Oct 23, 2014
Operator
Good afternoon, ladies and gentlemen, and welcome to the 8x8 Second Quarter Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Later we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host, Ms. Joan Citelli, Director of Corporate Communications.
Joan Citelli
Thank you, and welcome everyone to our call. Today, I am joined by 8x8's Chief Executive Officer, Vik Verma; our existing Chief Financial Officer, Dan Weirich, and our newly appointed Chief Financial Officer Mary Ellen Genovese, to discuss our results for 8x8's second fiscal quarter of 2015 ended September 30, 2014.
If you’ve not yet seen today's financial results, the press release is available on the Investors tab of 8x8's website at www.8x8.com. Following our comments, there will be an opportunity for questions.
Before I turn the call over to Vik, I would like to remind all participants 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. Expressions of future goals, including financial guidance and similar expressions, including without limitations, expressions using the terminology may, will, believe, expect, plans, anticipates, predicts, forecasts, and expressions, which reflect something other than historical fact are intended to identify forward-looking statements.
These forward-looking statements involve a number of risks and uncertainties, including factors discussed in the Risk Factor sections of our Annual Report on Form 10-K, in our Quarterly Reports on Form 10-Q and in our other SEC filings and company releases. Our actual results may differ materially from any forward-looking statements due to such risks and uncertainties.
The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call, except as required by law. Thank you.
And with that, I'll turn the call over to Vik Verma, Chief Executive Officer of 8x8.
Vikram Verma
Thank you, Joan and welcome everyone to 8x8’s second quarter of fiscal 2015 earnings call. Before we begin, I would like to introduce our newly appointed CFO Mary Ellen Genovese.
As previously announced, Dan is leaving 8x8 to join a non-competing cloud-based big data start-up here in the Bay Area called Treasure Data. May Allen who has been working with 8x8 in various capacities for over two years and has a proven track record as a CFO will become our new CFO effective November 1 2014.
To facilitate this transition, Dan will be working with Mary Allen through the remainder of 2014 in an advisory capacity. On behalf of all of us at 8x8, I wish Dan the best in his new role and thank him for his service to 8x8 over the past decade.
Dan has played a very significant role in our growth over that time and has been key in our efforts to capture the midmarket segment and launch our global reach initiative. We are fortunate to have Mary Allen join us as CFO.
I have known Mary Allen for more than a decade. In fact, she was my CFO at Savi Technology prior to acquisition by Lockheed Martin.
Prior to Savi, she was CFO of Trimble Navigation where she played a leadership role in helping them transform from a horizontal GPS technology provider to becoming the dominant player in targeted vertical markets. Under her watch as CFO, Trimble’s revenue more than doubled from 271 million to 669 million while she maintained strong operational margins and positive cash flow.
In her previous CFO position, Mary Allen completed numerous acquisitions, complex joint ventures, secured financing, led cost reduction programs and built global financial reporting capabilities. Dan has built a deep and experienced finance organization here at 8x8 and I am confident that Mary Allen is ready to help take us to our next level of growth.
I'd like to begin by reviewing some of the high-level potential results and business activities for the quarter. Following my remarks, Dan will discuss the results and metrics in greater detail and we will then be happy to answer any questions that you may have for us today.
As you can see from our fiscal 2015 Q2 results, the momentum we generated in a very strong fiscal Q1 continued this quarter with 29% year-over-year growth in total revenue to a record $39.6 million, and non-GAAP net income of $4.3 million or 11% of revenue. We remain committed to profitable growth and strong cash flow and this is the 18th consecutive quarter in which 8x8 has generated non-GAAP net income alongside increasing revenue.
Driving this growth is the continued midmarket adoption of our cloud telephony, contact center and unified communications services we saw during the second quarter of fiscal 2015. New monthly recurring revenue from channel and midmarket sales increased 59% year-over-year and represented 44% of new monthly recurring revenue sold in the quarter, compared with 33% in the same period last year.
Revenue from midmarket customers represented 41% of total service revenue compared with 35% for the same period a year ago. Customers are choosing 8x8 for our comprehensive one-stop shop product suite which includes cloud based telephony, contact center, mobile apps and web conferencing.
Our ability to rapidly deploy these solutions on a worldwide basis is accelerating time to value for our customers, enabling them to very quickly begin realizing the benefits of transitioning their communication infrastructure to the cloud. A few noteworthy highlights from the quarter.
