Hello, and welcome to today's 8x8, Inc. fiscal second quarter 2023 earnings call. My name is Bailey, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Kate Patterson, so please go ahead when you're ready. Thank you, operator. Good afternoon, everyone. Today's agenda will include a review of our second quarter results with Dave Sipes, Chief Executive Officer, and Sam Wilson, 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 discussion today includes forward-looking statements about our future financial performance, including our increased focus on profitability and cash flow, as well as our business, products, and growth strategies. We caution you not to put undue reliance on 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 obligation to update them. Certain financial measures that will be discussed on this call, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. generally accepted accounting principles or GAAP. A reconciliation of those non-GAAP measures to the closest comparable GAAP measures is provided in the earnings press release and earnings presentation slides, which are available on 8x8's investor relations website at investors.8x8.com. With that, I will turn the call over to our CEO, Dave Sipes. Thank you, Kate. Good afternoon, everyone, and thank you for joining us today. On the call today, I will review our second quarter results and provide an update on our plan for fiscal year 2023 as we place greater emphasis on profitability and cash flow generation. We believe that this is the right strategy to deliver value to our stakeholders, customers, employees, and shareholders, and it is reflected in our increased operating margin guidance range for the year. We delivered another solid quarter, delivering revenue in line with our guidance and non-GAAP profits and operating cash flow above expectations. Our continued emphasis on operational efficiency as well as a favorable mix of higher margin XCaaS revenue resulted in higher gross profit. Second quarter non-GAAP gross margin was above 70%, and service gross margin was above 74%. Both were up nearly five points in the last year. We have demonstrated sequential improvements in our gross margin performance for both service and total revenue in every quarter since Q3 2021, and non-GAAP gross profit on a dollar basis increased 35% year-over-year. The Fuze acquisition continues to outperform our expectations and was accretive to operating margin this quarter. We also strengthened our already solid financial foundation by refinancing over 80% of our convertible notes due in 2024 in a transaction that increases our flexibility to delever the company as our cash flows increase. We remain committed to our strategy of empowering every employee through integrated contact center and unified communications in the cloud, delivering outstanding customer experiences at a lower overall total cost of ownership. We reinforce this commitment by increasing our investments in innovation and repurchasing 10.7 million shares of our common stock. The quality of our ARR remains high, with enterprise ARR growing more than 40% year-over-year and accounting for 58% of total ARR. XCaaS ARR continues to grow at approximately 40% year-over-year and increased as a percentage of total ARR as customers add contact center functionality to their 8x8 deployments. XCaaS accounts for more than 35% of our ARR, and we see an opportunity to grow this percentage materially as we continue to innovate on the XCaaS platform with features designed for our targeted enterprise customer base. Progress in our strategic enterprise XCaaS business was partially offset by continued challenges in our CPaaS business. We believe this business has been impacted by a combination of currency fluctuations and macroeconomic headwinds. We are focused on stabilizing this business and continue to add new customers with innovative use cases like SES Home Services. SES provides professional and reliable home emergency support using 8x8's video interaction solution to enable agents to provide remote support, reducing operational time and costs. On the plus side, small business ARR grew modestly on a sequential basis. The stabilization in small business ARR this quarter reflected good retention and upsell in our commercial sectors in both the U.S. and U.K., driven by our efforts to improve efficiency and focus on customer satisfaction. On our last call, we increased our operating margin guidance for the current fiscal year to 2%-3% and said we had line of sight to doubling operating margin in fiscal year 2024. We are once again increasing our operating margin guidance for the current year. We now expect to deliver non-GAAP operating margins above 5% this year. We believe we can achieve these targets through increased efficiency in our cost structure, particularly sales and marketing, and have taken steps to rationalize some of our spend across the company. As Sam will discuss in greater detail, we expect these steps, combined with an increased mix of higher margin XCaaS business, will allow us to exit this year at or above 6.5% operating margin. Further, we have demonstrated our ability to expand margins and now believe we have line of sight to achieve double-digit operating margin in fiscal year 2024. Our unified XCaaS platform remains a competitive advantage for us, and this advantage is only amplified in a more cautious spending environment. Recent research from Metrigy showed that organizations deploying a unified solution achieve a 56% lower total cost of ownership versus a multi-vendor strategy. Casey's, the third-largest convenience store chain in the United States, with more than 2,400 locations in 16 states, is an example of a customer migrating to the cloud to reduce total cost of ownership. The company is moving all stores to the cloud with 5,000 8x8 UCaaS seats to replace costly traditional phone lines. We continue to deliver advanced features that allow our customers to improve their employees' and customers' experiences. We recently released an update to the 8x8 XCaaS platform that extended our global coverage to 56 countries and enhanced our omni-channel customer experience analytics, featuring new visual interaction flow diagrams, enhanced reporting into digital interactions, and new advanced search and filter capabilities. Our XCaaS platform continues to be broadly deployed across a range of industry verticals and geographic regions. Recent customer wins included Medline, a leading healthcare manufacturer, distributor, and solutions provider with over 30,000 employees worldwide with businesses in more than 125 countries and territories. Medline is moving to the cloud with 8x8 initially to support over 2,500 employees on an easy-to-administer global unified platform. Spectrum Vision Partners is a leading management services organization serving ophthalmology practices and ambulatory surgery centers throughout the Mid-Atlantic and New England regions. Spectrum selected 8x8 XCaaS to support employee and customer engagement for its contact center and clinics. PrePayPower, Ireland's first dedicated prepaid energy supplier of pay-as-you-go energy with over 250,000 customers working with partner Workair, they chose 8x8 XCaaS to support employees and a 300-agent contact center that will enable them to scale, gain business insights, and serve their fast-growing customer base. The availability of