8x8 at Morgan Stanley Conference: Strategic Transformation Insights

On Wednesday, 05 March 2025, 8x8 Inc. (NASDAQ: EGHT) participated in the Morgan Stanley Technology, Media & Telecom Conference, sharing insights into its ongoing transformation. The company highlighted its strategic efforts to drive revenue growth and reduce debt, while also acknowledging challenges such as anticipated declines in operating margins due to strategic investments. The conference underscored 8x8’s commitment to innovation and financial discipline.

Key Takeaways

• 8x8 has reduced its debt by 35% since August 2022, providing financial flexibility.
• The company is focusing on a multi-product strategy to re-accelerate revenue growth.
• Strategic go-to-market investments are expected to slightly decrease operating margins in fiscal 2026.
• 8x8 plans to complete the migration of Fuze customers by December 31, 2025.
• New AI products are experiencing a growth rate of 60% year-over-year.

Financial Results

• Debt Paydown: 8x8 has successfully reduced its debt by approximately $190 million since August 2022, amounting to a 35% reduction from its peak. The company plans to continue paying down debt into 2026.
• Operating Margins: Fiscal 2026 will see a decrease in operating margins due to strategic investments, with non-GAAP operating profit expected to drop by about one point.
• Net Income and Cash Flow: Despite a slight dip in operating profit, net income is expected to remain stable, aided by lower interest expenses from debt reduction. Cash flow is anticipated to stay within the current range.

Operational Updates

• Product Strategy: 8x8 is heavily investing in new products, particularly AI technologies. The company’s AI products are growing at 60% year-over-year from a small base, and the CPaaS business is also experiencing strong platform growth.
• Customer Base: With over 50,000 customers, 8x8 is expanding its focus beyond small to medium-sized enterprises to include industries like banking and healthcare that demand high security and compliance.
• Sales and Marketing: The company is emphasizing multi-product solution sales, which have larger deal sizes than two-product sales. AI is used to identify buyers ready to purchase sooner.
• Channel Strategy: 8x8 employs a multi-channel sales approach, including direct, agency, and value-added reseller (VAR) channels. The VAR business is expanding in the U.S.

Future Outlook

• Growth Re-acceleration: The company aims to boost revenue through a multi-product strategy and expects AI technologies to be a significant growth driver.
• Capital Allocation: Continued debt reduction is planned, with potential investments in convert buybacks or stock buybacks considered for the future.
• Go-to-Market Investments: Strategic investments are being made to enhance pipeline and conversion rates, with a focus on a multi-channel strategy.

Q&A Highlights

• Fuze Migration: 8x8 plans to complete the migration of Fuze customers by the end of 2025, ensuring a seamless transition without service disruptions.
• Competitive Landscape: The company competes in the UCaaS market by offering comprehensive solutions that emphasize reliability, scalability, and security. It leverages its ability to offer UCaaS, CCaaS, and CPaaS together.
• Management Hires: Recent hires, including a Head of EMEA Sales and a Chief Transformation Officer, are expected to enhance go-to-market efforts and drive AI integration.

For a deeper dive into 8x8’s strategic plans and financial performance, please refer to the full transcript.

Full transcript - Morgan Stanley Technology, Media & Telecom Conference:

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: All right, perfect. Welcome, everybody. I’m going to read some disclosures first. So for important disclosures, please see the Morgan Stanley Research Disclosure website at morganfamily.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative, Amita Marshall.

I cover the communication software space here at Morgan Stanley. Delighted to have 8x8 and have Kevin Krause, CFO, here with us today.

Kevin Krause, CFO, 8x8: Thank you very much. I appreciate it.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: All right. So 8x8 has been on a journey over the past couple of years incorporating views, broadening the platform. Can you just level set on some of the steps that you guys have taken and when it should help you return to growth?

Kevin Krause, CFO, 8x8: Sure. Thank you. Yes, we’ve been on a very deliberate transformation journey at 8x8 a couple of years ago. Actually, we just had the third anniversary of Fuze in January when we closed the deal. So three years ago, we bought Fuze and it’s been a tremendous success for us.

Gave us a lot of good engineering teams. It gave us a lot of great enterprise customers and it really helped us bolster our cash flow and revenue growth at the time. So very good opportunity there. And we were able to really generate a lot more financial flexibility in the company as a result of doing this acquisition. So it’s been a wonderful, wonderful time to be here.

