Avaya Holdings Corp.
Q2 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Greetings and welcome to Avaya’s Fiscal ‘21 Second Quarter Investor call. Please note this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael McCarthy, Vice President of Investor Relations. Thank you. You may begin.

[Michael McCarthy:]

Thank you. Welcome to Avaya’s fiscal 2021 second quarter 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 them this morning will be Anthony Bartolo, our Chief Product Officer; Stephen Spears, 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.

[Jim Chirico:]

Thanks Mike. Good morning, everyone and thank you for joining the call today. I am pleased to share that Avaya has delivered a standout Q2, executing well across multiple dimensions of our business and I couldn’t be prouder of what our global team accomplished by posting revenue and EBITDA results that were above guidance and by accelerating our ARR growth more rapidly than we had anticipated. Consistent with our strategy, this progress comes as a direct result of the surge of additional investments we have made in our go-to-market and R&D. These investments have broadened our spectrum of cloud capabilities throughout our Avaya OneCloud platform of CCaaS, UCaaS and CPaaS solutions. It is clear that our business has undergone a structural change. And as you look at the construct of our revenues, we have seen a meaningful shift over the last four quarters. In fact, our business continues to outperform our expectations, which is a testament to the strength of our brand, digital capabilities, roadmap and our ability to address the diversity and breadth of requirements that come with servicing global, large scale, complex enterprise customers.

[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 second quarter of our fiscal 2021, revenue was $738 million. This represents year-on-year growth of 8% as reported or 7% in constant currency over the $682 million in the year ago period and compares to $743 million in Q1 of fiscal 2021. Year-over-year growth continues to be driven primarily by our rapid migration to the software subscription model and an increasing contribution from the Avaya OneCloud. Additionally, this quarter, we saw a year-to-year and sequential boost from Professional Services as certain deliverables were accelerated on the security administration project in this quarter.

[Jim Chirico:]

Thank you, Kieran. Let me offer a couple of closing thoughts. As we have all tried to navigate this past year, the best we can, the world has fundamentally changed, and we will not be going back to the way we used to work. Instead, we are moving forward into a new work environment. And now more than ever, our customers are relying on Avaya’s solutions and expertise to help them navigate through unchartered waters. Our leadership position in communications and collaboration has never been stronger. Our innovation pipeline has never been as robust or potent. Our model is robust and sustainable, and we are benefiting from the disciplined execution that Avaya is known for and for our focus on profitable growth. We are well positioned to continue our success, and I am confident of where we are heading and that demand will remain strong for the foreseeable future. With that, we will now open for questions.

[Operator:]

Our first question comes from the line of George Sutton with Craig-Hallum. Please proceed with your question.

[George Sutton:]

Thank you. My congratulations on getting the gold medal. So, I wanted to just walk through something relative to enterprise demand. We sit on a lot of these calls and hear about SMB and mid-market. You obviously are focusing in many cases on larger enterprises and have a unique ability to give them either a private or a public cloud option. Can you just give us a sense of the migration of those larger enterprises to the cloud, because I think that’s what’s behind a lot of these results?

[Jim Chirico:]

