AVYA - Earnings call transcript Q3 2020

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Operator

Greetings. Welcome to Avaya Quarterly Earnings Third Quarter Fiscal 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. is conference this note being recorded. Please now Michael McCarthy, will turn Relations. the host, your to over Vice conference I President Investor of Thank you may begin.

Michael McCarthy

Investor call our taking Executive and Fiscal President remarks and President Marissa, before to lead Vice with CEO; Call. this you will QX prepared morning's and McGrath, you, our share Jim your Kieran Thank and questions. CFO Chirico, and welcome XXXX Avaya's some

Senior on Officer; Vice will morning Anthony and EVP the and be of Avaya's Consistent on in Dennis aid Product our well release call as from each understanding Kozak, slides page SEC, morning's call in of Joining distancing X-K them this your site, The this are the assembled with President and Bartolo, remote today Transformation. this Business filed which as earnings the mandates, Chief accessible should locations. are with referenced of investor our social financial of morning's on Investor our results. Web us

We non-GAAP financial numbers, specifically year-over-year noted. sequential and will reference all comparisons non-GAAP otherwise where except our note and reference that measures

XX-K severity included currently current a as assumptions, remain the is make the could on that extent be and factors COVID-XX depend subject to and statements to to, risks results may by our include, of its the differ GAAP impacted based business particular, continued its slides. well of may of The that release being and and We impact global number have duration and not continue our SEC, recent in to on not update It In we economy. business in as is risks such on Avaya's otherwise evolve Form limited circumstances earnings investor the are that and materially. not obligation a but consumers governments, over time. will effect reports. uncertainties our and forward-looking to expectations, We to may reconciliation revise forecasts all except subsequent on the measures with taken and or in statements to or policy law. which which cause actual turn of and in the in be including guidance, change, Jim. response no filings actions Information to our and by facts uncertain about required reiterate remain forward-looking Form most to uncertainties this I'll found now the pandemic, XX-Q call at undertake taken businesses or by event

Jim Chirico

for for growth; partner grow deliberate results. laid team’s execution, subscription conference cloud strength the our Thank leverage alliance you, rapidly a we to over model; and two three-step Mike, very of business ago, to A years deliver QX three, Thanks CAPS. One, to our out call. or two, able revenue outstanding everyone a execute strategy. we joining the and little Avaya thanks on our were and the half plans and

For and it’s growth we’re the first time, path. on quarter-over-quarter right and confidence revenue give that these the Avaya me achieved year-over-year results

high up continued which million Contributions our up to end business. range that gives recurring No growth guidance given points this of XX taken in GAAP and up X services quarter, have going book year-over-year revenue year-over-year. XX% the $XXX any yielding plans returns. are of million, In rose million prior from revenue, was question share into the Kieran year-over-year points hold software the was and QX, and the of a momentum reflects X was importantly, revenue, quarter fourth More business quarter. and our from X above us for will also positive solid our XX%, and

cash million quarter Adjusted from or deliver cash prior revenue. from on was an $XX the increase operations million and that million our $XXX on hand, guidance $XXX EBITDA model. the Our and also million flow of quarter. of We exceeded of ended operating to results of and XX% was continued business with drove $XXX

while investments executional Looking maintain same the the making and to necessary value. shareholder continue in forward, maximize the will we discipline our business customer to

accelerated hitting year maintained subscription. ahead XX% our offerings, about has of CCaaS, of to revenue over ramp family and I And OneCloud a revenue, CPaaS, CAPS? it target our represents an published reach of how includes Avaya here’s UCaaS, First, our which the CAPS Spaces traction Our think schedule. of

revenue SaaS. was it’s fact Second, our of a percent in key an as from This quarter-over-quarter. to XX cloud the of increase CAPS prior represents XX% The quarter. XX%, a transition indicator up nearly million is of

that along of partners unlock the ecosystem, strategic for extensive our Third, and our customers. we, cap importance with the value underscores

materially the working, Lastly, the by generally our to Clearly, reasons. is maintenance This deployments. double typical strategy half to The investments XX length bundling transition Avaya activate additional allows ago. has our base plus of number and deployments innovative a on-premise models resilience. of remote AI gateway streams off. revenue cloud, seamless a consumption for are It months continue a paying subscription to provides are a important years innovations, video, customers company very it different our in and And from two to component on-demand. product of new contracts. offerings, which contact us shown like our recurring is and amazing consume cloud CAPS from center, Spaces, contracts in and

our meaningful our in continue Simply and have a in enabling to business. not Remote differentiated leader the core demand our disruption any right stated, work-from-anywhere has key from these at been growth We we've never expectations I'm well solutions especially we've in has in and rapidly smooth to re-imagined the DNA time relevant the areas. base to and are team accelerating drive technology place, into solutions. been note for been what more a and Avaya proud capabilities long times. highly capabilities The important It's right will experienced of our the outperforming and strong we and customers of are us during globally, accomplished unprecedented to that put partners our and to are future. home work growing shift

