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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-38289
AVAYA HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware 26-1119726
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2605 Meridian Parkway, Suite 200 27713
Durham,North Carolina
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908953-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockAVYANew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes     No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller Reporting CompanyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.       
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  
The aggregate market value of the registrant's Common Stock held by non-affiliates on March 31, 2021, the last business day of the
registrant's most recently completed second quarter, was $2,338 million.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes      No  
As of October 31, 2021, 84,115,602 shares of Common Stock, $.01 par value, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K will be incorporated by reference from certain portions of the registrant's definitive proxy
statement for its 2022 Annual General Meeting of Stockholders, or will be included in an amendment hereto, to be filed with the
Securities and Exchange Commission not later than 120 days after the close of the registrant's fiscal year ended September 30, 2021.




TABLE OF CONTENTS
 
ItemDescriptionPage
PART I
1.
1A.
1B.
2.
3.
4.
PART II
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
PART III
10.
11.
12.
13.
14.
PART IV
15.
16.
When we use the terms "we," "us," "our," "Avaya" or the "Company," we mean Avaya Holdings Corp., a Delaware corporation, and its consolidated subsidiaries taken as a whole, unless the context otherwise indicates.
This Annual Report on Form 10-K contains the registered and unregistered trademarks or service marks of Avaya and are the property of Avaya Holdings Corp. and/or its affiliates. This Annual Report on Form 10-K also contains additional trade names, trademarks or service marks belonging to us and to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
 


i



Cautionary Note Regarding Forward-looking Statements
Certain statements in this Annual Report on Form 10-K, including statements containing words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "model," "can," "could," "may," "should," "will," "would" or similar words or the negative thereof, constitute "forward-looking statements." These forward-looking statements, which are based on our current plans, expectations, estimates and projections about future events, should not be unduly relied upon. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. We caution you therefore against relying on any of these forward-looking statements.
The forward-looking statements included herein are based upon our assumptions, estimates and beliefs and involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and may be affected by a variety of risks, uncertainties and other factors, which 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. Risks, uncertainties and other factors that may cause these forward-looking statements to be inaccurate include, among others: the risks and factors discussed in Part I, Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" to this Annual Report on Form 10-K.
All forward-looking statements are made as of the date of this Annual Report on Form 10-K and the risk that actual results will differ materially from the expectations expressed in this Annual Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.
Marketing, Ranking and Other Industry Data
This Annual Report on Form 10-K includes industry and trade association data, forecasts and information that we have prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. In particular, the Aragon reports described below represent research opinion or viewpoints published, as part of a syndicated subscription service, by Aragon Research, Inc. ("Aragon") and are not representations of fact. Each of the Aragon reports speaks as of its original publication date (and not as of the date of this filing) and the opinions expressed in the Aragon reports are subject to change without notice. Aragon does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Aragon research publications consist of the opinions of Aragon's research organizations and should not be construed as statements of fact. Aragon disclaim all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Statements as to our market position are based on market data currently available to us. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Certain information in the text of this Annual Report on Form 10-K is contained in industry publications or data compiled by a third-party. The sources of these industry publications and data are provided below:
Aragon Report: The Aragon Research GlobeTM for Unified Communications and Collaboration, 2021, Jim Lundy, June 2021
Aragon Report: The Aragon Research GlobeTM for Intelligent Contact Centers, 2021, Jim Lundy, July 2021



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PART I
Item 1.Business
Our Company
Avaya is a global leader in digital communications products, solutions and services for businesses of all sizes, delivering its technology predominantly through software and services. We enable organizations around the globe to succeed by creating intelligent communications experiences for our clients, their employees and their customers. Avaya builds innovative open, converged unified communications and collaboration ("UCC") and contact center ("CC") software solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. Our global, experienced team of professionals delivers award-winning services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support.
Businesses are built by the experiences they provide, and Avaya delivers millions of those experiences globally through its software and solutions every day. Avaya is shaping the future of businesses and workplaces, with innovation and partnerships that deliver tangible business results. Our cloud communications solutions and multi-cloud software ecosystem power tailored, intelligent, and effortless customer and employee experiences that enable our clients to effectively engage and interact with their customers.
Avaya shifted its entire comprehensive software portfolio to Avaya OneCloud, which offers significant capabilities across contact center (OneCloud CCaaS), unified communications and collaboration (OneCloud UCaaS), and communications platform as a service (OneCloud CPaaS). We believe the Avaya OneCloud open, composable platform approach uniquely positions us to address a customer’s needs in creating a Digital Workplace for their campus-based and remote employees through Unified Communications and Collaboration and the Customer Experience Center, our name for contact centers, helping clients deliver tangible business results.
Avaya offers a range of software sales and licensing models that can be deployed on-premise or via a public, private, or hybrid cloud. With our open, extensible development platform, customers and third parties can easily create custom applications and automated workflows for their unique needs, and integrate Avaya’s capabilities into the customer's existing infrastructure and business applications. Our solutions enable a seamless communications experience that adapts to how employees work, instead of changing how they work.
Avaya also offers one of the broadest portfolios of business devices in the industry, including handsets, video conferencing units and headsets to meet the needs of every type of worker across a customer’s organization and help our customers get the most out of their communications investments. Avaya IP-enabled handsets, multimedia devices and conferencing systems enhance collaboration and productivity, and position organizations to incorporate future technological advancements.
Operating Segments
Our business has two operating segments: Products & Solutions and Services.
Products & Solutions
Products & Solutions encompasses our UCC and CC software platforms, applications and devices.
Avaya OneCloud UCaaS solutions enable organizations to reimagine collaborative work environments and help companies increase employee productivity, improve customer service and reduce costs. With Avaya OneCloud UCaaS, organizations can provide their workers with a single app for all-channel calling, messaging, meetings and team collaboration with the same ease of use as existing consumer apps. Avaya embeds communications directly into the apps, browsers and devices employees use every day, giving them a more natural, efficient and flexible way to connect, engage, respond and share where and how they want. During fiscal 2021, we expanded our portfolio to include new cloud-based solutions, and we continued integrating Artificial Intelligence ("AI") to create enhanced user experience and improve performance. For additional information on Avaya OneCloud, see "—Avaya OneCloud Deployment Options and Capabilities."
Avaya OneCloud CCaaS solutions: Avaya’s industry-leading digital contact center solutions enable clients to build a customized portfolio of applications to drive stronger customer engagement and higher customer lifetime value. Our reliable, secure and scalable communications solutions include voice, email, chat, social media, video, performance management and third-party integration that can improve customer service and help companies compete more effectively. Avaya delivers OneCloud CCaaS solutions for cloud deployment and, in fiscal 2021, we continued to aggressively integrate AI, machine learning and leading-edge cybersecurity capabilities into our portfolio, providing our clients a deeper understanding of their customers’ needs with a robust and secure platform.
Avaya OneCloud CPaaS combines the cloud with our communications platforms, providing a development platform and the application programming interfaces that enable developers to easily integrate both UCC and CC
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communications capabilities directly into internal and customer-facing applications and workflows. Organizations can quickly deliver modular, composable applications ("apps") and experiences that meet ever-changing customer and operational needs.
Services
Complementing our product and solutions portfolio is a global, award-winning services portfolio, delivered by Avaya and our extensive partner ecosystem. Our services portfolio, which includes solution upgrades and provides new technology through our Avaya OneCloud subscription offerings, consists of:
Global Support Services provide offerings that help businesses protect their technology investments and address the risk of system outages. We help our customers gain a competitive edge through proactive problem prevention, rapid resolution and continual solution optimization. Global support services also provide software solutions delivered through a subscription model to provide our customers an improved user experience and solution enhancements. Most of our global support services revenue is recurring in nature.
Enterprise Cloud and Managed Services enable customers to take advantage of our technology via the cloud, on-premise, or a hybrid of both, depending on the solution and the needs of the customer. Most of our enterprise cloud and managed services revenue is recurring in nature and based on multi-year services contracts.
Professional Services enable our customers to take full advantage of their IT and communications solution investments to drive measurable business results. Our experienced consultants and engineers partner with customers along each step of the solution lifecycle to deliver services that add value and drive business transformation. Most of our professional services revenue is non-recurring in nature.

