quarter. We look for strengthening trends, broadening customer adoption, and deeper partner engagement. Quarter after quarter, we're seeing increasing evidence that those indicators are moving in the right direction.

Speaker #3: That's why we've had the confidence to increase our revenue outlook for the fiscal year. Not because of one strong quarter. But because our confidence in the underlying trajectory of the business continues to grow.

Speaker #3: Our strategy hasn't changed. Our confidence in its success has. Not because we've declared victory. But because we're seeing more customers succeed with our platform.

Samuel Wilson: Not because we've declared victory, but because we are seeing more customers succeed with our platform. We are still early in this journey, but we are building momentum. Our job now is simple. Continue execution with discipline, continue innovating, continue helping customers remove complexity and realize the full value of the platform we have built. If we do that well, I am confident we will continue creating long-term value for our customers, our partners, and you, our shareholders. It is impossible to share all our progress on an earnings call. We are planning on a product and model update for investors sometime in early September. We will get more information out to you in the next few days. With that, let me turn the call over to Kevin.

Speaker #3: We're still early in this journey. But we are building momentum. Our job now is simple. Continued execution with discipline. Continue innovating. Continue helping customers remove complexity and realize the full value of the platform we've built.

Speaker #3: If we do that well, I'm confident we'll continue creating long-term value for our customers, our partners, and you, our shareholders. It's impossible to share all our progress on our earnings call.

Speaker #3: So we are planning on a product and model update for investors sometime in early September. We will get more information out to you in the next few days.

Speaker #3: With that, let me turn the call over to Kevin.

Speaker #1: Thanks, Sam. Good afternoon, everyone. And thank you for joining us for our fiscal first quarter earnings call. In addition to our shareholder letter, detailed financial results are available in our press release and on our investor relations website.

Kevin Kraus: Thanks, Sam. Good afternoon, everyone, and thank you for joining us for our fiscal first quarter earnings call. In addition to our shareholder letter, detailed financial results are available in our press release and on our investor relations website. Therefore, I will focus my remarks on a few key highlights. Unless otherwise noted, all figures other than revenue and cash flow are presented on a non-GAAP basis. Q1 marked our fifth consecutive quarter of year-over-year revenue growth, extending the momentum we built in fiscal 2026 as we again delivered healthy operating profit and further strengthened our balance sheet. We exceeded our guidance ranges for service revenue, total revenue, operating profit, and cash flow from operations, and delivered earnings per share at the top of our range.

Speaker #1: Therefore, I'll focus my remarks on a few key highlights. Unless otherwise noted, all figures other than revenue and cash flow are presented on a non-GAAP basis.

Speaker #1: Q1 marked our fifth consecutive quarter of year-over-year revenue growth, extending the momentum we built in fiscal 2026 as we again delivered healthy operating profit and further strengthened our balance sheet.

Speaker #1: We exceeded our guidance ranges for service revenue, total revenue, operating profit, and cash flow from operations, and delivered earnings per share at the top of our range.

Speaker #1: We had another record quarter for service revenue, and we have had positive operating profit and cash flow from operations in every quarter for more than five years.

Kevin Kraus: We had another record quarter for service revenue, and we have had positive operating profit and cash flow from operations in every quarter for more than five years. Total revenue was $190.2 million, and service revenue was $185.3 million, growing 4.9% and 5.1% year-over-year respectively. These results reflected continued strength in our usage-based offerings. Our platform usage revenue, which include our CPaaS communication APIs, digital channels, and AI solutions, set another all-time record and accounted for approximately 26% of service revenue in the quarter, compared to approximately 17% in Q1 2026. Platform usage revenue grew approximately 63% year-over-year. Gross profit was approximately $117.2 million, above the gross profit dollars implied by the midpoint of our Q1 guidance.

Speaker #1: Total revenue was $190.2 million and service revenue was $185.3 million. Growing 4.9% and 5.1% year-over-year respectively. These results reflected continued strength in our usage-based offerings.

Speaker #1: Our platform usage revenue, which includes our CPaaS communication APIs, digital channels, and AI solutions, set another all-time record and accounted for approximately 26% of service revenue in the quarter, compared to approximately 17% in Q1 '26.

Speaker #1: Platform usage revenue grew approximately 63% year-over-year. Gross profit was approximately $117.2 million, above the gross profit dollars implied by the midpoint of our Q1 guidance.

Speaker #1: Gross margin, as a percent of revenue, was 61.6%, reflecting the continued mix shift toward our usage-based offerings, which in aggregate carry a lower margin profile but can add meaningful gross and operating profit dollars as the business scales.

Kevin Kraus: Gross margin as a percent of revenue was 61.6%, reflecting the continued mix shift toward our usage-based offerings, which in aggregate carry a lower margin profile but can add meaningful gross and operating profit dollars as the business scales. We are actively working to expand margins within the usage portfolio, but as that part of the business grows, it does impact the consolidated gross margin percentage. Importantly, we are leaning into where the market is growing and not where the highest gross margin sits today. To be clear, this is a deliberate choice. As demand for AI-driven customer engagement accelerates, we are prioritizing share capture in the fastest-growing part of the market, which we expect to convert into stronger profitability and cash flow over time.

Speaker #1: We are actively working to expand margins within the usage portfolio, but as that part of the business grows, it does impact the consolidated gross margin percentage.

