Avaya Holdings Corp.
Q1 2021 Earnings Call Transcript

Published: 9 Feb 2021

[Operator:]

Greetings and welcome to the Fiscal First Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Michael McCarthy, Vice President of Investor Relations. Please go ahead, sir. You may begin.

[Michael McCarthy:]

Thank you. And welcome to Avaya's fiscal 2021 Q1 investor call. Jim Chirico, our President and CEO; and Kieran McGrath, our Executive Vice President and CFO, will lead this morning's call and share with you some prepared remarks before taking your questions. Joining in this morning will be Anthony Bartolo, our Chief Product Officer; Stephen Spears, our Chief Revenue Officer; and Dennis Kozak, Senior Vice President of Global Channel. Consistent with social distancing mandates each of us on this morning's call are assembled from our remote locations. The earnings release and investor slides referenced on this morning's call are accessible on the investor page of our website as well as in the 8-K filed today with the SEC, which should aid in your understanding of Avaya's financial results. All financial metrics referenced on this call are non-GAAP with the exception of revenue, which we will report on a GAAP basis now and going forward since it's now a comparable on year-on-year GAAP basis due to the immateriality of past or historic accounting adjustments. We have included a reconciliation of such non-GAAP metrics to GAAP in the earnings release and investor slides. We may make forward-looking statements that are based on current expectations, forecasts and assumptions, which remain subject to risks and uncertainties that could cause actual results to differ materially. In particular, the global economy continues to be impacted by COVID-19 and to the extend its continued impact on our business and that of our customers, partners and suppliers will depend on a number of factors that include, but may not be limited to, severity and duration as well as actions taken or not taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. Information about risks and uncertainties may be found in our most recent filings with the SEC, including our Form 10-K. It is Avaya's policy not to reiterate guidance and we undertake no obligations to update or revise forward-looking statements in the event facts or circumstances change except otherwise required by law. I'll now turn the call over to Jim.

[Jim Chirico:]

Thanks, Mike. Good morning, everyone, and thank you for joining the call today. I'm excited to share AVYA's Q1 results and provide the details and color on what is an exceptional start to our fiscal year. Building on the momentum we created in 2020, we emerged even stronger. We delivered our third consecutive quarter of year-over-year revenue growth and exceeded our guidance across all metrics. Our success reflects the team's commitment to execute the strategy we put in place three years ago to transform Avaya to an enterprise leader in cloud-based communication and collaboration solutions.

[Kieran McGrath:]