contact center light functionality, such as Conversation IQ, is driving expanded deployments with UCaaS customers. An example is LSH Auto U.K. They have eight Mercedes-Benz, AMG, EQ, and smart dealerships across the Midlands and Northwest. LSH U.K. turned to 8x8 XCaaS for a single UCaaS and CCaaS solution to support the employee and customer experience across their dealerships. This past quarter, LSH added 8x8 Conversation IQ to 20% of their UC users to drive improvements in the sales team's interactions with customers. Our global reach and rich feature set continue to be important competitive differentiators with customers adopting Teams as their collaboration platform. In Q2, we added a new 8x8 Phone App for Microsoft Teams, providing customers with additional options for enabling cost-effective PSTN calling within Teams. We continue to build momentum in our 8x8 Voice for Teams solution. Customers choosing 8x8 Voice for Teams in Q2 included a worldwide holiday tour operator recently acquired an existing 8x8 customer in the U.S. The company evaluated 8x8 XCaaS and decided to transition its entire global organization to XCaaS with Voice for Microsoft Teams to manage communications and customer engagement from a single platform. Delek, a downstream energy company with assets in petroleum refining, logistics, asphalt, renewable fuels, and convenience store retailing. They turned to 8x8 UCaaS with Voice for Microsoft Teams to strengthen security, compliance, and support global communications for more than 2,500 users. Miller's Ale House is a sports-themed casual dining restaurant with almost 100 locations in 10 states. Following a proof-of-concept trial, the fast-growing chain chose 8x8 UCaaS with Voice for Microsoft Teams to deploy at their Florida headquarters and all restaurants to enhance the overall customer and employee experience. We continue to expand our relationship with Microsoft Modern Work Solutions partners through our 8x8 Elevate Partner Program. This quarter, we added three new partners, including Cloud Revolution, a Microsoft 2022 Partner of the Year finalist, Cyclotron, a 2020 U.S. top Microsoft 365 Teams Partner Award winner, and Apex Digital Solutions, also an advanced Microsoft partner specialized in Microsoft Teams Calling to our program. We continue to invest in channel with our co-marketing, training, and lead-sharing initiatives. Cross-sell of CCaaS to existing UCaaS customers is an important aspect of our growth strategy as we expand our enterprise customer base, including Teams users. One of the first partners to achieve Microsoft certification for integrated contact center, we are in the early days of land and expand cross-sell into our enterprise customer base. In a recent example, University of Bristol in the U.K. expanded its 8x8 XCaaS with voice from Microsoft Teams deployment by adding 25% more CCaaS seats following the successful delivery of phase one of the project. We believe the next wave of cloud migration is contact center. This was reinforced at last week's Gartner Symposium, where our booth was crowded with prospects asking about our contact center solution. We are investing more than 2/3 of our R&D in contact center. XCaaS innovations like Frontdesk, Agent Workspace, and Conversation IQ differentiate our solution and increase our ability to win with enterprise customers. It is clear that product innovation is a core value for us, and we are maintaining our investments to deliver a greater customer experience even as we focus on higher margins. I remain confident in the path 8x8 is on, and I look forward to giving you an update on our next call. Before handing the call over to Sam, I want to thank our teammates at 8x8 for their hard work and commitment. I also want to welcome Jeanette Winters, our new Chief Human Resources Officer. Sam? Thanks, Dave, and good afternoon. We remained a financially agile and disciplined organization that delivered solid results for the second fiscal quarter. We did experience continued challenges in our CPaaS business and foreign currency headwinds were strong, both of which impacted service revenue performance. We are gonna make some adjustments in guidance based mainly on foreign exchange. In spite of these challenges, revenue was in our guidance range, and we continue to post broad improvements in gross margin, delivered solid operating income, and another quarter of positive cash from operations. Total revenue for the quarter was $187.4 million, an increase of 24% year-over-year and inside of our $185 million-$188 million guidance. We generated $178.6 million in service revenue, an increase of 25% year-over-year, and again in line with our $177 million-$180 million guidance range. The CPaaS business did not bounce back as hoped, with a sequential decline for the third quarter in a row, but we are seeing signs of stabilization. The endpoint supply chain improved, and this helped other revenue. The strengthening dollar, especially versus the pound sterling, negatively impacted total revenue by about $1 million for the quarter. Fuze accounted for $27.9 million of service revenue and $28.4 million of total revenue. Service revenue from Fuze was in line with expectations and retention remained solid. Fuze continues to do better than we had modeled when we closed the deal 10 months ago. Fuze was accretive to non-GAAP operating income again this quarter and contributed to overperformance relative to operating margin expectations. We committed to remaining non-GAAP profitable post-acquisition, and so far, so good. As an example, we have raised Fuze's non-GAAP gross margin percentage from the high 50s% to the mid-70s%. Total ARR was $692 million at quarter's end, up 25% year-over-year. As we stated in our prior earnings calls, we will not be breaking out Fuze from 8x8 separately for ARR reporting, but will continue to give you visibility into Fuze contribution to reported revenue. Enterprise customers accounted for 58% of total ARR, and enterprise ARR was up 42% year-over-year. Mid-market was 18% of ARR and grew 23% year-over-year, and small business was flattish sequentially at 24% of ARR and declined 2% year-over-year. Growing our enterprise business is one of the core tenets of our long-term strategy due to the customers' longer commitments, higher retention, and better efficiency ratios. Turning to expenses. Remember that all expense items discussed are non-GAAP unless otherwise noted. Service revenue gross margin came in at 74.1%, an increase of 470 basis points from Q2 2022 and 70 basis points sequentially, driven by continued COGS improvement programs, which drove down unit costs and, to a lesser extent, lower CPaaS revenue. Other revenue gross margin came in at -11.2% for the quarter, compared with -35.2% in the first quarter of 2023 and -16.6% in the year ago quarter. Overall, second quarter gross margin was 70.1%, up nearly 600 basis points year-over-year and up 150 basis points sequentially. Turning to first quarter operating expenses. This is our third combined quarter with Fuze. R&D stepped up to 15% of revenue where we want it. We showed some leverage on sales and marketing and took a step back in G&A. The increased costs in G&A were mainly driven by several non-recurring items that should improve over the next several quarters. Total non-GAAP spending, as measured by COGS plus R&D plus sales and marketing plus G&A, was up approximately 