Q2 2020 Earnings Call
Good evening My name is for Cheyenne I won't be your conference operator today at this time I watch welcome everyone to the a bite Inc. fiscal second quarter 2020 earnings Conference call I will now turn the call over to the Toria, Hi, Don head of Investor Relations.
Thank you good afternoon, and welcome to eight by second quarter fiscal 2020 earnings Conference call.
Joining me today are big Burma, Chief Executive Officer, and Steven Gado, Chief Financial Officer.
During today's call <expletive> will begin with business highlights of our second quarter performance.
Following that Stephen will provide details on our financial results and guidance.
After these prepared remarks, we look forward to taking your question.
Before we get started just a reminder, that our discussion today includes forward looking statements about a bright future business product and growth strategies third pursuant to the safe Harbor provision other private Securities Litigation Reform Act of 1995.
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 the forward looking statements as described in our risk factors in our reports filed with the FCC.
Any forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them.
In addition, some financial measures that will be discussed on this call together with year over year comparisons in some cases, we're not prepared in accordance with U.S. generally accepted accounting principles or gap.
A reconciliation of non-GAAP measures to the closest comparable GAAP measures its provided with our earnings press release, and Powerpoint presentation deck, which are available on our Investor Relations website.
With that let me turn the call over to Vic.
Thank you Victoria Good afternoon, Thank you for joining us today.
We delivered strong second quarter results with service revenue up 28.5% year over year, and total revenue up 27.8% year over year exceeding the high end up an angel outlook.
These results were driven by our up market focus on Midmarket enterprise customers continued strong channel performance. Good early see past contributions and accelerating traction internationally.
These results reflect improved go to market execution across our business.
We have seen solid growth in both direct and channel pipeline creation and good execution by our sales team in all geographies and for customers of all sizes.
Our strategy of owning a single global cloud technology platform enables us to innovate faster to disrupt for massive markets Unified Communications contact Center video meetings, and now communications platform as a service.
Today, I would like to focus my remarks on three topics.
Bookings performance.
Competitive environment.
Platform innovation.
[noise] first.
Total Q2 organic bookings grew 35% year over year and reached a new quarterly record.
Bookings growth was strong across the board and our results in Midmarket and enterprise were particularly encouraging.
Based on these strong bookings and contributions from sea path Midmarket eight are our grew 53% year over year and enterprise eight our our grew 83% year over year.
Contact center bookings represented about a quarter off our total new bookings and grew 41% year over year.
All geographies had strong bookings growth this quarter, but our UK business was particularly notable we then excess oh hundred percent bookings growth year over year.
We closed a number of large global deals, including a record eight bigger GCB deal with more than 30000 seat.
A significant contribution to our strong organic bookings performance came from our global channel partners.
We had several important channel accomplishments this quarter.
Channel bookings grew 80% year over year and channel partners were involved in seven of our top 10 deals.
We expanded our channel program to 19 strategic Masters, including the addition of Telkom consulting group and converged network services group.
Our child program now has over 900 active partners.
Eight by eight was honored to be named a partners Choice Award top overall supplier by Intelisys for demonstrating the highest level of excellence dedication support and value to intelisys and its sales partners.
Eight bite was also honored with the top vendors sales award at a bomb Special forces Summit Europe event last week.
We know our channel partners are critical to our ongoing success and we remain focused on winning together.
Our partners confirm that are fully owned global technology platform is driving the market to eight by eight.
A great channel when this quarter is an over 5000 seat deployment with indeed, a leading U.S. job search firm with a presence in over 60 countries.
They had been experiencing tremendous business growth and we're looking for a technology provider that could scale and rapidly deploy solutions to their expanding global offices and replaced a legacy on premise Shoretels system.
Indeed considered several other cloud providers and India and showed the eight by X series, including contact Center.
I also want to highlight recent momentum in the government vertical.
In the UK, we secured a b 3000, plus seat win with a local government service, which supports libraries social services any local education authority.
Eight paid was able to replace legacy systems with eight by X series, including contact Center.
In the U.S., we have been awarded a place on a cooperative government contract by NASPL, The National Association of state procurement officers.
This NASPL valuepoint contract for sled agencies state local education and special districts empowers eight by channel partners to work with these organizations through a simplified procurement process.
They are now able to purchase cloud communication solutions, including voice chat contact center video meetings and team messaging directly from eight bye.
Early child conversations indicate that the sled market is right for cloud adoption.
Another contributor to bookings growth was an expansion of more than 20% in the number of new logos added during the quarter.
A major driver of this result was the launch of eight bite Express our e-commerce offering that provides an easy self service path for small businesses do instantly moved their communications to the cloud.
Eight bite express we'll be launching in the UK in the near future as well.
As a final comment on bookings I'm delighted to see the land and expand continues to be the norm with our midmarket and enterprise customers as they see immediate value from initial deployments and look to standardize globally.
A great example of this is the age bigger TCB deal I mentioned earlier.
