Avaya updated reported financial results for the third fiscal quarter ended June 30, 2017. The company tests long-lived assets for impairment annually as of July 1, or more frequently if events occur or circumstances change that indicate an asset may be impaired. The assessment, which is historically completed in September, indicated impairment of an indefinite-lived intangible asset. Since the assessment was based on a forecast completed before the end of third quarter fiscal 2017, the impairment is therefore recorded in the third quarter. We believe that all other items in the financial statements are materially correct and in accordance with U.S. GAAP. There is no impact to the adjusted EBITDA. The financial tables below reflect these updates to the financial results.
Avaya Inc. | ||||||||||||||||||
(Debtor-in-possession) | ||||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||||
(Unaudited; in millions) | ||||||||||||||||||
Three months ended June 30, |
Nine months ended June 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||||
REVENUE | ||||||||||||||||||
Products | $ | 345 | $ | 398 | $ | 1,094 | $ | 1,286 | ||||||||||
Services | 458 | 484 | 1,388 | 1,458 | ||||||||||||||
803 | 882 | 2,482 | 2,744 | |||||||||||||||
COSTS | ||||||||||||||||||
Products: | ||||||||||||||||||
Costs (exclusive of amortization of acquired technology intangible assets) | 122 | 141 | 395 | 461 | ||||||||||||||
Amortization of acquired technology intangible assets | 5 | 7 | 16 | 22 | ||||||||||||||
Services | 186 | 192 | 567 | 599 | ||||||||||||||
313 | 340 | 978 | 1,082 | |||||||||||||||
GROSS PROFIT | 490 | 542 | 1,504 | 1,662 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||
Selling, general and administrative | 357 | 317 | 994 | 1,027 | ||||||||||||||
Research and development | 60 | 66 | 181 | 211 | ||||||||||||||
Amortization of acquired intangible assets | 57 | 57 | 170 | 170 | ||||||||||||||
Impairment of indefinite-lived intangible assets | 65 | – | 65 | – | ||||||||||||||
Goodwill impairment | 52 | – | 52 | – | ||||||||||||||
Restructuring charges, net | 8 | 44 | 22 | 88 | ||||||||||||||
599 | 484 | 1,484 | 1,496 | |||||||||||||||
OPERATING (LOSS) INCOME | (109 | ) | 58 | 20 | 166 | |||||||||||||
Interest expense | (17 | ) | (117 | ) | (229 | ) | (352 | ) | ||||||||||
Other income, net | 3 | 1 | 2 | 7 | ||||||||||||||
Reorganization costs, net | (35 | ) | – | (77 | ) | – | ||||||||||||
LOSS BEFORE INCOME TAXES | (158 | ) | (58 | ) | (284 | ) | (179 | ) | ||||||||||
Benefit from (provision for) income taxes | 12 | (57 | ) | 30 | (66 | ) | ||||||||||||
NET LOSS | $ | (146 | ) | $ | (115 | ) | $ | (254 | ) | $ | (245 | ) |
Avaya Inc. | |||||||||
(Debtor-in-possession) | |||||||||
Consolidated Balance Sheets | |||||||||
(Unaudited; in millions) | |||||||||
June 30, 2017 |
September 30, 2016 |
||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 729 | $ | 336 | |||||
Accounts receivable, net | 469 | 584 | |||||||
Inventory | 101 | 153 | |||||||
Other current assets | 264 | 187 | |||||||
Assets held for sale | 134 | – | |||||||
TOTAL CURRENT ASSETS | 1,697 | 1,260 | |||||||
Property, plant and equipment, net | 205 | 253 | |||||||
Acquired intangible assets, net | 349 | 617 | |||||||
Goodwill | 3,541 | 3,629 | |||||||
Other assets | 74 | 62 | |||||||
