Avaya Holdings Corp (NYSE:AVYA) Q3 2019 Earnings Conference Call Transcript

Aug 13, 2019 • 08:30 am ET

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Avaya Holdings Corp (NYSE:AVYA) Q3 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Avaya Third Quarter Fiscal 2019 Financial Results Conference Call and Webcast. [Operator Instructions] Thank you.

Mike McCarthy, Vice President of Investor Relations, you may begin your conference.

Executive
Michael W. McCarthy

Welcome to Avaya's Q3 fiscal year 2019 investor call. Jim Chirico, our President and CEO; and Kieran McGrath, our Senior VP and CFO, will lead this morning's call and share with you some prepared remarks before taking your questions. Shefali Shah, our Senior Vice President, Chief Administrative Officer and GC; Chris McGugan, Senior Vice President of Solutions and Technology, are also here for today's call.

The earnings release and investor slides referenced on this morning's call are accessible on the Investor page of our website, as well as our 8-K filed today with the SEC, and should aid in your understanding of Avaya's financial results.

We will reference our non-GAAP financial measures and specifically note that all sequential and year-over-year comparisons reference non-GAAP numbers, except where otherwise noted. A reconciliation of such measures to GAAP is included in the earnings release and investor slides, which are available on the Investor page of our website.

We may make forward-looking statements that are based on our current expectations, forecasts and assumptions, which remain subject to risks and uncertainties that could cause actual results to differ materially., Information about risks and uncertainties may be found in our most recent filings with the SEC, including our Form 10-K and subsequent Form 10-Q reports. It is Avaya's policy not to reiterate guidance, and we undertake no obligations to update or revise forward-looking statements in the event facts or circumstances change, except as otherwise required by law.

I will now turn the call over to Jim.

Executive
Jim Chirico

Thanks, Mike.

Good morning everyone, and thank you for joining us. Before discussing our third quarter, I'd like to provide two updates. First, is an update on the process we are conducting with J.P. Morgan. At this time, we are in advanced discussions with multiple parties on a range of strategic transactions to maximize shareholder value. We expect to bring this process to a conclusion within the next 30 days.

Second, I'd like to address a goodwill impairment charge that we took this quarter. In short, the recent decline in our stock price, and our year-to-date performance prompted an interim goodwill impairment test, resulting in a $657 million non-cash charge. Kieran will provide additional context around this charge.

Let me start with our results. In the third quarter of fiscal 2019, we delivered revenues of $720 million. Gross margins of 60.8%, adjusted EBITDA of $167 million, and we generated $52 million in cash flow from operations. Software and services as a percent of revenue increased to 83.6%, and recurring revenue was 59.3%. Importantly, our financial results were above the midpoint of the range, demonstrating progress across our business.

In particular, I mentioned on our last call, two product transition issues