This customer started with us a year ago with 1000 seats and this quarter. They signed for another 30000 seats globally on the eight by X series platform.
The second topic I want to address is evolving competitive environment.
There have been a number of interesting developments in the competitive landscape over the past few weeks.
From a cloud you cast vendor linking arms with a legacy provider to a cloud video meetings provider that park as with the same you guess vendor announcing a competitive offer in the ucas space.
We have been asked whether any of these ecosystem changes create headwinds for eight bites disruption of the 60 billion dollar market available to us.
The short answer is quite the opposite if anything these changes are accelerating our opportunity.
Let me explain why.
First.
Anytime a legacy on premise provider with a large installed base announces that the future for their customers is cloud.
It brings more opportunities to us for those of US who were in the cloud to begin with.
Anytime customers make a change.
Moving to cloud is a change they want a choice.
Pushing more customers to change just bush's more customers into evaluations, where they buy eight.
It is increasing the number about bad but we are getting.
Second.
For customers, considering a shift to cloud the benefits of a single cloud platform technology are clear.
Do you want a unified data model. So you can optimize across your business.
Are you confident that your cloud road map is protected from future technology changes.
How would you like it if you're you cast provider changed its contact center partner just after you made a purchase.
How can you be sure that your video meetings will integrate well with your communication services.
We have eight consistent strategy and a consistent technology platform.
It helps us when other providers change horses mid Grace.
And when former partners begin to compete with each other.
Third something else, we know is that migrating smoothly to the cloud requires a close partnership between the customer cloud provider and channel partners.
This is what we do everyday migrating customers from Avaya, Cisco Shortell Mitel and other provider on premise solutions to our unified cloud platform.
There are more than 350 million legacy seats out there and we have solutions available today to migrate them to the cloud no need to wait for announcements to maybe turn into a products sometime in the future.
Finally, we can do even more to help these customer successfully moved to cloud solutions.
This morning, we announced a strategic partnership with two industry leaders poly and Scansource.
This joint Global program named cloud fuel will accelerate the process of replacing legacy on premise communications infrastructure, while ensuring organizations have proven technology to meet all of their needs a kratos unified communications collaboration and contact center.
This is the first time, a comprehensive frictionless hardware replacement and cloud migration program will be offered to the var community.
In addition to the agent community, which remains a major focus of our efforts going forward. We strongly believe that bars are an important and distinct path to the legacy installed base.
The bars have developed long term relationships with end customers and continue to serve as they trusted advisors as the world's shifts to cloud regardless of the original equipment vendor.
Using eight bites award, winning unified communications and contact center solution.
On eight bites single technology platform, along with best in class equipment from Poly and an extensive scansource network of more than 35000 resellers cloud feel will provide access to hundreds of thousands of customers across the globe.
Importantly, this program will allow bars to continues to sell the way they are used to selling.
For the first time, bringing true cloud communication services into the war bar model in a natural way.
This offering includes the full range of eight bite X series and Standalone solutions.
We will leverage frictionless migration tools and deployment services.
[noise] eight bite alongside a partners intends to invest in this partnership through various forms of incentives equipment buyback programs joint development funds dedicated resources and migration tools.
Since the product exist today and the Scansource sales team are already familiar with eight bites solutions, we will be able to begin selling under this program in December .
This is a game changer for the industry and we honor to partner with both poly and Scansource to help accelerate customers move to the cloud.
The last topic I would like to highlight is the accelerating pace of innovation on our single cloud platform.
Since we own the technology and have built it into a single platform. We can now innovate much faster than ever to deliver the future of business communications.
Let me touch on a few recent high points.
In September we launched eight by video meetings. It completely re imagined meeting solution available for all X series and express customers and provided complimentary as part of this service subscriptions.
We have received very positive early customer feedback and recently rolled out eight by it video meetings to all classic customers as well.
We are also working with early access customers and video conferencing equipment from partners to launch our eight eight meetings room solution.
The goal is to bring easy video collaboration to every huddle and conference room space within intuitive interface and smart pairing technology to connected devices.
This will be yet another opportunity for our partners and especially our bar community as many businesses preferred to have onsite installation handled by a reseller working directly with their cloud communications provider.
Next month, we will also be launching a standalone eight by video meeting service for new customers.
This new Standalone service allows users to easily schedule start and joint audio and eight hate HD video and audio conferencing from any device or room without the need to register or download software.
Eight bite video meetings will provide personalized meeting ideas and meetings rooms screen sharing remote keyboard and mouse control host and participant collaboration tool and meeting control for all participants and it will support meetings up any duration.
And this initial phase we plan to offer video meetings free to new customers to encourage adoption. The natural expansion opportunity is to them sell those customers Softphone voice chat or contact center solutions, we are X series offerings on the same platform.
Turning to see pass I'm pleased that integration of the wave. So acquisition is ahead of schedule.
In fact, we have seen cross sell opportunities in both directions materialize faster than we expected.
