We know there are problems with passwords. It seems no matter what we do to make them more secure – criminals are one step ahead of us. From shifting advice on creating a good password (make it one you can remember, use an algorithm, make it a passphrase, don’t use 12345!) to using a password manager. Passwords are an attractive attack target. From the Morris Worm to today’s database breaches that feed the dark web commerce – passwords are seen as a problem to be solved. But there are two main theories on how to solve that problem – Excellerate passwords or do away with them all together.
One of the main themes at Identiverse and in the IAM community right now has to do with the password paradigm. Can passwords be improved or should we embrace a new passwordless paradigm with biometrics? Spoiler: I think we can both Excellerate passwords and explore a passwordless paradigm. Here’s the roundup of these sessions at Identiverse 2022.
Microsoft and FIDO made a big splash at Identiverse promoting FIDO’s passwordless solution and newly released passkeys.
Andrew Shikiar the executive director at FIDO Alliance held ‘The State of Passwordless Authentication’ describing the paradigm shift from knowledge-based credentials (what’s in your head) to possession based credentials (what’s in your hand). FIDO’s goal is to reduce the possibility of credential based attacks.
Jackie Comp and Rolf Lindemann, both from Nok Nok Labs, gave real world examples during their session ‘Where to Start Your Passwordless Customer Journey? Five Real Deployment Use Cases and Best Practices.’ Tim Cappalli and Scott Bingham from Microsoft presented ‘Hey FIDO, Meet Passkey!’ Passkeys are designed to help scale FIDO adoption in the consumer space.
Tom Sheffield, senior director, Cybersecurity at Target shared real world experience implementing FIDO in his ‘Insights from Target’s Enterprise Journey to Adopt FIDO.’
While we dream of a new passwordless world, passwords aren’t going away anytime soon. Multi Factor authentication is useful, but can be a challenge to execute to a broad customer base.
Ian Glazer, SVP Identity at Salesforce, shared his ‘Lessons on the Road to Complete Customer MFA Adoption’ on the challenges of launching MFA to Salesforce customers. It’s an inspiring story sharing the challenges and successes of the Salesforce journey.
Mike Schwartz from Gluu made a compelling case for the password in his ‘Bring Back the Password — But Do it Right This Time.’ Schwartz points out that passwords are not going away anytime soon, and there are ways we can Excellerate them using MFA. He says that fixing passwords is about fixing the UI of authentication to make it easy for users to continuously authenticate. His solution utilizes keyboard dynamics as a behavioral biometric.
To solve the password problem, we need to Excellerate current solutions and build better ones simultaneously — and in order to provide customers the most secure experience, both sides need to collaborate and learn from each other. If you missed Identiverse, these sessions will be available on demand in the coming months.
Heather Vescent is a digital identity industry thought leader and futurist with more than a decade of experience delivering strategic intelligence consulting to governments, corporations and entrepreneurs. Vescent’s research has been covered in the New York Times, CNN, American Banker, CNBC, Fox and the Atlantic. She is co-author of the The Secrets of Spies, The Cyber Attack Survival Manual and The Comprehensive Guide to Self Sovereign Identity.
access management | biometric authentication | biometrics | cybersecurity | digital identity | identity access management (IAM) | Identiverse | multi-factor authentication
Last year SportsPro and Laureus teamed up to launch the Laureus Sport For Good Index, an annual list of the brands that are leading the way in delivering positive social or ecological impact through sport. The purpose of the Index is to shine a light on those organisations that are having a meaningful impact, celebrate their successes, and provide compelling evidence for the role that sport can play in driving sustainable change.
But the Index itself was only the start. In year two, as we invite brands to nominate themselves for inclusion and to celebrate the impact they are making, our aim is to go one step further by providing actionable insights and real-world case studies that will equip companies of all kinds with an essential toolkit as they embark on their sport for good journeys.
To that end SportsPro and Laureus, with the support of presenting partner Salesforce, are collaborating to produce an exclusive content series outlining how brands can create and implement a fit-for-purpose sports sustainability strategy, drawing on best practice and learnings from the inaugural Laureus Sport For Good Index cohort.
Running until the release of this year’s index in November, the five-part series will serve as a reference point for any brand looking to ensure their efforts in sports sustainability are financially viable, champion a clear and compelling message, inspire and mobilise communities, and are measured and reported frequently and transparently.
So where to begin? What must brands consider from the outset? And what are the critical ingredients for a successful sports sustainability strategy?
Every good business should know its values and its purpose. A clear understanding of why you exist is fundamental to identifying what causes are material to your brand, and what you can do to support them.
When devising a sports sustainability strategy from scratch, the guiding principles that constitute your company’s core mission and belief system are a good place to start. From there it is critical to identify which sports are directly relevant to both your business and your brand ethos.
Water conservation is a natural fit for beverage companies, for example. For them, water sports such as sailing and surfing are obvious candidates for investment, but other disciplines where a lot of water is consumed by participants, such as endurance and mass participation sports, might also be considered. Another approach could be to partner with organisations in resource-intensive sports like golf and soccer that rely on vast amounts of water for course and pitch maintenance.
“There’s lots of ways that you can play that out in a few different sports,” says Aileen McManamon, the founder and managing partner of 5T Sports Group. “What’s material to your business? What would consumers expect you to be working on? Or what would your business partners expect you to be working on?”
Ultimately, the objective is to avoid leaving people scratching their heads. Authentic alignment is critical to ensure the messaging is clear and every stakeholder understands and embraces your intentions.
As such, clarity of objective is vital. What is the social impact you are seeking to achieve? What are the problems you want to solve? How are you delivering against that brief and is progress measurable? This is the fundamental difference between empty claims and tangible results.
One shining example among the inaugural Laureus Sport For Good Index cohort is Beko, whose Eat Like A Pro campaign has been hailed for its simplicity and effectiveness. First rolled out in partnership with the Barca Foundation at a time when the Turkish home appliance brand was the main shirt sponsor of FC Barcelona, the campaign aims to promote healthy eating and combat childhood obesity by teaching kids how they can eat nutritious diets like their sports star heroes. To date, the programme has raised millions of dollars for Unicef programmes across the globe, reaching hundreds of thousands of children.
Healthy eating is an obvious cause to support for a brand that manufactures kitchen appliances, but for some brands the notion of materiality may not be so clear cut. Companies that operate across borders might also find that what constitutes materiality differs by geography.
To use the beverage brand example, major producers have sprawling international supply chains, with the various ingredients used in their products sourced from different markets. While an environmental programme, such as a water conservation or biodiversity project, might resonate in a country where a brewing company operates a major bottling plant and therefore uses lots of energy, in another market where its grains are grown, financial support for programmes to end food poverty could prove far more impactful.
In that respect, the most logical local partner is likely to be different in each market. Yet while on-the-ground activities within local markets might vary, the overarching message should remain consistent with the overall brand ethos and objectives.
Ultimately brands can credibly support multiple causes, provided the end goal is the same. After all, being responsible with resources, whatever form they take, is critical for long-term sustainability, as is ensuring the welfare of workers and the local population.
Corporate investments in sports sustainability and social purpose have evolved considerably over many years. Following the industrial revolution, when significant wealth began to shift towards corporations, such investments essentially fell under the umbrella of philanthropy. Back then, money was simply given away to good causes as charitable donations.
Over time, corporate social responsibility (CSR) became more of a focus, with philanthropic efforts becoming more expected within society but still seen as discretionary. Many companies formed separate foundations and legal entities to oversee CSR investments and activities, with the idea being that doing good was good for business.
Today, that line of thinking has developed further alongside wider societal shifts. Brands nowadays define and approach sustainability in myriad ways, but most now realise that prioritising environmental, social and governance (ESG) factors is essential for long-term growth and prosperity.
As such, some have come to view their purpose investments in sport as branding or marketing initiatives that are part of broader promotional campaigns and corporate communications. Others utilise them to boost employee satisfaction or community engagement, or as a financial reporting line. Increasingly, major brands are starting to see such investments as all of the above.
Whatever the approach, purpose-driven activities should align with a company’s overarching ESG objectives. Investments should be based on more than just being good corporate citizens – they must positively impact the bottom line and help drive better business performance.
“Now this evolution means that ESG is infused in the company strategy,” explains McManamon, who has advised many major brands on their sustainability programmes, including prominent beverage and oil and gas producers. “It is part of the product team, it is part of the human resources team, it’s part of the financial reporting team for sure because that’s now a requirement. It is living everywhere and infused everywhere.”
Does our business model bring others along? That’s really your own starting point in terms of getting your house in order.
That strategic shift mirrors the modern-day trend away from shareholder capitalism towards stakeholder capitalism, whereby companies are not only looking out for their shareholders but also whoever and whatever their brand touches, either directly or indirectly. It is for that reason that ESG has come to be defined as ‘an economic and moral imperative to take better care of people and the planet’.
“You do need to sit down internally and say, ‘what is our ESG strategy in terms of the triple bottom line: the people, planet and, in my case, I refer to this now as prosperity in terms of shared prosperity,” says McManamon. “Does our business model bring others along? That’s really your own starting point in terms of getting your house in order.
“How are we treating our people or the people that we impact, that we sell to, or that we buy from? How are we treating resources? How are we acting in our ecosystem of the economic market, not the financial market but the economic market? Are we providing true value?”
Perhaps the most celebrated champion of this ESG-led approach is Patagonia, which featured among 29 brands in the inaugural Laureus Sport For Good Index. By taking a clear stance on a range of social, political and environmental issues, and publicising its efforts frequently and transparently, the outdoor apparel and equipment brand has clearly demonstrated its commitment to ethical business practices over the course of its 50-year lifespan.
That, in turn, has fuelled the perception among consumers and employees that Patagonia exists solely to make a positive impact, boosting the company’s public image and performance against certain ESG metrics while ultimately driving sales.
Another, far younger brand championing the same approach is Hylo Athletics, a running footwear manufacturer which also featured in last year’s Laureus Sport For Good Index. Co-founded by former soccer player Michael Doughty, the three-year-old company trumpets its raison d’etre – to protect the future of the planet – at every opportunity.
Notably, a lengthy section titled ‘Impact’ is positioned front and centre on the retailer’s website, detailing all facets of its overarching commitment to environmental sustainability. What’s more, its guiding principles are articulated openly and at length in the company’s Hylo for Planet document, which sets out the impact framework upon which the brand is built and acts as a guideline to all employees and business partners by setting a clear direction and goals.
“We realised quite early on that not any one aspect of sustainability is the right approach or the silver bullet to alleviating environmental impact,” explains Doughty. “The reality is that all products have an impact – and that’s the first misnomer of this space. You know, the word gets banded around a lot, but what does that actually mean?”
To help answer that question, Doughty says he and his fellow co-founder Jacob Green leaned on the advice of two external consultants – one who helped conduct a life cycle assessment (LCA) of Hylo’s products, and another who supported on devising their overarching strategy whilst developing their own understanding of the issues at hand.
“What we realised was that we needed a holistic strategy because it’s so nuanced,” Doughty adds. “We quickly moved away from the word sustainability for that very reason and focused ourselves on impact. Because impact is much more tangible, much more quantifiable, and we want to drive that objectivity into our reasoning.
“Impact allows us to really understand things better and once you understand it, you can Excellerate it.”
To be truly effective, ESG goals must be connected across departments and tied to strategic outcomes. To achieve them, each team should be empowered and incentivised to contribute towards the overall goal.
Your sports sponsorship and marketing departments, for example, will need to keep ESG priorities in mind as they negotiate with prospective partners and plot their activities. This thinking can manifest in myriad ways. If your company’s ESG objective is to transition to a low-carbon future, for instance, one step towards that goal could involve subsidising the cost of public transport for match-going fans. Similarly, if improving gender equality and diversity is a strategic priority for your business, a logical investment would be to work with a sporting foundation to administer girls’ health and education programmes.
When it comes to goal setting, a good starting point is the UN’s 17 Sustainable Development Goals (SDGs), which were set out by 193 governments in 2015 and are intended as a ‘blueprint to achieve a better and more sustainable future for all’.
McManamon says that, in her experience, most brands are prioritising at least six of those goals. Laureus Sport For Good Index honouree Nike, for example, has identified half a dozen areas where it has the biggest potential to contribute to the SDGs, given the nature and scale of its business. These include good health and wellbeing; gender equality; decent work and economic growth; responsible consumption and production; climate action; and partnerships for the goals.
“At the end of the day, everyone needs to be looking at these overarching goals that have been identified,” says McManamon. “And the other good news is that, for a lot of these sectors, that work has been done by an international association or a UN working group of people in that sector who have said, ‘OK, we’ve made a roadmap and this is what you should be doing’.”