With these comprehensive services, customers can leverage communications technology to help them maximize their business results. We help our customers use communications to minimize the risk of outages, drive employee productivity and deliver a differentiated customer experience.
Our services teams also help our customers transition at their desired pace to next-generation communications solutions. Customers can choose the level of support for their communications solutions best suited for their needs, which may include deployment, training, monitoring, solution management, optimization and more. Our systems and service teams' performance monitoring can quickly identify and address issues before they arise. Remote diagnostics and resolutions focus on fixing existing problems and avoiding potential issues in order to help our customers save time and reduce the risk of an outage.
Avaya OneCloud Deployment Options and Capabilities
Cloud and Software-as-a-Service (“SaaS”) models generally refer to the products and services that allow organizations to move from owning, managing and running solutions to paying only for the capabilities they need. Avaya OneCloud provides an option for customers to access all of Avaya's software and solutions and customize as they see fit.
Avaya OneCloud provides the full spectrum of deployment options, including via private, public and hybrid cloud, as well as on-premise. This enables organizations to deploy our solutions in the way that best serves their business requirements and complements their existing investments, while moving with the speed and agility they require.
Avaya OneCloud, delivered as Private, Public, Hybrid or On-Premise
Private cloud: Each organization has its own instance of the software, although the platform is shared across multiple organizations, and can leverage its existing technology infrastructure investments without having to operate them. In this model, the organization transitions from a commercial model to a usage model and engages Avaya or a business partner to operate its investments on their behalf. The customer receives a tailored solution using the latest software with standardized cloud contracts.
Public cloud: Each organization is a tenant of a shared instance of the software on a shared platform.
Hybrid cloud: In a hybrid deployment, customers are able to leverage private cloud features that are already performing to their specifications and then integrate newly developed capabilities from the broader public cloud portfolio.
On-Premise: While a growing portion of our business is transitioning to our private, public and hybrid cloud-facing consumption models, there are customers that have business models and/or requirements that mandate a premise-based infrastructure and therefore we will continue to support such solutions.
Avaya’s solutions are addressing the convergence of private and public cloud deployments observed across the industry. Used in conjunction with our private cloud solution, a customer can use a public cloud to provide capability at the edge of their network in a cost effective manner. Avaya’s investments in data-driven intelligent automation mean that if an organization
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needs to deploy an advanced, integrated, value-focused solution via a private cloud but needs it deployed in just hours, Avaya can deliver such a solution on the requested timeline. The benefit to the organization is “always available” access to the latest capabilities and innovation, quickly and at scale.
Avaya OneCloud, delivered as Subscription
Subscription begins the customer’s journey to the cloud by changing the commercial model from an ownership model with an existing on-premise solution to a usage model with monthly or annual subscription payments. The customer only pays for the software and solutions that they need as opposed to buying an off-the-shelf solution that cannot be easily tailored to their needs, while providing access to the latest software.
Avaya OneCloud Migration
We believe our migration methodology differentiates us from many other cloud vendors in the market because of our range of services and ability to seamlessly migrate our customers to the cloud. We provide a range of cloud-facing deployment options best suited to a customer’s business and the capabilities to help our customers deploy these options. Our approach also provides flexible options based on standardized methodologies, a range of services, enterprise software expertise and tools to help organizations along every step of their journey to the cloud by reducing transition complexities and risks as they move from their current deployment to a cloud-based one.
With our comprehensive Avaya OneCloud portfolio and a long-term technology development roadmap in place, we are helping our customers build state-of-the-art digital workplaces and contact centers. Our customers can take advantage of public, private and hybrid cloud solutions at any stage in their journey, and leverage new capabilities and innovations from Avaya and its ever-expanding partner ecosystem by consuming these software capabilities from the cloud, over-the-top of their on-premise solutions.
Application Developer Products
Along with off-the-shelf integration with frequently used business applications across an organization, Avaya’s converged communications platform simplifies the embedding of Avaya OneCloud communications and collaboration capabilities into business applications, including customer relationship management and enterprise resources planning. Our platform enables customers and third parties to work with Avaya to create customized engagement applications and to meet the unique operating requirements of a customer with unified communications and contact center capabilities including voice, video, messaging, meetings and more. Avaya also offers a cloud-based execution and test environment for developing proof-of-concept applications.
The Avaya Client Software Development Kit ("SDK") provides a developer-friendly set of tools that enables the building of innovative user experiences for vertical or business specific applications. Any functionality Avaya uses in its own clients and applications is available to developers through the SDK. Developers can mix and match functionality from both our unified communications and contact center solutions.
Avaya has an extensive developer program, Avaya DevConnect, that enables third parties to support and extend the capabilities of Avaya solutions to address business challenges. Thousands of companies around the world are program members, including developers, system integrators, service providers and Avaya customers.
Cloud, Alliance Partner and Subscription (“CAPS”) Revenues
We measure our success in transforming our business to the cloud and our ability to reduce our dependence on premise-based perpetual licensing models by analyzing the contribution of our “CAPS revenue” to total consolidated revenue. CAPS revenue refers to revenue from cloud based solutions, together with revenues from our Strategic Alliance Partnerships and Subscription revenue. Our CAPS revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 40%, 26% and 16% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively.
Global Alliances
Avaya global alliances are strategically oriented technical and commercial relationships with key partners that we believe enhance both companies' go-to-market strategy. We have three primary types of global alliances: Global Service Provider alliances, Global Systems Integrator alliances and Ecosystem alliances.
Global Service Provider alliances: Through these partnering arrangements with leading telecommunications service providers, we pursue sell-to and sell-through opportunities for Avaya solutions and services. These alliances are integral in selling and implementing our cloud-based services. We also see them as a principal route to market for our UCaaS and CCaaS solutions. During fiscal 2020, we entered a strategic partnership with RingCentral, Inc. (“RingCentral") and began deployment of Avaya Cloud Office, our OneCloud UCaaS solution the same year.
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Global Systems Integrator alliances: These refer to arrangements with systems integrator partners, as well as key channel partners with strong professional services and personalized integration capabilities who include Avaya solutions within broader digital transformation programs and end-to-end vertical solutions.
Ecosystem alliances: These partnering arrangements are with industry leaders and leading technology companies. They feature deeper, R&D-led integrations and/or expanded go-to-market efforts, such as the DevConnect Select Product Program or the Avaya & Friends Program for international markets. During fiscal 2021, we expanded our partnership with Salesforce by developing Avaya OneCloud for Salesforce and offering it in Salesforce AppExchange, we worked with Google to develop AI based solutions for the contact center, and we worked with Microsoft to develop an Azure based contact center and offer it through the Azure MarketPlace.
Channel Partners
Our channel partners serve our customers worldwide through our Avaya Edge business partner program. Through certifications, the Avaya Edge program positions Value Added Reseller partners to sell, implement and maintain our communications systems, applications and services. Avaya Edge offers clearly defined partner categories with financial, technical, sales and marketing benefits that grow with levels of certification and revenue contribution. We support partners in the program by providing our comprehensive Avaya OneCloud portfolio of solutions in addition to sales, marketing and technical support. Although the terms of individual channel partner agreements may deviate from our standard program terms, our standard program agreements for resellers generally provide for a term of one year, with automatic renewal for successive one-year terms. Agreements may generally be terminated by either party for convenience upon 30-days' prior notice, and our standard program agreements for distributors may generally be terminated by either party for convenience upon 90 days prior notice. Certain of our contractual agreements with our largest distributors and resellers, however, permit termination of the relationship by either party for convenience upon prior notice of 180 days. Our partner agreements generally provide for responsibilities, conduct, order and delivery, pricing and payment, and include customary indemnification, warranty and other similar provisions. The Company's largest distributor, ScanSource Inc., is also its largest customer and represented 7% of the Company's total consolidated revenue for fiscal 2021. See Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-Our growth strategy depends in part on our reliance on our indirect sales channel" for additional information on the Company's reliance on its indirect sales channel.
Our Business Today
Our solutions address the needs of a diverse range of businesses, including large multinational enterprises, small and medium-sized businesses and government organizations. Our customers operate in a broad range of industries, including financial services, healthcare, hospitality, education, government, manufacturing, retail, transportation, energy, media and communications. We employ a flexible go-to-market strategy with direct or indirect presence in approximately 190 countries. As of September 30, 2021, we had more than 3,800 active channel partners and for fiscal 2021 our product revenue from indirect sales through our channel partners represented 68% of our total Products & Solutions segment revenue.
For fiscal 2021, 2020 and 2019, we generated revenue of $2,973 million, $2,873 million and $2,887 million, of which 33%, 37% and 42% was generated by Products & Solutions and 67%, 63% and 58% by Services, respectively. Revenue by business area is presented in the following table for the periods indicated:
Fiscal years ended September 30,
(In millions)202120202019
Products & Solutions:
Unified Communications and Collaboration
$683 $710 $863 
Contact Center
309 363 359 
992 1,073 1,222 
Services:
Global Support Services
1,401 1,238 1,086 
Enterprise Cloud and Managed Services
281 282 297 
Professional Services
299 280 282 
1,981 1,800 1,665 
$2,973 $2,873 $2,887 
Our software revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 64%, 61% and 52% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively. Our software revenue aggregates revenue across our two reporting segments. Software revenue includes subscription, public and private cloud,
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perpetual licenses and related software maintenance revenue. On-premise license revenue is included in Product & Solutions, while subscription, cloud related software maintenance revenue are primarily included in Services.
One of our key focuses is increasing our recurring revenue — revenue from products and services that are delivered pursuant to multi-period contracts, including recurring subscription-based software revenue, maintenance, global support services and enterprise cloud and managed services. Non-recurring revenue consists of hardware, non-recurring perpetual-based software and one-time professional services. Hardware predominantly consists of endpoints, which include phones, video conferencing equipment and headsets. Non-recurring software is predominantly comprised of perpetual licenses. One-time professional services include installation services, as well as project-based deployment, design and optimization services.
During fiscal 2021, Avaya introduced Avaya OneCloud ARR (Annualized Recurring Revenue) as a key performance indicator, which provides a leading indicator into the software solutions driving our growth. This metric is similar to what our industry peers report and reflects only the recurring components of Avaya’s portfolio. Revenues reported as part of Avaya OneCloud ARR include revenues from:
Avaya OneCloud CCaaS
Avaya OneCloud CPaaS
Avaya OneCloud DaaS (Device as a Service)
Avaya OneCloud Private Cloud
Avaya OneCloud Subscription
Avaya Spaces
Recurring revenues generated from Avaya Cloud Office
Avaya OneCloud ARR does not include recurring revenues from Maintenance, Managed Services or Avaya Cloud Office one-time revenues.
In fiscal 2021, OneCloud ARR was $530 million, compared to $191 million reported for fiscal 2020. We believe the OneCloud ARR, combined with our remaining performance obligations, provides a view into our long-term revenue growth potential and trajectory.
Trends Shaping Our Industry
We believe several key trends are shaping our industry, creating a substantial opportunity for Avaya and other market participants:
The COVID-19 pandemic significantly accelerated the trend toward remote work and workforce mobility requirements as the need to work from home — or from anywhere — dramatically increased and highlighted the need for dynamic, cloud-based solutions that can be used anytime and anywhere. Our customers have realized the advantages of remote work and many are adopting or are considering adopting a permanent hybrid model that combines remote work with a return to the office. Avaya solutions are well positioned to enable this new future of work and collaboration.
UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.
Preference for cloud delivery of software applications and management of multiple and varied devices continues to grow, all of which must be handled with the security that business demands.
The Experience Economy continues to grow. The Experience Economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and services. As consumers embrace new technologies and devices in creative ways and at an accelerating pace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This increased adoption and deployment of AI is providing significant new opportunities for enhanced UCC and CC solutions that improve the customer experience and transform the Digital Workplace.
Our Market Opportunity
We believe that these trends create significant market opportunity for the next-generation UCaaS, Collaboration, CCaaS and CPaaS solutions that Avaya has brought to the market in fiscal 2021. The limitations of traditional premise-based communications solutions and services and capital-intensive buying models present an opportunity for differentiated vendors to gain market share in the cloud. We believe that the total available market for these solutions includes spending on communications applications, and the business devices that improve the application experience, as well as spending on one-
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time and recurring professional, enterprise cloud and managed services, and support services to implement, maintain and manage these solutions.
We are expanding our business in several of these areas, primarily with cloud-facing and subscription-based consumption models. We are also growing in the customer segments that we serve, including large enterprises with more than 1,000 employees, as well as midmarket enterprises with between 50 and 250 agents in the contact center market and between 100 and 1,000 employees for customers using our communications and collaboration solutions. The growth opportunity in these markets comes from the need for enterprises to increase productivity and upgrade their unified communications and collaboration and contact center strategy to a more integrated approach to account for changing customer expectations and the accelerated work from home / work from anywhere trend, increased mobility, and the demand for seamless experiences across multiple communications channels. In response to these needs, we expect that aggregate total spending on UCC, CC, CPaaS, services and support, and enterprise cloud and managed services to grow, with the majority of growth coming from cloud services.
Although the decision makers for our solutions and services have traditionally been senior IT leadership, up to and including Chief Information Officers ("CIOs"), our research finds that now more of the buying decisions are being influenced by business units and the broader C-suite, including Chief Executive Officers (“CEOs”), Chief Marketing Officers (“CMOs”) and Chief Digital Officers ("CDOs"). They have become more involved as digital transformation has expanded beyond the data center and IT infrastructure to encompass lines of business operations and customer experiences. CEOs, CMOs and CDOs are recognizing growing customer and employee demand for better interactions across multiple channels of their choosing, and they see an opportunity to differentiate their companies and lines of business by providing their employees with an opportunity to deliver a superior customer experience.
We believe that due to the increasing importance of technology as both an internal and external-facing presence of the enterprise, as well as the high stakes of data breaches and similar cyber-security events, CEOs are increasingly engaged in the decision-making process. CMOs and CDOs are gaining additional budget authority as they are tasked with managing customer experience and marketing activities using sophisticated communications technology and rich data. We believe that because of the shifts in decision-making roles, the focus of customer experience solutions should be to provide businesses with better ways to engage with end users securely across multiple platforms and channels, creating better customer experiences, and ultimately, higher revenues for the business.
In our experience, decision makers have three critical priorities:
Shift to cloud-based solutions: Companies today seek technology that helps them lower Total Cost of Ownership (“TCO”) and increase deployment speed and application agility, including a variety of public, private and hybrid cloud solutions. They are also shifting away from a complex, proprietary capital-intensive consumption model to one that is more flexible and efficient in gaining access to the latest technology.
Leverage existing technology infrastructure while positioning for the future: The speed at which new technology enters the market is challenging companies to rapidly adopt and install new technology. We believe this pressure creates strong demand for scalable systems that do not require enterprise-wide overhauls of existing technology to implement newer solutions and technologies. Instead, it favors incremental, flexible, extensible technologies that are easy to adopt and compatible with existing infrastructures.
Manage the reliable and secure integration of an increasing number and variety of devices and endpoints: Today, business users leverage laptops, smartphones and tablets just as often – if not more than – desk-based devices. The ability to communicate seamlessly and securely across devices, applications and endpoints must be managed as part of an integrated communications infrastructure.
Our Answer
We believe we have positioned Avaya as the leader in cloud-based Digital Workplace and Customer Experience Solutions by:
Defining innovation in our core market segments by delivering powerful AI-enabled cloud communications solutions.
Winning with global services capabilities that support customer cloud adoption and drive expansion.
Activating, converting and transforming our installed base by providing a customer journey that enables them to effortlessly migrate to and consume Avaya cloud services.
In addition, Avaya intends to:
Increase our Midmarket Capabilities and Market Share: We believe our market opportunity for the portion of the midmarket segment that Avaya serves is growing. We define the midmarket as firms with between 50 and 250 agents for CC and between 100 and 1,000 employees for UCC. Not only do we believe this segment is growing, but we also believe midmarket businesses are underserved and willing to invest in IT enhancements. We intend to continue to
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invest in our midmarket offerings and go-to-market resources to increase market share and meet the growing demands of this segment.
Increase Sales to Existing Customers and Pursue New Customers: We have a significant opportunity to increase sales to our existing customers by offering new solutions from our Avaya OneCloud portfolio. Our market leadership, global scale and extensive customer interaction, including at the C-suite level, supports our Avaya OneCloud portfolio, creating a strong software platform from which to drive and shape the evolution of enterprise communications. We have strong credibility with our customers, which provides us with a competitive edge as our customers make the transition to the cloud. Additionally, our refreshed product and services portfolio increases the potential for acquiring new customers.
We are both HIPAA and PCI DSS (Payment Card Industry Data Security Standard) compliant as we believe the ability to service the healthcare and pharmaceuticals industries, as well as merchants that accept credit cards, significantly expands our potential customer base and total addressable market. These certifications allow for market penetration into what are otherwise restrictive and difficult markets.
Invest in Sales and Distribution Capabilities: Our flexible go-to-market strategy consists of both a direct sales force and an indirect sales force through our alliances and channel partners, which allows us to reach customers across industries and around the globe. We believe our channel partner network is a valuable competitive differentiator based on our brand and long history of having a channel sales go-to-market motion. We intend to continue investing in our channel partners and sales forces to optimize their market focus and enter new vertical segments. We provide our channel partners, including master agents and sales agents, with training, marketing programs and technical support that helps to further differentiate our offerings from those of our competitors. These agents are our primary distribution channel for small to midmarket customers. Under our master agent program, small to midmarket sales agents connect prospective customers with our direct sales force which then handles the transaction from contracting and partnering with the customer to determine what services are appropriate to ultimately managing and billing the customer for the Avaya services provided. The master agent program provides an option that rounds out the available choices for customers, channel partners and sales agents to access Avaya’s industry-leading communications solutions.
We also leverage our sales and distribution channels to accelerate customer adoption of our cloud-based solutions and generate an increasing percentage of our revenue from our new high-value software products, video collaboration, midmarket offerings and user experience applications.
Our Competitive Strengths
We believe the following competitive strengths position us to capitalize on the opportunities created by the market trends affecting our industry.
A Leading Position across our Primary Markets
With a full suite of UCaaS, CCaaS and CPaaS solutions offered under Avaya OneCloud and our expansive go-to-market capability, we are a global leader in business communications. We maintain a leading market share in worldwide contact center agents and are recognized by industry analysts as being among the leaders in unified communications and collaboration seats. Additionally, we believe we are a leading provider of private cloud and managed services and that our market leadership and incumbent position within our customer base provides us with a superior opportunity to cross-sell to existing customers and position ourselves to win over new customers.
Our Open Standards Technology Supports Multi-vendor, Multi-platform Environments
Our open, standards-based technology is designed to accommodate customers with multi-vendor environments seeking to leverage existing investments. Providing enterprises with strong integration capabilities positions them to take advantage of new UCC and CC technology as it is introduced. Our software technology does not limit customers to a single vendor or add to the backlog of integration work. We also continue to invest in our developer ecosystem, Avaya DevConnect, which has grown to include approximately 120,000 members as of September 30, 2021. Avaya DevConnect, together with our Application Programming Interfaces ("APIs"), which are a set of routines, protocols and tools for building software applications and applications development environments, allow our customers to derive unique and additional value from our architecture.
Building on our Leading Service Capabilities for a Significant Recurring Revenue Stream
Avaya's services relationships have long been significant contributors to our large recurring revenue base and provide us with significant visibility into our customers' future collaboration needs. Our global support services and enterprise cloud and managed services are typically provided to customers through recurring contracts. These contracts generally have terms that range from one to five years.
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In addition to insights into their ongoing operational needs, our professional services team engages in migration planning, security services, custom application integration and other consulting activities that position us to understand our customers’ business needs today and in the future.
Global Support Services: Avaya is a leading provider of recurring support services for business communications solutions. Our worldwide services-delivery infrastructure and capabilities help customers address critical business communications needs from initial planning and design through implementation, maintenance and day-to-day operation, monitoring and solution management. With more than 3,800 trained and certified services professionals worldwide, we can help customers find and implement the right communications solutions. The launch of Avaya OneCloud Subscription is a further evolution of our global support services business and provides our customers with additional flexibility in how they consume our solutions.
We believe the Avaya support services team continues to be well-positioned for success due to the close collaboration between our R&D and service planning teams in advance of new product releases. We offer high levels of automation to onboard and manage a customer’s communications infrastructure, delivering faster, more effective deployments from proof of concept to production. This includes a robust communications automation platform with full event orchestration leveraging advanced AI functionality. As a pioneer of the omnichannel support experience in enterprise support, Avaya also provides customers the option to interact with our chatbots to access immediate support online. Customers can also connect with one of our experts via web chat, web talk or web video. When necessary, Avaya Services can also directly access our R&D teams to resolve customer issues. All combined, these capabilities enable Avaya to provide the highest-quality service for Avaya products.
Enterprise Cloud and Managed Services: Avaya’s enterprise cloud solutions and managed services solutions focus on customer performance and growth, encompassing software releases, operating customer cloud, premise or hybrid-based communication systems and helping customers migrate to next-generation business communications environments. We believe that our deep understanding of application management supporting unified communications, collaboration and contact center solutions positions us to best manage and operate cloud-based communications systems for our customers.
Professional Services: Avaya offers a broad portfolio of capabilities through its professional services, including implementation/enablement services, system optimization, innovation services, partner solution integration and custom applications development.

We believe our employees and consultants are among the best in our industry because they are trained and supported by the best in the industry. The high level of customer satisfaction ratings we receive for support transactions is a testament to the expertise of our people. Our dedicated professionals are focused on satisfying customer needs, driving a proactive and preventive agenda to help customers maintain optimum levels of service.
We continue to broaden the options for cloud-based service offerings, expanding our consulting services capabilities and upselling our existing customers to our cloud-based and managed services offerings. We are investing to provide additional options along the spectrum of support service offerings, constantly developing our tools and infrastructure to improve our service levels. An important element in Avaya’s cloud strategy is its continued investment and growth of the Avaya Customer Success Function which includes three main responsibilities: Adoption, Expansion and Renewal for all cloud-based commercial agreements.
The Adoption responsibility centers on ensuring Avaya cloud customers are effectively onboarded onto the cloud solution and have the capabilities to begin consuming their Avaya entitlements.
The Expansion responsibility centers on the Customer Success team working with Avaya customers during the term of the arrangement to determine where Avaya technology solutions could be of value throughout their organization. This could mean additional entitlements of the same solutions or the positioning of new Avaya capabilities and solutions.
Finally, the Renewal responsibility centers on ensuring that Avaya customers have fully consumed and adopted their entitlements and extend their commercial agreement with Avaya.

