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Avaya Reports Fourth Quarter and Fiscal 2019 Financial Results

11-20-2019

$723 million Q4 FY19 GAAP revenue; $2.887 billion FY19 GAAP revenue

83.8% of GAAP revenue from software and services, 58.9% of GAAP recurring revenue in FY19

352 deals signed with a TCV greater than $1 million, 40 over $5 million and 9 over $10 million in FY19

SANTA CLARA, Calif.--(BUSINESS WIRE)-- Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the fourth quarter and fiscal year ended September 30, 2019.

 

GAAP

 

Non-GAAP (1)

(In millions, except percentages)

 

Q4 2019

 

Q3 2019

 

Q4 2018

 

Q4 2019

 

Q3 2019

 

Q4 2018

Revenue

 

$

723

 

 

$

717

 

 

$

735

 

 

$

726

 

 

$

720

 

 

$

770

 

Gross margin

 

54.2

%

 

54.4

%

 

53.1

%

 

60.6

%

 

60.8

%

 

63.4

%

Operating margin

 

7.2

%

 

(85.5

)%

 

1.5

%

 

22.7

%

 

20.1

%

 

20.4

%

 

GAAP

 

Non-GAAP (1)

(In millions, except percentages)

 

FY19

 

FY18

 

FY19

 

FY18

Revenue

 

$

2,887

 

 

$

2,851

 

 

$

2,908

 

 

$

3,057

 

Gross margin

 

54.6

%

 

52.8

%

 

61.4

%

 

62.5

%

Operating margin

 

(16.4

)%

 

(3.1

)%

 

21.6

%

 

20.8

%

"Avaya made significant progress positioning the company for future growth and accelerating our relevance in cloud during fiscal 2019,” stated Jim Chirico, president and CEO of Avaya. “Notably, we grew our public cloud seats by approximately 160% year over year; we launched ReadyNow, an enterprise-class private cloud solution, and have already booked $90 million of total contract value; we announced a Microsoft partnership to bring our next generation CCaaS to market on Azure; and we recently closed our strategic partnership for UCaaS with RingCentral. The investments across our portfolio, especially in contact center, cloud, services and AI, have materially strengthened our position and solidified our platform for future growth.”

Mr. Chirico added, “Successfully concluding the strategic review process provided a decisive go forward path and, as a result, we announced three important initiatives to accelerate growth and deliver shareholder value. First, the partnership with RingCentral is a game changer for Avaya and is expected to fundamentally change the industry landscape. Second, we expect to begin to execute against our previously announced $500 million stock repurchase program shortly, and third, we have already completed the pay down of $250 million of debt that will result in significant annual interest expense savings and further enhance our balance sheet.”

Fourth Quarter Fiscal 2019 Financial Results (1)

  • 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 has not been adjusted and continues to be reported in accordance with GAAP that existed prior to the adoption of ASC 606 ("ASC 605").
  • GAAP revenue for the fourth quarter of fiscal 2019 was $723 million, $6 million higher than the third quarter of fiscal 2019, and $12 million lower than the fourth quarter of fiscal 2018 ended September 30, 2018. Non-GAAP revenue for the fourth quarter of fiscal 2019 was $726 million, $6 million higher than the prior quarter, and $44 million lower than the fourth quarter of fiscal 2018.
  • GAAP gross margin for the fourth quarter of fiscal 2019 was 54.2% compared to 54.4% for the third quarter of fiscal 2019 and 53.1% for the fourth quarter of fiscal 2018. Non-GAAP gross margin was 60.6%, compared to 60.8% for the third quarter of fiscal 2019 and 63.4% for the fourth quarter of fiscal 2018.
  • GAAP operating income for the fourth quarter of fiscal 2019 was $52 million, compared to an operating loss of $613 million for the third quarter of fiscal 2019, and operating income of $11 million for the fourth quarter of fiscal 2018. Non-GAAP operating income(1) for the fourth quarter of fiscal 2019 was $165 million, compared to $145 million for the prior quarter, and $157 million for the fourth quarter of fiscal 2018.
  • GAAP net loss for the fourth quarter of fiscal 2019 was $34 million, compared to net loss of $633 million for the third quarter of fiscal 2019, and net income of $268 million for the fourth quarter of fiscal 2018.
  • Adjusted EBITDA(1) was $184 million or 25.3% of non-GAAP revenue, compared to adjusted EBITDA of $167 million, or 23.2% of non-GAAP revenue, for the third quarter of fiscal 2019 and $178 million, or 23.1% of non-GAAP revenue, for the fourth quarter of fiscal 2018.
  • Cash provided by operating activities for the fourth quarter of fiscal 2019 was $66 million, compared to $52 million during the third quarter of fiscal 2019 and $25 million during the fourth quarter of fiscal 2018. Cash provided by operating activities for fiscal 2019 was $241 million.
  • At the end of the fourth quarter of fiscal 2019, cash and cash equivalents totaled $752 million, compared to $729 million at the end of the third quarter of fiscal 2019 and $700 million at the end of the fourth quarter of fiscal 2018.