19% year-over-year, below our 24% total revenue growth. In early October, we made the very tough decision to reduce our total headcount. While it impacted less than 10% of our total employees, we have factored the applicable employee-related cost savings into our non-GAAP guidance, and we expect some one-time severance and restructuring costs in our third quarter cash flow and GAAP results. Non-GAAP operating profit was $9.1 million, up 350% from a year ago, but down approximately $1 million on a sequential basis. As a reminder, the first quarter operating income of $10.1 million included approximately $3 million in one-time benefits. Turning to the balance sheet. Total cash equivalents, and restricted cash ended the second quarter at approximately $132 million, compared with approximately $143 million last quarter and $146 million for a year ago, ended March 31, 2022. Restricted cash was down to $1.3 million, so we will just report a single number in future quarters. With this cash balance and future expected cash flow, we see no current issues with repaying the 2024 debt. During the quarter, we made significant progress adjusting our balance sheet and at the same time took steps to reduce our share count. As a quick summary, we did the following in August. We entered into a term loan credit agreement with Francisco Partners as lenders for $250 million in aggregate principal amount maturing in August 2027. This is a floating rate loan based on secure overnight financing rate or SOFR. In conjunction with the term loan, we issued warrants to Francisco Partners to purchase an aggregate 3.1 million shares with a five-year term at an exercise price of $7.15. We exchanged approximately $404 million in aggregate principal amount of old 2024 notes for $202 million in aggregate principal amount of new 4% convertible senior notes due in 2028, along with $182 million in cash. After giving effect to the exchange, the total amount of old notes outstanding on August 11th, 2022 was $96 million. On September 28th, we repurchased another $6 million of par value 2024 notes at 88.5% for $5.3 million in cash, bringing the balance down to $90 million at quarter's end. In conjunction with the exchange, we purchased 10.7 million shares for approximately $60 million of our common stock at a price per share of $5.61. RPO was approximately $715 million for the quarter, up from $700 million in the first quarter. Cash from operations came in at approximately $13 million for the quarter, ahead of our expectations. We continue to actively manage cash flow and watch it closely, and collections remain solid. Free cash flow was over $10 million for the quarter. Our CapEx costs have steadily declined as we focused on capital efficiency. Last quarter, we were clear that we were prioritizing profits and cash flow over growth. We adjusted the financial model accordingly with a decrease in revenue, but an increase in operating margin. This quarter, we're gonna raise our exit operating margin target for the fiscal year based on cost savings, but slightly lower our revenue. The change in revenue for next quarter and the remainder of the fiscal year is primarily due to changes in foreign exchange. We generate about a third of our revenue internationally, so the strong dollar hurts our headline revenue numbers. From a modeling standpoint, we take the closing month's weighted value and run it through the financial model, and in September, the dollar rallied a lot. We have a number of natural hedges in place so that on the operating line, FX has little impact. I cannot stress this enough. While our revenue may change because of FX, our operating income and cash flow is little impacted. We built it that way. For operating expenses, we plan to control sales and marketing spend, and would like to exit fiscal 2023 between 36% and 38% of revenue, down from 41% four quarters ago. We plan to focus our R&D efforts on our core product offerings and expect R&D as a percentage of revenue to remain about 15%. Innovation is key for any software company, and for us, with a multi-billion-dollar market opportunity, even more so. We believe continued investment in our customer-focused product strategy with emphasis on contact center functionality, these investments will be good ROI. We are focused post-Fuze on getting leverage on the G&A line over the next few quarters as we further integrate the two organizations. This set of initiatives will drive operating margin higher in the second half of 2023. As Dave mentioned, we think we can add more operating margin in fiscal 2024 through continued improvements in unit economics, incremental savings in G&A, cost containment, and improved sales efficiency. We are establishing the following guidance for third quarter fiscal 2023, ended December 31st, 2022. We anticipate service revenue to be in a range of $178 million-$180 million, essentially flat with the second quarter. This is representing approximately 19%-21% year-over-year growth. We expect Fuze service revenue contribution will be between $27 million and $28 million. We anticipate total revenue to be in a range of $185 million-$188 million, representing approximately 18%-20% year-over-year growth. We expect other revenue to be flat to down slightly compared to Q2 due to less billable days associated with the holidays. We are targeting an operating margin in a range of 5%-5.8% for the quarter. We should get a sequential increase on a non-GAAP basis from second quarter's 4.8%. We are updating our guidance for fiscal 2023, ending March 31st, 2023 as follows. We anticipate service revenue to be in a range of $712 million-$720 million, representing approximately 18%-20% year-over-year growth. We have reduced second half 2023 revenue performance by approximately $7 million due to foreign exchange based on the method stated above. The remainder of the decrease is some incremental caution in the CPaaS business. If FX stays at these rates, we would expect to exit fiscal 2023 with service revenue growth in the mid-single digits on a year-over-year basis. We anticipate total revenue to be in a range of $745 million-$755 million, representing approximately 17%-18% year-over-year growth. We are focused on improving operating margin over time and have a goal of exiting fiscal 2023 over 6.5% for the fourth quarter and roughly or so 5.5% for the fiscal year. In closing, we believe the increased focus on the operating margin and cash flow is the correct strategy for us right now. At the same time, we believe we need to continue to fund our investment in R&D, and our contact center product continues to evolve. We address a broad market opportunity and the focused product strategy that leverages our unique advantages of a unified platform, global connectivity, and leading Teams integration. As we extend these advantages and deliver superior ROI to our customers, we reinforce our strong financial foundation and remain an agile organization. With that, operator, we are ready for questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, if you would like to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. The first question today comes from the line of Mike Latimore from Northland Capital Markets. Please go ahead. Your line is now open. Great. Thank you. Yeah, I guess just two things here. It sounds like the slight change in revenue guidance is tied to FX mainly, and then CPaaS