Avaya looks to cloud, subscriptions to stave off revenue hit

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Unified communications powerhouse Avaya’s opportunity for future success will be stronger than its past fiscal performance, and that includes the company’s third-quarter loss reported Tuesday, according to new Avaya CEO and former Vonage CEO Alan Masarek.

Avaya posted unexpected double-digit overall revenue declines for third-quarter 2022 that concerned investors, but cloud, subscription and annual recurring revenue numbers continued to climb. It’s that cloud and subscription transformation that Avaya’s been going through that will propel the company to growth and help it tap back into its massive base of enterprise customers that have yet to migrate to a hybrid cloud model, Masarek told CRN US in an interview Tuesday.

“There’s lots and lots of progress that’s underway against a very large asset base, which, in my view, you can’t replicate,” he said. “Ninety thousand customers in 190 countries is the most global of any of the companies out there.”

Avaya dropped two bombshells at the end of July when it warned that it expected a major decline in third-quarter revenue after borrowing US$600 million in June. The company also removed Jim Chirico, the company’s CEO since 2018, from his posts as president and CEO of Avaya effective 1 August and said he’d also resign as a member of Avaya’s board. Chirico will be employed with Avaya through 16 August and is working with Masarek “to ensure a smooth transition for all stakeholders,” the company said in a statement.

Cloud recurring revenue rises

Avaya’s cloud annual recurring revenue metric, OneCloud ARR, continued its climb, growing 12 percent sequentially and 97 percent year over year to $838 million in the third fiscal quarter of 2022. The company in 2021 set a goal to hit the $1 billion ARR mark by the end of 2022.

As always, the channel contributed to the majority of Avaya’s ARR during the quarter, Masarek said.

“We view the relationship with the partners as incredibly important. It’s the lion’s share of our distribution [and] it’s the majority of our revenues across the globe. So, how do we work together to jointly best serve our collective customers? My intention is to continue to invest in that and continue to promote those channel relationships,” he said.

Avaya during third-quarter 2022 signed 92 customers worth over $1 million in total contract value. “Clearly, we continue to be very strong in the enterprise,” Masarek said.

Avaya’s Cloud, Alliance Partner and Subscription (CAPS) revenue, which has climbed all year, accounted for 53 percent of the company’s revenue, up from 40 percent during the same quarter a year ago. Software and services made of 88 percent of the company’s revenue, while software was 62 percent of revenue.

Masarek’s goal is to shift more of Avaya’s portfolio to cloud-based offerings and move more customers to the cloud and a subscription-based model, he said. “The beauty here is that we’re several years into doing that.”

‘Plenty of room for progress’

There’s still “plenty of room” to progress Avaya’s base of large enterprise customers into the cloud, Masarek said.

“There’s private cloud [the business] is hosting, there’s us hosting private cloud, and then there’s a true multitenant cloud solution … The largest of the large enterprises and governmental agencies have been slower to adopt [cloud] for a whole host of reasons, like security, so it’s given us a window to develop it in a smarter way that hits our customer set where they need it since many of them are not yet ready to go fully to some multitenancy cloud solution. But over time, those trends are going to accelerate,” he said. “I think we’re still really early innings with this with our customer base.”

Recurring revenue made up 70 percent of Avaya’s revenue as customers move away from the Capex model, up from 64 percent a year ago.

For the third quarter that ended June 30, Avaya posted revenue of $577 million, down 20 percent year over year. Masarek attributed the revenue loss to “operational and executional shortcomings” set against the backdrop of a volatile economy.

Avaya’s stock plunged 21.4 percent in premarket trading Tuesday after the company reported its fiscal third-quarter 2022 loss.

This article originally appeared at crn.com

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