AVYA - Earnings call transcript Q3 2019

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Operator

Good morning. My name is Marcella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Avaya Third Quarter Fiscal 2019 Financial Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. you. Thank Instructions] [Operator

Vice Investor McCarthy, begin you your conference. President Mike Relations, of may Mr.

Michael McCarthy

QX XXXX taking our fiscal Chirico, Avaya's some morning's to Welcome year with share and CFO, lead you and call and and our remarks investor CEO; Kieran questions. VP McGrath, before Senior prepared will this your President Jim call.

and Shah, this Senior Vice McGugan, our GC; and Chris for Senior Shefali here of Vice Technology, Solutions Officer morning's also President, call. Chief Administrative are President

this on as referenced call slides X-K investor understanding and release, financial page and website, earnings on of accessible our filed SEC results. Investor your well morning's the aid the The are our in should Avaya's today of with as

year-over-year comparisons non-GAAP where reference our reconciliation such which noted. website. release except our of Investor reference A financial on otherwise slides, investor of will earnings to are in specifically the non-GAAP available included and the GAAP note and is measures and numbers, We sequential measures that all page

in make may by could cause forecasts reports. to otherwise materially. Form that most be are uncertainties event some found and as our statements uncertainties our remain including and reiterate and results filings SEC, risks in the on We to risks assumptions, facts that with which Avaya's Information except subsequent It recent Form or and change, differ actual current required may policy subject expectations, forward-looking statements and undertake the XX-K or about no our forward-looking update based revise XX-Q we is circumstances guidance, to not law. obligations to

Jim. to I call will now over the turn

Jim Chirico

for joining thank Thanks, Mike. us. you Good morning, and everyone,

to like discussing Before third our I’d provide two quarter, updates.

maximize are with parties value. are to process the strategic time at on range with multiple on update an discussions advanced this we transactions J.P. of conducting shareholder in Morgan, a is First we

to to the bring days. this a XX expect process within next conclusion We

and our Kieran non-cash a impairment this in quarter. recent interim an in year-to-date this additional price goodwill to In $XXX provide goodwill context that performance charge test like charge. decline million I’d our will short, the around address prompted stock Second, impairment resulting we took charge. a

quarter XX.X%, and Let results. revenues of cash of me start fiscal adjusted $XXX the margins of our XXXX, generated delivered EBITDA flow million. $XXX $XX Gross million million of In we operations. we from in with third

and Software as a increased XX.X%. to recurring was services percent and revenue of revenue XX.X%

our results above range were Importantly, that transition demonstrating In midpoint of business. issues product made. happy with two I financial the the way really our tackled our impacted that our the on company and each progress am of last the particular, the I we one across call, mentioned performance. progress them

quarter-over-quarter. First, significantly impacting new we our transition up operational endpoints. expectations J The of and generated exceeded sales the the issues were momentum Series execution by has new phones our addressed

in Second, technical the of we the our associated with it center, June. partner deliverable a successfully offer GA and at end achieved contact went

I consider We base have into issues already XX activities and are we’ve and these new another with us. of campaigns two have sales partner pipeline underway. a associated marketing launched this three and our solution; booked opportunities, enablement install behind deals

we four. all details success seeing are strategic growth previous of have and quarter, we on to the Turning levers the across discussed calls, our

of fronts. our a in we see core on to business, First progress continue number

As I mentioned, gaining our new endpoints traction. are

devices and features showing hospitality Open connect solutions, the ability both via endpoints few. modern, a refresh and customers successful as a OS, android to name IP-based also to In our Phones applications new such to sequentially provide including any SIP custom and system, deliver to capabilities the to our transition, device these industry-specific year-over-year just than increased total, from more meaningfully, revenue portfolio new just

consecutive increase, quarter platform. continues core new difference. that omni-channel center offering, the increasing. to Bookings our traction conversion products the X.X our the are pipeline following improved see the contact release portfolio and version of a third rates in proves of from making we our customer-led In Together, our is to increased also continue contributions for focus

in in A core. offer clear our Avaya highs upgrade quarter our Customers recurring future. showing the more innovative last One demonstrating customers this health this entitles historic capabilities. returned confidence rates upgrade offer. our their UA are and about indicator to in the the that is Renewal advantage subscription customers’ in is point for Avaya. a commitment improvements of of to

