AVID TECHNOLOGY, INC.
This Quarterly Report on Form 10-Q (“Form 10-Q”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that relate to future results or events are forward-looking statements. Forward-looking statements may be identified by use of forward-looking words, such as “anticipate,” “believe,” “confidence,” “could,” “estimate,” “expect,” “feel,” “intend,” “may,” “plan,” “should,” “seek,” “will”“will,” and “would,” or similar expressions.
Forward-looking statements may involve subjects relating to, among others, the following:
the anticipated trends and developments in our markets and the success of our products in these markets;
anticipated trends relating to our sales, financial condition or results of operations, including our shift to a recurring revenue model and complex enterprise sales with elongatedlong sales cycles;
the expected timing of recognition of revenue backlog as revenue, and the timing of recognition of revenues from subscription offerings;
our ability to successfully consummate acquisitions, or investment transactions and successfully integrate acquired businesses, including Orad Hi-Tech Ltd (“Orad”), into our operations;businesses;
the outcome, impact, costs, and expenses of any litigation or government inquiries to which we are or become subject;
the effect of the continuing worldwide macroeconomic uncertainty on our business and results of operations, including Brexit;
our compliance with covenants contained in the agreements governing our indebtedness;
our ability to service our debt and meet the obligations thereunder, including our ability to satisfy our conversion and repurchase obligations under our convertible notes due 2020;
worldwide political uncertainty, in particular the risk that the United States may withdraw from or materially modify NAFTA or other international trade agreements.
Actual results and events in future periods may differ materially from those expressed or implied by forward-looking statements in this Form 10-Q. There are a number of factors that could cause actual events or results to differ materially from those indicated or implied by forward-looking statements, many of which are beyond our control, including the risk factors discussed herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2019, in Part II, Item 1A of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the U.S. Securities and Exchange Commission (“SEC”). In
addition, the forward-looking statements contained in this Form 10-Q represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements, or otherwise.
We own or have rights to trademarks and service marks that we use in connection with the operation of our business. Avid“Avid” is a trademark of Avid Technology, Inc. Other trademarks, logos, and slogans registered or used by us and our subsidiaries in the United States and other countries include, but are not limited to, the following: Avid, Everywhere, Avid NEXIS, AirSpeed, EUCON, iNEWS, Interplay,FastServe, MediaCentral, Mbox, Media Composer, NewsCutter, Nitris, Pro Tools, Sibelius and Symphony.Sibelius. Other trademarks appearing in this Form 10-Q are the property of their respective owners.
PART I - FINANCIAL INFORMATION
| |
ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data, unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net revenues: | | | | | | | |
Products | $ | 54,319 |
| | $ | 63,740 |
| | $ | 152,980 |
| | $ | 223,841 |
|
Services | 50,946 |
| | 55,279 |
| | 158,765 |
| | 172,794 |
|
Total net revenues | 105,265 |
| | 119,019 |
| | 311,745 |
| | 396,635 |
|
| | | | | | | |
Cost of revenues: | | | | | | | |
Products | 29,485 |
| | 26,793 |
| | 80,478 |
| | 82,405 |
|
Services | 13,472 |
| | 14,885 |
| | 41,747 |
| | 45,126 |
|
Amortization of intangible assets | 1,950 |
| | 1,950 |
| | 5,850 |
| | 5,850 |
|
Total cost of revenues | 44,907 |
| | 43,628 |
| | 128,075 |
| | 133,381 |
|
Gross profit | 60,358 |
| | 75,391 |
| | 183,670 |
| | 263,254 |
|
| | | | | | | |
Operating expenses: | | | | | | | |
Research and development | 16,025 |
| | 19,953 |
| | 51,904 |
| | 62,791 |
|
Marketing and selling | 25,652 |
| | 27,231 |
| | 80,481 |
| | 89,027 |
|
General and administrative | 15,193 |
| | 13,822 |
| | 43,268 |
| | 48,359 |
|
Amortization of intangible assets | 362 |
| | 567 |
| | 1,088 |
| | 2,135 |
|
Restructuring (recoveries) costs, net | (582 | ) | | 5,314 |
| | 6,464 |
| | 7,878 |
|
Total operating expenses | 56,650 |
| | 66,887 |
| | 183,205 |
| | 210,190 |
|
| | | | | | | |
Operating income | 3,708 |
| | 8,504 |
| | 465 |
| | 53,064 |
|
| | | | | | | |
Interest and other expense, net | (4,701 | ) | | (4,707 | ) | | (13,465 | ) | | (14,049 | ) |
(Loss) income before income taxes | (993 | ) | | 3,797 |
| | (13,000 | ) | | 39,015 |
|
Benefit from income taxes | (1,065 | ) | | (5,321 | ) | | (326 | ) | | (3,983 | ) |
Net income (loss) | $ | 72 |
| | $ | 9,118 |
| | $ | (12,674 | ) | | $ | 42,998 |
|
| | | | | | | |
Net income (loss) per common share – basic | $0.00 | | $0.23 | | $(0.31) | | $1.08 |
Net income (loss) per common share – diluted | $0.00 | | $0.23 | | $(0.31) | | $1.08 |
| | | | | | | |
Weighted-average common shares outstanding – basic | 41,133 |
| | 40,194 |
| | 40,954 |
| | 39,814 |
|
Weighted-average common shares outstanding – diluted | 41,355 |
| | 40,476 |
| | 40,954 |
| | 39,950 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | 72 |
| | $ | 9,118 |
| | $ | (12,674 | ) | | $ | 42,998 |
|
| | | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | 2,014 |
| | 155 |
| | 6,803 |
| | 2,613 |
|
| | | | | | | |
Comprehensive income (loss) | $ | 2,086 |
| | $ | 9,273 |
| | $ | (5,871 | ) | | $ | 45,611 |
|
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Net revenues: | | | |
Products | $ | 34,711 |
| | $ | 54,396 |
|
Services | 51,742 |
| | 48,923 |
|
Total net revenues | 86,453 |
| | 103,319 |
|
|
| |
|
Cost of revenues: | | | |
Products | 20,962 |
| | 27,600 |
|
Services | 12,340 |
| | 12,487 |
|
Amortization of intangible assets | — |
| | 1,950 |
|
Total cost of revenues | 33,302 |
| | 42,037 |
|
Gross profit | 53,151 |
| | 61,282 |
|
|
| |
|
Operating expenses: | | | |
Research and development | 15,425 |
| | 16,285 |
|
Marketing and selling | 25,289 |
| | 24,878 |
|
General and administrative | 12,744 |
| | 13,788 |
|
Amortization of intangible assets | — |
| | 363 |
|
Restructuring costs, net | 145 |
| | 558 |
|
Total operating expenses | 53,603 |
| | 55,872 |
|
|
|
| |
|
|
Operating (loss) income | (452 | ) | | 5,410 |
|
|
|
| |
|
|
Interest and other expense, net | (5,283 | ) | | (5,185 | ) |
(Loss) income before income taxes | (5,735 | ) | | 225 |
|
Provision for income taxes | 122 |
| | 438 |
|
Net loss | $ | (5,857 | ) | | $ | (213 | ) |
| | | |
Net loss per common share – basic and diluted | $(0.14) | | $(0.01) |
| | | |
Weighted-average common shares outstanding – basic and diluted | 43,254 |
| | 42,046 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE LOSS
(in thousands, unaudited)
|
| | | | | | | |
| September 30, 2017 |
| December 31, 2016 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 44,094 |
| | $ | 44,948 |
|
Accounts receivable, net of allowances of $10,494 and $8,618 at September 30, 2017 and December 31, 2016, respectively | 40,864 |
| | 43,520 |
|
Inventories | 41,160 |
| | 50,701 |
|
Prepaid expenses | 8,537 |
| | 6,031 |
|
Other current assets | 9,925 |
| | 5,805 |
|
Total current assets | 144,580 |
| | 151,005 |
|
Property and equipment, net | 23,273 |
| | 30,146 |
|
Intangible assets, net | 15,995 |
| | 22,932 |
|
Goodwill | 32,643 |
| | 32,643 |
|
Long-term deferred tax assets, net | 1,355 |
| | 1,245 |
|
Other long-term assets | 7,404 |
| | 11,610 |
|
Total assets | $ | 225,250 |
| | $ | 249,581 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | |
Current liabilities: | | | |
Accounts payable | $ | 28,620 |
| | $ | 26,435 |
|
Accrued compensation and benefits | 32,734 |
| | 25,387 |
|
Accrued expenses and other current liabilities | 32,848 |
| | 34,088 |
|
Income taxes payable | 806 |
| | 1,012 |
|
Short-term debt | 5,072 |
| | 5,000 |
|
Deferred revenues | 122,475 |
| | 146,014 |
|
Total current liabilities | 222,555 |
| | 237,936 |
|
Long-term debt | 191,300 |
| | 188,795 |
|
Long-term deferred tax liabilities, net | — |
| | 913 |
|
Long-term deferred revenues | 72,091 |
| | 79,670 |
|
Other long-term liabilities | 9,726 |
| | 12,178 |
|
Total liabilities | 495,672 |
| | 519,492 |
|
| | | |
Commitments and contingencies (Note 7) |
| |
|
| | | |
Stockholders’ deficit: | | | |
Common stock | 423 |
| | 423 |
|
Additional paid-in capital | 1,038,308 |
| | 1,043,063 |
|
Accumulated deficit | (1,283,822 | ) | | (1,271,148 | ) |
Treasury stock at cost | (22,238 | ) | | (32,353 | ) |
Accumulated other comprehensive loss | (3,093 | ) | | (9,896 | ) |
Total stockholders’ deficit | (270,422 | ) | | (269,911 | ) |
Total liabilities and stockholders’ deficit | $ | 225,250 |
| | $ | 249,581 |
|
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Net loss | $ | (5,857 | ) | | $ | (213 | ) |
| | | |
Other comprehensive loss: | | | |
Foreign currency translation adjustments | (815 | ) | | (548 | ) |
| | | |
Comprehensive loss | $ | (6,672 | ) | | $ | (761 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
|
| | | | | | | |
| March 31, 2020 |
| December 31, 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 81,182 |
|
| $ | 69,085 |
|
Restricted cash | 1,663 |
|
| 1,663 |
|
Accounts receivable, net of allowances of $1,453 and $958 at March 31, 2020 and December 31, 2019, respectively. | 59,965 |
|
| 73,773 |
|
Inventories | 32,601 |
|
| 29,166 |
|
Prepaid expenses | 10,101 |
|
| 9,425 |
|
Contract assets | 22,162 |
|
| 19,494 |
|
Other current assets | 7,147 |
|
| 6,125 |
|
Total current assets | 214,821 |
|
| 208,731 |
|
Property and equipment, net | 18,873 |
|
| 19,580 |
|
Goodwill | 32,643 |
|
| 32,643 |
|
Right of use assets | 29,002 |
|
| 29,747 |
|
Long-term deferred tax assets, net | 7,640 |
|
| 7,479 |
|
Other long-term assets | 5,456 |
|
| 6,113 |
|
Total assets | $ | 308,435 |
|
| $ | 304,293 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | |
Current liabilities: | | | |
Accounts payable | $ | 34,989 |
|
| $ | 39,888 |
|
Accrued compensation and benefits | 19,185 |
|
| 19,524 |
|
Accrued expenses and other current liabilities | 33,044 |
|
| 36,759 |
|
Income taxes payable | 1,964 |
|
| 1,945 |
|
Short-term debt | 31,400 |
|
| 30,554 |
|
Deferred revenue | 82,441 |
|
| 83,589 |
|
Total current liabilities | 203,023 |
|
| 212,259 |
|
Long-term debt | 220,426 |
|
| 199,034 |
|
Long-term deferred revenue | 12,971 |
|
| 14,312 |
|
Long-term lease liabilities | 28,063 |
|
| 28,127 |
|
Other long-term liabilities | 5,414 |
|
| 5,646 |
|
Total liabilities | 469,897 |
|
| 459,378 |
|
| | | |
Commitments and contingencies (Note 7) |
| |
|
| | | |
Stockholders’ deficit: |
|
|
|
Common stock | 434 |
|
| 430 |
|
Additional paid-in capital | 1,028,115 |
|
| 1,027,824 |
|
Accumulated deficit | (1,185,266 | ) |
| (1,179,409 | ) |
Accumulated other comprehensive loss | (4,745 | ) |
| (3,930 | ) |
Total stockholders’ deficit | (161,462 | ) |
| (155,085 | ) |
Total liabilities and stockholders’ deficit | $ | 308,435 |
|
| $ | 304,293 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in thousands, unaudited)
|
| | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2020 |
| Shares of Common Stock | | | Additional | | | Accumulated Other | Total |
| Outstanding | In Treasury | | Common Stock | Paid-in Capital | Accumulated Deficit | Treasury Stock | Comprehensive Income (Loss) | Stockholders’ Deficit |
Balances at January 1, 2020 | 43,150 |
| — |
| | 430 |
| 1,027,824 |
| (1,179,409 | ) | — |
| (3,930 | ) | (155,085 | ) |
| | | | | | | | | |
Stock issued pursuant to employee stock plans | 398 |
| — |
| | 4 |
| (1,818 | ) | — |
| — |
| — |
| (1,814 | ) |
| | | | | | | | | |
Stock-based compensation | — |
| — |
| | — |
| 2,109 |
| — |
| — |
| — |
| 2,109 |
|
| | | | | | | | | |
Net loss | — |
| — |
| | — |
| — |
| (5,857 | ) | — |
| — |
| (5,857 | ) |
| | | | | | | | | |
Other comprehensive loss | — |
| — |
| | — |
| — |
| — |
| — |
| (815 | ) | (815 | ) |
| | | | | | | | | |
Balances at March 31, 2020 | 43,548 |
| — |
| | 434 |
| 1,028,115 |
| (1,185,266 | ) | — |
| (4,745 | ) | (161,462 | ) |
|
| | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 |
| Shares of Common Stock | | | Additional | | | Accumulated Other | Total |
| Outstanding | In Treasury | | Common Stock | Paid-in Capital | Accumulated Deficit | Treasury Stock | Comprehensive Income (Loss) | Stockholders’ Deficit |
Balances at January 1, 2019 | 42,339 |
| (391 | ) | | 423 |
| 1,028,924 |
| (1,187,010 | ) | (5,231 | ) | (3,767 | ) | (166,661 | ) |
| | | | | | | | | |
Stock issued pursuant to employee stock plans | — |
| 391 |
| | — |
| (6,612 | ) | — |
| 5,231 |
| — |
| (1,381 | ) |
| | | | | | | | | |
Stock-based compensation | — |
| — |
| | — |
| 1,738 |
| — |
| — |
| — |
| 1,738 |
|
| | | | | | | | | |
Net loss | — |
| — |
| | — |
| — |
| (213 | ) | — |
| — |
| (213 | ) |
| | | | | | | | | |
Other comprehensive loss | — |
| — |
| | — |
| — |
| — |
| — |
| (548 | ) | (548 | ) |
| | | | | | | | | |
Partial retirement of convertible senior notes conversion feature | — |
| — |
| | — |
| (23 | ) | — |
| — |
| — |
| (23 | ) |
| | | | | | | | | |
Partial unwind capped call cash receipt | — |
| — |
| | — |
| 1 |
| — |
| — |
| — |
| 1 |
|
| | | | | | | | | |
Balances at March 31, 2019 | 42,339 |
| — |
| | 423 |
| 1,024,028 |
| (1,187,223 | ) | — |
| (4,315 | ) | (167,087 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
| | | Nine Months Ended | Three Months Ended |
