Q4 2025 8x8 Inc Earnings Call
Operator: Thank you for standing by and welcome to 8x8's fourth quarter and fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode.
Thank you for standing by and welcome to <unk> fourth quarter and fiscal year 'twenty to 'twenty five earnings conference call.
At this time all participants are in a listen only mode.
Operator: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone to remove yourself from the queue. You may press star 11 again.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone to remove yourself from the queue. You May press Star one one again.
Kate Patterson: I would now like to hand the call over to Kate Patterson, Vice President Finance. Please go ahead. Thank you.
Kate Patterson: I would now like to hand, the call over to Kate Patterson Vice President Finance. Please go ahead.
Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for the fourth quarter of fiscal 2025 with Samuel Wilson, Our Chief Executive Officer, and Kevin <unk>, Our Chief Financial Officer. Following our prepared remarks, there will be a question and answer session. Before we get started let me remind you that our.
Kate Patterson: Good afternoon, everyone.
Kate Patterson: Today's agenda will include a review of our results for the fourth quarter of fiscal 2025 with Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer.
Kate Patterson: Following our prepared remarks, there will be a question and answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including 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 risks and uncertainties that may cause actual results to vary materially from forward-looking statements, as described in our risk factors in our report 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 obligations to update.
Kate Patterson: And today includes forward looking statements about our future financial performance, including 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 risks and uncertainties that may cause actual.
Kate Patterson: Else to vary materially from 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 in the presentation slides reflect our analysis as of today and we have no plans or obligations to update them all financial metrics that will be discussed on this call are non-GAAP.
Kate Patterson: All financial metrics that will be discussed on this call are non-GAAP, unless otherwise noted. These non-GAAP metrics, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP.
Kate Patterson: Unless otherwise noted.
Kate Patterson: These non-GAAP metrics 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 these non-GAAP metrics to the closest comparable GAAP metrics is provided in our earnings release and our earnings presentation slides, which are available on <unk> investor.
Kate Patterson: A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings release and our earnings presentation slides, which are available on 8x8's investor relations website at investors.8x8.com.
Kate Patterson: Relations website at investors Dot dot com with that I'll turn the call over to Samuel Wilson.
Samuel Wilson: With that, I'll turn the call over to Samuel Wilson. Good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full fiscal year 2025. I want to express my deep appreciation to our global team, our customers, our partners, and our investors. This quarter reflects the grit, focus, and long-term thinking that defines 8x8 and gives me real confidence about where we're headed. Before we get into the details of the quarter, I want to address a few of the broader market dynamics. While our opportunity remains large, the economic picture has shifted, and recent tariff actions and global uncertainty have added more noise to an already complex environment.
Samuel Wilson: Good afternoon, everyone. Thank you for joining us today to review, our fourth quarter and full fiscal year 2025.
Samuel Wilson: I wanted to express my deep appreciation to our global team our customers our partners and our investors.
Samuel Wilson: This quarter reflects the great focus and long term thinking that defines it.
The real confidence about where we're headed.
Samuel Wilson: Before we get into the details of the quarter.
Samuel Wilson: To address a few of the broader market dynamics.
Samuel Wilson: Our opportunity remains large economic picture has shifted in recent tariff actions and global uncertainty have added more noise to an already complex environment.
Samuel Wilson: We're staying focused on what we can control, disciplined execution, platform innovation, and delivering outcomes that matter to our customers. markets will ebb and flow. But what doesn't change is our commitment to building a durable cash generated business that creates long term value. And that's exactly what We're not dismissing these challenges, but we've prepared for them. Our business model is built on resilience, and the results for the quarter reflect operational discipline, business quality, and the flexibility to keep investing where it is.
Samuel Wilson: We're staying focused on what we can control disciplined execution platform innovation and delivering outcomes that matter to our customers markets will ebb and flow, but what doesn't change is our commitment to building a durable cash generated business that creates long term value and that's exactly what we're doing.
Samuel Wilson: We're not dismissing these challenges, but we prepared for them our business model is built on resilience.
Samuel Wilson: And the results for the quarter reflect operational discipline.
Samuel Wilson: Quality and the flexibility to keep investing where it counts.
Samuel Wilson: Our theme for today is simple, the flywheel is starting to turn. After several years of foundational work, we are seeing real acceleration in our core 8x8 revenue, platform differentiation, and strategic execution. This momentum is visible in our numbers, in our innovation, and the way our customers are responding.
Samuel Wilson: Our theme for today is simply this.
Flywheel is starting to turn after.
Samuel Wilson: After several years of foundational work, we're seeing real acceleration in our core ebay revenue platform differentiation and strategic execution.
Samuel Wilson: Momentum is visible in our numbers and our innovation and the way our customers are responding.
Samuel Wilson: Let's walk through three key messages we believe define the fiscal 4th quarter and FY25, and why I'm confident we have a solid... As many of you know, we began a massive transformation of 8x8 in earnest in fiscal 2023, on the heels of our acquisition of Fuse. We had a clear plan, fix our financial model, invest in innovation and retention, and deliver measurable CX outcomes for our customers. We took bold steps to set the stage. We began paying down debt to increase our financial flexibility. We rebranded the company and completely rebuilt our go-to-market functions while continuing to invest in innovation.
Samuel Wilson: Let's walk through three key messages, we believe define the fiscal fourth quarter and FY 'twenty five and why I'm confident we have a solid future.
Samuel Wilson: As many of you know we began a massive transformation of API and honest in fiscal 2023.
On the heels of our acquisition of views, we had a clear plan fix our financial model invest in innovation and retention and deliver measurable outcomes for our customers. We took bold steps to set the stage, we began paying down debt to increase our financial flexibility, we rebranded the company and completely.
Samuel Wilson: Rebuilt our go to market functions, while continuing to invest.
Samuel Wilson: <unk>.
Samuel Wilson: Now, as we exit fiscal 2025, I am confident in saying we are starting to see the results of our GTM rebuild, which is not complete yet. For the fourth quarter, year-over-year growth in 8x8, excluding revenue from all FUSE customers, accelerated to 4.6% from 2.7% in Q3. This is the second consecutive quarter of improvement and marks our highest growth rate in 8x8 stand-alone service revenue in 10 quarters. We've also accelerated when looking at the entire fiscal year. For fiscal 2025, 8x8 service revenue, again excluding revenue from Q's customers, grew 2.8% compared to growth of 1.8% in fiscal 2024.
Samuel Wilson: Now as we exit fiscal 2025, I am confident in saying we are starting to see the results of our GPM rebuild which is not complete yet.
Samuel Wilson: For the fourth quarter year over year growth in <unk> excluding.
Samuel Wilson: Excluding revenue from <unk> customers accelerated to four 6% from two 7% in Q3.
Samuel Wilson: This is the second consecutive quarter of improvement and marks our highest growth rate in a standalone service revenue in 10 quarters.
We've also accelerated we're looking at the entire fiscal year for fiscal 2025 8 million service revenue again, excluding revenue from <unk> customers grew two 8% compared to growth of one 8% in fiscal 2024.
Samuel Wilson: Lastly, as Kevin will discuss, the combined cash flow from operations for fiscal 24 and 25 is the highest two years ever at 8x8, and over half our market capitalization as of Friday. We have used the cash wisely, paying off debt and reinvesting in platform innovation that is driving today's growth. Highlights for the fourth quarter include continued rapid adoption of our communications API, also known as CIFAR. The number of interactions surged in the fourth quarter, driving solid growth. The number of customers with three or more products increased 13% year-over-year to more than 700. This reflects increasing cross-sell to our install base as well as landing more new logos with multiple products.
Samuel Wilson: Lastly, as Kevin will discuss the combined cash flow from operations for fiscal 'twenty. Four 'twenty five is the highest two years every day and over half of our market capitalization as of Friday.
Samuel Wilson: We have used the cash wisely paying off debt and reinvesting in platform innovation that is driving today's growth.
Samuel Wilson: Highlights for the fourth quarter include continue.
Samuel Wilson: Continued rapid adoption of our communications API also known as CFS.
Samuel Wilson: The number of interactions surged in the fourth quarter driving solid growth.
Samuel Wilson: The number of customers with three or more products increased 13% year over year to more than 700 customers.
