AVYA - Earnings call transcript Q2 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Avaya Second Quarter Fiscal 2019 Financial Results Conference Call. [Operator Instructions] Mr. Michael McCarthy, Vice President of Investor Relations, you may begin your conference, sir.

Michael McCarthy

fiscal investor QX Avaya's to year call. XXXX Welcome prepared CEO; McGrath, will our Chirico, you this our Vice Kieran and President some with share CFO, Jim Senior your and President call and before remarks taking morning's questions. lead and Senior here our Chief and call. for Chris this President GC; Solutions and Administrative President Senior morning's Vice Vice of and Technology, and Shah, Shefali Officer McGugan, are also slides page referenced on The our on understanding morning's aid earnings and results. release, as accessible Relations CFO in financial call today SEC well the as investor Investor filed with of commentary website are your X-K and Avaya's this the of the should

available reference as circumstances the except to GAAP revise and A turn the forecasts are forward-looking otherwise We are or will to change, Jim. update required recent Investor that including which expectations, may noted. and current Form statements that results I'll guidance, may slides, obligations financial event risks with uncertainties which materially. reference our It to is uncertainties be is note risks not no reports. some XX-Q our and reiterate SEC, the facts page undertake over earnings website. based of filings most found to Information forward-looking or make investor release could we and the Form except specifically all XX-K on in year-over-year and measures such subsequent about by call in statements now included that differ where We remain actual subject cause reconciliation otherwise sequential and and law. in of policy Avaya's to some measures our our non-GAAP to and comparisons the the non-GAAP assumptions, on numbers, Relations

Jim Chirico

you through QX will us. on numbers. Thanks, and for Mike. comments 'XX are morning mostly FY the morning, Kieran take and My you our focused this joining performance, thank everyone, Good then

we of short corrective not to and wanted number earnings the way line we begin top expectations implemented fell to drive the response, was of and Our results have In a this performance. year. improved actions calendar

disappointed we of While I path traction and in overall, our remain many are and forward results confident business, our seeing the emerging given quarter, including cloud, momentum segments I'm about our technologies. services in last

Our revenue Number X a issues. product we execution due was shortfall to combination factors. of transition X, experienced

contact key internal missed technical associated in Specifically, offer. center a new a with deliverable we partner

this to in quarter. model we issue have later Series. We the will related this the UC, and be new address from channel In inventory our transition moved issues J execution operational to rectified to older quickly it experienced endpoints

but We causes and will the actions, corrective QX us root to return have until it normal operating take implemented early levels. addressed likely to

potential March a The a transaction change the in Reuters the the uncertainty result This partners second in was our late among story behavior. about created published led customers noticeable to buying and involving company. of and

to address pinpoint line, difficult effect. implemented impact, We innovation, bottom of outreach our an a and communications emphasizes had that quantitative situation. market plan have customer But speculation, the timing leadership help to the and a this strength clearly while

processes to continue our outlook it long-term in strategy. and talent technology invested Moving forward, believe I systems solid. and remains in for We've Avaya go-to-market as our and customer-led drive a re-engineered a to

In are an and key growth our areas. strength services to in which our innovation technologies initiatives, clients. in against our emerging made providing cloud to of a accelerating key aggressive team market, the deliver long-term and and We bringing showed have core, on second progress high-value playbook the in and focus to new our and number company's maintained quarter, implementing are strategy. We the investing growth growth

launch XXX% XX%. quarter-over-quarter $XX year-over-year Public now to XXX,XXX at seats. of over in recurring revenues cloud. services million by in bookings performance value and seat are and best led ReadyNow in And stands of contract XX% was our to see Private X traction Our our private QX cloud Services quarters. XX% In new over we the the services, and software in at last maintenance Professional improvements total revenue over our growth transition base. we cloud area had of

Our total year-over-year. grew approximately remained contract at and value $X.X X% billion

including out We are friends building IBM ecosystem, as such big and a broader alliances Google. with Salesforce,

and is capitalize opportunities focus market. the continued on to key identify Our growth in

examples. Let me provide a few

X $X traction over $X existing value to million military the seek interoperability contract a with in address able value. customers over was included X,XXX to in logos, of and continue the million infrastructure. Of transactions communications U.S. the we and agency's with X department only approximately key these million. We modernize of systems. new added specialized $XX company with second deals to and was quarter and total unique deals, challenges entire this Avaya needs This XX with both new their X over signed deals

is differentiated to Our continued solutions deliver commonplace. ability

Another will solution. the from value we be for from of is example Avaya over migrate and They included an chose mix Mitel, bring customer implementation Their years. completed multi-vendor that year. They XX of to an chose Cisco Health, and later customer perspective. improved hospitals XX center a contact Shoretel, to XXX of products CHRISTUS environment Avaya Avaya full a an next experience because clinics

the our Asia, X/Xs growth outside seats, strength of Europe, spread CaaS. the was capabilities. in cloud. driven of We from our XXX,XXX bringing to powered over continued a our to by total came turn South XX,XXX both U.S. and cloud In global enterprise by, nearly cloud, added our me momentum NX seats, of we highlighting just and saw mid-market seat public let offerings. across America, Now

available portal. Canadian on beginning will a This and the purchase and the into customers space CC In private since our offerings leverage online. million quarter move approach Storefront, simple through we we cloud, Additionally, see cloud now has X.X with vendor year. where Germany. from with and is this X in UC markets online this Rollouts are the of SMB go-to-market fulfillment can the U.K. second customers road seats. and to available the into ended been buying and U.S.-based of to half are year traction map early expands This benefits

