Avaya Holdings Corp (AVYA) 2018 Q3 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter fiscal 2018 earnings conference call. (Operator Instructions) Mr. Peter Schuman, Senior Director of Investor Relations, you may begin your conference.

Thank you, Kelly. Welcome to Avaya's Q3 fiscal 2018 investor call. Jim Chirico, our President and CEO; Pat O'Malley, our SVP and CFO; Shefali Shah, our CAO and GC; and Laurent Philonenko, our SVP of innovation, are here for today's call.

The earnings release, CFO commentary, investor slides referenced on this call are accessible on the investor page of our website and should aid in your understanding of Avaya's financial results.

We will reference non-GAAP financial measures and specifically note that all sequential and year-over-year comparisons reference non-GAAP numbers, except where otherwise noted. A reconciliation of such measures to GAAP is included in the earnings release and investor slides and is available on the investor page of our website.

We may make forward-looking statements that are based on current expectations, forecast, assumptions and remain subject to risks and uncertainties that could cause actual results to differ materially. Information about risks and uncertainties may be found in our most recent filings with the SEC, including our Form 10 and subsequent Form 10-Qs and in our earnings release today. It is Avaya's policy not to reiterate guidance, and we take no -- undertake no obligation to update or revise forward-looking statements in the event facts or circumstances change.

I will now hand the call over to Jim.

Thank you, Peter, and good morning, everyone. It's a pleasure to discuss the many positive developments at Avaya. I'll cover our solid third quarter performance in a moment. With a couple of quarters behind us as we prepare to close out the fiscal year, I'd like to spend a few minutes to take stock of where we are and discuss our accomplishments in fiscal 2018. I am proud of our progress today. Proud that we are outpacing our plan of our R&D pipeline, how our business looks today and equally as important, how we're moving forward.

Before continuing, I'd like to acknowledge the most important ingredient in our success: Our employees at Avaya. Thank you for your continued passion, commitment and valuable contributions. Our progress over the last 3 quarters has exceeded my expectations and gives me confidence we have the right strategy. We have financial strength, we continue to make progress each and every day, and we have reversed a 10-year revenue trend in just 3 quarters. The company has transformed.

We embarked on this journey with eyes wide open regarding the effort required to change the course of the company and drive growth. We have been through transformations before at Avaya. As a result, we have a deep respect for what it takes, and we are making significant strides. We laid out a strategy focused on growth, innovation and becoming a customer-led organization. We developed a plan to operationalize this strategy; we're executing against it. We have overcome various headwinds. We faced it, we dealt with it. And we never lost focus on delivering on our commitments to our customers, partners and shareholders.

We've implemented massive changes touching every part of the company. While it didn't happen overnight, we acted quickly, decisively with purpose, to address today's challenges and prepare for tomorrow's success. It's been a true turnaround.

It was almost a year since I was honored to be named CEO. Looking back, we overcame a fair share of hurdles and navigated numerous challenges, not the least of which was emerging from Chapter 11. Since then, I personally traveled around the world in the last 9 months, speaking with thousands of customers and partners, reconnecting, listening, learning and now implementing. This is what it means to be a customer-led organization. Having the benefit of over 10 years of experience with Avaya, I knew very well what the company was capable of doing. We're actively changing the culture. We're improving the day-to-day performance, investing in innovation across multiple dimensions, while rebalancing and positioning the company for sustainable growth.

These accomplishments not only demonstrate that we have the right plan and discipline to execute, but also creates the momentum required to drive growth in fiscal 2019.

Now let's look at where we're against our 5 stated strategic priorities for 2018. Number one, transforming the business. 82% of our revenue came from software and services, up over 3 points from a year ago and a third quarter record. Our recurring revenue was 59%, an all-time high, an indication of customer satisfaction and confidence. And cloud revenue increased to over 11% of our revenue. Number two, building momentum. This is the second consecutive quarter with year-over-year revenue growth, which is a first for the company. We have driven 3 consecutive quarters of funnel and bookings growth across UC, CC and our Professional Services business, leading indicators in the strength of our business. And new products are gaining strong traction in the market, now accounting for more than 34% of product revenue, demonstrating that our innovation engine is firing on all cylinders.

