Q1 2022 Avaya Holdings Corp Earnings Call

Greetings and welcome to the Avaya first quarter fiscal year 2022 earnings 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 the conference. Please press star zero on your telephone keypad.

Speaker 1: Greetings and welcome to the Avaya first quarter fiscal year 2022.

Speaker 1: At this time, all participants are in a listen-only mode. A brief question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star-zero on your telephone keypad. As a reminder, this conference is being recorded.

A reminder, this conference is being recorded it is now my pleasure to introduce your host Mike Mccarthy.

You may begin thank you Paul welcome to Avaya as fiscal 2022 first quarter Investor call I'm sure go our president and CEO and Chairman Mcgrath, our EVP and CFO will lead this morning's call and share with you some prepared remarks before taking your questions.

Speaker 2: Thank you, Paul. Welcome to Avaya's Fiscal 2022 First Quarter Investor Call. Jim Cherico, our President and CEO , and Karen McGrath, our EBP and CFO , will leave this morning's call and share with you some prepared remarks before taking your questions.

Speaker 2: Joining them this morning will be Stephen Spears, our Chief Revenue Officer, Todd Zerbe, our Senior Vice President of Engineering, and Dennis Kozak, Senior Vice President of Strategic Operations.

Joining me this morning will be Stephen Spears, our Chief revenue Officer, Todd <unk> Senior Vice President of Engineering, and Dennis Kozak Senior Vice President of strategic operations.

Speaker 2: The earnings release and investor slides, which include highlights of our ESG initiatives and performance referenced on this morning's call, are accessible on the investor page of our website, as well as in the 8K file today with the SEC.

The earnings release, and Investor slides, which include highlights of our ESG initiatives and perform referenced on this morning's call are accessible on the investor page of our website.

As well as on the 8-K filed today with the SEC.

But you should aid in your understanding of a buyers' clinical results.

Speaker 2: All financial metrics referenced on this call are non-GAAP with the exception of revenue. We have included a reconciliation of such non-GAAP metrics to GAAP in the earnings release and investor slot.

All financial metrics referenced on this call are non-GAAP with the exception of revenue. We have included a reconciliation of such non-GAAP metrics to GAAP in the earnings release and Investor slides.

Speaker 2: We may make forward-looking statements that are based on current expectations, forecasts, and assumptions, which remain subject to risks and uncertainties that could cause actual results to differ materially. In particular, the global economy continues to be impacted by COVID-19.

We may make forward looking statements that are based on current expectations forecasts and assumptions, which remain subject to risks and uncertainties that could cause actual results to differ materially.

In particular for global economy continues to be impacted by COVID-19, and the extent of its continued impact on our business will depend on a number of factors that include but may not be limited to the virus and the severity and duration the emergence of new variants changes in infection rates the vaccine participation rate.

Speaker 2: and the extent of its continued impact on our business will depend on a number of factors that include but may not be limited to the

Speaker 2: the virus's severity and duration, the emergence of new variants, changes in infection rates, the vaccine participation rate, the effectiveness of vaccines, and the speed with which the vaccine can be distributed, as well as regulations and requirements impacting the return to our offices and our ability to visit customer sites and actions taken or not taken.

<unk> missile vaccines, and the speed with which the vaccine can be distributed as well as regulations and requirements impacting the return to our offices and our ability to visit customer sites and actions taken or not taken by governments businesses and consumers in response to pandemic all of which continue to evolve and remain.

Speaker 2: businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain.

At this time information about risks and uncertainties, maybe found in our most recent filings with the SEC, including our Form 10-K , and our Form 10-Q .

Speaker 2: Information about risks and uncertainties may be found in our most recent filings with the SEC, including our form 10K and our form 10Q.

<unk> policy not to reiterate guidance and we undertake no obligations to update or revise forward looking statements.

Speaker 2: we undertake no obligations to update or revise for you.

Speaker 2: facts or circumstances change, except as otherwise required by law. I'll now turn the call over to...

Export circumstances change, except as otherwise required by law I will now turn the call over to Jim.

Speaker 1: Thanks Mike. Good morning everyone and thank you for joining today's call. This last year was a-

Thanks, Mike Good morning, everyone and thank you for joining today's call.

This last year was an important one for avaya.

Speaker 1: If I take a step back to reflect, I would characterize it as a continuation of a multi-year journey and one of accelerated transformation for the business.

If I take a step back to reflect I would characterize it as a continuation of a multiyear journey and one of accelerated transformation for the business.

Speaker 1: And it's clear that we are in a stronger position than when we started.

And it's clear that we are in a stronger position than when we started I.

Speaker 1: I give our team a lot of credit as they have executed on the company's three value drivers and have remained focused on solidifying our business for our long-term success.

I give our team a lot of credit as they've executed on the company's three value drivers and have remained focused on solidifying our business for long term success.

Speaker 1: Entering this fiscal year, we have successfully navigated a period that is best characterized by high volatility and unpredictability. And despite this extremely dynamic business environment, we've made steady progress on our objectives and strategies.

Entering this fiscal year, we have successfully navigated a period that is best characterized by high volatility and unpredictability and despite this extremely dynamic business environment, we've made steady progress on our objectives and strategy.

Speaker 3: Over the last two years, we've gained new insights about our customers, their needs, and seen their expectations and behaviors evolve. The future is clearly moving in our direction, and we are fortunate to have so many assets to leverage.

Over the last two years, we've gained new insights about our customers their needs and seen their expectations and behaviors evolve the future is clearly moving in our direction and we are fortunate to have so many assets to leverage overall I cannot be more pleased with the momentum of our business.

Speaker 3: Overall, I cannot be more pleased with the momentum of our business.

Speaker 3: So when I look at our first quarter results, while we made progress on our key cloud objectives, which I'm quite proud of, our top line results and profitability were below our expectations, primarily pressured by two temporary din...

So when I look at our first quarter results, while we made progress on our key cloud objectives, which I'm quite proud of.

Our topline results and profitability were below our expectations, primarily pressured by two temporary dynamics.

Speaker 3: First, the mix of content and the final deal terms of some contracts did result in a delay of revenue recognition.

First the mix of content and the final deal terms of some contracts did result in a delay of revenue recognition.

Speaker 3: One example was a significant multi-year of I-O-1 cloud public sea-cass contract we won with a large global financial service.

One example was a significant multi year avaya one cloud public seek has contract we won with a large global financial services company.

Speaker 3: This deal is roughly $400 million over a seven-year life of the agreement.

This deal is roughly $400 million over a seven year life of the agreement.

Speaker 3: It is significant, not just because of the size of the deal, one of the largest in the history of the company.

It is significant not just because of the size of the deal one of the largest in the history of the company.

Speaker 3: but also because it leverages a significant number of our latest innovations, including AI, biometric security, and advanced analytics.

But also because it leverages a significant number of our latest innovations, including AI biometric security and advanced analytics.

Speaker 3: and represents a displacement of several incumbent competitors.

It represents a displacement of several incumbent competitors because of the nature of the <unk> deal. We were unable to recognize revenue. We had assumed would be realized in Q1, which will now materialize beginning in the second half of FY 'twenty two.

Speaker 3: Because of the nature of the CCAS deal, we were unable to recognize revenue we had assumed would be realized in Q1.

Speaker 3: which will now materialize beginning in the second half of FY...

Speaker 3: Second, with respect to the environment, there was no doubt it caused the pause. The fact is that many of our customers, especially in the US and Western Europe , were in lock.

Second with respect to the environment. There is no doubt it caused a pause. The fact is that many of our customers, especially in the U S and Western Europe were in Lockdown.

Speaker 3: and commercial activity simply slowed at the end of the quarter. And as a result, the necessary approvals and contracting activities with many of our customers stall.

In commercial activity simply slowed at the end of the quarter.

And as a result, the necessary approvals and contracting activities with many of our customers stalled.

Speaker 3: What's important to note is that these deals were not lost. And projects...

What's important to note is that these deals were not lost and.

And projects have not been canceled.

Speaker 3: but we did see a number of deals slip by a few weeks. Many of which...

But we did see a number of deals slip by a few weeks.

Many of which have since been closed while it is not unusual to see deals push and pull at any given quarter. The magnitude in Q1 was amplified.

Speaker 3: While it is not unusual to see deals push and pull at any given quarter, the magnitude in Q1 was ample.

Speaker 3: It is clear that demand remains extremely strong as evidence by our continued traction with new logos where we signed over 1400 Discorders.

It is clear that demand remains extremely strong as evidenced by our continued traction with new logos, where we signed over 1400 this quarter.

Speaker 3: Successless large deals where we signed over 100, greater than 1 million TCV for the seventh consecutive quarter. And importantly, with the increase in a via cloud bookings for private and public solutions, which grew 31% year-over.

Success with large deals, where we signed over 100 greater than 1 million T. C V for the seventh consecutive quarter and importantly, with the increase in Avaya cloud bookings for private and public solutions, which grew 31% year over year.

Speaker 3: These are proof points that the underlying fundamentals of our business remain strong, and I am more pleased with the progress on the key KPIs for our business, including one cloud ARR, cloud revenue, hybrid subscription growth, and continued enterprise traction. Improvements to these areas...

These are proof points that the underlying fundamentals of our business remains strong and I am more pleased with the progress on the key kpis for business, including one cloud our cloud revenue hybrid subscription growth and continued enterprise traction improvements to these areas.

Speaker 3: validates that the investments we are making and transitioning to cloud and that are yielding the desired outcomes. Let me expand.

Validates that the investments, we're making in transitioning to cloud and SaaS are yielding the desired outcomes.

