8x8, Inc. (EGHT) Earnings Call Transcript & Summary

All right. Great. Hello, everyone. Thanks for joining the 8x8 session. I am Dan Bartus from the Enterprise Software team. Communication software space is one of my focus areas for BofA as well. So I'm very excited to host 8x8, one of the pioneers of the UCaaS market. And so we have Sam Wilson with us, who is the CFO of 8x8. First, Sam. Welcome. Good to see you.

Dan, thank you. Thank you so much for having me. I'm in the love nest of BofA securities. So super happy to be here.

Definitely. Happy to have you. So -- and maybe to kick it off, we'll start high level, discuss your experience a little bit at 8x8, and why is now an exciting time to be at the company?

Awesome. So I mean, let me start with what we do. We sell unified communications that you mentioned. We sell Contact Center as a service and CPaaS. So communications platform as a service, APIs, if you will. We're a $500 million a year company. I've been with the company about 4 years, I guess, over 4 years now. I've done operations jobs, eventually becoming the CFO. Why is it a great time? Look, it's a great time for, I think, 2 reasons. Number one is, we have a defined $75 billion a year market. What do I mean by that? There is an on-prem plus cloud market of $75 billion a year with a vast majority of that being on-prem. And the amazing part of this market is that we're in the middle of that transition from on-prem going to the cloud, much like CRM and ERP and everything else, right? But none of the on-prem vendors have a cloud-based product. I mean they claim they will. I guess, today, a few of them will claim they will. But the reality is none of them really made the move to cloud. Alcatel, Avaya, Toshiba, Panasonic, Asus, et cetera, et cetera, et cetera, right? And so there's a whole new group of cloud players that are coming into this defined market. And we are $500 million of ARR. So we're in that rarefied air of a real company, real size and scale growing relatively quickly. We're a Gartner Magic Quadrant leader in UCaaS. We're a challenger in Contact Center. More important to us, we're the only vendor that's a leader that's also in the Gartner Magic Quadrant for Contact Center. And in that on-prem world, historically, UCaaS and CCaaS, we call it XCaaS, was sold as a suite of products. And somehow in the move to cloud, that broke, and we are at the forefront of bringing it back together, which we think is just a massive market opportunity. Last piece I'll say is the pandemic I believe took what would be that 20-year, 30-year transition from on-prem to cloud and shortened it. No CIO is that I can imagine today is saying, "Hey, I want to double down or triple down on an on-prem product that limits my work from anywhere capabilities, that limits my flexibility, et cetera, et cetera." And so we do think there is some acceleration in the marketplace overall in terms of how long it will take to make that transition. So defined market, great products that we have and now we just have to go execute. And for me as a CFO and as a veteran of startups in Silicon Valley, boy, do I love that set of conditions.

Awesome. A lot of good things there for us to dig into in these 35 minutes. So -- and I should have said at the beginning, all the investors on the line, I know, I get the sense, 8x8 is quite a debated stock, some would say a controversial stock. But if you do have any questions, if there are any questions for me to ask, I'm happy to keep them through to Sam as we go here. And so Sam, I know you mentioned bundling UCaaS and CCaaS. That's a huge theme for you guys. But maybe just focusing on UCaaS to start, why does 8x8 win? What are the ways for you to differentiate with UCaaS?

