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spk_0: good afternoon thank you for attending two days eight by eight cisco first quarter conference call my name is amber and i will be or moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question please press star one on the telephone keyboard and any time and now have the pleasure of any the conference over to cape patterson how does investor relations kate please proceed
spk_1: thank you operator and good afternoon everyone today the gender will include a review of our first quarter results with dave type chief executive officer sam wilson our chief financial officer and hunter middleton are cheap product officer who will give you an overview of our product strategy following are prepared remarks there will be a question and answer session before we get started let me remind you that our discussion today includes forward looking statements about our future financial performance including or increased focus on profitability and cash flow as well as our business products and growth strategies we caution you not to put undue reliance on it forward looking statements as they involve risks and uncertainties that may cause actual results to very materially from forward looking statements as described in our risk factors in our report filed with the fcc any forward looking statements made on this call and in the presentation slides reflect our analysis as as of today and we have no plans or obligations to update them certain financial measures that will be discussed in this call together with year over year comparisons in some cases were not prepared in accordance with us generally accepted accounting principles or gap a reconciliation of non gaap measures to the closest comparable gap measures is provided in earnings press release and earnings presentation slides which are available on a page investor relations website at investors dot eight by a dot com with that ultra and call over to our ceo dave sites
spk_2: faith is a good afternoon everyone and thank you for joining us today on the call today our view your first quarter results and give an update on the integration of years which continues to go well i will also discussed or plans for fiscal year twenty twenty three as we place greater emphasis on profitability and cash for generation in the near term we've believe that this is the right strategy to deliver value to all our stakeholders customers employees and shareholders we delivered another solid quarter with air growth non yeah profitability and positive operating cash flow in the first quarter views continue to outperform arts with patients are strong customer retention we continue to advance or strategy of empowering every employee company wide through integrated contact center and unified communication capabilities and were strengthening the foundation for sustainable growth in the future the quality of our air are continue to improve with the shift to enterprise and at gas enterprise air our group fifty four percent year over year and now accounts for fifty nine percent of total a are our access and our continue to grow it over forty percent year over year and contributed more than thirty five percent of total a are are the sequential growth and accept the air was very strong and we see an opportunity for this materially over the next several years or see past business decline sequentially and year over year and was an eight million dollar had when to total and enterprise they are our growth our continued focus on operational efficiency resulted in higher gross profit with first quarter non get service revenue gross margins at another multi year high of seventy three percent the improvement and gross margin resulted in sequential and year over year increases the non gap profitability and operating cash well as a result but non gap operating income and operating cash flow were ahead of our expectations as we look to the remainder of fiscal twenty twenty three and beyond we're committed to driving the operational efficiency that allow us to continue investing in court that's guess innovation and deliver increase profitability and cash flow overtime on our last call we increased our operating margin guidance for fiscal year twenty three to two to three percent and said we have line of sight to doubling operating margin of fiscal year twenty four this original range for operating margin reflected increase investment ninety as well as in the cells capacity a marquee programs the just drive for your service revenue growth in the mid twenty percent range over the last quarter will continue to evaluate or mix of investing for growth vs increasing profitability we are prioritizing increase profit building has blown moderating the growth of our investment and seldom marketing to reflect more conscious behavior by us and be and see our customers at them will discuss in greater detail were making changes now that allows the exit fiscal twenty twenty three at or above five percent operating margin further i believe we can achieve a least an additional two hundred three hundred basis points and operating leverage and fiscal year twenty four to achieve our fiscal year twenty three target we're holding operating expenses more or less flat as a percentage of revenue throughout the year and allowing the improved in economics reflected in our gross margin to float operating income we're also reducing our annual guidance ranges for service until the revenue by twenty million and thirty million respectfully reflecting lower incremental investment and sales and marketing initiatives as well as for exchange headwinds and continued weakness and sea us let me provide a little more detail on our thinking behind our guidance we address a huge market opportunity migrating to love any to a cloud offers organizations enormous benefits and terms of costs and flexibility benefits that are likely to be even more compelling in a recessionary environment or opportunity is greater than just moving on private communications to the cloud digital transformation and increasingly mobile workforce and the need to offer hybrid work environment is boring the boundaries between internal communications and context and are functionality as the only fully owned unified cloud based you see in contact our platform were uniquely positioned to capitalize on this opportunity to deliver in advance contacts and are features taylor to the needs of each user wherever needed in the organization to fully realize this competitive advantage we will continue to invest in our core x caf offering with an emphasis on extending the team's experience expanding global connectivity and driving contacts and are innovation to enhance the anti and customer journey as we add new innovations to enable today's modern workforce we create the opportunity for greater revenue per user through cross so i believe that our continued investment innovations like front desk agent workspace and conversation i q is the best way we can build a foundation for sustained growth in the future with investment or critical to our future we're making some trade off in the near term to build a better long term future as a result we are moderating incremental investments and zelda marketing and to a lesser extent dna initiatives while i believe this is the right strategy for us given the current macro environment and our immediate priority of refinancing are comfortable that it does have an impact our capacity to drive incremental topline group as we ship to a greater emphasis on profitability we continue to make progress on x cast adoption and grow installed base with our enterprise customers i kept platform continues to be broadly deployed across a range of industry verticals and geographic regions including