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spk05: Good day, and welcome to the 8x8 Inc. Fourth Quarter and Full Year Fiscal 2020 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Victoria Hyde-Dunn, Head of Investor Relations. Please go ahead.
spk00: Thank you, good afternoon, and welcome to 8x8's fourth quarter and full year fiscal 2021 earnings conference call. Today's agenda will include a review of our fourth quarter results with Dave Sipes, Chief Executive Officer, and Sam Wilson, Chief Financial Officer. Following our earnings discussion, Dave and Sam will share greater details on 8x8 strategic priorities for Fiscal 22 and the company's long-term financial framework. Following their prepared remarks, there will be a question and answer session. Before we get started, just a reminder that our discussion today includes forward-looking statements about 8x8's future financial performance, as well as its business, product, and growth strategies, including the impact of COVID-19 pandemic. We caution you not to put undue reliance on these four looking statements as they involve risks and uncertainties. They may cause actual results to vary materially from the four looking statements as described in our risk factors in our reports filed with the SEC. Any forward-looking statements made on this call and presentation slides reflect our analysis as of today, and we have no plans or obligation to update them. Certain financial measures that will be discussed on this call, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. generally accepted accounting principles or GAAP. A reconciliation of those non-gap measures to the closest comparable gap measures is provided in our earnings press release and with earnings presentation slides, which are available on 8x8's investor relations website at investors.8x8.com. Additionally, we posted a set of presentation slides we will refer to when discussing our strategic priorities titled Business Review. During today's call, we will introduce Fiscal 22 guidance and our long-term financial framework. These accompanying slides will be added to both presentation slides and reposted on the Investor Relations website following the conclusion of the call. And with that, I will now turn the call over to Dave.
spk07: Thank you, Victoria. Good afternoon, everyone, and thank you for joining us today. Our fourth quarter results exceeded expectations with both service revenue and total revenue growing above the high end of our guidance range at 19% year over year. Key drivers of growth were strong demand for our integrated UCaaS and CCaaS offering, continued upmarket focus on enterprise, and channel execution. We are driving operational excellence throughout the organization and culture that is committed to a CPT mindset, customer first, product first, team first. We strengthened our cash position and improved operating efficiency, becoming non-gap, pre-tax profitable in the fourth quarter and ahead of schedule. And we crossed an important milestone and have surpassed $500 million in ARR. Now let me turn to business highlights from the quarter. Let me begin with our channel first strategy and upmarket focus, which delivered strong results. We had a record quarter up market with over 760 customers with greater than 100,000 in ARR, a 25% increase year over year. Double clicking on this, customers with over 1 million in ARR grew over 70% year over year and contributed to enterprise ARR growth of 49% year over year. We ended the total fiscal year with a record number of seven-figure and eight-figure TCV deals versus the prior year, and these grew, in average, total contract value more than 60% year-over-year. These results reflect strong execution across global sales, marketing, and channel teams, and contributed to our largest quarter of new deal registrations and pipeline. Also, we formed a new strategic VAR partnership with Wescon, a global technology distributor. The partnership will enable Wescon to offer 8x8s UCAS and CCAS to their enterprise customers across the United Kingdom and Ireland. Our integrated UCaaS and CCaaS platform is a unique differentiator in the market, and we're seeing continuing success in the upmarket. Bundled contact center and communications were very strong, driving 9 out of our top 10 deals and 75% of upmarket bookings that were $12,000 or more in ARR. ARR from combo customers, that is customers who have purchased UC and CC, represents over 30% of total company ARR. Additionally, for the third quarter in a row, combo customer ARR grew at twice the rate of market growth. All of our seven-figure TCV deals in the quarter were integrated UCaaS and CCaaS offerings, and this illustrates the importance of having a single vendor for all integrated cloud communications needs. Second, turning to customer wins, new logos represented 52% of new bookings, and we saw good execution in key verticals such as healthcare, manufacturing, food and beverage, and public sector. Let me highlight a few recent examples. Integrated UCAS and CCAS offerings continue to lead the way with notable wins, including DH Pace, a U.S. provider of dock and door-related products, selected 8x8's integrated CCAS and UCAS product to bring all services under a single vendor. DH Pace can now provide over 2,000 employees with communications, collaboration, and engagement capabilities to enhance customer experience. Another 8x8 integrated UCaaS and CCaaS product to win this quarter is DataBank, a leading provider of enterprise-class co-location connectivity and managed services. They chose 8x8 to streamline and standardize their technology usage and provide more than 700 employees with an enhanced connectivity and customer engagement capabilities. In addition, we are seeing standalone contact center interest from upmarket customers. A great example is one of the world's leading reinsurers. They selected 8x8 CCAS for 500 contact center agents in the US due to 8x8's enhanced functionality, including advanced business insights, speech analytics, quality management, among other innovative features. The public sector continues to drive growth globally, building on strong momentum among municipal governments in the UK and the participation of new US states in our NASPO ValuePoint cloud solutions contract. Western Downs Regional Council, one of the top 20 largest councils in Queensland, Australia, chose 8x8's integrated UCaaS and CCaaS product to centralize previously disparate systems and information. By moving communications to the cloud for 400 employees, the public sector organization has the agility to work remotely without impacting customer or employee experience. NHS Public Health Scotland, which provides support to the 14 regional NHS health boards, further expanded 8x's integrated UCAS and CCAS product to now support over 3,500 employees. Their communication needs were critical to managing vaccination helplines and booking services for Scotland's COVID-19 response, and 8x8 rapidly moved them to the cloud. SLED government agencies in the U.S. are recognizing the need for an integrated cloud contact center and communications. The state of Washington recently joined Alaska as a second state to offer statewide participation in and access to the 8x8 NASPO ValuePoint cloud solutions contract, making it easy for SLED agencies to purchase cloud UCaaS and CCaaS directly from 8x8 or 8x8 channel partners. Additionally, we continue to see existing customers adopt more 8x8 services, creating a land and expand opportunity that will fuel future growth. A great land and expand example this quarter is VCA, an operator of more than 1,000 veterinary hospitals in the U.S. VCA's partnership with 8x8 continues to grow, now adding 8x8 CCAS to their 8x8 UCAS deployment to meet their diverse business needs. By adding contact center, including call center overflow management capabilities, VCA is providing its 28,000 employees with enhanced engagement capabilities. Black Country Healthcare NHS Foundation Trust provides mental health, learning disability, and community healthcare services for four metropolitan boroughs. This UK public sector organization selected 8x8's integrated UCAS and CCAS product to enhance the patient support and communication capabilities for more than 3,000 employees. Sefton