News Release Details

• GAAP revenue was $738 million; Non-GAAP revenue was $748 million
• GAAP operating margin of 6.8%; Non-GAAP operating margin of 22.7%
• Midmarket cloud revenue grew over 150% year-over-year
• Strong large deal activity with 3 deals over $10 million, 10 over $5 million, and 83 over $1 million

SANTA CLARA, Calif.--(BUSINESS WIRE)-- Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the first quarter ended December 31, 2018.

“We demonstrated another quarter of operational excellence, setting records across several key performance metrics. However, our revenue was impacted by a few discrete items versus our outlook, which included the federal government shutdown. That said, our product portfolio has never been stronger, and our cloud solutions continue to win the support of our customers, who are choosing Avaya for the innovative solutions that we are bringing to market,” said Jim Chirico, President and CEO of Avaya.

First Quarter Fiscal 2019 Financial Results:

• On October 1, 2018, Avaya adopted the new revenue recognition standard, Accounting Standards Codification 606 ("ASC 606"), using the modified retrospective transition method. Accordingly, results for reporting periods beginning after September 30, 2018 are presented under ASC 606 while prior period financial information is not adjusted and continues to be reported in accordance with GAAP that existed prior to the adoption of ASC 606 (“ASC 605”).
• GAAP revenue was $738 million, $3 million higher than the fourth quarter of fiscal 2018, and $14 million lower than the Combined first quarter of fiscal 2018⁽¹⁾ ended December 31, 2017. Non-GAAP revenue⁽²⁾ was $748 million, $22 million lower than the fourth quarter of fiscal 2018, and $27 million lower than the Combined first quarter of fiscal 2018.
• GAAP gross margin was 55.1% compared to 53.1% for the fourth quarter of fiscal 2018 and 58.5% for the Combined first quarter of fiscal 2018⁽¹⁾. Non-GAAP gross margin⁽²⁾ was 62.7%, compared to 63.4% for the fourth quarter of fiscal 2018 and 62.6% for the Combined first quarter of fiscal 2018.
• GAAP operating income was $50 million, compared to GAAP operating income of $11 million for the fourth quarter of fiscal 2018 and $38 million for the Combined first quarter of fiscal 2018⁽¹⁾. Non-GAAP operating income⁽²⁾ was $170 million, compared to $157 million for the fourth quarter of fiscal 2018, and $172 million for the Combined first quarter of fiscal 2018.
• GAAP net income was $9 million, compared to $268 million for the fourth quarter of fiscal 2018, and $3,214 million for the Combined first quarter of fiscal 2018⁽¹⁾.
• Adjusted EBITDA⁽²⁾ was $189 million or 25.3% of non-GAAP revenue, compared to adjusted EBITDA of $178 million, or 23.1% of non-GAAP revenue, for the fourth quarter of fiscal 2018 and $206 million, or 26.6% of non-GAAP revenue, for the Combined first quarter of fiscal 2018.
• Cash provided by operating activities was $86 million, compared to cash provided by operating activities of $25 million for the fourth quarter of fiscal 2018 and cash used for operating activities of $374 million for the Combined first quarter of fiscal 2018⁽¹⁾.
• At the end of the first quarter of fiscal 2019, cash and cash equivalents totaled $743 million, compared to $700 million at the end of the fourth quarter of fiscal 2018 and $417 million at the end of the Combined first quarter of fiscal 2018.

⁽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 quarter fiscal year 2018 are required by GAAP to be presented separately as the predecessor period from October 1, 2017 through December 15, 2017 (the “Predecessor” period) and the successor period from December 16, 2017 through December 31, 2017 (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 period over period results. Refer to the Supplemental Financial Information accompanying this press release for more information, including a reconciliation of combined results to our Predecessor and Successor results.

⁽²⁾ 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.

