Avaya Reports Third Quarter Fiscal 2017 Financial Results

SANTA CLARA, CA--(Marketwired - August 14, 2017) -

Third Quarter Fiscal 2017

• Revenue of $803 million
• Gross margin 61.0%, non-GAAP gross margin 61.6%
• Operating loss of $44 million, non-GAAP operating income of $156 million or 19.4% of revenue
• Adjusted EBITDA⁽¹⁾ of $204 million or 25.4% of revenue, a record percentage of revenue for a third fiscal quarter
• Positive cash flow from operations for the third quarter and nine months ended June 30, 2017

Avaya reported financial results for the third fiscal quarter ended June 30, 2017.

Total revenue for the third quarter was $803 million, down $1 million compared to the prior quarter and down $79 million year-over-year primarily as a result of lower demand for products and services primarily due to extended procurement cycles resulting from the chapter 11 filing. Non-GAAP gross margin was 61.6%, which compares to 60.6% for the prior quarter and 62.4% for the third quarter of fiscal 2016. GAAP operating loss was $44 million, inclusive of $52 million of goodwill impairment and $53 million of costs in connection with certain legal matters, which compares to operating income of $64 million for the prior quarter and $58 million for the third quarter of fiscal 2016. Non-GAAP operating income was $156 million which compares to $148 million for the prior quarter and $180 million for the third quarter of fiscal 2016. For the third quarter, adjusted EBITDA⁽¹⁾ was $204 million or 25.4% of revenue, a record percentage of revenue for a third fiscal quarter, and compares to adjusted EBITDA of $199 million for the prior quarter and $223 million for the third quarter of fiscal 2016.

Cash provided by operating activities was $72 million for the third fiscal quarter 2017, compared to $97 million during the second fiscal quarter 2017 and $23 cash used from operations during the third fiscal quarter 2016. Cash and cash equivalents totaled $729 million as of June 30, 2017.

"The support of our amended Plan of Reorganization by a majority of holders of our first lien debt and the settlement reached with the U.S. Pension Benefit Guaranty Corporation gives us a clear and viable path to emerge from chapter 11 this fall," said Kevin Kennedy, president and CEO.

"As we work through our debt restructuring, Avaya continues to transform into a leading provider of software and services focused on delivering cloud-based business communications and innovative next-generation workflow automation solutions with world-class customer satisfaction. In addition, we continue to build momentum with our newest generation of solutions including Avaya Oceana™, Avaya Equinox™, Avaya Breeze™, Zang™ Office and Zang Spaces," continued Mr. Kennedy.

Third Fiscal Quarter Highlights

Accompanying slides

Links to this financial results press release and accompanying slides are available on the investor page of Avaya's website (www.avaya.com/investors).

About Avaya
Avaya enables the mission critical, real-time communication applications of the world's most important operations. As the global leader in delivering superior communications experiences, Avaya provides the most complete portfolio of software and services for contact center and unified communications -- offered on premises, in the cloud, or a hybrid. Today's digital world requires some form of communications enablement, and no other company is better positioned to do this than Avaya. For more information, please visit www.avaya.com.

Cautionary Note Regarding the Chapter 11 Cases

The Company's security holders are cautioned that trading in securities of the Company during the pendency of the Company's Chapter 11 proceeding will be highly speculative and will pose substantial risks. It is possible some or all of the Company's currently outstanding securities may be cancelled and extinguished upon confirmation of a restructuring plan by the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). In such an event, the Company's security holders would not be entitled to receive or retain any cash, securities or other property on account of their cancelled securities. Trading prices for the Company's securities may bear little or no relation to actual recovery, if any, by holders thereof in the Company's Chapter 11 proceeding. Accordingly, the Company urges extreme caution with respect to existing and future investments in its securities.

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, statements regarding timing of exit from the Chapter 11 proceeding, technology innovation and operational projections. 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, including, but not limited to adjustments in the calculation of financial results for the third quarter, or the application of accounting principles, discovery of new information that alters expectations about financial results or impacts valuation methodologies underlying financial results, accounting changes required by United States generally accepted accounting principles, and those risks discussed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2015, 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.

^[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 2017.

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 adjusted EBITDA and non-GAAP gross margin.

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. 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 compares 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) as set forth in the following table including, but not limited to, restructuring charges, certain fees payable to our private equity sponsors and other advisors, resolution of certain legal matters and a portion of our pension costs and post-employment benefits costs which represents the amortization of pension service costs and actuarial gain (loss) associated with these benefits. 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 the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2015.

Non-GAAP gross margin excludes the amortization of acquired technology intangible assets, share based compensation, costs to settle certain legal matters, impairment of long lived assets, 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 acquired technology intangible assets, restructuring and impairment charges, acquisition and integration related costs, third party sales transformation and advisory costs, share based compensation, costs to settle certain legal matters, 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 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 reconcile GAAP measures to non-GAAP measures:

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