Avaya Holdings Corp.

Greetings and welcome to the Avaya first quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike McCarthy. Thank you, Mike. You may begin.

Thank you, Paul. Welcome to Avaya's Fiscal 2022 First Quarter Investor Call. Jim Cherico, our President and CEO, and Karen McGrath, our EVP 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 Stephen Spears, our Chief Revenue Officer, Todd Zervi, our Senior Vice President of Engineering, and Dennis Kozak, Senior Vice President of Strategic Operations. The earnings release and investor slides, which include highlights of our ESG initiatives and performance, referenced on this morning's call are accessible on the investor page of our website, as well as in the 8-K file today with the SEC. These 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. 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 remains 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 the extent of its continued impact on our business will depend on a number of factors that include, but may not be limited to, the virus's severity and duration, the emergence of new variants, changes in infection rates, the vaccine participation rate, the effectiveness of vaccines and the speed with which the vaccine can be distributed, as well as regulations and requirements impacting the return to our offices and our ability to visit customer sites and 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 and our Form 10-Q. It is a biased policy not to reiterate guidelines, and we undertake no obligations to update or revise forward-looking statements in the event facts or circumstances change, except as otherwise required by law. I'll now turn the call over to Jim.

Thanks, Mike. Good morning, everyone, and thank you for joining today's call. This last year was an important one for Avaya. If I take a step back to reflect, I would characterize it as a continuation of a multi-year journey and one of accelerated transformation for the business. And it's clear that we are in a stronger position than when we started. I give our team a lot of credit as they have executed on the company's three value drivers and have remained focused on solidifying our business for our long-term success. Entering this fiscal year, we have successfully navigated a period that is best characterized by high volatility and unpredictability. And despite this extremely dynamic business environment, We've made steady progress on our objectives and strategy. Over the last two years, we've gained new insights about our customers, their needs, and seen their expectations and behaviors evolve. The future is clearly moving in our direction, and we are fortunate to have so many assets to leverage. Overall, I could not be more pleased with the momentum of our business. So when I look at our first quarter results, while we made progress on our key cloud objectives, which I'm quite proud of, Our top-line results and profitability were below our expectations, primarily pressured by two temporary dynamics. First, the mix of content and the final deal terms of some contracts did result in a delay of revenue recognition. One example was a significant multi-year Avaya OneCloud public CCAS contract we won with a large global financial services company. This deal is roughly $400 million over a seven-year life of the agreement. It is significant, not just because of the size of the deal, one of the largest in the history of the company, but also because it leverages a significant number of our latest innovations, including AI, biometric security, and advanced analytics, and represents a displacement of several incumbent competitors. Because of the nature of the CCAS deal, we were unable to recognize revenue we had assumed would be realized in Q1, which will now materialize beginning in the second half of FY22. Second, with respect to the environment, there is no doubt it caused a pause. The fact is that many of our customers, especially in the US and Western Europe, were in lockdown, and commercial activity simply slowed at the end of the quarter. And as a result, the necessary approvals and contracting activities with many of our customers stalled. What's important to note is that these deals were not lost and projects have not been canceled. But we did see a number of deals slip by a few weeks, many of which have since been closed. While it is not unusual to see deals push and pull at any given quarter, the magnitude in Q1 was amplified. It is clear that demand remains extremely strong, as evidenced by our continued traction with new logos, where we signed over 1,400 this quarter. Success with large deals, where we signed over 100 greater than 1 million TCV for the seventh consecutive quarter, and importantly, with the increase in Avaya Cloud bookings for private and public solutions, which grew 31% year over year. These are proof points that the underlying fundamentals of our business remain strong, and I am more pleased with the progress on the key KPIs for our business, including one cloud ARR, cloud revenue, hybrid subscription growth, and continued enterprise traction. Improvements to these areas validates that the investments we are making in transitioning to cloud and SaaS are yielding the desired outcomes. Let me expand on our progress in each of these key areas. Avaya OneCloud ARR is our most significant metric and represents the combination of our entire hybrid, private, and public cloud portfolio. We added another 90 million to ARR during the quarter, up 17% sequentially and 137% year-over-year, ending at 620 million. We remain well on track to meet our 1 billion ARR target at the end of calendar 2022, and Karen will take you through our increased ARR guidance. The growth in ARR is driven by several factors. First is our contact center