Cloud. We brought to continued sequentially. public In cloud, NX CaaS X.X our seats at turn for This me count year-over-year our XX,XXX of in let to Solutions. public cloud strength and a came we driven XXX% million public seat the seats over of added seat over Total nearly quarter. the powered XXX,XXX. Second, saw XX% cloud growth by by

proposition U.S. Equally the These value first ROI. or this provide markets, contract particularly UK. noteworthy, has the of TCV fiscal Brazil year. solutions the in than for is total growth strong customers the driving and value since more solution across and quarter excellent reliability high doubled This international and our

In QX, private by we solutions. our ReadyNow in booked XX cloud-enabled million

see across to launch. since XX our base, We customer impressive TCV which for ReadyNow million continued about demand has generated

I expanded by The the continued ReadyNow. We am of and particularly have capability Brazil this Netherlands, to Japan, Canada the end recently the calendar traction pleased of Mexico, Australia, year. by

representing agents, support This to a Mid-Atlantic transition to chose one XXX of a ReadyNow and U.S.-based solutions. ReadyNow million center contact workforce recent will $XX provider with nearly collaboration customer our example deal X,XXX UC healthcare in win, implement seats in in over supplemented engagement Just the and to our TCV.

reminder, Televox Once WebEx, fully implemented, Avaya Skype GoToMeeting. will and Cloud the displace appointment the West IVR, patient

Thirdly, for and to in artificial and segments through models value mobility our tech, delivery in add intelligence. continue our multiple emerging across reference we the customers area of

our users before to the how converted began maximize during calls In to voice interactions. experience their mobility, This interaction natively allows and be rollout connects deflection greater security we call into flexibility providing with these call customer digital capability. to

largest the one logistics capability of into management in are U.S. currently companies We the implementing this

begun additional XX,XXX customers. four with with with have that to Two seats, customer manage trial customers An respectively. BPOs other two and XX,XXX existing seats seats more than we over XX,XXX also XX,XXX enterprise and

existing initiated them trials in improve the To-date, enterprise-class working sentiment with contact agent has using experience. six upgrade their proof-of-concept call also of by this million both agent to to supervisor with designed have team the our We analysis processed analysis feature. and and providing minutes intent centers X customers over

the Our at BPOs. new gain some rolling partnership Afiniti largest companies to XX industry’s including XX are continues and out with traction deployments of we different

investment coupled Our continues our to focus third-party recognized by customer-driven innovation be analysts. with in

their MarketScape. and This Communications XXXX Unified quarter, Avaya’s IDC leadership Collaboration Worldwide in recognized

a positive area managed in Maintenance APCS revenues services, area the in to of the long-term signs to UA cloud offering quarter. to last and of especially our business of Lastly we our in company. commitment services customer the where maintenance see flat measure is like continue were

purpose called like modernization a The I’d share to of key largest is Together customers we year and where the our one launched level. CSXK a We releases to current another ago. to maintenance of have solutions program CM Loyalty of older at bring a over program area services’ of more success. around headwinds

full the and gets CM through XXX,XXX also solutions for our of Last version. lines of customers, CSXK more additional in services take Avaya them these importantly, partners. on to current and only spectrum to of locks latest pulls can quarter of we advantage we technology revenues XX,XXX not alone, offer. the but upgraded This lines It

significant the been of contributor renewal maintenance this Success a with has to rates program overall revenue. our stabilization and

XX deals and Let on roughly signed more In million, we XXXX me and successfully TCV datapoints $XX $X market. customers added are $X few in we over share new the six a one million. over a transactions over million. included quarter, how deal the competing This third with

our we compelling value underscores are XXXX to customers to ability win competitors demonstrates Our and our new customers. delivering this our business new quarter from

of Importantly, billion. we balance approximately maintained our TCV $X.X

ability industry. Federal sector into organizations July commitments win U.S. won the dollar Our fourth contracts public government. two quarter. August, This carried In has and in private from is the landmark both to momentum the and we with unique multi-million across large

and The than with a CC social to officers is the worth XXX,XXX modernize $XXX to more and UC supporting center infrastructure million deal XXXX and a field ports, contact agents. security XX-year the it’s XX,XXX administration UC first entire up

Cloud cloud our history several of Certified million agencies an do these worth to hundred these ramp is in more be secure, second several up FedRamp that the represent The Avaya, only could provide Not certified importantly, wins award fed dollars. to regarding across services largest points some services but proof strategy. the of service

is The of important also portfolio channel with our in sound that SPs and major SIs the It both note play role important the and ecosystem. part were Avaya providers investments to our innovation we to won are making of as underscoring opportunities ability execute. these and partnership service broader product in in

and SPs said had and our beginning I SIs bear it’s increased in previously, fruit. to we’ve and investment focus As

cloud winning are public. in third improving demonstrate, in are great quarter results in our the and competitiveness marketplace the private both making As and we our progress

