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Avaya Holdings Corp (NYSE:AVYA)
Q2 2021 Earnings Call
May 6, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Avaya's Fiscal 2021 Second quarter Investor call. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Michael McCarthy, Vice President of Investor Relations. Thank you. You may begin.

Michael W. McCarthy -- Vice President Investor Relations

Thank you. Welcome to Avaya's fiscal 2021 second quarter call. Jim Chirico, our President and CEO; and Kieran McGrath, our Executive Vice President and CFO, will lead this morning's call and share with you some prepared remarks before taking your questions. Joining them this morning will be Anthony Bartolo, our Chief Product Officer; Stephen Spears, Chief Revenue Officer; and Dennis Kozak, Senior Vice President of Global Channel. Consistent with social distancing mandates, each of us on this morning's call are assembled from our remote locations.

The earnings release and investor slides, which now 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 the 8-K filed today with the SEC. This should aid in your understanding revised financial results. All financial metrics referenced on this call are non-GAAP, with the exception of revenue. We have included a reconciliation of such non-GAAP metric measures to GAAP in the earnings release and investor slides. We may make forward-looking statements that are based on current expectations, forecasts and assumptions, which remain subject to risks and uncertainties that could cause actual results to differ materially.

In particular, the global economy continues to be impacted by COVID-19 and the extent of its continued impact on our business will depend on a number of factors that include, but may not be limited to, severity and duration as well as actions taken or not taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. Information about risks and uncertainties may be found in our most recent filings with the SEC, including our Form 10-K and subsequent Form 10-Q reports. 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 otherwise required by law.

I'll now turn the call over to Jim.

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Thanks, Mike. Good morning, everyone, and thank you for joining the call today. I'm pleased to share that Avaya has delivered a standout Q2, executing well across multiple dimensions of our business, and I couldn't be prouder of what our global team accomplished by posting revenue and EBITDA results that were above guidance and by accelerating our ARR growth more rapidly than we had anticipated. Consistent with our strategy, this progress comes as a direct result of the surge of additional investments we have made in our go-to-market and R&D.

These investments have broadened our spectrum of cloud capabilities throughout our Avaya OneCloud platform of CCaaS, UCaaS and CPaaS solutions. It is clear that our business has undergone a structural change. And as you look at the construct of our revenues, we have seen a meaningful shift over the last four quarters. In fact, our business continues to outperform our expectations, which is a testament to the strength of our brand, digital capabilities, roadmap and our ability to address the diversity and breadth of requirements that come with servicing global, large scale, complex enterprise customers. If you put this in context, the main point, as I have previously stated, Avaya is now a cloud-first company.

Today, we are operating in a totally new business environment, and customers are increasingly turning to Avaya as a trusted and proven partner because of our differentiation, superior customer experience, ability to accelerate business transformation and to drive their success in this new highly distributed world. Today's market dynamics have accelerated digital transformation efforts, and as a result, we are engaging at significantly more in-depth and strategic conversations with enterprise customers, which is driving growth in larger and longer-term contract commitments. More importantly, our results represent the significant work undertaken and the strategic investments we have been making over the last several years to reshape our portfolio to be a leader in enterprise communications and collaboration solutions. Now, I'll run through some key performance highlights that underscore we have the right approach and are on the right track for continued success. We see continued momentum in a number of areas as we execute the three-pillar strategy we communicated over a year ago. First, to move to a recurring revenue business model driven by cloud and subscription. Second, to grow our overall business, and we have a rich pipeline within our portfolio to sustain that performance.

And finally, to do this, while maintaining our profitable business model, which is even more important in these times and supports our transition. Starting with ARR, this is where we are focused, and it's the clearest measure of our success as we execute on our strategy. ARR grew to $344 million in Q2, up 31% sequentially and up nearly 400% from a year ago, reflecting the speed at which we are seeing the structural change in our business. Our large enterprise segment, which we define as contracts with a TCV of greater than $1 million, was the main driver of our ARR growth, driven largely by contact center. Large deals represented over 60% of total ARR.

Overall, our ARR performance is exceeding my highest expectations. CAPS is maintaining its growth trajectory, now representing 40% of revenue. That's a 17 point increase year-over-year. CAPS is not only an important indicator of our overall transition to a new revenue profile, but it is a wonderful indicator [Technical Issues] our new products and solutions. As I look at forward indicators of revenue, overall bookings remained strong, up 14% year-over-year. TCV is at $2.1 billion, demonstrating a continued strong backlog of business. Another indicator of large enterprise traction is the number of significant deals we signed in Q2.