First, our ability to offer a broad range of cloud-based mission-critical communications services is bringing us larger and larger deals where we continue to display incumbent premise-based systems from Avaya, Cisco, ShoreTel and others. Having a single cloud based solution is a tremendous advantage for our customers as it enables them to eliminate the cost and hassle associated with deploying, integrating and managing disparate multivendor technologies.
During the September quarter, our top two wins and four of our top 10 deals were from new midmarket customers subscribing to both our virtual office and virtual contact center solutions. One of these customers, a leader in cloud-based supply-chain management solutions will be deploying approximately 800 virtual office and 100 virtual contact center seats to employees in two primary locations in the coming weeks.
Second, our intense focus on customer support is yielding continued low revenue churn at just 0.9% during the quarter compared with 1.2% in the same period a year ago. In addition to building a personalized and responsive midmarket customer service organization, we've implemented a rapid customer deployment model that I believe is unparalleled in our industry.
Yesterday's press release announcing the full deployment of our customer, ChenMed, clearly illustrates this accomplishment. In just five weeks we successfully rolled out our service across their entire organization of 1400 employees, 36 health care centers and 2 corporate offices.
Third, we are continuing to invest in product development to ensure that our entire suite of service offers all of the features and capabilities our customers are relying on to grow and be competitive in their respective industries. During the quarter we expanded the omni channel capabilities of our cloud contact center solution with the release of Virtual Contact Center 8.1.
We also announced a new partnership with Conversocial, the leading provider of social customer service solutions to enable contact centers to engage with customers over social media channels. Additionally we’re continuing work on two very significant R&D projects which we expect to complete by the end of our current quarter.
First, we are currently in beta with a VCC 9.0 global platform release with a handful of select customers. We're very excited about this new global dimension we are adding to our Virtual Contact Center solution and believe ours will be the only cloud based contact center service to enable a seamless, follow-the-sun operating model.
With our next-generation global platform Virtual Contact Center will have the ability to manage and serve all agents on a single distributed platform irrespective of their geographic location. The global platform architecture eliminates the need for multiple distinct instances to manage traffic from different continents.
Now an agent logging in from North America can service customers not only from North America but also from Europe, Asia and beyond with optimized call quality and call routing, shared queues and consolidated reporting, all from a fully cloud-based solution. Next on the product development front is a much deeper level of integration between our Virtual Office and Virtual Contact Center solutions.
This is an extremely complex engineering task due to the tremendous amount of software and intellectual property associated with each of our core services. As we combine these services into a single integrated platform and user experience with distancing ourselves technologically from our single dimensional competitors who specialize in only one of these distinct service areas.
Fourth, we continue to make good progress on the international front building a geographically distributed worldwide presence that enables us to provide seamless conductivity and superior quality of service to our multinational customers using a proprietary geo-routing call handling technology. We're about to launch our service platform at a new data center in Sydney, Australia and have engaged with a partner there to work with several current customers and our UK office has been busy with some significant wins of their own, including a world-renowned public research university that will soon be deploying our Virtual Contact Center solution with Zendesk integration.
We believe that we’re well ahead of any of our competitors in terms of our ability to offer and very quickly deploy a complete suite of services with dedicated customer support. The midmarket in enterprise segment is very different from the SMB segment.
The solutions required by this market segment demand a much more robust product, stronger sales force and a world-class customer service and support effort and these capabilities cannot be built overnight. For the third consecutive year, Gartner, the leading information technology research and advisory firm, positioned the 8x8 in its Leaders Quadrant of its August 28, 2014 Magic Quadrant for Unified Communications as a Service Multiregional.
We believe Gartner's recognition is a testament of our ongoing leadership in the industry. Given our continued strong quarterly performance we’re increasing our revenue guidance of FY 2015 to approximately 26% and non-GAAP net income as a percentage of revenue in the 8% to 10% range.
Previously we had stated that range of 6% to 9% of revenue. Now considering the quarter’s results and where we stand in our investments to date we’re comfortable stepping that up a bit to 8% to 10% of revenue for the remainder of fiscal 2015.
With that I'll now turn the call over to Dan Weirich who will provide you additional details on our financial results.
Dan Weirich
Thank you, Vik. Our second quarter revenue growth was strong with a 30% increase in service revenue and 29% increase in total revenue, compared with the same period last year.
