the power of we ™ matt booher vp corporate treasurer and investor relations officer avaya avaya...
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The Power of We™
Matt BooherVP Corporate Treasurer and Investor Relations Officer AvayaAvaya Financial Strength
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 2
Forward Looking Statements
Certain statements contained in this document are forward looking statements. 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 discussion of the risks and uncertainties affecting our business, please see our public filings with the Securities Exchange Commission at www.sec.gov. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 3
Q3 results and Q4 expectations(1) evidence stabilization and increased profitability Q3 and Q4 Adjusted EBITDA(2) grew sequentially 13% and 11-16%, respectively
Q4 revenue increased sequentially to $1,270M - $1,277M
Gross margin(2) was 54% in Q4’12 – nearly back to Q4’11 record level despite lower revenue
Cash increased 24% to $337M in Q4 from the Q3 level
Committed to innovation and product development Increasing R&D investments; ahead of industry averages
Technology acquisitions to expand markets
Near term revenue outlook continues to reflect low visibility Uncertain economic environment and growth rates in IT spend across geographies
EMEA and U.S. Public Sector in particular continue to experience softness; China, Japan and Australia growth is slowing
Business momentum and sales cadence on positive trajectory in second half of FY12
Surgical restructuring underway to drive profitability and cash flow(3)
Actions already taken in 2H FY12 were ahead of plan and will generate FY13 cost savings (relative to Q3 Adj. EBITDA) of approximately $105M
Additional savings FY13 to FY15 targeted in indirect spending, supplier related actions, real estate consolidations and ongoing headcount management
$135 – 235M in FY13 savings and total $400M+ annualized cost reductions by FY15
Avaya Introduction
1) Q4’12 figures are estimates; please see the Company’s most recent Form 8-K filed with the SEC on 10/18/122) Gross margin excludes amortization of technology intangible assets and any other acquisition related adjustments.
Gross margin as shown and adjusted EBITDA are non-GAAP metrics. For reconciliation to our GAAP financial information please see our filings at www.sec.gov.
3) In an 8K filed with the SEC on 9/24/12, the company disclosed cost savings initiatives over the next several years.
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 4
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E
NES acq.Services Product
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E
$1,051 $1,060
$1,320 $1,332 $1,348 $1,366 $1,390 $1,372 $1,419 $1,387 $1,257
$1,250
NES acq.
$1,277 - $1,270
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E
$215 $210
$157 $202
$226 $222 $220 $236
$293 $279
$200 $225
20% 20%
12%
15%17% 16% 16%
17%
21% 20%
16%18%
~20%
Total Revenues ($M) Gross Margin(2)
Adjusted EBITDA(2) ($M) and Margin
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E
52%54%
47% 48% 48%50% 51% 52%
55% 54% 53% 54% 54%
NES acq.
NES acq.
1) 4Q12 figures are estimates; please see the company’s most recent Form 8-K filed with the SEC on 10/18/122) Gross margin excludes amortization of technology intangible assets and any other acquisition related adjustments. Gross margin as
shown and adjusted EBITDA are non-GAAP metrics. For reconciliation to our GAAP financial information please see our filings at www.sec.gov.
Recent Quarterly Performance(1)
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E
$567
$669
$576 $514
$579
$460 $453
$368 $400
$345 $355
$271
$337
Cash Balance ($M)NES acq.
$260 -
$250
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 5
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q120
100
200
300
400
500
600
700
Direct Indirect
Avaya Product Revenue
($ Millions)
Direct26%
Indirect74%
Product Revenue
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 6
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E0
200
400
600
800
1000
1200
1400
511 566 546 567669
576 514 579460 453
368 400 345 355 271337
335335 335 335
335
335335
335
335 335335 335
335 335335
335
200200 200 200
200
200200
200
200 200200 200
200 200200
200
$ Millions
Cash Asset Based Revolver Cash Flow Revolver
Strong Liquidity PositionCash plus borrowing capacity under existing revolvers
* Original business model assumed a working capital requirement of only $150M
* Original business model assumed a working capital requirement of only $150M
*
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 7
309
407461
0
100
200
300
400
500
FY09 FY10 FY11
Growing Product Investment
FY2011
17%
14%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Avaya Product Industry Average
Note: Avaya product revenue excludes rental and AFS revenue
R&D as a % of Product RevenueR&D ($M)
*
* FY2012 year to date at 18%
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 8
Recent Acquisitions
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 9
41
6165
61
52
3935
116 5 7
0
10
20
30
40
50
60
70
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
($ Millions)
Acquisition & Integration Expenses
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 10
• India • Russia• Mexico
• UC/CC Apps• Web Collaboration• Business Analytics• Video • Security• Speech
Global IT Spending Growth Rates
Source: Gartner, Enterprise IT Spending by Vertical Industry, Q2 ‘12
Avaya Momentum and Visibility
• US• Canada• Brazil• APAC
• US Govt.• Western
Europe
Macro Environment Remains Challenged; Customers Forced to Prioritize IT Spend
• Call Control• Voice Endpoints
• TDM Systems/Sets• Traditional Voice
SupportUS EMEA APAC Am. International World
5%
6%
11%
10%
7%
4%
-2%
3%
4%
2%
4%
3%
5%
6%
4%
2011 2012 2013
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 11
Footprint ConsolidationOngoing Headcount Management
Complexity Reduction
Evolution of Cost Structure
FY09 Nortel Close
FY10 FY11 FY12
15,541
21,086
18,900 18,588
16,951
Avaya Nortel Radvision
Today 2015 Goal
Facilities 246> 50%
reduction
Million Sq. Ft. 6 4
Today 2015 Goal
R&D Sites / Product
5 2
Suppliers 5,300 < 1,500
Web Self-Service
34% 75%
EMS / ODMs 7 5
Total Avaya Headcount
First opportunity to deal with size
& complexity
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 12
3Q12 Annualized Adj EBITDA
Impact of FY12 Headcount Actions
Impact of FY13 Actions:RE Consolidation Indirect Spending
Supplier Related Actions HC Management
Benefits & Program Investments
Pro Forma 3Q12 Annual-ized Adj EBITDA
900
1,075
105
135
235
90 1,150
65
($M)
Illustrative FY13 EBITDA Impact of Cost Initiatives(1)
$240M – 340M of incremental realized cost savings by end of FY13
1) In an 8K filed with the SEC on 9/24/12, the company disclosed cost savings initiatives over the next several years. Actual results may vary based on a number of factors, including but not limited to, the risks identified in Avaya’s SEC filings at www.sec.gov
Targeted $400M+ annualized cost
reductions by FY15
Committed
Additional opportunity
© 2012 Avaya – Proprietary. Use pursuant to your signed agreement or Avaya policy. 13
Today, tomorrow and in the future…
Strong positioning & competitive advantages, clear
strategy & solid financial foundation
Delivering on transformation and operational
improvement programs
Generating cash flow – investing for the future
Redefining the market with innovative solutions
Commitment to delivering value for our
customers, employees, partners and owners.