TOTAL ASSETS | $ | 5,866 | $ | 5,821 | |||||
LIABILITIES | |||||||||
Current liabilities: | |||||||||
Debt maturing within one year | $ | 725 | $ | 6,018 | |||||
Accounts payable | 253 | 338 | |||||||
Payroll and benefit obligations | 113 | 183 | |||||||
Deferred revenue | 538 | 705 | |||||||
Business restructuring reserve, current portion | 39 | 69 | |||||||
Other current liabilities | 89 | 267 | |||||||
Liabilities held for sale | 54 | – | |||||||
TOTAL CURRENT LIABILITIES | 1,811 | 7,580 | |||||||
Liabilities subject to compromise | 7,904 | – | |||||||
Pension obligations | 563 | 1,743 | |||||||
Other postretirement obligations | – | 245 | |||||||
Deferred income taxes, net | 31 | 169 | |||||||
Business restructuring reserve, non-current portion | 37 | 65 | |||||||
Other liabilities | 155 | 439 | |||||||
TOTAL NON-CURRENT LIABILITIES | 8,690 | 2,661 | |||||||
Commitments and contingencies | |||||||||
STOCKHOLDER'S DEFICIENCY | |||||||||
Common stock | – | – | |||||||
Additional paid-in capital | 2,976 | 2,966 | |||||||
Accumulated deficit | (5,979 | ) | (5,725 | ) | |||||
Accumulated other comprehensive loss | (1,632 | ) | (1,661 | ) | |||||
TOTAL STOCKHOLDER'S DEFICIENCY | (4,635 | ) | (4,420 | ) | |||||
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY | $ | 5,866 | $ | 5,821 |
Avaya Inc. | ||||||||||
(Debtor-in-possession) | ||||||||||
Condensed Statements of Cash Flows | ||||||||||
(Unaudited; in millions) | ||||||||||
Nine months ended June 30, |
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2017 | 2016 | |||||||||
Net cash (used for) provided by: | ||||||||||
Net loss | $ | (254 | ) | $ | (245 | ) | ||||
Adjustments to net loss for non-cash items | 448 | 296 | ||||||||
Changes in operating assets and liabilities | (69 | ) | (21 | ) | ||||||
Operating activities | 125 | 30 | ||||||||
Investing activities | (120 | ) | (80 | ) | ||||||
Financing activities | 387 | 3 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 1 | (7 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 393 | (54 | ) | |||||||
Cash and cash equivalents at beginning of period | 336 | 323 | ||||||||
Cash and cash equivalents at end of period | $ | 729 | $ | 269 |
Avaya Inc. | ||||||||||||||||||||||||||||||||
(Debtor-in-possession) | ||||||||||||||||||||||||||||||||
Supplemental Schedules of Revenue | ||||||||||||||||||||||||||||||||
(Unaudited; in millions) | ||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
Revenues | Mix | Change | ||||||||||||||||||||||||||||||
Sept. 30, 2016 | Dec. 31, 2016 | Mar. 31, 2017 | 2017 | 2016 | 2017 | 2016 | Amount | Pct. | Pct., net of FX impact | |||||||||||||||||||||||
Revenue by Segment | ||||||||||||||||||||||||||||||||
$ | 397 | $ | 346 | $ | 309 | GCS | $ | 302 | $ | 356 | 38 | % | 40 | % | $ | (54 | ) | -15 | % | -15 | % | |||||||||||
72 | 55 | 39 | Networking | 43 | 42 | 5 | % | 5 | % | 1 | 2 | % | 2 | % | ||||||||||||||||||
469 | 401 | 348 | Total ECS product revenue | 345 | 398 | 43 | % | 45 | % | (53 | ) | -13 | % | -13 | % | |||||||||||||||||
489 | 474 | 456 | AGS | 458 | 484 | 57 | % | 55 | % | (26 | ) | -5 | % | -5 | % | |||||||||||||||||
$ | 958 | $ | 875 | $ | 804 | Total revenue | $ | 803 | $ | 882 | 100 | % | 100 | % | $ | (79 | ) | -9 | % | -8 | % | |||||||||||
Revenue by Geography | ||||||||||||||||||||||||||||||||
