Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:

00

05 Greetings and welcome to Avaya Fiscal twenty twenty one Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, 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 for Avaya. Thank you. Please go ahead.

00

34 Thank you. Welcome to Avaya's Fiscal twenty twenty one Q4 Investor Call. Jim Chirico, our President and CEO; and Kieran 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, Chief Revenue Officer; Todd Zerbe, Senior Vice President of Engineering; and Dennis Kozak, Senior Vice President of Global Channel. 00

58 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 eight K filed today with the SEC. These should aid you in your understanding of Avaya's financial results. All financial metrics referenced on this call are non-GAAP with the exception of revenue. 01

18 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. 01

35 In particular, the global economy continues to be impacted by COVID-nineteen and to 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' 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. 02

13 Information about risks and uncertainties may be found in our most recent filings with the SEC, including our Form ten K. It’s 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 as otherwise required by law. 02

31 Before handing the call over to Jim, I’d like to remind the participants on this morning’s call that we will be hosting an Investor Day meeting in conjunction with Avaya ENGAGE which will be held down in Orlando on Tuesday, December fourteen. Registration information is available on our website on the investor relations page, under the events tab. Members of Avaya’s executive leadership team will be providing updates on Avaya’s business strategy, technology development roadmap, growth opportunities, and updated long-term financial model. 02

58 I’ll now turn the call over to Jim.

03

01 Thanks, Mike. Good morning, everyone, and thank you for joining today’s call. Avaya’s fiscal twenty twenty one was a landmark year for the company. What our team accomplished represents a pivotal point in our history, and as a defining moment for the company and it will play a central role in our success story of Avaya as we move forward. 03

24 If you take a step back and put this past year into context, it is a year marked by many first. And the outstanding results we delivered exceeded expectations on most every front. These results are not only reflection of how far we've come, but importantly, reinforce the speed at which we are delivering on our value creation strategy. Grow the company of off to a cloud and SaaS business model and remain highly profitable. 03

55 Let me start with growth. In Q4, we delivered our sixth consecutive quarter of year over year revenue growth. Revenue was seven sixty million. For the full year, revenue came in at two point nine seven three billion. Most impressive is the fact that we reversed a history of annual revenue declines, delivering year over year growth for the fiscal year closing up approximately one hundred million dollars, a first for Avaya. 04

25 It marks a real and substantive milestone for the company, and I couldn't be prouder of the performance or more thankful for the commitment and loyalty our customers and partners as we've navigated a purposeful and deliberate journey of transformation. This growth has been fueled by investments we made in talent, go to market digital initiatives and our innovation engine. 04

53 Especially notable is momentum in the large enterprise segment where for the sixth quarter in a row, we signed over one hundred deals with a TCV greater than one million. This included eighteen over five million of what seven were over ten million. Clearly, this is a strong proof point that customers have embraced our roadmap and are onboard with our strategy. 05

16 In addition, we once again signed over sixteen hundred new logos, reinforcing the competitiveness, differentiation, and value of our solutions. Most important to note is the fact that none of this would have been possible without the efforts of our global Avaya team. Their resilience dedication and focus on delivering for our customers was outstanding and I'm extremely proud of how the team performed. 05

44 On the cloud front, we continue to exceed expectations across many key metrics. A year ago, we introduced Avaya OneCloud ARR as the leading indicator of our cloud transition. We finished FY twenty one with five hundred and thirty million of ARR. That's up twenty five percent sequentially and one hundred and seventy seven percent year over year. We grew over one hundred million in just the fourth quarter alone. Another first for us. 06

16 To add some color, nearly twenty percent of our ARR comes from contracts greater than five million and over sixty percent from contracts greater than one million and in total, over ninety five percent of our ARR is from our enterprise segment. Additionally, sixty percent of ARR is driven by enterprise contact center, and we are converting this highly coveted base rapidly. 06

44 We are not following the crowd. We have the best of both worlds. We are operating like a startup, but with a significant IP, technology, market share and the install base assets of an enterprise leader. This is fueling our exponential growth. Five hundred plus million of ARR in twenty twenty one to one billion of ARR in twenty twenty two to two billion in FY twenty four. 07

17 Our second key indicator is our CAPS metrics, which reads forty four percent of revenue for the quarter, up eleven points from the prior year and fourteen points to forty percent for the full year. CAPS remains a measure of our highest calorie revenue comprised of cloud Alliance partner and subscription. I am particularly proud of the growth here as it is a direct reflection of the new Avaya. The potency of our new innovations and the importance of our go to market ecosystem of partners. 07

49 Last time profitability, adjusted EBITDA was one hundred and seventy nine million for the quarter and seven hundred and nineteen million for the full-year. Both approximately twenty four percent of revenue. As we committed to the street into our customers, we've executed on our plans to maintain high profitability, while also investing back significantly into the business and our success shows in the numbers. 08

14 Avaya is a very different company today from just four years ago when we went public. There has been a tremendous amount of effort and progress made on reshaping the company and transforming our business to be the leader in enterprise communications and collaboration. 08

31 When we first shared our vision to be the leader in digital transformation for enterprise customers, our path was clear. To become a customer led company, one that works directly with our customers to unlock value. To return to being an innovation leader in order to expand our product and service offerings. And to leverage our vast channel and technology partner ecosystem, all with a focus on growing and transforming to a cloud business model. 09

01 A measure of our progress to date. As of the end of September, we are approaching ten percent of the company's combined UC and CC installed base on an Avaya OneCloud solution. This is consistent with the overall market adoption we are seeing in the enterprise segment and it is clear that the best is yet to come and we are well positioned to be leaders. 09

