Earnings Call: Q2 2020

Oct 30, 2019

Good evening. My name is Rachea, and I will be your conference operator today. At this time, I would like to welcome everyone to the 8x8, Inc. Fiscal 2nd quarter 2020 earnings conference call. I will now turn the call over to Victoria Haidun, Head of Investor Relations. Thank you. Good afternoon, and welcome to 8x8's 2nd quarter fiscal 2020 earnings conference call. Joining me today are Vik Verma, Chief Executive Officer and Stephen Gatoff, Chief Financial Officer. During today's call, Vik will begin with business highlights of our Q2 performance. Following this, Stephen will provide details on our financial results and guidance. After these prepared remarks, we look forward to taking your questions. Before we get started, just a reminder that our discussion today includes forward looking statements about 8x8's future business, product and growth strategies that are pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. 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 the forward looking statements as described in our risk factors in our reports filed with the SEC. Any forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them. In addition, some financial measures that will be discussed on this call, together with year over year comparisons in some cases, were not prepared in accordance with U. S. Generally Accepted Accounting Principles or GAAP. A reconciliation of non GAAP measures to the closest comparable GAAP measures is provided with our earnings press release and PowerPoint presentation deck, which are available on our Investor Relations website. With that, let me turn the call over to Vic. Thank you, Victoria. Good afternoon and thank you for joining us today. We delivered strong 2nd quarter results with service revenue up 28.5 percent year over year and total revenue up 27.8 percent year over year exceeding the high end of our financial outlook. These results were driven by our upmarket focus on midmarketenterprise customers, continued strong channel performance, good early CPaaS contributions and accelerating traction internationally. These results reflect improved go to market execution across our business. We have seen solid growth in both direct and channel pipeline creation and good execution by our sales team in all geographies and for customers of all sizes. Our strategy of owning a single global cloud technology platform enables us to innovate faster to disrupt 4 massive markets: unified communications, contact center, video meetings and now communications platform as a service. Today, I would like to focus my remarks on 3 topics: bookings performance, competitive environment and platform innovation. 1st, total Q2 organic bookings grew 35% year over year and reached a new quarterly record. Bookings growth was strong across the board and our results in mid market and enterprise were particularly encouraging. Based on these strong bookings and contributions from CPaaS, mid market ARR grew 53% year over year and enterprise ARR grew 80 3% year over year. Contact center bookings represented about a quarter of our total new bookings and grew 41% year over year. All geographies had strong bookings growth this quarter, but our UK business was particularly notable with an excess of 100% bookings growth year over year. We closed a number of large global deals, including a record 8 figure TCV deal with more than 30,000 seats. A significant contribution to our strong organic bookings performance came from our global channel partners. We had several important channel accomplishments this quarter. Channel bookings grew 80% year over year and channel partners were involved in 7 of our top 10 deals. We expanded our channel program to 19 strategic masters, including the addition of Telecom Consulting Group and Converge Network Services Group. Our channel program now has over 900 active partners. 8x8 was honored to be named the Partners Choice Award Top Overall Supplier by Intelisys for demonstrating the highest level of excellence, dedication, support and value to Intelisys and its sales partners. 858 was also honored with the top vendor sales award at Avant's Special Forces Summit Europe event last week. We know our channel partners are critical to our ongoing success and we remain focused on winning together. Our partners confirm that our fully owned global technology platform is driving the market to 8x8. A great channel win this quarter is an over 5,000 seat deployment with indeed a leading U. S. Job search firm with a presence in over 60 countries. They have been experiencing tremendous business growth and we're looking for a technology provider that could scale and rapidly deploy solutions to their expanding global offices and replace a legacy on premise ShoreTel system. Indeed considered several other cloud providers and in the end chose the 8x8x series including contact center. I also want to highlight recent momentum in the government vertical. In the UK, we secured a 3,000 plus seat win with a local government service, which supports libraries, social services and a local education authority. 8x8 was able to replace legacy systems with 8x8x series including contact center. In the U. S, we have been awarded a place on a cooperative government contract by NASPO, the National Association of State Procurement Officers. This NASPO ValuePoint solutions, including voice, chat, contact center, video meetings and team messaging directly from 8x8. Early channel conversations indicate that the SLED market is right for cloud adoption. Another contributor to bookings growth was an expansion of more than 20% in the number of new logos added during the quarter. A major driver of this result was the launch of 8x8 Express, our e commerce offering that provides an easy self-service path for small businesses to instantly move their communications to the cloud. 