8x8 - Earnings Call - Q1 2026

Executive Summary

• EGHT returned to year-over-year growth: total revenue $181.4M (+1.8% YoY) and service revenue $176.3M (+2.0% YoY); non-GAAP diluted EPS was $0.08, in line-to-slightly above consensus, while gross margins compressed on a higher mix of usage-based CPaaS revenue.
• Q1 beat Wall Street revenue consensus by ~$3.4M and slightly exceeded EPS consensus; management highlighted FX tailwinds (~$1.7M) and record platform usage as drivers. Estimates: Revenue $178.0M*, EPS $0.0775* (actuals: $181.4M and $0.08) (*Values retrieved from S&P Global).
• Guidance updated: FY26 service revenue $685–$700M, total revenue $706–$720M, non-GAAP operating margin 8.5–9.5%, non-GAAP diluted EPS $0.28–$0.33, CFFO $35–$45M—lower EPS and margin ranges vs prior (Q4 FY25) outlook as the usage mix shifts margins downward.
• Potential stock reaction catalysts: sustained revenue return-to-growth, accelerating CPaaS/usage momentum (usage ~17% of service revenue vs ~12% last year), debt reduction ($15M prepaid in Q1; $219M reduced since Aug-2022) against margin headwinds and lowered FY EPS guide.

What Went Well and What Went Wrong

What Went Well

• Product-led momentum: “Our return to growth this quarter validates the strength of our platform strategy… product adoption has expanded, consumption-based revenue has accelerated” — CEO Samuel Wilson.
• CPaaS/usage surge: Platform usage revenue reached ~17% of service revenue (vs ~12% last year); consumption-based revenue grew >30% YoY, with messaging interactions >200% YoY and voice AI interactions >7x YoY.
• Balance sheet progress: $15M term loan prepayment in Q1; cumulative debt reduction ~$219M (≈40%) since Aug-2022; 1M shares repurchased for $1.8M; 18th consecutive quarter of positive operating cash flow ($11.9M).

What Went Wrong

• Margin compression: Non-GAAP gross margin fell to 67.8% (from 70.6% in Q1 FY25; 69.0% in Q4 FY25) due to a higher mix of lower-margin usage-based revenue; non-GAAP operating margin at 9.0% vs 11.3% in Q1 FY25.
• Profitability headwinds: Adjusted EBITDA $20.7M vs $25.8M in Q1 FY25; GAAP net loss -$4.3M (vs -$10.3M in Q1 FY25) despite revenue growth.
• FY guide stepped down: FY26 non-GAAP diluted EPS lowered to $0.28–$0.33 (prior $0.34–$0.37) and CFFO to $35–$45M (prior $40–$50M), reflecting gross margin pressure from mix and planned growth investments.

Transcript

Speaker 4

Today, and thank you for standing by. Welcome to the 8x8, Inc. Q1 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Patterson, Vice President of Finance. Please go ahead.

Speaker 2

Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for the first quarter of fiscal 2026 with Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks, there will be a question and answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including investments in innovation, our focus on profitability and cash flow, as well as statements regarding 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. All financial metrics that will be discussed on this call are non-GAAP unless otherwise noted. These non-GAAP metrics, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings press release and earnings presentation slides, which are available on 8x8's Investor Relations website at investors.8x8.com. With that, I will turn the call over to Samuel Wilson.

Speaker 3

Good afternoon, everyone, and thank you for joining us. Before I dive in, I want to take a moment to acknowledge our global 8x8 team. Your focus, your commitment, and your drive are what power this transformation. To our customers and partners, thank you. Your feedback and trust are foundational to everything we do. This quarter marked a big milestone. In Q1, we returned to year-over-year growth for the first time in nine quarters. We exceeded the midpoint of our service revenue guidance by more than $3 million. This growth was fueled by strong growth for our 8x8 CPaaS Solutions, continued momentum in platform adoption, a steady shift towards usage-based consumption models, and a small tailwind on FX. We are now seeing the headwinds from the fuse platform upgrade continue to recede. 8x8 is aligned with how the market is evolving.

