Q4 2024 8x8 Inc Earnings Call
[music].
Good day and welcome to the Q4 2024, eight byte Inc. Earnings call. At this time, all participants are listen only mode. After the speaker's presentation there'll be a question and answer.
Session to ask a question. Please press star one one.
As a reminder, this call maybe recorded.
On the call over to Kate Patterson. Please go ahead.
Kate Patterson: Good afternoon, everyone. Today's agenda will include a review of our fourth quarter and fiscal 2024 results with Samuel Wilson, Our Chief Executive Officer, and Kevin Kraus, Our Chief Financial Officer. Following our prepared remarks, there will be a question and answer session.
Kate Patterson: Before we get started let me remind you that our discussion today includes forward looking statements about our future financial performance, including our investments in innovation and our focus on profitability and cash flow as well as statements regarding our business products and growth strategies. We caution you not to put undue reliance on these forward looking statements as they involve risk.
Kate Patterson: <unk> and uncertainties that may cause actual results to vary materially from forward looking statements as described in our risk factors in our reports filed with the SEC any forward looking statements made on this call and in the presentation slides reflect our analysis as of today and we have no plans or obligation to update them.
Kate Patterson: Certain financial measures that will be discussed on this call together with year over year comparisons in some cases were not prepared in accordance with U S. Generally accepted accounting principles or GAAP, a reconciliation of those non-GAAP measures to the closest comparable GAAP measure is provided in our earnings release and in our earnings presentation slides, which are available.
<unk>, an eight by eight Investor Relations website at investors thought eight by eight dotcom with.
That I will turn the call over to our CEO Samuelson.
Samuelson: Good afternoon, everyone. I appreciate you joining us today as we discuss our fourth quarter and our fiscal 2024 results and the strategic initiatives that have defined a year of transformation for a buy.
Samuelson: I'm pleased to report solid fourth quarter in which we delivered results within our guidance range for service and total revenue and once again exceeded our guidance for operating margin.
Samuelson: Cash flow from operations for the quarter was also better than anticipated, which resulted in cash flow for the year up 62% for fiscal 2023.
Samuelson: This significantly exceeded our expectations for the year.
Samuelson: We ended the quarter with about $118 million in cash restricted cash and investments after repaying the remaining $63 million of 2024 notes.
Speaker Change: Since Kevin will review the quarters financial results in detail I will focus my comments on the progress we've made on our transformation journey.
Speaker Change: This year has been nothing short of incredible from both a professional and personal perspective.
Samuelson: We've strengthened our leadership team expanded our product portfolio and continue to build on our strong financial Foundation.
Samuelson: A year ago, I outlined a strategic framework with six key imperatives aligned with the three pillars of our transformation strategy innovation financial strength and go to market.
Samuelson: I'm pleased to report that we are executing well against each of these strategic imperatives. They include.
One accelerating innovation and contact center as a service CCAR.
Samuelson: While maintaining our leadership in cloud telephony. This includes embedding artificial intelligence across our integrated platform.
Two.
Samuelson: Stablish and communications platform as a service see past leadership in the Asia Pacific region.
Samuelson: Three increasing our focus on small and mid size enterprises as our target customer segment.
Samuelson: Four improving platform win rates and sales productivity.
Five maintaining an outstanding experience for our customers, allowing them to focus on their own core businesses.
Samuelson: And lastly, six increasing profitability and cash flow to drive a fortress balance sheet and fund further innovation.
Samuelson: Although our journey has not always been perfectly linear we are undoubtedly stronger and better positioned financially as we exit fiscal 2024 compared to the end of fiscal 2023.
Samuelson: This year has been pivotal in terms of innovation, we've introduced several new products that not only differentiate our offerings, but also positioned us for future growth.
Samuelson: These new products as well as platform enhancements like the customer interaction data platform proposal user interfaces and the integrated solutions from our technology partner ecosystem are intentionally engineered to deliver superior business outcomes without the heavy integration burden typically required to build an AI any.
Samuelson: <unk> contact center.
Samuelson: The introduction of our engage solution extends our customer experience capabilities beyond the traditional boundaries of the contact center and is one of just many examples of how we're leading innovation in an industry leveraging our history as a combined U C. C C C pass company.
Samuelson: We believe this product dramatically increases our cross sell opportunities to existing customers and provides an accessible entry point for new customers looking to improve their customer experience across the organization.
Samuelson: Shortly after the end of the quarter, we introduced API operator connect for Microsoft teams, expanding our portfolio of enterprise voice solutions and further strengthening our leadership position in Microsoft teams environments.
Samuelson: With this introduction ebay now offers the industry's broadest portfolio of enterprise voice solutions for Microsoft teams and as the only operator connect provider with a native contact center solution certified to integrate with teams.
Samuelson: The initial market response has been very positive generating numerous new opportunities within days of the announcements.
Samuelson: We believe this solution could be the key to unlocking millions of UC seats, not yet migrated to the cloud app.
Samuelson: As we all know there are hundreds of millions of on Prem telephony seats and the industry craves low cost solutions to unlock this space.
Samuelson: I wanted to highlight the progress we're making in broadening our C pass product offerings and expanding this part of our business globally with the renewed focus on C. Pass we are finding new ways to embed C pass capabilities into our integrated UC and Cc solutions.
Samuelson: To provide complete solutions that deliver specific business outcomes for our customers.
Samuelson: First was the.
Samuelson: Video elevation to most.
Samuelson: We launched proactive outreach, enabling highly personalized messaging campaigns at scale for both contact center and unified communications customers. These capabilities were important differentiators in the wins at upward health in the U S induction health care in the U K and Palawan.
Speaker Change: Hey in the Philippines.
Samuelson: In addition to these product launches, we continue to innovate across our platform with solutions like our AI powered intelligent customer assistance.
Samuelson: Available as either digital or voice spots.