It is through Customer Success that Avaya intends to provide a consistent cloud journey for Avaya’s cloud customers.
Open Standards, Product Differentiation and Innovation
Avaya’s open architecture provides a competitive advantage for us as potential customers consider migrating to our solutions and services because we can integrate with incumbent competitor systems and provide a path for gradual transition, while immediately achieving overall cost savings and improved functionality.
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Throughout fiscal 2021, we enhanced our Avaya OneCloud portfolio by rolling out new solutions to address growing demand for our UCaaS, CCaaS, CPaaS and Subscription offerings, as customers transition to cloud-based and subscription consumption models to support public, private and hybrid cloud or on-premise deployments.
We expect to continue investing in innovation across the portfolio to bring further enhancements and breakthroughs to market, encouraging customers to continue to add innovative new capabilities to their systems. As we expand our cloud and mobility opportunities, we are also identifying new ways to leverage virtual desktop infrastructure to securely deliver business communications to users. We are developing AI solutions internally and with partners to help organizations transform customer experiences. We are deploying these disruptive solutions to drive incremental value for our customers, and their customers.
Research and Development ("R&D")
Avaya makes substantial investments in R&D to develop new systems, solutions and software in support of business communications, including, but not limited to, converged communications systems, communications applications, multimedia contact center innovations, collaboration tools, messaging applications, video, speech-enabled applications, business infrastructure and architecture, converged mobility systems, cloud offerings, web services, artificial intelligence, communications-enabled business processes and applications, and services for our customers. Over the past three fiscal years, we have invested approximately $650 million in R&D, including technology acquisitions.
We invested 23.0%, 19.3% and 16.7% in R&D as a percentage of product revenue in fiscal 2021, 2020 and 2019, respectively, reflecting a consistent investment in R&D as a percentage of product revenue and evidencing our commitment to innovation. Our investments in fiscal 2021 focused on driving innovative cloud solutions across our portfolio and new releases of our UCC and CC solutions.
Patents, Trademarks and Other Intellectual Property
We own a significant number of patents important to our business and we expect to continue to file patent applications to protect our R&D investments in new products and services across all areas of our business. As of September 30, 2021, we had more than 4,300 patents and pending patent applications, including foreign counterpart patents and foreign applications. These patents and pending patent applications cover a wide range of products and services involving a variety of technologies. For the United States, patents terms may be 20 years from the date of the patent's filing, depending upon term adjustments made by the patent office. In addition, we hold numerous trademarks in the United States and in other countries. We also have licenses to intellectual property for the manufacture, use and sale of our products.
We obtain patent and other intellectual property rights used in connection with our business when practicable and appropriate. Historically, we have done so both organically, through commercial relationships, and in connection with acquisitions.
We manage our patent portfolio to maximize return on investment by selectively selling patents at market prices and cross-licensing with other parties when such sales or licensing are in best our interests. These monetization programs are conducted in a manner that helps to preserve Avaya’s freedom to operate and to help ensure that Avaya retains patents needed for defensive use.
From time to time, assertions of infringement of certain patents or other intellectual property rights of others have been made against us, and certain pending claims are in various stages of litigation. Based on our experience and customary industry practice, we believe that any licenses or other rights that might be necessary for us to continue with our current business could be obtained on commercially reasonable terms. For more information concerning the risks related to patents, trademarks and other intellectual property, see Item 1A, "Risk Factors-Risks Related to Our Business-Intellectual Property and Information Security-We may be subject to litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products or services."
Customers
Avaya employs a flexible, go-to-market strategy to support our diverse customer base. Our customers range in size from small businesses employing a few individuals to large government agencies and multinational companies with tens of thousands of employees. Our customers operate in a broad range of industries, including financial services, manufacturing, retail, transportation, energy, media and communications, hospitality, health care, education and government. Our customers include leading Forbes Global 2000 companies across all these industries. For more information concerning the risks related to contracts with the U.S. federal government, see Item 1A, "Risk Factors - Risks Related to Our Business-Our Operations, Markets and Competition-Contracting with government entities can be complex, expensive and time-consuming."
Sales and Distribution
Our cloud first, global go-to-market strategy is designed to focus and strengthen our reach and impact on large multinational enterprises, midmarket and regional enterprises and small businesses. Our sales organizations are equipped to sell our comprehensive Avaya OneCloud portfolio complemented by services offerings including product support, integration and other professional services and enterprise cloud and managed services serving our customers in the way they prefer to work with us,
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either directly with Avaya or indirectly through our sales channels. Underneath our Avaya Edge Channel program, we have built an expansive network of cloud system integrators, technology solutions distributors (master agents), sales agents and other service providers which also have been enabled to market, sell and service our Avaya OneCloud portfolio along with our traditional global partner network consisting of strategic alliances, channel partners, distributors, dealers, value-added resellers, telecommunications service providers and system integrators which have the ability to sell our full portfolio of offerings, including our Avaya OneCloud offerings.
We continue to focus on efficient deployment of Avaya sales resources, both directly and indirectly through our channel partners, for maximum market penetration and global growth. Our investment in our sales organization includes fully integrated curricula on the sales process, guided selling, sales enablement and on our solutions for all roles within our sales organization.
Seasonal trends impact the sale of our products. Typically, our second fiscal quarter is our weakest and our fourth fiscal quarter is our strongest, see Item 1A, "Risk Factors - Risks Related to Our Financial Results, Finances and Capital Structure-In addition to experiencing some seasonal trends, our quarterly and annual revenues and operating results have historically fluctuated and the results of one period may not provide a reliable indicator of our future performance."
Development Partnerships
The Avaya DevConnect program is designed to promote the development, compliance-testing and co-marketing of innovative third-party products that are compatible with Avaya’s standards-based products. Member organizations have expertise in a broad range of technologies, including IP telephony, contact center and unified communications and collaboration applications.
As of September 30, 2021, over 33,000 companies have registered with the program, including approximately 300 companies operating at higher program levels, eligible for technical support and to submit their products or services for compatibility testing through the program by the Avaya Solution Interoperability and Test Lab ("Avaya Test Lab"). Avaya DevConnect engineers work in concert with each submitting member company to develop comprehensive test plans for each application to validate the product integrations.
Manufacturing and Suppliers
We have outsourced substantially all of our manufacturing operations to several contract manufacturers. All manufacturing of our products is performed in accordance with detailed specifications and product designs, furnished or approved by Avaya, and is subject to rigorous quality control standards. We periodically review our product manufacturing operations and consider changes we believe may be necessary or appropriate. We also purchase certain hardware components and license certain software components from third-party Original Equipment Manufacturers ("OEMs"), which we then resell separately or as part of our products under the Avaya brand.
In some cases, certain components are available only from a single source or from a limited number of suppliers. Delays or shortages associated with these components could cause significant disruption to our operations, although we have not yet had any such event have a material impact on us. For more information on risks related to products, components and logistics, see Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-We rely on third-party contract manufacturers, component suppliers and partners (some of which are sole source and limited source suppliers) and warehousing and distribution logistics providers. If these relationships are disrupted and we are unable to obtain substitute manufacturers, suppliers or partners, on favorable terms or at all, our business, operating results and financial condition may be harmed."
Competition
Although we believe we are differentiated from any single competitor, the following represent the Company's primary competitors in various lines of our business:
Enterprise UCC: Alcatel-Lucent Enterprise, Atos Unify, Cisco, Huawei, Microsoft and NEC.
Midmarket UCC: Cisco, Microsoft, Mitel and NEC.
Cloud Products and Services: 8x8, Alcatel-Lucent Enterprise (with RingCentral), Atos Unify (with RingCentral), Cisco, Fuze, Google, LogMeIn, Microsoft, Mitel, RingCentral, Twilio, Vonage and Zoom.
Video Products and Solutions: BlueJeans, Cisco, Google, Huawei, LifeSize, LogMeIn, Microsoft, Poly, RingCentral, Yealink, Zoom and ZTE.
Enterprise Contact Center Products and Services: Aspect Software, Cisco, Enghouse Interactive, Genesys, Huawei, Mitel and NEC.
Midmarket Contact Center Products and Services: Amazon, Cisco, Five9, Genesys, NICE InContact, Serenova, Talkdesk, Twilio and Vonage.
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We also face competition in certain geographies with companies that have a particular strength and focus in these regions, such as Huawei in China and Intelbras in Latin America.
While we believe our global, in-house end-to-end services organization as well as our indirect channel provide us with a competitive advantage, we face competition from companies offering products and services directly or indirectly through their channel partners, as well as resellers, consulting and systems integration firms and network service providers.
For more information on risks related to our competition, see Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition- We face formidable competition from providers of unified communications and contact center solutions and services, including cloud-based solutions, and this competition may negatively impact our business and limit our growth."
Employees and Human Capital Management
Our Global Footprint
Our ability to attract, retain and engage diverse talent is critical to the successful execution of our strategy and delivering on our mission to create experiences that matter for our customers and employees. Our cultural principles of Simplicity, Trust, Accountability, Teamwork and Empowerment are foundational to our culture and serve as the framework for each phase of the employee life cycle.
As of September 30, 2021, we employed 8,063 employees, of which 39% were located in North America (United States and Canada), 24% were located in Asia Pacific, 9% were located in the Caribbean and Latin America and 28% were located in Europe, Middle East and Africa. In addition, 23% of our global employee headcount identified as female. In the United States, 28% of the employee headcount identified as female and 27% of our employees self-identified as a minority group.
Of our 2,729 employees located in the United States, 11% are represented by a labor union. In certain foreign countries, our employees are represented by trade unions, work councils or collective bargaining agreements at the national level.
At Avaya, we champion an open, fair and supportive environment where our employees can thrive both professionally and personally. We work hard, give back to our communities, take care of our customers and promote high levels of employee engagement and well-being. Human capital management and environmental, social and governance ("ESG") matters are woven into the everyday fabric of Avaya's culture and actively sponsored by our executive leadership. In addition, aspects of human capital management and ESG are overseen by our Board of Directors as well as the Compensation Committee, Audit Committee and the Nominating and Corporate Governance Committee.
Our People First Strategy
Our people first strategy enables a culture that empowers our team members to leverage their strengths and experiences and also provides development and growth opportunities to sustain and expand our world class services and cultivate innovation. Underpinned by our cultural principles, our global population demonstrates the following attributes in the way we work and in everything we do:
We espouse a customer-centric approach to focus on making our customers' lives simpler and more efficient.
We foster a safe environment where innovative solutions are encouraged and rewarded.
We encourage our people to speak up, take responsibility and embrace ownership.
We lead by example and function as a transparent and dynamic team working towards a unified vision.
We recognize one another for our achievements and strengths and value diversity of thought and the uniqueness of everyone in a collaborative environment.
We empower our people to take risks, immerse themselves in the experience and drive customer success.
Employee Engagement
We enhance employee engagement by soliciting and addressing feedback, investing in our employees and promoting diversity, equity, inclusion and belonging.
We regularly conduct employee surveys to better understand and improve perceptions in the areas of engagement, recognition, career development, inclusion, leadership and management effectiveness and ethics and integrity. We met industry benchmark for participation rate in our most recent survey in 2021 with employee engagement of 84%. We use the feedback to identify opportunities and take action to continually strengthen our culture and enhance engagement, as demonstrated by our successful retention of 94% of our employees who were top-rated in our annual performance reviews and further validated by Forbes' recognition of Avaya as one of the World's Best Employers in 2021 for the second consecutive year.
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At Avaya, we are acutely aware that developing our talent is both critical for continuing success in a rapidly evolving industry as well as for employee retention. We invest significant resources in professional development, career advancement and training for our global employee population. In addition to ongoing performance reviews and development discussions that occur as part of our formalized annual performance lifecycle, consistent, meaningful conversations are encouraged between employees and managers to continue the dialogue regarding aspirations, goals and career growth.
We invested in new tools, resources and partnerships to further develop our internal capabilities to develop talent and build leadership acumen to support our business success in 2021. We made learning tools such as LinkedIn Learning available to all global employees, hosted leadership development programs with partners such as BetterUp and ZengerFolkman and launched initiatives to promote diversity awareness with Blue Ocean Brain.
Diversity, Equity, Inclusion and Belonging (DEI&B) at Avaya
At Avaya, we drive and promote a clear strategy to build a workplace that mirrors the society in which we do business — a workplace where individuality is celebrated and harnessed to create a culture of engagement, innovation, inclusivity and belonging.
To successfully execute on our strategy, we have established a Global DEI&B Council, chaired by our CEO, to ensure alignment between our DEI&B strategy and our overall business strategy and a Global DEI&B Committee, chaired by our Chief Human Resources Officer, to ensure global calibration and oversee the execution of various DEI&B initiatives.
In addition, we benefited from significant growth in Employee Resource Groups ("ERGs"), employee-led groups that bring employees together to foster a sense of belonging, at Avaya. Following a revamp of the ERG process and design construct in 2020, we now have six active ERGs: Avaya Blacks Leading Empowerment (ABLE), Abilities Employee Resource Group (AERG), Asociacion Latinos Mundiales Avaya (ALMA), Asian Pacific Islanders @ Avaya (API@A), PRIDE, Veterans @ Avaya (VETA) and Women's Inspired Network@Avaya (WIN@A). ERG representatives serve on the Global DEI&B Committee to discuss insights, recommendations and initiatives with leadership.
We focus on ensuring our hiring pipeline is accessible, dynamic and that we draw from a diverse pool of talent. To further these objectives, we utilize tools to support 'blind sourcing', conduct on-going training of our talent acquisition teams around topics such as unconscious bias, micro aggressions and inequities, and provide hiring managers toolkits to engage and attract diverse talent networks.
Employee Benefits
We provide comprehensive health insurance plans that include medical, dental and vision for our employees and their families in most countries. Our global employee population has access to employee assistance and wellness programs, including those covering financial wellness.
We offer an Employee Stock Purchase Plan that permits employees to use payroll deductions to purchase our stock at a 15% discount to market. Following a phased launch initiated in late 2020, we have been experiencing robust participation rates. Approximately 40% of our employees in the United States are active participants. In addition to the Employee Stock Purchase Program, in fiscal 2021 we extended our incentive equity program, increasing the number of recipients six-fold as of September 30, 2021 as compared to the prior fiscal year end, to further align our employees with stockholder interests and our continuing success as well as to enhance engagement.
Corporate Responsibility
At Avaya, we are committed to ensuring the health and well-being of our employees, investing in our communities, creating products that are inherently sustainable, keeping our customers' solutions and data secure and reducing our environmental impact. Remaining steadfast in our commitment to combat climate change, Avaya exceeded its 2020 target by reducing Scope 1 & Scope 2 emissions by 65% and Scope 3 emissions from business travel by 49% from 2014 levels. We plan to build on our achievements and continue the momentum as we develop new carbon emission reduction targets in support of the transition to a low carbon economy. Additional detail on our environmental, social and governance initiatives, including with respect to human capital, climate change and charitable giving, are included in our Corporate Responsibility Report and on our website.1
Employee Safety and Well-Being / Our Response to COVID-19
The COVID-19 pandemic continues to have widespread and unpredictable impacts on global communities, economies and business practices, and continues to impact our global employees, partners and customers. Avaya successfully and swiftly instituted protocols and policies focused on prioritizing the health and safety of our employees, including creating COVID
1 The contents of our website and our Corporate Responsibility Report and CDP Climate Change Questionnaire are referenced for general information only and are not incorporated into this 10-K.
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response teams, while maintaining business continuity and minimizing disruption to customer support and service delivery at the onset of the pandemic.
We took immediate steps to modify employee travel policies, implemented office closures and allowed employees that were not critical to maintaining physical infrastructure to work remotely. Our COVID response teams continue to regularly review and adapt our policies to minimize health and safety risk based on evolving research and guidance and key COVID-19 related data. We facilitate data-informed executive decision-making and ensure consistent, regular and transparent communications with our employees and other stakeholders.
We are actively monitoring changes to regulations and guidance as we implement a phased re-opening of our offices, based on local circumstances and guided by safety. Our return to offices will incorporate new flexible work arrangements to combine the benefits of in-person collaboration with increased flexibility to drive both innovation and productivity.
This year truly demonstrated the importance of not only protecting our employees' physical safety but caring for their mental health. We monitored our employees' well-being and implemented programs to ensure that employees felt fully supported. All Avaya employees have access to a complete wellness platform with resources and tools to track activity, get wellness advice, find healthy recipes, and access support on the road to achieving their health goals.
Environmental, Health and Safety Matters
Avaya is subject to a wide range of governmental requirements relating to safety, health and environmental protection, including:
certain provisions of environmental laws governing the cleanup of soil and groundwater contamination;
various local, federal and international laws and regulations regarding the material content and electrical design of our products that require us to be financially responsible for the collection, treatment, recycling and disposal of those products; and
various employee safety and health regulations that are imposed in various countries within which we operate, including those related to COVID-19.
We are involved in a few remediations at currently or formerly owned or leased sites, which we do not believe will have a material impact on our business or results of operations.
Cybersecurity
Avaya has a vigorous, risk-based cybersecurity program, dedicated to protecting our data as well as data belonging to our customers and partners. We utilize a defensive in-depth strategy, with multiple layers of security controls to protect our data and solutions. Organizationally, we have a Product Security Council, cross-functional Cyber Incident Response teams, Security Operations Centers, and strong governance to ensure compliance with our security policies and protocols. These teams are comprised of experts across our enterprise, as well as outside experts, to ensure that we are monitoring the effectiveness of our cybersecurity governance and vulnerability management programs.
For more information on risks related to data security, see Item 1A, "Risk Factors-Risks Related to Our Business-Intellectual Property and Information Security- A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition."
Corporate Information
Our principal executive offices are located at 2605 Meridian Parkway, Suite 200, Durham, North Carolina. Our corporate telephone number is (908) 953-6000. Our website address is www.avaya.com. Information contained in, and that can be accessed through our website is not incorporated into and does not form a part of this Annual Report on Form 10-K.
Avaya Holdings is a holding company with no stand-alone operations and has no material assets other than its ownership interest in Avaya Inc. and its subsidiaries. All of the Company’s operations are conducted through its various subsidiaries, which are organized and operated according to the laws of their jurisdiction of incorporation or formation, as applicable, and consolidated by the Company.
The Company's corporate governance documents, including the Board of Directors' Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available, free of charge, on Avaya’s website at https://investors.avaya.com.
All of the Company's periodic reports filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on Avaya’s website, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and any amendments to those reports. These reports and amendments are available on Avaya’s website as soon as reasonably
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practicable after the Company electronically files the reports or amendments with the SEC. The SEC maintains a website (www.sec.gov) that contains these reports, proxy and information statements and other information.
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Item 1A.Risk Factors
Summary of Risk Factors
The risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common stock to decline. These are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:
Risks Related to our Business
executing our strategic operating plan, including our strategic partnership with RingCentral, Inc.;
shifting more of our business to a subscription-based operating expense model which may harm our cash flows;
completing acquisitions and/or strategic alliances, including those needed to increase our share of the cloud communications industry and integrating such acquired businesses and alliances;
market opportunities may not develop for our solutions and services in ways that we anticipate and we may not succeed in developing new innovative solutions and services to keep pace with rapidly changing technology, evolving industry standards and customer preferences;
industry consolidation and competition from providers of unified communications and contact center solutions and services, including cloud-based solutions;
increasing use of artificial intelligence in our offerings may expose us to social and ethical issues which may result in reputational harm and liability;
our ability to continue to expand our cloud-based solutions and services offerings;
our reliance on our indirect sales channel;
disruptions to our third-party contract manufacturers, component suppliers and partners (some of which are sole source and limited source suppliers) and warehousing and distribution logistics providers;
compliance with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities;
our ability to detect and correct design defects, errors, failures or “bugs” in our products and services;
litigation, intellectual property, infringement claims and the protection of our intellectual property;
some of our products contain software from open source code sources;
failure to comply with laws and contractual obligations related to data privacy and protection;
security breaches of our information systems, products or services or of the information systems of our third-party providers;
operational, logistical, economic and/or political challenges in a specific country or region, including compliance with United States ("U.S.") and foreign government laws and regulations, which could negatively affect our revenue, costs, expenses and financial condition or those of our channel partners and distributors;
compliance with certain telecommunications or other rules and regulations, which could subject us to enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services;
compliance with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities and changes in, and responses to, U.S. trade policy, including the imposition of tariffs and sanctions and retaliatory measures by other countries;
Risks Related to Our Financial Results, Finances and Capital Structure
our revenues and operating results have historically fluctuated and may not be a reliable indicator of our future performance;
shifts in the mix of sizes or types of organizations that purchase our solutions or the mix of products, solutions and services purchased by our customers could affect our gross margins and operating results;
we may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired;
our degree of leverage and related interest expense;
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restrictions included in our financing agreements and indentures;
our ability to service all of our indebtedness and other ongoing liquidity needs and to raise additional capital to fund our operations;
the price of our common stock may be volatile and fluctuate substantially;
our intention not to pay dividends on our common stock for the foreseeable future;
potential for significantly dilutive issuance of common stock and/or preferred stock, including upon the conversion of our convertible notes and preferred stock; and
the holders of our Series A Preferred Stock have certain consent rights over charter amendments and issuances of senior equity and they may exercise their redemption or put rights.