We are in discussions with several large eight by customers in both the U.S. and UK, who are interested in leveraging sea bass AB eyes to customize and extend our voice chat video and contact center got capabilities across the businesses.
This is in line with our strategy of tightly coupling sea bass capabilities with our pre packaged contact center solutions to enable a new level of customer engagement.
As we discussed when we announced the acquisition. This customization further increases both customer value and stickiness, which is why the land and expand part of our market become such a huge opportunity for us in our installed base.
We also continue to sign exciting news feed past customers onto the platform such as one of the fastest growing global hospitality companies with over 23000 locations in over 800 cities.
This customer is using our platform to differentiate in enhance their customer experiences with messaging that provides directions booking confirmations cancellation and payments services.
Finally, I am pleased to highlight industry recognition that further validates eight by its leadership.
Eight bite was named a leader in the 2019, Gartner Magic quadrant for unified Communications as a service worldwide for the eighth year in a row unique in our industry.
We will also named a challenger for the fifth consecutive year over year in the Gartner managed magic quadrant for contact center as a service North America.
Also eight bite was named the 2019 best cloud communications provider by USI today, which recognizes organizations that have proven market success and continue to push the boundaries of innovation.
These awards speak to the success of our strategy of innovation and how our single cloud technology platform helps companies to trends from communications and unified the needs of a global mobile workforce to enhance productivity for both employee and customer engagement.
Overall, approximately 32% of our installed base is on the eight by X series platform up from 26% last quarter.
In summary, I am pleased with our Q2 results.
Cloud technology platform and go to market execution are driving strong results across our business.
We see more customers starting to cloud and looking to us for solutions that are available today.
We're excited about cloud fuel our partnership with Scansource and poly I'm excited about the Ics accelerating pace of innovation on our platform.
Building on this momentum we look forward to the second half of our fiscal year.
I also want to take this opportunity to bank are 1800 global employees for their hard work and dedication as well as our customers and partners for their continued loyalty and support.
On to Steven.
Thanks, Good afternoon, everyone. Let me start first by reviewing the financial results for Q2, then ill discuss our outlook for Q3 and the remainder of fiscal 2020 will wrap up of course by opening the call. Your questions starting with our Q2 financial results, we executed very well across a number fronts and a strong demand environment for the.
By cloud technology platform, our differentiated and multi product growth platform is now bolstered with very strategic see past capabilities and is centered around our focus on improving our go to market execution and driving operating efficiencies. All of these elements came together in Q2 and generated solid financial results and a compelling path forward.
Total revenue for Q2 grew to $109.5 million up 27.8% year over year service revenue came in at $104.5 million, an increase of 28.5% year over year.
These topline results exceeded the high end of our guidance and were driven by four primary factors one strong execution in our go to market initiatives, particularly around pipeline generation continued strength with our channel partners to execution with mid market and large enterprise customers three strong organic bookings growth of 35.
<unk> percent from our you can see cast business across both new and existing customers and for solid contributions from our see pass offerings that includes the wave sell acquisition.
This drove execution across geographies customer sizes and product offerings more data points there our investments in pipeline generation activities and the channel are continuing to take root and drive sequential organic growth.
With that I'd like to briefly address our continued growth and they are where total air our came in at $390 million for the September quarter, a solid 34% year over year growth. This came from a combination of solid organic growth and are you can see cast business and contributions from our see pass offerings.
Meaningful driver of Q2 Air our growth included closing 30, new deals in the quarter that had air are in excess of $100000 and that represented 41% of new bookings up from 35% of the prior year in total we had 536 customers generating air are greater than $100000 in Q2.
Our strong 61% year over year growth.
And so far as air our by customer size, we saw another quarter of solid sequential growth in Q2 air our grew above market and small business at 18% year over year.
53% growth in the mid market and 83% year over year growth with our enterprise customers.
Combined the Midmarket and enterprise ARR grew 63% year over year up sequentially from 39% in Q1.
We continue to focus on Midmarket and enterprise customers that drive higher lifetime value and lower churn.
Turning to Q2 operating expenses the key takeaway is that we delivered on our operating efficiency improvement that we committed to both in total and on an individual line item basis.
non-GAAP sales and marketing expense improved to 46.9% of revenue in Q2 from 51.2% in Q1.
R&D improved to 13.5% of revenue in Q2 from 15% in Q1, and DNA improved to 12.8% in Q2 from 14% of revenue in Q1.
Finishing things out on Q2, non-GAAP pre tax net loss for the second quarter was approximately $15.8 million, but in our guidance and driven by both revenue outperformance and opex efficiencies.
With that let's turn to our financial outlook for the rest of the fiscal year, we continue to gain traction and execute on the channel as we are displacing on Prem legacy systems with more momentum.
Are you can see Cas offerings are being bolstered with the very strategic in high growth see past technology and capabilities from our expanded open API framework.
We are actively engaged with new and existing customers on numerous fronts.
