Avaya — Investor Day (November 2015)
47 slides from Avaya's investor day presentation, Nov 12, 2015
Slide 1: Avaya 2015 Analyst & Investor Meeting
AVAYA 2015 ANALYST & INVESTOR MEETING November 12, 2015
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS Certain statements contained in this presentation are forward-looking statements, including statements regarding our future financial and operating performance, particularly our guidance regarding Q1 and full FY 16 results, planned and unrealized future savings and FY 16 e
Slide 3: Agenda
AGENDA Kevin Kennedy President & CEO Business Update Pierre-Paul Allard SVP, Sales Customer Success Dave Vellequette SVP, CFO Recent Results & Revenue Insight Jim Chirico EVP, Business Ops Operational Optimization Dave Vellequette SVP, CFO FY‘16 EBITDA Outlook Gary Barnett SVP, GM of UC/CC Product D
Slide 4: Business Update
BUSINESS UPDATE Kevin Kennedy President and Chief Executive Officer © 2015 Avaya Inc. All rights reserved. 4
Slide 5: Key Investor Day Takeaways
What You Now Know About Avaya KEY INVESTOR DAY TAKEAWAYS 1 Reinvented: approaching 75% of revenue from software and services 2 Increasingly strong competitive position 3 Demand stabilized and key investments are focused on growing markets Demonstrated EBITDA margin expansion: 4 up >700 basis points
Slide 6: A Software and Services Company
A SOFTWARE AND SERVICES COMPANY Demonstrated transformation Annualized Annualized Product Services Software & Net New Total Gross Revenue Revenue per Gross Gross EBITDA (%) Services % Promoter Customer Margin (%) Run Rate Employee Margin (%) Margin (%) of Revenue Score Acquisition Q4 $4.0B $342K 65%
Slide 7: Technology and Business Transformation
TECHNOLOGY AND BUSINESS TRANSFORMATION Then (Q4 FY‘10) Now (Q4 FY‘15) ! Hardware-centric mindset ! Software and services company ! Legacy telecom sales force ! Modernized Go-to-Market ! Legacy product portfolio ! Revamped and expanded product portfolio ! Large enterprise focus ! Enterprise and midma
Slide 8: Avaya Then and Now
AVAYA THEN AND NOW The specialists in open, mobile enterprise engagement Team Engagement Mobility • Broader product portfolio UC PRODUCTS Customer Customer Team 3rd Party • Software orientation Partner Enablement Engagement Engagement Business Global Services Solutions Solutions Applications Engagem
Slide 9: Value Creation and Differentiation
VALUE CREATION AND DIFFERENTIATION © 2015 Avaya Inc. All rights reserved. 9
Slide 10: Value We Add for Customers
VALUE WE ADD FOR CUSTOMERS Clear competitive differentiation Team Engagement Customer Engagement Networking Flexible deployment models via public, private or hybrid cloud • Seamless integration of UC/CC deployment • Protect customers’ • Improved NPS scores technology investment • Ability to roll out
Slide 11: Why We Win
WHY WE WIN • Complementary to Lync and Skype • CC only (lacks a full stack) • No software-only solution • UC only (lacks a full stack) • No engagement platform • No fabric • No engagement platform • Time-to-implement: • No engagement platform • Less reliable years vs. days • Not multi-platform • Les
Slide 12: Focused on Customer Business Challenges
FOCUSED ON CUSTOMER BUSINESS CHALLENGES Technical Trends Business Trends ! Cloud ! Increased profitability ! Cybersecurity ! Agility & productivity ! New wave of CC ! Customer experience/NPS ! Analytics ! The Millennials ! Open, mobile ! Preference of consumption model ! Google in the enterprise ! B
Slide 13: What Customers Are Saying
