Q4 2021 8x8 Inc Earnings Call
Good day.
Welcome to the 8-K, eight Inc, fourth quarter and full year fiscal 2020 conference call.
All participants will be in listen only mode.
Should you need assistance. Please signal of the conference specialist by pressing the star key followed by zero.
Yeah.
After today's presentation there'll be an opportunity to ask the question.
You asked the question you May Press Star then one on your touch time zone.
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.
Thank you good afternoon, and welcome to eight by eight.
Fourth quarter and full year fiscal 2021 earnings conference call.
Today's agenda well on critical review of our fourth quarter results with the Dave Sipes, Chief Executive Officer, and Sam Wilson, Chief Financial Officer.
Following our earnings discussion, David Sam will share of greater detail on eight by eight strategic priorities for fiscal 'twenty, two 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 eight five future financial performance as well as the business product and growth strategies, including the impact of COVID-19 pandemic.
We caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward looking statements as described in our risk factors and 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 your of your comparisons in some cases were not prepared in of coordinates with U S. Generally accepted accounting principles or GAAP of.
A reconciliation of those non-GAAP measures to the closest comparable GAAP measures is provided in our earnings press release and with earnings presentation slides, which are available on a price investor relations website at investors Dot eight X eight dot com.
Additionally, we posted a set of presentation slides, we will refer to when discussing our strategic priorities titled The business review during today's call. We will introduce fiscal 'twenty two guidance and our long term financial framework vs. Accompanying slides will be added to both presentations slides and we posted on the investor relation.
On the website following the conclusion of the call and with that I will now turn the call over to Dave.
Thank you Victoria Good afternoon, everyone and thank you for joining us today on our fourth quarter results exceeded expectations with both service revenue and total revenue of growing above the high end of our guidance range at 19% year over year.
Key drivers of growth were strong demand for our integrated Ucas and free cash offering continued our market focus on enterprise and channel execution, we are driving operational excellence throughout the organization and culture that is committed to a P. P. T minds that customer first product first thing first.
We strengthened our cash position and improved operating efficiency of becoming non-GAAP pre tax profitable on the fourth quarter.
And ahead of schedule.
And we crossed an important milestone and have surpassed $500 million and IRR.
Now, let me turn to the business highlights from the quarter, Let me begin with our channel for strategy and up market focus which delivered strong results. We had a record quarter of market with over 760 customers with greater than 100000, an IRR of 25% increase year over year double clicking on the customers.
That over 1 million, an IRR grew over 70% year over year and contributed to enterprise the AOR growth of 49% year over year.
We ended the total fiscal year with a record number of seven figure and the figure GCB deal versus the prior year and these grew in average total contract value more than 60% year over year. These results reflect strong execution across the global sales marketing and channel teams and control.
That's our largest quarter of the new deal registrations and pipeline.
Also we formed a new strategic bar of partnership with the Westcott, a global technology distributor. The partnership will enable left on to offer AIA you cast of free cash to their enterprise customers across the United Kingdom and Ireland.
Our integrated you cast in free cash platform is the unique differentiator in the market and we're seeing continuing success in the upmarket.
Bundle of the contact center and communications were very strong driving nine out of our top 10 deals and 75% above market bookings that were $12000 or more and they are.
Hey here are from Commvault customers.
That is customers, who have purchased UC and cc represents over 30% of total company a R. R.
Additionally for the third quarter in a row commvault customer IRR of grew at twice the rate of market growth.
All of our seven figure of TCE bills on the quarter, we're integrated Ucas and <unk> offerings and this illustrates the importance of having a single vendor for all integrated cloud communications needs.
Second <unk>.
Turning to customer wins, new logo on this 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 free test offerings continue to lead the way with notable wins, including the H pace of U S provider of dock and door related products selected <unk> integrated the Katherine you cast product to bring all services under a single vendor.
The H pace can now provide over 2000 employees with communications collaboration and engagement capabilities to enhance customer experience.
And the other eight by integrated you can see cash product line this quarter as data bank, a leading provider of enterprise class Colocation connectivity of managed services. They chose the eight by eight to streamline and standardize the technology usage and provide more than 700 employees with enhanced connectivity and customer engagement capabilities.
In addition, we're seeing the Standalone contact center interest from up market customers.
The Great example is one of the world's leading reinsurers. They selected eight by eight the task for 500 contact center agents in the U S. Due to the AI enhanced functionality, including advanced business insights speech analytics quality management.
Other innovative features the pub.
<unk> sector continues to drive growth globally building on strong momentum among municipal governments on the U K and the participation of new U S States and our NAV value point cloud solutions contract West.
Western Downs Regional Council, one of the top 20 largest counsels in Queensland, Australia chose the API integrated Ucas and free cash product. The centralized previously disparate systems and information by moving communications to the cloud for 400 employees. The public sector organization has the agility.
The work remotely without impacting customer or employee experience.
NHS public health, Scotland, which provide support to the 14 regional NHS health boards further expanded API integrated Ucas and free cash product to now support over 3500 employees their communication needs were critical to managing.
Vaccination help line and booking services for Scotland's COVID-19 response, and they buy a rapidly moving them to the cloud.
Yeah.
Slide government agencies on the U S are recognizing the need for an integrated cloud contact center and communications.
State of Washington recently joined Alaska is the second day to offer statewide participation.
And access to the API mass flow Valuepoint cloud solutions contracts, making it easy for sled agencies, the purchase cloud Ucas and free cash directly from eight by eight or eight by channel partners.
Additionally, we continue to see existing customers adopt more API services, creating a land and expand opportunity that will fuel future growth.
Okay, Great land and expand example of this quarter is BCA and operator of more than 1000 veterinary hospitals in the U S. VCA partnership with ebay continues to grow now, adding eight by eight free cash to the API your cash deployment to meet their diverse business needs by.
