Q1 2021 Avaya Holdings Corp Earnings Call
Greetings and welcome to the fiscal first quarter 'twenty 'twenty One conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press <unk>.
Star Zero on your telephone keypad as a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Michael Mccarthy Vice President of Investor Relations. Please go ahead, Sir you may begin.
Thank you and welcome to our buyers fiscal 2021, Q1, investor call and Jim <unk>, our president and CEO and Kieran Mcgrath, our executive Vice President and CFO will lead this morning's call and share with you. Some prepared remarks before taking your questions. Joining them. This morning will be Anthony Bartolo, our chief product Officer, Steven Spears.
Our chief revenue Officer, and Dennis Kozak, Senior Vice President of Global Channel.
Distant with social distancing mandates each of us on this morning's call are assembled from our remote locations.
The earnings release, and Investor slides referenced on this morning's call are accessible on the investor page of our website as well as and the 8-K filed today with the SEC, which should aid and your understanding of <unk> financial results all financial metrics referenced on this call on non-GAAP with the exception of revenue, which we report on a GAAP basis, now and going forward.
And since it's now comparable on year on year GAAP basis due to the immateriality of past fresh start accounting adjustments. We have included a reconciliation of such non-GAAP metrics to GAAP and the earnings release and Investor slides.
We may make forward looking statements that are based on current expectations and forecasts and assumptions, which remain subject to risks and uncertainties that could cause actual results to differ materially and.
In particular, the global economy continues to be impacted by COVID-19, and to the extent its continued impact on our business and debt by our customers partners and suppliers will depend on a number of factors that include but may not be limited to severity and duration as well as actions taken or not taken by governments businesses and consumers and respond.
As to the pandemic all of which continue to evolve and remain uncertain at this time.
Information about risks and uncertainties, maybe found on our most recent filings with the SEC, including our form 10-K.
Tobias policy not to reiterate guidance and we undertake no obligations to update or revise forward looking statements and the event facts or circumstances change, except as otherwise required by law I will now turn the call over to Jim.
Thanks, Mike.
Everyone and thank you for joining the call today IMAX.
I'm excited to share of ice Q1 results and provide the details and color on what is an exceptional start to our fiscal year.
Building on the momentum we created in 'twenty and 'twenty, we emerged even stronger.
We delivered our third consecutive quarter of year over year revenue growth and exceeded our guidance across all metrics.
Our success reflects the team's commitment to execute the strategy, we put in place three years ago to transform Avaya, two and enterprise leader and cloud based communication and collaboration solutions.
This strategy has put US ahead of the curve and helping customers through their digital transformation journeys and work from anywhere initiatives. These significant and lasting changes to the way. We all work have been accelerated and amplified by today's operating realities.
It is clear customers are increasingly choosing us to help shape and power them along their journeys and it's equally clear our expertise scale global reach breadth of solutions and innovation at the edge are key differentiators as to why they are turning to avaya.
We have worked hard and structurally improve the business on a number of fronts.
And it shows and our numbers.
We've executed on a series of important initiatives and focused our efforts time and investments to redefine avaya as a cloud company.
To gauge our strength and cloud.
Just last quarter, we announced that we would be reporting error as a key performance metric.
A watershed moment for the company.
In Q1.
<unk> was up 38% sequentially.
That represents growth of over $70 million and our total a R. R. Now stands at over $260 million.
And while we saw a growth across all areas of the business contact center and particular was a significant driver increasing 44% sequentially.
Secondly.
Revenue from our cloud alliance partner and subscription growth engines I E caps.
Has more than doubled from a year ago.
Ending the quarter at 34 per cent of total revenue.
This is remarkable progress and just one year and.
And caps remains on track to be a billion dollar business by year and further proof we are on the right trajectory.
Third our success is not just from activating our massive base.
In fact, Q1, we signed over 1600, new logos displacing a significant number of competitors.
What's especially noteworthy is the mix shift to new logos, consisting of cloud and subscription and Q1 40 per cent of new logos were cloud and subscription and.
And increase of 29% from the prior quarter.
Our ability to sign new customers and a highly competitive market underscores the advancements we've made and our investments and new solutions will continue to contribute and a bigger way each and every quarter.
As I look ahead, what gives me confidence and our ability to drive sustainable growth is the improvement, we see and overall bookings bookings.
Bookings are a leading indicator and represent the traction and our new solutions and services.
Total bookings have grown sequentially in each of the last four consecutive quarters Avaya, one cloud, which includes public private and hybrid solutions has more than doubled during this period contact center remains particularly strong and I'll share more in a moment.
I also want to take a moment to emphasize and important distinction regarding avaya as we execute on our transformation.
We are built for profitable growth and through disciplined execution, we continue to drive high margins, even as we execute the transition from a product and perpetual business model to a recurring one.
To sum up this quarter.
We delivered adjusted EBITDA at $190 million or 25.6 per cent of revenue.
Up approximately 10% from the prior year and above our guidance and.
And we finished with solid free cash flow and a strong cash position.
