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Avaya Reports Third Quarter Fiscal 2018 Financial Results

08-09-2018
  • Named to the Gartner's Leaders Quadrant for both Contact Center and Unified Communications Magic Quadrants
  • Continued strong cash generation of $83 million from operating activities
  • Grew cloud MRR in Midmarket/SMB by 43% and Enterprise by 107% quarter-over-quarter
  • Gained strength in our core business, with third consecutive quarter of increased bookings

SANTA CLARA, Calif.--(BUSINESS WIRE)-- Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the third quarter and first nine months of fiscal 2018 ended June 30, 2018.

 
    GAAP       Non-GAAP (1)
(In millions, except percentages)   Q3 2018   Q2 2018   Q3 2017 Q3 2018   Q2 2018   Q3 2017
Revenue $ 692 $ 672 $ 803 $ 755 $ 757 $ 803
Gross margin 50.9 % 48.1 % 61.4 % 61.9 % 62.4 % 62.0 %
Operating margin (7.1 )% (13.2 )% (5.4 )% 20.0 % 20.7 % 21.0 %
 

GAAP revenue was $692 million, including $2 million related to Avaya’s former Networking business, which was sold on July 14, 2017. Revenue for the second quarter of fiscal 2018, was $672 million, including $1 million related to the Networking business. Revenue for the third quarter of fiscal 2017 ended June 30, 2017 was $803 million, including $54 million related to the Networking business.

Non-GAAP revenue adjusted to further exclude the revenue of the Networking business was $753 million for the third quarter of fiscal 2018, $3 million lower than the prior quarter, and $4 million higher than the third quarter of fiscal 2017, with both changes resulting primarily from the impact of foreign currency translation.

“Our third quarter results represent continued stability in our business and establishes a solid foundation for a strong finish to the fiscal year end,” said Jim Chirico, President and CEO, Avaya. "We continue to execute on our strategy and innovate. We are building strength in our core business, integrating digital technologies like AI, mobility, accelerating our move to the cloud, and expanding our services capabilities. Avaya is well-positioned to grow, while delivering ongoing value to our customers.”

Gross margin was 50.9% compared to 48.1% for the second quarter of fiscal 2018 and 61.4% for the third quarter of fiscal 2017. Non-GAAP gross margin was 61.9%, compared to 62.4% for the second quarter of fiscal 2018 and 62.0% for the third quarter of fiscal 2017.

Operating loss was $49 million, compared to operating loss of $89 million for the second quarter of fiscal 2018 and operating loss of $43 million for the third quarter of fiscal 2017. Non-GAAP operating income for the third quarter of fiscal 2018 was $151 million, or 20.0% of non-GAAP revenue, compared to $157 million for the prior quarter and $169 million for the third quarter of fiscal 2017.

Net loss was $88 million, compared to net loss of $130 million for the second quarter of fiscal 2018, and a net loss of $98 million for the third quarter of fiscal 2017.

Adjusted EBITDA was $175 million or 23.2% of non-GAAP revenue, compared to adjusted EBITDA of $187 million, or 24.7% of non-GAAP revenue, for the second quarter of fiscal 2018 and $204 million, or 25.4% of non-GAAP revenue, for the third quarter of fiscal 2017.

Cash provided by operating activities for the third quarter of fiscal 2018 was $83 million, compared to $54 million during the second quarter of fiscal 2018 and $72 million during the third quarter of fiscal 2017. Cash and cash equivalents totaled $685 million at the end of the third quarter of fiscal 2018, compared to $311 million at the end of the second quarter of fiscal 2018 and $729 million at the end of the third quarter of fiscal 2017. The sequential increase in cash and cash equivalents is primarily due to $314 million of net proceeds from the issuance of convertible notes and cash flow from operations of $83 million offset by capital expenditures of $18 million.

(1) Non-GAAP revenue, Non-GAAP gross margin, Non-GAAP operating margin, Non-GAAP operating income and adjusted EBITDA are not measures calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Refer to the Supplemental Financial Information accompanying this press release for more information, including a reconciliation of these measures to the most closely comparable measure calculated in accordance with GAAP.

