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

All right. Perfect, everybody. I'm going to start with the disclosure, and then we'll get into introductions and everything else, but...

Be aware.

Yes, exactly. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm Meta Marshall, I head up communications software here at Morgan Stanley. And we're delighted to have 8x8, Sam Wilson, CEO; Kevin Kraus, CFO. Pleasure to have you guys here today.

Thank you as always for having us.

Thank you.

We're getting later in the afternoon, so people are more caffeinated, but we're going to get there. So hopefully, everybody took their afternoon break. So Sam, your most recent quarter marked the anniversary of the official launch of innovation-led strategy. What are some of the largest changes it has gone through over the last year? And what are you most focused on as we had throughout calendar '24?

Okay. So let me take a step back and just describe it, right? So I took over as CEO a little over a year ago now, and I've led an innovation-led strategy. And the strategy had the idea that we wanted to focus on being an innovation-led company, not necessarily a sales and marketing-led company. And as part of that, there were sort of 3 phases to the transformation. Number one, jumpstart R&D. So take R&D from 9% of revenue to 15% of revenue and spend on new product development and those kinds of things. Talk about that because that's kind of the signs of things that are working. Number two, fix the financial model. So we reduced sales and marketing. We did a layoff, activity 2 of them in a relative to 3-month time period, but fix the financial model so that we could delever the balance sheet, et cetera, et cetera. And then number three, and that's kind of the place we're at now is once 1 in 2 were sort of wrapping up. We could get to the point where we could retool GTM around the innovation, right? So if you think about it, we used to be sort of a UC-led company selling effectively 1 or 2 products okay? Now we're a CC-led company. We can sell 6 products. So we go from a transactional company to more of a land-and-expand company. We have to sell multiple products. We have to build composed packaging. We have to do all those things. So as part of that, a new CRO, a new CMO, new channel chief, all those kinds of things around. And then now we're rebuilding the GTM around this. Okay. So like what's working and what's not? So clearly, like the new products, they're still single-digit millions, but they're growing 60% plus year-over-year. Quarter-on-quarter, the bookings are accelerating. We're getting market -- product market fit in that traction. And we're starting to get -- starting to get smarter about what the motions are, about how to land and expand into a customer. Secondly, and I'll say this, when we modeled all this transition out, we knew our revenue growth rate would drop, but our profitability would improve as we made the cuts and we sort of cut the inefficient parts of the business. We overshot to the downside on revenue growth. So we're like 0 service growth. We thought we'd be low single digits, but we way overshot on profitability. So everybody thinks it's easier than it is, right? We have about a 9- to 12-month sales cycle. So Kevin and I turn a knob and about 9 months later, we look at the knob and go, we've turned it a little too far? Probably shouldn't quite cut so much. And so now we're putting a little bit more money back in. But I mean, cash flow is growing like 50% -- 55% year-over-year, et cetera. And then -- so that's kind of a positive on the financial model. That's allowed us to delever. So at our peak, we had $550 million -- debt. Now we're $427 million. And we're generating $130 million of EBITDA. So we'll continue to pay down the debt and get all that stuff behind us. And that means we fund all our own growth now. 12 quarters of profitability, such -- the battle days of $90 million cash burns and all that other stuff is behind us. The phase right now is just retooling our GTM.

Okay. So Sam Wilson, CFO -- Sam Wilson, CEO -- all right. Okay. So following up on that point, the strategy, you've been pretty focused around that strategy over the last year. Just where do you feel like when you talk to investors, you've been talking to investors all day that, that strategy is still kind of misunderstood and where you're trying to do further education?