Let me expand on our progress in each of these key areas.

Speaker 3: A VAIA 1 Cloud ARR is our most significant metric and represents the combination of our entire hybrid, private, and public cloud portfolio. We added another 90 million to ARR during the quarter. Up 17% sequentially and 137% year over year, ending at 620 million.

Avaya one cloud <unk> is our most significant metric and represents the combination of our entire hybrid private and public cloud portfolio. We added another 90 million to <unk> during the quarter up 17% sequentially and 137% year over year ending at six one.

$20 million, we remain well on track to meet our 1 billion a our target at the end of calendar 2022, and Karen will take you through our increased our guidance.

Speaker 3: We remain well on track to meet our 1 billion ARR target at the end of calendar 2022, and Karen will take you through our increased ARR guidance. The growth in ARR is driven by several facts.

The growth in <unk> is driven by several factors.

First is our contact center business, which continues to represent approximately 60% of total error and grew nearly 130% year over year further proof of our leadership and C. C.

Speaker 3: which continues to represent approximately 60% of total ARR and grew nearly 130% year over year. Further proof of our leadership in CC.

Speaker 3: Second is the underlying momentum from our enterprise segment, which comprises 95% of our total ARR. And third is the adoption of innovation by our customers.

Second is the underlying momentum from our enterprise segment, which comprises 95% of our total E. R. R and third is the adoption of innovation by our customers.

Speaker 3: The bundling of additional value into hybrid cloud subscription offers through adding innovation such as a via spaces, cloud contact center AI, a via conversational intelligence, and our cloud notification service, among others, is helping to fuel our ARR growth.

The bundling of additional value into hybrid cloud subscription offers through adding innovation such as Avaya spaces cloud contact center, AI, Avaya conversational intelligence and our cloud notification service among others.

To fuel our growth.

Speaker 3: In fact, if you take a step back and look at our hybrid subscription deals on average, we are seeing a 20% uplift in total contract value as we migrate customers off their maintenance

In fact, if you take a step back and look at our hybrid subscription deals on average we are seeing a 20% uplift in total contract value as we migrate customers off their maintenance models.

Speaker 3: Our investments in innovation will remain strong. We have invested a lot and we are not slowing down.

Our investments in innovation will remain strong we have invested a lot and we are not slowing down because our.

Speaker 3: because our customers are looking to avoid to help them improve their customer workforce experience. Our technology, along with the scale, at which we can operate, is a competitive advantage for us. And the investments we have made are clearly showing dividends in the form of ARR growth up from 262 million to 620 million in just one

Customers are looking to avaya to help them improve their customer and workforce experience our technology, along with the scale at which we can operate as a competitive advantage for us and the investments. We have made are clearly showing dividends in the form of AOR growth up from 262 million to $620 million in <unk>.

Just one year.

Speaker 3: Karen will provide additional color on our financial performance and outlook in just a few moments. But before I turn it over, let me share some highlights from the quarter.

Karen will provide additional color on our financial performance and outlook in just a few moments, but before I turn it over let me share some highlights from the quarter.

Speaker 3: Our strength in the enterprise sets us apart from all others in our peer

Our strength in the enterprise sets us apart from all others in our peer group and overall large deal volume remained consistent with the prior six quarters, we signed 108 deals greater than 1 million T. C V nine deals were greater than $5 million six.

Speaker 3: and overall large deal volume remain consistent with the prior six quarters. We signed 108 deals greater than 1 million TCV. Nine deals were greater than five minutes.

Speaker 3: 6th grade of 10 million and we had 2 over 25 million T-C-V.

Six greater than $10 million, and we had to over 25 million T. C V.

Speaker 3: To us, these deal sizes emphasize that customers are voting with their wallets, committing to large, strategic, multi-year contracts that align their business needs with a bias technology road.

To us these deal sizes emphasize that customers are voting with their wallets committing to large strategic multi year contracts that align their business needs with Avaya technology roadmap.

Speaker 3: In addition, we once again find a significant number of new logos, well over 1400. Reinforcing the competitiveness, differentiation, and value of our

In addition, we once again signed a significant number of new logos well over 1400, reinforcing the competitiveness differentiation and value of our solutions.

Turning to subscription hybrid.

Speaker 3: Within our ARR and Caps KPI, our via one cloud hybrid subscription remains one of the most effective on ramp to a cloud native model for enterprise customers.

Within our a R R and caps K P. I R via one cloud hybrid subscription remains one of the most effective on ramp to a cloud native model for enterprise customers since launching two years ago. We just passed the 1.5 billion T. C V Mark last quarter make.

Speaker 3: Since launching two years ago, we just passed the 1.5 billion TCV Mark last quarter. Making this the most successful solution offering in the company's recent history.

This is the most successful solution offering and the company's recent history.

Speaker 3: Not only are we converting current customers, but in Q1 we find nearly 200 hybrid subscription deals with new customers, our highest contribution from new logos since last.

Not only are we converting current customers, but in Q1, we signed nearly 200 hybrid subscription deals with new customers, our highest contribution from new logos since launch.

Speaker 3: Customers are committing to our cloud vision with three plus year contracts. They are making these commitments based on the deliberate and compelling roadmaps we have laid out. This is validation of the value our solutions can drive for our customers, their customers, and of course, our share.

Customers are committing to our cloud vision with three plus year contracts. They are making these commitments based on the deliberate and compelling road maps, we have laid out.

This is validation of the value our solutions can drive for our customers their customers and of course our shareholders.

Speaker 3: An example of one of these customers is the suspension health. The largest nonprofit hospital system in the U.S.

An example of one of these customers as Ascension health the largest nonprofit hospital system in the U S. They.

Speaker 3: They find a five-year contract to standardize on a via across 110 hospitals with options to include clinics and professional offices in the future.

They signed a five year contract to standardize on Avaya across a 110 hospitals with options to include clinics and professional offices in the future.

Speaker 3: Turning to C-CAS, this quarter we grew seats at a rate in pace faster than the previous four quarters combined.

Turning to see cats. This quarter, we grew seats at a rate and pace faster than the previous four quarters combined equal.

Speaker 3: Equally notable is the funnel growth. Hit an all-time high.

Equally notable is the funnel growth hit an all time high.

Speaker 3: We continued to invest materially increase in the number of primary quota carriers, digital sales and pre-sales for our CKAS office.

We continued to invest materially increase in the number of primary quota carriers digital sales and pre sales for our <unk> offering.

Speaker 3: One Cloud Channel Partner Network of Distributors and Agents has grown into the thousands, and we are expanding our CKAS Geographic of Elability to 100 countries by the end of the calendar year. We are...

One cloud channel partner network of distributors and agents has grown into the thousands and we are expanding our <unk> geographic availability to a 100 countries by the end of the calendar year.

We offer a fully integrated platform and that differentiation is helping us grow the size and quality of our funnel even in the highly competitive mid market segment and below.

Speaker 3: and that differentiation is helping us grow the size and quality of our fun.

Speaker 3: even in the highly competitive mid-market segment in below.

Speaker 3: Coupilit Tele Services, one of the Middle East largest BPO's and outsourced contact centers service providers, chose the VIO-1 Cloud C-CAS and a VIO Spaces for the new customer onboarding and agent training. We beat out Genesis to win a three year deal that significantly improved user and customer experience for Coupilit's

Coppola Tele services, one of the Middle East largest P. P O S and outsourced contact center service providers chose Avaya, one cloud <unk> antibody spaces as the basis for their new customer on boarding and agent training, we beat out Genesis two and a three year deal that significantly improved user and customer.

Periods for Cooper as customers.

Speaker 3: In Ontario, Canada, McMaster University with over 35,000 students and 10,000 staff chose a via one cloud to extend our long-running partnership for future five years. McMaster selected our cloud solution to address the challenges of increasing digital engagement across seven unique contact centers, reducing handling time and improving analytics and workforce agility. By...

And Ontario, Canada.

Master University with over 35000 students and 10000 staff chosen via one cloud to extend our long running partnership for future five years Mcmasters selected our cloud solution to address the challenges of increasing digital engagement across seven unique contact centers, reducing handling times and it.

Proving analytics and workforce agility.

Avaya cloud office traction remains solid.

Speaker 3: We continue to add specific of IECAPE abilities to the platform that differentiate our offering including integration with our own C-Cats.

We continue to add specific avaya capabilities to the platform that differentiate our offering including integration with our own see Cas.

Speaker 3: One example of the importance of bringing a viacontent into the ACO platform is a recent win.

One example of the importance of bringing a via content into the ACO platform is a recent win.

Medical West Hospital Authority, an affiliate of UAB health system.

Speaker 3: Medical West Hospital Authority, an affiliate of UAB Health.

Speaker 3: They are a long time of via customer through our partner AT&T.

They are long time, avaya customer through our partner AT&T they.

Speaker 3: They selected a Viaclout office for 1400 staff members at their hospital and off campus location.

They selected Avaya cloud office for 1400 staff members at their hospital and off campus locations.

Speaker 3: key features such as faxing, video conferencing, and integration with Office 365 helped tick every box medical west had on

Key features such as vaccine video conferencing and integration with office 365 helped tick every box medical west had on their list.

Speaker 3: ACO Channel Partner Enablement Efforts continue to yield positive results. Well, over 700 partners globally have now sold ACOs.

ACO channel partner enablement efforts continue to yield positive results well over 700 partners globally have now sold a C. O seats overall seat growth was up 14% and the number of new customers was up 16%.

Speaker 3: Overall, seed growth was up 14% and the number of new customers was up 16% both from the park.

