Insider Report May 2024

Curated Enterprise Communications News and Insights from May 2024

Feature

The New iPads: Apple has confused the world with its new iPad, introduced in May, not to mention angered many with its new Crush! (Why people found that offensive is another post.) The new iPad is Apple's most powerful (and thinnest) device. When configured with an Apple keyboard and stylus, it costs about the same as a MacBook Pro.

What makes the iPad so puzzling is that it features Apple’s new M4 chip. Previously, Apple introduced its newest chips on its Macs.  

On a broader scale, Apple’s iPad strategy has become confusing. The various offerings — iPad Pro, iPad Air, and regular iPads — run their own operating system but share the iPhone App Store. The iPads are somewhat limited because they are, for the most part, single-app-on-the-scree-at-a-time devices. 

We probably won’t have to wait much longer to find out Apple’s strategy. Its annual worldwide developer conference (WWDC) is days away. There have been few reliable clues about what may be coming. 

DJM has a theory. Tablets have not lived up to their potential. Sales for the iPad peaked a decade ago (surprising). Tablets were down 11% as a category in Q4 23. The iPad created the category and became a brandnomer — the generic term for a tablet. Microsoft responded by becoming a PC maker itself with its Surface Pro tabletish devices. Several lackluster tablets running Android are also available. 

One of the most interesting developments in the Chromebook evolution was the addition of support for Android. This increased the browser-centric device’s capability with Play Store apps. The specs of the new iPad should be able to run desktop operating systems in addition to iOS and App Store apps. After all, Macs with any Apple M-chip can run MacOS and Windows without breaking a sweat. 

The iPad already has touch and stylus support (Apple Pencil), which is more than any MacBook offers. It just got a full Mac keyboard accessory, supports cellular and WiFi, and offers good battery life. If it could run MacOS and Windows, it would once again become a disruptive device that neither Microsoft nor Google could match. 

Regardless of what Apple does with the iPad in June, its new specifications make it a more interesting device for specialized workloads, such as contact center agents. Google has made significant progress with CCaaS providers using Chromebooks for agents. The iPad presents a viable alternative. It also offers mobile apps and browser extensions with attractive initial and ongoing costs.  

Meanwhile, PCs Reinvent: If the iPads remain limited, we may have to turn to PCs for excitement. Perhaps you have heard that Microsoft is going all-in on Copilot. As far as we can tell, every product manager in Redmond has been instructed to figure out a Copilot play. The PC folks believe the world needs AI-powered Copilot Plus PCs. Microsoft, along with Lenovo, Dell, Acer, Asus, and HP, is launching Copilot Plus devices to support advanced AI features, such as improved cameras and integrations with Copilot and OpenAI’s Chat GPT-4.

IBM once dominated computer innovation and creativity, but that torch passed to Microsoft in the ’80s. Nadella wants to retain the torch in the era of generative AI, and being late to a transformation party is not an option. 

The strategy is risky. No one really knows where generative AI is headed. Despite its huge potential, it hasn’t yet earned the respect it’s getting. Transitions and tech evolution take time. The dot-com crash in the late ’90s was because the internet hadn’t lived up to its hype … but eventually, it did. 

We know Generative AI is powerful, even magical, but we don’t really understand what it will do or whether it’s a platform, agent, wrapper, or feature. We don’t know where costs are headed or how to manage privacy. (This is especially true in light of the announcement of “Recall” on these Copilot Plus PCs, which screen-captures and saves everything done on them.) In the past year, we have seen numerous LLMs closing in on OpenAI’s lead. Even IBM has what it claims to be a best-in-class LLM for coding. Will the promise of AI PCs justify replacing devices that are otherwise perfectly capable? 

Microsoft’s Quest: Microsoft’s problem is that PCs are dull. No one in UCaaS is feeling sorry for Microsoft, but maturity eventually hits all products (Windows, Office, PCs, browsers). Copilot is one strategy to bring back sizzle; another is VR. Microsoft upped its partnership with Meta to make Windows better on Quest headsets. Microsoft intends to bring Windows and Office applications to Quest, including 3D spatial awareness apps via a volumetric API.

AI

Amazon to Improve and Charge for Alexa: According to CNBC, Amazon plans to enhance its voice assistant, Alexa, with advanced AI features and introduce a monthly subscription model to support these improvements. The overhaul aims to make Alexa more conversational and capable of understanding complex commands. This initiative is part of Amazon’s broader strategy to integrate generative AI technology into its devices, offering a more personalized and intuitive user experience. It’s an interesting idea with little to lose, though I have doubts it will be successful. Alexa will be more human-like, but that hasn’t been the problem. It just isn’t that useful.  

OpenAI Makes Herstory: OpenAI cluster-presented ChatGPT 4o (4o?). Its choice to use a flirty female voice that sounded like the AI voice Scarlett Johansson played in the film “Her” was sophomoric. We don’t need the most powerful AI on the planet to compliment our attire and giggle. OpenAI can capture media attention without stupid stunts. Wasn’t there a big Hollywood strike over actor concern about AI fakes? OpenAI has agreed to retire the voice named Sky, which will undoubtedly setback the adoption of AI. 

That said, the demo wasn’t very interesting. Sure, they added impressive multimodal capabilities, but it was largely the same parlor tricks of stunning human-like conversation. Still waiting for the killer use cases. Actually, the multimodal aspects were right out of Google Gemini’s fake launch video last December (that’s how you upstage Google). 

The big takeaways from OpenAI’s PG-rated launch are that the company is making more of its services free (presumably because it needs help finding use cases) and that none of the cool tricks we saw are generally available. In other OpenAI news, the (only) two visible/respected employees named to its superalignment team (to ensure safe AI ) left the company less than a year ago. 

AI is Heating Up: “Houston, we have a problem.” The U.S. power grid can’t keep up. It’s caught between climate change and AI. Climate change is driving more use of AC (and more brownouts). The surge in demand for power is exacerbating emissions and contributing more heat (China keeps firing up new coal-powered plants). It’s not even summer yet, and Mexico is experiencing a record heatwave and drought. The extreme heat has already killed dozens of people (and monkeys), with the hottest temperatures still to come.

Meanwhile, AI is consuming tons of power. Based on recent trends, the International Energy Agency expects the world’s data centers to double their energy consumption in four years. Data centers are chasing cheap power and causing havoc in places like Texas and Idaho. Ireland has put a moratorium on new data centers. Generative AI systems use an estimated 33 times more energy than task-specific software.  

Companies like Amazon, Google, Meta, and Microsoft were net-zero champions just a few years ago. Software was a relatively clean industry, but AI has pushed the sector closer to manufacturing and cement making. They can’t figure out how to be AI leaders and honor their bold emission reduction commitments made before gen AI. Looks like AI is indeed a threat to humanity. 

