Avaya Reports Third Quarter Fiscal 2020 Financial Results

GAAP Revenues of $721 million represented year-over-year growth

Revenue from Software and Services was 89%, a new record; Recurring revenue was 64%

Cloud, Alliance Partner & Subscription revenue increased from 23% to 30% of revenue

Booked ~$130 million of Avaya OneCloud Subscription Total Contract Value (TCV)

Santa Clara, Calif., - August 10, 2020 - Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the third quarter ended June 30, 2020.

Third Quarter Financial Highlights

• Revenues of $721 million
• GAAP Operating income was $53 million; Non-GAAP Operating income was $164 million
• Net income was $9 million
• Adjusted EBITDA was $187 million, 25.9% of revenue
• 104 deals signed with a TCV of over $1 million, 7 deals over $10 million TCV
• Ending cash and cash equivalents were $742 million

Jim Chirico, President and CEO of Avaya stated, “We delivered strong quarterly results exceeding our guidance across all metrics.  The company grew sequentially and year over year, which marks a major milestone for Avaya.  Software and services as a percent of revenue was 89% - beating the record set this past March; recurring revenue was 64%, up 5 points year-over-year; and our CAPS revenue increased to 30% from 23% in the prior quarter.  The strength in our business is a direct result of executing on the deliberate strategy we laid out over two years ago.”

Mr. Chirico added, “Response to our Subscription offering continues to be strong, with just over $200 million of TCV having been booked since its launch back in Q1.  This offering differentiates Avaya within the enterprise segment and answers a very clear demand from our customers for flexibility, access to our latest innovations and to provide a seamless path to move to the cloud at a time and pace they choose.”

Additional Key Performance Highlights

• Total Contract Value (TCV) of $2.2B*

• Added approximately 900 new logos

• Large deal activity with 104 deals over $1 million, 14 over $5 million, and 7 over $10 million

• Avaya Cloud Office launched in Australia, Canada & the UK; enhanced with automated migration tools

• Enhanced CCaaS offer with addition of digital channels

• Avaya OneCloud Subscription TCV increased ~$130 million during the June quarter

⁽¹⁾ Non-GAAP revenue, Non-GAAP gross margin, Non-GAAP operating margin, Non-GAAP operating income, adjusted EBITDA, and constant currency are not measures calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Adjusted EBITDA margin is calculated based on non-GAAP Revenue. Refer to the "Use of non-GAAP (Adjusted) Financial Measures" below for more information on the calculation of constant currency. 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. Unless otherwise noted, all references in this release to revenue are to GAAP revenue.

* We define TCV as the value of all active ratable contracts that have not been recognized as revenue, including both billed and unbilled backlog.

Customer Highlights

• A large US-based retailer signed a new three-year Avaya OneCloud Subscription agreement to fully modernize their Avaya infrastructure which supports 75,000 Unified Communication users and 25,000 Contact Center agents.

• Vodafone, a long time Avaya customer, signed a new five-year Avaya OneCloud Subscription agreement to address their immediate collaboration and communications challenges responding to COVID-19, as well as to support their long term strategy to modernize their agent and customer experience. By upgrading its communications infrastructure with Avaya OneCloud Subscription to support 4,600 agents, this flexible model is ideal to support Vodafone’s digital transformation journey at a time when work from anywhere requirements have become a priority. Leveraging Avaya solutions, Vodafone has stated that its customer service team in the UK was running at full capability despite the pandemic, to serve the consumers and businesses who rely on them.

• A leading European financial services company is leveraging our Avaya OneCloud Subscription offering to replace their UC and contact center systems.  This customer needed to facilitate an enterprise wide systems transformation and wanted the flexibility, access to innovation like Spaces on demand, and the ability to integrate new digital applications that an opex model provides.

• Closed the first seven-figured TCV deal for Avaya Cloud Office with a government customer based in the United Kingdom.

• Waldorf Woodlands, a leading family of not-for-profit schools in Kenya that operates from two campus locations, is using Avaya Spaces to provide an immersive virtual learning experience.  They are leveraging  our cloud-based capability to integrate chat, voice, video, online meetings, content sharing and more, to deliver structured learning to their students through interactive virtual classes.  

• CTIntegrations adopted Avaya OneCloud CPaaS technology for their flagship product, CT Suite, a user-friendly agent desktop and multimodal contact center.  APIs from Avaya’s CPaaS portfolio enable CT Suite to smoothly deliver proactive SMS messaging to mobile callers so their agents can provide faster service during peak demand periods.

• Cincinnati Bell is implementing a new Avaya OneCloud CCaaS solution to support nearly 300 agents working remotely.  They required a stable and reliable public cloud solution that could be deployed quickly and cost effectively to extend the capabilities of their existing Avaya contact center.

