Avaya Reports Second Quarter Fiscal 2016 Financial Results

16 May 2016
Second Quarter Fiscal 2016:
·         Revenue of $904 million
·         Operating Income of $17 million, Non-GAAP Operating Income(1) of $162 million
·         Adjusted EBITDA(1) of $205 million, 22.7% of revenue
·         Advisors engaged to assess capital structure options
Santa Clara, Calif. — Monday, May 16, 2016 – Avaya reported financial results for the second fiscal quarter ended March 31, 2016.
Total revenue for the second quarter was $904 million, down $54 million compared to the prior quarter, down $91 million year-over-year, as demand for unified communications products continued to contract.  For the quarter, adjusted EBITDA(1) was $205 million which compares to adjusted EBITDA of $228 million for the prior quarter and $208 million for the second quarter of fiscal 2015. GAAP operating income was $17 million and non-GAAP operating income was $162 million which compares to non-GAAP operating income of $185 million for the prior quarter and $162 million for the second quarter of fiscal 2015.  
“Avaya’s second fiscal quarter results reflect advancement of our transformation as a software and services company and the impact of ongoing pressures in the global economy.  Estimated total contract value increased sequentially and year-over-year, reaching record levels, despite the continued contraction of the enterprise unified communications market, primarily associated with hardware.  Revenue in contact center and cloud and managed services grew year-over-year.  Profitability metrics including non-GAAP gross margin, non-GAAP operating margin, and adjusted EBITDA as a percentage of revenue all improved year-over-year due to improving product mix and cost reduction initiatives” said Kevin Kennedy, president and CEO. 
The company noted that second fiscal quarter results reflected an increase in the proportion of revenue from software and services as well as an increase in the proportion of recurring revenues.  Results this quarter demonstrate the progress recently and over the past 5 years in the company’s transformation to evolve the cost structure and enable additional business model improvements in the future. 
Retention of Advisors
Avaya also announced today it has engaged advisors to assist in comprehensively assessing alternatives and evaluating expressions of interest which address the company’s capital structure.  Goldman Sachs and Centerview Partners are serving as financial advisors.
“Our purpose in assessing and taking capital structure actions is to improve the balance sheet as we progress through our ongoing transition as a software and services company,” Kennedy added.  “We will focus on maintaining Avaya’s strong and broad customer relationships, continuing to advance our industry leading technology and multi-year operational improvement trend, and ensuring customers continue to receive our outstanding service and support that drives exceptional customer satisfaction.”
Second Fiscal Quarter Highlights
·         Estimated total contract value was over $3.1 billion up 5% from the second quarter of fiscal 2015 in constant currency.  This amount includes approximately $900 million for private cloud and managed services, a 17% increase from the second quarter of fiscal 2015 in constant currency.
·         Contact center revenue grew 8% year-over-year, cloud & managed services revenue grew 7% year-over-year, and fabric networking solutions revenue grew over 20% year-over-year, all in constant currency.
·         Gross margin was 59.8% compared to 60.4% for the prior quarter and 59.5% for the second quarter of fiscal 2015 
·         Non-GAAP gross margin was 60.7% compared to 61.3% for the prior quarter and 60.2% for the second quarter of fiscal 2015
·         Adjusted EBITDA was $205 million or 22.7% of revenue compared to $228 million or 23.8% of revenue for the prior quarter and $208 million or 20.9% of revenue for the second quarter of fiscal 2015
·         For the second fiscal quarter, percentage of revenue by geography was: 
-          U.S. – 56%                                           -     EMEA – 24%
-          Asia-Pacific – 11%                                 -     Americas International – 9%
·         In May, Avaya settled a long-standing dispute with a software supplier eliminating four outstanding litigation matters.  The settlement and associated costs are reflected in the second fiscal quarter results.
Conference Call and Webcast
Avaya will host a financial results webcast and conference call to discuss its financial results and Q&A at 2:00 PM PDT on May 16, 2016.  On the call will be Kevin Kennedy, president and CEO, and Dave Vellequette, CFO. The call will be moderated by John Nunziati, senior director of investor relations.
To join the financial results live webcast and view supplementary materials, listeners should access the investor page of Avaya’s website (www.avaya.com/investors).  Following the live webcast, a replay will be available at the same web address in the event archives. 
To access the financial results live webcast by phone, dial 877-876-9177 in the U.S. or Canada and 785-424-1666 for international callers, using the conference ID:  AVQ216.  Listeners should access the webcast or the call 10-15 minutes before the start time to ensure they are connected prior to the start time.  
A replay of the financial results live webcast and conference call will be available beginning at 2:00 PM PDT on May 17 through June 17, 2016, by accessing event archives from the investor page of Avaya’s website (www.avaya.com/investors).
About Avaya
Avaya is a leading provider of solutions that enable customer and team engagement across multiple channels and devices for better customer experience, increased productivity and enhanced financial performance. Its world-class contact center and unified communications technologies and services are available in a wide variety of flexible on-premise and cloud deployment options that seamlessly integrate with non-Avaya applications. The Avaya Engagement Environment enables third parties to create and customize business applications for competitive advantage.  Avaya’s fabric-based networking solutions help simplify and accelerate the deployment of business critical applications and services. For more information please visit www.avaya.com.
Certain statements contained in this press release may be forward-looking statements, including statements about our future financial and operational performance, planned and unrealized future savings, as well as statements about our future growth plans and drivers. 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," "predict," "should," "will" or "would" or the negative thereof or other variations thereof or other comparable terminology.  We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by these forward-looking statements. For a list and description of such risks and uncertainties, please refer to Avaya's filings with the SEC that are available at www.sec.gov and in particular, our 2015 Form 10-K filed with the SEC on November 23, 2015.  Avaya disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
[1] Refer to Supplemental Financial Information accompanying this press release for a reconciliation of GAAP to non-GAAP numbers and for reconciliation of adjusted EBITDA for the first quarter of fiscal 2016 see our Form 8-K filed with the SEC on February 8, 2016 at www.sec.gov.


Christina Knittel