Thank you, Jim. Good morning, everyone. As a reminder, all figures mentioned on this call are as reported unless otherwise indicated in constant currency. For the first quarter of our fiscal 2021, GAAP revenue was $743 million. This represents a year-on-year growth of 4% as reported or 3% in constant currency over the $715 million in the year ago period, and compares to $755 million in Q4 of fiscal 2020. We delivered our third consecutive quarter of year-over-year revenue growth. We continue to deliver on our aggressive ARR commitments in Q1. Our OneCloud ARR metric exited the quarter at $262 million, which represents 38% in sequential growth. We couldn't be more pleased with the consistent execution our teams are delivering across the globe. A stand out in this performance comes from North America, which has now turned in four consecutive quarters of year-over-year growth. Overall, our revenue and ARR momentum is fueled by our strong suite of subscription and cloud offerings and we continue to see an increasing share of our quarterly revenue streams and ARR being driven by contact center. Revenue contribution from CAPS or Cloud, Alliance Partner & Subscription, a strong indicator of the transformation of the business, represented 34% of total revenue, up from 33% in 4Q 2020. Our sequential quarterly increase includes Avaya Cloud Office, ACO, which experienced very strong quarter-on-quarter seat growth. In dollar terms, CAPS revenue doubled year-over-year. For our first fiscal quarter, recurring revenue accounted for 65% of total revenue, an all-time record high for the company. Meanwhile, Software and Services revenue continues to represent 88% of total revenue. Both of these metrics reflect the strength of Avaya's cloud and subscription offerings delivering year-on-year growth for the third consecutive quarter. Turning to our gross profit metrics. Non-GAAP gross margin was 61.8% in the first quarter compared to 61.5% in the year ago period and 61.3% sequentially. The gross margins achieved at this level have been a direct result of our transitioning our offering base to high-margin recurring subscription software, which is accounted for as part of our Services segment. Turning to total profitability margin and cash flow metrics for the quarter. First quarter non-GAAP operating income was $163 million, representing a non-GAAP operating margin of 21.9% of 80 basis points year-on-year. Adjusted EBITDA was $190 million, representing an adjusted EBITDA margin of 25.6%, up 130 basis points year-on-year. An improving mix of higher value, higher margin software combined with operational discipline helped produce the strong results. It is this discipline that provides us the financial flexibility to increase our investment in R&D to enrich the value of our cloud portfolio and to build out our channel ecosystem. Beginning this quarter, we are introducing non-GAAP EPS in our reporting. This aligns Avaya with a broader software industry and underscores our focus on profitable growth. In our investor presentation, you will find slides that describe the key assumptions on how our non-GAAP earnings per share is calculated. We are bringing forward this metric as the non-GAAP reconciliation is now noticeably simpler for the fiscal years '20 and '21 period compared to fiscal years '18 and '19 during, which fresh start accounting made year-over-year comparisons rather complicated. It should also be noted that for non-GAAP EPS calculation purposes, we are effectively including RingCentral's approximately 8 million preferred shares in the calculation. We will provide non-GAAP EPS guidance on both a quarterly and fiscal year basis going forward. Non-GAAP EPS was $0.90 in the first quarter compared to $0.61 in the year ago period and $0.93 sequentially. Turning to cash flow, we generated $48 million in cash flow from operations or 6% of total revenue, contributing to a first quarter ending cash balance of $750 million. We are putting our strong cash position to work and plan to pay down $100 million of our existing December 2024 short-term loan balance in the current quarter. Furthermore, this morning we are also announcing our intent to extend maturities of the remaining balance of the December 2024 term loan. We expect to conclude this transaction before the end of the month. We are strengthening our capital structure by paying down debt and further improving our weighted average debt maturity profile. Now turning to guidance for 2Q '21 and full year fiscal 2021. Please note that all year-on-year revenue changes are expressed on a constant currency basis and all revenue amounts reflect rates as of January 31, 2021. For the second quarter of our fiscal year 2021, we anticipate revenues of $710 million to $725 million, representing growth of just over 5% year-on-year at the midpoint. We expect non-GAAP operating margin for the second quarter to be approximately between 19% and 21% and our adjusted EBITDA to be between $160 million and $175 million or between approximately 23% and 24% of revenue. We expect non-GAAP EPS to be between $0.70 and $0.82 for the quarter. This compares to non-GAAP EPS of $0.57 in the year ago period. Building on our expected strong first half performance and momentum, we are increasing our full-year fiscal 2021 revenue guidance to between $2.90 and $2.94 billion. This represents growth of 1% to 2% at current FX rates and the midpoint represents approximately 1% revenue growth as measured in constant currency. Additionally with this momentum, we now expect OneCloud ARR will exit the fiscal - the current fiscal year, between $415 and $425 million. The midpoint of this guidance represents an increase versus our prior year-end ARR guidance of approximately $40 million, further underscoring the rapid transformation of our business and the increased traction in our cloud and subscription adoption. We expect non-GAAP operating margin to be between approximately 20% and 21%. The result of these projected revenue improvements is that we are increasing our guidance for adjusted EBITDA to range between $680 million and $720 million or between approximately 23% and 24% of revenue, demonstrating Avaya's ability to deliver revenue growth without compromising profitability. We expect non-GAAP EPS for the fiscal year to be between $3.05 and $3.37. At the midpoint, this reflects 6% year-on-year growth. In terms of our cash flow from operations for fiscal year 2021, we are increasing our guidance to be between 3% and 4% of full year revenue. At this time, we expect our shares outstanding to be between approximately 83 million and 86 million shares at fiscal 2021 year-end. With that I'd like to turn the call back to Jim. Jim?