41% of our total service revenue in the second quarter was from customers who generated more than $1000 in monthly recurring revenue or MRR, compared with 35% in the same period last year. As Vik noted, our sales were robust in the quarter with new monthly recurring revenue sold by our channels in midmarket sales increasing 59% year-over-year representing 44% of new MRR sold in the quarter compared with 33% in the same period last year.
All of our sales channels experienced an increase in MRR sold in the quarter. GAAP net income was $1.3 million or $0.01 per share.
Non-GAAP net income was strong at $4.3 million or $0.05 per share and 11% of revenue, compared to $4.1 million and $0.05 per share in the same period a year ago. Sequentially non-GAAP net income as a percentage of revenue increased from 8% to 11% due to approximately 1% expansion in gross margin, 1% related to better optimization of our sales and marketing spend, and 1% related to capitalized software.
During the quarter we received a $1 million licensing payment related to family of patents we sold in fiscal 2013. We removed the $1 million benefit from our non-GAAP net income because we consider this to be an isolated transaction that is not reflective of our ongoing operation.
8x8 continues to innovate and was awarded three patents, our 90rd, 94th and 95th patents in the quarter. Gross margin was strong at 72%, the highest since the first quarter of fiscal 2014.
Service margin was 79% and product margin was negative 8%. This compares with 71% gross margin, 81% service margin and negative 27% product margin in the second quarter of fiscal 2014.
Cash, cash equivalents, investments were $186 million at September 30, 2014, up $3.6 million in the quarter and $7.2 million in the first half of the fiscal year. Cash flow from operating activities was $8.6 million year to date.
Capital expenditures were $1.5 million in the quarter or 3.9% of revenue and $2.6 million or 3.3% of revenue for the first six months of fiscal 2015. We ended the quarter with 40,434 customers, an increase of 1094 in the quarter compared to an increase of 1407 in the first quarter of fiscal 2015.
The primary reason for the reduction in net customer additions between the first and second quarter of fiscal 2015 is because we instituted a price increase on our one and two-line customers effective September 1 2014. The price increase has been net MRR positive as we are able to more than offset cancellations and fewer customer additions with higher MRR.
Average revenue per customer was a record at $299, up $6 sequentially and $31, or 12% compared to the same period a year ago. Monthly business service revenue churn was strong at 0.9% in the quarter compared with 1.2% in the same period a year ago.
As Vik indicated, we expect annual revenue growth of approximately 26% with non-GAAP net income as a percentage of revenue in the 8% to 10% range for this fiscal year. We're building a company focused on sustainable growth with attractive margin potential.
Finally I want to thank everyone in the financial community for attending the 34th consecutive 8x8 earnings call I’ve participated in. 8x8 has never been as strong is it is today and its best days are yet to come.
I'm very proud of what we accomplished over the 10.5 years I have been at 8x8, and look forward to watching the company continue to prosper from the outside. Mary Allen and I've been working together for the past two and half years and I’ve first hand experienced to know that the company will be in great hands under her leadership.
That concludes my prepared remarks and I'll now turn the call over to Vik.
Vikram Verma
Thank you, Dan and again thank you for your decade-long service to 8x8. Before we close our prepared comments, I like to have Mary Allen addressed you and introduce herself directly.
Mary Ellen Genovese
Thank you, Vik and thank you also Dan. I have had the pleasure to speak to many of you listening on today’s call since we announced my new role earlier this month.
I am very excited and honored to step into 8x8’s CFO role. Dan has built a world-class finance organization and I enjoy working with his team.
As many of you know I am familiar with the company as I've been working with the 8x8 board since April 2012 and have been a member of the executive staff since September 2013. I see great opportunity ahead for 8x8.
I believe we are in a position of strength in the market compared to our competitors. I am already to help 8x8 take the next step.
I am ready to help take 8x8 to the next level and I believe my experience with profitable worldwide growth, acquisitions and integration with both domestic and international businesses, as well as my experience with developing vertical markets will help 8x8 as we continue to capture increasing market share. I am looking forward to working with Vik and the rest of the management team to continue our domestic and international growth.
I look forward to meeting many of you in my upcoming travel for investor conferences and road shows.
Vikram Verma
Thank you, Mary Allen. You have our full support and confidence in your new role.