secondly. I guess can you talk a little bit about just what you're seeing in the international kind of geography? Are bookings tracking as expected there? Then second, just in terms of the sales cycle overall in the business, I mean, are sales cycles basically the same as you were expecting three months ago? All right, I'll take the first part, and I'll let Dave take the second part. In terms of international business performance, I would say yeah, it's generally where we expect in constant currency. It's actually so for example, if you look at our business, it would have been up on a constant currency. ARR would have been better on a constant currency basis. As I tried to highlight in the script, basically we, you know, particularly the strong dollar in the month of September really had an influence on our revenue performance, but not a real influence on our operating income performance. International performing well. We love it. We love our international businesses. Just the revenue number doesn't quite look so good 'cause of the FX effects. To be clear, I mean, if you look at our changing guidance, almost all of it is due to FX on a go-forward basis. The CPaaS business is stabilizing. We kind of have that in the model. It's really, you know, we just run the last month on a forward basis. Since September was such a strong dollar month, it just has a tendency to suppress revenues in the back half of the year. Then Dave, do you want to cover sales cycles? Yeah, on sales cycles, we are seeing a little more justification requirement from our buyers, getting through additional approvals, but we're countering that with our cost of doing nothing analysis, which really demonstrates how our prospects can save money by switching off of on-prem into cloud. Every day they fail to do that costs money. That's our. You know, we really lay into our TCO advantages in getting through those sales cycle additional approvals. All right. Okay. Great. Thank you. Thanks, Mike. Thank you. The next question today comes from the line of Matt VanVliet from BTIG. Please go ahead. Your line is now open. Yeah, good afternoon. Thanks for taking the question. I guess first, as you look towards the channel and how that's been a driving force in your growth here, curious on sort of two-pronged here, how's that business shaping up, you know, selling XCaaS, selling kind of the full platform of solutions here, and you know, how much is that driving a lot of the contact center growth you've seen? Then secondarily, on the Microsoft Teams side, you know, how do you feel like you're kind of growing there, what the offering is and how the Elevate program is really driving attention from your channel partners there? Yeah. Channel is obviously an important element of our go-to-market strategy. It's over, you know, half our new business, and our partners have really, you know, moved strongly behind our XCaaS motion and do well in selling the combination contact center UC. On the Teams side, Teams is an important aspect of what we're doing. When I look across our largest new logo wins, about half have Teams attached, and we're, you know, getting good traction there on the channel with our Teams-specific Elevate program. We talked about the three we added this quarter in Cloud Revolution, Cyclotron, and Apex. We're also arming that channel and our sellers with more arrows in the quiver, so to speak, with our XT SKU, which really gives, you know, Operator Connect-type pricing with Direct Routing-type capabilities, so superior capabilities at a great price. The Microsoft phone app, which gives slightly more cost-effective solution for different types of users with a different user experience. We have that, we have our direct routing solutions, we have our XT SKUs, and it's allowing us to stay competitive in that market. It's obviously driving a lot of business for us, and allows us to ultimately connect contact center users to Teams users in an organization. It really enables the XCaaS sell. All right, great. Sam, obviously never fun to reduce headcount, but curious, kind of in the wake of that, how you're assessing sort of making sure that, you know, those cuts were sort of one time and deep enough. As you're looking forward projecting out into, you know, next year and beyond, what are areas that you expect you'll continue to add headcount, versus sort of holding the line to improve that margin as much as you have already? Thanks. All right. I'll take those in reverse order. Look, I mean, you know, we bought Fuze to get more R&D capacity. We're very focused on R&D capacity and, you know, we want to continue and as we mentioned in the closing remarks, you know, over 2/3 of our R&D is spent on the contact center. You know, we're really putting, you know, I don't know what analogy you want to use, but you know, a lot of effort, arrows, if we're gonna use the arrow one, around investing in contact center and really focused on that. That's an area. Things like sales capacity, those can fluctuate a little bit more. I mentioned earlier that we're an agile finance organization, so in terms of headcount, I think, you know, we're sort of right sized for what we think is gonna happen in the near term, and then we'll have to continue to adjust over time. Hopefully it's add more employees, but we can adjust either way based on what the market conditions are. All right, great. Thank you. Thank you. The next question today comes from the line of Ryan MacWilliams from Barclays. Please go ahead. Your line is now open. Thanks for taking the question. As you think about what a more difficult macro environment could mean for 8x8, are you seeing reductions in headcount within your existing customer base at this point? I know you're less focused on SMB, but, you know, would you expect to see continued small business momentum as those deals may be easier to close in a period where the lower total cost of ownership of 8x8 can resonate? I think the first part is in the macroeconomic environment, are we seeing fewer employees with our customer base? You see that occasionally on renewal. Now remember, we have very well-contracted customers, being enterprise software, one to three years. A lot of that will come, you know, post this economic cycle anyway. We do things when we do renewal, allowing people to extend contracts and adjust appropriately if they're impacted economically. Additionally, we try to funnel some of those users into our cross-sell products with contact center and Conversation IQ and other ways to enhance their current productivity. The second part of your question, Ryan? Small business. Small business stabilized this quarter. We had an uptick in ARR. We continue to, you know, strategically we focus on mid-market and enterprise customers as they have stronger contact center needs, but we continue to service both, you know, inbound interest in small business and continue to service our installed base with great reliability and great customer support. I think you're seeing that. It's a good sign that stabilized even in the current macroeconomic environment. Yeah, absolutely. I also like seeing the new 8x8 Phone App for Microsoft Teams. Maybe one for Sam. As we see more business keep going through this Microsoft Teams channel, are there any differences to call out on profitability of that 8x8 Teams sale versus a traditional 8x8 voice seat? All right. I wanna be