Avaya CEO on exiting Chapter 11, partner loyalty, and why rivals can't touch its profit margins

CRN caught up with Jim Chirico inside the New York Stock Exchange following the comm's vendors return to the stock market

"We did sort of drive the car with the handbrake on."

Avaya CEO Jim Chirico can now reflect on the vendor's Chapter 11 saga without a sense of dread, after steering the firm through the final phase of its restructure by listing it on the New York Stock Exchange.

The hysteria of the near-300 Avaya employees and customers present on Wall Street as the CEO rang the bell to open the day's trading this week was as much drawn from relief as it was happiness.

Avaya maintained through its 12 months in Chapter 11 that it would "return stronger", but that did not stop the sceptics hypothesising the worst.

But the situation was perhaps not as dire as many thought.

"The fact of the matter was never about solvency," Chirico (pictured, fourth from left) told CRN inside the stock exchange.

"It was about the fact that we were over-levered and we needed to take some action to adjust that position.

"The company went private 10 years ago, the industry was much different, so we needed to adjust our balance sheet and that's what we did with Chapter 11. It was never about solvency, it was about driving a new capital structure. What probably most people don't know is we have remained very profitable and we're actually getting stronger."

Chirico backed up his statement with a glimpse into Avaya's financials, which will from now on be scrutinised every quarter. The vendor's EBIT as a percentage of revenue is 25 per cent, he said, with competitors "nowhere near that".

The financial picture was not so rosy 12 months ago, and as a result Avaya was never running in top gear.

"When we were in that over-levered position we didn't take our eye off that enterprise space, that's core, and we maintained market leadership," he said.

"All that being said, we did sort of drive a car with the parking brake on. We played a little bit of a prevent defence - so a mentality not to lose. Now we have a mentality to win so it's a much different focus as we move to focus on growth. We will be very aggressive and take full advantage of our financial strength.

"It's not a company that's focused on restructuring, it's a company that's focused on growth."

Chirico spoke of the Chapter 11 as more of a force of nature than a decision to be made. It perhaps would have been possible to continue swimming against the tide, without the Chapter 11 process, but instead the decision was made to "take a deep breath" and believe that the company was strong enough to survive.

"Sometimes you need to let the game come to you. You can't keep chasing the game because then it gets too fast and you don't do as well," he said.

"That's what we did. It's not as easy as it sounds, but everybody rowed together and let the game come to them and that's really uplifting. That's why we were in and out in one year."

Avaya aggression

The stock exchange listing brings Avaya an additional $300m (£216m) in cashflow. Chirico was coy on whether the cash could facilitate acquisitions, but did say that the prospect of snapping up another firm is always on the cards.

More certain is that the cash will be poured into R&D and investing in people.

"We will become much more aggressive in the marketplace," he promised. "We plan on utilising our financial position for further revenue growth. We don't plan on sitting on the cash."

The vendor has also taken steps to transform internally.

Earlier this month it announced a new cloud unit, Avaya Cloud, and poached Mercer Rowe from IBM to head up the division.

Chirico also said that some of the key decision making in the company has been taken away from the executive team and given to employees further down the chain of command, to make the company more responsive to customers and market trends.

Throughout the Chapter 11 time, he said that his biggest surprise was the loyalty shown by customers, praising them for "persevering" through a tricky spell.

He also picked out the role partners played in steadying the ship.

"The partners really came through for us," he said. "They really stepped up. It was easy for our partners to run from risk and go for the safe haven, but they hung in there with us."

Despite the obvious jubilation, there remains a slight bugbear. The behaviour of some of its competitors has left a bitter taste in Avaya's mouth.

When its Chapter 11 exit was announced at the end of last year, UK boss Ioan MacRae slammed other vendors for what he regarded as their underhanded sales tactics and exaggeration of Avaya's plight.

On leaving Chapter 11 a few weeks later, president Nidal Abou-Ltaif made a similar remark, accusing them of not fighting fair.

Chirico echoed the sentiment but said that, despite their best efforts, Avaya's competitors had failed to capitalise on its troubles.

"Our competition took their best shot," he said. "They tried to throw distraction after distraction, and it didn't work.

"Now we're public, we have a different story and I can't wait to present our financials. There's no better place than the New York Stock Exchange."