In summary, we’ve had a strong quarter characterized by continued growth and profitability. We are executing on the plan we have laid out to you previously, expanding our midmarket customer base while increasing customer size and ARPU.
While others in the space are targeting the midmarket, 8x8 has demonstrated proven success with a viable strategy and sustainable business model. With that we will be happy to take on any questions you may have for us today.
Operator, please open the line to any questions.
Operator
(Operator Instructions) And our first question is from the line of [Amir Rosewood Belsky] from Barclays.
Arindam Basu
Hey, this is Arindam Basu on behalf of Amir. Great results, a couple of questions from me.
First, this improvement in churn, is this more like a quarter on lead train, or are you seeing a structure shift as you move to larger customers and then a follow-up to that is also on the margin guidance. Again is this a result of the ongoing mix shift in the type of customers or is that a function of tighter cost control as well, if you could just break that down a bit, that would be very helpful.
Dan Weirich
Hi Arin, it’s Dan Weirich. So on the churn question, last quarter we had a phenomenal figure 0.4%, we stated to consider to be approximately 1% until further notice.
If you go back a few years we're 1.7% in fiscal ’13, we were 1.3% in fiscal ’14, we put up 0.4% in the June quarter, 0.9% in the most recent quarter, it’s primarily due to the mix shift, as greater percentage of our revenue is coming from midmarket customers. This is why you have seen this trend.
But in addition to that we just continue to improve our product, improve our deployment of our product as well as the customer success and support of our product. Those combination of many many things, we definitely think there is more room for improvement.
If you look at it on just kind of a macro view kind of the mix different is midmarket customers are going to churn in the neighborhood of like 0.3% or so from a like a logo count and it doesn't always tie that close on revenue but it’s significantly lower than a smaller customer who is going to churn at like 1.7% or something like that. So over time mix shift is going to bring it down to consistently sub 1% but as we noted in the past we’re still comfortable at the approximately 1% range.
On the overall margin side, if you look at the two different types of revenue streams from SMB which are customers that spend less than thousand dollars a month and midmarket distributed enterprise who spend more than $1000 a month. We talk about something called contribution margin which essentially is our GAAP service margin less customer service and billing related expenses.
For the quarter, the combined company was 63% contribution margins this quarter, very consistent to prior quarters. The delta is tiny between the two, between SMB and midmarket SMB is a touch more profitable primarily because the customer service and deployment is lower on that today because we are in a very much a growth mode for the midmarket side.
But the delta I am talking about like 300 basis point delta on them, but the primary difference on the two is the lifetime value of the midmarket customers is much much greater because the customers are with it for so much longer than an SMB customer. And that mix on that is between the two is not the reason for the moving up the guidance, it is just that as we progress through this year we’ve just done a little bit better than we expected on the bottom line, specifically in this quarter and it was related to 3 things.
One is we optimized the sales and marketing spend a bit this quarter, so picked up about, call it a hundred basis points or so of improvement from the prior period. Two is gross margin has been moving upwards and we’ve got a lot of good visibility on gross margin and have a lot of confidence on where that’s going in the future.
And the third is we did capitalize two software related projects this quarter which represented little bit less 100 basis points in improvement sequentially. so it’s just a combination of many things, it’s the reason why we’ve moved up the range and we tightened the range a bit for the balance of the year.
Operator
Our next question comes from the line of Catherine Trebnick from Dougherty & Company.
Catherine Trebnick
Hi, thank you for taking my question. Can you provide any more detail on the midmarket in terms of segmentation?
Are you having any more particular success in the financial versus healthcare? And then what would be the reasons for that driving that?
Do you see some of your security sweet spot that you have or suite spot adding to that?
Vikram Verma
That's a great question. Security is reliability, it’s compliance I think is the key things that we bring to the party.
As you know we have 99.997% reliability. We have fifth is mine, every other alphabets super compliance.
And just generally we are -- we take our security element and the architect of the product to be highly scalable and highly secure. We've seen traction in the financial sector, we’ve seen traction in healthcare.
We've seen traction surprisingly in recruiting as well as law firms, those have been the four verticals that we are starting to see quite a bit of traction in but there are others that are jumping on board including transportation and a few others. But as I said the first few financial, healthcare, law firms, and recruiting offices are definitely starting to take off for us.
