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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________

Commission File Number:  1-36254
_______________________
Avid Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware04-2977748
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
75 Blue Sky Drive
BurlingtonMassachusetts01803
  (Address of Principal Executive Offices, Including Zip Code) 

(978) 640-6789
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueAVIDNasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None
_______________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x   No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨   No x
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, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
x
Accelerated Filer
Non-accelerated Filer
o
Smaller Reporting Company
  Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. Yes  No x

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes  No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,078,422,056 based on the closing price of the Common Stock on the Nasdaq Global Select Market on June 30, 2022.  The number of shares outstanding of the registrant’s Common Stock as of February 24, 2023 was 43,777,450.
DOCUMENTS INCORPORATED BY REFERENCE
 Document Description 10-K Part 
 Portions of the Registrant’s Proxy Statement for the 2023 Annual Meeting of Stockholders III 




AVID TECHNOLOGY, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022

TABLE OF CONTENTS
 Page
  
   
  
 
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
   
  
   
  
   
ii


CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, or Form 10-K, filed by Avid Technology, Inc. together with its consolidated subsidiaries, “Avid” or the “Company”, or “we”, “us,” or “our” unless the context indicates otherwise, 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-K 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 expand our market positions;
our ability to grow 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 mitigate and remediate effectively the material weakness in our internal control over financial reporting, and the expected timing thereof
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
iii


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 the forward-looking statements in this Form 10-K. 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 Item 1A of this Form 10-K. The forward-looking statements contained in this Form 10-K 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.

The information included under the heading “Stock Performance Graph” in Item 5 of this Form 10-K is “furnished” and not “filed” and shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, or the Securities Act, except to the extent that we specifically incorporate it by reference.

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-K are the property of their respective owners.
iv


PART I
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ITEM 1.BUSINESS

OVERVIEW

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

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

For a discussion around the macroeconomic conditions and their impacts on our business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview" in Item 7 of this Form 10-K.

Avid was incorporated in Delaware in 1987. We are headquartered in Burlington, Massachusetts, with operations in North America, South America, Europe, the Middle East, Asia and Australia.

CORPORATE STRATEGY

The rate of content creation and the acceleration of digitization are having a tremendous impact on the media industry and altering the industry value chain. Today’s consumers are empowered to create and consume content on-demand, anywhere, anytime. Organizations in the media industry are under pressure to connect and automate the entire creation-to-consumption workflow, and are facing a number of challenges, including:

Increasing rate of content creation and digitization of media assets - Many organizations are feeling intense pressure to create more and more content, increasingly tailored for audience niches, while also facing greater competition from nimble players. At the same time, access to creative software tools is wider today than ever before, giving more people the ability to tell their stories.

Exponential growth of distribution platforms - The number of distribution platforms continues to expand, and the economic models of new distribution platforms are still evolving. To satisfy their customers, organizations need to develop or license content for their distribution platforms. Many organizations need to embrace new opportunities while also maximizing heritage business.

Continued increase in content consumption - There has been a tremendous increase in viewership in the last decade, but it is spread across many outlets and channels. This increase in viewership is dwarfed by an increase in competitive content. In addition, with growing audience fragmentation, compelling content, brand equity, and relevance are critical.

Disparate mix of tools, skills, and workflows - Lack of commonality and a fragmented supplier landscape creates incompatibilities, inhibiting of tools, which inhibits agility, collaboration, sharing, and efficiency.

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Media technology budgets - Today’s economic realities are placing pressure on media technology budgets, while media companies feel increased pressure to expand content output to deliver on the market requirements. Many content creators and distributors have to work with essentially flat budgets, which demands more efficient workflows and solutions.

We believe we are well positioned in the media technology industry because we have a set of differentiated creative software tools (including ProTools for audio and Media Composer for video), a differentiated platform strategy (Avid MediaCentral platform described below) and a well-established market position. Our products and solutions allow our customers to (i) create high-quality, engaging, and immersive content, (ii) distribute to more outlets and devices, (iii) maximize and protect the value of media assets, and (iv) create operational and capital efficiency. As a result of our market position across the media industry, we believe we can take advantage of the following opportunities and trends:

Large and growing market poised for transition - Our customers are facing significant disruption and need to make major changes and investments in their business and operational approaches to address the challenges described above. Our product offerings help them address those challenges.

Deeply entrenched with a market leadership position - We can strategically leverage a significant global customer base that is loyal to our brand across TV, film, music, and media.

Positioned to help the industry navigate disruption - Our unique approach encompasses a common technology platform, leading software applications and integrated solutions with a large and open ecosystem, which we believe differentiates us from many of our competitors.

Ready to intercept the next emerging opportunity - By leveraging our partnership with Microsoft and our MediaCentral platform, we believe we can lead the media and entertainment industry into the cloud with market-leading Software as a Service, or SAAS, offerings.

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

A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings, maintenance contracts, and long-term agreements. We started offering subscription licensing options for some of our products and solutions in 2014 and by the end of 2022 we offered subscription licensing for all of our software solutions and we had approximately 506,000 paid subscriptions. Subscription count includes all paid and active seats under multi-seat licenses. These licensing options offer choices in pricing and deployment to suit our customers’ needs. We expect to increase subscription sales to media enterprises going forward as we expand offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SAAS offerings, and agreements with channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.

Avid is committed to our digital transformation initiative, which focuses on optimizing systems, processes, and back-office functions with the objective of improving our operations related to our digital and subscription business. The initiative started in the third quarter of 2021, and is expected to continue through 2024. We plan to significantly invest in transforming our enterprise-wide infrastructure and technologies to benefit customers and drive enhanced performance across the company.

CUSTOMER MARKETS

We provide our solutions to the following markets:
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Media Enterprises.  This market consists of broadcast, government, sports, and other organizations that acquire, create, process, and/or distribute audio and video content to a large audience for communication, entertainment, analysis, and/or forensic purposes. Customers in this market rely on workflows that span content acquisition, creation, editing, distribution, sales, and redistribution and utilize all content distribution platforms, including web, mobile, internet protocol television, cable, satellite, on-air, and various other proprietary platforms. Our expertise also allows us to provide customers in this market with a range of professional and learning services. We sell into this market through our direct sales force and resellers.

Creative Professionals.  This market is made up of individual artists and small entities that create audio and video media as a paid service but do not currently distribute media to end consumers on a large scale. This market spans a wide-ranging target audience that includes: independent video editors; facilities and filmmakers that produce video media as a business but are not broadcasters; professional sound designers, editors, and mixers and facilities that specialize in the creation of audio for picture; songwriters, musicians, producers, film composers, and engineers who compose and record music professionally; technicians, engineers, rental companies, and facilities that present, record, and broadcast audio and video for live performances; and students and teachers in career technical education programs in high schools, colleges, universities, and post-secondary vocational schools that prepare students for professional media production careers in the digital workplace. Our expertise also allows us to provide customers in this market with a broad range of professional services. We sell into this market through our webstore, resellers (including storefront and online retailers) and our direct sales force.

PRODUCTS AND SERVICES

Overview

Avid’s growing product portfolio provides open and extensible products that help secure our long-term position with customers. Our software and integrated solutions, as well as our services offerings, address the diverse needs, skills, and sophistication levels of our customers. In addition, we provide flexible deployment models, licensing options, and commercial structures so our customers can choose how, when, and where to deploy and use our tools.

Approximately half of our revenue comes from the high margin standalone software portion of our product portfolio, consisting of subscriptions, maintenance contracts and perpetual licenses for our Creative Software Solutions and our Enterprise Software Solutions.

Creative Software Solutions

Our Creative Software Solutions includes our Media Composer, Pro Tools, and Sibelius tools, as well as Avid Link, all of which are key components of our cloud-enabled software subscription strategy.

Media Composer

Our award-winning Media Composer product line is used to edit video content, including television programming, commercials, and films. Our cloud-enabled solutions that include Media Composer enable broadcast news, sports, reality television, and film professionals to acquire, access, edit, and finish stories anytime and from everywhere. Leveraging an integrated, yet open, end-to-end architecture, this solution gives contributors the ability to craft stories where and while they are happening and speed them to delivery, while maintaining connectivity with the central production operation. Media Composer also offers resolution flexibility and independence, accelerating high-res, high dynamic range (HDR), and 4K resolution workflows. We offer Media Composer through both subscription and perpetual license offerings.

Pro Tools

Our Pro Tools digital audio workstation software facilitates the audio production process, including music and sound creation for TV and Film, recording, editing, signal processing, integrated surround mixing, and mastering with reference video playback. The Pro Tools platform supports a wide variety of internally developed and third-party software plug-ins and
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integrated hardware. Pro Tools solutions are offered at a range of price points and are used by professionals in music, film, television, radio, gaming, internet, and other media production environments. We offer Pro Tools software through both subscription and perpetual license offerings when included with our hardware.

Sibelius

Our Sibelius product allows users to create, edit, and publish musical scores. It is used by composers, arrangers, and other music professionals and for music education. Sibelius music notation software offers sophisticated, yet easy-to-use tools across desktop and mobile devices that are proven and trusted by composers, arrangers, publishers, educators, and students alike. We also offer Sibelius Cloud Sharing, which allows users to view and play scores anywhere from the cloud through a web browser and on mobile devices. We offer Sibelius through both subscription and perpetual license offerings with education discounts available to make it accessible to the teaching of music composition and score writing.

Avid Link
Avid Link is a free desktop and mobile application that offers a creative community a variety of benefits and value. It’s for anyone wanting to find, network, connect and engage in collaboration with other artists, producers, mixers, composers, editors, videographers, movie makers, and graphic designers, as well as explore the Avid Marketplace populated with third party applications and services to use within their workflow. Through Avid Link, users can subscribe to Avid Play and distribute their music to streaming services worldwide like Apple Music, Spotify, and TIDAL. Available for macOS, Windows, iOS, and Android OS users, Avid Link is intended to make it easy for users to find, connect, message, and collaborate with audio and video creators, promote their work and skills to a network of media professionals, manage and keep their software up to date, and purchase new tools. We believe Avid Link will increase interest and demand for Avid’s suite of product offerings.

Enterprise Software Solutions

Avid’s Enterprise Software Solutions are built on the MediaCentral platform along with a suite of applications, modules, and services and is also the foundation of our cloud and SAAS offerings.

MediaCentral

MediaCentral | Cloud UX is Avid’s next-generation media production suite that further extends the Avid MediaCentral platform into the cloud. The MediaCentral platform scales from the simplest to the most sophisticated solutions. Built on a customizable cloud native microservices architecture, MediaCentral platform features a cloud-based user experience that runs on any device, as well as workflow modules for editorial, production, news, graphics, and asset management. It also features applications to enhance and scale any of those modules, and a wide array of media services and partner connectors. Every user is connected in a completely integrated workflow environment with a user-friendly interface, and gains a unified view into all their media with flexible deployment options for on premises, hybrid, or cloud (public/private) environments.

As part of the Avid MediaCentral platform, we also offer Avid NEXIS | EDGE, (formally known as Editorial Management) a module for smaller creative teams that provides the same robust media management capabilities used by the largest media enterprises in the industry. Integrated within Media Composer via a panel, NEXIS | EDGE connects directly to Avid NEXIS storage to provide easy access to media with hyper-search functionality. Avid NEXIS | EDGE also extends collaboration capabilities for the assistant editor in an easy-to-use web interface by allowing Media Composer bin creation, logging, and search capabilities, greatly expanding the efficiency of creative teams.