Council is the local authority providing essential community services for more than 270,000 residents in the Liverpool City region. Following their original deployment of 8x8 CCAS in 2020, the Council is now deploying services that include UCAS and Secure Pay PCI Pal. These will allow Council employees to work freely from any location. Turning to voice for Microsoft Teams, we expanded our partnership with Microsoft on two fronts. In March, we launched 8x8 Contact Center for Microsoft Teams. We are the first vendor in the Gartner CCaaS Magic Quadrant to have a Microsoft Teams Certified Cloud Contact Center solution. We recently launched new 8x8 voice from Microsoft Teams app to further extend the Teams experience for users by adding new SMS, MMS, and fax capabilities. Customers appreciate our superior call quality, Microsoft certified contact center integration, and additional capabilities we provide to enhance the Teams experience. As examples, Beam Centauri, a premium spirits leader with world-renowned bourbons, whiskeys, single malt, scotches, tequila, and cognac, with brands such as Jim Beam, added more than 2,500 8x8 UCAS seats integrated with 8x8 voice for Microsoft Teams to support their hybrid workforce across the globe. Our quick implementation and continuous product innovation are why Beam Centauri continues to grow its international communications with 8x8. SilentAir, a hyperscale data center solutions manufacturer, turned to 8x8 UCaaS with 8x8 Voice for Microsoft Teams to ensure dependable global communications for offices in Canada, the US, and Europe. SilentAir chose 8x8's direct routing capabilities to provide nearly 400 employees with superior global voice communications from any Teams endpoint. Our CPaaS portfolio of APIs and embeddable applications, including SMS, chat apps, voice, video, and performance monitoring empowers organizations to extend and customize communications that reimagine workflows and customer interactions for enhanced employee-customer experiences. Our API offerings are also driving new customer acquisition. An example of CPaaS augmentation for contact center omnichannel was DMV Veterinary Center, a 24-7 provider of emergency and specialty veterinary services throughout Canada. They selected 8x8 because our contact center solutions, AI and intelligence features together with 8x8 CPaaS capabilities will enhance contact center call flow, analytics and reporting. Our SMS API will be used to notify customers who do not want to stay on hold to initiate a chat interaction. An additional purchase consideration was the fact that our contact center solution is Microsoft certified for Teams. Another CPaaS win was KVision, one of the largest TV networks in Indonesia, who selected 8x8 CPaaS to provide two-way customer service communication. With the 8x8 chat apps API, KVision is enabling customers to use WhatsApp to interact with support and service teams for quick and seamless customer support. Importantly, we placed a premium on innovation in Q4. We introduced the industry's first integrated cloud phone and contact center solution that supports the communications and customer engagement requirements of multinationals operating offices in China in partnership with China Mobile International. We announced 8x8 Work for web, which allows 8x8 users to securely communicate, collaborate, and engage across almost any device and operating system via an everyday browser without software downloads or plugins. We customized video meeting backgrounds, enabling participants to select an image or blur their background during meetings for maximum privacy control. And we launched the industry's only financially backed platform-wide four nines SLA across an integrated cloud UCaaS and CCaaS solution. Finally, we continue to receive industry recognition. We were recently recognized as a leader in the IDC market space worldwide UCaaS service providers for enterprise and SMB 2021 vendor assessment. We were also named a major player in the IDC's Worldwide CPAS Service Providers Report. And we were awarded a five-star rating by CRN in its 2021 Partner Program Guide. To summarize, fiscal 2021 was a milestone year from which we will leverage the solid foundation we have laid with integrated contact center and communications. We are well positioned to further extend our leadership position with our CPT culture, integrated platform advantage, and future growth drivers. I will speak more about this in a few minutes, but let me now turn the call over to Sam to cover the financial results.
spk01: Thanks, Dave, and good afternoon. We appreciate you joining us as we report fourth quarter and full year financial results. We are pleased to have delivered results that exceeded guidance, improved operating leverage, and achieved profitability one quarter earlier than expected. Overall results were driven by better than expected performance from UCAS, CCAS, CPAS, and the integrated offerings. Total revenue for the quarter was $144.7 million, an increase of 19% year-over-year and above our $138.5 to $140.5 million guidance. Both service and other revenue performed better than expected. Looking at service revenue, we generated $133.8 million, an increase of 19% year-over-year and above the $130.8 to $131.8 million guidance. Total ARR was $518 million at quarter end, an increase of 22% year-over-year. Our continued movement upmarket into larger enterprises and strategic investments in the channel and product innovation are delivering strong results. Fourth quarter non-GAAP gross margin was 61.2%, a 150 basis point sequential improvement and driven by improvement in both service margin and other margin. Non-GAAP service margin increased 120 basis points over the prior quarter to 67.2%. Non-GAAP other margin came in at minus 12.5% for the quarter, a large improvement from the minus 50.8% a year ago and sequentially improved from minus 25.6%. Key drivers were continued growth in our professional services and the Flex hardware rental program. Turning to fourth quarter non-gap operating expenses, we continue to align the business to drive both improved execution and efficiency. Total non-gap operating expenses were 61% of revenue with sequential growth in both sales and marketing and R&D. Now that we are profitable, we will invest more next year in sales capacity, marketing demand generation, and product development. Total non-GAAP operating expenses were up about 5% year over year, while total revenue grew 19% year over year, a reflection of greater spending discipline. We expect the delta between revenue growth and OPEX growth to narrow over time. As I mentioned earlier, we turned profitable one quarter earlier than expected with non-GAAP pre-tax profit of $70,000 and positive non-GAAP operating profit. This is better than our non-GAAP pre-tax guidance for an $800,000 loss. Turning to the balance sheet, total cash in investments excluding restricted cash was $152.9 million. This was an increase of $0.4 million quarter over quarter, partially driven by several one-time items, the largest being $6.4 million operating cash inflow from the lease assignment related to our prior office location. We are pleased to be growing cash on our balance sheet quarter over quarter. I am proud to report that cash from operations was positive for the quarter. The team has put in a lot of hard work to make this happen. Cash and investments balance was also above our expectation of $148 million as collections remained robust and billing contracts in advance of service delivery both helped grow cash. For the fourth quarter, RPO was approximately $500 million up from $270 million in the year-ago period, or nearly 85% year-over-year. Approximately $100 million of the year-over-year increase was driven by a policy change from including obligations with terms greater than one year to one year and greater to more accurately reflect customers under contract and more closely align with industry convention. The remaining $130 million was due to growing the business. This concludes my prepared remarks for the fourth quarter. Now let me turn the call over to Dave to discuss strategic priorities for the companies. I'll then circle back with first quarter and full year 2022 guidance and commentary about our long-term financial framework. Dave?