We obviously, it enabled us to pay down the debt. We’ve paid down the debt. 35% of our debt has been paid down over the since August of twenty twenty two. So we have a lot more flexibility as a result of doing that deal and a lot more product development has happened during that time.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. And then what’s the biggest kind of unknown as you determine kind of when you think you can return to growth just as you kind of work through all these factors? Sure. I think for

Kevin Krause, CFO, 8x8: us, it’s a couple of things probably. The ability for us to really accelerate our multi product strategy within the company. We’ve invested a lot in our products. And in terms of the growth, I just want to kind of give a little bit of context for the people here. We had over the course of two, three years, our revenue our service revenue has been flattish to slightly down over the course of time.

In that same period of time, we’ve reduced our expenses much greater. So our profitability in the company and our cash flow generation has gone up quite substantially. So I just want to frame the concept of growth within that context. So the returning to revenue growth in the near term, it would really rely a lot on our closing out the fuse upgrades to made by a platform, which we’ve set a date for that as 12/31/2025. So at that point, we find when the Fuse customers are migrated over, they’re happy, they stick with us.

And there’s a little bit of churn that happens in that. So that causes a little bit of a revenue headwind for us. And then on the other side of the coin, it’s our reacceleration of revenue driven by the adoption of our multi product strategy. So we’ve invested a lot of money in new products, including AI technologies that we’re able to deploy and offer a complete customer solution. We’re one of the only companies out there that I know of that has the UCaaS, CCaaS and CPaaS all natively owned.

And we’re able to use our deployment teams to deploy that across customers in many different sizes, even though we tend to focus on the small to medium enterprise sized customers, but our technologies can be used for any size customer. So doing those types of things, we expect that to help us reaccelerate. There are pockets of growth acceleration at 8x8. We’ve mentioned this on our earnings calls, our new products, new AI products growing 60 year over year, admittedly from a small base, but there’s pockets there. Our platform growth in our what we refer to as our CPaaS business, a good grower there as well.

So we have really good pockets of growth, a bit of a fuse headwind and near term headwind we had for FX, for example, which we articulated in our call. But we do have good opportunities to exploit what we have to deliver in terms of a multi product solution.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Got it. As you’ve kind of talked about building out this platform company away from kind of more of a product company. Just how is this impacting sales cycles, customer acquisition costs, deal sizes, win rates? You gave some examples just now of where you started to see kind of on the win rate side, but just how is that impacting the rest of the sales cycle, just trying to sell that platform instead? Yes.

I think for us,

Kevin Krause, CFO, 8x8: what we are doing, what we’re focusing on is selling customer outcomes. So for us, it’s using our full suite of offering to develop a use case specific use case for our customers. We’re showing how an ROI can be achieved either through reducing agent workload or improving sales, say Securepay or something like that, using that AI technology through our technology partner ecosystem and really proving out like focusing on a customer solution. That is we’re also deploying AI tools internally to help with that in terms of like your sales cycle question and deal size. But I think that our deal size is roughly the same.

We look at our multi product solution sales as customers with three or more products have deal sizes that are roughly three X, what a two product sale would be or and those are the kinds of things that we do to help deal size. So I think that really developing use cases around ROI and showing the result there or proving it out is it will help shrink the sales cycle and maintain or increase deal size.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Okay. You just mentioned kind of influencing deal size. Just as you move towards more of the CCaaS or kind of platform customer experience led motion, just as the target customer change from what your customer was before?

Kevin Krause, CFO, 8x8: So we started out historically in our company as UCaaS only type company. And as we invested more in new products and technologies, we’ve broadened our portfolio, of course. In terms of the target customer, we have focused on small to medium sized enterprises and still do, but that doesn’t mean that our technologies can’t be deployed across any size customer. So for us, we’ve mentioned that we would target the small, medium sized enterprises, but we have over 50,000 customers in the company and we love all of our customers of all sizes. So I think that we also need to we do look at customers who, for example, there could be specialty market not specialty markets, but certain markets where maybe security or regulation is of paramount importance.