and $XXX like extremely or TCV on Now, of couple minutes total center in driving demand our doubled OneCloud displacement. at earnings to the an beginning to we contract Subscription initiatives, on-demand have a value agents. One be is OpEx to to with the provides Avaya using delivery XX,XXX to transformation in users ideal in to A and support innovation Avaya customer are The to over deals agreement Avaya like call, company in contact three-year Customer closing gears, discussed The new launched acquisitions model I’d choose subscription. over and digital of access Spaces, customers integrate advancing these actions models strong. replace consumption customer that provides globally. And and time we ability flexibility, million based to our latest second and on This Shifting growth offering applications. this several Initially XX,XXX This is them pace. the our longtime customer, TCV quarter subscription at the app our The UC size providing XX of a quarter has signed customers’ journey seven of digital $XX cloud appreciation services $X a also their for million. Avaya European U.S., clients had requirement expanded million. the in were give an and OpEx our and when spend is model for licenses. wanted and you over premise-oriented support help initiated to a UC Spaces their video innovations financial of systems. competitive delivers U.S.-based new client they use customers new subscription included upgrading and its when UK immediate a over internationally million will transition to path infrastructure work-from-home an key our and priority. the their for a now contact and response the own temporary COVID-XX. model spread X.X retailer collaboration center large a remote deals, subscription become to is

are to customer I exceeded a expectations. these We conversions conversions and in benefit our categorize see broad commercial three would have buckets. starting from actions

And of our is licenses those simply to existing this are group center to many accretive contact that First convert temporary to business. customers these permanent. needed

need are conversions second group incorporated largest into in QX. contracts. accelerate these The remote our and we opportunities The for subscription similar new helps sales and seeing has licenses license

group important are the third implement through their new technologies Avaya companies developing digital in transformation. for of customers. represents customers of now They going and and looking solutions to is differentiated The and extremely process upgrading

quarter We we in XX. Office results the and are Avaya guiding full and realize of was Australia and them will these on June time. journey U.S., their Canada, first fiscal on the UK in launched QX over efforts Cloud

had adoption. In new addition, accelerate and to we automated capability feature a

couple is results. of proving its Avaya Cloud Although is rollout, give strategic you me a still and in The true, let partnership itself yielding early highlights. positive Office

offer available. we demanding. First, versus winning customers markets Cisco, front, like and We’ve four an each and were others. we We our activating XxX, logos are deals signed go-to-market that Mitel, of by were we new in our the were providing significant on Fuze they a partners also on competitors, basic And number track. of UCaaS where are

up and the we’re success nearly X,XXX with master campaigns We’re We’ve XX handle I'm agents. that to now agents pleased customer solid launched and teams ramping a and inside how sales pipeline, our generating are volumes. demand generation to

the in functionality Avaya Ireland Cloud Office next and Netherlands. to expand bring September and Our will further France, release

of reliable to Avaya gain call could momentum turned center cloud customers to On onset operations XX% the to in contact stable the CCaaS COVID-XX solution They the be quickly experienced aspects and that volumes implemented the Cincinnati pandemic. cloud. public front, and their during Bell continues for increase cost-effectively. plus our ship of its a offer for immediately looking to

generating while improving Avaya to experience As nearly savings. end-to-end agents service remotely, customer the XXX management CCaaS empowered OneCloud ensuring a of result, and and work cost

is pleased with the Our and uptick. funnel building nicely, I'm

We digital to July, invest in we significantly to in added and offering. channel our CCaaS continue base capabilities

high rooms. and quarter basis. and the OneCloud routing, include up the largely from government and a enhanced QX, at over Our release as our with state driven collaboration demand local is offered end education countries of XXX% Avaya usage It’s work-from-anywhere XXX was Spaces, in UCaaS increased integrated as is capabilities subscription available platform analytics. experiencing by demand on messaging nearly and usage. well Spaces next reporting stand-alone voice, Avaya attribute-based usage. team for also video, Spaces of delivers and

significantly quarter. performance contributed our cash partners alliance Lastly, this overall to

and Motors’ responds contact for to example legacy One deliver Avaya of Dialogflow This capabilities that and innovation experience and center AI, new and cost By Google entirely OnStar with results lower OnStar driving partnering driver platform. replace system a delivered capabilities is solution partnership effectively. to customers learns better division. more in We in learning virtual a the to is a service. advisor consume. to with using application machine new combines investment Google. The Our General

won the contact X XxX, new deals Cisco, cloud from face deal and million business Genesis. Avaya power customers. the business will a three-year million XXX a for with uncertainty. than global few to locations a our on with addressed XXX the competitively In process, in that modernized and of is solution that over years. operating global private platform. executing confirm thrilled how of our more and XX-year against contract center Genesis Verizon Our million work can just The than The we customers more point into a over of a further is now TCV. fully alternative takeaways concluded couldn't $XXX note. this Security million upgraded and pleased to and I’m areas with with piloted into XXX lines experiencing deliver more demand summary, more added today strong marrying innovative the competitive Avaya over In and needs Social Twilio. what of highly over most their Avaya. is the Google competitive future. innovation worth a signed Especially protracted differentiation and about leaders pandemic, noteworthy, One to just are best multiple our company the I of XX with be progress XX and and we $X a providers our from enterprise, are And procurement value, growing including worldwide share Mitel in XX migrate This for strength world-class significant more over the solutions. proud are across We has over technologies I’m last that we these our million than award we of last many complementary on and had for After base and been and XX,XXX TCV year proof global a of will Administration agents bid $XX details. punctuate those the we face of our one contract and strongest displacements, seven with the summary, advantage seven in strategy TCV business Kieran of offerings with But drive million including awarded in customer

we it fiscal for global will I’d than employees finish We I to to And optimism are year that, partners model. in we business a to look ever a headed. accomplished before. our Kieran. to are continue where we We great customers for over position let have maintain in and of like our together. what thank our today, stronger our strong me turn and financial forward and September, have With profitable

