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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________

Commission File Number:  1-36254
__________________
Avid Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware04-2977748
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
75 Network Drive
BurlingtonMassachusetts01803
   Address of Principal Executive Offices, Including Zip Code
(978) 640-6789
Registrant's Telephone Number, Including Area Code
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueAVIDNasdaq Global Select Market
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 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
o
Accelerated Filer
x
Non-accelerated filer  
o
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
The number of shares outstanding of the registrant’s Common Stock, as of October 26, 2020, was 44,208,119.



AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS
 Page
   
  
  
  




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:

the effects that the COVID-19 pandemic and its related consequences may have on the national and global economy and on our business and operations, revenues, cash flows and profitability, and capital resources;

our ability to successfully implement our strategy, including our cost saving measures and other actions implemented in response to the COVID-19 pandemic;

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 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 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;

the anticipated performance of our products;

our ability to maintain adequate supplies of products and components, including through sole-source supply arrangements;

our plans to repatriate 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 compliance with covenants contained in the agreements governing our indebtedness;

our ability to service our debt and meet the obligations thereunder;

seasonal factors;

fluctuations in foreign exchange and interest rates;

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




our ability to protect and enforce our intellectual property rights;

the expected availability of cash to fund our business and our ability to maintain adequate liquidity and capital resources, generally and in the wake of the COVID-19 pandemic; and

worldwide political uncertainty, in particular the risk that the United States may withdraw from or materially modify international trade agreements.

Actual results and events in future periods may differ materially from those expressed or implied by forward-looking statements in this Form 10-Q. There are a number of factors that could cause actual events or results to differ materially from those indicated or implied by forward-looking statements, many of which are beyond our control, including the risk factors discussed herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, in Part II, Item 1A of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the U.S. Securities and Exchange Commission (“SEC”). In addition, the forward-looking statements contained in this Form 10-Q represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements, or otherwise.

We own or have rights to trademarks and service marks that we use in connection with the operation of our business.  “Avid” 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, Avid NEXIS, AirSpeed, FastServe, MediaCentral, Media Composer, Pro Tools, and 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 EndedNine Months Ended
 September 30,September 30,
 2020201920202019
Net revenues:  
Products$35,775 $42,911 $98,121 $147,633 
Services54,656 50,550 158,044 147,848 
Total net revenues90,431 93,461 256,165 295,481 
Cost of revenues:  
Products20,957 23,877 58,873 79,535 
Services11,217 11,726 34,322 36,408 
Amortization of intangible assets   3,738 
Total cost of revenues32,174 35,603 93,195 119,681 
Gross profit58,257 57,858 162,970 175,800 
Operating expenses:  
Research and development13,623 14,860 42,116 46,325 
Marketing and selling19,998 22,334 64,977 73,341 
General and administrative10,796 12,034 34,144 38,543 
Amortization of intangible assets   695 
Restructuring costs, net723 229 1,008 518 
Total operating expenses45,140 49,457 142,245 159,422 
Operating income13,117 8,401 20,725 16,378 
Interest and other expense, net(4,423)(5,519)(15,204)(23,994)
Income (loss) before income taxes8,694 2,882 5,521 (7,616)
Provision for income taxes707 (283)1,546 155 
Net income (loss)$7,987 $3,165 $3,975 $(7,771)
Net income (loss) per common share – basic and diluted$0.18$0.07$0.09$(0.18)
Weighted-average common shares outstanding – basic44,019 42,913 43,665 42,510 
Weighted-average common shares outstanding – diluted44,758 43,674 44,498 42,510 
The accompanying notes are an integral part of the condensed consolidated financial statements.
1


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
Net income (loss)$7,987 $3,165 $3,975 $(7,771)
Other comprehensive loss:
Foreign currency translation adjustments995 (764)1,114 (602)
Comprehensive income (loss)$8,982 $2,401 $5,089 $(8,373)
The accompanying notes are an integral part of the condensed consolidated financial statements.


