EX-99.1 2 d582056dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

 

Media Inquiries:   Investor Inquiries:  
Deb Kline   Matthew Booher   John Nunziati
908-953-6179 (office)   908-953-7500 (office)   408-562-3780 (office)
klined@avaya.com   mbooher@avaya.com   jfnunziati@avaya.com

AVAYA REPORTS THIRD FISCAL QUARTER 2013 RESULTS

Third Quarter 2013

 

   

Revenue of $1.15 billion

 

   

Operating Income of $14 million, Non-GAAP Operating Income(1) of $171 Million

 

   

Adjusted EBITDA(1) of $225 Million

Santa Clara, CA. – Thursday, August 8, 2013 – Avaya Inc., a global provider of business communications and collaboration systems, software and services, today reported results for the third quarter of fiscal 2013. For the third fiscal quarter, revenue was $1.15 billion, up 2.9% compared to the prior quarter, primarily due to increases in demand in the U.S. and the U.S. federal government sectors. On a year over year basis revenue was down 8% compared to the third quarter of fiscal 2012. Non-GAAP operating income was $171 million compared to non GAAP operating income of $113 million for the prior quarter and $159 million for the third quarter of fiscal 2012. Third quarter adjusted EBITDA was $225 million which compares to adjusted EBITDA of $172 million for the prior quarter and $225 million for the third quarter of fiscal 2012. Cash flow from operations was $11 million for the third quarter. Cash and cash equivalents totaled $271 million as of June 30, 2013.

“Avaya’s third quarter results reflected growth in product revenue from unified communications, contact centers, IP Office and networking. Avaya Global Services revenue also benefited from growth in cloud services,” said Kevin Kennedy, president and CEO, Avaya. “We continue to execute our transformational initiatives which include expanding into the mid-market and advancing our business model.”

 

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 2013 see our Form 10-Q filed with the SEC on May 10, 2013 at www.sec.gov.


Third Fiscal Quarter Highlights

 

   

Revenue of $1.15 billion increased 2.9% compared to the prior quarter and decreased 8.0% compared to the third quarter of fiscal 2012

 

   

Gross margin was 54.5% compared to 52.4% for the prior quarter and 49.8% for the third quarter of fiscal 2012

 

   

Non-GAAP gross margin(1) was 56.0% compared to 53.7% for the prior quarter and 53.9% for the third quarter of fiscal 2012

 

   

Adjusted EBITDA was $225 million or 19.5% of revenue compared to $172 million or 15.4% of revenue for the prior quarter and $225 million or 18.0% of revenue for the third quarter of fiscal 2012

 

   

Product revenue of $560 million increased by 5.9% compared to the prior quarter and decreased by 11.7% compared to the third quarter of fiscal 2012.

 

   

Avaya Global Services revenue of $590 million increased 0.2% compared to the prior quarter and decreased 4.2% compared to the third quarter of fiscal 2012

 

   

For the third fiscal quarter, percentage of revenue by geography was, U.S. with 56%, EMEA with 26%, Asia – Pacific with 9% and Americas International with 9%.

Conference Call and Webcast

Avaya will host a conference call to discuss these results at 5:00 p.m. EDT on Thursday, August 8, 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 22323223. 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 August 9 through September 9, by dialing 855-859-2056 within the United States and 404-537-3406 outside the United States. The replay access code is 22323223.

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 may be 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 are reasonable, such forward looking statements involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results to differ materially from any future results 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.


Avaya Inc.

Consolidated Statements of Operations

(Unaudited; in millions)

 

     For the three months ended
June 30,
    For the nine months ended
June 30,
 
     2013     2012     2013     2012  

REVENUE

        

Products

   $ 560      $ 634      $ 1,720      $ 2,020   

Services

     590        616        1,788        1,874   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,150        1,250        3,508        3,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

COSTS

        

Products:

        

Costs (exclusive of amortization of intangibles)

     234        271        731        862   

Amortization of technology intangible assets

     13        47        49        146   

Services

     276        309        849        946   
  

 

 

   

 

 

   

 

 

   

 

 

 
     523        627        1,629        1,954   
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

     627        623        1,879        1,940   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