cloud solutions by being private to move ready-now strategy the in embraced Our secure look and January in and are to they a mid-market way. enterprises cloud just and as global reliable launched

solution, worth We chose are a private already take a are customer to XX,XXX center ramping still X large to cloud in highlight contact notable private early in Mexican $XX a seats signing but telecommunications this I In million, consolidate us we like deal approximately wins. to approximately would model. company a customers. cloud moment

displace the This of Genesys management workforce further applications part we also potentially upside provides ability seats, new solution NICE. a the from replicate and X,XXX and will As globally. to transaction deal, in

deal customer company signed migrate unified also in million communications excess to of insurance private XX,XXX Additionally, cloud $XX with chose XX,XXX along solution. our to to a U.S.-based seats This contact a center Device-as-a-Service embrace unique released models is The differentiator offer newly And emerging of clearly our for multiple through Avaya. leverage offering. resonating. compelling delivery segments is our solutions to ability technologies a and market

have that our we the users continuing increased customer a conference a and of mobility a X scale real experience. investments with AI, mobile artificial mobility fidelity XX that at high to the U.S., forefront Afiniti begin now cable, behavioral and their our improve existing customers for Both contact solution delivering are of our an center of largest joint technology their in conversational mobility, continues in a weeks benefiting measurable and customers. impact over made new to partnership concept the an accelerating signed to progress In The offerings from routing. intelligence, important process Turkey. innovative Also about Afiniti signed just of overall across retail pairing We transactions and These transformation Canada, over high-profile eager area Mexico, agents some solution. and U.K. benefits our to itself with learned at are proof enterprise our testing are was care hospitality with are We digital large work world's outsourcer and Brazil, customer large intelligence Avaya business pair customer disruptive innovation the group month, providers provider our health The couple provider, we had occurred in and QX. XXX with provide customers, journey. Australia, our is at XX,XXX In for infrastructure of and anxious Last wireless, frequency. artificial to their and prior. leverage we showing intelligence customers.

just We month. this and more new live have five native our to customers running expect go customers integration on two

second in market earned success Insights Avaya rated again a industry for and bringing the the in by leader Unified Communications Customer Avaya year analyst. the Peer in Aragon to XXXX, third-party Choice for row. a innovation Communications Unified while was again Our a in Research as also Gartner Collaboration recognized

comments would Now reiterate shift earnings on shared gears our morning. I this like and would release to like I to

strategic the leading related shareholder The particular engaged it further process has Following the to JPMorgan, to not any until nor strategic firm, Board of maximize receipt interest, of can be company necessary. this of to assurances at that or outcome. no is strategic alternatives any time. The or in that There it company not for a intended has the intend investment result has unless in a value. provide does updates any to will assist alternatives exploring appropriate timetable alternatives disclosure set made the banking decisions exploration determines expressions

my Let on full reset. year me thoughts share our

several transition last confident the it have made driving revise But we the and expectations. reassess weeks value half, that issues over and our are customers They in in and with announcement are our the we will we and with partners product performance first year engaged continue the several the have in in with conversations clear. company, our our capabilities. prudent innovation Our QX to JPM, things the that full along believe

Before Kieran, customers partners, my I'll by our that I restating in to remains end turn over people company, confidence high. it and

now in half new more products and quarter been we never path forward. has more walk strides more our Kieran? brand make on of detail. And continue second will pipeline second through Our driven. financials Kieran to guidance customer and you relevant,

Kieran McGrath

and everyone. good morning, Jim, you, Thank

are to mention otherwise I'd indicated. Before like we non-GAAP begin, to financial all unless that references metrics

note that commentary well quarterly Additionally, Investor GAAP we relevant and reconciliations posted on our as our website. tables supplementary any on to Relations financial please as results have non-GAAP

quarter and our million was well $XXX Turning guidance XXXX fiscal revenue to Non-GAAP second results. was our range. below

XX% and the quarter XX% of The of of Software and cloud approximately recurring. services our for was the accounted was period. in in our revenue revenue revenue our second XX% approximately

million year revenue and ago product period. our Second the compared quarter million underperformed to non-GAAP center Communications expectations. contact Within significantly business, both $XXX our in product was $XXX Unified

his remaining story while in attributable to was we Reuters of transition end issues believe $XX to at balance the for product control the the million Jim of As the million the quarter. within $XX remarks, accounted mentioned approximately shortfall, our that published

compared to year cloud ago revenue million in million was $XXX non-GAAP and service while revenue largely was quarter $XXX in driven last Second year-over-year unchanged decline maintenance was services by revenue again Professional period. private year. compared The to the lower a revenue Services

our we remain improvement total will contract in believe confidence visibility Although maintenance XX%, expect over revenue growth revenue our X% Geographically, rates, help renewal our The Americas a the revenues, and are with XX% for respectively. and coupled second maintenance gives declines of represented year-over-year revenue growth, in encouraged we to total we encouraging International in our our of the in and EMEA, improvement consequently by rates, mitigate revenue data our the points, Asia-Pacific time. another which for ongoing increased U.S. while revised to renewal us accounted half. headwind of value, XX% like outlook quarter

on I want impact performance, to from spend XXX. a our the minutes few revenue ASC discussing moving Before of

impact Services on Professional significant we performed most our completion quarter call, the acceptance the recognized as to mentioned upon earnings opposed how are and account contracts, services. of change the of new last to standard largely for relates which as accounting under As

under recognized our include as are incentive of indicators also the as Additionally, is opposed those internal plans and products drive our contracts to standard. when our delivered performance fiscal as services. the we completion revenue when new At proactively key to service products, compensation performance the acceptance aligned beginning well of year, product