Third Quarter Fiscal 2018 Business Highlights

  • The new Avaya IP Office™ launched globally, with enterprise-grade capabilities including cloud unified communications (UC) with voice and video, meetings, team collaboration, and content sharing.
  • A new version of the Avaya Workforce Optimization suite for contact centers was released, which advances customer engagement and data privacy, and helps enterprises address GDPR requirements.
  • Avaya Essential and J Series next-generation IP phones deliver new productivity for both enterprise and mid-market customers.
  • Obtained first patent and customer implementation for groundbreaking Avaya Mobile Experience technology that optimizes the experience for mobile callers into the contact center.
  • Telarus, the largest privately-held technology services distributor (master agent) in the U.S., joined Intelisys and Jenne in offering Avaya cloud (UC) and contact center (CC) solutions.
  • The Customer Relationship Management Institute for the fifth year recognized Avaya with the NorthFace scoreboard award for excellence in customer service.
  • Nuance, a charter member of the Avaya AI Connect program, recognized Avaya as their top-producing partner in North America. Workforce Optimization partner, Verint, also named Avaya their CALA partner of the year.
  • Avaya announced the new Avaya Innovation Incubator, chartered with creating disruptive solutions with a focus on mobility, security and artificial intelligence.
  • A record of over 2,800 customers and partners attended Avaya Engage Mexico and over 400 attendees at Asia Engage.

Third Quarter Fiscal 2018 Performance Highlights

  • Non-GAAP revenue grew 1% year-over-year (excluding networking).
  • Bookings grew 3% year-over-year (excluding networking).
  • Continued strength in our business model as a software & services company:
    • Software and services accounted for 82% of non-GAAP revenue, up year-over-year from 79%;
    • Recurring revenue represented 59% of non-GAAP revenue, up year-over-year from 57%; and
    • 97 deals over $1 million of Total Contract Value, up 33% year-over-year.
  • Avaya Cloud Contact Center, our secure multitenant contact center as a service (CCaaS) solution, has over 40,000 seats signed and over a dozen deals in pipeline.
  • Added over 1,700 new logos worldwide.

Third Quarter Fiscal 2018 Financial Highlights

  • Avaya Inc. repriced its $2.9 billion Senior Secured Term Loan saving over $14 million in annual cash interest expense.
  • Completed an offering of $350 million in aggregate principal amount of 2.25% convertible notes due 2023 significantly improving liquidity and financial flexibility.
  • Cash and cash equivalents was $685 million and cash flow from operating activities was $83 million for the quarter.

Financial Outlook - Q4 Fiscal 2018

  • GAAP revenue of $705-$735 million, non-GAAP revenue of $760-$780 million
  • GAAP operating loss of 3% to operating income of 2% of revenue, non-GAAP operating profit of 20-22% of non-GAAP revenue
  • GAAP operating loss of $24 million to operating income of $13 million, non-GAAP operating income $153-$172 million
  • Cash taxes of approximately $6 million
  • Adjusted EBITDA of $175-195 million or adjusted EBITDA margin of 23-25% of non-GAAP revenue
  • Approximately 111 million shares outstanding

Financial Outlook - Fiscal Year 2018

  • GAAP Revenue of $2.82-$2.85 billion, non-GAAP revenue of $3.05-$3.07 billion
  • R&D of approximately $197 million, non-GAAP R&D of $197 million or approximately 15% of non-GAAP product revenue
  • SG&A of approximately $2.75 billion, non-GAAP SG&A of approximately $1.06 billion or 34-35% of non-GAAP revenue
  • Operating loss of $87-$124 million, non-GAAP operating income of $633-$652 million or approximately 21% of non-GAAP revenue
  • Adjusted EBITDA $743-$763 million, or 24.5-25.0% of non-GAAP revenue

Avaya’s outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments, or other significant transactions that may be completed after August 9, 2018. Actual results may differ materially from Avaya’s outlook as a result of, among other things, the factors described under “Forward-Looking Statements” below.

Conference Call and Webcast

Avaya will host a webcast and conference call to discuss its financial results and Q&A at 8:30 AM ET/5:30 AM PT on August 9, 2018. On the call will be Jim Chirico, President and CEO, and Pat O’Malley, Senior Vice President and CFO. The call will be moderated by Peter Schuman, Senior Director of Investor Relations.

To join the financial results live webcast and view supplementary materials including earnings presentation and CFO commentary, listeners should access the investor page of Avaya’s website https://investors.avaya.com. Following the live webcast, a replay will be available in the event archives at the same web address for a period of one year.

