SOURCE: Avaya

Avaya

March 01, 2018 08:06 ET

Avaya Reports First Quarter Fiscal 2018 Financial Results

SANTA CLARA, CA--(Marketwired - March 01, 2018) -

Combined First Quarter Fiscal 2018(1):

  • Revenue of $752 million, Non-GAAP(2) revenue of $775 million
  • Net income of $3,214 million, non-GAAP(2) net loss of $68 million
  • Adjusted EBITDA of $206 million(2) or 26.6% of non-GAAP revenue
  • Emerged from chapter 11 on December 15, 2017 and listed on the New York Stock Exchange on January 17, 2018

Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the first quarter of fiscal 2018 ended December 31, 2017. Due to the company's emergence from chapter 11 proceedings, and adoption of fresh start accounting effective on December 15, 2017, the results for the quarter 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 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. 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.(1)

Revenue for the combined period from October 1, 2017 through December 31, 2017 (the "Combined First Quarter Fiscal 2018"(1)), was $752 million, including $3 million related to Avaya's former Networking business, which was sold on July 14, 2017. Revenue for the fourth quarter fiscal 2017 ending September 30, 2017 was $790 million, including $5 million related to the Networking business, and $875 million for the first quarter fiscal 2017 ending December 31, 2016, including $66 million related to the Networking business.

Non-GAAP revenue excluding the revenue of the Networking business for the Combined First Quarter Fiscal 2018 was $772 million, $13 million lower than the fourth quarter ending September 30 2017, representing a decline of approximately 2%, primarily as a result of seasonality and $37 million lower than the first quarter ending fiscal 2017, representing a decline of 5%, primarily as a result of the impact of the chapter 11 proceedings.

Gross margin for the Combined First Quarter Fiscal 2018 was 58.5%. Non-GAAP gross margin was 61.8%, a record percentage for a first quarter result, compared to 63.3% for the prior quarter and 61.7% for the first quarter of fiscal 2017.

Operating income for the Combined First Quarter Fiscal 2018 was $38 million, compared to operating income of $69 million in the prior quarter and operating income of $70 million for the first quarter of fiscal 2017. Non-GAAP operating income for the first quarter of fiscal 2018 was $172 million, or a first quarter record 22.2% percentage of non-GAAP revenue, compared to $183 million for the prior quarter and $192 million for the first quarter of fiscal 2017. Net income for the Combined First Quarter Fiscal 2018 was $3,214 million, compared to net income of $27 million for the prior quarter, and a net loss of $103 million for the first quarter of fiscal 2017. The increase in net income for Combined First Quarter Fiscal 2018 was primarily related to execution of the reorganization plan and the impact of fresh start accounting. Non-GAAP net loss for the Combined First Quarter Fiscal 2018 was $68 million compared to non-GAAP net income of $162 million for the prior quarter and $19 million for the first quarter of fiscal 2017.

For the Combined First Quarter Fiscal 2018, adjusted EBITDA was $206 million or 26.6% of non-GAAP revenue, compared to adjusted EBITDA of $225 million, or 28.5% of revenue, for the prior quarter and $238 million, or 27.2% of revenue, for the first quarter of fiscal 2017.

Cash used for operating activities for the Combined First Quarter Fiscal 2018 was $374 million, compared to cash provided by operating activities of $166 million during the fourth quarter of fiscal 2017, and cash used for operations of $44 million during the first quarter of fiscal 2017. Cash and cash equivalents totaled $417 million as of December 31, 2017, compared to $876 million at the end of the prior quarter and $209 million at the end of the first quarter of fiscal 2017. The sequential change in cash and cash equivalents is primarily due to payments upon emergence from bankruptcy to former debt holders, Pension Benefit Guarantee Corporation, and other creditors, repayment of the Debtor-In-Possession loan facility, debt issuance costs and professional fees, offset by proceeds of a new term loan.