| September 30, | March 31, |
| 2017 | | 2016 | 2020 | | 2019 |
Cash flows from operating activities: | | | | |
| |
Net (loss) income | $ | (12,674 | ) |
| $ | 42,998 |
| |
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | |
| | |
Net loss | | $ | (5,857 | ) |
| $ | (213 | ) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | |
| |
Depreciation and amortization | 16,932 |
|
| 19,169 |
| 2,142 |
|
| 4,740 |
|
(Recovery) provision for doubtful accounts | (158 | ) |
| 890 |
| |
Allowance for (recovery from) doubtful accounts | | 497 |
|
| (9 | ) |
Stock-based compensation expense | 5,874 |
|
| 6,116 |
| 2,109 |
|
| 1,738 |
|
Non-cash provision for restructuring | 3,191 |
| | 1,137 |
| |
Non-cash interest expense | 7,255 |
|
| 7,935 |
| 2,820 |
|
| 3,359 |
|
Unrealized foreign currency transaction losses | 6,885 |
|
| 2,021 |
| |
Unrealized foreign currency transaction losses (gains) | | 51 |
|
| (586 | ) |
Benefit from deferred taxes | (925 | ) |
| (5,187 | ) | (207 | ) |
| (1 | ) |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | 2,877 |
|
| 17,057 |
| 13,311 |
|
| 6,444 |
|
Inventories | 9,542 |
|
| (7,561 | ) | (3,435 | ) |
| (1,372 | ) |
Prepaid expenses and other assets | (3,958 | ) |
| (1,493 | ) | (1,631 | ) |
| (3,861 | ) |
Accounts payable | 2,065 |
|
| (19,627 | ) | (4,858 | ) |
| (810 | ) |
Accrued expenses, compensation and benefits and other liabilities | 543 |
|
| (4,384 | ) | (5,323 | ) |
| (2,837 | ) |
Income taxes payable | (161 | ) |
| 347 |
| 40 |
|
| 261 |
|
Deferred revenues | (31,185 | ) |
| (108,343 | ) | |
Net cash provided by (used in) operating activities | 6,103 |
|
| (48,925 | ) | |
Deferred revenue and contract assets | | (5,264 | ) |
| (477 | ) |
Net cash (used in) provided by operating activities | | (5,605 | ) |
| 6,376 |
|
| | | |
| |
|
Cash flows from investing activities: | |
| | |
| |
Purchases of property and equipment | (6,125 | ) |
| (9,681 | ) | (1,479 | ) |
| (1,767 | ) |
Increase in other long-term assets | (24 | ) |
| (17 | ) | |
Decrease (increase) in restricted cash | 1,790 |
|
| (4,544 | ) | |
Net cash used in investing activities | (4,359 | ) |
| (14,242 | ) | (1,479 | ) |
| (1,767 | ) |
| | | |
|
|
|
Cash flows from financing activities: | |
| | |
| |
Proceeds from long-term debt | 912 |
|
| 100,000 |
| |
Proceeds from revolving line of credit | | 22,000 |
|
| — |
|
Repayment of debt | (3,750 | ) |
| (2,500 | ) | (351 | ) |
| (3,928 | ) |
Proceeds from the issuance of common stock under employee stock plans | 219 |
|
| 5,914 |
| — |
|
| 309 |
|
Common stock repurchases for tax withholdings for net settlement of equity awards | (732 | ) |
| (803 | ) | (1,818 | ) |
| (1,690 | ) |
Proceeds from revolving credit facilities | — |
|
| 25,000 |
| |
Payments on revolving credit facilities | — |
|
| (30,000 | ) | |
Payments for credit facility issuance costs | — |
|
| (5,020 | ) | |
Net cash (used in) provided by financing activities | (3,351 | ) |
| 92,591 |
| |
Partial unwind capped call cash receipt | | — |
| | (22 | ) |
Net cash provided by (used in) financing activities | | 19,831 |
|
| (5,331 | ) |
| | | |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents | 753 |
|
| 391 |
| |
Net (decrease) increase in cash and cash equivalents | (854 | ) |
| 29,815 |
| |
Cash and cash equivalents at beginning of period | 44,948 |
|
| 17,902 |
| |
Cash and cash equivalents at end of period | $ | 44,094 |
|
| $ | 47,717 |
| |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (402 | ) |
| (55 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | | 12,345 |
|
| (777 | ) |
Cash, cash equivalents and restricted cash at beginning of period | | 72,575 |
|
| 68,094 |
|
Cash, cash equivalents and restricted cash at end of period | | $ | 84,920 |
|
| $ | 67,317 |
|
Supplemental information: | | | |
|
|
|
|
|
Cash paid for income taxes, net of refunds | $ | 463 |
| | $ | 1,678 |
| |
Cash and cash equivalents | | $ | 81,182 |
|
| $ | 55,326 |
|
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 | | $ | 84,920 |
|
| $ | 67,317 |
|
| | | | |
Cash paid for income taxes | | $ | 391 |
| | $ | 203 |
|
Cash paid for interest | 7,406 |
| | 5,767 |
| $ | 4,450 |
| | $ | 2,041 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements include the accounts of Avid Technology, Inc. and its wholly owned subsidiaries (collectively, “Avid”“we” or the “Company”“our”). These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for their fair statement. Interim results are not necessarily indicative of results expected for any other interim period or a full year. TheWe prepared the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of operations, comprehensive income (loss), financial position, changes in stockholders’ deficit, and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated balance sheet as of December 31, 20162019 was derived from the Company’sour audited consolidated financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements. The CompanyWe filed audited consolidated financial statements as of and for the year ended December 31, 20162019 in itsour Annual Report on Form 10-K for the year ended December 31, 2016,2019, which included information and footnotes necessary for such presentation. The financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements in the Company’sour Annual Report on Form 10-K for the year ended December 31, 20162019.
The consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence. The impact that the recent COVID-19 pandemic will have on the Company’s consolidated results of operations and financial condition is uncertain. The Company is actively managing its business to respond to this health crisis and will continue to evaluate the nature and extent of the impact. While the duration and severity of the COVID-19 pandemic, and resulting economic impacts, are highly uncertain, we expect that our business operations and results of operations, including our net revenues, earnings and cash flows, will be adversely impacted by these developments for at least the balance of 2020. To address expected reductions in net revenues and cash flows, we have already taken steps to reduce our discretionary spending and reduce payroll costs, including through temporary employee furloughs and pay cuts. We may be required to take additional remedial steps, depending on the duration and severity of the pandemic and its impact on our operations and cash flows, which could include, among other things (and where allowed by the lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through the issuance of additional equity or debt securities or the incurrence of additional borrowings, (iv) disposing of certain assets or businesses, or (v) applying for various programs that have been implemented by the U.S. government in response to the COVID-19 pandemic. Such remedial actions, which may not be available on favorable terms or at all, could have a material adverse impact on our business including non-compliance with our financial covenants with our lenders which, in the event management is not able to obtain a waiver or amendment, may result in an event of default under the financing agreement, which could permit acceleration of the outstanding indebtedness and require us to repay such indebtedness before the scheduled due date. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings.
Our preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from the Company’sour estimates.
The Company has generally funded operations in recent years through the use of existing cash balances, supplemented from time to time with the proceeds of long-term debt and borrowings under its credit facilities. The Company’s principal sources of liquidity include cash and cash equivalents totaling $44.1 million as of September 30, 2017.
In February 2016, the Company committed to a cost efficiency program that encompassed a series of measures intended to allow the Company to more efficiently operate in a leaner, more directed cost structure. These measures included reductions in the Company’s workforce, consolidation of facilities, transfers of certain business processes to lower cost regions and reductions in other third-party service costs. The cost efficiency program was substantially complete as of June 30, 2017.
In connection with the cost efficiency program, on February 26, 2016, the Company entered into a Financing Agreement (the “Financing Agreement”) with the lenders party thereto (the “Lenders”). Pursuant to the Financing Agreement, the Company entered into a term loan in the original aggregate principal amount of $100.0 million. The Financing Agreement also originally provided the Company with the ability to draw up to a maximum of $5.0 million in revolving credit. All outstanding loans under the Financing Agreement will become due and payable in February 2021, or in May 2020 if the $125.0 million in outstanding principal of 2.00% convertible senior notes due June 15, 2020 (the “Notes”) has not been repaid or refinanced by such time.
The Financing Agreement contains customary representations and warranties, covenants, mandatory prepayments, and events of default under which the Company’s payment obligations may be accelerated. On March 14, 2017 (the “Amendment No. 1 Effective Date”), the Company entered into an amendment (the “First Amendment”) to the Financing Agreement. The First Amendment modified the covenant requiring the Company to maintain a Leverage Ratio (defined to mean the ratio of (a) total funded indebtedness to (b) consolidated EBITDA) such that following the Amendment No. 1 Effective Date, the Company is required to maintain a Leverage Ratio of no greater than 3.50:1.00 for the four quarters ended March 31, 2017, 4.20:1.00 for the four quarters ended June 30, 2017, 4.75:1.00 for the four quarters ended September 30, 2017, 4.80:1.00 for the four quarters ending December 31, 2017, 4:40:1.00 for each of the four quarters ending March 31, 2018 through March 31, 2019, respectively, and thereafter declining over time from 3.50:1.00 to 2.50:1.00. Following the Amendment No. 1 Effective Date, interest accrues on outstanding borrowings under the credit facility and the term loan (each as defined in the Financing Agreement) at a rate of either the LIBOR Rate (as defined in
the Financing Agreement) plus 7.25% or a Reference Rate (as defined in the Financing Agreement) plus 6.25%, at the option of the Company. As of September 30, 2017, the Company was in compliance with the Financing Agreement covenants.
On November 9, 2017 (the “Amendment No. 2 Effective Date”), the Company entered into an amendment (the “Second Amendment”) to the Financing Agreement. The Second Amendment extended an additional $15.0 million term loan to the Company, thereby increasing the aggregate principal amount of the term loan to $115.0 million. The Second Amendment also increased the amount of available revolving credit by $5.0 million to an aggregate amount of $10.0 million. The additional $15.0 million term loan must be repaid in quarterly principal payments of $187,500 commencing in March 2018. The Second Amendment also granted the Company the ability to use up to $15.0 million to purchase Notes and modified the definition of consolidated EBITDA used in the Leverage Ratio calculation to adjust for expected changes in deferred revenue due to the adoption of Accounting Standards Codification (“ASC”) Topic 606, the new revenue recognition guidance.
The Company’s ability to satisfy the Leverage Ratio covenant in the future is dependent on its ability to maintain bookings and billings at or above levels experienced over the last 12 months. In recent quarters, the Company has experienced volatility in bookings and billings resulting from, among other things, (i) its transition towards subscription and recurring revenue streams and the resulting decline in traditional upfront product sales, (ii) volatility in currency rates and in particular the U.S. dollar against the Euro, (iii) significant changes and trends in the media industry and the impact they have had on the Company’s customers and (iv) the impact of new and anticipated product launches and features. In addition to the impact of new bookings and billings, U.S. GAAP revenues recognized as the result of the existence of Implied Maintenance Release PCS (as defined below) will be significantly lower in the remainder of 2017, as compared to 2016 periods, which will have an adverse impact on the Company’s Leverage Ratio.
In the event bookings and billings in future quarters are lower than the Company currently anticipates, the Company may be forced to take remedial actions which could include, among other things (and where allowed by the Lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through the issuance of additional equity or debt securities or the incurrence of additional borrowings, or (iv) disposing of certain assets or businesses. Such remedial actions, which may not be available on favorable terms or at all, could have a material adverse impact on the Company’s business. If the Company is not in compliance with the Leverage Ratio and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Financing Agreement, which could permit acceleration of the outstanding indebtedness under the Financing Agreement and require the Company to repay such indebtedness before the scheduled due date. If an event of default were to occur, the Company might not have sufficient funds available to make the payments required. If the Company is unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of the Company’s assets, which secure its borrowings under the Financing Agreement.
