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Avaya Holdings (NYSE:AVYA) shares plummeted 55.5% on Friday after the company posted preliminary third-quarter results and the removal of its CEO effective August 1.
The company said it expects revenue and adjusted EBITDA to be well below guidance. Revenue is forecast to be between $575 million and $580 million, compared to guidance of $685 million to $700 million, and they see adjusted EBITDA between $50 million and $55 million, compared to guidance of $140 million to $150 million, based on ‘information currently available.’
Furthermore, in a separate release, Avaya announced Alan Masarek has been appointed as its President and CEO and as a member of its Board of Directors, effective August 1, succeeding Jim Chirico, who will be removed from his positions.
Following the releases, a Cowen analyst maintained a Market Perform rating and $1.25 price target on the stock, stating the news is “particularly surprising given the company completed a $600mm capital raise less than 4 weeks ago.”
“The company also announced the removal of its CEO effective August 1 and an operational restructuring designed to save $225-250mm p.a. beginning FY23. These look like prudent steps, but we fear it may be too late to accomplish much without radically restructuring Avaya’s balance sheet,” added the analyst. “For now, we remain comfortable with our MP rating and $1.25 PT, and with respect to the recently-issued convertible notes, we attribute very little value to the embedded equity option (struck at $4.30 / share) suggesting the price of the converts (mid-80s) could compress rapidly to that of the pari passu straight notes (mid-60s).”
The analyst added that the “trade idea for those who can operate in and around distressed credit is to short the 8% convertible notes against a long position in the pari passu 1L straight bonds – the 6.125s of ’28.”
