SOURCE: Avaya Inc.

Avaya Inc.

November 20, 2013 16:05 ET

Avaya Reports Fourth Fiscal Quarter and Fiscal 2013 Financial Results

SANTA CLARA, CA--(Marketwired - Nov 20, 2013) -

Fourth Quarter 2013 Highlights:

  • Revenue of $1.2 billion
  • Operating Income of $113 million, Non-GAAP Operating Income(1) of $244 Million
  • Adjusted EBITDA(1) of $295 Million, 24.6% of revenue; both record levels

Fiscal 2013 Highlights

  • Revenue of $4.7 billion
  • Operating Income of $78 million, Non-GAAP Operating Income(1) of $721 Million
  • Adjusted EBITDA(1) of $943 Million, record level of 20% of revenue

Avaya Inc., a global provider of business communications and collaboration systems, software and services, today reported results for the fourth quarter and full fiscal-year ended September 30, 2013.

Total revenue for the fourth quarter was $1.2 billion, up 4.3% compared to the prior quarter. On a year over year basis revenue was down 6% compared to the fourth quarter of fiscal 2012. For the fourth fiscal quarter, adjusted EBITDA was $295 million which compares to adjusted EBITDA of $225 million for the prior quarter and $267 million for the fourth quarter of fiscal 2012. Non-GAAP operating income was $244 million compared to non-GAAP operating income of $171 million for the prior quarter and $206 million for the fourth quarter of fiscal 2012. Fourth quarter cash flow from operations was $52 million. Cash and cash equivalents totaled $288 million as of September 30, 2013.

For fiscal 2013, Avaya reported revenue of $4.7 billion, down 9% compared to fiscal 2012 revenue of $5.17 billion. Non-GAAP operating income was $721 million in fiscal 2013 compared to $721 million in fiscal 2012. Fiscal 2013 adjusted EBITDA of $943 million was down $28 million compared to fiscal 2012.

"Avaya closed fiscal 2013 delivering solid fourth quarter results reflecting advancement of our business model," said Kevin Kennedy, president and CEO. "Through the year, Avaya introduced over 100 new product releases to the market. Avaya's portfolio of easy-to-use, high quality mobile video and collaboration tools is well positioned to meet the requirements of an increasingly mobile and connected anytime/anywhere workforce. As we transition into fiscal 2014, Avaya remains focused on broadening our innovative product portfolio, improving our go-to-market alignment with the markets we serve, and executing against our business model."

Fourth Fiscal Quarter Highlights

  • Revenue of $1.2 billion increased 4.3% compared to the prior quarter and decreased 6.0% compared to the fourth quarter of fiscal 2012
  • Gross margin was 56.8% compared to 54.5% for the prior quarter and 50.6% for the fourth quarter of fiscal 2012
  • Non-GAAP gross margin(1) was 58.1% compared to 56.0% for the prior quarter and 54.7% for the fourth quarter of fiscal 2012
  • GAAP operating income was $113 million compared to GAAP operating income of $14 million for the prior quarter and $76 million for the fourth quarter of fiscal 2012 
  • Adjusted EBITDA was $295 million or 24.6% of revenue compared to $225 million or 19.5% of revenue for the prior quarter and $267 million or 20.9% of revenue for the fourth quarter of fiscal 2012
  • Fourth quarter adjusted EBITDA, fourth quarter and full-year total adjusted EBITDA as a percentage of revenue, and fourth quarter and full-year total gross margin percentage were all record levels for the company.
  • Product revenue of $617 million increased by 10.0% compared to the prior quarter and decreased by 5.4% compared to the fourth quarter of fiscal 2012. 
  • Avaya Global Services revenue of $583 million decreased 1.2% compared to the prior quarter and decreased 6.7% compared to the fourth quarter of fiscal 2012
  • For the fourth fiscal quarter, percentage of revenue by geography was:
    • U.S. - 55%, - EMEA - 26%,
    • Asia-Pacific - 9% - Americas International - 10%.

