SECURITIESANDEXCHANGECOMMISSIONd18rn0p25nwr6d.cloudfront.net/CIK-0001418100/a17e7...• Announced...
Transcript of SECURITIESANDEXCHANGECOMMISSIONd18rn0p25nwr6d.cloudfront.net/CIK-0001418100/a17e7...• Announced...
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
FORM8-K
CURRENTREPORTPURSUANTTOSECTION13OR15(d)OF
THESECURITIESEXCHANGEACTOF1934
Date of Report (Date of earliest event reported): August13,2019
AVAYAHOLDINGSCORP.(Exact Name of Registrant as Specified in its Charter)
Delaware 001-38289 26-1119726(State or Other Jurisdiction of (Commission File Number) (IRS Employer Identification
Incorporation) Number)
4655GreatAmericaParkway SantaClara,California 95054
(Address of Principal Executive Office) (Zip Code)
Registrant’s telephone number, including area code: (908)953-6000N/A
(Former Name or Former Address, if Changed Since Last Report)
____________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Securities registered pursuant to Section 12(b) of the Act:
TitleofEachClass TradingSymbol(s) NameofeachexchangeonwhichregisteredCommon Stock AVYA New York Stock Exchange ("NYSE")
Item2.02.ResultsofOperationsandFinancialCondition
On August 13, 2019 , Avaya Holdings Corp. (the “Company”) issued a press release announcing its financial results for the third quarter of fiscal 2019 ended June 30, 2019. The full text of the press release is furnished as Exhibit 99.1 and isavailable on the Company’s investor relations website at https://investors.avaya.com .
This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or theExchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item7.01.RegulationFDDisclosure
On August 13, 2019 , the Company posted supplementary slides regarding the Company’s financial results for the third quarter of fiscal 2019 ended June 30, 2019 on the Company’s investor relations website at https://investors.avaya.com . Thesupplementary slides are furnished as Exhibit 99.2.
This information shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth byspecific reference in such a filing.
Item9.01FinancialStatementsandExhibits (d) Exhibits
Exhibit ExhibitName
99.1 Press Release, dated August 13, 2019, entitled “Avaya Reports Third Quarter Fiscal 2019 Financial Results”99.2 Supplementary Slides: Avaya Investor Presentation 3Q FY19 - August 13, 2019
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AVAYA HOLDINGS CORP.Date: August 13, 2019 By: /s/ Kieran J. McGrath Name: Kieran J. McGrath Title: Senior Vice President and Chief Financial Officer
Exhibit99.1
MediaInquiries: InvestorInquiries:Alex Alias Michael McCarthy669-242-8034 [email protected] [email protected]
AvayaReportsThirdQuarterFiscal2019FinancialResults
• GAAP revenue of $717 million ; non-GAAP revenue of $720 million
• GAAP operating margin of (85.5)% ; non-GAAP operating margin of 20.1%
• Recorded a non-cash goodwill impairment charge of $657 million
• Public cloud seats increased more than 170% year-over-year
• Awarded two landmark US Government opportunities in August, including one with the Social Security Administration valued at up to $400 million
SantaClara,Calif.- August 13, 2019 - Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the third quarter ended June 30, 2019 .
GAAP Non-GAAP(1)
(In millions, except percentages) Q32019 Q22019 Q32018 Q32019 Q22019 Q32018
Revenue $ 717 $ 709 $ 692 $ 720 $ 714 $ 755Gross margin 54.4 % 54.4% 50.9 % 60.8% 61.5% 61.9%Operating margin (85.5)% 5.4% (7.1)% 20.1% 20.9% 20.0%
"I am pleased with our solid execution and the continued strength in our strategic growth areas, especially in our public and private cloud ReadyNow offers. We believe we are well positioned to capitalize on these long-term
growth opportunities," stated Jim Chirico, President and CEO of Avaya. "The progress we have made drove third quarter financial results toward the high end of our guidance and continued into the fourth quarter as
demonstrated by the two landmark government wins."
Mr. Chirico added, "As an update on the strategic alternatives process we are conducting with J.P. Morgan, at this time we are in advanced discussions with multiple parties on a range of strategic transactions to maximize
shareholder value. We expect to bring this process to a conclusion within the next 30 days."
During the quarter, Avaya recorded a non-cash goodwill impairment charge of $657 million related to the company’s Products & Solutions segment. The charge was taken after an interim assessment prompted by a sustained
decline in the company’s stock price during the period, which the company believes was due to year-to-date financial results and revision of fiscal 2019 guidance. The company’s long-term forecast provided at its December
2018 investor day should no longer be relied upon. Management expects to provide an updated long-term outlook upon completion of the company’s review of its strategic alternatives.
Third Quarter Fiscal 2019 Financial Results (1)
• On October 1, 2018, Avaya adopted the new revenue recognition standard, Accounting Standards Codification 606 ("ASC 606"), using the modified retrospective transition method. Accordingly, results for reporting
periods beginning after September 30, 2018 are presented under ASC 606 while prior period financial information has not been adjusted and continues to be reported in accordance with GAAP that existed prior to the
adoption of ASC 606 ("ASC 605").
• GAAP revenue was $717 million , $8 million higher than the second quarter of fiscal 2019, and $25 million higher than the third quarter of fiscal 2018 ended June 30, 2018 . Non-GAAP revenue (1) was $720 million , $6
million higher than the second quarter of fiscal 2019, and $35 million lower than the third quarter of fiscal 2018.
• GAAP gross margin was 54.4% , compared to 54.4% for the second quarter of fiscal 2019 and 50.9% for the third quarter of fiscal 2018. Non-GAAP gross margin (1) was 60.8% , compared to 61.5% for the second
quarter of fiscal 2019 and 61.9% for the third quarter of fiscal 2018.