throughout revenue, changes, our comparable are to table directly operational these using ASC our has the collection and the in effect will change the financial release. cases. on engagements in Further, reconciliation reach customer flow precedes fiscal in milestones performance our also services recognition revenue impact disclosed between many a now difference to normalize the not anticipate press addition corresponding Given cash cash the 'XX results billing standards as quarters. We X this XXX as subsequent aforementioned completion

margin XX.X% the by gross Turning as metrics. the margin an to profitability we revenues our resulting and XX.X% prior platform gross with compared Non-GAAP a continue was decrease in to was volumes to in to margin the XX.X% non-GAAP will period. product and quarter, margin unfavorable was the gross align lower across gross XX.X% gross that year. in Despite XX.X% software year compared Overall, to prior Non-GAAP was partially our lower-than-expected non-GAAP from mix the improvements XX.X% businesses in in offset the impacted costs mix negatively and compared better upward year in believe offerings. lower in second margin productivity ago quarter model. to our our the trend shift quarter, non-GAAP of software-centric our services a by margin

from we cash $XX flow was with $XX and non-GAAP of $XXX free operating million, $XXX in cash representing on and our representing Second operating the operations, margin adjusted XX.X%. generated EBITDA EBITDA Further, income million million, ended was $XXX equivalents flow adjusted in in a million sheet. and non-GAAP quarter cash cash balance an margin million XX.X%; of quarter

Our sequentially payments. cash cash an to balance increase primarily decreased in due tax

to third Moving our outlook. fiscal quarter and XXXX

in mentioned lowering are guidance earlier release XXXX. our As press for our today, we fiscal issued

Our contemplates quarter followed impact patterns fiscal our line it created the our quarterly first as revised product sales prudent in a interest a by and third revenue and lower-than-expected sequential the fourth quarter stronger historical uncertainty inbound conservative the of in quarter. Further, second the by roughly both fiscal outlook half year. with our fiscal support is of

current is our execution channel into backlog coupled service pipeline; seats; most half importantly, graphic providers of cloud Our to ramp as current an with well year as expected supported and integrators; outlook further across for our visibility the in up system areas. both traction by second with the improved and, sales and

for million. anticipate million $XXX $XXX the Specifically quarter, third non-GAAP we to revenue of

XX%. and expected non-GAAP our is is to expected EBITDA margin approximately operating approximately be XX% margin Our to adjusted be

third to quarter average roughly shares weighted expect We XXX million outstanding our be shares.

between be we XX% expect in $X.XXX We to non-GAAP compared our billion expectation be with our For revenue that to revenue revenues to currently of XX% the XX%. billion. to of cloud XX% full our range $X.XXX year, previous anticipate fiscal now will the of

reflects partner with fiscal sold channel correspond Our associated cloud our public due a of higher-than-anticipated updated net seats for fees, year. the by which, to mix rebid revenue view lower to

ReadyNow early given the somewhat slower transactions. Additionally, from since although we launch are in traction of revenue January, complexity very bookings our market pleased and to by of size is conversion expected, the the than

enterprises early While set to heavily that platform. early of the we have mix anticipate appeal been the of will reflecting customers complex of the be more weighted a unique simple global adopters requirements deployments, large with broad encouragingly,

platform. as this going provide that leverages guidance a from longer revenue to to as base expect apart cloud going mix. anticipated abate diversified revenues, over to more dynamic are annual we We the Further, it time our relates customer no forward,

our any of investors difficult While can software, so and we given revenues the that great which in are actual recurring period, large are can have to due to a forecast will results degree timing understand variability importantly of mix precision. and composition of transactions, very to services our with continue report what revenue

our it's to As appropriate such, the expectations. believe we our mix revenue more context of longer-term in view

Turning to margin.

year, For XX%. margin non-GAAP to the and margin be we be expect operating approximately our approximately full EBITDA adjusted to our XX%

our revenue. range from operations of X% X% to we Additionally, flow cash to the be of our in expect

million weighted shares. expect questions. we ready Finally, outstanding approximately to Operator, take our now shares to be average full year are XXX we

Operator

comes Raimo [Operator ahead. Your with Please Lenschow Instructions] the line question first from Barclays. go of

open. is Your line

Raimo Lenschow

detail question on wondering like then XXX, more takes then comparison? it, the can still I'm I I Can line? apples-to-apples why I like a the And numbers around but think product for it comparison, you Jim, -- would a like, XXX in Kieran. it? get the you, about get couple issues rectify talk to what be quarters if the of do I an

Jim Chirico

have a channel set the thought our predicated what endpoints the the of aggressive velocity. on, actually perspective, to what we Raimo. matter the we would our had a we our But current And quarter, would aggressively general. is in bit to of more the than not thought a endpoints older transition be matter And from that of taken in product on little The did phones. into some on new J channel shipping sales [grant] of with we those the XXxx fair products beginning has the thought. were older Yes, do frankly series. we had some the predicated is, on It The endpoints, amount of -- new such, -- fact early a still in out a fact from performed better unfortunately, we than as expectation.

result, the the in we have only can channel. So channel you not do overpopulate to mechanisms and place ensure within a obviously we much afford as so that obviously

there endpoints. is normal the So us going that slower. will, us bit the fourth can early is through not this which on to the you older it quarter doing levels. series into Series tell slower maybe we J a the both you but turn, end was quarter, take actually much and if a the better, And year, I before it's of end back July, the get will is XXx through But to of take operating

the quarter, ahead of the a we're at we where As you weeks or look through on first X a if actually track not XXx are the of through of take X track flow the on bit phones.

are will moving series July the again, a timeframe. are probably bad had is, than news faster expectations to it's a be bit the a J that, slower. result as and of anticipated aligned And news bad the that out it But balanced news XXxx's all our is So the we in the But good moving set. think good are news, we we I story.

