UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38289

AVAYA HOLDINGS CORP.

(Exact name of registrant as specified in its charter)


Delaware		26-1119726
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2605 Meridian Parkway, Suite 200		27713
Durham,	North Carolina
(Address of Principal executive offices)		(Zip Code)

(908) 953-6000

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act


Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AVYA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller Reporting Company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of ~~January 31,~~April 30, 2022, ~~84,927,867~~85,836,560 shares of common stock, $.01 par value, of the registrant were outstanding.

TABLE OF CONTENTS


Item	Item	Description	Page	Item	Description	Page

		PART I—FINANCIAL INFORMATION			PART I—FINANCIAL INFORMATION
1.	1.	Financial Statements	1	1.	Financial Statements	1
2.	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
3.	3.	Quantitative and Qualitative Disclosures About Market Risk	34	3.	Quantitative and Qualitative Disclosures About Market Risk	42
4.	4.	Controls and Procedures	35	4.	Controls and Procedures	43

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION
1.	1.	Legal Proceedings	36	1.	Legal Proceedings	44
1A.	1A.	Risk Factors	36	1A.	Risk Factors	44
2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	37	2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
3.	3.	Defaults Upon Senior Securities	37	3.	Defaults Upon Senior Securities	46
4.	4.	Mine Safety Disclosures	37	4.	Mine Safety Disclosures	46
5.	5.	Other Information	37	5.	Other Information	46
6.	6.	Exhibits	38	6.	Exhibits	47
7.	7.	Signatures	39	7.	Signatures	48

When we use the terms "we," "us," "our," "Avaya" or the "Company," we mean Avaya Holdings Corp., a Delaware corporation, and its consolidated subsidiaries taken as a whole, unless the context otherwise indicates.

This Quarterly Report on Form 10-Q contains the registered and unregistered trademarks or service marks of Avaya and are the property of Avaya Holdings Corp. and/or its affiliates. This Quarterly Report on Form 10-Q also contains additional trade names, trademarks or service marks belonging to us and to other companies. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

Table of Contents

PART I—FINANCIAL INFORMATION


Item 1.			Financial Statements.

Avaya Holdings Corp.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
		2021		2020			2022		2021		2022		2021
REVENUE	REVENUE					REVENUE
Products	Products	$	231	$	266	Products	$	223	$	226	$	454	$	492
Services	Services	482		477		Services	493		512		975		989
		713		743			716		738		1,429		1,481
COSTS	COSTS					COSTS
Products:	Products:					Products:
Costs	Costs	111		105		Costs	119		92		230		197
Amortization of technology intangible assets	Amortization of technology intangible assets	42		43		Amortization of technology intangible assets	35		43		77		86
Services	Services	191		179		Services	191		191		382		370
		344		327			345		326		689		653
GROSS PROFIT	GROSS PROFIT	369		416		GROSS PROFIT	371		412		740		828
OPERATING EXPENSES	OPERATING EXPENSES					OPERATING EXPENSES
Selling, general and administrative	Selling, general and administrative	262		255		Selling, general and administrative	245		264		507		519
Research and development	Research and development	61		55		Research and development	60		57		121		112
Amortization of intangible assets	Amortization of intangible assets	40		40		Amortization of intangible assets	40		39		80		79
Restructuring charges, net	Restructuring charges, net	7		4		Restructuring charges, net	3		8		10		12
		370		354			348		368		718		722
OPERATING (LOSS) INCOME		(1)		62
OPERATING INCOME						OPERATING INCOME	23		44		22		106
Interest expense	Interest expense	(54)		(56)		Interest expense	(54)		(59)		(108)		(115)
Other income, net	Other income, net	7		—		Other income, net	17		1		24		1
(LOSS) INCOME BEFORE INCOME TAXES		(48)		6
Provision for income taxes		(18)		(10)
LOSS BEFORE INCOME TAXES						LOSS BEFORE INCOME TAXES	(14)		(14)		(62)		(8)
Benefit from (provision for) income taxes						Benefit from (provision for) income taxes	13		(44)		(5)		(54)
NET LOSS	NET LOSS	$	(66)	$	(4)	NET LOSS	$	(1)	$	(58)	$	(67)	$	(62)
LOSS PER SHARE	LOSS PER SHARE					LOSS PER SHARE
Basic	Basic	$	(0.79)	$	(0.06)	Basic	$	(0.02)	$	(0.70)	$	(0.81)	$	(0.76)
Diluted	Diluted	$	(0.79)	$	(0.06)	Diluted	$	(0.02)	$	(0.70)	$	(0.81)	$	(0.76)
Weighted average shares outstanding	Weighted average shares outstanding					Weighted average shares outstanding
Basic	Basic	84.7		83.8		Basic	85.6		84.6		85.1		84.2
Diluted	Diluted	84.7		83.8		Diluted	85.6		84.6		85.1		84.2

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.

Condensed Consolidated Statements of Comprehensive ~~(Loss)~~ Income (Unaudited)

(In millions)
Three months ended
December 31,
2021 2020
Net loss $ (66) $ (4)
Other comprehensive income:
Pension, post-retirement and post-employment benefit-related items (1) 12
Cumulative translation adjustment 13 (6)
Change in interest rate swaps 28 11
Other comprehensive income 40 17
Total comprehensive (loss) income $ (26) $ 13


	Three months ended March 31,				Six months ended March 31,
	2022		2021		2022		2021
Net loss	$	(1)	$	(58)	$	(67)	$	(62)
Other comprehensive income:
Pension, post-retirement and post-employment benefit-related items, net of income taxes of $0 for both the three and six months ended March 31, 2022, and $(1) for both the three and six months ended March 31, 2021	(2)		34		(3)		46
Cumulative translation adjustment	1		21		14		15
Change in interest rate swaps, net of income taxes of $(14) for both the three and six months ended March 31, 2022 and $0 for both the three and six months ended March 31, 2021	40		30		68		41
Other comprehensive income	39		85		79		102
Total comprehensive income	$	38	$	27	$	12	$	40

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share and share amounts)


		December 31, 2021		September 30, 2021			March 31, 2022		September 30, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	354	$	498	Cash and cash equivalents	$	324	$	498
Accounts receivable, net	Accounts receivable, net	350		307		Accounts receivable, net	315		307
Inventory	Inventory	49		51		Inventory	49		51
Contract assets, net	Contract assets, net	548		518		Contract assets, net	640		518
Contract costs	Contract costs	121		117		Contract costs	115		117

Other current assets	Other current assets	124		100		Other current assets	132		100
TOTAL CURRENT ASSETS	TOTAL CURRENT ASSETS	1,546		1,591		TOTAL CURRENT ASSETS	1,575		1,591
Property, plant and equipment, net	Property, plant and equipment, net	296		295		Property, plant and equipment, net	301		295
Deferred income taxes, net	Deferred income taxes, net	38		40		Deferred income taxes, net	31		40
Intangible assets, net	Intangible assets, net	2,154		2,235		Intangible assets, net	2,078		2,235
Goodwill	Goodwill	1,480		1,480		Goodwill	1,476		1,480
Operating lease right-of-use assets	Operating lease right-of-use assets	126		135		Operating lease right-of-use assets	118		135
Other assets	Other assets	247		209		Other assets	245		209
TOTAL ASSETS	TOTAL ASSETS	$	5,887	$	5,985	TOTAL ASSETS	$	5,824	$	5,985
LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	339	$	295	Accounts payable	$	306	$	295
Payroll and benefit obligations	Payroll and benefit obligations	131		193		Payroll and benefit obligations	128		193
Contract liabilities	Contract liabilities	332		360		Contract liabilities	315		360
Operating lease liabilities	Operating lease liabilities	48		49		Operating lease liabilities	44		49
Business restructuring reserves	Business restructuring reserves	18		19		Business restructuring reserves	16		19
Other current liabilities	Other current liabilities	201		181		Other current liabilities	139		181
TOTAL CURRENT LIABILITIES	TOTAL CURRENT LIABILITIES	1,069		1,097		TOTAL CURRENT LIABILITIES	948		1,097
Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Long-term debt	Long-term debt	2,820		2,813		Long-term debt	2,827		2,813
Pension obligations	Pension obligations	630		648		Pension obligations	607		648
Other post-retirement obligations	Other post-retirement obligations	154		153		Other post-retirement obligations	151		153
Deferred income taxes, net	Deferred income taxes, net	48		53		Deferred income taxes, net	73		53
Contract liabilities	Contract liabilities	304		305		Contract liabilities	309		305
Operating lease liabilities	Operating lease liabilities	95		102		Operating lease liabilities	87		102
Business restructuring reserves	Business restructuring reserves	22		25		Business restructuring reserves	19		25
Other liabilities	Other liabilities	235		267		Other liabilities	240		267
TOTAL NON-CURRENT LIABILITIES	TOTAL NON-CURRENT LIABILITIES	4,308		4,366		TOTAL NON-CURRENT LIABILITIES	4,313		4,366
TOTAL LIABILITIES	TOTAL LIABILITIES	5,377		5,463		TOTAL LIABILITIES	5,261		5,463
Commitments and contingencies (Note 18)	Commitments and contingencies (Note 18)					Commitments and contingencies (Note 18)
Preferred stock, $0.01 par value; 55,000,000 shares authorized at December 31, 2021 and September 30, 2021
Convertible series A preferred stock; 125,000 shares issued and outstanding at December 31, 2021 and September 30, 2021		130		130
Preferred stock, $0.01 par value; 55,000,000 shares authorized at March 31, 2022 and September 30, 2021						Preferred stock, $0.01 par value; 55,000,000 shares authorized at March 31, 2022 and September 30, 2021
Convertible series A preferred stock; 125,000 shares issued and outstanding at March 31, 2022 and September 30, 2021						Convertible series A preferred stock; 125,000 shares issued and outstanding at March 31, 2022 and September 30, 2021	131		130
STOCKHOLDERS' EQUITY	STOCKHOLDERS' EQUITY					STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 550,000,000 shares authorized; 84,927,867 shares issued and outstanding at December 31, 2021; and 84,115,602 shares issued and outstanding at September 30, 2021		1		1
Common stock, $0.01 par value; 550,000,000 shares authorized; 85,677,909 shares issued and outstanding at March 31, 2022; and 84,115,602 shares issued and outstanding at September 30, 2021						Common stock, $0.01 par value; 550,000,000 shares authorized; 85,677,909 shares issued and outstanding at March 31, 2022; and 84,115,602 shares issued and outstanding at September 30, 2021	1		1
Additional paid-in capital	Additional paid-in capital	1,481		1,467		Additional paid-in capital	1,495		1,467
Accumulated deficit	Accumulated deficit	(1,051)		(985)		Accumulated deficit	(1,052)		(985)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(51)		(91)		Accumulated other comprehensive loss	(12)		(91)
TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	380		392		TOTAL STOCKHOLDERS' EQUITY	432		392
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY	$	5,887	$	5,985	TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY	$	5,824	$	5,985

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(In millions)


		Common Stock			Additional Paid-In Capital				Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders' Equity					Common Stock						Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
		Shares	Par Value											Shares					Par Value
Balance as of September 30, 2021	Balance as of September 30, 2021	84.1	$	1			$	1,467					$	(985)			$	(91)		$	392	Balance as of September 30, 2021			84.1			$	1			$	1,467			$	(985)			$	(91)	$	392
Issuance of common stock under the equity incentive plan and the Stock Bonus Program	Issuance of common stock under the equity incentive plan and the Stock Bonus Program	0.9			5										5			Issuance of common stock under the equity incentive plan and the Stock Bonus Program		0.9							5												5
Issuance of common stock under the employee stock purchase plan	Issuance of common stock under the employee stock purchase plan	0.2			3										3			Issuance of common stock under the employee stock purchase plan		0.2						3												3
Shares repurchased and retired for tax withholding on vesting of restricted stock units and Stock Bonus Program shares	Shares repurchased and retired for tax withholding on vesting of restricted stock units and Stock Bonus Program shares	(0.3)			(7)										(7)			Shares repurchased and retired for tax withholding on vesting of restricted stock units and Stock Bonus Program shares		(0.3)						(7)												(7)

Share-based compensation expense	Share-based compensation expense				14										14			Share-based compensation expense								14												14
Preferred stock dividends paid	Preferred stock dividends paid				(1)										(1)			Preferred stock dividends paid								(1)												(1)
Net loss	Net loss								(66)						(66)			Net loss												(66)								(66)
Other comprehensive income	Other comprehensive income										40				40			Other comprehensive income																40				40
Balance as of December 31, 2021	Balance as of December 31, 2021	84.9	$	1	$	1,481			$	(1,051)	$	(51)			$	380		Balance as of December 31, 2021		84.9			$	1		$	1,481			$	(1,051)			$	(51)			$	380
Issuance of common stock under the equity incentive plan																		Issuance of common stock under the equity incentive plan		0.7																		—
Issuance of common stock under the employee stock purchase plan																		Issuance of common stock under the employee stock purchase plan		0.3						4												4
Shares repurchased and retired for tax withholding on vesting of restricted stock units																		Shares repurchased and retired for tax withholding on vesting of restricted stock units		(0.2)						(3)												(3)
Share-based compensation expense																		Share-based compensation expense								14												14
Preferred stock dividends accrued																		Preferred stock dividends accrued								(1)												(1)
Net loss																		Net loss												(1)								(1)
Other comprehensive income																		Other comprehensive income																39				39
Balance as of March 31, 2022																		Balance as of March 31, 2022		85.7			$	1		$	1,495			$	(1,052)			$	(12)			$	432

Balance as of September 30, 2020	Balance as of September 30, 2020	83.3	$	1	$	1,449			$	(969)	$	(245)			$	236		Balance as of September 30, 2020		83.3			$	1		$	1,449			$	(969)			$	(245)			$	236
Issuance of common stock under the equity incentive plan	Issuance of common stock under the equity incentive plan	0.3													—			Issuance of common stock under the equity incentive plan		0.3																		—
Issuance of common stock under the employee stock purchase plan	Issuance of common stock under the employee stock purchase plan	0.3			3										3			Issuance of common stock under the employee stock purchase plan		0.3						3												3
Shares repurchased and retired for tax withholding on vesting of restricted stock units	Shares repurchased and retired for tax withholding on vesting of restricted stock units	(0.1)			(2)										(2)			Shares repurchased and retired for tax withholding on vesting of restricted stock units		(0.1)						(2)												(2)
Share-based compensation expense	Share-based compensation expense				14										14			Share-based compensation expense								14												14
Preferred stock dividends accrued	Preferred stock dividends accrued				(1)										(1)			Preferred stock dividends accrued								(1)												(1)
Adjustment for adoption of new accounting standard	Adjustment for adoption of new accounting standard								(3)						(3)			Adjustment for adoption of new accounting standard												(3)								(3)
Net loss	Net loss								(4)						(4)			Net loss												(4)								(4)
Other comprehensive income	Other comprehensive income										17				17			Other comprehensive income																17				17
Balance as of December 31, 2020	Balance as of December 31, 2020	83.8	$	1	$	1,463			$	(976)	$	(228)			$	260		Balance as of December 31, 2020		83.8			$	1		$	1,463			$	(976)			$	(228)			$	260
Issuance of common stock under the equity incentive plan																		Issuance of common stock under the equity incentive plan		1.2						8												8
Issuance of common stock under the employee stock purchase plan																		Issuance of common stock under the employee stock purchase plan		0.2						3												3
Shares repurchased and retired for tax withholding on vesting of restricted stock units																		Shares repurchased and retired for tax withholding on vesting of restricted stock units		(0.3)						(7)												(7)
Shares repurchased and retired under share repurchase program																		Shares repurchased and retired under share repurchase program		(0.2)						(7)												(7)
Share-based compensation expense																		Share-based compensation expense								13												13
Preferred stock dividends accrued																		Preferred stock dividends accrued								(1)												(1)
Net loss																		Net loss												(58)								(58)
Other comprehensive income																		Other comprehensive income																85				85
Balance as of March 31, 2021																		Balance as of March 31, 2021		84.7			$	1		$	1,472			$	(1,034)			$	(143)			$	296

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)


		Three months ended December 31,					Six months ended March 31,
		2021		2020			2022		2021
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net loss	Net loss	$	(66)	$	(4)	Net loss	$	(67)	$	(62)
Adjustments to reconcile net loss to net cash (used for) provided by operating activities:	Adjustments to reconcile net loss to net cash (used for) provided by operating activities:					Adjustments to reconcile net loss to net cash (used for) provided by operating activities:
Depreciation and amortization	Depreciation and amortization	104		103		Depreciation and amortization	203		209
Share-based compensation	Share-based compensation	14		14		Share-based compensation	28		27
Amortization of debt discount and issuance costs	Amortization of debt discount and issuance costs	7		7		Amortization of debt discount and issuance costs	14		13
Loss on extinguishment of debt						Loss on extinguishment of debt	—		1
Deferred income taxes, net	Deferred income taxes, net	(4)		2		Deferred income taxes, net	15		(4)
Gain on post-retirement plan settlement						Gain on post-retirement plan settlement	—		(14)
Change in fair value of emergence date warrants	Change in fair value of emergence date warrants	(1)		5		Change in fair value of emergence date warrants	(8)		27
Unrealized (gain) loss on foreign currency transactions	Unrealized (gain) loss on foreign currency transactions	(2)		11		Unrealized (gain) loss on foreign currency transactions	(3)		12
Other non-cash charges, net	Other non-cash charges, net	2		—		Other non-cash charges, net	1		1
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(44)		23		Accounts receivable	(6)		(12)
Inventory	Inventory	1		2		Inventory	—		3
Operating lease right-of-use assets and liabilities						Operating lease right-of-use assets and liabilities	(3)		2
Contract assets	Contract assets	(57)		(32)		Contract assets	(165)		(122)
Contract costs	Contract costs	(1)		(8)		Contract costs	1		(5)
Accounts payable	Accounts payable	46		51		Accounts payable	12		21
Payroll and benefit obligations	Payroll and benefit obligations	(70)		(57)		Payroll and benefit obligations	(91)		(76)
Business restructuring reserves	Business restructuring reserves	(3)		(4)		Business restructuring reserves	(7)		(8)
Contract liabilities	Contract liabilities	(28)		(56)		Contract liabilities	(38)		(22)
Other assets and liabilities	Other assets and liabilities	(9)		(9)		Other assets and liabilities	1		33
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	(111)		48		NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	(113)		24
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Capital expenditures	Capital expenditures	(27)		(27)		Capital expenditures	(52)		(53)
NET CASH USED FOR INVESTING ACTIVITIES	NET CASH USED FOR INVESTING ACTIVITIES	(27)		(27)		NET CASH USED FOR INVESTING ACTIVITIES	(52)		(53)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Shares repurchased under share repurchase program						Shares repurchased under share repurchase program	—		(7)
Repayment of Term Loan Credit Agreement due to refinancing						Repayment of Term Loan Credit Agreement due to refinancing	—		(743)
Proceeds from Term Loan Credit Agreement due to refinancing						Proceeds from Term Loan Credit Agreement due to refinancing	—		743
Repayment of Term Loan Credit Agreement						Repayment of Term Loan Credit Agreement	—		(100)
Principal payments for financing leases	Principal payments for financing leases	(2)		(7)		Principal payments for financing leases	(4)		(8)
Payments for other financing arrangements						Payments for other financing arrangements	(1)		—
Proceeds from other financing arrangements	Proceeds from other financing arrangements	—		1		Proceeds from other financing arrangements	—		3
Debt issuance costs	Debt issuance costs	—		(2)		Debt issuance costs	—		(2)
Proceeds from Employee Stock Purchase Plan	Proceeds from Employee Stock Purchase Plan	4		4		Proceeds from Employee Stock Purchase Plan	7		7
Proceeds from exercises of stock options	Proceeds from exercises of stock options	1		—		Proceeds from exercises of stock options	1		8
Preferred stock dividends paid	Preferred stock dividends paid	(1)		—		Preferred stock dividends paid	(1)		—
Shares repurchased for tax withholdings on vesting of restricted stock units and Stock Bonus Program shares	Shares repurchased for tax withholdings on vesting of restricted stock units and Stock Bonus Program shares	(7)		(2)		Shares repurchased for tax withholdings on vesting of restricted stock units and Stock Bonus Program shares	(10)		(9)
NET CASH USED FOR FINANCING ACTIVITIES	NET CASH USED FOR FINANCING ACTIVITIES	(5)		(6)		NET CASH USED FOR FINANCING ACTIVITIES	(8)		(108)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1)		9		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1)		3
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(144)		24
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH						NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(174)		(134)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	502		731		Cash, cash equivalents, and restricted cash at beginning of period	502		731
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	358	$	755	Cash, cash equivalents, and restricted cash at end of period	$	328	$	597

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Background and Basis of Presentation

Background

Avaya Holdings Corp. (the "Parent" or "Avaya Holdings"), together with its consolidated subsidiaries (collectively, the "Company" or "Avaya"), is a global leader in digital communications products, solutions and services for businesses of all sizes delivering its technology predominantly through software and services. Avaya builds innovative open, converged software solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. The Company's global team of professionals delivers services from initial planning and design, to implementation and integration, to ongoing managed operations, optimization, training and support. The Company manages its business operations in 2 segments, Products & Solutions and Services. The Company sells directly to customers through its worldwide sales force and indirectly through its global network of channel partners, including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and services support.