The tech brain trust has a solution: Mini nuclear power plants at data centers. They are carbon neutral, but 1) the tech doesn’t exist, and 2) we still have no scalable solution for nuclear waste. There are no easy answers to this problem. The grid needs major upgrades. Presumably, everyone who opposed Bitcoin’s power consumption is also opposed to generative AI, right? 

Meetings and Messaging

ICQ to Shut Down: Chat is currently one of the killer enterprise communications apps. For many of us, our first experience with chat was Internet Relay Chat (IRC), though that required some geek credentials. More mainstream was ICQ, which sadly comes to an end on June 26 — though few will notice.  

When Instant Messaging (IM) was spreading like wildfire, thanks to Windows 95 and Netscape, it was ICQ that really took off, thanks to America Online. AOL saw the value in instant messaging and created AIM, or AOL instant Messaging, powered by ICQ. AOL acquired ICQ maker Mirabilis in 1998, and the IM battles (AIM, Microsoft, Yahoo) began.

There have been multiple winners over the years. At one point, it was Skype. Not sure if there is a winner today, given the multiple networks with tens of millions of users (Teams, Slack, Google Chat, Webex, WhatsApp, Messenger, Telegram, Signal, and more). Each network is an island; interoperability has always plagued the sector. Mio stands as one of the few interop survivors. 

Meta Shutters Workplace: Meta is shutting down Workplace — another move that few will notice or care about, though the product had real potential. This may be a flawed category, but no enterprise social app has broken out. Even Yammer, acquired by Microsoft in 2012, is disappearing within Viva. 

We all know that work has a social element, which employers don’t necessarily condone. A clear example is union organizing, but many conflicts exist. During the pandemic, UCaaS providers nailed meetings, but many of the social aspects of the workplace were not well addressed. These include onboarding, cultural propagation, team building, gossip, and more. 

The enterprise wants to promote social interaction but can’t let inappropriate content pass. Enterprise chat apps also run into these problems, but the line is clearer. Chat apps are for work, while social apps live in a gray area.

Here’s the thing: Few UCaaS companies have done much to fill this gap. Zoom acquired Workvivo. Microsoft, too, is attempting to address this gap with Viva. Facebook’s effort to adapt to enterprise use had the advantage of familiarity. Walmart was a marquee customer, but apparently it still wasn’t enough.

Managing MTR on Android: In Q3, Microsoft Teams Android devices will be required to transition to AOSP (Intune Android Open Source Project) device management, replacing the legacy Android Device Administrator solution. MS says this mandatory migration aims to provide a more reliable and innovative management experience. Oops, a handful of devices from AudioCodes, Yealink, Crestron, and EPOS can’t transition, and they will no longer be supported. —DJD

Microsoft Build 2024: Team Copilot & Agents - Surprise! The big Teams news at Build was related to Copilot. Team Copilot is coming to facilitate meetings (agenda management and notetaking, tracking action items, assigning tasks). It can be leveraged within Teams, Loop, Planner, and probably everything else in Microsoft 365. It will be available in preview “later this year” to those with a Copilot for Microsoft 365 license.

Microsoft is also expanding Copilot into a customer-facing role. Not really, Microsoft Copilot Studio can create external-facing automation and orchestration bots, but it is currently only available in an Early Access program. Microsoft believes a Copilot agent can take an order, process it, ship it, or make recommendations for out-of-stock items. Dave Michels is confident it will work at least some of the time.

Other Teams updates announced included "Meet now in group chat," enabling users to start spontaneous, ad-hoc calls with their team within ongoing chat threads. This feature allows for real-time discussions without formal scheduling, mimicking the casual nature of desk-side conversations. The feature will be generally available in June.

Also, to enhance security, IT administrators can now set content-sharing permissions for external meetings in Teams that disable screen sharing to prevent information leakage. This includes whiteboard usage to prevent accidental leaks of sensitive data. Users without permission can still view and interact with whiteboards started by others. This feature is available with a Teams Premium license.

Four new devices were also announced as certified for Teams: The Maxhub UC BM35 portable Bluetooth speakerphone; The Maxhub XT10-WS Kit, Including their UC BM35 Speakerphone and UC W31 USB Camera, meant for small, BYOD Teams rooms; The EPOS Impact 760T double-sided, wired headset designed for professional environments; and the EPOS Impact 730T single-sided headset with similar professional features.

Google Partners on Starline: Google initially showed us Project Starline as a high-resolution video booth that would have been cost-prohibitive to productize. It then appeared again as a more mainstream video booth. Shockingly, Google lost interest and has turned it over to HP to commercialize next year. Starline uses AI, 3D imaging, and other technologies to make people feel like they are in the same room, looking at each other through a “magic window.” 

Vids Fails at Workspace Recap: Google shared a presentation recapping I/O announcements produced by its new Vids service. I’d love to tell you what they said, but I was so distracted by the swirling colors and animations that I couldn’t pay attention. I thought I was on Wonka’s ship traveling down a chocolate river. As with many new technologies, it’s clearly easy to overuse. Bad video is easy. Bad video with AI is apparently even easier. Effects for effects’ sake should never be the point of a presentation. —DJD  

Amazon Q Business: Amazon Q Business, previewed last year, is now generally available. The Gen AI assistant can do all the tricks you would expect — answer questions, create summaries, generate content. It has custom plugins and connects to 40-plus enterprise data sources, storing document and permission information. Amazon Q Apps is a feature in preview that lets users create gen AI-driven apps with no prior coding experience.

Pexip Partners: Avaya announced that it was replacing its internal videoconference bridging service with Pexip, whose services already meet the compliance requirements of multiple government entities. Switching from its own bridging and interop platform to Pexip aligns with other actions signaling Avaya’s narrowing focus on CX. Cisco Webex announced it will use Pexip to deliver “an ultra-secure … CVI meeting solution … for all types of federal and defense customers.” Presumably, this is to rapidly enable interop services for highly secure clients as work is being done to continue expansion of its own VIMT solution for CVI. Cisco seems committed to interoperability with Teams for all of its devices and customer segments.

Synergy SKY Now Available on Cisco’s Control Hub Dashboard: Synergy SKY has announced the integration of its Connect service with Cisco Webex Control Hub, facilitating simplified video meeting management and participation across various platforms like Microsoft Teams, Zoom, Google Meet, and Webex. 

More EU Antitrust for MS? According to multiple European publications, the European Commission is poised to levy new antitrust charges against Microsoft in the coming weeks over its bundling of Microsoft Teams and Office. This action follows a formal investigation initiated after a 2020 complaint by Slack. Microsoft made the preemptive move to unbundle Teams, but the EU never considered that action as a settlement. 

The unbundling move never made any sense. The damage to the competitive landscape was done — unbundling simply allowed Microsoft to charge more to a small percentage of its customers. Many UCaaS providers will be watching this very closely to see if/how the EU attempts to rebuild a competitive marketplace. 

