SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



	(Mark One)
	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, ~~2018~~2019
	OR
	¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________



	Delaware (State or Other Jurisdiction of Incorporation or Organization)		04-2977748 (I.R.S. Employer Identification No.)

Indicate by check mark whether the registrant has submitted ~~and posted on its corporate Web site, if any,~~electronically, every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 under the Exchange Act.



	Large Accelerated Filer ¨ Non-accelerated Filer ¨ ~~(Do not check if smaller reporting company)~~		Accelerated Filer x Smaller Reporting Company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Exchange Act). Yes ¨ No x

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of each class			Trading Symbol	Name of each exchange on which registered
Common Stock,	$.01	par value	AVID	Nasdaq Global Select Market

The number of shares outstanding of the registrant’s Common Stock, ~~par value $0.01,~~ as of May ~~7, 2018~~1, 2019, was ~~41,501,929.~~42,415,714.

AVID TECHNOLOGY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2018~~2019

TABLE OF CONTENTS



		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Condensed Consolidated Statements of Operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018	1
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018	2
	Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018	3
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018	45
	Notes to Unaudited Condensed Consolidated Financial Statements	56
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2018
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3026
ITEM 4.	CONTROLS AND PROCEDURES	3026

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	3228
ITEM 1A.	RISK FACTORS	3228
ITEM 6.	EXHIBITS	3228

INDEX TO EXHIBITS		3329

SIGNATURE		3430

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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” and “would,” or similar expressions.

Forward-looking statements may involve subjects relating to, among others, the following:

our ability to successfully implement our strategy, including our cost saving strategies;

the anticipated trends and developments in our markets and the success of our products in these markets;

our ability to develop, market and sell new products and services;

our business strategies and market positioning;

our ability to achieve our goal of expanding our market positions;

our ability to accelerate growth of our Cloud-enabled platform;

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 ~~elongated~~long 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;

our anticipated benefits and synergies from, and the anticipated financial impact of, any acquired business;

the anticipated performance of our products;

changes in inventory levels;

plans regarding repatriation of foreign earnings;

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 ability to accelerate growth of our Cloud-enabled platform;~~

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;

our ability to refinance our convertible notes due 2020 through our pending tender offer or other means;

seasonal factors;

fluctuations in foreign exchange and interest rates;

the risk of restatement of our financial statements;

estimated asset and liability values and amortization of our intangible assets;

our capital resources and the adequacy thereof; and

worldwide political uncertainty, in particular the risk that the United States may withdraw from or materially modify NAFTA or other international trade ~~agreements.~~agreements, and the effects of such actions on our supply chain, results of operations and financial condition.

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 Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, in Part II 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,~~ 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						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
Net revenues:
Products	$	46,410		$	51,006		$	54,396		$	46,410
Services	51,527			53,101			48,923			51,527
Total net revenues	97,937			104,107			103,319			97,937

Cost of revenues:
Products	26,295			24,504			27,600			26,295
Services	13,985			14,094			12,487			13,985
Amortization of intangible assets	1,950			1,950			1,950			1,950
Total cost of revenues	42,230			40,548			42,037			42,230
Gross profit	55,707			63,559			61,282			55,707

Operating expenses:
Research and development	15,685			18,888			16,285			15,685
Marketing and selling	26,132			25,811			24,878			26,132
General and administrative	13,955			14,431			13,788			13,955
Amortization of intangible assets	363			363			363			363
Restructuring costs, net	2,907			983			558			2,907
Total operating expenses	59,042			60,476			55,872			59,042

Operating (loss) income	(3,335		)	3,083
Operating income (loss)							5,410			(3,335		)

Interest and other expense, net	(5,359		)	(4,846		)	(5,185		)	(5,359		)
Loss before income taxes	(8,694		)	(1,763		)
Income (loss) before income taxes							225			(8,694		)
Provision for income taxes	255			152			438			255
Net loss	$	(8,949	)	$	(1,915	)	$	(213	)	$	(8,949	)

Net loss per common share – basic and diluted	$	(0.22	)	$	(0.05	)	$(0.01)			$(0.22)

Weighted-average common shares outstanding – basic	41,404			40,772
Weighted-average common shares outstanding – diluted	41,404			40,772
Weighted-average common shares outstanding – basic and diluted							42,046			41,404

The accompanying notes are an integral part of the condensed consolidated financial statements.

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, unaudited)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
Net loss	$	(8,949	)	$	(1,915	)	$	(213	)	$	(8,949	)

Other comprehensive income:
Other comprehensive (loss) income:
Foreign currency translation adjustments	1,148			1,850			(548		)	1,148

Comprehensive loss	$	(7,801	)	$	(65	)	$	(761	)	$	(7,801	)

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, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	48,016		$	57,223		$	55,326		$	56,103
Restricted cash	8,500			—			9,020			8,500
Accounts receivable, net of allowances of $1,268 and $11,142 at March 31, 2018 and December 31, 2017, respectively (Note 1)	52,532			40,134
Accounts receivable, net of allowances of $1,339 and $1,339 at March 31, 2019 and December 31, 2018, respectively.							61,318			67,754
Inventories	32,887			38,421			34,328			32,956
Prepaid expenses	10,827			8,208			11,985			8,853
Contract assets	11,756			—			18,677			16,513
Other current assets	8,259			10,341			6,685			5,917
Total current assets	172,777			154,327			197,339			196,596
Property and equipment, net	20,663			21,903			20,918			21,582
Intangible assets, net	11,370			13,682			2,120			4,432
Goodwill	32,643			32,643			32,643			32,643
Right of use assets							36,031			—
Long-term deferred tax assets, net	1,354			1,318			1,163			1,158
Other long-term assets	11,974			10,811			9,456			9,432
Total assets	$	250,781		$	234,684		$	299,670		$	265,843

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	28,077		$	30,160		$	38,438		$	39,239
Accrued compensation and benefits	24,400			25,466			24,727			21,967
Accrued expenses and other current liabilities	42,928			31,549			41,402			37,547
Income taxes payable	1,978			1,815			2,088			1,853
Short-term debt	5,883			5,906			1,405			1,405
Deferred revenue	89,420			121,184			87,927			85,662
Total current liabilities	192,686			216,080			195,987			187,673
Long-term debt	203,252			204,498			218,201			220,590
Long-term deferred revenue	16,953			73,429			13,361			13,939
Long-term lease liabilities							33,817			—
Other long-term liabilities	9,520			9,247			5,391			10,302
Total liabilities	422,411			503,254			466,757			432,504

Commitments and contingencies (Note 7)
Commitments and contingencies (Note 8)

Stockholders’ deficit:
Common stock	423			423			423			423
Additional paid-in capital	1,032,842			1,035,808			1,024,028			1,028,924
Accumulated deficit	(1,189,102		)	(1,284,703		)	(1,187,223		)	(1,187,010		)
Treasury stock at cost	(14,515		)	(17,672		)	—			(5,231		)
Accumulated other comprehensive loss	(1,278		)	(2,426		)	(4,315		)	(3,767		)
Total stockholders’ deficit	(171,630		)	(268,570		)	(167,087		)	(166,661		)
Total liabilities and stockholders’ deficit	$	250,781		$	234,684		$	299,670		$	265,843

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)



	Shares of Common Stock				Additional						Accumulated Other		Total
	Issued	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	)



	Shares of Common Stock				Additional						Accumulated Other		Total
	Issued	In Treasury		Common Stock	Paid-in Capital		Accumulated Deficit		Treasury Stock		Comprehensive Income (Loss)		Stockholders’ Deficit
Balances at January 1, 2018	42,339	(983	)	423	1,035,808		(1,284,703	)	(17,672	)	(2,426	)	(268,570	)

Cumulative-effect adjustment due to adoption of ASC Topic 606							104,550						104,550

Stock issued pursuant to employee stock plans		127			(3,649	)			3,158				(491	)

Stock-based compensation					703								703

Net loss							(8,949	)					(8,949	)

Other comprehensive loss											1,148		1,148

Partial retirement of convertible senior notes conversion feature					(22	)							(22	)

Partial unwind capped call cash receipt					2								2

Balances at March 31, 2018	42,339	(856	)	423	1,032,842		(1,189,102	)	(14,514	)	(1,278	)	(171,629	)

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)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017 ⁽¹⁾			2019			2018
Cash flows from operating activities:
Net loss	$	(8,949	)	$	(1,915	)	$	(213	)	$	(8,949	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	5,674			5,815			4,740			5,674
Provision (recovery) for doubtful accounts	57			(110		)
(Recovery from) provision for doubtful accounts							(9		)	57
Stock-based compensation expense	703			1,411			1,738			703
Non-cash interest expense	3,546			3,131			3,359			3,546
Unrealized foreign currency transaction losses	1,323			1,722
Unrealized foreign currency transaction (gains) losses							(586		)	1,323
Benefit from deferred taxes	(2		)	(374		)	(1		)	(2		)
Changes in operating assets and liabilities:
Accounts receivable	8,596			14			6,444			8,596
Inventories	(482		)	1,573			(1,372		)	(482		)
Prepaid expenses and other assets	(396		)	(5,850		)	(3,861		)	(396		)
Accounts payable	(2,112		)	2,388			(810		)	(2,112		)
Accrued expenses, compensation and benefits and other liabilities	(1,355		)	(1,773		)	(2,837		)	(1,355		)
Income taxes payable	190			164			261			190
Deferred revenue	(1,423		)	(2,662		)
Deferred revenue and contract assets							(477		)	(1,423		)
Net cash provided by operating activities	5,370			3,534			6,376			5,370

Cash flows from investing activities:
Purchases of property and equipment	(2,080		)	(1,729		)	(1,767		)	(2,080		)
Increase in other long-term assets	(8		)	(7		)	—			(8		)
Net cash used in investing activities	(2,088		)	(1,736		)	(1,767		)	(2,088		)

Cash flows from financing activities:
Repayment of debt	(3,212		)	(1,250		)	(3,928		)	(3,212		)
Proceeds from the issuance of common stock under employee stock plans	6			2			309			6
Common stock repurchases for tax withholdings for net settlement of equity awards	(497		)	(372		)	(1,690		)	(497		)
Partial retirement of the Notes conversion feature and capped call option unwind							(22		)	(20		)
Net cash used in financing activities	(3,703		)	(1,620		)	(5,331		)	(3,723		)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(5		)	188			(55		)	15
Net (decrease) increase in cash, cash equivalents and restricted cash	(426		)	366
Net decrease in cash, cash equivalents and restricted cash							(777		)	(426		)
Cash, cash equivalents and restricted cash at beginning of period	60,433			49,948			68,094			60,433
Cash, cash equivalents and restricted cash at end of period	$	60,007		$	50,314		$	67,317		$	60,007
Supplemental information:
Cash and cash equivalents	$	48,016		$	47,014		$	55,326		$	48,016
Restricted cash	8,500			—			9,020			8,500
Restricted cash included in other long-term assets	3,491			3,300			2,971			3,491
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	60,007		$	50,314		$	67,317		$	60,007

Cash (refunded) paid for income taxes	(2,469		)	19
Cash paid (refunded) for income taxes							$	203		$	(2,469	)
Cash paid for interest	$	1,919		$	1,665		$	2,041		$	1,919

The accompanying notes are an integral part of the condensed consolidated financial statements.