Thirdly, we're playing offense and winning. We've added 5,000 new logos and nearly 1,000 partners, launching a Master Agent Program and signing over 300 deals valued at $1 million or higher. Launching 74 new products, including several significant AI offerings in just 3 quarters. Massive traction.

Number four, we're investing significantly in people and technology, investing more on technology in the last 2 quarters than we did in all of fiscal 2017. We strengthened our portfolio along 4 dimensions: Strengthening out our multichannel offer with scale, cloud and features, adding value to our installed base by delivering new desktops for our CC customers and integrating conferencing for UC, driving innovation in disruptive areas such as AI and mobility and expanding our UC offer in collaboration, in innovative end points and hurdle rooms.

On the people front, we've rolled out new cultural principles. We've attracted new talent, and we've strengthened our management team.

Lastly, we've significantly enhanced our financial flexibility and leveraged it to make the prudent investments underpinning our progress. We will realize improved cash flow with the repricing of our debt. We continue to strengthen our balance sheet with the recent convertible offering. We have maintained the industry-leading business model over the last 3 quarters, an average of 25% adjusted EBITDA, gross margins of 62%, operating income of 21% and continue to generate roughly 10% of our revenue in cash.

Turning to the results we delivered in Q3, let me start by saying it represents another record-setting quarter on multiple dimensions of our business. Performance in our core business remained strong, achieving $755 million in revenue. We now have 6 straight quarters of revenue stability. And overall, bookings are up across the board. In our contact centers, bookings increased 4% quarter-over-quarter and 24% year-over-year.

UC bookings remained strong, up 2% from the prior quarter and 13% year-over-year.

Cloud is exceeding expectations, now represents over 11% of revenue, up quarter-over-quarter and year-over-year.

Quarter-over-quarter, mid-market MRR increased 43% and enterprise MRR grew 107%, while private cloud bookings rose 4% year-over-year.

Our maintenance business continues to stabilize with revenue increasing sequentially for the first time in over a year. And renewal rates hit the best levels we've had in 8 quarters.

Professional Services bookings increased 17% over last quarter and 48% year-over-year.

Customer demand for our new products continues to grow. Overall, new product revenue grew 45% year-over-year. This is a direct result of meeting our customer needs coupled with our increased R&D investments.

Momentum for Oceana, our flagship contact center solution, continues to accelerate. We signed our largest omnichannel opportunity to date with over 9,000 total seats. Revenue was 3x greater than the prior quarter.

Avaya Mobile Experience, our groundbreaking mobile toll-free solution for contact centers, has already hit multiple early milestones, including its first patent and 3 customer contracts.

Our enterprise cloud contact center also is gaining traction with 2 large appointments under way, which we expect to triple before the end of the year.

Our partnership with Afiniti is on track. We have 9 POCs underway and have over 125 opportunities in the pipeline. The value proposition of turning contact center from cost centers into profit centers is clear. Just signing in March, it's early, but strong.

And last -- and on the last call, I referenced our new endpoints. I'm proud to say revenue from these next-generation IP phones grew 70% sequentially, and demand is steady. No, we are not stopping here.

Lastly, I'm very proud that Avaya has returned to the leadership position in the Gartner Magic Quadrants for both contact center and unified communications. These 2 achievements are a true testament to our ability to execute, and more importantly, to the value we're driving for customers in our core business.

Now let me turn it over to Pat to provide more details on the financials.