the public sector if you read some examples of new x cap customers include science us is the leading specialty pharmacy in europe providing healthcare solutions to patients with long term conditions rare diseases and cancer they selected a it acts cass with nearly three hundred ce cas seats as part of their digital transformation efforts to enhance the patient experience in the uk and europe inception fertility is a tech enabled company improving the patient experience through an ecosystem of fertility brands as north america's largest and fastest growing network of fertility clinics inception needed an adult communications partner that would support their growth and selected a buy it at school asked to support over sixteen hundred employees across more than eighty sites cross cell is becoming even more important aspect of our x guess strategy as or enterprise base expands our ability to expand the number of seats and average revenue per user within our install base has the potential to be an important drivers cells efficiency and revenue growth one of our significant land and expand wins and he won with t force logistics which is bleeding same day and that day final mile transportation solution provider and north america after deploying a by us with voice for microsoft teams for over one thousand employees and seventy six locations across the us and canada they expanded to x cast by adding context center this quarter first single vendor cloud communication platform to help grow their business within the as cast solutions portfolio or a by voice for teams direct routing foolish and continues to gain momentum we now have more than two hundred thousand users deployed customers choosing a voice for teams and que one included brookfield properties which develops and operates real estate investment on behalf of brookfield asset management one of the largest alternative asset managers in the world they collected a by you cats with voice for microsoft teens with over two thousand three hundred seats to the ease of administration and five nine reliability motive hair is a technology enabled health care services company which provides a suite of integrated supportive care solutions for public and private players and their patients they selected a bite us with a bite voice where microsoft teams for a seamless experience for you over two thousand employees across multiple locations our global reach rich features that and tight integration across you see and cc continue to be an important competitive differentiator of customers adopting teams as their collaboration platform to reach more the customers we recently launched the a by elevate microsoft partner program and energies and as t edition of voice for teams the x tedious and combines i direct route in technology as your base manage sp see as a service domestic the idea is nationwide calling hd audio and secure voice all in a single package customers can easily upgrade or at seats with advanced functionality including global calling conversation i q or contacts are we continue to lead the market and global calling capabilities and the first quarter we expanded global reach to include israel taiwan latvia and slovenia our club a global you can loosen is now available and fifty four countries and territories it representing nearly ninety percent of global gd theme today about thirty percent of our users are outside north america our ability to reduce the cost and complexity of managing pft and can activity across multiple regions is another competitive advantage that become increasingly more important and a cost conscious environment a great example of a customer implementing access our global basis his g c p a global provider of construction projects than include high performance special deconstruction chemicals and building materials and continue to expand with a by x tasked with over two thousand three hundred seats and twenty two countries spanning five continents including providing for pst and coverage to employees in china and the buildings ex has also continues to gain traction in the public sector or ability to support customer engagement across the organization on a single platform creates a competitive advantage examples of public sector wins and que one include cambridge share and peterborough arrow nhs foundation trust which is that health and social care organization supporting nearly a million people in the community they turn to a by you cast and boys from microsoft teams to support the employee experience for more than two thousand users norfolk county municipal government supports sixty three thousand residents and southwestern ontario canada they selected a bite you cast with voice from microsoft teens for the simplified administration a cloud communication system provides finally a brief comment on our past business the large customers who reduce the see past used as a few for have not yet returned to preachy for usage while we continue to work with an empty design new programs or guidance does not assume any usage revenue from these customers going forward although he expanded our user base with new customers and a quarter the usage component of the see bass business continue to weekend and you one and impacted both are a or are metrics and service revenue growth despite this we continue that had well known names to our customers setting up for long term success when used as rebounds these names include the rumor indonesia's number one be to be e commerce platform for all things from office supplies to maintenance services they use a by eight at the i'm s a p eyes to reliably cent secure one time passwords to their users they also use a by a chat apps a p i for customer service of or what that providing their customers a convenient way to contact them
spk_3: and had a belly one of indonesia's fastest growing social commerce apps using a bite estimates and chat apps a p eyes recently added a it's voice ivy are and voice messaging a p eyes to automate customer self service workflows and user verification
spk_2: notifications we continue to enhance the see past platform most recently with a by connect automation builder a know code multiple channels communications management solution for sea bass
spk_3: automation builder offers a visual effortless way for anyone regardless of coding experience to easily build engaging customer experiences that enhance productivity flexibility
spk_2: and efficiency in summary innovation has always been a core value and a by and i'm proud to say our new innovations are gaining acceptance twenty seven percent of new mid market and an upright customers have deployed front desk census launch just two quarters ago and one hundred percent of new users have deployed our new you lie in agent workspace since it launched in march our boys for teams offering the path two hundred thousand users one of the fastest rams in our history innovation such of these leads to improve customer satisfaction retention which we see in the numbers we have already made rapid progress on our as cast product roadmap this year hunter middleton are cheap product officer will give you some additional detail on our product strategy before handing the call of to hunter i do want to thank our teammates here at a pay for their hard work and commitment i also want to welcome susie's and del as our new cheap accounting officer i remain confident in our opportunity or competitive advantages and our strategy as we grow or enterprise and x cass business were building the foundation for sustainable growth and revenue and castles and would believe this will deliver value for all our stakeholders thanks days and hello to the investment community i'm joining today to give an update on our are in the investments and product strategy as