<unk> from the prior quarter.

Okay.

Speaker 3: So if I had to sum it up, the fundamentals of the business remain strong.

So if I had to sum it up the fundamentals of the business remained strong as.

Speaker 3: As I said, we have already seen a number of deals that have moved out book in January .

As I said, we have already seen a number of deals that have moved out book in January and the team's execution remain steady and focused and as a result, we remain committed on delivering the full year guidance for revenue that we previously communicated with that let me turn it over to Karen to take you through the numbers.

Speaker 3: And the team's execution remains steady and focused. And as a result, we remain committed on delivering the full year guidance for revenue that we previously communicated. With that, let me turn it on. And the team's execution remains steady and focused.

Speaker 4: Thank you, Jim. Good morning, everyone. As a reminder, all figures mentioned on this call are as reported, unless otherwise indicated in constant currents.

Thank you Jim Good morning, everyone. As a reminder, all figures mentioned on this call are as reported unless otherwise indicated in constant currency.

Speaker 4: We are pleased from the progress made in Q1 in continuing to expand our RADABL revenue base.

We are pleased with the progress made in Q1, continuing to expand our ratable revenue base.

Speaker 4: We added $90 million of new ARR ending the quarter with a balance of $620 million.

We added $90 million of new E. R ended the quarter with a balance of $620 million.

Speaker 4: Further, we had very strong one-cloud signings and bookings in the quarter, highlighted by the signing of a multi-hundred million dollar C-CAST contract with a very large global financial institution. This is the largest of Ia one-cloud signing since the introduction of Ia one-cloud and is one of the largest of Ia wins in our history.

Further we had very strong one cloud signings in bookings in the quarter highlighted by the signing of a multi hundred million dollar <unk> contract with a very large global financial institution. This is the largest avaya one cloud signings since the introduction of Avaya cloud and is one of the largest avaya wins in our history.

Speaker 4: Q1 revenue at $713 million was below our guidance driven by two primary issues.

Q1 revenue at $713 million was below our guidance driven by two primary issues.

Speaker 4: Firstly, current quarter revenue contribution, primarily related to signed one-cloud subscription hybrid contracts, was lower than guidance expectations. This resulted in approximately $20 million of revenue to be recognized in future periods upon a delivery of specific contract milestones and deliverables. This revenue was not lost, but rather will be earned in future periods.

Firstly current quarter revenue contribution primarily related to sign one cloud subscription hybrid contracts was lower than guidance expectations. This resulted in approximately $20 million of revenue to be recognized in future periods. Upon the delivery of a specific contract milestones and deliverables. This revenue was not lost.

But rather will be earned in future periods.

Speaker 4: Secondly, as Jim mentioned, several large deals, by either just over 10 million, stalled very late in their closing stages at the end of December , due to key personnel being unavailable to finalize contracts and approve and release POs.

Secondly, as Jim mentioned, several large deals valued at just over 10 million stalled very late in their closing stages at the end of December due to key personnel being unavailable to finalize contracts and approved and released P. O S.

Speaker 4: While the top line, during a transition, can experience some choppiness, the true measure of our transition is seen in ARR growth, and that has continued to rapidly expand in Q1.

While the top line during a transition can experience some choppiness the true measure of our transition is seen and they are growing and that has continued to rapidly expand in Q1.

Speaker 4: Our one-cloud ARM metric exited the quarter at $620 million, which represents 17% in sequential growth, and is up 137% year-to-year.

Our one cloud <unk> metric exited the quarter at $620 million, which represent 17% sequential growth and is up 137% year over year.

Speaker 4: This quarter we know that they get especially strong contribution internationally to increase demand and adoption.

This quarter, we know big especially strong contribution internationally through increased demand and adoption.

Speaker 4: We continue to see a strong contribution from our contact center within ARR with that poor summer of business contributing about 60% of total ARR.

We continue to see strong contribution from our contact center within a year or would that portion of our business contributing about 60% of totally are.

Speaker 4: Our status as enterprise leaders is further demonstrated in the number of customers paying greater than $5 million in ARR and in particular a growing number of customers paying greater than $10 million annually. Similarly, customers paying greater than 1 million represents approximately 60% of total ARR.

Our status as enterprise leaders is further demonstrated in the number of customers paying greater than $5 million and they are and in particular, a growing number of customers paying greater than $10 million annually.

Similarly customers paying greater than $1 million represents approximately 60% of total AOR.

Getting deeper into the numbers.

Speaker 4: For the first quarter of our fiscal 2022, revenue was $713 million, down 4% as reported, and in constant currency, against the $743 million in the year of Opiri.

For the first quarter of our fiscal 2022 revenue was $713 million down 4% as reported and in constant currency against the $743 million in the year ago period.

Speaker 4: Revenue contribution from CAHPS or CLOWS, a LANGUS partner in subscription, and other indicators of the transformation of our business represented 44% of total revenue, flat sequentially, and up from 34% in the year-end-go period.

Revenue contribution from caps or cloud alliance partner its subscription another indicator of the transformation of our business represented 44% of total revenue flat sequentially and up from 34% in the year ago period.

Speaker 4: For our first fiscal quarter, recurring revenue accounted for 66% of total revenue in alignment with recent levels.

For our first fiscal quarter recurring revenue accounted for 66% of total revenue in line with recent levels.

Speaker 4: Meanwhile, software and services revenue represent an 86% of total revenue.

Meanwhile, software and services revenue, representing 86% of total revenue.

Speaker 4: Hardware revenue at 14% of total revenue is relatively flat in revenue dollar terms versus the fourth quarter of fiscal 2021. Reflecting continued strong demand for devices that accompany our software offer.

Hardware revenue at 14% of total revenue is relatively flat in revenue dollar terms versus the fourth quarter of fiscal 2021, reflecting continued strong demand for devices that accompany our software offerings.

Speaker 4: Subsequently, software revenue, our newest KPI, as a percent of total revenue, came in at 62% in Q1.

Subsequently software revenue our newest kpis as a percent of total revenue came in at 62% in Q1.

Turning to our gross profit metrics non-GAAP gross margin was 57, 6% in the first quarter compared to 61, 8% in the year ago period, and 64% sequentially.

Speaker 4: Non-GAP gross margin was 57.6% in the first quarter compared to 61.8% in the year ago period, and 60.4% sequentially. This was impacted by...

This was impacted by two key factors.

Speaker 4: First, lower level of contribution from software revenue due to less high margin point in time in quarter revenue Recognized from our one cloud subscription hybrid deal

First lower level of contribution from software revenue due to a less high margin point in time in quarter revenue recognized from our one cloud subscription hybrid deals.

Speaker 4: and the handful of flipped software deals that I referenced above.

And the handful of slipped software deals that I referenced above.

Speaker 4: Second, the stronger hardware contribution mix within the product's sake.

Second the stronger hardware contribution mix within the product segment.

Additionally, hardware gross margins were significantly impacted due to industry wide elevated supply chain costs.

Speaker 4: Additionally, hardware gross margins were significantly impacted due to industry-wide elevated supply chain costs.

Turning to total profitability margin and cash flow metrics for the quarter.

Speaker 4: Turning to total profitability, margin and cash flow metrics for the quarter.

Speaker 4: First quarter, 9GAP operating margin was $102 million, representing a 9GAP operating margin of 14%. Down 760 basis points a year and a year.

First quarter non-GAAP operating margin was $102 million, representing a non-GAAP operating margin of 14% down 760 basis points year on year.

Speaker 4: Adjusted EBITDA was $129 million, representing an adjusted EBITDA margin of 18%, down 750 basis points a year on year, due to the revenue and gross margin impacts referenced, as well as the increased cloud investments in R&D and go to Mars.

Adjusted EBITDA was $129 million, representing an adjusted EBITDA margin of 18% down 750 basis points year on year due to the revenue and gross margin impacts referenced as well as the increased cloud investments in R&D and go to market.

Speaker 4: Non-GAT BPS was 42 cents in the first quarter compared to 90 cents in the year ago period and 77 cents a point.

non-GAAP EPS was <unk> 42 cents in the first quarter compared to 90 in the year ago period, and 77% sequentially.

Cash flow from operations was negative $111 million were negative 16% of total revenue contributing to our first quarter ending cash balance of $354 million.

Speaker 4: Cash flow from operations was negative $111 million, where negative 16% of polar revenue contributing to a first quarter ending cash balance of $354 million.

Speaker 4: As discussed in our last earnings call, a large negative CFO was expected during the quarter due to payments of our annual incentive plan and large commission payments due to our sales reps for fiscal 2021 results.

As discussed in our last earnings call a large negative CFO was expected during the quarter due to payments of our annual incentive plan and large commission payments due to our sales reps for fiscal 2021 results.

Speaker 4: This quarter, CFO was further impacted by a single large collection worth nearly $40 million related to a federal government contractor which was pushed out of the quarter. This receivable is on track to be collected in Q2.

This quarter <unk> was further impacted by a single large collection worth nearly $40 million related to our federal government contractor, which was pushed out of the quarter. This receivable is on track to be collected in Q2.

Speaker 4: As discussed in investor day, contract assets, which largely reflects deferred billings, continues to grow from $606 million at the end of Q4 of fiscal 2021 to $664 million at the end of Q1. This represents a strong pool of future cash collections for a via.

As discussed at Investor day contract assets, which largely reflects deferred billings continues to grow from 606 million at the end of Q4 of fiscal 2000 $21 million to $664 million at the end of Q1.

This represents a strong pool of future cash collections for Avaya.

Now turning to guidance.

