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Avaya Reports Fourth Fiscal Quarter and Fiscal Year 2007 Results

10-18-2007
  • Q4 Revenues increase to $1.429 Billion, the Highest Level in Six Years; 4.8% increase compared to Prior Year; Q4 Sales of Products increase 7.8%, with a 9.5% increase in Converged Voice Applications Revenues and Company Record for IP Telephony Line Shipments; Q4 Gross Margin Increased to 47.4%; Q4 Cash Flows from Operations Total $228 Million, the Highest Quarterly Cash Flow in Three Years; FY07 Cash Flows from Operations Total $637 Million; Q4 GAAP Operating Income was $35 Million; FY07 GAAP Operating Income was $276 Million; Q4 Non-GAAP Operating Income(1)

Avaya announced net income of $35 million and earnings per share of 8 cents for the fourth fiscal quarter of 2007.

BASKING RIDGE, N.J. – Avaya Inc., (NYSE:AV) a leading global provider of business communications applications, systems and services, today announced net income of $35 million and earnings per share of 8 cents for the fourth fiscal quarter of 2007 on a U.S. generally accepted accounting principles (GAAP) basis. This compares with net income of $48 million and earnings per share of 10 cents for the fourth fiscal quarter of 2006. Non-GAAP net income  was $87 million or 19 cents per share compared with non-GAAP net income1 for the fourth fiscal quarter of 2006 of $80 million or 17 cents per share.
 
Avaya's fourth fiscal quarter 2007 revenues increased 4.8 percent to $1.429 billion compared to $1.364 billion in the same period last year.  The company shipped a record number of IP lines and over one million IP lines for the sixth consecutive quarter. Sales of products increased 7.8 percent, including a 9.5 percent increase in converged voice applications revenues. Services revenues increased 5.4 percent and rental and managed services revenues declined 10.6 percent. U.S. revenues declined by 1.6 percent. The weaker U.S. dollar favorably impacted international regions, and accounted for a $39 million year-over-year revenue increase. EMEA and APAC revenues grew by 10.7 percent and 15.5 percent, respectively. Revenues in the Americas, non-U.S., grew by 25.3 percent.

 

The company's gross margin increased to 47.4 percent for the fourth fiscal quarter of 2007 compared to 46.6 percent for the same period last year. 

 

Selling, general and administrative expenses were $39 million higher, and research and development expenses were relatively flat when compared to the same period last year. 

 

The company reported operating income for the fourth fiscal quarter of 2007 of $35 million and non-GAAP operating income1 of $139 million. In the fourth fiscal quarter of 2006, the company reported operating income of $75 million and non-GAAP operating income1 of $137 million.  Operating income for the fourth quarter of fiscal 2007 includes $7 million of business restructuring charges and $97 million of merger-related costs, of which $90 million relates to the accelerated vesting of stock options and restricted stock units in connection with the acquisition of Avaya by affiliates of Silver Lake Partners and TPG Capital, two private equity firms. These amounts have been excluded in calculating non-GAAP operating income1 and non-GAAP net income1 for the fourth quarter of fiscal 2007.

 

Avaya's effective tax rate was 32.7% for the fourth quarter of fiscal 2007. The provision for income taxes includes $21 million of favorable tax items which have been excluded in calculating non-GAAP net income1.

 

Avaya generated $228 million in operating cash flow during the fourth fiscal quarter of 2007 compared to $191 million in the fourth fiscal quarter of 2006. Avaya's cash balance at the end of the fourth quarter of fiscal 2007 was $1.270 billion, compared with $899 million as of September 30, 2006.

 

Fiscal Year 2007 Results
Revenues for fiscal 2007 were $5.279 billion compared to $5.148 billion last year. The weaker U.S. dollar favorably impacted international regions, and accounted for the revenue increase. The company earned GAAP net income of $218 million and earnings per share of 47 cents for fiscal 2007, compared to net income of $201 million and earnings per share of 43 cents for fiscal 2006. Non-GAAP net income1 was $281 million, or 61 cents per share for fiscal 2007 compared with $241 million, or 49 cents per share for fiscal 2006. Fiscal 2007 GAAP operating income was $276 million compared to $263 million for fiscal 2006. Non-GAAP operating income1 for fiscal 2007 was $417 million compared to $367 million for fiscal 2006. Operating cash flow for fiscal 2007 was $637 million compared to $647 million for fiscal 2006.

 

Update on Closing of Acquisition of Avaya
Avaya also confirmed today that the acquisition of the company by affiliates of Silver Lake Partners and TPG Capital is scheduled to close by the end of October.

 

Fourth Quarter Highlights
Since the end of the last quarter, Avaya has announced several customer wins, new offers and awards including:

 

Bell Canada announced an agreement to standardize on the full portfolio of Avaya IP Telephony solutions.  This is the first time Bell Canada has standardized a full product line in over 13 years.

 

Black & Decker selected Avaya to power the company’s communications. Avaya will help Black & Decker build an IP Telephony-based network for nearly 200 locations with highly perse needs around the globe. The implementation will help the company improve productivity and customer service, control costs, and support new ways of doing business.

 

Avaya delivered an IP telephony system to Telemarketing Japan, Inc. (TMJ), one of the major telemarketing outsourcers in Japan. The system allows TMJ to centralize operations and management of their data center, enabling TMJ to increase the overall availability of the system, reduce equipment cost and to develop an infrastructure flexible to business expansion.

 

As Villanova University, the most wired college in the U.S. (PC Magazine, Dec. 2006), plots its technology future, new intelligent communications networking and applications give it a powerful, flexible foundation to further its vision and provide a wealth of new capabilities today. The new Avaya and Extreme Networks IP telephony network now links 60 buildings on Villanova’s Philadelphia campus. With new intelligent communications capabilities – including converged networking, unified communications and contact center applications – the university now is extending its technology leadership and improving campus safety.