Basis of Presentation

Avaya Holdings has no material assets or standalone operations other than its ownership of its direct wholly-owned subsidiary Avaya Inc. and its subsidiaries. The accompanying unaudited interim Condensed Consolidated Financial Statements reflect the operating results of Avaya Holdings and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial statements. The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and other financial information for the fiscal year ended September 30, 2021, included in the Company's Annual Report on Form 10-K filed with the SEC on November 22, 2021. In management's opinion, these unaudited interim Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary to fairly state the results of operations, financial position and cash flows for the periods indicated. The condensed consolidated results of operations for the interim periods reported are not necessarily indicative of the results for the entire fiscal year.

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. The Company uses estimates to assess expected credit losses on its financial assets, sales returns and allowances, the use and recoverability of inventory, the realization of deferred tax assets, annual effective tax rate, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including goodwill, business restructuring reserves, pension and post-retirement benefit costs, the fair value of assets and liabilities in business combinations and the amount of exposure from potential loss contingencies, among others. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the Condensed Consolidated Financial Statements in the period they are determined to be necessary. Actual results could differ from these estimates. The spread of COVID-19, the effects on the Company's employees and the actions required to mitigate its impact have created substantial disruption to the global ~~economy, which~~economy. In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, including, but not limited to increased shipping and transportation costs and increased raw material costs caused by the COVID‐19 pandemic and general global economic conditions. Furthermore, the military conflict between Russia and Ukraine, including the sanctions and export controls that have been imposed by the U.S. and other countries in response to the conflict, severely limits commercial activities in Russia and impacts other markets where we do business.These global issues, among others, may affect management’s estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions. The COVID-19 pandemic and the Russia/Ukraine conflict did not have a material impact on the Company's operating results during the ~~first~~second quarter of fiscal 2022.

We believe that our existing cash and cash equivalents and borrowings available under the ABL Credit Agreement will be sufficient to meet our future cash requirements for at least the next twelve months from the filing of this quarterly report on Form 10-Q. We expect to seek incremental financing to fund the maturity of the $350 million Convertible 2.25% Senior Notes due June 15, 2023. There can be no assurance we will be able to obtain such financing on acceptable terms.

2. Recent Accounting Pronouncements

Recent Standards Not Yet ~~Effective~~Adopted

In ~~August~~March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~No.~~2020-04, Reference Rate Reform (Topic 848): "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". This standard, along with other guidance subsequently issued by the FASB, contains practical expedients for reference rate reform related activities that impact debt, derivatives and other contracts. The guidance in this standard is optional and may be elected

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at any time as reference rate reform activities occur. The standard may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company intends to use the expedients, if needed, for the reference rate transition. The Company continues to monitor activities related to reference rate reform and does not currently expect this standard to have a material impact on the Company's Condensed Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity." This standard simplifies the accounting for convertible instruments and the application of the derivatives scope exception for contracts in an entity's own equity. The standard also amends the accounting for convertible instruments in the diluted earnings per share calculation and requires enhanced disclosures of convertible instruments and contracts in an entity's own equity. This standard is effective for the Company in the first quarter of fiscal 2023. The adoption may be applied on a modified or fully retrospective basis. An entity may also irrevocably elect the fair value option in accordance with Accounting Standards Codification ("ASC") 825 for any financial instrument that is a convertible security upon adoption of this standard. The Company is currently assessing the impact the new guidance will have on its Condensed Consolidated Financial Statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This standard requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. This standard is effective for the Company in the first quarter of fiscal 2024, with early adoption permitted. The impact of this standard will depend on the nature of future transactions within its scope.

~~Table~~In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. This standard requires an entity to disclose current-period gross write-offs by year of ~~Contents~~

origination for financing receivables and net investment in leases measured at amortized cost. The standard also eliminates the existing troubled debt restructuring recognition and measurement guidance and, instead, requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan in a manner consistent with other loan modifications. This standard is effective for the Company in the first quarter of fiscal 2024, with early adoption permitted. The Company is currently assessing the impact the new guidance will have on its Condensed Consolidated Financial Statements.

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3. Contracts with Customers

Disaggregation of Revenue

The following tables provide the Company's disaggregated revenue for the periods presented:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
Revenue:	Revenue:					Revenue:
Products & Solutions	Products & Solutions	$	231	$	266	Products & Solutions	$	223	$	226	$	454	$	492
Services	Services	482		477		Services	493		513		975		990

Total revenue		$	713	$	743
Unallocated Amounts						Unallocated Amounts	—		(1)		—		(1)
Total Revenue						Total Revenue	$	716	$	738	$	1,429	$	1,481


		Three months ended December 31, 2021				Three months ended December 31, 2020						Three months ended March 31, 2022						Three months ended March 31, 2021
(In millions)	(In millions)	Products & Solutions		Services		Total		Products & Solutions		Services			Total		(In millions)	Products & Solutions		Services		Total		Products & Solutions		Services		Unallocated		Total
Revenue:	Revenue:														Revenue:
U.S.	U.S.	$	114	$	261	$	375	$	126	$	288		$	414	U.S.	$	130	$	292	$	422	$	102	$	311	$	—	$	413
International:	International:														International:
Europe, Middle East and Africa	Europe, Middle East and Africa	65		127		192		92		103			195		Europe, Middle East and Africa	55		120		175		73		115		(1)		187
Asia Pacific	Asia Pacific	32		49		81		29		46			75		Asia Pacific	21		46		67		30		47		—		77
Americas International - Canada and Latin America	Americas International - Canada and Latin America	20		45		65		19		40			59		Americas International - Canada and Latin America	17		35		52		21		40		—		61
Total International	Total International	117		221		338		140		189			329		Total International	93		201		294		124		202		(1)		325
Total revenue		$	231	$	482	$	713	$	266	$	477		$	743
Total Revenue															Total Revenue	$	223	$	493	$	716	$	226	$	513	$	(1)	$	738


	Six months ended March 31, 2022				Six months ended March 31, 2021
(In millions)	Products & Solutions		Services		Total		Products & Solutions		Services		Unallocated		Total
Revenue:
U.S.	$	244	$	553	$	797	$	228	$	599	$	—	$	827
International:
Europe, Middle East and Africa	120		247		367		165		218		(1)		382
Asia Pacific	53		95		148		59		93		—		152
Americas International - Canada and Latin America	37		80		117		40		80		—		120
Total International	210		422		632		264		391		(1)		654
Total Revenue	$	454	$	975	$	1,429	$	492	$	990	$	(1)	$	1,481

Unallocated amounts represent the fair value adjustment to deferred revenue recognized upon the Company's emergence from bankruptcy in December 2017 and excluded from segment revenue.

Transaction Price Allocated to the Remaining Performance Obligations

The transaction price allocated to remaining performance obligations that were wholly or partially unsatisfied as of ~~December~~March 31, ~~2021~~2022 was $2.3 billion, of which ~~51%~~52% and ~~26%~~25% is expected to be recognized within 12 months and 13-24 months, respectively, with the remaining balance expected to be recognized thereafter. This excludes amounts for remaining performance obligations that are (1) for contracts recognized over time using the "right to invoice" practical expedient, (2) related to sales or usage based royalties promised in exchange for a license of intellectual property and (3) related to variable consideration allocated entirely to a wholly unsatisfied performance obligation.

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Contract Balances

The following table provides information about accounts receivable, contract assets, contract costs and contract liabilities for the periods presented:


(In millions)	(In millions)	December 31, 2021		September 30, 2021		Increase (Decrease)		(In millions)	March 31, 2022		September 30, 2021		Increase (Decrease)
Accounts receivable, net	Accounts receivable, net	$	350	$	307	$	43	Accounts receivable, net	$	315	$	307	$	8

Contract assets, net:	Contract assets, net:							Contract assets, net:
Current	Current	$	548	$	518	$	30	Current	$	640	$	518	$	122
Non-current (Other assets)	Non-current (Other assets)	116		88		28		Non-current (Other assets)	131		88		43
		$	664	$	606	$	58		$	771	$	606	$	165

Cost of obtaining a contract:	Cost of obtaining a contract:							Cost of obtaining a contract:
Current (Contract costs)	Current (Contract costs)	$	91	$	89	$	2	Current (Contract costs)	$	88	$	89	$	(1)
Non-current (Other assets)	Non-current (Other assets)	50		53		(3)		Non-current (Other assets)	54		53		1
		$	141	$	142	$	(1)		$	142	$	142	$	—

Cost to fulfill a contract:	Cost to fulfill a contract:							Cost to fulfill a contract:
Current (Contract costs)	Current (Contract costs)	$	30	$	28	$	2	Current (Contract costs)	$	27	$	28	$	(1)

Contract liabilities:	Contract liabilities:							Contract liabilities:
Current	Current	$	332	$	360	$	(28)	Current	$	315	$	360	$	(45)
Non-current	Non-current	304		305		(1)		Non-current	309		305		4
		$	636	$	665	$	(29)		$	624	$	665	$	(41)

~~The increase in Accounts receivable is mainly related to the timing of customer payments.~~ The increase in Contract assets was mainly driven by growth in the Company's subscription offerings. The decrease in Contract liabilities was mainly driven by anticipated declines in hardware maintenance and software support services as customers continue to transition to the Company's subscription hybrid offering. The decrease was also driven by revenue earned from the consideration advance received in connection with the strategic partnership with RingCentral, Inc. ("RingCentral"). During the three and six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company did not record any asset impairment charges related to contract assets.

During the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recognized revenue of ~~$162~~$321 million and ~~$223~~$402 million that had been previously recorded as a Contract liability as of October 1, 2021 and October 1, 2020, respectively. During the three months ended ~~December~~March 31, ~~2021 and 2020, the Company recognized a net (decrease) increase to revenue of $(2) million and $1 million, respectively,~~2022, adjustments for performance obligations that were satisfied, or partially satisfied, in prior periods were not material. During the three months ended March 31, 2021, the Company recognized a decrease to revenue of $1 million, for performance obligations that were satisfied, or partially satisfied, in prior periods. During the six months ended March 31, 2022, the Company recognized a decrease to revenue of $2 million, for performance obligations that were satisfied, or partially satisfied, in prior periods. During the six months ended March 31, 2021, adjustments for performance obligations that were satisfied or partially satisfied, in prior periods were not material.

Contract Costs

The following table provides information regarding the location and amount for amortization of costs to obtain and costs to fulfill customer contracts recognized in the Company's Condensed Consolidated Statements of Operations for the periods ~~presented:~~
Three months ended
December 31,
(In millions) 2021 2020
Costs to obtain customer contracts:
Selling, general and administrative $ 44 $ 43
Revenue 4 1
Total Amortization $ 48 $ 44
Costs to fulfill customer contracts:
Costs $ 8 $ 4

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presented:


	Three months ended March 31,				Six months ended March 31,
(In millions)	2022		2021		2022		2021
Costs to obtain customer contracts:
Selling, general and administrative	$	36	$	48	$	80	$	91
Revenue	6		3		10		4
Total Amortization	$	42	$	51	$	90	$	95

Costs to fulfill customer contracts:
Costs	$	7	$	10	$	15	$	14

Allowance for Credit Losses

The following table presents the change in the allowance for credit losses by portfolio segment for the period indicated:


		Accounts Receivable(1)		Short-term Contract Assets(2)		Long-term Contract Assets(3)		Total
(In millions)										(In millions)	Accounts Receivable(1)		Short-term Contract Assets(2)		Long-term Contract Assets(3)		Total
Allowance for credit loss as of September 30, 2021	Allowance for credit loss as of September 30, 2021	$	4	$	1	$	1	$	6	Allowance for credit loss as of September 30, 2021	$	4	$	1	$	1	$	6
Adjustment to credit loss provision	Adjustment to credit loss provision	1		—		—		1		Adjustment to credit loss provision	1		—		—		1
Allowance for credit loss as of December 31, 2021		$	5	$	1	$	1	$	7

Allowance for credit loss as of March 31, 2022										Allowance for credit loss as of March 31, 2022	$	5	$	1	$	1	$	7

(1)Recorded within Accounts receivable, net on the Condensed Consolidated Balance Sheets.

(2)Recorded within Contract assets, net on the Condensed Consolidated Balance Sheets.

(3)Recorded within Other assets on the Condensed Consolidated Balance Sheets.

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4. Goodwill and Intangible Assets, net

Goodwill

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with GAAP at the reporting unit level. The Company's reporting units are subject to impairment testing annually, on July 1st, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company determined that no events occurred or circumstances changed during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 that would indicate that it is more likely than not that its goodwill was impaired. To the extent that business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to record impairment charges in the future.

Intangible Assets, net

The Company's intangible assets consist of the following for the periods indicated:


(In millions)	(In millions)	Technology and Patents		Customer Relationships and Other Intangibles		Trademarks and Trade Names		Total		(In millions)	Technology and Patents		Customer Relationships and Other Intangibles		Trademarks and Trade Names		Total
Balance as of December 31, 2021
Balance as of March 31, 2022										Balance as of March 31, 2022
Finite-lived intangible assets:	Finite-lived intangible assets:									Finite-lived intangible assets:
Cost	Cost	$	972	$	2,154	$	42	$	3,168	Cost	$	971	$	2,153	$	42	$	3,166
Accumulated amortization	Accumulated amortization	(698)		(627)		(22)		(1,347)		Accumulated amortization	(732)		(666)		(23)		(1,421)
Finite-lived intangible assets, net	Finite-lived intangible assets, net	274		1,527		20		1,821		Finite-lived intangible assets, net	239		1,487		19		1,745
Indefinite-lived intangible assets	Indefinite-lived intangible assets	—		—		333		333		Indefinite-lived intangible assets	—		—		333		333
Intangible assets, net	Intangible assets, net	$	274	$	1,527	$	353	$	2,154	Intangible assets, net	$	239	$	1,487	$	352	$	2,078
Balance as of September 30, 2021	Balance as of September 30, 2021									Balance as of September 30, 2021
Finite-lived intangible assets:	Finite-lived intangible assets:									Finite-lived intangible assets:
Cost	Cost	$	971	$	2,154	$	42	$	3,167	Cost	$	971	$	2,154	$	42	$	3,167
Accumulated amortization	Accumulated amortization	(656)		(588)		(21)		(1,265)		Accumulated amortization	(656)		(588)		(21)		(1,265)
Finite-lived intangible assets, net	Finite-lived intangible assets, net	315		1,566		21		1,902		Finite-lived intangible assets, net	315		1,566		21		1,902
Indefinite-lived intangible assets	Indefinite-lived intangible assets	—		—		333		333		Indefinite-lived intangible assets	—		—		333		333
Intangible assets, net	Intangible assets, net	$	315	$	1,566	$	354	$	2,235	Intangible assets, net	$	315	$	1,566	$	354	$	2,235

Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets. Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually, on July 1st, or more frequently if events occur or circumstances change that indicate an asset may be impaired.

The Company determined that no events occurred or circumstances changed during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 that would indicate that its finite-lived intangible assets may not be recoverable or that it is more likely than not that its indefinite-lived intangible asset, the Avaya Trade Name, was impaired. To the extent that business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to record impairment charges in the future.

911

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5. Supplementary Financial Information

The following table presents a summary of Other income, net for the periods indicated:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
OTHER INCOME, NET	OTHER INCOME, NET					OTHER INCOME, NET
Interest income						Interest income	$	1	$	1	$	1	$	1
Foreign currency gains (losses), net						Foreign currency gains (losses), net	2		1		2		(1)

Foreign currency losses, net		—		(2)

Gain on post-retirement plan settlement						Gain on post-retirement plan settlement	—		14		—		14
Other pension and post-retirement benefit credits, net	Other pension and post-retirement benefit credits, net	6		7		Other pension and post-retirement benefit credits, net	6		7		12		14
Change in fair value of emergence date warrants	Change in fair value of emergence date warrants	1		(5)		Change in fair value of emergence date warrants	7		(22)		8		(27)

Sublease income						Sublease income	—		1		—		1
Other, net						Other, net	1		(1)		1		(1)
Total other income, net	Total other income, net	$	7	$	—	Total other income, net	$	17	$	1	$	24	$	1

The gain on post-retirement plan settlement for the three and six months ended March 31, 2021 is further described in Note 11, "Benefit Obligations."

The following table presents supplemental cash flow information for the periods presented:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
OTHER PAYMENTS	OTHER PAYMENTS					OTHER PAYMENTS
Interest payments	Interest payments	$	33	$	33	Interest payments	$	60	$	59	$	93	$	92
Income tax payments	Income tax payments	7		3		Income tax payments	6		6		13		9

NON-CASH INVESTING ACTIVITIES	NON-CASH INVESTING ACTIVITIES					NON-CASH INVESTING ACTIVITIES
Decrease in Accounts payable for Capital expenditures		$	(2)	$	(1)
Increase (Decrease) in Accounts payable for Capital expenditures						Increase (Decrease) in Accounts payable for Capital expenditures	$	1	$	(1)	$	(1)	$	(2)
Acquisition of equipment under finance leases	Acquisition of equipment under finance leases	—		2		Acquisition of equipment under finance leases	4		4		4		6

During both the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company made payments for operating lease liabilities of ~~$15~~$16 million, and ~~$17~~recorded non-cash additions for operating lease right-of-use assets of $4 million and $5 million, respectively. During the six months ended March 31, 2022 and 2021, the Company made payments for operating lease liabilities of $31 million and $33 million, respectively, and recorded non-cash additions for operating lease right-of-use assets of $7$11 million and ~~$11~~$16 million, respectively.

