Avaya Reports Third Fiscal Quarter 2013 Results

SANTA CLARA, CA--(Marketwired - Aug 8, 2013) -

Third Quarter 2013

• Revenue of $1.15 billion
• Operating Income of $14 million, Non-GAAP Operating Income⁽¹⁾ of $171 million
• Adjusted EBITDA⁽¹⁾ of $225 million
  
  

Avaya Inc., a global provider of business communications and collaboration systems, software and services, today reported results for the third quarter of fiscal 2013. For the third fiscal quarter, revenue was $1.15 billion, up 2.9% compared to the prior quarter, primarily due to increases in demand in the U.S. and the U.S. federal government sectors. On a year over year basis revenue was down 8% compared to the third quarter of fiscal 2012. Non-GAAP operating income was $171 million compared to non GAAP operating income of $113 million for the prior quarter and $159 million for the third quarter of fiscal 2012. Third quarter adjusted EBITDA was $225 million which compares to adjusted EBITDA of $172 million for the prior quarter and $225 million for the third quarter of fiscal 2012. Cash flow from operations was $11 million for the third quarter. Cash and cash equivalents totaled $271 million as of June 30, 2013.

"Avaya's third quarter results reflected growth in product revenue from unified communications, contact centers, IP Office and networking. Avaya Global Services revenue also benefited from growth in cloud services," said Kevin Kennedy, president and CEO, Avaya. "We continue to execute our transformational initiatives which include expanding into the mid-market and advancing our business model."

Third Fiscal Quarter Highlights

• Revenue of $1.15 billion increased 2.9% compared to the prior quarter and decreased 8.0% compared to the third quarter of fiscal 2012
• Gross margin was 54.5% compared to 52.4% for the prior quarter and 49.8% for the third quarter of fiscal 2012
• Non-GAAP gross margin⁽¹⁾ was 56.0% compared to 53.7% for the prior quarter and 53.9% for the third quarter of fiscal 2012 
• Adjusted EBITDA was $225 million or 19.5% of revenue compared to $172 million or 15.4% of revenue for the prior quarter and $225 million or 18.0% of revenue for the third quarter of fiscal 2012
• Product revenue of $560 million increased by 5.9% compared to the prior quarter and decreased by 11.7% compared to the third quarter of fiscal 2012 
• Avaya Global Services revenue of $590 million increased 0.2% compared to the prior quarter and decreased 4.2% compared to the third quarter of fiscal 2012
• For the third fiscal quarter, percentage of revenue by geography was, U.S. with 56%, EMEA with 26%, Asia - Pacific with 9% and Americas International with 9%
  
  

Conference Call and Webcast
Avaya will host a conference call to discuss these results at 5:00 p.m. EDT on Thursday, August 8, 2013. 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 22323223. 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.

For those unable to participate, a replay of the conference call will be available beginning at 8:00 p.m. EDT on August 9 through September 9, by dialing 855-859-2056 within the United States and 404-537-3406 outside the United States. The replay access code is 22323223.

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 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.

Avaya Inc.
Consolidated Statements of Operations
(Unaudited; in millions)
				For the three months ended June 30,								For the nine months ended June 30,
				2013				2012				2013				2012
REVENUE
	Products			$	560			$	634			$	1,720			$	2,020
	Services				590				616				1,788				1,874
					1,150				1,250				3,508				3,894
COSTS
	Products:
		Costs (exclusive of amortization of intangibles)			234				271				731				862
		Amortization of technology intangible assets			13				47				49				146
	Services				276				309				849				946
					523				627				1,629				1,954
GROSS PROFIT					627				623				1,879				1,940
OPERATING EXPENSES
	Selling, general and administrative				380				405				1,145				1,252
	Research and development				112				116				343				344
	Amortization of intangible assets				57				57				171				169
	Goodwill impairment				-				-				89				-
	Restructuring and impairment charges, net				63				21				165				132
	Acquisition-related costs				1				1				1				4
					613				600				1,914				1,901
OPERATING INCOME (LOSS)					14				23				(35	)			39
Interest expense					(122	)			(107	)			(346	)			(324	)
Loss on extinguishment of debt					-				-				(6	)			-
Other (expense) income, net					(5	)			6				(9	)			(7	)
LOSS BEFORE INCOME TAXES					(113	)			(78	)			(396	)			(292	)
Benefit from (provision for) income taxes					3				(88	)			9				(62	)
NET LOSS				$	(110	)		$	(166	)		$	(387	)		$	(354	)

