Avaya Updates Third Quarter Fiscal 2017 Financial Results
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E-mailSANTA CLARA, CA -- (Marketwired) -- 09/15/17 --
Avaya ("the company") updated reported financial results for the third fiscal quarter ended June 30, 2017.
The company tests long-lived assets for impairment annually as of July 1, or more frequently if events occur or circumstances change that indicate an asset may be impaired. The assessment, which is historically completed in September, indicated impairment of an indefinite-lived intangible asset. Since the assessment was based on a forecast completed before the end of third quarter fiscal 2017, the impairment is therefore recorded in the third quarter. We believe that all other items in the financial statements are materially correct and in accordance with U.S. GAAP. There is no impact to the adjusted EBITDA. The financial tables below reflect these updates to the financial results.
Accompanying slides
Links to this 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 -- offered on premises, in the cloud, or a hybrid. Today's digital world requires 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 third 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.
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 third quarter of fiscal 2017.
Avaya Inc.
(Debtor-in-possession)
Consolidated Statements of Operations
(Unaudited; in millions)
Three months ended Nine months ended
June 30, June 30,
2017 2016 2017 2016
--------- --------- --------- ---------
REVENUE
Products $ 345 $ 398 $ 1,094 $ 1,286
Services 458 484 1,388 1,458
--------- --------- --------- ---------
803 882 2,482 2,744
--------- --------- --------- ---------
COSTS
Products:
Costs (exclusive of
amortization of acquired
technology intangible
assets) 122 141 395 461
Amortization of acquired
technology intangible
assets 5 7 16 22
Services 186 192 567 599
--------- --------- --------- ---------
313 340 978 1,082
--------- --------- --------- ---------
GROSS PROFIT 490 542 1,504 1,662
--------- --------- --------- ---------
OPERATING EXPENSES
Selling, general and
administrative 357 317 994 1,027
Research and development 60 66 181 211
Amortization of acquired
intangible assets 57 57 170 170
Impairment of indefinite-lived
intangible assets 65 - 65 -
Goodwill impairment 52 - 52 -
Restructuring charges, net 8 44 22 88
--------- --------- --------- ---------
599 484 1,484 1,496
--------- --------- --------- ---------
OPERATING (LOSS) INCOME (109) 58 20 166
Interest expense (17) (117) (229) (352)
Other income, net 3 1 2 7
Reorganization costs, net (35) - (77) -
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (158) (58) (284) (179)
Benefit from (provision for)
income taxes 12 (57) 30 (66)
--------- --------- --------- ---------
NET LOSS (245
$ (146) $ (115) $ (254) $ )
========= ========= ========= =========
Avaya Inc.
(Debtor-in-possession)
Consolidated Balance Sheets
(Unaudited; in millions)
June 30, September 30,
2017 2016
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 729 $ 336
Accounts receivable, net 469 584
Inventory 101 153
Other current assets 264 187
Assets held for sale 134 -
------------- -------------
TOTAL CURRENT ASSETS 1,697 1,260
------------- -------------
Property, plant and equipment, net 205 253
Acquired intangible assets, net 349 617
Goodwill 3,541 3,629
Other assets 74 62
------------- -------------
TOTAL ASSETS $ 5,866 $ 5,821
============= =============
LIABILITIES
Current liabilities:
Debt maturing within one year $ 725 $ 6,018
Accounts payable 253 338
Payroll and benefit obligations 113 183
Deferred revenue 538 705
Business restructuring reserve, current
portion 39 69
Other current liabilities 89 267
Liabilities held for sale 54 -
------------- -------------
TOTAL CURRENT LIABILITIES 1,811 7,580
------------- -------------
Liabilities subject to compromise 7,904 -
Pension obligations 563 1,743
Other postretirement obligations - 245
Deferred income taxes, net 31 169
Business restructuring reserve, non-current
portion 37 65
Other liabilities 155 439
------------- -------------
TOTAL NON-CURRENT LIABILITIES 8,690 2,661
------------- -------------
Commitments and contingencies
STOCKHOLDER'S DEFICIENCY
Common stock - -
Additional paid-in capital 2,976 2,966
Accumulated deficit (5,979) (5,725)
Accumulated other comprehensive loss (1,632) (1,661)
------------- -------------
TOTAL STOCKHOLDER'S DEFICIENCY (4,635) (4,420)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY 5,821
$ 5,866 $
============= =============
Avaya Inc.
