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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, 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 Blue Sky Drive
BurlingtonMassachusetts01803
   Address of Principal Executive Offices, Including Zip Code
(978) 640-3000
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 November 4, 2022, was 43,691,214.



AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED September 30, 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 effect of the continuing worldwide macroeconomic uncertainty and its impacts, including inflation, market volatility and fluctuations in foreign currency exchange and interest rates on our business and results of operations, including impacts related to acts of war, armed conflict, and cyber conflict, such as, for example the Russian invasion of Ukraine, and related international sanctions and reprisals;

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 market volatility and other adverse economic and commercial conditions;

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;

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;

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 and the continuing worldwide macroeconomic uncertainty described above.

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 in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, 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,
 2022202120222021
Net revenues:  
Subscription$41,782 $28,008 $108,878 $74,384 
Maintenance27,280 30,702 83,382 90,997 
Integrated solutions & other33,923 42,930 109,054 125,499 
Total net revenues102,985 101,640 301,314 290,880 
Cost of revenues:  
Subscription6,163 4,020 18,057 10,210 
Maintenance4,849 5,739 15,379 17,135 
Integrated solutions & other22,194 25,978 67,969 76,078 
Total cost of revenues33,206 35,737 101,405 103,423 
Gross profit69,779 65,903 199,909 187,457 
Operating expenses:  
Research and development17,110 17,129 49,869 48,639 
Marketing and selling24,362 24,413 69,962 66,511 
General and administrative14,066 14,901 42,241 42,214 
Restructuring costs, net158 (88)515 1,001 
Total operating expenses55,696 56,355 162,587 158,365 
Operating income14,083 9,548 37,322 29,092 
Interest expense, net(2,741)(1,646)(6,161)(5,547)
Other income, net15 7,864 7 4,459 
Income before income taxes11,357 15,766 31,168 28,004 
(Benefit from) provision for income taxes(665)991 1,187 1,832 
Net income$12,022 $14,775 $29,981 $26,172 
Net income per common share – basic$0.27$0.32$0.67$0.58
Net income per common share – diluted$0.27$0.32$0.66$0.56
Weighted-average common shares outstanding – basic44,476 45,564 44,676 45,115 
Weighted-average common shares outstanding – diluted44,703 46,428 45,107 46,449 
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,
 2022202120222021
Net income$12,022 $14,775 $29,981 $26,172 
Other comprehensive loss:
Foreign currency translation adjustments(1,416)(738)(3,352)(1,980)
Comprehensive income$10,606 $14,037 $26,629 $24,192 
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,
2022
December 31,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$31,344 $56,818 
Restricted cash
2,413 2,416 
Accounts receivable, net of allowances of $2,317 and $1,456 at September 30, 2022 and December 31, 2021, respectively
55,257 77,046 
Inventories21,993 19,922 
Prepaid expenses8,766 5,464 
Contract assets17,728 18,903 
Other current assets2,380 1,953 
Total current assets139,881 182,522 
Property and equipment, net21,215 16,028 
Goodwill32,643 32,643 
Right of use assets20,553 24,143 
Deferred tax assets, net3,972 5,210 
Other long-term assets19,271 13,454 
Total assets$237,535 $274,000 
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities:  
Accounts payable$34,906 $26,854 
Accrued compensation and benefits22,453 35,458 
Accrued expenses and other current liabilities35,560 37,552 
Income taxes payable27 868 
Short-term debt8,694 9,158 
Deferred revenue60,630 87,475 
Total current liabilities162,270 197,365 
Long-term debt175,683 160,806 
Long-term deferred revenue16,045 10,607 
Long-term lease liabilities19,978 23,379 
Other long-term liabilities4,960 5,917 
Total liabilities378,936 398,074 
Commitments and contingencies (Note 7)
Stockholders’ deficit:
Common stock, par value $0.01; authorized: 100,000 shares; issued: 46,472 shares at September 30, 2022 and 45,828 shares at December 31, 2021; outstanding: 43,926 shares at September 30, 2022 and 44,954 shares at December 31, 2021
461 455 
Treasury stock(68,651)(25,090)
Additional paid-in capital1,031,232 1,031,633 
Accumulated deficit(1,096,978)(1,126,959)
Accumulated other comprehensive loss(7,465)(4,113)
Total stockholders’ deficit(141,401)(124,074)
Total liabilities and stockholders’ deficit$237,535 $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)

Nine Months Ended September 30, 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)
Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations1892(1,483)(1,481)
Repurchase of common stock(560)(14,143)(14,143)
Stock-based compensation3,6453,645
Net income7,3737,373
Other comprehensive loss(1,735)(1,735)
Balances at June 30, 202246,408(1,788)461 (50,049)1,028,277 (1,109,000)(6,049)(136,360)
Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations64(992)(992)
Repurchase of common stock(758)(18,602)(18,602)
Stock-based compensation3,9473,947
Net income12,02212,022
Other comprehensive loss(1,416)(1,416)
Balances at September 30, 202246,472(2,546)461 (68,651)1,031,232 (1,096,978)(7,465)(141,401)