Having worked through these unprecedented times over the past many months the.
And the Avaya team kept its eye on the ball met challenges and opportunities head on while staying true to our strategy.
As a result, our investments and innovation are paying off we are delivering significant value to our customers and our ecosystem of partners is a real differentiator.
Our growth is broad based and Leverages, our strength and the enterprise.
Across new and existing customers across new solution areas as well as core and in particular and cloud and subscription.
What is even more encouraging is that our solution portfolio has many unique attributes versus others and our industry.
And while we have a number established solutions and products that will prove out for many years to come requiring minimal investment.
We also have a very significant and attractive portfolio of new technology and solutions and growth factors like cloud AI and C pass.
This richness of offers flexibility and capability to deliver at scale provides us the ability to win now and well into the future.
I'm proud of how far we've come off day rate and pace of continued progress across the business and could not be prouder of the team's execution.
Based on our continued positive momentum we are increasing our full year guidance across multiple key metrics, including revenue.
Our our profitability and cash flow.
Karen will provide the specifics.
Moving on to the details of the quarter, let me share some performance highlights from several key growth areas, where we place significant emphasis and investment.
They are bearing fruit and I'm pleased with the progress.
Our bias contact center business is generating strong growth.
Contact center bookings have grown sequentially over the last four quarters and are now up 40% on a trailing four quarter basis.
Q1 was our highest bookings quarter it for C C and four years.
Okay.
See cash was a major growth driver.
And our new public CCAR is offering is live now in the U S U K and Ireland.
And we are rolling it out to more than a dozen countries throughout the year. We also continued to expand the solution by adding omni channel and AI capabilities that are reshaping agent and customer experience.
Initially launched as a direct offer momentum is increasing for see cash as we activate the channel to sell just yesterday, we announced the addition of two key partners in the U K, who will start selling immediately.
Our growth trajectory and both public and private clouds see cash represents significant future value for our customers Avaya and our shareholders.
A recent win with United and Bayou source, a leading provider of pharmaceutical support service and highlights the value.
U B C is deploying our AI based conversational intelligence cloud into their on site contact center as a hybrid cloud enhancement.
Initial use case included natural language processing to extract key phrases from patient inquiries, which improves resolution time and provides an improved customer experience and quality of service.
Our ability to deliver contact center solutions, coupled with AI, particularly and a hybrid environment sets avaya apart from pure cloud players.
In fact, private and hybrid cloud provides the flexibility security and Optionality.
Our enterprise customers require only avaya offers customers the best of both premise and cloud deployments and private cloud bookings alone and the quarter represented $131 million of T. C V C.
Sandler the nation's leading loan service provider needed a path to the cloud as they migrated away from their on Prem infrastructure. They concluded that avaya offered a more comprehensive and integrated UC cc solution to meet their performance requirements and expansion plans.
And not only are we leading their migration to private cloud, but we are helping to improve agent productivity customer experience and to streamline their multi vendor environment to avaya.
A third growth area C pass is and increasingly powerful differentiator for Avaya C pass spans our UC and cc portfolio, enabling customers to more easily innovate at the edge of their network.
Avaya C pass has become a CCAR as force multiplier accelerating the ability to customize and add new applications on unlocking value and putting the power of innovation directly into the hands of our customers one such customer is American equity investment life insurance company Yeah.
Using avaya C pass platform, they're enhancing their existing notification services and cloud IV our capabilities.
And they plan to stream metadata and transcriptions to their in house data Lake for further analytics by utilizing Avaya conversational intelligence.
C pass solves incredibly complex and compelling use cases without the complication of burdensome integration.
And investments and expensive and protracted customization.
A significant point of pride for our team and how we put Avaya C pass capabilities to work and the battle against COVID-19.
Our solutions enable contact tracing faster access to vaccinations and help organizations of all types more effectively handle and exponential increase and digital interactions.
For example, Nebraska medical use their C pass platform to help manage the enormous shift and patient interaction types early on and the pandemic.
And now they can easily and rapidly adjust their processes and workflows to provide direction on COVID-19 testing and vaccine administration.
As the World continues to combat COVID-19, we stand at the forefront delivering capabilities that power lifesaving apps notifications and the work from anywhere solutions that have become our way of life.
Avaya spaces and work stream collaboration solution is leveraging our C pass platform and continues to gain traction.
And as a key element of our U C and C strategy, where it will serve not only as the digital workplace for our enterprise customers to communicate and collaborate and internally.
But it will form a basis for a more collaborative customer engagement.
This rich collaboration platform provides more than just video.
It's voice messaging and team rooms.
A great example of the scale and capability of spaces was its deployment at Jai techs last quarter.
Jai, Texas, our largest technology event of its kind and the Dubai World Trade Center chose avaya spaces to enable conference experiences for over 30000 and virtual attendees from over 30 countries engaging with 350 companies sponsors and exhibitors.
Shifting gears to Avaya cloud office.
Customer demand continues to grow the number of ACO customers grew approximately 80 per cent and seats more than doubled and just one quarter.