All right. So I would say we win for multiple reasons. Reason number one is that, that package bundle capability, right? So as a general rule, any company over probably 200 employees or 100 employees has some Contact Center ask functionality inside of it, be it support, be it inside sales, those kinds of things. And so that IT buyer eventually wants to look at buying this heartbeat application, UCaaS, CCaaS as a bundle. Number two is our global capabilities. We are in 43 countries, and we are P -- full PSTN replacement, including China. We're the only vendor that can do full PSTN replacement, without a gateway in China, et cetera, right? And so for any mid-market or enterprise multinational instead of the old days, where you had to sign a relationship with BT, your relationship with DT, our relationship with China Mobile, blah, blah, blah, we, come to us, sign one relationship, it works around the world. And then lastly, we offer an incredibly unique capability around mix and match. So what do I mean by that? Inside of an enterprise today, even on the UCaaS side, it's not as straightforward as every person is the same. You're going to have storefronts and warehouses and those kinds of things. And that offers the ability to have a low end, maybe voice-only because as people calling for hours with an IVR and those kinds of things. Then we offer knowledge workers. We offer our endpoints with knowledge workers, that's voice, video and chat. But we also integrate with Microsoft Teams, mix and match capabilities. If you're a team shop, we can bring that tremendous mix and match capability; or we can do it without Teams or we can do it as a combination with Teams, so some on, some off. And then we have X3, X4 on the UCaaS side, where we offer the capabilities for receptionists with incredible capabilities. And then supervisors, large monitor whisper, analytics, are you people on the phone the way they're supposed to do, all those kinds of things. And so that mix and match capability is unparalleled in the industry, our ability to bundle is unparalleled in the industry, and our ability to go global is unparalleled in the industry. These are relatively new things. I have to hit on kind of head on your controversial stock comment. I think it's fair. I'm not going to -- I never disagree with Wall Street. I think it's fair, but we brought a lot of capabilities to the marketplace in the last year. And now it's really incumbent on us to execute on those capabilities and have it show up in the income statement. The number one controversy around our stock is like, why aren't you growing faster, et cetera, et cetera? We get that. Fiscal '21 was about returning to profitability. Fiscal '22 is about reaccelerating growth. And I think we're on a path to do that as we get into '23 and '24. We've put out a long-term model that suggests that we expect to grow over 20% a year with profitable margins. So none of those battle days of accelerating growth on bigger losses. And so -- and then lastly, I really want to highlight that we wrap all this into 1 vendor, 1 SLA, 1 total cost of ownership, et cetera, right? I mean, we're the only vendor in the space that can offer an SLA across UCaaS, CCaaS as a combined entity. So we own the tech stack. We're there. That gives us a bunch of capabilities. We just need to execute it on it, and that's probably where the controversy that you mentioned is because in the past, we haven't done the greatest job of executing, and it's incumbent on us to do a heck a lot better on that execution front.

That's really helpful, Sam, appreciate that. And the first area of differentiation you mentioned was the ability to bundle UCaaS and CCaaS? And yes, I think it's great that you've recently sized that market opportunity for investors, too. So can you walk us through a little bit how you view that bundling, TAM and how you guys went about sizing that as well?

So we did a bunch of work with our third-party research people, et cetera, right? So what we looked at was the UCaaS market, the CCaaS market and then more we thought the overlap between those 2 markets were. Just for everybody, we use a rule of thumb of about 10 UCaaS seats per 1 Contact Center seat, so that's just -- as you factor that into it. So what we looked at was we looked at a $75 billion market. Our research indicates about 20% today. We think that number will grow, but 20% today wants to buy UCaaS and CCaaS together, what we call XCaaS, making a $15 billion market. And then if you throw spillover, which is today, they're buying UCaaS, with the goal of buying CCaaS in the future, et cetera, you probably get to $25 billion, whatever. It's a big number, no matter what. Look, we're a $500 million company. For sure, we think there's a very defined $15 billion market that we're the leader in. 30% of our ARR currently comes from that UCaaS segment. We need to grow that number quicker. It is growing 2x market growth rates. It does have better retention numbers. But we got a lot of room to run from $500 million to the $15 billion market opportunity just in the space we're in today.

That's great. And then you can bundle even more. You have this CPaaS strategy as well, too, and it came mainly through the acquisition of Wavecell. So maybe you can discuss just a little bit about that acquisition? And how would you kind of define 8x8's CPaaS strategy as well?