spk07: Thank you, Sam. We, 8x8, reported strong results today and crossed a very significant milestone of half a billion dollars in ARR, an impressive feat not many SaaS companies have ever achieved. Now is the time to look forward and set our sights higher as we build a path to a billion-dollar-plus business and join even more rarefied air and a very select group of SaaS companies. What has gotten us to half a billion won't suffice alone to get us to our next milestone. We'll need to build upon our success and add additional capabilities and additional muscle. We have already started down this path aggressively, and yet we have a lot more to do in the coming quarters and years. We have already added new key team members, changed the way we organize, coordinate, and attack initiatives, as well as emphasizing a culture of putting the customer first. The excitement and energy internally is powerful as we begin these endeavors. Today, I'd like to share with you, our investors, what we're doing differently to build the next great profitable billion-dollar SaaS business. I came to 8x8 as an industry veteran because I could see the tremendous potential and the huge market demand for 8x8's unique offering and the company's potential to capitalize on this through greater focus, execution, and profit and operational rigor. Five months in, the original thesis remains true in spades. Let's revisit this now. First, we operate in a massive market with tens of billions of dollars in market opportunity. Digital transformation has only accelerated with work from home and work from anywhere becoming the norm. Second, 8x8 has a differentiated cloud technology stack, which has been consistently recognized and is a key reason I came here. Third, having an integrated communications platform is resonating with key buyers as witnessed by our top wins in this quarter. And fourth, we're capitalizing on this market opportunity by reaching customers through multiple routes to market and enabling partners with flexibility in how they choose to go to market. These combined with operational improvements we are enacting provide a path to building a billion-dollar business through profitable growth. Let's look at this one level down. The total addressable market is undeniably large, no matter how you look at it. Here on this slide, IDC is predicting the cloud communications market to be over 75 billion by 2023. The largest circle on this chart is the combination of UCaaS, CCaaS, and CPaaS, all segments 8x8 competes in today. Pilling that down one layer, the UCaaS and CCaaS subsegment make up $60 billion of this market, areas where 8byte has strong product recognition and a decade of experience, experience that is invaluable and impossible to replicate quickly for single product competitors looking to expand their portfolio. And breaking that down even further, Our checks show approximately 25% of that market prefers a single vendor solution across UCaaS and CCaaS, an area where limited solutions exist today and 8x8 is consistently recognized as a leader. This is 8x8's sweet spot within the huge cloud communications market in which we compete, an obvious area to apply greater focus, execution, and operational rigor. Why is this market so large? The market is so sizable because IT leaders have an immense challenge of delivering effective solutions for an evolving, increasingly more complicated workforce needs. Let's look at the issue. Getting a 360-degree view of your customer has been a longtime mantra as it makes organizations more effective by leveraging the power of information. Wouldn't that 360 view be great not only for customer communications but also employee communications? However, megatrends are making this harder. They're working against it. The rise of texting, social, other digital communication mediums have fragmented communications away from a voice-only world. Additionally, multiple device and work from multiple locations and operate from anywhere world has further increased the challenge to get a 360-degree view of both employees and customers. This makes a challenging task for the IT leader to provide effective enterprise communication tools. Cloud communication tools today are helping solve key parts of this puzzle by enabling digital communications and work from anywhere. On the left side of the chart, you see an employee experience of phone, messaging, and video all coming together in one application, empowering employee communications. On the right side is the customer experience of Cloud Contact Center with inbound, digital, and outbound But they have broken the link between the two, a link that historical enterprise-wide communications tools provided for employees. Today, one cloud tool no longer provides that bridge for all employees. And this is not ideal. It's not how it used to be in legacy solutions. And it puts undue burden on the IT organization to support multiple disparate solutions that fail to spread information quickly and effectively throughout an organization. The ramifications are significant as customer communications are siloed. Large organizations only talk to its customers through its lowest paid employees in the contact center, making it difficult to be responsive to changing customers' needs. 8x8's core X-Series offering brings these two experiences together, and this is where our strategy really comes together. X-Series by API 8 brings employee experience and customer experience together. It frees information out of the call center, unleashes the ability to create great customer experiences, and does this with X integrated solution by building upon a common platform. If you look at the bottom of the slide, we provide analytics and AI across the entire workforce. Additionally, one integrated platform provides integrations that are uniform across both, save on implementation time, and are cheaper to maintain across the enterprise. Furthermore, with the addition of CPaaS, these experiences can be further customized, especially in the contact center, with more robust omnichannel possibilities. One platform powering personalized end-user needs is what's required to enable all employees throughout the organization. If you look at the right on this chart, you see different end-user apps which access the single 8x8 platform yet provide specialized experiences across different personas. We have the 8x8 Work app, which brings the core employee experience across the organization. And that's delivered in three different ways, provided as a desktop app, a mobile app, or a web browser app, which works across almost any device or operating system. Additionally, we have 8x8 receptionists for high-volume specialized functions within the enterprise organization and 8x8 contact center for agents. And what is also critical is that we are enabling third party apps for other employee use cases, such as Microsoft Teams, Salesforce, and Google Work. A great example of why this is important is Halfords, a British retailer of car parts, camping, touring equipment that have 450 retail stores, 300 auto centers, 10,000 employees. They want to replace an on-prem system. They use 8x8 UCAS and CCAS. And across 10,000 employees have 3,500 using Microsoft Teams. In the white-collar back office, in the frontline workers, they're using 8x8 app. And in the contact center, they're using Salesforce. Only with one real-time communication platform that enables different N apps can you empower the entire workforce of an organization today. Additionally, 8byte's the recognized leader in this area. 8byte is consistently recognized as been nine times unified communications as service leader and six times contact center as a service challenger in the Gartner Magic Quadrant. and we're the only Gartner Unified Communications as a Service Magic Quadrant leader in the contact center as a Service Magic Quadrant. We own the IP, provide an integrated experience through X-Series with the most seamless integration between UCaaS and CCaaS in the market today. I often get asked, what can an integrated UCaaS and CCaaS system provide that cannot be achieved with a two-vendor solution? There's many things. You can see it here on the chart. But first, one, we can guarantee high availability and superior quality on a global basis. There's no finger pointing and no gaps. For example, 8x8 provides an industry-leading four nines platform-wide SLA that just can't be promised credibly in any two-vendor scenario. Second, the ability for company-wide collaboration, not just back office workers, but integrating across an organization's frontline workers, contact center receptions, and other personas. An example of this is we have a... car insurance company that uses 8x8 for UCAS and CCAS. They improved in-office customer experience by adding video as a service-enabled kiosks that allowed clients waiting in a local office to instead interact with video with agents available at other offices to resolve issues faster. This is a way that information is flowing faster throughout the organization. A third area is unified admin capability that can't be done through a combination of best-of-breed solutions. This gives a single source for license management, mix and match user types, and a single pane of glass for monitoring. Fourth is extensible integrations that allow you to have just one integration with your core applications, whether it's CRM collaboration endpoints or productivity endpoints like Microsoft Teams. Lastly, the ability to bring analytics and AI across the entire organization with real-time reporting, speech analytics across the whole organization. All of these capabilities make it possible to deliver a unified employee-customer experience that companies can rely on to exceed their own customer and employee expectations. And remember, this is the way it used to be before the cloud, and now the cloud is just catching up. And so how do we reach this integrated IT buyer? We let them buy the way they want through the routes they want, and we reach them where they're at. On the horizontal axis at the bottom, you see different business sizes with small business on the left and enterprises on the right. We reach the smallest of organizations through 8x8 e-commerce. Investments that have been made in the past and allow us to redirect future investments to our core strategic market of mid-market enterprise buyers. And where do we reach those? Mid-market customers are reached through our inside sales and channel relationships. And for largest customers, our field sales organization works with our channel partners and strategic alliances. Half of our top 10 deals in Q4 were brought to us by channel partners. So obviously this