        

Selling, general and administrative

     380        405        1,145        1,252   

Research and development

     112        116        343        344   

Amortization of intangible assets

     57        57        171        169   

Goodwill impairment

     —          —          89        —     

Restructuring and impairment charges, net

     63        21        165        132   

Acquisition-related costs

     1        1        1        4   
  

 

 

   

 

 

   

 

 

   

 

 

 
     613        600        1,914        1,901   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     14        23        (35     39   

Interest expense

     (122     (107     (346     (324

Loss on extinguishment of debt

     —          —          (6     —     

Other (expense) income, net

     (5     6        (9     (7
  

 

 

   

 

 

   

 

 

   

 

 

 

LOSS BEFORE INCOME TAXES

     (113     (78     (396     (292

Benefit from (provision for) income taxes

     3        (88     9        (62
  

 

 

   

 

 

   

 

 

   

 

 

 

NET LOSS

   $ (110   $ (166   $ (387   $ (354
  

 

 

   

 

 

   

 

 

   

 

 

 


Avaya Inc.

Consolidated Balance Sheets

(Unaudited; in millions)

 

     June 30,
2013
    September 30,
2012
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 271      $ 337   

Accounts receivable, net

     662        782   

Inventory

     256        255   

Deferred income taxes, net

     17        18   

Other current assets

     267        252   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     1,473        1,644   
  

 

 

   

 

 

 

Property, plant and equipment, net

     354        364   

Deferred income taxes, net

     48        43   

Intangible assets, net

     1,554        1,775   

Goodwill

     4,092        4,188   

Other assets

     181        180   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 7,702      $ 8,194   
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities:

    

Debt maturing within one year

   $ 35      $ 37   

Accounts payable

     410        438   

Payroll and benefit obligations

     232        262   

Deferred revenue

     663        616   

Business restructuring reserve, current portion

     119        84   

Other current liabilities

     272        302   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     1,731        1,739   
  

 

 

   

 

 

 

Long-term debt

     6,059        6,084   

Pension obligations

     1,648        1,763   

Other postretirement obligations

     325        360   

Deferred income taxes, net

     218        204   

Business restructuring reserve, non-current portion

     62        51   

Other liabilities

     456        429   
  

 

 

   

 

 

 

TOTAL NON-CURRENT LIABILITIES

     8,768        8,891   
  

 

 

   

 

 

 

Commitments and contingencies

    

DEFICIENCY

    

Common stock

     —          —     

Additional paid-in capital

     2,932        2,926   

Accumulated deficit

     (4,623     (4,236

Accumulated other comprehensive loss

     (1,106     (1,126
  

 

 

   

 

 

 

TOTAL DEFICIENCY

     (2,797     (2,436
  

 

 

   

 

 

 

TOTAL LIABILITIES AND DEFICIENCY

   $ 7,702      $ 8,194   
  

 

 

   

 

 

 


Avaya Inc.

Condensed Statements of Cash Flows

(Unaudited; in millions)

 

     For the nine months ended
June 30,
 
     2013     2012  

Net cash (used for) provided by:

    

Net loss

   $ (387   $ (354

Adjustments to net loss

     428        478   

Changes in operating assets and liabilities

     58        (184
  

 

 

   

 

 

 

Operating activities

     99        (60

Investing activities

     (89     (237

Financing activities

     (68     167   

Effect of exchange rate changes on cash and cash equivalents

     (8     1   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (66     (129

Cash and cash equivalents at beginning of period

     337        400   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 271      $ 271   
  

 

 

   

 

 

 


Avaya Inc.

Supplemental Schedules of Revenue

(Unaudited; in millions)

 

For the Three Months Ended           For the Three Months Ended June 30,  
Sept.  30,
2012
     Dec.  31,
2012
     Mar.  31,
2013
          Revenues     Mix     Change  
              2013     2012     2013     2012     Amount     Pct.  
         Revenue by Segment             
$ 588       $ 573       $ 473      

Global Communications Solutions

   $ 497      $ 561        43     45   $ (64     -11.4
  —           —           —        

Purchase accounting adjustments

     (1     (1     0     0     —          —     
  64         58         56      

Networking

     64        74        6     6     (10     -13.5

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  652         631         529      

Total ECS product revenue

     560        634        49     51     (74     -11.7
  625         609         589      

AGS

     590        616        51     49     (26     -4.2

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
$ 1,277       $ 1,240       $ 1,118      

Total revenue

   $ 1,150      $ 1,250        100     100   $ (100     -8.0

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         Revenue by Geography             
$ 694       $ 670       $ 592      

U.S.

