Thank you, ladies and gentlemen, for joining, and welcome to the 8x8 Fiscal Q3 2022 Earnings Conference Call. My name is Elena, and I'll be facilitating your call today. I now have the pleasure of handing over to your host today, Kate Patterson, VP of Investor Relations to begin. Kate, please go ahead.

Thank you, and good afternoon. Today's agenda will include a review of our third quarter results with Dave Sipes, our Chief Executive Officer; and Sam Wilson, 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 the impact of the Fuze acquisition as well as our business, products 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 report 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 the year-over-year comparisons, in some cases, were not prepared in accordance with US Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP measures to the closest comparable GAAP measures is provided in our earnings press release and our earnings presentation slides, which are available on 8x8 Investor Relations website at investors.8x8.com. With that, I'll turn the call over to our CEO, Dave Sipes.

Thank you, Kate. Good afternoon, everyone, and thank you for joining us today. Let's turn to a review of our third quarter, an update on our acquisition of Fuze and our progress and plans for the future. In fiscal Q3, we delivered service and total revenue above the high end of our guidance ranges. Additionally, we delivered positive operating cash flow for the fourth consecutive quarter and achieved our year-end operating margin target a quarter ahead of plan. We also announced our acquisition of Fuze, which increases our enterprise customer base and adds resources for innovation. This transaction closed on January 18th. The market opportunity to migrate business communications to the cloud is massive. We are beginning to see the impact of our focused investments in XCaaS, go-to-market and especially channel and the global coverage in our Q3 results. We have built a strong foundation for growth. I believe we are well-positioned as the market evolves. I will frame my comments today around three pillars of our competitive advantage; our XCaaS platform, our leadership with 8x8 Voice for Microsoft Teams, and our Global Coverage. Turning to a discussion of XCaaS first. Capitalizing on the demand for integrated UCaaS, CCaas and CPaaS offerings, XCaaS provides a single platform for customer and employee engagement. XCaaS eliminate silos and speeds information flow across the enterprise, enabling organizations to be more agile and responsive to customer needs while operating at a lower cost of ownership. 8x8 XCaaS was recently awarded the 2021 CRN Tech Innovator Award. Additionally, we were named a leader in the IDC MarketScape: Worldwide Unified Communication and Collaboration 2021 Vendor Assessment. XCaaS ARR is now more than 35% of total ARR and continues to grow at more than 35% year-over-year. On a dollar basis, we delivered our best ever sequential and…

Thanks, Dave, and good afternoon. We are pleased to deliver results for the third quarter that exceeded guidance, showed improved operating leverage and generated positive free cash flow. Better-than-expected performance from our product categories were the key drivers with both XCaaS and CPaaS, both strong performers. Total revenue for the quarter was $156.8 million, an increase of 15% year-over-year and above our guidance of $152.7 million to $154.2 million range. CPaaS and contact center revenue was more substantial than expected during the quarter, contributing to the overperformance in service revenue. This offset weaker endpoint shipments and other revenue due to ongoing supply chain shortages. Looking at service revenue, we generated $149.4 million, an increase of 18% year-over-year and above our $144 million to $145 million guidance range. Adjusted for exiting the wholesale business last year, service revenue growth would have been about 21% year-over-year, or 3% higher. Total ARR growth was $572 million at quarter's end, up 16% year-over-year. Enterprise ARR accounted for 54% of the total and increased 30% year-over-year. The shifts we have made in our demand generation efforts towards Enterprise resulted in strong sequential growth in Enterprise ARR, up approximately $25 million, or 9% quarter-on-quarter. Growing our Enterprise business is one of the core tenets of our long-term strategy due to its longer commitments, higher retention and better efficiency ratios. The third quarter non-GAAP gross margin was 64.7%, and higher sequentially as service revenue accounted for a more significant percentage of total revenue. Non-GAAP service revenue margin increased approximately 20 basis points over the previous quarter to nearly 70% and was up over 350 basis points versus the third quarter of 2021 driven by our focus on improved spending efficiency. Non-GAAP other revenue margin came in at minus 32.2% for the quarter, reflecting the decline in endpoint…

Thank you. The first question comes from Siti Panigrahi with Mizuho.

Hey, guys. This is actually Matt Diamond on Siti's behalf. Congrats on the very solid print. It's glad to see that Fuze is working out. The question I have is around the cross-sell opportunity. There was obviously some promising cost synergies here, but -- and I know it's early in the integration to maybe speak about this concretely but, Dave, after your first couple of weeks of closing the deal, could you give us any sense of your confidence in that $50 million incremental ARR that was talked about when the deal was announced?