Speaker #1: Importantly, we are leaning into where the market is growing and not where the highest gross margin sits today. To be clear, this is a deliberate choice.

Speaker #1: As demand for AI-driven customer engagement accelerates, we are prioritizing share capture in the fastest-growing part of the market, which we expect to convert into stronger profitability and cash flow over time.

Speaker #1: As we have articulated over the past few years, we manage the business to operating income dollars, and we have consistently demonstrated the ability to offset gross margin mix impacts with disciplined operating expense management.

Kevin Kraus: As we have articulated over the past few years, we manage the business to operating income dollars, and we have consistently demonstrated the ability to offset gross margin mix impacts with disciplined operating expense management. Operating expenses were down more than $8 million year-over-year, with the majority of the savings realized on the sales and marketing line as we focused on improvements in go-to-market efficiency. As a result, operating income came in at $18.9 million, and operating margin was 9.9%, both above the high end of our guidance range. We continued to meaningfully reduce our debt service costs through significant paydowns of debt principal. Trailing 12-month cash interest paid at the end of Q1 2027 was approximately $16.6 million, down approximately $5.6 million, or 25%. Cash interest paid in Q1 was approximately $1.8 million, reflecting our term loan interest payment.

Speaker #1: Operating expenses were down more than $8 million year-over-year, with the majority of the savings realized on the sales and marketing line as we focused on improvements in go-to-market efficiency.

Speaker #1: As a result, operating income came in at $18.9 million, and operating margin was 9.9%, both above the high end of our guidance range. We continue to meaningfully reduce our debt service costs through significant paydowns of debt principal.

Speaker #1: Trailing 12-month cash interest paid at the end of Q1 27 was approximately $16.6 million, down approximately 5.6 million or 25%. Cash interest paid in Q1 was approximately $1.8 million, reflecting our term loan interest payment.

Speaker #1: The combination of higher revenue, lower operating expenses, and lower interest expense resulted in net income of $13.6 million and fully diluted EPS of $0.09 per share, at the high end of our guidance range.

Kevin Kraus: The combination of higher revenue, lower operating expenses, and lower interest expense resulted in net income of $13.6 million and fully diluted EPS of $0.09 per share at the high end of our guidance range. Cash flow from operations was $17 million for the quarter, significantly above the high end of our guidance range. The strong Q1 result reflects both operating overperformance and favorable timing of collections and payments and is a reminder that cash flow from operations can vary meaningfully quarter to quarter based on timing. We ended the quarter with $90.6 million in cash and cash equivalents, excluding restricted cash, a decrease of approximately $2.7 million sequentially, reflecting the $14.5 million term loan payment made during the quarter. We ended Q1 2027 with $309.4 million of principal debt outstanding.

Speaker #1: Cash flow from operations was $17 million for the quarter, significantly above the high end of our guidance range. The strong Q1 result reflects both operating overperformance and favorable timing of collections and payments, and is a reminder that cash flow from operations can vary meaningfully quarter to quarter based on timing.

Speaker #1: We ended the quarter with 90.6 million in cash and cash equivalents, excluding restricted cash, a decrease of approximately 2.7 million sequentially, reflecting the 14.5 million term loan payment made during the quarter.

Speaker #1: We ended Q1 27 with $309.4 million of principal debt outstanding. This represents a reduction of nearly $240 million or approximately 44% from the August 2022 peak of $548 million.

Kevin Kraus: This represents a reduction of nearly $240 million, or approximately 44%, from the August 2022 peak of $548 million. I would like to share one reporting note ahead of next quarter. The term loan balance currently classified as long-term debt will move to current liabilities on our balance sheet, reflecting the August 2027 maturity. This is a standard GAAP mechanic, not a change in our financial position. We intend to continue paying down our term loan on schedule and are confident in our ability to refinance our debt balances prior to maturity. We are not prepared to share refinancing specifics today, but we remain confident in the cash-generating capabilities of our business model. Turning to guidance. We are providing both Q2 and updated full year fiscal 2027 guidance.

Speaker #1: I would like to share one reporting note ahead of next quarter. The term loan balance, currently classified as long-term debt, will move to current liabilities on our balance sheet, reflecting the August 2027 maturity.

Speaker #1: This is a standard GAAP mechanic, not a change in our financial position. We intend to continue paying down our term loan on schedule and are confident in our ability to refinance our debt balances prior to maturity.

Speaker #1: We are not prepared to share refinancing specifics today, but we remain confident in the cash-generating capabilities of our business model. Turning to guidance, we are providing both second quarter and updated full-year fiscal 2027 guidance.

Speaker #1: Our outlook reflects continued discipline and a measured view given the broader macro environment as we continue building a more diversified, durable business. We are leaning into where the market is growing fastest, while protecting profitability through the operating discipline we have demonstrated quarter after quarter.

Kevin Kraus: Our outlook reflects continued discipline and a measured view given the broader macro environment as we continue building a more diversified, durable business. We are leaning into where the market is growing fastest while protecting profitability through the operating discipline we have demonstrated quarter after quarter. For fiscal Q2 2027, we are providing the following guidance. Service revenue is expected to be between $180 million and $185 million. Total revenue is anticipated to be between $185 million and $190 million. We anticipate gross margin between 60.5% and 61.5%, reflecting the continued mix shift toward usage-based revenue. We anticipate operating margin between 8% and 9%. This results in a range for fully diluted non-GAAP earnings per share of $0.07 to $0.08 per share, based on approximately 149 million fully diluted shares outstanding.