Our pipeline continues to improve and we signed deals and all of the 12 countries, where the solution is available and our partner ecosystem is expanding.
Also in the December quarter, we nearly doubled the number of 100 plus seat deals booked compared to the previous quarter as we see strong customer interest and larger deployments.
Moving to subscription.
We continue to perform well ahead of expectations launched just one year ago, we have signed a total of approximately $565 million of subscription T. C V.
These contracts are longer in duration and maintenance deals of the past at significant innovation and move customers to the latest core technology.
Equally important is the growth we're seeing internationally.
We are also seeing significant success using subscription as a new customer acquisition tool and Q1 alone we signed over 300 and twenty-five subscription deals of which over 20 per cent for with new customers.
Before turning the call over to Karen I liked it a last bit of color on customer wins with a particular focus on how we are competing in the large enterprise segment.
The foundation of our business is built on delivering a highly differentiated set of capabilities that service the world's largest companies and governments.
The complexity and scale that we can handle and the experience innovation and breadth that we bring to bear is unparalleled.
Our commitment to large enterprise customers continues to yield amazing results.
In Q1, we signed a 109th teen deals with a T C V greater than $1 million.
14 of these deals were greater than $5 million and six were greater than $10 million with three deals over $25 million of T. C V.
We are proud of our ability to deliver innovation at this scale and to some of the world's most well known and trusted brands.
With that I'll turn it over to Karen.
Thank you Jim Good morning, everyone. As a reminder, all figures mentioned on this call are as reported unless otherwise indicated and constant currency.
For the first quarter of our fiscal 2021, GAAP revenue was $743 million. This represents year on year growth of 4% as reported or 3% and constant currency over the $715 million and the year ago period, and compares to $755 million and Q4 of fiscal 2012.
Yeah.
We delivered our third consecutive quarter of year over year revenue growth.
We continue to deliver on our aggressive AOR commitments and Q1 are one cloud era or metric exited the quarter at $262 million, which represents 38 per cent and sequential growth.
We couldnt be more pleased with the consistent execution of our teams are delivering across the globe.
Standout and this performance comes from North America, which has now turned and four consecutive quarters of year over year growth.
Overall, our revenue and they are our momentum is fueled by our strong suite of subscription and cloud offerings, and we continue to see and increasing share of our quarterly revenue streams and they are being driven by contact center.
Revenue contribution from caps or cloud Alliance partners and subscription.
Strong indicator of the transformation of the business represented 34 per cent of total revenue up from 33 per cent and for Q2 thousand 20.
Our sequential quarterly increase includes Avaya cloud office, ACO, which experienced very strong quarter on quarter seat growth.
In dollar terms caps revenue doubled year over year.
For our first fiscal quarter recurring revenue accounted for 65 per cent of total revenue and all time record high for the company.
Meanwhile, software and services revenue continues to represent 88 per cent of total revenue.
Both of these metrics reflect the strength of Avaya as cloud and subscription offerings delivering year on year growth for the third consecutive quarter.
Turning to our gross profit metrics.
Non-GAAP gross margin was 61, 8% and the first quarter compared to 61 five per cent and a year ago period, and 61, 3% sequentially.
The gross margins achieved at this level has been a direct result of our transitioning our offering base to high margin recurring subscription and software, which is accounted for as part of our services segment.
Turning to total profitability margin and cash flow metrics for the quarter.
First quarter non-GAAP operating income was $163 million, representing a non-GAAP operating margin of 21, 9% up 80 basis points year on year.
Adjusted EBITDA was $190 million, representing an adjusted EBITDA margin of 25, 6% up 130 basis points year on year.
And improving mix of higher value higher margin software combined with the operational discipline help produce these strong results.
It is this discipline that provides us the financial flexibility to increase our investment and R&D to enrich the value of our cloud portfolio and to build out our channel ecosystem.
Beginning this quarter, we are introducing non-GAAP EPS and our reporting this aligns avaya with the broader software industry and underscores our focus on profitable growth.
And our Investor presentation, you will find slides that describe the key assumptions on how on non-GAAP earnings per share is calculated we are bringing forward. This metric as the non-GAAP reconciliation is now noticeably simpler for the fiscal years, 'twenty and 'twenty, one period compared to fiscal year's 18, and 19 during which fresh start accounting.
<unk> made year over year comparisons rather complicated.
It should also be noted that for non-GAAP EPS calculation purposes, we are effectively including ring central of approximately $8 million preferred shares in the calculation.
We will provide non-GAAP EPS guidance on both a quarterly and fiscal year basis going forward.
Non-GAAP EPS was <unk> 90, and the first quarter compared to 61, and the year ago period, and 93 <unk> sequentially.
Turning to cash flow, we generated $48 million and cash flow from operations or 6% of total revenue contributing to a first quarter ending cash balance of $750 million.
We are putting our strong cash position to work and plan to pay down $100 million of our existing December 2024 term loan balance and the current quarter.
Furthermore, this morning, we are also announcing our intent to extend maturities of the remaining balance of the December 2024 term loan.