Fourth Quarter Fiscal 2019 Business Metrics (1)

  • Total Contract Value (TCV) of $2.4 billion*
  • 83% of non-GAAP revenue was Software & Services
  • 61% of non-GAAP product revenue was Software
  • 58% of non-GAAP revenue was Recurring
  • Added approximately 1,600 new logos
  • Large deal activity with 109 deals over $1 million, 14 over $5 million, and 3 over $10 million
  • Generated $66 million in cash flow from operations, $37 million in free cash flow(1)

(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.

* We define TCV as the value of all active ratable contracts that have not been recognized as revenue, including both billed and unbilled backlog.

Fourth Quarter Fiscal 2019 Company Highlights

  • Public cloud seats increased approximately 160% year-over-year.
  • Avaya will adopt hybrid cloud solutions from IBM to help expand Avaya’s ReadyNow private cloud unified communications and contact center offerings internationally.
  • Avaya expands ReadyNow into the EMEA and APAC regions.
  • Avaya launched its new Avaya IX Subscription program targeted at customers looking for flexible consumption-based pricing alternatives to traditional perpetual models when consuming Avaya’s world-class communications and collaboration solutions. The Avaya IX Subscription program will also facilitate customers’ transition to cloud.
  • Avaya and Tenfold, the world’s leading provider of next generation CTI solutions, announced a strategic partnership to enable joint clients to improve their customer experience, increase productivity of their sales and service teams, and operationalize AI with richer contextual customer data to drive predictive engagement.
  • TMC, a global, integrated media company, recognized three of Avaya’s offerings for their innovation and leadership in the UC and Contact Center markets.

The Avaya IX Collaboration Unit, an open “all-in-one” next-generation huddle-room video conferencing solution, was named a TMC 2019 Communications Solutions Products of the Year Award. An all-in-one collaboration device that does not require a laptop connection, it sits on top of the video screen, has integrated microphones, and provides a wide field of view which is important for huddle spaces that are typically not very deep but can be very wide.

Avaya’s Mobile Experience was named a 2019 Communications Solutions Products of the Year Award winner. Avaya Mobile Experience is an Avaya owned and operated cloud-based service that supports the advancement of a business’ digital transformation to become more mobile-centric. Avaya Mobile Experience helps enable omni-channel interactions with smartphone users, reducing the time callers spend on legacy voice interactions with an organization’s contact center.

The Avaya OneCloud™ unified communications and contact center platform was named a 2019 Communications Solutions Products of the Year Award. Avaya OneCloud helps meet the business needs for a cloud solution that delivers flexible features, functions, and value-without any compromise for small-medium businesses (SMB), mid-market or large enterprise organizations featuring public, private and hybrid cloud options.

Fiscal 2019 Financial Highlights

  • GAAP revenue: $2.887 billion; Non-GAAP revenue: $2.908 billion
  • GAAP gross margin: 54.6%; Non-GAAP gross margin: 61.4%
  • GAAP operating margin: -16.4%; Non-GAAP operating margin: 21.6%
  • Adjusted EBITDA: $706 million; Adjusted EBITDA margin: 24.3%
  • Cash flow from operations: $241 million, Free cash flow: $128 million

Financial Outlook - Q1 Fiscal 2020 under ASC 606

  • GAAP revenue of $698 million to $718 million; Non-GAAP revenue of $700 million to $720 million
    • This non-GAAP revenue figure reflects a constant currency decline in September 30th 2019 FX rates of -6% to -3%
  • GAAP operating income of $2 million to $12 million; GAAP operating margin of 0% to 2%
  • Non-GAAP operating income of $145 million to $155 million; non-GAAP operating margin of ~21%
  • Adjusted EBITDA of $165 million to $175 million; Adjusted EBITDA margin of ~24%