Kieran McGrath

as the our to as before, [XXX XXX], of on really to plans compensation I with revenue to standard. lot key actually said the realigned our driving we Raimo, new incentive over So from change under indicators XXX as internal a XXX performance (sic) focus just well

customer With installed, revenue for the quarterly complete the or of XXX, concept less recognition. is critical adoption of acceptance

So what the products complete, of experience we found not have of IC, would as is as percentage nearly the or result what a that year-to-date a criteria quickly our historical as experience installed are our hitting business greater suggested. our

our of from over that of revenue this X/X through of our have accepted History So in let $XX -- me retained flushed first said restate. by installed earnings is balance opening the million complete you the terms to an what would has would of that the have We months in already formally give example. customer been fiscal deferred end reality the year we've quarter. closed about of criteria. X/X signed-off of X and been the tracking last the What that second we're end currently the in only by that year,

yet. and have criteria this an just a basis this don't out balance comparison. proactive I to on -- just QX, at that So to help in you worth if about faster to million, million think due the of we that it was we've of in the certainly, actually haven't think value of about apples-and-apples that we that really in some system year. going $XX put this QX But more $XX implementations We've the complete $XX is We XXX the fact essentially this. and to is with install million think talked of incremental $XX-plus million end hit drive

would balance So point we small and combination as related that first as as -- due a taken of getting then it it is -- Professional of look contracts going XXX actually as -- this year-to-date our would've it taking to of say currency, a of not down where issues commit. installed just literally I of A be to XXX existing commit well we is installed going today. we've that, quickly reach on Services opening are operational longer the half the I'd rest wanted; restate versus to script as XX%. be at this about basis, if a bundled, addressed half is it impact; you to would say to it's close in be to that

I terms consequences that So something over-rotated around bit think that certainly, it's to focus. we've in -- really in we're probably much quicker. of unintended our working and our get do But shift arms a

Operator

And your Vitanza comes Lance next question of line with the from Cowen.

Lance Vitanza

-- on look do. wanted I And you you you of for this, point answered X currency versus it the of side, look reported all was context XXX we way think think if that you, the why at headwinds? of what but we're at at point? I X reported, to still context, you XXX. sort Kieran, on that I think, I the change thanks but it of explanation that negative helpful And or that as to it, those was look part supposed In the which of the at is of in ask is mentioned as it way about growth, the to currency Does impact

Kieran McGrath

Yes, point. slightly more it was than in quarter X the

Lance Vitanza

Okay. Slightly more point. than X

apologize if out Okay. from And seats. quarter? the to missed did this add in I cloud then fiscal it, cloud also ask think you I called second the seats you -- I and I you about many wanted

Kieran McGrath

seats Actually, cloud in about we XX,XXX added the quarter. public

Lance Vitanza

Or... seats XX,XXX the cloud have number public. And you for the as do private well?

Kieran McGrath

because are given booking want as and added been is more private I just tracking doing to those, to time Clearly, so we've reporting that the just to currently revenue. perspective. on the but from money, just, contractually physically I as really seats we perspective, from actually speak, pace those in So stay yet a way rate of those I'm consistent discussed, not a just lot revenue a

Lance Vitanza

Sure.

Okay.

number, seat think, that Is but from announced think change, -- So XXX,XXX begun all quarter, that's last those right? seat the -- right, big were -- not had you private I a which yet and had when I cloud the booking.

Kieran McGrath

public. have separate or now just calling -- our what to the you ReadyNow we're versus think our private I So

aggregate, and about and those money from XX,XXX those. we So quarter cloud now seats everything a added this public are billing of time XXX,XXX. perspective, time on quicker in about to And much to is

Lance Vitanza

have revenue contact guidance, million year end had numbers? the side; bucket downdraft deliverable you Could center I the point back Reuters guidance mean, this sort then in on categories, the those the, midpoint. UC; you the then the three $XXX you piece those $XXX revenue obviously, factors, for full and on rough the million to at down the story. If we And go of three just Okay. technical into the

Kieran McGrath

Yes.

And So services when because I think first of we actually get couple items we're of probably when actually the -- related talking through just I our -- that timing fact our actual somewhere very guys mostly operational from some And getting our foremost, to the We've first is end from have first one about the of close implication government looking of we're year, first an half finally, and maintenance as really subscription probably revenue. about XX% the of I'll of while the customer, to half XX% to that always to also take maintenance is within the the to that out of be on total -- our the say on our get little timing less perspective, in with this, business, well the the the the large any half to just is going the big dealing had, to of do that of of shipments reduction which have. half help I XX% government contracts get the at issues the the here, the I delivery to selected first our to up that a we think I'm was will to and physical a you're to you another performing got operating coming that in that shake from impacted. released an plan or just XX% revenues any us the be The going have that dependent would my subscription then that SoWs is year. partners impacted your issue product put going actually eyesight. that year.

of what while the in -- somewhat prudently, that's my some substantial uncertainty say is timeout the year. head next half really really of say that, So after some could probably that And for first probably see probably are the rumors a these the consist opportunities first half and worth to then in part in of I'd us our I that this I space, the almost like year that the of I'd think -- in potentially going more. hanging related number I'm somewhat aggregate. being little in over And drag just conservative bit second