We expect to conclude this transaction before the end of the month.
We are strengthening our capital structure by paying down debt and further improving our weighted average debt maturity profile.
Now turning to guidance for <unk>, 'twenty, one and full year fiscal 2021.
Please note that all year on year revenue changes are expressed on a constant currency basis.
And all revenue amounts reflect rates as of January 31, 2021.
For the second quarter of our fiscal year 2021, we anticipate revenues of $710 million to $725 million representing growth of just over 5% year on year at the midpoint.
We expect non-GAAP operating margin for the second quarter to be approximately between 19 and 21 per cent.
And our adjusted EBITDA to be between 160, and $175 million or between approximately 23 and 24 per cent of revenue.
We expect non-GAAP EPS to be between 70 and 82 for the quarter. This compares to non-GAAP EPS of <unk> 57 cents and the year ago period.
Building on our expected strong first half performance and momentum we are increasing our full year fiscal 2021 revenue guidance to between 2.90 and $2.94 billion.
This represents growth of 1% to 2% at current FX rates and the midpoint represents approximately 1% revenue growth as measured in constant currency.
Additionally, given this momentum we now expect one cloud era, or we'll exit the fiscal and the current fiscal year between 415 and $425 million.
The midpoint of this guidance represents an increase versus our prior year and exit our guidance of approximately $40 million further underscoring the rapid transformation of our business and the increased traction and our cloud and subscription adoption.
We expect non-GAAP operating margin to be between approximately 20 per cent and 21 per cent.
The result of these projected revenue improvements is that we are increasing our guidance for adjusted EBITDA to range between 680 and $720 million or between approximately <unk> 23 per cent and 24 per cent of revenue demonstrating <unk> ability to deliver revenue growth without compromising profitability.
We expect non-GAAP EPS for the fiscal year to be between $3 five and.
And $3.37.
And at the midpoint this reflects 6% year on year growth.
In terms of our cash flow from operations for fiscal year 2021, we are increasing our guidance to be between 3% and 4% of full year revenue.
At this time, we expect our shares outstanding to be between approximately 83, and 86 million shares at fiscal 2021 year and with that I'd like to turn the call back to Jim Jim.
Thank you Karen.
Avaya is hitting its stride and the company has come so far and just a few short years. Our teams are navigating the challenges presented by COVID-19, and breaking through without missing a beat.
All while executing on our transformation strategy to move to a cloud and SaaS business model and maintain profitable growth.
One cloud.
<unk> and caps are key performance measures are exceeding expectations. Our contact center solutions are increasingly contributing to our growth as customers leverage the full range of public private and hybrid deployment options.
We have a robust portfolio of innovation to fuel continued and future growth and.
And we remain good stewards of capital having announced this morning that we will pay down $100 million of our.
<unk> 2024 term loan while also extending the maturity of the remaining balance.
Our progress clearly demonstrates how well avaya is positioned to serve our customers and to compete and win and the cloud I'm very optimistic about our future and energized by our traction and the expanding opportunity fueled by digital by cloud and.
And by our technology innovations.
With that we will now open it up for questions. Thank you.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and comps.
Formations on will indicate your line is and the question queue. You May press star two and he would like.
And from the Q and frankly.
And speaker equipment and may be necessary to pick up your handset before pressing and starkey.
Please limit yourself to one question and one follow up afterwards.
While we poll for questions.
Our first question comes from the line of Raimo lunch hour with Barclays. You May proceed with your question.
Hey, this is Frank on for Raimo Congrats on the quarter. These are really strong numbers here I have just one from my and wanted to dig a little bit deeper into the contact center side, particularly on CCAR.
Was wondering if you could provide some more color on to the feedback of the offering as it matures the customers Youre seeing the most success with and how you see the opportunity and see you guys. Thanks.
Yeah, Hey, Frank This is Jim. Thank you. Thank you very much really appreciate it yes, we take a look at it <unk> really the success. We're seeing is a combination of.
Multiple factors first.
As we take a look at <unk> as you mentioned, we are seeing and.
The results of the tremendous amount of investment, we've made and really driving capabilities to support the digital transformation you know I E sort of the work from anywhere a.
Capabilities. We've also as you probably noticed recently building out our partner network and really delivering AI to the solution, which is a real differentiator from us be it through Google be it through AWS or even for that fact through our own <unk>.
<unk> and intelligence, where we're seeing a nice uplift as well as you look at our capability to build out features such like workforce management.
Expanding <unk> into our channel capability around the globe. We added two new countries. This past quarter, which is UK and Ireland, we are going to be adding roughly a dozen new countries to the offer as we go through the balance of the year.
So our goal has been pretty simple since we started them really entering the CCAR space roughly about a year ago and that's to bring the features and functionality and differentiation.
On the leveraging our IP and our internal capabilities with our partner network really to build out sort of the ecosystem to drive the solutions and.
And we're really very pleased with where we are and we're pretty excited about the fact that we continue to add and we will continue and expanded omni channel integration and to the marketplace and in the near future as well. So I would say everything is right on track and customer.
