Avid Announces Third Quarter 2016 Results

Continued Strong Growth in Cloud-Enabled Subscriptions  Efficiency Program and Completion of Transformation in Q2 2017 On-Track Full-Year Guidance Updated to Reflect Transition of Storage Product and Continued Enterprise Market Volatility

BURLINGTON, Mass., Nov. 09, 2016 (GLOBE NEWSWIRE) -- Avid® (Nasdaq:AVID) announced its third quarter 2016 financial results today and updated its guidance for full year 2016.

Third Quarter 2016 Financial Highlights
  • GAAP and non-GAAP Revenue was $119.0 million, slightly below the guidance range due to the transition of the storage product and higher proportion of recurring revenue bookings, and down $18.4 million year-over-year
  • GAAP Gross Margin of 63.3% was down 0.6 percentage points year-over-year; non-GAAP Gross Margin of 65.1% was down 0.3 percentage points year-over-year
  • GAAP Operating Expenses were $66.9 million, down $6.5 million year-over-year; non-GAAP Operating Expenses were $58.4 million, in-line with guidance and down $9.8 million year-over-year
  • GAAP Net Income was $9.1 million, down $2.0 million year-over-year; Adjusted EBITDA was $22.9 million, in-line with guidance and down $2.1 million year-over-year
  • GAAP Net Cash used in Operating Activities was $3.9 million, an improvement of $6.0 million year-over-year and an improvement of $29.9 million quarter-over-quarter; Adjusted Free Cash Flow use was $2.6 million, in-line with guidance, an improvement of $7.9 million year-over-year and an improvement of $27.6 million quarter-over-quarter
  • Bookings and Constant Currency Bookings were $89.5 million and $94.8 million, respectively, below guidance due to transition of the storage product and enterprise market volatility, and down $25.6 million and $26.2 million year-over-year, respectively

Avid Everywhere Momentum Continues
  • More than 40,000 enterprise users on the MediaCentral platform at the end of Q3 2016, an increase of 43% year-over-year
  • More than 50,000 paying individual, cloud-enabled subscribers, a substantial majority of whom are new users, at the end of Q3 2016, a 2.9x increase year-over-year
  • Bookings attributable to recurring revenue represented approximately 39% of total Q3 2016 bookings, up from 28% in Q3 2015

"We are pleased that our non-GAAP Operating Expenses, Adjusted EBITDA and Adjusted Free Cash Flow were in-line with guidance and that growth of our cloud-enabled subscribers and enterprise users on the MediaCentral platform continues to be very robust," said Louis Hernandez, Jr, Chairman, President, and CEO of Avid. "Our Bookings and non-GAAP Revenue fell short of guidance due primarily to the transition of the storage product line, as some existing enterprise clients deferred normal upgrade and renewal decisions and new customers postponed investments until the release of functionality targeted to the enterprise market. We believe the enterprise-class functionality recently rolled out for NEXIS will set the course for improved growth, but not enough to make up the third quarter shortfall. In light of these factors and continued volatility in the enterprise market, we are more heavily risk-adjusting the timing of certain enterprise deals and reducing our financial guidance for full-year 2016.

"Continued momentum of key growth metrics and our improvement in Adjusted Free Cash Flow demonstrate that the transformation is on-track. We have executed $67 million of the $76 million savings we had planned for 2016 and delivered a $28 million sequential improvement in Adjusted Free Cash Flow in the quarter. We will continue to invest in growth areas and are working towards launching full cloud-enabled versions of the MediaCentral platform and the entire Avid Everywhere suite of products. As the platform matures and we position the company for growth, we expect we'll continue to realize efficiencies, including additional opportunities of more than $30 million in annualized cost savings," Mr. Hernandez concluded.

Financial Guidance

The Company updated its full-year 2016 guidance, as originally provided on March 15, 2016 and updated on August 3, 2016. The Company is reducing its full-year guidance for Bookings, non-GAAP Revenue, Adjusted EBITDA and Adjusted Free Cash Flow, as a result of the storage product transition and continued volatility in the enterprise market. The Company is improving its guidance for non-GAAP Operating Expenses, as a result of accelerated implementation of executed cost savings.
Updated Full-Year 2016 Financial Guidance (in millions)
Bookings (Constant Currency) $415-$445
Bookings $391-$421
Non-GAAP Revenue $502-$517
Non-GAAP Operating Expenses $247-$253
Adjusted EBITDA $100-$107
Adjusted Free Cash Flow ($47)-($37)

Q4 2016 Financial Guidance (in millions)
Bookings (Constant Currency) $115-$145
Bookings $107-$137
Non-GAAP Revenue $105-$120
Non-GAAP Operating Expenses $56-$62
Adjusted EBITDA $9-$16
Adjusted Free Cash Flow ($5)-$5

All guidance presented by the Company is inherently uncertain and subject to numerous risks and uncertainties. Avid's actual future results of operations and cash flows could differ materially from those shown in the tables 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 Q3 2016 Business Update presentation posted on Avid's investor relations website.