(1) The Condensed Consolidated Statement of Cash Flows for the quarter ended March 31, 2017 has been revised to reflect the adoption, on January 1, 2018, of ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The Condensed Consolidated Statements of Cash Flows reflects the changes during the periods in the total of cash, cash equivalents, and restricted cash. Therefore, restricted cash activity is included with cash when reconciling the beginning-of-period and end-of-period total amounts shown. Refer to Note 1 for further discussion.

AVID TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	FINANCIAL INFORMATION

The accompanying condensed consolidated financial statements include the accounts of Avid Technology, Inc. and its wholly owned subsidiaries (collectively, “we” or “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. We prepared the accompanying unaudited condensed consolidated financial statements in accordance with the instructions for Form 10-Q and, therefore, include all information and footnotes necessary for a complete presentation of operations, comprehensive income (loss), financial position, changes in stockholders’ deficit and cash flows 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, ~~2017~~2018 was derived from ~~the~~ our audited consolidated financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements. We filed audited consolidated financial statements as of and for the year ended December 31, ~~2017~~2018 in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, 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 our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

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 our estimates.

Subsequent Events

On ~~May 10, 2018 (the “Amendment No. 4 Effective Date”),~~April 8, 2019, we entered into an amendment to our existing agreement (the ~~“Fourth Amendment”~~“Financing Agreement”) with Cerberus Business Finance, LLC, as collateral and administrative agent, and the lenders party thereto. The amendment provides for an additional delayed draw term loan commitment in the aggregate principal amount of $100 million (the “Delayed Draw Funds”), which may be used to fund the purchase of our 2.00% Senior Convertible Notes due 2020 (the “Notes”). On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. The ~~Fourth Amendment extended~~Delayed Draw Funds will remain available to us to purchase Notes for a period of 90 calendar days. At the ~~maturity~~end of such 90-day period, any remaining Delayed Draw Funds that have not been used to purchase Notes must be repaid and no further funds will be available to borrow under the commitment. Any Delayed Draw Funds drawn and used to fund the purchase of the Notes will mature on May 10, 2023, the current maturity date under the Financing ~~Agreement to May 2023 and increased the term and revolving facilities by an aggregate of $35.0 million. In addition, under~~Agreement. Under the terms of the ~~Fourth Amendment,~~amendment, interest accrues on the ~~facility is subject to lower annual fees~~Delay Draw Funds and ~~interest rates, has~~the existing outstanding borrowings under the Financing Agreement at a ~~reduced principal amortization schedule~~rate of either the LIBOR Rate (as defined in the Financing Agreement) plus 6.25% or a Reference Rate (as defined in the Financing Agreement) plus 5.25%, at our option.

For a more detailed description of the amendment, see our Form 8-K filed with the Securities and ~~no longer includes a springing repayment feature related to the maturity of our Notes due in June 2020.~~Exchange Commission on April 11, 2019.

We evaluated subsequent events through the date of issuance of these financial statements and, other than the event disclosed above, no other subsequent events required recognition or disclosure in these financial statements.

Significant Accounting Policies - Revenue Recognition

We 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. ~~The Company accounts~~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~~collectability 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.

~~See Note 9 for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.~~

We often enter into contractual arrangements that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These arrangements may include a combination of products, support, training and professional services. We allocate the transaction price of the arrangement based on the relative estimated standalone selling price ~~(“SSP”)~~ of each distinct performance obligation.

~~Our process~~See Note 10 for ~~determining SSP for each performance obligation involves significant management judgment. In determining SSP, we maximize observable inputs~~disaggregated revenue schedules and ~~consider a number of data points, including:~~

~~the pricing of standalone sales (in the instances where available);~~

~~the pricing established by management when setting prices for deliverables that are intended to be sold~~further discussion on ~~a standalone basis;~~

~~contractually stated prices for deliverables that are intended to be sold on a standalone basis;~~

~~other pricing factors, such as the geographical region in which the products are sold~~revenue and ~~expected discounts based on the customer size and type.~~

~~Determining SSP for~~deferred revenue performance obligations which we never sell separately also requires significant judgment. In estimating the SSP, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered separately and the ~~prices a customer would likely be willing to pay.~~timing of revenue recognition.

We only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other allowances that represent variable consideration under ASC 606, which we estimate based on historical return experience and other relevant factors, and record a corresponding refund liability as a component of accrued expenses and other current liabilities. Other forms of contingent revenue or variable consideration are infrequent.

While not a common practice for us, in the event we grant the customer the option to acquire additional products or services in an arrangement, we consider if the option provides a material right to the customer that it would not receive without entering into the contract (e.g., an incremental discount compared to the range of discounts typically given for similar products or services). If a material right is deemed to exist, we account for the option as a distinct performance obligation and recognize revenue when those future products or services are transferred or when the option expires.

We also record as revenue all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a component of cost of revenues. Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues. We present revenues net of any taxes collected from customers and remitted to government authorities.

We apply the practical expedient to not adjust the transaction price for the effects of a significant financing component when we expect that the period between when we transfer a good or service to a customer and when the customer pays for that good or service will be one year or less. Payments under our contracts are typically due within in a short period from when our performance obligations are satisfied.

~~We apply the practical expedient for the deferral of sales commissions and other contract acquisition costs, which are expensed as incurred, where the amortization period would be one year or less.~~

Recently Adopted Accounting Pronouncements

On January 1, ~~2018,~~2019, we adopted ~~Accounting Standards Codification~~ASC Topic 842, Leases (“~~ASC”) Topic 606,~~ ~~Revenue from Contracts with Customers~~ (“ASC ~~606”~~842”), using the modified retrospective ~~method applied to contracts not completed~~transition approach, as provided by ASU No. 2018-11, Leases - Targeted Improvements (“ASU 2018-11”). We elected the package of ~~January 1, 2018.~~practical expedients permitted under the transition guidance. Results for reporting periods beginning after January 1, ~~2018~~2019 are presented under ASC ~~606,~~842, while prior ~~period amounts are~~periods have not been adjusted and continue to be reported in accordance with our historic accounting under ~~ASC 605. We recorded a net reduction to opening accumulated deficit of approximately $105 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606.~~previous U.S. GAAP. The primary impact of ASC ~~606 that resulted in a significant decrease in deferred revenue~~842 is that ~~vendor specific objective evidence~~substantially all of ~~fair value~~our leases are recognized on the balance sheet, by recording right-of-use assets and short-term and long-term lease liabilities. The new standard does not have a material impact on our consolidated statement of operations and cash flows, and the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019 is ~~no longer required to recognize revenue for distinct software products upon delivery, which allows recognition upon delivery rather than on a ratable basis over a period of time.~~immaterial.

A summary of the changes to balance sheet line items that resulted from the adoption of ASC ~~606~~842 as of January 1, ~~2018~~2019 is as follows (in thousands):



	As of January 1, 2019
	As Previously Reported		Impact of Adoption of Topic 842			As Adjusted
Assets:
Property and equipment, net	$	21,582	$	256		$	21,838
Right of use assets	$	—	$	37,749		$	37,749

Liabilities:
Accrued expenses and other current liabilities	$	37,547	$	6,957		$	44,504
Long-term lease liabilities	—		35,694			35,694
Other long-term liabilities	$	10,302	$	(4,646	)	$	5,656

As of January 1, 2018
As Previously Reported
Impact of Adoption of Topic 606⁽⁵⁾
As Adjusted
Assets:
Accounts receivable, net⁽¹⁾
$ 40,134
$ 21,088
$ 61,222
Contract assets⁽²⁾
—
6,579
6,579
Inventory⁽³⁾
38,421
(5,716 ) 32,705
Other long-term assets 10,811
865
11,676
Total assets $ 234,684
$ 22,816
$ 257,500
Liabilities:
Accrued expenses and other current liabilities ⁽¹⁾
$ 31,549
$ 11,139
$ 42,688
Deferred revenue (current portion) ⁽⁴⁾
121,184
(37,794 ) 83,390
Long-term deferred revenue ⁽⁴⁾
73,429
(55,079 ) 18,350
Total liabilities $ 503,254
$ (81,734 ) $ 421,520
Stockholders’ deficit:
Accumulated deficit (1,284,703 ) 104,550
(1,180,153 )
Total stockholders’ deficit $ (268,570 ) $ 104,550
$ (164,020 )

⁽¹⁾

The increase in accounts receivable and accrued expenses and other current liabilities is due to the reclassification of allowances for sales returns, rebates and other adjustments to selling prices that are considered variable consideration under ASC 606 and are now presented as a liability on our balance sheet. Accounts receivable also increased due to advanced contractual support billings now being recorded on a gross basis in accounts receivable when it is due, rather than being net against corresponding unamortized deferred revenue.

⁽²⁾

For subscription contracts, we are now required under ASC 606 to record contract assets for annual and multi-year subscriptions that are billed monthly, resulting in an increase in contract assets at the date of adoption. In addition, some of our enterprise agreements have fixed payment schedules whereas the timing of the fulfillment of performance obligations under the contracts can vary, which can result in the fulfillment of performance obligations exceeding contract billings, which also results in contract assets.


⁽³⁾	The reduction is due to inventory and deferred costs that were directly attributable to deferred revenue transactions that were reduced or eliminated due to the adoption of ASC 606 (as described in footnote 4 below), necessitating the elimination of corresponding inventory and deferred costs associated with those deferred revenue transactions.