mix is important. Our X-integrated UCaaS and CCaaS solution solves unique needs, and the numbers show it. It represented over 30% of total ARR in Q4 and is growing at twice the market growth rate. Additionally, if you look on the right, we find that buyers buy our integrated UCAS and CCAS product. They stay with us longer and have better upsell potential with 33% lower churn. And lastly, they contributed 80% of top deals throughout last year and contributed to nine of the top 10 deals in Q4. Greater focus and execution against this segment is the key to lifting the overall growth and effectiveness of our sales and marketing efforts. I'll go into the key things we're doing to increase focus and execution to grow our X integrated solution faster. But first, let me address refinements in our CPaaS strategy. CPaaS is a small portion of business today, but operates in a quickly growing and attractive category. To drive success in CPaaS, we'll focus on three initiatives. First, we'll build upon our regional advantage in Southeast Asia where we experience a competitive advantage in carrier coverage and quality of service through superior message rate deliverability. We will extend and densify our already significant sales presence as represented on this slide. Second, we will pursue selective contact center omni-channel attach opportunities globally as demonstrated by the win we announced today with DMV Veterinary Center in Canada, which is utilizing 8x8 CPAS SMS in addition to 8x8 contact center for digital customer interactions. Lastly, we'll wind down our unprofitable wholesale CPaaS business. The business is selling messaging and connectivity to carriers at little to no margin and redirect those resources and focus on our enterprise CPaaS business and X-integrated solutions. Sam will cover the top line impacts of winding down this $15 million business, but it is the smart thing to do as it will create greater focus and success in our enterprise CPaaS business without sacrificing any profit or gross margin for the company. This greater focus we're applying to our CPaaS business will improve the long-term growth trajectory of this business, allowing it to become a larger and more meaningful contributor to our overall business and out years. Taking all this together, our focus in fiscal 2022 centers around four strategic pillars. First, we're working aggressively to expand our platform advantage, specifically the intersection of UCaaS and CCaaS, and ruthlessly focusing our R&D investments to enhance the enterprise-grade elements of our contact center and maximize the interaction and unique use cases between UCaaS and CCaaS. Second, we will make 8x8 the easiest to do business with and win together across channel partner relationships by leveraging our differentiated billing models and partner first mentality. Third, we will drive operational excellence throughout the organization. I personally know what it takes to develop a highly efficient and effective organization. I see many opportunities for improvement in this area, so we definitely aren't waiting and have already taken numerous meaningful steps with yet more to come. Lastly, expanding and defending our base of 1.8 million paid business users. We have a leading enterprise-grade UCaaS product and the leading integrated UCaaS and CCaaS product. We should never lose a customer to a competitive product. Improving our customer focus, eliminating dissatisfaction triggers will allow us to better capitalize on our tremendous existing customer base. Let me expand on each pillar. R&D has already been reprioritized and reorganized since I started to focus on the strategic integrated UCaaS and CCaaS buyer's needs. Furthermore, over the next 18 months, we will 4X our contact center investment without sacrificing our commitment to profitable growth. Core swim lanes have been created and responsible individuals assigned to key areas that will generate enterprise-leading CCaaS and UCaaS features and maximize the intersection of the platform. Focusing on platform capabilities enables us to more efficiently leverage an already sizable R&D team and patent moat, allowing us to compete more effectively against larger single product competitors. Results are already bearing fruit as today we announced an industry first of enabling mainland China offices and multinational organizations. In connection with our partnership with China Mobile International, we're able to add mainland China to our global reach program. This brings our global reach program to over 43 countries. If you have a China office and you want them on your core corporate communications platform, 8x8 is your answer. As part of our GTM sales motions, we will leverage partners to win together and create a world-class global partner experience. Channel routes to market represented 40% of total ARR and grew 38% year-over-year in the fourth quarter. Between our VAR and agent network, we now have over 6,000 channel partners across the globe and a dedicated 8x8 channel team working together. Over the coming quarters, we will re-educate these partners on our integrated UCaaS and CCaaS positioning and ongoing investments. Additionally, we have geo-segmented our inside sales team to better align with the regional nature of our partners. Furthermore, we will enable and seed partners with opportunities to upsell and cross-sell our X-integrated solution to upmarket customers and integrate partners into our renewal sales process. Lastly, we are deepening our engagement with strategic partnerships such as Bell Canada and Virgin Media Business, strengthening executive alignment and assigning dedicated farming resources to these strategics. Profitable growth is a mantra as we are a scaled SaaS cloud business and we're dedicated to predictable and gradually improving profit performance. in order to drive superior performance, improving overall efficiency, and go-to-market effectiveness is an imperative. This is an area that I bring 20 years operational, executional expertise to the organization, and it starts with leadership and team. Recently, we announced the addition of a new chief marketing officer, Amrit Chudharu, and new chief customer officer, Walt Weisner, who will help drive improvements in our marketing efficiency and customer satisfaction and retention and help align the organization to our core mid-market and enterprise IT buyers. We have also instituted a rigorous OKR process that the company has rallied around, which is aligning the organization around the most critical and leverageable activities exclusively. These improvements will compound over the next several quarters as we generate momentum towards achieving our strategic goals. Lastly, a laser-focused approach on our core combo prospects will improve over time our sales and marketing efficiencies that can be reinvested in a profitable growth. Our fourth strategic priority this year is defending and expanding the base. Previously, there has not been enough focus on customer satisfaction. We now have prioritized high availability initiatives and are working on permanently resolving customer dissatisfaction pain points. These efforts will pay off greatly down the road. Also, we have seen significant increase in stickiness with UC-only customers when they adopt our contact center product. So we're ingraining that cross-sell motion across the organization and throughout the customer lifecycle. Finally, with respect to retention, we're adopting a posture of extreme customer focus throughout the full customer lifecycle, from initial contact through sales, delivery, and all future renewals. We should never lose a customer to a competitive solution and should be willing to do what it takes to get every customer happy. Fiscal year 2022 will be a year of instituting increased strategic focus, operational rigor, and of establishing ourselves as the ex-integrated market leader. As we look beyond fiscal 2022, there are also additional drivers of growth that are worth mentioning. First, enterprise expansion will occur as larger and larger enterprises adopt cloud communication solutions. Actions we are taking today and investments in enterprise-grade capabilities will enable us to capitalize on this trend as we move upmarket. Second, our investments in Contact Center will improve the robustness, scalability, and completeness of our X-integrated product, which will improve win rates, allow us to tap incremental revenue streams within Contact Center, and improve the attach rate of Contact Center to UC-only deals. Third, our CPaaS business will benefit from the broader adoption of developer APIs, increased usage from current customers as we grow when they succeed, and natural growth of the dynamic economies that we play within. Additionally, the new additions of our high-value CPaaS offerings, such as call monitoring and video meetings, provide differentiated high-margin growth opportunities. Lastly, we will steadily expand our global footprint. International revenue represents 27% of total revenue and grew 48% year over year. We operate a very strong base of business in the UK and have numerous opportunities to leverage success there, including our relationships with pan-European partners to grow into additional European countries. In order to execute successfully, we will stay focused on three core tenants of customer, product, and team. We are aligned to IT buyers and mid-market enterprise customers that we know value integrated solutions for all the reasons we have discussed. We align our GTM and delivery approach to serve the needs of these customers better than anyone else in the industry. Our R&D prioritization and investments will extend the leadership of our combined offering and will maximize the intersection of customer and employee experience. Finally, I'm confident in the team we have on board, and I have the experience to drive continuous improvement across the organization. I fully expect these efforts to move us closer to world-class benchmarks in every part of the organization. That is my expectation of the team. It's an exciting time for API 8. We sit at the intersection of massive markets migrating quickly to the cloud with a differentiated offering in which to capitalize on these secular tailwinds. Improvements we're making today will compound over the coming quarters and allow us to more efficiently grow while maintaining a profitable growth mindset. Scaling a SaaS business to a billion dollars plus business while demonstrating profitable growth can be tremendously rewarding activity. I know, I've done it before, and I fully intend to do it again. With that, I'll turn it over to Sam to detail the financial path ahead.
