Exhibit 99.2
![avayalogoera02.jpg](https://capedge.com/proxy/8-K/0001418100-19-000007/avayalogoera02.jpg)
February 11, 2019
CFO Commentary on First Quarter Fiscal 2019 Financial Results
This document should be read in conjunction with the First Quarter Fiscal 2019 Financial Results and includes a discussion of certain non-GAAP(1) results
First Quarter Fiscal 2019:
On October 1, 2018, Avaya adopted the new revenue recognition standard, Accounting Standards Codification 606 ("ASC 606"), using the modified retrospective transition method. Financial results for periods beginning after September 30, 2018 are presented under ASC 606 while prior period financial information is not adjusted and continues to be reported in accordance with GAAP that existed prior to the adoption of ASC 606 (“ASC 605”).
Income Statement:
Revenue
GAAP revenue was $738 million, compared to $735 million for the fourth quarter of fiscal 2018, and $752 million for the Combined first quarter of fiscal 2018 ended December 31, 2017
• | GAAP product revenue was $324 million, compared to $325 million for the fourth quarter of fiscal 2018, and $324 million for the Combined first quarter of fiscal 2018 ended December 31, 2017 |
• | GAAP service revenue was $414 million, compared to $410 million for the fourth quarter of fiscal 2018, and $428 million for the Combined first quarter of fiscal 2018 ended December 31, 2017 |
Non-GAAP revenue was $748 million, compared to $770 million for the fourth quarter of fiscal 2018, and $775 million for the Combined first quarter of fiscal 2018 ended December 31, 2017
• | Non-GAAP product revenue was $326 million, compared to $336 million for the fourth quarter of fiscal 2018, and $330 million for the Combined first quarter of fiscal 2018 ended December 31, 2017. The decline in product revenue was driven by our ongoing product transition to new endpoints, as well as our strategy to sell more cloud solutions and software/services more broadly |
• | Non-GAAP service revenue was $422 million, compared to $434 million for the fourth quarter of fiscal 2018, and $445 million for the Combined first quarter of fiscal 2018 ended December 31, 2017. The decline in service revenue was driven predominantly by lower maintenance revenue and to a lesser extent, lower professional services revenue |
Gross Margin
GAAP gross margin was 55.1%, compared to 53.1% for the fourth quarter of fiscal 2018, and 58.5% for the Combined first quarter of fiscal 2018 ended December 31, 2017
• | GAAP product gross margin was 51.2%, compared to 51.4% for the fourth quarter of fiscal 2018, and 60.8% for the Combined first quarter of fiscal 2018 ended December 31, 2017 |
• | GAAP services gross margin was 58.2%, compared to 54.4% for the fourth quarter of fiscal 2018, and 56.8% for the Combined first quarter of fiscal 2018 ended December 31, 2017 |
Non-GAAP gross margin was 62.7%, compared to 63.4% for the fourth quarter of fiscal 2018, and 62.6% for the Combined first quarter of fiscal 2018 ended December 31, 2017. The improvement in Non-GAAP gross margin over the prior year is the result of productivity gains in our services business, as well as a higher mix of contact center software, partially offset by revenue declines. The decrease compared to last quarter is driven by lower volumes and unfavorable costs in our products due to higher transportation, warehousing and trade tariffs
• | Non-GAAP Product gross margin was 65.6%, compared to 67.3% for the fourth quarter of fiscal 2018, and 66.1% for the Combined first quarter of fiscal 2018 ended December 31, 2017. The year-over-year decline is attributable to discounts offset by an improved product mix. The sequential decline reflects unfavorable costs in our products due to higher transportation, warehousing and trade tariffs |
• | Non-GAAP Services gross margin was 60.4%, compared to 60.4% for the fourth quarter of fiscal 2018, and 60.0% for the Combined first quarter of fiscal 2018 ended December 31, 2017. The year-over-year improvement was primarily the result of productivity gains |
Expenses
GAAP operating expense (R&D + SG&A) was $310 million, compared to $337 million for the fourth quarter of fiscal 2018, and $361 million for the Combined first quarter of fiscal 2018 ended December 31, 2017
• | GAAP R&D expense was $53 million, compared to $62 million for the fourth quarter of fiscal 2018, and $47 million for the Combined first quarter of fiscal 2018 ended December 31, 2017 |
• | GAAP SG&A expense was $257 million, compared to $275 million for the fourth quarter of fiscal 2018, and $314 million for the Combined first quarter of fiscal 2018 ended December 31, 2017 |
Non-GAAP operating expenses (R&D + SG&A) was $299 million, compared to $331 million for the fourth quarter of fiscal 2018, and $313 million for the Combined first quarter of fiscal 2018 ended December 31, 2017
• | Non-GAAP R&D expense was $52 million, compared to $51 million for the fourth quarter of fiscal 2018, and $47 million for the Combined first quarter of fiscal 2018 ended December 31, 2017. The Non-GAAP R&D expense increase reflects our continued commitment to drive innovation in our products and solutions that will allow us to expand our customer base and enable us to achieve our long-term revenue growth objectives |
