Interactive Intelligence's (ININ) CEO Don Brown on Q2 2016 Results - Earnings Call Transcript

Interactive Intelligence, Inc. (NASDAQ:ININ)

Q2 2016 Earnings Conference Call

August 01, 2016, 04:30 PM ET

Executives

Ashley Vukovits - CFO

Don Brown - Chairman, President and CEO

Bill Gildea - COO

Analysts

Dan Bergstrom - RBC Capital Markets

Dmitry Netis - William Blair

Mike Latimore - Northland Capital

Meta Marshall - Morgan Stanley

Brian Peterson - Raymond James

Craig Nankervis - First Analysis

Jonathan Kees - Summit Redstone

Jeff Van Rhee - Craig-Hallum

Operator

Good day, ladies and gentlemen and welcome to the Interactive Intelligence’s Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference will be recorded.

I would now like to introduce your host for today's conference, Ms. Ashley Vukovits, CFO. Please go ahead.

Ashley Vukovits

Thank you, operator. Good afternoon and thank you for joining us today to review Interactive Intelligence’s second quarter 2016 financial results.

With me on the call today is Don Brown, our Chairman of the Board, President and CEO; and Bill Gildea, our COO. Don will begin with an update on our key initiatives. I will then review our second quarter financial results in more detail and provide the financial outlook before turning it back over to Don for closing remarks. We will then open the call for questions.

Please note that over the course of this conference call, we will make predictive statements about our results, performance, plans and objectives in an effort to assist you in understanding our company. The Enterprise software industry combined with the rapidly evolving uncertainties and the economic environment makes predictions challenging and problematic. These predictive statements are forward-looking statements under Federal Securities Laws.

Our actual results could differ materially from the information presented during this call and you should review the section on forward-looking statements contained in today’s earnings release as well as our 2015 Form 10-K and other public filings with the SEC which describes factors, risks and uncertainties that could cause our actual results to differ materially. The company disclaims any obligation or undertaking to update or revise any forward-looking statement.

Also, during this call, we will refer to non-GAAP financial measures. These non-GAAP results eliminate the impact of non-cash stock-based compensation expense, purchase accounting-related adjustments, certain acquisition-related expenses, the amortization of certain intangible assets related to acquisitions by the company, and the amortization of debt, discount, and issuance costs and include pro forma tax expense. Management uses these non-GAAP financial measures in analyzing the business.

With that, I will turn the call over to Don.

Don Brown

Thanks, Ashley, and thanks to everybody for joining us on the call today. The second quarter was obviously a strong one, as we recognized revenues of $108.8 million and saw a 43% growth in our cloud revenues to a record $31.3 million. On last quarter’s call, we shared the tremendous progress around PureCloud, our AWS-based multitenant cloud service for collaboration, communication, and customer engagement. As you’d recall, we signed 24 new PureCloud logos in the last half of 2015, and we’re stunned to rack up 118 new sales in the first quarter. Our hope was to match that number in the second quarter. Well, we not only matched it, but we blew past it to achieve an incredible 204 new PureCloud logos in the second quarter. It’s hard to communicate what an achievement this is. Prior to this year, we’ve never had more than 330 new logos in an entire year. We've almost equaled that in the first six months of 2016, with 322 new PureCloud logos. We’ve truly made tremendous progress toward our goal of becoming a high velocity, high-volume cloud company.

And lest you think that these were a lot of small deals, let me share some illuminating facts. The average seat size of PureCloud deals increased 26% over the first quarter. We had 23 deals of more than 100 seats in the quarter. The largest deal of the quarter was for over 1200 engaged seats. We had one sale to a well-known university for 1100 communicate seats, showing PureCloud’s increasing strength as a unified communications solution. The estimated ARR associated with the Q2 deals more than doubled from the ARR for the deals signed in Q1. We’re also quite pleased with the progress we’ve made in building channel acceptance of PureCloud.

In the second quarter, 37% of the new PureCloud logos were generated by our partners, compared to 25% in the first quarter. It’s also important to note the geographic spread of our PureCloud’s success. 40% of the new PureCloud logos in the second quarter came from outside North America. We had particular success in Europe, Australia, Latin America, and Japan. I will remind you that PureCloud is deployed in four Amazon regions, in the US, Ireland, Australia, and Japan. More than half of the estimated ARR from PureCloud logos added in Q2 came from outside North America. This is somewhat surprising given the overall slower growth of the cloud outside North America and the fact that we don't even offer our popular PureCloud voice services outside of the US and Canada.

