8×8, Inc. (NASDAQ:EGHT) Q2 2026 Earnings Call Transcript

8×8, Inc. (NASDAQ:EGHT) Q2 2026 Earnings Call Transcript November 5, 2025

Operator: “

Kate Patterson: “

Samuel Wilson: “

Kevin Kraus: “

Michael Funk: ” BofA Securities

Josh Nichols: ” B. Riley Securities

Peter Levine: ” Evercore ISI

Catharine Trebnick: ” Rosenblatt Securities Inc.

Unknown Analyst: “

Operator: Good day, and thank you for standing by. Welcome to the 8×8 Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Patterson, Vice President of Finance. Please go ahead.

Kate Patterson: 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 8×8’s Investor Relations website at investors.8×8.com. With that, I’ll turn the call over to our Chief Executive Officer, Samuel Wilson.

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 8×8, 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 multiproduct adoption.

But the real story this quarter is innovation. It is transforming how customers experience 8×8 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 and contact center to AI-powered transcription work and 8×8 work to new agentless payment capabilities to digital channels like Viber and RCS in 8×8 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 Hamil 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 8×8 Workforce Management available starting next week to all contact center customers at no additional cost through our new 8×8 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 2 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 8×8 App Store shortly, giving customers a modern, flexible, self-service way to activate new capabilities. We’re expecting strong demand for 8×8 Workforce Management, so we’ve begun a progressive rollout starting next week. The 8×8 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 matters. 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 8×8, they were juggling 9 different communication systems across its dealerships, creating complexity and slow response times. By moving to 8×8, they consolidated everything, voice, video, contact center analytics to one integrated platform. The impact has been transformational. The dealer group now uses 8×8 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, 8×8 helps us focus on what matters most, providing the best experience to our customers. In short, we went from 9 vendors down to 1, unlocking better visibility, faster response times and stronger connection with every customer. Across the Atlantic, a multi-hundred-million-dollar software company uses 8×8 is another powerful example of how our innovation drives measurable business outcomes. They are using multiple 8×8 products, including UCaaS and CCaaS as well as Engage, Secure Pay and Conversational IQ to deliver a seamless data-driven customer experience across their network. Their team has fully embraced 8×8 as a strategic platform, not just for communication, but for business transformation.

They’re leveraging analytics and engagement insights from 8×8 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, transformationable and rooted in customer success. They show what makes 8×8 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 and 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 8×8 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.

Kevin Kraus: 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 8×8 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 ’25. We are on track to move the remaining Fuze customers onto the 8×8 platform by calendar year-end. Usage revenue, which includes our CPaaS communication API, saw another record performance totaling approximately 19% of service revenue compared to approximately 13% in Q2 ’25.

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 continue 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 30, 2026. These proactive delevering actions demonstrate our continued commitment to disciplined capital management. Stock-based compensation as a percentage of revenue was 2.9%, another multiyear 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 ’26, 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 semiannual 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 to $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.

Operator: [Operator Instructions] Our first question comes from Michael Funk with Bank of America.

Q&A Session

Michael Funk: I have 3, if I could. So, first on the service margin comments that you had. I understand you’re saying more usage-based revenue. But maybe help us think about the P times the Q there, how much of that driven by volume versus change in price?

Kevin Kraus: Right now, it’s mostly — Michael, this is Kevin. Mostly right now, it’s volume because of the absolute usage volume that we’re seeing. So, our margins on the, say, the application side are very stable and consistent right now and have been for years. it’s a pure mix issue for the usage-based portion of the service revenue. So right now, not as much price, although we are seeing some pricing pressures in some deals, it’s not — in totality, it’s not a price driver right now.

Michael Funk: Then just thinking about the revenue trajectory, thank you for the revenue ex-Fuze. But is ex-Fuze, that the right way to think about the revenue trajectory exiting the year as you end of life remain Fuze customers?

Samuel Wilson: Yes. But remember, as we end of life — and it’s not end of life, we’re upgrading the Fuze customers, just for any lawyers listening. We’re upgrading Fuze customers on the 8×8 platform. Michael, we still have a bit of a comp. So, it’s gone from the numerator and denominator to just the denominator. So, I think we’ll have maybe a2 point, maybe slightly lower, slightly less, whatever headwind in next year’s growth rate as we roll off these Fuze customers, and then we’ll be back to normalized sort of growth rates ex any other things we do.

