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Avaya files for bankruptcy in US; SA ops unscathed

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 20 Jan 2017
Avaya has a presence in every African country today, says Danny Drew, MD of Avaya SA.
Avaya has a presence in every African country today, says Danny Drew, MD of Avaya SA.

The restructuring process commenced by US-based unified communications solutions provider Avaya following its filing of bankruptcy in the US will not affect operations in SA and Africa as a whole.

Avaya yesterday announced it had commenced a formal proceeding to restructure its balance sheet to better position itself for the future.

To facilitate this restructuring, the company filed voluntary petitions under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York.

In a statement, the company says foreign affiliates are not included in the filing and will continue normal operations.

Debt crisis

Avaya has been in the limelight over its financial problems of late. Last year, several publications reported Avaya' s private equity owners - Silver Lake Partners and TPG Capital - were considering a sale of the telecommunications equipment company that could have valued it at between $6 billion and $10 billion, including debt.

At the time, Avaya reportedly had a $6 billion debt burden, as it transitioned from a legacy hardware business to a software and services company helping corporate clients with their communication needs. Avaya struggled to keep up with established competitors, such as Cisco and Huawei, as well as some business phone start-up companies.

Avaya has now obtained a committed $725 million debtor-in-possession (DIP) financing facility underwritten by Citibank. Subject to court approval, the company says this DIP financing, combined with its cash from operations, is expected to provide sufficient liquidity during the Chapter 11 cases to support its continuing business operations and minimise disruption.

"We have conducted an extensive review of alternatives to address Avaya's capital structure, and we believe pursuing a restructuring through Chapter 11 is the best path forward at this time," says Kevin Kennedy, CEO of Avaya. "Reducing the company's current debt through the Chapter 11 process will best position all of Avaya's businesses for future success."

SA position

Amid all the latest developments, Avaya is confident it will be business as usual in Africa. "We currently have about 25 people in our South Africa operation, with open headcount to expand," Danny Drew, MD of Avaya SA, told ITWeb.

"As in other markets, we work closely with our partners in the South African market and they are critical to our business, helping us to reach a wider range of customers. We have been actively developing our partner community in key strategic areas, such as cloud, where we now have four key partners. We have more than 70 partners in South Africa."

Drew pointed out that having established its first office in Kenya, today Avaya has offices in Nigeria, SA and Egypt, with a presence in Morocco and Algeria, as well as legal entities in Zambia, Tanzania and Ghana - which can be turned into offices at any time. Through its industry ecosystem of partners, Avaya has a presence in every African country today, he noted.

"Major transformation projects Avaya is working on in Africa include working with one government to build a centralised contact centre that allows citizens to access all government organisations via a single phone number. Avaya is also working on emergency alert systems with various police forces across the continent, while it is working with governments to provide infrastructure services including voice, data and unified communications," Drew said.

Financial performance

Meanwhile, Avaya reported financial results for the fourth fiscal quarter and fiscal year ended 30 September 2016.

It says total revenue for the fourth quarter was $958 million, up $76 million compared to the prior quarter as demand improved for products and services, and decreased $50 million year-over-year, due to lower demand for unified communications hardware.

Generally accepted accounting principles (GAAP) gross margin was 60.9% for the fourth quarter, while non-GAAP gross margin was 61.8%, which compares to 62.4% for the prior quarter and 62% for the fourth quarter of 2015.

It adds that GAAP operating loss was $428 million, reflecting $542 million of impairment of goodwill and intangibles. Non-GAAP operating income was $229 million, which compares to $180 million for the prior quarter and $202 million for the fourth quarter of fiscal 2015. For the quarter, adjusted EBITDA was $284 million or 29.6% of revenue, which compares to adjusted EBITDA of $223 million or 25.3% for the prior quarter, and $246 million or 24.4% for the fourth quarter of fiscal 2015.

For fiscal 2016, Avaya reported revenue of $3 702 million, down 9% compared to fiscal 2015, or down 8% in constant currency. GAAP gross margin for fiscal 2016 was 60.6%. Non-GAAP gross margin was a record 61.5%. GAAP operating loss was $262 million, reflecting $542 million of impairment of goodwill and intangibles. Non-GAAP operating income was $756 million in fiscal 2016 compared to $718 million in fiscal 2015. Fiscal 2016 adjusted EBITDA of $940 million represented a record 25.4% of revenue, and was $40 million higher compared to fiscal 2015.

Cash flow from operations was $113 million and free cash flow was $17 million for fiscal year 2016, reflecting one-time payments of approximately $82 million for a legal settlement and advisory fees. Cash and cash equivalents totalled $336 million as of 30 September 2016, an increase of $67 million from the prior quarter and up $13 million from fourth quarter 2015.

"Avaya's fourth fiscal quarter results reflect the strength of our technology portfolio, with major competitive wins at government agencies and enterprise customers across networking, contact centre and private cloud services, underpinned by continued transformation of the company to a superior operating model," Kennedy concludes.

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