27 Our subscription hybrid offer has been a key driver of this transition and represents roughly eighty percent of our five thirty million of ARR. Customers are committing to three year plus contracts, which by definition means, they are making a commitment to Avaya’s roadmap, to our vision of the compossible enterprise, and to continue their journey in a deliberate and agile way. 09

53 To those that look at subscription, as a simple conversion of traditional maintenance contracts, nothing could be further from the truth. Today, subscription hybrid includes significant cloud capabilities such as Avaya Spaces, Cloud Contact Center AI, Avaya conversational intelligence, and our cloud notification service among others. And we continue to add additional capabilities including many from our ecosystem of partners. 10

23 And furthermore, we are seeing a fifteen percent uplift on average and in many cases, well north of twenty percent as customers make the move. One example is Wipro, which shows a Avaya OneCloud Subscription as the next step on their digital transformation journey, because it offers ease of expansion and flexible migration as part of their cloud plants. 10

46 Wipro’s seventeen thousand five hundred users and three thousand five hundred agents will benefit from a full solution suite, which includes multiple ecosystem components from our API Exchange marketplace. Not only are we converting current customers, but again, in Q4, we signed over one hundred and fifty subscription hybrid deals with new customers. 11

11 Take Amtrak, which recently chose Avaya OneCloud to deliver advanced quality monitoring and biometrics that will reduce losses from fraud by approximately fifty percent while improving customer satisfaction in a highly competitive situation, our ability to deliver full cloud capabilities immediately was key to being chosen ahead of the incumbent provider and multiple other competitors. 11

38 Turning to public cloud, Our UCaaS and CCaaS public cloud offerings continue to gain significant traction as they expand both in terms of capabilities and geographic availability. Our progress is ahead of our expectations and these offers will be major drivers for recurring revenue and profitability going forward. 11

57 First, is CCaaS, over the last couple of quarters, we made significant strides in maturing our CCaaS offering in terms of reach, go to market scale and capabilities. CCaaS is now available in forty nine countries and will reach one hundred countries by the end of twenty twenty two. 12

15 Initially offered through our direct sales force, we are now beginning to leverage our expansive channel network by bringing these partners fully online. Take North America where we've enabled over one hundred and sixty of our value added resellers. Globally, we signed eleven master agents with access to thousands of agents as we accelerate our efforts to enable the channel. 12

41 We are seeing significant signs of momentum with our pipeline, more than doubling in just the last quarter. Also hoping to drive CCaaS traction is the integration of our offer with Avaya Cloud Office by RingCentral. We believe this will be an important driver of in the SMB and mid-markets. One example is a recent win in the Netherlands. Waste management and recycling company Van Happen Containers migrated to Avaya OneCloud CCaaS and Avaya Cloud Office. 13

13 Reliability, greatly reduced on-site systems maintenance and platform integration were key drivers for their decision along with integration of other channels, such as Whatsapp and Facebook, all integrated with their CRM. 13

27 Another international win was Transcosmos, a Japanese based global BPO. They are using our CCaaS along with Google Cloud Contact Center AI to compose effortless customer experiences, reduce wait times, improve efficiencies, and all around satisfaction. 13

47 Avaya Cloud Office continues to perform well. And we saw significant progress during the quarter. Now available in thirteen countries, we continue to add Avaya’s specific innovations to the platform, along with integration, as I just mentioned to our own of Avaya CCaaS solution. 14

06 We won multiple one million TCV deals during the quarter. We grew the number of customers by nearly twenty five percent and total seats by almost thirty percent. Customers continue to choose Avaya Cloud Office because it combines best in public UCaaS with Avaya’s enterprise capabilities. One new customer Preferred Home Care of New York, a leading Home Care Agency chose our UCaaS to replace their existing system. 14

34 With thousands of calls per day, they were experiencing persistent outages that created significant risk for staff and patients. This led an cloud based solution and they selected us for over five hundred users. Their solution includes video conferencing, collaboration, messaging, and calling. 14

54 On the private cloud front, we continue to see significant adoption as measured by new bookings and activations. TCV bookings of our Avaya OneCloud Private were up over five hundred percent from the prior year, demonstrating the rapid acceleration we are seeing in demand for cloud capabilities, delivered in a private cloud mode. 15

17 While this growth rate will moderate as the denominator grows, the right way to think about this is Avaya is the only major UC and CC solution provider that can offer public and/or private cloud platform delivery models at enterprise scale. This is a significant differentiator for us. 15

38 One example of a recent private cloud win, is with MAHLE, a global automotive supplier with over seventy thousand employees and one hundred and sixty production locations. They were struggling with in consistent customer and employee experiences, while using nineteen voice vendors. They chose our Private Cloud Solution, and will now consolidate their fragmented base of vendors to a single Avaya platform. We will continue to see strong demand for private cloud and expect this to remain a major long term growth driver. 16

12 Before turning it over to Kieran, I just want to thank our partners employees and customers again for what was an incredible milestone year for Avaya. 16

23 With that, let me turn it over to Kieran.

16

27 Thank you, Jim. Good morning everyone. As a reminder, with the exception of revenue, unless otherwise stated, all financial metrics referenced on this call are non-GAAP and the supplementary slides posted on our Investor Relations website set forth the GAAP to non-GAAP reconciliations. All figures mentioned in this call are as reported, unless otherwise indicated in constant currency. 16