Samuel Wilson: This reflects increasing cross sell to our installed base as well as landing more new logos with multiple products.
Samuel Wilson: Demonstrating this trend, 80% of our top 20 new logo customers and two-thirds of our top 20 add-on deals included both unified communication and contact We saw strong momentum in sales of our Microsoft Teams integrations, with new license sales up 72% in the fourth quarter of 2024. The cumulative number of licenses sold into Teams environments grew 30% year-over-year and now totals more than 550,000. We also continue to see sizable UC only deals as customers migrate from legacy vendors, in particular Avaya, Mitel and Cisco. We win these deals based on the strength of our unified platform, and the initial UCAS deployment is typically the first phase of a multiproduct adoption.
Samuel Wilson: Demonstrating this trend 80% of our top 20, new logo customers and two thirds of our top 20 add on deals included both unified communication and contact center.
Samuel Wilson: We saw strong momentum in sales of our Microsoft teams integration with new license sales up 72% in the fourth quarter of 2024.
Samuel Wilson: The cumulative number of license sold into teams environments grew 30% year over year and now totals more than 550000 feet.
Samuel Wilson: We also continue to see sizeable UC only deals as customers migrate from legacy vendors in particular, Avaya Mitel and Cisco.
Samuel Wilson: We win these deals based on the strength of our unified platform and the initial <unk> deployment is typically the first phase of a multi product adoption.
Samuel Wilson: Finally, we made substantial progress in upgrading customers from the fused service platform to 8x8. We expect to have all the customers fully off the legacy fused platform by the end of the calendar year. I believe these are important signals, especially in the current uncertain environment. We still have a lot of work to do, but we are seeing a steady climb, not just isolated winds.
Samuel Wilson: Finally, we made substantial progress in upgrading customers.
Samuel Wilson: From the US service platform to AIA, we expect to have all the customers fully off the legacy fuse platform by the end of the calendar year.
Samuel Wilson: I believe these are important signals, especially in the current uncertain environment.
Samuel Wilson: We still have a lot of work to do.
But we are seeing a steady climb not just isolated wins that gives me confidence as we look beyond our fiscal year 2026 into fiscal 'twenty, 7% in fiscal 'twenty eight.
Samuel Wilson: That gives me confidence as we look beyond our fiscal year 2026 into fiscal 27 and fiscal 28.
Samuel Wilson: Our second key message this quarter is about innovation, specifically how we've added new AI-based capabilities across our platform. The End of our Technology Partner Ecosystem and Improved Usability and Accessibility. In the quarter, we introduced a series of platform-level enhancements designed to solve systematic challenges in customer experience, employee efficiency, and digital transformation. Before we go through the highlights, it makes sense to add the context of how the 8x8 platform for CX is differentiated and why it matters for customers. You already know that 8x8 was the first in the industry to deliver an integrated platform with contact centers, unified communication, and communications APIs built into a single cloud-native.
Samuel Wilson: Our second key message this quarter is about innovation, specifically, we've added new AI based capabilities across our platform expand our technology partner ecosystem and improved usability and accessibility.
Samuel Wilson: In the quarter, we introduced a series of platform level enhancements designed to solve systematic challenges and customer experience employee efficiency and digital transformation.
Samuel Wilson: Before we go through the highlights it makes sense to add the context of how the AIA platform <unk> is differentiated and why it matters for customers you are.
Samuel Wilson: Already know that <unk> was the first in the industry to deliver an integrated platform with contact center and unified communication and communications API is built into a single cloud native solution.
Samuel Wilson: Agentic AI requires data quantity, quality, and context to deliver on its promise. 8x8's platform, 4CX, delivers all three via the Customer Interaction Data Platform, or CIDP. CIDP captures, connects, and contextualizes interaction data across the organization and across channels. With fully AI-optimized data, customers are able to unlock the potential of an expanding portfolio of powerful AI capabilities, including intelligent routing, incentive analysis, live agent guidance, journey optimization, and a host of other capabilities available from 8x8 and our partners. In early April, we showcased to our UK Customer Advisory Council and our global industry analysts how our unified platform and approach to data differentiated our solutions, and they were notably important.
Samuel Wilson: Agenda, AI requires data quantity quality and context to deliver on its promise.
Samuel Wilson: Platform for CX delivers all three three via the customer interaction data platform for CIBC.
Samuel Wilson: IDP captures connect and contextualize interaction data across the organization and across channels.
Samuel Wilson: With fully AI optimized data customers are able to unlock the potential of an expanding portfolio of powerful AI capability.
Samuel Wilson: <unk> routing set of analysis live agent guidance journey optimization and host of other capabilities available from a buy and our partners in.
Samuel Wilson: In early April we showcased to our UK customer Advisory Council and our global industry analysts, how our unified platform and approach the data differentiating our solutions and they were notably in practice, we were comments like this.
Samuel Wilson: We heard comments like, quote, this feels like a company starting to go on offense, not just cleaning up from the past. And, quote, your biggest differentiator might be how you show up. There's a level of honesty and transparency we don't often see in the media. During these events, we showcased recent innovations, including platform-wide AI chat summarization and composed with AI capabilities. Advanced CX solutions that leverage the power of our platform, such as 8x8 Journey IQ, which gives businesses real-time visibility into the customer journey, not just inside the contact center, but across every department and channel.
Samuel Wilson: This feels like a company starting to go on offense, not just cleaning up from the past and well your biggest differentiator might be how you show up.
Samuel Wilson: There is a level of honesty transparency, we don't often see in this space.
Speaker Change: During these events, we showcased recent innovations including platform wide AI chat summarization and compose with AI capability.
Speaker Change: <unk> CX solutions that leverage the power of our platform such as AIA journey, IQ, which gives businesses real time visibility into the customer journey not just inside of the contact center, but across every department in channel.
Samuel Wilson: and 8x8 AI Orchestrator, which connects communications flows using a GUI across systems, ensuring that transitions between bots, agents, and departments are seamless, smart, and contextual.
Speaker Change: And AI AI, Orchestrator, which connects communications flows using a gooey across systems, ensuring the transitions between bot agents and department.
Speaker Change: Smart and contextual.
Samuel Wilson: Standing in Omni-Channel, we became the first... Contact center provider to fully integrate rich communication services or RCS business methods. enabling rich, branded, two-way messaging for digital channels. I'm proud to say we are carrying traffic today, and I'm bullish on our success. We launched Apple Pay and Google Pay support via 8x8 SecurePay, streamlining transactions and expanding self-service payment options. We also expanded our Technology Partner Ecosystem, or TPES for short, to provide customers with best-in-breed from a single-source solution. New integrations include CallCabinet. to deliver industry-leading compliant call recording for regulated industries. SpinSci, powering EHR-compliant patient engagement in healthcare, and lastly Meltwater, allowing social media engagement to be routed, tracked, and resolved within the contact center.
Speaker Change: Expanding in Omnichannel, we became the first contact center provider to fully integrate rich communication services or Rcs business message.
Speaker Change: Tabling rich branded two way messaging for digital channels I am proud to say, we are carrying traffic today and I'm bullish on Rcs.
Speaker Change: Launched Apple pay and Google pay support via API secure pay.
Speaker Change: Streamlining transactions and expanding self service payment options.
Speaker Change: We also expanded our technology partner ecosystem or <unk> for short to provide customers with best in breed from a single source solutions.
Speaker Change: New integrations include call cabinet.
Speaker Change: To deliver industry, leading compliance all recording for regulated industries spin side.
Speaker Change: E H, our compliant patient engagement healthcare, and lastly, meltwater, allowing social media engagement to be routed track them resolved within the contact center.
Samuel Wilson: As with other TPEST partners, these solutions are deeply integrated with our platform and our customer interaction data layer to deliver complete solutions and specific outcomes. This allows the customers to punch above their weight and deliver tailored, omni-channel customer experiences typically available only to the largest. Our platform strategy, continued innovation, and our focus on outcomes is clearly resonating.
Speaker Change: As with other cheapest partners. These solutions are deeply integrated with our platform and our customer interaction data layer to deliver complete solutions and specific outcomes. This allows our customers to punch above their weight and deliver tailored omnichannel customer experience is typically available only to the largest enterprises.