8bite Express will be launching in the U. K. In the near future as well. As a final comment on bookings, I'm delighted to see the land and expand continues to be the norm with our mid market and enterprise customers as they see immediate value from initial deployments and look to standardize globally. A great example of this is the 8 figure TCV deal I mentioned earlier. This customer started with us a year ago with 1,000 seats and this quarter they signed for another 30,000 seats globally on the 8x8x series platform. The second topic I want to address is the evolving competitive environment. There have been a number of interesting developments in the competitive landscape over the past few weeks From a cloud UCaaS vendor linking arms with a legacy provider to a cloud video meetings provider that partners with the same UCaaS vendor announcing a competitive offer in the UCaaS space. We have been asked whether any of these ecosystem changes create headwinds for 8x8's disruption of the $60,000,000,000 market available to us. The short answer is quite the opposite. If anything, these changes are accelerating our opportunity. Let me explain why. 1st, anytime a legacy on premise provider with a large installed base announces that the future for their customers is cloud, it brings more opportunities to us for those of us who are in the cloud to begin with. Anytime customers make a change and moving to cloud is a change, they want a choice. Pushing more customers to change just pushes more customers into evaluations with 8x8. It is increasing the number of ad pats that we are getting. 2nd, for customers considering a shift to cloud, the benefits of a single cloud platform technology are clear. Do you want a unified data model so you can optimize across your business? Are you confident that your cloud roadmap is protected future technology changes? How would you like it if your UCaaS provider changed its contact center partner just after you made a purchase? How can you be sure that your video meetings will integrate well with your communication services? We have a consistent strategy and a consistent technology platform. It helps us when other providers change horses mid race and when former partners begin to compete with each other. 3rd, something else we know is that migrating smoothly to the cloud requires a close partnership between the customer, cloud provider and channel partners. This is what we do every day, migrating customers from Avaya, Cisco, ShoreTel, Mitel and other provider on premise solutions to our unified cloud platform. There are more than 350,000,000 legacy seats out there and we have solutions available today to migrate them to the cloud. No need to wait for announcements to maybe turn into a product sometime in the future. Finally, we can do even more to help these customers successfully move to cloud solutions. This morning, we announced a strategic partnership with 2 industry leaders, Poly and ScanSource. This joint global program named Cloud Fuel will accelerate the process of replacing legacy on premise communications infrastructure, while ensuring organizations have proven technology to meet all of their needs across unified communications, collaboration and contact center. This is the first time a comprehensive frictionless hardware replacement and cloud migration program will be offered to the VAR community. In addition to the agent community, which remains a major focus of our efforts going forward, we strongly believe that VARs are an important and distinct path to the legacy installed base. The VARs have developed long term relationships with end customers and continue to serve as their trusted advisors as the world shifts to cloud regardless of the original equipment vendor. Using 8x8's award winning unified communications and contact center solution on 8x8 single technology platform along with best in class equipment from Poly and an extensive ScanSoft network of more than 35,000 resellers, Cloud Fuel will provide access to hundreds of thousands of customers across the globe. Importantly, this program will allow VARs to continue to sell the way they are used to selling. For the first time, bringing true cloud communication services into the bar model in a natural way. This offering includes the full range of 8xX series and standalone solutions and will leverage frictionless migration tools and deployment services. 8x8 alongside our partners intends to invest in this partnership through various forms of incentives, equipment buyback programs, joint development funds, dedicated resources and migration tools. Since the product exists today and the ScanSource sales team are already familiar with 8x8 solutions, we will be able to begin selling under this program in December. This is a game changer for the industry and we are honored to partner with both Poly and ScanSource to help accelerate customers move to the cloud. The last topic I would like to highlight is the accelerating pace of innovation on our single cloud platform. Since we own the technology and have built it into a single platform, we can now innovate much faster than ever to deliver the future of business communications. Let me touch on a few recent high points. In September, we launched 8x8 Video Meetings, a completely reimagined meeting solution available for all X Series and Express customers and provided complimentary as part of their service subscriptions. We have received very positive early customer feedback and recently rolled out 8x8 video meetings to all Classic customers as well. We are also working with early access customers and video conferencing equipment partners to launch our 8x8 meetings room solution. The goal is to bring easy video collaboration to every huddle and conference room space with an intuitive interface and smart pairing technology to connected devices. This will be yet another opportunity for our partners and especially our VAR community as many businesses prefer to have on-site installation handled by a reseller working directly with their cloud communications provider. Next month, we will also be launching a standalone 8x8 video meeting service for new customers. This new standalone service allows users to easily schedule, start and join audio and HD video and audio conferencing from any device or room without the need to register or download software. 