[Jim Chirico:]

Thank you, Kieran. Avaya is hitting its stride and the company has come so far in just a few short years. Our teams are navigating the challenges presented by COVID-19, and breaking through without missing a beat. All while executing on our transformation strategy to move to a cloud and SaaS business model and maintain profitable growth. OneCloud ARR and CAPS, our key performance measures, are exceeding expectations. Our contact center solutions are increasingly contributing to our growth as customers leverage the full range of public, private and hybrid deployment options. We have a robust portfolio of innovation to fuel continued in future growth and we remain good stewards of capital having announced this morning that we will pay down $100 million of our December 2024 term loan, while also extending the maturity of the remaining balance. Our progress clearly demonstrates how well Avaya is positioned to serve our customers and to compete and win in the cloud. I'm very optimistic about our future and energized by our traction in the expanding opportunity fueled by digital, by cloud and by our technology innovations. With that, we will now open it up for questions. Thank you.

[Operator:]

At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Raimo Lenschow with Barclays. You may proceed with your question.

[Unidentified Analyst:]

Hey, this is Frank on for Raimo. Congrats on the quarter. These are really strong numbers here. I have just one from my end. Want to dig a little bit deeper into the contact center side, particularly on CCaaS. I was wondering if you could provide some more color into the feedback of the offering as the mature as the customers, you're seeing the most successful and how you see the opportunity in CCaaS? Thanks.

[Jim Chirico:]

Yes, hi, Frank. This is Jim. Thank you. Thank you very much. Really appreciate it. Yes. We take a look at CCaaS really the success we're seeing is a combination of multiple factors. First, as we take a look at CCaaS as you mentioned, we are seeing the results of the tremendous amount of investment we've made and really driving capabilities to support the digital transformation i.e., sort of the work from anywhere capabilities. We've also as you probably noticed recently building out our partner network and really delivering AI to the solution, which is a real differentiator from us, be it through Google, be it through AWS or even for that factor our own conversational intelligence. We're seeing a nice uplift as well as you look at our capability to build out features such like workforce management, expanding CCaaS into our channel capability around the globe. We added two new countries this past quarter, which as UK and Ireland. We are going to be adding roughly a dozen new countries to the offer as we go through the balance of the year. So our goal is pretty simple since we started really entering the CCaaS space roughly about a year ago. And that's to bring the features and functionality differentiation leveraging our IP and our internal capabilities with our partner network really to build out sort of the ecosystem to drive the solutions and we're really very pleased with where we are in. We're pretty excited about the fact that we continue to add and we'll continue to add and now expand an omnichannel integration into the marketplace in the near future as well. So I would say everything is right on track in customer acceptances is certainly been in line with expectation.

[Unidentified Analyst:]

Perfect. Thank you.

[Operator:]

Our next question comes from the line of George Sutton with Craig-Hallum. You may proceed with your question.

[George Sutton:]

Thank you. Very impressive results guys. Congratulations. I think a headline number clearly is the ARR and the 38% sequential growth, which is good for any filed company. But I wondered if you could talk a little bit more about the composition of what's driving that? And also the strong ARR guide?