Well, okay. So we trade -- so we have, as I mentioned, we have a $130 million of EBITDA, and our enterprise value right now is, what, $700 million, $600 million like that. We trade at like 3, 4x EBITDA, 5x EBITDA, some really small number. So that's -- I think we're the -- on the Guggenheim spreadsheet, we're the second lowest value company on the planet for software. So -- not something to be proud of. So what I take from that is the Street believes our cash generation capability is not sustainable, right? We've spiked cash flows. But because of the lack of revenue growth and what we're doing as we transition to new products, we will never grow again. Our revenues will decline in perpetuity, and we're melting in ice cube in some form or fashion, and that always happens quicker than people think. And I -- so what I think what people misunderstand is there's a rhyme reason. Some of this is intentionally done. It's harder to get down to the exact thing. And secondly, they're missing the new products and what's happening here, right? So new products are coming into the financial model. They're not big enough yet to drive the financial model, but there's certainly some indications. And the reason that's important to me as the CEO is it shows product market fit. It doesn't really matter -- and I want to be careful of is it does matter, but isn't matter to me how much revenue we're generating right this second. What matters is, do I have products that people want to buy? Do I have the right go-to-market? Then I can scale it once I have those in place. And we've got the green shoots that we've got the products in place. Now we've got to get the routes to the market in place and then we can scale it.

Okay. So you mentioned you guys have turned the knob up and see what happens 9 to 12 months later. How much of that kind of overshooting may be to the downside on the revenue growth that you ended up with is macro? And are there particular areas where you're seeing kind of signs of that turning or signs where kind of that pressure is still more elevated either verticals or customers...

We're clearly doing this transformation in the face of a Fed raising interest rate headwind type of scenario. Isn't a good thing, right? It makes it twice as hard. So what we do see is -- and if you guys are familiar with the SaaS business model, right, we have contracts. And so if a company -- let's say, a company did a layoff last July, 100 employees to 90 employees, but their contract comes due in March, we're going to see a 10-seat downsell in March, even though the economic hit was back in the past, if they haven't built those place back. We're still dealing with a little bit of that. We're not seeing elevated credit card default rates, but we are seeing an elevated pressure on down selling some of those other things. And this is where our sales motion needs to evolve and get better over time. We need to get better all out like what Microsoft does or a Salesforce dog in saying, "Hey, no, let's not shrink your contract. Let's add these new products in or let's do these things in to drive more of that retained value. But that's a new motion for us.

Okay. So there's kind of pathways there.

And then just one other thing, because I said on the call, right, we have been dealing with a little bit of elevated churn around our Fuze acquisition, okay? And that's as we upgrade the customers and move over. But as we upgraded with the customers over, we're seeing their retention rates snap to our retention rates, which is an improvement. So the customer SAT scores going up, so forth, right. So that's a little bit of a moving piece that's very specific to us.

Okay. Middle of last year, you provided an operational framework calling for top line growth closer to 8% to 12% and improved cash flow from operations between fiscal '24 and fiscal '26. You've made some improvements towards improving the leverage. Just what underpins your confidence that you can still get there? So you said you have the portfolio and the go-to-market changes...

So if you think about it from a cash flow perspective, we're well on our way. So we set a 20% comp on annual growth rate over 3 years. The first year were like 55%, Whips overshot. We've already made the changes to equity compensation. So our stock-based compensation is 8% of revenue today when most of our competitors are 20%. So we've already made those changes. So on a cash flow per share basis, we're sort of well on our way. The part that's missing is that 8% to 12% revenue growth, and that's all driven by the new products. And here's the wizardry, right? When we become a portfolio of products company, what we see is both a higher revenue per customer because we're selling them more stuff and a higher retention rate. And in a recurring business model, that's the wizardry, right? So when we sell one product to a customer, I would say, a small business customer, we get a mid-80s retention rate; we sell 2 products, 91%, 92%; we sell 3 products, 94%, 95%; and we saw 4 more products, it's effectively 100%. So if I can get every customer, every major customer, 3, 4, 5 products, and I'm selling 8, 9 now. If I get that done, then after 3 or 4 quarters, we'll see that growth rate start to lift up.

Okay. I'm going to say you [ coined to like by 8x8x8x8 ].

Exactly.

[indiscernible] all day. All right. So turning to go-to-market. You recently hired a new CRO, Lisa Martin. What are some of the changes she has already made? And what are you -- or what are her key focus areas over the next year?