Yes. Hey, George, Jim. Thank you very much. So a couple of things. Number one is, if you take a look at our large enterprises, obviously, we have the capability to deliver the solutions across a breadth of technology. One is obviously our subscription, which we launched in the market about six quarters ago. The demand in the funnel, in fairness, has never been stronger. And we are finding that our large enterprise customers are looking for sort of the same flexibility, if you will, from a recurring revenue and consumption-based model and really moving away from having this burden of having all of these licenses, especially in the new work environment where many of their employees are working from home. And our philosophy has always been that we’re going to honor how our customers really want to have their solutions. So for us, whether it’s a cloud, off cloud or hybrid, we’re in the business to support our customers. And with the pandemic, it’s accelerated the world of digitization, cloud, and again, the need for our customers to really have a flexible consumption model. And we’re going to remain committed to provide the solutions that our customers choose. So we’re seeing a huge increase in subscription. That being said, where we saw, again, a significant uptick, not so much in the revenue, but in recurring revenue, was our private cloud solution. We’re seeing strong traction. And really, that’s a fit-for-purpose solution and it’s addressing a huge market opportunity for us as our large enterprise customers simply can’t or do not want to jump right into a public cloud solution. And Avaya is really only one of a few companies that can even participate in this. You are pulling in the cloud companies don’t have appropriate cloud solution. And we are seeing a sizable number of our contact centers wanting to move – our contact center customers wanting to move to that private mode. And if you just take a step back, the market today is about $7 billion to $8 billion from a TAM perspective. If you go out 3, 4 years, Gartner is projecting that, that’s going to more than double up to $16 billion to $17 billion. So we believe we are in the perfect spot to continue to grow and participate in this huge, huge TAM growth for our customers. And lastly, is what are we doing on the public side? And I think the public solution that we have out there, which really – we started internally a couple of years ago, but really, it’s only been in the market for about a year. We believe that we have a well-engineered solution that’s economical for our customers. As I said earlier, we’re in 40 countries. We’re going to target 65 the end of the year. We continue to add more and more capabilities. And I would punctuate all that. It’s evidenced, again, by our large deals. And we continue to have over 100 large deals a quarter, significant dollars with 16 being greater than $5 million. So – and by the way, the traction that we’re getting against our competition. And we’re finding, when you get into large contact centers greater than 500 – that’s where we have a significant advantage against our competition. And that’s, again, proof points to our services organization, proof point to the expertise that we bring to the market each and every day. So a bit long-winded, but we’re quite excited with the results that we’ve had to date. And as we look at our backlog and pipeline, we’re very excited about the opportunity in front of us.

[George Sutton:]

So if I could just focus my follow-up on the ACO offering. And speaking to your partner, the suggestion has been a surprising level of new wins versus just migration wins. Could you just address that?

[Jim Chirico:]

Yes. It’s proving out to the sort of the premise by which we did the relationship in partnership with RingCentral. And that was the fact that when you thought about Avaya, it was an old legacy company that was trying to compete in a world of hardware were at the UC part of the – and UCaaS part of the market had shifted to cloud. And we knew we had significant opportunity, and that’s why we partnered with Ring to not only solution – provide a solution to our installed base, but also be able to compete and win in the market with – really, with our brand, our expertise, our overall capabilities. And, in fact, it’s coming true. And we are really excited. And I also think it shows the relationship on just how committed we are to our channel and to our partner community. They are an extension of us, the combination of us. And I’ve said many times that when we go to market with our partners, we win. There is no better force. And a real attribute to not only the partners – the existing partners, but the new partners that we’ve brought on board. And our active partners were up by 40%, customers grew by 50%. So it’s working exactly as we had planned. So we’re – again, it’s – we’re pretty excited and excited about the opportunity in front of us.

[George Sutton:]

Picked up. Thanks.

[Operator:]

Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with our question.

[Raimo Lenschow:]

Congratulations from me as well. That was a great quarter. Just, Jim, if you think about the market and the growing momentum you can see there it’s like, how much do you think is that the whole market is doing better? Because a lot of your other competitors are also kind of sounding pretty bullish versus you kind of like doing some company-specifics stuff? And then a question for Kieran – follow-on questions for Kieran. Kieran, if I look at the guidance for CAPS, I mean, you’re already kind of doing really well. Is there anything I should be aware of in the next quarter that just might bring that CAPS kind of melting down a little bit again, because you seem to be overperforming there. Thank you.

[Jim Chirico:]

Hey, Raimo, I’ll take the first one and Kieran will take the second one. Yes. I mean, as I said in my comments, there is no secret to the opportunities in front of us in this – in the new world as we move more and more to cloud and an opportunity to move more to software and services business. But the real differentiation for us, I think, versus others, is the fact that we have the depth, the breadth, the expertise, the full range of a portfolio. And the fact, I think the teams are executing extremely well around that, and we’re winning on all levels. In the past, we struggled a bit at the lower end of the market. We’re now taking our fair share, if not more, on the lower end of the market – the mid-market with the release of our new CCaaS solution geared directly there with the fact of our private cloud solutions, both on the UCaaS and the CCaaS side. The traction we’re seeing with our collaboration solution, with Spaces, couple all that with CPaaS. And then look, we are really differentiating ourselves at the higher end in the more complex enterprise customers and those are long-lasting customers that we believe will – and we see are moving, and we’re helping them move to the new world. So we’re pretty excited about the opportunities that we see in front of us. So I’ll turn it over to Kieran.