(Debtor-in-possession)
Condensed Statements of Cash Flows
(Unaudited; in millions)
Nine months ended
June 30,
--------------------
2017 2016
--------- ---------
Net cash (used for) provided by:
Net loss $ (254) $ (245)
Adjustments to net loss for non-cash items 448 296
Changes in operating assets and liabilities (69) (21)
--------- ---------
Operating activities 125 30
Investing activities (120) (80)
Financing activities 387 3
Effect of exchange rate changes on cash and cash
equivalents 1 (7)
--------- ---------
Net increase (decrease) in cash and cash equivalents 393 (54)
Cash and cash equivalents at beginning of period 336 323
--------- ---------
Cash and cash equivalents at end of period 269
$ 729 $
========= =========
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Revenue
(Unaudited; in millions)
Three Months
Ended Three Months Ended June 30,
----------------- ---------------------------------------------
Revenues Mix Change
----------- ---------- ---------------------
Pct.,
Sept. Dec. Mar. net of
30, 31, 31, FX
2016 2016 2017 2017 2016 2017 2016 Amount Pct. impact
----- ----- ----- ----- ----- ---- ---- ------- ---- ------
Revenue by
Segment
-----------
$ 397 $ 346 $ 309 GCS $ 302 $ 356 38% 40% $ (54) -15% -15%
72 55 39 Networking 43 42 5% 5% 1 2% 2%
----- ----- ----- ----- ----- ---- ---- -------
Total ECS
product
469 401 348 revenue 345 398 43% 45% (53) -13% -13%
489 474 456 AGS 458 484 57% 55% (26) -5% -5%
----- ----- ----- ----- ----- ---- ---- -------
Total
$ 958 $ 875 $ 804 revenue $ 803 $ 882 100% 100% $ (79) -9% -8%
===== ===== ===== ===== ===== ==== ==== =======
Revenue by
Geography
-----------
$ 552 $ 466 $ 450 U.S. $ 435 $ 487 54% 55% $ (52) -11% -11%
----- ----- ----- ----- ----- ---- ---- -------
Internation
al:
217 234 202 EMEA 204 206 25% 23% (2) -1% 0%
APAC -
Asia
104 90 77 Pacific 88 102 11% 12% (14) -14% -14%
Americas
Internati
onal -
Canada
and Latin
85 85 75 America 76 87 10% 10% (11) -13% -11%
----- ----- ----- ----- ----- ---- ---- -------
Total
Internatio
406 409 354 nal 368 395 46% 45% (27) -7% -6%
----- ----- ----- ----- ----- ---- ---- -------
Total -8
$ 958 $ 875 $ 804 revenue $ 803 $ 882 100% 100% $ (79) -9% %
===== ===== ===== ===== ===== ==== ==== =======
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 compares 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 Nine months ended
June 30, June 30,
2017 2016 2017 2016
-------- -------- -------- --------
Net loss $ (146) $ (115) $ (254) $ (245)
Interest expense 17 117 229 352
Interest income (1) (1) (2) (1)
(Benefit from) provision for
income taxes (12) 57 (30) 66
Depreciation and amortization 85 93 263 277
-------- -------- -------- --------
EBITDA (57) 151 206 449
Restructuring charges, net 8 44 22 88
Sponsors' and other advisory
fees 18 9 82 15
Acquisition and integration-
related costs 1 1 1 2
Third-party sales transformation
costs - - - 5
Reorganization items, net 35 - 77 -
Non-cash share-based
compensation 4 4 10 12
Impairment of indefinite-lived
intangible assets 65 - 65 -
Goodwill impairment 52 - 52 -
Impairment of long-lived asset 3 - 3 -
Costs in connection with certain
legal matters 53 2 53 53
Foreign currency gains, net (2) (1) (1) (10)
Pension/OPEB/nonretirement
postemployment benefits and
long-term disability costs 24 13 70 42
Other - - 1 -