• | Non-GAAP SG&A expense was $247 million, compared to $280 million for the fourth quarter of fiscal 2018, and $266 million for the Combined first quarter of fiscal 2018 ended December 31, 2017. The decrease compared to last year is primarily the result of lower headcount, while the decrease sequentially is the result of lower variable compensation |
Profitability
GAAP operating income was $50 million, compared to operating income of $11 million for the fourth quarter of fiscal 2018, and operating income of $38 million for the Combined first quarter of fiscal 2018 ended December 31, 2017
Non-GAAP operating income was $170 million, compared to operating income of $157 million for the fourth quarter of fiscal 2018, and operating income of $172 million for the Combined first quarter of fiscal 2018 ended December 31, 2017. Our Non-GAAP operating income reflects our continued business optimization efforts which have contributed to the improved efficiency of the company
Adjusted EBITDA was $189 million, compared to $178 million for the fourth quarter of fiscal 2018, and $206 million for the Combined first quarter of fiscal 2018 ended December 31, 2017
Cash Flow
Cash and cash equivalents was $743 million as of December 31, 2018, compared to $700 million as of September 30, 2018 and $417 million as of December 31, 2017. The sequential increase in our cash is the result of positive cash flow from operating activities that was driven by improved working capital, partially offset by capital expenditures. The change in cash and cash equivalents compared to the prior year is primarily due to cash outflows, including emergence payments to the former debt holders, the PBGC and other creditors, and funding of the acquisition of Spoken, offset by net proceeds from the issuance of convertible notes and cash generated from operations
During Q1 FY’19, we paid $48 million in cash interest for our term loan and convertible debt and made cash pension/OPEB payments of $14 million. Additionally, we paid $11 million in cash for restructuring and had approximately $7 million in cash taxes in the quarter
Inventory was $68 million as of December 31, 2018, compared to $81 million as of September 30, 2018. Days of inventory stood at 34 days, compared to 28 days for the fourth quarter of fiscal 2018. This level of inventory represents consistent operating levels
Accounts receivable was $327 million as of December 31, 2018, compared to $377 million as of September 30, 2018. Days sales outstanding (based on non-GAAP revenue) decreased by 4 days compared to Q4 FY’18 and stood at 56 days. Note: Our DSO calculation includes adjustments for AR / contract liability revenue netting and for the impact of fresh start accounting in order to keep our “operational” reporting of DSO consistent with historically reported data
Accounts payable was $295 million as of December 31, 2018, compared to $266 million as of September 30, 2018. Days payable was up significantly from 83 days in Q4 FY’18 to 98 days in Q1 FY’19
Capital expenditures were $21 million in Q1 FY’19, down from $25 million in Q4 FY’18 and up from $15 million in Q1 FY’18
Depreciation and amortization was approximately $117 million, down from $120 million in Q4 FY’18 and up from $53 million during Q1 FY’18. The impact of fresh start accounting required that we increase intangible and fixed assets to their fair values as of December 15, 2017, that impact should decrease over time
Demand Indicators
Total Contract Value (TCV) increased 8% compared to the prior year and now stands at $2.4 billion. We define TCV as the value of all active contracts that have not been recognized as revenue, including both billed and unbilled backlog
Channel
Product revenue to the channel was $226 million. Product revenue to the channel decreased slightly year-over-year and decreased 6% sequentially. As a reminder, channel product revenue is recognized when we sell-in to the distributor and continues to account for more than 2/3 of our total product revenue
Distributor reported inventories were $108 million and increased $3 million from Q4 FY’18 and decreased $3 million from Q1 FY’18
Financial Outlook
During the past quarter and most recent fiscal year we continued to take steps to improve our capital structure. We remain committed to improving the operational efficiency and productivity of Avaya. We continue to invest in our outstanding product portfolio, customer support and satisfaction continues to improve, and we are building a stronger financial model that supports future growth.
As a reminder, our financial outlook presented below reflects the adoption of the new ASC 606 revenue recognition standard that became effective October 1, 2018 and replaced ASC 605. The net impact of adoption is expected to be a decrease of fiscal 2019 Adjusted EBITDA compared to ASC 605, substantially offset by earlier revenue recognition for certain products and services under ASC 606 and incremental revenue.