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Risks Related to Our Business
Our Operations, Markets and Competition
If we do not successfully execute our strategic operating plan, which depends in part on our ability to increase our share of the market for cloud-based solutions, software and services offerings, our business could be materially and adversely affected.
Each year, we develop our strategic operating plan that serves as a roadmap for implementing our business strategy and the basis for the allocation of resources, capital, investment decisions, product life cycles, process improvements and strategic alliances and acquisitions. In developing our strategic operating plan, we make certain assumptions including, but not limited to, those related to the market environment, customer demand, evolving technologies, competition, market consolidation, the global economy and our overall strategic priorities for the upcoming fiscal year. Actual economic, market and other conditions may be different from our assumptions and we may not be able to successfully execute our strategic operating plan.
We sell business communications solutions and services in markets where the technology available and the utilized go-to-market models change rapidly. We are in the midst of a multi-year transformation, evolving from a traditional telecommunications hardware company into a software and services company, focused on expanding our cloud- and mobile-enabled contact center, unified communications and innovative next-generation workflow automation solutions. To increase our revenue, we must continue to expand and develop new cloud-based solutions and services offerings as the market rapidly develops and changes. Our cloud enabled unified communications and contact center solutions and services must offer relevant features and provide consistent high-quality services at competitive prices to attract new customers and to migrate existing customers to such solutions and services. The functionality, relevance and customer acceptance of our cloud-based solutions and services will depend, in part, on our ability and our partners' ability to integrate our offerings with third-party applications and platforms, including enterprise collaboration, enterprise resource planning, customer relationship management, human capital management and other proprietary application suites. Moreover, our business will remain dependent on customer decisions to migrate their legacy communications infrastructures to cloud solutions based on newer technology.
If the market for cloud-based communications fails to develop, develops more slowly than we anticipate, or develops in a manner different than we expect, or if we are not able to successfully develop and expand our cloud-based solutions and services offerings, our cloud-based solutions and services could fail to achieve market acceptance. This in turn could impact our growth strategy and our ability to execute our strategic operating plan, and our business, operating results and financial condition could be materially and adversely impacted.
The timing of our cash flows may be negatively impacted as we shift more of our business to a subscription-based model.
We intend to increase our recurring revenue by shifting more of our business to a subscription-based model instead of a perpetual license model. To do this, we need to offer relevant cloud-enabled unified communications and contact center solutions and services at competitive prices, which will both attract new customers and which we can bundle and upsell to existing customers. If we successfully increase our subscription revenues, we expect that it will result in more of our cash receipts being deferred relative to our historical perpetual license model as payments are spread over a pre-determined time period (e.g. monthly or annually) rather than being received upfront.
If we are unable to successfully complete acquisitions and/or strategic alliances and effectively integrate acquired businesses, our business, operating results and financial condition may be adversely affected.
Our strategic operating plan requires continued investments in acquisitions and strategic alliances with other companies in various areas, specifically, with respect to, accelerating the development, sales and delivery of our cloud-based solutions and services, such as our acquisition of CTIntegrations, LLC, a digital channel platform, in August 2021. Identifying and evaluating potential strategic alternatives and/or partners may be time consuming and divert the attention and focus of management and other key personnel. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including among other things, economic conditions, market consolidation, industry trends and competing bidders. There is no assurance that we will be able to complete any acquisition or strategic alliance even if we expend significant sums and efforts in connection with a potential transaction. Without such transactions it may be challenging for us to execute on our strategic operating plan in our desired time frame and our business, operating results and financial condition could be harmed.
Once we complete an acquisition or other material investment, we may not be able to successfully integrate acquired businesses, resulting in the failure to realize the intended benefits. Acquisitions could result in difficulties integrating acquired operations and, where deemed desirable, transitioning overlapping products into a single product line, thereby resulting in the diversion of capital and the attention of management and other key personnel away from other business issues and opportunities. We may also fail to retain employees acquired through acquisitions, which may negatively impact our integration efforts or our due diligence efforts may not reveal all potential liabilities associated with the acquired entity. We may incur substantial expenses as part of these corporate development and integration processes and if we fail to successfully identify, execute and integrate acquisitions or product portfolios, or if they fail to perform as we anticipate, our existing businesses and
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our revenue and operating results could be adversely affected.
Our strategic operating plan relies in part upon the successful execution of our strategic partnership with RingCentral, Inc. ("RingCentral"), which may not be successful. 
Our strategic operating plan relies on market acceptance of our cloud-based solutions and investing in being at the forefront of offering these solutions. Our ability to implement this strategy relies, at least in part, on our strategic partnership with RingCentral. A strategic partnership between two independent businesses is a complex, costly, and time-consuming process that will require significant management attention and resources. Realizing the benefits of our strategic partnership with RingCentral will depend in part on our ability to work with RingCentral to develop, market and sell Avaya Cloud Office by RingCentral ("Avaya Cloud Office" or "ACO"). As with any strategic partnership, unforeseen challenges may arise, which could impact the ultimate benefits achieved from the alliance. In addition, the process of bringing ACO to market in additional countries may take longer than anticipated, which could negate some of our anticipated benefits and revenue opportunities.
The failure to meet the challenges involved in having two businesses work together could harm our ability to realize the anticipated benefits of this partnership, including realization of amounts previously paid, and cause an interruption of, or a loss of momentum in, our business activities. We may also incur significant costs associated with this partnership and our revenues may not increase as anticipated, which may materially and adversely affect our business, operating results and financial condition.
Our business communications solutions and services may not match market opportunities and the new solutions and services we develop may not keep pace with rapidly changing technology, evolving industry standards and customer preferences.
The demand for our solutions and services can change quickly and in ways that we may not anticipate because the market in which we operate is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements, changes in customer requirements and a limited ability to accurately forecast future customer orders. Our solutions and services may not satisfy customer needs and we may not be able to successfully identify new market opportunities for our solutions and services. Also, our partners may stop providing Avaya services or products or reduce the amount of Avaya services or products they offer.
In addition, we may not be able to successfully develop and bring new solutions to market in a timely manner. Our solutions need to keep pace with changes in technology, industry standards and customer needs. Our operating results may be adversely affected if the market opportunity for our solutions and services does not develop in the ways that we anticipate and/or if we are not able to successfully identify new market opportunities for our solutions and services, develop and bring new solutions to market in a timely manner or achieve market acceptance of our solutions and services.
Social and ethical issues relating to the use of AI in our offerings may result in reputational harm or liability.
Social and ethical issues relating to the use of new and evolving technologies such as artificial intelligence ("AI") in our offerings, may result in reputational harm and liability, and may cause us to incur additional research and development ("R&D") costs to resolve such issues. We are increasingly building AI into many of our offerings and we anticipate it will be a growing aspect of our solutions as our offerings evolve. AI presents emerging ethical issues and if we enable or offer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm or legal liability. Potential government regulation in the space of AI ethics may also increase the burden and cost of research and development in this area, subjecting us to brand or reputational harm, competitive harm or legal liability. Failure to address AI ethics issues by us or others in our industry could undermine public confidence in AI and slow adoption of AI in our products and services.
We face formidable competition from providers of unified communications and contact center solutions and services, including cloud-based solutions, and this competition may negatively impact our business and limit our growth.
The markets for our solutions and services are characterized by rapid changes in customer demands, ongoing technological changes, evolving industry standards, new product introductions, and evolving methods of building and operating networks. Both traditional and new competitors are investing heavily in this market and competing for customers. As these markets evolve, we expect competition to intensify and to expand to include companies that do not currently compete against us.
Because we offer solutions for contact centers and unified communications which are cloud-based, on-premise or hybrid, we face a wide range of competitors. Some of our competitors include:
Enterprise UCC: Alcatel-Lucent Enterprise, Atos Unify, Cisco, Huawei, Microsoft and NEC.
Midmarket UCC: Cisco, Microsoft, Mitel and NEC.
Cloud Products and Services: 8x8, Alcatel-Lucent Enterprise (with RingCentral), Atos Unify (with RingCentral), Cisco, Fuze, Google, LogMeIn, Microsoft, Mitel, RingCentral, Twilio, Vonage and Zoom.
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Video Products and Solutions: BlueJeans, Cisco, Google, Huawei, LifeSize, LogMeIn, Microsoft, Poly, RingCentral, Yealink, Zoom and ZTE.
Enterprise Contact Center Products and Services: Aspect Software, Cisco, Enghouse Interactive, Genesys, Huawei, Mitel and NEC.
Midmarket Contact Center Products and Services: Amazon, Cisco, Five9, Genesys, NICE InContact, Serenova, Talkdesk, Twilio and Vonage.
We also face competition in certain geographies with companies that have a particular strength and focus in some of the geographic regions in which we operate, such as Huawei in China and Intelbras in Latin America.
Several of our existing competitors have, and many of our future competitors may have, greater financial, personnel, technical, R&D and other resources, more well-established brands or reputations and broader customer bases than we do and, as a result, these competitors may be able to respond more quickly to potential acquisitions and other market opportunities, new or emerging technologies and changes in customer requirements. On the other hand, smaller competitors may be able to respond to technological evolution and changes in customer demand with more speed and agility than we can. In addition, some competitors may have customer bases that are more geographically balanced than ours and, therefore, may be less affected by an economic downturn in a particular region. Other companies may have relationships with channel partners, distributors, resellers, consulting and systems integration firms and/or network service providers which pose a competitive threat to us. Moreover, other competitors may have deeper expertise in a particular stand-alone technology that develops more quickly than we anticipate. Competitors with greater resources may also be able to offer lower prices, additional products or services or other incentives that we cannot match or do not offer.
We may face increased competition from current leaders in IT infrastructure, consumer products, personal and business applications and the software that connects the network infrastructure to those applications. In addition, because the business communications market continues to evolve and technology continues to develop rapidly, we may face competition in the future from companies that do not currently compete against us, but whose current business activities may bring them into competition with us in the future. In particular, this may be the case as business, information technology and communications applications deployed on converged networks become more integrated to support business communications. With respect to services, we may also face competition from companies that seek to sell remotely hosted services or software as a service directly to end customers. Competition from potential market entrants may take many forms, including offering products and solutions similar to those that we offer. In addition, certain of these technologies continue to move from a proprietary environment to an open standards-based environment.
We cannot predict which competitors may enter our markets, what forms such competition may take or whether we will be able to respond effectively to new competitors or to the rapid evolution in technology and product development that has characterized our businesses. In addition, in order to effectively compete with any new technology or a new market entrant, we may need to make additional investments in our business, use more capital resources than our business currently requires or reduce prices, any of which may materially and adversely affect our business.
Industry consolidation may lead to stronger competition and may harm our business, operating results and financial condition.
There has been a trend toward industry consolidation in the markets in which we compete as companies that provide unified communications are purchasing contact center providers. We expect this trend to continue as companies attempt to strengthen or hold their positions in an evolving market and as companies are acquired or sell businesses because they are unable to continue all or a portion of their operations. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, and reduce their business with us. Furthermore, rapid consolidation, particularly in the value-added reseller (“VAR”) and service provider markets, will lead to fewer customers, with the effect that loss of a major customer could have a material impact on our business.
Industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers and our partners may turn toward other solutions. This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results and financial condition.
Our growth strategy depends on our ability to continue to expand our cloud-based solutions and services offerings and grow our share of the cloud communications market for such offerings through customer acceptance.
An important element of our growth strategy is our ability to significantly increase revenues generated from sales of our cloud-based communications solutions and related services. To increase our revenue, we must continue to expand and develop new cloud-based solutions and services offerings as the market rapidly develops and changes. Our cloud enabled unified communications and contact center solutions and services must offer relevant features and provide consistent high-quality services at competitive prices to attract new customers and to migrate existing customers to such solutions and services. While
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we have entered into a strategic partnership with RingCentral that enhances our cloud-based offerings, there is no assurance that this partnership will provide us with the desired long-term growth opportunities and results as there are a number of dependencies, including customer acceptance of ACO.
The cloud communications industry is competitive and rapidly evolving, and we expect competition to increase. The functionality, relevance and customer acceptance of our cloud-based solutions and services will depend, in part, on our ability and our partners' ability to integrate these with third-party applications and platforms, including enterprise collaboration, enterprise resource planning, customer relationship management, human capital management and other proprietary application suites. If we fail to integrate our software with new third-party back-end enterprise applications and platforms used by our customers, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and adversely impact our business.
As is typical of any new solution introduced in a rapidly evolving market, the level of demand for, and market acceptance of these new solutions is uncertain. If we successfully expand and develop our cloud-based solutions and services, including, without limitation, Avaya OneCloud Private and Avaya Cloud Office, our business will remain dependent on customer decisions to migrate their legacy communications infrastructures to cloud solutions based on newer technology. While these investment decisions are often driven by macroeconomic factors, customers may also delay the purchase of newer technology due to a range of other factors, including prioritization of other IT projects, delays or failures to meet customers' certification requirements, the weighing of the costs and benefits of deploying new infrastructures and devices and the need to deploy capital to respond to unforeseen circumstances. In addition, customers' focus on the architecture, management and integration of such new technologies, possible cyber breaches and other security considerations could also affect market acceptance of new solutions. If the market for cloud-based communications fails to develop, develops more slowly than we anticipate, or develops in a manner different than we expect, or if we are not able to successfully develop and expand our cloud-based solutions and services offerings, our cloud-based solutions and services could fail to achieve market acceptance, which in turn could impact our growth strategy and materially and adversely affect our business, operating results and financial condition.
Our growth strategy depends in part on our reliance on our indirect sales channel.
An important element of our go-to-market strategy to expand sales coverage, penetrate new markets and increase market absorption of new solutions is the use of our global network of alliance partners, distributors, dealers, value-added resellers, telecommunications service providers and system integrators, who are collectively referred to as our "channel partners". Our financial results could be adversely affected if our relationships with these channel partners were to deteriorate, if our support pricing or other services strategies conflict with those of our channel partners, if any of our competitors were to enter into strategic relationships with or acquire any of our channel partners, if some or all of our channel partners do not become enabled to sell new solutions and services or if the financial condition of some or all of our channel partners were to weaken. In addition, we may expend time, money and other resources on developing and maintaining channel relationships that are ultimately unsuccessful. Furthermore, despite the benefits of a robust indirect channel, our channel partners have direct contact with our customers, which may foster independent relationships between them and may lead them to sell non-Avaya solutions to certain customers which may result in a loss of business and revenue for us.
There can be no assurance that we will be successful in maintaining, expanding or developing relationships with channel partners. If we are not successful, we may lose sales opportunities, customers or market share. Although the terms of individual channel partner agreements may deviate from our standard program terms, our standard program agreements for resellers generally provide for a term of one year with automatic renewals for successive one-year terms and generally may be terminated by either party for convenience upon 30 days' notice. Our standard program agreements for distributors generally may be terminated by either party for convenience upon 90 days' prior written notice. Certain of our contractual agreements with our largest distributors and resellers, however, permit termination of the relationship by either party for convenience upon prior notice of 180 days. In addition, our alliance partners (including RingCentral), distributors and resellers are permitted to work with other vendors, including our competitors, and most of them do so. See Part I, Item 1, "Business-Alliances and Partnerships" to this Annual Report on Form 10-K for more information on our global channel partner program and the standard terms of our program agreements.
We rely on third-party contract manufacturers, component suppliers and partners (some of which are sole source and limited source suppliers) and warehousing and distribution logistics providers. If these relationships are disrupted and we are unable to obtain substitute manufacturers, suppliers or partners, on favorable terms or at all, our business, operating results and financial condition may be harmed.
We have outsourced substantially all of our manufacturing operations to several contract manufacturers. Our contract manufacturers produce the vast majority of our products in facilities located in southern China, with other products manufactured in facilities located in Mexico, Taiwan, Germany, Ireland and the U.S. All manufacturing of our products is performed in accordance with detailed specifications and product designs furnished or approved by us and is subject to rigorous quality control standards. We periodically review our product manufacturing operations and consider changes we believe may
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be necessary or appropriate. Although we closely manage the transition process when manufacturing changes are required, we could experience disruption to our operations during any such transition. Any such disruption could negatively affect our reputation and our operating results. We also purchase certain hardware components and license certain software components and resell them separately or as part of our products under the Avaya brand. In some cases, certain components are available only from a single source or from a limited source of suppliers. These sole source and limited source suppliers may stop selling their components at commercially reasonable prices or at all. Interruptions, delays or shortages associated with these components could cause significant disruption to our operations. We may not be able to make scheduled product deliveries to our customers in a timely fashion. We could incur significant costs to redesign our products or to qualify alternative suppliers, which would reduce our realized margins. We have also outsourced substantially all of our warehousing and distribution logistics operations to several providers of such services on a global basis, and any delays or material changes in such services could cause significant disruption to our operations. If any of our providers of outsourced services were to experience financial difficulty or seek protection under bankruptcy laws it could also affect their ability to perform services for us.
In addition, we rely on third parties to provide certain services to us or to our customers, including hosting partners and providers of other cloud-based services. If these third-party providers do not perform as expected, our customers may be adversely affected, resulting in potential liability and negative exposure for us. If it is necessary to migrate these services to other providers due to poor performance, cyber breaches or other security considerations, or other financial or operational factors, it could result in service disruptions to our customers and significant time and expense to us, any of which could adversely affect our business, operating results and financial condition.
Contracting with government entities can be complex, expensive and time-consuming.
In fiscal 2021, the Company’s revenue from contracts with U.S. federal government entities was approximately $231 million. The procurement process for government entities is in many ways more challenging than contracting in the private sector. We must comply with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities, including U.S. federal, state and local governmental bodies. These laws and regulations may impose added costs on our business or prolong or complicate our sales efforts, and failure to comply with these laws and regulations or other applicable requirements could lead to claims for damages from our customers, penalties, termination of contracts and other adverse consequences. Any such damages, penalties, disruptions or limitations in our ability to do business with government entities could have a material adverse effect on our business, operating results and financial condition.
Government entities often require highly specialized contract terms that may differ from our standard arrangements. Government entities often impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or are otherwise time-consuming and expensive to satisfy. Compliance with these special standards or satisfaction of such requirements could complicate our efforts to obtain business or increase the cost of doing so. Even if we do meet these special standards or requirements, the increased costs associated with providing our solutions to government customers could harm our margins.
Business communications solutions are complex, and design defects, errors, failures or "bugs" may be difficult to detect and correct and could harm our reputation, result in significant costs to us and cause us to lose customers.
Business communications products are complex, integrating hardware, software and many elements of a customer’s existing network and communications infrastructure. Despite testing conducted prior to the release of solutions to the market and quality assurance programs, hardware may malfunction and software may contain "bugs" that are difficult to detect and fix. Any such issues could interfere with the expected operation of a solution, which might negatively impact customer satisfaction, reduce sales opportunities or affect gross margins.
Depending upon the size and scope of any such issue, remediation may have a material impact on our business. Our inability to cure an application or product defect, should one occur, could result in the failure of an application or product line, the temporary or permanent withdrawal from an application, product or market, damage to our reputation, an increase in inventory costs, an increase in warranty claims, lawsuits by customers or customers’ or channel partners’ end users, or application or product reengineering expenses. Our insurance may not cover or may be insufficient to cover claims that are successfully asserted against us.
Intellectual Property and Information Security
We are dependent on our intellectual property. If we are not able to protect our proprietary rights or if those rights are invalidated or circumvented, our business may be adversely affected.
Our business is primarily dependent on our technology and our ability to innovate in business communications and, as a result, we are reliant on our intellectual property. We generally protect our intellectual property through patents, trademarks, trade secrets, copyrights, confidentiality and nondisclosure agreements and other measures to the extent our budget permits. There can be no assurance that patents will be issued from pending applications that we have filed or that our patents will be sufficient to protect our key technology from misappropriation or falling into the public domain, nor can assurances be made that any of
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our patents, patent applications, trademarks or our other intellectual property or proprietary rights will not be challenged, invalidated or circumvented.
Preventing unauthorized use or infringement of our intellectual property rights is inherently difficult. Moreover, it may be difficult or practically impossible to detect theft, unauthorized use of our intellectual property or the production and sale of counterfeit versions of our products and solutions. For example, we actively combat software piracy as we enforce our intellectual property rights and we actively pursue counterfeiters and their distributors, but we nonetheless may lose revenue due to illegal or unauthorized use of our software. Such counterfeit sales, to the extent they replace otherwise legitimate sales, could adversely affect our operating results. If piracy activities continue at historical levels or increase, they may further harm our business. Enforcement of our intellectual property rights also depends on our legal actions being successful against these infringers, but these actions may not be successful, even when our rights have been infringed.
In addition, our business is global and the level of protection of our proprietary technology varies by country and may be particularly uncertain in countries that do not have well developed judicial systems or laws that adequately protect intellectual property rights. The level of protection afforded to our intellectual property may also be particularly uncertain in countries that require the transfer of technology as a condition to market access. Our partnerships with foreign entities sometimes require us to transfer technology and/or certain intellectual property rights in countries that afford less protection of intellectual property rights than other countries. While we believe such technology and intellectual property transfer requirements have not adversely affected our business, such requirements may change over time and become detrimental to our ability to protect our technology or intellectual property in certain foreign countries. Patent litigation and other challenges to our patents and other proprietary rights are costly and unpredictable and may prevent us from marketing and selling a product in a particular geographic area. Financial considerations also preclude us from seeking patent protection in every country where infringement litigation could arise. Our inability to predict our intellectual property requirements in all geographies and affordability constraints also impact our intellectual property protection investment decisions. If we are unable to protect our proprietary rights, we may be at a disadvantage to others who do not incur the substantial time and expense we incur to create our products.
We may be subject to litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products or services.
From time to time, we receive notices and claims from third parties asserting that our proprietary or licensed products, systems and software infringe their intellectual property rights. There can be no assurance that the number of these notices and claims will not increase in the future or that we do not in fact infringe those intellectual property rights. Irrespective of the merits of these claims, any resulting litigation could be costly and time consuming and could divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. These matters may result in any number of outcomes for us, including entering into licensing agreements, redesigning our products to avoid infringement, being enjoined from selling products or solutions that are found to infringe intellectual property rights of others, paying damages if products are found to infringe and indemnifying customers from infringement claims as part of our contractual obligations. Royalty or license agreements may be very costly and we may be unable to obtain royalty or license agreements on terms acceptable to us or at all which may cause operating margins to decline.
In addition, some of our employees previously have been employed at other companies that provide similar products and services. We may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. These claims and other claims of patent or other intellectual property infringement against us could materially adversely affect our business, operating results and financial condition.
We have made and will likely continue to make investments to license and/or acquire the use of third-party intellectual property rights and technology as part of our strategy to manage this risk, but there can be no assurance that we will be successful or that any costs relating to such activity will not be material. We may also be subject to additional notice, attribution and other compliance requirements to the extent we incorporate open source software into our applications. In addition, third parties have claimed, and may in the future claim, that a customer’s use of our products, systems or software infringes the third-party’s intellectual property rights. Under certain circumstances, we may be required to indemnify our customers for some of the costs and damages related to such an infringement claim. Any indemnification requirement could have a material adverse effect on our business, operating results and financial condition. Additionally, any insurance that we have may not be sufficient to cover all amounts related to such indemnification.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, operating results and financial condition.
Some of our products contain software from open source code sources. The use of such open source code may subject us to certain conditions, including the obligation to offer our products that use open source code to third parties for no cost. We monitor our use of such open source code to avoid subjecting our products to conditions we do not intend. However, the use of such open source code may ultimately subject some of our products to unintended conditions, which could require us to take
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remedial action that may divert resources away from our development efforts and, therefore, could materially adversely affect our business, operating results and financial condition.
Failure to comply with laws and contractual obligations related to data privacy and protection could have a material adverse effect on our business, operating results and financial condition.
We are subject to the data privacy and protection laws and regulations adopted by federal, state and foreign governmental agencies, including but not limited to, the European Union's ("EU") General Data Protection Regulation ("EU GDPR") and the United Kingdom's ("UK") General Data Protection Regulation ("UK GDPR," and together with the EU GDPR, "GDPR") and California’s Consumer Privacy Act (“CCPA”). Data privacy and protection is highly regulated and the GDPR imposes obligations on companies, including us, who process personal data of data subjects who are in the EU or UK, regardless of whether or not that processing takes place in the EU or UK. These requirements substantially increase potential liability for all such companies for failure to comply with data protection rules.
Privacy laws restrict our storage, use, processing, disclosure, transfer and protection of personal information, including credit card data, provided to us by our customers as well as data we collect from our customers and employees. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. Our privacy compliance program is based on our binding corporate rules which have been approved by EU regulatory authorities. As the UK is no longer part of the EU, we have applied for UK binding corporate rules. We endeavor to apply uniform data handling practices, based on GDPR standards, on a global basis throughout all Avaya entities which process personal data, and have signed on to our binding corporate rules. We have dedicated significant time, capital and other resources to craft binding corporate rules that meet the requirements of the GDPR and other laws such as CCPA. Privacy laws and legal requirements relating to the transfer of personal data continue to evolve. Restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services in some markets. We expect that as privacy laws continue to change and become more prevalent throughout the world, we will be required to dedicate additional resources to ensure continued compliance.
From time to time we have notified authorities in the EU and UK of potential personal data breaches and privacy issues, and we keep them appropriately updated. No such disclosure has led to fines in the past and we do not anticipate any disclosure under consideration will lead to fines or other adverse outcomes. If the authorities determine that we have not complied with applicable laws and regulations, we may be subject to fines, penalties and lawsuits, and our reputation may suffer. Fines imposed on other companies by various data privacy regulatory authorities from the EU or UK for violations of the GDPR have been significant in amount. Furthermore, we may be subject to increased scrutiny going forward and we may also be required to make modifications to our data practices that could have an adverse impact on our business.
These data privacy risks are particularly relevant and applicable to us as a technology company because we process vast amounts of personal and non-personal data on behalf of our customers and we also host significant and increasing amounts of data in our cloud solutions and in the cloud solutions of other companies. We believe that regulations pertaining to the solicitation, collection, exporting, processing, and/or use of personal, financial, and consumer information will continue to expand globally. In addition, the interpretation and application of existing consumer and data protection laws and industry standards in the U.S., Europe and elsewhere is often uncertain and in flux. The application of existing laws to cloud-based solutions is particularly uncertain and cloud-based solutions may be subject to further regulation, the impact of which cannot be fully understood at this time. Moreover, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data and privacy practices. Complying with such laws and regulations may cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
Contracts with our customers, channel partners and other third parties also subject us to privacy and data protection-related obligations. Any failure, or perceived failure, by us to comply with federal, state, or international laws, including laws and regulations regulating privacy, data or consumer protection, or to comply with our contractual obligations related to privacy, could result in proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation. Additionally, third parties on which we rely enter into contracts to protect and safeguard our customers' data. Should such parties violate these agreements or suffer a security breach, we could be subject to proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation.
A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition.
We rely on the security of our information systems and, in certain circumstances, those of our third-party providers, such as channel partners, vendors, consultants and contract manufacturers, to protect our proprietary information and information of our customers. In addition, the growth of bring your own device ("BYOD") programs has increased the need for enhanced security measures. IT security system failures, including a breach of our or our third-party providers’ data security systems, could disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the
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fulfillment or cancellation of customer orders, disruptions in the manufacture or shipment of products or delivery of services or an unintentional disclosure of customer, employee or our information. Additionally, despite our security procedures or those of our third-party providers, information systems and our products and services may be vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized attempts by third parties to access, modify or delete our or our customers’ proprietary information.
We take cybersecurity seriously and devote significant resources and tools to protect our systems, products and data and the data of our customers from intrusions and to ensure compliance with our contractual and regulatory obligations. However, these security efforts are costly to implement and may not be successful. Cyberattacks and similar threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. Computer malware, viruses, scraping and general hacking have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. There can be no assurance that we will be able to prevent, detect and adequately insure against and address or mitigate cyberattacks or security breaches. We investigate potential data breach issues identified through our security procedures and terminate, mitigate and remediate such issues as appropriate. Past incidents have involved outside actors and issues stemming from certain internal configuration and migration issues of our applications to other platforms. A breach of our systems could have a material adverse effect on our reputation as a provider of business communications products and services and could cause irreparable damage to us or our systems regardless of whether we or our third-party providers are able to adequately recover critical systems following a systems failure, either or both of which could, in turn, have a material adverse effect on our operating results and financial conditions. In addition, regulatory or legislative action related to cybersecurity, privacy and data protection worldwide, such as the EU GDPR, which went into effect in May 2018, and the UK GDPR, which went into effect in January 2021, may increase the costs to develop, implement or secure our products and services. We expect cybersecurity regulations to continue to evolve and be costly to implement. Furthermore, we may need to increase or change our cybersecurity systems and expenditures to support expansion of sales into new industry segments or new geographic markets. If we violate or fail to comply with such regulatory or legislative requirements, we could be fined, which fines could be substantial, or otherwise sanctioned. Any such fines or penalties could have a material adverse effect on our business and operations.

