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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, 2021
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, $0.01 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
o
Emerging growth company
o
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 November 5, 2021, was 45,021,985.



AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS
 Page
   
  
  
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  




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, including variants, 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 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 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, and investment transactions and to 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 regarding repatriation of foreign earnings;

the outcome, impact, costs, and expenses of pending litigation or any new litigation or government inquiries to which we may 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;

the effect of seasonal changes in demand for our products and services;




fluctuations in foreign exchange and interest rates;
the risk of restatement of our financial statements;

estimated asset and liability values;

our ability to protect and enforce our intellectual property rights; and

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

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, 2020, 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.    UNAUDITED 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,
 2021202020212020
Net revenues:  
Products$36,850 $35,775 $107,295 $98,121 
Services64,790 54,656 183,585 158,044 
Total net revenues101,640 90,431 290,880 256,165 
Cost of revenues:  
Products20,468 20,957 60,044 58,873 
Services15,269 11,217 43,379 34,322 
Total cost of revenues35,737 32,174 103,423 93,195 
Gross profit65,903 58,257 187,457 162,970 
Operating expenses:  
Research and development17,129 13,623 48,639 42,116 
Marketing and selling24,413 19,998 66,511 64,977 
General and administrative14,901 10,796 42,214 34,144 
Restructuring costs, net(88)723 1,001 1,008 
Total operating expenses56,355 45,140 158,365 142,245 
Operating income9,548 13,117 29,092 20,725 
Interest expense, net(1,646)(4,566)(5,547)(15,437)
Other income, net7,864 143 4,459 233 
Income before income taxes15,766 8,694 28,004 5,521 
Provision for income taxes991 707 1,832 1,546 
Net income$14,775 $7,987 $26,172 $3,975 
Net income per common share – basic$0.32$0.18$0.58$0.09
Net income per common share – diluted$0.32$0.18$0.56$0.09
Weighted-average common shares outstanding – basic45,564 44,019 45,115 43,665 
Weighted-average common shares outstanding – diluted46,428 44,758 46,449 44,498 
The accompanying notes are an integral part of the condensed consolidated financial statements.
1


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
Three Months EndedNine Months Ended
 September 30,September 30,
 2021202020212020
Net income$14,775 $7,987 $26,172 $3,975 
Other comprehensive (loss) income:
Foreign currency translation adjustments(738)995 (1,980)1,114 
Comprehensive income$14,037 $8,982 $24,192 $5,089 
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,
2021
December 31,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$50,485 $79,899 
Restricted cash
1,422 1,422 
Accounts receivable, net of allowances of $1,422 and $1,478 at September 30, 2021 and December 31, 2020, respectively58,125 78,614 
Inventories22,215 26,568 
Prepaid expenses6,766 6,044 
Contract assets22,612 18,579 
Other current assets2,335 2,366 
Total current assets163,960 213,492 
Property and equipment, net15,211 16,814 
Goodwill32,643 32,643 
Right of use assets25,202 29,430 
Deferred tax assets, net5,413 6,801 
Other long-term assets6,462 5,958 
Total assets$248,891 $305,138 
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities:  
Accounts payable$22,413 $21,823 
Accrued compensation and benefits26,320 29,105 
Accrued expenses and other current liabilities34,511 42,264 
Income taxes payable1,447 1,664 
Short-term debt9,159 4,941 
Deferred revenue76,658 87,974 
Total current liabilities170,508 187,771 
Long-term debt162,990 202,759 
Long-term deferred revenue10,109 11,284 
Long-term lease liabilities24,466 28,462 
Other long-term liabilities7,249 7,786 
Total liabilities375,322 438,062 
Commitments and contingencies (Note 7)
Stockholders’ deficit:
Common stock, par value $0.01; authorized: 100,000 shares; issued: 45,693 shares at September 30, 2021 and 44,420 shares at December 31, 2020; outstanding: 45,281 shares at September 30, 2021 and 44,420 shares at December 31, 2020454 442 
Treasury stock(11,169) 
Additional paid-in capital1,030,116 1,036,658 
Accumulated deficit(1,142,175)(1,168,347)
Accumulated other comprehensive loss(3,657)(1,677)
Total stockholders’ deficit(126,431)(132,924)
Total liabilities and stockholders’ deficit$248,891 $305,138 
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, 2021
 Shares of
Common Stock
 Additional  Accumulated
Other
Total
 IssuedIn
Treasury
Common
Stock
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Comprehensive
Loss
Stockholders’
Deficit
Balances at January 1, 202144,4204421,036,658(1,168,347)(1,677)(132,924)
Stock issued pursuant to employee stock plans5926 (7,712)(7,706)
Stock-based compensation3,1223,122
Net income4,3914,391
Other comprehensive loss(1,457)(1,457)
Balances at March 31, 202145,012448 1,032,068 (1,163,956)(3,134)(134,574)
Stock issued pursuant to employee stock plans5134(5,973)(5,969)
Stock-based compensation3,5803,580
Net income7,0067,006
Other comprehensive income215215
Balances at June 30, 202145,5254521,029,675(1,156,950)(2,919)(129,742)
Stock issued pursuant to employee stock plans1682(3,073)(3,071)
Repurchase of common stock(412)(11,169)(11,169)
Stock-based compensation3,5143,514
Net income14,77514,775
Other comprehensive loss(738)(738)
Balances at September 30, 202145,693(412)4541,030,116(1,142,175)(11,169)(3,657)(126,431)