spk01: As Dave shared earlier, 8x8 is an amazing company, and we see tremendous opportunities ahead for us. We had many accomplishments in fiscal 2021 and are in the rarefied SaaS era with over $500 million in annual recurring revenue. Our upmarket-focused enterprise is working, and the number of paid business users continues to grow. I am particularly pleased with our return to profitability and operating cash flow positive while continuing to grow ARR at healthy rates. Let me share how our financial picture will evolve over the intermediate term and the milestones shareholders should be on the lookout for. The Rule of 40 is an important SaaS benchmark for investors measuring revenue growth and profitability. As I mentioned earlier, in fiscal 2021, we focused on returning to profitability, putting one leg of the Rule of 40 in place and getting us to mid-teens on this metric. Using revenue growth plus operating margin, we expect to exit fiscal 2022 in the mid-teens, fiscal 23 in the mid-20s, and fiscal 24 we would like to achieve mid to high 30s with a stretch goal of hitting 40 before we close out fiscal 2024. This will be driven mainly by improving service revenue growth coupled with mildly expanding profitability. In other words, profitable growth. We are biased towards growth given the market size, but do not want to run non-GAAP operating losses. As part of our focus on improving execution, we've taken the decisive cleanup measures to focus our operating spend, eliminate distractions, and maximize returns. We are phasing out our services we sold to other carriers, known as wholesale CPAS, and repurposing any spending from that customer segment into the core segments described by Dave. This change will have a direct impact on what we report, specifically the face numbers on the income statement. In 2021, CPAS wholesale services contributed $15 million in service revenue and essentially zero operating margin. Rationalizing these services will be a near-term 300-plus basis point headwind to service revenue growth rates in fiscal 2022 and is already incorporated into the fiscal 2022 guidance I will provide shortly. We believe this is the right decision to concentrate our resources on our core market opportunities. Going into fiscal 2022, we are focused on adding demand generation, sales, and engineering capacity smartly and efficiently to maximize growth, and we want to self-fund this. We are making these investments from a position of strength for long-term value creation. We are significantly increasing our investment in contact center and X integrated UC and CC solutions, which our estimates suggest are the fastest growing portion of the overall market. We are adding upmarket sales capacity for mid-market and enterprise customers, and channeled investment will continue to grow, albeit at a slightly slower rate than we have in the past. Since the typical mid-market deals generally take three to four quarters from lead to closing, we'd expect the first results of these new efficient investments to show up in our upcoming fourth quarter. These two things combined further sharpen our target market as mid-market and enterprise, where the LTV to CAC metrics are better. We are very focused on setting the stage for service revenue growth acceleration as we enter fiscal 2023. We want to grow quickly. We want to be cash flow positive so we can fund our own growth. We believe this is the best thing we can do for shareholders over the long term. And we are very focused on these three swim lanes. The first is growing the top line as quickly as we can by building the best integrated UC and CC solution in the market and enabling sales teams to drive new customer growth in this large market opportunity. Second, we established a more disciplined investment framework and a path forward for increased efficiency across the business functions. We expect to see gross margin improvement over time through our refined GTM focus and product rationalization. And we should show unit economic improvements. Lastly, we are committed to strengthening our balance sheet via self-generated cash flow. As we enter 2022, we have good sales funnel metrics and continued strong demand for our X-integrated UCaaS, CCaaS solutions, Voice for Microsoft Teams, and CPaaS. Offsetting this is the continued work we need to do around operations. Taking all this into account, we are establishing the following guidance for Q1 fiscal 2022 ending June 30, 2021. We anticipate total revenue to be in a range of $142 to $143.5 million, representing approximately 17% to 18% year-over-year growth. We anticipate service revenue to be in a range of $132.5 million to $133.5 million, representing approximately 16% to 17% growth. We are no longer providing guidance for non-GAAP pre-tax loss since we are now profitable. Instead, we believe that non-GAAP operating margin is a better measure of our ongoing financial performance. We anticipate to be operating margin positive in Q1 and for each quarter of fiscal 2022. We are establishing guidance for full year fiscal 2022, ending March 31, 2022, as follows. We anticipate total revenue to be in a range of $595 million to $605 million, representing approximately 12% to 14% year-over-year growth. We anticipate service revenue to be a range of $555 to $565 million, again representing 12% to 14% year-over-year growth. And we anticipate fourth quarter non-GAAP operating margin to be approximately 2%. As I mentioned earlier, our fiscal 2022 guidance incorporates exiting non-core services, which were approximately $15 million in service revenue in fiscal 2021. Excluding this amount from fiscal 2021, the service revenue guidance would have been in a range of 15% to 17%, or approximately 300 basis points higher. Looking specifically at gross profit growth and ARR growth, we believe the year-over-year growth in these segments should be at least two to four percentage points higher than service revenue growth. For fiscal 2022, we believe gross profit and ARR growth metrics are good milestones to track our progress throughout the year. Next, I'd like to provide some context on our long-term financial framework. With the investments we're making in product innovation, and once we lap exiting non-core CPaaS services, our revenue growth rates should bounce higher. We grew total revenue 19% in fiscal 2021 and believe we can return to 20% or greater revenue growth in late fiscal 2023. That's a goal, not guidance, as there is a lot of time between then and now. As revenue growth trends back up, we plan on bringing a marginal portion of that growth to the operating margin line. We are focused on further accelerating ARR in an efficient manner. We also have plans to increase sales and marketing efficiency over time, a key theme with investors. And the R&D investments will increase as a percentage of revenue to fund innovation and further expand our product differentiation. We would like to see operating margins in a 5% to 10% range over the intermediate term and believe longer term, say five years out, we can be in a 10% to 20% operating margin company with relatively high growth rates. We plan to balance our focus on profitable revenue growth while making sure our efficiency of spend is high. We believe 10% to 20% operating margins is the right range while total penetration of cloud communications relative to legacy on-prem systems remains low. Once cloud communications becomes a majority of the business, we will focus more on increasing operating margins. Lastly, while we were cash operations positive in the fourth quarter of fiscal 2021, it was based on several non-recurring items. By the fourth quarter of fiscal 2022, we expect cash operations to be positive on a regular basis and have the objective of becoming free cash flow positive. The final topic I'd like to discuss is an administrative one, our IR metric sheet. Based on the feedback from discussions we've had with the investment community, we will no longer publish and report bookings metrics beginning next quarter, and we'll focus only on annual recurring ARR-based metrics. We believe ARR metrics are a better indicator to measure our business performance. In closing, we are super excited about the future of 8x8. We have an opportunity to differentiate ourselves in the market with our integrated platform, up-market focus, and multiple growth opportunities, all inside of a large total available market. At the company level, we believe our unit economics can improve, our recurring business model is an asset, and profitable growth will remain. Thank you to our employees, our customers, our partners, and also, importantly, you, our shareholders, for your continued support. Operator, we are ready to take questions.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question from the queue, please press star then two. At this time, we will pause momentarily to assemble our thoughts. Our first question comes from Tim Warren with Oppenheimer. Please go ahead.
