Good afternoon. Thank you for attending the 8x8 Fiscal Third Quarter Earnings Call. My name is Matt, and I'll be your moderator for today's call. All lines have been muted during presentation portion of the call and opportunity for question and answer session at the end I would now like to pass the conference over to our host, Kate Patterson, Vice President of Investor Relations. Kate, please go ahead.

Thank you, operator. Good afternoon, everyone. Today's agenda will include a review of our third quarter results with Samuel Wilson, our Interim Chief Executive Officer, and Kevin Kraus, our Interim 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, product and growth strategy. 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 reports filed with the SEC. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligation to update them. 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 the U.S. generally accepted accounting principles or GAAP. A reconciliation of those non-GAAP measures to the closest comparable GAAP measures is provided in our earnings press release and earnings presentation slides, which are available on 8x8 Investor Relations website at investors.8x8.com. With that, I'll turn the call over to Samuel Wilson.

Thank you, Kate, and thank you to everyone joining us on the call today. I believe our solid third quarter results were a strong indicator of our ability to perform against our objectives. We said we would forgo some near-term revenue growth for profitability as we build a sustainable long-term business and that's exactly what our teams did in the quarter. Despite the lower-than-expected total revenue, we delivered almost 10% operating income, increased deferred revenue and RPO, and experienced high customer retention, all early indicators of future success for a SaaS business. I'm impressed with the quality of our performance in the third quarter, and I want to thank our employees and everyone in the 8x8 community for their hard work. Turning to the future. I have been working closely with the leadership team and the Board of Directors on a multiyear strategy to grow our business and create value for our stakeholders. We laid the foundation for our next step several years ago when we re-architectured our core technology. We built a modern microservices-based platform that powers both our current UCaaS and CCaaS solutions. We have fully embraced continuous integration and continuous deployment and are delivering more than 1,000 micro service updates every quarter. This enabled near perfect uptime for the third quarter and reduced the number of customer identified defects to single digits. We are innovating faster than we ever have before. At the same time, we embarked on this journey we could not have predicted the global COVID pandemic or how it would accelerate adoption of cloud-based telephony and internal collaboration tools, especially Microsoft Teams. While UCaaS migration continues to create revenue and profit opportunities for efficient providers like 8x8, I believe the opportunities to differentiate based on stand-alone UCaaS are becoming increasingly rare. Our XCaaS platform,…

Thanks, Sam, and good afternoon to everyone. We remained financially disciplined and delivered solid profit and cash results for the third fiscal quarter. In the third quarter, despite service and total revenue being slightly below our guidance ranges, we delivered non-GAAP gross margin, non-GAAP operating profit and cash from operations above our expectations. Total revenue for the quarter was $184.4 million, and we generated $175.8 million in service revenue, both an increase of 18% year-over-year. Our revenue performance reflected strong customer retention and renewals, partially offset by a continued decline in our CPaaS business in the Asia-Pacific region. Other revenue for the quarter was $8.6 million, roughly flat with the prior quarter and in line with expectations. Fuze accounted for $26.5 million of service revenue and total revenue and was impacted by a $1 million third quarter reserve adjustment we made as part of our integration of back-office processes. Fuze' customer retention remains strong and the business continues to outperform our initial expectations. Strong retention across the customer base was reflected in our RPO and ARR metrics. Remaining performance obligation was approximately $750 million for the quarter, up from $715 million in the second quarter on solid bookings performance. Customer renewals were notably strong and our customer retention was the highest it has been in many quarters. Total ARR was $698 million at quarter end, up 22% year-over-year. Enterprise customers accounted for 57% of total ARR, and Enterprise ARR was up 30% year-over-year, but down approximately $1 million sequentially due to the continued decline in CPaaS ARR. We had hoped this part of the business had stabilized last quarter, but due to continued challenges, we are taking a conservative view of the potential revenue contribution going forward. Turning to gross margin. Operating expenses and operating profit. Please remember that all…

First question is from the line of Matt VanVliet with BTIG. Your line is now open.

