Hello and thank you for standing by. Welcome to the 8x8 Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to Kate Patterson. You may begin.

Thank you. Good afternoon everyone. Today's agenda will include a review of our third quarter results with Samuel Wilson, our Chief Executive Officer; and Kevin Kraus, 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 investments in innovation and our focus on profitability and cash flow as well as statements regarding our business, product, 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 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 U.S. Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP measures to the closest comparable GAAP measure 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 Sam Wilson.

Thank you, Kate and thank you to all of our investors, analysts, employees, customers and partners for joining us on our Q3 call. We delivered solid operating results again in the third quarter. Our financial North Star is cash flow from operations per share, and our cash flow from operations performance for the quarter was the second highest ever. Cash flow from operations on a trailing 12-month basis is up 55% year-over-year, and we continue to be very mindful of share count. Cash flow was driven by non-GAAP operating margins significantly above our guidance range. Q3, '24 marks the anniversary of the official launch of our innovation-led strategy to build durable, long-term growth. Our path to complete transformation is underway, from operating losses and negative cash flow, to sustained non-GAAP profitability, and increasing cash generation. From a UCaaS led to a CCaaS led sales motion across our customer base. From three individual products to an increasingly integrated portfolio of eight products, with more to come. From selling products, to delivering solutions that address urgent business challenges. From transactional, arms-length customer relationships to being a strategic partner in our customer success. From over-levered to delevered. Comprehensive transformations take time, and the progress is not always perfectly linear. But I'm impressed by the strides our teams have made over the past year across all three fronts, financial, product innovation, and go-to-market. We have been profitable on a non-GAAP basis and positive cash flow for 12 consecutive quarters. For perspective in fiscal 2020, we reported non-GAAP operating losses of nearly $61 million, and negative cash flow from operations of almost $94 million. Three years later, we're on track to deliver non-GAAP operating profits of about $92 million, and operating cash flow of more than $70 million for fiscal 2024. We said in the…

Thanks, Sam, and good afternoon, everyone. We remain financially disciplined and delivered strong operating income and cash flow in the fiscal 2024 third quarter, exceeding our guidance range, for non-GAAP operating margin, and exceeding our expectations for cash flow from operations. We have delivered positive non-GAAP operating income and cash flow from operations for 12 consecutive quarters. Total revenue for the quarter was $181 million and service revenue was $175.1 million. Service revenue was approximately flat year-over-year and roughly equal to our guidance midpoint. Other revenue for the quarter was $5.9 million, which was below expectations due to lower one-time professional services and product revenue. Total ARR was $707 million at quarter end, up 1% year-over-year and flat sequentially. Enterprise ARR increased 2% year-over-year and $2 million sequentially. A significant amount of the total churn occurred within smaller customers, which shows up in the sequential decline in small and mid-market business ARR. We have been devoting additional resources, to retention of the Fuze enterprise customers and expect to see an acceleration in upgrades to 8x8, but we probably have at least one more quarter, before this headwind to ARR growth begins to dissipate. Turning to gross margin, operating expenses and operating profit, please remember that all items discussed are non-GAAP unless otherwise noted. Overall, third quarter gross margin was 71.6%, a decrease of 0.5% year-over-year primarily, due to an increased mix of lower margin SMS usage revenue, compared to Q3, '23, which shows up in our service revenue margin. Service revenue gross margin was 74.5%, roughly flat sequentially, but down approximately 1.2 percentage points, year-over-year driven by pressure on SMS text gross margin. We continuously manage our cost of service revenue and expect service revenue gross margins to remain healthy in the 74% to 75% range given our mix of…

Thank you. [Operator Instructions] Our first question comes from the line of Matt VanVliet with BTIG. Your line is open.

Yes, good afternoon. Thanks for taking the question. So Sam, you mentioned a continued focus on being a contact center focused company, and starting to see some really good traction there. So maybe just walk us through how the go-to-market process has evolved there. Are you looking to land with new contact center opportunities? Are you finding that a lot more of these deals tend to be a sort of combination replacement, come in and sort of build a whole new stack?