"Our first quarter results represented a great start for the fiscal year and are a testimony to the loyalty and dedication of our customers, partners and employees who supported us this past year," said Jim Chirico, president and CEO of Avaya. "These results demonstrate four straight quarters of revenue stabilization in the business. We continued to drive momentum by improving our industry- leading business model, generating over 10% of our revenue from the cloud. In addition, there were sequential increases in midmarket/SMB cloud seats of 41% and in cloud activations of 96%. We added over 1,300 new customers and more than 265 partners to our ecosystem. We utilized our new capital structure and announced the pending acquisition of Spoken Communications, further fueling our cloud momentum."

1 The results for the period from October 1, 2017 through December 31, 2018, the "Combined First Quarter Fiscal 2018," represent the sum of the reported amounts for the Predecessor period from October 1, 2017 through December 15, 2007 and the Successor period from December 16, 2017 through December 31, 2017. Refer to 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 income, Non-GAAP net income and Adjusted EBITDA are not measures calculated in accordance with generally accepted accounting principles in the U.S. ("GAAP"). Refer to 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.

First Quarter Fiscal 2018 Highlights

  • Added over 1,300 new logos worldwide during the first fiscal quarter 2018, an increase of 6% sequentially.
  • Refreshed our management team, adding respected leaders with proven experience driving transformation and growth.
  • More than three million cloud seats and growing.
  • Launched dedicated Cloud Business Unit, concentrating cloud assets for agile solution delivery and growth.
  • Announced the acquisition of Spoken Communications, a leading innovator in Contact Center as a Service (CCaaS) solutions. The Spoken platform will speed Avaya's ability to deliver a secure, reliable and highly scalable cloud platform for customers of all sizes, and its intellectual property will accelerate our move into Big Data, Machine Learning and AI.
  • Avaya Private Cloud Services revenue for the Enterprise market grew 3% sequentially.
  • Midmarket/SMB cloud business seats grew 41% quarter-over-quarter, and monthly recurring revenue (MRR) grew by 39% quarter-over-quarter.
  • Continued strength in our business model as a software & services company:
    -- Software and services accounted for a record 82% of total revenue, up year-over-year from 76%
    -- Recurring revenue represented over 57% of total revenue, up year-over-year from 53%
    -- 89 deals over $1 million of Total Contract Value (TCV)
  • Showcased customer success stories with Avaya solutions across industries, and unveiled a Happiness Index on Blockchain at the GITEX Technology Week in Dubai.
  • A record 3,000 customers and partners attended the Avaya Engage 2018 conference, showcasing leading innovations and intelligent technologies such as AI, automated workflows, and advanced analytics to shape the connected world.
  • Introduced Avaya AVA™, a cloud based AI solution that goes beyond bots to automate and manage customer engagement through social media and messaging.
  • Listed on the New York Stock Exchange (NYSE) on January 17, 2018.

Second Quarter Fiscal 2018 Outlook

  • Revenue of $660-$680 million, non-GAAP revenue of $750-$770 million
  • GAAP operating loss of 16-20% of revenue, non-GAAP operating profit of 20-22% of non-GAAP revenue
  • Net loss $1.35-$1.55 per diluted share, non-GAAP net income $0.80-$0.90 per diluted share
  • Adjusted EBITDA of $180-$200 million or adjusted EBITDA margin of approximately 25% of non-GAAP revenue

Fiscal Year 2018 Outlook

  • Revenue of $2,775-$2,900 million, non-GAAP revenue of $3,000-$3,100 million
  • GAAP operating loss of 4-6% of revenue, non-GAAP operating margin of 21-22% of non-GAAP revenue
  • Approximately $175 million of expected cash interest expense
  • GAAP net income $2,850-$2,950 million
  • Capital expenditures of $60-$75 million
  • Approximately 110 million basic and diluted shares outstanding
  • Adjusted EBITDA of $750-$800 million or adjusted EBITDA margin of approximately 25-26% of non-GAAP revenue

Avaya's outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments, the pending Spoken acquisition, or other significant transactions that may be completed after March 1, 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 financial results webcast and conference call to discuss its financial results and Q&A at 6:00 AM PT/9:00 AM ET on March 1, 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, listeners should access the investor page of Avaya's website https://investors.avaya.com. Following the live webcast, a replay will be available at the same web address in the event archives for a period of one year.