Lance Vitanza

that then consider of sort you Jim, interest, the is you unsolicited wind sails? I out, mean, company? understand them, X thanks, in me that business absolute to segues Wouldn't in more received to you be some with of that. not for And Great. you've isn't if this question laid worst just fundamental expressions this the better time as proving from it out a believe the sale return but tell I the time? growth no of and why the the trajectory engaging then isn't right of your

Jim Chirico

it and first maybe X I'll foremost, ways. Look, answer

more every the other bit to just shareholder make would you productive. at thing, Like public well. create bit I'll the obviously time our concise add and disclosure this it directed in maybe is of clear First earnings a goal value. our call. there making the spirit a we've on that of in provided this Maybe this little -- more more what because company, color as -- we morning to sort questions But same following may is be we

those retained sort strategic alternatives. of we strategic include alternatives. to And So exactly of, JPMorgan the evaluate they if spectrum you full will,

evaluation and a strategic standalone, acquisition financial other of evaluation transactions evaluation versus the capital on. of allocation, So of so

other end company, So beyond it really I I by isn't there that fairness, I much in guess Lance. should just -- public like say could every I'll saying,

Operator

the line Nandan Guggenheim. comes question Amladi from of your And next with

Nandan Amladi

any maintenance ask from from Reuters this relation on impact And that's renewals wanted to any arrangement. you migrating had characterize subscription customers article in about how I to if or to transitioning the going? So contracts has maintenance Can of sort news that? of some

Jim Chirico

Yes. Sure, Jim. is this

on we to the buying what associated First say, and the We then. Reuters shift upon lack habits. at following quarter, with, more so which saw there's article you just in say, a the impact didn't of fairness took much Traditionally I'll renewals people more aligns foremost, will, pause, what of I'll to term. based on, software-type better been cloud. the end see the to Based subsequent contact since speculations shipments article, first center, obviously for it if a where

actually turn doing color. renewals we on the out, significant as been is are as a the on it I'll an over half is, a as maintenance And that. said, the quite first and it move in turn cloud, to we've But plan perspective to far of -- the some pointed finished forward and from fairly expectation There's to conservative I'll upon [indiscernible] some the Kieran business. and renewals focus well But where for Kieran prudent business additional additional some our color. overall based for Kieran overall perspective. going As from over Kieran stable. But

Kieran McGrath

I'd would actually to public relatively to gotten are say the of to of starting proof I maintenance, cloud just we've some impact would cloud see terms that on related is ReadyNow But on seeing half guess you're private our to it say that, how of would shipment related in lot many put cloud the the I say real to this and occurring. year in are A on the the issue well. going the talked I as them new we're half time, to that revenue. half logos -- that product second don't in our what seats of first impact second that of here conversion cloud. But maintenance early the of maintenance days. we've year. the some clearly to the very terms I still I shortfalls I about the more really about that's the material of move being the Yes. a see the wholesale think is in of in of shift

Jim Chirico

pointed as are Avaya encouraged Yes. of ReadyNow. the And by complex deals. those attraction just very Kieran are earlier, private-cloud we large, the But out

two highlighted deals my specific significant XX, say, to commentary. POCs XX We I'll in have I underway. what

million, $XX $XX of X One of million.

subscription get But those. time ramping indeed being XXXX. this a of these sort a they from be more gets starting quarter cloud oriented, perspective, it So we are the -- into based and steady-state into are oriented, even obviously will significant. it revenues But of to upon

So into it numbers. a can I XXXX. POCs have and we all But on as this you the well see opportunities on something And it's baseline are quite and we're beyond. we'll great as tell going impact provides But we it's us significant significant of but 'XX, not year us FY a for won't encouraged. move that move into that for XXXX along revenues

Operator

question your of And next comes from line Marshall Stanley. Morgan Meta the with

Erik Lapinski

cloud Can on looking This public traction? And some are comment size you Meta. are on they what's just the is most the with? of at finding typical the that Erik product. master for having Maybe where agents [indiscernible] seat

Jim Chirico

that's probably in the at seats Anywhere more look slow when fairness will McGugan turn in Chris Yes. just been here, gain to which been master the traction, has starting after. us, and upon the to storefront, because product typically your -- talk has say come and on a is offering, But, the storefront, agents, we've it a portfolio. in reasons of is I'll in you one and us Sure, take with of, revamped storefront I'll based current for for Erik. Chris The neighborhood say little SMB out XXX about. fairness why up fairness over to, traction this seats XX-to-XX max. Chris

actually recently end. is for more that is storefront your good that announced Germany gaining lower Our we targeted traction

where sort the offerings with are X-to-XX we here in Your our States. of versus currently

at So the market. lower of the end SMB it's

Chris McGugan

Yes.

I storefront. characterized well, the very very, think Jim it

that optimizations through platform out offer to to only and agents as some it not to our master enabling them sell enhance the but goes made UC and our also have trunking CPaaS the well. We just service

drive that revenue. those the opportunities the So agents them. that additional And creates we to in opens for we've up for are additional expanded to available stickiness offers them master think market and

Erik Lapinski

if could just helpful. really more -- And I one quick. That's

If more partners, products? anything are refreshed today? there incentives your around is you're Maybe through anything for thinking asking channel or they

Jim Chirico

bit our I is -- fairly Or Kieran office as for is said, partners. solution actually This the little with like in a or mid-market quite closely IP marketplace, wouldn't I anything our above incentive-wise they're Jim. we if that. expectations. would No, to not channel -- equal that going say asking well work anything our

opportunities have are of the new as couple with programs opens I the storefront them, that we're they're our think well. say I I the think we partners would running with plays up them, a not opportunity -- so you that with place incentive some in adequate. And will, additional asking, if

the So also -- solution and cloud through channel. be the will sold private even

them. excited they to So capability that for now as we go-to-market and that another as providing quite partners are vehicle are channel out our rolling actually