Speaker Change: Our platform strategy continued innovation and our focus on outcomes is clearly resonating with customers.
Samuel Wilson: Let me highlight AQM. A prominent UK-based travel company who chose 8x8 Platform for CX for its seamless communication and collaboration across the organization, combined with the scalability and global reach to power their ambitious. They are deploying 8x8 work, contact center, and voice recording. A home building products company, where our success was driven by our compelling AI vision and the ability to consolidate multiple legacy systems. Our team delivered a tailored, impactful demonstration that showcased how 8x8 could simplify operations and deliver the features they needed. A leading UK-based mortgage lender, where we demonstrated a foolproof solution that aligned closely with their strategic goals.
Speaker Change: Let me highlight a few wins.
Speaker Change: A prominent UK based travel company, who chose API platform for CX for seamless communication and collaboration across the organization combined with the scalability and global reach to power their ambitious expansion.
Speaker Change: They are they are deploying AI work contact center and voice for team.
Speaker Change: Our homebuilding products company, where our success was driven by our compelling AI vision and the ability to consolidate multiple legacy systems. Our team delivered a taylor impacting the demonstration at showcase how AIA could simplify operations and deliver the features they need.
Speaker Change: A leading UK based mortgage lender, where we demonstrated a foolproof solution that aligns closely with their strategic goals, we stood out from competitive solutions with a unified user experience and tangible cost benefits.
Samuel Wilson: We stood out from competitive solutions with a unified user experience and tangible cost benefit. Products included 8x8 Voice for Teams, 8x8 Contact Center with Enhanced IVR. A U.S.-based network of medical clinics were able to demonstrate the integration of their EHR system with 8x8 Contact Center, an initiative that the competition was either unable or unwilling to support. Each of these wins, and other wins profiled in the earnings deck, demonstrate the breadth of our solution. Perhaps most importantly, they showcase our consultative, partner-frost approach, solving customer challenges and delivering outcomes.
Speaker Change: Products included API voice for teams by a contact center with enhanced AVR.
Speaker Change: A U S based network of medical clinics, where we're able to demonstrate the integration of their EHR system with eight by a contact center and initiatives. The competition was either unable or unwilling to support.
Speaker Change: Each of these wins and other wins profiles in the earnings deck demonstrates the breadth of our solution.
Speaker Change: Perhaps most importantly, we showcased our consultative partner first approach solving customer challenges and delivering outcomes.
Samuel Wilson: The third and final key message is about the multiple transitions we are navigating in an uncertain economic environment. We believe these transitions are essential to position us for long-term, durable growth, profitability, and value creation. Let me touch on the largest of these initiatives. First, our go-to-market rebuild and channel evolution. After slashing costs in fiscal 23 and early fiscal 2024, we have rebuilt our go-to-market model around solution selling and partner enablement. This has required making changes in our sales organization and building innovative training and robust processes for accountability. And we're seeing performance improve. The next initiative is to continue to grow our enterprise business while maintaining our installed base of small business customers.
Speaker Change: The third and final key message is about the multiple transitions. We are navigating an uncertain economic environment. We believe these transitions are essential to position us for long term durable growth profitability and value creation let.
Speaker Change: Let me touch on the largest of these initiatives first our go to market rebuilding channel evolution. After slashing costs in fiscal 'twenty three in early fiscal 2024, we have rebuilt our go to market model around solution selling and partner enablement.
Speaker Change: This is required making changes in our sales organization and building innovative training and robust processes for accountability.
Speaker Change: And we're seeing performance improve.
Speaker Change: The next initiative is continuing to grow our enterprise business, while maintaining our installed base of small business customers.
Samuel Wilson: We know our innovation strategy and focus on outcome resonates with small and medium-sized enterprises. And we are investing in targeted programs to reach new logos and expand our wallet share within existing customers. But, this does not mean we are abandoning our installed base of small business customers. Investments expanding AI capabilities in 8x8 work and other UC feature releases along with resources dedicated to education and customer success. all support this customer code. Finally, we continue to upgrade the Fuse customer-based 8x8 platform. We recognize that not all of the remaining customers will make the transition and we are being conservative in our estimate of the amount of revenue we will retain.
Speaker Change: We know our innovation strategy and focus on outcome resonates with small and medium sized enterprises.
Speaker Change: And we are investing in targeted programs to reach new logos and expand our wallet share within existing customers.
Speaker Change: But this does not mean, we are abandoning our installed base of small business customers.
Speaker Change: Investments expanding AI capabilities in API work and other UC feature releases, along with resources dedicated to education and customer success.
Speaker Change: All support this customer cohort.
Speaker Change: Finally, we continue to upgrade the fuse customer based API platform.
Speaker Change: We recognize that not all of the remaining customers will make the transition and we are being conservative in our estimate of the amount of revenue we will retain.
Samuel Wilson: Those that upgrade are exceptionally happy and have a net dollar retention rate above 100%.
Speaker Change: Those upgrades are exceptionally happy and have a net dollar retention rate above 100%. These.
Samuel Wilson: These transitions are not easy, but they're setting the stage for what comes next. As we look forward, we remain realistic about the challenges ahead, but we are seeing signs of a tailwind. Our 8x8 business is growing, and our growth is accelerating. Again, growth is not a straight line, but we continue to believe that high single-digit revenue growth and double-digit operating margins are achievable in the next few years. Our innovation engine is delivering, and our own platform and new products are being adopted at scale. And we are navigating through the current economic conditions while ensuring our GTM and financial foundations are stronger than they've been in years.
Speaker Change: These transitions are not easy, but they are setting the stage for what comes next.
Speaker Change: As we look forward, we remain realistic about the challenges ahead, but we are seeing signs of a tailwind.
Speaker Change: Our <unk> business is growing and our growth is accelerating.
Speaker Change: Again growth is not a straight line, but we continue to believe that high single digit revenue growth and double digit operating margins are achievable in the next few years.
Speaker Change: Our innovation engine is delivering.
Speaker Change: In our own platform and new products are being adopted.
Speaker Change: Scale.
Speaker Change: And we are navigating through the current economic conditions, while ensuring our GTS and financial foundations are stronger than they've been in years.
Samuel Wilson: Our guidance for Fiscal 26 reflects the impacts of our decision to close down the Fuse platform and that impact lessens substantially in Fiscal 2027. We believe that, with continued execution, we can achieve that high single-digit service revenue growth by fiscal 2028, and we believe we can improve each year between now and then.
Speaker Change: Our guidance for fiscal 'twenty six reflects the impacts of our decision to close down the fuse platform.
Speaker Change: And that impact lessons substantially in fiscal 2027.
Speaker Change: We believe that with continued execution, we can achieve that high single digit service revenue growth by fiscal 2028, and we believe we can improve each year between now and that thank.
Samuel Wilson: Thank you for your continued support.
Speaker Change: Thank you for your continued support I will now turn the call over to Kevin to take you through detailed financial performance.
Kevin Kraus: I will now turn the call over to Kevin to take you through a detailed financial... Thanks, Sam. Good afternoon, everyone, and thank you for joining us for our fiscal fourth quarter earnings call. As we wrap up fiscal 2025, I want to recognize our team's unwavering commitment to advancing our strategic priorities by improving operational efficiency, generating strong cash flow, and driving meaningful innovation. In Q4, we maintained focused execution, prudent cost management, and steady progress on platform innovation. all while navigating a challenging macroeconomic backdrop. The fourth quarter marked another period of solid performance, including a new record in communications platform usage revenue, strong profit margins, and another quarter of positive cash flow from operations following last quarter's record.
Kevin: Thanks, Tim Good afternoon, everyone and thank you for joining us for our fiscal fourth quarter earnings call.
Kevin: As we wrap up fiscal 2025, I want to recognize our team's unwavering commitment to advancing our strategic priorities by improving operational efficiency generating strong cash flow and driving meaningful innovation.
Kevin: In Q4, we maintain focused execution.
Speaker Change: You didn't cost management and steady progress on platform innovation.
Kevin: All while navigating a challenging macroeconomic backdrop.
Kevin: The fourth quarter marked another period of solid performance, including a new record and communications platform usage revenue strong profit margins and another quarter of positive cash flow from operations following last quarter's record.