SAAS Solutions

Avid | Edit On Demand, our first enterprise SaaS offering, provides a full SaaS-based virtual post-production environment in the cloud – complete with cloud-optimized Media Composer and Avid NEXIS storage.

We have a strategic partnership with Microsoft to deliver Azure-certified solutions to support end-to-end hybrid and cloud deployments of media production and news workflows. Our partnership includes developing virtualized versions of many of our product offerings, allowing them to run in a private cloud, public cloud, or in hybrid deployments. This enables customers to migrate to more traditional IT infrastructures leveraging IP technology to integrate disparate systems within a
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post production and broadcast environment. We believe our new SAAS and cloud offerings allow our customers to (i) achieve the flexibility they require to keep up with the constantly rising demand for media production, ii) scale based on business needs to lower costs, (iii) enable anytime access, boosting efficiency and collaboration, and (iv) deliver content quickly and securely to any device, from anywhere. Our first enterprise SAAS offering, Edit on Demand, has been deployed in post production and news environments.

Integrated Solutions

The Integrated Solutions part of our portfolio mainly consists of four common, best-in-class hardware platforms that are combined with tightly integrated software elements to create powerful and differentiated solutions, all of which complement and enhance our overall software strategy.

Avid NEXIS

Our Avid NEXIS family of shared storage systems are real-time, open solutions that bring the power of shared storage to local, regional, national and multinational broadcasters, and post-production facilities at competitive prices. Customers can improve allocation of creative resources and support changing project needs with an open, shared storage platform that includes file system technology on lower cost hardware, support for third-party applications, and streamlined administration to create more content at an affordable price. Avid NEXIS is the industry’s first and only software-defined storage platform specifically designed for storing and managing media. Avid NEXIS enables fully virtualized storage so media organizations can adjust storage capacity mid-project, without disrupting workflows. Powered by our MediaCentral Platform, Avid NEXIS delivers media storage flexibility, scalability, and control for both Avid-based and third-party workflows. It has been designed to serve small production teams as powerfully as large media enterprises and is built with flexibility to grow with customers through their business stages. In addition to on-premises Avid NEXIS workflows, Avid NEXIS Cloud provides on-line, nearline and archive storage tiers in the cloud, and is a key component of our SAAS offerings. Beginning in 2022, we started offering NEXIS | Flex storage management software as a subscription, separately from the underlying Avid NEXIS storage system or Avid NEXIS Cloud storage.

Avid S4 and S6

Our Avid S4 and S6 product line offers customers a range of large format control surfaces for sound recording and mixing, leveraging Avid’s widely supported EUCON control protocol to provide cross platform DAW mixing solutions for customers ranging from the independent professional to the TV and Feature Film enterprises. The Avid S4 and S6 was designed as a modular solution that scales to meet both current and future customer requirements. It was designed for audio professionals in demanding production environments, delivering the performance needed to complete projects faster while producing high quality mixes.

Avid S1 and Dock

The Avid Dock and Avid S1 audio control surfaces satisfy both enthusiasts and professional mixing workflows in small to mid-sized studios and sound design suites. Avid S1 and Dock are compact EUCON enabled controllers, yet modular to expand to larger configurations fulfilling more budget-conscious and space constrained applications in music and audio post facilities. The Avid S1 and Dock fitted with ipad or android tablets deliver the speed, rich visual feedback, and software integration of Avid’s high-end consoles in a portable, slimline surface that’s an easy fit for any space or budget.

VENUE | S6L Live Sound

Our VENUE product family and our VENUE | S6L live sound system includes console systems for mixing audio for live sound reinforcement for concerts, theater performances, and other public address events. We offer a range of VENUE systems designed for large performance settings, such as stadium concerts, as well as medium-sized theaters and houses of worship. VENUE systems allow the direct integration of Pro Tools solutions to play back tracks and record live productions of any size and allow the same processing plug-ins used during the album creation to be used for the artists live performances.

Maestro
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Our Maestro product line offers customers comprehensive production graphics solutions, ideal for any type of production needs in news, sports, and entertainment, creating greater accessibility, efficiency at scale to enable the delivery of content with graphics faster. Maestro features a core platform that includes a powerful render engine and featured design tool called Maestro | Designer that drives a line-up of applications that are designed to address the specific challenges broadcasters face when automating the integration of statistics and graphics for the creation of an engaging broadcast. By tightly integrating Maestro with MediaCentral we enable journalists and producers to add graphics remotely to news stories or enhance any story with innovative stats to drive augmented reality graphics for presenting data in new and compelling ways. Beginning in 2022, we started offering our Maestro solutions as a subscription that can run on general purpose servers and graphics cards.

FastServe

Our FastServe video server product line assists broadcasters in making the move to UHD and IP based workflows with a new, modular architecture. The Avid FastServe family integrates with the MediaCentral platform, empowering creative teams to deliver content fast for news, sports, entertainment, and other media productions. Its 10GbE interface offers direct connection to Avid NEXIS storage, enabling real-time ingest, editing, and playout, even while media is being captured. Its modular architecture improves efficiency and provides a smooth transition from HD to UHD, and from SDI workflows to video over IP. We also continue to sell and support our on-air server solutions, including AirSpeed 5000 and AirSpeed 5500, which enable broadcasters to automate the ingest and playout of television and news programming. The AirSpeed 5000 and 5500 video servers work with a wide range of applications to improve workflow and provide cost-efficient ingest and play to air capabilities for broadcasters of any size.

I/O and Processing

We offer a number of hardware products that complement our Media Composer and Pro Tools creative solutions, which include I/O devices, interfaces, and audio and video processing equipment. We have recently updated our Pro Tools Hardware portfolio with new offerings including, Pro Tools| Carbon Pre and MBOX Studio providing a lower cost audio interface solution for enthusiasts and professional content creators.

Maintenance

We offer a variety of maintenance contracts for our software and integrated solutions, allowing each customer to select the level of technical and operational support that they need to maintain their operational effectiveness. Maintenance contracts typically include the right to the latest software updates, call support, and, in some cases, hardware maintenance. Maintenance contracts for individual products are sold bundled with initial product offerings or as renewals once initial contracts have lapsed. Maintenance contracts are also sold on an enterprise basis where a customer purchases maintenance for all Avid products owned. Our Customer Care team provides customers with a partner committed to giving them help and support when they need it. Our global Customer Care team of industry professionals offers a blend of technology expertise and real-world experience throughout the audio, visual, and entertainment industries.  The team’s mission is to provide timely, informed responses to our customers’ issues and proactive maintenance for our solutions to help our customers maintain high standards of operational effectiveness.

Professional Services

Our Professional Services team delivers workflow design and consulting, program, and project management, system installation and commissioning, custom development, and role-based product level training. The Professional Services team facilitates the engagement with our customers to maximize their investment in technology, increase their operational efficiency, and enable them to reduce deployment risk and implement our solutions.

Learning Services

Our Learning Services team delivers public and private training classes as well as self-paced eLearning content to our customers and alliance partners to ensure that they have the necessary skills and technical competencies to deploy, use, administer, and create Avid solutions. The Learning Services team develops and licenses curriculum content for use by third-party Avid Learning partners to deliver training to customers, users, and alliance partners. The Learning Services team
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includes the Avid Certification program which validates the skills and competency of Avid users, administrators, instructors, support representatives, and developers.

COMPETITION

The markets in which we serve our customers are highly competitive and subject to rapid change. The competitive landscape is fragmented with a large number of companies providing various types of products and services in different markets and geographic areas. We provide integrated solutions that compete based on total workflow value, features, quality, service, and flexibility of pricing and deployment options. Companies with which we compete in some contexts may also act as our partners in other contexts, such as large enterprise customer environments.

Certain companies that compete with us across some of our products and solutions are listed below by the market relevant to Avid in which they compete predominantly:
Broadcast and Media: ChyronHego Corporation, Dalet S.A., Dell Technologies Inc. (EMC Isilon), EVS Corporation, Grass Valley, Harmonic Inc., Quantum Corporation, Ross Video Limited, and Vizrt Ltd., among others.
Audio and Video Post and Professional: Ableton AG, Adobe Systems Incorporated, Apple Inc., AudioTonix Limited, Blackmagic Design Pty Ltd, PreSonus Audio Electronics, Inc., and Yamaha Corporation, among others.

For additional information about risks associated with our competitors, see “Risk Factors” in Item 1A of this Form 10-K.

OPERATIONS

Sales and Services Channels

We market and sell our products and solutions through a combination of direct, indirect, and digital sales channels. Our direct sales channel consists of internal sales representatives serving select customers and markets. Our indirect sales channels include global networks of independent distributors, value-added resellers, system integrators, and retailers. Our digital sales channel is represented by the online Avid Marketplace. We also sell digitally through the Xchange Market Platform, or XMP, with some of our key partners and distributors.

We have significant international operations with offices in 17 countries and the ability to reach customers in approximately 173 countries through a combination of our direct sales force and resellers. Sales to customers outside the United States accounted for 57%, 58% and 60% of our total net revenues in 2022, 2021 and 2020, respectively. Additional information about the geographic breakdown of our revenues can be found in Note P to our Consolidated Financial Statements in Item 8 of this Form 10-K. For additional information about risks associated with our international operations, see “Risk Factors - Risks Related to our International Operations” in Item 1A of this Form 10-K.

We generally ship our products shortly after the receipt of an order. However, a high percentage of our revenues has historically been generated in the third month of each fiscal quarter and concentrated in the latter part of that month. Orders that may exist at the end of a quarter and have not been shipped are not recognized as revenues in that quarter and are included in revenue backlog.

We provide customer care services directly through regional in-house and contracted support centers and major-market field service representatives. We also provide customer care services indirectly through dealers, value-added resellers, and authorized third-party service providers. Depending on the solution, customers may choose from a variety of support offerings, including telephone and online technical support, on-site assistance, hardware replacement and extended warranty, and software upgrades. In addition to customer care services, we offer a broad array of professional services, including installation, integration, planning and consulting services, and customer training.

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Manufacturing and Suppliers

Our manufacturing operations consist primarily of a network of contract manufacturers around the globe to manufacture many of our products, components and subassemblies, and original equipment manufacturers, or OEMs, from whom we purchase finished assemblies. Our products undergo testing and quality assurance at the final assembly stage. We depend on sole-source suppliers for many key hardware product components and finished goods, including some critical items.

Our contract manufacturers and OEMs manufacture our products at a relatively limited number of facilities located throughout the world and, in most cases, the manufacturing of each of our products is concentrated in one or a few locations. For additional information about risks associated with our sole source suppliers and manufacturing operations, see “Risk Factors” in Item 1A of this Form 10-K.

Research and Development

We are committed to delivering best-in-class digital media content-creation solutions that are designed for the unique needs, skills and sophistication levels of our target customer markets as well as a standardized media platform for the media industry. We have research and development, or R&D, operations in six facilities located in five countries. Our R&D efforts are focused on the development of digital media content-creation, distribution, and monetization tools as well as the media platform. These tools operate primarily on the Mac and on Windows platforms, whereas the media platform primarily operates on Linux platforms. Our R&D efforts also include highly optimized media storage solutions, standards-based media transfer and media asset management tools, and ingest and playout solutions to cover the entire workflow. Our R&D expenditures for 2022, 2021 and 2020 were $66.9 million, $65.6 million and $57.0 million, respectively, which represented 16% of our total net revenues in each year.