On January 26, 2017, the Company entered into an exclusive distributor agreement (the “Distributor Agreement”) with Beijing Jetsen Technology Co., Ltd. (“Jetsen”), pursuant to which Jetsen became the exclusive distributor for Avid products and services in the greater China region. The Distributor Agreement has a five-year term, and Jetsen is required to make at least $75.8 million of aggregate purchases under the agreement over the first three years. At the same time, the Company also entered into a securities purchase agreement (the “Securities Purchase Agreement”), with Jetsen, pursuant to which it agreed to sell to Jetsen shares of Avid common stock. In June 2017, Avid and Jetsen amended the Securities Purchase Agreement. Under the amended terms, Jetsen will invest $18.2 million in Avid, in return for a minority stake in the Company of between 4.5% and 8.9% of Avid outstanding common stock on a fully diluted basis. The closing of the investment is subject to closing conditions, including China regulatory approvals. In the event regulatory approval is not obtained in the fourth quarter of 2017, either party may elect to terminate the Securities Purchase Agreement for any reason. The exact number of shares to be issued and sold at closing will be determined by reference to the trading price of Avid common stock before closing.
The Company’s cash requirements vary depending on factors such as the growth of its business, changes in working capital, and capital expenditures. Management expects to operate the business and execute its strategic initiatives principally with funds generated from operations, remaining net proceeds from the term loan borrowings under the Financing Agreement and draw up to a maximum of $10.0 million under the Financing Agreement’s revolving credit facility. Management anticipates that the Company will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months, as well as for the foreseeable future.
Subsequent Events
The Company evaluated subsequent events through the date of issuance of these financial statements and, except for the subsequent events disclosed above and in Note 7 and Note 10, no subsequent events required recognition or disclosure in these financial statements.
Significant Accounting Policies - Revenue Recognition
GeneralWe enter into contracts with customers that include various combinations of products and services, which are typically capable of being distinct and are accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectibility is probable. We recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on the
The Company commences revenue recognition when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Generally, the products the Company sells do not require significant production, modification or customization. Installation of the Company’s products is generally routine, consists of implementation and configuration and does not have to be performed by the Company.
At the time of a sales transaction, the Company makes an assessment of the collectability of the amount due from the customer. Revenues are recognized only if it is reasonably assured that collection will occur. When making this assessment, the Company considers customer credit-worthiness and historical payment experience. If it is determined from the outset of the arrangement that collection is not reasonably assured, revenues are recognized on a cash basis, provided that all other revenue recognition criteria are satisfied. At the outset of the arrangement, the Company also assesses whether the fee associated with the order is fixed or determinable and free of contingencies or significant uncertainties. When assessing whether the fee is fixed or determinable, the Company considers the payment terms of the transaction,underlying contracts, in an amount that reflects the Company’s collection experienceconsideration we expect to receive in similar transactions and the Company’s involvement, if any, in third-party financing transactions, among other factors. If the fee is not fixed or determinable, revenues are recognized only as payments become due from the customer, provided that all other revenue recognition criteria are met. If a significant portion of the fee is due after the Company’s normal payment terms, the Company evaluates whether the Company has sufficient history of successfully collecting past transactions with similar terms without offering concessions. If that collection history is sufficient, revenue recognition commences, upon delivery of the products, assuming all other revenue recognition criteria are satisfied. If the Company was to make different judgments or assumptions about any of these matters, it could cause a material increase or decrease in the amount of revenues reported in a particular period.
The Company often receives multiple purchase orders or contracts from a single customer or a group of related customers that are evaluated to determine if they are, in effect, part of a single arrangement. In situations when the Company has concluded that two or more orders with the same customer are so closely related that they are, in effect, parts of a single arrangement, the Company accountsexchange for those orders as a single arrangement for revenue recognition purposes. In other circumstances, when the Company has concluded that twoproducts or more orders with the same customer are independent buying decisions, such as an earlier purchase of a product and a subsequent purchase of a software upgrade or maintenance contract, the Company accounts for those orders as separate arrangements for revenue recognition purposes.services.
For many of its products, the Company has had an ongoing practice of making available, at no charge to customers, minor feature and compatibility enhancements as well as bug fixes on a when-and-if-available basis (collectively “Software Updates”), for a period of time after initial sales to end users. The implicit obligation to make such Software Updates available to customers over a period of time represents implied post-contract customer support, which is deemed to be a deliverable in each arrangement and is accounted for as a separate element (“Implied Maintenance Release PCS”).
Over the last two years, in connection with a strategic initiative to increase support and other recurring revenue streams, the Company has taken a number of steps to eliminate the longstanding practice of providing Implied Maintenance Release
PCS for many of its products, including Media Composer, Pro Tools and Sibelius product lines. In the third quarter and fourth quarter of 2015, respectively, the Company concluded that Implied Maintenance Release PCS for its Media Composer and Sibelius product lines had ceased. In the first quarter of 2016, in connection with the release of Cloud Collaboration in Pro Tools version 12.5, which was an undelivered feature that had prevented the Company from recognizing any revenue related to new Pro Tools 12 software sales as it represented a specified upgrade right for which vendor specific objective evidence (“VSOE”) of fair value was not available,the Company concluded that Implied Maintenance Release PCS for Pro Tools 12 product lines had also ended. As a result of the conclusion that Implied Maintenance Release PCS on Pro Tools 12 has ended, revenue and net income in the first quarter of 2016 increased approximately $11.1 million, reflecting the recognition of orders received after the launch of Pro Tools 12 that would have qualified for earlier recognition using the residual method of accounting. In addition, the elimination of Implied Maintenance Release PCS also resulted in the accelerated recognition of maintenance and product revenues that were previously being recognized on a ratable basis over a much longer expected period of Implied Maintenance Release PCS rather than the contractual maintenance period. The reduction in the estimated amortization period of transactions being recognized on a ratable basis resulted in an additional $12.0 million and $33.7 million of revenue during the three and nine months ended September 30, 2016, respectively.
The Company entersWe often enter into certain contractual arrangements that have multiple elements,performance obligations, one or more of which may be delivered subsequent to the delivery of other elements.performance obligations. These multiple-deliverable arrangements may include a combination of products, support, training, and professional services and Implied Maintenance Release PCS. For these multiple-element arrangements,services. We allocate the Company allocates revenue to each deliverabletransaction price of the arrangement based on the relative selling prices of the deliverables. In such circumstances, the Company first determines theestimated standalone selling price of each deliverable baseddistinct performance obligation.
See Note 9 for disaggregated revenue schedules and further discussion on (i) VSOE of fair value if that exists, (ii) third-party evidence of selling price (“TPE”), when VSOE does not exist, or (iii) best estimate of the selling price (“BESP”), when neither VSOE nor TPE exists. Revenue is then allocated to the non-software deliverables as a grouprevenue and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the selling price hierarchy. The Company’s process for determining BESP for deliverables for which VSOE or TPE does not exist involves significant management judgment. In determining BESP, the Company considers a number of data points, including:
the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis;
contractually stated prices for deliverables that are intended to be sold on a standalone basis;
the pricing of standalone sales that may not qualify as VSOE of fair value due to limited volumes or variation in prices; and
other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
In determining a BESP for Implied Maintenance Release PCS, which the Company does not sell separately, the Company considers (i) the service period for the Implied Maintenance Release PCS, (ii) the differential in value of the Implied Maintenance Release PCS deliverable compared to a full support contract, (iii) the likely list price that would have resulted from the Company’s established pricing practices had the deliverable been offered separately and (iv) the prices a customer would likely be willing to pay.
The Company estimates the service period of Implied Maintenance Release PCS based on the length of time the product version purchased by the customer is planned to be supported with Software Updates. If facts and circumstances indicate that the original service period of Implied Maintenance Release PCS for a product has changed significantly after original revenue recognition has commenced, the Company will modify the remaining estimated service period accordingly and recognize the then-remaining deferred revenue balance over the revised service period.
The Company has established VSOE of fair value for some of the Company’s professional services, training and support offerings. The Company’s policy for establishing VSOE of fair value consists of evaluating standalone sales to determine if a substantial portion of the transactions fall within a reasonable range. If a sufficient volume of standalone sales existperformance obligations and the standalone pricing for a substantial portiontiming of the transactions falls within a reasonable range, management concludes that VSOE of fair value exists.revenue recognition.
Recent Accounting Pronouncements
In accordance with Accounting Standards Update (“ASU”) No. 2009-14, the Company excludes from the scope of software revenue recognition requirements the Company’s sales of tangible products that contain both software and non-software components that function together to deliver the essential functionality of the tangible products. The Company adopted ASU No. 2009-13 and ASU No. 2009-14 prospectively on January 1, 2011 for new and materially modified arrangements originating after December 31, 2010.
Prior to the Company’s adoption of ASU No. 2009-14, the Company primarily recognized revenues using the revenue recognition criteria of Accounting Standards Codification (“ASC”) Subtopic 985-605, Software-Revenue Recognition. As a result of the Company’s adoption of ASU No. 2009-14 on January 1, 2011, a majority of the Company’s products are now considered non-software elements under U.S. GAAP, which excludes them from the scope of ASC Subtopic 985-605 and includes them within the scope of ASC Topic 605, Revenue Recognition. Because the Company had not been able to establish VSOE of fair value for Implied Maintenance Release PCS, as described further below, substantially all revenue arrangements prior to January 1, 2011 were recognized on a ratable basis over the service period of Implied Maintenance Release PCS. Subsequent to January 1, 2011 and the adoption of ASU No. 2009-14, the Company determines a relative selling price for all elements of the arrangement through the use of BESP, as VSOE and TPE are typically not available, resulting in revenue recognition upon delivery of arrangement consideration attributable to product revenue, provided all other criteria for revenue recognition are met, and revenue recognition of Implied Maintenance Release PCS and other service and support elements over time as services are rendered.
Revenue Recognition of Non-Software Deliverables
Revenue from products that are considered non-software deliverables is recognized upon delivery of the product to the customer. Products are considered delivered to the customer once they have been shipped and title and risk of loss has been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. Revenue from support that is considered a non-software deliverable is initially deferred and is recognized ratably over the contractual period of the arrangement, which is generally 12 months. Professional services and training services are typically sold to customers on a time and materials basis. Revenue from professional services and training services that are considered non-software deliverables is recognized for these deliverables as services are provided to the customer. Revenue for Implied Maintenance Release PCS that is considered a non-software deliverable is recognized ratably over the service period of Implied Maintenance Release PCS, which ranges from one to eight years.
Revenue Recognition of Software Deliverables
The Company recognizes the following types of elements sold using software revenue recognition guidance: (i) software products and software upgrades, when the software sold in a customer arrangement is more than incidental to the arrangement as a whole and the product does not contain hardware that functions with the software to provide essential functionality, (ii) initial support contracts where the underlying product being supported is considered to be a software deliverable, (iii) support contract renewals and (iv) professional services and training that relate to deliverables considered to be software deliverables. Because the Company does not have VSOE of the fair value of its software products, the Company is permitted to account for its typical customer arrangements that include multiple elements using the residual method. Under the residual method, the VSOE of fair value of the undelivered elements (which could include support, professional services or training, or any combination thereof) is deferred and the remaining portion of the total arrangement fee is recognized as revenue for the delivered elements. If evidence of the VSOE of fair value of one or more undelivered elements does not exist, revenues are deferred and recognized when delivery of those elements occurs or when VSOE of fair value can be established. VSOE of fair value is typically based on the price charged when the element is sold separately to customers. The Company is unable to use the residual method to recognize revenues for some arrangements that include products that are software deliverables under U.S. GAAP since VSOE of fair value does not exist for Implied Maintenance Release PCS elements, which are included in some of the Company’s arrangements.
For software products that include Implied Maintenance Release PCS, an element for which VSOE of fair value does not exist, revenue for the entire arrangement fee, which could include combinations of product, professional services, training and support, is recognized ratably as a group over the longest service period of any deliverable in the arrangement, with recognition commencing on the date delivery has occurred for all deliverables in the arrangement (or begins to occur in the case of professional services, training and support). Standalone sales of support contracts are recognized ratably over the service period of the product being supported.
From time to time, the Company offers certain customers free upgrades or specified future products or enhancements. When a software deliverable arrangement contains an Implied Maintenance Release PCS deliverable, revenue recognition of the entire arrangement will only commence when any free upgrades or specified future products or enhancements have been delivered, assuming all other products in the arrangement have been delivered and all services, if any, have commenced.
Recently Adopted Accounting PronouncementPronouncements
InOn January 2017,1, 2019, we adopted ASC 842 using the FASB issued Accounting Standards Update (ASU)modified retrospective transition approach, as provided by ASU No. 2017-04, Simplifying2018-11, Leases - Targeted Improvements (“ASU 2018-11”). We elected the Testpackage of practical expedients permitted under the transition guidance. Results for Goodwill Impairment. The guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively, and is effective for calendar year-end SEC filers in 2020. Early adoption is permitted for annual and interim goodwill impairment testing datesperiods beginning after January 1, 2017. The Company adopted the revised guidance during the first quarter of 2017. The adoption of ASU 2017-04 had no immediate impact on the Company’s condensed consolidated financial statements upon adoption, however, it could impact the calculation of goodwill impairments in future periods.
Recent Accounting Pronouncements2019 are presented under ASC 842, while prior periods have not been adjusted and continue to be Adoptedreported in accordance with our historic accounting under previous U.S. GAAP.
In May, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 is the final updated standard on revenue recognition. The standard supersedes the most current revenue recognition guidance, including industry-specific guidance. The new revenue recognition guidance becomes effective for the Company on January 1, 2018, and early adoption as of January 1, 2017 is permitted.