⁽⁴⁾	The reduction is primarily attributable to the elimination of the requirement to have vendor specific objective evidence of fair value for undelivered elements that existed under ASC 605, the prior applicable accounting guidance, for software products, which no longer precludes revenue recognition under ASC 606.

⁽⁵⁾ ~~See Note 9 for a further description of~~In accordance with guidance provided by the ~~components of revenue and related performance obligations under ASC 606 that resulted in cumulative changes to balance sheet accounts as a result of the adoption of ASC 606.~~

The adoption of Topic 606, as compared to legacy GAAP required for revenue recognition, did not have a significant impact on revenue or net loss for the three months ended March 31, 2018. The impact of ASC 606 to balance sheet line itemsSEC staff, as of March 31, ~~2018, after reflecting the opening balance sheet adjustments described in detail above, was not material. There was no tax impact associated~~2019, we began complying with ~~the adoption because our deferred tax assets related to deferred revenue have a full valuation allowance.~~

~~In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), No. 2018-05,~~ ~~Amendments to~~expanded disclosure requirements under applicable SEC ~~Paragraphs Pursuant to SEC Staff Accounting Bulletin~~ ~~(“SAB”)~~ ~~No. 118~~. The guidance amends SEC paragraphs in ASC 740, Income Taxes, to reflect and codify SAB No. 118, which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act in the period of enactment. The ASU became effective upon issuance. We had applied SAB 118 upon the original issuance in December, 2017 prior to the codification in ASC 740. See discussion belowrules regarding the ~~status~~analysis of ~~our accounting for the impacts of the Tax Cuts and Jobs Act (TCJA).~~

as of December 31, 2017 and at that time we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. As of March 31, 2018, we have not completed our accounting for the tax effects of the TCJA nor have we recorded any adjustments during the quarter ended March 31, 2018. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the one year measurement period guidance outlined in Staff Accounting Bulletin No. 118. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the TCJA. The accounting is expected to be complete within the one year measurement period particularly after the 2017 U.S. corporate income tax return is filed in 2018.

~~In August 2016, the 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 in the Statements of Cash Flows. Certain of ASU No. 2016-15 requirements are as follows: (i) cash paymentsstockholders' equity 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, or 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. We adopted the guidance on January 1, 2018. The adoption of ASU 2016-15 had no material impact on our consolidatedinterim financial statements.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740)~~. The guidance requires companies to recognize the income tax effects 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. We adopted the guidance on January 1, 2018. The adoption of ASU 2016-16 had no impact on our consolidated financial statements.

~~In November 2016, 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 reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. We adopted the guidance on January 1, 2018. The adoption of ASU 2016-18 had no material impact on our consolidated financial statements. Restricted cash amounts, presented within the statements of financial position and cash flows, are cash collateralized letters of credit that are used as security deposits in connection with our facility leases and operations.

~~Recent Accounting Pronouncements to be Adopted~~

~~On February 25, 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. The guidance requires an entity to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The new guidance becomes effective for us on January 1, 2019, and early adoption is permitted upon issuance. We are currently evaluating the impact of this guidance on our consolidated financial statements and have compiled an initial inventory of our leases. These leases are primarily related to office space in the United States and foreign locations and are currently classified as operating leases under generally accepted accounting principles.


2.	NET INCOME PER SHARE

Net (loss) income per common share is presented for both basic (loss) income per share (“Basic EPS”) and diluted (loss) income 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~~shares 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 our 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 our employees that vest based on performance conditions, market conditions, or a combination of performance and market conditions.

When there is a loss from continuing operations, potential common shares should not be included in the computation of Diluted EPS because the exercise or conversion of any potential shares increases the number of shares in the denominator

and results in a lower loss per share. Therefore, all outstanding stock options and restricted stock units at March 31, 2019 and 2018 are anti-dilutive and not included in the EPS calculation. The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at March 31, ~~2018~~2019 and ~~2017.~~2018.



	March 31, 2019	March 31, 2018
Options	772	2,262
Non-vested restricted stock units	2,881	3,172
Anti-dilutive potential common shares	3,653	5,434

March 31, 2018 March 31, 2017
Options 2,262
2,654
Non-vested restricted stock units 3,172
2,613
Anti-dilutive potential common shares 5,434
5,267

OnWe issued the Notes on June 15, ~~2015, we issued $125.0 million aggregate principal amount of our 2.00% Convertible Senior Notes due 2020, or the Notes.~~2015. The Notes are convertible into cash, shares of our common stock or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment. In connection with the offering of the Notes, we entered into a capped call transaction, or Capped Call, with a third party. We use the treasury stock method in computing the dilutive impact of the Notes. The Notes are convertible into shares of our common stock but our stock price as of March 31, 2019 and 2018 was less than the conversion price as of ~~March 31, 2018 and 2017,~~$21.94 per share, 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

We measure deferred compensation investments on a recurring basis. As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 our 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
	March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		March 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	$	1,647	$	389	$	1,258	$	—	$	1,430	$	312	$	1,118	$	—



			Fair Value Measurements at Reporting Date Using
	December 31, 2018		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	$	1,372	$	386	$	986	$	—

Fair Value Measurements at Reporting Date Using
December 31, 2017
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 $ 1,743
$ 484
$ 1,259
$ —

Financial Instruments Not Recorded at Fair Value

The carrying amounts of our 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 March 31, ~~2018,~~2019, the net carrying amount of the Notes was ~~$105.8~~$95.6 million, and the fair value of the Notes was approximately ~~$100.9~~$96.7 million based on open market trading activity, which constitutes a Level 1 input in the fair value hierarchy.


4.	INVENTORIES

Inventories consisted of the following (in thousands):



	March 31, 2019		December 31, 2018
Raw materials	$	11,253	$	10,520
Work in process	486		527
Finished goods	22,589		21,909
Total	$	34,328	$	32,956

March 31, 2018 December 31, 2017
Raw materials $ 11,447
$ 11,217
Work in process 391
397
Finished goods 21,049
26,807
Total $ 32,887
$ 38,421

As of March 31, ~~2018~~2019 and December 31, ~~2017~~2018, finished goods inventory included $~~2.7~~2.0 million and $~~8.2~~2.1 million, respectively, associated with products shipped to customers and deferred labor costs for arrangements where revenue recognition had not yet commenced. ~~As discussed in Note 1, $5.7 million of inventory was eliminated upon the adoption of~~

~~ASC 606 on January 1, 2018 as such inventory was directly attributable to deferred revenue transactions that were also eliminated upon adoption.~~


5.	INTANGIBLE ASSETS AND GOODWILL

Amortizing identifiable intangible assets related to our acquisitions or capitalized costs of internally developed or externally purchased software that form the basis for our products consisted of the following (in thousands):


	March 31, 2018							December 31, 2017							March 31, 2019							December 31, 2018
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Completed technologies and patents	$	58,648	$	(49,061	)	$	9,587	$	58,609	$	(47,072	)	$	11,537	$	58,212	$	(56,424	)	$	1,788	$	58,246	$	(54,508	)	$	3,738
Customer relationships	55,003		(53,220		)	1,783		54,946		(52,801		)	2,145		54,947		(54,615		)	332		54,986		(54,292		)	694
Trade names	1,346		(1,346		)	—		1,346		(1,346		)	—		1,346		(1,346		)	—		1,346		(1,346		)	—
Capitalized software costs	4,911		(4,911		)	—		4,911		(4,911		)	—		4,911		(4,911		)	—		4,911		(4,911		)	—
Total	$	119,908	$	(108,538	)	$	11,370	$	119,812	$	(106,130	)	$	13,682	$	119,416	$	(117,296	)	$	2,120	$	119,489	$	(115,057	)	$	4,432

Amortization expense related to ~~all~~ intangible assets in the aggregate was $2.3 million ~~and $2.3 million, respectively,~~ for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018. We expect amortization of ~~acquired~~ intangible assets to be $~~6.9~~2.1 million for the remainder of ~~2018~~ ~~and~~ ~~$4.4 million~~ ~~in 2019.~~2019.

The acquisition of Orad in 2015 resulted in goodwill of $32.6 million as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

We 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, 2019. Our leases have remaining terms of one year to ten years. Some of our leases include options to extend or terminate the lease prior to the end of the 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.

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 the caption “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, 2019.

The weighted-average remaining lease term of our operating leases is 7.1 years as of March 31, 2019. Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total lease costs were $2.5 million and related cash payments were $2.4 million for the three months ended March 31, 2019. Lease costs are included within research and development, marketing and selling, and general and administrative lines on the condensed consolidated statements of operations, and the related cash payments were included in the operating cash flows on the condensed consolidated statements of cash flows. Short-term lease costs, variable lease costs and sublease income are not material.

The table below reconciles the undiscounted future minimum lease payments under non-cancellable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheets as of March 31, 2019 (in thousands):



Year Ending December 31,	Operating Leases
2019 (excluding three months ended March 31, 2019)	$	7,301
2020	8,877
2021	6,298
2022	5,533
2023	4,309
Thereafter	19,034
Total future minimum lease payments	$	51,352
Less effects of discounting	(10,083		)
Total lease liabilities	$	41,269

Reported as of March 31, 2019
Accrued expenses and other current liabilities	$	7,452
Long-term lease liabilities	33,817
Total lease liabilities	$	41,269

The future minimum lease commitments under non-cancelable leases at December 31, 2018 were as follows (in thousands):



Year Ending December 31,
2019	$	11,225
2020	9,784
2021	6,850
2022	5,982
2023	4,754
Thereafter	20,040
Total	$	58,635

Other long-term liabilities consisted of the following (in thousands):



	March 31, 2019		December 31, 2018
Deferred rent	$	—	$	5,122
Accrued restructuring	159		188
Deferred compensation	4,839		4,992
Other	393		—
Total	$	5,391	$	10,302

March 31, 2018 December 31, 2017
Deferred rent $ 1,894
$ 2,970
Accrued restructuring 1,992
731
Deferred compensation 5,634
5,546
Total $ 9,520
$ 9,247

As disclosed in Note 1, $5.1 million of deferred rent liabilities was reclassified upon the adoption of ASC 842 on January 1, 2019 as we recorded our leases in the caption “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, 2019.

