avid-20220331
000089684112/312022Q1false00008968412022-01-012022-03-3100008968412022-05-03xbrli:shares0000896841us-gaap:ProductMember2022-01-012022-03-31iso4217:USD0000896841us-gaap:ProductMember2021-01-012021-03-310000896841us-gaap:MaintenanceMember2022-01-012022-03-310000896841us-gaap:MaintenanceMember2021-01-012021-03-310000896841us-gaap:ServiceMember2022-01-012022-03-310000896841us-gaap:ServiceMember2021-01-012021-03-3100008968412021-01-012021-03-31iso4217:USDxbrli:shares00008968412022-03-3100008968412021-12-310000896841us-gaap:CommonStockMember2021-12-310000896841us-gaap:TreasuryStockMember2021-12-310000896841us-gaap:AdditionalPaidInCapitalMember2021-12-310000896841us-gaap:RetainedEarningsMember2021-12-310000896841us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310000896841us-gaap:CommonStockMember2022-01-012022-03-310000896841us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310000896841us-gaap:TreasuryStockMember2022-01-012022-03-310000896841us-gaap:RetainedEarningsMember2022-01-012022-03-310000896841us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310000896841us-gaap:CommonStockMember2022-03-310000896841us-gaap:TreasuryStockMember2022-03-310000896841us-gaap:AdditionalPaidInCapitalMember2022-03-310000896841us-gaap:RetainedEarningsMember2022-03-310000896841us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310000896841us-gaap:CommonStockMember2020-12-310000896841us-gaap:TreasuryStockMember2020-12-310000896841us-gaap:AdditionalPaidInCapitalMember2020-12-310000896841us-gaap:RetainedEarningsMember2020-12-310000896841us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-3100008968412020-12-310000896841us-gaap:CommonStockMember2021-01-012021-03-310000896841us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310000896841us-gaap:RetainedEarningsMember2021-01-012021-03-310000896841us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310000896841us-gaap:CommonStockMember2021-03-310000896841us-gaap:TreasuryStockMember2021-03-310000896841us-gaap:AdditionalPaidInCapitalMember2021-03-310000896841us-gaap:RetainedEarningsMember2021-03-310000896841us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100008968412021-03-310000896841avid:NonVestedRestrictedStockAndRestrictedStockUnitsMember2022-01-012022-03-310000896841avid:NonVestedRestrictedStockAndRestrictedStockUnitsMember2021-01-012021-03-310000896841us-gaap:FairValueMeasurementsRecurringMember2022-03-310000896841us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-03-310000896841us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2022-03-310000896841us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-03-310000896841us-gaap:FairValueMeasurementsRecurringMember2021-12-310000896841us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2021-12-310000896841us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-12-310000896841us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-12-310000896841srt:MinimumMember2022-03-310000896841srt:MaximumMember2022-03-31xbrli:pure0000896841us-gaap:ResearchAndDevelopmentArrangementMember2022-01-012022-03-310000896841us-gaap:ResearchAndDevelopmentArrangementMember2022-03-310000896841us-gaap:StandbyLettersOfCreditMemberavid:OfficeSpaceBurlingtonMassachusettsMember2022-03-310000896841us-gaap:StandbyLettersOfCreditMemberavid:OfficeSpaceOtherFacilitiesMember2022-03-310000896841us-gaap:StandbyLettersOfCreditMemberavid:OtherOperatingObligationsMember2022-03-31avid:position0000896841us-gaap:EmployeeSeveranceMember2021-12-310000896841us-gaap:EmployeeSeveranceMember2022-01-012022-03-310000896841us-gaap:EmployeeSeveranceMember2022-03-310000896841avid:SubscriptionsServicesMember2022-01-012022-03-310000896841avid:SubscriptionsServicesMember2021-01-012021-03-310000896841avid:SupportServicesMember2022-01-012022-03-310000896841avid:SupportServicesMember2021-01-012021-03-310000896841country:US2022-01-012022-03-310000896841country:US2021-01-012021-03-310000896841avid:OtherAmericasMember2022-01-012022-03-310000896841avid:OtherAmericasMember2021-01-012021-03-310000896841avid:EuropeMiddleEastAndAfricaMember2022-01-012022-03-310000896841avid:EuropeMiddleEastAndAfricaMember2021-01-012021-03-310000896841srt:AsiaPacificMember2022-01-012022-03-310000896841srt:AsiaPacificMember2021-01-012021-03-310000896841us-gaap:ProductMember2022-03-310000896841us-gaap:SubscriptionArrangementMember2022-03-310000896841us-gaap:SoftwareServiceSupportAndMaintenanceArrangementMember2022-03-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMember2022-03-310000896841us-gaap:SoftwareLicenseArrangementMember2022-03-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMembersrt:ScenarioForecastMember2022-12-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMembersrt:ScenarioForecastMember2023-12-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMembersrt:ScenarioForecastMember2024-12-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMembersrt:ScenarioForecastMember2025-12-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMembersrt:ScenarioForecastMember2026-12-310000896841us-gaap:NonsoftwareServiceSupportAndMaintenanceArrangementMembersrt:ScenarioForecastMember2027-12-310000896841avid:CerberusBusinessFinanceLLCMemberus-gaap:LongTermDebtMember2022-03-310000896841avid:CerberusBusinessFinanceLLCMemberus-gaap:LongTermDebtMember2021-12-310000896841us-gaap:RevolvingCreditFacilityMember2022-03-310000896841us-gaap:OtherDebtSecuritiesMember2022-03-310000896841avid:TermLoanMemberavid:JPMorganChaseMember2021-01-050000896841us-gaap:RevolvingCreditFacilityMemberavid:JPMorganChaseMember2021-01-050000896841avid:CerberusBusinessFinanceLLCMemberus-gaap:LineOfCreditMember2021-01-052021-01-0500008968412021-01-052021-01-050000896841us-gaap:LineOfCreditMember2021-01-050000896841avid:TermLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-01-052021-01-050000896841avid:TermLoanMember2021-01-052021-01-050000896841avid:TermLoanMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-01-052021-01-050000896841srt:MaximumMemberavid:TermLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-01-052021-01-050000896841us-gaap:RevolvingCreditFacilityMemberavid:JPMorganChaseMember2022-02-252022-02-250000896841us-gaap:RevolvingCreditFacilityMemberavid:JPMorganChaseMember2022-03-310000896841us-gaap:RevolvingCreditFacilityMemberavid:JPMorganChaseMember2022-01-012022-03-31utr:Rate0000896841avid:TermLoanMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-01-012022-03-310000896841avid:TermLoanMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-03-310000896841us-gaap:RestrictedStockUnitsRSUMember2021-12-310000896841us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310000896841us-gaap:RestrictedStockUnitsRSUMember2022-03-310000896841us-gaap:RestrictedStockUnitsRSUMemberavid:PerformanceBasedVestingMember2021-12-310000896841us-gaap:RestrictedStockUnitsRSUMemberavid:PerformanceBasedVestingMember2022-01-012022-03-310000896841us-gaap:RestrictedStockUnitsRSUMemberavid:PerformanceBasedVestingMember2022-03-310000896841us-gaap:RestrictedStockUnitsRSUMemberavid:TimeBasedRSUsMember2022-01-012022-03-310000896841us-gaap:RestrictedStockUnitsRSUMemberavid:TimeBasedRSUsMember2021-01-012021-03-310000896841us-gaap:RestrictedStockUnitsRSUMemberavid:PerformanceBasedVestingMember2021-01-012021-03-310000896841us-gaap:EmployeeStockMember2022-01-012022-03-310000896841us-gaap:EmployeeStockMember2021-01-012021-03-310000896841avid:CostOfProductsRevenuesMember2022-01-012022-03-310000896841avid:CostOfProductsRevenuesMember2021-01-012021-03-310000896841us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310000896841us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310000896841us-gaap:SellingAndMarketingExpenseMember2022-01-012022-03-310000896841us-gaap:SellingAndMarketingExpenseMember2021-01-012021-03-310000896841us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-03-310000896841us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-03-3100008968412021-09-09

