Avaya Holdings Corp. (NYSE: AVYA) ("Avaya" or "the Company")
today reported selected additional preliminary financial results
for the third quarter of fiscal 2022 ended June 30, 2022. All
financial results for the third quarter ended June 30, 2022 and
related comparisons to prior periods included in this release are
preliminary, have not been reviewed or audited, are based on the
Company's estimates and were prepared prior to the completion of
the Company's financial statement close process.
Preliminary Third Quarter Financial
Results Highlights
- Revenues of $577 million, down 20% year over year in constant
currency
- OneCloud ARR (Annualized Recurring Revenue) was approximately
$838 million, up 12% sequentially and 97% from a year ago
- CAPS (Cloud, Alliance Partner and Subscription) was 53% of
revenue, up from 40% a year ago
- Software and Services were 88% of revenue; Software was 62% of
revenue
- Recurring revenue was 70% of revenue, up from 64% a year
ago
- GAAP Operating loss was $1,353 million and Non-GAAP Operating
income was $20 million
- GAAP Net loss was $1,408 million and Non-GAAP Net loss was $20
million, which excludes a non-cash impairment charges of $1,272
million1
- Adjusted EBITDA was $54 million, 9% of revenue, versus 24% a
year ago
- GAAP Diluted Loss Per Share of $16.27 and Non-GAAP Diluted Loss
Per Share of $0.24
- Ending cash and cash equivalents were $217 million. If adjusted
for the net proceeds of the July 2022 financings and the partial
use of proceeds therefrom to repurchase approximately $129 million
of convertible notes, cash and cash equivalents would be $404
million with an additional $221 million of restricted cash held in
escrow.
1 The Company's interim impairment tests as of June 30, 2022
indicated that the carrying amount of the Company’s
indefinite-lived intangible asset, the Avaya Trade Name, and its
Services reporting unit exceeded their respective estimated fair
values. As a result, the preliminary financial statements reflect
impairment charges of $1,272 million and the Company expects to
record impairment charges between $1,272 million to $1,804 million
related to the Company’s indefinite-lived intangible asset and
goodwill during the three months ended June 30, 2022.
Alan Masarek, President and CEO of Avaya, said, “Our preliminary
financial results for the quarter reflect operational and
executional shortcomings, amplified against the backdrop of a
volatile economic environment. We are taking aggressive actions to
right-size Avaya’s cost structure to align with our contractual,
recurring revenue business model. We have already begun
operationalizing our recently announced savings initiatives and
expect to identify additional areas as our work continues. At the
same time, we will focus our investments on driving innovation and
advancing product development for the benefit of our customers. The
July 2022 financings, together with our cost-cutting initiatives,
are important steps towards maintaining our financial and operating
flexibility to continue to invest in our business and to sustain
our business model transition. Although we have a lot of work to
do, we have a tremendous foundation to build on as we become a
stronger, leaner, more agile, and innovative organization."
GAAP
Non-GAAP (1)
(In millions, except percentages)
3Q22
2Q22
3Q21
3Q22
2Q22
3Q21
Revenue
$
577
$
716
$
732
$
577
$
716
$
732
Gross margin
44.9
%
51.8
%
55.6
%
51.0
%
56.7
%
61.5
%
Operating (loss) income
$
(1,353
)
$
23
$
41
$
20
$
115
$
146
Net (loss) income
$
(1,408
)
$
(1
)
$
43
$
(20
)
$
51
$
73
(Loss) earnings per share - Diluted
$
(16.27
)
$
(0.02
)
$
0.43
$
(0.24
)
$
0.53
$
0.75
(In millions, except percentages)
3Q22
2Q22
3Q21
Adjusted EBITDA(1)
$
54
$
145
$
173
Adjusted EBITDA margin(1)
9.4
%
20.3
%
23.6
%
Cash (used for) provided by operations
$
(85
)
$
(2
)
$
11
Cash and cash equivalents
$
217
$
324
$
562
Additional Preliminary Third Quarter
Fiscal 2022 Expected Highlights
- Remaining Performance Obligations ("RPO") or revenue backlog of
$2,259 million
- Added ~1,300 new logos
- Significant large deal activity with 92 deals over $1 million
TCV, 11 over $5 million TCV, 7 over $10 million TCV and 2 over $25
million TCV
- ~30% of OneCloud ARR came from customers generating $5 million
or more in annual recurring revenue
- ~60% of OneCloud ARR came from customers generating $1 million
or more in annual recurring revenue
- ~95% of OneCloud ARR came from customers generating $100,000 or
more in annual recurring revenue
- ~60% of OneCloud ARR came from Contact Center customers
As Avaya’s CAPS metric reflects revenue that is already
recognized, management believes it is helpful to provide investors
with a better view into the performance of the Company’s
broader-based OneCloud software solutions that are driving the
Company’s recurring revenue growth by also providing a
forward-looking metric, Annualized Recurring Revenue, or OneCloud
ARR.