To access the financial results live by phone, dial 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 2 business days soon after the call by phone by dialing 855-859-2056 in the U.S. or Canada and +1-404-537-3406 for international callers, using the conference access code: 2438229.

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, second quarter fiscal 2018 and fiscal year 2018 outlook. 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 Registration Statement on Form 10 filed with the Securities and Exchange Commission (the "SEC"), 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. 
Consolidated Statements of Operations 
(Unaudited; in millions) 
  Successor   Predecessor  
  Period from
 December 16, 2017 through
 December 31, 2017
  Period from
 October 1, 2017 through 
December 15, 2017
  Three months ended December 31, 2016  
REVENUE               
 Products $71   $253   $401  
 Services  77    351    474  
   148    604    875  
COSTS               
 Products:               
  Costs  33    84    145  
  Amortization of technology intangible assets  7    3    5  
 Services  30    155    190  
   70    242    340  
GROSS PROFIT  78    362    535  
OPERATING EXPENSES               
 Selling, general and administrative  50    264    336  
 Research and development  9    38    62  
 Amortization of intangible assets  7    10    57  
 Restructuring charges, net  10    14    10  
   76    326    465  
OPERATING INCOME  2    36    70  
 Interest expense  (9 )  (14 )  (174 )
 Other (expense) income, net  (2 )  (2 )  4  
 Reorganization costs, net  -    3,416    -  
(LOSS) INCOME BEFORE INCOME TAXES  (9 )  3,436    (100 )
Benefit from (provision for) income taxes  246    (459 )  (3 )
NET INCOME (LOSS) $237   $2,977   $(103 )
                
Avaya Holdings Corp.  
Consolidated Balance Sheets  
(Unaudited; in millions, except share amounts)  
   
  Successor   Predecessor  
  December 31,
2017
  September 30,
2017
 
ASSETS          
Current assets:          
 Cash and cash equivalents $417   $876  
 Accounts receivable, net  413    536  
 Inventory  124    96  
 Other current assets  230    269  
TOTAL CURRENT ASSETS  1,184    1,777  
 Property, plant and equipment, net  306    200  
 Deferred income taxes, net  31    -  
 Intangible assets, net  3,421    311  
 Goodwill  2,632    3,542  
 Other assets  53    68  
TOTAL ASSETS $7,627   $5,898  
           
LIABILITIES          
Current liabilities:          
 Debt maturing within one year $-   $725  
 Long-term debt, current portion  29    -  
 Accounts payable  304    282  
 Payroll and benefit obligations  124    127  
 Deferred revenue  384    614  
 Business restructuring reserve, current portion  36    35  
 Other current liabilities  153    90  
TOTAL CURRENT LIABILITIES  1,030    1,873  
           
 Long-term debt  2,867    -  
 Pension obligations  793    513  
 Other postretirement obligations  215    -  
 Deferred income taxes, net  444    32  
 Business restructuring reserve, non-current portion  34    34  
 Other liabilities  377    170  
TOTAL NON-CURRENT LIABILITIES  4,730    749  
LIABILITIES SUBJECT TO COMPROMISE  -    7,705  
TOTAL LIABILITIES  5,760    10,327  
           
Commitments and contingencies          
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 December 31, 2017  -    -  
           
STOCKHOLDERS' EQUITY (DEFICIT)          
 Predecessor common stock, $0.01 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, 110,000,000 issued and 109,794,137 outstanding at December 31, 2017  1    -  
 Additional paid-in capital  1,642    2,389  
 Retained earnings (Accumulated deficit)  237    (5,954 )
 Accumulated other comprehensive loss  (13 )  (1,448 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)  1,867    (5,013 )
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $7,627   $5,898  
           
Avaya Holdings Corp. 
Condensed Statements of Cash Flows 
(Unaudited; in millions) 
  
             
             
  Successor  Predecessor  Non-GAAP Combined  Predecessor 
  Period from  Period from       
  December 16,
2017 through
  October 1,
2017 through
       
