Avaya Holdings Corp. (NYSE: AVYA) today reported financial results for the first quarter of fiscal 2022 ended December 31, 2021.

First Quarter Financial Highlights

• Revenues of US$713 million
• OneCloud ARR (Annualised Recurring Revenue) was $620 million, up 17% sequentially and 137% from a year ago
• CAPS (Cloud, Alliance Partner and Subscription) was 44% of revenue, up from 34% a year ago
• Software and Services were 86%; Software was 62% of total revenue
• Recurring revenue was 66% of revenue, up from 65% a year ago
• GAAP Operating loss was $1 million and Non-GAAP Operating income was $102 million
• GAAP Net loss was $66 million and Non-GAAP Net income was $40 million
• Adjusted EBITDA was $129 million, 18% of revenue, down 750 basis points year over year
• GAAP Diluted Loss Per Share of $0.79 and Non-GAAP Diluted Earnings Per Share of $0.42
• Ending cash and cash equivalents were $354 million

“Our transition to the cloud continues to gain strength as our Avaya OneCloud ARR grew by 137% year over year primarily driven by our enterprise segment and contact centre solutions,” said Jim Chirico, President and CEO of Avaya. “Market demand remains very strong, especially with large enterprises. This quarter, we yet again closed more than 100 deals with total contract value greater than $1 million. The breadth of our solutions, scale on which they operate, and global reach are unparalleled and as we closed out the quarter, we landed one of the largest deals in our history, a $400 million OneCloud Public CCaaS deal with a large global financial services company.”

Additional First Quarter Fiscal 2022 Highlights

• Remaining Performance Obligations ("RPO") of $2.3B
• Added over 1,400 new logos
• Significant large deal activity with 108 deals over $1 million TCV, 9 over $5 million TCV, 6 over $10 million TCV and 2 over $25 million TCV
• ~20% 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 $100K or more in annual recurring revenue
• ~60% of OneCloud ARR came from Contact Centre customers

(1) During fiscal 2021, the Company identified an understatement of revenue by $3 million and $5 million in the Consolidated Statements of Operations for fiscal 2020 and 2019, respectively, and in an understatement of the opening Retained earnings adjustment recorded upon adoption of Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" by $7 million. The Company concluded that the impacts were not material to fiscal 2021 or any prior period financial statements. As a result, the cumulative effect of the understatement was recorded during the fourth quarter of fiscal 2021, resulting in an increase to Revenue and Provision for income taxes and a decrease to Net loss of $15 million, $2 million, and $13 million, respectively, predominantly within the Products and Solutions operating segment.

(2) Non-GAAP gross margin, Non-GAAP operating margin (used below), Non-GAAP operating income, Non-GAAP net income, Non-GAAP earnings per share, adjusted EBITDA, adjusted EBITDA margin 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 these non-GAAP measures to the most closely comparable measure calculated in accordance with GAAP.