• GAAP operating loss was $613 million , primarily as a result of the aforementioned impairment charge, compared to GAAP operating income of $38 million for the second quarter of fiscal 2019 and an operating loss of
$49 million for the third quarter of fiscal 2018. Non-GAAP operating income (1) was $145 million , compared to $149 million for the second quarter of fiscal 2019, and $151 million for the third quarter of fiscal 2018.
• GAAP net loss was $633 million , primarily as a result of the aforementioned impairment charge, compared to GAAP net loss of $13 million for the second quarter of fiscal 2019, and GAAP net loss of $88 million for
the third quarter of fiscal 2018.
• Adjusted EBITDA (1) was $167 million or 23.2% of non-GAAP revenue, compared to adjusted EBITDA of $166 million , or 23.2% of non-GAAP revenue, for the second quarter of fiscal 2019 and $175 million , or
23.2% of non-GAAP revenue, for the third quarter of fiscal 2018 .
• Cash provided by operating activities was $52 million , compared to cash provided by operating activities of $37 million for the second quarter of fiscal 2019 and cash provided by operating activities of $83 million for
the third quarter of fiscal 2018.
• At the end of the third quarter of fiscal 2019, cash and cash equivalents totaled $729 million , compared to $735 million at the end of the second quarter of fiscal 2019 and $685 million at the end of the third quarter of
fiscal 2018.
ThirdQuarterFiscal2019BusinessMetrics(1)
• Total Contract Value (TCV) of $2.4 billion *
• 84% of non-GAAP revenue was Software & Services
• 60% of non-GAAP product revenue was Software
• 59% of non-GAAP revenue was Recurring
• Added approximately 1,400 new logos
• Generated $52 million in cash flow from operations, $15 million in free cash flow (1)
(1) Non-GAAP revenue, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA and free cash flow are not measures calculated in accordancewith generally accepted accounting principles in the U.S. ("GAAP"). Refer to the Supplemental Financial Information accompanying this press release for more information, including a reconciliation of these measures to themost closely comparable measure calculated in accordance with GAAP.
* We define TCV as the value of all active ratable contracts that have not been recognized as revenue, including both billed and unbilled backlog.
ThirdQuarterFiscal2019CompanyHighlights
• In August, Avaya was awarded two landmark US Government opportunities. Avaya, along with its service provider partner, was selected by the Social Security Administration to modernize the agency’s UC and CC
infrastructure in a 10-year deal valued at up to $400 million. The second is a multi-year award to provide secure FedRamp Certified Cloud services across several agencies that could be worth up to several hundred
million dollars.
• Avaya was selected by Intel for Intel’s AI Builders Program. Intel and Avaya engineers are now jointly engaged at deep technical levels to improve the performance and scale of Avaya’s AI solutions, such as Avaya
Conversational Intelligence, when deployed on Intel hardware.
• Announced partnership with Tenfold to help customers integrate their Avaya contact center with leading CRM providers such as Salesforce, Microsoft and ServiceNow.
• Announced partnership with Even Flow Distribution, a leading South African based value-added distributor of unified communication, telecom, video conferencing, wireless and networking technology, to bring its
solutions to market. Even Flow Distribution will supply and support Avaya’s contact center and unified communications solutions, with a particular focus on Avaya IP Office.
• Announced that Avaya IX Workplace unified communications solutions for the enterprise can now deliver emergency data to public safety agencies through an integration with 911 Secure SENTRY™ and RapidSOS.
• Announced partnership with Standard Chartered Bank to deliver a multi-year client experience transformation project that will enable the bank to more fully align its services with clients’ fast-paced, digitally connected
lives. Using the Avaya OneCloud Private solution enables Standard Chartered Bank to enhance its customers’ experience by using Avaya’s unified communications and contact center solutions being delivered on their
own private cloud.
• Received the 2019 Contact Center Vendor of the Year Award at the Frost & Sullivan 2019 India ICT Awards.
FinancialOutlook-Q4Fiscal2019underASC606
Our financial outlook reflects the adoption of ASC 606, which became effective for Avaya on October 1, 2018. Avaya has adopted ASC 606 using the modified retrospective transition method.
• GAAP revenue of $735 million to $755 million ; non-GAAP revenue of $738 million to $758 million
• GAAP operating income of $37 million to $52 million ; GAAP operating margin of ~ 5% to ~ 7%
• Non-GAAP operating income of $162 million to $177 million ; non-GAAP operating margin of ~ 22% to ~ 23%
• Adjusted EBITDA of $183 million to $198 million ; Adjusted EBITDA margin of ~ 25% to ~ 26%
• Approximately 111 million weighted average shares outstanding
FinancialOutlook-Fiscal2019underASC606
• GAAP revenue of $2.90 billion to $2.92 billion ; non-GAAP revenue of $2.92 billion to $2.94 billion
◦ Cloud and innovation ~ 11% of non-GAAP revenue
• GAAP operating loss of $488 million to $473 million ; GAAP operating margin of ~ (17)% to ~ (16)%
• Non-GAAP operating income of $626 million to $641 million ; non-GAAP operating margin of ~ 21% to ~ 22%
• Adjusted EBITDA of $705 million to $720 million ; Adjusted EBITDA margin of ~ 24%
• Cash flow from operations of ~ 7% of non-GAAP revenue
• Approximately 111 million weighted average shares outstanding
• Cash requirements for restructuring, pension & OPEB, cash taxes, capital spending and net cash interest payments for fiscal year 2019 are expected to be:
◦ Restructuring: $50 million to $55 million
◦ Pension/OPEB: ~ $65 million
◦ Cash Taxes: $55 million to $65 million
◦ Capital Expenditures: ~ $120 million
◦ Net Cash Interest Payments: ~ $200 million
Avaya’s outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments, potential impairments or other significant transactions that may be completed after
August 13, 2019 . Actual results may differ materially from Avaya’s outlook as a result of, among other things, the factors described under "Forward-Looking Statements" below.
