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Avid Technology Announces Q2 2018 Results and Reaffirms Full Year 2018 Guidance

Sales momentum continues as bookings grow by 12%

Subscription and e-commerce post another quarter of double-digit revenue growth

Company institutes new $20 million non-personnel-related annual cost savings initiative

New operational metrics Recurring Revenue and Annual Contract Value introduced to show
continuing growth in long-term agreements and software subscription revenues

/EIN News/ -- BURLINGTON, Mass., Aug. 09, 2018 (GLOBE NEWSWIRE) -- Avid® (NASDAQ: AVID), a leading technology provider of software tools and platforms that power the media and entertainment industry, today announced its second quarter 2018 financial results, reaffirmed and narrowed its 2018 guidance and introduced new operational metrics.

Highlights of Second Quarter 2018 Financial Results

  • Bookings were $110.3 million, an increase of 12% year-over-year and 9% sequentially.
  • GAAP Revenue was $98.6 million, representing a sequential improvement of 1% and in line with guidance.
  • Continued strong software revenue growth from subscription and e-commerce sales, with cloud-enabled software subscriptions now at nearly 108,500 at the end of the second quarter and up 39% year-over-year, and bookings through the Company’s e-commerce activities up 48% year-over-year.
  • GAAP Gross Margin was 57.1% and non-GAAP Gross Margin was 59.2%.
  • GAAP Operating Loss was $2.1 million, and Adjusted EBITDA was $5.3 million, in line with guidance.
  • GAAP Net Cash Used in Operating Activities was $5.9 million.
  • Free Cash Flow was a deficit of $8.7 million, reflecting the scheduled payout of the Company’s 2017 bonus during the second quarter.

New Operational Metrics

  • Recurring Revenue, a new operational metric, was 57% of the Company’s revenue in Q2’18 up from 51% in Q2’17, 49% in fiscal year 2017 and 22% in fiscal year 2014.
  • Annual Contract Value (ACV), another new operational metric, was $245 million at the end of Q2’18 up from $227 million at the end of Q2’17, reflecting the growth in Avid’s high margin subscription and maintenance revenues plus revenues under long-term agreements.  

“During the second quarter, Avid continued to see positive commercial momentum as our overall offering and new products are being well received by customers as evidenced through the strong bookings and continued growth in software, cloud-enabled subscriptions and our successful e-commerce business,” said Jeff Rosica, Chief Executive Officer and President of Avid.  “Throughout the second quarter, we continued to execute on our aggressive transition plans while continuing work to improve gross margins, enhance our global supply chain, and reprioritize our product roadmap and commercial plans to capitalize on near-term opportunities.  Guided by the new management team, this focus will intensify through the second half of this year with a goal of driving shareholder value.”

Ken Gayron, Executive Vice President and Chief Financial Officer of Avid commented, “I am pleased to have joined Avid at this important point as the Company is making substantial progress in transitioning from a products company to a software and subscription-based model supported by value-added products.  The transition of Avid’s business is driving a significant change in the Company’s revenue streams.  With this shift, the Company is introducing Recurring Revenue and Annual Contract Value as new operational metrics to provide transparency for investors.” 

“In the second quarter, bookings and backlog continued to grow as additional long-term agreements were signed with our larger customers and partners.  Subscription and e-commerce revenues continued to deliver double-digit year-over-year growth signifying the success of Avid’s software strategy,” Gayron continued.  “Finally, the leadership team is executing on a new $20 million non-personnel-related savings plan that we expect will directly improve the company’s EBITDA and free cash flow.”

Full Year 2018 Guidance
Avid is reaffirming and narrowing its annual financial guidance for full year 2018.  This guidance reflects the adoption of the new revenue recognition standard ASC 606 as of January 1, 2018.

     
  (in $ millions)  Full Year 2018
   
Revenue $410- $420
Adjusted EBITDA $40 - $46
Free Cash Flow $4 - $12
   

At this point in time in the year and with the reaffirmation of the Company’s annual guidance, Avid will not be issuing quarterly guidance for the balance of 2018.

