8X8 Inc (EGHT) Q4 2019 Earnings Call Transcript

EGHT earnings call for the period ending March 31, 2019.

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8X8 Inc (NYSE:EGHT)
Q4 2019 Earnings Call
May 14, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening. My name is Jesse and I'll be your conference operator today. At this time, I'd like to welcome everyone to the 8x8, Inc. Fiscal Fourth Quarter and Full Year 2019 Earnings Conference Call.

I'll now turn the call over to Victoria Hyde-Dunn, Head of Investor Relations.

Victoria Hyde-Dunn -- Head of Investor Relations

Thank you, Jesse. Good afternoon and welcome to 8x8's fourth fiscal quarter and full year 2019 earnings conference call. Joining me today are Vik Verma; Chief Executive Officer; and Steven Gatoff; Chief Financial Officer. During today's call, Vik will begin with business highlights of our fourth quarter performance. Following this, Steven will provide details on our financial results and guidance for our fiscal full year 2020. After these prepared remarks, we look forward to taking your questions.

Before we get started, just a reminder that during this conference call any forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and our actual results could materially differ as a result of a variety of factors. Additional information concerning these risk factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website.

As a reminder, we adopted the new revenue recognition standard, ASC 606, in February 2018. For certain income statements, we have provided the fourth fiscal quarter 2019 results as they would have been under the old standard, ASC 605. Reconciliations of ASC 606 and 605 results are included with our earnings press release.

In addition, some financial metrics that will be discussed on this call, together with year-over-year comparisons in some cases, were not prepared in accordance with US Generally Accepted Accounting Principles or GAAP. A reconciliation of non-GAAP measures to the close comparable measure is provided with our earnings press release and PowerPoint presentation deck, which are available on our Investor Relations website. Additionally, we will be discussing new metrics around customer size and revenue composition. The new metrics are discussed in the press release and included in a newly published financial and operating metrics worksheet that is posted on the Investor Relations website.

With that, let me turn the call over to Vik.

Vik Verma -- Chief Executive Officer

Thank you, Victoria. Good afternoon and thank you to everyone for joining us today as we review our fourth quarter and full year results.

I have three major points to make. First, as you will recall from our last call, we have been focused on improving sales and marketing execution, particularly in the mid-market and channel. I am delighted to report that in the fiscal fourth quarter, our channel bookings grew 91% year-over-year compared to 23% in the prior quarter. Similarly, bookings from mid-market and enterprise customers grew 34% year-over-year compared to 13% in the prior quarter.

In addition to strong performance from our North America mid-market and channel teams, our UK business also executed extremely well, delivering record bookings performance for the UK. Overall, fiscal 2019 finished with us exceeding total revenue expectations for the full year and we had our best quarter ever for pipeline generation from both direct marketing and channel sources. I am very proud of our team and what we have accomplished. While there is still work to do, we have come further and faster than expected since our last earnings call.

Second, our customers and partners are telling us that our single platform cloud strategy is indeed the winning play. We are seeing it in the response from our competitors, as they race to acquire a partner for technology that we already have. In fact, our single technology platform allows us to innovate faster and uniquely positions us to pursue three massive markets, which are all shifting to the cloud, unified communications, contact center and video collaboration.

Unlike our major competitors and other siloed vendors, by owning all of our own technology, we're able to pursue all of these markets on both a stand-alone basis and on a bundled mix and match basis with our X Series offerings. More on our opportunities on a stand-alone contact center and video collaboration in a moment, but in aggregate, we are pursuing an overall market opportunity well in excess of $50 billion that is less than 10% penetrated by cloud solutions.

My third point builds on the first two. Given our improved execution, our increasing visibility to market demand and a winning strategy that gives us the opportunity to pursue multiple multi-billion dollar markets in parallel, we will continue to invest to accelerate growth. And while Steven will talk to you about guidance in a moment, fundamentally, we see our growth rate continuing to increase throughout fiscal 2020 and beyond. With this type of market opportunity in front of us, we firmly believe that the long-term interests of our shareholders are best served by investing to capture this demand.

Let me take a moment to expand on each of these observations and to provide examples of why I have such conviction around our strategy and our opportunity. First, a shout out to our sales and marketing teams that drove immediate improvements in execution in our most recent quarter. We saw mid-market deal cycle time shortened by roughly 25%, driven by stronger collaboration with our channel partners and improved sales enablement. With the mid-market and enterprise bookings growth of 34% in our fourth fiscal quarter, we achieved our target of 30% full year-over-year growth on this metric that we set and shared with you at the beginning of last fiscal year. And as I previously mentioned, we also had our best quarter ever for pipeline generation from both direct marketing and channel sources.

While Steven will introduce new ARR and customer revenue base metrics in a moment, using our historical definitions for mid-market and enterprise, our sales team closed 29 new mid-market and enterprise deals with monthly recurring revenue of $10,000 or greater during the quarter, an increase of 38% year-over-year. For the full year, our mid-market and enterprise sales teams closed 102 new large deals, which represented a 48% increase year-over-year.

With respect to the channel, new leadership, a renewed focus on our most important partners and an energized team drove channel bookings growth, as I previously mentioned, at 91% year-over-year. Our channel program has also grown to include 12 strategic masters and 698 active partners, up from 10 strategic masters and 400 active partners last quarter.

In February, we launched the 8x8 PartnerXchange platform. A new online portal that enables our partner community to quickly submit deal registrations, access partner-ready marketing tools and training and certification. Early partner feedback has been very positive and is reflected in accelerating deal registrations. We were also pleased to be named the 2019 Channel Influencer Award winner by Channel Partners and Channel Futures.

Turning to our customers. We had a number of marquee wins, including Urban Outfitters, a multinational lifestyle retail company. 8x8 will be replacing a legacy on-premise Avaya system across its North American and European retail locations, including contact centers. A combination of operational cost savings and speed to deploy at new retail locations were the main drivers to move approximately 5,000 seats to the X Series, including contact center.

Another notable win is a large North American transportation and logistics provider. The overarching requirements that drove their buying decision were to have a single unified communications and contact center cloud platform and to easily manage across their two main sites and 175 terminal sites. 8x8 replaced three different on-premise and cloud solutions with 1,500 seats of X Series, including contact center.

Yet another win is True Manufacturing, a trusted brand in commercial refrigeration with five international locations spanning four continents. True was looking for a single vendor to replace their legacy ShoreTel and Avaya mix of solutions. Their business requirements included a more robust contact center and a collaboration tool with mobility from one application with a single user experience for voice, meetings and messaging, as well as technical requirements such as adherence to specific 911 policies. True considered several other cloud providers, but in the end chose a 1,200 seat combination of X Series solutions, including contact center to meet their multi-channel solution needs.

One of our marquee wins in the UK was Duni, a global manufacturer of tableware and consumables to the catering industry operating in 40 markets worldwide. Duni engaged with 8x8 to implement a global unified communication solution for more than 1,500 users and a customer-facing contact center. Duni considered several cloud providers before choosing 8x8 X Series, including contact center to replace existing on-premise solutions.