50 I'll start with a few key highlights that punctuate what was a milestone year for Avaya. At two point nine seven three billion dollars in revenue for fiscal twenty twenty one, up three percent year over year, we generated revenue growth for the first time in well over a decade. 17

07 Highlighting our significant progress, we achieved five thirty million dollars of one cloud annual recurring revenue, up from one hundred and ninety one million dollars last year, significantly exceeding the high end of our guidance range. Most notably, this reference marks the progress of our transition to the cloud and the relevance of our market leading solutions. 17

29 CAPS or Cloud Alliance Partner and Subscription reached the high end of fiscal year guidance at approximately forty percent of revenue, up from twenty six percent last year with the fourth quarter hitting a record of forty four percent of revenue. 17

43 Getting deeper to the numbers, our one client ARR metric grew twenty five percent sequentially and is up one hundred and seventy seven percent year on year. Customers paying greater than one million dollars annually continued to be more than sixty percent of total ARR. Similarly, contact center was again about sixty percent of total ARR. 18

04 In terms of revenue, our fourth quarter generated seven sixty million dollars, which compares to seven fifty five million dollars in the year ago period and seven thirty two million dollars in the third quarter. 18

17 For the full fiscal year, we reached two point nine seven three billion, which compares to two point eight seven three billion in the year ago period. Fiscal twenty twenty one revenue does include a fifteen million dollar adjustment for the understatement of revenues in prior periods. For the fiscal year, recurring revenue accounted for sixty six percent of total revenue with software and services accounting for eighty eight percent. 18

43 Turning to margins. For the fourth quarter, non-GAAP gross margin was sixty point four percent, compared to sixty one point three percent in the year over ago period and sixty one point five percent sequentially. Margin this quarter was reflective of higher contribution from our hardware offerings. 19

00 For the year, the shift between services and product is more pronounced, where fiscal year twenty twenty one product margin was fifty nine point nine percent, compared to sixty two point three percent in the year ago period, while services margin came in at sixty two point one percent, compared to sixty point seven percent in the year ago period. 19

20 These aggregate to a total non-GAAP gross margin of sixty one point three percent, compared to sixty one point three percent for fiscal twenty twenty or flat year over year. In terms of total profitability margin and cash flow metrics, profit margins continue to reflect the substantial investments in R and D and go to market that we have been communicating all year. That is, putting roughly one point of adjusted EBITDA margin back into the business. 19

47 We are very pleased with the positive results these investments are having, driving our current and future ARR momentum. Fourth quarter adjusted EBITDA was one hundred and seventy nine million dollars, representing an adjusted EBITDA margin of twenty three point six percent, down two ninety basis points year on year, consistent with our plant. 20

08 Q4 non-GAAP operating margin was one hundred and forty five million dollars, representing a non-GAAP operating margin of nineteen point one percent down three forty basis points year on year. Non-GAAP EPS was zero point seven seven dollars in the fourth quarter compared to zero point nine three dollars in the year over ago period and zero point seven five dollars sequentially. 20

29 Summarizing other key performance indicators for our transformational fiscal year twenty twenty one, adjusted EBITDA was seven nineteen million dollars, representing an adjusted EBITDA margin of twenty four point two percent. No-GAAP EPS was three point one six dollars for the year, up from three point zero three dollars last year. 20

49 We ended the fiscal year with a cash balance of four ninety eight million dollars. Cash flow from operations at thirty million, representing one percent of revenue. This was expected and is consistent with our revenue model transformation. Additionally, we should note that during the year, we paid down one hundred million dollars of term loan. 21

08 Now turning to guidance for 1Q twenty two and full year fiscal twenty two. Please note that all year on year revenue changes are expressed on a constant currency basis and all revenue amounts reflect rates as of October thirty one, twenty twenty one. 21

24 In terms of our forward-looking OneCloud ARR metric, we expect to exit fiscal year twenty twenty two between eight eighty million dollars and nine ten million dollars. At the midpoint, this represents growth of nearly seventy percent year over year. This expectation reaffirms the previously communicated target of exiting the twenty twenty two calendar year with OneCloud ARR at or above one billion dollars. 21

51 Turning to revenue, Avaya’s business model transformation continues. As such, the mix between point and time and ratable software revenue streams continue to shift increasingly into a larger ratable base. Therefore, we expect full year fiscal twenty twenty two revenues of between two point nine seven five and three point zero two five billion dollars, representing growth of one percent to two percent as measured in constant currency or zero to two percent assuming the FX rates as of October thirty one. 22

22 We expect Q1 revenue to be between seven twenty five million dollars and seven forty five million dollars. Revenue generated from CAPS for the year is expected to be between forty five percent and fifty percent of revenue. At the midpoint, this reflects growth of twenty percent year over year. While we are still in the midst of our transition to a recurring cloud software business model, I remind investors that we will continue to invest heavily in the capabilities required to support an expanding cloud customer base. 22

51 As such, we expect non-GAAP operating margins to be between approximately nineteen and twenty percent for the full fiscal year. Similarly, our adjusted EBITDA should be between seven hundred dollars and seven twenty million dollars or approximately twenty four percent of revenue. 23

06 We expect Q1 to closely follow these margin levels with non-GAAP operating margin between eighteen percent and nineteen percent and adjusted EBITDA margin of approximately twenty three percent or between one hundred and sixty million dollars and one hundred and seventy five million dollars. 23

22 I'd now like to take a moment to comment on our cash flow trajectory during our revenue model transition. The shift from CapEx to OpEx contracts has manifested with significant growth of contract assets on the balance sheet, reflecting deferred billings over a multi-year year period. 23