8x8 Video Meetings will provide personalized meeting IDs and meetings rooms, screen sharing, remote keyboard and mouse control, host and participant collaboration tool and meeting control for all participants and it will support meetings of any duration. In this initial phase, we plan to offer video meetings free to new customers to encourage adoption. Natural expansion opportunity is to then sell those customers softphones, voice, chat or contact center solutions via our X Series offerings on the same platform. Turning to CPaaS, I'm pleased that integration of the WaveCel acquisition is ahead of schedule. In fact, we have seen cross sell opportunities in both directions materialize faster than we expected. We are in discussions with several large 8x8 customers in both the U. S. And U. K. Who are interested in leveraging CPaaS APIs to customize and extend our voice, chat, video and contact center capabilities across their businesses. This is in line with our strategy of tightly coupling CPaaS capabilities with our prepackaged contact center solutions to enable a new level of customer engagement. As we discussed when we announced the acquisition, this customization further increases both customer value and stickiness, which is why the land and expand part of our market becomes such a huge opportunity for us in our installed base. We also continue to sign exciting new CPaaS customers onto the platform, such as one of the fastest growing global hospitality companies with over 23,000 locations in over 800 cities. This customer is using our platform to differentiate and enhance their customer experiences with messaging that provides directions, booking confirmations, cancellation and payment services. Finally, I am pleased to highlight industry recognition that further validates 8x8's leadership. 8x8 was named a leader in the 2019 Gartner Magic Quadrant for Unified Communications as a Service worldwide for the 8th year in a row, unique in our industry. We were also named a challenger for the 5th consecutive year in the Gartner Managed Magic Quadrant for Contact Center as a Service North America. Also, 8x8 was named the 20 19 best cloud communications provider by UC Today, which recognizes organizations that have proven market success and continue to push the boundaries of innovation. These awards speak to the success of our strategy of innovation and how our single cloud technology platform helps companies to transform communications and unify the needs of a global mobile workforce to enhance productivity for both employee and customer engagement. Overall, 32% of our installed base is on the 8x8x series platform, up from 26% last quarter. In summary, I am pleased with our Q2 results. Our cloud technology platform and go to market execution are driving strong results across our business. We see more customers turning to cloud and looking to us for solutions that are available today. We're excited about Cloud Fuel, our partnership with ScanSource and Poly. I'm excited about the accelerating pace of innovation on our platform. Building on this momentum, we look forward to the second half of our fiscal year. I also want to take this opportunity to thank our 1800 global employees for their hard work and dedication, as well as our customers and partners for their continued loyalty and support. On to Stephen. Thanks, Vic. Good afternoon, everyone. Let me start first by reviewing the financial results for Q2, then I'll discuss our outlook for Q3 and the remainder of fiscal 2020. We'll wrap up, of course, by opening the call to your questions. Starting with our Q2 financial results, we executed very well across a number of fronts in a strong demand environment for the 8x8 cloud technology platform. Our differentiated and multiproduct growth platform is now bolstered with very strategic CPaaS capabilities and is centered around our focus on improving our go to market execution and driving operating efficiencies. All of these elements came together in Q2 and generated solid financial results and a compelling path forward. Total revenue for Q2 grew to $109,500,000 up 27.8 percent year over year. Service revenue came in at $104,500,000 an increase of 28.5 percent year over year. These top line results exceeded the high end of our guidance and were driven by 4 primary factors. 1, strong execution in our go to market initiatives, particularly around pipeline generation and continued strength with our channel partners 2, execution with mid market and large enterprise customers 3, strong organic bookings growth of 35% from our UCaaS and CCaaS business across both new and existing customers and 4, solid contributions from our CPaaS offerings that includes the WaveCel acquisition. This drove execution across geographies, customer sizes and product offerings. More data points that our investments in pipeline generation activities and the channel continuing to take root and drive sequential organic growth. With that, I'd like to briefly address our continued growth in ARR, where total ARR came in at $390,000,000 for the September quarter, a solid 34% year over year growth. This came from a combination of solid organic growth in our UCaaS and CCaaS business and contributions from our CPaaS offerings. A meaningful driver of Q2 ARR growth included closing 30 new deals in the quarter that had ARR in excess of $100,000 and that represented 41% of new bookings, up from 35% in the prior year. In total, we had 5.30 6 customers generating ARR greater than $100,000 in Q2, a strong 61% year over year growth. And so far as ARR by customer size, we saw another quarter of solid sequential growth in Q2. ARR grew above market and small business at 18% year over year, 53% growth in the mid market and 83% year over year growth with our enterprise customers. Combined mid market and enterprise ARR grew 63% year over year, up sequentially from 39% in Q1. We continue to focus on mid market and enterprise customers that drive higher lifetime value and lower churn. Turning to Q2 operating expenses. The key takeaway is that we delivered on our operating efficiency improvement that we committed to, both in total and on an individual line item basis. Non GAAP sales and marketing expense improved to 46.9 percent of revenue in Q2 from 51.2% in Q1. R and D improved to 13.5 percent of revenue in Q2 from 15% in Q1 and G and A improved to 12.8% in Q2 from 14% of revenue in Q1. Finishing things out on Q2, non GAAP pre tax net loss for the 2nd quarter was approximately $15,800,000 better than our guidance and driven by both revenue outperformance and OpEx efficiencies. With that, let's turn to our financial outlook for the rest of the fiscal year. We continue to gain traction and execute in the channel as we are displacing on prem legacy systems with more momentum. Our UCaaS and CCaaS offerings are being bolstered with the very strategic and high growth CPaaS technology and capabilities from our expanded open API framework, and