SOURCE: Avaya Inc.

Avaya Inc.

December 11, 2012 16:15 ET

Avaya Reports Fourth Fiscal Quarter and Fiscal Year 2012 Results

Revenues up Sequentially to $1.28 Billion

SANTA CLARA, CA--(Marketwire - Dec 11, 2012) - Avaya Inc.

Fourth Quarter 2012

  • Revenue of $1.28 billion
  • Operating Income of $76 Million, Non-GAAP Operating Income(1) of $206 Million
  •  Adjusted EBITDA(1) of $267 Million

Avaya Inc., a global provider of business communications and collaboration systems, software and services, today reported results for the fourth quarter and full-year ended September 30, 2012. For the fourth fiscal quarter, revenue was $1.28 billion, up 2% compared to the prior quarter and down 10% compared to the fourth fiscal quarter of fiscal 2011. Operating income was $76 million compared to operating income of $23 million for the prior quarter and $84 million for the fourth quarter of fiscal 2011. Fourth quarter adjusted EBITDA was $267 million which compares to adjusted EBITDA of $225 million for the prior quarter and $293 million for the fourth quarter of fiscal 2011. Cash flow from operations was $104 million for the fourth quarter. Cash and cash equivalents was $337 million as of September 30, 2012 up 24% from the prior quarter.

For fiscal 2012, Avaya reported revenue of $5.17 billion, down 7% compared to fiscal 2011 revenue of $5.55 billion. Operating income improved by $209 million to $115 million in fiscal 2012 compared to an operating loss of $94 million in fiscal 2011. Fiscal 2012 adjusted EBITDA of $971 was unchanged compared to fiscal 2011.

"Fiscal 2012 was challenged by cautious or deferred spending in several sectors. We are encouraged by our performance over the last two quarters and our operating income improvement for the year," said Kevin Kennedy, President and CEO, Avaya. "We've introduced new products in the small and medium business segment and in open mobile enterprise collaboration, as well as made an important video acquisition in Radvision. Continued expense management and surgical restructuring enabled double digit sequential quarterly improvements in adjusted EBITDA. Adjusted EBITDA as a percentage of revenue of 18.8% for fiscal 2012 was at its highest level in over six years. As we move forward in fiscal 2013 we remain focused on growth via new product absorption and continued productivity improvements."

Fourth Fiscal Quarter Highlights

  • Revenue of $1.28 billion increased 2% compared to the prior quarter and decreased 10% compared to the fourth quarter of fiscal 2011
  • Gross margin was 50.6% compared to 49.8% for the prior quarter and 50.6% for the fourth quarter of fiscal 2011
  • Non-GAAP gross margin(1) was 54.7% compared to 53.9% for the prior quarter and 55.0% for the fourth quarter of fiscal 2011
  • Adjusted EBITDA was $267 million or 20.9% of revenue compared to $225 million or 18.0% of revenue for the prior quarter and $293 million or 20.6% for the fourth quarter of fiscal 2011
  • Global Communications Solutions revenue of $588 million increased 4.8% compared to the prior quarter and decreased 15.0% compared to the fourth quarter of fiscal 2011
  • Networking revenue of $64 million decreased 13.5% compared to the prior quarter and decreased 16.9% compared to the fourth quarter of 2011
  • Avaya Global Services revenue of $625 million increased 1.5% compared to the prior quarter and decreased 4.0% compared to the fourth quarter of 2011
  • Revenue from the U.S. represented 54% of revenue for the fourth quarter, EMEA represented 26% of revenue for the fourth quarter, Asia - Pacific represented 10% of revenue for the fourth quarter and Americas International represented 10% of revenue for the fourth quarter
  • The Company had $337 million in cash and cash equivalents as of September 30, 2012

(1) Refer to Supplemental Financial Information accompanying this press release for a reconciliation of GAAP to non-GAAP numbers.

Conference Call and Webcast
Avaya will host a conference call to discuss these results at 5:00 p.m. EST on Tuesday, December 11, 2012. To access the conference call, dial 800-882-9327 in the U.S. or Canada and 706-645-9730 for international callers and provide the operator the conference passcode number of 76646392. To ensure you are on the call from the start, we suggest you access the call 10-15 minutes prior to the start of the call.

WEBCAST Information: Avaya will webcast this conference call live. To ensure that you are on the webcast, we suggest that you access our website (www.avaya.com/investors) 10-15 minutes prior to the start. Supplementary materials accompanying the conference call are available at the same location. Following the live webcast, a replay will be available on our archives at the same web address.

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 are 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 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 our control. These and other important factors may cause our 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 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, whether as a result of new information, future events or otherwise.