We see that some of our UK like you can have banking or healthcare related industries and our product suite fits really nicely into those categories. We’ve got really good security And so we work well in those areas. But I would say that as we’ve broadened into a more wider range of the products we can offer, it’s moved upmarket a bit to small to medium sized enterprises.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Is it that on complete that platform that tends to be most differentiated? Or just what do you find tends to kind of close the deal versus the competitive set? I think it’s the use case and the selling of the solution. It’s also

Kevin Krause, CFO, 8x8: the way we deploy it. We have a really great product delivery team and specialty professional services team. And actually those, what they offer is that’s on a recurring services basis. We actually have many of our top customers have these recurring professional services embedded in them and they’re happy customers. So I think that the way we are able to deploy it, again, our target customers are customers that have a level have a need for a level of sophistication, but they’re not necessarily large enough to have their own group of internal developers like R and D developers.

So we can do that for them. And so I think the way we deploy it and the way we serve the customer, get them trained up for lack of a better phrase and working is a real differentiator for us. And a lot of times when customers keep our services team in some degree engaged, say, through technical account management or something like that, that really helps. And the multi product, which we would consider that a multi product customer, if they’re buying UCaaS, CCaaS, an AI add on and professional services, the retention rates are really high, a lot higher for those customers than they are for, say, a one product customer.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay, got it. How has that changed kind of the go to market motion? UCaaS maybe more historically used a lot of master agents. Just as you’ve expanded the platform, as channels have changed, just how do you find the most effective go to market?

Kevin Krause, CFO, 8x8: Well, we’ve embraced the multi channel strategy. So we historically to set the stage, historically had been an agency channel like TSDs, formerly known as master agents and yet sub agents. But what we’ve found for us to be most successful is to embrace all the channels. So we’re looking at we had direct business, we always had direct business, we had channel business, but they were it was mostly agents. We have a very successful value added reseller business in The UK, and we’re branching that or we’re expanding that in The U.

S. But we have and continue to invest in a multi channel strategy. So direct, agency and VAR. So I think that that obviously broadens the reach for us. And so we’re making significant investments

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: internally

Kevin Krause, CFO, 8x8: in the company to work with the channels that we have and the channels that we’re trying to grow to make it easier for us to sell for those channel partners to sell our product and just make it generally easier to do business with 8x8.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Many of your tools have real money saving attributes of kind of adding efficiencies to employees or just going to be money saving versus alternatives in the market. Where do deals tend to get hung up and where have you had success moving them forward, particularly just given that there is an ROI to the investment?

Kevin Krause, CFO, 8x8: Are you specifically talking about the AI component of the sale or just

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Just even in general. I mean

Kevin Krause, CFO, 8x8: In general? I think that for probably in a couple of ways. In terms of deal velocity, I would say that the prioritization within the customer’s IT group or the actual champion buyer, that can have a big impact on how the speed of the deal goes through. What we’re doing internally now and we’re using AI to help us do this is before when we may be just finding a buyer. Now we’re focused on finding buyers who are ready to buy sooner.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay.

Kevin Krause, CFO, 8x8: And so there’s techniques and strategies to do that with tools. So we’re working through that to help accelerate the deal cycle time and closure. But I would say another powerful way to help close deals sooner would be the use case example that I gave earlier. If you can find a way to have to prove out an ROI, whether you’re going to say use this and you’ll be able to reduce your human agent workload. Use this, you’ll be able to get a better, a lower decline rate on payments, things like that.

And you can measure those things. So that’s part of the outcome selling that we are trying to promote internally into our go to market engine to help with field velocity.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Okay. That’s helpful. Particularly when it comes to AI, there’s a lot that can be done. Just how are you deciding what products and offerings to invest in versus partner versus resale?

Kevin Krause, CFO, 8x8: Okay. So the for us, the main thing is that any AI, whether it’s whether any investment we make it’s AI or otherwise is it has to have a very native feel to it. So if there’s something that naturally fits within our development efforts internally, we built it in, We can build that in. And but we were actually first to really embrace, in my view, first to embrace outside best of breed solutions. So like we were, I think, among the first, if not the first to have OpenAI technology embedded in what we were doing.