spk11: Thanks, guys. On Teams, can you give us a sense, maybe just qualitatively, of how voice adoption is going for Teams users? You know, where do you think they are at this point? How easy is it to adopt many of the different voice options on Teams? And where are we with contact center with Teams at a high level? And then I guess lastly, does it matter to these enterprises who the legacy PBX provider was as they move through using UCAS versus CAS for Teams?
spk07: Hey, thanks, Tim. This is Dave Sipes. On Microsoft Teams, we've seen good traction in that this is an area that we were very early in getting a direct connection into Microsoft Teams app. As you saw on our platform, we have an agnostic approach of enabling different personas and different applications. Teams is a key one of those. And we have recently been certified as a contact center for Microsoft Teams and the first vendor in the Gartner Magic Quadrant for contact center as a service to be certified by Microsoft. We also continue to differentiate the product by product. putting additional capabilities into the Teams app. We talked about last quarter of adding call forwarding rules and count settings, log in and out of call queues, and access group voicemail. And we're following that up with this quarter, we expanded the app functionality to include, to be able to send and receive SMS, MMS, and fax. So we continue to create greater capability to those end users that are on there. We also, you know, if you remember last quarter, we talked about Hanover Research in a study that we commissioned with them, showed that 70% of deployments in Microsoft Teams plan on bringing in third-party voice into that. So we can do that with UCaaS and CCaaS and Microsoft. enable those organizations that are moving to Teams. And even in hybrid environments, which we talked about, like at Hallford's where a number of users are on Teams, but the bulk of the organization still is not for different reasons. They're just not using that license universally across the organization, whether it's contact center agents or frontline workers or whatnot. So we bring all those additional personas and ability to power real-time communications across the whole organization. So, you know, and we're seeing them, and we've had record pipeline of Microsoft Teams in the quarter, so we still see tremendous momentum. Thank you.
spk05: Our next question comes from Metta Marshall with Morgan Stanley. Please go ahead.
spk04: Great. Thanks. Maybe to start with for Dave, you know, you talked about some kind of changes to the Salesforce or channel training, whether that be kind of geo-segmentation or just better training of the channel on kind of the joint CCAST. UCAS product or, you know, full portfolio of products. Just, you know, how long do you see that training or kind of those changes needing to take place? And, you know, when do you think you could start to see traction in some of that? And then maybe a follow-up question for Sam. And he grew services revenue almost 20% in the last fiscal year. And I understand the 300 basis point headwind. from getting out of some of the wave cell business. But that would, you know, still leave, you know, a couple hundred basis points of deceleration kind of in the fiscal 22 guide. And so just trying to get a sense of, you know, is that conservatism? What leads to kind of that deceleration on the services line? Thanks.
spk07: Great. Thanks, Matt. I'll answer your first part, and then I'll let Sam answer your second part. On education of this focus strategy on CCaaS and UCaaS customers, it's an area that we're already seeing benefits of that when we look at our pipeline generation. But as you mentioned, there is a training element that we're embarking upon both for our direct sellers as well as our channel sellers. I would say... That's going to go on and we're going to put full shoulder into that probably over the next two quarters. And yeah, really honing those areas of that intersection of CCaaS and UCaaS, those benefits to customers, as well as things like our platform advantage, our four nines SLA that we announced today, our ability to bring things like China, mainland China. And so there's a lot of different elements there that we're going to the education of the whole organization, as well as all our partners.
spk01: All right, and I'll take the second part of that. So let me first, I'm going to give you a bit of a technical answer. So if you look at Q1, Q2 of fiscal 21, they were both influenced by the wave cell acquisition because we hadn't lapped it yet. So if you look at just the back half of fiscal 21, you'll see 15% to 19% growth, about an average of 17%. roughly, and we guided towards effectively a pro forma 17%. So core business, we expect to be flat to up going into the next year if you take out the business because that 17% had some of that growth in it from the non-core services CPaaS, and we're expecting 17% growth in the core business. So I hope the math makes sense. If not, I'll certainly walk it through you again.
spk04: No, that makes more sense. Got it. Thank you.
spk05: Our next question comes from Brian McWilliams with Steven Brink. Please go ahead.
spk12: Thanks for the question. I have a question for Dave and one for Sam. So great to hear about the path forward for 8x8 and the opportunities you see ahead in the combo UCCC deals. As you think about approaching the Rule of 40 in fiscal 2024 and beyond, What do you think the main thing A by 8 needs to get right in order to get there, and then maybe what improvements we can look for in the next few quarters? And then for Sam, in your presentation it said channel ARR grew 38% year over year, but it looks like new bookings growth improved to 7%. Can you help us reconcile the difference between those metrics? Thanks, guys.