ConferenceCallandWebcast
Avaya will host a live webcast and conference call to discuss its financial results at 8:30 a.m. Eastern Time on August 13, 2019 . To access the live conference call by phone, listeners should dial +1-833-224-0545 in the U.S. or
Canada and +1-647-689-4064 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-
800-585-8367 in the U.S. or Canada and +1-416-621-4642 for international callers, using the conference access code: 6988044.
AboutAvaya
Businesses are built on the experiences they provide, and every day millions of those experiences are built by Avaya (NYSE: AVYA). For over one hundred years, we’ve enabled organizations around the globe to win - by
creating intelligent communications experiences for customers and employees. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration - in the cloud, on-premise or a
hybrid of both. To grow your business, we’re committed to innovation, partnership, and a relentless focus on what’s next. We’re the technology company you trust to help you deliver Experiences that Matter. Visit us
at www.avaya.com.
CautionaryNoteRegardingForward-LookingStatements
This document 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 statementsmay 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 and include, but are not limited to, the outlook for the fourth quarter of fiscal 2019 and fiscal year 2019 , including theexpected impact of the adoption of ASC 606, and statements about the Board's exploration of strategic alternatives. The Company has based these forward-looking statements on its current expectations, assumptions, estimatesand
projections. 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 anduncertainties, many of which are beyond its control. Risks and uncertainties that may cause these forward-looking statements to be inaccurate include, among others: the announcement that the Board is exploring strategicalternatives and the potential impact of such announcement on the Company's current or potential customers, partners or personnel; the cost of such exploration and the disruption it may have on the Company's operations,including diverting the attention of the Company's management and employees; and other risks discussed in the Company's Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with theSecurities and Exchange Commission (the "SEC"). These risks and uncertainties may cause the Company's actual results, performance or achievements to differ materially from any future results, performance or achievementsexpressed 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 Companycautions 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 referredto 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, futureevents or otherwise, except as otherwise required by law.
AvayaHoldingsCorp.CondensedConsolidatedStatementsofOperations(Unaudited)
(Inmillions,exceptpershareamounts)
Successor Predecessor Non-GAAPCombined(1)
Threemonthsended
June30,2019
Threemonthsended
June30,2018
NinemonthsendedJune30,2019
PeriodfromDecember16,
2017through
June30,2018
PeriodfromOctober1,2017
throughDecember15,
2017
Ninemonthsended
June30,2018
REVENUE Products $ 297 $ 300 $ 908 $ 664 $ 253 $ 917Services 420 392 1,256 848 351 1,199
717 692 2,164 1,512 604 2,116COSTS Products: Costs 109 114 329 257 84 341Amortization of technologyintangible assets 43 44 130 92 3 95
Services 175 182 522 410 155 565 327 340 981 759 242 1,001GROSS PROFIT 390 352 1,183 753 362 1,115OPERATING EXPENSES Selling, general andadministrative 253 281 761 613 264 877Research and development 49 51 154 110 38 148Amortization of intangible assets 41 39 122 86 10 96Impairment charges 659 — 659 — — —Restructuring charges, net 1 30 12 80 14 94
1,003 401 1,708 889 326 1,215OPERATING (LOSS) INCOME (613) (49) (525) (136) 36 (100)Interest expense (59) (56) (177) (112) (14) (126)Other income (expense), net 12 37 35 32 (2) 30Reorganization items, net — — — — 3,416 3,416(LOSS) INCOME BEFOREINCOME TAXES (660) (68) (667) (216) 3,436 3,220Benefit from (provision for)income taxes 27 (20) 30 235 (459) (224)
NET (LOSS) INCOME $ (633) $ (88) $ (637) $ 19 $ 2,977 $ 2,996
(LOSS) EARNINGS PER SHARE Basic $ (5.70) $ (0.80) $ (5.75) $ 0.17 $ 5.19
Diluted $ (5.70) $ (0.80) $ (5.75) $ 0.17 $ 5.19 Weighted average sharesoutstanding
Basic 111.0 109.8 110.7 109.8 497.3
Diluted 111.0 109.8 110.7 111.0 497.3 (1) See "Use of non-GAAP (Adjusted) Financial Measures" below.
AvayaHoldingsCorp.CondensedConsolidatedBalanceSheets(Unaudited)(Inmillions,exceptpershareandsharesamounts)
June30,2019 September30,
2018
ASSETS Current assets:
Cash and cash equivalents $ 729 $ 700Accounts receivable, net 276 377Inventory 71 81Contract assets 178 —Contract costs 128 —Other current assets 149 170
TOTAL CURRENT ASSETS 1,531 1,328Property, plant and equipment, net 243 250Deferred income taxes, net 25 29Intangible assets, net 2,978 3,234Goodwill, net 2,105 2,764Other assets 109 74
TOTALASSETS $ 6,991 $ 7,679
LIABILITIES Current liabilities:
Debt maturing within one year $ 29 $ 29Accounts payable 292 266Payroll and benefit obligations 126 145Contract liabilities 470 484Business restructuring reserve 36 51Other current liabilities 130 148
TOTAL CURRENT LIABILITIES 1,083 1,123Non-current liabilities:
Long-term debt, net of current portion 3,091 3,097Pension obligations 619 671Other post-retirement obligations 181 176Deferred income taxes, net 120 140Business restructuring reserve 37 47Other liabilities 390 374
TOTAL NON-CURRENT LIABILITIES 4,438 4,505TOTALLIABILITIES 5,521 5,628Commitments and contingencies STOCKHOLDERS'EQUITY Preferred stock, $0.01 par value; 55,000,000 shares authorized, no shares issued oroutstanding at June 30, 2019 and September 30, 2018 — —Common stock, $0.01 par value; 550,000,000 shares authorized; 110,887,967 sharesissued and 110,875,287 shares outstanding at June 30, 2019; and 110,218,653 sharesissued and 110,012,790 shares outstanding at September 30, 2018 1 1Additional paid-in capital 1,756 1,745(Accumulated deficit) retained earnings (255) 287Accumulated other comprehensive (loss) income (32) 18
TOTAL STOCKHOLDERS' EQUITY 1,470 2,051
TOTALLIABILITIESANDSTOCKHOLDERS'EQUITY $ 6,991 $ 7,679
AvayaHoldingsCorp.CondensedStatementsofCashFlows
(Unaudited;inmillions)
Successor Predecessor Non-GAAPCombined(1)
NinemonthsendedJune30,2019
PeriodfromDecember16,
2017through
June30,2018
PeriodfromOctober1,2017
throughDecember15,
2017
NinemonthsendedJune30,2018
Net cash provided by (used for): Operating activities $ 175 $ 177 $ (414) $ (237)Investing activities (95) (192) (13) (205)Financing activities (51) 284 (102) 182Effect of exchange rate changes on cash, cash equivalents,and restricted cash 1 (5) (2) (7)
Net increase (decrease) in cash, cash equivalents, and restrictedcash 30 264 (531) (267)Cash, cash equivalents, and restricted cash at beginning ofperiod 704 435 966 966Cash, cash equivalents, and restricted cash at end of period $ 734 $ 699 $ 435 $ 699 (1) See "Use of non-GAAP (Adjusted) Financial Measures" below.