Samuelson: Usage of ICA and self service options continues to increase sequentially and we are achieving resolution rates as high as 80%.
Samuelson: This is a compelling testament to the advanced AI capabilities of eight by eight and our technology partner ecosystem.
Samuelson: Further.
Samuelson: 100% of our digital intelligent customer assisting customers are referenced are all demonstrating our focus on delivering superior business outcomes with rapid time to value our omni channel engagement solutions and the introduction of new digital channels and automation were key factors in our win at southern housing in the UK.
Samuelson: Yeah.
Samuelson: We strive to make our customers heroes in their organizations and this is driving wins like sky chefs, a well known catering and hospitality experts, serving airline customers, where our agility and speed to deployment one of the day.
Samuelson: Customer acceptance of our new solutions is the most important indicator of success I am pleased to report that sales of new products were up by more than 50% year over year for the second consecutive quarter.
Samuelson: Given the timing of launches throughout the year and the enterprise sales cycles.
Samuelson: This is a positive leading indicator of our future success.
Samuelson: From a financial perspective, this year has been about strengthening our foundation and positioning ourselves for sustainable growth in the future.
Samuelson: We've seen a substantial reduction in our non-GAAP cost structure with cost reductions totaling more than $47 million from fiscal 2023.
Samuelson: This disciplined fiscal management enabled us to invest strategically in innovation, while increasing our non-GAAP operating margins to double digits.
Samuelson: With our cost structure aligned with our current revenue run rate and cash generation objectives, we intend to increase focus on running our go to market engine to drive awareness and sales for our expanded product portfolio.
Samuelson: Turning to our go to market efforts, we've made considerable progress our sales marketing and customer success teams are more aligned than ever focusing on the cross functional initiatives that drive value across our customer base.
Samuelson: This alignment has improved the quality of our pipeline and resulted in increased close rates more multi product lands and higher customer satisfaction scores. These are the early indicators that our efforts to build a high performance go to market organization are working given the nature of enterprise sales cycles and a ratable.
Samuelson: Revenue growth there was a lag before our progress is evident in our revenue growth, but I am confident.
Samuelson: That the changes we've made will drive improved performance and accelerating growth by the end of the current fiscal year.
Samuelson: As we look to the future. Our strategy is clear we will continue to drive innovation potentially engineered solutions that deliver superior business outcomes for our customers.
Samuelson: I encourage you to watch a short video case study of the San Diego's, whose implementation of our integrated solution. As an example of our solution approach and rapid time to value.
Samuelson: Working in partnership with the internal team at the Zoo, we implemented a full service contact center with an AI based self service option for inbound calls in less than 45 days.
Samuelson: We have intentionally engineered our products and solutions for this level of agility and rapid time to value.
Samuelson: We can leverage this advantage to develop our own purpose built solutions as well for example, 2024 is a big year for elections in both the U S and U K U.
Samuelson: Using the power of conversational AI and automation, our UK team built a library of out of the box templates to support local government and improve citizens access to important information for upcoming elections.
Samuelson: To drive awareness and adoption of our innovations we are committed to continued improvement in our go to market activities. We intend to remain within our current cost envelope as we make the necessary investments to elevate our partner programs increase awareness for our solutions and improve our processes.
Samuelson: We are taking a balanced approach to growth and profitability.
Samuelson: And with cash from operations as our financial Northstar.
Samuelson: We intend to continue returning value to our investors through reducing debt, we have repaid $88 $3 million of principal in fiscal 2024, 35% of our commitment to return $250 million to investors through debt repayments over three years.
Speaker Change: Before I turn the call over to Kevin I want to thank our employees partners and investors who are with us on this journey.
Kevin Kraus: Thanks, Sam and good afternoon, everyone. We delivered solid financial performance again in fiscal Q4.
Kevin Kraus: Total revenue and service revenue were within our guidance ranges and other revenue came in ahead of the target implied by our service and total revenue guidance.
Kevin Kraus: non-GAAP operating margin exceeded guidance by one three percentage points and cash flow was above expectations at $12 $7 million for the quarter and $79 million for the year.
Kevin Kraus: During the quarter. We also achieved a significant milestone of repaying the remaining $63 $3 million principle on the 2024 convertible notes.
Samuelson: With this payment we have retired $88 3 million in debt during fiscal 2024 and $115 million over the past six quarters.
Samuelson: The press release and trended financial results, we posted on the Investor Relations website provide a comprehensive view of our financial performance. So I'm going to take a slightly different approach to my comments this quarter.
Samuelson: Instead of going line by line through the quarterly results and then turning to guidance I would like to take a step back and review our results as well as our forward guidance within the context of our strategy shift.
Samuelson: Before I go on let me remind you that I will be using non-GAAP metrics, except for revenue and cash flow unless otherwise noted.
Samuelson: We really began our transformation in late fiscal 2022 with the acquisition of fuse. The acquisition immediately increased our capacity for innovation expanded our customer base and added more than $100 million to our IRR.
Samuelson: This acquisition was immediately accretive to our business performance.
Samuelson: Although recent customer attrition has created a near term headwind to growth in recent quarters. It remains a huge win overall.
Samuelson: With our CEO transition in fiscal 2023, we made a conscious decision to swap near term revenue growth for profitability and cash flow.
Samuelson: Cash flow became our financial North Star and we implemented multiple actions during the year to reduce our cost structure and improved sales productivity, while maintaining our investments in innovation.
Samuelson: By fiscal Q4, 'twenty three we had reduced quarterly non-GAAP operating expenses, excluding cogs by nearly $10 million compared to Q1, 'twenty three which was the first full quarter of combined <unk> and <unk> results.
Samuelson: Our quarterly sales and marketing spend was down even more dropping by $12 $3 million from Q1, 'twenty three to Q4 2003.
Samuelson: This equates to almost $50 million in annualized cost reductions and sales and marketing.