WHAT CUSTOMERS ARE SAYING Avaya enables enterprises to move with 10x speed “We gave [Avaya Engagement Development “I’m not an engineer, but I was dragging and Platform] to the development team and dropping, building a whole workflow for a Web literally two days later, we had video calling service, s
Slide 14: A Broad & Diverse Customer Base
A BROAD & DIVERSE CUSTOMER BASE Relevance across industries and verticals © 2015 Avaya Inc. All rights reserved. 14
Slide 15: Serving a Large Global Market
SERVING A LARGE GLOBAL MARKET 2014 SUB-MARKETS: Rank Share TEAM CUSTOMER Unified Communications [1] 2 23% ENGAGEMENT ENGAGEMENT Telephony Systems [1] 1 21% SME Telephony Systems [1] 1 25% Unified Messaging [3] 1 39% Mobile Voice and UC Client [4] 3 16% FABRIC-BASED SERVICES Contact Center/ACD [2] 1
Slide 16: Diversifying from Enterprise UC
DIVERSIFYING FROM ENTERPRISE UC UC market has been in transition for several years Avaya Total Revenue Declined Less Than UC Market Avaya Maintained Line Share 25 22.0 2014 2015 19.8 19.7 19.5 19.8 20 18.5 18.0 15 16.6 16.8 17.1 -4.5% -6.6% 10 -8.2% -10.2% 5 0 Market Change (Revenue) Avaya Reported
Slide 17: Initiatives Focused on Growth Opportunities: Products
INITIATIVES FOCUSED ON GROWTH OPPORTUNITIES Products MIDMARKET NETWORKING CONTACT CENTER ! Fully scalable portfolio ! Unique offerings ! Omnichannel workflow automation ! New offerings ! Cloud attachment ! Leverage UC/CC convergence ! Premise and cloud ! Midmarket attachment ! Refresh cycle underway
Slide 18: Initiatives Focused on Growth Opportunities: Services
INITIATIVES FOCUSED ON GROWTH OPPORTUNITIES Services CLOUD PROFESSIONAL CUSTOMER CARE ! Drive from overlay to theaters SERVICES ! New commercials – ! Focus on target deal size ! New prepackaged offers Enterprise license agreement ! Improve cycle times ! Higher attach rates ! Improved renewal practic
Slide 19: FY'16 Begins New Product Cycle
FY‘16 BEGINS NEW PRODUCT CYCLE Midmarket Enterprise • Leader in Gartner magic quadrant • Leader in Gartner magic quadrants: • Unified Communications for Midsized • Corporate Telephony (10th year) Enterprises in North America • Unified Communications (7th year) • First magic quadrant focused on • Con
Slide 20: Investments and M&A Complement R&D
INVESTMENTS AND M&A COMPLEMENT R&D Driving increased integration and accelerating product relevance © 2015 Avaya Inc. All rights reserved. 20
Slide 21: Go-to-Market Investments
GO-TO-MARKET INVESTMENTS Transformation of coverage models to drive growth ! FY‘15 sales investment was 2% of reported revenue above target model level ! Rebuilt direct coverage in enterprise ! Evolving consultative services mix with movement to OpEx/Cloud models ! Driving midmarket opportunities !
Slide 22: Partnerships Drive Opportunity
PARTNERSHIPS DRIVE OPPORTUNITY Aligned with IT leaders © 2015 Avaya Inc. All rights reserved. 22
Slide 23: Leading Indicators
LEADING INDICATORS Longer-term customer commitments drive demand Total Demand Under Contract ($M) $3,500 ! Total demand grew 1% YoY $3,000 ! Recurring revenue mix and average contract term increasing $2,500 ! Q4 FY‘15 YoY bookings growth $2,000 – US and Americas International $1,500 – Cloud & Manage
Slide 24: Delivering Unmatched Solutions
DELIVERING UNMATCHED SOLUTIONS Avaya can help customers achieve: ! Best-in-class Net Promoter Scores ! Operational cost savings in excess of $1B for enterprise contact centers ! Scale for new, growth companies ! Reliable foundation for public safety (911, 311, 112) ! Breakthrough innovation to serve
