Avaya reports results for Q3 of Fiscal 2007

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Avaya Inc ., (NYSE:AV) a leading global provider of business communications applications, software and services, today announced net income of $55 million and earnings per share of 12 cents for the third fiscal quarter of 2007 on a U.S. generally accepted accounting principles (GAAP) basis.  In the third fiscal quarter of 2006, the company reported net income of $44 million and earnings per share of 10 cents on a GAAP basis.  Non-GAAP net income was $69 million or 15 cents per share, compared with non-GAAP net income¹ for the third fiscal quarter of 2006 of $38 million or 8 cents per share.  

 

Avaya's third fiscal quarter 2007 revenues decreased 1.6 percent to $1.276 billion compared to $1.297 billion in the same period last year.  Sales of products declined 1.6 percent, rental and managed services revenues declined 7.1 percent, and services revenues were flat.   Foreign exchange benefited revenues by approximately $30 million, primarily in Europe.  U.S. revenues declined 8 percent.  EMEA revenues were relatively flat, with growth outside of Germany offset by declines within Germany. Asia Pacific revenues grew by 33 percent.  Revenues in the Americas, non-U.S., grew by 11 percent, driven by performance in Latin America.

 

The company's total gross margin was 46.8 percent for the third fiscal quarter of 2007 compared to 45.3 percent in the prior year. 

 

Selling, general and administrative expense and research and development expense were both lower compared to the prior year, contributing to the year-over-year income improvement.

 

The company reported operating income for the third fiscal quarter of 2007 of $70 million and non-GAAP operating income¹ of $91 million.  In the third fiscal quarter of 2006, the company reported operating income of $28 million and non-GAAP operating income¹ of $50 million.

 

Avaya's effective tax rate was 31.3% for the third quarter of fiscal 2007.  

 

Avaya generated $202 million in operating cash flow during the third fiscal quarter of 2007 compared to $181 million in the third fiscal quarter of 2006.  Avaya's cash balance at the end of the third quarter of fiscal 2007 was $1.057 billion, compared with $899 million as of September 30, 2006.

 

Business Segment Results

Global Communications Solutions (GCS) generated revenues of $686 million in the third fiscal quarter of 2007, a decrease of $18 million compared to the same period last year.  Communications systems declines were partially offset by increased sales of converged voice applications.  The decline in large communications systems was primarily attributable to the U.S., partially offset by growth in Asia Pacific and Latin America.  The decline in small communications systems was primarily attributable to declines in the U.S. and Germany.  Revenues from converged voice applications increased $9 million.

 

GCS results continue to show the shift to IP from traditional TDM telephony:  during the third quarter of fiscal 2007 Avaya shipped over one million IP lines for the 5th consecutive quarter.  IP product sales increased 10% compared to the third quarter of fiscal 2006. As a result of the continued growth in this newer technology, IP telephony now represents 69% of the Company's sales in this quarter.

 

GCS generated operating income of $25 million, a decrease of $11 million compared with the third fiscal quarter of 2006, primarily as a result of lower volume.

 

Avaya Global Services (AGS) generated revenues of $590 million in the third fiscal quarter of 2007, relatively flat compared to $593 million in the same period last year.  Product Support Services grew slightly primarily due to higher contract maintenance revenues.  Consulting and Systems Integration revenues declined due to lower implementation services in connection with lower sales of products in the direct channel.  Global Managed Services revenues were relatively flat.

 

AGS generated operating income of $63 million, an increase of $29 million compared with the third fiscal quarter of 2006, as a result of improved efficiencies and expense controls.

 

The Corporate results include a restructuring charge of $13 million, primarily related to workforce reductions in Germany.  In addition, merger-related costs of $8 million are included in the Corporate results.  The merger-related costs are associated with the definitive agreement announced on June 4, 2007, under which Avaya agreed to merge with an entity controlled by Silver Lake Partners and TPG Partners.  During the third fiscal quarter of 2006, the Corporate results included restructuring charges of $22 million and impairment charges of $29 million, partially offset by a $22 million benefit related to non-income tax audit settlements.

 

Fiscal 2007 Year-To-Date Results

For the first nine months of fiscal 2007, the Company earned GAAP net income of $183 million and earnings per share of 40 cents compared to net income of $153 million and earnings per share of 32 cents for the first nine months of fiscal 2006.  Operating income for the first nine months of fiscal 2007 was $241 million compared to $188 million for the first nine months of fiscal 2006.  Revenues for the first nine months of fiscal 2007 were $3.850 billion compared to $3.784 billion last year.  Operating cash flow for the first nine months of fiscal 2007 was $424 million compared to $456 million last year.