Business Highlights

• IBM presented Avaya with the 2020 IBM Award for Hybrid Cloud Excellence in recognition for outstanding performance in providing enterprise organizations with a fast, convenient and automated path to a cloud communications solution using Avaya OneCloud ReadyNow.

• Entry into a new partnership with NVIDIA, a leading graphics processor unit (GPU) design company that has helped to not only redefine modern computer graphics but more recently modern AI capabilities through GPU-enabled deep learning, has enabled Avaya to increase the impact and value of visual, audible and collaborative experiences through our Spaces offering.

• Aragon Research included Avaya in their Aragon Research Globe for Intelligent Contact Center for 2020, recognizing that Avaya is at the forefront of applying emerging artificial intelligence technologies.  In doing so, Aragon highlighted the depth and breadth of Avaya’s capabilities, which are both native and the result of strategic partnerships such as Google Contact Center AI, designed to enhance a customer’s experience and to help anticipate future customer needs.

• Frost & Sullivan recognized Avaya with their 2020 North American Growth Innovation Leadership Frost Radar Award for innovative workforce engagement management solutions deployed across its contact center portfolio.

Financial Outlook - 4Q Fiscal 2020 - unless otherwise noted, values reflect June 30^th, 2020 FX rates.

• GAAP revenue of $719 million to $739 million; Non-GAAP revenue of $720 million to $740 million

• GAAP operating income of $51 million to $71 million; GAAP operating margin of ~7% to 10%

• Non-GAAP operating income of $146 million to $166 million; non-GAAP operating margin of ~20% to 22%

• Adjusted EBITDA of $170 million to $190 million; Adjusted EBITDA margin of ~24% to 26%

Financial Outlook - Fiscal Year 2020 - unless otherwise noted, values reflect June 30^th, 2020 FX rates.

• GAAP revenue of $2.84 billion to $2.86 billion; Non-GAAP revenue of $2.84 billion to $2.86 billion

• GAAP operating loss of $478 million to $458 million; GAAP operating margin of ~(17)% to (16)%

• Non-GAAP operating income of $585 million to $605 million; non-GAAP operating margin of ~21%

• Cash flow from operations is expected to be ~4% of full year GAAP revenue

• Adjusted EBITDA of $680 million to $700 million; Adjusted EBITDA margin of ~24%

• Weighted shares outstanding are expected to be ~93 million and total shares outstanding are expected to be ~83 million

The company has not quantitatively reconciled its guidance for adjusted EBITDA to its most comparable GAAP measure because certain of the reconciling items that impact adjusted EBITDA, including, provision for income taxes, restructuring charges, net of sublease income, advisory fees, acquisition-related costs, change in fair value of warrants and gain (loss) on marketable securities affecting the period, have not occurred, are out of the company’s control, or cannot be reasonably predicted. Accordingly, reconciliations to the nearest GAAP financial measures are not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the company’s results

Conference Call and Webcast

Avaya will host a live webcast and conference call to discuss its financial results at 8:30 AM Eastern Time on August 10, 2020. To access the live conference call by phone, listeners should dial +1-877-858-7671 in the U.S. or Canada and +1-201-389-0939 for international callers. To join the live webcast, listeners should access the investor page of Avaya's website at https://investors.avaya.com.

Following the live webcast, a replay will be available on the investor page of Avaya's website for a period of one year. A replay of the conference call will be available for one week soon after the call by phone by dialing +1-877-660-6853 in the U.S. or Canada and +1-201-612-7415 for international callers, using the conference access code: 13705768.

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 financial measures labeled as “non-GAAP” or “adjusted.”

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 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. Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations but that still affect our net income. 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. In addition, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

We also present the measures non-GAAP revenue, non-GAAP gross margin, non-GAAP operating income and non-GAAP operating margin 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 company presents constant currency information to provide a framework to assess how the company’s underlying businesses performance excluding the effect of foreign currency rate fluctuations.  To present this information for current and comparative prior period results for entities reporting in currencies other than U.S. dollars, the amounts are converted into U.S. dollars at the exchange rate in effect on the last day of the company’s prior fiscal year (i.e. September 30, 2019).

In addition, we present the liquidity measure of free cash flow. Free cash flow is calculated by subtracting capital expenditures from Net cash provided by operating activities. We believe free cash flow is commonly used by analysts and investors to compare the cash flow and liquidity of companies in the same industry.

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 next quarter non-GAAP revenue, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin or adjusted EBITDA 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 reconcile historical GAAP measures to non-GAAP measures.