Useofnon-GAAP(Adjusted)FinancialMeasures
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 the combined nine month
period ending June 30, 2018 and financial measures labeled as “non-GAAP” or “adjusted.”
Although GAAP requires that we report on our results for the periods October 1, 2017 through December 15, 2017 (the "Predecessor" period) and December 16, 2017 through June 30, 2018 (the "Successor" period) separately, management reviews the
Company’s operating results for the nine months ended June 30, 2018 by combining the results of these periods because such presentation provides the most meaningful comparison of our results. The Company cannot adequately benchmark the operating results
of the 197-day period ended June 30, 2018 against any of the previous periods reported in its condensed consolidated financial statements and does not believe that reviewing the results of this period in isolation would be useful in identifying any trends
regarding the Company’s overall performance. Management believes that the key performance metrics such as revenue, gross margin and operating income, among others, when combined for the nine months ended June 30, 2018 provide meaningful
comparisons to other periods and are useful in identifying current business trends.
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 EBITDA and 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. However, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA excludes the impact of earnings or charges resulting
from matters that we consider not to be indicative of our ongoing operations. 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.
We also present the measures non-GAAP revenue, non-GAAP gross margin, non-GAAP operating expenses, 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 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 2019 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 present Successor, Predecessor and combined results and reconcile historical GAAP measures to non-GAAP measures.
AvayaHoldingsCorp.SupplementalSchedulesofNon-GAAPAdjustedEBITDA
(Unaudited;inmillions)
Successor Predecessor
Non-GAAP
Combined
Threemonths
endedJune30,2019
Threemonths
endedJune30,2018
Ninemonths
endedJune30,2019
PeriodfromDecember16,
2017through
June30,2018
PeriodfromOctober1,2017
throughDecember15,
2017
Ninemonths
endedJune30,2018
Net (loss) income $ (633) $ (88) $ (637) $ 19 $ 2,977 $ 2,996Interest expense 59 56 177 112 14 126Interest income (4) (1) (11) (2) (2) (4)(Benefit from) provision for incometaxes (27) 20 (30) (235) 459 224Depreciation and amortization 110 119 335 264 31 295
EBITDA (495) 106 (166) 158 3,479 3,637Impact of fresh start accountingadjustments (2) 54 7 167 — 167
Restructuring charges, net 1 30 12 80 14 94Advisory fees 1 3 3 15 3 18Acquisition-related costs 1 4 8 11 — 11Reorganization items, net — — — — (3,416) (3,416)Non-cash share-based compensation 8 7 19 13 — 13Impairment charges 659 — 659 — — —Loss on sale/disposal of long-livedassets, net — 2 — 4 1 5
Resolution of certain legal matters — — — — 37 37Change in fair value of Emergence DateWarrants (7) (6) (28) 9 — 9
Loss (gain) on foreign currencytransactions 1 (25) 8 (24) — (24)
Pension/OPEB/nonretirementpostemployment benefits and long-term disability costs — — — — 17 17
Adjusted EBITDA $ 167 $ 175 $ 522 $ 433 $ 135 $ 568
AvayaHoldingsCorp.SupplementalSchedulesofNon-GAAPRevenue
(Unaudited;inmillions)
ThreeMonthsEnded Change ThreeMonthsEnded
June30,2019
Adj.forFreshStartAccounting
Non-GAAPJune30,2019
Non-GAAPJune30,2018(4) Amount Pct.