Avid includes non-GAAP financial measures in this press release, including non-GAAP Revenue, Adjusted EBITDA, Adjusted Free Cash Flow, non-GAAP Operating Income (loss), non-GAAP Operating Expenses and non-GAAP Gross Margin. The Company also includes the operational metric of bookings, revenue backlog and recurring revenue bookings 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 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 the operational metrics.

The earnings release also includes forward-looking non-GAAP financial measures, including non-GAAP Revenue, Adjusted EBITDA, non-GAAP Operating Expenses and Adjusted Free Cash Flow. Reconciliations of these forward-looking non-GAAP financial measures were 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

A conference call to discuss Avid's financial results for the third quarter of 2016 will be held on Wednesday, November 9, 2016 at 5:00 p.m. ET. The call will be open to the public and can be accessed by dialing 719-325-2463 and referencing confirmation code 4563906. 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 2016, 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, realization of identified efficiency programs 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; bookings; backlog; revenue backlog conversion rate; product mix and free cash flow; our long-term and recent cost savings initiatives and the anticipated benefits therefrom; our future strategy and business plans; our product plans, including products under development, such as cloud and subscription based offerings; our liquidity and ability to raise capital; the anticipated benefits of the Orad acquisition, including estimated synergies, including effects on future financial and operating results; 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, including cost savings initiatives, 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; 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; the identified material weaknesses in our internal control over financial reporting; and the possibility of legal proceedings adverse to our company. Moreover, the business may be adversely affected by future legislative, regulatory or 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

Through Avid Everywhere™, Avid delivers the industry's most open, innovative and comprehensive media platform connecting content creation with collaboration, asset protection, distribution and consumption. Media organizations and creative professionals use Avid solutions to create the most listened to, most watched and most loved media in the world—from the most prestigious and award-winning feature films, to the most popular television shows, news programs and televised sporting events, as well as a majority of today's most celebrated music recordings and live concerts. Industry leading solutions include Pro Tools®, Media Composer®, ISIS®, Avid NEXIS™, Interplay®, ProSet and RealSet, Maestro, PlayMaker, and Sibelius®. 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.

© 2016 Avid Technology, Inc. All rights reserved. Avid, the Avid logo, Avid Everywhere, Avid NEXIS, iNEWS, Interplay, ISIS, AirSpeed, MediaCentral, Media Composer, Pro Tools, and Sibelius are trademarks or registered trademarks of Avid Technology, Inc. or its subsidiaries in the United States and/or other countries. The Interplay name is used with the permission of the Interplay Entertainment Corp. which bears no responsibility for Avid products. 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   Nine Months Ended
    September 30,   September 30,
      2016       2015       2016       2015  
                 
Net revenues:                
Products   $ 63,740     $ 88,945     $ 223,841     $ 245,124  
Services     55,279       48,491       172,794       121,665  
Total net revenues     119,019       137,436       396,635       366,789  
                 
Cost of revenues:                
Products     26,793       32,256       82,405       92,416  
Services     14,885       15,416       45,126       46,054  
Amortization of intangible assets     1,950       1,950       5,850       2,113  
Total cost of revenues     43,628       49,622       133,381       140,583  
                 
Gross profit     75,391       87,814       263,254       226,206  
                 
Operating expenses:                
Research and development     19,953       25,225       62,791       71,708  
Marketing and selling     27,231       31,564       89,027       92,420  
General and administrative     13,822       15,834       48,359       52,646  
Amortization of intangible assets     567       786       2,135       1,568  
Restructuring costs, net     5,314       -       7,878       539  
Total operating expenses     66,887       73,409       210,190       218,881  
                 
Operating income     8,504       14,405       53,064       7,325  
                 
Interest and other expense, net     (4,707 )     (2,519 )     (14,049 )     (4,681 )
Income before income taxes     3,797       11,886       39,015       2,644  
                 
(Benefit from) provision for income taxes     (5,321 )     768       (3,983 )     (4,221 )
Net income   $ 9,118     $ 11,118     $ 42,998     $ 6,865  
                 
Net income per common share - basic and diluted   $ 0.23     $ 0.28     $ 1.08     $ 0.17  
                 