spk07: Sure. Thanks, Brian. On the improvements that we have in selling UCNCC, I think you look across GTM and how we go about educating, you know, back to the previous question, how we educate our direct sellers, how we educate our indirect sellers, the onboarding of, you know, the additions of management we've done there with Omrit and Walt, in addition to the currently strong team on the GTM side of improving those motions. that we'll be doing over the next several quarters of execution on the GTM side. And then there's the R&D side and the increased – the refocusing of R&D into UCCC and the intersection of those two, as well as the increased investment we'll be doing on contact center that will improve over time win rates – attached to UC-only deals in our Lend and Expand model for the installed base, as well as generating incremental revenue streams within Content Center.
spk01: Yeah, I'm sorry. And then reconcile the... the channel bookings versus channel ARR. So channel ARR, obviously a cumulative four quarter metric versus the channel bookings, which is a one quarter metric. And if you look at channel bookings, the quarter before we were up 64%, this quarter we're up 7%. So that's an average of 35%, really close to that 38% number, some timing associated with there. So it's really just a bit of mathematics there. There's nothing special. This is one of the reasons we're getting rid of the bookings numbers in general, because you do see some volatility in them quarter to quarter, and it has a tendency to throw off investors, when the reality is over the last two quarters, we were up 35% in bookings and 38% in ARR, really close together.
spk12: Appreciate the color. Looking forward to see what's next. Good luck, guys. Thank you.
spk05: Our next question comes from Matt VanVleet with BTIG. Please go ahead.
spk02: yeah thanks for taking the question um a lot to digest here but maybe first on sort of the new announcement um around the entry into china sort of what what's catalyzing that you know why now um and sort of what's been the impediment in the past uh obviously a lot of companies especially in software tend to shy away from some of the issues um around the chinese market but just kind of curious what kind of growth rates what you might see there And then sort of dovetailing off that, you know, a lot of investment in some of these R&D initiatives that you're talking about, Sam. But just I guess from a headcount perspective, you know, how much are you expecting that to be versus some new projects and just kind of thinking about that longer term? I know it kind of fits in the framework there. Thanks.
spk07: Great. I'll take the first part of that on that. The expansion of our international presence, our global reach program, which now goes to 43 countries, is a very important element for servicing multinational organizations that want to bring all their employees onto one platform and servicing all of their offices globally that do that. It is an area where there's a lot of demand for many of the largest countries. China is an obvious one where every multinational that has a China office now becomes a potential customer for 8x8. Why now? It's our partnership with the hard work that we've been doing to make that happen, as well as partnership with China Mobile International that's enabling us to provide both UCAS and CCAS and the first provider of that into mainland China. And this is an area we've always had high demand. We have close to 10,000 seats in deployment today from numerous customers and double-digit number of additional customers in the pipeline. That's all really from install base or very new customers because this is all prior to today's announcement or any marketing efforts that would go around that. So we just view it as a very important element in the overall global story and servicing multinational corporations across all their cloud communication needs.
spk01: Thanks, Matt. I'm going to change your question just slightly. I apologize. But I really wouldn't call these new projects. I mean, one of the things that Dave has done really clearly is focus us down. And so we actually probably have less new projects on the board, and we have a lot more direct projects focus on the projects that we do have. So contact center that he mentioned and core platform technologies that he mentioned. We're repurposing existing dollars from businesses we're getting out of to fund additional headcount in those areas. So you won't see raw headcount going up a huge amount. It is increasing, no doubt about that, as it is in sales capacity and demand gen capacity. But a lot of that is being paid for by repurposing of dollars. And that's why you continue to see operating margin improvement in fiscal 22.
spk02: All right, great. Thank you. All very helpful.
spk05: The next question comes from Catherine Trudnick with Cool Years. Please go ahead.
spk03: All right. Thanks for taking my question, nice quarter, gentlemen. Two things I want to hit on. One is a year ago, video was a hot topic on an earnings call. Where does that fit in the four pillars? Thanks.
spk07: Thanks. Thanks, Catherine. Video is an important element of the employee experience offering. It's one core element that we have, and you're seeing innovation as we launched Blur and virtual backgrounds this quarter. Additionally, we offer video as Jazz, as a CPaaS service, and this is a full meetings capability, higher-level APIs. that go into other products. And that's an additional way that we're playing the video enhancements that go across the Jitsi org as well as the whole 8x8 user base. And additionally, finding areas in contact center, omnichannel, attach is a third area that video is important to our overall platform.
spk03: All right, thank you. I'll save the other one for later.
spk01: Thank you. Thanks, Catherine.
spk05: Our next question comes from Will Power with Baird. Please go ahead.
spk14: Hey, guys. Thanks for taking the question. This is Charlie Relican for Will. Dave, you mentioned the pipeline a few times, and I was just hoping to ask, could you maybe compare the pipeline versus where it was a quarter ago and versus where it was a year ago? In terms of sales KPIs, I'd love to hear also how your win rate has been stacking up in the enterprise specifically.
spk07: Yeah, thanks. Thank you. As we go, and this is one great thing about bringing Omrit on board, marketing is a real focus on enterprise pipeline generation. It's an area we've had strong momentum, especially when you look at channel with having record channel pipeline generation and record number of active customers. channel partners. In fact, if you look even further back over the last three years, active channel partners have gone up 10x in this area. So those are all areas where we've seen increasing momentum and ability to scale our organization. And Sam mentioned some GTM sales capacity that we're making investments in to capitalize on the pipeline momentum. So that's a key area as far as – Focusing that pipeline into our core strategy, UCAS-CCAS, is where we'll see improvement in win rates as well as investment in contact center that rounds out the robustness and completeness of that product to allow us to close even more CC and UC deals.
spk14: All right. And then I'd also love to hear what you're seeing on the pricing front, maybe both in SMB and enterprises.
spk07: there any change in pricing at all or have they been pretty stable overall pricing is something that you know i've been in the business for quite a while and what you normally see is you have as you move up market into larger customers and addition of additional products you gain some you know revenue per account advantages Additionally, as you scale in there, you have, and over time, you have some lower per user on the UCAS side, but that gets made up pretty much completely by the expansion in the customer size and in the selling and cross-selling of additional products and capabilities.
spk14: Got it. Thank you. Thank you.
spk05: Our next question comes from Jonathan Keys with Summit Insights Group. Please go ahead.
spk09: Great. Thanks for taking my questions. And I wanted to, I guess, commend you guys for laying out the financial framework. I know you're just aspirational goals, but it certainly helps in terms of inspiring more confidence in your fundamentals and your financial outlook and progress going forward. So, My questions are actually on the carriers. That's great that you got China Mobile. I wanted to see if you could get an update on how Virgin Mobile, excuse me, Virgin Media has been progressing in the U.K. And, you know, I guess do you assume this is going to become a more recurring thing where you're going to get more carriers signing up and this is going to become a material part of your channel?
spk07: Yeah, so China Mobile is helping us with our global reach expansion. Virgin Mobile is a reseller of our product in the UK region, and Bell Canada, a reseller of our product in the Canadian region. And those are areas we're investing in our team that works those accounts for the expansion in those accounts of penetration of the 8x8 service as they go to their seller network. Our routes to market include carriers as those two, in addition to our direct team and our bar agent and our reseller network. And those are probably the bigger share of go to market. And we see expansion across those as kind of key for shorter term line of sight, as well as faster ROI.