This represented the fourth quarter in a row in which we signed more than 100 deals with a TCV of over $1 million. 16 of these deals were greater than $5 million and seven were greater than $10 million, with one deal over $25 million. On the competitive front, we displaced a significant number of competitors for the third consecutive quarter where we signed approximately 1,500 new logos. On the profitability front, adjusted EBITDA came in at $177 million or 24% of revenue, which is up 220 basis points year-over-year. The playbook for our industry is not a secret. The key is, therefore, how you execute.

Our team is doing a great job. And it's the combination of these results and our visibility into the second half of FY 2021 that gives us the confidence to again raise our guidance for revenue, ARR, CAPS and EBITDA for the fiscal year. Kieran will provide additional detail shortly. We've had many notable accomplishments over the last quarter, too many to go through on this call. So I'll just touch on a few that demonstrate how our investments are accelerating innovation, enhancing our competitiveness and delivering value to our customers. First, I couldn't be any more pleased with the progress we've made as we continue to expand our contact center solutions.

As a measure of our progress in Q2, CCaaS, C count was up significantly from the prior quarter, and the pipeline of opportunities continues to grow. CCaaS is now available in nearly 40 countries. We continue to add additional capabilities to the platform and recently announced full omnichannel attribute-based agent matching, agent personalization and predictive analytics. Atento, a global provider of CRM and BPO services selected our CCaaS to manage customer interactions for their customer, GoodRx. Another customer, AllOne Health needed a communications platform that would deliver scalability and reliability through the next stage of their exciting plans.

They chose Avaya CCaaS to help enable their diverse workforce, including in-house doctors, nurses, clinical staff, health counselors and call center agents. CPaaS accelerates customers' ability to combine new applications with existing infrastructure to unlock additional value. This is a real home run for customers looking to innovate at the Edge. The ability to cost effectively, easily and readily deploy new technology for communications and collaboration purposes has never been more critical. And Avaya OneCloud CPaaS delivers exactly that. As an example, we deployed Avaya's CPaaS across the Texas-based Round Rock School District.

In addition to mass notification capability, we integrated notification across a variety of platforms, including mobile devices, email, social media, indoor and outdoor signage and more. Our solution unlocks value potential that simply could not have been addressed in the past. Shifting now to Avaya Spaces. We announced groundbreaking news this past quarter in two specific areas. First is related to incorporating AI into the platform. Working with NVIDIA, we used AI to deliver capabilities such as background noise removal, image enhancement and virtual assistance. These are indicative of our leadership in AI.

We also launched Spaces Calling. Customers now have the ability to place cloud-based voice and video calls directly from their Spaces browser, leveraging their Avaya or infrastructure. Leveraging existing infrastructure for cloud-based calling is a real disruptor and game changer for customers, providing them a cloud-based experience, while also giving them the flexibility to migrate their business communication systems to our cloud at a pace that makes sense for their business. Momentum for Spaces continues to grow, and we are winning a significant number of new customers and doing so at scale. One such example of a recent win was at Seine Saint Denis, host of the 2024 Olympics.

They selected Avaya Spaces as their work-from-anywhere collaboration solution for approximately 8,000 users. After a critical review of more than 10 alternative solutions, they awarded the gold medal to Spaces, because it's feature-rich and offer superior security, scalability and ease of use. Moving to Avaya Cloud Office. We are seeing positive growth in a number of areas, and we're also pleased to see the increased pull-through of CCaaS and CPaaS resulting in deals with a larger ARPU for Avaya. The solution is now available in 13 countries, and we are rapidly [Technical Issues] the number of agents and partners authorized to sell.

Not only are they authorized, but during the quarter, the number of agents selling grew by 40% from the prior quarter. While a significant value proposition of Avaya Cloud Office is the ability for us to mobilize and convert our UC base, over 70% of our wins were brand new customers. We also saw significant customer growth overall, increasing our total customer count by 50% in Q2. Moving on to subscription. We see strength across our portfolio and continue to transition our base of loyal customers on traditional software contracts to this flexible consumption model. Subscription allows customers to consume our technology, how they want, whether cloud, off cloud or a hybrid approach.

Our international rollout is also progressing well, and the number of partners selling subscription is increasing steadily. I cannot be more delighted with the progress. While subscription performance is strong across all segments of our business, we are experiencing significant demand in the contact center. Subscription has also quickly involved into a new customer acquisition engine, with nearly 100 deals coming from new logos, whereas just a year ago, it was 0. The most important aspect of this deliberate transition of our base to subscription is the increase we are seeing in recurring revenue, which came in at a record 66% this quarter, whereas just two years ago, it was under 60%.