Speaker #1: For fiscal Q2 27, we are providing the following guidance. Service revenue is expected to be between $180 million and $185 million. Total revenue is anticipated to be between $185 million and $190 between 60.5% and 61.5%, reflecting the continued mix shift toward usage-based revenue.

Speaker #1: We anticipate operating margin between 8% and 9%. This results in a range for fully diluted non-GAAP earnings per share of $0.07 to $0.08 per share, based on approximately 149 million fully diluted shares outstanding.

Speaker #1: In fiscal Q2, we expect contractual interest expense, which excludes amortization of debt issuance costs, to be approximately $3.9 million. Based on current interest rates and the principal outstanding on our term loan and 2028 convertible notes.

Kevin Kraus: In fiscal Q2, we expect contractual interest expense, which excludes amortization of debt issuance costs, to be approximately $3.9 million, based on current interest rates and the principal outstanding on our term loan and 2028 convertible notes. We expect to make cash interest payments of approximately $5.9 million, which reflects both the term loan interest payment and the semi-annual interest on our 2028 convertible notes. We do not plan a term loan prepayment in fiscal Q2. Prior voluntary prepayments have already covered our required principal payments through the quarter ending September 30, 2026, with the next required payment due in the Q4. We anticipate cash flow from operations to be between $9 million and $11 million. Let me provide a little more color on the model dynamics driving our Q2 guidance.

Speaker #1: We expect to make cash interest payments of approximately $5.9 million, which reflects both the term loan interest payment and the semi-annual interest on our 2028 convertible notes.

Speaker #1: We do not plan a term loan prepayment in fiscal Q2. Prior voluntary prepayments have already covered our required principal payments through the quarter ending September 30, 2026, with the next required payment due in the December quarter.

Speaker #1: We anticipate cash flow from operations to be between $9 million and $11 million. Let me provide a little more color on the model dynamics driving our Q2 guidance.

Speaker #1: We are assuming continued strong growth for platform usage, although the year-over-year growth rate is expected to slow from 63% in Q1 to the 30 to 35% range year over year.

Kevin Kraus: We are assuming continued strong growth for platform usage, although the year-over-year growth rate is expected to slow from 63% in Q1 to the 30% to 35% range year-over-year. The slower growth reflects a tougher compare to a strong Q2 2026 rather than a change in dynamics of the business or the market. The higher platform usage growth drives a modest shift in mix, and we expect gross margins to be flat to down slightly quarter-over-quarter. Keeping operating expenses flat to Q1 2027 gives us our operating margin guidance of 8% to 9%. Our annual merit increases take full effect in fiscal Q2, but we are able to offset the incremental cost with operational efficiencies and a lower cost structure associated with platform usage. For the full year fiscal 2027, we are updating our guidance as follows.

Speaker #1: The slower growth reflects a tougher compare, to a strong Q2 26 rather than a change in dynamics of the business or the market. The higher platform usage growth drives a modest shift in mix and we expect gross margins to be flat to down slightly quarter over quarter.

Speaker #1: Keeping operating expenses flat to Q1 27 gives us our operating margin guidance of 8 to 9%. Our annual merit increases take full effect in fiscal Q2, but we are able to offset the incremental cost with operational efficiencies and a lower cost structure associated with platform usage.

Speaker #1: For the full-year fiscal 2027, we are updating our guidance as follows. We are raising our service revenue guidance range to be between $725 million and $745 million.

Kevin Kraus: We are raising our service revenue guidance range to be between $725 million and $745 million, an increase of $18 million from our prior range of $707 million to $727 million. This reflects our revenue overperformance in Q1, as well as our confidence in our business trends. Total revenue is anticipated to be between $745 million and $765 million, an increase from our prior range of $727 million to $747 million. We anticipate gross margin to be between 60.5% and 61.5%, reflecting the increasing amount of usage-based revenue in our revenue mix. Our prior guidance for non-GAAP operating margin implied non-GAAP operating income of approximately $70 million at the midpoint, and we are maintaining that level. This yields a slight adjustment to the operating margin range to 8.8% to 9.8%, based on our updated revenue outlook.

Speaker #1: An increase of $18 million from our prior range of $707 million to $727 million. This reflects our revenue overperformance in Q1, as well as our confidence in our business trends.

Speaker #1: Total revenue is anticipated to be between $745 million and $765 million, an increase from our prior range of $727 million to $747 million. We anticipate gross margin to be between 60.5% and 61.5%, reflecting the increasing amount of usage-based revenue in our revenue mix.

Speaker #1: Our prior guidance for non-GAAP operating margin implied non-GAAP operating income of approximately $70 million at the midpoint, and we are maintaining that level. This yields a slight adjustment to the operating margin range to 8.8% to 9.8%, based on our updated revenue outlook.

Speaker #1: We are also maintaining our range for fully diluted non-GAAP earnings per share of $0.33 to $0.38 per share, assuming approximately 150 million average diluted shares outstanding.