We think this international performance bodes well for future quarters, given our plans to bring PureCloud voice to Europe and other regions in the next few months. Overall, we are very excited about the market reception of PureCloud. Organizations such as Quicken continued to increase their usage as we roll out additional functionality. In fact, Quicken spurred us to release screen sharing capabilities, which they are actually embedding in their products so that a customer using QuickBooks or their other fine products can share their screen during a service session with a contact center agent via PureCloud.

Over the course of the second quarter, we utilized our continuous deployment pipeline to deliver a steady stream of new features for PureCloud, including single sign-on, callbacks, real-time geolocation, social media routing, full support for German and Brazilian and Portuguese, including text-to-speech and speech recognition, enhancements to our salesforce and Zendesk connectors, connectors for Microsoft dynamics and Verint WFM, configurable alerts for supervisors, time off request handling, many other enhancements in chat, email, video, and other areas. And already this quarter, we’ve delivered additional functionalities such as estimated wait time and placed-in-queue announcements, outbound faxing, ACD auto answer, a Japanese speech engine and much more.

Clearly, PureCloud continues to mature at a rapid rate, and each quarter, we’re able to sell into larger customer environments. So you can see that we have geographic expansion and market expansion that are working in concert to help rapidly drive PureCloud revenue growth. However, there is a third stage to the rocket that’s about to kick in. We’ve been quietly developing new PureCloud services that we’ll start to make available to customers in Q3.

The first of these is called Relate. This is a customer context hub that can be added on to any PureCloud seat for about 20 bucks per month. Relate aggregates information from CRMs and other resources, along with the sort of interaction history collected by PureCloud to provide a single customer dashboard for contact center agents and for other employees throughout the organization. The initial version of Relate has already been pushed into production. Queued up behind Relate are new workflow and trouble ticketing services that will become available in the quarters ahead.

With all this excitement about PureCloud, I want to make sure I speak to the important contributions being made by CIC. We continue to book large CIC orders and win against our biggest competitors. We had six CIC deals of more than $1 million in the second quarter. We continue to invest in the enhancement of CIC features and scalability. In June, we released a CIC update that provides automatic user synchronization with PureCloud. In the second half of the year, we’ll also have one or more PureCloud based subscription services that can be used by our premises based customers to augment the capabilities of CIC in areas like web co-browsing. We believe this approach will continue to make CIC the leading premises-based contact center product, while also making the power of PureCloud available to our thousands of on-premises customers.

Finally, I'm happy to report that we hired a new Chief Marketing Officer, Justin Helmig. Justin has a great background in digital marketing and is exactly the type of person we were looking for to revamp our marketing effort to match the sort of high velocity PureCloud has enabled. Justin is laser focused on providing the volume of leads, our increasingly fast-moving distribution channel requires in order to further accelerate our growth.

With that, let me turn it over to Ashley and I will be back before the Q&A with a few additional comments.

Ashley Vukovits

Thanks, Don. I will first provide more details on the company’s second quarter financial results and then conclude by providing our financial guidance for the third quarter and full-year 2016. As Don mentioned, we reported total revenues of 108.8 million for the second quarter, which was driven by continued strong growth in cloud subscriptions and better-than-expected on premises demand.

Our recurring revenues, which include both maintenance contracts and cloud subscription were $66 million, representing 61% of total revenues, and up from 56% in the year ago quarter. This increased percentage of revenues reflects the strong growth of our cloud subscription, which were $31.3 million, a year-over-year increase of 43%. We also saw a 9% increase in maintenance revenues, resulting from the increasing installed base of premises-based customers.

License and hardware revenues increased 10% year-over-year in the second quarter of 2016 to $29.7 million compared to $27 million in the same quarter last year. As expected, services revenues declined 16% year-over-year to $13 million. While it was nice to see good on premises demand in the quarter, we continue to see a clear shift in our business towards PureCloud, which by design requires far less in professional services than CIC or CaaS, our single tenant solution. In addition, also by design and as evident in the previous quarter, more of the professional services associated with our on premises solution were performed by our channel -- partner channel, again reducing the amount of professional services revenue we recognized. We expect these trends to continue in future quarters.