We 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 term~~three years of the agreement. We have purchased ~~$2.3~~$6.1 million of products and services pursuant to this agreement as of March 31, ~~2018 to develop Azure certified solutions.~~2019.

We have letters of credit that are used as security deposits in connection with our leased Burlington, Massachusetts office space. In the event of default on the underlying leases, the landlords would, at March 31, ~~2018,~~2019, 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 that we are not in default under the underlying leases and meet 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.

We also have letters of credit in connection with security deposits for other facility leases totaling ~~$1.1~~$1.0 million in the aggregate, as well as letters of credit totaling $1.4 million that otherwise support our ongoing operations. These letters of

We issued a letter of credit totaling $8.5 million to one of our sole-source suppliers in ~~the first quarter of~~February 2018. The supplier is eligible to draw on the letter of credit in the event that we are insolvent or unable to pay on our purchase orders for certain key hardware components of our product. The letter of credit ~~is valid for one year from issuance date,~~has been extended through February ~~6th, 2018,~~2020 and may automatically renew based on the terms of the underlying agreement.

Virtually 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, 2019.

Our 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,~~above, 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. We do not believe these matters will have a material adverse effect on our financial position or results of operations. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, our 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. Our results could be materially adversely affected if we 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 employee’s employment agreement. On April 16, 2019 we received an additional notice again alleging we breached the former employee’s employment agreement. While we intend to defend any claim vigorously, when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible losses that could occur as a result of this matter.

We consider all claims on a quarterly basis and based on known facts assess whether potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our condensed consolidated financial statements. We 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 March 31, ~~2018~~2019 and as of the date of filing of these condensed consolidated financial statements, we 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; or (c) such estimate is immaterial.

Additionally, we provide indemnification to certain customers for losses incurred in connection with intellectual property infringement claims brought by third parties with respect to our 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 we could be required to make under these indemnification provisions is theoretically unlimited. To date, we have not incurred material costs related to these indemnification provisions; accordingly, we believe the

We 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, we 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 three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):

The warranty accrual is included in the caption “accrued expenses and other current liabilities” in our condensed consolidated balance sheet.

In February 2016, we committed to a ~~restructuring plan~~cost efficiency program that encompassed a series of measures intended to allow us to more efficiently operate in a leaner, more directed cost structure. These 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 December 31, 2017.~~

~~In April 2018, we determined that~~

During the estimated sublease rentals for the partially abandoned facilities in Burlington, Massachusetts, can no longer be reasonably obtained because of our plan to recapture the darkened space and the unlikelihood of sublet given the leases will terminate in two years. As a result, we recorded $2.7 million of facility restructuring costs adjustments during the quarterthree months ended March 31, ~~2018. In addition, we recorded $0.2 million of severance costs adjustments during the quarter ended March 31, 2018.~~

~~During the quarter ended March 31, 2017,~~2019, we recorded restructuring charges of ~~$1.3~~$0.6 million related to employee severance ~~costs for~~cost adjustments.

During the ~~elimination~~three months ended March 31, 2018, we recorded restructuring charges of ~~an additional 44 positions worldwide, and recoveries~~$2.9 million, of ~~$0.5~~which $2.7 million related to ~~severance estimate~~facility restructuring cost adjustments and $0.2 million ~~for the partial closure of Pinewood Studios facilities in Iver Heath, United Kingdom.~~

related to employee severance cost adjustments.

Restructuring Summary

The following table sets forth restructuring expenses recognized for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Three Months Ended March 31,
	2019		2018
Employee	$	535	$	168
Facility	5		2,690
Total facility and employee charges	540		2,858
Other	18		49
Total restructuring charges, net	$	558	$	2,907

Three Months Ended March 31,
2018 2017
Employee $ 168
$ 676
Facility 2,690
259
Total facility and employee charges 2,858
935
Other 49
48
Total restructuring charges, net $ 2,907
$ 983

The following table sets forth the activity in the restructuring accruals for the three months ended March 31, ~~2018~~2019 (in thousands):

The employee restructuring accrual at March 31, ~~2018~~2019 represents severance costs to former employees that will be paid out within 12 months, and is, therefore, included in the caption “accrued expenses and other current liabilities” in our condensed consolidated balance sheets as of March 31, ~~2018.~~2019.

The facility restructuring accrual at March 31, ~~2018~~2019 represents contractual lease payments, net of actual or estimated sublease income, on space vacated as part of our restructuring actions. The leases, and payments against the amounts accrued, extend through 2026 unless we are able to negotiate earlier terminations. Of the total facility restructuring balance, $~~2.2~~0.1 million is included in the caption “accrued expenses and other current liabilities” and $~~2.0~~0.2 million is included in the caption “other long-term liabilities” in our condensed consolidated balance sheet as of March 31, ~~2018~~2019.

Disaggregated Revenue and Geography Information

Through the evaluation of the discrete financial information that is regularly reviewed by the chief operating decision makers (our chief executive officer and chief financial officer), we have determined that we have one reportable segment. The following table is a summary of our revenues by type for the three months ended March 31, 2019 and 2018 (in thousands):



	Three Months Ended March 31,
	2019		2018
Products and solutions net revenues	54,396		46,410
Subscription services	9,282		8,465
Support services	32,019		33,760
Professional services, training and other services	7,622		9,302
Total net revenues	$	103,319	$	97,937

The following table sets forth our revenues by geographic region for the three months ended March 31, 2019 and 2018 (in thousands):



	Three Months Ended March 31,
	2019		2018
Revenues:
United States	$	39,479	$	37,548
Other Americas	6,801		6,386
Europe, Middle East and Africa	37,153		40,763
Asia-Pacific	19,886		13,240
Total net revenues	$	103,319	$	97,937

Contract asset activity for the three months ended March 31, 2019 was as follows (in thousands):



	March 31, 2019
Contract asset at January 1, 2019	$	16,513
Revenue in excess of billings	7,086
Customer billings	(4,922		)
Contract asset at March 31, 2019	$	18,677
Less: long-term portion (recorded in other long-term assets)	—
Contract asset, current portion	$	18,677

Deferred Revenue ~~Components and~~

Deferred revenue activity for the three months ended March 31, 2019 was as follows (in thousands):



	March 31, 2019
Deferred revenue at January 1, 2019	$	99,601
Billings deferred	30,369
Recognition of prior deferred revenue	(28,682		)
Deferred revenue at March 31, 2019	$	101,288

A summary of the significant performance obligations included in deferred revenue as of March 31, 2019 is as follows (in thousands):



	March 31, 2019
Product	$	8,470
Subscription	993
Support Contracts	74,464
Implied PCS	15,237
Professional services, training and other	2,124
Deferred revenue at March 31, 2019	$	101,288

Remaining Performance Obligations

~~Video Products~~For transaction prices allocated to remaining performance obligations, we apply practical expedients and ~~Solutions~~

~~Audio Products and Solutions~~

~~Subscription Services~~

~~Support Services~~

Historically, for many of our products, we had an ongoing practice of making when-and-if-available ~~Software Updates~~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.

~~Professional Services, Training and Other~~

~~Enterprise Agreements~~

From time to time, we enter into enterprise wide agreements whereby the customer agrees to purchase specified products and services from us over an extended period of time, often for a single fixed contractual price. For such agreements, management identifies each performance obligation in the contract and allocates the total contract price to each performance obligation based on relative estimated SSP. Once the transaction price is allocated to individualhave remaining performance obligations ~~the components are recognized in the respective categories~~ of ~~revenue above consistent with the timing of the recognition of performance obligations described therein.~~

~~Disaggregated Revenue and Geography Information~~

Through the evaluation of the discrete financial information that is regularly reviewed by the chief operating decision makers (our chief executive officer and chief financial officer), we have determined that the Company has one reportable segment. The following table is a summary of our revenues by type for the three months ended March 31, 2018 and 2017 (in thousands):

⁽¹⁾~~As a result of our adoption of ASC 606 effective January 1, 2018 using the modified retrospective method, prior period amounts have not been adjusted~~$15.2 million attributable to ~~conform with ASC 606 and therefore may not be comparable.~~

~~Contract asset activity for the three months ended March 31, 2018 was as follows (in thousands):~~

March 31, 2018
Contract asset at January 1, 2018 $ 6,579
Revenue in excess of billings 7,281
Customer billings (2,104 )
Contract asset at March 31, 2018 $ 11,756

The increase in contract assets during the three months ended March 31, 2018 is due to (i) continued growth in our subscription offerings and (ii) the timing of payments due under our enterprise network agreements which predominately are payable annually whereas performance obligations are fulfilled on a continuous basis.

~~Deferred Revenue~~

~~Deferred revenue activity for the three months ended March 31, 2018 was as follows (in thousands):~~

March 31, 2018
Deferred revenue at January 1, 2018 $ 101,740
Billings deferred 38,117
Recognition of prior deferred revenue (33,484 )
Deferred revenue at March 31, 2018 $ 106,373

~~A summary of the significant performance obligations included~~Implied PCS recorded in deferred revenue as of March 31, ~~2018 is as follows (in thousands):~~

March 31, 2018
Product $ 9,917
Subscription 580
Support Contracts 73,027
Implied PCS 21,280
Professional services, training and other 1,569
Deferred revenue at March 31, 2018 $ 106,373

As of March 31, 2019, we had approximately $57.6 million of ~~long-term support deferred revenue recorded~~transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately $55.3 million of these performance obligations were unbilled as of March 31, ~~2018 will be recognized~~2019. Remaining performance obligations represent obligations we must deliver for specific products and services in the ~~years ended December 31, 2019~~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 $57.6 million in roughly equal installments through 2026.

Remaining performance obligation estimates are subject to change and ~~2020 respectively.~~are affected by several factors, including terminations due to contract breach, contract amendments and changes in the expected timing of delivery.