careful how I answer this because obviously a lot of market discussion around this topic. In terms of the way you phrased the question with profitability, we see the margins as being pretty comparable, but historically what we've seen is a lower type of SKU, a lower functionality SKU being purchased. In a Microsoft Teams environment, we sell a lot more X1s and X2s than we do in a traditional, you know, 8x8 only type of customer, where we would sell a, you know, X1s, X2s, 3s, and 4s. That's kind of the big difference we see. Any difference in deal sizes? Sorry, just one follow-up. Like, could there be a larger deal size attached to those Teams deployments? I mean some of them are really big, so they can be just 'cause we sell a lot of seats. Remember we're selling a lot of contact center when we sell Microsoft Teams, so that's kind of the blend thing that blends in and makes us, you know, enthusiastic about the Microsoft Teams market. I would say it's not radically different. Could be higher. Appreciate the color. Thanks, guys. Thank you. The next question today comes from the line of Siti Panigrahi from Mizuho. Please go ahead. Your line is now open. Thank you. Thanks for taking my question. Just wanted to ask about this enterprise segment. What sort of trends are you seeing? I see a downtick in ARR. What sort of visibility you have into the second half of your fiscal year given this macro environment? Well, I mean, look, I'll take part of this and I'll let Dave chime in if he wants to add anything. First off, I mean, one of the influences to ARR, the downtick was FX. If it wasn't for FX, our ARR, you know, would've been even stronger quarter-over-quarter. Our enterprise would've been up quarter-over-quarter. Remember, I mean, that's just 'cause FX was, you know, a big headwind on those numbers in the month of September. In terms of visibility in the back half of the year, I mean, I wouldn't say it's substantially different than what we've had in the past. We have a deal pipeline, we have deals sitting in various sales stages, and we use that to drive what we think our business performance is gonna be. In terms of visibility, I think there may be some question if close rates will change substantially, which so far not seeing any indication of that. In terms of visibility, I'd say it's kind of the way it's always been. Okay. You talked about contact center opportunity. Any trends are you seeing, and how do you differentiate in that contact center market? Yeah. The contact center continues to just be a core piece of what we do in our XCaaS ARR. You see that growing almost 40% and over 35% of our business. It continues to create, and when I look across our large deal wins, it's a significant contributor across all of those. I think we've had some great progression in the product over the last couple of years, and reliability, our agent experience, and the analytics. We just announced. Just an example on the analytics. It's always been one of our hallmarks, best in class voice analytics, and now we've thrown in a UX refresh and additional digital journey analytics. We've brought that digital analytics up to that same world-class level. We continue to work. You know, we're doing two-thirds of our R&D in contact center, so there's gonna be some great announcements and, you know, supervisor and admin experiences coming up in the coming quarters, as well as some of our digital offerings. We're winning a lot already today, and the roadmap is looking. You know, I'm happy with what we've done to date, but I'm super excited about what I see coming in the works on contact center. That's great color. One quick follow-up, if I may. You talked about the weakness in the CPaaS. Is it mostly slowdown in overall volume or any loss of customer? What are you seeing on the CPaaS side? It's a little bit of both. We have seen a slowdown. Carriers have been raising prices, and that's made some of the maybe marginal traffic less interesting to send. We've seen some reduction in the amount of traffic. You know, a customer or two has switched to doing other methods for things like OTP and that sort of stuff. Right now we're seeing the business stabilize and, you know, our focus is getting the growth to rebound back to where it was. Great. Thank you. Thank you. The next question today comes from the line of Michael Turrin from Wells Fargo Securities. Please go ahead, your line is now open. Hey. Great. Thanks. Appreciate you taking the questions. Maybe just on Fuze and the integration there. I think there's been some commentary just around converting that base over to the XCaaS platform over time. Is that something that you're still working towards and is progressing? I'm curious if that at all drives some of the gross margin improvements as well, or just any further update you can provide on just the combination of those two bases. Yeah. I'll take the first half, Sam will take the second half. We continue to build the coding to make that upgrade onto the XCaaS platform seamless and easy for those customers, and I'm happy to say we anticipate launching that in the first, very first part of the new year, and that's on track. We'll have our first set of customers experiencing that seamless upgrade around that, you know, calendar our fiscal year Q4 timeframe. All right. I'll take gross margins. I think I said this on the last call, and if I didn't, I'll say it here. You know, we've been able to get Fuze gross margins up towards our UCaaS business faster than expected. A couple things are going on here. Number one is we got Fuze up into the mid-70s% now, and so we're blending our total UCaaS business as a percentage of the overall business, UCaaS, CCaaS business. But our communications business relative to the CPaaS business is higher, and that's driving overall corporate margins up. We have more plans in place to grow gross margins, so I think they were 70.1% this quarter, over 70%. We'd like to keep them above 70% on a go-forward basis. Very focused on that. In general, the addition of Fuze gave us more buying power at core 8x8. So we have translated some of that into, you know, lower costs from our carrier partners. I think sometimes the Street forgets that we buy probably, I don't know, close to $100 million of carrier interconnect. The more volume I can get, the better per unit pricing I get, and that shows up in gross margins. Okay. That's interesting. I guess just on the margin in general, there's clearly a lot of focus there. What are some of the things you're finding that allow you to keep moving the targets up, into next fiscal year? Are you feeling good about the continuation of those trends as needed, just based on what you're finding there so far, Sam? Well, I'll take this one first. I think Dave, in his script, said that we have line of sight to double our op margins next year, so he's already put a stake in the ground for me to go achieve. Yes, we have line of sight into how to do that. I think it's. You know, I'd love to tell you, Michael, it's a single thing, but it's just a lot of blocking and tackling around efficiency. We are very focused right now on being more efficient. I think the offset that you see is a little bit on the revenue growth side, right? We've reduced our spending a little bit in sales and marketing, some of the more inefficient places we were spending in that area, which may have led to revenue growth, but