Presentation on theme: "Hi, I’m Dave Vellequette, CFO of Avaya"— Presentation transcript:
1 Avaya Q1 2015 Financial Results Goldman Sachs TMT Leveraged Finance Conference Hi, I’m Dave Vellequette, CFO of AvayaThis is my quarterly video review of our financial results for the our fiscal 1st quarter of 2015Let’s start by looking at our performance, and how it reflects our continued ability to execute against our strategy …March 11, 2015
2 Forward - Looking Statements Certain statements contained in this presentation are forward-looking statements, including statements regarding our future financial and operating performance, as well as statements regarding our future growth plans and drivers. These statements may be identified by the use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will" or other similar terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe 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 our control. These and other important factors may cause our 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 list and description of such risks and uncertainties, please refer to our filings with the SEC that are available at and in particular, our 2014 Form 10-K filed with the SEC on November 26, We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.This presentation should be read in conjunction with our Form 8-K filed with the SEC on February 9, Within this presentation, we refer to certain non‐GAAP financial measures that involve adjustments to GAAP measures. Reconciliations between our non-GAAP financial measures and GAAP financial measures are included in the appendix of this presentation.These slides, as well as current and historical financial data are available on our web site at None of the information included on the website is incorporated by reference in this presentation.Historical amounts presented reflect the sale of ITPS.
3 Avaya Private Cloud Services Avaya NowPortfolio Position ($ / Seat)Customer EngagementTeam EngagementFabricHighRevenue Category (# of seats)LowCompany relevance has moved to higher value and higher growth outcomesNow have well positioned offerings in all 6 revenue streams with opportunities to grow these areas of our businessAvaya= open mobile enterprise engagement platformPortfolio Position (Value / Seat)Customer CareAvaya Private Cloud ServicesProfessionalServicesNon-RecurringRecurring (3 year)Recurring (5 year)Revenue Category (term)
4 Fiscal Q1 2015 Financial Highlights (Amounts are non-GAAP) Revenue of $1,079 million down $47 million from the prior quarterIn constant currency, down 3% sequentially and year-over-yearIn line with low end of historical sequential patternPrivate cloud and managed services business and our leading edge contact center solutions grew both sequentially and year-over-yearRevenue from products focused on the midmarket was up 5% sequentially and up 2% year-over-yearNetworking product revenues grew 15% sequentially and 2% year-over yearIn constant currency, EMEA revenue was up 3% year-over-year and AI was up 2%Product bookings were up year-over-year, while product book-to-bill was below 1.0Gross margin reached new record of 60.1%Increased 40 basis points sequentially and 200 basis points year-over-yearOperating income of $193 million and 17.9% operating marginAdjusted EBITDA of $239 million and 22.2% of revenueCash increased sequentially and year-over-year to $328 millionReflects $19.5M debt reduction from $10M paid against Cash Flow revolver and $9.5M in term loan principalFree Cash Flow positive for the quarterNOTE: Historical amounts presented reflect the sale of ITPS44
5 Products & Services* (% of Total Avaya Revenue) Financial Summary($M)Non-GAAP4Q14Actual1Q15Business ModelRevenue$1,126$1,079$1,100 – $1,150Gross Margin %59.7%60.1%58.5% – 59.5%Oper Expense %40.9%42.3%38.5% – 39.5%Oper Income %18.8%17.9%19% – 20.5%Adj EBITDA $$253$239$250 – $275Adj EBITDA %22.5%22.2%22.7% – 23.9%Q1 Revenue: $1,079M; down $47M sequentially$13M currency impact$19M due to sales executionPrivate cloud & managed services up 7% YoYNetworking product revenue up YoYGross Margin 60.1%Operating Income 17.9%Adjusted EBITDA 22.2% of revenueAll 3 are fiscal Q1 record levels on an as reported basisFor a reconciliation of non-GAAP to GAAP financial information, please see.Products & Services* (% of Total Avaya Revenue)FY 11FY 12FY 13FY 141QF144QF141QF15Flagship32%35%39%43%44%45%Core48%49%47%This gives you a comparison of our performance relative to last quarter, and in comparison to our model rangesOf the $47M sequential revenue decline, $13M was due to fluctuations in foreign currency exchange rates which cause our dollar denominated revenues to be lowerYou can see we have improved our gross margin % as an outcome of our successful cost reduction efforts which enable us to run the business efficiently, including improvements in:our supply chain efficiencycost reductions and surgical restructuringincreased focus on automation of our web based support which lowers cost while improving performanceOur model is designed to generate sufficient EBITDA and cash to meet our annual requirements, even on a relatively modest quarterly revenue levelNext, let’s look at our capital structure …We have structured our model such that, assuming quarterly revenue between $1.1 billion and $1.15 billion dollars, our operational performance should generate adjusted EBITDA in the range of $250 and $275 million* Flagship includes Video, Avaya Aura®, IP Office, leading edge Contact Center, Wireless LAN, SBC, Ethernet/fabric switching, Avaya professional services, Avaya cloud and Avaya managed servicesCore includes phones, gateways, servers, core contact center, and other managed and maintenance support servicesLegacy includes legacy Nortel and Tenovis, excluding NetworkingFor a reconciliation of non-GAAP to GAAP financial information, please see our most recent SEC filings and the tables at the end of this presentationNOTE: Historical amounts presented reflect the sale of ITPS
6 Overall Average Portfolio Interest Rate 6.9% Avaya Debt Maturity Profile($ in Billions, by calendar year)Overall Average Portfolio Interest Rate 6.9%$2.0$1.4$1.3$1.1Today3/11/15$0.12Reduced debt by $19.5M in Q1 FY ’15$10M against Cash Flow revolver and $9.5M in term loan principalAdditional liquidity available through Asset-Backed & Cash Flow revolversAnnual cash needs for Pension, Interest, Restructuring, CapEx, and Cash taxes expected to be below $900M in FY 15Long Term Debt (net of $0.3B cash) totals $5.6BNOTE: Amounts shown are expected balances at maturity date; 2017 & 2018 are net of principal payments which total approximately $9.5M quarterlyAs you can see, we have continued to manage our capital structure to create flexibility in the near-term while enabling us to invest strategically in our areas we see as growth opportunities.We have reduced our debt by $19.5M, with the first maturity not due until October 2016We’ve brought down our cash requirements by $100M per year (to $900M)We completed a number of refinancing actions in 2014 to reduce our overall average interest rate on the debt portfolio to 6.9% and have additional liquidity availableWe will continue to focus on cash generation.So, let me close at this point …66
7 A Software and Services Company FQ1’15 Results Avaya NowNet Promoter Score50New Customer Acquisition*17%Software and Services69%Revenue / Headcount$343KGross Margin60%Operating Income18%Adjusted EBITDA %22%New Metrics portray a company that evidences a:New business modelNew momentumNew basis of work and market engagement*As of Q4FY14For a reconciliation of non-GAAP to GAAP financial information, please see
8 As I hope you have seen, while sales execution and timing of deal closings constrained Q1 revenue, our progress on executing on our strategy continues- Operational performance metrics remain solid- We are managing our debt with both a ST and LT view- We are continuing to invest in serving our customers and delivering quality, innovative solutions that enable them to engage their teams and their customers for new levels of productivity and service.Thanks for listening today.We look forward to continuing to partner with you.