After protracted negotiations with creditors, ailing digital communications solutions provider Avaya (AVYA) finally filed for bankruptcy on Tuesday.

As the restructuring support agreement has been signed by more than 90% of the company's secured lenders, implementation should go swiftly with Avaya expected to emerge as a private company within the next 60 to 90 days.

Completing the Financial Restructuring will reduce the Company’s total debt by more than 75%, from approximately $3.4 billion today to approximately $800 million. Additionally, it will substantially increase Avaya’s cash and strengthen its liquidity position, resulting in an expected emergence balance sheet with less than 1x net leverage.

The company has received commitments for an aggregate $628 million in debtor-in-possession (“DIP”) financing, including a new $500 million term loan facility from secured creditors Apollo Global Management (APO) and Brigade Capital Management, among others.

In addition, a bank syndicate led by Citigroup (C) will provide a new $128 million asset-based lending ("ABL") facility.

Following completion of the restructuring, both loans will be rolled into exit facilities.

Moreover, a number of secured creditors have agreed to backstop a $150 million rights offering at exit.

In aggregate, Avaya has secured almost $780 million in new capital which together with cash on hand and cash generated from operating activities, is expected to provide substantial liquidity to support the company during the restructuring process and beyond.

Lastly, the company has restructured its strategic partnership with RingCentral (RNG) with RingCentral's $125 million in the company's 3% Series A Convertible Preferred Shares being cancelled:

Avaya will continue to act as the exclusive sales agent for direct and partner sales of Avaya Cloud Office, Avaya’s exclusive multi-tenanted cloud PBX solution, in the geographies where it is available. The partnership has also expanded to include additional go-to-market constructs that enable Avaya to sell Avaya Cloud Office to its installed base on a direct basis. In addition, Avaya will be compensated in cash as Avaya Cloud Office seats are sold and, in connection with the Financial Restructuring, RingCentral’s preferred stock in Avaya will be eliminated.

As predicted by me for some time already, common equity holders will be wiped out at the end of the restructuring process as clearly stated in the company's Public Equity Investors FAQ:

Existing equity holders should note that the NYSE is expected to commence delisting proceedings with the common shares likely to start trading on the Pink Sheets on Wednesday or later this week.

Please note that investors with short positions in the common shares won't be required to cover.

Not surprisingly, Avaya is handing over ownership of the ailing company to secured creditors in bankruptcy to reduce debt and get access to additional liquidity.

With Avaya expected to emerge as a private entity within the next 60 to 90 days, common shareholders should sell their holdings and move on as soon as the stock commences trading on the Pink Sheets later this week.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

February 15, 2023, 09:41 AM EST

‘The actions we are taking are designed to accelerate our transformation and make Avaya an even stronger partner to our customers and strategic and channel partners,’ Avaya said in a channel and strategic partner FAQ on its bankruptcy filing.

RALEIGH-DURHAM, N.C., February 09, 2023--(BUSINESS WIRE)--Avaya (NYSE: AVYA), a global leader in solutions to enhance and simplify communications and collaboration, today announced CRN, a brand of The Channel Company, named John Lindsley, VP of North America Channel Sales at Avaya, to its 2023 Channel Chiefs list. This annual list by CRN identifies top IT channel executives who continually demonstrate expertise, influence, and innovation in channel leadership.

John Lindsley leads the North America channel sales team and go-to-market channel strategy for Avaya. His channel team consists of dedicated resources supporting technology solution distributors, agents, Value Added Resellers (VARs), service providers, Direct Market Resellers (DMRs) and distributors focused on creating "Experiences that Matter" with Avaya’s customers. Under his direction, this team continues to drive growth and profitability for technology service distributors, distributors, and resellers. Lindsley and his team help to drive an outside-in approach through partner enablement, customer retention, new logo acquisition and modernization by continuously developing their partner relationship with a high-touch approach.

"Our partner ecosystem is an integral part of the journey for customers who create their own path to cloud technologies through Avaya solutions that deliver innovation without disruption," said Lindsley. "I look forward to reaching new milestones this year with our channel partners. Being named a 2023 Channel Chief by CRN is an accolade I’m honored to receive on behalf of Avaya and the partners we serve."

Avaya solutions enable partners to meet customers where they are on their cloud journey by simplifying their migration to the cloud, at their pace, and with the support they need—offering innovation without disruption. Whether selling Avaya’s public cloud, private cloud or trusted premise-based products, Avaya provides resellers the flexibility to position and sell the best solution for the customer. Our incentives are designed to help provide sustainable, predictable, and resilient cashflow in addition to customer scalability and stickiness based upon ongoing services customization.

"Once again, this year’s list gives well-deserved recognition to the IT Channel Chiefs who are dedicated to driving the channel agenda and advocating for the development of strong channel partnerships," said Blaine Raddon, CEO of The Channel Company. "Under their exceptional leadership, influence, and innovation, the IT channel vendor community continues to deliver solutions and services that meet the rapidly evolving needs of their solution provider partners and their customers."

Avaya’s global partner programs are purpose built for the specific partner communities we serve. More than 90 percent of the Fortune 100 companies and 144 million people worldwide rely on Avaya to power their mission-critical solutions every day. Our award-winning Partner Programs have everything you need to succeed whether the businesses being served with communications are built in the cloud, on premise, or as a hybrid.

The 2023 Channel Chiefs are influential leaders who continue to shape the IT channel through innovative strategies, programs, and partnerships in what has become an increasingly complex environment with shifting industry dynamics. Lindsley’s selection not only reinforces his leadership and achievements at Avaya and within the industry, but his commitment to deliver future growth for Avaya’s global partner community.

A panel of CRN editors selected the honorees for their record of business innovation and dedication to the partner community. CRN’s 2023 Channel Chiefs list will be featured in the February 2023 issue of CRN Magazine and online at www.CRN.com/ChannelChiefs.

Find out more about Avaya’s Global Partner Programs and learn how Avaya can bring world class communication and collaboration solutions to your customers.

About Avaya

Businesses are built by the experiences they provide, and every day millions of those experiences are delivered by Avaya Holdings Corp. (NYSE: AVYA). Avaya is shaping the future of customer experiences, with innovation and partnerships that deliver game-changing business benefits. Our communications solutions power immersive, personalized, and memorable customer experiences to help organizations achieve their strategic ambitions and desired outcomes. Together, we are committed to helping grow your business by delivering Experiences That Matter. Learn more at http://www.avaya.com.

Cautionary Note Regarding Forward-Looking Statements

This document contains certain "forward-looking statements." All statements other than statements of historical fact are "forward-looking" statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "our vision," "plan," "potential," "preliminary," "predict," "should," "will," or "would" or the negative thereof or other variations thereof or comparable terminology. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. The factors are discussed in the Company’s Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the Securities and Exchange Commission (the "SEC") available at www.sec.gov, and may cause the Company’s real results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. The Company cautions you that the list of important factors included in the Company’s SEC filings may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this press release may not in fact occur. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

All trademarks identified by ®, TM, or SM are registered marks, trademarks, and service marks, respectively, of Avaya Inc. All other trademarks are the property of their respective owners.

Source: Avaya Newsroom

About The Channel Company

The Channel Company enables breakthrough IT channel performance with our dominant media, engaging events, expert consulting and education, and innovative marketing services and platforms. As the channel catalyst, we connect and empower technology suppliers, solution providers, and end users. Backed by more than 30 years of unequaled channel experience, we draw from our deep knowledge to envision innovative new solutions for ever-evolving challenges in the technology marketplace. www.thechannelcompany.com

Follow The Channel Company: Twitter, LinkedIn, and Facebook.

