Avid Technology Announces Q2 2020 Results – Digitalmunition




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Published on August 4th, 2020 📆 | 7565 Views ⚑

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Avid Technology Announces Q2 2020 Results

BURLINGTON, Mass., Aug. 03, 2020 (GLOBE NEWSWIRE) — Avid® (NASDAQ: AVID), a leading technology provider that powers the media and entertainment industry, today announced its second quarter 2020 financial results.

During the second quarter, the Recurring Revenue components of the company’s business were resilient despite the COVID-19 global pandemic.  The Company reported record subscription revenue of $16.4 million, up 68% year-over-year and maintenance revenue was stable, resulting in 8.5% year-over-year growth in Annual Contract Value.  Also, in the quarter, Avid significantly improved its profitability as a result of higher gross margin coupled with a more efficient cost structure.  The year-over-year improvement in gross margin of 760 basis points was a result of a greater portion of revenue coming from higher-margin software in the quarter and benefits from expense reductions in non-material cost of sales.  Profitability was also enhanced by the $11 million year-over-year reduction in operating expenses in the quarter, which the Company will continue to closely manage towards the target of at least a $30 million reduction for fiscal 2020.

For the second quarter, total revenue declined year-over-year, as the non-Recurring Revenue portions of the Company’s business related to product and professional services continued to be negatively impacted by weaker demand as a result of the COVID-19 global pandemic, which has caused the postponement or cancellation of many live music and major sporting events, and the temporary suspension of many film and television productions.   

During the quarter, the Company repaid the remaining $28.9 million of outstanding convertible notes at their maturity using available cash.  As of June 30, 2020, the Company had $55.7 million in cash and cash equivalents.  The Company’s leverage ratio under the financing agreement dropped to 4.3x as of June 30, 2020, as a result of the year-over-year increase in Adjusted EBITDA in the quarter, and the Company remains well below the covenant levels in the financing agreement as amended in May 2020.

  • Subscription revenue was $16.4 million, up 68.3% year-over-year.
  • Paid Cloud-enabled software subscriptions increased by approximately 24,000 during the quarter, to approximately 242,000 at June 30, 2020, an increase of 63.9% year-over-year in total paid subscriptions.
  • Subscription and Maintenance revenue was $47.0 million, up 13.5% year-over-year.
  • Total revenue was $79.3 million, down (19.7%) year-over-year.
  • Gross margin was 65.0%, up 760 basis points year-over-year.  Non-GAAP Gross Margin was 65.4%, up 600 basis points year-over-year.
  • Operating expenses were $43.5 million, a decrease of (19.6%) year-over-year.  Non-GAAP Operating Expenses were $40.5 million, a decrease of (21.7%) year-over-year.
  • Operating income was $8.1 million, an increase of 214.0% year-over-year.  Non-GAAP Operating Income was $11.3 million, an increase of 65.2% year-over-year.
  • Adjusted EBITDA was $13.5 million, an increase of 43.3% year-over-year.  Adjusted EBITDA Margin was 17.0%, up 750 basis points year-over-year. 
  • Net income per common share was $0.04, up from a loss per common share of ($0.25) in the second quarter of 2019.  Non-GAAP Net Income per Share was $0.12, up from Non-GAAP Net Income per Share of $0.02 in the second quarter of 2019.
  • Net cash (used in) operating activities was ($3.5) million in the quarter, a decrease of ($0.8) million compared to Net cash (used in) operating activities of ($2.7) million in the second quarter of 2019.
  • Free Cash Flow was ($5.2) million, a decrease of ($0.7) million compared to ($4.5) million in the second quarter of 2019.
  • LTM Recurring Revenue was 69.8% of the Company’s revenue for the 12 months ended June 30, 2020, up from 58.1% for the 12 months ended June 30, 2019.
  • Annual Contract Value was $265.3 million as of June 30, 2020, up 8.5% from $244.6 million as of June 30, 2019.
  • Jeff Rosica, Avid’s CEO and President stated, “While the COVID-19 pandemic continued to negatively impact the Company’s business during the second quarter, we are pleased with the strength of our creative subscription business, which continued its strong growth in the quarter, and with the resilience of our recurring revenue business.  COVID-19 continues to temporarily reduce customer demand for parts of our non-recurring product business, but we expect demand to gradually improve as we get further into the second half of 2020.”  Mr. Rosica continued, “The COVID-19 pandemic has also created opportunities to grow strategic portions of the business.  We are adjusting our strategy and our investments to respond to the changes in the market which are informed by ongoing discussions with customers across the media industry, placing greater focus on the products and solutions that we believe will drive profitable growth as we emerge in the post-COVID environment.  We are committed to making the changes we need to make to ensure that Avid exits this pandemic as a stronger and more profitable company.”