OneCloud ARR represents the Company's estimate of the annualized
revenue run-rate of certain components from active term OneCloud
contracts (whether or not terminable) at the end of the reporting
period. More specifically, OneCloud ARR includes OneCloud
subscription revenue, ACO recurring revenue and revenue from CCaaS,
Spaces, CPaaS, DaaS and private cloud, and excludes maintenance,
managed services revenue and ACO one-time payments. The One Cloud
ARR metric, combined with the Company’s CAPS metric, provides
investors enhanced visibility into Avaya’s transformational Cloud
journey. Per period OneCloud ARR figures are provided in the slides
published on Avaya’s website at http://www.avaya.com on the Investor Relations
page.
(1) Non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin,
non-GAAP gross margin, non-GAAP operating income, non-GAAP
operating margin, non-GAAP net income, non-GAAP earnings per share
and constant currency are not measures calculated in accordance
with generally accepted accounting principles in the U.S. ("GAAP").
Refer to the "Use of non-GAAP (Adjusted) Financial Measures" below
and the Supplemental Financial Information accompanying this press
release for more information on the calculation of constant
currency and a reconciliation of the non-GAAP measures included in
this release to their most closely comparable measure calculated in
accordance with GAAP.
Other Highlights
- On July 12, 2022, Avaya completed a $250 million exchangeable
notes offering and raised an additional $350 million through a term
loan add-on.
- Among other things, these financings help support the Company’s
transition from its historical Cap-Ex licensing model to a
Subscription and Cloud model, and also extend the duration of its
capital structure maturity profile. Other than the 2023 convertible
notes, Avaya does not have any material funded debt maturity until
calendar 2027 and 2028. Avaya is currently engaging with advisors
to assess its options to address the 2023 convertible notes.
- Avaya announced cost-cutting measures of $225 million to $250
million on July 28, 2022. Net of estimated restructuring costs,
these cost-cutting measures are expected to provide net savings of
over $200 million. The Company has already commenced
operationalizing these savings and expects them to yield
quantifiable savings beginning in the first quarter of fiscal
2023.
Going Concern, Audit Committee Internal Investigations and
Filing Extension for Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2022
As noted above, the Company completed a series of financing
transactions in July 2022, intended in part to provide financing to
fund the repurchase or repayment of the convertible notes, which
mature in June 2023 and accordingly are classified as a current
liability on June 30, 2022. The Company is currently engaging with
its advisors to assess its options with respect to addressing the
2023 convertible notes, but there can be no assurance as to the
certainty of the outcome of that assessment. As a result of the
foregoing, in addition to the Company’s decline in revenues during
the third quarter, which represented substantially lower revenues
than previous Company expectations, and the negative impact of
significant operating losses on the Company's cash balance in the
year to date, as of the date of this release, the Company has
determined that there is substantial doubt about the Company's
ability to continue as a going concern.
The Audit Committee of the Company's Board of Directors has
commenced an internal investigation to review the circumstances
surrounding the Company's financial results for the quarter ended
June 30, 2022.
Furthermore, and separately, the Audit Committee has also
commenced an internal investigation to review matters related to a
whistleblower letter.
