All right, welcome to Needham's 19th Annual Technology and Media Conference. I'm Ryan Koontz, I cover the comm tech sectors here in Needham. That includes cloud communications and broadband networking, among others. Really pleased to welcome to the conference 8x8, who's a leading provider of cloud-based voice contact center, video, mobile, and unified communications for businesses. We're joined by CFO Kevin Kraus. Welcome, Kevin. How are you doing?
Thanks, Ryan. It's great to be here. I appreciate it, talking to you virtually.
Excellent. Let's start with how we got here, the recent quarter. Just briefly, can you summarize some of the key drivers behind the results you saw in the March quarter, and kind of where, whether it came in as expected?
Yeah, no, we are real proud about the results. You know, we hit our revenue range, which was nice. Came in a little bit above our total revenue expectations, which was great. Had decent gross margins, excellent bottom line operating margin. We came in over 11% on a Non-GAAP basis versus our guidance of 10%, so we're really pleased with that.
Yeah.
And then our cash came in particularly strong. We landed cash flow from operations, like, $79 million for the year, and well above expectations. We have, you know, a lot more cash in the bank now than that we thought we would have, so we had real good strong performance. In terms of, you know, I think you asked about macro or s-
Generally, how much the macro been treating you like, yeah?
Yeah, so I think that it was fairly similar to what we had seen in you know, in the last few quarters, a couple quarters at least.
Mm-hmm.
You know, the same type of environment with signing deals and getting the larger ones in over the goal line, so to speak. You know, later on in the quarter, I think that's typical of what we're seeing from a competitive standpoint. More signers, more signatories required. I think, you know-
Sure
... I think other people are seeing that. Just some cautiousness on the part of customers, you know, when they sign and how they look at deals. But it's something that we're used to and we've seen before. So I think it... Nothing dramatic has changed, I think, in terms of the macro environment or the competitive environment for us, so.
Yeah. How's the product mix been trending in terms of? I know you guys sell a converged offering there, but, you know, you still have use cases around UCaaS and CCaaS, is-
Sure.
Yeah.
Yeah, I think the mix has been roughly similar between UCaaS and CCaaS.
Mm-hmm.
When I look at, you know, our underlying bookings, the mix of bookings between UCaaS, CCaaS has been fairly steady over the last few quarters. Of course, we're making moves to, you know, lead with CCaaS, so that's helping out.
Sure.
We wanna get more of the CCaaS. We love our UCaaS business, too, but you know, we have a CCaaS-led go-to-market motion.
Yeah.
You know, that takes... You know, CCaaS can sometimes take a little bit longer. You have a different buyer-
Sure
... in the company to land that deal, but we're seeing a fairly consistent mix between CCaaS and UCaaS. We did have, you know, a pretty solid CPaaS quarter as well. Seasonally, a little bit lower-
Yeah
... but, still a pretty good quarter for CPaaS as well. So I think we've seen the trough in that business is behind us.
Right. I think you've been feeling a little bit of churn on the Fuze side. Can you kind of walk us through that headwind and how you think about that maybe going forward?
Sure, yeah. And then I had mentioned this in the earnings calls as well.
Mm-hmm.
Yeah, the Fuze business, we started out, just to remind the audience, we bought the business over two years ago. Had very, very little churn, much lower than expectations in the first year that we owned the business, and then churn picked up in the second year. We put 100%, customer success people at 8x8. We covered 100%, rather, of the Fuze base, to address all customers and take care of them, and migrate them or upgrade them over to the 8x8 platform as quickly as we can. And when we do that, the customer sat scores go up, and the customer is happier, obviously.
Yeah.
So, what we're seeing as we do that, you know, kind of a more of accelerated upgrade, is some of those customers are rightsizing their business needs. So we do see some of the, you know, downsell there, as we move the customers over. But we're keeping the customers, and that's the, that's the focal point for us. So I would say in terms of the headwinds, and, I believe I expressed this on the earnings call, another quarter or two of Fuze headwinds before I think we- that, that becomes more muted in our business.
That makes sense. So, as that moves to the rear view and you think a little longer term, I know you guys have said you feel a little better about returning to top line growth there, inching up a bit.