Slide 25: Customer Success
CUSTOMER SUCCESS Pierre-Paul Allard Senior Vice President Worldwide Sales and President Global Field Operations © 2015 Avaya Inc. All rights reserved. 25
Slide 26: Burj Khalifa
BURJ KHALIFA Breakthrough speed to deploy; tallest fabric ever built Avaya Business Value ! Business continuity for the most complex environment in the world ! Security - Separation of services - Multi-tenancy support ! Breakthrough speed to delivery and services © 2015 Avaya Inc. All rights reserve
Slide 27: Teleperformance
TELEPERFORMANCE Confidence and speed to results Avaya Business Value ! Breakthrough speed in hours vs. years – Delivered in 2 days; Competitor struggled for 2 years ! Enabling mobile applications to interact with CRM ! Enhancing CRM with mobile applications © 2015 Avaya Inc. All rights reserved. 27
Slide 28: Recent Results & Revenue Insight
RECENT RESULTS & REVENUE INSIGHT Dave Vellequette Senior Vice President and Chief Financial Officer © 2015 Avaya Inc. All rights reserved. 28
Slide 29: Financial Results
FINANCIAL RESULTS ($M constant Fx) Q4 FY‘14 Q3 FY‘15 Q4 FY‘15 Q4 FY‘15 Non-GAAP Actual Actual Actual ! Grew revenue sequentially Revenue $1,091 $996 $1,008 ! Record gross margins Gross Margin % 60% 60% 62% ! Strong EBITDA performance ! Executed against operational Oper Expense % 40% 43% 42% improvem
Slide 30: Year-over-Year Revenue
YEAR-OVER-YEAR REVENUE Q4 FY‘15 was 5% lower than Q4 FY‘14 normalized for professional services ! H2 FY‘14: professional services management identified $48M of aged professional services projects in backlog ! Q4 FY‘14: $31M aged projects recognized for revenue; Q1 FY‘15: $17M aged projects recognize
Slide 31: Revenue Decline Decelerates: Approaching Stabilization
REVENUE DECLINE DECELERATES: APPROACHING STABILIZATION Year-over-year change in constant currency Q1 Q2 Q3 Q4 FY‘14 (6%) (2%) (6%) (6%)* FY‘15 (5%)* (3%) (2%) (5%)* FY‘16 (3%)* *Normalized for aged PS project backlog closure; FY‘16 represents midpoint of guidance. © 2015 Avaya Inc. All rights reserv
Slide 32: Evolving Revenue Composition
EVOLVING REVENUE COMPOSITION Shift to software and services % of Revenue Commentary: 100% ! Software & Services: 90% Hardware – Q1 FY‘13 67% vs. Q4 FY‘15 72% 80% 70% ! Recurring revenue: 60% – Q1 FY‘13 44% vs. Q4 FY‘15 50% 50% ! Maintenance stabilized Services 40% ! Cloud & Managed Services growing
Slide 33: Flagship Revenue Increasing
FLAGSHIP REVENUE INCREASING Flagship exceeds core for the first time for the full year 100% 90% Q4 FY‘15 % of Total 80% 70% Flagship 49% 60% 50% 40% Core 43% 30% 20% 10% Legacy 8% 0% FY'13 FY'14 FY'15 Note: Flagship includes: Video, Avaya Aura®, IP Office, leading edge Contact Center, Wireless LAN,
Slide 34: Revenue Changes
REVENUE CHANGES Full year FY‘15 revenue details $4,500 FY15 vs FY14 Commentary $4,000 Networking Networking grew 5% in Q4 FY‘15; $3,500 (3%) Products fabric growing significantly faster** $3,000 UC Products (8%) UC business transitioning $2,500 CC grew 6% in Q4 FY‘15**; CC Products +3% refresh cycle
Slide 35: UC Business Transitioning
UC BUSINESS TRANSITIONING Hardware Shift to Cloud & Enterprise to Software Managed Services to Midmarket $1,600 $900 ! Fully scalable portfolio $1,400 $800 ! New offerings $700 ! Premise and cloud $1,200 $600 ! New partners $1,000 $500 ! New economics $800 $400 $300 $600 $200 $400 $100 $200 $0 Q4 FY
Slide 36: Maintenance Base Stabilized