Thank you, Jim. A couple of notes upfront. First, as a reminder, unless otherwise, indicated, financial results discussed for all periods on this call are non-GAAP and exclude our Networking business divested in Q4 2017 and references to year-to-date results on this call will be on a combined basis. Reconciliations from GAAP to non-GAAP are included in the earnings release, investor slides, the CFO commentary and are also available on the investor page of our website. Second, when referencing Q2 fiscal 2018, Q3 fiscal 2018 and Q4 fiscal 2018, these will be referred to as Q2, Q3 and Q4 unless otherwise noted. Before discussing our outlook and diving into our third quarter financial results, I'll make some observations I believe provide useful context.

First, our year-to-date financial results demonstrate that we've achieved our fundamental 2018 objective of driving revenue stability, ahead of schedule. Second, consistent with our stated 2018 strategic priorities, we've continued to enhance our financial flexibility through a number of actions. Specifically, we leveraged favorable market conditions to reduce $14 million of annual interest expense by repricing our outstanding debt and to strengthen our balance sheet and enhance our liquidity with the issuance of the $350 million of convertible notes.

I will now highlight selected Q3 financial results. Revenue grew 1% year-over-year and was essentially flat from the prior quarter. At constant currency, non-GAAP revenue decreased less than 1% year-over-year and increased slightly sequentially.

Services revenue of $433 million was down $15 million from the prior year and was down $7 million sequentially. The year-over-year decrease was primarily from lower maintenance revenue as a result of the continued shift to OpEx models. Within services, both our managed services and maintenance posted sequential revenue gains in Q3, while only APS revenue declined. 3 APS deals in the U.S. shifted into Q4. We do expect APS revenue to grow in Q4.

Product revenue from the channel was $233 million and grew 13% year-over-year and was 4% higher sequentially. As a reminder, channel product revenue is recognized when we sell into the distributor and continues to account for more than 2/3 of our total product revenue.

Gross margin of 61.9% decreased year-over-year by 10 basis points and was 50 basis points lower sequentially. This is mostly driven to product mix. We expect gross margin to benefit in Q4 due to a higher software revenue mix.

Operating expenses. R&D plus SG&A of $316 million increased $10 million year-over-year and increased $1 million sequentially. R&D increased by $2 million year-over-year and SG&A increased $8 million year-over-year. R&D expense was $50 million, an increase of $2 million year-over-year and was flat sequentially. The R&D spend reflects our continued commitment to drive innovation in our products and technology that will enable us to expand our customer base and enable top line revenue growth in fiscal 2019.

SG&A expense was $266 million. This was an increase of $8 million year-over-year and $1 million sequential. SG&A increased primarily due to sales commission expense related to higher bookings and from administrative obligations and tax structure planning costs that have continued following emergence. These onetime tax planning activities are expected to optimize our tax structure and yield significant cash tax benefits in fiscal 2019 and beyond. These costs in this quarter were approximately $9 million.

Operating income was $151 million or 20% of revenue. Adjusted EBITDA was $175 million or 23.2% of revenue.

Looking at our capital structure. During Q3, we issued $350 million in convertible notes with net proceeds of $314 million after expenses, including the call spread. We took advantage of favorable market conditions to significantly improve our cash position and enhance our financial flexibility. The offering diversifies our capital structure and our investor base.

To summarize, including the call spread, the notes have a low cash coupon of approximately 3%. The notes do not contain financial covenants or require ratings. The notes will not result in dilution until our stock price rises above $37.36, 75% above the $21.35 closing stock price on June 6, 2018. As a result of the offering, we expect to have additional analyst coverage in 2018.

As part of our ongoing activities to improve our capital structure, we successfully repriced our $2.9 billion senior secured term loan saving the company 50 basis points in interest rate or approximately $14 million annually in cash interest.

Turning to the balance sheet. Cash and cash equivalents were $685 million as of the end of Q3 compared to $311 million at the end of the prior quarter. The sequential change is primarily due to the net proceeds of $314 million from the convertible notes issuance and operating cash flow of $83 million, offset by capital expenditures of $18 million. Free cash flow, defined as operating cash flow minus CapEx, was $65 million or 9% of revenue.