Enterprises are shifting away from fixed-seat licenses and towards usage-based intelligent platforms. They are prioritizing solutions that are flexible, AI-enabled, and easy to integrate across their stack. Mettergy research really tells the story. Over 50% of CX leaders now prefer consumption-based pricing. Average handle times in live contact centers are increasing because automation is deflecting simpler requests, allowing agents to focus on higher-value conversations like upsells and account reviews. More than 50% of companies are using multiple AI tools, and over 70% expect to expand their usage in the coming year. Despite macro pressures, only 17% of enterprises plan to reduce customer engagement budgets. It is clear customer experience is undergoing a foundational shift. Enterprises are moving towards intelligent engagement models that combine AI-driven self-service with seamless human interaction, balancing scale and efficiency with trust and empathy. Change at this scale does not happen quietly.

Legacy vendors are responding with aggressive pricing and long-term lock-ins, trying to slow the pace of change and protect their installed base. That resistance introduces complexity even as the direction of travel is clear. For us, the opportunity is significant, and we are already aligned with where we believe the market is headed. Our rapid growth in 8x8 CPaaS Solutions reflects that alignment, as more customers tap into programmable voice, video, digital messaging, authentication, and AI-enabled workflows. At the same time, our UCaaS and CCaaS offerings continue to evolve, supporting more integrated, flexible deployments. Together, these trends signal a clear shift in how organizations engage, and we are building our platform to meet those needs. That said, this transition brings trade-offs: a different financial profile with higher growth but lower gross margins. It is a shift that scales and strengthens our competitive position over time.

That position starts with voice. There is a perception out there that voice is in decline. We see the opposite. Voice is still the fastest, most trusted way to resolve complex issues and build relationships. When it is clean, smart, and seamlessly integrated with AI, it becomes transformative. Voice is the primary way humans will communicate with AI, and our world-class voice infrastructure is an asset. This is where our expertise runs deep. Decades of experience in voice, global reach, clean audio, real-time transcription, multilingual accuracy, and intelligent routing. These are not easy things to replicate. As AI rewires customer experience, voice is becoming foundational again. We are uniquely positioned to lead because we are a modern business communications company. Let's talk about how we are delivering that today.

In Q1, consumption-based revenue, primarily 8x8 CPaaS Solutions, but also usage related to our UCaaS and CCaaS subscriptions, grew more than 30% year over year. It was not just about volume. We saw growth in new use cases, new channels, and more diverse engagement models. We are moving beyond SMS into programmable voice, alerts, authentication, and AI-driven workflows, and we are seeing real customer success stories. A UK-based utility used video in the contact center and 8x8 CPaaS messaging to reduce on-site troubleshooting visits by 40%. That freed up their engineers to focus on more strategic work and saved them a meaningful amount of money. A Melbourne-based leader in hospitality technology started with a simple SMS implementation back in 2023. Today, they have expanded to include WhatsApp, Fiverr, programmable voice, and authentication. We just added dScope, our identity and access management solution, to their footprint.

This is the power of our land and expand strategy. A Fortune 500 U.S. specialty retailer is running an RCS pilot integrated out of the box with 8x8's contact center. Initial use cases include order and delivery updates and appointment reminders with suggested replies, SMS fallback, and seamless agent handoff aimed at improving CSAT. We are continuing to see strength in Microsoft Teams environments. Sales of 8x8 Voice for Teams licenses grew more than 30% year over year again this quarter. We are now recognized as a top five Operator Connect partner worldwide by country reach, which gives us strong visibility in that ecosystem. Here's another great example of what that looks like in practice. A professional membership organization in the UK supporting thousands of engineers and technologists needed to unify voice, contact center, and CRM within Microsoft Teams.

With 8x8, they brought it all together into a single experience, streamlining agent workflows and improving service response times. These wins aren't isolated. The momentum is clear. Adoption of our intelligent customer assistant rose 75% year over year. Voice interactions grew more than 7x year over year, representing more than three quarters of all AI interactions this quarter. 8x8 communication API messaging interactions, such as WhatsApp, RCS, Viber, and Line, increased more than 200% year over year and more than 50% quarter on quarter. We're innovating rapidly, but more importantly, our customers are scaling with us. Let's shift gears a bit and talk about go-to-market. We're evolving in how we show up. We've moved from SKU-based selling to outcome-based selling.