  December 31,
2017
  December 15,
2017
  Three months
ended December 31,
2017
  Three months
ended December 31,
2016
 
Net cash provided by (used for):                
 Net income (loss) $237  $2,977  $3,214  $(103)
  Adjustments to net income (loss) for non-cash items  (225)  (3,410)  (3,635)  141 
  Changes in operating assets and liabilities  54   (7)  47   (82)
 Operating activities  66   (440)  (374)  (44)
 Investing activities  8   8   16   (15)
 Financing activities  -   (102)  (102)  (57)
 Effect of exchange rate changes on cash and cash equivalents  3   (2)  1   (11)
Net increase (decrease) in cash and cash equivalents  77   (536)  (459)  (127)
Cash and cash equivalents at beginning of period  340   876   876   336 
Cash and cash equivalents at end of period $417  $340  $417  $209 
Avaya Holdings Corp.
Supplemental Schedules of Non-GAAP Revenue
(Unaudited; in millions)
                                    
                                    
                                    
                                    
  Successor  Predecessor                              
  Period from  Period from        Predecessor              Predecessor
  Dec. 16, 2017
through
 Oct. 1, 2017
through
    Q118  Three Months Ended  Change   Three Months Ended
  Dec. 31, 2017  Dec. 15, 2017  Adj. for
Fresh Start
Accounting
 Non-GAAP
Combined
Results
 Dec. 31,
2016
 Amount   Pct.   Pct., net of
FX impact
  Sept. 30,
2017
 June 30,
2017
 Mar. 31,
2017
                                             
Revenue by Segment                                            
Total ECS product revenue  71   253   6   330   401   (71 ) -18 % -19 %  343   345   348
AGS  77   351   17   445   474   (29 ) -6 % -8 %  447   458   456
Total revenue $148  $604  $23  $775  $875  $(100 ) -11 % -13 % $790  $803  $804
                                             
                                             
Revenue by Geography                                            
U.S. $71  $331  $23  $425  $466  $(41 ) -9 % -9 % $447  $435  $450
International:                                            
 EMEA  42   166   -   208   234   (26 ) -11 % -15 %  194   204   202
 APAC - Asia Pacific  19   57   -   76   90   (14 ) -16 % -17 %  79   88   77
 Americas International - Canada and Latin America  16   50   -   66   85   (19 ) -22 % -25 %  70   76   75
Total International  77   273   -   350   409   (59 ) -14 % -17 %  343   368   354
Total revenue $148  $604  $23  $775  $875  $(100 ) -11 % -13 % $790  $803  $804

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, 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, 2007 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 two 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 when combined for the three months ended December 31, 2017 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 income, and non-GAAP net 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 comparisons to prior periods because they exclude the impact of earnings or charges noted in the table 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 maybe different from the non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitation 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.

We believe that including supplementary information concerning adjusted EBITDA is appropriate because it serves as a basis for determining management and employee compensation. 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. While EBITDA measures are frequently used as measures of operations and the ability to meet debt service requirements, 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.

The estimate of adjusted EBITDA provided in this press release has been determined consistent with the methodology for calculating adjusted EBITDA as set forth in Avaya Holdings Corp. Form 10 for the fiscal year end September 30, 2017.

Avaya believes that the presentation of all of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the company's performance by excluding certain items that may not be indicative of the company's core business, operating results or future outlook. Avaya's management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the company's operating results both as a consolidated entity and at the business unit level, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the company's performance to prior periods.

These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and have limitations as analytical tools in that they do not reflect all of the amounts associated with the company's results of operations as determined in accordance with GAAP. As such, these measures should only be used to evaluate the company's results of operations in conjunction with the corresponding GAAP measures.