Our non-GAAP gross margin in the second quarter was 64.3%, up from 62.1% in the same quarter last year. During the second quarter of 2016, we recorded a reduction of royalties related to cost of license and hardware due to a one-time twerp. Without that reduction, the non-GAAP gross margin would have been up slightly from the same quarter a year ago. As a reminder, the amortization of previously capitalized software development costs continues to negatively impact our gross margin. We started amortizing these capitalized R&D costs in the second quarter or the second half of 2015.

In the second quarter of 2016, these costs added $1.8 million to the cost of cloud revenues. Without this non-cash amortization, our total non-GAAP gross margin would have been 66% or 64.1%, adjusting for the one-time cost reduction I described above. In addition, without this non-cash amortization, our non-GAAP gross margin for recurring revenues would have been 69%, up from 66% in the 2015 second quarter. Our non-GAAP gross margin on services revenues was 14.7%, down from 17.2% in Q1 and 26.6% a year ago due to our very rapidly growing number of PureCloud deployments, which are smaller in size and thus have lower margins than the on premises engagement.

We took steps to decrease our services cost in the second quarter of 2016 through a CaaS reduction, which resulted in one-time severance costs of $0.5 million during the quarter. Without these severance costs, the services gross margin would have been 18.6%. We expect our professional services margins to be in the 20% to 23% range, as we continue to gain efficiencies in this area.

Total non-GAAP operating expenses were $71.5 million, up from $59.1 million in the same quarter last year, with half of the increase related to the continued reduction of our capitalization of PureCloud development costs because most of the new features of engage, communicate and collaborate are now generally available. In the second quarter, we capitalized $200,000 of development costs, compared to $4.7 million in the second quarter of last year. In addition, other CaaS reductions in the quarter resulted in approximately $1 million of severance costs and we had an increase in commissions related to the accelerated growth of new PureCloud customers by 204 logos in Q2, up from 118 in Q1.

Total headcount at the end of the second quarter was 2256, compared to 2239 at the end of the first quarter and 2309 at the end of 2015. Our non-GAAP operating loss, which excludes stock-based compensation expense and purchase accounting adjustments was $1.5 million, a significant improvement over our guidance. Our non-GAAP net loss for the quarter was $1.2 million, or $0.06 per share, based on 22.1 million fully diluted shares outstanding. This compared to non-GAAP net income of $307,000 or $0.01 per share based on 21.5 million fully diluted shares outstanding in the second quarter of 2015. Our GAAP Operating loss was $7.3 million and GAAP net loss was $7.2 million or a loss of $0.46 per diluted share.

Now, turning to the balance sheet. As of June 30, 2016, we had $198.2 million of cash and investments, about the same as at the end of Q1 2015. During the second quarter, the company generated $1.7 million in cash flow from operations. Subtracting 1.8 million for capital expenditures and 600,000 in capitalized internal used software, which does include both R&D and other internal system initiatives, we had negative free cash flow of $700,000. We continually monitor our uses of cash through ongoing cost controls and solid cash collections.

Accounts receivable days build outstanding, as of June 30, 2016 were 80 days, consistent with last quarter and the second quarter of 2015. Adjusted DSOs, which take into account the increase in deferred revenues, were 81 days. Total deferred revenues were $133.9 million, up 22.4 million or 20% from the second quarter of last year. The increase was primarily due to an increase in deferred cloud revenues related to cash received upfront on annual contracts, which will be recognized in future periods.

Let me finish with some comments regarding the company's financial outlook, starting with our third quarter. We expect total revenues in the range of $103 million to $106 million, a non-GAAP operating profit between breakeven and approximately $2 million and non-GAAP EPS, ranging from negative $0.02 to positive $0.04 per share. We expect operating cash flow to be positive and free cash flow to be right around breakeven after considering capital expenditures of $3 million and capitalized R&D of $1 million. For the 2016 fiscal year, we expect the continued strong performance of PureCloud and the better-than-expected revenues from the second quarter to partially offset the continued expected decline in professional services revenues and anticipated continued volatility in license and hardware revenues. As a result, we're adjusting our guidance for total revenues to range between $425 million and $435 million.

Please remember that, as usual, difficult to predict future new on premises license and hardware sales could materially affect positively or negatively these anticipated results. We are reaffirming our previous guidance for cloud subscriptions in 2016 of between 142 million and 148 million. Please remember that the real revenue effect of even or higher than expected PureCloud sales will not be seen until 2017, and beyond. That being said, we currently expect our cloud subscription growth to accelerate in the back half of the year through the combination of our increasingly efficient on boarding of new PureCloud customers as well as increased usage of customers expand their existing implementation. We are maintaining our guidance on full-year non-GAAP operating income of breakeven to slightly above breakeven results and non-GAAP net loss of $0.07 to $0.09 per share. We continue to believe both our operating cash flow and free cash flow will be positive for 2016.