The following financial tables are presented in accordance with GAAP, unless otherwise specified:

   
Avaya Inc.  
Consolidated Statements of Operations  
(Unaudited; in millions)  
             
    For the three months ended September 30,     For the twelve months ended September 30,  
    2012     2011     2012     2011  
REVENUE                                
  Products   $ 652     $ 768     $ 2,672     $ 2,976  
  Services     625       651       2,499       2,571  
      1,277       1,419       5,171       5,547  
COSTS                                
  Products:                                
    Costs (exclusive of amortization of intangibles)     283       320       1,145       1,314  
    Amortization of technology intangible assets     46       59       192       257  
  Services     302       322       1,248       1,344  
      631       701       2,585       2,915  
GROSS PROFIT     646       718       2,586       2,632  
OPERATING EXPENSES                                
  Selling, general and administrative     378       442       1,630       1,845  
  Research and development     120       110       464       461  
  Amortization of intangible assets     57       58       226       226  
  Restructuring and impairment charges, net     15       23       147       189  
  Acquisition-related costs     -       1       4       5  
      570       634       2,471       2,726  
OPERATING INCOME (LOSS)     76       84       115       (94 )
Interest expense     (107 )     (109 )     (431 )     (460 )
Loss on extinguishment of debt     -       -       -       (246 )
Other (expense) income, net     (13 )     5       (20 )     5  
LOSS BEFORE INCOME TAXES     (44 )     (20 )     (336 )     (795 )
(Benefit from) provision for income taxes     (54 )     79       8       68  
NET INCOME (LOSS)   $ 10     $ (99 )   $ (344 )   $ (863 )
   
   
Avaya Inc.  
Consolidated Balance Sheets  
   
(Unaudited; in millions)  
    September 30,  
    2012     2011  
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 337     $ 400  
  Accounts receivable, net     782       755  
  Inventory     255       280  
  Deferred income taxes, net     18       8  
  Other current assets     252       274  
TOTAL CURRENT ASSETS     1,644       1,717  
  Property, plant and equipment, net     364       397  
  Deferred income taxes, net     43       28  
  Intangible assets, net     1,775       2,129  
  Goodwill     4,188       4,079  
  Other assets     180       196  
TOTAL ASSETS   $ 8,194     $ 8,546  
LIABILITIES                
Current liabilities:                
  Debt maturing within one year   $ 37     $ 37  
  Accounts payable     438       465  
  Payroll and benefit obligations     262       323  
  Deferred revenue     616       639  
  Business restructuring reserve, current portion     84       130  
  Other current liabilities     302       352  
TOTAL CURRENT LIABILITIES     1,739       1,946  
  Long-term debt     6,084       6,120  
  Pension obligations     1,763       1,636  
  Other postretirement obligations     360       502  
  Deferred income taxes, net     204       168  
  Business restructuring reserve, non-current portion     51       56  
  Other liabilities     429       496  
TOTAL NON-CURRENT LIABILITIES     8,891       8,978  
Commitments and contingencies                
DEFICIENCY                
  Common stock     -       -  
  Additional paid-in capital     2,926       2,692  
  Accumulated deficit     (4,236 )     (3,892 )
  Accumulated other comprehensive loss     (1,126 )     (1,178 )
TOTAL DEFICIENCY     (2,436 )     (2,378 )
TOTAL LIABILITIES AND DEFICIENCY   $ 8,194     $ 8,546  
   
   
Avaya Inc.  
Condensed Statements of Cash Flows  
(Unaudited; in millions)  
   
    For the twelve months ended September 30,  
    2012     2011  
Net cash (used for) provided by:                
  Net loss   $ (344 )   $ (863 )
  Operating Activities                
    Adjustments to net loss     610       637  
    Changes in operating assets and liabilities     (222 )     (74 )
    Cash provided by (used for) operating activities     44       (300 )
  Investing activities     (271 )     (101 )
  Financing activities     157       228  
  Effect of exchange rate changes on cash and cash equivalents     7       (6 )
Net decrease in cash and cash equivalents     (63 )     (179 )
Cash and cash equivalents at beginning of year     400       579  
Cash and cash equivalents at end of year   $ 337     $ 400  
   
   
Avaya Inc.  
Supplemental Revenue Tables  
(Unaudited; in millions)  
                                         
For the Three Months Ended     For the Three Months Ended
September 30,
 
Dec. 31,   Mar. 31,   June 30,     Revenues   Mix     Change  
2011   2012   2012     2012   2011   2012   2011     Amount     Pct.  
                                                     
                  Revenue by Segment                                  
$ 667   $ 574   $ 561   Global Communications Solutions $ 588   $ 692   46 % 49 %   $ (104 )   -15.0 %
  -     (1 )   (1 )   Purchase accounting adjustments   -     (1 ) 0 % 0 %     1        
  82     64     74   Networking   64     77   5 % 5 %     (13 )   -16.9 %
  749     637     634   Total ECS product revenue   652     768   51 % 54 %     (116 )   -15.1 %
  638     620     616   AGS   625     651   49 % 46 %     (26 )   -4.0 %
$ 1,387   $ 1,257   $ 1,250   Total revenue $ 1,277   $ 1,419   100 % 100 %   $ (142 )   -10.0 %
                                                     