Speaker 4: Please note that all year-on-year revenue changes are expressed on a constant currency basis, and all revenue amounts for flexing rates as of January 31st, 2022.

Please note that all year on year revenue changes are expressed on a constant currency basis, and all revenue amounts reflecting rates as of January 31 2022.

Speaker 4: In terms of our forward-looking one-cloud ARR metric, we are increasing our guidance for the full year and now expect to exit fiscal year 2022 between $920 million.

In terms of our forward looking one cloud era are metrics, we are increasing our guidance for the full year and now expect to exit fiscal year 2022 between 909 hundred $20 million.

Speaker 4: At the midpoint, this represents growth of 72% year-to-year.

At the midpoint this represents growth of 72% year over year.

Speaker 4: This expectation me affirms the previously committed target of exiting 2022 calendar year with one cloud ARR at or above $1 billion.

This expectation reaffirms the previously committed target of exiting 2022 calendar year with one cloud or are at or above $1 billion.

Speaker 4: Turning to revenue, we are reaffirming full-year revenue guidance. As such, we continue to expect the full-year revenue to be between $2.975 billion and $3.025 billion. This has year-on-year revenue growing between 0 and 2% on an as reported basis and 1 to 2% on a constant currency basis.

Turning to revenue we are reaffirming full year revenue guidance as such we continue to expect the full year revenue to be between $2 97, 5 billion and $3.0 billion to $5 billion. This has year on year revenue growing between zero and 2% on an as reported basis and 1% to 2% on a cash.

Constant currency basis.

Speaker 4: We note that a continuing strengthening of the US dollar in 2022, beyond current levels, would pose a headwind to our guided reference.

We note that a continuing strengthening of the U S. Dollar in 2022 beyond current levels would pose a headwind to our guided revenue.

Speaker 4: For the second quarter of our fiscal year 2022, we anticipate revenues of $730 to $745 million, which at the midpoint represents constant currency growth of about 1% and flat on an as reported basis.

For the second quarter of our fiscal year 2022, we anticipate revenues of $730 million to $745 million, which at the midpoint represents constant currency growth of about 1% and flat on an as reported basis.

Speaker 4: We expect full-year adjusted EVA-DOT to be between $680 million and $700 million.

We expect full year, adjusted EBITDA to be between $680 million and $700 million.

Speaker 4: The reduction from our prior, full-year adjusted EVA guidance of $700 million to $720 million reflects the impact of higher supply chain costs.

The reduction from our prior full year adjusted EBITDA guidance of 700 million to $720 million reflects the impact of higher supply chain costs.

Speaker 4: At the midpoint, this implies a 23% adjusted EBITDA margin. We expect non-GAP operating margin for the fiscal year to be approximately 19%.

At the midpoint this implies a 23% adjusted EBITDA margin, we expect non-GAAP operating margin for the fiscal year to be approximately 19%.

For the second quarter non-GAAP operating margin is expected to be between approximately 17, and 18% and adjusted EBITDA to be between 155 and $165 million or between 'twenty, one and 22% of revenue.

Speaker 4: For the second quarter, 9-gap operating margin is expected to be between approximately 17 and 18 percent. And I adjusted EBITDA to be between 155 and 165 million dollars, or between 21 and 22 percent of road.

Speaker 4: We expect non-GATBPS for the full year to be between $2.72 and $2.88. This compares to $3.16 in the prior year period.

We expect non-GAAP EPS for the full year to be between $2 72, and $2.88. This compares to $3 16 in the prior year period.

For the quarter, we expect non-GAAP EPS to be between 58.

Speaker 4: For the quarter, we expect non-gap EPS to be between 58 cents and 66 cents. This compares the non-gap EPS of 74 cents in the year-of-a-period.

And 66 cents. This compares to non-GAAP EPS of <unk> 74 in the year ago period.

Speaker 4: For the full fiscal year, we continue to expect CFFO as a percent of revenue to be approximately 1% or unchanged from prior goods.

For the full fiscal year, we continue to expect <unk> as a percent of revenue to be approximately 1% or unchanged from prior guidance.

Before I turn the call back to Jim I want to announce that Mike Mccarthy will be leaving avaya to pursue another career opportunity. So this will be his last earnings cycle with Avaya.

Speaker 4: Before I turn the call back to Jim, I want to announce that Mike McCarthy will be leaving a via to pursue another career opportunity. So this will be his last earning cycle with the via.

Speaker 4: Mike and I joined a viah within six weeks of each other and we've worked very closely over these past three years. We will miss him and wish him the best of luck.

Mike and I joined Avaya within six weeks of each other and we've worked very closely over these past three years.

We will miss him and wish him the best of luck in his new role.

Speaker 4: Replacing Mike as VP of Investor Relations will be Nandan Amlady. Nandan is known to many of you already from his time as an equity analyst before he joined a via and is a member of the Avaya team since June of 2020. With that, I would now like to turn the call back to Jim. Jim.

Replacing Mike is V. P of Investor Relations will be nothing nothing is known to many of you already from his time as an equity analyst before he joined Avaya and is a member of the Avaya team since June of 2020.

With that I would now like to turn the call back to Jim Jim.

Thank you Karen.

Last year was a year of continued transformation for our business I'm.

Speaker 3: I'm optimistic about how we're positioned entering 2022. And I have high confidence.

I'm optimistic about how we're positioned entering 2022.

I have high confidence not only in the strategy, we laid out, but most importantly, and our global team and their ability to continue executing to it.

Speaker 3: But most importantly, and our global team and their ability to continue. X.

Speaker 3: It's important to recognize the magnitude of the changes we have made over the past few years.

It's important to recognize the magnitude of the changes we have made over the past few years.

Speaker 3: As we now move along to the inflection point of our business model transformation, we will continue to generate additional successes and there have been many, but there's always more work ahead.

As we now move along to the inflection point of our business model transformation, we will continue to generate additional successes and there have been many.

But there's always more work ahead.

Speaker 3: We remain focused on solidifying our business for long term success, and the lessons we've learned and implemented will help us do just that.

We remain focused on solidifying our business for long term success and the lessons we've learned and implemented will help us do just that.

Speaker 3: long-term, the markets we address are robust, growing, and as we move forward, our performance will accelerate, and we believe there is significant opportunity in front of us to drive sustainable growth.

Long term the markets, we address a robust growing and as we move forward our performance will accelerate and we believe there is significant opportunity in front of us to drive sustainable growth.

Speaker 3: Finally, I'd like to thank the over 8,000 of IONs, along with our 4,000 plus partners around the globe for their tireless efforts and focus on driving value for our customers.

Finally, I'd like to thank the over 8000 of irons, along with our 4000 plus partners around the globe for their tireless efforts and focus on driving value for our customers and I, especially want to thank those same customers for their commitment and trust in Avaya.

Speaker 3: And I especially want to thank those same customers for their commitment and trust in Avaia. With that operator, please open it up for questions.

With that operator, please open it up for questions.

Thank you we will now be conducting a question and answer session.

Speaker 1: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that you line it in the question key. You may press star two if you-

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Speaker 1: In the interest of time, we ask the participants limit themselves to one question and one follow. One moment, please. One moment, please.

In the interest of time, we ask that participants limit themselves to one question and one follow up one moment. Please while we poll for questions.

Yes.

Yeah.

Speaker 1: Thank you. Our first question comes from Ryan McWilliam with Barclays. Please proceed with your question.

Thank you. Our first question comes from Ryan Macwilliams with Barclays. Please proceed with your question.

Speaker 5: Next, take him to question and congrats to Mike McCarthy. He will be missed, but he leaves you guys in good hands, for sure. Here in, you know, I appreciate your color and the prepared remarks. Just on revenue coming in lower than guidance in this quarter, can you expand upon the puts and takes there? Like, should we expect the majority of that 20 million revs to come in the next quarter? And then were these push deals the reason that you maintain the full year rev guide in light of this print? Thanks.

Thanks for taking the question and congrats to Mike Mccarthy, He will be missed but he leaves you guys in good hands for sure Kieran you know I. Appreciate your color in the prepared remarks, just on revenue coming in lower than guidance and this quarter could you expand upon the puts and takes there like should we expect the majority of that 20 million revs to come the next call.

And then where these pushed deals the reason that you maintained the full year Rev Guide in light of the sprint.

Yeah, Hey, Brian This is Jim I think I'll start and then I'll turn it over to Karen.

Speaker 6: I think I'll start now, turn it over to guaranteed, and a little bit more color, so um.

A bit more color so.

Speaker 6: First, as we stated in our preparing marks, we had a really strong, a buy one cloud signing in bookings in the quarter and clearly highlighted by the largest deal on the history of the company with the multi-hundred million dollar CES contract. Once again, we've added 90 million of ARR, as I pointed out, we're now up to 620 million. So if you take a look at Q1, kind of sum it up, our signings were actually quite strong and largely in line with expectations.

As we stated in our prepared remarks, we had a really strong avaya one cloud signing in bookings in the quarter and clearly highlighted by the largest deal in the history of the company with a multi hundred million dollar contract.

Once again, we've added $90 million and they are as I pointed out.

We're now up to $620 million. So if you take a look at Q1.

Summing up our signings were actually quite strong and largely in line with expectations.

Speaker 6: One of the important notes, however, and we sort of touched on that in our remarks is the fact that customers are accelerating to cloud. And in fact, we saw a number of our customers choose private and public instead of what we had originally modeled in as subscription.

One of the important notes, however, and we sort of touched on that in our remarks is the fact that customers are accelerating to cloud and in fact, we saw a number of our customers.