[Kieran McGrath:]

Sure. Thanks, Jim. So Raimo, yes, I think our Q2 surprised us a bit on the upside on the CAPS. Some of that did have to do with some of our work with some of our Alliance Partners as it related to the Social Security deal. I would say probably within a point or 2, us continuing to see numbers like this as we go out into the second half of the year as well and that’s what gave us comfort in taking the bottom end of our range, up from 35% up to 37%. As we’ve said before, not all our Alliance Partners is a recurring per se. Some of it is a bit of point-in-time in terms of just some of the relationships that we have with some of our third parties. But I would think that we should be pretty close to these numbers as we look in Q3 and Q4.

[Raimo Lenschow:]

Perfect. Okay, thank you. Congrats.

[Kieran McGrath:]

Thanks, Raimo.

[Operator:]

Our next question comes from the line of Samik Chatterjee with JPMorgan. Please proceed with your question.

[Samik Chatterjee:]

Thanks for taking the question. I hope you can hear me all right. Jim, I guess, what I wanted to ask about is there is this overall impression, especially as we lap kind of a pandemic year that last year was characterized by a lot of enterprises increasing capacity when it came to different communication channels or collaboration solutions. And this year you’re going to see overall slowdown in momentum in this space, just in terms of capacity, additional license additions. And this year, it has to be more featured by portfolio traction and kind of new wins. So I just wanted to see if you can compare and contrast there kind of what this year versus last year and kind of you’re actually seeing that on the ground? And I have a follow-up. Thank you.

[Jim Chirico:]

No. I hear you perfectly, and thanks. It’s a great question. So first, let me start by really thanking the Avaya employees. They continue to inspire us each and every day with their resiliency. And I couldn’t be any more proud of the dedication that they put forth working with our customers, second to none. As you pointed out, there already have been many long-lasting structural changes that I see – that are going to impact the communication and collaboration space, and the work-from-anywhere, the sort of the direct-to-consumer commerce, the contactless experiences so on and so forth. The interesting thing about Avaya is before the pandemic, I would say that these were emerging trends, but it wasn’t an emerging trend with inside the company. We had repositioned our portfolio about 3 years ago in order to capitalize on what we believe was an emerging trend that was just accelerated, and we’re in full swing. And I think that’s evidenced by the significant growth in subscription. I think it’s evidenced by this significant growth in ARR. It’s evidenced by our bookings were up again, 14% is a leading indicator. It’s evidenced by our TCV continues to remain above $2 billion. So we are well poised to take advantage of the commercial opportunity. That’s a new world we will unlock by these structural changes, and we’re already at the leading edge of developing and delivering these technologies for our customers’ digital transformation. And the degree that we continue and I am really pleased with our progress, to bring new capabilities into our solutions around AI, collaboration, cloud, so on and so forth, coupling with our solutions, we’re – I think we’re poised. And also, we have a number, obviously, of the largest of large, most complex enterprises. And as you can imagine, there is a pipeline and a time frame by which we’re working with these folks in order to deliver these solutions. It’s not something that is, what I will call coin operated, it takes a significant amount of professional services work and pipeline work. So we do see that we are well positioned to handle whatever comes next in the world, so hopefully getting back to some sensor normally.

[Samik Chatterjee:]

Okay. And if I can just follow-up, I want to see if I can get any insights or kind of some ballpark estimation of when you’re guiding to the OneCloud ARR metric for this full year, how does that split up between CCaaS, CPaaS and your CAPS solution? And particularly, as you look kind of 2, 3 years out, it does that mix change compared to value you have today just given the time lines, sort of the different trajectory of growth for these three different platforms?

