Avaya CEO: Financial Issues Temporary, Recovery Coming Soon
Avaya plans to begin its fiscal 2023 with a clean financial slate.
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Channel Futures: What’s taking place now in terms of Avaya’s turnaround strategy and what’s the end goal of this process?
Alan Masarek: The North Star from a product point of view is moving to cloud around our own CCaaS solution. And then we have integration of that with our UC solution. [We work] with [RingCentral] on Avaya Cloud Office, which moves us on the UCaaS side. We’ve got some really attractive assets …
So first of all, we have a history in selling premises-based solutions, our midmarket product, IP Office; our UC product for enterprise, Aura; and our CC product, Elite. We’re unique out there. Where most competitors are all cloud, there are big swaths of customers for which premises makes a great deal of sense. So think about certain geographies in the world; we cover 190 countries. Think about verticals — health care, critical care, hospitals — and even within geographies or segments, you have governments frequently, or rural areas without great connectivity, things like that, where that premises architecture is critical to them. Then we have companies that want to go immediately to full public multitenancy cloud. The beauty is, most are somewhere in between. Most are sitting there in some sort of hybrid path, particularly when you think of these very large customers that are really the bread and butter of Avaya’s customer base. And we have effectively 90% share among large enterprises, governmental agencies and such globally. So in that world, we can provide a very unique offering, which we call innovation without disruption.
We can provide that innovation without disrupting what’s underneath. And what’s powerful about that is no competitor can do that because every competitor by almost definition is a complete rip and replace. So where we really have a unique advantage are those geos and industry segments, and types of customers who need premises. And then as folks go on some path to cloud, to do that without disruption. Finally, [there are] those who want to go immediately to full cloud; we can do that as well in both our public CCaaS solution and our public UCaaS solution, Avaya Cloud Office. That’s where we’re driving. And there’s enormous power, in my view, of being able to manage that cloud transformation on behalf of the customers. We have a very customer in-focus.
We sell through partners globally. Eighty percent of our revenue is through some sort of channel relationship. So keeping a thriving, healthy channel ecosystem and infrastructure is super important to us. They are our partner as we bring those solutions to what our customers need. Remember, we’re moving them at the pace that works for them. And there’s every size of customer, every flavor of geography, every flavor of industry in our customer base. We have 90,000 customers.
CF: What do you see that the previous CEO potentially didn’t see in terms of Avaya’s strengths and weaknesses, and where improvements are needed?
Masarek: We are bringing a greater level of focus on the products and services that drive us and our customers down that cloud journey. That focus means you need to, rather than thinking about your product portfolio as a set of discrete products, think of yourself as a platform built in the cloud that then has multiple deployment models. You could deploy it full multitenancy public cloud, or you could take effectively the same architecture and deploy it single-instance multicloud, meaning in a customer’s colocation, if that works for them; in Azure; another one of the hyperscalers, what have you. So driving being very focused about that and then the focus to say, “Which] of my standalone products am I going to stop doing so that I can put more effort behind a common initiative?” And that’s really important. That’s sort of a classic software company model. You build it once and sell it 1,000 times. That’s what we’re driving to.
John Lindsley: I would guess that from a channel partner perspective, they have really appreciated Alan’s messaging, his presence and his outreach. So we’re all here at the Avaya Partner Community Council (PCC) … where we’re listening to partners, we’re collaborating with partners, we’re identifying sets of priorities that are needed by partners out in the marketplace. And Alan is participating in all of this firsthand. And that’s absolutely not lost on our partners to recognize and appreciate that CEO-level sponsorship of how central our partner community is to our strategy.
CF: What sort of feedback have you received from Avaya’s partners and how are you responding to their questions, concerns, etc.?
Lindsley: The feedback here [at PCC] in Nashville has been positive. The vibe has been encouraging. Partners want us to win. Partners want us to succeed. Clearly, they’re hungry for information, for strategy, for product road map. All of that stuff is in progress. But there’s a really encouraging vibe of certainly with the executive presence, the content here and the vision, and where we’re taking the company. So it’s exciting to be a part of it, certainly. There’s a lot of work to do. I don’t want to undermine that. We’ve got a lot … to do, but partners want us to win. They’re rooting for us. And our role here is to make sure that they know how important they are in the strategy as we move forward.
Our partner program does an annual refresh, and that’s always a work in progress. I don’t expect dramatic changes to the program itself. But as we put things in place with regard to product strategy, road map and journeys to the cloud, certainly there are enhancements that always come along with that, but no specifics as of yet.
CF: Could more layoffs be coming? And what difference will the last round make as far as Avaya’s operations?