you already know our aren't the effort saw an infusion of resources with the recent fuse acquisition to one f like twenty three with our first full quarter since the acquisition and while early we have been pleased with the or a results so far overall output of the combined are indeed team is already up twenty five percent come paired with queue for of last fiscal year and the investment in sustaining engineering for the his platform and an upgrade automation to get customers to the combined x cats platform are looking right on target the integration of the development team is fully complete we have one eight by a robot and a single platform that we're investing in i'm personally very impressed by the quality of that he is technical team and i'm extremely proud of how everyone has come together with this increase in innovation capacity a by it has the ability to accelerate our delivery of differentiated services a wide range market segment find value on our services with the core target as a mid sized enterprises organization using him as teams for internal collaboration and with a high value customer base that demands engagement throughout the organization not just in the context or let me cover each of those points and turn to share how we differentiate with the moved to cloud midsize enterprise organizations don't want to worry about maintaining their own and health lessen expertise no now more than ever they are looking for a vendor that is a long time clouds less sunny and carrier expert not a recent entrant a by his best in class global cloud voice solution with the five nine reliable full featured enterprise ready voice anathema service and the largest global footprint of any cloud vendor continues to be the premium option for midsize enterprise cloud to lessening
spk_4: this market is especially motivated by a by it's ability to ensure a low risk and low drama moved to club
spk_5: over the last two years we have upgraded our entire customer base from her own legacy platform to our new xps platform while increasing our customer retention rate we are now preparing to execute that the same move with fuse customer base and in the process extending our import tooling and execution expertise
spk_2: even further
spk_4: we know how to move the customers deployment from one platform to another and this expertise is critical to enabling that significant number of risk averse late adopters to get to club
spk_2: some of the top investments we are making in the key area differentiation include exceeding five ninth availability across the platform expanding our global polyphony footprint to add additional countries and delivering even better import tooling to ensure a seamless redeployment from on him to clown
spk_4: almost every midsize enterprise communicates to the contact center to it's customers be a voice messaging or other omni can on that these organizations tend to be very are a focused and less experimental they want high reliability a great user experience to minimize training and operational expense and cool
spk_2: or proven technology that is short time to our ally hey paid is very focused on deepening are valued delivered in this large segment we recently launched an impressive new age and experience with positive customer reviews typical the customer comments we had so far is this from national express hey by eight agent workspace was extremely easy for agents to pick up right from the start and incredibly straightforward self explanatory and easy to use interface that really helped enhance their overall experience for aiding the delivery of better customer outcomes we are continuing this coming year with several additional major launches a superior digital conversational a i solution a completely revamped team lead experience with user management team reporting and quality management capabilities all in one you are furthermore we're going to do enhancement store agent workspace to further improve usability for digital use cases and better integration with cut the with the customers the or him we have our user research and design team dial then on this customer profile and are making sure that everything we deliver scored high on usability and provides a complete and the and use case fine tuned to the needs of this segment
spk_4: a significant portion of that size enterprise organizations today are opting to use him as teams for meetings and internal messaging
spk_2: the eighth grade x cat solution is incredibly enough teams friendly designed to enable customers to easily makes our external communications solution with the native him as team internal collaboration service or integration is easily adaptable to the diverse ways the company's choose to operate with them as teams from having a pipe voice and aftermath volume but that it in him as team that to enabling mix and match with users adopting the service that makes the most sense for themselves while maintaining as interoperability with users on each platform we are very happy to trade the sale of an increasingly commodities meeting service for the higher value sale of our native contacts center and customer engagement capabilities
spk_4: a recent baird study found that a paid him as teams integration is preferred four to one over are you see competitors and we will continue our investment to maintain leadership in this area
spk_2: for a while now date and sam have been talking about the success of our ex cast product strategy almost all enterprise organizations sign value in one platform single vendor solution are ex cops differentiation goes well beyond simply selling integrated the distinct you see and cc solution on a single contract a by a is uniquely able to break down the walls between you see and fi solution and can deliver traditional contacts and or engagement capabilities where ever they are needed in the yard focusing on three primary avenues for creating value for our customers first every new contacts and our capability gets built at a platform level so that we can also deliver it to any user or team throughout the organization second were designing dedicated app experiences that bring you see and the functionality together in purpose built configurable you why for t customer engagement persona
spk_4: and third we're investing in the data infrastructure and analytics that enables visualization and insight on the him to in customer journey
spk_2: for the companies can really see what's going on i know that all sounds the silicon valley so let me discuss to recent launches that make this product approach more tangible
spk_4: a they've recently extended the availability of conversation i q are chloe management and speech analytics service to any user throughout the organization this product is typically considered to be a contacts in our capability a i speech analytics that looks that individual interaction transcripts to didn't fyi coachable moments and topic trends
spk_2: and then feed those into a coaching application for the tamerlane you can now apply the capabilities as a premium add on service the any user in the organization for instance we have recruiting agencies that use it to monitor and coach individual recruiters on the effectiveness of their phone screens reception teams that use it to verify adherence to the write greeting script on the right in down number and billing support teams that need to assess customer satisfaction with their age and expire parents just as if they were sitting in the contact center this is how x caf delivers customer engagement functionality throughout the york another example the first of our premium act experiences with front desk or new attendant council that was released in the middle of last year receptionist need more than just a phone but less than a for omni channel contacts in her seat from death combined core you see call handling and a highly highly usable company directory with the extensive multi user voice who's familiar in the context or space