[Jim Chirico:]

Hey, Kieran, you want to…

[Kieran McGrath:]

Sure. So, Samik, hi. Yes, I think you’re absolutely right. So listen, to date, we’ve been powered by the migration from subscription, which interestingly enough is increasingly seeing a lot of new logos as well. But what we noticed this quarter was actually the beginning of an acceleration as more of our bookings are now coming in the form of private and public. It’s starting to contribute like levels of growth in terms of quarter-on-quarter sequential growth rates. So right now, predominantly subscription and it will probably be that way through – probably through the middle of next year, but as we go through that, we would expect to see a larger and larger share coming in our public – our public cloud and our private cloud contributions, most especially around public and private CCaaS.

[Samik Chatterjee:]

Thanks. Okay. Well, thank you. Thanks for taking my questions.

[Operator:]

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

[Lance Vitanza:]

Hi guys. Thanks for taking question. Congrats on the quarter. I wanted to also ask on the OneCloud ARR, and as distinct from just your overall recurring revenue, OneCloud ARR, you’re talking about getting to $1 billion a couple of years, that would be roughly third of the company’s total revenues. So – but, I’m wondering, could that number – could that eventually reach 50% of total revenues someday? Or put another way, and I’m not looking for guidance. But just given your customer set, is there a natural structural ceiling on ARR that we should be aware of? And then I have a follow-up.

[Jim Chirico:]

Yes. Hey, Lance. It’s Jim. Thanks. As I mentioned, ARR, we see significant opportunity in front of us. I think ARR, more importantly, is representative of the diversity of our OneCloud portfolio. And whether we go at the vertical customer segment, different deployment models, I think it really highlights and shows the breadth and depth of our overall revenue model transformation. So, I think, it’s really important. Secondly, I think what’s probably most important about the sustainability is our pipeline of innovation and solutions is extremely strong. And these capabilities are relevant to today’s marketplace, and relevance is obviously extremely important. So when you think CCaaS, you think CPaaS, you think AI capabilities, digital, Spaces, you think of capabilities like public, private, hybrid, and you think about the ecosystem of partners that we have around the globe, you think of hundreds of thousands of customers. It presents us with a real opportunity. And I believe it presents us with significant upside. So forgetting the number for a minute, is it sustainable? I think so, for sure. And I think it’s evidenced by the numbers we’ve delivered and the fact that we’ve increased our guidance now three consecutive quarters. So yes, I mean, we’re and I think I am going to ask Anthony to add a little color today.

[Anthony Bartolo:]

Yes. Look, if you just take that from a numbers perspective in terms of the opportunity, there is a couple of fundamentals that have taken place that, Jim, just articulated. The first is, yes, large customers are accelerating. You just take a look at the CC transformation that’s going on. There is definitely a public cloud push or a cloud push, whether it’s public or private. And if you really think about the contact center space alone, there is some 15 million seats that fit in that particular segment. We happen to have the 6 million of those particular seats. And they have only just begun that transformation to the public or the private cloud. And that represents significant ARR that sits within just our 6 million seat base. And we think over the coming years that, if we fight for every one of those particular seats and manage and transition those customers to the cloud, you effectively transition into a very large ARR opportunity that we have just within our own customer base. So yes, we think that there is definitely leads there.

[Lance Vitanza:]

Okay. And then my follow-up would be just within this OneCloud ARR channel, what do the underlying price trends or perhaps underlying volume trends look like? And I’m trying to get a sense for how this conversion to ARRs could potentially impact the company’s longer term growth rate. Obviously, we get the fact that the visibility alone is worth something. But I’m just trying to think a little bit more about within that channel, does that do anything to the longer term 2% to 4% growth rate that you have sort of talked about in the past?