Recurring revenue, as you know, is significantly more predictable and derisks us away from our past more volatile license-based model. Making this transition successfully is an exceptional accomplishment in the software industry. Private cloud is a key element of our subscription offering, and I want to specifically call out two notable private cloud deals. The first is a new five-year agreement with Qatar Airways, serving customers in over 70 countries in 12 different languages. They're deploying our advanced digital engagement, global workforce optimization and automation and preparation for the FIFA World Cup in 2022.

The second is with Clarios, a world leader in advanced energy solutions. Clarios is deploying 5,000 unified communication users across 22 countries on our private cloud platform to support their global team. Demand for private cloud deals remained high, with a very strong pipeline coming into the second half of the fiscal year. As we continue to advance our strategic initiatives and execute on our operational targets, consistent with what we told you on our last earnings call, we came into the year with strong momentum. We also knew that the seeds we've sown in new technologies and capabilities with significant growth factors, would start to take hold in FY 2021 and beyond, and they have.

In short, based our performance, I'm confident and very excited about the future potential for new solutions, which are opening a larger and growing TAM for Avaya. Best of all, we are still in the early innings. We remain deliberate in how we build out these new platforms, and we are listening closely to our customers to make sure we're developing the capabilities to best address their needs, particularly as the distributed work environment continues to evolve. Before I turn it over to Kieran, it's important to recognize and thank the entire Avaya team, 8,000 strong, for their continued dedication and flawless execution throughout the quarter and most importantly, for their focus on delivering value to our customers. It is truly an outstanding team.

With that, I'll hand the call over to Kieran.

Kieran McGrath -- Chief Financial Officer

Thank you, Jim. Good morning, everyone. As a reminder, all figures mentioned on this call are as reported unless otherwise indicated in constant currency. For the second quarter of our fiscal 2021, revenue was $738 million. This represents year-on-year growth of eight percent as reported or seven percent in constant currency over the $682 million in the year ago period and compares to $743 million in Q1 of fiscal 2021. Year-over-year growth continues to be driven primarily by our rapid migration to the software subscription model and an increasing contribution from the Avaya OneCloud.

Additionally, this quarter, we saw a year-to-year and sequential boost from Professional Services as certain deliverables were accelerated on the security administration project in this quarter. As Jim highlighted, we continue to deliver on our aggressive ARR commitments in Q2. Our OneCloud ARR metric exited the quarter at $344 million, which represents 31% of sequential growth. Avaya OneCloud offerings are driving this ARR momentum, with second quarter growth continuing to be powered by subscription bookings and an increasing contribution from Avaya OneCloud public and private.

Contact center was, again, about 60% of total OneCloud ARR. In line with Avaya's core strength in the enterprise segment, customers paying greater than $1 million annually, accounted for over 60% of total ARR. As a reminder, we established CAPS to give investors insight into our successful delivery of Avaya's highly differentiated software solutions in the cloud consumption models that make the most sense for our customers. This quarter, revenue contribution from CAPS represented 40% of total revenue, up from 34% in Q1. For our second fiscal quarter, recurring revenue accounted for 2/3 of our total revenue.

Meanwhile, software and services represented 90% of total revenue. Through focused investment and deliberate execution, Avaya has clearly evolved into a software and services business and away from a hardware-centric model. Non-GAAP gross margin was 61.8% in the second quarter compared to 61.1% in the year ago period and flat sequentially. Product margins were down modestly, while services margins improved during the quarter, reflecting the shift from perpetual licenses to subscription and public cloud offerings. Overall, our services margin improvement is consistent with our structural shift toward delivering our solutions in cloud consumption models available to customers through our Avaya OneCloud portfolio.

Turning to total profitability margin and cash flow metrics for the quarter. Second quarter non-GAAP operating income was $148 million, representing a non-GAAP operating margin of 20.1%, up 180 basis points year-on-year. Adjusted EBITDA was $177 million, representing an adjusted EBITDA margin of 24%, up 220 basis points year-on-year. This reflects our operational efficiency even as we are making the vital investments necessary to scale our cloud capabilities, including our channel partner programs and global expansion, all bolstering our ARR momentum. Non-GAAP EPS was $0.74 in the second quarter compared to $0.57 in the year ago period and $0.90 sequentially. The strong year-over-year growth in this metric is the result of two factors: increased profit and the benefits from the significant number of shares repurchased in the first half of fiscal 2020. Now turning to cash flow.