All guidance presented by the Company is inherently uncertain and subject to numerous risks and uncertainties. Avid’s actual future results of operations could differ materially from those shown in the table above. For a discussion of some of the key assumptions underlying the guidance, as well as the key risks and uncertainties associated with these forward-looking statements, please see “Forward-Looking Statements” below as well as the Avid Technology Q2 2018 Business Update presentation posted on Avid’s Investor Relations website.

Non-GAAP Financial Measures and Operational Metrics

Avid includes non-GAAP financial measures in this press release, including Adjusted EBITDA, Free Cash Flow, and non-GAAP Gross Profit and Margin. The Company also includes the operational metrics of Bookings, 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 are included in our Form 8-K filed today. Reconciliations of the non-GAAP financial measures in this 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. Recurring Revenue is defined as the sum of subscription, maintenance and revenue under our long-term contractual agreements. Annual Contract Value is defined, as of a given date, as the sum of the following three components: (i) the annual value of all long-term contractual agreements in effect on such date, calculated by dividing the total value of each contract (excluding expected maintenance revenue included in (ii) below and expected subscription revenue included in (iii) below) divided by the total number of years of such contract, (ii) maintenance revenue for the quarter ended on such date, multiplied by four, and (iii) subscription revenue for the quarter ended on such date, multiplied by four.

The earnings release also includes forward-looking non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow. Reconciliations of these forward-looking non-GAAP financial measures are not included in the earnings release due to the high variability and difficulty in making accurate forecasts and projections of some of the excluded information, together with some of the excluded information not being ascertainable or accessible at this time. As a result, the Company is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts.

Conference Call
Avid will host a conference call to discuss its financial results for the second quarter 2018 on Thursday, August 9, 2018 at 5:00 p.m. ET. The call will be open to the public and can be accessed by dialing 334-323-0522 and referencing confirmation code 9816537. You may also listen to the call on the Avid Investor Relations website. To listen via the website, go to the events tab at ir.avid.com for complete details prior to the start of the conference call. A replay of the call will also be available on the Avid Investor Relations website shortly after the completion of the call.

Forward-Looking Statements
Certain information provided in this press release, including the tables attached hereto, include forward-looking statements that involve risks and uncertainties, including projections and statements about our anticipated plans, objectives, expectations and intentions. Among other things, this press release includes estimated results of operations for the year ending December 31, 2018, which estimates are based on a variety of assumptions about key factors and metrics that will determine our future results of operations, including, for example, anticipated market uptake of new products and market-based cost inflation. Other forward-looking statements include, without limitation, statements based upon or otherwise incorporating judgments or estimates relating to future performance such as future operating results and expenses; earnings; backlog; revenue backlog conversion rate; product mix and free cash flow; Recurring Revenue and Annual Contract Value; our future strategy and business plans; our product plans, including products under development, such as cloud and subscription based offerings; our ability to raise capital and our liquidity. The projected future results of operations, and the other forward-looking statements in this release, are based on current expectations as of the date of this release and subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including but not limited to the effect on our sales, operations and financial performance resulting from: our liquidity; our ability to execute our strategic plan, and 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; and the possibility of legal proceedings adverse to our company. 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. Other factors that could adversely affect our business and prospects are set forth in our public filings with the SEC. Forward-looking statements contained herein are made only as to the date of this press release and we undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

About Avid
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™, FastServe®, Maestro™, and PlayMaker™. For more information about Avid solutions and services, visit www.avid.com, connect with Avid on FacebookInstagram, TwitterYouTubeLinkedIn, or subscribe to Avid Blogs.

© 2018 Avid Technology, Inc. All rights reserved. Avid, the Avid logo, Avid NEXIS, Avid FastServe, AirSpeed, iNews, Maestro, MediaCentral, Media Composer, NewsCutter, PlayMaker, Pro Tools, Avid VENUE, and Sibelius are trademarks or registered trademarks of Avid Technology, Inc. or its subsidiaries in the United States and/or other countries. All other trademarks are the property of their respective owners. Product features, specifications, system requirements and availability are subject to change without notice.