Operator
Our next question comes from Michael Huang with Needham & Company.
Michael Huang
Thanks very much, guys. Thanks for all the help, Dan, and welcome aboard, Mary Ellen.
Look forward to working with you. Just a few a couple of questions for you.
First of all, so drilling into the net add number, so obviously kind of on the lower end it seems that price increases dropped some churn there but it's great to see some replacement of higher MRR customers. But when you look at just the mid-market segment, is there any color you can share with us to help us understand because the number of midmarket customers that are being added and what the trend with respect to previous quarters?
Vikram Verma
Yes, so Mike, just on your first point, so on the net add increase, it was down sequentially effectively on purpose by us. We sell to businesses that have one employee and we sell to businesses that have thousands of employees.
It's what we did, is we do start to look at our small customers, kind of defined as one or two line customers. They were calling customer service a lot more than bigger customers and a combination of things and their contribution margin is materially lower than the balance of the organization.
They were chewing up lots of time on installs and various things like that. We looked around the market and saw that some folks that compete in that size customers range were charging a lot more than we were charging.
And so we did two things. One is we raised the pricing on all of our customers that have been with us for more than a year, that were one or two line customers effective September 1.
And number two, our SMB sales team for new one and two line customers had to sell at a higher price effective September 1 than they were selling pretty much for the years prior to that. And so it's a combination of – we had a few cancellations related to the higher price increase that was completely immaterial relative to the overall price increase.
And we had a few last signups that effectively is the explanation for the net add piece. On the midmarket customer additions, it's something that we're not breaking out primarily for competitive reasons.
Historically we provided tremendous amount of information relative to some of our competitors in the market and it’s something that we keep pretty close to our vest. We did note last quarter that the figures -- as of last quarter and fiscal year end 14 we had in the neighbourhood of 1200 midmarket customers who are spending $3500 a month on average.
60 plus percent contribution margin and 0.3% churn rate. So the LTV on these customers is enormous.
And we're doing really well on adding those customers. We're 59% in the amount of monthly recurring revenue that we sold to our midmarket and channel sales efforts in the quarter.
But just on the number of new logos we're adding, we're not breaking out that figure but we're giving you a little insight as to what some of these look like. So last quarter we talked about an urgent care operator in kind of numbers and things like that.
And yesterday we just announced who that customer was, so you can kind of see the type of customers that we are targeting and how quickly we're getting them deployed and what services they are buying from us.
Michael Huang
Directionally if you look at the number of kind of midmarket customers that you added, was it up sequentially or are you able to kind of qualitatively share with us that?
Vikram Verma
Yes, it was up sequentially. I think in essence we were up in terms of percentage – I think it was 60 basis points sequentially and then as I said every quarter you’re starting to see that -- the number keep trending up.
Michael Huang
My second question, so thanks for sharing some thoughts around the innovations that are upcoming. Could you share any detail around some of the beta customers that are working with you on the VCC 9.0.
I mean are they – like how big are these contact centers and are they customers already or are they prospects we’re ultimately playing around with VCC and ultimately phone -- accepting 8x8 once this is generally available? Or maybe just provide little color around that.
Vikram Verma
So - that's always a good thing. Second I think part of the point that you started to see is a steady stream of new product and new features.
8.1 I think I talked to you a little bit about everything from local language translation, multi-chat et cetera, et cetera. You’re starting to see some of the other functionality with this VCC 9.0.
We have a handful of customers that we are using to basically beta, we brought in approximately 18 CIOs and senior IT level folks here to -- that had international offices as well as domestic offices and what we were noticing is we kind of went them through our product roadmap and several of them signed up for additional beta. We’re trying to do this in a very interactive process which is exactly what you do with midmarket.
You find a handful of representative customers, work very tightly with them and then you keep innovating very quickly and I think you start to see the pace of our product releases is picking up pretty significantly.
Operator
Our next question is from Mike Crawford from B. Riley & Company.
Mike Crawford
Thank you. I was glad to see you raised the guidance on the operating margin to 8% to 10% this year.
I'm wondering what your thoughts are if you dare look out a year or two or three given likely very probable topline growth, what that might translate to in terms of potential operating leverage given that you are you have much of your midmarket channels now in place?
Vikram Verma
We're midway through the year Mike, so we just raised our guidance as you know to 8% to 10%, exactly 15 minutes ago. I'm probably not ready to look at 2016 and beyond.