Kevin Kraus: Q4 marked our 17th straight quarter of positive operating cash flow and non-gap operating profits. We continued our thoughtful approach to debt reduction, making a $15 million term loan prepayment during Q4 and an additional $15 million payment in April during fiscal Q126. With these actions, we have now reduced the principal balance of our debt by over $209 million, or approximately 38% since the August 2022 budget.
Kevin: Q4 marked our 17th straight quarter of positive operating cash flow and non-GAAP operating profit.
Kevin: We continued our thoughtful approach to debt reduction, making a $15 million term loan prepayment during Q4, and an additional $15 million payment in April during fiscal Q1 'twenty six.
Kevin: With these actions we have now reduced the principal balance of our debt by over $209 million or approximately 38% since the August 2022 peak.
Kevin Kraus: Thank you. Detailed results are available in our press release and trended financials on the Investor Relations site. But I'll walk through the key Unless otherwise noted, all figures, aside from revenue and cash flow, are on the non-GAAP. Total revenue was $177 million, near the midpoint of our guidance. Service revenue totaled $171.6 million, also near the mid- Our service revenue, excluding fuse, grew year over year. This growth was offset by the anticipated decline in revenue from legacy fuse companies. Importantly, we made significant progress in upgrading these customers to the 8x8 platform. Reducing the remaining revenue on the Fuse platform to under 5% of service revenue.
Kevin: Detailed results are available in our press release and trended financials on the Investor Relations site, but I'll walk through the key highlights.
Kevin: Unless otherwise noted all figures aside from revenue and cash flow on a non-GAAP basis.
Kevin: Total revenue was $177 million near the midpoint of our guidance range service revenue totaled $171 $6 million also near the midpoint of guidance.
Kevin: Our service revenue, excluding Skus grew year over year. This growth was offset by the anticipated decline in revenue from legacy fuse customers Importantly, we made significant progress in upgrading these customers to the API platform, reducing the remaining revenue on the <unk> platform to under 5%.
Kevin: Of service revenue down from approximately 11% in Q4 24.
Kevin Kraus: down from approximately 11% in Q4-24. The pace of these upgrades has accelerated over the past few months, and we remain on track to complete the transition by the end of calendar year 2025. This will further simplify our operations and enhance customer engagement. These results underscore the resilience of our core business, even as we address the fused relationship. Gross margin for the quarter was 69% at the low end of our guidance. This was driven by revenue mix as lower margin platform usage revenue grew to approximately 13.5% of total revenue, up both sequentially and year over year.
Kevin: The pace of these upgrades has accelerated over the past few months and we remain on track to complete the transition by the end of calendar year 2025.
Kevin: This will further simplify our operations and enhance customer engagement.
Kevin: These results underscore the resilience of our core business, even as we address the fuse related headwinds.
Kevin: Gross margin for the quarter was 69% at the low end of our guidance range. This was driven by revenue mix as lower margin platform usage revenue grew to approximately 13, 5% of total revenue up both sequentially and year over year.
Kevin Kraus: The gross margin of our underlying subscription business remained healthy and consistent with prior quarters. Our total operating expenses remained in line with prior periods, reflecting our continued approach to responsible cost management. As a result, we delivered 10% operating margin at the high end of our guidance. We also made meaningful progress on GAAP profitability, marking our third consecutive quarter of GAAP operating income, an important milestone. Stock-based compensation declined to 4.6% of total revenue, a multi-year low. down over $22 million year-over-year and nearly $50 million or 55% over two years, reflecting our shift to primarily cash-based compensation for most employees, which is captured in our non-GAAP offer.
Kevin: The gross margin of our underlying subscription business remained healthy and consistent with prior quarters.
Kevin: Our total operating expenses remained in line with prior periods, reflecting our continued approach to responsible cost management.
Kevin: As a result, we delivered 10% operating margin at the high end of our guidance range.
Kevin: We also made meaningful progress on GAAP profitability, marking our third consecutive quarter of GAAP operating income and important milestone.
Kevin: Stock based compensation declined to four 6% of total revenue a multi year low down over $22 million year over year at nearly $50 million or 55% over two years, reflecting our shift to primarily cash based compensation for most employees, which is captured in our.
Kevin: non-GAAP operating income.
Kevin Kraus: Turning to the balance sheet, we ended Q4 with $89.3 million in cash, cash equivalents, and restricted cash, down approximately $15 million sequentially due to the term loan prepayment made in the The Q4 balance sheet reflects $11.6 million in current term loan liabilities, net of unadvertised discounts and issuance. corresponding to $12 million in principal payments due over the next 12 months. Following our $15 million prepayment in April, we have no remaining short-term debt obligations for fiscal year 2026. with the next scheduled quarterly payment due on June 30, 2020. Our net debt to trailing 12-month EBITDA ratio was approximately 2.7x, down from over 6x in fiscal Q2'23, enhancing our financial flexibility for strategic execution.
Kevin: Turning to the balance sheet, we ended Q4 with $89 $3 million in cash cash equivalents and restricted cash down approximately $15 million sequentially due to the term loan prepayment made in the quarter.
Kevin: The Q4 balance sheet reflects $11 $6 million in current term loan liabilities net of unamortized discounts and issuance costs corresponding to $12 million in principal payments due over the next 12 months.
Kevin: Following our $15 million prepayment in April we have no remaining short term debt obligations for fiscal year 2026, with the next scheduled quarterly payment due on June 32026.
Kevin: Our net debt to trailing 12 month EBITDA ratio was approximately two seven times down from over six times in fiscal Q2, 'twenty three enhancing our financial flexibility for strategic execution.
Kevin Kraus: We also reported stockholders equity growth for the fourth consecutive quarter, underscoring steady progress in strengthening our capital position. Our remaining performance obligation ended at $780 million, up approximately 1% year-over-year, reflecting the strength of our multi-year contractual commitments and a healthy recurring revenue base. We generated $5.9 million dollars in operating cash flow in Q4, building on a record Q3 and bringing full year cash flow to $63.6 million dollars, within the $61 to $65 million dollar range provided last quarter. Over the past two years, we've generated more than $142 million in operating cash. highlighting the strength of our business model and our ability to fund strategic investments while evolving into a solution-based CX.
Kevin: We also reported stockholders' equity growth for the fourth consecutive quarter underscoring steady progress in strengthening our capital position.
Kevin: Our remaining performance obligations ended at $780 million up approximately 1% year over year, reflecting the strength of our multi year contractual commitments and a healthy recurring revenue base.
Kevin: We generated $5 9 million in operating cash flow in Q4 building on our record Q3, and bringing full year cash flow to $63 $6 million within the 61% to $65 million range provided last quarter.
Kevin: Over the past two years, we've generated more than $142 million in operating cash flow highlighting the strength of our business model and our ability to fund strategic investments, while evolving into a solutions based CX platform.
Kevin Kraus: While cash flow may fluctuate due to seasonality, investment timing and other factors, we remain committed to discipline capital management in support of long term growth and shareholder value. We continue to invest in simplifying how customers and partners engage with 8x8, enhancing our direct, channel and digital go-to-market strategies and strengthening our technology ecosystem through advanced AI integration. With a focus on mid-market and enterprise customers, we're equipping our sales teams with new enablement tools and training, while expanding our use of AI and automation across both front and back office functions to drive productivity and efficiency. These investments are central to unlocking long-term operating leverage, enabling scalable engagement, reducing our cost base, and supporting sustained revenue growth and profitability.
Kevin: While cash flow may fluctuate due to seasonality investment timing and other factors, we remain committed to disciplined capital management in support of long term growth and shareholder value.
Kevin: Yeah.
Kevin: We continue to invest in simplifying how customers and partners engage with <unk> by enhancing our direct channel and digital go to market strategies and strengthening our technology ecosystem through advanced AI integration.
Kevin: With a focus on mid market and enterprise customers. We're equipping our sales teams with new enablement tools and training, while expanding our use of AI and automation across both front and back office functions to drive productivity and efficiency.
Kevin: These investments are central to unlocking long term operating leverage, enabling scalable engagement, reducing our cost base and supporting sustained revenue growth and profitability.
