Specialist
Former director at Avaya Holdings Corp
Agenda
- Trends and developments in Avaya’s (NYSE: AVYA) operating environment – UCaaS and CCaaS growth dynamics and market opportunity
- Business vitality analysis, considering challenges to Avaya's subscription revenue growth, reputational and associated churn risks to UCaaS and CCaaS competitor sets
- Near-term business realignment plans, including efficacy expectations around cost reduction initiatives and go-forward business plans
- Long-term growth – financial vitality, ability to right the business's trajectory and Avaya’s viability as a possible acquisition target
Questions
1.
Could you provide an overview of Avaya’s operating environment, highlighting 2-3 key trends or drivers the investment community should be attuned to?
2.
Avaya reported revenues of USD 577m in Q3 FY22, down 20% YoY. Digging deeper, there was a USD 64m miss in subscription and USD 43m miss in CAPEX licensing declines. How are you thinking about those results? Were you at all surprised by the level of those declines?
3.
How much of Avaya’s revenue declines in on-prem and CCaaS were rooted in customer caution, not just around the company’s near-term maturities but its overall transition or vision to moving to the cloud? Have on-prem customers more susceptible to churn to competitors?
4.
What is your holistic overview of the Avaya OneCloud product and solution suite? What are the strongest and weakest elements of that solution suite itself?
5.
CEO Alan Masarek has talked about this theme of innovation without disruption. In the CCaaS space in particular, Five9 is quite keen on touting its ability to facilitate a quick deployment with limited downtime. Do you see that as a key factor in assuaging the more hesitant, on-prem customer of Avaya’s install base? Do you think that also addresses some of the go-to-market problems that the company has historically had, as you alluded to earlier?
6.
A specialist in a previous Forum Interview [see Genesys – CCaaS Market Environment & Growth Outlook – 2 November 2022] noted that, for some time Genesys, Nice, and even Five9, have been having exceptional success in attacking and poaching Avaya’s six-million-agent install base. What is the company’s ability to maintain that base, particularly after the reputational bruising its experienced, and stave off attacks from a Genesys or Nice, especially in that 400-seat-plus enterprise customer environment?
7.
How do you think Avaya’s channel strategy will ultimately evolve under Alan Masarek and John Lindsley, the VP of Channels? The company brought in a lot of its channel partners to reorganise that strategy, but do you think it will be successful in switching that view that these channel partners have had, from farming an account to hunting new logo growth?
8.
Avaya signed a strategic partnership with Uniphore in October 2022, alongside a few others. The company has touted the idea of driving innovation across the OneCloud suite of solutions. Do you think maybe that perception is beginning to change across its customer base as well? Do you think it’s a step in the right direction to retain the company’s customer base?
9.
Avaya has spoken to this idea that the revamped product roadmap will largely be driven by their omnichannel Avaya Experience Platform, which will be the centrepiece of its cloud strategy going forward. Do you think that’s the right strategic move, and do you think the company has done enough to simplify its product roadmap?
10.
Avaya is targeting USD 250m in cost reductions. Do you think that will be enough to stabilise the company’s cash flow challenges and also potentially meet its June 2023 USD 350m convertible notes maturities?
11.
Recently, RingCentral tapped advisers for talks with its partner Avaya regarding over more than USD 300m in contract liabilities. What is the risk that the company will ultimately have to pay back prepayments it received at the onset of that relationship? How are you more broadly thinking about the relationship dynamics of that partnership itself?
12.
Do you think the RingCentral partnership ultimately impeded Avaya’s migration to a subscription-based revenue model, given the conflicts we see with Cloud Office solution with other product roadmaps? We also saw the discontinuation of IP Office cloud, which, at the time of the partnership’s beginning in October 2019, had been gaining market momentum in the mid-market. Is that something you take into consideration at all, that the partnership may have hindered the company’s progress towards a subscription-based revenue model?
13.
What evolutions would you expect to come from the RingCentral partnership, given the financial woes and implication of bankruptcy that Avaya is potentially facing here, alongside industry headwinds? How might that alter the dynamics of that relationship?
14.
Avaya has one of the largest install seat bases at 100 million. Of that number, how much would you estimate is convertible to a OneCloud subscription in the medium-to-long term? What are your thoughts around Avaya Spaces and that solution offering itself?
15.
Do you think there is a willingness from Avaya to build out the Spaces product? I think Omdia Research echoes some of the points you’ve made, that the company has made several feature enhancements across the intelligent video meeting platform itself. Is there a point where you could see it competing with a Zoom, a Microsoft or Cisco? Just from a capability-to-capability perspective, how would you assess Avaya’s ability to keep pace with investments that a ZM or a Cisco has made into their offerings?
16.
Given some of the elongated sales cycles and lower initial deal offerings we’ve seen across the industry, do you think Avaya would be better-positioned to modernise its on-prem base, rather than re-strategise those channel partners to optimise new logo growth?
17.
Florius, a leading mortgage lender based out of the Netherlands with complex workflows, recently chose Avaya as its, provider citing the company’s rich history and ability to deal with complex workflows. Do you think the experience and history of Avaya’s incumbency as a legacy provider on the CC and UC side benefits it relative to competitors we’ve discussed, particularly as we think about the markets’ continued move from private to public and hybrid cloud solutions?
18.
Where would Avaya be best positioned to focus on its product roadmap going forward? Secondly, as we think about potential innovative functionalities that become further embedded into the company’s CCaaS offering, how should we think about the potential for ARPU pricing improvements?
19.
You alluded to cultural stagnation at Avaya prior to Alan Masarek entering the picture. Can you unpack that further? Do you think Masarek will be able to drive the cultural revitalisation he’s seeking to imprint across the organisation? If successful, how beneficial do you think that will be towards innovating and stabilising the business itself?
20.
Is there any potential for Avaya to creatively look at acquisition opportunities, maybe not necessarily through cash, given the company’s constrained cash flow, but through strategic arrangements, similar to what Google did with UJET in March 2022? What strategic moves do you think would help the company achieve its long-term vision of a profitable subscription-based model?
21.
In the best-case outcome where Alan Masarek stabilises the company, satisfies creditors, and drives the company’s product growth roadmaps forward, is there a scenario where you could see Avaya as a potential M&A target itself? What is the likelihood of that occurring and, if so, what competitor would make the most sense as it relates to where the interest might come from?
22.
What’s your long-term outlook for Avaya? You mentioned you don’t see the company going into chapter 11, but is there a scenario where you see it driving this turnaround narrative successfully?
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