EX-99.1 2 d535949dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

Media Inquiries:    Investor Inquiries:   
Deb Kline    Matthew Booher   
908-953-6179 (office)    908-953-7500 (office)   
klined@avaya.com    mbooher@avaya.com   

AVAYA REPORTS SECOND FISCAL QUARTER 2013 RESULTS

Second Quarter 2013

 

   

Revenue of $1.12 billion

 

   

Non-GAAP Operating Income(1) of $113 Million

 

   

Adjusted EBITDA(1) of $172 Million

Santa Clara, CA. – Avaya Inc., a global provider of business communications and collaboration systems, software and services, today reported results for the second quarter of fiscal 2013. For the second fiscal quarter, revenue was $1.12 billion, down 9.8% compared to the prior quarter, primarily due to seasonality in all four theaters as customers continued to have extended procurement cycles. On a year over year basis revenue was down 11.1% compared to the second quarter of fiscal 2012. Non-GAAP operating income was $113 million compared to non GAAP operating income of $193 million for the prior quarter and $138 million for the second quarter of fiscal 2012. Second quarter adjusted EBITDA was $172 million which compares to adjusted EBITDA of $251 million for the prior quarter and $200 million for the second quarter of fiscal 2012. Cash flow from operations was $82 million for the second quarter. Cash and cash equivalents was $302 million as of March 31, 2013 compared to $285 million as of December 31, 2012.

“Avaya’s second quarter revenue evidenced impacts from a cautious spending environment which extended our sales cycle and as a result, this quarter’s seasonal declines were at the low end of our historical range,” said Kevin Kennedy, President and CEO, Avaya. “Given this environment, we will continue to execute and deliver operational efficiencies and productivity improvements while maintaining our focus on product innovation, new customers and market leadership.”

 

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 first quarter of fiscal 2013 see our Form 8-K filed with the SEC on February 5,2013 at www.sec.gov.


Second Fiscal Quarter Highlights

 

   

Revenue of $1.12 billion decreased 9.8% compared to the prior quarter and decreased 11.1% compared to the second quarter of fiscal 2012

 

   

Gross margin was 52.4% compared to 53.7% for the prior quarter and 48.8% for the second quarter of fiscal 2012

 

   

Non-GAAP gross margin(1) was 53.7% compared to 55.6% for the prior quarter and 52.8% for the second quarter of fiscal 2012

 

   

Adjusted EBITDA was $172 million or 15.4% of revenue compared to $251 million or 20.2% of revenue for the prior quarter and $200 million or 15.9% of revenue for the second quarter of fiscal 2012

 

   

Product revenue of $529 million declined by 16.2% compared to the prior quarter and 17.0% compared to the second quarter of fiscal 2012.

 

   

Avaya Global Services revenue of $589 million decreased 3.3% compared to the prior quarter and decreased 5.0% compared to the second quarter of fiscal 2012

 

   

For the second fiscal quarter, percentage of revenue by geography was, U.S. with 53%, EMEA with 27%, Asia – Pacific with 10% and Americas International with 10%.

Conference Call and Webcast

Avaya will host a conference call to discuss these results at 5:00 p.m. EDT on Thursday, May 9, 2013. To access the conference call, dial 800-882-9327 in the U.S. or Canada and 706-645-9730 for international callers and provide the operator the conference passcode number of 47490648. To ensure you are on the call from the start, we suggest you access the call 10-15 minutes prior to the start of the call.

For those unable to participate, a replay of the conference call will be available beginning at 8:00 p.m. EDT on May 9 through June 9, by dialing 855-859-2056 within the United States and 404-537-3406 outside the United States. The replay access code is 47490648.

WEBCAST Information: Avaya will webcast this conference call live. To ensure that you are on the webcast, we suggest that you access our website (www.avaya.com/investors) 10-15 minutes prior to the start. Supplementary materials accompanying the conference call are available at the same location. Following the live webcast, a replay will be available on our archives at the same web address.

About Avaya

Avaya is a global provider of business collaboration and communications solutions, providing unified communications, contact centers, networking and related services to companies of all sizes around the world. For more information please visit www.avaya.com.

Certain statements contained in this press release are forward-looking statements. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or other similar terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe 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 our control. These and other important factors may cause our 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 list and description of such risks and uncertainties, please refer to Avaya’s filings with the SEC that are available at www.sec.gov. Avaya disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


Avaya Inc.