We prioritize research and development investments to take advantage of market opportunities based on the following short-term, medium-term, and long-term horizons:
Here & Now - Improve performance, solidify core portfolio, improve margins, and ignite growth.
Emerging - Expand opportunities by pursuing growth areas, extending our product portfolio, and expanding market opportunities.
Transformational - Build for the future, creating unique defensible differentiation in our products and solutions with disruptive and visionary innovation.

Our company-operated R&D operations are located in: Burlington, Massachusetts; Berkeley, California; London, United Kingdom; Madrid, Spain; Munich, Germany; Kfar Saba, Israel; Szczecin, Poland; and Montreal, Canada. We also partner with a vendor in Kiev, Ukraine for outsourced R&D services, which vendor has relocated as a result of the Russian invasion of Ukraine. For additional information about risks associated with our R&D efforts, see “Risk Factors - Risks Related to Intellectual Property” in Item 1A of this Form 10-K.

Intellectual Property

We regard our software and hardware as proprietary and protect our proprietary interests under the laws of patents, copyrights, trademarks, and trade secrets, as well as through contractual provisions.

We have obtained patents and have registered copyrights, trademarks and service marks in the United States and in many foreign countries. At January 23, 2023, we held 112 U.S. patents, with expiration dates through 2041, and had 14 patent applications pending with the U.S. Patent and Trademark Office. We have also registered or applied to register various trademarks and service marks in the United States and a number of foreign countries, including Avid, Avid NEXIS, AirSpeed, FastServe, MediaCentral, Media Composer, Pro Tools, and Sibelius. As a technology company, we regard our patents, copyrights, trademarks, service marks, and trade secrets as being among our most valuable assets, together with the innovative skills, technical competence, and marketing abilities of our personnel.

Our software is licensed to end users pursuant to shrink-wrap, embedded, click-through, or signed license agreements. Our products generally contain features to guard against unauthorized use. Policing unauthorized use of computer software is difficult, and software piracy is a persistent problem for us, as it is for the software industry in general. For additional
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information about risks associated with the protection of our intellectual property, see “Risk Factors” in Item 1A of this Form 10-K.

HUMAN CAPITAL

We are intentional about creating an environment where our employees can thrive and feel included, empowered, and passionate about our products and customers. As of December 31, 2022, we had approximately 1,485 full-time employees and 395 external contractors located globally in 34 countries. Of these, 37% were located in the United States, Canada, and Latin America, 43% in Europe, Middle East, and Africa, and 20% in Asia-Pacific.

As we have emerged from the COVID-19 pandemic, we have returned to our new normal, stronger than ever. In 2022, we worked to compete and differentiate in a highly competitive talent market by focusing on our employer brand and unique culture. We welcomed 272 new employees, of varying backgrounds, around the world representing all types of diversity. We have evolved our Work from Anywhere policy to embrace a combination of hybrid and remote workers. This allows our employees around the globe to gather in our key offices in order to build and enhance personal connections, improve communication, foster collaboration, and ensure the contributions of all employees across our teams. We have further adopted our TeamAvid Community, so we can virtually share communications, collaborate, and engage with each other from anywhere across our business.

We believe that there is power in each individual to enhance opportunities through experiences that help them grow and develop in their career. Our managers hold quarterly check ins with each member of their team to discuss performance, the business, and future career interests. We have expanded beyond our Avid University platform, to provide additional opportunities to learn about our business, products, customers, and keys to success.

We believe our company culture is a differentiator for us, and critical to our success. We bring our values to life by articulating what they look like in practice and recognizing people and teams that exemplify them. They serve as an anchor during times of uncertainty and challenge. We have employed an employee listening strategy to understand the sentiment of our people across the employee lifecycle. We have moved from an annual eNPS survey to a more frequent cadence and work with our leaders to use this feedback to help keep our employees enthusiastic about Avid, and passionate about being on a winning team.

AVAILABLE INFORMATION

We make available free of charge on our website, www.avid.com, copies of our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and all amendments to those reports as soon as practicable after filing with the Securities and Exchange Commission, or SEC. Additionally, we will provide paper copies of all of these filings free of charge upon request. Alternatively, these reports can be accessed at the SEC’s Internet website at www.sec.gov. The information contained on our web site shall not be deemed incorporated by reference in any filing under the Exchange Act.


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ITEM 1A.RISK FACTORS

You should carefully consider the risks and uncertainties described below, in addition to the other information included or incorporated by reference in this Form 10-K, before making an investment decision regarding our common stock. If any of the following risks were to actually occur, our business, financial condition or operating results would likely suffer, possibly materially, the trading price of our common stock could decline, and you could lose part or all of your investment. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

Risks Related to Our Business and Industry

Our success depends in significant part on our ability to offer innovative products and solutions in response to dynamic and rapidly evolving market demand.

To succeed in our market, we must offer innovative products and solutions. Innovation requires that we accurately predict future market trends and customer expectations, and that we quickly adapt our development efforts in response. We must also protect our product roadmap and new product initiatives from leaks that might reduce or eliminate any innovative edge that we seek. Predicting market trends is difficult because our market is dynamic and rapidly evolving. Additionally, given the complex, sophisticated nature of our solutions and our typically lengthy product development cycles, we may not be able to rapidly change our product direction or strategic course. If we are unable to accurately predict market trends or adapt to evolving market conditions, we may be unable to capture customer demand and our market reputation and financial performance will be negatively affected. Even to the extent we make accurate predictions and possess the requisite flexibility to adapt, we may be able to pursue only some of the possible innovations due to limited resources. Our success, therefore, further depends on our ability to identify and focus on the most promising innovations.

Our success also depends on our ability to manage a number of risks associated with new products that we introduce, including timely and successful product launch, market acceptance, and the availability of products in appropriate locations, quantities, and costs to meet demand. Our efforts may not be successful in the near future, or at all, and our competitors may take significant market share in similar efforts. If we fail to develop new products and to manage new product introductions and transitions properly, our financial condition and operating results could be harmed.

The novel coronavirus, or COVID-19, and actions taken in response to it have adversely affected our business and are likely to continue to adversely affect our business, financial condition and results of operations.

The COVID-19 pandemic has been the source of economic disruption, and has led to federal, state and local governments enacting various restrictions in an attempt to limit the spread of the virus. It has also prompted limitations on social or public gatherings and other social distancing measures, such as office closures, shelter in place orders, working remotely, travel restrictions and quarantines, some of which continue in some places.

We have taken, and may take in the future either in response to COVID-19 resurgence or other public health concerns, actions as required by government authorities or that we determine are in the best interests of our employees, customers, manufacturers, and suppliers that diminish our ability to promote our products and services, and deliver required on-site professional services, including on-site support to our customers and users, and that could negatively impact our business and results of operations.

The COVID-19 pandemic, along with its variants and progeny, has significantly increased economic and demand uncertainty, which has caused a decline in the media, entertainment, and sports industries and, in turn, reduced demand for our products and services. These factors are expected to continue to reduce demand for our products and services, possibly significantly, including causing delays in purchasing and projects by our enterprise customers and channel partners. Additionally, the provision of on-site professional service may be impacted for a prolonged period of time due to site restrictions and related costs and delays, further impacting our business.

The COVID-19 pandemic and the response to it has and continues to adversely impact our operations and supply chain. If such impacts continue as a result of the ongoing pandemic, we could experience further interruptions in our supply chain, along with limitations in our and our manufacturers’ ability to timely procure products or their components and our ability to perform critical functions. Supply chain disruptions could also be exacerbated by and compounded with disruptions and limitations related to geopolitical instability, armed conflict and insurrection or the threat thereof, and other related conflict. The current conflict in
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Ukraine, including indirect impacts as a result of sanctions and economic disruption, may further complicate such supply chain disruptions. These limitations could significantly hamper our ability to supply our products to our customers. If we encounter delays or difficulties in the manufacturing process that disrupt our ability to supply our products, we may not be able to satisfy customer demand or we may experience a product stock shortage or outage, which would likely have a material adverse effect on our business.

If the pandemic causes economic conditions to worsen, we expect to experience additional adverse impacts on our operations and revenues and our collections of accounts receivable, which may be material.

Further, COVID-19 has led to periods of disruption and volatility in the global capital markets. If these conditions continue to recur, the cost of capital could increase and access to capital could be impaired. If we experience deterioration in demand and our cash flows from operations decrease, we may require additional funding and may not be able to obtain such funding on favorable terms, or at all.

The degree to which COVID-19, along with its variants and progeny, impacts our results going forward will depend on future developments, which remain uncertain and cannot be predicted, including, but not limited to, the duration, spread and severity of COVID-19 and its variants and progeny, the actions to contain the virus or treat its impact, and the timing and pace of the economy and operating conditions stabilizing and returning to normal. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our business and damage our results of operations and our liquidity position, possibly to a significant degree.

Our emphasis on a cloud strategy may give rise to risks that could harm our business.

Our cloud strategy requires continued investment in product development and cloud operations, where we have a relatively limited operating history. Our cloud strategy has also led to changes in the way we price and deliver our products. Many of our competitors may have advantages over us due to their larger market presence, larger developer network, deeper experience in the cloud-based computing market, and greater sales and marketing resources. It is uncertain whether our cloud strategy will prove successful, or whether we will be able to develop the necessary infrastructure and business models more quickly than our competitors. Our cloud strategy may give rise to a number of risks, including the following:
Our customers may prefer perpetual licenses, and we may not be as successful as we anticipate in selling subscriptions;
although we intend to support our perpetual license business, the increased emphasis on a cloud strategy has raised concerns among some of our installed customer base who prefer perpetual licensing;
we may be unsuccessful in achieving our target pricing;
our revenues might decline over the short or long term as a result of this strategy;
our relationships with existing partners that resell perpetual licenses may be damaged; and
we may incur costs at a higher than forecasted rate as we enhance and expand our cloud operations.

Certain of our enterprise offerings have long and complex sales cycles, which could result in a loss of customers and lower revenues.

Certain of our enterprise offerings have long and complex sales cycles. The length and complexity in these sales cycles are due to a number of factors, including, among other things, the need for our sales representatives to educate customers about the uses and benefits of our products and services, the desire of large and medium size organizations to undertake significant evaluation processes to determine their technology requirements prior to making information technology expenditures, and the need to negotiate large, complex, enterprise-wide contracts. These long and complex sales cycles could make it difficult to retain and win customers and could results in lower revenues.

We spend substantial time and money on our sales efforts without any assurance that potential customers will ultimately purchase our solutions. As we target our sales efforts at larger enterprise customers, these trends are expected to continue. Our long and complex sales cycle for these products makes it difficult to predict when a given sales cycle will close.

There are a number of financial and accounting risks in our subscription model.