By adding contact center, including call Center overflow of management capabilities VCA is providing its 28000 employees with enhanced engagement capabilities.
Black country Healthcare NHS Foundation Trust provides mental health learning disability and community health care services for four Metropolitan Burrows.
With the UK public sector organizations selected API integrated Ucas, and see cast product to enhance the patient support and communication capabilities for more than 3000 employees.
Good afternoon Council is the local authority, providing essential community service the for more than 270000 residents in the liver call City region.
Following the original deployment of free cash in 2020. The council is now deploying services that include new cash and secure pay PCI Pal. These will allow council of 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 a buy a contact center for Microsoft teams.
We are the first vendor in the Gartner <unk> Magic quadrant Chairman of Microsoft teams certified cloud contact Center solution.
We recently launched new API poised for Microsoft teams Act to further extend the team's experience for users by adding new SMS MMS and <unk> capabilities.
Customers appreciate our superior call quality, Microsoft certified contact center integration and additional capabilities, we provide to enhance the team has experience.
As examples being on Torrey of premium spirits later with the world renowned Bourbon whiskey single malt Scotches tequila and cardiac with brands such as Jim beam added more than 2500, <unk> you Kathy integrated with AI voice for Microsoft teams to support their hybrid work force.
Across the globe.
A quick implementation of continuous product innovation are widely inventory continues to grow with the international communications with API.
Hi, Bryan Air a Hyperscale data center solutions manufacturer turned to API, you cash with AI voice for Microsoft teams to ensure dependable global communications for offices in Canada, The U S and Europe.
Skyline are chosen by its direct routing capabilities provide nearly 400 employees the peer.
<unk> Global voice communications from any teams endpoint.
The past portfolio of API and embedded applications, including SMS chat apps voice video and performance monitoring empowers the organizations to extend and customize communications that re imagine workflows and customer interactions for enhanced employee customer experiences.
Our API offerings are also driving new customer acquisition.
And then example of free pass augmentation for contact Center Omni channel with Dnb Veterinary Center, a 24 seven provider of emergency on specialty veterinary services throughout Canada.
They selected <unk> because of our contact center solution.
And intelligence features together with the pass capabilities will enhance contact center call flow analytics and reported.
Our SMS API will be used to notify customers, who do not want to stay on hold to initiate the chat interaction.
An additional purchase consideration was the fact that our contact center solution as Microsoft certified Fourteens.
Another C pass win with K vision, one of the largest television networks and the.
In Asia, who selected the API the path to provide to a customer service communication with.
With the API chat apps API K vision is enabling customers to use whatsapp to interact with support and service teams for quick and seamless customer support.
Importantly, we placed the premium on innovation in Q4, we introduced the industry's first integrated cloud phone and contact center solution that supports the communications on customer engagement requirement of multinationals operating offices in China in partnership with China Mobile International.
We announced a body of work for web, which allows users to securely communicate collaborate and engaged across almost any device and operating system. The an everyday browser without software downloads or plug ins.
We customized video meeting backgrounds, enabling parts of span the black and.
The image or blur the background during meetings per maximum privacy control.
And we launched the industry's only financially backed platform wide.
409, SLA across an integrated cloud, new cash and free cash solution.
Finally, we continue to receive industry recognition we were.
Recently recognized as the leader in the IDC marketplace worldwide Ucas service providers for enterprise and the F&B 2021 vendor assessment.
We were also named a major player in the IDC <unk> worldwide the past service providers report.
And we were awarded a five star rating by the RN and it's 2021 partner program Guide.
Summarize fiscal 2021 with a milestone year from which we will leverage the solid foundation, we have laid with the integrated contact center and communications.
We are well positioned to further extend our leadership position with our CPG culture integrated platform advantage and future growth drivers I will speak more about this on a few minutes, but let me now turn the call over to Sam to cover the financial results.
Thanks, Dave and good afternoon. We appreciate you joining us as we reported fourth quarter and full year financial results. We're pleased to have delivered results that exceeded guidance improved operating leverage and achieve profitability one quarter earlier than expected overall.
Overall results were driven by better than expected performance from new cash see cash C pass and the integrated offerings total revenue for the quarter was $144 $7 million on increase of 19% year over year and above our $138 $5 million to $145 million guidance, both service and other revenue.
Better than expected looking at service revenue, we generated $133 $8 million, an increase of 19% year over year and above the 138 to 131.8 million dollar guidance total <unk> was $518 million at quarter end on increase of 22% year over year.
Our continued movement up market 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.
Non-GAAP service margin increased 120 basis points over the prior quarter to 67, 2% non.
Non-GAAP other margin came in at minus $12 five per cent for the quarter of large improvement from the minus 58% a year ago and sequentially improved from minus 25, 6%.
The drivers were continued growth in our professional services and the flex hardware rental program.
Turning to fourth quarter non-GAAP operating expenses, we continue a line the business to drive both improved execution and efficiency.
Total non-GAAP operating expenses were <unk> 61 per cent of revenue with sequential growth in both sales and marketing and R&D.
Now that we of 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 $70000 and positive non-GAAP operating profit. This is better than our non-GAAP pretax guidance for an $800000 loss share.
Turning to the balance sheet total cash and investments excluding restricted cash was $152 $9 million. This was an increase of $4 million quarter over quarter, partially driven by several one time items, the largest being $6 4 million dollar operating cash inflow from the lease assignment relate.
To our prior office location.
We are pleased to be growing cash on our balance sheet quarter over quarter I am proud to report the 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 the service delivery both helped grow cash for.
For the fourth quarter, our <unk> 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 the obligations with terms of 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. All of then circle back with first quarter and full year 2022 guidance and commentary about our long term financial framework Dave.
