Avid Technology Announces Q4 and Full Year 2018 Results

Returns to GAAP Revenue growth with Adjusted EBITDA exceeding
guidance and Free Cash Flow at the high end of guidance

BURLINGTON, Mass.–(BUSINESS WIRE)–Avid® (NASDAQ: AVID), a leading technology provider that powers the
media and entertainment industry, today announced its fourth quarter and
full-year 2018 financial results, provided guidance for the first
quarter of 2019 and reaffirmed full-year 2019 guidance.

Fourth Quarter 2018 Financial and Business Highlights

  • Revenue was $112.7 million, an increase of 5% year-over-year and 8%
    sequentially. Revenue excluding non-cash revenue was $112.4 million,
    an increase of 7% year-over-year and 10% sequentially.
  • Gross Margin was 59.0%, up 450 basis points year-over-year. Non-GAAP
    Gross Margin was 60.8%, up 480 basis points year-over-year.
  • Operating Expenses were $54.4 million, an increase of 1%
    year-over-year and 2% sequentially largely driven by a $5.2M legal
    settlement recognized as a credit in Q4 2017 offset by savings from
    operational efficiency initiatives. Excluding the non-recurring
    settlement, operating expenses declined by $4.4 million year-over year.
  • Operating Income was $12.1 million, an improvement of $7.3 million
    year-over-year and $5.0 million sequentially.
  • Adjusted EBITDA was $21.3 million, an increase of 42% year-over-year
    and 46% sequentially. Adjusted EBITDA Margin was 18.9%, up 490 basis
    points year-over-year and sequentially.
  • GAAP net income per common share was $0.14, up from net loss per
    common share of ($0.02) in Q4 2017.
  • Net cash provided by operating activities was $20.1 million.
  • Free Cash Flow was $17.7 million.
  • Software revenue from subscriptions increased 77% year-over-year,
    surpassing $10 million in the quarter.
  • Revenue through the Company’s e-commerce activities was up 50%
    year-over-year.

2018 Financial and Business Highlights

  • Revenue was $413.3 million, a decrease of 1% year-over-year. Revenue,
    excluding non-cash revenue, was $407.1 million, an increase of 5%
    year-over-year.
  • Gross Margin was 57.9%, up 10 basis points year-over-year. Non-GAAP
    Gross Margin was 59.8%, up 10 basis points year-over-year.
  • Operating Expenses were $225.5 million, a decrease of 5%
    year-over-year largely driven by savings from operational efficiency
    initiatives.
  • Operating Income was $13.7 million, an increase of 161%, or $8.4
    million, year-over-year.
  • Adjusted EBITDA was $47.5 million, a decrease of 2% year-over-year.
    Adjusted EBITDA Margin was 11.5%, flat with 2017.
  • GAAP net loss per common share of ($0.26), up from GAAP net loss per
    common share of ($0.33) in 2017.
  • Net cash provided by operating activities was $15.8 million.
  • Free Cash Flow was $5.9 million, an increase of $4.8 million from the
    prior year.
  • Software revenue from subscriptions increased 78% year-over-year, with
    approximately 125,000 cloud-enabled software subscriptions at the end
    of 2018.
  • Revenue through the Company’s e-commerce activities was up 52%
    year-over-year, surpassing $50 million for the year.
  • Recurring Revenue was 56% of the Company’s revenue in 2018 up from 49%
    in 2017.
  • Annual Contract Value (ACV) was $248 million at the end of 2018 up
    from $216 million at the end of 2017, reflecting continuing growth in
    Avid’s high-margin subscription revenue plus maintenance revenues and
    revenues under long-term agreements.

“Our return to revenue growth and the improvement in our key financial
metrics, including Free Cash Flow and Adjusted EBITDA, demonstrate an
improving business profile for our Company,” said Jeff Rosica, Chief
Executive Officer and President of Avid. “Additionally, the management
team is focused on continuing to build upon a scalable recurring revenue
model as evidenced by our double-digit growth in subscriptions and
e-commerce revenue. We intend to continue to drive R&D investments in
key product areas in 2019 which are expected to set the foundation for
future growth for the Company.”

“We ended 2018 with strong momentum evidenced by our improving revenue
streams, gross margin and cash flow. With our strong revenue backlog and
the savings from our internal efficiency programs we have visibility to
continued improvements in Free Cash Flow and Adjusted EBITDA during
2019,” commented Ken Gayron, Executive Vice President and Chief
Financial Officer of Avid.