$ | 552 | $ | 466 | $ | 450 | U.S. | $ | 435 | $ | 487 | 54 | % | 55 | % | $ | (52 | ) | -11 | % | -11 | % | |||||||||||
International: | ||||||||||||||||||||||||||||||||
217 | 234 | 202 | EMEA | 204 | 206 | 25 | % | 23 | % | (2 | ) | -1 | % | 0 | % | |||||||||||||||||
104 | 90 | 77 | APAC – Asia Pacific | 88 | 102 | 11 | % | 12 | % | (14 | ) | -14 | % | -14 | % | |||||||||||||||||
85 | 85 | 75 | Americas International – Canada and Latin America | 76 | 87 | 10 | % | 10 | % | (11 | ) | -13 | % | -11 | % | |||||||||||||||||
406 | 409 | 354 | Total International | 368 | 395 | 46 | % | 45 | % | (27 | ) | -7 | % | -6 | % | |||||||||||||||||
$ | 958 | $ | 875 | $ | 804 | Total revenue | $ | 803 | $ | 882 | 100 | % | 100 | % | $ | (79 | ) | -9 | % | -8 | % | |||||||||||
The following tables reconcile GAAP measures to non-GAAP measures:
Avaya Inc. | ||||||||||||||||||
(Debtor-in-possession) | ||||||||||||||||||
Supplemental Schedule of Non-GAAP Adjusted EBITDA | ||||||||||||||||||
(Unaudited; in millions) | ||||||||||||||||||
Three months ended June 30, |
Nine months ended June 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||||
Net loss | $ | (146 | ) | $ | (115 | ) | $ | (254 | ) | $ | (245 | ) | ||||||
Interest expense | 17 | 117 | 229 | 352 | ||||||||||||||
Interest income | (1 | ) | (1 | ) | (2 | ) | (1 | ) | ||||||||||
(Benefit from) provision for income taxes | (12 | ) | 57 | (30 | ) | 66 | ||||||||||||
Depreciation and amortization | 85 | 93 | 263 | 277 | ||||||||||||||
EBITDA | (57 | ) | 151 | 206 | 449 | |||||||||||||
Restructuring charges, net | 8 | 44 | 22 | 88 | ||||||||||||||
Sponsors' and other advisory fees | 18 | 9 | 82 | 15 | ||||||||||||||
Acquisition and integration-related costs | 1 | 1 | 1 | 2 | ||||||||||||||
Third-party sales transformation costs | – | – | – | 5 | ||||||||||||||
Reorganization items, net | 35 | – | 77 | – | ||||||||||||||
Non-cash share-based compensation | 4 | 4 | 10 | 12 | ||||||||||||||
Impairment of indefinite-lived intangible assets | 65 | – | 65 | – | ||||||||||||||
Goodwill impairment | 52 | – | 52 | – | ||||||||||||||
Impairment of long-lived asset | 3 | – | 3 | – | ||||||||||||||
Costs in connection with certain legal matters | 53 | 2 | 53 | 53 | ||||||||||||||
Foreign currency gains, net | (2 | ) | (1 | ) | (1 | ) | (10 | ) | ||||||||||
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs | 24 | 13 | 70 | 42 | ||||||||||||||
Other | – | – | 1 | – | ||||||||||||||
Adjusted EBITDA | $ | 204 | $ | 223 | $ | 641 | $ | 656 |
Avaya Inc. | ||||||||||||||||||||||
(Debtor-in-possession) | ||||||||||||||||||||||
Supplemental Schedules of Non-GAAP Reconciliations | ||||||||||||||||||||||
(Unaudited; in millions) | ||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||
June 30, | Sept. 30, | Dec. 31, | Mar. 31 | June 30 | ||||||||||||||||||
2016 | 2016 | 2016 | 2017 | 2017 | ||||||||||||||||||
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin | ||||||||||||||||||||||
Gross Profit | $ | 542 | $ | 583 | $ | 533 | $ | 481 | $ | 490 | ||||||||||||
Gross Margin | 61.5 | % | 60.9 | % | 60.9 | % | 59.8 | % | 61.0 | % | ||||||||||||
Items excluded: | ||||||||||||||||||||||
Amortization of acquired technology intangible assets | 7 | 8 | 5 | 6 | 5 | |||||||||||||||||
Share-based compensation | – | 1 | – | – | – | |||||||||||||||||