Kevin Kraus: As we fund these growth initiatives, we expect some near-term pressure on non-GAAP operating markets. However, with over $60 million of debt retired in fiscal 25 and an additional $15 million prepaid in April, our quarterly interest burden has meaningfully declined. As a result, we expect non-GAAP net income to remain stable. even with most even with modest margin compression. supporting consistent bottom line performance while positioning the business for long term growth. We continue to manage our cost structure with a focus on efficiency, aiming to balance stability with support for growth and innovation. Our target expense mix is roughly 14 to 15% of revenue for R&D.
Kevin: As we fund these growth initiatives, we expect some near term pressure on non-GAAP operating margin.
Kevin: However, with over $60 million of debt retired in fiscal 'twenty, five and an additional 15 million prepaid in April our quarterly interest burden has meaningfully declined.
Kevin: As a result, we expect non-GAAP net income to remain stable.
Kevin: Even with most even with modest margin compression supporting consistent bottom line performance, while positioning the business for long term growth.
Kevin: We continue to manage our cost structure with a focus on efficiency aiming to balance stability with support for growth and innovation.
Kevin: Our target expense mix is roughly 14% to 15% of revenue for R&D.
Kevin Kraus: 33 to 35% for sales and marketing and around 10% for G&A.
Kevin: 33% to 35% for sales and marketing and around 10% for G&A.
Kevin Kraus: At the same time, we maintain flexibility to adapt spending as needed, an important advantage in today's uncertain macro environment.
Kevin: At the same time, we maintain flexibility to adapt spending is needed and important advantage in today's uncertain macro environment.
Kevin Kraus: For Fiscal Q126, we are guiding as follows. Service revenue between $170 million and $175 million. total revenue between $175 million and $182 million.
Kevin: For fiscal Q1, 'twenty six we are guiding as follows.
Kevin: Service revenue between $170 million and $175 million.
Kevin: Total revenue between $175 million and $182 million.
Kevin Kraus: and non-gap operating margin between 9 and 9.5. In fiscal Q126, we expect interest expense, including amortization of debt issuance. to be approximately $4.9 million based on current interest rates and our outstanding debt balance. Cash interest paid is projected to be around $2.6 million as the semi-annual interest on our 2028 convertible notes is not payable during the quarter. Our term loan interest rate assumption remains at approximately 7.3%, reflecting SOFR plus 3%.
Kevin: Our non-GAAP operating margin between nine and nine 5%.
Kevin: In fiscal Q1, 'twenty six we expect interest expense, including amortization of debt issuance costs to be approximately $4 9 million.
Just on current interest rates and our outstanding debt balance.
Kevin: Cash interest paid is projected to be around $2 6 million.
Kevin: As the semiannual interest on our 2028 convertible notes is not payable during the quarter.
Kevin: Our term loan interest rate assumption remains at approximately seven 3%, reflecting sofa plus 3%.
Kevin Kraus: We anticipate fully diluted non-GAAP earnings per share in the range of $0.07 to $0.09 and operating cash flow between $5 million and $6 million. For fiscal year 2026, our guidance reflects the range of potential outcomes given ongoing macroeconomic uncertainty and FX volatility, especially with about one-third of our revenue generated outside the fiscal year.
Kevin: We anticipate fully diluted non-GAAP earnings per share in the range of seven to nine.
Kevin: And operating cash flow between $5 million and $6 million.
Kevin: For fiscal year 2026, our guidance reflects the range of potential outcomes, given ongoing macroeconomic uncertainty and FX volatility, especially with about one third of our revenue generated outside the U S.
Kevin Kraus: For the full fiscal year 2026, we are guiding as follows. Service revenue is expected to be between $682 million and $702 million. Total revenue is expected to be between $702 million and $724 million. Full-year operating margin is projected between 9% and 10%, translating to non-GAAP operating income of approximately $67.5 million at the midpoint of our full-year revenue and operating margin. As I noted earlier, even with a year-over-year step down in operating margin, we expect our non-GAAP net income to remain relatively stable with fiscal 2025, given the expected reduction in interest We expect fully diluted non-GAAP earnings per share to be in the range of $0.34 to $0.37 for the year, assuming approximately 144 million average diluted shares outstanding.
Kevin: For the full fiscal year 2026, we are guiding as follows.
Kevin: Service revenue is expected to be between $682 million and $702 million.
Kevin: Total revenue is expected to be between $702 million and $724 million.
Kevin: Full year operating margin is projected between 9% and 10% translating to non-GAAP operating income of approximately $67 $5 million at the midpoint of our full year revenue and operating margin guidance.
Kevin: As I noted earlier, even with a year over year step down in operating margin. We expect our non-GAAP net income to remain relatively stable with fiscal 2025, given the expected reduction in interest expense.
We expect fully diluted non-GAAP earnings per share to be in the range of 34 to 37 four.
Kevin: For the year, assuming approximately 144 million average diluted shares outstanding and we anticipate cash flow from operations to be between 40 and $50 million for the full year.
Kevin Kraus: And we anticipate cash flow from operations to be between $40 and $50 million for the full year.
Kevin Kraus: To close, I want to thank our employees for their ongoing dedication and execution. Fiscal 2025 was a year of meaningful progress. tightening our operating model, delivering consistent profitability, and strengthening our foundation for growth.
Kevin: To close I want to thank our employees for their ongoing dedication and execution.
Kevin: Fiscal 2025 was a year of meaningful progress tightening our operating model delivering consistent profitability and strengthening our foundation for growth.
Kevin Kraus: As we enter fiscal 2026, our priorities remain clear. focused execution, invest in scalable innovation, and continue delivering value for our customers and shareholders.
Kevin: As we enter fiscal 2026, our priorities remain clear.
Kevin: Focused execution.
Kevin: Best in scalable innovation and continue delivering value for our customers and shareholders.
Operator: With that, I'll turn it over for Q&A. As a reminder to ask a question, you will need to press star one one on your telephone to remove yourself from the queue. You may press star one one again.
Kevin: With that I'll turn it over for Q&A.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to remove yourself from the queue. You May Press Star one one again please.
Operator: Please stand by while we compile the Q&A roster. I'm looking at the numbers.
Speaker Change: Please standby, while we compile the Q&A roster.
Peter Levine: I find that Our first question comes from the line of Peter Levine of Evercore. Please go ahead, Peter. Great. Thank you for taking my question. You know, maybe can you share with us what you're hearing from your field reps, from your partners in terms of the macro impact? Is it sales cycles? Is it just the delay in spending? Maybe just give us a little bit more color in what you're seeing and hearing from the macros.
Speaker Change: Our first.
Speaker Change: Question.
Speaker Change: Comes from the line of Peter Levine of Evercore. Please go ahead Peter.
Speaker Change: Alright. Thank you for taking my question, maybe can you share with us what you're hearing from your field reps from your partners in terms of the macro impact is it sales cycles is it just a delay in spending maybe just give us a little bit more color on what youre seeing or hearing from some of the macro site.
Samuel Wilson: Sure, Peter, and Sam, and thanks for the question. Look, I'll give you a little bit of a play-by-play, right? So in March, as the tariff stuff in April was really taking off, we noticed in the U.S. a, for lack of a better word, a bit of chaos. Some was elongated deal cycles, some was shrinking of deal size, depending on the urgency around the need to switch. So if you were to end a contract with an on-prem provider and those kinds of things, you did a deal, but you might have done smaller than you originally wanted, or you broke it up into more phases and those kinds of things.
Peter Levine: Sure Peter.
Peter Levine: And thanks for the question, but I'll give you a little bit of a play by play right. So in March as the tariff stuff and April is really taking off.
Noticed in the U S.
Peter Levine: Hey.
Peter Levine: And for lack of a better word a bit of chaos.
Peter Levine: Somewhat elongated deal cycles, some was shrinking of deal size, depending on the urgency around the need to switch. So if you were in the contract with an on Prem provider in those kinds of things you did a deal but you might have been smaller than you. Originally wanted or you broke it up into more phases and those kinds of things.
Samuel Wilson: As this quarter's been rolling out, so April was a little bit of all over the place, and May's been a little calmer. I don't know how you guys feel on the equity market side of the house, but it's just been a little calmer on the old U.S. technology side of the house. In terms of the rest of the world, I don't know, they just ignore us. I mean, it seems like internal to us, it felt like at least to me, two different markets. There was the U.S. and the rest of the world, and the rest of the world was chugging along.