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 March 31, 2022
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
x
Accelerated filer
o
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 May 2, 2022, was 44,971,814.



AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

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 ongoing 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 acts of war, armed conflict, and cyber conflict, such as the Russian invasion of Ukraine, and related international sanctions and reprisals;

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;

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, 2021, 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 Ended
 March 31,
 20222021
Net revenues:  
Subscription$32,954 24,868 
Maintenance28,327 29,852 
Integrated solutions & other39,368 39,644 
Total net revenues100,649 94,364 
Cost of revenues:  
Subscription5,602 2,615 
Maintenance5,277 5,574 
Integrated solutions & other23,006 24,759 
Total cost of revenues33,885 32,948 
Gross profit66,764 61,416 
Operating expenses:  
Research and development16,736 15,417 
Marketing and selling21,927 20,744 
General and administrative14,811 13,635 
Restructuring costs, net15 1,074 
Total operating expenses53,489 50,870 
Operating income13,275 10,546 
Interest expense, net(1,476)(2,118)
Other expense, net(87)(3,555)
Income before income taxes11,712 4,873 
Provision for income taxes1,126 482 
Net income$10,586 $4,391 
Net income per common share – basic$0.24$0.10
Net income per common share – diluted$0.23$0.10
Weighted-average common shares outstanding – basic44,817 44,559 
Weighted-average common shares outstanding – diluted45,408 46,204 
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 Ended
 March 31,
 20222021
Net income$10,586 $4,391 
Other comprehensive (loss) income:
Foreign currency translation adjustments(201)(1,457)
Comprehensive income$10,385 $2,934 
The accompanying notes are an integral part of the condensed consolidated financial statements.