We consumed $24 million in cash flow from operations or negative three percent of total revenue. Our cash flow was primarily impacted by two in quarter variables. The first was the timing of interest payments on our senior secured notes, which are paid semiannually, reflecting a $29 million quarter-over-quarter increase in interest payments. The second was our pension contribution payments that were $26 million higher than the prior quarter. Due to the passage of the American Rescue Plan Act, the company does not expect to make any additional contributions to our U.S. pension plans for the remainder of fiscal 2021. We ended the quarter with a cash balance of $593 million.

This reflects the $100 million debt pay down we completed in February, along with a favorable refinancing of $743 million of term loans that previously matured in 2024. In addition to extending the maturity to December 2027, we reduced the interest rate by 25 basis points. Success of our capital allocation initiatives across this past year is a proof point of the market and the industry's confidence in Avaya's execution and strategy. Now turning to guidance for 3Q 2021 and full year fiscal 2021. Please note that all year-on-year revenue changes are expressed on a constant currency basis, and all revenue amounts reflect rates as of April 30, 2021.

For the third quarter of our fiscal year 2021, we anticipate revenues of $720 million to $735 million, representing growth of one percent year-over-year at the midpoint. We expect non-GAAP operating margin for the third quarter to be between approximately 19% and 20%, and our adjusted EBITDA to be between $160 million and $170 million or approximately 23% of revenue. We expect non-GAAP EPS to be between $0.66 and $0.73 for the quarter. This compares to non-GAAP EPS of $0.95 in the year ago period. Quarter-over-quarter progression of EPS reflects dilutive impacts that I will cover in more detail when discussing the full year guidance. In terms of our full year fiscal 2021 revenue guidance, we are increasing our revenue guidance to be between $2.920 billion and $2.955 billion.

This represents growth of two percent to three percent at current FX rates and represents approximately one percent revenue growth at the midpoint as measured in constant currency. We are tightening our CAPS revenue guidance range by raising the low end from 35% to 37% of the full year revenue. This now lifts our guidance range to 37% to 40% for the full fiscal year, representing over 50% growth year-over-year. Turning to OneCloud ARR. We continue to see very strong momentum and are increasing our full year guidance. We now expect to exit the current fiscal year between $450 million and $460 million. At the midpoint, this reflects an upward revision to guidance of an increase of approximately $35 million from the prior guided targets and demonstrate over 130% year-over-year growth.

We expect non-GAAP operating margin to be between approximately 20% and 21%. Additionally, we are raising the low end of our adjusted EBITDA guidance and tightening the range to $690 million to $720 million or approximately 24% of revenue at the midpoint of this range, demonstrating Avaya's ability to deliver revenue growth while maintaining profitability. Turning to shares outstanding guidance and earnings per share. We expect our weighted average shares to now be between approximately 87 million and 89 million shares outstanding at fiscal 2021 year-end.

This increase in outstanding share count primarily reflects the appreciation of Avaya stock price, resulting in dilutive impacts from previously issued convertible notes, warrants and stock awards. Due to this share count increase, we expect non-GAAP EPS for the fiscal year to be between $3.02 and $3.20. At the midpoint, this reflects mid single-digit percentage year-over-year growth. In terms of cash flow from operations for fiscal year 2021, we are maintaining our guidance of between three percent and four percent of full year revenue.

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Thank you, Kieran. Let me offer a couple of closing thoughts. As we've all tried to navigate this past year, the best we can, the world has fundamentally changed, and we will not be going back to the way we used to work. Instead, we are moving forward into a new work environment. And now more than ever, our customers are relying on Avaya's solutions and expertise to help them navigate through unchartered waters.

Our leadership position in communications and collaboration has never been stronger. Our innovation pipeline has never been as robust or potent. Our model is robust and sustainable, and we are benefiting from the disciplined execution that Avaya is known for and for our focus on profitable growth. We are well positioned to continue our success, and I am confident of where we are heading and that demand will remain strong for the foreseeable future.

With that, we will now open for questions.

Questions and Answers:

Operator

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

George Sutton -- Craig-Hallum -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Yes. George, Jim. Thank you very much. So a couple of things. Number one is, if you take a look at our large enterprises, obviously, we have the capability to deliver the solutions across a breadth of technology. One is obviously our subscription, which we launched in the market about six quarters ago. The demand in the funnel, in fairness, has never been stronger. And we're finding that our large enterprise customers are looking for sort of the same flexibility, if you will, from a recurring revenue and consumption-based model and really moving away from having this burden of having all of these licenses, especially in the new work environment where many of their employees are working from home.