In summary, during Q3, we continue to improve our capital structure and increase our operational efficiency and productivity as demonstrated by our strong cash generation. Taking into consideration our recent acquisition, our continued investment in R&D, sales enablement, tools and people and our ongoing efforts to improve our operating efficiencies, we're providing the following forecast for the fourth quarter and fiscal 2018. For Q4, GAAP revenue of $705 million to $735 million; non-GAAP revenue of $760 million to $780 million; GAAP operating loss between $24 million or 3% of GAAP revenue to GAAP operating income of $13 million or 2% of revenue; non-GAAP operating income of $153 million to $172 million or 20% to 22% of non-GAAP revenue; adjusted EBITDA of $175 million to $195 million or adjusted EBITDA margin of approximately 23% to 25% of non-GAAP revenue.

For fiscal 2018, GAAP revenue $2.82 billion to $2.85 billion; non-GAAP revenue of $3.05 billion to $3.07 billion; operating loss of $87 million to $124 million; non-GAAP operating income of $633 million to $652 million or approximately 21% of non-GAAP revenue; adjusted EBITDA of $743 million to $763 million or 24.5% to 25% of non-GAAP revenue.

For fiscal 2018, our revenue outlook will be at the higher end of our previous guidance and our adjusted EBITDA outlook is consistent and within range of previous updates. As for the fiscal 2019 outlook, we will provide that update on our fourth quarter earnings call.

Now I'd like to turn it over to Jim for some additional remarks.

Thank you, Pat. Let me share a few thoughts before going into Q&A. As we head into the final stretch of fiscal year 2018, I'd like to share our plans to enhance shareholder value through growth in 2019. No one has our scale, reach, depth or financial strength, and our technical expertise is unmatched. This differentiates us and uniquely positions us to provide value to our customers. Our experience sets us apart from our competition. We have the means, the talent and the luxury to play the long game, focused on fundamentals. As technology cycles contract and the pace of innovation increases, we remain focused on the most important thing, delivering long-term value to our customers rather than whatever happens to be the flavor of the day.

In 2019, we will continue to prioritize and accelerate investments in 4 key business areas that will serve as our growth engines. First, optimizing our core business. We have the industry's largest installed base with nearly 145 million lines and seats across UC and CC. With over 130,000 customers globally, including 90% of the Fortune 100, we are the clear incumbent. Our customers want us to provide a seamless, integrated experience by investing in continuous improvement of features, simplicity, automation and new user experience. They want solutions that are extendable to the cloud when they're ready to move in a way that they want to consume it. Moreover, they have told us that one size does not fit all.

Second, providing breadth and depth in our cloud solutions. Our customer requirements for both UC and CC demand a range from private, public to hybrid cloud in every combination thereof. Avaya is delivering across all fronts, and we will continue to invest in the multiple dimensions of cloud. The Spoken acquisition was a critical first stepping stone in support of our cloud strategy. It offers advice solution for the enterprise contact centers.

Our private cloud and managed services business with 3 million seats under management makes us a market leader and uniquely positions us to deploy cloud at scale.

Thirdly, investing in new solutions, partnerships and alliances. We recognize that certain experiences that were not previously possible are quickly becoming a reality, and we're committed to bringing the benefits of these emerging technologies to our customers. For example, AI. It's not about technical elegance, it's about harnessing the value from the vast amount of data at our disposal to create new experiences. We have 5 AI offers in the marketplace today. They set us apart from our competition, driving significant value for our customers. They are disruptive and most importantly, generating revenue today. These include smart routing and behavioral pairing, conversational interfaces that enables self-service, real-time text-to-speech transcriptions, agent guidance and performance improvement and integrations with IBM, Google and Salesforce.

We also launched the Avaya Mobile Experience to keep mobile calls to contact centers within the mobile network, end-to-end, reducing cost and more importantly, offering mobility omnichannel experiences. This is just the beginning. We're building a true platform that supports more mobile applications. For example, we are developing identity as a service, which takes advantage of blockchain in the latest security technologies. These are just a snippet of the innovations taking place.