Microsoft Places: Microsoft Places is now in Preview. Redmond has been totally quiet on Places since it was announced in October 2022. It’s a workplace reservation system. It’s surprising how long this has taken, given that hybrid work has been a major theme since the pandemic. Other solutions include Cisco Spaces and Zoom Workplace Reservations. Of course, there’s a Copilot angle (pity the Microsoft Product Manager who doesn’t have a Copilot angle). Now, you can access Places from Outlook and get recommendations on the best days to be in the office based on colleague and meeting schedules.

Zoom Makes a Quantum Leap in E2EE: Will quantum computers ever arrive? Hard to say, but IBM thinks so. The company that hasn’t set the tone in computing since the 1980s believes quantum computing is three to five years away. This was one of the topics at Think 2024 in May. IBM claims it has 70 quantum computers deployed, with over 3 trillion experiments under its qubits.

If and when it does arrive, Zoom is ready. Its new end-to-end encryption (E2EE) for Zoom Meetings is supposedly designed to provide post-quantum security. It’s a pretty easy claim, considering quantum hasn’t arrived. It’s like oil companies promising to reduce carbon emissions by 2050. Zoom expects to expand this E2EE to include Zoom Phone and Zoom Rooms. 

Crestron Flex Pods and 1 Beyond Cameras Certified for MTR: Crestron has been chipping away at Microsoft Teams Rooms certifications. Its Automate VX multi-camera speaker tracking received the certifications a few months ago, and now these two products meet the requirements and are certified.

Customer Engagement

Judging Amazon Connect Contact Lens: A new Amazon Connect Contact Lens feature provides agent evaluation recommendations to managers, supported by context and justification from transcripts. Currently in preview in limited geographies. Let’s have AI evaluate the managers, too. 

Sprinklr Digital Twin: Sprinklr introduced Sprinklr Digital Twin, its version of an AI chatbot. Sprinklr is using the familiar term uniquely, to designate a digital twin of a CX function (hmmm). Sprinklr’s Digital Twin differs from other virtual assistants by tailoring its behavior to one of three levels within a company: the company brand, a team, or an individual. The “Digital Twin” acts on behalf of the assigned entity by providing targeted and relevant assistance. 

The bot’s actual details are competitive, but the Digital Twin marketing is peculiar. Powered by Sprinklr AI+, it supposedly allows companies to build autonomous, intelligent AI apps that mirror and enhance customer-facing teams working across channels. Various levels are interconnected. Sprinklr Digital Twins are designed to be trained with no-code or low-code implementation.

Sprinklr Surveys also launched this month. It collects feedback from all sources and types. Another “listening” app is the Crisis Management Solution App, which can help companies detect, monitor, and address crises by listening to social media and the web. Also, as part of its ongoing effort to expand its voice connectivity suite, Sprinklr launched Voice Connect, a new CPaaS offering aimed at its CCaaS customers. Sprinklr is dead serious about being a major CCaaS provider. It has the ability to innovate and continues to expand its offerings. 

Microsoft ACS CC: Microsoft continues to steadily improve Teams (and ACS) to make it more suitable for customer engagement solutions. Azure Communications Services offers developers APIs that leverage Teams. Microsoft has announced new features in ACS that allow an app or website to connect with Customers. For example, there’s PowerPoint Live to bring customers, Teams, and Powerpoint together in one conversation. Teams users can share SharePoint files in chat with users joining from a custom app or web experience, and real-time transcription is coming. ACS is also being positioned as a gateway for contact centers to integrate with Teams. This will speed up CX integrations. 

Intermedia CC Certification: We are seeing a wave of new CC solutions for MS Teams. Intermedia’s Contact Center is now Microsoft Teams certified, meaning Teams users can now use the contact center features from wherever they are working. Dave Michels interviews CEO Mike Gold on UC Today. 

Genesys Xperience Denver: Genesys unveiled Agent Copilot, Virtual Agents, Empathy Detection, and Modern Agent Workspace. Copilot? Just what we needed, another Copilot that can summarize conversations. GA expected “later this year.” The giant also published some obvious research revealing that customers will accept AI IF it solves their problems (that’s a big if). Genesys teased “Next Generation Virtual Agents” in 3Q 24. I feel sorry for the Empathy Detection bot. Lastly, Big G made some progress on integrating more of Pointillist (2021 acquisition) with improved journey management. 

NICE WFM: NICE added an Inventory Insights module to its True to Interval (TTI) Analytics workforce management (WFM) solution. TTI Analytics logs contact center interactions in the intervals they occur, a popular module among forecasters. However, contact centers often have no way to accurately capture demand in the period it begins. TTI Analytics solves this problem, and Inventory Insights takes that reporting into the back office to enable a common planning interval. This goes beyond forecasting “conventional” front- and back-office activities, enhancing accuracy in assessing whether agents are handling asynchronous contacts.

Avaya IAUG: It is extraordinary how much has changed between two International Avaya User Group (IAUG) events in less than a year. This year, the event happened in mid-May; in 2023, it took place about six weeks later. Last year, CEO Alan Masarek had yet to hire any members of his new leadership team. At this event, the leadership team was in place, an acquisition was announced, and attendees were fired up. Announcements at the event included: 

Avaya and RingCentral bolstered their partnership. Last March, Avaya and Zoom announced a partnership that involved using the Zoom Workplace suite to access Avaya Aura call control. RingCentral has done the same. Zoom has the advantage of enterprise meetings, but RingCentral has the advantage of Avaya Cloud Office. RingCentral retains its exclusive UCaaS agreement with Avaya. Avaya Cloud Office can now be configured to also work with premises-based UC (Aura). So, existing Avaya investments can be leveraged alongside RingCentral’s video calling and messaging and, of course, RingSense AI can be layered in for things like live transcriptions and video highlights. The Aura integration is coming out later this year. The partnership also brings a new integration of Avaya Cloud Office with Microsoft Teams. This free integration needs no additional Microsoft licensing. Avaya and RingCentral also agreed on a wholesale model in addition to the agent/super-agent model already in place. See booth demo from IAUG. 

Calabrio’s WFM contact center software will now integrate with the Avaya Experience Platform Public Cloud. The development equips AXP Public Cloud customers, regardless of where they are in their journey (in the cloud or moving to it), to leverage predictive forecasting, omnichannel scheduling, self-scheduling, and automated custom reporting. Verint bots have also been incorporated into AXP.

Avaya also announced an expanded partnership with Alvaria. Its CX platform will be offered in the Avaya One Source store by the end of May. 

Lastly, Avaya and LivePerson announced an omnichannel solution to unite voice, digital, and AI. LivePerson itself recently announced enhanced capabilities for its conversation orchestration. The companies’ customer engagement and conversational intelligence solutions will be integrated to support multi-channel communication and unified insights. 

Avaya also laid out capabilities for assisted service (Avaya Agent Assist), self-service options via a “bring your own bot” framework, customer journey orchestration and analytics, and a new generation of Avaya Ada, a gen AI-driven virtual assistant.