We will probably provide that to you towards the latter half of this year. But suffice to say we're starting to feel good about our business and I think hopefully you're getting the sense, we tell you what we're going to do and then we make sure we try to give you a good sense of what is going to be and keep trying to meet our expectations.
Mike Crawford
Okay, Vik, thank you, maybe I will just try that the follow-up just to be a little less specific, but are there any factors that would prevent there from being more operating leverage as the top line grows from here?
Vikram Verma
Not that I can think of, Mike. I think as you can see we're starting to get the improvements across-the-board in everything from overall spend as well as gross margin.
I think we have the industry's leading gross margin and we see that actually getting better.
Operator
Our next question comes from the line of Greg Burns from Sidoti & Company.
Greg Burns
Good afternoon. I just had a question on what your thoughts are in terms of use of cash evaluations in the space of come in over the last six months or so, so I’d imagine that things are getting more potentially more attractive out there.
What are your thoughts on M&A or other uses of cash?
Vikram Verma
So that’s actually a great question and I think hopefully you recognize the process that we follow. We've been pretty darn disciplined on price, as you know we had a reasonably decent M&A pipeline and we have – get churn for that, what we are finding is people are starting to be a lot more amenable to different prices and by different I mean lower prices.
And so we will continue to go through a rigorous process but the intent is to keep adding bolt-on technologies that can keep enhancing our platform. I mean I think you keep hearing the same common vision, we have a global unified platform with multiple capabilities all built-in one-stop shop and we will keep adding to that as we go on, so that's essentially our M&A pipeline.
But what we are trying to make sure is we keep thing at very fair price so what we get, we get full value for.
Greg Burns
Okay, and in terms of the investments you're making to support the expansion into the mid-market, do you feel like you have increased bandwidth now to handle more customers or more incoming volume? Can we see accelerated growth at some point based on the investment you put in?
Or do you feel you need to make incremental additional investments in certain areas of the business to continue to pursue the mid-market?
Vikram Verma
I mean all of it is as you know work in progress, in the sense that -- and it's all incorporated into guidance we’ve just provided. So we just took up our guidance on revenue to approximately 26%.
We took up our guidance on net income for the to 8% to 10% for the whole fiscal year and that incorporates the fact that we will continue to be investing in R&D as well as in other areas. I think the key part for us is I think we like to feel we have now a differentiated platform and we’re going to keep adding more and more features and functionalities to it so we can put nontrivial distance between us and our various competitors.
So but again it’s all incorporated in the guidance that we've already given you.
Operator
Our next question is from Nikolay Beliov from Bank of America.
Nikolay Beliov
Good quarter, guys. Thanks for taking my question.
Vik, you took the helm of the company about a year ago. When you look back over the last one year, what were the surprises, where did you guys do better than you expected, -- if you remain is like -- coming out like you see a year ago and versus where you maybe underperformed than what you can do better?
Vikram Verma
Actually it’s a very good question. So couple of thoughts.
One, I think the way we went after midmarket was SMB plus and I think that was where we had to make some changes in the way we approached it. Midmarket is a very different type of sales, you need a very different type of salesperson, you need a very different type of sales engineer, and you need a very different type of deployment, different level of documentation, a different level of customer support, a different standard on reliability etc, it is not just a larger SMB customer.
So I think that’s an area we’ve kind of made some nontrivial progress on it, I think you can see it in two very distinct areas. We put together a dedicated customer success team, that basically has partnered with all our major customers and we’re starting to see the fruits of that both from the fact that they are providing us input on new products that they want and need, plus they are also upselling significantly, and then also you’re starting to see churn stabilized.
The other area we've invested very significantly in is this rapid deployment capability. As you know everybody wants to go from SMB to midmarket and I think I made this comment that it's more than just putting it on a PowerPoint.
You have to put in a very detailed design documents. You have to make sure that the customers’ expectations are very clearly set, acceptance criteria is defined, billing happens in a very structured way, those are things that don't just happen, and it's not just as simple as, okay, connect the phone and we will bill you.
And so I think to a large degree as you know a lot of our competitors in the space are known for having large bookings, we have been somehow never seemed to translate into deployments. I wanted to give you a very concrete example what our 1400 person facility went live from start to finish in under five weeks, and the actually the bulk of the deployment was done in three weeks.