To access the financial results call live by phone, dial +1-866-393-4306 in the U.S. or Canada and +1-734-385-2616 for international callers. Listeners should access the webcast or the call 10-15 minutes before the start time to ensure they are able to connect.

A replay of the financial results live conference call will be available for two business days soon after the call by phone by dialing +1-855-859-2056 in the U.S. or Canada and +1-404-537-3406 for international callers, using the conference access code: 1795778.

Links to this financial results press release and accompanying slides are available on the investor page of Avaya’s website https://investors.avaya.com.

About Avaya

Avaya is a global leader in digital communications software, services and devices for businesses of all sizes. Our open, intelligent and customizable solutions for contact centers and unified communications offer the flexibility of Cloud, on-premises and hybrid deployments. Avaya shapes intelligent connections and creates seamless communication experiences for our customers, and their customers. Our professional planning, support and management services teams help optimize solutions, for highly reliable and efficient deployments. Avaya Holdings Corp. is traded on the NYSE under the ticker AVYA. For more information, please visit www.avaya.com.

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, the outlook for the fourth quarter of 2018 and fiscal year 2018. 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 are discussed in Amendment No. 3 to the company’s Registration Statement on Form 10 and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”), and 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.

 

Avaya Holdings Corp.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)

 
 
      Successor     Predecessor     Successor     Predecessor

Three months
ended
June 30,
2018

Three months
ended
June 30,
2017

Period from
December 16, 2017
through
June 30, 2018

Period from
October 1, 2017
through
December 15, 2017

   

Nine months
ended
June 30,
2017

REVENUE
Products $ 300 $ 345 $ 664 $ 253 $ 1,094
Services 392   458   848   351   1,388  
692   803   1,512   604   2,482  
COSTS
Products:
Costs 114 121 257 84 394
Amortization of technology intangible assets 44 5 92 3 16
Services 182   184   410   155   560  
340   310   759   242   970  
GROSS PROFIT 352   493   753   362   1,512  
OPERATING EXPENSES
Selling, general and administrative 281 295 613 264 923
Research and development 51 59 110 38 178
Amortization of intangible assets 39 57 86 10 170
Impairment of indefinite-lived intangible assets 65 65
Goodwill impairment 52 52
Restructuring charges, net 30   8   80   14   22  
401   536   889   326   1,410  
OPERATING (LOSS) INCOME (49 ) (43 ) (136 ) 36 102
Interest expense (56 ) (17 ) (112 ) (14 ) (229 )
Other income (expense), net 37 (9 ) 32 (2 ) (27 )
Reorganization items, net   (35 )   3,416   (77 )
(LOSS) INCOME BEFORE INCOME TAXES (68 ) (104 ) (216 ) 3,436 (231 )
(Provision for) benefit from income taxes (20 ) 6   235   (459 ) 22  
NET (LOSS) INCOME $ (88 ) $ (98 ) $ 19   $ 2,977   $ (209 )
Net (loss) income per share:
Basic $ (0.80 ) $ (0.22 ) $ 0.17   $ 5.19   $ (0.47 )
Diluted $ (0.80 ) $ (0.22 ) $ 0.17   $ 5.19   $ (0.47 )
Weighted average shares outstanding:
Basic 109.8   497.2   109.8   497.3   497.0  
Diluted 109.8   497.2   111.0   497.3   497.0  
 
 

Avaya Holdings Corp.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share and shares amounts)

 
      Successor     Predecessor
June 30, 2018

September 30, 2017

ASSETS

Current assets:
Cash and cash equivalents $ 685 $ 876
Accounts receivable, net 367 536
Inventory 102 96
Other current assets 238   269  

TOTAL CURRENT ASSETS

1,392 1,777
Property, plant and equipment, net 261 200
Deferred income taxes, net 21
Intangible assets, net 3,321 311
Goodwill 2,778 3,542
Other assets 64   68  

TOTAL ASSETS

$ 7,837   $ 5,898  

LIABILITIES

Current liabilities:
Debt maturing within one year $ $ 725
Long-term debt, current portion 29
Accounts payable 326 282
Payroll and benefit obligations 119 127
Deferred revenue 479 614
Business restructuring reserve 57 35
Other current liabilities 129   90  