C1 exits 11: C1 has exited Chapter 11. C1 filed for a prepacked chapter 11 to reduce about 80% of its debt. The venerable CC reseller, SI, and technology provider is back. 

Unified Communications

No More MaX UC: We’ve been waiting for it ever since Microsoft acquired Metaswitch in 2020. MaX UC providers have been notified that sales of the calling platform will end April 30, 2025, and product support ends March 31, 2026. Microsoft suggests Teams and Teams Phone as a replacement. Alianza, Cisco, Crexendo, Intermedia, and Ooma have other ideas. 

Separately, Crexendo reported that its NetSapiens product has surpassed 4.5M global users. That’s up from 1.7M users in 2021. Also, Alianza unveiled CLOUDEDGE. The solution helps telcos move their analog, digital, and IP infrastructure to the cloud. 

TalkingPointz predicts growth in SP-provided UCaaS. The pendulum has been swinging toward OTT providers for the past decade, but as UCaaS is increasingly viewed as a mature commodity, acquisition criteria will shift toward white-glove service and support. 

Vodafone Business Ireland: RingCentral’s partnership with Vodafone (Vodafone Business UC with RingCentral) expanded to Ireland this month. 

Cognigy’s Agents: AI agents are not the same as contact center agents, though the definitions sound similar. AI agents work on our behalf. Cognigy announced new sales and marketing AI agents that can initiate outbound tasks such as contract renewals, prompt customers to schedule appointments, and more. The CCaaS sales process can now involve sales agents, agent assist, virtual agents, and AI agents.  

Ooma Office Updates: Ooma added support for auto-dialing outbound calls, SMS scheduling, team chat, and call park on the mobile app, plus a whiteboard. 

Webex Calling in India: Tata Communications and Cisco have launched Webex Calling to enhance cloud communication in India.

Audio and Visual 

Calm Before the Storm: The annual InfoComm conference is scheduled for June 12-15 in Las Vegas. (As we mentioned last month, David Danto will be there representing TalkingPointz and reporting on the news from the event.) Many vendors are holding new product and feature announcements until the start of the event. Some others are not.

More Partnering: Last month, we explained that more AV companies are going to market by partnering with other firms in the space, creating bundles. Expect this trend to continue in the announcements we anticipate at InfoComm. If manufacturers can make the user experience easier by incorporating a partner’s products or services, it appears they will happily do so. 

HP|Poly Expands Its Portfolio: The Poly team at HP made a number of announcements at the very end of the month. These included a new video codec — the G62. This built-to-purpose collaboration codec is meant to simplify and support “modular” installations. It works with any of the Poly cameras and is designed to allow the cameras and microphones to connect via an ethernet port. It also uses PoE+ for power, is relatively small, and has a custom magnetic mount. At below $2K US, it is aggressively priced to take market share.

The company also announced a new MTR device, the Base Kit G9 Plus, which they described as the first actual product collaboration between HP and Poly since the acquisition. It will be one of the first MTR solutions to use a touch panel connected not via USB but over ethernet, enabling the connection of up to four panels in a room that emulate each other in real time. It also doesn’t need a keyboard or mouse — the touch panel does everything.

The announcements also included a new version of Poly Video OS for all of their devices. The update allows the use of third-party room controllers (Crestron, AMX, Extron, Q-SYS, and more) from inside the Poly touch panel, updates Poly Lens to work more tightly with Zoom Rooms, and provides a commitment to sustainability with the use of more post-consumer recycled components.

Logitech’s New Videobars: Logitech has launched the MeetUp 2, an AI-powered, sustainably designed, USB-based videobar for huddle rooms using a BYOD strategy. The device features advanced video and audio capabilities through what they’re calling RightSight 2 and RightSound 2. Its internal technology lets it connect to a BYOD device with a single USB-C connection — omitting the need for a second HDMI/display cable. It also supports custom home screens for in-room signage through third-party software.

The device is said to be compatible with major video conferencing platforms, but the certification processes for Teams, Zoom, and Google Meet are still underway. To reduce its carbon footprint, the device incorporates 62% recycled plastics. It will be available in August 2024 for under $1K US. Logitech also made multiple announcements about software improvements across its entire videoconferencing lineup, improving images, sound, and control/management/room-booking capabilities.

LG’s Rollable TV Curls Up and Dies: Just three years after its U.S. debut, LG has ceased production and sales of its OLED R rollable TV, priced at $100,000 for a 65-inch display. The decision comes as the company struggles to justify the high cost, with sales primarily limited to art exhibitions and premium marketing endeavors. 

Video Window: A new “portal” sculpture went online this month, connecting the Flatiron South Public Plaza in New York with Dublin, Ireland. The persistent video sculpture weighed 3.5 tons and featured an 8-by-8-foot persistent video screen using Video Window’s technology. Similar portals have appeared in other cities. The Video Window team participates in these projects to show how their always-on videoconferencing can help connect distributed employees.

Persistent video is a great solution, but this project had some challenges. It doesn’t help the “always-on” mantra when the Portals team needs to censor “lewd” images and actions from being shared. After being shut down for days, the Portal was turned back on with only limited “always-on” hours. See more in this TalkingPointz video with Video Window.

Circles and Spheres: The still relatively new Las Vegas Sphere announced that it is scheduled to host its first live TV event later in June. The iconic location will be the home of the NHL Entry Draft on June 28 and 29. (A hockey puck is a sphere?) 

Panasonic Exiting Projectors: Panasonic is selling its projector business as part of a strategic move to generate funds for future growth initiatives. The company aims to strengthen its financial position by divesting non-core assets, enabling it to focus on more lucrative sectors (sounds familiar). This decision is part of Panasonic CEO Yuki Kusumi’s broader reorganization plan into a holding company. Panasonic projectors have been used in both small and large venues, but direct-view technologies continue to squeeze projectors out of vogue. Panasonic stopped selling plasma-based displays in 2014 for similar reasons.

Display One-Upmanship: After Neoti announced last month that it had received PANTONE validation, this month we have competitor Planar announcing that it has achieved a new, rigid cybersecurity standard. Two large-format LCD display families from the company achieved a first-of-its-kind cybersecurity certification from the European Telecommunications Standards Institute (ETSI). The Planar UltraRes W Series ultra-wide format LCD display and Planar Simplicity M Series 4K LCD display met rigorous cybersecurity standards for Internet of Things (IoT) devices, becoming the company’s first commercial display offerings to be ETSI EN 303 645 certified. This certification marks a milestone as the first globally applicable standard for consumer IoT, aimed at preventing large-scale attacks against smart devices and establishing a security baseline for connected consumer products.