My second top level point is that the market is strongly validating our single platform strategy. Customers continue to demand a single platform cloud solution across unified communication and contact center and 8x8 continues to win with our X Series platform. Approximately 22% of our installed base is now on the X Series platform, up from 15% last quarter. And we have launched X Series in the US and UK and most recently Australia and New Zealand to help all size businesses connect with our customers faster and smarter. Further, X Series success was seen in the strength of combination deals that included both unified communication and contact center. 5 of our top 10 deals were combination deals and 52% of new monthly recurring revenue booked for mid-market and enterprise customers were bundled deals in Q4.

But in addition to our successful X Series, our multi-year investment in contact center capabilities within our single technology platform has recently yielded dramatically improved wins in stand-alone contact center deals. Our bookings from stand-alone contact center customers more than doubled last quarter from the prior year. And overall, contact center bookings as a percentage of mid-market and enterprise bookings exceeded 40% in the quarter. In the past three months, we have also been fortunate to attract and hire 21 sales and marketing contact center specialists from companies, including inContact, Talkdesk and Five9. We expect further contact center, both stand-alone and bundled, to be a meaningful contributor to growth going forward.

This is a good example of the value of owning our technology and delivering our solutions from a single cloud platform. Unlike our competitors who often resell other technologies, we were able to rapidly and flexibly enter new markets as the overall cloud communication space evolves and expands and we can deliver both stand-alone and mix and match bundling of X Series solutions depending on our customers' needs.

In addition, we see specific benefits of our single technology platform for our customers, our partners and for leverage of our R&D spend. First for customers. They know they can rely on a future-proof roadmap and they can take advantage of cross-platform data analytics and intelligence that platform solutions can't match. Second, for 8x8, a single platform enables much more rapid innovation at a lower cost, as capabilities built for one service, for example, real-time transcription enhances all services on the platform making our R&D dollar deliver more total value. Third, for partners, a single platform streamlines their go-to-market activities as they can offer a complete solution from one provider without managing multiple integration and third-party relationships.

An additional value of our single technology platform is that it is extensible. We are very excited of what we have done with Jitsi technology, the next-generation WebRTC-based video solution we acquired from Atlassian. In less than seven months, this has been enhanced and integrated into X Series with general availability expected in July. Additionally, we're expecting to enter the stand-alone video collaboration market within the next six months, adding a third high growth market to the two markets we are already disrupting. Specifically, as demoed at Enterprise Connect in March, we will soon have a stand-alone video collaboration offering for meetings, including a complete physical conference room solution, all of which will leverage our award winning global voice capabilities. Truly, without a single technology platform, we would not be able to advance our solutions as broadly or as quickly as we are demonstrating today.

My final point is that given the combination of improving demand generation and visibility of major opportunities in these three high growth markets, we plan to increase investments across our businesses to accelerate growth through fiscal 2020 and beyond. These investments will include increasing sales and marketing spend, rolling out an e-commerce capability for both unified communications and video collaboration and continuing to innovate on our technology platform. As previously mentioned, we will continue to hire sales and marketing talent to drive go-to-market initiatives in all three markets, with a particular focus on specialist talent in contact center and video collaboration. We will invest in expanding our channel programs globally as we believe that long-term relationships with the right channel partners are critical to growing more rapidly and keeping our mutual customers delighted with our solutions. We will also increase investments in demand generation and brand awareness.

Our new e-commerce platform will soft launch by end of May with general availability expected in our fiscal third quarter. This new platform will address both smaller voice customers and will help us to rapidly scale video collaboration. Not only will this help accelerate our go-to-market reach, it will also improve the productivity of our small business sales team by shifting many small customers to a self-service model. And, of course, we will continue to fund development of our technology platform to accelerate innovation.

Increasing AI and analytics capabilities, exposing additional API and expanding the number and scope of third-party integrations are all on our current roadmap. 8x8's single extensible platform with integrated voice, video, collaboration and contact center services is our most important source of competitive differentiation.

Let me close by summarizing why we are positioned to win in these markets in the coming year. First, we have seen good progress addressing mid-market and channel execution and are seeing record levels of demand generations overall. Second, having an integrated fully owned technology platform puts 8x8 in a unique position to innovate faster to disrupt three major markets representing more than $50 billion in combined value. Third, given accelerating demand in these three high growth markets, we will continue investing for growth as we rapidly replace on-premise legacy solutions. We're confident this is the correct course for the Company and the best way to achieve long-term returns for our shareholders.

Before I turn the call over to Steven, I would like to thank our more than 1,500 global employees for their hard work and passion and our customers and channel partners for their continued loyalty and support. I also want to highlight some recent changes to our Board of Directors. As you are aware, Monique Bonner, Chief Marketing Officer of Akamai Technologies joined us in October of last year and has already had a major impact both on our Board and with our marketing organization. We're also thrilled to have Todd Ford, CFO of Coupa Software joining our Board and assuming the Chairmanship of the Audit Committee effective June 1st. Todd, who has had a distinguished career as CFO at three public companies, will partner with Steven as we continue to drive our evolution as a high growth fast business. Finally, I want to personally thank General Guy Hecker for his 22 years of service to 8x8 as well as his long service to our country. It has been an honor and a privilege to work with him and we wish him the very best in retirement.

In closing, we are committed to executing on our initiatives and remain excited about the opportunity ahead of us in fiscal 2020. I believe this market can be ours.

Now to Steven.

Steven Gatoff -- Chief Financial Officer

Thanks, Vik. Good afternoon, everyone. We appreciate you joining us. I've just completed my first full quarter as CFO here at 8x8 and see this as an important quarter from a financial perspective. That's because of the growing business traction and pipeline that we're seeing and it's because of how we're viewing and investing in the opportunity in front of us.

Accordingly, we're making some changes in how we measure and report our progress. And in that regard, I'd like to cover four key topics with you today. First, review our Q4 and full year fiscal 2019 financial results. Second, provide additional clarity into our sales efficiency around demand generation, channel spend and sales activities with the reclassification of certain expenses on our P&L. Third, drive increased transparency and accountability around our business with the introduction of new ARR-based metrics and the publication of a financial and operating metrics worksheet. And fourth, layout our overall approach and philosophy to guidance and provide our financial outlook for Q1 and fiscal 2020. We'll, of course, wrap up by opening the call to your questions.

Let's start with our financial results. Fiscal 2019 was an important milestone year for 8x8. We launched our new single technology platform, we reorganized our go-to-market capabilities and channel and marketing, we continued to invest in R&D and we posted accelerating revenue growth. The compelling takeaway from our perspective is that our financial results reflect the inherent strength both in the demand profile that we're seeing in the market and in our SaaS model. Total revenue for the fourth quarter grew to $93.8 million and for the full fiscal year 2019 came in at $352.6 million for 18% and 19% year-over-year growth respectively. Total services revenue for the quarter was $89.1 million, an increase of 18% year-over-year. And for the full fiscal year, services revenue increased 19% at $334.4 million.

We'll talk a bit about the applicability of the legacy non-GAAP adjusted revenue metric that we've historically provided in a few minutes, but this adjusted service revenue, excluding the legacy DXI business, ASC 606 adjustments and -- on a constant currency basis came in at 22% year-over-year growth for both the quarter and the year.

Looking at margins and OpEx. We want to highlight that the Q4 results reflect certain sales and marketing expense reclassifications that we made on the P&L. The reclassifications are effective with this Q4 and were made in connection with the recent strategic and organizational changes to our channel, marketing and support activities. The purpose of the reclassifications was to both align with the Org changes and provide more insights into our sales efficiency by, one, providing better transparency and clarity around the key investments that we're making in demand generation, pipeline build, channel and sales execution. And two, by sharing the information that Management uses to gauge the success of the business in generating demand and channel pipeline, driving sales execution and allocating capital.