And now, let me turn the call back to Don for closing comments.

Don Brown

Thanks, Ashley. Before we open it up for a Q&A, I wanted to reiterate how well we are positioned for the future. With over 300 PureCloud customers in just two quarters, and a technology like none other in the industry, I continue to believe we’re seeing an inflection point for the entire customer engagement space from SMB to large enterprise and across all verticals. Cloud adoption is here. We’re in the early stages of disrupting the customer engagement marketplace with PureCloud, by one, making the traditional procurement and contracting process and afterthought, two, providing low-cost installation packages to get customers up and running quickly and three, continuing to add new PureCloud features at a rapid clip.

As a result, customers can easily consume PureCloud services, expand usage and add services at their own pace. The positive feedback we've received from prospects and customers, small and large, is proving that PureCloud is a game changer for our industry and we’re excited for 2017 and beyond. With the success of the first half of 2016 under our belt, we’re ready to drive this opportunity home and dominate our industry. And although it was a big jump to go from 24 new PureCloud customers last year to 204 in Q2, we look to turn in a similar number in Q3 and grow from there.

With that, I will turn the call over to the operator to begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Dan Bergstrom with RBC Capital Markets. Your line is open.

Dan Bergstrom

Yes, hi. Thanks for taking my questions. The partners accounted for 37% of your cloud deals, up from 25% last quarter, and I think you added 40 new partners in the first quarter, how should we think of the demand from the channel here and what's the ramp time for the new partners?

Don Brown

Well, PureCloud partners are able to come up really quickly, just as customers are. So there is not a heck of a lot of ramp time and we are seeing sales from relatively new partners. We’re making a concerted effort to continue to sign new partners, so we're really happy to see that uptick in the percentage of business done through the channel, and I think most of you are aware that with our first generation cloud offering, we really didn't have a whole lot of partner participation. So it’s a big change to see this sort of adoption with PureCloud.

Dan Bergstrom

And then you had some promotions launched in June, encouraging CIC customers to migrate to PureCloud, just curious about the initial customer reception to that.

Don Brown

Yes. We really haven't had too many customers migrate. It’s a long process. CIC is a very sticky product, so it takes customers a while and to just get ready to move their operation over, although fortunately with PureCloud, they can actually do the conversion pretty quickly. But we've got a lot of customers, current CIC customers looking at PureCloud and either thinking or planning about making that migration. We've had some number of customers actually deploy PureCloud in conjunction with their existing CIC implementation. So we are happy with what we've seen so far, but that's kind of a long process.

Dan Bergstrom

Thank you.

Operator

Thank you. Our next question comes from Dmitry Netis with William Blair. Your line is open.

Dmitry Netis

Great, thank you very much. Ashley or Don, I'm just sort of looking at the cloud revenue growth number you put out there, and if I do the math right, second half over first half, you expect it to be up 38%. I mean, that's a pretty steep ramp. So I'm just trying to gauge your level of confidence you will be able to get there and thinking about kind of in that context, the comment you made that the PureCloud will begin contributing in a major way to revenue in ’17. So I would imagine most of that growth that you maintained for the full year was coming as a result of the CaaS product. Is that compared to the last year, 15 number, when you grew the CaaS 62% in the second-half versus first half, ramp was about 28%. So we’re looking at 38% ramp versus 28% last year, pretty big ramp. So can you sort of close the gap there? Thanks.

Don Brown

Yes. You bet. Well, you’re right that a lot of that growth is due to CaaS and is kind of baked in, we have CaaS customers who continue to expand their usage. And then we have the customers who have been signing up for PureCloud and we expect increasing adoption from those customers. And then just the continued ramp that we’re seeing with PureCloud. We hesitate to kind of forecast continued doubling of the number of PureCloud customers, but we continue to see really good activity, we’ve got a strong pipeline. And so, we think all of these trends are converging in a way that gives us a lot of confidence in our ability to hit those numbers for the second half of the year. And I’ll let Ashley chime in with any comments she wants to make.

