Avaya Closer to Filing Chapter 11 Bankruptcy, Again — Report

Avaya could be nearing a chapter 11 bankruptcy filing. This is in a bid to revamp its business and to overcome accounting problems.

People familiar with the matter said there was substantial doubt about the company’s “ability to continue” considering a debt maturity next year, the Wall Street Journal reported.

Earlier this week, Avaya revealed that it has reviewed restructuring proposals from competing creditor groups. One plan would “significantly reduce Avaya’s debt load through chapter 11,” the Journal reported. It would “wipe out shareholders and, pending the completion of an internal investigation into controls over financial reporting, provide directors and executives with releases from potential litigation.”

Avaya did not return a request for comment by article publication time. The company’s shares have fallen nearly 97% in 2022.

In addition, the vendor has not published its full third-quarter results, which were due in August. However, UC Today reports that Avaya did “reveal that quarter three sales were 17% below the guidance it gave the market.”

Avaya also shared that it expects quarter four revenue to be between $460 million and $480 million. This time last year, Avaya’s revenue was $760 million.

Recent Months

Avaya has undergone substantial changes in recent months. In July, it hired Alan Masarek as CEO to help restructure the company. In September, Avaya began companywide layoffs.

Avaya’s Alan Masarek

“On Sept. 6, we began initiating significant efforts toward cost-cutting measures of $225 million to $250 million this quarter,” Masarek told Channel Futures on Sept. 15. “The actions announced 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.”

Furthermore, Avaya recently suggested it will scrap several product lines to streamline its portfolio.

“We are bringing a greater level of focus on the products and services that drive us and our customers down that cloud journey,” Masarek said. “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.”

The Struggle for the Cloud

Avaya has not made any indications that it would abandon its on-premises client base for a cloud-only option for customers. However, some businesses are concerned about the cloud-centered, subscription-focused model as the answer to financial woes.

Scott Graham is CIO for Continuant, an MSP and systems integrator operating in the enterprise unified communications and collaboration space. Continuant services many of Avaya’s on-premises customers and has done so for 27 years.

Graham said Avaya’s financial concerns are hanging over clients’ heads.

Continuant’s Scott Graham

“It has caused them to think, ‘Do we need to start changing our plans and look for an exit ramp here?’” he said.

Bruce Shelby is chief sales officer and Continuant co-founder.

Continuant’s Bruce Shelby

“If Avaya once again files Chapter 11 – what we’re calling Chapter 22 [it would be the company’s second chapter 11 filing in five years] – it’s likely that most Avaya system owners will watch carefully to see if another UCaaS vendor acquires Avaya’s assets,” Shelby said. “If that is the case, they’ll want to know what such an acquisition may mean for the future of Avaya’s systems.”

Channel Futures spoke to a laid-off Avaya employee who did not want to be identified for this story. He said Avaya’s push to the cloud often equated to the company overpromising and underdelivering to clients on contract commitments.

“They should have been more realistic with the customer communication about the impacts on their commitment and dates,” he said. “The cloud offers were supposed to be …

… rigid … Avaya extended timelines and extended corporate expenses.”

Moreover, the source explained that several organizations, including government agencies, were relying on those timelines for large contact centers. The promise was that timely implementation of new technology would mean these organizations could make decisions regarding their own headcount reductions.

“In this cloud model, the need for your own internal telecommunication staff is dramatically decreased,” he said. “Instead, there was a lot more expense by Avaya to getting to the spot in a project timeline.”

The source added: “I carry that customer experience with me, sometimes, as a badge of honor … because those are the people that are paying these bills.”

Avaya’s global customer base includes top banks, airlines, health insurance providers and hotel resorts. The company covers 190 countries.

Previous Bankruptcy, Partner Relationships

In 2017, Avaya emerged from chapter 11 bankruptcy as a public company with about $350 million in cash. The company had less than half the debt (about $2.9 billion) it had when it filed earlier that year.

Gary Levy was Avaya’s vice president of U.S. channels and spoke about the company’s future at the time.

“We’re increasing both the speed of innovation and the delivery of our next-generation solutions, and that’s important because we’re looking to enable our customers and partners to be more competitive,” Levy said almost five years ago to the day. “It’s important that our customers have our solutions and our partners are competitive in the marketplace. We will be a public company for the first time in more than a decade, which really has significantly strengthened our balance sheet and cash flow, giving us more flexibility to pursue growth through both innovation and other investments.”

Five years ago, there was also less optimism.

Tom Eggemeier, now interim CEO of Zendesk, was president of omnichannel customer experience and call center solution provider Genesys. In 2017 he said that the lack of resources Avaya had been able to devote to cloud-based R&D in recent years handicapped the organization.

“It’s clear Avaya is behind in terms of innovation and delivering leading technologies, and one would have to assume that their current financial state will only compound those challenges. As a result, this is causing partners to carefully consider new vendor partnerships to best serve them in the future,” Eggemeier said at the time.

Several questions surround a potential bankruptcy this time around. Are the conditions any different than those five years ago? And with more than 90,000 customers, is Avaya too big to fail?