Financial Outlook - Fiscal Year 2020 under ASC 606

  • GAAP revenue of $2.81 billion to $2.89 billion; Non-GAAP revenue of $2.82 billion to $2.90 billion
    • This non-GAAP revenue figure reflects a constant currency decline in September 30th 2019 FX rates of -2% to 0%
  • GAAP operating income of $130 million to $180 million; GAAP operating margin of 5% to 6%
  • Non-GAAP operating income of $560 million to $610 million; non-GAAP operating margin of 20% to 21%
  • Adjusted EBITDA $650 million to $700 million; Adjusted EBITDA margin of 23% to 24%
  • Cash flow from operations of ~5% of non-GAAP revenue
    • Excluding Q1 FY20 one time strategic process fees: ~7%
  • Approximately 95 to 100 million weighted average shares outstanding; ending share count of approximately 80 to 85 million shares
  • Cash requirements for restructuring pension & OPEB, cash taxes, capital spending and net cash interest payments for fiscal year 2020 are expected to be:
    • Restructuring: $35 million to $40 million
    • Pension/OPEB: ~$55 million
    • Cash Taxes: $65 million to $75 million
    • Capital Expenditures: ~$120 million
    • Net Cash Interest Payments: $190 million to $195 million

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 November 20, 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 live webcast and conference call to discuss its financial results at 8:30 AM Eastern Time on November 20, 2019. To access the live conference call by phone, listeners should dial +1-833-224-0545 in the U.S. or Canada and +1-647-689-4064 for international callers. To join the live webcast, listeners should access the investor page of Avaya's website at https://investors.avaya.com.

Following the live webcast, a replay will be available on the investor page of Avaya's website for a period of one year. A replay of the conference call will be available for one week soon after the call by phone by dialing +1-800-585-8367 in the U.S. or Canada and +1-416-621-4642 for international callers, using the conference access code: 6257079.

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 release 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. 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 and subsequent 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

 

Non-GAAP
Combined(1)

 

Three months
ended
September 30,
2019

 

Three months
ended
September 30,
2018

 

Fiscal year
ended
September 30,
2019

 

Period from
December 16,
2017
through
September 30,
2018

 

 

Period from
October 1,
2017
through
December 15,
2017

 

Fiscal year
ended
September 30,
2018

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Products

$

314

 

 

$

325

 

 

$

1,222

 

 

$

989

 

 

 

$

253

 

 

$

1,242

 

Services

409

 

 

410

 

 

1,665

 

 

1,258

 

 

 

351

 

 

1,609

 

 

723

 

 

735

 

 

2,887

 

 

2,247

 

 

 

604

 

 

2,851

 

COSTS

 

 

 

 

 

 

 

 

 

 

 

 

Products:

 

 

 

 

 

 

 

 

 

 

 

 

Costs

113

 

 

115

 

 

442

 

 

372

 

 

 

84

 

 

456

 

Amortization of technology intangible assets

44

 

 

43

 

 

174

 

 

135

 

 

 

3

 

 

138

 

Services

174

 

 

187

 

 

696

 

 

597

 

 

 

155

 

 

752

 

 

331

 

 

345

 

 

1,312

 

 

1,104

 

 

 

242

 

 

1,346

 

GROSS PROFIT

392

 

 

390

 

 

1,575

 

 

1,143

 

 

 

362

 

 

1,505

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

240

 

 

275

 

 

1,001

 

 

888

 

 

 

264

 

 

1,152

 

Research and development

50

 

 

62

 

 

204

 

 

172

 

 

 

38

 

 

210

 

Amortization of intangible assets

40

 

 

41

 

 

162

 

 

127

 

 

 

10

 

 

137

 

Impairment charges

 

 

 

 

659

 

 

 

 

 

 

 

 

Restructuring charges, net

10

 

 

1

 

 

22

 

 

81

 

 

 

14

 

 

95

 

 

340

 

 

379

 

 

2,048

 

 

1,268

 

 

 

326

 

 

1,594

 

OPERATING INCOME (LOSS)

52

 

 

11

 

 

(473

)

 

(125

)

 

 

36

 

 

(89

)

Interest expense

(60

)

 

(57

)

 

(237

)

 

(169

)

 

 

(14

)

 

(183

)

Other income (expense), net

6

 

 

3

 

 

41

 

 

35

 