Yes. Dan, please, don't take the fact that I haven't discussed CPaas to this point in the moment that we don't love that business. I mean, sometimes I get that sort of, "Hey, the body language was such you didn't talk about it until halfway through." We love CPaaS. It's a great business. You had a CPaaS business before, but it was subscale, et cetera. We made the tactical decision to sort of beef up that business. And we beefed it up by buying what we thought was one of the prime leaders in the Southeast Asian market or the Asian market. And the reason we did that is because if you look, CPaaS is a pretty regionalized business. So if you think about North America, you think about Twilio. If you think about Europe, you think about Nexmo and Sinch, right? And when you think about Asia, there really wasn't one. We bought probably the leading player, and we've been growing and expanding that business. And what the key there is, is there's a whole host of communications applications where you want to embed it in a different application. So everyone I'm showing in this call is used -- or in this video has used Uber. When you text your driver or when you call your driver, you don't know their phone number and they don't know your phone number. But it's inside the Uber app that uses voice masking technology. We have that. We extensively deploy it to a bunch of brand named companies throughout Asia. Those types of technologies where they want to leverage a piece of our business, usually, usage based, so that's a little bit different, it's kind of subscription-based usage-based model. And that's been a great business, growing rapidly, brand name type of customers, and we see a bright future for it.

And I'm curious, do a lot of customers want to bundle CPaaS as well? Or is it typically a different buyer?

So what's interesting is, I think the traditional SMS market has been a little bit of a different buyer. It's been sort of the Head of Marketing or the Head of Tech Support for CP&I and those kinds of things. What we do see is a tremendous overlap opportunity with our Contact Center and omnichannel. "Hey, I want to be able to deal with customers through Facebook, Whatsapp -- Facebook Messenger, WhatsApp, chat," all those kinds of things. I want to be an insurance adjuster and on a small dollar claim, I just want to pop a video and have the person walk around with their smartphone and never leave the Contact Center and address their claim needs, those types of things. So we are seeing a tremendous overlap with omnichannel, Contact Center and CPaaS, and leveraging those together. And so that's really what we're focused on in the North American and European markets, is it having the 2 synergistically work together to make a more complete Contact Center solution. And then in the Asian markets, we're just -- we're sort of a bit of a powerhouse there.

And last one on CPaaS. You had a recent change in strategy. You're getting out of some of the really low-margin areas a bit. Maybe you can just walk investors through the details of that recent change?

Absolutely. I mean it's a great, great question. Thank you for reminding me. Okay. So as part of CPaaS, both before 8x8 stand-alone as part of Wavecell, we picked up a part of the CPaaS business where we were basically interacting with other service providers, other telecom providers. I mean, this is basically that kind of wholesale business, whatever you want to call it. And it was a growing piece. It was a relatively quickly growing piece. But over the last 2 years, the margins have really come down. There's further SEC regulations that margins should continue to come down over time. And we just didn't see a path to make this a sizable, profitable business. It was a little bit of -- to quote an investor the other day, a little bit of empty calories. And so Dave and as part of this strategic review, just made up the hard decision, bite the bullet, wind this business down, get out of it. We -- it's about $15 million sort of second half of the year loaded in fiscal '21. So 2, 3, 4, 5 kind of idea, and then we started exiting it in -- towards the tail end of Q4 and through basically this quarter, we're going to be 100% out of it.

That's great. That's really helpful as well. And then shifting gears a little bit. 8x8 recently announced XCaaS. And when I recently wrote an industry report, I used the Term XCaaS, and that was any communications as a service. I think you guys are using it a little bit differently. You talked about experienced communications as a service as well. So can you walk us through a little bit of this XCaaS announcement? What's new about it? What's unique that 8x8 is doing?