business, which continues to represent approximately 60% of total ARR and grew nearly 130% year over year, further proof of our leadership in CC. Second is the underlying momentum from our enterprise segment, which comprises 95% of our total ARR. And third is the adoption of innovation by our customers. The bundling of additional value into hybrid cloud subscription offers through adding innovation, such as Avaya Spaces, Cloud Contact Center AI, Avaya Conversational Intelligence, and our cloud notification service, among others, is helping to fuel our ARR growth. In fact, if you take a step back and look at our hybrid subscription deals, on average, we are seeing a 20% uplift in total contract value as we migrate customers off their maintenance models. Our investments in innovation will remain strong. We have invested a lot, and we are not slowing down because our customers are looking to Avaya to help them improve their customer and workforce experience. Our technology, along with the scale at which we can operate, is a competitive advantage for us. And the investments we have made are clearly showing dividends in the form of ARR growth, up from $262 million to $620 million in just one year. Karen will provide additional color on our financial performance and outlook in just a few moments. But before I turn it over, let me share some highlights from the quarter. Our strength in the enterprise sets us apart from all others in our peer group. and overall large deal volume remained consistent with the prior six quarters. We signed 108 deals greater than 1 million TCV, nine deals were greater than 5 million, six greater than 10 million, and we had two over 25 million TCV. To us, these deal sizes emphasize that customers are voting with their wallets, committing to large, strategic, multi-year contracts that align their business needs with Avaya's technology roadmap. In addition, we once again signed a significant number of new logos, well over 1,400, reinforcing the competitiveness, differentiation, and value of our solutions. Turning to subscription hybrid. Within our ARR and CAPS KPI, our Viya One Cloud hybrid subscription remains one of the most effective on-ramp to a cloud-native model for enterprise customers. Since launching two years ago, We just passed the 1.5 billion TCV mark last quarter, making this the most successful solution offering in the company's recent history. Not only are we converting current customers, but in Q1, we signed nearly 200 hybrid subscription deals with new customers, our highest contribution from new logos since launch. Customers are committing to our cloud vision with three plus year contracts, They are making these commitments based on the deliberate and compelling roadmaps we have laid out. This is validation of the value our solutions can drive for our customers, their customers, and of course, our shareholders. An example of one of these customers is Ascension Health, the largest nonprofit hospital system in the US. They signed a five-year contract to standardize Anavaia across 110 hospitals with options to include clinics and professional offices in the future. Turning to CCAS, this quarter we grew seats at a rate and pace faster than the previous four quarters combined. Equally notable is the funnel growth, hit an all-time high. We continued to invest, materially increasing the number of primary quota carriers, digital sales, and pre-sales for our CCAS offerings. One cloud channel partner network of distributors and agents has grown into the thousands, and we are expanding our CCaaS geographic availability to 100 countries by the end of the calendar year. We offer a fully integrated platform, and that differentiation is helping us grow the size and quality of our funnel, even in the highly competitive mid-market segment and below. Cupola Teleservices. one of the Middle East's largest BPOs and outsourced contact center service providers, chose Avaya OneCloud CCaaS and Avaya Spaces as the basis for their new customer onboarding and agent training. We beat out Genesys to win a three-year deal that significantly improved user and customer experience for Cupola's customers. In Ontario, Canada, McMaster University, with over 35,000 students and 10,000 staff, We chose Avaya OneCloud to extend our long-running partnership for a future five years. McMaster selected our cloud solution to address the challenges of increasing digital engagement across seven unique contact centers, reducing handling times, and improving analytics and workforce agility. Avaya Cloud Office traction remains solid. We continue to add specific Avaya capabilities to the platform that differentiate our offering, including integration with our own CCAS. One example of the importance of bringing Avaya content into the ACO platform is a recent win. Medical West Hospital Authority, an affiliate of UAB Health System. They are a long-time Avaya customer through our partner AT&T. They selected Avaya Cloud Office for 1400 staff members at their hospital and off-campus locations. Key features such as faxing, video conferencing, and integration with Office 365, helped tick every box Medical West had on their list. ACO channel partner enablement efforts continue to yield positive results. Well over 700 partners globally have now sold ACO seats. Overall, seat growth was up 14%, and the number of new customers was up 16%, both from the prior quarter. So if I had to sum it up, the fundamentals of the business remain strong. As I said, we have already seen a number of deals that have moved out book in January, and the team's execution remains steady and focused. And as a result, we remain committed on delivering the full year guidance for revenue that we previously communicated. With that, let me turn it over to Karen to take you through the numbers.