So first and foremost, she comes from Genesys and Verizon and Twilio, where she had a demonstrated track record of success, and we recruited her out of Twilio. She wasn't looking, we recruited her out. And she really brings that ability to sell multiple products and a land and expand. So the #1 thing we've got to get better at is solution selling, using a defined methodology that gets a product in or products in the door and then expand out from there. And that's very different from the UC world that most -- the background of the company. The UC world is one transaction, how many phone lines do you need? I'm out of here to find the next logo. This is totally different. So that's skill #1 she has got. Skill #2 is a lot of experience at Genesis and she ran go-to-market for Flex and Twilio, writes a lot of contacts under experience. So how to bank it. And then number three, a lot of VAR experience. So if you go back to 2017, we were primarily a direct company. Then we sort of over-rotated to the TSD agent model. What we need is a balanced go-to-market. We need to have the right amount of -- and the reseller VAR, you call it, North America, is a very successful channel for us in the U.K., but we've really struggled to get it to work in the U.S. And I now feel like between her and Michelle Paitich, our channel chief who comes from a VAR background, I have a set of architects who know how to build the house correctly.

Okay. And so I mean, maybe you can kind of give a sense because those are a combination of economic models as well. And so sometimes we kind of hear pushback when we do checks about, well, this person has this compensation model. I have this compensation model. Like how are you managing that conflict? And then just how are you designing which one is right one?

Well, so first off, you need a balance, right? The thing that I find most interesting is some companies like to buy direct, some want to buy through a selling agent, the TSD selling agent model, which is a derivative of direct because it's still on our paper, but it's through some sort of local selling agent type of partner and some want to buy through value-added resellers, the traditional IT channel. And a lot of times, the customers sort of self-selecting each bucket. So you need a little bit of a -- I mean, I guess my dream would be we were 50% VAR, 30% direct, 20% agency or some combination close to that -- and we're pretty far from that today. But that would be -- and have a balanced model. And then what I've been adjusting -- I mean, yes, this is the CFO side of me is, I've been adjusting the payments we make to a channel partner to be directly proportional to the amount of economic value they provide. So under the old regime, we would pay a VAR and agent roughly the same amount of dollars over the life of a contract. But wait a minute, a VAR deployed the product, supports the product, that's not really fair. They do more. So what I've now done is I've tilted the playing field of channel compensation, and I say this both more in line with the amount of economic value that channel partner provides to any shareholder. Okay. So if they provide more value, they get paid more money. If they provide less value, they can pay less money right? So my number -- when people come in and, "You used to pay us more money." I'm like, you should do more. You make more money if you do more. Those guys are doing a time -- do what they do what they want. So I've no problems paying a channel partner a ton of money. I just want a ton of economic return.

Okay. Perfect. Shifting gears to the product side. You've announced a lot of new products to the set and they're all showing kind of demonstrated growth in these kind of 6 products. Just where do you expect over the next year to kind of see the strongest traction or all of them on the same trajectory...

No, there will always be disposal, right? So if you think about where I expect to see the biggest stuff is around our intelligent customer assistant digital invoice. So those are next-generation AI-driven chatbots and voice bots that are fully integrated into our contact center. Our partner is Cognigy, but we can -- we have a set of APIs so you can use any bot. But that's by far where we're getting the most traction, and we see very demonstrated, very fast ROIs on that. I would say after that, we're seeing the PCI standards have continued to evolve and become tougher. And about 60% of all contact centers accept payments. So we are seeing an increased demand in our PCI compliance solutions. And then number three is we've launched a couple of new products recently around integrating CPaaS into the contact center. And so those are a wildcard. I think they can be wildly popular. They could be done. I'm not 100% sure which one. But ICA intelligent customer system, those bots, we launched last year, and they should drive the most revenue this year. The most important product launch we're making this year, we announced last week is Engage. So Engage is a high-bred UC, CC product. I would think about it like a new product line for the company, and it's for people who need contact center functionality but are not agents, nurses, field service workers, IT help desk, HR help desk, et cetera, et cetera, et cetera, right? And we are the only provider right now that has UC, CC, informal contact center and CPaaS all in the cloud, all under one roof integrated. And that's our value proposition.