We were first to truly embrace a technology partner ecosystem where we can use best of breed third party technologies, seamlessly integrate them into our offering like an ICA or a SecurePay or things like that, and then make it feel native. So if there’s an opportunity to do that faster for the customer’s benefit, then we’ll go to our ecosystem, for example. And then if it’s something that’s more appropriately built in natively, we’ll do that too. So we do it both ways, but I think for us, it’s really a matter of what’s the ROI going to be for us. But the most important thing is that what’s the customer experience going to be as a result of what we put onto the platform.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Got it. You’ve laid out a lot of differentiation that you guys have. Maybe shifting to the competitive landscape, you guys have noted The U. S. Maybe being fiercer environment than international.

Just kind of what leads to that dynamic and what can you do to kind of exploit that more internationally?

Kevin Krause, CFO, 8x8: Sure. Sometimes and I guess there are examples where there could be competitive dynamics that are maybe more fiercer as you say in for certain deals. But I think that there it can vary even in North America. I mean, I think that for certain like say low end UCaaS deals with a lot of seats, there could be fierce competition from the land grab kind of concept. But for us, selling the solution, selling selling the solution, selling the outcome, focusing on our the attributes associated with reliability, scalability, security.

So that helps us in certain markets and it goes beyond price as a competitive lever. And again, I’ll call out the fact that we can take UCaaS, CCaaS and CPaaS altogether. And a lot of the AI technologies are leveraged through the use of the quality as well as the quantity of the data. So if we’re selling AI solutions embedded as obviously we’ve been talking about, having that data reside on the platform enables better AI insights for the customer as well. So I think that that is another thing that we do that helps us overcome some competitive situations when our competition can’t do that.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay, perfect. Maybe just Teams obviously is a force in the market. Just how do you see Teams as an opportunity for you guys?

Kevin Krause, CFO, 8x8: Sure. We’ve I think it’s a great opportunity and we’ve always embraced Teams as an opportunity and as a partner. Like we never as a company, never try to find ways to take out teams or to compete against Microsoft. That is something that we did because we were focused on our customers’ needs. So we were able to and very early on adopt the posture with Microsoft Teams with voice solutions, okay.

And then we upped it to contact center features that weren’t natively embedded in Microsoft Teams. So we have a lot of Microsoft Teams seats in our portfolio of business. And the I’ve called this out before publicly, not in this, but when we do Teams deals or deals that involves teams, our attach rate on our contact center solution is much higher.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay.

Kevin Krause, CFO, 8x8: And so for us, focusing on the customer and what the customer wants has been really helpful for our ability to do other sell other things.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Okay. That’s helpful. All right. We’ll get you back into your CFO sweet spot.

Now we’ll charge them off.

Kevin Krause, CFO, 8x8: You can continue to ask me customer and product questions if you want. I’ll do my best to answer them.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. So turning to the model, Fuze customers now only represent kind of approximately 5% of the service revenue. You noted end of calendar year kind of being the end date, but just does it gradually wind down? Do we kind of see a cliff? Just how should we expect kind of fuse to wind down right here?

Kevin Krause, CFO, 8x8: Well, we’re planning internally for it to wind down and not do the cliff part that you just mentioned, okay? Just be clear about that. Look, we’ve put a lot of effort into this. We’ve got a lot of resources outreach, working with the customers to make sure that they’re kept in service, that they don’t have any interruptions. And there’s as we’ve said in our earnings calls and that we do experience churn when we migrate, it’s natural and normal.

So end of year, yes, we expect it to be through. That’s going to be helpful into the following year, back half, let’s say, 2026 when we don’t have that headwind any longer. But the primary motivation for us at this point is to get those customers happy and on the 8x8 platform.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. You noted expectations for operating margins to step down this year in fiscal twenty twenty six just due to kind of strategic go to market investments. Can you just kind of give a sense of contextualizing what some of those investments are and just how it could impact cash flow trajectory?

Kevin Krause, CFO, 8x8: Sure, sure. In terms of the and let me put this in the context of the cash flow and the net income, non GAAP net income. So what we said we would do is we would make certain investments in our business, particularly in go to market area, continue investments in product. And the operating non GAAP operating profit will go down slightly. We said about a point I think in the last call.