© 2023 The Channel Company, LLC. CRN is a registered trademark of The Channel Company, LLC. All rights reserved.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230209005099/en/

Contacts

Julianne Embry
Avaya
jcembry@avaya.com

February 14, 2023, 02:47 PM EST

The UC giant, which is filing for bankruptcy for the second time in six years, listed in its filing unsecured claims valued in millions from the likes of Verint Americas, Microsoft and solution provider giant SHI International. Avaya’s CEO says the company is poised for a ‘transformation.’

Struggling unified communications giant Avaya Holdings Corp. filed for Chapter 11 bankruptcy protection Tuesday in federal court in Texas.

The filing follows months of speculation of a bankruptcy declaration following Avaya’s 2022 cloud subscription accounting problems that led to substantial earnings and revenue target misses.

Durham, N.C.-based Avaya said in a press release that “these actions will not impact the company’s customers, channel and strategic partners, suppliers, vendors or employees.”

[RELATED: Avaya Bankruptcy Filing: 5 Things To Know]

In its bankruptcy court filing, Avaya lists total assets of between $1 billion and $10 billion and total liabilities of between $1 billion and $10 billion. The company lists its number of creditors as being between 25,001 and 50,000.

The firm in the court filing lists the creditors with the largest unsecured claims include Verint Americas in the amount of $22.93 million; Microsoft for $9.01 million; Wistron Corp. for $8.9 million; and solution provider giant SHI International for $7.71 million.

Avaya previously filed for bankruptcy in 2017.

Avaya’s stretch of financial difficulties began in May when the company reported that it had missed its revenue target and posted a considerable earnings miss with revenue that declined 20 percent during the company’s third-quarter 2022, which ended June 30, 2022. The company then made the move to replace Jim Chirico, the company’s CEO since 2018. Alan Masarek was brought on in August as president and CEO after serving as Vonage’s CEO for six years.

“I joined Avaya to help unlock the power of its iconic brand, global customer footprint, massive partner ecosystem, large-scale communications deployments and outstanding team,” Masarek said in a statement published on Tuesday. “Strengthening Avaya’s capital structure is a critical step to fully realize our transformation, and we are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success.”

In late December, Avaya said its stock could be delisted from the New York Stock Exchange because the average closing price of the its common stock was less than $1 over a consecutive 30 trading-day period.

Completing the financial restructuring will reduce the company’s total debt by more than 75 percent, from approximately $3.4 billion today to approximately $800 million, Avaya said. Additionally, Avaya said it has secured committed financing of approximately $780 million.

The financial restructuring will give the company improved financial flexibility to boost up its investment in communications products, solutions and services for customers, including the Avaya Experience Platform, its cloud-based Contact Center offering, Avaya said.

Avaya’s strategy includes a multistep process of shifting its portfolio and customers entirely to cloud—whether it’s private, multitenant or somewhere in between. It will also include a “cultural revitalization” that will allow Avaya to bring in the right talent for the work ahead, Masarek told CRN in an interview when he joined the company.

The company said it expects this financial restructuring to be completed within 60 to 90 days.

Kirkland & Ellis LLP is serving as legal counsel to Avaya, Evercore Group L.L.C. is serving as financial advisor and AlixPartners LLP is serving as restructuring advisor.

Avaya Inc., the veteran unified communications company, said this week that it’s filing for Chapter 11 bankruptcy protection for the second time in its history, while announcing a plan that will slash $2.6 billion of debt from its balance sheet.

The company’s filing in a Texas court revealed that it has agreed a deal with its creditors. It added that the restructuring plan had “overwhelming support” from more than 90% of its secured lenders.

Through the restructuring plan, it will “eliminate more than 75% of its debt,” the company said. As a result, its total liabilities will shrink from $3.4 billion now to about $800 million, allowing it to continue running its business.

Avaya said in its filing that “revenues from capex-based purchases (software license and support and hardware) have continued to decline over the past several years, consistent with industry trends and customers’ preference to shift towards cloud-based solutions.”

The situation grew worse for Avaya when its subscription business first began to slow during fiscal 2022. The company managed to raise $600 million in financing last July, but even with that funding, it was unable to turn things around.

Avaya’s bankruptcy has been an option on the table for some time. Last August, the company warned that it had “substantial doubt” about its ability to continue operating as a going concern, saying it would miss its third-quarter fiscal 2022 revenue targets by some distance.

That came after the company hired Alan Masarek (pictured) as its new chief executive officer in July. He had previously pulled Vonage America LLC from the brink of bankruptcy before going on to sell it to Telefonaktiebolaget LM Ericsson AB.

In a statement announcing the bankruptcy, Masarek said he joined Avaya to strengthen its capital structure and realize its business transformation. “We are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success,” he said of the plan.

Avaya was founded back in 2000 after spinning off from Lucent Technologies Inc. and debuted on the stock market later that year. In 2007 it became a private company in an $8.2 billion deal led by Silver Lake Partners and TPG Capital. That appears to be when its problems started, as it remained a private entity for a full decade until declaring bankruptcy for the first time in January 2017. After emerging from that process, it went public again at the end of the year.

The company is a major player in the unified communications technology business, and it’s also involved in networking. It started out as a provider of communications, and later, networking hardware. But for the last six years has been pushing its cloud contact center and collaboration software.

Enterprises use its software to manage their contact centers and to enable business collaboration. It has established a strategic partnership with RingCentral LLC too, with that company helping to develop and sell its cloud-based offerings. RingCentral is also a major financial backer of Avaya, having invested $500 million in the company in 2019.

Avaya’s bankruptcy highlights the challenges faced by traditional hardware firms as they pivot to selling software-based products as-a-service. It’s a slow process that involves a radical redesign of the company’s core offerings and business model, and clearly it doesn’t always work out as planned.

Hyoun Park, an analyst with Amalgam Insights, told SDxCentral that Avaya also missed a big opportunity when the COVID-19 pandemic helped to accelerate digital transformation. At the time, the collaboration and contact center markets were growing rapidly, but Avaya’s debt obligations “prevented it from executing in these areas,” he said.

Avaya said it believes it will emerge from its latest bankruptcy proceedings in a much healthier state. It said it will exit bankruptcy in 60 to 90 days as a private concern armed with a fresh $780 million in funding that will be used to invest in growing its business.

Most likely, Avaya’s debt restructuring has been in the works for some time, and it could turn out to be a smart move that sets the company up for its next phase of growth, said Liz Miller of Constellation Research Inc.

“Now, arguably, they hit send on that cloud communications strategy a few years too late,” Miller added. “But, they are closing the gap with their Avaya Experience Platform and the Avaya Cloud Office offerings. What we will be keeping an eye on is how they continue to deliver on their announced technology innovations and roadmaps.”

Analysts were divided over the future prospects for Avaya. Charles King of Pund-IT Inc. told SiliconANGLE that in addition to the fresh funding, Avaya possesses some valuable intellectual property assets too, owning more than 4,000 existing and pending technology patents.

“One interpretation of its lenders’ willingness to support the restructuring plan is that they believe Avaya can be rebuilt into a functional, profitable business again,” King said. “Alternatively, it could be that the new funding will enable Avaya to keep operating and support its existing customers and suppliers while its owners look for ways to profitably sell off its assets. Or we could see a combination of both approaches, resulting in Avaya emerging as a leaner and more focused vendor. In any case, the company’s long and strange journey doesn’t appear to be over yet.”

Rob Enderle of the Enderle Group was less convinced about Avaya’s prospects, however. He told SiliconANGLE that Avaya is one of the last surviving remnants of yesteryear’s telecommunications industry and has struggled to reinvent itself for the modern age.

“It has historically been undermarketed, and given the need to change its image from an obsolescent telecom firm to one that is more forward-looking, it continues to struggle to be relevant, which doesn’t bode well for its long-term future,” he said. “Avaya looks like a company that is running out of time.”