So they about are solution. private-cloud actually ReadyNow very excited the

Operator

Rod And line your Sachs. from with next of Goldman comes the Hall question

Balaji Krishnamurthy

Hall. follow cloud on private comment is made you on to earlier. Rod cloud up Balaji This of I -- comment wanted behalf the

quarter seat was X.X million So count it count last million that quarter. and this cloud -- X.X was about

have to that confirm cloud not So I then private decline? just the follow-up. seats a did I wanted And

Kieran McGrath

rounding with there, little time some have productivity you that customers. [old the some seats in in shop]. reset drive of a are of There's renewing expect They'll Yes. would they as the any you amount

would slight private. why there probably implication some which million on to X.X you're actually rounding, that is So there the lead hearing be reductions

we counting how those counting all producing in if would to we start As trying said start than it only I before, call ones just -- if consistent as the the that. But contract, be revenue-producing, revenue higher under little counting number out. we're be we

Balaji Krishnamurthy

need even the September full taken you've Okay. guide, on year And at and And do low guidance? can QX couple improvement of hit guidance, to guide. you quantify significant the June the a you hit beyond here. of looking the though you And in meaningful to are pretty your of declines down, I your end if look Spoken that, we at contribution a then think it quarters your --

on to are year visibility And fiscal end? target? comment how that the confident on you can you the hitting So

Kieran McGrath

Yes.

QX of in honestly, want business seven, between we in would've history History look, by were have seasonality been around consistent and X%, the anticipation always so around let And a we more that we would If to closer versus up flat So very of have go last back There for me down we -- QX the that certainly but by quarter followed X.X% Traditionally though X.X% -- QX. our to looking roughly X%. question says QX or also actually, QX. where to we at -- drive to company, part always And I towards, first. any is your in start with the stronger. company. guess a pretty eight years is X% X% QX QX guiding general, said X%. even strong QX up QX is to roughly ended aggressive down guided history it's down of to maybe We business.

Ours well. is government year-end it's just because stronger the even also made as

So to I this my pipeline I I a as my expect the did pipeline that actually when a really into looking well, history in monetize of as said lot it good guidance, I would what visibility well. as having I and my remarks, prepared -- mean when at selected we of backlog, into pretty rates

pipeline as question don't your would Spoken, at performance expect And backlogs supported business. would by well that in be around to I as see. granularity mean, and So we of a And historical you're the QX. level absolutely right, the stronger will that very guide we have consistent related the that that with I I

date. of obviously Just part suffice it critical our offering a to to say that it's

Balaji Krishnamurthy

sneak Okay. in maybe And one could I if more.

SG&A delivered But SG&A So been is invest of towards you way earlier you talked like in to support the is your those harmful accelerating. growth this to know sales any Do declines I'm trying your you revenue probably at reducing product I ask. about need year? have same elevated SG&A year. feel in is on what year, cost, the to growth maybe as -- -- cost last more have to time, the end it had some but you the in spend reduction you much

Kieran McGrath

much. would Yes, reduction key the see items. that -- basis is what really, because actually on going of so just is variable is to percentage a year-on-year not be have were of headcount actually terms that a compensation. say That's what a One as delivered they focus we variable as teams I the not just commissions upon down in actually statement. their based two expected to of earning they're do That's the lot a

the the having less dollars. other of attributable half expense. is is I our actually dollars. have to the that to is of U.S. amount into Similar -- reducing fact say FX reduction actually less We The also I'd also back also convert non revenue, spend

being look our reductions, the I'd I if attainment half probably half by much split and it's at force really So FX. my pretty being say XX-XX, year-on-year sales commissions to other related

Jim Chirico

is Jim. This Yes.

a subscription-oriented of of In doing driving in why areas Professional as can reduction all. at go-to-market footprint expanding You of headcount in work see in actually as fact, And solutions that to and cloud-oriented, in shouldn't you complex we transform, consultative a better. view areas like the our one in we're services, go-to-market company. areas as move Services architects areas we on quota-carrying more lot that

So headcount. I will, if the wouldn't you on, that as we're pulling you back reins

provides drive more leverage alliances the strategic doing customers but as alliances through the out generate well, with community our that strategic to our and leverage not we're building and also expertise is thing there other also us only to The partner opportunity sales. partners

the organization. should So no back go-to-market frontline it's your interpreted reins of sort -- be stretch pulling by imagination by the on of

Operator

your question And the from of line comes Netis Dmitry Stephens next Inc. with

Dmitry Netis

the questions, I on the on environment, if had may. two One I is channel. competitive other

into So I'll allow if it pack me. you one,

the the And mention. step-up through down the then shift landscape or in changing of you more that second seeing there, mix you channel, competitive and did kind is maybe buckets how year expectations your business, experience here? color you competitive dynamic? Or kind that other as the the you trend suppose to still the mention progressed year but then I competitive question the and the get continue on you there's step some rebates you as on exit biggest large well? of drag the the I bucket if business On the SMB your into small just mid-market wanted as you where quarter-over-quarter that -- relative as side, do, three to pressure you're cloud and to from enterprise, and is give buckets,

what's And you of Are there causing the maybe your driving a puts your bit going to commissions there? you as and explain step rebates that channel give Give on? little could what or outlook If really an Is is us with up? -- well? bigger partners? take us