Kieran McGrath

Thank everyone. you, Good Jim. morning,

set on slides otherwise the financial figures mentioned in are site constant Investor referenced unless unless indicated currency. metrics call all to on otherwise All Web GAAP stated, this as reported, reconciliations. non-GAAP posted As supplementary non-GAAP this on forth Relations a are the and our call reminder,

non-GAAP the compared was year $XXX fiscal as period. this revenue $XXX reported QX million in quarter, of to For XXXX. million compares million $XXX the ago in Sequentially reported to

converged and we differences As quarter, start during non-GAAP a to reminder, move generated immaterial the accounting and GAAP now fresh expect by are forward non-GAAP revenue and have the similarly.

comparisons. material still adjustments non-GAAP we speak for to were revenue and However, for so comparisons 'XX, proper fiscal in non-GAAP year year-on-year

recall We time kicked Further, very May, guidance when third XXXX, we our well we take Avaya’s fiscal are and Then would to we the history. the provided if business the down that low growth the have for began fiscal to we to results year be that return in mid-single year as of revenue first year-on-year you half closed in recent half about our first the growth off quarter of would initiatives hold, revenue growth. represent digits. in the pleased said second the our in

long-term CAPS top the revenue increased we anticipated. from has we key a new the Avaya for from as enter it’s much partners, year. with revising coming pace subscription XXXX. we XX% this driven alliance projection line with faster percentage measurable subscription revenue largely at both partners, contribution enthusiastic quarter-on-quarter, from fiscal quarter. cloud, combined a as expectations Cloud Revenue the ramp and represented will our for Our business of and total revenues long-term of partner fiscal to of year be QX also by With for in to we of metric for continued validation by we CAPS an initially $XX provides CAPS which results continue upwards achieved projected up the alliance executing Office plans. XX% and million in existing by growing our subscription revenue and metric witnessed CAPS clear seen this the line rapid contribution the are the CAPS in be that QX, while full Subsequently, strategic which including approximately our such will reception than strong our Avaya’s XXXX. are to But quarter growth the customers, target from ramp with contributor alliance our a strategic of line a prior XX% or the

impact Third declines in UC had of grew quarter partners period Total $XXX issued and product the to the XX% our in revenue flat the licenses as customers. we almost we in successfully continue contact been $XXX compared year-on-year software $XXX of center temporary many witness QX. was to was revenue with by strongly which million converted back year down on offset million QX. was revenue the million as ago Partner in pandemic and that

the conversions upgrades revenue QX. our in product and period million our growth year $XXX Third a offset ago key than $XXX represented model to $XXX new support. more license was Continuing up temporary and for compared declines million fiscal placements, and and in quarter traditional revenue services in million, services subscription driver under maintenance

year XX.X% in gross product XX.X% in and XX% was to quarter. and XX.X% sequentially. the year gross XX.X% margin period Total the turning margin even to gross Now second profit the compared year ago XX.X% was in in QX. non-GAAP XX.X% to XX.X% quarter Non-GAAP compared prior was metrics. and in margin third services in the the compared to Non-GAAP prior XX.X%

flow Turning cash profitability and to margin metrics. total

non-GAAP representing and guidance points year-on-year services. operating of XX.X%, as basis $XXX quarter XXX as XXX up above of $XXX non-GAAP the a a in year-on-year operating margin was income adjusted adjusted provided Third on strong of million, basis mix was EBITDA product to an representing points a we well up margin while May due million EBITDA XX.X%,

X% to flow take Turning to cash strong balance of further generated cash like this contributing total I’d quarter substantially from or to and million liquidity million moment cash to our of in ending cash in and delve into operations quarter. $XXX cash We flow. increased third our equivalents. $XX a a revenue, position

As you partnership you as those tumultuous our liquidity majority this monetized their from quarter we given our in QX XXXX prepayment million million and were shares chose that have revolver call. Approximately position, on of draw the received $XX was of strategic base our resurgence In flow market operations Included our quarter. climate, liquidity. back in $XXX in opportunistically common the of $XX our of further light the quarter we we the at of tax hand cash holdings the investing we November will stock. quality position our may sufficient for recall, as XX% To our the flow we have with the had July cash during shares with part that prepayment. held. we U.S. provided macroeconomic Even in a RingCentral, remainder of to strong this feel incremental RingCentral of earnings in related customer liquidity we disclosed million cash we and executed of see payment for from within This on in third that recognized states a trades for the made witnessed open the internationally, pay current the COVID-XX start in certain the of of April. to

June turning constant as expressed to a revenue reflecting Now that guidance. all on are year-on-year amounts XXXX. note and all of currency rates basis Please revenue changes XX,

$XXX fourth of the growth million anticipate at and to the year-over-year. quarter-on-quarter midpoint, modest representing $XXX revenues quarter, For we non-GAAP million, both

Security XX-year is award Social This Avaya which the one initial inform over mid-July, We well is project consolidates to the issued and Verizon, displaces telephony formally for are contractor XXX,XXX platform partnered. you a to project contact onto pleased $XXX prime with endpoints voice the in that communications Administration modernization center competitors. value award and The other of next-gen million. two nearly