Samuelson: The decrease in operating expenses together with higher gross margins had an immediate impact on our cash flow from operations, which increased from $34 $7 million in fiscal 2022 to $48 8 million in fiscal 2023, and $78 $9 million in fiscal 2024.
Samuelson: <unk>.
Samuelson: This allowed us to prepay $25 million in principal on the term loan and repay the remaining principal on our 2024 notes, while maintaining cash and investments above $100 million.
Samuelson: We exit fiscal 2024 with $118 million in cash restricted cash and investments and expanded product portfolio tailored to the needs of our target customer and a committed and experienced leadership team. We are a stronger company today than we were a year ago and we are a much.
Samuelson: Stronger company than we were at the end of fiscal 2022.
Samuelson: Q4 is our 13th consecutive quarter of positive cash flow and non-GAAP operating margin trends, we expect to continue.
Samuelson: I believe we have successfully laid the foundation for the future growth that our innovation will drive.
Samuelson: Let's look at leading and lagging indicators of our continued progress and how they flow through our financial model.
Samuelson: Let's first look at the leading indicators RP O in <unk>.
Samuelson: Sure.
Samuelson: We knew when we began this transformation that there could be an impact on our growth.
Samuelson: And given our predominantly ratable revenue model, it's not surprising that there would be a lag before our progress manifested as an acceleration in revenue growth in other words, the turn to growth, resulting from increases in sales productivity partner activity and new product should be evident in <unk> before.
Samuelson: Appearing in revenue.
Speaker Change: I believe we are near the turn in our business. Our Apio was up sequentially in Q4 and flat year over year.
Samuelson: We ended the year with $697 million in <unk> down about 1% sequentially with about half of the decline related to a seasonal decrease in C pass usage as.
Samuelson: As the impact is magnified in <unk> due to annualized nation.
Samuelson: The remaining portion of the decline is related to a decrease in UC cc <unk>, primarily due to fewer customer attrition.
Samuelson: We expect our efforts to retain an upgrade for US customers will result in increased retention in fiscal 2025, and as a result, I believe Q4 quarter over quarter decline in non <unk>.
Samuelson: Is the steepest we will see.
Samuelson: However, it may be a quarter or two before the impact of new products in our retooled go to market result in quarter over quarter growth given enterprise sales cycles.
Samuelson: Importantly, our business remains healthy.
Samuelson: And ex cast or has increased sequentially every quarter since we began tracking it.
Samuelson: The nature of our business is evolving as we launch and grow multiple products that have consumption based pricing. Additionally.
Samuelson: Additionally, we are seeing an amplified impact of relatively minor fluctuations in sea pass revenue on our current IRR metric, which is leading us to reevaluate the metrics we report to investors.
Samuelson: We will provide visibility into any new methodology, our new metrics on the Q1 call.
Samuelson: Now, let's turn to our primary lagging indicator revenue.
Samuelson: With a flat to down slightly quarter over quarter over the past four quarters, we expect to see a similar pattern in revenue with a lag of two to three quarters.
Samuelson: This is reflected in our revenue guidance ranges for Q1, and fiscal 2025, which I will provide in greater detail later on this call.
Samuelson: Consistent with our comments at the product and innovation update in March we expect service revenue for the full year to be approximately flat with fiscal 2024 at the midpoint or about $700 million with first half revenue decreasing by low single digits year over year compared to the first half of fiscal 'twenty.
Samuelson: 24.
Samuelson: We expect to return to year over year growth by the fourth quarter.
Samuelson: Now, let's discuss a few points about our operating model.
Samuelson: Our cost structure in Q4 dollars 24 on the dollar basis with very similar to our cost structure at the end of Q4 'twenty three.
Samuelson: Total operating expenses were about $2 million lower versus Q4, 'twenty three as we achieved about $2 million and cost efficiency in G&A, but R&D and sales and marketing were basically flat with a year ago.
Samuelson: We believe that our target cost structure with R&D at about 15% of revenue sales and marketing between 33, and 34% of revenue and G&A between 10, and 11% of revenue continues to be the right level of investment to drive innovation and adoption of our expanded portfolio.
Samuelson: Consistent with our philosophy that spending follows growth we are targeting our 2025 spending to be approximately flat from fiscal 2024 on a dollar basis.
Samuelson: We also expect see past to gradually increase as a percentage of total revenue compared to fiscal 2024.
Samuelson: We still expect service revenue gross margin to remain in the 74% to 75% range, but it may vary slightly due to mix.
Samuelson: We expect gross margin on total revenue to be between 71% and 72% as we add other revenue into the mix.
Samuelson: With this operating model context in mind, we established service revenue total revenue and operating margin guidance ranges for the fiscal first quarter ending June 32024 as follows.
Samuelson: We anticipate service revenue to be in the range of $170 million to $174 million.
Samuelson: We anticipate total revenue to be in the range of $176 million to $181 million implying.
Samuelson: Implying other revenue of $6 5 million at the guidance midpoint.
Samuelson: Note that other revenue can vary based upon customer specific deployment schedules and hardware shipments. So total revenue can vary based on these dynamics.
Samuelson: The combination of modestly lower year over year revenue, a higher mix of CPAP and flattish sequential operating expenses explains our operating margin guidance of 11% to 12% for Q1 'twenty five.
Samuelson: For the fiscal year 2025, ending on March 31, 2025, we provide the following guidance ranges.
Samuelson: We anticipate service revenue to be in the range of 693 million to $707 million with year over year revenue declines in the first half and exiting the year with single digit growth rates.
Samuelson: We anticipate total revenue to be in the range of $720 million to $738 million.
Samuelson: We continue to focus on delivering a solid operating margin and anticipate exiting the year between 12%, 13% and achieving between 11, 5% and 13% for the full fiscal year.
Samuelson: Our operating margin results will depend on revenue performance and opportunities for investment.
Samuelson: At the midpoint of our revenue guidance range. This translates into non-GAAP operating income of between 89 and $90 million for the fiscal year.