Photo: Avaya/Facebook

We know that the Contact Center-as-a-Service (CCaaS) market is growing; an increasing number of companies are choosing this flexible model to support their CX operations, and this will continue through 2023. Vendors are also increasingly expanding the capabilities of their CCaaS solutions and evolving them at speed. What can we expect over the next 12 months? Here’s where Avaya sees the market heading…  

The Growth of Hybrid Cloud Among Large Enterprises

SMBs will continue to benefit from CCaaS this year with the ability to consume advanced capabilities that were previously out of reach. Enterprises, however, will use 2023 to gravitate towards a hybrid cloud approach as public cloud adoption grows and off-premises capabilities continually improve. Overall, it’s expected that 60% of enterprises will be using CCaaS by 2025. 

This transition is happening for several specific reasons:

Access to vendor-specific capabilities: The complexity of digital customer journeys, where no single vendor can adequately cover every necessary element, motivates vendors to partner and form multi-cloud systems. Large enterprises that leverage hybrid cloud benefit from innovative solutions composed of complementing capabilitieswithout having to abandon their on-prem investments. 

Innovation overlay: The pressure is on for enterprises to become more digital and agile using technologies like AI, automation, and API customization. A hybrid cloud environment allows them to leverage an innovation model that safeguards the stability of their existing operations. 

Reduced dependencies: A hybrid model allows enterprises to bring disparate IT environments together under a single management framework, minimizing dependencies between systems that run in different environments. 

Investment protection: Enterprises often contend with requirements of specific countries, industry verticals, or compliance and security policies and mandates. A hybrid cloud approach enables them to mitigate disruption as they migrate to the cloud in alignment with these requirements, ensuring service innovation and CX improvement irrespective of global economics and geopolitics. 

Cost optimization: Existing IT investments can’t be cost-effectively discarded in favor of new technology. A hybrid deployment model improves the economics of current investments by not disrupting users’ present environment. In fact, a recent study conducted by 451 Research across 10 countries found that, overall, the average savings possible for an enterprise with a hybrid cloud approach is 29-45%. 

On-premises and cloud both have demand for enterprises today. We expect 2023 to be a watershed year for enterprise CCaaS adoption, driven by hybrid deployment. 

Top CCaaS Capabilities of 2023 

A continued driver of CCaaS adoption will be innovation without disruption. Organizations are limited by proprietary, on-premises technology (hence why hybrid adoption will grow among traditional enterprises), meanwhile CCaaS capabilities continue to get better and better. These are the capabilities Avaya expects to be most popular this year:

1. AI and Machine Learning (ML)

AI and ML will continue to experience steady growth in the coming years. Large enterprises especially benefit from the ability to uncover operational efficiencies more quickly, reduce call volume (and thus, the burden on live agents), and help reps access information faster to accelerate resolution of issues. 

A quickly growing AI capability is AI noise removal, which eliminates unwanted background sounds for customers and agents during service conversations. AI-based voice and chatbots will also continue to grow in popularity. Any company that underestimates the value of AI in these areas will inevitably fall behind in 2023. 

2. Attribute-based Routing

It makes sense from both a cost and CX perspective to match customers with resources more intelligently based on business rules, internal and external context, and desired outcomes. Organizations can fine tune conversations, deepen customer relationships, and help agents succeed while improving First Contact Resolution (FCR) and reducing costly transfers.

3. Automated self-service

Give customers the freedom to choose their experience while reducing repetitive and routine calls for agents. Large enterprises once again stand to benefit most from the ability to automate processes and deliver faster response times across customers’ channels of choice. Web self-service portals, conversational IVRs, SMS, and live chat will all be in high demand for self-service this year.

The “freedom to choose” aspect of self-service is paramount and must be a top focus in 2023. Customers should never feel like they’re fighting an automated assistant to get what they want, nor should they be forced to use it. 

Greater Emphasis on Cost Containment

CCaaS helps contain contact center costs by improving contact duration and deflection, however, contact center projects in 2023 will need to show even more hard-cost savings in order to move forward. Avaya expects the following investments to be front and center as companies further tighten the reins: 

Identity and verification: Verifying and authenticating a customer in a contact center using common methods like Knowledge-based Authentication (KBA) takes anywhere from one to two and a half minutes. Research shows eliminating this time using Identity-centered Security can save as much as $3 a call, creating the potential for millions in annual savings while at the same time providing a better customer experience. 

Digital redirection: Redirecting calls to a digital or mobile self-service experience like SMS, messaging, chatbots, or a mobile app can save $3-5 per call, reducing interaction costs by up to 80% while giving callers the information they need more efficiently.    

CTI screen pops: The faster agents can access information, the faster they can resolve issues and move on to assist more customers. CTI screen pops can also help increase sales through targeted cross-selling and upselling by providing agents with the right information at just the right time. This will be a key investment in 2023.

Demand for Cloud Efficiencies and Security 

A big focus for 2023 will be minimizing the impact to the customer experience with increased data protection and privacy in the contact center. Can zero trust initiatives be successful without affecting customer perception? Absolutely. In fact, this is why Avaya is partnered with Journey, a digital identity verification and authentication platform provider that is blazing a trail in this field with award-winning innovation. 

Improving the speed, accuracy, and techniques used in contact center customer verification and authentication will be crucial this year for making necessary improvements to operational efficiency, security, customer experience, and costs. You can read this blog to learn more about how Identity-centered Security better protects customer data while increasing organizational efficiency. 

Want innovation without disruption? Register to attend Avaya Engage 2023 this June to learn what Avaya Experience Platform can do for your business.  

Feb 14 (Reuters) - Avaya Holdings Corp (AVYA.N) has filed for Chapter 11 bankruptcy and secured a financing of $780 million as it restructures its business, the IT firm said on Tuesday.

Avaya said upon completion of the restructuring process it will reduce its total debt by more than 75%, from nearly $3.4 billion to about $800 million.

The new capital is "expected to provide substantial liquidity to support Avaya during the process and beyond," it said.

The cloud communications company added it would continue to serve its customers and partners without interruption and expects to complete the process in 60 to 90 days.

Avaya had said there was substantial doubt about its ability to continue as a going concern in light of a debt maturity in 2023, according to a Wall Street Journal report in December, which cited people familiar with the matter.

Earlier in September, Avaya has also announced restructuring, including job cuts, to reduce costs. Avaya's shares have fallen nearly 99% last year.

Evercore Group is serving as financial advisor to Avaya for the process.

Reporting by Tiyashi Datta in Bengaluru; Editing by Shailesh Kuber

Our Standards: The Thomson Reuters Trust Principles.

The MarketWatch News Department was not involved in the creation of this content.

Feb 18, 2023 (The Expresswire) -- [131+ Pages with Synopsis] COVID-19 Impact, Despite Inflation and Fearing Recession, Businesses Across the Globe Expected to Do Better in 2023

Top “Smart Governments Market” Size 2023 Key players Profiled in the Report are [, ABB Ltd., Amazon, Avaya, Cap Gemini, Cisco, Entrust Datacard, Huawei Technologies, Hughes Identification Devices, IBM, IMEX Systems, Nokia, Opengov, Oracle, Socrata, Symantec Corporation] most important, influential, or successful companies, brands, or individuals within a Smart Governments market 2023 to 2026.

The MarketWatch News Department was not involved in the creation of this content.

The MarketWatch News Department was not involved in the creation of this content.

Feb 16, 2023 (The Expresswire) -- [97 Insights] Top “Medical Claims Management Solutions Market” Size 2023 Key players Profiled in the Report are [IBM, Cerner, Oracle, Avaya, Genpact, Cognizant Technology, Accenture, Allscripts Healthcare, Athenahealth, Colfax Corporation, UNIQA, R2K, McKesson, Optum, Conifer Health Solutions, nThrive] most important, influential, or successful companies, brands, or individuals within a Medical Claims Management Solutions market 2023 to 2026.

The MarketWatch News Department was not involved in the creation of this content.