4


Nine Months Ended September 30, 2021
 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, 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)
Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations5134(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)454(11,169)1,030,116(1,142,175)(3,657)(126,431)



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,
 20222021
Cash flows from operating activities:  
Net income$29,981 $26,172 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization6,023 6,323 
Allowance for doubtful accounts893 401 
Stock-based compensation expense11,014 10,216 
Non-cash provision for restructuring495 841 
Non-cash interest expense367 386 
Loss on extinguishment of debt 2,579 
Gain on forgiveness of PPP loan (7,800)
Loss on disposal of fixed assets548  
Unrealized foreign currency transaction gains(2,769)(1,400)
Benefit from deferred taxes1,238 1,388 
Changes in operating assets and liabilities:  
Accounts receivable20,896 20,089 
Inventories(2,071)4,353 
Prepaid expenses and other assets(5,624)(1,343)
Accounts payable8,050 590 
Accrued expenses, compensation and benefits and other liabilities(17,257)(10,635)
Income taxes payable(841)(217)
Deferred revenue and contract assets(25,380)(16,525)
Net cash provided by operating activities25,563 35,418 
Cash flows from investing activities:  
Purchases of property and equipment(11,067)(4,750)
Net cash used in investing activities(11,067)(4,750)
Cash flows from financing activities:  
Proceeds from revolving credit facility19,000  
Proceeds from long-term debt 180,000 
Repayment of debt(4,515)(208,142)
Payments for repurchase of common stock(40,929)(10,526)
Proceeds from the issuance of common stock under employee stock plans468 363 
Common stock repurchases for tax withholdings for net settlement of equity awards(11,878)(17,108)
Prepayment penalty on extinguishment of debt (1,169)
Payments for credit facility issuance costs(440)(2,574)
Net cash used in financing activities(38,294)(59,156)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,809)(927)
Net decrease in cash, cash equivalents and restricted cash(25,607)(29,415)
Cash, cash equivalents and restricted cash at beginning of period60,556 83,638 
Cash, cash equivalents and restricted cash at end of period$34,949 $54,223 
Supplemental information:
Cash and cash equivalents$31,344 $50,485 
Restricted cash2,413 1,422 
Restricted cash included in other long-term assets1,192 2,316 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$34,949 $54,223 
Cash paid for income taxes$1,551 $706 
Cash paid for interest$3,095 $6,354 
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, 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 and nine ended September 30, 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.

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. The COVID-19 pandemic has created, and may continue to create, significant uncertainty in macroeconomic conditions, including disrupted supply chains and significant volatility in financial markets. The countries in which the Company operates have generally continued easing initial measures to control the spread of COVID-19. However, the Company is not able to estimate the impact that COVID-19 may continue to have on worldwide economic activity or the Company’s financial position. The Russian invasion of Ukraine and related acts of aggression and destruction, including destruction of energy, commercial and industrial infrastructure has caused further direct and indirect economic disruption, which may exacerbate supply chain issues further and may lead to prolonged shortages and economic disruption including foreign currency fluctuation. The Company continues to assess the potential impacts of armed conflict and COVID-19 and the measures taken by governments, businesses and other organizations in response as information becomes available.

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 starting on our Annual Report for the year ended December 31, 2021. 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.


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.
7



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 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 September 30, 2022 and 2021:
 September 30, 2022September 30, 2021
Non-vested restricted stock units820 930 

The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding for the three and nine months ended September 30, 2022 and 2021:

Three months endedNine months ended
September 30September 30
2022202120222021
Weighted common shares outstanding - basic44,476 45,564 44,676 45,115 
Net effect of common stock equivalents227 864 431 1,334 
Weighted common shares outstanding - diluted44,703 46,428 45,107 46,449 


8


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, 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
 September 30,
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$375 $84 $291 $ 
  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):
 September 30, 2022December 31, 2021
Raw materials$8,257 $8,519 
Work in process288 304 
Finished goods13,448 11,099 
Total$21,993 $19,922 

As of September 30, 2022 and December 31, 2021, finished goods inventory included $1.8 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.


9


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 September 30, 2022, the weighted average incremental borrowing rate was 5.9% and the weighted average remaining lease term was 5.3 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, 2022, the weighted-average discount rate was 2.3% and the weighted average remaining lease term was 1.4 years.

Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total operating lease costs were $1.4 million and $1.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively and $4.3 million and $5.4 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. Related cash payments were $1.5 million and $1.9 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $4.6 million and $5.8 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. Short term lease costs were $0.6 million and $0.4 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $1.9 million and $1.0 million for the nine months ended September 30, 2022 and September 30, 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.