Whichever goals you decide to prioritise, it is important to benchmark yourself against international standards and to back up any statements or pledges with data and certifications. There are countless international rankings, independent ratings and indices for measuring sustainability efforts and corporate performance against ESG-related metrics. While many are industry specific, some are applicable across sectors, such as ISO 14001, the Carbon Disclosure Project, and the Bloomberg Gender-Equality Index (GEI).
Formal certification of your sustainability credentials need not be an immediate strategic focus, but objective recognition from these types of independent bodies certainly helps build credibility and accountability.
Hylo Athletics is a case in point. Doughty explains that the company never set out to secure and wear certifications like badges of honour, but over time such recognition – including that of the Laureus Sport For Good Index – has come to play a greater role in achieving its strategic aims and validating its core mission.
“It’s quite easy to think that you have all the answers and solutions when you are trying to create something, because we all have our lens and how we see the world,” says Doughty. “But by having independent third parties come in and do some analysis on you, or by signing up to a mutual goal, you’re getting a sense-check on what your objective should look like and how well you’re performing.
“That objectivity piece is massive for us. Who am I to say whether we’re successful in our impact work? I’m too biased. We need that independent accreditation.”
If we were to take one shortcut here that quickly leads to another over there, then we’ve ended up unravelling the very premise of why we exist.
Now a certified B Corp, Hylo became a member of the Sustainable Apparel Coalition (SAC), an alliance of sustainable producers in the consumer goods industry, in 2021. Among other things, membership of the SAC commits the brand to ensuring compliance and minimum standards throughout its supply chain in areas like labour rights, worker wellbeing and environmental impact.
Doughty accepts that any commitment to being more ethical and sustainable generally comes with associated costs, pointing to Hylo’s use of sea rather than air freight as one example. But he’s convinced that such commitments will only pay off both for the planet and the company in the long run.
“These types of commitments that we make sometimes create new challenges for us,” he continues. “But if we were to take one shortcut here that quickly leads to another over there, then we’ve ended up unravelling the very premise of why we exist.
“Ultimately, this global challenge we’ve got of navigating climate change isn’t solely going to be delivered by Hylo. It’s going to be a collaborative problem-solving approach where we share, educate each other, sign up to things where we can get better data, get better information and make better decisions.
“If we build a really successful business but ultimately the world is in a worse place from an environmental perspective, the mission of Hylo is not complete and a bit irrelevant, really.”
Don’t try to win championships in your rookie season.
Proclaiming lofty goals is one thing, but no sports team would justifiably expect to win a league championship with a team full of rookies. Set ambitious yet realistic targets, track progress constantly and be prepared to fall short from time to time.
Don’t try to fix every problem.
Sustainability need not be a zero-sum game. Prioritising environmentalism does not mean your brand is not supportive of social issues like improving racial justice or boosting diversity, equality and inclusion in the workplace. Pick your battles wisely but never apologise for prioritising one cause over another.
Do your due diligence.
Find business partners who are making sustainability a priority, reflect your values, have internal workforces and leadership teams that live by those values, and who are transparently reporting their efforts to independent auditors. Mitigate risk by scrutinising prospective partners as thoroughly as possible to ensure they’re on the right track, preferably one that is adjacent to yours, then do everything within your power to hold them to account.
Don’t be afraid to seek outside help.
It is highly likely that every company setting out on their sustainability journey will require some outside help to reach their end goals. Experts in the space can help devise and hone the overarching strategy in line with broader business objectives, identify ways of overcoming internal challenges and shortcomings, and ensure structures and processes are in place for effective delivery.
Look to companies in your sector for inspiration.
What works in another sector might not work in yours, while the expected timeframes for achieving certain ESG-related goals will be different in other industries. For example, it might not be unreasonable for a financial institution to achieve net-zero status by 2025, but for oil and gas companies that timeframe simply isn’t feasible. Benchmark yourself against your peers, but always measure against international standards.
Don’t silo your sustainability efforts.
Brands don’t necessarily need an employee with sustainability in their job title to meet their objectives. As with any ESG goal, accountability can and should sit across multiple departments, but ideally there would be people within the organisation to provide oversight and check and challenge every proposal.
Find the right mix of partner organisations and ambassadors.
Credible messengers exist right across the sporting ecosystem. Teams, leagues, governing bodies, athletes, media companies, foundations: there are countless entities and individuals who can help amplify your brand message and implement your campaigns authentically. The ideal mix of partners will depend on your company footprint and brand objectives.
Don’t claim to have everything figured out.
No brand is perfect and there is no silver bullet when it comes to sustainability. Whatever strategy is settled upon at the start should remain subject to periodic review. Revisions will invariably be made as priorities change and new challenges arise. So long as you stay true to your values and your materiality – the immutable ‘why’ that governs everything you do – people will embrace your efforts in the right spirit and won’t be left scratching their heads.
The United Nations’ 17 Sustainable Development Goals – https://sdgs.un.org/goals
Sport x SDGs Index (5T Sports Group) – https://5tsports.com/resources/
B-Corp Accreditation – https://www.bcorporation.net/en-us/
Green Sports Alliance – https://greensportsalliance.org/
How your company can advance each of the SDGs (United Nations Global Impact) – https://www.unglobalcompact.org/sdgs/17-global-goals
What is ESG and why is it important? (ESG | The Report) – https://www.esgthereport.com/what-is-esg-and-why-is-it-important/
Five ways that ESG creates value (McKinsey Quarterly) – http://dln.jaipuria.ac.in:8080/jspui/bitstream/123456789/2319/1/Five-ways-that-ESG-creates-value.pdf
Sustainability Marketing: How to Effectively Speak Greening in the Sport Industry (Sheila Nguyen) – https://www.taylorfrancis.com/chapters/edit/10.4324/9781315881836-13/sustainability-marketing-sheila-nguyen
Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation (World Economic Forum) – https://www3.weforum.org/docs/WEF_IBC_Measuring_Stakeholder_Capitalism_Report_2020.pdf
Employees and sustainability: the role of incentives (Journal of Managerial Psychology) – https://www.emerald.com/insight/content/doi/10.1108/JMP-09-2014-0285/full/pdf?title=employees-and-sustainability-the-role-of-incentives
This is the first instalment of a five-part series outlining how brands can create and implement a fit-for-purpose sports sustainability strategy. The next four parts will focus on the following:
RESTON, Va., Aug. 04, 2022 (GLOBE NEWSWIRE) -- Revature, the largest employer of entry-level technology talent in the United States, and Salesforce, the global leader in Customer Relationship Management (CRM), today announced a program to train and certify emerging tech talent in Commerce Cloud, a cloud-first solution that allows brands to deliver exceptional digital buying experiences for B2B buyers and rapidly adapt to market dynamics and customer needs.
Revature and Salesforce first partnered in 2020 to build a talent pipeline of certified Salesforce Developers, Salesforce Administrators and Salesforce Consultants to power the Salesforce economy. Today’s announcement expands upon this mission to meet the growing demand for tech talent trained and certified in Salesforce Commerce Cloud using Revature’s industry-leading approach. The program will be rolled out in phases, with the first phase focusing on the B2B Commerce solution and later expanding to other in-demand areas such as Order Management and B2C Commerce.
“At Revature, we train entry-level talent on the most in-demand skills and certifications, with real-world applications on their resume before they ever set foot in a client’s office,” said Anurag Gupta, SVP, Head of Product Partnerships at Revature. “This is exactly what we’ve partnered with Salesforce to accomplish. Online retailing and ecommerce has taken the world by storm leading to a significant demand for technology talent and through this partnership, we are connecting talent with opportunity.”
As a Salesforce Trailhead Authorized Training Partner and Salesforce Talent Alliance Workforce Development Partner, Revature will leverage its best-in-class hire-train-deploy model to recruit, train, certify and place new graduates from its network of 700+ university and college partners. Revature is now the first Salesforce B2B Commerce Cloud authorized Workforce Development and Training Partner.
“Ecommerce has revolutionized the way our world operates, and businesses are increasingly turning to Salesforce B2B Commerce Cloud to help them navigate inherent B2B ecommerce challenges, generate more revenue, and lower costs,” said Don Lynch, SVP, Cloud Solution Alliances at Salesforce. “In expanding our partnership with Revature, we are giving our customers and partners access to proven Salesforce-ready talent to help them power these initiatives.”
To learn more about Revature’s training program for Salesforce B2B Commerce, click here.
Revature is the largest employer of emerging technology talent in the U.S. and the talent development partner of choice for Fortune 500 companies, government organizations and top systems integrators. Since its founding, Revature has trained over 10,000 software engineers in 55 technical disciplines, recruited talent from 700 universities, and deployed them to blue chip companies throughout the U.S.
Revature’s mission is to create a pathway for qualified candidates from diverse experiences and educational backgrounds to reach their potential as technology professionals. Graduates of the Revature program work on innovative, challenging and rewarding software development projects across the United States. Revature has committed to training one million developers over the next decade.
Learn more at www.revature.com and follow @WeAreRevature on Twitter and LinkedIn.
Salesforce, the global CRM leader, empowers companies of every size and industry to digitally transform and create a 360° view of their customers. For more information about Salesforce (NYSE: CRM), visit: www.salesforce.com.
Any unreleased services or features referenced in this or other press releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase Salesforce applications should make their purchase decisions based upon features that are currently available. Salesforce has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM." For more information please visit https://www.salesforce.com, or call 1-800-NO-SOFTWARE.
REQ on behalf of Revature
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Gartner, Inc. (NYSE:IT) Q2 2022 Earnings Conference Call August 2, 2022 8:00 AM ET
Gene Hall – Chief Executive Officer
Craig Safian – Chief Financial Officer
Conference Call Participants
Jeff Meuler – Baird
Heather Balsky – Bank of America
George Tong – Goldman Sachs
Greg Parrish – Morgan Stanley
Andrew Nicholas – William Blair
Seth Weber – Wells Fargo
Welcome to Gartner's Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After comments by Gene Hall, Gartner's Chief Executive Officer; and Craig Safian, Gartner's Chief Financial Officer. There will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
This call will include a discussion of second quarter 2022 financial results. And Gartner's updated outlook for 2022 as disclosed in today's earnings release and earnings supplement both posted to our website, investor.gartner.com. On the call unless stated otherwise all references to EBITDA are for adjusted EBITDA, but the adjustments is described in our earnings release and the supplement. All growth rates in Gene's comments are FX-neutral, unless stated otherwise. All references to share counts are for fully diluted weighted average share counts, unless stated otherwise.
Reconciliations for all non-GAAP numbers we use are available in the Investor Relations section of the gartner.com website. Finally, all contract values and associated growth rates we discuss are based on 2022 foreign exchange rates unless stated otherwise.
As set forth in more detail in today's earnings release, certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from genuine results and are subject to a number of risks and uncertainties, including those contained in the company's 2021 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. I encourage all of you to review the risk factors listed in these documents.
Now, I will turn the call over to Gartner's Chief Executive Officer, Gene Hall.
Good morning. Thanks for joining us. Gartner had a strong performance in the second quarter. We delivered double-digit growth in contract value, revenue, EBITDA and EPS, and we continue to return excess capital to our shareholders through our buyback programs. Research continues to be our largest and most profitable segments. Gartner Research provides genuine objective insight to executives and their teams across all major enterprise functions in every industry around the world.
Our expert guidance and tools enable faster, smarter decisions and stronger performance on our client's mission-critical priorities. We continue to have a vast market opportunity across all sectors, sizes and geographies and we're delivering more value than ever. The rate of change in the world is the fastest I've ever seen. Against this backdrop, Gartner continues to get even more agile. We're generating new insights to address timely impressing issues, such as leveraging and emerging technologies, optimizing costs, attracting and retaining talent in a hybrid world, managing cybersecurity risk and more.
We deliver incredible value whether our clients are thriving, struggling, or somewhere in between. As a result, demand for our services remain strong. Q2 research revenue were 17% in the second quarter, total contract value growth was 15%, retention remained very strong. A new business was near all-time highs. We're also growing our sales teams. Global technology sales headcount was up 9% and global business sales headcount was up 17% year-over-year.
Global Technology Sales or GTS, serves leaders and their teams within IT. GTS contract value grew 14%. Global business sales or GBS serves leaders and their teams beyond IT. This includes HR, supply chain, finance, marketing, sales, legal, and more. GBS contract value grew 23%. Across every function, IT, supply chain, marketing, sales, HR, finance, and more, leaders and their teams benefit from our incredible value proposition. As a result, the enterprises we support see measurable progress on their mission-critical priorities.