Ashley Vukovits

I just agree, I think Dmitry we look at CaaS, PureCloud, and we have a small subscription component to that cloud subscription revenue, and Don is right from a CaaS perspective. Although we’re not adding a lot of new customers, we still are implementing customers from business that came in last year as well as continue to see those CaaS customers ramp up. And certainly, the PureCloud is new, so we’re watching that adoption rate but certainly have the potential. As we’ve said some of the smaller PureCloud purchases are from larger companies that we anticipate will expand their footprint over time. So, all of those things combined is what gives us the confidence in the second half of the year.

Dmitry Netis

Have you guys communicated or dare [ph] to communicate what that growth rate may look like looking into ‘17 timeframe?

Ashley Vukovits

We haven't communicated anything yet.

Dmitry Netis

In the product side of things, can you tell us, you did mention there will be some volatility, what should we be expecting, I mean clearly you had a nice uptick this quarter, you may be down still for the year, but it would be down in kind of double-digits it seems like or maybe it will, so can you give us a little bit of color what you’re expecting for the year on-premise?

Ashley Vukovits

I mean, we don't comment specifically on the different components but certainly we commented on the total revenues and then we breakout the cloud subscription revenue. But you’re right you can look at what came in, in the first half of the year and compare that to your model and see that certainly we've had higher than anticipated on-premise growth. And what that will look like in the second half of the year, we look at pipeline, we look at customer adoption with on-premise and we come up with our estimate, so you have to just plug that through your model and see where you come up, but certainly it’s - we’ve had better than expected performance in the first half of the year.

Dmitry Netis

And then lastly maybe in the churn of PureCloud, have you guys had any metric to measure that or is it still too early?

Ashley Vukovits

I think it’s early, I mean we’ve had just a handful mostly at the small end, but nothing that’s cost us any concern, we think those churn rates will stay pretty consistent with what we see on the CIS maintenance, the contact center services are sticky and we will believe once we get in and prove our position of PureCloud that the churn rates will be similar to what we’ve seen on the CIC maintenance side.

Dmitry Netis

Can you remind us what it was?

Ashley Vukovits

It runs around 90% to 92% retention.

Dmitry Netis

Got you, got you, alright very good, that’s from me, nice quarter of the LOGO acquisition.

Operator

Thank you. Our next question comes from Mike Latimore with Northland Capital. Your line is open.

Mike Latimore

In terms of the just CaaS business growing sequentially in the back half of the year, you've seen some, I mean historically we’ve seen some acceleration in second half in CaaS, I guess is that more tied to your own implementations or is it further some specific verticals that drive more usage of the second half or just a combination?

Don Brown

I think it's a combination, we certainly have some big retail customers who obviously do a lot in especially the fourth quarter, so there is some vertical influence by this, Ashley said we’re still doing new implementation, customers continue to grow and then I just mentioned on the PureCloud side, we’re seeing some of that as well, we had a customer that in the first quarter signed up for initial ten seats and then actually expanded to over 1,000 seats in the second quarter. So, that's the sort of expansion that obviously we’re hoping for and counting on in giving some of these projections.

Mike Latimore

In terms of the PureCloud deal, you’ve given rough estimate of what percent of seats come from Communicate versus Engage, I know the revenues are a lot different but I’m just curious on seats.

Don Brown

I think it’s roughly three quarters of a Communicate seat for each Engage seat or more simply they are pretty comparable numbers that we see. And as I said we’ve signed deals with more than 1,000 Communicate seats so that's kind of a little bit of an unexpected bonus for us.

Mike Latimore

And then, at your Analyst Day At you talked about, I think you said cloud, you kind of expect cloud to be 50% of revenue I think it was in 2017, is that still kind of the general thought?

Ashley Vukovits

I think it depends on what our premise business does buy we certainly hope to grow the cloud business, we think that's a good metric of becoming - getting that cloud revenue up greater than 50% of our total. But obviously it's very dependent on what the premise business does as well.

Mike Latimore

And just last one, in terms of the speech recognition function, I think you fitted a lot engines yourself, I guess is that the long-term plan or might you add third-party speech recognition?

Don Brown

We’ll probably add support for third-party engines next year, right now we concentrated our efforts just on – it’s really just one engine but multiple language models. So, we're pushing forward to have pretty nice coverage but yes, we do expect that we will add support for additional speech rec engines next year.

Operator

Thank you. Our next question comes from Meta Marshall with Morgan Stanley. Your line is open.