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, 2022 (in thousands):
Year Ending December 31,Operating LeasesFinance Leases
2022 (excluding nine months ended September 30, 2022)$1,577 $56 
20235,742 219 
20245,004 72 
20255,034  
20265,060  
Thereafter6,446  
Total future minimum lease payments$28,863 $347 
Less effects of discounting(4,307)(4)
Total lease liabilities$24,556 $343 

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

Operating Leases
September 30, 2022
Right of use assets$20,553 
Accrued expenses and other current liabilities(4,578)
Long-term lease liabilities(19,978)
     Total lease liabilities$(24,556)


Finance Leases
September 30, 2022
Other assets$316 
Accrued expenses and other current liabilities(243)
Other long-term liabilities(100)
     Total lease liabilities$(343)

6.    OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Deferred compensation$4,263 $4,981 
Finance lease liabilities100 289 
Other long-term liabilities597 647 
   Total$4,960 $5,917 


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 $17.9 million of products and services pursuant to this agreement as of September 30, 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 September 30, 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 September 30, 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 September 30, 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)
12


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 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, 2022 and 2021 (in thousands):
Nine Months Ended September 30,
20222021
Accrual balance at beginning of period$1,219 $1,095 
Accruals for product warranties541 988 
Costs of warranty claims(784)(900)
Accrual balance at end of period$976 $1,183 

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 nine months ended September 30, 2022, we recorded restructuring charges of $0.5 million for employee severance costs related to three positions eliminated throughout 2022.

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

The following table sets forth the activity in the restructuring accruals for the nine months ended September 30, 2022 (in thousands):
 Employee
Accrual balance as of December 31, 2021$655 
Restructuring charges and revisions 515 
Cash payments(917)
Foreign exchange impact on ending balance(17)
Accrual balance as of September 30, 2022$236 

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The employee restructuring accrual at September 30, 2022 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 sheet as of September 30, 2022.

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, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Subscriptions$41,782 $28,008 $108,878 $74,384 
Maintenance27,280 30,702 83,382 90,997 
Integrated solutions & other33,923 42,930 109,054 125,499 
Total net revenues$102,985 $101,640 $301,314 $290,880 

The following table sets forth our revenues by geographic region for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues:  
United States$46,206 $45,026 $130,755 $126,084 
Europe, Middle East and Africa36,865 38,782 112,026 109,400 
Asia-Pacific13,747 12,610 39,066 40,366 
Other Americas6,167 5,222 19,467 15,030 
Total net revenues$102,985 $101,640 $301,314 $290,880 

Contract Asset

Contract asset activity for the nine months ended September 30, 2022 and 2021 was as follows (in thousands):
September 30, 2022September 30, 2021
Contract asset at beginning of period$25,397 $18,579 
Revenue in excess of billings51,400 43,757 
Customer billings(47,427)(39,724)
Contract asset at end of period$29,370 $22,612 
Less: long-term portion (recorded in other long-term assets)11,642  
Contract asset, current portion$17,728 $22,612 

The increase in the long-term portion of contract assets is primarily due to long-term subscription agreements with revenue recognition ahead of scheduled billings greater than 12 months.


Deferred Revenue
14



Deferred revenue activity for the nine months ended September 30, 2022 and 2021 was as follows (in thousands):
September 30, 2022September 30, 2021
Deferred revenue at beginning of period$98,082 $99,258 
Billings deferred57,094 56,846 
Recognition of prior deferred revenue(78,501)(69,337)
Deferred revenue at end of period$76,675 $86,767 

A summary of the significant performance obligations included in deferred revenue is as follows (in thousands):
September 30, 2022
Product$7,922 
Subscription8,545 
Maintenance contracts55,435 
Implied PCS4,293 
Professional services, training and other480 
Deferred revenue at September 30, 2022
$76,675 

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 $4.3 million attributable to Implied PCS recorded in deferred revenue as of September 30, 2022. We expect to recognize revenue for these remaining performance obligations of $0.5 million for the remainder of 2022 and $1.6 million, $1.1 million, $0.7 million and $0.3 million for the years ending December 31, 2023, 2024, 2025, and 2026, respectively, and $0.1 million thereafter.

As of September 30, 2022, we had approximately $22.5 million of transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately $18.9 million of these performance obligations were unbilled as of September 30, 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 $22.5 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.
15



10.    LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consisted of the following (in thousands):
September 30, 2022December 31, 2021
Term Loan, net of unamortized issuance costs and debt discount of $2,131 and $2,059 at September 30, 2022 and December 31, 2021, respectively
$164,594 $168,941 
Credit Facility19,000 — 
Other long-term debt783 1,023 
    Total debt$184,377 $169,964 
Less: current portion8,694 9,158 
Total long-term debt$175,683 $160,806 


The following table summarizes the contractual maturities of our borrowing obligations as of September 30, 2022 (in thousands):
Fiscal YearTerm LoanCredit FacilityOther Long-Term DebtTotal
2022 (excluding nine months ended September 30, 2022)$2,138 $— $35 $2,173 
20238,550 — 147 8,697 
202411,756 — 157 11,913 
202516,031 — 169 16,200 
2026