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A growing portion of our revenue is subscription-based pursuant to service and subscription agreements that are generally month-to-month or one year in length, and we intend to continue to expand our subscription-based offerings. Although the subscription model is designed to increase the number of customers who purchase our products and services on a recurring basis and create a more predictable revenue stream, there are certain risks inherent in a subscription-based model. These risks include the risk that customers will not renew their subscriptions, risks related to the timing of revenue recognition as described below, and the risk of potential reductions in cash flows. Although many of our service and subscription agreements contain automatic renewal terms, generally, our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period. If customers do renew their subscriptions, these subscriptions may not be renewed on the same terms. Moreover, under certain circumstances, some of our customers have the right to cancel their service agreements prior to the expiration of the terms of their agreements. If our customers do not renew their subscriptions for our services or if they renew on terms less favorable to us, our revenues may decline. Our future growth is also affected by our ability to sell additional features and services to our current customers, which depends on a number of factors, including customers' satisfaction with our products and services, the prices of our offerings, and general market conditions. If our efforts to cross-sell and upsell to our customers are unsuccessful, the rate at which our business grows may decline.

A portion of the subscription-based revenue we report each quarter results from the recognition of deferred revenue relating to subscription agreements entered into during previous quarters. A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period but may result in a decline in our revenue in future quarters. If we were to experience significant downturns in subscription sales and renewal rates, our reported financial results might not reflect such downturns until future periods. Our subscription model could also make it difficult for us to rapidly increase our revenues from subscription-based services through additional sales in any period, as revenue from new customers will be recognized over the applicable subscription term. Further, any increases in sales under our subscription sales model could result in decreased revenues over the short term if these sales are offset by a decline in sales from perpetual license customers. If any of our assumptions about revenue from our new businesses or our addition of a subscription-based model prove incorrect, our actual results may differ materially from those anticipated, estimated, or projected. We may be unable accurately to predict subscription renewal rates and the impact these rates may have on our future revenue and operating results.

We operate in highly fragmented and competitive markets, and our competitors may be able to draw upon a greater depth and breadth of resources than those available to us.

We operate in highly fragmented and competitive markets characterized by pressure to innovate, expand feature sets and functionality, accelerate new product releases, and reduce prices. Markets for certain of our products have limited barriers to entry meaning that new and existing competitors with greater flexibility and market responsiveness may seize opportunities which we are not currently aligned to seize ourself. Also, the fragmentation in our markets creates an additional risk of consolidation among our competitors, which would result in fewer, more effective competitors. Customers consider many factors when evaluating our products relative to those of our competitors, including innovation, ease of use, price, feature sets, functionality, reliability, performance, reputation, and training and support, and we may not compare favorably against our competitors in all respects. Some of our current and potential competitors have longer operating histories, greater brand recognition, and substantially greater financial, technical, marketing, distribution, and support resources than we do. As a result, our competitors may be able to deliver greater innovation, respond more quickly to new or emerging technologies and changes in market demand, devote more resources to the development, marketing and sale of their products, successfully expand into emerging and other international markets, or price their products more aggressively than we can. If our competitors are more successful than we are in developing products, or in attracting and retaining customers, our financial condition and operating results could be adversely affected.

We obtain certain hardware product components and finished goods under sole-source supplier arrangements. Disruptions to these arrangements and other supply chain interruptions could jeopardize the manufacturing or distribution of certain of our hardware products.

Although we generally prefer to establish multi-source supply arrangements for our hardware product components and finished goods, multi-source arrangements are not always possible or cost-effective, and therefore we rely on sole-source suppliers for some of our hardware product components and finished goods. Reliance on sole source suppliers increases our susceptibility to supply chain limitations and interruptions. We do not generally carry significant inventories of, and may not in all cases have guaranteed supply arrangements for, these sole-sourced items. Our sole-source suppliers may cease, suspend, or otherwise limit production or shipment of our product components, or they may terminate our agreements or adversely modify supply terms or pricing, due to, among other things, macroeconomic events, political crises, natural or environmental disasters, labor shortages, or other unforeseen occurrences outside the control of us or our suppliers. Supply chain disruptions due to the conflict in Ukraine
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and any indirect effects may further complicate existing supply chain constraints. If any of these events occur, our ability to manufacture, distribute, and service our products would be impaired, and our business could be significantly harmed. We may not be able to obtain sole-sourced components or finished goods, or acceptable substitutes, from alternative suppliers or on commercially reasonable terms. If we are forced to change sole-source suppliers due to a contract termination or other production cessation, it may take a significant amount of time and expenses to obtain substitute suppliers, during which time our inventory may be significantly reduced, which may adversely impact our business, financial condition and results of operations. We may also be required to expend significant development resources to redesign our products to work around the exclusion of any sole-sourced component or accommodate the inclusion of any substitute component. Although we have procedures in place to mitigate the risks associated with our sole-sourced suppliers, we cannot be certain that we will be able to obtain sole-sourced components or finished goods from alternative suppliers or that we will be able to do so on commercially reasonable terms without a material impact on our results of operations or financial position.

A natural disaster or catastrophic event may significantly limit our ability to conduct business as normal and harm our business.

Our operations, and the operations of our customers, are vulnerable to interruptions by natural disasters and catastrophic events, including pandemics such as the COVID-19 pandemic, as well as political unrest including armed conflicts such as the Russian invasion of Ukraine. We operate a complex, geographically dispersed business, which includes significant personnel, customers and facilities in California near major earthquake fault lines and in Manila which is subject to sever weather from typhoons and volcanic activity. We may not be able to protect our company from, and we are predominantly uninsured for, business continuity losses and disruptions caused by such catastrophic events. Disruption or failure of our or our customers’ networks or systems, or injury or damage to either parties’ personnel or physical infrastructure, caused by a natural disaster, public health crisis, terrorism, cyber-attack, political unrest, acts of war or armed conflict, or other catastrophic event may significantly limit our or our customers’ ability to conduct business as normal, including our ability to communicate and transact with customers, suppliers, distributors, and resellers, which may negatively affect our revenues and operating results. Additionally, a natural disaster or catastrophic event could cause us or our customers to suspend all or a portion of operations for a significant period of time, result in a permanent loss of resources, and require the relocation of personnel and material to alternate facilities that may not be available or adequate. Such an event could also cause an indirect economic impact on our customers, which could affect our customers’ purchasing decisions and reduce demand for our products and services. There could also be disruptions to our supply chain as a result of such events. We may also experience disruption to our internal operations if we are forced to restrict employee travel, cancel events with customers or partners, or even close office facilities as a result of such events. Any significant disruption resulting from such events on a large scale or over a prolonged period of time could cause significant delays and disruption to our business until the Company would be able to resume normal business operations or shift to other third-party vendors, negatively affecting our revenue and other financial results. A prolonged disruption of our business could also damage our reputation, particularly among our global news organization customers who are likely to require our solutions and support during such time. Any of these factors could cause a material adverse impact on our financial condition and operating results.

Lengthy procurement lead times and unpredictable life cycles and customer demand for some of our products may result in significant inventory risks, which could adversely affect our results of operations.

With respect to many of our products, particularly our audio products, we must procure component parts and build finished inventory far in advance of product shipments. Certain of these products may have unpredictable life cycles and encounter rapid technological obsolescence as a result of dynamic market conditions. We procure product components and build inventory based upon our forecasts of product life cycle and customer demand. If we are unable to accurately forecast product life cycle and customer demand or unable to manage our inventory levels in response to shifts in customer demand, the result may be insufficient, excess, or obsolete product inventory. Insufficient product inventory may impair our ability to fulfill product orders and negatively affect our revenues, while excess or obsolete inventory may require a write-down on products and components to their net realizable value, which would negatively affect our results of operations.

Our revenue backlog estimates are based on certain assumptions and are subject to unexpected adjustments and cancellations, and backlog orders may not be timely converted to revenues in any particular fiscal period, if at all, or be indicative of our actual operating results for any future period.

Our revenue backlog, as we define it, consists of firm orders received and includes both (i) orders where the customer has paid in advance of our performance obligations being fulfilled, which are reflected as deferred revenues on our balance sheet, and (ii)
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orders for future product deliveries or services that have not yet been invoiced by us. To the extent that our customers cancel their orders with us, or reduce their requirements during a particular period for any reason, we will not realize revenue or profit from the associated revenue backlog. Even where a project proceeds as scheduled, it is possible that the customer may default and fail to pay amounts owed to us. Material delays, payment defaults, or cancellations could reduce the amount of revenue backlog currently reported, and consequently, could inhibit the conversion of that backlog into revenues. Furthermore, orders included in our revenue backlog may not be profitable. We may experience variances in the realization of our revenue backlog because of project delays or cancellations resulting from external market factors and economic factors beyond our control. In addition, even if we realize all of the revenue from the projects in our revenue backlog, if our expenses associated with these projects are higher than expected, our results of operations and financial condition would be adversely affected.

Our revenues and operating results depend significantly on our third-party reseller and distribution channels. Our failure to effectively manage our distribution channels for our products and services could adversely affect our revenues and gross margins and therefore our profitability.

We distribute many of our products indirectly through third-party resellers and distributors. We also distribute products directly to end-user customers. Successfully managing the interaction of our direct and indirect channel efforts to reach various potential customer industries for our products and services is a complex process. For example, in response to our direct sales strategies or for other business reasons, our current resellers and distributors may from time to time choose to resell our competitors’ products in addition to, or in place of, our products. Moreover, since each distribution method has distinct risks and gross margins, our failure to identify and implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenues and gross margins and therefore our profitability.

Acquisitions and investments could be difficult to consummate and integrate into our operations, and they could disrupt our business, dilute stockholder value, or impair our financial results.

As part of our business strategy, from time to time we may seek to grow our business through acquisitions of or investments in new or complementary businesses, technologies, or products that we believe can improve our ability to compete in our existing customer markets or allow us to enter new markets. There are numerous risks associated with acquisitions and investment transactions including, but not limited to, failing to realize anticipated benefits of acquisitions or returns on investment, unanticipated costs and liabilities associated with the acquisition, and difficulty assimilating the operations, policies and personnel of the acquired business.

Our products may experience defects that could negatively impact our customer relationships, market reputation, and operating results.

Our software products occasionally include coding defects (commonly referred to as “bugs”), which in some cases may interfere with or impair a customer’s ability to operate or use the software. Similarly, our hardware products could include design or manufacturing defects that could cause them to malfunction. The quality control measures we use are not designed or intended to detect and remedy all defects. Any product defects could result in loss of customers or revenues, delays in revenue recognition, increased product returns, damage to our market reputation, and significant warranty or other expense and could have a material adverse impact on our financial condition and operating results.

Our revenues and operating results are difficult to predict and may fluctuate from period to period.

Our results of operations have been, and may continue to, be subject to significant quarterly variation. Our revenues and operating results for any particular quarter may also vary due to a number of factors, including, but not limited to, those enumerated under the section “Cautionary Note on Forward-Looking Statements,appearing elsewhere in this Form 10-K and:

the timing of large or enterprise-wide sales and our ability to recognize revenues from such sales;
demand planning and logistics;
renewal rates under subscription contracts;
reliance on third-party reseller and distribution channels;
disruptions in our supply chain;
changes in operating expenses;
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price protections and provisions for inventory obsolescence extended to resellers and distributors;
seasonal factors, such as higher consumer demand at year-end; and
complex accounting rules for revenue recognition.

The occurrence and interaction of these variables may cause our revenues and operating results to fluctuate from period to period. As a result, period-to-period comparisons of our revenues and operating results may not provide an adequate indication of our future performance. We cannot be certain when, or if, our operations will be profitable in future periods.

Risks related to our internal controls over financial reporting

Risks related to material weakness in our internal controls.

