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Avaya Reports First Fiscal Quarter 2005 Results

01-25-2005

Avaya reported income from continuing operations of $33 million or seven cents per diluted share in the first fiscal quarter of 2005.

Avaya Inc. (NYSE:AV), a leading global provider of business communications software, systems and services, reported income from continuing operations of $33 million or seven cents per diluted share in the first fiscal quarter of 2005.

In the same quarter last year the company reported income from continuing operations of $30 million or seven cents per diluted share.

Avaya said first quarter income from continuing operations of $33 million included a loss associated with its senior secured notes tender, as well as integration costs and write-offs of in-process research and development related to the acquisitions of Spectel and Tenovis. These items had a negative impact of 11 cents per diluted share in the first fiscal quarter. In addition, the acquisitions contributed an operational loss in the quarter. The combined impact of all these charges and losses was a reduction in earnings per share of 13 cents.

Avaya's first fiscal quarter 2005 revenues increased 18 percent to $1.148 billion compared to revenue of $971 million in the first fiscal quarter of 2004. The revenue increase largely reflected the impact of recent acquisitions and favorable currency rates. Excluding these two items, revenues grew at double-digit rates in all regions except the United States where sales were essentially unchanged versus the year ago period.

"We continue to improve our profitability with operating income rising 70 percent year-over-year," said Don Peterson, chairman and CEO, Avaya. "We completed the Tenovis acquisition, shipped our five millionth IP telephony line and substantially reduced our debt. Our first quarter results position us to meet our goals for the year."

Avaya said its fiscal 2005 goals are to increase revenues between 25 and 27 percent compared to fiscal 2004 revenues of $4.055 billion, grow operating income by 40 percent compared to $311 million in fiscal 2004 and raise annualized operating margin to between 8.5 and 9 percent compared to 7.7 percent last year.*

As a result of the Tenovis acquisition, which has a significant rental and managed services business, Avaya made changes and enhancements to its financial reporting:

On a consolidated basis, the company now breaks out revenue into three line items — products, rental and managed services, and services — and provide costs for each of these three.

On a segment level, the company groups businesses into two reporting units — Global Communications Solutions and Avaya Global Services — and provides a breakout of major revenue line items within each.

The company also is providing more information on the geographic breakout of revenues and product revenue by channel.

First Fiscal Quarter Highlights
During the quarter, Avaya was recognized as a market leader by a variety of industry analyst groups for products and solutions across our portfolio. Among the analyst reports:

  • In IP Telephony, Synergy Research Group cited Avaya as the worldwide leader in enterprise IP telephony — for the fourth straight quarter. In Asia Pacific, Frost and Sullivan have noted Avaya as the IP telephony leader.
  • In contact centers, was cited by Frost and Sullivan as the "clear favorite" in a survey of business leaders.
  • In Unified Messaging the IDC Leadership Grid places Avaya significantly ahead of all competitors.

In the quarter, Avaya put new solutions on the market, including The Avaya Video Telephony Solution: Desktop Edition, an IP-based solution that makes desktop videoconferencing as simple as a phone call. The solution lets users initiate videoconferences from an office, home office or remote location via PC or laptop — through a broadband or Wireless LAN connection.

We delivered Avaya Modular Messaging — which can support up to 20,000 users in multiple locations using a single, centralized system and IP telephony and networking.

Customers across the globe are moving or migrating to Avaya IP Telephony, including:

  • The government of Washington, D.C., which is deploying Avaya voice solutions as part of its DCNet initiative to link 30,000 employees in 360 locations;
  • In Mexico, we were awarded one of the country's largest IP telephony implementations to date — a new network for Prosa, a Mexican company specializing in processing electronic transactions, that will connect more than 10,000 endpoints;
  • Honda UK which has selected Avaya IP Office and wireless networking for dealerships; and
  • Rakuten, a Japanese eCommerce company with one of the country's largest installations of IP Telephony, which is supported by Avaya IP telephony solutions.

Avaya closed on the following acquisitions in the quarter: Tenovis, a major European provider of enterprise communications systems and services; Spectel, a world leader in audio and web conferencing for enterprises and service providers — whose products are now being marketed under Avaya Meeting Exchange; and RouteScience, a maker of adaptive networking software that helps companies monitor and manage VoIP and other latency-sensitive traffic over wide area networks.

About Avaya
Avaya Inc. designs, builds and manages communications networks for more than one million businesses worldwide, including more than 90 percent of the FORTUNE 500®. Focused on businesses large to small, Avaya is a world leader in secure and reliable Internet Protocol telephony systems and communications software applications and services.

Driving the convergence of voice and data communications with business applications — and distinguished by comprehensive worldwide services — Avaya helps customers leverage existing and new networks to achieve superior business results. For more information visit the Avaya Web site: http://www.avaya.com

This news release contains forward-looking statements regarding the company's outlook for operating results based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to, general industry market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations and the economic, political, and other risks associated with international sales and operations, U.S. and foreign government regulation, price and product competition, rapid technological development, dependence on new product development, the successful introduction of new products, the mix of our products and services, customer demand for our products and services, the ability to successfully integrate acquired companies, control of costs and expenses, the ability to implement in a timely manner our restructuring plans, and the ability to form and implement alliances.

For a further list and description of such risks and uncertainties, see the reports filed by Avaya with the Securities and Exchange Commission. 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.

* As previously disclosed, Avaya's fiscal 2004 revenues of $4.055 billion exclude $14 million resulting from a reversal of reserves for sales returns and allowances. The company reversed the reserve as a result of operational improvements during fiscal 2004. Fiscal 2004 operating income of $311 million and operating margin of 7.7 percent exclude $12 million as a result of the reversal.

NOTE: Avaya will host a conference call with a listen-only Q&A session to discuss these results at 5:00 p.m. EST on Tuesday, Jan. 25, 2005. To ensure you are on the call from the start, we suggest you access the call 10-15 minutes early by dialing:

Within and outside the United States: 706-634-2454

For those unable to participate, there will be a playback available from 8:00 p.m. EST Jan. 25, through Feb. 1, 2005. For the replay, if you are calling from within the United States, please dial 800-642-1687. If you are calling from outside the United States, please dial 706-645-9291. The passcode for the replay is 3196207.

WEBCAST Information: Avaya will Webcast this conference call live, with a listen-only Q&A session. To ensure that you are on the Webcast, we suggest that you access our Web site (http://investors.avaya.com) 10-15 minutes prior to the start. Slides 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.

View the earnings statement.

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