Avaya Reports Second Quarter Fiscal 2017 Financial Results
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E-mailSANTA CLARA, CA -- (Marketwired) -- 05/17/17 --
Second Quarter Fiscal 2017:
- Revenue of $804 million
- Gross margin 59.8%, non-GAAP gross margin 60.6%
- Operating income of $64 million, non-GAAP operating income of $148 million or 18.4% of revenue, a record percentage of revenue for a second fiscal quarter
- Adjusted EBITDA(1) of $199 million or 24.8% of revenue, a record percentage of revenue for a second fiscal quarter
- Positive cash flow from operations for the second quarter and six months ended March 31, 2017
Avaya reported financial results for the second fiscal quarter ended March 31, 2017.
Total revenue for the second quarter was $804 million, down $71 million compared to the prior quarter and down $100 million year-over-year primarily as a result of lower demand for products and services due to seasonality and extended procurement cycles resulting from the chapter 11 filing. Non-GAAP gross margin was 60.6%, which compares to 61.5% for the prior quarter and 60.7% for the second quarter of fiscal 2016. GAAP operating income was $64 million, which compares to $65 million in the prior quarter and $17 million during the second quarter of fiscal 2016. Non-GAAP operating income was $148 million which compares to $187 million for the prior quarter and $162 million for the second quarter of fiscal 2016. For the second quarter, adjusted EBITDA(1) was $199 million or 24.8% of revenue, a record percentage of revenue for a second fiscal quarter, and compares to adjusted EBITDA of $238 million for the prior quarter and $205 million for the second quarter of fiscal 2016.
Cash provided by operating activities was $97 million for the second fiscal quarter 2017, compared to $44 million cash used from operations during the first fiscal quarter 2017. Cash and cash equivalents totaled $764 million as of March 31, 2017.
"Avaya's balance sheet strengthened during the quarter as we continue to take actions to improve our capital structure. We are pleased to have recently filed a restructuring plan, paving the way to emerge from chapter 11 later this year," said Kevin Kennedy, president and CEO.
"In addition, we delivered a very successful ENGAGE 2017 conference for our customers, partners, and developers during the second quarter, attracting approximately 2,600 attendees, as we showcased the capabilities of Avaya's market-leading products, services, and technologies," continued Mr. Kennedy. "We continue to invest to create value for all of our stakeholders as we continue to innovate and pursue operational excellence."
Second Fiscal Quarter Highlights
- Filed a restructuring plan, paving the way for emergence from chapter 11
- Signed more than 1,100 customer contracts since filing for chapter 11 through March 31, 2017
- Announced an agreement to sell the Networking business to Extreme Networks, in a section 363 auction process, for a transaction value of approximately $100 million, subject to adjustments
- Avaya Fabric Networking surpassed 1,000 customers
- Total bookings for the second fiscal quarter decreased 12% from the prior quarter and were 17% below the prior year in constant currency, reflecting extended procurement cycles resulting from the chapter 11 filing
- Software and services accounted for approximately 79% of total revenue in second quarter 2017
- Recurring revenue represented over 57% of total revenue, up from 53% year-over-year, in constant currency
- Net Promoter Score of 55 for customer satisfaction driven by industry-leading service and support
- Product revenue of $348 million decreased 13% from the prior quarter and 18% year-over-year, service revenue of $456 million declined 4% sequentially and 5% year-over-year, each in constant currency
- Gross margin was 59.8%, down from 60.9% in the prior quarter, and flat compared to the second quarter of fiscal 2016
- Non-GAAP gross margin was 60.6% compared to 61.5% for the prior quarter and 60.7% for the second quarter of fiscal 2016
- Cash flow from operations was $97 million during the second quarter and $53 million for year-to-date fiscal 2017
- For the second fiscal quarter, percentage of revenue by geography was:
- U.S. - 56%
- EMEA - 25%
- Asia-Pacific - 10%
- Americas International - 9%
Accompanying slides
Links to this financial results press release and accompanying slides are available on the investor page of Avaya's website (www.avaya.com/investors).