As stated in this morning's announcement, we're aggressively going after the on Prem Ucas space to provide our unique and compelling single technology platform offerings to this untapped market.
As you just heard from Vic we partnered with Scansource and Poly key players in the space and the ones, who actually have direct access to and own the customer relationships to deliver a unique and compelling value prop to the var community.
To driver readiness go to market launch and accelerate custom migration tools with this new partnership, we're making a onetime investment of approximately $6 million to $8 million over the next two quarters. That's Q3 in Q4 fiscal 2020 and eight by migration tools marketing campaigns training.
And enablement activities and deployment services.
This investment speeds, our execution of bringing legacy Avaya, Cisco Mitel and other on Prem solutions customers rather onto the platform.
It's important to reiterate that this spend is nonrecurring it should not be baked into our run rate expense profile exiting fiscal 2020, and it does not change our path to profitability that I'll cover more in a moment.
This strategic partnership and our conversion of legacy on Prem accounts to the eight by platform as another data point on why we're bullish on both our continued bookings and revenue growth and our ability to drive operating inefficiencies.
Pulling this together.
We're establishing our guidance for Q3 fiscal 2020 as follows.
We anticipate total revenue to be in the range of $113.5 million to $114.5 million, representing 26% to 27% year over year growth. We anticipate service revenue to be in the range of $109 million to $110 million, representing an increase sequentially year over year revenue growth of.
27% to 28%.
And we anticipate non-GAAP pre tax loss to be approximately $16.5 million.
Looking at the full year fiscal 2020, we are raising our previous previously issued revenue guidance. We anticipate total revenue to now be approximately $440 million, representing 25% growth over fiscal 2019, and we anticipate service revenue to be approximately $422 million or 26.
6% year over year growth.
Our non-GAAP pre tax loss were adding $7 million of nonrecurring expense to our existing guidance of $53 million for investments in support of our new Scansource Poly partnership.
That brings our full year fiscal 2020, non-GAAP pre tax loss to approximately $60 million.
In summary, we're very pleased with our revenue EMR and operating expense performance in Q2, we saw strong combinations and contributions from our Midmarket and enterprise businesses and the channel overhaul that we drove at the beginning of the year continues to perform and show momentum.
We're equally encouraged with the trajectory that were on that both driving and benefiting from continuing revenue growth acceleration and operating efficiency improvements. We continue to follow our path to profitability and we're on track to achieve non-GAAP breakeven exiting next fiscal year end March 2021 as.
We previously communicated.
We remain well positioned in the $60 billion cloud communications market as a leading provider of voice video meetings chat team messaging contact center and an enterprise grade API platform.
We expect to continue winning business from legacy on Prem solutions, and we continue to differentiate ourselves from other cloud providers.
With that we appreciate your support and we'll now open the call for any questions operator.
Ladies and gentlemen at this time you feel about you asked a question. Please press Star then number one on your telephone keypad again, starting in number one to ask a question.
Our first question a many Marshall with Morgan Stanley .
Hi, Tim This is Eric on for me to thanks for taking our question maybe just to start you off with a telephonic congrats on the quarter, but just taking a look at gross margins can you help us better understand what drove the sequential decrease whether it was the growth in larger deals or the contribution from sea pass or just any.
Thanks.
Let's get a better sense of the driver there.
Sure sure. Thanks.
It really three three things and almost equal measure one it was what you said, which was the contribution from the C path.
Product offerings of a little bit lower margin profile and the revenue on that piece the business outperformed a bit more so in more of that revenue.
Two we have been offshoring some of our cost structure, both on a cogs basis as well as on the Opex side, we had a little bit of a delay probably 30 day delay on moving some of those offshore we've since done that but that contributed to a little bit higher cost structure and then third you probably saw also that we had.
Some nice growth in product revenue and that comes with a little bit.
Lower margin gross margin.
Thank you that's helpful. And then just on the smaller and is there anything you're seeing around kind of increased pricing competition.
Particularly is some newer competitors may be entering the market or something we should be mindful there.
Yes, and no. So the no part is.
Ecommerce actually which we launched around July timeframe has performed much better than expected and thats for the one to nine seats, which is completely self service and completely automated. So you you can order provision and get support et cetera, and it's completely automated and limited amount of effort involved and thats.
Priced in the.
I think good 12, 99, or so range. So the idea is that I think has given us a huge competitive edge because for us thats a very attractive.
Entry point, because in essence, you're not using any salespeople for that it's completely E. Commerce. So that's address that lower end of the market and frankly that drove quite a bit of new logos, which over time or upgrading to X series and others. We saw at 20% sequential increase in new logos and E. Commerce was a key can.
Attributed and keep in mind it was only on for two months of the quarter.
That's awesome, Thank you and congrats again.
Thanks, Thank you.
Your next question Atlanta, Georgia fun with Craig Hallum.