Carriers and CPaaS

Infobip & Nokia: Infobip and Nokia announced a new GTM partnership. The deal is conceptually similar to Ericsson’s acquisition of Vonage. Both companies intend to leverage CPaaS APIs in 5G infrastructure. The key difference is that Ericsson acquired CPaaS expertise, and Nokia did not. In this No Jitter post, Michels outlines how Ericsson’s approach has a cleaner endgame. However, Vonage clearly became a mobile company, while Infobip retains its identity as a leading CPaaS provider. Neither company has proven the concept yet, but Ericsson has won some major carrier deals that validate buy-in. The race is on to see if either can build a functional ecosystem. 

Ooma AirDial: Ooma’s wireless AirDial POTS replacement availability was expanded to Canada. Like most carriers in the U.S., Bell Canada and TELUS have been decommissioning copper networks. Ooma AirDial is a clever POTS replacement service that runs over 4G/5G services, so this comes at an opportune time. 

The Business Section

Avaya Acquires Edify: Avaya’s current leadership made its first acquisition with Edify, a UC/CCaaS provider. RingCentral has an exclusive on Avaya UCaaS, so Edify will be used to orchestrate CCaaS services on the Avaya Experience Platform (AXP). It was also an acquihire, adding more than 30 cloud-native developers to the Avaya team. More background in this TalkingPointz blog post. Terms were not disclosed, but Avaya confirmed that it acquired the entire company with cash. 

Verint Quietly Buys Fonolo: Verint acquired cloud-based call-back software provider Fonolo.

Nvidia AI Chip Sales: Nvidia’s AI chip sales are still growing in a straight line: It sold $22.6B in the last quarter versus $4.3B a year ago. Nvidia gets the generative in AI. 

Focus and Exit: In this issue, we have Meta and Zoom, Avaya and Pexip, and Google (Starline) and HP — and there have been more in other issues, such as NEC and Intermedia and HP | Poly and Pexip. These deals illustrate a larger trend of firms shedding undesired or unprofitable services to a third party. Enterprise communication firms are looking at everything they do with scrutiny. Just because they’ve done something in the past doesn’t mean they will remain married to it. —DJD

Dmitry Netis of The Benchmark Company has agreed to provide Insider subscribers with financial insights on a quarterly basis. Dmitry leads M&A advisory and serves as a Managing Director and Co-Head of Technology Investment Banking at Benchmark. Dmitry has over 25 years of experience serving as a strategic advisor to many technology growth companies, assisting them with strategic positioning, restructuring, M&A, and capital financing options. He has been immersed in the cloud communications and CX sectors for over 15 years as one of the first Wall Street research analysts covering this space by serving his institutional and private equity clients. He has published on many of the early pioneers, private companies, and big whales of enterprise communications with investment banks William Blair and Stephens.

First quarter 2024 earnings came and went with May the busiest month for companies’ quarterly reports. Overall, there weren’t many surprises, but it also didn’t feel like a major recovery for the sector. Large cap companies—Twilio, Cisco (Collaboration BU), Zoom—have shown little evidence that the sector is out of the woods yet, with outlooks remaining largely subdued in terms of accelerating growth, increasing customer demand, and reduced churn. AI overhang, among other things, has been playing a major role in customer decisions to evaluate their shift to new UC/CX platforms, with many of them waiting for the AI (opportunities or potential risks) to be better understood and measured. The same goes for investment funds, looking to realize value off the beaten valuations in the space, where the risk of AI marginalization (and therefore potential revenue replacement opportunity) is better understood and factored into future top- and bottom-line projections on the heels of inflated interest rates, posing better comfort to overall returns. I suspect this is one of main reasons why we haven’t seen any big consolidation deals in the space unlike other sectors which are beginning to show signs of life in the M&A and capital markets. Second to that theory, are likely significant debt loads (at low coupon rates waiting to be refinanced) of many companies in the enterprise comms sector which no strategic buyer or PE wants to get in front of. Once removed or restructured, I suspect the deal flow will pick up congruently. Here are some financial puts and takes on the companies that reported in May.

This Insider Report features a quarterly guest contributor, Dmitry Netis of The Benchmark Company, LLC. None of the information provided by Mr. Netis, herein constitutes a recommendation, solicitation or offer by The Benchmark Company, LLC. or its affiliates to buy or sell any securities, futures, options, or other financial instruments or provide any investment advice or service. The opinions expressed herein reflect Mr. Netis’ personal views about the companies discussed and are not the opinion of The Benchmark Company, LLC or any of its affiliates.

8x8: 8x8 ended fiscal 2024 with results largely in line with consensus and mixed guidance for fiscal 2025 (revenue inline and earnings slightly below consensus). Solid 4Q results were impacted by increased churn from Fuze acquisition. Fiscal 2025 revenue growth was guided roughly flat (-1% to +1% YoY), impacted by continued UCaaS headwinds and the need to fund FCF to address its current debt load ($410M remaining). As a result, management is delaying product investments in lieu of retiring its debt (repaid $88M so far).

Total ARR decreased (down 2% YoY) to $688M and was mostly impacted by seasonal decreases in CPaaS (Wavecell) usage. Microsoft Teams sales continue to be a strategic focus where the company views their offering of Direct Routing, Operator Connect, and native dialer as best-in-class. Its CCaaS product, however, representing ~20% of revenue, continues to show steady growth and is likely approaching a $150M mark now.

Operating margins of 11.3% outperformed guidance of 10%. With operating margins in double-digit territory and FCF increasing to service the debt, 8x8 seems to be navigating the choppy markets better now, yet still trades at 0.45x price-to-sales (0.96x EV/sales) multiple. However, reacceleration in revenue will be needed for stock to re-rate, none of which can be assured of at this juncture. 8x8 seemed stuck without a solid turnaround strategy to drive growth, enhance its product innovation pipeline, and/or enter any potential market adjacencies. Potential for consolidation with Ring, spearheaded by an activist investor, is also difficult to predict given 1) dilution of equity at such depressed levels for both companies, and 2) debt loads still being retired before any thought of acquisition would take place.

AudioCodes: One of the surprises this quarter was AudioCodes, delivering disappointing results that were below consensus. Management lowered its 2024 revenue outlook by 6% or $15M at midpoint and EPS by $0.15 (14%), chalking it up to sales transition from license to subscription revenue. This might indeed be the pressure point exacerbated further by the media gateways business which declined 25% YoY. Live subscription revenue grew 45% YoY exiting at $53M ARR—still on track to exit the year at $64-70M. Live business represented 45% of revenue this quarter (versus 25% in a prior year), setting up for an inflection in growth next year. Moreover, it isn’t hard to see that this business now represents the entire market capitalization of the company.

Microsoft (including Skype for Business) and Teams bookings grew 8% and 9.6%, respectively, during the quarter. The bigger issue investors are grappling with, however, is whether the pace of transition to Microsoft Teams and therefore the growth of Teams Phone is beginning to slow, as AudioCodes is typically in the business of PSTN voice activations (sell-through) which lag application license sales (sell-in) anywhere between 6 to 9 months. This puzzling performance arises on the heels of Microsoft reporting nearly 30% YoY growth in Teams Phone and exceeding over 20M PSTN users. While ample opportunities remain for AudioCodes’ Microsoft business, over a quarter of Teams Phone licenses have now been provisioned with PSTN, begging the question if the low hanging fruit has been picked.

