Dive Brief:
- The coffers are running dry for legacy communications company Avaya, according to reports by The Wall Street Journal and Bloomberg.
- The company posted revenue declines for Q3 2022, the period ending June 30, on Tuesday. Citing servicing on $600 million in loans secured just seven days before the quarter ended and “the negative impact of significant operating losses,” Avaya acknowledged there is “substantial doubt” about its “ability to continue as a going concern” in an SEC filing.
- “Our preliminary financial results for the quarter reflect operational and executional shortcomings, amplified against the backdrop of a volatile economic environment,” Alan Masarek, president and CEO of Avaya, said in Tuesday’s preliminary Q3 2022 financial report.
Dive Insight:
Avaya appointed Masarek, former Vonage CEO, on July 28, effective Aug. 1. The company also announced the departure of CEO Jim Chirico and downgraded its quarterly earnings expectations.
The company reported revenue of $577 million on Tuesday, a drop of 20% from the same quarter last year, and a net loss of $1.4 billion, despite growth in its OneCloud iPaaS division. OneCloud was up 97% year-over-year, reaching $838 million.
Subscriptions represented a major source of loss for the company in Q3, according to Masarek. “Declines generally happened because some customers signed shorter term contracts while other customers renewed maintenance agreements instead of signing long-term software subscription agreements,” he said in prepared remarks.
Avaya successfully pivoted to software sales on the heels of Chapter 11 bankruptcy in January 2017. Under Chirico’s leadership, the company invested in cloud-based enterprise software as its primary line of business.
Year-over-year revenues were up 2% in Q3 2021 and the company posted net income of $43 million that quarter. But concern over Avaya’s financial health surfaced earlier this year when, despite continued OneCloud growth, the company underperformed and missed Q2 adjusted-earnings targets.
Masarek pointed to “concerns about Avaya’s near-term debt maturities” and the “public nature” of the refinancing process as reasons for customers becoming “cautious on making longer term commitments to Avaya,” during the earnings call.
EVP and CFO Kieran McGrath said the company is expecting to generate annual savings of up to $250 million to offset losses.
“We are not standing still,” McGrath said during the earnings call. “We are taking an aggressive set of actions to reset our run rate of cost and expense.”
Masarek, who guided Vonage through its transformation from a VOIP-based residential phone provider to an enterprise cloud-communications company, said he aims to have a similar impact at Avaya.
“Transformations are tough,” he said during the earnings call. “But I came here eyes wide open, because I fundamentally believe that we can fundamentally improve the performance going forward.”