4


Nine Months Ended September 30, 2020
 Shares of
Common Stock
 Additional  Accumulated
Other
Total
 IssuedIn
Treasury
Common
Stock
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Comprehensive
Loss
Stockholders’
Deficit
Balances at January 1, 202043,1504301,027,824(1,179,409)(3,930)(155,085)
Stock issued pursuant to employee stock plans3984(1,818)(1,814)
Stock-based compensation2,1092,109
Net loss(5,857)(5,857)
Other comprehensive loss(815)(815)
Balances at March 31, 202043,5484341,028,115(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, 202043,9164371,030,303(1,183,421)(3,811)(156,492)
Stock issued pursuant to employee stock plans2072(1)1
Stock-based compensation3,2973,297
Net income7,9877,987
Other comprehensive income995995
Balances at September 30, 202044,1234391,033,599(1,175,434)(2,816)(144,212)

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,
 20212020
Cash flows from operating activities:  
Net income$26,172 $3,975 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization6,323 6,317 
Allowance for doubtful accounts401 1,349 
Stock-based compensation expense10,216 8,132 
Non-cash provision for restructuring841 653 
Non-cash interest expense386 3,408 
Loss on extinguishment of debt2,579  
Gain on forgiveness of PPP loan(7,800) 
Unrealized foreign currency transaction (gains) losses(1,400)219 
Benefit from deferred taxes1,388 997 
Changes in operating assets and liabilities:  
Accounts receivable20,089 12,741 
Inventories4,353 788 
Prepaid expenses and other assets(1,343)1,390 
Accounts payable590 (26,440)
Accrued expenses, compensation and benefits and other liabilities(10,635)7,752 
Income taxes payable(217)81 
Deferred revenue and contract assets(16,525)(12,519)
Net cash provided by operating activities35,418 8,843 
Cash flows from investing activities:  
Purchases of property and equipment(4,750)(5,619)
Net cash used in investing activities(4,750)(5,619)
Cash flows from financing activities:  
Proceeds from revolving line of credit 22,000 
Repayment on revolving line of credit (22,000)
Proceeds from long-term debt180,000 7,800 
Repayment of debt(208,142)(1,474)
Payments for repurchase of common stock(10,526) 
Payments for repurchase of outstanding notes (28,867)
Proceeds from the issuance of common stock under employee stock plans363 252 
Common stock repurchases for tax withholdings for net settlement of equity awards(17,108)(2,610)
Unwind capped call cash receipt 875 
Prepayment penalty on extinguishment of debt(1,169) 
Payments for credit facility issuance costs(2,574)(289)
Net cash used in financing activities(59,156)(24,313)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(927)1,394 
Net decrease in cash, cash equivalents and restricted cash(29,415)(19,695)
Cash, cash equivalents and restricted cash at beginning of period83,638 72,575 
Cash, cash equivalents and restricted cash at end of period54,223 52,880 
Supplemental information:
Cash and cash equivalents$50,485 $49,142 
Restricted cash$1,422 $1,664 
Restricted cash included in other long-term assets$2,316 $2,074 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$54,223 $52,880 
Cash paid (refunded) for income taxes$706 $(659)
Cash paid for interest$6,354 $13,579 
The accompanying notes are an integral part of the condensed consolidated financial statements.
6


AVID TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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, 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, 2020 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, 2020 in our Annual Report on Form 10-K for the year ended December 31, 2020, 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, 2020.

The consolidated results of operations for the three or nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence.

The novel coronavirus (COVID-19) pandemic, together with the measures implemented or recommended by governmental authorities and private organizations in response to the pandemic, has had a material adverse impact to the Company's business, operating results and financial condition primarily due to reduced demand for our products and services which has led to lower net revenues.

The Company began experiencing a significant decline in international and domestic demand due to COVID-19 by the end of the first quarter of 2020, and this reduction in demand continued through the balance of 2020. These economic impacts were 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.