We are communication believe has the that validation of best-in-class finally this solutions. thrilled contract and significant Avaya's awarded. We contact center unified been represents long-term

non-GAAP EBITDA $XXX expect XX% quarter for to operating million and to We XX% and adjusted or approximately between of and margin margin between the revenue. $XXX be be and XX% our approximately fourth between million XX%

As billion X% $X.XX to billion, representing fiscal we non-GAAP we in of X% minus year as minus fourth a full measured annual to decline incorporate revenues quarter expect currency. guidance, $X.XX constant

revenue. We $XXX fiscal and should XX% million $XXX expect margin Similarly, approximately non-GAAP of range approximately or million between full our the adjusted operating year. to be margin XX% for EBITDA

year terms In to the cash fiscal from XXXX be approximately for X% we revenue. of expect year full of flow operations,

At full strategic material year outstanding end back revenue. Jim? like now turn of this we change shares. prepayment QX, With to call fiscal to the before our expect that, to time, Excluding no taxes to X% which the I’d million at XX and shares accelerated of approximately this sit payments from currently impact process year, the to Jim. the in equates from the one-time the QX X% our

Jim Chirico

you, Thank Kieran.

Avaya that and leader a tremendous face to opportunities front opportunities in today. really industry as portfolio us address a the and solutions about We’re technology scale, and the of with is excited an rich global reach company. of challenges businesses

incredible the well positioned have I customers the I’m are future. team Avayans of We that around have we globe. of for by an and a inspired belief strong the base

happy Operator? are We take to now your questions.

Operator

re-queue please ask in We Thank that follow-up for questions. and Instructions]. one you. one ask additional you question question [Operator and

Samik Our JPMorgan. from first Chatterjee question proceed. with is Please

Samik Chatterjee

taking Hi. Good for Thanks morning. questions. my

benefit that GAAP’s quarter, particularly a had see if me You sequential a revenue last in primary strong you in can move I and driver, wanted like the subscriptions bit, were licenses and for think And unpack should there? to how up. a that. we follow the of growth for also And complementary conversion some from I headroom there about if of to any have was

Jim Chirico

you Hi. on want I Jim. Thanks touch Yes. the to color. maybe revenue can GAAP is This for add question. Kieran, first some then and the

Kieran McGrath

Sure. Yes.

in quarter-on-quarter. GAAP million. revenue, being million talked quarter-on-quarter our the of a in I revenue, up So up we significant would seen increase being consistent $XX pretty obviously terms which I CAPS and change think say that is $XX on non-GAAP we’ve a about

see predominately can XX% some in was you the purchases, business. year-on-year falloff So the our revenue that that we’ve lion’s seen subscription up then coming Hardware most growth makes revenue. down really share hardware almost of seen And on which from the the that a CapEx basis. coming CAPS is certainly premise-based we’ve traditional from

Jim Chirico

a bit color. just little Maybe more

As subscription, as in transition. we’re still obviously far the early

a add just not win a to As $X ACO, of had out, of you look we continue million but Avaya our lot an billion, we pointed we overall couple from as still that, we just mentioned, is only also new customer-based basically perspective to hundred TCV quarter. a north U.S. competitive there’s last take at as And deals. the work to but TCV if with so we have

three have more. additional then we and obviously we’re three So countries

we’re well more we private gain we’re as see So deliverables balance traction. a but private excited certainly our momentum work for 'XX than public this but gain cloud, cloud on and not the probably nice And last and year beyond. to very the their two then we’ve And only and the progress on CCaaS we’ve amount offer movement made quarterly the of of not us continued traction. starting is and continue ACO through to into other of with done growth that least is as about we a expect then with see to go to areas calendar enterprise really our to that large continue we customers

in we very As QX I our win and had building significant is pipeline mentioned, accordingly. a

we’re So go the momentum into 'XX. really as our to new backlog FY quarter but starting building not only products with this seeing we gain

Samik Chatterjee

Got think quarter, I mentioned security I you last to fiscal of contract? issues revenue it. Can had expect XX on the just quarter. up million about of third follow in

contract into that now we through about as how the next we guided and in relative fiscal to With awarded, should quarter? had year to XQ think ramp for go the revenue the third XX million you fiscal

Kieran McGrath

Yes. forward, going we the million year we about to that able the be deal would outlooking of I that $XX say as full go just roughly I get million due more some think aspect million the should be COVID out then the we or about we it QX, QX nature that given weren’t is would the XX $XX again that around of to would a we’re like cloud in And somewhere probably managed time. to in as rough expect go that. and limitations, number aspect XX-year service through private half

Operator

question Dougherty Catharine proceed. with from Company. Trebnick Our next Please is &

Catharine Trebnick

Thank with been quarter market. to solid by of the you for just which are my how Mine give some – to competitive happen color are actionable has they relationships those question. are? working with with in has and how Microsoft – the much do around you particular kind seeing very and a route And one you excellent to and really could landscape, pretty user if how the way carriers us Thank end of of you. lot be your taking

Jim Chirico

insights. fairly marketplace. Yes, to and I’ll Anthony then give start additional a it’s over I’ll competitive some it Obviously to

business We of today. peer most think businesses a we Microsoft to that. the And time global SMB But the that are is than I especially I as what’s in to comfortable to, seeing financial And from and innovation, on world-class important uncertainty, than large of are number that services business fact CEOs, turning one their probably the my they more is talk the sort very fact platform. us most of just things of technology a the competitors, that’s a you number enterprise expertise, offers support will, if the in the product a I encouraging partner more organization deep that’s strength. and in that that of believe of a the have we what’s differentiating fact have

is, turn need them with to can a point very in they that to obviously an they and expert especially the scale industry the they basis, that that provide COVID. with in and breadth So need order deliver timely the solutions

So of probably of side right Microsoft, SMB again on we’re more it’s the more starting business now. see to but the

I you add So do don’t know, Anthony, to that? want to any more

Anthony Bartolo

Yes. Thanks, Jim.