RingCentral (NYSE: RNG)

Q4 2022 Earnings Call

Feb 15, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the RingCentral fourth quarter 2022 earnings conference call. All participants will be in listen-only mode [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Will Wong.

They just revealed what they believe are the ten best stocks for investors to buy right now... and RingCentral wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of February 8, 2023

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and practicing the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission, as well as today's earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck.

For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available, as discussed in detail in the slide deck posted on our investor relations website. With that, I'll turn the call over to Vlad.

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Thanks, Will. Good afternoon, and thank you for joining our fourth quarter earnings conference call. 2022 was a milestone year for RingCentral. I am very proud of what our team has achieved against a challenging macroeconomic backdrop.

The strength and resilience of our business model and stickiness of our customer base allowed us to once again deliver on our guidance. Let me give you a few facts regarding 2022. One, we finished the year with $2.1 billion of annual recurring revenue. We are now one of only 10 pure-play SaaS companies with over $2 billion of recurring revenue and greater than 80% subscription gross margin.

Two, we exited the year with a record operating margin of 14%, which is up over 300 basis points versus last year. Three, Contact Center is now approximately a $300 million ARR business, which we believe makes us a top five global CCaaS provider. And four, most importantly, we still invested over $0.25 billion in product and technology, further cementing our market leadership position. And going from strength to strength, in 2022, RingCentral received over 30 workplace and employer brand awards.

We were honored to be included among best companies for diversity, women, and company culture. This allowed us to build a world-class team as we attracted top-notch senior executive talent from companies such as Google, Adobe, AWS, NVIDIA, and Five9. Building on this solid foundation, we expect continued growth and improving customer acquisition costs, resulting in strong operating margin expansion. We have also made significant progress driving down SBC as a percent of revenue by almost 400 basis points in 2022, and we expect continued improvements in this area going forward.

All this puts us on a path to significantly stronger free cash flows, which, combined with our new credit facility, puts us well on our way toward addressing our outstanding converts. Mo and Sonalee will provide more detail about our results and outlook shortly. But before they do, let me remind you of the main drivers of our success. It comes down to our corporate values: trust, innovation, and partnerships.

First, trust. Q4 marked the 18th consecutive quarter of 99.999% uptime. Reliability is often the single-most important factor for customers as our service is mission-critical to them. They select RingCentral because we can be trusted to connect them with anyone, anywhere, and at any time.

This continues to be a positive differentiator for us in our industry. And we see it in our base with over 95% of our customers actively using RingCentral for both internal and external communications and with billions of API calls each month. Trust also means data privacy and security. This quarter, we expanded end-to-end encryption beyond support for video.

It now includes messaging and phone, giving customers the ability to keep critical information safe. Privacy and security are top priorities and we will continue to invest to maintain our leadership in this important area given its criticality to our customers. Second, innovation. RingCentral was built on the dual megatrends of mobility and distributed workforces, which were leveraged to Excellerate the effectiveness of communications for enterprises worldwide.

And now there is a new megatrend emerging that is potentially even more disruptive, namely AI. While the power of large language model AI has recently captured the imagination of the broader public, we are proud to have been one of the first in our industry to deploy these types of solutions. We're leveraging AI to make real-time communications more intelligent, seamless, and effective. Noise reduction, active cancellation, virtual backgrounds, meeting transcriptions, summaries, and highlights are just a few examples of how we use AI to further enhance our users' experiences and productivity.

Moving forward, we will continue to invest in AI across our portfolio. You will see us launching new products that leverage AI to Excellerate efficiency of collaboration for knowledge workers, Excellerate the efficacy of our contact center for agents and supervisors and Excellerate the productivity for frontline workers. We expect these investments will further cement our leadership position in the age of AI. Stay tuned for exciting new product announcements throughout 2023.

Outside of AI, we've added hundreds of features to our platform in 2022. These include delivery on our advanced EU data privacy requirements; RAY BAUM'S Act compliance; browser support for Firefox; enablement of GSP partners like Vodafone and Charter; the introduction of Device as a Service; new, unique integrations for RingCentral Contact Center; a revamped resource center; 60-plus new integrations into key third-party tools to simplify customer workflows; and expansion to additional digital customer engagement channels like LinkedIn, for example. And finally, partnerships. We're committed to our strategy of partnering with the world's most recognizable brands to create additional value for businesses and enterprises worldwide.

Our partnerships with companies like AT&T, BT, Vodafone, and a number of others are unique and have been a meaningful driver of our success. Partnerships remain an important part of our strategy. Mo will double-click, but let me share a couple of exact highlights. First, we are launching a new partnership with AWS.

This announcement marks the beginning of an important, new relationship, whereby we will work together with AWS to deliver technologies and innovations that Excellerate business communications for today's hybrid workforce. Under this new multiyear strategic agreement, RingCentral and AWS will directly sell our product and customers will be able to directly purchase RingCentral MVP and Contact Center solutions from the AWS Marketplace. In addition, RingCentral and AWS will work together to develop and deliver vertical solutions for businesses in core industries such as healthcare, financial services, retail, education, and public sector, as well as invest in joint marketing, lead generation, and promotion activities together. We are extremely excited about this new strategic relationship and cannot wait to get started.

Also, yesterday, we announced an extended and expanded agreement to our strategic partnership with Avaya, with significantly improved terms. Avaya Cloud Office by RingCentral remains Avaya's exclusive multi-tenant U.K. solution to Avaya customers. Avaya continues to hold the world's largest base of unified communications on-prem users and we remain best positioned to migrate this base to the cloud.

Looking ahead, there are hundreds of millions of on-prem seats that are still to be migrated and where we have the right to win every day. There is tremendous product market fit and we have the product, partnerships, and most importantly, people, to capture this large, untapped opportunity that is still in front of us. With that, let me turn the call over to Mo to discuss in more detail what we are seeing in the market today. 

Mo Katibeh -- President and Chief Operating Officer

Thanks, Vlad. We continue to execute well and deliver solid results in the current environment. Upmarket new logo acquisition was robust. Also, our net retention rate in Q4 was again over 100%, demonstrating our ability to both land and expand, and driven in part by continued strength within our Contact Center, which grew above the company average.

Our Contact Center brings together the world's leading UC and CC. In the latest 2022 Gartner Critical Capabilities for Unified Communications as a Service worldwide report, RingCentral ranked first in the UC with an integrated Contact Center use case, ahead of 11 other vendors. And the reason why is tightly integrated functionality that benefits customers of all sizes with unique, differentiated experiences. First, for agents, our integrated solution offers seamless access to other non-Contact Center employees across the business and the ability to share simple context for the interaction.

And two, for supervisors, our performance management solution, Contact Center Pulse, provides real-time alerts on agent performance KPIs using our messaging technology. This allows supervisors to react to changing interaction volumes and agent performance instantly. Our customers also get an end-to-end experience with seamless billing, faster implementation, and integrated support. As Vlad mentioned, there are hundreds of millions of seats in the verticals and geographies that we are actively selling in today.

We are mission-critical to industries such as healthcare, financial services, retail, education, and professional services, where real-time customer interaction is essential to the ability to operate. For example, Aspen Dental, one of the largest dental service organizations in the U.S.; Community Health Plan of Washington; and Viva Health were all $1 million-plus TCV healthcare wins this quarter. They selected RingCentral because we address key priorities for them such as HIPAA compliance, increasing staff efficiency, and patient engagements, and of course, reducing care coordination friction. Our differentiation is clearly a driving factor in helping us win not just in healthcare but also within the Teams ecosystem.

We're successful with Teams users because of our unmatched and mission-critical capabilities. First, we offer Five9s of uptime, native PSTN to over 45 countries, and out-of-the-box analytics and reporting. Second, we also have numerous deep integrations into both our Contact Center solution, as well as leading technology applications such as Google, Salesforce, and ServiceNow. And third, we enable native SMS and vertical-specific capabilities and integrations that many of our core customers need to do their job.