Number 4, we're delivering high-value services. Services plays a critical role in our business. The simple fact is that technology requires professional services that range from advisory to support to operational management. We will continue to provide world-class support, professional services and managed services for enterprise communications. While it may seem simple, it requires highly trained people and advanced technologies. Here again, our experience serves to differentiate us.

Our services strategy is and continues to offer a broad set of solutions to our customers that reflect business value we bring.

So in closing, during our short time and limited operating history as a public company, we have had 3 consecutive quarters of hitting our guidance. We've not only met investor expectations, but also achieved revenue stability ahead of schedule. This demonstrates 3 things. We developed an effective plan, understanding what's needed to be done to hit our objectives. We have the focus and the discipline to execute, that the combination of the right plan, effective execution leads to the desired value enhancing outcomes. We have the confidence in our ability to continue on this path as management understands this business. We have brought in the right talent, and we have the operating cadence as a team and as a company that I have not seen before. We've made significant and prudent investments in areas of growth to reap benefits in the long term. Just as we made it happen in fiscal year 2018, we will make it happen in 2019.

Now I'll turn it over to Kelly to begin Q&A.

(Operator Instructions) Your first question comes from the line of Lance Vitanza from Cowen.

Jim, the company is clearly recovering from some time of underinvesting in new product offerings, primarily in cloud. Spoken was a part of that recovery as you added public cloud technology to the contact center offering. Are you satisfied now with how your offerings stack up versus those of your peers? Or is there additional work that you need to do in contact center, in particular to just recapture the leading technological edge?

Yes, Lance, this is Jim. I'll take the question. So our cloud strategy is to offer solutions that really address all market segments from SMB, to contact center -- to enterprise, to UC contact center. From a contact center perspective, I'm satisfied to where our overall cloud offers are today, both from the capability to -- on the Oceana to offer that both public and private, the capabilities that we have within our managed services, and more importantly, the opportunity to serve our large incumbent base where we have over 6 million lines on the contact center. So from an overall technology perspective, the Spoken acquisition has actually met expectations. Since acquiring that, we finished the migration of our own data centers to AWS. So we now have enhanced capabilities and that also positions us for international expansion later on this year. The multi-tenant digital capabilities that we now have within our cloud capabilities also is significant and uniquely positions us. And we have a pretty intensive road map for additional functionality that will be driving out over the next months and quarters to come. So I'm quite pleased on the progress we've made to date.

And then if just for as a follow-up, if I could ask from the standpoint of Unified Communications, is there another acquisition that is similar to what Spoken did on CC that might accelerate the time frame there or are you confident that you've got the pieces in place to sort of build it organically?

A couple of things. So first of all, we all know where we are positioned from a UC perspective, but I think more importantly is the fact that we play in a different field, if you will, than some of the others with our large base. So we haven't lost sight of the fact of where we are and where we're going and, in fact, having 11% of our revenues now being generated by cloud, mid-market up 43%, as I mentioned, is above that expectation. But specifically to your point, I will share my own personal point of view, and I'm sure consistent with many others is the fact that anybody that observes the industry, we're starting to see a pace of consolidation that we haven't seen in prior years. And my expectation is that this pace of consolidation not only is, but will remain increasing over years passed. And from us, from a strategic rationale perspective, we certainly consider all options. They include acquisitions or JVs or strategic partnerships. When evaluating those, we actually have a pretty detailed disciplined framework that we take a look at across all aspects, right, that what's the differentiation, what is the innovation, what's the value, what's the opportunities and synergies, talent, so on and so forth. So it is certainly on our radar as it should be, but as customary, as a public company, it's our policy to not to comment on any evaluations at this point.

Your next question comes from the line of Raimo Lenschow from Barclays.

