For Immediate Release: 23-Jan-2007
BASKING RIDGE, N. J. – Avaya Inc., (NYSE:AV) a leading global provider of business communications applications, systems and services, today reported net income of $71 million or 15 cents per diluted share for the first fiscal quarter of 2007 on a U.S. generally accepted accounting principles (GAAP) basis. In the first fiscal quarter of 2006, the company reported net income of $71 million or 15 cents per diluted share on a GAAP basis. Non-GAAP net income for the first fiscal quarter of 2007 was $61 million or 13 cents per diluted share. (See chart accompanying release.) "During the first quarter, we invested in our business to extend our technology leadership, effectively managed costs and expenses, attracted new talent to our senior management team and delivered solid bottom line results," said Lou D’Ambrosio, president and CEO, Avaya. "We will continue to be relentlessly focused on our three priorities: strategy, execution and culture." The company reported operating income for the first fiscal quarter of 2007 of $90 million. Non-GAAP operating income in the quarter was $96 million. (See chart accompanying release.) Avaya's first fiscal quarter 2007 revenues increased 2.5 percent to $1.280 billion compared to $1.249 billion in the same period last year. Avaya shipped more than one million IP lines for the third consecutive quarter. Avaya noted that as discussed in its Form 10-K for fiscal 2006, during the first quarter it experienced delays and disruption in the delivery of its products to customers due to changes made in its warehousing and distribution operations and estimates the impact on revenue in the quarter was approximately $20 million. The company's services segment revenues increased for the third consecutive year-over-year quarter with strong performance in professional services, maintenance, and managed services. Avaya ended the quarter with cash of $895 million, relatively flat with the fourth quarter of fiscal 2006. The provision for income taxes in the quarter benefited from discrete tax benefits, including a retroactive extension of the U.S. federal research and development tax credit.
First Fiscal Quarter Highlights Since the end of the last quarter, Avaya has added several new members to its executive team. Caroline Dorsa will become Avaya's Chief Financial Officer. Dorsa joins Avaya from Merck and Co, Inc. where she has held senior leadership roles in finance and line operations. Most recently, she was Vice President and Treasurer for Merck where she led a broad portfolio, including treasury, investor relations, tax, controllership for manufacturing, and portfolio management. Stuart Wells will join Avaya from Sun Microsystems and lead Avaya's Global Communication Solutions. Wells held a series of senior leadership roles at Sun, with a particular focus on software and on-demand computing. Most recently he served as executive vice president, Utility Computing. He also was senior vice president of eCommerce applications, middleware and communication products during the Sun/Netscape alliance. Wells also led the Network Software Product Group and sales leadership for the Financial Services organization. Lorie Buckingham has joined Avaya as chief information officer. Lorie will champion Avaya's IT infrastructure improvements and driving efficiencies and effectiveness in our business processes. She joins Avaya from Visteon Corporation and brings a wealth of knowledge and experience in IT, streamlining business processes, and global software solutions. During the quarter Avaya also made important strides in extending our technology leadership. Avaya acquired Traverse Networks, a privately held developer of enterprise mobility solutions. Traverse develops enterprise mobility solutions enabling enterprise workers to have their office functionally at their fingertips, supporting a broad range of mobile devices. The ability to send office calls to any phone, receive calls on both office and mobile phones simultaneously and synchronized call logs put the user in control of communications. The company announced a tender offer to acquire Ubiquity Software Corporation, whose product is one of the leading software platforms for the development and delivery of SIP solutions, a critical industry standard. Ubiquity develops and markets SIP-based communications software for fixed and mobile communications service providers, systems integrators, independent software vendors and channel partners. Ubiquity's range of products has been developed to take advantage of the telecommunications industry's migration toward all-IP networks. Avaya introduced Unified Communications initiatives that will further shape the market and change how businesses deliver strategic communications and collaboration tools to workers wherever they are, on any device. The new family of Avaya Unified Communications editions gives businesses the flexibility to deliver the right applications to the right devices for various segments of workers with different communications needs, to help employees improve productivity wherever they are conducting business. Avaya also continued to receive Industry recognition, including the following: Avaya increased its lead in the share of worldwide enterprise telephony revenues to 20.6 percent in the third quarter according to Dell ‘Oro Group’s IP Telephony Enterprise Report, 3Q06. The company's leadership puts it three points ahead of its nearest competitor. Avaya extended its lead in worldwide Enterprise Internet Protocol Telephony shipments and revenues, according to Synergy Research Group's 3Q 2006 Enterprise Voice Market Shares Report. This is the twelfth straight quarter in which the company led in global enterprise IP Telephony revenues, pulling ahead by more than three points over its nearest competitor. Forward-Looking Statements Certain statements made in this press release and in the earnings conference call are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements regarding Avaya's expected performance and outlook for operating results are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to: - price and product competition, including from competitors who may offer products and applications similar to those we offer as part of another offering;
- rapid or disruptive technological development, including the effects of the technology shift from traditional TDM to IP telephony;
- dependence on new product development;
- customer demand for our products and services, including risks specifically associated with the services business and, in particular, the maintenance and rental and managed services lines of business, primarily due to renegotiations of customer contracts and changes in scope, pricing erosion and cancellations;
- supply issues related to our outsourced manufacturing operations, logistics, distribution or components;
- risks related to inventory, including warranty costs, obsolescence charges, excess capacity, material and labor costs, and our distributors' decisions regarding their own inventory levels;
- general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations;
- the economic, political and other risks associated with international sales and operations, including increased exposure to currency fluctuations and to European economies as a result of a large percentage of our business being conducted in Europe;
- the ability to successfully integrate acquired companies, which may require significant management time and attention;
- the ability to attract and retain qualified employees;
- control of costs and expenses, including difficulties in completing restructuring actions in a timely and efficient manner due to labor laws and required approvals;
- U.S. and non-U.S. government regulation; and
- the ability to form and implement alliances.