This has resulted in triple-digit growth in the fourth quarter and increasing penetration of the Teams base. We continue to see this as an opportunity for future growth. Now moving on to partnerships. On Avaya, we are pleased with the new extended and expanded agreement, which now includes minimum seat commitments and a better-aligned incentive structure intended to drive accelerated migration to Avaya Cloud Office.

We expect to see renewed focus in selling ACO after Avaya finalizes their recapitalization. We expect that Avaya will emerge stronger and better positioned to migrate the world's largest on-premises installed base to Avaya Cloud Office by RingCentral, the best UCaaS destination for every Avaya unified communications customer. Regarding Mitel, we continue to see strong traction since we entered into our strategic partnership in November of 2021, with sequential growth in new seat sales every quarter of 2022. In addition to our strategic partners, our channel and GSP partners continue to be integral to our success, providing us with broad distribution and helping us expand our addressable customer base.

Leads generated by our channel partners increased over 30% year over year in Q4. Channel partners continue to pick RingCentral because of our leading product and the ease of working with us. Our GSP partners continue to drive stable growth and we look forward to the continued ramp of new partners such as Charter and Vodafone. On international, we continue to gain traction with almost triple the number of $1 million-plus TCV deals in Q4 versus the prior year.

Now turning to what we're seeing in the field. Our Q4 pipeline was up versus last year and our win rates continue to be steady and strong. However, the conversion of these opportunities continues to be impacted by the current macro environment. Cycle times remain elongated versus last year, with initial deployment sizes down both year over year and versus Q3.

Customers continue to understand how we are able to save them money while also enhancing their communications channels. But in this environment, timing and deal size remain headwinds. What we can control is being more efficient in our go-to-market activities. Sales and marketing expense as a percentage of revenue demonstrated solid year-over-year improvement in Q4.

And there is more to come as the impact of the efficiency actions we took in 2022 will be fully realized this year. We have also executed on additional actions to make our go-to-market more efficient going forward. This includes: one, evolving our partnerships to Excellerate overall economics for all parties; two, reducing support functions in sales while investing in front-line sales capacity; three, lowering upfront commissions costs across our partners and direct sellers while also allowing top performers to earn more; and four, continuing to be disciplined on marketing spend, which thus far has yielded better leads with improved conversion rates and at a lower cost. In summary, we continue to execute well in the current environment.

Our ability to help customers save money while increasing their efficiency has not changed. We are continuing to look at all aspects of our go-to-market to ensure we are as efficient as possible for when macro conditions improve, setting us up well for more profitable growth going forward. Now I'll pass it over to Sonalee to discuss our financials and business outlook. 

Sonalee Parekh -- Chief Financial Officer

Thanks, Mo. Before I discuss our performance and 2023 outlook, I wanted to reflect on what we achieved in 2022. As Vlad said, we are among a select group of SaaS companies with over $2 billion in ARR and subscription gross margins of over 80%. We clearly demonstrated the power of our business model at scale as we solidly exceeded our profitability goals in 2022 against a dynamic and challenging macro backdrop.

We are a significantly more profitable company as we enter 2023. Now turning to our Q4 performance. Subscriptions revenue of $502 million was up 19% year over year and in line with our guidance range. On a constant currency basis, subscriptions revenue rose 21% year over year.

ARPU was once again stable across both UCaaS and CCaaS, with overall and new acquisition ARPU holding steady above $30. Importantly, new customer ARPU is being generated at more attractive unit economics as customer acquisition costs improve. Moving to profitability. Our non-GAAP operating margin of 14% set another quarterly record and was up over 300 basis points year over year driven by efficiencies generated across the business, most notably in sales and marketing.

Now moving to full year '22. Subscriptions revenue of $1.89 billion was up 27% year over year. On a constant currency basis, subscriptions revenues rose 29% year over year. Total revenue of $1.99 billion was up 25% year over year.

On a constant currency basis, total revenue rose 26%. Our ability to deliver a clearly differentiated product that is highly valued by our sticky customer base continues to generate industry-leading subscription gross margin, which came in at 82.4% in 2022. Moving to ARR. We delivered $2.1 billion of ARR, up 17% year over year and 19% on a constant currency basis.

Our CCaaS business now represents approximately $300 million of ARR. Going forward, we will provide updates on our CCaaS ARR on a semiannual basis with the next update in Q2 '23. We have also set the foundation for expanding profitability. In 2022, our operating profit dollars rose over 50% year over year, which resulted in an operating profit margin of 12.4%, up 220 basis points year over year with more to come.

Now turning to our balance sheet. We ended 2022 with cash of $270 million. This is inclusive of $55 million of shares repurchased in Q4, bringing the full year total to approximately $100 million. Today, we are announcing a new board-approved share repurchase authorization for $175 million through December 31, 2023.

Moving to free cash flow. As is typical in our industry, timing differences between commissions and customer payments result in a delta between operating margin and free cash flow margin. Thus, our free cash flow margin over a 12-month period typically trails our non-GAAP operating margin by 5 to 6 points. These upfront commissions are investments that result in very attractive ROI over the life of the customer.

For the full year 2022, we generated free cash flow of $75 million or a margin of 4%. This includes a roughly 3-point impact from items related to restructuring, third-party relocation costs, renegotiating terms with vendors, and the linearity of vendor payments. Our disciplined approach to driving productivity and efficiency across the business will result in meaningful free cash flow expansion in 2023 and beyond. We are targeting robust free cash flow growth in '23 with normalized unlevered free cash flow doubling over the next two years, 2022 to 2024.

The free cash flow growth we project provides us with the flexibility to invest for growth, address our converts and return capital to our shareholders. On this point, I'm excited to announce that we have entered into a five-year, $600 million credit facility consisting of a $400 million delayed draw Term Loan A and a $200 million revolver with Bank of America and JPMorgan acting as joint lead arrangers and book runners and Wells Fargo as joint book runner. Use of proceeds from the revolver and Term Loan A are for general corporate purposes, including the retiring of convertible debt if market conditions present an attractive opportunity to do so. Term Loan A may be drawn at any time over the next nine months.

We saw very strong demand for the facility and had strong participation from leading financial institutions, which is a testament to our strengthening financial profile, strategy of driving efficient growth, robust free cash flow generation and focus on disciplined capital management. Now turning to guidance. This outlook is reflective of what we see in the market today. It does not assume any improvement to current macro conditions.

Taking this into account, for the first quarter of 2023, we expect subscriptions revenue growth of 14% to 15%; total revenue growth of 12% to 13%; non-GAAP operating margin of 16.5%; and non-GAAP EPS of $0.69 to $0.70. For the full year 2023, we expect subscriptions revenue growth of 10% to 11%; total revenue growth of 10% to 11%; non-GAAP operating profit margin of at least 18%, up at least 560 basis points versus last year. Based on the midpoint of our revenue guidance, we expect operating profit dollars to grow at least 60% and non-GAAP EPS of $3.04 to $3.10. As we look forward, we will be disciplined in protecting our ARPU while managing our cost structure as we drive durable growth and expanding operating profit margins.

Our operating margin improvement will be driven by four main factors. One, operating leverage as we continue to scale above $2 billion in recurring revenues. Two, more efficient labor spend and improving the productivity of our workforce. This includes stock-based compensation, which we expect to further Excellerate as a percentage of revenue by more than 100 basis points year over year in 2023, following an almost 400-basis-point improvement in 2022.

We believe this trend will continue beyond '23, given: one, our discipline on labor also applies to stock-based compensation; and two, the impact of issuing shares at historical prices. We are committed to driving SBC as a percentage of revenue meaningfully lower over the next two years. Three, a multiyear go-to-market transformation to further Excellerate sales and marketing productivity and partner economics, which will lower the cost of acquiring new customers. Four, vendor rationalization, which will drive meaningful procurement savings.