Peter Levine: This quarter has been rolling out so April was a little bit of all over the place and May has been a little calmer.
Peter Levine: I don't know how you guys feel on the equity market side of the house, but it's just been a little calmer than the old U S technology side of the house in terms of the rest of the world I don't know they just ignore us I mean, it seems like internal to us it felt like at least to me two different markets. There was a U S and the rest of the world and the rest of the World is chugging along.
Operator: Perfect.
Peter Levine: And then, David, can you clarify? I know there's a lot going on with the changes to the go-to-market. You said there's still some that needs to be addressed, or you're still working through a few other changes. Maybe just walk us through what remains in terms of the go-to-market.
Peter Levine: Perfect and then maybe can you clarify I know, there's a lot of it going on.
Speaker Change: Changes to the go to market you said, there is still something that needs to be addressed or you're still working through a few other changes maybe just walk us through what what remains in terms of your go to market and then maybe just Kevin real quick can you give us like an adjusted service revenue growth for fiscal 'twenty six excluding the fuse. Thank you.
Samuel Wilson: And then maybe just, Kevin, real quick, can you give us, like, an adjusted service revenue growth for fiscal 26, excluding the fews? Thank you. Okay, so, you know, Peter, so it's a work in progress. So we took a company that focused basically 100% of its business, you know, four years ago in the notion of buy what you're buying today in the cloud, to buy a solution and an outcome around customer engagement from us. And so that's required a complete, you know, rebuild of the sales and marketing engine. You'll notice it in our rebrand, you'll notice it in how we structure our sales organization, all those kinds of things.
Peter Levine: Okay. So.
Peter Levine: Peter It's a work in progress. So we took a company that focused basically 100% of its business.
Peter Levine: Four years ago in the notion of buy what you are buying today in the cloud too biased solution and the outcome around customer engagement from us and so thats required a complete.
Peter Levine: Rebuild of the sales and marketing engine.
Peter Levine: Youll notice in our rebrand you'll notice it and how we structure our sales organization all those kinds of things.
Samuel Wilson: A lot of the heavy reorganization work's been done. With the work at SKO this year, we've launched our new sales processes and things around more solution selling and outcome based selling. And now it's just a matter of fine tuning the engine. I would say we're, you know, 60, 70% of the way through that. But it takes a while because, I mean, you know, the deal cycles, right? They're nine months. So as we launch these things, we get to sort of see, you know, seven, eight, nine months later to see how well they've taken and how it's working.
Peter Levine: A lot of the heavy reorganization work has been done.
Peter Levine: With the work at S. K O. This year, we've launched our new sales processes and things around more solution selling in outcome based selling and now it's just a matter of fine tuning the engine I would say, we're 60% 70% of the way through that but it takes a while because you are in you know the deal cycles right. There at nine months. So as we launch these things we get to sort of see.
Peter Levine: 789 months later to see how well they've taken and how it's working and so I think thats a lot of fine tuning that I would expect over the next year.
Kevin Kraus: And so I think that's a lot of fine tuning that I would expect over the next year. And Peter, in terms of the revenue growth excluding FUSE, so Sam mentioned in the script also, it was 4.6% year-over-year, and it's an increase from the growth from Q3. So we're a positive grower excluding the FUSE business. He also wanted fiscal year, which is what I gave you. 3%-ish. Yeah, 2.9. 2.9%. I think he's asking for next year, though. Oh, he said next year. Yeah, he's asking, actually. He's asking, that's all nice. He could have gotten that out of the way.
Peter Levine: Yes, Peter in terms of the revenue growth excluding <unk>. So San mentioned in the script also it was 446% year over year.
Speaker Change: It's an increase from the growth from Q3, so we're positive grower excluding the fuse business. He also in fiscal year, <unk>, which is what I gave you.
Speaker Change: 3% ish, yes.
Speaker Change: Two 9%.
Speaker Change: I think he's asking for next year, though.
Speaker Change: Alright.
Speaker Change: Yes, that's a nice so you could have gotten that out.
Kevin Kraus: He really wants to know what you're forecasting for next year. Got it. My mistake, Peter. Yeah, I don't have the number handy, but it'd be a positive growth rate. The headwinds go away next year, so we should have a positive number again. Great, thank you guys for taking my question. Thank you.
Speaker Change: Really want to know what Youre forecasting for next year got it got it.
Peter Levine: Mistake Peter Yes.
Peter Levine: The number handy, but it would be a positive growth rate. The headwinds go away next year. So we should have a positive number yet.
Speaker Change: Great. Thank you guys for taking my question.
Peter Levine: Thanks.
Sitikantha Panigrahi: Our next question comes from the line of Siti Panigrahi of Mizzou. Please go ahead, Siti. Hi, can you hear me? Yes, we can. All right. Great.
Speaker Change: Thank you. Our next question comes from the line of Cte Pentagon.
Kazuo: Kazuo. Please go ahead.
Kazuo: Hi.
Kazuo: Hear me.
Kazuo: Yes, we can.
Kazuo: Alright, great.
Sitikantha Panigrahi: So just wanted to follow up on your growth for next year and year after, you talk about even driving to high single-digit growth. How much of that is mostly driven by the go-to-market changes you are planning to do versus customer-like demand environment, like customers started spending? Because the reason I'm asking is we're hearing from some of your peers about growth deceleration mostly in the CCAS and UCAS space. So I would love to hear your assumption on that growth re-acceleration. So I don't think it has anything to do with the market. We never really forecast the market's going to substantially change its growth rate.
Kazuo: So just wanted to follow up on your <unk>.
Kazuo: Good.
Kazuo: For next year and after you talk about even drive into high single digit growth.
Speaker Change: How much of that mostly driven by the go to market changes their plan Youre planning to do versus.
Speaker Change: Customer demand environment like customer started spending because the reason I'm asking is we're hearing from some of your peers about growth deceleration mill, mostly in the <unk> and <unk>. So would love to hear your jumps in on that.
Speaker Change: Grocery exploration.
Speaker Change: So I don't think it has anything to do with the market, we never really forecast the market is going to substantially change its growth rate, we generally forecast whatever the most recent third party analyst estimates are for the growth rate for the market. We really based on the fact that we've got as we said in the script significant increase in the number of multi product customers.
Samuel Wilson: We generally forecast whatever the most recent, you know, third-party analyst estimates are for the growth rate for the market. We really base it on the fact that we've got, you know, as we said in the script, significant increase in the number of multiproduct customers. So over half of our subscription revenue is now with customers with two-plus products, and we see a better retention rate with those. So that'll flow through the model. We're continuing to sell our new products. That flows through the model. We've continued to expand our distribution. That flows through the model. And we're restructuring and improving our performance of our GTM spending.
Speaker Change: Over half of our subscription revenue.
Speaker Change: Now with customers with two plus products and we see a better retention rate with those so that will flow through the model, we're continuing to sell our new products that flows through the model. We've continued to expand our distribution that flows through the model and we are restructuring and improving our performance of our <unk> spending so that'll flow through the model so really.
Samuel Wilson: So that'll flow through the model.
Samuel Wilson: So really, our growth rate, you know, I would say, I use the term loosely inside the company, is inside our four walls, not outside our four walls. Okay.
Speaker Change: Our growth rate I would say I use the term loosely inside the company is inside our four walls not outside our four walls.
Kevin Kraus: And then, Kevin, I look at your guidance for cash flow and I understand some of the investments you are doing, but if I see the margin contraction versus operating cash flow contraction seems to be with more. Could you walk us through like what's your jumps and how should we think about the cash flow part of the business for fiscal 26? Yeah, so look, I gave a $10 million range on that on that guide, we are making the investments we've that that we've been talking about here on the call. There's, you know, These are good investments in growth and so forth.
Kevin: Okay, and then Kevin.
Kevin: At your guidance for cash flow and.
Speaker Change: Understand some of the investments you're doing but if I see the margin contracts.
Speaker Change: <unk> cash operating cash flow contracts on seems to be.
Speaker Change: More.
Speaker Change: Could you walk us through like what jumps out and how should we think about the cash flow part of the business for.