2


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
March 31,
2022
December 31,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$41,245 $56,818 
Restricted cash
2,013 2,416 
Accounts receivable, net of allowances of $1,298 and $1,456 at March 31, 2022 and December 31, 2021, respectively
57,410 77,046 
Inventories17,817 19,922 
Prepaid expenses7,137 5,464 
Contract assets25,542 18,903 
Other current assets1,896 1,953 
Total current assets153,060 182,522 
Property and equipment, net17,742 16,028 
Goodwill32,643 32,643 
Right of use assets23,242 24,143 
Deferred tax assets, net4,155 5,210 
Other long-term assets14,265 13,454 
Total assets$245,107 $274,000 
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities:  
Accounts payable$21,380 $26,854 
Accrued compensation and benefits26,821 35,458 
Accrued expenses and other current liabilities36,457 37,552 
Income taxes payable145 868 
Short-term debt8,709 9,158 
Deferred revenue80,744 87,475 
Total current liabilities174,256 197,365 
Long-term debt160,889 160,806 
Long-term deferred revenue11,578 10,607 
Long-term lease liabilities22,673 23,379 
Other long-term liabilities5,730 5,917 
Total liabilities375,126 398,074 
Commitments and contingencies (Note 7)
Stockholders’ deficit:
Common stock, par value $0.01; authorized: 100,000 shares; issued: 46,219 shares at March 31, 2022 and 45,828 shares at December 31, 2021; outstanding: 44,991 shares at March 31, 2022 and 44,954 shares at December 31, 2021
459 455 
Treasury stock(35,906)(25,090)
Additional paid-in capital1,026,115 1,031,633 
Accumulated deficit(1,116,373)(1,126,959)
Accumulated other comprehensive loss(4,314)(4,113)
Total stockholders’ deficit(130,019)(124,074)
Total liabilities and stockholders’ deficit$245,107 $274,000 
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)

Three Months Ended March 31, 2022
 Shares of
Common Stock
 Additional Accumulated
Other
Total
IssuedIn
Treasury
Common
Stock
Treasury
Stock
Paid-in
Capital
Accumulated
Deficit
Comprehensive
Loss
Stockholders’
Deficit
Balances at January 1, 202245,828(874)455(25,090)1,031,633(1,126,959)(4,113)(124,074)
Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations3914 (8,940)(8,936)
Repurchase of common stock(354)— (10,816)(10,816)
Stock-based compensation— 3,4223,422
Net income— 10,58610,586
Other comprehensive loss— (201)(201)
Balances at March 31, 202246,219(1,228)459(35,906)1,026,115(1,116,373)(4,314)(130,019)

Three Months Ended March 31, 2021
 Shares of
Common Stock
 Additional Accumulated
Other
Total
 IssuedIn
Treasury
Common
Stock
Paid-in
Capital
Accumulated
Deficit
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 plans, net of shares withheld for employee tax obligations5926 (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)



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

4


AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months Ended
 March 31,
 20222021
Cash flows from operating activities:  
Net income$10,586 $4,391 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization1,803 2,119 
(Recovery) allowance for doubtful accounts(135)83 
Stock-based compensation expense3,422 3,122 
Non-cash provision for restructuring15 912 
Non-cash interest expense126 129 
Loss on extinguishment of debt 2,579 
Loss on disposal of fixed assets548  
Unrealized foreign currency transaction gains(128)(1,432)
Benefit from deferred taxes1,055 501 
Changes in operating assets and liabilities:  
Accounts receivable19,770 19,702 
Inventories2,105 (1,048)
Prepaid expenses and other assets(2,067)(866)
Accounts payable(5,473)(2,604)
Accrued expenses, compensation and benefits and other liabilities(9,993)(9,887)
Income taxes payable(723)(259)
Deferred revenue and contract assets(12,995)(5,129)
Net cash provided by operating activities7,916 12,313 
Cash flows from investing activities:  
Purchases of property and equipment(3,244)(1,254)
Net cash used in investing activities(3,244)(1,254)
Cash flows from financing activities:  
Proceeds from long-term debt 180,000 
Repayment of debt (201,208)
Repayment of debt principal(53)(2,346)
Payments for repurchase of common stock(10,562) 
Common stock repurchases for tax withholdings for net settlement of equity awards(8,936)(7,706)
Prepayment penalty on extinguishment of debt (1,169)
Payments for credit facility issuance costs(440)(2,574)
Net cash used in financing activities(19,991)(35,003)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(254)(332)
Net decrease in cash, cash equivalents and restricted cash(15,573)(24,276)
Cash, cash equivalents and restricted cash at beginning of period60,556 83,638 
Cash, cash equivalents and restricted cash at end of period$44,983 $59,362 
Supplemental information:
Cash and cash equivalents$41,245 $55,624 
Restricted cash2,013 1,422 
Restricted cash included in other long-term assets1,725 2,316 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$44,983 $59,362 
Cash paid for income taxes$851 $281 
Cash paid for interest$1,176 $3,630 
The accompanying notes are an integral part of the condensed consolidated financial statements.
5


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, 2021 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, 2021 in our Annual Report on Form 10-K for the year ended December 31, 2021, 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, 2021.

The consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 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.

