SANTA CLARA, CA -- (Marketwire) -- 12/11/12 -- 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 twelve
For the three months months ended
ended September 30, 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 For the Three Months Ended
Ended September 30,
-------------------- --------------------------------------
Dec. Mar. June
31, 31, 30, Revenues Mix Change
------------- --------- -------------
2011 2012 2012 2012 2011 2012 2011 Amount Pct.
------ ------ ------ ------ ------ ---- ---- ------ -----
Revenue by
Segment
Global
Communications
$ 667 $ 574 $ 561 Solutions $ 588 $ 692 46% 49% $ (104) -15.0%
Purchase
accounting
- (1) (1) adjustments - (1) 0% 0% 1
82 64 74 Networking 64 77 5% 5% (13) -16.9%
------ ------ ------ ------ ------ ---- ---- ------ -----
Total ECS
749 637 634 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%
APAC - Asia
126 117 128 Pacific 126 133 10% 9% (7) -5.3%
Americas
International
- Canada and
148 135 126 Latin America 130 137 10% 10% (7) -5.1%
------ ------ ------ ------ ------ ---- ---- ------ -----
Total
639 579 584 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%
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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 twelve
For the three months months ended
ended September 30, 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 Twelve
For the Three Months Ended Months Ended
---------------------------------- --------------------
Sept. Dec. Mar. June Sept. Sept. Sept. Sept.
30, 31, 31, 30, 30, 30, 30, 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%
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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%
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