Kevin Kraus: We are also maintaining our range for fully diluted non-GAAP earnings per share of $0.33 to $0.38 per share, assuming approximately 150 million average diluted shares outstanding. While our updated gross margin range reflects the continued mix shift toward usage-based offerings, we are managing that mix operationally through disciplined operating expense management. This allows us to maintain our full-year non-GAAP operating income and cash flow from operations outlook, even as our revenue mix continues to evolve. For full year fiscal 2027, we anticipate cash flow from operations of approximately $45 million to $52 million, unchanged from our prior guidance. We expect to make $39.5 million of principal payments on the term loan during fiscal 2027, in line with the loan's amortization schedule. In closing, Q1 was a strong start to fiscal 2027.

Speaker #1: While our updated gross margin range reflects the continued mix shift toward usage-based offerings, we are managing that mix operationally through discipline operating expense management.

Speaker #1: This allows us to maintain our full-year non-GAAP operating income and cash flow from operations outlook, even as our revenue mix continues to evolve. For full-year fiscal 2027, we anticipate cash flow from operations of approximately $45 million to $52 million.

Speaker #1: Unchanged from our prior guidance. We expect to make $39.5 million of principal payments on the term loan during fiscal 2027, in line with the loans amortization schedule.

Speaker #1: In closing, Q1 was a strong start to fiscal 2027. The investments in our platform are driving top-line momentum, while our commitment to financial discipline gives us the flexibility to invest in high-growth areas while maintaining our profitability and cash flow commitments.

Kevin Kraus: The investments in our platform are driving top-line momentum, while our commitment to financial discipline gives us the flexibility to invest in high-growth areas while maintaining our profitability and cash flow commitments. Our updated outlook for the fiscal year reflects both our confidence that we are headed in the right direction and our disciplined operating approach. With that, I will turn the call over for Q&A.

Speaker #1: Our updated outlook for the fiscal year reflects both our confidence that we are headed in the right direction and our disciplined operating approach. With that, I will turn the call over for Q&A.

Speaker #2: Thank you. At this time, we will conduct the question-and-answer session. As a reminder to ask a question, please press star 1 on your telephone and wait for your name to be announced.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Josh Nichols from B. Riley. Go ahead, Josh.

Speaker #2: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Josh Nichols from B.

Speaker #2: Riley. Go ahead, Josh.

Speaker #3: Yeah, thanks for taking my question, Grace. We continue to see record service revenue with continued year-over-year growth. Since you touched on it, one of the key focuses you mentioned was customer retention.

Josh Nichols: Yeah, thanks for taking my question. Great to see the record service revenue with continued year-over-year growth.

Josh Nichols: Yeah, thanks for taking my question. Great to see the record service revenue with continued year-over-year growth. Since you touched on it, one of the key focuses you mentioned was customer retention, minimizing churn. I know you've been growing your multi-product customer base very well. Any type of high-level commentary you could tell us about what you've been seeing on those fronts? If some of these additional features, like AI-enabled solutions, has been driving churn lower for customer adoption?

Josh Nichols: Since you touched on it, one of the key focuses you mentioned was customer retention, minimizing churn. I know you've been growing your multi-product customer base very well. Any type of high-level commentary you could tell us about what you've been seeing on those fronts? If some of these additional features, like AI-enabled solutions, has been driving churn lower for customer adoption?

Speaker #3: Minimizing churn. I know you've been growing your multi-product customer base very well. Any type of high-level commentary you could tell us about what you've been seeing on those fronts and if some of these additional features, like AI-enabled solutions, has been driving churn lower for customer adoption?

Speaker #4: All right. So let me—Josh, let me give you a couple of data points that you're sort of asking around, retention, etc. First, I think it would be helpful to understand that, on a year-over-year basis, both our number of contact center seats and our—both our contact center and UC seats—are up.

Samuel Wilson: All right. Josh, let me give you a couple data points that you're sort of asking around retention, et cetera. First, I think it would be helpful to understand on a year-over-year basis, both our number of contact center seats and UC seats are up. When you think about what's driving sort of the churn issues right now, we're still seeing a ripple-through of street pricing on UC, and particularly smaller customer UC, being sometimes below what our installed base is. They've come up for renewal. We continue to see some ASP downsell pressure. It's driven a lot by competitors who have been pushing lower prices. I don't think it's gotten worse over the last 18 months. I think last quarter, I think I said we still have a few quarters to go through this. It continues to ripple through the customer base.

Speaker #4: So when you think about what's driving sort of the churn issues right now, we're still seeing a ripple through of street pricing on UC and particularly smaller customer UC.

Speaker #4: Being sometimes below what our install base is. And so they've come up for renewal. We continue to see some ASP downsell pressure. It's driven a lot by competitors who have been pushing lower prices.

Speaker #4: I don't think it's gotten worse over the last 18 months. I sort of I think that last quarter, I think I said we still have sort of a few quarters to go through this.

Speaker #4: But it continues to ripple through the customer base. That is by far the biggest portion of the, sort of, the churn retention aspect. It's downsell pressure.

Samuel Wilson: That is by far the biggest portion of the churn retention aspect, is downsell pressure. We're not losing that many customers. As a matter of fact, our customer loss is less and less all the time, and we're really proud of that. It's just dealing with that. We need to continue to push our multi-product strategy. We see a clear correlation between more products equals higher retention and higher average revenue per customer. There's a pretty big jump as you go from one to two to three to four, and so I think that's really the key. We need to continue. I'm not fully satisfied how we're doing, I'm not dissatisfied how we're doing, but I think we can just do better in that area.

