Former senior executive at Avaya Holdings Corp
- Trends and developments in Avaya’s (NYSE: AVYA) operating environment – UCaaS and CCaaS growth dynamics and market opportunity
- Avaya OneCloud portfolio and cloud-based recurring revenue model strategy, including go-to-market and incentives to negate churn risk
- Partnership and alliance ecosystem, highlighting Avaya-RingCentral (NYSE: RNG) relationship and risk of Microsoft (NASDAQ: MSFT) evolving from co-opetition to competitive threat
- Long-term growth – financial vitality, ability to achieve profitability by FY24 and Avaya’s viability as a possible acquisition target
Could you give an overview of Avaya’s operating environment? What 2-3 key trends or drivers are you paying attention to that you feel the investment community should be attuned to as well?
Could you categorise the market opportunity for UCaaS providers given that you highlighted a CAGR between 8% and 12%? How do you expect the hybrid work environment to evolve, if we consider a UC opportunity of 450 million historical PBX [private branch exchange] on-premise seats at play and only minimal cloud penetration? What UCaaS penetration rate do you think is possible over the coming years?
Are you seeing any growth headwinds or demand challenges in the UCaaS market? Is the macro environment creating broad-based slowdowns in UCaaS product or customer cloud adoption, longer sales cycles or just overall hesitancy in customer conversations and conversions?
Could you outline the positive upside entailed in the shift from a licensed to a subscription-software-oriented model? How would you assess Avaya’s overall ability to execute on that strategy?
You noted Avaya’s CEO, Jim Chirico, referencing a 100 million UC seat opportunitys. I think 33% of those are currently paying maintenance. How many seats do you think Avaya can successfully migrate to its OneCloud subscription model?
How many seats do you think ultimately end up selecting an Avaya private cloud solution or Avaya Cloud Office?
Avaya’s partnership with RingCentral is still in the early innings, as you alluded to. Could you elaborate on the benefits or negatives of that partnership and the new logo growth opportunities it provides?
The primary go-to-market strategy with Avaya Cloud Office seems to be going deep as opposed to wide. What are the advantages and disadvantages of such an approach? What portion of the Avaya IP Office install base – which I think is around 20-30 million seats – do you think the Avaya-RingCentral partnership can address?
I think Avaya has noted around 12% of its overall install base has been moved to a part of its OneCloud offering. How would you characterise Avaya’s ability to accelerate and scale that metric? What incentive levers can the company pull – such as feature functionality or price credits – that might be returned for CAPEX licences?
Could you elaborate on Avaya’s ability to convert its existing install base into ARR opportunities? What’s to stop a customer from simply working with an alternative UCaaS or CCaaS provider, particularly given Avaya lacks a historical track record in providing a cloud offering?
Do you expect Avaya’s credits incentive to translate to greater success retaining mid-market-to-large enterprise customers, if we’re talking about greater than 400 or 1,000 seats?
How would you estimate the mix between existing customer migrations and new logo growth, as we consider future improvements in ARR?
Could you outline the evolution of the CCaaS solution environment and Avaya’s ability to address the growing market for cloud contact centres?
How would you assess Avaya’s OneCloud growth in the CCaaS space and the ability to introduce innovations, such as intelligent contact centres, and incorporate other innovative technologies within its CCaaS offering?
Avaya seems to have transitioned more to a contact centre business, echoing your thoughts there, with CCaaS now close to around 45% of the business compared to 30% in 2019. How might that percentage evolve over the next 12-18 months? What portion of its contact centre install base do you expect to remain on-prem vs move to private and public cloud solutions?
Could you elaborate on ARPU in UCaaS vs CCaaS?
You mentioned Avaya hasn’t partnered with anyone in CCaaS and is looking to go it alone. That said, the company did announce relationships with Alcatel-Lucent and Microsoft in Q2 2022. How might that impact the company’s go-to-market efforts, appreciating these partnerships are still in their infancy? How would you assess Avaya’s ability to accelerate the ramp of those partnerships?
How are you thinking about Microsoft’s strategy and evolution in the CCaaS and UCaaS space? It seems there’s largely a co-opetition dynamic with Microsoft and players such as Avaya, as well as other UCaaS and CCaaS providers. In mid-July 2022, Microsoft unveiled its Digital Contact Center Platform at its Inspire conference. Could the company eventually pose a major threat to CCaaS and UCaaS competitors such as Avaya, as it accelerates its footprint through acquisitions along capabilities such as conversational AI?
What R&D investments and capabilities could best augment Avaya’s broader OneCloud go-to-market strategy? We discussed CAPEX vs OPEX as well, and I think Avaya had noted elevated levels of investment required to achieve ARR-specific targets. Do you think Avaya could achieve those targets with lesser levels of investment in OPEX?
Avaya recently secured USD 600m in financing to cover upcoming debt maturities. How optimistic are you that the company will achieve it’s OneCloud subscription revenue model vision, particularly given the leveraged state of the balance sheet and as the company burns through free cash flow, which I think accounts for 7% of annual revenue right now?
What are your expectations for Avaya’s path to profitability? I think Avaya’s management team has highlighted FY24 as the point where it turns the ship around. Does that align with your thoughts and, if so, why? Are you also confident in its ability to grow revenues beyond FY24?
Are there any potential scenarios in which you could envision Avaya being acquired? Why or why not, and if so, who do you think would be most well-suited to target Avaya and embark on that acquisition?
How would you assess the ability of Jim Chirico and Avaya’s broader senior leadership team to successfully navigate and facilitate the structural transformation to a subscription cloud-based revenue model?
What is your best- and worst-case outlook for Avaya over the next 18-24 months?
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