And acceptance has certainly been in line with expectation.
Perfect. Thank you.
Our next question comes from the line of George Sutton.
You May proceed with your question.
Thank you very impressive results guys congratulations.
I think a a headline number clearly is the IRR and the 38% sequential growth, which is good for any company.
But I wondered if you could talk a little bit more about the composition of what's driving that and also the strong are our guide.
Yeah sure George This is Jim let me start off and then and maybe I'll have Karen and add a little bit of color afterwards, but.
It's really.
Sort of a manifestation, but we started a couple years ago down this deliberate path.
And it really to reignite our innovation engine.
And bringing Avaya, if you will to return to relevance and our and the enterprise market space and the Great News is that effort is really starting to feel the impact and as shown in the numbers and I.
<unk> is a reflection of that.
And our capability to deliver what I'll call a significant and attractive offers.
And and more importantly.
Having the capability to deliver those and secondly to compete and win in the marketplace really shows sort of what we call here sort of a new avaya and to your point underneath the numbers it's actually.
It's pretty a pretty amazing and how we're starting to see uplift across the board. So fact of the matter is that our guidance now represents an increase year over year of 120%.
And if you take a look 60% of that growth.
It comes from our contact center, 40% quarter on quarter growth within the context center alone and 65% of those deals are greater than $1 million.
And again fortifying the position of strength that we have and the enterprise communication space and then if you take a sort of another slice at it the hybrid component and really delivering technology through our subscription offers.
And the 40% range of our <unk>. So we're seeing sort of the breadth of our offers across the board and really fortifying again, the position of Avaya and <unk>.
And the large enterprise, but I don't know period, if you want to add any more color on not to that.
And I think Jim the one thing that I would add because you covered it quite.
And quite well the one thing I would add is that we were continuing to see now and uptick and actually new landings right with new logos and these are customers who are actually buying new soap you know previous to this we started with migrations, we expanded migrations to Upsells, we also started and new landings with our own existing customers.
But now what we're starting to see and you heard Jim referred to it in his comments as well is actually a fairly substantial portion of our existing subscription deals are actually new logos as well.
So this is really good.
And this proves out the point that the customers are continuing and willing to buy and.
And this cloud like cloud like model, so a lot of momentum in that space as well and as Jim pointed out in his prepared remarks as well not just in the U S where we got the early momentum early last year, but also internationally now and we're really getting a lot of traction with subscription which is truly building out is building out our overall numbers and.
Supplementing that with all of our private cloud bookings that Jim referred to as well so across the board just progress there.
And that really well ahead of what we worried from modeling for ourselves you know a year ago.
Great stuff, thanks for the additional detail.
Thanks George.
Our next question comes from the line of land.
On the tonnes up with Cowen you May proceed with your question.
Hi, guys. Thanks for taking my questions I have two.
The first is.
At the midpoint you mentioned your full year revenue guide.
And it was up 1% and I'm, just trying to square that with.
And the up 3% debt, we observed and the first quarter and the guide four five per se and the.
Commentary.
Uniforms and the favorable but.
No.
Is there anything in particular at and as we think about and back it would seem that you are expecting some softness there.
Thank you necessarily what you won't give them wisely.
And now you have a difficult comp in Q4 with the social security administration contract are there other items, we should be aware of to what extent are you just reflecting prudent conservatism or are you expecting market conditions deteriorate somewhat as we move throughout the year.
Yeah, Hey, Lance why don't we tackle that one first and then I'll I'll, let I'll start off and then again I'll turn it over to Karen but.
I don't know if I would characterize it as conservative I, probably would suggest that it's more reflective of being a quarter and to the year. We are seeing good strength in bookings. They are our caps cloud as low as we referenced but I believe it takes into consideration its consideration and awareness of today's operating realities.
And the fact that we wanted to be prudent.
But that being said you know obviously, we raised our guidance across the board. So we're certainly optimistic we're on.
Also optimistic about the traction of our new products that are coming on line and our ability to not only compete to compete but to win and our capability and execution, which this company has done an absolutely phenomenal job and execution execution of course across the board for many years and that's a real testimony to the employees we have at the <unk>.
Company.
I went and did buy just suggesting that we do as we mentioned if you have a very strong pipeline and.
And that's what gives us the confidence and our trajectory and and frankly, that's why it gives us a confidence and our ability to raise our guidance for the year.
But with that let me turn it over to Karen for two additional inputs.
Your line is I think you hit on obviously.
Compared with the SSA deal and Q for sure.
That's part of it but I think as we said in the last quarter as well, we really see more of our subscription bundles and more of our bookings overall really starting to have more as a service content delivered to it which will have you know and increasingly creasing amount of ratable revenue, which means we will take the revenue overtime and we would expect to.
See that reflected and the E. R. R a metric.
We really think the momentum with the bookings is going to continue we just think how that's actually going to be recognized between point and time and overtime from any kind of a period you know perspective and is reflected in the guidance. But then you should be able to look through that and see the improving our our guidance debt that we put out there as well today, so honestly you're going from that.