Samuelson: We expect interest expense to be about $8 7 million in each of Q1 and Q2 based upon current interest rates.
Samuelson: We expect cash paid for interest to be approximately $6 $7 million in Q1, 25, and $10 4 million in Q2, 'twenty five as cash interest on the 2028 convertible debt is due semi annually.
Samuelson: We are currently anticipating that the interest rate on the term loan remains approximately 12% or so for a plus six six percentage points.
Samuelson: The prepayment penalty on the term loan expires in August and we expect to begin reducing the principal outstanding immediately thereafter.
Samuelson: This will enable us to reduce quarterly interest expense in the second half of the year.
Samuelson: Since our financial position is considerably stronger today than it was in August 2022, we are actively exploring term loan refinancing options, which could also bring interest expense down further later this year.
Samuelson: Cash flow from operations remains our financial North Star. It funds, our continued investments in innovation that will drive our future growth.
Samuelson: It also enables us to return value to investors as we pay down debt in the near term and increases our flexibility to pursue additional opportunities to drive value in the long term.
Samuelson: We generated $79 million in operating cash flow in fiscal 2024, an increase of 62% over 2023, we remain committed to our goal of a 20% three year CAGR in cash flow off our 2023 base of $49 million.
Samuelson: This implies operating cash flow of about $80 million to $85 million in fiscal 'twenty six.
Samuelson: $225 million over the course of fiscal years 'twenty four 'twenty five and 26.
Samuelson: We believe we can generate at least that much in operating cash flow over the three year period, but we now expect fiscal 2025 cash flow from operations to be between $15 million and $20 million less than in fiscal 2024. This is due to a combination of factors, including our performance in fiscal year <unk>.
Samuelson: 2024 are caused by our cash from operations to be higher than we had expected for the year.
Samuelson: Slightly lower operating income compared to fiscal year 2024.
Samuelson: Strong year end collections in fiscal Q4 dollars 24, which helped our fiscal year 2020 for cash flow, but resulted in a lower accounts receivable balance to collect as we enter fiscal 2025.
Samuelson: And one time cash payments related to fuse indirect taxes.
Samuelson: In Q4, we booked a $10 million charge related to fuse indirect tax liabilities, primarily telecom taxes, we already made a portion of this payment in April which will impact our Q1 and fiscal 2025 cash flow results.
Samuelson: We are as committed as ever to reducing our outstanding debt and are on track to meet our commitment of returning $250 million to investors primarily through debt repayments over the three year period from fiscal 2024 to fiscal 2026.
Samuelson: With a $25 million prepayment on the term loan in Q1, 'twenty four plus the repayment of the remaining $63 $3 million of our 2024 notes on February one we are 35% to completion.
Samuelson: The final piece of information to keep in mind the share count we expect fully diluted shares of about $128 5 million for Q1 and average approximately 133 million shares for the full year.
Samuelson: We remain committed to increasing shareholder value by reducing future equity dilution over time.
Samuelson: Putting all this together, we expect that non-GAAP fully diluted earnings per share to be in the range of 37.
Samuelson: And 45 for fiscal 2025.
Samuelson: This EPS range is calculated using the operating margin guidance range and the midpoint of revenue guidance as calculation inputs.
Speaker Change: I realize this is quite a lot of detail.
Samuelson: And I think it's important for investors to understand our 2025 guidance within the context of our longer term strategy and overall business model with.
Samuelson: We summarize these comments in our investor slides.
Samuelson: I continue to believe that our focus on profitability and cash flow, while maintaining targeted investments in innovation and improving our go to market efficiency is the correct strategy for us at this time.
Samuelson: I am confident this will enable a return to revenue growth. While we also returned value to our shareholders initially by reducing our debt.
Samuelson: I would like to thank the entire <unk> team for working together to deliver this quarter's solid results and look forward to reporting our progress throughout fiscal 2025.
Speaker Change: Operator, we are ready for questions.
Speaker Change: Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: Our first question comes from Ivan Kaufman with Barclays. Your line is open.
Ivan Kaufman: Hi, Kevin and Sam This is David Coghlan author on their plans. Thanks for taking the question.
David Coghlan: How does the CCAR fiscal 'twenty four compare to usage in <unk>.
David Coghlan: How does that pipeline look compared to you guys.
Samuelson: You need to help me understand how did see pass received cash usage Luke.
Samuelson: Sure.
Samuelson: Yes.
Samuelson: C pass was down seasonally in the March quarter.
Samuelson: Kevin I think it was particularly more than just kind of seasonal declines that we normally see because of the country's ran we deal with Ramadan and Chinese new year, which have a tendency to slow down marketing campaigns and those sorts of things yes.
Samuelson: Up year over year the 9%.
Kevin Kraus: Yes, but it was slightly lower than Q3.
Kevin Kraus: I guess, how does that compare to two.
Kevin Kraus: To see cats as well.
Speaker Change: Well contact center business, we've been seeing more growth, it's hard as little bit of pause on that call contact center, we've definitely been seeing solid momentum, particularly when we think about the <unk> partnership around it the add on products those kinds of things and then you cast.
Speaker Change: It's a tough market out there.
Speaker Change: And then Kevin just a question on what you had reiterated.
Kevin Kraus: Remarks, how does.
Kevin Kraus: The <unk> business there how do you see that soon is there in <unk> and what are the assumptions that you factored into 2025 guide for this business.
Kevin Kraus: So C pass.
Kevin Kraus: You just mentioned that.
Kevin Kraus: The first part of your question right. So it was seasonally down in Q4 slightly and in terms of the go forward view.
Kevin Kraus: We see continued improvement in that business throughout each quarter of 2025, and again with some seasonality impacts.
Kevin Kraus: In the fourth quarter, which is the.
Kevin Kraus: The first calendar quarter of the year.
Kevin Kraus: So we're talking about.