I guess as you look at sort of the realigned cost structure here and an outlined kind of focus around servicing smaller customers and also the Teams ecosystem. Just curious on sort of where within the sales and go-to-market organization are we seeing the most cuts? And it sort of feels like some of these investments are in areas that were maybe less focal for the previous leadership team. So just curious on how much of this is a change versus just kind of moving from 1 pocket to another.

I'm going to give you 1 of those great answers that CEOs like to give, which is a little bit of both. I mean -- so we are in line with what we've said in the past, we continue to moderate our investment in our smaller customer segment, so the small business side of the house, while we continue to invest in mid-market and enterprise. We have made some -- reduced some investments in the sales and marketing front, in line with what we have again said in the past, where we're willing to forgo some revenue growth for increased profitability and the 9.9% operating margins clearly shows that we're taking that seriously. I think the things, Matt, that we changed a little bit is we're a little bit more aggressive on not making those changes sooner than later, and we're continuing to focus on investing in contact center, XCaaS and innovation, those 3 things. And I think we're a little bit more aggressive behind those investments also. So a bit of both, if I can give you that answer.

And then, I guess, as you look at the Fuze business that you acquired and we're understandably we're lapping that and create some headwinds on growth. But curious, as you look at that customer base, is that -- should we think about that growing at any different pace than the legacy 8x8? Is there limitations on sort of how much you can grow in that base and as much of the acquisition is around the technology and the development team, I guess maybe just help us think about what that Fuze base looks like? And eventually, is there still plans to move them to XCaaS?

So in order -- the first and most important thing, and we have not done a great job of this yet, is cross-selling our contact center into that UC base. So there's a tremendous opportunity, and that wouldn't show up necessarily in the Fuze numbers if we continue to report those. We're not going to report after next quarter, but if you can imagine the wind the each open the side of the house. And we've already started upgrading some of the customers to the 8x8 platform, and we'll continue to do that. That's part of the reason Kevin said in his prepared remarks, that as we anniversary it just gets kind of meaningless to report these. And remember, we're not adding -- we're not investing a new logo acquisition on the Fuze side of the house. We're investing on the 8x8 side of the house. So in a notional sense, the Fuze number we report is the Fuze UC base. And with natural sort of things, we'd expect that to slowly degrade a little bit over time. And as the numbers show, it's been a very slow over the last year. It was well -- it's done much better kudos to the GCC team. It's done much better than we expected when we originally did the acquisition. And so I would expect that to continue. The number one area of focus besides retaining the revenue is cross-selling our contact center into it.

The next question is from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Maybe as you look to fiscal '24 and just kind of the low single-digit outlook that you gave. You guys mentioned a lot of conservatism around CPaaS or conservatism just on Fuze term. But just if you could give kind of an update as far as like what you're seeing as far as deal activity, trajectory, just given kind of the macro environment. And then maybe as a follow-up question on the CPaaS business. I guess, just like what is the ongoing rationale particularly just given it's in a region that you guys don't do a tremendous amount of business in, like what is the business rationale continuing to kind of invest in that business when you're making kind of cost decisions elsewhere?

This is Kevin. So in terms of the 2024 growth of low single digits, we are being conservative with respect to the CPaaS business, as we said. We do see signs of stabilization in that business. But since it's usage-based, it's a pretty dynamic market. We're just going to continue our conservatism into the forward-looking forecast on that, until we see absolute signs of change. In terms of the rationale for the investments in that business, that business can really turn revenue up pretty quickly. So we're very interested in that business. It could provide a lot of growth on -- in pretty short order, more so than our typical recurring revenue business does. So that's 1 of the areas where we're looking at potentially ramping up our growth.