we're actively engaged with new and existing customers on numerous fronts. As stated in this morning's announcement, we are aggressively going after the on prem UCaaS space to provide our unique and compelling single technology platform offerings to this untapped market. As you just heard from Vik, we partnered with ScanSource and Poly, key players in the space and the ones who actually have direct access to and own the customer relationships to deliver a unique and compelling value prop to the VAR community. To drive our readiness, go to market launch and accelerate custom migration tools with this new partnership, we're making a one time investment of approximately $6,000,000 to $8,000,000 over the next two quarters, that's Q3 and Q4 fiscal 2020, in 8x8 migration tools, marketing campaigns, training and enablement activities and deployment services. This investment speeds our execution of bringing legacy Avaya, Cisco, Mitel and other on prem solutions customers rather onto the 8x8 platform. It's important to reiterate that this spend is non recurring. It should not be baked into our run rate expense profile exiting fiscal 2020 and it does not change our path to profitability that I'll cover more in a moment. This strategic partnership and our conversion of legacy on prem accounts to the 8x8 platform is another data point on why we're bullish on both our continued bookings and revenue growth and our ability to drive operating efficiencies. Pulling this together, we're establishing our guidance for Q3 fiscal 2020 as follows. We anticipate total revenue to be in the range of $113,500,000 to $114,500,000 representing 26% to 27% year over year growth. We anticipate service revenue to be in the range of $109,000,000 to $110,000,000 representing an increased sequential year over year revenue growth of 27% to 28%, and we anticipate non GAAP pre tax loss to be approximately $16,500,000 Looking at the full year fiscal 2020, we are raising our previously issued revenue guidance. We anticipate total revenue to now be approximately $440,000,000 representing 25% growth over fiscal 2019. And we anticipate service revenue to be approximately $422,000,000 or 26% year over year growth. On non GAAP pre tax loss, we're adding $7,000,000 of non recurring expense to our existing guidance of $53,000,000 for investments in support of our new ScanSource Poly partnership. That brings our full year fiscal 2020 non GAAP pre tax loss to approximately $60,000,000 In summary, we're very pleased with our revenue, ARR and operating expense performance in Q2. We saw strong combinations and contributions from our mid market and enterprise businesses and the channel overhaul that we drove at the beginning of the year continues to perform and show momentum. We're equally encouraged with the trajectory that we're on that's both driving and benefiting from continuing revenue growth and operating efficiency improvements. We continue to follow our path to profitability and we're on track to achieve non GAAP breakeven exiting next fiscal year end March 2021 as we previously communicated. We remain well positioned in the $60,000,000,000 cloud communications market as a leading provider of voice, video meetings, chat, team messaging, contact center and an enterprise grade API platform. We expect to continue winning business from legacy on prem solutions and we continue to differentiate ourselves from other cloud providers. With that, we appreciate your support and we'll now open the call for any questions. Operator? Your first question comes from the line of Mehdi Marshall with Morgan Stanley. Hi, team. This is Eric on for Meta. Thanks for taking our question. Maybe just to start you off with a tough one and congrats on the quarter. But just taking a look at gross margins, can you help us better understand what drove the sequential decrease, whether it was the growth in larger deals the contribution from CPaaS or just anything that would help us get a better sense of the driver there? Sure, sure. Thanks. It's really 3 things in almost equal measure. One, it was what you said, which was the contribution from the CPaaS product offerings that have a little bit lower margin profile and the revenue on that piece of the business outperformed a bit more, so we had more of that revenue. 2, we have been offshoring some of our cost structure both on a COGS basis as well as on the OpEx side. And we had a little bit of a delay, probably a 30 day delay on moving some of those offshore. We've since done that, but that contributed to a little bit higher cost structure. And then 3rd, you probably saw also that we had some nice growth in product revenue and that comes with a little bit lower margin gross margin. Thank you. That's helpful. And then just on the smaller end, is there anything you're seeing around kind of increased pricing competition, particularly as some newer competitors may be entering the market? Is there anything we should be mindful of there? Yes and no. So the no part is e commerce actually, which we launched around July timeframe has performed much better than expected and that's for the 1 to 9 seats, which is completely self-service and completely automated. So you can order, provision and get support, etcetera and it's completely automated and limited amount of effort involved. And that's priced in the, I think, the $12.99 or so range. So the idea is that I think has given us a huge competitive edge because for us that's a very attractive entry point because in essence you're not using any salespeople for that, it's completely e commerce. So that's addressed that lower end of the market. And frankly, that drove quite a bit of new logos, which over time are upgrading to X Series and others. We saw a 20% sequential increase in new logos and e commerce was a key contributor and keep in mind it was only on for 2 months of the quarter. That's awesome. Thank you and congrats again. Thanks, Manny. Thank you. Your next question is from the line of George Sutton with Craig Hallum. Thank you. Vic, I wondered if you could walk through the uniqueness of the go to market with the Poly and the ScanSource. And I ask it in this context. They obviously have other partners. I actually spoke with a couple of Poly salespeople today. They really couldn't explain what was different. So I'd love you to walk through that if you could. I highly recommend you reach out to