Note: We define the midmarket as firms with between 250 and 1,000 agents for CC and between 1,000 and 5,000 employees for UC

First Quarter Fiscal 2019 Business Metrics

• Total Contract Value increased 8% year-over-year to $2.4 billion
• 83% of Non-GAAP revenue was Software & Services
• 61% of Non-GAAP product revenue was Software
• 57% of Non-GAAP revenue was Recurring
• Added approximately 1,600 new logos
• Generated $65 million in free cash flow*

*Note: We define free cash flow as cash flow from operating activities less capital expenditures

First Quarter Fiscal 2019 Company Highlights

• Introduced new Private Cloud Solutions for Unified Communications and Contact Center
• Launched a new online storefront that simplifies access to UCaaS and CCaaS solutions
• Announced a new Device-as-a-Service (DaaS) offering
• Delivered public safety breakthrough with next generation location reporting solutions for emergency responders
• Enhanced channel partner program with increased focus on solution selling, simplification, and cloud offerings
• Expanded Avaya A.I. Connect ecosystem with new partners and offers using AI and machine learning technologies for Unified Communications and Contact Center
• Extended Workforce Engagement Management (WEM) with Verint Systems for the new Avaya OneCloud WEM
• Won the 2018 Aragon Research Innovation Award for Artificial Intelligence (AI) in People-Centric Collaboration

Financial Outlook - Q2 Fiscal 2019 under ASC 606

Our financial outlook reflects the adoption of ASC 606, which became effective for Avaya on October 1, 2018. Avaya has adopted ASC 606 using the modified retrospective transition method.

• GAAP revenue of $730-$760 million; non-GAAP revenue of $740-$765 million
• GAAP operating margin of 5.5-8.0% of revenue; non-GAAP operating margin of 21.5-22.5%
• GAAP operating income of $40-$60 million, non-GAAP operating income of $159-$172 million
• Cash taxes of approximately $30 million, +/- $3 million
• Adjusted EBITDA of $178-$191 million, or adjusted EBITDA margin of 24.0-25.0% of non-GAAP revenue
• Approximately 111 million shares outstanding

Financial Outlook - Fiscal 2019 under ASC 606

• GAAP revenue of $3.01-$3.12 billion, non-GAAP revenue of $3.05-$3.15 billion
• GAAP and non-GAAP R&D of $220-$225 million; 15-16% of non-GAAP product revenue
• Operating income of $200-$280 million, non-GAAP operating income of $675-$730 million; 22-23% of non-GAAP revenue
• Adjusted EBITDA $763-$819 million, or 25-26% of non-GAAP revenue
• Approximately 113 million shares outstanding

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 February 11, 2019. 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 February 11, 2019. 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 Mike McCarthy, Vice President of Investor Relations.

To join the financial results live webcast and view supplementary materials including an 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: 3187748.

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

Businesses are built on the experiences they provide, and every day millions of those experiences are built by Avaya (NYSE: AVYA). For over one hundred years, we’ve enabled organizations around the globe to win - by creating intelligent communications experiences for customers and employees. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration - in the cloud, on-premise or a hybrid of both. To grow your business, we’re committed to innovation, partnership, and a relentless focus on what’s next. We’re the technology company you trust to help you deliver Experiences that Matter. Visit us at 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 second quarter of fiscal 2019 and fiscal year 2019, including the expected impact of the adoption of ASC 606. 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 the Company's Annual Report on Form 10-K 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.

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 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, separately, management reviews the company’s operating results for the three months ended December 31, 2017 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 months ended December 31, 2017 provide meaningful comparisons to other periods and are useful in identifying current business trends.

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. 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 also present the measures non-GAAP revenue, non-GAAP gross margin, non-GAAP operating margin and non-GAAP operating income, 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.

We do not provide a forward-looking reconciliation of expected second quarter and full year fiscal 2019 adjusted EBITDA, Non-GAAP operating income, Non-GAAP R&D 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.

Source: Avaya Newsroom

View source version on businesswire.com: https://www.businesswire.com/news/home/20190211005238/en/

Media Inquiries:
Alex Alias
669-242-8034
alalias@avaya.com

Investor Inquiries:
Michael McCarthy
919-425-8330
mikemccarthy@avaya.com

Source: Avaya Holdings Corp.