39 Since the introduction of our OneCloud portfolio of offerings in early twenty twenty, we saw one hundred and sixty four million dollars of growth in contract assets in fiscal twenty twenty and an additional two thirty nine million dollars in fiscal twenty twenty one to end the year at six zero six million dollars. As the mix of our purely ratable cloud contracts reach critical mass, our revenue recognition, billings, and cash flow were more closely aligned. 24

08 We significantly outperformed our fiscal twenty twenty one OneCloud annually recurring revenue objectives. And as a result, Q1 of fiscal twenty twenty two, we will see significant cash payouts for bonuses, commissions accelerators, and incentive multipliers. 24

25 Therefore, we are expecting Q1 cash flow from operations will be approximately negative seven percent of revenue. For the full fiscal year twenty twenty two, we expect cash flow from operations will be approximately one percent of revenue consistent with fiscal twenty twenty one. 24

42 Turning to shares outstanding, guidance, and earnings per share, we expect our weighted average shares outstanding to be between approximately eighty eight and ninety million shares for fiscal twenty twenty two. We expect non-GAAP EPS for the fiscal year to be between two point eight five dollars and three point zero three dollars. 24

59 For the first quarter, we expect non-GAAP EPS to be between zero point six three dollars and zero point seven five dollars. While we will cover our longer term financial targets in greater detail at our Investor Day, which will be held as part of the engaged user conference on Tuesday, December fourteenth, I do want to take this opportunity to also provide an early look beyond fiscal twenty twenty two and towards the fiscal twenty twenty three and twenty twenty four time frames, referencing slide sixteen and seventeen in our Investor deck. 25

31 As we continue to aggressively migrate our customers into our OneCloud portfolio, we expect to exit fiscal twenty twenty four at two billion dollars of OneCloud annually recurring revenue. This represents an almost 4x increase when compared to our fiscal twenty twenty one exit point and is double our calendar year year-end twenty twenty two ARR target. 25

56 In fiscal twenty twenty three, we expect total revenue to increase by the mid-single digits and we continue to invest in the business, we expect adjusted EBITDA margins will remain in the twenty three percent to twenty four percent range. CFFO will improve to the mid to high single digits as a percent of revenue as contract assets become billable and more are converted into cash flow. 26

20 Moving to fiscal twenty twenty four, total revenue growth will accelerate by mid to high single digits. This acceleration is a result of our OneCloud portfolio making up the majority of our business in fiscal twenty twenty four. We expect adjusted EBITDA dollars will grow while the margin levels remain constant at between twenty three percent and twenty four percent as a percent of revenue. 26

42 CFFO in fiscal twenty twenty four will increase significantly into the low double digits as a percentage of revenue. Avaya is a very different software company today, exiting fiscal twenty twenty one. We continue to exceed our own high expectations as demonstrated by the success of ARR and the return to revenue growth. Through the investments we have made in our OneCloud portfolio, we are confident in the future of Avaya and our ability to deliver on our long term targets. 27

13 With that, I'd now like to turn the call back to Jim. Jim?

27

16 Thank you, Kieran. Looking ahead, there is significant opportunity for Avaya. Our business is thriving and continues to gain momentum. We are growing ARR at a remarkable pace and transitioning customers to the cloud. Our innovation engine is running strong. And we have an incredible global team and partner community. 27

41 We've invested significantly back in the business and it is paying dividends. The investment our enterprise customers are making in Avaya is the single greatest validation that we are accelerating in the right direction. This is why I'm excited for what the future holds and why I'm confident in our ability to drive profitable growth as a leading enterprise cloud company and we look forward to providing you more details about the opportunities we see ahead during our Investor Day in December. 28

12 With that operator, please open it up for questions.

28

17 Thank you. Our first question comes from the line of Ryan MacWilliams with Barclays. Please proceed with your question.

28

50 Thanks for taking the question. Strong OneCloud results once again. I thought it was interesting ninety four percent of your OneCloud ARR comes from customers with over one hundred k in ARR. So, as your customers are transitioning to subscription, are you starting to see early signs of larger customers who are now considering moving from their on-prem subscription to cloud solutions? Thanks.

29

16 Yeah, hi, Ryan. This is Jim. Good morning and thank you very much. In fact, we're seeing momentum across the board. Be it that in private cloud, our public cloud and/or the hybrid cloud solutions as we take a look, as we pointed out and as you pointed up ninety four percent are coming from our large enterprises, we're really pleased with that. More importantly, when you take a look at the performance, sixty percent of that ARR is greater than one million, twenty percent greater than five million and equally as important sixty percent of our ARR’s from contact center. 29

57 So, further fortifying our leadership in large enterprise customers. And really, as I mentioned, sort of a validation that our portfolio and our innovation is lined-up where our customers want us to be. So, significant content is in subscription, but really what subscription is, it's really a vehicle for us to deliver our OneCloud solutions. And that's exactly what we're doing, and that's our ability to consume our solutions be it hybrid, private, or public. 30

33 We did reach five hundred and thirty. We're very pleased with that and more than doubling not only subscription, but we also more than doubled our private and public and we're seeing traction across the board. And I think this is extremely important because having the portfolio that we do, really provides differentiation in relevance where if you were just delivering UCaaS or CCaaS or hybrid, private, or public, you know one size does not fit all in today's market. And I hear that consistently from many of our, the CEOs of the customers that we serve. 31

06 And it's an important point because operating at the global scale that we do operating with the largest of large enterprises. If you really want to compete and win, you need to provide the capabilities that really enable our customers to continue to operate and win in the markets that they serve. So, we're really pleased with the performance across the board.