These levers are key as we drive toward continued significant margin expansion and growing free cash flow. In summary, 2022 was a year of solid execution despite a difficult macro backdrop. In 2023, we will deliver healthy growth and drive greater efficiency within the business. Two quarters ago, we reiterated our commitment to achieving at least a 20% operating margin.

Since then, we have hit major milestones in the path to achieving this goal. To this end, we are proud to announce that we expect to exit 2023 with at least a 20% operating profit margin. We have built a strong foundation and we remain laser-focused on delivering value to our stakeholders. With that, let's open the call for questions.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Samad Samana with Jefferies. Please go ahead.

Samad Samana -- Jefferies -- Analyst

Hey, good evening, and thanks for taking my questions. I guess maybe first one, Sonalee, for you. I appreciate the enhanced disclosures and all the detail around the leverage. I guess just when I think about capital management strategy overall, now that you have the facility to take care of the converts, how should we think about between the buyback and other ways of using the free cash flow, how should we think about using that over the next 12 months and then redeploying that? And is there room for that free cash flow conversion to Excellerate now that some of the prepaid commissions that you previously had have a better structure with your partnerships?

Sonalee Parekh -- Chief Financial Officer

Yeah. Thanks for the question, Samad. And yes, we are very, very excited about the credit facility that we announced today. So that's a $200 million term loan and $400 million -- $200 million revolver and $400 million Term Loan A.

And what I would say is our revenue and profitability profile that we outlined for you really allows us to consider accessing all forms of financing, so not just convertible debt markets. And we believe that the Term Loan A really provides us the best option to retire a portion of our convertible debt and reduce those maturities if market conditions present an attractive opportunity for us to do so. And I would say the terms were very attractive and demand for that transaction was very strong. We have no immediate plan to retire the converts, but we'll be watching the market closely and make a decision on whether to draw on that Term Loan A or not over the next nine months or so.

But within that, we plan to grow EBITDA significantly over the next few years. And that will drive down our leverage multiple significantly and again presents us with a lot of optionality in terms of how we refinance convertibles, how we decide to invest in our own organic growth, and then, as you say, share buybacks. So, I really view our capital allocation policy as dynamic. It will take all three forms.

But at the moment, we are, as you know, very firmly focused on driving margin improvement and also free cash flow. And in terms of the relationship between the two, you heard in my prepared remarks, we're expecting free cash flow to double over the period '22 to '24. However, you still will see about a 5-point delta between OP margin and free cash flow, as is the case and is typical with many SaaS businesses. In terms of the renegotiation of the partnership, that is helpful in terms of driving margin, but it wouldn't make a significant enough difference in terms of really narrowing that delta.

So, for now, I would say for modeling purposes, expect that delta to continue between OP margin and free cash flow. Hopefully, that answers your question.

Samad Samana -- Jefferies -- Analyst

It does. And then I have a follow-up and this could really be for any of you all. But just as I think about where ARR ended and then the guidance for 2023 for -- it kind of suggests that subscription revenue in '23 will end up being about where ARR ended in 2022. I'm just curious, how should we think about that.

Is there an expected uptick in churn in the base? Or is there a combination of maybe expected churn versus some offset in slower new business? Just how do we reconcile where the business ended in the fourth quarter and then that forward subscription revenue? And it doesn't have to be on the math itself, but just maybe how is the company thinking about the business between those two different things?

Sonalee Parekh -- Chief Financial Officer

Yeah. So why don't I start and then I may hand over to Mo for some comments around the business? We don't typically guide to ARR, but let me provide some color given your question. So, we are adding net new bookings at a healthy rate and we will in 2023. We've shown you a revenue guide of 10% to 11% for 2023 and that does factor in new bookings.

And what I would say directionally is we would expect ARR growth for '23 to be above where we guided for total revenue growth in '23. And some of the puts and takes there are as we are now growing more upmarket and also given the current macro, we've assumed more back-end-loaded bookings. And we're being more conservative in terms of what we're forecasting on churn and downsell in the current environment as is prudent. And as our base gets larger, obviously, that churn number, even if it's stable as a percentage, it gets larger as well.

But I think the most important thing from your perspective is that ARR growth, we would expect it directionally to be above total revenue growth for the year.

Samad Samana -- Jefferies -- Analyst

Really helpful. I'll hop back in the queue, but great to see all the progress on the margin expansion. Thanks, guys.

Sonalee Parekh -- Chief Financial Officer

Thanks, Samad.

Operator

The next question is from Sterling Auty with SVB. Please go ahead.

Sterling Auty -- SVB Leerink -- Analyst

Yeah. Thanks. Hi, guys. I wanted to ask two questions on the extension with Avaya.

The first one is opening up the ability for them to sell direct or kind of in a wholesale method, how does that impact the amount of revenue per seat that you get which I would imagine gets diminished? But on the flip side, can you talk about the benefit that I imagine you get at the operating margin contribution level?

Mo Katibeh -- President and Chief Operating Officer

Thanks for the question. Yes, we're very excited about the new agreement with Avaya. We expect them, as part of their recapitalization, to emerge stronger and be focused on selling Avaya Cloud Office as one of their key offerings into the market. As you say, one of the key reasons why we're excited is because, one, we now have minimum seat commitments as part of the arrangement; and two, as we think about the product work we're doing and the new go-to-market motions that we're introducing, including their ability to sell direct, there's a lot more incentive for them to actively go look at their existing, the world's largest base of on-premise seats, and move them to the cloud.

Relative to the economics, we expect that the economics of them selling direct is actually accretive to the current economics that we're getting from them. And then it simply becomes a function of what volumes we should be expecting, minimum commits or potentially something larger, in the coming quarters and years. So, hopefully, that answers your question.

Sterling Auty -- SVB Leerink -- Analyst

It does. Just one follow-up would be, is that accretion at the revenue line, the EBIT line, or both? And on the guaranteed minimums, it's a company that's coming through a packaged bankruptcy, what's kind of the, I guess, the handcuffs or the feet to the fire that get those minimums paid?

Mo Katibeh -- President and Chief Operating Officer

Great question. So, what I'd tell you is, yes, for sure, on the EBIT/contribution margin side, it's very much accretive. As you think about revenue, it really becomes a function of the volumes that are sold. In a direct motion, yes, there is less top line.

But to the degree that they have the world's largest base and are able to actively monetize that base, then it could certainly be accretive on the top line as well. And then to the final piece of your question, we're comfortable that the contractual provisions that we have in place will allow us to achieve the minimum commitment volumes. And to the degree that we're not able to achieve those, then there's mechanisms in place to address that as well.

Operator

The next question is from Kash Rangan with Goldman Sachs. Please go ahead.

Kash Rangan -- Goldman Sachs -- Analyst

Hi. Very nice to see all the operational improvements. It looks like you're getting super razor-focused on all kinds of levers, top line, expenses, etc. Good to see that.

Vlad, one for you on AWS, maybe Mo, the two of you, whoever wants to talk about it. What are the specific segments of the market that you think you can address with this AWS partnership that you could previously not address? And how does this work? Will AWS salespeople get compensated? Will there be commission sharing between the two organizations? And how are you going to be uncovering the lead pipeline with respect to generating this business? And as a follow-up, as a result of that, how much of the AWS partnership is in your guidance? Because if I do some rough math, I look at the net new subscription implied by your guidance, it's a decline of about 40%, 50%, which I guess is consistent with how the fourth quarter panned out. But are you really seeing new business activity in the months of January and February following that trend? Or things are looking a little bit better, but you don't want to get ahead of yourself? Thank you so much.

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Kash, Vlad here. Yeah. No, thanks for the compliment here. Let me take the first part of the first question, please.