And our philosophy has always been that we're going to honor how our customers really want to have their solutions. So for us, whether it's a cloud, off cloud or hybrid, we're in the business to support our customers. And with the pandemic, it's accelerated the world of digitization, cloud, and again, the need for our customers to really have a flexible consumption model. And we're going to remain committed to provide the solutions that our customers choose. So we're seeing a huge increase in subscription. That being said, where we saw, again, a significant uptick, not so much in the revenue, but in recurring revenue, was our private cloud solution.

We're seeing strong traction. And really, that's a fit-for-purpose solution and it's addressing a huge market opportunity for us as our large enterprise customers simply can't or do not want to jump right into a public cloud solution. And Avaya is really only one of a few companies that can even participate in this. You're pulling in the cloud companies don't have appropriate cloud solution. And we're seeing a sizable number of our contact centers wanting to move --- our contact center customers wanting to move to that private mode. And if you just take a step back, the market today is about $7 billion to $8 billion from a TAM perspective. If you go out three, four years, Gartner is projecting that, that's going to more than double up to $16 billion to $17 billion.

So we believe we are in the perfect spot to continue to grow and participate in this huge, huge TAM growth for our customers. And, lastly, is what are we doing on the public side? And I think the public solution that we have out there, which really -- we started internally a couple of years ago, but really, it's only been in the market for about a year. We believe that we have a well-engineered solution that's economical for our customers. As I said earlier, we're in 40 countries. We're going to target 65 the end of the year. We continue to add more and more capabilities.

And I would punctuate all that. It's evidenced, again, by our large deals. And we continue to have over 100 large deals a quarter, significant dollars with 16 being greater than $5 million. So -- and by the way, the traction that we're getting against our competition. And we're finding, when you get into large contact centers greater than 500 [Technical Issues] -- that's where we have a significant advantage against our competition. And that's, again, proof points to our services organization, proof point to the expertise that we bring to the market each and every day. So a bit long-winded, but we're quite excited with the results that we've had to date. And as we look at our backlog and pipeline, we're very excited about the opportunity in front of us.

George Sutton -- Craig-Hallum -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Yes. It's proving out to the sort of the premise by which we did the relationship in partnership with RingCentral. And that was the fact that when you thought about Avaya, it was an old legacy company that was trying to compete in a world of hardware were at the UC part of the -- and UCaaS part of the market had shifted to cloud. And we knew we had significant opportunity, and that's why we partnered with Ring to not only solution -- provide a solution to our installed base, but also be able to compete and win in the market with -- really, with our brand, our expertise, our overall capabilities.

And, in fact, it's coming true. And we're really excited. And I also think it shows the relationship on just how committed we are to our channel and to our partner community. They're an extension of us. The combination of us. And I've said many times that when we go to market with our partners, we win. There's no better force. And a real attribute to not only the partners -- the existing partners, but the new partners that we've brought on board. And our active partners were up by 40%, customers grew by 50%. So it's working exactly as we had planned. So we're -- again, it's -- we're pretty excited and excited about the opportunity in front of us.

George Sutton -- Craig-Hallum -- Analyst

Picked up. Thanks.

Operator

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

Raimo Lenschow -- Barclays -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Yes. Hey, Raimo, I'll take the first one and Kieran will take the second one. Yes. I mean, as I said in my comments, there's no secret to the opportunities in front of us in this -- in the new world as we move more and more to cloud and an opportunity to move more to software and services business. But the real differentiation for us, I think, versus others, is the fact that we have the depth, the breadth, the expertise, the full range of a portfolio. And the fact, I think the teams are executing extremely well around that, and we're winning on all levels. In the past, we struggled a bit at the lower end of the market.

We're now taking our fair share, if not more, on the lower end of the market -- the mid-market with the release of our new CCaaS solution geared directly there with the fact of our private cloud solutions, both on the UCaaS and the CCaaS side. The traction we're seeing with our collaboration solution, with Spaces, couple all that with CPaaS. And then look, we're really differentiating ourselves at the higher end in the more complex enterprise customers and those are long-lasting customers that we believe will -- and we see are moving, and we're helping them move to the new world. So we're pretty excited about the opportunities that we see in front of us.

So I'll turn it over to Kieran.