    Ken Gayron, Executive Vice President and Chief Financial Officer of Avid, said, “We made substantial progress in driving our higher margin revenue streams and improving our cost structure in the second quarter, resulting in strong growth in profitability.”  Mr. Gayron continued, “We also made significant progress in improving our working capital position in the quarter, including by reducing accounts payable by more than $17 million during the quarter, that we believe should provide a strong foundation for improved Free Cash Flow in the second half of 2020.  Finally, we expect to see continued improvement in our balance sheet and leverage position that we believe should enable the Company to improve its cost of capital and profitability over time.”

    Avid will host a conference call to discuss its financial results for the second quarter of 2020 on Monday, August 3, 2020 at 5:30 p.m. ET.  Participants may join the webcast in listen-only mode and access the presentation slides using the link on the Avid Investor Relations website, which can be found on the events tab at ir.avid.com.  Participants who would like to ask a question, can access the call by dialing +1 323-289-6576 and referencing confirmation code 7030762.  Please connect at least 15 minutes in advance to ensure a timely connection to the call.  A replay of the call will also be available for a limited time on the Avid Investor Relations website shortly after the completion of the call.

    Avid includes non-GAAP financial measures in this press release, including Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Non-GAAP Gross Margin, Non-GAAP Operating Expenses, Non-GAAP Operating Income, and Non-GAAP Net Income (Loss) per Share.  The Company also includes the operational metrics of Cloud-enabled software subscriptions, Recurring Revenue, LTM Recurring Revenue % and Annual Contract Value in this release. Avid believes the non-GAAP financial measures and operational metrics provided in this release provide helpful information to investors with respect to evaluating the Company’s performance. Unless noted, all financial and operating information is reported based on actual exchange rates. Definitions of the non-GAAP financial measures and operational metrics are included in our Form 8-K filed today. Reconciliations of the non-GAAP financial measures presented in this press release to the Company’s comparable GAAP financial measures for the periods presented are set forth below and are also included in the supplemental financial and operational data sheet available on our investor relations webpage at ir.avid.com, which also includes definitions of all operational metrics.  Unless noted, all financial and operating information is reported based on actual exchange rates.

    Certain information provided in this press release includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.  Examples of forward-looking statements include statements regarding our future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical fact.  You can identify forward-looking statements by their use of forward-looking words such as “may”, “will”, “anticipate”, “expect”, “believe”, “estimate”, “intend”, “plan”, “should”, “seek”, or other comparable terms.

    Readers of this press release should understand that these forward-looking statements are not guarantees of performance or results. Forward-looking statements provide our current expectations and beliefs concerning future events and are subject to risks, uncertainties, and factors relating to our business and operations, all of which are difficult to predict and could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements.