Yeah, absolutely. So our, you know, the guidance we gave in our last call was, you know, a little bit on a year-over-year basis, some slight decline in the first half, and then the inflection point comes in the second half, and we exit the year in-
Yeah
... single-digit growth, growth range. So that's our expectations right now. And I think, you know, as we improve our go-to-market efficiencies, we're gonna be able to do that.
Great. And in terms of R&D, you guys are still investing pretty heavily there, and I know the CCaaS, as you mentioned, is getting to really becoming a lead offering. You know, can you expand on some of the segments in the CCaaS market that you're pursuing?
... Yeah, so, yeah, absolutely. We've done a ton of investing in the CCaaS product portfolio, not only organically, but inorganically, which I think we can get to later on in the call, because we've got a lot... We've got a very healthy third-party ecosystem group-
Right
... augmenting our CPaaS business. But, you know, absolutely, like, look, our CCaaS business, you know, we're targeting small to medium enterprise-sized businesses, you know, I mean, employees up to, you know, 10,000+ employees, 10-20,000 employees at the customer. You know, we have a lot of, you know, we'll, you know, have regional banks or retail-
Right
... organizations and things like that. So we're not concentrated in any particular market vertical. We've got lots of diversity in our customer base. But basically, small to medium enterprises is really where we see our sweet spot for our CCaaS business.
Right. And, so, it sounds like you have some partners in the AI front, I believe, on your CCaaS product as well. Can you maybe talk about some of the innovations you're developing, and maybe some you're partnering with as well?
Yeah, absolutely. We've got third-party ecosystem. You know, we can sell, you know, instead of three things, CPaaS, UCaaS, and CCaaS, we can sell, like, nine things now.
Right.
So, you know, we have, to remind the audience, we have ICA Voice, ICA Digital. We have Secure Pay. We have workforce management, workforce optimization. We've got an internal thing called Conversational IQ. That's internal, that's not a third-party ecosystem, but it is newer product.
Yeah.
We do a lot of proactive outreach. We can leverage our CPaaS messaging platform to do proactive outreach from our contact center as well. So we've got a lot of new things happening in the ecosystem. We do leverage AI for that, and we also have a new product that we offered, or that we announced fairly recently, called Engage-
Right
... where it's not the classical contact center, but it touches a lot of people inside the customer organization to help it solve its customers' problems. So we're really proud about that. Brand-new, and you know, we expect that to take off quite rapidly. So that's a new, exciting thing that we're doing. So our investment in innovation, you know, to me, is really, really paying, you know, starting to pay off, so we do expect a lot of growth. And then when you sell a lot of products to a customer, the customer becomes stickier. So that's the strategy there.
Definitely. Yeah, contact center's incredibly sticky. It's so deeply integrated to workflows across so many organizations. You can imagine, the replacement cycle on that is quite long. So,
Yeah
... that's a great area for you guys to focus on, to drive long-term growth, for sure.
Mm-hmm.
Shifting back to traditional voice and Microsoft Teams' presence there, I mean, it's kind of been viewed by investors as, I think, a threat to you, to UCaaS. I know you guys have had a great relationship there with Microsoft over the years, and how do you think about the sell-in opportunity for Teams?
Yeah.
How do you bring that up from a financial perspective?
So yeah, I mean, we're really proud of our relationship with Microsoft. You know, we have over 400,000 Voice for Teams seats. We are actually the only Microsoft-certified contact center-
Mm-hmm
... out there. Actually, it's Operator Connect provider certified. Yeah, okay.
Right.
So, if you go on the Microsoft webpage, we're listed as a partner, so we're real proud of that relationship. And we've obviously just, you know, announced Operator Connect, so further integration-
Yeah
... with Microsoft. How we leverage that is we actually have a much better attach rate-
Right
... to our contact center when we have deals that involve Teams.
Yeah.
And in fact, and I think we may have mentioned it in the past, we have one of our larger customers actually uses our product with Microsoft Voice for Teams in over 30 countries.
Wow.
