Avaya Reports First Quarter Fiscal 2019 Financial Results

Montag, 11.02.19 13:30
Avaya Reports First Quarter Fiscal 2019 Financial Results
Bildquelle: fotolia.com
SANTA CLARA, Calif. –

Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the first quarter ended December 31, 2018.

         
GAAP (1) Non-GAAP (2)
(In millions, except percentages)     Q1 2019     Q4 2018     Q1 2018 Q1 2019     Q4 2018     Q1 2018
Revenue $ 738 $ 735 $ 752 $ 748 $ 770 $ 775
Gross margin 55.1 % 53.1 % 58.5 % 62.7 % 63.4 % 62.6 %
Operating margin 6.8 % 1.5 % 5.1 % 22.7 % 20.4 % 22.2 %
 

“We demonstrated another quarter of operational excellence, setting records across several key performance metrics. However, our revenue was impacted by a few discrete items versus our outlook, which included the federal government shutdown. That said, our product portfolio has never been stronger, and our cloud solutions continue to win the support of our customers, who are choosing Avaya for the innovative solutions that we are bringing to market,” said Jim Chirico, President and CEO of Avaya.

First Quarter Fiscal 2019 Financial Results:

  • On October 1, 2018, Avaya adopted the new revenue recognition standard, Accounting Standards Codification 606 ("ASC 606"), using the modified retrospective transition method. Accordingly, results for reporting 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”).
  • GAAP revenue was $738 million, $3 million higher than the fourth quarter of fiscal 2018, and $14 million lower than the Combined first quarter of fiscal 2018(1) ended December 31, 2017. Non-GAAP revenue(2) was $748 million, $22 million lower than the fourth quarter of fiscal 2018, and $27 million lower than the Combined first quarter of fiscal 2018.
  • 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(1). Non-GAAP gross margin(2) 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.
  • GAAP operating income was $50 million, compared to GAAP operating income of $11 million for the fourth quarter of fiscal 2018 and $38 million for the Combined first quarter of fiscal 2018(1). Non-GAAP operating income(2) was $170 million, compared to $157 million for the fourth quarter of fiscal 2018, and $172 million for the Combined first quarter of fiscal 2018.
  • GAAP net income was $9 million, compared to $268 million for the fourth quarter of fiscal 2018, and $3,214 million for the Combined first quarter of fiscal 2018(1).
  • Adjusted EBITDA(2) was $189 million or 25.3% of non-GAAP revenue, compared to adjusted EBITDA of $178 million, or 23.1% of non-GAAP revenue, for the fourth quarter of fiscal 2018 and $206 million, or 26.6% of non-GAAP revenue, for the Combined first quarter of fiscal 2018.
  • Cash provided by operating activities was $86 million, compared to cash provided by operating activities of $25 million for the fourth quarter of fiscal 2018 and cash used for operating activities of $374 million for the Combined first quarter of fiscal 2018(1).
  • At the end of the first quarter of fiscal 2019, cash and cash equivalents totaled $743 million, compared to $700 million at the end of the fourth quarter of fiscal 2018 and $417 million at the end of the Combined first quarter of fiscal 2018.

(1) Due to the company’s emergence from Chapter 11 proceedings during the first quarter of fiscal 2018 and adoption of fresh start accounting effective on December 15, 2017, the results for the first quarter fiscal year 2018 are required by GAAP to be presented separately as the predecessor period from October 1, 2017 through December 15, 2017 (the “Predecessor” period) and the successor period from December 16, 2017 through December 31, 2017 (the “Successor” period). The application of fresh start accounting results in a new basis of accounting, making the results of the Predecessor period not comparable to the results of the Successor period. Where applicable we have, however, combined results of the Predecessor and Successor periods for discussion purposes as we believe it provides the most meaningful basis to analyze our period over period results. Refer to the Supplemental Financial Information accompanying this press release for more information, including a reconciliation of combined results to our Predecessor and Successor results.

(2) 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 press release for more information, including a reconciliation of these measures to the most closely comparable measure calculated in accordance with GAAP.