Long-term debt consisted of the following (in thousands):



	March 31, 2019		December 31, 2018
Term Loan, net of unamortized debt issuance costs of $2,465 at March 31, 2019 and $2,613 at December 31, 2018	$	122,641	$	122,811
Notes, net of unamortized original issue discount and debt issuance costs of $7,283 at March 31, 2019 and $9,022 at December 31, 2018, respectively	95,570		97,731
Other long-term debt	1,395		1,453
Total debt	219,606		221,995
Less: current portion	1,405		1,405
Total long-term debt	$	218,201	$	220,590

March 31, 2018 December 31, 2017
Term Loan, net of unamortized debt issuance costs of $3,130 at March 31, 2018 and $3,499 at December 31, 2017 $ 101,682
$ 102,751
Notes, net of unamortized original issue discount and debt issuance costs of $15,209 at March 31, 2018 and $17,026 at December 31, 2017, respectively 105,791
105,974
Other long-term debt 1,662
1,679
Total debt 209,135
210,404
Less: current portion 5,883
5,906
Total long-term debt $ 203,252
$ 204,498

The following table summarizes the maturities of our borrowing obligations as of March 31, ~~2018~~2019 (in thousands):

2.00% Convertible Senior Notes due 2020

On June 15, 2015, we issued $125.0 million aggregate principal amount of our Notes in an offering conducted in accordance with Rule 144A under the Securities Act of 1933. 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 ~~converted~~repurchased or ~~repurchased~~converted in accordance with their terms prior to such date. Total interest expense for the three months ended March 31, 2019 and 2018 ~~and 2017~~ was ~~$2.2~~$1.9 million and ~~$2.1~~$2.2 million, respectively, reflecting the coupon and accretion of the discount.

~~On December 15,~~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.

~~On February 8,~~During 2018, we purchased an additional ~~2,000~~16,247 of our 123,000 outstanding Notes and settled another ~~$2.0~~$16.2 million of the Notes for ~~$1.7~~$14.7 million in cash. We recorded ~~$2.0~~$16.2 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial ~~loss~~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.

Term Loan and Credit Facility

On February 26, 2016, we entered into ~~the~~a Financing Agreement (the “Financing Agreement”) with Cerberus Business Finance, LLC, as collateral and administrative agent, and the ~~Lenders. Pursuant to the Financing Agreement, the~~lenders party thereto (the “Lenders”). The Lenders originally agreed to provide us 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

The Financing Agreement contains customary representations and warranties, covenants, mandatory prepayments, and events of default under which our payment obligations may be accelerated.

On ~~March 14,~~November 9, 2017, ~~(the “Amendment No. 1 Effective Date”),~~ we 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. Under the terms of the amendment, aggregate quarterly principal repayments beginning September 30, 2018 through June 30, 2020 will be $318,750, then from July 1, 2020 through June 30, 2021 equal to $796,875, finally from July 1, 2021 through May 10, 2023 equal to $1,593,750.

There were no amounts outstanding under the Credit Facility as of March 31, 2019. We were in compliance with the Financing Agreement covenants as of March 31, 2019. We recorded $2.9 million and $2.3 million of interest expenses on the Term Loan for the three months ended March 31, 2019 and 2018, respectively.

On April 8, 2019, we entered into an amendment to the Financing Agreement. The ~~First Amendment modified~~amendment provides for an additional delayed draw term loan commitment in the ~~covenant requiring~~aggregate principal amount of $100 million (the “Delayed Draw Funds”), which may be used to fund the purchase of our Notes. On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. The Delayed Draw Funds will remain available to us to ~~maintain~~purchase Notes for a ~~Leverage Ratio (defined~~period of 90 calendar days. At the end of such 90-day period, any remaining Delayed Draw Funds that have not been used to ~~mean~~purchase Notes must be repaid and no further funds will be available to borrow under the ~~ratio of (a) total funded indebtedness~~commitment. Any Delayed Draw Funds drawn and used to ~~(b) consolidated EBITDA) such that following~~fund the Amendment No. 1 Effective Date, we are 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 ended December 31, 2017, 4.40:1.00 for eachpurchase 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~~Notes will mature on May 10, 2023, the ~~Amendment No. 1 Effective Date,~~current maturity date under the Financing Agreement. Under the terms of the amendment, interest accrues on the Delay Draw Funds and the existing outstanding borrowings under the ~~credit facility and the term loan (each as defined in the~~ Financing ~~Agreement)~~Agreement at a rate of either the LIBOR Rate (as defined in the Financing Agreement) plus ~~7.25%~~6.25% or a Reference Rate (as defined in the Financing Agreement) plus ~~6.25%~~5.25%, at our option. ~~We recorded $2.3 million and $1.9 million of interest expense~~The amendment also modified the covenant that requires us to maintain a leverage ratio based on the ~~Term Loan for~~level of availability plus unrestricted cash on-hand. For a more detailed description of the ~~three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, we were in compliance~~amendment, see our Form 8-K filed with the ~~Financing Agreement covenants.~~

On November 9, 2017 (the “Amendment No. 2 Effective Date”), we entered into an amendment (the “Second Amendment”) to the Financing Agreement. The Second Amendment extended an additional $15.0 million term loan to us, 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 $0.2 million commencing in March 2018. The Second Amendment also granted us the ability to use up to $15.0 million to purchase NotesSecurities 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.~~

Exchange Commission on April 11, 2019.

12. STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Information with respect to option shares granted under all of our stock incentive plans for the three months ended March 31, ~~2018~~2019 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, 2019	891,892		—	891,892		$8.46
Granted	—		—	—		$—
Exercised	(41,250	)	—	(41,250	)	$7.34
Forfeited or canceled	(78,804	)	—	(78,804	)	$10.82
Options outstanding at March 31, 2019	771,838		—	771,838		$8.28	1.52	$18
Options vested at March 31, 2019 or expected to vest				771,838		$8.28	1.52	$18
Options exercisable at March 31, 2019				771,838		$8.28	1.52	$18

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, 2018 2,290,017
—
2,290,017
$9.65
Granted —
—
—
$—
Exercised —
—
—
$—
Forfeited or canceled (28,490 ) —
(28,490 ) $21.55
Options outstanding at March 31, 2018 2,261,527
—
2,261,527
$9.50 1.18 $—
Options vested at March 31, 2018 or expected to vest 2,261,527
$9.50 1.08 $—
Options exercisable at March 31, 2018 2,261,527
$9.50 1.18 $—

Information with respect to our non-vested restricted stock units for the three months ended March 31, ~~2018~~2019 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, 2019	1,978,676		966,143		2,944,819		$4.91
Granted	434,147		411,043		845,190		$6.54
Vested	(221,555	)	(467,923	)	(689,478	)	$4.99
Forfeited	(79,639	)	(139,414	)	(219,053	)	$4.67
Non-vested at March 31, 2019	2,111,629		769,849		2,881,478		$5.39	1.25	$21,438
Expected to vest					2,682,950		$5.52	1.25	$19,961

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, 2018 1,809,138
1,254,110
3,063,248
$5.10
Granted 803,159
732,884
1,536,043
$4.55
Vested (222,232 ) —
(222,232 ) $5.62
Forfeited (448,001 ) (757,247 ) (1,205,248 ) $5.33
Non-vested at March 31, 2018 1,942,064
1,229,747
3,171,811
$4.71 1.26 $14,368
Expected to vest 2,674,948
$4.88 1.26 $12,118

Stock-based compensation was included in the following captions in our condensed consolidated statements of operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Three Months Ended March 31,
	2019		2018
Cost of products revenues	$	51	$	19
Cost of services revenues	18		34
Research and development expenses	195		152
Marketing and selling expenses	294		360
General and administrative expenses	1,180		138
	$	1,738	$	703

Three Months Ended March 31,
2018
2017
Cost of products revenues $ 19
$ 15
Cost of services revenues 34
49
Research and development expenses 152
88
Marketing and selling expenses 360
356
General and administrative expenses 138
903
$ 703
$ 1,411

We develop, market, sell, and support software ~~hardware~~ and integrated solutions for video and audio content 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. ~~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.~~ Our ~~products and~~ solutions 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 tools, 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 ~~enable our clients~~empower media creators with innovative technology and collaborative tools to ~~create, connect~~entertain, inform, educate and ~~collaborate through continuous innovation of an open media ecosystem, powerful common platform and tools.~~enlighten the world. Our clients rely on Avid to create the most prestigious and award-winning feature films, music recordings, television shows, live concerts, sporting events and news broadcasts. Avid has been honored for technological innovation with 1516 Emmy Awards, one Grammy Award, two Oscars and the first ever America Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigious 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 accelerated the entire editing and post production process for television. Our creative tools and workflow solutions were used in all ~~2018~~2019 Oscar nominated films for Best Film Editing, Best Sound Editing, Best Sound Mixing, and Best ~~Original Score and used in the winner of Best~~ Picture.

Our strategy for connecting creative professionals and media ~~organizations~~enterprises with audiences in a ~~more~~ powerful, efficient, collaborative, and profitable ~~ways~~way leverages our Avid MediaCentral Platform - the open, extensible, and customizable foundation that streamlines and simplifies content workflows by integrating all Avid or ~~third party~~third-party products and services that run on top of it. The platform provides secure and protected access, and 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 easier~~right areas through a ~~set of modular application suites~~close and new public and private marketplaces, that together, represent an open, integrated and flexible media production and distribution environment for the media industry. Our Avid Advantage Support Plans reinforceinteractive relationship with our ~~strategy by offering a new standard in service, support and education to enable our customers to derive more efficiency from their Avid investment. In addition, the~~customer base. The Avid Customer Association ~~(“ACA”),~~ was established ~~as an~~to be the world’s most innovative and influential media technology community representing thousands of organizations and over ~~20,000~~27,000 professionals from all levels of the ~~industry.~~industry including the industry’s most inspirational and award-winning thought leaders, innovators and storytellers. The ~~ACA~~Avid Customer Association fosters collaboration between Avid, its customers and other industry colleagues to help shape our product offerings as well as providing a means to shape our industry together.

~~Another~~A 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 had approximately ~~100,000~~137,000 paying ~~cloud-enabled~~ subscribers at the end of the first quarter of ~~2018, a 40% increase from the first quarter of 2017.~~2019. These licensing options offer ~~choice~~choices in pricing and deployment to suit our customers’ ~~needs~~needs. While our subscription offerings to date have primarily been sold to creative professionals, going forward, we expect to increase subscription sales to media enterprises as we expand offerings and ~~are expected to~~move through customer upgrade cycles, which we expect will further increase recurring revenue on a ~~longer term~~longer-term basis. ~~However, during~~Our 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. We believe our ~~transition~~strategy to aincrease recurring revenue ~~model, we expect that~~will continue to increase our ~~revenue, deferred~~visibility of revenue and cash ~~flow from~~flows in future periods.