So that’s another area I think that we’ve kind of added to and enhanced. What I will tell you and I think this is one of the great surprises and the most pleasant surprises.
Some of the technology we have out here is unbelievable and I think over the next few quarters you will start to see us add additional features and functionalities. We’ve had a core group of engineers working for years and when all is set and done at heart, where technology company and our products are pretty amazing and I think you will start to see more and more stuff that I think people will have a tough time kind of replicating.
Where we can definitely do better is sales and marketing. I would tell you that we are still so – we are still learning how to sell at midmarket, we are still kind of not at the kind of capacity I would like.
So I see a non-trivial amount of headroom in being able to make our midmarket sales get much much better. So I view all of this as generally positive.
Nikolay Beliov
And to your last comment, just to clarify you talked about on the call about optimizing sales and marketing investment, so you got some leverage out of that. What did you guys specifically do?
Vikram Verma
In essence everything from a different quotas for new logos versus upsells to having very dedicated teams of sales engineers and account executives to changing quotas. But it’s a standard blocking and tackling sales 1.01 type stuff and I think it's just very different from SMB to midmarket.
And as I said I would like to think we've got a nontrivial amount of headroom where we can continue to get our sales productivity better.
Operator
Our next question comes from the line of Dmitry Netis from William Blair.
Dmitry Netis
Thank you. Nice, gentlemen John and Mary Ellen welcome to the team.
Good luck with the new role and Dan thanks for a good ride and good luck with Treasure Data. Okay, real quick couple of questions.
What was your crude backlog at the end of the quarter and how did that grow from last month – from last fiscal Q1 I guess?
Vikram Verma
So Dmitry, we mentioned last quarter that we weren’t going to provide that anymore – we provided it in Q4, we provided it in Q1, just to illustrate to folks that we are in a transitionary period of time, we are migrating from the vast majority of the revenue going live within 30 days to a situation that where it didn’t go live in 30 days and went live in two to six months or so. We are starting to see very, very good success as the customer is installing very quickly, so ChenMed is an example of that, where it installed in 35 or so locations, 1400 seats in a very short of time.
And so we just felt that the backlog figure was something we could kind of let the folks know that we are in a transitionary period of time, the revenue was delayed a little bit but we are in a situation now that we are very comfortable with it and it’s nothing that is great news or bad news in any form or fashion, so it’s something that we are just not disclosing.
Dmitry Netis
And then if I were to remove your international revenue, are you guys able to tell us how the growth looked like here in the US?
Vikram Verma
So once again we’ve stated that where -- acquisitions are part of our strategy, we haven't broken out the organic from inorganic revenue growth in the past. I mean we do have in our tables in our 10-Q revenue from Europe and Asia.
There is revenue that was kind of 8x8 customers which are two different types -- legacy of 8x8 customers, they are Fortune 500 customers, they are these young rapidly growing recently public typically Internet-based companies who grow internationally. And you know some of that revenue started to get recorded in Europe and in Asia today.
And so it is not like a clean cut on exactly what was organic revenue from the acquired revenue as lot of our sales are now cross-border and various things like that. But in the March quarter, the acquisition we fully annualized and really clearly – and as we’ve stated and you can kind of figure out our guidance that the acceleration in revenue should appear, very very loud and clear at that point in time.
Dmitry Netis
Is it fair to say your international revenue is accelerating or the growth of that revenue is accelerating?
Dan Weirich
Yes, I mean we are seeing increases across all elements of the business. So whether it's our SMB or midmarket or international or domestic, anywhere you kind of look, we’re seeing good growth across the business.
Vikram Verma
I like to add a little more color Dmitry, I just was in UK on our QBR [ph], I think I talked to you about this very large deal, this is another significant deal that we won, which is a very large public university that you’ve heard about. And the UK market is actually a very interesting market and we're starting to see good growth there and as Dan pointed out all our channels are seeing good growth.
Dmitry Netis
Okay, very good. And then last if I may squeeze that in on the ARPU side, you’ve had very nice sustainable add quarter over quarter of about six bucks.
How should we think about that going forward? Are you comfortable with that $6 number going forward?
Or is it going to fluctuate? Give us a sense on that.