I that right. fairly think you’ve got

side IT the center in is, think their whole, really other with our see And side thing already integrating contact I organizations. collectively. solutions only cohabitate and solutions in of together – as lot Microsoft a well our economy side would by both side a add customers’ a accounts. with the quite lot I us and we also the our you experienced CCaaS altogether They’re for obviously of large and on integrated working

well we pretty that customers. our them in end particularly we change continue Microsoft too seems But service for mentioned, portfolios other well. So the being of I expect fairly to we’ve work in of one these that customers to much. that materially us that not with that at integrate, the this with cohabitation respectively we’re deploy last of both choose few product as respected quarters result the in space day, a people to shown the and what in We them. and is over as particular mission-criticalness cohabitation Jim landscape market

Catharine Trebnick

you Thank right. very much. All

Operator

Sachs. Our proceed. Goldman Hall is next question Please from with Rod

Rod Hall

business pulsed wanted that then a not then if big of there’s that, I the talk bit sustainability question. lockdowns, the on quarter anything bit then maybe could like would going to us for maybe quite as little in give here but have was seems Thanks how September and too? what’s some guys. that Hi, maybe with that little of strong. something It Yes. but more see about after dive CCaaS sizing on and you do to it a into a because

sustainability what your tell on can follow and just up. So a anything the that? size are have curious you then of I And about thoughts us

Jim Chirico

to want take you Anthony, that.

Anthony Bartolo

Sure.

size a of finding nature is CCaaS the we of the macro relatively we the would a CCaaS the or is the to optionality think customers we give about solution. in can give you rest you asking relatively a environment cloud, that we of the up talks relative have CCaaS hybrid in I it – of may regard environment. also finding may scenario. deploy come because our with lot time initially their other portfolio the they find in private to a portfolio. pure center a And question end customer are cloud, coming only journey of is in a – from for deploy still [indiscernible] nascent perspective. upsize – its it What rest CCaaS parts them of with our not contact the stage and What the as can start we move one solution then We a customers and in into of your

singular don’t we shoehorn So path. them into a just

center seeing interesting part But having nicely. we in of the a So are and at same surprising base, boats It’s result our of as we’re seeing contact attractiveness. the floating quite which growing CCaaS time. portfolio, all our as result, CCaaS not a growing is and solution

Rod Hall

next this then million back you would how the to idea and that quarter XX your contract, any split I generally then any that this split go product SSA the to services be and whether give expectation to for on? quarter Can you expect us million. and than wanted between and different so Okay. And XX

Kieran McGrath

is This Yes. Kieran.

don’t one. take If that I’ll Jim, mind, you

have next out year, XQ it’s offering. and got managed very our a similar cloud see professional and built little product similar really in XQ into then some you’re private part think pretty to to to on XQ. XQ the in early think with I split, going services a professional would of after will that I bit year be mostly services of services once So and going we But

Rod Hall

Okay.

you bit put to less like it XX% services. I of services is altogether. and So this way right its that about as Is --? Kieran, probably the a revenue, initial installation than guess think Most product little

Kieran McGrath

because services bit embedding product. of it’s a yes, really the services I it you’re quite Longer in than more oriented. involvement about it think will thinking bit right. little But bulk that actually Yes, there professional be a of is term, more the

Rod Hall

Right, Thank you. okay.

Operator

Our from Marshall Morgan is proceed. next Meta Stanley. Please with question

Meta Marshall

Thanks. Great.

dive Just either the you’re customers seeing into wanted assumptions your of center to helpful? for we cloud And just that any be solutions your of future of trends to of or how private cloud customers on expectations product should are the versus features what question, be Thanks. second kind that this just that on expecting kind are cloud communications, would contact size rollout electing didn’t are validating invalidating then kind multitenant year? meet

Jim Chirico

Sure, Meta.

at You want the end. on I’ll then and color a add to start little that, Anthony,

Anthony Bartolo

previously. solutions first what I if as we’d think fundamentally I the part is laid highlighted milestones part, second seeing with that. missed someone repeat question, the of CCaaS But you’re could our the on out we’ve

in digital particular met month the on then delivered channels early about of our solution Jim our highlighted we voice that part as So CCaaS a had on the introducing milestone, to ago, solution. CCaaS of our March. We part

course the private to our see area over offering that a public the You’ll CCaaS same of December of start in the capacity then that’s time solutions. customizable we’re really November increasing of attention. lot And deployment speed moving be of into months And where seeing the and timeframe. an we’ll the us next the at few expand the

give my one early in want little and maybe see So I customers on off bit saying, okay, we don’t and as splintering the et public. to would compliance is CCaaS I deploy a something in cetera, mentioned choice, offices et that between and answers, come organizations. that then a I cloud to me in you like, like of cetera offering that in private deploy