And any slowdown from a momentum perspective.
That that makes sense and can figure that out on my own and.
My other question is on the new adjusted EPS language I Love, but I'm just wondering what was the rationale for making that.
Moving that going forward today.
Are you trying to refocus investors or are you flagging to investors.
Perhaps clamoring for you to provide and I'm just trying to get a sense for what led you to make the decision.
Sure.
Let me take that one so.
Probably this time last year I actually talked about our intent to start.
Two look on look and sound a lot more like a a.
A profitable publicly traded software company and internally just for all of our disclosure controls and all the rest of it we were managing the EPS metric last year. We felt the timing was right now for two things. One is we absolutely were committed.
And a commitment to our board and as well as the privately to many of you I told you I was going to announced this metrics.
That's 0.1 0.2 is now finally and wood.
'twenty one we have really good comps year on year basis for no real confusion over the fresh start accounting, it's a lot cleaner in terms of our metrics year on year and we just thought now was the real time to do it I mean and also it's becoming increasingly clear to me that if I don't do what other people are going out there and.
Doing themselves and it was really important that we and.
Besides the mechanics of how are we doing this and that folks also took into consideration that we also had to ensure that the preferred shares are also were recognized as part of the calculation that ring has and some portion of the profit was attributed to them as well. So we wanted to make sure there was absolute clarity as to how big Caulk was being made and.
We referred to that in our investor deck.
And as well as just the timing of really ensuring that everyone recognize that we were driving profitable.
Profitable software growth.
Very good thanks, guys for your time.
Excellent.
Thanks Lynn.
Our next question comes from the line.
And so it's hard G with J P. Morgan you May proceed with your question.
Hi, Thanks for the question and this is Joe Cardoso on for Sonic on My first question comes around and the guidance as well. So if you look at your book.
Total year guidance you raised it for the full year in terms of revenue one cloud era, or however, you maintained the caps revenue growth and you parcel out the variance and you're seeing between the metrics and what's driving one or like those other ones to grow out as opposed to the caps revenue.
Sure well I think it goes.
Very consistent with the explanation that I just provided to Lance and the prior question and that is that you know more of the revenue that we expect to recognize and the second half of the year will become more point and time, which is really the caps. If you recall is a metric that captures the transformation of the business at any one point and time, while they are on metric.
Points to the future. So the guidance that we had put out there of where we expected that the dollars. We drove 35% to 40 per cent year on year and that we would actually end up somewhere between 35, and 40% of our total revenue being caps and nature.
And it helps it helps because more of the bookings that we expect to see as we go through time will actually come as ratable revenue overtime and therefore, we will recognize in future periods. So that guidance already encompassed those changes and I think that's the key reason for it and not increasing that as well.
Got it got it and it makes sense and then my second question. If I look at your large deal activity over the past couple of quarters and it looks like the quantity has improved but also the quality, but the amount of deals greater than 10, and even 25 million also expanding can you provide any color to whats driving it is it the seams and the size of the customers that you're dealing with and it's specific to the solution.
And that you're delivering any color would be appreciated and thank you.
Yes, Hi, this is Jim yeah. Thanks for the question on Great observation and I just think it has to do with the fact of.
Our capabilities to rollout and new solutions and the fact of our strength now in the contact center and in all fairness and and the capabilities to incorporate.
On some of our strategic partners.
Solutions inside of our portfolio offerings as well as our investments like spaces and other key collaboration and AI tools into into those offers so.
It's a combination one of that and secondly, we are starting to see a number of customers now start to.
Embrace and and book our private cloud offers we've spent a lot of time and really bring it to just to the to the marketplace our private cloud.
Solutions, especially on contact center and in fact, we're deploying those now sort of if you will at the speed as a public offer and it's enabling our customers to get that agility and their deployments and customization that they need so.
It's a combination one of the and increased.
Content and our overall offers as well as building out the portfolio and really having our customers now start to embrace not only the public but private as well as the hybrid capabilities that we bring to market.
Got it I appreciate the insight guys and congrats on the results.
Thank you.
Our next question comes from line on.
Marshall with Morgan Stanley and you May proceed with your question.
Hello. This is Eric on for me to thanks for taking our question I wanted to dig a little bit more into the new logos that you won you you mentioned that 40 per some of those were cloud and subscription.
But I'm wondering if anything is driving kind of a 60 per cent to be on premise and if there was if they tended to be maybe a smaller customer or a certain vertical.
Yeah, Hi, this is Jim Thanks, Eric for the question.
Yes, if you take a look at the bookings component.
We are starting to see.
I'll say premise not going away from for lack of a better term and I think obviously, that's a significant advantage for us and really it provides a uniqueness that avaya has the capability to offer that full breadth of solutions. We're on.
Also seeing.
Our customers need to move to if you will more of a of a ratable.
You know Opex type model, especially if you take a look at where they are and what's going on in <unk> and <unk>.