Taking into consideration Avaya’s continued investment in R&D, sales enablement, tools and people, and our ongoing efforts to improve Avaya’s operating efficiencies; we are now targeting the following forecast for Q2 Fiscal Year 2019 and Fiscal Year 2019:
Financial Outlook - Q2 Fiscal 2019 under ASC 606
• | GAAP revenue of $730-$760 million, non-GAAP revenue of $740-$765 million. As a reminder, Q2 is typically the softest quarter from a sequential growth perspective with our revenue, historically, declining in the low to mid-single digits quarter to quarter |
• | GAAP operating margin of 5.5-8.0%, non-GAAP operating margin of 21.5-22.5% |
• | GAAP operating income of $40-$60 million, non-GAAP operating income $159-$172 million |
• | Cash taxes of $30 million, +/- $3 million |
• | Adjusted EBITDA of $178-$191 million or adjusted EBITDA margin of 24.0-25.0% of non-GAAP revenue |
• | Approximately 111 million shares outstanding |
Financial Outlook - Fiscal Year 2019 under ASC 606
• | GAAP revenue of $3.01-$3.12 billion, non-GAAP revenue of $3.05-$3.15 billion |
• | GAAP and non-GAAP R&D of $220-$225 million, or 15-16% of product revenue |
• | Operating income of $200-$280 million, non-GAAP operating income of $675-$730 million or 22-23% of non-GAAP revenue |
• | Adjusted EBITDA $763-$819 million, or 25-26% of non-GAAP revenue |
• | Approximately 113 million shares outstanding |
• | Cloud and innovation 12-14% of non-GAAP revenue |
• | Recurring revenue 58-59% of non-GAAP revenue |
• | Software and Services 83-85% of non-GAAP revenue |
Total cash requirements for restructuring, pension & OPEB, cash taxes, capital spending and interest expense in the second quarter fiscal 2019 and fiscal year 2019 are expected to be:
Details: Q2’19 FY’19
Restructuring: ~$15M $65-$70M
Pension/OPEB: ~$25M $65M
Cash Taxes: ~$30M +/- $3M $70M +/- $5M
CapEx: ~$25M $90-$95M
Interest expense: ~$50M $200-$205M
Avaya’s outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments, or other significant transactions that may be completed after February 11, 2019. Actual results may differ materially from Avaya’s outlook as a result of, among other things, the factors described under “Forward-Looking Statements” below.
(1) Non-GAAP revenue, Non-GAAP gross margin, Non-GAAP operating margin, Non-GAAP operating income and adjusted EBITDA are not measures calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Refer to the Supplemental Financial Information accompanying this document for more information, including a reconciliation of these measures to the most closely comparable measure calculated in accordance with GAAP.
Cautionary Note Regarding Forward-Looking Statements
This document contains certain “forward-looking statements.” All statements other than statements of historical fact are “forward-looking” statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," “our vision,” "plan," "potential," "preliminary," "predict," "should," "will," or “would” or the negative thereof or other variations thereof or comparable terminology and include, but are not limited to, the outlook for the second quarter 2019 and fiscal year 2019, including the expected impact of the adoption of ASC 606. The company has based these forward-looking statements on its current expectations,
assumptions, estimates and projections. While the company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. These factors are discussed in Amendment No. 3 to the company’s Registration Statement on Form 10, Annual and Quarterly Reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission (the “SEC”), and may cause its actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For a further list and description of such risks and uncertainties, please refer to the company’s filings with the SEC that are available at www.sec.gov. The company cautions you that the list of important factors included in the company’s SEC filings may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. The company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Avaya Holdings Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts)
Successor | Predecessor | ||||||||||||
Three months ended December 31, 2018 | Period from December 16, 2017 through December 31, 2017 | Period from October 1, 2017 through December 15, 2017 | |||||||||||
REVENUE | |||||||||||||
Products | $ | 324 | $ | 71 | $ | 253 | |||||||
Services | 414 | 77 | 351 | ||||||||||
738 | 148 | 604 | |||||||||||
COSTS | |||||||||||||
Products: | |||||||||||||
Costs | 115 | 33 | 84 | ||||||||||
Amortization of technology intangible assets | 43 | 7 | 3 | ||||||||||
Services | 173 | 30 | 155 | ||||||||||
331 | 70 | 242 | |||||||||||
GROSS PROFIT | 407 | 78 | 362 | ||||||||||
OPERATING EXPENSES | |||||||||||||
Selling, general and administrative | 257 | 50 | 264 | ||||||||||
Research and development | 53 | 9 | 38 | ||||||||||
Amortization of intangible assets | 40 | 7 | 10 | ||||||||||
Restructuring charges, net | 7 | 10 | 14 | ||||||||||
357 | 76 | 326 | |||||||||||
OPERATING INCOME | 50 | 2 | 36 | ||||||||||
Interest expense | (60 | ) | (9 | ) | (14 | ) | |||||||
Other income (expense), net | 22 | (2 | ) | (2 | ) | ||||||||
Reorganization items, net | — | — | 3,416 | ||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 12 | (9 | ) | 3,436 | |||||||||
(Provision for) benefit from income taxes | (3 | ) | 246 | (459 | ) | ||||||||
NET INCOME | $ | 9 | $ | 237 | $ | 2,977 | |||||||
NET INCOME PER SHARE | |||||||||||||
Basic | $ | 0.08 | $ | 2.16 | $ | 5.19 | |||||||
Diluted | $ | 0.08 | $ | 2.15 | $ | 5.19 | |||||||
Weighted average shares outstanding | |||||||||||||
Basic | 110.3 | 109.8 | 497.3 | ||||||||||
Diluted | 111.2 | 110.3 | 497.3 |
Avaya Holdings Corp.