So dialogue It splinters then traction the it there. of to seeing part of that, into portfolio. our a and we’re lot starts any

Jim Chirico

repeat Meta, Thank the again can please? you first you. question

Meta Marshall

to Yes. cloud, multitenant UCaaS elect – to question The who’s electing seeing was private who’s solution? you’re looking in what as as they are just trends far

Anthony Bartolo

Sure. for Thank repeating you that.

see to [indiscernible] to security have advance susceptible to private compliance to with or and industries do. So tend is came large that’s an they cloud. and issues what we They they move they’re associated oversight UCaaS manner on the to side, what want the regulated from really

and mandate. of it remit et the cloud, cetera, want want elasticity on within the in. cloud So they’ll their they come their their firewalls, They under and but be to

So it’s seeing. I think don’t trend that’s trend. a that we’re new a

trend quite we’ve that for that we’ll that continue I think happen I seen suspect some time and see to that.

Jim Chirico

suspect seeing an we’re months it’s from would same that. with in stay and hybrid this predominately again, where a in just a mid-market that’s we market growth and we equation Yes. only what fairness enterprise basically find is where rollout multitenant and multitenant the of The consistent enterprise of around And the a to to seen the then which as In side is for end the few globally continue now past large private third are and we’re at us day in in driving to seeing the for but obviously quarter, larger to probably for the countries SMB hybrid U.S. the What the calendar obviously the right the the few an least add will, ACO uptick percent in solutions that’s unique on we’ve just pretty overall now the for solution that in and seeing being you seeing those maybe still year if and, adoption. customers. through solution. we’re multitenant prominence, I or

one least this significantly the another of see year. way through changing at or So that I calendar we go don’t balance as

Anthony Bartolo

lot upcoming and of a thing can that matter one if in one Meta, is to of capabilities private of clouds deploy And I that is a we is hours that were more attention we that, add attraction. those really now. introducing And gaining may that

solution whether had to So that’s deployments highly unique hours a is hybrid quite that that’s customizable deploy a mentioned. or being attraction, Avaya, our cloud is and unique as to purely able cloud of Jim inclusive a in in – in

Meta Marshall

Thanks.

Operator

proceed. is Barclays. question Raimo Please with next Our from Lenschow

Raimo Lenschow

Congrats questions. Two as me from well.

so of about is of thing cash? we’re decisions, fix kind little talk post-COVID still usage talk that kind And months? nice, think see that of are terms more again, a on kind Kieran you’re to the your of in versus investment of more kind somewhat you for thinking What a occurred what gaps performance can more looking can the term more couple your bit stable, seeing Jim, have First, structurally of kind we strong. as longer then, about we customer we like decisions you How you, about you little moved of driving in around still we – of Are bit of the – but is what’s crisis, middle Thank about last the cash you. in really or buyback? is behavior?

Jim Chirico

Thanks Raimo. Yes, sure. for question. Hi, the

it but for look, see pandemic three, transformation has had we accelerated said, quite just by perspective. I strategy from two, That But say customers’ our impact obviously some out a it everyone. horrible what that. does So, with the digital don’t five even a laid has perfectly being align years,

back a you of we’re started initially safety and the the So as really the companies again half licenses this quarter work-from-home Spaces initiatives. I customers work-from-home a place capabilities. deliver quarter CFOs will, dollars helping really as out it of and protect many and and few and on drive large we And said, to quarter and putting last organizations the sort in seeing two the deployed governments, weeks right to employees. last table, right if to of those at time the And

increased is demand. seeing we’re what Now

those looking the whether of build it’s they continuing ways remotely customers, operate and technology, through that which of And and as to experience. time. were develop moving most still again the use and the We’re projects resolved. solutions has solutions as But also that drive And will in along a so working to ways office, video There’s do there it’s we’ve around now deals go there implemented transformation a and ease there is we their journey safety opportunity believe the as proven a revenue for their we through to work-from-home tools efficiencies obviously opportunities starting they for and to collaboration to digital will their if now will, that a extend certainly lines customer customers’ there will on mentioned, now licenses are whether of today working we number employees productivity to continue to serve agents you our the opportunities part out and be and such build are better better the effectiveness subscription that, we if converting I that been temporary effectiveness of to see on can with away lot is you from, that the what if everyone’s growth. that. and

So opportunity [indiscernible] you driving we’re Kieran, employees. really frankly now spent the being do the want seeing and and dollars a a take lot of efficiencies one? second lot to of

Anthony Bartolo

I think we lost Kieran.

Jim Chirico

Kieran?

Kieran McGrath

here issues having I’m Sorry. morning. some IT this

to of to for So, still million the important – up we Raimo, total. first Board we I all retain in approval think still it’s program note, repurchase XXX

the and to restart without does we that program obviously any remain the right open notification. have So

ongoing and of of the very us Board cash right putting a to uncertainty, We’ve And program current were earlier say believe it’s of now to we shares I maintain healthy time. retire that effectiveness the due just number I would we’re still the at our the advisors. that that We closely out talk pleased the I’m with to our we this the balance right were to safe and on capital say prudent to So would that I think there. balance XX% this say We outstanding. working with within allocation. in it’s very to ran got year. able banks our focus the pretty

increased of with also ratings of markets, times seen volatility both extreme single However, just – we market B lot equity debt get companies in hammered, in the that volatility. a think I and have

improving be the debt will certainly down that as minds So and our about leverage buyback. think on focus what our the whether well as we the in is and future with more Board pay work we versus

retire position XX% objectives to beginning the calculus but of that at true, we’re to in year in with the we the and able pretty we pleased So place put that come that have right our to that is our now pleased at all of the we very cash same are time achieve shares. of the

Raimo Lenschow

Thank Perfect. Okay. you.