The following tables present Successor, Predecessor and combined results and reconcile GAAP measures to non-GAAP measures. We do not provide a forward-looking reconciliation of expected second quarter and full fiscal 2018 Adjusted EBITDA guidance as the amount of significance of special items required to develop meaningful comparable GAAP financial measures cannot be estimated at this time without unreasonable efforts:

   
Avaya Holdings Corp.  
Supplemental Schedule of Non-GAAP Adjusted EBITDA  
(Unaudited; in millions)  
             
             
  Successor   Predecessor  
  Period from
 December 16, 2017 through
 December 31, 2017
  Period from
 October 1, 2017 through 
December 15, 2017
  Three months ended December 31, 2016  
Net income (loss) $237   $2,977   $(103 )
 Interest expense  9    14    174  
 Interest income  -    (2 )  -  
 (Benefit from) provision for income taxes  (246 )  459    3  
 Depreciation and amortization  22    31    90  
EBITDA  22    3,479    164  
 Impact of fresh start accounting adjustments  27    -    -  
 Restructuring charges, net  10    14    10  
 Sponsors' and other advisory fees  8    3    51  
 Reorganization items, net  -    (3,416 )  -  
 Share-based and other compensation  1    -    2  
 Loss on disposal of long-lived assets  -    1    -  
 Costs in connection with certain legal matters  -    37    -  
 Change in fair value of warrant liability  5    -    -  
 Foreign currency gains, net  (2 )  -    (11 )
 Pension/OPEB/nonretirement postemployment benefits and long-term disability costs  -    17    21  
 Other  -    -    1  
Adjusted EBITDA $71   $135   $238  
                
Avaya Holdings Corp. 
Supplemental Schedules of Non-GAAP Reconciliationsof Non-GAAP Gross Profit and Non-GAAP Gross Margin 
(Unaudited; in millions) 
  
                     
 Successor  Predecessor                
 Period from  Period from        Predecessor 
 Dec. 16, 2017  Oct. 1, 2017        Three Months Ended 
 through  through  Combined  Sept. 30  June 30  Mar. 31  Dec. 31, 
 Dec. 31, 2017  Dec. 15, 2017  Results  2017  2017  2017  2016 
Reconciliation                           
 Gross Profit$78  $362  $440  $496  $493  $484  $535 
 Gross Margin 52.7%  59.9%  58.5%  62.8%  61.4%  60.2%  61.1%
                            
 Items excluded:                           
  Adj. for fresh start accounting         29   -   -   -   - 
  Amortization of technology intangible assets         10   4   5   6   5 
 Non-GAAP Gross Profit        $479  $500  $498  $490  $540 
                            
 Non-GAAP Gross Margin         61.8%  63.3%  62.0%  60.9%  61.7%
                            
                            
Reconciliationof Non-GAAP Operating Income                           
 Operating Income (Loss)$2  $36  $38  $69  $(43) $75  $70 
  Percentage of Revenue 1.4%  6.0%  5.1%  8.7%  -5.4%  9.3%  8.0%
                            
 Items excluded:                           
  Adj. for fresh start accounting         33   -   -   -   - 
  Amortization of intangible assets         27   38   62   62   62 
  Restructuring charges, net         24   8   8   4   10 
  Loss on disposal of long-lived assets         1   -   -   -   - 
  Impairment charges         -   -   120   -   - 
  Advisory fees         11   3   18   14   48 
  Share-based compensation         1   1   4   4   2 
  Costs in connection with certain legal matters         37   64   -   -   - 
                            
 Non-GAAP Operating Income        $172  $183  $169  $159  $192 
                            
 Non-GAAP Operating Margin         22.2%  23.2%  21.0%  19.8%  21.9%
 
Avaya Holdings Corp.
Supplemental Schedules of Non-GAAP Reconciliation of Gross   Profit and Gross Margin by Portfolio
(Unaudited; in millions)
                             
  Successor   Predecessor       Predecessor  
  Period from   Period from                      
  Dec. 16, 2017   Oct. 1, 2017       Three Months Ended  
  through   through   Combined   Sept. 30,   June 30,   Mar. 31,   Dec. 31,  
  Dec. 31, 2017   Dec. 15, 2017   Results   2017   2017   2017   2016  
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Products                                   
Revenue $71   $253   $324   $343   $345   $348   $401  
Costs  33    84    117    104    121    125    145  
Amortization of technology intangible assets  7    3    10    4    5    6    5  
GAAP Gross Profit  31    166    197    235    219    217    251  
GAAP Gross Margin  43.7 %  65.6 %  60.8 %  68.5 %  63.5 %  62.4 %  62.6 %
                                    