Kieran McGrath -- Chief Financial Officer

Sure. Thanks, Jim. So Raimo, yes, I think our Q2 surprised us a bit on the upside on the CAPS. Some of that did have to do with some of our work with some of our Alliance Partners as it related to the Social Security deal. I would say probably within a point or two, us continuing to see numbers like this as we go out into the second half of the year as well and that's what gave us comfort in taking the bottom end of our range, up from 35% up to 37%.

As we've said before, not all our Alliance Partners is a recurring per se. Some of it is a bit of point-in-time in terms of just some of the relationships that we have with some of our third parties. But I would think that we should be pretty close to these numbers as we look in Q3 and Q4.

Raimo Lenschow -- Barclays -- Analyst

Alright, thank you. Congrats.

Kieran McGrath -- Chief Financial Officer

Thanks Raimo.

Operator

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

Samik Chatterjee -- JPMorgan -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

No. I hear you perfectly, and thanks. It's a great question. So first, let me start by really thanking the Avaya employees. They continue to inspire us each and every day with their resiliency. And I couldn't be any more proud of the dedication that they put forth working with our customers, second to none. As you pointed out, there already have been many long-lasting structural changes that I see -- that are going to impact the communication and collaboration space, and the work-from-anywhere, the sort of the direct-to-consumer commerce, the contactless experiences, so on and so forth.

The interesting thing about Avaya is before the pandemic, I would say that these were emerging trends, but it wasn't an emerging trend with inside the company. We had repositioned our portfolio about three years ago in order to capitalize on what we believe was an emerging trend that was just accelerated, and we're in full swing. And I think that's evidenced by the significant growth in subscription. I think it's evidenced by this significant growth in ARR. It's evidenced by our bookings were up again, 14% is a leading indicator. It's evidenced by our TCV continues to remain above $2 billion.

So we are well poised to take advantage of the commercial opportunity. That's a new world we'll unlock by these structural changes, and we're already at the leading Edge of developing and delivering these technologies for our customers' digital transformation. And the degree that we continue, and I'm really pleased with our progress, to bring new capabilities into our solutions around AI, collaboration, cloud, so on and so forth, coupling with our solutions, we're -- I think we're poised.

And also, we have a number, obviously, of the largest of large, most complex enterprises. And as you can imagine, there is a pipeline and a time frame by which we're working with these folks in order to deliver these solutions. It's not something that is, what I'll call coin operated. It takes a significant amount of Professional Services work and pipeline work. So we do see that we are well positioned to handle whatever comes next in the world, so hopefully getting back to some sensor normally.

Samik Chatterjee -- JPMorgan -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Hey, Kieran, you want to --?

Kieran McGrath -- Chief Financial Officer

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

Samik Chatterjee -- JPMorgan -- Analyst

Thanks for taking my questions.

Kieran McGrath -- Chief Financial Officer

Welcome

Operator

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

Lance Vitanza -- Cowen -- Analyst

Hi guys. Thanks for taking questions. Congrats on the quarter. I wanted to also ask on the OneCloud ARR, and as distinct from just your overall recurring revenue, OneCloud ARR, you're talking about getting to $1 billion a couple of years, that would be roughly 1/3 of the company's total revenues. So -- but, I'm wondering, could that number -- could that eventually reach 50% of total revenues someday? Or put another way, and I'm not looking for guidance. But just given your customer set, is there a natural structural ceiling on ARR that we should be aware of? And then I have a follow-up.

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Yes. Hey, Lance, Jim. Thanks. As I mentioned, ARR, we see significant opportunity in front of us. I think ARR, more importantly, is representative of the diversity of our OneCloud portfolio. And whether we go at the vertical customer segment, different deployment models, I think it really highlights and shows the breadth and depth of our overall revenue model transformation. So, I think, it's really important.

Secondly, I think what's probably most important about the sustainability is our pipeline of innovation and solutions is extremely strong. And these capabilities are relevant to today's marketplace, and relevance is obviously extremely important. So when you think CCaaS, you think CPaaS, you think AI capabilities, digital, Spaces, you think of capabilities like public, private, hybrid, and you think about the ecosystem of partners that we have around the globe, you think of hundreds of thousands of customers. It presents us with a real opportunity. And I believe it presents us with significant upside. So forgetting the number for a minute, is it sustainable? I think so, for sure. And I think it's evidenced by the numbers we've delivered and the fact that we've increased our guidance now three consecutive quarters.

So, yes, I mean, we're [Technical Issues] and I think I'm going to ask Anthony to add a little color today.