The following table presents a reconciliation of cash, cash equivalents, and restricted cash that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows for the periods presented:


(In millions)	(In millions)	December 31, 2021		September 30, 2021		December 31, 2020		September 30, 2020		(In millions)	March 31, 2022		September 30, 2021		March 31, 2021		September 30, 2020
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	CASH, CASH EQUIVALENTS, AND RESTRICTED CASH									CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents	Cash and cash equivalents	$	354	$	498	$	750	$	727	Cash and cash equivalents	$	324	$	498	$	593	$	727
Restricted cash included in other assets	Restricted cash included in other assets	4		4		5		4		Restricted cash included in other assets	4		4		4		4
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	358	$	502	$	755	$	731	Total cash, cash equivalents, and restricted cash	$	328	$	502	$	597	$	731

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6. Business Restructuring Reserves and Programs

The following table summarizes the restructuring charges by activity for the periods presented:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
Employee separation costs	Employee separation costs	$	2	$	1	Employee separation costs	$	2	$	1	$	4	$	2
Facility exit costs	Facility exit costs	5		3		Facility exit costs	1		7		6		10
Total restructuring charges	Total restructuring charges	$	7	$	4	Total restructuring charges	$	3	$	8	$	10	$	12

The Company's employee separation costs generally consist of severance charges which include, but are not limited to, termination payments, pension fund payments, ~~and~~ health care and unemployment insurance costs to be paid to, or on behalf of, the affected ~~employees.~~employees and other associated costs. Facility exit costs primarily consist of lease obligation charges for exited facilities, including the impact of accelerated lease expense for right-of-use assets and accelerated depreciation expense for leasehold improvements with reductions in their estimated useful lives due to exited facilities. The restructuring charges include changes in estimates for

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increases and decreases in costs or changes in the timing of payments related to the restructuring programs of prior fiscal years. The Company does not allocate restructuring reserves to its operating segments.

The following table summarizes the activity for employee separation costs recognized under the Company's restructuring programs for the ~~three~~six months ended ~~December~~March 31, ~~2021:~~2022:


(In millions)	(In millions)	Fiscal 2022 Restructuring Program(2)		Fiscal 2021 Restructuring Program(3)		Fiscal 2020 and prior Restructuring Programs(3)		Total		(In millions)	Fiscal 2022 Restructuring Program(1)		Fiscal 2021 Restructuring Program(2)		Fiscal 2020 and prior Restructuring Programs(2)		Total
Accrual balance as of September 30, 2021	Accrual balance as of September 30, 2021	$	—	$	14	$	30	$	44	Accrual balance as of September 30, 2021	$	—	$	14	$	30	$	44
Cash payments	Cash payments	—		(1)		(4)		(5)		Cash payments	(3)		(2)		(7)		(12)
Restructuring charges	Restructuring charges	1		—		—		1		Restructuring charges	4		—		—		4
Adjustments(1)		—		—		1		1

Impact of foreign currency fluctuations	Impact of foreign currency fluctuations	—		—		(1)		(1)		Impact of foreign currency fluctuations	1		(1)		(1)		(1)
Accrual balance as of December 31, 2021		$	1	$	13	$	26	$	40
Accrual balance as of March 31, 2022										Accrual balance as of March 31, 2022	$	2	$	11	$	22	$	35

(1)Includes changes in estimates for increases and decreases in costs related to the Company's restructuring programs, which are recorded in Restructuring charges, net in the Condensed Consolidated Statements of Operations in the period of the adjustment.

~~(2)~~ Payments related to the fiscal 2022 restructuring program are expected to be completed in fiscal 2022.

~~(3)~~(2) Payments related to the fiscal 2021 and fiscal 2020 and prior restructuring programs are expected to be completed in fiscal 2027.

7. Financing Arrangements

The following table reflects principal amounts of debt and debt net of discounts and issuance costs for the periods presented:


		December 31, 2021				September 30, 2021					March 31, 2022				September 30, 2021
(In millions)	(In millions)	Principal amount		Net of discounts and issuance costs		Principal amount		Net of discounts and issuance costs		(In millions)	Principal amount		Net of discounts and issuance costs		Principal amount		Net of discounts and issuance costs
Senior 6.125% Notes due September 15, 2028	Senior 6.125% Notes due September 15, 2028	$	1,000	$	986	$	1,000	$	986	Senior 6.125% Notes due September 15, 2028	$	1,000	$	987	$	1,000	$	986
Tranche B-1 Term Loans due December 15, 2027	Tranche B-1 Term Loans due December 15, 2027	800		781		800		780		Tranche B-1 Term Loans due December 15, 2027	800		781		800		780
Tranche B-2 Term Loans due December 15, 2027	Tranche B-2 Term Loans due December 15, 2027	743		737		743		736		Tranche B-2 Term Loans due December 15, 2027	743		737		743		736
Convertible 2.25% Senior Notes due June 15, 2023	Convertible 2.25% Senior Notes due June 15, 2023	350		316		350		311		Convertible 2.25% Senior Notes due June 15, 2023	350		322		350		311
Total Long-term debt	Total Long-term debt	$	2,893	$	2,820	$	2,893	$	2,813	Total Long-term debt	$	2,893	$	2,827	$	2,893	$	2,813

Term Loan and ABL Credit Agreements

As of ~~December~~March 31, ~~2021~~2022 and September 30, 2021, the Company maintained (i) its Term Loan Credit Agreement among Avaya Inc., as borrower, Avaya Holdings, the lending institutions from time to time party thereto, and Goldman Sachs Bank USA, as administrative agent and collateral agent (the “Term Loan Credit Agreement”), and (ii) its ABL Credit Agreement, among Avaya Inc., as borrower, Avaya Holdings, the several other borrowers party thereto, the several lenders from time to time party thereto, and Citibank, N.A., as administrative agent and collateral agent, which provides a revolving credit facility consisting of a U.S. tranche and a foreign tranche allowing for borrowings of up to an aggregate principal amount of $200 million subject to borrowing base availability (the "ABL Credit Agreement"). The ABL Credit Agreement matures on September 25, 2025.

Prior to February 24, 2021, the Term Loan Credit Agreement matured in two tranches, with a principal amount of $843 million maturing on December 15, 2024 (the “Tranche B Term Loans”) and a principal amount of $800 million maturing on December 15, 2027 (the “Tranche B-1 Term Loans”). On February 24, 2021, the Company amended the Term Loan Credit Agreement

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("Amendment No. 3"), pursuant to which the Company prepaid, replaced and refinanced the Tranche B Term Loans outstanding with $100 million in cash and $743 million in principal amount of new first lien term loans due December 2027 (the “Tranche B-2 Term Loans”). The Tranche B-2 Term Loans bear interest at a rate with applicable margin of 3.00% per annum with respect to base rate borrowings and 4.00% per annum with respect to LIBOR borrowings. Amendment No. 3 was primarily accounted for as a loan modification at the syndicated lender level. Based on the application of the loan modification guidance within ASC 470, the Company recorded $3 million of new debt issuance costs within Interest expense in the Condensed Consolidated Statements of Operations during the three and six months ended March 31, 2021. Loans from lenders who exited their positions in the Tranche B Term Loans as a result of Amendment No. 3 were accounted for as a loan extinguishment. Accordingly, the Company wrote-off a portion of the original underwriting discount of $1 million within Interest expense during the three and six months ended March 31, 2021.

For the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recognized interest expense of ~~$18~~$17 million and ~~$20~~$22 million, respectively, related to the Term Loan Credit Agreement, including the amortization of the debt discount and issuance ~~costs.~~costs and the expenses associated with Amendment No. 3 described above. For the six months ended March 31, 2022 and 2021, the Company recognized interest expense of $35 million and $42 million, respectively, related to the Term Loan Credit Agreement, including the amortization of the debt discount and issuance costs and the expenses associated with Amendment No. 3 described above.

As of ~~December~~March 31, ~~2021,~~2022, the Company had no borrowings outstanding under the ABL Credit Agreement. Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At ~~December~~March 31, ~~2021,~~2022, the Company had issued and outstanding letters of credit and guarantees of ~~$35~~$32 million under the ABL Credit Agreement. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less

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~~$35~~ $32 million of outstanding letters of credit and guarantees was ~~$119~~$118 million at ~~December~~March 31, ~~2021.~~2022. For ~~both~~each of the three and six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, recognized interest expense related to the ABL Credit Agreement was not material.

Senior Notes

The Company’s Senior 6.125% First Lien Notes have an aggregate principal amount outstanding of $1,000 million and mature on September 15, 2028 (the “Senior Notes”). The Senior Notes were issued on September 25, 2020, pursuant to an indenture among the Company, the Company's subsidiaries that are guarantors of the Senior Notes and party thereto and Wilmington Trust, National Association, as trustee and notes collateral agent.

For both the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recognized interest expense of $16 million related to the Senior Notes, including the amortization of debt issuance costs. For both the six months ended March 31, 2022 and 2021, the Company recognized interest expense of $32 million related to the Senior Notes, including the amortization of debt issuance costs.

Convertible Notes

The Company's 2.25% Convertible Notes have an aggregate principal amount outstanding ofof $350 million ~~(including~~(including notes issued in connection with the underwriters' exercise in full of an over-allotment option of $50 million) and mature on June 15, 2023 (the "Convertible Notes"). The Convertible Notes were issued under an indenture, by and between the Company and the Bank of New York Mellon Trust Company N.A., as Trustee.

For ~~both~~ the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recognized interest expense of $8 million and $7 million related to the Convertible Notes, respectively, which includes $6 million and $5 million of amortization of the debt discount and issuance ~~costs.~~costs, respectively. For the six months ended March 31, 2022 and 2021, the Company recognized interest expense of $15 million and $14 million related to the Convertible Notes, respectively, which includes $11 million and $10 million of amortization of the debt discount and issuance costs, respectively.

The net carrying amount of the Convertible Notes for the periods indicated was as follows:


(In millions)	(In millions)	December 31, 2021		September 30, 2021		(In millions)	March 31, 2022		September 30, 2021
Principal	Principal	$	350	$	350	Principal	$	350	$	350
Less:	Less:					Less:
Unamortized debt discount	Unamortized debt discount	(31)		(36)		Unamortized debt discount	(26)		(36)
Unamortized issuance costs	Unamortized issuance costs	(3)		(3)		Unamortized issuance costs	(2)		(3)
Net carrying amount	Net carrying amount	$	316	$	311	Net carrying amount	$	322	$	311

The weighted average contractual interest rate of the Company's outstanding debt was 6.5% as of both ~~December~~March 31, ~~2021~~2022 and September 30, 2021, including adjustments related to the Company's interest rate swap agreements (see Note 8, "Derivative

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Instruments and Hedging Activities"). The effective interest rate for the Term Loan Credit Agreement as of ~~December~~March 31, ~~2021~~2022 and September 30, 2021 was not materially different than its contractual interest rate including adjustments related to interest rate swap agreements designated as highly effective cash flow hedges. The effective interest rate for the Senior Notes as of ~~December~~March 31, ~~2021~~2022 and September 30, 2021 was not materially different than its contractual interest rate. The effective interest rate for the Convertible Notes as of both ~~December~~March 31, ~~2021~~2022 and September 30, 2021 was 9.2%, reflecting the separation of the conversion feature in equity. The effective interest rates include interest on the debt and amortization of discounts and issuance costs.

As of ~~December~~March 31, ~~2021,~~2022, the Company was not in default under any of its debt agreements.

8. Derivative Instruments and Hedging Activities

The Company accounts for derivative financial instruments in accordance with FASB ASC Topic 815, "Derivatives and Hedging," ("ASC 815") and does not enter into derivatives for trading or speculative purposes.

Interest Rate Contracts

The Company, from time to time, enters into interest rate swap contracts as a hedge against changes in interest rates on its outstanding variable rate loans.

On May 16, 2018, the Company entered into interest rate swap agreements with 6 counterparties, which fix a portion of the variable interest due under its Term Loan Credit Agreement (the "Original Swap Agreements"). Under the terms of the Original Swap Agreements, which mature on December 15, 2022, the Company pays a fixed rate of 2.935% and receives a variable rate of interest based on one-month LIBOR. Through September 23, 2020, the total $1,800 million notional amount of the Original Swap Agreements were designated as cash flow hedges and deemed highly effective as defined under ASC 815.

On September 23, 2020, the Company entered into an interest rate swap agreement for a notional amount of $257 million (the “Offsetting Swap Agreement”). Under the terms of the Offsetting Swap Agreement, which matures on December 15, 2022, the Company pays a variable rate of interest based on one-month LIBOR and receives a fixed rate of 0.1745%. The Company

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entered into the Offsetting Swap Agreement to maintain a net notional amount less than the amount of the Company’s variable rate loans outstanding. The Offsetting Swap Agreement was not designated for hedge accounting treatment. On September 23, 2020, Original Swap Agreements with a notional amount of $257 million were also de-designated from hedge accounting treatment. As of ~~December~~March 31, ~~2021,~~2022, Original Swap Agreements with a notional amount of $1,543 million continue to be designated as cash flow hedges and deemed highly effective as defined under ASC 815.

On July 1, 2020, the Company entered into interest rate swap agreements with 4 counterparties, which ~~fix~~fixed a portion of the variable interest due onunder its Term Loan Credit Agreement (the "Forward Swap Agreements") from December 15, 2022 (the maturity date of the Original Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, the Company ~~will~~would pay a fixed rate of 0.7047% and receive a variable rate of interest based on one-month LIBOR. The total notional amount of the Forward Swap Agreements iswas $1,400 million. Since their execution, the Forward Swap Agreements ~~have been~~were designated as cash flow hedges and deemed highly effective as defined by ASC 815.

On March 23, 2022, the Company restructured its Forward Swap Agreements resulting in the receipt of $52 million of net cash proceeds which is reflected within cash used for operating activities in the Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2022. As part of the restructuring, the Company terminated the Forward Swap Agreements and simultaneously entered into new interest rate swap agreements with 4 counterparties (the "New Forward Swap Agreements"). The New Forward Swap Agreements fix a portion of the variable interest due under the Company's Term Loan Credit Agreement from December 15, 2022 through June 15, 2027. Under the terms of the New Forward Swap Agreements, the Company will pay a fixed rate of 2.5480% and receive a variable rate of interest based on one-month SOFR. The Company's intends to transition its Term Loan Credit Agreement from one-month LIBOR to one-month SOFR effective December 15, 2022. The total notional amount of the New Forward Swap Agreements is $1,000 million. The New Forward Swap Agreements were designated as cash flow hedges and deemed highly effective as defined by ASC 815.

The Company records changes in the fair value of interest rate swap agreements designated as cash flow hedges initially within Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. As interest expense is recognized on the Term Loan Credit Agreement, the corresponding deferred gain or loss on the cash flow hedge is reclassified from Accumulated other comprehensive loss to Interest expense in the Condensed Consolidated Statements of Operations. The Company records changes in the fair value of interest rate swap agreements not designated for hedge accounting within Interest expense. On September 23, 2020, the Company froze a $15 million deferred loss within Accumulated other comprehensive loss ~~for~~related to the de-designated Original Swap Agreements, which is reclassified to Interest expense over the term of the Original Swap Agreements. On March 23, 2022, the Company froze a $52 million deferred gain within Accumulated other comprehensive loss related to the termination of the Forward Swap Agreements, which will be reclassified to Interest expense over the term of the original Forward Swap Agreements.

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Based on the amount in Accumulated other comprehensive loss at ~~December~~March 31, ~~2021,~~2022, approximately ~~$43~~$13 million would be reclassified to Interest expense in the next twelve months.

It is management's intention that the net notional amount of interest rate swap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives.

Foreign Currency Forward Contracts

The Company, from time to time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, net to offset the change in the value of the hedged assets and liabilities. As of ~~December~~March 31, ~~2021,~~2022, the Company maintained open foreign currency forward contracts with a total notional value of ~~$190~~$156 million, ~~primarily~~ hedging the British Pound Sterling, ~~Japanese Yen,~~ Mexican Peso, Czech Koruna and ~~Indian Rupee.~~Japanese Yen. As of September 30, 2021, the Company maintained open foreign currency forward contracts with a total notional value of $191 million, primarily hedging the British Pound Sterling, Indian Rupee, Czech Koruna and Mexican Peso.

Emergence Date Warrants

In accordance with the bankruptcy plan of reorganization adopted in connection with the Company's emergence from bankruptcy on December 15, 2017 (the "Plan of Reorganization"), the Company issued warrants to purchase 5,645,200 shares of the Company's common stock to the holders of the second lien obligations extinguished pursuant to the Plan of Reorganization (the "Emergence Date Warrants"). Each Emergence Date Warrant has an exercise price of $25.55 per share and expires on December 15, 2022. The Emergence Date Warrants contain certain derivative features that require them to be classified as a liability and for changes in the fair value of the liability to be recognized in earnings each reporting period. On November 14, 2018, the Company's Board of Directors approved a warrant repurchase program, authorizing the Company to repurchase up to $15 million worth of the Emergence Date Warrants. None of the Emergence Date Warrants have been exercised or repurchased as of ~~December~~March 31, ~~2021.~~2022.

The fair value of the Emergence Date Warrants was determined using a probability weighted Black-Scholes option pricing model. This model requires certain input assumptions including risk-free interest rates, volatility, expected life and dividend rates. Selection of these inputs involves significant judgment. The fair value of the Emergence Date Warrants as of ~~December~~March 31, ~~2021~~2022 and September 30, 2021 was determined using the input assumptions summarized below:
December 31,
2021 September 30, 2021
Expected volatility 52.53 % 49.63 %
Risk-free interest rates 0.37 % 0.13 %
Contractual remaining life (in years) 0.96 1.21
Price per share of common stock $19.80 $19.79

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	March 31, 2022		September 30, 2021
Expected volatility	62.41	%	49.63	%
Risk-free interest rates	1.29	%	0.13	%
Contractual remaining life (in years)	0.71		1.21
Price per share of common stock	$12.67		$19.79

In determining the fair value of the Emergence Date Warrants, the dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock throughout the term of the warrants.