Thank you Sam we AIA.
The reported strong results today and cross a very significant milestone of half of $1 billion in IRR, an impressive feat not many fast companies of ever achieved.
Now is the time to look forward and set our sights higher as we build the path to a billion dollar plus business and join even more rarefied air in a very select group of SaaS companies.
What has gotten us to a half a billion won't device alone to get us to our next milestone we will 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 coordinating the attack initiatives as well as the emphasizing the culture of putting the customer first the.
The excitement and energy internally as 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 $1 billion SaaS business.
I came to ebay as an industry veteran because I can see the tremendous potential and the huge market demand for API its unique offering in the companys potential to capitalize on the through greater focus execution and profit in the 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 is the only accelerated with work from home on work from anywhere of becoming the norm.
Second.
<unk> has a differentiated cloud technology stack, which has been consistently recognized and is the key reason I came here.
Third having the integrated communications platform is resonating of key buyers as witnessed by our top wins in this quarter.
And fourth we are capitalizing on this market opportunity by reaching customers through multiple routes to market and enabling partners with profitability and how they choose to go to market the.
These combined with operational improvements we are enacting provide a path to building of $1 billion 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 the 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 Ucas the task in the past all segments compete than today.
Pulling that down one layer of the Ucas and free cash Subsegment makeup $60 billion of those market areas, where API 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 of approximately 25% of that market prefers a single vendor solution across the ucas and free cash.
An area, where limited solutions exist today and API is consistently recognized as the leader. This is aided by the sweet spot within the huge cloud communications market on which we compete.
And obvious area to apply greater focus execution and operational rigor.
Why is this market is so large the market is the sizeable because it leaders have an immense challenge of delivering effective solutions for an evolving and increasingly more complicated workforce needs.
Let's look at the issue.
Yeah.
Getting of 360 degree view of your customer has been a longtime mantra as it makes the organizations more effective by leveraging the power of information what is that 360 view be great not only for customer communications with the also employee communication.
The megatrends are making this harder they're working against the the rise of texting social other digital communication mediums and fragment of communications away from a voice only world. Additionally.
Additionally, multiple device on work from multiple locations operate from anywhere of World has further increased the challenge to get of 360 degree view of both employees and customers.
Makes the challenging task for the I T 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 on one application of empowering employee communications on.
On the right side of the customer experience of cloud contact center, but the inbound digital on outbound.
But they have broken the link between the two.
The historical enterprise wide communications tools provided for our employees today.
Today, one cloud tool no longer provides the bridge for all employees and this is not ideal.
It used to be on legacy solution and it put undue burden on the organization to support multiple disparate solutions. The bell so spread of information quickly and effectively throughout an organization.
The ramifications are significant as customer communications are siloed large organizations.
All of these talk to its customers through its lowest paid employees on the contact center, making it difficult to be responsive to changing customer needs.
<unk> core X series offering brings the two experiences together and this is where our strategy really comes together.
X series by Hey, Bryan brings employee experience and customer experience together a free.
Reis information out of the call center unleashes the ability to create great customer experiences.
And does this with the X integrated solutions by building upon a common platform.
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.
Move on implementation time and are cheaper to maintain across the enterprise.
Furthermore, with the addition of fee path the user experience can be further customized, especially on the contact center with more robust omnichannel possibilities.
One platform powering personalized and user name is what's required to enable all employees throughout the organization. If you look at the right on the start we see different end user apps, which access the single a bite platform provides specialized.
The.
Across the different personas, we have the <unk> work App, which brings the core employee experience across the organization.
And Thats delivered in three different ways provided as the desktop app, our mobile app or web browser Apple jewishness across almost any device our operating system.
Additionally, we have API reception is for high volume of specialized functions within the enterprise organization.
And <unk> contact center for agents.
And what is also critical is that we're enabling third party apps for other employee use cases, such as Microsoft teams.
<unk> force and Google at work.
A great example of why this is important as halfords of British retailer of car parts campaign churn on equipment have 450 retail stores 300 auto centers 10000 employees. They wanted to replace an on Prem system. They use API you cast on free cash.
And across 10000 employees have 3500, using Microsoft teams are very in the.
The white collar back office and the frontline workers, who are using <unk> and then the contact center, they're using sales force only with one real time communication platform.
<unk> enables different apps can you empower of the entire workforce of an organization today.
Additionally, a bit's the recognized leader in this area Hey, Bryan is.
Is consistently recognized as nice.
The nine times of unified Communications of the service leader and six times contact center as a service challenger in the Gartner Magic quadrant.
Only and we're the only Gartner unified communications on the 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 <unk> and free cash in the market today.
I often get asked what can and integrated the U cast on free cash system provide the cannot be achieved with the two vendor solution.
There's many things.
You can see the ear on the chart, but first.
One we can guarantee of high availability of superior quality on a global basis, there's no finger pointing and no gaps for example.
<unk> is an industry, leading <unk> platform wide at the way.
Just can't be promise credibly on any two vendor scenario.
Second the ability for company wide collaboration not just back office workers, but integrating across an organization of frontline workers contact on a receptionist and other personas and.
An example of this as we are.
Of our car.
Car insurance company that uses a buy for you cast on C cast the improved and office customer experience by adding video as a service enabled kiosks that allowed clients waiting on a local office to instead interact with video with the agents available of the other offices to resolve issues faster because of the way the IND.
Permissions flowing faster throughout the organization.
The third areas of unified admin capability of that can't be done through a combination of best of breed solutions, just give us the single source for license management mix of match user types.
Okay on glass for monitoring.
Fourth is extensible integrations that allow you to have just one integration with your core applications.
The CRM collaboration of endpoints.
