The Latest on Avaya’s Restructuring Plans

Charlie Mitchell

An SEC filing reveals that Avaya is taking cost-reduction steps, which will include layoffs

Avaya Analysis
The Latest on Avaya’s Restructuring Plans

With revenues falling 21 percent year on year, a new CEO at the helm, and convertible debt due, Avaya has endured a storm of disruption in recent months.

Yet, the communications vendor is not sitting around, hoping for the tide to change. Instead, it is already kicking new plans to rightsize the business into gear.

Indeed, Avaya has now submitted an SEC filing in which it claims to be undertaking a series of cost-cutting measures – which, unfortunately, include layoffs.

As a result of these measures, the vendor hopes to cut $250M in annual costs.

Discussing the potential of these changes in a recent interview with UC Today, new Avaya CEO Alan Masarek, stated: “It’s not about cutting in areas that are important, it’s about getting us aligned organizationally.”

I tell the organization: I’m not asking you to do more with less, I’m not asking you to do the same with less, I’m actually asking you to do less with less.

The extent of the cuts may surprise some, with Avaya expected to incur $23M-$26M in pretax restructuring charges relating to severance and termination benefits.

Nevertheless, the stock market reacted well, with Avaya shares gaining 24 percent on volume.

Which Roles Will the Layoffs Impact?

For now, Avaya remains coy as to where it will axe jobs. However, the central focus is removing areas of duplication across the business.

As Masarek said: “In certain instances, you might have similar functions staffed in IT, in services, and in the software product. It just lends itself to being brought together. Whereas, in the past, it was just too overly siloed, so you had redundant costs.”

These siloes perhaps blurred organizational clarity – something Masarek appears keen to re-establish by galvanizing the company behind a roadmap. This will revolve around its “cloud-based products” and “modern architectures”.

In doing so, the new CEO hopes to avoid distractions, including near-term financial noise and investments in areas that defer from its central aim. Masarek added:

Sometimes you have to lower the level of the lake, reveal the rocks, so you can deal with it and end up with a more efficient, better aligned, faster-moving company. You’ve got to bring that focus and agility, and that is what I intend to do.

As Masarek hinted, much of this alignment aims to gather momentum around its OneCloud suite, a fully-fledged cloud communications platform.

A central part of this is OneCloud CPaaS, a technology coming more into focus, allowing companies to more easily build differentiated experiences.

Avaya may also leverage its Experience Builders Program further, which has received warm reviews for enabling CX innovation.

Any restructure will likely lift these aspects of the Avaya portfolio, while marketing may enjoy additional investment – if Masarek takes a similar approach as he did when leading Vonage.

Reasons for Optimism at Avaya

Avaya’s OneCloud suite and Experience Builders Program provide two reasons for optimism.

Yet, others emerge when considering the nature of the contact center and unified communications spaces. Both still have lots of room to grow.

Recently talking to CX Today, Zeus Kerravala, Founder and Principal Analyst at ZK Research, said:

Most UCaaS and CCaaS vendors get most of their money from the US, a little bit more from western Europe, and have almost no presence everywhere else. Whereas Avaya is in 190 countries, they got 90,000 customers, a huge partner ecosystem, and a ton of patents (up to 4,400). That is an irreplaceable asset.

Moreover, Avaya’s customer base includes many stellar names within sectors such as travel, finance, and government institutions. They all depend on Avaya.

Despite this, questions remain as to whether the company will go private again or slip into bankruptcy. Yet, Masarek seems determined to steer the course.

After enjoying a conversation with him, Kerravala reported that Masarek eased anxiety in the capital structure, noting that they had $221 million in restricted cash in escrow.

As such, Avaya seems set to reach its $250 million debt due in nine months, although it still must raise some funds. The restructuring may help to achieve this.

The remaining debt is not due until 2027-2028, giving the vendor some precious breathing room from a capital standpoint.

With this, Avaya will strive to increase its revenues, currently estimated to reach $2-3 billion by the end of the fiscal year. As Kerravala stated:

They preannounced they were on a $3 billion run rate. It’s likely to be in that two, two and a half billion range, but that is a lot of money. That makes them one of the largest communications players in the industry.

Consequently, Avaya seems likely to generate a cash flow. The more pressing point for Masarek is perhaps rejuvenating Avaya’s culture and rethinking its product range.

Discover how he plans to do precisely that by watching UC Today’s full interview with him below.

 

 


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