Another key aspect of our strategy 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 with an emphasis on non-personnel costs to reduce the overall cost structure while still investing in key areas that will ~~be adversely affected as~~drive growth. We are also revamping our supply chain and logistics, moving to a lean model that leverages a new ~~product offerings~~supplier and distribution network. We are ~~sold at a wider variety of price points.~~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 sources for the three months ended March 31, 2019 and 2018 is as follows (in thousands):



	Three Months Ended March 31,
	2019			2018
Software licenses	$	17,412		$	17,147
Maintenance	32,019			33,771
Software licenses and maintenance	49,431			50,918
% of total revenue	48		%	52		%
Integrated solutions	46,265			37,717
Professional services & training	7,623			9,302
Total revenue	$	103,319		$	97,937

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. 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; discount rates used for lease liabilities, stock-based compensation; income tax assets and 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, ~~2017~~2018 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. On January 1, 2018, we adopted ASC Topic 606 using the modified retrospective method applied to contracts not completed as of January 1, 2018. See Note 1, Note 9, and the Revenue Recognition discussion below for a further description. As a result of our adoption of ASC 606 effective January 1, 2018 using the modified retrospective method, prior period revenue amounts have not been adjusted to conform with ASC 606 and therefore may not be comparable.

We 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. ~~The Company accounts~~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.

~~See Note 9 for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.~~

See Note 10 for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.

We have operating leases for facilities and certain equipment in North America, Europe and Asia. Our ~~process for determining SSP for each performance obligation involves significant management judgment. In determining SSP, we maximize observable inputs~~operating lease right-of-use assets and ~~consider a number of data points, including:~~

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 months ended March 31, ~~2018~~2019 and ~~2017:~~2018:

Our net revenues are derived mainly from sales of ~~video and audio hardware and software~~ products and solutions for digital media content production, management and distribution, and related professional services and maintenance contracts. We commonly sell large, complex solutions to our customers that, due to their strategic nature, have long lead times where the timing of order execution and fulfillment can be difficult to predict. In addition, the rapid evolution of the media industry is changing our customers’ needs, businesses and revenue models, which is influencing their short-term and long-term purchasing decisions. As a result of these factors, the timing and amount of product revenue recognized each quarter related to these large orders, as well as the services associated with them, can fluctuate from quarter to quarter and cause significant volatility in our quarterly operating results. For a discussion of these factors, see the risk factors discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

The following table sets forth the percentage of our net revenues attributable to geographic regions for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:

~~Video~~ Products and Solutions Revenues

~~Video~~Our products and solutions revenues are derived primarily from sales of our storage and workflow solutions, ~~our~~ media management solutions, ~~and our~~ video creative tools. Video products and solutions revenues increased $2.8 million, or 9.6%, for the three months ended March 31, 2018 compared to the same period in 2017. The increase is primarily the result of strength in marketplace offerings through our alliance partner program, and improved storage product sales compared to the same period in 2017.

~~Audio Products and Solutions Revenues~~

~~Audio products and solutions revenues are derived primarily from sales of our~~tools, digital audio software and workstation solutions, and our control surfaces, consoles and live-sound systems. ~~Audio products~~Products and solutions revenues ~~decreased $7.3~~increased $8.0 million, or ~~33.1%~~17.2%, for the three months ended March 31, ~~2018~~2019, compared to the same period in ~~2017.~~2018. The ~~decrease in audio revenues~~increase was primarily due to ~~the accelerated revenue recognition of Pro Tools 12 during the three months ended March 31, 2017 as the result of the cessation of Implied Maintenance Release PCS for Pro Tools.~~strong growth in our storage product sales, control surfaces and live-sound consoles sales.

Services revenues are derived primarily from maintenance contracts, as well as professional services and training. Services revenues decreased ~~$1.6~~$2.6 million, or ~~3.0%~~5.1%, for the three months ended March 31, ~~2018~~2019, compared to the same period in ~~2017.~~2018. The decrease ~~in services revenues~~ was primarily due to the ~~accelerated revenue recognition~~timing of ~~Pro Tools support contracts~~large projects and efforts to rationalize profitability of professional services by taking on less low margin projects during the three months ended March 31, ~~2017 as~~2019, compared to the ~~result of the cessation of Implied Maintenance Release PCS for Pro Tools.~~same period in 2018.

Cost of Revenues, Gross Profit and Gross Margin Percentage

Cost of revenues consists primarily of costs associated with:

Amortization of technology represents the amortization of developed technology assets acquired as part of acquisitions.

Gross Margin Percentage

Gross margin percentage, which is net revenues less costs of revenues divided by net revenues, fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-promotion programs, the distribution channels through which products are sold, the timing of new product introductions, sales of aftermarket hardware products such as disk drives and currency exchange-rate fluctuations. For a discussion of these factors, see the risk factors discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Our ~~total~~ gross margin percentage for the three months ended March 31, ~~2018 decreased~~2019 increased to ~~56.9%~~59.3% from ~~61.1%~~56.9% for the same period in ~~2017.~~2018. The ~~decreases were~~increase was primarily due to ~~the decreased revenue from our~~a favorable mix of high margin product revenues, increased products and ~~services as discussed above, partially offset by~~solutions revenue and cost savings ~~resulting~~ from our programs to ~~reduce costs and~~ increase operational efficiencies.

Operating Expenses and Operating Income

Research and Development Expenses

Research and development (“R&D”) expenses include costs associated with the development of new products and the enhancement of existing products, and consist primarily of employee compensation and benefits; facilities costs; depreciation; costs for consulting and temporary employees; and prototype and other development expenses. R&D expenses ~~decreased $3.2~~increased $0.6 million, or ~~17.0%~~3.8%, for the three months ended March 31, ~~2018~~2019, compared to the same period in ~~2017.~~2018. The table below provides further details regarding the changes in components of R&D expenses.

2019 Increase (Decrease)

The increase in personnel-related expenses for the three months ended March 31, 2019, compared to the same period in 2018, was primarily due to the capitalization of certain R&D labor costs for the three months ended March 31, 2018. The capitalized R&D labor costs were related to our SaaS product platform development, and were not material for the three months ended March 31, 2019 as the new projects were in an early stage. We expect to capitalize certain R&D labor costs in the remaining quarters of 2019 as the SaaS product platform development work continues. The decreases in ~~all~~other R&D expense categories for the three months ended March 31, ~~2018,~~2019, compared to the same period in ~~2017,~~2018, were primarily the result of our ~~cost efficiency program completed at the end of 2017.~~programs to increase operational efficiencies and reduce costs.

Marketing and Selling Expenses

Marketing and selling expenses consist primarily of employee compensation and benefits for selling, marketing and pre-sales customer support personnel; commissions; travel expenses; advertising and promotional expenses; web design costs and facilities costs. Marketing and selling expenses ~~increased $0.3~~decreased $1.3 million, or ~~1.2%~~4.8%, for the three months ended March 31, ~~2018~~2019, compared to the same period in ~~2017.~~2018. The table below provides further details regarding the changes in components of marketing and selling expenses.

Change in Marketing and Selling Expenses for the Three Months Ended March 31, 2018 and 2017
(dollars in thousands)

2018 (Decrease) Increase
From 2017
$ %
Foreign exchange losses $ (939 ) (66.5 )%
Sales kickoff meeting 801
144.8 %
Consulting and outside services 409
114.1 %
Other 50
0.2 %
Total marketing and selling expenses increase $ 321
1.2 %



Change in Marketing and Selling Expenses for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2019 Decrease From 2018
	$			%
Foreign exchange loss	$	(459	)	(96.9	)%
Advertising and promotions	(308		)	(11.1	)%
Consulting and outside services	(276		)	(36.0	)%
Facilities and information technology	(211		)	(1.0	)%
Total marketing and selling expenses decrease	$	(1,254	)	(4.8	)%

~~During~~For the three months ended March 31, ~~2018,~~2019, net foreign exchange gains and losses, ~~(specifically, resulting~~which are included in marketing and selling expenses, were minimal, compared to the net loss of $0.5 million for the same period in 2018. The foreign exchange gains and losses result from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and ~~liabilities), which are included~~liabilities. The changes were primarily due to the euro-dollar exchange rate volatility. The decreases in other marketing and

selling ~~expenses, were $0.5 million compared to losses of $1.4 million during the three months ended March 31, 2017. The increase in sales kickoff meeting expenses~~expense categories for the three months ended March 31, ~~2018,~~2019, compared to the same period in ~~2017, was~~2018, were primarily the result of ~~the cancellation of 2017 sales kickoff meeting due~~our programs to ~~the cost efficiency program which was substantially completed in 2017. The~~ increase ~~in consulting~~operational efficiencies and outside services for the three months ended March 31, 2018, compared to the same period in 2017, was primarily due to more contractors used to meet higher demand for professional services from our customers.reduce costs.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of employee compensation and benefits for administrative, executive, finance and legal personnel; audit, legal and strategic consulting fees; and insurance, information systems and facilities costs. Information systems and facilities costs reported within general and administrative expenses are net of allocations to other expenses categories. G&A expenses decreased ~~$0.5~~$0.2 million, or ~~3.3%~~1.2%, for the three months ended March 31, ~~2018~~2019, compared to the same period in ~~2017.~~2018. The table below provides further details regarding the changes in components of G&A expenses.

2018 Increase (Decrease)

2019 Increase (Decrease)

The ~~decrease~~increase in personnel-related ~~expense~~expenses for the three months ended March 31, ~~2018,~~2019, compared to the same period in ~~2017,~~2018, was primarily due to ~~decreases~~increases in stock-based compensation and the incentive-based compensation ~~accrual and stock-based compensation.~~accrual. The ~~increase~~decrease in consulting and outside services for the three months ended March 31, ~~2018,~~2019, compared to the same period in ~~2017,~~2018, was primarily due to ~~an increase in audit fees and webstore fees.~~lower legal expenses.