                                                     
                  Revenue by Geography                                  
$ 748   $ 678   $ 666   U.S. $ 694   $ 767   54 % 54 %   $ (73 )   -9.5 %
                  International:                                  
  365     327     330     EMEA   327     382   26 % 27 %     (55 )   -14.4 %
  126     117     128     APAC - Asia Pacific   126     133   10 % 9 %     (7 )   -5.3 %
  148     135     126     Americas International - Canada and Latin America   130     137   10 % 10 %     (7 )   -5.1 %
  639     579     584   Total International   583     652   46 % 46 %     (69 )   -10.6 %
$ 1,387   $ 1,257   $ 1,250   Total Revenue $ 1,277   $ 1,419   100 % 100 %   $ (142 )   -10.0 %
                                                     

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.

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,  
    2012     2011     2012     2011  
Net income (loss)   $ 10     $ (99 )   $ (344 )   $ (863 )
  Interest expense     107       109       431       460  
  Interest income     -       (2 )     (3 )     (5 )
  Provision for income taxes     (54 )     79       8       68  
  Depreciation and amortization     138       155       564       653  
EBITDA     201       242       656       313  
  Impact of purchase accounting adjustments     1       2       3       -  
  Restructuring charges, net     14       23       142       189  
  Sponsors' fees     2       2       7       7  
  Acquisition-related costs     -       1       4       5  
  Integration-related costs     5       10       19       132  
  Loss on extinguishment of debt     -       -       -       246  
  Third-party fees expensed in connection with the debt modification     -       -       -       9  
  Non-cash share-based compensation     1       3       8       12  
  Write-down of assets held for sale to net realizable value     1       -       5       1  
  Loss on investments and sale of long-lived assets, net     -       -       3       1  
  Impairment of long-lived assets     4       -       6       -  
  Reversal of contingent liability related to acquisition     (1 )     -       (1 )     -  
  Loss (gain) on foreign currency transactions     14       (5 )     21       (12 )
  Pension/OPEB/nonretirement postemployment benefits and long-term disability costs     25       15       98       68  
Adjusted EBITDA   $ 267     $ 293     $ 971     $ 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,   Sept. 30,  
  2011   2011   2012   2012   2012   2010   2011   2012  
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin                                
  GAAP Gross Profit $ 718   $ 704   $ 613   $ 623   $ 646   $ 2,172   $ 2,632   $ 2,586  
  GAAP Gross Margin   50.6 %   50.8 %   48.8 %   49.8 %   50.6 %   42.9 %   47.4 %   50.0 %
                                                 
  Items excluded:                                                
    Amortization of technology intangible assets   59     50     49     47     46     291     257     192  
    TSA   -     -     -     -     -     54     26     -  
    Impairment of capitalized software development costs   -     -     -     2     4     -     -     6  
    Share-based compensation   1     1     1     1     1     5     6     4  
    Purchase accounting adjustments   2     -     1     1     1     5     -     3  
  Non-GAAP Gross Profit $ 780   $ 755   $ 664   $ 674   $ 698   $ 2,527   $ 2,921   $ 2,791  
                                                   
  Non-GAAP Gross Margin   55.0 %   54.4 %   52.8 %   53.9 %   54.7 %   49.9 %   52.7 %   54.0 %
                                                 
Reconciliation of Non-GAAP Operating Income                                                
  GAAP Operating Income (Loss) $ 84   $ 82   $ (66 ) $ 23   $ 76     (381 ) $ (94 ) $ 115  
    Percentage of Revenue   6 %   6 %   -5 %   2 %   6 %   -8 %   -2 %   2 %
                                                   
  Items excluded:                                                
    Amortization of acquired assets   117     106     105     104     103     509     483     418  
    Restructuring and impairment charges, net   23     21     90     21     15     187     189     147  
    Acquisition/ integration-related costs   11     6     6     6     6     228     136     24  
    Share-based compensation   3     3     2     2     1     19     12     8  
    Impairment of capitalized software development costs   -     -     -     2     4     -     -     6  
    Strategic initiative costs   -     -     -     -     -     6     -     -  
    Purchase accounting adjustments   2     -     1     1     1     5     -     3  
                                                   
  Non-GAAP Operating Income $ 240   $ 218   $ 138   $ 159   $ 206   $ 573   $ 726   $ 721  
                                                   
  Percentage of Revenue   16.9 %   15.7 %   11.0 %   12.7 %   16.1 %   11.3 %   13.1 %   13.9 %

Contact Information