Leveraging the extraordinary value of our research insights, our conferences business brings the power of Gartner to life for an engaged and highly qualified audience. During Q2, we delivered our first in-person destination conferences since the start of the pandemic. These conferences covered IT, finance and supply chain in Europe, Australia, and the U.S. Attendee feedback has been resoundingly positive. They deeply value the opportunities to connect, engage, and learn in-person.
Bookings continue at a strong pace for both exhibitors and attendees. Gartner Consulting is an extension of Gartner Research. Consulting helps clients execute their most strategic technology initiatives through deeper extended project based work. Consulting had a strong quarter with revenue up 20%. Bookings were also strong, driving backlog up 45%.
In closing, we saw strong growth across the business. We continue to generate significant free cash flow well in excess of net income. We returned excess capital to shareholders, which reduced our shares outstanding. Looking ahead, we are well positioned for strong double-digit top line growth. Our underlying margins are in the low 20s, well above pre-pandemic levels, and we expect them to modestly increase over time. And we continue to generate free cash flow well in excess of earnings, which we will deploy to further drive shareholder value.
With that, I’ll hand the call over to our Chief Financial Officer, Craig Safian. Craig?
Thank you, Gene, and good morning. Second quarter results were strong with double-digit growth in contract value, revenue and adjusted EPS. With results above our expectations, we are again increasing our 2022 guidance. The improved outlook reflects the better than expected second quarter top line results, strong demand for second half conferences and a successful balance between cost discipline and investing for future growth.
Second quarter revenue was $1.4 billion, up 18% year-over-year as reported and 22% FX neutral. In addition, total contribution margin was 69%, down 70 basis points versus the prior year as costs returned towards normal. EBITDA was $389 million, up 10% year-over-year and up 14% FX neutral. Adjusted EPS was $2.85, up 27% and free cash flow in the quarter was $395 million. Adjusting for insurance proceeds received last year, free cash flow was down 2% year-over-year for the quarter and up 5% on a rolling full quarter basis.
Research revenue in the second quarter grew 14% year-over-year as reported and 17% on an FX neutral basis, driven by our strong contract value growth. Second quarter research contribution margin was 74% about in line with 2021. Higher than normal contribution margins reflect improved operational effectiveness, increased scale, continued temporary avoidance of travel expenses and continuing to catch up on headcount to support the research business.
Contract value or CV was $4.3 billion at the end of the second quarter, up 15% versus the prior year. As we discussed previously, CV reflects our decision to exit the Russian market, which contributed about $13 million in the second quarter 2021 number. This reduced the headline growth by about 40 basis points. Quarterly net contract value increased or NCVI was $97 million. Quarterly NCVI is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric. The sequential increase in CV of $97 million was driven by the combination of continued strong retention rates and near record new business of close to $250 million.
We saw a broad based CV growth across all of our practices. Our technology practice grew 14% and all of our business practices grew at double-digit growth rates with many of them growing more than 20% year-over-year. From an industry perspective, retail, media and manufacturing led our CV growth. Global technology sales contract value was $3.4 billion at the end of the second quarter, up 14% versus the prior year.
GTS had quarterly NCVI of $60 million, driven by strong retention and near record levels of new business for a second quarter. While retention for GTS was 107% for the quarter, up about 530 basis points year-over-year and near record levels. GTS new business was down 1% versus last year up, against the very tough compare. The two-year compound annual growth rate was about 16%. GTS quota-bearing headcount was up 9% year-over-year.
We are on track to get to double-digit growth by the end of 2022, as we have successfully brought turnover down and/or investments in recruiting are delivering results. We will continue to invest in our sales team to drive long-term sustained double-digit growth while also delivering strong margins. Our regular full set of GTS metrics can be found in the appendix of our earnings supplement.
Global business sales contract value was $936 million at the end of the second quarter, up 23% year-over-year, which is above the high end of our medium term outlook of 12% to 16%. GBS CV increased $37 million from the first quarter. While retention for GBS was 115% for the quarter, up about five percentage points year-over-year. GBS new business was up 3% compared to last year, reflecting robust growth across the full portfolio and against the very strong compare.
The two-year compound annual growth rate for new business was 35%. GBS quota-bearing headcount increased 17% year-over-year, headcount we hire in 2022 will help to position us for sustained double-digit growth in the future. As with GTS, our regular full set of GBS metrics can be found in the appendix of our earnings supplement. Conferences revenue for the second quarter was $114 million, ahead of our expectations as attendees and exhibitors enthusiastically return to in-person.
Contribution margin in the quarter was 65%. We held six in-person conferences and eight virtual conferences in the quarter. We held event meetings in both virtual and in-person formats. We planned to run 19 in-person conferences for the balance of the year.
Second quarter consulting revenues increased by 14% year-over-year to $121 million, on an FX neutral basis revenues were up 20%. Consulting contribution margin was 42% in the second quarter up 120 basis points versus the prior year with better than expected revenue, higher utilization rates and a mixed benefit from strong growth in contract optimization. Labor-based revenues were $95 million up 11% versus Q2 of last year and up 18% on an FX neutral basis. Backlog at June 30th was $152 million, increasing 45% year-over-year on an FX neutral basis with another strong bookings quarter. The inclusion of multi-year contracts, a change we described last quarter contributed about 12 percentage points the year-over-year growth rate.
Our contract optimization business was up 28% as reported and 31% on an FX neutral basis versus the prior year. As we have detailed in the past, this part of the consulting segment is highly valuable. Consolidated cost of services increased 21% year-over-year in the second quarter as reported and 25% on an FX neutral basis. The biggest driver of the increase was higher headcount to support our continued strong growth and the return to in-person destination conferences
SG&A increased 24% year-over-year in the second quarter as reported and 27% on an FX neutral basis. SG&A increased in the quarter as a result of increased hiring in sales and G&A functions, higher commission expense, following strong CV growth in 2021 and a $12 million one-time real estate charge. We expect SG&A expenses to increase as a percentage of revenue over the near term as our catch up hiring continues. EBITDA for the second quarter was $389 million up 10% year-over-year on a reported basis and up 14% FX neutral. Second quarter EBITDA upside to our guidance reflected revenue exceeding our forecast and expenses at the low -end of our expectations.
Depreciation in the quarter of $23 million was down modestly versus 2021. Net interest expense excluding deferred financing costs in the quarter was $29 million up $2 million versus the second quarter of 2021 due to an increase in total debt balances. The Q2 adjusted tax rate which we used for the calculation of adjusted net income was 25.7% for the quarter. The tax rate for the items used to adjust net income was 25% for the quarter. Adjusted EPS in Q2 was $2.85, growth of 27% year-over-year. The average share count for the second quarter was 81 million shares. This is a reduction of about $5.6 million shares or about 6.5% year-over-year. We exited the second quarter with about 80 million shares outstanding on an unweighted basis.
Operating cash flow for the quarter was $416 million. Adjusting for the insurance proceeds we received in the second quarter of 2021, operating cash flow was down 2% compared to last year. CapEx for the quarter was $21 million up 76% year-over-year as a result of an increase in capitalized software, laptops and other infrastructure. Free cash flow for the quarter was $395 million. Free cash flow growth continues to be an important part of our business model with modest CapEx needs and upfront client payments. As many of you know, we generate free cash flow well in excess of net income, our conversion from EBITDA is very strong with the differences being cash interest, cash taxes and modest CapEx, partially offset by strong working capital cash inflows.
Adjusting for the insurance proceeds we received last year, free cash flow as a percent of revenue or free cash flow margin was 21% on a rolling four quarter basis. On the same basis, free cash flow was 81% of EBITDA and 146% of GAAP net income. At the end of the second quarter, we had $360 million of cash. Our June 30th debt balance was $2.5 billion. Our reported gross debt to trailing 12 month EBITDA was under two times. Our expected free cash flow generation, unused revolver and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy of share repurchases and strategic tuck-in M&A.
We repurchased around 930 million of stock through the first half of this year. We had about 700 million remaining on our authorization at the end of June. We expect the board to continue to refresh the repurchase authorization as needed going forward. Since the end of 2020 through the end of this June, we have reduced our shares outstanding by 9 million shares. This is a reduction of 11%. As we continue to repurchase shares, we expect our capital base will shrink. This is accretive to earnings per share and combining with growing profits also delivers increasing returns on invested capital over time.
Our medium-term outlook is for double digit revenue growth, while margins have been very strong the past two years we are continuing to catch up hiring and to resume travel spending. We estimate our underlying margins to be in the low twenties, well above pre-pandemic levels, and we expect them to increase modestly over time. We will provide 2023 specific guidance in February consistent with our usual practice. Strong top line growth, modest margin expansion, low capital intensity, and working capital as a source of cash will allow us to deliver strong free cash flow now and in the future. We are increasing our full year guidance to reflect strong Q2 performance and an improved outlook for the second half despite incremental FX headwinds.
We now expect an FX impact to our revenue growth rates of above 370 basis points for the full year. This is up from 260 basis points based on rates when we guided in May. As we discussed the last two quarters, 2021 research performance benefited from several factors, including QBH tenure mix, NCVI phasing within the quarters and the year, record retention rates and strong non-subscription growth. We continue to assume that those benefits do not persist at the same levels through 2022. The growth compares will continue to be challenging as we move through the year. We continue to take a measured approach based on historical trends and patterns, which we've reflected in the updated guidance.
For conferences, we assume we will be able to run all the in-person conferences as planned. Consistent with our commentary the past couple of quarters, our assumptions for consolidated expenses continue to reflect significant headcount increases during the year to support current and future growth. We have modeled higher labor costs, T&E well above 2021 levels as we've previously indicated. We also have higher commission expense during 2022 due to the very good selling performance we delivered in 2021. Finally, we continue to invest in our tech, both client facing and internal applications as part of our innovation and continuous improvement programs.
Our updated guidance for 2022 is as follows. We expect research revenue of at least $4.575 billion, which is FX neutral growth of about 15%. The FX neutral growth is up about 120 basis points from our prior guidance due to strong NCVI performance in the second quarter. We expect conferences revenue of at least $335 million, which is growth of about 63% FX neutral. We expect consulting revenue of at least $440 million, which is growth of about 11% FX neutral. The result is an outlook for consolidated revenue of at least $5.35 billion, which is FX neutral growth of almost 17%.
The FX neutral growth is up about 290 basis points from our prior guidance due to strong performance in the second quarter. Without the strengthening U.S. dollars since May, our revenue guidance would've been about $138 million than previous guidance. We now expect full year EBITDA of at least $1.235 billion up $100 million from our prior guidance and an increase in our margin outlook as well. Without the strengthening U.S. dollar since May, our EBITDA guidance would've been about $120 million higher than previous guidance. We now expect 2022 adjusted EPS of at least $8.85. For 2022 we now expect free cash flow of at least $985 million. Our guidance is based on 81 million shares outstanding, which reflects year-to-date repurchases. All the details of our full year guidance are included on our investor relations site.
Finally, for the third quarter of 2022, we expect to deliver at least $255 million of EBITDA. Our strong performance in 2022 continued in the second quarter with momentum across the business. Contract value growth was very strong at 15%. Adjusted EPS grew 27% fueled by the significant reduction in shares over the past year. We repurchased around $930 million in stock this year through June and remain committed to returning excess capital to our shareholders. Looking out over the medium-term, our financial model and expectations are unchanged. With 12% to 16% research CV growth, we will deliver double digit revenue growth.
With gross margin expansion, sales cost growing in line with CV growth and G&A leverage we can modestly expand margins. We can grow free cash flow at least as fast as EBITDA because of our modest CapEx needs and the benefits of our clients paying us up front. And we'll continue to deploy our capital on share repurchases, which will lower the share count over time and on strategic value enhancing tuck in M&A. With that I'll turn the call back over to the operator and we'll be happy to take your questions. Operator?
Thank you. [Operator Instructions] Our first question coming from Jeff Meuler with Baird, your line is now open.
Yeah, thanks. Just first a clarifying question on the underlying margin. So when you say low twenties, could that include like 21% or 22%, you're not saying like low 20.X% and if we will have a recession at some point, would you expect to be able to at least maintain those underlying margins through a recession again as well?
Hey, good morning, Jeff. Thanks for the questions, in terms of the underlying margin. No, it wasn't locked in on 20.0% as low twenties. As we've looked at the business over the last few years we've learned a lot through the pandemic, et cetera. And so we're now comfortable that the underlying margins of the business are in the low twenties. And again, we can grow the top line double digit growth rates into the future and we can modestly expand margins from that point as well. In terms of – yeah, go ahead.
Yeah. I was just going to say, including maintain at least that margin in a recession.