Jim Chirico

Raimo. Thanks,

Operator

is with and Cowen question Please proceed. Chris Sinnott next from Our Company.

Chris Sinnott

you gross wanted redeploying to into where XX% or if first, new point desire and R&D hit to that elsewhere margin that and everyone. revenue. more capacity taking about two our that getting of going questions. I beyond? start is for outlook target. talk your Hi, you’ve think have on on I that says XXXX great about and of EBITDA what than of about you CAPS that then say Thanks revenue the reinvest your so you talked It’s Can your top and/or target to for and target

Jim Chirico

-- Yes. Kieran, you want the initial take to

Kieran McGrath

Yes.

perspective, obviously a I first subscription So healthy well from cloud-based. product as and a premise-based fairly we between as mix now right foremost, have think

obviously therefore it customers premise-based, the the that quite profit hosting lucrative. For and that is gross of portion margin the on

there more to we As able well. obviously the Once and via to as portion margins decline margins driven scale, generate being larger you’re modestly. a larger pretty will you’re good cloud, subscription see the obviously start of at

to was I Anthony probably our because see there but the see are years we the able up huge as much I So cloud our time that our scale, think we out, transitioning margin private we’ll try several pretty would to next over a time, quicker, put believe is pointing I we’ll be that margin see – see impact able Don’t to, over as that’s strong. we’ll those trends. – to think

think is pretty margin going first I and in subscription. foremost So strong maintain there, to

question. again think – the the part remind me out second we of As

Chris Sinnott

Just as below the we move growth -- desire the capacity, reinvent margin, to

Kieran McGrath

Okay, got you.

think if year. you in to say did we going invest this So point I we a year, recall, margin were this

with did expect making in in travel this just actually other and space. to travelling externally we mitigated COVID-related customer in has of general, the under implications terms still think in foremost, with that. no people able visibility run I investments not first So of actually while the It been and obviously and because we’ve areas, been

cloud-based as work engine. our we’ve inside enhanced inside digital to need think see sales, learned sales continuing continue increased do the I our I we and more deploy think and the a of we business, for investment

go-to ready year landscape that’s well. along to we’ll I is see competitive Obviously, critical really guidance investment that the probably of investment the into out will do as but we’re that way seeing probably year not as early of for next think part that we to provide we’re in things think I in do a one and go market So as to year continue the next well. next continue most

Jim Chirico

just R&D add of March Yes, pulled we in basically our started on back might light the and haven’t investments I – crisis and back the that any timeframe. of in February

slowed investment. So that we haven’t

of some brought would COVID say that I unfortunately us of probably forward has spending accelerated front the that fact, In seen we’ve because have we simply opportunities and of that in surround as well acceleration a lot as of what well with the new of CCaaS work-from-home sort an opportunities of see type opportunities the of as we capabilities frankly. with as CPaaS

teams we at slowing that and progress made year As our in we portfolio. the great this going investments I we’ll keep all go momentum year, build that out don’t R&D this new be suspect out will because continue to as into next we have

robust So it’s become more go and months, we we’ll as much through robust. that next XX now the pretty

if continue will, a So liquidity those in to the stronger, having invest we’ll allows position strong you us do investments for R&D. us and make continue end. fortunately to at to And us

continue we’ll focus. that So

Chris Sinnott

billion of corner over sort a $X.X turned revenue $X.X year-over-year course That’s only which XX a to you it have but on really My all a down revenue guys the [indiscernible] because you’ve happening last $X.X positive now question today. over or it, the between to months, is relationship over billion other backlog helpful. Thanks. flattened the and contract call months, period, backlog months, value obviously your XX in value and really billion revenues, declines to growth, XX

think as contract forward, then how So are OpEx to a and going subscription models helpful about it? we these look metric versus backlog how preferences we customer for at used as

Jim Chirico

me want that, take to want You Kieran, to you or address it?

Kieran McGrath

Yes.

in I overall. backlog listen, up go do portion through the to do point of say my from any you you at any where larger that is of cycle obviously to for of time. you at perspective look cognizant backlog, renewal the given metric fact time an be a renewal that So have periods business continues be would important the

like. meaningful recurring that the of move into fiscal So within progress better I being a the going CAPS give meaningful indication our annual from with addition metric the of quarters move addition implications of the we us that’s next supporting metric will to be What to you will overall. as out the our track going a some our on we’re to year – we’ve is metric. business and and think to the in made to a nature that sometime forefront to having of in hear And start metrics that working CAPS have as more

we’ll what be backlog to backlog, do those but ARR We I enter that the So as was them through introducing it that on right unimportant the think nature into we to fiscal. become think new just as focus want not halfway fiscal didn’t like year and the of our to that we we metrics. year. introduce into out will We’d get new

Chris Sinnott

Thank guys. Sure. Got it. it. appreciate you, I

Operator

next proceed. with question Merchant Asiya is from Citigroup. Our Please

Asiya Merchant

questions Great. Thank you morning. this for taking my

regarding the guidance. question quick a Just

geographies. if think across the I wise pretty one fourth typically obviously Avaya you different recall tailwinds out X% have rolling a guys secular you have fiscal X% quarter to strong, I cloud is just and seasonality here, for you

the Social incremental You have Security.

follow you. Thank you up have seasonality, I If help would be me great. on can a as that that And then well.