Explanations regarding our use of non-GAAP financial measures and
operational metrics and related definitions, and reconciliations of our
GAAP and non-GAAP measures, are provided in the sections below entitled
“Non-GAAP Financial Measures and Operational Metrics” and
“Reconciliations of GAAP financial measures to Non-GAAP financial
measures”.

First Quarter and Full Year 2019 Guidance

For the first quarter of 2019, Avid is providing Revenue and Adjusted
EBITDA guidance. Avid is also reaffirming its guidance for Revenue,
Adjusted EBITDA and Free Cash Flow for full-year 2019.

(in $ millions)

       

Q1 2019

       

Full Year 2019

               
Revenue

$96 – $104

$420 – $430

   
Adjusted EBITDA $7 – $12

$60 – $65

 
Free Cash Flow

 

 

$12 – $17

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 Q4 and Full-Year 2018
Business Update presentation posted on Avid’s Investor Relations website.

Conference Call

Avid will host a conference call to discuss its financial results for
the fourth quarter and full-year 2018 on Thursday, March 14, 2019 at
5:00 p.m. ET. The call will be open to the public and can be accessed by
dialing 323-994-2093 and referencing confirmation code 7127947. 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 for a limited time on the Avid Investor Relations
website shortly after the completion of the call.

Non-GAAP Financial Measures and Operational Metrics

Avid includes non-GAAP financial measures in this press release,
including Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, and
non-GAAP Gross Margin. The Company also includes the operational metrics
of Bookings, Cloud-enabled software subscriptions, 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 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.

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.

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 three months ending March 31, 2019 and the year ending December 31,
2019, 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™, 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.

© 2019 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.
Consolidated Statements of
Operations

(unaudited – in thousands, except per share data)
                   
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2018     2017 2018     2017
 
Net revenues:
Products $ 60,185 $ 56,481 $ 205,107 $ 209,461
Services   52,499     50,777     208,175         209,542  
Total net revenues   112,684     107,258     413,282         419,003  
 
Cost of revenues:
Products 31,074 32,128 110,758 112,606
Services 13,146 14,734 55,560 56,481
Amortization of intangible assets   1,950     1,950     7,800         7,800  
Total cost of revenues 46,170 48,812 174,118 176,887
           
Gross profit   66,514     58,446     239,164         242,116  
 
Operating expenses:
Research and development 14,836 16,308 62,379 68,212
Marketing and selling 23,921 25,776 101,273 106,257
General and administrative 13,574 10,624 55,230 53,892
Amortization of intangible assets 361 362 1,450 1,450
Restructuring costs, net   1,747     595     5,148         7,059  
Total operating expenses   54,439     53,665     225,480         236,870  
 
Operating income 12,075 4,781 13,684 5,246
 
Interest and other expense, net   (5,725 )   (5,203 )   (23,087 )       (18,668 )
Income (loss) before income taxes 6,350 (422 ) (9,403 ) (13,422 )
 
Provision for income taxes   447     459     1,271         133  
Net income (loss) $ 5,903   $ (881 ) $ (10,674 ) $ (13,555 )
 
Net income (loss) per common share – basic and diluted $ 0.14   $ (0.02 ) $ (0.26 ) $ (0.33 )
 
Weighted-average common shares outstanding – basic 41,860 41,216 41,662 41,020
Weighted-average common shares outstanding – diluted 42,430 41,216 41,662 41,020
 
 

AVID TECHNOLOGY, INC.
Reconciliations of GAAP
financial measures to Non-GAAP financial measures

(unaudited
– in thousands)

 
        Three Months Ended
December 31,
    Twelve Months Ended
December 31,

Non-GAAP revenue

  2018         2017     2018         2017  
GAAP revenue $ 112,684 $ 107,258 $ 413,282 $ 419,003
Amortization of acquired deferred revenue                
Non-GAAP revenue   112,684     107,258     413,282     419,003  
Pre-2011 Revenue 78 985
Elim PCS               1,700  
Non-GAAP Revenue w/o Pre-2011 and Elim 112,684 107,180 413,282 416,318
 