 

 

(2

)

 

33

 

Reorganization items, net

 

 

 

 

 

 

 

 

 

3,416

 

 

3,416

 

(LOSS) INCOME BEFORE INCOME TAXES

(2

)

 

(43

)

 

(669

)

 

(259

)

 

 

3,436

 

 

3,177

 

(Provision for) benefit from income taxes

(32

)

 

311

 

 

(2

)

 

546

 

 

 

(459

)

 

87

 

NET (LOSS) INCOME

$

(34

)

 

$

268

 

 

$

(671

)

 

$

287

 

 

 

$

2,977

 

 

$

3,264

 

(LOSS) EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.31

)

 

$

2.44

 

 

$

(6.06

)

 

$

2.61

 

 

 

$

5.19

 

 

 

Diluted

$

(0.31

)

 

$

2.41

 

 

$

(6.06

)

 

$

2.58

 

 

 

$

5.19

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

111.2

 

 

110.0

 

 

110.8

 

 

109.9

 

 

 

497.3

 

 

 

Diluted

111.2

 

 

111.4

 

 

110.8

 

 

111.1

 

 

 

497.3

 

 

 

(1)

See "Use of non-GAAP (Adjusted) Financial Measures" below.

Avaya Holdings Corp.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share and shares amounts)

 

September 30, 2019

 

September 30, 2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

752

 

 

$

700

 

Accounts receivable, net

314

 

 

377

 

Inventory

63

 

 

81

 

Contract assets

187

 

 

 

Contract costs

114

 

 

 

Other current assets

115

 

 

170

 

TOTAL CURRENT ASSETS

1,545

 

 

1,328

 

Property, plant and equipment, net

255

 

 

250

 

Deferred income taxes, net

35

 

 

29

 

Intangible assets, net

2,891

 

 

3,234

 

Goodwill, net

2,103

 

 

2,764

 

Other assets

121

 

 

74

 

TOTAL ASSETS

$

6,950

 

 

$

7,679

 

LIABILITIES

 

 

 

Current liabilities:

 

 

 

Debt maturing within one year

$

29

 

 

$

29

 

Accounts payable

291

 

 

266

 

Payroll and benefit obligations

116

 

 

145

 

Contract liabilities

472

 

 

484

 

Business restructuring reserves

33

 

 

51

 

Other current liabilities

158

 

 

148

 

TOTAL CURRENT LIABILITIES

1,099

 

 

1,123

 

Non-current liabilities:

 

 

 

Long-term debt, net of current portion

3,090

 

 

3,097

 

Pension obligations

759

 

 

671

 

Other post-retirement obligations

200

 

 

176

 

Deferred income taxes, net

72

 

 

140

 

Business restructuring reserves

36

 

 

47

 

Other liabilities

394

 

 

374

 

TOTAL NON-CURRENT LIABILITIES

4,551

 

 

4,505

 

TOTAL LIABILITIES

5,650

 

 

5,628

 

Commitments and contingencies

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

Preferred stock, $0.01 par value; 55,000,000 shares authorized, no shares issued or outstanding at September 30, 2019 and 2018

 

 

 

Common stock, $0.01 par value; 550,000,000 shares authorized; 111,046,085 shares issued and 111,033,405 outstanding at September 30, 2019; 110,218,653 shares issued and 110,012,790 shares outstanding at September 30, 2018

1

 

 

1

 

Additional paid-in capital

1,761

 

 

1,745

 

(Accumulated deficit) retained earnings

(289

)

 

287

 

Accumulated other comprehensive (loss) income

(173

)

 

18

 

TOTAL STOCKHOLDERS' EQUITY

1,300

 

 

2,051

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

6,950

 

 

$

7,679

 

Avaya Holdings Corp.

Condensed Statements of Cash Flows

(Unaudited; in millions)

 

 

Successor

 

 

Predecessor

 

Non-GAAP Combined(1)

 

 

Fiscal year
ended
September 30,
2019

 

Period from
December 16,
2017
through
September 30,
2018

 

 

Period from
October 1,
2017
through
December 15,
2017

 

Fiscal year
ended
September 30,
2018

Net cash provided by (used for):

 

 

 

 

 

 

 

 

 

Operating activities

 

$

241

 

 

$

202

 

 

 

$

(414

)

 

$

(212

)

Investing activities

 

(124

)

 

(199

)

 

 

(13

)

 

(212

)

Financing activities

 

(61

)

 

273

 

 

 

(102

)

 

171

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

(4

)

 

(7

)

 

 

(2

)

 

(9

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

52

 

 

269

 

 

 

(531

)

 

(262

)

Cash, cash equivalents, and restricted cash at beginning of period

 

704

 

 

435

 

 

 

966

 

 

966

 

Cash, cash equivalents, and restricted cash at end of period

 

$

756

 

 

$

704

 

 

 

$

435

 

 

$

704

 

 

 

 

 

 

 

 

 

 

 

(1)

See "Use of non-GAAP (Adjusted) Financial Measures" below.