Pct.,netoffximpact
Non-GAAPMar.31,2019(1)
Non-GAAPDec.31,2018(2)
Non-GAAPSept.30,2018(3)
RevenuebySegment Products & Solutions $ 298 $ — $ 298 $ 322 $ (24) (7)% (7)% $ 289 $ 326 $ 336Services 422 — 422 433 (11) (3)% (1)% 425 422 434Unallocated amounts (3) 3 — — — n/a n/a — — —Total revenue $ 717 $ 3 $ 720 $ 755 $ (35) (5)% (3)% $ 714 $ 748 $ 770
RevenuebyGeography U.S. $ 392 $ 2 $ 394 $ 399 $ (5) (1)% (1)% $ 378 $ 401 $ 417
International: EMEA 183 — 183 202 (19) (9)% (6)% 189 200 202 APAC - Asia Pacific 85 — 85 86 (1) (1)% 1 % 80 79 81 Americas International 57 1 58 68 (10) (15)% (12)% 67 68 70Total International 325 1 326 356 (30) (8)% (6)% 336 347 353Total revenue $ 717 $ 3 $ 720 $ 755 $ (35) (5)% (3)% $ 714 $ 748 $ 770
(1) - (4) Reconciliation of Non-GAAP measures above: (1)Q219Non-GAAPResults (2)Q119Non-GAAPResults ThreeMonthsEnded ThreeMonthsEnded
Mar.31,2019
Adj.forFreshStart
Accounting Non-GAAPMar.31,2019 Dec.31,2018
Adj.forFreshStart
Accounting Non-GAAPDec.31,2018
RevenuebySegment
Products & Solutions $ 289 $ — $ 289 $ 326 $ — $ 326
Services 425 — 425 422 — 422
Unallocated amounts (5) 5 — (10) 10 —
Total revenue $ 709 $ 5 $ 714 $ 738 $ 10 $ 748
RevenuebyGeography
U.S. $ 375 $ 3 $ 378 $ 394 $ 7 $ 401
International:
EMEA 188 1 189 199 1 200
APAC - Asia Pacific 79 1 80 78 1 79
Americas International 67 — 67 67 1 68
Total International 334 2 336 344 3 347
Total revenue $ 709 $ 5 $ 714 $ 738 $ 10 $ 748
(3)Q418Non-GAAPResults (4)Q318Non-GAAPResults ThreeMonthsEnded ThreeMonthsEnded
Sept.30,2018
Adj.forFreshStart
Accounting Non-GAAPSept.30,2018 June30,2018
Adj.forFreshStart
Accounting Non-GAAPJune30,2018
RevenuebySegment
Products & Solutions $ 336 $ — $ 336 $ 322 — $ 322
Services 434 — 434 433 — 433
Unallocated amounts (35) 35 — (63) 63 —
Total revenue $ 735 $ 35 $ 770 $ 692 $ 63 $ 755
RevenuebyGeography
U.S. $ 393 $ 24 $ 417 $ 356 $ 43 $ 399
International:
EMEA 196 6 202 193 9 202
APAC - Asia Pacific 78 3 81 81 5 86
Americas International 68 2 70 62 6 68
Total International 342 11 353 336 20 356
Total revenue $ 735 $ 35 $ 770 $ 692 $ 63 $ 755
AvayaHoldingsCorp.SupplementalSchedulesofNon-GAAPReconciliations
(Unaudited;inmillions)
ThreeMonthsEnded
June30,2019
Mar.31,2019
Dec.31,2018
Sept.30,2018
June30,2018
ReconciliationofNon-GAAPGrossProfitandNon-GAAPGrossMargin
Gross Profit $ 390 $ 386 $ 407 $ 390 $ 352
Items excluded:
Adj. for fresh start accounting 5 9 19 54 69
Amortization of technology intangible assets 43 44 43 43 44
Loss on disposal of long-lived assets — — — — 2
Non-cash share-based compensation — — — 1 —
Non-GAAP Gross Profit $ 438 $ 439 $ 469 $ 488 $ 467
GAAP Gross Margin 54.4 % 54.4% 55.1% 53.1% 50.9 %
Non-GAAP Gross Margin 60.8 % 61.5% 62.7% 63.4% 61.9 %
ReconciliationofNon-GAAPOperatingIncome
Operating (Loss) Income $ (613) $ 38 $ 50 $ 11 $ (49)
Items excluded:
Adj. for fresh start accounting 4 12 20 48 71
Amortization of intangible assets 84 85 83 84 83
Impairment charges 659 — — — —
Restructuring charges, net 1 4 7 1 30
Acquisition-related costs 1 4 3 4 4
Loss on disposal of long-lived assets — — — — 2
Advisory fees 1 1 1 3 3
Non-cash share-based compensation 8 5 6 6 7
Non-GAAP Operating Income $ 145 $ 149 $ 170 $ 157 $ 151
GAAP Operating Margin -85.5 % 5.4% 6.8% 1.5% -7.1 %
Non-GAAP Operating Margin 20.1 % 20.9% 22.7% 20.4% 20.0 %
AvayaHoldingsCorp.SupplementalSchedulesofNon-GAAPReconciliationofGrossProfitandGrossMarginbyPortfolio
(Unaudited;inmillions)
Threemonthsended
June30,2019
Mar.31,2019
Dec.31,2018
Sept.30,2018
June30,2018
ReconciliationofNon-GAAPGrossProfitandNon-GAAPGrossMargin-Products
Revenue $ 297 $ 287 $ 324 $ 325 $ 300
Costs 109 105 115 115 114
Amortization of technology intangible assets 43 44 43 43 44
GAAP Gross Profit 145 138 166 167 142
Items excluded:
Adj. for fresh start accounting 2 2 5 16 24
Amortization of technology intangible assets 43 44 43 43 44
Loss on disposal of long-lived assets — — — — 1
Non-GAAP Gross Profit $ 190 $ 184 $ 214 $ 226 $ 211
GAAP Gross Margin 48.8% 48.1% 51.2% 51.4% 47.3%
Non-GAAP Gross Margin 63.8% 63.7% 65.6% 67.3% 65.5%
ReconciliationofNon-GAAPGrossProfitandNon-GAAPGrossMargin-Services
Revenue $ 420 $ 422 $ 414 $ 410 $ 392
Costs 175 174 173 187 182
GAAP Gross Profit 245 248 241 223 210
Items excluded:
Adj. for fresh start accounting 3 7 14 38 45
Loss on disposal of long-lived assets — — — — 1
Share-based comp — — — 1 —
Non-GAAP Gross Profit $ 248 $ 255 $ 255 $ 262 $ 256
GAAP Gross Margin 58.3% 58.8% 58.2% 54.4% 53.6%
Non-GAAP Gross Margin 58.8% 60.0% 60.4% 60.4% 59.1%
AvayaHoldingsCorp.ReconciliationofASC606toASC605GAAPresults
ThreemonthsendedJune30,2019(Unaudited;inmillions)
Q3FY19resultsunderASC606 ASC606Impact
Q3FY19resultsunderASC605
REVENUE Products $ 297 $ (26) $ 271Services 420 (19) 401
717 (45) 672COSTS Products: Costs 109 (4) 105Amortization of technology intangible assets 43 — 43
Services 175 (7) 168 327 (11) 316GROSS PROFIT 390 (34) 356OPERATING EXPENSES Selling, general and administrative 253 (1) 252Research and development 49 — 49Amortization of intangible assets 41 — 41Impairment charges 659 — 659Restructuring charges, net 1 — 1
1,003 (1) 1,002OPERATING LOSS (613) (33) (646)Interest expense (59) — (59)Other income, net 12 — 12LOSS BEFORE INCOME TAXES (660) (33) (693)Benefit from (provision for) income taxes 27 (37) (10)
