Shares of communications software provider Avaya Holdings Corp. dropped more than 21% in trading today after the company posted first-quarter financial results that missed expectations. 

NYSE-traded Avaya provides software products for business collaboration and contact center management. Like many other established players in the enterprise technology market, the company is currently working to refocus its business on subscription-based cloud services. Avaya made progress in this effort during the first quarter, but investors were more concerned with its revenue and earnings missing expectations.

Avaya generated sales of $713 million in the three months through December 31, 3% less than what analysts surveyed for the Zacks Consensus Estimate were expecting. The company’s earnings per share fell short of projections by an even wider margin. Avaya posted quarterly earnings of 42 cents per share, 39% less than what the market was anticipating.

Sales and earnings missed expectations even though Avaya’s OneCloud product portfolio logged a 137% year-over-year increase in annualized recurring revenue. OneCloud is a collection of cloud solutions at the center of Avaya’s effort to shift to a software-as-a-service business model. The annualized recurring revenue generated by the product portfolio now stands at $620 million.

At the core of OneCloud is a suite of software tools for managing enterprise contact centers. Avaya’s software routes customer inquiries to the contact center agent with the most relevant expertise and provides chatbot features for automatically answering common questions. Avaya also promises to streamline other tasks, such as customer sentiment analysis. 

Avaya added more than 1,400 new clients in the first quarter. The company inked 108 transactions with a total contract value of more than $1 million, including a deal described as one of the largest in its history. The deal in question is a $400 million transaction involving the OneCloud Public CCaaS contact center solution that Avaya inked with an unnamed “large global financial services company.”

Avaya uses a financial metric dubbed cloud, alliance partner and subscription revenue to help investors track its effort toward adopting a cloud-centric business model. This revenue segment accounted for 44% of total sales in the first quarter, up from 34% the same time a year ago.

“Our transition to the cloud continues to gain strength as our Avaya OneCloud ARR grew by 137% year over year primarily driven by our enterprise segment and contact center solutions,” said Avaya Chief Executive Officer Jim Chirico. “Market demand remains very strong, especially with large enterprises.”

For the current quarter, Avaya is projecting revenues of $730 million to $745 million. The company anticipates that its adjusted operating income will be between $126 million and $136 million, which is expected to translate to adjusted earnings of 58 to 66 cents per share.

Photo: Avaya