Avaya execs have “substantial doubt” that it can continue as a viable business. At least one analyst thinks bankruptcy could be on the table for the second time in five years.

Revenue for Avaya Holdings was down 20% year over year in the third quarter to $577 million, according to its earnings report. The company’s stock opened today at just 87 cents per share. As of 2:05 p.m. ET, it had fallen another 38%, to just 69 cents. That number was $10 in May.

The slipping revenue is compounded by the fact that Avaya borrowed $600 million in June. The company has a “large chunk of convertible debt maturing in less than a year,” reports Bloomberg.

Adjusted EBITDA was $54 million, 9% of revenue, versus 24% a year ago. That is just enough to cover the quarterly interest expenses Avaya has disclosed.

The third quarter also showed losses in the range of $1.3 billion-$1.4 billion.

Attempts to Address Concerns

To address these various concerns, Avaya announced last month cost-cutting measures of $225 million-$250 million. The company expects this to provide savings of more than $200 million. Avaya has already begun to implement these changes and expects them to yield savings beginning in the first quarter of fiscal 2023, which begins in October.

Although Avaya officials have not formally announced layoffs, the company is setting aside $11 million to cover such expenses if needed.

Avaya has also sought legal counsel from the firm Kirkland & Ellis to advise the company on its options following the earnings results.

Additionally, the audit committee of the company’s board of directors has commenced an internal investigation. It will review the circumstances surrounding the company’s third quarter financial results. The committee has notified the SEC and Avaya’s external auditor, PricewaterhouseCoopers, of its investigations.

Separately, the audit committee has also begun an internal investigation to review matters related to a whistleblower letter. They didn’t reveal further details.

Debt

Avaya’s Alan Masarek

Alan Masarek is president and CEO of Avaya. Masarek took on the role in July.

“Our preliminary financial results for the quarter reflect operational and executional shortcomings, amplified against the backdrop of a volatile economic environment,” he said. “We are taking aggressive actions to right-size Avaya’s cost structure to align with our contractual, recurring revenue business model … We have a lot of work to do, [as] we have a tremendous foundation to build on as we become a stronger, leaner, more agile and innovative organization.”

However, Avaya faces sizable debt.

This spring, Avaya’s cash reserves shrank to $325 million — down $600 million from the year prior. The company attempted to raise new debit. It wanted to refinance a $350 million convertible bond due in 2023. Goldman “initially proposed a $500 million loan with a 12.6% yield” but there were few buyers, the Wall Street Journal reported. The bank eventually placed a “$350 million secured loan yielding 15.5% with investors.” Later, Avaya approached JPMorgan, and the bank placed a $250 million secured convertible bond.

During the marketing process, the Journal reports that Avaya executives told lenders that “the company was on track to hit its earnings guidance.”

Bankruptcy?

The road to bankruptcy, one that Avaya has been on before, is not without possibility again, analyst Dave Michels writes. It’s been less than five years since Avaya emerged from chapter 11.

TalkingPointz’s Dave Michels

“The company has not clearly communicated a detailed vision or technical roadmap for some time,” Michels said. “The few significant updates that did occur were poorly communicated. Avaya possibly renamed all its products OneCloud to obfuscate the direction and health of individual product lines within its portfolio.”

But Masarek is optimistic, as was evident in the Avaya earnings call Tuesday, which lasted about 10 minutes. Masarek said he fundamentally believes Avaya could improve performance going forward.

“I understand very clearly there is worry, disappointment and concern out there across effectively all of Avaya’s stakeholders,” he said. “I came here eyes wide open. Give us some time to demonstrate a better future.”