With guidance reset, the company is once again moving to reduce its headcount by 6% (in gateways and MSBR business lines), resulting in $6M savings annually. Picking up some of this slack is CX and Conversational AI segment (together ~15% of total bookings), which grew 15% YoY and over 50% YoY, respectively. A lot is riding on Voca CIC—a native Microsoft Teams CCaaS solution—which just got upgraded with an omnichannel offering and albeit still early, could represent a new pillar of growth for AudioCodes.

Bandwidth: Had a spectacular quarter, exceeding revenue and profitability guidance ranges and raising full year 2024 guidance on both revenue and EPS. The company expanded the credit facility and retired $140M of its 2026 convertible notes at a discount, which reduced its yield and balance of debt to just $35M from an initial issued principal balance of $400M. As investors cheered, the stock moved up 70% over the next 2 days.

Rounding out strong first quarter results, cloud communications revenue grew 12% from last year. Messaging continued to be a strong driver, growing 50% year-over-year and now reaching 21% of cloud communications revenue. Within messaging, commercial messaging grew 34% year-on-year. Across 3 market categories, global communications plans revenue growth was 4% YoY (an improvement from last year’s usage trends); programmable services grew 49% YoY (driven by messaging from e-commerce, healthcare, and financial services customers); direct-to-enterprise category grew 20% YoY, on the heals of strong go-to-market execution.

Net retention rate was 107% (an improvement of 6pp from a quarter ago) while customer retention rate remained just over 99%. Average annual revenue per customer climbed to a record $190,000, reflecting continued focus on attracting and serving large enterprises, while gross margins were 57% for the first quarter, up 300bps from the prior year's quarter. Management says it is on track to achieve greater than $50M in FCF (on $715M of revenue at midpoint) in 2024, nearing closer to its 15% FCF margin target in the mid-term. The company saw accelerated timing of political campaign revenue, projecting $40M contribution from political messaging and surcharges.

Another newsworthy item, Anthony Bartolo, COO of Bandwidth for 2.5 years and a former Avaya and Tata Communications executive who worked closely with CEO David Morken to drive Bandwidth’s transformation to programmable voice, messaging, and direct-to-enterprise use cases amid COVID-19 pandemic, handed his resignation. We expect Mr. Bartolo to reemerge within the sector in an executive level responsibility shortly.

Cisco: Overall, Cisco’s revenue came in toward high-end of its guidance range as it delivered a $0.02 beat on EPS. The company showed demand stabilization, providing some relief to investors. While total revenue was down 13% YoY (including 3pp benefit from Splunk, which contributed $413M to revenue), gross margins of 68% improved 300 bps YoY due to mix-shift to software. Fourth quarter guidance came in above consensus by $1B and $0.01 on EPS, sending the stock up 5% on the day. Ex-Splunk, revenue guidance for the full year was in-line with previous guidance range of down 8-9% YoY. For fiscal 2025, management expects revenue growth to be in the low- to mid-single digits, with operating margins maintained at about 32%. Adjusting for Splunk, which we expect to contribute ~$4.4bn to fiscal 2025, organic growth corresponds to low-single digits (~2-3%). Cisco’s quarter showed improvement in order growth across switching, security, observability, and collaboration with early signs of improving networking demand (and the potential for AI networking tailwind), yet heightened competition across its core markets continues to weigh on investor sentiment.

Product orders were up 4% year-on-year (flat when excluding Splunk). Cisco product revenue (hardware and software term licenses) declined additional 2pp from last quarter (when it dipped 17% sequentially and was down 9% for the year), and was down 19% year-on-year, with management’s guidance indicating that it may have troughed. Networking was down 27% YoY (after being down 12% YoY last quarter), Collaboration came in roughly flat sequentially and year-over-year (at $987M), holding steady after showing surprised growth in the past two quarters (and following 2 years of precipitous declines). Management pointed to growth in Cloud Calling and Contact Center offerings, offset by declines in Meetings and Devices. Observability grew 27% during the quarter (with Splunk in) and 14% excluding it. Security grew 36% YoY (on the addition of Splunk).

Five9: Overall, a nice quarter from Five9. The company delivered record bookings and reached a $1B revenue run rate ($247M in a quarter to be exact), growing 13% YoY in the quarter. Full-year guidance at $1.06B at midpoint calls for ~16% growth. The growth has slowed from prior years (20%-25%) but it comes with larger revenue base. If one wanted to explain weak follow-through in the stock (up a measly 2% on the day of the report), it had likely to do with the fact that management did not raise guidance by the amount of the beat in the quarter—a beat-and-maintain quarter coupled with a significantly backend-loaded second half of the year and flat-to-down DBRR (dollar-based retention rate), kept the stock in check. A lot still riding on the second half (up 20% YoY versus ~12% growth in the first half) in order to hit that 16% annual guidance.

Five9 scored a major Fortune 50 financial services win during the quarter—a $50M deal (which it will begin to recognize as revenue only in 2015). Who could that be? My speculation points to Wells Fargo (it counts ~70M end customers as touted by management). Wells has been out with an RFP for a number of years now. It was disclosed as a major win by Avaya several years ago (at that time the total opportunity was nearly $400M in revenue). Wells Fargo’s application environment and various cloud services internally run on Google infrastructure which was a key requirement for bidders (and Five9 talked about having to deliver on many cloud integrations for its CCaaS platform and Google being one of the key ones). Core bidders of this RFP should not surprise anyone. At the time when Avaya (an incumbent) was bidding and apparently won (in early 2022), it positioned a third-party purpose-built CCaaS stack (from Afiniti) to win this cloud deal. It has since lost it as it failed to execute that vision and was headed into bankruptcy restructuring. Wells reopened the RFP and took it back on the market. Genesys Cloud, NICE CXOne, and Google (via Ujet) were fighting over it. To see Five9 come on top is an extraordinary feat, should my speculation prove to be correct, and a testament of their platform reliability and roadmap.

LivePerson: Delivered revenue beat of $5M while EPS missed expectations. Full year 2024 outlook calls for revenue to be down 20-24% to $300-315M, which was inline with consensus. Full year adjusted EBITDA was guided to $15-26M. 2Q was guided slightly above consensus on revenue and adjusted EBITDA range of $0 to $5M. Stock slipped on uninspiring earnings, however, was able to bounce back plus more about the after the print, when the company announced restructuring of its balance sheet by structuring a deal with one of its top holders—borrowing up to $200M from a private investor and extending maturities to June 2029. $100M of this infusion was immediately used to retire $146M of December 2026 debt. Further, the agreement allows LivePerson to borrow up to $150M in junior debt from other creditors to retire existing debt if needed. Furthermore, the Avaya announcement, which would resell LivePerson to its base, shows promise and appears to resonate with investors. The combination of these efforts to stabilize the base, improve sales and GTM, enhance the product portfolio along with the new Avaya partnership, and positive steps to restructure the debt at discount, look encouraging.