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Financial Statement Information Related to Derivative Instruments

The following table summarizes the fair value of the Company's derivatives on a gross basis, including accrued interest, segregated between those that are designated as hedging instruments and those that are not designated as hedging instruments:


			December 31, 2021				September 30, 2021						March 31, 2022				September 30, 2021
(In millions)	(In millions)	Balance Sheet Caption	Asset		Liability		Asset		Liability		(In millions)	Balance Sheet Caption	Asset		Liability		Asset		Liability
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:										Derivatives Designated as Hedging Instruments:
Interest rate contracts	Interest rate contracts	Other assets	$	18	$	—	$	6	$	—	Interest rate contracts	Other assets	$	—	$	—	$	6	$	—
Interest rate contracts	Interest rate contracts	Other current liabilities	—		39		—		43		Interest rate contracts	Other current liabilities	—		17		—		43
Interest rate contracts	Interest rate contracts	Other liabilities	—		—		—		10		Interest rate contracts	Other liabilities	—		4		—		10
			18		39		6		53				—		21		6		53
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:										Derivatives Not Designated as Hedging Instruments:
Interest rate contracts	Interest rate contracts	Other current liabilities	—		7		—		7		Interest rate contracts	Other current liabilities	—		5		—		7
Interest rate contracts	Interest rate contracts	Other liabilities	—		—		—		2		Interest rate contracts	Other liabilities	—		—		—		2
Foreign exchange contracts		Other current assets	1		—		—		—

Foreign exchange contracts	Foreign exchange contracts	Other current liabilities	—		—		—		2		Foreign exchange contracts	Other current liabilities	—		1		—		2
Emergence Date Warrants	Emergence Date Warrants	Other current liabilities	—		8		—		—		Emergence Date Warrants	Other current liabilities	—		1		—		—
Emergence Date Warrants	Emergence Date Warrants	Other liabilities	—		—		—		9		Emergence Date Warrants	Other liabilities	—		—		—		9
			1		15		—		20				—		7		—		20
Total derivative fair value	Total derivative fair value		$	19	$	54	$	6	$	73	Total derivative fair value		$	—	$	28	$	6	$	73

The following table provides information regarding the location and amount of pre-tax gains (losses) for interest rate swaps designated as cash flow hedges:


		Three months ended December 31,									Three months ended March 31,
		2021				2020					2022				2021
(In millions)	(In millions)	Interest Expense		Other Comprehensive Income		Interest Expense		Other Comprehensive Income		(In millions)	Interest Expense		Other Comprehensive Income		Interest Expense		Other Comprehensive Income
Financial Statement Line Item in which Cash Flow Hedges are Recorded	Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(54)	$	40	$	(56)	$	17	Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(54)	$	39	$	(59)	$	85

Impact of cash flow hedging relationships:	Impact of cash flow hedging relationships:									Impact of cash flow hedging relationships:
Gain (loss) recognized in AOCI on interest rate swaps		—		15		—		(1)
Gain recognized in AOCI on interest rate swaps										Gain recognized in AOCI on interest rate swaps	—		42		—		17
Interest expense reclassified from AOCI	Interest expense reclassified from AOCI	(13)		13		(12)		12		Interest expense reclassified from AOCI	(12)		12		(13)		13


	Six months ended March 31,
	2022				2021
(In millions)	Interest Expense		Other Comprehensive Income		Interest Expense		Other Comprehensive Income
Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(108)	$	79	$	(115)	$	102

Impact of cash flow hedging relationships:
Gain recognized in AOCI on interest rate swaps	—		57		—		16
Interest expense reclassified from AOCI	(25)		25		(25)		25

The following table provides information regarding the pre-tax gains (losses) for derivatives not designated as hedging

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instruments on the Condensed Consolidated Statements of Operations:


			Three months ended December 31,						Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	Location of Derivative Pre-tax Gain (Loss)	2021		2020		(In millions)	Location of Derivative Pre-tax Gain (Loss)	2022		2021		2022		2021
Emergence Date Warrants	Emergence Date Warrants	Other income, net	$	1	$	(5)	Emergence Date Warrants	Other income, net	$	7	$	(22)	$	8	$	(27)
Foreign exchange contracts	Foreign exchange contracts	Other income, net	—		5		Foreign exchange contracts	Other income, net	(1)		1		(1)		6

The Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheets. The Company has master netting agreements with several of its financial institution counterparties. The following table provides information on the Company's derivative positions as if those subject to master netting arrangements were presented on a net basis, allowing for

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the right to offset by counterparty per the master netting agreements:
December 31, 2021 September 30, 2021
(In millions) Asset Liability Asset Liability
Gross amounts recognized in the Condensed Consolidated Balance Sheets $ 19 $ 54 $ 6 $ 73
Gross amount subject to offset in master netting arrangements not offset in the Condensed Consolidated Balance Sheets (19) (19) (6) (6)
Net amounts $ — $ 35 $ — $ 67


	March 31, 2022				September 30, 2021
(In millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the Condensed Consolidated Balance Sheets	$	—	$	28	$	6	$	73
Gross amount subject to offset in master netting arrangements not offset in the Condensed Consolidated Balance Sheets	—		—		(6)		(6)
Net amounts	$	—	$	28	$	—	$	67

9. Fair Value Measurements

Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Considerable judgment was required in developing certain of the estimates of fair value and accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Fair Value Hierarchy

The accounting guidance for fair value measurements also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs are prioritized into three levels that may be used to measure fair value:

Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable.

Level 2: Inputs that reflect quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of ~~December~~March 31, ~~2021~~2022 and September 30, 2021 were as follows:


		December 31, 2021								September 30, 2021									March 31, 2022								September 30, 2021
		Fair Value Measurements Using								Fair Value Measurements Using									Fair Value Measurements Using								Fair Value Measurements Using
(In millions)	(In millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		(In millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:	Assets:																	Assets:
Interest rate contracts	Interest rate contracts	$	18	$	—	$	18	$	—	$	6	$	—	$	6	$	—	Interest rate contracts	$	—	$	—	$	—	$	—	$	6	$	—	$	6	$	—
Foreign exchange contracts		1		—		1		—		—		—		—		—

Total assets	Total assets	$	19	$	—	$	19	$	—	$	6	$	—	$	6	$	—	Total assets	$	—	$	—	$	—	$	—	$	6	$	—	$	6	$	—

Liabilities:	Liabilities:																	Liabilities:
Interest rate contracts	Interest rate contracts	$	46	$	—	$	46	$	—	$	62	$	—	$	62	$	—	Interest rate contracts	$	26	$	—	$	26	$	—	$	62	$	—	$	62	$	—
Foreign exchange contracts	Foreign exchange contracts	—		—		—		—		2		—		2		—		Foreign exchange contracts	1		—		1		—		2		—		2		—
Emergence Date Warrants	Emergence Date Warrants	8		—		—		8		9		—		—		9		Emergence Date Warrants	1		—		—		1		9		—		—		9
Total liabilities	Total liabilities	$	54	$	—	$	46	$	8	$	73	$	—	$	64	$	9	Total liabilities	$	28	$	—	$	27	$	1	$	73	$	—	$	64	$	9

Interest rate and foreign exchange contracts classified as Level 2 assets and liabilities are not actively traded and are valued using pricing models that use observable inputs.

Emergence Date Warrants classified as Level 3 liabilities are valued using a probability weighted Black-Scholes option pricing model which is further described in Note 8, "Derivative Instruments and Hedging Activities."

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During the three and six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, there were 0 transfers into or out of Level 3. The activity related to the Company's Level 3 liability, the Emergence Date Warrants, relates to a change in fair value which was recorded in Other income, net.

Fair Value of Financial Instruments

The estimated fair values of the Company's Senior Notes, Term Loans and Convertible Notes as of ~~December~~March 31, ~~2021~~2022 and September 30, 2021 were as follows:


		December 31, 2021				September 30, 2021					March 31, 2022				September 30, 2021
(In millions)	(In millions)	Principal amount		Fair value		Principal amount		Fair value		(In millions)	Principal amount		Fair value		Principal amount		Fair value
Senior 6.125% Notes due September 15, 2028	Senior 6.125% Notes due September 15, 2028	$	1,000	$	1,064	$	1,000	$	1,053	Senior 6.125% Notes due September 15, 2028	$	1,000	$	986	$	1,000	$	1,053
Tranche B-1 Term Loans due December 15, 2027	Tranche B-1 Term Loans due December 15, 2027	800		803		800		802		Tranche B-1 Term Loans due December 15, 2027	800		795		800		802
Tranche B-2 Term Loans due December 15, 2027	Tranche B-2 Term Loans due December 15, 2027	743		744		743		745		Tranche B-2 Term Loans due December 15, 2027	743		737		743		745
Convertible 2.25% Senior Notes due June 15, 2023	Convertible 2.25% Senior Notes due June 15, 2023	350		373		350		368		Convertible 2.25% Senior Notes due June 15, 2023	350		343		350		368
Total	Total	$	2,893	$	2,984	$	2,893	$	2,968	Total	$	2,893	$	2,861	$	2,893	$	2,968

The estimated fair value of the Company's Senior Notes and Term Loans was determined using Level 2 inputs based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices. The estimated fair value of the Convertible Notes was determined based on the quoted price of the Convertible Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2.

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximate their carrying values because of the short-term nature of these instruments.

10. Income Taxes

The Company's effective income tax rate for the three and six months ended ~~December~~March 31, ~~2021 and 2020~~2022 differed from the U.S. federal tax rate by ~~59%~~72% or ~~$28~~$10 million and ~~146%~~29% or $9$18 million, respectively, principally related to deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be ~~realized;~~realized, the release of reserves from statute of limitation expirations, and ~~certain~~ nondeductible expenses.

The Company's effective income tax rate for the three and six months ended March 31, 2021 differed from the U.S. federal tax rate by 335% or $47 million and 696% or $56 million, respectively, principally related to nondeductible expenses, including expenses related to the change in fair value of the Emergence Date Warrants, and deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized.

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11. Benefit Obligations

The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and post-retirement benefit plans covering a portion of its U.S. employees and retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees. Some of these programs are considered to be defined benefit pension plans for accounting purposes.

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The components of the pension and post-retirement net periodic benefit (credit) cost for the periods indicated are provided in the table below:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
Pension Benefits - U.S.	Pension Benefits - U.S.					Pension Benefits - U.S.
Components of net periodic benefit credit	Components of net periodic benefit credit					Components of net periodic benefit credit
Service cost	Service cost	$	1	$	1	Service cost	$	1	$	1	$	2	$	2
Interest cost	Interest cost	5		5		Interest cost	5		5		10		10
Expected return on plan assets	Expected return on plan assets	(12)		(13)		Expected return on plan assets	(13)		(13)		(25)		(26)
Amortization of actuarial loss						Amortization of actuarial loss	—		1		—		1
Net periodic benefit credit	Net periodic benefit credit	$	(6)	$	(7)	Net periodic benefit credit	$	(7)	$	(6)	$	(13)	$	(13)
Pension Benefits - Non-U.S.	Pension Benefits - Non-U.S.					Pension Benefits - Non-U.S.
Components of net periodic benefit cost	Components of net periodic benefit cost					Components of net periodic benefit cost
Service cost	Service cost	$	2	$	2	Service cost	$	1	$	2	$	3	$	4
Interest cost	Interest cost	1		1		Interest cost	2		1		3		2
Net periodic benefit cost	Net periodic benefit cost	$	3	$	3	Net periodic benefit cost	$	3	$	3	$	6	$	6
Post-retirement Benefits - U.S.	Post-retirement Benefits - U.S.					Post-retirement Benefits - U.S.
Components of net periodic benefit cost
Components of net periodic benefit credit						Components of net periodic benefit credit
Service cost						Service cost	$	—	$	1	$	—	$	1
Interest cost	Interest cost	1		2		Interest cost	1		2		2		4
Expected return on plan assets	Expected return on plan assets	—		(2)		Expected return on plan assets	—		(2)		—		(4)
Amortization of prior service credit	Amortization of prior service credit	(1)		(1)		Amortization of prior service credit	(2)		(1)		(3)		(2)
Amortization of actuarial loss	Amortization of actuarial loss	—		1		Amortization of actuarial loss	1		—		1		1
Net periodic benefit cost		$	—	$	—
Settlement gain						Settlement gain	—		(14)		—		(14)
Net periodic benefit credit						Net periodic benefit credit	$	—	$	(14)	$	—	$	(14)

The service components of net periodic benefit (credit) cost were recorded similar to compensation expense, while all other components were recorded in Other income, net.

The Company's general funding policy with respect to its U.S. qualified pension plans is to contribute amounts at least sufficient to satisfy the minimum amount required by applicable law and regulations, or to directly pay benefits where appropriate. In March 2021, the American Rescue Plan Act (the "ARP Act") was signed into law, providing limited interest-rate relief provisions and an extended shortfall amortization period for pension funding and retirement plan distributions. As a result, the Company did not make any contributions to the U.S. pension plans during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and does not expect to make any contributions to the U.S. pension plans during the remainder of fiscal 2022.

Contributions to the non-U.S. pension plans were $4$14 million for the ~~three~~six months ended ~~December~~March 31, ~~2021.~~2022. For the remainder of fiscal 2022, the Company estimates that it will make contributions totaling ~~$21~~$11 million for non-U.S. plans.

In March 2021, the Company entered into an irrevocable buy-out agreement with an insurance company to settle $209 million of its post-retirement life insurance projected benefit obligations related to certain salaried and represented retirees and their beneficiaries who had retired as of March 26, 2021. The transaction was funded with post-retirement life insurance plan assets with a value of $190 million. As a result of this transaction, a settlement gain of $14 million was recognized within Other income, net in the Condensed Consolidated Statements of Operations during the three and six months ended March 31, 2021.

Most post-retirement medical benefits are not pre-funded. Consequently, the Company makes payments directly to the claims administrator as retiree medical benefit claims are disbursed. These payments are funded by the Company up to the maximum contribution amounts specified in the plan documents and contract with the Communications Workers of America and the International Brotherhood of Electrical Workers, and contributions from the participants, if required. During the ~~three~~six months

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ended ~~December~~March 31, ~~2021,~~2022, the Company made payments for retiree medical and dental benefits of $2$3 million ~~and~~which is net of reimbursements received ~~reimbursements~~ from the represented employees' post-retirement health trust of $2 million related to payments in prior periods. The Company estimates it will make payments for retiree medical and dental benefits totaling $9$6 million for the remainder of fiscal 2022.

12. Share-based Compensation

~~The Company maintains share-based compensation plans under which non-employee directors, employees~~As of March 2, 2022, the Board of Directors of the Company ~~or any~~and the stockholders of ~~its affiliates, and certain consultants and advisors may be granted stock options, restricted stock, restricted stock units ("RSUs"~~the Company approved an amendment to the Avaya Holdings Corp. 2019 Equity Incentive Plan (as amended, the “2019 Plan”), ~~performance awards ("PRSUs") and other forms~~which increased the number of ~~awards granted or denominated in~~ shares of the Company's common stock that may be issued or granted under the 2019 Plan by 6,500,000 shares. Awards granted under the 2019 Plan reduce the aggregate number of shares of the Company's common stock that may be granted or issued under the 2019 Plan as ~~well as certain cash-based awards.~~ follows:


2019 Plan Award			Reduction to the 2019 Plan Capacity
Restricted stock units granted prior to March 2, 2022			1.7 shares
Restricted stock units granted on or after March 2, 2022			1.5 shares
Stock options and stock appreciation rights (regardless of grant date)			1 share

If any awards expire, terminate or are canceled or forfeited for any reason without having been exercised or vested in full, the number of shares of common stock underlying any such award (as described above) will again be available for issuance under the 2019 Plan.

Pre-tax share-based compensation expense for ~~both~~ the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020~~2021 was $14 ~~million.~~million and $13 million, respectively, and $28 million and $27 million for the six months ended March 31, 2022 and 2021, respectively.

Restricted Stock Units

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company granted ~~2,643,376 RSUs~~2,845,320 restricted stock units ("RSUs") with a weighted average grant date fair value of ~~$19.47~~$19.05 per RSU, and there were ~~637,550~~1,084,705 RSUs that vested with a weighted average grant date fair value of ~~$17.56~~$16.58 per RSU.

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Performance Restricted Stock Units

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company granted 669,228 ~~PRSUs~~performance awards ("PRSUs") with a grant date fair value of $21.89 per PRSU. These PRSUs will vest based on the attainment of specified performance metrics for each of the next three separate fiscal years (collectively the "Performance Period"), as well as the achievement of total shareholder return over the Performance Period for the Company as compared to the total shareholder return for a specified index of companies over the same period. During the Performance Period, the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of the specified annual performance metrics. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs that are expected to be earned during the Performance Period will be recognized as an adjustment to earnings in the period of the revision.

The grant date fair value of the PRSUs was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the total shareholder return market condition and the following assumptions:


	~~Three~~Six months ended ~~December~~March 31, ~~2021~~2022
Expected volatility(1)	67.59	%
Risk-free interest rate(2)	0.76	%
Dividend yield(3)	—	%

(1)Expected volatility based on the Company's historical data.

(2)Risk-free interest rate based on U.S. Treasury yields with a term equal to the remaining Performance Period as of the grant date.

(3)Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.

During the six months ended March 31, 2022, there were 274,223 PRSUs that vested with a grant date fair value of $11.18 per PRSU.

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Stock Bonus Program

In November 2021, the Company adopted the Avaya Holdings Corp. Stock Bonus Program ("Stock Bonus Program") under which certain employees can elect to receive a specified percentage of their annual incentive bonus in the form of fully vested shares of the Company’s common stock in lieu of cash. Annually, the Company's Board of Directors will approve the maximum number of shares that can be issued under the Stock Bonus Program. For fiscal 2022, a maximum of 250,000 shares were approved for issuance under the Stock Bonus Program. The number of shares issuable under the Stock Bonus Program will be determined based on the attainment of specified annual performance targets and the average closing price of the Company's common stock over a specified 5-trading day period. The Stock Bonus Program is classified as a liability. The Company records compensation cost for the expected dollar value of the award and will adjust compensation expense for the awards based on its best estimate of attainment of its performance conditions. The cumulative effect of a change in the estimated value of the award will be recognized as an adjustment to earnings in the period of the revision. Pre-tax share-based compensation expense related to the Stock Bonus Program for the three and six months ended ~~December~~March 31, ~~2021~~2022 was not material.

Stock Options

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, there were 81,832 stock options exercised with an exercise price of $11.38. The intrinsic value of a stock option is the difference between the Company's common stock price and the option exercise price. The total pre-tax intrinsic value of stock options exercised during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was $1 million.

Employee Stock Purchase Plan

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company withheld $4$7 million of eligible employee compensation for purchases of common stock and issued ~~174,199~~531,339 shares of common stock under its employee stock purchase plan (the "ESPP").

The grant date fair value for shares issued under the ESPP is measured on the date that each offering period commences. The average grant date fair value for the offering ~~period~~periods that commenced during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was ~~$5.33~~$4.74 per share. The grant date fair value was determined using a Black-Scholes option pricing model with the following average grant date assumptions:


	~~Three~~Six months ended ~~December~~March 31, ~~2021~~2022
Expected volatility(1)	~~62.43~~69.22	%
Risk-free interest rate(2)	~~0.06~~0.19	%
Dividend yield(3)	—	%

(1)Expected volatility based on the Company's historical data.

(2)Risk-free interest rate based on U.S. Treasury yields with a term equal to the length of the offering period.

(3)Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.

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13. Preferred Stock

There were 125,000 shares of the Company's 3% Series A Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred Stock") issued and outstanding as of ~~December~~March 31, ~~2021.~~2022. The Series A Preferred Stock is convertible into shares of the Company's common stock at an initial conversion price of $16.00 per share, which represents an approximately 9% interest in the Company's common stock on an as-converted basis as of ~~December~~March 31, ~~2021,~~2022, assuming no holders of options, warrants, convertible notes or similar instruments exercise their exercise or conversion rights.

As of ~~December~~March 31, ~~2021,~~2022, the carrying value of the Series A Preferred Stock was ~~$130~~$131 million, which includes $5$6 million of accreted dividends paid in kind. During the six months ended March 31, 2022, the carrying value of the Series A Preferred Stock increased $1 million due to accreted dividends paid in kind.

1922

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14. Loss Per Common Share

Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per share reflects the potential dilution that would occur if equity awards granted under the Company's various share-based compensation plans were vested or exercised; if the Company's Series A Preferred Stock were converted into shares of the Company's common stock; if the Company's Convertible Notes or the warrants the Company sold to purchase up to 12.6 million shares of its common stock in connection with the issuance of Convertible Notes ("Call Spread Warrants") were exercised; and/or if the Emergence Date Warrants were exercised, resulting in the issuance of common shares that would participate in the earnings of the Company. In periods with net losses, no incremental shares are reflected as their effect would be anti-dilutive.

The Company's Series A Preferred Stock are participating securities, which requires the application of the two-class method to calculate basic and diluted earnings (loss) per share. Under the two-class method, undistributed earnings are allocated to common stock and participating securities according to their respective participating rights in undistributed earnings, as if all the earnings for the period had been distributed. Basic earnings (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net income (loss) attributable to common stockholders is reduced for preferred stock dividends earned and accretion recognized during the period. No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.