Speaker #4: We're not losing that many customers. As a matter of fact, our customer loss is less and less all the time, and we're really proud of that.

Speaker #4: It's just dealing with that. And then we need to continue to push our multi-product strategy. We see a clear correlation between more products equals higher retention.

Speaker #4: And higher average revenue per customer there's a pretty big jump as you go from 1 to 2, 2 to 3, 3 to 4. And so I think that's really the key.

Speaker #4: We need to continue I'm not fully satisfied how we're doing. I'm not dissatisfied how we're doing. I think we can just do better in that area.

Speaker #3: Thanks. And then last question from me. You've done a good job balancing going after some of these high-growth areas. The top-line of the revenue guidance is going up, but you're meanwhile still able to maintain the profitability outlook for the company.

Josh Nichols: Thanks. Last question from me. You've done a good job balancing going after some of these high-growth areas. The top line of the revenue guidance is going up, but you're meanwhile still able to maintain the profitability outlook for the company. When you think about the dynamics between a little bit lower gross margin versus the operating leverage that you're able to get from this usage-based revenue, is that expected to continue, or is there also a threshold where the operating leverage starts going even more positive for you as the usage-based revenue hits some threshold, and it could start boosting profitability further?

Speaker #3: When you think about the dynamics between a little bit lower gross margin versus the operating leverage that you're able to get from this usage-based revenue, is that expected to continue or is there also a threshold where the operating leverage starts going even more positive for you as the usage-based revenue hits some threshold and it could start boosting profitability further?

Speaker #4: So I'll give you a bit of a high-level answer, and then I'll let Kevin chime in if he wants to add anything. Usage-based models typically carry lower gross margins than traditional SaaS business models.

Samuel Wilson: I'll give you a bit of a high-level answer, and then I'll let Kevin chime in if he wants to add anything. Usage-based models typically carry lower gross margin than traditional SaaS business models because there's no vaporware, right? There's not that empty seat sitting on the shelf. That's why buyers like them so much, and they use them more. They also generally carry a lower OPEX profile. As our model evolves and as usage revenue scales, we do expect continued growth in the revenue, the usage revenue, and that should generate higher operating profit dollars in cash flow over time. We need to get a lot of the newer products to an economies of scale where we can start to drive down unit costs.

Speaker #4: Because there's no vaporware, right? There's not that empty seat sitting on the shelf. That's why buyers like them so much, and they use them more.

Speaker #4: But they also generally carry a lower opex profile. And so, as our model evolves and as usage revenue scales, we do expect continued growth in revenue—usage revenue—and that should generate higher operating profit dollars and cash flow over time.

Speaker #4: We need to get a lot of the newer products to an economies of scale where we can start to drive down unit costs. I can certainly get into the technical aspects of this, but as you think about it, all new products start with relatively low volumes.

Samuel Wilson: I can certainly get into the technical aspects of this, but as you think about it, all new products start with relatively low volumes and it's hard to drive unit cost, hard to spend money to drive unit cost advantages out of that. As you scale them up and you get economies of scale, and trust me, our AI products and our other products do have economies of scale, as they get larger in size, you'll start to see this. You'll start to see that phenomena of usage eventually driving higher operating profit dollars in cash flow. It was true in Q1, and at some point, in the future, it'll rectify itself out. I can't get exact because it's hard, and there's a bunch of assumptions in the model. I do expect that that's the trend we're on. Kevin?

Speaker #4: And it's hard to drive unit cost. It's hard to spend money to drive unit cost advantages out of that. As you scale them up and you get economies of scale—and trust me, our AI products and our other products do have economies of scale as they get larger in size.

Speaker #4: You'll start to see this. And so you'll start to see that phenomena of usage eventually driving higher operating profit dollars and cash flow. It was true in the first quarter.

Speaker #4: And at some point in the future, it will rectify itself. I can't get exact because it's hard, and there are a bunch of assumptions in the model.

Speaker #4: But I do expect that that's the trend we're on.

Kevin Kraus: Yeah, I think so. I think that's a good summary. The other thing I'll point out is that our historical usage, and even within our usage, the mix is shifting. Our historical usage margins have been typically on the lower end because of where our revenue existed in APAC, for example. As we develop these products that we're talking about here, that is not so geographically concentrated in low profit areas and geographies. That should have its own effect, a positive effect over time. It'll take some time to do that, but I see that helping to sustain the gross profit dollars. Again, when we're focused on gross profit dollars and operating income dollars to run the business.

Speaker #5: Yeah, I think so. I think that's a good summary. The other thing I'll point out is that our historical usage, and even within our usage, the mix is shifting.

Speaker #5: So our historical usage margins have been typically on the lower end because of where our revenue existed in APAC, for example. And as we develop these new products that we're talking about here, that is not so geographically concentrated in low profit areas and geographies.

Speaker #5: So that should have its own effect a positive effect over time. It'll take some time to do that, but I see that helping to sustain the gross profit dollars, again, when we're focused on gross profit dollars and operating income dollars to run the business.

Speaker #3: That makes sense. Appreciate it. Thank you.

Josh Nichols: That makes sense. Appreciate it. Thank you.

Speaker #4: Thank you.