Global Operations and Regulations
Since we operate internationally, operational, logistical, economic and/or political challenges in a specific country or region could negatively affect our revenue, costs, expenses and financial condition or those of our channel partners and distributors.
We do business in approximately 190 countries. We conduct significant sales and customer support operations and significant amounts of our R&D activities in countries outside of the U.S., and we also depend on non-U.S. operations of our contract manufacturers and our channel partners. For fiscal 2021, we derived 43% of our revenue from sales outside of the U.S., with the most significant portions generated from Germany, the United Kingdom and Canada. In addition, we intend to continue to grow our business internationally. The vast majority of our contract manufacturing also takes place outside the U.S., primarily in southern China.
Accordingly, our results could be materially and adversely affected by a variety of uncontrollable and changing factors relating to international business operations, including:
economic conditions and geopolitical developments, including trade sanctions, tariffs, changes to significant trading relationships such as the UK’s withdrawal from the EU, the negotiation of new or revised international trade agreements and retaliatory efforts from such trade restrictions, constraints and prohibitions, such as the U.S. China trade dispute and the EU's position on humanitarian rights towards countries in the Middle East, Africa and Asian territories;
political or social unrest, economic instability or corruption or sovereign debt risks in a specific country or region;
laws and regulations, both international and local, related to trade compliance, anti-corruption, anti-bribery, information security, data privacy and protection, labor, the environment, climate change and other topics and requirements;
protectionist and local security legislation;
difficulty in enforcing intellectual property rights, such as protecting against the counterfeiting of our products;
less established legal and judicial systems necessary to enforce our rights;
relationships with employees and works councils, as well as difficulties in finding qualified employees, including skilled design and technical employees, as companies expand their operations offshore;
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high levels of inflation and currency fluctuations;
unfavorable tax and currency regulations;
military conflict, terrorist activities and health pandemics or similar issues;
future government shutdowns or uncertainties which could affect the portion of our revenues which comes from the U.S. federal government sector;
differing responses to the COVID-19 pandemic;
natural disasters, such as earthquakes, hurricanes or floods, anywhere we and/or our channel partners and distributors have business operations; and
other matters in any of the countries or regions in which we and our contract manufacturers and business partners currently operate or intend to operate, including in the U.S.
Any or all of these factors could materially adversely affect our business, operating results or financial condition. In addition, the various risks inherent in doing business in the U.S. generally also exist when doing business outside of the U.S., and they may be exaggerated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws, policies and regulations. Furthermore, our prospective effective tax rate could be adversely affected by, among other things, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities or changes in tax laws, regulations, accounting principles or interpretations thereof.
We rely on third parties to provide certain data hosting services to us or to our customers, and interruptions or delays in those services could harm our business.
Our cloud-based solutions rely on uninterrupted connection to the Internet through data centers and networks. To provide such service for our customers, we utilize data center hosting facilities located in the U.S. and the EU, as well as in our Asia Pacific region and our Central America and Latin America regions. We also use facilities provided by Google, Amazon, Microsoft and Equinix as we migrate to cloud solutions. We do not control the operation of these facilities, and they are vulnerable to service interruptions or damage from floods, earthquakes, fires, power loss, telecommunications failures and similar events. They may also be subject to acts of vandalism or terrorism, sabotage, similar misconduct and/or human error. Moreover, if any of these data centers and networks cease operations, we would need to migrate our solutions and our customers to other providers. The occurrence of these or other unanticipated problems at these facilities could result in lengthy interruptions in the ability to use our solutions efficiently or at all, which could harm our business, operating results and financial condition.
If we do not comply with certain telecommunications or other rules and regulations, we could be subject to enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.
Certain of our cloud-based communications and collaboration solutions are regulated in the U.S. by the Federal Communications Commission and various state and local agencies, and across the globe by governments of various foreign countries. Furthermore, we are subject to existing or potential regulations relating to privacy, consumer protection, protection of customer information, disability access, porting of numbers, Universal Service and Telecommunications Relay Service Fund contributions, emergency access, law enforcement intercept, and other requirements. We are required to pay state and local 911 fees and contribute to state universal funds in states that assess interconnected Voice over Internet Protocol (“VoIP”) services, and the expansion of telecommunications regulations in the U.S. to our non-interconnected VoIP services could result in additional federal and state regulatory obligations and taxes. In addition, as we continue to grow our business internationally, we will be subject to laws and regulations in the countries where we offer services. Many of these laws and regulations are new, like the European Electronics Communications Code which regulates electronic communications networks and services in the EU, may be subject to differing interpretations, may be inconsistent or conflict with other rules and are constantly evolving in ways that could be harmful to our business and thereby may impact our ability to offer services and our cost to deliver services in these countries. The application and interpretation of these laws and regulations is uncertain, and it is possible that we or our products or solutions may not be compliant with each applicable law or regulation. If we do not comply with applicable federal, state, local and foreign rules and regulations, we could be subject to enforcement actions, fines, loss of licenses and possible restrictions on our ability to operate or offer certain of our solutions or requirements to modify certain solutions, which could have a material adverse effect on our operating results and financial condition. Moreover, changes in telecommunications requirements, or regulatory requirements in other industries in which we operate now or in the future, could have a material adverse effect on our business, operating results and financial condition, as regulations that may not directly apply to our business, but which do apply to our customers or partners, can also impact our business.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results and financial condition.
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There have been significant changes and proposed changes in recent years to U.S. trade policies, tariffs, and treaties affecting imports. For example, the U.S. has imposed supplemental tariffs of up to 25% on certain imports from China, as well as increased tariffs and import restrictions on products imported from various other countries. In response, China and other countries have imposed or proposed additional tariffs on certain exports from the U.S. The U.S. has also recently renegotiated the multilateral trading relationship between the U.S., Canada and Mexico, resulting in the replacement of the North American Free Trade Agreement ("NAFTA") with a new U.S.-Mexico-Canada Agreement ("USMCA"). Changes in U.S. trade policy have and may continue to result in one or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products from those countries. This in turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.
We cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. As new presidential administrations take office they often assess and/or make changes to policies of previous administrations. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, operating results and financial condition.

Risks Related to Our Financial Results, Finances and Capital Structure
Financial Performance
In addition to experiencing some seasonal trends, our quarterly and annual revenues and operating results have historically fluctuated and the results of one period may not provide a reliable indicator of our future performance.
Our quarterly and annual revenues and operating results have historically fluctuated and are not necessarily indicative of results to be expected in future periods. Fluctuations in our financial results from period to period are caused by many factors, including, but not limited to, the size and timing of new logos, changes in foreign currency exchange rates, the mix of products sold by us and general economic conditions. In addition, execution of sales opportunities sometimes traverses from the intended fiscal quarter to the next.
We also experience some seasonal trends in the sale of our products that also may produce variations in our quarterly results and financial condition. Typically, our second fiscal quarter is our weakest and our fourth fiscal quarter is our strongest. Many of the factors that create and affect seasonal trends are beyond our control.
Shifts in the mix of sizes or types of organizations that purchase our solutions or changes in the components of our solutions purchased by our customers could affect our gross margins and operating results.
Our gross margins and our operating results can vary depending on numerous factors related to the implementation and use of our solutions, including the sizes and types of organizations that purchase our solutions, the mix of software and hardware they purchase and the level of professional services and support they require. We provide our solutions to a broad range of companies, from small businesses to large multinational enterprises and government organizations. Sales to larger enterprises generally result in greater revenue but may take longer to negotiate and finalize than sales to small businesses. Conversely, sales to small businesses may be faster to execute than sales to larger enterprises, but they may involve greater credit risk and fewer opportunities to sell additional services. Moreover, an important element of our growth strategy is to continue to evolve from a traditional telecommunications hardware company into a software and services company, focused on expanding our cloud- and mobile-enabled contact center, unified communications and innovative next-generation workflow automation solutions. As we increase the proportion of our revenue coming from software solutions as opposed to hardware solutions, we expect to see an improvement in our gross margins and operating results but if we are unsuccessful we might not recognize these gross margin improvements. Overall, if the mix of companies that purchase our solutions, or the mix of solution components purchased by our customers, changes unfavorably, our revenues and gross margins could decrease and our operating results could be harmed.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
At September 30, 2021, the Company had $2,235 million of intangible assets and $1,480 million of goodwill on its Consolidated Balance Sheet. The intangible assets are principally composed of technology and patents, customer relationships, and trademarks and trade names. Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis and also when events or changes in circumstances indicate that impairment may have occurred. Intangible assets with determinable lives, which were $1,902 million at September 30, 2021, are tested for impairment only when events or changes in circumstances indicate that an impairment may have occurred. Determining whether an impairment exists can be difficult and requires management to make significant estimates and judgments. Although the Company did not record an impairment charge
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during fiscal 2021, to the extent that business conditions deteriorate further, or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to record impairment charges in the future. See Note 7, "Goodwill" and Note 8, "Intangible Assets, net" to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Levels of returns on pension and post-retirement benefit plan assets, changes in interest rates and other factors affecting the amounts to be contributed to fund future pension and post-retirement benefit plan liabilities could adversely affect our cash flows, operating results and financial condition in future periods.
We sponsor a number of defined benefit plans for employees in the U.S., Canada, and various foreign locations. Pension and other post-retirement plan costs and required contributions are based upon a number of actuarial assumptions, including an expected long-term rate of return on pension plan assets, level of employer contributions, the expected life span of pension plan beneficiaries and the discount rate used to determine the present value of future pension obligations. Any of these assumptions could prove to be wrong, resulting in a shortfall of our pension and post-retirement benefit plan assets compared to obligations under our pension and post-retirement benefit plans. Future pension funding requirements, and the timing of funding payments, may also be subject to changes in legislation.
In addition, our major defined benefit pension plans in the U.S. are funded with trust assets invested in a globally diversified portfolio of securities and other investments. These assets are subject to market fluctuations, will yield uncertain returns and cause volatility in the net periodic benefit cost and future funding requirements of the plans. A decline in the market value of the pension and post-retirement benefit plan assets below our projected return rates will increase the funding requirements under our pension and post-retirement benefit plans if the actual asset returns do not recover these declines in value in the foreseeable future. We are responsible for funding any shortfall of our pension and post-retirement benefit plans’ assets compared to obligations under the pension and post-retirement benefit plans, and a significant increase in our pension liabilities could have a material adverse effect on our cash flows, operating results and financial condition.