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 twelve month period ending September 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 (the "Predecessor" period) and December 16, 2017 through September 30, 2018 (the "Successor" period) separately, management reviews the Company’s operating results for the twelve months ended September 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 289-day period ended September 30, 2018 against any of the previous or succeeding 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 key performance metrics such as revenue, gross margin and operating income, among others, when combined for the twelve months ended September 30, 2018 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 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. Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we do not consider 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. In addition, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

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

In addition, we present the liquidity measures of free cash flow and adjusted cash flow. Free cash flow is calculated by subtracting capital expenditures from Net cash provided by operating activities. We believe free cash flow is a measure often used by analysts and investors to compare the cashflow and liquidity of companies in the same industry. Adjusted cash flow is defined as cash flow from operations adjusted to remove one-time anticipated payments in connection with our strategic process in Q1 fiscal 2020. We provide guidance regarding Adjusted cash flow because we believe it provides a more meaningful way to analyze period over period results.

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 first quarter and full year of fiscal 2020 non-GAAP revenue, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA or adjusted cash flow 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

 

Non-GAAP
Combined (1)

 

 

Three months
ended
September 30,
2019

 

Three months
ended
September 30,
2018

 

Fiscal year
ended
September 30,
2019

 

Period from
December 16,
2017
through
September 30,
2018

 

 

Period from
October 1,
2017
through
December 15,
2017

 

Fiscal year
ended
September 30,
2018

Net (loss) income

$

(34

)

 

$

268

 

 

$

(671

)

 

$

287

 

 

 

$

2,977

 

 

$

3,264

 

Interest expense

60

 

 

57

 

 

237

 

 

169

 

 

 

14

 

 

183

 

Interest income

(3

)

 

(3

)

 

(14

)

 

(5

)

 

 

(2

)

 

(7

)

Provision for (benefit from) income taxes

32

 

 

(311

)

 

2

 

 

(546

)

 

 

459

 

 

(87

)

Depreciation and amortization

108

 

 

120

 

 

443

 

 

384

 

 

 

31

 

 

415

 

EBITDA

163

 

 

131

 

 

(3

)

 

289

 

 

 

3,479

 

 

3,768

 

Impact of fresh start accounting adjustments

(2

)

 

29

 

 

5

 

 

196

 

 

 

 

 

196

 

Restructuring charges, net

10

 

 

1

 

 

22

 

 

81

 

 

 

14

 

 

95

 

Advisory fees

8

 

 

3

 

 

11

 

 

18

 

 

 

3

 

 

21

 

Acquisition-related costs

1

 

 

4

 

 

9

 

 

15

 

 

 

 

 

15

 

Reorganization items, net

 

 

 

 

 

 

 

 

 

(3,416

)

 

(3,416

)

Non-cash share-based compensation

6

 

 

6

 

 

25

 

 

19

 

 

 

 

 

19

 

Impairment charges

 

 

 

 

659

 

 

 

 

 

 

 

 

Loss on sale/disposal of long-lived assets, net

 

 

 

 

 

 

4

 

 

 

1

 

 

5

 

Resolution of certain legal matters

 

 

 

 

 

 

 

 

 

37

 

 

37

 

Change in fair value of Emergence Date Warrants

(1

)

 

8

 

 

(29

)

 

17

 

 

 

 

 

17

 

(Gain) loss on foreign currency transactions

 

 

(4

)

 

8

 

 

(28

)

 

 

 

 

(28

)

Pension/OPEB/nonretirement postemployment benefits and long-term disability costs

 

 

 

 

 

 

 

 

 

17

 

 

17

 

Gain on investments

(1

)

 

 

 

(1

)

 

 

 

 

 

 

 

Adjusted EBITDA

$

184

 

 

$

178

 

 

$

706

 

 

$

611

 

 

 

$

135

 

 

$

746

 

Avaya Holdings Corp.