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except per share and share amounts)
December 31, 2018 | September 30, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 743 | $ | 700 | |||
Accounts receivable, net | 327 | 377 | |||||
Inventory | 68 | 81 | |||||
Contract assets | 120 | — | |||||
Contract costs | 118 | — | |||||
Other current assets | 106 | 170 | |||||
TOTAL CURRENT ASSETS | 1,482 | 1,328 | |||||
Property, plant and equipment, net | 239 | 250 | |||||
Deferred income taxes, net | 28 | 29 | |||||
Intangible assets, net | 3,149 | 3,234 | |||||
Goodwill | 2,764 | 2,764 | |||||
Other assets | 97 | 74 | |||||
TOTAL ASSETS | $ | 7,759 | $ | 7,679 | |||
LIABILITIES | |||||||
Current liabilities: | |||||||
Debt maturing within one year | $ | 29 | $ | 29 | |||
Accounts payable | 295 | 266 | |||||
Payroll and benefit obligations | 121 | 145 | |||||
Contract liabilities | 482 | 484 | |||||
Business restructuring reserve | 50 | 51 | |||||
Other current liabilities | 152 | 148 | |||||
TOTAL CURRENT LIABILITIES | 1,129 | 1,123 | |||||
Non-current liabilities: | |||||||
Long-term debt, net of current portion | 3,095 | 3,097 | |||||
Pension obligations | 652 | 671 | |||||
Other post-retirement obligations | 177 | 176 | |||||
Deferred income taxes, net | 161 | 140 | |||||
Business restructuring reserve | 43 | 47 | |||||
Other liabilities | 370 | 374 | |||||
TOTAL NON-CURRENT LIABILITIES | 4,498 | 4,505 | |||||
TOTAL LIABILITIES | 5,627 | 5,628 | |||||
Commitments and contingencies | |||||||
STOCKHOLDERS' EQUITY | |||||||
Preferred stock, $0.01 par value; 55,000,000 shares authorized, no shares issued or outstanding at December 31, 2018 and September 30, 2018 | — | — | |||||
Common stock, $0.01 par value; 550,000,000 shares authorized; 110,708,203 shares issued and 110,695,523 shares outstanding at December 31, 2018; and 110,218,653 shares issued and 110,012,790 shares outstanding at September 30, 2018 | 1 | 1 | |||||
Additional paid-in capital | 1,745 | 1,745 | |||||
Retained earnings | 388 | 287 | |||||
Accumulated other comprehensive (loss) income | (2 | ) | 18 | ||||
TOTAL STOCKHOLDERS' EQUITY | 2,132 | 2,051 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 7,759 | $ | 7,679 |
Avaya Holdings Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Successor | Predecessor | Non-GAAP Combined | |||||||||||||||
Three months ended December 31, 2018 | Period from December 16, 2017 through December 31, 2017 | Period from October 1, 2017 through December 15, 2017 | Three months ended December 31, 2017 | ||||||||||||||
Net cash provided by (used for): | |||||||||||||||||
Operating activities | $ | 86 | $ | 40 | $ | (414 | ) | $ | (374 | ) | |||||||
Investing activities | (22 | ) | (2 | ) | (13 | ) | (15 | ) | |||||||||
Financing activities | (18 | ) | — | (102 | ) | (102 | ) | ||||||||||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (3 | ) | 3 | (2 | ) | 1 | |||||||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 43 | 41 | (531 | ) | (490 | ) | |||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 704 | 435 | 966 | 966 | |||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 747 | $ | 476 | $ | 435 | $ | 476 |
Use of non-GAAP (Adjusted) Financial Measures
The information furnished in this release includes non-GAAP financial measures that differ from measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), including the combined three month period ending December 31, 2017 and financial measures labeled as “non-GAAP” or “adjusted.”
Although GAAP requires that we report on our results for the periods October 1, 2017 through December 15, 2017 and December 16, 2017 through December 31, 2017, separately, management reviews the company’s operating results for the three months ended December 31, 2017 by combining the results of these periods because such presentation provides the most meaningful comparison of our results. The company cannot adequately benchmark the operating results of the 16-day period ended December 31, 2017 against any of the previous periods reported in its condensed consolidated financial statements and does not believe that reviewing the results of this period in isolation would be useful in identifying any trends regarding the company’s overall performance. Management believes that the key performance metrics such as revenue, gross margin and operating income, among others, when combined for the three months ended December 31, 2017 provide meaningful comparisons to other periods and are useful in identifying current business trends.
EBITDA is defined as net income (loss) before income taxes, interest expense, interest income and depreciation and amortization. Adjusted EBITDA is EBITDA further adjusted to exclude certain charges and other adjustments described in our SEC filings and the tables below.
We believe that including supplementary information concerning adjusted EBITDA is appropriate because it serves as a basis for determining management and employee compensation and it is used as a basis for calculating covenants in our credit agreements. In addition, we believe adjusted EBITDA provides more comparability between our historical results and results that reflect purchase accounting and our current capital structure. We also present EBITDA and adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. Adjusted EBITDA measures our financial
performance based on operational factors that management can impact in the short-term, such as our pricing strategies, volume, costs and expenses of the organization and it presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years.
EBITDA and adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. However, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. In particular, our formulation of adjusted EBITDA allows adjustment for certain amounts that are included in calculating net income (loss), however, these are expenses that may recur, may vary and are difficult to predict.
