SEC Filing | Avid Technology, Inc.

View:

avid-20220930

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


☐			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)

Delaware

04-2977748

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

75 Blue Sky Drive

Burlington

Massachusetts

01803

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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

AVID

Nasdaq 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
PART I.	FINANCIAL INFORMATION

ITEM 1.	UNAUDITED FINANCIAL STATEMENTS
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	1
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021	2
	Condensed Consolidated Balance Sheets as of September 30 , 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended Septem ber 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4.	CONTROLS AND PROCEDURES	31

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	33
ITEM 1A.	RISK FACTORS	33
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	33
ITEM 6.	EXHIBITS	33

INDEX TO EXHIBITS		34

SIGNATURE		35

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 Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net revenues:
Subscription	$	41,782	$	28,008	$	108,878	$	74,384
Maintenance	27,280		30,702		83,382		90,997
Integrated solutions & other	33,923		42,930		109,054		125,499
Total net revenues	102,985		101,640		301,314		290,880

Cost of revenues:
Subscription	6,163		4,020		18,057		10,210
Maintenance	4,849		5,739		15,379		17,135
Integrated solutions & other	22,194		25,978		67,969		76,078
Total cost of revenues	33,206		35,737		101,405		103,423
Gross profit	69,779		65,903		199,909		187,457

Operating expenses:
Research and development	17,110		17,129		49,869		48,639
Marketing and selling	24,362		24,413		69,962		66,511
General and administrative	14,066		14,901		42,241		42,214
Restructuring costs, net	158		(88)		515		1,001
Total operating expenses	55,696		56,355		162,587		158,365

Operating income	14,083		9,548		37,322		29,092

Interest expense, net	(2,741)		(1,646)		(6,161)		(5,547)
Other income, net	15		7,864		7		4,459
Income before income taxes	11,357		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 – basic	44,476		45,564		44,676		45,115
Weighted-average common shares outstanding – diluted	44,703		46,428		45,107		46,449

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

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
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.

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
Inventories	21,993		19,922
Prepaid expenses	8,766		5,464
Contract assets	17,728		18,903
Other current assets	2,380		1,953
Total current assets	139,881		182,522
Property and equipment, net	21,215		16,028
Goodwill	32,643		32,643
Right of use assets	20,553		24,143
Deferred tax assets, net	3,972		5,210
Other long-term assets	19,271		13,454
Total assets	$	237,535	$	274,000

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	34,906	$	26,854
Accrued compensation and benefits	22,453		35,458
Accrued expenses and other current liabilities	35,560		37,552
Income taxes payable	27		868
Short-term debt	8,694		9,158
Deferred revenue	60,630		87,475
Total current liabilities	162,270		197,365
Long-term debt	175,683		160,806
Long-term deferred revenue	16,045		10,607
Long-term lease liabilities	19,978		23,379
Other long-term liabilities	4,960		5,917
Total liabilities	378,936		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 capital	1,031,232		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.

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
	Issued	In Treasury	Common Stock		Treasury Stock		Paid-in Capital		Accumulated Deficit		Comprehensive Loss		Stockholders’ Deficit
Balances at January 1, 2022	45,828	(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 obligations	391	—	4		—		(8,940)		—		—		(8,936)

Repurchase of common stock	—	(354)	—		(10,816)		—		—		—		(10,816)

Stock-based compensation	—	—	—		—		3,422		—		—		3,422

Net income	—	—	—		—		—		10,586		—		10,586

Other comprehensive loss	—	—	—		—		—		—		(201)		(201)

Balances at March 31, 2022	46,219	(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 obligations	189	—	2		—		(1,483)		—		—		(1,481)

Repurchase of common stock	—	(560)	—		(14,143)		—		—		—		(14,143)

Stock-based compensation	—	—	—		—		3,645		—		—		3,645

Net income	—	—	—		—		—		7,373		—		7,373

Other comprehensive loss	—	—	—		—		—		—		(1,735)		(1,735)

Balances at June 30, 2022	46,408	(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 obligations	64	—	—		—		(992)		—		—		(992)

Repurchase of common stock	—	(758)	—		(18,602)		—		—		—		(18,602)

Stock-based compensation	—	—	—		—		3,947		—		—		3,947

Net income	—	—	—		—		—		12,022		—		12,022

Other comprehensive loss	—	—	—		—		—		—		(1,416)		(1,416)

Balances at September 30, 2022	46,472	(2,546)	461		(68,651)		1,031,232		(1,096,978)		(7,465)		(141,401)


Nine Months Ended September 30, 2021
	Shares of Common Stock				Additional		Accumulated Other	Total
	Issued	In Treasury	Common Stock	Treasury Stock	Paid-in Capital	Accumulated Deficit	Comprehensive Loss	Stockholders’ Deficit
Balances at January 1, 2021	44,420	—	442	—	1,036,658	(1,168,347)	(1,677)	(132,924)

Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations	592	—	6	—	(7,712)	—	—	(7,706)

Stock-based compensation	—	—	—	—	3,122	—	—	3,122

Net income	—	—	—	—	—	4,391	—	4,391

Other comprehensive loss	—	—	—	—	—	—	(1,457)	(1,457)

Balances at March 31, 2021	45,012	—	448	—	1,032,068	(1,163,956)	(3,134)	(134,574)

Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations	513	—	4	—	(5,973)	—	—	(5,969)

Stock-based compensation	—	—	—	—	3,580	—	—	3,580

Net income	—	—	—	—	—	7,006	—	7,006

Other comprehensive income	—	—	—	—	—	—	215	215

Balances at June 30, 2021	45,525	—	452	—	1,029,675	(1,156,950)	(2,919)	(129,742)

Stock issued pursuant to employee stock plans	168	—	2	—	(3,073)	—	—	(3,071)

Repurchase of common stock	—	(412)	—	(11,169)	—	—	—	(11,169)

Stock-based compensation	—	—	—	—	3,514	—	—	3,514

Net income	—	—	—	—	—	14,775	—	14,775

Other comprehensive loss	—	—	—	—	—	—	(738)	(738)

Balances at September 30, 2021	45,693	(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.

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Nine Months Ended
	September 30,
	2022		2021
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 amortization	6,023		6,323
Allowance for doubtful accounts	893		401
Stock-based compensation expense	11,014		10,216
Non-cash provision for restructuring	495		841
Non-cash interest expense	367		386
Loss on extinguishment of debt	—		2,579
Gain on forgiveness of PPP loan	—		(7,800)
Loss on disposal of fixed assets	548		—
Unrealized foreign currency transaction gains	(2,769)		(1,400)
Benefit from deferred taxes	1,238		1,388
Changes in operating assets and liabilities:
Accounts receivable	20,896		20,089
Inventories	(2,071)		4,353
Prepaid expenses and other assets	(5,624)		(1,343)
Accounts payable	8,050		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 activities	25,563		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 facility	19,000		—

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 plans	468		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 period	60,556		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 cash	2,413		1,422
Restricted cash included in other long-term assets	1,192		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.

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.

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, 2022	September 30, 2021

Non-vested restricted stock units	820	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 ended		Nine months ended
	September 30		September 30
	2022	2021	2022	2021
Weighted common shares outstanding - basic	44,476	45,564	44,676	45,115
Net effect of common stock equivalents	227	864	431	1,334
Weighted common shares outstanding - diluted	44,703	46,428	45,107	46,449

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, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Deferred compensation assets	$	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, 2022		December 31, 2021
Raw materials	$	8,257	$	8,519
Work in process	288		304
Finished goods	13,448		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.

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.

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 Leases		Finance Leases
2022 (excluding nine months ended September 30, 2022)	$	1,577	$	56
2023	5,742		219
2024	5,004		72
2025	5,034		—
2026	5,060		—
Thereafter	6,446		—
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, 2022		December 31, 2021



Deferred compensation	$	4,263	$	4,981
Finance lease liabilities	100		289
Other long-term liabilities	597		647
Total	$	4,960	$	5,917

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)

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,
	2022		2021
Accrual balance at beginning of period	$	1,219	$	1,095
Accruals for product warranties	541		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

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,
	2022		2021		2022		2021
Subscriptions	$	41,782	$	28,008	$	108,878	$	74,384
Maintenance	27,280		30,702		83,382		90,997
Integrated solutions & other	33,923		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,
	2022		2021		2022		2021
Revenues:
United States	$	46,206	$	45,026	$	130,755	$	126,084
Europe, Middle East and Africa	36,865		38,782		112,026		109,400
Asia-Pacific	13,747		12,610		39,066		40,366
Other Americas	6,167		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, 2022		September 30, 2021
Contract asset at beginning of period	$	25,397	$	18,579
Revenue in excess of billings	51,400		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

Deferred revenue activity for the nine months ended September 30, 2022 and 2021 was as follows (in thousands):


	September 30, 2022		September 30, 2021
Deferred revenue at beginning of period	$	98,082	$	99,258
Billings deferred	57,094		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
Subscription	8,545
Maintenance contracts	55,435
Implied PCS	4,293
Professional services, training and other	480
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.

10. LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consisted of the following (in thousands):


	September 30, 2022		December 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 Facility	19,000		—
Other long-term debt	783		1,023
Total debt	$	184,377	$	169,964
Less: current portion	8,694		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 Year	Term Loan		Credit Facility		Other Long-Term Debt		Total
2022 (excluding nine months ended September 30, 2022)	$	2,138	$	—	$	35	$	2,173
2023	8,550		—		147		8,697
2024	11,756		—		157		11,913
2025	16,031		—		169		16,200
2026	17,100		—		181		17,281
Thereafter	111,150