We lead with solutions like 8x8 BallotIt, our government voting information solution, enhanced security using dScope and messaging, After Sale Assist, our automated post-sales self-service solution for retailers, not a features list. We are investing in customer success. We know customers with active CSMs have a higher NPS score and gross retention above 90%. That's why we're doubling down on high-touch support and AI-powered tools that help our customers unlock more value from the platform. We are also improving how we qualify and target accounts, focusing on those where our platform is the clearest fit and long-term upside. This approach is working. We closed our first ever seven-product customer. Amazing. Revenue from customers using three or more products now accounts for about one-third of our annual subscription revenue. Every single one of our top 10 new logo wins this quarter included multiple solutions.

One example that really illustrates this evolution: a public university in the Western United States ran an RFP for a contact center with more than 15 vendors, including all of the major players. Instead of a generic pitch, we built interactive proposals using AI to personalize each use case for each department and aligned our solutions directly to their goals. They chose 8x8 for their contact center and told us our customer-first approach sealed the deal. Another example: a global electrical systems company had been running a hybrid setup with us for UC and a third-party contact center provider. Over time, friction around analytics and reporting led them to standardize on 8x8 across the board. They needed to simplify operations with a consistent, scalable platform, and we delivered. Our channel partners continue to be a force multiplier as we make this transformation.

Our largest UK-based partner increased bookings by more than 100% year over year this quarter. That was a result of closer collaboration, co-selling from day one, and better alignment with our platform strategy. Now let me turn to where we're headed. As we look forward, our product roadmap is focused on continuing to enhance our platform with features and capabilities that add value and improve customer outcomes. That includes AI-enabled tools, but it also includes ongoing work to make the platform easier to use with a modern, intuitive interface, advanced data analytics that give our customers real-time visibility and actionable insights, and orchestration across bots, agents, and CX tools to create seamless experiences. We're investing in both internally developed innovations and deeper native integrations with technology partners from our ecosystem.

Key areas of focus include predictive customer journey orchestration, real-time sentiment analysis with automated escalation, and AI orchestration using internal and external tools, AI summarization across the platform, and others. These innovations will help differentiate our platform in competitive evaluations and, more importantly, they're grounded in real customer needs. We're also expanding internationally with a focus on industries undergoing transformation, like retail, healthcare, and government, where our compliance posture, self-service capabilities, and global infrastructure are real advantages. We're wrapping up a key chapter in our transformation. We remain on track to fully sunset the fuse platform by fiscal year end. That eliminates complexity, unlocks margin leverage, and frees up resources to focus on growth. Already, the upgraded fuse cohort delivered 94% gross retention and over 100% net revenue retention in Q1. Here is the bottom line: the foundations are strong, the strategy is clear, and execution is accelerating.

With our foundational expertise in voice, a capability many underestimate, we have a lasting edge as customer engagement enters a smarter, more connected era. To the 8x8 team, your resilience has made this return to growth possible. To our customers and partners, thank you for your trust and collaboration that guides us every day. To our shareholders, thank you for believing in our long-term vision. With that, I hand it over to Kevin to take you through more financial details.

Speaker 2

Thank you. Good afternoon, everyone. Today's agenda will include a review of our results for the first quarter of fiscal 2026 with Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks, there will be a question and answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including investments in innovation, our focus on profitability and cash flow, as well as statements regarding our business products and growth strategies. We caution you not to put undue reliance on these forward-looking statements, as they involve risks and uncertainty.

Speaker 3

Thanks, Sam. Good afternoon, everyone, and thank you for joining us on our first quarter fiscal 2026 earnings call. We delivered solid revenue performance in Q1, including a new record in communications platform usage revenue, solid profit margins, and another quarter of positive cash flow from operations. Q1 marked our 18th consecutive quarter of both positive cash flow from operations and non-GAAP operating income, further underscoring the durability of our financial model. During the quarter, we used operational discipline and strategic focus to navigate a complex macro and competitive landscape. Our platform usage revenue continues to grow at a faster rate, emphasizing our expanding market relevance and growing customer preference for consumption-based pricing models. This stream also provides a source of stability, as we remain focused on accelerating momentum in UC and contact center, particularly through AI-driven innovation and automation.