Yes. So a couple of small things I'd add is, so you talk about economic sensitivity, probably some things like CPaaS, which isn't contracted revenue, we're seeing a little bit more of that economic sensitivity. I think on the core business, where it's really interesting is our collections were absolutely fantastic. So as Kevin talked about, our cash and cash balance was sort of in excess of what we expected for the quarter. Our collections portfolio is the best it's been in a long time. And that's also a clear sign in our retention metrics. So if you look, our retention metrics were highest in many quarters, months, I forget out exactly what Kevin said, but in 1 of those -- so the quality of our portfolio from an economic perspective is absolutely fantastic. And you did see RPO trended up, right? So the contracted revenue had a pretty good quarter relative to some of the other things. So I think from an economic front, I'm not super stressed right now about the economic health of our -- both on the recurring side and the ability to add new logos. And then lastly, just on the conservative nature of the model, look, it's my first quarter. I'm definitely not going to stick my neck far out with a super aggressive model. We've got a ton of new innovation that's going into beta, which we basically have 0 in the model for. We're trying to be really conservative on the CCaaS side of the -- sorry, CPaaS side of the house also. So cut me a bit of slack. I'm conservative on the first quarter out.

The next question is from the line of Siti Panigrahi with Mizuho. Your line is open now.

Sam, it's good to see focus on profitability side. Just wanted to ask on the revenue side. Your service revenue, I say organic services revenue growth was flat, excluding Fuze. So you did talk about CCaaS, but what do you see in terms of macro trend, anything on the enterprise side? Is it definitely disoriented. What are you seeing in the market right now?

I -- it's a fair question, and yes, your math is correct. It's just -- it's a little hard for me to tell. We took an action in the beginning of October, and we took another action in January. So both of those had consequences. And as we said earlier, we're walking away from low margin or negative margin revenue for improved profitability. We think the improved profitability allows us to delever our balance sheet, just makes the company better off and allows us to reallocate investments in the better ROIC areas. So I think absolutely, economics played a relatively small role in the revenue performance, it was really self-generated. And the other thing I would say is I think that reallocation of investment is working, deferred revenue's up quarter-on-quarter, deferred commission's up quarter-on-quarter, RPO's up quarter-on-quarter and retention at the highest levels we've seen in a long time. So in terms of the underlying indicators of a healthy SaaS business, they all got better last quarter. And so I sort of believe that the right play right now is to sacrifice a little bit of revenue growth to make all those things substantially better.

And then in the CPaaS business, I know you talked about weakness in the CPaaS business the last few quarters. So wondering what's the current run rate of CPaaS right now?

We don't disclose that. As Kevin mentioned in his script, it's 1 of the things that we're looking at disclosing potentially in future quarters, so we kind of put the breadcrumbs out there, but it's under review.

The next question is from the line of Catharine Trebnick with Roth Capital Partners. Your line is now open.

Sam, when you talked about your bullet point #5, Asia Pac and CPaaS revenue has been down. What other assets are you looking to build that up with, so you can really drive that as a key growth driver?

It's a completely fair question. So I think in the past, we missed a bit of a product cycle in CPaaS in Asia. And you could -- like I can get into more details in -- at another time, but just we missed the product cycle, and we sort of caught up on that. We're investing in the platform in the business. Our unit volumes have continued to increase. And we're continuing to land brand name customers, as I mentioned in the prepared remarks. And so I think the business funnel is there, et cetera. We just need to close the gap on a few product features. And there's some other news that's coming in the near future on that front also in the CPaaS business. And so I think that the stars are starting to align for us to turn that business around. It is taking longer than we had expected, and I grant that to everyone, but I think the stars are therefore, to turn around and do better.

Well, then, you also then layer on your CCaaS business in like the Australian market, it seems like that would be a right market for you.

I know I don't want to pooh, pooh, the Australian market. It just happens to be that Australia is like the 58th largest population country in the world and the State of California is the sixth. I'm not sure if I wouldn't rather invest in California than in Australia. Right now, we're investing pretty aggressively in the U.S., U.K., California -- I'm sorry, Canada, Ireland, because those are just great contact center markets right now for us.