So when I look at the attach rates for contact center when we have Teams, it's like... You know, I'd go back to the latest data, but a quarter ago, it was, like, nearly double.
Yeah.
So that's a real attractive point for us as we, you know, leverage our contact center abilities to get more penetration into that market.
Yeah, those contact center seats are higher, higher dollar ARPU, obviously.
Yeah. Exactly, exactly.
That's great. And you know, your CPaaS business has been a little niche, and I know you guys, you know, had a little bit of a rebuild there on your strategy over the last year. So can you kinda walk us through, you know, what you've refined and what you're seeing in terms of your outlook for the next fiscal year on CPaaS?
Sure. Yeah, absolutely. Yeah, it's great. So this was a business that we acquired in 2019, for, you know, primarily in Southeast Asia.
Mm-hmm.
A couple things we're doing there is, obviously, we mentioned before, I think, externally, that we have new leadership team in place there.
Yeah.
It's been there about a year now. Has done a great amount of work kind of structuring things, gaining efficiencies, making sure that we've got profitable business there.
Mm-hmm.
We have, you know, over 1,000 customers in the region, and, the, the, you know, we've got a lot of marquee names there, so we've got a pretty good customer base. A lot of, of the opportunity can come from larger customers, but expanding that base is, is a good, you know, opportunity for us. So we're looking at, expanding that business farther out of the Southeast Asia region. So I mentioned proactive outreach earlier on this call. That's an opportunity for us to, for example, attach text messaging or reminders for appointments or, or-
Yeah
... any other kind of messaging to our contact center around the world. So we have the platform capabilities to be able to do that, so that's one of the things that we're doing now to globalize that business, if you will.
Right.
So that's, you know, one of the examples of just extending the reach of that business. So we're pretty happy with that, and like I mentioned, you know, we had historically back, you know, a few quarters ago, you know, we were continuously seeing the headwinds in that business, and right now it seems that that's, you know, in the rear view mirror for us, at this point.
Great.
So that's, that's a good feeling.
Great, yeah. I think I recall it's a little lower gross margin, but I assume profitability margins are strong on that business, 'cause you guys seem awfully committed.
Yeah, it's a business that can really work very well at scale.
Mm-hmm.
Yes, it's lower gross margin because of the region it's in right now, but as we expand globally, I think that'll get a bit better. And from an OpEx point of view, it does require relatively less-
Mm-hmm
... operating expense to run. So the key for us is to get that business as high, scaled up as high as we can.
Yeah
... through additional, you know, customer penetration in the region and globalization. So I think it's we're making progress in that area.
Great. I mean, the business overall has had a beautiful transformation in terms of, you know, achieving double-digit operating margins and seeing that flow through to cash flows. Is this a model now you think you guys can maintain here, as you look to return to growth in the second half?
Yes, I do. So we guided out the year, you know, and it's...
Mm-hmm
... double-digit operating margins, continuing. You know, cash flow will be relatively robust. And, well, you know, the revenue guidance, right? We expect a flat year-over-year, but exiting the year with a positive growth rate. So I think we're in the right spot, and we can maintain this level of profitability and good cash generation, as we, you know, make the continued investments in our return to growth. Also, for us, it's important that we continue on our path toward improving our go-to-market efficiency. That's something that we've been working on. We've made a lot of-
Right
... progress there, but we've got some more progress to make, and we expect to do that throughout the year.
How are you gonna do that? Is that through better efficiency in lead gen? Is it through, you know, pushing more into the channel, have the channel do a little more heavy lift? What are some of your levers there on go-to-market efficiencies?
Yeah, it's several things, right? So, right now, we've retooled the team. As we've indicated externally, you know, we've got some new leadership, both in the CRO and CMO.
Yeah.
We've actually implemented... You mentioned lead generation, right? We've implemented new processes and tools to improve our lead flow, the lead gen-
Mm
... the quality of the leads, what we can do to convert those to wins. So there's a lot of, you know, behind-the-scenes work that's going on-
Yeah
... to deliver greater quality to the sales team, so the conversion rates go up. And also you mentioned the channel. Yes, we're doing work in the channel. We love our channel. We have an agency model. We have a VAR model. So we do leverage that in the company, and, you know, we work with them to do all sorts of things, you know, promotions, programs, et cetera, to keep driving our business. So,
Yeah
... those, the two channel motions plus our direct motion, you know, we are working on all three.