Subsequently, the FASB has issued the following standards related to ASU No. 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The Company must adopt ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 with ASU No. 2014-09 (collectively, the “new revenue standards”).
Entities have the option of using either a full retrospective or a modified approach to adopt the new revenue standards. The Company expects to elect the modified transition method and, while the Company is still in the process of evaluating theprimary impact of this new accounting standard, it expects the impact will be significant. The adoption will result in a significant cumulative reduction in deferred revenue as of January 1, 2018 because the Company will no longer require VSOE of fair value to recognize software deliverables with Implied Maintenance Release PCS upon delivery. Upon adoption of ASC 606, the Company expects to recognize a greater proportion of revenue upon delivery of its products, whereas some of the Company’s current product sales are initially recorded in deferred revenue and recognized over a long period of time (as described in detail in the “Significant Accounting Policies - Revenue Recognition” section above). Accordingly, the Company’s operating results may become more volatile as a result of the adoption.
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic (842). The guidance requires an entity to recognize virtually842 is that substantially all of theirour leases are recognized on the balance sheet, by recording a right-of-use assetassets and short-term and long-term lease liability.liabilities, both of which are material to our consolidated balance sheet. The new guidance becomes effective forstandard does not have a material impact on our consolidated statement of operations and cash flows, and the Company oneffect of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019 and early adoption is permitted upon issuance. The Company is evaluatingimmaterial.
Recent Accounting Pronouncements To Be Adopted
In December 2019, the potential impact of adopting this standard on its financial statements, as well as the timing of its adoption of the standard.
In August 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, Statement of Cash Flow (Topic 230). The guidance reduces diversity in how certain cash receipts and cash payments are presented and classified in2019-12, Simplifying the Statements of Cash Flows. Certain of ASU No. 2016-15 requirements are as follows: (i) cash paymentsAccounting for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities, (ii) contingent consideration payments made soon after a business combination should be classified as cash outflows for investing activities and cash payment made thereafter should be classified as cash outflows for financing up to the amount of the contingent consideration liability recognized at the
acquisition date with any excess classified as operating activities, (iii) cash proceeds from the settlement of insurance claims should be classified on the basis of the nature of the loss, (iv) cash proceeds from the settlement of Corporate-Owned Life Insurance (“COLI”) Policies should be classified as cash inflows from investing activities and cash payments for premiums on COLI policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities and (v) cash paid to a tax authority by an employer when withholding shares from an employee's award for tax-withholding purposes should be classified as cash outflows for financing activities. The new guidance becomes effective for the Company on January 1, 2018, and early adoption is permitted upon issuance. The Company is currently evaluating the potential impact of adopting this standard on its financial statements, as well as the timing of its adoption of the standard.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740)(“ASU 2019-12”). The guidance requires companiesASU 2019-12 is intended to recognizeenhance and simplify aspects of the income tax effectsaccounting guidance in ASC 740 as part of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period in which the transfer occurs. The newFASB's simplification initiative. This guidance becomesis effective for the Company on January 1, 2018,fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption is permitted upon issuance.permitted. The Company is currently evaluating the impact of the adoption of ASU No. 2016-16this guidance may have on its consolidated financial statements as well as timing of its adoption of the standard.and related disclosures.
In November 2016,March 2020, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires companies to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, companies will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation2020-04, Facilitation of the totals in the statementEffects of cash flowsReference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related captions into the balance sheetexpected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is required. The new guidance becomes effective forbeginning on March 12, 2020, and the Company on January 1, 2018, and early adoption is permitted upon issuance.may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the potential impact of adopting this standardguidance may have on its consolidated financial statements as well as the timing of its adoption of the standard.and related disclosures.
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2. | NET INCOMELOSS PER SHARE |
Net incomeloss per common share is presented for both basic incomeloss per share (“Basic EPS”) and diluted incomeloss per share (“Diluted EPS”). Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common share equivalents outstanding during the period.
The potential common shares that were considered anti-dilutive securities were excluded from the diluted earnings per share calculations for the relevant periods either because the sum of the exercise price per share and the unrecognized compensation cost per share was greater than the average market price of the Company’sour common stock for the relevant period,periods, or because they were considered contingently issuable. The contingently issuable potential common shares result from certain stock options and restricted stock units granted to the Company’sour employees that vest based on performance conditions, market conditions, or a combination of performance and market conditions.
The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at September 30, 2017March 31, 2020 and for the nine months ended September 30, 2016.2019.
|
| | | | | |
| March 31, 2020 | | March 31, 2019 |
Options | 465 |
| | 772 |
|
Non-vested restricted stock units | 3,069 |
| | 2,881 |
|
Anti-dilutive potential common shares | 3,534 |
| | 3,653 |
|
|
| | | | | |
| September 30, 2017 | | September 30, 2016 |
Options | 2,334 |
| | 3,939 |
|
Non-vested restricted stock units | 3,289 |
| | 687 |
|
Anti-dilutive potential common shares | 5,623 |
| | 4,626 |
|
On June 15, 2015, the Companywe issued $125.0 million aggregate principal amount of itsour 2.00% Convertible Senior Notesconvertible senior notes due 2020 (the “Notes”) in an offering conducted in accordance with Rule 144A under the Securities Act of 1933 (the “Securities Act”). The Notes are convertible into cash, shares of the Company’sour common stock, or a combination of cash and shares of common stock, at the Company’sour election, based on an initial conversion rate, subject to adjustment. In connection with the offering of the Notes, the Companywe entered into a capped call transaction, or Capped Call, with a third party. The Company usesWe use the treasury stock method in computing the dilutive impact of the Notes. The Notes are convertible into
shares of the Company’sour common stock but the Company’sour stock price wasprices as of March 31, 2020 and 2019 were less than the conversion price, as of September 30, 2017, and, therefore, the Notes are excluded from Diluted EPS. The Capped Call is not reflected in diluted net income per share as it will always be anti-dilutive.
| |
3. | FAIR VALUE MEASUREMENTS |
Assets Measured at Fair Value on a Recurring Basis
The Company measuresWe measure deferred compensation investments on a recurring basis. As of September 30, 2017March 31, 2020 and December 31, 2016, the Company’s2019, our deferred compensation investments were classified as either Level 1 or Level 2 in the fair value hierarchy. Assets valued using quoted market prices in active markets and classified as Level 1 are money market and mutual funds. Assets valued based on other observable inputs and classified as Level 2 are insurance contracts.
The following tables summarize the Company’sour deferred compensation investments measured at fair value on a recurring basis (in thousands):
| | | | | Fair Value Measurements at Reporting Date Using | | | Fair Value Measurements at Reporting Date Using |
| September 30, 2017 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | March 31, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | | | | | | | | | | |
Deferred compensation assets | $ | 1,838 |
| | $ | 460 |
| | $ | 1,378 |
| | $ | — |
| $ | 813 |
| | $ | 207 |
| | $ | 606 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
| December 31, 2019 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | | | |
Deferred compensation assets | $ | 1,156 |
| | $ | 338 |
| | $ | 818 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
| December 31, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | | | |
Deferred compensation assets | $ | 2,035 |
| | $ | 493 |
| | $ | 1,542 |
| | $ | — |
|
Financial Instruments Not Recorded at Fair Value
The carrying amounts of the Company’sour other financial assets and liabilities including cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement. As of September 30, 2017,March 31, 2020, the net carrying amount of the Notes was $106.1$28.6 million, and the fair value of the Notes was approximately $95.1$27.8 million based on open market trading activity, which constitutes a Level 1 input in the fair value hierarchy.
Inventories consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Raw materials | $ | 8,358 |
| | $ | 9,036 |
|
Work in process | 398 |
| | 371 |
|
Finished goods | 23,845 |
| | 19,759 |
|
Total | $ | 32,601 |
| | $ | 29,166 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Raw materials | $ | 11,518 |
| | $ | 10,481 |
|
Work in process | 300 |
| | 291 |
|
Finished goods | 29,342 |
| | 39,929 |
|
Total | $ | 41,160 |
| | $ | 50,701 |
|
As of September 30, 2017March 31, 2020 and December 31, 20162019, finished goods inventory included $9.51.8 million and $8.61.5 million, respectively, associated with products shipped to customers and deferred labor costs for arrangements where revenue recognition had not yet commenced.
| |
5. | INTANGIBLE ASSETS AND GOODWILLLEASES |
Amortizing identifiable intangible assets relatedWe have entered into a number of facility leases to support our research and development activities, sales operations, and other corporate and administrative functions in North America, Europe, and Asia, which qualify as operating leases under U.S. GAAP. We also have a limited number of equipment leases that also qualify as operating leases. We determine if contracts with vendors represent a lease or have a lease component under U.S. GAAP at contract inception. We do not have any finance leases as of March 31, 2020. Our leases have remaining terms ranging from less than one year to eight years. Some of our leases include options to extend or terminate the lease prior to the Company’s acquisitions or capitalized costs of internally developed or externally purchased software that form the basis for the Company’s products consistedend of the following (in thousands):agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Completed technologies and patents | $ | 58,562 |
| | $ | (45,074 | ) | | $ | 13,488 |
| | $ | 57,994 |
| | $ | (38,657 | ) | | $ | 19,337 |
|
Customer relationships | 54,906 |
| | (52,399 | ) | | 2,507 |
| | 54,597 |
| | (51,002 | ) | | 3,595 |
|
Trade names | 1,346 |
| | (1,346 | ) | | — |
| | 1,346 |
| | (1,346 | ) | | — |
|
Capitalized software costs | 4,911 |
| | (4,911 | ) | | — |
| | 4,911 |
| | (4,911 | ) | | — |
|
Total | $ | 119,725 |
| | $ | (103,730 | ) | | $ | 15,995 |
| | $ | 118,848 |
| | $ | (95,916 | ) | | $ | 22,932 |
|
Operating lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. As our leases generally do not provide an implicit rate, we use an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. We used an average incremental borrowing rate of 6% as of January 1, 2019, the adoption date of ASC 842, for our leases that commenced prior to that date. The operating leases are included in “Right of use assets,” “Accrued expenses and other current liabilities,” and “Long-term lease liabilities” on our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.
Amortization expense related to all intangible assets inThe weighted-average remaining lease term of our operating leases is 6.9 years as of March 31, 2020. Lease costs for minimum lease payments is recognized on a straight-line basis over the aggregate was $2.3lease term. Our total lease costs were $2.6 million and $2.5 million respectively, for the three months ended September 30, 2017March 31, 2020 and 2016, and $6.9March 31, 2019 respectively. Related cash payments were $2.6 million and $8.0$2.4 million respectively, for the ninethree months ended September 30, 2017March 31, 2020 and 2016. The Company expects amortizationMarch 31, 2019, respectively. Lease costs are included within research and development, marketing and selling, and general and administrative lines on the condensed consolidated statements of acquired intangible assets to be $2.3 million foroperations, and the remainderrelated cash payments are included in the operating cash flows on the condensed consolidated statements of 2017, $9.3 million in 2018cash flows. Short-term lease costs, variable lease costs, and $4.4 million in 2019.sublease income are not material.
The acquisitiontable below reconciles the undiscounted future minimum lease payments under non-cancelable leases with terms of Orad in 2015 resulted in goodwill of $32.6 millionmore than one year to the total lease liabilities recognized on the condensed consolidated balance sheets as of September 30, 2017 and DecemberMarch 31, 2016.2020 (in thousands):
|
| | | |
Year Ending December 31, | Operating Leases |
2020 (excluding three months ended March 31, 2020) | $ | 6,235 |
|
2021 | 6,148 |
|
2022 | 5,384 |
|
2023 | 4,519 |
|
2024 | 4,402 |
|
Thereafter | 15,340 |
|
Total future minimum lease payments | $ | 42,028 |
|
Less effects of discounting | (7,847 | ) |
Total lease liabilities | $ | 34,181 |
|
| |
Reported as of March 31, 2020 | |
Accrued expenses and other current liabilities | $ | 6,118 |
|
Long-term lease liabilities | 28,063 |
|
Total lease liabilities | $ | 34,181 |
|
| |
6. | OTHER LONG-TERM LIABILITIES |
Other long-term liabilities consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Deferred compensation | 5,087 |
| | 5,186 |
|
Other | 327 |
| | 460 |
|
Total | $ | 5,414 |
| | $ | 5,646 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Deferred rent | $ | 3,292 |
| | $ | 5,458 |
|
Accrued restructuring | 843 |
| | 1,256 |
|
Deferred compensation | 5,591 |
| | 5,464 |
|
Total | $ | 9,726 |
| | $ | 12,178 |
|
| |
7. | COMMITMENTS AND CONTINGENCIES |
Commitments
The CompanyWe entered into a long-term agreement to purchase a variety of information technology solutions from a third party in the second quarter of 2017, which included an unconditional commitment to purchase a minimum of $12.8 million of products and services over the initial three-year termthree years of the agreement. We have purchased $12.8 million of products and services pursuant to this agreement as of March 31, 2020.
We entered into a long-term agreement to purchase a variety of information technology solutions from a third party in the second quarter of 2020, which included an unconditional commitment to purchase a minimum of $32.2 million of products and services over the initial five years of the agreement.
The Company hasWe have letters of credit that are used as security deposits in connection with the Company’sour leased Burlington, Massachusetts office space. In the event of default on the underlying leases, the landlords would, at September 30, 2017,March 31, 2020, be eligible to draw against the letters of credit to a maximum of $1.3 million in the aggregate. The letters of credit are subject to aggregate reductions provided the Company isthat we are not in default under the underlying leases and meetsmeet certain financial performance conditions. In no
case will the letters of credit amounts for the Burlington leases be reduced to below $1.2 million in the aggregate throughout the lease periods, all of which extend to May 2020.periods.