For a further list and description of such risks and uncertainties, see the reports filed by Avaya with the SEC, which are available at www.sec.gov, particularly the information contained in Part I, Item 1A, entitled "Risk Factors," of our fiscal 2006 Form 10-K. 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. Use of Non-GAAP Financial Measures In an effort to provide investors with additional information regarding the company's results as determined by accounting principles generally accepted in the United States (GAAP), the company has also disclosed non-GAAP diluted earnings per share, non-GAAP net income, non-GAAP operating income and non-GAAP operating margin and net cash in this press release, in the conference call and in the supplementary materials accompanying the conference call discussing first quarter earnings results. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States and they have limitations in that they do not reflect all amounts associated with Avaya's results of operations as determined in accordance with GAAP. These measures should only be used in evaluating Avaya's results of operations together with the corresponding GAAP measures. Avaya believes that the presentation of non-GAAP diluted earnings per share, non-GAAP net income, non-GAAP operating income and non-GAAP operating margin, which exclude the impact of restructuring charges, acquisition-related charges and certain income tax items, provide meaningful supplemental information regarding Avaya's performance. These non-GAAP financial measures also help investors compare Avaya's financial results for the current quarter to its financial results for prior quarters and the prior fiscal year. In addition, Avaya's management uses these measures when reviewing the Company's financial results and to further understand the Company's operating performance. Management believes that the presentation of net cash in the webcast presentation provides useful information to investors about the Company’s ability to satisfy its debt obligations with currently available funds. The reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures is included at the end of this press release and as part of the supplementary materials presented with the first quarter earnings materials in a table entitled "Reconciliation of Non-GAAP Measures". The supplementary materials are available on the Avaya investor relations website at www.avaya.com/investors and will be included in a subsequent filing of a Form 8-K with the SEC. Note: See chart entitled "Reconciliation of Non-GAAP Measures" for information regarding a previously reported non-GAAP adjustment for the first quarter of fiscal 2006. Conference Call and Webcast
Avaya will host a conference call with a listen-only Q&A session to discuss these results at 5:00 p.m. EST on Tuesday, Jan. 23, 2007. To ensure you are on the call from the start, we suggest you access the call 10-15 minutes early by dialing:
Within and outside the United States: 706-634-2454. For those unable to participate, there will be a playback available from 8:00 p.m. EST Jan. 23 through Jan 30, 2007. For the replay, if you are calling from within the United States, please dial 800-642-1687. If you are calling from outside the United States, please dial 706-645-9291. The passcode for the replay is 4423001. WEBCAST Information: Avaya will webcast this conference call live, with a listen-only Q&A session. To ensure that you are on the webcast, we suggest that you access our website ( www.avaya.com/investors) 10-15 minutes prior to the start. Supplementary materials accompanying the conference call are available at the same location. Following the live webcast, a replay will be available on our archives at the same web address. About Avaya
Avaya Inc. designs, builds and manages communications networks for more than one million businesses worldwide, including more than 90 percent of the FORTUNE 500®. Focused on businesses large to small, Avaya is a world leader in secure and reliable Internet Protocol telephony systems and communications software applications and services. Driving the convergence of voice and data communications with business applications – and distinguished by comprehensive worldwide services – Avaya helps customers leverage existing and new networks to achieve superior business results. For more information visit the Avaya website: http://www.avaya.com. | 