Michael Funk: Do you anticipate you’ll give us a pro forma ex-Fuze next year for more comparability?

Samuel Wilson: That’s like 2 quarters away, Michael, I haven’t thought that far in advance yet. Probably, like we’ll give you numbers if it makes your life easier.

Michael Funk: And then last one for me, and then I’ll hand it off. So, a number of comments in the letter about the go-to-market changes that you’re making. And one of the comments was the improvement in pipeline quality. So, I’d love to know how you’re measuring the pipeline quality and maybe some of the improvement you’ve seen there?

Samuel Wilson: So we measure pipeline quality as deals that get to Stage 3. So, we run a 7-stage sales process, and we consider anything that’s Stage 3 plus to be high quality. That means there’s been a first meeting, there’s been discovery. There’s a vetting process that’s been done, et cetera. And so that’s where we’re seeing the improvements in quality.

Michael Funk: And how have you improved the quality, Sam? Are there more guardrails around what allows a salesperson to enter something into the funnel? What’s contributing to the improvement in the quality?

Samuel Wilson: Look, I’d love to give you a simple answer, but yes, we’re using more SDRs. So, they’re having ability to weed out some of the stuff. The use of AI in our sales process, I cannot understate how important the use of artificial intelligence has been in improving our GTM efficiency and processes and those things. So, it’s a number of contributing factors. It’s not death by 1,000 cuts; it’s improved quality by 1,000 paper clips.

Operator: Our next question comes from Josh Nichols with B. Riley.

Josh Nichols: Good to see revenue coming in at the top end or above the top end of the range. I was just looking at the guidance breakdown. And with Fuze transitioning at calendar year-end, I think the guidance kind of implies that maybe service revenue troughs out in like 4Q, but is the expectation that going from there, since you don’t have those comps into fiscal ’27, you start to see improvements on a sequential basis without the Fuze overhang?

Samuel Wilson: So, Josh, your question is completely appropriate. It’s just really hard to answer now that usage is 19% of our revenue, right? So, we try to be very conservative with our usage-based modeling. I mean, we’re still early in this transition to usage-based revenue. And I’d like to get a little bit bigger pool that — so mathematically, 1 customer can’t swing it, or 3 customers can’t swing it or a change in economic can swing it. So, I’m not ready to yet predict exactly when you’re going to see that. It will depend a little bit on some renewals coming up. It will depend on our usage, and it will depend on new bookings that we put into the mix, right? So, it’s a lot of moving pieces. I do feel confident that with that 2 quarters of accelerating growth, we are sort of on the track to continue to grow, and we can put in the rearview mirror these year-over-year declines perpetually. But I’m not ready to say where and when yet, if that’s okay with you.

Josh Nichols: I guess just to flip the question a little bit, like you said, that you’ve been taking a pretty conservative approach to the usage-based revenue. And yes, I think that that makes sense. If you could talk about how you’re kind of handicapping what you’re seeing versus how you’re guiding or how you’re —

Samuel Wilson: So, what we do is we basically take the exit run rate for a quarter, and we run that forward in perpetuity, right? So, we’re not assuming — even though the business is growing, we’re not necessarily assuming it’s going to grow. And then we add in known growth businesses, right? So, we know we’ve got a big deal coming or we know we’ve got Christmas coming or the holidays, we’ll adjust accordingly. But our baseline is always on usages. Whatever we’re running on the exit quarter, that’s what we’re going to run in perpetuity. And so, when it’s growing and it’s growing nicely right now, especially with all the AI stuff and the CPaaS stuff, it’s just has a tendency a beat and then we try to flow that through.

Kevin Kraus: Yes. Sam’s comment about seasonality in the usage portion of our business is something that can have an impact and that, again, could really.

Samuel Wilson: It’s a great point, Kevin. I was to state that. But like I mean we are entering the holiday season. So, we see more marketing campaigns. We see, in general, more phone calls, particularly in our retail vertical, our hospitality vertical, those kinds of things. And then we generally see in the March quarter, our fourth quarter, a little bit more seasonal, less usage on the holidays.