 

 

AVID TECHNOLOGY, INC. 
Condensed Consolidated Statements of Operations 
(unaudited - in thousands, except per share data)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2018       2017       2018       2017  
                 
Net revenues:                
Products   $ 46,379     $ 47,655     $ 92,789     $ 98,661  
Services     52,236       54,718       103,763       107,819  
Total net revenues   98,615       102,373       196,552       206,480  
                 
Cost of revenues:                
Products     26,347       26,489       52,642       50,993  
Services     13,986       14,181       27,971       28,275  
Amortization of intangible assets   1,950       1,950       3,900       3,900  
Total cost of revenues   42,283       42,620       84,513       83,168  
                 
Gross profit     56,332       59,753       112,039       123,312  
                 
Operating expenses:                
Research and development   15,985       16,991       31,670       35,879  
Marketing and selling   27,759       29,018       53,891       54,829  
General and administrative   14,041       13,644       27,996       28,075  
Amortization of intangible assets   363       363       726       726  
Restructuring costs, net   268       6,063       3,175       7,046  
Total operating expenses   58,416       66,079       117,458       126,555  
                 
Operating loss     (2,084 )     (6,326 )     (5,419 )     (3,243 )
                 
Interest and other expense, net   (6,278 )     (3,918 )     (11,637 )     (8,764 )
Loss before income taxes   (8,362 )     (10,244 )     (17,056 )     (12,007 )
                 
Provision for income taxes   144       587       399       739  
Net loss    $ (8,506 )   $ (10,831 )   $ (17,455 )   $ (12,746 )
                 
Net loss per common share - basic and diluted $ (0.20 )   $ (0.26 )   $ (0.42 )   $ (0.31 )
                 
Weighted-average common shares outstanding - basic   41,587       40,953       41,496       40,863  
Weighted-average common shares outstanding - diluted   41,587       40,953       41,496       40,863  
                 


 
AVID TECHNOLOGY, INC. 
Reconciliations of GAAP financial measures to Non-GAAP financial measures 
(unaudited - in thousands) 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Non-GAAP revenue   2018       2017       2018       2017  
GAAP revenue $   98,615     $    102,373     $    196,552     $    206,480  
Amortization of acquired deferred revenue   -       -       -       -  
Non-GAAP revenue   98,615       102,373       196,552       206,480  
Pre-2011 Revenue   -       360       -       765  
Elim PCS     -       -       -       1,700  
Non-GAAP Revenue w/o Pre-2011 and Elim   98,615       102,013       196,552       204,015  
                 
Non-GAAP gross profit            
GAAP gross profit   56,332         59,753       112,039       123,312  
Amortization of intangible assets     1,950         1,950         3,900         3,900  
Stock-based compensation     74         420         127         484  
Non-GAAP gross profit   58,356       62,123       116,066       127,696  
Pre-2011 Revenue     -          360         -          765  
Elim PCS       -          -          -          1,700  
Non-GAAP gross profit w/o Pre-2011 and Elim   58,356       61,763       116,066       125,231  
                 
Non-GAAP operating expenses                
GAAP operating expenses   58,416       66,079       117,458       126,555  
Less Amortization of intangible assets     (363 )       (363 )       (726 )       (726 )
Less Stock-based compensation     (1,478 )       (1,563 )       (2,128 )       (2,909 )
Less Restructuring costs, net       (268 )       (6,063 )       (3,175 )       (7,046 )
Less Restatement costs       (365 )       (320 )       (592 )       (442 )
Less Acquisition, integration and other costs       38         (138 )       (44 )       (140 )
Less Efficiency program costs       (3 )       (1,049 )       (78 )       (2,571 )
Non-GAAP operating expenses   55,977       56,583       110,715       112,721  
                 
Non-GAAP operating income                
GAAP operating loss   (2,084 )     (6,326 )     (5,419 )     (3,243 )
Amortization of intangible assets     2,313         2,313         4,626         4,626  
Stock-based compensation     1,552         1,983         2,255         3,393  
Restructuring costs, net       268         6,063         3,175         7,046  
Restatement costs       365         320         592         442  
Acquisition, integration and other costs       (38 )       138         44         140  
Efficiency program costs       3         1,049         78         2,571  
Non-GAAP operating income     2,379         5,540         5,351         14,975  
                 