    These risks, uncertainties, and factors include, but are not limited to: risks related to the impact of the coronavirus (COVID-19) outbreak on our business, suppliers, consumers, customers and employees; our liquidity; our ability to execute our strategic plan including our cost saving strategies, and to meet customer needs; our ability to retain and hire key personnel; our ability to produce innovative products in response to changing market demand, particularly in the media industry; our ability to successfully accomplish our product development plans; competitive factors; history of losses; fluctuations in our revenue based on, among other things, our performance and risks in particular geographies or markets; our higher indebtedness and ability to service it and meet the obligations thereunder; restrictions in our credit facilities; our move to a subscription model and related effect on our revenues and ability to predict future revenues; fluctuations in subscription and maintenance renewal rates; elongated sales cycles; fluctuations in foreign currency exchange rates; seasonal factors; adverse changes in economic conditions; variances in our revenue backlog and the realization thereof; risks related to the availability and prices of raw materials, including any negative effects caused by inflation, weather conditions, or health pandemics; disruptions or inefficiencies in our supply chain and/or operations, including from the COVID-19 outbreak; the costs, disruption, and diversion of management’s attention due to the COVID-19 outbreak; the possibility of legal proceedings adverse to our Company; and other risks described in our reports filed from time to time with the U.S. Securities and Exchange Commission. Moreover, the business may be adversely affected by future legislative, regulatory or other changes, including tax law changes, as well as other economic, business and/or competitive factors. The risks included above are not exhaustive.  We caution readers not to place undue reliance on any forward-looking statements includes in this press release which speak only as to the date of this press release.  We undertake no responsibility to update or revise any forward-looking statements, except as required by law.

    www.avid.com, connect with Avid on Facebook, Instagram, Twitter, YouTube, LinkedIn, or subscribe to Avid Blogs.” data-reactid=”52″>Avid delivers the most open and efficient media platform, connecting content creation with collaboration, asset protection, distribution, and consumption. Avid’s preeminent customer community uses Avid’s comprehensive tools and workflow solutions to create, distribute and monetize the most watched, loved and listened to media in the world—from prestigious and award-winning feature films to popular television shows, news programs and televised sporting events, and celebrated music recordings and live concerts. With the most flexible deployment and pricing options, Avid’s industry-leading solutions include Media Composer®, Pro Tools®, Avid NEXIS®, MediaCentral®, iNEWS®, AirSpeed®, Sibelius®, Avid VENUE™, Avid FastServe®™, Maestro™, and PlayMaker™. For more information about Avid solutions and services, visit www.avid.com, connect with Avid on Facebook, Instagram, Twitter, YouTube, LinkedIn, or subscribe to Avid Blogs.

     Three Months Ended Six Months Ended
     June 30, June 30,
     2020 2019 2020 2019
    Net revenues:       
    Products$27,635  $50,326  $62,346  $104,722 
    Services51,646  48,375  103,388  97,298 
    Total net revenues79,281  98,701  165,734  202,020 
            
    Cost of revenues:       
    Products16,954  28,058  37,916  55,658 
    Services10,765  12,195  23,105  24,682 
    Amortization of intangible assets  1,788    3,738 
    Total cost of revenues27,719  42,041  61,021  84,078 
    Gross profit51,562  56,660  104,713  117,942 
            
    Operating expenses:       
    Research and development13,068  15,180  28,493  31,465 
    Marketing and selling19,690  26,129  44,979  51,007 
    General and administrative10,604  12,721  23,348  26,509 
    Amortization of intangible assets  332    695 
    Restructuring costs, net140  (269) 285  289 
    Total operating expenses43,502  54,093  97,105  109,965 
            
    Operating income8,060  2,567  7,608  7,977 
            
    Interest and other expense, net(5,498) (13,290) (10,781) (18,475)
    Income (loss) before income taxes2,562  (10,723) (3,173) (10,498)
    Provision for income taxes717    839  438 
    Net income (loss) $1,845  $(10,723) $(4,012) $(10,936)
            
    Net income (loss) per common share – basic and diluted$0.04  $(0.25) $(0.09) $(0.26)
            
    Weighted-average common shares outstanding – basic43,719  42,560  43,486  42,305 
    Weighted-average common shares outstanding – diluted44,180  42,560  43,486  42,305 

     Three Months Ended Six Months Ended
     June 30, June 30,
     2020 2019 2020 2019
    GAAP revenue       
    GAAP revenue$79,281  $98,701  $165,734  $202,020 
            
    Non-GAAP Gross Profit       
    GAAP gross profit$51,562  $56,660  $104,713  $117,942 
    Amortization of intangible assets  1,788    3,738 
    Stock-based compensation275  167  475  235 
    Non-GAAP Gross Profit$51,837  $58,615  $105,188  $121,915 
    Non-GAAP Gross Margin65.4% 59.4% 63.5% 60.3%
            