31

29 Perfect. One more from me. Kieran, one thing that stuck out to me in the press release was the cash flow from operations guidance for the next two years, does your OneCloud results add more visibility into your business model going forward? And would you mind just adding maybe a little more color in your confidence in these new CFO targets? Thanks.

31

47 Absolutely. So, I mean it starts very much what you would expect as you see a revenue model transition. This is exactly unfolding as we had expected and quite frankly, we look at a lot of peer companies who’ve also gone through this model. And they underwent very similar cash flow transformation. So, from our perspective, the shift from CapEx to the OpEx has increased the working capital requirements and essentially over the last two years since we introduced our OneCloud portfolio, we've added over four hundred million dollars’ worth of contract assets essentially deferred accounts receivable. 32

26 So, you’re absolutely spot on with your question. It depends dramatically increased the visibility on to what we see. What I look at in twenty two is another year as we continue to accelerate the ARR. We reached a point as we exit twenty two into twenty twenty three, where now suddenly, we start to see more of the requirements for incremental contract assets start to decline and stabilize. 32

52 And actually, we get mid to high single digits in twenty three and out in twenty four, we actually see a modest tailwind as we've reached and merely aligned both our billings and new bookings and essentially at that time of the year, I would expect it to be low double digit right around eleven percent to twelve percent of CFFO. So, with good line of sight.

33

16 Thanks for your commentary. Thanks guys.

33

19 Thank you. Our next question comes from the line of George Sutton with Craig-Hallum Capital Group. Please proceed with your question.

33

27 Thank you. Nice results. So, I'm interested Kieran on the twenty twenty four ARR expectations. When you mentioned that OneCloud was ten percent of the installed base today, how high would you anticipate that being in twenty twenty four to achieve that ARR number and how far do you think that ultimately goes?

33

51 Yes. So, obviously, George we will go through a lot more detail at Investor Day, but as I've said right now, all of our ARR is OneCloud ARR. As Jim pointed out in his prepared remarks, our subscription hybrid is a vehicle for delivering , but I think to the element of your thesis we think about where we look at that two billion dollars out there. I would see well north of fifty percent of our OneCloud ARR coming from public and private cloud out in fiscal twenty fourteen.

34

24 Just a follow-up for Jim. I'll ask the question, everybody on the call wants to ask given the Vonage acquisition this morning, can you just give us a forward looking analysis from your seat relative to industry consolidation?

34

38 Yeah. I mean, It's pretty clear that this is a hot space and there's been a lot of consolidation as you all know, both papered and yet closed. And I think it just is further proof point that the industry, number one is not only just consolidating, but it gets to the point where if you take a look at Avaya, you know we're the number one provider that offers the complete suite and one size does not fit all. 35

15 And back to my previous comments, one, you are going to win and more importantly win at a global scale and more importantly win and where the real value is created and that's some large complex enterprises, you have to have the capability to deliver UCaaS with CCaaS. And you have to have the capability to provide what customers require, hybrid, private, and/or public. 35

39 And I continue to see the marketplace consolidating, but it’s really consolidating around this full platform, and it's really consolidating exactly aligned with our strategy and that's sort of this dynamic compossible enterprise to deliver the complete suite not only from a worker experience, but more importantly, from a customer experience as well. So, it's always exciting to be in a hot space. 36

09 We think we're positioned exactly where we need to be. And no doubt, I believe this is going to continue to be consolidation as folks figure out how they can get that complete platform that Avaya is offering into the market today.

36

26 Great. Thank you.

36

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

36

42 Hi this is Joe Cardoso on for Samik Chatterjee. Just one question for me. And I just wanted to touch on the large deal activity. You've obviously some great execution relative to driving larger and larger deal activity, particularly over the last two years around those disclosures there. I was just curious if you could provide more color around what’s driving that large deal activity and whether you're seeing the majority of that coming from the CC side as opposed to the UC side? And then additionally, I was just curious to hear if any of that activity is coming from any of the new logos Avaya is winning or if it's largely being cultivated from the existing customer base? Thank you.

37

21 Yes. Good morning and thanks. I think it has to do with a number of factors. So, first and foremost, it has a lot to do with what our teams have been doing really to reposition us back as an enterprise leader in cloud and communications. And the fact that the acceleration from a digital transformation perspective within the industry has opened up opportunities and for that fact, has brought up those opportunities right in line with we've been doing over the last three to four years from our strategy. 37

54 So, it's nice to see that our strategy is turning into execution. And frankly, that's a little bit different from the Avaya of the past. But that's who we are and what we're going to be doing moving forward. And also, I think confidence in Avaya with our large enterprise customers, because they are looking to, especially in the new work dynamic, they are looking to consolidate a number of their providers into one single trusted provider that again can offer a full portfolio, full suite of solutions because the opportunity to try to integrate a number of specific applications, simply number one is not affordable, but secondly, it's extremely complex and doesn't scale for where they need to move within their overall market. 38

50 So, as a result of that, we're seeing a significant increase in large deals. In fact, our large deal volume in FY twenty one was well north of four hundred as we have communicated. We were up roughly fifteen percent from where we were in twenty twenty. I think to really punctuate this is the number of deals greater than five million, the number of deals greater than ten million, no one can post the results that we have which again has a real vote of confidence in our customers and in our solutions that we're delivering to the marketplace today and our expectation is that's going to continue as we go into FY twenty two.