[Jim Chirico:]

Yes. Sure, George. This is Jim. Let me start off and then maybe I'll have Kieran get a little bit of color afterwards. But you know it's really sort of a manifestation what we started a couple of years ago, down this deliberate path really to reignite our innovation engine and bringing Avaya, if you will, to return to relevance in the enterprise market space. And the great news is that effort is really starting to now feel the impact and as shown in the numbers. And I think ARR is a real reflection to that. Our capability to deliver what I'll call significant and attractive offers and more importantly to be having the capability to, one, deliver those, and secondly to compete within the marketplace really shows sort of what we call there sort of the new Avaya. And to your point, underneath the numbers, it's actually - it's pretty amazing how we're starting to see uplift across the board. So fact of the matter is that our guidance now represents an increase year-over-year of 120%. If you take a look, 60% of that growth comes from our contact center, 40% quarter-on-quarter growth within the contact center alone, and 65% of those deals are greater than $1 million, again, fortifying the position of strength that we have indeed in price communication space. And then if you take a sort of another slice at it, the hybrid component and really delivering technology through our subscription offers is in the 40% range of our ARR. So, we're seeing sort of the breadth of our offers across the board and really fortifying again the position of Avaya in the large enterprise. But I don't know if Kieran if you want to add anymore color enough to that.

[Kieran McGrath:]

I think, Jim, the one thing that I would add is - you covered quite well. The one thing I would add is that we were continuing to see now an uptick in actually new landing fragrance, new logos. So these are customers are who actually buying new logos. So previous to this, we started with migrations. We expanded migrations to up sell. We also started a new landings with our existing customers. But now what we're starting to see and you heard Jim refer to in his comments as well is actually a fairly substantial portion of our existing subscription deals are actually new logos as well. So this is really - just proves out the point that the customers are continuing to willing to buy in this cloud like model. So a lot of momentum in that space as well. And as Jim pointed out in his prepared remarks as well, not just in the US where we got the early momentum, early last year, but also internationally now where we're really getting a lot of traction with subscription, which is truly building out - is building out our overall numbers and supplementing that with all of our private cloud book is that - Jim referred to as well. So across the board, just progress that really well ahead of what we were even modeling for ourselves a year ago.

[George Sutton:]

Great stuff. Thanks for the additional detail.

[Jim Chirico:]

Yes. Thanks George.

[Operator:]

Our next question comes from the line of Lance Vitanza with Cowen. You may proceed with your question.

[Lance Vitanza:]

Hi guys, thanks for taking my questions. I have two to deal, to make. The first is, at the midpoint, you mentioned your full year revenue guidance is up. I think you said it's about 1%. And I'm just trying to square that with the up 3% that we observed in the first quarter and the guide for up 5%, and the commentary resounds uniformly favorable. But is there anything in particular, as we think about the back past that look seem that you're expecting softness there, I don't think it's necessarily what you will be imply. But I know you have a difficult comp in Q4 with the Social Security Administration contract. Are there other items we should be aware of? To what extent are you just reflecting prudent conservatism? Or are you expecting market conditions to deteriorate somewhat as we move throughout the year?

[Jim Chirico:]

Yes, Lance, I would talk about the second one first and then I'll let - I'll start off, and again, I'll turn it over to Kieran. But I don't know if I would characterize this as conservative, I probably would suggest that it's more reflective of being a quarter end to the year. We are seeing good strength in bookings ARR, CAPS cloud as we referenced. But I believe it takes into consideration and awareness of today's operating realities. And the fact that we want to be prudent. But that being said, obviously, we raised our guidance across the board. So we're certainly optimistic. We're also optimistic about the traction of our new products that are coming online. And our ability to not only to compete but to win and our capability and execution which, this company has done an absolutely phenomenal job and execution across the board for many years. And that's a real testimony to the employees we have with the company. I would end it by just suggesting that we do as we mentioned, we have a very strong pipeline and that's what gives us the confidence in our trajectory and frankly that's why gives us a confidence in our ability to raise our guidance for the year. But with that, let me turn it over to Kieran for few additional inputs.

[Kieran McGrath:]

Hey, Lance. I think you hit on obviously difficult compared with beyond Q4 sure. That's part of it. But I think as we said in the last quarter as well, we really see more of our subscription bundles and more of our bookings overall, really starting to have more as a service, content, delivery to it, which will have an increasing amount of ratable revenue, which means we will take the revenue over time and we would expect to see that reflected in the ARR metric. So we really think our momentum with the bookings is going to continue. We just think how that's actually going to be recognized between point in time and over time from any kind of a period P&L perspective as reflected in the guidance, but then you should be able to look through that and see the improving ARR guidance that we put out there as well to date. So honestly, we don't see any slowdown from a momentum perspective.