We may not be able to properly remediate existing or future weaknesses or deficiencies in our internal control environment, which could adversely affect our ability to produce accurate and timely financial statements, harm our reputation, negatively impact our stock price and damage our business.

In connection with filing our Annual Report on Form 10-K for fiscal year 2022, a material weakness was identified related to controls associated with the accounting methodology used to determine the amount and timing of revenue associated with multiple performance obligations under term based subscription contracts.

While we continue with our efforts to remediate the identified weaknesses, we cannot assure you that our remediation efforts will be adequate to avoid future material weaknesses. We also cannot assure you that additional material weaknesses in our internal controls over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and also to continue to improve our operational, information technology, financial systems, and infrastructure, procedures and controls, as well as to continue to expand, train, retain, and manage our personnel who are essential to effective internal control. In doing so, we will continue to incur expenses and expend management time on compliance-related issues.

If we fail to successfully remediate our material weaknesses and implement appropriate controls, we may not be able to prevent or detect a material misstatement in our financial statements on a timely basis or at all. Such misstatements could result in a future restatement of our financial statements, could cause us to fail to meet our reporting obligations, or could cause investors to lose confidence in our reported financial information, leading to a decline in our stock price or litigation. Furthermore, our reputation could be harmed and our customers’ and partners’ confidence in us may be impaired, all of which could damage our business. For a discussion of the material weaknesses, please see Part II, Item 9A, “Controls and Procedures,” of this Form 10-K.

Risks related to changes in accounting guidance and interpretation.

Accounting guidance may change over time, and some of these changes and related accounting treatments may be subjective in nature. To the extent such changes in accounting guidance occur, different accounting firms may evolve in their views as an institution on interpretation and application of certain accounting treatments, which may in turn cause us to adjust how we treat certain items from an accounting standpoint. If we make such adjustments, it may materially impact our financial results and any earnings guidance we have previously given.

Risks Related to Intellectual Property

Our intellectual property and trade secrets are valuable assets that could be impaired by third-party infringement and misappropriation.

As a technology company, our intellectual property and trade secrets are among our most valuable assets. Infringement or misappropriation of these assets can result in lost revenues, and thereby ultimately reduce their value. We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality procedures, contractual provisions, and anti-piracy technology in certain products to protect our intellectual property. Most of these tools require vigilant monitoring of competitor and other third-party activities and of end-user usage of our products to be effective. These tools may not provide adequate protection in all instances, may be subject to circumvention, or may require a vigilance that in some cases exceeds our capabilities or resources. Additionally, our business model is increasingly focused on software products and, as we offer more software products, our revenues may be more vulnerable to loss through piracy and other infringement. The legal regimes of certain foreign jurisdictions in which we operate may not protect our intellectual property to the same extent as do the laws of the
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United States. These concerns may be heightened in areas of geopolitical conflict, such as Russian occupied areas of Ukraine, where law enforcement may not provide physical security sufficient to protect hard assets containing our intellectual property. If our intellectual property is misappropriated in foreign jurisdictions, we may be without adequate remedies to address these issues. Regardless of jurisdiction, assuming legal protection exists, and infringement or misappropriation is detected, any enforcement action that we may pursue could be costly and time-consuming, the outcome will be uncertain, and the alleged offender in some cases may seek to have our intellectual property rights invalidated. If we are unable to protect our intellectual property and trade secrets, our business could be harmed.

Our results could be materially adversely affected if we are accused of, or found to be, infringing third parties’ intellectual property rights.

Technological change in our industry, extensive and sometimes uncertain patent coverage, and the rapid issuance of new patents, result in the possibility that certain of our products or business methods may infringe the patents or other intellectual property rights of third parties. Companies in the technology industry own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. Our technologies may not withstand third-party claims against their use. We have in the past, and may in the future receive claims and be subject to litigation alleging that we infringe patents owned by third parties. Regardless of the scope or validity of such patents, or the merits of any patent claims by potential or actual litigants, we could incur substantial costs in defending intellectual property claims and litigation, and such claims and litigation could distract management’s attention from normal business operations. In addition, we provide indemnification provisions in agreements with certain customers covering potential claims by third parties of intellectual property infringement. These agreements generally provide that we will indemnify customers for losses incurred in connection with an infringement claim brought by a third party with respect to our products, and we have received claims for such indemnification. The results of any intellectual property litigation to which we are, or may become, a party, or for which we are required to provide indemnification, may require us to:

cease selling or using products, features, or services that incorporate the challenged intellectual property;
make substantial payments for legal fees, settlement payments or other costs or damages;
obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology, which such license could require royalties that would significantly increase our cost of goods sold; or redesign products or services to avoid infringement, where such redesign could involve significant costs and result in delayed and/or reduced sales of the affected products.

We depend on the availability and proper functioning of certain third-party technology that we incorporate into or bundle with our products. Third-party technology may include defects or errors that could adversely affect the performance of our products. If third-party technology becomes unavailable at acceptable prices, we may need to expend considerable resources integrating alternative third-party technology or developing our own substitute technology.

The profit margin for some of our products depends in part on the royalty, license, and purchase fees we pay in connection with third-party technology which we license for incorporation into our product bundling. Our profit margins and operating results can be adversely affected by increases in the costs associated with such third party technology. In addition to cost implications, third-party technology may include defects or errors that could adversely affect the performance of our products, which may harm our market reputation or adversely affect our product sales. Third-party technology may also include certain open source software code that if used in combination with our own software may jeopardize our intellectual property rights or limit our ability to sell through certain sales channels. If any third-party technology license expires, is terminated, or ceases to be available on commercially reasonable terms, we may be required to expend considerable resources integrating alternative third-party technology or developing our own substitute technology. In the interim, sales of our products may be delayed or suspended, or we may be forced to distribute our products with reduced feature sets or functionality.

Risks Related to Our Liquidity and Financial Condition and Performance

If we are not able to generate and maintain adequate liquidity our ability to operate our business could be adversely affected.

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Generating and maintaining adequate liquidity is important to our business operations. We meet our liquidity needs primarily through cash generated by operations, supplemented from time to time with the proceeds of long-term debt and borrowings under our revolving credit facility, governed by the Second Amended and Restated Credit Agreement, dated October 6, 2022, among us, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, (the “Second A&R Credit Agreement). We have the ability to borrow up to $120.0 million under the revolving credit facility (the “Revolving Credit Facility”). We have also undertaken significant cost cutting measures and we may take additional measures to further improve our liquidity. Significant fluctuations in our cash balances could harm our ability to meet our immediate liquidity needs, impair our capacity to react to sudden or unexpected contractions or growth in our business, reduce our ability to withstand a sustained period of economic downturn, and impair our ability to compete with competitors with greater financial resources. In addition, fluctuations in our cash balances could cause us to draw on our Revolving Credit Facility and therefore reduce funds available for future borrowing under the Revolving Credit Facility (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in Item 7 of this Form 10-K). If we are unable to generate sufficient cash flow or our borrowings are not sufficient, our liquidity may significantly decrease, which could have an adverse effect on our business.

Restrictions in the Second A&R Credit Agreement may limit our activities.

The Second A&R Credit Agreement contains restrictive covenants that limit our ability to engage in activities that could otherwise benefit us, including, among other things, limitations on our ability to make investments, incur additional indebtedness, sell assets, pay dividends, make other restricted payments, and create liens on our assets. We are also required to comply on an ongoing basis with a maximum total net leverage ratio ratio financial covenant. Our ability to comply with these restrictions and financial covenant in the future is uncertain and could be affected by our cash flows from operations and events or circumstances beyond our control. Failure to comply with any of these restrictions or covenants may result in an event of default under the Second A&R Credit Agreement, which could permit acceleration of the outstanding term loans and Revolving Credit Facility borrowings under the Second A&R Credit Agreement and require us to repay such indebtedness before its scheduled due date. Certain events of default under the Second A&R Credit Agreement may also give rise to a default under other future indebtedness. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, our lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Second A&R Credit Agreement.

Our substantial indebtedness could adversely affect our business, cash flow and results of operations.

As of December 31, 2022, we had $182.7 million of indebtedness, including borrowings under our Second A&R Credit Agreement. This level of indebtedness may:

require us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing the availability of cash flow to fund capital expenditures, pursue other acquisitions or investments, and use for general corporate purposes;
increase our vulnerability to general adverse economic conditions, including increases in interest rates with respect to borrowings under the Second A&R Credit Agreement that bear interest at variable rates or challenges in refinancing our indebtedness in the future; and
limit our ability to obtain additional financing;
These and other factors limit our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry, creating competitive disadvantages compared to other competitors with lower debt levels and borrowing costs.

Our cash flow from operations, combined with any additional borrowings available to us, may not be sufficient to enable us to repay our indebtedness, or to fund other liquidity needs. We may incur additional indebtedness in the future, which could cause these risks to intensify. If we are unable to generate sufficient cash flows to repay our indebtedness when due or to fund our other liquidity needs, we may be required to pursue one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

Risks Related to Our International Operations
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Our international operations expose us to legal, regulatory, political and other risks including the risk of international instability and conflict.

We derive more than half of our revenues from customers outside of the United States, and we rely on foreign contractors for the supply and manufacture of many of our products. Sales to customers outside the United States accounted for 57%, 58% and 60% of our total net revenues in 2022, 2021 and 2020, respectively. We also conduct significant information technology, research and development activities overseas, including through third-party development vendors. For example we have customer support activities in the Philippines, and we have operations in Poland and Israel. Additionally, a portion of our research and development is outsourced to contractors based in Kiev, Ukraine, who have been relocated since the Russian invasion of Ukraine.

Our international operations expose us to a variety of risks, including:
the financial and administrative burdens associated with environmental, tax, labor and employment, and export laws, as well as other business regulations, in foreign jurisdictions, including high compliance costs, inconsistencies among jurisdictions, and a lack of administrative or judicial interpretative guidance;
fluctuations in foreign currency exchange rates;
regional economic downturns;
economic, social, and political instability, security concerns, and the risk of war or armed conflict, particularly in areas of heightened geopolitical tension and open conflict such as Ukraine where we have outsourced research and development activities;
reduced or varied protection for intellectual property rights in some countries;
longer collection cycles for accounts receivable;
difficulties in enforcing contracts;
difficulties in managing and staffing international implementations and operations, and executing our business strategy internationally;
difficulties managing a global labor force;
potentially adverse tax consequences, including the complexities of foreign value added or other tax systems and restrictions on the repatriation of earnings;
increased financial accounting and reporting burdens and complexities;
difficulties in maintaining effective internal control over financial reporting and disclosure controls;
costs and delays associated with developing products in multiple languages; and
foreign exchange controls, sanctions, moratoria, and other financial and transactional boundaries that may prevent or limit our ability to repatriate income earned, make or receive payments, or execute transactions in foreign markets.

Our presence in Europe contributes to compliance uncertainty regarding certain transfers of personal data from Europe to the United States. The General Data Protection Regulation, or GDPR, which became effective in the European Union, or EU, in 2018, applies to any of our activities conducted from an establishment in the EU or related to products and services that we offer to EU users. The GDPR created a range of new data privacy related compliance obligations, which could cause us to change our business practices, and will significantly increase financial penalties for noncompliance, including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements.