Through 2021, our results have shown a gradual recovery towards pre-pandemic spending levels with the continuing positive signs of recovery from the impacts of the COVID-19 pandemic driven by vaccination and government stimulus programs, particularly in the United States. At the same time, certain countries continue to face challenges with renewed lockdowns and travel restrictions and there remains uncertainty relating to the ongoing spread and severity of the virus and its variants. While we are encouraged by the trends we have seen so far in 2021, to the extent that the pandemic continues to have negative impacts on economies, our results could be affected and uneven. 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.
7



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) 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.

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, maintenance, 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, 2021, we adopted 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. Our adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements To Be Adopted

In March 2020, the Financial Accounting Standards Board (“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 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 PER SHARE

Net income per common share is presented for both basic income per share (“Basic EPS”) and diluted 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 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.

8


The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at September 30, 2021 and 2020:
 September 30, 2021September 30, 2020
Options 390 
Non-vested restricted stock units930 3,220 
Anti-dilutive potential common shares930 3,610 

The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding for the three and nine months ended September 30, 2021:

Three months endedNine month ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Weighted common shares outstanding - basic45,564 44,019 45,115 43,665 
Net effect of common stock equivalents864 739 1,334 833 
Weighted common shares outstanding - diluted46,428 44,758 46,449 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, 2021 and December 31, 2020, 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
 September 30,
2021
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$372 $99 $273 $ 
  Fair Value Measurements at Reporting Date Using
 December 31, 2020Quoted 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$522 $282 $240 $ 

Financial Instruments Not Recorded at Fair Value

9


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, 2021December 31, 2020
Raw materials$6,710 $8,223 
Work in process304 353 
Finished goods15,201 17,992 
Total$22,215 $26,568 

As of September 30, 2021 and December 31, 2020, finished goods inventory included $1.6 million and $1.2 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 seven 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. As of September 30, 2021, the weighted average incremental borrowing rate was 6.0% and the weighted average remaining lease term was 6.0 years.

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. As of September 30, 2021, the weighted-average discount rate was 2.3% and the weighted average remaining lease term was 2.0 years.

Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total operating lease costs were $1.7 million and $2.2 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $5.4 million and $7.2 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. Related cash payments were $1.9 million and $2.0 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and were $5.8 million and $6.9 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. Short term lease costs were $0.4 million and $1.0 million for the three and nine months ended September 30, 2021, respectively. Short term lease costs for the three and nine months ended September 30, 2020 were immaterial. 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, variable lease costs, and sublease income are not material.
10



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, 2021 (in thousands):
Year Ending December 31,Operating LeasesFinance Leases
2021 (excluding nine months ended September 30, 2021)$1,847 $167 
20226,549 255 
20235,613 226 
20244,942  
20255,031  
Thereafter11,695  
Total future minimum lease payments$35,677 $648 
Less effects of discounting(6,004)(13)
Total lease liabilities$29,673 $635 

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

Operating Leases
September 30, 2021
Right of use assets$25,202 
Accrued expenses and other current liabilities(5,207)
Long-term lease liabilities(24,466)
     Total lease liabilities$(29,673)


Finance Leases
September 30, 2021
Other assets$490 
Accrued expenses and other current liabilities(246)
Other long-term liabilities(389)
     Total lease liabilities$(635)

6.    OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following (in thousands):
 September 30, 2021December 31, 2020
Deferred compensation$5,407 $5,818 
Finance lease liabilities389 472 
Other long-term liabilities1,453 1,496 
   Total$7,249 $7,786 


11


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 $9.2 million of products and services pursuant to this agreement as of September 30, 2021.

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, 2021, be eligible to draw against the letters of credit to a maximum of $0.7 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 $0.7 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 2021 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, 2021.

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 below, 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 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.
12



At September 30, 2021 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, 2021 and 2020 (in thousands):
Nine Months Ended September 30,
20212020
Accrual balance at beginning of period$1,095 $1,337 
Accruals for product warranties988 1,030 
Costs of warranty claims(900)(1,003)
Accrual balance at end of period$1,183 $1,364 

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

8.    RESTRUCTURING COSTS AND ACCRUALS

In October 2020, we committed to a restructuring plan in order to undergo a strategic reorganization of our business. The strategic reorganization involved significant changes in business operations to better support our strategy and overall performance. The restructuring plan related to our strategic reorganization is expected to be substantially completed in 2021.

During the three months ended September 30, 2021, we recorded recoveries of $0.1 million due to employee severance cost adjustments. During the nine months ended September 30, 2021, we recorded restructuring charges of $1.0 million for employee severance costs related to approximately 24 positions eliminated throughout 2021.

During the three months and nine months ended September 30, 2020, we recorded restructuring charges of $0.7 million and $1.0 million, respectively, for employee severance costs.

13


The following table sets forth the activity in the restructuring accruals for the nine months ended September 30, 2021 (in thousands):
 Employee
Accrual balance as of December 31, 2020$3,687 
Restructuring charges and revisions 838 
Cash payments(3,778)
Foreign exchange impact on ending balance(24)
Accrual balance as of September 30, 2021$723 

The employee restructuring accrual at September 30, 2021 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, 2021.