Kevin Kraus: Some some decent level of growth rate with some seasonality baked in.
Speaker Change: Alright, thanks, guys.
Speaker Change: Thank you.
Kevin Kraus: Yes.
Speaker Change: Thank you.
Kevin Kraus: And our next question comes from Michael Funk with Bank of America. Your line is open.
Michael J. Funk: Yeah guys. Thank you for the question Tonight in my first one.
Michael J. Funk: Investors care most about.
Michael J. Funk: The path to positive growth and you outlined some of these efforts youre, making on the call.
Michael J. Funk: Simple equity analysts so maybe if you could help me with the waterfall for the piece part for return to growth by our fiscal fourth quarter of this year.
Michael J. Funk: Year understanding and fees as part of that.
Michael J. Funk: CPAP, giving better CCAR getting better but the piece parts would be really helpful. For me to investors. So we can picture that return to growth over time.
Michael J. Funk: Yes.
Speaker Change: I'm trying to think I mean, historically when I think a lot of waterfall model I don't exactly think about the context, you are using and Michael and I'm, not saying you're wrong things, how we think about it I mean, the way I think about it right now is our new products. Many of which are we've got some that are now fully <unk>. Some that are in beta are growing 50 plus percent for two quarters in a row. They will continue to grow.
Speaker Change: So that will at some point that's positive.
Speaker Change: To the overall performance our <unk> business has turned around and so as Kevin mentioned that was above positive growth on a year over year basis, and we're seeing stability in our UC business and so we will get.
Speaker Change: Two of the cylinders growing and the remaining cylinders flattish and that eventually the overall boat will lift.
Speaker Change: And that the other thing we know is as we sell more products our retention rates go up and so that builds over time too and so that kind of.
Michael J. Funk: All starts to come together towards the second half and the final of the fourth quarter of 2005.
Michael J. Funk: But if you looked at say fiscal for Q4, and you have that revenue mix from different product sets and then.
Michael J. Funk:
Michael J. Funk: The drag from fuse.
Michael J. Funk: For Q.
Michael J. Funk: 24 number and then rolled forward to the <unk> fiscal 'twenty five number and did the same app.
Michael J. Funk: The revenue mix and the contribution of our less drag from views held from CCAR C pass could you could you could build that for me.
Michael J. Funk: One sector, some math involved there yes.
Speaker Change: Spot Hewitt.
Speaker Change: The question right.
Michael J. Funk: Everything flows from the top line down that obviously influences.
Michael J. Funk: <unk> cash flow and that that Northstar focus that you have so I'm just trying to better understand how we get there and can get greater confidence in that return to growth.
Speaker Change: And with better left offline or for a follow up call CMS will want to take the entire call here, but.
Speaker Change: I mean, so so let me try to break it out youre asking can we just say, we're assuming generally flattish you see growth in CE path and contact center related products and around the contact center, it's really around the new products that are around the contact center and then.
Speaker Change: And over time, what leads to sustained growth as we exit 'twenty five 'twenty six 'twenty seven is.
Speaker Change: As we become more of a multi product company our retention rates go up and our NRI can flip solidly positive to drive that higher retention and selling over time.
Speaker Change: So the two drivers over the next four quarters or contact center and C pass.
Speaker Change: Okay, great. Thank you so much spamming and Kevin. Thank you again for all the comments on the call.
Speaker Change: Thanks, Michael.
Speaker Change: Thank you. Our next question comes from meta Marshall with Morgan Stanley. Your line is open.
Meta A. Marshall: Great. Thanks.
Meta A. Marshall: Maybe a couple of questions just on that chart.
Meta A. Marshall: Get further through that.
Meta A. Marshall: You kind of book of business. Some of those are very large customers.
Meta A. Marshall: I just wanted to get a sense of some of this volatility.
Meta A. Marshall: <unk> worked through some of those very large customers and is that just what are you seeing as you make those transitions and then maybe just the second question.
Meta A. Marshall: As you have.
Meta A. Marshall: Introduce engage.
Meta A. Marshall: Is the traction that you're seeing there kind of with the customer type that you were expecting or just kind of any commentary we're engaged versus some of the higher ex gas hearings are having market.
Meta A. Marshall: Okay.
Meta A. Marshall: Hey, Matt This is Kevin I'll take the first part of that question. So yes.
Kevin Kraus: We are working through the upgrade of the fuse customers over to the AIA platform.
Kevin Kraus: And you heard probably on previous calls we have 100% customer.
Kevin Kraus: Success management dedicated on that base as we do migrate.
Speaker Change: Some of those customers over.
Speaker Change: And by the way that's accelerating.
Meta A. Marshall: We do see some right sizing of.
Meta A. Marshall: Their needs and so thats, causing us to see some headwinds in that base as we down sell but the fact.
Meta A. Marshall: The resulting fact of that though is that we are keeping those customers.
Meta A. Marshall: Happy and the NPS scores are going up and all of those things, but yes. We do have we do go through this process, we do see some some.
Meta A. Marshall: Some headwinds as we as we do that well and I think part of me to what Youre getting to is what Kevin mentioned right. So we've now touched every single fuse customer we have a status report on every single used customers exactly where they stand.
Meta A. Marshall: We've migrated our whole slug of the small customers. So there's a significant amount of in terms of customer count that has now been migrated off and so part of what Youre seeing is that we are we are getting to the tail end I won't say that I can put a date and time in place, but we see the light at the end of the tunnel, which is.
Meta A. Marshall: We finished migrating all the fuse customers to eight by eight but we know where every customer stand today and what needs to be done to do those things.
Meta A. Marshall: Switching gears for a second on engage so engages in beta right now the reception to the product has been I would say above what we were expecting.
Meta A. Marshall: We thought the market might be a little crowded because theres a number of sub tier products that are overhyped by other vendors.
