8X8 INC /DE/ Q2 2026 earnings call

Thank you, Operator, and good afternoon, everyone. Today's agenda will include a review of our results for the second quarter of fiscal 2026 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. 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. 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, and we have no plans or obligations to update them. 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 U.S. 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. With that, I'll turn the call over to our Chief Executive Officer, Samuel Wilson.

Thank you all for joining us today. As we mentioned last quarter, we are transitioning our conference call format. We're moving away from reading lengthy prepared remarks and instead are posting a detailed quarterly letter complete with business and financial highlights to the Investor Relations website in the quarterly results section. This quarter, Kevin and I will share brief remarks highlighting a few important points. Q2 was another strong quarter for 8x8, and the results reflect the progress we're making in the business. We are continuing to execute against our priorities for the year, returning to growth, expanding our use of AI to improve both customer and employee outcomes. Completing the Fuze platform shutdown, and driving stronger retention through cross-sell and multi-product adoption. But the real story this quarter is innovation. It is transforming how customers experience 8x8 and what is powering our growth.

We've embedded AI throughout our platform to make communications smarter, faster, and more personal, from real-time call summarization in Contact Center to AI-powered transcription work in 8x8 Work, to new agentless payment capabilities to digital channels like Viber and RCS in 8x8 Engage. Engage is our AI-powered CX solution that extends Contact Center capabilities to all customer-facing employees. Internally, we're using AI to work smarter, automating processes, improving forecasting, and helping our teams deliver faster, higher-quality customer experiences. We view AI as elevating and enhancing the work of our employees, making us more efficient. We are also transforming how we take our innovation to market, aligning our sales, marketing, and partner motions around customer outcomes. And I'm excited to share that Stephen Hamill has stepped into the role of Chief Revenue Officer to lead this next phase.

Stephen successfully drove our CPaaS API usage in the Asia-Pacific region and around the world. So some key points. Today, we announced 8x8 Workforce Management, available starting next week to all Contact Center customers at no additional cost through our new 8x8 App Store. Yes, you heard that right. We're making Workforce Management available free of charge to all of our Contact Center customers, existing and new ones. We already have customers running it in production. This is a big moment for two reasons. First, this is our first product-led growth or PLG launch. We've introduced a high-value solution designed to drive adoption, with a premium version planned for future release. Workforce Management is available to everyone. Second. It marks the beginning of a broader expansion. We'll be adding more applications to the 8x8 App Store shortly, giving customers a modern, flexible, self-service way to activate new capabilities.

We're expecting strong demand for 8x8 Workforce Management, so we've begun a progressive rollout starting next week. The 8x8 App Store and PLG strategy was implemented to better support the accelerating pace of AI-native product innovation, and it reflects our commitment to delivering outcomes that matter. We have new apps teed up for both UC and CC in the near future. Switching gears, I want to highlight how we're changing the lives of our customers. One example is one of the largest automotive dealerships in the U.K. Before working with 8x8, they were juggling nine different communication systems across its dealerships, creating complexity and slow response times. By moving to 8x8, they consolidated everything: voice, video, Contact Center analytics to one integrated platform. The impact has been transformational. The dealer group now uses 8x8 Contact Center, video elevation, Conversational IQ, with a strong adoption of web chat and digital engagement.

They're also piloting Smart Assistant and Intelligent Customer Assistant to automate quality assurance and bring real-time AI analytics to their service teams. Their IT leader summed it up well when he said, "8x8 helps us focus on what matters most, providing the best experience to our customers." In short, we went from nine vendors down to one, unlocking better visibility, faster response times, and stronger connection with every customer. Across the Atlantic, a multi-hundred-million-dollar software company using 8x8 is another powerful example of how our innovation drives measurable business outcomes. They are using multiple 8x8 products, including UCaaS and CCaaS, as well as 8x8 Engage, Secure Pay, and Conversational IQ, to deliver a seamless, data-driven customer experience across their network. Their team has fully embraced 8x8 as a strategic platform, not just for communication, but for business transformation.

They're leveraging analytics and engagement insights from 8x8 Engage to refine the sales and service workflows to connect all customer-facing employees in and out of the Contact Center. They're also piloting Smart Assist to improve mystery shopper scores and coach their frontline teams in real time. It's a deep collaborative relationship from executive leadership to frontline users, built on trust, measurable outcomes, and shared success. This software vendor exemplifies what we mean when we talk about long-term customer partnerships built on a comprehensive portfolio of products. These are the kinds of outcomes that define our innovation story: outcomes that are measurable, transformational, and rooted in customer success. They show what makes 8x8 different. We're not just delivering new features or chasing trends. We're helping organizations simplify their technology, empower their employees, and create experiences their customers remember.

Whether it's a service provider at an auto dealership resolving an issue in one interaction or a software team using analytics and automation to raise customer satisfaction scores, these are real examples of 8x8 innovation in action. That's what makes this journey so exciting: innovation that creates lasting impact for our customers, our people, and ultimately our shareholders. With that, I turn it over to Kevin to share a few highlights from the quarter.