As private and public instead of what we had originally modeled in as subscription.

Speaker 6: So this is obviously very important. It's in line with our strategy and that is to moving customers to the cloud. And that obviously had a, what I'll say, an impact on short-term revenue.

So this is obviously very important.

In line with our strategy and that is to moving customers to the cloud.

And you know that obviously you had a what I will say an impact on short term revenue.

Speaker 6: But it really solidifies our position not only in cloud, but also to be a strategic partner to a number of our large, large enterprises, our customers and in fairness.

But it really solidifies our position not only in cloud, but also to be a strategic partner to a number of our large large enterprises are customers and in fairness I would make that tradeoff in that deal each in each and every time. So you know the overall goal of the company is to continue to move to a cloud model.

Speaker 6: I'd make that trade off in each and every time. So the overall goal of the company is to continue to do a cloud model.

Speaker 4: It's continued to build out our ARR and long relationships and success with our customers. I'll turn it over to Karen, we'll go to the next one. Right, so right, specifically to your question. So I'd break the living view underguide despite into two forms.

Continuing to build out our E R R and long relationships and success with our cost, but I'll turn it over to Karen.

Alright, specifically to your to your question so I break the revenue.

Under guidance into two forms first roughly about $20 million, what I'll call was really pushed out of this quarter. So the deal was signed and inked what we thought we would get from those deals in terms of point in time revenue in the quarter.

Speaker 4: First, roughly about $20 million would alcohol.

Speaker 4: was really pushed out of this quarter. So the deal was signed and in what we thought we would get from those deals in terms of point and time revenue in the quarter is gonna be different. And that will come back to us. Some of them will come back this year, roughly about $5 million over the next couple of quarters. I would say the bulk of it, probably more like 15-ish of that 20 million will come at us over the next couple of years. And why is that? It's really because of

He's going to be different and that will come back to us and some of them will come back this year roughly about five ish million dollars Oh over there over the next couple of quarters I would say the bulk of it probably more like 15 ish of that $20 million will come at us over the next over the next couple of years and why is that it's really because of the.

Speaker 4: you know, the unique final terms, the flexibility that we might give to the customer as they sign the deal, any of the future deliverables, you know, that's all what can drive revenue variability in the quarter.

The unique the final terms the flexibility that we might give to the to the customer as they signed the deal any of the future deliverables, that's all what can drive.

Revenue variability in the quarter, so as I say it doesn't affect the size of the overall deal signings, but it can affect the endpoint. So I would say we get about five of that back this year the rest comes overtime.

Speaker 4: So as I say, it doesn't affect the size of the overall deal, the signings, but it can affect the end point. So I would say we get about, why the back this year, the rest comes over time.

Speaker 4: Then related, as Jim talked about, of the roughly 10 million this dollars of fields that slipped, you know, we expect those deals here in Q2, and in fact several of them already in-house. You know, you think about these deals. These are large, you know, complex deals with TCVs, all over a million dollars. And, you know, as you can imagine, they go through approval cycles many times from the CEO down, but certainly from CEO .

<unk> related as Jim talked about of the.

Of the roughly $10 million of deals that slipped we expect those deals here in Q2 and in fact several of them already in house.

You're thinking about these deals. These are large complex deals with <unk> well over $1 billion and as you can imagine they go through the approval cycle. Many times from the CEO down, but certainly from C office down and I would tell you I've been at this for 40 years and it was highly unusual at the end of the year.

Speaker 4: down and I would tell you I've been at this for 40 years.

Speaker 4: And it was highly unusual at the end of the year that we saw several companies, you know, literally going to a shutdown with key personnel, just simply not available to finalize either issue a PO or to finalize. So it's really not a reflection of demand. And I'm good confidence that that 10 million comes back to us here in YouTube.

That we saw several companies literally go into a shutdown with key personnel are just simply not available to finalize.

You either issue appeal or to finalize so it's really not a reflection of demand and a good confidence that that 10 million comes back to us here in Q2.

Speaker 5: Understood and glad to hear your prioritizing the cloud versus subscription wins and then just on profitability in the quarter It looks like it's stepped down with lower EBITDA and free cash flow I know things can be messy at your transition subscription. You mentioned kind of one-time item But how do you feel about your cash position as we get closer to your minimum cash balance range in your long-term target?

Understood I'm glad to hear your prioritizing the cloud versus subscription wins and then just on profitability in the quarter. It looks like it's stepped down with lower EBITDA and free cash flow I know things can be messy or just your interest in subscription you mentioned kind of a one time item, but how do you feel about your cash position as we get closer to your minimum cash balance.

<unk> and your long term targets.

Speaker 4: Right, so we said before that...

So as we've said before.

Speaker 4: You know, we like to have optimally $400 million on hand, but really that provides us with liquidity to support.

You know, we'd like to have optimally $400 million on hand, but really that provides us with liquidity to support.

Speaker 4: you know incremental flexibilities such as doing tucking and acquisition.

Incremental flexibility such as doing tuck in acquisitions.

Speaker 4: I'm quite confident that the team is able to operate at a cash balance of about $250 million.

I'm quite confident that the team is able to operate at a cash balance of about $250 million.

Speaker 4: without having to draw on any revolving predictability. So, you know, very, very comfortable at the levels that we're at. As you know, we do maintain the revolving ABL.

Without having to draw on any revolving credit facility. So.

You know very very comfortable at the levels that we're at.

As you know we do maintain the revolving ABL if somebody that has about 100 million plus of availability.

Speaker 4: and that has about a hundred million plus of availability, you know, based on AR and on hand inventory balances, but honestly don't foresee any need to utilize that in the near term. As we've talked about, you know, towards the back end of this year, we begin to see the swing now, as we start to level out in terms of the, you know, the new signings and the new ARR and the other stuff, you know, coming off of...

Based on our and on.

And inventory balances, but honestly don't foresee any need to utilize that in the near term as we've talked about towards the back end of this year, we'd begin to see the swing now as we start to level out in terms of the you know the new signings and the new IRR and the other stuff you know coming off of them.

Speaker 4: expiring and I think we start to get more of a steady state in the back half of this year. So that's why I'm comfortable with the 1% guidance still for this year.

[noise] expiring and I think we start to get more of a steady state in the back half of this year. So that's why I'm comfortable with the 1% guidance for this year.

Okay.

Next question Paul.

Thank you. Our next question comes from George Sutton with Craig Hallum Capital Group. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from George Sutton with Craig Hallum, Capitol Group. Please continue to hear.

Speaker 7: Thank you guys. I'm particularly interested in the competitive dynamics on the $400 million win that you had. You mentioned several vendor takeaways. I'm curious was this a...

Thank you guys and I'm, particularly interested in the competitive dynamics on the 400 million dollar win that you had you mentioned a little vendor takeaways I'm curious was this.

Speaker 7: a previous customer of yours that move forward with you. And obviously the message that this makes on your public cloud capabilities is obvious, but I'm curious if you could just address that as well.

Was this a previous customer of yours that that move forward with you and.

Obviously the message.

On your public cloud capabilities is obvious, but I'm curious if you could just address that as well.

Yeah, Hey, George Jim Thanks for the question.

Speaker 6: Yeah, hey George Jim, thanks for the question. Yeah, first and foremost, we were one of many...

Yeah first and foremost we were.

One of many.

Speaker 6: providers for this customer and basically what they did.

Providers for this for this customer and basically what they did is they.

Speaker 6: They consolidated their footprint. But this deal is unique and really highlights the differentiation and relevance we bring to the market because it's not what I would call your traditional C-Cas.

They consolidated their footprint, but.

This deal is unique.

And really highlights the differentiation of railroad and relevance we bring to the market because it's not what I would call. Your traditional C. Catch you catch deal. It's really one that we really are driving a true business transformation.

Speaker 6: It's really one that we really are driving a true business transformation.

Speaker 6: and be an integrating digital technology across their complete enterprise. We are reimagining for like a better term, their entire customer experience journey. We're starting initially with 20,000 agents, but we will be expanding to north of 40,000 agents.

Integrating digital technology.

Across their complete enterprise.

We are re imagining select for better term their entire customer experience journey, we're starting initially with 20000 agents.

But we will be expanding to north of 40000 agents.

Speaker 6: in the next five years or so. So, you know, it's a combination, if you all have our platform capability, the ecosystem, the innovation we're bringing, and really the competency that a buyer has, that others simply do not in designing, building, and developing, you know, apps, machine learning, automation, all sort of those innovative capabilities, really to build out stronger sort of functionalities for the cost.

And then in the next in the next five years or so so.

It's a combination if you will our platform capability the ecosystem. The innovation, we're bringing in really the competency that avaya has that others simply do not in designing building.

And in developing <unk>.

<unk> machine learning automation.

All sorts of deals innovative capabilities.

To build a stronger sort of functionality for the customer so the.

Speaker 6: So, you know, the other interesting note is this is the first that we believe in line with.

The other interesting note is this is the first that we believe in line with that.

Speaker 6: a dozen to 18 other large enterprises that we're currently working with within the market today may not be as large as this, but we are the only provider that can really manage the complexity. I'll call customer sensitivity, compliance, regulatory, measures, and provide this sort of personalized complex business use cases. So we're running the service.

That doesn't to 18 other large enterprises that we're currently working with within the market today.

May not be as large as this but you know we are the only provider that can really manage that complexity.

Called customer sensitivity compliance regulatory measures.

And provide this sort of personalized complex business use cases so.

Well one of these projects necessarily because we have the right technology, but we have a strong innovative roadmap. We're the right partner to manage sort of the complete management system domain expertise with our services organization and helping really guide. These large complex enterprises through this very complex transformation journey.