The CompanyWe also hashave letters of credit in connection with security deposits for other facility leases totaling $1.1$0.6 million in the aggregate, as well as letters of credit totaling $1.2$2.1 million that otherwise support itsour ongoing operations. These letters
of credit have various terms and expire during 20172020 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.
Substantially all of our letters of credit are collateralized by restricted cash included in the caption “Restricted cash” and “Other long-term assets” on our condensed consolidated balance sheets as of March 31, 2020.
Contingencies
The Company’sOur industry is characterized by the existence of a large number of patents and frequent claims and litigation regarding patent and other intellectual property rights. In addition to the legal proceedings described below, the Company isabove, we are involved in legal proceedings from time to time arising from the normal course of business activities, including claims of alleged infringement of intellectual property rights and contractual, commercial, employee relations, product or service performance, or other matters. The Company doesWe do not believe these matters will have a material adverse effect on the Company’sour financial position or results of operations. However, the outcome of legal proceedings and claims brought against the Companyus is subject to significant uncertainty. Therefore, the Company’sour financial position or results of operations may be negatively affected by the unfavorable resolution of one or more of these proceedings for the period in which a matter is resolved. The Company’sOur results could be materially adversely affected if the Company iswe are accused of, or found to be, infringing third parties’ intellectual property rights.
Following the termination of our former Chairman and Chief Executive Officer on February 25, 2018, we received a notice alleging that we breached the former executive’s employment agreement. On October 30, 2017April 16, 2019 we received an additional notice again alleging we breached the Company entered into settlementformer executive’s employment agreement. We have since been in communications with our former Chairman and patent cross-licensing agreements with Harmonic Inc. (“Harmonic”), ending its patent infringement litigation against Harmonic which commenced in 2011. Under the terms of the agreements, Harmonic will pay the Company $6.0 million. The first payment of $2.5 million was made on October 24, 2017; the remaining $3.5 million will be paid in two installments of $1.5 millionChief Executive Officer’s counsel. While we intend to defend any claim vigorously, when and $2.0 million in 2019 and 2020, respectively. The Company will record a gain associated with the settlement of past patent infringements in the fourth quarter of 2017.
In November 2016, a purported securities class action lawsuit was filed in the U.S. District Court for the District of Massachusetts (Mohanty v. Avid Technology, Inc. et al., No. 16-cv-12336) against the Company and certain of its executive officers seeking unspecified damages and other relief on behalf of a purported class of purchasers of the Company’s common stock between August 4, 2016 and November 9, 2016, inclusive. The complaint purported to stateif a claim for violationis actually filed, we are currently unable to estimate an amount or range of federal securities lawsany reasonably possible losses that could occur as a result of alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“the Exchange Act”) and Rule 10b-5 promulgated thereunder. The complaint’s allegations relate generally to the Company’s disclosure surrounding the level of implementation of the Company’s Avid NEXIS solution product offerings. On February 7, 2017, the Court appointed a lead plaintiff and counsel in thethis matter. On June 14, 2017, the Company moved to dismiss the action. On July 31, 2017, the lead plaintiff filed an opposition to the Company’s motion to dismiss, and on August 21, 2017, the Company filed its reply brief. On October 13, 2017, after a mediation, the parties reached an agreement in principle to settle this litigation. The Company expects the majority of the settlement to be funded by its insurers. Finalization of the settlement is subject to a number of conditions, including execution of definitive documentation and approval by the court.
The Company considersWe consider all claims on a quarterly basis and based on known facts assessesassess whether potential losses are considered reasonably possible, probable, and estimable. Based upon this assessment, the Companywe then evaluatesevaluate disclosure requirements and whether to accrue for such claims in itsour condensed consolidated financial statements. The Company recordsWe record a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
At September 30, 2017March 31, 2020 and as of the date of filing of these condensed consolidated financial statements, the Company believeswe believe that, other than as set forth in this note, no provision for liability nor disclosure is required related to any claims because: (a) there is no reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim, (b) a reasonably possible loss or range of loss cannot be estimated;estimated, or (c) such estimate is immaterial.
Additionally, the Company provideswe provide indemnification to certain customers for losses incurred in connection with intellectual property infringement claims brought by third parties with respect to the Company’sour products. These indemnification provisions generally offer perpetual coverage for infringement claims based upon the products covered by the agreement and the maximum potential amount of future payments the Companywe could be required to make under these indemnification provisions is theoretically unlimited. To date, the Company haswe have not incurred material costs related to these indemnification provisions; accordingly, the Company believeswe believe the estimated fair value of these indemnification provisions
is immaterial. Further, certain of the Company’sour arrangements with customers include clauses whereby the Companywe may be subject to penalties for failure to meet certain performance obligations; however, the Company haswe have not recorded any related material penalties to date.
The Company providesWe provide warranties on externally sourced and internally developed hardware. For internally developed hardware, and in cases where the warranty granted to customers for externally sourced hardware is greater than that provided by the manufacturer, the Company recordswe record an accrual for the related liability based on historical trends and actual material and labor costs.
The following table sets forth the activity in the product warranty accrual account for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
| | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2017 | | 2016 | 2020 | | 2019 |
Accrual balance at beginning of year | $ | 2,518 |
| | $ | 2,234 |
| $ | 1,337 |
| | $ | 1,706 |
|
Accruals for product warranties | 1,872 |
| | 1,992 |
| 384 |
| | 227 |
|
Costs of warranty claims | (1,897 | ) | | (1,872 | ) | (357 | ) | | (338 | ) |
Accrual balance at end of period | $ | 2,493 |
| | $ | 2,354 |
| $ | 1,364 |
| | $ | 1,595 |
|
The warranty accrual is included in the caption “accrued expenses and other current liabilities” in the Company’sour condensed consolidated balance sheet.
| |
8. | RESTRUCTURING COSTS AND ACCRUALS |
In February 2016, the Company committed to a restructuring plan that encompassed a series of measures intended to allow the Company to more efficiently operate in a leaner, more directed cost structure. These included reductions in the Company’s workforce, consolidation of facilities, transfers of certain business processes to lower cost regions, and reductions in other third-party services costs. The cost efficiency program was substantially complete as of June 30, 2017.
During the three and nine months ended September 30, 2017, the Company recorded recoveries of $0.6 millionMarch 31, 2020 and restructuring charges of $6.5 million, respectively. The restructuring charges for the nine months ended September 30, 2017 included $1.0 million for the severance costs and estimate adjustments related to approximately 64 terminated employees and $5.4 million for the closure of certain excess facility space, including $3.2 million of leasehold improvement write-offs and $0.8 million adjustments related to sublease assumptions associated with prior abandoned facilities.
During the three and nine months ended September 30, 2016, the CompanyMarch 31, 2019, we recorded restructuring charges of $5.3$0.1 million and restructuring charges of $7.9$0.6 million, respectively. During the nine months ended September 30, 2016, the Company recorded restructuring charges of $5.0 millionrespectively, for theemployee severance costs and estimate adjustments related to approximately 123 terminated employees and $2.9 million for the closure of certain excess facility space, including $1.1 million of leasehold improvement write-offs, and $0.8 million adjustments related to sublease assumptions associated with prior abandoned facilities.
cost adjustments.
Restructuring Summary
The following table sets forth restructuring expenses recognized for the three months ended March 31, 2020 and 2019 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Employee | $ | 145 |
| | $ | 535 |
|
Facility | — |
| | 5 |
|
Total facility and employee charges | 145 |
| | 540 |
|
Other | — |
| | 18 |
|
Total restructuring charges, net | $ | 145 |
| | $ | 558 |
|
The following table sets forth the activity in the restructuring accruals for the ninethree months ended September 30, 2017March 31, 2020 (in thousands):
|
| | | |
| Employee |
Accrual balance as of December 31, 2019 | $ | 155 |
|
Restructuring charges and revisions | 145 |
|
Cash payments | (110 | ) |
Accrual balance as of March 31, 2020 | $ | 190 |
|
Less: current portion | 190 |
|
Long-term accrual balance as of March 31, 2020 | $ | — |
|
|
| | | | | | | | | | | |
| Employee- Related | | Facilities/Other-Related | | Total |
Accrual balance as of December 31, 2016 | $ | 7,018 |
| | $ | 3,093 |
| | $ | 10,111 |
|
New restructuring charges – operating expenses | 1,930 |
| | 1,485 |
| | 3,415 |
|
Revisions of estimated liabilities | (902 | ) | | 760 |
| | (142 | ) |
Non-cash write-offs | — |
| | 3,191 |
| | 3,191 |
|
Accretion | — |
| | 278 |
| | 278 |
|
Cash payments | (5,479 | ) | | (2,970 | ) | | (8,449 | ) |
Foreign exchange impact on ending balance | (46 | ) | | 15 |
| | (31 | ) |
Accrual balance as of September 30, 2017 | $ | 2,521 |
| | $ | 5,852 |
| | $ | 8,373 |
|
The employee-related accrualsemployee restructuring accrual at September 30, 2017 representMarch 31, 2020 represents severance costs to former employees that will be paid out within 12 months, and are,is, therefore, included in the caption “accrued expenses and other current liabilities” in the Company’sour condensed consolidated balance sheets.sheets as of March 31, 2020.
The facilities/other-relatedOn January 1, 2019, we had facilities restructuring accruals at September 30, 2017 represent contractual lease payments, net of estimated sublease income, on space vacated as part of the Company’s restructuring actions. The leases, and payments against the amounts accrued, extend through December 2021 unless the Company is able to negotiate earlier terminations. Of the total facilities/other-related balance, $1.9$0.1 million is included in the caption “accrued expenses and other current liabilities”, $0.8 and $0.2 million is included in the caption “other long-term liabilities”, and $3.2 millionliabilities," which were reclassified upon the adoption of fixedASC 842 to the right of use asset write-off is reflected in the caption “property and equipment, net” in the Company’s condensed consolidated balance sheet as of September 30, 2017.account.
| |
9. | PRODUCT AND GEOGRAPHIC INFORMATIONREVENUE |
The Company, throughDisaggregated Revenue and Geography Information
Through the evaluation of the discrete financial information that is regularly reviewed by the chief operating decision makers (the Company’s(our chief executive officer and chief financial officer), haswe have determined that the Company has onewe have 1 reportable segment.
The following table is a summary of the Company’sour revenues by type for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Products and solutions net revenues | $ | 34,711 |
| | $ | 54,396 |
|
Subscription services | 13,958 |
| | 9,282 |
|
Support services | 31,794 |
| | 32,019 |
|
Professional services, training and other services | 5,990 |
| | 7,622 |
|
Total net revenues | $ | 86,453 |
| | $ | 103,319 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Video products and solutions net revenues | $ | 27,058 |
| | $ | 39,182 |
| | $ | 82,585 |
| | $ | 118,252 |
|
Audio products and solutions net revenues | 27,261 |
| | 24,558 |
| | 70,395 |
| | 105,589 |
|
Products and solutions net revenues | 54,319 |
| | 63,740 |
| | 152,980 |
| | 223,841 |
|
Services net revenues | 50,946 |
| | 55,279 |
| | 158,765 |
| | 172,794 |
|
Total net revenues | $ | 105,265 |
| | $ | 119,019 |
| | $ | 311,745 |
| | $ | 396,635 |
|
The following table sets forth the Company’sour revenues by geographic region for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Revenues: | | | |
United States | $ | 36,090 |
| | $ | 39,479 |
|
Other Americas | 5,450 |
| | 6,801 |
|
Europe, Middle East and Africa | 33,235 |
| | 37,153 |
|
Asia-Pacific | 11,678 |
| | 19,886 |
|
Total net revenues | $ | 86,453 |
| | $ | 103,319 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
United States | $ | 38,624 |
| | $ | 45,982 |
| | $ | 121,309 |
| | $ | 145,384 |
|
Other Americas | 7,377 |
| | 9,702 |
| | 20,581 |
| | 30,674 |
|
Europe, Middle East and Africa | 41,526 |
| | 44,524 |
| | 121,647 |
| | 159,243 |
|
Asia-Pacific | 17,738 |
| | 18,811 |
| | 48,208 |
| | 61,334 |
|
Total net revenues | $ | 105,265 |
| | $ | 119,019 |
| | $ | 311,745 |
| | $ | 396,635 |
|
Contract Asset
Contract asset activity for the three months ended March 31, 2020 was as follows (in thousands):
|
| | | |
| March 31, 2020 |
Contract asset at January 1, 2020 | $ | 19,494 |
|
Revenue in excess of billings | 7,878 |
|
Customer billings | (5,210 | ) |
Contract asset at March 31, 2020 | $ | 22,162 |
|
Less: long-term portion (recorded in other long-term assets) | — |
|
Contract asset, current portion | $ | 22,162 |
|
Deferred Revenue
Deferred revenue activity for the three months ended March 31, 2020 was as follows (in thousands):
|
| | | |
| March 31, 2020 |
Deferred revenue at January 1, 2020 | $ | 97,901 |
|
Billings deferred | 28,687 |
|
Recognition of prior deferred revenue | (31,176 | ) |
Deferred revenue at March 31, 2020 | $ | 95,412 |
|
A summary of the significant performance obligations included in deferred revenue as of March 31, 2020 is as follows (in thousands):
|
| | | |
| March 31, 2020 |
Product | $ | 5,311 |
|
Subscription | 1,501 |
|
Support contracts | 73,465 |
|
Implied PCS | 10,769 |
|
Professional services, training and other | 4,366 |
|
Deferred revenue at March 31, 2020 | $ | 95,412 |
|
Remaining Performance Obligations
For transaction prices allocated to remaining performance obligations, we apply practical expedients and do not disclose quantitative or qualitative information for remaining performance obligations (i) that have original expected durations of one year or less and (ii) where we recognize revenue equal to what we have the right to invoice and that amount corresponds directly with the value to the customer of our performance to date.