We just closed the deal two weeks ago, and we're having conversations with customers currently, and they're very positive. So encouraged overall, although it's well too early to give updates on the quantifiable number of the cross-sell, and I'll let Sam talk.

Yes. So as Dave said, look, the feedback so far from the customer base is very positive, I would say. We're going through and validating customer by customer. As Dave said, we only closed it two weeks ago. So we actually literally got the names of the actual customers two weeks ago. And so we're working through all that, I would say, incrementally more positive, not ready to change numbers.

Got it. And around the margin front, it sounds like there's a promising trajectory on the cost saves. I'm curious how you're thinking about inflationary costs this year, if there's anything we need to keep in mind when we're modeling the magnitude of spending growth and margins for fiscal 2023?

No. Specifically around inflation, look, we're dealing with it internally. So we are seeing things like wage inflation, some T&E inflation, those kinds of things. We're dealing it within the overall guidance we're giving that total spending increases should be less than revenue growth. That's for us to deal with.

Okay. Thanks so much.

Thank you

Thank you. The next question comes from Matt VanVliet with BTIG. Please proceed.

Hello. Good afternoon. Thanks for taking the questions and nice job on the quarter. Dave, I guess, bringing in Lisa to run the channel group here, what incremental sort of improvements or strategy do you think will help get pushed through not only given your experience working with her, but maybe where you're trying to take the channel program from here now that you've built up a nice big stable of partners that are helping out?

Yes. And channel is core to our overall strategy. We see the reseller network as the key element that's worked with these customers historically, been with them on legacy solutions and are helping them through the migration to the cloud. And so as we built up our channel program, and it's been several years as we've done that, we continue to aspire to be the easiest to work with and build the most trust with the channel itself. That's shown already with the strength of our team as well as the strength of the channel that we've added. But I think there's still a long ways to go. Lisa has a decade-plus of experience with the channel and she'll bring a lot of operational excellence and ease of -- ease and trust that we will continue to build with that channel and do that globally. And I see a lot of opportunities still as we work some of the elements of our differentiated approach to offering both agency and wholesale billing models to channel that's been very successful for us in Europe to bring that into the US as well as capitalizing on this tremendous Microsoft Teams opportunity that's ahead of us and using the channel to do that. So we still have a ways to go, but I think it's been a positive experience for us today. And I know Lisa is going to help us move that to the next level.

All right. Great. And then looking at both the mid-market and the SMB groups, a little slower growth even on SMB, a little bit of contraction here. Can you just help us kind of break down what some of the puts and takes are around there? Did you see any sort of elevated churn? Are you seeing pricing compression as contracts are renewed? And then what maybe kind of new growth help offset that -- any of that downward movement there. Thanks.

Yes. Churn in small business is inherently higher as you have business mortality and seasonal use of the product. And our core focus, which goes along with our strategy, is really focusing our go-to-market exercise and activities and incremental dollar, both sales and marketing on the enterprise market. The enterprise is core aligned to our strategy of XCaaS. If you think about XCaaS combined, both the employee experience on the UC side and the agent experience on the contact center side, only the larger customers have that Contact Center need. So it inherently aligns us with enterprise as well as if you look at our other advantages of Microsoft Teams and our global capabilities, taking that to 48 countries. Those are really aligned with enterprise. So that's where we've been leaning in and focusing our go-to-market activities. And we had one of our best enterprise ARR growth this quarter. So while it takes time to grow that Enterprise business, as you build pipeline and then mature that pipeline into deals, we are already seeing some of the benefits of that work, which I'm happy about. And that's where you're going to see -- I think we've talked about it on previous calls, that's where you're going to see our continued focus. So that's where we'll focus our metrics on what's important to us.

All right. Great. Thank you.

Thank you, Mr. VanVliet. The next question comes from Ryan MacWilliams with Barclays. Please proceed.

Hey, guys. Thanks for taking the question. Excluding Fuze for a second, it looks like a strong fourth quarter guide in terms of sequential service revenue dollars added, compared to your guide from the previous quarters. So anything in your business or anything in your market opportunity that's given you confidence for the fiscal 4Q?

I'd love to say something insightful at this moment, but its business as usual. Like, we've got a great product. The team is doing really, really well. Our Global Reach message is resonating. And so, I have nothing incredibly insightful to say other than, I think we're doing really great and all the investments that we've made are just paying off.