39

36 Yes. Just to follow-up, obviously, a lot of our new logos, which we've seen an increasing step up, actually in are obviously cloud and subscription as well. Many of those follow the traditional land that expand renew. So, they're not as big, but actually over the last several quarters, we've actually even seen some of the new logo lending points being quite large as well, which is also a good indication of our presence with the enterprise customers.

40

09 Thank you. Appreciate the color guys.

40

13 Thank you. Our next question comes from the line of Lance Vitanza with Cowen and Company. Please proceed with your question.

40

19 Hi. Thanks guys. Congratulations and I apologize, my phone has been cutting in and out, but, so, hopefully this hasn't already been covered, but I wanted to talk about the accelerating revenue growth in the model from twenty three to twenty four and just try to get a better sense on exactly what's driving that trend. Is the driver? Is it moderating legacy declines just given that the maintenance pieces is getting smaller and smaller or is it more accelerating cloud growth? And with respect to, is it coming from existing customers or do you see the, does the funnel suggest that the acceleration comes from attracting new customers more so than the existing customers, any color around that would be helpful?

41

08 Sure. So, Lance this is Kieran. So, we did put in a file in our Investor Deck in slide seventeen, which really tried to illustrate I think exactly the point that you made. So, as you look out – as you look out through time, our on-prem solutions are transforming and are migrating to the cloud and we're positioned really to capture that business with our broad OneCloud portfolio. As you can see from the optic on the left hand side, our on-premise is becoming a smaller and smaller portion of the overall business and therefore, that twenty percent reduction becomes less and less of a drag as we move to our transition. 41

47 And finally, to your point, if you look at the extreme right hand side, you see the flywheel that's being created by our OneCloud ARR and that is clearly coming from both the migration of our existing very strong enterprise customers, but also from this new logo, as you heard Jim referenced another quarter with sixteen hundred new logos over six thousand new logos in the current year. 42

09 So, we obviously expect a bulk of this growth to continue to be driven by upselling to our existing enterprise customers, our OneCloud portfolio set of offerings, but also we fully expect that new logos are going to play a meaningful role in that as we go forward.

42

27 Okay. And then just if I could get one more and I just wanted to ask you about the Amtrak decision to go with the public cloud solution, does that, is that in any way a shift in your view in terms of enterprise willingness to engage in public cloud rather than private or hybrid?

42

44 No. I mean, I wouldn't consider it so much a shift in that Lance to be honest with you. I think it's just, sort of manifestation of the fact of the solutions in the innovation and where the market is going the fact. Again in just our overall capabilities, to make sure that we're delivering that sort of agile uniqueness that others can order to drive these solutions. When you take a look, the content within that solution biometrics and others, I mean, it's pretty sick. 43

23 It's much different than if you were to go take a look at where the company was, say two years ago or three years ago. And I think that's attributed in fact of how we moved from what was traditionally what I call sometimes around here as a product company to how we've moved now to being more of a customer, a customer led company and really our ability to unlock that value and really create a lens towards lifetime value, which we're doing with our move to cloud and that the stickiness of these relationships, I think is extremely important. 43

59 And I think it's showing not only our customers voting with their wallets, but they're buying into our future and they're building off of our future. And that's why we're winning a number of new deals, but more importantly, as Kieran mentioned, we're also really expanding and really monetizing our installed base, which obviously is a key to the strategy, but the growth of the company.

44

27 Thanks guys. Congrats again.

44

30 Thanks.

44

32 Thank you. Our next question comes from the line of Catharine Trebnick with Colliers Securities. Please proceed with your question.

44

39 Thank you very much. Excellent quarter gentlemen. I have a question more on, believe it or not the PBX is. Michael has just offered a bridge connect, and according to them that well, , but at a high level, looks like the PBX is a slower turn to actually the cloud, and I wanted to get your opinion on what you're seeing there if you actually think that's the case or not or how fast that actually the traditional legacy PBX customer might actually move to the cloud? Thank you.

45

18 Yeah. Sure. Hey, Catharine. This is Jim. I'll turn this over to Dennis Kozak and then maybe add a little bit of color afterwards.

45

26 Sure. Good morning, Catharine. So, look we see, obviously we've had a lot of success with our Avaya Cloud Office business where we're able to migrate not only our PBX’s to the cloud, but also a lot of our competitors, including Mitel, but we do also see for a PBX that may have been solid in the last one to three years, customers are initially resistant of doing another upgrade right? And so, a lot of times we go in and talk about with Avaya’s basis, you know our ability to bring our messaging and collaboration platform to them. On top of Avaya Officer or on top of Aura. When the customer is ready for a PBX migration we pitch Avaya Cloud Office.

46

07 Okay. Thank you. And is there any way you can give us what the CCaaS revenue was part of the – or contribution in the ARR this quarter, you did that last quarter?

46

20 Yes. Well our overall ARR for the quarter is five thirty million. Roughly eighty percent of that was delivered via subscription. So, the top private and public pieces or ARR was in therefore in the twenty plus percent range. I can tell you that doubled in FY twenty twenty one and is expected to more than double as a component of ARR as we go through fiscal twenty two. So, becoming a larger and larger component of overall ARR.

46

58 All right. Thank you very much. Congratulations.

47

01 Thank you.

47

04 Thank you. Our next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

47

11 Good morning. Just wanted to understand of these logos that you've been continually winning, especially on the cloud side, are they already cloud native or you bringing them on to the cloud?