We may not be successful in developing, implementing, or maintaining policies and strategies that will be effective in managing the varying risks in each country where we do business. Our failure to manage these risks successfully, including developing appropriate contingency plans for our outsourced research and development work, could harm our international operations, reduce our international sales, and increase our costs, thus adversely affecting our business, operating results, and financial condition.

Fluctuations in foreign exchange rates may result in short-term currency exchange losses and could adversely affect our revenues from foreign markets and our manufacturing costs in the long term.

Our international sales are largely transacted through foreign subsidiaries and generally in the currency of the end-user customers. Consequently, we are exposed to short-term currency exchange risks that may adversely affect our revenues, operating results,
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and cash flows. The majority of our international sales are transacted in euros. We do not have a regular practice of entering into foreign currency contracts to hedge foreign exchange risks.

Furthermore, the significance of sales in Europe subjects us to risks associated with long-term changes in the dollar/euro exchange rate. A sustained strengthening of the U.S. dollar against the euro would decrease our expected future U.S. dollar revenues from European sales, and could have a significant adverse effect on our overall profit margins. Continuing uncertainty regarding economic conditions, including inflation and economic instability in the Eurozone, could lead to significant long-term economic weakness and reduced economic growth in Europe, the occurrence of which, or the potential occurrence of which, could lead to a sustained strengthening of the U.S. dollar against the euro, adversely affecting the profitability of our European operations.

In addition, we source and manufacture many of our products in China and our costs may increase should the renminbi not remain stable against the U.S. dollar. Although the renminbi is pegged against a basket of currencies determined by the People’s Bank of China, the renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term. In addition, if China were to permit the renminbi to float to a free market rate of exchange, it is widely anticipated that the renminbi would appreciate significantly in value against U.S. dollar. An increase in the value of the renminbi against the U.S. dollar would have the effect of increasing the labor and production costs of our Chinese manufacturers in U.S. dollar terms, which may result in their passing such costs to us in the form of increased pricing, which would adversely affect our profit margins if we could not pass those price increases along to our customers or obtain alternate suppliers or obtain alternate suppliers.

Global economic weakness and uncertainty could adversely affect our revenues, gross margins and expenses.

Our business is impacted by global economic conditions, which have been in recent years, and continue to be, volatile. Geopolitical conflict, such as the Russian invasion of Ukraine, and related international sanctions and their impact may exacerbate this volatility. Specifically, our revenues and gross margins depend significantly on global economic conditions and the demand for our products and services in the markets in which we compete. Economic weakness and uncertainty have resulted, and may result in the future, in decreased revenue, gross margin, earnings or growth rates, and difficulty managing inventory levels. Sustained uncertainty about global economic conditions may adversely affect demand for our products and services and could cause demand to differ materially from our expectations as customers curtail or delay spending on our products and services. Economic weakness and uncertainty also make it more difficult for us to make accurate forecasts of revenues, gross margins and expenses.

Our international operations create the risk that we could violate the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and/or similar foreign anti-corruption laws.

We operate in a number of foreign jurisdictions. The U.S. Foreign Corrupt Practices Act, or FCPA, and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from offering, promising, authorizing, or making payments to foreign officials for the purpose of influencing any act or decision of such official in his or her official capacity, inducing the official to do any act in violation of his or her lawful duty, or to secure any improper advantage in obtaining or retaining business. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals.

We operate in a number of countries that are recognized as having governmental corruption problems to some degree and where local customs and practices may pose compliance risks with regard to anti-corruption laws, including China. Our continued operation and expansion outside the United States could expand the risk of such violations in the future.

Although we have policies that mandate compliance with these anti-corruption laws and require training, we cannot guaranty that these policies and procedures will protect us from unauthorized reckless or criminal acts committed by our employees or agents. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in significant criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, results of operations, or financial condition.

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We rely to a significant extent on manufacturing and hardware development vendors with operations in foreign jurisdictions. This may reduce our control over the manufacturing activities, create uncertainty with respect to intended cost savings and expose our proprietary assets to greater risk of misappropriation. Changes to these vendor relationships may result in delays or disruptions that could harm our business.

We rely to a significant extent on vendors for the development and manufacture of certain of our hardware products, primarily in Mexico. These relationships provide us with more flexible resource capabilities, access to global talent, and cost savings, but also expose us to risks that may not exist or may be less pronounced with respect to our internal operations. We are able to exercise only limited oversight of our contractors, including with respect to their engineering and manufacturing processes, resource allocations, delivery schedules, security procedures, and quality control. Language, cultural, and time zone differences complicate effective management of contractors located abroad. Additionally, competition for talent in certain locations may lead to high turnover rates that disrupt development or manufacturing continuity. The manufacturers we use also manufacture products for other companies, including our competitors. Our contractors could choose to prioritize capacity for other users, increase the prices they charge us or reduce or eliminate deliveries to us, which could have a material adverse effect on our business. Pricing terms offered by contractors may be highly variable over time reflecting, among other things, order volume, local inflation, and exchange rates. Some of our contractor relationships are based on broader contractual arrangements, while others operate on a more narrow purchase order basis, where we do not have the same contractual protections with respect to pricing or other critical terms.

Many of our contractors require access to our intellectual property and our confidential and proprietary information to perform their services. Protections for these assets in some non-U.S. jurisdictions may be less robust than in the United States. We must rely on policies and procedures we have instituted with our contractors and certain confidentiality and contractual provisions in our written agreements, to the extent they exist, for protection. These safeguards may be inadequate to prevent breaches. If a breach were to occur, available legal or other remedies may be limited or otherwise insufficient to compensate us for any resulting damages.

Furthermore, if one of our international vendors were, for any reason, to cease or experience significant disruptions in its operations, among others as a result of political unrest, we might be unable to replace it on a timely basis with a comparably priced provider. We would also have to expend time and resources to train any new development or manufacturing vendor. If any of the vendors were to suffer an interruption in its business, or experience delays, disruptions, or quality control problems in development or manufacturing operations, or if we had to change development or manufacturing vendors, our ability to provide services to our customers would be delayed and our business, operating results and financial condition would be adversely affected.

Other Risks Related to our Business

Failure of our information systems or those of third parties or breaches of data security could cause significant harm to our business.

Our systems and processes involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of employees, customers, and others. In addition, we rely on information systems controlled by third parties. Information system failures, network disruptions, and system and data security breaches, manipulation, destruction, ransom, or leakage, whether intentional or accidental, could impair our ability to provide services to our customers or otherwise harm our ability to conduct our business. Any such failures, disruptions or breaches could also impede the development, manufacture or shipment of products, interrupt or delay processing of transactions and reporting financial results, result in theft or misuse of our intellectual property or other assets, or result in the unintentional disclosure of personal, proprietary, sensitive, or confidential information of employees, customers, and others. These concerns may be heightened due to instability and/or failure of the rule of law in areas of geopolitical conflict, such as Russian occupied areas of Ukraine. Our development and use of the Avid MediaCentral Platform, public and private marketplaces, cloud-based offerings, as well as our evolution toward an enterprise subscription model that requires us to host increasing amounts of customer data, increases the risk that our and our customers’ data and financial and proprietary information could be more susceptible to such failures and data breaches. In addition, the need for substantial numbers of our employees and partners to work remotely, such as due to the COVID-19 pandemic, the ongoing Russian invasion of Ukraine, and other crises, could create additional data security risks.

Information system failures or unauthorized access could be caused by our failure to adequately maintain and enhance our systems and networks, external theft or attack, misconduct by our employees, contractors, vendors, or external bad actors, or
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many other causes such as power failures, earthquakes, fire, or other natural disasters. Our cyber security systems regularly detect threats of varying degrees of sophistication. Cyber threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. We may have no current capability to detect certain vulnerabilities, which may allow them to persist in the environment over long periods of time. Cyber threats can have cascading impacts that develop and unfold unpredictably across our internal networks and systems and those of our partners and customers.

Any information system failures or unauthorized access to our network or systems could expose us, our customers, or the individuals affected to a risk of loss or misuse of this information, resulting in litigation and potential liability for us. In addition, we could incur substantial costs related to detection and escalation, notification, and remediation costs, including costs associated with repairing our information systems, implementing further data protection measures, engaging third-party experts and consultants and related costs, and increased insurance premiums. In addition, significant or repeated reductions in the performance, reliability, security, or availability of our information systems and network infrastructure could lead to lost business and could significantly harm our brand and reputation and ability to attract and retain existing and potential users, customers, advertisers, and content providers.

Our success depends in part on our ability to hire and retain competent and skilled management and technical, sales, and other personnel.

We are dependent on the continued service and performance of our management team and key technical, sales, and other personnel and our success will depend in part on our ability to recruit and retain these employees in a competitive job market. If we fail to recruit and retain, including through competitive compensation, competent and skilled personnel, we may incur increased costs or experience challenges with the execution of our strategic plan. If we fail to properly implement proactive talent planning measures, such as voluntary early retirement programs and succession planning, we risk losing key institutional knowledge. Also, if we fail to maintain a diverse, inclusive and discrimination-free workplace, we risk losing employees.

Our competitors may in some instances be able to offer a work environment with higher compensation, more opportunities to work with cutting-edge technology, better training, experience, flexibility, or other more desirable benefits than we can. If we are unable to retain our key personnel or appropriately match skill sets with our needs, we would be required to expend significant time and financial resources to identify and hire new qualified personnel and to transfer significant internal historical knowledge, which might significantly delay or prevent the achievement of our business objectives. The COVID-19 pandemic and subsequent labor conditions, including record-low unemployment levels, has exacerbated the challenges we face in attracting, hiring, and retaining qualified personnel. The conflict in Ukraine may impact our ability to utilize outsourced service providers, which may strain personnel demands.

Risks Related to Our Stock

Delaware law and our charter documents may impede or discourage a takeover, which could reduce the market price of our common stock.

We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. In addition, our board of directors, or a committee thereof, has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock. The ability of our board of directors to create and issue a new series of preferred stock and certain provisions of Delaware law and our certificate of incorporation and bylaws, could impede a merger, takeover or other business combination involving us, or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock.
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ITEM 1B.UNRESOLVED STAFF COMMENTS

None.


ITEM 2.PROPERTIES

We lease approximately 100,000 square feet in Burlington, Massachusetts for our principal corporate and administrative offices, as well as for significant R&D activities. The lease expires in May 2028.

We lease approximately 24,000 square feet in Dublin, Ireland for the final assembly and distribution of our products. We lease approximately 24,000 square feet in Manila, Philippines for our Asia operations, including customer support and administrative functions.

We also lease office space for sales operations and research and development in several other domestic and international locations.

ITEM 3.LEGAL PROCEEDINGS

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. 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.

The outcome of legal proceedings and claims brought against us is subject to significant uncertainty and, as a result, 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. See Part I, Item 1A, “Risk Factors – Risks Related to our Intellectual Property - Our results could be materially adversely affected if we are accused of, or found to be, infringing third parties’ intellectual property rights.”

For a discussion of certain other legal matters and contingencies, see the discussion under “Contingencies” in Note K to the financial statements included in herein.

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.
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PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the Nasdaq Global Select Market under the symbol AVID. The approximate number of holders of record of our common stock at February 24, 2023 was 220. This number does not include stockholders for whom shares were held in a “nominee” or “street” name.