Thank you Vic I wondered if you could walk through the uniqueness of the go to market with the quality in the Scansource and I ask it in this context. They obviously have other partners actually spoke with a couple poly salespeople to David really Couldnt explain what was different so love you to walk through that.
If you could.
Highly recommend you Rick.
Highly recommend you reach out to Joe Berkman, who should be a falling and you should be able to explain because he is very excited about the partnership. So let me kind of addressed it at a macro level the macro level is.
We obviously have had a lot of luck, we'd be agent community and the master subs, and we continue to expand and Ics and.
Accelerate that what our learnings is is that in for the legacy on premise guys. The bars have a lot of the relationships and frankly most of the power Scansource is a bias I believe largest distributor and has approximately 35000.
And resellers and in the neighborhood of 10 to 20 million seeds are controlled through EVIA of ours.
Our through a scam sources bars, who basically sell up by equipment. So they have all the knowledge of the customers.
Ali and Scansource and us Bali is going to make.
A program available through this program called cloud fuel.
We will be able to.
Subsidized the move from a via phone. Some other folks have basically said they will try and support obsolete of I have phones will be able to basically provide a modern phones and polyols subsidize that and create a buyback program scansource will basically enabling train their vars to be able to seller cloud offer.
Irene and we will have a wholesale relationship with Scansource and we will train Scansource, which will then go out and trained of ours. The reason. This is interesting is it comes down to the fact as you know the traditional telco market has been control to a large degree by vars and they're used to providing value added services to their end use.
Customers. This allows them to sell exactly the way they have been used to selling and because we have one unified platform. They can start with ucas, but they can also sell contact center. They can also some meeting rooms, which provide opportunities for value added services and make some hugely relevant so for US we think for a fraction of the investment.
Anybody else, we've gotten to the Vars, who control the end users, which as opposed to the original equipment manufacturer. That's why we think this is such a great deal and it's been a longtime in process.
Great I wondered if you could also walk through the.
30000 seats deal, which is a significant size deal.
How does that come along how does that migrate from the thousand seat.
One of the sense of how replicable this is over time.
A key element of our business is land and expand and one of the key things is we deployed approximately 1000 seats, primarily in North America and base.
We're very happy with the service and they've expanded a globally.
And it's about 30000 seats is a very large company.
And they are using this essentially to do complete transformation of their entire business. We started off essentially with the local office here headquarters heard about it we rolled it out to headquarters headquarters loved it they've rolled it out everywhere and that was the key and so it's this is the great.
Idea for SaaS business, but more importantly, also the concept of one unified platform once you're able to go and provide one set of services in one geography, you're able to add additional services and you're able to add everything from contact center two meetings to whatever and in this particular instance, as I said, we started off with a local office in the U.S. and expand.
Globally and a 30000 seats is is probably the largest initial order we've ever had.
Oh, that's a great deal a one thing for seems like but did you give the wave so revenue impact in the quarter.
We haven't we we didn't break out that product line consistent with how we don't break out the others.
Thanks.
Thanks.
Your next question line Orion Mcwilliams with Stephens, Inc.
Yes.
Hey, guys. Congrats on the quarter just one question for me today looks like contact center sales in bookings have been picking up.
Is there anything, particularly here that that are resonating either with the channel or direct salesforce.
Yes, two things so one I want to emphasize this part.
From top to bottom total bookings, which is not a metric we have traditionally disclose but the reason we chose to disclose it is we wanted to give you guys a sense of the core health of the organic business.
35% growth of the organic business in terms of total bookings total new bookings and this is from one seat all the way up to 30000 seat.
Second contact center represented about a quarter of that total bookings and that grew 41%. So what it's telling you is can we were relatively late into the contact center and it's our contact center has been growing up what it's starting to tell you is both as combo deals as well as Standalone contact center starting to come.
To its own and now represents about a quarter or find new bookings and we see that accelerating I mean, obviously growing faster than the overall total bookings of the company.
Great. Thanks for taking my question.
Thanks, Mike.
Next question when a mad at them dealt with Stifel.
Yes. Thank you for taking my question.
I guess first I wanted to dig in and in terms of what what's the early reaction has been to the new video meetings products and how how youre going to physician that from the go to market perspective, but it's more generally available.
Got it so I'll break it into two parts. So the meeting solution is.
Initially what we did as we offered into all of our X series folks as a complementary basis and actually it was good good reaction there because I think the view is it's very comparable to the industry, leading its high definition. Its web RTC. So you can actually enter from a web browser without having to download an app.
You have all of the basic.
Participant control content sharing high definition, and obviously, we are well known for voice so across the board. The reaction was good we then.
Rolled it out to all our classic legacy users as well so that everybody had access to meetings. Our initial around middle of November is when we will be launching our standalone meetings product. The standalone meetings initial would be provided free where you literally we'll be able to go get into a web site not even have to register and get involved.
And start using it that will be no limits in terms of the meeting duration.