As we've discussed previously, our communications platform revenue, while strategically valuable, has a different margin profile, and its accelerated growth is starting to influence our overall gross margin. I'll speak more to this dynamic later. We continued our thoughtful approach to debt reduction, making a $15 million term loan prepayment during Q1. With this action, plus another $10 million repayment made just last week, we have reduced our debt principal by $219 million, or 40% since the August 2022 peak debt of $548 million. On July 29, subsequent to the end of Q1, we amended our term loan agreement to provide greater operational and financial flexibility.

The amendment maintains our total leverage covenant at its current level, consistent with the fixed nature of the secured leverage ratio, and also introduces a $25 million basket that allows for strategic acquisitions independent of a more restrictive leverage ratio embedded in the original agreement. While we have no imminent acquisitions pending, the added flexibility ensures we're well positioned to act efficiently if opportunities arise, all while continuing to manage the business strategically. Detailed financial results are available in our press release and trended financials on our Investor Relations site, but I'll walk through the key highlights. Unless otherwise noted, all figures, aside from revenue and cash flow, are on a non-GAAP basis. For Q1 2026, total revenue came in at $181.4 million, near the high end of guidance and reflecting strong execution across our business.

Service revenue was $176.3 million, above the high end of guidance and showing sequential growth and 2% year-over-year improvement. Usage-based revenue was approximately 17% of total service revenue, compared to approximately 12% in Q1 2025. The service revenue remaining on the fuse platform declined to approximately 4% from approximately 8% in Q1 2025. Excluding revenue from fuse customers, whether on the 8x8 platform or not, service revenue grew just over 5% year over year, higher growth than we achieved last quarter and our third quarter of acceleration. This reflects healthy demand for our core offerings and ongoing momentum in our go-to-market execution. We view this as a strong signal that our modernized platform, focused on reliability, integration, and innovation, is resonating with customers across the areas we serve.

Favorable FX relative to guidance contributed approximately $1.7 million to both service and total revenue, and we also saw a year-over-year FX tailwind to total revenue. Even on a constant currency basis, both service and total revenue grew slightly year over year, highlighting strong execution in our dynamic environment. Gross margin was 67.8%, down year over year and sequentially, primarily due to a mix shift toward our usage-based communication platform revenue, where we're continuing to see volume upside. On the expense side, FX also had an impact, though in the opposite direction, with currency movements driving higher CABs and operating expenses relative to guidance, offsetting the revenue tailwinds noted earlier. This reflects the natural hedge in our financial model. Nonetheless, we continued to spend wisely in the quarter to preserve our operating profit and delivered bottom-line results that met expectations.

Reported operating profit was within our guidance range, and operating margin was 9%. Importantly, pre-tax income improved both sequentially and year over year, reflecting the tangible benefit of our ongoing debt reduction efforts. Cash flow from operations exceeded $11 million for the quarter, and we ended the quarter with $82.2 million in cash, cash equivalents, and restricted cash. Cash collections remained healthy and supported strong operational cash generation, and we executed an opportunistic $1.8 million stock buyback during the quarter. With the debt prepayments, the repurchase of stock, as well as our programmatic net share settlement on equity vesting for Section 16 officers to reduce dilution, we returned more than $17 million to investors in the quarter through reduced dilution and debt paydown. Turning to GAAP metrics, stock-based compensation as a percentage of revenue was 3.5%, another multi-year low for the company.

This continues a clear downward trend in this expense, reflecting our focus on prudent equity management. While our diluted share count has grown, the year-over-year increase declined notably versus the prior quarter's growth. We are committed to minimizing dilution over time and managing compensation costs in a thoughtful and sustainable manner. We also made meaningful progress on GAAP profitability, marking our fourth consecutive quarter of positive GAAP operating income. Non-GAAP fully diluted EPS was $0.08 per share, landing right in the middle of our guidance range. Looking at Q2, our revenue guidance reflects a sequential decline following a particularly strong Q1 that included record platform usage revenue and favorable FX effects. While customer engagement remains healthy, we forecast growth in usage-based revenue somewhat more cautiously. In addition, FX volatility subsequent to our quarter end, particularly the strengthening of the U.S.