Kieran McGrath

Sure.

we again a perspective obviously licenses of better thing able fact little to I recognize Jim were was is those as and some many than that first with that of to the monetize a think the that referenced. from So we as history, seasonality temporary QX had do

going I’d versus continuing of not an business it as that a the portion larger will nature, historical QX also that’s up think clearly we better see seasonality stepped high compete quarters. some there say of a between of And to COVID patients guide out recurring starting a the lot for becomes as CapEx as So be start expect in view still out out did I start there our million of but that because guide our would think the absence less the – obviously the subscription be quarters, is is to still little would especially starting what well. to the of obviously up that the a I business it. model, QX we sell our more worth from in I put subscription didn’t deltas some look Obviously momentum that $XXX flatten of helped acknowledge time we’re QX put and presence COVID and under of now to to three there. a And a TCV It to to seeing now think the we’re for you of within of business forward. of linear quarters unfair and there.

we trying all be to the are put bases out. So we to that trying we’ve with – cover guide are

Asiya Merchant

Great.

Jim Chirico

I higher – if just look first under the us one typically – second half than all, half. other first for of sorry, I’m you QX had was numbers,

deal mitigated COVID somewhat in Secondly, if with year driven be spending federal. you was and seasonality look SSA at signed and QX, so all uptick end the “with federal. And revenues, That’s I of to recurring obviously and different mostly agree again the increased SaaS in much the is by the now large year and federal going was QX so with Kieran that most this uptick driven would on. cloud QX But we an by the business, on.” then on with just

Asiya Merchant

guide high-XXs, guys have and and I to about more would would should growth hit to as you you which Okay. update when – EBITDA to XX% you hovering kind that 'XX typically you as provide X% where of this in of EBITDA have guide, cloud XX%. I And to around private XX% offerings are get target to margins well to relative going into subscriptions, about we having look your then Thank of you out XX% to X% lower your you as next I understand initially when think How could fiscal were and margins? and this metrics achieved know relative I cloud that think get to you.

Kieran McGrath

Sure.

ago, perspective of last a my think doesn’t I obviously the put COVID. implications guide contemplate year October, the really out there from we So

in thinking we about rightly you say, ahead this long enter of the nonetheless this I really see and return QX, that we QX go think in little model, new the Asiya, we implications thought into should that long-term do of I there think of would about obviously looking confirm we’re and the we to growth and early, as margin what But we’ll we we that it’s But consistently X% plan year because I and momentum out think aspects this our as with COVID X% at to to year the we here a range all-in-all. way. were least modest start what the and the executing sight and continue as like be here year, a would So what here and high pretty certainly in XX get long growth through revamp point to about going line have We of to get end, range time. to out well. out said of then back as come through but

Asiya Merchant

you. Thank

Operator

Khorsand is question BWS from Please final proceed. Hamid with our Financial. And

Hamid Khorsand

you And the for how anxiously is be to question have or the Thanks I’ll this public to could cloud become the morning. is customers the Is COVID quick. Good in question. Hi. taking for expense of waiting selling decline it who driving second much solution? cloud permanent? are the process my

Jim Chirico

Actually a a still sort still value voice done premise-based and the very fact, for are say element. in has work-from-anywhere showcase COVID I in Great of world. that Yes. Thanks. us it’s key really question. relevant remains with is seats what And would

those fair to amount when been time so written opportunity. and seats that’s cloud, more So COVID have converted obviously certainly debt. the over want does if we as seats, And Where fact our customers the are frankly a premise to provide are see about that as at there’s subscription if our gateway subscription subscription. take move, the a on-premise because debt real we a you look this not growth, to opportunity, importantly,

to moving those In on-prem far are faster. the – cloud seats. COVID not think is with folks moved I All X.X it has subscription fact, million is by do licenses debt.

a Someone’s to digital really COVID talking transformation. is I has sorry. and believe. COVID – I do move believe playing moving accelerated role the I’m

it’s as seeing to movement FY uptick the go as offers. nice So as us end, those bit is business cloud. are to move real which hybrid we to and well with associated collaborate as Anthony 'XX in the of fit our really into businesses, how enterprise we seeing therefore higher really then important differentiators subscription and referenced about date. cloud on in and private midmarket the the they the to see our traction as fact that you and into with offers for see We it the behind the equation move But customers large a just to we’re

Hamid Khorsand

Okay, great. Thank you.

Operator

question-and-answer This remarks. turn closing I to does over our the would Michael conclude like conference to session. for back

Michael McCarthy

us much to very morning. joining this you We forward speaking for with look you soon. Thank

Take up, follow my feel a care. If reporting free give November. office. you to have any additional forward call We please questions you or me to look in back to in

Operator

conference. does This you. Thank conclude today’s

participation. for thank your You time. at may this And lines disconnect your you

Avaya (AVYA) 10 Aug 202020 Q3 Earnings call transcript