not necessarily highly efficient revenue growth and be more focused on generating, you know, operating margin, EBITDA, cash flow, those types of metrics. Particularly now that, you know, we made our first interest payment on our debt this, you know, in the September quarter. We have future interest payments on a go-forward basis. We wanna make sure we cover those with tons of room to clear and tons of room to de-lever the balance sheet over time. I think the offset that you're looking for in terms of we have line of sight to improved operating margins, it just may show up in the less revenue growth than we might have gotten in the past. Helpful. Thank you. Thank you. Thank you. The next question today comes from the line of Josh Nichols from B. Riley. Please go ahead, your line is now open. Yeah, thanks for taking my question. Clearly the company has been making a very big pivot here. I think it's probably the right decision and good to see the cash flow numbers moving in the right direction, especially when you think about the debt payments and also the stock at these current levels. I guess if you're gonna do double-digit operating margins next year, could you talk a little bit about what that would translate to for free cash flow and how you might use that between some debt payments and potential stock buybacks? Okay. I mean, our CapEx needs have been declining, and you see we're getting a lot more capital efficient. It's one of the projects we've been working on for a number of years now. Op margin. I mean, basically the traditional cash flow being cash from operations minus CapEx is looking more like cash from operations. As we drive non-GAAP operating income up, we should correspondingly see that. The offset being, you know, we're looking at single-digit revenue growth with, you know, double-digit op margins attached to it, which I think is a positive and gives us, if it goes as we expect, more than enough room to start to de-lever. Let's break that second part of the question into a couple pieces. We've got, you know, $132 million in cash. We have $90 million of the 2024s. We're generating cash, so no problem clearing the 2024s. Starting in the second year of our term loan, we can, you know, repay an extra 10%. We can pay back 10% of that with no prepayment penalty. Starting in years three on, we can prepay or pay back our term loans with no payment penalties. You know, right now the company's very focused on generating enough cash to try to hit some of those milestones. We'll clear 2024, no problem, and we'd like to start prepaying the term loans as quickly as possible so that we can save on interest at these rates. Thanks. I guess if I'm just looking at it, I mean, roughly $800 million of revenue next year, right? Based on kind of what you talked about for the growth rate. If you're doing, you know, that type of margin that you just mentioned, that probably translates to somewhere in the ballpark of like $80-ish million of free cash flow, which should afford you plenty of capital, I would think, to start paying off some of the debt. That's with I guess I think you mentioned if we assume kind of like mid-single-digit service revenue growth, since that's what you talked about exiting the year as a kind of a long-term target. Is that kind of reasonable guidance that we're thinking about of how to build out the model? Yeah. I mean, I think everything you just said makes complete sense to me. I would put maybe. For those that are Josh, I know you well, you're very accounting focused. So $80 million in, let's say, operating income, roughly a cash from operations number minus a teeny bit of CapEx, let's say $10 million, that's $70 million, - $30 million in interest payments gives us maybe $40 million a year per year times five years. We could take $200 million of the $250 million out. We would save a lot of interest along the way, so maybe I can squeak out the last $50 million. I think if we did that, we might see the stock appreciate enough to convert the 2028 notes. I think there is a path, and it is not a difficult path, to almost have this company debt-free in five years. Perfect. Thank you. That answers my question. Thank you. The next question today comes from the line of Meta Marshall from Morgan Stanley. Please go ahead. Your line is now open. Hi team, this is Erik on for Meta. Thanks for taking our questions. I wanna go back to the XCaaS side. I know a couple quarters ago you noted that nearly half of your incremental ARR was coming from contact center. Can you maybe just give us an update on if that percentage has changed meaningfully at all over the past few quarters, in either direction? Can you repeat it? Half the incremental ARR. Half the incremental ARR is coming from XCaaS? From- I didn't crunch the numbers. I think a few quarters ago you had said from contact center in new XCaaS deals. Oh. Just curious if that's Well, I mean, yeah. If you think about the growth that was mentioned in the script in X in XCaaS, half of which is contact center typically, and you look at this standalone, yeah, we're generating a. I'd do the math, and I didn't do it, to be fair, last night. The thought process you're going through is not radically wrong. A significant portion of our incremental- Okay ARR is coming from contact center. Okay. Thank you. That's helpful. If we just think about the focus kind of shifting more towards operating margins and that in the context of Fuze product strategy, you know. Is this plan still largely to leave the Fuze product as is and gradually upsell contact center? Or do you see kind of initiatives within Fuze to maybe shift from that in any way? Yeah. We see a big focus on our installed base overall as we do more laser focus on sales and marketing efficiency. We've done a lot of improvements both in the product basics and the customer support levels. On the Fuze side, we talked about the coding we're doing for seamless upgrades onto the X Series product for those customers that will kick off next calendar year. That gives us even more opportunity on cross-sell of those customers into the 8x8 contact center. Got it. Thank you. Thank you. The next question today comes from the line of Catharine Trebnick from MKM Partners. Please go ahead. Your line is now open. Oh, thank you for taking my question. You know, with this macro backdrop, you guys did a really good job. Can you talk about the competitive landscape, and especially hit on contact center? With Zoom coming out with a contact center, UJET pretty active, can you just lay out where you think your opportunities are in terms of seat size or even in terms of, which vertical markets might be more attractive? Thanks. Yeah. You know, we've been focused on XCaaS for almost a couple years now and doing 70% of our R&D investment into contact center, so we keep strengthening our contact center product. It becomes more effective and more client-pleasing in the market, and I think that's why we're winning. When we go up, you know, we don't see new entrants as much as existing players in the contact center space, and I don't think that's really changed with entrants you mentioned. You know, with our XCaaS capability, we bring a lot of advantages over just a standard contact center with everything from unified analytics and administration, the reliability SLAs we bring, the Frontdesk visibility, and things like bringing sentiment