[Kieran McGrath:]

Sure. So Lance, this is Kieran. As we’ve said before, why we really like to focus on ARR is just in the multiplicity of different revenue producing. So when we think about the migration, all of these migrations are actually migrations plus, right? So one is, they are shoring up the base, and we’re actually seeing additional add-ons from our customer as they embed some level of cloud functionality into the subscription as well. Clearly, if you start to do the hosting and you start to add on all of the different AI capabilities, we see a real opportunity for significant ARPU expansion in that regard. There is cost that comes along with that as well, but certainly, topside revenue. So longer term, as we continue to move more of the customers away from the traditional premise-based into a hosted base, whether that’s cloud, private or public, yes, we think there is an opportunity to build out and grow that revenue beyond that single-digit.

[Lance Vitanza:]

Thanks. Definitely helpful.

[Operator:]

And our next question comes from the line of Catharine Trebnick with Colliers. Please proceed with your question.

[Catharine Trebnick:]

Alright. Thank you for taking my question. Anthony, this is for you. Could you put a finer point on the $6 million seat opportunity? What type of go-to-market motions are you putting to attract these and transition this over? Specifically, I am trying to understand the large enterprise versus maybe something through a master agent and how you’re differentiating the seat size, etcetera? Thank you.

[Anthony Bartolo:]

Sure. Hello, Catharine, thanks for the question. Yes, firstly, just a correction, it’s 6 million, it’s 6 million seats.

[Catharine Trebnick:]

Sorry.

[Anthony Bartolo:]

So yes, maybe you misspoke. But yes, there is 15 million – 15.5 million seat opportunity or TAM in the contact center space. 6 million of those or thereabouts sit within our existing customer base. By the definition of the CC realm of the peer group, they would almost all seek into the large enterprise scale. And those large enterprises, usually we serve either on direct or through our partner community and our partner ecosystems. That go-to-market model hasn’t fundamentally changed. We have added a lot of master agents and resellers to the portfolio as opposed – as a function of what Stephen’s team and what we’ve been doing in the public cloud realm. And they are serving and starting to take on more of a role – they’ll scale up just like our existing retail community and ourselves would have a time to scale down. And we see – scaling down allows us to expand our market opportunity. We see those master agents resellers potentially selling into the larger customers. And we’re seeing some of those onesie twosies right now. But we see that as they have learned the larger size enterprise that they’ll go off and expand into that segment. If you break down really the motion that’s going on, when you take a look at the land, adopt, expand and renew, as we talk about it, those 6 million seats represent customers that are already landed. So they already landed. Our – the competitive landscape is going out trying to be the L in the layer model. We’ve got the L with those 6 million seats. What we’re doing with the roadmap is having them adopt new technologies, expand those technologies and then the renew cycle. And we’re just getting better and better at that all the time. And that’s what I talk about when I talked about that total opportunity just in that contact center space. Sorry for the long answer.

[Catharine Trebnick:]

No, that was getting a sense. Thanks for the catch. I don’t know what I was thinking.

[Jim Chirico:]

No problem.

[Operator:]

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

[Bala Reddy:]

This is Bala Reddy on for Rod. Thanks for taking my question. Congrats on another good quarter. I don’t know if you can talk with ACO. So CAPS revenue portion jumped to 40% from 34% last quarter. Now you mentioned the substantial increase in this particular quarter is driven by CCaaS and client Alliance Partners & Sub, but could you talk about ACO a little bit, particularly with respect to the – your large installed base? I know you expanded the offering to 13 countries now. Maybe ACO has also driven some of this cap strength or do you think the product is still in early stages? Any color would be helpful.

[Kieran McGrath:]

Sure. So this is Kieran. Let me start off and then I’ll ask Dennis to jump in. But clearly, ACO is a critical point – part and component of our Alliance Partner relationship. It has been – and this year, it’s been a big boost for us in this metric on a year-over-year basis, especially since we get a deep portion of it at point in time. So Dennis, maybe you could provide some color on just what we’re seeing in terms of opportunities and results?