That works for me. And just as we think about Fuze and in addition to 8x8. How should we think about the year-over-year growth rate for Fuze in 2021? And is there anything since getting on your hands in the company? I know, it's just been in the last few weeks that maybe you're more excited about from a revenue or synergy standpoint? Thanks, guys.

All right. So I'll take those in reverse order. Look, as I mentioned on an earlier question, I think the cross-sell opportunity, we had said on the call that we had zero modeled in for cross-sell. That's still the case right now. And so, I think, there is some positive stuff there, but too early -- nothing in guidance, those kinds of things. And so, when you talk about the year-over-year growth from Fuze customers, it gets a little mushy, and I'm sorry to say that, but what we would expect is we expect Fuze revenue to decline from the customer base. Part of that will be natural attrition. Part of that will be we're going to migrate them or upgrade them over to the 8x8 side. And so, I think it's purely that that's the key drivers right there.

If I get a follow up on that real quick, I guess, how should we think about, like, the timing of that migration? Or is that something we can track or is that just -- like, how are you going to incentivize that? Like, what's the best way for us to monitor the progress there?

So I mean, the big thing is customer choice, number one. Right? So we’re not going to force anything, any that sort of stuff. Customer choice, we’re analyzing it now. Can I beg you to ask me that again in 90 days and I'll give you a more coherent answer. But it's still early. We want to make sure that customers get the best of both worlds. That's something we said earlier. We absolutely want to stick with that. So choice is the number one thing and trying to bring forth that best of both world solution.

And this is something that's going to be a positive for customers, as they get to add a greater breadth of product, contact center solution from 8x8, both with their current platform as well as getting the full XCaaS experience when they decide to upgrade to the XCaaS platform. We do expect some of that to happen very quickly and continue to happen for multiple years.

Appreciate the color. Thanks, guys.

Thank you, Mr. MacWilliams. The next question comes from Michael Turrin with Wells Fargo. Please proceed.

Hey guys. This is Austin Williams on for Michael. Thanks for taking my question. I just wanted to follow up on the question on the fee guide. The guide is the $20 million for the partial quarter. I think the previous disclosure was $100 million or $125 million run rate. Are there any purchase accounting adjustments or other callouts as to why that might be lower than we were previously modeling?

Well, yes. So I mean, first off, it's service revenue and second off, it's a stub period, right? So I think at the time I own them. I can't take the full quarter. I'd love to, but I can't. So I mean, you'll see another step -- that's why I tried to be really clear in the script. You'll see a full -- the first full quarter on that kind of run rate will be our fiscal first quarter of '23.

Got it. Thank you.

Thank you. The next question comes from Peter Levine with Evercore. Please proceed.

Great. Thanks for taking my question guys. Maybe the first one is, as you think about the service revenue reacceleration at or above that 20% three-year target, first, can you just clarify, that's an organic target? And then second, the go-to-market investments that you guys made internally and towards expanding the partner ecosystem, obviously, that's gaining traction. So really, what has to work to get to that 20% number? And then the reverse is where does the risk lie?

All right. I'll take the first part of that, and maybe I'll let Dave talk about the risks. So we weren't clear organic or inorganic. We've done both in the history of the company. And I -- like I think you're reading too much into it is 20% growth, like it's just what we expect the revenue growth side to be. In terms of what has to work, this question was asked a lot when I gave the long-term guidance, the thing I tried to make very clear is that we need to improve our sales and marketing efficiency. That naturally lifts the growth rate. And so that's one of the areas that we continue to work on how we invest, where we invest is a key part of that strategy. But that's one of the things that has to continue to work in our favor to drive higher growth rates.

And where we'll get that acceleration and improve sales and marketing efficiency is as we have success selling XCaaS. And we've seen now it's more than 35% of our ARR and growing at over 35% year-over-year to drive Enterprise customers, which I talked about earlier, as well as keeping those customers very happy. And that's where we've made a lot of progress today. It would be always your ongoing risk, but we have driven the customer retention improvement every quarter that I've been here and we had a multiyear record on that this quarter. So those are the key elements to drive customer retention of large accounts, to drive the Enterprise business and to drive the XCaaS adoption over time and doing that also with our differentiators of Teams and Global.

And then just one last one, a housekeeping question. I don't know if I missed it on the call, but can you sort of give us the RPO number? I didn't catch it.

I said it's $565 million.

Great. Thanks again guys.

Thank you, Mr. Levine. The next question comes from Meta Marshall with Morgan Stanley. Please proceed.