Okay. I mean you guys were very early on with XCaaS to kind of have that contact center product integrated into our suite. Just where did you see kind of this need for this kind of lighter weight CCaaS product? And how does that differ from the customer set that you were going after with Zeta?

So that's a super, super interesting question, right? So it's a product the industry analysts have talked about, a market segment the industry analyst have talked about for years, but we couldn't figure out the value proposition. And it was actually -- we were in conversations with several of our customers who were saying to us, we need you to take these contact center functions, but we need it wrapped in a UC product because today, we handle that with a ring group typically. So what's a ring group? All your nurses, you dial a number and all their phones ring simultaneously. And one randomly picks up, and that's what gets the phone call. No analytics, no reason, no queuing, not all that cool stuff, geo-routing, and all that cool stuff we do in the contact center now that is available. Just 15 phones ring simultaneously, someone of you grab it. And if none of them grab it, then it goes to voice mail and I guess the patient ties or something, I don't know, something happens.

Maybe less starts on that...

Yes. So now we've got a whole set ability, but it was really in conversations. And -- so look, I'm not a product wizard. I will tell you my limitation as a CEO. I cannot necessarily tell you the far-reaching future of TAC or whatever KMP. But what we did -- what Hunter Middleton and I definitely built to the company is a very strong research operation. So before we build products, we go out and interview customers. We have people with clipboards who sit in contact centers who say, how are you going to use -- we stick wire diagrams or rough drafts in front of our -- so for example, our video elevation product, there's a large bicycle company, it's a customer of ours, that wanted to use video elevation in the contact center. And so we're like, okay, we'll build it. Tell us how you use it? And they worked with us for a number of months saying, okay, we need this. We need a bit to take a screenshot, we need to ability to annotate it, draw an arrow, send it off this, okay, we can do all that stuff -- and so that's really how we've been driving forth on that innovation front.

Okay. And I mean, you mentioned just announcing that kind of last week. You alluded to it on the earnings call. Just where do you see -- or more tactically, what time line do you see for this product ramping? And just risk that in the near term, there's kind of this conflict with salespeople on which sales product is the right one.

I think we're okay on the sales product. Right now, look, we're in beta now. So we have 10 Fuze customers that are in beta. We're shortly, any day now, we'll start ramping 8x8 customers. We'll go for 10 or 15 of those in beta. Usually, our betas are 2 to 3 months. This is going to maybe a beta a little bit longer because this is a new product line. So getting that product market fit. So I would expect that it comes out of [ GA ] July-ish, and then we'll start ramping the sales process. What I think is we did an analyst event last week for industry analysts, the San Diego Zoo, which is a great customer of ours. And the industry analysts were like, "We don't understand this product" and asking much questions about it. And the 3 customers stood up, San Diego Zoo, [indiscernible], which is a health care company; and Cape Air, which is an airline. And they all said -- and the first question from the audience was, what do you think of this new informal contact center product -- when do we have it? We want it tomorrow -- in the counsel, we'll explain why. And the guy from Cape Air was like, "Hey, my refunds department, if you get a plane ticket and for some reason, you need to refund, they're part of finance. I need a bunch of contact center functionality for them, but they're not in the contact. They're not agents, okay?" And the [indiscernible] person was like, "Oh, we need this for our nurses. This is like -- and some of our billing people, this would be absolutely fantastic. And so those use cases, we know exists. It's just been really tricky figuring out like where the line of UC is and where the line of CC is and actually building [indiscernible]. The other thing is mobile first. So this was really built knowing that [indiscernible] my phone, but knowing that most likely that person that's getting that call or getting that message or getting that bard interaction is on a mobile place.

Okay. Okay. That's helpful. CPaaS has been a market that you got into with the acquisition of Wavecell. -- but you were kind of seemingly deemphasizing before Lisa joined. Just how do you see that market for CPaaS within the 8x8 suite today? And maybe how is it different than when you acquired Wavecell?