[Lance Vitanza:]

That makes sense. actually figured my notes. My other question is on the new adjusted EPS managed by law. But I'm just wondering what was the rationale for making that for including that going forward today. Are you trying to refocus investors or responding to investors through the same - perhaps clamoring for you to provide that that I'm trying to get a sense for what led you to make the decision?

[Kieran McGrath:]

Sure. Let me take that one. So probably this time last year, I actually talked about our intent to start to look and sound a lot more like a profitable publicly traded software company. And internally, just for all of our disclosure controls, all the rest of it we were managing the EPS metric last year. We felt the timing was right now, for two things, one is we absolutely are committed to made a commitment to our Board as well as privately to many of you, I told you, I was going to announce this metric point. That's point one. Point two is, now finally in '21, we had really good comps year-on-year basis for no real confusion over the fresh start accounting. It's a lot cleaner in terms of our metrics year-on-year. And we just thought now was the real-time to do it. And also it's becoming increasingly clear to me that if I don't do it, other people come out there and doing themselves. It's very important that we emphasize the mechanics of how we're doing this. And that folks also took into consideration that we also had to ensure that the preferred shares are also were recognized as part of the calculation that ring has and some portion of the profit was attributed to them as well. So we wanted to make sure that was absolute clarity as to how the - it was being made and we refer to that in our Investor deck as well I was just the timing of really ensuring that everyone recognize that we would drive in profitable software growth.

[Lance Vitanza:]

Very good. Thanks, guys, for your time.

[Kieran McGrath:]

Thanks, Lance.

[Jim Chirico:]

Yes. Thanks, Lance.

[Operator:]

Thanks. Our next question comes from the line of Samik Chatterjee with JP Morgan. You may proceed with your question.

[Joe Cardoso:]

Hi, thanks for that question. And this is Joe Cardoso on for Samik. My first question comes around like guidance as well. So if you look at your - the full-year guidance you gave for the full year in terms of revenue OneCloud ARR, however, you maintain the CAPS revenue growth. Can you parcel out the variance you're seeing between the metrics and what's dragging one or like those other ones to grow as opposed to the head CAPS revenue?

[Kieran McGrath:]

Sure. Well, I think it goes very consistent with the explanation that I just provide to Lance in the prior question. And that is that more of the revenue that we expect to recognize in the second half of the year will become more point in time, which is really the CAPS, if you recall, is a metric that captures the transformation of the business at any one point in time while the ARR metric points for the future. So, the guidance that we had put out there where we expected that the dollars, we grow 35% to 40% year-on-year and that we would actually end up somewhere between 35% and 40% of our total revenue being CAPS in nature. It helps because more of the bookings that we expect to see as we go through time will actually come as ratable revenue over time, and therefore, we will recognize in future periods. So that guidance already encompassed those exchanges. And I think that's the key reason for not increasing that as well.

[Joe Cardoso:]

Got it. Got it. Really makes sense. And then my second question, if I look at your large deal activity over the past couple of quarters, it looks like the quantity has improved, but also the quality with the amount of deals greater than $10 million, and even $25 million also expanding. Can you provide any color to what's driving it? Is it the same as that the size of customers that you're dealing with? Is it specific to the solutions that we're delivering? Any color would be appreciated. Thank you.