Provision for Income Taxes

We had a tax ~~benefit~~provision of ~~(2.9)%~~194.7% and ~~(8.6)~~(2.9)%, respectively, as a percentage of income and loss before tax for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018. The ~~$0.1 million increase in the~~ tax provision increase for the three ~~month period~~months ended March 31, 2019, compared to the same period in 2018, is primarily ~~related~~due to ~~the 2017 benefit associated with amortization of foreign intangibles which was not present in the 2018 period. Changes in the jurisdictional mix of earnings partially offset~~ the increase in ~~the three-month period.~~worldwide pre-tax income. No benefit was provided for the tax loss generated in the United States due to a full valuation on the deferred tax asset. In addition, the estimated annual effective tax rate excluded the United States due to its pre-tax loss position.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA changed many aspects of U.S. corporate income taxation and included reduction of the corporate income tax rate from 35% to 21% , implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. The TCJA was effective as of December 31, 2017 and at that time we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. As of March 31, 2018, we have not completed our accounting for the tax effects of the TCJA nor does the provision recorded at March 31, 2018 include any related adjustments for the effects of the TCJA. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the one year measurement period guidance outlined in Staff Accounting Bulletin No. 118. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the TCJA. The accounting is expected to be complete within the one year measurement period particularly after the 2017 U.S. corporate income tax return is filed in 2018.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Sources of Cash

Our principal sources of liquidity include cash and cash equivalents totaling $55.3 million as of March 31, 2019. We have 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 our credit facilities. ~~Our principal sources of liquidity include cash and cash equivalents totaling $48.0 million as of March 31, 2018.~~

In February 2016, we committed to a cost efficiency program that 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 December 31, 2017.

On ~~February 26, 2016,~~April 8, 2019, we entered into ~~the Financing Agreement with the Lenders. Pursuant~~an amendment to the Financing ~~Agreement, we entered into a~~Agreement. The amendment provides for an additional delayed draw term loan commitment in the ~~original~~ aggregate principal amount of ~~$100.0 million. The Financing Agreement also originally provided us with~~$100 million, which may be used to fund the ~~ability to draw up to a maximum~~purchase of ~~$5.0 million in revolving credit. All outstanding loans~~our Notes. On May 2, 2019, we received the Delayed Draw Funds under the Financing ~~Agreement~~Agreement. The Delayed Draw Funds will ~~become due~~remain available to us to purchase Notes for a period of 90 calendar days. At the end of such 90-day period, any remaining Delayed Draw Funds that have not been used to purchase Notes must be repaid and ~~payable in February 2021, or in May 2020 if~~no further funds will be available to borrow under the ~~$121.0 million in outstanding principal~~commitment. Any Delayed Draw Funds drawn and used to fund the purchase of 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~~will mature on May 10, 2023, the current maturity date under ~~which our payment obligations may be accelerated. On March 14, 2017, we entered into~~ the ~~First Amendment to our~~ Financing Agreement. ~~The First Amendment modifies~~Under the ~~covenant requiring us 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, we are required to keep 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 ended December 31, 2017, 4.40:1.00 for eachterms 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,~~amendment, interest accrues on the Delayed Draw Funds and the existing outstanding borrowings under the ~~credit facility and the term loan (each as defined in the~~ Financing ~~Agreement)~~Agreement at a rate of either the LIBOR Rate ~~(as defined in the Financing Agreement)~~ plus ~~7.25%~~6.25% or a Reference Rate ~~(as defined~~plus 5.25%, at our option. The amendment also modified the covenant requiring us to maintain a leverage ratio based on the level of availability plus unrestricted cash on-hand set forth in the ~~Financing Agreement) plus 6.25%, at the option of Avid. As of March 31, 2018, we were in compliance with the Financing Agreement covenants.~~amendment

On November 9, 2017 (the “Amendment No. 2 Effective Date”), we entered into the Second Amendment to the Financing Agreement. The Second Amendment extended an additional $15.0 million term loan to us, 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 $0.2 million commencing in March 2018. The Second Amendment also granted us 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.

Our ability to satisfy the ~~Leverage Ratio~~leverage ratio covenant in the future is dependent on our ability to maintain ~~bookings and billings~~revenues at or above levels experienced over the last 12 months. In recent quarters, we have experienced volatility in ~~bookings and billings~~revenues resulting from, among other things, (i) our transition towards subscription and recurring revenue streams and the resulting decline in traditional upfront product sales, (ii) dramatic changes in the media industry and the impact it has on our customers, (iii) the impact of new and anticipated product launches and features, and (iv) volatility in currency rates. In addition to the impact of new bookings and billings, GAAP revenues recognized as the result of the existence of Implied Maintenance Release PCS in prior periods completed in 2017, which will have an adverse impact on our Leverage Ratio.

In the event ~~bookings and billings~~revenues in future quarters are lower than we currently anticipate, we may be forced to take remedial actions which could include, among other things (and where allowed by the ~~Lenders)~~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 our business. If we are not in compliance with the ~~Leverage Ratio~~leverage ratio covenant and are 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 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~~lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Financing Agreement.

Our cash requirements vary depending on factors such as the growth of ~~our~~the business, changes in working capital, capital expenditures, and ~~capital expenditures.~~obligations under our cost efficiency program. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations, remaining net proceeds from the term loan borrowings under the Financing Agreement, and ~~draw~~draws of up to a maximum of ~~$10.0~~$22.5 million under the Financing Agreement’s revolving credit facility. We anticipate that we 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.

The following table summarizes our cash flows for the periods presented (in thousands):

Cash Flows from Operating Activities

Cash provided by operating activities aggregated ~~$5.4~~$6.4 million for the three months ended March 31, ~~2018.~~2019. The increase in cash provided by operations compared to the three months ended March 31, ~~2017~~2018 was primarily ~~attributable~~due to ~~improved cash collections~~increased revenues and our programs to increase operational efficiencies and reduce costs, the ~~cost efficiency program completed at the end~~impact of ~~2017.~~which was partially offset by an increase in working capital requirements.

Cash Flows from Investing Activities

For the three months ended March 31, ~~2018,~~2019, net cash flows used in investing activities reflected ~~$2.1~~$1.8 million used for the purchase of property and equipment. Our purchases of property and equipment largely consist of computer hardware and software to support R&D activities and information systems.

Cash Flows from Financing Activities

For the three months ended March 31, ~~2018,~~2019, net cash flows used in financing activities were primarily ~~due to~~for the ~~$1.4 million principal payment~~repurchase of ~~the Term Loan, and the $1.7 million settlement of the~~our outstanding Notes.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncementsand Recent Accounting Pronouncements To Be Adopted

Our recently adopted and to be adopted accounting pronouncements are set forth in Note 1 “Financial Information” of our Notes to Condensed Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Foreign Currency Exchange Risk

We have significant international operations and derive more than half of our revenues from customers outside the United States. This business is, for the most part, transacted through international subsidiaries and generally in the currency of the end-user customers. Therefore, we are exposed to the changes in foreign currency exchange rates that could adversely affect our revenues, net income and cash flow.

During the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we recorded an immaterial net ~~losses~~gain and a net loss of $0.5 million, respectively. The foreign exchange gains and ~~$1.4 million, respectively, that~~losses were resulted from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities.

A hypothetical change of 10% in appreciation or depreciation of foreign currency exchange rates from the quoted foreign currency exchange rates as of March 31, ~~2018~~2019, would not have a significant impact on our financial position, results of operations or cash flows.

~~On February 26, 2016, we~~We borrowed $100.0 million under the Term Loan ~~and borrowed~~on February 26, 2016, an additional $15.0 million and $22.7 million under the Term Loan on November 9, ~~2017. On March 14,~~ 2017 ~~(the “Amendment No. 1 Effective Date”), we entered into an amendment (the “First Amendment”)~~and May 10, 2018, respectively. We also maintain a revolving Credit Facility that allows us to ~~the Financing Agreement, with the lenders party thereto.~~borrow up to $22.5 million. Following the ~~Amendment No.1 Effective Date,~~amendment effective May 10, 2018, interest accrues on outstanding borrowings under the ~~credit facility~~Term Loan and the ~~term loan~~Credit Facility (each as defined in the Financing Agreement) at a rate of either the LIBOR Rate (as defined in the Financing Agreement) plus ~~7.25%~~6.625% or a Reference Rate (as defined in the Financing Agreement) plus ~~6.25%~~5.625%, at our option. ~~We also maintain~~Under the terms of the amendment effective April 8, 2019, interest accrues on outstanding borrowings under the Term Loan and the Credit facility (each as defined in the Financing Agreement) at a ~~revolving Credit Facility that allows us to borrow up to $10.0 million.~~rate of either the LIBOR Rate (as defined in the Financing Agreement) plus 6.25% or a Reference Rate (as defined in the Financing Agreement) plus 5.25%, at our option. A hypothetical 10% increase or decrease in interest rates paid on outstanding borrowings under the Financing Agreement would not have a material impact on our financial position, results of operations or cash flows.

On June 15, 2015, we issued $125.0 million aggregate principal amount of our Notes pursuant to the terms of an indenture.

We purchased $2.0 million and of our Notes ~~on December 15,~~during 2017, $16.2 million during 2018, and an additional ~~$2.0~~$3.9 million on ~~February 8, 2018.~~January 22, 2019. 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 repurchased or converted in accordance with their terms prior to such date. The fair value of the Notes is dependent on the price and volatility of our common stock as well as movements in interest rates. The fair value of our common stock and interest rate changes affect the fair value of the Notes, but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, ~~2018.~~2019. Management recognizes that any controls

and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarterly period ended March 31, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Accrual balance at beginning of year	$	2,545		$	2,518		$	1,706		$	2,545
Accruals for product warranties	505			806			227			505
Costs of warranty claims	(568		)	(634		)	(338		)	(568		)
Accrual balance at end of period	$	2,482		$	2,690		$	1,595		$	2,482


	Employee			Facility			Total			Employee			Facility			Total
Accrual balance as of December 31, 2017	$	1,998		$	2,479		$	4,477
Accrual balance as of December 31, 2018										$	2,541		$	318		$	2,859
Restructuring charges and revisions	168			2,690			2,858			535			5			540
Accretion	—			55			55			—			4			4
Cash payments	(1,184		)	(1,043		)	(2,227		)	(1,398		)	(39		)	(1,437		)
Foreign exchange impact on ending balance	14			—			14			(12		)	1			(11		)
Accrual balance as of March 31, 2018	$	996		$	4,181		$	5,177
Accrual balance as of March 31, 2019										$	1,666		$	289		$	1,955
Less: current portion	996			2,189			3,185			1,666			130			1,796
Long-term accrual balance as of March 31, 2018	$	—		$	1,992		$	1,992
Long-term accrual balance as of March 31, 2019										$	—		$	159		$	159