spk_1: and all of this is composed in a single screen you on that ensures the user doesn't have to hop around different components to get the job done
spk_2: gone from the screen but available click away when needed our company chat meetings that our research shows are rarely use by this persona during the workday seats for these app experiences sell at a premium to traditional use the application licenses while still being bored of more affordable to the customer that a full contacts and her license and their simpler to deploy our data shows that adoption of front desk among our new enterprise logo is already over twenty seven percent looking forward to some of the highlights in the coming year on her ex castro that our new digital conversation a i capabilities will provide customer self service options across the entire organization our customer journey analytics or being have to deliver more insight into interactions that span you see and c c nodes and the new team lead experience will were equally effectively for customer engagement teams outside the contact contact center as it does for those that are in the context or
spk_6: we are also actively working on additional premium app experiences the target he customer engagement role throughout the company and will share more about that in future calls
spk_7: thank you for your time today and i'll be on the line for q and a if you have any questions sam
spk_6: thanks hundred and good afternoon we remain a financial agile and discipline organization and delivered solid results for the quarter we continue to experience some challenges in our see past business during the first quarter and foreign currency headwinds were strong both of which impacted service revenue performance and will make as a job to school twenty three guidance in spite of these challenges when they were near the height of or guidance range and we continue to post brought improvement and gross margin delivered solid operating income and another quarter of positive cash from operations
spk_1: total revenue for the quarter was one hundred eighty seven point six million dollars an increase of twenty six percent year over year in in part of our one or me five to one hundred eighty eight million dollar guidance range regenerating one hundred seventy nine point two million dollars in service revenue an increase of thirty percent year over year in in line with her one hundred
spk_6: seventy seven to one hundred eighty million dollar guidance range
spk_8: the sea bass business did not bounce back is hoped with a year over year and sequential decline the second quarter in a row the strengthening dollar especially versus the pound sterling negatively impacted revenue by about one point five million dollars
spk_6: fuse accounted for twenty nine point three million dollars of service revenue and twenty nine point five million dollars total revenue service revenue from hughes was better than expected driven by higher retention on a whole use it better than expected in both revenue and costs and therefore was a creative sydney
spk_1: on gap operating income
spk_4: we committed to remaining non gap profitable post acquisition and so far so good
spk_6: we expect further cost savings opportunities as we continue to integrate use operations with our own but these will take time to achieve as we communicated at the time of the acquisition
spk_2: tom a are our with six hundred eighty eight million dollars a quarter then up twenty percent year over year as we stayed in our prior earnings cause we will not and breaking up fuse for me by a separately for a are are reporting a will continue to good visibility into fuse contribution to a revenue enterprise customers now account for fifty nine percent of total a are are and enterprise a are without up fifty four percent year by year
spk_6: the party with eighty percent of a are are and grew twenty two percent year over year
spk_9: a small business with down to twenty three percent of they are are in decline seven percent year over year
spk_6: our enterprise business is more the core tenets of our long term strategy to do to these customers wander commitments higher retention and better efficiency ratios a comment about the the segment declining seven percent year over year small business is non strategic for us because of the low efficiency metric and the absence of context attorneys
spk_1: we expect it will continue to shrink as a percentage of total a are
spk_10: i would like to call outs from investors we made a change the last quarter's number of enterprise customers lowering the total from thirteen hundred and twenty two twelve hundred and fifty eight
spk_6: when we integrated fused into the accordingly inadvertently included both considering and parent purchasing centers this has been corrected turning to expenses a reminder that all expense i did disclosed or non gaap unless otherwise noted service revenue gross margin came in at seventy three point four percent an increase of weren't fifty basis points from the first quarter fiscal twenty two and one hundred basis points sequentially driven by continued cause improvement programs which drove them unit costs and to a lesser extent lowers the pass revenue other revenue gross margin came in at minus thirty five point three percent for the quarter compared with negative ninety point six percent in the first quarter of twenty two and negative forty four point six percent in the fourth quarter of twenty two looking forward we hope to see improvement in other margin over time as we further integrate few overall first quarter gross margin was sixty eight point five percent up nearly six hundred basis points your be year and one hundred basis points sequentially
spk_11: the increase was driven by revenue growth a higher mix of service revenue and are gross margin improvement projects
spk_6: turning to first quarter operating expenses this is our second combined quarter with views and our first a quarter of expresses already that the fourteen point two percent of revenue getting closer to where he was there were several unusual one time items that increase operating income by three million dollars non gaap operating profit grew nearly six million dollars quarter over quarter to ten point one million dollars on a normal space with operating income would have been about seven point one million dollars still up nicely quarter on quarter and year on year without the benefit of the unusual items plus the full impact of employee annual base pay increases we expect a sequential increase in total expenses in the second quarter resulting a small smalling decrease in the operating margin on normalize bases consistent with our goal of driving financial leverage we expect to see improvements operating margin in the second half with the fiscal year and want to exit the year at five percent or better turning to the balance sheet total cash for for kickass investments and of the first quarter at approximately one hundred forty three million dollars to approximate one hundred forty eight million dollars last quarter and one or sixty two million dollars a year ago excluding restricted the balance was one hundred forty one point six million compared to what hundred thirty eight point seven million dollars last quarter or appeal was approximately seven hundred million dollars for the quarter down from seven or fifty million dollars in the fourth quarter to quarter on quarter declined was driven mainly by a small shortening of remaining contract ration given the market environment this is not a surprise cash from operations came across me five point eight million dollars for the quarter head of our expectations we continue to actively manage cash flow and watch closely and collections remains solid we expect to see a larger digital difference between operating income and cash from operations over the next be corps we had several use related items that would use some cash but will not be a non gap income statement recently received a number of questions about our five hundred million dollars in convertible notes to february twenty twenty four or eighteen months out we are now in the normal window for refinancing and as a non gaap profitable casual positive company we have multiple options to refinance we're going through the process of evaluating the alternative to arrive on a refinancing strategy that is best for all