Yes. I think what we wanted to do -- and look, to be fair, we saw what you talked about and definitely thought it was spot on. What we want to talk about is this notion. I think they're very similar. You looked at it from any type of communication. So it doesn't matter with CPaaS or UCaaS or Contact Center, et cetera. And we want to think about it very similarly, which is this notion that Contact Center on one side and UCaaS on the other side and that these are distinct markets, they're not. They're around communications, and they're around use cases. The typical use case for a UCaaS situation is generally employee collaboration. The technical situation for our Contact Center is around customer engagement. I mean, I think that people frequently forget that the number one way that most corporations deal with their customers is through their Contact Center. I mean, Contact Center could be in the shape of an inside sales organization or a tech support organization or an order taking organization. But in the sense that's -- it's the lowest ended employees that are dealing with their customers for the most part, right? And so what we wanted to do then was bring together that idea of a single platform that leverages the technology and starts to make it a little bit seamless. What's a class example? It's the expert. The ability to say, "Hey, I need to go from a Contact Center situation to finding an expert that's generally on a UCaaS collaboration situation and bridge those together, so that I can solve a specific customer problem immediately." Microsoft Teams is a great example of this. We've offered a tremendous amount of add-on capabilities because we were the first Microsoft Teams certified Contact Center solution to enable Teams to be used in a Contact Center setting. So you can have an expert or a person that may be in a Team's environment generically normally doing employee collaboration now plugging into a Contact Center for a time period and then exiting and going back to that collaboration, right? So this notion that I'm a UCaaS buyer or I'm a CCaaS buyer, we think blends over time, just very similar to you. And I think that's the system. And I really want to highlight, and this is the smartness of your research, this is kind of how it used to be. If you go back to Avaya and Cisco, they didn't sell UCaaS or CCaaS, they sold communications. And they sold it as a suite, you got to mix and match what you needed. Boy, when we went to cloud, that sort of all broke, and there is tremendous customer desire to go back to the old way because it's 1 vendor relationship, 1 SLA, 1 RFP integration, common data analytical infrastructure. And just easy stuff, right? You can go with us, you can go into 1 platform and say, "I want to know every -- I want a transcription of every interaction I've had with Bank of America Securities. I don't care if it's a UCaaS phone call. I don't care if it's a chat message. I don't care if it's a video call or it was through the Contact Center." Instead of going to 3 or 4 different platforms and try to piece that together by downloading it all to Excel or something, shoot, just go to our platform, type it in and here it all comes up, run analytics against it, right? So that's the vision that we're trying to bring forth to the market. We've got most of that today. Do we need to continue to invest in R&D? Absolutely. But we, like you, I think, think that starts to become less -- more of a seamless thing for mid-market and enterprise -- upper-small business, mid-market and enterprise customers.

That's awesome. And thanks for those kind words. I'm glad we agree on all that. And you kind of started talking about analytics there. And I was thinking earlier today, I listened to Brad's session with Coupa. And they're talking about how valuable being a system of record is in different areas of software. And communications, once you have visibility across both employee and customer communications, that does become a very valuable data set, potentially a system of record. And you talk about analytics. So where do you see this going? How valuable could be analytics on top of these 2 together end up being?