2


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
September 30,
2020
December 31,
2019
ASSETS  
Current assets:  
Cash and cash equivalents$49,142 $69,085 
Restricted cash
1,664 1,663 
Accounts receivable, net of allowances of $1,522 and $958 at September 30, 2020 and December 31, 2019, respectively
59,683 73,773 
Inventories28,378 29,166 
Prepaid expenses10,526 9,425 
Contract assets15,276 19,494 
Other current assets2,608 6,125 
Total current assets167,277 208,731 
Property and equipment, net18,884 19,580 
Goodwill32,643 32,643 
Right of use assets30,408 29,747 
Long-term deferred tax assets, net6,539 7,479 
Other long-term assets5,651 6,113 
Total assets$261,402 $304,293 
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities:  
Accounts payable$13,450 $39,888 
Accrued compensation and benefits30,452 19,524 
Accrued expenses and other current liabilities34,758 36,759 
Income taxes payable1,946 1,945 
Short-term debt4,135 30,554 
Deferred revenue70,858 83,589 
Total current liabilities155,599 212,259 
Long-term debt204,074 199,034 
Long-term deferred revenue10,306 14,312 
Long-term lease liabilities29,473 28,127 
Other long-term liabilities6,162 5,646 
Total liabilities405,614 459,378 
Commitments and contingencies (Note 7)
Stockholders’ deficit:
Common stock
439 430 
Additional paid-in capital1,033,599 1,027,824 
Accumulated deficit(1,175,434)(1,179,409)
Accumulated other comprehensive loss(2,816)(3,930)
Total stockholders’ deficit(144,212)(155,085)
Total liabilities and stockholders’ deficit$261,402 $304,293 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in thousands, unaudited)
Nine Months Ended September 30, 2020
 Shares of
Common Stock
 Additional  Accumulated
Other
Total
 OutstandingIn
Treasury
Common
Stock
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Comprehensive
Income (Loss)
Stockholders’
Deficit
Balances at January 1, 202043,150  430 1,027,824 (1,179,409) (3,930)(155,085)
Stock issued pursuant to employee stock plans398  4 (1,818)   (1,814)
Stock-based compensation— — — 2,109 — — — 2,109 
Net loss— — — — (5,857)— — (5,857)
Other comprehensive loss— — — — — — (815)(815)
Balances at March 31, 202043,548  434 1,028,115 (1,185,266) (4,745)(161,462)
Stock issued pursuant to employee stock plans368  3 (538)   (535)
Stock-based compensation— — — 2,726 — — — 2,726 
Net income— — — — 1,845 — — 1,845 
Other comprehensive income— — — — — — 934 934 
Balances at June 30, 202043,916  437 1,030,303 (1,183,421) (3,811)(156,492)
Stock issued pursuant to employee stock plans207  2 (1)   1 
Stock-based compensation— — — 3,297 — — — 3,297 
Net income— — — — 7,987 — — 7,987 
Other comprehensive income— — — — — — 995 995 
Balances at September 30, 202044,123  439 1,033,599 (1,175,434) (2,816)(144,212)
4


Nine Months Ended September 30, 2019
 Shares of
Common Stock
 Additional  Accumulated
Other
Total
 OutstandingIn
Treasury
Common
Stock
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Comprehensive
Income (Loss)
Stockholders’
Deficit
Balances at January 1, 201942,339 (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, 201942,339  423 1,024,028 (1,187,223) (4,315)(167,087)
Stock issued pursuant to employee stock plans381  4 (204)   (200)
Stock-based compensation— — — 2,005 — — — 2,005 
Net loss— — — — (10,723)— — (10,723)
Other comprehensive income— — — — — — 710 710 
Partial retirement of convertible senior notes conversion feature— — — (554)— — — (554)
Partial unwind capped call cash receipt— — — 26 — — — 26 
Balances at June 30, 201942,720  427 1,025,301 (1,197,946) (3,605)(175,823)
Stock issued pursuant to employee stock plans287  2 (1,550)   (1,548)
Stock-based compensation— — — 2,045 — — — 2,045 
Net income— — — — 3,165 — — 3,165 
Other comprehensive loss— — — — — — (764)(764)
Balances at September 30, 201943,007  429 1,025,796 (1,194,781) (4,369)(172,925)