Yes. So Vik acquired Wavecell, that's 2 CEOs ago, with a little bit of this vision and then Dave Snipes despite the CPaaS business and he emphasized it. I've always thought it had value, but the value has to be that it's an add-on, that it's a really easy add-on. So last week, we announced our first CPaaS package, that's an add-on to the contact center, that it's like a PLG. It's off the shelf, push a button, and integrate TETRA. We've got more packages coming for sales to our installed base. So I don't have any desire to compute Twilio or Sinch head-to-head in the CPaaS business. But it is a -- in our ideal customer having CPaaS add-ons is a highly sought after thing. And so what's an example? We have -- we do a lot of business in U.K. public sector. So we built a set of CPaaS technologies that incorporate video, contact center and SMS messaging or Whatsapp messaging. So you call a contact center because you need a repair. They take a video and they're side by side. So they're still on a phone with you, there's a video going on because they have access to your camera. You show them the problem. They take a screenshot, circle it, send it to the repair person. The repair person is going to save themself one trip because you go to the warehouse to get the parts needs before he leaves to your place. We then -- so we've already sent you one text message to start the video conference. 20 minutes before arrive, the second text message goes out saying, the driver is 20 minutes away, please make sure you're there to accept it. I can't tell you that text message, how frequently now we've avoided missed appointments -- like there's like a 50% reduction in missed appointments. I'm sure there are a lot of people scrambling, but there's a 50% reduction with the drivers 20 minutes away, et cetera. And then there's a follow-up survey saying, "Did we solve your problem? Did we not solve your problem", et cetera, et cetera. So that is a combination of video technology, the contact center, UC and CPaaS, all sold as a complete integrated bundle.

Okay. Okay. That's helpful. And we've alluded to it a number of times, but the integration of Fuze has changed a little bit over the past couple of years. it seems as if now you are moving those customers over by 8x8 system. But when can this kind of become a tailwind versus a headwind that has been?

Yes. So we did the Fuze acquisition, which has been really terrific for us over the couple of years that we've owned them. Yes, there's been some headwinds in the churn, as Sam mentioned earlier. We think that when we move these customers over, we do see some delta pressure, customer sat up, we think they're really sticky. Probably a couple more quarters of headwinds right now, probably in the second half of fiscal '25, we'll see it abate. Yes. But we're really pleased with that acquisition. It's really driven a lot of growth for us in terms of cash flow and very successful that way.

Okay. I mean, Sam, you just mentioned that the original beta customers were Fuze customers. Was there any reason why you...

Yes. So Fuze built a kind of an MVP, for lack of a better word used with my [indiscernible], around this notion of kind of this contact center-like product. And so as part of upgrading them, we need to match that product gap and that's part of the idea of what it originally came from.

Okay. Okay. We were talking a little bit upfront about misinterpretations people have about the space, but one of them is just the pricing concerns have obviously become a concern around the space. Do you think customers or investors are right in their concerns or that they just missed that a lot of this is more downsells versus kind of true pricing pressure?

Both. But look, I don't think investors are wrong either. But I think there's a fundamental misconception, right? There were 600 million seats of on-prem business voice. Did we really think all 600 million seats were $22 a user? Because I didn't, right. There are a lot of seats in there. And I think this is part of the reason why you still have, what, 400 million seats sitting on-prem because a lot of those seats should be $6 lines or $7 lines. And so what we really worked on doing the last few years is building a set of products that can mix and match. So if you want a $4 line with almost no functionality, great, we have it. A $6 line, a $12 line, a $14 line, a $20 line, $30 line, all based on the amount of features and functionality. So I probably take an example, like airline industry, right? We have...

Do you like the airline industry?

Well -- yes -- they have basic economy, economy, premium economy, business class, first class. And so they're really good and each one has a different set of features and functions. They're really good at skimming the incremental dollar. And oh, by the way, you want 2 bags, that's an extra $25. They're really good at building the right set of pricing and packaging to capture each amount of economic returns in each one of those segments. I think the UC industry had it wrong. I think the UC industry went down and said to Mr. IT department, A, that phone that only makes 3 phone calls a month, you should pay $22 a line to fix that, plus [indiscernible] $40 a line -- we got IT department, like, no it will sit there. I think now -- and I think you see it because of Microsoft Operator Connect. So you see operator connect, you see it ramping, that is dumb boys. It has no features at all, and it is one of the fastest-growing segments of the UC market, right? If they needed features, they would be buying more features. Microsoft was the first one that really pioneered low-end voice to really capture a lot of those seats.