Joe and he should who is the CEO of Poly, and you should be able to explain because he is very excited about the partnership. So let me kind of address it at a macro level. The macro level is, we obviously have had a lot of luck with the agent community and the master subs, and we continue to expand and accelerate that. What our learnings is, is that for the legacy on premise guys, the VARs have a lot of the relationships and frankly, most of the power. ScanSource is Avaya's, I believe, largest distributor and has approximately 35,000 resellers and in the neighborhood of 10,000,000 to 20,000,000 seats are controlled through Avaya VARs or through ScanSource's VARs who basically sell and buy equipment. So they have all the knowledge of the customers. Poly and ScanSource and us, Poly is going to make a program available through this program called Cloud Fuel, where we will be able to subsidize the move from Avaya phones. Some other folks have basically said they will try and support obsolete Avaya phones. We'll be able to basically provide a modern phone and Poly will subsidize that and create a buyback program. ScanSource will basically enable and train their VARs to be able to sell a cloud offering, and we will have a wholesale relationship with ScanSource and we will train ScanSource, which will then go out and train their VARs. The reason this is interesting is it comes down to the fact, as you know, the traditional telco market has been controlled to a large degree by VARs and they are used to providing value added services to their end user customers. This allows them to sell exactly the way they have been used to selling. And because we have one unified platform, they can start with UCaaS, but they can also sell contact center, they can also sell meeting rooms, which provide opportunities for value added services and makes them hugely relevant. So for us, we think for a fraction of the investment of anybody else, we've gotten to the VARs who control the end users, which as opposed to the original equipment manufacturer. That's why we think this is such a great deal and it's been a long time in process. Great. I wondered if you could also walk through the 30,000 seat deal, which is a significant size deal. How did that come along? How did that migrate from the 1,000 seat? Just wanted a sense of how replicable this is over time. A key element of our business is land and expand. And one of the key things is we deployed approximately 1,000 seats primarily in North America. And they were very happy with the service and they've expanded it globally. And it's about 30,000 seats. It's a very large company. And they're using this essentially to do a complete transformation of their entire business. We started off essentially with a local office here. Headquarters heard about it. We rolled it out to headquarters. Headquarters loved it. They've rolled it out everywhere. And that was the key. And so it's this is the great idea for SaaS business, but more importantly also the concept of 1 unified platform. Once you're able to go and provide one set of services in one geography, you're able to add additional services and you're able to add everything from contact center to meetings to whatever. And in this particular instance, as I said, we started off with a local office in the U. S. And expanded globally and 30,000 seats is probably the largest initial order we've ever had. That's a great deal. One thing for Steve, if I could. Did you give the WaveCel revenue impact in the quarter? We haven't. We didn't break out that product line consistent with how we don't break out the others. Guys. Your next question is from the line of Ryan MacWilliams with Stephens Inc. Hey, guys. Congrats on the quarter. Just one question for me today. It looks like contact center sales and bookings have been picking up. Is there anything in particular here that is better resonating either the channel or direct sales force? Yes, 2 things. So one, I want to emphasize this part. From top to bottom, total bookings, which is not a metric we have traditionally disclosed, but the reason we chose to disclose it is, we wanted to give you guys a sense of the core health of the organic business. 35% growth of the organic business in terms of total bookings, total new bookings. And this is from 1 seat all the way up to 30,000 seats. 2nd, contact center represented about a quarter of that total bookings and that grew 41%. So what it's telling you is we were relatively late into the contact center and our contact center has been growing up. What it's starting to tell you is both as combo deals as well as standalone contact center starting to come into its own and now represents about a quarter of our new bookings. And we see that accelerating. I mean, it's obviously growing faster than the overall total bookings of the company. Great. Thanks for taking my question. Thanks, Mike. Next question comes from the line of Matt Van Velt with Stifel. Yes. Thank you for taking my question. I guess first, I wanted to dig in, in terms of what the early reaction has been to the new video meetings product and how you're going to position that from a go to market perspective when it's more generally available? Got it. So I'll break it into 2 parts. So the meeting solution is initially what we did is we offered it to all of our X Series folks as a complementary basis. And actually it was good reaction there because I think the view is, it's very comparable to the industry leading, it's definition, it's WebRTC, so you can actually enter from a web browser without having to download an app. You have all of the basic participant control, content sharing, high definition. And obviously, we are well known for voice. So across the board, the reaction was good. We then rolled it out to all our classic legacy users as well, so that everybody had access to meetings. Our initial around middle of November is when we will be launching our standalone meetings product. The standalone meetings initially would be provided free where you literally will be able to get into a website, not even have to register and get involved and start using it. There will be no limits in terms of the meeting duration. And the key goal for us is to drive adoption. That's the number one goal for us. Remember for us, it's all about the platform. Meetings is one part of the platform. Meeting then gives us a very logical way for us to upsell softphones, voice, contact center, etcetera to that customer base. And then over time, we'll continue to add more and more features to meetings and make it, as I said, even more valuable. But the part that I think you will find and when you do a comparison between us and all of the various other meeting products and we'll make sure that you guys have all of this information mid November, you'll get a sense what we've got is very close to the top of the line in the industry. 