Through the first quarter of 2022, our results have continued in the same direction as our 2021 results, reflecting a gradual recovery in 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 in response to new variants and there remains uncertainty relating to the ongoing spread and severity of those variants. Although we are encouraged by the trends we saw during 2021 and during the first quarter of 2022, 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 operations, and the operations of our customers, are vulnerable to interruptions, delays, complications, and other impacts from natural disasters and catastrophic events, including pandemics such as the COVID-19 pandemic, as well as political unrest including armed conflicts such as the Russian invasion of Ukraine. Ongoing effects of the COVID-19 pandemic and its subsequent variants continue to complicate supply chain logistics and cause delays, and the Russian invasion of Ukraine may exacerbate supply chain issues further.

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.

Reclassifications

As our business continues to shift towards a subscription-based model, we have reformatted our income statement presentation to conform with this shift. We have reclassified certain prior period amounts related to revenue and cost of goods sold within our consolidated statements of operations and accompanying notes to conform to our current period presentation. These reclassifications did not affect total revenue or total cost of goods sold.
6




Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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. We adopted ASU 2020-04 as of January 1, 2022. The Company has determined the impact of this adoption was not material to our 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.

The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at March 31, 2022 and 2021:
 March 31, 2022March 31, 2021
Non-vested restricted stock units783 1,040 

The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding for the three months ended March 31, 2022 and 2021:

Three months ended
March 31, 2022March 31, 2021
Weighted common shares outstanding - basic44,817 44,559 
Net effect of common stock equivalents591 1,645 
Weighted common shares outstanding - diluted45,408 46,204 


7


3.    FAIR VALUE MEASUREMENTS

Assets Measured at Fair Value on a Recurring Basis

We measure deferred compensation investments on a recurring basis. As of March 31, 2022 and December 31, 2021, 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
 March 31,
2022
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$396 $93 $303 $ 
  Fair Value Measurements at Reporting Date Using
 December 31, 2021Quoted 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$408 $99 $309 $ 

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):
 March 31, 2022December 31, 2021
Raw materials$7,229 $8,519 
Work in process304 304 
Finished goods10,284 11,099 
Total$17,817 $19,922 

As of March 31, 2022 and December 31, 2021, finished goods inventory included $1.3 million and $1.9 million, respectively, associated with products shipped to customers and deferred labor costs for arrangements where revenue recognition had not yet commenced.


8


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 six 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 March 31, 2022, the weighted average incremental borrowing rate was 5.9% and the weighted average remaining lease term was 5.7 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 March 31, 2022, the weighted-average discount rate was 2.3% and the weighted average remaining lease term was 1.8 years.

Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total operating lease costs were $1.5 million and $1.9 million for the three months ended March 31, 2022 and March 31, 2021, respectively. Related cash payments were $1.5 million and $2.1 million for the three months ended March 31, 2022 and March 31, 2021, respectively. Short term lease costs were $0.6 million and $0.3 million for the three months ended March 31, 2022 and March 31, 2021, respectively. 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.

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 March 31, 2022 (in thousands):
9


Year Ending December 31,Operating LeasesFinance Leases
2022 (excluding three months ended March 31, 2022)$4,776 $188 
20235,937 219 
20245,130 72 
20255,151  
20265,163  
Thereafter6,495  
Total future minimum lease payments$32,652 $479 
Less effects of discounting(5,159)(9)
Total lease liabilities$27,493 $470 

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

Operating Leases
March 31, 2022
Right of use assets$23,242 
Accrued expenses and other current liabilities(4,820)
Long-term lease liabilities(22,673)
     Total lease liabilities$(27,493)


Finance Leases
March 31, 2022
Other assets$438 
Accrued expenses and other current liabilities(245)
Other long-term liabilities(225)
     Total lease liabilities$(470)

6.    OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following (in thousands):
 March 31, 2022December 31, 2021
Deferred compensation$4,875 $4,981 
Finance lease liabilities225 289 
Other long-term liabilities630 647 
   Total$5,730 $5,917 


10


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 $13.5 million of products and services pursuant to this agreement as of March 31, 2022.

We have letters of credit that are used as security deposits in connection with our leased Burlington, Massachusetts office space. In the event of default on the underlying leases, the landlords would, at March 31, 2022, be eligible to draw against the letters of credit to a maximum of $0.7 million.

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 2022 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.

Substantially all of our letters of credit are collateralized by restricted cash included in the caption “Restricted cash” and “Other long-term assets” on our condensed consolidated balance sheets as of March 31, 2022.

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 employee’s employment agreement. On April 16, 2019, we received an additional notice again alleging we breached the former employee’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 and such amount is material. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.

At March 31, 2022 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
11


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 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 three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31,
20222021
Accrual balance at beginning of period$1,219 $1,095 
Accruals for product warranties321 466 
Costs of warranty claims(306)(374)
Accrual balance at end of period$1,234 $1,187 

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 2022.

During the three months ended March 31, 2022, we recorded an immaterial amount of restructuring charges due to employee severance cost adjustments.

During the three months ended March 31, 2021, we recorded restructuring charges of $1.1 million for employee severance costs related to approximately 23 positions eliminated during the first quarter of 2021.