 

Avaya announced a new solution that provides users of Nokia “E Series” business devices with one number access and advanced enterprise telephony capabilities as they travel across private Wi-Fi and public cellular networks. With a single Voice over IP-enabled mobile device, workers can "handoff" phone calls using dual mode communications, as they travel from inside a company building (Wi-Fi) to the outside environment (cellular) – and vice versa. This provides mobile workers a more convenient and productive way to manage their communications, while giving organizations a more cost-effective way to manage enterprise mobility. 
 
The solution – Avaya one-X Mobile Dual Mode – combines Avaya's IP-based applications with Nokia E series business devices (Nokia E60, Nokia E61 and Nokia E70 models) to deliver the full benefits of fixed mobile convergence. Calls made to a worker's deskphone can be received on a Nokia E series business device, ensuring mobile workers remain accessible to customers and colleagues wherever they go.

 

Avaya debuted new versions of its industry-leading self-service software. The enhancements make it easier and more cost-effective to improve customer service with speech automation, and provide a foundation for using self-service to create faster, more productive business processes. The new products include Avaya Voice Portal 4.0, the company's flagship self-service software, and Interactive Response 3.0, one of the industry's most widely-deployed self-service platforms. Also unveiled was the new version of Avaya Dialog Designer 4.0, a tool for developing next-generation speech self-service applications.

 

Avaya received Frost & Sullivan's 2007 North American Market Leadership Award for Interactive Voice Response (IVR) based on its leading market share and strategy in IVR solutions. According to Frost & Sullivan's latest research, Avaya leads the North American IVR market with a 22.7 percent share. The company's success is led by sales of the Avaya Voice Portal, a software platform that uses Web Services to provide companies with a faster, easier way to deliver speech-enabled self-service across highly distributed enterprises. 

 

Avaya widened its lead in worldwide enterprise IP telephony revenues, according to Synergy Research Group's 2Q 2007 Enterprise Voice Market Shares Report. With this report, Avaya marks another quarter of leadership in this market, as more businesses around the globe evolve their voice networks to IP telephony. Avaya is a global provider of business communications applications, systems and services.
 
The report shows Avaya as the #1 vendor in IP telephony revenues as defined by Synergy with 25.4 percent of the global market for the second quarter of 2007. In addition, the report shows that Avaya retained its leadership position in the worldwide overall enterprise telephony market in revenue, with nearly 19 percent of the market in the second quarter of 2007, more than 2 percentage points over its nearest competitor.

 

Forward-Looking Statements

Certain statements made in this press release are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  hese statements regarding Avaya's expected performance and outlook for operating results are 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:

 

  • price and product competition, including from competitors who may offer products and applications similar to those we offer as part of another offering, and from current leaders in information technology which benefit from the convergence of enterprise voice and data networks;
  • rapid or disruptive technological development, including the effects of the technology shift from traditional TDM to IP telephony;
  • dependence on new product development;
  • customer demand for our products and services, including risks specifically associated with the services business and, in particular, the maintenance and rental and managed services lines of business, primarily due to renegotiations of customer contracts and changes in scope, pricing erosion and cancellations;
  • supply issues related to our outsourced manufacturing operations, logistics, distribution or components;
  • risks related to inventory, including warranty costs, obsolescence charges, excess capacity, material and labor costs, and our distributors' decisions regarding their own inventory levels;
  • general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations;
  • the economic, political and other risks associated with international sales and operations, including increased exposure to currency fluctuations and to European economies as a result of a large percentage of our business being conducted in Europe;
  • the ability to successfully integrate acquired companies, which may require significant management time and attention;
  • the ability to attract and retain qualified employees;
  • control of costs and expenses, including difficulties in completing restructuring actions in a timely and efficient manner due to labor laws and required approvals;
  • U.S. and non-U.S. government regulation; and
  • the ability to form and implement alliances.

 

In addition, we may not be able to complete the proposed sale of the company on the terms summarized in Avaya's filings with the SEC or on other acceptable terms, or at all, due to a number of factors, including the failure to satisfy customary closing conditions. 

 

For a further list and description of such risks and uncertainties, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of Avaya's filings with the SEC, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, which 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.

 

Use of Non-GAAP Financial Measures

In an effort to provide investors with additional information regarding the company's results as determined by GAAP, the company has also disclosed non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share in this press release.

 

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States and they have limitations in that they do not reflect all amounts associated with Avaya's results of operations as determined in accordance with GAAP. These measures should only be used in evaluating Avaya's results of operations together with the corresponding GAAP measures. 

 

Avaya believes that the presentation of non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share, which exclude the impact of restructuring charges, acquisition and merger-related charges and certain income tax items, provides meaningful supplemental information regarding Avaya's performance. These non-GAAP financial measures also help investors compare Avaya's financial results for the current quarter to its financial results for prior quarters and the prior fiscal year. In addition, Avaya's management uses these measures when reviewing the company's financial results and to further understand the company’s operating performance. 

 

The reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures is included at the end of this press release.

 

About Avaya

Avaya delivers Intelligent Communications solutions that help companies transform their businesses to achieve marketplace advantage. More than 1 million businesses worldwide, including more than 90 percent of the FORTUNE 500®, use Avaya solutions for IP Telephony, Unified Communications, Contact Centers and Communications Enabled Business Processes. Avaya Global Services provides comprehensive service and support for companies, small to large. For more information visit the Avaya Web site: http://www.avaya.com.

 

1Avaya defines non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share as excluding the impact of restructuring charges, acquisition and merger-related charges and certain income tax items. See "Reconciliation of Non-GAAP Financial Measures" accompanying the release.

 

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