Jim Chirico

is hit landscape. This second first provide to Why I'll Yes. Chris -- the to competitive don't the turn over I then on and Jim. color it question first

on the and sales if -- were But would selling so news looking levels. good of Series much on out will, at inn the J how sort and the the room a -- they if revenue that you is have we channel. only obviously the market little on And you versus X, have at move is you we on what just fact a -- first if remains -- but how the why where a side. transition So the reality Number can the the understand couple little velocity is one again, we're currently old moves market there's so, strong to you sales the sort from, the Obviously will, through aside inventory, in things. optimum get you in. of think extra faster, versus still

mid-market, If a IP we the with cloud offices the as SPIFFs look everybody at like the out and have doing you we're else some pointed what program. with business, an associated cloud take associated and Kieran do especially

state. had demand it's news So just of the seeing of a we're there us rebates that of to good Therefore, is take to being sort higher get sort being we the news, into story going steady than and anticipated. bad time the adjusted period

of flushed sort office, the IP about months for those in based with neighborhood that of associated through takes bill provide of phones we promotions So, X price are X we in the so upon get before material us a to point them. the our is free typically

and an through it's actually that's couple agents if agents C's we're I jeopardizing -- and and the an not quarters, last balanced get quite we've increase we would trying we'll of months. competition. incentive or at it's certainly anything perspective, you say increase and balance agents in revenues differently sort out rebates with sales we're So therefore anything to partners. down from has few of or everybody work the and programs they how different the go next look move programs, master But overall and consistent market strong overall are to our but and seen how cloud not an through they but more the than do T's here whether normal the pay ARR, slightly, as in over MRR master that a the of

On to the market differentiation you give to landscape, or the Chris over different some associated it the competitive segments turn I'll of insights. with

Chris McGugan

seeing in as Yes, it Definitely mid-market segments side And services of UCaaS many of seeing players our that perspective some Jim. Dmitry, players when technology our we're where relates in small see market the a market. -- you asked strong particular competition well those sector. premise-based smaller taking we for and as competition. mid-market there. about the the demand the small the for a that market CCaaS still and UCaaS three cloud of in to -- But the as the amount from spaces

Operator

And our with comes from line Citigroup. of next Asiya Merchant question the

Asiya Merchant

one if yes, for answered, be prior provide but like the Is requirement that, have Kieran. you restructuring some management step more would color, great. to A -- down. on took just you and bit CapEx can seems more Day. took Maybe color a step up of a your other Analyst lot little that questions been a of relative ones some this that could my at give shared

Kieran McGrath

the to sure you you I said CapEx? properly, make Just heard

Asiya Merchant

Yes.

Your what was expenditure relative shared up a step to took understand I as earlier. requirements capital

was it you just you're now $XXX to I million million expecting $XX can clarify million, yes, that. and think if $XX --

Kieran McGrath

a to and terms acceptance of of think customers that enterprise lot I and we're part private what seeing pace rate cloud. with has of big of do our the our in in piloting of

up building start infrastructure. to have you obviously, that So

from we're more that, enterprises. described, get a big the is to actually seeing I trying would private of ahead What the perspective. of that our of acceptance from early much initially just more it we complexity of we're our type. thought largest be of the cloud vanilla offerings As much And with build-out

we in to be, I of that what different I built think would long-term terms don't is say it's any our You know, into anything model going CapEx. than long-term, annual

Asiya Merchant

then How relative guys to require hence offerings And that in had fiscal did rebates then as fiscal 'XX. Okay. go traffic the related cloud this margin or higher private about as -- the you Day et changes to How CapEx, or Is complex then talked expansion? that don't that, for to and Analyst as I shared long-term expansion the outlook into transactions. in related your know, CapEx in so at depreciation, well does the incremental were mean, longer-term we more to cetera? 'XX OpEx I factor targets actuals margin

Kieran McGrath

Yes.

I think really unchanged. overriding thesis our is

is higher a and of a gross margins mix traditional from don't type more business, importantly, couple the Clearly, software of of of with think more hits. of business the remixing recurring short-term software we hardware I any see quarters that, longer-term As or to to we model that along software tactically shift more some it. away device and, the change more should But towards type bring to a positive. going our margins of are there

Asiya Merchant

you and And your the Okay. And to get clearly get Cloud might your does your be I to any market? game. trajectory and they growth you admittedly, look competitors to may, scale-oriented tends trajectory you the and, discussion, one maybe customers they is be scale if Avaya's compared much scale some pushback cloud of base. very at other -- in of side installed to revenue in then that talk game, when because relative a cloud be this, base growth and can if customer tends and cloud smaller on clarify more. are a you competitors relative And into well. to the that your overall underperforming Do more underperforming as to

Jim Chirico

Well, year-on-year. engaged if at quarter-on-quarter. grew we in SMB not a look space. low-profit We XX% We're actively we take grew -- a XXX% low-margin,

do prudent a upon it when the we doing well. publicize we're based because actually at funnel, didn't overall quite we'll look touch private Kieran you going the we to actually receive of We're If said, on be size bookings. take our as how we cloud, in overall and

continues I've gain said, as as highlight it be we more and that POCs. performance quarter's have, We XX we'll There'll momentum traction. a of as this obviously to result

large geared And at no jewel you what one solution we of of of the personally, to in piece trying if in fact, be one the our In much of are a a private-cloud enterprises, turf the is which focus rather the versus crown would has for on -- enterprise. I marketplace fighting many have, world SMB.