Look, so it's obviously early with AWS. We just announced. But it seems for now that it will be skewing more upmarket, more enterprise. This is where their sales forces are most active anyway.

I can tell you that we're already seeing good deal flow. Obviously, the deal has been in the works for quite some time and the companies have already begun working together. We noted, I think, in our prepared remarks that our entire portfolio will also be available in their Marketplace. So, we expect for this to be more inclusive.

But as far as the direct sales efforts, again, I would see more upmarket concentration. And Mo, maybe you can take the second part of the question.

Mo Katibeh -- President and Chief Operating Officer

Yeah. Absolutely. So Kash, just to build on that. Yes, we're very excited about the AWS opportunity.

Considering how new it is, that is not currently in our guidance, A; B, what's really something that has gotten us interested in this one is that, too, their sellers will be compensated and be able to retire quota by selling our unified communications as a service product. And then there is no commissions back to them, if you will, which was a part of your question. Then I think the final thing that you asked was what are we seeing in terms of so far in 1Q and the trends that we're seeing in 1Q are consistent with what we saw in 4Q overall. So, Kash, I believe we answered your multifaceted question.

But if there's anything we missed, please let us know.

Operator

The next question is from Meta Marshall with Morgan Stanley. Please go ahead.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thanks. Understanding you're kind of putting some conservatism in your outlook, but just if you could give a sense of how much of that conservatism was due to the environment that you're seeing versus maybe the cuts that you've made and just needing to see kind of how efficiency changes given some of those cuts. And then just maybe as a second question, you just mentioned that the AWS kind of target customer was more upmarket.

I guess just given that they already have their own kind of contact center product, just what was the discussion between kind of your own Contact Center product versus their product? That would be helpful. Thanks.

Sonalee Parekh -- Chief Financial Officer

Meta, so just in answer to your first question, yes, we certainly are taking the current macro into account and what we see in the market today in our guide, which has a degree of prudence in it. We are not factoring in any improvement in the macro. And in terms of your question around the cuts we made and whether that is one of the factors in the guide, what I would say there is the actions we took, and I think we covered this partly in last quarter as well, but I think it's worth reiterating, they were really around being more productive and improving the productivity of our sales motion and we didn't make any cuts to sort of frontline sales. And I think that's a really important point.

And then some of the other levers that you'll see come through the P&L and with our subsequent quarters and margin improvement, it will be things around program spend and procurement savings, vendor rationalization, those kinds of things, which, to me, wouldn't be correlated with growth in any way. So, our guidance is very much factoring in what we see in terms of macro today. And the other thing I would add is that we are going to be disciplined when we evaluate deals and that's something that is a sort of guiding principle for us. So, that's why we are able to defend our ARPUs and keep them above $30 and why our subscription gross margins are still healthily above 82%.

So, that would be the only other factor I would call out.

Mo Katibeh -- President and Chief Operating Officer

Very good. Meta, and then to answer the AWS section of your question. First, the addition of RingCentral's MVP and Contact Center solutions are simply going to give AWS customers more choice. AWS, of course, will continue to offer their own solutions as well.

But by adding us to their Marketplace and to their sellers, they're giving the customers that they have the advantage of a tightly integrated market-leading solution that addresses the needs of many organizations that are looking at buying UC and CC together, which is one of the key trends that we've been calling out for quite a few quarters. And then to the second half of your AWS question, think of it as being sold in two ways, one via the AWS Marketplace and then the second one via AWS sales reps. And while products from other UC vendors are available today on the AWS Marketplace, RingCentral MVP is the sole UC solution that AWS reps will be proactively selling and receiving commissions for. This arrangement does not exist for any other UC service from another provider.

Operator

The next question is from Brian Peterson with Raymond James. Please go ahead.

Brian Peterson -- Raymond James -- Analyst

Hi. Thanks for taking the question. So, maybe a higher-level question on the go-to-market. I believe in the past, you guys have had this partnership ethos, and it's really been emphasized, and that channel was really a way for you guys to help provide scale.

We've seen significant improvements in the CAC. So, I'd love to understand kind of with this new profitability profile and kind of go-to-market motion, does the direct versus indirect or channel relationships change. And how do we think about like using that as a margin lever going forward?

Mo Katibeh -- President and Chief Operating Officer

It's a great question. So, let me respond to that with a couple of key points. The first one is we're still committed to our strategy of partnering with the world's most recognizable brands across service providers, hyperscalers, legacy PBX providers, etc. We know that, that motion gives us unmatched reach into many addressable markets.

The Avaya agreement is now enhanced, expanded, extended. Mitel continues to be a strong partner. We're very happy with what we're seeing with our service provider relationships. And then relative to Atos and ALE, what I will tell you is, as Sonalee and I have said, we've been looking at every aspect of our business.

And as part of that, we have made various changes to the terms of the arrangements that we have with Atos and Alcatel-Lucent Enterprise. I'm not able to get into the details of those arrangements or the new terms other than to advise that ALE and Atos now have nonexclusive go-to-market motions. We believe that these modifications were on solid economic terms with the intention of helping drive migrations to our leading cloud communications products. And then to the last part of your question, what I will say is that over the last few months, we have brought down the upfront commission costs across the broader channel and VAR ecosystem, as well as, call it, the commission costs to our direct sales base, building on some of the comments that Sonalee made earlier today, while at the same time also allowing top performers across both the channel and our direct sales the ability to make more.

And that has not driven any sort of material change to deal activity and our overarching goal is using all of these levers to drive ever more profitable growth.

Operator

The next question is from Strecker Backe with Wolfe. Please go ahead.

Strecker Backe -- Wolfe Research -- Analyst

Hi. Thanks for taking our question. Can we hear about just how you're thinking about seat growth versus ARPU growth contemplated within the guide? And then just a quick clarification. I believe you mentioned an operating margin exit rate for '23 and I missed that.

So, if you could just give that again, that would be very helpful. Thank you.

Sonalee Parekh -- Chief Financial Officer

Sure. So, I'll start off with the second part of your question and then I'll hand over to Mo around seat growth and how it's been correlated to the guide. So yes, you heard that correctly. So, we are guiding to operating margins for the full year '23 of at least 18%.

And you heard me correctly, we are targeting and expect to exit Q4 with operating margins of at least 20%. So, you may recall two quarters ago, we gave that 20% medium-term guide and we are now very happy to tell you today that we will exit Q4 '23 at, at least 20%.

Mo Katibeh -- President and Chief Operating Officer

And then building on that, to talk about the ARPU portion of your question, I mean our overall ARPU has remained stable now for the last one to two years at above $30. And frankly, we're not seeing competitive pressures impact our ARPU. At the end of the day, and it just goes back to our guiding mantra of profitable growth, we are being disciplined. We are entering into deals that are profitable.

And we're expecting that our ARR will grow above our revenue growth in 2023 tied to each one of those aspects.

Operator

The next question is from Michael Funk with Bank of America. Please go ahead.

Matt Bullock -- Bank of America Merrill Lynch -- Analyst

Hi, thanks for the question. This is Matt Bullock on for Mike Funk. My question is around business momentum. So clearly, some conservatism built into the guide for 1Q, but obviously, a step down in growth.

We've talked about some sales cycle elongation, smaller deployment sizes for a couple of quarters now. Just curious on any trends you've seen so far within the first quarter, if you've seen customer behavior kind of stabilize. Thank you.

Mo Katibeh -- President and Chief Operating Officer

Thanks for the question. And the net there is we're seeing very similar trends so far in first quarter versus what we saw in fourth quarter. And as I mentioned during my prepared remarks, sales cycles remain elongated. We have seen the size of initial deployments decline sequentially throughout 2022 and that was true in Q3 to Q4.

And from a churn perspective, we did see a degree of year-over-year improvement. Q4 is usually our seasonal high on churn, but improving trends year over year.