The Audit Committee has engaged outside counsel to assist in the
investigations and has notified the Securities and Exchange
Commission (the "SEC") and the Company’s external auditor,
PricewaterhouseCoopers LLP, of its investigations. As the
investigations are not complete, the Audit Committee requires
additional time to complete its initial assessments. As a result,
the Company requires additional time to complete its review of its
financial statements and finalize its disclosures in the Form 10-Q.
Accordingly, the Company will be unable to file its Form 10-Q on or
prior to the required filing date and has filed a Form 12b-25
Notification of Late Filing for its Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2022.
Video Conference and Webcast
Avaya will host a live webcast and video conference to discuss
its preliminary financial results at 8:30 AM Eastern Time on August
9, 2022. To access the live conference call by phone, listeners
should dial +1-888-660-6347 toll free or +1-929-201-6594, and use
the conference ID: 6784722. 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.
About Avaya
Businesses are built by the experiences they provide, and
everyday millions of those experiences are delivered by Avaya
Holdings Corp. (NYSE: AVYA). Avaya is shaping what's next for the
future of work, with innovation and partnerships that deliver
game-changing business benefits. Our cloud communications solutions
and multi-cloud application ecosystem power personalized,
intelligent, and effortless customer and employee experiences to
help achieve strategic ambitions and desired outcomes. Together, we
are committed to help grow your business by delivering Experiences
that Matter. Learn more at http://www.avaya.com.
Cautionary Note Regarding Preliminary Financial
Information
All financial results for the third quarter ended June 30, 2022
and related comparisons to prior periods included in this release
are preliminary, have not been reviewed or audited, are based upon
the Company's estimates, and were prepared prior to the completion
of the Company's financial statement close process. These selected
preliminary financial results should not be viewed as a substitute
for the Company's full third quarter results and do not present all
information necessary for an understanding of the Company's
financial performance as of June 30, 2022, and should not be
considered final until the Company files its Quarterly Report on
Form 10-Q for the quarter ended June 30, 2022. During the course of
the preparation of the Company's financial statements as of and for
the three and nine months ended June 30, 2022, the Company may
identify items that could cause its final reported results to be
materially different from the preliminary financial information set
forth in this release. Accordingly, undue reliance should not be
placed on this preliminary data.
Cautionary Note Regarding Forward-Looking Statements
This release 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. The Company has
based these forward-looking statements on its current expectations,
assumptions, estimates and projections. These statements, including
the Company’s outlook, do not include the potential impact of any
business combinations, asset acquisitions, divestitures, strategic
investments or other strategic transactions completed after the
date hereof. 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. Risks and uncertainties that may cause these
forward-looking statements to be inaccurate include, among others:
the finalization of the Company's third quarter financial
statements; the findings of the Audit Committee’s investigations;
the effectiveness of the Company’s internal control over financial
reporting and disclosure controls and procedures, and the potential
for a material weaknesses in the Company’s internal controls over
financial reporting or other potential weaknesses of which the
Company is not currently aware or which have not been detected; the
Company’s ability to continue as a going concern; the impact of
litigation and regulatory proceedings; the impact and timing of any
cost-savings measures; the termination or modification of current
contracts which could impair attainment of our OneCloud ARR metric;
the duration, severity and impact of the coronavirus pandemic
("COVID-19"); the impact of the Russia/Ukraine conflict on the
global economy and our business, including impacts from related
sanctions and export controls imposed by the U.S., UK and the EU on
certain industries and Russian parties as a result of the conflict,
as well as responses by the governments of Russia or other
jurisdictions; and other factors discussed in the Company's Annual
Report on Form 10-K and subsequent quarterly reports on Form 10-Q
filed with the Securities and Exchange Commission (the "SEC").
These risks and uncertainties may cause the Company’s actual
results, performance, liquidity or achievements to differ
materially from any future results, performance, liquidity 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.