Yes, so first off, thank you for the question. It's definitely the latter part of what you said. We do see that the on-prem to cloud transition and digital transformation are frequently linked. As CMOs and CROs and CEOs want to transition, their business in this new digital age, they realize that their communication system, becomes a core bottleneck, and they have to move it into the cloud. And then the fact that, we are on a single platform handling UC, CC and now closing the loop with things in the middle on a single data platform makes it really attractive for those kinds of things. So, when I talk about transitioning the GTM, and this is not going to be a straight line, but really it's about the fact that, we need to get out of starting with a UC only sale. We need to lead with contact center. [Metergy] has done some great research saying that, two-thirds of the buying decision when you're buying these products together is driven by the contact center choice, number one. Number two is obviously when we sell multiple products, the retention rates, the ARPUs, all those things are better. And it's really about becoming that, portfolio of a products company. And we now, I used to say we went from two products to eight products. And with today's announcement around, what you guys loosely refer to as informal contact center, I don't really like that name, because it's a little different than that. We now sell effectively nine products. And so that's where we need to lead. We need to lead by coming into a business, figuring out where they're at in that digital transformation. What their business problems are, and selling them a package of products that, specifically solve their business needs.

And maybe just a follow-up there, on the customer engagement product you announced today. Who are the core users that you're envisioning seeing this? Is this more of an outbound sales type of motion, or is it truly that sort of customer success type of realm? Curious on how you're doing it and sort of what the crux of coming up with this product was, how much was existing customers sort of using the product in unintended ways that opened up your eyes to this?

Okay. So, we started about a year, year and a half ago. I think we've envisioned about a year and a half ago and started actually coding with a significant number of Scrum teams a year ago. The core user is specific users inside of a business whose job title is generally not contact center agent. So let's say IT help desk, billing department, or billing support department, field service workers, healthcare workers, these kinds of things. And what's interesting is frequently this problem is solved with a ring group. They use a UC solution and they'll do a ring group. And 10 people's phone rings simultaneously and whoever picks up, picks up. The problem with that, and this was the feedback we got from customers, is the problem with that is, can't really use an ecosystem, because it's not really designed, to have bots in front of it and handovers, et cetera. Can't get analytics, can't get AI technologies, can't get a bunch of things that are contact center functions in this hybrid type of use case. And so it's, very targeted on specific use cases where there's a desire, to have high octane UC mixed with high octane CC in a specific use case. And so - and we've seen some players in the market that have done, bits and pieces of it. But there's no player in the market that, can span that full range, that can do everything from UC, this new cross-organizational engagement product, and the regular contact center, full-featured, high-performance product designed for that. And so the last part of your question is, the idea, look, the analysts, you guys, the industry analysts have talked about this informal contact center. That's maybe where the idea started. We talked a lot to our customers. We researched a lot with our customers, to really figure out the exact specific use cases, and then we went and built the product. And it's going to beta now.

All right, great, thank you.

Thanks, Matt.

Thank you. Please stand by for our next question. Our next question comes from the line of Siti with Mizuho. Your line is open.

Thanks for taking my question. Just wanted to ask, I know the macro environment, it's tough. Some of your peers talked about weakness in small business, and even consumer vertical. I'm wondering, I know you talked about some churn on Fuze side, but what are you seeing in terms of macro and different verticals?

Yes, so this is Kevin. We do see some down-sell pressure on some renewals right now. As customers maybe need fewer seats and so forth. So, we are seeing some of that. And I did mention in my remarks that, we did see some of that in the smaller - into the mid-market business areas, which affected ARR growth rates there.

Great, and then, and follow-up, you talked about the Fuze headwinds - to dissipate maybe by this quarter, fiscal Q4. And Sam, you talked about this innovation-led growth. Certainly, last one year, we have done a lot of products, now two to eight products. So how should we think about the growth? I know this year is almost like 2% decline, but is this like the Q4 is sort of a bottom, and then we should start uptake, any kind of trend in directionally would be helpful?

