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Why Shares of Avaya Holdings Soared Today

By Timothy Green – May 11, 2020 at 1:35PM

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A small sales decline was a better result than the market was expecting.

What happened

Shares of Avaya Holdings (AVYA -6.92%) soared on Monday after the communications software company reported its fiscal second-quarter results. While a large non-cash goodwill impairment charge reduced earnings, revenue came in ahead of expectations. The stock was up 28.6% at 1:50 p.m. EDT.

So what

Avaya reported second-quarter revenue of $682 million, down 3.8% year over year but about $59 million higher than the average analyst estimate. Products revenue was down 14.6% to $245 million, while services revenue rose 3.6% to $437 million.

A chart showing rising and falling stock prices.

Image source: Getty Images.

Software and services accounted for 88% of total revenue, while 64% of total revenue was recurring. Subscription revenue grew by more than 200% from the first quarter. The company signed 79 deals worth over $1 million, 12 deals worth over $5 million, and three deals worth over $10 million in the quarter.

Avaya reported a net loss of $672 million. This number includes a $624 million non-cash goodwill impairment charge related to the company's products and solutions segment. The company took the charge due to the sustained decline of the stock price.

Now what

While overall revenue was down, Avaya CEO Jim Chirico said that some areas are seeing strong demand. "Demand for video collaboration, with our Spaces solution, contact center upgrades to include remote work from anywhere capabilities, and the need for flexible consumption models like our cloud and subscription offers has accelerated, and no other company operates with the scale or reach that Avaya does," he said.

Avaya withdrew its full-year outlook due to the uncertainty surrounding the pandemic. For the third quarter, the company expects to produce revenue between $674 million and $704 million, along with an operating profit between $23 million and $43 million.

With revenue holding up better than expected, the market ignored the giant impairment charge and sent the small-cap stock higher.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Avaya Holdings Corp. Stock Quote
Avaya Holdings Corp.
$1.48 (-6.92%) $0.11

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