Conference Call and Webcast
Avaya will discuss these results at 2:00 p.m. PST on Wednesday, November 20, 2013 in a live webcast and conference call. To join the webcast, listeners should access the investor page of our website (www.avaya.com/investors). Supplementary materials will be available at the same location. Following the live webcast, a replay will be available at the same web address in our event archives. 

To access the webcast by phone, dial 800-882-9327 in the U.S. or Canada and 706-645-9730 for international callers using the conference passcode number of 94144915. To ensure you are connected prior to the start, we suggest you access the website or the call 10-15 minutes before the start time. 

For those unable to participate during the live event, a replay of the conference call will be available beginning at 5:00 p.m. PST on November 20, 2013 through December 20, 2013 by dialing 855-859-2056 or 800-585-8367 within the United States and 404-537-3406 outside the United States. The replay access code is 94144915.

About Avaya
Avaya is a global provider of business collaboration and communications solutions, providing unified communications, contact centers, networking and related services to companies of all sizes around the world. For more information please visit www.avaya.com.

Certain statements contained in this press release may be forward-looking statements. These statements may be identified by the use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will" or other similar terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these are reasonable, such forward looking statements involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results to differ materially from any future results expressed or implied by these forward-looking statements. For a list and description of such risks and uncertainties, please refer to Avaya's filings with the SEC that are available at www.sec.gov. Avaya disclaims any intention or obligation to update or revise any forward-looking statements.

(1) Refer to Supplemental Financial Information accompanying this press release for a reconciliation of GAAP to non-GAAP numbers and for reconciliation of adjusted EBITDA for the third quarter of fiscal 2013 see our Form 10-Q filed with the SEC on August 9, 2013 at www.sec.gov.

   
   
Avaya Inc.  
Consolidated Statements of Operations  
(Unaudited; in millions)  
   
 
 
 
 
For the three months ended
September 30,
    For the twelve months ended
September 30,
 
    2013     2012     2013     2012  
REVENUE                        
  Products   $ 617     $ 652     $ 2,337     $ 2,672  
  Services     583       625       2,371       2,499  
      1,200       1,277       4,708       5,171  
COSTS                                
  Products:                                
    Costs (exclusive of amortization of intangibles)     232       284       963       1,146  
    Amortization of technology intangible assets     14       46       63       192  
  Services     273       301       1,122       1,247  
      519       631       2,148       2,585  
GROSS PROFIT     681       646       2,560       2,586  
OPERATING EXPENSES                                
  Selling, general and administrative     375       378       1,520       1,630  
  Research and development     102       120       445       464  
  Amortization of intangible assets     56       57       227       226  
  Goodwill impairment     -       -       89       -  
  Restructuring and impairment charges, net     35       15       200       147  
  Acquisition-related costs     -       -       1       4  
      568       570       2,482       2,471  
OPERATING INCOME     113       76       78       115  
Interest expense     (121 )     (107 )     (467 )     (431 )
Loss on extinguishment of debt     -       -       (6 )     -  
Other expense, net     (5 )     (13 )     (14 )     (20 )
LOSS BEFORE INCOME TAXES     (13 )     (44 )     (409 )     (336 )
Benefit from (provision for) income taxes     36       54       45       (8 )
NET INCOME (LOSS)   $ 23     $ 10     $ (364 )   $ (344 )
                                 
                                 
                                 
Avaya Inc.  
Consolidated Balance Sheets  
(Unaudited; in millions)  
   
    September 30,     September 30,  
    2013     2012  
ASSETS            
Current assets:                
  Cash and cash equivalents   $ 288     $ 337  
  Accounts receivable, net     716       782  
  Inventory     245       255  
  Deferred income taxes, net     52       18  
  Other current assets     253       252  
TOTAL CURRENT ASSETS     1,554       1,644  
  Property, plant and equipment, net     334       364  
  Deferred income taxes, net     34       43  
  Intangible assets, net     1,486       1,775  
  Goodwill     4,092       4,188  
  Other assets     172       180  
TOTAL ASSETS   $ 7,672     $ 8,194  
LIABILITIES                
Current liabilities:                
  Debt maturing within one year   $ 35     $ 37  
  Accounts payable     408       438  
  Payroll and benefit obligations     256       262  
  Deferred revenue     671       616  
  Business restructuring reserve, current portion     92       84  
  Other current liabilities     257       302  
TOTAL CURRENT LIABILITIES     1,719       1,739  
  Long-term debt     6,051       6,084  
  Pension obligations     1,510       1,763  
  Other postretirement obligations     290       360  
  Deferred income taxes, net     243       204  
  Business restructuring reserve, non-current portion     78       51  
  Other liabilities     450       429  
TOTAL NON-CURRENT LIABILITIES     8,622       8,891  
                 