	As of January 1, 2018
	As Previously Reported			Impact of Adoption of Topic 606⁽⁵⁾			As Adjusted
Assets:
Accounts receivable, net⁽¹⁾	$	40,134		$	21,088		$	61,222
Contract assets⁽²⁾	—			6,579			6,579
Inventory⁽³⁾	38,421			(5,716		)	32,705
Other long-term assets	10,811			865			11,676
Total assets	$	234,684		$	22,816		$	257,500
Liabilities:
Accrued expenses and other current liabilities ⁽¹⁾	$	31,549		$	11,139		$	42,688
Deferred revenue (current portion) ⁽⁴⁾	121,184			(37,794		)	83,390
Long-term deferred revenue ⁽⁴⁾	73,429			(55,079		)	18,350
Total liabilities	$	503,254		$	(81,734	)	$	421,520
Stockholders’ deficit:
Accumulated deficit	(1,284,703		)	104,550			(1,180,153		)
Total stockholders’ deficit	$	(268,570	)	$	104,550		$	(164,020	)



	March 31, 2018	March 31, 2017
Options	2,262	2,654
Non-vested restricted stock units	3,172	2,613
Anti-dilutive potential common shares	5,434	5,267



	Three Months Ended March 31,
	2018		2017⁽¹⁾
Video products and solutions net revenues	$	31,574	$	28,821
Audio products and solutions net revenues	14,836		22,185
Products and solutions net revenues	46,410		51,006
Subscription services	8,465		3,721
Support services	33,760		41,886
Professional services, training and other services	9,302		7,494
Services net revenues	51,527		53,101
Total net revenues	$	97,937	$	104,107



	March 31, 2018
Contract asset at January 1, 2018	$	6,579
Revenue in excess of billings	7,281
Customer billings	(2,104		)
Contract asset at March 31, 2018	$	11,756



	March 31, 2018
Deferred revenue at January 1, 2018	$	101,740
Billings deferred	38,117
Recognition of prior deferred revenue	(33,484		)
Deferred revenue at March 31, 2018	$	106,373



	March 31, 2018
Product	$	9,917
Subscription	580
Support Contracts	73,027
Implied PCS	21,280
Professional services, training and other	1,569
Deferred revenue at March 31, 2018	$	106,373


Fiscal Year	Term Loan		Notes		Other Long-Term Debt		Total		Term Loan		Notes		Other Long-Term Debt		Total
2018	$	4,313	$	—	$	98	$	4,411
2019	5,750		—		140		5,890		$	956	$	—	$	97	$	1,053
2020	5,750		121,000		150		126,900		2,231		102,853		137		105,221
2021	88,999		—		161		89,160		4,781		—		147		4,928
2022	—		—		172		172		6,375		—		157		6,532
2023									110,763		—		168		110,931
Thereafter	—		—		941		941		—		—		689		689
Total before unamortized discount	104,812		121,000		1,662		227,474		125,106		102,853		1,395		229,354
Less: unamortized discount and issuance costs	3,130		15,209		—		18,339		2,465		7,283		—		9,748
Less: current portion of long-term debt	5,750		—		133		5,883		1,275		—		130		1,405
Total long-term debt	$	95,932	$	105,791	$	1,529	$	203,252	$	121,366	$	95,570	$	1,265	$	218,201


Net Revenues for the Three Months Ended March 31, 2018 and 2017
Net Revenues for the Three Months Ended March 31, 2019 and 2018									Net Revenues for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2018		Change				2017		2019		Change				2018
	Net Revenues		$			%	Net Revenues		Net Revenues		$			%	Net Revenues
Video products and solutions	$	31,574	$	2,753		9.6%	$	28,821
Audio products and solutions	14,836		(7,349		)	(33.1)%	22,185
Products and solutions	46,410		(4,596		)	(9.0)%	51,006		54,396		7,986			17.2%	46,410
Services	51,527		(1,574		)	(3.0)%	53,101		48,923		(2,604		)	(5.1)%	51,527
Total net revenues	$	97,937	$	(6,170	)	(5.9)%	$	104,107	$	103,319	$	5,382		5.5%	$	97,937


Costs of Revenues and Gross Profit for the Three Months Ended March 31, 2018 and 2017
Costs of Revenues and Gross Profit for the Three Months Ended March 31, 2019 and 2018									Costs of Revenues and Gross Profit for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2018		Change				2017		2019		Change				2018
	Costs		$			%	Costs		Costs		$			%	Costs
Products	$	26,295	$	1,791		7.3%	$	24,504	$	27,600	$	1,305		5.0%	$	26,295
Services	13,985		(109		)	(0.8)%	14,094		12,487		(1,498		)	(10.7)%	13,985
Amortization of intangible assets	1,950		—			—%	1,950		1,950		—			—%	1,950
Total cost of revenues	$	42,230	$	1,682		4.1%	$	40,548	$	42,037	$	(193	)	(0.5)%	$	42,230

Gross profit	$	55,707	$	(7,852	)	(12.4)%	$	63,559	$	61,282	$	5,575		10.0%	$	55,707


Gross Margin % for the Three Months Ended March 31, 2018 and 2017
Gross Margin % for the Three Months Ended March 31, 2019 and 2018				Gross Margin % for the Three Months Ended March 31, 2019 and 2018
	2018 Gross Margin %	Change	2017 Gross Margin %	2019 Gross Margin %	Change	2018 Gross Margin %
Products	43.3%	(8.7)%	52.0%	49.3%	6.0%	43.3%
Services	72.9%	(0.6)%	73.5%	74.5%	1.6%	72.9%
Total	56.9%	(4.2)%	61.1%	59.3%	2.4%	56.9%


6.7.	OTHER LONG-TERM LIABILITIES


7.8.	COMMITMENTS AND CONTINGENCIES


8.9.	RESTRUCTURING COSTS AND ACCRUALS


Operating Expenses and Operating Income for the Three Months Ended March 31, 2018 and 2017
Operating Expenses and Operating Income (Loss) for the Three Months Ended March 31, 2019 and 2018										Operating Expenses and Operating Income (Loss) for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2018			Change				2017		2019		Change				2018
	Expenses			$			%	Expenses		Expenses		$			%	Expenses
Research and development	$	15,685		$	(3,203	)	(17.0)%	$	18,888	$	16,285	$	600		3.8%	$	15,685
Marketing and selling	26,132			321			1.2%	25,811		24,878		(1,254		)	(4.8)%	26,132
General and administrative	13,955			(476		)	(3.3)%	14,431		13,788		(167		)	(1.2)%	13,955
Amortization of intangible assets	363			—			—%	363		363		—			—%	363
Restructuring costs, net	2,907			1,924			195.7%	983		558		(2,349		)	(80.8)%	2,907
Total operating expenses	$	59,042		$	(1,434	)	(2.4)%	$	60,476	$	55,872	$	(3,170	)	(5.4)%	$	59,042

Operating (loss) income	$	(3,335	)	$	(6,418	)	(208.2)%	$	3,083
Operating income (loss)										$	5,410	$	8,745		(262.2)%	$	(3,335	)


Change in R&D Expenses for the Three Months Ended March 31, 2018 and 2017
Change in R&D Expenses for the Three Months Ended March 31, 2019 and 2018						Change in R&D Expenses for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2018 Decrease From 2017					2019 Increase (Decrease) From 2018
	$			%		$			%
Personnel-related	$	(1,872	)	(17.7	)%	$	1,875		21.5	%
Consulting and outside services	(829		)	(24.9	)%	(518		)	(20.7	)%
Facilities and information technology	(395		)	(10.3	)%	(338		)	(9.8	)%
Other	(107		)	(9.4	)%	(419		)	(40.6	)%
Total R&D expenses decrease	$	(3,203	)	(17.0	)%
Total R&D expenses increase						$	600		3.8	%



Change in Marketing and Selling Expenses for the Three Months Ended March 31, 2018 and 2017
(dollars in thousands)
	2018 (Decrease) Increase From 2017
	$			%
Foreign exchange losses	$	(939	)	(66.5	)%
Sales kickoff meeting	801			144.8	%
Consulting and outside services	409			114.1	%
Other	50			0.2	%
Total marketing and selling expenses increase	$	321		1.2	%


Change in G&A Expenses for the Three Months Ended March 31, 2018 and 2017
Change in G&A Expenses for the Three Months Ended March 31, 2019 and 2018						Change in G&A Expenses for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2018 Increase (Decrease) From 2017					2019 Increase (Decrease) From 2018
	$			%		$			%
Personnel-related	$	(1,183	)	(18.7	)%	$	1,213		23.6	%
Consulting and outside services	725			15.9	%	(1,025		)	(19.4	)%
Other	(18		)	(0.8	)%	(355		)	(10.0	)%
Total G&A expenses decrease	$	(476	)	(3.3	)%	$	(167	)	(1.2	)%


Provision for Income Taxes for the Three Months Ended March 31, 2018 and 2017
Provision for Income Taxes for the Three Months Ended March 31, 2019 and 2018								Provision for Income Taxes for the Three Months Ended March 31, 2019 and 2018
(dollars in thousands)
	2018		Change			2017		2019		Change			2018
			$		%					$		%
Provision for income taxes	$	255	$	103	67.8%	$	152	$	438	$	183	71.8%	$	255


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-Q	Form or Schedule	SEC Filing Date	SEC File Number
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
*10.1	Amendment No. 5 to Financing Agreement, dated February 26, 2016, among Avid Technology, Inc. and the Lenders named therein.		8-K	April 11, 2019	001-36254
101.INS	~~XBRL~~eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	X
*101.SCH	XBRL Taxonomy Extension Schema Document	X
*101.CAL	XBRL Taxonomy Calculation Linkbase Document	X
*101.DEF	XBRL Taxonomy Definition Linkbase Document	X
*101.LAB	XBRL Taxonomy Label Linkbase Document	X
*101.PRE	XBRL Taxonomy Presentation Linkbase Document	X


*	Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections.



		AVID TECHNOLOGY, INC.
		(Registrant)

Date:	May ~~10, 2018~~6, 2019	By:	/s/ ~~Brian E. Agle~~Kenneth Gayron
		Name:	~~Brian E. Agle~~Kenneth Gayron
		Title:	~~Senior~~Executive Vice President and Chief Financial Officer