About Avaya
Avaya enables the mission critical, real-time communication applications of the world's most important operations. As the global leader in delivering superior communications experiences, Avaya provides the most complete portfolio of software and services for contact center and unified communications with integrated, secure networking -- offered on premises, in the cloud, or a hybrid. Today's digital world requires some form of communications enablement, and no other company is better positioned to do this than Avaya. For more information, please visit www.avaya.com.
Cautionary Note Regarding the Chapter 11 Cases
The Company's security holders are cautioned that trading in securities of the Company during the pendency of the Company's Chapter 11 proceeding will be highly speculative and will pose substantial risks. It is possible some or all of the Company's currently outstanding securities may be cancelled and extinguished upon confirmation of a restructuring plan by the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). In such an event, the Company's security holders would not be entitled to receive or retain any cash, securities or other property on account of their cancelled securities. Trading prices for the Company's securities may bear little or no relation to actual recovery, if any, by holders thereof in the Company's Chapter 11 proceeding. Accordingly, the Company urges extreme caution with respect to existing and future investments in its securities.
Cautionary Note Regarding Forward-Looking Statements
This document contains certain "forward-looking statements." All statements other than statements of historical fact are "forward-looking" statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "our vision," "plan," "potential," "preliminary," "predict," "should," "will," or "would" or the negative thereof or other variations thereof or comparable terminology and include, but are not limited to, statements regarding timing of exit from the Chapter 11 proceeding, technology innovation and operational projections. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. These factors, including, but not limited to adjustments in the calculation of financial results for the quarter, or the application of accounting principles, discovery of new information that alters expectations about financial results or impacts valuation methodologies underlying financial results, accounting changes required by United States generally accepted accounting principles, and those risks discussed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2015, may cause its actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For a further list and description of such risks and uncertainties, please refer to the Company's filings with the SEC that are available at www.sec.gov. The Company cautions you that the list of important factors included in the Company's SEC filings may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
1 Refer to Supplemental Financial Information accompanying this press release for a reconciliation of GAAP to non-GAAP numbers and for reconciliation of adjusted EBITDA for the second quarter of fiscal 2017.
Avaya Inc.
(Debtor-in-possession)
Consolidated Statements of Operations
(Unaudited; in millions)
Three months ended Six months ended
March 31, March 31,
----------------------- -----------------------
2017 2016 2017 2016
----------- ----------- ----------- -----------
REVENUE
Products $ 348 $ 424 $ 749 $ 888
Services 456 480 930 974
---------- ---------- ---------- ----------
804 904 1,679 1,862
---------- ---------- ---------- ----------
COSTS
Products:
Costs (exclusive of
amortization of acquired
technology intangible
assets) 127 156 273 320
Amortization of acquired
technology intangible
assets 6 7 11 15
Services 190 200 381 407
---------- ---------- ---------- ----------
323 363 665 742
---------- ---------- ---------- ----------
GROSS PROFIT 481 541 1,014 1,120
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling, general and
administrative 298 377 637 710
Research and development 59 70 121 145
Amortization of acquired
intangible assets 56 56 113 113
Restructuring charges, net 4 21 14 44
---------- ---------- ---------- ----------
417 524 885 1,012
---------- ---------- ---------- ----------
OPERATING INCOME 64 17 129 108
Interest expense (38) (117) (212) (235)
Other (expense) income, net (11) 2 (1) 6
Reorganization costs, net (42) - (42) -
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (27) (98) (126) (121)
Benefit from (provision for)
income taxes 21 (5) 18 (9)
---------- ---------- ---------- ----------
NET LOSS $ (6) $ (103) $ (108) $ (130)
========== ========== ========== ==========
Avaya Inc.