TOTAL CURRENT LIABILITIES

1,139   1,873  
Non-current liabilities:
Long-term debt, net of current portion 3,099
Pension obligations 731 513
Other post-retirement obligations 213
Deferred income taxes, net 488 32
Business restructuring reserve 52 34
Other liabilities 388   170  
TOTAL NON-CURRENT LIABILITIES 4,971 749
LIABILITIES SUBJECT TO COMPROMISE   7,705  

TOTAL LIABILITIES

6,110 10,327
Commitments and contingencies (Note 20)
Predecessor equity awards on redeemable shares 7
Predecessor preferred stock, $0.001 par value, 250,000 shares authorized at September 30, 2017
Convertible Series B preferred stock; 48,922 shares issued and outstanding at September 30, 2017 393
Series A preferred stock; 125,000 shares issued and outstanding at September 30, 2017 184
Successor preferred stock, $0.01 par value; 55,000,000 authorized, no shares issued or outstanding at June 30, 2018

STOCKHOLDERS' EQUITY (DEFICIT)

Predecessor common stock, $0.001 par value; 750,000,000 shares authorized, 494,768,243 issued and outstanding at September 30, 2017
Successor common stock, $0.01 par value; 550,000,000 shares authorized, 110,160,835 issued and 109,954,972 outstanding at June 30, 2018 1
Additional paid-in capital 1,739 2,389
Retained earnings (accumulated deficit) 19 (5,954 )
Accumulated other comprehensive loss (32 ) (1,448 )

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

1,727   (5,013 )

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$ 7,837   $ 5,898  
 

Avaya Holdings Corp.

Condensed Statements of Cash Flows

(Unaudited; in millions)

 
      Successor     Predecessor    

Non-GAAP
Combined (1)

    Predecessor
(In millions)

Period from
December 16, 2017
through
June 30, 2018

Period from
October 1, 2017
through
December 15, 2017

Nine
months
ended
June 30, 2018

Nine
months
ended
June 30, 2017

Net cash provided by (used for):
Net income (loss) $ 19 $ 2,977 $ 2,996 $ (209 )
Adjustments to net income (loss) for non-cash items 52 (3,410 ) (3,358 ) 456
Changes in operating assets and liabilities 106   19   125   (122 )
Operating activities 177 (414 ) (237 ) 125
Investing activities (137 ) 8 (129 ) (120 )
Financing activities 284 (102 ) 182 387
Effect of exchange rate changes on cash and cash equivalents (5 ) (2 ) (7 ) 1  
Net increase (decrease) in cash and cash equivalents 319 (510 ) (191 ) 393
Cash and cash equivalents at beginning of period 366   876   876   336  
Cash and cash equivalents at end of period $ 685   $ 366   $ 685   $ 729  
 

(1) Due to the company’s emergence from Chapter 11 proceedings during the first quarter of fiscal 2018, and adoption of fresh start accounting effective on December 15, 2017, the results for the first nine-months of fiscal 2018 are required by GAAP to be presented separately as the predecessor period from October 1, 2017 through December 15, 2017 (inclusive of results prior to October 1, 2017, the “Predecessor” period) and the successor period from December 16, 2017 through June 30, 2018 (the “Successor” period). The application of fresh start accounting results in a new basis of accounting making the results of the Predecessor period not comparable to the results of the Successor period. Where applicable we have, however, combined results of the Predecessor and Successor periods for discussion purposes as we believe it provides the most meaningful basis to analyze our results. Refer to Supplemental Financial Information accompanying this press release for more information, including a reconciliation of combined results to our Predecessor and Successor results.

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 the combined three month period ending December 31, 2017, combined nine month period ending June 30, 2018 and financial measures labeled as “non-GAAP” or “adjusted.”

Although GAAP requires that we report on our results for the periods October 1, 2017 through December 15, 2017 and December 16, 2017 through December 31, 2017 or June 30, 2018 as applicable, separately, management reviews the company’s operating results for the three months ended December 31, 2017 and the nine months ended June 30, 2018 by combining the results of these periods because such presentation provides the most meaningful comparison of our results. The company cannot adequately benchmark the operating results of the 16-day period ended December 31, 2017 against any of the previous periods reported in its condensed consolidated financial statements and does not believe that reviewing the results of this period in isolation would be useful in identifying any trends regarding the company’s overall performance. Management believes that the key performance metrics such as revenue, gross margin and operating income, among others, when combined for the three and nine months ended December 31, 2017 and June 30, 2018, respectively, provide meaningful comparisons to other periods and are useful in identifying current business trends.