Non-GAAP gross profit

GAAP gross profit 66,514 58,446 239,164 242,116
Amortization of intangible assets 1,950 1,950 7,800 7,800
Stock-based compensation   99     (305 )   321     242  
Non-GAAP gross profit   68,563     60,091     247,285     250,158  
Pre-2011 Revenue 78 985
Elim PCS               1,700  
Non-GAAP gross profit w/o Pre-2011 and Elim 68,563 60,013 247,285 247,473
 

Non-GAAP operating expenses

GAAP operating expenses 54,439 53,665 225,480 236,870
Less Amortization of intangible assets (361 ) (362 ) (1,450 ) (1,450 )
Less Stock-based compensation (1,828 ) (2,741 ) (5,937 ) (8,069 )
Less Restructuring costs, net (1,747 ) (595 ) (5,148 ) (7,059 )
Less Restatement costs (11 ) (558 ) (826 ) (1,284 )
Less Acquisition, integration and other costs (300 ) (266 ) (361 ) (163 )
Less Efficiency program costs   (14 )   (931 )   (94 )   (3,985 )
Non-GAAP operating expenses   50,178     48,212     211,664     214,860  
 

Non-GAAP operating income

GAAP operating income 12,075 4,781 13,684 5,246
Amortization of intangible assets 2,311 2,312 9,250 9,250
Stock-based compensation 1,927 2,436 6,258 8,311
Restructuring costs, net 1,747 595 5,148 7,059
Restatement costs 11 558 826 1,284
Acquisition, integration and other costs 300 266 361 163
Efficiency program costs   14     931     94     3,985  
Non-GAAP operating income   18,385     11,879     35,621     35,298  
 

Adjusted EBITDA

Non-GAAP operating income (from above) 18,385 11,879 35,621 35,298
Depreciation   2,924     3,093     11,891     13,087  
Adjusted EBITDA   21,309     14,972     47,512     48,385  
Adjusted EBITDA margin 18.9 % 14.0 % 11.5 % 11.5 %
Pre-2011 Revenue 78 985
Elim PCS               1,700  
Adjusted EBITDA w/o Pre-2011 and Elim 21,309 14,894 47,512 45,700
Adjusted EBITDA w/o Pre-2011 and Elim margin 18.9 % 13.9 % 11.5 % 11.0 %
 

Adjusted free cash flow

GAAP net cash provided by operating activities 20,070 2,833 15,822 8,936
Capital expenditures   (2,396 )   (1,752 )   (9,936 )   (7,877 )
Free Cash Flow 17,674 1,081 5,886 1,059
 
Non-Operational / One-time Items
Restructuring payments 714 2,599 5,741 12,139
Restatement payments 146 455 1,133 834
Acquisition, integration and other payments 63 120 53 313
Efficiency program payments       500     134     3,863  
Sub-Total Non-Operational / One-Time Items 923 3,674 7,061 17,149
       
Adjusted free cash flow $ 18,597   $ 4,755   $ 12,947   $ 18,208  
Adjusted free cash flow conversion of adjusted EBITDA 87 % 32 % 27 % 38 %
 
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.
Consolidated Balance Sheets
(unaudited
– in thousands)

           

December 31,
2018

December 31,
2017

ASSETS

Current assets:
Cash and cash equivalents $ 56,103 $ 57,223
Restricted cash 8,500

Accounts receivable, net of allowances of $1,339 and $11,142 at
December 31, 2018 and December 31, 2017, respectively

67,754 40,134
Inventories 32,956 38,421
Prepaid expenses 8,853 8,208
Contract assets 16,513
Other current assets   5,917     10,341  
Total current assets 196,596 154,327
 
Property and equipment, net 21,582 21,903
Intangible assets, net 4,432 13,682
Goodwill 32,643 32,643
Long-term deferred tax assets, net 1,158 1,318
Other long-term assets   9,432     10,811  
Total assets $ 265,843   $ 234,684  
 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable $ 39,239 $ 30,160
Accrued compensation and benefits 21,967 25,466
Accrued expenses and other current liabilities 37,547 31,549
Income taxes payable 1,853 1,815
Short-term debt 1,405 5,906
Deferred revenues   85,662     121,184  
Total current liabilities 187,673 216,080
 
Long-term debt 220,590 204,498
Long-term deferred revenues 13,939 73,429
Other long-term liabilities   10,302     9,247  
Total liabilities   432,504     503,254  
 