The following table sets forth the activity in the restructuring accruals for the three months ended March 31, 2022 (in thousands):
 Employee
Accrual balance as of December 31, 2021$655 
Restructuring charges and revisions 15 
Cash payments(665)
Foreign exchange impact on ending balance(5)
Accrual balance as of March 31, 2022$ 



12


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 months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31,
 20222021
Subscriptions32,954 24,868 
Maintenance28,327 29,852 
Integrated solutions & other39,368 39,644 
Total net revenues$100,649 $94,364 

The following table sets forth our revenues by geographic region for the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31,
 20222021
Revenues:  
United States$44,389 $39,471 
Other Americas4,894 5,179 
Europe, Middle East and Africa38,845 36,523 
Asia-Pacific12,521 13,191 
Total net revenues$100,649 $94,364 

Contract Asset

Contract asset activity for the three months ended March 31, 2022 and 2021 was as follows (in thousands):
March 31, 2022March 31, 2021
Contract asset at beginning of period$25,397 $18,579 
Revenue in excess of billings9,891 14,395 
Customer billings(2,657)(11,019)
Contract asset at end of period$32,631 $21,955 
Less: long-term portion (recorded in other long-term assets)7,089  
Contract asset, current portion$25,542 $21,955 


Deferred Revenue

Deferred revenue activity for the three months ended March 31, 2022 and 2021 was as follows (in thousands):
13


March 31, 2022March 31, 2021
Deferred revenue at beginning of period$98,082 $99,259 
Billings deferred29,506 31,132 
Recognition of prior deferred revenue(35,266)(32,885)
Deferred revenue at end of period$92,322 $97,506 

A summary of the significant performance obligations included in deferred revenue is as follows (in thousands):
March 31, 2022
Product$6,210 
Subscription6,719 
Maintenance contracts71,294 
Implied PCS5,200 
Professional services, training and other2,899 
Deferred revenue at March 31, 2022
$92,322 

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 $5.2 million attributable to Implied PCS recorded in deferred revenue as of March 31, 2022. We expect to recognize revenue for these remaining performance obligations of $1.6 million for the remainder of 2022 and $1.5 million, $1.1 million, $0.6 million and $0.3 million for the years ending December 31, 2023, 2024, 2025, and 2026, respectively, and $0.1 million thereafter.

As of March 31, 2022, we had approximately $35.6 million of transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately $25.5 million of these performance obligations were unbilled as of March 31, 2022. Remaining performance obligations represent obligations we must deliver for specific products and services in the future where there is not yet an enforceable right to invoice the customer. Our remaining performance obligations do not include contractually committed minimum purchases that are common in our strategic purchase agreements with resellers since our specific obligations to deliver products or services is not yet known, as customers may satisfy such commitments by purchasing an unknown combination of current or future product offerings. While the timing of fulfilling individual performance obligations under the contracts can vary dramatically based on customer requirements, we expect to recognize the $35.6 million in roughly equal installments through 2027.

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.

14


10.    LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consisted of the following (in thousands):
March 31, 2022December 31, 2021
Term Loan, net of unamortized issuance costs and debt discount of $2,373 and $2,059 at March 31, 2022 and December 31, 2021, respectively
$168,627 $168,941 
Other long-term debt971 1,023 
    Total debt$169,598 $169,964 
Less: current portion8,709 9,158 
Total long-term debt$160,889 $160,806 

The following table summarizes the contractual maturities of our borrowing obligations as of March 31, 2022 (in thousands):
Fiscal YearTerm LoanOther Long-Term DebtTotal
2022$6,413 118 $6,531 
20238,550 167 8,717 
202411,756 179 11,935 
202516,031 192 16,223 
202617,100 206 17,306 
Thereafter111,150 109 111,259 
Total before unamortized discount
171,000 971 171,971 
Less: unamortized discount and issuance costs(2,373) (2,373)
Less: current portion of long-term debt
(8,550)(159)(8,709)
Total long-term debt$160,077 $812 $160,889 


Credit Agreement

On January 5, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as collateral and administrative agent, and a syndicate of banks, as lenders thereunder (the “Lenders”). Pursuant to the Credit Agreement, the Lenders agreed to provide the Company with (a) a term loan in the aggregate principal amount of $180.0 million (the “Term Loan”) and (b) a revolving credit facility (the “Credit Facility”) of up to a maximum of $70.0 million in borrowings outstanding at any time. The Credit Facility, which was undrawn at closing, can be used for working capital, other general corporate purposes and for other permitted uses. The proceeds from the Term Loan, plus available cash on hand, were used to repay outstanding borrowings of $201 million under the Company’s prior financing agreement with Cerberus Business Finance, LLC ( the “Financing Agreement”), which was then terminated. As a result of this termination, the Company incurred a loss on extinguishment of debt of $3.7 million as a result of writing off $2.6 million of remaining unamortized issuance costs as well as a $1.1 million prepayment penalty.

