Avaya has released details of its projected Q4 earnings, with its quarterly GAAP revenue set to fall to $480MN at best.
At worst, this figure could sink to $460MN.
In Q4 of 2021, Avaya’s revenues reached $760MN. As such, these figures represent a 36.8 percent revenue slump – in the best-case scenario.
Such a decline is much steeper than the 13 percent the vendor recorded in Q3.
Unfortunately, Avaya has yet to hold an earnings call with more precise figures, despite NASDAQ estimating that the vendor would do so on December 12.
The vendor also failed to announce an upcoming earnings call date.
Instead, Avaya released a 108-page business update, with a financial overview and earnings estimates, from which these figures stem.
Other Standout Insights Within the Update
Interestingly, the business update includes more insight into how new CEO, Alan Masarek, is right-sizing Avaya down to its current revenues.
In doing so, the vendor aims to achieve $524M in Targeted Run Rate Savings by Q1 of 2024.
Such savings stem from its new “Software & Support” Offering Structure. This comes with three sales motions: Premise Software, Cloud Software, and a Customer Cloud Journey that sits in between. The latter is the result of Masarek’s “innovation without disruption” vision.
The Customer Cloud Journey provides on-premise customers – which wish to harness elements of the cloud – this capability through CCaaS OTT (a la carte) and/or version upgrades.
The offering comes as a managed service and/or on an enterprise cloud infrastructure, which harnesses Aura and Elite on Azure.
Planning around this structure, Avaya seems set to remove several products from its portfolio, which it has yet to disclose publicly.
Indeed, the vendor blurred out a bullet point list of products it is set to cull. In total, the list was 34 bullet points long – as highlighted below – so it seems ready for a significant transformation.
By eliminating these offerings and their associated costs, the vendor plans to optimize its overall development spend.
Such R&D spending will drop by 16.7 percent in 2023, from $238M to $204M. Yet, notably, the percentage of this budget spent on contact center innovation will increase from 54 to 64 percent.
Indeed, Avaya – especially with Genesys ditching its hybrid CCaaS solution in October – likely senses an opportunity in the burgeoning CCaaS space.
Compounding this point, Avaya released 50 new CCaaS capabilities in the past three months, including external contact routing, speech analytics support, and many WFM features.
These examples demonstrate fast, targeted innovation, which may offer some hope for Avaya.
Reasons for Hope at Avaya
Any divergence from the traditional earnings call structure is typically a worrying sign. Yet, as Avaya’s business update highlights, it still offers a significant go-to-market and customer reach.
Indeed, the vendor works with approximately 90,000 customers in 190 countries, with almost 90 clients within the Fortune 100.
Moreover, Avaya has a base of 4,500+ partners, boasts 4,200+ patents and applications, and serves all consumption models for cloud communications.
Such consumption models differentiate Avaya from many CCaaS leaders – including NICE, Genesys, and Five9 – which only offer public cloud CCaaS.
In addition, its hybrid cloud offering could strike a chord with large enterprises that want to keep particular elements of their ecosystem on-premise.
Many of these are still on-premise. Nevertheless, Avaya predicts that 52 percent of its client base will transition to the cloud by 2026, compared to just 19 percent at the start of 2021.
Such a move will increase revenues. Yet, the vendor must stave off efforts from other vendors targeting its extensive legacy base.
Indeed, particular providers – including NICE – have engaged in somewhat misleading campaigns to do precisely that.
Of course, Avaya’s debts also remain a thorn in its side. Yet, the vendor estimates it will end the year with $253MN in unrestricted cash. This excludes cash in escrow and $90MN in asset-based lending.
While Avaya must repay $250MN in debt in six months, these funds should allow the vendor to keep innovating without disruption, engage more legacy customers with its cloud proposition, and build confidence in its future.