We also present the measures non-GAAP revenue, non-GAAP gross margin, non-GAAP operating margin and non-GAAP operating income, as a supplement to our unaudited condensed consolidated financial statements presented in accordance with GAAP. We believe these non-GAAP measures are the most meaningful for period to period comparisons because they exclude the impact of the earnings and charges noted in the applicable tables below that resulted from matters that we consider not to be indicative of our ongoing operations.
The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from the non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP.
We do not provide a forward-looking reconciliation of expected second quarter and full year fiscal 2019 adjusted EBITDA, Non-GAAP operating income, Non-GAAP R&D or Non-GAAP revenue guidance as the amount and significance of special items required to develop meaningful comparable GAAP financial measures cannot be estimated at this time without unreasonable efforts. These special items could be meaningful.
The following tables present Successor, Predecessor and combined results and reconcile historical GAAP measures to non-GAAP measures.
Avaya Holdings Corp.
Supplemental Schedules of Non-GAAP Adjusted EBITDA
(Unaudited; in millions)
Successor | Predecessor | |||||||||||
Three months ended December 31, 2018 | Period from December 16, 2017 through December 31, 2017 | Period from October 1, 2017 through December 15, 2017 | ||||||||||
Net income | $ | 9 | $ | 237 | $ | 2,977 | ||||||
Interest expense | 60 | 9 | 14 | |||||||||
Interest income | (3 | ) | — | (2 | ) | |||||||
Provision for (benefit from) income taxes | 3 | (246 | ) | 459 | ||||||||
Depreciation and amortization | 117 | 22 | 31 | |||||||||
EBITDA | 186 | 22 | 3,479 | |||||||||
Impact of fresh start accounting adjustments | 3 | 27 | — | |||||||||
Restructuring charges, net | 7 | 10 | 14 | |||||||||
Advisory fees | 1 | 8 | 3 | |||||||||
Acquisition-related costs | 3 | — | — | |||||||||
Reorganization items, net | — | — | (3,416 | ) | ||||||||
Non-cash share-based compensation | 6 | 1 | — | |||||||||
Loss on sale/disposal of long-lived assets, net | — | — | 1 | |||||||||
Resolution of certain legal matters | — | — | 37 | |||||||||
Change in fair value of Emergence Date Warrants | (18 | ) | 5 | — | ||||||||
Loss (gain) on foreign currency transactions | 1 | (2 | ) | — | ||||||||
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs | — | — | 17 | |||||||||
Adjusted EBITDA | $ | 189 | $ | 71 | $ | 135 |
Avaya Holdings Corp.
Supplemental Schedules of Non-GAAP Revenue
(Unaudited; in millions)
Successor | Successor | |||||||||||||||||||||||||||||||||||||
Three Months Ended | Q118 Non-GAAP Combined Results (4) | Change | Three Months Ended | |||||||||||||||||||||||||||||||||||
Dec. 31, 2018 | Adj. for Fresh Start Accounting | Non-GAAP Dec. 31, 2018 | Amount | Pct. | Pct., net of fx impact | Sept. 30, 2018 (1) | June 30, 2018 (2) | Mar. 31, 2018 (3) | ||||||||||||||||||||||||||||||
Revenue by Segment | ||||||||||||||||||||||||||||||||||||||
Products & Solutions | $ | 326 | $ | — | $ | 326 | $ | 330 | $ | (4 | ) | (1 | )% | (1 | )% | $ | 336 | $ | 322 | $ | 317 | |||||||||||||||||
Services | 422 | — | 422 | 445 | (23 | ) | (5 | )% | (4 | )% | 434 | 433 | 440 | |||||||||||||||||||||||||
Unallocated amounts | (10 | ) | 10 | — | — | — | n/a | n/a | — | — | — | |||||||||||||||||||||||||||