Supplemental Schedules of Non-GAAP Revenue

(Unaudited; in millions)

 

 

Three Months Ended

 

Three
Months
Ended
Sept. 30,
2018 (4)

 

Change

 

Three Months Ended

 

 

Sept. 30,
2019

 

Adj. for
Fresh Start
Accounting

 

Non-
GAAP
Sept. 30,
2019

 

 

Amount

 

Pct.

 

Pct., net of
fx impact

 

June 30,
2019 (1)

 

Mar. 31,
2019 (2)

 

Dec. 31,
2018 (3)

Revenue by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products & Solutions

 

$

315

 

 

$

 

 

$

315

 

 

$

336

 

 

$

(21

)

 

(6

)%

 

(5

)%

 

$

298

 

 

$

289

 

 

$

326

1

Services

 

411

 

 

 

 

411

 

 

434

 

 

(23

)

 

(5

)%

 

(5

)%

 

422

 

 

425

 

 

422

 

Unallocated amounts

 

(3

)

 

3

 

 

 

 

 

 

 

 

n/a

 

n/a

 

 

 

 

 

 

Total revenue

 

$

723

 

 

$

3

 

 

$

726

 

 

$

770

 

 

$

(44

)

 

(6

)%

 

(5

)%

 

$

720

 

 

$

714

 

 

$

748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by Geography

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

392

 

 

$

1

 

 

$

393

 

 

$

417

 

 

$

(24

)

 

(6

)%

 

(6

)%

 

$

394

 

 

$

378

 

 

$

401

 

International:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMEA

 

183

 

 

1

 

 

184

 

 

202

 

 

(18

)

 

(9

)%

 

(7

)%

 

183

 

 

189

 

 

200

 

APAC - Asia Pacific

 

85

 

 

1

 

 

86

 

 

81

 

 

5

 

 

6

%

 

9

%

 

85

 

 

80

 

 

79

 

Americas International

 

63

 

 

 

 

63

 

 

70

 

 

(7

)

 

(10

)%

 

(9

)%

 

58

 

 

67

 

 

68

 

Total International

 

331

 

 

2

 

 

333

 

 

353

 

 

(20

)

 

(6

)%

 

(4

)%

 

326

 

 

336

 

 

347

 

Total revenue

 

$

723

 

 

$

3

 

 

$

726

 

 

$

770

 

 

$

(44

)

 

(6

)%

 

(5

)%

 

$

720

 

 

$

714

 

 

$

748

 

(1) - (4) Reconciliation of Non-GAAP measures above:

 

 

(1) Q319 Non-GAAP Results

 

(2) Q219 Non-GAAP Results

 

 

Three Months Ended

 

Three Months Ended

 

 

June 30, 2019

 

Adj. for Fresh
Start
Accounting

 

Non-GAAP
June 30, 2019

 

Mar. 31, 2019

 

Adj. for Fresh
Start
Accounting

 

Non-GAAP
Mar. 31, 2019

Revenue by Segment

 

 

 

 

 

 

 

 

 

 

 

 

Products & Solutions

 

$

298

 

 

$

 

 

$

298

 

 

$

289

 

 

 

 

$

289

 

Services

 

422

 

 

 

 

422

 

 

425

 

 

 

 

425

 

Unallocated amounts

 

(3

)

 

3

 

 

 

 

(5

)

 

5

 

 

 

Total revenue

 

$

717

 

 

$

3

 

 

$

720

 

 

$

709

 

 

$

5

 

 

$

714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by Geography

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

392

 

 

$

2

 

 

$

394

 

 

$

375

 

 

$

3

 

 

$

378

 

International:

 

 

 

 

 

 

 

 

 

 

 

 

EMEA

 

183

 

 

 

 

183

 

 

188

 

 

1

 

 

189

 

APAC - Asia Pacific

 

85

 

 

 

 

85

 

 

79

 

 

1

 

 

80

 

Americas International

 

57

 

 

1

 

 

58

 

 

67

 

 

 

 

67

 

Total International

 

325

 

 

1

 

 

326

 

 

334

 

 

2

 

 

336

 

Total revenue

 

$

717

 

 

$

3

 

 

$

720

 

 

$

709

 

 

$

5

 

 

$

714

 

 

 

(3) Q119 Non-GAAP Results

 