And the key goal for US is to drive adoption. That's the number one goal for us remember for US. It's all about the platform meetings is one part of the platform meeting that gives us a very logical way for us to upsell soft phones voice contact center et cetera to that customer base and then over time, we'll continue to add more and more.
Features to meetings and make it.
As I said, even more valuable but the part that I think you will find and when you do a comparison between us and all of the various other meeting products and we'll we'll make sure that you guys have all of this information mid November you get a sense. What we've got is very close to the top of the line in the industry second part is we also launched in early.
The access to meeting rooms. This is conference rooms, and the thing that has unique about Alice is we are able to leverage essentially commodity hardware. So you can use the TV you can use an iPad and you can use us simple cameras and now you've turned yourself into a complete.
Hi definition conference room, and you can have these conference room meetings, where you can do one touch we did early access for a few key customers and a limited number of bars.
There has been a lot of excitement about that particularly amongst the var community because they view this as an opportunity to go in and create conference rooms for all of their customers, where they will go in and they'll install the TV and the cameras et cetera, we provide all of the software. So we see big opportunities for adoption, there as well and that's when obviously will be a paid service.
So this acquisition, we did less than a year ago, and it's been phenomenal for us.
And then turning to the international opportunities, obviously waves. So it opens up market than maybe you have been historically been as penetrated in curious if you're seeing any early traction in terms of selling your.
Your platform into the existing waived sell customers and any or what the pipeline is looking like as you turn to those existing relationships.
And across the upsell opportunity.
That's actually a as I mentioned my remarks, we have been actually pleasantly surprised by how quickly there or how much demand has picked up both within.
The wave sell installed base, which particularly for contact center and this is why I think there was an earlier question about.
Contact center coming into into its own there is a huge pool for a lot of waves of customers to add contact center, because see fast and contact center go very well together because in essence into we have customizing your interactions with customers and enhances customer engagement, we're seeing exactly the same thing happen with some of our.
Largest customers in us and UK that have contact center, they actually want to see past added very quickly and to the extent that we are actually accelerating the move of bringing the wave so capability into the us and to UK and as a matter of fact, we'll we'll have a few announcements over that over the next few months, but.
The uptake in the tight integration between our contact center and sea bass has been much more than we anticipated.
Great. Thank you.
Your next question a line of James brand with William Blair.
Thanks for taking the question can you just talked about.
Mentioned that you saw a little bit of course as he passed this quarter on wondering what drove that and if you can give any examples of used cases, you're seeing if you're talking to customers.
And additionally, within that segment.
You got oval office.
Thanks.
So I think you were asking for use cases for weeks. So I mean, the I think it's more see pass so let's start talking about some of the larger customers.
One of our largest customers does everything from.
Bookings of rental units et cetera, they want to now you see past capability to go in and do the bookings confirmation and send the alerts as well as information away. The keys are in and also they want the ability to know when somebody is geographically in a close enough area. So they can go alert.
The homeowner et cetera, so that's the kind of applications where people want.
We are we gave an example today have a major hospitality chain, which is using thepast technology to go in and.
Do everything from directions to being able to basically do billing, albeit mobile phone.
And then finally, we are seeing chat applications for contact center, we're seeing that people want to integrate contact center to reach at Whatsapp et cetera, and those capabilities is enabled by sea passed and we are finding that that is one and that's actually has been an interesting one where chat applications tightly integrated with contact.
Center is how customers want to communicate with contact centers and sea bass enables that and us in UK customers are increasingly focusing on what SAP and we chat and other chat applications as a tight integration into the contact center and see Thats unable to that.
And you mentioned that growth in that setting is getting acquittal, maybe a little heavier vacations that good estimate from existing customers its of the new logos.
Yes, it's a little bit of everything its growth from usage of existing customers, adding customers and adding geography. So it's really all three.
Great. Thank you.
Yeah sure. Thanks.
Your next question line of Andrew King Daughtery in company.
Andrew Your line is open.
Okay.
No response from Andrews line.
Next question comes from the line of trolley Acar with Baird.
Yeah, Hey, guys. Thanks for taking my question and congrats on the quarter.
So with that 35% organic bookings growth, which is really excellent.
Continued strong channel bookings as well because my question is why not raise guidance by more but it seems like because it really strong numbers and kind of wondering how those plan to the guide and what we can expect those bookings numbers going forward.
Yeah, Hey, Charlie Thanks, So I.
Let me candidly, we're very pleased with the.
Quarter, we're pleased with the trajectory we like what we're seeing.
And candidly, we're we're one quarter out on really growing the C pass business organically and Inorganically, both and we are just plain and candidly very thoughtfully and watching as things go and no one wants to get out over their skis and.
And be silly about managing expectations internally or externally.
And I'll add one more I mean, as you think about it I don't know, what's your thoughts or the currency has been quite fascinating because.
We had this beat.
This quarter, despite some currency fluctuations.
And you're seeing all of that happened all over the world So from that perspective.
We feel pretty comfortable with the guidance we have provided.