Stockholders’ deficit:
Preferred stock, $0.01 par value, 1,000 shares authorized; no shares
issued or outstanding
Common stock, $0.01 par value, 100,000 shares authorized; 42,339
shares issued, and 41,948 shares and 41,356 shares outstanding at
December 31, 2018 and 2017, respectively
423 423
Additional paid-in capital 1,028,924 1,035,808
Accumulated deficit (1,187,010 ) (1,284,703 )
Treasury stock at cost, net of reissuances, 391 shares and 983
shares at December 31, 2018 and 2017, respectively
(5,231 ) (17,672 )
Accumulated other comprehensive loss   (3,767 )   (2,426 )
Total stockholders’ deficit   (166,661 )   (268,570 )
Total liabilities and stockholders’ deficit $ 265,843   $ 234,684  
 
 
AVID TECHNOLOGY, INC.
Consolidated Statements of Cash
Flows

(unaudited – in thousands)
           
Twelve Months Ended
December 31,
2018

2017 (1)

 
Cash flows from operating activities:
Net loss $ (10,674 ) $ (13,555 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 21,142 22,337
Provision for (recovery from) doubtful accounts 119 (340 )
Stock-based compensation expense 6,258 8,311
Non-cash provision for restructuring 1,083 3,191
Non-cash interest expense 8,987 8,951
Unrealized foreign currency transaction (gains) losses (996 ) 7,336
Provision for (benefit from) deferred taxes 113 (873 )
Changes in operating assets and liabilities:
Accounts receivable (6,689 ) 3,800
Inventories (551 ) 12,280
Prepaid expenses and other assets 5,832 (7,567 )
Accounts payable 9,148 3,606
Accrued expenses, compensation and benefits and other liabilities (8,853 ) (8,189 )
Income taxes payable 38 800
Deferred revenue and contract assets   (9,135 )   (31,152 )
Net cash provided by operating activities   15,822     8,936  
 
Cash flows from investing activities:
Purchases of property and equipment (9,936 ) (7,877 )
Decrease (increase) in other long-term assets   19     (36 )
Net cash used in investing activities   (9,917 )   (7,913 )
 
Cash flows from financing activities:
Proceeds from long-term debt 22,688 16,694
Repayment of debt (18,451 ) (6,735 )
Proceeds from the issuance of common stock under employee stock plans 355 445
Common stock repurchases for tax withholdings for net settlement of
equity awards
(998 ) (1,329 )
Partial retirement of the Notes conversion feature and capped call
option unwind
(58 )
Payments for credit facility issuance costs   (1,000 )   (700 )
Net cash provided by financing activities   2,536     8,375  
 
Effect of exchange rate changes on cash, cash equivalents, and
restricted cash
  (780 )   1,087  
Net increase in cash, cash equivalents, and restricted cash 7,661 10,485
Cash, cash equivalents and restricted cash at beginning of the year   60,433     49,948  
Cash, cash equivalents and restricted cash at end of the year $ 68,094   $ 60,433  
Supplemental information:
Cash and cash equivalents $ 56,103 $ 57,223
Restricted cash 8,500
Restricted cash included in other long-term assets   3,491     3,210  
Total cash, cash equivalents and restricted cash shown in the
statement of cash flows
$ 68,094   $ 60,433  
 
(1) The Condensed Consolidated Statement of Cash Flows for the year
ended December 31, 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 December 31, 2018
December 31, 2017

As Previously
Reported

ASC 606
Adj.

As
Adjusted

September 30,
2018

December 31,
2018

Revenue Backlog*
 
Deferred Revenue $ 194.6 $ (96.6 )

(1)

$ 98.0 $ 88.2 $ 99.6
Other Backlog   341.5   (6.6 )

(2)

  334.9   370.9   357.2
Total Revenue Backlog $ 536.1 $ (103.2 ) $ 432.9 $ 459.1 $ 456.8
 
 
The expected timing of recognition of revenue backlog as of December
31, 2018 is as follows:
                                 

2019

2020

2021

Thereafter

Total

 
Deferred Revenue $ 80.4 $ 12.6 $ 3.9 $ 2.7 $ 99.6
Other Backlog   109.5   66.9     64.4   116.4   357.2
Total Revenue Backlog         $ 189.9     $ 79.5     $ 68.3     $ 119.1     $ 456.8
 

Contacts

Investor contact:
Whit Rappole
Avid
whit.rappole@avid.com
(978)
275-2032

PR contact:
Jim Sheehan
Avid
jim.sheehan@avid.com
(978)
640-3152

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