We have never declared or paid cash dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future. Our Second A&R Credit Agreement restricts our ability to declare and pay dividends in cash on our capital stock under certain circumstances. Our Second A&R Credit Agreement permits us to pay up to 60% of Consolidated EBITDA in dividends in cash on our capital stock in any fiscal year if at the time of and immediately after giving effect (including giving effect on a pro forma basis) to such dividend no default or event of default under the Second A&R Credit Agreement has occurred and is continuing; provided that the amount such limit does not apply if our total net leverage ratio is less than or equal to 2.75 to 1.00 at the time of and immediately after giving effect (including giving effect on a pro forma basis) to such dividend.

Stock Performance Graph

The following graph compares the cumulative stockholder return on our common stock during the period from December 31, 2017 through December 31, 2022 with the cumulative return during the period for:
the Nasdaq Composite Index (all companies traded on Nasdaq Capital, Global or Global Select Markets) and
the 2022 Avid Peer Group Index (see details following the graph).
This comparison assumes the investment of $100 on December 31, 2017 in our common stock, the Nasdaq Market Index, and the Avid Peer Group Index, and assumes that dividends, if any, were reinvested.

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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among Avid Technology, Inc., the Nasdaq Composite Index,
and a Peer Group
https://cdn.kscope.io/f55bf9243d1a95b9ef733a2b72ab399a-avid-20221231_g1.jpg

Because our products and services are diverse, we do not believe any single published industry index is appropriate for comparing stockholder return. As a result, we compare our common stock returns to a peer group index, which was composed of Nasdaq traded companies selected to best represent our peers based on various criteria, including industry classification, number of employees, and market capitalization.

The composition of the Avid Peer Group Index is dictated by the peer group selected by the compensation committee of our board of directors for reference in setting executive compensation. The compensation committee seeks generally to include companies with similar product and service offerings to those of Avid while also achieving a balance of smaller and larger sized peer companies in terms of market capitalizations and revenue.

The Avid Peer Group Index for 2022 was composed of: 3D Systems Corporation, A10 Networks Inc., Altair Engineering, Inc., Benefitfocus Inc., Box, Inc., Brightcove Inc., Calamp Corporation, Calix, Inc., Harmonic, Inc., IMAX Corporation, Edgio Inc., Microstrategy Inc., OneSpan Inc., Progress Software Corporation, Ribbon Communications Inc., Shutterstock, Inc.

The Avid Peer Group Index is weighted based on market capitalization.

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Common Stock Repurchases

Share repurchase activity during the three months ended December 31, 2022 was as follows:

PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced programs
Maximum approximate dollar value of shares that may yet be purchased under the programs
October 1, 2022 - October 31, 2022254,035$25.30 254,035$39,920,543 
November 1, 2022 - November 30, 202211,322$27.46 11,322$39,609,679 
December 1, 2022 - December 31, 202299,403$25.58 99,403$37,067,369 

On September 9, 2021, our board of directors approved the repurchase of up to $115.0 million of our outstanding shares. This authorization does not have a prescribed expiration date. As of December 31, 2022, approximately $37.1 million of the $115.0 million share repurchase authorization remained available. The Company has no obligation to repurchase any amount of its common stock, and the program may be suspended or discontinued at any time. For the year ended December 31, 2022 the Company repurchased 2,036,524 shares of its common stock for $52.8 million.



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ITEM 6.           RESERVED


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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Business Overview

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

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

Operations Overview

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

A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings, maintenance contracts, and long-term agreements. We started offering subscription licensing options for some of our products and solutions in 2014 and by the end of 2022 we offered subscription licensing for all of our software solutions and we had approximately 506,000 paid subscriptions. Subscription count includes all paid and active seats under multi-seat licenses. These licensing options offer choices in pricing and deployment to suit our customers’ needs. We expect to increase subscription sales to media enterprises going forward as we expand offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SAAS offerings, and agreements with channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.

Avid is committed to our digital transformation initiative, which focuses on optimizing systems, processes, and back-office functions with the objective of improving our operations related to our digital and subscription business. The initiative started in the third quarter of 2021, and is expected to continue through 2024. We plan to significantly invest in transforming our enterprise-wide infrastructure and technologies to benefit customers and drive enhanced performance across the company.








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CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We regularly reevaluate our estimates and judgments, including those related to the following: revenue recognition and allowances for sales returns and exchanges and income tax assets and liabilities. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting estimates most significantly affect the portrayal of our financial condition and involve our most difficult and subjective estimates and judgments.

Revenue Recognition
We often enter into contractual arrangements that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These arrangements may include a combination of products, maintenance, training, and professional services. We allocate the transaction price of the arrangement based on the relative estimated standalone selling price, or SSP, of each distinct performance obligation.

Our process for determining SSP for each performance obligation involves significant management judgment. In determining SSP, we maximize observable inputs and consider a number of data points, including:
• the pricing of standalone sales (in the limited instances where available);
• the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone
basis;
• contractually stated prices for deliverables that are intended to be sold on a standalone basis;
• other pricing factors, such as the geographical region in which the products are sold and expected discounts based on
the customer size and type.

Determining SSP for performance obligations which we never sell separately also requires significant judgment. In estimating the SSP in these circumstances, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered separately and the prices a customer would likely be willing to pay.

We only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other allowances that represent variable consideration under ASC 606, which we estimate based on historical return experience and other relevant factors, and we record a corresponding refund liability as a component of accrued expenses and other current liabilities. Other forms of contingent revenue or variable consideration are infrequent.

Income Tax Assets and Liabilities

We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes compared to the amounts used for income tax purposes. We regularly review our deferred tax assets for recoverability with consideration for such factors as historical losses, projected future taxable income, and the expected timing of the reversals of existing temporary differences. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Management believes the U.S deferred tax assets, based largely on the history of U.S. tax losses, warrant a full valuation allowance based on the weight of available negative evidence. We also determined that a full valuation allowance is warranted on a portion of our foreign deferred tax assets.

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Our assessment of the valuation allowance on our U.S. and foreign deferred tax assets could change in the future based on our levels of pre-tax income and other tax-related adjustments. Reversal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of reversal. To the extent some or all of our valuation allowance is reversed, future financial statements would reflect an increase in non-cash income tax expense until such time as our deferred tax assets are fully utilized.

We account for uncertainty in income taxes recognized in our financial statements by applying a two-step process to determine the amount of tax provision or benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination by the taxing authorities based on the technical merits of the position. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of provision or benefit to recognize in the financial statements. The amount of provision or benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Our provision for income taxes includes the effects of any resulting tax reserves, referred to as unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.


RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended December 31, 2021, for discussion of the results of operations for the year ended December 31, 2021, compared to the year ended December 31, 2020, which is incorporated by reference herein.

Recent Developments Affecting Our Business

Our business and financial performance depend significantly on worldwide economic conditions. We face global macroeconomic challenges, particularly in light of the effects of the ongoing geopolitical conflicts in Ukraine, the COVID-19 pandemic, uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment. Throughout 2022, we observed significant market uncertainty, increasing inflationary pressures, supply constraints and a strengthening U.S. dollar. We continue to manage through supply constraints seen industry-wide due to component shortages, and for which the duration of such constraints is uncertain. These shortages have resulted in increased costs (i.e., component and other commodity costs, freight, expedite fees, etc.) which have had a negative impact on our product gross margin and have resulted in extended lead times for us and our customers.

As a company with an extensive global footprint, we are subject to risks and exposures from foreign currency exchange rate fluctuations caused by significant events with macroeconomic impacts. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape. Foreign currency exchange rate fluctuations negatively impacted our revenue and earnings during 2022.

While our revenue and earnings are relatively predictable as a result of our subscription-based business model, the broader implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, remain uncertain. See the section titled “Risk Factors” in Part I, Item 1A of this report for further discussion of the possible impact of these macroeconomic issues on our business.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act") into law. the Inflation Reduction Act imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022. The impact of this provision will be dependent on the extent of share repurchases made in future periods. We continue to analyze the impacts of the Inflation Reduction Act; however, it is not expected to have a material impact on our financial statements. Additionally, the Inflation Reduction Act includes a new corporate alternative minimum tax which is not currently applicable to the Company.
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The following table sets forth certain items from our consolidated statements of operations as a percentage of net revenues for the periods indicated:
 Year Ended December 31,
 202220212020
Net revenues:   
    Subscription revenues36.3 %26.4 %20.2 %
    Maintenance revenues26.3 %29.9 %34.4 %
    Integrated solutions revenue37.4 %43.7 %45.4 %
Total net revenues100.0 %100.0 %100.0 %
Cost of revenues34.3 %35.2 %36.7 %
Gross margin65.7 %64.8 %63.3 %
Operating expenses:   
    Research and development16.0 %16.0 %15.8 %
    Marketing and selling23.0 %23.2 %24.3 %
    General and administrative13.7 %14.0 %13.0 %
    Restructuring costs, net0.1 %0.3 %1.4 %
Total operating expenses52.8 %53.5 %54.5 %
Operating income12.9 %11.3 %8.8 %
Interest and other expense, net(2.0)%(0.6)%(5.3)%
Income before income taxes10.9 %10.7 %3.5 %
Benefit from (provision for) income taxes(2.4)%0.6 %0.4 %
Net income13.3 %10.1 %3.1 %


A summary of our revenue sources for the years ended December 31, 2022, 2021 and 2020 respectively, is as follows (in thousands):

Year Ended December 31,
202220212020
Subscriptions$151,330 $108,443 $72,831 
Maintenance109,845 122,411 124,175 
Subscriptions and Maintenance261,175 230,854 197,006 
Perpetual Licenses11,091 23,793 27,858 
Software Licenses and Maintenance272,266 254,647 224,864 
Integrated Solutions123,277 131,073 112,904 
Professional Services and Training21,870 24,224 22,698 
Total Revenue$417,413 $409,944 $360,466 

Net Revenues

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

Avid has now completed the allocation of transaction price for 2022 using an updated SSP methodology that includes consideration of the effect of multi-year customer contracts, and, as a result has recorded a negative adjustment of $3.3 million in the quarter ended December 31, 2022, consisting of $1.3 million related to fiscal year 2022, $2.1 million related to fiscal year 2021, and a benefit of $0.1 million related to fiscal year 2020, to account for the cumulative impact of these multi-year term customer contracts since the quarter ended December 31, 2020. This adjustment represents 0.3% of cumulative revenue during the three fiscal years ended December 31, 2022, and represents 2.9% of revenue for the quarter ended December 31, 2022.

Net Revenues for the Years Ended December 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Net Revenues$%Net Revenues
Subscription$151,330 $42,887 39.5%$108,443 
Maintenance109,845 (12,566)(10.3)%122,411 
Integrated solutions & other156,238 (22,852)(12.8)%179,090 
Total net revenues$417,413 $7,469 1.8%$409,944 


The following table sets forth the percentage of our net revenues attributable to geographic regions for the periods indicated:
Year Ended December 31,
202220212020
United States43%42%40%
Other Americas7%5%7%
Europe, Middle East and Africa36%39%39%
Asia-Pacific14%14%14%

Subscription Revenue

Subscription revenues have continued increasing year over year, in line with expectations, as a result of new customers adopting our solutions, customers transitioning from our perpetual product licenses to our subscription-based model and our offering subscription licensing options for more of our software solutions. The Company anticipates this trend to continue throughout the next few years as we continue to add new customers and transition to subscription and SAAS based solutions for more of our offerings. Subscription revenue in 2022 was impacted by the $3.3 million reduction in revenue as a result of the adjustment noted above.