We are exposed to risks inherent in our defined benefit pension plans in Germany.
We operate several defined benefit plans in Germany (collectively, the "German Plans") and as of September 30, 2021, the total projected benefit obligation for the German Plans of $488 million exceeded plan assets of $4 million, resulting in an aggregate pension liability for the German Plans of $484 million. Under the German Plans, which were closed to new members in 2006, retirees generally benefit from the receipt of a perpetual annuity at retirement, based on their years of service and ending salary. The total projected benefit obligation is based on actuarial valuations, which themselves are based on assumptions and estimates about the long-term operation of the plans, including mortality rates of members, the performance of financial markets and interest rates. Our funding requirements for future years may increase from current levels depending on the net liability position of these plans. In addition, if the actual experience of the plans differs from our assumptions, the net liability could increase and additional contributions may be required. Changes to pension legislation in Germany may also adversely affect our funding requirements. Increases in the net pension liability or increases in future cash contributions could have a material adverse effect on our cash flows, operating results and financial condition.
Risks Related to Our Indebtedness
Our degree of leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk on our variable rate debt.
We have a significant amount of debt outstanding. As of September 30, 2021, we had $1,543 million of loans outstanding under the Term Loan Credit Agreement, $37 million issued and outstanding letters of credit and guarantees under the ABL Credit Agreement, $350 million of 2.25% convertible senior notes due June 15, 2023 (the "Convertible Notes") and $1,000 million of 6.125% senior first lien notes due September 15, 2028 (the "Senior Notes") outstanding (all as defined in Part II, Item 8, Note 11, "Financing Arrangements" of this Annual Report on Form 10-K). In addition, as of September 30, 2021 we could have borrowed an additional $147 million under our ABL Credit Agreement.
Our degree of leverage could have consequences, including:
increasing our vulnerability to general economic and industry conditions;
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, research and development and future business opportunities;
exposing us to the risk of increased interest rates under Avaya Inc.’s credit facilities to the extent such facilities have variable rates of interest, as well as to refinancing risks as facilities mature;
limiting our ability to make strategic acquisitions and investments;
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limiting our ability to refinance our indebtedness as it becomes due; and
limiting our ability to adjust quickly or at all to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.
General economic, financial market, competitive, legislative and regulatory factors, among other things, may negatively affect our ability to fund our debt requirements or reduce our debt, which could have a material adverse effect on our business, operating results, cash flows and financial condition.
Despite our level of indebtedness, we and our subsidiaries may incur additional indebtedness. The incurrence of additional indebtedness could further exacerbate the risks associated with our degree of leverage.
We and our subsidiaries may incur additional indebtedness in the future. Although our Term Loan and ABL Credit Agreements and the indenture for our Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. In addition, the indenture for the Convertible Notes does not restrict us from incurring additional debt. To the extent we or our subsidiaries incur additional debt beyond anticipated debt levels, the related risks that we and our subsidiaries face could intensify.
Our financing agreements contain restrictions that limit, in certain respects, our flexibility in operating our business.
Our financing agreements contain various covenants that limit our ability to engage in specific types of transactions. These covenants limit our and our subsidiaries’ ability to:
incur or guarantee additional debt and issue or sell certain preferred stock;
pay dividends on, redeem or repurchase our capital stock;
make certain acquisitions or investments;
incur or assume certain liens;
enter into transactions with affiliates; and
sell assets to, or merge or consolidate with, another company.
A breach of any of these covenants could result in a default under one or more of our debt instruments.
We may not be able to generate sufficient cash to service all of our indebtedness and our other ongoing liquidity needs, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned capital expenditures, acquisitions and other ongoing liquidity needs depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. In particular, we intend to increase our recurring revenue by shifting more of our business to a subscription-based model. If we successfully increase our subscription revenues, we expect this will result in more of our cash receipts being deferred relative to our historical perpetual license model as payments are spread over a pre-determined time period (e.g., annually) rather than being received upfront, which may defer cash flows needed to service our debt. There can be no assurance that we will maintain a level of cash flow from operating activities in an amount sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and we could face substantial liquidity problems and might be required to try to dispose of material assets or operations to meet our debt service and other obligations, which may not be adequate to meet any debt service obligations when due. If we are unable to repay or otherwise refinance these borrowings and loans when due, the applicable secured lenders could proceed against the collateral pledged to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event our lenders accelerate the repayment of our or our subsidiaries’ borrowings, we and our subsidiaries may not have sufficient assets to repay such indebtedness.
A ratings downgrade or other negative action by a ratings organization could adversely affect our cost of capital.
Credit rating agencies continually revise their ratings for companies they follow. Any adverse developments in our business and operations could lead to a ratings downgrade for Avaya Holdings Corp., Avaya Inc. or any of our rated debt securities. In addition, the condition of the financial and credit markets and prevailing interest rates have been, and will continue to be, subject to fluctuation. Any fluctuation in our credit rating may impact our ability to access debt markets in the future and that, in addition to changes in interest rates, could increase our cost of future debt which could have a material adverse effect on our operating results and financial condition and may adversely affect the trading price of shares of our common stock.
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Risks Related to Ownership of Our Common Stock, Preferred Stock and Convertible Notes
The price of our common stock and/or Convertible Notes may be volatile and fluctuate substantially.
Our common stock is listed on the New York Stock Exchange and the price for our common stock has historically been volatile. The market price of our common stock, as well as our Convertible Notes (as they are convertible into our common stock), may continue to be highly volatile and may fluctuate substantially due to the following factors (in addition to the other risk factors described in this section):
general economic conditions;
political dynamics in the countries we operate in;
fluctuations in our operating results;
high levels of inflation and other decreases in purchasing power;
variances in our financial performance from the expectations of equity and/or debt research analysts;
conditions and trends in the markets we serve;
announcements of significant new services or products by us or our competitors;
additions of or changes to key employees;
changes in market valuations or earnings of our competitors;
trading volumes of our common stock and/or Convertible Notes;
future sales of our equity securities and/or future issuances of indebtedness;
changes in the estimation of the future sizes and growth rates of our markets;
legislation or regulatory policies, practices or actions;
hedging or arbitrage trading activity by third parties, including by the counterparties to the note hedge and warrant transactions that we entered into in connection with the issuance of the Convertible Notes; and
dilution that may occur upon any conversion of shares of our Series A Preferred Stock or the Convertible Notes or the exercise of the warrants we issued in connection with the issuance of the Convertible Notes.
In addition, the stock markets in general have experienced extreme price and volume fluctuations that have at times been unrelated or disproportionate to the operating performance of the particular companies affected. These market and industry factors may materially harm the market price of our common stock and/or Convertible Notes irrespective of our operating performance.
We currently do not intend to pay dividends on our common stock.
We do not anticipate paying any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on operating results, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
The issuance of shares of our Series A Convertible Preferred Stock dilutes the relative voting power and ownership of holders of our common stock and may adversely affect the market price of our common stock.
Pursuant to an Investment Agreement, dated as of October 3, 2019, by and between us and RingCentral, we sold 125,000 shares of our newly designated Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) to RingCentral on October 31, 2019 (the “Closing”).
As of September 30, 2021, the preferred stock held by RingCentral represented approximately 9% of our outstanding common stock on an as-converted basis. The Series A Preferred Stock is convertible at the option of the holder at any time into shares of common stock at an initial conversion price of $16.00 per share, subject to adjustment as set forth in the Certificate of Designations which details the terms and conditions of the Series A Preferred Stock.
The holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock. In any such vote, RingCentral's aggregate voting power of the Series A Preferred Stock and other shares of our common stock which may be issued to them under that certain Framework Agreement, dated as of October 3, 2019, by and between Avaya Inc. and RingCentral (the "Framework Agreement"), will be limited, prior to our receipt of an approval by our stockholders as required under New York Stock Exchange Listed Company Manual Rule 312.03 (“Stockholder Approval”), to the voting power equivalent to no more than 19.9% of our outstanding common stock. If Stockholder Approval is obtained, this limitation will no longer apply. Notwithstanding that limit, the issuance of the Series A Preferred Stock to RingCentral effectively reduces the relative voting
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power of the holders of our common stock. The conversion of the Series A Preferred Stock into common stock would dilute the ownership interest of existing holders of our common stock.
In addition, pursuant to the Framework Agreement, RingCentral paid Avaya $375 million, predominantly for future fees, as well as for certain licensing rights, and RingCentral will have the right to convert still outstanding amounts into shares of our common stock or our Series A Preferred Stock. The issuance of such additional shares and any sales in the public market of such common stock or the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock. We granted RingCentral customary registration rights in respect of any shares of common stock issued upon conversion of the Series A Preferred Stock and have filed a registration statement permitting the resale by RingCentral of the common stock underlying the Series A Preferred Stock in compliance with this obligation. As a result, subject to certain exceptions, RingCentral will be able to freely sell the common stock it will hold following conversion of the Series A Preferred Stock. Sales by RingCentral of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition.
As a holder of our Series A Preferred Stock, RingCentral is entitled to:
receive dividends, in preference and priority to holders of our common stock or other series of Company stock, which will accrue on a daily basis at the rate of 3% per annum of the stated value of the Series A Preferred Stock. The stated value of the Series A Preferred Stock is initially $1,000 per share and it will be increased by the sum of any dividends on such shares not paid in cash. These dividends are cumulative, compound quarterly and are paid quarterly in arrears.
participate in any dividends we pay on our common stock, equal to the dividend which holders would have received if their Series A Preferred Stock had been converted into common stock on the date such common stock dividend was determined.
receive, in the event our Company is liquidated or dissolved, before any distribution is made to holders of our common stock, an amount equal to the liquidation preference (which equals the stated value referenced above plus any accrued and unpaid dividends) for each share of Series A Preferred Stock held.
consent rights with respect to certain actions by us, including amending our organizational documents in a manner that would have an adverse effect on the Series A Preferred Stock and issuing securities that are senior to, or equal in priority with, the Series A Preferred Stock.
nominate one person for election to our Board of Directors, who our Board of Directors will recommend that our stockholders vote in favor of, until such time when RingCentral and its affiliates hold or beneficially own less than 4,759,339 shares of our common stock (on an as-converted basis).
These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions and other general corporate purposes and could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.
In addition, to the extent that we need to amend our organizational documents, whether to seek to raise capital in the form of senior preferred stock or another reason, and RingCentral does not provide its consent to any such issuance or amendment, it could have a material adverse effect on our business and/or liquidity.
RingCentral has certain redemption or put rights to require us to repurchase all or any portion of the Series A Preferred Stock for cash. We may not be able to raise the funds necessary to finance such a required repurchase. 
RingCentral has certain redemption or put rights to require us, to repurchase all or any portion of the Series A Preferred Stock for cash. RingCentral can exercise such redemption rights, upon at least 21 days’ notice, after the termination of the Framework Agreement or upon the occurrence of certain events. If and to the extent this redemption right is exercised, we would have to purchase each share of Series A Preferred Stock at the per share price equal to the stated value of the Series A Preferred Stock, which is initially $1,000 per share and which will be increased by the sum of any dividends on such shares, plus all accrued but unpaid dividends. 
It is possible that we would not have sufficient funds to make any required repurchase of Series A Preferred Stock and we may not be able to arrange financing, to pay the repurchase price.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results and/or the market for our common stock.
In the event the conditional conversion feature of our Convertible Notes is triggered, holders of Convertible Notes will be
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entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. If we elect to satisfy this obligation by delivering common stock it would have a dilutive effect on our other stockholders. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The convertible note hedge and warrant transactions may affect the value of the Convertible Notes and our common stock.
In connection with the pricing of the Convertible Notes, we entered into a convertible note hedge ("Bond Hedge") transaction with each of Barclays Bank PLC, Credit Suisse Capital LLC and JPMorgan Chase Bank, National Association (the "Call Spread Counterparties"). The Bond Hedge transactions reduced the potential dilution upon conversion of the Convertible Notes. We also entered into a warrant ("Call Spread Warrant") transaction with each of the Call Spread Counterparties. The Call Spread Warrant transactions could separately have a dilutive effect on our earnings per share to the extent that the market price per share of our common stock exceeds the applicable strike price of the Call Spread Warrants.
Each of the Call Spread Counterparties (or an affiliate) may modify its initial hedge position by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and is likely to do so during any observation period related to a conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Convertible Notes, which could affect the ability to convert the Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of the Convertible Notes, it could affect the number of shares and value of the consideration that holders of the Convertible Notes will receive upon conversion of the Convertible Notes.
Significant exercises of equity awards or warrants or conversion of preferred stock or convertible debt could adversely affect the market price of the Company’s common stock.
As of September 30, 2021, we had 84,115,602 shares of common stock issued and outstanding. The total number of shares of our common stock issued and outstanding does not include 5,178,288 shares and 5,645,200 shares that may be issued upon the exercise or vesting of equity awards and warrants issued upon emergence from bankruptcy, respectively. In addition, we have the ability to issue an additional 10,750,733 equity awards tied to our common stock under our currently authorized equity incentive plans. Furthermore, the maximum number of shares of common stock issuable upon conversion of our Convertible Notes is 16,393,440 and our Series A Preferred Stock issued to RingCentral is convertible into 8,150,392 shares of common stock as of September 30, 2021. The exercise of equity awards and warrants and the conversion of our convertible debt instruments and preferred stock could adversely affect the price of the Company’s common stock, will reduce the percentage of common stock held by the Company’s current stockholders and may cause its current stockholders to suffer significant dilution, which may adversely affect the market.
Our governing documents contain provisions which may disadvantage our stockholders, by impeding or discouraging a takeover and limiting stockholders' ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions which could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock and the value of our preferred stock and Convertible Notes.
In addition, our amended and restated certificate of incorporation requires that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or (iv) any action asserting a claim governed by the internal affairs doctrine.
This forum selection provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our certificate of incorporation, a court could rule that such a provision is inapplicable or unenforceable.
General Risk Factors
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The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses and the duration and extent to which this will impact our business, results of operations and financial condition and/or cash flows remains uncertain.
The COVID-19 pandemic and related public health measures are having a negative impact on regional, national and global economies, disrupting supply chains and reducing international trade and business activity. The pandemic has caused many governments throughout the world to implement stay-at-home orders, quarantines, significant restrictions on travel, social distancing measures including restrictions that prohibit many employees from commuting to their customary work locations and regulations detailing specific return to office conditions, all of which may require these employees to work remotely if possible. Many of these restrictions have remained in place for months and in light of the emergence of new variants, may continue in one fashion or another for the foreseeable future.
The COVID-19 pandemic has not materially impacted us to date but may affect our operations in a variety of ways, including, but not limited to:
Our ability to operate, as well as our partners' and/or customers' ability to operate, has been and may continue to be hindered, which may cause our business and operating results to decline.
The inability of our employees to access customers' sites may hinder our ability to offer services that can only be provided on site, as well as our ability to make in person sales visits and demonstrations.
Clients and customers have had and may continue to have difficulty meeting their payment obligations to us, resulting in late or non-payment of amounts owed.
We may experience significant reductions or volatility in demand for our solutions as customers may not be able to enter into new purchase commitments or otherwise invest in their business due to financial downturns or general economic uncertainty.
We may experience temporary or long-term disruptions in our supply chain and increased costs, which may significantly impact our distribution network, results of operations (including sales) or business.
To the extent a number of our employees, including our executive officers and other members of our management team, are impacted in significant numbers by the pandemic and are not available to conduct work, our business and operating results may be negatively impacted.
We may not be able to ensure business continuity in the event our continuity of operations and crisis management plans are not effective or are improperly implemented.
The significant disruption of global financial markets, which has impacted the value of our common stock and could further materially impact the value of our stock in the future, may reduce our ability to access additional capital, which could in the future negatively affect our liquidity and could affect our business in the near and long-term.
The extent to which the COVID-19 pandemic will impact our business, financial performance and liquidity, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and severity of the pandemic, the emergence of new variants, changes in infection rates, the vaccine participation rate, the effectiveness of vaccines and the speed with which the vaccine can be distributed, as well as regulations and requirements impacting the return to our offices and/or our ability to visit customer sites, none of which can be predicted. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Additionally, as pandemic conditions wane, we cannot predict how quickly the marketplaces in which we operate will return to pre-pandemic levels.
Our ability to retain and attract key personnel is critical to the success of our business and execution of our growth strategy.
The success of our business depends on the skill, experience and dedication of our employee base. If we are unable to retain and recruit sufficiently experienced and capable employees, including those who can help us increase revenues generated from our cloud-based solutions and services, our business and financial results may suffer. Experienced and capable employees in the technology industry remain in high demand, and there is continual competition for their talents. If executives, managers or other key personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity and/or errors due to insufficient staffing or managerial oversight. Moreover, turnover of senior management and other key personnel can adversely impact, among other things, our operating results, our customer relationships and lead us to incur significant expenses related to executive transition costs that may impact our operating results. In addition, our ability to adequately staff our R&D efforts in the U.S. may be inhibited by COVID-19 and/or changes to U.S. immigration policies that restrain the flow of professional and technical talent.
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While we strive to maintain our competitiveness in the marketplace, there can be no assurance that we will be able to successfully retain and attract the employees that we need to achieve our business objectives.
Business and/or supply chain interruptions, whether due to catastrophic disasters or other events, could adversely affect our operations.
Our operations and those of our contract manufacturers and outsourced service providers are vulnerable to interruption by fire, earthquake, hurricane, flood or other natural disasters, power loss, computer viruses, computer systems failure, telecommunications failure, pandemics, quarantines, national catastrophe, terrorist activities, war and other events beyond our control. For instance, we have operations in the Silicon Valley area of California near known earthquake fault zones, which are vulnerable to damage from earthquakes. Our disaster recovery plans may not be sufficient to address these interruptions. If any disaster were to occur, our ability and the ability of our contract manufacturers and outsourced service providers to operate could be seriously impaired and we could experience material harm to our business, operating results and financial condition. Because our ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor interruptions in our operations could harm our reputation as a reliable solutions provider. In addition, the coverage or limits of our business interruption insurance may not be sufficient to compensate for any losses or damages that may occur.
In addition, these catastrophic disasters or other events, such as the global shortage of semiconductor chips, could lead to supply chain disruptions, restrictions on our ability to distribute our products and restrictions on our abilities to provide services in the regions affected. Any prolonged and significant supply chain disruption that impacts us or our customers, partners, vendors and/or suppliers, or an inability to provide products or services, would likely impact our sales in the affected region, increase our costs and negatively affect our operating results. For instance, the COVID-19 pandemic, which we saw in fiscal 2021 and fiscal 2020 adversely affected the global economy and financial markets, resulting in an economic downturn that affected demand for our products and services and likely impacted our operating results. Similarly, the decrease in the availability of global shipping has raised freight and shipping costs and there are no assurances that such shipping disruptions and higher logistics costs will not continue or increase, which may adversely affect our operating results and financial condition.
We may not realize the benefits we expect from our cost-reduction initiatives.
From time to time we may initiate cost savings programs designed to streamline operations. As discussed in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Factors and Trends Affecting Our Results of Operations," we have initiated such programs historically, and we will continue to evaluate similar opportunities to the extent the business need arises. These types of cost-reduction activities are complex. Even if we carry out these strategies in the manner we expect, we may not be able to achieve the efficiencies or savings we anticipate or on the timetables we anticipate. Any expected efficiencies and benefits might be delayed or not realized, and, as a result, our operations and business could be disrupted. Our ability to realize gross margin improvements and other efficiencies expected to result from these initiatives is subject to many risks, including delays in the anticipated timing of activities, lack of sustainability in cost savings over time, unexpected costs associated with operating our business, our success in reinvesting any savings arising from these initiatives, time required to complete planned actions, absence of material issues associated with workforce reductions and avoidance of unexpected disruptions in service. A failure to implement these types of initiatives or realize expected benefits could have an adverse effect on our financial condition that could be material.
We are exposed to the credit risk of some of our clients and customers, which may harm our operating results and financial condition.
Most of our sales in the U.S. have standard payment terms of 30 days and, because of local customs or conditions, longer in some markets outside the U.S. We believe customer financing is a competitive factor in obtaining business, particularly in serving customers involved in significant infrastructure projects. Our financing arrangements may include not only financing the acquisition of our solutions and services but also providing additional funds for other costs associated with installation and integration of our solutions and services.
We have a thorough credit process for extending credit limits to our customers, which considers the financial profile of our end user customers in addition to that of the direct customer, distributor or channel partner. We evaluate numerous factors in extending credit, which may include credit ratings, financial performance and discussions with customers. Notwithstanding that, our exposure to the credit risks relating to our financing activities described above may increase if our customers are adversely affected by periods of economic uncertainty or a global economic downturn. For instance, due to the impact of the COVID-19 pandemic, certain clients and customers have had and may continue to have difficulty meeting their payment obligations to us, resulting in late or non-payment of amounts owed. Although these losses have not been material to date, future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition.
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The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, which could have a material and adverse impact on the Company’s operating results, cash flows and financial condition.
The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, where a number of the Company’s subsidiaries are organized or the Company's solutions and devices are sold. Due to economic and political conditions, tax rates in various jurisdictions including the U.S. may be subject to change. The Company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws or their interpretation.
If the Company’s effective tax rates were to increase, or if the ultimate determination of the Company’s taxes owed were for an amount in excess of amounts previously accrued, the Company’s operating results, cash flows and financial condition could be materially and adversely affected. Any new U.S. or international tax legislation could modify existing rules, limit certain deductions and/or impose new taxes, any of which may have a material and adverse impact on our operating results, cash flows and financial condition.
Tax examinations and audits could have a material and adverse impact on the Company’s cash flows and financial condition.
The Company is subject to the examination of its tax returns and other tax matters by the U.S. Internal Revenue Service and other U.S. or foreign tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from such examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of any such examinations.
Fluctuations in foreign currency exchange rates and interest rates could negatively impact our operating results, financial condition and cash flows.
We are a global company with significant international operations and we transact business in many currencies. The majority of our revenues and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations related to certain revenues and expenses denominated in foreign currencies. Our primary currency exposures relate to net operating expenses denominated in Euro, Indian Rupee and Argentine Peso. These exposures may change over time as business practices evolve and the geographic mix of our business changes. In addition, a portion of our borrowings bears interest at prevailing interest rates based upon the LIBOR Rate plus an applicable margin. Therefore, we are subject to risk from changes in interest rates on the variable component of the rate. From time to time we use derivative instruments to hedge foreign currency risks associated with certain monetary assets and liabilities, primarily accounts receivable, accounts payable and certain intercompany obligations, as well as to hedge risks associated with changes in interest rates. The measures we have taken to help mitigate these risks are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K. However, any attempts to hedge against foreign currency exchange rate and/or interest rate fluctuation risk may be unsuccessful and result in an adverse impact to our operating results, financial condition and cash flows.
If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain internal control over financial reporting and we are also required to establish disclosure controls and procedures under applicable Securities and Exchange Commission (the "SEC") rules. An effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and fraud. Management is required to provide an annual assessment on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is also required to attest to the effectiveness of our internal control over financial reporting. Our and our auditor’s testing may reveal significant deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective. In the past, these assessments and similar reviews have led to the discovery of material weaknesses, all of which have been remediated. However, no assurance can be given that we will not discover material weaknesses in the future. In addition, the effectiveness of an internal control system is inherently limited and we cannot assure you that our internal controls will prevent or detect every misstatement or omission. We have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404.
If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses:
we could fail to meet our financial reporting obligations;
our reputation may be adversely affected and our business and operating results could be harmed;
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the market price of our stock could decline; and
we could be subject to litigation and/or investigations or sanctions by the SEC, the New York Stock Exchange or other regulatory authorities.
If securities or industry analysts discontinue publishing research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
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Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
As of September 30, 2021, we had 117 leased facilities located in 59 countries. These included 7 primary research and development facilities located in Canada, Czech Republic, India, Ireland, Israel, Italy and the U.S. Our real property portfolio consists of aggregate floor space of 1.5 million square feet, substantially all of which is leased. Our lease terms range from monthly leases to 8 years. We believe that all of our facilities are in good condition and are well maintained. Our facilities are used for the current operations of both of our operating segments. For additional information regarding obligations under operating leases, see Note 5, "Leases," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Item 3.Legal Proceedings
The information concerning legal proceedings set forth under Note 22, "Commitments and Contingencies," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated by reference in response to this item.
Item 4.Mine Safety Disclosures
Not applicable. 
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PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common stock of Avaya Holdings Corp. are listed on the New York Stock Exchange ("NYSE") and began trading on the NYSE on January 17, 2018, under the symbol "AVYA."
Number of Holders of Common Stock
The number of record holders of the common stock as of October 31, 2021 was 152. That number does not include the beneficial owners of shares held in "street" name or held through participants in depositories, such as The Depository Trust Company.
Dividends
No dividends were paid by Avaya Holdings Corp. on its common stock over the past three fiscal years and the Company does not anticipate paying cash dividends on its common stock in the foreseeable future.
Purchases of Equity Securities by the Issuer
The following table provides information with respect to purchases by the Company of shares of common stock during the three months ended September 30, 2021:
Period
Total Number of Shares (or Units) Purchased(1)
Average Price Paid per Share (or Unit)(4)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under Plans or Programs(2)(3)
July 1 - 31, 2021198,608 $25.2600 198,608 $157,456,592 
August 1 - 31, 2021354,640 $21.2856 273,488 $151,559,742 
September 1 - 30, 2021227,398 $19.7290 206,778 $147,473,425 
Total780,646 $21.8433 678,874 
(1) August and September 2021 include 81,152 and 20,620 shares of common stock withheld for taxes on restricted stock units that vested, respectively.
(2) The Company maintains a warrant repurchase program authorizing it to repurchase the Company's outstanding warrants to purchase shares of the Company's common stock for an aggregate expenditure of up to $15 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions.
(3) The Company maintains a share repurchase program authorizing it to repurchase the Company's common stock for an aggregate expenditure of up to $500 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions. Share repurchases presented in the table above are based on the transaction settlement date.
(4) Average price paid per share includes transaction costs associated with the repurchases.
Recent Sales of Unregistered Securities
None.
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Stock Performance Graph
The following graph compares the cumulative total return on our common stock for the period from December 19, 2017, the date the common stock began trading, through September 30, 2021, with the total return over the same period on the Russell 2000 Index and the NASDAQ Computer Index. The graph assumes that $100 was invested on December 19, 2017 in the Company's common stock and in each of the indices and assumes reinvestment of dividends, if any. The graph is based on historical data and is not necessarily indicative of future price performance. avya-20210930_g1.jpg
12/19/1712/29/1703/29/1806/29/1809/28/1812/31/1803/29/1906/28/1909/30/19
Avaya Holdings Corp.$100.00 $106.69 $136.17 $122.07 $134.59 $88.51 $102.31 $72.40 $62.19 
Russell 2000 Index$100.00 $99.92 $99.52 $106.92 $110.40 $87.75 $100.19 $101.94 $99.13 
NASDAQ Computer Index$100.00 $98.21 $100.68 $107.76 $116.13 $94.59 $112.28 $116.62 $121.79 
12/31/1903/31/2006/30/2009/30/2012/31/2003/31/2106/30/2109/30/21
Avaya Holdings Corp.$82.07 $49.18 $75.14 $92.41 $116.41 $170.40 $163.53 $120.30 
Russell 2000 Index$108.57 $75.03 $93.79 $98.11 $133.90 $150.90 $157.37 $150.51 
NASDAQ Computer Index$142.21 $125.93 $167.07 $187.82 $219.94 $227.99 $259.78 $264.24 
This Performance Graph shall not be, or deemed to be, incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference. In addition, the Performance Graph will not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, other than as provided in Regulation S-K, or to the liabilities of section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.
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Item 6.None.