Preliminary Condensed
Consolidated Statements of Operations (Unaudited)
(In millions, except per share
amounts)
Three months ended June
30,
Nine months ended June
30,
2022
2021
2022
2021
REVENUE
Products
$
169
$
254
$
623
$
746
Services
408
478
1,383
1,467
577
732
2,006
2,213
COSTS
Products:
Costs
95
98
325
295
Amortization of technology intangible
assets
35
43
112
129
Services
188
184
570
554
318
325
1,007
978
GROSS PROFIT
259
407
999
1,235
OPERATING EXPENSES
Selling, general and administrative
236
266
743
785
Research and development
53
55
174
167
Amortization of intangible assets
39
40
119
119
Impairment charges(1)
1,272
—
1,272
—
Restructuring charges, net
12
5
22
17
1,612
366
2,330
1,088
OPERATING (LOSS) INCOME
(1,353
)
41
(1,331
)
147
Interest expense
(54
)
(54
)
(162
)
(169
)
Other income, net
13
10
37
11
LOSS BEFORE INCOME TAXES
(1,394
)
(3
)
(1,456
)
(11
)
(Provision for) benefit from income
taxes(2)
(14
)
46
(19
)
(8
)
NET (LOSS) INCOME
$
(1,408
)
$
43
$
(1,475
)
$
(19
)
(LOSS) EARNINGS PER SHARE
Basic
$
(16.27
)
$
0.45
$
(17.27
)
$
(0.26
)
Diluted
$
(16.27
)
$
0.43
$
(17.27
)
$
(0.26
)
Weighted average shares outstanding
Basic
86.6
84.9
85.6
84.4
Diluted
86.6
88.0
85.6
84.4
- The Company’s interim impairment tests as of June 30, 2022
indicated that the carrying amount of the Company’s
indefinite-lived intangible asset, the Avaya Trade Name, and its
Services reporting unit exceeded their respective estimated fair
values. As a result, the preliminary financial statements reflect
impairment charges of $1,272 million and the Company expects to
record impairment charges between $1,272 million to $1,804 million
related to the Company's indefinite-lived intangible asset and
goodwill during the three and nine months ended June 30, 2022.
- During the three months ended June 30, 2022, the Company
recorded an increase to (Provision for) benefit from income taxes
of $(9) million on the Condensed Consolidated Statements of
Operations and an increase in Other liabilities of $8 million and a
reduction of Deferred income taxes, net of $1 million on the
Condensed Consolidated Balance Sheets to correct an understatement
of its tax liability in previous periods. The Company concluded
that the error was not material to any prior period financial
statements and the correction of the error was not material to the
current period financial statements.
Avaya Holdings Corp.
Preliminary Condensed
Consolidated Balance Sheets (Unaudited)
(In millions, except per share
and shares amounts)
June 30, 2022
September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
217
$
498
Accounts receivable, net
305
307
Inventory
50
51
Contract assets, net
639
518
Contract costs
118
117
Other current assets
111
100
TOTAL CURRENT ASSETS
1,440
1,591
Property, plant and equipment, net
300
295
Deferred income taxes, net
30
40
Intangible assets, net
1,903
2,235
Goodwill
296
1,480
Operating lease right-of-use assets
104
135
Other assets
264
209
TOTAL ASSETS
$
4,337
$
5,985
LIABILITIES
Current liabilities:
Debt maturing within one year
$
327
$
—
Accounts payable
313
295
Payroll and benefit obligations
121
193
Contract liabilities
264
360
Operating lease liabilities
41
49
Business restructuring reserves
14
19
Other current liabilities
139
181
TOTAL CURRENT LIABILITIES
1,219
1,097
Non-current liabilities:
Long-term debt
2,507
2,813
Pension obligations
570
648
Other post-retirement obligations
149
153
Deferred income taxes, net
45
53
Contract liabilities
315
305
Operating lease liabilities
78
102
Business restructuring reserves
16
25
Other liabilities
234
267
TOTAL NON-CURRENT LIABILITIES
3,914
4,366
TOTAL LIABILITIES
5,133
5,463
Commitments and contingencies
Preferred stock, $0.01 par value;
55,000,000 shares authorized at June 30, 2022 and September 30,
2021
Convertible series A preferred stock;
125,000 shares issued and outstanding at June 30, 2022 and
September 30, 2021
132
130
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, $0.01 par value; 550,000,000
shares authorized; 86,846,958 shares issued and outstanding at June
30, 2022; and 84,115,602 shares issued and outstanding at September
30, 2021
1
1
Additional paid-in capital
1,502
1,467
Accumulated deficit
(2,460
)
(985
)
Accumulated other comprehensive income
(loss)
29
(91
)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY
(928
)
392
TOTAL LIABILITIES, PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
$
4,337
$
5,985
Avaya Holdings Corp.