With regard to both the GAAP and non-GAAP financial presentation of the P&L, we reclassified certain operating expenses that had previously been included in sales and marketing expense to R&D, G&A and cost of revenues. We believe the reclassification of non-pipeline building spend, such as support costs, professional services and other administrative costs out of sales and marketing and into cost of revenue, R&D and G&A is reflective of the nature of the spend that we're focused on to grow revenue and it provides better transparency for how the business is now operated.

The reporting reclassifications have no impact on the net loss for the period or on cash flows. You will see different expense to revenue ratios in the individual OpEx line items and gross margin, which I'll cover in a moment. We'd also like to highlight for you that the full set of data and reconciliations for the reclassifications for all quarters for fiscal 2018 and fiscal 2019 are provided in tables attached to our earnings release and are available on our website.

With that, let's look at some of the details. Reflecting the reclassified items, non-GAAP service margins and gross margins were 71% and 66% for the full fiscal year 2019, generally flat year-over-year on a reclassified basis and approximately 12 and 11 percentage points lower respectively when compared to the pre reclass numbers. A factor that impacts gross margin is the amortization of capitalized R&D, as these R&D costs are amortized to cost of revenue. We have invested heavily in developing and building our single technology platform over the past several years. And in doing so, we capitalize more than 30% of our total R&D spend in both fiscal 2019 and fiscal 2018. We believe that this dynamic is a clear indication of the strong future value and compelling benefit of the investments that we made in our new platform. And so as I mentioned a moment ago, this has an impact on our non-GAAP service gross margin.

Nonetheless, coming in at 71% for Q4, we see this as being in line with other SaaS companies who similarly operate robust technology platforms, particularly in the contact center space. The final point here is that we believe that the scalability of our platform will drive meaningful cost advantages over time and we will look to -- for improvements in yield on our gross margins going forward.

Turning to the impact of the expense reclassifications on non-GAAP operating expenses, let's start with sales and marketing. As a percentage of revenue, non-GAAP sales and marketing expense was 48% for Q4 after the reclass. This compares to historically reported figures for sales and marketing expense to revenue ratios north of 61%. With the changes that we made in our channel program and marketing function, we're focusing on our sales and marketing spend that's demand-gen, pipeline building and sales execution centric. Our investment in customer acquisition, branding campaigns and channel outreach programs helped contribute to our strong quarterly bookings results coming out of Q4 and we believe the reclassification provides the performance assessment and correlation of revenue outcome with sales and marketing spend. This is important as we look to capitalize on the demand that we're seeing and monetize our technology in a space where 8x8 participates in three compelling markets.

Moving on to research and development, our single technology platform and investments in talent and innovation position us well to drive our competitive advantage in the marketplace. R&D expenses were approximately 15% of revenue in Q4 and approximately 14% for the full year fiscal 2019. Importantly, however, as I mentioned a moment ago with respect to the gross margin impact, we've been investing in technology and building a formidable platform, and as such, have been capitalizing more than 30% of our total R&D spend each quarter. It's notable that many of our competitors and peers alike who don't have the product breadth or on their own technology platform as 8x8 does capitalize much lower portions of their spends down in the 1% to 10% area. In terms of total R&D spend, our gross expense to revenue ratio is in the 20% area and reflects what we believe to be a strong value creation and technology advantage.

Finishing OpEx, non-GAAP G&A spend was 12% of revenue in both the fourth quarter and full year on a reclassified basis, flat to the previous year. Overall, there was not a large change apples-to-apples and so G&A continues to feel like it's run pretty efficiently. In the spirit of driving simplicity and transparency, we also wanted to note that beginning with Q4 fiscal 2019, certain recruiting expenses that were previously allocated out across all departments in the first three quarters of the year are now reported in G&A. Putting this all together, Q4 non-GAAP pre-tax loss was $7.8 million, excluding Jitsi-related operating expenses of approximately $0.8 million and net interest income related to the notes issuance of $0.4 million and in line with our guidance. For the full fiscal year 2019, non-GAAP pre-tax net loss was $19 million, also not including Jitsi or note related net interest income.

Finally, I'd like to highlight the capital structure transaction that we completed this past quarter. We strengthened our balance sheet and already strong financial position meaningfully in Q4 through the issuance of $287.5 million in convertible senior notes. The coupon on the notes is a very attractive 50 basis points and the effective conversion price of the bonds is also attractive at $39.50. We finished the fiscal year in March 2019 with more than $354 million in cash and investments on our balance sheet and we're pleased that the bonds continue to be well received by the market.

With that, I'd like to address my third topic for discussion today relating to new metrics to track our business. In the context of the tremendous opportunity in front of us and with the evolution of our business, technology platform and Management team, it's now the right time to begin introducing additional metrics in alignment with our SaaS business model. Our goal is to provide transparency as we execute on our business and make key investments to accelerate growth.

The first new SaaS metric that we're providing is new ARR, greater than $100,000. A good measure of large deal execution. For this metric, we're reporting the number of customers and the percentage of our dollar bookings in a quarter that are from deals that generate more than $100,000 in annual recurring revenue or ARR. In Q4, we closed 35 new deals with ARR in excess of $100,000 and that represented about 35% of our total bookings for the quarter. We're pleased to continue to see this number grow, both in terms of the number of customer deals and as a percentage of our bookings. Even if it can be a bit lumpy at times, we're pleased to see that the value prop of our unique single technology platform resonates with larger customers and drives new large and multi-product customer transactions.

The second new SaaS metric that we're introducing is total ARR greater than $100,000. Our intent here is to highlight and track the proportion of our total base of recurring revenue that is being driven from large greater than $100,000 in annual recurring revenue customers. For Q4 fiscal 2019, we had 408 customers generating ARR greater than $100,000, a solid 9% sequential quarterly growth over Q3.

The third new financial metric that we're now providing is ARR by customer size, where we're reporting our revenue composition by small business, mid-market and enterprise customers, as determined by our customers' revenue size rather than by the dollar size of the transaction that they do with us, as for example we have plenty of small customers who do large deals with us. We're particularly proud of the traction and growth that we've delivered in the mid-market and enterprise space, where ARR grew at a healthy rate of 34% and 54% respectively year-over-year as of March 31, 2019.

In addition to the several new ARR and customer metrics that we started reporting, we are also introducing a comprehensive worksheet of supplemental information that we have published on our website. The worksheet provides current and historical quarterly and annual financial and operating metrics. Our intent is to provide additional visibility to enable investors to gain more insights into the business and our performance, and through information that's available in one place.

With the introduction of these new SaaS metrics and the publication of the new metrics worksheet, we'll be pivoting away from reporting the legacy monthly recurring revenue or MRR-based metrics going forward. As part of our evolving SaaS model and focus, going forward, we will also no longer be reporting on the legacy adjusted service revenue metrics that back out the legacy DXI side business and other adjustments or currency changes and the likes.

In this regard, we have previously talked about getting to a target growth rate of approximately 25% in this adjusted service revenue metric. That target was essentially an anticipated 200 to 300 basis point improvement from the end of fiscal 2019 to Q2 fiscal 2020. And moving to GAAP-based revenue metrics, we would simply look for a similar 200 to 300 basis point or so expansion in growth off of the Q4 fiscal 2019 base growth rate in the GAAP service revenue metric.