The following table sets forth the calculation of net loss attributable to common stockholders and the computation of basic and diluted loss per share for the periods indicated:


		Three months ended December 31,							Three months ended March 31,						Six months ended March 31,
(In millions, except per share amounts)	(In millions, except per share amounts)	2021			2020			(In millions, except per share amounts)	2022			2021			2022			2021
Loss per share:	Loss per share:							Loss per share:
Numerator	Numerator							Numerator
Net loss	Net loss	$	(66)		$	(4)		Net loss	$	(1)		$	(58)		$	(67)		$	(62)
Dividends to preferred stockholders	Dividends to preferred stockholders	(1)			(1)			Dividends to preferred stockholders	(1)			(1)			(2)			(2)
Undistributed loss	Undistributed loss	(67)			(5)			Undistributed loss	(2)			(59)			(69)			(64)
Percentage allocated to common stockholders(1)	Percentage allocated to common stockholders(1)	100.0		%	100.0		%	Percentage allocated to common stockholders(1)	100.0		%	100.0		%	100.0		%	100.0		%
Numerator for basic and diluted loss per common share	Numerator for basic and diluted loss per common share	$	(67)		$	(5)		Numerator for basic and diluted loss per common share	$	(2)		$	(59)		$	(69)		$	(64)

Denominator for basic and diluted loss per common share	Denominator for basic and diluted loss per common share	84.7			83.8			Denominator for basic and diluted loss per common share	85.6			84.6			85.1			84.2

Loss per common share	Loss per common share							Loss per common share
Basic	Basic	$	(0.79)		$	(0.06)		Basic	$	(0.02)		$	(0.70)		$	(0.81)		$	(0.76)
Diluted	Diluted	$	(0.79)		$	(0.06)		Diluted	$	(0.02)		$	(0.70)		$	(0.81)		$	(0.76)

(1) Basic weighted average common stock outstanding	(1) Basic weighted average common stock outstanding	84.7			83.8			(1) Basic weighted average common stock outstanding	85.6			84.6			85.1			84.2
Basic weighted average common stock and common stock equivalents (preferred shares)	Basic weighted average common stock and common stock equivalents (preferred shares)	84.7			83.8			Basic weighted average common stock and common stock equivalents (preferred shares)	85.6			84.6			85.1			84.2
Percentage allocated to common stockholders	Percentage allocated to common stockholders	100.0		%	100.0		%	Percentage allocated to common stockholders	100.0		%	100.0		%	100.0		%	100.0		%

For the three and six months ended ~~December~~March 31, ~~2021,~~2022, the Company excluded ~~4.6~~4.1 million RSUs, 0.3 million stock options, 0.2 million shares issuable under the ESPP, 5.6 million Emergence Date Warrants and 0.1 million shares of Series A Preferred Stock from the diluted loss per share calculation as their effect would have been anti-dilutive. The Company also excluded ~~2.1~~1.8 million PRSUs and 0.3 million shares authorized under the Company's Stock Bonus Program from the diluted loss per share calculation as either their performance metrics have not yet been attained or their effect would have been anti-dilutive.

For the three and six months ended ~~December~~March 31, ~~2020,~~2021, the Company excluded ~~3.8~~3.1 million RSUs, ~~0.9~~0.5 million stock options, 0.1 million shares issuable under the ESPP, 5.6 million Emergence Date Warrants and 0.1 million shares of Series A Preferred Stock from the diluted loss per share calculation as their effect would have been anti-dilutive. The Company also excluded 1.6

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million PRSUs from the diluted loss per share calculation as either their performance metrics had not yet been attained or their effect would have been anti-dilutive.

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The Company's Convertible Notes and Call Spread Warrants were excluded from the diluted loss per share calculation for all periods presented as their effect would have been anti-dilutive.

15. Operating Segments

The Products & Solutions segment primarily develops, markets, and sells unified communications and collaboration and contact center solutions, offered on-premise, in the cloud, or as a hybrid solution. These integrate multiple forms of communications, including telephony, email, instant messaging and video. The Services segment develops, markets and sells comprehensive end-to-end global service offerings that enable customers to evaluate, plan, design, implement, monitor, manage and optimize complex enterprise communications networks. Revenue from customers who upgrade and acquire new technology through the Company's subscription offerings is reported within the Services segment.

The Company's chief operating decision maker makes financial decisions and allocates resources based on segment profit information obtained from the Company's internal management systems. Management does not include in its segment measures of profitability selling, general and administrative expenses, research and development expenses, amortization of intangible assets, and certain discrete items, such as fair value adjustments recognized upon emergence from bankruptcy, charges relating to restructuring actions, and impairment charges as these costs are not core to the measurement of segment performance, but rather are controlled at the corporate level.

Summarized financial information relating to the Company's operating segments is shown in the following table for the periods indicated:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
REVENUE	REVENUE					REVENUE
Products & Solutions	Products & Solutions	$	231	$	266	Products & Solutions	$	223	$	226	$	454	$	492
Services	Services	482		477		Services	493		513		975		990

Unallocated Amounts (1)						Unallocated Amounts (1)	—		(1)		—		(1)
		$	713	$	743		$	716	$	738	$	1,429	$	1,481
GROSS PROFIT	GROSS PROFIT					GROSS PROFIT
Products & Solutions	Products & Solutions	$	120	$	161	Products & Solutions	$	104	$	134	$	224	$	295
Services	Services	291		298		Services	302		322		593		620
Unallocated Amounts ~~(1)~~(2)	Unallocated Amounts ~~(1)~~(2)	(42)		(43)		Unallocated Amounts ~~(1)~~(2)	(35)		(44)		(77)		(87)
		369		416			371		412		740		828
OPERATING EXPENSES	OPERATING EXPENSES					OPERATING EXPENSES
Selling, general and administrative	Selling, general and administrative	262		255		Selling, general and administrative	245		264		507		519
Research and development	Research and development	61		55		Research and development	60		57		121		112
Amortization of intangible assets	Amortization of intangible assets	40		40		Amortization of intangible assets	40		39		80		79
Restructuring charges, net	Restructuring charges, net	7		4		Restructuring charges, net	3		8		10		12
		370		354			348		368		718		722
OPERATING (LOSS) INCOME		(1)		62
OPERATING INCOME						OPERATING INCOME	23		44		22		106
INTEREST EXPENSE AND OTHER INCOME, NET	INTEREST EXPENSE AND OTHER INCOME, NET	(47)		(56)		INTEREST EXPENSE AND OTHER INCOME, NET	(37)		(58)		(84)		(114)
(LOSS) INCOME BEFORE INCOME TAXES		$	(48)	$	6
LOSS BEFORE INCOME TAXES						LOSS BEFORE INCOME TAXES	$	(14)	$	(14)	$	(62)	$	(8)

(1)Unallocated amounts in Revenue represent the fair value adjustment to deferred revenue recognized upon the Company's emergence from bankruptcy and excluded from segment revenue.

(2)Unallocated amounts in Gross Profit include the effect of the amortization of technology intangible ~~assets.~~assets and the fair value adjustments recognized upon the Company's emergence from bankruptcy which are excluded from segment gross profit.

2124

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16. Accumulated Other Comprehensive Loss

The components of Accumulated other comprehensive loss for the periods indicated were as follows:
(In millions) Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items Foreign Currency Translation Unrealized Loss on Interest Rate Swaps Accumulated Other Comprehensive Loss
Balance as of September 30, 2021 $ (20) $ (37) $ (34) $ (91)
Other comprehensive income before reclassifications — 13 15 28
Amounts reclassified to earnings (1) — 13 12
Balance as of December 31, 2021 $ (21) $ (24) $ (6) $ (51)

(In millions) Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items Foreign Currency Translation Unrealized Loss on Interest Rate Swaps Accumulated Other Comprehensive Loss
Balance as of September 30, 2020 $ (108) $ (46) $ (91) $ (245)
Other comprehensive income (loss) before reclassifications 12 (6) (1) 5
Amounts reclassified to earnings — — 12 12
Balance as of December 31, 2020 $ (96) $ (52) $ (80) $ (228)


(In millions)	Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Gain (Loss) on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of December 31, 2021	$	(21)	$	(24)	$	(6)	$	(51)
Other comprehensive income before reclassifications	—		1		42		43
Amounts reclassified to earnings	(2)		—		12		10
Provision for income taxes	—		—		(14)		(14)
Balance as of March 31, 2022	$	(23)	$	(23)	$	34	$	(12)


(In millions)	Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Gain (Loss) on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of September 30, 2021	$	(20)	$	(37)	$	(34)	$	(91)
Other comprehensive income before reclassifications	—		14		57		71
Amounts reclassified to earnings	(3)		—		25		22
Provision for income taxes	—		—		(14)		(14)
Balance as of March 31, 2022	$	(23)	$	(23)	$	34	$	(12)


(In millions)	Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Loss on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of December 31, 2020	$	(96)	$	(52)	$	(80)	$	(228)
Other comprehensive income before reclassifications	50		21		17		88
Amounts reclassified to earnings	(15)		—		13		(2)
Provision for income taxes	(1)		—		—		(1)
Balance as of March 31, 2021	$	(62)	$	(31)	$	(50)	$	(143)


(In millions)	Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Loss on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of September 30, 2020	$	(108)	$	(46)	$	(91)	$	(245)
Other comprehensive income before reclassifications	62		15		16		93
Amounts reclassified to earnings	(15)		—		25		10
Provision for income taxes	(1)		—		—		(1)
Balance as of March 31, 2021	$	(62)	$	(31)	$	(50)	$	(143)

Reclassifications from Accumulated other comprehensive loss related to changes in unamortized pension, post-retirement and postemployment benefit-related items are recorded in Other income, net. Reclassifications from Accumulated other comprehensive loss related to the unrealized ~~loss~~gain (loss) on interest rate swap agreements are recorded in Interest expense.

17. Related Party Transactions

The Company's Board of Directors is comprised of 8 directors, including the Company's Chief Executive Officer and 7 non-employee directors.

Specific Arrangements Involving the Company's Current Directors and Executive Officers

Stephan Scholl, a Director of the Company, is the Chief Executive Officer of Alight Solutions LLC ("Alight"), a provider of integrated benefits, payroll and cloud solutions, and he also serves on Alight's board of directors. During both the three months

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ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company purchased goods and services from subsidiaries of Alight of $1 million. During both the six months ended March 31, 2022 and 2021, the Company purchased goods and services from subsidiaries of Alight of $2 million. As of both ~~December~~March 31, ~~2021~~2022 and September 30, 2021, outstanding accounts payable due to Alight were not material.

18. Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings including, but not limited to, those relating to intellectual property, commercial, employment, environmental indemnity and regulatory matters. The Company records accruals for legal contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, ~~we do~~the Company does not record a liability, but instead ~~disclose~~discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made.

Other than as described below, in the opinion of the Company's management, the likely results of these matters are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows. However, an unfavorable resolution could have a material adverse effect on the Company's financial position, results of operations or cash flows in the periods in which the matters are ultimately resolved, or in the periods in which more information is obtained that changes management's opinion of the ultimate disposition.

On January 14, 2020, Solaborate Inc. and Solaborate LLC (collectively, “Solaborate”) filed suit against the Company in California Superior Court in San Bernardino County. The dispute concerns activities related to the Company’s development of the CU360 collaboration unit. Solaborate alleges breach of contract, trade secret misappropriation, and unfair business practices, among other causes of action. The Company has cross-claimed, alleging promissory fraud and negligent misrepresentation by Solaborate. As of ~~December~~March 31, ~~2021,~~2022, the suit remains in the discovery phase and a trial is scheduled for

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~~April 11,~~ September 6, 2022. Solaborate has not yet disclosed the amount of damages it seeks, which may include actual and punitive damages and equitable relief. While the Company intends to vigorously defend its interests and pursue the Company’s claims against Solaborate, at this time an outcome cannot be predicted as (i) discovery is not yet complete; (ii) the matter presents legal uncertainties; (iii) there are significant facts in dispute; and (iv) there is a wide range of potential outcomes. As a result, the Company is not able to reasonably estimate the possible loss, or range of loss.

Product Warranties

The Company recognizes a liability for the estimated costs that may be incurred to remedy certain deficiencies of quality or performance of the Company's products. These product warranties extend over a specified period of time, generally ranging up to two years from the date of sale depending upon the product subject to the warranty. The Company accrues a provision for estimated future warranty costs based upon the historical relationship of warranty claims to sales. The Company periodically reviews the adequacy of its product warranties and adjusts, if necessary, the warranty percentage and accrued warranty reserve, which is included in other current and non-current liabilities in the Condensed Consolidated Balance Sheets, for actual experience. As of both ~~December~~March 31, ~~2021~~2022 and September 30, 2021, the amount reserved for product warranties was $2 million.

Guarantees of Indebtedness and Other Off-Balance Sheet Arrangements

Letters of Credit and Guarantees

The Company provides guarantees, letters of credit and surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company's performance in accordance with contractual or legal obligations. As of ~~December~~March 31, ~~2021,~~2022, the maximum potential payment obligation with regards to letters of credit, guarantees and surety bonds was ~~$68~~$67 million. The outstanding letters of credit are collateralized by restricted cash of $4 million, which is included in Other assets on the Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2021.~~2022.

Purchase Commitments and Termination Fees

The Company purchases components from a variety of suppliers and uses several contract manufacturers to provide manufacturing services for its products. During the normal course of business, to manage manufacturing lead times and to help assure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that allow them to produce and procure inventory based upon forecasted requirements provided by the Company. If the Company does not meet these specified purchase commitments, it could be required to purchase the inventory, or in the case of certain agreements, pay an early termination fee. Historically, the Company has not been required to pay a charge for not meeting its designated purchase commitments with these suppliers but has been obligated to purchase certain excess inventory levels from its outsourced manufacturers due to actual sales of product varying from forecast and due to transition of manufacturing from one vendor to another.

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The Company's outsourcing agreements with its most significant contract manufacturers automatically renew in July and September for successive periods of twelve months each, subject to specific termination rights for the Company and the contract manufacturers. All manufacturing of the Company's products is performed in accordance with either detailed requirements or specifications and product designs furnished by the Company and is subject to quality control standards.

From time to time, the Company also enters into cloud services agreements to support the delivery of the Company’s Avaya OneCloud solutions to its customers. These contracts range from three to six years and typically contain minimum consumption commitments over the life of the agreements. As of March 31, 2022, the Company’s remaining commitments under its cloud services agreements and hosting agreements were $200 million, of which $5 million, $21 million, $15 million, and $16 million is required to be utilized by fiscal 2023, 2024, 2025 and 2026, respectively, with the remaining balance required to be utilized by fiscal 2027.

Transactions with Nokia

Pursuant to the Contribution and Distribution Agreement effective October 1, 2000 (the "Contribution and Distribution Agreement"), Nokia Corporation ("Nokia", formerly known as Lucent Technologies, Inc. ("Lucent")) contributed to the Company substantially all of the assets, liabilities and operations associated with its enterprise networking businesses (the "Contributed Businesses") and distributed the Company's stock pro-rata to the shareholders of Lucent ("distribution"). The Contribution and Distribution Agreement, among other things, provides that, in general, the Company will indemnify Nokia for all liabilities including certain pre-distribution tax obligations of Nokia relating to the Contributed Businesses and all contingent liabilities primarily relating to the Contributed Businesses or otherwise assigned to the Company. In addition, the Contribution and Distribution Agreement provides that certain contingent liabilities not allocated to one of the parties will be shared by Nokia and the Company in prescribed percentages. The Contribution and Distribution Agreement also provides that each party will share specified portions of contingent liabilities based upon agreed percentages related to the business of the other party that exceed $50 million. The Company is unable to determine the maximum potential amount of other future payments, if any, that it could be required to make under this agreement.

In addition, in connection with the distribution, the Company and Lucent entered into a Tax Sharing Agreement effective October 1, 2000 (the "Tax Sharing Agreement") that governs Nokia's and the Company's respective rights, responsibilities and obligations after the distribution with respect to taxes for the periods ending on or before the distribution. Generally, pre-distribution taxes or benefits that are clearly attributable to the business of one party will be borne solely by that party and other pre-distribution taxes or benefits will be shared by the parties based on a formula set forth in the Tax Sharing Agreement. The

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Company may be subject to additional taxes or benefits pursuant to the Tax Sharing Agreement related to future settlements of audits by state and local and foreign taxing authorities for the periods prior to the Company's separation from Nokia.

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Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise indicates, as used in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the terms "we," "us," "our," "the Company," "Avaya" and similar terms refer to Avaya Holdings Corp. and its consolidated subsidiaries. ~~"Management's~~The following Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations is intended to help the reader understand the results of operations and financial condition of the Company.Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and other financial information for the fiscal year ended September 30, 2021, included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 filed with the Securities and Exchange Commission on November 22, 2021.

Our accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial statements. In our opinion, the unaudited interim Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods indicated.

The matters discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See "Cautionary Note Regarding Forward-Looking Statements" at the end of this discussion.

Overview

Avaya is a global leader in digital communications products, solutions and services for businesses of all sizes delivering its technology predominantly through software and services. We enable organizations around the globe to succeed by creating intelligent communications experiences for our clients, their employees and their customers. Avaya builds innovative open, converged unified communications and collaboration ("UCC") and contact center ("CC") solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. Our global, experienced team of professionals delivers award-winning services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support.

Avaya shifted its entire comprehensive portfolio of capabilities to Avaya OneCloud, which offers significant capabilities across contact center (OneCloud CCaaS), unified communications and collaboration (OneCloud UCaaS), and communications platform as a service (OneCloud CPaaS). We believe the Avaya OneCloud open, composable platform approach uniquely positions us to address a customer's needs in creating a digital workplace for their campus-based and remote employees through Unified Communications and Collaboration and the Customer Experience Center, our name for contact centers, helping clients deliver tangible business results.

Avaya also offers one of the broadest portfolios of business devices in the industry, including handsets, video conferencing units and headsets to meet the needs of every type of worker across a customer’s organization and help our customers get the most out of their communications investments. Avaya IP-enabled handsets, multimedia devices and conferencing systems enhance collaboration and productivity, and position organizations to incorporate future technological advancements.

Our business has two operating segments: Products & Solutions and Services.

Products & Solutions

Products & Solutions encompasses our UCC and CC software platforms, applications and devices.

Avaya OneCloud UCaaS solutions enable organizations to reimagine collaborative work environments and help companies increase employee productivity, improve customer service and reduce costs. With Avaya OneCloud UCaaS, organizations can provide their workers with a single app for all-channel calling, messaging, meetings and team collaboration with the same ease of use as existing consumer applications ("apps"). Avaya embeds communications directly into the apps, browsers and devices employees use every day, giving them a more natural, efficient and flexible way to connect, engage, respond and share where and how they want. We continue to integrate Artificial Intelligence ("AI") within our cloud based solutions to create enhanced user experience and improve performance.

Avaya's industry-leading digital contact center solutions, Avaya OneCloud CCaaS, enable clients to build a customized portfolio of applications to drive stronger customer engagement and higher customer lifetime value. Our reliable, secure and scalable communications solutions include voice, email, chat, social media, video, performance management and third-party integration that can improve customer service and help companies compete more effectively. Avaya is delivering OneCloud CCaaS solutions for cloud deployment and we continue to aggressively integrate AI, machine learning and leading-edge cybersecurity capabilities into our portfolio, providing our clients a deeper understanding of their customers' needs with a robust and secure platform.

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Avaya OneCloud CPaaS combines the cloud with our communications platforms, providing a development platform and the application programming interfaces that enable developers to easily integrate both UCC and CC communications capabilities directly into internal and customer-facing applications and workflows. Organizations can quickly deliver modular, composable apps and experiences that meet ever-changing customer and operational needs.