This is Mohit Gogia on for Raimo. So Jim, just staying on that contact center topic. The Spoken acquisition seems like it's performing well in regards to expectation. I'm just wondering if you can give us an update on as to the platform integration, which you guys have discussed over the last quarter as to how the progress is looking there. And then, also I was wondering, so I saw in the press release that you mentioned about the robust pipeline for the contact center service offering. Wondering is this mostly sort of like selling into the existing customer base or you're also able to get new logos from the -- as a service offering, the multi-tenant as a service offering?

Yes, sure, thank you. Let me take the second one first. This is Jim again. So, in reality, it's a combination of both. It's -- with cloud provides us an opportunity to sort of expand outside of our normal incumbent base, and in fact, we're doing that. If you take a look at last quarter and a number of these were contact center wins, we actually displaced or won, I should say, 78 deals just last quarter with a revenue value north of $25 million. So we now have the capability, we now have the technology, we now have the innovation where we can actually participate in, if you will, at full TAM. And we're becoming -- and we're being -- obviously expanding our breadth as we continue to drive more and more customers to Avaya. So we're quite pleased with the 78 displacements. As far as where we are on the platform and how we're proceeding with Oceana integration and UC migration and so on, I'll turn it over to Laurent, who is here to give you some of the key specifics be it in BPOs and so on, but -- Laurent, do you want to tackle the Oceana integration, UC migration piece platform?

Yes. So when we acquired Spoken, we definitely had a plan to over time migrate all our technologies from Contact Center and Unified Communications to multi-tenant cloud. We are on that trajectory. So, first of all, we migrated the Spoken architecture to AWS, and for simplicity reasons, it also will help us as we go international with the solution. Second, we have delivered the Oceana digital channels, meaning chat and e-mail, et cetera in multi-tenant cloud fashioned around the Spoken architecture like Jim noted earlier. Third, we do have a road map where we're going to continue to make our full suite of solutions available in multi-tenant cloud fashion. So that is going to progress over the next months and quarters. The team is working really well from an integration point of view with the rest of Avaya. We have 1 engineering team, which is driving [John Woodenbeck] now between what was Spoken and what was Avaya. So it's really 1 team, thinking of cloud-first approach to what we are developing.

Your next question comes from the line of Hamed Khorsand from BWS Financial.

First off, could you just talk about the bookings growth that you're seeing? Is there a particular customer category or product line that's driving that bookings growth?

Yes, this is Jim. I'll take this one. Actually, we're seeing the bookings growth across the portfolio of offers, which is great. So it's really just demonstrating, as I mentioned, the overall strength -- the strength in the business. So this is the third consecutive quarter that we've seen bookings growth, which is significant. In fact, as I said, I've been here 10 years, there's not too many sort of streaks if you will that we've actually had 3 consecutive quarters of bookings growth. And again, it's a combination of a number of factors. One is on the CC space. If you take a look at some of the product enhancements that we've made to Oceana and how Oceana is gaining traction now in the marketplace, that's, obviously, a key for what's occurring in contact center. And also, as I mentioned the capability, now that we have AI, we have a marketed AI solution across multiple platforms, which is also helping to drive our contact center bookings. So they differentiate us and set us apart. On UC, we've invested quite a bit in UC in really building up the stack over the last 9 to 12 months. We've refreshed our complete line of endpoints, started that back in the March time frame, up through this past quarter. So completely new set of endpoints. In fact, it was probably about 7 years since we had done that. Secondly, we've taken a look at a number of offers from a cloud perspective in the IPO mid-market space, which is gaining nice traction. The introduction of now 3 master agents driving additional bookings. And certainly, rounding that out, if you will, with Equinox, which is really our collaboration offer in the marketplace that continues to gain traction quarter-over-quarter. And now we'll couple that with some new technologies like Huddle Room and some other new announcements. And I think the last important part is from a verticals perspective, which we didn't touch on, but verticals are, obviously, very key to us, and we're seeing areas in hospitality, areas in health care, with unique applications that are driving an increase in the overall UC bookings as well. So it's actually moving well. And on the managed services side -- it's our professional services side, I'm sorry, as you become more complex, as we drive more technologies into the marketplace, it drives a skill-base and uniqueness to help our customers implement those solutions. So we've invested quite a bit over the last 9 months in reskilling our APS organization to really drive value. And that's exactly what they're doing is unlocking value. So the good news, in fairness, is it's not 1 particular segment, it's across UC, CC and professional services. So it's across the breadth of the company.