    Non-GAAP Operating Expenses       
    GAAP operating expenses$43,502  $54,093  $97,105  $109,965 
    Less Amortization of intangible assets(105) (332) (201) (695)
    Less Stock-based compensation(2,450) (1,838) (4,359) (3,507)
    Less Restructuring costs, net(140) 269  (285) (289)
    Less Restatement costs  (6)   2 
    Less Acquisition, integration and other costs  (274) 183  (425)
    Less Efficiency program costs(235) (155) (366) (158)
    Less COVID-19 related expenses(62)   (248)  
    Non-GAAP Operating Expenses$40,510  $51,757  $91,829  $104,893 
            
    Non-GAAP Operating Income       
    GAAP operating income$8,060  $2,567  $7,608  $7,977 
    Amortization of intangible assets105  2,120  201  4,433 
    Stock-based compensation2,726  2,005  4,835  3,742 
    Restructuring costs, net140  (269) 285  289 
    Restatement costs  6    (2)
    Acquisition, integration and other costs  274  (183) 425 
    Efficiency program costs235  155  366  158 
    COVID-19 related expenses62    248   
    Non-GAAP Operating Income$11,328  $6,858  $13,360  $17,022 
            
    Adjusted EBITDA       
    Non-GAAP Operating Income (from above)$11,328  $6,858  $13,360  $17,022 
    Depreciation2,172  2,564  4,314  4,992 
    Adjusted EBITDA$13,500  $9,422  $17,674  $22,014 
    Adjusted EBITDA Margin17.0% 9.5% 10.7% 10.9%
            
            
    Non-GAAP Net Income       
    Non-GAAP Operating Income (from above)$11,328  $6,858  $13,360  $17,022 
    Less Non-GAAP Interest and other expense(5,498) (5,994) (10,774) (11,179)
    Less Non-GAAP Income Tax(748) 21  (880) (455)
    Non-GAAP Net Income$5,082  $885  $1,706  $5,388 
    Weighted-average common shares outstanding – basic43,719  42,560  43,486  42,305 
    Weighted-average common shares outstanding – diluted44,180  43,532  44,227  43,130 
    Non-GAAP Earnings Per Share – basic and diluted$0.12  $0.02  $0.04  $0.13 
            
    Free Cash Flow       
    GAAP net cash (used in) provided by operating activities$(3,507) $(2,713) $(9,112) $3,663 
    Capital expenditures(1,733) (1,809) (3,212) (3,576)
    Free Cash Flow$(5,240) $(4,522) $(12,324) $87 
    Free Cash Flow conversion of Adjusted EBITDA(38.8)% (48.0)% (69.7)% 0.4%

    These non-GAAP measures reflect how Avid manages its businesses internally. Avid’s non-GAAP measures may vary from how other companies present non-GAAP measures. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles. This non-GAAP information supplements, and is not intended to represent a measure of performance in accordance with, disclosures required by generally accepted accounting principles, or GAAP.  Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.

     June 30, December 31,
     2020 2019
    ASSETS   
    Current assets:   
    Cash and cash equivalents$55,662  $69,085 
    Restricted cash1,663  1,663 
    Accounts receivable, net of allowances of $2,160 and $958 at June 30, 2020 and December 31, 2019, respectively52,909  73,773 
    Inventories29,650  29,166 
    Prepaid expenses9,658  9,425 
    Contract assets18,246  19,494 
    Other current assets5,588  6,125 
    Total current assets173,376  208,731 
    Property and equipment, net18,421  19,580 
    Goodwill32,643  32,643 
    Right of use assets28,876  29,747 
    Long-term deferred tax assets7,078  7,479 
    Other long-term assets4,974  6,113 
    Total assets$265,368  $304,293 
        
