8x8 (EGHT) Q2 2027 earnings review
8x8 raises its profit plan, but gross margin falls again
8x8's pay-per-use messaging and voice tools are growing rapidly while its older employee subscription business keeps shrinking. Total sales rose 4% from a year ago to $192 million, and chief executive Samuel Wilson raised the full-year targets for revenue, operating margin and cash flow after deep cuts in sales costs lifted operating profit. However, gross margin excluding one-offs missed the company's plan and fell nearly 6 percentage points to 60%, while the new outlook points to service revenue growth slowing to about 2% by the fourth quarter by our math.
| Service revenue | $187.8M +4.9% from a year ago |
|---|---|
| Subscription service revenue (by our math) | ~$135.2M -6.8% from a year ago |
| Gross margin, excluding one-offs | 60.1% -5.6 percentage points from a year ago |
| Full-year revenue and profit outlook | Raised middle of the range: $760M revenue (+3.3%) |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because lower marketing spending is still paying for the profit beat while gross profit dollars fell for a sixth straight quarter. Beating the usage growth plan proved the prior target was cautious, not that usage fees are lifting margins: finance chief Kevin Kraus cut the full-year gross margin target for a second straight quarter, and by our math subscription revenue fell 7% from a year ago.
The question now is whether rising adoption of AI Studio and multi-product bundles can lift gross profit dollars before room to cut sales costs runs out and the August 2027 loan comes due. Either higher-margin AI tools start driving usage growth, or low-margin Asian messaging traffic keeps squeezing gross profit. Third-quarter gross margin and a binding loan refinancing agreement will tell.
🐂 Bull Case
Sales Cost Cuts Lifted Profit and the Outlook
8x8 manages its business to hold operating profit steady even as gross margin falls. That cost discipline worked better than planned in the second quarter. Operating margin excluding one-offs reached 10.8% of revenue, beating the 8.0% to 9.0% outlook and rising 1.4 percentage points from a year ago.
Deeper cuts in sales and marketing paid for the beat. On a reported basis, sales and marketing spending fell to 29.2% of revenue from 34.7% a year ago, a reduction of 5.4 percentage points ($7.7 million). Research and development and general overhead also shrank as a share of sales. Finance chief Kevin Kraus raised the full-year outlook for revenue, operating margin, per-share profit and operating cash flow.
Last quarter, the company raised its revenue target without adding a dollar of expected operating profit. This quarter's raise adds profit: by our math, the middle of the new full-year plan points to $73.0 million of operating income excluding one-offs, up from $70.2 million in the prior plan, though still below the $75.1 million earned last fiscal year.
What to watch: sales and marketing spending in the third quarter. The outlook calls for operating margin to drop back to 9.0% at the middle of the range, which tests whether cost cuts have reached their limit.
AI and Multi-Product Adoption Accelerated
Chief executive Samuel Wilson wants existing customers to buy additional tools and partner resellers to bring in new accounts. Both efforts gained ground in the second quarter. AI Studio, the company's tool for building automated voice and chat agents, moved from open testing into an early adopter programme that charges customers based on usage once agents go live.
- Recurring revenue from AI products: up 58% from a year ago
- Customer base with AI products: 13% of total recurring revenue, up from 7% a year ago
- Customers using three or more paid products: up 19% from a year ago (four or more: up over 50%)
- 8x8 Engage (customer-service tools for sales and field staff): customer count more than doubled from a year ago
The company also earned Microsoft certification for its call-routing software, letting resellers connect external phone lines directly into Microsoft Teams without extra hardware. Outside Asia-Pacific, the number of customers building communication tools into their workflows doubled from a year ago, with more than half of those additions arriving in the second quarter.
What to watch: whether the rising share of AI recurring revenue lifts total service revenue growth in the second half. The company's plan currently points to service revenue growth slowing to 1.5% by the fourth quarter.
🐻 Bear Case
Fast Usage Growth Still Shrinks Gross Profit
Platform usage revenue — fees customers pay per text message, phone minute or automated interaction — is 8x8's fastest-growing product line and its biggest margin drag. "Platform usage revenue, which includes the use of our communications APIs, digital and voice AI interactions, and telephony minutes, grew 51% year-over-year," Wilson wrote, beating the 30% to 35% plan set last quarter. Usage reached 28% of service revenue, up from 19% a year ago.