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. The matters discussed in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve significant risks and uncertainties. See the "Cautionary Note Regarding Forward-looking Statements" above and Part 1, Item 1A, "Risk Factors" in this Annual Report on Form 10-K for additional information regarding forward-looking statements and the factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.
Overview
Avaya is a global leader in digital communications products, solutions and services for businesses of all sizes delivering its technology predominantly through software and services. We enable organizations around the globe to succeed by creating intelligent communications experiences for our clients, their employees and their customers. Avaya builds innovative open, converged unified communications and collaboration ("UCC") and contact center ("CC") solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. Our global, experienced team of professionals delivers award-winning services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support.
Avaya shifted its entire comprehensive portfolio of capabilities to Avaya OneCloud, which offers significant capabilities across contact center (OneCloud CCaaS), unified communications and collaboration (OneCloud UCaaS), and communications platform as a service (OneCloud CPaaS). We believe the Avaya OneCloud open, composable platform approach uniquely positions us to address a customer’s needs in creating a Digital Workplace for their campus-based and remote employees through Unified Communications and Collaboration and the Customer Experience Center, our name for contact centers, helping clients deliver tangible business results.
Avaya also offers one of the broadest portfolios of business devices in the industry, including handsets, video conferencing units and headsets to meet the needs of every type of worker across a customer’s organization and help our customers get the most out of their communications investments. Avaya IP-enabled handsets, multimedia devices and conferencing systems enhance collaboration and productivity, and position organizations to incorporate future technological advancements.
Our business has two operating segments: Products & Solutions and Services.
Products & Solutions
Products & Solutions encompasses our UCC and CC software platforms, applications and devices.
Avaya OneCloud UCaaS solutions enable organizations to reimagine collaborative work environments and help companies increase employee productivity, improve customer service and reduce costs. With Avaya OneCloud UCaaS, organizations can provide their workers with a single app for all-channel calling, messaging, meetings and team collaboration with the same ease of use as existing consumer apps. Avaya embeds communications directly into the apps, browsers and devices employees use every day, giving them a more natural, efficient and flexible way to connect, engage, respond and share where and how they want. During fiscal 2021, we expanded our portfolio to include new cloud-based solutions, and we continued integrating Artificial Intelligence ("AI") to create enhanced user experience and improve performance.
Avaya OneCloud CCaaS solutions: Avaya’s industry-leading digital contact center solutions enable clients to build a customized portfolio of applications to drive stronger customer engagement and higher customer lifetime value. Our reliable, secure and scalable communications solutions include voice, email, chat, social media, video, performance management and third-party integration that can improve customer service and help companies compete more effectively. Avaya is delivering OneCloud CCaaS solutions for cloud deployment and, in fiscal 2021, we continued to aggressively integrate AI, machine learning and leading-edge cybersecurity capabilities into our portfolio, providing our clients a deeper understanding of their customers’ needs with a robust and secure platform.
Avaya OneCloud CPaaS combines the cloud with our communications platforms, providing a development platform and the application programming interfaces that enable developers to easily integrate both UCC and CC communications capabilities directly into internal and customer-facing applications and workflows. Organizations can quickly deliver modular, composable applications ("apps") and experiences that meet ever-changing customer and operational needs.

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Services
Complementing our product and solutions portfolio is a global, award-winning services portfolio, delivered by Avaya and our extensive partner ecosystem. Our services portfolio, which includes solution upgrades and provides new technology through our Avaya OneCloud subscription offerings, consists of:
Global Support Services provide offerings that help businesses protect their technology investments and address the risk of system outages. We help our customers gain a competitive edge through proactive problem prevention, rapid resolution and continual solution optimization. Global support services also provide software solutions delivered through a subscription model to provide our customers an improved user experience and solution enhancements. Most of our global support services revenue is recurring in nature.
Enterprise Cloud and Managed Services enable customers to take advantage of our technology via the cloud, on-premise, or a hybrid of both, depending on the solution and the needs of the customer. Most of our enterprise cloud and managed services revenue is recurring in nature and based on multi-year services contracts.
Professional Services enable our customers to take full advantage of their IT and communications solution investments to drive measurable business results. Our experienced consultants and engineers partner with customers along each step of the solution lifecycle to deliver services that add value and drive business transformation. Most of our professional services revenue is non-recurring in nature.
With these comprehensive services, customers can leverage communications technology to help them maximize their business results. We help our customers use communications to minimize the risk of outages, drive employee productivity and deliver a differentiated customer experience.
Our services teams also help our customers transition at their desired pace to next-generation communications solutions. Customers can choose the level of support for their communications solutions best suited for their needs, which may include deployment, training, monitoring, solution management, optimization and more. Our systems and service team’s performance monitoring can quickly identify and address issues before they arise. Remote diagnostics and resolutions focus on fixing existing problems and avoiding potential issues in order to help our customers save time and reduce the risk of an outage.
Factors and Trends Affecting Our Results of Operations
There are several trends and uncertainties affecting our business. Most importantly, we are dependent on general economic conditions, the willingness of our customers to invest in technology and the manner in which our customers procure such technology and services.
Industry Trends
UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.
Preference for cloud delivery of applications and management of multiple and varied devices continues to grow, all of which must be handled with the security that business demands.
The Experience Economy continues to grow. The Experience Economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and services. As consumers embrace new technologies and devices in creative ways and at an accelerating pace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This increased adoption and deployment of AI is providing significant new opportunities for enhanced UCC and CC solutions that improve the customer experience and transform the Digital Workplace.
Coronavirus ("COVID-19") Update
The COVID-19 pandemic has had widespread and unprecedented impacts on regional, national and global economies. The COVID-19 pandemic and its related economic effects have not had a material impact on our business or liquidity. However, the ultimate impact of the pandemic on our business, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future pandemic related developments, including the duration and severity of the pandemic, the implementation or re-implementation of governmental and employer requirements to limit the spread of the virus, the speed with which vaccines can be distributed globally, the pace of acceptance of the vaccine by the public and the emergence of new variants, which are uncertain and cannot be predicted.
Our focus throughout the pandemic has been and remains on promoting employee health and safety, serving our customers and ensuring business continuity.
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We believe that the current macroeconomic environment caused by the COVID-19 pandemic has accelerated a developing trend in the way people work, with more employees working remotely, and believe this could increase demand for certain of the Company's products and services.

Financial Results Summary
Fiscal year ended September 30, 2021 compared with the Fiscal year ended September 30, 2020
The section below provides a comparative discussion of our consolidated results of operations between fiscal 2021 and 2020. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 filed on November 25, 2020 for comparative discussion of our consolidated results of operations between fiscal 2020 and 2019.
The following table displays our consolidated net loss for the periods indicated:
Fiscal years ended September 30,
(In millions)20212020
REVENUE
Products$992 $1,073 
Services1,981 1,800 
2,973 2,873 
COSTS
Products:
Costs398 405 
Amortization of technology intangible assets173 174 
Services752 714 
1,323 1,293 
GROSS PROFIT1,650 1,580 
OPERATING EXPENSES
Selling, general and administrative1,053 1,013 
Research and development228 207 
Amortization of intangible assets159 161 
Impairment charges— 624 
Restructuring charges, net30 30 
1,470 2,035 
OPERATING INCOME (LOSS)180 (455)
Interest expense(222)(226)
Other income, net44 63 
INCOME (LOSS) BEFORE INCOME TAXES(618)
Provision for income taxes(15)(62)
NET LOSS$(13)$(680)