[Dennis Kozak:]

Yes, sure. Kieran, thank you. So yes, certainly, the product continues to mature. It’s been in market now for about 14 months, since last March. And each success of our leads continues to build on really in two dimensions. The first dimension is really around the platform and innovation. You hear RingCentral talk about a lot of the capabilities that we bring to the platform quarter-over-quarter. And then the second dimension, which is extremely important to Avaya, is as we bring the Avaya feature set to it. So it continues – this last quarter, we had a new release that brought a number of key capabilities that our existing base are very interested in seeing. One partner has gone on record as quoting. It’s the best of PBX and the best of cloud in one package. And that really creates a very competitive differentiator for us for a variety of reasons, not just for migrating our own base, but also for attracting new logos that are using an existing premise solution from one of our competitors.

[Bala Reddy:]

Good. Along the same line, touch up a little bit on the private cloud momentum, especially last two quarters, it’s been particularly strong. You mentioned some large deals, but also some capabilities and maybe feature sets are differentiated versus competition, could you expand on this a little bit?

[Anthony Bartolo:]

Sure. It’s Anthony here. So firstly, I think you’re seeing – well, we know we’re seeing the popularity of a private cloud solution because we basically redefined or evolved private cloud. So large enterprises want the flexibility of the public cloud, but not the form of what’s being delivered by private players. So, we give them the benefit of having the agility and flexibility of a public cloud deployment, but the flexibility of customizations on that public cloud as well as the ability for them to be able to innovate at the Edge. We talk about how something is deployed, whether it’s public or private, etcetera. But what we’ve laid on with our CPaaS solutions that really allows us to expand and innovate at the Edge that customer can do their innovations with low-code, no-code capabilities that allow them to tweak the solutions so that not only it solves their specific problem, but they are invested in the outcome, because they helped solve that particular problem. Nobody understands the issues they face materially better than the customer themselves. And we give them the tools to do that without the rigmarole of the forbearance or overbearingness of a heavy monolithic piece of software. So that flexibility, the private cloud enables, it gets – they allow all the scalability and capability of it, and it allows them to unlock the innovation within the enterprise. And that’s why we’re seeing a real takeoff in the private cloud. And the reason why large enterprises are able to do that is, because they have got a lot of capabilities inside the company.

[Bala Reddy:]

Okay. Thanks, Anthony.

[Operator:]

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

[Karan Juvekar:]

This is Karan Juvekar on for Meta. Thanks for the question. I guess, just at a higher level, are you seeing customer conversations shift to more permanent solutions or deploying more permanent solutions versus maybe earlier in the pandemic conversations were around temporary setups to outfit work from home? And I guess, if you’re seeing that, is that impacting TCO and maybe the type of deal or hybrid versus cloud only? Thank you.

[Anthony Bartolo:]

Yes. It’s a great question. Thank you. I think that we’re seeing two distinct flavors that have come from the pandemic. First of all, we’re seeing those that are adopting solutions now from a multiyear contract where they started during and then they are trying to figure out if they could resource and fit a need. I look at work-from-home, for example. As I started to work-from-home, I thought maybe this is going to be a 12-month thing, maybe it was in the 18 months. Now we’re seeing those same customers enter into true multiyear agreements supporting that deployment methodology. In addition, the second motion is companies that have decided that, look, this is with us to stay, right? This is the new way to go to work. And with that, they are looking at ways for us to deploy options that are, again, along the different deployment lines, whether that’s pure public cloud or anything in between from a hybrid perspective. So we’re seeing those two flavors specifically. And I think both of them lend itself to the fact that we’ve seen a permanent shift in the way that companies are going to go to work.

[Karan Juvekar:]

Great. Thank you, that’s really helpful.

[Operator:]

Our next question comes from the line of Asiya Merchant with Citi. Please proceed with your question.

[Asiya Merchant:]

Great. Thank you for the opportunity, and great quarter. I just had a quick question. A lot of them have been already answered, but I think Kieran earlier on mentioned some Professional Services that help to provide some better-than-expected results for the second quarter. If you could kind of peel that out. And as it relates to your guidance for the year, how much of that’s baked in from an uptick in Professional Services? And should we be expecting a similar run rate in the back half or was this just a one-time for this particular quarter?

