Peter Levine: When we think about foregoing, I think, near-term growth of profitability, managing the business for more cash. I think your comments on having, a, become more of an innovation by company, but it does sound like the offsets that will be sales and marketing. So is the idea to rely more on partners for net new? Or is the strategy to kind of focus back on the base? Just what initiatives are in play, I think, today to deliver, I think, greater sales and marketing efficiencies, if you’re going to be pulling back a little bit on the sales for?
Samuel Wilson: Yes. So we are a partner-led company. And so we’re putting — I think the key is — and there’s a timing aspect to this, and I know that everybody sort of gets that. But if we invest today in innovation, it takes a little while for that before that to show up in pipeline. And so what we have done is we’ve really worked on improving the sales and marketing efficiency at the company, while we incubate a solid innovation road map, particularly around contact center. And so once that innovation road map starts to get into the market and whatever, we should be more of a customer pull model instead of a sales or partner push model, and that’s much more efficient over time. And so there is a timing aspect to this. We’ll deal with some quarters of relatively low growth rates as we make this transition to XCaaS being a larger part, to innovation to new products driving more of the business.
But that’s really what we’re focusing on to improve that efficiency number instead of some of the things we’ve done in the past.
Peter Levine: I apologize if I missed it, but can you quantify, I think, the CPaaS headwind this quarter? If I look at organic growth year-over-year, I’m just trying to understand how much of that was attributable to the CPaaS headwind versus kind of macro just impacting customer purchasing decisions?
Samuel Wilson: We don’t break out CPaaS separately. We don’t want to run a foul of the segment reporting rules of the SEC and some of the other rules that are out there. I would just tell you that it was the — the difference between our guidance and what we actually produce, the vast majority of that was the CPaaS business, if that helps you quantify it.
Operator: The next question is from the line of Ryan Koontz with Needham. Your line is now open.
Ryan Koontz: Sam, I want as you look at the kind of the broader UC space and obviously slowing growth across the board. Are you seeing signs yet of consolidation that could improve the health of the industry?
Samuel Wilson: Well, we consolidated Fuze and the Street didn’t like that deal. So I’m not sure anybody is going to be consolidating anything too soon. Fuze for us has been a big success. I wouldn’t — I would do it all over again. But so far, no. I don’t see a whole lot in the consolidation space.
Ryan Koontz: And in terms of the Fuze installed base, no update there in terms of customer migration or how we should expect any kind of impact on the model going forward at this point?
Samuel Wilson: We’re accelerating my upgrades as I say, migration we selling upgrades. And we’ve got automated tools and the work we’ve done on the engineering front to make that just a really easy seamless transition, is starting to come into market. So we would expect that, that — those upgrades to start to accelerate over the next couple of quarters. And if any Fuze customers are listening, we’re not going to force you to migrate. We’re not going to force it upgrade. We’re going to do it when you’re ready.
Operator: The next question is from the line of Ryan MacWilliams with Barclays. Your line is now open.
Ryan MacWilliams: Sam, also nice to see the improvement quarter-over-quarter in non-GAAP gross profit. It seems like you’re certainly targeting the right revenue. For the 2024 target for low single-digit top line growth and look, I’ll cut you some slack on this one, but on a quarterly basis, should we think about any differences in the year-over-year revenue growth rates for the first half of the year versus the second half? Like at this point, are you thinking stronger year-over-year growth later in the year?
Samuel Wilson: Yes. I mean we haven’t baked really any of the new products in, but because of the comps and some of the other things, the growth rates will naturally lift as the year goes on. Thank you for calling it out, right. Last quarter, 31% year-over-year growth in gross profits. And we would expect that next year gross profit growth is in excess of revenue growth. We continue to get solid gross margin improvements. But yes, more back half of the year. Kevin, anything you want to add?
Kevin Kraus: And provided what happens with CPaaS, we’re going to be taking a look at that and doing what we can to help ramp that above our conservative estimation.
Ryan MacWilliams: Yes. Good to hear that for sure. We also noticed that your disclosure for Microsoft Teams licenses went from a few hundred thousand last quarter to over $300,000 in this quarter. Do you have a sense of what percentage of 8×8’s net new business comes with the Microsoft Teams integration? And then separately, the strength around renewals, but did you notice any additional price headwinds, perhaps from competition around those renewals in the quarter?
Samuel Wilson: So I’ll get back to you on the first 1, because we give away the integration for Microsoft Teams for effectively free. So it has no real consequence on the UCaaS number. Just before everybody freaks out, it’s not I’m giving seats away for free. They stop to buy an X1 or X2 or X3, X4 seat to go with it. The integration is free. So it’s easy for me to get the seat number, but I have to go do some math to say what percentage of new logo dollars that was. Microsoft Teams is an important aspect. And obviously, if we’re talking about organic growth at 0 and Microsoft Teams growing at triple digits, it’s becoming a larger share of our new logo wins. And I think it is pulling through contact center and some of the other things.
