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Summary

After filing for Chapter 11 under the US bankruptcy code early this year, and subsequently filing its plan of reorganization in April, Avaya has released financial results for its 2Q17 fiscal quarter. Results show relative strength in margins, earnings, and recurring revenue, but the future is still uncertain.

Mixed results leave the future somewhat uncertain

Avaya recently released the results of its second fiscal quarter of 2017, which ended March 31, 2017. Highlights include the signing of more than 1,100 customer contracts since filing for bankruptcy; an agreement to sell off the company's networking business to Extreme Networks for approximately $100m (to close shortly after July 1); recurring revenue representing more than 57% of total revenue, up from 53% year on year; adjusted EBITDA of $199m, or 24.8% of revenue, a record percentage for a second fiscal quarter; and software and services revenues accounting for 79% of total revenue, another record high. The company also reported a $97m cash flow from operations, $764m in cash, and an estimated total contract value of $2.8bn.

However, bookings for the second quarter decreased 12% from the prior quarter and 17% from the prior year, likely reflecting longer procurement cycles triggered by the bankruptcy filing. Product revenues of $348m decreased 13% from the prior quarter and 18% year on year, while service revenues of $456m had declined 4% sequentially and 5% year on year. In addition, gross margin was 59.8%, down from 60.9% in the prior quarter and flat year on year.

The submitted Avaya plan of reorganization will result in several positives following the company's emergence from bankruptcy. Avaya's pre-filing debt level will drop from $6bn to $4bn; Avaya will continue to honor and maintain its US pension plans, which make up the vast majority of its pension obligations; and Avaya will continue to honor and assume its collective bargaining agreements. However, the company, which holds approximately 30–35% of the contact center market share, will have shrunk from 20,000 employees to 9,500, and an already strong and growing competitive environment will certainly threaten its dominance.

Appendix

Further reading

"Avaya Users Group conference focused on company's restart efforts after Chapter 11 filing," IT0020-000251 (March 2017)

"Avaya files Chapter 11 bankruptcy in attempt to secure its future," IT0020-000244 (January 2017)

Author

Ken Landoline, Principal Analyst, Customer Experience

ken.landoline@ovum.com

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