Total revenue | $ | 738 | $ | 10 | $ | 748 | $ | 775 | $ | (27 | ) | (2 | )% | (1 | )% | $ | 770 | $ | 755 | $ | 757 | |||||||||||||||||
Revenue by Geography | ||||||||||||||||||||||||||||||||||||||
U.S. | $ | 394 | $ | 7 | $ | 401 | $ | 425 | $ | (24 | ) | (4 | )% | (4 | )% | $ | 417 | $ | 399 | $ | 409 | |||||||||||||||||
International: | ||||||||||||||||||||||||||||||||||||||
EMEA | 199 | 1 | 200 | 208 | (8 | ) | (1 | )% | — | % | 202 | 202 | 196 | |||||||||||||||||||||||||
APAC - Asia Pacific | 78 | 1 | 79 | 76 | 3 | 5 | % | 8 | % | 81 | 86 | 83 | ||||||||||||||||||||||||||
Americas International | 67 | 1 | 68 | 66 | 2 | 3 | % | 7 | % | 70 | 68 | 69 | ||||||||||||||||||||||||||
Total International | 344 | 3 | 347 | 350 | (3 | ) | 1 | % | 3 | % | 353 | 356 | 348 | |||||||||||||||||||||||||
Total revenue | $ | 738 | $ | 10 | $ | 748 | $ | 775 | $ | (27 | ) | (2 | )% | (1 | )% | $ | 770 | $ | 755 | $ | 757 |
(1) Q418 Non-GAAP Results | (2) Q318 Non-GAAP Results | |||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
Sept. 30, 2018 | Adj. for Fresh Start Accounting | Non-GAAP Sept. 30, 2018 | June 30, 2018 | Adj. for Fresh Start Accounting | Non-GAAP June 30, 2018 | |||||||||||||||||||
Revenue by Segment | ||||||||||||||||||||||||
Products & Solutions | $ | 336 | $ | — | $ | 336 | $ | 322 | $ | — | $ | 322 | ||||||||||||
Services | 434 | — | 434 | 433 | — | 433 | ||||||||||||||||||
Unallocated amounts | (35 | ) | 35 | — | (63 | ) | 63 | — | ||||||||||||||||
Total revenue | $ | 735 | $ | 35 | $ | 770 | $ | 692 | $ | 63 | $ | 755 | ||||||||||||
Revenue by Geography | ||||||||||||||||||||||||
U.S. | $ | 393 | $ | 24 | $ | 417 | $ | 356 | $ | 43 | $ | 399 | ||||||||||||
International: | ||||||||||||||||||||||||
EMEA | 196 | 6 | 202 | 193 | 9 | 202 | ||||||||||||||||||
APAC - Asia Pacific | 78 | 3 | 81 | 81 | 5 | 86 | ||||||||||||||||||
Americas International | 68 | 2 | 70 | 62 | 6 | 68 | ||||||||||||||||||
Total International | 342 | 11 | 353 | 336 | 20 | 356 | ||||||||||||||||||
Total revenue | $ | 735 | $ | 35 | $ | 770 | $ | 692 | $ | 63 | $ | 755 |
(3) Q218 Non-GAAP Results | (4) Q118 Non-GAAP Combined Results | ||||||||||||||||||||||||||||
Three Months Ended | Successor | Predecessor | Q118 Non-GAAP Combined Results | ||||||||||||||||||||||||||
Mar. 31, 2018 | Adj. for Fresh Start Accounting | Non-GAAP Mar. 31, 2018 | Period from Dec. 16, 2017 through Dec. 31, 2017 | Period from Oct. 1, 2017 through Dec. 15, 2017 | Adj. for Fresh Start Accounting | ||||||||||||||||||||||||
Revenue by Segment | |||||||||||||||||||||||||||||
Products & Solutions | $ | 317 | — | $ | 317 | $ | 77 | $ | 253 | — | $ | 330 | |||||||||||||||||
Services | 440 | — | 440 | 94 | 351 | — | 445 | ||||||||||||||||||||||
Unallocated amounts | (85 | ) | 85 | — | (23 | ) | — | 23 | — | ||||||||||||||||||||
Total revenue | $ | 672 | $ | 85 | $ | 757 | $ | 148 | $ | 604 | $ | 23 | $ | 775 | |||||||||||||||
Revenue by Geography | |||||||||||||||||||||||||||||
U.S. | $ | 354 | $ | 55 | $ | 409 | $ | 71 | $ | 331 | $ | 13 | $ | 425 | |||||||||||||||
International: | |||||||||||||||||||||||||||||
EMEA | 178 | 18 | 196 | 42 | 166 | 7 | 208 | ||||||||||||||||||||||
APAC - Asia Pacific | 80 | 3 | 83 | 19 | 57 | 2 | 76 | ||||||||||||||||||||||
Americas International | 60 | 9 | 69 | 16 | 50 | 1 | 66 | ||||||||||||||||||||||
Total International | 321 | 30 | 348 | 77 | 273 | 10 | 350 | ||||||||||||||||||||||
Total revenue | $ | 672 | $ | 85 | $ | 757 | $ | 148 | $ | 604 | $ | 23 | $ | 775 |
Avaya Holdings Corp.