Meta Marshall

Hi just a couple of questions, just given that for full-year you aren’t raising your estimates given kind of the outperformance in Q2, I just wanted to get a sense of, did you think that results in Q2 were particularly strong because there has been a lot of engagement around interaction events or is there a change in macro conditions of may be softening in the second half? And then second, if you can just speak to the success on the international markets and whether there is something that makes the competitive environment that are different or just why you are thinking you are having so much success in those markets?

Don Brown

I will let Ashley take any sort of qualitative view on both of those, but I would just say in general, we are just being cautious because we’re seeing this rapid acceleration in PureCloud and it just doesn't take much of a shift from premises to cloud to really impact our revenue numbers. So, we just don't want to be on the wrong side of that shift, but overall we think it’s positive thing because we are seeing our cloud business grow so rapidly. And internationally, we’re still, we are happy but we’re still trying to understand – have been pleasantly caught by surprise in the international adoption rate of PureCloud. I think it is true that the competitive dynamic is a bit, some of the major US cloud companies aren't as strong internationally, we invested in international markets pretty early on and spinning up those additional Amazon instances that I mentioned and others that we’re looking at, so we’re going to keep pushing on that gas pedal as long as we are getting traction from it. And so, we think that this is just reflective of the strong international capabilities of PureCloud, the security that I think it’s especially top of mind once you get outside the US and the investment we've made in things like multilingual speech recognition text-to-speech localization and a bunch of different languages all of those factors coming together in a positive way.

Operator

Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is open.

Brian Peterson

I wanted to hit on the PureCloud customer base a bit, is there any way that you could split that out in terms of those customers that are using your CIC or CaaS products today versus how many would be kind of net new to the company?

Don Brown

The overwhelming preponderances are net new. We certainly do have some CIC and CaaS customers but that’s the great minority.

Brian Peterson

And just a higher level question on OpEx, it’s been up 20% over the last couple of quarters, I believe you were looking to try to keep that flat in ’17, with the PureCloud growth is that a reasonable target, I realized it's not guidance but just trying to understand how we should look at OpEx more broadly given the PureCloud growth? Thank you.

Ashley Vukovits

I think our goal is to still hold overall OpEx expenses stay static from 2016 to 2017. I mean the nice thing about PureCloud is the cost of selling it is lower because a lot of that we do through digital marketing, regeneration and an inside sales team all those things being a lower cost model than the larger, you know, the on-premise business. And then the other thing to just remember about OpEx expenses is the R&D costs that we capitalized, so one of the reasons you're seeing the expenses increases just that we've significantly reduced the amount of cost that we’re capitalizing and you’re really seeing that impact in 2016.

Operator

Thank you. Our next question comes from Craig Nankervis with First Analysis. Your line is open.

Craig Nankervis

Actually several of my questions have been asked, but maybe Don, on PureCloud is it right that your sales quota changes for PureCloud in the second half for the sales [indiscernible] is moving up, the quota is moving as the quarters progressed, is that right?

Don Brown

I don't have the sales pane in front of me, I don't really think so, we generally said annual plans so, no I don't think that’s the case.

Craig Nankervis

I guess it's really my main question, the others have been asked, so thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Jonathan Kees with Summit Redstone. Your line is open.

Jonathan Kees

I just wanted to ask for a better idea in terms of the composition of the wins here, you talked about for the cloud that you went across doesn’t be enterprise crossover verticals. Just trying to understand for example like how many, you talked about CIC had six deals over $1 million, my apologies if you already shared that disclosure for that - information for the cloud but if you can talk for that PureCloud and also is it, I guess I'm trying to sense that even though the crossover segment is it vast majority SMBs?

Don Brown

I will take the second one, no, we are selling PureCloud to both - certainly SMBs but midsized and very large organizations as well. So, we're really not targeting PureCloud for small companies, although that is kind of a new market for us. With our first generation cloud offering, we really weren't very successful once we got much below 100 seats competitively we didn't do very well. In our analysis so far with PureCloud, we are winning about two thirds of the time across the board, so we've got - I think our win rate this quarter was about right around two thirds and that‘s against everybody from inContact [indiscernible] to Genesis and Cisco, so it’s kind of up and down the competitive spectrum.

Ashley Vukovits

And the other thing I would add John is just we – Don, one comment he had in this comments before where we had 23 logos that were over 100 agents, so I think that gives you an idea that there are larger customers that are very interested in PureCloud.