Services

Complementing our product and solutions portfolio is a global, award-winning services portfolio, delivered by Avaya and our extensive partner ecosystem. Our services portfolio, which includes solution upgrades and provides new technology through our Avaya OneCloud subscription offerings, consists of:

•Global Support Services provide offerings that help businesses protect their technology investments and address the risk of system outages. We help our customers gain a competitive edge through proactive problem prevention, rapid resolution and continual solution optimization. Global support services also provide software solutions delivered through a subscription model to provide our customers an improved user experience and solution enhancements. Most of our global support services revenue is recurring in nature and based on multi-year services contracts.

•Enterprise Cloud and Managed Services enable customers to take advantage of our technology via the cloud, on-premise, or a hybrid of both, depending on the solution and the needs of the customer. Most of our enterprise cloud and managed services revenue is recurring in nature and based on multi-year services contracts.

•Professional Services enable our customers to take full advantage of their IT and communications solution investments to drive measurable business results. Our experienced consultants and engineers partner with customers along each step of the solution lifecycle to deliver services that add value and drive business transformation. Most of our professional services revenue is non-recurring in nature.

With these comprehensive services, customers can leverage communications technology to help them maximize their business results. We help our customers use communications to minimize the risk of outages, drive employee productivity and deliver a differentiated customer experience.

Our services teams also help our customers transition at their desired pace to next-generation communications solutions. Customers can choose the level of support for their communications solutions best suited for their needs, which may include deployment, training, monitoring, solution management, optimization and more. Our systems and service team's performance monitoring can quickly identify and address issues before they arise. Remote diagnostics and resolutions focus on fixing existing problems and avoiding potential issues in order to help our customers save time and reduce the risk of an outage.

OneCloud Business Highlight

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company executed a OneCloud arrangement for a large global financial institution with an estimated total contract value in excess of $400 million over a term of up to 7 years. The contract includes a series of distinct performance obligations that are satisfied over time. Total consideration for the project is allocated to each performance obligation, and revenue will be primarily recognized ratably over the period during which the services are performed.

Factors and Trends Affecting Our Results of Operations

There are several trends and uncertainties affecting our business. Most importantly, we are dependent on general economic conditions, the willingness of our customers to invest in technology and the manner in which our customers procure such technology and services.

Industry Trends

•UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.

•Preference for cloud delivery of applications and management of multiple and varied devices continues to grow, all of which must be handled with the security that business demands.

•The experience economy continues to grow. The experience economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and services. As consumers embrace new technologies and devices in creative ways and at an accelerating pace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This increased adoption and deployment of AI is providing significant new opportunities for enhanced UCC and CC solutions that improve the customer experience and transform the Digital Workplace.

~~Coronavirus ("COVID-19") Update~~

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Russia/Ukraine Conflict

The military operation launched by Russia against Ukraine created economic and security concerns that have had and will likely continue to have an impact on regional and global economies and, in turn, our business. Sanctions and other retaliatory measures against Russia have been taken, and could be taken in the future, by the U.S., EU and other jurisdictions which severely limit our ability to conduct commercial activities with Russian companies, organizations and individuals on the U.S.'s List of Specially Designated Nationals, some of which are Avaya customers. Under current restrictions we cannot provide certain services to customers in Russia, and as a result, as we comply with all applicable sanctions, we are unable to fulfill certain of our existing contractual obligations to customers in Russia, nor can we commence new maintenance and support arrangements in Russia.

Although the Company's financial results were not materially impacted by the conflict and related retaliatory measures during the three months ended March 31, 2022, the Company expects that they will have a negative effect during the remainder of fiscal 2022 of approximately $45 million on anticipated revenue in Russia and, as companies in EMEA (other than Russia) shift priorities, an additional $15 million across EMEA. However, prolonged hostilities could exacerbate the overall effects of the conflict on our Company, both in that region and in other markets where we do business.

Coronavirus ("COVID-19") Update

The COVID-19 pandemic has had widespread and unprecedented impacts on regional, national and global economies. The COVID-19 pandemic and its related economic effects have not had a material impact on our business or liquidity. However, the ultimate impact of the pandemic on our business, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future pandemic related developments, including the duration and severity of the pandemic, the implementation or re-implementation of governmental and employer requirements to limit the spread of the virus, the speed with which vaccines can be distributed globally, the pace of acceptance of vaccines and booster shots by the public and the emergence of new variants, which are uncertain and cannot be predicted.

Our focus throughout the pandemic has been and remains on promoting employee health and safety, serving our customers and ensuring business continuity.

We believe that the current macroeconomic environment caused by the COVID-19 pandemic has accelerated what was already a developing trend in the way people work, with more employees working remotely, and we believe this could increase demand for certain of the Company's products and services.

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Financial Results Summary

The following table displays our consolidated net loss for the three and six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020:~~2021:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
REVENUE	REVENUE					REVENUE
Products	Products	$	231	$	266	Products	$	223	$	226	$	454	$	492
Services	Services	482		477		Services	493		512		975		989
		713		743			716		738		1,429		1,481
COSTS	COSTS					COSTS
Products:	Products:					Products:
Costs	Costs	111		105		Costs	119		92		230		197
Amortization of technology intangible assets	Amortization of technology intangible assets	42		43		Amortization of technology intangible assets	35		43		77		86
Services	Services	191		179		Services	191		191		382		370
		344		327			345		326		689		653
GROSS PROFIT	GROSS PROFIT	369		416		GROSS PROFIT	371		412		740		828
OPERATING EXPENSES	OPERATING EXPENSES					OPERATING EXPENSES
Selling, general and administrative	Selling, general and administrative	262		255		Selling, general and administrative	245		264		507		519
Research and development	Research and development	61		55		Research and development	60		57		121		112
Amortization of intangible assets	Amortization of intangible assets	40		40		Amortization of intangible assets	40		39		80		79
Restructuring charges, net	Restructuring charges, net	7		4		Restructuring charges, net	3		8		10		12
		370		354			348		368		718		722
OPERATING (LOSS) INCOME		(1)		62
OPERATING INCOME						OPERATING INCOME	23		44		22		106
Interest expense	Interest expense	(54)		(56)		Interest expense	(54)		(59)		(108)		(115)
Other income, net	Other income, net	7		—		Other income, net	17		1		24		1
(LOSS) INCOME BEFORE INCOME TAXES		(48)		6
Provision for income taxes		(18)		(10)
LOSS BEFORE INCOME TAXES						LOSS BEFORE INCOME TAXES	(14)		(14)		(62)		(8)
Benefit from (provision for) income taxes						Benefit from (provision for) income taxes	13		(44)		(5)		(54)
NET LOSS	NET LOSS	$	(66)	$	(4)	NET LOSS	$	(1)	$	(58)	$	(67)	$	(62)

Three months ended ~~December~~March 31, ~~2021~~2022 compared with the Three months ended ~~December~~March 31, ~~2020~~2021

Revenue

Revenue for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$713~~$716 million compared to ~~$743~~$738 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The decrease was primarily driven by the continuing shift away from on-premise product solutions, and the associated hardware maintenance, ~~and~~ software support services and professional services, to the Company's OneCloud portfolio (including OneCloud subscription hybrid)~~. The decrease was~~ and the unfavorable impact of foreign currency exchange rates, partially offset by higher revenue from the Company's OneCloud subscription hybrid ~~offering, devices~~offering; a significant perpetual license sale with a government agency in the current period; higher cloud revenue; and ~~other~~higher revenue from hardware ~~during three months ended December 31, 2021.~~

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products.

The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:


						Percentage of Total Revenue				Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, net of Foreign Currency Impact											Percentage of Total Revenue								Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, net of Foreign Currency Impact
		Three months ended December 31,				Three months ended December 31,										Three months ended March 31,							Three months ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020				(In millions)				2022				2021			2022			2021
Products & Solutions	Products & Solutions	$	231	$	266	32	%	36	%			(13)	%				(13)	%	Products & Solutions		$	223		$	226			31		%		31		%		(1)		%		(1)	%
Services	Services	482		477		68	%	64	%			1	%				1	%	Services		493			513				69		%		69		%		(4)		%		(3)	%

Unallocated amounts																Unallocated amounts			—			(1)			—		%		—		%		(1)				(1)
Total revenue	Total revenue	$	713	$	743	100	%	100	%	(4)	%			(4)	%	Total revenue			$	716		$	738		100		%		100		%		(3)		%		(2)		%

(1)Not meaningful.

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Products & Solutions revenue for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$231~~$223 million compared to ~~$266~~$226 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The decrease was primarily ~~attributable to~~driven by the continuing shift away from on-premise product solutions to the Company's OneCloud portfolio, partially offset by ~~an increase~~a significant perpetual license sale with a government agency in the current period; higher cloud revenue; and higher revenue from ~~devices and other~~ hardware products.

Services revenue for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$482~~$493 million compared to ~~$477~~$513 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The ~~increase~~decrease was primarily driven by ~~higher revenue from the Company's OneCloud subscription hybrid offering, partially offset by the~~ anticipated declines in hardware maintenance, ~~and~~ software support services and professional services which continue to face headwinds driven by the continuing shift away from on-premise product ~~solutions.~~solutions to the Company's OneCloud portfolio; and the fulfillment of certain obligations related to a government contract in the prior period, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

Unallocated amounts for the three months ended March 31, 2021 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy in December 2017 which is excluded from segment revenue.

The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:


						Percentage of Total Revenue				Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, net of Foreign Currency Impact											Percentage of Total Revenue								Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, net of Foreign Currency Impact
		Three months ended December 31,				Three months ended December 31,										Three months ended March 31,							Three months ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020				(In millions)				2022				2021			2022			2021
U.S.	U.S.	$	375	$	414	53	%	56	%			(9)	%				(9)	%	U.S.		$	422		$	413			59		%		56		%		2		%		2	%
International:	International:															International:
Europe, Middle East and Africa	Europe, Middle East and Africa	192		195		27	%	26	%			(2)	%				—	%	Europe, Middle East and Africa		175			187				25		%		25		%		(6)		%		(3)	%
Asia Pacific	Asia Pacific	81		75		11	%	10	%	8	%			8	%	Asia Pacific			67			77			9		%		11		%		(13)		%		(11)		%
Americas International - Canada and Latin America	Americas International - Canada and Latin America	65		59		9	%	8	%	10	%			10	%	Americas International - Canada and Latin America			52			61			7		%		8		%		(15)		%		(17)		%
Total international	Total international	338		329		47	%	44	%	3	%			4	%	Total international			294			325			41		%		44		%		(10)		%		(7)		%
Total revenue	Total revenue	$	713	$	743	100	%	100	%	(4)	%			(4)	%	Total revenue			$	716		$	738		100		%		100		%		(3)		%		(2)		%

Revenue in the U.S. was ~~$375~~$422 million for the three months ended ~~December~~March 31, ~~2021~~2022 compared to ~~$414~~$413 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The ~~decrease~~increase in the U.S. was ~~driven~~primarily attributable to higher revenue from the Company's OneCloud subscription hybrid offering; a significant perpetual license sale with a government agency; higher cloud revenue; and higher revenue from hardware products, partially offset by lower revenue from the continuing shift away from on-premise product solutions and the associated hardware maintenance, ~~and~~ software support services ~~partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.~~and professional services.

Revenue in Europe, Middle East and Africa ("EMEA") for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$192~~$175 million compared to ~~$195~~$187 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The decrease in EMEA was mainly driven by the continuing shift away from on-premise product solutions and the associated hardware maintenance and software support ~~services;~~services and the unfavorable impact of foreign currency exchange rates, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

Revenue in Asia Pacific ("APAC") for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$81~~$67 million compared to ~~$75~~$77 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The ~~increase~~decrease in APAC revenue was ~~primarily attributable to~~mainly driven by the continuing shift away from on-premise product solutions and the associated hardware maintenance and software support services and the unfavorable impact of foreign currency exchange rates, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

Revenue in Americas International for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$65~~$52 million compared to ~~$59~~$61 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The ~~increase~~decrease in Americas International revenue was primarily driven by lower revenue from professional services and the continuing shift away from on-premise product solutions and the associated hardware maintenance and software support services, partially offset by higher revenue from the Company's OneCloud subscription hybrid ~~offering;~~offering and ~~higher revenue from~~ the ~~Company's professional services, partially offset by the continuing shift away from on-premise product solutions and associated hardware maintenance and software support services.~~favorable impact of foreign currency exchange rates.

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Gross Profit

The following table sets forth gross profit and gross margin by operating segment for the periods indicated:


						Gross Margin				Change									Gross Margin				Change
		Three months ended December 31,				Three months ended December 31,									Three months ended March 31,				Three months ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		Amount		Percent		(In millions)	2022		2021		2022		2021		Amount		Percent
Products & Solutions	Products & Solutions	$	120	$	161	51.9	%	60.5	%	$	(41)	(25)	%	Products & Solutions	$	104	$	134	46.6	%	59.3	%	$	(30)	(22)	%
Services	Services	291		298		60.4	%	62.5	%	(7)		(2)	%	Services	302		322		61.3	%	62.8	%	(20)		(6)	%
Unallocated amounts	Unallocated amounts	(42)		(43)		(1)		(1)		1		(1)		Unallocated amounts	(35)		(44)		(1)		(1)		9		(1)
Total	Total	$	369	$	416	51.8	%	56.0	%	$	(47)	(11)	%	Total	$	371	$	412	51.8	%	55.8	%	$	(41)	(10)	%

(1)Not meaningful.

Products & Solutions gross profit for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$120~~$104 million compared to ~~$161~~$134 million for the three months ended ~~December~~March 31, ~~2020, which results in a decrease of~~2021. Products & Solutions gross margin decreased from ~~60.5%~~59.3% for the three months ended ~~December~~March 31, ~~2020~~2021 to ~~51.9%~~46.6% for the three months ended ~~December~~March 31, ~~2021.~~2022. The decrease was attributable to the decrease in revenue described above; an increase in hardware costs as a result of supply chain costs, the continued shift to cloud offerings where the Company incurs higher cloud delivery costs; and a less favorable product mix ~~due to~~including a higher proportion of revenue from hardware sales as the ~~continued shift in~~ consumption of higher margin ~~on-premise~~ software ~~from a perpetual license model~~continues to shift to a subscription model, which is reflected within our Services ~~segment.~~segment; higher freight and material costs as a result of supply chain pressures; and higher third party expenses, including costs associated with the perpetual license sale to a government agency.

Services gross profit for the three months ended ~~December~~March 31, ~~2021~~2022 was ~~$291~~$302 million compared to ~~$298~~$322 million for the three months ended ~~December~~March 31, ~~2020.~~2021. Services gross margin decreased from ~~62.5%~~62.8% for the three months ended ~~December~~March 31, ~~2020~~2021 to ~~60.4%~~61.3% for the three months ended ~~December~~March 31, 2022. The decrease was mainly driven by an increase in costs associated with a higher mix of cloud and partner offerings and the unfavorable impact of higher margins associated with a government contract in the prior period, partially offset by the increase in revenue from the Company's OneCloud subscription hybrid offering.

Unallocated amounts for the three months ended March 31, 2022 and 2021 include the amortization of technology intangible assets and fair value adjustments recognized upon emergence from bankruptcy which are excluded from segment gross profit.

Operating Expenses

The following table sets forth operating expenses and the percentage of operating expenses to total revenue for the periods indicated:


					Percentage of Total Revenue				Change
	Three months ended March 31,				Three months ended March 31,
(In millions)	2022		2021		2022		2021		Amount		Percent
Selling, general and administrative	$	245	$	264	34.2	%	35.8	%	$	(19)	(7)	%
Research and development	60		57		8.4	%	7.7	%	3		5	%
Amortization of intangible assets	40		39		5.6	%	5.3	%	1		3	%
Restructuring charges, net	3		8		0.4	%	1.1	%	(5)		(63)	%
Total operating expenses	$	348	$	368	48.6	%	49.9	%	$	(20)	(5)	%

Selling, general and administrative expenses for the three months ended March 31, 2022 were $245 million compared to $264 million for the three months ended March 31, 2021. The decrease was primarily attributable to lower channel compensation; lower accrued incentive compensation; and the favorable impact of foreign currency exchange rates, partially offset by higher investment in cloud go-to-market.

Research and development expenses for the three months ended March 31, 2022 were $60 million compared to $57 million for the three months ended March 31, 2021. The increase was primarily attributable to investments in cloud technology development, partially offset by lower accrued incentive compensation.

Amortization of intangible assets for three months ended March 31, 2022 were $40 million compared to $39 million for three months ended March 31, 2021.

Restructuring charges, net were $3 million for the three months ended March 31, 2022 compared to $8 million for the three months ended March 31, 2021. Restructuring charges during the three months ended March 31, 2022 consisted of $1 million for facility exit costs and $2 million for employee separation actions primarily in the U.S. Restructuring charges for the three

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months ended March 31, 2021 consisted of $7 million for facility exit costs and $1 million for employee separation actions in the U.S.

Operating Income

Operating income for the three months ended March 31, 2022 was $23 million compared to $44 million for the three months ended March 31, 2021. Our operating results for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 reflect, among other things, the following items which are described in more detail above:

•lower revenue and gross profit for the three months ended March 31, 2022; partially offset by

•lower selling, general and administrative costs for the three months ended March 31, 2022.

Interest Expense

Interest expense for the three months ended March 31, 2022 was $54 million compared to $59 million for the three months ended March 31, 2021. The decrease was mainly driven by lower average principal amounts outstanding, lower average interest rates and debt issuance costs incurred in the prior period as a result of the Company's Term Loan Credit Agreement amendment during the three months ended March 31, 2021, described in Note 7, “Financing Arrangements”, to our unaudited interim Condensed Consolidated Financial Statements.

Other Income, Net

Other income, net for the three months ended March 31, 2022 was $17 million compared to $1 million for the three months ended March 31, 2021. The increase was mainly driven by the change in fair value of the Emergence Date Warrants, partially offset by a non-cash settlement gain recorded during the three months ended March 31, 2021 related to the Company's other post-retirement plan.

Benefit from (Provision for) Income Taxes

The benefit from income taxes was $13 million for the three months ended March 31, 2022 compared to a provision for income taxes of $44 million for the three months ended March 31, 2021.

The Company's effective income tax rate for the three months ended March 31, 2022 differed from the U.S. federal tax rate by 72% or $10 million principally related to the release of reserves from statute of limitation expirations, deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized and nondeductible expenses.

The Company's effective income tax rate for the three months ended March 31, 2021 differed from the U.S. federal tax rate by 335% or $47 million principally related to nondeductible expenses, including expenses related to the change in fair value of the Emergence Date Warrants, and deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized.

Net Loss

Net loss was $1 million for the three months ended March 31, 2022 compared to a net loss of $58 million for the three months ended March 31, 2021 as a result of the items discussed above.

Six months ended March 31, 2022 compared with the Six months ended March 31, 2021

Revenue

Revenue for the six months ended March 31, 2022 was $1,429 million compared to $1,481 million for the six months ended March 31, 2021. The decrease was primarily driven by the continuing shift away from on-premise product solutions, and the associated hardware maintenance, software support services and professional services, to the Company's OneCloud portfolio (including OneCloud subscription hybrid) and the unfavorable impact of foreign exchange rates. The decrease was partially offset by higher revenue from the Company's OneCloud subscription hybrid offering; a significant perpetual license sale with a government agency in the current period; higher cloud revenue; and higher revenue from hardware products.