Samuel Wilson: Thank you.

Speaker #5: Thanks, Josh.

Kevin Kraus: Thanks, Josh.

Speaker #1: Please stand by for our next question. Our next question comes from Andrew King from Rosenblatt. Please go ahead, Andrew.

Operator: Please stand by for our next question. Our next question comes from Andrew King from Rosenblatt. Please go ahead, Andrew.

Speaker #6: Hey there, guys. Thanks for taking my question. Congrats on a really strong quarter. First of all, could you just give us an idea of how much of those strong usage-based results were related to AI versus your CPaaS business?

Andrew King: Hey there, guys. Thanks for taking my question. Congrats on the really strong quarter. First of all, could you just give us an idea of how much those strong usage-based results were related to AI versus your CPaaS business? Within that also, are you seeing any pressure on your seat-based pricing as AI becomes more of a revenue lever rather than an add-on?

Speaker #6: And within that also, are you seeing any pressure on your seat-based pricing as AI becomes more of a revenue lever rather than an add-on?

Speaker #4: Okay. The second question I may ask the second part of the question I may ask some clarity. So you're asking about AI as separate from CPAS.

Samuel Wilson: Okay. The second part of the question I may ask some clarity. You're asking about AI as separate from CPaaS. I want to be a little careful here because the two are deeply interconnected with each other. When you send an SMS message or you use WhatsApp, frequently that is hitting our AI Studio on the backside of that. The two act together as a complete product. What CPaaS provides is our digital channels. Historically, that's been a, as Kevin mentioned, in Southeast Asia, lower margin business compared to corporate averages. We're starting to see as our volumes go up, we're getting better margins on that as we're reaching economies of scale. Secondly, it's a driver then to add AI products layered in.

Speaker #4: And I want to be a little careful here because the two are deeply interconnected with each other. So when you send an SMS message or you use WhatsApp, frequently that is hitting our AI studio on the backside of that.

Speaker #4: And so the two act together as a complete product. What CPaaS provides is our digital channels. And historically, that's been, as Kevin mentioned, in Southeast Asia, a lower-margin business compared to corporate averages.

Speaker #4: We're starting to see, as our volumes go up, we're getting better margins on that as we're reaching economies of scale. And secondly, it's a driver then to add AI products layered in.

Speaker #4: The vast majority of our business is still of the usage side is still what you would consider CPAS, kind of that traditional sense, let's say, three, four years ago.

Samuel Wilson: The vast majority of our business of the usage side is still what you would consider CPaaS, kind of that traditional sense, let's say three, four years ago, just because the volumes are so high. The AI stuff is also growing well in excess of 100%, and the two are tied very closely together because when you combine them, you get the customer outcome you're looking for. Okay. On the second part of your question, can you rephrase it for me so I can understand exactly what you're trying to get at?

Speaker #4: Just because the volumes are so high. But the AI stuff is also growing well in excess of 100%. And the two are tied very closely together because when you combine them, you get the customer outcome you're looking for.

Speaker #4: Okay. For the second part of your question, can you rephrase it for me so I can understand exactly what you're trying to get at?

Speaker #6: So as AI products are becoming more of a strong revenue lever rather than a commoditized product, really, how is that affecting seat-based pricing? Are you seeing any pressure there as people are trying to drive down seat-based pricing to get the AI add-on?

Andrew King: As AI products are becoming more of a strong revenue lever rather than a commoditized product, really, how is that affecting seat-based pricing? Are you seeing any pressure there as people are trying to drive down seat-based pricing to get the AI add-on?

Samuel Wilson: Now I get it. No. The pricing in seat-based pricing is because of competitors just pricing lower and trying to grab seats. We see some startups that are desperate to do something in this industry now, who are sometimes can be aggressive with pricing. We see some of the stuff around others who are just doing that. I would say in general, AI is an add-on, and since it's usage-based, we're seeing it as purely as an add-on. A lot of our customers that run AI run a hybrid model. They're paying on a per seat basis for their UC&CC, and then they're adding in these usage-based items on top of it.

Speaker #4: No. The pricing in seat-based pricing is because competitors are just pricing lower and trying to grab seats. We see some startups that are desperate to do something in this industry now, who sometimes can be aggressive with pricing.

Speaker #4: We obviously, we see some of the stuff around others who are just doing that. But I would say, in general, AI is an add-on in the sense that it's usage-based. We're seeing it as purely as an add-on.

Speaker #4: And a lot of our customers that run AI run a hybrid model. So they're paying on a per-seat basis for their UC and CC, and then they're adding in these usage-based items on top of it.

Speaker #6: Got it. And then, if I could just sneak one more in here: How are the AI deployments changing relationships with your channel? And how effective is your channel at really selling the full platform now?

Andrew King: Got it. If I could just sneak one more in here. How are the AI deployments changing relationships with your channel, and how effective is your channel at really selling the full platform now? I'd assume that they really only have a solid grasp on a percentage of your current portfolio, and that continues to get smaller as you continue to release more advanced AI products. Just any idea there would be great.

Speaker #6: I would assume that they really only have a solid grasp on a percentage of your current portfolio, and that continues to get smaller as you continue to release more advanced AI products.

Speaker #6: So, just any ideas there would be great.