Commitments and contingencies                
                 
STOCKHOLDER'S DEFICIENCY                
  Common stock     -       -  
  Additional paid-in capital     2,937       2,926  
  Accumulated deficit     (4,600 )     (4,236 )
  Accumulated other comprehensive loss     (1,006 )     (1,126 )
TOTAL STOCKHOLDER'S DEFICIENCY     (2,669 )     (2,436 )
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY   $ 7,672     $ 8,194  
                 
                 
                 
Avaya Inc.  
Condensed Statements of Cash Flows  
(Unaudited; in millions)  
    For the twelve months ended
September 30,
 
    2013     2012  
Net cash (used for) provided by:                
    Net loss   $ (364 )   $ (344 )
    Adjustments to net loss     459       610  
    Changes in operating assets and liabilities     56       (222 )
  Operating activities     151       44  
  Investing activities     (113 )     (271 )
  Financing activities     (79 )     157  
  Effect of exchange rate changes on cash and cash equivalents     (8 )     7  
Net decrease in cash and cash equivalents     (49 )     (63 )
Cash and cash equivalents at beginning of period     337       400  
Cash and cash equivalents at end of period   $ 288     $ 337  
                 
                 
                 
Avaya Inc.  
Supplemental Schedules of Revenue  
(Unaudited; in millions)  
   
For the Three Months Ended     For the Three Months Ended September 30,  
Dec. 31,   Mar. 31,   June 30,     Revenues   Mix     Change  
2012   2013   2013     2013   2012   2013   2012     Amount   Pct.  
                                                   
                  Revenue by Segment                                
$ 573   $ 473   $ 497   Global Communications Solutions $ 553   $ 588   46 % 46 %   $ (35 ) -6.0 %
  -     -     (1 ) Purchase accounting adjustments   -     -   0 % 0 %     -   -  
  58     56     64   Networking   64     64   5 % 5 %     -   0.0 %
  631     529     560   Total ECS product revenue   617     652   51 % 51 %     (35 ) -5.4 %
  609     589     590   AGS   583     625   49 % 49 %     (42 ) -6.7 %
$ 1,240   $ 1,118   $ 1,150   Total revenue $ 1,200   $ 1,277   100 % 100 %   $ (77 ) -6.0 %
                                                   
                                                   
                  Revenue by Geography                                
$ 670   $ 592   $ 639   U.S. $ 659   $ 694   55 % 54 %   $ (35 ) -5.0 %
                  International:                                
  331     298     297   EMEA   313     327   26 % 26 %     (14 ) -4.3 %
  123     116     105   APAC - Asia Pacific   113     126   9 % 10 %     (13 ) -10.3 %
  116     112     109   Americas International - Canada and Latin America   115     130   10 % 10 %     (15 ) -11.5 %
  570     526     511   Total International   541     583   45 % 46 %     (42 ) -7.2 %
$ 1,240   $ 1,118   $ 1,150   Total Revenue $ 1,200   $ 1,277   100 % 100 %   $ (77 ) -6.0 %
                                                   
                                                   
                                                   

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 GAAP, including adjusted EBITDA, Non-GAAP gross margin and Non-GAAP operating income.

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 permitted in calculating covenant compliance under our debt agreements as further described in our SEC filings.

We believe that including supplementary information concerning adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our debt agreements and because it serves as a basis for determining management 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. Accordingly, adjusted EBITDA measures our financial performance based on operational factors that management can impact in the short-term, namely the company's pricing strategies, volume, costs and expenses of the organization.

Adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While adjusted EBITDA and similar 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 does not reflect the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. In particular, based on our debt agreements the definition of adjusted EBITDA allows us to add back certain non-cash charges that are deducted in calculating net income (loss). Our debt agreements also allow us to add back restructuring charges, certain fees payable to our private equity sponsors and other specific cash costs and expenses as defined in the agreements and that portion of our pension costs, other post-employment benefits costs, and non-retirement post-employment benefits costs representing the amortization of pension service costs and actuarial gain or loss associated with these employment benefits. However, these are expenses that may recur, may vary and are difficult to predict. Further, our debt agreements require that adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

Non-GAAP gross margin excludes the amortization of technology intangible assets, impairment of long lived assets, transition services agreement costs incurred in connection with the acquisition of Nortel's enterprise solutions business, share based compensation and purchase accounting adjustments. We have included Non-GAAP gross margin because we believe it provides additional useful information to investors regarding our operations by excluding those charges that management does not believe are reflective of the company's ongoing operating results when assessing the performance of the business.

Non-GAAP operating income excludes the amortization of technology intangible assets, restructuring and impairment charges, acquisition and integration related costs, share based compensation, impairment of long lived assets and purchase accounting adjustments. We have included Non-GAAP operating income because we believe it provides additional useful information to investors regarding our operations by excluding those charges that management does not believe are reflective of the company's ongoing operating results when assessing the performance of the business.

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 Avaya's results of operations as determined in accordance with GAAP. As such, these measures should only be used to evaluate Avaya's results of operations in conjunction with the corresponding GAAP measures.

The following tables reconcile GAAP measures to non-GAAP measures:

   
   
Avaya Inc.  
Supplemental Schedule of Non-GAAP Adjusted EBITDA  
(Unaudited; in millions)  
                         
 
 
  For the three months ended
September 30,
    For the twelve months ended
September 30,
 
    2013     2012     2013     2012  
Net income (loss)   $ 23     $ 10     $ (364 )   $ (344 )
  Interest expense     121       107       467       431  
  Interest income     -       -       (2 )     (3 )
  (Benefit from) provision for income taxes     (36 )     (54 )     (45 )     8  
  Depreciation and amortization     123       138       454       564  
EBITDA     231       201       510       656  
  Impact of purchase accounting adjustments     -       1       1       3  
  Restructuring charges, net     35       14       200       142  
  Sponsors' fees     2       2       7       7  
  Acquisition-related costs     -       -       1       4  
  Integration-related costs     3       5       15       19  
  Loss on extinguishment of debt     -       -       6       -  
  Third-party fees expensed in connection with the debt modification     -       -       18       -  
  Non-cash share-based compensation     4       1       11       8  
  Write-down of assets held for sale to net realizable value     -       1       -       5  
  (Gain) loss on investments and sale of long-lived assets, net     -       -       (1 )     3  
  Goodwill impairment     -       -       89       -  
  Impairment of long-lived assets     -       4       1       6  
  Reversal of contingent liability related to acquisition     -       (1 )     -       (1 )
  Venezuela hyperinflationary and devaluation charges     -       -       1       -  
  Resolution of legal matters     -       -       10       -  
  Loss (gain) on foreign currency transactions     5       14       (5 )     21  
  Pension/OPEB/nonretirement postemployment benefits and long-term disability costs     15       25       79       98  
Adjusted EBITDA   $ 295     $ 267     $ 943     $ 971  
                                 
                                 
                                 
Avaya Inc.        
Supplemental Schedules of Non-GAAP Reconciliations        
(Unaudited; in millions)        
                                         
  For the Three Months Ended     For the Twelve Months Ended  
  Sept. 30,     Dec. 31,     Mar. 31,     June 30,     Sept. 30,     Sept. 30,     Sept. 30,  
  2012     2012     2013     2013     2013     2012     2013  
                                                       
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin                                                      
  GAAP Gross Profit $ 646     $ 666     $ 586     $ 627     $ 681     $ 2,586     $ 2,560  
  GAAP Gross Margin   50.6 %     53.7 %     52.4 %     54.5 %     56.8 %     50.0 %     54.4 %
                                                         