Speaker Change: Fiscal 'twenty six yes.
Speaker Change: Yes, So look I gave a $10 million range on that on that guide we are making the investments.
Speaker Change: We've been talking about here on the call.
Speaker Change: There is.
Speaker Change: These are good investments and growth and so forth and our focus also is on the the ability to keep our net income.
Kevin Kraus: And our focus also is on the ability to keep our net income flat and stable with previous periods. So I think it's just a function of the investment, maybe a touch of, I'm not going out on a limb on the forecast for the cash flow guide. But we're comfortably generating a good amount of cash flow for next year. So it's kind of a measured approach to the guide on that.
Speaker Change: Flat stable with previous previous periods. So I think it's just a function of the investment maybe a touch.
Speaker Change: I'm not going out on a limb on the forecast for the for the cash flow guide, but.
Speaker Change: Comfortably generating a good amount of cash flow for next year. So it's kind.
Speaker Change: Kind of a measured approach to the guide on that.
Kevin Kraus: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Catharine Trebnick: Our next question comes from the line of Catharine Trebnick of Rosenblatt Securities. Please go ahead, Cath. Yeah, thanks for taking my question.
Speaker Change: Our next question.
Catherine: Comes from the line of Catherine <unk> of Rosenblatt Securities. Please go ahead Catherine yes. Thanks for taking my question. So two questions Sam on.
Samuel Wilson: Two questions, Sam. On, you know, on, you've really been focused on on the product. So on the CCAS piece of the business, you know, why are you winning? And then what specific piece of your product is driving those wins? Thanks. And then the follow on is, looks like from the deck, you did a really good job in the UK landing a lot of customers. And you also have a lot of bars and resellers in the APAC region. And what's the status of how CPAS is doing in that region? Thank you.
Catherine: You've really been focused on on the products on the <unk> piece of the business now why are you winning and then what specific pieces of your product is driving those wins and then the follow on is it looks like from the deck you did a really good job in UK landing a lot of customers.
Catherine: You also have a lot of vars and resellers in the APAC region and what's the status of the policy paths has joined in that region. Thank you.
Samuel Wilson: All right, multi-headed beast there, Catharine, so let me do this. Why do we win in Contact Center? I would say, first and foremost, we have a complete solution. And if I summarized it in one sentence, it's you can get best-in-breed technology from a single vendor. So with a combination of our Contact Center plus our technology partner ecosystem, we're bringing out a Gartner Magic Quadrant player in Contact Center and Workflow. We've got add-ons from companies like Cognigy and Varent and Collabrio and PCI-PAL, et cetera. And we wrap it all in bundles that achieve customer outcomes. And for our core market of mid-market enterprise and above, that is a really powerful message.
Speaker Change: Alright, multi added piece there Catherine so let me address one winning Todd.
Speaker Change: I'd say first important to give a complete solution and if I summarize it in one sentence. It's you can get best in breed technology from a single vendor so with a combination of our contact center plus our technology partner ecosystem.
Speaker Change: Bringing out a gartner magic quadrant player in contact center and workflow, we've got add ons from companies like cognate <unk> and Calabria and Pcs.
Speaker Change: PCI power et cetera, and we wrap it all in bundles that a chief customer outcomes and for our core market of mid market enterprise and above kind of that is a really powerful message you don't have a lot of developers they don't want to spend a fortune on our systems integration contract, but just want to go to a single vendor and buy it.
Samuel Wilson: They don't have a lot of developers. They don't want to spend a fortune on a systems integration contract. They just want to go to a single vendor and buy it. You know, one throat to choke, but they're not willing to give up the fact they want great performance from their products. And we give them the best of both worlds. One throat to choke, one integrated platform, native fielding integrations, and, you know, a compelling commercial offer to put it all together and have us deliver it, and beautiful professional services on top of it.
Speaker Change: One throat to choke, but theyre not willing to give up the fact, they want great performance from their products and we give them the best of both worlds one throat to choke one integrated platform native fueling integrations.
Speaker Change: Yes.
Speaker Change: Selling commercial offer to put it all together and have this deliberate and beautiful professional services on top of it okay. Yes.
Samuel Wilson: Okay. Yes, the UK did great last quarter. We've got some new sales leadership there that's doing fantastic. We've, you know, we've improved our execution there. And as always, I'm really proud of our UK operations. We've been in the market since 2013 and continue to do exceptionally well in that market. It carries a higher retention rate and kind of higher conversion rates than we get in the US. And I just, you know, huge shout out and credit to the UK team.
Speaker Change: Yes, the U K did great last quarter, we've got some new sales leadership, there that is doing fantastic.
Speaker Change: We've improved our execution, there and as always I'm really proud of our UK operations, we have been in the market since 2013 and continue to do exceptionally well in that market.
Speaker Change: It carries a higher retention rate and kind of higher conversion rates and then get in the U S.
Speaker Change: Just a huge shout out and credit to the UK team.
Samuel Wilson: All right, I saved the best for last. The CPAS team killed it again last quarter. They continue to do fantastic. Communications APIs or platform APIs continue to be a high growth business for us relative to everything else. And we continue to invest in there and expand it. Big believer in CPAS. We continue to see it as a core part of our business. And, you know, as we like to say, we're not a UC company. We're not a CC company. We're not a CPAS company.
Speaker Change: Alright, I saved the best for last the C pass team killed it again last quarter. They continue to do Fantastic Communications Apis or platform API has continued to be high.
Speaker Change: High growth business for us relative to everything else and.
Speaker Change: And we continue to invest in there and expand it.
Speaker Change: A big believer in C pass, we continue to see it as a core part of our business and as we like to say, we're not a UC company, we're not a cc company around to see past company, where business Communications company, because one of our strongest advantages overall in the marketplace.
Samuel Wilson: We're a business communications company. Because one of our strongest advantages overall in the marketplace is that we offer all those technologies under one roof fully integrated.
We offer all of those technologies under one we're fully integrated.
Samuel Wilson: All right, thanks. Catharine, can I do it? Can I do a cheat on you here? Can I expand the question slightly?
Speaker Change: Alright. Thanks.
Speaker Change: Catherine can I do I can I do achieve on year can I expand the question slightly up.
Samuel Wilson: And we were the first contact center company to announce RCS integrated with the contact center. So we have two-way RCS traffic currently being carried right now in real time. And I'm super proud of that because I think it shows when someone invests in buying our products, they're investing in that journey and that vision of where we're going. And that's just a prime example.
Speaker Change: We were the we were the first contact center company to announce Rcs.
Speaker Change: Integrated with the contact center. So we have to weigh Rcs traffic currently being carried right now in real time, and I'm Super proud of that because I think it shows when someone invests in buying our products. They are investing in that journey and that vision, where we're going and that's just a prime example, so thanks for giving me the freebie to call that out.
Samuel Wilson: So thanks for giving me the freebie to call that out. Ha! You're on! Oh, well, thanks.
Speaker Change: Sure.
Speaker Change: Well thanks.
Operator: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Michael Funk of Bank of America. Please go ahead Michael.
Michael Funk: Our next question comes from the line of Michael Funk of Bank of America. Please go ahead. Great. Yeah, thank you. Thank you for the question.
Speaker Change: Great. Yes. Thank you. Thanks for the question and Kevin Great to talk to you guys again I want to go back to the comment about high single digit revenue growth by fiscal year 2028, I'm trying to tie that back. This year writes a few cents less than 5% of revenue.
Michael Funk: And Kevin, great to talk to you guys again. I want to go back to the comment about high single digit revenue growth by fiscal year 2028. I'm trying to tie that back to this year, right? The fees was less than 5% of revenue. That's baked into the revenue, full revenue during the sun setting by year end. But then, you know, off of that, what takes you to the high single digit revenue growth? Is it just, I mean, is it increase in seat count at customers? Is it? larger wallet share? Are you assuming, you know, stable increasing pricing, just trying to figure out what takes that customer spend or the revenue growth to the high single digit, even once the roll is off by year end?
Baked into the revenue will go up and you got some studying by year end, but then off of that what takes you to the highest mortgage revenue growth.
Speaker Change: The increase in seat count at customers is that.