Okay. So you're really getting into that long-term vision. I mean, I don't think this is today or tomorrow, but we absolutely believe like Coupa as a system of record, et cetera, it is a bit of the holy grail. The whole point behind the notion of omnichannel is that we're going to communicate with customers how they want to communicate with us. We're not going to dictate to them that we only communicate via chat message or we only communicate via voice. We want to be able to offer that. And if you think about it today with a multi-vendor solution, you don't have true end-to-end analytic capabilities. Okay, now to be fair, maybe you can dump it all into something else and stitch together some sort of solution where you're taking your UCaaS provider and dumping it, your CCaaS provider and dumping it. Maybe you have a separate collab provider, Teams, Zoom, et cetera, and you're dumping it. And then you're trying to stitch it all together and some other BI solutions, et cetera. Well, that seems like a lot of hard work. Whereas you come to us and say, "Yes, we'll take number one. We'll take the happy meal on aisle 3, it all comes together." Today, predominantly, a lot of our analytics is around voice because that's kind of our history and background, but we're adding ever greater amounts of analytics around voice, video chat, multiple types of chat, multiple types of video, et cetera. And this last year, we've launched recordings and transcription that's more universal, single platform type of thing. So we do think longer term, that analytics becomes incredibly important. Let me give you -- like we've done this as a demo at EZ Connect, which is sort of vision ask stuff. We have the capabilities of saying, let's say, for example, one of your top customers' calls. Today, how does the system differentiate a top customer from a not top customer? And what does it do with it? We have this concept of interaction router. So we could read the caller ID or we could read the chat message, immediately do a LinkedIn Lookup and see, "Hey, this is the Vice President of Sales." Immediately see if they're a top customer and begin a whole series of different customer interactions. No, no, no. This is the VP of Sales, one of our top 10 customers, we're bypassing the normal agent experience, and we're jumping immediately to our Vice President of Sales, who knows this person, who's been indicated that's now a UCaaS. So we're jumping from Contact Center to UCaaS. We're going to route that call. We're going to route that interaction over. And immediately, it's -- "Hey, Dan, hey, great to talk to you again, what's going on? Well, I was calling regular, et cetera. No, no, you're one of our top customers. We routed that call over to you. We want to know exactly what you're doing." Those capabilities exist today. You go to a multi-vendor solution, good luck. That's all I'll say because you're going to spend a lot of time and effort trying to stitch that together. We have those capabilities all in-house because we own the tech stack.

Yes. It's super interesting. Thanks for entertaining that. It's going to be exciting. So maybe shifting gears just a little bit. Another way that you guys can differentiate is through partnerships, and you guys had channel partners for a long time. Maybe just partnerships in general, can you break it down, how you view partners? And how important are they in your selling motion?

So super important, and I would say, generally, we are a channel-first organization, and I mean that's the big C, not any particular type of channel. But we want to work with partners because partners give us tremendous leverage. And partners want to work with us because we offer a set of capabilities we were just talking about, it's different from the market. And so first off, channel represents 40% of our ARR. It's growing 38% in the fourth quarter, like it's a key engine of growth. Okay. Now let me take a step back and sort of talk about big picture stuff. Number one is we try desperately hard to build systems that create no conflict. I want to be route to market agnostic. I want to have a footprint in each route to market, and that starts from direct to referral model, to VAR model, to carrier model, et cetera. And we have currently partners in every single one of those. We do, do some direct business. We have the subagent model with the master agents, the Telarus', the AVANTs, et cetera. We have the VAR models with the Charterhouse in the U.K. or ScanSource or whatever. And then we have the big carrier relationships, Bell Canada, Virgin Media, et cetera, right? So the idea is all of those are super important. We continue to receive inbound interest to grow that channel. We've grown the number of active channel partners 10x over the last 2, 3 years. And I think we'll continue to see some growth in that, and we're seeing a lot of increase in same-store sales. So recently, we announced ScanSource, recently, more on the VAR side. Recently, we announced Sandler Partners, absolutely fantastic master subagent. So from a channel perspective, growing very quickly, super scale, allows us to get a lot of scale, a lot of coverage. And we think we have a lot of in-house automation and technical capabilities. Are we expanding in that market? Absolutely. So if there any partners who are listening, we're spending money every day, making it better. But we have a lot of in-house automation, tax, billing, et cetera, capabilities for each one of those segments and optimize for each one of those segments. Key place where we're at, key place what we're working on, we expect to see continued pretty robust growth in that segment.

Nice. That's really helpful as well. And tieing on partners, but shifting a little bit more to potential competition, I did want to ask about Microsoft...

Host, I think we have a problem there.

George, I think you're on our line. But -- and so I wanted to ask about Microsoft. Can you just discuss the relationship, you compete in some areas, but then you have direct routing as well. So maybe you can explain for investors why some customers might want to use 8x8 for direct routing on top of Microsoft?