With that, I'd like to wrap up with the fourth topic today to discuss our approach and philosophy on guidance and provide our financial outlook for fiscal 2020. As many of you appreciate, we are disrupting a $50 billion market, which is in the nascent stages of moving to the cloud. 8x8 is the only company in the marketplace today who owns the complete tech platform to serve all three markets of unified communications, contact center and video collaboration. As Vik laid out, with our progress in rebuilding the demand gen and channel teams that is starting to drive some strong pipeline growth and the solid market position of our multi-product technology platform, now is the time to aggressively invest in our go-to-market strategy. That will be the driver of continuing to accelerate revenue growth and that is what's reflected in our guidance.

With that, let me touch on our new guidance philosophy to ensure a posture of delivering results and long-term stockholder value, we're now adopting a more measured approach to setting guidance. Historically, guidance has reflected an outcome that left little room for any deviations in the business. That is no longer our approach.

And so with that backdrop, our guidance for Q1 fiscal 2020 is as follows. We anticipate total revenue to be in the range of $95.3 million to $96.3 million, representing 15% to 16% year-over-year growth. We anticipate service revenue to be in the range of $91 million to $92 million, which equates to a year-over-year growth between 16% and 18% and we anticipate non-GAAP pre-tax loss to be approximately $17 million. Looking at the full year fiscal 2020, we anticipate total revenue of approximately $418 million, representing 19% year-over-year growth. We anticipate service revenue of approximately $400 million, which equates to a year-over-year growth of 20% and we anticipate non-GAAP pre-tax loss to be approximately $50 million.

It's important to note that nearly all of the incremental spend in fiscal 2020 is in go-to market efforts to drive demand and pipeline generation, brand awareness, sales enablement and channel execution initiatives. It also naturally includes a continued investment in our technology platform. That's what we're investing in and that's where we see 8x8 winning this year. Importantly, we expect to realize sequential improvements in operating leverage in fiscal 2020 as we move out of Q1 and anticipate declining expense to revenue ratios among sales and marketing, R&D and G&A expenses as we move through the year. Our operating expense structure achieves leverage from our ability to serve three markets, driving incremental revenue from one technology platform. Building on that theme and leveraging the strength in our model and platform, we see a path to profitability through a combination of accelerating revenue growth and OpEx leverage that provides us the ability to achieve non-GAAP breakeven exiting next fiscal year end March 2021.

With that, we appreciate your time and support and we're glad to open the call for any questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Matt Van Vliet with Stifel. Your line is open.

Matt Van Vliet -- Stifel -- Analyst

Yes. Hi. Thanks for taking my questions. Really appreciate it. Just I guess digging into some of the drivers on the channel side, obviously, it was a little bit of a hiccup last quarter as you guys got the launch out there. But just curious in terms of both performance throughout the quarter and into fiscal '20 here. And what do you think are the biggest key drivers for those partners continuing to sign up at quite a clip?

Vik Verma -- Chief Executive Officer

Yeah. So one, I think to a large degree I attribute it to our team and our leadership there as well as the strength of the X Series platform. I've had the opportunity to now meet with a lot of our channel partners and several of the CEOs and presidents of our various masters. And there is clear sense that our X Series is resonating because it's easy to sell. You can sell it stand-alone, which is you can sell just the contact center or you can sell just the business communication system or you can sell just the video collaboration solution or you can sell it all together. So, they're finding it easier to train their sales force and they feel like we have now done a good job with the partner portal of basically being responsive to them and making sure that we can give them visibility and we have also finally eliminated any form of channel conflict that existed in the past. So a lot of what we were trying to do happened a little bit faster than they expected and our key is to keep doing more of the same.

Matt Van Vliet -- Stifel -- Analyst

And then as you look at the stronger performance on some of the larger customers, I mean, you've given us a lot of detail around that, which is helpful. But curious in terms of how much you would place that on the ability for X Series to drive sort of incremental revenue from those customers and how it's impacting your overall sort of ARPU or ASP metric.

Vik Verma -- Chief Executive Officer

All of those -- both ARPU, which is average revenue per customer is up, I think, quite materially. X Series, we feel, for the larger customers, this mix and match is extremely critical. And we -- I think you're seeing it just in the strength of the customers we're winning and we're winning them globally. You're often finding customers will buy just the contact center and then evolve to telephony or they may buy just our business communication system and then evolve to the contact center and then over time they have a plan to add in video collaboration. So, from that perspective, this gives them essentially a future-proof system.

So we have seen our big deals accelerate quite dramatically, and as I said globally. And the good news for us has always been that upsell has always been about 50% of our bookings. This quarter was a little lower and that was mainly because new logos were significantly higher. So new logos were about 60% of our new bookings versus about 40% -- and 40% were add-on. But the great thing about having new logos is each of them will add on. And so over time, you keep building a stronger and stronger book of business.

But I cannot overemphasize enough how proud I am of the ability to sell contact center. Our team sold contact center -- I mean, I'll give you three, four examples of customers. A large elevator manufacturer that everybody has heard about, a very large government agency in Britain, a very large international university. They bought us for our contact center stand-alone. And then over time will migrate to our business communication system. That's unique for us. 40% of our bookings for mid-market and enterprise was contact center either bundled or stand-alone. And so that says, in essence, what was essentially a company that basically sold business communication systems and then combo deals, where we added on contact center, now can sell contact centers stand-alone and contact center can potentially pull in our business communication system. And right after that, we're ready for video collaboration. So we built three best-of-breed technologies under one single platform.

Matt Van Vliet -- Stifel -- Analyst

Great. Thank you.

Operator

Your next question comes from Meta Marshall with Morgan Stanley. Your line is open.

Meta Marshall -- Morgan Stanley -- Analyst

Great, thanks. I just wanted to kind of dive a little bit into guidance and kind of understanding what you're doing as far as saying setting a more conservative bar and -- that -- really the 25% kind of implied a 200 to 300 basis points. But just kind of stepping into fiscal Q1, you had mapped out that the year would kind of build an acceleration from 50 to 75 basis point kind of acceleration each quarter and that's how we should think of kind of building revenue growth throughout the year. And just, is there anything particular to Q1 where you're seeing any sort of weaker performance or is it just really kind of setting a lower bar? And then I have a follow up question, but maybe you start with that one.

Steven Gatoff -- Chief Financial Officer

Sure, sure. It's Steven. Thanks Meta for the question. So while you said still stands, there's been no change in view, vision or competence. And so what we were communicating that over the course of a year, on average, we see quarterly growth of 50 to 75 basis points. And as we spoke with you about some quarters will be a little bit more, some quarters will be a little bit less. But in the context of a year, we saw that as an appropriate benchmark to think about sequential growth. That dynamic is built into and can be found in the math of our annual guidance for fiscal 2020. Q1 in the near-term, that we're obviously half way through, is a different dynamic. And so we -- as we said, we won't micromanage to the near-term. Our guidance philosophy has admittedly changed as we look to build the foundation. And so that's the guidance we've set out for Q1, but the economics of growth over the long-term have not changed on an annual basis.

