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Avid Reports Fourth Quarter 2006 Results
GAAP net loss in the fourth quarter of 2006 includes a non-cash charge of $53.0 million for the impairment of goodwill associated with the acquisition of Pinnacle Systems in August 2005. As a result of completing its annual goodwill impairment test in the fourth quarter, the company concluded that the fair value of the consumer business unit had declined below the book value, resulting in the impairment charge.
In addition, the company took a restructuring charge of $3.2 million as a result of reorganizations within the Professional Video and Consumer Video segments that took place during the quarter.
These charges plus amortization, stock-based compensation and related tax adjustments totaled $75.1 million during the fourth quarter. Excluding these items, non-GAAP earnings per share were $.54. For the fourth quarter of 2005, there was $11.6 million of acquisition-related charges, including amortization, stock-based compensation, restructuring costs and related tax adjustments included in GAAP net income. Excluding these items, non-GAAP earnings per share were $.69 in the fourth quarter of 2005.
"As we look back at our performance in Q4, and the full year of 2006, it's clear that our results were mixed. While our big deal backlog continued to build each quarter throughout the year, including Q4, bringing us to record levels, recognizing revenue out of this backlog continued to be unpredictable. This led to a shortfall in our video business for the fourth quarter," said David Krall, Avid's president and chief executive officer. "Our audio business recovered nicely from the slowdown in demand that we saw in Q3 for Digidesign's Pro Tools|HD® systems, allowing a strong finish for the year. In consumer, we had lower than expected results for the year as the business was slow to recover from the product quality problems with the Studio 10 software. We took an impairment charge in the fourth quarter to reflect the decline in the fair value of the consumer business unit. Nevertheless, we believe that the product quality problems are now behind us, and are pleased that we achieved higher-than expected consumer revenues in Q4 based on strong demand in Europe. We have taken a number of steps to position all of our businesses more favorably for the coming year, including a cost restructuring in our consumer business which took place in Q4. Graham Sharp, our new general manager for our video division, has already implemented a number of changes that are intended to improve the segment's operations. However, we do not expect the full benefits of these efforts to be realized immediately."
Revenues for the year ended December 31, 2006, were $910.6 million compared to revenues of $775.4 million for 2005. GAAP net loss for 2006 was $42.9 million, or $1.03 per share, compared to GAAP net income of $34.0 million, or $.86 per diluted share, for 2005. GAAP net loss for 2006 includes $113.9 million of impairment charges, amortization, stock-based compensation, restructuring costs, in-process research and development, and related tax adjustments. Excluding these items, non-GAAP earnings per share were $1.67 for 2006. GAAP net income for 2005 includes $58.4 million of amortization, stock-based compensation, restructuring costs, in-process research and development, and related tax adjustments. Excluding these items non-GAAP earnings per share were $2.34 for 2005.
Use of Non-GAAP Financial Measures
This press release contains "non-GAAP financial measures" under the rules of the Securities and Exchange Commission. This non-GAAP information supplements, and is not intended to represent a measure of performance in accordance with, disclosures required by generally accepted accounting principles, or GAAP. The reconciliation for net income and diluted earnings per share for the fourth quarters of 2006 and 2005 and fiscal years 2006 and 2005 are in the tables attached to this press release.
We use non-GAAP financial measures internally to manage our business, for example, in establishing our annual operating budget, to assess segment operating performance and for measuring performance under our employee incentive compensation plans. Non-GAAP financial measures are used by our management in their operating and financial decision-making because management believes these measures reflect our ongoing business in a manner that allows meaningful period-to-period comparisons. Accordingly, we believe it is useful for our investors and others to review both GAAP and non-GAAP measures in order to (a) understand and evaluate our current operating performance and future prospects in the same manner as management does and (b) compare in a consistent manner the Company's current financial results with our past financial results. The primary limitations associated with our use of non-GAAP financial measures are that these measures may not be directly comparable to the amounts reported by other companies and they do not include all items of income and expense that affect our operations. Our management compensates for these limitations by considering the Company's financial results as determined in accordance with GAAP and by providing a detailed reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures in this press release.