Okay. So first, Microsoft, we consider are a great partner. We use their certified SBCs and those types of things. We work really close with them. As I mentioned earlier, we were the first Contact Center certified for Microsoft Teams. Great relationship. We've conducted a lot of research that indicates 70% or so of seats will implement a third-party direct routing solution for Microsoft Teams. Why is that? It's really 3 things. Number one is it's the mix and match capability. If you think about Teams today, it's really a collaboration tool for your knowledge-based workers. What about your warehouses, your storefront, your Contact Center, all those other things. You're going to end up with a multi-vendor solution. And the question is, do you want to split it between some users on this back end voice system and some of -- or do you just want to say, "This is our collab solution, and this is our underlying communication solution." Most vendors or -- sorry, most customers are going to that type of situation where they want that single vendor to handle all of their back office because we can mix and match endpoints. Salesforce for the Contact Center, our own endpoints for certain areas, smartphones for storefronts, Teams for other that mix and match capability, absolutely phenomenal minus market traction. Second thing, Microsoft today for a multinational company basically says, hey, we're going to give you certified session border controllers, you go figure out the rest. So if you're a typical multinational, you may be in 30 different countries, which means you need to go sign 15 or 20 different carrier relationships to look those session border controllers, too. Why do that? Like why waste the infrastructure and the time and effort with signing relationships around the world. Come to us, we're full PSTN replacement in 43 countries, including China that I mentioned earlier. And we have users in 150, 160, 170 countries, right? Come to us, one relationship. We plug in the back end, and it's now usable effectively around the world. We cover like 80-plus percent of the GDP in just those 43 countries, like, bam, done, you don't need to maintain a bunch of relationships and a bunch of contracts and a bunch of red lines and a bunch of currencies and a bunch of crapola. And then lastly, we add incremental capabilities on top of Teams specifically around communications. The ability to just cues. We just recently launched SMS, MMS, et cetera, capabilities on top of Teams. Microsoft hasn't done that, but we've done that because we're a communications company. So now you can SMS directly out of Teams, that's incremental capabilities, making your Teams' deployment even more robust. And we do it for relatively small amounts of money. And so I think this is a -- I don't want to imply as no margin, we get margin, et cetera, don't read too many steps into that. But we get this incredible capabilities because we can direct route, which makes it easy deployment. We don't -- we're not running some widget down at the end users. That was kind of the industry's Phase 1 response, and it was a pretty poor user experience. We're a full up, direct routed back end, plugged in solution. And I just want to go back. Because of these things, this is why 70% of all Microsoft Teams seats will be direct routed because of these capabilities. The thing we bring to the table compared to the other direct routing guys is we have that mix and match capability, the incremental geographic capability and the incremental functional capability. And that, I think, is why we've been doing so well in that market.

That's really interesting as well. The mixing and matching makes perfect sense, you articulate that quite well. So shifting gears a little bit. I wanted to finish off by asking you just about growth a little bit in financials. And again, investors, if you have any questions for me to ask at the end here, I'll get to them. But so first, Sam, on growth, you touched on it a little bit in the beginning, but we're asking everyone directly. How did COVID impact you in 2020, and how do you see it flowing through to 2021 as economies potentially reopen?

Okay. So in '20, what we saw is we saw customers that we would expect much later in the cycle to come in earlier into the cycle. So we saw a state government, which normally is a 2-year sales process and a late-cycle buyer coming out of Wednesday, place it over on Friday and have live agents on Monday. So we saw, I don't want to say, pull in a business but pull in a customer type, et cetera. I would say that was through maybe 9 months of '20. And then in the fourth quarter of '20, it's starting to normalize. So as we're into '21, it's kind of back to normal sales cycle, et cetera. The 2 or 3 lasting things that I mentioned one of them earlier, coming out of the pandemic is, number one, kind of the death of on-prem. There's just not the business flexibility you need in a world where you can have to quote Nicholas Taleb Black Swan events. You need to create anti-fragile business, and boy, the cloud screams an anti-fragile business. Second thing is we see that in the pandemic, and this is, I think, pandemic of all of tech. But in the pandemic, we saw CEOs turn to their CIOs and say, "This is yours runway. This is your problem to fix." And remember, a lot of tech had been selling to the work group buyer, sell to the marketing department, sell it to the sales guy, sell it to the line of business. I mean, how many times have we heard that? Well, that pendulum is swinging back a little bit to the, no, like in a time of crisis, around security, around ransomware, around work from home, it's the CIO that owns these problems, and therefore, they're getting a much bigger voice at the table. And then the last one I mentioned earlier is like instead of being a 20-year cycle, like we see this more as a 10-year transition to a majority being on -- in the cloud versus on-prem.