We also present the measures non-GAAP revenue, non-GAAP gross margin, non-GAAP operating margin and non-GAAP operating income, EBITDA and adjusted EBITDA as a supplement to our unaudited condensed consolidated financial statements presented in accordance with GAAP. We believe these non-GAAP measures are the most meaningful for period to period comparisons because they exclude the impact of the earnings and charges noted in the applicable tables below that resulted from matters that we consider not to be indicative of our ongoing operations. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from the non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP.

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 and the tables below.

We believe that including supplementary information concerning adjusted EBITDA is appropriate because it serves as a basis for determining management and employee compensation and it is used as a basis for calculating covenants in our credit agreements. In addition, we believe adjusted EBITDA provides more comparability between our historical results and results that reflect purchase accounting and our current capital structure. We also present EBITDA and adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. 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 compared 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. However, 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), however, these are expenses that may recur, may vary and are difficult to predict.

We do not provide a forward-looking reconciliation of expected fourth quarter of fiscal 2018 adjusted EBITDA, Non-GAAP operating income or Non-GAAP revenue guidance as the amount and significance of special items required to develop meaningful comparable GAAP financial measures cannot be estimated at this time without unreasonable efforts. These special items could be meaningful.

The following tables present Successor, Predecessor and combined results and reconcile historical GAAP measures to non-GAAP measures.

 

Avaya Holdings Corp.

Supplemental Schedules of Non-GAAP Adjusted EBITDA

(Unaudited; in millions)

 
    Successor     Predecessor     Successor     Predecessor
(In millions)

Three
months
ended
June 30, 2018

Three
months
ended
June 30, 2017

Period from
December 16, 2017
through
June 30, 2018

Period from
October 1, 2017
through
December 15, 2017

   

Nine
months
ended
June 30, 2017

Net (loss) income $ (88 ) $ (98 ) $ 19 $ 2,977 $ (209 )
Interest expense 56 17 112 14 229
Interest income (1 ) (1 ) (2 ) (2 ) (2 )
Provision for (benefit from) income taxes 20 (6 ) (235 ) 459 (22 )
Depreciation and amortization 119   85   264   31   263  
EBITDA 106 (3 ) 158 3,479 259
Impact of fresh start accounting adjustments 54 167
Restructuring charges, net 30 8 80 14 22
Advisory fees 3 17 15 3 82
Acquisition-related costs 4 1 11 1
Reorganization items, net 35 (3,416 ) 77
Non-cash share-based compensation 7 4 13 10
Impairment of indefinite-lived intangible assets 65 65
Goodwill impairment 52 52
Loss on disposal of long-lived assets, net 2 4 1
Impairment of long-lived assets 3 3
Resolution of certain legal matters 37
Change in fair value of emergence date Warrants (6 ) 9
Gain on foreign currency transactions (25 ) (2 ) (24 ) (1 )
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs 24 17 70
Other         1  
Adjusted EBITDA $ 175   $ 204   $ 433   $ 135   $ 641  
 
 

Avaya Holdings Corp.

Supplemental Schedules of Non-GAAP Revenue

(Unaudited; in millions)

 
    Successor     Predecessor         Successor         Predecessor
Three Months Ended

Three months
ended
June 30,
2017

Change Three Months Ended

June
30, 2018

   

Adj. for
Fresh Start
Accounting

   

Non-GAAP
June 30,
2018

Amount     Pct.    

Pct., net
of fx
impact

Mar. 31,
2018 (1)

Q118
Non-GAAP
Combined
Results (2)

Sept. 30,
2017

Revenue by Segment
Total ECS product revenue $ 322 $ $ 322 $ 345 $ (23 ) (7 )% (8 )% $ 317 $ 330 $ 343
AGS 433 433 458 (25 ) (5 )% (6 )% 440 445 447
Unallocated amounts (63 ) 63         n/a n/a    
Total revenue $ 692   $ 63   $ 755   $ 803   $ (48 ) (6 )% (7 )% $ 757   $ 775   $ 790
 