[Jim Chirico:]

Yes. Hi. This is Jim. Yes. Thanks for the question. Great observation. I just think it has to do with the fact of our capabilities to rollout new solutions and the fact of our strengths now in the contact center in all fairness, and the capabilities to incorporate some of our strategic partners' solutions inside of our portfolio of offerings as well as our investments like Spaces, another key collaboration and AI tools into those offers. So it's combination one of that. And secondly, we are starting to see a number of customers now start to embrace and book our private cloud offers. We've spent a lot of time in really bring into to the marketplace, our private cloud solutions, especially on contact center. And in fact, we're deploying those now sort of, if you will, at the speed as a public offer. And it's enabling our customers to get that agility and their deployments and customizations as they need. So it's a combination. One of the increased contents in our overall offers as well as building out the portfolio and really having our customers now start to embrace not only the public, but private as well as the hybrid capabilities that we bring to market.

[Joe Cardoso:]

Got it. I appreciate the insight guys, and congrats on the results.

[Jim Chirico:]

Thank you.

[Operator:]

Our next question comes from the line of Meta Marshall with Morgan Stanley. You may proceed with your question.

[Unidentified Analyst:]

Hi. This is Eric on for Meta. Thanks for taking our question. I wanted to dig a little bit more into the new logos that you won. You mentioned that 40% of those were cloud and subscription. But I'm wondering if anything is driving kind of 60% to be on premise, and if there were - if they tended to be maybe a smaller customer of a certain vertical?

[Jim Chirico:]

Yes. Hi. This is Jim. Thanks, Eric for the question. Yes. If you take a look at the bookings component, we are starting to see, I'll say premise not going away for lack of a better term. And I think obviously that's a significant advantage for us and really provides the uniqueness that Avaya has the capability off of that full breadth of solutions. We're also seeing - our customers need to move to, if you will, more of a ratable OpEx type model, especially, if you take a look at where they are and what's going on in the realities of today's world. So many of the larger contact centers today don't necessarily need the number of agents that they might have had before, therefore, by definition, the number of licenses whether they work from home or just that their business performance has changed with the impact of the COVID. So subscriptions provides them the operating model to take full advantage of that. So and there's some repurposing sort of what they've had and provide some of the capability to obviously work from home and the other features - and more of your work from anywhere type environment. So we're seeing some early large deals. As I pointed out, three deals alone just last quarter in excess of $25 million of TCV, which is a first for us, which is actually rather significant, and also is the point where we thought that this was really intended to be a sort of a maintenance sort of replacement as we started our initial focus. But the 20% of the subscription deals being new customer wins really goes for show you the value of the offer that we have out there. It's much more than a maintenance replacement for sure. So I think it's a combination of a number of factors. But our largest of large enterprises are looking for ways to optimize as well as get productivity need with a trusted partner like Avaya. So it's a win-win solution for them. It's obviously a win-win solution for us. And we're obviously doing better than expected in fairness, as you guys know on subscription deals. And we're excited about the pipeline we have in front of us.

[Kieran McGrath:]

If I just might add just a quick comment as well. These logos that - they're not necessarily small ones even. So even though Jim talked about success we've had with the largest - the largest enterprises to continuing, we've actually seen our new logos on on-premise side that you're putting on premise, still averaging about $20,000 in TCV. So they're not that small either. And it just goes to show that in spite of all of the market trends as well. There is still a lot of business out there to be had in the traditional business of CapEx on-prem.

[Unidentified Analyst:]

Got it. That's really helpful. Thank you.

[Operator:]

Our next question comes from the line of Asiya Merchant with Citigroup. You may proceed with your question.

[Asiya Merchant:]

Great. Thank you for the opportunity. And again, congratulations on a strong quarter. If I can just ask a little bit, I think, Jim, mentioned in his opening remarks some channel investments on in the ecosystem. If you guys can elaborate more on that and what specifically are you guys. And as we look forward into the next couple of years, are we expecting this run rate of investment as you guys seem start to benefit from the roll out upon several countries globally? Thank you.