In association with the Credit Agreement, the Company incurred $2.5 million of issuance discounts and an immaterial amount of issuance costs. The Term Loan had an initial interest rate of LIBOR plus an applicable margin of 3.00%, with a 0.25% LIBOR floor. The applicable margin on the Term Loan and the Credit Facility ranged from 2.00% to 3.25%, depending on leverage.
15



On February 25, 2022, the Company executed an Amended and Restated Credit Agreement (the “A&R Credit Agreement) with JPMorgan Chase Bank, N.A. and the Lenders. The A&R Credit Agreement extended the term of the Term Loan by approximately one year to February 25, 2027, reduced the applicable interest rate margins by 0.25%, removed the LIBOR floor, moved the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”), reset the principal amortization schedule, and eliminated the fixed charge coverage ratio. The effective interest rate for the three months ended March 31, 2022 was 2.75%.

The Company granted a security interest on substantially all of its assets to secure the obligations under the Credit Facility and the Term Loan.

The A&R Credit Agreement also requires the Company to maintain a total net leverage ratio of no more than 4.00 to 1.00 initially, with step downs thereafter. Other terms of the A&R Credit Agreement remain substantially the same as the Credit Agreement. We were in compliance with the Credit Agreement covenants as of March 31, 2022.

In connection with the A&R Credit Agreement, the Company incurred an additional $0.4 million of issuance costs during the three months ended March 31, 2022. These additional costs and the remaining unamortized Term Loan discount and issuance costs will be amortized jointly over the amended remaining life of the A&R Credit Agreement. We recorded $1.2 million of interest expense on the Term Loan for the three months ended March 31, 2022. As of March 31, 2022, there were no amounts drawn under the Credit Facility.

11. STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Information with respect to the Company’s non-vested restricted stock units for the three months ended March 31, 2022 was as follows:
 Number of Restricted Stock UnitsWeighted-
Average
Grant-Date
Fair Value
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in thousands)
Shares Retained to Cover Statutory Minimum Withholding Taxes
Non-vested at January 1, 20221,061,834 $16.60  — 
Granted164,405 31.22  — 
Vested(235,721)11.20  (136,435)
Forfeited(19,976)17.62  — 
Outstanding at March 31, 2022970,542 $20.370.91$33,833

Information with respect to the Company’s non-vested performance-based restricted stock units for the three months ended March 31, 2022 was as follows:
 Number of Performance-based Restricted Stock UnitsWeighted-
Average
Grant-Date
Fair Value
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in thousands)
Shares Retained to Cover Statutory Minimum Withholding Taxes
Non-vested at January 1, 2022579,364 $13.20  — 
Granted296,405 22.69  — 
Vested(454,804)10.19  (254,596)
Forfeited(3,448)26.38  — 
Non-vested at March 31, 2022417,517 $23.111.46$14,555
16




The following table sets forth stock-based compensation expense by award type for the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31,
 20222021
Share-based compensation expense by type:
Time-based Restricted Stock Units$2,428 $2,437 
Performance-based Restricted Stock Units948 656 
ESPP46 29 
Total share-based compensation expense$3,422 $3,122 

Stock-based compensation was included in the following captions in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,
 20222021
Cost of revenues$426 $440 
Research and development expenses350 521 
Marketing and selling expenses598 602 
General and administrative expenses2,048 1,559 
Total share-based compensation expense$3,422 $3,122 

On September 9, 2021, our Board of Directors approved the repurchase of up to $115.0 million of our outstanding shares. This authorization does not have a prescribed expiration date. As of March 31, 2022, approximately $79.1 million of the $115.0 million share repurchase authorization remained available. The Company has no obligation to repurchase any amount of its common stock, and the program may be suspended or discontinued at any time. For the three months ended March 31, 2022, the Company repurchased 354,472 shares of its common stock for $10.8 million. These amounts may differ from the repurchases of common stock amounts in the condensed consolidated statements of cash flows due to unsettled share repurchases at the end of a period.



17


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Business Overview

We develop, market, sell, and support software and integrated solutions for video and audio content creation, management and distribution. We are a leading technology provider that powers the media and entertainment industry. We do this by providing an open and efficient platform for digital media, along with a comprehensive set of tools and workflow solutions. Our solutions are used in production and post-production facilities; film studios; network, affiliate, independent and cable television stations; recording studios; live-sound performance venues; advertising agencies; government and educational institutions; corporate communications departments; and by independent video and audio creative professionals, as well as aspiring professionals. Projects produced using our tools, platform, and ecosystem include feature films, television programming, live events, news broadcasts, sports productions, commercials, music, video, and other digital media content. With over one million creative users and thousands of enterprise clients relying on our technology platforms and solutions around the world, Avid enables the industry to thrive in today’s connected media and entertainment world.

Our mission is to empower media creators with innovative technology and collaborative tools to entertain, inform, educate, and enlighten the world. Our clients rely on Avid’s products and solutions to create prestigious and award-winning feature films, music recordings, television shows, live concerts, sporting events, and news broadcasts. Avid has been honored for technological innovation with 18 Emmy Awards, one Grammy Award, two Oscars, and the first ever America Cinema Editors Technical Excellence Award.

Operations Overview

Our strategy for connecting creative professionals and media enterprises with audiences in a powerful, efficient, collaborative, and profitable way leverages our creative software tools, including Pro Tools for audio and Media Composer for video, and our MediaCentral Platform - the open, extensible, and customizable foundation that streamlines and simplifies content workflows by integrating all Avid or third-party products and services that run on top of it. The platform provides secure and protected access, and enables fast and easy creation, delivery, and monetization of content.