Okay. And so I mean, is there a better way that we should be thinking of the TAM on the UC space? Or we should be just thinking of kind of this more holistic market?

Well, the way we think about it is, so let's say, Cisco 53 million seats, and I don't know if these numbers are accurate. It is my best guess. 53 million seats of on-prem, you see.

That's a fair approximation.

Approximately 53 million. NEC approximately 78 million, Avaya approximately 89 million and Mitel approximately 37 million seats of on-prem UC, right? So that's 200 million seats rough and tough between those 4 vendors. If I went and capture 20% of that at even $5 a month, that's a pretty good market. So I think for all of us that are relatively small, there's a tremendous amount of opportunity to go get that still. Now where I differ a little bit is I'm trying to sell -- I'm trying to offer the milk and the bread at low margin, along with the pizza on the frozen food, contact center, Engage, other products, so I can get an entire margin bundle. And if I selling multiple products, it's relatively sticky over time. And then I drive a net present value of future cash flows, it's relatively high.

Okay. You alluded to Teams and kind of the way that it changed kind of how people looked at the space or -- and just the opportunity people saw there. Just how do you see it as an opportunity versus a threat kind of...

I love Teams. I love Teams. We're a partner of Microsoft. I think Teams is an amazing product. I think if you're a video conferencing company, it starts with the Z, you're scared to death of Teams because it's Microsoft. But we've been partnering with Microsoft for, what, 5 years now. We're a partner of theirs, and it is -- I mean, we have 400,000-plus seats of Teams integrated phone and we hope to have more in the future. I think it's a great phenomenal product. But what it meant was, in 2017, 8x8's value proposition was voice video and chat for employee collaboration. And we had to make space by shifting into more of that innovation-led customer engagement, customer contact base because the collaboration market was fundamentally changing, but Microsoft, it was somebody else. And they're great partners. I mean we go to them and say, "Hey, we need an API to do this and the like, here you go."

Okay. I mean -- but how do you assure that you're not just providing $5 lines within that market and that you're kind of upselling to sell the full portfolio and maximize the opportunity?

I think we need to, right -- so they have what [ 290 ] million MAUs [indiscernible] track -- a lot. So if I capture 10% of that at $5, right? But the key for me is I've witnessed in RFPs in particular, the request for proposals the last few years. If you didn't have an answer at that low end, you were excluded from selling the $120 contact center or $100 contact center seats. You can't come in to an enterprise, particularly in international markets and say, I want just the high-value seats and go find some other vendor for the low-value seats. Their answer is, we want one vendor to provide a range of products, and that's what we're focused on.

Okay. We would be remiss to be at TMT without talking about AI. It continues to be kind of one of the dominant themes within the space, particularly within UC, CC and CPaaS products. Where do you find the most compelling opportunities to apply AI? And where do you think that there's an opportunity for you guys to do that organically versus partner?

So we organically develop AI tool sets when we find it's a shared common service, transcription, translation. So we started working with [ Open.AI ] 6 months before they came out of sales boat. We use -- we started working on -- we use LLaMA 4 for interaction summarization as Meta's Platform 4 that just came out, we've been using it for months. So we use those when we want to create tools like summarizations across multiple interactions, those kind of things at a platform level service. And then for a lot of AI, the bots, health scoring, those types of things, we partner with best-in-breed providers. So if you look at the Gartner Magic Quadrant for conversational AI, 5 of the 6 in the Leaders quadrant, all partners of ours, all integrating in our contact center. Pick your bot, whatever bought yours, the leading health scoring vendors, the leading IT service companies, campaign management, all those kinds of things. We want to partner with those, and we can partner with those because we refactored our contact center over the last 5 years, modern microservice architecture with [indiscernible], with APIs, with web books, with security, et cetera, that allows us to then integrate with the next-generation startup. I think one of the mistakes that my competitors are making is trying to compete with $100 billion of Silicon Valley venture capital. I say this as a Silicon Valley veteran, that is [indiscernible] action. You're ramming wind mills at full speed. My attitude to the venture capital communities, "I'm your friend, come hug me." We come spend your money integrating with my product because I bring you a complete solution.