Costs in connection with certain legal matters | 1 | – | – | – | – | |||||||||||||||||
Non-GAAP Gross Profit | $ | 550 | $ | 592 | $ | 538 | $ | 487 | $ | 495 | ||||||||||||
Non-GAAP Gross Margin | 62.4 | % | 61.8 | % | 61.5 | % | 60.6 | % | 61.6 | % | ||||||||||||
Reconciliation of Non-GAAP Operating Income | ||||||||||||||||||||||
Operating Income (Loss) | $ | 58 | $ | (428 | ) | $ | 65 | $ | 64 | $ | (109 | ) | ||||||||||
Percentage of Revenue | 6.6 | % | -44.7 | % | 7.4 | % | 8.0 | % | -13.6 | % | ||||||||||||
Items excluded: | ||||||||||||||||||||||
Amortization of acquired intangible assets | 64 | 64 | 62 | 62 | 62 | |||||||||||||||||
Restructuring charges, net | 44 | 17 | 10 | 4 | 8 | |||||||||||||||||
Acquisition and integration-related costs | 1 | – | – | – | – | |||||||||||||||||
Impairment charges | – | 542 | – | – | 120 | |||||||||||||||||
Advisory fees | 7 | 27 | 48 | 14 | 18 | |||||||||||||||||
Share-based compensation | 4 | 7 | 2 | 4 | 4 | |||||||||||||||||
Costs in connection with certain legal matters | 2 | – | – | – | 53 | |||||||||||||||||
Non-GAAP Operating Income | $ | 180 | $ | 229 | $ | 187 | $ | 148 | $ | 156 | ||||||||||||
Non-GAAP Operating Margin | 20.4 | % | 23.9 | % | 21.4 | % | 18.4 | % | 19.4 | % |
Avaya Inc. | ||||||||||||||||||||||
(Debtor-in-possession) | ||||||||||||||||||||||
Supplemental Schedules of Non-GAAP Reconciliation of Gross Profit and Gross Margin by Portfolio | ||||||||||||||||||||||
(Unaudited; in millions) | ||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||
June 30, | Sept. 30, | Dec. 31, | Mar. 31, | June 30, | ||||||||||||||||||
2016 | 2016 | 2016 | 2017 | 2017 | ||||||||||||||||||
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin – Products | ||||||||||||||||||||||
Revenue | $ | 398 | $ | 469 | $ | 401 | $ | 348 | $ | 345 | ||||||||||||
Costs (exclusive of amortization of acquired technology intangible assets) | 141 | 169 | 146 | 127 | 122 | |||||||||||||||||
Amortization of acquired technology intangible assets | 7 | 8 | 5 | 6 | 5 | |||||||||||||||||
GAAP Gross Profit | 250 | 292 | 250 | 215 | 218 | |||||||||||||||||
GAAP Gross Margin | 62.8 | % | 62.3 | % | 62.3 | % | 61.8 | % | 63.2 | % | ||||||||||||
Items excluded: | ||||||||||||||||||||||
Amortization of acquired technology intangible assets | 7 | 8 | 5 | 6 | 5 | |||||||||||||||||
Costs in connection with certain legal matters | 1 | – | – | – | – | |||||||||||||||||
Non-GAAP Gross Profit | $ | 258 | $ | 300 | $ | 255 | $ | 221 | $ | 223 | ||||||||||||
Non-GAAP Gross Margin | 64.8 | % | 64.0 | % | 63.6 | % | 63.5 | % | 64.6 | % | ||||||||||||
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin – Services | ||||||||||||||||||||||
Revenue | $ | 484 | $ | 489 | $ | 474 | $ | 456 | $ | 458 | ||||||||||||
Costs | 192 | 198 | 191 | 190 | 186 | |||||||||||||||||
GAAP Gross Profit | 292 | 291 | 283 | 266 | 272 | |||||||||||||||||
GAAP Gross Margin | 60.3 | % | 59.5 | % | 59.7 | % | 58.3 | % | 59.4 | % | ||||||||||||
Items excluded: | ||||||||||||||||||||||
Share-based and other compensation | – | 1 | – | – | – | |||||||||||||||||
Non-GAAP Gross Profit | $ | 292 | $ | 292 | $ | 283 | $ | 266 | $ | 272 | ||||||||||||
Non-GAAP Gross Margin | 60.3 | % | 59.7 | % | 59.7 | % | 58.3 | % | 59.4 | % | ||||||||||||