   $ 639      $ 666        56     53   $ (27     -4.1

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        

International:

            
  327         331         298      

EMEA

     297        330        26     27     (33     -10.0
  126         123         116      

APAC - Asia Pacific

     105        128        9     10     (23     -18.0
  130         116         112      

Americas International - Canada and Latin America

     109        126        9     10     (17     -13.5

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  583         570         526      

Total International

     511        584        44     47     (73     -12.5

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
$ 1,277       $ 1,240       $ 1,118      

Total Revenue

   $ 1,150      $ 1,250        100     100   $ (100     -8.0

 

 

    

 

 

    

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


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
June 30,
    For the nine months ended
June 30,
 
     2013     2012     2013     2012  

Net loss

   $ (110   $ (166   $ (387   $ (354

Interest expense

     122        107        346        324   

Interest income

     (1     (1     (2     (3

(Benefit from) provision for income taxes

     (3     88        (9     62   

Depreciation and amortization

     110        140        331        426   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     118        168        279        455   

Impact of purchase accounting adjustments

     1        1        1        2   

Restructuring charges, net

     63        17        165        128   

Sponsors’ fees

     1        1        5        5   

Acquisition-related costs

     1        1        1        4   

Integration-related costs

     3        6        12        14   

Loss on extinguishment of debt

     —          —          6        —     

Third-party fees expensed in connection with the debt modification

     —          —          18        —     

Non-cash share-based compensation

     4        2        7        7   

Write-down of assets held for sale to net realizable value

     —          4        —          4   

(Gain) loss on investments and sale of long-lived assets, net

     (1     —          (1     3   

Goodwill impairment

     —          —          89        —     

Impairment of long-lived assets

     1        2        1        2   

Venezuela hyperinflationary and devaluation charges

     —          —          1        —     

Resolution of legal matters

     10        —          10        —     

Loss (gain) on foreign currency transactions

     5        (5     (10     7   

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

     19        28        64        73   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 225      $ 225      $ 648      $ 704   
  

 

 

   

 

 

   

 

 

   

 

 

 


Avaya Inc.

Supplemental Schedules of Non-GAAP Reconciliations

(Unaudited; in millions)

 

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

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

          

GAAP Gross Profit

   $ 623      $ 646      $ 666      $ 586      $ 627   

GAAP Gross Margin

     49.8     50.6     53.7     52.4     54.5

Items excluded:

          

Amortization of technology intangible assets

     47        46        22        14        13   

Impairment of capitalized software development costs

     2        4        —          —          1   

Share-based compensation

     1        1        1        —          2   

Purchase accounting adjustments

     1        1        —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Gross Profit

   $ 674      $ 698      $ 689      $ 600      $ 644   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Gross Margin

     53.9     54.7     55.6     53.7     56.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Non-GAAP Operating Income

          

GAAP Operating Income (Loss)

   $ 23      $ 76      $ 23      $ (72   $ 14   

Percentage of Revenue

     2     6     2     -6     1

Items excluded:

          

Amortization of acquired assets

     104        103        79        71        70   

Restructuring and impairment charges, net

     21        15        84        18        63   

Acquisition/integration-related costs

     6        6        5        6        5   

Share-based compensation

     2        1        2        1        4   

Impairment of capitalized software development costs

     2        4        —          —          1   

Incremental accelerated depreciation

     —          —          —          —          3   

Goodwill impairment

     —          —          —          89        —     

Resolution of legal matters

     —          —          —          —          10   

Purchase accounting adjustments

     1        1        —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Operating Income

   $ 159      $ 206      $ 193      $ 113      $ 171   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage of Revenue

     12.7     16.1     15.6     10.1     14.9