Masarek: So what we have said publicly is Avaya was identifying between $225 million and $250 million in cost reduction, the goal of which is to right-size the cost structure so that we would deliver positive operating free cash flow after debt service and after capital expenditure. We said that in the public earnings announcement on Aug. 9. Then we put a follow-up message out on Sept. 6 and said, “OK, we’ve achieved the top end of that range, so we’ve achieved the $250 million.” And we said we are looking to operationalize additional savings again … much more outside the United States because it just takes longer to do that because of certain notice and consultation periods, and such. And those pending changes we will accrue. We’ll identify this fiscal year, which ends Sept. 30, and accrue it so that you have a clean 2023.
CF: Are we going to be seeing any changes in Avaya’s technology road map? Are there areas where you think Avaya could do better?
Masarek: So on the road map side … the message is about being open, honest, direct and transparent. Part of that transparency is to publish road maps. So we’re going to go out very transparently in terms of what our road map is. For instance, [in] CCaaS, where it is and what features are coming in the current quarter, and we’ll publish this to partners. It’s under NDA, so it’s not going to be out there floating around on the internet, but to our partners and our customers. And then this is about developing trust by virtue of being reliable. So if we say there are going to be 10 features in a given quarter, we will deliver the 10 so the entire organization knows very clearly and unequivocally that we’re going toward this cloud product initiative — sets of initiatives — and we have collectively committed ourselves to road maps, publish them to partners and customers, and then they will come to rely on us because we will demonstrate that reliability quarter after quarter, and therefore you’ll develop that better trusting relationship.
CF: What sort of timeline are you anticipating in terms of getting back on track financially?
Lindsley: We’re talking weeks, not months. Weeks, not quarters. This is a near-term, short-term disruption. Noise is what I would call it. Noise I think was Alan‘s word that we anticipate to get up and down … in very short order. There are three elements that go along with it. It’s the ongoing lender negotiation. It is a fully funded business plan for the fiscal year. And it’s also satisfying the internal audit items with our board of directors. So those three elements are all active; they’re all underway. And we expect with confidence for those to be restored and resolved in short order.
CF: What should partners look forward to in the coming months and into 2023?
Lindsley: That’s really been the theme of why we wanted to share this meeting this week, so we get on the other side of this short-term financial noise. We’ve got the exciting product activities that are happening. We’ve got the cultural transformation that’s happening in the company. We’ve got the opportunity to improve our channel support and channel coverage, and make sure our channel partners stay central to our strategy going forward. We’ve got some challenges; we know that. But the future is bright. Our channels, partners are with us. We’re hearing some really encouraging feedback from them this week. And there’s a lot to look forward to. So it’s going to be an exciting time ahead.
CF: What should partners look forward to in the coming months and into 2023?
Lindsley: That’s really been the theme of why we wanted to share this meeting this week, so we get on the other side of this short-term financial noise. We’ve got the exciting product activities that are happening. We’ve got the cultural transformation that’s happening in the company. We’ve got the opportunity to improve our channel support and channel coverage, and make sure our channel partners stay central to our strategy going forward. We’ve got some challenges; we know that. But the future is bright. Our channels, partners are with us. We’re hearing some really encouraging feedback from them this week. And there’s a lot to look forward to. So it’s going to be an exciting time ahead.
Avaya is on the road to recovery and its financial issues should improve in fiscal year 2023, which starts next month.
Avaya’s Alan Masarek
That’s according to Avaya CEO Alan Masarek and vice president of channels John Lindsley. They fielded Channel Futures’ questions regarding the company’s financial woes and the turnaround in place. Masarek, former Vonage CEO, replaced Jim Chirico in July.
Avaya’s Partner Community Council (PCC) is meeting this week in Nashville, Tennessee. Masarek has been actively involved in the event.
Last week, Avaya began cutting jobs in North America, Central America and Latin America. That’s part of significant efforts toward cost-cutting measures of $225 million-$250 million this quarter.
Avaya Financial Issues Mount
Avaya’s third-quarter revenue was down 20% year over year to $577 million, according to its earnings report. In addition, the company carries sizeable debt, having borrowed $600 million in June. An internal investigation of the company’s board of directors by Avaya’s audit committee to review third-quarter results is underway. The committee is also examining a whistleblower letter.
Masarek tells us cost-cutting measures should be enough for Avaya to enter 2023 with a clean slate.
Avaya’s John Lindsley
“On Sept. 6, we began initiating significant efforts toward cost-cutting measures of $225 million to $250 million this quarter,” he said. “The actions announced last week are expected to provide net savings at the top-end of the $250 million that we disclosed to the U.S. Securities and Exchange Commission (SEC) in the Form 8-K. I am confident that this is a step in the right direction to correct our financial standing and lead the company into the future, and plan to begin 2023 with a clean slate as we get on the other side of the short-term financial noise.”
Scroll through our slideshow above for more from Masarek and Lindsley.
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