Great. Thanks. Sam, I just wanted to know if you could just kind of give what the headwind was from just the exiting of the wholesale business either through this quarter or into the guide? And then just maybe as a question for Dave. Clearly, you guys have made efficiencies to the services organization and maybe deemphasize that smaller business or book of business. Should we consider that as there any growth opportunity or additional churn we should be mindful of? Just anything to note on the smaller end of the business as you just deemphasized or change the services organization around that business?

Yes. So the headwind from the -- exiting the wholesale business was about 3% service revenue growth. So I think I said in the script that the total -- the service revenue growth would have about three percentage points higher if assuming that we hadn't exited and the business was flat.

And same to the guidance, correct?

Yes, yes.

Fiscal Q1? Okay.

Yes.

And then to your question on our services organization and business, Obviously, as a SaaS business, one thing we're striking as we go through reorganization of the product and of that organization is to make deployment easier, more out of the box for customers. We've made some progress on that. But that creates inherently a little bit of revenue headwind. But obviously, we're focused on the service revenue component of the business. And we believe easier deployment, implementation, configuration creates strong advantages, strong TCO opportunities for customers. So that will be a continued focus for us as a business.

Got it. Thanks.

Thank you. Ms. Marshall. The next question comes from Michael Latimore with Northland Capital Markets. Please proceed.

Great. Thanks. On the record revenue retention, can you just give a little more data on that?

Yes. I mean basically, our retention rates are the highest we've seen pre-pandemic even before that. Churns really come down. I mean, it's been a key area of Dave's focus the last year. Terms really come down to last year. And it's arguably it across the board. We saw some of the lowest credit card decline rates we've ever seen, we saw great enterprise retention. It's across the board.

We've made significant investments in our customer success organization over the last year as well as product usability, stability enhancements. And I think those are paying off. Obviously, there's other macro trends possibly affecting those, I think, are really critical for what we're doing here and getting greater customer happiness.

Great. And then in terms of the XCaaS vertical, are they -- is there any material difference between the verticals that are in the XCaaS business versus, say, UCaaS independent of excess or invention or the vertical is pretty much similar -- the mix of vertical is similar between the two?

For us to date, the verticals have been similar as we focus on a lot of blend between the UC user and the contact center user. We focused on informal cues and bringing in contact center capability into UC users. We talked about our front desk product as one of those. So we are -- there is -- for us, there's a high crossover in verticals. Our core vertical being led out in the EMEA market and that also is buying XCaaS. So we're seeing it across the board.

Yes. Thanks.

Thank you. Mr. Latimore. The next question comes from George Sutton with Craig-Hallum. Please proceed.

Thank you. I'm glad to hear you're going to continue to focus heavily on R&D. You did mention bringing over a few developers in large part, can you just talk about how does that influence the product road map going forward? In other words, how might the product look different in a couple of years as a result of this move?

Sure. And we are -- I am happy to say, we've brought over that team. We've been able to align them into our organization. This is all relatively new, but obviously planned. And it does create a force multiplier on innovation for us as we're able to put incremental resources on key product innovation areas as we have the basics covered, right, from an R&D perspective. And we -- and it's nice that we're able to do it well, making this profit -- being able to contribute to profit over the next 12 months. What we will focus on, obviously, is those core pillars of XCaaS, our Team's product and our Global Reach. We have made progress across all of those already in the last year. So there are already additional innovations in the pipe. But what you'll see is increased velocity of innovation over the next nine-plus months. And areas that we'll focus on are things like admin usability for managing very, very large organizations, some of the polish around our omni-channel and AI capabilities, additional deeper integrations that go with that. And additional personas that front desk was an initial or first foray into personas, and we have some additional ideas there. So I would say, we have a couple of interesting announcements planned for late this quarter and I would say stay tuned for the specific, right?

Appreciate the details. Thanks, guys.

Thank you.

Thank you, Mr. Sutton. The next question comes from James Breen with William Blair. Please proceed.

Thanks for taking the question. You had mentioned a little bit about some of the supply chain issues. Just wondering sort of how maybe you've got to change the business a little bit around some of that and if you're seeing it alleviated at all -- and does it impact your sales cycles as the supply chain starts to right itself? Thanks.

Okay. So here's what happens. Yes. I think it does have some effect. It's hard to quantify. But I think we are seeing some Enterprise customers place smaller orders upfront, because they have to have a slightly different deployment schedule. And so there may be some pent-up demand. There's certainly we've got the largest back orders that we've had in a long time backlog, if you will, of hardware, and that is a statement. As it alleviated not really, it's still something we manage every day, every week right now. I'm hoping that at some point in the next four quarters, it alleviates, but there's nothing that I can concretely say that, we have designed on the horizon that it's going to be alleviated.