dollar against the British pound, has created a sequential revenue headwind for Q2 and the full year relative to the ending June 2025 FX rates. These dynamics do not reflect a change in underlying demand or customer momentum, and we remain confident in our long-term growth strategy and our ability to execute against it. We are guiding to lower gross margins for the remainder of the year due to the rapid growth of our communications platform solutions, which have a lower gross margin profile. Importantly, this trend reflects growing engagement with our platform and expanding use cases across our customer base. We are actively managing this evolution through innovative go-to-market motions, and we remain confident in our ability to drive durable long-term growth in the future.

Turning to guidance, for fiscal Q2 2026, we are providing the following guidance: service revenue is expected to be between $170 million and $175 million. Total revenue is anticipated to be between $175 million and $180 million. Please note that this range is negatively impacted by approximately $1.3 million due to unfavorable FX rate changes that have occurred since the end of June 2025. We anticipate gross margin between 66% and 68%, and we anticipate operating margin between 8% and 9%. In fiscal Q2, we expect contractual interest expense, which excludes amortization of debt issuance costs, to be approximately $4.4 million based on current interest rates and the principal outstanding on our term loan and 2028 convertible notes.

We expect to make cash interest payments of around $6.4 million as the semiannual interest on our 2028 convertible notes is payable during the quarter, along with the quarterly interest on our term loan. Our term loan interest rate assumption is approximately 7.35%, reflecting SOFR plus 3%. We anticipate fully diluted non-GAAP earnings per share in the range of $0.06 to $0.08 per share, based on diluted shares outstanding of about 142 million shares. We anticipate cash flow from operations to be between $3 million and $5 million, driven by the timing of certain payments we make in the normal course of business. For full fiscal year 2026, we are updating our guidance as follows: service revenue is anticipated to be between $685 million and $700 million. Total revenue is anticipated to be between $706 million and $720 million.

Please note that the Q1 2026 revenue beat is offset by unfavorable FX rate changes that have occurred since the end of June 2025. We anticipate gross margin to be between 66% and 68%. Full-year operating margin is projected between 8.5% and 9.5%, translating to non-GAAP operating income of approximately $64.2 million at the midpoint of our full-year revenue and operating margin guidance. We have decided to invest slightly more into growth, particularly in the usage-based portions of our business. Even with a year-over-year step-down in operating margin, driven primarily by gross margin pressure from revenue mix, we expect year-over-year non-GAAP net income to decline at a much slower rate than non-GAAP operating income. This reflects the continued benefit of significantly lower interest expense compared to fiscal 2025, which offsets most of the impact from the change in operating income.

We expect fully diluted non-GAAP earnings per share to be in the range of $0.28 to $0.33 per share for the year, assuming approximately 143 million average diluted shares outstanding, and we anticipate cash flow from operations to be between $35 million and $45 million for the full year. In closing, we are executing with focus in an environment that continues to evolve. I want to thank the entire 8x8 team for their hard work and dedication as we continue our ongoing journey to become a more agile, innovation-driven organization committed to delivering meaningful customer outcomes. With continued operational discipline and strategic clarity, we believe we are well positioned to create long-term value for all our stakeholders. With that, I will turn the call over for Q&A.

Speaker 4

As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. Our first question comes from Michael Joshua Nichols with B. Riley. Your line is open.

Speaker 0

Yeah, thanks for taking my question, and good to see the company back to service revenue growth. I know you mentioned there was a little bit of FX in there, but presumably, help walk me through a little bit. You're getting close to the ending of the fuse migration that's only 4% of revenue in the quarter. What does that look like in terms of the headwind that you've been seeing on growth more recently, and any color that you could provide on how many customers are left or what the type of churn that you're seeing in this final 4% of the customer base overall that you're looking to work through between now and fiscal year end?