Weighted-average common shares outstanding - basic     40,194       39,231       39,814       39,417  
Weighted-average common shares outstanding - diluted     40,476       39,750       39,950       40,727  
                 

 
AVID TECHNOLOGY, INC.
Reconciliations of GAAP financial measures to Non-GAAP financial measures
(unaudited - in thousands)
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
Non-GAAP revenue     2016       2015       2016       2015  
GAAP revenue   $     119,019     $     137,436     $     396,635     $     366,789  
Amortization of acquired deferred revenue     -       -       594       -  
Non-GAAP revenue       119,019         137,436         397,229         366,789  
                 
Non-GAAP gross profit                
GAAP gross profit       75,391         87,814         263,254         226,206  
Amortization of acquired deferred revenue     -       -       594       -  
Amortization of intangible assets     1,950       1,950       5,850       2,113  
Stock-based compensation     157       183       488       652  
Non-GAAP gross profit       77,498         89,947         270,186         228,971  
                 
Non-GAAP operating expenses                
GAAP operating expenses       66,887         73,409         210,190         218,881  
Less Amortization of intangible assets     (567 )     (786 )     (2,135 )     (1,568 )
Less Stock-based compensation     (1,571 )     (2,206 )     (5,628 )     (7,080 )
Less Restructuring costs, net     (5,314 )     -       (7,878 )     (539 )
Less Restatement costs     (38 )     (287 )     (186 )     (988 )
Less Acquisition, integration and other recoveries (costs)     336       (1,965 )     (458 )     (7,640 )
Less Efficiency program costs     (1,338 )     -       (3,338 )     -  
Non-GAAP operating expenses       58,395         68,165         190,567         201,066  
                 
Non-GAAP operating income                
GAAP operating income       8,504         14,405         53,064         7,325  
Amortization of acquired deferred revenue     -       -       594       -  
Amortization of intangible assets     2,517       2,736       7,985       3,681  
Stock-based compensation     1,728       2,389       6,116       7,732  
Restructuring costs, net     5,314       -       7,878       539  
Restatement costs     38       287       186       988  
Acquisition, integration and other (recoveries) costs     (336 )     1,965       458       7,640  
Efficiency program costs     1,338       -       3,338       -  
Non-GAAP operating income       19,103         21,782         79,619         27,905  
                 
Adjusted EBITDA                
Non-GAAP operating income (from above)       19,103         21,782         79,619         27,905  
Depreciation     3,762       3,168       11,184       10,257  
Adjusted EBITDA       22,865         24,950         90,803         38,162  
                 
Adjusted free cash flow                
GAAP net cash used in operating activities       (3,909 )       (9,873 )       (48,925 )       (36,087 )
Capital expenditures     (2,360 )     (4,368 )     (9,681 )     (11,110 )
Restructuring payments     1,496       316       8,981       1,052  
Restatement payments     -       -       -       3,624  
Acquisition, integration and other payments     196       3,368       1,817       4,958  
Efficiency program payments     1,947       -       5,530       -  
Adjusted free cash flow   $     (2,630 )   $     (10,557 )   $     (42,278 )   $     (37,563 )
                 
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)
         
    September 30,   December 31,
      2016       2015  
ASSETS        
Current assets:        
Cash and cash equivalents   $ 47,717     $ 17,902  
Accounts receivable, net of allowances of $8,491 and $9,226        
at September 30, 2016 and December 31, 2015, respectively     40,850       58,807  
Inventories     55,634       48,073  
Prepaid expenses     6,901       6,548  
Other current assets     7,104       6,119  
Total current assets     158,206       137,449  
         
Property and equipment, net     32,969       35,481  
Intangible assets, net     25,245       33,219  
Goodwill     32,643       32,643  
Long-term deferred tax assets, net     2,028       2,011  
Other long-term assets     11,827       7,123  
Total assets   $ 262,918     $ 247,926  
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
Current liabilities:        
Accounts payable   $ 25,852     $ 45,511  
Accrued compensation and benefits     27,439       28,124  
Accrued expenses and other current liabilities     33,434       35,354  
Income taxes payable     658       1,023  
Short-term debt     5,000       5,000  
Deferred revenues     157,468       189,887  
Total current liabilities     249,851       304,899  
         
Long-term debt     188,301       95,950  
Long-term deferred tax liabilities, net     1,367       3,443  
Long-term deferred revenues     82,540       158,495  
Other long-term liabilities     13,592       14,711  
Total liabilities     535,651       577,498  
         