Supplemental Schedules of Non-GAAP Reconciliations
(Unaudited; in millions)
Successor | Predecessor | Q118 Non-GAAP Combined Results | |||||||||||||||||||||||||||
Three Months Ended | Period from Dec. 16, 2017 through Dec. 31, 2017 | Period from Oct. 1, 2017 through Dec. 15, 2017 | |||||||||||||||||||||||||||
Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | March 31, 2018 | ||||||||||||||||||||||||||
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin | |||||||||||||||||||||||||||||
Gross Profit | $ | 407 | $ | 390 | $ | 352 | $ | 323 | $ | 78 | $ | 362 | $ | 440 | |||||||||||||||
Items excluded: | |||||||||||||||||||||||||||||
Adj. for fresh start accounting | 19 | 54 | 69 | 106 | 35 | ||||||||||||||||||||||||
Amortization of technology intangible assets | 43 | 43 | 44 | 41 | 10 | ||||||||||||||||||||||||
Loss on disposal of long-lived assets | — | — | 2 | 2 | — | ||||||||||||||||||||||||
Non-cash share-based compensation | — | 1 | — | — | — | ||||||||||||||||||||||||
Non-GAAP Gross Profit | $ | 469 | $ | 488 | $ | 467 | $ | 472 | $ | 485 | |||||||||||||||||||
GAAP Gross Margin | 55.1 | % | 53.1 | % | 50.9 | % | 48.1 | % | 52.7 | % | 59.9 | % | 58.5 | % | |||||||||||||||
Non-GAAP Gross Margin | 62.7 | % | 63.4 | % | 61.9 | % | 62.4 | % | 62.6 | % | |||||||||||||||||||
Reconciliation of Non-GAAP Operating Income | |||||||||||||||||||||||||||||
Operating Income (Loss) | $ | 50 | $ | 11 | $ | (49 | ) | $ | (89 | ) | $ | 2 | $ | 36 | $ | 38 | |||||||||||||
Items excluded: | |||||||||||||||||||||||||||||
Adj. for fresh start accounting | 20 | 48 | 71 | 107 | 33 | ||||||||||||||||||||||||
Amortization of intangible assets | 83 | 84 | 83 | 81 | 27 | ||||||||||||||||||||||||
Restructuring charges, net | 7 | 1 | 30 | 40 | 24 | ||||||||||||||||||||||||
Acquisition-related costs | 3 | 4 | 4 | 7 | — | ||||||||||||||||||||||||
Loss on disposal of long-lived assets | — | — | 2 | 2 | 1 | ||||||||||||||||||||||||
Advisory fees | 1 | 3 | 3 | 4 | 11 | ||||||||||||||||||||||||
Non-cash share-based compensation | 6 | 6 | 7 | 5 | 1 | ||||||||||||||||||||||||
Costs in connection with certain legal matters | — | — | — | — | 37 | ||||||||||||||||||||||||
Non-GAAP Operating Income | $ | 170 | $ | 157 | $ | 151 | $ | 157 | $ | 172 | |||||||||||||||||||
GAAP Operating Margin | 6.8 | % | 1.5 | % | -7.1 | % | -13.2 | % | 1.4 | % | 6.0 | % | 5.1 | % | |||||||||||||||
Non-GAAP Operating Margin | 22.7 | % | 20.4 | % | 20.0 | % | 20.7 | % | 22.2 | % |
Avaya Holdings Corp.
Supplemental Schedules of Non-GAAP Reconciliation of Gross Profit and Gross Margin by Portfolio
(Unaudited; in millions)
Successor | Predecessor | Q118 Non-GAAP Combined Results | |||||||||||||||||||||||||||
Three months ended | Period from December 16, 2017 through December 31, 2017 | Period from October 1, 2017 through December 15, 2017 | |||||||||||||||||||||||||||
Dec. 31, 2018 | Sept. 30, 2018 | June 30, 2018 | March 31, 2018 | ||||||||||||||||||||||||||
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Products | |||||||||||||||||||||||||||||
Revenue | $ | 324 | $ | 325 | $ | 300 | $ | 293 | $ | 71 | $ | 253 | $ | 324 | |||||||||||||||
Costs | 115 | 115 | 114 | 110 | 33 | 84 | 117 | ||||||||||||||||||||||
Amortization of technology intangible assets | 43 | 43 | 44 | 41 | 7 | 3 | 10 | ||||||||||||||||||||||
GAAP Gross Profit | 166 | 167 | 142 | 142 | 31 | 166 | 197 | ||||||||||||||||||||||
Items excluded: | |||||||||||||||||||||||||||||
Adj. for fresh start accounting | 19 | 16 | 24 | 33 | 11 | ||||||||||||||||||||||||
Amortization of technology intangible assets | 43 | 43 | 44 | 41 | 10 | ||||||||||||||||||||||||
Loss on disposal of long-lived assets | — | — | 1 | 1 | — | ||||||||||||||||||||||||
Non-GAAP Gross Profit | $ | 214 | $ | 226 | $ | 211 | $ | 217 | $ | 218 | |||||||||||||||||||
GAAP Gross Margin | 51.2 | % | 51.4 | % | 47.3 | % | 48.5 | % | 43.7 | % | 65.6 | % | 60.8 | % | |||||||||||||||
Non-GAAP Gross Margin | 65.6 | % | 67.3 | % | 65.5 | % | 68.5 | % | 66.1 | % | |||||||||||||||||||
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Services | |||||||||||||||||||||||||||||
Revenue | $ | 414 | $ | 410 | $ | 392 | $ | 379 | $ | 77 | $ | 351 | $ | 428 | |||||||||||||||
Costs | 173 | 187 | 182 | 198 | 30 | 155 | 185 | ||||||||||||||||||||||
GAAP Gross Profit | 241 | 223 | 210 | 181 | 47 | 196 | 243 | ||||||||||||||||||||||
Items excluded: | |||||||||||||||||||||||||||||
Adj. for fresh start accounting | 14 | 38 | 45 | 73 | 24 | ||||||||||||||||||||||||
Loss on disposal of long-lived assets | — | — | 1 | 1 | — | ||||||||||||||||||||||||
Non-cash share-based compensation | — | 1 | — | — | — | ||||||||||||||||||||||||
Non-GAAP Gross Profit | $ | 255 | $ | 262 | $ | 256 | $ | 255 | $ | 267 | |||||||||||||||||||
GAAP Gross Margin | 58.2 | % | 54.4 | % | 53.6 | % | 47.8 | % | 61.0 | % | 55.8 | % | 56.8 | % | |||||||||||||||
Non-GAAP Gross Margin | 60.4 | % | 60.4 | % | 59.1 | % | 58.0 | % | 60.0 | % |
Avaya Holdings Corp.