Speaker 6: Not solely because we have the right technology, but we have a strong innovative roadmap, where the right partner to manage the complete management system domain expertise with our services organization and helping really guide these large complex enterprises through this very complex transformation journey. So...

So.

Speaker 6: a very exciting win, not just on the value, but really how it's positioning us and really solidifying the work that we've really been focusing on for the last three years around our public sea cast journey.

A very exciting win.

Not just on the value, but really how it's positioning us.

And really solidifying the work that we've really been focusing on for the last three years around our public see cash journey.

Speaker 7: If I could just ask one from a follow-up perspective coming off of your analyst day, a big differentiator that I took away was the MPC. Is that starting to make its way into your marketing message? Is that proving to be a differentiator as it certainly sounded like us?

Got you if I could just ask one follow up perspective coming off of your analyst day, the big differentiator that I took away was the M. P C.

Hum.

Is that starting to make its way into your marketing message is that proving to be a differentiator is it certainly sounded like us.

Speaker 6: The answer is yes, but I'll turn it over to...

The answer is yes, and then I'll turn it over to.

Speaker 6: to either, to augment or type to provide a little additional color to give you an update on exactly where we are in, in rolling that out into the marketplace. All right.)

To either to augment or Todd to provide a little additional color to give you an update on exactly where we are in rolling that out into the marketplace.

Uh huh.

Mediapart guideline anchors yep.

Yes.

Okay.

Go ahead Todd.

Can you guys hear me.

Speaker 8: Yep. Can we do it? Okay. Sorry. So Media Processing Corps is the technology anchors all of our media. We use it in our space's product today. And it will be available in our C-CAS public mid this year. It's a next generation cloud architecture with global scale 50 millisecond failover. It has 80% lower bandwidth utilization. It offers features like AI noise reduction.

Yes, I can hear you okay.

Okay, sorry, so media process in court.

Is the technology of anchors all of our media, we use it in our spaces product today and it will be available in our key cast public mid this year.

It's it's a next generation cloud architecture with with global scale 50 millisecond fail over.

It has 80% lower bandwidth utilization.

Features like AI noise reduction.

Speaker 8: And it really is a next generation cloud architecture. We feel puts us at least two years ahead of our competition.

And it really is a next generation cloud architecture, we feel puts us at least two years ahead of our competition.

Speaker 8: and really it demonstrates a viability to lead in cloud. So it's a technology that we are going pretty heavily to the market with knowing that it's something that we've already released and we've demonstrated with our space's product and it is something that's gonna be providing additional value into our public CKIS.

And really it demonstrates <unk> ability.

To lead in cloud so it's a technology that we are going pretty heavily.

To the market with knowing that it's something that we've already released and we've demonstrated with our space its product.

And it is something that's gonna be providing additional value into our our public CCAR.

Yeah.

Speaker 1: Thank you. Our next question comes from Lance Botanza, which talent and company. Please proceed to your question.

Thank you. Our next question comes from Lance Vitanza with Cowen.

Allen <unk> company. Please proceed with your question.

Hi, guys. Thanks for taking my question.

Speaker 8: Hi guys, thanks for taking my question. I have a follow up as well, but let me start with just on the one cloud ARR, great work that metric continues to out before our applications, but could you discuss whether the metric itself?

A follow up as well, but let me start with just starting to what cloud a great work that metric continues to outperform our expectations, but could you discuss whether the metric itself is inflated perhaps by virtue of larger upfront payments you receive or upfront revenue that you recognize or or do you guys control for that.

Speaker 9: inflated perhaps by virtue of larger up front payments you receive or up front revenue that you recognize or or do you guys control for that when

When you report that metric.

Speaker 4: A lands its carried. That's a great question. Have you asked it? So the What we essentially do is we take the annual contract value right off of the metrics So the ARR is nothing more than the total TCV Divided by the duration has really nothing to do with when we recognize the revenue So it's an annualized annualized recurring metric So

Just curious if that's a great question have you asked it so.

What we essentially do is we take the annual contract value of all of the metrics of the IRR was nothing more than the total TCE D. Divided by the duration has really nothing to do with when we recognize the revenue. So it's an annualized annualized recurring metric.

So no no impact from a Rev Rec.

Speaker 9: Okay, great, thanks. And just my follow up is the 1,400 new logos that you added in the quarter. And I apologize if I missed this, but could you give us at least a rough sense for how many of those new logos are taking one cloud ARR.

Okay, great. Thanks, and just my follow up is the 1400, new logos that you added in the quarter and I apologize if I missed this but could you give us at least a rough sense for how many of those new logos are taking one cloud services.

Speaker 4: Well, essentially just by, you know, just looking at it, it's well over, it's well over 60% are actually going for either cloud or a subscription hybrid offering.

Well essentially just by.

Just looking at it it's well over its well over 60% are actually going for either cloud or subscription hybrid offering.

Okay great.

Speaker 1: Thank you. Our next question comes from Catherine Trebnik with Coliers. Please proceed with your question.

Thank you. Our next question comes from Katherine <unk> with <unk>. Please proceed with your question.

Okay.

Thank you Hey, Catherine next question comes from.

Speaker 1: Thank you. Thank you. The next question comes from Rod Hall with Goldman Stacks. Please proceed with your question.

Rod Hall with Goldman Sachs. Please proceed with your question.

Speaker 10: Thanks for taking my question. This is Bala on the road. If I look at the fully aligons, looks like you're implying a significant ramp in second half. Not just in revenue.

Hi, Thanks for taking my question. This is Bala entourage.

If I look at the full year guidance, it looks like you're implying that significant.

In second half not just didn't have anyhow.

Speaker 10: but also more significantly so in operating margins in the second half.

Also most significantly at.

Operating margins in the second half.

Speaker 10: I just want to better understand what is driving that better matching guidance.

I just wanted back and understand what is driving that.

Maarten guidance.

<unk>.

Speaker 4: Well obviously at the eyeball it's curing. I mean clearly as you continue to sell high margin software in the form of cloud

Sure well, obviously eyeball, it's Karen I mean.

Clearly as you continue to sell high margin software in the form of cloud.

Speaker 4: You know, that drives a great deal of profit right to the bottom line. You know that we've been ramping up our investments from both an R&D and a go-to-market perspective for quite some time. You know, we literally impacted us in Q1 with just the absence of that very high margin revenue. So as we look out into the back half of the year, you know, we see our revenue bouncing back and continuing to start to ramp now with many of the cloud. You know, the public and private cloud dealings that we've booked.

That drives it drives a great deal of profit right to the bottom line you know that we've been ramping up our investments in both R&D and our go to market perspective for quite some time.

When literally impacted us in Q1 was just the absence of that very high margin revenue. So as we look out into the back half of the year.

We see our revenue bouncing back and continuing to start to ramp now with many of the cloud.

The public and private cloud dealings that we booked.

Speaker 4: And that starts to generate revenue. Some of that cost was sitting already in our numbers in the first and second quarter. And without the revenue, and if that revenue starts to ramp now, it absorbs all of that cost and the margin starts to get significantly better in the back half of the year as well.

That starts to when that starts to generate revenue some of that cost was sitting you know already.

In our numbers in the first and second quarter and.

Without the revenue and as that revenue starts to ramp now it absorbs all of that cost and the margins start to what to get significantly better in the back half of the year as well.

Speaker 6: Yeah, maybe I'll just add a little bit of care. And so if you take a look at the profile, obviously with our move to...

Maybe I'll just add a little bit at Carrington. So if you take a look at the profile, obviously with our move to <unk>.

Speaker 6: are moved to cloud, you can imagine based on the size and the complexity of these deals, they take anywhere between say three to six months of design scope.

Our move to cloud you can imagine based on the size and the complexity of these deals they take anywhere between say three to six months to design scope agree.

Speaker 6: agree on a full execution plan with customers and actually begin to activate.

Agree on a full execution plan with customers and actually begin to activate.

Speaker 6: So as I mentioned in my script on C-CAS, we did more last quarter than we did the previous four quarters combined. So we will start to deploy those and roll those out in the second half of the year. Same frankly with our private cloud solution.

So as I mentioned in my in my in my script.

As we did more last quarter than we did the previous four quarters combined so we will start to deploy those enrolled those out in second half and the second half of the year.

Frankly, with our when our private cloud solutions Thirdly is the fact as I mentioned that large deal will start to realize revenue on that in the second second half of the year and then you know the success that we've had with our subscription hybrid offer where we're able to claim.

Speaker 6: Thirdly is the fact, as I mentioned, that large deal will start to realize revenue on that in the second half of the year. And then, you know, the success that we've had with our subscription hybrid offer, we're able to claim.

Speaker 6: you know roughly sixty percent or so point time revenue that residual forty percent continues to build radically quarter after quarter after quarter

Roughly 60% or so point in time revenue that residual 40% continues to build ratably quarter after quarter after quarter.

Speaker 6: So there's obviously a significant backlog, and that's the point about how we're sort of reaching this inflection point now with recurring revenues, which now are 66% of our overall revenue, really starting to yield in the second half of the year consistent, frankly, with our overall strategy.

So there is a.

Obviously, a significant backlog and that's the point about how we're sort of reaching this inflection point now with recurring revenues, which now are 66% of our of our overall revenue really starting to yield in the second half of the year consistent frankly with our with our overall with our overall strategy. So as we continue to win these.

Speaker 6: So as we continue to win these large deals and now we're activating and then monetizing as we roll through the bounds of this year and into 2023.