analysis across all employees and teams. The things we're doing are differentiated and allow our buyers to have lower total cost of ownership than supporting two separate platforms. Are you seeing any pickup with Avaya troubles in your opportunities for just your core UCaaS business? There is a lot of buyers that are looking to, you know, that have moved maybe over to, like, a Teams for collaboration but are still on historical UC on-prem PBX that are looking to get off, and whether that's Cisco or Avaya or other. We see a lot of that transition going on and a lot of interest from the IT/CIO organizations. All right. Thanks, Dave. Thanks, Catharine. Thank you. Thank you, Catharine. The next question today comes from the line of George Sutton from Craig-Hallum. Please go ahead. Your line is now open. Thank you. I appreciate the details on the Microsoft partner adds in your app. I'm wondering if we could talk about Microsoft relative to that friend versus ultimate foe argument. I'm curious how you look at it. We look at about 260 million seats out there and 12 million or so, we believe, using third-party voice. I'm just curious if you can address your objectives relative to some of those numbers and relative to Microsoft's own voice objectives. I think, you know, a huge universe of collab users, not many currently lit up with voice, but a substantial number when you think of the 12 million. But we really look at that relative to maybe the 250 million-270 million active users on Collab and lighting those up. We see, you know, the bulk of that or almost all of it going to either Direct Routing or Operator Connect ecosystems. We have the leading Direct Routing solution, and by doing things like our XT SKU, we've become very price competitive with the increased functionality you get from Direct Routing, and the phone app helps also. I think that universe, you know, of the 12 million voice users can go up very significantly over the next couple years. I think Gartner's thinking that you get to 20% penetration of those Teams users over a couple years, which, you know, gives you, like, tremendous growth on that 12 million. We wanna capture a good share of that. Perfect. Second for me, relative to Fuze, I don't think anybody on this call would have expected you to have done as well with that acquisition as you've done, begging the question of there are other businesses out there that could use a better home in a consolidating market. What is your ultimate objective relative to other M&A? George, you made me laugh. Look, I think with a $3 stock price right now, it's not the right time. You made me laugh earlier when you were fighting for analogies. It's not the right time to be in the market. Look, you know, when we did Fuze, we took on a little debt, which h indsight, maybe, you know. We used some stock. Like, with the stock and our valuation where it's at, and I think it's more important to delever the balance sheet and drive cash. I don't think it's the right time. I think a number of those businesses will really struggle with more fundraising, et cetera. Excuse me. There may be easier ways to get their customer base. I think it's something we always kinda think about and look at, but there's a right time and place for it. Appreciate the thoughts. Thanks, guys. Next question please. The next question comes from the line of Pete from Evercore. Please go ahead, your line is now open. Great guys. Thanks for squeezing me in here. Maybe just one for you, Dave, is, you know, you're segmenting contact centers as a standalone. You know, how are you priced on a CCaaS basis versus competitors? Are you above or below the mean? Then one for you, Sam. Gross margins, contact center historically have been call it high 50s%, 60s%, if you just look at some of the, you know, companies trading today. You know, how should we model margins from contact center going forward? Yeah. Well, contact center pricing is very advantageous for our customers. I mean, we're a fair pricer. We're not a premium pricer, but we give great functionality and capability, and we do it with super high reliability. We do it now over 56 countries, which is the largest footprint of any UC, CC player, and we do that with both UC and CC in every one of those countries. So our pricing, while it's significantly higher than UC, you know, 4x, 5x higher, it's very competitive in the market. Then by combining it with UC, it's competitive standalone just to, you know, straight up. When you combine it also with UC, you get all the lower cost of ownership by having like single integration to manage with things like Teams or Salesforce or other integration, CRMs and the easier to deploy and manage. Much lower total cost of ownership than anything else in the market. On gross margins, I get your point. I would tell you, I think it's not just because of who we are, it's not the right way to think about it. If you think about my service revenue margins are 74.1%, and that includes, you know, relatively lower margin CPaaS. I'm basically getting very similar margins between my UC and my CC business, and I think that's because XCaaS works, right? It's one platform. We get to spread our carrier interconnect costs and our costs across that one platform, and I think it just, it's sort of a scale thing and it works. I don't really see substantial difference in gross margins between the two products. But it's also, to be fair, hard 'cause they're integrated. I think because they're integrated, we're just not gonna see a big difference. Cool. Just to follow up on a prior question. Sam, help me think through steady state organic growth, right? I mean, are there levers you can kind of pull to re-accelerate to call it double digits? Or is it just, you know, should we think about it going forward as just a highly efficient, you know, single digit story? No, we're not giving up, you know, our goal of being double-digit grower. I think right now we have a currency headwind that's causing suppression, and we're focused on pivoting to more cash and that has some consequences associated with it also. I think if we were really focused on being a single-digit grower, we would probably reduce our R&D spending, and we're not. We continue to invest very aggressively in R&D. We hit our 15% goal that we've been trying to achieve for a while this quarter. I think the next leg will be based on innovation and those kinds of things to reignite a higher growth rate. Maybe, just maybe, the dollar weakening a little bit would help me also. Thank you guys. Thank you. Thank you. Next question today comes from the line of James Breen from William Blair. Please go ahead, your line is now open. Thanks for taking the question. Just a couple. One on growth and just sort of think about across your segments of small, mid, and large enterprise. Any color on, you know, how much of the growth is coming from existing customers versus new customers and does it differ amongst those groups? Then, you know, a little bit in relation to the question on sort of M&A and consolidation. You know, any changes in the competitive environment? Are you seeing some of the smaller players just not show up as much because they don't have the funding available to be effective competitors? Thanks. I'll take the first part and either one of us can go on the second part. Actually, let's cover the second part first, right? On competitive environment, I