Yeah. So that was the second part of the question. So again, the way we are thinking about running the business is again, we believe that there still is a huge untapped market opportunity. We believe one of the ways that we go capture that untapped market opportunity is by continuing to grow the sales force and again making sure we've got the right insights and the right number of analyst and advisors, et cetera. If there were to be recessionary impact on the business, we would toggle the investment growth rates in each of those areas to ensure that we could deliver those underlying margins and also ensure that we could drive modest margin expansion into the future as well.
Got it. And then I think you're being anticipatory on the commentary around the new business, giving us the two year CAGRs and such, but just any comments on what you're seeing in real time from a macro perspective, whether it's pipeline build and conversion in June and July or the courses of client content demand, just any other business kind of metrics just given the “near-record” when we – I guess, used to fresh records from the growth company that Gartner is?
Hi Jeff, it’s Gene. So the selling environment has been quite I think stable and good compared to Q1. Again, as you said we had near record new business levels. We have near record retention levels. Our conferences booking for both the exhibitors and attendees was very strong and that's been reflected in our guidance going forward, I believe the consulting business had one of the best quarters we've ever had with revenues of 20%, backlog up 45%. And there's kind of nothing, if we look under the covers that that would lead you to believe in Q2, there isn’t anything other than selling and growth was quite robust.
And Jeff, I would just echo having read briefly your report earlier this morning the compares are super tough in Q2 and they remain pretty tough throughout the balance of the year. We're still growing CV at a great growth rate. You heard some of the other metrics around their underlying businesses in conferences and consulting as well and so very tough compares for the balance of this year, but still feel good about the momentum of the business.
Yep. Got it, thank you.
Thank you. Our next question comes from Heather Balsky with Bank of America. Your line is now open.
Hi, thank you for taking my question. I guess on the subject as you are in terms of what happens in the downturn, can you talk a little bit more about how your business today is more resilient in a downturn when you look back to I guess other periods of macro decline, maybe COVID crisis or even going further back the financial crisis and kind of how you feel about the sales line going into something potentially happening near-term.
Hi, Heather, it’s Gene. So we're very cognizant, always of the environment around us, and we try to make sure that we're as a business prepared for where the world is going and clearly being concerned about a macroeconomic downturn, one of those things. And first thing is, at any given point in time, we have clients that are growing clients that are shrinking and clients in between. So we always have clients that are struggling. What we see in a macroeconomic downturn is just more of those clients, but we do it all the time. Now, as I mentioned earlier, we've constantly adjust to try and make sure we are prepared for whatever economic environment comes. And we do this in a number of ways. One of them is we actually do surveys for our clients to understand kind of where their mindset is, what they're concerned about.
In fact, in July, we did a survey of more than 150 Chief Financial Officers of our clients to see what was on their mind and therefore how she respond. And they have three priorities. One was securing talent, they're still seeing that it's hard to hire talent, and they're concerned about the wages for those talent. The second one is they want to keep accelerating digital, even in downturn. In fact, we asked these CFOs, what are they going to do in the downturn? 69% said, they're going to continue to increase spending on technology to downturn, 28% said they're going to maintain it and 3% said, they're going to decrease it. So this continued investment technology to prove the economics of business continues on. And the third priority was to manage spending on things like operations, real estate, travel, to pay to hire people and pay higher wages as well as to do these investments in digital.
So what we're doing is we're taking our research content and line it with those kinds of priorities, help the clients, making sure they secure talent and manage with inflation, making sure they can continue to accelerate the digital impact on their business. And thirdly, most important maybe helping them to manage spend that's a big part of our business all the time. And we recently updated our, what we call cost optimization work to make sure we can help them with it. So we've updated our research based on, and I gave you the CFO survey. We do surveys all three level executives understand what their individual priorities are. We then update our research, make sure it's on those most construing topics. And then in fact, in July we introduced trainings all our sales people and our service people in terms of what are the most important issues today with clients like the things I just mentioned and how has our research changed so that we can match those fees.
And then, we'll continue to do that going forward. And so this wasn't kind of a one-time thing we do once, we do this on an ongoing basis. So part of our strategy is to make sure our content is always on the courses people find important. Now, clearly one of those things is going to be how to manage costs and we will help them with that. But then making sure that all of our sales and service people are equipped to have conversations with senior executives on how we can help them with those priorities. And if this agility is the core part of our business, we also do structural things in our business. Like, if you – the share of both of your contracts we have is quite high and we first strategy to grow that over time. And so it is those two things making sure our content is great, our sales group preferred and making sure the underlying structural factors we can control are also there. That is, if you look over time, we perform better and better at each downturn. And we're certainly aware it might be a downturn and are preparing for it.
Great. Thanks. Thanks for doing that. And another player, I guess in the space recently mentioned longer contract cycles. Are you seeing anything like that in your market?
So I'd say we haven't seen longer contracting cycles. I would say we see escalations it's more likely that a contract would be reviewed by a CFO than it was a year ago. Because we train our sales people, should that that's likely to happen and to be prepared for it. And to both prepare our meeting client who might be like the Chief HR Executive and Chief Information Officer that they might have to go to their CFO and review it and make sure they have what we call a CFO ready packet.
Thank you. Thank you for answering my question.
Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is now open.
Hi. Thanks. Good morning. The performance in GBS was noticeably stronger than GTS. If you look at CV growth it was 23% GBS, 14% GTS and the, the headcount growth was at 17% of GBS compared to 9% at GTS. Does this difference in growth between the two businesses reflect priorities internally or does it reflect customer demand that might be different between GTS and GBS?
Yeah. Hey George. I think it reflects the investments that we've made more than anything else. So you go back in fact, go back five years ago, we began investing pretty heavily in areas outside of IT. So I think marketing, supply chain, finance, HR, legal, sales those were areas that hadn't traditionally been strong for us. We were in a couple of them, we hadn’t been strong. We after investments significantly both buying [indiscernible] and then after bought CEB with investments and what we're seeing in the accelerated growth rate in GBS now is the outcome of those investments. We kind of invested up front there's a lot of discussion about it at the time. And we increased sales capacity, increased research capacity, service capacity, developed a lot of content, and we're seeing the benefits of those. And so I think that's the first piece.
The second piece is one of the major factors to grow our business. Clearly with this huge market opportunity is growing our sales head count. And while we increase sales productivity, we've had some good increase in productivity. Growing sales headcount is essential. And so the fact that we've grown our GBS head sales headcount faster over time, not with this quarter, but if you look at like over the last since 2019, we've grown our GBS sales headcount at compound growth rate of about 60% a year, I'm sorry about 5% a year. And that is which is faster than GTS, which is about flat. And so that's allowed the growth to be a lot higher in GBS. So those two things, the combination of the investments and the growth in Salesforce is what's really powered the faster CV growth.
And the other thing I'd add George is just, as we look at over the medium-term, we believe given the market opportunity and our ability to go capture that market, that both GTS and GBS can be consistent 12% to 16% growers. And so, yes, GBS is growing a little bit ahead of that right now, but we remain very, very, very confident that both GTS and GBS can continue to grow at very strong double digit growth rates.
Got it. That's helpful. Last quarter you increased your normalized EBITDA margin targets from 19% and 20% to 20%. And now you're saying underlying margins will be in the low-twenties. So just going back to clarify, are you increasing your underlying margin target over the medium term or are you reiterating it from the prior quarter?
Yeah, it's a great question. So let me attempt to clarify because it is a very important question. So number one, I would say just as context, we can grow our top line at double digit growth rates and modestly expand margins over time. And there is operating leverage in the business at another way, right? So those are kind of two key points. When we were discussing the 20% normalized margin, we were really looking back to 2021 and attempting to provide a view on if things had been “more normal” what would our operating or EBITDA margins, what would they have been in 2021? What we're now providing is more of a go forward view around what do we believe the operating margins are that we can run the business at.
And we have moved that higher over time to your point because we've gotten increased visibility into better ways to run our business. And so what is the new normal for travel expenses? What is the new normal for the amount of real estate we need? What does it look like when in-person conferences come back into the portfolio and what does it look like as we catch up on headcount and then continue to grow and invest to support and sustain future growth and so the way to think about that low-twenties number is yes, it's an update but it's also a view towards what do we think the underlying margins of the business are that we can modestly expand on.
Got it. That's helpful. Thank you.
Our next question comes from Toni Kaplan with Morgan Stanley. Your line is now open.
Hey, this is Greg Parrish for Toni. Thanks for taking our question and congrats on the strong quarter. Just wanted talk about margin. You ramped up hiring in the quarter a lot margins went up and understand a lot of those probably weren't in the expense space yeah, but just really Craig, if you could kind of help us bridge on how you get to the margin in the back half given the sort of implied step down.
Yes, absolutely. So you've hit on a number of the items that will impact the margins in the second half of the year. So we're very aggressive on hiring the first half and we expect to remain as aggressive in the second half as we continue to catch up from hiring from 2021 and we also make sure that we're investing appropriately for the future so that's a big piece that goes into the cost base for the second half of year. The second big thing is resumption of travel. And some of that is tied to us returning to in-person destination conferences, but a lot of it is just normal, we run global teams and we want our leaders to be in front of those global teams and so we'll see that ramp up in the second half of the year as well.
Third thing is our normal comp adjustment period happens April 1. So we only have one quarter of that in the first half of the year. We obviously have two quarters of that in the second half of the year. And so those are the three biggies as you think about bridging the expenses. And then the fourth one is with the return to in-person destination conferences. Obviously there's a lot of variable cost in delivering those in-person.
Great. Thanks for the color there. And I guess just a quick follow-up on pricing, I think last quarter, Craig, you talked about getting more this year, given the inflationary environment, I guess, the broad macro is a little bit different than it was three months ago. Are you still expecting sort of above normal pricing this year?
Yes, I mean, I think Greg, the way to think about it is we want to make sure that we are matching our price increases with wage inflation or cost inflation. The bulk of our costs are people related. So we feel good that we are matching our price increases with what we're seeing on our wages.
Okay. Thank you.
Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is now open.
Hi, good morning. Wanted to ask a question first on the headcount growth, really solid quarter recorder increase there, I think in your prepared remarks, you touched on it briefly, but I was hoping you could spend a bit more time on attrition trends, how that's kind of coming in relative to your expectations and the successful recruiting efforts. Just a little bit more color there, because it does sound like you're still pretty happy with where that's trending and your goals for the full year?
Yes, Andrew, great question. So the first in terms of our attrition, we want to retain our great associates. Attrition like many companies went up over the last couple years. We worked hard to understand the causes and then making sure that we address that. And actually our associate turnover has actually gone down now to kind of what we would call normal levels. And so we're very happy with that turnover.
In addition to that, we have a very strong recruiting team. We have a truly world-class recruiting team and that recruiting team's been doing a great job and of course we have a great employee value proposition as well. So you combine those three things, lower turnover, a great employee value proposition, a crack recruiting team. That's allowed us to get our net associate headcount growth back up to where we need to support the growth in our business.
Great. Thank you. And then for my follow up, I wanted to ask about strength in the U.S. versus internationally. Obviously, seems like there's pretty broad based growth across the practices and across the industries, but is there any difference in CV growth or how you're kind of able to sell in EMEA for example, given the geopolitical uncertainty or anything to call out there in the court?
Yes. Hey, there's – what I say is there's nothing systematic. If you look at Europe, Europe is proceeding along, there's some countries that are doing very well. There's some countries that aren't, and it's sort of typical of what we've seen. And then that is kind of flat and same is true for the rest of the world so nothing really remarkable in terms of U.S. versus different geographic region.
Yes, and Andrew, when we say broad based growth, it is broad based. So we look at it across our top 10 geographies, they're all growing at nice growth rates. When we look across industry cuts, they're all growing at nice growth rates. And so, yes, there are always pockets where there may be a little bit of a challenge for us, but generally those are either like super micro challenges or our own operational challenges. But the growth has remained pretty broad based. The biggest indicator where we've been growing and not growing is where a headcount, our sales headcount has grown faster or slower.
Makes sense. Thank you.
Thank you. Our next question comes from Seth Weber with Wells Fargo. Your line is now open.
Hey, good morning, everybody. Thanks for taking a question. I wanted to just ask another question on the expense side. I appreciate that travel, T&E and stuff like that is ramping up in the second half of the year. Do you think that the run rate by the end of the second year, will kind of get you back to par or do you think there will still be some kind of catch up headwinds into next year? Thanks.
Yes, Seth. Good morning. It's a good question. So I think the second half of the year will be more indicative of “normal travel”, starting off the year, this year, given where we were with the pandemic, it was a little light in the first three or four months of the year and has started to pick back up. And so, yes, second half is probably more indicative. I think the way we're thinking about it is as compared to the last “normal year” back in 2019 where we expect to spend probably at least 50% less than we did in 2019. And again, we just think that the company and our associate base has embraced and thrived, operating virtually. We still do need to travel, but we don't need to travel at the same volume that we did back in 2019.