Meta A. Marshall: Many of them are very feature light and so we thought this would be a little bit more of a noisy market and it turns out that actually coming at this from a mobile first perspective, and really targeting the right use cases is resonating and you asked specifically is it resonating with with our customers and with our <unk>.
Meta A. Marshall: Respecting the answer is yes, and yes, we're seeing situations where customers existing customers want to upgrade to engage to rollout and these are not existing contact center seats. These are maybe existing UC seats.
Meta A. Marshall: The customer can do a much more.
Meta A. Marshall: Much improved business process I think is where the right words. These let me give you. An example, just makes sense.
Meta A. Marshall: Health care companies that have nurses nurses are on X twos.
Meta A. Marshall: Sort of basic UC seats, and we're now seeing huge pushed from prospects you want to upgrade those and customers want upgrade those to engage to enabled.
Meta A. Marshall: Better business processes around on call emergency services those kinds of things.
Meta A. Marshall: With prospects, we're also seeing it because it really fits that unique use case more in the middle of a large deal.
Meta A. Marshall: And you see it as regular contact center for their contact center people, but they want to engage for all of our it and HR.
Meta A. Marshall: Professionals that help out their wine business units those kinds of things and so we do view it very much as a separate product. It is not a contact center product. It is not a UC product. It has its own product with its own use cases, but it is very use case specific.
Speaker Change: I think I answered your question.
Meta A. Marshall: Yes.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and our next question comes from Ryan Koontz with Needham <unk> Company. Your line is open.
Ryan Boyer Koontz: Alright, Thanks for the question I'll try not to ask a complex one Sam I know Youre a sales guy at heart.
Ryan Boyer Koontz: So on the.
Ryan Boyer Koontz: On the contact center, you've talked a lot about.
Ryan Boyer Koontz: Go to market changes and some new leadership there I wonder if you can update us on some of the changes you're seeing on your dashboard. So to speak on go to market that future enthused about contact center inflection. Thanks.
Speaker Change: Hi, Love you, that's my kind of question.
Speaker Change: Alright, So what gets me excited so let me I'm going to change your question, just slightly and I'm going to sort of paraphrase it which is.
Speaker Change: Something I hear from investors right. Sam you have confidence this shifts turning around what are your green shoots around contact center and those things what are you seeing that gives us confidence that you think.
Speaker Change: This thing is turning around and we're going to see growth again et cetera et cetera, So first off.
Sam: Last quarter, when we did the win loss analysis, we had the best performance ever in terms of not losing deals because of product.
Speaker Change: So right now we are having a situation where in almost every single RFP re respond yes to every question and yes, we do it yes, we deal with a partner et.
Speaker Change: Et cetera, but yes, it can be done on our platform integrated and working.
Speaker Change: And we are seeing that number two is we're seeing a significant growth in pipeline now remember it takes eight to 12 months to close these deals and a lot of these products just are coming out of beta now so.
Speaker Change: That's part of the Green shoots in the future not to mention the stuff, we're already selling but the.
Speaker Change: The growth in pipeline and.
Speaker Change: And then number three is third party validation right <unk> ranking us number one for customer sentiment or Gartner critical capability, saying positive things about us and these third party analysts they are coming in they're doing their due diligence, they're comparing us to other vendors.
Speaker Change: And there is others I don't want I'm not trying to show any favoritism.
Speaker Change: But these are all the pipe and then lastly look I've spent a lot of time on the road traveling and it's sitting down with our customers and our partners and me spending a half an hour or an hour going through where we're going as a company and them just nodding their heads and saying, yes, you are on track Youre going to meet our needs.
Speaker Change: Youre doing the right things.
Speaker Change: Just deliver what you say you're going to deliver and we will be customers or we'll buy more or however, you want to think about it and so that's really on the dashboard level. It's the increase in pipeline increase in win rates.
Speaker Change: Better performance on Rfps, the better performance of our new products those kinds of things and then just the raw.
Speaker Change: Qualitative sentiment you get when you sit down with customers and partners and saying, yes. This is what we need for our customer base for our ideal customer profile that small to medium size enterprise. It doesn't have a team of a whole bunch of developers. This is perfect. We think we can sell a bunch of this.
Speaker Change: Great that's really helpful and just a quick.
Speaker Change: Back follow up on you talked about new metrics I think it's what I heard in Q1.
Speaker Change: Loud and clear investors like to hear about some subsea gas metrics, whether it's revenue or <unk> et cetera, I think that would go a long way.
Speaker Change: Perfect. Thanks, Brian.
Speaker Change: Thank you. Our next question comes from Brian <unk> with Baird. Your line is open.
Speaker Change: Hi, This is Jonathan on for Willpower. Thanks for taking the question I was hoping you could provide an update as to what youre seeing in the macro more broadly are you seeing stabilization yet in terms of renewal pressures and faxes to eke out things of that nature are things still getting worse and then I guess more importantly, what are you factoring into your guide for fiscal.
Speaker Change: 25.
Speaker Change: So I'll, let Kevin Kevin is that correct.
Kevin Kraus: So I spent a lot of things that I mentioned early on the last question from Brian I spent a lot of time on the road I would say, it's pretty out there.
Kevin Kraus: Layoffs were pretty high in February and March.
Speaker Change: We do see some of that.
Speaker Change: The effects of higher interest rates and those kinds of things on.
Speaker Change: Various industries and capabilities and those kinds of things, we see the positives and negatives, but I would say that the.
Speaker Change: The environment is not pretty it's not great. It's not a lot of tailwind.
Speaker Change: There is some holdover post pandemic right. There were a lot of orders made during the pandemic and some people are right sizing those orders Kevin mentioned it around fuel some of the areas we see that.
Speaker Change: And so I think it's fair to say every CFO wherever it is <unk> with us.
Speaker Change: Is looking at the cost structure of the organization and those kinds of things I would mentioned now.
Speaker Change: We launched operator connect.