Or productivity endpoints like Microsoft teams.
Lastly, the ability to bring analytics and AI across the entire organization with real time reporting three channel eggs across the whole organization all of these capabilities make it possible to deliver a unified employee customer experience.
Companies can rely on to exceed their own customer and employee expectations.
And remember this is the way it used to be before of the cloud and now the caused just catching up.
Okay.
And so how do we reach this integrated it buyer, we let them buy the way they want to the routes they want and we reach them.
Are there at on the horizontal axis of the bottom you see different business sizes of small business on the last day of enterprises on the right. We reached the smallest of organizations through E. Commerce investments that have been made in the past in the last redirect future investments of course to our core strategic market of mid market enterprise buyers.
And where do we reach the mid market customers or reach through our inside sales and channel relationships and for largest customers. Our field sales organization works with our channel partners on strategic alliances.
Half of our top 10 deals in Q4 were brought to us by channel partners. So obviously this mix of important.
Our X integrated you cast on CCAR solution solves the unique needs and the numbers show. It represented over 30% of total <unk> in Q4 and is growing at twice the market growth rate.
Additionally, if you look on the right we find the buyers by our integrated you Katherine free cash product, they stay with us longer and have better upsell potential with 33% lower churn and lastly, the contributed 80% of top deals throughout last year and contributed to nine of the top 10.
Bill in Q4.
Greater focus on execution against the segment is the key to lifting the overall growth and effectiveness of ourselves on marketing efforts.
Go on to the key things, we're doing the increased focus on execution to grow our X the integrated solution faster the firm.
First let me address refinements in our past strategy.
The path is a small portion of business today, but the operates on a quickly growing and attractive category to drive success on C pass we will focus on three initiatives.
First we will build upon our regional advantage in southeast Asia, where we experienced the competitive advantage and carrier coverage and quality of service through superior message right deliverability.
We'll stand and densify, our already significant Bell's president as represented on the slide.
Second we will pursue selective contact center omni channel attach opportunities globally as damaged stated by the win we announced today with DNV Veterinary centre in Canada, which is utilizing API fee past Fms. In addition to a buy of contact center for digital customer interactions.
Lastly, we'll wind down our unprofitable wholesale <unk> business, the business of selling messaging and connectivity to carriers, a little to no margin and redirect those resources and focus on our enterprise the past business and that's the integrated solutions.
Sam will cover the top line impact of winding down the $15 million business, but as of the smart thing to do as it will create greater focus and success in our enterprise day pass business without sacrificing any profit on gross margin for the company.
The greater focus we're applying to our C pass 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 in out years.
Taking all of this together our focus on fiscal 2022.
Centers around the four strategic pillars.
First we are working aggressively to expand our platform advantage, specifically the intersection of Ucas and fee cash 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 new cast of the cash.
Second we will make a buy 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 the develop of 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 depending on a base of $1 8 million paid U business users.
We have of leading enterprise grade <unk> product in the leading integrated ucas on free cash product, we should never lose the customer to the 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 re prioritize and reorganized some of I started to focus on the strategic integrated ucas, the cash buyers needs.
Furthermore, over the next 18 months will Forex, our contact center of investment without sacrificing our commitment to profitable growth.
Of course swim lanes of being created and responsible in the visuals of fine the key areas that will generate enterprise, leading free cash and ucas features and maximize the intersection of on the platform.
And on.
Platform capabilities enables us to more efficiently leverage and already the all sizable R&D team and patent of allowing us to compete more effectively against the largest single product competitors.
Results are already bearing fruit as today, we announced an industry first of enabling mainland China offices of multinational organizations in connection with our partnership with China Mobile International we're able to add mainland China Charter Global reach program. The Springs are global reach program to over 43 countries.
You have of China office, and you want them on your core corporate communications platform.
That's your answer.
As part of our GTS sales motions, we will leverage partners to win together and create a world class global partner experience.
Routes to market represented 40% of total IRR and grew 38% year over year on the fourth quarter between our var and agent network. We now of over 6000 channel partners across the globe and of dedicated AIA channel team working together.
For the coming quarters, we will reeducate. These partners on our integrated you cast in free cash positioning and ongoing investments.
Additionally, we of Geo segment of our inside sales team to better align with the regional nature of our partners.
Furthermore, we will enable and seed partners with the opportunity to upsell and cross sell our X integrated solution to upmarket customers.
On a great 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 the strategics.
Profitable growth as the mantra as we are of scaled SaaS cloud business, whereas dedicated to predictable gradually improving profit performance.
In order to drive superior performance, improving overall efficiency and go to market effectiveness as an imperative is an area that I bring 20 years of operational execution of expertise to the organization and it starts with leadership and team.
Recently, we announced the addition of a new Chief marketing Office officer on rate should earn and new Chief customer Officer, Walt Wise, there, who will help drive improvements in our marketing efficiency and customer satisfaction and retention and help align the organization to our core mid market enterprise.
Yours.
We have also instituted a rigorous okay on a process that the company has rallied around which is aligning the organization around the most critical and leverage of all activities exclusively.
These improvements will compound over the next several quarters as we generate momentum towards achieving our strategic goals.
Lastly, our laser focused approach on our core combo of prospects will improve overtime ourselves on marketing efficiencies that can be reinvested in the profitable growth.
Our fourth strategic priority of the shares defending and expanding the base previously there has not been enough focus on customer satisfaction, we are prioritize we.
We know of prioritize high availability initiatives on our working on permanently resolving customer dissatisfaction pain points. These efforts will pay off greatly down. The road also we are seeing significant increase in stickiness with UC only customers when they adopt our contact center product. So we are in granting that cross sell motion.
Across the organization of throughout the customer lifecycle.