Historically, for many of our products, we had an ongoing practice of making when-and-if-available software updates available to customers free of charge for a period of time after initial sales to customers. The expectation created by this practice of providing free Software Updates represents an implied obligation of a form of post-contract customer support (“Implied PCS”) which represents a performance obligation. While we have ceased providing Implied PCS on new product offerings, we continue to provide Implied PCS for older products that were predominately sold in prior years. Revenue attributable to Implied PCS performance obligations is recognized over time on a ratable basis over the period that Implied PCS is expected to be provided, which is typically six years. We have remaining performance obligations of $10.8 million attributable to Implied PCS recorded in deferred revenue as of March 31, 2020. We expect to recognize revenue for these remaining performance obligations of $3.7 million for the remainder of 2020 and $3.2 million, $1.9 million, $1.1 million and $0.6 million for the years ended December 31, 2021, 2022, 2023, and 2024, respectively.
As of March 31, 2020, we had approximately $59.4 million of transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately $56.7 million of these performance obligations were unbilled as of March 31, 2020. Remaining performance obligations represent obligations we must deliver for specific products and services in the future where there is not yet an enforceable right to invoice the customer. Our remaining performance obligations do not include contractually committed minimum purchases that are common in our strategic purchase agreements with resellers since our specific obligations to deliver products or services is not yet known, as customers may satisfy such commitments by purchasing an unknown combination of current or future product offerings. While the timing of fulfilling individual performance obligations under the contracts can vary dramatically based on customer requirements, we expect to recognize the $59.4 million in roughly equal installments through 2026.
Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations due to contract breach, contract amendments, and changes in the expected timing of delivery.
| |
10. | LONG-TERM DEBT AND CREDIT AGREEMENT |
Long-term debt consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Term Loan, net of unamortized debt issuance costs of $3,090 at March 31, 2020 and $3,334 at December 31, 2019 | $ | 200,031 |
| | $ | 200,105 |
|
Notes, net of unamortized original issue discount and debt issuance costs of $312 at March 31, 2020 and $680 at December 31, 2019 | 28,555 |
| | 28,187 |
|
Revolving credit facility | 22,000 |
| | — |
|
Other long-term debt | 1,240 |
| | 1,296 |
|
Total debt | 251,826 |
| | 229,588 |
|
Less: current portion | 31,400 |
| | 30,554 |
|
Total long-term debt | $ | 220,426 |
| | $ | 199,034 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Term Loan, net of unamortized debt issuance costs of $3,144 at September 30, 2017 and $4,042 at December 31, 2016 | $ | 89,356 |
| | $ | 92,208 |
|
Notes, net of unamortized original issue discount and debt issuance costs of $18,896 at September 30, 2017 and $23,413 at December 31, 2016, respectively | 106,104 |
| | 101,587 |
|
Other long-term debt | 912 |
| | — |
|
Total debt | 196,372 |
| | 193,795 |
|
Less: current portion | 5,072 |
| | 5,000 |
|
Total long-term debt | $ | 191,300 |
| | $ | 188,795 |
|
The following table summarizes the contractual maturities of our borrowing obligations as of March 31, 2020 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
Fiscal Year | Term Loan | | Revolving Credit Facility | | Notes | | Other Long-Term Debt | | Total |
2020 | $ | 1,913 |
| | $ | — |
| | $ | 28,867 |
| | $ | 102 |
| | $ | 30,881 |
|
2021 | 4,781 |
| | — |
| | — |
| | 144 |
| | 4,925 |
|
2022 | 6,375 |
| | — |
| | — |
| | 154 |
| | 6,529 |
|
2023 | 190,052 |
| | 22,000 |
| | — |
| | 165 |
| | 212,217 |
|
2024 | — |
| | — |
| | — |
| | 177 |
| | 177 |
|
Thereafter | — |
| | — |
| | — |
| | 499 |
| | 499 |
|
Total before unamortized discount | 203,120 |
| | 22,000 |
| | 28,867 |
| | 1,241 |
| | 255,228 |
|
Less: unamortized discount and issuance costs | 3,090 |
| | — |
| | 312 |
| | — |
| | 3,402 |
|
Less: current portion of long-term debt | 2,709 |
| | — |
| | 28,555 |
| | 136 |
| | 31,400 |
|
Total long-term debt | $ | 197,321 |
| | $ | 22,000 |
| | $ | — |
| | $ | 1,105 |
| | $ | 220,426 |
|
2.00% Convertible Senior Notes due 2020
On June 15, 2015, the Companywe issued $125.0 million aggregate principal amount of itsour Notes in an offering conducted in accordance with Rule 144A under the Securities Act of 1933.Act. The Notes pay interest semi-annually on June 15 and December 15 of each year at an annual rate of 2.00% and mature on June 15, 2020, unless earlier convertedrepurchased or repurchasedconverted in accordance with their terms prior to such date. Total interest expense for the ninethree months ended September 30, 2017 and 2016March 31, 2020 was $6.4$0.5 million, and $6.1 million, respectively, reflecting the coupon and accretion of the discount.
During 2017, we purchased 2,000 of our 125,000 outstanding Notes and settled $2.0 million of the Notes for $1.7 million in cash. We recorded $2.0 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial loss on the extinguishment of debt.
During 2018, we purchased an additional 16,247 of our 123,000 outstanding Notes and settled another $16.2 million of the Notes for $14.7 million in cash. We recorded $16.2 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial gain on the extinguishment of debt.
On January 22, 2019, we purchased an additional 3,900 of our 106,753 outstanding Notes and settled another $3.9 million of the Notes for $3.6 million in cash. We recorded $3.9 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial gain on the extinguishment of debt.
On April 11, 2019, we announced the commencement of a cash tender offer (the “Offer”) for any and all of our outstanding Notes. On May 9, 2019, as of the expiration of the Offer, Notes with an aggregate principal amount of $74.0 million were validly tendered. We accepted for purchase all Notes that were validly tendered at the expiration of the Offer at a purchase price equal to $982.50 per $1,000 principal amount of Notes, and settled the Offer on May 13, 2019 for $72.7 million in cash. We repurchased 73,986 Notes, recorded $74.0 million extinguishment of debt, $0.6 million of equity reacquisition, and $2.9 million loss on the extinguishment of debt. In connection with the Offer, the number of options under the Capped Call was reduced to 28,867 to mirror the remaining principal outstanding for the Notes, and an immaterial partial unwind cash payment was received in May 2019.
Term Loan and Credit Facility
On February 26, 2016, the Companywe entered into a financing agreement (the “Financing Agreement”) with Cerberus Business Finance, LLC, as collateral and administrative agent, and the Financing Agreement with the Lenders. Pursuant to the Financing Agreement, thelenders party thereto (the “Lenders”). The Lenders originally agreed to provide the Companyus with (a) a term loan in the aggregate principal amount of $100.0 million (the “Term Loan”), and (b) a revolving credit facility (the “Credit Facility”) of up to a maximum of $5.0 million in borrowings outstanding at any time. All outstanding loans under the Financing Agreement will become due and payable on the earlier of February 26, 2021 and the date that is 30 days prior to June 15, 2020 if the $125.0 million in outstanding principal of the Notes has not been repaid or refinanced by such time. The CompanyWe granted a security interest on substantially all of itsour assets to secure the obligations under the Credit FacilityTerm Loan and the Term Loan. The Company borrowed the full amount of the Term Loan, or $100.0 million, as of the closing date of the Financing Agreement, and there were no amounts outstanding under the Credit Facility as of September 30, 2017.
The Company may prepay all or any portion of the Term Loan prior to its stated maturity, subject to the payment of certain fees based on the amount repaid.Facility. The Term Loan requires quarterly principal payments of $1.25 million, which commenced in June 2016. The Term Loan also requires the Companyus to use 50% of excess cash flow, as defined in the Financing Agreement, to repay outstanding principal of the loans under the Financing Agreement.
The Financing Agreement contains customary representations and warranties, covenants, mandatory prepayments, and events of default under which the Company’sour payment obligations may be accelerated.
On March 14,November 9, 2017, (the “Amendment No. 1 Effective Date”), the Companywe entered into an amendment (the “First Amendment”)and borrowed an additional $15.0 million term loan and increased the amount available under the Credit Facility by $5.0 million.
On May 10, 2018, we entered into an amendment to the Financing Agreement, which extended the maturity of the Financing Agreement to May 2023, and increased the Term Loan by $22.7 million and the amount available under the Credit Facility by $12.5 million, for an aggregate amount available of $22.5 million.
On April 8, 2019, we entered into an amendment to the Financing Agreement. The First Amendmentamendment provided for an additional delayed draw term loan commitment in the aggregate principal amount of $100.0 million (the “Delayed Draw Funds”) for the purpose of funding the purchase of a portion of Notes in the Offer described above. On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. We used $72.7 million of the Delayed Draw Funds for the purchase of a portion of our Notes, $0.6 million for the Notes interest payment, and $6.0 million for the payment of refinancing fees. On June 18, 2019, we repaid $20.7 million of the Delayed Draw Funds. The $79.3 million Delayed Draw Funds borrowed and that remain outstanding will mature on May 10, 2023 under the terms of the Financing Agreement. The amendment also modified the covenant requiring the Companythat requires us to maintain a Leverage Ratioleverage ratio (defined to mean the ratio of (a) total fundedthe sum of indebtedness under the Term Loan and Credit Facility and non-cash collateralized letters of credit to (b) consolidated EBITDA) such that followingEBITDA under the Amendment No. 1 Effective Date,Term Loan and Credit Facility) based on the Company is required to maintainlevel of availability of our Credit Facility plus unrestricted cash on-hand.
The Financing Agreement amendment effective April 8, 2019 was accounted for as a Leverage Ratio of no greater than 3.50:1.00 for the four quarters ended March 31, 2017, 4.20:1.00 for the four quarters ended June 30, 2017, 4.75:1.00 for the four quarters ended September 30, 2017, 4.80:1.00 for the four quarters ending December 31, 2017, 4:40:1.00 for eachdebt modification, and therefore, $1.6 million of the four quarters ending March 31, 2018 through March 31, 2019, respectively,refinancing fees paid directly to the Lenders was recorded as deferred debt issuance costs, and thereafter declining over time from 3.50:1.00 to 2.50:1.00. Following the Amendment No. 1 Effective Date, interest accrues on outstanding borrowings under the credit facility and the term loan (each as defined in the Financing Agreement) at a rate of either the LIBOR Rate (as defined in the Financing Agreement) plus 7.25% or a Reference Rate (as defined in the Financing Agreement) plus 6.25%, at the option$4.4 million of the Company. The Companyrefinancing fees paid to the third parties was expensed. We recorded $5.9 million and $4.6$4.2 million of interest expense on the Term Loan forduring the ninethree months ended September 30, 2017 and 2016, respectively. AsMarch 31, 2020. There was $22.0 million outstanding under the Credit Facility as of September 30, 2017,March 31, 2020. There is no prepayment penalty on the Company wasCredit Facility. We recognized $0.1 million of interest expense related to the Facility during the three months ended March 31, 2020. We were in compliance with the Financing Agreement covenants.covenants as of March 31, 2020.
On November 9, 2017 (the “Amendment No. 2 Effective Date”), the Company entered into an amendment (the “Second Amendment”) to the Financing Agreement. The Second Amendment extended an additional $15.0 million term loan to the Company, thereby increasing the aggregate principal amount of the term loan to $115.0 million. The Second Amendment also increased the amount of available revolving credit by $5.0 million to an aggregate amount of $10.0 million. The additional $15.0 million term loan must be repaid in quarterly principal payments of $187,500 commencing in March 2018. The Second Amendment also granted the Company the ability to use up to $15.0 million to purchase Notes and modified the definition of consolidated EBITDA used in the Leverage Ratio calculation to adjust for expected changes in deferred revenue due to the adoption of ASC 606.