(4) Q418 Non-GAAP Results

 

 

Three Months Ended

 

Three Months Ended

 

 

Dec. 31, 2018

 

Adj. for Fresh
Start
Accounting

 

Non-GAAP
Dec. 31, 2018

 

Sept. 30, 2018

 

Adj. for Fresh
Start
Accounting

 

Non-GAAP
Sept. 30, 2018

Revenue by Segment

 

 

 

 

 

 

 

 

 

 

 

 

Products & Solutions

 

$

326

 

 

$

 

 

$

326

 

 

$

336

 

 

$

 

 

$

336

 

Services

 

422

 

 

 

 

422

 

 

434

 

 

 

 

434

 

Unallocated amounts

 

(10

)

 

10

 

 

 

 

(35

)

 

35

 

 

 

Total revenue

 

$

738

 

 

$

10

 

 

$

748

 

 

$

735

 

 

$

35

 

 

$

770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by Geography

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

394

 

 

$

7

 

 

$

401

 

 

$

393

 

 

$

24

 

 

$

417

 

International:

 

 

 

 

 

 

 

 

 

 

 

 

EMEA

 

199

 

 

1

 

 

200

 

 

196

 

 

6

 

 

202

 

APAC - Asia Pacific

 

78

 

 

1

 

 

79

 

 

78

 

 

3

 

 

81

 

Americas International

 

67

 

 

1

 

 

68

 

 

68

 

 

2

 

 

70

 

Total International

 

344

 

 

3

 

 

347

 

 

342

 

 

11

 

 

353

 

Total revenue

 

$

738

 

 

$

10

 

 

$

748

 

 

$

735

 

 

$

35

 

 

$

770

 

Avaya Holdings Corp.

Supplemental Schedules of Non-GAAP Reconciliations

(Unaudited; in millions)

 

 

Three Months Ended

 

 

Sept. 30,
2019

 

June 30,
2019

 

March 31,
2019

 

Dec. 31,
2018

 

Sept. 30,
2018

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

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

392

 

 

$

390

 

 

$

386

 

 

$

407

 

 

$

390

 

Items excluded:

 

 

 

 

 

 

 

 

 

 

Amortization of technology intangible assets

 

44

 

 

43

 

 

44

 

 

43

 

 

43

 

Adj. for fresh start accounting

 

4

 

 

5

 

 

9

 

 

19

 

 

54

 

Non-cash share-based compensation

 

 

 

 

 

 

 

 

 

1

 

Non-GAAP Gross Profit

 

$

440

 

 

$

438

 

 

$

439

 

 

$

469

 

 

$

488

 

GAAP Gross Margin

 

54.2

%

 

54.4

%

 

54.4

%

 

55.1

%

 

53.1

%

Non-GAAP Gross Margin

 

60.6

%

 

60.8

%

 

61.5

%

 

62.7

%

 

63.4

%

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

$

52

 

 

$

(613

)

 

$

38

 

 

$

50

 

 

$

11

 

Items excluded:

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

84

 

 

84

 

 

85

 

 

83

 

 

84

 

Adj. for fresh start accounting

 

4

 

 

4

 

 

12

 

 

20

 

 

48

 

Restructuring charges, net

 

10

 

 

1

 

 

4

 

 

7

 

 

1

 

Advisory fees

 

8

 

 

1

 

 

1

 

 

1

 

 

3

 

Acquisition-related costs

 

1

 

 

1

 

 

4

 

 

3

 

 

4

 

Non-cash share-based compensation

 

6

 

 

8

 

 

5

 

 

6

 

 

6

 

Impairment charges

 

 

 

659

 

 

 

 

 

 

 

Non-GAAP Operating Income

 

$

165

 

 

$

145

 

 

$

149

 

 

$

170

 

 

$

157

 

GAAP Operating Margin

 

7.2

%

 

-85.5

%

 

5.4

%

 

6.8

%

 

1.5

%

Non-GAAP Operating Margin

 

22.7

%

 

20.1

%

 

20.9

%

 

22.7

%

 

20.4

%

Avaya Holdings Corp.