The next question is from the line of George Sutton with Craig-Hallum. Your line is now open.

Sam, you talked about the importance of your customer recommendations to their peers, as being a driver of your business. Can you talk about that in a little more detail? Is that something you've actually seen? And is that -- is there something you can quantify there?

Kate may know the quantification numbers off the top of her head, but 1 of the things that we've been very focused on over the last few quarters has been improving our reference ability. So we really were talking about NPS, so there's notion of referenceability and we saw a pretty substantial increase in our referenceability. This all goes sort of full circle, right? So in my prepared remarks, I talked about our investment in customer success. Kevin talked about the very high retention rates we're having. That in turn leads to happy customers, happy customers give good references, which then, in turn, drives RPO improvements and deferred revenue improvements and those kinds of things, right? So we're trying to get that virtuous cycle, maybe spinning a little faster than it has in the past.

Just as a follow-up. You mentioned customer churn is something you're comfortable with. I'm curious if you can talk about seat churn. And of course, as we're starting to see some layoffs around the market. Is that starting to have an impact in the results?

I'll let Kevin follow up if you want to add anything. Look, so when we talk about retention, we talk about logo plus seats, right? So if a customer down sells from 100 seats to 90 seats, where a customer goes from 10 seats to 0, we count that the same. And last quarter, we had the highest retention in many years. And so I don't think it's that much -- I think what's interesting is we're launching a lot of really important things, Conversational IQ, some of the things we have in beta, et cetera. So even if we're seeing a little bit of ARPU decrease from the core product, just the number of seats, we are seeing an uptick in the number of add-ons going into our contact center.

Yes. I think -- so on the customer retention, we need to go back over more than 3 years to get -- I just can't find any numbers for more than 3 years that are better than the ones that we just put up this quarter. I will also say that we're making the right investments in global customer care and delighting our customers. So it's really starting to pay dividends for us, and we're keeping the right high-value customers. And looking forward, although we don't give guidance on this, we do look out. We're very, very proactive about what customers are renewing, what's coming up, and we address any risks that way. We're doing a really good job of that right now. So I think that's reflected in our recent trend.

The next question is from the line of Will Power with Baird. Your line is now open.

Yes, I guess I had a question on the revenue guidance, both for fiscal Q4 and in '24, thanks for the initial framework there. And I guess I recognize that CPaaS is going to be a headwind. You've talked about that. Is there any way to kind of help us parse apart what you're seeing in kind of XCaaS and CCaaS, which I know is the strategic priority versus UCaaS? I mean are there demonstrably different growth rates there? Any color you could provide on that front?

Yes. I mean, I'll start, and I'll let Kevin fill in. So a couple of things, right? So XCaaS is now almost 40% of our ARR and has growth rates well in excess of what we're seeing across the whole business, right? So the whole business is flat and our growth rate in XCaaS is high 20s. And so definitely a situation where we've got a lot of moving pieces under the table. CPaaS, you mentioned small business, UCaaS. It had an okay quarter this quarter. It was kind of flattish on a year-over-year basis, right, up 4%, those kinds of things. But not blowout numbers. And so we are still under the covers. I think all of this is starting to show up in a complete soup though, right? XCaaS, our contact center doing better. That's driving higher growth rates in enterprise. And small business is starting to become a smaller and smaller component of the overall ARR mix. And so as all that flushes out over time, we should naturally see a lift in growth rates.

Let me ask you 2 then maybe this ties into that. I mean you noted RPO was -- had a nice sequential increase. And what's helping drive that? I mean is that XCaaS adoption? What are kind of the key pieces of that?

Yes. no, I mean, I'd love to make it -- well, I'd love to make it super sophisticated and cool, but -- we had a good quarter for XCaaS sales, right? The combination of UC, CC and a world-class Microsoft Teams integration, I mean we mentioned right? Microsoft Teams triple-digit growth year-over-year. That's pulling in our contact center. Our contact center then has higher dollar ARPUs attached to it and good margins associated with it. So if we can just keep in princing and repeating that, the numbers will continue to get better.