Speaker #4: Yeah. It's a great question. And I think I tried to cover a little bit of this on my prepared remarks, right? So I think I said my prepared remarks when I meet with customers and partners around the world, I often hear some version of the comment I didn't know you did that.

Samuel Wilson: Yeah. It's a great question. I think I tried to cover a little bit of this on my prepared remarks. I think I said in my prepared remarks, when I meet with customers and partners around the world, I often hear some version of the comment, "I didn't know you did that." I want to be clear on how I answer this, because I think the channel is very important. I think it's the primary route to market for our products and technology, and I think it's a primary route to technology in general, globally. I think the channel is more than competent at using our 8x8 AI Studio to drive custom-made products for individual customers, et cetera. We've got some phenomenal global channel partners running 8x8 AI Studio and other products, doing just amazing things for customers.

Speaker #4: So I want to be clear on how I answer this because I think the channel is very important. I think it's the primary route to market for our products and technology.

Speaker #4: And I think it's the primary route for technology in general, globally. I think the channel is more than competent at using our AI studio to drive custom-made products for individual customers, etc.

Speaker #4: And we've got some phenomenal global channel partners running AI Studio and other products, doing just amazing things for customers. That being said, I think the biggest issue is just we've got to educate and enable our channel base better on our full range of products.

Samuel Wilson: That being said, I think the biggest issue is just we've got to educate and enable our channel base better on our full range of products. We are a business communications company. We come from a small business UC background, but we are a full business communications company. Whether it's CPaaS, Engage, AI Studio, contact center, and Workforce Management, all these things, and I can go on, by the way. It's really just enabling them to understand our full product portfolio, and using our product portfolio to solve customer problems. When we achieve that, I absolutely believe our revenues will significantly accelerate.

Speaker #4: We are a business communications company. We come from a small business UC background. But we are a full business communications company. Whether it's CPAS, Engage, AI studio, contact center, workforce management, all these things.

Speaker #4: And I can go on, by the way. It's really just enabling them to understand our full product portfolio and using our product portfolio to solve customer problems.

Speaker #4: When we achieve that, I absolutely believe our revenues will significantly accelerate.

Speaker #6: Great, thank you. And congrats on the quarter.

Andrew King: Great. Thank you, and congrats on the quarter.

Speaker #4: Thank you.

Samuel Wilson: Thank you.

Speaker #1: One moment for our next question. Our next question comes from CT Banat. Go ahead, CT.

Operator: One moment for our next question. Our next question comes from Siti Panigrahi from Mizuho. Go ahead, Siti.

[Analyst] (Mizuho): All right. Thanks, guys. This is Chad here on for Siti. Sam, I wanted to ask about the usage revenue growth. Your earlier comments suggest most of that growth is still being driven by traditional CPaaS and heavy exposure in the APAC region. Just wanted to get a little bit more color as to why you believe that traditional CPaaS growth has been so strong over the last couple of quarters, 63%, 70% last quarter, why that might be moderating into Q2 on the tougher comps as you called out in your earlier remarks.

Chad Tevebaugh: All right. Thanks, guys. This is Chad here on for Siti. Sam, I wanted to ask about the usage revenue growth. Your earlier comments suggest most of that growth is still being driven by traditional CPaaS and heavy exposure in the APAC region. Just wanted to get a little bit more color as to why you believe that traditional CPaaS growth has been so strong over the last couple of quarters, 63%, 70% last quarter, why that might be moderating into Q2 on the tougher comps as you called out in your earlier remarks.

Speaker #6: All right. Thanks, guys.

Speaker #5: This is Chad here on for Citi. Sam, I wanted to ask about the usage revenue growth. I mean, your earlier comments suggest most of that growth is still being driven by traditional CPaaS and heavy exposure in the APAC region.

Speaker #5: But just wanted to get a little bit more color as to why you believe that that traditional CPAS growth has been so strong over the last couple of quarters.

Speaker #5: 63%, 70% last quarter. And then why that might be moderating into Q2 on the tougher comps, as you called out in your earlier remarks.

Speaker #4: Okay, so I want to be careful that we don't draw too big of a conclusion, Chad. So yes, CPaaS overall is a bigger piece of it.

Samuel Wilson: Okay. I want to be careful that we don't draw too big of conclusions, Chad. Yes, CPaaS overall is a bigger piece of it, and Southeast Asia is obviously important, but we sell CPaaS globally. For example, when you talk about growth rates, our CPaaS is growing very nicely in Europe. Our AI is growing well in excess of 100% year over year throughout the platform. As to why it's doing it, look, I think the single biggest thing is over the last 18 months, two years, we've really integrated the products together. It's super easy. For example, Engage has full digital channel capability, which drives then corresponding CPaaS business or contact center. Contact center Engage has AI Studio deeply built in for Pulse or any of these types of things.

Speaker #4: And Southeast Asia is obviously important. But we sell CPAS globally. So for example, when you talk about growth rates, our CPAS is growing very nicely in Europe, very nicely in Europe.

Speaker #4: And our AI is growing well in excess of 100% year over year. Throughout the platform. As to why it's doing it look, I think the single biggest thing is over the last 18 months, two years, we've really integrated the products together.

Speaker #4: So it's super easy for example, Engage has full digital channel capability, which drives then corresponding CPAS business or contact center or contact center Engage have AI studio deeply built in or Pulse or any of these types of things.

