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Avaya Still on the Block, Resolution May Come Soon
All’s quiet on the Avaya buyout front — for now. Give it another month, though, and the company hopes to have brought its go-forward planning to a conclusion, as CEO Jim Chirico stated during yesterday’s third-quarter 2019 earnings call.
“At this time,” Chirico stated, “we are in advanced discussions with multiple parties on a range of strategic transactions to maximize shareholder value. We expect to bring this process to a conclusion within the next 30 days.”
As regular No Jitter readers and Avaya watchers will recall, Chirico acknowledged during the company’s previous quarter’s earnings call that it had engaged J.P. Morgan to assist in its evaluation of options. At the time, he said the board hadn’t set a timetable for the process, noting that Avaya “does not intend to provide updates unless or until it determines that further disclosure is necessary.”
That confirmation, which came in early May, gave credence to the springtime speculation that Avaya was on the hunt for a potential buyer — and kicked off additional conjecture as to potential suitors. On No Jitter, we asked: Could Avaya be headed toward a leveraged buyout? And, Could Mitel be interested in picking up Avaya? And No Jitter blogger Dave Michels of TalkingPointz, put together a short list of potential acquirers featuring Hewlett-Packard Enterprise, Salesforce, Microsoft, Oracle, and RingCentral.
During yesterday’s call, Chirico provided no further details on the discussions, but in response to a question on how the company is dealing with ongoing uncertainty about its fate, gave kudos to the Avaya sales team for “staying focused on the task at hand” in delivering solutions to partners and customers. In particular, he cited “two landmark contracts” with the federal government that came in this month and last.
The first new contact — a competitive displacement — comes from the Social Security Administration, which signed a 10-year deal, valued at up to $400 million, to modernize its UC and contact center infrastructures: 100,000 UC ports, 1,600 field offices, and 12,000 contact center agents, Chirico said. In the second new contract, Avaya will provide FedRamp-certified cloud services across multiple agencies. The value of this contract could be several hundred-million dollars, he said.
“Not only do these represent some of the largest wins in the history of Avaya, but more importantly, they serve as proof points regarding our strategy, the sound investments we are making in innovation and our product portfolio, and in our ability to execute,” Chirico said.
Avaya won these contracts in partnership with services providers, which is noteworthy for the importance Avaya is placing on the role of service providers and systems integrators, Chirico added. The company’s increased focus on and investment in these channel partners is “beginning to bear fruit,” he said.
Highlights of the quarter, which ended June 30, include $3.6 million in revenue from cloud seats, Chirico reported. This includes nearly 70,000 new public cloud seats for a 170% year-over-year and 24% quarterly sequential growth, bringing Avaya’s total number of public cloud seats to more than 360,000, he added.
In private cloud, enabled by the company’s ReadyNow solutions, Avaya booked $30 million for the quarter, Chirico said.
Overall for the quarter, Avaya reported $717 million in GAAP revenue, up $8 million from Q2 and $25 million higher than Q3 2018. Non-GAAP revenue was $720 million, up $6 million from the previous quarter and $35 million lower than Q3 2018. Chirico noted during the earnings call that Avaya took non-cash “goodwill impairment charge” of $657 million during the quarter, bringing GAAP net loss to $633 million. This compares to a GAAP net loss of $13 for the second quarter, and $88 million for Q3 2018. (Click here for full financials.)