[Jim Chirico:]

Yes, I kind of think - this is Jim. So first and foremost building out our channel ecosystem, we are building this out now as I mentioned for our CCaaS solutions. So we think that's going to provide us with some nice opportunities in front of us. And if you take a look at our ACO offer, we increased our partner ecosystem last quarter by 20% over the previous quarter. So as - we not only are building out into 12 countries, we are also continuing to build out our partner ecosystem with partners that focus on driving cloud solutions. So we're quite excited to see that continued growth there from an ACO. And for that fact, we'll also start selling and many have our CCaaS solution coupled with that. So it's great on both aspects. And thirdly, a number of programs that we now have out into our ecosystem, not only for cloud, but also for subscription, and equally as important as we start now to roll out our private cloud solutions, which will probably begin in earnest next quarter, but we do have a handful of our current partner base now selling our private solutions as well. So look, the channel is extremely important to us, 70% of our revenues are through the partners. And in extension of Avaya, when we go to market together, we win. We raise that and they understand. And we were quite new to cloud. And one of the benefits of the ACO relationship in fairness gives us sort of the cloud DNA and capable in fairness, we didn't have a year ago. I mean, we've only been in that business now since March 31 of last year. And it's really enabling us and more importantly acting as a force multiplier to accelerate our capabilities in cloud, not only here in the US, but globally. And really enabling us to build that infrastructure, the billing, the inside sales, customer success, quoting, you name it. If you look at where we were a year ago to where we are today, it's simply amazing how quickly we've come up that learning curve. So all of those things are obviously incorporated in building that out, and again, will gives us high confidence because we've had a year worth of accelerated learning - immersive learning, if you will. And we've come up a long way in the last 12 months. And one of the reasons why now we're building that ecosystem out, in fairness, we need to know what are you doing before you start to expand. And I think we actually know quite well what we're doing. And as you can see we're expanding at a fairly rapid rate and really showing in the results of the company. So quite excited about that opportunity.

[Operator:]

Great. Thank you. Our next question comes from the line of Catherine Trebnick with Colliers. You may proceed with your question.

[Catherine Trebnick:]

Thank you for taking my question. Very impressive quarter, gentlemen. Anthony, if you're on the line, I have a question for you. And could you parse more on the hybrid and how the hybrid customers are really driving some of the CCaaS opportunities? I think that you had such an impressive result with CCaaS. But I'm really trying to understand better where the spreads are perhaps is with some of your hybrid customers? Thanks.

[Anthony Bartolo:]

Sure, Catherine. Thanks for that sort of question. Look, we continue to expand on the previous CCaaS investments that we made and we continue to make sure and what - and we continue to add capabilities. And through CCaas as well as our CPaaS capabilities, we're infusing it with AI capabilities as well. So we've been those AI capabilities as progressive features that are laid on top of our CCaas solutions. And in some cases, when we have customers who have an on-prem solution we would layer on top of that a capability such as conversational intelligence, which is purely delivered from the cloud, which will create a hybrid scenario for the customer. So they can maintain their on-prem deployment and deliver some key capabilities such as AI capabilities via the pure cloud scenario, making it a hybrid type of solution. We've seen that with those couple of examples that Jim had mentioned a little bit early, I believe it was American Equity Investment in . And also with some of our key strategic partners such as where we delivered some of those solutions as well via the public clouds as well. So that would add and enhance a hybrid scenario. And we've got a long tile of ecosystem partners that are quite strategy that really sort of fit the bill for customers because what we are seeing is that customers don't need to compromise the agility of their employment anymore with lack of customizations. They come to Avaya, they recognize and we can now effectively deploy private clouds or both instant solutions. And we can deploy those at the speed of public solutions. So they no longer have to compromise on customizations as a result. And they found that incredibly valuable. Thanks for the question. It was an excellent one.

[Catherine Trebnick:]

Thank you. And a follow-up is competitively where you been? And it seems like you guys are really out - comes to mind, you are really moving up market. Can you just address the competitive landscape? Thanks.

[Anthony Bartolo:]

Sure. Because this landscape that is fundamentally changed for us, it's relatively segmented and we see pretty much the bulk of the competitors depends on the segments. So as we go into, we measure large enterprise that are much higher than maybe some of the competition does, but at the same point, we compete across each of those particular segments. So we are seeing the same players Catherine, that's on and it hasn't changed for us during this particular quarter at all.