Yeah. Well, you guys have made some great strides on the profitability line. That's been really great. What kind of metrics are you seeing that give you confidence in the return to growth in the second half on the top line?
Yeah.
What do you think?
Yeah
... elements of that are? I think you mentioned-
Yeah
... Fuze already. That's a big one.
I'm sorry. Repeat that.
I know you mentioned Fuze already. As that headwind on churn is probably one element there. Are there other elements that you think contribute to return to growth in second half?
Sure. I think that, a couple things, you know, as we, as we benefit from the compounding effects from greater internal bookings, that's built in to our, expectations.
Mm-hmm.
Because as we get more efficiencies, you know, clearly, our bookings should be improving over time. And I think the combination of the improved efficiencies and the compounding effects of the better bookings, we also have really good success so far with our new product portfolio. So I mentioned all these, the list of products. You know, we can sell a bunch of things, and while we're still in this single-digit millions range on these new products on a per-quarter basis, so it's not really manifesting itself in a noticeable way in the P&L yet.
Yeah.
It proves that we have good customer product fit, 'cause customers are adopting it, and, you know, we're starting from a small base, but that, you know, the fact that it's becoming more and more successful on a year-over-year basis, on a quarter-over-quarter basis, is very positive news for us. So we have to leverage more of that in our, I mean, in our customer messaging and the things that we can do, and part of the sales, you know, playbook involves that. So all those things are good catalysts for us to pick up the growth curve, as we-
Yeah
... move forward.
Right, and maybe kind of peeling back the changes you made in go-to-market, what sort of changes are you seeing made, like, internally in the organization in terms of the way that GTM is operating from your perspective? I mean, what sort of changes do you think are you seeing-
Yes
... kind of year-over-year right now? Anything you can throw out there to share a little color there on go-to-market?
Well, I think that the teams. You know, I've been here, gosh, it'll be five years in late October, I think, it'll be five years. So I've seen a lot of change in the company.
Wow.
And, I... The, what I like to see, you know, from a, from a providing color standpoint, I think that the, the integration between the marketing and sales team is the tightest I've seen-
Mm
... since I've been with the company. And so for me, and you can't underestimate that kind of thing.
Yeah.
Right? You have people who, some of whom, who worked together before in multiple prior companies, but there are people that are working now to make some, you know, significant operational improvement.
Mm
... choices, and it's being embraced as a unit, you know, from the marketing all, you know, from lead gen all the way to deal close.
Yeah.
I see a pretty tight-knit group in our entire GTM that is a lot better than what I'd seen before, and so-
Yeah
You know, that gives me confidence that we can succeed, and then inflect on growth.
I think you just came back from your kickoff, you were saying.
We did, actually. It was a great event. It ended last evening. It was in Florida, so I got back late last night, and-
Yeah
... we had, you know, ecosystem partners there. We had other technology partners there. We had customers there to help tell the story.
Mm.
And so, you know, the typical things you'd probably expect at a kickoff with respect to that exchange of information. So it was a really, really robust set of obviously company attendees and invited guests.
Mm.
I learned a lot at the conference about, you know, about what, you know, things that go on outside the four walls of the company and, and-
Right
... other customers it's really good for me to go to that and to gain a better-
Awesome
... understanding,
Mm-hmm
... and get to meet the people face to face, you know, who we work with from an ecosystem partner perspective. So, it's a great educational session, and I think it's obviously a motivating session for people. So yeah, we had two days, two full days, there, and I think it was a great event.
Awesome.
You know, this, the post-pandemic is nice to be able to do at least a few things in person, which is good.
For real.
Yeah.
No doubt. And great for you to meet some of the people you're sending those big checks to, I'm sure.
Yeah. Yeah, well, you know, I don't mind sending the checks, as long as it's a result of profitable business, right?
That's right.
So that's okay. Yeah.