-------- -------- -------- --------
Adjusted EBITDA $ 204 $ 223 $ 641 $ 656
======== ======== ======== ========
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Non-GAAP Reconciliations
(Unaudited; in millions)
Three Months Ended
-------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31 June 30
2016 2016 2016 2017 2017
-------- --------- -------- -------- --------
Reconciliation of Non-
GAAP Gross Profit and
Non-GAAP Gross Margin
Gross Profit $ 542 $ 583 $ 533 $ 481 $ 490
Gross Margin 61.5% 60.9% 60.9% 59.8% 61.0%
Items excluded:
Amortization of
acquired technology
intangible assets 7 8 5 6 5
Share-based
compensation - 1 - - -
Costs in connection
with certain legal
matters 1 - - - -
-------- --------- -------- -------- --------
Non-GAAP Gross Profit $ 550 $ 592 $ 538 $ 487 $ 495
======== ========= ======== ======== ========
Non-GAAP Gross Margin 62.4% 61.8% 61.5% 60.6% 61.6%
======== ========= ======== ======== ========
Reconciliation of Non-
GAAP Operating Income
Operating Income (Loss) $ 58 $ (428) $ 65 $ 64 $ (109)
Percentage of Revenue 6.6% -44.7% 7.4% 8.0% -13.6%
Items excluded:
Amortization of
acquired intangible
assets 64 64 62 62 62
Restructuring
charges, net 44 17 10 4 8
Acquisition and
integration-related
costs 1 - - - -
Impairment charges - 542 - - 120
Advisory fees 7 27 48 14 18
Share-based
compensation 4 7 2 4 4
Costs in connection
with certain legal
matters 2 - - - 53
-------- --------- -------- -------- --------
Non-GAAP Operating
Income $ 180 $ 229 $ 187 $ 148 $ 156
======== ========= ======== ======== ========
Non-GAAP Operating
Margin 20.4% 23.9% 21.4% 18.4% 19.4%
======== ========= ======== ======== ========
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
-------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
2016 2016 2016 2017 2017
-------- --------- -------- -------- --------
Reconciliation of Non-
GAAP Gross Profit and
Non-GAAP Gross Margin -
Products
Revenue $ 398 $ 469 $ 401 $ 348 $ 345
Costs (exclusive of
amortization of
acquired technology
intangible assets) 141 169 146 127 122
Amortization of
acquired technology
intangible assets 7 8 5 6 5
-------- --------- -------- -------- --------
GAAP Gross Profit 250 292 250 215 218
GAAP Gross Margin 62.8% 62.3% 62.3% 61.8% 63.2%
Items excluded:
Amortization of
acquired technology
intangible assets 7 8 5 6 5
Costs in connection
with certain legal
matters 1 - - - -
-------- --------- -------- -------- --------
Non-GAAP Gross Profit $ 258 $ 300 $ 255 $ 221 $ 223
======== ========= ======== ======== ========
Non-GAAP Gross Margin 64.8% 64.0% 63.6% 63.5% 64.6%
======== ========= ======== ======== ========
Reconciliation of Non-
GAAP Gross Profit and
Non-GAAP Gross Margin -
Services
Revenue $ 484 $ 489 $ 474 $ 456 $ 458
Costs 192 198 191 190 186
-------- --------- -------- -------- --------
GAAP Gross Profit 292 291 283 266 272
GAAP Gross Margin 60.3% 59.5% 59.7% 58.3% 59.4%
Items excluded:
Share-based and other
compensation - 1 - - -
-------- --------- -------- -------- --------
Non-GAAP Gross Profit $ 292 $ 292 $ 283 $ 266 $ 272
======== ========= ======== ======== ========
Non-GAAP Gross Margin 60.3% 59.7% 59.7% 58.3% 59.4%
======== ========= ======== ======== ========
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Source: Avaya
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