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

5


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended
 September 30,
 20202019
Cash flows from operating activities:  
Net income (loss)$3,975 $(7,771)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization6,317 11,469 
Allowance for (recovery from) doubtful accounts1,349 (156)
Stock-based compensation expense8,132 5,788 
Non-cash provision for restructuring653  
Non-cash interest expense3,408 7,054 
Loss on extinguishment of debt 2,878 
Unrealized foreign currency transaction losses219 237 
Benefit from (provision for) deferred taxes997 (886)
Changes in operating assets and liabilities:  
Accounts receivable12,741 14,192 
Inventories788 788 
Prepaid expenses and other assets1,390 (3,526)
Accounts payable(26,440)(3,661)
Accrued expenses, compensation and benefits and other liabilities7,752 (13,035)
Income taxes payable81 372 
Deferred revenue and contract assets(12,519)(12,631)
Net cash provided by operating activities8,843 1,112 
Cash flows from investing activities:  
Purchases of property and equipment(5,619)(5,629)
Net cash used in investing activities(5,619)(5,629)
Cash flows from financing activities:  
Proceeds from revolving line of credit22,000  
Repayment on revolving line of credit(22,000)— 
Proceeds from long-term debt7,800 79,286 
Repayment of debt(1,474)(1,113)
Payments for repurchase of outstanding notes(28,867)(76,269)
Proceeds from the issuance of common stock under employee stock plans252 309 
Common stock repurchases for tax withholdings for net settlement of equity awards(2,610)(3,444)
Unwind capped call cash receipt875 27 
Payments for credit facility issuance costs(289)(5,979)
Net cash used in financing activities(24,313)(7,183)
Effect of exchange rate changes on cash, cash equivalents and restricted cash1,394 (615)
Net decrease in cash, cash equivalents and restricted cash(19,695)(12,315)
Cash, cash equivalents and restricted cash at beginning of period72,575 68,094 
Cash, cash equivalents and restricted cash at end of period$52,880 $55,779 
Supplemental information:
Cash and cash equivalents$49,142 $52,289 
Restricted cash1,664 1,664 
Restricted cash included in other long-term assets2,074 1,826 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$52,880 $55,779 
Cash paid (refunded) for income taxes$(659)$941 
Cash paid for interest$13,579 $7,780 
6


The accompanying notes are an integral part of the condensed consolidated financial statements.
7


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, 2019 was derived from 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, 2019 in our Annual Report on Form 10-K for the year ended December 31, 2019, which included information and footnotes necessary for such presentation. The financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.

The consolidated results of operations for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence.

The COVID-19 pandemic has adversely affected the Company’s results of operations and financial condition, primarily due to reduced demand for our products and services which has led to lower net revenues. These economic impacts are the result of, but not limited to:

the postponement or cancellation of film and television productions, major sporting events, and live music events;
delays in purchasing and projects by our enterprise customers and channel partners;
disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and
decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders.

These effects are expected to continue, although the full impact of the COVID-19 pandemic on the Company’s consolidated results of operations and financial condition over the longer term is uncertain. The Company is actively managing its business to respond to this health crisis and will continue to evaluate the nature and extent of the impact. We expect that our business operations and results of operations will be adversely impacted by these developments for at least the balance of 2020, and possibly longer. To address actual and expected reductions in net revenues, we have reduced our discretionary spending and reduced payroll costs, including through temporary employee furloughs and pay cuts. In addition, in May 2020 we received $7.8 million of funding under the U.S. government’s Paycheck Protection Program (the “PPP”) in the form of a low-interest loan that may be forgiven under certain conditions. We may be required to take additional remedial steps, depending on the duration and severity of the pandemic and its impact on our operations and cash flows, which could include, among other things (and where allowed by the lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through the issuance of additional equity or debt securities or the incurrence of additional borrowings, (iv) disposing of certain assets or businesses, or (v) seeking additional funding under various programs implemented by the U.S. government in response to the COVID-19 pandemic. Such remedial actions, which may not be available on favorable terms or at all, could have a material adverse impact on our business, and/or could result in non-compliance with financial covenants in our financing agreements with lenders which, in the absence of a waiver or amendment, could result in an event of default under such financing agreements, which could permit acceleration of the outstanding indebtedness and require us to repay such indebtedness before the scheduled due date. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings. 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
8


future. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations and results of operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by COVID-19 on our business are expected to evolve rapidly. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

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.

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. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectibility is probable. We recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.

We often enter into contractual arrangements that have multiple 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 of each distinct performance obligation.

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

On January 1, 2019, we adopted ASC 842 using the modified retrospective transition approach, as provided by ASU No. 2018-11, Leases - Targeted Improvements (“ASU 2018-11”). We elected the package of practical expedients permitted under the transition guidance. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under previous U.S. GAAP.