Avaya Inc.
Consolidated Balance Sheets
(Unaudited; in millions)
			June 30,				September 30,
			2013				2012
ASSETS
Current assets:
	Cash and cash equivalents		$	271			$	337
	Accounts receivable, net			662				782
	Inventory			256				255
	Deferred income taxes, net			17				18
	Other current assets			267				252
TOTAL CURRENT ASSETS				1,473				1,644
	Property, plant and equipment, net			354				364
	Deferred income taxes, net			48				43
	Intangible assets, net			1,554				1,775
	Goodwill			4,092				4,188
	Other assets			181				180
TOTAL ASSETS			$	7,702			$	8,194
LIABILITIES
Current liabilities:
	Debt maturing within one year		$	35			$	37
	Accounts payable			410				438
	Payroll and benefit obligations			232				262
	Deferred revenue			663				616
	Business restructuring reserve, current portion			119				84
	Other current liabilities			272				302
TOTAL CURRENT LIABILITIES				1,731				1,739
	Long-term debt			6,059				6,084
	Pension obligations			1,648				1,763
	Other postretirement obligations			325				360
	Deferred income taxes, net			218				204
	Business restructuring reserve, non-current portion			62				51
	Other liabilities			456				429
TOTAL NON-CURRENT LIABILITIES				8,768				8,891
Commitments and contingencies
DEFICIENCY
	Common stock			-				-
	Additional paid-in capital			2,932				2,926
	Accumulated deficit			(4,623	)			(4,236	)
	Accumulated other comprehensive loss			(1,106	)			(1,126	)
TOTAL DEFICIENCY				(2,797	)			(2,436	)
TOTAL LIABILITIES AND DEFICIENCY			$	7,702			$	8,194

Avaya Inc.
Condensed Statements of Cash Flows
(Unaudited; in millions)
				For the nine months ended June 30,
				2013				2012
Net cash (used for) provided by:
		Net loss		$	(387	)		$	(354	)
		Adjustments to net loss			428				478
		Changes in operating assets and liabilities			58				(184	)
	Operating activities				99				(60	)
	Investing activities				(89	)			(237	)
	Financing activities				(68	)			167
	Effect of exchange rate changes on cash and cash equivalents				(8	)			1
Net decrease in cash and cash equivalents					(66	)			(129	)
Cash and cash equivalents at beginning of period					337				400
Cash and cash equivalents at end of period				$	271			$	271

			Avaya Inc.
			Supplemental Schedules of Revenue
			(Unaudited; in millions)
For the Three Months Ended													For the Three Months Ended June 30,
Sept. 30,			Dec. 31,			Mar. 31,							Revenues						Mix						Change
2012			2012			2013							2013		2012				2013			2012			Amount				Pct.
									Revenue by Segment
$	588		$	573		$	473		Global Communications Solutions			$	497		$	561			43	%		45	%		$	(64	)		-11.4	%
	-			-			-			Purchase accounting adjustments			(1	)		(1	)		0	%		0	%			-			-
	64			58			56		Networking				64			74			6	%		6	%			(10	)		-13.5	%
	652			631			529		Total ECS product revenue				560			634			49	%		51	%			(74	)		-11.7	%
	625			609			589		AGS				590			616			51	%		49	%			(26	)		-4.2	%
$	1,277		$	1,240		$	1,118		Total revenue			$	1,150		$	1,250			100	%		100	%		$	(100	)		-8.0	%
									Revenue by Geography
$	694		$	670		$	592		U.S.				$639		$	666			56	%		53	%		$	(27	)		-4.1	%
									International:
	327			331			298			EMEA			297			330			26	%		27	%			(33	)		-10.0	%
	126			123			116			APAC - Asia Pacific			105			128			9	%		10	%			(23	)		-18.0	%
	130			116			112			Americas International - Canada and Latin America			109			126			9	%		10	%			(17	)		-13.5	%
	583			570			526		Total International				511			584			44	%		47	%			(73	)		-12.5	%
$	1,277		$	1,240		$	1,118		Total Revenue			$	1,150		$	1,250			100	%		100	%		$	(100	)		-8.0	%