NET LOSS $ (633) $ (70) $ (703)
AvayaHoldingsCorp.SupplementalSchedulesofFreeCashFlow
(Unaudited;inmillions)
Threemonthsended
June30,2019
Mar.31,2019
Dec.31,2018
Sept.30,2018
June30,2018
Net cash provided by operating activities $ 52 $ 37 $ 86 $ 25 $ 83Less: Capital expenditures (37) (26) (21) (25) (18)
Free cash flow $ 15 $ 11 $ 65 $ — $ 65
Source:AvayaNewsroom
FollowAvaya
Exhibit 99.2 Investor Presentation 3Q FY19 August 13, 2019 © 2019 Avaya Inc. All rights reserved
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Forward Looking Statements Cautionary note regarding forward-looking statements This document 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. 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. These factors are 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”), and may cause its 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 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. These slides, as well as current and historical financial data are available on our web site at investors.avaya.com. None of the information included on the website is incorporated by reference in this presentation. © 2019 Avaya Inc. All rights reserved 2
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Use of non-GAAP (Adjusted) Financial Measures This presentation should be read in conjunction with our third quarter fiscal 2019 earnings press release issued on August 13, 2019. Within this presentation, we refer to certain non-GAAP financial measures, such as non-GAAP revenue, non-GAAP operating expense, non-GAAP operating margin, free cash flow, EBITDA and adjusted EBITDA, that involve adjustments to GAAP measures. Reconciliations between our non-GAAP financial measures and the most closely comparable GAAP financial measures are available in the Appendix to this presentation. 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 Appendix to this presentation. 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 EBITDA and adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. Accordingly, 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. However, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. 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. We do not provide a forward-looking reconciliation of expected fiscal 2019 adjusted EBITDA, non-GAAP operating expense, non-GAAP operating margin or non-GAAP revenue guidance as the amount of 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. © 2019 Avaya Inc. All rights reserved 3
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 © 2019 Avaya Inc. All rights reserved 4
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 World's Largest Installed Base 100M+ UC Lines 3.6M+ 100K+ 90% 5M+ Cloud Seats Global Customers Fortune 100* CC Users © 2019 Avaya Inc. All rights reserved 5 *Calculation performed using historical data of customers served over the last three fiscal years.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Four Growth Pillars Bringing Emerging Delivering Innovating Providing High Technologies Breadth & Depth in our Core Value Services to Market of Cloud Modernize and monetize Artificial Intelligence and Cloud first Support, managed and Mobility professional services our base Investing across the Solutions that are Driving new opportunities portfolio Global scale for our customers secure, scalable and Public / Private / Hybrid Differentiated capabilities reliable Disruptive products in Aggressively pursuing Unmatched expertise Seamless, simple and market midmarket Drives significant value integrated At the forefront of next Building Cloud for customers generation Focused on user ecosystem experience Accelerating adoption © 2019 Avaya Inc. All rights reserved 6
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Delivering Solutions Through Intelligent Xperiences AI – Bots, Conversational Intelligence, Pairing Avaya IX Avaya IX Workplace (UC) Contact Center Calling Voice Meetings Digital Collaboration Desktop Devices Workforce Engagement Avaya OneCloud – Public, Private, Hybrid Premises Solutions Powered by Avaya IX – hosted by Avaya Partners Avaya IX Services – Consulting, Professional Services, Managed, Migration, Support © 2019 Avaya Inc. All rights reserved 7
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Trusted and Scalable Global Service Ÿ Reliable Ÿ Secure Ÿ Compliant Why Single, Integrated Communications Platform Avaya Unified Communications Ÿ Contact Center Wins Cloud Choice & Flexibility Public Ÿ Private Ÿ Hybrid Ÿ Managed Service Enterprise Features Attribute Routing Ÿ Collaboration Ÿ Digital Full Application Suite Deep & Wide Ecosystem © 2019 Avaya Inc. All rights reserved 8
Financial Overview 3Q FY19 © 2019 Avaya Inc. All rights reserved