The primary impact of ASC 842 is that substantially all of our leases are recognized on the balance sheet, by recording right-of-use assets and short-term and long-term lease liabilities, both of which are material to our consolidated balance sheet. The new standard does not have a material impact on our consolidated statement of operations and cash flows, and the effect of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019 is immaterial.

Recent Accounting Pronouncements To Be Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is intended to enhance and simplify aspects of the income tax accounting guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the
9


expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

2.    NET INCOME (LOSS) PER SHARE

Net income (loss) per common share is presented for both basic income (loss) per share (“Basic EPS”) and diluted income (loss) per share (“Diluted EPS”). Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common share equivalents outstanding during the period.

The potential common shares that were considered anti-dilutive securities were excluded from the diluted earnings per share calculations for the relevant periods either because the sum of the exercise price per share and the unrecognized compensation cost per share was greater than the average market price of our common stock for the relevant 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.

The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at September 30, 2020 and 2019.
 September 30, 2020September 30, 2019
Options390 594 
Non-vested restricted stock units3,220 2,699 
Anti-dilutive potential common shares3,610 3,293 

The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding for the three and nine months ended September 30, 2020.

Three months endedNine months ended
Weighted common shares outstanding - basic44,019 43,665 
Net effect of common stock equivalents739 833 
Weighted common shares outstanding - diluted44,758 44,498 


3.    FAIR VALUE MEASUREMENTS

Assets Measured at Fair Value on a Recurring Basis

We measure deferred compensation investments on a recurring basis. As of September 30, 2020 and December 31, 2019, 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.

10


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
 September 30,
2020
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial assets:    
Deferred compensation assets$487 $261 $226 $ 
  Fair Value Measurements at Reporting Date Using
 December 31, 2019Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial assets:    
Deferred compensation assets$1,156 $338 $818 $ 

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.

4.    INVENTORIES

Inventories consisted of the following (in thousands):
 September 30, 2020December 31, 2019
Raw materials$7,885 $9,036 
Work in process316 371 
Finished goods20,177 19,759 
Total$28,378 $29,166 

As of September 30, 2020 and December 31, 2019, finished goods inventory included $1.7 million and $1.5 million, respectively, associated with products shipped to customers and deferred labor costs for arrangements where revenue recognition had not yet commenced.


5.    LEASES

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 qualify as either operating or finance leases. We determine if contracts with vendors represent a lease or have a lease component under U.S. GAAP at contract inception. Our leases have remaining terms ranging from less than one year to eight years. Some of our leases include options to extend or terminate the lease prior to the 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
11


use an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. We used an average incremental borrowing rate of 6% as of January 1, 2019, the adoption date of ASC 842, for our leases that commenced prior to that date. The operating leases are included in “Right of use assets,” “Accrued expenses and other current liabilities,” and “Long-term lease liabilities” on our condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.

Finance 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. Each lease agreement provides an implicit discount rate used to determine the present value of future payments. The weighted-average discount rate is 2.3% as of September 30, 2020, the commencement date for our leases. The finance leases are included in “Other assets” and “Other long-term liabilities” on our condensed consolidated balance sheet as of September 30, 2020.

The weighted-average remaining lease term of our operating leases is 6.6 years as of September 30, 2020. Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total operating lease costs were $2.2 million and $2.4 million for the three months ended September 30, 2020 and September 30, 2019, respectively. Our total operating lease costs were $7.2 million and $7.2 million for the nine months ended September 30, 2020 and September 30, 2019 respectively. Related cash payments were $2.0 million and $2.4 million for the three months ended September 30, 2020 and September 30, 2019, respectively. Related cash payments were $6.9 million and $7.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. For the nine months ended September 30, 2020, right of use assets obtained in exchange for new operating lease liabilities was $5.7 million. Operating 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 are included in the operating cash flows on the condensed consolidated statements of cash flows. Finance lease costs, short-term lease costs, variable lease costs, and sublease income are not material.