We work to ensure that we are meeting customer needs, staying ahead of industry trends, and investing in the right areas through a close and interactive relationship with our customer base. The Avid Customer Association was established to be an innovative and influential media technology community. It represents thousands of organizations and over 30,000 professionals from all levels of the industry including inspirational and award-winning thought leaders, innovators, and storytellers. The Avid Customer Association fosters collaboration between Avid, its customers, and other industry colleagues to help shape our product offerings and provide a means to shape our industry together.

A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings and long-term agreements. As of March 31, 2022, we had approximately 432,000 paid subscriptions. The subscription count includes all paid and active seats under multi-seat licenses. These licensing options offer choices in pricing and deployment to suit our customers’ needs. Our subscription offerings to date have been sold to creative professionals and media enterprises. We expect to increase subscription sales to media enterprises going forward as we expand offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SaaS offerings, and channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.

Avid continued to invest in our Digital Transformation Initiative through the first quarter of 2022, which focuses on optimizing systems, processes, and back-office functions with the objective of improving our operations related to our digital and subscription business. The project started in the third quarter of 2021 and over the next four years, we plan to significantly invest in transforming our enterprise-wide infrastructure and technologies to benefit customers and drive enhanced performance across the company.

A summary of our revenue sources for the three months ended March 31, 2022 and 2021 is as follows (in thousands):
18


Three Months Ended March 31,
20222021
Subscriptions$32,954 $24,868 
Maintenance28,327 29,852 
Subscriptions and Maintenance61,281 54,720 
Perpetual Licenses5,197 7,058 
Software Licenses and Maintenance66,478 61,778 
Integrated solutions28,212 26,209 
Professional services & training5,959 6,377 
Total revenue$100,649 $94,364 

Recent Developments Affecting on Our Business

The COVID-19 pandemic has created significant global economic uncertainty which adversely impacted our business and the business of our customers and partners during 2020. However, our results through 2021 and the first quarter of 2022, reflected a gradual recovery in 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 and there remains uncertainty relating to the ongoing spread and severity of the virus and its variants. Although we are encouraged by the trends we have seen, to the extent that the pandemic continues to have negative impacts on economies, our results could be affected and uneven. Ongoing effects of the COVID-19 pandemic and its subsequent variants continue to complicate supply chain logistics and cause delays, and the Russian invasion of Ukraine may exacerbate supply chain issues further. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

CRITICAL ACCOUNTING ESTIMATES

Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.

We believe that our critical accounting policies and estimates are those related to revenue recognition and allowances for sales returns and exchanges, stock-based compensation, and income tax assets and liabilities. We believe these policies and estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for the year ended December 31, 2021 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies and Estimates”. There have been no significant changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.
19



RESULTS OF OPERATIONS

The following table sets forth certain items from our condensed consolidated statements of operations as a percentage of net revenues for the three months ended March 31, 2022 and 2021:
 Three Months Ended March 31,
 20222021
Net revenues:  
Subscriptions32.7 %26.4 %
Maintenance28.1 %31.6 %
Integrated solutions & other39.2 %42.0 %
Total net revenues100.0 %100.0 %
Cost of revenues33.7 %34.9 %
Gross margin66.3 %65.1 %
Operating expenses:  
Research and development16.6 %16.3 %
Marketing and selling21.8 %22.0 %
General and administrative14.7 %14.5 %
Restructuring costs, net— %1.1 %
Total operating expenses53.1 %53.9 %
Operating income13.2 %11.2 %
Interest expense, net(1.5)%(2.2)%
Other income, net(0.1)%(3.8)%
Income before income taxes11.6 %5.2 %
Provision for income taxes1.1 %0.5 %
Net income10.5 %4.7 %

Net Revenues

Our net revenues are derived mainly from sales of subscription software solutions, maintenance contracts, and integrated solutions for digital media content production, management and distribution, and related professional services. We commonly sell large, complex solutions to our customers that, due to their strategic nature, have long lead times where the timing of order execution and fulfillment can be difficult to predict. In addition, the rapid evolution of the media industry is changing our customers’ needs, businesses, and revenue models, which is influencing their short-term and long-term purchasing decisions. As a result of these factors, the timing and amount of product revenue recognized related to orders for large, complex solutions, as well as the services associated with them, can fluctuate from quarter to quarter and cause significant volatility in our quarterly operating results. For a discussion of these factors, see the risk factors discussed in Part I, Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Net Revenues for the Three Months Ended March 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Net Revenues$%Net Revenues
Subscriptions$32,954 $8,086 32.5%$24,868 
Maintenance28,327 (1,525)(5.1)%29,852 
Integrated solutions & other39,368 (276)(0.7)%39,644 
Total net revenues$100,649 $6,285 6.7%$94,364 

20



Net Revenues for the Nine Months Ended September 30, 2021 and 2020

The following table sets forth the percentage of our net revenues attributable to geographic regions for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
United States44%42%
Other Americas5%5%
Europe, Middle East and Africa39%39%
Asia-Pacific12%14%

Subscription Revenues

Our subscription revenues are derived primarily from sales of our Media Composer, Pro Tools, and Sibelius offerings. Subscription revenues increased $8.1 million, or 32.5%, for the three months ended March 31, 2022, compared to the same period in 2021. The increase for the three months ended March 31, 2022 was primarily a result of new customers adopting our subscription solutions and customers transitioning from our perpetual product licenses to our subscription-based model.