We continue business customers on show our to we pivoting delivering capitalize laser-focused value to product the remain continue to revamped and portfolio. of signs to on our

to turn Kieran. it over I’ll Now,

Kieran McGrath

and everyone. good Jim, you, morning, Thank

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

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

press Before goodwill our to detail, release would disclosed impairment third earnings the in greater like our that I morning. was discuss address charge quarter performance I in this

year-to-date financial occurred price stock decline we event results, during resulting that performed fiscal and XXXX the triggering sustained a our third the test. impairment quarter, determined the the long interim and Following consequently to an with our goodwill implications combined in range forecast, our reset had

of the part carrying goodwill their As part compare well December our fair start reporting amounts, in first as XXXX. impairment test, was of allocated to their as established of as accounting the we values that of goodwill units respective

value our we outlook. one and reporting the its exceeded of to on our the the for within Based carrying estimated amount analysis, due units solutions fair products determined segment that revised

$XXX a goodwill non-cash impairment As a recorded we’ve charge of million. result,

currently the to a long-term in strategic of outlook not to ongoing time. are alternatives, this our position update due review at Further, we

after the the will conclusion process. of We this provide information

applicable expectations company’s be XXXX given no our relied Day at fiscal were set that upon the should Our not December Investor reset. are previous last longer and

Turning with compared in financial ago third year expectations at to period. our our line was non-GAAP million, in quarter the $XXX to results, million $XXX

as non-GAAP services, prior revenues were over of revenue XX% while well The recurring year. services software improved non-GAAP of the revenue. mix and as XX% revenue and recurring of approximately Software was

Cloud consistent quarter. was revenues XX% was and with the prior approximately the non-GAAP

UC compared gateways. $XXX ago million from Third a by and $XXX endpoints our both product and transactions software improved period. In year driven new in demand capacity quarter contribution was the non-GAAP lower to solutions revenue portfolio, our we saw million, offset by for

stabilization updated product from signs benefit realized of In the CC, we in releases. the as we saw quarter,

in decline services revenue quarter was primarily Third million in to services non-GAAP again was million, driven year revenue revenue. compared maintenance year-over-year $XXX period. ago lower $XXX the by The

maintenance basis. the our upward continued rate helping revenues roughly trend renewal However, keep a overall flat to maintenance in third sequential on quarter

remain particularly we headwind are our While overall a our encouraged migrate maintenance we to improvements we as customers cloud to growth underlying revenues business. solutions, outlook, to expect the our in by maintenance

while of and represented for our X% U.S. XX% XX%, accounted our the Geographically, International revenue and respectively. XX% EMEA, of Asia-Pacific revenues, Americas

Turning from the to in XX.X% in period. an margin non-GAAP gross XX.X% gross software Product to product third metrics, was gross year. the mix. margins profitability the to prior was benefited XX.X% Non-GAAP year XX.X%, our in compared ago improved margin quarter, compared

Non-GAAP compared more unfavorable prior period. XX.X%, larger services than of servers in our was than this However, due to in hardware in an margin the year. was XX.X% delivered portfolio to mix mix by the offset

were representing efficiencies non-GAAP non-GAAP lower unchanged margins EBITDA EBITDA operating quarter adjusted of year. income realize and the compared was prior operating helped gross million and to million XX.X%. EBITDA margin adjusted keep of adjusted across largely was margin able a Despite XX.X% an to our we that expenses representing Third $XXX margins, operating $XXX our

operations, million in from $XX $XX flow. and million in we cash free generated Further, cash flow

the As the are continuing last rollout. we capital ReadyNow infrastructure we support buildout in solution’s investments mentioned see quarter, uptick global to an continued to for of our

third cash on with balance the sheet. in million quarter Additionally, ended our and cash $XXX we equivalents

sequential a capabilities. requirement security in due sector with on to FedRamp a an cash investment UCaaS provider basis Our modestly balance decreased public

Turning $XXX we to million $XXX to outlook, our of fourth anticipate non-GAAP million. quarter revenue between

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

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

Turning to our year full outlook.