You're muted, speakers. We can hear you now.

Okay, sorry. So Siti, you're asking the right question. It's one I ask of myself and the management team every day. Are we at the bottom? When are we going to see the growth? We definitely see, and I sort of hate using this term, but I don't know the right term to use. We see green shoots. When I talked about, for example, new products growth being up 60% year-over-year, that gives me a sense that we're seeing product market fit on that innovation. And we're seeing acceleration on a quarter-on-quarter basis in terms of bookings and the forward-looking indicators around the new products. So, I think we're sort of seeing the positive green shoots. When the number will be big enough to really drive up that year-over-year growth rate, as you know in these business models, we need a couple quarters to stack on top of each other, to really get those numbers to kick in. And so, I'm not yet ready to call the exact date and time of the bottom. It definitely feels like it's close. Close as in it's in the recent past, now, next week, I don't know. But I'll tell you what I'm really happy about, and you mentioned it, is the innovation, right. Those new products, the fact that we're seeing acceleration, we're seeing customer demands, it's just going to take a little while for it to get to be a big enough number and to continue to drive up a higher retention rate.

Great, thank you.

Thank you, Siti.

Please stand by for our next question. Our next question comes from the line of Ryan McWilliams with Barclays. Your line is open.

Hi, Kevin and Sam, this is Eamon Coughlin on for Ryan McWilliams. Thanks for taking my question. How did contact center agent hiring and call volumes in fiscal 3Q, compare to last year's fiscal 3Q? Were there any differences, particularly for any verticals, any particular strength or weaknesses?

Can I ask you a small question, because you're asking me literally how many phone calls were received by contact centers in the third quarter?

Yes, I'd say usage or - and then in general, like seasonal hiring that typically would come up for say, open enrollment or holiday centers [ph]?

Yes. Okay. So as you know, we offer our customers in the contact center - the ability to search seats for kind of holidays, or Easter, or whatever - whatever campaigns they're running, political campaigns, those kinds of things. I would say we saw a little less than usual. I mean, in these contracted business models, you see a little bit of this lag, right? And so contracts come up and they may have done a layoff previously, et cetera. It's also hard for us because we are seeing increased sales of larger contact centers. As I mentioned in my script, we've seen a 50% increase in the contact centers over 250 seats. So, it's a bit of a moving thing, because we are selling more new customers contact center, we are selling more seats in contact center, we're selling more stuff in contact center, and at the same time, we do see some, and Kevin mentioned this. Some of the economic pressures around, we probably saw a little less surge seats that, I would have expected. Maybe I was a little overly optimistic, those kinds of things. And I think it's been mentioned earlier, but I think out of every segment, I mean, the retail vertical, probably the - maybe the squishiest, maybe that, some travel leisure type stuff, it's hard. I mean, we basically have no customer growth at 0.5%. So, we have a lot of different verticals represented. And so it's, I don't know, it's kind of my sense.

Perfect, thank you. And then did the CPaaS business in Southeast Asia continue to show stability like it did in 2Q? And then maybe like what assumptions are factoring to the guide for 4Q for this business?

So the CPaaS business performed as we expected it. And yes, it showed stability for the quarter. So that's good news. I want to point out though that seasonally, we have seasonal variability in that business as certain promotions get done, over the holiday period and so forth. In the Q4 guide, there's some downward trend as normal, as we enter like the Lunar New Year period and other.

Ramadan.

Ramadan yes, and other periods. So that's factored into our guide.

All right, now, you mentioned the CPaaS business, so I'm going to consider this a layup to sort of do that CEO thing and deviate a little bit. But we've got some great new products coming out on the CPaaS side. There's some pre-configured bundles for specific use cases that you'll see us start pushing into our install base, and our contact center customers. Stay tuned before the end of the quarter. So the reason I brought this up is, I'm sort of warning the audience that in the future, it's going to get a little messier, because we're starting to view our CPaaS business not as a separate entity inside of 8x8, but it's all starting to become blurred, right? You've got UC, CC, and CPaaS is how we traditionally think about it, but now we have low-end UC, we have cross-organizational customer engagement, we have UC. And then we have CPaaS riding on top of all of it. So it's becoming a bit of a mix, and it's really all being driven on effectively one platform as we bring it altogether. So, you get economies of scale and engineering capacity and CI/CD, Continuous Innovation, Can-Use Deployment, and all those things are starting to spin in the right direction.