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The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:


					Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
	Six months ended March 31,				Six months ended March 31,
(In millions)	2022		2021		2022		2021
Products & Solutions	$	454	$	492	32	%	33	%	(8)	%	(7)	%
Services	975		990		68	%	67	%	(2)	%	(1)	%
Unallocated amounts	—		(1)		—	%	—	%	(1)		(1)
Total revenue	$	1,429	$	1,481	100	%	100	%	(4)	%	(3)	%

(1)Not meaningful.

Products & Solutions revenue for the six months ended March 31, 2022 was $454 million compared to $492 million for the six months ended March 31, 2021. The decrease was primarily attributable to the continuing shift away from on-premise product solutions to the Company's OneCloud portfolio and the unfavorable impact of foreign currency exchange rates, partially offset by a significant perpetual license sale with a government agency in the current period; higher cloud revenue; and higher revenue from hardware products.

Services revenue for the six months ended March 31, 2022 was $975 million compared to $990 million for the six months ended March 31, 2021. The decrease was primarily driven by anticipated declines in hardware maintenance, software support services and professional services which continue to face headwinds driven by the continuing shift away from on-premise product solutions to the Company's OneCloud portfolio and the unfavorable impact of foreign currency exchange rates, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

Unallocated amounts for the six months ended March 31, 2021 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy in December 2017 which is excluded from segment revenue.

The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:


					Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
	Six months ended March 31,				Six months ended March 31,
(In millions)	2022		2021		2022		2021
U.S.	$	797	$	827	56	%	56	%	(4)	%	(4)	%
International:
Europe, Middle East and Africa	367		382		26	%	26	%	(4)	%	(2)	%
Asia Pacific	148		152		10	%	10	%	(3)	%	(1)	%
Americas International - Canada and Latin America	117		120		8	%	8	%	(3)	%	(3)	%
Total international	632		654		44	%	44	%	(3)	%	(2)	%
Total revenue	$	1,429	$	1,481	100	%	100	%	(4)	%	(3)	%

Revenue in the U.S. was $797 million for the six months ended March 31, 2022 compared to $827 million for the six months ended March 31, 2021. The decrease in the U.S. was driven by the continuing shift away from on-premise product solutions and the associated hardware maintenance, software support services and professional services, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering; a significant perpetual license sale with a government agency in the current period; higher cloud revenue; and higher revenue from hardware products.

Revenue in Europe, Middle East and Africa ("EMEA") for the six months ended March 31, 2022 was $367 million compared to $382 million for the six months ended March 31, 2021. The decrease in EMEA was mainly driven by the continuing shift away from on-premise product solutions and the associated hardware maintenance and software support services and the unfavorable impact of foreign currency exchange rates, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

Revenue in Asia Pacific ("APAC") for the six months ended March 31, 2022 was $148 million compared to $152 million for the six months ended March 31, 2021. The decrease in APAC revenue was mainly driven by the continuing shift away from on-premise product solutions and the associated hardware maintenance and software support services and the unfavorable impact of foreign currency exchange rates, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

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Revenue in Americas International for the six months ended March 31, 2022 was $117 million compared to $120 million for the six months ended March 31, 2021. The decrease in Americas International revenue was primarily driven by lower revenue from professional services and the continuing shift away from on-premise product solutions and the associated hardware maintenance and software support services, partially offset by higher revenue from the Company's OneCloud subscription hybrid offering.

Gross Profit

The following table sets forth gross profit and gross margin by operating segment for the periods indicated:


					Gross Margin				Change
	Six months ended March 31,				Six months ended March 31,
(In millions)	2022		2021		2022		2021		Amount		Percent
Products & Solutions	$	224	$	295	49.3	%	60.0	%	$	(71)	(24)	%
Services	593		620		60.8	%	62.6	%	(27)		(4)	%
Unallocated amounts	(77)		(87)		(1)		(1)		10		(1)
Total	$	740	$	828	51.8	%	55.9	%	$	(88)	(11)	%

(1)Not meaningful.

Products & Solutions gross profit for the six months ended March 31, 2022 was $224 million compared to $295 million for the six months ended March 31, 2021, Products & Solutions gross margin decreased from 60.0% for the six months ended March 31, 2021 to 49.3% for the six months ended March 31, 2022. The decrease was mainly driven by a less favorable product mix including a higher proportion of hardware sales as the consumption of higher margin software continues to shift to a subscription model, which is reflected within our Services segment; higher freight and material costs as a result of supply chain pressures; and higher third party expenses, including costs associated with the perpetual license sale to a government agency.

Services gross profit for the six months ended March 31, 2022 was $593 million compared to $620 million for the six months ended March 31, 2021. Services gross margin decreased from 62.6% for the six months ended March 31, 2021 to 60.8% for the six months ended March 31, 2022. The decrease was mainly driven by an increase in costs associated with a higher mix of cloud and partner offerings, partially offset by the increase in revenue from the Company's OneCloud subscription hybrid offering.

Unallocated amounts for the ~~three~~six months ended ~~December~~March 31, 2022 and 2021 ~~and 2020 represent~~include the amortization of technology intangible ~~assets.~~assets and fair value adjustments recognized upon emergence from bankruptcy which are excluded from segment gross profit.

Operating Expenses

The following table sets forth operating expenses and the percentage of operating expenses to total revenue for the periods indicated:


						Percentage of Total Revenue				Change									Percentage of Total Revenue				Change
		Three months ended December 31,				Three months ended December 31,									Six months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		Amount		Percent		(In millions)	2022		2021		2022		2021		Amount		Percent
Selling, general and administrative	Selling, general and administrative	$	262	$	255	36.7	%	34.3	%	$	7	3	%	Selling, general and administrative	$	507	$	519	35.5	%	35.0	%	$	(12)	(2)	%
Research and development	Research and development	61		55		8.6	%	7.4	%	6		11	%	Research and development	121		112		8.4	%	7.6	%	9		8	%
Amortization of intangible assets	Amortization of intangible assets	40		40		5.6	%	5.4	%	—		—	%	Amortization of intangible assets	80		79		5.6	%	5.3	%	1		1	%
Restructuring charges, net	Restructuring charges, net	7		4		1.0	%	0.5	%	3		75	%	Restructuring charges, net	10		12		0.7	%	0.8	%	(2)		(17)	%
Total operating expenses	Total operating expenses	$	370	$	354	51.9	%	47.6	%	$	16	5	%	Total operating expenses	$	718	$	722	50.2	%	48.7	%	$	(4)	(1)	%

Selling, general and administrative expenses for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 were ~~$262~~$507 million compared to ~~$255~~$519 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. The ~~increase~~decrease was primarily attributable to lower accrued incentive compensation; the favorable impact of foreign currency exchange rates; lower channel compensation; and lower facility related costs, partially offset by higher investment in cloud go-to-market, ~~marketing and~~ travel expenses, ~~associated with conferences, mainly Avaya Engage~~ and ~~Gitex; and higher~~ employee benefit ~~costs, partially offset by lower accrued incentive compensation and lower facility related~~ costs.

Research and development expenses for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 were ~~$61~~$121 million compared to ~~$55~~$112 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. The increase was primarily attributable to investments in cloud technology development, partially offset by lower accrued incentive compensation.

Amortization of intangible assets were ~~$40~~$80 million for ~~both~~ the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020.~~$79 million for the six months ended March 31, 2021.

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Restructuring charges, net were $7$10 million for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 compared to $4$12 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. Restructuring charges during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 consisted of $5$6 million for facility exit costs and $2$4 million for employee separation actions primarily in the U.S. and EMEA. Restructuring charges for the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 consisted of $3$10 million for facility exit costs ~~primarily in the U.S.~~ and $1$2 million for employee separation actions in the U.S and EMEA.

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Operating ~~(Loss)~~ Income

Operating ~~loss~~income for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was $1$22 million compared to ~~an operating income of $62~~$106 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. Our operating results for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 as compared to the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 reflect, among other things, the following items which are described in more detail above:

•lower revenue and gross profit for the ~~three~~six months ended ~~December~~March 31, ~~2021;~~

•~~higher selling, general and administrative costs for the three months ended December 31, 2021;~~2022;

•higher research and development costs for the ~~three~~six months ended ~~December~~March 31, ~~2021;~~2022; and

•~~higher net restructuring charges~~lower selling, general and administrative costs for the ~~three~~six months ended ~~December~~March 31, ~~2021.~~2022

Interest Expense

Interest expense for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was ~~$54~~$108 million compared to ~~$56~~$115 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. The decrease was mainly driven by lower average principal amounts outstanding, ~~and~~ lower average interest rates ~~primarily attributable to the changes~~and debt issuance costs incurred in the ~~Company’s debt portfolio~~prior period as a result of the Company's Term Loan Credit Agreement amendment during the six months ended March 31, 2021, described in Note 7, “Financing ~~Arrangements”~~Arrangements,” to our unaudited interim Condensed Consolidated Financial Statements.

Other Income, Net

Other income, net for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was $7$24 million compared to $0$1 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. The increase was mainly driven by the change in fair value of the Emergence Date ~~Warrants.~~Warrants, partially offset by a non-cash settlement gain recorded during the six months ended March 31, 2021 related to the Company's other post-retirement plan.

Provision for Income Taxes

The provision for income taxes was ~~$18~~$5 million for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 compared to a provision for income taxes of ~~$10~~$54 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021.

The Company's effective income tax rate for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 differed from the U.S. federal tax rate by ~~59%~~29% or ~~$28~~$18 million principally related to deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be ~~realized;~~realized, the release of reserves from statute of limitation expirations, and nondeductible expenses.

The Company's effective income tax rate for the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 differed from the U.S. federal tax rate by ~~146%~~696% or $9$56 million principally related to nondeductible expenses, including expenses related to the change in fair value of the Emergence Date Warrants, and deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be ~~realized; and nondeductible expenses.~~realized.

Net Loss

Net loss was ~~$66~~$67 million for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 compared to a net loss of $4$62 million for the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 as a result of the items discussed above.

Liquidity and Capital Resources

We expect our existing cash balance ~~cash generated by operations~~ and borrowings available under our ABL Credit Agreement to be our primary sources of short-term liquidity. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next twelve ~~months.~~months from the filing of this quarterly report on Form 10-Q.

3037

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Cash Flow Activity

The following table provides a summary of the statements of cash flows for the periods indicated:


		Three months ended December 31,					Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021
Net cash (used for) provided by:	Net cash (used for) provided by:					Net cash (used for) provided by:
Operating activities	Operating activities	$	(111)	$	48	Operating activities	$	(113)	$	24
Investing activities	Investing activities	(27)		(27)		Investing activities	(52)		(53)
Financing activities	Financing activities	(5)		(6)		Financing activities	(8)		(108)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1)		9		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1)		3
Net (decrease) increase in cash, cash equivalents, and restricted cash		(144)		24
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	(174)		(134)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	502		731		Cash, cash equivalents, and restricted cash at beginning of period	502		731
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	358	$	755	Cash, cash equivalents, and restricted cash at end of period	$	328	$	597

Operating Activities

Cash used for operating activities for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was ~~$111~~$113 million compared to cash provided by operating activities of ~~$48~~$24 million for the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021. The change was primarily due to the timing of customer cash payments as the Company continues its transition to a cloud and subscription ~~model;~~model and lower cash ~~earnings; and higher income tax payments,~~earnings, partially offset by $52 million of net proceeds received from the restructuring of the Company's Forward Swap Agreements which is described within Note 8, "Derivative Instruments and Hedging Activities," to our unaudited interim Condensed Consolidated Financial Statements and lower ~~incentive compensation payments.~~contributions to the Company's pension and post-retirement benefit plans.

Investing Activities

~~For both the three months ended December 31, 2021 and 2020, cash~~Cash used for investing activities for the six months ended March 31, 2022 was ~~$27~~$52 million compared to $53 million for the six months ended March 31, 2021 as a result of capital expenditures in each period.

Financing Activities

Cash used for financing activities for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 was $5$8 million compared to $6$108 million for the ~~three~~six months ended ~~December~~March 31, ~~2020. Cash used for financing activities in each period~~2021. The change was primarily ~~consisted of~~due to repurchases of shares ~~for tax withholding on~~of common stock under the ~~vesting of restricted stock units~~Company's share repurchase program and a principal ~~payments for financing leases, partially~~repayment under the Term Loan Credit Agreement during the six months ended March 31, 2021 with no comparable transactions in the current period, offset by lower proceeds from the ~~Employee Stock Purchase Plan.~~exercise of stock options during the six months ended March 31, 2022.

Financing Transactions

On February 24, 2021, the Company amended its Term Loan Credit Agreement, pursuant to which the Company prepaid, replaced and refinanced all first lien term loans due December 2024 outstanding under the Term Loan Credit Agreement with $100 million in cash and $743 million in principal amount of new first lien term loans due December 2027.

See Note 7, “Financing Arrangements,” to our unaudited interim Condensed Consolidated Financial Statements for additional information regarding the Company’s Term Loan Credit Agreement.

On March 23, 2022, the Company restructured its interest rate swap agreements by terminating its existing Forward Swap Agreements, which fixed a portion of the variable rate interest due under the Company's Term Loan Credit Agreement from December 15, 2022 through December 15, 2024, and simultaneously entering into new interest rate swap agreements to extend its interest rate protection from December 15, 2024 to June 15, 2027. The new swap agreements fix a portion of the variable interest due under the Company's Term Loan Credit Agreement from December 15, 2022 through June 15, 2027. The Company received $52 million of net cash proceeds from the restructuring, and, as a result of the change in the interest rates underlying the swap agreements, the Company will make incremental interest payments between December 15, 2022 and December 15, 2024 that approximate the net proceeds received from the restructuring.

See Note 8, “Derivative Instruments and Hedging Activities,” to our unaudited interim Condensed Consolidated Financial Statements for additional information regarding the Company’s interest rate swap agreements.

As of ~~December~~March 31, ~~2021,~~2022, the Company was in compliance with all covenants and other requirements under its debt agreements.

Future Cash Requirements

Our primary future cash requirements will be to fund operations, debt service, capital expenditures, benefit obligations and restructuring payments. In addition, we may use cash in the future to make strategic acquisitions or investments.

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Specifically, we expect our primary cash requirements for the remainder of fiscal 2022 to be as follows:

•Debt service—We expect to make payments of approximately ~~$150 million to $155~~$94 million during the remainder of fiscal 2022 in interest associated with the Term Loan Credit Agreement, Senior Notes and Convertible Notes, and fees associated with our ABL Credit Agreement. In the ordinary course of business, we may from time to time borrow and repay amounts under our ABL Credit Agreement.

•Capital expenditures—We expect to spend approximately ~~$85~~$50 million to $60 million for capital expenditures during the remainder of fiscal 2022.

•Benefit obligations—We estimate we will make payments under our pension and post-retirement benefit obligations of approximately ~~$30~~$17 million during the remainder of fiscal 2022. These payments include ~~$21~~$11 million for our non-U.S. benefit plans, which are predominantly not pre-funded, and $9$6 million for salaried and represented retiree post-retirement benefits. As a result of the American Rescue Plan Act, we do not expect to make any contributions to satisfy the minimum statutory funding requirements of our U.S. qualified pension plans during fiscal 2022. See discussion in Note 11, "Benefit Obligations," to our unaudited interim Condensed Consolidated Financial Statements for further details.

•Restructuring payments—We expect to make payments of approximately ~~$15~~$10 million during the remainder of fiscal 2022 for employee separation costs associated with restructuring actions. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.

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In addition to the matters identified above, in the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, relating to intellectual property, commercial, employment, environmental and regulatory matters, including but not limited to a suit filed by Solaborate Inc. and Solaborate LLC described in Note 18, "Commitments and Contingencies," to our unaudited interim Condensed Consolidated Financial Statements. An unfavorable resolution in this or other matters could have a material adverse effect on the Company's future cash requirements.

We and our subsidiaries and affiliates may from time to time seek to repurchase or prepay our outstanding equity (common stock and warrants) and/or debt (including our Term Loans, Senior Notes and Convertible Notes) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, tender offers, redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.

As part of the Company's strategic partnership with RingCentral, Inc. ("RingCentral"), the Company received certain consideration for future fees ("the Consideration Advance"). Beginning in fiscal 2024, RingCentral shall have the right, but not the obligation, to convert a portion of the outstanding Consideration Advance, if any, into shares of either the Company’s Series A 3% Convertible Preferred Stock or the Company’s common stock. The Company has the intent and ability to repay outstanding amounts, if any, in cash prior to its conversion.

Future Sources of Liquidity

We expect our cash balance ~~cash generated by operations~~ and borrowings available under our ABL Credit Agreement to be our primary sources of short-term liquidity.

As of ~~December~~March 31, ~~2021~~2022 and September 30, 2021, our cash and cash equivalent balances held outside the U.S. were ~~$174~~$171 million and $195 million, respectively. As of ~~December~~March 31, ~~2021,~~2022, the Company's cash and cash equivalents held outside the U.S. are not expected to be needed to be repatriated to fund the Company's operations in the U.S. based on our expected future sources of liquidity.

Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At ~~December~~March 31, ~~2021,~~2022, the Company had issued and outstanding letters of credit and guarantees of ~~$35~~$32 million under the ABL Credit Agreement and had no borrowings outstanding. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less ~~$35~~$32 million of outstanding letters of credit and guarantees, was ~~$119~~$118 million at ~~December~~March 31, ~~2021.~~2022.

We believe that our existing cash and cash equivalents of ~~$354~~$324 million as of ~~December~~March 31, ~~2021, expected future cash provided by operating activities~~2022 and borrowings available under the ABL Credit Agreement will be sufficient to meet our future cash requirements for at least the next twelve months from the filing of this quarterly report on Form 10-Q. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our cash flow from operations continues to be negatively impacted by our transition from an ownership model with an existing on-premise solution, to a usage model with our OneCloud portfolio. Customers purchasing a solution in our OneCloud portfolio generally pay cash over time rather than upfront. We ~~also~~ believe that our financial resources, along with appropriate management of discretionary expenses, will allow us to manage the ~~anticipated impact~~temporary impacts of our business transformation, COVID-19 and the Russia/Ukraine conflict on our business operations, and specifically our liquidity, for the

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foreseeable future. We expect to seek incremental financing to fund the maturity of the $350 million Convertible 2.25% Senior Notes due June 15, 2023. There can be no assurance we will be able to obtain such financing on acceptable terms.

Off-Balance Sheet Arrangements

See discussion in Note 18, "Commitments and Contingencies," to our unaudited interim Condensed Consolidated Financial Statements for further details.

Debt Ratings

Our ability to obtain additional external financing and the related cost of borrowing may be affected by our ratings, which are periodically reviewed by the major credit rating agencies. The ratings are subject to change or withdrawal at any time by the respective credit rating agencies.

As of ~~December~~March 31, ~~2021,~~2022, the Company’s debt ratings were as follows:

•Standard and Poor's issued a definitive corporate credit rating and a rating applicable to the Company's Senior Notes and the Term Loan Credit Agreement of "B+" with a stable outlook.

•Fitch Ratings Inc. (“Fitch”) issued a definitive corporate credit rating of “B” with a positive outlook and a rating of “BB” applicable to the Senior Notes and the Term Loan Credit Agreement.

•Moody's Investors Service issued a corporate family rating of "B2" with a stable outlook and a rating of "B2" applicable to the Senior Notes and the Term Loan Credit Agreement.

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Critical Accounting Policies and Estimates

Management has reassessed the critical accounting policies and estimates disclosed in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 22, 2021 and determined that there were no significant changes to our critical accounting policies and estimates during the ~~three~~six months ended ~~December~~March 31, ~~2021.~~2022.

New Accounting Pronouncements

See discussion in Note 2, "Recent Accounting Pronouncements," to our unaudited interim Condensed Consolidated Financial Statements for further details.