Large deals and now we're activating and then monetizing.

As we roll through the balance of this year and into 2023.

Speaker 6: you know, it's why we're confident on our ability to make the second half of the year. And don't forget the point that we mentioned the fact that we didn't lose any of the volume. In the first quarter, it was pushed to elect for better term or valued moving more from subscriptions to recurring. So, that's why we know, guidance is actually the same and why we're confident in our ability to make sure that we obviously come in and meet the guidance range. To do that, thank you so much.

It's why we're confident on our ability to make the second half of the year and don't forget the point that we mentioned the fact that we didn't lose any of the volume in the first quarter. It was it was pushed collect for a better term or values moving more from subscription to recurring.

So.

That's why we know guidance is actually the same and why we're confident in our ability to make sure that we we obviously come in and and meet the guidance range.

Got it okay.

Speaker 10: I'm sorry, one person can't be.

I'm, sorry, one plus upon the slowdown in commercial deal activity could you maybe expand on that he can look more like.

Speaker 10: Could you maybe expand on that e-rich marketing? I think you mentioned.

I think you mentioned.

It can go a kiosk or a lack of personnel.

Speaker 10: I think I heard clearly a lack of personnel, my class officer, but I just want to better understand what really cost that.

Mike I, just wanted to better understand what's really caused badly.

Speaker 10: What was the unexpected surprise that really drove this push out of the hill?

The unexpected.

The surprise that really drove this push.

Push out of beans.

Speaker 4: Yeah, I mean listen, it deals push and, and you know, come into the quarter and grab the quarter all the time. And, you know, we were, we're used to that. But we had a handful of deals that were, we were pretty much rock solid on. That quite frankly, at the end of the quarter.

Yeah, I mean listen deals push and come.

Come into the quarter and glad to quarter all the time.

And you know where we're used to that but we had a handful of deals that where we were pretty much rock solid on that quite frankly at the end of the quarter.

Speaker 4: mostly in in North America so it was just nobody there i mean they did not they stopped engaging in terms of finalizing it and getting the contracts over the line and issuing the p.o.s highly unusual right again

Mostly in North America.

Nobody there I mean, they did not they stopped engaging in terms of finalizing it and getting the contracts over the line and issuing the P. O S highly unusual again.

Speaker 4: I do think there was obviously an impact that many customers and many people felt, you know, from the Amacron in Q4, not saying that was it or not, but these folks, they just literally were not there the last several days of the court to close on deals. And that is highly unusual even in Q4s.

I do think there was obviously an impact.

But many customers and many people felt from the from the omicron in Q4, not saying that was it or not but these folks are they just literally we're not there to last the last several days of the quarter to close on deals and that is highly unusual even in Q4 s.

Okay.

Thank you. Our next question comes from Katherine <unk> with Cold here. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Catherine Trebnik with Coliers. Please be seated. Any other questions?

Yeah.

Speaker 11: Thank you. Let's hope I don't get dropped again the middle of the question. Mike, you have to see you go, congratulations. So my question asked you what the product revenue. You came in at 231 million. Can you parse that between the hardware of the perpetual license? And then if the perpetual licenses were light, did that affect the growth margins as well? Thank you.

Thank you, let's hope I don't get dropped again.

Yes.

Mike.

Al Congratulations so my question has to deal with it.

Revenue came in at 231 million can you parse that between the hardware the perpetual license and then if the perpetual licenses.

Did that affect the gross margins as well thanks.

Speaker 4: Sure, so Catherine, your spot on, our hardware was actually in and about $97 million, relatively flat for where we were in Q4. So we continued to see a lot of like sort of pent up demand for devices. And therefore that was pretty consistent.

Sure.

You're spot on.

Our hardware was actually in at about $97 million relatively flat from where we were in Q4.

So we continue to see a lot of like sort of pent up demand for devices.

And therefore that was pretty consistent that hardware is generally you know more in the 40% to 60% margins. Historically, so that's going to have an impact on in period margin addition to that we actually saw on a volume adjusted we actually saw about $10 million with an ink.

Speaker 4: that hardware is generally more in the 40 to 60% margins historically. So that's going to have an impact on in period margin. In addition to that, we actually saw

Speaker 4: On a volume adjusted, we actually saw about $10 million with the incremental supply chain cost. Roughly about $7 million from a commodity.

The metal supply chain cost roughly about $7 million from a commodity perspective, which was in the base manufacturing cost.

Speaker 4: which was in the base manufacturing cost and about 3 million with incremental shipping and freight costs.

$3 million with incremental.

Shipping shipping and freight costs in the quarter and that's something we expect will probably continue a little bit here in Q2, but what we've been hearing from some were expecting that starts to ease in the second half of the year. So there is definitely a margin you know if I was to look at our margins overall in the year on year basis clearly.

Speaker 4: in the quarter. And that's something we expect will probably continue a little bit here in Q2. But what we've been hearing from some, we're expecting that starts to ease in the second half of the year. So there is definitely a margin, if I was to look at our margins overall on the year and year basis.

Speaker 4: Clearly, even though hardware was relatively flat, it had a larger percentage of total, that impacted margin, the supply chain margin, it was also about a point of increase.

Even though hardware was relatively flat it had a larger percentage of total that impacted margin. The supply chain margin. It was also about one point of increase lower software product revenue. That's you know north of 90% gross margin clearly has a very large impact on revenue was on margin as well.

Speaker 4: lower software product revenue that's north of 90% gross margin, clearly has a very large impact on revenue margin as well. Although we remember we would have expected some of that to shift away from product and into services as part of subscription, as we move and migrate customers away from the traditional capEx buying to subscription hybrid sales.

Although remember we would have expected some of that to shift away from product and into services as part of subscription as we move and migrate customers away from the traditional capex buying to subscription a hybrid sales.

Alright. Thanks.

Yeah.

Speaker 1: Thank you. Our next question is from Simeek Chatterjee with J.P. Morgan. Please consider to hear.

Thank you. Our next question is from Cemig Chatterji with J P. Morgan. Please proceed with your question.

Speaker 9: Hi, this is Joe Cardoso on FirstSomic. Just one question from you guys. As we look at your updated AAR guide and the activity that you're seeing in the first two months of the year, just curious to hear how you're thinking about the dynamics between penetration of your existing install base, new customer wins, as well as content increases. And whether you're seeing any changes between those dynamics versus let's say like last quarter. Thank you.

Hi, This is Joe Cardoso on for Samekh. Just one question from me guys now as we look at your updated a archive and the activity that youre seeing in the first two months of the year, just curious to hear how you're thinking about the dynamics between.

Penetration of your in your existing installed base and new customer wins as well as content increases and whether youre seeing any changes between those dynamics versus let's say like last quarter. Thank you.

Speaker 4: But I guess what I would say is in general, you know, the vast predominance of the dollar is continued to be driven by the migration of our existing customers.

I guess, what I would say is in general.

Vast predominance of the dollars continued to be driven by the migration of our existing customers.

Speaker 4: As we said last quarter of the last couple of quarters, we started to see a big step up in the number of new logos from the subscription hybrid perspective. And this quarter at almost 200 was the biggest that we had seen so far. But in all candor, those are relatively small landing points, right? They go into the traditional layer model, right? We landed the dot.

As we said last quarter over the last couple of quarters, we started to see a big step up in the number of new logos from a subscription hybrid perspective, and this quarter at almost 200 was the biggest that we've seen so far but in all candor those are relatively small landing points right. They they go into the traditional labor model right, we land adopt.

Speaker 4: expand and expand it out to renew over time. So that's not having as big an effect on the overall dollars, but I would say migration continues to be the engine behind most of it, albeit supplemented with some, as I talked about earlier, over 60% of our new logos are coming from cloud and subscription hybrid.

Expand our expanded that out to renew over time, so that's not having as big an effect on the overall dollars, but I would say migration continues to be the engine behind most of it, albeit supplemented with some of that as I talked about earlier over 60% of our new logos are coming from cloud.

And subscription hybrid.

Yes.

Speaker 6: Yeah, it just, I'll move it just a little bit to Karen. So first of all, AR is really, really important to us.

Would you say a little bit to Karen.

First of all they are is really really important to us.

Speaker 6: But ARs driven by our innovation that we're bringing into the market. And over the last 12 months, we've added over 6,000 new customers.

But ah is driven by.

Our innovation that we're bringing to the market and over the last 12 months, we've added over 6000 new customers.

Speaker 6: We've added now seven consecutive quarters of roughly over 100 deals greater than 1 million of

We've added now seven consecutive quarters of roughly over 100.

<unk> <unk> greater than $1 million of T V.

Speaker 6: We're starting to see a real acceleration from our subscription hybrid to now more private and public clouds, so demonstrating continued value with what we're bringing as far as technology into the marketplace. And that technology be it around new AI capabilities, social media management platforms, video and voice capabilities, the list goes on and on, so really driving a higher degree of relevant. So...

We're starting to see a real acceleration from our subscription hybrid to now more private and public clouds. So demonstrating continued.

Value with what we're bringing as far as technology into the marketplace and that technology be it around new AI capabilities.

Social media management platforms video and voice capabilities. The list goes the list goes on and on so really driving a higher degree of relevance. So the successful implementation of the plan.

Speaker 6: The successful implementation of the plan with our lens, really focusing in and recognizing importance of building ARR, I think is really starting to take hold and write in line with our long term strategy. So it's important for us.

With our lens really.

Really focusing in and recognize the importance of building <unk> I think is really starting to take hold and right in line with our long our long term strategy. So.