Jonathan Kees

I'm sure you're still leading with customer engagement in terms of PureCloud, just want to get an idea in terms of how much of that is also communication, you mentioned you had one customer was over 1,000 seats in communication. Is that add-on as well as collaboration, is that becoming more and more [indiscernible] here and there?

Don Brown

Well in terms of predominantly unified communication deals that’s still a relatively small part of our business, we don't go out and position ourselves primarily as a unified communications system. But our capabilities in that area are getting stronger and stronger and so we’re starting to win more of that business and so far it's been relatively consistent in the time we’ve been selling PureCloud that it's roughly one-to-one that we sale roughly one Communicate seat for every Engage seat.

Jonathan Kees

One Communicate seat for every Engage, so every contact is on you, so…

Don Brown

Roughly, I think it’s actually 0.75 but close enough. I think the interesting thing this quarter was that we did see some larger organizations deploying PureCloud as their complete phone system as their complete communication system so, that's something that we’re certainly watching.

Operator

Thank you. And our next question comes from Jeff Van Rhee with Craig-Hallum. Your line is open.

Jeff Van Rhee

Don, obviously the shares were up dramatically last week on rumors that you've engaged a bank in potential sale process, just maybe you can start there if you care to comment at all on that?

Don Brown

I never heard any rumors, no I'm just kidding, no, we’re not going to comment on rumors or speculations.

Jeff Van Rhee

I guess professional services coming out of Q1 you lowered your expectations a bit given the lessened amount of services necessary on PureCloud Engage deals or deals in general I guess in PureCloud. Can you give me a sense of how you're thinking changed or hasn’t changed from that point until here namely, are things playing out as you expected after Q1 with respect to specifically to professional services?

Ashley Vukovits

Yes, I think so, I think, I raised on the call earlier, PureCloud certainly does not take as much services as our traditional CIC and CaaS engagements and since that's what we’re leading with an seeing rapid growth on that doesn't change. And with the CIC business we are getting in, there are a lot of partners that are selling those engagements particularly of the newer ones and so that’s certainly going to drive those professional services revenues down as well. So, I don't think anything is changed since the advice that we gave out on the first call.

Jeff Van Rhee

And then, I guess down with respect to uptime on PureCloud in the last couple of months, has uptime on PureCloud meet your expectation in the last two months?

Don Brown

Yes, you have to understand PureCloud is about 150 micro services and the core PureCloud services have operated at an incredible sort of reliability level. The one component that we're really working on with PureCloud is our voice services that are only offered in North America and those voice services are designed kind of using our older CaaS with proprietary data centers and virtual machines. We’ve worked with Amazon and are really excited because we were initially kind of hesitant to push the voice traffic through AWS, but we’ve worked with Amazon and have achieved the sort of latency and overall performance that we had hoped for. And so we are now rapidly moving that voice component, the PureCloud voice services over two AWS, we expect to have that done sometime here in the next few months. And then that architecture which is more like the rest of PureCloud is, what we’re going to use as we push out internationally. So that's the one piece of PureCloud that we really been working on that isn't up to the rest in terms of the level of reliability that we want but we’re really confident that we’re going to have it there very soon and really excited about being able to streamline that and get that into AWS along with everything else.

Jeff Van Rhee

Got it. And then on the ARR side, you gave us a sense of percentage growth in Q2, would you care to share a dollar amount or any thinking on when we might be able to have that dollar amount if it’s not now?

Ashley Vukovits

No, it’s not going to be, now it’s still a fairly a small number comparatively, we continue to give out logos, we believe we will give out monthly recurring revenue at some point in the future but just not there yet.

Jeff Van Rhee

And then last one from me, with respect to the 23 deals over, if I caught it right, the 23 deals over 100 seats on the PureCloud side, if you don't know exact roughly how many of those were Engage deals of the 23 that were over 100, how many were Engage deals?

Don Brown

Almost all of those, when you say Engage deals, I would guess that every single one of those - actually by definition when we say that we are talking over 100 Engage seats.

Jeff Van Rhee

I guess, I maybe I was confused and I wanted to make sure that wasn't a mixing and matching of Communicate and Engage.

Don Brown

No, no.

Operator

Thank you. And there are no further questions in the queue. I’d like to turn the call back to management for any closing remarks.

Don Brown

And alright, well thanks everybody as you can tell we're pretty excited and happy with the rate of adoption of PureCloud, so we will be looking forward to sharing with you next time.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, you may all disconnect. Everyone have a great day.

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