11. STOCKHOLDERS’ EQUITY
Stock-Based Compensation
Information with respect to option shares granted under all the Company’sof our stock incentive plans for the ninethree months ended September 30, 2017March 31, 2020 was as follows:
|
| | | | | | | | | |
| Time-Based Shares | Performance-Based Shares | Total Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) |
Options outstanding at January 1, 2020 | 565,000 |
| — |
| 565,000 |
| $7.57 | | |
Granted | — |
| — |
| — |
| $— | | |
Exercised | (100,000 | ) | — |
| (100,000 | ) | $7.66 | | |
Forfeited or canceled | — |
| — |
| — |
| $— | | |
Options outstanding at March 31, 2020 | 465,000 |
| — |
| 465,000 |
| $7.56 | 1.17 | $— |
Options vested at March 31, 2020 or expected to vest | | | 465,000 |
| $7.56 | 1.17 | $— |
Options exercisable at March 31, 2020 | | | 465,000 |
| $7.56 | 1.17 | $— |
|
| | | | | | | | | |
| Time-Based Shares | Performance-Based Shares | Total Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) |
Options outstanding at January 1, 2017 | 2,847,502 |
| — |
| 2,847,502 |
| $10.43 | | |
Granted | — |
| — |
| — |
| $— | | |
Exercised | — |
| — |
| — |
| $— | | |
Forfeited or canceled | (513,285 | ) | — |
| (513,285 | ) | $13.49 | | |
Options outstanding at September 30, 2017 | 2,334,217 |
| — |
| 2,334,217 |
| $9.75 | 2.51 | $— |
Options vested at September 30, 2017 or expected to vest | | | 2,334,217 |
| $9.75 | 2.51 | $— |
Options exercisable at September 30, 2017 | | | 2,315,467 |
| $9.77 | 2.51 | $— |
Information with respect to the Company’sour non-vested restricted stock units for the ninethree months ended September 30, 2017March 31, 2020 was as follows:
|
| | | | | | | | | |
| Non-Vested Restricted Stock Units |
| Time-Based Shares | Performance-Based Shares | Total Shares | Weighted- Average Grant-Date Fair Value | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) |
Non-vested at January 1, 2020 | 2,087,933 |
| 554,265 |
| 2,642,198 |
| $6.40 | | |
Granted | 555,523 |
| 578,316 |
| 1,133,839 |
| $6.46 | | |
Vested | (333,743 | ) | (328,673 | ) | (662,416 | ) | $5.58 | | |
Forfeited | (44,750 | ) | — |
| (44,750 | ) | $7.54 | | |
Non-vested at March 31, 2020 | 2,264,963 |
| 803,908 |
| 3,068,871 |
| $6.58 | 1.25 | $20,623 |
Expected to vest | | | 3,068,871 |
| $6.58 | 1.25 | $20,623 |
|
| | | | | | | | | |
| Non-Vested Restricted Stock Units |
| Time-Based Shares | Performance-Based Shares | Total Shares | Weighted- Average Grant-Date Fair Value | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) |
Non-vested at January 1, 2017 | 1,513,098 |
| 642,683 |
| 2,155,781 |
| $6.85 | | |
Granted | 1,130,596 |
| 639,703 |
| 1,770,299 |
| $4.61 | | |
Vested | (538,384 | ) | — |
| (538,384 | ) | $7.84 | | |
Forfeited | (70,142 | ) | (28,276 | ) | (98,418 | ) | $6.17 | | |
Non-vested at September 30, 2017 | 2,035,168 |
| 1,254,110 |
| 3,289,278 |
| $5.16 | 0.86 | $14,900 |
Expected to vest | | | 2,674,871 |
| $5.08 | 0.86 | $12,117 |
Stock-based compensation was included in the following captions in the Company’sour condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 |
| 2019 |
Cost of products revenues | $ | 102 |
| | $ | 51 |
|
Cost of services revenues | 98 |
| | 18 |
|
Research and development expenses | 294 |
| | 195 |
|
Marketing and selling expenses | 441 |
| | 294 |
|
General and administrative expenses | 1,174 |
| | 1,180 |
|
| $ | 2,109 |
| | $ | 1,738 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cost of products revenues | $ | 14 |
| | $ | 12 |
| | $ | 39 |
| | $ | 43 |
|
Cost of services revenues | 49 |
| | 145 |
| | 508 |
| | 445 |
|
Research and development expenses | 222 |
| | 73 |
| | 474 |
| | 222 |
|
Marketing and selling expenses | 582 |
| | 547 |
| | 1,375 |
| | 1,508 |
|
General and administrative expenses | 1,614 |
| | 951 |
| | 3,478 |
| | 3,898 |
|
| $ | 2,481 |
| | $ | 1,728 |
| | $ | 5,874 |
| | $ | 6,116 |
|
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
EXECUTIVE OVERVIEW
Business Overview
We develop, market, sell, and support software and hardwareintegrated solutions for digital mediavideo and audio content production,creation, management and distribution. We are a leading technology provider that powers the media and entertainment industry. We do this by providing an open and efficient platform for digital media, along with a comprehensive set of tools and workflow solutions, that enable the creation, distribution and optimization of audio and video content. Digital media are video, audio or graphic elements in which the image, sound or picture is recorded and stored as digital values, as opposed to analog or tape-based signals.solutions. Our productssolutions are used in production and post-production facilities; film studios; network, affiliate, independent and cable television stations; recording studios; live-sound performance venues; advertising agencies; government and educational institutions; corporate communications departments; and by independent video and audio creative professionals, as well as aspiring professionals. Projects produced using our productstools, platform, and ecosystem include feature films, television programming, live events, news broadcasts, sports productions, commercials, music, video, and other digital media content. With over one million creative users and thousands of enterprise clients relying on our technology platforms and solutions around the world, Avid enables the industry to thrive in today’s connected media and entertainment world.
Our mission is to create the most powerfulempower media creators with innovative technology and collaborative media network that enables the creation, distributiontools to entertain, inform, educate, and monetization of the most inspiring content inenlighten the world. Guided by ourOur clients rely on Avid Everywhere strategic vision, we strive to deliver the industry’s most open, tightly integrated and efficient platform for media, connecting content creation with collaboration, asset protection, distribution and consumption of media in the world - from the mostcreate prestigious and award-winning feature films, music recordings, and television shows, to live concerts, sporting events, and news broadcasts. We haveAvid has been honored over time for our technological innovation with 1516 Emmy Awards, one Grammy Award, two Oscars, and the first ever America Cinema Editors Technical Excellence Award. Our solutions were used in all 2017 Oscar nominated films for Best Picture, Best Film Editing and Best Original Song. Every 2017 Grammy nominee for RecordIn 2018, Avid was named the recipient of the Yearprestigious Philo T. Farnsworth Award by the Television Academy to honor Avid’s 30 years of continuous, transformative technology innovations, including products that have improved and Album of The Year relied on our music creation solutions powered by our MediaCentral Platform.accelerated the editing and post production process for television.
Operations Overview
Our strategy is built on three pillars, Avid Everywhere, The Avid Advantage and the Avid Customer Association, (“ACA”). Avid Everywhere is our strategic vision for connecting creative professionals and media organizationsenterprises with their audiences in a more powerful, efficient, collaborative, and profitable way. Central to the Avid Everywhere vision is theway leverages our creative software tools, including ProTools for audio and MediaComposer for video, and Avid MediaCentral Platform an- the open, extensible, and customizable foundation that streamlines and simplifies content workflows by integrating all Avid or third partythird-party products and services that run on top of it. The platform provides secure and protected access, whichand enables fast and easy creation, delivery, and monetization of content.
We work to ensure that we are meeting customer needs, staying ahead of industry trends, and investing in the creation and delivery of content faster and easierright areas through a set of modular application suitesclose and new public and private marketplaces, that together, represent an open, integrated and flexible production and distribution environment for the media industry.interactive relationship with our customer base. The Avid Advantage complements Avid Everywhere by offering a new standard in service, supportCustomer Association was established to be an innovative and education to enable our customers to derive more efficiencyinfluential media technology community. It represents thousands of organizations and over 33,000 professionals from their Avid investment. Finally,all levels of the ACA is an association of dedicated media community visionaries,industry including inspirational and award-winning thought leaders, innovators, and users designed to provide essential strategic leadership to the media industry, facilitatestorytellers. The Avid Customer Association fosters collaboration between Avid, and key industry leaders and visionaries, and strengthen relationships between ourits customers, and us. This preeminent client and user community helpsother industry colleagues to help shape our collective future.product offerings and provide a means to shape our industry together.
AnotherA key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription or recurring revenue based model.offerings and long-term agreements. We started offering cloud-based subscription licensing options for some of our products and solutions in 2014 and by March 31, 2020, had more than 84,000 paying cloud-enabled subscribers in the third quarter of 2017, a 69% increase from the third quarter of 2016.approximately 218,000 paid subscriptions. These licensing options offer choicechoices in pricing and deployment to suit our customers’ needsneeds. Our subscription offerings to date have primarily been sold to creative professionals, though we expect to increase subscription sales to media enterprises going forward as we expand offerings and are expected tomove through customer upgrade cycles, which we expect will further increase recurring revenue on a longer termlonger-term basis. However, duringOur long-term agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SaaS offerings, and channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.
Another key aspect of our transitionstrategy has been to implement programs to increase operational efficiencies and reduce costs. We are making significant changes in business operations to better support the company’s strategy and overall performance. We have implemented a number of spending control initiatives biased towards non-personnel costs to reduce the overall cost structure while still investing in key areas that will drive growth. We have also revamped our supply chain and logistics, and in 2019 completed our move to a recurringlean model that leverages a new supplier and distribution network. We are optimizing our go-to-market
strategy, simplifying our strategy to address specific customer markets to help maximize our commercial success, which we expect will improve effectiveness, while increasing efficiency and driving growth of our pipeline and ultimately revenue.
A summary of our revenue model,sources for the three months ended March 31, 2020 and 2019 is as follows (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Software licenses | $ | 19,331 |
| | $ | 17,412 |
|
Maintenance | 31,794 |
| | 32,019 |
|
Software licenses and maintenance | 51,125 |
| | 49,431 |
|
% of total revenue | 59 | % | | 48 | % |
Integrated solutions | 29,338 |
| | 46,265 |
|
Professional services & training | 5,990 |
| | 7,623 |
|
Total revenue | $ | 86,453 |
| | $ | 103,319 |
|
Impact of COVID-19 on Our Business
We have operations in a number of countries, which exposes us to risks associated with public health crises such as the novel coronavirus (COVID-19) that was declared a pandemic by the World Health Organization. COVID-19 adversely impacted our business operations and results of operations for the first quarter of 2020, as described in more detail under the Results of Operations below. We expect the evolving COVID-19 pandemic to continue to have an adverse impact on our business and results of operations, as the ongoing pandemic is likely to continue to depress economic activity and reduce the demand for our products and services, as well as disrupt supply chains. Although the duration and severity of the COVID-19 pandemic, and resulting economic impacts, are highly uncertain, we expect that our revenue, deferred revenue,business operations and results of operations, including our net revenues, earnings and cash flow from operationsflows, will be adversely affected as an increasing portionimpacted for at least the balance of 2020. These economic impacts are the result of, but not limited to,:
the postponement or cancellation of film and television productions, major sporting events, and music festivals;
delays in purchasing and projects by our total revenue is recognized ratably rather than up front,enterprise customers and as new product offeringschannel partners;
disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and
decreased productivity due to travel ban, work-from-home policies or shelter-in-place orders.
We are sold at a wider variety of price points.
In April 2017, we entered into a strategic alliance agreement with Microsoft Corporationfocused on navigating these recent challenges presented by COVID-19 through preserving our liquidity and managing our cash flow through taking preemptive action to developenhance our ability to meet our short-term liquidity needs. Such actions include, but are not limited to, reducing our discretionary spending, revisiting our investment strategies, and market cloud-based solutionsreducing payroll costs, including through temporary employee furloughs and cloud services aimed atpay cuts. We may be required to take additional steps to preserve our liquidity depending on the mediaduration and entertainment industry. As partseverity of the agreement, we have chosen Microsoft Azure aspandemic and its impact on our preferred cloud hosting platform,operations and will develop and launch a range of Software-as-a-Service (“SaaS”) and Platform-as-a-Service (PaaS) offerings powered by the Avid MediaCentral Platform.cash flows.
As a complement to our core strategy, we continue to review and implement programs throughout the Company to reduce costs, increase operational efficiencies, align talent and enhance our business, including the cost efficiency program announced in
February 2016. The cost efficiency program encompassed a series of measures intended to allow us to more efficiently operate in a leaner, more directed cost structure. These measures included reductions in our workforce, consolidation of facilities, transfers of certain business processes to lower cost regions and reductions in other third-party services costs. The cost efficiency program was substantially complete as of June 30, 2017.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.
We believe that our critical accounting policies and estimates are those related to revenue recognition and allowances for sales returns and exchanges;exchanges, discount rates used for lease liabilities, stock-based compensation;compensation, income tax assets and liabilities;liabilities, and restructuring charges and accruals. We believe these policies and estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for
the year ended December 31, 20162019 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies and Estimates” and below. There have been no significant changes to the identification of the accounting policies and estimates that are deemed critical, nor have there been any significant changes to the policies applied or methodologies used by management to measure the critical accounting estimates.critical.
Revenue Recognition
General
We commence revenue recognition when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Generally, the products we sell do not require significant production, modification or customization. Installation of our products is generally routine, consists of implementation and configuration and does not have to be performed by us.
At the time of a sales transaction, we make an assessment of the collectability of the amount due from the customer. Revenues are recognized only if it is reasonably assured that collection will occur. When making this assessment, we consider customer credit-worthiness and historical payment experience. If it is determined from the outset of the arrangement that collection is not reasonably assured, revenues are recognized on a cash basis, provided that all other revenue recognition criteria are satisfied. At the outset of the arrangement, we also assess whether the fee associated with the order is fixed or determinable and free of contingencies or significant uncertainties. When assessing whether the fee is fixed or determinable, we consider the payment terms of the transaction, our collection experience in similar transactions without making concessions and our involvement, if any, in third-party financing transactions, among other factors. If the fee is not fixed or determinable, revenues are recognized only as payments become due from the customer, provided that all other revenue recognition criteria are met. If a significant portion of the fee is due after our normal payment terms, we evaluate whether we have sufficient history of successfully collecting past transactions with similar terms without offering concessions. If that collection history is sufficient, revenue recognition commences, upon delivery of the products, assuming all other revenue recognition criteria are satisfied. If we were to make different judgments or assumptions about any of these matters, it could cause a material increase or decrease in the amount of revenues reported in a particular period.
We often receive multiple purchase orders or contracts from a single customer or a group of related customers that are evaluated to determine if they are, in effect, part of a single arrangement. In situations when we have concluded that two or more orders with the same customer are so closely related that they are, in effect, parts of a single arrangement, we account for those orders as a single arrangement for revenue recognition purposes. In other circumstances, when we have concluded that two or more orders with the same customer are independent buying decisions, such as an earlier purchase of a product and a subsequent purchase of a software upgrade or maintenance contract, we account for those orders as separate arrangements for revenue recognition purposes.
For many of our products, we have had an ongoing practice of making available, at no charge to customers, minor feature and compatibility enhancements as well as bug fixes on a when-and-if-available basis (collectively the “Software Updates”) for a period of time after initial sales to end users. The implicit obligation to make such Software Updates available to customers over a period of time represents implied post-contract customer support, which is deemed to be a deliverable in each arrangement and is accounted for as a separate element, or Implied Maintenance Release PCS.