Got it. Perfect. Thanks, guys.

Thank you.

Thank you.

Please stand by for our next question. Our next question comes from the line of Michael Funk with Bank of America. Your line is open.

Yes, so thank you for the question. And thank you for the color on the call and the focus on profitability. I wanted to dig in, though, some more into the revenue. You lowered the guide for the year. Trying to dissect the piece part here rather than just reading the tea leaves, right? So, I'm sure you have an internal forecast for net new, for NRR, and then for Fuze customer contraction. So maybe help us with more precision with our own modeling by pointing out, which piece of that fell short or is falling short relative to the prior expectation. And then final piece related, I think Fuze was about $130 million in revenue. You said that's been trading off, but should stabilize in a quarter or two. Can you provide us the current revenue number for the Fuze customers, so we can figure out that attrition rate and the potential stabilization point?

Okay, thanks, Michael. So on the revenue, you're asking about Q4, right? So I talked about headwind in CPaaS, due to the holidays coming up. In terms of Fuze, we do see, what we're doing internally as a company, which is a great thing, is actually we're migrating them.

Upgrading.

Yes, we're upgrading over to the 8x8 platform. As we do that, we are seeing some down sell, you would call it, as those customers right-size their needs for us. So there is a bit of erosion there and that's what I was referring to as headwind in the prepared remarks. But doing that and doing that early and proactively helps us retain those customers and that's what we believe. So that's a good thing for us, because they'll stick with us.

Okay. And I want to address the second part of your question. Look, I can't give you a number on exact Fuze anymore, because we've upgraded, see now you made me do it. We've upgraded hundreds of customers between the platform. We've cross-sold. We've done a lot of things. And we don't really break them out separately internally anymore. We view all of our metrics internal, or a combined company. And it's just sort of hard to do it that - just it's easier for us when we manage everything to do it that way and that's the way we do. And I just don't have the number, to really give you effectively in front of me. I will tell you though, what we do see is the core business is vibrant. We do expect in the next couple quarters we should start to see improving growth trends and a resumption of growth in fiscal '25. It's one of those quarters - I think we'll see a resumption of growth. And you're going to ask me, like why do I have confidence in that? And it's going to come back to new products, right? If we can get that 60% number that's accelerating to keep kind of bumping along and keep going as we add more new products and as we retool the go-to-market force around that product portfolio. I really do think the math will work itself out, to show that resumption of growth. And in the meantime, we paid off $63 million in debt out of cash flow yesterday. Well, we wired the money yesterday. I think we're paying it off officially tomorrow.

Yes, love the delevering. Just make sure I understand. You came in in line with the revenue forecast for this quarter and then lowered the full year. So it's supposed to be lowered 4Q. Are you saying that that reduction is entirely due to CPaaS and there - wasn't an undershooting on net new NRR…?

No, no, we're not saying that.

Okay.

To be clear, look, CPaaS is going to be a little bit below what we maybe had expected 90 days ago. And that's driven by the fact that we are seeing some of the customers a little, what's the right word? More reluctant to run marketing campaigns during the lunar New Year and Ramadan. That's what they're forecasting to us right now. And also we are seeing a little bit more, I don't know what the right word is, pressure, whatever. But as these contracts come due, we have customers that say, hi, look, I don't need 100 seats anymore, I need 92 seats.

The other thing, I'd like to add also, and this is important in terms of total revenue, we're seeing a trend toward more, soft phone usage and less hardware. So, if you look at our other revenue, it's a component obviously of the total that has a bit of pressure, as the customers are focusing.