Speaker Change: Larger wallet share or are you assuming stable to increasing pricing.
Speaker Change: What takes back customer spend or the revenue growth.
Speaker Change: High single digit even one rolls off by year end assuming.
Michael Funk: Assuming you transfer some of those over.
Speaker Change: Transfer some of that or whatever.
Samuel Wilson: All right, I'm going to give you the strategic overview, and I will let Kevin give you any follow-on details that he sees fit. All right, so as we roll this year, so Fiscal 25 that we just finished, and Fiscal 26, we'll have the headwinds of fews. So, and that actually rolls into Fiscal 27, so it's less of a headwind, but as we roll off the last customers, etc., right? So, core business, we're growing 4.6%, is that what it is? 4.8, I forget. 4.6. 4.6, I forgot the number. 4.6%, core business, that starts to shine through, and so we, you know, and that's been accelerating as new products and those things take hold and lift that business up.
Speaker Change: Alright, Im going to give you the strategic overview and I will let Kevin give you any follow on details that he sees fit.
Speaker Change: So as we roll this year, so fiscal 'twenty five that we just finished in fiscal 'twenty six we'll have the headwinds of fuse, so and that actually rolls into fiscal 2007, So it's less of a headwind, but as we roll off the last customers et cetera, right. So core business. We're growing four 6% is that Fortunately and I forget.
So if I forget the number four 6% core business that starts to shine through and said we.
Speaker Change: That's been accelerating as new products and those things take hold and lift that business up so once we get fuse out of the way that will add.
Samuel Wilson: So, once we get fews out of the way, that'll add, you know, and the new product continue to mature, that continues to grow. You asked me a question about wallets, etc. As we roll out more and more new products, and I think we're going to reach a crossover point here shortly. Well, we've already reached a crossover point where two-plus product customers are over half our subscription revenue. We're going to reach a crossover point probably sometime in the next three or four quarters where three-plus product customers surpass one product customer. And we do see a substantially higher renewal rate and retention rate when we do that.
Speaker Change: And the new products continue to mature that continue to grow you were asking for was about wallet share et cetera.
Speaker Change: As we roll out more and more new products and I think we're going to reach a crossover point here shortly well we've already reached the crossover point, where two plus products customers are over half of our subscription revenue, we're going to reach a crossover point probably sometime in the next three or four quarters, where three plus product customers surpassed one.
Speaker Change: Product customers.
Speaker Change: And we do see a substantially higher renewal rate and retention rate when we do that and so those things start to lift and as you know in the SaaS business models, Michael It takes a little while to get that to shine all the way through so it gets us out of the way we get the core business continuing to show a higher sustained retention rate, we continue to land new business and grow our.
Samuel Wilson: And so those things start to lift. And as you know, in these SaaS business models, Michael, it takes a little while to get that to shine all the way through. So we get fews out of the way, we get the core business continuing to show a higher sustained retention rate. We continue to land new business and grow our, you know, our new business is greater than our churn. And so that'll continue to make the pool grow bigger and eventually the math sort of works out to high single digits.
Speaker Change: Our new business is greater than our churn and so that will continue to make the pool grow bigger and eventually the math sort of works out to high single digits.
Kevin Kraus: And one thing I would add on top of what Sam said is, you know, we also have this rapidly growing usage-based business on top of all that recurring revenue. So it can inflect very quickly and it has. And so that contributes to the growth rates we expect in the future.
Speaker Change: One thing I would add on top of what Sam said as we also have this.
Speaker Change: Rapidly growing usage base business on top of all of that recurring revenue. So it can inflect very quickly and it has and so that contributes to the growth rates, we expect in the future.
Speaker Change: Yeah.
Michael Funk: Now, thank you both. One more quickly.
Speaker Change: Thank you, but it looks like one more quickly.
Speaker Change: Quickly if I could so Sam you made a lot of progress on the balance sheet on the expense structure, including stock based comp I know you mentioned go to market among other things, but where.
Samuel Wilson: https://www.youtube.com.uk Get back to growth, right? So we're aggressive, you know, we've accelerated. I talked about it two quarters ago. We accelerated the shutdown of Fuse. We're on track to do that by the end of the year. That helps those numbers shine through, right? Because there's this prevailing belief that somehow we're going out of business or something. I don't know, that the long-term discounted cash flow value of the company is zero or however you want to think about it. And so I think I need to get that to shine through. So I've been accelerating that, been investing for growth.
Speaker Change: Where has your focus shifted now that you've made it through those first priorities on your west what's top of your last week to week.
Speaker Change: Get back to growth right. So we're aggressive we've accelerated I talked about two quarters ago, we accelerated a shutdown of fuse. We are on track to do that if any of the year that helps those numbers shine through right. Because there is this there's this prevailing belief that somehow we're going out of business or something I don't know that the long term discounted cash flow value of the.
Speaker Change: <unk> zero or however, you want to think about it and so I think I need to get that to shine through as I have been accelerating that but investing for growth. We're investing in in C pass and those kinds of things and then eventually as we get into fiscal 'twenty, seven and 28, we will start to invest a little bit more around distribution and improving those things.
Samuel Wilson: We're investing in CPaaS and those kinds of things. And then eventually as we get into fiscal 27 and 28, we'll start to invest a little bit more around distribution and improving those.
Michael Funk: Great. Thank you, Sam. Thank you, Kevin. Thank you.
Speaker Change: Great. Thank you Sam Thank you Kevin.
Speaker Change: Thank you.
Operator: Again, to ask a question, please press star 11 on your telephone.
Speaker Change: Again to ask a question. Please press star one on your telephone.
Meta Marshall: Our next question comes from the line of Meta Marshall of Morgan Stanley. Please go ahead.
Meta Marshall: Our next question comes from the line of meta Marshall of Morgan Stanley. Please go ahead Mr.
Meta Marshall: Hey everyone, this is Jamie on for Meet. I appreciate you taking the question. Maybe just firstly, it looks like you guys are still seeing some pretty strong growth in the new product side, but that that may be slowed a little bit from like the 60% or so clip that you'd seen in Q3. So just any specific call outs there? Yeah, we did see a little bit of a slowdown in the new product growth. It didn't accelerate. I think that was a function of the macro economic environment, the compares, the numbers getting bigger, all those sort of things cobbled together.
Jamie: Hey, everyone. This is Jamie on for me I. Appreciate you taking the question maybe.
Jamie: Maybe just firstly it looks like you guys are still seeing some pretty strong growth in the new product side, but that that maybe slowed a little bit from like the 60% or so clip that you'd seen in Q3, So just any specific call outs there.
Jamie: Yes, we did see a little bit of a slowdown in the new product was it didn't accelerate I think that was a function of the macro economic environment. The compares the numbers getting bigger all those sort of things cobbled together.
Meta Marshall: Got it.
Kevin Kraus: And then just similarly, as a follow up, maybe just unpacking the sequential step down in RPO. Is that more macro related or, you know, something that would be attributable to the acceleration in the, in the fused transition? Yeah, it's just fused transition mainly. We, you know, as we accelerate that, we're rolling off some of those. Great, thanks so much. I'll jump back in queue. Thank you.
Jamie: Got it and then just similarly as a follow up maybe just unpacking the sequential step down in <unk> or is that more macro related or something that would be attributable to the acceleration and the fuse transaction yes.
Jamie: Yes, just fused transition mainly we as we accelerate that were rolling off some of those things.
Jamie: Great. Thanks, so much I'll jump back in queue.
Jamie: Thank you.
Samuel Wilson: I would now like to turn the conference back over to Sam Wilson for closing remarks. Thank you so much, everyone. We'll follow up with anybody. Kate Patterson and Asia are available from Investor Relations to follow up in any form or fashion. Thank you so much to our customers, our partners, our employees, and everyone for joining us on this call today. And have a great day.
Jamie: Thank you I would now like to turn the conference back over to Sam Wilson for closing remarks, starting tomorrow and I have another question.
Jamie: Ill back in queue with other areas.
Jamie: Right.
Jamie: Thank you so much everyone will follow up with anybody.
Speaker Change: Kate Patterson in Asia are available from Investor relations to follow up in any form or fashion. Thank you. So much to our customers our partners our employees and everyone for joining us on this call today and have a great day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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