spk_1: takeovers i remain confident we can refinance our debt this year
spk_6: last quarter we made the comment when we were shipping to greater emphasis on improving profitability and cash flow which was driving higher revenue growth we have continued to evaluate our mix of the sewing environment has become incrementally more cautious with see i chose and see if those being slower to make decisions we spent the court analyze the situation and believe it makes sense to continue to pivot to our profits plus growth strategy as such we are taking down revenue guidance for fiscal twenty three but raising our operating income guidance that the decline in revenue growth rate was driven by three major practice what we are moderating growth and sales and marketing investments to focus on improving efficiency and margins to the impact of the stronger dollar particularly the british pound to us dollar which is suppressing revenue and three continued witness and see pass as reminder we generally about one third of our revenue internationally we remain focused on improving gross margins but these to be variable quarter to quarter based on product mix for operating expenses we plan to sniffling slow the growth in sales and marketing spend and would like to see his exit fiscal twenty three between thirty eight thirty nine percent of revenue down from forty one percent two quarters ago we plan to focus our aren't the efforts on our cool product offerings and expect rd the percentage of revenue to remain at a range of thirteen to fifteen percent innovation and keeper any software company and bras the multi billion dollar market opportunity even more so we bleed continued investment and our customer focused product strategy as described by hunter with an emphasis on context and or functionality has good our ally lastly we but to see continue leverage and dna as a percentage of revenue as we fully integrate the fuse operations this sort of initiatives would like operating budget higher in the second half of twenty three and weeks but the a twenty three and operating margin about five percent this print are operating margin for the year to about four percent give or take that they've mentioned we think we can have more operating margin and fiscal twenty four next year to continued improvement and unity economics incremental savings and fusion in a integration presses and a poop sales efficiency while we expect the increased emphasis on probably cash flow that have an impact on our top one group near term it gives us more flexibility refinance er debt and for the options the drugs you will devalue the future with this in mind we're taking an account the recent performance of the see best business and fx we're establishing guy
spk_2: as for the second quarter of fiscal twenty three and september thirtieth twenty twenty two as follows
spk_1: with the subway service revenue to be in a range of one hundred seventy seven to one hundred eighty million dollars essentially flat with the first quarter representing approximately twenty four to twenty six percent year over year growth we expect you to service revenue contribution will be between twenty seven and twenty nine million dollars
spk_6: we anticipate total revenue to be in a rage at one hundred eighty five to one hundred eighty eight million dollars approximately twenty two to twenty four percent year over year growth we want uncertain visibility on the supply chain from ann arbor shipments of pronounce with other revenue to be flat to down slightly compared with first order we're talking and operating margin in the two and a half to three percent lynch for the quarter the since the sequential decline from approximately three point eight percent in two one on a normalized basis is primarily due to the annual pay increases implemented in june we're updating our guidance for fiscal twenty three ended march thirty first twenty twenty three as follows we anticipate service web merely be in range of seven hundred and twenty december twenty million dollars representing approximately twenty to twenty one percent year over year growth we expect that exit the school twenty three with service revenue growth in the mid to high single digits on a year view basis we anticipate total revenue to be in a range of seven hundred forty seven point five to seven hundred sixty two point five million dollars representing approximately seventeen and ninety percent year over year growth we are focused on improving operating margin overtime have a goal of exiting cisco twenty three over five percent for the fourth quarter and at least four percent for you in closing i bleed the increased focus on operating margin in cash flow are exactly the right strategy at that time i believe we need to continue to fund our investment on the we address a large market opportunity and the focus product strategy hunter outline leverages are unique advantages of a unified platform
spk_0: google productivity and leading teams integration as week them he's advantages and deliver superior or line where customers we reinforce are strong financial foundation and remain an agile organization and with that i'd like to turn it over when it
spk_12: thank you you will now begin the queue in a session if you would like to ask a question please press donner one on your telephone keypad and for any reason you would like to remove that question please press star followed by to again to ask a question that star one as a reminder of your user
spk_13: your home please remember to pick up your handset before asking your question will pause here briefly as questions are registered
spk_14: our first question comes from
spk_15: the t hundred ari with mizuho e t your line of they'll open hard pressure for didn't read question or just wanted to ask about dog your plan to reduce your guide and for the fiscal year you didn't talk about the do and demand in and bad or any kind of slow macro slowdown wondering what are you seeing them in a market right now
spk_2: or appreciate also watch trigger this lowering sales and marketing then
spk_6: in in after que en
spk_16: yeah i'm a man side are enterprise customers were not seen any material impact we have seen some impact on small business and are see pass customers we do have in a few cases customers perform performing additional due diligence and a some slight decline in average contract line them
spk_17: may reflect some caution but it's not a clear sign that overall not not a major signals coming from our enterprise business
spk_15: i don't think the second part of that were moderating our sales and marketing spending growth as he gets is driven by the fact that we are continuing to focus on sales efficiency and are oh i see him you know we were be careful that we continue to to drive up the are oh i see lyceum also setting the stage for debt refinancing later in the year so adding just all those things combined to make it to be moderate are so