Dan Weirich
So we were kind of in the $5 range for a while and we moved it up to roughly $6 or so. And yeah, I mean I think that pretty much if you look at it from a net add standpoint and ARPU standpoint, it’s got to be like 6 plus to maintain the growth figures that we’re talking about.
It is not something that we like monitor and manage or quote on or commission on is how many new logos are coming in the door but you know, our overall emphasis is just moving the average size of the customer up, so ARPU is a derivative of that and is where the rubber really meets the road in a business like this. So that's why we provide the metrics that we e do provide and this is one of the handful or so that is extremely important to business.
Operator
Our next question comes from the line of George Sutton from Craig-Hallum.
George Sutton
Thank you. Vik, when you were discussing the focus on the mid-market and the strength you're seeing there, I wondered if you could specifically talk about the channel partner contribution to that and your happiness or lack of happiness with respect to how the channel partner program is going?
Vikram Verma
So one, that’s a great question. One, we are seeing huge pent-up demand in the channel partner program.
I think we'll see a nontrivial contribution, it’s still relatively small and early stages for us on the channel but we're starting to see several big deals come through our channel and I think increasingly that will be a bigger contribution to our revenue. So I actually -- it is early days yet in the sense that I think what I've been doing is decreasing the number of channel partners that we’ve had, we have a lot of channel partners, I’d rather have much more productive and much more engaged channel partners, we’re starting to see that and we’re starting to see channel partner spend a nontrivial amount of time really learning our product, us training and the support, joint marketing, all of those kind of things.
But we want to do it with less channel partners than more and I think – it seems solid growth, I think it can grow much faster.
George Sutton
As my follow-up, you mentioned Sydney for the first time that I've heard Sydney mentioned. What specifically happened there that encouraged you to move into that market as well?
Dan Weirich
George, this is Dan. Yeah on Australia it’s what happened – couple of things.
One, is we have a partner that we picked up in the Contactual acquisition three years ago who had been distributing the product – the contacts and our product in Australia and -- they wanted to get a lot bigger and so that was something that was pulling and then we had one very large Fortune 500 customer of ours who is using us globally in a very good way, kind of give us the ultimatum like get a presence in Australia, we’re going to – we got to buy from somebody else, we don’t want to buy from someone else. So those were the two main ones and then we do have a number of other customers who have a lot of call flow that occurs in Australia and it is a little bit away from Hong Kong where we have our Asia Pacific data center.
And so it’s just a combination of factors as to where we put our next deployment. And so it is going to be live imminently.
And by the way one of the things -- that is starting to be a huge competitive differentiator. We were seeing this more and more where one of the interesting things is a lot of companies that are approaching our UK office are actually US companies that have UK presence or UK subsidiaries and then there are others that have for example Australian subsidiaries or Hong Kong subsidiaries and they will basically approach us and say -- can you put this particular office and/or they will dictate to their office and that gives us that much more tentacles into that particular customer.
Operator
Our next question comes from the line of Mike Latimore with Northland Capital.
Jim Fitzgerald
Thank you. This is Jim Fitzgerald standing in for Mike Latimore.
My question is regarding organic growth. So the March quarter is going to be all organic growth not including that acquisition revenue.
Would you expect somewhat slower growth in that quarter the March quarter regarding total revenue as compared to earlier in the year?
Dan Weirich
Yes, I mean definitely if you’re comparing it to the quarter we just reported, there's not an apple and orange comparison of our acquired revenue to organic revenue, but it’s what we're saying is that last time we provided organic revenue growth rate was in the December 2013 quarter, we gave this specific revenue for the UK business in the month of December that we acquired it, we closed the acquisition November 29, 2013. And so you've got the organic figure there, what we are saying is that the growth rate in the quarter ending March 31, 2015 will be higher than that.
Jim Fitzgerald
Okay, great. And then one other quick question.
I might have missed this. Are 9 out of 10 midmarket deals still against the on premise system vendors?
Vikram Verma
Yes, actually more often than not we see on premise as the primary competitors.
Operator
I am showing no further questions at this time. I would now like to turn the conference back to Mr.
Vik Verma.
Vikram Verma
Thank you everybody for listening to our presentation today. I look forward to seeing you all in the coming months at upcoming financial conferences and other industry events.
Again thank you very much.
Operator
Ladies and gentlemen this concludes today's conference. Thank you for your participation and have a wonderful day.
You may all disconnect.