Yes. We also -- I mean, in addition to the strong new logo bookings, we had a great renewal quarter as well, which is indicative of the investments we're making in delighting the customers.

Thank you for calling that out, Kevin.

So that's reflected in our RPO. Our deferred revenue is also up quarter-over-quarter as well.

Yes. And XCaaS has a net dollar retention well in excess of 100, right? So like the more that XCaaS becomes a bigger part of the business, the more the math starts to work itself out.

And I'm sorry, maybe just a quick clarification. On the -- for fiscal '24 on the operating margin guidance, I think you said 400 to 500 basis points. Was that above the full year fiscal '23? Or is that above the exit rate of '23?

Yes, we took about 7.5% we'll have for the full year and then just add 400 to 500 basis points on top of that for the full year, but we do expect a steady improvement on the strength of the balance sheet.

The next question is from the line of Peter Levine with Evercore ISI. Your line is now open.

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?

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.

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?

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.

The next question is from the line of Ryan Koontz with Needham. Your line is now open.

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?

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.

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?

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.

The next question is from the line of Ryan MacWilliams with Barclays. Your line is now open.

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?

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?

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.

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 8x8'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?

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.

Sure. And just around the renewals in the quarter. Did you notice any like additional competition around price renewals? Or was it pretty similar?

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.

The next question is from the line of Michael Turrin with Wells Fargo. Your line is now open.

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?

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 8x8 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.

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?

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.

The next question is from the line of Michael Funk with Bank of America. Your line is now open.

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?

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.

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?

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.

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.

The next question is from the line of Josh Nichols with B. Riley. Your line is now open.

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 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.

Kevin, you should chime in. I think the biggest difference I see is our XCaaS messaging resonates in our Microsoft Teams messaging resonates really strongly in the U.K. market and the foreign market is a little bit better. In the U.S., there's still a little bit of the Microsoft channel and the telecom channel being 2 separate channels. And so the -- our channel team has done a tremendous yeoman's work, building our Microsoft Teams channel, and that's paying dividends. And so I think it's just -- I see economics less. It's just 2 different structured markets, in particular. And it's easier for us to gain that sweet traction in our foreign markets.

And then last question for me. I guess it sounds like the CPaaS business has been a little bit of a headwind. I know that's a lower-margin offering, but likely stabilizing over the next couple of quarters here. One, I guess, like will the companies focus on deleveraging, like one, would you consider that like a core business or potentially not as you look at opportunities to kind of accelerate this deleveraging process? And are there any also like repayment restrictions that you have on your debt aside from the remaining notes that are due in '24?

I'll let Kevin take the second one. Look, the CPaaS business is a great business. It's got beautiful unit economics when it's running right. Step 1 is to get it running right, and then we can talk about strategic options for it. But Josh, as you know me, I'm a seller from strength, not from weakness.

Yes. On the debt question, we have February 1, 2024 is when the remaining 2024 converts are due.

I think he's asking, though, on the -- on the term notes, we can pay back 10%.

Starting in August. Yes, that's what we have. And then there is a prepayment penalty for the succeeding year, small prepayment penalty. And then after that, there's none.

There are no additional questions waiting at this time, so I will pass the conference back to Samuel Wilson, CEO, for any closing remarks.

All right. Thank you, Matt. Thank you for your continued support. I hope we have conveyed some of the excitement about our opportunity and our future path tempered by the recognition that success will require commitment and hard work. I am confident we can do this. We are a vibrant and financially strong organization, and we are accelerating the pace of innovation. With a steady stream of new products coming this calendar year, including ML-AI based features and tailored experiences, we are well positioned for the future. Thank you so much, and I look forward to reporting our progress next quarter.

That concludes the conference call. Thank you for your participation.