expected a quarter’s earnings with around highlighted guidance large full our awards a government consider last and few we during of year agency. conference a assumptions As recognition call, the revenue contract

fiscal awarded Jim fourth administration approximately quarter. of was As in years prepared transaction at mentioned TCV his security sole over in $XXX this with the worth beginning remarks, the our ten million

and While still of timing award, timing uncertainties the around no revenue final contracting we Pos. further are pleased due that some there are to ambiguity of recognition the the is around there of issuance

contemplate As recognize we SSA such, from our in the fiscal quarter a guidance any fourth scenario where fiscal revenue the revenue the to low-end year. continues of contract current not would

to our such, billion approximately As the non-GAAP revenue. anticipate now the expected with to to $X.XX be for billion $X.XX full in XX% of revenues range year, represent of cloud we

our expect the full We year adjusted be to XX% non-GAAP be XX% between margin to approximately XX%. operating our for and EBITDA and margin

We our cash revenue. be flow to expect approximately our of from operations X%

average Finally, approximately we XXX year expect be shares outstanding million weighted to our full shares.

are we ready now to Operator, take questions.

Operator

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

Your line is open.

Michael McGuire

Congrats the Raimo. quarter Hey on guys. this Mike is on McGuire for

and on like, has in side more kind of seat going that Kieran, of your, revenues percent impressive called the QX, can those between touch guys. for and remained public is wins federal and flat on that pipeline, you detail, kind give revenue seats then, for growth XX% large but bit converting the I into quarter little timing Thanks I you little the federal the cloud at more more on of can said second into You seats, a into again, had question out overall while. again the this of this how kind – but guess, and that looks you a two growth saw on

Jim Chirico

well. actually your Mike. it the Thank much. Yes, quite actually very first was sure. doing Jim. Yes, Hi, business, government you question, on

back last has in government. space ours a partner think it which remember the opportunities with December, the the I further made additional lifted for drive coupled and the in in was in certification momentum generated – got and government opportunities – of investment certification with cloud just on really the we cloud quarter or to signed you FedRamp, really us we If around

really of uplift. government and year. tell seeing we So, XXXX. In fiscal compared and go a the that, can business and throughout the we can’t for but pipeline I we at opportunities, with federal of a quarter are large get continue a fiscal end quarter, year is showing and the that government three other it obviously, expect the both into the state the local, this you but into signs made we typically as significant rather to being investments level that to the we is strength quarters, as But,

well the turn it over As Kieran side additional to on far on I’ll the provide the as of some overall both to cloud, color as private business. side public as

Kieran McGrath

in first Mike, So, small expansion. your growth, public nice to relatively quarter-on-quarter again on foremost aggregate growth along amounts activity, with to the go in seats seat that public cloud with saw point, dollar our XX,XXX cloud good actually and we

pay a these As we before, we we all talked rebates at about them and in upfront take time. point

are through go as the you to effect. revenue rebates and start What in to rebounding recurring one-time time start nice is, obviously, and a base, will only up the then get build we happen we nature

strong on just aggregate. the a seats basis just on up in along double-digits XX,XXX cloud public with were we the quarter-on-quarter So

that account Again, take and have the of and that’s items. recognition, engaged the talk the as items, to impact our deployment time a – basis on the you the before, complexity to private mentioned the the cloud, client booking that – perspective revenue of actually on. and rebate about the those on When into ReadyNow with hinders to really us we from is

out – this another deployment. big in script, again very signing a example see quarter with once As in great Jim pointed his complex we his another complex

from as we you see numbers t in CapEx well. – can are as place have our infrastructure all he We

is are the accelerate cloud when that ReadyNow rate the private growth dramatically So, fiscal we really we XXXX. going for in to aspects expect

Michael McGuire

Great. Thanks guys.

Operator

from comes question next of Your Cowen. the from line Lance Vitanza

Your line open. is

Lance Vitanza

to revenue questions, put Hi, into modest trying you the and gain congratulations is, what’s from remind typical the as on revenue move guys thanks am QX I a expect context. pattern QX seasonal to the Couple and quarter. nice sequentially could you first grew me you’d

Kieran McGrath

about Seven point point a a was to were a down almost up quarter-on-quarter and average on actually flat, we was year actually it ten basis.

historically… So,

Lance Vitanza

Okay.