Finally, with respect to retention, we're adopting the 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 the competitive solution and should be willing to do what it takes to get every customer happy.
Fiscal year 2022 will be a year of institute of increased strategic focus operational rigor kind of establishing ourselves as the X integrated market leader.
As we look beyond.
Fiscal 2022, there are also additional drivers of growth that are worth mentioning.
<unk> enterprise expansion will occur as larger and larger enterprises adopt cloud communications solutions.
Actions, we are taking today in investments in enterprise grade capabilities will enable us to capitalize on this trend as we move up market.
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 the tap Inc.
Incremental revenue streams within the contact center and.
And improve the attach rate of contact center to UC only deals.
Third our <unk> business will benefit from the broader adoption of delaval per API increased usage from current customers as we grow when they succeed.
Natural growth of the dynamic economies that we play with them.
Additionally, the new additions of our high value C pass offering 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 U K and have numerous opportunities to leverage success, there, including our relationships with Pan European partners to grow.
The 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 buyers of Midmarket and enterprise customers that we know value of integrated solutions for all of the reasons we've discussed.
We will align our ATM 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 of the team we have on board and I have of 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 expense expectation of the team.
It's an exciting time frame, we sit at the intersection of massive market migrating quickly to the cloud with a differentiated offering and which to capitalize on the secular tailwind Inc.
Improvements were making today will compound over the coming quarters and allow us to more efficiently grow while maintaining a profitable growth mindset.
Galleon of SaaS business to $1 billion, plus business, while demonstrating profitable growth can be tremendously rewarding activity.
Now I've done it before I fully intend to do it again.
With that I'll turn it over to Sam to detail the financial path ahead.
As Dave shared earlier eight by eight is an amazing company and we see tremendous opportunities ahead for US we had many accomplishments in fiscal 2021 and are on the rarefied SaaS here with over $500 million in annual recurring revenue are up.
The market 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.
At healthy rates, let me share of how our financial picture will evolve over the intermediate term and the milestone 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 the exit fiscal 2022 in the mid teens fiscal 'twenty three in the mid <unk> and fiscal 'twenty four we'd like to achieve mid to high Thirty's, who the 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 the growth given the market size, but do not want to roar of non-GAAP operating losses.
As part of our focus on improving execution, we've taken the decisive clean up measures to focus our operating spend eliminate distractions and maximize returns we are phasing out of our services, we sold to other carriers known as wholesale see past.
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 C pass wholesale services contributed $15 million in service revenue and essentially zero operating margin.
Rationalizing the services will be a near term 300, plus basis point headwind the service revenue growth rates in fiscal 2022.
Already incorporated into the fiscal 'twenty two 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're 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 solution.
Which are estimates suggest are the fastest growing portion of the overall market.
We are adding up market sales capacity for Midmarket and enterprise customers and channel of 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 would expect the first results of the new efficient investments to show up in our ups.
Coming 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 of the 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 lines. 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.
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 to our refined the GCM focus and product rationalization.
And we should show unit economic improvements lastly, we are committed to strengthening our balance sheet the itself generated cash flow.
As we enter 2022.
We have good sales funnel metrics and continued strong demand for X integrated you can see cash solutions voice for Microsoft teams and C. Pass offsetting this is the continued work we need to do around operations, taking all of this into account we are establishing the following guidance for Q1 fiscal 2022 ending June 30th.
2021, we.
We anticipate total revenue to be in the range of 142 to $143 $5 million, representing approximately 17% to 18% year over year growth.
We anticipate service revenue that would be the range of $132 5 million to $133 $5 million.
Approximately 60% of 17% growth.
We are no longer providing guidance for non-GAAP pretax loss since we are now profitable Inc.
Stead, we believe that non-GAAP operating margin is a better measure of our ongoing financial performance. We anticipate on the 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 a range of 555 to 500.
$65 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 incorporate exiting non core services, which were approximately $15 million in service revenue in fiscal 2021.
Excluding this amount from fiscal 2021 of the service revenue guidance would have been in a range of 15% to 17% or approximately 300 basis points higher looking specifically of gross profit growth and our 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 our 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 C pass services, our revenue growth rate should bounce higher.
We grew total revenue of 19% in fiscal 2021, and believe we can return to 20% or greater revenue growth in late fiscal 2023, that's the goal not guidance as there is a lot of time between then and now as revenue growth trends back up we plan on bringing margin of portion of that growth to the operating margin line we are.
On the further accelerating RR.
<unk> 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.
The fund innovation and further expand our product differentiation.
We'd like to see operating margins of 5% to 10% range over the intermediate term and believe longer term say five years out we can be in of 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 margin 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 from operations positive in the fourth quarter of fiscal 2021. It was based on several nonrecurring items.
By the fourth quarter of fiscal 2022, we expect cash from operations to the positive on a regular basis and has 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, we will focus only on the annual recurring.
<unk> faced metrics. We believe are our metrics are a better indicator to measure our business performance in closing we are super excited about the future of API, we have an opportunity to differentiate ourselves in the market with our integrated platform markets focused and multiple growth opportunities all inside of a large <unk>.
Total available market at the company level, we believe our unit economics can improve our recurring business model as 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 of.
Operator, we are ready to take questions.
Thank you we will now begin the question and answer session.
To ask the question you May Press Star then one on your Touchtone phone if.
If youre 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 all of us.
Our first question comes from Tim Horan with Oppenheimer. Please go ahead.
Well. Thanks, guys on teams can you give us a sense of maybe just qualitatively of how of voice adoption is going for the teams users where do you think they are at this point.
E Z as of to adopt many of the different voice.
Voice options on teams and.
And where are we with contact center with teams at a high level and then I guess, the lastly does it matter to these enterprises, who the legacy PBX provider was as they move who will.