[Kieran McGrath:]

Asiya, so that’s exactly what I meant in my words that it was accelerated. So we saw some deliverables on the SSA contract really being pulled forward, probably to the tune of somewhere around $7 million or $8 million that was coming out of the second year into this quarter. As you know, we’ve been macro focused and micro focused on delivering here the SSA deal. So everything we can – based upon the customer’s request now, they are getting people back in the office to really accelerate along. So we had expected there was going to be some pretty big deliverables. That’s even bigger than we expected, and some of that came out of the second half of the year.

[Asiya Merchant:]

Okay. And then just given – I think you alluded to channel investment partners – channel partner investments that are sort of driving your EBITDA margin to around 24%. How should we think about these investments going forward? Is this a year where we lap some of these investments? And then as you look ahead, you should start to see the fruit of these investments or is there more to consider, especially given that – CCaaS environment is pretty competitive, pretty fragmented, and there is lots of partnerships and alliances going on all the time? Thank you.

[Kieran McGrath:]

Yes. So let me start, and then maybe Stephen will jump in. Just from our perspective, clearly, for the second half of the year, we had talked about – when we gave our guidance initially that we were going to invest to point back in the business this year. And you can see that we’ve been able to do that. And, in fact, we’re actually doing a little bit better than what we originally thought. You’re right, it is a pretty competitive market, and we will start to see some scaling of much of this as we start to deliver more of our public and private cloud as we go through time. I’m not ready to give 2022 guidance yet. But I do think we will start to get some scaling benefits as we go through time. Stephen, would you want it or Jim?

[Stephen Spears:]

Yes, absolutely. Asiya, look, I think it’s truly – we mentioned earlier in Jim’s opening comments that we’ve increased the number of selling partners by 40%, and that will continue. What’s also relevant is that the mix of partner and the way that they approach the market is changing, right? More partner are out there to deliver value-added services, while microservices can they lay on top of our platform. So as we see this shift to a true multi-cloud hybrid approach, these partners are paying an increasing role in helping deliver those key value messages to the customer.

[Asiya Merchant:]

Thank you.

[Jim Chirico:]

This is Jim. I guess, sort of, look, we have – we’ve been – we have a very competitive business model here and we’ve been – 60% to 70% of our revenues are driven through the channel. So we know how to operate within the channel structure, and we know how to operate it to drive profitability for the company. As Kieran said, we’re right on track with our guidance for EBITDA. We did back into the business, as he said, 1 point. We have a very good relationship. And as Kieran pointed out, we believe we’re going to scale that as we go into the quarters ahead. So we’re very confident about our position and our ability to remain profitable through the transition. So there shouldn’t be an issue. And I think back to your earlier point, we’ve also, as we pointed out, there was a bit of an acceleration in PS into the quarter. But the fact is we raised our overall guidance for the year. So we feel, as I said, based upon the backlog, based upon the bookings increase, based upon the new technology we can deliver to the market and the solid execution from our global teams, we feel pretty good about what the second half of the year brings to the company.

[Operator:]

Our final question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

[Hamed Khorsand:]

Good morning. I just wanted to understand that your existing customers, when they are talking to you about moving to the cloud, are they initiating that conversation? I mean you’re facing competitive pressures there or is your sales force or channel partners initiating that conversation?

[Jim Chirico:]

Thank you for the question. Look, we absolutely are going to our customers with a cloud-first message and mentality. And ultimately though, we’re allowing that customer to dictate what the final solutioning looks like. That’s the benefit of being able to deploy across multiple different technologies. It’s really the differentiator that Avaya brings to the market that our competitors do.

[Hamed Khorsand:]

Okay. Thank you.

[Jim Chirico:]

Sure.

[Operator:]

And with that, this concludes our question-and-answer session. And now I would like to turn the call back over to Mr. Michael McCarthy for closing remarks.

[Michael McCarthy:]

Thanks, Devin, and thanks, everyone, for joining us this morning. We will look forward to catching up with you over the days and weeks ahead. And you can expect us to report the June quarter results in early August. We will look forward to speaking with you. Have a good afternoon and stay safe.

[Operator:]

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.