MAINTENANCE BASE STABILIZED Recurring Maintenance Revenue ($M) $400 Initiatives For Growth: $350 ! New commercials – Enterprise license agreements $300 ! Improved renewal practices $250 ! Increasing POS attach $200 ! Software model governance $150 ! Partner model evolution $100 $50 $0 Q4 FY'14 Q1 FY
Slide 37: Networking Growth Accelerating
NETWORKING GROWTH ACCELERATING Transition from prior generation products nearly complete $60 450 400 Number of Deployments $50 350 Revenue ($M) $40 300 250 $30 200 $20 150 100 $10 50 $0 0 Q1 FY'14 Q2 FY'14 Q3 FY'14 Q4 FY'14 Q1 FY'15 Q2 FY'15 Q3 FY'15 Q4 FY'15 Note: Amounts are as reported. Fabric-Ba
Slide 38: Illustration: Revenue Inflection Scenario
ILLUSTRATION: REVENUE INFLECTION SCENARIO Revenue FY‘15 Productivity $4,200 Go-to- Revenue UC Midmarket Market $4,050M Decline Cloud PS Networking +10% +3% CC +10% $4,000 +5% -$120M $3,800 Q4 FY‘15 TRENDLINE FY‘16 EXECUTION $3,600 $85M INITIATIVES $80M $3,400 $3,200 $3,000 Note: For Illustrative pur
Slide 39: Operational Optimization
OPERATIONAL OPTIMIZATION Jim Chirico Executive Vice President, Business Operations © 2015 Avaya Inc. All rights reserved. 39
Slide 40: Multi-Year Trend of Operational Improvements
MULTI-YEAR TREND OF OPERATIONAL IMPROVEMENTS Track record of execution Solid Gross Margin Performance Significant EBITDA % Increase 65% 25% 60% 20% 55% 15% 50% 10% 45% 5% 40% 0% Product Service Total FY'10 FY'15 FY'10 FY'15 FY'10 FY'15 Note: All amounts are as reported. © 2015 Avaya Inc. All rights
Slide 41: Avaya 2010-2015
AVAYA 2010-2015 Keys to Success Key Outcomes Business Operations role, reporting to CEO ! 1070 bps gross margin expansion established in 2009 ! 650 bps EBITDA margin increase ! Structured and fact-based à analyze trends, address ! 28% cost reduction ($1.1B) root causes, set targets based on benchma
Slide 42: Performance Scorecard
PERFORMANCE SCORECARD Operational improvement and complexity reduction at or near BIC Operational Improvements Complexity Reduction - RE Footprint Financial Profitability Metric FY10 FY11 FY12 FY13 FY14 FY15 BIC Metric FY10 FY11 FY12 FY13 FY14 FY15 BIC Metric FY10 FY11 FY12 FY13 FY14 FY15 BIC Collec
Slide 43: Next Stage of Operational Improvement
NEXT STAGE OF OPERATIONAL IMPROVEMENT Leveraging proven management system EMPHASIS AREA KEY LEVERS OUTCOME SAVINGS ! Realization of FY‘15 actions ! Improved ease of use, renewal rates Systems ! Automation capabilities for quoting, pricing, renewals and cycle-time improvement ! Increased speed of com
Slide 44: FY'16 EBITDA Outlook
FY‘16 EBITDA OUTLOOK Dave Vellequette Senior Vice President and Chief Financial Officer © 2015 Avaya Inc. All rights reserved. 44
Slide 45: FY'16 Business Model Drives EBITDA Expansion
FY‘16 BUSINESS MODEL DRIVES EBITDA EXPANSION At $4.0B revenue, FY‘16 EBITDA outlook of $1,000M - $1,025M $1,000M $1,100 to $1,025M $1,000 $900 ≤$870M $800 $700 FY‘16 EBITDA Improvements $600 $60M $40M - $65M $20M - $45M $500 FY‘15 Unrealized Potential FY‘16 Unrealized FY‘16 Actual Savings from Savin
Slide 46: Key Investor Day Takeaways
What You Now Know About Avaya KEY INVESTOR DAY TAKEAWAYS 1 Reinvented: approaching 75% of revenue from software and services 2 Increasingly strong competitive position 3 Demand stabilized and key investments are focused on growing markets Demonstrated EBITDA margin expansion: 4 up >700 basis points
Slide 47: © 2015 Avaya Inc. All rights reserved. © 2015 Avaya Inc. All rights reserved.
© 2015 Avaya Inc. All rights reserved. © 2015 Avaya Inc. All rights reserved. 47