Got it. Thank you. And then just those follow up I was really surprised at the strength in some of the areas like the non-subscription revenue and then the consulting backlog of 45%. I'm just – was there anything unusual there, or is that just reflective of kind of what you were talking about earlier that the model is just more consulting backlog of 45% I'm just – was there anything unusual there, or is that just reflective of kind of what you were talking about earlier that the model is just more recession resistant or resilient than people might expect. And just any comment on those line items, thanks.
Yes, Seth, I think it just reflects that our clients had challenges that our clients had challenges that they need help with and then our content and the way we deliver the content was through consulting conferences or research is really helpful in helping them solve the problems. And so I think it's indicative, but we have a great value proposition, just kind of what's going on.
Okay. And just the non-subscription revenue, is that – do you feel like that's a kind of a sustainable level or would you expect that to come off a little bit here going forward?
Yes Seth. It is we had a really strong year on that line last year. So tough compares there, which again, we did model into our initial guidance and our updated guides as well, but to Gene's point, the products and offerings we have there offer a very strong and compelling value proposition in good times or rougher times. And so we still expect it to be a nice strong grower for us, but again, super tough compare against the 2021 performance.
Got it. Okay. Thanks guys. Appreciate it.
Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is now open.
Hi, this is Ryan on for Jeff. I just had a quick question on the labor supply side. Is it still as tight to find potential employees as it was three months ago?
Great question, Ryan, what I read in the press and what I see with a lot of other companies is a lot of challenges. I go to the CFO survey. One of the biggest concerns that CFOs have is their ability to hire talent. We've actually found that we've had no trouble hiring talent. Again, our employee value proposition is very strong. We have a great brand with associates and so we've had no trouble hiring people at all. And that's reflected in the hiring results that you saw.
Got it. And then just to follow up on the prior question, should we look to non-subscription revenues as a leading indicator if we're heading into a downturn?
No, I don't think so. I mean, it's a relatively small line and it can be a little volatile. Again, I think as we look across, I would look broadly across the business for leading indicators, not one of the smallest revenue lines that we actually have out there. So now I would guide you to look at consulting, look at conferences and look at our research CV growth as leading indicators.
Got it. Thank you.
Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is now open.
Good morning. This is Brendan on for Manav. Just want to ask obviously some of your competitors for talent at least are freezing hiring and you may have an opportunity to catch up on headcount in the next few quarters. As a labor market gets a bit more friendly so for GTS specifically, obviously things are started to Excellerate this quarter. Is this a level where you grow 10% off of or you think you can really catch up the next couple – over the next few quarters?
Hey Brendan, it's a great question. I mean our business grew really rapidly last year and more rapidly we've expected and so we had a lot of hiring to catch up on, including in GTS. And so we want to get that catch up hiring so that we can properly service our clients and also be prepared to sell more clients. And over time we expect to grow our GTS sales force and GBS’ by the way, take three to five percentage points slower than our CV growth. So CV growth is 15%, you'd expect to see over time our target would be headcount growth of 12% – 10% to 12% growth.
And Brendan, the way to think about that is that's sort of the normal algorithm for how we want to make sure that we are investing for both current needs and future sustained growth. Obviously, this year to Gene's point, we are doing a lot of catching up. And so you'll see those growth rates a little bit higher potentially obviously with GBS up at 17 and we're fully expecting both GTS and GBS to end the year with strong double-digit quota-bearing headcount growth.
Okay. And just another question here, but moving over to the conferences, is the guidance increase really, is it just like better attendance than you expected? Are the conferences all full? Is that kind – is that what it is or is there something else driving that higher?
Hey, Brendan, so the first piece of it is that we're seeing very, very robust demand for conferences. Exhibitors are finding it in a great way to meet prospects for them. And the attendees find tremendous value, so we're finding just very strong demand for our conferences continuing on. And then I'll let Craig talk about how [indiscernible].
Yes. So I think, Brendan, obviously the second quarter, where our first in-person destination conferences in a few years and so we were pretty cautious about our expectations around the number of exhibitors and number of attendees that would want to come, would be able to come. And as you heard in our comments, I think both groups enthusiastically returned in the second quarter. And as Gene mentioned, earlier our bookings leading through our Q3 events and even the advanced bookings on Q4 conferences, look very strong as well. And so the update, the outlook is really just around some caution upfront because we hadn't delivered anything in person in essentially three – almost three years. And we saw an enthusiastic return from both revenue streams, attendees and our exhibitors.
Great. Thank you.
Thank you. [Operator Instructions] Our next question comes from Hamzah Mazari with Jefferies. Your line is open.
Hi, good morning. This is actually Stephanie on Hamzah. I was hoping you could talk a little bit about the tenure or your GTS sales force today versus pre-pandemic. How much tenure can add to productivity and right now, if you view the GTS sales force productivity is kind of back to those pre-pandemic levels. Thank you.
Hey Stephanie, great question. So tenure is an important determinant of productivity. When we hire new salesperson, it takes some time to fully get up to speed. And so a more tenure sales person is more productive. We're very focused on both hiring people to get up to speed quickly, as well as having internal training and other systems that help those new sales people get up to speed even faster.
If you look at it, because we hired fewer people during the pandemic, the average tenure sales force last year was pretty high. The highest it's been in accurate memory, as we ramped up our hiring, in Q2, it was more towards a normal tenure level as we keep hiring, we expect that to drop a bit for the rest of the year again during 2023.
Great, thank you. And then kind of switching gears. Could you talk bit about the M&A environment, how's the pipeline looking today and kind of where your focus is at?
Hey Stephanie, good morning. From an M&A perspective, obviously, we've got a team that is actively out there looking at opportunities and staying in touch with a few hundred companies and actually tracking well more than that. I think our strategy as we've articulated is number one, we're an organic growth company and we believe we can achieve our medium term objectives of the double-digit growth and modest margin expansion organically. And so it does not require M&A to get there.
That said, we do like to do M&A, when it can fill a gap or catalyze us or add an asset or capability or things like that. So I think as we look at the radar screen, we are looking at things that can catalyze us or fill in gaps or add assets to our portfolio that can help us over the long-term. I think there obviously over the last two or three quarters just like the equity markets has been a recalibration around valuations. I'm not sure every seller has completely recalibrated yet either. But again, we'll continue to be on the lookout for strong strategic value enhancing tuck-in opportunities that again can either catalyze growth, fill in a gap or add important assets for us.
Great. Thank you so much.
Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Gene Hall for closing remarks.
Well, summarizing today's call. In the second quarter, we drove strong performances across the business, across every geography, every industry, and every major function we deliver incredible value. We have strong demand for services with have a vast untapped market opportunity. We can drive sustained double-digit top line growth. As we invest for the future. We'll continue to return significant levels of excess capital to our shareholders to our 2022 guidance. First of all, we increased our 2022 guidance. Thanks for joining us today. And we look forward to updating you again next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect.
Five9, Inc. (NASDAQ:FIVN) Q2 2022 Earnings Conference Call July 28, 2022 4:30 PM ET
Lauren Sloane - Investor Relations
Rowan Trollope - Chief Executive Officer
Dan Burkland - President
Barry Zwarenstein - Chief Financial Officer
Conference Call Participants
Ryan MacWilliams - Barclays
Meta Marshall - Morgan Stanley
DJ Hynes - Canaccord
Scott Berg - Needham
Terry Tillman - Truist
Taylor McGinnis - UBS
Samad Samana - Jefferies
Jim Fish - Piper Sandler
Peter Levine - Evercore
Michael Turrin - Wells Fargo
Matt Stotler - William Blair
Matt VanVliet - BTIG
Charlie Erlikh - Baird
Mike Latimore - Northland
Thank you for joining us today. On the call are Rowan Trollope, CEO; Dan Burkland, President; and Barry Zwarenstein, CFO.
Certain statements made during the course of this call that are not historical facts, including those regarding the future financial performance of the company, industry trends, company initiatives and other future events, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are simply predictions, should not be unduly relied upon by investors. genuine events or results may differ materially and the company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties that could adversely affect Five9’s future results and cause these forward-looking statements to be inaccurate, including the impact of the COVID-19 pandemic, macroeconomic factors and the other risks discussed under the caption Risk Factors and elsewhere in Five9’s annual and quarterly reports filed with the Securities and Exchange Commission.
In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding the reconciliation of our GAAP versus non-GAAP results is currently available in our press release issued earlier this afternoon as well as in the appendix of our investor deck and available in the Investor Relations section on Five9’s website at investors.five9.com.
And now, I’d like to turn the call over to Rowan Trollope. Please go ahead.
Thanks, Lauren and thanks to everyone for joining our call this afternoon. I am excited to report strong second quarter results, with revenue growth of 32% year-over-year. Our enterprise business continues to drive this increase, with LTM enterprise subscription revenue, which accounts for over 60% of total revenue, growing at 41%. Adjusted EBITDA for the second quarter was 17.5% of revenue. We expect margins to continue improving in the second half and beyond as we gain share in a large underpenetrated market, while simultaneously consistently generating operating cash flow and maintaining a strong balance sheet.
In a moment, I will talk about the drivers of our business. But before I do that, I’d like to address a subject that’s probably uppermost in your minds, namely the impact of the macro environment on our business. To do this, let me break it into two parts: growth from new logos and growth in the installed base, each of which contributes roughly half of our total annual revenue growth.
So I will start with new logos. For five reasons, we remain optimistic that despite the macro headwinds causing customers to be more cautious and deliberate, we will continue to enjoy strong growth in new logos. First, prospective customers are faced with the imperative of moving to the cloud as their premise-based systems either end of life or require expensive upgrades. 2 out of every 3 RFPs, 68%, received this year site moving to the cloud as a primary motivator to issue the RFP. And independent data from Forrester and others consistently show that making the move to the cloud results in triple-digit ROIs and payback periods measured in months.
Second is the need to automate manual tasks, particularly in a time when budgets are tight and labor is scarce. Automation was the primary motivator for a further 20% of the major RFPs. Third, the upper end of the market is accelerating their transition to the cloud. The largest customers, while not impervious to the economic environment, often can afford to continue to invest in critical systems even during downturns. Fourth, we have a massive opportunity internationally. Despite macro weakness in Europe, our bookings there more than doubled year-over-year in the second quarter. And finally, our remarkably efficient and disciplined go-to-market machine alongside the trusted reputation that we have built up amongst customers with our services. So for these five reasons and as Dan will elaborate, we enjoyed a second quarter record in net new bookings despite the economic turbulence.
Now, let me turn to the other half of the annual revenue growth and namely the installed base. As we have repeatedly stressed, our installed base bookings will not be immune from an economic downturn. However, keep in mind the following three points. First, we believe contact centers are mission-critical and arguably become even more critical in a downturn. Thus when CFOs cast about for our areas to cutback on spending, they will focus on optional spend areas rather than ones where they are able to productively interact with customers, reduce costs and increase revenues. Second, we have a very diverse customer base spread across all industry sectors. This lack of concentration will likely lessen the impact on our installed base business, absent a severe downturn that spreads across the entire economy. And finally, third, we enjoy strong retention rates and there are significant untapped opportunities to sell new products and services into our installed base, most notably automation and IVAs. So for these three reasons, we enjoyed a second quarter record in bookings from our installed base, again, despite the economic turbulence underway.
Now, stepping back and looking at both net new and installed base combined and considering our belief in the mission-criticality of contact centers, the huge barely penetrated $58 billion TAM and our proven ability to execute, we remain cautiously optimistic that despite the macro crosscurrents, there will be no interruption to our continued delivery of LTM enterprise subscription revenue in the 30s for the foreseeable future. Finally, mindful of macro environment, we are being even more cautious than normal in controlling costs and expenses so that we can continue to deliver not just durable growth but profitable growth.
Now, I will dive into the three main drivers of our business, specifically, the strength of our platform, our continued focus upmarket and the acceleration of our international presence. Taking each in turn, I am going to start with our platform. The decision we made a few years back to significantly increase R&D spending to redesign and rearchitect our platform to support enterprise-grade deployments is clearly paying massive dividends. These large companies need the scale and performance, which we have delivered. They want extensive and deep integrations, which we have delivered. They want a global solution, which we have delivered. And they want the assurance that we can support successful large-scale implementations, which we have demonstrated.
Today though, I want to comment on the single most important thing to our customers and that’s reliability of our platform. As a result of the rearchitecture, improved processes and disciplines, and importantly, disciplined execution, over the last 2 plus years, we have made tremendous strides to cement ourselves as a leader, if not the leader, in enterprise-grade CCaaS reliability. In this regard, I am very pleased to report that the second quarter, we further improved LTM uptime sequentially from 99.995% to 99.998%. As a reminder and to put things into perspective, 99.998% means that our service was unavailable for just 53 seconds in a given month on average in the last year, 53 seconds per month on average for the last year, amazing.