NICE: Revenue and EPS delivered a solid beat in the first quarter, coming in above the high-end of guidance. Overall revenue was up 15% YoY, Cloud revenue was up 27% YoY (including contribution of LiveVox, which is expected to contribute $142M this year). As a result of acquisition, Cloud revenue ended at a record 71% of overall revenue versus 64% a year ago. Ex-LiveVox, Cloud grew at approximately 18.5% during the quarter and was guided at 18% growth for the full year. Revenue for 2Q and full year are expected to be up 14% and 15% YoY at the midpoint, respectively, with earnings per share, up 21% YoY in both periods. Operating margins were 30.3% vs. 28.6% a year ago. Stock moved lower on the print, down about 10%, mainly due to Barak Eilam, its CEO for 10 years, announcing his transition out of the company by the end of this year. We believe this is nothing more than Barak hitting a point in his life where after 25 years with NICE—half of his lifetime—he’s itching for a new adventure.

While some investors may have been looking for stronger upside in full-year revenue forecast, NICE continues to execute along a very strong growth trajectory, tapping into 50M CX agents around the globe. CXOne platform delivers on the AI promise with an extensive repository of knowledge and interactions data, seeing a 200% YoY surge in the number of Enlighten AI deals during the quarter. Enlighten AI portfolio was first announced in 2021, consisting of Copilot for agents/supervisor, Autopilot, Auto summary, Actions, and XO (analyzing historical conversations from voice and text interactions to identify best conversations based on those with optimal outcomes) and appears to be best-in-class. Management noted that just one interaction of AI on its platform increases the customer ARPU by 40% or more, demonstrating the tremendous monetization potential.

ON24: ON24 delivered a solid quarter, slightly beating on both revenue and EPS, and guiding roughly in line with consensus for fiscal 3Q and fiscal 2024. Fiscal 2024 revenue guidance of $145M at midpoint indicates 11% decline from prior year. Looks like tough comparisons are now behind with declines in revenue narrowing with better profitability and cash flow generation. FCF was $1.1M in the quarter compared to a loss of $4.3M in a year ago period.

Core Platform ARR was $133M in the March quarter (and total ARR of $136M), down $3M sequentially. The company has taken action to improve gross retention rates in the installed base, posting a mid-single-digit improvement on YoY basis. Losses have narrowed from a year ago with non-GAAP operating loss guided to $4.5M and EPS of $0.05, which was in line with consensus. Adjusted EBITDA slightly exceeded breakeven at $0.3M. Stock slid 4% the next day, but continued to bleed lower and is now down about 15% since the print. The company maintains cash balances of nearly $200M and has no debt.

A lot is riding on ON24’s Intelligent Engagement Platform and its newly released AI-powered ACE platform, which reached the double-digit mark as a percentage of ARR growth in Q1. The AI-powered ACE platform enables: 1) personalization at scale (delivering unique messages to different audiences within the same digital experiences, whether a live webinar or an on-demand content); 2) derivative content (training and marketing videos, ebooks, and other promotional content), which sales and marketing can create to execute their digital campaigns using a single-click generative AI tool, and 3) continuous engagement and nurtures, helping sales and marketing folks unlock a new way to expedite interactions with their prospects, personalized to the individual, and extending the life of an event and its content. While still early, management noted strong enterprise customer adoption for its IEP and ACE platform.

RingCentral: Delivered solid 1Q results that beat consensus (unsurprisingly) while guiding fiscal 2024 inline. For 2Q24, revenue guidance was well below consensus and $25M below 1Q revenue levels at the midpoint. ARR of $2.4B grew 10% YoY (a combination of faster CCaaS growth and low-single digit growth in UCaaS) and was down from 14% growth in a year-ago quarter. RingCentral is focusing on key verticals where it believes it can compete with Microsoft more effectively—healthcare, financial and professional services, retail, and public sector—and where it touts there are 100M seats up for grabs for conversion to cloud. As a testament to this strategy, RingCentral reported an 8-figure win with a Fortune 500 retailer (believed to be CVS) for 40,000 seats in which they replaced Microsoft Skype for Business with more advanced and reliable telephony features.

As overall revenue grew 9% YoY, operating margins were a record 20.7% on the heels of several rounds of cost cutting initiatives and were guided to 21% for the full year. Using the sum of OMs and revenue, RingCentral remains 10 points shy of the Rule of 40. Enterprise ARR growth of 13% was relatively consistent with prior quarters. SMB ARR growth of 7.5% was down from 12% in the year ago period. The company maintained a target to achieve $100M in total ARR exiting fiscal 2025 for its 3 new products—RingCX Contact Center, RingSenseAI, and RingEvents. An integrated UCaaS/CCaaS offering is a desirable product offering at the low-end of the customer spectrum and might just help RingCentral capture more price sensitive deals. While still early its market acceptance, RingCX doubled its logo count QoQ to 200 since the release last quarter.

RingCentral stock is trading at subdued 1.4x trailing price-to-sales multiple (2.1x EV/sales), which is a function of: 1) ARR growth slowing down considerably; 2) increased competition - mainly from Microsoft and Zoom; 3) high debt load—$1.6B, with approaching maturities; 4) high percentage of stock-based comp to revenue; and 5) high sales commissions (monthly residuals and spiffs) that are paid out to the channel to drive growth.

Addressing each one of these concerns individually, management tried to appease investors noting: 1) that growth is bound to continue with 100M of seats in “gold” verticals. Notwithstanding, according to Cavell Research ~60% of North American PSTN lines have been claimed to date by UCaaS offerings, leaving expansion opportunity still ripe largely in the international market (which has been lagging N.A. by 4-5 years); 2) by announcing a 40,000-seat deal against Microsoft, importance of which is difficult to overstate when investor sentiment has leaned strongly toward Teams and Zoom dominating the UCaaS market; 3) by reducing headcount by ~15% over the last 12 months to achieve non-GAAP OMs above 20%. The company also introduced FCF guidance of $387M for the first time this quarter to show the ability to reduce or repay its debt load; 4) by reducing stock-based comp to 15.5% in the current quarter, from as high as 19% a year ago—a steady progress helped by massive cuts and likely reforms in sales compensation. Salespeople that are paid mainly in stock versus cash creates misalignment when the stock is underperforming, forcing them to leave or renegotiate for higher proportion of cash compensation. Turning high-SBC headcount over and replacing it with cash salary / commission-based structure should help correct such misalignment; 5) while inflated channel commissions have not been addressed directly, it is a difficult feat to resolve and is the chicken and the egg problem that causes instant growth slowdown once removed, with many competitors vying for deals and still willing to pay unreasonably high commissions to the channel.