Avaya Inc.
Supplemental Schedule of Non-GAAP Adjusted EBITDA
(Unaudited; in millions)
			For the three months ended June 30,								For the nine months ended June 30,
			2013				2012				2013				2012
Net loss			$	(110	)		$	(166	)		$	(387	)		$	(354	)
	Interest expense			122				107				346				324
	Interest income			(1	)			(1	)			(2	)			(3	)
	(Benefit from) provision for income taxes			(3	)			88				(9	)			62
	Depreciation and amortization			110				140				331				426
EBITDA				118				168				279				455
	Impact of purchase accounting adjustments			1				1				1				2
	Restructuring charges, net			63				17				165				128
	Sponsors' fees			1				1				5				5
	Acquisition-related costs			1				1				1				4
	Integration-related costs			3				6				12				14
	Loss on extinguishment of debt			-				-				6				-
	Third-party fees expensed in connection with the debt modification			-				-				18				-
	Non-cash share-based compensation			4				2				7				7
	Write-down of assets held for sale to net realizable value			-				4				-				4
	(Gain) loss on investments and sale of long-lived assets, net			(1	)			-				(1	)			3
	Goodwill impairment			-				-				89				-
	Impairment of long-lived assets			1				2				1				2
	Venezuela hyperinflationary and devaluation charges			-				-				1				-
	Resolution of legal matters			10				-				10				-
	Loss (gain) on foreign currency transactions			5				(5	)			(10	)			7
	Pension / OPEB / nonretirement postemployment benefits and long-term disability costs			19				28				64				73
Adjusted EBITDA			$	225			$	225			$	648			$	704

Avaya Inc.
Supplemental Schedules of Non-GAAP Reconciliations
(Unaudited; in millions)
				June 30,				Sept. 30,				Dec. 31,				Mar. 31,				June 30,
				2012				2012				2012				2013				2013
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin
	GAAP Gross Profit			$	623			$	646			$	666			$	586			$	627
	GAAP Gross Margin				49.8	%			50.6	%			53.7	%			52.4	%			54.5	%
	Items excluded:
		Amortization of technology intangible assets			47				46				22				14				13
		Impairment of capitalized software development costs			2				4				-				-				1
		Share-based compensation			1				1				1				-				2
		Purchase accounting adjustments			1				1				-				-				1
	Non-GAAP Gross Profit			$	674			$	698			$	689			$	600			$	644
	Non-GAAP Gross Margin				53.9	%			54.7	%			55.6	%			53.7	%			56.0	%
Reconciliation of Non-GAAP Operating Income
	GAAP Operating Income (Loss)			$	23			$	76			$	23			$	(72	)		$	14
		Percentage of Revenue			2	%			6	%			2	%			-6	%			1	%
	Items excluded:
		Amortization of acquired assets			104				103				79				71				70
		Restructuring and impairment charges, net			21				15				84				18				63
		Acquisition / integration-related costs			6				6				5				6				5
		Share-based compensation			2				1				2				1				4
		Impairment of capitalized software development costs			2				4				-				-				1
		Incremental accelerated depreciation			-				-				-				-				3
		Goodwill impairment			-				-				-				89				-
		Resolution of legal matters			-				-				-				-				10
		Purchase accounting adjustments			1				1				-				-				1
	Non-GAAP Operating Income			$	159			$	206			$	193			$	113			$	171
	Percentage of Revenue				12.7	%			16.1	%			15.6	%			10.1	%			14.9	%