[Catherine Trebnick:]

Great. Thank you very much. Congratulations.

[Anthony Bartolo:]

Thank you.

[Operator:]

Our next question comes from the line of Mike Latimore with Northland Capital Markets. You may proceed with your question.

[Mike Latimore:]

Great. Thanks very much. Yes, in terms of the subscription bookings, I think, it was a $180 million, how much of that was recognized in the quarter itself?

[Jim Chirico:]

Kieran, do you want to take that?

[Kieran McGrath:]

Yes. So, in general, just from a subscription booking perspective, we're anywhere from between 55% to 60% look at point in time depending on this amount of embedding cloud that with the solution as well. But just as a general rule of thumb, it's probably right around in the last quarter about 55%.

[Mike Latimore:]

Got it. I think - and then, I think you mentioned that 20% subscription was new logos. Is that 20% of your customer count?

[Kieran McGrath:]

Yes, that was a customer count.

[Mike Latimore:]

Customer count. Great. Thank you.

[Operator:]

Our next question comes from the line of Hamed Khorsand with BWS Financial. You may proceed with your question.

[Hamed Khorsand:]

Hi, good morning. Firstly, just wanted to see how much of your installed base that was on-prem has converted to cloud? And then how fast is it taking to reach scale when you launch Avaya Cloud Office in these new markets? Is getting to scale very quickly? And how dependent are you on channel partners? And if you get that scale, when you're launching these new markets?

[Jim Chirico:]

Yes, sure. Rough numbers, I would say that in the near go to your first question. It's about 30% plus or minus of variance. But I would say that's probably a representative number. If you are asking how much is dependent on channel partners, I guess, I could answer that question a couple different ways. Obviously the largest, the large more oriented towards direct sales approach versus, versus a channel approach. So we're seeing obviously a lot of opportunity, as I mentioned, especially when you talk about 119 deals over $1 million of TCV and we've been running at consistent right now, I would say probably for the better part of a year or more. So, both are equally as important there more obviously oriented, the largest a large, but at the same time our channel has a, highly, highly preponderance towards the number with 70% of the overall revenues being driven through the channel. So we don't look at one being, if you were more important than the other both extremely important and for what we, what we need to do and we are focused on really driving both the channel as well as our overall world direct workforce and really enabling our customers and really assisting them on their own digital transformation journey. So I guess we're just I wouldn't create one over the other, in fairness, they're both equally important to, to our delivering of innovation to scale.

[Anthony Bartolo:]

Just to add Anthony here. With regards to the amount of customers through our enjoying one conversion rate for that customers to, to the 30% that's actually a tour in terms of one form or another of our CCaaS solution they haven't completely converted over the whole, the whole enterprise to their on that particular journey and we are managing our journey with them. So this there tons of headroom that still remains as a result of that I think it was journey. And in some cases, it's a, a protracted journey because a good highly complex, highly integrated solutions and, and we are a trusted advisor on managing through that journey.

[Hamed Khorsand:]

And just, just a follow-up is how big of the funnel for 25 million over sales, it seems like you accelerated in December versus September as far as those the deal count goes?

[Anthony Bartolo:]

I don't know. Right. You know that's looking. It's not something that we put out and electing shift deal could be just because of customer side and another year of duration or something like that. So we tend to measure things from an ACV perspective first and foremost, just because we want to understand what the run rate to the business you're going to do.

[Hamed Khorsand:]

Okay. Thank you.

[Operator:]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Michael McCarthy for closing remarks.

[Michael McCarthy:]

Thanks, Laura. And thanks everyone for joining us this morning for the December quarter call and results. If you have any additional questions, please feel free to reach out to my office and we look forward to engaging you throughout the conferences ahead. Take care, and have a good afternoon.

[Operator:]

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