Using ucas search the cash receipts.
Alright, Thanks, Tim.
The.
The.
On the Microsoft teams, we've seen good traction in that this is an area that we were very early and getting a direct connect.
<unk> into Microsoft teams at least on our platform we have.
Now I'll stick approach of <unk>.
Enabling different personas and different applications teams as of Q1 of those.
And we.
Totally been certified.
As a by the contact center for Microsoft teams and the first vendor in the Gartner Magic quadrant for contact center of the service to be certified by Microsoft.
We also continue to differentiate the product by putting additional capabilities into the team that we talked about last quarter, adding call forwarding rules on the <unk> settings log in and out of the call Hughes and access group voice smell and where fall.
Knowing that up with this quarter, we expanded the app functionality to include.
To be able to send and receive SMS MMS and facts. So we continue to create greater capability to those end users that are on there.
We also.
If you remember last quarter, we talked about kind of over research.
And the study that we commissioned with them showed that 70% of deployments of Microsoft teams plan on bringing third party voice.
To that so we can do that with new cash feature.
And.
Enable those organizations that are moving to the teams and even in hybrid environments, which we talked about I guess halfords, where a number of users are on teams, but the bulk of the organization still has not for.
For different reasons, Theyre, just not not using that license universally across the organization, whether its contact center agents of frontline workers or whatnot.
So we bring all of those additional personas.
And the ability to power of real time communications across the whole organization. So.
And we're seeing.
We've had record pipeline of Microsoft teams on the quarter. So we still see tremendous momentum.
Thank you.
Our next question comes from meta Marshall with Morgan Stanley. Please go ahead.
Great. Thanks.
Maybe just start with for Dave.
You talked about some kind of changes to the sales force or channel training, whether that be kind of a G of the segmentation or just better training of the channel on kind of the joint see cash.
You cast products the full portfolio of products just.
How long do you see that training or kind of those changed is meeting to take place and when do you think you could start to see traction on some of that and then maybe a follow up question for Sam.
He grew the services revenue of 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.
Still leave a couple of hundred basis points of deceleration kind of in the fiscal 'twenty two guidance. So just trying to get a sense of of.
Is that conservatism.
So the kind of that deceleration on the services line.
Yeah.
Great. Thanks, Matt.
I'll answer your first part and I'll, let Sam answer your second part on <unk>.
<unk>.
Our focused strategy on suggests the new cash customers. It's an area that we're already seeing benefits of that when we looked at our pipeline generation, but as you mentioned. It is there is of training element of we're embarking on the arm both for our direct sellers as well as our channel some of ours.
I would say that's kind of go on and we're going to put full shoulder into that over the.
The next two quarters.
And really honing those areas of that intersection of <unk>, the new cast those benefits to customers as well as things like our platform advantage of our 40 <unk> that we announced today our ability at spring things like China mainland, China, and so there's a lot of different elements there that we're going to the.
<unk>.
The whole organization as well as all our partners.
Alright, I will take the second part of that so let me first let me give you a bit of of technical answer so low.
Q1, Q2 of the fiscal 'twenty one they were both influenced by the ratio of acquisition, because we haven't lapped that yet. So if you look at just the back half of fiscal 'twenty. One you will see 50% of 19% growth about on average of 17% roughly and we guided towards effectively of pro forma of 17% So core.
We expect to be flat to up going into the next year. If you take out the business because of that 70% had some of that.
The growth in it from the non core services surpassed and we're expecting 17% growth in the core business. So I hope the math makes sense, if not all certainly the market Treaty again.
No that makes more sense got it thank you.
Okay.
Our next question comes from Ryan Macwilliams with Stephens, Inc. Please go ahead.
Thanks for the question I have a question for Dave and one for Sam So.
Great to hear about the path for free by and the opportunities you see ahead in the combo UC Cc deals as you think about approaching the rule of 40 in fiscal 2024 and beyond what do you think the main thing.
It needs to get right in order to get there and then maybe what improvements we can look for the next few quarters and then for Sam on your presentation. It said channel <unk> 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.
Sure. Thanks Bryan.
On the improvements that we have been selling <unk> I think you look across GTS and how we go about educating.
The previous question on how we educate our direct sellers on Etsy.
It hit our indirect sellers the onboarding of the.
The management, we've done there with the Omron and Walt in addition to the currently strong team on the ATM side of improving those motions.
We'll be doing over the next several quarters.
The execution on the ATM side, and then there is the R&D side and the increased the refocusing of R&D into UC cc and the intersection of those two as well.
Increased investment, but we're hearing on.
Contact center that will improve over time our.
Win rates attach to use the only deals and our land and expand model for the installed base as well as generating incremental revenue streams within contact center.
I'm sorry.
And then reconcile the the.
The channel bookings versus channel IRR. So generally are obviously of accumulative four quarter metric versus the channel bookings, which is the one quarter metric and if you look at channel bookings the quarter before we were up 64%. This quarter were up 7%. So that's an average of 35% really close to that 38% number it's the timing associated with there. So it's really just a bit of.
X there theres 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 the quarter to quarter of it has the tendency to throw off investors when the realities of the last two quarters, we were up 35% and bookings of 38% IRR of really close together.
I appreciate the color and looking forward to see what's next.
Thank you.
Our next question comes from Matt.
With the T. G. Please go ahead.
Yes, thanks for taking the question.
What's the digest here, but maybe first on sort of the new announcement.
Around the entry into China sort of what what's Catalyzing that.
Why now.
And sort of what's been the impediment in the past obviously a lot of companies, especially in software tend to shy away from some of the issues around the Chinese market, but just kind of curious.
What kind of growth rates or you might see there.
And then sort of dovetailing off that a lot of investment in some of these R&D initiatives that youre talking about Sam but just.