Kraus said of these usage products that "they create opportunities to add profit dollars as customer usage scales." The numbers say the opposite so far. Because usage grew faster than planned, gross margin excluding one-offs fell 5.6 percentage points from a year ago to 60.1%, missing the 60.5% to 61.5% outlook. Cost of service revenue rose 5.9 percentage points to 37.5% of service sales.
Reported gross profit fell $4.8 million from a year ago to $114.6 million, marking a sixth straight quarterly decline. Kraus cut the full-year gross margin outlook for a second consecutive quarter, down another percentage point to a range of 59.7% to 60.2%.
What to watch: third-quarter gross margin excluding one-offs against the 58.0% to 60.0% outlook. A reading below 59.4% would mean gross profit dollars shrank again.
Core Subscriptions Keep Shrinking
Beneath the 51% surge in usage fees, 8x8's traditional business of selling monthly software subscriptions per employee seat is contracting. By our math, stripping out the 28% usage share leaves about $135.2 million of subscription service revenue in the second quarter, down 6.8% from about $145.1 million a year ago.
That 6.8% drop is slightly worse than the 6.5% decline in the first quarter, showing that renewal price pressure from rivals has not eased. Furthermore, Wilson noted that the usage boom remains "driven primarily by the increased use of our communication APIs in Asia-Pacific" — wholesale text and voice traffic that carries thin margins and no long-term customer contracts.
Wilson referred to "the three-year financial model we presented at our September Investor Update," yet the second-quarter release and letter still omit customer retention rates and the dollar split between AI tools and wholesale messaging.
What to watch: the revenue breakdown footnote in the upcoming second-quarter filing. It will give exact dollar figures for subscription and usage revenue and show whether subscription losses are stabilizing.
The Term Loan Is Now a Current Liability
Because 8x8's term loan matures in August 2027 — less than a year from the September 30 balance sheet date — the entire $107.3 million carrying balance moved into current liabilities this quarter. That shift pushed total current liabilities to $262.5 million, above the company's $218.8 million of current assets.
The communications group is paying down the balance with cash flow. "In early October, we repaid another $12.5 million of term loan principal, reducing the remaining principal amount of the term loan to $95.0 million," Kraus said. The company also holds $102.6 million in cash and restricted cash, and carries $200.4 million of convertible notes due in 2028.
Even so, Kraus repeated that cash generation and debt paydowns "support our ongoing efforts to refinance ahead of the August 2027 term loan maturity" without naming a lender, a facility size, an interest rate or a target date.
What to watch: a binding refinancing agreement before the third-quarter report. Until the loan is refinanced, the near-term maturity remains the central balance-sheet risk.
Risks this quarter didn't answer
Several standing concerns and watch items cannot be read from the earnings release or shareholder letter because the detailed tables live in the quarterly filing.
- US versus international revenue: US sales fell 6.5% from a year ago last quarter while international grew; the filing's geographic note will show if domestic contraction continued.
- Remaining performance obligations (contracted backlog): stood at $640 million last quarter; the filing will show whether multi-year subscription commitments shrank again.
- Second-quarter cash interest paid: guided to $5.9 million for the quarter; the release gives only six-month cash flows, though third-quarter cash interest is guided down to $1.7 million.
- AI unit costs: management previously noted unpredictable pricing from outside AI model providers, and gave no update on usage gross margins in the letter.
👓 Other Themes
Office Write-Down and Product Leadership Changes
8x8 recorded a $2.9 million non-cash write-down in the second quarter after "partially ceasing use of the Company's Headquarters" in Campbell, California. Without that one-off charge, reported operating income would have been $9.9 million instead of $6.9 million. Alongside the results, chief executive Samuel Wilson appointed former European head Jamie Snaddon as Chief Strategy Officer and hired Boris Grinshpun as Global Vice President of Product Management.
💲 Other KPIs
Cash provided by operating activities rose 48.3% from $8.8 million a year ago and beat the $9.0 million to $11.0 million outlook. Across the first six months of the fiscal year, operating cash flow reached $30.1 million, up 45.3% from $20.7 million last year on lower interest and receivables.