Operator

The next question is from Ryan MacWilliams with Barclays. Please go ahead.

Ryan MacWilliams -- Barclays -- Analyst

Thanks for taking the question. I'd love to touch on your Microsoft Teams opportunity. Are you seeing more wins for this channel? And is this helping you get into larger customers? Like is it also helping pull through to your Contact Center deals and wins that include a Microsoft partnership? Thanks.

Mo Katibeh -- President and Chief Operating Officer

Very good. Yeah, as I mentioned in my prepared remarks, we are seeing triple-digit growth into our Microsoft Teams practice. And yes, to the second part of your question, we are definitely seeing an upmarket skew to the customers who are purchasing our Microsoft Teams products. And it really becomes about the value of the product capabilities, Five9s, the integrated UC and CC, to your point, that is unique in our offering there.

And inherent to those two things, it's skewing upmarket and the power of UC and CC together. We are seeing a very strong attach rate of Contact Center when we're selling into Microsoft Teams.

Operator

The next question is from Terry Tillman with Truist Securities. Please go ahead.

Terry Tillman -- Truist Securities -- Analyst

Thanks for taking my questions. Two quick questions. The first one is on the Contact Center side. I mean Mo, you're talking about some of these dynamics that have continued to weigh on the business.

But in the Contact Center side, is there anything different, though, in terms of ARR activity? And is that more resilient? Or is it about the same type of dynamics that you're seeing on the PBX side? And then I have a follow-up.

Mo Katibeh -- President and Chief Operating Officer

Well, we are seeing that our CCaaS ARR is now approximately $300 million, which, frankly, we think is pretty amazing and positions us as one of the five largest CCaaS players on the planet. We are seeing the growth trend above the company average and well above the market growth as well. Relative to our attach rate, we're seeing it be attached on our larger deals, call it the $1 million-plus deals, a fairly consistent rate of over 60% for some number of quarters. And at the end of the day, I think it speaks to the trend in the buyer community, if you will, of customers looking for tightly integrated UC and CC capabilities and the unique differentiations that they get when they're purchasing our market-leading UC product and this market-leading CC product together.

Operator

The next question is from George Sutton with Craig-Hallum. Please go ahead.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Thank you. Relative to the Avaya bankruptcy, is it logical to assume customers -- premise customers at Avaya will feel some discomfort from that move and could accelerate migration? Is that something you historically have seen?

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Yes. Vlad here. Look, we actually -- no one wanted Avaya to go bankrupt again. But we are firmly of the opinion, and I think Avaya concurs, we remain the absolute best cloud destination or destination for their world's largest customer base migrating to cloud.

We have the integrations. We have endpoint support. We have channel relationships, and we have the sales process well-oiled. Just to remind everyone, many, many hundreds of thousands of seats have already moved under the original agreement.

We expect for this to continue and hopefully accelerate, but at least continue with the new structure. And it's a win-win for both companies, but most importantly, it's a win for customers. And if you think about it, sure, no one wants to deal with a bankrupt provider if I'm an Avaya customer. But, A, no one is also expecting for this bankruptcy to last too long.

This is why there is a prepack. We're part of that prepack. And look, I'm not a bankruptcy attorney, obviously, but I think general expectations are that this is going to be a relatively short and relatively painless process and that the company will reemerge, by the way, as a substantially stronger entity with a stronger balance sheet, much better debt coverage, etc. So, if you're a customer, frankly, where are you going to go? If you want to go -- it's really hard to go from on-prem to on-prem.

You might as well go to the cloud. Why not go to the absolute cloud UCaaS leader, which is RingCentral and which has all of these differentiated integrations and assets with Avaya? So, I have to say, we feel really, really good given the backdrop. We feel really good where we ended up. I think they feel the same and yes, we'll see what the future brings.

Again, many tens of millions of seats on-prem with Avaya in particular, ready to be migrated.

Operator

The next question is from Matt Stotler with William Blair. Please go ahead.

Matt Stotler -- William Blair -- Analyst

Hey. Thanks for taking the question. Just two for me. So, one, I think, Mo, you talked about changing the terms of the Atos agreement.

With that business being sold to Mitel, what are the implications there for RingCentral, both on an absolute basis and you think about kind of the trajectory of that business historically versus what you expect going forward? And then the second question is on the converts. Just now you have the debt facility that you can leverage for that. What are you waiting for in terms of kind of what you need to pull the trigger on that? And then what should we expect in terms of interest expense associated with that credit facility? Thank you.

Mo Katibeh -- President and Chief Operating Officer

Very good. So, I'll start with the Mitel, Atos one and then turn it over to Sonalee. Mitel is an important partner. They contributed solidly in 2022, sequential seat growth every quarter.

As you stated, Mitel and Atos are currently in discussions. Nothing is final as far as we know. If they do combine, it doesn't change the fact that there are millions of on-prem seats for them to convert and our agreement will continue to be in place to be Mitel's exclusive UCaaS provider. And then time will tell, we'll see what happens there. 

Sonalee Parekh -- Chief Financial Officer

So just to answer your question on the converts. Obviously, our current convert is paying interest at 0%. So, it really comes down to market conditions and looking at the trade-off between that 0% facility versus the discount that our converts are currently trading on. And that's something that we, as the management team, will continue to evaluate.

We obviously don't feel any pressing need to go and do anything immediately. And the great thing about the financing that we have structured is that we have this delayed draw aspect to it. So, we feel like we have a lot of optionality and flexibility there. And as we grow our EBITDA significantly over the next couple of quarters, optionality only increases from there.

Operator

The next question is from Michael Turrin with Wells Fargo Securities. Please go ahead.

Michael Turrin -- Wells Fargo Securities -- Analyst

Hey, thanks. Appreciate you fitting me in. The margin guide for at least 18%, Sonalee, it's a big step up from the more than 350 basis points you were talking about last quarter. It does have an 18% or higher attached to it.

So, can you just speak to what would drive that number higher? How much of it is tied to how growth ends up versus additional optimizations you're seeing on the cost side?

Sonalee Parekh -- Chief Financial Officer

Yeah. So, look, I would say if growth ends up being better, then that would be incremental to where we're guiding. So, the guide on the margin is consistent with the revenue guide that we gave today. And as we said, the guide does not embed or incorporate any improvement in the macro or any deterioration, for that matter.

In terms of the drivers, labor savings, as you know, given the actions we took last year, that's about 3 points of the margin expansion. And then the remainder will come from optimizing spend in customer acquisition and then third-party spend, and that's rationalization of suppliers. We have a very big procurement project going on at the moment. But ultimately, we expect operating profit dollars to be up around 60%, 2023 over 2022, and that's on top of the 50% year-over-year increase in operating profit dollars that we achieved for this year.

And then I'll just once again reiterate that we do expect 4Q operating margin to be at least 20%. So, that's 600 basis points above where we ended Q4 this year.

Operator

This concludes our question-and-answer session [Operator signoff]

Duration: 0 minutes

Call participants:

Will Wong -- Vice President, Investor Relations

Vlad Shmunis -- Founder, Chairman, and Chief Executive Officer

Mo Katibeh -- President and Chief Operating Officer

Sonalee Parekh -- Chief Financial Officer

Samad Samana -- Jefferies -- Analyst

Sterling Auty -- SVB Leerink -- Analyst

Kash Rangan -- Goldman Sachs -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

Brian Peterson -- Raymond James -- Analyst

Strecker Backe -- Wolfe Research -- Analyst

Matt Bullock -- Bank of America Merrill Lynch -- Analyst

Ryan MacWilliams -- Barclays -- Analyst

Terry Tillman -- Truist Securities -- Analyst

George Sutton -- Craig-Hallum Capital Group -- Analyst

Matt Stotler -- William Blair -- Analyst

Michael Turrin -- Wells Fargo Securities -- Analyst

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