I guess from a head count perspective, how much youre expecting that to be versus some new projects and.
And just kind of thinking about that longer term I know it kind of fits in the framework there. Thanks.
Great I'll take the first part of that on.
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 of their employees onto one platform and servicing all of their offices globally that do that.
It is an area of where theres a lot of demand.
For many of the largest countries China is an obvious one where every multinational out of the China office now becomes a substantial customer for AIA.
Why now.
Our partnership.
The hard work that we've been doing to make that happen as well as partnership with China Mobile International Thats, enabling us to provide both.
The Jos.
And the first provider of that into mainland China and this is the area. We have we have.
I always had high demand.
We have close to 10000 seats on the appointment today from numerous customers and double digit number of additional customers in the pipeline. That's all really from installed base or very new customers. Because this is all prior to today's announcement or any of the marketing efforts that go around that.
So we just see it as a very important element on the overall global story and servicing multinational corporations across all of their cloud communication needs.
Thanks, Matt I'm going to change your question just slightly I apologize.
I really wouldn't call. These new projects I mean, one of the things that James has done really clearly its focus is down and so we actually probably have less new projects on the board and we have a lot more direct.
Focus on the projects that we do have so contact center that he mentioned.
The core platform technologies that he mentioned, we're repurposing existing dollars from businesses, we're getting out of the fund additional head count in those areas. So you won't see raw of head count going up a huge amount 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 <unk>.
Repurposing of dollars and that's why you continue to see operating margin improvement in fiscal 'twenty two.
Yeah.
Alright, great. Thank you all very helpful.
The next question comes from Katherine Xu of neck with <unk>. Please go ahead.
Alright, Thanks for taking my question nice quarter gentlemen.
Two things I wanted to hit on one is a year ago video was the hot topic on the earnings call, where does that fit in the four pillars. Thanks.
Thanks Catherine.
Video is an important element of the employee experience offering is one core elements that we have when we were still seeing innovation as we launched learn virtual backgrounds. This quarter. Additionally, we on her video as Jon as the past service on this as a full of meetings Cape.
The ability of higher level API.
Hi.
Joe into other products and that's an additional way that we're playing the video enhancements that go across the Gypsy org as well as the whole day by user base.
And additionally, finding areas in contact center Omni channel.
Cash is a third area of it.
It is important to our overall platform.
Alright, Thank you I'll save the other line for later.
Thank you.
Thanks, Kevin.
Your next question comes from will power with Baird. Please go ahead.
Hey, guys. Thanks for taking the question. This is Charlie on for will.
Dave You mentioned the pipeline of 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 in the enterprise specifically.
Okay.
Yes. Thank you.
So as we go and that's one of the great thing about bringing on.
Im right 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 of having record channel pipeline generation and record number of.
Yes.
Channel partners and the fact that if you look for.
Further back over the last three years that the channel partners have gone up 10 X in this area. So those are all areas, where we've seen increasing momentum and the ability to scale, our organization and Sam mentioned, some GCM so capacity that we're making investments in to capitalize.
On the pipeline.
The momentum.
That's.
A key area as far as.
Focusing on pipeline into our core strategy of UK feature is where we will see improvement in win rates as well as investment in contact center.
The rounds out the robustness and completeness of that product to allow us to close even more cc and UC deals.
And then I'd also love to hear what you're seeing on the pricing front, maybe both on the SMB and enterprise of.
Is there any change in pricing at all or has it been pretty stable overall.
Okay.
Pricing is something that.
I've been in the business for quite a while and what you'd normally see is.
You have as you move up market into larger customers.
In addition of additional products.
The gain some.
Revenue per account advantages.
Additionally, as you scale in there you have and over time, you're on some lower per user on the ucas side.
It's made up.
Pretty much completely by the expansion in the customer size and in the selling of cross selling of additional products and capabilities.
Got it thank you.
Thank you.
Our next question comes from Jonathan Kees with Summit insights group. Please go ahead.
Yes.
Great. Thanks for taking my questions and I wanted to I guess commend you guys for the laying out.
The financial framework, I know Youre just sort of.
Aspirational goals, but certainly helps in terms of.
The inspiring more confidence in your fundamentals in your financial of them.
Outlook and progress going forward. So my questions are actually on the.
The carriers, that's great that you got.
China Mobile one is to get an update on how Virgin mobile excuse me of Virgin media has been progressing in the U K and you know.
Yes.
You.
Assume this is going to become.
The more recurring thing, where you're going to get more carrier signing up any of this doesn't become a material part of your channel.
Yes.
So the China mobile is helping us with our global reach expansion.
Virgin mobile of the reseller.
Our product in the U K region, and Bell, Canada, a reseller of our product to Canadian region and those are areas. We're in.
<unk> and our team that works those accounts or the expansion in those accounts.
Penetration of the API.
The service as they can.
So there are seller network on.
Our routes to market include carriers as those too in addition to our direct team and our our agent and our our reseller network.
Those are probably the bigger share.
The go to market.
And we see.
Mansion across those as kind of key or shorter term.
On the site as well as faster ROI.
So if I may just follow up so do you because I don't know the.
My question here do you see selling of more resellers and the more curious become.
The more common now with the with.
With your channel program on your in your outreach.
Okay.
With the expansion of all of our indirect channel.
What youll see sooner is what I'm, saying is the expansion within our agent network and our guard network.
An example of that is the Westcott on deal that we announced the which.
<unk> is one of the largest distributors in the UK and Ireland on selling our product of those markets I would expect to see more of those in the short term so stay tuned.
Great or will do thank you.
Our next question comes from Citi.
City of pennant.
Please go ahead.
Oh, hi, Thanks for taking my question.
Dave you talked about this massive market opportunity.