It's important for us to make sure that we keep this disciplined approach, which which we're doing it is important for us as we continue this transformation and transition to think about steady progress, which obviously, we believe we're doing quite well on you may have fluctuations and movement in deals.

Speaker 6: to make sure that we keep this disciplined approach, which we're doing. It's important for us as we continue this transformation and transition to think about steady progress, which obviously we believe we're doing quite well on. You may have fluctuations in movement in, you know, the old days to weeks or...

In two weeks or product preference to product preference, but the most important thing is continued growth steady progress.

Speaker 6: product preference to product preference, but the most important thing is continued growth, steady progress.

Speaker 6: And I think equally important, which sort of different just us from many others.

Equally important which sort of differentiate it differentiates us from many others.

Speaker 6: the skill set and expertise that we have in the number of years that we've been doing. You see in CC the technology we bring our customer base and our global capability. So, you know, we believe we are quote a very robust in these areas and you know, you're starting to see it take hold and again you may get a

Skill set and expertise that we have and the number of years that we've been doing UC and cc the technology, we bring our customer base.

Global capabilities. So we believe we are quota very robust in these areas.

Youre starting to see it take hold and again you may get a swap.

Speaker 6: one way or another, but the long-term strategy is

Sway you one way or another but the long term strategy is.

Speaker 6: is stronger than ever. And this move that we're seeing now to more of cloud is exciting for us because it's driving long-term value with our customer base. And it's obviously reflective in ARR. As I said a year ago, we were 262.

It's stronger than stronger than ever and.

This move that we're seeing now to more of cloud.

It is exciting for us because it's driving long term long term value with our with our customer base and obviously reflective in an IRR.

As I said a year ago, we were $2 62.

Speaker 6: you know at the end of this year we're going to be one billion. That's significant growth in just a two year period of time.

At the end of this year, we're going to be $1 billion.

Significant growth in your chest, a two year period of time.

Yeah.

Speaker 1: Thank you. Our next question comes from the Stia Merchant with Stiti Group. Please Please proceed with your question.

Thank you. Our next question comes from the merchant.

Citigroup. Please proceed with your question.

Speaker 12: Great, thank you and congrats, Mike, on the new opportunity. We'll definitely miss you and thank you for all the help that you've provided.

Great. Thank you and congrats Mike.

On the new opportunity well definitely Miss you and thank you for all the help that you can provide it.

Speaker 12: I had most of my questions have been answered, but I did have a question on something that you guys talked about.

My questions have been answered, but I did have a question on something that you guys talked about and maybe you can talk about you know any updates to that you talked about at your analyst day about the monthly recurring revenue that you were seeing.

Speaker 12: And maybe you can talk about any updates to that. You talked about it at your analyst day about the monthly recurring revenue that you were seeing. And if you can just talk about, you know, during the quarter or as you guys kind of think about how that's progressing, you know, relative to the kind of model that you guys put out.

And if you can just talk about you know during the quarter or did you guys kind of think about how that's progressing you know relative to the kind of model that you guys put out.

Speaker 12: The current monthly recurring revenue that you reference that your analyst event was a little bit lower, relative to the potential that CC and UCC could generate. To think about, you know, talk about what you're seeing in those areas that would be great. Thanks.

The current monthly recurring revenue that you referenced that your analyst event with a little bit lower but that gives you the potential that you see and Youll see could generate do you think that you know talk about what you're seeing in those areas.

Areas that would be great. Thank you.

Speaker 4: They asked me, it's Karen. So I think what you're talking about, obviously, MRR is just divided by 12 from our AR, right?

Hey, Akshay, it's Karen so I think what you're talking about obviously.

<unk> is just divided by 12 months from where they are right.

Speaker 4: And we obviously continue to build on our existing base.

And we obviously continue to build on our existing base of recurring revenues and aggregate that hasnt that really hasnt changed.

Speaker 4: of recurring revenues in aggregate. That hasn't, that really hasn't changed.

Speaker 4: You are, obviously you are correct that just given the revenue recognition around the subscription hybrid portion of that, we did see a book in the last quarter just because of some of that point in time versus overtime. But we continue to actually build off a good base of recurring revenue. And more and more of it, as we said in the last in our analyst day, we would expect that right now it's about 80-20 between subscription hybrid and cloud. And we expect

You are obviously you are correct that just given the revenue recognition around the subscription hybrid portion of that.

We did see a blip in the last quarter, just because of some of that point in time versus overtime, but we continue to actually.

Build of a good base of recurring revenue and more and more of it as we said in the last in our analyst day, you know we would expect that right now it's about 80 20 between subscription hybrid and cloud and we expect that will as we go through time, we'll continue to move towards a 50 50 and beyond for cloud.

Speaker 4: that will as we go through time, we'll continue to move towards a 50-50 and beyond for cloud. What you don't see represented in our ARR or our recurring revenue yet, because we don't start counting it until we start going...

You don't see represented in our AAR or a recurring revenue yet because we don't start counting it until we start doing it are some of these rather large enterprise complex deals like the one that you referenced we will start to see we'll start to see that contribute to our MLR.

Speaker 4: Are some of these rather large enterprise complex deals like the one that you're referenced? We'll start to see that contribute to our MRR and ARR on an ongoing basis once we start building that towards the second half of the year.

<unk> on an ongoing basis once we start building that towards the second half of the year. So you know quite honestly, we were very pleased within our $90 million of error that we recognized this quarter to see a nice distribution across all facets between cloud and subscription hybrid but in addition to that starting to generate some pretty <unk>.

Speaker 4: So quite honestly, we were very pleased within our $90 million of ARR that we recognized this quarter to see a nice distribution across all facets between cloud and subscription hybrid. But in addition to that, starting to generate some pretty significant...

<unk>.

Speaker 4: Backlog if you will now let me just spend one moment on that so we we have pretty conservative booking

Backlog, if you will now let me just spend one moment on that so we were pretty conservative booking.

Speaker 4: We, we, we, uh, pretty conservative in our overall booking. So this.

We are pretty conservative in our overall bookings. So this multi hundred million dollar deal that we booked for this large global financial enterprise, we only actually booked a little less than 10% of that in the most recent quarter and thats because we really do based on our bookings based upon committed milestone and we would expect that we will.

Speaker 4: multi-hundred million dollar deal that we booked for this large global international enterprise.

Speaker 4: You know, we only actually booked a little less than 10% of that in the most recent quarter. And that's because we really do face our booking space upon committed milestones. And we would expect that we will add on that as we achieve milestones to go through the year. So again, that's backlog that we have, that we're not necessarily representing it in our RPO that we publish in our queue.

Add on that as we achieve milestones as we go through the year. So again thats backlog that we have that we're not necessarily representing yet in our rps.

We publish in our in our June .

Okay, great. Thank you.

Okay.

Thank you. Our next question comes from that of course, and with Dws financial.

Speaker 1: Thank you. Our next question comes from Hermetta Corsans with BWS Financial. Please be seated.

And with your question.

Hey, good morning, I, just wanted to see with the Lockdowns that happened what happened to the sales funnel to the sales team just stop and have to restart everything over again.

Speaker 13: Good morning. I just wanted to see what the lockdowns that happened. What happened to the sales funnel? Did the sales team just stop and have to restart everything over again?

Yeah.

Speaker 4: Sorry, Mr. First, part of your question to those Jim about sales funnel. No, I mean, no, no, no, not from it. I mean, in fact, these were deals that were inked, you know, early either in January , or we'll be done here in February . Listen, I mean...

I'm sorry, I missed the first part of your question. This is Jim about sales funnel no no not far from it I mean in fact these were deals that were you know early either in January or will it be done here in February .

Listen I mean.

Speaker 4: The world of reality is procurement teams will always take another bite at the apple if they can. Right? I mean, that's a given. But no, the deals were there. They were there to be done. And they're going to close this quarter of the deal. And again, it's worth about $10 million in total.

The world of the World. The reality is procurement teams will always take another bite at the Apple if they can right I mean, that's that's that's a given but know that the deals were there. They were there to be done and they're going to close this quarter or slip deals again, it's worth about $10 million in total.

And then my other question was how much of the expenses related to this $400 million deal were recognized in the December quarter.

Speaker 13: And then my other question was, how much of the expenses relate to this $400 million deal were recognized in the December quarter?

Speaker 4: You know, we're early days. We're starting to staff obviously. We'll staff. This is going to be a pretty large service delivery and hosting and that would be relatively small. Obviously we have some ongoing infrastructure that we have to stand up already to give proof of concepts to our customers etc. That is in our number but that's going to be small in comparison to the size of this multi-hundred million dollar deal.

We're early days, we're starting to we're starting to staff, obviously, well Steph, it's going be a pretty a pretty large service delivery and hosting and that would be relatively small obviously, we'd have some ongoing.

Infrastructure that we have to stand up already to give proof of concept to our customers et cetera that is in our number but that's going to be small in comparison to the size of this multi hundred million dollar deal.

Speaker 1: Thank you. There are no further questions at this time. I would like to turn the floor back over to Mike McCarthy for any clothing.

Thank you there are no further questions at this time I would like to turn the floor back over to Michael Mccarthy for any closing comments.

Thanks, Paul and thanks, everyone for joining us this morning for the December quarter Conference call. We look forward to speaking with you soon have a good week.

Speaker 2: Thanks, Paul. And thanks everyone for joining us this morning. Put a December quarter conference call. We'll look forward to speaking with you soon. Have a good week.

Speaker 1: This concludes today's conference. You may disconnect your lines with this time. Thank you for your part.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Speaker 14: The.

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Speaker 14: I.