Conference Call
A conference call to discuss Avid's fourth quarter 2006 financial results will be held today, February 1, 2007, at 5:00 p.m. EST. The call will be open to the public, and can be accessed by dialing (719) 457-2681 and referencing confirmation code 8736424. The call and subsequent replay will also be available on Avid's web site. To listen via this alternative, go to the Investor Relations page under the About Us menu at www.avid.com for complete details prior to the start of the conference call.
The above release is subject to the completion and filing of our Annual Report on Form 10-K. This release includes forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, about Avid's performance. There are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, such as market acceptance of Avid's existing and new products, Avid's ability to anticipate customer needs, competitive factors, including pricing pressures, delays in product shipments, and the other important events and factors disclosed previously and from time to time in Avid's filings with the U.S. Securities and Exchange Commission. In addition, the forward-looking statements contained herein represent Avid's estimate only as of today and should not be relied upon as representing the company's estimate as of any subsequent date. While Avid may elect to update these forward-looking statements at some point in the future, Avid specifically disclaims any obligation to do so, even if the estimate changes.
About Avid Technology, Inc.
Avid Technology, Inc. is the world leader in digital nonlinear media creation, management, and distribution solutions, enabling film, video, audio, animation, games, and broadcast professionals to work more efficiently, productively, and creatively. For more information about the company's Oscar®, Grammy®, and Emmy® award-winning products and services, please visit: www.avid.com.
© 2007 Avid Technology, Inc. All rights reserved. Avid, Digidesign, Film Composer, Pro Tools|HD and Pro Tools are either registered trademarks or trademarks of Avid Technology, Inc. or its subsidiaries in the United States and/or other countries. Avid received an Oscar statuette representing the 1998 Scientific and Technical Award for the concept, design, and engineering of the Avid® Film Composer® system for motion picture editing. Digidesign, Avid's audio division, received an Oscar statuette representing the 2003 Scientific and Technical Award for the design, development, and implementation of its Pro Tools digital audio workstation. Oscar is a trademark and service mark of the Academy of Motion Picture Arts and Sciences. Emmy is a registered trademark of ATAS/NATAS. Grammy is a trademark of the National Academy of Recording Arts and Sciences, Inc. All other trademarks contained herein are the property of their respective owners.
AVID TECHNOLOGY, INC
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net revenues
Product $213,405 $219,812 $809,002 $692,787
Services 25,644 25,159 101,576 82,656
--------- --------- --------- ---------
Total net revenues 239,049 244,971 910,578 775,443
Cost of revenues
Product 104,101 104,112 388,483 308,386
Service 15,123 13,590 56,218 45,274
Amortization of intangible
assets 4,889 6,610 21,193 11,027
--------- --------- --------- ---------
Total cost of revenues 124,113 124,312 465,894 364,687
--------- --------- --------- ---------
Gross Profit 114,936 120,659 444,684 410,756
--------- --------- --------- ---------
Operating expenses
Research and development 35,000 32,109 141,363 111,334
Marketing and selling 50,831 49,892 203,967 170,787
General and administrative 16,239 14,186 63,250 47,147
Amortization of intangible
assets 3,520 3,465 14,460 9,194
Impairment of intangible
assets 53,000 - 53,000 -
Restructuring costs 3,167 1,158 2,613 3,155
In-process research and
development - - 879 32,390
--------- --------- --------- ---------
Total operating expenses 161,757 100,810 479,532 374,007
Operating income (loss) (46,821) 19,849 (34,848) 36,749
Interest and other income