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

(Unaudited; in millions)

 

 

 

Three months ended

 

 

Sept. 30,
2019

 

June 30,
2019

 

March 31,
2019

 

Dec. 31,
2018

 

Sept. 30,
2018

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

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

314

 

 

$

297

 

 

$

287

 

 

$

324

 

 

$

325

 

Costs

 

113

 

 

109

 

 

105

 

 

115

 

 

115

 

Amortization of technology intangible assets

 

44

 

 

43

 

 

44

 

 

43

 

 

43

 

GAAP Gross Profit

 

157

 

 

145

 

 

138

 

 

166

 

 

167

 

Items excluded:

 

 

 

 

 

 

 

 

 

 

Amortization of technology intangible assets

 

44

 

 

43

 

 

44

 

 

43

 

 

43

 

Adj. for fresh start accounting

 

2

 

 

2

 

 

2

 

 

5

 

 

16

 

Non-GAAP Gross Profit

 

$

203

 

 

$

190

 

 

$

184

 

 

$

214

 

 

$

226

 

GAAP Gross Margin

 

50.0

%

 

48.8

%

 

48.1

%

 

51.2

%

 

51.4

%

Non-GAAP Gross Margin

 

64.4

%

 

63.8

%

 

63.7

%

 

65.6

%

 

67.3

%

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

409

 

 

$

420

 

 

$

422

 

 

$

414

 

 

$

410

 

Costs

 

174

 

 

175

 

 

174

 

 

173

 

 

187

 

GAAP Gross Profit

 

235

 

 

245

 

 

248

 

 

241

 

 

223

 

Items excluded:

 

 

 

 

 

 

 

 

 

 

Adj. for fresh start accounting

 

2

 

 

3

 

 

7

 

 

14

 

 

38

 

Non-cash share-based compensation

 

 

 

 

 

 

 

 

 

1

 

Non-GAAP Gross Profit

 

$

237

 

 

$

248

 

 

$

255

 

 

$

255

 

 

$

262

 

GAAP Gross Margin

 

57.5

%

 

58.3

%

 

58.8

%

 

58.2

%

 

54.4

%

Non-GAAP Gross Margin

 

57.7

%

 

58.8

%

 

60.0

%

 

60.4

%

 

60.4

%

Avaya Holdings Corp.

Reconciliation of ASC 606 to ASC 605 GAAP results

Three months ended September 30, 2019

(Unaudited; in millions)

 

 

 

Q4 FY19 results
under ASC 606

 

ASC 606
Impact

 

Q4 FY19 results
under ASC 605

REVENUE

 

 

 

 

 

 

Products

 

$

314

 

 

$

(26

)

 

$

288

 

Services

 

409

 

 

(16

)

 

393

 

 

 

723

 

 

(42

)

 

681

 

COSTS

 

 

 

 

 

 

Products:

 

 

 

 

 

 

Costs

 

113

 

 

(6

)

 

107

 

Amortization of technology intangible assets

 

44

 

 

 

 

44

 

Services

 

174

 

 

(5

)

 

169

 

 

 

331

 

 

(11

)

 

320

 

GROSS PROFIT

 

392

 

 

(31

)

 

361

 

OPERATING EXPENSES

 

 

 

 

 

 

Selling, general and administrative

 

240

 

 

(1

)

 

239

 

Research and development

 

50

 

 

 

 

50

 

Amortization of intangible assets

 

40

 

 

 

 

40

 

Restructuring charges, net

 

10

 

 

 

 

10

 

 

 

340

 

 

(1

)

 

339

 

OPERATING INCOME

 

52

 

 

(30

)

 

22

 

Interest expense

 

(60

)

 

 

 

(60

)

Other income, net

 

6

 

 

 

 

6

 

LOSS BEFORE INCOME TAXES

 

(2

)

 

(30

)

 

(32

)

Provision for income taxes

 

(32

)

 

15

 

 

(17

)

NET LOSS

 

$

(34

)

 

$

(15

)

 

$

(49

)

Avaya Holdings Corp.

Supplemental Schedules of Free Cash Flow

(Unaudited; in millions)

 

 

Three months ended

 

 

Sept. 30,
2019

 

June 30,
2019

 

March 31,
2019

 

Dec. 31,
2018

 

Sept. 30,
2018

Net cash provided by operating activities

 

$

66

 

 

$

52

 

 

$

37

 

 

$

86

 

 

$

25

 

Less:

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

29

 

 

37

 

 

26

 

 

21

 

 

25

 

Free cash flow

 

$

37

 

 

$

15

 

 

$

11

 

 

$

65

 

 

$

 

Source: Avaya Newsroom

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

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

Source: Avaya Holdings Corp.

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