The realities of today's world. So many of the larger contact centers today, you don't necessarily need the number of agents that they might have had before therefore by definition the number of licenses.
And whether they work from home or just that their business performance has changed with the with the impact of Covid. So subsequent subscription provides them.
The operating model to take full advantage of that so in essence, repurposing sort of what they've had and provide some day capability to so I really see work from home and and the other features and more of your work from anywhere type environment. So we're seeing some really large deals.
And I pointed out three deals alone and just last quarter and excess of $25 million of T. C V, which is a first for us.
Which is actually rather significant and also as the point, where we thought that this was really intended to be a.
Sort of a maintenance sort of replacement as.
As we started our initial focus but with 20% of the subscription deals being new customer wins really goes to show you the value of the offer that we have out there it's much more than may.
Maintenance replacement for sure. So I think it's a combination of a number of factors, but our largest of large enterprises are looking for ways to optimize as.
As well as get on productivity and need we're their trusted partner like Avaya. So it's a win win solution for them. It's obviously a win win solution for us and.
We're obviously doing better than expected and fairness as you guys know on on subscription deals and we're excited about the pipeline we have in front of us.
If I just if I just might add a just a quick could come and as well you know these.
And from the logo and they're not necessarily small ones either so even though Jim talked about success, we've had with the largest and largest enterprises.
And we've actually seen.
Our new logos on the on premise side, the pure playing on on premise.
Still averaging about 20000.
Dollars and T. C V. So they're not that small either and it just goes to show that in spite of all of the and all of the market trends as well, there's still a lot of business out there to be had and in the traditional business of Catholics on Prem.
Got it that's really helpful. Thank you.
Our next question comes from the line of.
And with Citigroup you May proceed with your question.
Great. Thank you for the opportunity and again, congratulations on a strong quarter.
If I could just ask a little bit I think.
And net openings remarks channel channel investment on India.
And you guys can elaborate.
Sure.
And what what.
And what specifically are you guys and I look forward.
And to the next couple of years.
And just run off investments and you guys and trying to benefit from the rollout.
Several countries globally. Thank you.
Yes, so there's a couple of things. This is Jim So first and foremost building out our channel ecosystem. We are building. This out now as I mentioned for our <unk> solution. So we think thats going to provide us with some nice opportunities in front of US if you take a look at our ACO offer.
We increased our partner ecosystem last quarter by 20% over the previous quarter. So as we not only are building on it to 12 countries. We are also continuing to build out our partner ecosystem with partners that focus on driving cloud solutions. So we're quite excited to see that continued growth there from.
From an ACO and for that fact, they'll also start selling and many have RC cash solution coupled with that so it's a it's a it's great on on both aspects of thirdly.
A number of programs.
And that we now have out into our ecosystem and.
And not only for for cloud, but also for subscription and equally as important as we start now to roll out our private cloud solutions, which will probably begin in earnest next quarter, but we do have a handful of our current partner base now selling on our private solutions as well so look the channel and <unk>.
Extremely important to us at 70% of our revenues are through the partners. They are and extension of Avaya and when we go to market together, we win we embrace that and they understand.
And you know we were quite new to to cloud and one of the benefits of the ACO relationship and fairness gives us sort of the cloud DNA and capability set and fairness, we didn't have a year ago. I mean, we've only been in that business now since March 31st and last year, and it's really a real.
And enabling us and more importantly, acting as a force multiplier to accelerate our capabilities and cloud not only here and the U S, but globally and really enabling us to build that infrastructure and billing the inside sales customer success quoting you name. It if you look on where we were a year ago to where we are today and.
It's simply a amazing how quickly we've come up that learning curve. So all.
All of those things are obviously and incorporated in and building that out and again, what gives us high confidence because we've had a year worth of accelerated learning and immersive and learning if you will and we've come up we've come a long way and the last 12 months and one of the reasons why now we're building that eco.
Assist them out and fairness you need to know what you're doing before you start to expand and I.
I think we actually know quite well, what we're doing and as you can see we're expanding at a fairly rapid rate in and and really showing and the results of the company. So quite excited about that opportunity.
Great. Thank you.
Our next question comes from the line of Catherine.
You May proceed with your question.
Thank you for taking my question and very impressive quarter gentlemen, Anthony if you're on the line I have a question for you and could you parse more on the high bread and how.
Hi, bred customers are really driving some of the sea cash opportunities they think that.
You've had such impressive results.
Cash that I'm really trying to understand better.
Now where the threads on perhaps with some of your hybrid customers. Thanks.
So the cash and thanks very much for the question look we continue to expand on the previous <unk> investments that we've made and we continue to mature and well.
And we are we continue to add capabilities and and through <unk> as well as our <unk> capabilities. We are infusing it with AI capabilities as well. So we've been those AI capabilities as progressive features that are layered on top of <unk> solutions and in some cases.
And we have customers who have a <unk>.
On Prem.