Kieran McGrath

would been QX, excuse – QX then It flat basically. and is XQ. look X% between as X% we have our average to between XQ growth, And around from and me,

Lance Vitanza

Okay. great. That’s

you you just trend about margin gross not are now but to little if that about little I you gross in gross but, revenues, perhaps the margin this that bit that remarks, could continued the not a was to margins pressure, ramp in your a the talked that would qualitatively generally seems line On business given expect plan? where bit pressure to and quantitatively? you it if prepared talk expect some extent with should mean, we seeking

Kieran McGrath

Sure, sure.

couple let tackle me So, of different this in manners. a

is specifically Germany, tenths versus aggregate, on first quarter-on-quarter quite engagement was in QX. been of The about very driven actually working some a a in seven that we one it’s see on for time. reduction of complex did a That a point – have we basis, it we’ve all really by

the But now to we are cost. starting drive

start to this at in expect on revenue We QX. particular those to engagement recognize

amount versus was really really to We’ll responsible to cost quarter entire margin in next significant the it was of QX So, decline. see incurred the the and a quarter. revenue QX start that

if That’s a down that X.X drives On were talked about over about the would that look, you we year-on-year a point, basis, value. year-on-year of little I basis. we same points about half about say, transaction on

was it. driven been some half by promotions driving other actually The that we’ve

legacy we promotions sent some out what customers. And was, more the a versions that our devices some UC might the on to this our have the did are way and we on some able a Loyalty Jim product of older which of to of of described versions. had Together, customers is and As Nortel some we or migrate around to – the that to recent we

That we of less implications business. going That in sort less in couple was headwind. was, will expect as it that peaked and more a that question last we we year, think that in are in what we of kind When of the of frankly, I become we last but QX from your started about, stable the and quarters, forward. cloud think quite of our where think I go do having

at Certainly, scale. from tell stages initially going I’ll some just be level achieved you early very ReadyNow of headwinds is to there some the really

quickly of behind after – I year. a to into small We more would really shift we don’t hope in aggregate Honestly, the business. total still a margin to part through don’t as next think headwind really reasonably we year to put get big us we In being we that think look the I aggregate, out we next could cloud. as see

Lance Vitanza

the and net actually that number how you are – impacted you Okay. much Great. of I adding the per as talk netting in upfront couple grow, of as And speaking about what are that do a questions as then at QX? the and channel talked about or seat? And a how fees monthly seats cloud, upfront quarter-to-quarter cloud this I the you intensifies an in partner cloud us you expands, can public think could against bit, you is if am and gross there for quarter, sense seeing revenues wondering in – you that revenue there, results that that last all a give just the reported also, performance little much of pressure

Kieran McGrath

is been it’s that half has headwind probably probably of think I our quarter third a revenue if I that what about fair year-to-date been. Yes, think

of seen rebates the this we the amount public taking. cloud been about our the have we’ve would of year that exception revenue with So double

say… you as So,

Lance Vitanza

entire are up multi-year the worth you period programs? of setting sort long you how are these And one-year programs? on, the programs when are turn rebates he revenues you in you the in Are of these typically which fees frontloading basically, of t sort programs,

Kieran McGrath

our one to types. a Yes, offerings. of usually, we across or one-time. seen Obviously, programs SCaaS in is one these general, we’ve offer different take we see. usually, and UCaaS I year lot But mean, under what different we been CCaaS trying them Right on and now, year we’ve models wholesale our take type

Lance Vitanza

guys. time the for much very Thanks Okay.

Kieran McGrath

Okay. you. Thank

Operator

Your comes from Amladi next Nandan Guggenheim line of from question the Partners.

Your open. line is

Nandan Amladi

taking Hi, good for Thanks morning. questions. my

on this, in touched you been from strategic So, little alternatives but these a the on partner bit is how the months? past process few the community reaction

Jim Chirico

job. as not community Hi. we team has you really look I is partner Great you only from take Yes. a our if at, the Look, – mean, organization Jim has job customer abreast done order take This deliver a to but need honest, the deliver the we base, here. phenomenal also question. the be if a solutions, focusing technology what make obviously keeping done our competitive. to at sales the do, look them to I partners situation think to a on in our nice

done areas to of But uncertainty, excellent I at done stepped customer job. have community up task solutions before. driving a and actually – and where an job think situation there teams focused great have really obviously staying is they’ve when and base. seen the the the had been right have We we hand at prevailed actually our times and partner on – We’ve through uncertainty of and have a our kind basing

So, quarter, would We a team to timing understands in operate it’s because the an one opportunity there. of it about has But where environment. of quarter. number June and certainly the still simply the sort talked of say, the continue I bit seen it isn’t little last to and we’ve that disruption. to everybody was had

more just if great way the number the overall you would business for importantly, momentum shows at picking take look company really the support that, a that the wins I wins, and say for also we’ve shows up take outlook the a million than and great had roadmap. and $X look the government you and of greater support is at the

will was out again, displacement we well. that a SSA win as competitive as point Once

and was win in displaced we not that it but only size, - deal. to So, Cisco significant order in

execution proof overall our overall our further again, the So, company. product, more confidence importantly points within in and the

there. still it’s So,

bring think we next the teams but days, I it. that we XX done said, job through will conclusion, have expect excellent we an to working the As it within