Preliminary Condensed
Statements of Cash Flows
(Unaudited; in
millions)
Nine months ended June
30,
(In millions)
2022
2021
Net cash (used for) provided by:
Operating activities
$
(198
)
$
35
Investing activities
(80
)
(78
)
Financing activities
2
(126
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(5
)
4
Net decrease in cash, cash equivalents,
and restricted cash
(281
)
(165
)
Cash, cash equivalents, and restricted
cash at beginning of period
502
731
Cash, cash equivalents, and restricted
cash at end of period
$
221
$
566
Avaya Holdings Corp.
Preliminary Supplemental
Schedule of Revenue by Segment and Geography
(Unaudited; in
millions)
Three months ended June
30,
Change
Three months ended March 31,
2022
2022
2021
Amount
Pct.
Pct., net of fx impact
Revenue by Segment
Products & Solutions
$
169
$
254
$
(85
)
(33
) %
(32
) %
$
223
Services
408
478
(70
)
(15
) %
(13
) %
493
Total revenue
$
577
$
732
$
(155
)
(21
) %
(20
) %
$
716
Revenue by Geography
U.S.
$
316
$
418
$
(102
)
(24
) %
(24
) %
$
422
International:
Europe, Middle East and Africa
148
181
(33
)
(18
) %
(14
) %
175
Asia Pacific
63
72
(9
)
(13
) %
(10
) %
67
Americas International - Canada and Latin
America
50
61
(11
)
(18
) %
(16
) %
52
Total International
261
314
(53
)
(17
) %
(13
) %
294
Total revenue
$
577
$
732
$
(155
)
(21
) %
(20
) %
$
716
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
(loss). 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 gross margin, non-GAAP
operating income, non-GAAP operating margin, non-GAAP net income
and non-GAAP earnings per share 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, 2021), unless
otherwise noted.
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 a measure often 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
fourth quarter and full year fiscal 2022 non-GAAP gross margin,
non-GAAP operating expenses, non-GAAP operating income, non-GAAP
operating margin, non-GAAP earnings per share 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.
Avaya Holdings Corp.
Preliminary Supplemental
Schedules of Non-GAAP Adjusted EBITDA
(Unaudited; in
millions)
Three months ended,
June 30, 2022
March 31, 2022
June 30, 2021
Net (loss) income
$
(1,408
)
$
(1
)
$
43
Interest expense
54
54
54
Interest income
(1
)
(1
)
—
Provision for (benefit from) income
taxes
14
(13
)
(46
)
Depreciation and amortization
103
99
105
EBITDA
(1,238
)
138
156
Impact of fresh start accounting
adjustments(1)
1
—
1
Restructuring charges(2)
11
3
5
Advisory fees(3)
8
—
—
Acquisition-related costs
—
—
2
Share-based compensation
6
14
14
Impairment charges(4)
1,272
—
—
Pension and post-retirement benefit
costs
(1
)
(1
)
(1
)
Change in fair value of Emergence Date
Warrants
(1
)
(7
)
—
Gain on foreign currency transactions
(4
)
(2
)
(4
)
Adjusted EBITDA
$
54
$
145
$
173
- The impact of fresh start accounting adjustments in connection
with the Company's emergence from bankruptcy.
- Restructuring charges represent employee separation costs and
facility exit costs (excluding the impact of accelerated
depreciation expense) related to the Company's restructuring
programs, net of sublease income.