Frame solution, we would layer on top of that a a capabilities such as conversational intelligence, which is purely delivered from the cloud, which will create a hybrid scenario for the customer. So they can maintain their on prem deployment and deliver some key capabilities such as AI capabilities.
The pure cloud.
Scenario and making it a hybrid type of solution, we've seen that with those couple of examples that Jim had mentioned a little bit a little bit early I believe it was American equity investment and and the best and Nebraska and also with some of our key strategic partners, such as Varian and nuance, where we deliver some of those.
<unk> solutions as well via the pure public clouds as well, so that would add and enhance a hybrid scenario and we've got a low tier of ecosystem partners that are quite strategic debt.
And really sort of fit the bill for customers because what we are seeing is that customers don't need to compromise the agility of the deployment any more weighted.
Lack of customization and they come to Avaya. They recognize that we can now effectively deploy.
Private clouds on multi instance solutions and we can deploy those at the speed of public solutions. So they no longer have to compromise on customization is resolved and they find that incredibly valuable and thanks for the question. It was an excellent one and.
And I'll, Thank you and the follow up is competitive.
And you seen and you know it seems like you guys are really and five nine comes to mind, there really moving up market and could you just and dress and competitive landscape.
Sure the competitive landscape hasn't fundamentally changed for us it's relatively it's relatively segmented and we see pretty much the bulk of the competitors and you know but depends on the segment. So as we go into we measure large enterprise at a much high above and then maybe some of the competition does.
And does but at the same time, we can paint across each of those particular segments. So we're seeing the same players Kathryn that that dynamic hasn't changed for us during this particular quarter at all.
Alright, Thank you very much congratulations and thank you.
<unk>.
Our next question comes from the line of Mike Latimore with Northland Capital markets. You May proceed with your question.
Great. Thanks very much.
Yeah, Yeah in terms of the subscription bookings and think it was $180 million how much of that was recognized in the quarter itself.
And you wanted to take that.
So in general.
And in general just from a subscription booking perspective, we're anywhere from between 55 to 60 per cent.
We'll get point and time, depending on the amount of embedded and embedded cloud that's what the solution as well, but just as a general rule of thumb.
Probably right around and the last quarter about 55 per cent.
Got it and and then I think you mentioned that 20% of subscription and it was new logos was that 20 per cent of the U T V or customer count.
It was a customer count.
Okay, great. Thank you.
Yep.
Our next question comes from the line of on that of course.
Of course, and with BW I financial you May proceed with your question.
Hi, good morning.
Firstly just.
Wanted to see how much of your installed base that was on from has converted to cloud and how fast is it taking to reach scale. When you launch Avaya cloud office and these new markets.
Moving to scale very quickly and and how dependent are you on those on channel partners and to get to that scale when you're launching in these new markets.
Yes sure.
Gross numbers.
I would say is in the neighborhood and to your first question.
It's about 30% plus or minus it varies but I would say that's probably a representative number.
If you're asking how much is dependent on our.
Channel partners.
You know I guess I could answer that question a couple of different ways.
Obviously, the largest of large are more oriented towards direct.
Sales approach vs versus a channel approach. So we're seeing obviously a lot of opportunity as I mentioned, especially when you talk about 119 deals over a million dollars of TCP and we've been running at that consistent right now I would say probably for the better part of a year or more.
So.
Are equally as important they are more obviously oriented and largest and large but at the same time our channel has.
On the highly.
Preponderance towards the number was <unk> 70 per cent of the overall revenue is being driven through the channel. So we don't look at one.
Being if you will more important and then the other they're both extremely important and for what we what we need to do and we are we're focused on really driving both the channel as well as our overall, our overall direct workforce and really enabling our customers and really assisting them on their on their digital transfer.
Formation journey so.
I, just we just I wouldnt, great one over the other and fairness.
It's equally important to us.
Two are delivering of innovation to scale it.
I would just add a chance and here with regards to the amount of customers who are enjoying avaya one cloud.
Day conversion rate for that customer too.
And to the 30% that's actually occurring in terms of one form or another about cloud solution. They haven't completely converted over their how their whole enterprise to there on that particular journey and we are managing that journey with them. So there's there's tons and headroom that still remains and as a result of that particular journey and in some cases, it's a.
A and a protracted journey because they've got highly complex highly integrated solutions and and.
And that trusted adviser and managing through that journey.
And just so just to follow up is how big is the funnel for 25 million over.
Sales and it seems like you accelerated in December versus September as far as those the deal count goes.
I don't know currently.
Yeah, I mean, that's not something that's not something that we put out a lot can shift a deal could be just because of customer EBITDA, sorry to add another year of duration or something like that so we tend to measure things from an ACB perspective, first and foremost just because we want to understand what the run rate to the business is going to be.
Okay, great. Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the call back over to Mr. Michael Mccarthy for closing remarks.
Thanks, Laura and thanks, everyone for joining us this morning for the December quarter call and results.
Have any additional questions. Please feel free to reach out to my office and look forward to engage and you throughout the conference season ahead.
Take care and have a good afternoon.
Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.
Okay.
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Yes.
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Okay.