Avaya Reports Second Fiscal Quarter 2013 Results

Marketwired

SANTA CLARA, CA--(Marketwired - May 9, 2013) -  

Second Quarter 2013

  • Revenue of $1.12 billion
  • Non-GAAP Operating Income(1) of $113 Million
  • Adjusted EBITDA(1) of $172 Million

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."

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%.

(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.

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 March 31,     For the six months ended 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,     September 30,  
    2013     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,     June 30     Sept. 30,     Dec. 31     Mar. 31  
    2012     2012     2012     2012     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 %
Contact:
Media Inquiries:
Deb Kline
908-953-6179 (office)
klined@avaya.com

Investor Inquiries:
Matthew Booher
908-953-7500 (office)
mbooher@avaya.com
View Comments (0)