- Advisory fees represent costs incurred to assist in the
assessment of strategic and financial alternatives to improve the
Company's capital structure.
- The Company’s interim impairment tests as of June 30, 2022
indicated that the carrying amount of the Company’s
indefinite-lived intangible asset, the Avaya Trade Name, and its
Services reporting unit exceeded their respective estimated fair
values. As a result, the preliminary financial statements reflect
impairment charges of $1,272 million and the Company expects to
record impairment charges between $1,272 million to $1,804 million
related to the Company's indefinite-lived intangible asset and
goodwill during the three months ended June 30, 2022.
Avaya Holdings Corp.
Preliminary Supplemental
Schedules of Non-GAAP (Loss) Earnings per Share
(Unaudited; in
millions)
Three months ended,
June 30, 2022
March 31, 2022
June 30, 2021
GAAP Net (Loss) Income
$
(1,408
)
$
(1
)
$
43
Non-GAAP Adjustments:
Impact of fresh start accounting(1)
1
—
1
Restructuring charges, net(2)
12
3
5
Advisory fees(3)
8
—
—
Acquisition-related costs
—
—
2
Share-based compensation
6
14
14
Impairment charges(4)
1,272
—
—
Pension and post-retirement benefit
costs
(1
)
(1
)
(1
)
Change in fair value of Emergence Date
Warrants
(1
)
(7
)
—
Gain on foreign currency transactions
(4
)
(2
)
(4
)
Amortization of intangible assets
74
75
83
Income tax expense effects(5)
21
(30
)
(70
)
Non-GAAP Net (Loss) Income
$
(20
)
$
51
$
73
Dividends and accretion to preferred
stockholders
(1
)
(1
)
(1
)
Undistributed Non-GAAP (Loss) Income
$
(21
)
$
50
$
72
Percentage allocated to common
stockholders(6)
100.0
%
91.3
%
91.3
%
Numerator for Non-GAAP diluted (loss)
earnings per common share
$
(21
)
$
46
$
66
Diluted Weighted Average Shares - GAAP
86.6
85.6
88.0
Share adjustment(7)
—
1.2
(0.2
)
Diluted Weighted Average Shares -
Non-GAAP
86.6
86.8
87.8
GAAP (Loss) Earnings per Share -
Diluted
$
(16.27
)
$
(0.02
)
$
0.43
Non-GAAP (Loss) Earnings per Share -
Diluted
$
(0.24
)
$
0.53
$
0.75
- The impact of fresh start accounting adjustments in connection
with the Company's emergence from bankruptcy.
- Restructuring charges, net represent employee separation costs
and facility exit costs related to the Company's restructuring
programs, net of sublease income.
- Advisory fees represent costs incurred to assist in the
assessment of strategic and financial alternatives to improve the
Company's capital structure.
- The Company’s interim impairment tests as of June 30, 2022
indicated that the carrying amount of the Company’s
indefinite-lived intangible asset, the Avaya Trade Name, and its
Services reporting unit exceeded their respective estimated fair
values. As a result, the preliminary financial statements reflect
impairment charges of $1,272 million and the Company expects to
record impairment charges between $1,272 million to $1,804 million
related to the Company's indefinite-lived intangible asset and
goodwill during the three months ended June 30, 2022
- The Company’s calculation of non-GAAP income taxes reflects a
25% fixed non-GAAP effective tax rate based on a blended U.S.
federal and state tax rate, given the Company’s operating
structure. The non-GAAP effective tax rate may differ significantly
from the GAAP effective tax rate. The non-GAAP effective tax rate
could be subject to change for a number of reasons, including but
not limited to, changes resulting from tax legislation, material
changes in revenues or expenses and other significant events. The
Company will continuously assess its estimated non-GAAP effective
tax rate in connection with its calculation of non-GAAP net income
and non-GAAP net income per diluted share in future periods.
- The Company's preferred shares are participating securities,
which requires the application of the two-class method to calculate
diluted earnings per share. Under the two-class method,
undistributed earnings are allocated to common stock and
participating securities according to their respective
participating rights in undistributed earnings. The percentage
allocated to common stockholders reflects the proportion of
weighted average common stock outstanding to the weighted average
of common stock and common stock equivalents (preferred
shares).