Nandan Amladi

I And – might. if quick you for follow-up that. thank A quick a

the R&D different consolidation think and On the I to roadmap is on what Insight? at space starting product we in we see front, are happen than that some CPaaS saw your

Chris McGugan

Hi, is McGugan. Chris Nandan, it

Nandan Amladi

Chris. Hi,

Chris McGugan

We our platform. CPaaS continue to invest in

Canada the have business market the that market and and We the embedded of have in seeing and solution both we a built space so U.S. nice are we technology across book in consolidation our stack. in have

are make grained and of our to it cloud premise access going CPaaS. enable premise We to with with deeper our some into technology a

as that end we see the you’ll into of go the So year.

Nandan Amladi

Thank you.

Operator

Your next question comes from the line Stanley. of Meta Marshall from Morgan

Your line is open.

Erik Lapinski

for this is Hi, taking our Erik Meta. Thanks question. for

wondering, there certain verticals We with are are more public or you where traction customer seats? just your seeing are cloud types

Jim Chirico

There of isn’t – another take traction a doing well. it’s cloud we're whether you. Europe, look obviously it’s actually at honest well a IP in geography it obviously all if as across our were from by you office America, that geographies, particular U.S., to from seeing perspective, Latin We UK, any one powered seeing is the with solution. vertical be public differentiated And

I’ll more much, It’s from the vertically dependent. partner a driven board. community so it’s not our So, of driven – across say more and

of obviously driving broad an based play It’s purposes, intensive that the our it. that partner wouldn’t mid-market. just say one end I for per it’s is really across So, But low SMB more vertical se base. that’s

Erik Lapinski

have – any sense. you That that are you. could one, of you And makes on I alternatives the then another Thank options strategic do there? there kind are update Maybe considering? if the just

Jim Chirico

will the a the and we and understand, we’ve value advanced can to strategic days. range that basically all what we is multiple said to a comment you discussions we on with this next the fact transactions XX that trust in can I and maximize parties have are fairness, at make this time only in that we look, Yes, expect of shareholder process within conclusion

there imagine So, all are that and can the and understand time. we questions make that are probably many the only this outcomes we so forth. comments where you and can I in these at But, trust so process I are can about on expected

Erik Lapinski

you. Thank

Operator

Your Rod from comes the from Sachs. next line Hall Goldman question of

open. is line Your

Balaji Krishnamurthy

your terms driven clarify If Balaji the I contracts range be Thanks. to of would QX government you guidance, of that that by contemplated on expect But Rod. low-end. are much million, This $XX for at the on being mentioned look the in of how not to contracts? government you the is

Kieran McGrath

So, consistent and contract these talked between All the is to about not have what any deal SSA high-end particular. really the is contracts with low-end these when quarter low-end deals government last high-end said we related a and delta and very the of mega did the the we government in did.

And it issuance of that the has the we’ve and now really go are obviously then to we with just, to do we got contracting with that the award, partner through the using have Pos.

for looking a we’d long-term as sort that originally, a see think think cloud more private have at at We hosting that as better us us about also based our award upon our term as ratable. we revenue longer the of well ratable we’ll business more is probably to as to like come of more on model, a a part well, which

have perspective. not, it able both for – if into in some and time done And we into QX, of hopefully, a the UC year. product get goes of be some possibility that But of time device some will point software will in upfront next rolls we to

Balaji Krishnamurthy

Got it.

pretty In down geographical like of the terms color meaningfully EMEA quarter. looks this trends, there? stepped it Any

Kieran McGrath

side given any booking rec one perspective team pretty quarter, EMEA heavily In in deal, it. I have a revenue hurt Honestly, particular of before, large particular but the that quarter. it’s can deal actually, quarter on were, we think colors the well might the us, from one had like

of the it. with more has or do impact another one can quarter any in to it transaction particular So, size

on deals call couple some AI going I think of have been we’d same larger especially say Brazil. government in the given in of for sort of that issues a the the in next thing

pretty some that of increase. there, We was some with we’d lot quarter-on-quarter hit work about. we significant impact back as nicely to the which stability then those U.S,, a saw in through were The a that bounce happy that we expect QX. is Again talked issues of device