Consolidated Statements of Operations

(Unaudited; in millions)

 

     For the three months ended     For the six months ended  
     March 31,     March 31,  
     2013     2012     2013     2012  

REVENUE

        

Products

   $ 529      $ 637      $ 1,160      $ 1,386   

Services

     589        620        1,198        1,258   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,118        1,257        2,358        2,644   
  

 

 

   

 

 

   

 

 

   

 

 

 

COSTS

        

Products:

        

Costs (exclusive of amortization of intangibles)

     236        280        497        591   

Amortization of technology intangible assets

     14        49        36        99   

Services

     282        315        573        637   
  

 

 

   

 

 

   

 

 

   

 

 

 
     532        644        1,106        1,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

     586        613        1,252        1,317   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

        

Selling, general and administrative

     381        414        765        847   

Research and development

     113        117        231        228   

Amortization of intangible assets

     57        56        114        112   

Goodwill impairment

     89        —          89        —     

Restructuring and impairment charges, net

     18        90        102        111   

Acquisition-related costs

     —          2        —          3   
  

 

 

   

 

 

   

 

 

   

 

 

 
     658        679        1,301        1,301   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING (LOSS) INCOME

     (72     (66     (49     16   

Interest expense

     (116     (108     (224     (217

Loss on extinguishment of debt

     (3     —          (6     —     

Other income (expense), net

     2        (12     (4     (13
  

 

 

   

 

 

   

 

 

   

 

 

 

LOSS BEFORE INCOME TAXES

     (189     (186     (283     (214

(Provision for) benefit from income taxes

     (3     24        6        26   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET LOSS

   $ (192   $ (162   $ (277   $ (188
  

 

 

   

 

 

   

 

 

   

 

 

 


Avaya Inc.

Consolidated Balance Sheets

(Unaudited; in millions)

 

     March 31,
2013
    September 30,
2012
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 302      $ 337   

Accounts receivable, net

     681        782   

Inventory

     255        255   

Deferred income taxes, net

     21        18   

Other current assets

     280        252   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     1,539        1,644   
  

 

 

   

 

 

 

Property, plant and equipment, net

     353        364   

Deferred income taxes, net

     44        43   

Intangible assets, net

     1,625        1,775   

Goodwill

     4,093        4,188   

Other assets

     196        180   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 7,850      $ 8,194   
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities:

    

Debt maturing within one year

   $ 35      $ 37   

Accounts payable

     409        438   

Payroll and benefit obligations

     247        262   

Deferred revenue

     689        616   

Business restructuring reserve, current portion

     103        84   

Other current liabilities

     253        302   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     1,736        1,739   
  

 

 

   

 

 

 

Long-term debt

     6,068        6,084   

Pension obligations

     1,708        1,763   

Other postretirement obligations

     343        360   

Deferred income taxes, net

     209        204   

Business restructuring reserve, non-current portion

     56        51   

Other liabilities

     443        429   
  

 

 

   

 

 

 

TOTAL NON-CURRENT LIABILITIES

     8,827        8,891   
  

 

 

   

 

 

 

Commitments and contingencies

    

DEFICIENCY

    

Common stock

     —          —     

Additional paid-in capital

     2,929        2,926   

Accumulated deficit

     (4,513     (4,236

Accumulated other comprehensive loss

     (1,129     (1,126
  

 

 

   

 

 

 

TOTAL DEFICIENCY

     (2,713     (2,436
  

 

 

   

 

 

 

TOTAL LIABILITIES AND DEFICIENCY

   $ 7,850      $ 8,194   
  

 

 

   

 

 

 


Avaya Inc.

Condensed Statements of Cash Flows

(Unaudited; in millions)

 

     For the six months ended  
     March 31,  
     2013     2012  

Net cash (used for) provided by:

    

Net loss

   $ (277   $ (188

Adjustments to net loss

     308        324   

Changes in operating assets and liabilities

     57        (105
  

 

 

   

 

 

 

Operating activities

     88        31   

Investing activities

     (59     (63

Financing activities

     (59     (20

Effect of exchange rate changes on cash and cash equivalents

     (5     7   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (35     (45

Cash and cash equivalents at beginning of period

     337        400   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 302      $ 355   
  

 

 

   

 

 

 


Avaya Inc.

Supplemental Schedules of Revenue

(Unaudited; in millions)

 

For the Three Months Ended           For the Three Months Ended March 31,  
June 30,     Sept. 30,      Dec. 31,           Revenues     Mix     Change  
2012     2012      2012           2013      2012     2013     2012     Amount     Pct.  
        Revenue by Segment              
  $561      $ 588       $ 573       Global Communications Solutions    $ 473       $ 574        42     46   $ (101     -17.6
  (1     —           —        

Purchase accounting adjustments

     —           (1     0     0     1        —     
  74        64         58       Networking      56         64        5     5     (8     -12.5

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  634        652         631       Total ECS product revenue      529         637        47     51     (108     -17.0
  616        625         609       AGS      589         620        53     49     (31     -5.0

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $1,250      $ 1,277       $ 1,240       Total revenue    $ 1,118       $ 1,257        100     100   $ (139     -11.1

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        Revenue by Geography              
  $666      $ 694       $ 670       U.S.    $ 592       $ 678        53     54   $ (86     -12.7

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        International:              
  330        327         331      

EMEA

     298         327        27     26     (29     -8.9
  128        126         123      

APAC - Asia Pacific

     116         117        10     9     (1     -0.9
  126        130         116      

Americas International - Canada and Latin America

     112         135        10     11     (23     -17.0

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  584        583         570       Total International      526         579        47     46     (53     -9.2

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $1,250      $ 1,277       $ 1,240       Total Revenue    $ 1,118       $ 1,257        100     100   $ (139     -11.1

 

 

   

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


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 GAAP, including adjusted EBITDA, Non-GAAP gross margin and Non-GAAP operating income.