Speaker Change: I'd like to say, we're number one on the panel because of our name it's already driven a lot of things we have a Microsoft certified contact center, because an operator connect but there are still hundreds of millions of seats.
Speaker Change: You see and I think low cost solutions unlocks this space and so the fact that we have a low cost operator connect available I hope allows us to accelerate the move from on Prem to cloud.
Speaker Change: Relative to other things and so I'm not exactly fearful.
Speaker Change: Some <expletive>.
Speaker Change: The decline in pricing, because I think becoming more and more convinced that's what's necessary.
Speaker Change: The idea that the entire world is all going to be around $30 per month seats. I think it's just unrealistic and so we need to meet the customers, where they are and try to capture those tens of millions and hundreds of millions of seats that are available.
Speaker Change: We want to have a modeling yes, so look in our.
Speaker Change: And the deal conversations I've been involved in and we've said this before on earlier calls.
Speaker Change: There is there's some caution out there I think people are willing to still do the deals of course, and we're doing them.
Speaker Change: But I think there.
Speaker Change: There is some cautiousness out there may be taking a little bit longer to sign the larger deals and so forth.
Speaker Change: So the cycle might be drawn out a little bit more and more signatories on deals and so forth. So in terms of our guidance. We're basically factoring in the same I think it's not neither pessimistic nor optimistic in the guide.
Speaker Change: But.
Speaker Change: Right now it's been fairly consistent in terms of the attitude out in the marketplace that we see so we just.
Speaker Change: Moving forward in our guidance.
Speaker Change: Under that assumption.
Speaker Change: I would say we're kind of guy.
Speaker Change: Back at our guidance I mean, Kevin and I are both sort of quasi pessimistic when it comes to the macroeconomic environment at least when it comes to Ford modeling that way, we try to be always on the safe side.
Speaker Change: Alright, thanks for the context there.
Speaker Change: And I appreciate the color on operator connect as well.
Speaker Change: I was wondering if you could provide an update just on the teams partnership generally and then changes in that base of users and then I guess more specifically any update on the competitive dynamics at play there with others that are also trying to lock on to that base and users I guess any color around that would be great. Thanks, Okay, and when you mean basically users do you mean, Microsoft teams or do you mean on Prem.
Speaker Change: The CS users, China, what kind of people.
Speaker Change: Thank you.
Speaker Change: I think we're one of the few or only I mean for sure. We're the only vendor that has operator connect direct routing and Microsoft's Native certified contact center, and we see a significantly higher attach rate of contact center with our teams deals.
Speaker Change: Teams is well over 400000 seats. It continues to grow very rapidly we love teams and I think teams is a much better product than those guys. It starts with a Z anyway, so more benefit to Microsoft the better they do the happier I am.
Speaker Change: How do you think it's just a better solution for mid and large enterprises that we participate in.
Speaker Change: So.
Speaker Change: I think teams is here to stay I think telephony is going to be a key component of teams and we have the most richard offering.
Speaker Change: Round that.
Speaker Change: I look forward to doing more teams deals every day.
Speaker Change: And by the way, we get solid margin doing it also so just before anybody second guess it yes, we take solid margin for doing it and our attach rate to contact center is much higher with teams deal so happy about that too.
Speaker Change: Awesome. Thanks, a lot for the perspective.
Speaker Change: Thank you. Our next question comes from George Sutton with Craig Hallum. Your line is open.
Speaker Change: Hey, guys James on for George.
James: Excluding the C pass headwinds infuse down cells grown in the quarter and could you maybe quantify the mix from C path with some of the new products.
Speaker Change: Assumed in our full year guidance.
Speaker Change: Did you say the headwinds and <unk> from Q3 to Q4 is that what youre, referring to I thought you said headwinds from views.
Speaker Change: He said vote from from both.
Speaker Change: From both.
Speaker Change: Yes, so I think the reality is that basically the sequential impact is fundamentally on the fuse and headwinds in the C pass seasonality.
Speaker Change: The rest of the business is basically even.
Speaker Change: Quarter on quarter.
Speaker Change: Yes, I would say don't hold me directly to the third decimal place, but the general answer I think is eyeballing. It is yes is the answer to your question.
Speaker Change: Gotcha.
Speaker Change: And I think you made a comment about continuing to invest in driving awareness and making some other go to market investments can you provide some color on what investments youre, making there and maybe how youre investing those dollars differently than you may have in the past.
Speaker Change: Yes.
Speaker Change: Look in the past, we invested a little bit more in the middle of the funnel, we're investing in more top of the funnel Mount at top of the funnel activities now.
Speaker Change: We've added sales capacity in particular DDR capacity.
Speaker Change: And we're being aggressive about going out and telling our story so.
Speaker Change: Call out the fact that a couple of quarters ago, we hired just in Robbins to be our evangelists and that Guy has been logging a lot of miles on the road, telling just a fantastic story we have.
Speaker Change: Really good product innovation led story, we're still somewhat known as that Stodgy Ucas company, but once we can get that story out we have the references we have the capabilities. We have the case studies I mentioned them on the call Sovereign housing group were up lender.
Speaker Change: Any of those types of things and so it's just a matter of getting people to realize kind of what we've evolved to and we will see those those corresponding.
Speaker Change: Business improvements and we see it already in the pipeline and so I think it's a lot about that.
Speaker Change: Less about spending money on Google AD words, and fighting with the leader in these two big <unk> providers.
Speaker Change: On pricing in every instance, I think that's where we want to get us out of.
Speaker Change: Yeah.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Michael <unk> with Wells Fargo. Your line is open.
unknown: Hey, guys. This is <unk> filling in for Michael Jerry.
unknown: Question on the AIP, So where are you seeing the best opportunities in AI use cases, among customers and is there an avenue for modest monetization here.
Speaker Change: Well, let me answer the second part first the answer is yes, and I would put an app bomb in front of that.