Thanks, Sam. Good afternoon, everyone. And I also want to thank you for joining us for our fiscal Q2 2026 earnings call. Detailed financial results are available in our press release and in the trended financials on our Investor Relations site. As Sam mentioned, we're introducing a slightly different format this quarter, and I have also posted a shareholder letter and financial highlights alongside our quarterly materials. With that information already available. 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. Q2 marked our second consecutive quarter of year-over-year revenue growth, reflecting healthy usage trends and disciplined execution.

Total revenue was $184.1 million, and service revenue was $179.1 million, with both exceeding the high end of guidance by roughly $4 million and growing 1.7% and 2.3% year-over-year, respectively, driven by continued strength in our usage-based offerings. Excluding revenue from Fuze customers, whether on the 8x8 Platform or not, service revenue grew nearly 6% year-over-year, higher growth than we achieved last quarter, and our fourth quarter of acceleration. Service revenue remaining on the Fuze platform declined to approximately 3% of total service revenue, down from approximately 7% in Q2 2025. We are on track to move the remaining Fuze customers onto the 8x8 Platform by calendar year-end. Usage revenue, which includes our CPaaS communication APIs, saw another record performance totaling approximately 19% of service revenue, compared to approximately 13% in Q2 2025.

Gross profit for the quarter was $120.9 million, about $2 million above our implied guidance midpoint, reflecting strong execution and revenue outperformance. Gross margin was 65.7%, down sequentially due to the continued mix shift toward our usage revenue, which carries a lower margin profile but will add meaningful profit dollars as usage revenue continues to scale. Operating income came in at $17.3 million, exceeding expectations and resulting in a 9.4% operating margin, above the high end of guidance. Fully diluted EPS landed at $0.09 per share, $0.01 above the high end of our guidance range. Cash flow from operations was $8.8 million for the quarter, above the high end of guidance. We ended the quarter with $76.7 million in cash, cash equivalents, and restricted cash. We continued to allocate capital to debt reduction.

During the quarter, we made a $10 million term loan prepayment, and subsequent to quarter end, we made an additional $5 million term loan payment. With these actions, we have reduced our debt principal by $224 million, or 41%. Since the August 2022 peak debt of $548 million. Our next required term loan payment of $2 million isn't due until June 30th, 2026. These proactive deleveraging actions demonstrate our continued commitment to disciplined capital management. Stock-based compensation as a percentage of revenue was 2.9%, another multi-year low for the company. This continues a clear downward trend, reflecting our ongoing focus on prudent equity management. While our diluted share count has grown, the year-over-year increase declined notably versus the prior quarter's growth for the second quarter in a row. We are committed to minimizing dilution over time and managing compensation costs in a thoughtful and sustainable manner.

Looking to Q3, our revenue guidance reflects a sequential decline following record usage revenue in Q2 and the ongoing wind down of Fuze-related revenue. Customer engagement remains healthy, but we are forecasting usage-based revenue growth more cautiously, given potential variability in consumption patterns. As usage continues to represent a larger share of total revenue, we have incorporated this dynamic into our outlook with an appropriately measured approach. Given the rapid growth of our usage revenue, we are guiding to lower gross margins for the remainder of the year. Importantly, this mix shift reflects increasing engagement with our platform and expanding use cases across our customer base. We are actively managing this evolution through disciplined execution and targeted go-to-market initiatives, and we remain confident in our ability to deliver durable, long-term growth and profitability. For fiscal Q3 2026, we are providing the following guidance.

Service revenue is expected to be between $172 million and $177 million. Total revenue is anticipated to be between $177 million and $182 million. We anticipate gross margin between 64% and 66%. And we anticipate operating margin between 9% and 10%. In fiscal Q3, we expect contractual interest expense, which excludes amortization of debt issuance costs, to be approximately $4.2 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 $2.2 million, which reflects only the term loan interest payment, as the semi-annual interest on our 2028 convertible notes is payable during Q2 and Q4 only. Our term loan interest rate assumption is approximately 7%, reflecting SOFR plus 3%.

We anticipate fully diluted non-GAAP earnings per share in the range of $0.08 to $0.09 per share, based on approximately 143.5 million fully diluted shares outstanding. We anticipate cash flow from operations to be between $10 million and $14 million, driven by the timing of cash interest payments and other payments we make in the normal course of business. For full fiscal year 2026, we are updating our guidance as follows. Service revenue is anticipated to be between $692 million and $706 million. Total revenue is anticipated to be between $712 million and $726 million. We anticipate gross margin to be between 65% and 66%. Full year operating margin is projected between 8.5% and 9.5%. Translating to non-GAAP operating income of approximately $65 million at the midpoint of our full year revenue and operating margin guidance.

Although operating margin is expected to decline year-over-year due to mix-related gross margin pressure, we expect non-GAAP net income to remain relatively stable, supported by significantly lower interest expense compared to fiscal 2025. We expect fully diluted Non-GAAP earnings per share to be in the range of $0.31-$0.33 for the year, assuming approximately 143 million average diluted shares outstanding. And we anticipate cash flow from operations to be between $38 million and $42 million for the full year. In summary, Q2 reflected steady execution, consistent profitability, and ongoing progress in strengthening our balance sheet. With disciplined expense management and a clear focus on profitable growth, we enter the second half of the fiscal year with strong momentum and confidence in our ability to deliver sustained shareholder value. With that, I will turn the call over for Q&A.