2nd part is we've also launched an early access to meeting rooms. This is conference rooms. And the thing that is unique about us is we are able to leverage essentially commodity hardware. So you can use a TV, you can use an iPad and you can use simple cameras and now you've turned yourself into a complete high definition conference room and you can have these conference room meetings where you can do one touch. We did early access for a few key customers and a limited number of VARs. There has been a lot of excitement about that, particularly amongst the VAR community because they view this as an opportunity to go in and create conference rooms for all of their customers where they'll go in and they'll install the TV and the cameras, etcetera, and we provide all of the software. So we see big opportunities for adoption there as well and that one obviously will be a paid service. So this acquisition we did less than a year ago and it's been phenomenal for us. And then turning to the international opportunities, obviously wavecell opens up a market that maybe you haven't historically been as penetrated in. Curious if you're seeing any early traction in terms of selling your platform into the existing WaveCel customers and any or what the pipeline is looking like as you turn to those existing relationships in a cross sell, upsell opportunity? That actually, as I mentioned in my remarks, we have been actually pleasantly surprised by how quickly there or how much demand has picked up both within the wavecell installed base, which particularly for contact center, and this is why I think there was an earlier question about contact center coming into its own. There is a huge pull for a lot of WaveCel's customers to add contact center because CPaaS and contact center go very well together because in essence, it's a way of customizing your interactions with customers and enhances customer engagement. We're seeing exactly the same thing happen with some of our largest customers in U. S. And U. K. That have contact center. They actually want the CPaaS added very quickly and to the extent that we are actually accelerating the move of bringing the WaveCel capability into the U. S. And to U. K. And as a matter of fact, we'll have a few announcements over that over the next few months. But the uptick and the tight integration between our contact center and CPaaS has been much more than we anticipated. Great. Thank you. Your next question is from the line of James Brand with William Blair. Thanks for taking the question. Can you just talk about you mentioned that you saw a little better performance in the CPaaS business this quarter. Wondering what you thought drove that? And if you can give any examples of use cases you're seeing if you're talking to customers? And additionally, within that segment, how does that overlap with some of the other offerings? Thanks. So I think you were asking for use cases for WakeCell. I mean, the I think it's more CPaaS. So let's start talking about some of our larger customers. One of our largest customers does everything from bookings of rental units, etcetera. They want to now use CPaaS capability to go in and do the bookings confirmation and send the alerts as well as information of where the keys are and also they want the ability to know when somebody is geographically in a close enough area, so they can go alert the homeowner, etcetera. So that's the kind of applications where people want. We are we gave an example today of a major hospitality chain, which is using CPaaS technology to go in and do everything from directions to being able to basically do billing all via mobile phone. And then finally, we're seeing chat applications for contact center. We're seeing that people want to integrate contact center to WeChat, WhatsApp, etcetera. And those capabilities is enabled by CPaaS and we are finding that that is and that's actually been an interesting one where chat applications tightly integrated with contact center is how customers want to communicate with contact centers and CPaaS enables that and U. S. And U. K. Customers are increasingly focusing on WhatsApp and WeChat and other chat applications as a tight integration into their contact center and CPaaS enables that. And you mentioned that growth in that segment was good in the quarter, maybe a little ahead of your expectations. Is it direct coming from existing customers or some of the new logos? Yes. It's a little bit of everything. It's growth from usage of existing customers, adding customers and adding geographies. So it's really all three. Great. Thank you. Yes, sure. Thanks. Your next question is from the line of Andrew King with Dougherty and Company. Andrew, your line is open. No response from Andrew's line. Next question comes from the line of Charlie Aykor with Baird. Yes. Hey, guys. Thanks for taking the question and congrats on the quarter. So with that 35% organic bookings growth, which is really excellent and continued strong channel bookings as well. I guess my question is why not raise guidance by more? I mean, it seems like those are really strong numbers and kind of wondering how those play into the guide and what we can expect for those bookings numbers going forward? Yes. Hey, Charlie, thanks. So I mean candidly, we're very pleased with the quarter. We're pleased with the trajectory. We like what we're seeing. And candidly, we're 1 quarter out on really growing the CPaaS business organically and inorganically both. And we are just playing it candidly very thoughtfully and watching as things go and no one wants to get out over their skis and be silly about managing expectations internally or externally. And I'll add one more. I mean, as you think about it, I don't know what your thoughts are, but currency has been quite fascinating because we had this beat this quarter despite some currency fluctuations, and you're