Adjusted EBITDA              
Non-GAAP operating income (from above)     2,379         5,540         5,351         14,975  
Depreciation       2,913         3,335         6,274         6,906  
Adjusted EBITDA     5,292         8,875         11,625         21,881  
Adjusted EBITDA margin   5 %     9 %     6 %     11 %
Pre-2011 Revenue     -          360         -          765  
Elim PCS       -          -          -          1,700  
Adjusted EBITDA w/o Pre-2011 and Elim     5,292         8,515         11,625         19,416  
Adjusted EBITDA w/o Pre-2011 and Elim margin     5 %     8 %     6 %     10 %
                 
Adjusted free cash flow                
GAAP net cash (used in) provided by operating activities   5,871 )       2,538         (501 )       6,072  
Capital expenditures     (2,808 )       (1,379 )       (4,888 )       (3,108 )
Free Cash Flow      (8,679 )       1,159         (5,389 )       2,964  
                 
Non-Operational / One-time Items                
Restructuring payments       1,436         3,700         3,871         6,994  
Restatement payments       407         151         688         210  
Acquisition, integration and other payments       5         4         (12 )       19  
Efficiency program payments       15         1,144         131         2,729  
Sub-Total Non-Operational / One-Time Items       1,863         4,999         4,678         9,952  
                 
Adjusted free cash flow $    (6,816 )   $    6,158     $    (711 )   $    12,916  
Adjusted free cash flow conversion of adjusted EBITDA     -129 %     69 %     -6 %     59 %
                 
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. 


 
AVID TECHNOLOGY, INC.      
Condensed Consolidated Balance Sheets      
(unaudited - in thousands)      
         
    June 30,   December 31,
      2018       2017  
ASSETS        
Current assets:      
  Cash and cash equivalents $   60,209     $   57,223  
  Restricted cash     8,500         -  
  Accounts receivable, net of allowances of $1,164 and $11,142         
    at June 30, 2018 and December 31, 2017, respectively      47,703         40,134  
  Inventories     31,752         38,421  
  Prepaid expenses     10,731         8,208  
  Contract assets     15,544         -  
  Other current assets     6,867         10,341  
  Total current assets   181,306       154,327  
         
  Property and equipment, net     19,442         21,903  
  Intangible assets, net     9,057         13,682  
  Goodwill     32,643         32,643  
  Long-term deferred tax assets, net     1,282         1,318  
  Other long-term assets     10,222         10,811  
  Total assets $   253,952     $   234,684  
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
Current liabilities:      
  Accounts payable $   33,547     $   30,160  
  Accrued compensation and benefits     19,024         25,466  
  Accrued expenses and other current liabilities     39,373         31,549  
  Income taxes payable     1,720         1,815  
  Short-term debt     1,400         5,906  
  Deferred revenues     82,470         121,184  
  Total current liabilities   177,534       216,080  
         
  Long-term debt   230,661       204,498  
  Long-term deferred revenues     15,228         73,429  
  Other long-term liabilities     7,403         9,247  
  Total liabilities   430,826       503,254  
         
Stockholders' deficit:      
Common stock       423         423  
  Additional paid-in capital     1,028,334         1,035,808  
  Accumulated deficit     (1,193,791 )       (1,284,703 )
  Treasury stock at cost     (8,358 )       (17,672 )
  Accumulated other comprehensive loss     (3,482 )       (2,426 )
  Total stockholders' deficit   (176,874 )     (268,570 )
  Total liabilities and stockholders' deficit $   253,952     $   234,684  
         


 
AVID TECHNOLOGY, INC. 
Condensed Consolidated Statements of Cash Flows 
(unaudited - in thousands) 
       
  Six Months Ended
  June 30,
    2018     2017 (1)
       
Cash flows from operating activities:      
Net loss $   (17,455 )   $   (12,746 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization     10,899         11,531  
Recovery for doubtful accounts     (43 )       (214 )
Stock-based compensation expense     2,255         3,393  
Non-cash provision for restructuring     934         2,477  
Non-cash interest expense     6,149         5,214  
Unrealized foreign currency transaction (gains) losses     (921 )       4,763  
Provision for (benefit from) deferred taxes     5         (746 )
Changes in operating assets and liabilities:      
Accounts receivable     13,525         9,343  
Inventories     653         9,482  
Prepaid expenses and other assets     2,454         (3,287 )
Accounts payable     3,426         980  
Accrued expenses, compensation and benefits and other liabilities     (12,275 )       (3,419 )
Income taxes payable     (37 )       991  
Deferred revenue     (10,070 )       (21,690 )
Net cash (used in) provided by operating activities     (501 )       6,072  
       