Vik Verma -- Chief Executive Officer

And I'll add to that one Meta because -- I'll add to that one because to a large degree, the goal for us as a Company has been over the years continuous improvement. Setting expectation and guidance has not necessarily been a strength of ours and it's something we can obviously get better at. Steven comes from a SaaS background as former CFO of Rapid7. Todd Ford comes from Coupa Software. And so I think with that team, I think we'll get much more measured in the way we do guidance and I think we'll just get better at it.

Meta Marshall -- Morgan Stanley -- Analyst

Got it. That's helpful. And then maybe a follow up question from me. Just -- I know obviously Enterprise Connect is kind of the video product, a mid-Jitsi product. It's an exciting introduction you guys have planned for the second half of the year. Is that built into the acceleration or kind of into your expectations for the year or could that be potential upside? And that's it.

Vik Verma -- Chief Executive Officer

Yeah. Nothing is built. So we have built in nothing for -- a very little for video collaboration for a couple of reasons. One, by the way, a shout out to our video collaboration team, which is now a integrated team of several folks, includes Romania as well as London and Austin. They've done a phenomenal job. We are launching the integrated video collaboration solution as part of our X Series in July. That stuff is really cool, but the part that is the great thing about having the single platform is we will also launch it as a stand-alone meetings product, which can then pull in other things over time. We also are doing a soft launch of our e-commerce platform in the next few days, definitely by end of March timeframe, we'll have a couple of months to kind of let it soak for a while and initially we will use it so people that are small micro customers will be able to log in by the port, deploy everything all completely automated from our e-commerce platform. And then by October-November timeframe, the intent is to add stand-alone video collaboration to that e-commerce platform as well. So again, all of this is on one platform and the ability to sell stuff stand-alone or sell it as part of our X Series is, I think, truly unique for us as a Company.

Meta Marshall -- Morgan Stanley -- Analyst

Okay. Got it. Thanks. I'll pass it on.

Operator

Your next question comes from Dmitry Netis with Stephens Inc. Your line is open.

Dmitry Netis -- Stephens Inc. -- Analyst

Great. Thanks guys. Well, first of all, I appreciate the added transparency on demand gen with this new mid-market enterprise, they are bookings frameworks that you're providing. And I'd also like to commend you for this reclass of customer support costs out of the sales marketing and into COGS. I think that's the right approach and it's probably more accurate representation of your sales and marketing spend. So good start there. But to clarify, R&D and G&A basically staying the same and gross margin is moving lower by about 11 percentage points, primarily due to the cost of support -- customer support that's moving out of the sales and marketing line. Just confirming that.

Steven Gatoff -- Chief Financial Officer

It is Steven. Yeah. It's Steven. Spot on. That's right. There's some small amount that got moved to R&D and G&A, but the crux of it, you just summarized well.

Dmitry Netis -- Stephens Inc. -- Analyst

Good. And then on R&D, I think you're just trying to kind of dispel the fears that maybe R&D spending is lower than some of your competitors because you're capitalizing about 30% of R&D costs.

Steven Gatoff -- Chief Financial Officer

Again, that's spot on the nose. That's right.

Dmitry Netis -- Stephens Inc. -- Analyst

Okay. Very good. And then let me move on to some of the other kind of questions here. First of all, on the channel, it's good to see channel improving and exceeding expectations here sooner than you had expected. Would you be able to tell us what percentage of overall bookings channel represent today? And I think you had a count of 23, 24 folks of channel enablement team. Is there any update to that number? Kind of wanted to kind of get that. And I think you'd mentioned that you expect channel to be firing within roughly six months. Do you feel it's firing on all cylinders right now?

Vik Verma -- Chief Executive Officer

So I don't know if you've disclosed the exact percentage of channel, it's starting to become a much more appreciable portion of our overall bookings. The part I can tell you is it's starting to fire on multiple cylinders. And I was just -- we were just awarded yesterday the TBI UCaaS and CCaaS Partner of the Year. TBI is obviously a very important partner. Also, met with CEOs of Intellisys, MicroCorp, AVANT and a few others and we're starting to see a lot of traction.

There is a view that X Series is almost made for the channel because it can basically go and -- you basically train one person on a platform and then they can sell either mix or match or stand-alone. And we have hired in the neighborhood of 30 odd channel folks over the last six months or so that are now finally starting to get all productive, and it's an awesome team. I think if you were to go, reach out to channel partners, I think you'd get a sense that we have done a very good job of definitely blanketing the 12 masters.

And the final comment is on that metric that we provided of the number of active channel partners. That is people who have actually registered a deal with us. So those are people who are actually registering deals and it's now 698 people and 12 masters, just think a quarter ago, it was about 10 masters and 400 and something -- I think 90 people. So again, you're starting to see that level of traction continue. My challenge to the channel team is it needs to keep going quarter-after-quarter.

Steven Gatoff -- Chief Financial Officer

Yes. And the numbers are orders of magnitude. Happy to share that with you. I'm understanding that's probably the first time we're talking to this. But orders of magnitude, when we're looking at our bookings for a given quarter, it's roughly 60-40 insofar as direct and channel orders of magnitude. Obviously, revenue is much less to the whole discussion, our channel ramp has really taken off and accelerated insofar as execution in the past three months really. And so revenue contribution from channel is meaningfully lower, but obviously we're looking for that to grow as the bookings is a nice contribution level.

Dmitry Netis -- Stephens Inc. -- Analyst

Great. Great. And then finally, Steven, one more for you. As this -- as you bring in this expense on to the kind of 2020 guide, additional expense, right. Just trying to understand, is the incremental revenue that you're booking coming at a bigger expense to your contribution margin or is it staying about the same? And I appreciate kind of the focus as you move to the channel and focusing more on the channel, I presume that maybe a near-term spend for you, but if you could address that issue that would be interesting.

Steven Gatoff -- Chief Financial Officer

Sure. I think you grasped it, which is in the near-term, essentially this quarter, Q1, you would see a higher marginal cost of building demand and closing deals as we continue the ramp. Vik talked to the reorg of channel, the sales organization changes that we said would take a quarter or two are off to a great start, but we still have a little more work. And so Q1 is an investment quarter for that, but we do see marginal efficiency in Q2, 3 and 4. So we see our expense to revenue ratios for sales and marketing, specifically, beginning to improve as we can drive higher marginal contribution revenue dollars coming out of Q1.

Dmitry Netis -- Stephens Inc. -- Analyst

Very good. Thank you so much.

Steven Gatoff -- Chief Financial Officer

Yeah, sure. Thanks.

Operator

Your next question comes from Rich Valera with Needham and Co. Your line is open.

Rich Valera -- Needham and Co. -- Analyst

Thank you. You've mentioned your success with contact center a few times and that your gross margin profile would probably skew more toward a company with a heavy contact center sort of exposure. So just wondering, if you're willing to share sort of roughly how much revenue or bookings are coming from contact center at this point.

Vik Verma -- Chief Executive Officer

We -- I think what I shared was that 40% of our mid-market enterprise bookings came from contact center. So that is a very significant jump up. And just in the last 90 days, about 21 sales and marketing people from companies such as Five9, inContact and Talkdesk just joined 8x8. We see the ability to sell stand-alone contact center as an area that we think will continue to accelerate.