- In periods with a GAAP net loss, the share adjustment reflects
the dilutive impact of certain securities, which are excluded from
the computation of diluted GAAP loss per share as their effect
would be anti-dilutive. In periods during which our convertible
notes have a dilutive impact on GAAP diluted shares outstanding,
the share adjustment also includes the impact of our bond hedge
transaction which is anti-dilutive in diluted GAAP earnings per
share but is expected to mitigate the dilutive effect of our
convertible notes and therefore are included in the calculations of
non-GAAP diluted shares outstanding.
Avaya Holdings Corp.
Preliminary Supplemental
Schedules of Non-GAAP Reconciliations of Gross Margin and Operating
(Loss) Income
(Unaudited; in
millions)
Three months ended,
June 30, 2022
March 31, 2022
June 30, 2021
Reconciliation of Non-GAAP Gross Profit
and Non-GAAP Gross Margin
Gross Profit
$
259
$
371
$
407
Items excluded:
Amortization of technology intangible
assets
35
35
43
Non-GAAP Gross Profit
$
294
$
406
$
450
GAAP Gross Margin
44.9
%
51.8
%
55.6
%
Non-GAAP Gross Margin
51.0
%
56.7
%
61.5
%
Reconciliation of Non-GAAP Operating
(Loss) Income
Operating (Loss) Income
$
(1,353
)
$
23
$
41
Items excluded:
Adj. for fresh start accounting
1
—
1
Amortization of intangible assets
74
75
83
Advisory fees
8
—
—
Acquisition-related costs
—
—
2
Restructuring charges, net
12
3
5
Share-based compensation
6
14
14
Impairment charges
1,272
—
—
Non-GAAP Operating Income
$
20
$
115
$
146
GAAP Operating Margin
(234.5
) %
3.2
%
5.6
%
Non-GAAP Operating Margin
3.5
%
16.1
%
19.9
%
Avaya Holdings Corp.
Preliminary Supplemental
Schedules of Non-GAAP Reconciliation of Gross Profit and Gross
Margin by Portfolio
(Unaudited; in
millions)
Three months ended,
June 30, 2022
March 31, 2022
June 30, 2021
Reconciliation of Non-GAAP Gross Profit
and Non-GAAP Gross Margin - Products & Solutions
Revenue
$
169
$
223
$
254
Costs
95
119
98
Amortization of technology intangible
assets
35
35
43
GAAP Gross Profit
39
69
113
Items excluded:
Amortization of technology intangible
assets
35
35
43
Non-GAAP Gross Profit
$
74
$
104
$
156
GAAP Gross Margin
23.1
%
30.9
%
44.5
%
Non-GAAP Gross Margin
43.8
%
46.6
%
61.4
%
Reconciliation of Non-GAAP Gross Profit
and Non-GAAP Gross Margin - Services
Revenue
$
408
$
493
$
478
Costs
188
191
184
GAAP Gross Profit
220
302
294
Items excluded:
Non-GAAP Gross Profit
$
220
$
302
$
294
GAAP Gross Margin
53.9
%
61.3
%
61.5
%
Non-GAAP Gross Margin
53.9
%
61.3
%
61.5
%
Avaya Holdings Corp.
Preliminary Supplemental
Schedules of Free Cash Flow
(Unaudited; in
millions)
Three months ended,
June 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sept. 30, 2021
June 30, 2021
Net cash (used for) provided by operating
activities
$
(85
)
$
(2
)
$
(111
)
$
(5
)
$
11
Less:
Capital expenditures
28
25
27
28
25
Free cash flow
$
(113
)
$
(27
)
$
(138
)
$
(33
)
$
(14
)
Source: Avaya Newsroom
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220809005519/en/
Media Inquiries: Alex Alias alalias@avaya.com
Investor Inquiries: Tyler Chambers investors@avaya.com
Avaya (NYSE:AVYA)
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