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Avaya Investigates Whistleblower Allegations; New CEO Navigates Financial Challenges

Intimidation of whistleblower concept and whistle blower stress symbol representing the pressure experienced for exposing corruption with shadows of people who do not follw the rules as a red whistle shaped as a human head.

Intimidation of whistleblower concept and whistle blower stress symbol representing the pressure experienced for exposing corruption with shadows of people who do not follw the rules as a red whistle shaped as a human head.

Avaya's audit committee is investigating allegations from a whistleblower, according to an SEC filing -- though the matter appears to be separate from a major Avaya revenue shortfall that the board also is investigating.

Among the key takeaways from the August 9, 2022 filing:

  • Avaya is "unable to file, without unreasonable effort and expense, its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2022 (the “Form 10-Q”)."
  • The audit committee of Avaya's board has "commenced an internal investigation to review the circumstances surrounding the Company’s financial results for the quarter ended June 30, 2022."
  • The audit committee has "engaged outside counsel to assist in these investigations and has notified the Securities and Exchange Commission (the “SEC”) and the Company’s external auditor, PricewaterhouseCoopers LLP, of its investigations. As the investigations are not complete, the Audit Committee requires additional time to complete its initial assessments."
  • "Furthermore, and separately, the Audit Committee has also commenced an internal investigation to review matters related to a whistleblower letter that remains ongoing."

In a separate press release, Avaya shared preliminary Q3 financial results. Among the areas of concern: Revenue was $577 million, down 20% year over year in constant currency.

Moreover, a $600 million debt deal that Goldman Sachs and JPMorgan Chase recently arranged for Avaya went bad within weeks, The Wall Street Journal reported.

Avaya Removes Former CEO; Hires Vonage Veteran to Lead UCaaS Company

The Avaya disclosures come roughly one week after Avaya's board removed former CEO James Chirico from the company, and installed Vonage veteran Alan Masarek to lead the business starting in August 2022.

In a statement about Avaya's preliminary financial results and financial footing, Masarek on August 9, 2022 said:

“Our preliminary financial results for the quarter reflect operational and executional shortcomings, amplified against the backdrop of a volatile economic environment. We are taking aggressive actions to right-size Avaya’s cost structure to align with our contractual, recurring revenue business model. We have already begun operationalizing our recently announced savings initiatives and expect to identify additional areas as our work continues. At the same time, we will focus our investments on driving innovation and advancing product development for the benefit of our customers. The July 2022 financings, together with our cost-cutting initiatives, are important steps towards maintaining our financial and operating flexibility to continue to invest in our business and to sustain our business model transition. Although we have a lot of work to do, we have a tremendous foundation to build on as we become a stronger, leaner, more agile, and innovative organization."

Avaya did not specifically say if the cost-cutting involves layoffs, though that appears to be the case. Indeed, an investor presentation (see slide 20) said the company will take an $11 million restructuring charge to cover "employee separation costs and facility exit costs."

Unified Communications as a Service (UCaaS) Market: Under Pressure?

Avaya and other players in the UCaaS market are striving to manage their businesses very carefully amid recession talk on Wall Street, and potential competition from mainstream video conferencing and collaboration services such as Microsoft Teams, Salesforce Slack and Zoom.

Among the anecdotal items to note in the UCaaS market:

Take a closer look, and you’ll notice that RingCentral invested in Avaya in 2019, and RingCentral acquired certain Mitel technologies in 2021.

Elsewhere, UCaaS provider Intermedia canceled an IPO in 2021 amid “adverse conditions” in the IPO market. Shortly thereafter, NEC announced plans to invest $40 million in Intermedia.

Meanwhile, M&A activity in the UCaaS market has slowed down in 2022 after a strong showing in 2021.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.

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