IP look it's office So of the I mid-market that growing But and it is that personally quite think is how pace it. at. growing the fact you at rate at proud am the I

In and so performance is the are and it the POCs these funnel deals, at cloud, that as that deals, strong. And fact, $XX million are continue for are $XX million past grow actually to behind And have on to levels. so private going forth. expectations quite XX the we mentioned, we well

message. So stay tuned that for

long-term value are prop look market you differentiation what we the to focus what that's able what to at more importantly in the what continue to need as strategy. is bring, on you think you And is technology focus I our you long run well. bring our to actually Probably So as bring.

Operator

Khorsand And with our of next comes question from line Financial. the Hamed BWS

Hamed Khorsand

That So can't X.X almost talk seats? from talking off, rounding rounding million? a going be million about in I X.X this about just error, XX%. first you're mean, Because that's private could to you

Kieran McGrath

No, no, no. Hold on.

quickly. about in implies I we cloud X.X aggregate seats talking almost just that public we're When right think in total, have we -- which XXX,XXX which -- Let's one million. X.X cut million the in off said of we seats,

closer million. million million X.X a implication the the saying only. was, think rounding talking and between quarter, to In X.X about probably X.X I'm million little that bit the total, of I seats. private X.X What is private still last in was there's we're

Hamed Khorsand

Okay.

changed So count the hasn't seat then.

was in the me. hasn't there actual -- Okay. lastly, been And that you kind to far business? as you're revenue to the just then if of referring confusing the and That's to added Where I'm wanted being improvement the as I those improvement? what headcounts retention headcount, growth? customer is, any adding are was ask was, And why I

Jim Chirico

Yes.

think closed X,XXX the people, began quarter at we X,XXX So folks. we the I at year

services of some putting So off actually as investment main the honestly top and technologies, about overall functions. from at committed the expect my a know what We're are I'll hardware-oriented and a head grown board of are more to new resources to we three specifics as a rebalancing across where other would you both company. to the everybody the services well that's one continuing actually go-to-market invest growth indeed new don't thesis and company as emerging ended company the up. move But more subscription-oriented opportunities. level, from software also as we've one in R&D I call

So bit of there's also of a as that underneath rebalancing well.

hiring we're quite So within company. few a actually folks the

[indiscernible]. to So on was provide any not more if how questions color, quite sure any the there overall

Hamed Khorsand

a of standpoint you? issues more because that issue far able some product more So those being relationship a is to customers it headline? it as created as Reuters is like more with of get to -- Or spend is it really just development really

Jim Chirico

days though a quarter, basically came advantage about kind characterized took base. in customer it customers a of to your was that we the interpret business Reuters article, week article to best and it provide were and didn't going. The probably know where basically the do as, be we're article out, a even se. the headline to they understanding in fair per XX proactive they fairness, out -- wanted get our of how last to when of where comes perspective And better their out, to amount could you Competition, came people of very

being was earnings historically article. it we seen that through in the a It customers of But we have just... my a amount mentioned of in of it. based So talking spent end behaviors the change our upon at I that have as sort that script, quarter buying fair timing proactive and time, did

Kieran McGrath

we percentage that -- of of It to somewhere last in make of And happens XX% very quarter. interested here be week a every might just substantial add last that, of around the revenue of month that actually the the quarter. approximately our just in

Hamed Khorsand

you're their now getting activity didn't and in they of about someone this customers in going than would kind footing order having I Chapter you're you you in -- negative -- a better Why more when these sequence not talking when actually do and bankruptcy. you're mean, of up changing bankruptcy XX? taking start you over were habits

Jim Chirico

Well, Yes. saw I mean we same. the

Kieran McGrath

strategic questioning and in coming I commitment what coming and people procurement freezing mean this and the in bankruptcy. from saw to is it. actually, Customers absolutely driving, people we

Jim Chirico

people be hate to way U.S. basically design to was in to orders similar wanted only People November interpret in ago, until I the back out. mean stopped X.X Wall it speculation go they fact the things do years, article overnight to of but the I the out to Street sort years uncertainty. -- with when around three past, the came day that Journal and

time. on change know, release. what timing took a I an it which the everybody interpret article announced prudent Kieran call. that's minds in significant laundry earnings buying list And And what fair and our little fact, I behavior. of bit pretty the of just again, said, You we're patterns, had And the buying "Can wise. that me the a customers' I you..." upon forward so saw on, we effect and of speculation like business we bore -- But on as this? in what's do going on in in goes based are probably -- someone think the they to how please the So explain going won't mean and does this and But

Operator

President to CEO Chirico, we at turn this And questions call further I'll time. Mr. have remarks. and the have no closing for Jim over

Jim Chirico

Thank operator. you, Yes.

reiterate just to take points. a to want conclude we the key of moment call, Before a couple I

at we through customers globe the uniquely as lead operate is positioned our reach spans with a to transmission that digital First, continue Avaya this scale. to journey

are investments with opening up both we CC. hybrid, as offers growth the mid-market where aggressively and private, enterprise well public aligned functionality and and opportunities UC full turn our feature-rich solutions both as more can deliver in into Our customers cloud-based as in

customers are right we're landscape. Afiniti to and cloud Salesforce, the are that partnerships And in taking the Companies in partners companies those advantage that that these of Google, work are solutions to our include to with of We partnerships the demanding. IBM, layering are Verint. opportunities market strategic the forefront shaping the with and drive

our in invest to growth continuing areas are We as well.

So this with day. a morning have your you Thank great you. that, hope thank I for do want you to time and

Operator

call. conference today's concludes this And

You may now disconnect.

Avaya (AVYA) 13 May 192019 Q2 Earnings call transcript