Kevin Kraus: Lunar New Year.

Samuel Wilson: China Asia shuts down a little bit, right? So, we are starting to see a little bit more seasonality in the business.

Josh Nichols: And then last question for me, usage-based up to like close to 20% of revenue. We’re seeing very nice acceleration there. I know you talked about the margin outlook, right, and how that’s impacting the margin, still really healthy margins, but 65% to 66% non-GAAP. Any idea maybe it’s hard to ask or pumps on, but exactly like where that kind of winds up leveling out at as we think a few quarters ahead?

Kevin Kraus: It really depends on the mix. Like I mentioned on from Michael’s question about our margins being relatively stable for different portions of the business. It really will boil down to mix. The point I want to make, though, on this is that we look at absolute dollar profitability. And so, if gross margin is positive, for that piece of the business, great. And it is a light OpEx model. So more of that flows to the bottom line. So, as we scale, we may see the gross margin deteriorate a little bit, but the bottom line and the cash flow are what we’re looking at as well, and that’s looking like it could be even improving over time based upon the cost base of that particular portion of the business.

Samuel Wilson: I just have to step in. I can’t stress enough what Kevin is saying for our investors, right? We said this numerous times in the past. We would not be surprised if we saw gross margin come down a little bit as we scale the business while gross profit dollars increase. It’s just a mix. It’s how customers are adding on AI products or messaging products or these kinds of things. But we know the more products we sell customers, the stickier they are, the higher the LTV, the higher the average revenue per customer. It’s the right thing to do for the long-term value of the customer, and therefore, it’s the long-term value of the shareholders.

Operator: Our next question comes from Peter Levine with Evercore.

Peter Levine: Congrats on the deleveraging. I think that was obviously part of the plan for a while. So good to see that. Maybe to go back to a prior question around the pricing pressure that you’re seeing. I’ve heard from some of your competitors that during COVID, prices were high, and now that 2, 3 years as renewals come up, pricing becomes part of the conversation. And you’ve seen a bit of not a commoditization, but pricing used as a lever. How much of that are you seeing as part of renewals where you’re going to have to go through a period of time whereas these renewals that you’ve had over the past 3 years come due, like is that part of the equation? Is that some of the headwinds that you guys are dealing with or seeing today?

Samuel Wilson: Yes, of course. I mean, I think look, during the pandemic, you saw rush buying, especially from the on-prem to cloud type of systems. And as those reach 2 and 3 renewals, they’re being rightsized. So, it’s not just — I want to be clear, pricing pressure is certainly happening, mainly led by a certain video conferencing company who seems to sort of be price-agnostic sometimes. But also, we are seeing some rationalization of seats driven by the economic situation, et cetera. What’s offsetting that is our AI products, our messaging products, our digital products, et cetera, right? So, I mean, I can’t stress this enough. Like the idea that we’re surprised this is happening is completely false. We completely know it was happening.

We’re managing it accordingly. And this is one of the reasons we’ve added more products to the mix, right? So, what we’re seeing is customers may reduce the number of UC seats but add RCS, which we now offer globally into the mix. And that’s offsetting the average revenue per customer. And this is why we’re seeing average revenue per customer increase on a year-over-year basis, particularly as we get more 3, 4, 5 product customers. And our retention rates are going up as we get more multiproduct customers. So, in the end, this post-COVID transition is certainly one we have to deal with. It’s one we’re very aware of, and we’re managing, but it’s not one that scares us.

Peter Levine: Maybe WFM, obviously, it’s a free offering. Maybe walk us through the strategy there. And then I guess if there’s a way to handicap what percentage of your customers are actually using you guys today for WFM versus like a point solution. Curious to know what the strategy was behind offering that. Obviously, I think we know some of the drivers, but curious to know what the strategy is and what you do in the next 4 quarters.

Samuel Wilson: So, we saw an opportunity with WFM market. So contrary to probably what you’ve heard — and Peter, I know you know this like the back of your hand, right? Contrary to what people sometimes say is the most popular WFM product in the world is Excel, right, by far. And with the average contact center in the United States being 73 seats and probably 50 — 40 to 50 seats in international markets, Excel sort of works. And so what we wanted to do was build a product that’s better than Excel for managing WFM and giving a way to our customers to provide value and really start to enter the world of product-led growth with a Pro version, which will offer probably enhanced analytics or better forecasting or multisite. There’s a couple of different ways we can take it in the future.