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Financial Strength & Flexibility Liquidity Strong $167M $52M Balance Sheet 23% of Revenue 7% of Revenue Adj. EBITDA(1)(2) CFFO(1)(2) Resources to Invest $729M 3.4x Highly Profitable Cash Net-debt / Balance(2) Adj. EBITDA(1)(3) (1) Adjusted EBITDA, Adjusted EBITDA Margin, and CFFO Margin are based on non-GAAP Revenue.* (2) As of 3Q ending June 30, 2019. © 2019 Avaya Inc. All rights reserved (3)Net-debt as of June 30, 2019, defined as ST debt and LT debt less cash, and Trailing Twelve Months 10 (TTM) Adjusted EBITDA were used for this calculation, ending June 30, 2019.* *For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 3Q FY19 Financial Highlights 84% 59% 60% 11% Revenue (1) Software High-margin Recurring Cloud and Services Software 170%+ $2.4B 61% Public Cloud Total Contract Gross (2) (1) Seat Growth Value Margin (1) Percentages are based on non-GAAP Revenue.* © 2019 Avaya Inc. All rights reserved (2) TCV is defined as the value of all active ratable contracts that have not been recognized as revenue, 11 including both billed and unbilled backlog. *For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 3Q FY19 Update Non-GAAP* 3Q FY19 2Q FY19 3Q FY18 3Q Business Highlights $M, as reported ASC 606 ASC 606 ASC 605 Revenue $ 720 $ 714 $ 755 • In August, Avaya was awarded two landmark US Government opportunities. Avaya, along with its service provider partner, was selected by the Social Security Gross Margin 60.8% 61.5% 61.9% Administration to modernize the agency’s UC and CC infrastructure in a 10-year Operating Expense (% of revenue) 40.7 % 40.6 % 42 % deal valued at up to $400 million. The second is a multi-year award to provide secure FedRamp Certified Cloud services across several agencies that could be Operating Margin 20.1% 20.9% 20.0% worth up to several hundred million dollars. Adjusted EBITDA $ 167 $ 166 $ 175 • Expanded technology engagement and development with Intel, joining their AI Builders Program Adjusted EBITDA Margin 23.2% 23.2% 23.2% • Received certification in both HIPPA and PCI for applications in Artificial Intelligence 3Q Financial Highlights Non-GAAP Revenue per Employee(2) ($, 000k) • Continued large deal activity with 68 deals over $1 million, 6 over $5 million, and 1 over $10 million 366 376 379 369 347 • Total Contract Value (TCV)(1) of $2.4 billion 335 • Added approximately 1,400 new logos • Generated $52 million in cash flow from ops, $15 million in free cash flow(3) • Recorded a non-cash goodwill impairment charge of $657 million FY14 FY15 FY16 FY17 FY18 Q3 FY19 (1) TCV is defined as the value of all active ratable contracts that have not been recognized as revenue, including both billed and unbilled backlog. © 2019 Avaya Inc. All rights reserved (2) Trailing Twelve Months (TTM) non-GAAP Revenue and headcount at the end of the period indicated.* 12 (3) Free cash flow is defined as Cash Flow from Operations less Capital Expenditures.* *For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Business Model Transformation (Calculated from non-GAAP Revenue)* FY15 FY18 1Q FY19 2Q FY19 3Q FY19 Revenue from 71% 83% 83% 83% 84% Software and Services Recurring 48% 56% 57% 59% 59% Revenue Product Revenue 42% 58% 61% 58% 60% from Software Revenue from 7% 10% 11% 11% 11% Cloud & Innovation Non-GAAP 61% 63% 63% 61% 61% Gross Margin Adjusted 22% 24% 25% 23% 23% EBITDA Margin © 2019 Avaya Inc. All rights reserved 13 * For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Cash Requirements 881 855 51 56 119 140 Net Cash Interest Payments 122 611 90 592 33 Pension & Post Retirement 29 83 90 505 Restructuring 148 161 65 77 Capex & Capital Lease 77 (<3% of revenue) 63 120 126 Cash Taxes 55 65 421 428 • All values in $M 355 • Net Cash Interest includes interest payments on long- 270 term debt and payments classified as adequate 200 protection payments, net of interest income • Pension settlement payments to PBGC not included within Pension & Post Retirement payments FY15A FY16A FY17A FY18A FY19E © 2019 Avaya Inc. All rights reserved 14
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Quarterly Income Statement (Amounts are GAAP and dollars in millions) GAAP Revenue: 3Q FY19 2Q FY19 3Q FY18 Product $ 297 $ 287 $ 300 Services 420 422 392 GAAP Total Revenue $ 717 $ 709 $ 692 GAAP Gross Margin: Product 48.8 % 48.1% 47.3 % Services 58.3 % 58.8% 53.6 % GAAP Total Gross Margin 54.4 % 54.4% 50.9 % GAAP Operating Margin (85.5)% 5.4% (7.1)% © 2019 Avaya Inc. All rights reserved 15
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Quarterly Non-GAAP Income Statement Information (Amounts are non-GAAP and dollars in millions)* Non-GAAP Revenue: 3Q FY19 2Q FY19 3Q FY18 Product $ 298 $ 289 $ 322 Services 422 425 433 Non-GAAP Total Revenue $ 720 $ 714 $ 755 Non-GAAP Gross Margin: Product 63.8% 63.7% 65.5% Services 58.8% 60% 59.1% Non-GAAP Total Gross Margin 60.8% 61.5% 61.9% Non-GAAP Operating Margin 20.1% 20.9% 20.0% Adjusted EBITDA $ 167 $ 166 $ 175 Adjusted EBITDA % (1) 23.2% 23.2% 23.2% © 2019 Avaya Inc. All rights reserved 16 (1) Adjusted EBITDA % is based on non-GAAP Revenue *For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Quarterly Non-GAAP Revenue by Region (All dollars amounts are non-GAAP in millions)* Revenue 3Q FY19 2Q FY19 3Q FY18 U.S. $ 394 $ 378 $ 399 EMEA 183 189 202 APAC 85 80 86 AI 58 67 68 Total $ 720 $ 714 $ 755 % of Total Revenue U.S. 55% 53% 53% EMEA 25% 27% 27% APAC 12% 11% 11% AI 8% 9% 9% Total 100% 100% 100% © 2019 Avaya Inc. All rights reserved 17 *For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation.