spk_2: the marketing growth a little bit this year okay and then of could fall of to microsoft games where do you see more of you know the competition at this point where do the microsoft teams telephony are offering what it is and what microsoft started yeah how do you planning to compete in on next few years ah with they're offering a sicilian a pricing is so complicated
spk_18: yeah on microsoft teams there is a platform approach to in able to laugh any into microsoft teams both through direct and act and operator can and an additional calling plans we really see direct connect operator connected
spk_19: the big opportunities were a top player and drag and act and were you know we've added over a couple hundred thousand users there are we see that as a big opportunity of make that even significantly larger that's why we launched the elevate program
spk_12: focused on microsoft partners and are ex t skew that will fit nicely into the team's offering and so are in our i'd like to see us turnips those users over over the next couple years
spk_0: great thank you
spk_20: thank you
spk_2: our next question comes from while mcwilliams with barclays ryan your line is now open for pregnant the question i'm just follow up on the microsoft inside another fifty thousand feet added to a bite with your team are you single success here and up selling clough contacts enter into the microsoft opportunities never seen good success with the x cats which is both you know contact center and you see and that's a specialty of our platform with the x t skewed as fit into iraq series as well as are you know x x one and ex to annex three scuse so those are all you see scuse we sell x x x acceptance sometimes eight or contacts and as scuse and those diesel nicely we did see as cass
spk_21: they are our continued to grow over forty percent your urine and thirty five percent of our install base so it's a it's a creating share within our business and the ghost the to push that up until majority of our busy
spk_20: excellent and sam to from the guide i guess how do you think about i were a conservatism is here like and then and next corner
spk_2: or more toward in this year from the top one perspective discuss now if i am like one eighty nine to reach quarter that kind of gets to the midpoint of your guide but then you'd accept the year kind of been single digits revenue growth so is it more near term more toward him the sheer and an amputee you just double click on you know what your thoughts around maybe some much sea passed traffic coming back what the our local look like they're appreciate that
spk_4: right so in terms of conservatism or or just visibility i guess i'll just use a more generic term mean like all company we have more visibility the quarter raid and then it in a progressive the over time the visibility gets less and we'd actually get more conservative we bottoms up forecast and so that's what drives that and we did further risk to see past mod
spk_2: oh because it was down quarter on quarter so incrementally up epithet a little worse and and as everyone knows we sort of take the exit run media business and run it flat in perpetuity and then that kind of how we think about it for those customers and we layer and new customers on top of that and so
spk_22: i would say definitely more conservative i think i did say in my script
spk_23: they exit the year kind of mid to high single digit growth are you know once we lap the the fuse numbers
spk_24: and then it just in general your question on see pass ah i would say incrementally environments got a little harder don't know exactly what's macroeconomic are just specific customer things etc i was hardest us tell him usage based business we're not seeing says here to more customers go to zero side of the traffic's moving just less total ass
spk_12: during a traffic
spk_0: personally i guess thank you explicitly
spk_25: i'm next question comes from latham marcel with morgan stanley
spk_9: never your line is now open he great length and a couple of questions in and sam when you can mention that made to high single digit services got my as the names of all twenty three you know how do you think that that compared to the allow market growth and and you'll be kind of sustaining share at those growth wage and then on the sec
spk_6: a question you know just is you and and get focus on operational efficiency and in it's some get a little bit more conservative or your spend on sales and marketing know what why opportunity to thank you for going into that they've decided he the that intact the enterprise on smb that are thanks or up of the both of these and like dave time and so on the mid to high
spk_8: and remember you know what were the bit of a transition here right so we've talked about this in the past these are small businesses coming down at a headwind war enterprise is growing relatively quickly and the quality we believe a were over a our our pool is improving and so we would expect
spk_6: that we be you know exit the year with a higher growth rate enterprise and than offset by you know a slow growth rate addicting if we have that means in a small business businesses relative to the market with the last industry numbers i saw the market overall is on the you see side is growing at around ten percent plus minus so i think plus minus were in that ballpark adding run fast against your on the at a price i distinctly relative to the odd from vendors and on the small business side worth less strategic and it's got a host of other issues you know we we may be just treading water and that general area of in terms of improving efficiency and going some things i think you'll look at think it's a great question met think it's a constant conversation we're having
spk_25: i think sometimes you have to forego some opportunities to invest in new opportunities what you see very clearly in the weather prime reasons we wanted hunter on the call this time was the place we are really pushing the envelope is innovation
spk_26: so if you think about it we've now increased are already spending to fourteen to fifteen percent which is what we talked about in our immediate and long term model we wanted to be at so where we are pushing his on the innovation side to fun than image or meet our corporate financial objectives were pulling back a little on sales and marketing once we get through that
spk_12: aren't you cycle will look to reinvest in sales and marketing the right now i think the place to invest is definitely and in innovation and you see that coming to on the financial model
spk_0: straight thank you so much
spk_27: thank you our next question comes from matt ryan with eat he i t matt airline is now open
spk_6: a good afternoon iran thanks for taking the question i guess can you give us an update on where we're at with the used integration in terms of not just migrating customers to the overall extras platform but also what you're seeing in terms of attach rates and up sell on the contact center then i highlighted that at the big opportunity which caused the deal thanks
spk_28: right so mad then fleet at bp i g i'll take that part of the equation
spk_6: right to look i would say terms of the back office operations were effectively integrate it with views you can't really tell the difference and and i would lump of our dlc the set separate case and a punter you want throw a few words and please do but your terms of of views in rd were fully integrated now you can't tell the few teams from the non jews teams and in were that have you added i think that's exactly right sam we fully integrated development teams were working on a single road map
spk_4: the innovation is focused on a single platform going forward so that integration has gone really smoothly we're really excited about the team that has come on board and everybody's work and great together