Fair enough thanks, guys.
Yes. Thanks.
And your next question line, a rich Valera with Needham and company.
Hi, guys. This is neat trick on for rich Thanks for taking my question.
Just want to.
Look at contact center, a little bit more so I know last quarter, you guys provided metrics regarding 30, 30% of them in enterprise bookings were standalone.
And then stand onto our was up 35% and was wondering.
If the 24% of total bookings metric for this quarter, but was wondering if you could provide.
Any additional contact contacts there and then.
Yeah, well, sorry, I guess.
Yes, I mean, the point I would make is strength across the board I mean, the reason we provided if you think about it midmarket and enterprise bookings is approximately can remember 60% of our bookings.
We said contact center this quarter was approximately 25% of quarter of our total bookings contact centers now starting to permit every segment of the market all geographies.
Thats, Great news for us because that basically says that that one platform that we are coming up with applies to every segment that we go after and total contact center skews group essentially by 41% so faster than our total bookings. So I mean I can't be more pleased with contact center tells you that being best.
Once we have made in context and over the years is starting to bear fruit and it also gives you a sense of the strength of our model because we have one platform that one platform has essentially of PBX replacement. It has meetings that has contact center. It has eight the ice and it has the ability to do collaboration and so when you add all of those things to.
Whether we are able to mix and match different things in each of these things has different growth rates that we can leverage and we're able to be flexible. So we can partner, where we need to and we're not this one trick pony, where all by the way if somebody enters this particular market. If somebody starts to compete in that particular market, where stock we're able to move around and different parts of.
Portfolio grow and add value to different customers.
Okay, great. Thank you so.
Then I guess switching gears a little bit.
More into the.
Figures TCV deal.
Thank you about how the Rev rec for that deal on how to.
How to look at that and once you can provide I additional context around the duration.
On anything there.
Yes, the duration is pretty consistent with.
Enterprise contracts the on the three years of code and it's a SaaS model. So there's no magic and so far as Rev. Rec. It begins basically being taken on the subscription piece ratably.
It does include some amount of services, obviously, but the subscription portion kicks in immediately.
Okay great.
Yes sure.
Your next question on line of Genentech Keys with summit insight group.
Great. Thanks for taking my questions and.
My.
Congrats also to the numbers.
I wanted ask about the new partnerships with Scansource and poly.
Hey, you guys talked about.
The training and.
These investments, you're making terms of them getting the resellers getting the partnership to speed in terms of a solution and even I guess purchasing some of the older via phones I guess.
On that tenor what Tim.
Kind of financial incentives are you, providing or are you for like Scansource.
Resellers to so your solution versus a virus new cloud partner.
And also for a Polly I know said video was not there in terms of the.
Partnership if you have customers asking for video what happens there and is there also financial incentive therefore poly do.
So your solution versus someone else.
Yes, so a couple of things so, let's let's macro.
We don't fully understand and I think neither do.
Neither does scansource, our avaya resellers as to exactly what the other offering is this seems to quite a bit of confusion and it's unclear whose paper it's being sold on what the main model that we are doing and the reason scansource came to us and Mike Baur, Joe Bolton I have been spending some time on this.
Idea is.
Scansource believes that they have var community wants to be able to sell the way they are used to selling and they feel like that is being disrupted right now with some of them changes in the industry. The way they used to selling is essentially on their paper essentially buying wholesale from the original equipment manufacturer and then selling it on their paper and providing.
You added services that is not the model that has been currently contemplated by some of our competitors. So the way we're doing it is because we own the entire platform I have everything from voice video contact center collaboration data analytics, all built onto one platform. We have also spend a lot of money over the years on biz apps to.
And the idea is we have created something called partner exchange, where a distributor order bar can buy essentially wholesale from us and then on their paper provide a quote to the end user customer and everything gets provision instantly. So you get the benefit of clouds literally the moment that place an order with us it gets.
Instantly provision for the end user, but the var is providing it on their paper from our perspective, we love it because in essence. The var has a level of customer intimacy that we do not have and nor can we ever recreate it because its years and years of off.
Time, and energy and so it is a frictionless way for us to ensure that we get much more add backs and again thats, what I said scansource as as a distributor Scansource I believe is a buy as largest distributor and has tens of millions of end users are a seats of.
Hi of seats that are controlled through their var channel. There var channel has been clamoring for solution that they can resell and provide value added services, but logical value added services. You provide is on contact center you provided in huddle rooms, and meeting rooms visa all capabilities. So the training that we're doing is basically train scansource is setting up district or.
Training centers, which they do as part of their current on premise business Redondo migrate to the var business, where they will train all of their vars enable all of their bars create the collateral material to health of ours go to end user customers. So it's a new way to go to market, but it's using the traditional way that bars have been used to selling and.
The big Misnomer has been that the original equipment manufactured does not have control over the customer the vars have control more often than not because they're the trusted advisor and we're enabling vars to sell the way they used to selling we think the way we are moving about it we obviously monitored via via deal for quite some time, and obviously had some thoughts on it.