 
Revenue by Geography
U.S. $ 356   $ 43   $ 399   $ 435   $ (36 ) (8 )% (8 )% $ 399   $ 425   $ 447
International:
EMEA 193 9 202 204 (2 ) (1 )% (4 )% 203 208 194
APAC - Asia Pacific 81 5 86 88 (2 ) (2 )% (3 )% 85 76 79
Americas International - Canada and Latin America 62   6   68   76   (8 ) (11 )% (12 )% 70   66   70
Total International 336   20   356   368   (12 ) (3 )% (6 )% 358   350   343
Total revenue $ 692   $ 63   $ 755   $ 803   $ (48 ) (6 )% (7 )% $ 757   $ 775   $ 790
 
 
(1) Mar. 31, 2018 Non-GAAP Results           (2) Q118 Non-GAAP Combined Results        
      Three Months Ended       Successor     Predecessor

Mar. 31,
2018

   

Adj. for
Fresh Start
Accounting

Non-GAAP
Mar. 31,
2018

Period from
Dec. 16, 2017
through
Dec. 31, 2017

Period from
Oct. 1, 2017
through
Dec. 15, 2017

Adj. for
Fresh Start
Accounting

Q118
Non-GAAP
Combined Results

Revenue by Segment Revenue by Segment
Total ECS product revenue $ 317 $ 317 Total ECS product revenue $ 77 $ 253 $ 330
AGS 440 440 AGS 94 351 445
Unallocated amounts (85 ) 85     Unallocated amounts (23 )   23  
Total revenue $ 672   $ 85   $ 757   Total revenue $ 148   $ 604   $ 23   $ 775
 
 
Revenue by Geography Revenue by Geography
U.S. $ 351   $ 55   $ 399   U.S. $ 71   $ 331   $ 13   $ 425
International: International:
EMEA 180 18 203 EMEA 42 166 7 208
APAC - Asia Pacific 77 3 85 APAC - Asia Pacific 19 57 2 76

Americas International -
Canada and Latin America

64   9   70  

Americas International -
Canada and Latin America

16   50   1   66
Total International 321   30   358   Total International 77   273   10   350
Total revenue $ 672   $ 85   $ 757   Total revenue $ 148   $ 604   $ 23   $ 775
 
 

Avaya Holdings Corp.

Supplemental Schedules of Non-GAAP Reconciliations

(Unaudited; in millions)

 
      Successor     Predecessor    

Q118
Non-GAAP
Combined
Results

    Predecessor
Three Months Ended    

Period from
Dec. 16, 2017
through
Dec. 31, 2017

Period from
Oct. 1, 2017
through
Dec. 15, 2017

  Three Months Ended
(In millions)

June 30,
2018

 

March 31,
2018

Sept.
30, 2017

   

June 30,
2017

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

Gross Profit $ 352 $ 323 $ 78 $ 362 $ 440 $ 496 $ 493
Items excluded:
Adj. for fresh start accounting 69 106 29
Amortization of technology intangible assets 44 41 10 4 5
Loss on disposal of long-lived assets 2   2        
Non-GAAP Gross Profit $ 467   $ 472   $ 479   $ 500   $ 498  
 
GAAP Gross Margin 50.9 % 48.1 % 52.7 % 59.9 % 58.5 % 62.8 % 61.4 %
Non-GAAP Gross Margin 61.9 % 62.4 % 61.8 % 63.3 % 62.0 %
 

Reconciliation of Non-GAAP Operating Income

Operating (Loss) Income $ (49 ) $ (89 ) $ 2 $ 36 $ 38 $ 69 $ (43 )
Items excluded:
Adj. for fresh start accounting 71 107 33
Amortization of intangible assets 83 81 27 38 62
Restructuring charges, net 30 40 24 8 8
Acquisition-related costs 4 7
Loss on disposal of long-lived assets 2 2 1
Impairment charges 120
Advisory fees 3 4 11 3 18
Share-based compensation 7 5 1 1 4
Costs in connection with certain legal matters     37   64    
Non-GAAP Operating Income $ 151   $ 157   $ 172   $ 183   $ 169  
 
GAAP Operating Margin -7.1 % -13.2 % 1.4 % 6.0 % 5.1 % 8.7 % -5.4 %
Non-GAAP Operating Margin 20.0 % 20.7 % 22.2 % 23.2 % 21.0 %
 
 

Avaya Holdings Corp.