Total deferred revenue — cash billed to subscription customers for service not yet delivered — rose $3.4 million from the first quarter's $35.6 million, but remains down 11.6% from $44.0 million a year ago. Because usage fees are billed after use, they never enter deferred revenue.
Weighted-average diluted shares rose 4.9% from 139.5 million a year ago as the company issued stock to employees and bought back no shares in the first half. Stock-based compensation fell to $4.3 million in the quarter from $5.8 million a year ago.
🔮 Guidance
New. The middle of the range ($186.0 million) calls for 3.5% growth from a year ago and a 1.0% drop from the second quarter. By our math, combining this with the full-year target leaves $182.9 million for the fourth quarter, slowing growth to 1.5% from a year ago.
New. The plan points to 2.7% growth from a year ago at the $190.0 million middle of the range, down from 4.3% in the second quarter. By our math, that leaves $187.8 million (1.4% growth) for the fourth quarter. If the four-quarter average beat of 3.0% holds, third-quarter revenue would reach $195.7 million.
New. The outlook expects gross margin to step down another 1.1 percentage points at the 59.0% middle of the range as lower-margin usage fees continue to grow. By our math, the full-year outlook implies fourth-quarter gross margin stays at 59.0%.
New. The middle of the range is 9.0%, down from 10.8% delivered in the second quarter. By our math, the full-year plan leaves an 8.6% operating margin for the fourth quarter. If the four-quarter average beat of 1.8 percentage points holds, third-quarter margin would reach 10.8%.
New. Based on about 150 million diluted shares, the outlook calls for per-share profit to step down from $0.12 in the second quarter and $0.12 in last year's third quarter. By our math, the full-year target leaves $0.085 per share for the fourth quarter.
New. The $12.0 million middle of the range is down from $13.1 million in the second quarter and $20.7 million in last year's third quarter. By our math, the full-year outlook leaves $9.4 million of operating cash flow for the fourth quarter.
New. Contractual interest expense drops from $3.85 million in the second quarter and $4.59 million a year ago following the $12.5 million October term loan repayment. Cash interest payments are planned at $1.7 million.
Raised. The middle of the range moved up $7.0 million to $742.0 million, or 3.7% growth from last year. This is the second raise this year (+$18.0 million in the first quarter, +$7.0 million now). By our math, it leaves $368.9 million for the second half, up 2.5% from a year ago.
Raised. Management lifted the middle of the range by $5.0 million to $760.0 million (3.3% growth), following an $18.0 million raise last quarter. The increase is slightly smaller than the $7.2 million combined revenue beat across the first two quarters.
Cut. Lowered by 1.05 percentage points at the middle of the range to 59.95%, after a 2.0-point cut last quarter (from 63.0% to 61.0%). Fast growth in lower-margin usage fees continues to push full-year gross margin below the 65.6% achieved last year.
Raised. Lifted by 0.3 percentage points at the middle of the range to 9.6%, reversing last quarter's 0.2-point trim. At the middle of the revenue and margin ranges, implied full-year operating profit rises to $73.0 million from $70.2 million.
Raised. The middle of the range rose $0.025 to $0.38 per share on an unchanged assumption of 150 million diluted shares, reflecting the second-quarter operating profit beat and lower interest costs.
Raised. The middle of the range moved up $3.0 million to $51.5 million after first-half operating cash flow reached $30.1 million. The company has already generated 58% of the full-year target in the first two quarters.
❓ Key Questions
What are the gross margins on AI versus messaging?
Chief executive Samuel Wilson said usage growth came primarily from communications APIs in Asia-Pacific, while AI recurring revenue grew 58%. Without a revenue or margin split between wholesale messaging and AI Studio, investors cannot tell when usage growth will add gross profit dollars.
What did the September Investor Update set for retention?
The shareholder letter mentions a three-year financial model presented in September, but the release provides no customer retention rates or subscription pricing numbers. By our math, non-usage service revenue fell 6.8% from a year ago.
What structure is planned for the August 2027 refinancing?
The $95.0 million remaining term loan is now a current liability due in ten months, and $201.9 million of convertible notes mature in February 2028. Management has not said whether a replacement facility will require higher interest rates or new equity dilution.
Did US revenue shrink again in the second quarter?
In the first quarter, US revenue fell 6.5% from a year ago while international sales grew. The second-quarter release does not include the geographic table, leaving open whether domestic demand has stabilized.