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 permitted in calculating covenant compliance under our debt agreements as further described in our SEC filings.

We believe that including supplementary information concerning adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our debt agreements and because it serves as a basis for determining management 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, namely the company’s pricing strategies, volume, costs and expenses of the organization.

Adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While adjusted EBITDA and similar 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 does not reflect the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. In particular, based on our debt agreements the definition of adjusted EBITDA allows us to add back certain non-cash charges that are deducted in calculating net income (loss). Our debt agreements also allow us to add back restructuring charges, certain fees payable to our private equity sponsors and other specific cash costs and expenses as defined in the agreements and that portion of our pension costs, other post-employment benefits costs, and non-retirement post-employment benefits costs representing the amortization of pension service costs and actuarial gain or loss associated with these employment benefits. However, these are expenses that may recur, may vary and are difficult to predict. Further, our debt agreements require that adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

Non-GAAP gross margin excludes the amortization of technology intangible assets, impairment of long lived assets, transition services agreement costs incurred in connection with the acquisition of Nortel’s enterprise solutions business, share based compensation 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 technology intangible assets, restructuring and impairment charges, acquisition and integration related costs, share based compensation, 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 Avaya’s results of operations as determined in accordance with GAAP. As such, these measures should only be used to evaluate Avaya’s results of operations in conjunction with the corresponding GAAP measures.

The following tables reconcile GAAP measures to non-GAAP measures:

Avaya Inc.

Supplemental Schedule of Non-GAAP Adjusted EBITDA

(Unaudited; in millions)

 

     For the three months ended
March 31,
    For the six months ended
March 31,
 
     2013     2012     2013     2012  

Net loss

   $ (192   $ (162   $ (277   $ (188

Interest expense

     116        108        224        217   

Interest income

     —          (1     (1     (2

Provision for (benefit from) income taxes

     3        (24     (6     (26

Depreciation and amortization

     107        143        221        286   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     34        64        161        287   

Impact of purchase accounting adjustments

     —          1        —          1   

Restructuring charges, net

     18        90        102        111   

Sponsors’ fees

     2        2        4        4   

Acquisition-related costs

     —          2        —          3   

Integration-related costs

     5        3        9        8   

Loss on extinguishment of debt

     3        —          6        —     

Third-party fees expensed in connection with the debt modification

     14        —          18        —     

Non-cash share-based compensation

     1        2        3        5   

Loss on investments and sale of long-lived assets, net

     —          2        —          3   

Goodwill impairment

     89        —          89        —     

Venezuela hyperinflationary and devaluation charges

     1        —          1        —     

(Gain) loss on foreign currency transactions

     (17     11        (15     12   

Pension/OPEB/nonretirement postemployment benefits and long-term disability costs

     22        23        45        45   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 172      $ 200      $ 423      $ 479   
  

 

 

   

 

 

   

 

 

   

 

 

 


Avaya Inc.

Supplemental Schedules of Non-GAAP Reconciliations

(Unaudited; in millions)

 

     For the Three Months Ended  
     Mar. 31,
2012
    June 30
2012
    Sept. 30,
2012
    Dec. 31
2012
    Mar. 31
2013
 

Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin

          

GAAP Gross Profit

   $ 613      $ 623      $ 646      $ 666      $ 586   

GAAP Gross Margin

     48.8     49.8     50.6     53.7     52.4

Items excluded:

          

Amortization of technology intangible assets

     49        47        46        22        14   

Impairment of capitalized software development costs

     —          2        4        —          —     

Share-based compensation

     1        1        1        1        —     

Purchase accounting adjustments

     1        1        1        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Gross Profit

   $ 664      $ 674      $ 698      $ 689      $ 600   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Gross Margin

     52.8     53.9     54.7     55.6     53.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Non-GAAP Operating Income

          

GAAP Operating (Loss) Income

   $ (66   $ 23      $ 76      $ 23      $ (72

Percentage of Revenue

     -5     2     6     2     -6

Items excluded:

          

Amortization of acquired assets

     105        104        103        79        71   

Restructuring and impairment charges, net

     90        21        15        84        18   

Acquisition/integration-related costs

     6        6        6        5        6   

Share-based compensation

     2        2        1        2        1   

Impairment of capitalized software development costs

     —          2        4        —          —     

Goodwill impairment

     —          —          —          —          89   

Purchase accounting adjustments

     1        1        1        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Operating Income

   $ 138      $ 159      $ 206      $ 193      $ 113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage of Revenue

     11.0     12.7     16.1     15.6     10.1