But just simply having a product to replace Excel adds tremendous more value to our customers, which is what we care about, right? We’re in a game of renewal and those kinds of things. And it just drives the multiproduct, LTV, the ability to add product-led growth through our new App Store, which we’re super excited about, all these kinds of things. And it’s just — we really want to drive value into our customers, and it was a way, given how software and expenses work, it was a way to drive a lot of value into our contact center seats very quickly. We see our competitors charging $20 and $30 a month for arguably something that isn’t that hard. And so we really wanted to drive that cost curve down and drive more to a freemium model for it to really meet our customers where they’re at.

In terms of — now what our product is it isn’t designed for a big contact center. We’re not trying to compete with Calabrio and Verint and those guys, right? They offer gamification and other things that we’re not sort of up to yet, and most of our basic customers don’t really want. And so we saw the market need for a replacement for spreadsheets, not a replacement for collaborate or Verint. If you want to — if you’re running 1,000 — we have many customers running 1,000 or more contact center seats, you’re going to use one of those higher-end products because they’re just designed differently and they work differently.

Peter Levine: And maybe just squeeze the last one. Obviously, I talked about some of the deleveraging you guys have had. How do you think about M&A, smaller tuck-ins versus organic, right? Obviously, there’s a cost to both sides of that. But how do you think about it? And maybe help us understand, are there still any covenants that you have to manage through with the debt levels that you have today? Just help us understand how you’re thinking about organic versus kind of tuck-in M&A to kind of accelerate some of the product development.

Samuel Wilson: Sure. So, we did an acquisition last — in the March quarter. It was a small tuck-in acquisition. It’s not material, so we didn’t make a big deal out of it, but we’ve done one. We’re looking at others. We’re active in the market, so we’re looking. Debt retirement is still a primary route that we think to drive stakeholder value over time. So we’re definitely focused on that. We are in a term loan A, so there are some covenants. They’re very manageable. They’re fully disclosed in our filings. There’s nothing to worry about from them. I wouldn’t want to do anything outrageous. Like I see people who want — who advocate these large AI acquisitions that bring on losses and those kinds of things. We are a cash flow-driven company, and we do work on cash flow and focus on cash flow, and that’s what we’re focused on.

So, I would say we are looking at M&A. We think it definitely is part of our capital allocation strategy to acquire tuck-ins to drive geographic expansion, product portfolio expansion or customer expansion. Those are the big 3 that we look at. And when one comes, we have no problem pulling the trigger.

Kevin Kraus: Yes, the amendment we did also created a basket for tuck-ins as well, which we articulated last quarter, if you remember. So, we have that freedom in our term loan.

Operator: Our next question comes from Catharine Trebnick with Rosenblatt Securities.

Catharine Trebnick: Sam, how are you seeing the buying pattern change now that AI seems to be more part of the discussion? And what are you seeing the difference with like the traditional brokers versus like the professional service guys? It seems to me from — well, I’ll tell you what I think afterward. Let me get your opinion first.

Samuel Wilson: So first off, look, I want to break this into 2 parts. There’s AI itself, the technology AI itself. I think what we’re seeing is customers are driving really to the first core use case adoptions and adopting those. So, Agent Assist or we call Smart Assist or our AI receptionists, those kinds of things, very specific targeted use cases. We’re obviously, most of us in the industry are spreading it across things like summarization or those kinds of analysis. And so, there’s a lot of those first use cases are getting adopted. So, what’s changing, I would say, is the buyer doesn’t come in and say, “Hey, what do you guys sell for AI?” The buyer comes in he or she comes in and says, “Look, we’re looking for an Agent Assist solution.

Can you tell me about the ones that you offer?” And through our SaaS partnership, we always get to offer great things. The second one is much more subtle, and I think we were in front of it and will remain in front of it for an extended period of time, is that AI is sold on a consumption-based model. the whole notion of Assist of AI. And I know that Gartner and others have tried to bend old SaaS metrics into the world of AI. They don’t work. What works is usage. The customer wants to pay, and we’re even seeing it — and I know this is going to — people overreact to this comment, so please don’t. But we’re even seeing it spill back into our subscription-based services where people want to try to morph them more into a consumption-based service.