Over the last two years, in connection with a strategic initiative to increase support and other recurring revenue streams, we have taken a number of steps to eliminate the longstanding practice of providing Implied Maintenance Release PCS for many of our products, including our Media Composer, Pro Tools and Sibelius product lines. In the third quarter and fourth quarter of 2015, respectively, we concluded that Implied Maintenance Release PCS for our Media Composer and Sibelius product lines had ceased. In the first quarter of 2016, in connection with the release of Cloud Collaboration in Pro Tools version 12.5, which was an undelivered feature that had prevented us from recognizing any revenue related to new Pro Tools 12 software sales as it represented a specified upgrade right for which vendor specific objective evidence or (“VSOE”) of fair value was not available, we concluded that Implied Maintenance Release PCS for our Pro Tools 12 product lines had also ended. As a result of the conclusion that Implied Maintenance Release PCS on Pro Tools 12 has ended, revenue and net income in the first quarter of 2016 increased approximately $11.1 million, reflecting the recognition of orders received after the launch of Pro Tools 12 that would have qualified for earlier recognition using the residual method of accounting. In addition, the elimination of Implied Maintenance Release PCS also resulted in the accelerated recognition of maintenance and product revenues that were previously being recognized on a ratable basis over a much longer expected period of Implied Maintenance Release PCS rather than the contractual maintenance period. The reduction in the estimated amortization period of transactions being recognized on a ratable basis resulted in an additional $12.0 million and $33.7 million of revenue during the three and nine months ended September 30, 2016, respectively.
Management will continue to evaluate the judgment of whether Implied Maintenance Release PCS exists on each product line and version. Since the remaining products that contain Implied Maintenance Release PCS largely consist of products that fall under the non-software revenue recognition guidance, where management defers a small portion of revenue based on the best estimated selling price of Implied Maintenance Release PCS rather than the entire order value as required for transactions that fall under software revenue recognition guidance, any further determinations that Implied Maintenance Release PCS no longer exists for other product lines will be unlikely to result in a significant impact to the financial statements in any future periods.
As a result of the conclusion that Implied Maintenance Release PCS no longer exists for Pro Tools 12, prospective revenue recognition on new product orders will be recognized upfront, assuming all other revenue recognition criteria are met and VSOE of fair value exists for all undelivered elements. The cessation of Implied Maintenance Release PCS for Pro Tools and other products subject to software revenue recognition guidance, in addition to the initial impact of immediately recognizing revenue related to orders that would have qualified for earlier recognition using the residual method of accounting, resulted in increased revenue throughout 2016 as the elimination of Implied Maintenance Release PCS also results in the accelerated recognition of preexisting maintenance and product revenues that still do not qualify for the residual method of accounting but are now being recognized on an accelerated basis over a shorter remaining contractual maintenance period as compared to (i) the previous model of being recognized over a longer expected period of Implied Maintenance Release PCS and (ii) the prospective model of recognizing revenue ratably over a longer original contractual maintenance support period. As a result of the compressed recognition period for these prior transactions and longer recognition of the respective renewals, we expect significant decreases in revenues related to impacted product lines in 2017 as recognition from old contracts is completed and new contracts are recognized over a traditional maintenance period.
We enter into certaincontracts with customers that include various combinations of products and services, which are typically capable of being distinct and are accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectibility is probable. We recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.
We often enter into contractual arrangements that have multiple elements,performance obligations, one or more of which may be delivered subsequent to the delivery of other elements.performance obligations. These multiple-deliverable arrangements may include a combination of products, support, training, and professional services and Implied Maintenance Release PCS. For these multiple-element arrangements, weservices. We allocate revenue to each deliverablethe transaction price of the arrangement based on the relative selling prices of the deliverables. In such circumstances, we first determine theestimated standalone selling price of each deliverable baseddistinct performance obligation.
See Note 9 for disaggregated revenue schedules and further discussion on (i) VSOE of fair value if that exists, (ii) third-party evidence of selling price, or TPE, when VSOE does not exist; or (iii) best estimate of the selling price or (“BESP”) when neither VSOE nor TPE exists. Revenue is then allocated to the non-software deliverables as a grouprevenue and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the selling price hierarchy. Our process for determining BESP for deliverables for which VSOE or TPE does not exist involves significant management judgment. In determining BESP, we consider a number of data points, including:
the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis;
contractually stated prices for deliverables that are intended to be sold on a standalone basis;
the pricing of standalone sales that may not qualify as VSOE of fair value due to limited volumes or variation in prices; and
other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
In determining a BESP for Implied Maintenance Release PCS, which we do not sell separately, we consider (i) the service period for the Implied Maintenance Release PCS, (ii) the differential in value of the Implied Maintenance Release PCS deliverable compared to a full support contract, (iii) the likely list price that would have resulted from our established pricing practices had the deliverable been offered separately and (iv) the prices a customer would likely be willing to pay.
We estimate the service period of Implied Maintenance Release PCS based on the length of time the product version purchased by the customer is planned to be supported with Software Updates. If facts and circumstances indicate that the original service period of Implied Maintenance Release PCS for a product has changed significantly after original revenue recognition has commenced, we will modify the remaining estimated service period accordingly and recognize the then-remaining deferred revenue balance over the revised service period.
We have established VSOE of fair value for all professional servicesperformance obligations and training and for some of our support offerings. Our policy for establishing VSOE of fair value consists of evaluating standalone sales to determine if a substantial portion of the transactions fall within a reasonable range. If a sufficient volume of standalone sales exist and the standalone pricing for a substantial portion of the transactions falls within a reasonable range, management concludes that VSOE of fair value exists.
In accordance with Accounting Standards Update, or ASU, No. 2009-14, we exclude from the scope of software revenue recognition requirements our sales of tangible products that contain both software and non-software components that function together to deliver the essential functionality of the tangible products. We adopted ASU No. 2009-13 and ASU No. 2009-14 prospectively on January 1, 2011 for new and materially modified arrangements originating after December 31, 2010.
Prior to our adoption of ASU No. 2009-14, we primarily recognized revenues using the revenue recognition criteria of Accounting Standards Codification, or ASC, Subtopic 985-605, Software-Revenue Recognition. As a result of our adoption of ASU No. 2009-14 on January 1, 2011, a majority of our products are now considered non-software elements under U.S. GAAP, which excludes them from the scope of ASC Subtopic 985-605 and includes them within the scope of ASC Topic 605, Revenue Recognition. Because we had not been able to establish VSOE of fair value for Implied Maintenance Release PCS, as described further below, substantially all revenue arrangements prior to January 1, 2011 were recognized on a ratable basis over the service period of Implied Maintenance Release PCS. Subsequent to January 1, 2011 and the adoption of ASU No. 2009-14, we determine a relative selling price for all elements of the arrangement through the use of BESP, as VSOE and TPE are typically not available, resulting in revenue recognition upon delivery of arrangement consideration attributable to product revenue, provided all other criteria for revenue recognition are met, and revenue recognition of Implied Maintenance Release PCS and other service and support elements over time as services are rendered.
The timing of revenue recognition of customer arrangements follows a number of different accounting models determined by the characteristics of the arrangement, and that timing can vary significantly from the timing of related cash payments due from customers. One significant factor affecting the timing of revenue recognition is the determination of whether each deliverable in the arrangement is considered to be a software deliverable or a non-software deliverable. For transactions occurring after January 1, 2011, our revenue recognition policies have generally resulted in the recognition of approximately 70% of billings as revenue in the year of billing, and prior to January 1, 2011, the previously applied revenue recognition policies resulted in the recognition of approximately 30% of billings as revenue in the year of billing. We expect this trend to continue in future periods.recognition.
Revenue Recognition of Non-Software DeliverablesLeases
Revenue from products that are considered non-software deliverables is recognized upon delivery of the product to the customer. Products are considered delivered to the customer once they have been shipped and title and risk of loss has been transferred. For most of our product sales, these criteria are met at the time the product is shipped. Revenue from support that is considered a non-software deliverable is initially deferred and is recognized ratably over the contractual period of the arrangement, which is generally 12 months. Professional services and training services are typically sold to customers on a time and materials basis. Revenue from professional services and training services that are considered non-software deliverables is recognized for these deliverables as services are provided to the customer. Revenue for Implied Maintenance Release PCS that is considered a non-
software deliverable is recognized ratably over the service period of Implied Maintenance Release PCS, which ranges from one to eight years.
Revenue Recognition of Software Deliverables
We recognizehave operating leases for facilities and certain equipment in North America, Europe, and Asia. Our operating lease right-of-use assets and liabilities are recognized based on the following types of elements sold using software revenue recognition guidance: (i) software products and software upgrades, when the software sold in a customer arrangement is more than incidental to the arrangement as a whole and the product does not contain hardware that functions with the software to provide essential functionality, (ii) initial support contracts where the underlying product being supported is considered to be a software deliverable, (iii) support contract renewals and (iv) professional services and training that relate to deliverables considered to be software deliverables. Because we do not have VSOE of the fair value of our software products, we are permitted to account for our typical customer arrangements that include multiple elements using the residual method. Under the residual method, the VSOE of fairpresent value of the undelivered elements (which could include support, professional services or training, or any combination thereof) is deferred andfuture minimum lease payments over the remaining portion of the total arrangement fee is recognized as revenue for the delivered elements. If evidence of the VSOE of fair value of one or more undelivered elements doeslease term at commencement date. As our leases generally do not exist, revenues are deferred and recognized when delivery of those elements occurs or when VSOE of fair value can be established. VSOE of fair value is typicallyprovide an implicit rate, we use our incremental borrowing rate based on the price charged wheninformation available at commencement date in determining the elementpresent value of future payments. An average incremental borrowing rate of 6% as of January 1, 2019, the adoption date of ASC 842, was used for our leases that commenced prior to that date. We determined that the rate of 6% is sold separately to customers. We are unable to useappropriate for our operating leases after we considered an estimated incremental borrowing rate provided by our bank, the residual method to recognize revenues for some arrangements that include products that are software deliverables under U.S. GAAP since VSOE of fair value does not exist for Implied Maintenance Release PCS elements, which are included in someinterest rate of our arrangements.Term Loan, and the terms and geographic locations of our facilities. See Note 5 for further discussion on our leases.
For software products that include Implied Maintenance Release PCS, an element for which VSOE of fair value does not exist, revenue for the entire arrangement fee, which could include combinations of product, professional services, training and support, is recognized ratably as a group over the longest service period of any deliverable in the arrangement, with recognition commencing on the date delivery has occurred for all deliverables in the arrangement (or begins to occur in the case of professional services, training and support). Standalone sales of support contracts are recognized ratably over the service period of the product being supported.
From time to time, we offer certain customers free upgrades or specified future products or enhancements. When a software deliverable arrangement contains an Implied Maintenance Release PCS deliverable, revenue recognition of the entire arrangement will only commence when any free upgrades or specified future products or enhancements have been delivered, assuming all other products in the arrangement have been delivered and all services, if any, have commenced.
RESULTS OF OPERATIONS
The following table sets forth certain items from our condensed consolidated statements of operations as a percentage of net revenues for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2020 | | 2019 |
Net revenues: | | | | | | | | | | |
Product | 51.6 | % | | 53.6 | % | | 49.1 | % | | 56.4 | % | 40.2 | % | | 52.6 | % |
Services | 48.4 | % | | 46.4 | % | | 50.9 | % | | 43.6 | % | 59.8 | % | | 47.4 | % |
Total net revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
Cost of revenues | 42.7 | % | | 36.7 | % | | 41.1 | % | | 33.6 | % | 38.5 | % | | 40.7 | % |
Gross margin | 57.3 | % | | 63.3 | % | | 58.9 | % | | 66.4 | % | 61.5 | % | | 59.3 | % |
Operating expenses: | | | | | | | | | | |
Research and development | 15.2 | % | | 16.8 | % | | 16.6 | % | | 15.8 | % | 17.8 | % | | 15.8 | % |
Marketing and selling | 24.4 | % | | 22.9 | % | | 25.8 | % | | 22.4 | % | 29.3 | % | | 24.1 | % |
General and administrative | 14.4 | % | | 11.6 | % | | 13.9 | % | | 12.2 | % | 14.7 | % | | 13.3 | % |
Amortization of intangible assets | 0.3 | % | | 0.5 | % | | 0.4 | % | | 0.5 | % | — | % | | 0.4 | % |
Restructuring costs, net | (0.6 | )% | | 4.5 | % | | 2.1 | % | | 2.0 | % | 0.2 | % | | 0.5 | % |
Total operating expenses | 53.7 | % | | 56.3 | % | | 58.8 | % | | 52.9 | % | 62.0 | % | | 54.1 | % |
Operating income | 3.6 | % | | 7.0 | % | | 0.1 | % | | 13.5 | % | |
Operating (loss) income | | (0.5 | )% | | 5.2 | % |
Interest and other expense, net | (4.5 | )% | | (4.0 | )% | | (4.3 | )% | | (3.5 | )% | (6.1 | )% | | (5.0 | )% |
(Loss) income before income taxes | (0.9 | )% | | 3.0 | % | | (4.2 | )% | | 10.0 | % | (6.6 | )% | | 0.2 | % |
Benefit from income taxes | (1.0 | )% | | (4.5 | )% | | (0.1 | )% | | (1.0 | )% | |
Net income (loss) | 0.1 | % | | 7.5 | % | | (4.1 | )% | | 11.0 | % | |
Provision for income taxes | | 0.1 | % | | 0.4 | % |
Net loss | | (6.7 | )% | | (0.2 | )% |