 

Third Fiscal Quarter Highlights

 

Customers Benefit from Avaya Intelligent Communications

Florida Family Abuse Hotline, as a critical component in its disaster recovery plan, is incorporating a Mobile Communication System from Avaya.  The Avaya Mobile Communication System (MCS) offers full-featured voice and data capabilities that can be deployed at a moment's notice to a temporary office, remote location or disaster site.   The 24-hour Hotline fields calls from citizens, case workers and law enforcement officers who are reporting the suspected abuse or neglect of children and elderly adults.  The Avaya MCS, which was selected for business continuity and disaster recovery purposes, mirrors the capabilities of the primary contact center, with computer-telephony integration, the same announcements, user names and logins, and even the same statistical reports. It also provides the department with greatly expanded recovery capabilities.

 

Air China, one of the leading airlines in the country, has increased its sales and enhanced customer service levels with Avaya's intelligent communications solutions. Avaya helped Air China's Telephone Sales and Services Center to achieve a revenue increase of nearly 300 percent since the deployment of advanced contact center technologies in August 2006.  The Center is now more agile in responding to customer demands and providing personalized, always-on services.

 

When the Jersey City, NJ, Liberty Science Center reopened, visitors experienced the benefits of new intelligent communications capabilities from Avaya. Avaya technology will help expand learning beyond the museum's walls as part of the Center's new "Science Now, Science Everywhere" initiative.  Visitors will be able to use cell phones to interact with exhibits and learn anywhere, at any time. They will be able to retrieve and download supplementary information and commentary, vote in museum polls and even contribute additional information of their own. For example, the museum's "Communication: Leave Your Mark" exhibit lets guests add bubbles to the screen by sending text messages.

 

Winn Army Community Hospital is now using a new intelligent communications solution designed by Avaya and Interactive Northwest Inc. The system has allowed new breakthroughs in the service it delivers to more than 75,000 soldiers, retirees and their families at Fort Stewart, Ga.  The applications the companies have provided to Winn Army Community Hospital are helping patients benefit from shorter hold times, improved service, and faster access to personnel and test results.

 

Total Gas & Power, one of Britain's leading energy suppliers, has transformed its telephone infrastructure into a single, advanced network with an IP telephony solution from Avaya Inc. The company's new network, based on Avaya Communication Manager IP Telephony software, has allowed Total Gas & Power to develop to a highly flexible and efficient call center facility for over 100 agents designed to specifically maximize call handling capacity and meet growing customer needs. A key element of the new call center is the centralized management feature provided by the Automatic Call Distribution (ACD) which allows for faster linkage of people, call monitoring and an advanced queuing system enabling agents to prioritize and distribute calls accordingly.

 

The Royal Albert Hall, one of the UK's most iconic buildings which welcomes world-class artists and audiences from around the world, has deployed an Avaya IP solution to provide 'state of the art' customer service to the 1.2 million visitors that attend the venue each year.  The investment in the converged communication solution was made as part of Royal Albert Hall's ambitions to further improve the standard of service offered to customers and event promoters. The new voice and data solution supports the telephony requirements of users across the organization as well as offering advanced functionality within the Box Office contact center.   The design of the solution will also contribute to a reduction of the Hall's communication costs by consolidating the voice and data infrastructure into a single centralized network.

 

New Solution Offers

 

Avaya Distributed Office, a new IP telephony communications system that delivers rich branch communications capabilities and powerful management tools in an economical package, will help businesses deliver a consistent customer experience across hundreds of locations while dramatically increasing the speed and ease of deployment. The system provides rich communication, collaboration and mobility capabilities that are designed with the unique needs of the branch office in mind. Features such as presence and instant messaging can be delivered to every location, enhancing staff responsiveness to customer needs. Mobility features support employees on the go, providing effective communications regardless of location.

 

Avaya introduced the 3.1 release of Quick Edition, with additional software that delivers a range of new features and two new hardware components designed to enhance customer service, reduce expenses and simplify maintenance and administration of the system.   The new enhancements to this market-leading, innovative peer-to-peer phone system enable more small companies and branch offices worldwide to improve customer service and reduce expenses, transacting business with a simple yet sophisticated IP telephony system. 

 

Avaya and Singapore Telecommunications Limited (SingTel) collaborated to jointly provide a managed IP solution to enterprises in Singapore. Branded as SingTel Managed IP PBX, the solution enables enterprises to enjoy innovative IP-based unified communications applications with the option of not incurring high upfront and maintenance costs.  A scalable solution, it offers an attractive utility-based option as well as other options to meet the varying current and future needs of the enterprise.

 

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