  Items excluded:                                                      
    Amortization of technology intangible assets   46       22       14       13       14       192       63  
    Impairment of capitalized software development costs   4       -       -       1       -       6       1  
    Share-based compensation   1       1       -       2       2       4       5  
    Purchase accounting adjustments   1       -       -       1       -       3       1  
  Non-GAAP Gross Profit $ 698     $ 689     $ 600     $ 644     $ 697     $ 2,791     $ 2,630  
                                                         
  Non-GAAP Gross Margin   54.7 %     55.6 %     53.7 %     56.0 %     58.1 %     54.0 %     55.9 %
                                                       
                                                       
Reconciliation of Non-GAAP Operating Income                                                      
  GAAP Operating Income (Loss) $ 76     $ 23     $ (72 )   $ 14     $ 113     $ 115     $ 78  
    Percentage of Revenue   6 %     2 %     -6 %     1 %     9 %     2 %     2 %
                                                         
  Items excluded:                                                      
    Amortization of acquired assets   103       79       71       70       70       418       290  
    Restructuring and impairment charges, net   15       84       18       63       35       147       200  
    Acquisition/integration-related costs   6       5       6       5       4       24       20  
    Share-based compensation   1       2       1       4       4       8       11  
    Impairment of capitalized software development costs   4       -       -       1       -       6       1  
    Incremental accelerated depreciation   -       -       -       3       18       -       21  
    Goodwill impairment   -       -       89       -       -       -       89  
    Resolution of legal matters   -       -       -       10       -       -       10  
    Purchase accounting adjustments   1       -       -       1       -       3       1  
                                                         
  Non-GAAP Operating Income $ 206     $ 193     $ 113     $ 171     $ 244     $ 721     $ 721  
                                                         
  Percentage of Revenue   16.1 %     15.6 %     10.1 %     14.9 %     20.3 %     13.9 %     15.3 %
                                                         
                                                         
                                                         
Avaya Inc.  
Supplemental Schedules of Non-GAAP Reconciliation of Gross Profit and Gross Margin by Portfolio  
(Unaudited; in millions)  
   
  For the Three Months Ended     For the Twelve Months Ended  
  Sept. 30,     Dec. 31,     Mar. 31,     June 30,     Sept. 30,     Sept. 30,     Sept. 30,  
  2012     2012     2013     2013     2013     2012     2013  
                                                       
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Products                                                      
    Revenue $ 652     $ 631     $ 529     $ 560     $ 617     $ 2,672     $ 2,337  
    Costs (exclusive of amortization of technology intangible assets)   284       261       236       234       232       1,145       963  
    Amortization of technology intangible assets   46       22       14       13       14       192       63  
  GAAP Gross Profit   322       348       279       313       371       1,335       1,311  
  GAAP Gross Margin   49.4 %     55.2 %     52.7 %     55.9 %     60.1 %     50.0 %     56.1 %
                                                       
  Items excluded:                                                      
    Amortization of technology intangible assets   46       22       14       13       14       192       63  
    Impairment of capitalized software development costs   4       -       -       1       -       6       1  
    Purchase accounting adjustments   1       -       -       1       -       3       1  
  Non-GAAP Gross Profit $ 373     $ 370     $ 293     $ 328     $ 385     $ 1,536     $ 1,376  
                                                         
  Non-GAAP Gross Margin   57.2 %     58.6 %     55.4 %     58.5 %     62.4 %     57.4 %     58.9 %
                                                       
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Services                                                      
    Revenue $ 625     $ 609     $ 589     $ 590     $ 583     $ 2,499     $ 2,371  
    Costs   301       291       282       276       273       1,248       1,122  
  GAAP Gross Profit   324       318       307       314       310       1,251       1,249  
  GAAP Gross Margin   51.8 %     52.2 %     52.1 %     53.2 %     53.2 %     50.1 %     52.7 %
                                                         
  Items excluded:                                                      
    Share-based compensation   1       1       -       2       2       4       5  
  Non-GAAP Gross Profit $ 325     $ 319     $ 307     $ 316     $ 312     $ 1,255     $ 1,254  
                                                         
  Non-GAAP Gross Margin   52.0 %     52.4 %     52.1 %     53.6 %     53.5 %     50.2 %     52.9 %

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