And it's dropped, I mean, to be fair - it's dropped a heck of a lot more than anything else.

Yes, so that's baked in there as well.

Okay. That's all very helpful. Sorry I worked the site on my own modeling guy, that's all I'm trying to do. I know it's reluctant to provide too much detail, secret sauce from the metrics, but the more we have, the better we can forecast and...?

Michael, it's completely fair. It's not that, it's just we don't, I mean, I don't - like two years ago, it was easy to track Fuze as a separate thing, because we just bought them. But two years in, we have hundreds of customers that have upgraded, the billing systems are merged. There's all kinds of things happening. It's just no longer that easy, unless we sort of, unless I stick a team of people going line-by-line, and it's just kind of not worth doing that, I got, my team's doing other things right now.

No, of course, thank you guys for the questions.

Thank you.

Thank you.

Please stand by for our next question. Our next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open.

Great, thanks. I just wanted to go into, you have a lot of initiatives on kind of selling customers initially. But just what are kind of the initiatives, or sales motions you guys are having, to kind of add some of these additional solutions to existing customers? And then maybe piggybacking on that, you guys have talked a little bit about the Fuze upgrades that are happening, but is there like an end of life date? Like, is there any point where we should kind of consider that, you know, the Fuze platform will all be kind of transitioned or upgraded to kind of the XCaaS t platform? Thanks.

Okay. So, Marshall, completely fair question. I mean Marshall, Meta, completely fair question. So, let me dig this in reverse order. On the Fuze end of life, there's not a set end of life date. We're busy moving hundreds of customers over right now. A lot of them are in flight. We've got kind of the top 400. They're a little bit more special. We're taking care of them. And so, there's not a defined date. And we also, and with the top 400 customers, we're really doing it in conjunction with them. So, I don't want to use that EOL term, because that has a tendency that has unintended consequences for us. So it's really, we work with them on that migration. The first part of your question is, to me a really insightful question, which is around how do we have to change our motions as a company? As a company, historically, we've been, kind of a, sell most of the, you know, sell most of the wallet share on the first deal. And that's kind of it. Maybe a few add-on seats here or there as we add employees and those kinds of things. That's really changing. And so, if you look at how we've evolved, for example, and I don't - won't know the exact number. We've probably doubled the number of CSMs we have at the company over the last year. And that's really allowing us to then further expand. We've really restructured how we do some of our account management. And some of those things around making sure that, we can land and then further expand those customers. I think what's interesting is a lot of the technologies, the secure pay, or workforce management, or intelligent customer assistant, are generally not sold on the…

Okay. Perfect, thanks.

Thanks, Meta.

Please stand by for our next question. Our next question comes from the line of Josh Nichols with B. Riley. Your line is open.

Yes, thanks for taking my question. Just wanted to check in. I mean, so congrats on paying back the $63 million of debt. You're still going to have north of $100 million of cash on the balance sheet. I know that there's going to be some additional paydowns from the higher interest term loan, at least later this year, after the repayment penalty is gone. But I would think that now with the company's balance sheet, much better profitability on the upswing, that there's also potential opportunities for the company to do like a potential refi. Is that something that you're actively exploring, or what's the company doing in terms of looking to potentially reduce its debt cost outside of repayment?

So absolutely, great question, Josh. We do have the opportunity to look at refinancing that expensive term loan debt and we are. So more to come on that later. We'll see the timing on that. We also have an opportunity potentially to look at, potentially opportunistic buybacks, in the future. No commitment on that yet, but that's an opportunity for us as well. We're generating plenty of cash flow and we have options.

So, I'll make the pitch, like our leverage ratios have dropped in half, basically over the last year, if you look at some sort of adjusted EBITDA to net debt kind of ratios. So any commercial bankers out there, call me, because we've already got people at our front door. So, more can come to the table at any moment.

So, we'll take them. Call them directly. But no, it's nice to be in the position we're in now because we're, as a credit risk per se, we're way better now than we've been for quite some time. So it's a good position for us to be in.