Balaji Krishnamurthy

tends could R&D, it – quarter, be to the R&D gross And of product if that case. strong in margins, was more. QX the the The just sneak looks couple last the years in Okay. least not at pretty one I a like

there in And If here? some could caused is the of whether QX that on, that? you comment trends if underlying you drivers expect some

Kieran McGrath

Yes, us I’d would because is, say the XX% based to federal the just a quarter with in see are larger especially In more upon tends trends. about In to a for that couple expect deal historical ship be things, bounce to of for I government right. close QX outside we you of government, general, large one see of aggregate, back a quarter in what do products. talking SSA tend the to we we are the

thing is, only very never gross going maybe that quite have we healthy. profit more be how be a be different obviously it’s software high to which is of very, to which device, a of margin know much won’t versus going The quite as might

So, some there think that. will I QX. to you total and a in see products are margins be the would bounce dynamics expect around right. I in back But in in

Balaji Krishnamurthy

so Thank Great. you much.

Operator

from of Merchant Your [Operator Citigroup. comes next from Instructions] the line question Asiya

open. is line Your

Asiya Merchant

bookings basis. being a and at congratulations quarter, very good something earnings the last and on call think mentioned Kieran, a to as more provide quarterly Great. well. able on more you Thank billings about much I you

provide book-to-bill see So the at we that kind ratio Is what that is. to able point? you something are of this could

Kieran McGrath

able us begin is clearly to new as and so, recognize clearly, hope My points not fiscal proof that provide that. mean, time the we I cloud point. company, Yes, as of to year. at we want software out a be the demonstrate to and the move to to in this start as

Asiya Merchant

an apples-to-apples bit Okay. then, on a kind is again, unfair at it the ASCXXX Is I what the impact looking look little that look excluding and numbers, it basis at as what ASCXXX of decline last reported then basis, – a on out impact just at the more an you if accelerating. basically inside and it comparison XXX those was non-GAAP XXX And taking I to compare year? of a comparing

Kieran McGrath

gave that reality, same I In the last exact you it’s explanations quarter.

had to that recognize customer to sort we actually XXX into the if obviously those As from we seeing that we to complete don’t drag get think retained contracts for perspective, them, need we a we sign-off. those recognize about of earnings, were are put

to of we to out professional and – year These a these of large back earnings, complex. contracts put if them. by we most CC contracts inside we lot CC tend took of services of contract contracts, the content the back were it if heavily retained this the be into beginning and with backlog customized, heavily go go and the The most to

half It’s point time. as we’ve – basis the last about year-over-year a that discussed the decline on half of driving

a that are customer, or a now, XX% higher, So, just the we’ve say from from really change. so perspective. sign-off – these it that, right I can not that from All of signature got XX% rep deals is cash would the actually final waiting a about of much we bill

in customer But any XXX, make obviously, getting quarter include had more acceptance. for then, this we'd perspective. last to little change, progress I the And more XXX that comparison, it’s didn’t normalization and and same in frankly able to that sign-off I terms the exact quite am be of disappointed honestly, I description a

to But deals taking again, our seeing this from customers very perspective. we are was are would on. starts a less rollover a these effecting we on some as pretty a complex are into hope well, become view capital cash, working long of that drag this I us, the these and are

signed So, more much on on full we’ve these got try billed press get a to off things timely a and now basis. core and

I working can a to so Just reduce this drag start capital perspective. from

Asiya Merchant

squeeze Great. more. in And if I can one

up on CapEx into million. slide quarter $XXX again XXXX were third from picked Your the that million have illustrated the to to $XXX requirements seems

the If CapEx private into of understand forward as can going and we clouds, CapEx to function we et cloud the you so about towards can shift explain driving is Is next should the model Just more cetera? it a rate look incremental we and in year? requirement? increase runway going what’s that that driving think how

Kieran McGrath

Right.

but there around world infrastructure. especially out ReadyNow just great of the I Jim a two not say is One U.S., to that the particular, our it’s all you rollout, seeing in build initial to are question no would start things. So, doubt and an the as increase is, in described

forward rates modeled as for go time. assuming there need growth I that that the to a over $XX the have ReadyNow out longer will what would we time, it’s say, promptly million year, million will we between we through $XX projected be we’ve

have more some ourselves company. do cloud-oriented to as cost also some additional more IT towards We internally been an help tools move a putting of perspective from we in have a

some lot of place So, taking a account – even I the of of our need tools that capitalization tools how do how I level different with for just XXX. some are employing or for

think that about of long over number. million right I flow will I $XXX really do So those a behind CapEx the think haul the year is things us. that like

we more I the ramp little do think just the help year well tools a a manage as efficiently. bit ReadyNow, of IT business us some tooling to of combination as IT the for of internal anomalous is this this have because little

think I longer on of behind down us $XXX we and that term. million put back are we’ve runrate sort

