Le Lézard
Classified in: Science and technology, Business
Subject: EARNINGS

Avaya Updates Third Quarter Fiscal 2017 Financial Results


SANTA CLARA, CA--(Marketwired - September 15, 2017) - 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
June 30,
  Nine months ended
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 $(146) $(115) $(254) $(245
)
  
  
Avaya Inc. 
(Debtor-in-possession) 
Consolidated Balance Sheets 
(Unaudited; in millions) 
       
  June 30,
2017
  September 30,
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 $5,866  $5,821
 
  
  
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 $729  $269
 
                          
                          
Avaya Inc. 
(Debtor-in-possession) 
Supplemental Schedules of Revenue 
(Unaudited; in millions) 
                          
Three Months Ended   Three Months Ended June 30, 
        Revenues Mix  Change 
Sept. 30, 2016 Dec. 31, 2016 Mar. 31, 2017   2017 2016 2017  2016  Amount  Pct.  Pct., net of FX 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%
 469  401  348 Total ECS product revenue  345  398 43% 45%  (53) -13% -13%
 489  474  456 AGS  458  484 57% 55%  (26) -5% -5%
$958 $875 $804 Total revenue $803 $882 100% 100% $(79) -9% -8%
                                
                                
         Revenue by Geography                      
$552 $466 $450 U.S. $435 $487 54% 55% $(52) -11% -11%
         International:                      
 217  234  202  EMEA  204  206 25% 23%  (2) -1% 0%
 104  90  77  APAC - Asia Pacific  88  102 11% 12%  (14) -14% -14%
 85  85  75  Americas International - Canada and Latin America  76  87 10% 10%  (11) -13% -11%
 406  409  354 Total International  368  395 46% 45%  (27) -7% -6%
$958 $875 $804 Total revenue $803 $882 100% 100% $(79) -9% -8
%
                                
                                

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
June 30,
  Nine months ended
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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