Well, it's good to hear. And hopefully there's some news over the next few months potentially. And then just looking here, so the company's operating margin for the third quarter came in, you're materially better than the guy - 140 bps or so. I know there's some taxes and employee stock costs and whatnot that are going to be starting up this year with the new calendar year that are going to pressure operating margins in the beginning of the quarter. Could you give a little bit more detail on just like the 300 or so bps sequential decline and like how would we kind of break out that attribution given that gross margins are kind of going to be flat and service revenue at least is only down like a couple million bucks, I think, sequentially?

Yes, good question. So just to point out, as I mentioned in my prepared remarks, we had some one-time goodness in Q3 that helped us about a point, a couple of things there. So normalized is more like 200 or so basis points down 240 or whatever to the 10%. So a couple of things that go on in our fiscal Q4, which is January through March, we have the reset of the social security taxes, the FICA and the 401(k) match in the company. So that's a few million dollars right there. And that really impacts us, that's really most of the change from a quarter-over-quarter perspective, say in the $5 million or so range. That's really driving it.

Got it. It's just those two items and I would assume that those would kind of be alleviated as you move through the calendar year, right?

They do, they dissipate throughout the year. However, historically what we've done as a company - is in our fiscal Q2, is when we have the annual pay increases and so forth. So there's a few things that move up and down throughout the quarter, throughout the year, rather.

Got it, thanks.

No problem.

Please stand by for our next question. Our next question comes from the line of Peter Levine with Evercore. Your line is open.

Great, thanks guys for taking my question, squeezing me in here. Maybe just to piggyback off on the last one is, you've talked about obviously repaying, the convert, cleaning up the balance sheet, but if you think about, your strategy of innovation led growth. How do you manage, cash in the balance sheet versus innovation, versus what your competitors are doing, in the CCaaS market, given it is a lot more competitive today than it was 12 months ago, how do you balance that all?

That's a great question. So, I think I'm going to take you back to Q1 when we talked about what our sort of our fiscal plan for the next three years was. We talked about increasing cash flow and delevering the balance sheet. So step one would be, generating enough cash to paydown the debt, delever the balance sheet and put all this garbage behind us from the past, would be step one. Step two, is be an innovation led company. So we want to spend, between 10% and 15% in a given quarter on R&D that further continues, to then drive an efficient sales and marketing motion. We're a software company and we should be judged by our software first and foremost. And so, that would be second. And then third, which is more of a swing factor, is how much do we spend in sales and marketing and those kinds of things. And - we need to get that sales and marketing engine a lot more efficient. Now there's a lot of overlap between R&D and sales and marketing. If you build a product that everybody wants, it's easier to sell. And if you build a product that has PLG built in, product led growth built in, they can be more efficient to sell. And so, that's a little bit of the innovation, we're going through. What I've said in the past, and as you think forward, at the levels we're at, the cash flow levels we're at, we're - we should pretty easily make our $250 million number that we promised to return to investors. And so after that, we're more focused on spending for re-acceleration of growth, for resumption of growth.

You haven't talked about Lisa. I know she's been on Board now for a couple of months, but maybe talk about how she's thinking, or how you guys are thinking about go-to-market, channel versus direct, obviously the announcements you made today, but curious if, what she's made and what she's changing and kind of what you have in the pipeline with her, if you can share with us?

So, if there was ever a softball, I mean, I'm absolutely amazed watching Lisa in action. It is phenomenal to watch a world-class sales executive, who really knows what she's doing, execute her plan. And I think she has a fantastic vision. Her vision is about a balanced go-to-market strategy with, and not balanced in every region. So for example, in Australia and New Zealand, we're focused mainly on value-added resellers, those kinds of things. But a more balanced strategy in the U.S. and more appropriate strategy in the U.S. other things. Number two is she's very focused on the sales process, and solution selling and running a correct sales process and focusing on business outcomes versus, do you need dial tone, or are you making the move from on-prem to cloud, those kinds of things. And then lastly, she's tough. She has a high level of accountability, and I'm sure there's already been some notes written, but she has a high level of accountability and high expectations that, she expects in the - GTM engine, and she asserts that accountability across the board. And so, it's just absolutely phenomenal watching her in action.