(Debtor-in-possession)
Consolidated Balance Sheets
(Unaudited; in millions)
March 31, September 30,
2017 2016
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 764 $ 336
Accounts receivable, net 525 584
Inventory 136 153
Other current assets 311 187
-------------- --------------
TOTAL CURRENT ASSETS 1,736 1,260
-------------- --------------
Property, plant and equipment, net 228 253
Acquired intangible assets, net 492 617
Goodwill 3,629 3,629
Other assets 75 62
-------------- --------------
TOTAL ASSETS $ 6,160 $ 5,821
============== ==============
LIABILITIES
Current liabilities:
Debt maturing within one year $ 725 $ 6,018
Accounts payable 247 338
Payroll and benefit obligations 103 183
Deferred revenue 432 705
Business restructuring reserve, current
portion 40 69
Other current liabilities 75 267
-------------- --------------
TOTAL CURRENT LIABILITIES 1,622 7,580
-------------- --------------
Liabilities subject to compromise 8,244 -
Pension obligations 530 1,743
Other postretirement obligations - 245
Deferred income taxes, net 32 169
Business restructuring reserve, non-current
portion 43 65
Other liabilities 155 439
-------------- --------------
TOTAL NON-CURRENT LIABILITIES 9,004 2,661
-------------- --------------
Commitments and contingencies
STOCKHOLDER'S DEFICIENCY
Common stock - -
Additional paid-in capital 2,972 2,966
Accumulated deficit (5,833) (5,725)
Accumulated other comprehensive loss (1,605) (1,661)
-------------- --------------
TOTAL STOCKHOLDER'S DEFICIENCY (4,466) (4,420)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY $ 6,160 $ 5,821
============== ==============
Avaya Inc.
(Debtor-in-possession)
Condensed Statements of Cash Flows
(Unaudited; in millions)
Six months ended
March 31,
-------------------------
2017 2016
------------ ------------
Net cash (used for) provided by:
Net loss $ (108) $ (130)
Adjustments to net loss for non-cash items 272 181
Changes in operating assets and liabilities (111) 2
------------ ------------
Operating activities 53 53
Investing activities (109) (50)
Financing activities 492 (14)
Effect of exchange rate changes on cash and cash
equivalents (8) -
------------ ------------
Net increase (decrease) in cash and cash
equivalents 428 (11)
Cash and cash equivalents at beginning of period 336 323
------------ ------------
Cash and cash equivalents at end of period $ 764 $ 312
============ ============
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Revenue
(Unaudited; in millions)
Three Months Ended
-----------------------------
June 30, Sept. 30, Dec. 31,
2016 2016 2016
--------- --------- ---------
$ 356 $ 397 $ 346
42 72 55
--------- --------- ---------
398 469 401
484 489 474
--------- --------- ---------
$ 882 $ 958 $ 875
========= ========= =========
$ 487 $ 552 $ 466
--------- --------- ---------
206 217 234
102 104 90
87 85 85
--------- --------- ---------
395 406 409
--------- --------- ---------
$ 882 $ 958 $ 875
========= ========= =========
Three Months Ended March 31,
----------------------------------------------------------
Revenues Mix Change
----------------- --------------- ------------------------
Pct.,
net of
FX
2017 2016 2017 2016 Amount Pct. impact
-------- -------- ------- ------- -------- ------- -------
Revenue by
Segment
----------------
GCS $ 309 $ 381 38% 42% $ (72) -19% -19%
Networking 39 43 5% 5% (4) -9% -9%
-------- -------- ------- ------- --------
Total ECS
product revenue 348 424 43% 47% (76) -18% -18%
AGS 456 480 57% 53% (24) -5% -5%
-------- -------- ------- ------- --------
Total revenue $ 804 $ 904 100% 100% $ (100) -11% -11%
======== ======== ======= ======= ========
Revenue by
Geography
----------------
U.S. $ 450 $ 505 56% 56% $ (55) -11% -11%
-------- -------- ------- ------- --------
International:
EMEA 202 218 25% 24% (16) -7% -5%
APAC - Asia
Pacific 77 104 10% 11% (27) -26% -25%
Americas
International -
Canada
and Latin
America 75 77 9% 9% (2) -3% -7%
-------- -------- ------- ------- --------
Total
International 354 399 44% 44% (45) -11% -11%
-------- -------- ------- ------- --------
Total revenue $ 804 $ 904 100% 100% $ (100) -11% -11%
======== ======== ======= ======= ========
Use of non-GAAP (Adjusted) Financial Measures
The information furnished in this release includes non-GAAP financial measures that differ from measures calculated in accordance with generally accepted accounting principles in the United States of America ("GAAP"), including adjusted EBITDA and non-GAAP gross margin.