47

24 Dennis, you want to…

47

25 Sure, absolutely. So, lot of times in our competitive wins, we’re usually head to head against the cloud provider. Generally speaking, it's usually a premise based customer of some kind that wants to upgrade to the cloud. And we find that our agents are out there bidding a or other one-time solutions that are pretty regular basis. Occasionally, we are thinking part of failed cloud migrations and we're participating in bringing customers over to buying cloud office.

47

53 And these master agents that you announced that you have eleven new ones, have they been previous Avaya channel partners?

48

02 Yes. What was in Jim’s script today, we talk about the eleven we signed up adding Avaya OneCloud details to their portfolio.

48

10 So, it'll be easy for them just bring on board and quickly just start selling it?

48

16 Right. Absolutely. Yes. So, it's very much like our Avaya Cloud Office rollout. You know, if we go through a very rigorous process to onboard these master agents and their sub-agents to be able to effectively position our product. So, they have to understand how it works, the features, the benefits, the competitive landscape, what does the customer journey look like from a migration from .

48

38 Great, thank you.

48

39 This is Jim. Yes, I think it's also important to note again that, when you take a look at our geographic reach, we now have CCaaS as just mentioned in forty five countries. And as I mentioned, we will be expanding that our CCaaS offerings. So, roughly one hundred by the end of the fiscal twenty two by the end of September of next year. 49

02 We also have one hundred and sixty five partners in North America and roughly sixty partners in international markets, enabled now with CCaaS to go in and compete and win. So, we're exactly right on track to where we said we would be. And we still remain very confident about the Avaya OneCloud CCaaS ARR growth as I mentioned more than doubling in FY twenty two.

49

32 Thank you.

49

37 Thank you. Our next question comes from the line of Asiya Merchant with Citigroup. Please proceed with your question.

49

43 Hi, thank you and congratulations on great quarter. My question is more kind of, on the model and I'm sure more of these details would be shared at the analyst event, but the down take in margin, looking further out, how confident are you in that down take in margin to the twenty three percent to twenty four percent on an adjusted EBITDA level? In other words, with all the competition stepping up in this space, is there risk that we could see further impact to these EBITDA margins or there is significant confidence at these levels? Thank you.

50

25 Hi, Asiya, it's Karen. So, I'll take that one. So, clearly, as you've seen to date, as we are really working to stand up, first the investments you're seeing right now, I think from an R and D perspective, clearly build a market perspective as well, as we start to sign larger and larger deals and more of them, we're obviously standing up the infrastructure and what we're really reflecting there as we brought two times, it's really the scaling of these and we're making a really explicit decision here to invest to drive the top line and drive the growth from a revenue perspective on the rest of that and what we're really seeing here is more service delivery just scaling type of assets. 51

08 I feel pretty confident at this level. Obviously, came in at twenty four percent last year, we're looking to be somewhere at twenty four percent in twenty two as well. I think, we built the appropriate level of conservatism as you will and being able to sustain that . Jim?

51

25 Yes. Just to add to that, I mean, look one thing I've been here fourteen years, if one thing this company knows how to do, it knows how to execute. And as we've said, I think for the last couple of years, now pretty consistently that we're going to invest back in the business. We're going to maintain our EBITDA between twenty three percent and twenty four percent and the team has executed on that flawlessly over the last couple of years. 51

49 Even through the, sort of the heavy lift of the transition since we've gone public over the over the last four years, so a real tribute to the Avaya team. One can say it's a bit of a downtick, but twenty three point four, twenty three point five versus twenty four that's in-line with our strategy. It's in line with our expectation, but by no such imagination should some think that that has any downside risk to it. 52

16 In fact, we've increased our R and D expenditures in FY twenty one. I think we're spending roughly in the neighborhood of about two forty million. We increased significantly in our go to market capabilities and we've increased significantly in our systems in order to be cloud ready. And I kind of call us as we take a look at the company, getting us in game shape. And what do I mean by that? 52

16 It's one thing to have the technology to convert and transition a company to cloud. It's another to have the intangibles, the infrastructure on what you need to do in order to execute in order to really drive that transition to cloud. We've invested heavily over the last two years, and we have obviously a pretty significant plan to invest again this year and that's to build those intangibles to get this company in game shape, so we can compete and win with the competition. 53

14 So, we have a very good understanding of where our money is being allocated. We have a very good understanding of what it takes for us to – from a strategic positioning perspective to be competitive when in this market. And I would tell you that the team is definitely in game shape in order to win as we go out through the next couple of years. So, I'm very confident in what we posted in. 53

43 It's exactly in line what we've had posted and that's a purposeful EBITDA number predicated on the amount of investment required not to move us from the middle of the pack to the front of the pack.

53

54 I think, what Jim said, if there's any supplies in what we've seen, it's just that actually the take up and the rate and pace acceleration that we've seen with the OneCloud in our arm that’s really helping to influence those numbers. So, like I said, I feel pretty confident and that's quite doable.

54

12 Okay. And then if you can talk a little bit about the 1Q guide and then the seasonality for the remainder of the year, I know that comps are a little bit off relative to the prior fiscal year because you guys had some contracts that probably helped in 1Q twenty one. So, if you can just talk a little bit about how we should think about seasonality for fiscal twenty two?

54

41 Sure. So, with the guidance that we put out there, at seven twenty five to seven forty five in the first quarter, you know from a constant currency basis essentially down two percent to basically flat, kind of implies that the rest of the year on a constant currency basis is going to get somewhere between more one percent and three percent in terms of growth. And what you are started to see now is, as you start to stand up more of these private cloud offerings, literally it's ratable revenue, the time the money is a little longer, we expect to see the business should become a little less cyclical as we go through time and a little bit more continuous growth. So, that's kind of the way we're seeing it right now as we look out.