And I think also that, with Bruno's on board, he's even newer than Lisa, and we see, as our new CMO, and they work hand in glove, better than any of the previous combination CRO, CMOs I've seen at 8x8, so it's a fantastic thing to see, and they're completely aligned on a whole variety of topics in terms of the quality of lead gen, the conversion rates, all these operational things that are going on. They're just trying to improve everything from soup to nuts. So it's great to see.

If I could squeeze one more, Sam, I don't want to paint you in a corner or hold you accountable for this metric, but you did say 250 contact center seats up, I think 50%. We do hear a lot from your competitors that are starting on the lower end of the market, scaling up, investing a ton to kind of build-up that functionality, but can you maybe just give us an idea of how many customers that represents, or percentage of your base of contact center customers that are 250 north of that?

I actually don't know the exact number off the top of my head. It is not an insignificant amount of number. It's not a vanity metric. And to be clear, our product, we've got customers that are in excess, thousands of seats of contact center running concurrently. The reason the marketing team pulled together the metric for me was, because we have this reputation of, oh my gosh, it's 8x8 it only works on 12 contact center agents or eight contact center agents. It's just BS, it's marketing fud. It's what competitors like to do all the time, is run around and make up stories instead of delivering value added to the customers. And so, we've seen a significant growth in larger contact center deals that we're participating in, and we see it in the pipeline every day. And so, I'm sorry, I can't give you a number. I'll see if I can scrounge it up by next call.

Thanks guys, I appreciate it.

Thank you.

Please stand by for our next question. Our next question comes from the line of Catharine Trebnick with Rosenblatt. Your line is open.

Oh, thanks for taking my question. Hi, Sam, let's go back to your press release today. You talk about these non-agents that you're targeting. Do you have a toll addressable market for that and a growth projection? And then the follow-on question is, it seems like this is a very different sale than you currently have. So what type of sales motions are you going to put into play to make this happen? Thank you.

Okay, so I'm going to take these in reverse order. So you talked about sales motions first. I don't think they're different from the new sales motions we're developing. Yes, it'd be different from the old sales motions that we had. But I think in the new sales motions where we're solution selling and a rep and a GTM team shows up and really dives into what the customer's needs are. We're going to find service workers or healthcare workers, or billing people or accounts people or inside sales reps, or any of those kinds of things in every company and get them the right solutions for that capability. That's a great question on TAM. Let me dig, I know Gartner's done some work on this such as Metergy and some of the others. I mean, I'm presuming it's a multi-billion dollar TAM, because they talk a lot about the quote in informal contact center. I really despise that term, because it implies that it's like an informal agent. But a lot, the most use cases we see are where the worker needs contact center-like functionality, but in fact is not an agent. It's not their day-to-day job to sit at a terminal waiting for the next case to be delivered, or to make outbound phone calls, but instead they have some other job, nurse, plumber, whatever the case may be, but they're on call, they need to deal with emergency situations, those kinds of things. And so it's a specific use case.

But I get that, I understand the non-agent part. I mean, would this also fall in with the light contact center that everybody's bouncing around with a new name, calling them light also?

Yes, yes. But I mean, like what is that? What's a light contact center? It's like, the problem is like informal contact center, light contact center are to me terrible names, because it's like light beer. Is it a beer or is it water? I mean, it's like neither. And so it's, I don't know, I really think, and that's why we put up the press release today, to start the dialogue of what really the category should be as we go into these products. And it's, you know, look, I know some of our competitors have some products in this area and I think this product is more analogous to them. They call their - products contact center, 99% of the time I laugh. They're not contact center products.

Yes. And then what do you have for like you said it was in beta. So at what point do you think it will go GA and then what percent of revenue do you think you'll be able to drive in the next 12 to 15 months from this because this actually could be one year better gross shoot.