I guess I agree with you and I and also your competitors that are also aggressively investing.
Both on product and go to market I'm wondering what's your view on the competitive landscape and as Youre looking at investment.
As you talked about where do you see eight by eight is the sweet spot.
Yes.
Cloud communications markets math of what we're talking about 75 billion both cash.
The speech FMC passed we've been operating new cast on free cash for 10, plus years with lots of experience curve team knowledge feature function capability. The intersection of UC Cc has traditionally been a very strong buyer motivation when you.
Look at legacy solutions that got broke and when we went to the cloud we provide that today and there's a very few.
The competitive set when you look at that intersection.
Where we stand out as having been in the with more experience more recognized when you look at Gartner and the nine times recognition on the <unk> six times recognition on safety.
As well as defining that as our core strategy creates more focus than youll see anywhere in the market and I think those are the elements that will leverage.
To win at that core sweet spot of the market, which is.
Massive in and of itself estimate of $15 million.
And as we move more of a product suite in the cloud we will gain share within the cloud.
I see and then if I hear correctly events on differentiated billing models for channel could you a little bit elaborate on that.
Yeah. So we enable both on agents the reseller model, where we provide billing to the customer.
And <unk>.
Utilize of percentages to the partner channel. Additionally, we offer a of wholesale billing model or a bar channel, which is a way traditional resellers of the operators, especially in Europe, and Thats, where we see a lot of traction of that model, but those are two.
Alternative models arent typically provided in the cloud communication space.
We provide both opportunities and effort to be easy to do business with and support our partners on the way they want to grow the business.
The more.
Thank you.
Yeah.
How's The reminder, please limit yourself to one question. Our next question comes from here on the thing right.
Evercore. Please go ahead.
Great. Thanks, guys for taking my questions and for the detail on the call.
Perhaps can you unpack the $1 billion target.
Can you give us a timeframe on that target.
How do we get there, meaning like how much of an emphasis is being baked in from expanding leveraging the channel and are you factoring in any inorganic contributions.
Okay.
Alright, let me I'll take on.
Part of that Dave and maybe.
In terms of $1 billion target.
A number that we put out if you look at our growth rates and the fact, we're expecting about 20 plus percent growth rates here within a couple of years you should expect that it's within five years is easily achievable and no. We are not expecting inorganic pieces. We reserve the right at all times to be able to use shareholder money wisely to acquire the inorganic pieces of it.
A lot of 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 on this is not guidance I'm, giving you a rough objective.
But we absolutely think it's achievable on I think the of line of sight for it.
Yeah.
Thank you.
Our next question comes from Daniel Bartus with Bank of America. Please go ahead.
Hey, guys. Thanks for taking the question.
I wanted to also ask about Microsoft.
At the high level when you look forward.
How much life is there to coexist on top of the teams.
Do you think the market will shift more to ucas and seek as bundling on top of the teams or do you see a long runway for just better telephony and just the ucas piece on top of the thanks.
Yes. This is David.
Capitalizing on the Microsoft <unk>.
<unk> of opportunity, that's being used as a core team messaging.
Endpoint.
Of the 150 million active users or something at this point.
On.
For enabling real time communications on voice specifically.
I believe that is an opportunity.
The only for the employee base of the core of our employee base.
We are certified now for contact center. So it is an additional opportunity for agents to utilize I think you may see agents usually operate in a more specialized endpoint environment around things like sales force or even the AIA.
The contact center App, but we will see likely some agents utilizing the secondary application for team messaging.
So it's important that we enable all users in the organization.
To operate across one real time communications platform that day bye.
<unk> enables.
Got it thanks for that.
Our next question comes from George Sutton with Craig Hallum. Please go ahead.
Thank you this is Adam on for George.
The same day, you called out within with respect to the increased R&D spend the intersection of UC and Cc I was hoping you could provide additional detail on on what exactly you're focused on specifically on the near term objectives and if theres any long term projects you feel like youre going to generate great ROI, but just will take some time to get there.
Yeah.
I highlighted a number of areas. So this is of great questions. We get asked that all the time.
But it goes from.
On the most fundamental of having a high availability of platform and we were able to announce of four nines financially backed SLA across our entire platform. So as you go with the UC cc cell.
So much more powerful when you can do that and if you're partnered or youre going on with two separate vendors and that situations. So that's one key area. There is the cross.
The employee collaboration and especially between.
Things like contact center agents and <unk>.
Back on with employees of front office employees.
That having all of that on one platform enables.
And then things like a integration platform that allows an.
Organization too.
The implement more cost effectively and maintain.
Each of the core workflows across the organization.
We're seeing that across a number of our customers as they go on the board.
The deploy our X integrated <unk> solution.
Our next question comes from Michael Thorn with lots.
The market Securities. Please go ahead.
Hey, there.
Good afternoon. Good afternoon team Sam you just reached breakeven targets I think we can all understand the calling out the areas you are calling out for investment whether it's free cash or some of the go to market improvements you are 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 FY 'twenty two versus just.
The <unk>.
The drive just a little bit more incremental investment into those areas.
Well I mean, it's of great question to be fair, we are transitioning from really focus on profitability now, it's essentially slowing down the profitability increase and really reinvesting dollars to me. Its just a function of efficiency as long as we can be incredibly efficient with our investments will always make those first and 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 did the easy number to attack. So I can pull money out of gross margin the rule that money back into R&D and sales and marketing the becomes much more towards new revenue generation. Both of those things you read of product differentiation, which drives new revenue or increased sales capacity demand gen capacity to drive new logo additions.
The cross sell so really it's for me at the source of additional dollar funding to drive profitable growth.
Thank you.
This concludes our question and answer session and also concludes the conference for today. Thank you for attending today's presentation you may now.