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Balance Sheet and Operating Metrics (Dollars in millions, Balance sheet items as of the end of the period indicated) 3Q FY19 2Q FY19 3Q FY18 Total Cash and Cash Equivalents $ 729 $ 735 $ 685 Cash Flow from Operations $ 52 $ 37 $ 83 Capital Expenditures and Capitalized Software $ 37 $ 26 $ 18 Days Sales Outstanding (DSO)(1) 56 53 60 Inventory Turns 15.9 16.6 12.3 Headcount (as of the end of the period indicated) 7,994 8,103 8,134 Trailing Twelve Month Revenue ($K) / Employee(2)* (Headcount as of the end of the period indicated) $ 369 $ 369 $ 378 (1)3Q FY19 and 2Q FY19 include $111M and $139M AR/contract liability netting impact when calculating DSOs. (2)TTM Revenue ($K) / Employee based on non-GAAP Revenue. © 2019 Avaya Inc. All rights reserved *For a reconciliation of non-GAAP to GAAP financial information, please see the Appendix of this presentation. 18
Appendix © 2019 Avaya Inc. All rights reserved
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Non-GAAP Reconciliation Adjusted EBITDA Three Months Ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, (In millions) 2019 2019 2018 2018 2018 Net (loss) income $ (633) $ (13) $ 9 $ 268 $ (88) Interest expense 59 58 60 57 56 Interest income (4) (4) (3) (3) (1) (Benefit from) provision for income taxes (27) (6) 3 (311) 20 Depreciation and amortization 110 108 117 120 119 EBITDA (495) 143 186 131 106 Impact of fresh start accounting adjustments (2) 6 3 29 54 Restructuring charges, net 1 4 7 1 30 Advisory fees 1 1 1 3 3 Acquisition-related costs 1 4 3 4 4 Non-cash share-based compensation 8 5 6 6 7 Impairment charges 659 — — — — Loss on sale/disposal of long-lived assets, net — — — — 2 Change in fair value of Emergence Date Warrants (7) (3) (18) 8 (6) Loss (gain) on foreign currency transactions 1 6 1 (4) (25) Adjusted EBITDA $ 167 $ 166 $ 189 $ 178 $ 175 © 2019 Avaya Inc. All rights reserved 20
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Non-GAAP Reconciliation Gross Margin and Operating Income Three Months Ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, (In millions) 2019 2019 2018 2018 2018 Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin Gross Profit $ 390 $ 386 $ 407 $ 390 $ 352 Items excluded: Adj. for fresh start accounting 5 9 19 54 69 Amortization of technology intangible assets 43 44 43 43 44 Loss on disposal of long-lived assets — — — — 2 Non-cash share-based compensation — — — 1 — Non-GAAP Gross Profit $ 438 $ 439 $ 469 $ 488 $ 467 GAAP Gross Margin 54.4% 54.4% 55.1% 53.1% 50.9% Non-GAAP Gross Margin 60.8% 61.5% 62.7% 63.4% 61.9% Reconciliation of Non-GAAP Operating Income Operating (Loss) Income $ (613) $ 38 $ 50 $ 11 $ (49) Items excluded: Adj. for fresh start accounting 4 12 20 48 71 Amortization of intangible assets 84 85 83 84 83 Impairment charges 659 — — — — Restructuring charges, net 1 4 7 1 30 Acquisition-related costs 1 4 3 4 4 Loss on disposal of long-lived assets — — — — 2 Advisory fees 1 1 1 3 3 Non-cash share-based compensation 8 5 6 6 7 Non-GAAP Operating Income $ 145 $ 149 $ 170 $ 157 $ 151 GAAP Operating Margin -85.5% 5.4% 6.8% 1.5% -7.1% Non-GAAP Operating Margin 20.1% 20.9% 22.7% 20.4% 20.0% © 2019 Avaya Inc. All rights reserved 21
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Non-GAAP Reconciliation Product and Services Gross Margins Three months ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2019 2019 2018 2018 2018 Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Products Revenue $ 297 $ 287 $ 324 $ 325 $ 300 Costs 109 105 115 115 114 Amortization of technology intangible assets 43 44 43 43 44 GAAP Gross Profit 145 138 166 167 142 Items excluded: Adj. for fresh start accounting 2 2 5 16 24 Amortization of technology intangible assets 43 44 43 43 44 Loss on disposal of long-lived assets — — — — 1 Non-GAAP Gross Profit $ 190 $ 184 $ 214 $ 226 $ 211 GAAP Gross Margin 48.8% 48.1% 51.2% 51.4% 47.3% Non-GAAP Gross Margin 63.8% 63.7% 65.6% 67.3% 65.5% Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin - Services Revenue $ 420 $ 422 $ 414 $ 410 $ 392 Costs 175 174 173 187 182 GAAP Gross Profit 245 248 241 223 210 Items excluded: Adj. for fresh start accounting 3 7 14 38 45 Loss on disposal of long-lived assets — — — — 1 Share-based comp — — — 1 — Non-GAAP Gross Profit $ 248 $ 255 $ 255 $ 262 $ 256 GAAP Gross Margin 58.3% 58.8% 58.2% 54.4% 53.6% Non-GAAP Gross Margin 58.8% 60.0% 60.4% 60.4% 59.1% © 2019 Avaya Inc. All rights reserved 22
TEXT 0 – 0 – 0 204-0-0 127-127-127 17-114-210 80-200-74 86-183-242 247-150-70 Non-GAAP Reconciliation Supplemental Schedules Free Cash Flow Three months ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, (In millions) 2019 2019 2018 2018 2018 Net cash provided by operating activities $ 52 $ 37 $ 86 $ 25 $ 83 Less: Capital expenditures (37) (26) (21) (25) (18) Free cash flow $ 15 $ 11 $ 65 $ — $ 65 Net-Debt / Adjusted EBITDA June 30, (In millions) 2019 Debt maturing within one year $ 29 Long-term debt, net of current portion 3,091 Less: Cash and cash equivalents (729) Net-debt 2,391 Adjusted EBITDA (TTM) $ 700 Net-debt / Adjusted EBITDA 3.4x © 2019 Avaya Inc. All rights reserved 23