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.

The following table is a summary of our revenues by type for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Products and solutions net revenues$36,850 $35,775 $107,295 $98,121 
Subscription services28,008 17,907 74,384 48,292 
Maintenance30,702 30,826 90,997 93,190 
Professional services, training and other services6,080 5,923 18,204 16,562 
Total net revenues$101,640 $90,431 $290,880 $256,165 

The following table sets forth our revenues by geographic region for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Revenues:  
United States$45,026 $36,190 $126,084 $105,166 
Other Americas5,222 4,505 15,030 15,841 
Europe, Middle East and Africa38,782 37,537 109,400 99,478 
Asia-Pacific12,610 12,199 40,366 35,680 
Total net revenues$101,640 $90,431 $290,880 $256,165 

Contract Asset

Contract asset activity for the nine months ended September 30, 2021 and 2020 was as follows (in thousands):
14


September 30, 2021September 30, 2020
Contract asset at beginning of year$18,579 $19,494 
Revenue in excess of billings43,757 22,045 
Customer billings(39,724)(26,263)
Contract asset at end of period$22,612 $15,276 


Deferred Revenue

Deferred revenue activity for the nine months ended September 30, 2021 and 2020 was as follows (in thousands):
September 30, 2021September 30, 2020
Deferred revenue at beginning of period$99,258 $97,901 
Billings deferred56,846 47,723 
Recognition of prior deferred revenue(69,337)(64,460)
Deferred revenue at end of period$86,767 $81,164 

A summary of the significant performance obligations included in deferred revenue is as follows (in thousands):
September 30, 2021
Product$4,364 
Subscription7,380 
Maintenance contracts66,676 
Implied PCS6,400 
Professional services, training and other1,947 
Deferred revenue at September 30, 2021
$86,767 

Remaining Performance Obligations

For transaction prices allocated to remaining performance obligations, we apply practical expedients and do not disclose quantitative or qualitative information for remaining performance obligations (i) that have original expected durations of one year or less and (ii) where we recognize revenue equal to what we have the right to invoice and that amount corresponds directly with the value to the customer of our performance to date.

Historically, for many of our products, we had an ongoing practice of making when-and-if-available software updates available to customers free of charge for a period of time after initial sales to customers. The expectation created by this practice of providing free Software Updates represents an implied obligation of a form of post-contract customer support (“Implied PCS”) which represents a performance obligation. While we have ceased providing Implied PCS on new product offerings, we continue to provide Implied PCS for older products that were predominately sold in prior years. Revenue attributable to Implied PCS performance obligations is recognized over time on a ratable basis over the period that Implied PCS is expected to be provided, which is typically six years. We have remaining performance obligations of $6.4 million attributable to Implied PCS recorded in deferred revenue as of September 30, 2021. We expect to recognize revenue for these remaining performance obligations of $0.7 million for the remainder of 2021 and $2.2 million, $1.5 million, $1.0 million and $0.6 million for the years ending December 31, 2022, 2023, 2024, and 2025, respectively, and $0.4 million thereafter.

As of September 30, 2021, we had approximately $40.7 million of transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately $32.0 million of these performance obligations were unbilled as of September 30, 2021. Remaining performance obligations represent obligations
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we must deliver for specific products and services in the future where there is not yet an enforceable right to invoice the customer. Our remaining performance obligations do not include contractually committed minimum purchases that are common in our strategic purchase agreements with resellers since our specific obligations to deliver products or services is not yet known, as customers may satisfy such commitments by purchasing an unknown combination of current or future product offerings. While the timing of fulfilling individual performance obligations under the contracts can vary dramatically based on customer requirements, we expect to recognize the $40.7 million in roughly equal installments through 2026.

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

10.    LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consisted of the following (in thousands):
September 30, 2021December 31, 2020
Term Loan, net of unamortized issuance costs and debt discount of $2,188 and $2,579 at September 30, 2021 and December 31, 2020, respectively$171,062 $198,629 
PPP loan 7,800 
Other long-term debt1,087 1,271 
    Total debt$172,149 $207,700 
Less: current portion9,159 4,941 
Total long-term debt$162,990 $202,759 

The following table summarizes the contractual maturities of our borrowing obligations as of September 30, 2021 (in thousands):
Fiscal YearCredit AgreementOther Long-Term DebtTotal
2021$2,250 39 $2,289 
20229,000 162 9,162 
202313,500 174 13,674 
202418,000 186 18,186 
202518,000 200 18,200 
Thereafter112,500 326 112,826 
Total before unamortized discount
173,250 1,087 174,337 
Less: unamortized discount and issuance costs2,188  2,188 
Less: current portion of long-term debt
9,000 159 9,159 
Total long-term debt$162,062 $928 $