Ryan MacWilliams: Sure. And just around the renewals in the quarter. Did you notice any like additional competition around price renewals? Or was it pretty similar?
Samuel Wilson: Yes. If I speak really candidly, it’s the fiscal fourth quarter, December for a number of our competitors, and I swear at the end of the year and at the end of their fiscal year, they have absolutely no pricing discipline at all. So did we see mud thrown in several directions, sure. I suspect that while they’re busy, they’re SKOs now and posting on LinkedIn, they’ll forget to do that this quarter.
Operator: The next question is from the line of Michael Turrin with Wells Fargo. Your line is now open.
Austin Williams: This is Austin Williams on for Michael Turrin. I wanted to go back to margins. I’m wondering if there’s any way to quantify how much of the margin improvement that you’ve seen thus far are from taking costs out of Fuze and how that compares to just the core business efficiencies?
Samuel Wilson: So we have really gotten a lot of great margin out of the core business as well as Fuze. So it’s really on both sides. And the Fuze gross margins comparable with the 8×8 organic gross margins. And we’ve done the same kind of work on, say, COGS that we did with the Fuze base. So it’s kind of been done in tandem. So I would say that there’s a fairly equal distribution of margin improvement from both entities, if you will.
Austin Williams: Just 1 follow-up. RPO was up nicely on a sequential basis. I’m just wondering if there’s anything to call out as it relates to deal duration, if there are any longer-term deals in there?
Samuel Wilson: Yes. We saw a slight change, but the vast majority of it was just more contracts. It’s roughly the same. It’s roughly the same.
Operator: The next question is from the line of Michael Funk with Bank of America. Your line is now open.
Michael Funk: Yes. A couple if I could. So earlier, you mentioned hoping to see attach rate of CCaaS increase over time. So just wondering more details on what’s going to make that happen? Is that just a sales training and processes, better partner training? Is it technical integration? So what’s the gating factor there?
Samuel Wilson: I believe that — okay, so I believe as we — as the innovation we’re investing in, particularly on the contact center of the side of the house, comes into market, our contact center is going to start to pull through more and more. And given the fact that we have things like Conversational IQ, which gives a distinct advantage to moving your base on to UC from the same vendor on the same platform. So as our contact center gets better, it gets us involved in more deals that, in turn, makes the prospects look at the fact that we have Five9 SLA, a single platform, high availability, high reliability, tremendous feature set and all those other things, just makes it a lay up to buy it all together in 1 package. And I think that’s why we’re seeing XCaaS resonate with the market, right, 40% of ARR, higher retention rates, higher net dollar retention numbers, all those things.
And the more we invest on the contact center side the more, I think that flywheel spins faster and faster, because contact center is where there’s a tremendous amount of white space in terms of innovation room today.
Michael Funk: Understood. And then also, I think the comment was made about addressing risk about expirations and that being helpful with the retention rate. Is that related to some of the competitive pricing pressure you were seeing in the market? And then how are you addressing those risks? Is that through discounting, incremental product additions? How are you addressing that with customers?
Kevin Kraus: I think that was my comment about how we’re looking forward. So yes — so what we’re trying to do is we’re trying — first of all, we have a pretty good — we’ve operationalized fairly well an understanding of the customer renewals and when they’re coming up and well in advance of their renewal, just make sure that the customer is using the product, it’s working as promised, making sure that they’re delighted in the performance of the product and so forth. And that’s where the investment came in — the investment comment comes in that I mentioned about making sure that the customers are happy. So by doing so, we don’t necessarily have to go discount on renewal. It could happen, but basically, we just want to make sure that we get ahead of it.
Samuel Wilson: Yes. And I would sort of piggyback on what Kevin said, right? Switching costs are not low in this industry with line nonreporting and everything else. We are training agents or doing it as other things, right? So really, like once we land to customers, there are ours to lose. And the GCC organization here has just done an exceptional job of removing the bottlenecks to renewal, number one. And then the engineering organization has done an exceptional job with just very high reliability. I mean we have Five9 platform SLA, and most of our competitors don’t because they can’t meet those kinds of numbers.
Operator: The next question is from the line of Josh Nichols with B. Riley. Your line is now open.
Josh Nichols: Good to see the improving operating margin guidance as the company continues to make progress on the deleveraging front here. Just — most of my questions have been answered, but I guess I’d say, if you could kind of compare and contrast what you’re seeing in the U.S. versus other markets such as the U.K. that’d be interesting given the economic weakness that we’re seeing and that foreign markets have been a lot faster growing from you of late. Just curious what that looks like today.