seeing all of that happen all over the world. So from that perspective, we feel pretty comfortable with the guidance we have provided. Fair enough. Thanks, guys. Yes, thanks. And your next question is from the line of Rich Valera with Needham and Company. Hi guys. This is Nate Hitching on for Rich. Just want to look at contact center a little bit more. So I know last quarter you guys provide the metrics regarding 30% of MME and enterprise bookings were standalone. And then standalone CCAR was up 35%. I was wondering, I know you gave the 24% of total bookings metric for this quarter, but I was wondering if you could provide any additional context there. And then, yes, we'll start there, I guess. Yes. So I mean, the point I would make is strength across the board. I mean, the reason we provided, if you think about it, mid market and enterprise bookings is approximately, I can't remember, 60 odd percent of our bookings. We said contact center this quarter was approximately 25%, a quarter of our total bookings. Contact center is now starting to permeate every segment of the market, all geographies. That's great news for us because that basically says that that one platform that we are coming up with applies to every segment that we go after. And total contact center SKUs grew essentially by 41%, so faster than our total bookings. So I mean, I can't be more pleased with contact center. It tells you that the investments we have made in contact center over the years has turned to bear fruit. And it also gives you a sense of the strength of our model because we have one platform that one platform has essentially a PBX replacement. It has meetings, It has contact center. It has APIs and it has the ability to do collaboration. And so when you add all of those things together, we are able to mix and match different things and each of these things has different growth rates that we can leverage. And we are able to be flexible, so we can partner where we need to and we are not this one trick pony where, oh, by the way, if somebody enters this particular market or somebody starts to compete in that particular market, we're stuck. We're able to move around and different parts of our portfolio grow and add value to different customers. Okay, great. Thank you. So, then I guess switching gears a little bit, looking at a little more into the 8 figure TCV deal. So I'm thinking about how the rev rep for that deal and how to look at that and if you can provide any additional context around the duration or anything there that would be really helpful. Yes. The duration is pretty consistent with enterprise contracts on the 3 year zip code. And it's a SaaS model, so there is no magic insofar as rev rec begins basically being taken on the subscription piece ratably. It does include some amount of services obviously, but the subscription portion kicks in immediately. Okay, great. Thank you. Yes, sure. Your next question is from the line of Jonathan Kees with Summit Insight Group. Great. Congrats also to the numbers. I wanted to ask about the new partnerships with ScanSource and Poly. You guys talked about the training and the investment that you're going to make in terms of getting the resellers, getting the partners up to speed in terms of the 8x8 solution and even I guess purchasing some of the older Avaya phones. I guess on that tenor, what kind of financial incentives are you providing or are you for like ScanSource resellers to sell your solution versus Avaya's new cloud partner? And also for Poly, I noticed that video was not there in terms of the partnership. If you have a customer who's asking for video, what happens there? And is there also a financial incentive there for Poly to sell your solution versus someone else's? Yes. So a couple of things. So let's map it up. We don't fully understand and I think neither do neither does CanSource or Avaya resellers as to exactly what the other offering is. There seems to be quite a bit of confusion and it's unclear whose paper it's being sold on. What the main model that we are doing and the recent ScanSource came to us and Mike Bauer, Joe Bolton and I have been spending some time on this. The idea is ScanSource believes that their VAR community wants to be able to sell the way they are used to selling and they feel like that is being disrupted right now with some of the changes in the industry. The way they're used to selling is essentially on their paper, essentially buying wholesale from the original equipment manufacturer and then selling it on their paper and providing value added services. That is not the model that is being currently contemplated by some of our competitors. So the way we're doing it is, center, collaboration, data analytics, all built into one platform. Center, collaboration, data analytics all built into one platform. We have also spent a lot of money over the years on biz apps tools. And the idea is we've created something called partner exchange where a distributor or a VAR can buy essentially wholesale from us and then on their paper provide a quote to their end user customer and everything gets provisioned instantly. So you get the benefit of clouds Literally, the moment they place an order with us, it gets instantly provisioned for the end user, but the VAR is providing it on their paper. From our perspective, we love it because in essence, the VAR has a level of customer intimacy that we do not have and nor can we ever recreate it because it's years years of time and energy. And so it is a frictionless way for us to ensure that we get much more at bats. And again, that's why I said ScanSource as a distributor. ScanSource, I believe is Avaya's largest distributor and has tens of millions of end users or seats, Avaya seats that are controlled through their VAR channel. Their VAR channel has been clamoring for a solution that they can resell and provide value added services. Well, logical value added services you provide is on contact center. You provide it in huddle rooms and meeting rooms. These are all capabilities. So the training that we are doing is basically scans or setting up or training centers, which they do as part of their current on premise business, but then they'll migrate to their VAR business, where they'll train all of their VARs, enable all of their VARs, create the collateral material to help their VARs go to end user customers. So it's a new