EBITDA and Adjusted EBITDA

We present below the Company's EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure.

EBITDA is defined as net income (loss) before income taxes, interest expense, interest income and depreciation and amortization and excludes the results of discontinued operations. EBITDA provides us with a measure of operating performance that excludes certain non-operating and/or non-cash expenses, which can differ significantly from company to company depending on capital structure, the tax jurisdictions in which companies operate and capital investments.

Adjusted EBITDA is EBITDA as further adjusted by the items noted in the reconciliation table below. We believe Adjusted EBITDA provides a measure of 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 therefore presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years. In addition, Adjusted EBITDA serves as a basis for determining certain management and employee compensation. We also present EBITDA and Adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. Under the Company's debt agreements, the ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied in part to ratios based on a measure of Adjusted EBITDA.

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. Further, Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations that still affect our net income (loss). In particular, our formulation of Adjusted EBITDA adjusts 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, impairment charges, resolution of certain legal matters and a portion of our pension costs and post-retirement benefits costs, which represents the amortization of prior service costs (credits) and actuarial (gains) losses associated with these benefits. However, these are expenses that may recur, may vary and/or may be difficult to predict.

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The reconciliation of net loss, which is a GAAP measure, to EBITDA and Adjusted EBITDA, which are non-GAAP measures, is presented below for the periods indicated:


		Three months ended December 31,					Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021		2022		2021
Net loss	Net loss	$	(66)	$	(4)	Net loss	$	(1)	$	(58)	$	(67)	$	(62)
Interest expense	Interest expense	54		56		Interest expense	54		59		108		115

Provision for income taxes		18		10
Interest income						Interest income	(1)		(1)		(1)		(1)
(Benefit from) provision for income taxes						(Benefit from) provision for income taxes	(13)		44		5		54
Depreciation and amortization	Depreciation and amortization	104		103		Depreciation and amortization	99		106		203		209
EBITDA	EBITDA	110		165		EBITDA	138		150		248		315

Impact of fresh start accounting adjustments(a)						Impact of fresh start accounting adjustments(a)	—		1		—		1
Restructuring charges~~(a)~~(b)	Restructuring charges~~(a)~~(b)	7		4		Restructuring charges~~(a)~~(b)	3		6		10		10

Share-based compensation	Share-based compensation	14		14		Share-based compensation	14		13		28		27
Pension and post-retirement benefit costs	Pension and post-retirement benefit costs	(1)		—		Pension and post-retirement benefit costs	(1)		—		(2)		—
Gain on post-retirement plan settlement						Gain on post-retirement plan settlement	—		(14)		—		(14)
Change in fair value of Emergence Date Warrants	Change in fair value of Emergence Date Warrants	(1)		5		Change in fair value of Emergence Date Warrants	(7)		22		(8)		27
Loss on foreign currency transactions		—		2
(Gain) loss on foreign currency transactions						(Gain) loss on foreign currency transactions	(2)		(1)		(2)		1
Adjusted EBITDA	Adjusted EBITDA	$	129	$	190	Adjusted EBITDA	$	145	$	177	$	274	$	367

(a)The impact of fresh start accounting adjustments in connection with the Company's emergence from bankruptcy.

(b)Restructuring charges represent employee separation costs and facility exit costs (excluding the impact of accelerated depreciation expense) related to the Company's restructuring ~~programs.~~programs, net of sublease income.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, including statements containing words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "model," "can," "could," "may," "should," "will," "would" or similar words or the negative thereof, constitute "forward-looking statements." These forward-looking statements, which are based on our current plans, expectations, estimates and projections about future events, should not be unduly relied upon. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. We caution you therefore against relying on any of these forward-looking statements.

The forward-looking statements included herein are based upon our assumptions, estimates and beliefs and involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and may be affected by a variety of risks, uncertainties and other factors, which 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. Risks, uncertainties and other factors that may cause these forward-looking statements to be inaccurate include, among others: the risks and factors discussed in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q, as well as Part I, Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on November 22, 2021.

All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.


Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company has exposure to changing interest rates primarily under the Term Loan Credit Agreement and ABL Credit Agreement, each of which bears interest at variable rates based on LIBOR. As of ~~December~~March 31, ~~2021,~~2022, the Company had interest rate swap agreements, which mature on December 15, 2022, to pay a fixed rate of 2.935% on its $1,543 million of variable rate loans outstanding (the ~~"Swap~~"Original Swap Agreements").

~~The~~As of March 31, 2022, the Company ~~maintains additional interest rate~~also has forward starting swap agreements to fix a portion of the variable rate interest due on its Term Loan Credit Agreement ~~(the "Forward Swap Agreements")~~ from December 15, 2022 (the maturity date of the Original Swap Agreements) through ~~December~~June 15, ~~2024.~~2027. Under the terms of the ~~Forward Swap Agreements,~~forward starting swap agreements, the Company will pay a fixed rate of ~~0.7047%~~2.5480% and receive a variable rate of interest based on one-month ~~LIBOR.~~SOFR. The ~~Forward Swap Agreements~~Company's intends to transition its Term Loan Credit Agreement from one-month LIBOR to one-month SOFR effective December 15, 2022. The forward swap agreements have a total notional amount of ~~$1,400~~$1,000 million. Over the twelve months following March 31, 2022, a hypothetical one percent change in interest rates would affect interest expense by approximately $2 million.

It is management's intention that the net notional amount of interest rate swap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives. For the three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recognized a loss on the ~~Swap Agreements and Forward Swap Agreements~~interest rate swap agreements of ~~$13~~$12 million and ~~$12~~$13 million, respectively, which is reflected in Interest expense in the Condensed Consolidated Statements of Operations. For both the six months ended March 31, 2022 and 2021, the Company recognized a loss on the interest rate swap agreements of $25 million which is also reflected in Interest expense. At ~~December~~March 31, ~~2021,~~2022, the Company maintained a $6$34 million ~~deferre~~deferred gain ~~d loss~~ on its interest rate swap agreements within Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets.

See Note 8, “Derivative Instruments and Hedging Activities,” to our Condensed Consolidated Financial Statements included in Part I, Item I of this quarterly report on Form 10-Q for additional information related to the Company’s interest rate swap agreements.

Foreign Currency Risk

Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. ("foreign") operations maintains capital in the currency of the country of its geographic

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location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are

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Euros, Canadian Dollars, British Pound Sterling, Chinese ~~Renminbis,~~Renminbi, Australian Dollar, Indian ~~Rupees, Australian Dollars, United Arab Emirates Dirhams,~~Rupee, Japanese Yen, and Brazilian Reals.

Non-U.S. denominated revenue was ~~$160~~$147 million and $307 million for the three and six months ended ~~December~~March 31, ~~2021.~~2022, respectively. We estimate a 10% change in the value of the U.S. dollar relative to all foreign currencies would have affected our revenue for the three and six months ended ~~December~~March 31, ~~2021~~2022 by ~~$16 million.~~$15 million and $31 million, respectively.

The Company, from time-to-time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, net to offset the change in the value of the underlying assets and liabilities. As of ~~December~~March 31, ~~2021,~~2022, the Company maintained open foreign exchange contracts with a total notional value of ~~$190~~$156 million, ~~primarily~~ hedging the British Pound Sterling, ~~Japanese Yen,~~ Mexican Peso, Czech Koruna and ~~Indian Rupee. At December~~Japanese Yen. As of March 31, ~~2021,~~2022, the fair value of open foreign exchange contracts was an unrealized ~~gain~~loss of $1 million which was recorded within Other current ~~assets~~liabilities in the Condensed Consolidated Balance ~~Sheet.~~Sheets. For the three months ended ~~December~~March 31, 2022 and 2021, the Company's ~~loss on foreign exchange contracts was not material. For the three months ended December 31, 2020, the Company's~~(loss) gain on foreign exchange contracts was $5$(1) million and $1 million, respectively, and was recorded within Other income, net in the Condensed Consolidated Statements of Operations. For the six months ended March 31, 2022 and 2021, the Company's (loss) gain on foreign exchange contracts was $(1) million and $6 million, respectively, which was also recorded within Other income, net.


Item 4.			Controls and Procedures

Disclosure Controls and Procedures

As of ~~December~~March 31, ~~2021,~~2022, the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, that evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of ~~December~~March 31, ~~2021~~2022 to provide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the ~~first~~second quarter of fiscal 2022, the Company ~~was in the process of implementing~~implemented a new enterprise resource planning accounting module designed to simplify and streamline the accounting process for certain contracts with customers and to provide enhanced operational information to management.The ~~Company will utilize the new module during the second quarter of fiscal 2022. As updated processes were rolled out in connection with the~~ transition to the new accounting module ~~the Company considered whether these process changes~~ necessitated changes in the design and operation of ~~its~~the Company's internal controls over financial reporting. Certain controls that were previously determined to be effective as of September 30, 2021 were replaced with new or modified controls. Other than those controls impacted by the implementation of the new accounting module, there have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended ~~December~~March 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION


Item 1.			Legal Proceedings

The information set forth under Note 18, "Commitments and Contingencies," to the unaudited interim Condensed Consolidated Financial Statements is incorporated herein by reference.


Item 1A.			Risk Factors

There have been no material changes during the quarterly period ended ~~December~~March 31, ~~2021~~2022 to the risk factors previously disclosed in the Company's Form 10-K ~~for the year ended September 30, 2021~~ filed with the Securities and Exchange Commission on November 22, 2021 other than as shown below:

Risks Related to Our Business

Intellectual Property and Information Security

A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition.

We rely on the security of our information systems and, in certain circumstances, those of our third-party providers, such as channel partners, vendors, consultants and contract manufacturers, to protect our proprietary information and information of our customers. In addition, the growth of bring your own device ~~("BYOD")~~ programs has increased the need for enhanced security measures. IT security system failures, including a breach of our or our third-party providers' data security systems, could disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the fulfillment or cancellation of customer orders, disruptions in the manufacture or shipment of products or delivery of services or an unintentional disclosure of customer, employee or our information. Additionally, despite our security procedures or those of our third-party providers, information systems and our products and services may be vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized attempts by third parties to access, modify or delete our or our customers' proprietary information.

We take cybersecurity seriously and devote significant resources and tools to protect our systems, products and data and the data of our customers from intrusions and to ensure compliance with our contractual and regulatory obligations. However, these security efforts are costly to implement and may not be successful. Cyberattacks and similar threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. In come cases the attacks have been sponsored by state actors with significant financial and technological means. Computer malware, viruses, scraping and general hacking have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. There can be no assurance that we will be able to prevent, detect and adequately insure against and address or mitigate cyberattacks or security breaches. We investigate potential data breach issues identified through our security procedures and terminate, mitigate and remediate such issues as appropriate. Past incidents have involved outside actors and issues stemming from certain internal configuration, vulnerabilities in third-party software which may impact our systems, applications, products and offerings and migration issues of our applications to other platforms. A breach of our systems could have a material adverse effect on our reputation as a provider of business communications products and services and could cause irreparable damage to us or our systems regardless of whether we or our third-party providers are able to adequately recover critical systems following a systems failure, either or both of which could, in turn, have a material adverse effect on our operating results and financial conditions.

In addition, regulatory or legislative action related to cybersecurity, privacy and data protection worldwide, such as the EU GDPR, which went into effect in May 2018, and the UK GDPR, which went into effect in January 2021, may increase the costs to develop, implement or secure our products and services. We expect cybersecurity regulations to continue to evolve and be costly to implement. Furthermore, we may need to increase or change our cybersecurity systems and expenditures to support expansion of sales into new industry segments or new geographic markets. If we violate or fail to comply with such regulatory or legislative requirements, we could be fined, which fines could be substantial, or otherwise sanctioned. Any such fines or penalties could have a material adverse effect on our business and operations.

Global Operations and Regulations

Since we operate internationally, operational, logistical, economic and/or political challenges in a specific country or region could negatively affect our revenue, costs, expenses and financial condition or those of our channel partners and distributors.

We do business in approximately 190 countries. We conduct significant sales, customer support operations and a significant portion of our research and development activities in countries outside of the U.S., and we depend on non-U.S. operations of

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our contract manufacturers and our channel partners. For fiscal 2021, we derived 43% of our revenue from sales outside of the U.S., with the most significant portions generated from Germany, the United Kingdom and Canada. In addition, we intend to continue to grow our business internationally. The vast majority of our contract manufacturing also takes place outside the U.S., primarily in southern China.

Accordingly, our results could be materially and adversely affected by a variety of uncontrollable and changing factors relating to international business operations, including:

•economic conditions and geopolitical developments, such as the Russia/Ukraine conflict and the sanctions and export controls recently imposed by the U.S., UK and the EU on certain industries and Russian parties as a result of the conflict, as well as any counter responses by the governments of Russia or other jurisdictions, along with tariffs, changes to significant trading relationships, the negotiation of new or revised international trade agreements and retaliatory efforts from such trade restrictions, constraints and prohibitions, such as the U.S. China trade dispute and the EU's position on humanitarian rights towards countries in the Middle East, Africa and Asian territories;

•political or social unrest, economic instability or corruption or sovereign debt risks in a specific country or region;

•laws and regulations, both international and local, related to trade compliance, anti-corruption, anti-bribery, information security, data privacy and protection, labor, the environment, climate change and other topics and requirements;

•protectionist and local security legislation;

•difficulty in enforcing intellectual property rights, such as protecting against the counterfeiting of our products;

•less established legal and judicial systems necessary to enforce our rights;

•relationships with employees and works councils,as well as difficulties in finding qualified employees, including skilled design and technical employees, as companies expand their operations offshore;

•high levels of inflation and currency fluctuations;

•unfavorable tax and currency regulations;

•military conflict, terrorist activities and health pandemics or similar issues, such as the current conflict and military action between Russia and Ukraine;

•future government shutdowns or uncertainties which could affect the portion of our revenues which comes from the U.S. federal government sector;

•differing responses to the COVID-19 pandemic;

•natural disasters, such as earthquakes, hurricanes or floods, anywhere we and/or our channel partners and distributors have business operations; and

•other matters in any of the countries or regions in which we and our contract manufacturers and business partners currently operate or intend to operate, including in the U.S.

Any or all of these factors could materially adversely affect our business, operating results or financial condition.

The military operation launched by Russia against Ukraine created economic and security concerns that have had and will likely continue to have an impact on regional and global economies and, in turn, our business. Sanctions and other retaliatory measures have been taken, and could be taken in the future, by the U.S., EU, and other jurisdictions which severely limit our ability to conduct commercial activities with Russian companies, organizations and individuals on the U.S.'s List of Specially Designated Nationals, some of which are Avaya customers. Under current restrictions we cannot provide certain services to customers in Russia, and as a result, as we comply with all applicable sanctions, we are unable to fulfill certain of our existing contractual obligations to customers in Russia, nor can we commence new maintenance and support arrangements in Russia.

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General Risk Factors

Business and/or supply chain interruptions, whether due to catastrophic disasters or other events, could adversely affect our operations.

Our operations and those of our contract manufacturers and outsourced service providers are vulnerable to interruption by fire, earthquake, hurricane, flood or other natural disasters, power loss, computer viruses, computer systems failure, telecommunications failure, pandemics, quarantines, national catastrophe, terrorist activities, war and other events beyond our control. For instance, we have operations in the Silicon Valley area of California near known earthquake fault zones, which are vulnerable to damage from earthquakes. Our disaster recovery plans may not be sufficient to address these interruptions. If any disaster were to occur, our ability and the ability of our contract manufacturers and outsourced service providers to operate could be seriously impaired and we could experience material harm to our business, operating results and financial condition. Because our ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor interruptions in our operations could harm our reputation as a reliable solutions provider. In addition, the coverage or limits of our business interruption insurance may not be sufficient to compensate for any losses or damages that may occur.

In addition, these catastrophic disasters or other events, such as the global shortage of semiconductor chips and the military conflict between Russia and Ukraine, related export controls and possible counter responses to such sanctions, could lead to supply chain disruptions, restrictions on our ability to distribute our products and restrictions on our ability to provide services in the regions affected. Any prolonged and significant supply chain disruption that impacts us or our customers, partners, vendors and/or suppliers, or an inability to provide products or services, would likely impact our sales in the affected region, increase our costs and negatively affect our operating results. For instance, the COVID-19 pandemic, which adversely affected the global economy and financial markets in fiscal 2021 and fiscal 2020, resulted in an economic downturn that affected demand for our products and services and likely impacted our operating results. Similarly, the decrease in the availability of global shipping has led to an increase in freight and shipping costs and there are no assurances that such shipping disruptions and higher logistics costs will not continue or increase, which may adversely affect our operating results and financial condition.


Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

The following table provides information with respect to purchases by the Company of shares of common stock during the three months ended ~~December~~March 31, ~~2021:~~2022:
Period
Total Number of Shares (or Units) Purchased(1)
Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under Plans or Programs(2)(3)
October 1 - 31, 2021 — $ — — $ 147,473,425
November 1 - 30, 2021 77,764 $ 21.0000 — $ 147,473,425
December 1 - 31, 2021 253,537 $ 18.9338 — $ 147,473,425
Total 331,301 $ 19.4188 —


Period	Total Number of Shares (or Units) Purchased(1)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under Plans or Programs(2)(3)
January 1 - 31, 2022	—	$	—	—	$	147,473,425
February 1 - 28, 2022	216,529	$	14.9989	—	$	147,473,425
March 1 - 31, 2022	2,154	$	13.2500	—	$	147,473,425
Total	218,683	$	14.9816	—

(1) All purchases represent shares of common stock withheld for taxes on restricted stock units that vested.

(2) The Company maintains a warrant repurchase program authorizing it to repurchase the Company's outstanding warrants to purchase shares of the Company's common stock for an aggregate expenditure of up to $15 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions.

(3) The Company maintains a share repurchase program authorizing it to repurchase the Company's common stock for an aggregate expenditure of up to $500 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions.


Item 3.			Defaults Upon Senior Securities

None.


Item 4.			Mine Safety Disclosures

Not applicable.


Item 5.			Other Information

None.

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Item 6.			Exhibits


Exhibit Number						Exhibit Description
10.1						Amendment No. 1 to the Avaya Holdings Corp 2019 Equity Incentive Plan (incorporated herein by reference to Annex B of the Company’s Definitive Proxy Statement on Schedule 14A filed on January 18, 2022)
31.1						Certification of James M. Chirico, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Kieran J. McGrath pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of James M. Chirico, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2						Certification of Kieran J. McGrath pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema
101.CAL						XBRL Taxonomy Extension Calculation Linkbase
101.DEF						XBRL Taxonomy Extension Definition Linkbase
101.LAB						XBRL Taxonomy Extension Labels Linkbase
101.PRE						XBRL Taxonomy Extension Presentation Linkbase
104						Cover Page Interactive Data File (formatted as Inline XBRL in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			AVAYA HOLDINGS CORP.

			By:			/s/ KEVIN SPEED
			Name:			Kevin Speed
			Title:			Global Vice President, Controller and Chief Accounting Officer

~~February 9,~~May 10, 2022

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	December 31, 2021		September 30, 2021
Expected volatility	52.53	%	49.63	%
Risk-free interest rates	0.37	%	0.13	%
Contractual remaining life (in years)	0.96		1.21
Price per share of common stock	$19.80		$19.79


(In millions)	Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Loss on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of September 30, 2021	$	(20)	$	(37)	$	(34)	$	(91)
Other comprehensive income before reclassifications	—		13		15		28
Amounts reclassified to earnings	(1)		—		13		12

Balance as of December 31, 2021	$	(21)	$	(24)	$	(6)	$	(51)