Now, another key dividend resulting from our rearchitecture is the increased pace of innovation and this is best exemplified by the success we are enjoying on the automation front. So, let me dig into that. During the last quarter, we met with many of our customers that have been using our automation solutions. The overwhelming response from these customers is that the implementation of automation solutions is typically resulting in significant ROIs, while improving customer and agent experience. And customers achieve these ROIs in multiple ways, such as automated resolution of customer calls, improved agent productivity from reduced agent handle time and improved customer satisfaction from lower call abandonment rates.
So, let me provide you a few examples of these successes. The first is a leader in the weight loss industry who saved cost by leveraging our workflow automation solution to Excellerate a critical sales process being managed by a legacy on-premises solution provider. The legacy on-prem solution was cumbersome to maintain and was costly. With workflow automation, we were able to transform their business by moving them seamlessly to the cloud in under 90 days and reducing their costs by 15% to 20% versus the legacy on-prem solution.
The second is a global company that empowers over 3.5 million small businesses with point-of-sale technologies and business management tools. Working closely with our partner and reseller in Latin America, they implemented natural language call routing through our IVA solution to eliminate the old Press 1 experience, producing savings of 30 seconds per call. With over 2.5 million calls a year, that has equated to over 2 years of time save for their customers, greatly improving customer satisfaction and business results.
Finally, third is a global shipping and logistics company, which reduced costs and improved customer satisfaction through our IVA solution. This customer was facing challenges with average hold times of over 30 minutes, which caused 3,000 customers to hang up every day before having their issue resolved. They deployed our IVA to offload their significant volume of shipment tracking inquiries from agents to a self-service solution. Our IVA was able to successfully self-serve over 90% of those customer inquiries, leading to a 95% decrease in customer hold times, a 96% decrease in customer hang-ups and a 44% reduction in telephony costs while significantly improving customer satisfaction. So those are three examples.
As a result of the increased customer focus on automation and the comprehensiveness of our solution, we had record bookings for our automation portfolio in Q2. Focusing on the largest component of the portfolio, namely the IVA, we saw year-over-year bookings growth of 63% and 335% for new logo and installed base, respectively. Our investment in AI and automation is being recognized by customers and industry analysts alike. And in Q2, we were named a leader in the 2022 Opus Research Decision Makers Guide to Enterprise Intelligent Assistants. We were honored to be the only CCaaS provider featured in the report and to be recognized for our strategic and holistic approach that champions product completeness and flexibility.
Next, I’d like to discuss our continued march upmarket. During the second quarter, we continued to show strong growth in the upper end of the enterprise market, which remains the fastest growing part of our overall business. Our success here is due to the rearchitecture of our platform, as I talked about earlier, and organizing our sales teams into clearly defined swim lanes, enabling us to match selling skills with market demand. Our strategic and enterprise teams have performed especially well with this new focus. The alignment has worked particularly well with systems integrators who tend to focus on the high end of the market. Partners, of course, have been a big part of our overall playbook here.
So let me share some accurate partner highlights. First, we enhanced our partner advisory board and our partner marketplace and created an all-new partner portal. Next, we expanded our relationship with Slalom Consulting and have seen terrific traction in several key markets, especially in conjunction with our Salesforce partnership. And finally, I am thrilled to report two new key partnerships for Five9. The first is Kindrel, a strategic technology services and consulting company, delivering value to over 4,000 customers worldwide. Kindrel was an existing Five9 customer using our services internally. And based on their positive experience with Five9, Kindrel decided to expand into a strategic reseller and managed services partnership with Five9 to deliver holistic and global customer experience to their high-end customers.
The second partnership I am pleased to announce is with WWT, World Wide Technologies. WWT is a $14 billion revenue, 8,000-employee technology service provider, and they have signed to be a global strategic resell partner for Five9, further expanding our partner ecosystem. And these initiatives are paying off with second quarter channel bookings growing 52% year-over-year.
And lastly, our international expansion. The significant and sustained investments we’ve made internationally continue to pay off with second quarter LTM international revenue growing 45% year-over-year. LTM international revenue was 9% of total revenue, and we continue to expect that this will increase to the mid- to high teens by 2026. Our progress in EMEA is particularly noteworthy since our last call. In fact, we announced the expansion of our data centers in Frankfurt and Amsterdam to serve Five9 customers in the European Union. We opened up our new innovation center in Porto. We established a doc and Iberian presence, both of which have closed initial orders and have successfully brought the $12 million ARR European insurance company, Live, which is now starting to ramp.
In summary, the familiar and proven building blocks needed to deliver disciplined, durable and profitable growth, namely our platform, our march upmarket and our global expansion, remain solidly in place despite the macro uncertainties. We continue to believe these building blocks position us well to reach $2.4 billion in revenue and 23% adjusted EBITDA in 2026. Last but certainly not least, I want to recognize and thank the people who have made all of this success possible, namely our employees. We couldn’t do any of this without them, and it is our employees’ engagement and dedication to our mission and their incredible execution that make us so successful. This spirit and motivation are illustrated by Five9 recently being named as one of the year’s best workplaces in the Bay Area by Great Places to Work and Fortune magazine. The award is based on employee feedback collected through America’s largest ongoing annual workforce study. In that survey, 95% of our employees responded that Five9 is a great place to work compared to 57% of employees at a typical U.S. based company. So a huge thank you to our team.
And I will now turn the call over to our President and Chief Revenue Officer, Dan Burkland. Dan, go ahead.
Thank you, Rowan and good afternoon everyone. As Rowan stated, we had a very strong quarter on both top line and bottom line financials. I am also pleased to report that we had exceptional bookings for Q2 as well, setting a record for any Q2. And had it not been for the $40 million-plus ARR deal we announced last quarter, it would have been an all-time record in any quarter for bookings. We continue to grow the pipeline to record levels and we’re getting even greater leverage, as Rowan mentioned, from our partners while also strengthening our international presence with the expansion into new markets.
And now, I’d like to share some examples of key wins for the quarter. The first example is a Fortune 200 financial services group, offering a diverse range of services from life insurance, group protection, investments and retirement plans. They had been using a legacy on-premises system, which made it difficult for integrations, omnichannel and consolidation across various business units. They looked at all the CCaaS providers and selected Five9 due to our advanced automation solutions, including IVA, Agent Assist and WFO powered by Verint. The initial IVA self-service use cases include bill pay, service cancellation and document requests. They are implementing the full omnichannel solution from Five9 and integrating it to their current proprietary CRM as well as into Salesforce, which will be rolled out into several departments. We anticipate this initial order to result in over $7.3 million in ARR to Five9.
The second example is a Fortune 100 financial services company that provides both personal and business insurance as well as investment products. They had been using a legacy premises system, which did not support their integrations, their omnichannel solutions nor their analytics requirements. After looking at several CCaaS solutions, they chose Five9 for our superior AI and automation offerings, our Verint WFO suite, integration into their Microsoft Dynamics CRM and the direct high-touch professional services they knew would be key to their success. Due to the vast array of products and services, they would use Agent Assist for next-best action coaching while also using IVAs to provide status on quotes, cases, delivery of tax and other documents. We anticipate this initial order to result in over $4.5 million in ARR to Five9.
The third example is a state agency, the Employment Security Department, responsible for that state’s unemployment system, taking calls and inquiries from residents applying for unemployment benefits, updating their employment status and documenting job applications. They were using a legacy on-premises system which lacked the automation and self-service options, resulting in excessive queue times for inbound collars. The state and their consultant looked at all the CCaaS offerings and selected Five9 for our end-to-end solution and our excellent service offerings for supporting them on an ongoing basis. They will be implementing the omnichannel solution with chat and e-mail, QM, interaction analytics, WFM and integrations to both Microsoft Dynamics CRM and Microsoft Teams UC solutions. We anticipate this initial order will result in over $2.8 million in ARR to Five9, while also setting up other agencies who we are currently working with to purchase off of the same contract.
And now as they normally do, I’d like to share an example of an installed base customer who has expanded their use of Five9. This one may sound familiar. This parcel delivery service company first contracted with Five9 in Q1 of 2021 with an anticipated ARR at the time to Five9 of over $14 million for that initial order. Their EU division was waiting to see the level of success that the U.S. and the Americas division had when they expedited the rollout to more than 10,000 agents in time for the 2021 holiday rush.
Once they saw that Five9 exceeded their expectations and they had performed their due diligence with their U.S. Americas teams, who provided a glowing endorsement of Five9, we recently signed the add-on order with the EU division with an anticipated ARR to Five9 of more than $12 million. This add-on order includes all of the same advanced solutions we deliver to the U.S. and Americas teams, including IVAs, Agent Assist, VerintQM, speech analytics as well as integration to Salesforce and various other systems.
In addition to other subsequent orders since that initial order in Q1 of 2021, we now anticipate this add-on order will bring their total spend with Five9 million to nearly $50 million in ARR. So, as you can see, Five9 is continuing to deliver to customers of all sizes throughout the world as we successfully move upmarket, deliver innovative automation solutions at an accelerating rate, leverage partners and expand our international footprint.
And with that, I will hand it over to Barry to review our financials. Barry?
Thank you, Dan. First, a reminder that otherwise indicated, financial figures I will discuss are non-GAAP. Reconciliations from GAAP to non-GAAP results are included in the appendix of our investor presentation on our website. As Rowan mentioned earlier, we had another excellent quarter with revenue growing 32% year-over-year, primarily driven by LTM enterprise subscription revenue growth of 41% year-over-year.
With regards to revenue composition, Enterprise made up 85% of LTM revenue, and our commercial business represented the remaining 15%. Our commercial business grew in the 20s on an LTM basis. And as a reminder, we expect our commercial business to grow in the teens for the next several years as we continue to focus the majority of our investments are moving upmarket.
Recurring revenue accounted 91% of our total revenue in the second quarter, and the other 9% was comprised of professional services. Our LTM dollar-based retention rate was 118%. Quarterly fluctuations are inevitable as mega customers come onto the platform at different times and ramp at different rates. In addition, we will continue to lap the one-time COVID benefit through Q4 of 2022. However, we expect our retention rate to trend towards the high 120s by 2026 due to the higher mix of enterprise customers, especially larger ones, which have demonstrated higher retention rates and as a benefit from higher ARPU driven by automation and other offerings.
Second quarter adjusted gross margins were 60.7%, a decrease of approximately 260 basis points year-over-year due to ongoing investments in professional services and public cloud. As we have been saying, our accelerated investments in these areas are transitory and began to moderate in the second quarter. Therefore, Q2 marked a turning point as gross margins expanded slightly quarter-over-quarter by 20 basis points. For the remainder of the year, we expect further small expansion in the third quarter and more so in the fourth quarter with the expectation that the annual adjusted gross margins would be at a minimum of 61%.
Operating expenses as a percent of revenue decreased by approximately 340 basis points year-over-year, primarily driven by G&A declining 210 basis points, making the 31st consecutive quarter of year-over-year improvement in G&A expense as a percent of revenue. Adjusted EBITDA margin was 17.5%, an increase of approximately 80 basis points year-over-year. Second quarter non-GAAP EPS was $0.34 per diluted share, a year-over-year increase of $0.11 per diluted share.
Next, I’d like to share some balance sheet and cash flow highlights. DSO came in at 34 days, an improvement from the 36 days we reported in the prior two quarters as our invoicing process using the new billing system normalized. Q2 operating cash flow was negative at $3.1 million due to $5.9 million of the $24 million Inference earn-out payment being reflected in operating cash flow, as previously mentioned. LTM operating cash flow was $41 million, excluding $12 million of one-time items. We have now delivered 24 consecutive quarters of positive LTM operating cash flow. We expect LTM operating cash flow to increase in the second half and to increase meaningfully in the longer-term given our demonstrated ability to expand adjusted EBITDA margins, our substantial NOLs and our low DSOs.
Before turning to guidance, I would like, in addition to what Rowan talked about earlier, to provide some additional color on our operating plans given uncertain macroeconomic conditions. We believe our long-standing commitment to balanced growth set us up well to navigate through these macro challenges. Our disciplined approach of authorizing new hires based upon bookings and revenue performance enables us to effectively manage expenses.
In this regard, I will note in passing that our visibility into our top line allowed us to continue hiring strongly in the second quarter, and we plan to continue to grow headcount in the second half of this year as well, albeit more cautiously given macro uncertainties. I would also like to point out that there is ample cash on our balance sheet. We consistently generate operating cash flow, and we have minimal exposure to foreign exchange risks.