But our net would be roughly flat because we’ve been paying down our debt and our interest expense is going down very significantly. So on a net basis, we should be fine there. And cash flow can vary for different things that happen in cash flow, but call that roughly in the same zip code on cash flow. So the investments themselves, we don’t go into too much detail on that, but there’s notable investments related to pipeline of power, the conversion rates, focusing on late stage things to accelerate deal velocity. Also, I mentioned earlier, the investment in our multi channel strategy.

So there’s things that are happening there that we believe are going to we’re going to pilot them first. They cost money first, so we pilot them and then grow later, but the investment is up front. So calling that out now, but we’re going to we’re doing those things again to make the channel partners that we have and make it easier for them to sell 8x8 and deploy it, service it, if it’s in the case of Avar. So those are pretty significant things that we’re doing to transform the business.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Okay. You noted that you’ve made kind of significant strides kind of on the capital structure of the business. Just how are you thinking about capital allocation going forward?

Kevin Krause, CFO, 8x8: Sure. As I mentioned earlier, we’ve done a lot of debt pay down. I think it’s close to $200,000,000 1 hundred and 90 dollars plus million since August of twenty twenty two that we’ve paid down 35% of the debt at its peak. We’re still going to continue paying down the debt into 2026. That enables us a greater amount of financial flexibility to do other things going forward.

But I look at 2026 as being another debt pay down year and then ultimately that will free up our ability to do other investments and potentially down the road things like convert buyback or stock buyback type of activities.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: You made a number of kind of management hires of late. I think you had two that were announced either this week or last week and of a Chief Security Officer and a Head of EMEA sales and then you had made a kind of Chief Transition Officer hire I think last month or January. Just how are you thinking about kind of in terms of some of these go to market investments you’re making or just kind of transformation efforts that you’re making? What was attractive about kind of these hires? And are there kind of others you think you need?

Kevin Krause, CFO, 8x8: Yes. I had interestingly, I had a one on one with the new EMEA Leader the other day. I think it was a couple of days ago, great person, really good guy, knows his stuff. And I think that he’s going to put the right energy into that market Okay. That we may didn’t have as much of before.

The chief the transformation person that we hired, Joel.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Yes.

Kevin Krause, CFO, 8x8: I believe you’re referring to Joel Mead. Yes. He has there’s a person with a tremendous amount of energy. He is a wonderful addition. He is our internal AI business accelerator champion.

And I think he’s put a lot of great effort and energy into how we think about transforming our roles internally. So we have deployed agents or say we’ll make say a GPT for how to accelerate sales velocity. And we’re using that not only for things like training new people that come in, but you can use this for identifying because customer interactions are transcribed and recorded, put it into the we leverage AI to do that. You can use this to gain insights into what the customer’s buying behaviors are, what the buying signals are, any resistance signals and use that as a training tool and as a kind of just basic tool to accelerate a deal closure. So there’s so many opportunities.

I’m using it in finance, for example, to do a few things. And I am developing use cases for myself personally all the time. So I think having that energy in the company and he’s also involved in business applications. So that’s a really good marriage with the business acceleration combined with AI use inside the company. So that’s a really special thing for us right now.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. Okay. That’s helpful. And then maybe just lastly, how are you guys thinking you’ve made progress towards reducing dilution? Just how do you balance kind of stock based comp with cash?

Sure.

Kevin Krause, CFO, 8x8: Yes. Well, so a couple of years ago, we lowered the equity component and increased the cash component of employee compensation. So we still issue equity. It’s and it’s used in a variety of ways, special performance awards. Executives are very invested in those share price as well.

So we get equity grants. So that is something that we’ve done internally for the employee population. It will help dilution over time. Our stock based compensation as a percentage of our revenue is down in the single digits now. I mean, you can see that a lot of our peer group is following that strategy.

But I want to point out that the while our stock based comp as a percentage of revenue has gone down dramatically, we’re very proud of that, Share count dilution can still occur and that will take time to flush through the system because of the amount of shares you were granting. So we are our per share metrics are very important to us. And so we that’s top of mind for us in terms of ultimately limiting share price increases in our company.

Amita Marshall, Morgan Stanley Sales Representative, Morgan Stanley: Okay. All right. Perfect. Well, with that, I think that’s a great place to stop. So Kevin, thanks so much for being here today.

Kevin Krause, CFO, 8x8: I appreciate being here. Thanks.

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