Stockholders' deficit:        
Common stock     423       423  
Additional paid-in capital     1,043,563       1,055,838  
Accumulated deficit     (1,276,369 )     (1,319,318 )
Treasury stock at cost     (34,784 )     (58,336 )
Accumulated other comprehensive loss     (5,566 )     (8,179 )
Total stockholders' deficit     (272,733 )     (329,572 )
Total liabilities and stockholders' deficit   $ 262,918     $ 247,926  
         

 
AVID TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
           
    Nine Months Ended  
    September 30,  
      2016       2015    
           
Cash flows from operating activities:        
Net income $ 42,998     $ 6,865    
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization   19,169       13,936    
Provision (recovery) for doubtful accounts   890       (175 )  
Stock-based compensation expense   6,116       7,731    
Non-cash provision for restructuring   1,137       -    
Non-cash interest expense   7,935       1,544    
Unrealized foreign currency transaction losses (gains)   2,021       (5,098 )  
Benefit for deferred taxes   (5,187 )     (6,504 )  
Changes in operating assets and liabilities, net of effects from acquisitions:        
Accounts receivable   17,057       6,844    
Inventories   (7,561 )     4,028    
Prepaid expenses and other current assets   (1,493 )     1,772    
Accounts payable   (19,627 )     4,932    
Accrued expenses, compensation and benefits and other liabilities   (4,384 )     (17,764 )  
Income taxes payable   347       1,268    
Deferred revenues   (108,343 )     (55,466 )  
Net cash used in operating activities   (48,925 )     (36,087 )  
           
Cash flows from investing activities:        
Purchases of property and equipment   (9,681 )     (11,110 )  
Payments for business and technology acquisitions, net of cash acquired   -       (65,967 )  
Increase in other long-term assets   (17 )     (575 )  
Increase in restricted cash   (4,544 )     (1,047 )  
Net cash used in investing activities   (14,242 )     (78,699 )  
           
Cash flows from financing activities:        
Proceeds from long-term debt   100,000       120,401    
Repayment of debt   (2,500 )     -    
Payments for repurchase of common stock   -       (7,999 )  
Cash paid for capped call transaction   -       (10,125 )  
Proceeds from the issuance of common stock under employee stock plans   5,914       3,113    
Common stock repurchases for tax withholdings for net settlement of equity awards   (803 )     (1,442 )  
Proceeds from revolving credit facilities   25,000       49,500    
Payments on revolving credit facilities   (30,000 )     (39,500 )  
Payments for credit facility issuance costs   (5,020 )     (1,193 )  
Net cash provided by financing activities   92,591       112,755    
           
Effect of exchange rate changes on cash and cash equivalents   391       (1,045 )  
Net increase (decrease) in cash and cash equivalents   29,815       (3,076 )  
Cash and cash equivalents at beginning of period   17,902       25,056    
Cash and cash equivalents at end of period $ 47,717     $ 21,980    
           

 
AVID TECHNOLOGY, INC.
Supplemental Revenue Information  
(unaudited - in thousands)
                     
  September 30,   June 30,   September 30,          
Revenue Backlog*   2016       2016       2015            
                     
Pre-2011 $ 3,364     $ 8,732     $ 37,885            
Post-2010 $ 236,644     $ 258,420     $ 326,622            
Deferred Revenue $     240,008     $     267,152     $     364,507            
Other Backlog $ 197,153     $ 197,591     $ 148,776            
Total Revenue Backlog $ 437,161     $ 464,743     $ 513,283            
                     
Post 2010   $     433,797     $     456,011     $     475,398            
                     
The expected timing of recognition of revenue backlog as of September 30, 2016 is as follows:          
                     
    2016       2017       2018     Thereafter   Total  
Orders executed prior to January 1, 2011 $ 2,268     $ 952     $ 144     $ -     $ 3,364    
Orders executed or materially modified on or after January 1, 2011 $ 46,235     $ 101,735     $ 43,433     $ 45,242     $ 236,645    
                     
Other Backlog $ 31,632     $ 78,312     $ 27,995     $ 59,213     $ 197,152    
Total Revenue Backlog $ 80,135     $  180,999     $    71,572     $ 104,455     $     437,161    
                     
*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.
Note: current estimates could change based on a number of factors, including (i) the timing of delivery of products and services, (ii) customer cancellations or change order, (iii) changes in the estimated period of time Implied Maintenance Release PCS is provided to customers, including as a result of changes in business practices.
Media ContactSara GriggsAvid                                             310.821.0801sara.griggs@avid.comInvestor ContactRobert RooseAvid978.640.3375robert.roose@avid.com

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