No, I know. Heck yeah. How about the competitive landscape there? Anything you're seeing there in terms of changes? You know, obviously you got, you know, some big guys out there in Ring and Zoom, and you guys have been executing well, too. You know, any shifts in behavior you're seeing in the broader landscape, either upmarket or downmarket?
I think with our primary competitors, you know, the names you mentioned, it's pretty much more of the, you know, the same type of environment as we've-
Yeah
... experienced. So I don't, I don't notice anything with the deals that come to, to me.
Mm.
You know, deals desk reports into me, and the deals that come to me, there's nothing that's been... You know, it's pretty typical.
Yeah
... this past quarter and what we're seeing now relative to what we had seen. Downmarket from us, there's-
Mm
... there are some companies who are, you know, getting into, they're, you know... They're, they're maybe getting into a little bit of trouble with customers leaving them, so I think they're-
A little more desperate.
I think so. But it's not like it becomes something that it forces us to do anything unnatural, but, you know, there's definitely movement we see in the, you know, downmarket from us, some companies in a little bit of trouble right now.
Yeah.
but that-
Yeah, downmarket, you can't, you can't really be there without scale, right?
Exactly. So, you know, but I... You know, from a competitive landscape, it's, I would say fairly status quo-
Sure
... you know, for the, you know, relative to the past.
I think these price changes are pretty similar from past trends?
... Yeah, yeah, I think it's the same. I don't see, you know, our pricing has been relatively consistent. Fortunately for us, we're able to be very flexible with our pricing. You know, we're a profitable company.
Yeah
... and so we can compete with anyone.
Yeah
You know, so, so that's a good, that's a good feeling.
For sure. For sure.
Yeah.
And in terms of the market verticals out there, are you seeing any particular strength? You know, obviously Teams is big in traditional enterprise, knowledge worker stuff, but I'm sure there's lots of other verticals that are probably ripe and don't have a need for a full knowledge worker platform like that. You know, like, do you see strength in, like, areas like healthcare in the past? You guys have seen some success or, you know, government, these sort of things?
Yeah. So, you know, healthcare, we've got healthcare. I think public sector, like you mentioned, government, I think public sector is an area that we've been historically pretty strong in.
Yeah.
You know, particularly in the U.K. So we, you know, we continue to pursue those areas, and others, but those areas that we've had historical strength. So we, you know, we've got a good offering for that for the, you know, for public sector, for example. So-
Yeah
... we seem to have good, good success there.
That's great. Really great. If, if any investors wanna submit questions via the portal, feel free to do that. How about on the, on the international front? You know, I know that's an area you guys have done really well in the UK of late. Any updates on the international front you'd share with the investors at this time?
Well, you know, our mix, our revenue mix is pretty, you know, pretty straightforward.
It is.
You can see it. We're gonna, you know, you'll see it in our K, but the revenue mix is pretty consistent.
Yeah
... you know, I think Europe, we have you know, continued opportunities in continental Europe.
Yeah
... you know, maybe, you know, maybe some more in Ireland and other places. I think with the expansion of the, you know, potential expansion of this CPaaS business globally, there'll be more non-Southeast Asian-
Yeah
... business for that particular product. But I think we've got opportunities in a lot of places. But in terms of the relative mix, I mean, I think everything is gonna grow. So in terms of proportion, I'm not seeing a big shift there.
That's okay.
I think it's gonna be a rising tide floats all boats type of situation.
Awesome. Yeah, just wrapping up here, anything you wanted to say in wrapping up the event? Appreciate you joining today, Kevin.
No, I appreciate being here, Ryan. Thank you so much. Look, I feel good about where we are as a business. We've done a ton of, we've made a lot of improvements to our, financial, position in the last two years, which we feel really, really great about. We've got the new product portfolio that we've developed, so we wanna drive that and have that investment pay off. So, you know, we see, you know, good things to come for our business. So I'm really happy to be able to share that with you and your, and your, viewers here, and our viewers here.
Awesome, Kev. Well, hey, man, great, great to see you. Thanks for joining today, and yeah, have a great rest of the week.
Thank you. You too. Enjoy.
All right.