And now I’d like to finish today’s prepared remarks with a discussion of our guidance for the third quarter and full year 2022. In terms of top line, we are guiding Q3 revenue to a midpoint of $193 million, which represents a 2% sequential growth, a slightly higher increase and a typical pattern heading into prior third quarters where we guided to a 1% increase.
I would also like to point out that the implied year-over-year growth at the midpoint is 25%, which is the highest growth rate we have guided to in any third quarter. While we remain optimistic that we will continue to enjoy strong growth in new logos, we are mindful of the macro environment when it comes to our existing customers. Therefore, we are being more prudent than normal with the raise in our annual guidance, where we are increasing the midpoint from $771.5 million to $781.5 million, which represent an increase in the year-over-year growth rate from 27% to 28%.
As for the bottom line, we are guiding Q3 non-GAAP EPS to come in at a midpoint of $0.32 per diluted share, a decrease of $0.02 per diluted share sequentially. This quarter-over-quarter decrease is in line with the typical pattern for third quarter guidance and reflects the continued investments we are making to further drive our enterprise and international momentum. Despite these investments, we are raising the midpoint of our full year guidance from $1.23 to $1.39 per diluted share. Please refer to the presentation posted on our Investor Relations website for additional estimates, including share count, taxes and capital expenditures.
In summary, we are very pleased with our second quarter performance and our ongoing success in moving upmarket and expanding internationally. We remain laser-focused on executing like clockwork to deliver durable, balanced growth.
Operator, please go ahead.
Thank you very much. [Operator Instructions] And we will start for – with a question rather from Ryan MacWilliams at Barclays.
Thanks for the question. Pleased to see record bookings for the second quarter. Given the relatively longer sales cycles per contact center, are you experiencing any changes to new pipeline origination? So like are you pleased with the number of new opportunities coming in? And is there any additional like weighting towards IVA? Thanks.
Yes. Well, certainly, IVA grew faster than the rest of the portfolio, and I think we shared some of those numbers in terms of the IVA volume. But as to the first part of your question, Ryan, yes, we are starting to see some extended sales cycles. We are starting to see extra questions, one extra round of demos, not dissimilar to what I think you’ve been hearing potentially from other software companies that have been kind of sharing B2B sales process. That seems to be – we’re not immune to that. Now Dan and his team hustled to make it up in this last quarter. But look, we’re not immune to the broader macro experience that I think you’re going to see in the – out there.
That’s good color. Thanks guys.
Next up, we will have a question from Meta Marshall at Morgan Stanley.
Yes. Sorry, too many buttons on the computer. No problem. Maybe a question for – given that you’re seeing so much traction on the IVA channel and just kind of a need to optimize for labor in general, like what areas do you see that kind of carrying your development into? Or what ways can you kind of extend your lead on the IVA and just kind of AI channels that you have?
Yes. I think – well, we have our CX Summit coming up in Las Vegas in a couple of weeks, and that’s certainly a focus for us given. Given the attention that people have on cost savings right now, IVA is sort of well aligned to that. We – Meta, I think you’ve asked this in the past actually, just on that point. You’ve asked us about selling into the installed base. And we just – we did start to do that, and that was very successful this last quarter. So we are starting just scratching the surface really, but we’re starting to go back into the existing customers and offer them IVA. In terms of what we do to extend our lead, well, we’re launching a brand-new product. So stay tuned for CX Summit. But we have made some announcements around the new version of Studio, and you’re going to get to see some of the new capabilities there. So we’re trying to extend that lead now with that capability and adding in more capabilities pretty much every week on our Agent Assist from an automation perspective. So that’s – it’s a big area of focus and investment for the company. And again, CX Summit, coming up in 2 weeks, we got some good announcements there around the next version of Studio and how we’re helping customers drive – it’s really about driving that ROI how ever they measure it, right? They could measure it in terms of reduced call handle time or Excellerate productivity of agents in other ways. But fundamentally, we have to be able to demonstrate that ROI to customers for this to be something that I think really takes off and helps them save money, especially at this time when they need to do it more than ever.
Got it. Perfect. And appreciate the installed base commentary. Thanks.
Next up from Canaccord, DJ Hynes.
Hi, guys. Good to see, Rowan. Congrats on the results. I don’t know if this is a Rowan or a Barry question, but if we think about net revenue retention of 1 18, how much in the past has been driven by organic agent seat expansion? And I guess the follow-up to that would be, like what are you contemplating going forward?
Barry? We got you on mute, Barry.
Sorry, too many buttons. So great question, DJ. We – it’s something we’ve analyzed very closely. And in the past and up until fairly recently, it would have been – and Dan can also add into this as well. It would have been very largely seat count growth and not MRR per seat. But I will tell you that this last quarter, I’m not going to provide you the exact amount, but it’s nontrivial. What the hell. 30% of it came from increase in MRR per seat, which is a record for us, a meaningful increase year-over-year. And part of that is what all the different things we can sell incrementally and that Dan and the team are doing so, including prominently things like IVA. Dan, do you want to add to that at all?
Yes. I think you hit it right on, which is we’re selling more and more applications. When we don’t see the seat growth, we’ve got to turn to the rest of the portfolio, which is great because we have the new automation solutions and other solutions that we can provide that increase the ARPU.
Yes. Yes, makes sense. And then one follow-up, if I could. The large deals, the mega deals that we talked about over the last couple of quarters, I think some have started implementation. Others are starting later this year. Just from what you’re hearing from those customers on a time line perspective, is everything still on track? Has anything changed at all?
No. They were right on track. They have got initiatives of their own and milestones to hit to make these changes. Much of which is due to what Rowan mentioned earlier. They either have – had to have invested in a significant upgrade or they are reaching an end-of-life situation. So, there is critical dates that they have to meet as well.
Yes. Got it. Awesome. Well, congrats on all the good news. Thanks, guys.
Moving on now to Needham, Scott Berg.
Hi, everyone. Congrats on the strong bookings quarter. Thanks for taking the question here. Rowan, I wanted to target or pick on or ask about your $2.4 billion, 26 target that you reiterated from your previously public commentary. Wanted to understand how the current macro environment impacts your algebra to get to that number, because obviously, you’re guiding to some potential slowness in your business. And secondly, where does the confidence come from that if you do have a little bit of slowness here over the next couple of quarters on a relative basis, of course, that you can still meet that goal?
Yes. I’ll start, but Barry, maybe you can provide a little more detail as well because we’ve talked about this together. We did not – when we put out the projections for the 2020 – the $2.4 billion, we did not factor in any kind of macro slowdown. And so while we can still do math to see the numbers getting there, you can certainly say that it could be longer than that if the slope – depends on how long – how much of a slowdown we see and how long it lasts. Barry, do you want to add to that?
Yes. I think you said it very well. We did not allow for that. So unquestionably will be, it will be more difficult. We’re fully committed to continuing to try, and we have a lot of levers we can pull. We didn’t endorse in that proxy set of numbers, annual growth rates. It is true that it would be 32% compound to get there from 2021 to 2026. But – and we’ve got our guidance and you’ll draw your own conclusions on where this year will shake out. But there are a fair number of things that we’ve shared with The Street and one and two that we haven’t that could become material and provide us a chance to still get there. But unquestionably, it has become more challenging to do. So we did not allow it. And we don’t know how – if there is a recession technically, apparently there is, how protracted it will be and how deep it will be. And we’ve just been prudent in the meantime.
Excellent. Thanks for answering my questions.
Moving on now to Terry Tillman at Truist.
Yes. Good afternoon. Hopefully, you can hear and see me. Yes. Congrats on the quarter. I feel like we could just do a whole call on AI and automation, by the way. So I’m going to go for that one again, that topic. Rowan, you were good in terms of providing a lot of macro kind of courses or talking points earlier on both new logos and installed base activity and why we will see resilience. What I’m curious about is, let’s say, instead of like, hey, they have a burning desire to move to cloud and replatform, let’s say, it actually starts with AI and automation as more of the tip of the spear. Are you noticing that those sales cycles actually go faster than like, hey, we just need to move to the cloud and – or is it maybe the inverse of that where it’s still kind of novel to them, AI and automation, so that they need more kind of testing? And the second part of that single question is, when you do get a really nice AI and automation deal, whether it’s IVA or Agent Assist, what kind of ARR uplift are you seeing? Thank you.
Yes. I’ll start that one out. Maybe I’ll let Dan take the last part of that question, ARR uplift. But I just had a call with a CIO of a Fortune 500 company, who I met for you – this is just going to provide you sort of one anecdotal that I think will actually sort of represent what we see most often with regards to AI adoption and that was 4 years ago, a meeting where he said, we got to get to the cloud. We want to deploy your solution and the whole thing. We’ve been doing that. He’s now happy. It’s a huge hotel brand that is doing really well with the core platform and now is looking at AI. So it tends to be in that order because you kind of have to get to the cloud first before you can take those next steps. Some of the big deals from last year, same story. They got to get to the cloud first. The CIO of the global healthcare company, the largest deal in our history, when I talked to him before we closed that deal, was the same story. It was like, let’s just modernize our – that’s – the priority is going to modernize the platform, get onto Five9. But then we want to go take those next steps. And so it’s more in that order. And I don’t see it accelerating it, to be honest. It’s not that much – I think folks move as fast as they can move. So I haven’t seen it accelerating the shift. But we may see more – and we have talked about this. Dan and I have shared this with you all that we think that we see more enterprises being interested in moving to the cloud as a result of this, and we see a better wins on our side because it’s something that you can’t get on-prem. So there used to be 2, 3 years ago, I think a CIO could have made the argument or an engineering team in IT could have made the argument, hey, we can do all that cloud stuff on-prem. But you can’t do the stuff we’re now talking about on-prem. It’s not possible. So that’s yet another – I think it is one of the things that’s causing more enterprises to consider moving. And you can look at our numbers also. We share a little bit of that detail around the strategic deals. It’s – and notably the strategics are starting to move faster. Dan, do you want to add anything to that?
No. I think you hit it right on. And regarding the ARR, the uplift that we get, when we do go into an environment where they are willing to not only move to the cloud but then add the automation solutions, they definitely take the ARPU up to the – from what’s normally an average of just north of $200 per seat per month. That number can creep way into the high 200s or even into the 300s as we bring on those automation solutions. And so lots of upside not only with new customers, but as we talked about, we just started penetrating the installed base with those. And so as we see that, the ARPU should lift. And that’s where we will make up for what might be a little slowdown in the seat adds, if you will.
Next up, we have a question from Taylor McGinnis at UBS.
Yes. Hi, thanks so much for taking my question. So Rowan, you mentioned earlier, seeing some sales cycle elongations and things taking a little bit longer to close. So when looking at the guide, Barry, the 2% sequential growth implied in the 3Q guide, I think, is very similar to the guidance framework that we’ve seen in the past. So just given that, can you maybe talk about the potential risk and the guide if the macro worsens or the assumptions that are currently embedded in that today?
Yes. Thanks, Taylor. The – you’re right. It’s a very similar guide. The 2% is within the 1% to 5% from the last several years. We feel very strongly that – both on the installed base side and in net new side where we have the backlog that we’re pretty comfortable with that. And it’s a very reasonable but prudent sequential guide.
And we will take a question now from Samad Samana at Jefferies.
Hi. Great. Thanks for taking my questions as well. So, Barry, maybe – or actually maybe – Rowan, just maybe a follow-up for you, on the decision to hire at a slower rate in the back half, I guess I am a little surprised just because of the strength that you have seen so far year-to-date. Is that in anticipation of things potentially slowing, or is that a reaction to what you are seeing in real time, let’s call it, the last week of July?
Barry, do you want to take that one?
Yes, Samad, it’s both. As Rowan said, we saw some weakness in the course of the second quarter, not just June. We are selling to enterprises that sell to consumers. And there are parts of our diverse customer base where the consumers are buying this and there is less need for agents. And Dan and his team were able to use Rowan’s word, but he describes it very accurately, I would hassle it and do what we needed to do, and we will continue to do that in the second half. But we live in uncertain economic times. Just we have learned, technically we are in a recession. And so we are going to be prudent in our hiring. We are still hiring pretty – it’s not like we are talking 5 or 10 people. It’s a quite a lot of people. It’s just being a bit more cautious. So, it’s both.
Great. And then just I want to follow-up to Taylor’s question on the genuine revenue guidance. In the prepared remarks, you said that you are using extra prudence, and you guys have always been good about that. I guess I just want to maybe understand, it sounds like guidance would have been better – even better. I mean it’s already better than most companies have done. So, I am just trying to figure out where you exercised – along what kind of variable did you exercise that extra prudence? Was it on your net retention assumptions? Is it on maybe how long it takes to close new deals for new customers? Just where was that extra prudence exercised?
