Avaya Answers Financial FUD
Avaya invests less than 8 percent of its budget on research and development. The company barely has enough money to keep operating and it’s on the verge of bankruptcy. Its interest alone will sink the company. That’s the word on the street, and that’s what channel partners are hearing. But it’s just not true, said Avaya’s finance head.
Matt Booher, vice president of Finance, took the stage at the Avaya Americas Partner Conference to address some of the fear, uncertainty and doubt about the company’s solvency that has been dogging its channel. The rumors, he said, are being planted by the company’s closest competitor (whose name I won’t mention but rhymes with disco).
“We realize you get questions every day from,” Booher told the audience of 400 attendees. “We are in a unique period in our business. And because we are a private company we don’t have the opportunity to show our numbers four times a year. But the numbers are more simple than they would appear.”
He noted the company had 10 consecutive quarters of growth until March, when “there were difficulties,” he said. Consequently, its third quarter was flat, but Avaya expects to report an increase in its fourth quarter earnings.
“The top line is difficult to control,” he said. “Things happen in the market.” But its gross margins increased to 54 percent in the third quarter and the company expects to report $337 million cash balance in Q4.
“The FUD I hear is we don’t have enough cash to run the business, that we’re going bankrupt, that our interest alone is unserviceable,” he noted. “That is simply not true.”
According to industry standard, a company of Avaya’s size and technology needs about $150 million to operate. Booher said Avaya has two to three times that amount — about $1 billion — in liquid assets that are not trapped in foreign jurisdictions like its largest competitor, which has publicly stated it has $35 billion cash.
“I don’t consider it a badge of honor to brag about how much money we have,” he said. “Especially in this economy where people are very sensitive to those things.”
Booher addressed the rumor that it spends less on its R&D budget than its competitor, noting that 46 percent of revenue is spent on services. “So in that respect, when looking at the company as a whole, that amount is correct. However, if you look at the R&D budget measured against product revenue it’s actually 17 percent, which is better than the industry average,” he said. “Because we have a unique blend it’s an apples-to-oranges comparison.
“If we weren’t stable we wouldn’t be growing our R&D budget,” he added.
Avaya isn’t expecting growth in its business service in fiscal year 2013, he said. “We expect to be neutral, but it’s great it we can get growth.”
That said, FY13 EBITDA should grow from a run rate of $900 million to $1.075 billion to $1.15 billion, he said. “This in a market where we don’t expect growth.”
“The bottom line is we’ve increased our R&D spend four of last five years and we’ll do it again this year,” Booher said. “And we’ve bought five companies in the last 18 months. We are not cash poor.”