Reconciliation of GAAP to Non-GAAP results
Three months ended December 31, 2018
(Unaudited; in millions)
Q118 | ||||||||||||||||||||||||||||||||||||||||||||
GAAP Results | Adj. for Fresh Start Accounting | Amortization of Intangible Assets | Restructuring Charges, net | Acquisition Costs | Share-based Comp | Advisory Fees | Other Costs, net | Non-GAAP Results | GAAP Results | Non-GAAP Results | ||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||
Products | $ | 324 | $ | 2 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 326 | $ | 324 | $ | 330 | ||||||||||||||||||||||
Services | 414 | 8 | — | — | — | — | — | — | 422 | 428 | 445 | |||||||||||||||||||||||||||||||||
738 | 10 | — | — | — | — | — | — | 748 | 752 | 775 | ||||||||||||||||||||||||||||||||||
Costs | ||||||||||||||||||||||||||||||||||||||||||||
Products: | ||||||||||||||||||||||||||||||||||||||||||||
Costs | 115 | (3 | ) | — | — | — | — | — | — | 112 | 117 | 112 | ||||||||||||||||||||||||||||||||
Amortization of technology intangible assets | 43 | — | (43 | ) | — | — | — | — | — | — | 10 | — | ||||||||||||||||||||||||||||||||
Services | 173 | (6 | ) | — | — | — | — | — | — | 167 | 185 | 178 | ||||||||||||||||||||||||||||||||
331 | (9 | ) | (43 | ) | — | — | — | — | — | 279 | 312 | 290 | ||||||||||||||||||||||||||||||||
GROSS PROFIT | 407 | 19 | 43 | — | — | — | — | — | 469 | 440 | 485 | |||||||||||||||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 257 | — | — | — | (3 | ) | (6 | ) | (1 | ) | — | 247 | 314 | 266 | ||||||||||||||||||||||||||||||
Research and development | 53 | (1 | ) | — | — | — | — | — | — | 52 | 47 | 47 | ||||||||||||||||||||||||||||||||
Amortization of intangible assets | 40 | — | (40 | ) | — | — | ��� | — | — | — | 17 | — | ||||||||||||||||||||||||||||||||
Restructuring charges, net | 7 | — | — | (7 | ) | — | — | — | — | — | 24 | — | ||||||||||||||||||||||||||||||||
357 | (1 | ) | (40 | ) | (7 | ) | (3 | ) | (6 | ) | (1 | ) | — | 299 | 402 | 313 | ||||||||||||||||||||||||||||
OPERATING INCOME | 50 | 20 | 83 | 7 | 3 | 6 | 1 | — | 170 | 38 | 172 | |||||||||||||||||||||||||||||||||
Interest expense | (60 | ) | — | — | — | — | — | — | — | (60 | ) | (23 | ) | (23 | ) | |||||||||||||||||||||||||||||
Other income (expense), net | 22 | — | — | — | — | — | — | (20 | ) | 2 | (4 | ) | (3 | ) | ||||||||||||||||||||||||||||||
Reorganization items, net | — | — | — | — | — | — | — | — | — | 3,416 | — | |||||||||||||||||||||||||||||||||
INCOME BEFORE INCOME TAXES | $ | 12 | $ | 20 | $ | 83 | $ | 7 | $ | 3 | $ | 6 | $ | 1 | $ | (20 | ) | $ | 112 | $ | 3,427 | $ | 146 |
Avaya Holdings Corp.
Reconciliation of ASC 606 to ASC 605 GAAP results
Three months ended December 31, 2018
(Unaudited; in millions)
Q1 FY19 results under ASC 606 | ASC 606 Impact | Q1 FY19 results under ASC 605 | ||||||||||
REVENUE | ||||||||||||
Products | $ | 324 | $ | 22 | $ | 302 | ||||||
Services | 414 | 20 | 394 | |||||||||
738 | 42 | 696 | ||||||||||
COSTS | ||||||||||||
Products: | ||||||||||||
Costs | 115 | 6 | 109 | |||||||||
Amortization of technology intangible assets | 43 | — | 43 | |||||||||
Services | 173 | 6 | 167 | |||||||||
331 | 12 | 319 | ||||||||||
GROSS PROFIT | 407 | 30 | 377 | |||||||||
OPERATING EXPENSES | ||||||||||||
Selling, general and administrative | 257 | (8 | ) | 265 | ||||||||
Research and development | 53 | — | 53 | |||||||||
Amortization of intangible assets | 40 | — | 40 | |||||||||
Restructuring charges, net | 7 | — | 7 | |||||||||
357 | (8 | ) | 365 | |||||||||
OPERATING INCOME | $ | 50 | $ | 38 | $ | 12 |