Speaker 3

Hey, Josh. Thanks. This is Kevin. Yeah, so the fuse, as you heard in my remarks, there's a 5% underlying revenue growth in our business. The fuse headwind to our growth was about 3% in the last quarter. Yes, we have just under 4% of our service revenue left for the fuse base. We expect to keep roughly half of that as we migrate over to the 8x8 platform. The headwinds are actually subsiding quite a bit as we move forward. As far as the customers left, the count, I will say this. We've actually dispositioned all of the fuse customers.

What I mean by that is the customers have given an indication to us whether they're going to stay or leave, and we're working through the backlog of those customers remaining on the fuse platform to move them over to the 8x8 system by the end of the calendar year. We've made a really great amount of progress in the last, I would say, six months in accelerating that transition.

Speaker 1

Josh, just to add one thing. I know the half number seems like, wow, that's a big number that you're losing, but remember, the customers that are staying to the very end stay to the very end, and the customers that want to migrate off migrate off. That number is declining while the customers that are staying to the very end stay. It's just kind of a math function, less an actual honest-to-God function. Next year, we would expect that just given the comp stuff, it'll be about 1.5% of growth headwind for next year overall.

Speaker 0

Thanks. Just last question for me. Just to touch on the margin profile, I understand the usage-based margin profile is a bit lower, but admittedly growing much faster. What's the, when you look at the mix today, how do you think that's going to evolve between now and, say, like year end as a percentage of mix for usage-based versus like the traditional seat-based model?

Speaker 1

That's a great question, and it's a really difficult one to answer. We've been adding about 1% to 2% per quarter overall. I think we're at 17% now of revenue is usage-based. Remember, almost all the new products that are AI-based are usage-based. Plus, we have our 8x8 CPaaS Solutions business, which is usage-based, etc. All the tailwinds are really on that usage-based side of the business. As MetriGY even cited, over half of all buyers want to buy in that consumption-based model. I would expect it to continue to grow maybe 1% to 2% per quarter, but please don't hold me to that. It's a bit of a guess.

Speaker 0

Appreciate it. Thank you.

Speaker 4

Thank you. Our next question comes from Andrew King with Rosenblatt Securities. Your line is open.

Speaker 5

Hey, guys. Thanks for taking my question, Andrew King on here for Catherine Trebnik. Just recently, we've been seeing with this proliferation of disparate AI solutions that we've been starting to see a lot of other players starting to go out and buy to add on to their AI portfolio. Can you just give us an idea of how you weigh buying versus building, especially within the AI portfolio and AI space? Thank you.

Speaker 1

I would change your question just slightly because there's buy, there's build, and then there's partner. We've gone the route of build and partner, not necessarily buy. I think when you buy, you're basically buying an asset with a forever time period. With AI changing so rapidly, we like the optionality of partnering, and we like the optionality of partnering with best-in-breed providers, et cetera, et cetera. We offer a platform that either through our in-house AI development, for example, summarization across the board, industry-leading transcription using AI, agent assist, all those kinds of things, and our partnership strategy, giving you the best-in-breed providers on our platform is the optimal solution for solving the customer's problems today. I want to highlight it may not be the optimal solution from a Wall Street perspective, but it's absolutely the optimal solution from a customer perspective.

Speaker 5

Got it. Thank you.

Speaker 4

Thank you. Our next question comes from Michael James Turrin with Wells Fargo. Your line is open.

Speaker 6

Hey, great. This is Ronan on for Michael. Just one on revisiting a conversation that we've been talking about over the last few quarters. Anything you're noticing with legacy migrations? Have you noticed any uptick there from past, given we've seen companies like SAP now starting to see their cloud backlog accelerate? Are you seeing anything different on your end?

Speaker 1

When you say legacy migration, do you mean the on-prem vendors or do you mean our older customers? I guess I can ask you a question.

Speaker 6

The on-prem vendors, yeah.

Speaker 1

Sure. I mean, Avaya goes bankrupt every couple of years and then shrinks its EOLs, more products. We're seeing that clearly as a tailwind. Mitel just went in and out of bankruptcy. That's a tailwind. Obviously, the legacy vendors going through their trials and tribulations is a tailwind to the overall performance of the industry. I don't think we're the only ones to benefit from that. I think all of us benefit from that. Are we seeing an acceleration? Clearly, if you look at all the emerging AI technologies, they work better with native cloud-native products. If you want to adopt AI technologies, it needs to be based on open APIs and all those other things to make it work well, which really, you truly need a cloud-native communications platform to do that. Yeah, maybe, I guess would be the answer.