But we felt this was a better way to go to market because we felt that the real power was with the bars.
Okay, all right, that's certainly makes sense.
Thanks for that Vic I next question's for Steve I get what you're seeing in terms of you don't disclose wave cells revenue contribution, but can you. Please talk about the of the growth year over year growth for the sea bass business.
Yes. It was it was really strong.
North of 50%.
For sure and candidly as we get more time in the business and it becomes more season, we'll look to provide more metrics on the business as we have.
Every quarter, we've come out with additional operating metrics to give people a sense.
You know, we're we're about 90 days and or so.
So, we'll we'll definitely provide more but the business is growing strong and it's been consistent with what we've seen and what people have known is out there and so.
Continues to perform well no no surprises in in either direction.
Great look forward to it thank you very much.
Yes sure. Thank you.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key.
Your next question line of Josh Nichols would be Raleigh FBR.
Yes, thanks for taking my question.
Since the Q is now you could you just give me a breakout for the revenue split between.
U.S. UK and APAC.
The Q will be out.
Tonight, most likely in May hit Tomorrow, generally speaking the revenue contribution which is different than our bookings contribution right for example.
Revenue out of.
Revenue out of.
Outside the US is in the 15% ZIP code, whereas it's roughly.
25% of our bookings.
Okay.
And you said.
So historically like last quarter like UK has been 10% right, but you're saying now revenue from outside the U.S. as 15, but 25% of bookings correct.
That's right.
Got it and then.
I guess.
I just want to get a little bit of a better handle so.
Wave shows grown faster for the sea bass business.
So I guess fair to assume.
For the margin outlook is this level of Q2 margin.
Probably maybe going to come down a little bit further since waves. So to see pass is growing faster owners generally.
Lower margins associated with that business is a relatively a fair assumption to think about going forward.
No not not not materially.
And so we expect the margin profile to increase overtime.
To the extent that the see past business globally.
Accelerates and performed even more that might be a reason why gross margin could come down a bit but thats not what we expect.
<unk>.
And then do you have any targets, we used to talk about operating targets for like the common size.
R&D sales and marketing now that.
This acquisition has been done what you're thinking for for the Threeq, you or as we look a little bit few quarters out for fourth those targets, maybe on a percentage basis.
So we have not laid out specific numerical targets, but we have communicated and committed to and candidly delivered in this quarter and expect to continue to deliver is improving on our operating efficiencies and so the whole notion of business model efficiency on the Opex line for us.
All three areas as sales market NGL <unk> and R&D is something we delivered in Q2, and we expect to continue to see efficiency improvements through the year through each quarter not every line item every quarter, a big improvement, but net net it should improve and most line items should improve as we continue to move forward.
And then just trying to.
Got it back towards the from the GAAP to non-GAAP like.
Add back items of increased a lot that cash burns kind of accelerated peak of like 36 million. It looks like a free cash flow for for this quarter on a burn rate is that fair you probably going to expect to see like this 25 million level of add back items going forward. Once you factor in the amortization DNA stock comp and all the other item.
Is that fair run rate.
Probably a fair run rate on the recurring depreciable base of shouldn't materially.
Different next quarter for some of those noncash items.
Mhm and then last question I'm, just kind of wanted to get a little bit more clarity someone asked before so I understand that the company's being.
Potentially.
Only one quarter with wave. So so only taking guide it's up modestly for the year, but I'm a little bit surprised given that you had this big 30000 feet when its largest in the company's history and then on top of that you have this new partnership it's going to be launching in another month or so.
As you invest in $7 million in that partnership, but you're not really taking revenue guidance up very materially and just kind of triangulate in all those three like what's the explanation for that.
Besides just waves fill in potentially being conservative on that front.
The explanation is that the company has been posting revenue growth in the 18, 19% ZIP code for the last several quarters, we committed to growing revenue. We did a terrific lease strategic an important product addition to the platform, that's generating revenue and being integrated nicely and we just.
Raise guidance effectively from after delivering a quarter of 28% revenue growth and now we're guiding to similar levels of revenue growth and we and our largest stockholders and our board feel pretty good about that so we don't have an issue with that right and I'll add one more on the Scansource one.
Scansource Youve Scansource is enterprise customers from the time, you invest add to the time you turns to revenue is is a nine month timeframe.
Steven said, we're very comfortable with the guidance increasingly bullish about the company pretty much every geography performed well NZ did very well UK had their best quarter ever.
Could you break so continues to perform contact centers performing well the concept of one platform is starting to all come together.
Just need to develop a muscle of continuing to have solid guidance and keep beating it and then one quarter does not a trend make but keep going.
And then how much are happy to keep raising it more.
Okay. Thanks, guys.
Thanks, Thank you very much and then other questions at this time.
Thanks, operator, thanks, everyone. Thank everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.