Sangoma: Delivered a solid quarter with stock moving up 7% the following day. Revenue of $61.1M came in line (down 3% YoY) and adjusted EBITDA was $11.2M (18% margin), which was down 9% YoY and up 7% sequentially. Cash from operations grew 121% YoY and cash conversion (CFO to adjusted EBITDA) improved by 2.5 times and was 139% (vs. 57% in a year ago period). The company reaffirmed revenue ($247.5M at midpoint) and adjusted EBITDA guidance for the year (of $42.5M).

Services revenue was flat year-over-year at $50.4M and represented 82% of total quarter revenue. Services revenue churn to date was 0.9%, a testament to the stickiness of the platform. Product revenue of $12.2M, representing 18% of total quarterly revenue, declined 13% YoY, the result of strategic direction to focus on services GTM. The company is executing solidly under the helm of new CEO Charles Salameh (who came on board mid-last year). The company is focusing on core SMB segment which accounts for about 44% of global IT spending and invests $30B annually in IT communications. The company recently named a new CRO to lead this sales GTM transformation, announced a new sales model that focuses on demand-gen with strategic partners, and flattened the organization to drive faster opportunity closure rates.

Cash balance at the end of the quarter was $18.4M, $8M increase from prior quarter. The company is prioritizing debt repayments with the goal of reducing debt to $55-60M in fiscal 2025 (down from over $110M following the acquisitions of Star2star and NetFortris). Once there, perhaps within few more quarters, it will also have the freedom to build upon its IT managed services tools inorganically.

Twilio: The tables have turned on the two largest North American CPaaS providers—Bandwidth and Twilio. While the company beat Street expectations on top and bottom line, Twilio’s growth remains elusive. Q1 revenue ($1.05B) grew 4% year-over-year (and 7% organically). Revenue guidance called for just 1-2% growth (4-5% on organic basis) in the second quarter, below consensus. Full-year guidance called for 5-10% growth YoY, also coming in below expectations.

Segment (CDP platform) growth continued to disappoint at 2% growth, delivering $75M in revenue in the quarter (~$300M run rate business), growing just 2% YoY. New leadership focused on turning it around has been on the job for ~60 days now. Upon investor activist plea, management was forced to shop the asset, but decided to keep it after the offers came in too low. Communication revenue was up 4% impacted by the crypto headwinds as well as the sunsetting of the Zipwhip business. Operating loss was $21M (-28% margin). Dollar-based net expansion rate was 92%, showing, perhaps unsurprisingly, continued revenue churn. Dollar-based Net Expansion rate remained flat quarter-over-quarter at 102%, and down from 106% in a year ago period.

On the positive end, overall non-GAAP GMs came in at 54.1%, improvement not seen in eight quarters. Communications business GMs improved to 52.2% (up from 50.7% in 4Q and fiscal 2023). Comms operating margins of 25.6% improved from 24.8% in 4Q23 and 21.8% in fiscal 2023). Free cash flow generation improved and was $177M in the quarter, with company generating $655M in FCF over the last 12 months. The company announced $3B buyback on which it spent $1.5B to date. Bottom line, much work remains to get the various businesses on track and begin to show positive momentum in revenue growth and profitability metrics.

Zoom: The company beat consensus on revenue and EPS while raising full-year guidance slightly. However, it lowered fiscal 2Q guidance below consensus, leaving investors puzzled if growth reacceleration is truly returning. Fiscal 2Q revenue was guided to ~1% YoY growth and ~2% for the full year. Total revenue in the current quarter was up 3% at $1.1B. The enterprise sales grew 5% YoY, reflecting decelerating growth, while online business was flat YoY, reversing the nine quarters of decline. Online average monthly churn—the biggest point of investor contention—came in at 3.2%, as compared to 3.1% a year ago, and remained consistent for the last two quarters. The slight uptick in churn was related to tightening up the grace period for unmade payments, which pulled some churn forward. Up-market customers (those with $100,000 over last twelve months) grew 8% year-on-year and represented 30% of revenue in the quarter. Net Dollar Expansion rate for Enterprise customers was 99%.

Operating margins shined, coming in at 40% of revenue, delivering record cash flows, and pushing the cash reserves well above $7B. All new products continued to ramp nicely with Phone, Contact Center, Events, and Workvivo delivering sizable wins. Zoom Phone—now at well over 7M end-users—delivered on a major expansion with one financial customer, doubling seats to over 100,000. Zoom Contact Center reached 90 customers with over $100,000 in ARR (growing in triple digits from a year ago). We believe Zoom Contact Center is poised for significant share gains in the market, adding feature capabilities to its platform at lightning speed, leading with video CX use cases and AI features which comes with various bundles, and very competitive pricing.

Leadership Changes

Barak Eilem, the CEO of NICE, announced plans to step down at the end of the year. The company is searching internally and externally for its next CEO, suggesting Barry Cooper hasn’t accepted the role yet. Eilem will continue at NICE in a consulting capacity during the first half of 2025.

Chris Koehler is the new CMO at Twilio. He was previously the CMO at Box. 

Giselle Bou Ghanem has been promoted to VP, Product Marketing at Avaya. 

There is a new Chief Revenue Officer at LivePerson: Sandy Hogan, previously CRO at SADA.

Qualtrics has appointed Gurdeep Singh Pall as President of AI Strategy. Pall was a 30-plus-year Microsoft executive, where his last stop included AI product and solutions development. Déjà vu reversed: CEO Zig reported to Gurdeep at Microsoft during its SfB heyday. Qualtrics also has a new Chief Marketing Officer, Lynn Girotto. Girotto was formerly CMO at Vimeo.

More turnover at Genesys: Barbara Holzapfel is no longer with the company, and the CMO role will not be replaced.

Goodreads

1. Microsoft made the biggest renewable energy agreement ever to fuel its AI ambitions To counterbalance the energy drain that AI creates, Microsoft made a large renewable energy agreement, signing up to support the development of 10.5 gigawatts of new renewable energy capacity around the globe.
2. Microsoft’s OpenAI investment was triggered by Google fears, emails reveal Imagine a world where Microsoft’s motivation for AI and Copilot was to help its users and humanity. 
3. 101 real-world gen AI use cases from the world’s leading organizations Includes 19 examples of customer agents. 
4. Implications of the Net Neutrality Order for CCA Members The FCC moves toward classifying broadband internet access service as a telco service and putting net neutrality rules back in place.
5. Small modular nuclear reactors get a reality check in new report “Small Modular Reactors: Still Too Expensive, Too Slow, and Too Risky.” 
6. Google defends AI search results after they told us to put glue on pizza All the king’s horses and all the king’s men can’t seem to reinvent search with generative AI. 
7. House votes to modernize NTIA for first time in over 30 years The U.S. House of Representatives passed a bipartisan bill to reauthorize NTIA and modernize its role.
8. US parents prioritize reliable internet over affordable childcare Parents in the U.S. are more likely to relocate if they lose access to reliable internet versus affordable childcare.

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