Anthony Bartolo -- Executive Vice President And Chief Product Officer

Yes. Look, if you just take that from a numbers perspective in terms of the opportunity, there's a couple of fundamentals that have taken place that, Jim, just articulated. The first is, yes, large customers are accelerating. You just take a look at the CC transformation that's going on. There's definitely a public cloud push or a cloud push, whether it's public or private. And if you really think about the contact center space alone, there's some 15 million seats that fit in that particular segment.

We happen to have the six million of those particular seats. And they've only just begun that transformation to the public or the private cloud. And that represents significant ARR that sits within just our six million seat base. And we think over the coming years that, if we fight for every one of those particular seats and manage and transition those customers to the cloud, you effectively transition into a very large ARR opportunity that we have just within our own customer base. So, yes, we think that there's definitely leads there.

Lance Vitanza -- Cowen -- Analyst

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

Kieran McGrath -- Chief Financial Officer

Sure. So Lance, this is Kieran. As we've said before, why we really like to focus on ARR is just in the multiplicity of different revenue producing. So when we think about the migration, all of these migrations are actually migrations plus, right? So, one is, they're shoring up the base, and we're actually seeing additional add-ons from our customer as they embed some level of cloud functionality into the subscription as well.

Clearly, if you start to do the hosting and you start to add on all of the different AI capabilities, we see a real opportunity for significant ARPU expansion in that regard. There's cost that comes along with that as well, but certainly, topside revenue. So longer term, as we continue to move more of the customers away from the traditional premise-based into a hosted base, whether that's cloud, private or public, yes, we think there's an opportunity to build out and grow that revenue beyond that single digit.

Lance Vitanza -- Cowen -- Analyst

Thank, Definitely helpful.

Operator

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

Catharine Trebnick -- Colliers -- Analyst

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

Anthony Bartolo -- Executive Vice President And Chief Product Officer

Sure. Hello, Catharine, thanks for the question. Yes, firstly, just a correction, it's to $6 million. Its six million seats. So yes, maybe you misspoke. But yes, there's 15 million-15.5 million seat opportunity or TAM in the contact center space. six million of those or thereabouts sit within our existing customer base. By the definition of the CC realm of the peer group, they would almost all seek into the large enterprise scale. And those large enterprises, usually we serve either on direct or through our partner community and our partner ecosystems. That go-to-market model hasn't fundamentally changed.

We have added a lot of master agents and resellers to the portfolio as opposed -- as a function of what Stephen's team and what we've been doing in the public cloud realm. And they're serving and starting to take on more of a role -- they'll scale up just like our existing retail community and ourselves would have a time to scale down. And we see -- scaling down allows us to expand our market opportunity. We see those master agents resellers potentially selling into the larger customers. And we're seeing some of those onesie-twosies right now. But we see that as they've learned the larger size enterprise that they'll go off and expand into that segment.

If you break down really the motion that's going on, when you take a look at the land, adopt, expand and renew, as we talk about it, those six million seats represent customers that are already landed. So they already landed. Our -- the competitive landscape is going out trying to be the L in the layer model. We've got the L with those six million seats. What we're doing with the roadmap is having them adopt new technologies, expand those technologies and then the renew cycle. And we're just getting better and better at that all the time. And that's what I talk about when I talked about that total opportunity just in that contact center space. Sorry for the long answer.

Catharine Trebnick -- Colliers -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

No problem.

Operator

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

Bala Reddy -- Goldman Sachs -- Analyst

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

Kieran McGrath -- Chief Financial Officer

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

Dennis Kozak -- Senior Vice President Of Global Channel

Yes, sure. Kieran, thank you. So, yes, certainly, the product continues to mature. It's been in market now for about 14 months, since last March. And each success of our leads continues to build on really in two dimensions. The first dimension is really around the platform and innovation. You hear RingCentral talk about a lot of the capabilities that we bring to the platform quarter-over-quarter.

And then the second dimension, which is extremely important to Avaya, is as we bring the Avaya feature set to it. So it continues -- this last quarter, we had a new release that brought a number of key capabilities that our existing base are very interested in seeing. One partner has gone on record as quoting. "It's the best of PBX and the best of cloud in one package." And that really creates a very competitive differentiator for us for a variety of reasons, not just for migrating our own base, but also for attracting new logos that are using an existing premise solution from one of our competitors.