So, what do they want? They want a right to adjust the number of seats after 1 year, 2 year, 3 years because they just don’t know how many employees they’re going to have. And I just — I absolutely believe that our industry, our SaaS industry is going towards that consumption usage-based model. It is an unstoppable force. And you can argue by yourself, as much as you want, but the reality is that’s where we’re going. And so, what we see is usage-based specific use cases are what’s driving our business right now.

Catharine Trebnick: Because I’ve been — well, we can deal with it more on the post call. But I’ve been hearing that because it’s more complex that the traditional telco guys aren’t really set up to do a more complex sale. And so that —

Samuel Wilson: I mean that’s true. Look, our professional services team is booked constantly, right? Our professional team is like we’re booked all the time. I mean, we can get into the nuance here for investors, but there is like we’re starting to see the whole concept of deployment change. It’s a lot more — we’re selling more continuous services because these models require constant fine-tuning and there’s no use cases and whatever. And customers would rather just buy a flat x number of hours per month every month contracted, let’s go than one big lump sum purchase upfront.

Operator: Our next question comes from Siti Panigrahi with Mizuho.

Unknown Analyst: It’s Chad on for Siti. Just first, I’d be curious if you could expand on any actions you’re taking on sort of the cost side as sort of this lower margin revenue comes through the P&L and sort of what you’re looking at to expand operating margins from here?

Samuel Wilson: Yes. I mean we’re aggressively deploying AI technologies in-house. We don’t just sell it for our customers. We use it ourselves, and we’re seeing ROI benefits. I mean, obviously, there’s — this is a little bit of that margin issue that you guys like to obsess about. But when you first buy AI, it actually drives down your margin because you’re running the old process and the new process side by side until you get the new one fully ramped. So, some of those issues that we see going on. Obviously, as we grow in size and we return to growth, we’re putting pressure on our suppliers to give us good unit pricing. And eventually, that stuff flows through. But a lot of this is just mix. I mean I’ve tried to warn Wall Street for years that I believe over time, as we move more to a usage-based model, what you would see is increasing revenue growth, decreasing gross margin, increasing gross profit dollars and over time, an increase in operating margins because you’re more aligned with your customers and the more aligned you get with your customers, the higher LTV you drive over time.

Kevin Kraus: A little color on what Sam just said, which was excellently stated. I’ll give you an example of we’re using AI internally. We are able to use AI to right-size a lot of our, say, software purchases. I’ll give an example, where we’re able to actually get great insight to the use of AI as to the use of each of the seats or whatever, so we don’t overbuy upon renewal. So that’s one example of using AI of many that we’re doing right now to have cost control without removing the ability to work efficiently internally in the company. So, we’re seeing — we’re starting to see good signs there.

Unknown Analyst: Really appreciate the color. And then just one follow-up from us. If you could talk about sort of how the revenue trends were in the quarter from a domestic U.S. standpoint versus international and how that relates to sort of the better revenue outlook from here?

Samuel Wilson: I mean it’s no surprise, and Kevin can give you more details. But like our U.S. business isn’t doing as well as our international business, right? I think our business outside the U.K. is almost 40% of our — I’m sorry, the U.K. and international is almost 40% of our business, and it’s growing substantially faster than our U.S. business. I mean the U.S. is kind of the center of price compression and gamesmanship and some of those kinds of things relative to what we’re seeing in international markets where we’re doing much better.

Kate Patterson: Also, the customer base is largely U.S.

Samuel Wilson: Yes, customer base is largely U.S., as Kate just said.

Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to Sam for any further remarks.

Samuel Wilson: All right. Thank you, everyone. Thank you for the earnings call. Any feedback you want to give the super positive on our new format, please send those to me at samuel.wilson@8×8.com. Any negative feedback you want to give, those go to Kate Patterson. I say that jokingly. But any feedback you want to give us on the new format around a shortened script and a letter and those kinds of things is much appreciated. And with that, we look forward to meeting with all our investors again in 90 days with how we’ll do over the next quarter. Thank you, everyone. And if I don’t talk to you before then, happy holidays.

Operator: Thank you. Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.