EBITDA is defined as net income (loss) before income taxes, interest expense, interest income and depreciation and amortization. Adjusted EBITDA is EBITDA further adjusted to exclude certain charges and other adjustments described in our SEC filings.
We believe that including supplementary information concerning adjusted EBITDA is appropriate because it serves as a basis for determining management and employee compensation. In addition, we believe adjusted EBITDA provides more comparability between our historical results and results that reflect purchase accounting and our current capital structure. Accordingly, adjusted EBITDA measures our financial performance based on operational factors that management can impact in the short-term, such as our pricing strategies, volume, costs and expenses of the organization and it presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years.
EBITDA and adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. In particular, our formulation of adjusted EBITDA allows adjustment for certain amounts that are included in calculating net income (loss) as set forth in the following table including, but not limited to, restructuring charges, certain fees payable to our private equity sponsors and other advisors, resolution of certain legal matters and a portion of our pension costs and post-employment benefits costs which represents the amortization of pension service costs and actuarial gain (loss) associated with these benefits. However, these are expenses that may recur, may vary and are difficult to predict.
The estimate of adjusted EBITDA provided in this press release has been determined consistent with the methodology for calculating adjusted EBITDA as set forth in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2015.
Non-GAAP gross margin excludes the amortization of acquired technology intangible assets, share based compensation, costs to settle certain legal matters, impairment of long lived assets, and purchase accounting adjustments. We have included non-GAAP gross margin because we believe it provides additional useful information to investors regarding our operations by excluding those charges that management does not believe are reflective of the Company's ongoing operating results when assessing the performance of the business.
Non-GAAP operating income excludes the amortization of acquired technology intangible assets, restructuring and impairment charges, acquisition and integration related costs, third party sales transformation and advisory costs, share based compensation, costs to settle certain legal matters, impairment of long lived assets and purchase accounting adjustments. We have included non-GAAP operating income because we believe it provides additional useful information to investors regarding our operations by excluding those charges that management does not believe are reflective of the company's ongoing operating results when assessing the performance of the business.
These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and have limitations as analytical tools in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. As such, these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.
The following tables reconcile GAAP measures to non-GAAP measures:
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedule of Non-GAAP Adjusted EBITDA
(Unaudited; in millions)
Three months ended Six months ended
March 31, March 31,
-------------------- --------------------
2017 2016 2017 2016
---------- ---------- ---------- ----------
Net loss $ (6) $ (103) $ (108) $ (130)
Interest expense 38 117 212 235
Interest income (1) - (1) -
(Benefit from) provision for
income taxes (21) 5 (18) 9
Depreciation and amortization 88 91 178 184
---------- ---------- ---------- ----------
EBITDA 98 110 263 298
Restructuring charges, net 4 21 14 44
Sponsor and other advisory
fees 14 4 64 6
Acquisition and integration-
related costs - 1 - 1
Third-party sales