would say not radical changes, but in the end it was still, it's us versus those guys up in Belmont, you know, the two big players that we see most of the time. Yes, I think the smaller players are running into trouble. It's less so on that, you know, this quarter, next quarter, but I think they're gonna fall behind on innovation. You know, we're using this downturn to continue to invest in our innovative funnel and flow, and people are gonna have to step up and continue to invest to keep up with people like us. I think that's where you'll see that thing diverge over time. I'm sorry, I specifically Installed base versus- Oh new Yeah, go ahead. Yeah. We do about half of our bookings from, basically splits about 50/50. We have even, you know, greater emphasis on installed base as we have great cross-sell products with contact center, things like Conversation IQ. That's been a focus of the organization as we improve sales and marketing efficiencies. We'll continue to do that, and I think our customers have been more receptive as we've improved, you know, product reliability and customer support elements. With the innovation we're getting on contact center, it all goes hand in hand. Great. Thanks. Thank you. The next question today comes from the line of Ryan Koontz from Needham & Company. Please go ahead, your line is now open. Great. Thanks for getting me in. Dave, I wanted to circle back to your comment about, you know, Direct Routing versus Operator Connect there, and how you frame up that competitive threat. You know, it looks like Operator Connect is a little more integrated into the selection process, admin panels, and onboarding, and, you know, how you think about that competitive environment there for the new Operator Connect competitors. Thanks. Yeah. The Operator Connect gives you like carrier connectivity. The direct routing really allows you to apply core routing PBX functionality to that and enhance the overall capabilities for adding voice to Microsoft Teams. It's truly a superior functionality solution. Our goal is to stay price competitive, and we, you know, sell the value of that solution. We're doing things to continue to lower our costs. We talked about the XT SKU, we talked about the phone app. All those continue to have the superior capabilities that you get with the 8x8 platform, and it's all in X Series. It allows you to seamlessly integrate contact center users on top of that. Really connecting your contact center to Teams users is like a big pain point with CIOs today, and something like Operator Connect doesn't solve that for you. We think we have a tremendous number of advantages there, and it just creates a much richer experience for the customers and what they get. That's a good point. Thanks so much. Appreciate it. Thank you. Next question today comes from the line of Michael Funk from Bank of America. Please go ahead, your line is now open. Thank you for fitting me in. A couple if I could. As you think about sequential revenue growth heading into fiscal 2024, you know, what are the variables that you're most focused on to present the most upside and downside risk to sequential revenue growth? Is that, you know, net revenue retention? Is it the CPaaS business? Is it SMB? What are those variables we should be thinking about? Now you sort of highlighted some of them, right? In terms of sequential revenue growth, FX right now is number one. I mean, I admit I was utterly surprised by how the dollar reacted and it doesn't. I wanna reiterate what I said in my script, right? It doesn't affect our operating numbers, but it definitely affects our headline revenue performance because we have so many natural hedges in place. The CPaaS business was a big worry 90 days ago. It's starting to stabilize here, so I think we're you know, knock on wood, that's less of it. As I mentioned, it was mentioned in previous calls, SMB for us is a focus on efficiency and cash generation. I think we've got our arms around that now. You mentioned things that are all potential sort of downsides. I just want to highlight the upside is we've got a number of new products coming out of the R&D funnel. In fact, we bought Fuze nine months ago, so we've had those design teams working for a number of sprints now. We've got new things coming out of the design funnel over the next six and 12 months. Those are all positives. We've been doing a lot of work on Microsoft with additional SKUs and pricing and packaging around those. The Microsoft channel partners that Dave mentioned in his script are always a big positive. There's, I think, some go-to-market stuff around Microsoft Teams that could be a positive, and some new product innovation that could be a positive, on a go-forward basis. Understood. Thank you. Then on CPaaS, is that core to the 8x8 business? You know, maybe not the best time to monetize CPaaS, but is that something that might be non-core you could look to get rid of at some point? Or is that core to the strategy going forward? I think it's something we're evaluating. I think the previous management team bought the company in 2019. It's a great business. It's got, you know, good unit economics when it's humming along. It's not deeply integrated into the company. I think the vision, you know, back then and the vision today have kinda diverged a little bit. I think it's something we're assessing over time. I don't think we have. You know, no immediate plans in this environment to do anything along those lines. Right now, I think it's, you know, get it back on its right footing and get it going in the right direction. Okay. Thank you all for the time. Thank you, Michael. Thank you. Our final question today comes from the line of Will Power from Baird. Please go ahead, your line is now open. Hey, guys. This is Charlie Erlikh on for Will. Thanks for getting me in today. Just one quick one for me. What are you seeing on the pricing front, maybe on a seat for seat basis relative to three months ago? Are you seeing any pressure on pricing? You know, especially you mentioned there are some customers that are looking at elongated sales cycles. Are they maybe pushing back on price at all when it comes time for renewal? Or just your customer conversations, any change in pricing appetite? Well, I mean, Will, I'm not gonna. I mean, in this environment, everybody, I mean, we do it, so everybody's dickering about pricing at least one or two extra spin cycles. For anybody that's a supplier to me, yes, I held all your contracts to the last day of the quarter at 11:59 P.M. before I would sign them. Yeah, I mean, I think we're seeing a little bit of aggressive. I don't think it's related as much to competition as it's related to sort of the economic environment and you know, on renewals, if there's one statement I've heard a lot of is it can't hurt to ask. We've heard some of those kinds of things. I don't think it's anything that we haven't factored into the guidance and it's anything that we're not thinking about and working on. For us, I think it's important in this type of environment to be able to lower our costs. We're very focused on making sure that we protect and grow our margins. You know, part of that is when we get pressure from our customers, we're certainly the first guys to put pressure on our suppliers. Okay. Thank you. Thank you. Thanks, Bailey. This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.