Okay. And the other question I had was, how many channel partners did you end the quarter with? And was the 4% growth that you reported from the channel, was that because you added new channel partners or is that because your existing channel partners are actually buying more from you?

Yes. So it's a couple -- so we ended the quarter with about 6,000 channel partners. This last quarter, we added 300 channel partners. So a nice number. What's interesting too is, these channel partners, if you will, are channel partners that are going to lead us to the future. So they are channel partners that really drive, if you will, new and emerging technologies. But the channel revenues are up across the board, and it's a combination of a number of different factors. But the net of it is, again some of it is cloud, some, as I said, are new endpoints, some of it is -- frankly, some of the increased demand that we're seeing across from a software perspective. So it's multiple combinations, but we are at 6,000, we added 300. We're on track to the plan that we set out. And we're seeing a nice ramp with these new channel partners because obviously it takes somewhere between plus or minus a year before they get fully ramped in. So building that pipeline of new partners bodes well as we go into fiscal year 2019.

Your next question comes from the line of Mike Latimore from Northland Capital Markets.

I guess, first on Spoken. I thought that you're going to basically have a UCaaS offering kind of come out of this Spoken acquisition at some point. Can you just provide a little update on that?

So, Laurent here. We do have a plan to provide truly native multi-tenant cloud UC. So we are well underway on that plan. We released in June of this year, UC offer as a service, which is based on the content rationalization for our IP of this product. So using our centralized management, content rationalization and with all the technologies you will expect in a cloud offer. So we are in that motion, and we are continuing to make that offer more scalable, more powerful, always reducing the cost of operation. So this is what we're doing and that work is again a joint work between the ex Spoken team and the ex Avaya team. It is really one team working on that cloud offer.

Okay. Got it. And then, can you just help me think of the bookings numbers you gave? I think you said in the press release that bookings were up 3%, but then you said contact center, I think, was up 24%, and UC was up 13%. So I would've thought that just given the strength of those 2 main segments, your business total bookings would have been up more than 3%. Can you just help us think that up?

Yes, sure. I think between quarter-on-quarter and year-on-year, so 13% on UC was year-on-year, quarter-on-quarter was 2%, and obviously, UC is still a pretty big component of the overall revenue. So the blended average was that, Mike. I think that's the difference.

Your next question comes from the line of Dmitry Netis from William Blair.

I have 2 questions, pretty kind of high level. One, I wanted to touch on the channel, and you guys mentioned a nice number of channel partners you added in the quarter. You said 300, then you also said that it's about 1,000 that you added over the last, can't remember, 12 months, I think, maybe, what you said plus 5,000 logos. So there's a nice traction there. And that is all kind of relative to some of the pure plays that are very aggressive, it seems, out there in the channel trying to win hearts and minds of these channel partners in the mid-market and larger enterprise. So my question to you is, what are you seeing out there as far as maybe channel inflation, the residual commissions that you ought to be giving out to channel partners to keep them around or keep them kind of selling your solutions versus your pure play competitors?