Speaker Change: Yes, I mean, our intelligent customer assistant is an AI enabled voice and digital chatbot and.
Speaker Change: You paid to use it we sell it on a per interaction basis. So yes.
Speaker Change: And we get we're seeing significant usage increases off of it and as I mentioned in my script. All the customers are referenced <unk>. So it works and it works really darn well.
Speaker Change: Where do I see AI.
Speaker Change: Here's what I'll say.
Speaker Change: Our customer base is not a bunch of phds in data science and computer science.
Speaker Change: And they want.
Speaker Change: Large language model with a rag component and ITE, where they have to put it altogether, that's not my customer base, they're not rocket scientists.
Speaker Change: Our customer base wants products that solve their problems and so what we've done is we've taken the AI either through our <unk> partnerships or through our in house shared services and embedded into products that they can use to solve their problems and it works and it works really well I mean I mentioned for example on the.
Speaker Change: In my script devoted right from the UK team pushed out this product it allows local governments to offer.
Speaker Change: Voter information pulling information all these kinds of things all of that is AI driven.
Speaker Change: All AI driven it doesn't voice and digital mainly digital but it's a phenomenal product and it's but the key for me is nobody wants to buy AI, what they want to buy as a solution to a problem. They have and there are more than happy to pay for a solution to a problem. They have they don't want to pay.
Speaker Change: For a bunch of Lego blocks spilled on the floor that they have to put together to do something with.
Speaker Change: Great. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Katherine Travnik with Rosenblatt. Your line is open.
Catharine Anne Trebnick: Oh, yes. Thank you can take any questions sorry for the background noise.
Catharine Anne Trebnick: Last year, you rolled out your ecosystem of partners for AI.
Catharine Anne Trebnick: We wanted to really leverage anybody else's.
Catharine Anne Trebnick: Yes.
Catharine Anne Trebnick: We need some conversational AI can you update us on where you are in that process.
Catharine Anne Trebnick: Or you feel that law.
Speaker Change: So we drive more opportunities for you. Thank you.
Speaker Change: Thanks, Katherine I help you at RSA I hope, you're having a good time and I.
Speaker Change: I speak for the Governor of California. Please leave a lot of your money behind spend a lot while youre there.
Speaker Change: So okay T pets, so look I mean simply put it's working right. So we have if you look at our partnership with cognizant on ICA, We've got AI enabled voice and chat bots that are killing it the results are well above expectations every single customer is the static we have customers.
Speaker Change: That have gone from signed deal to full deployment within 20 days and have seen 50 60, 70% of collections on their use cases, and a 10 out of 10 six that score there are static.
Speaker Change: And Thats really the power of that ecosystem, we have awaken, which where we have double digit number of deals in workwear assist agent assist and we're seeing a lot of traction agent assist market.
Speaker Change: We have and even take a step back I mean, we have relationships with people like meta and.
Speaker Change: With Lama for and open that AI.
Speaker Change: And they're charged CPT model those kinds of things those are all embedded into the platform itself right. So I'm really happy because I think I think sometimes wall street misses that our customer our core ICP customer will pay us for integration there.
Speaker Change: They will pay us for integration because they don't have the capabilities there not a United Airlines <unk> Air.
Speaker Change: Theyre not bank of America Atlantic Union Bank.
Speaker Change: And those kinds of things and so what they'll do is they'll pay us for taking that partnership risk figuring it out and delivering them a complete solution and they pass really darn well for doing that for them.
Speaker Change: Alright.
Speaker Change: <unk>.
Speaker Change: Incremental.
Speaker Change: <unk>.
Speaker Change: The price of that.
Speaker Change: Traditional HFC.
Speaker Change: Reason I am asking.
Speaker Change: Last year.
Speaker Change: He quoted outlined.
Speaker Change: On an average by that time.
Speaker Change: If you did conversational AI on top of the base pricing.
Speaker Change: Absolutely.
Speaker Change: I think the answer is yes, but I think it's a little bit. So I don't know I havent seen gardeners analysis, but I've seen some of the other ones, it's a little bit misleading I am not sure what the right word is because here's what we see right, let's see let's say three years ago. We sold 100 seats on the per seat model and those 100.
Speaker Change: Seats netted us $100, we may only sell 92 seats now so that's $90, but we're going to sell three bots and so the total deal maybe $200, but it's spread across 92 seats instead of 100 seats.
Speaker Change: And so on a per seat basis, it's a significantly bigger number if that makes any sense theres a map here.
Speaker Change: I'm not going to blow you away with Matt.
Speaker Change: So so the two to three X I think is a little bit of a.
Speaker Change: You're reducing the denominator and increasing and increasing the numerator, we definitely see when we sell those bots and we sell the add on AI products total revenue per customer increases significantly.
Speaker Change: And yet again look we're selling a few less seat which is what we expect I don't think anybody is in a freak out about this we've always expected that technology will replace human beings on routine work assignments with technology has done for thousands of years and we'll continue to do for the next thousands of years.
Speaker Change: Yeah.
Speaker Change: Yes ill, let me perfect sense. Thank you.
Speaker Change: Thanks Catherine.
Speaker Change: And remember spend money lots of money.
Speaker Change: Thank you Chris.
Speaker Change: At this time. Please proceed with any closing remarks.
Speaker Change: Thank you so much everyone for joining us today.
Speaker Change: And.
Speaker Change: In conclusion fiscal 2024 and set the stage for what we are capable of achieving we began the year with a clear strategic direction and strong financial position I am incredibly proud of what we've accomplished and I'm excited about the opportunities are ahead I love. The questions were asked today. It really shows you how people are dialing into us and trying to figure out.
Speaker Change: The next step. Thank you once again to everyone for your trust your partnership your questions et cetera, we're committed to delivering on our promises and driving value for all our stakeholders I look forward to talking to you on an upcoming call. Thank you.
Speaker Change: Thank you for your participation. This does conclude the program you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.