Cash flows from investing activities:      
Purchases of property and equipment     (4,888 )       (3,108 )
Increase in other long-term assets     (17 )       (23 )
Net cash used in investing activities     (4,905 )       (3,131 )
       
Cash flows from financing activities:      
Proceeds from long-term debt     22,688         -  
Repayment of debt     (4,723 )       (2,500 )
Proceeds from the issuance of common stock under employee stock plans     256         217  
Common stock repurchases for tax withholdings for net settlement of equity awards     (649 )       (497 )
Net cash provided by (used in) financing activities     17,572         (2,780 )
       
Effect of exchange rate changes on cash, cash equivalents, and restricted cash     (399 )       625  
Net increase in cash, cash equivalents, and restricted cash     11,767         786  
Cash, cash equivalents and restricted cash at beginning of the period     60,433         49,948  
Cash, cash equivalents and restricted cash at end of the period $   72,200     $   50,734  
Supplemental information:      
Cash and cash equivalents $   60,209     $   47,434  
Restricted cash     8,500         -   
Restricted cash included in other long-term assets     3,491         3,300  
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $   72,200     $   50,734  
               
(1) The Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2017 has been revised to reflect the adoption, on January 1, 2018, of ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The Condensed Consolidated Statements of Cash Flows reflects the changes during the periods in the total of cash, cash equivalents, and restricted cash. Therefore, restricted cash activity is included with cash when reconciling the beginning-of-period and end-of-period total amounts shown.
 


 
AVID TECHNOLOGY, INC. 
Supplemental Revenue Information 
(unaudited - in millions) 
 
Backlog Disclosure for Quarter Ended June 30, 2018 
  December 31, 2017        
  As Previously
Reported
  ASC 606
Adj. 
  As
Adjusted 
  March 31,
2018
  June 30,
2018
Revenue Backlog*                
                   
Deferred Revenue $   194.6   $   (96.6 ) (1 ) $   98.0   $   106.4   $   97.7
Other Backlog     341.5       (6.6 ) (2 )     334.9       328.6       350.5
Total Revenue Backlog $    536.1   $    (103.2 )   $    432.9   $    435.0   $    448.2
                   
                   
The expected timing of recognition of revenue backlog as of June 30, 2018 is as follows: 
                   
    2018     2019       2020   Thereafter   Total
                   
 Deferred Revenue $   58.5   $   25.6     $   8.7   $   4.9   $   97.7 
 Backlog     71.1       108.8         57.9       112.7       350.5 
 Total Revenue Backlog $    129.6   $    134.4     $    66.6   $    117.6   $    448.2 
                   
*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
 
(1) The reduction is primarily attributable to the elimination of the requirement to have vendor specific objective evidence of fair value for undelivered elements that existed under ASC 605, the prior applicable accounting guidance, for software products, which no longer precludes revenue recognition under ASC 606. The impact of the adoption of ASC 606 reported in our Form 10-Q for the three months ended March 31, 2018 has been revised to reflect an additional reduction to deferred revenue and accumulated deficit as of January 1, 2018 of $3.8 million.
 
(2) For subscription contracts, we are now required under ASC 606 to record contract assets for annual and multi-year subscriptions that are billed monthly, resulting in an increase in contract assets at the date of adoption. In addition, some of our enterprise agreements have fixed payment schedules whereas the timing of the fulfillment of performance obligations under the contracts can vary, which can result in the fulfillment of performance obligations exceeding contract billings, which also results in contract assets.
Investor Contact:
                    Dean Ridlon
                    Avid
                    dean.ridlon@avid.com 
                    (978) 640-3379
                    
                    PR Contact:
                    Jim Sheehan
                    Avid 
                    jim.sheehan@avid.com 
                    (978) 640-3152

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