(expense), net 1,591 1,851 7,274 5,586
--------- --------- --------- ---------
Income (loss) before income
taxes (45,230) 21,700 (27,574) 42,335
Provision for income taxes, net 7,335 3,275 15,353 8,355
--------- --------- --------- ---------
Net Income (Loss) $(52,565) $18,425 $(42,927) $33,980
========= ========= ========= =========
Net income (loss) per common
share - basic $(1.28) $0.44 $(1.03) $0.90
Net income (loss) per common
share - diluted $(1.28) $0.43 $(1.03) $0.86
Weighted average common shares
outstanding - basic 41,016 41,859 41,736 37,762
Weighted average common shares
outstanding - diluted 41,016 43,309 41,736 39,517
AVID TECHNOLOGY, INC
(unaudited - in thousands, except per share data)
Reconciliation of GAAP net income (loss) to Non-GAAP net income:
Three Months Ended Twelve Months
Ended
December 31, December 31,
------------------ ------------------
2006 2005 2006 2005
--------- -------- --------- --------
GAAP net income (loss) $(52,565) $18,425 $(42,927) $33,980
Adjustments to reconcile to Non-
GAAP net income:
Amortization of intangible
assets 8,409 10,075 35,653 20,221
Impairment of intangible
assets 53,000 - 53,000 -
Stock-based compensation 3,561 333 16,605 2,163
Restructuring costs 3,167 1,158 2,613 3,155
In-process research and
development - - 879 32,390
Related tax adjustments 6,954 61 5,197 451
--------- -------- --------- --------
Total adjustments to reconcile
to Non-GAAP net income 75,091 11,627 113,947 58,380
--------- -------- --------- --------
Non-GAAP net income $22,526 $30,052 $71,020 $92,360
========= ======== ========= ========
Weighted average common shares
outstanding - diluted 41,734 43,309 42,570 39,517
Non-GAAP net income per common
share - diluted $0.54 $0.69 $1.67 $2.34
Stock-based compensation, which relates to the adoption of SFAS 123R,
the acquisition of M-Audio, and the issuance of restricted stock and
restricted stock units in Q4 2006 and YTD 2006, is comprised of the
following:
Three Months Ended Twelve Months
Ended
Stock-based compensation included December 31, December 31,
in:
------------------ ------------------
2006 2005 2006 2005
--------- -------- --------- --------
Cost of product revenues $118 $- $516 $-
Cost of services revenues 178 - 801 -
Research and development expense 1,028 29 4,830 158
Marketing and selling expense 1,054 110 4,692 602
General and administrative
expense 1,183 194 5,766 1,403
--------- -------- --------- --------
$3,561 $333 $16,605 $2,163
========= ======== ========= ========
AVID TECHNOLOGY, INC
Condensed Consolidated Balance Sheets
(unaudited - in thousands)
December December
31, 31,
2006 2005
---------- -----------
ASSETS:
Current assets:
Cash, cash equivalents and marketable
securities $ 172,107 $238,430
Accounts receivable, net of allowances of
$22,331 and $22,233 at December 31, 2006
and 2005, respectively 138,578 140,669
Inventories 144,238 96,845
Prepaid and other current assets 29,016 25,733
---------- -----------
Total current assets 483,939 501,677
Property and equipment, net 40,483 38,563
Goodwill 360,143 396,902
Intangible assets, net 102,048 118,676
Other assets 10,421 6,228
---------- -----------
Total assets $ 997,034 $1,062,046
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $34,108 $43,227
Accrued expenses and other current
liabilities 88,331 96,311
Deferred revenues 73,743 62,863
---------- -----------
Total current liabilities 196,182 202,401
Long term liabilities 20,471 20,048
---------- -----------
Total liabilities 216,653 222,449
---------- -----------
Stockholders' equity:
Common stock 423 421
Additional paid-in capital 952,763 928,703
Accumulated deficit (134,708) (88,795)
Treasury stock at cost, net of reissuances (43,768) -
Deferred compensation - (1,830)
Accumulated other comprehensive income 5,671 1,098
---------- -----------
Total stockholders' equity 780,381 839,597
---------- -----------
Total liabilities and stockholders'
equity $ 997,034 $1,062,046
========== ===========
CONTACT: Dean Ridlon, 978-640-5309
Investor Relations Director
Investor_Relations@avid.com
SOURCE: Avid Technology, Inc.