Rich Valera -- Needham and Co. -- Analyst

Got it. And then I wanted to revisit the 25% target. And I think, Steve, what you said was you kind of add 200 to 300 basis points to kind of the GAAP number to kind of get the equivalent in the adjusted. And if I look the way your numbers would appear to trend from -- starting from Q1, where it looks like you're at around kind of a 17% year-over-year growth GAAP-wise, it seems like it'd be real tough to get to kind of north of 20%, 20%, 21% in the second fiscal quarter, which is kind of what that target was to kind of hit that 25% adjusted target. So I just want to make sure I was thinking about that the right way and if you're still looking for that target in the second quarter. Thank you.

Steven Gatoff -- Chief Financial Officer

Sure. Very natural question, totally get it. What we would offer though is a little bit of mixing apples and oranges. And what I mean by that is we got a little wrapped around the axle previously by issuing guidance that was our spot point target of what we absolutely dead-on expected to do. And so would differentiate between the 200 to 300 basis point improvement, which we're talking about a fundamental improvement and anticipated business result and guidance that we are setting. Right? Guidance that we set for Q1 is our guidance number with a little different philosophy. And so it's difficult to connect the dots from a more measured guidance approach with the legacy view of the improvement. Right? The whole notion is that guidance, as we're setting it out, does not equal the target that we're trying to provide a little color on. Right? We're basically trying to not hide the nut and just stay transparent with what we've said in the past. We've talked about this 25% metric. It's on the squarely adjusted revenue, yadi-yadi-ya. And so we're moving to a very simple straightforward GAAP metric and so we're saying the improvement that we would have seen of 200 to 300 basis points on the convoluted adjusted metric look for that same improvement. Full stop, period. And then we set guidance in a different MO. And so I would disassociate those two things.

Rich Valera -- Needham and Co. -- Analyst

Got it. And I wanted to revisit your comment, Steve, about -- you said exiting fiscal '20 -- fiscal 2021 on I think a non-GAAP breakeven basis and I just wanted to make sure I got that right. And frankly try to understand why you might not get to breakeven before that. I mean, if you just look at the trajectory throughout fiscal '20, that appears to be implied in the guidance. It would seem that you would be getting reasonably close to that exiting 2020 and it would seem to take a whole another year to get to a breakeven quarter, seems like kind of a long time. But just wanted to understand what exactly you were saying there.

Steven Gatoff -- Chief Financial Officer

Yeah. We -- so thanks. Good takeaway. The message really is several fold. One, it is to really clearly stay -- say that this is not a path to hell insofar as spending hand over fist that we're investing right now, but we see leverage and efficiency in the model and we see increasing returns. So that while the headline of the spend number is a big dollar number for fiscal 2020, we see improvement pretty quickly. And to your point, the majority of our spend is headcount. Right? And so we very much can control and throttle expenses as we see demand pickup and do well. And if it takes a quarter or two longer, we can hold off as well. And so your point is a fair one and a valid one that -- and we would not profess to know within the specific quarter, which one it's going to be at this point, but it's just a message to folks that we're very much on top of the breakeven nature both from a cash burn standpoint as well as a profitability in the model and we're managing to that on a timeframe that is not years and years away.

Rich Valera -- Needham and Co. -- Analyst

Got it. Thanks for the clarification, Steve.

Steven Gatoff -- Chief Financial Officer

Sure. Good question. Thanks.

Operator

Your next question comes from Nandan Amladi with Guggenheim and Partner. Your line is open.

Nandan Amladi -- Guggenheim and Partner -- Analyst

Hi, good afternoon. Thanks for taking my question. So the acceleration in the bookings from the channel, how different is this new go-to-market approach that you have developed versus earlier? What are the key parameters that you had to change?

Vik Verma -- Chief Executive Officer

The most fundamental thing is it's always the simple blocking and tackling. Leadership is new, team is energized, they're out there, they go visit channel partners who spend a significant amount of time, effort, energy in education, enabling, training, co-selling, literally I would love to tell you it was some big bang thing, it really -- it just comes down to execution. We brought on-board -- over the last six to nine months, we have brought on-board about 30 odd new channel people, we've now gotten them trained in our products, they have phenomenal relationships with the channel partners and we've gone out there and we are sitting shoulder-to-shoulder with them in all their facilities, visiting with them on all of their customers and systematically eliminating all channel conflicts.

Additionally, I think this partner portal is going to be a huge deal for us because it accelerates the ability to do deal registrations, but also provides channel partners with essentially a 360 degree view of how that particular deal is being prosecuted from a sales perspective and then eventually they'll have full visibility on the full life cycle of the customer. So, again, blocking and tackling is, I guess, the simplest way of saying it. And my hats off to our team. They took the flub last quarter as a personal challenge and I don't think several of them have even been home since then and they've done a phenomenal job for us and now the bar is higher and they need to keep doing more and more of the same.

Nandan Amladi -- Guggenheim and Partner -- Analyst

Thank you. And a quick follow up for Steven, if I might. How long does it take to convert bookings to ARR, particularly now that you're moving upmarket? How will that cadence essentially shift in the conversion process?

Steven Gatoff -- Chief Financial Officer

Yeah. It really shifted when we rolled out the new platform, where we move from a deployment-centric model to what you and others know as a very traditional SaaS platform, where you book a deal in this month and you start taking revenue on the core platform part of the business next month. For certain types of customers, where it might be municipal or federal or overseas customers that tie specifically billing and availability of platform to certain milestones, that might be different, but that's the exception not the rule. And that is a shift for us and that's something that we decidedly drove and are now able to do. So to this point earlier, looking and growing up to be a real SaaS company out of telecom services orientation is -- now allows us to do that.

Nandan Amladi -- Guggenheim and Partner -- Analyst

Thank you.

Steven Gatoff -- Chief Financial Officer

Sure. Thanks.

Operator

Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.

Pavan -- Northland Capital -- Analyst

Hi, guys. Thanks for taking my question. I'm Pavan (ph) on for Mike Latimore. Which version of your X Series is getting the most traction?

Vik Verma -- Chief Executive Officer

Actually, fascinatingly, both the X2 and the X8, which is basically the telephony piece, the simple business communication piece as well as the contact center. It's almost like a reverse Gaussian curve. Those are the two getting the max amount of traction.

Pavan -- Northland Capital -- Analyst

And like, how should we model the product gross margins going forward?

Steven Gatoff -- Chief Financial Officer

Yeah. So we haven't given specific guidance on that, so we'd be reluctant to go off the reservation. But what we are talking about is as we move through the year and as you see revenue traction and expense efficiency, we would expect to move through the year with some base level of efficiency and a combination of gross margin probably even more specifically in operating margin through sales and marketing, R&D and a little bit of G&A efficiency pickup.

Pavan -- Northland Capital -- Analyst

Okay, got it. Thank you. That's all I had.

Vik Verma -- Chief Executive Officer

Sure.

Steven Gatoff -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of George Sutton from Craig-Hallum. Your line is open.

George Sutton -- Craig-Hallum -- Analyst

Thank you. Steven, I wondered if you have looked at some of the prior investments that have been made to grow the business and looked at the resultant ROI, and I'm not suggesting you answer that here, but I would like to talk about it. But I'm curious, if you've looked at the ROI expected from these investments. And when would you expect to achieve those returns?

Steven Gatoff -- Chief Financial Officer

Sure. When you say investments, do you mean companies acquired or do you mean operating spend?

George Sutton -- Craig-Hallum -- Analyst

Operating spend resulting in additional business.

