EUR 870.24 For Business Accounts Only

The Corporate Restructuring Report-Avaya Holdings Corp (AVYA) Update

On December 15th, 2017, Avaya Holdings Corp (AVYA) successfully completed its restructuring plan and emerged from Chapter 11 bankuptcy.  In our note dated December 21st, 2017, we were bullish on Avaya's prospects and continue to remain so. The stock has delivered returns of ~34% since our last report. Avaya delivered solid 1Q18 results and we were impressed by a higher mix of software & services and recurring sales, which validated management's commitment to stabilize revenues. The software & services mix increased 600 bps YOY to 82% of total, while recurring revenue mix increased to 57% of total, up 400 bps YOY. The restructuring strenghtened balance sheet by eliminating over $4 billion in total liabilities. It also led to $300 million of additional free cash flow due to reduction in debt and pension expenses which should provide ample room to fund growth initiatives. 

The growing focus on cloud positions the company to benefit from increasing consumer preference toward the same.  This is evident from recent traction in the company's mid-market cloud offerings, which saw an average seat growth of 120% QOQ in FY17 and ~41% QOQ in 1Q18. The recent acquisition of Spoken Communications, a leading contact center, further strengthens Avaya's cloud offerings.  We expect margins to be supported by cost initiatives and mix shift to higher margin software & services business.  In our view, Avaya is undervalued at current levels.