55

29 Okay. Thank you.

55

33 Thank you. Our next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.

55

39 Yes, thanks. Most of my questions have been answered. I wanted to come back with this fifteen million of adjusted revenue. Couple questions on that. We're assuming that was all in Q4, could you guys just confirm whether that's all Q4 or did you adjust prior periods that add into that fifteen million?

55

57 Yeah, the bulk of it was in Q4, but we did take a little in Q3 as well. I mean, just essentially we're not getting too technical here. We're standing up SAP is and the old system that we were using, which was was essentially understating in certain scenarios. It was actually understating revenue, which essentially means it wasn't allocating revenue of the product, it was keeping it on the balance sheet. 56

21 And we had identified the series of businesses. We went back a look through time obviously, consultant closely with our auditors as well and there was never any quarter over the last three years since we introduced six zero six, would have been worth more than one million to two million in any given quarter. 56

38 So that essentially was all related to. But the bulk of it was in Q4, but there was a small amount in Q3 as well.

56

46 It sounds like, you're saying like maybe one million in Q3 or something fourteen in ?

56

51 It was a couple of in Q3 and about twelve or thirteen in Q4.

56

57 Okay. And then the other question, did you guys non-GAAP that out or it's in the non-GAAP numbers?

57

03 No, it's in our non-GAAP numbers.

57

07 Okay, okay. And then when you, you kind of previewed what you're going to talk about, at least in terms of long term target, for the Analyst Day. I wonder like, so when we get to the Analyst Day, what is it that, you know what do you think needs to be dug into more? Can you maybe elaborate a little bit on how you think that’ll go in terms of detail? I’m not asking you for the detail, but what are the…?

57

39 So listen, I mean, we've heard our investors, right. Our investors are quite anxious to get a view of the new Avaya of where we're going right. Obviously because of COVID we haven't had a chance to get scheduled for a while. But what we want really able to do is, you've already got the preview of my numbers. I'll slice them a couple of different ways for you. 57

56 I think the really intent here is to look closely at the rest of our business and understand the capabilities that we have with our portfolio, with our go to market, and the rate and pace of how we're making the change. That’s the things that Jim and I and the leadership team really want to look explore and share in greater detail with you all. 58

14 I mean, the numbers are out there. We feel really confident out and we'll obviously give a little bit better visibility into the splits between the cloud and the subscription hybrid portion, but I think we wanted to make sure that at least to date that you had a view beyond fiscal twenty two and given that we're still in this transition here in twenty two.

58

35 Okay great. Thank you.

58

39 Thank you. Our next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed with your question.

58

46 Great. Thanks. A couple of questions. One, just given kind of the traction that you're seeing in UCaaS and CCaaS, just where are you seeing the most opportunities to expand your partner community, particularly as a lot of these transitions get wrapped up in CRM transitions? And then maybe a second, and you'll probably discuss this more at the Analyst Day, but just given CCaaS’ evolution to have a lot more kind of AI and analytics capabilities, just where do you see M and A or is there a need for M and A to kind of help advance that portfolio? Thanks.

59

28 Okay. So, I'll start with that. So certainly in terms of UCaaS and CCaaS it is a very competitive landscape, but we find that a combination of the Avaya brand, the platform, our experience, our ability to execute, but we do very, very well, only go head to head, you know we’re finding that customers are sending out our five, six vendors, all agents are responding back with a buying cloud office, so we're really happy with the . 59

54 The attractiveness of the Avaya brand, our partner program and our ability to support the partners, even with our existing partners that are turned agents and our newly recruited partners are all seeing traction with the solutions. So, we're very pleased with that.

60

10 Yes. This is Jim. Just on your question about delivering be it organic or inorganic solutions to build out, sort of our CCaaS AI and overall analytics, a couple of things on that front. First and foremost, we have a very large ecosystem of API exchange marketplace and a number of folks that are helping us develop solutions. 60

28 Secondly, if you take a look at, sort of at a higher level, some of the strategic partnerships that we have around that ecosystem with the likes of Google and others, it's fairly extensive, Nvidia list, the list goes on and on of key partners that we're using to drive solutions back into our product capability. 61

09 As far as another we believe to be a real enabler for us to further drive that is really our full suite of CPaaS services that we bring to the marketplace. And really what CPaaS really provides us that their true capability to drive composable enterprise framework that you'll be hearing more and more about as you pointed out in our Investor Day. 61

36 And lastly, just as far as M and A, we'll keep our eye in the ball. We obviously did a technology tuck-in here last quarter with CT Suite, which provides us some digital capabilities frankly that we didn’t have within the company. But I think we have a pretty defined roadmap of to like for better term, partnership capability, Avaya organically driven solutions into the marketplace, coupled with inorganic M and A solutions to help, sort of round that out and deliver the solutions to our customers. 62

16 But you'll hear a lot about our CPaaS capabilities and where we see that and we've often referred to that as, sort of a forced multiplier and we'll get into a lot of detail about the value that brings to Avaya and how that's going to really drive a lot of our growth in our Avaya OneCloud platform.

62

35 Great. Thanks.

62

39 Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Michael McCarthy for any final comments.

62

46 Thanks, Melissa. And thanks everyone for joining us this morning for an update on our Q4 results. We’re looking forward to speaking to you again at our Investor Day on December fourteenth. Have a wonderful and Thanksgiving holiday. Take care.

62

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