Okay. Okay. Perfect. You've done a fair amount of M&A over the past few years. How do you see the need for kind of further consolidation or fortification of the portfolio? Or just kind of opportunities for consolidation within the space in general?

Yes, we did Fuze. I mean I wouldn't say the Street's rewarded us for doing Fuze. I think I did it, it was $21 a share. I think I'm $2.60 now. So I don't know -- look, -- it's -- it's a very hard question to give you a sound by the answer because we probably have the most experience at migrating UC basis. And it's hard, it's tricky. We're good at it, but we built a lot of intellectual property [indiscernible]. If you've never done this, God bless you, have a good time, but don't call me when you need help because I'm not going to help you. Migrating contact centers really doesn't work. It's too customized. It's to rip and replace. So -- but I do think there is room for adding products that you can sell through a set distribution channel. There's analytics products that are definitely is a market demand for. There is security products that has market demand for. So I think there's room for M&A. I think there's room for customer acquisition. It's just kind of got to be done in very specific use cases. and it's got to be done at the right price. I mean, there are several UC providers out there who have astronomically high valuation expectations. And everybody needs to remember we bought Fuze for 2x ARR.

Right. Okay. Before I go on with questions, any questions from the audience -- all right. Perfect. Kevin, we haven't spent enough time with you. So you've made tremendous strides on operating leverage and deleveraging over the past year. Just how do you think about capital allocation and just kind of the state of the balance sheet?

Sure. Yes. We're -- this is an area which I'm particularly proud -- so we -- a little over a year ago, we had $550 million in debt. We're down to $427 million -- this year-to-date, we've paid down $88 million of principal value and debt. So that's greater than 1/3 of the commitment we made to -- we've made to return $250 million to shareholders over 3 years of time. So we're past the 1/3 mark there. So we have 2 tranches of debt left. It's $225 million in our term loan, and then there's about $202 million of our 2028 converts. The term loans due in 2027. And we have a prepayment penalty that expires in August, which will, after that time, aggressively pay down that debt, which is a virtuous cycle, obviously, it's a higher interest rate debt. We pay that down. The interest cash -- interest fee pay goes down and it helps our cash flow. So that -- it's a wonderful virtuous cycle. So we're on track with our commitments -- the converts, they are convertible at $7.15 a share by virtue of paying down the debt, we may get the stock up to that range or hopefully above over time. And then after that, we're going to continue to generate cash flow and potentially do other things with the cash, if it's an M&A opportunity, as same just talking about, it's a potential buyback in the future to reduce our dilution, we can do that too.

I'd like to use -- just so people understand our capital allocation model, I can use Fuze as an example, right? So when we bought Fuze, 2x ARR as we bought at a reasonable price. We issued 6 million shares, and we took on $125 million in debt. Since we've acquired Fuze, we bought back 10.5 million shares. We've liked to bought more shares in the issue, and we've retired $120 million of that. So Fuze is paid for, and I'm still generating ARR opportunity in the future. Me, that's the model transaction, and that's the model use of the balance sheet.

And then kind of -- I mean, just anything in terms of areas where you're kind of focused on either optimization or investing in kind of over the next year?

So we cut 40% of our sales and marketing. I'm going to take this one and then I'll leave -- and it's about getting revenue growth back.

Sure. As far as optimization, we are obviously very focused on efficiency metrics internally in the company, whether sales and marketing efficiency, et cetera. From a like a more tactical view, and I think you've heard this and various people have heard this on the call is we're looking to refinancing opportunities for the term loan because we're in a completely different -- we're a completely different credit risk now as a company than we were when we did that over a year ago. So that's an option for us that I think is going to help us out too.

Perfect. All right. Well, Sam, Kevin, thanks so much for being here today.

Thank you so much.