Steven Gatoff -- Chief Financial Officer

Yeah. So good question. The thing that I feel good about here is that there is a very good discipline around the table now that candidly was probably different insofar as what we looked at four, five months ago insofar as a tight cadence around metrics and statistics that drive revenue. And what I mean by that is we go through as an Executive team every Monday all of the channel deal reg, pipeline conversion rate, channel versus direct metrics insofar as what is happening as an outcome and then we inspect the spend and we look at the efficiency of our digital demands and we look at the efficiency of our marketing campaigns and brand development campaigns. And so I have a lot of confidence that the way we're spending our money now is absolutely with a clear ROI expectation. We hold ourselves accountable with all of you on the metrics that we're providing and candidly the culture at 8x8 is very accountability-driven, where, for example, we just closed our annual plan for fiscal 2020 and so there is a page in our deck, where all of the expected outcomes that we have for product and marketing and channel has an executive's name next to it and everybody signed up for their deliverable. So the culture here is definitely oriented toward that.

George Sutton -- Craig-Hallum -- Analyst

Got you. And just one quick for Vik. On video, and I appreciate you're excited about Jitsi and sort of what that can become, you're obviously entering a very competitive market with some very good players. What are going to be the differentiators or what's the logic of sort of really building it out yourself versus partnering?

Vik Verma -- Chief Executive Officer

Very easy. One, because I think as you may find out from another partner, if Xoom starts to enter into the video -- from the video to the UcaaS, that obviously if you're partnering with them, you're basically opening yourselves up a little bit. But remember, this is WebRTC, so it's an open standard and it uses 8x8's audio. So you got the best of both worlds. WebRTC developed by Atlassian combined with audio, which 8x8 developed over the last 10 plus years, all delivered over an e-commerce platform, frankly it gives us a non-trivial competitive edge and this is the part, going back to your comment on investments, a huge amount of investments by 8x8 have been made on a technology platform. So guess what, that same technology platform that is used to deliver business communication systems, then delivered content center and contact center now stand-alone is winning on its own without the crutch of basically a business communication, it can stand on its own 2 feet and it can win. Then you've got video collaboration with -- through a combination of Atlassian, plus the work that we have done with our own audio. Combining those two together, you get something truly differentiated and there's a white paper on our website that does a comparison of the two technologies. Just to put it in perspective, the competitor is a $20 billion market cap, competitor on a revenue that's roughly comparable to ours.

So now go from there on one other aspect. Anything that is developed, like speech transcription for our contact center offer a business communication now can also be applied to our video. Anything we develop from AI/ML that we do for our contact center applies also to video. That's what our customers are finding truly compelling. So they can buy video stand-alone or they can buy it as part of a bundle, but most importantly, anything I develop for our contact center or our business communication or video conferencing apply to the other. That leverage is massive. That's why you build one platform. That's what we have invested to do.

George Sutton -- Craig-Hallum -- Analyst

Got you. Great. Thanks, Vik.

Operator

Your next question comes from the line of Will Power from Baird. Your line is open.

Will Power -- Baird -- Analyst

Great, thanks. Yeah. Just a couple of questions. Maybe just coming back to the bookings trends. As you look at mid-market enterprise, I think you reported 34% bookings growth and that's a number that's vacillated quite a bit over the last few quarters. Do you think you have better line of sight on that now to sustaining a 30% number? And are there any comp issues coming up that we should be aware of there?

Vik Verma -- Chief Executive Officer

And actually, Will, on that one, the comp issues are actually built in. If you think about it, last year what we guided to is we said bookings for mid-market enterprise for the year on an average would be 30% over the previous year. Guess what, that's exactly where we ended up. And so there were some quarters where it was more, some quarters where it was less, but we ended up at exactly 30% increase in mid-market enterprise bookings year-over-year on an average basis. So will the number fluctuate up or down? Absolutely. Do I feel that you're starting to see a much better rhythm and cadence develop? Yes. I mean, we've done it in -- if you think about it, the Company invested us -- a huge amount into building out a platform. Then we've started to get into go-to-market, particularly channel. We're a little late to the party on channel, but clearly it has recovered very quickly and we think it's sustainable. Mid-market has started to accelerate. Now, you've got additional capabilities coming online, with both video collaboration as well as e-commerce, which aren't necessarily baked into our numbers. So in the end, the whole idea is build one platform, get the leverage from that one platform and then build a channel that can sell everything on the entire platform. And I think once you do that, you're able to get a non-trivial lift and non-trivial leverage.

Will Power -- Baird -- Analyst

Okay. All right. And then -- and just maybe along those lines, you called out contact center a couple of times in terms of strength on the quarter, I think about 40% of bookings, growing significantly year-over-year. What are you going to apply for kind of the core UC or UCaaS product? I mean, what -- are you able to kind of breakout kind of what you're seeing there in terms of bookings growth because on the contact center, it was growing even faster than core UC product?

Vik Verma -- Chief Executive Officer

No. Actually, in all areas, we're seeing growth. So if you think about it, our unified communications, which is where we came from, we have kind of evolved. Initially, we had unified communications just by itself and that was growing at a reasonable clip. Then we added unified communications plus contact center as combo deals, that started to grow at a very healthy clip. Now, we're starting to see contact center stand-alone grow at a healthy clip. And so I think the only reason why some of the numbers work out the way they do is a lot of our customers are buying both our unified communication and contact center. The vast majority of our customers buy both of those products. And the part that is interesting is normally it was always a unified communication that dragged on the contact center. Now, what we're finding is you can win on contact center and that drags along the unified communication, which means, in essence, we've opened up a second front. One of the raps had always been that, hey, you have to put best-of-breed together because, you know what, you -- otherwise, you're getting this bundled solution and the contact center is just a so-so contact center. We're taking on the very best in the world in contact center and we're more than holding our own. There's a reason why 21 people from some of the top companies came here because they see a contact center here that not only can hold its own, it can take on anybody stand-alone and now we can drag on unified communication. It also helps the contact center sells for approximately 5x more than UC solution. So I think over time, we will continue to see ARPU continue to increase.

Will Power -- Baird -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of James Breen from William Blair. Your line is open.

James Breen -- William Blair -- Analyst

Thanks for taking the question. Just in terms of your confidence going forward in the growth and what you're seeing in the channel as well as with the customers you're adding. Can you just talk a little bit about how much you think you have with some of your customer spend now and the ability to grow within your existing customer base? Thanks.

Vik Verma -- Chief Executive Officer

A small fraction. What we're seeing is, as I indicated, on an average, 40% to 50% of our bookings, new bookings is from upselling existing customers. And increasingly, we're finding that -- I think that number will go up over time because increasingly we are finding that we can upsell, not just contact center, but over time both video collaboration through our unified communication customers and/or we can sell contact -- unified communication and video collaboration now to our contact center customers. So I think you will see our land and expand -- we're evolving to a SaaS company. We were essentially a unified communication company, that added on contact center. The rap was the contact center was OK, but not great. Now, the contact center is as close to best-of-breed as you're going to get. Now, we've added best-of-breed video collaboration, but all of them are on one platform. So it's very logical for customers to go to one vendor and you have, in essence, future-proofed the technology.

James Breen -- William Blair -- Analyst

And then just can you talk about the sales cycle in general? And how -- as you're making this move to be more SaaS-based, how does that change the sort of investment cycle from the customers and how long it takes to close deals? Thanks.