So you basically, you've adjusted to the working environment that you're now haven't seen necessarily a change, but it just hasn't come to a completion yet?

Yes. I mean, there's a change. I think like as I said, I think just some of the enterprise orders, the bigger orders are probably a little smaller than they would have been because they're placing the first order and they'll place a second order here in a couple of months when we get more hardware to meet their deployment needs.

And we're building a great approach of hardware option to create more flexibility for customers.

Okay. And then just qualitatively, you mentioned a little bit about the cross-sell with Fuze. Any real difference in the size of their customer base relative to the size of your customer base, small, large, et cetera?

Well, in average --

In terms of the size of the company?

.:

Okay. Good. Thanks.

Thank you, Mr. Breen. The next question comes from Catharine Trebnick with Colliers. Please proceed.

Hi, thanks for taking my question. Congratulations on a good quarter. So you spent some time talking about Microsoft Voice with Teams. And I'm wondering why aren't you pursuing a relationship with Black and it seems to me that would be another avenue of good growth? Thank you.

Thanks, Catharine. So on the Team's opportunity, I do think it is like more partners is always good. So we're open to that relationship. The Team's platform itself is a larger platform, honestly. And they create an opportunity that I think is still just lightly touched. And we are doing a lot in that regard to help penetrate these users that don't have an enterprise communication system attached to their Team's usage, and we're doing that through direct routing, and we're adding a lot of value through our contact center, powering all our employees, global coverage. We do have a strong relationship with Salesforce overall. And obviously, with integrations across both our UC and CC products, and we see that as a very important relationship overall for us.

All right. Thanks. Appreciate it.

Thanks, Catharine.

Thank you, Ms. Trebnick. The next question comes from Will Power with Baird. Please proceed.

Great, thanks. I guess, a couple of questions. Maybe just starting with the service revenue upside in the quarter. I think, Sam, you indicated it was really driven by strength in CPaaS and CCaaS. And just wondering if we could get any other color there? Was there any particular products or areas within CPaaS and then within CCaaS, is that seat? Is it usage? Any other color and just the sustainability of that upside, I guess, as we move into Q4?

So on the CPaaS side, it was Southeast Asian usage. And so I think we've got a great presence there. We've won some new customers. I mean, I think Dave has mentioned some pretty big brand names over the last few earnings calls. You can imagine those flowing through as usage as they ramp up starts to show up. And then on the Contact Center side, it was just minute usage. And so do I think it's sustainable? Yes, it feels like the world is opening up, and there's a lot more business activity going on, and that just correspondingly shows up as more usage.

Okay. That's great. And then just a question on ARR growth. It looks like the XCaaS ARR growth accelerated. I know you called that out. I know that's the primary focus. And I think as you touched on, as you look at mid-market and SMB a bit weaker. So I guess one was a big question or one of the big questions is when do we get to an inflection point where that XCaaS ARR can more than offset some of the pressure points in mid-market and SMB to help drive an acceleration in ARR growth? What are the key drivers of that, any rough time line to how to think about that.

Dave and I look at each other. We're wondering if you want us to give you an answer of like three months, six days, four hours and eight minutes? Or just the key drivers, right? So the -- sorry, a little bit of humor today. So look, what's really driving it is we're pushing in there. We're seeing the first line with the investments we're making in the demand generation, in the branding, in the channel and all those kinds of things are paying off. Yes, it's continuing to grow faster than overall growth rate. So, it's becoming a larger percentage of our business, exactly what Dave wants and he's been driving towards in excess of a year now. And I'm hoping that every call from this point on, we keep saying it's a bigger percentage of the business, because it is one of our tenants to drive the overall growth rate of the company up.

Great. Okay. Thank you.

Thank you, Mr. Power. The next question comes from Tim Horan with Oppenheimer. Please proceed.

Thanks, guys. Can you go into Teams a little bit deeper? Where are you developing the channel there? I would think it's a very different channel than the legacy channel. And where are you just like the processes to kind of implement? And I guess just lastly, what inning are we in do you think in terms of your ability to kind of execute on that and penetrate that market?

I'm sorry. Can I ask you the first part came a little muffled. Did you say Teams channel?

Yes. Sorry, on Microsoft Teams, yes, where are you developing the channel that kind of can sell into a legacy kind of Microsoft -- basically, systems integrator supportive?