Speaker 6

Got it. Then just a follow-up. You talked about RCS a couple of times on the call. Wondering if you're seeing an uptick there, and maybe just like describe the opportunity set of what's ahead.

Speaker 1

RCS to me is, yes, we are seeing an acceleration in interest in RCS. We're currently in the U.S. We'll be in a number of European countries within the next three to four months. We're seeing a real uptick in interest in RCS. The fact that it has two-way capabilities, it's graphical, it allows for carousels and, you know, interactions with graphics and those kinds of things make it really, really super interesting to replace MMS. Actually, we're seeing a resurgence over WhatsApp in certain areas. We're currently carrying traffic in RCS in the U.S., and we've got it fully integrated in the contact center, which I think makes it extra attractive from a sending you a copy of your travel ticket or sending you detailed information or two-way conversations or any of those kinds of things. I think it's a big opportunity.

For us, what's interesting is an opportunity in the CPaaS business because we have all those capabilities. Obviously, we're a major player in usage in CPaaS in general.

Speaker 6

Great. Thanks.

Speaker 4

Thank you. Our next question comes from Jamie Reynolds with Morgan Stanley. Your line is open.

Speaker 6

Hey, you actually have Meta on. A question, a couple of questions. One, you had talked about increasing OpEx this year to kind of try to re-accelerate growth. Just by your guidance, it doesn't seem like you're kind of raising OpEx by all that much. I'm just kind of wondering how you're balancing that, you know, profitability versus growth for right now. Maybe the second question, you noted the CPaaS business growing. We're seeing a lot of growth. Where, from a geography basis, are you seeing that growth be most meaningful? Thanks.

Speaker 1

Okay. Two questions there, profitability versus growth. I'll start on that one, and then we'll cover geography, CPaaS geography second, and I'll let Kevin chime in on the first one as he sees fit. Yeah, we're not seeing, I mean, a huge increase in OpEx. We are moving it around. We're trying to get it to where it can get the most as we return to growth this quarter for the first time in nine quarters. Plus 1.9% growth overall and plus 5.1% ex-fuse. I think we're already on the trend, and we've seen three quarters of acceleration ex-fuse. I think our reallocation of expenses where it's finding its highest best use is on the right path. We have been investing a little bit more in the fuse migration, and overall, I mean, we were running double-digit operating margins just a few quarters ago. We're down slightly in that.

Now, FX and everything else will have some influences on that quarter to quarter, but you get the idea. The idea is we want to grow smartly and grow profitably. Right now, we're willing to take a little bit of a hit to op margins to get growth. As we get growth solidly installed in the system again, we'll attempt to grow revenues faster than we grow expenses and then bring margins back up over time. Kevin, anything you would add?

Speaker 3

No, I think you hit the point really is the reallocation, Meta, you know, and that's reallocation in both the COGS and OpEx line as we look at the usage-based business. That's the only thing I would highlight.

Speaker 1

Okay. On CPaaS, look, obviously, I'm going to give you a bit of a tale of two cities here answer. In terms of overall growth, obviously, our Asia business is the biggest part of it, and it's growing very rapidly, and it's pretty exciting, over 30% year over year. We're also seeing a lot of traction in the UK with multi-product customers. As I mentioned earlier, we're carrying RCS traffic in the U.S., which is causing our U.S. business as a percentage to grow fairly quickly. We are seeing growth fairly globally in the CPaaS business, with the largest raw dollar amount being in Asia.

Speaker 6

Great. Thanks.

Speaker 1

Thank you.

Speaker 4

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Samuel Wilson, CEO, for closing remarks.

Speaker 1

Thank you, everyone, for being on the call today. I also want to highlight on our Investor Relations page, we've published two letters, a shareholder letter and a financial highlights letter. As we evolve our Investor Relations strategy, we're now publishing letters. This is the first time. Please take a look at it. If you're interested in providing us any feedback, please let us know. Thank you for your time today.

Speaker 4

This concludes today's conference call. Thank you for participating. You may now disconnect.