Speaker #4: And we’ve released—just this last summer—we released Resolve, which is a really phenomenal product that’s based on CPaaS, if you will, but really it’s on top of that for employee engagement.

Samuel Wilson: Just this last summer, we released Resolve, which is a really phenomenal product that's based on CPaaS, if you will, but really it's on top of that for employee engagement. I want to be careful that we don't put these in buckets, and we shove the buckets together. CPaaS, by its size, is growing slower than AI, but it adds a lot of dollars because it starts with a much bigger number. AI is a smaller number, but growing significantly faster than CPaaS, and they blend together. Does that make sense?

Speaker #4: And so I want to be careful that we don't put these in buckets, and we shove the buckets together. CPaaS, by its size, is growing slower than AI, but it adds a lot of dollars because it starts with a much bigger number.

Speaker #4: AI is a smaller number, but growing significantly faster than CPAS, and they blend together. Does that make sense?

Speaker #5: Yes, it does. Thank you for that clarification. That's very helpful. And then just to follow up for Kevin, you talked about actively working to expand margins in the usage portfolio.

[Analyst] (Mizuho): Yes, it does. Thank you for that clarification. That's very helpful. Then just a follow-up for Kevin. You talked about actively working to expand margins in the usage portfolio. Any more color you could provide there, maybe on magnitude or timing expectations? Thank you.

Chad Tevebaugh: Yes, it does. Thank you for that clarification. That's very helpful. Then just a follow-up for Kevin. You talked about actively working to expand margins in the usage portfolio. Any more color you could provide there, maybe on magnitude or timing expectations? Thank you.

Speaker #5: Any more color you could provide there, maybe on magnitude or timing expectations? Thank you.

Speaker #4: Yeah. I mean, that's a continuous work in process in our company. Look, Sam mentioned the AI usage the AI margins are pretty good, much higher than the basic wholesale-type margins.

Kevin Kraus: Yeah, that's a continuous work in process in our company. Look, Sam mentioned the AI usage. The AI margins are pretty good, much higher than the basic wholesale type margins. One thing that I will point out is we're balancing inside the company our ability to do certain volumes in more wholesale areas to gain better advantage elsewhere enterprise business for usage. It's a continuous, ongoing process of optimizing our margins through careful measurement over the volumes that we do for certain specific products that we sell. Definitely a balance there. Again, as we get scale doing that, the margin should come up over time.

Speaker #4: But one thing that I will point out is we're balancing inside the company our ability to do certain volumes in more wholesale areas to gain better advantage elsewhere at enterprise business for usage.

Speaker #4: So, it's a continuous, ongoing process of optimizing our margins through careful measurement over the volumes that we do for certain specific products that we sell.

Speaker #4: So definitely a balance there. And again, as we get scale doing that, the margins should come up over time. Okay. The other thing I'll mention is—I think we mentioned this in our prepared remarks—but we're looking at doing a bit of a webinar-style thing in early September.

Samuel Wilson: Okay. The other thing I'll mention is, I think we mentioned this in our prepared remarks, we're looking at doing a bit of a webinar style thing in early September, and we'll lay out some of this in that meeting. The part to realize is it's easiest for a customer to start with us on our lower margin, more basic products, if you will. I'll just use the universe most simple example. We send, I don't know, 5, 6, 7 billion SMS messages a year. We're really good at it. We've got 200 plus carrier connections, et cetera. A customer comes to us, and they're like, Great. You guys can send SMS messages for me. That's where they start. Then they add on, Oh, wait a minute. We can hook that to AI Studio. Oh, wait a minute. You're a top-tier partner of Meta?

Speaker #4: And we'll lay out some of this in that meeting. Because the part to realize is that it's easier for a customer to start with us on our lower-margin, more basic products, if you will.

Speaker #4: And I'll just use the universe's most simple example. We send, I don't know, five, six, seven billion SMS messages a year. We're really good at it.

Speaker #4: We've got 200-plus carrier connections, etc. A customer comes to us and they're like, "Great, you guys can send SMS messages for me." That's where they start.

Speaker #4: And then they add on, "Oh, wait a minute. We can look at the AI studio. Oh, wait a minute. You're a top-tier partner of Meta."

Speaker #4: Hey, let's add WhatsApp into the mix. Hey, can you do Signal and Viber? Yeah, you can do those too." And that's how the margins start to expand over time.

Samuel Wilson: Hey, let's add WhatsApp into the mix. Hey, can you do Signal and Viber? Yeah, you can do those, too. That's how the margins start to expand over time. It doesn't happen overnight. I know Wall Street terms, everything should happen overnight, it just takes us a little longer than that. Thanks, Chad.

Speaker #4: It doesn't happen overnight. I know in Wall Street terms, everything should happen overnight, but it just takes us a little longer than that. Thanks, Chad.

Speaker #1: I'm showing no further questions at this time. I'd like to turn it back to management for closing remarks.

Operator: I'm showing no further questions at this time. I'd like to turn it back to management for closing remarks.

Speaker #4: Thank you, everyone, for joining us. See you again in 90 days. See you again in September.

Samuel Wilson: Thanks, everyone, for joining us. See you again in 90 days.

Kevin Kraus: No, sooner than that. In September.

Samuel Wilson: See you again in September.

Operator: Thank you for participating in today's conference. This does conclude the program. You may now disconnect.

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