Revenue
Revenue for fiscal 2021 was $2,973 million compared to $2,873 million for fiscal 2020. The increase was primarily driven by higher revenue from the Company's subscription and OneCloud Private offerings; revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020; and the favorable impact of foreign currency exchange rates, partially offset by lower demand for the Company's on-premise product solutions, hardware maintenance and software support services as customers transition to our subscription and cloud solutions. Revenue for fiscal 2021 also includes a $15 million out-of-period adjustment to record revenue for certain performance obligations satisfied in prior periods. See Note 1 "Background and Basis of Presentation" included within Part II Item 8 of this Annual Report on Form 10-K.
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The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:
Percentage of Total RevenueYr. to Yr. Percentage ChangeYr. to Yr. Percentage Change, net of Foreign Currency Impact
Fiscal years ended September 30,Fiscal years ended September 30,
(In millions)2021202020212020
Products & Solutions$992 $1,074 33 %37 %(8)%(9)%
Services1,982 1,805 67 %63 %10 %%
Unallocated amounts(1)(6)— %— %
(1)
(1)
Total revenue$2,973 $2,873 100 %100 %%%
(1)Not meaningful
Products & Solutions revenue for fiscal 2021 was $992 million compared to $1,074 million for fiscal 2020. The decrease was primarily attributable to lower demand for the Company's on-premise product solutions; and higher revenue from the fulfillment of certain obligations related to a new government contract in the prior period, partially offset by revenue from the Company's Avaya Cloud Office offering which launched on March 31, 2020; the impact of the out-of-period adjustment described above; and the favorable impact of foreign currency exchange rates.
Services revenue for fiscal 2021 was $1,982 million compared to $1,805 million for fiscal 2020. The increase was primarily driven by higher revenue from the Company's subscription and OneCloud Private offerings; revenue from implementation services related to a government contract signed in fiscal 2020; and the favorable impact of foreign currency exchange rates, partially offset by the planned declines in hardware maintenance and software support services which continue to face headwinds driven by lower new product sales over the past several years.
Unallocated amounts for fiscal 2021 and 2020 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy in December 2017 which is excluded from segment revenue.
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The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:
Percentage of Total RevenueYr. to Yr. Percentage ChangeYr. to Yr. Percentage Change, net of Foreign Currency Impact
Fiscal years ended September 30,Fiscal years ended September 30,
(In millions)2021202020212020
U.S.$1,704 $1,640 57 %57 %%%
International:
Europe, Middle East and Africa732 714 25 %25 %%— %
Asia Pacific
297 296 10 %10 %— %(2)%
Americas International - Canada and Latin America240 223 %%%%
Total International1,269 1,233 43 %43 %%— %
Total revenue$2,973 $2,873 100 %100 %%%
Revenue in the U.S. for fiscal 2021 was $1,704 million compared to $1,640 million for fiscal 2020. The increase in U.S. revenue was mainly driven by higher revenue from the Company's subscription and OneCloud Private offerings; and revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020, partially offset by lower demand for the Company's on-premise product solutions, hardware maintenance and software support services.
Revenue in Europe, Middle East and Africa ("EMEA") for fiscal 2021 was $732 million compared to $714 million for fiscal 2020. The increase in EMEA was mainly driven by higher revenue from the Company's subscription and OneCloud Private offerings; revenue growth from the Company's Avaya Cloud Office offering; and the favorable impact of foreign currency exchange rates, partially offset by lower demand for the Company's on-premise product solutions, hardware maintenance and software support services.
Revenue in Asia Pacific ("APAC") for fiscal 2021 was $297 million compared to $296 million for fiscal 2020. The increase in APAC revenue was primarily attributable to higher revenue from the Company's subscription and OneCloud Private offerings; revenue growth from the Company's Avaya Cloud Office offering; and the favorable impact of foreign currency exchange rates, partially offset by lower demand for the Company's on-premise product solutions, hardware maintenance and software support services.
Revenue in Americas International for fiscal 2021 was $240 million compared to $223 million for fiscal 2020. The increase in Americas International revenue was primarily driven by higher revenue from the Company's subscription offerings; higher revenue from the Company's professional services; and the favorable impact of foreign currency exchange rates, partially offset by lower demand for the Company's hardware maintenance and software support services.
Gross Profit
The following table sets forth gross profit and gross margin by operating segment for the periods indicated:
Gross MarginChange
Fiscal years ended September 30,Fiscal years ended September 30,AmountPercent
(In millions)2021202020212020
Products & Solutions$594 $669 59.9 %62.3 %$(75)(11)%
Services1,230 1,092 62.1 %60.5 %138 13 %
Unallocated amounts(174)(181)(1)(1)(1)
Total$1,650 $1,580 55.5 %55.0 %$70 %
(1)Not meaningful

Products & Solutions gross profit for fiscal 2021 was $594 million compared to $669 million for fiscal 2020. The decrease was mainly attributable to the decline in revenue described above. Products & Solutions gross margin decreased from 62.3% in fiscal 2020 to 59.9% in fiscal 2021 mainly driven by increase in cloud and partner costs, as well as an unfavorable product mix primarily due to a shift in consumption of higher margin on-premise software from a perpetual license model to a subscription model, which is reflected within our Services segment.
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Services gross profit for fiscal 2021 was $1,230 million compared to $1,092 million for fiscal 2020. The increase was mainly driven by the growth in revenue described above. Services gross margin increased from 60.5% in fiscal 2020 to 62.1% in fiscal 2021 mainly due to the favorable impact of higher revenue from the Company's subscription offerings, partially offset by higher third party expenses.
Unallocated amounts for fiscal 2021 and 2020 include the amortization of technology intangibles and fair value adjustments recognized upon emergence from bankruptcy which are excluded from segment gross profit.
Operating Expenses
The following table sets forth operating expenses and the percentage of operating expenses to total revenue for the periods indicated:
Percentage of Total RevenueChange
Fiscal years ended September 30,Fiscal years ended September 30,AmountPercent
(In millions)2021202020212020
Selling, general and administrative
$1,053 $1,013 35.4 %35.3 %$40 %
Research and development
228 207 7.7 %7.2 %21 10 %
Amortization of intangible assets
159 161 5.3 %5.6 %(2)(1)%
Impairment charges
— 624 — %21.7 %(624)(100)%
Restructuring charges, net
30 30 1.0 %1.0 %— — %
Total operating expenses
$1,470 $2,035 49.4 %70.8 %$(565)(28)%

Selling, general and administrative expenses for fiscal 2021 were $1,053 million compared to $1,013 million for fiscal 2020. The increase was primarily attributable to higher channel compensation; higher share-based compensation expense; higher costs for employee benefits; and the unfavorable impact of foreign currency exchange rates, partially offset by advisory fees incurred in prior period associated with executing the strategic partnership with RingCentral; lower expense for expected credit losses; and lower travel and facility related costs as a result of the COVID-19 pandemic.
Research and development expenses for fiscal 2021 were $228 million compared to $207 million for fiscal 2020. The increase was primarily attributable to investments in cloud technology development.
Amortization of intangible assets for fiscal 2021 was $159 million compared to $161 million for fiscal 2020.
Impairment charges for fiscal 2020 were $624 million. During fiscal 2020, the Company performed an interim impairment test of its goodwill and indefinite-lived intangible assets due to (i) the impact of the COVID-19 pandemic on the macroeconomic environment which led to revisions to the Company's long-term forecast during the second quarter of fiscal 2020 and (ii) the sustained decrease in the Company's stock price at the beginning stages of the pandemic which was caused by the resulting volatility in the financial markets. The results of the Company's interim goodwill impairment test indicated that the estimated fair value of the Company's Services reporting unit exceeded its carrying amount. The carrying amount of the Company's Products & Solutions reporting unit exceeded its estimated fair value primarily due to a reduction in the Company's long-term forecast to reflect increased risk from higher market uncertainty and the accelerated reduction of product sales related to the Company's historical on-premises perpetual licenses with a continued shift and acceleration of customers upgrading and acquiring new technology innovation through the utilization of the Company's subscription offering, which is included in the Services reporting unit. As a result, the Company recorded a goodwill impairment charge of $624 million to write down the full carrying amount of the Products & Solutions goodwill. The results of the indefinite-lived intangible asset impairment test indicated that no impairment existed. The Company performed its annual impairment test for goodwill and indefinite-lived intangible assets in fiscal 2021 and determined that no impairment existed.
Restructuring charges, net, were $30 million for both fiscal 2021 and 2020. Restructuring charges during fiscal 2021 consisted of $19 million for employee severance actions and $11 million for facility exit costs primarily in the U.S. and EMEA. Restructuring charges during fiscal 2020 consisted of $24 million for facility exit costs primarily in the U.S. and $6 million for employee severance actions in EMEA.
Operating Income
Operating income for fiscal 2021 was $180 million compared to an operating loss of $455 million for fiscal 2020. Our operating results for fiscal 2021 as compared to fiscal 2020 reflect, among other things, the following items which are described in more detail above:
higher revenue and gross profit for fiscal 2021;
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higher selling, general and administrative expenses and research and development costs in fiscal 2021; and
a $624 million goodwill impairment charge during fiscal 2020 with no comparable charge during fiscal 2021.
Interest Expense
Interest expense for fiscal 2021 was $222 million compared to $226 million for fiscal 2020. The decrease was mainly driven by lower debt issuance costs and lower average principal amounts outstanding in fiscal 2021 compared to fiscal 2020 as a result of the changes in the Company’s debt portfolio described in the “Liquidity and Capital Resources” section below, partially offset by higher average interest rates primarily attributable to the issuance of the Company’s Senior 6.125% First Lien Notes (the "Senior Notes") in September 2020.
Other Income, Net
Other income, net for fiscal 2021 was $44 million as compared to $63 million for fiscal 2020. The decrease was mainly driven by gains on the sale of all the Company's RingCentral shares during fiscal 2020, partially offset by a non-cash settlement gain recorded during fiscal 2021 related to the Company's other post-retirement plan; and the net impact of foreign currency gains (losses).
Provision for Income Taxes
The provision for income taxes was $15 million for fiscal 2021 compared to $62 million for fiscal 2020.
The Company's effective income tax rate for fiscal 2021 differed from the U.S. federal tax rate by 729% or $15 million principally related to deferred taxes (including losses) for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized; and certain nondeductible expenses.
The Company's effective income tax rate for fiscal 2020 differed from the U.S. federal tax rate by 31% or $192 million principally related to the goodwill impairment charge recorded in the second quarter of fiscal 2020 and deferred taxes (including losses) for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized.
Net Loss
Net loss was $13 million for fiscal 2021 compared to $680 million for fiscal 2020 as a result of the items discussed above.
Liquidity and Capital Resources
We expect our existing cash balance, cash generated by operations and borrowings available under our ABL Credit Agreement to be our primary sources of short-term liquidity. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next twelve months.
Cash Flow Activity
The following table provides a summary of the statements of cash flows for the periods indicated:
Fiscal years ended September 30,
(In millions)20212020
Net cash provided by (used for):
Operating activities$30 $147 
Investing activities(117)314 
Financing activities(142)(489)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash— 
Net decrease in cash, cash equivalents, and restricted cash(229)(25)
Cash, cash equivalents, and restricted cash at beginning of period731 756 
Cash, cash equivalents, and restricted cash at end of period$502 $731 
Operating Activities
Cash provided by operating activities for fiscal 2021 and 2020 was $30 million and $147 million, respectively. The decrease was primarily due to higher incentive compensation payments; and the timing of customer cash payments as the Company continues its rapid transition to a cloud and subscription model, partially offset by higher advisory fees incurred in the prior
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year period associated with executing the strategic partnership with RingCentral; the timing of vendor payments; lower income tax payments; and lower interest payments.
Investing Activities
Cash used for investing activities for fiscal 2021 was $117 million compared to cash provided by investing activities of $314 million for fiscal 2020. The change was primarily due to proceeds in the prior year period from the sale of shares of RingCentral common stock, which were received by the Company upon entry into the strategic partnership in October 2019, partially offset by an increase in capital expenditures and an asset acquisition in fiscal 2021.
Financing Activities
Cash used for financing activities for fiscal 2021 and 2020 was $142 million and $489 million, respectively. The decrease was primarily due to lower repurchases of shares of common stock under the Company's share repurchase program; lower principal prepayments under the Term Loan Credit Agreement; higher proceeds from the Employee Stock Purchase Plan which was introduced in June 2020; and higher proceeds from the exercise of stock options, partially offset by the issuance of Series A Preferred Stock to RingCentral upon entry into the strategic partnership and higher debt issuance costs in the prior year period as a result of the issuance of the Company's Senior Notes and its Term Loan Credit Agreement refinancing in September 2020 described in more detail below.
Senior Notes Issuance
On September 25, 2020, the Company issued $1,000 million in aggregate principal amount of its Senior Notes. The Senior Notes were issued under an indenture, among the Company, the Company's subsidiaries that guaranteed the Senior Notes on the issuance date and Wilmington Trust, National Association, as trustee and notes collateral agent. The Senior Notes mature on September 15, 2028. The Company used the net proceeds from the issuance of the Senior Notes after debt issuance costs to prepay $981 million in principal amount of certain first lien term loans under its Term Loan Credit Agreement.
Term Loan Credit Agreement Refinancing
On September 25, 2020, the Company amended the Term Loan Credit Agreement, pursuant to which the maturity of $800 million in principal amount of the first lien term loans outstanding under the Term Loan Credit Agreement was extended from December 2024 to December 2027. The amendment also made certain other changes to the Term Loan Credit Agreement, including with respect to the change of control provisions.
On February 24, 2021, the Company further amended the Term Loan Credit Agreement, pursuant to which the Company prepaid, replaced and refinanced all first lien term loans due December 2024 outstanding under the Term Loan Credit Agreement with $100 million in cash and $743 million in principal amount of new first lien term loans due December 2027.
ABL Credit Agreement Refinancing
On September 25, 2020, the Company also amended its ABL Credit Agreement to, among other things, extend its maturity to September 25, 2025, subject to customary adjustments to the extent certain of the Company's indebtedness matures prior to such date. The total commitments under the ABL Credit Agreement were also reduced from $300 million to $200 million, subject to borrowing base availability.
As of September 30, 2021, the Company was in compliance with all covenants and other requirements under its debt agreements.
See Note 11, "Financing Arrangements," and Note 12, "Derivative Instruments and Hedging Activities," to our Consolidated Financial Statements for further details about our financing arrangements and hedging activities, including summaries of the material provisions of the Company's Term Loan Credit Agreement, ABL Credit Agreement, Senior Notes, Convertible Notes and interest rate swap agreements.
Future Cash Requirements
Our primary future cash requirements will be to fund operations, debt service, capital expenditures, benefit obligations and restructuring payments. In addition, we may use cash in the future to make strategic acquisitions or investments.
Specifically, we expect our primary cash requirements for fiscal 2022 to be as follows:
Debt service—We expect to make payments of approximately $185 million to $190 million during fiscal 2022 in interest associated with the Term Loan Credit Agreement, Senior Notes and Convertible Notes, and fees associated with our ABL Credit Agreement. In the ordinary course of business, we may from time to time borrow and repay amounts under our ABL Credit Agreement.
Capital expenditures—We expect to spend approximately $110 million to $115 million for capital expenditures during fiscal 2022.
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Benefit obligations—We estimate we will make payments under our pension and post-retirement benefit obligations of approximately $37 million during fiscal 2022. These payments include $26 million for our non-U.S. benefit plans, which are predominantly not pre-funded, and $11 million for salaried and represented retiree post-retirement benefits. As a result of the American Rescue Plan Act, we do not expect to make any contributions to satisfy the minimum statutory funding requirements of our U.S. qualified pension plans during fiscal 2022. See discussion in Note 15, "Benefit Obligations," to our Consolidated Financial Statements for further details.
Restructuring payments—We expect to make payments of approximately $20 million during fiscal 2022 for employee separation costs and lease termination obligations associated with restructuring actions. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.
In addition to the matters identified above, in the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings relating to intellectual property, commercial, employment, environmental and regulatory matters, including but not limited to a suit filed by Solaborate Inc. and Solaborate LLC described in Note 22, “Commitments and Contingencies” to our Consolidated Financial Statements. An unfavorable resolution in this or other matters could have a material adverse effect on the Company's future cash requirements.
We and our subsidiaries and affiliates may from time to time seek to repurchase or prepay our outstanding equity (common stock and warrants) and/or debt (including our Term Loans, Senior Notes and Convertible Notes) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, tender offers, redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. 
Future Sources of Liquidity
We expect our cash balance, cash generated by operations and borrowings available under our ABL Credit Agreement to be our primary sources of short-term liquidity.
As of September 30, 2021 and 2020, our cash and cash equivalent balances held outside the U.S. were $195 million and $227 million, respectively. As of September 30, 2021, the Company’s cash and cash equivalents held outside the U.S. are not expected to be needed to be repatriated to fund the Company’s operations in the U.S. based on our expected future sources of liquidity.
Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At September 30, 2021, the Company had issued and outstanding letters of credit and guarantees of $37 million under the ABL Credit Agreement and had no borrowings outstanding. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less $37 million of outstanding letters of credit and guarantees, was $147 million at September 30, 2021.
We believe that our existing cash and cash equivalents of $498 million as of September 30, 2021, expected future cash provided by operating activities and borrowings available under the ABL Credit Agreement will be sufficient to meet our future cash requirements for at least the next twelve months from the filing of this annual report on Form 10-K. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We also believe that our financial resources, along with appropriate management of discretionary expenses, will allow us to manage the anticipated impact of COVID-19 on our business operations, and specifically our liquidity, for the foreseeable future.
Off-Balance Sheet Arrangements
See discussion in Note 22, "Commitments and Contingencies," to our Consolidated Financial Statements for further details.
Debt Ratings
Our ability to obtain additional external financing and the related cost of borrowing may be affected by our ratings, which are periodically reviewed by the major credit rating agencies. The ratings are subject to change or withdrawal at any time by the respective credit rating agencies.
On June 2, 2021, Standard and Poor's upgraded both the Company's definitive corporate credit rating and the rating applicable to the Company's Senior Notes and the Term Loan Credit Agreement from "B" to "B+" with a stable outlook.
On July 23, 2021, Fitch Ratings Inc. (“Fitch”) upgraded the rating applicable to the Company's Senior Notes and the Term Loan Credit Agreement from "BB-" to "BB." Fitch also affirmed the Company’s definitive corporate credit rating of “B” and upgraded the outlook from stable to positive.
As of September 30, 2021, Moody's Investors Service issued a corporate family rating of "B2" with a stable outlook and a rating of "B2" applicable to the Senior Notes and the Term Loan Credit Agreement.
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EBITDA and Adjusted EBITDA
We present below the Company's EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure.
EBITDA is defined as net income before income taxes, interest expense, interest income and depreciation and amortization and excludes the results of discontinued operations. EBITDA provides us with a measure of operating performance that excludes certain non-operating and/or non-cash expenses, which can differ significantly from company to company depending on capital structure, the tax jurisdictions in which companies operate and capital investments.
Adjusted EBITDA is EBITDA as further adjusted by the items noted in the reconciliation table below. We believe Adjusted EBITDA provides a measure of our financial performance based on operational factors that management can impact in the short-term, such as our pricing strategies, volume, costs and expenses of the organization, and therefore presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years. In addition, Adjusted EBITDA serves as a basis for determining certain management and employee compensation. We also present EBITDA and Adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. Under the Company's debt agreements, the ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied in part to ratios based on a measure of Adjusted EBITDA.
EBITDA and Adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net income or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Further, Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations that still affect our net income. In particular, our formulation of Adjusted EBITDA adjusts for certain amounts that are included in calculating net income as set forth in the following table including, but not limited to, restructuring charges, impairment charges, resolution of certain legal matters and a portion of our pension costs and post-retirement benefits costs, which represents the amortization of prior service costs (credits) and actuarial (gains) losses associated with these benefits. However, these are expenses that may recur, may vary and/or may be difficult to predict.
The reconciliation of net loss, which is a GAAP measure, to EBITDA and Adjusted EBITDA, which are non-GAAP measures, is presented below for the periods indicated:
Fiscal years ended September 30,
(In millions)20212020
Net loss$(13)$(680)
Interest expense222 226 
Interest income(1)(6)
Provision for income taxes15 62 
Depreciation and amortization425 423 
EBITDA648 25 
Impact of fresh start accounting adjustments(a)
Restructuring charges(b)
28 20 
Advisory fees(c)
— 40 
Acquisition-related costs— 
Share-based compensation55