Customer Highlights

• In Ontario, Canada, McMaster University has chosen Avaya OneCloud to extend our long-running partnership for a further five years. McMaster, with over 35,000 students and 10,000 staff, chose Avaya’s leading cloud solution to address the simultaneous challenges of increasing digital engagement across seven unique contact centres, reducing handling times and abandoned interactions, and improving analytics and workforce agility.
• Ascension, the largest non-profit hospital system in the US, signed a five year contract to standardise on Avaya across 110 hospitals with options to include clinics and professional offices in the future.
• Cupola Teleservices (Cupola), one of the Middle East’s largest BPOs and outsourced contact centre service providers, has joined the growing list of Avaya Experience Builders around the world. Cupola chose Avaya OneCloud CCaaS and Avaya Spaces Learning as the basis for their new customer onboarding and agent training. In a competitive bid, we successfully beat Genesys to deliver a cloud solution that will streamline technology and processes, reduce costs, and significantly improve user and customer experience. This three year deal will enable Cupola to better serve their government and private sector customers across the region and beyond.
• In Brazil, we are very pleased that the ANA-National Water Agency has chosen Avaya OneCloud UCaaS as its only consolidated platform. In an expanded public competitive assessment, the customer chose to build its communications network using Avaya technology, replacing Ericsson's legacy systems in the process. This three-year agreement will enable the Agency to reduce costs, as it delivers significant improvements in user experience, processes, and transaction times.
• When it comes to Experiences that Matter, Kingsborough Community College, a City University of NY school, takes it so seriously that the management created a task force to improve student experiences. We worked with our partners to deploy an AI Chatbot solution built on Avaya OneCloud CPaaS that is available 24x7 to respond to inquiries and deliver valuable information. It also includes full reporting and analytics, which is changing the way they are serving and communicating with current and prospective students, parents and constituents.
• Our relationships with key customers continues to strengthen, exemplified by a new 700 license Avaya OneCloud Subscription deal signed with TELUS International in Canada. TELUS International will invest $1.3 million over three years to support its pace of growth as an industry leader in digital customer experience management. Avaya OneCloud technology and professional services will help power the differentiated experiences TELUS International designs, builds and delivers for their clients, and drive ongoing innovation through AI and automation.
• Medical West Hospital Authority, an affiliate of UAB Health System, is a long-time Avaya customer through our partner AT&T, and they selected Avaya Cloud Office by RingCentral for 1,400 staff members at their hospital and off campus locations. While discussing with Avaya new construction to open in 2024, it was decided not to wait but to move now to the cloud, which provided solid TCO and ROI. Key features such as faxing, video conferencing, integration with O365, mobility, “Park” and “Page” helped to tick every box Medical West had on their list.

Business Highlights

• Aragon Recognises Avaya as a Market Leader in the Team Collaboration Globe, 2022. With leadership in four Aragon Globe reports – Team Collaboration, UC, Video Conferencing, and Intelligent Contact Centre, Avaya is one of the only vendors in the industry that provides customers and end users a true, Total Experience with expertise across the entire landscape.
• Avaya was selected as a high performer in 2021 Frost & Sullivan Radar for Cloud Meetings & Team Collaboration Services Market.
• Third (of 18 vendors) in the Ventana Research Agent Management Value Index 2022 Vendor and Product Assessment.
• Major Player in IDC MarketScape Worldwide Customer Service Conversational AI 2021, and IDC MarketScape Conversational AI General Purpose 2021.

Financial Outlook - 2Q Fiscal 2022 - unless otherwise noted, values reflect January 31, 2022 FX rates.

• Revenue of $730 million to $745 million
• GAAP operating income of $29 million to $39 million; GAAP operating margin of 4% to 5%
• Non-GAAP operating income of $126 million to $136 million; non-GAAP operating margin of 17% to 18%
• Adjusted EBITDA of $155 million to $165 million; Adjusted EBITDA margin of 21% to 22%
• Non-GAAP EPS of $0.58 to $0.66

Financial Outlook - Fiscal Year 2022 - unless otherwise noted, values reflect January 31, 2022 FX rates.

• Revenue of $2.975 billion to $3.025 billion
• OneCloud ARR expected to be $900 million to $920 million by year end FY22
• CAPS revenue will represent between ~45% and 50% of Avaya's total revenue for FY22
• GAAP operating income of $179 million to $199 million; GAAP operating margin of 6% to 7%
• Non-GAAP operating income of $561 million to $581 million; non-GAAP operating margin of ~19%
• Adjusted EBITDA of $680 million to $700 million; Adjusted EBITDA margin of ~23%
• Non-GAAP EPS of $2.72 to $2.88
• Cash flow from operations expected to be approximately 1% of revenue, as an outcome of the company’s accelerated success in moving to a recurring revenue model which is resulting in higher working capital requirements
• Approximately 88 million to 90 million diluted weighted average shares outstanding

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

As Avaya’s CAPS metric reflects revenue that is already recognised, 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, Annualised Recurring Revenue, or OneCloud ARR.

OneCloud ARR represents our estimate of the annualised 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.

Avaya’s outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments, or other significant transactions that may be completed after the date hereof. Actual results may differ materially from Avaya’s outlook as a result of, among other things, the factors described under “Forward-Looking Statements” below.

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