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Avaya (AVYA) Q2 Earnings Miss Estimates, Revenues Fall Y/Y

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·4-min read
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Avaya AVYA reported second-quarter fiscal 2022 non-GAAP earnings of 53 cents per share, which missed the Zacks Consensus Estimate by 14.52% and declined 28.4% on a year-over-year basis.

Total revenues of $716 million fell 3% year over year and 2% year over year on a constant currency basis. The top line missed the Zacks Consensus Estimate by 3.16%.

Quarter in Detail

Avaya’s transformation from a one-time revenue model to a recurring one was reflected in the second-quarter performance with the solid adoption of Avaya OneCloud solutions.

OneCloud Annualized Recurring Revenue (ARR) was $750 million, up 21% sequentially and 118% from the year-ago quarter. In the second quarter, 75% of new bookings came from Avaya OneCloud.

The shift of the revenue model had a positive impact of $40 million on the revenues in the reported quarter.

In the second quarter, Avaya booked subscription TCV bookings of $328 million and 200 new logo subscription customers, driven by solid adoption of OneCloud solutions.

Avaya Holdings Corp. Price, Consensus and EPS Surprise

Avaya Holdings Corp. Price, Consensus and EPS Surprise
Avaya Holdings Corp. Price, Consensus and EPS Surprise

Avaya Holdings Corp. price-consensus-eps-surprise-chart | Avaya Holdings Corp. Quote

However, in spite of solid OneCloud adoption, revenues for the second quarter decreased since the percentage of revenues recognized from the subscription bookings was lower in the reported quarter and is expected to show in the upcoming quarters.

Product sales of $223 million decreased 1.3% year over year. The figure contributed 31.1% to total revenues.

Services sales of $493 million fell 3.7% year over year. The figure accounted for 69% of total revenues.

Geographically, revenues from the United States were $422 million, which decreased 2.2% year over year. Revenues from Europe, Middle East & Africa were $175 million, which decreased 6.4% year over year. Asia Pacific and Canada and Latin America revenues declined 13% and 14.8%, year over year, to $67 million and $52 million, respectively.

Non-GAAP gross profit of $406 million decreased 11% year over year, which resulted in a non-GAAP gross margin of 56.7%, decreasing by 510 bps year over year.

Research & development expenses, as a percentage of revenues, increased 70 bps year over year to 8.4%. Selling, general & administrative expenses, as a percentage of revenues, declined 160 bps. However, it still represented a staggering 34.2%.

Non-GAAP operating income declined 22.3% year over year, while non-GAAP operating margin of 16.1% declined by 400 bps year over year.

Adjusted EBITDA was $145 million, which represented an adjusted EBITDA margin of 20%, declining 370 basis points year over year.

Balance Sheet & Cash Flow

As of Mar 31, 2022, cash and cash equivalent totaled $324 million compared with $354 million on Dec 31, 2021.

Cash flow from operations in the second quarter was a negative $2 million compared with a negative cash flow of $111 million in the previous quarter.

Guidance

Avaya forecasts third-quarter fiscal 2022 revenues of $685-$700 million. The fiscal year 2022 revenue is expected between $2.815 billion and $ 2.855 billion.

Non-GAAP operating income is expected between $111 million and $121 million, reflecting operating margin of 16% to 17%. Full-year non-GAAP operating income is expected in the range of $466 million to $486 million, reflecting operating margin of 17%.

Adjusted EBITDA for the second quarter is anticipated in the range of $140 million $150 million, highlighting an adjusted EBITDA margin of 20% to 21%. Full-year adjusted EBITDA margin is expected between $580 million and $600 million, reflecting adjusted EBITDA margin of 21%.

Non-GAAP diluted EPS for the second quarter is anticipated to be 48-56 cents per share and for the full-year is expected to be $2.09-$2.25.

Zacks Rank & Other Stocks to Consider

Avaya currently carries a Zacks Rank #2 (Buy).

Avaya’s shares have tumbled 62% compared with the Zacks Computer and Technology sector’s decline of 26% in the year-to-date period.

Here are some other top-ranked stocks worth considering in the broader sector.

Analog Devices ADI currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ADI shares have declined 11.7% in the year-to-date period. ADI is scheduled to report second-quarter 2022 results on May 18.

Cisco Systems CSCO presently carries a Zacks Rank of 2.

Cisco shares have declined 21.8% in the year-to-date period. CSCO is slated to report third-quarter fiscal 2022 results on May 18.

Broadcom (AVGO) carries a Zacks Rank of 2 at present.

Broadcom shares have declined 12.6% in the year-to-date period. AVGO is scheduled to report first-quarter fiscal 2022 results on Jun 2.


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