Yes, exactly, right? It's like I said. So it's a great question. Look, if you look at Supervisor Workspace, I think we kept in a beta for nine months. And if you look at intelligent customer assistant digital, I think it was in beta for less than three months. I suspect this one may be in beta a little longer. So I would lead maybe towards that nine-month number, but it's purely a guess on my part. And I'd like to see this as 10% of revenue as quickly as possible. I think it is absolutely a new product line extension for us as a company.

All right. Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Will Power with Baird. Your line is open.

This is [indiscernible] on for Will Power. Thanks for taking the question. So it's clear that operating cash flow has been a focus and it's grown nicely over the past few years. But looking forward, you talked about more muted revenue growth. Can you talk about some of the other levers that you still can pull to help reach that 20% annual growth target? Is it more on the margin side, maybe more working capital improvements? Can you just help unpack that a little bit?

So yes, on the three-year CAGR that we gave, right, we're starting from just to reset starting from the end of '23, we're expecting - we just grew cash flow from ops 55% on a trailing 12-month basis. And as I mentioned in my prepared remarks, we would expect a bit more muted in 2025 fiscal and then going up there in 2026. In terms of levers, look, our product mix, we've had - we've sustained - or we've been able to sustain really very good underlying service margins right now. We've got a lower margin business in Southeast Asia. But as that market expands into other parts of the world, maybe we can see an uptick in that part of the usage business that we have. But we're always looking at cost of goods sold, getting better rates on our telephony, for example. So we're able to maintain a pretty healthy gross margins in the face of whatever price pressures may exist at the low end of the market, for example. So we're always looking at that. Sam mentioned earlier about sales and marketing and getting efficiencies out of the group. It's not we want to get more with the same as an example there. So I think with the go-to-market retooling that we have going on in the company, we can get more from the same. That's what we really need to better operational efficiency out of sales and marketing. So those are the kinds of things that we're really focused on to maintain a decent level of profitability and cash flow.

And look, I mean I think we're generating enough cash flow, more than of cash flow right now. So for me, it's all about scale now. It's about resuming growth and getting back on that growth curve. So that's where the focus of the company is, et cetera. Could we pull levers that we need to share. But really, the focus on the company from here is getting that growth rate higher.

Got it. Thanks for taking the questions.

Thank you.

Please standby for our next question. Our next question comes from the line of Ryan Koontz with Needham & Company. Your line is open.

Thanks for question. Thanks for squeezing me in. A quick housekeeping item on RPO and any puts or takes there in that metric? All right. And then state in the slide deck.

Yes. No. So $765 million RPO is where we have at the end of the third quarter. I wouldn't say any necessarily big commentary on puts and takes there. It's up on a year-over-year basis. I know that slightly down sequentially, but up on a year-over-year basis.

Okay. That's fair. And Sam, as you think about your seat count and maybe this is kind of the old way of looking at it, but I'm an old guy is as you think about growth coming from CC and CPaaS and pressure on UCaaS, and you've obviously got some down selling going on with Fuze, churn, pricing probably pressuring UC. If you look at the pressure on the UC market is what I'm saying, the seats. How would you kind of allocate down selling pricing and kind of general customer churn as pressuring your UC seats? Thank you.

So in general, customer churn will be the bottom, and down-selling and price pressure, it's sometimes hard for me to tell the difference. I mean I can sort calculated out. I would say probably, and this is pure guessing on my part is that down-selling, number one, and price pressure on the low end, number two and then the last one. And then we've got some new things coming out open in the near future to really start to address the pricing environment. As you know, we do a lot of work around teams. And so I think we've got some really interesting things for maybe that could get us more traction in that lower end market really efficiently.

Okay. Great. Good to hear about that. Look forward again. Thanks for questions.

Thank you.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Kate Patterson for closing remarks.

Thank you all. Thanks for staying on the line. I know we ran a little bit over, so I'll look forward to talking with you this afternoon or later tomorrow or during the following week. Thanks a lot.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.