Supplemental Schedules of Non-GAAP Reconciliation of Gross Profit and Gross Margin by Portfolio

(Unaudited; in millions)

 
    Successor     Predecessor    

Q118
Non-GAAP
Combined
Results

    Predecessor
Three Months Ended    

Period from
Dec. 16, 2017
through
Dec. 31, 2017

Period from
Oct. 1, 2017
through
Dec. 15, 2017

  Three Months Ended
(In millions)

June 30,
2018

   

March 31,
2018

Sept. 30,
2017

   

June 30,
2017

Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Products
Revenue $ 300 $ 293 $ 71 $ 253 $ 324 $ 343 $ 345
Costs 114 110 33 84 117 105 121
Amortization of technology intangible assets 44   41   7   3   10   4   5  
GAAP Gross Profit 142 142 31 166 197 234 219
Items excluded:
Adj. for fresh start accounting 24 32 7
Amortization of technology intangible assets 44 41 10 4 5
Loss on disposal of long-lived assets 1   1        
Non-GAAP Gross Profit $ 211   $ 216   $ 214   $ 238   $ 224  
 
GAAP Gross Margin 47.3 % 48.5 % 43.7 % 65.6 % 60.8 % 68.2 % 63.5 %
Non-GAAP Gross Margin 65.5 % 68.1 % 64.8 % 69.4 % 64.9 %
 
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Services
Revenue $ 392 $ 379 $ 77 $ 351 $ 428 $ 447 $ 458
Costs 182   198   30   155   185   185   184  
GAAP Gross Profit 210 181 47 196 243 262 274
Items excluded:
Adj. for fresh start accounting 45 74 22
Loss on disposal of long-lived assets 1   1        
Non-GAAP Gross Profit $ 256   $ 256   $ 265   $ 262   $ 274  
 
GAAP Gross Margin 53.6 % 47.8 % 61.0 % 55.8 % 56.8 % 58.6 % 59.8 %
Non-GAAP Gross Margin 59.1 % 58.2 % 59.6 % 58.6 % 59.8 %
 
 

Avaya Holdings Corp.

Reconciliation of GAAP to Non-GAAP results

Three months ended June 30, 2018

(Unaudited; in millions)

 
                        Q317

GAAP
Results

Adj. for
Fresh Start
Accounting

Amortization
of Intangible
Assets

Restructuring
Charges, net

Acquisition
Costs

Loss on
Disposal of
Long-lived
Assets

Share-based
Comp

Advisory
Fees

Other
Costs, net

Non-GAAP
Results

GAAP Results   Non-GAAP Results
Revenue
Products $ 300 $ 22 $ $ $ $ $ $ $ $ 322 $ 345 $ 345
Services 392   41                 433   458   458  
692   63                 755   803   803  
Costs
Products:
Costs 114 (2 ) (1 ) 111 121 121

Amortization of technology
intangible assets

44 (44 ) 5
Services 182   (4 )       (1 )       177   184   184  
340   (6 ) (44 )     (2 )       288   310   305  
GROSS PROFIT 352   69   44       2         467   493   498  
OPERATING EXPENSES
Selling, general and administrative 281 (2 ) (4 ) (6 ) (3 ) 266 295 270
Research and development 51 (1 ) 50 59 59
Amortization of intangible assets 39 (39 ) 57
Impairment of indefinite-lived intangible assets 65
Goodwill impairment 52
Restructuring charges, net 30       (30 )             8    
401   (2 ) (39 ) (30 ) (4 )   (7 ) (3 )   316   536   329  
OPERATING (LOSS) INCOME (49 ) 71 83 30 4 2 7 3 151 (43 ) 169
Interest expense (56 ) (56 ) (17 ) (17 )
Other income (expense), net 37 (32 ) 5 (9 ) (12 )
Reorganization items, net                     (35 )  
(LOSS) INCOME BEFORE INCOME TAXES $ (68 ) $ 71   $ 83   $ 30   $ 4   $ 2   $ 7   $ 3   $ (32 ) $ 100   $ (104 ) $ 140  
 

Source: Avaya Newsroom

Avaya
Media Inquiries:
Debbie Lewandowski, 630-245-2720
deblewan@avaya.com
or
Investor Inquiries:
Peter Schuman, 669-242-8098
pschuman@avaya.com

Source: Avaya Holdings Corp.

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