Yes. So, first of all, to avoid any ambiguity, yes, absent the macro environment, the guide would have been higher than the 2%. And again, I would like to oblige you and provide you a breakout exactly between the two, but it’s both. As Rowan mentioned in the response to the very first question, there is an extra customer hesitancy and so on. Although typically, it takes a while for that – for those new levers to come live on the enterprise side. So, it would not be affecting Q3 materially. But clearly, on the installed base side, as I just alluded to a moment ago in my earlier response, you will see that pretty promptly. They – people can flex their on their seats.
Very helpful. And it was great to see the beat and raise. Thanks guys.
Moving on now to Piper Sandler’s Jim Fish.
Hi guys. Great quarter. Thanks for the question. I guess going off of Scott’s prior question, appreciated the added color around MRR per seat there, Barry. What are you guys seeing on the usage side of verticals like e-commerce and financials show a slowdown? I guess the crux of the question is, where do you expect subscription versus usage mix to kind of trend over the next couple of years here, especially as some of these larger deals don’t include usage element? As a result, it’s kind of my back-of-the-envelope math would imply we are getting kind of close to the 70% range being subs in the subscription bucket.
Yes. So, first of all, yes, I do confirm that it is actually north of 70% of the recurring revenue that’s subscription. The other arching comment that you have to keep in mind with respect to the usage aspect. Yes, there are some of the bigger customers who bring their own telephony, but that is not that material in the grand scheme of things. We have got so many customers and such a big company. It doesn’t really affect it, and we do track it. Aside from the initial spike in COVID, where they just couldn’t get agents and the phones were exploding, typically, they move in tandem with the usage growing somewhat slower than the subscription and leading to a mix shift of maybe 1%, 2% or even 3% per year. And we don’t see that changing anytime soon. And if there is a major economic slowdown, it will affect both, not just the usage.
Helpful. Great quarter, guys. Thanks.
And we will take a question now from Peter Levine at Evercore.
Great. Thank you, guys for taking my questions. I think on your Analyst Day, you talked about international and moving that up to – kind of talked about like mid-teens by 2026, so I think roughly 10% today. So, any thought in terms of your investments to accelerate growth of the markets? Are you may be thinking about pulling back? And then on the flip side of that is, any color, commentary you can share with how purchasing behavior internationally is any different than here in the U.S.? Are you seeing similar trends where maybe it’s a little bit more cautious?
On the last one, I don’t know, Dan, do you want to take the international purchasing?
Yes. I think when you look at the size of our teams covering very large geographies, though there might be some macro headwinds that are facing their overall economy, we are being very scrappy and working very closely with our partners to find the opportunities. And we are working off – coming off of a very small base. So, we are seeing that as tailwind, and that’s why you saw that we grew international revenue 45% year-over-year is because we are – yes, we are coming off of some smaller numbers, but we are not over – out over our skis by putting people everywhere into an economy that’s not ready to digest it.
And in terms of the investment side, we are being cautious internationally as well, especially given what we have heard about European economy. Now, we are small. So, it’s not like we will feel it in the same way that’s overweight there. In the same way, that’s someone who has got more coverage there. But – so there is a lot more opportunity for us. Yes, we are being very careful about that as well. I mean we continue to hire, as Barry said, but at a slower rate. And we are thinking specifically about country-by-country and what we should do in each country, to be honest.
Thank you very much for the color.
And I would just add one additional point because it’s kind of a couple of times. What we are doing with hiring is not actually anything different than we always do every quarter. We always do this in real time. We look at hiring, we look at revenue, we look at the projections. We have a long horizon on revenue visibility, as you all know, given the recurring nature of the business and the big backlog. So, we are able to get out in front of those things, potential slowdowns or potential in this region or that region way in advance. And this is a well-developed muscle at the company. So, even though we are adding in additional conservatism about what might happen given everything else on the macro side, the process is the same and the philosophy is the same. So, just wanted to comment on that. Thanks.
Great. Thank you, guys.
Next up is Michael Turrin at Wells Fargo.
Hey. Great. Thanks. Large deal momentum continues. We love that second or third slide, three deals totaling $50 million in ARR, a $12 million expansion in the first half of the year. You talked about some of the progress you have made with the go-to-market and with partners. But maybe we can just go back to what’s working on the large deal side. Now that you are geared and have the services are blowing up, are you finding that motion is becoming more repeatable? And then understand with the consideration that the macro can always change the cadence, but maybe just help frame out how many similar-sized deals are still out there for cloud, because I do think some element of this market is just underappreciated in terms of the size.
Sure. I will take that one. I am going to kill my video because I am having a little bit of Internet issues and I will answer this one just with voice. And you are spot on when we say the momentum that perhaps has created up-market into these mega deals. Yes, that’s a new market for all the CCaaS providers, right. We had to show not only scale, but we had to show them true innovation and a reason for them to really go through that major – what is a disruption to their environment to bring us on. And we are reference selling, and those tend to be the companies that even during a downturn like this, they have the wherewithal to invest. And if I – I will touch on that for a moment. I mean if you look at it, have we seen some pockets of softness, sure. Typically, at the lower end of the market is where we see that. Is it harder to find the opportunities, perhaps, yes. And so I have every bit of faith in the leadership team that we have here and the sales teams to be scrappy and be aggressive and out-hustle and out-execute our competition as we have done in the past. And remember, it’s a huge market and especially at the high end, as you mentioned, it’s very underpenetrated. And many of those companies need us now more than ever. And let me explain. If – for those of you who – most of you probably know, I have been in this business and selling contact center and call centers for over 30 years. And I lived through the 2001 dot com bubble and the subsequent downturn. We – I sold through the 2008 financial crisis and what came from that. And in both cases, we faced headwinds and slowdown. And however – and many companies that we sell to tend to hunker down during those times, and just kind of put everything on hold and don’t do much. And what I found was it’s the companies that look at that and seize that opportunity and look at it as an opportunity to differentiate and invest in software, and in this case, I believe in the automation solutions, that can provide them vastly improved efficiency as well as cost reduction, which is so, so important in an environment like this. So, those companies that have the foresight and the wherewithal to invest will do so, and they will come out of this in a much better position relative to their competition. And so it’s our job to go find those companies and make sure that we can match our technology to what they are looking to do. And I have seen it before. I have no reason to believe it won’t occur again, and it’s just a matter of finding those folks that are wanting to invest in order to save and come out of this in a better position.
After 30 years, you have got that sales pitch down. It’s a great answer. Thanks Dan.
And good people, very experienced sales team that is, absolutely understands that you got to go find those companies that can invest and walk away from the ones that you can tell pretty early on right now in a sales process, if they are just kicking the tires or if they are serious.
Excellent. Thank you.
Moving on now to William Blair’s Matt Stotler.
Yes. Hey everybody. Thanks for taking the question. Maybe just one question on your thoughts on use case exposure at this point. I think Rowan, you brought up an interesting point where CFOs are looking to maybe drive efficiencies or cut budget in this environment, maybe is not focused on where you guys would traditionally play or focus on some of these kind of longer term context inter-modernization initiatives, maybe around more discretionary spending in things like sales and marketing, right? So, as you think about where you guys sit, we would love to get your perspective on is that I guess what portion of revenue, you don’t have to provide direct numbers, obviously, but customer service and help desk versus maybe some of those implementations that are in the sales and marketing organizations where there may be a little bit more efficiencies being recognized in this environment. Any thoughts on kind of that exposure?
Well, we tend to be more – most of our seats are on the service side, not on the sales and marketing side. We do have a fair bit, however, I mean it depends on what you call marketing, really, I guess I should say, because outbound campaign certainly falls into our world. And that’s – that would clearly be on the marketing side. Sales, not so much. If you look at the companies that have been in the Rev Ops space, those are – we don’t typically tend to play there more directly. Dan, do you have anything to add on that?
I think you hit it right on, yes.
So, we are – like the big deals we talk about, especially on the strategic side, these are Fortune 50, Fortune 100, 500 customers who have millions of customers because that’s where – only a company that has a massive – if you are going to have more than 1,000 agents, you have got to have a lot of customers that you are talking to. So, it tends to be in that B2C space generally, includes healthcare, retail, those kind of segments. And it tends to be on the service side.
Got it. It’s helpful. Thank you.
Next up, the question from Matt VanVliet at BTIG.
Hey. Good afternoon. Thanks for taking the question. I appreciate the time. I guess Barry or Rowan, as you look at kind of how you are adding some prudence to the model in the second half and as you look out to ‘23, are you expecting some deals to sort of get slipped into the next year or pushed out, or is some of that may be a little bit smaller upfront deal, understanding that your land-and-expand motion has been very successful and even adding automation down the line? Rowan to your point, you got to get the platform in place first. So, maybe you take a smaller bite of the apple to start. So, just curious kind of how you are fine-tuning that prudence and where we should expect maybe some data points to provide us, either confirmation that you have moved past that or you are seeing some weakness? Thanks.
Yes. So, Matt, the easiest way to communicate that is to make a sharp bifurcation between the big enterprise net new deals and then the installed base, both just the ongoing organic expansion and – organic growth of the business and the expansion once they have landed. They – Dan and his team have got so many tools to figure out what’s real, budgeted, the authority there, the desire or whatever. And we have taken their numbers and used them and feel comfortable doing so. We do, do a stress test, where we cut what they are saying and we still come out pretty constantly. Flip over to the faster, high velocity where getting recognizing revenue within weeks or month or two months, there where we have seen some weakness, we have taken an added dollar precaution. We have – it’s difficult to be precise because even our customers don’t know. How on earth would we know in some cases. But we have such a wide diverse set of customers in so many different industry segments, as Rowan talked about in his prepared remarks, that we can on average be pretty realistic. And that’s what we have done.
Alright. Thank you.
We have a question from Will Power at Baird.
Hey guys. This is Charlie Erlikh on for Will. Thanks for taking the question. Great to see a lot of success with AI and add-on services. I wanted to ask about WFO and WFM as it relates to these add-on services. Do you feel like that’s becoming more important? And kind of onto that, how do you feel about your product set there? I know you guys partner with Verint. You have your own solution as well. But how do you feel about the evolution of your products there?
Yes. I think we are – it has become more critical and especially in the larger customers. And there, our partnership with Verint has been phenomenal. Our acquisition of Virtual Observer has gone really, really well. So, we sell that more in the lower end of the market, the less complex environments. And then we will sell Verint at the upper end of the market. And obviously, we have a cloud-hosted – cloud version of their product. And that partnership has gone really, really well. So, more critical in terms of what customers expect. And it’s also helped – I think the strong partnership with Verint has helped us open the door to more of those strategic accounts because they see us as – certainly, we have a good reputation of delivering an integrated complete package. It’s not a solution that the customer has to assemble themselves. We deliver one single solution, which is an integrated CCaaS platform plus WFO/WFM. And that’s what customers really like, and it’s one throat to choke. It’s us. We deliver it. We actually host and operate it on behalf of the customer and so on.
Great. Thanks for taking the question.
We will take our last question today from Mike Latimore, Northland.
Great. Thanks. On the – some of these big enterprise deals where IVA is important, what percent of the seats are these new logos pushing to IVA versus live agents?
Yes. It really depends and it runs the gamut, right. Depending on how mundane and simplistic and repetitive, the questions that they get into their contact center dictates how much can then be automated. If you are just peeling off a small single-digit percentage, 5%, because they are asking for password resets or account balances or store locations or basic questions, that’s easy. And so it really depends. Usually, it’s not even by company, it’s by application. Like do I have one set of resources within my contact center that do nothing, but take appointments. Well, I can automate 100% of those. And I may have another department that’s not. So, we have seen some like – Rowan gave some examples earlier in the prepared remarks. And one of those was, I think 10 IVAs and was a small percentage of their overall business. And another one was about 30%. So, it can run from small single digits up to – we have seen up in the range of 30%, again, depending on the application.
Yes. Thank you. Great results.
I will hand back to Barry, Rowan and Dan for any additional or closing remarks.
Yes. I will wrap it up here very quickly. First of all, just thank you all very much for joining us today. We really appreciate it. I hope we were able to provide you a balanced view of the business as we see it. Obviously, heading into uncertain times, but very confident in the team and the execution. It’s a consistent approach that we have taken, frankly, for years. That’s not changing as we go into this. We just are being more conservative and prudent about the outlook. And you can expect that we are going to continue to drive profit in addition to growth. That’s a big focus for the company, and I think you saw that in this quarter. We have demonstrated, of course, over the years we can do that across all the different parts of our business. Very, very pleased about the gross margins and everything else you saw today. So, thank you very much. Thanks to the team, and thanks to all of you.
Once again, thanks for joining us, ladies and gentlemen. Have a great day.