That's really helpful. And going back to some of the growth dynamics you were talking about in the beginning, historically, it was pretty recent that you guys were growing close to 30%, and I'm sure you have aspirations to get back there. So simple question, what's preventing 8x8 from growing closer to 30%?

Okay. So great question. For your question, it's a question we often -- so a couple of things. Number one is we were growing close to 30% when we had some acquisition behind us. So we take the acquisition on a core growth basis, we're growing around 20-ish percent. Our ARR has grown around 20%, et cetera, et cetera. This year, we're going to have a bit of a headwind, 300 to 500 basis points, driven by the fact that we exited that wholesale business, and we wound it down to 0. So you have effectively a reverse acquisition effect where our core growth rate is less than -- our core service revenue growth rate will be less than the organic growth. That's why we're encouraging investors to look at ARR and gross profit dollar growth because those will be much more representative of the core organic growth. And then the last thing is -- and let me talk about this. But in fiscal '21, we were very focused on returning to profitability. We used to be a minus 16% operating margin company. Now we're effectively a breakeven operating margin company, and we really drove that model up. And so we haven't been investing as much incremental dollars in growth as we should. Now that we'll return to profitability, we're starting to invest more in incremental growth. And so you're not going to see a 16% improvement in OP margins in a year on a go-forward basis. We said we're going to exit the year around 2-ish because we're starting to pour more money back into growth. If we do that efficiently, the growth rate should rise. Last piece I'll throw at you is if you look at that XCaaS business, and I mentioned it earlier, 30% of our ARR growing twice the market growth rates, much better retention rates, et cetera. Imagine if that was 60% or 70% of our business, that's what we really need to do. We really need to push that XCaaS, where we're #1, and get it to be 60%, 70%, 80% of our business, and that will drive those growth rates up higher also. When you talk about 30% growth rate, that segment is growing 30-ish percent, probably, rough and tough. So it's doable. We just need to get the key parts of our business to be a bigger percentage of the ARR.

Awesome, Sam. Well, this has been super helpful. I did have one question from the audience, so maybe I'll get to that right now to close out. And the question is, is there potential to do any technology partnerships with legacy vendors similar to what RingCentral has done?

Absolutely. I mean, I think the answer is yes. I'll answer that question in 2 ways. There's the legacy OEM vendors that I talked about that haven't made the move to cloud. Sure, we look at those. There's also carrier relationships. We look at those. I will tell you right now, our analysis is our fastest ROIC and our best ROIC is in the subagent VAR model, like we're finding that. And I am a very -- the spreadsheet-don't-lie kind of CFO, and so we find much more ROIC in those segments. But absolutely, we're always open to those deals. We're always looking at those deals. I'm just not going to -- look, here's my commitment to Wall Street and take it for what it's worth. I'm not going to do those deals to get a press release. I'm going to do those deals because they make economic sense to the shareholders. I believe our shareholders pay me to make great economic decisions, not do deals so I can get press releases. And so look, my commitment to our investors and to our future investors is we are an ROIC efficiency-driven company. We're not a, "Hey, I can jam out a press release and get 3 points of stock price performance."

Well, Sam, we're out of time. This has been super interesting, really helpful. I enjoyed it. So Sam, thank you very much. It's great to see you as always.

Dan, thank you so much for your time. Sweet spot of my heart. Everybody should trade with BofA. I'm an alarmist, make them rich.

Thank you for that, Sam. Take care.

Thank you.