spk_6: migration and cross sell you know we've always sort of hinted at this is a fiscal twenty four type of initiative and so we still think that it may remember the average yeah we've only had this company six months gaborik cell cycle is is a year generally for that type of stuff and so we're focusing on that and also it takes time to get the the automation other things and we're not put
spk_27: xing fuse customers to migrate will get their over time right now we want them to get comfortable with us we want to be comfortable through the transaction
spk_2: and if you notice just point blank the pews revenue numbers have actually been substantially better than we've and hoped for and i think our strategy is really showing through in the numbers of of really trying the baby these customers keep them engaged keep in front of them and not push them to aggressively will get there and get them migrated over you know
spk_27: really starting next year as we make it super easy for them etc the cross selling activities are occurring rubbing think that webinars marketing campaigns lot of interest from the fuse base that's just going through in our normal cell cycle
spk_2: or variable and then as you ramp up your the the channel to help further sell into the teams in the broader my shop ecosystem i actually think about the contribution raid the profitability of the elevate program relative to their you more traditional partnership said and channel partnerships selling eggs cas it over there any meaningful difference there can the volumes of the teams organization often upset in a little bit lower price than
spk_27: yeah i think economically that the volumes are a significant in that market and the elevate program is focused on people that have traditionally be and microsoft a result hours and not necessarily tell you now cloud to lessen a result hours so it's bringing all
spk_26: an incremental group into the fold and as far as how we go to market as you're right it's it's higher volumes and that category with seems add ons and we make it up through a dish and all contacts and ourselves into that that and saul bass and
spk_0: our x selling so overall when you look at the revenue per account it's very it's large larger than average and am creates that opportunity for the partners as well as our sellers or great thank you
spk_27: thank you
spk_29: our next question comes from peter levine with of car
spk_6: peter your line is now open breathing kuper take my questions your local banks with i'll run the convert you don't be sent you come to talk through what somebody option are the table that you have known how you thinking about it and then choose to confirm ah you probably convert to convert before becomes the current liability what is that guy
spk_30: and of bomb that i would you think about it
spk_8: well i did say this year so i you can take it as calendar fiscal whichever one suit my needs in the moment
spk_6: but you know this year will we'll we'll get it take care of and in it would become a current liability it with it the into this fiscal year and yes i would ya objective to to to do that in terms of options we've got term loan capabilities we've got exchange capabilities with got equity capabilities i mean it's pretty amazing at how much how many different options there are i mean twenty years ago when i first was for some the street for company like got to the equity and equity own
spk_31: lee and now literally there is a broad range of options from traditional banks alternative lenders
spk_6: sovereign funds have approached us we've talked to literally a host of different opportunities each
spk_2: you know a certain pluses and minuses and we're trying to way through all those options and come together with the complete package it's literally best for all of our stakeholders
spk_6: and then just the final one here is how much of the guy down is is related to he passed if you can break it alex he passed reasons that that person kind of like the macro environment and then that is your how much of an effort and when you think there is for the remainder of your thanks i mean so if you take a look at the twenty to twenty five million that of kind of you know service side and twenty five to thirty i would say your number one is is maybe a third fx a third see pass and a third you see see see for application cave when you mix it all together
spk_32: and you know i look far be it for me to use the word macro we're a small fish in a big pond i'm never sure i'm like a willing to buy all those other things but i would say
spk_26: that's that's really the way to think about it and then delivery i would add is on the you see pisa inside look we're trying to be really concerted with a small business these that's where we expected we continued expect the enterprise side will grow that's where our money is going that's where strategic initiatives are going etc
spk_12: it's really were trying to be more cautious given the environment into maybe that's for you it's a macro is on the small business i'd just you know it it's gotten incrementally tough from that side of the house
spk_0: the that's of the color thank you
spk_2: our next question comes from
spk_33: james breen with william blair
spk_2: james your line is now open thirty second question can you talk a little bit about the channel and yeah he changes you may have seen their or whether it's a slowdown in central did cetera medicine pricing dynamics thanks yeah we we brought in new leadership on the channel but the being a year lisa barry allen that team is performing very well the we've also gone into the channel with improved how we deal with escalations customer sport elements and have improved our reputation in the town and continue to do that
spk_33: and as you know the channels been grown quite nicely i think and groin at seventy percent year over year so we're having success in that market and i'd love these specialized programs that were doing now with
spk_24: elevate and some other programs that were doing in the market at least as bringing the bear so overall i think we're improving our traction and your seen it in the numbers
spk_0: right i think there's a lot more opportunity there force
spk_34: great thanks
spk_14: thank you
spk_4: our next question comes from
spk_35: hammer on with oppenheimer
spk_2: can you line is now open that guy on elevate i'm just describe what your competitors are doing there may be for headed of the competition you are at this point and i we can have a relatively new channel partnership with really probably prefer to use you guys at this point and maybe even microsoft themselves or you know of others just a little bit more hello our around that would be great yeah and the the channel itself doesn't really make much money selling microsoft and so the opportunity for them is really get into the higher level services such as cloud to love funny and and contact center and the the things we're doing too
spk_25: make our product fit well stuff that hundred team is is doing with our ecstasy skew ah
spk_6: create a nice alignment and now going after these incremental or sellers that of curiously not been able to sell those higher are not focused on those higher value services like hard to love funny and contact center bringing those into the fold and teaching them how to sell that category and get that and crumbs panel yeah economics is a huge win for the gym
spk_30: i'm a thanks arm and maybe just keep talking little bit of how much free cash flow you thinking generate you know next year all goes well have you any call around that thanks
spk_36: next you'll be fickle twenty four downhill
spk_24: are you
spk_0: i'd like to see us speed generating