Maintenance Revenues

Our maintenance revenues are derived from a variety of maintenance contracts for our software and integrated solutions. Maintenance contracts allow each customer to select the level of technical and operational support that they need to maintain their operational effectiveness. Maintenance contracts typically include the right to the latest software updates, call support, and, in some cases, hardware maintenance. Maintenance revenues decreased $1.5 million, or 5.1%, for the three months ended March 31, 2022, compared to the same period in 2021. The decrease for the three months ended March 31, 2022 was primarily due to customers transitioning from our perpetual based licenses to our subscription licenses.

Integrated Solutions and other Revenues

Our integrated solutions and other revenues are derived primarily from sales of our storage and workflow solutions, media management solutions, video creative tools, digital audio software and workstation solutions, and our control surfaces, consoles, and live-sound systems as well as professional and learning services. Integrated solutions and other revenues decreased slightly, for the three months ended March 31, 2022, compared to the same period in 2021 as the result of delayed shipments due to supply chain issues.


Cost of Revenues, Gross Profit and Gross Margin Percentage

Cost of revenues consists primarily of costs associated with:
procurement of components and finished goods;
assembly, testing and distribution of finished products;
warehousing;
customer support related to maintenance;
royalties for third-party software and hardware included in our products; and
providing professional services and training.







21










Costs of Revenues and Gross Profit

Costs of Revenues and Gross Profit for the Three Months Ended March 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Costs$%Costs
Subscriptions$5,602 $2,987 114.2%$2,615 
Maintenance5,277 (297)(5.3)%5,574 
Integrated solutions & other23,006 (1,753)(7.1)%24,759 
    Total cost of revenues$33,885 $937 2.8%$32,948 
Gross profit$66,764 $5,348 8.7%$61,416 


Costs of Revenues and Gross Profit for the Nine Months Ended September 30, 2021 and 2020

Gross Margin Percentage

Gross margin percentage, which is net revenues less costs of revenues divided by net revenues, fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-promotion programs, the distribution channels through which products are sold, the timing of new product introductions, sales of aftermarket hardware products, and currency exchange-rate fluctuations. For a discussion of these factors, see the risk factors discussed in Part I, Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Our gross margin percentage for the three months ended March 31, 2022 increased to 66.3% from 65.1% compared to the same period in 2021. This increase was primarily due to increased volume on our higher margin subscription revenue as well as an improvement in our integrated solutions gross margin. This was offset by the decrease in our subscription margins due to increased customer care costs being allocated to subscription.
Gross Margin % for the Three Months Ended March 31, 2022 and 2021
 2022 Gross
Margin %
Change2021 Gross
Margin %
Subscription83.0%(6.5)%89.5%
Maintenance81.4%0.1%81.3%
Integrated solutions & other41.6%4.1%37.5%
Total66.3%1.2%65.1%

Gross Margin % for the Nine Months Ended September 30, 2021 and 2020




22



Operating Expenses and Operating Income

Operating Expenses and Operating Income for the Three Months Ended March 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Expenses$%Expenses
Research and development$16,736 $1,319 8.6%$15,417 
Marketing and selling21,927 1,183 5.7%20,744 
General and administrative14,811 1,176 8.6%13,635 
Restructuring costs, net15 (1,059)(98.6)%1,074 
Total operating expenses$53,489 $2,619 5.1%$50,870 
Operating income$13,275 $2,729 25.9%$10,546 

Operating Expenses and Operating Loss for the Nine Months Ended September 30, 2021 and 2020

Research and Development Expenses

Research and development (“R&D”) expenses include costs associated with the development of new products and the enhancement of existing products, and consist primarily of employee compensation and benefits, facilities costs, depreciation, costs for consulting and temporary employees, and prototype and other development expenses. R&D expenses increased $1.3 million, or 8.6%, for the three months ended March 31, 2022, compared to the same period in 2021. The increase in R&D expenses was primarily due to increased consulting and outside research and development services for the three months ended March 31, 2022, compared to the same period in 2021.
Change in R&D Expenses for the Three Months Ended March 31, 2022 and 2021
Change in R&D Expenses for the Nine Months Ended September 30, 2021 and 2020
Marketing and Selling Expenses

Marketing and selling expenses consist primarily of employee compensation and benefits for selling, marketing and pre-sales customer support personnel, commissions, travel expenses, advertising and promotional expenses, web design costs, and facilities costs. The tables below provide further details regarding the changes in components of marketing and selling expenses.
Change in Marketing and Selling Expenses for the Three Months Ended March 31, 2022 and 2021
(dollars in thousands)
 2022 Increase (Decrease) From 2021
 $%
Personnel-related225