Vik Verma -- Chief Executive Officer

So that's a fascinating question because what we are seeing as a trend is the initial sale is, one, it is shortening, but it's -- we saw the mid-market sales shortened by about 25%. And part of the reason it's shortened is because, in essence, you can sell them just one solution and then do a land and expand from there. So again, the Company is evolving much more to a SaaS company, where you're able to go in with one portion of your solution and over time you can add in additional portions to the solution.

James Breen -- William Blair -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Josh Nichols from B. Riley. Your line is open.

Josh Nichols -- B. Riley -- Analyst

Yeah, hi. Thanks for taking my question. I do want to ask -- good to see some additional disclosures for the Company. But I want to ask, as far as the churn, another kind of key metric, have you seen that hold relatively stable at least as it pertains to the country's larger platform customers like NetSuite and whatnot?

Steven Gatoff -- Chief Financial Officer

Yeah. So good question and we'll likely be coming out with more color and visibility around renewals and retention as we move forward. Some of the churn has started to pickup a little bit vis-a-vis our success in moving legacy customers to the new platform. Right? Moving legacy customers is a little bit disruptive and so we see a little bit of that now, but nothing phenomenally alarming. Just more of a standpoint of things that we want to focus on.

Vik Verma -- Chief Executive Officer

Yeah. And we're not seeing it at the very large customers, I think the NetSuite you were talking about, we'll see some there because now they are owned by Oracle. But other than that, I mean, which is just normal stuff that happens as customers get acquired, but we also find that some of our customers that get acquired end up basically getting the parent company to buy our stuff, that's just normal course of business. And we will continue to accelerate the move to X because we think X actually provides better retention because, in essence, you've got this one platform solution, where you can go add video collaboration, contact center as well as unified communication from one platform, which is just a natural evolution on land and expand.

Josh Nichols -- B. Riley -- Analyst

Thanks. And then last question from me. Just want to make sure I had it right, given the reallocation and a little bit change for the guidance outlook. So the Company is targeting a non-GAAP pre-tax loss of approximately like 50 -- sorry, 5-0, $50 million this fiscal year up from $21 million last year, but that also doesn't really include, as you mentioned, the capitalized software and things like that, so total dollars invested for the year is probably going to be closer to like $80 million or $90 million it seems like. Is that reasonable to say?

Steven Gatoff -- Chief Financial Officer

Yeah. Your understanding is correct.

Josh Nichols -- B. Riley -- Analyst

Okay. Thank you.

Steven Gatoff -- Chief Financial Officer

Yeah, sure.

Operator

Your next question comes from the line of Jonathan Kees from Summit Insights. Your line is open.

Jonathan Kees -- Summit Insights -- Analyst

Great. Glad you guys can squeeze me in and thanks for letting me ask some questions here. Just kudos in terms of additional metrics. And as you can tell from Q, there's people still grappling with the change in guidance. I just -- I guess, my question is really more clarifications. I just want to be clear that -- or make sure my understanding is clear that the 25% that we're still looking at the apples-to-apples there, that would have still been the target that would've been reached by the timeframe you had mentioned previously. Is that correct?

Steven Gatoff -- Chief Financial Officer

So we're decidedly not continuing guidance or commenting on that target, but what we are saying in a very transparent way is that target implied a 200 to 300 basis point improvement in the growth rate. Right? And so if you say, OK, well, what metric are you guys looking at? Hey, we're looking at service revenue. Okay. Well, then I, an investor suss it out should take that base GAAP service revenue and put 200 to 300 points on that and that would be a very natural assumption to transfer the anticipated communication of growth that we had on one metric to the one that we're using, so that it's all transparent.

Jonathan Kees -- Summit Insights -- Analyst

Yeah. No, I got the 200 to 300 basis points there. I would think that for this coming -- or this new fiscal year here, the DXI that kind of goes away. And if you've seen constant currency, there's not much of a change in terms of the pro forma revenues there. And I guess, thing is, in my mind, I already have the 200 to 300 basis points based on the previous guidance and it's -- it -- and with the DXI going away and assuming constant currency, it would still be supportive of -- yeah, I mean, it's interestingly just much of a change given the -- your change of the guidance there, the new ones -- not willing to comment on the 25% there.

Steven Gatoff -- Chief Financial Officer

Yeah. So the (inaudible) is right. Over time, DXI was a meaningful number in quarters past, it's still a decent number, but it's going down over the course of the year. And so, it becomes not material at all to -- $90 million roughly a quarter revenue really -- while it had a big impact on the growth percentage basis was irrelevant on a dollar contribution. And so your view and modeling seems about right that it's more impactful in the near-term and certainly less so going forward.

Jonathan Kees -- Summit Insights -- Analyst

Okay. You answered the modeling questions. Let me change a second and ask about the wins. The stuff that you highlighted in this call have been more against Avaya and ShoreTel and even their hybrid offering. Is it fair to say most of your big deals were from the legacy vendors?

Vik Verma -- Chief Executive Officer

Absolutely. (Multiple Speakers) Yeah, yeah. No, most of the deals that any of us in this space are winning is against the legacy vendors. I mean, the main point is -- but they're never uncompeted deals. So the point is for every deal, we're fighting with all the regular cast or characters that we have talked about. And so in contact center deals, we are fighting with the ones that we have talked about that are cloud contact center folks. In the other -- in the telephony deals, we are fighting with people like Ring that we've talked about. So the issue is none of these deals are uncompeted, but ultimately the incumbent more often than not is one of the legacy vendors. The good news about this entire market -- going back to your comment. I mean, are we seeing some of Avaya's recent news, et cetera, but look, the main point is even Gartner has acknowledged that unified communication on-premise as a category is disappearing. Still, the entire market is shifting to cloud, so there's an opportunity for all of us. That's one. But as I said, there are no uncompeted deals.

Jonathan Kees -- Summit Insights -- Analyst

Okay. And I guess, your win rates in those uncompeted deals against your cloud peers are still pretty high stat from -- in the past?

Vik Verma -- Chief Executive Officer

Correct. I mean, our win rates are continuing to improve. The big thing for me always has been we need to see more of that. And my challenge to our channel team and my marketing team is get us more and more of that and life gets much nicer and they seem to be getting us more of that. Now, we have to just execute.

Jonathan Kees -- Summit Insights -- Analyst

Okay. Great. All right. Thanks a lot and good luck, guys. Take care.

Vik Verma -- Chief Executive Officer

Thank you.

Steven Gatoff -- Chief Financial Officer

Thanks, Jonathan.

Operator

That is all the questions we have. So this concludes our 8x8 conference call. You may now disconnect.

Duration: 83 minutes

Call participants:

Victoria Hyde-Dunn -- Head of Investor Relations

Vik Verma -- Chief Executive Officer

Steven Gatoff -- Chief Financial Officer

Matt Van Vliet -- Stifel -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

Dmitry Netis -- Stephens Inc. -- Analyst

Rich Valera -- Needham and Co. -- Analyst

Nandan Amladi -- Guggenheim and Partner -- Analyst

Pavan -- Northland Capital -- Analyst

George Sutton -- Craig-Hallum -- Analyst

Will Power -- Baird -- Analyst

James Breen -- William Blair -- Analyst

Josh Nichols -- B. Riley -- Analyst

Jonathan Kees -- Summit Insights -- Analyst

More EGHT analysis

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