Note: We define the midmarket as firms with between 250 and 1,000 agents for CC and between 1,000 and 5,000 employees for UC

First Quarter Fiscal 2019 Business Metrics

  • Total Contract Value increased 8% year-over-year to $2.4 billion
  • 83% of Non-GAAP revenue was Software & Services
  • 61% of Non-GAAP product revenue was Software
  • 57% of Non-GAAP revenue was Recurring
  • Added approximately 1,600 new logos
  • Generated $65 million in free cash flow*

*Note: We define free cash flow as cash flow from operating activities less capital expenditures

First Quarter Fiscal 2019 Company Highlights

  • Introduced new Private Cloud Solutions for Unified Communications and Contact Center
  • Launched a new online storefront that simplifies access to UCaaS and CCaaS solutions
  • Announced a new Device-as-a-Service (DaaS) offering
  • Delivered public safety breakthrough with next generation location reporting solutions for emergency responders
  • Enhanced channel partner program with increased focus on solution selling, simplification, and cloud offerings
  • Expanded Avaya A.I. Connect ecosystem with new partners and offers using AI and machine learning technologies for Unified Communications and Contact Center
  • Extended Workforce Engagement Management (WEM) with Verint Systems for the new Avaya OneCloud WEM
  • Won the 2018 Aragon Research Innovation Award for Artificial Intelligence (AI) in People-Centric Collaboration

Financial Outlook - Q2 Fiscal 2019 under ASC 606

Our financial outlook reflects the adoption of ASC 606, which became effective for Avaya on October 1, 2018. Avaya has adopted ASC 606 using the modified retrospective transition method.

  • GAAP revenue of $730-$760 million; non-GAAP revenue of $740-$765 million
  • GAAP operating margin of 5.5-8.0% of revenue; non-GAAP operating margin of 21.5-22.5%
  • GAAP operating income of $40-$60 million, non-GAAP operating income of $159-$172 million
  • Cash taxes of approximately $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 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; 15-16% of non-GAAP product revenue
  • Operating income of $200-$280 million, non-GAAP operating income of $675-$730 million; 22-23% of non-GAAP revenue
  • Adjusted EBITDA $763-$819 million, or 25-26% of non-GAAP revenue
  • Approximately 113 million shares outstanding

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.

Conference Call and Webcast

Avaya will host a webcast and conference call to discuss its financial results and Q&A at 8:30 AM ET/5:30 AM PT on February 11, 2019. On the call will be Jim Chirico, President and CEO, and Pat O’Malley, Senior Vice President and CFO. The call will be moderated by Mike McCarthy, Vice President of Investor Relations.

To join the financial results live webcast and view supplementary materials including an earnings presentation and CFO commentary, listeners should access the investor page of Avaya’s website https://investors.avaya.com. Following the live webcast, a replay will be available in the event archives at the same web address for a period of one year.

To access the financial results call live by phone, dial +1-866-393-4306 in the U.S. or Canada and +1-734-385-2616 for international callers. Listeners should access the webcast or the call 10-15 minutes before the start time to ensure they are able to connect.

A replay of the financial results live conference call will be available for two business days soon after the call by phone by dialing +1-855-859-2056 in the U.S. or Canada and +1-404-537-3406 for international callers, using the conference access code: 3187748.

Links to this financial results press release and accompanying slides are available on the investor page of Avaya’s website https://investors.avaya.com.

About Avaya

Businesses are built on the experiences they provide, and every day millions of those experiences are built by Avaya (NYSE: AVYA). For over one hundred years, we’ve enabled organizations around the globe to win - by creating intelligent communications experiences for customers and employees. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration - in the cloud, on-premise or a hybrid of both. To grow your business, we’re committed to innovation, partnership, and a relentless focus on what’s next. We’re the technology company you trust to help you deliver Experiences that Matter. Visit us at www.avaya.com.

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 of fiscal 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 the Company's Annual Report on Form 10-K 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    

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

REVENUE
Products $ 324 $ 71 $ 253 $ 324
Services 414   77   351   428  
738   148   604   752  
COSTS
Products:
Costs 115 33 84 117
Amortization of technology intangible assets 43 7 3 10
Services 173   30   155   185  
331   70   242   312  
GROSS PROFIT 407   78   362   440  
OPERATING EXPENSES
Selling, general and administrative 257 50 264 314
Research and development 53 9 38 47
Amortization of intangible assets 40 7 10 17
Restructuring charges, net 7   10   14   24  
357   76   326   402  
OPERATING INCOME 50 2 36 38
Interest expense (60 ) (9 ) (14 ) (23 )
Other income (expense), net 22 (2 ) (2 ) (4 )
Reorganization items, net     3,416   3,416  
INCOME (LOSS) BEFORE INCOME TAXES 12 (9 ) 3,436 3,427
(Provision for) benefit from income taxes (3 ) 246   (459 ) (213 )
NET INCOME $ 9   $ 237   $ 2,977   $ 3,214  
 

Avaya Holdings Corp.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share and shares 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

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