Exciting times are in the pipeline for Avaya lately. The leading technology company has faced several challenges making the transition into the UC and software space while battling against the complexities of filing for chapter 11 bankruptcy protection. Recently, the brand revealed that they would be taking yet another transformational step into the future, with the announcement that Jim Chirico is taking over as CEO, as Kevin Kennedy steps down in October of this year.
To help get a feel for where Avaya is headed, and what the future looks like from their perspective, I scheduled time for a quick, exclusive interview with Bill Sherry, the VP of Finance.
How Does Current Trading Look for Avaya?
The first thing I wanted to know from VP of Finance, Bill Sherry, was more about the trading results that had been revealed in the latest press release. I asked him to discuss the third-quarter results with me in “plain English”, highlighting how the future looks for Avaya based on current financial success.
Bill commented that the ultimately, the future looks bright. “The revenue is expected to be in the range of about $802 million to $804 million, which is basically flat. As always, business is competitive and tough, but you can see that we’ve had a relatively stable quarter over quarter – and that’s a positive thing.”
It certainly seems that Avaya is moving in the right direction. Using EBITDA, Avaya have shown that their operating efficiencies have grown to a range of about 25.1 to 25.7. That’s a significant improvement over the last quarter, and the previous year. In other words, the brand has been able maintain good revenue stability and a good EBITDA percentage. Bring all the numbers together, and it’s easy to see how Avaya have continued to maintain the confidence of their customers – even during a precarious time.
What’s Happening with the Debt?
If you’ve read up on some of the press releases that have emerged in recent months about the Avaya debt, you’ll know that the concept has caused a great deal of confusion and uncertainty among stakeholders and partners for the company. I was keen to find out what Bill thought about the state of the Chapter 11 bankruptcy filing at this time, and where the business was headed now.
Bill reminded me that one of the primary reasons Avaya moved into chapter 11 on the 18th of January, was to overcome the strain caused by almost $6 billion in debt. As part of the plan they filed with the courts, Avaya would be able to reduce that debt to $2.9 billion, while the debt holders for the remaining money exchanged their debt for equity in Avaya. “We’ve already established an agreement from the first lein debt holders to ensure that we end up with a huge debt reduction as we emerge.”
I wanted to know whether the remaining debt was serviceable, from Bill’s point of view, as Avaya moved forward. He commented that the company feels confident about the upcoming change. “From an EBITDA perspective, the debt comes out at around $2.5 million, which is line with many other companies out there today – and totally serviceable. One of the key outcomes of our debt reduction plan is that we’ll gain more than $200 million in interest reductions. We were paying $400 million in interest prior, and now that amount will be closer to $200 million.”
Bill also happily pointed out that Avaya, at this time, has no plans to sell off any additional parts of the business, beyond the networking sector. The company has a plan for a UC future in place, and no need to sell off any more assets.
What’s Going on In Terms of Employee Pensions?
One of the major discussions around the chapter 11 bankruptcy filing for Avaya, has fallen around the concept of pensions, and what employees can expect from the business. I was eager to know what comes next from the perspective of Avaya employees – and whether their pensions are protected.
In a statement Avaya said the proposed settlement with PBGC is a positive and beneficial outcome for its stakeholders. Under the settlement, APP participants will continue to receive their full pension payments, and Avaya believes PBGC-guaranteed benefits will be consistent with benefits otherwise provided under the APPSE for the substantial majority of beneficiaries.
Business as Usual? Or Will Avaya be Changing?
As Avaya continues to transform, I was interested to find out what we might expect to see from the company after the emergence plan has been agreed upon. I asked Bill whether the future would be “business as usual”, or whether there’d be some significant changes in the way Avaya trades.
Bill noted that Avaya has been continuing their investment into their products – particularly in the software and services sector – throughout chapter 11. They’ll be continuing this process in the future, but they believe that the final agreement from chapter 11 will be a hugely positive thing for the company, as it will remove much of the uncertainty that partners and customers might have had.
“I think we’ve done very well from an operating perspective, but the next step will be to remove uncertainty from a financial perspective.”
Avaya will continue to invest in products like Breeze, Oceana, Equinox, and their Cloud service offerings. Since they’ll have a better balance sheet and more cash, they believe that they’ll be able to really start boosting their competitive space in the market and deliver exciting new solutions for customers.
The Timing of the CEO Change: What Does It Mean?
Of course, some of the latest news to hit the market about Avaya is all about CEO Kevin Kennedy stepping down from his position as CEO, and handing the reigns over to Jim Chirico. I wanted to know whether there was anything relevant about the timing of the transition.
Bill told me that there was no unique event that generated Kevin’s decision to step down. The choice was a personal one, and Kevin’s going to be staying with Avaya through to October 1st – which happens to be the start of the company’s fiscal year.
“Right now, we believe we’re well on our way from an emergence point of view, and Kevin has helped to shepherd us through that process. From a succession planning perspective, the change has been in place for a while now. Jim Chirico is a seasoned executive – not just in Avaya, but in the industry on a whole.”
From a transitional perspective, it’s easy to see why the CEO change is good timing. As Avaya moves forward to a new financial year, and the next step in their emergence from chapter 11, what better time for the business to embrace a fresh start?
Finishing Thoughts
Bill finished our interview by noting that, in any business, uncertainty can be a difficult thing to manage. Right now, Avaya are taking steps towards a solution that will remove that uncertainty, but it’s safe to say they have a lot of hard work in front of them. There are still conversations to be had with the courts, lien holders, and accounting.
“We’ve got a lot of work to do, but we feel that this is a good step in our ability to emerge and compete in the marketplace with Avaya’s first-rate products and services. We’re looking forward to this being the first major step into our future.”
