Avaya has turned the corner from its days as a premise-based unified communications powerhouse. The company’s software and services hit an “all-time high” in its most recent quarter as cloud and recurring revenue continue to trend upward.
Software and services sales climbed during the company’s second fiscal quarter and now accounts for 90 percent of the company’s revenue, up from 88 percent year over year, Jim Chirico, president and CEO of Avaya, told CRN following the company’s second-quarter 2021 earnings call on Thursday.
“Clearly, we’re a software and services company,” Chirico said. Avaya’s goal is to get that percentage up to the mid-90’s and grow its recurring revenue to account for more than 70 percent of its business, he added.
The company’s cloud and recurring revenue growth is indicative of the structural investments Avaya has been making over the last few years, which are starting to “reshape” the company’s revenue portfolio, Chirico said. “Knowing we have this continuous revenue stream coming in -- in fairness, that’s [helped] in getting us through not only the last 15 months or so with COVID-19, but also, the amount of dollars it takes to transition your company to cloud. Being profitable is extremely important and having that continuous revenue stream goes a long way.”
Cloud, Alliance Partner and Subscription (CAPS) revenue grew every quarter of 2020 and continued to tick up during the first two quarters of 2021. CAPS revenue now accounts for an impressive 40 percent of Avaya’s total revenue compared to 18 percent in the second quarter of fiscal 2020 and 34 percent last quarter. What’s more, Avaya said during its first quarter of the year that it expects Cloud, Alliance Partner and Subscription to represent between 35 and 40 percent of Avaya’s total revenue in fiscal 2021 and has since raised that metric to 37-40 percent based on the segment’s continuing growth.
Chirico called CAPS a “proxy” for new and emerging, high profit solutions for the company and the segment is seeing great adoption, he added. The company’s recurring revenue accounted for 66 percent of the mix, up from 64 percent a year ago, and Avaya’s partners have been critical in driving that uptick, Chirico said.
The work-from-anywhere trend, which isn’t going away, is driving new opportunities for Avaya, Chirico said. “A couple of years ago we really did position our portfolio to more of a cloud consumption, recurring revenue, AI-oriented technology portfolio and we did that when these were emerging technologies. Now with the pandemic, they’re front and center,” he said. “We’re more than poised to take advantage of this opportunity for the foreseeable future.”
Avaya in 2020 started to see a big change within its cloud annual recurring revenue metric, OneCloud ARR, which was up 31 percent sequentially during its fiscal 2021 second quarter, to US$344 million. OneCloud ARR includes Avaya’s OneCloud subscription, Avaya Cloud Office, its Communications-Platform-as-a-Service (CPaaS), Device as a Service, and the company’s private cloud offering that gives enterprises a hybrid communications option.
The second fiscal quarter, which ended March 31, marked the fourth consecutive quarter that had more than 100 deals worth over US$1 million, with 16 of those deals worth more than US$5 million. Avaya is also stealing mindshare, having added 1,500 customers -- many of which are competitive displacements -- for the third consecutive quarter, Chirico said.
Contact center, another growing part of Avaya’s business, made up 60 percent of Avaya’s recurring revenue during the most recent quarter. Chirico called contact center “a great opportunity with great growth potential” for partners for both private cloud and public cloud options. Avaya’s contact center offering is available in 40 countries currently and will be available in 60 countries by the end of 2021, Chirico said.
Avaya posted revenue of US$738 million, up 8.2 percent compared to the second quarter of fiscal 2020, marking its fourth consecutive quarter of year over year revenue growth. The Durham, N.C.-based company’s non-GAAP net income was US$72 million, up from US$59 million a year ago, and equal to 74 cents a share.
Despite revenue growth across segments and overall, Avaya Holdings still came up short on Wall Street’s predictions of 75 cents per share. Avaya also missed on guidance. Avaya predicts that sales will range from US$720 million to US$735 million in Q3, with profits from 66 cents to 73 cents, a prediction that falls short of analyst expectations 80 cents per share.
Avaya’s stock fell sharply on Thursday after the company’s Q2 2021 earnings call to US$25.90 per share, a decline of 13 percent.