spk_4: he was in thirty and forty million but that's an off the cuff guess it's not guidance put some other se si words around it
spk_6: but that's it off the cuff guess on on you know plus minus and if a game a couple hours of probably more refined number very good thanks guys
spk_37: thank you
spk_38: our next question comes from l power with fared well your line is now open
spk_4: hey thanks for taking the question is is charlie early for for will add a question on gross margin sam their the come and strong and just wanted to ask you know what the expectation does the next quarter on the remainder the it
spk_39: next quarter i would think flat to down with slightly down keep yelling a me not not a big down just flat a slightly down
spk_12: what quarter we kept the moving pieces in there and then on for the year look we would lot of programs that away we like to continue see gross margins trend up looked at the rate of increase will slow down the wild card being the sea bass business obviously with the sea bass business be a little weaker that improves gross margins of see that that bounces back you'll see some
spk_40: gross margin
spk_0: dilution from that
spk_41: that over over multiple cores the once you trending higher
spk_6: they are things you saying the question thank you our next question comes from
spk_41: george sutton with crag hallam
spk_42: george your line is now open
spk_4: thank you i eventually shortening a particular just one of the key to go into a little more detail on where you're seeing that shortening i it's a great question george i didn't look at it
spk_43: in that detail i looked at the over are pure pool and to the our poodle pool we saw like a month wanted to have declined quarter on quarter i interest to the overall pools are cool duration
spk_19: id brca i could guess that they will probably see a more on his mother's side of that is generally where we see slightly weaker bridges trends the enterprise sites that were made relatively solid strong whatever where do i use their
spk_0: a quick question for hundred you mentioned that output was increased by twenty five percent i wasn't sure what you referring to being up twenty five percent could you just clarify that ah
spk_27: we what we track every every quarter of the number of projects that we initiate incomplete and our overall project completion were up by twenty five percent now i'm in we do we have a lot of projects across our in detail of our size of are relying something on you know at law of averages there but essentially were getting
spk_21: getting a significant higher throughput in terms of projects the politically
spk_27: that's it thanks this
spk_44: thank you
spk_8: our next question comes from michael funk with bank of america
spk_6: michael your line is now open
spk_2: i do days them under attack you could be a presentation he had in commentary what what for see on to begin to i could see him as a balance between that the gene to equity vs attack older show you know how how much of the guidance and then decision brownfield and marketing and reality is geared towards the on the deck market and expected reply
spk_6: versus your view on bob near term market opportunity look our view on radically differently i mean i i would say what we do see is that more more are equity holders are pushing us to become more profitable and you know potentially trim back low are oh i see projects given that the change in the overall market environment that were in and and a little more certain be in their growth profile the company and so i don't think that there is a a different message or a different push between the two of them men in the end you know this kind of castle model works both the same ways i would say that we wanna make sure that if we do do had depending on how we do the equity we have started the debt refinancing we want to make sure that we maintain cash profitability post any refinancing and so there is some you know making sure that we're prepared for that also i understand that you for that meant one more high carbon filter marking efficiency comment note the clarify number different way to think about that you know dollar or sales marketing you know obviously you know return and profitability of those sales and marketing dollars are we talking more about return and profitability so shifting it way from product nigger becoming less profitable lower return more toward innovation or that to simply ah you know revenue dollars per sales and marketing or sales per salesperson
spk_2: because i would say it's a great question and definitely what i'd love to talk about at length and i'll try to give you a shorter answer knowing that there is a peep long answer that sits behind this
spk_45: where we don't get a bag ways we certainly look at the core change in a are or change and service revenue divided by sales marketing spending those that to metrics we also look at change bookings and in those kinds of things relative to sales and marketing
spk_0: but also if you take a step back there's a bigger picture here
spk_46: right now we see more and more enterprises wanting to make the move to cloud receive benefiting our numbers we see that industry trends you know that was the i'm starting to break through and to meet those enterprise customers we it makes sense to spend more on are indeed and continue to innovate are proud a to me that market need and so when you get those enterprise customers obviously they have lower business mortality risk better ltd to cac ratios and all those kinds of things also so the more we can innovate the more we great product differentiation the more we can bland enterprise customers the better ourselves efficiency numbers will be now
spk_27: naturally and then on top of that we are we continuing to focus on making sure that we put incremental sales and marketing spending in the areas of higher efficiency
spk_6: right that pakistan to the clash and saturday that counter
spk_2: thank you our final question comes from ryan koontz with need him and company brian your line is now open critics the question
spk_6: or good targets more color on the seat has decline arm is driven by cost cost me respective price increases with your customer says driving lower volumes or these like last deals to alternate communication channels and then secondly in it for transparency anyway give us the organic a our growth without shoes that cute
spk_2: and other the second part of mother the prefer yeah
spk_47: the you know we talked about there were some a large accounts that reduce their marketing programs that were going over our a pie
spk_48: communication a the eyes and those customers have not come back what we're working on is getting better are oh i see for them and those marketing campaigns add three lower costs additionally we continue to add customers but we see overall usage down at a bed at the you
spk_45: judge based business so we don't have the level of predictability that we do in our standard you see see see business
spk_0: and i believe on the a are are other go and so we don't break out a are by fuse any by a we give you the revenue numbers which you can extrapolate how you'd see fit the degrees we don't is because we now have customers migrating and so you get into this conversation of she had the money by side of the few side or were the case may be an so we just have to give it a revenue numbers for that clean easy the to go through in we don't have the anything i would say we think about segments the big thing for us is that are are enterprise they are are continues to grow you know very healthy as we mentioned x gas which you can sort of thing is a euphemism for enterprises with things over forty percent year a year enterprise
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