way to go to market, but it's using the traditional way that VARs have been used to selling. And the big misnomer has been that the original equipment manufacturer does not have control over the customer. The VARs have control more often than not because they are the trusted advisor and we're enabling VARs to sell the way they're used to selling. We think the way we're moving about it, we obviously monitored the Avaya deal for quite some time and obviously had some thoughts on it. But we felt this was the better way to go to market because we felt that the real power was with the VARs. Okay. All right. That certainly makes sense. Thanks for that, Vik. Next question is for Steve. I get what you're saying in terms of you don't want to disclose WaveCel's revenue contribution, but can you please talk about the growth year over year growth for the CPaaS business? Yes, it was really strong, north of 50% for sure. And candidly, as we get more time in the business and becomes more seasoned, we'll look to provide more metrics on the business as we have. Every quarter, we've come out with additional operating metrics to give people a sense. We're about 90 days in or so. And so we'll definitely provide more. But the business is growing strong and it's been consistent with what we've seen and what people have known is out there and so continues to perform well. No surprises in either direction. Great. Look forward to it. Thank you very much guys. Yes, sure. Thank you. Your next question is from the line of Josh Nicholas with B. Riley FBR. Yes, thanks for taking my question. Since the Q is now yet, could you just give me a breakout for the revenue split between U. S, U. K. And APAC? The Q will be out tonight most likely it may hit tomorrow. Generally speaking, the revenue contribution, which is different than our bookings contribution, right? For example, revenue out of outside the U. S. Is in the 15% zip code, whereas it's roughly 25% of our bookings. Okay. And you said so historically like last quarter like the U. K. Has been 10%, right? But you're saying now revenue from outside the U. S. Is 15%, but 25% of bookings, correct? That's right. Got it. And then, I guess, I just want to get a little bit of a better handle. So wavecell is growing faster for the CPaaS business. So I guess, fair to assume for the margin outlook, is this level of Q2 margin probably maybe going to come down a little bit further since WaveCel or CPaaS is growing faster and there's generally lower margins associated with that business. Is that relatively a fair assumption to think about going forward? No, not materially. And so we expect the margin profile to increase over time. To the extent that the CPaaS business globally accelerates and performs even more, that might be a reason why gross margin could come down a bit, but that's not what we expect. And then do you have any targets? We used to talk about operating targets for like the common size R and D, sales and marketing now that this acquisition has been done? What you're thinking for the 3Q? Or as we look a little bit a few quarters out for what those targets may be on a percentage basis? So we have not laid out specific numerical targets, but we have communicated and committed to and candidly delivered in this quarter and expect to continue to deliver is improving on our operating efficiencies. And so the whole notion of business model efficiency on the OpEx line for all three areas as sales and marketing, G and A and R and D is something we delivered in Q2 and we expect to continue to see efficiency improvements through the year, through each quarter. Not every line item, every quarter a big improvement, but net net it should improve and most line items should improve as we continue to move forward. And then just trying to guide back towards from the GAAP to non GAAP. Like the add back items have increased a lot and cash burns kind of accelerated hitting a peak of like $36,000,000 it looks like a free cash flow for this quarter on a burn rate. Is that fair? You're probably going to expect to see like this $25,000,000 level of ABDAC items going forward once you factor in the amortization D and A stock comp and all the other items. Is that a fair run rate? Probably a fair run rate on the recurring depreciable base shouldn't materially be different next quarter for some of those non cash items. And then last question, just kind of wanted to get a little bit more clarity. Someone asked before. So I understand that the company is being potentially only 1 quarter with wave cells, so only taking guidance up modestly for the year. But I'm a little bit surprised given that you had this big 30,000 seat win that's the largest in the company's history. And then on top of that, you have this new partnership that's going to be launching in another month or so. And you're investing $7,000,000 in that partnership, but you're not really taking revenue guidance up very materially and just kind of triangulating all those 3 like what's the explanation for that besides just WaveCel and potentially being conservative on that front? The explanation is that the company has been posting revenue growth in the 18%, 19% zip code for the last several quarters. We committed to growing revenue. We did a terrifically strategic and important product addition to the platform that's revenue growth and now we're guiding to similar levels of revenue growth and we and our largest stockholders and our Board feel pretty good about that. So we don't have an issue with that. Right. And I'll add one more on the ScanSource one. ScanSource is enterprise customers. From the time you invest to the time you turn to revenue is a 9 odd month timeframe. As Stephen said, we're very comfortable with the guidance increasingly bullish about the company, pretty much every geography performed well. ANZ did very well. UK had their Great. So continues to perform. Contact centers performing well. The concept of one platform is starting to all come together. We just need to develop a muscle of continuing to have solid guidance and keep beating it. And then 1 quarter does not a trend make, but keep going. Then I'm much happy to keep raising it more. Okay. Thanks, guys. Thanks. Thank you very much. And there are no other questions at this time. Thanks, operator. Thanks, everyone. Thank you, everybody. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.