transformation costs - 3 - 5
Reorganization items, net 42 - 42 -
Non-cash share-based
compensation 4 4 6 8
Resolution of certain legal
matters - 51 - 51
Foreign currency losses
(gains), net 12 (3) 1 (9)
Pension/OPEB/nonretirement
postemployment benefits and
long-term disability costs 25 14 46 29
Other - - 1 -
---------- ---------- ---------- ----------
Adjusted EBITDA $ 199 $ 205 $ 437 $ 433
========== ========== ========== ==========
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Non-GAAP Reconciliations
(Unaudited; in millions)
Three Months Ended
--------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31
2016 2016 2016 2016 2017
--------- --------- ---------- --------- ---------
Reconciliation of Non-GAAP
Gross Profit and Non-GAAP
Gross Margin
Gross Profit $ 541 $ 542 $ 583 $ 533 $ 481
Gross Margin 59.8% 61.5% 60.9% 60.9% 59.8%
Items excluded:
Amortization of
acquired technology
intangible assets 7 7 8 5 6
Share-based
compensation - - 1 - -
Resolution of certain
legal matters 1 1 - - -
--------- --------- ---------- --------- ---------
Non-GAAP Gross Profit $ 549 $ 550 $ 592 $ 538 $ 487
========= ========= ========== ========= =========
Non-GAAP Gross Margin 60.7% 62.4% 61.8% 61.5% 60.6%
========= ========= ========== ========= =========
Reconciliation of Non-GAAP
Operating Income
Operating Income (Loss) $ 17 $ 58 $ (428) $ 65 $ 64
Percentage of Revenue 1.9% 6.6% -44.7% 7.4% 8.0%
Items excluded:
Amortization of
acquired intangible
assets 63 64 64 62 62
Restructuring charges,
net 21 44 17 10 4
Acquisition and
integration-related
costs 1 1 - - -
Impairment charges - - 542 - -
Advisory fees 2 7 27 48 14
Third-party sales
transformation costs 3 - - - -
Share-based
compensation 4 4 7 2 4
Resolution of certain
legal matters 51 2 - - -
--------- --------- ---------- --------- ---------
Non-GAAP Operating
Income $ 162 $ 180 $ 229 $ 187 $ 148
========= ========= ========== ========= =========
Non-GAAP Operating
Margin 17.9% 20.4% 23.9% 21.4% 18.4%
========= ========= ========== ========= =========
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Non-GAAP Reconciliation of Gross Profit
and Gross Margin by Portfolio
(Unaudited; in millions)
Three Months Ended
--------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
2016 2016 2016 2016 2017
--------- --------- ---------- --------- ---------
Reconciliation of Non-GAAP
Gross Profit and Non-GAAP
Gross Margin - Products
Revenue $ 424 $ 398 $ 469 $ 401 $ 348
Costs (exclusive of
amortization of
technology intangible
assets) 156 141 169 146 127
Amortization of
technology intangible
assets 7 7 8 5 6
--------- --------- ---------- --------- ---------
GAAP Gross Profit 261 250 292 250 215
GAAP Gross Margin 61.6% 62.8% 62.3% 62.3% 61.8%
Items excluded:
Amortization of
acquired technology
intangible assets 7 7 8 5 6
Resolution of certain
legal matters 1 1 - - -
--------- --------- ---------- --------- ---------
Non-GAAP Gross Profit $ 269 $ 258 $ 300 $ 255 $ 221
========= ========= ========== ========= =========
Non-GAAP Gross Margin 63.4% 64.8% 64.0% 63.6% 63.5%
========= ========= ========== ========= =========
Reconciliation of Non-GAAP
Gross Profit and Non-GAAP
Gross Margin - Services
Revenue $ 480 $ 484 $ 489 $ 474 $ 456
Costs 200 192 198 191 190
--------- --------- ---------- --------- ---------
GAAP Gross Profit 280 292 291 283 266
GAAP Gross Margin 58.3% 60.3% 59.5% 59.7% 58.3%
Items excluded:
Share-based and other
compensation - - 1 - -
--------- --------- ---------- --------- ---------
Non-GAAP Gross Profit $ 280 $ 292 $ 292 $ 283 $ 266
========= ========= ========== ========= =========
Non-GAAP Gross Margin 58.3% 60.3% 59.7% 59.7% 58.3%
========= ========= ========== ========= =========
Follow Avaya on Twitter, Facebook, YouTube, LinkedIn and the Avaya Connected Blog.
Media Inquiries: Richard Fly 978-671-3293 [email protected] Investor Inquiries:Peter [email protected]
Source: Avaya
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