Asiya Merchant

having, million can Okay. strategic cash is how balance that provide the And color Board on your underway, any then, plus sheet? about review but guys you on the the the you $XXX is cash that making sits

Kieran McGrath

keep said Honestly to for out. to review before, play giving the need answer, wait I but we I the the hate same think, probably we since as

time. I out, having of extended think have an us period did review the of that prior the envisioned cash taking Board for amount to always we that said

from would have XX of nothing terms think terms the days. out the play view. I of it, next the we in over the So, of look in disposition Board’s process perspective changed do But to exact that here need

Asiya Merchant

you. Thank Okay.

Kieran McGrath

you. Thank

Operator

from Mike comes Your Capital. Northland of from next question the Latimore line

Your line is open.

Mike Latimore

guidance on on any guess, the can I year? taxes Thanks, topic, cash sort cash of Hey. next give you fiscal

Kieran McGrath

say this of the to fiscal don’t guidance QX. terms At XXXX I don’t provide of in really of we as time, we’ll have I myself exit terms get taxes. cash in long-term want anything point in ahead to

than back don’t it's be in that ready as while just of think maybe an advised publish. I am time. to we through don't that had have I all it modestly, million last go we But XX-ish going view what different maybe yet year, I updated lower we are of December

Mike Latimore

then And on Thanks. churn and good. the kind – from just Very business? is the the public churn private a – How in of in perspective? obviously, Anything clouds. good general notable trends

Kieran McGrath

we multi-year deals are a cloud most actually deals, signing the two that are From of perspective, years.

rates back to from overall a bouncing maintenance upgrade perspective, chapter mentioned churn both yet our where business this in from subscription in renewal continued the of particular from minus haven’t we and comments, XX, XX. away Jim speak mentioned for I any we improve in move were So as well If space. to experienced our cloud, his back I and advantage as certainly our really as

Jim Chirico

to in Mike, a you revenues maintenance nice seeing cloud we if that, ReadyNow, add to just solutions. the Yes, that, are will, GSS from transition to

base. obviously So and that’s seat one, count in ways, with to stickiness us deeper dollar embeds advantageous then just an customer perspective from per secondly, a overall from our

is So, that on from economics you and side, better churn if a well some positive progressing perspective. will a actually company

activities than also than think, anticipated. work the we old better is current up had doing Together, secondly and up bringing team call what we levels, releases that to mentioned point, doing but two Loyalty that to bringing those I as I the is in really around and releases greater technology

promos Kieran As associated pointed doing we with are some out, that.

rates release up us renewal our to in helping back which getting overall high. But and maintenance are folks latest is all-time the obviously to

is the in think I perspective, overall business. from are churn we that So, seeing some positives certainly an there

seeing which us. important very We very, are our for maintenance is obviously stabilizing,

and – six fiscal obviously, is as rest year, next which this, grow ReadyNow XXXX look to continue forward we seeing weeks, So get into as we we of certainly the and to but go through beyond. our

Mike Latimore

help on that these into on backlog? two can Should we calculation? announced, that flow deals just how assume Great. backlog large Or the does these? you then, is up you on very And materially

Kieran McGrath

tend into expect Yes, terms, and as the out. usually periods on contract, you specific has the government depending so, annual for the to the always right government the up they to would smaller we imagine, tends can an see, the way break things

So, a usually, will exact them what book again, to time, see. that terms be the here is finally a but we having at usually negotiated, seen year tended

$XXX we these amount a But the of bookings is would I probably QX, expect, enabling out entire like see us TCV start to So, just perspective. portion to from benefits million more the the not that. annual in of of some

Mike Latimore

sense. Thanks. Kieran, makes it

Operator

over I'll time. questions further this at McCarthy. no are turn to the call Mike There

Michael McCarthy

Marcella. thanks Thanks, And joining morning. everyone, us for this

forward you a look speaking Have afternoon. to good will with We shortly.

Operator

This concludes today's call. conference

may You disconnect. now

Avaya (AVYA) 13 Aug 192019 Q3 Earnings call transcript