spk09: So if I may just follow up, because I don't think you can answer my question here. Do you see signing up more resellers and more carriers become more common now with your channel program and your outreach?
spk07: We see expansion of all our indirect channel. Probably what you'll see sooner is what I'm saying is expansion within our agent network and our VAR network. An example of that is the Wescon deal that we announced, which is one of the largest distributors in the U.K. and Ireland that's selling our product in those markets. I would expect to see more of those in the short term, so stay tuned.
spk09: Great. Will do. Thank you.
spk05: My next question comes from . Please go ahead.
spk06: Hi, thanks for taking my question. Dev, you talked about this massive market opportunity. I guess I agree with you, and also your competitors are also aggressively investing both in product and go-to-market. I'm wondering what's your view on the competitive landscape, and as you're looking at investment, as you talked about, where do you see 8x8 as the sweet spot?
spk07: Yeah, the cloud communications market's massive. We talk about $75 billion, both UCaaS, CCaaS, and CPaaS. We've been operating in UCaaS and CCaaS for 10-plus years with lots of experience curve, team knowledge, experience. feature function capability. The intersection at UCCC has traditionally been a very strong buyer motivation when you look at legacy solutions that got broken when we went to cloud. We provide that today, and there's a very few competitive set when you look at that intersection. And I think where we stand out is having been in that with more experience, more recognized when you look at Gartner and the nine times recognition on UC and six times recognition on CC. as well as you know defining it as our core strategy creates more focus than you'll see anywhere in the market and i think those are the elements that we'll leverage uh to win at that core sweet spot of the market which is massive in and of itself estimated 15 billion and as we move more to product suite in the cloud we'll gain share within the cloud
spk06: I see. And if I hear correctly, you mentioned differentiated billing model for channel. Could you a little bit elaborate on that?
spk07: Yeah, so we enable both an agency reseller model where we provide billing to the customer and utilize percentages to the partner channel. Additionally, we offer a wholesale billing model for our VAR channel, which is a way traditional resellers have operated, especially in Europe. And that's where we see a lot of traction of that model. But those are two alternative models aren't typically provided in the cloud communication space that we provide both opportunities in an effort to be easy to do business with and support our partners in the way they want to go to business.
spk06: Thank you. Thanks, Dave.
spk05: As a reminder, please limit yourself to one question. Our next question comes from Peter Levin with Evercore. Please go ahead.
spk15: Great. Thanks, Jess. Thanks for my questions and for the detail on the call. Perhaps can you unpack the billion-dollar target? Can you give us a timeframe on that target? I mean, how do we get there, meaning how much of an emphasis is being baked in from expanding, leveraging the channel, and are you factoring in any inorganic contributions to this?
spk01: All right. I'll take part of that, Dave. So in terms of the billion-dollar target, it's a number that we put out. If you look at our growth rates and the fact that we're expecting to give up 20-plus percent growth rates here within a couple years, you should expect that it's within five years is easily achievable. And no, we are not expecting inorganic pieces. We reserve the rights. at all times to be able to use shareholder money wisely to acquire inorganic pieces that we want to tuck into our technology portfolio, but it's not built into the plan. We think we have line of sight, and I just want to highlight, though, this is not guidance. I'm giving you a rough objective, but we absolutely think it's achievable, and I think we have a line of sight for it. Thank you.
spk05: Our next question comes from Daniel Bardus with Bank of America. Please go ahead.
spk10: Hey, guys. Thanks for taking the question. I wanted to also ask about Microsoft. Just at a high level, when you look forward, you know, how much life is there to coexist on top of Teams? Do you think the market will shift more to UCaaS and CCaaS bundling on top of Teams, or do you see a long runway for just better telephony and just the UCaaS piece on top of it? Thanks.
spk07: Yeah, this is David. You know, Caply's on the Microsoft Teams opportunity. It's being used as a core team messaging endpoint, and I think over 150 million active users or something at this point. for enabling real-time communications and voice specifically. I believe that is an opportunity definitely for the employee base, the core employee base. We are certified now for contact center. So it is an additional opportunity for agents to utilize. I think you may see, you know, agents usually operate in a more specialized endpoint environment around things like Salesforce or even the 8x8 contact center app, but we will see likely some agents utilizing it as a secondary application for team messaging. So it's important that we enable all users in the organization to operate across one real-time communication platform that 8x8 enables.
spk10: Got it. Thanks for that.
spk05: Our next question comes from George Sutton with Craig Hallam. Please go ahead.
spk08: Thank you. This is Adam on for George. Sam and Dave, you called out with respect to the increased R&D spend, the intersection of UC and CC. I was hoping you could provide additional detail on what exactly you're focused on, specifically on the near-term objectives and if there's any long-term projects you feel like are going to generate great ROI but just will take some time to get there?
spk07: Yeah, I think we, you know, I highlighted a number of areas because this is a great question. We get asked it all the time. But it goes, you know, from the most fundamental of having a high availability platform and we were able to And now it's a four nines financially backed SLA across our entire platform. So as you go with the UCCC cell, that is so much more powerful when you can do that than if you're partnered or you're going with two separate vendors in that situation. So that's one key area. There's the cross-employee collaboration, especially between companies. you know, things like contact center agents and back office employees and front office employees that having all of that on one platform enables. And then, you know, things like a integration platform that allows an IT organization to implement more cost effectively, and maintain into the core workflows across the organization. And we're seeing that across a number of our customers as they go and deploy our X-Integrated UCaaS and CCaaS solution.
spk05: Our next question comes from Michael Torn with South Parker Security. Please go ahead.
spk13: Hey there. Thanks. Good afternoon. Good afternoon, teams. Sam, you just reached break-even targets. I think we can all understand the calling out, the areas you're calling out for investment, whether it's CCAS or some of the go-to-market improvements you're focusing on going forward. But I guess why show any degree of gross margin expansion at all, given you kind of hit that initial target in FY22 versus just the opportunity to drive just a little bit more incremental investment into those areas.
spk01: Well, I mean, it's a great question. To be fair, we are transitioning from really focused on profitability now to potentially slowing down that profitability increase and really reinvesting dollars. To me, it's just a function of efficiency. As long as we can be incredibly efficient with our investments, we'll always make those first as long as we remain profitable. Gross margins are really just an effect of that we are focused on that. We're focused on improving our margins across the board. One piece of that is our cost to serve. It's a fairly large number, and so it's an easy number to attack. So I can pull money out of gross margins, roll that money back into R&D and sales and marketing that becomes much more towards new revenue generation. Both those things are either product differentiation, which drives new revenue, or increased sales capacity, demand gen capacity to drive new logo additions and cross-sell. So really, for me, it's a source of additional dollar funding to drive profitable growth.
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