Items excluded:                                   
Adj. for fresh start accounting            7    -    -    -    -  
Amortization of technology intangible assets            10    4    5    6    5  
Non-GAAP Gross Profit           $214   $239   $224   $223   $256  
                                    
Non-GAAP Gross Margin            64.8 %  69.7 %  64.9 %  64.1 %  63.8 %
                                    
                                    
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Services                                   
Revenue $77   $351   $428   $447   $458   $456   $474  
Costs  30    155    185    186    184    189    190  
GAAP Gross Profit  47    196    243    261    274    267    284  
GAAP Gross Margin  61.0 %  55.8 %  56.8 %  58.4 %  59.8 %  58.6 %  59.9 %
                                    
Items excluded:                                   
Adj. for fresh start accounting            22    -    -    -    -  
Non-GAAP Gross Profit           $265   $261   $274   $267   $284  
                                    
Non-GAAP Gross Margin            59.6 %  58.4 %  59.8 %  58.6 %  59.9 %
                                    
Avaya Holdings Corp.        
Reconciliation of GAAP to Non-GAAP results        
Three months ended December 31, 2017        
(Unaudited; in millions)        
    Successor     Predecessor                                                              
    Period from     Period from                         Loss on               Costs in                      
    December 16, 2017     October 1, 2017          Adj. for     Amortization          Disposal of          Share-based     Connection               Q117     
    through     through     Combined     Fresh Start     of Intangible     Restructuring     Long-lived     Reorganization     and Other     with Certain     Advisory     Non-GAAP     GAAP     Non-GAAP  
    December 31, 2017     December 15, 2017     Results     Accounting     Assets     Changes, net     Assets     Items     Comp.     Legal Matters     Fees     Results     Results     Results  
Revenue                                                                      
 Products $71   $253   $324   $6   $-   $-   $-   $-   $-   $-   $-   $330   $401   $401  
 Services  77    351    428    17                                       445    474    474  
   148    604    752    23    -    -    -    -    -    -    -    775    875    875  
Costs                                                                      
 Products:                                                                      
  Costs  33    84    117    (1 )                                     116    145    145  
  Amortization of technology intangible assets  7    3    10         (10 )                                -    5    -  
 Services  30    155    185    (5 )            -    -    -    -    -    180    190    190  
   70    242    312    (6 )  (10 )  -    -    -    -    -    -    296    340    335  
GROSS PROFIT  78    362    440    29    10    -    -    -    -    -    -    479    535    540  
OPERATING EXPENSES                                                                      
 Selling, general and administrative  50    264    314    (4 )            (1 )       (1 )  (37 )  (11 )  260    336    286  
 Research and development  9    38    47                                            47    62    62  
 Amortization of intangible assets  7    10    17         (17 )                                -    57    -  
 Restructuring charges, net  10    14    24              (24 )                           -    10    -  
   76    326    402    (4 )  (17 )  (24 )  (1 )  -    (1 )  (37 )  (11 )  307    465    348  
OPERATING INCOME  2    36    38    33    27    24    1    -    1    37    11    172    70    192  
                                                                       
 Interest expense  (9 )  (14 )  (23 )                                          (23 )  (174 )  (174 )
 Other (expense) income, net  (2 )  (2 )  (4 )                                          (4 )  4    4  
 Reorganization items, net  -    3,416    3,416                        (3,416 )                 -    -    -  
(LOSS) INCOME BEFORE INCOME TAXES  (9 )  3,436    3,427    33    27    24    1    (3,416 )  1    37    11    145    (100 )  22  
Benefit from (provision for) income taxes  246    (459 )  (213 )                                          (213 )  (3 )  (3 )
NET INCOME (LOSS) $237   $2,977   $3,214   $33   $27   $24   $1   $(3,416 ) $1   $37   $11   $(68 ) $(103 ) $19  

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Source: Avaya Newsroom