Bala Reddy -- Goldman Sachs -- Analyst

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

Anthony Bartolo -- Executive Vice President And Chief Product Officer

Sure. It's Anthony here. So firstly, I think you're seeing -- well, we know we're seeing the popularity of a private cloud solution because we basically redefined or evolved private cloud. So large enterprises want the flexibility of the public cloud, but not the form of what's being delivered by a private players. So we give them the benefit of having the agility and flexibility of a public cloud deployment, but the flexibility of customizations on that public cloud as well as the ability for them to be able to innovate at the Edge.

We talk about how something is deployed, whether it's public or private, etc. But what we've laid on with our CPaaS solutions that really allows us to expand and innovate at the Edge that customer can do their innovations with low-code, no-code capabilities that allow them to tweak the solutions so that not only it solves their specific problem, but they're invested in the outcome, because they helped solve that particular problem. Nobody understands the issues they face materially better than the customer themselves.

And we give them the tools to do that without the rigmorale of the forbearance or overbearingness of a heavy monolithic piece of software. So that flexibility, the private cloud enables, it gets -- they allow all the scalability and capability of it, and it allows them to unlock the innovation within the enterprise. And that's why we're seeing a real takeoff in the private cloud. And the reason why large enterprises are able to do that is, because they've got a lot of capabilities inside the company.

Bala Reddy -- Goldman Sachs -- Analyst

Okay. Thanks Anthony.

Operator

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

Karan Juvekar -- Morgan Stanley -- Analyst

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

Anthony Bartolo -- Executive Vice President And Chief Product Officer

Yes. It's a great question. Thank you. I think that we're seeing two distinct flavors that have come from the pandemic. First of all, we're seeing those that are adopting solutions now from a multiyear contract where they started during and then they're trying to figure out if they could resource and fit a need. I look at work from home, for example. As I started to work from home, I thought maybe this is going to be a 12-month thing, maybe it was in the 18 months. Now we're seeing those same customers enter into true multiyear agreements supporting that deployment methodology.

In addition, the second motion is companies that have decided that, look, this is with us to stay, right? This is the new way to go to work. And with that, they're looking at ways for us to deploy options that are, again, along the different deployment lines, whether that's pure public cloud or anything in between from a hybrid perspective. So we're seeing those two flavors specifically. And I think both of them lend itself to the fact that we've seen a permanent shift in the way that companies are going to go to work.

Karan Juvekar -- Morgan Stanley -- Analyst

Great. Thanks, that's very helpful.

Operator

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

Asiya Merchant -- Citi -- Analyst

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

Kieran McGrath -- Chief Financial Officer

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

Asiya Merchant -- Citi -- Analyst

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

Kieran McGrath -- Chief Financial Officer

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

Stephen Spears -- Chief Revenue Officer

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Hey. This is Jim. I guess, sort of, look, we have -- we've been -- we have a very competitive business model here and we've been -- 60% to 70% of our revenues are driven through the channel. So we know how to operate within the channel structure, and we know how to operate it to drive profitability for the company. As Kieran said, we're right on track with our guidance for EBITDA. We [Technical Issues] did back into the business, as he said, one point. We have a very good relationship. And as Kieran pointed out, we believe we're going to scale that as we go into the quarters ahead.

So we're very confident about our position and our ability to remain profitable through the transition. So there shouldn't be an issue. And I think back to your earlier point, we've also, as we pointed out, there was a bit of an acceleration in PS into the quarter. But the fact is we raised our overall guidance for the year. So we feel, as I said, based upon the backlog, based upon the bookings increase, based upon the new technology we can deliver to the market and the solid execution from our global teams, we feel pretty good about what the second half of the year brings to the company.

Operator

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

Hamed Khorsand -- BWS Financial -- Analyst

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

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

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

Hamed Khorsand -- BWS Financial -- Analyst

Okay. Thank you.

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Sure.

Operator

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

Michael W. McCarthy -- Vice President Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Michael W. McCarthy -- Vice President Investor Relations

James M. Chirico, Jr. -- Director, President And Chief Executive Officer

Kieran McGrath -- Chief Financial Officer

Anthony Bartolo -- Executive Vice President And Chief Product Officer

Dennis Kozak -- Senior Vice President Of Global Channel

Stephen Spears -- Chief Revenue Officer

George Sutton -- Craig-Hallum -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Samik Chatterjee -- JPMorgan -- Analyst

Lance Vitanza -- Cowen -- Analyst

Catharine Trebnick -- Colliers -- Analyst

Bala Reddy -- Goldman Sachs -- Analyst

Karan Juvekar -- Morgan Stanley -- Analyst

Asiya Merchant -- Citi -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

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