Yes, I -- this is Jim. So I'll give you a sort of a high-level view. So there is constant pruning and constant developing, if you will, of new and emerging partners. And the fact is that we're seeing some consolidation in what I'll say the more legacy, hardware oriented partner community and that's really driven by the fact that just pressure on some of these guys in struggling to convert to the cloud. So we're keeping our finger on that. We know we have a pulse on that and that's why we're driving it with 1,000 new partners over the last 3 quarters and providing sort of the road map for us as we go into 2019 with more cloud capable partners, and we're working and investing in growing them. So that's on that front. As far as programmatics or something that we're doing from an overall loyalty perspective to sort of keep our rightful place in the marketplace. We're not doing anything that, I would say, is any different than we have historically done, in fairness. There is demand for our product such that we have today. We are growing in UC. And it's a combination of really the feature content that we provide, the solutions we provide and sort of how we package those together also with CC offers as well. And our cloud offering is continuing to accelerate at pretty high rates. So today, we haven't really done very much, if you will, to do that, to generate any demand. I will tell you that we have implemented a program, however, and it's mostly channel driven. And that's really going after our old legacy base. So whether it's the CS1K base or whether it's some down level communication manager releases, we've put together a program in order to convert those customers to our latest platform. That has actually had some, I believe, outstanding results. So we have a funnel, and this is your older telephony-type technologies, as I mentioned. And the migration plan has actually yielded some significant results. So we introduce this back in the beginning of last quarter. We've generated about $40 million of sales to date but probably more important is that there's roughly $200 million of pipeline, which is -- that was, if you will, the community that would be opportunistic for pure plays to go after and the fact that they had older technology, they weren't -- and they would be looking for different alternatives. So we've actually executed better than I thought. We will be converting that pipeline over the next, say, 6 to 9 months or so. But the conversion rate has exceeded our expectation. The interest has exceeded our expectation. And I think we hit the mark on this one. So it's going after both CM as well as going after the CS1K. So we're no longer opening ourselves up, if you will, and we're putting programs in place to make sure that we protect our base and actually bring our base to the latest technologies, and we move with them. So that's worked out quite well.

And the 6,000 partners that you talked about. Of those 6,000, how many are capable of selling cloud solutions today? About half, 75%, all of it? Can you give us some perspective there?

Yes, I guess I would say, probably in the neighborhood of 25% to 30% in all fairness probably in that range. They can do it, but guys that are, I would say, proficient would be probably somewhere around the 25% to 30% range and continuing to increase, but somewhere in that range of the ones we have in mind, so -- the ones that we've had. The new ones obviously are certainly capable of selling. So...

Good. Got you. And then, last high level sort of question on the collaboration space. You'd mentioned Equinox starting to pick up in bookings. Are you seeing sort of -- as far as the market goes, is there a general compression in the market or do you still continue to see growth, pretty extensive growth in that market as -- of solutions like Flack (sic) [Flock] sort of penetrate kind of the team messaging space and teams from Microsoft that starting to come in as well into that marketplace, some of the pure plays out there are pretty aggressive as well. How are you seeing the market growth in the collaboration market, web conferencing, video conferencing, et cetera? Just looking at LogMeIn results, they seem to have indicated some compression there, and I don't know if this is their company-specific issue or market-specific issue. So I wanted to raise that question to you as well, see what you were seeing.

Yes. Overall, we're seeing it up -- we see that there are still opportunities in all fairness for all of us frankly. I think it's still early in the game. I'll turn it over to Laurent, if he has any additional insights from a product perspective, but we're seeing -- we're not seeing anything that would suggest some downward pressure.

Yes. What we are seeing is a lot of customers wanting to expand their solutions. Obviously having a solution, which is very well integrated with our installed base, it's an advantage, which we are leveraging more, I would say. Second, we are seeing more and more government entity enterprises really moving to digitalization, offering new services to their constituents, and lot of new services are frankly collaboration services. So in our mind, it's a market extension. Yes, you have new players, you have a lot of new solutions out there. But we believe it's a net opportunity for us.

This is Peter. During the fourth quarter fiscal 2018, Avaya will be meeting with investors in New York City with BWS Financial, and we'll be attending the Citi Conference on September 6. In the meantime, you're always welcome to contact our Investor Relations Department at (669) 242-8098 with any questions. Thank you for joining us, and this concludes today's call.

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