    LIABILITIES AND STOCKHOLDERS’ EQUITY   
    Current liabilities:   
    Accounts payable$17,853  $39,888 
    Accrued compensation and benefits22,347  19,524 
    Accrued expenses and other current liabilities29,240  36,759 
    Income taxes payable1,990  1,945 
    Short-term debt3,385  30,554 
    Deferred revenue74,193  83,589 
    Total current liabilities149,008  212,259 
    Long-term debt227,392  199,034 
    Long-term deferred revenue11,530  14,312 
    Long-term lease liabilities28,482  28,127 
    Other long-term liabilities5,448  5,646 
    Total liabilities421,860  459,378 
        
    Stockholders’ deficit:   
    Common stock$437  $430 
    Additional paid-in capital1,030,303  1,027,824 
    Accumulated deficit(1,183,421) (1,179,409)
    Accumulated other comprehensive loss(3,811) (3,930)
    Total stockholders’ deficit(156,492) (155,085)
    Total liabilities and stockholders’ deficit$265,368  $304,293 

     Six Months Ended
     June 30,
     2020 2019
    Cash flows from operating activities:   
    Net loss$(4,012) $(10,936)
    Adjustments to reconcile net loss to net cash (used in) provided by operating activities:   
    Depreciation and amortization4,330  9,424 
    Allowance for (recovery from) doubtful accounts1,205  (48)
    Stock-based compensation expense4,835  3,743 
    Non-cash interest expense3,433  5,966 
    Loss on extinguishment of debt  2,878 
    Unrealized foreign currency transaction (gains) losses(112) 105 
    Benefit from deferred taxes383  43 
    Changes in operating assets and liabilities:   
    Accounts receivable18,783  9,168 
    Inventories(484) (1,149)
    Prepaid expenses and other assets(547) (1,095)
    Accounts payable(22,003) (167)
    Accrued expenses, compensation and benefits and other liabilities(4,057) (6,106)
    Income taxes payable66  (6)
    Deferred revenue and contract assets(10,932) (8,157)
    Net cash (used in) provided by operating activities(9,112) 3,663 
        
    Cash flows from investing activities:   
    Purchases of property and equipment(3,212) (3,576)
    Net cash used in investing activities(3,212) (3,576)
        
    Cash flows from financing activities:   
    Proceeds from revolving line of credit22,000   
    Proceeds from long-term debt7,800  79,289 
    Repayment of debt(695) (714)
    Payments for repurchase of outstanding notes(28,867) (76,269)
    Proceeds from the issuance of common stock under employee stock plans  309 
    Common stock repurchases for tax withholdings for net settlement of equity awards(2,357) (1,895)
    Unwind capped call cash receipt875  27 
    Payments for credit facility issuance costs(289) (5,979)
    Net cash used in financing activities(1,533) (5,232)
        
    Effect of exchange rate changes on cash, cash equivalents and restricted cash682  (3)
    Net decrease in cash, cash equivalents and restricted cash(13,175) (5,148)
    Cash, cash equivalents and restricted cash at beginning of period72,575  68,094 
    Cash, cash equivalents and restricted cash at end of period$59,400  $62,946 
    Supplemental information:   
    Cash and cash equivalents$55,662  $50,955 
    Restricted cash$1,663  $9,020 
    Restricted cash included in other long-term assets$2,075  $2,971 
    Total cash, cash equivalents and restricted cash shown in the statement of cash flows$59,400  $62,946 
        

     Backlog Disclosure for Quarter Ended June 30, 2020   
           
      June 30,March 31,June 30,  
      202020202019  
     Revenue Backlog*     
           
     Deferred Revenue$85.7 $95.4 $93.5   
     Other Backlog 337.9  339.6  351.3   
     Total Revenue Backlog$423.6  $435.0  $444.8    
           
     The expected timing of recognition of revenue backlog as of June 30, 2020 is as follows: 
           
       2020 2021 2022ThereafterTotal
           
     Deferred Revenue$54.6 $24 $4.4 $2.7 $85.7 
     Other Backlog 67.4  114.2  83.6  72.7  337.9 
     Total Revenue Backlog$122.0  $138.2  $88.0  $75.4  $423.6  
           
     *A definition of Revenue Backlog is included in the supplemental financial and operational data sheet available on our investor relations webpage at ir.avid.com.
           

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