Yes. So -- and I'm going to start with the last part. I think it's early in that there are a lot of Microsoft Teams users when you look at the MAUs but they're predominantly all using it for messaging, right? And so attaching Enterprise Communications to that, I think, is what's early and I think just a small fraction have really attached Enterprise Communications. And when you do, do that, there's different ways to do it, whether it's direct routing or operator connect or calling plans, I think we're -- what we see as the predominant solution today is direct routing, and that's where we're differentiated. So I think we sense this. We got into this early, and we've been capitalizing on it. Obviously, we had 30% quarter-over-quarter growth, but I don't think we have yet really capitalized on the full channel opportunity. And so, that is something that is a key initiative for us. We've been mostly riding in our current channel relationships, and there is overlap there, but I think there's a whole additional set of channel partners to exploit to your point. And so that's something that we will be working on over time as we go ahead and improve this. And obviously, we've been doing it. When we do it, we do it by the advantages we bring here is really powering all employees, your contact center employees, giving global coverage to those and these enhanced capabilities of SMS called used facts, things like that. So, we've been having a lot of success. I think there is an opportunity for a much bigger opportunity for success here.

And where are you with the ability to provision and support customers and just quality of the product and Teams?

Yes, it's a great question. We -- those customers are predominantly provisioned and deployed. And we work on quality of service -- uptime reliability of service is our core tenants, that's where we come from. And so I would say we have an ability to do that. We are still figuring out some of those components, but I think it's better than anyone else and a core special sauce for us to do that in a high quality and high reliability environment.

Thank you.

Thank you. The next question comes from Michael Funk with Bank of America. Please proceed.

Yes. Thank you for taking the question. It's good to be here. A couple if I could. First on the enterprise deal funnel, any kind of comment you can give on the change in the size of that funnel and then early and late stage?

We don't -- look, Mike, first, thank you for the recent initiation. It was a great read. I appreciate it. Second, look, we don't give those kind of funnel metrics. I think it would be inappropriate with -- we certainly know our competitors listen to our calls. And so I think it would just be the wrong thing to give out right now.

I can just try one time at least. So on the broader question of enterprise adoption. Obviously, there have been different rates of inflection over time for UCaaS and CCaaS. Can you just kind of peel apart kind of the broader acceleration in market adoption versus the success that you're having in terms of the market share gains?

The movement to the cloud has been occurring for almost a decade, but we barely scratched it. It's accelerated at this point. And the enterprises have been the latter ones to migrate over time. And so I still think there's a lot of large enterprises on legacy solutions. And -- but we are seeing a greater acceptance partly because of the work-from-home mandates. But partially, it also causes people realize that's where the innovation investment is going into the cloud solutions over legacy solutions. So I think when people are choosing their future platform, it's becoming obvious to move to a cloud platform in this next replacement cycle. That replacement cycle could still be up to 7 to 10 years. So I still think it's going to be a long run in that regard, but the propensity to move to cloud has increased.

Understood. And maybe kind of more quantitative then, how much breakage are you modeling into the Fuze acquisition? You mentioned earlier, you're modeling in some churn. How much breakage are you modeling in?

So by breakage you mean churn, right? So we --

Yes. Sure.

So I mean, you have some rough estimates of what their small base looks like, and I've taken industry norms and doubled it. So just to be safe, I doubled the industry average churn rate for their portfolio, and that's what I've been running through the model.

Great. Thank you, guys, so much. Appreciate it.

I think we have time for one more question, operator.

Absolutely. The last question comes from Ryan Koontz with Needham. Please proceed.

Thanks for the question. I wanted to double back on Teams a little bit more, and it sounds like an increasingly important part of your new bookings. Can you give us any help there? Is it I hear it's up 30% in terms of ARR? Is that Q-over-Q? Any more color you can give us on where that stands as a percentage of new enterprise bookings and things like that?

Yes. I think what we said is we -- a quarter ago, we said we had 100,000 users in the first five quarters of launching that, and that user number went up 30% quarter-over-quarter. The -- and then it is important but we are seeing it both on new bookings, but also even the land and expand deals I mentioned today Beam Suntory and London Borough of Newham. All have expansion of Teams also. So we're seeing it in both new and land-and-expand.

That’s helpful, Dave. Thank you.

There are no additional questions at this time, and that concludes the Q&A session. I will pass the conference back to the management team for closing remarks.

There's a record -- there's a replay from those days. There's a replay available on the web, and thank you very much for your time today.

That concludes the 8x8 Fiscal Q3 2022 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.