The table below reconciles the undiscounted future minimum lease payments for operating and finance leases under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheets as of September 30, 2020 (in thousands):
Year Ending December 31,Operating LeasesFinance Leases
2020 (excluding nine months ended September 30, 2020)$2,067 $12 
20217,590 289 
20226,472 255 
20235,579 226 
20244,875  
Thereafter16,637  
Total future minimum lease payments$43,220 $782 
Less effects of discounting(7,837)(27)
Total lease liabilities$35,383 $755 

Supplemental balance sheet information related to leases was as follows (in thousands):

Operating Leases
September 30, 2020
Right of use assets$30,408 
Accrued expenses and other current liabilities(5,910)
Operating lease liabilities (LT)(29,473)
     Total lease liabilities$(35,383)

12



Finance Leases
September 30, 2020
Other assets$737 
Accrued expenses and other current liabilities(220)
Other long-term liabilities(535)
     Total lease liabilities$(755)

6.    OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following (in thousands):
 September 30, 2020December 31, 2019
Deferred compensation$5,335 $5,186 
Finance leases535  
Other292 460 
   Total$6,162 $5,646 


7.    COMMITMENTS AND CONTINGENCIES

Commitments

We entered into a long-term agreement to purchase a variety of information technology solutions from a third party in the second quarter of 2020, which included an unconditional commitment to purchase a minimum of $32.2 million of products and services over the initial five years of the agreement. We have purchased $0.6 million of products and services pursuant to this agreement as of September 30, 2020.

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 September 30, 2020, be eligible to draw against the letters of credit to a maximum of $1.3 million in the aggregate. The letters of credit are subject to aggregate reductions provided 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.

We also have letters of credit in connection with security deposits for other facility leases totaling $0.6 million in the aggregate, as well as letters of credit totaling $1.9 million that otherwise support our ongoing operations. These letters of credit have various terms and expire during 2020 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.

Substantially all of our letters of credit are collateralized by restricted cash included in the caption “Restricted cash” and “Other long-term assets” on our condensed consolidated balance sheets as of September 30, 2020.

Contingencies

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 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
13


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 executive’s employment agreement. On April 16, 2019 we received an additional notice again alleging we breached the former executive’s employment agreement. We have since been in communications with our former Chairman and Chief Executive Officer’s counsel. 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.

On July 14, 2020, we sent a notice to a customer demanding sums that we believe are due to Avid pursuant to a contract. On October 7, 2020, the customer sent a notice to us denying any legal liability and demanding payment for breach of contract resulting from various alleged delays by us. 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 related to 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 September 30, 2020 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 estimated fair value of these indemnification provisions is immaterial. Further, certain of our arrangements with customers include clauses whereby we may be subject to penalties for failure to meet certain performance obligations; however, we have not recorded any related material penalties to date.

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 nine months ended September 30, 2020 and 2019 (in thousands):
Nine Months Ended September 30,
20202019
Accrual balance at beginning of year$1,337 $1,706 
Accruals for product warranties1,030 732 
Costs of warranty claims(1,003)(1,016)
Accrual balance at end of period$1,364 $1,422 

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

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8.    RESTRUCTURING COSTS AND ACCRUALS

During the three months ended September 30, 2020 and September 30, 2019, we recorded restructuring charges of $0.7 million and $0.2 million, respectively, for employee severance cost adjustments.

During the nine months ended September 30, 2020 and September 30, 2019 we recorded restructuring charges of $1.0 million and $0.5 million respectively.

Restructuring Summary

The following table sets forth restructuring expenses recognized for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Employee$723 $202 $911 $473 
Facility  97 5 
Total facility and employee charges723 202 1,008 478 
Other 27  40 
Total restructuring charges, net$723 $229 $1,008 $518 

The following table sets forth the activity in the restructuring accruals for the nine months ended September 30, 2020 (in thousands):
 Employee
Accrual balance as of December 31, 2019$155 
Restructuring charges and revisions 911 
Cash payments(258)
Accrual balance as of September 30, 2020808 
Less: current portion 808 
Long-term accrual balance as of September 30, 2020$ 

The employee restructuring accrual at September 30, 2020 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 September 30, 2020.

On January 1, 2019, we had facilities restructuring accruals of $0.1 million included in the caption “accrued expenses and other current liabilities” and $0.2 million included in the caption “other long-term liabilities," which were reclassified upon the adoption of ASC 842 to the right of use asset account.

9.    REVENUE

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.

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The following table is a summary of our revenues by type for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Products and solutions net revenues$35,775 $42,911 $98,121 $147,633 
Subscription services17,907 10,297 48,292 29,339 
Support services30,826 33,361 93,190 97,018 
Professional services, training and other services5,923 6,892 16,562 21,491 
Total net revenues$90,431 $93,461 $256,165 $295,481 

The following table sets forth our revenues by geographic region for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenues:  
United States$36,190 $31,267 $105,166 $110,697 
Other Americas4,505 9,471