Maintenance Revenue

Our maintenance revenues are derived from a variety of maintenance contracts for our software and integrated solutions. Maintenance contracts allow each customer to select the level of technical and operational support that they need to maintain their operational effectiveness. Maintenance contracts typically include the right to the latest software updates, call support, and, in some cases, hardware maintenance. We expect maintenance revenues to decrease in the coming years as customers who are on maintenance contracts continue to migrate to our subscription and SAAS based solutions offset in part by customers with perpetual licenses continue to renew their maintenance contracts. Additionally, during 2022, maintenance revenue declined by $12.6 million from the prior year, primarily due to lower maintenance revenue related to new integrated solutions sales; this was caused by delayed integrated solutions shipments as a result of supply chain issues.

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Integrated Solutions and other Revenues

Integrated solutions and other revenues decreased as a result of delayed shipments due to supply chain issues as well as customers transitioning from our perpetual product licenses to our subscription-based model.

Revenue Backlog

At December 31, 2022, we had revenue backlog of approximately $382.8 million, of which approximately $223.9 million is expected to be recognized in the next 12 months, compared to $412.8 million of revenue backlog at December 31, 2021. Revenue backlog, as we define it, consists of firm orders received and includes both (i) orders where the customer has paid in advance of our performance obligations being fulfilled, and (ii) orders for future product deliveries or services that have not yet been invoiced by us. Revenue backlog associated with arrangement consideration paid in advance primarily consists of deferred revenue related to (i) the undelivered portion of annual maintenance contracts and (ii) Implied Maintenance Release PCS performance obligations. See Note P, Revenue, to our Consolidated Financial Statements in Item 8 of the Form 10-K for a description of implied performance obligation of a form of post-contract maintenance support (“Implied Maintenance Release PCS”). Revenue backlog associated with orders for future product deliveries and services where cash has not been received primarily consists of (i) product orders received but not yet shipped, (ii) professional services not yet rendered, and (iii) future years of multi-year maintenance agreements not yet billed. Our definition of backlog includes contractual commitments with customers that specify minimum future purchases, however, since these contractual arrangements do not specify which specific products and services must be purchased to fulfill these commitments, they do not meet the definition of an unfulfilled remaining performance obligation under GAAP.

Orders included in revenue backlog may be reduced, canceled, or deferred by our customers. The expected timing of the recognition of revenue backlog as revenue is based on our current estimates and could change based on a number of factors, including (i) the timing of delivery of products and services, (ii) customer cancellations or change orders, or (iii) changes in the estimated period of time Implied Maintenance Release PCS is provided to customers. As there is no industry standard definition of revenue backlog, our reported revenue backlog may not be comparable with other companies. Revenue backlog as of any particular date should not be relied upon as indicative of our net revenues for any future period.

Cost of Revenues, Gross Profit, and Gross Margin Percentage

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

Costs of Revenues for the Years Ended December 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Costs$%Costs
Subscription$23,504 $8,541 57.1%$14,963 
Maintenance19,913 (3,068)(13.4)%22,981 
Integrated solutions & other99,558 (6,638)(6.3)%106,196 
  Total cost of revenues$142,975 $(1,165)(0.8)%$144,140 
Gross profit$274,438 $8,634 3.2%$265,804 

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Gross Margin Percentage

Gross margin percentage, which is net revenues less costs of revenues divided by net revenues, fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-promotion programs, the distribution channels through which products are sold, the timing of new product introductions, sales of aftermarket hardware products such as disk drives, and currency exchange-rate fluctuations.

Gross Margin % for the Years Ended December 31, 2022 and 2021
 
2022 Gross
Margin %
(Decrease) Increase in
Gross Margin %
2021 Gross
Margin %
Subscription84.5%(1.7)%86.2%
Maintenance81.9%0.7%81.2%
Integrated solutions & other36.3%(4.4)%40.7%
Total Gross Margin65.7%0.9%64.8%

Subscription gross margin decreased in 2022 due to increased customer care costs being allocated to subscription as well as the $3.3 million reduction in revenue as a result of the adjustment noted above. The margin for integrated solutions decreased as a result of supply chain issues in 2022. The total gross margin improved due to the increased volume on our higher margin subscription revenue.
Operating Expenses and Operating Income
Operating Expenses and Operating Income for the Years Ended December 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Expenses$%Expenses
Research and development expenses$66,904 $1,345 2.1%$65,559 
Marketing and selling expenses95,977 483 0.5%95,494 
General and administrative expenses57,189 (183)(0.3)%57,372 
Restructuring costs, net513 (603)(54.0)%1,116 
Total operating expenses$220,583 $1,042 0.5%$219,541 
Operating income$53,855 $7,592 16.4%$46,263 

Research and Development Expenses

Research and development, or R&D, expenses include costs associated with the development of new products and the enhancement of existing products, and consist primarily of employee salaries and benefits, facilities costs, depreciation, costs for consulting and temporary employees, and prototype and other development expenses. The table below provides further details regarding the changes in components of R&D expense.

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Year-Over-Year Change in R&D Expenses for the Year Ended December 31, 2022
(dollars in thousands)
 
2022 Increase/(Decrease)
From 2021
 $%
Consulting and outside services expenses$2,654 27.1%
Facilities and information technology expenses(600)(4.8)%
Personnel and other expenses(388)(0.9)%
Computer hardware and supplies expenses(321)(19.9)%
Total research and development expenses change$1,345 2.1%

The increase in consulting and outside services was primarily due to both an increase in fees as well as increased usage of contractors. The decrease in facilities and information technology expenses is largely due to a decrease in headcount in our R&D departments, which resulted in lower allocated expenses to the R&D department. This decrease is partially offset by the increased spend on our information technology infrastructure to support ongoing business operations.

Marketing and Selling Expenses

Marketing and selling expenses consist primarily of employee salaries and benefits for selling, marketing, and pre-sales customer support personnel, commissions, travel expenses, advertising and promotional expenses, web design costs, and facilities costs. The table below provides further details regarding the changes in components of marketing and selling expense.

Year-Over-Year Change in Marketing and Selling Expenses for Year Ended December 31, 2022
(dollars in thousands)
 
2022 Increase/(Decrease)
From 2021
 $%
Advertising and marketing688 31.5%
Consulting and other expenses(522)(5.7)%
Facilities and information technology expenses444 2.9%
Personnel-related expenses$(245)(0.4)%
Foreign exchange translations118 9.2%
Total marketing and selling expenses change$483 0.5%

The increase in advertising and marketing was primarily due to the resumption of in-person trade shows and events that were attended remotely in the prior year. The decrease in consulting and other expenses was primarily due to consulting work performed in 2021 around our digital transformation initiative focused on building an overall framework for design implementations. The increase in facilities and information technology expenses was related to increased spend on our information technology infrastructure to support ongoing business operations. The decrease in personnel-related expenses was primarily the result of a decrease in variable related compensation. The increase in foreign exchange translations was due to foreign exchange gains and losses from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities. These foreign exchange changes were primarily due to the euro-dollar and pound-dollar exchange rate volatility.

General and Administrative Expenses

General and administrative, or G&A, expenses consist primarily of employee salaries and benefits for administrative, executive, finance, and legal personnel, audit, legal, and strategic consulting fees, and insurance, information systems, and facilities costs. The table below provides further details regarding the changes in components of G&A expense.
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Year-Over-Year Change in G&A Expenses for the Year Ended December 31, 2022
(dollars in thousands)
 
2022 Increase/(Decrease)
From 2021
 $%
Other expenses(693)(1.9)%
Facilities and information technology expenses613 10.0%
Consulting and outside services expenses(103)(0.7)%
Total general and administrative expenses change$(183)(0.3)%

The decrease in other expenses was primarily a result of reduced business development activities in 2022. The increase in facilities and information technology expenses was related to increased spend on our information technology infrastructure to support ongoing business operations.

Restructuring Costs, Net

In October 2020, we committed to a restructuring plan in order to reorganize the business to better support the company’s strategy and overall performance. This restructuring plan was complete as of December 31, 2022.

During the year ended December 31, 2022, we recorded $0.5 million of severance costs for three positions that were eliminated during 2022.

During the year ended December 31, 2021, we recorded $1.1 million of severance costs for 24 positions that were eliminated during 2021.

Interest and Other Income, Net


Interest and Other Income, net for the Years Ended December 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Income
(Expense)
$%Income
(Expense)
Interest income$45 $39 650.0%$
Interest expense(9,395)(2,240)31.3%(7,155)
Other income, net832 (4,009)(82.8)%4,841 
Total interest and other income, net$(8,518)$(6,210)269.1%$(2,308)


The increase in interest expense was due to a higher interest rate as a result of increases in the Secured Overnight Financing Rate (SOFR) on our borrowings and a higher level of borrowings, offset in part by lower interest rate margin on our borrowings. See Note Q, Long-Term Debt and Credit Agreement, to our Consolidated Financial Statements in Item 8 of this Form 10-K for further information. Other income, net in 2021 included the gain on the forgiveness of our PPP loan offset by the loss due to extinguishment of debt.

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(Benefit from) Provision for Income Taxes
(Benefit from) Provision for Income Taxes for the Years Ended December 31, 2022 and 2021
(dollars in thousands)
2022Change2021
 Provision$%Provision
(Benefit from) Provision for income taxes$(9,904)$(12,471)(485.8)%$2,567 


Our effective tax rate, which represents our tax provision as a percentage of income before tax, was (21.8)% and 5.8% respectively, for 2022 and 2021.

The decrease in our 2022 provision was primarily driven by an $11.3 million non-recurring benefit from the release of a reserve for an uncertain tax position in our German subsidiary due to the expiration of a related statute of limitations augmented by $0.7 million due to a windfall deduction related to stock based compensation in our UK subsidiary.

We have significant accumulated deferred tax assets including the tax effects of net operating losses and tax credit carryovers. The realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. We regularly review our deferred tax assets for recoverability with consideration for such factors as historical losses, projected future taxable income, the expected timing of the reversals of existing temporary differences, and tax planning strategies. ASC Topic 740, Income Taxes, requires us to record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes the remaining deferred tax assets, based largely on the long history of U.S. tax losses, warrant a valuation allowance based on the weight of available negative evidence. We have also determined that a full valuation allowance is warranted on a portion of our foreign deferred tax assets. We have experienced recent profitability in the U.S.; however we intend to continue maintaining a full valuation allowance on our U.S. deferred tax assets until there is sufficient positive evidence to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Any such release of the valuation allowance, or a portion thereof, would result in a material non-cash income tax benefit in the quarter the realizability of the respective deferred taxes were deemed to be more likely than not and would increase non-cash income tax expense in the periods subsequent to the reversal.


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LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Sources of Cash

Our principal source of liquidity is cash and cash equivalents, which totaled $35.2 million as of December 31, 2022. We have generally funded operations in recent years through the use of existing cash balances, supplemented from time to time with the proceeds of long-term debt and borrowings under our credit facilities.

Our cash requirements vary depending on factors such as the growth of the business, changes in working capital, and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations, remaining net proceeds from the term loan borrowings under the Second Amended and Restated Credit Agreement (“Second A&R Credit Agreement”), and draws of up to a maximum of $120.0 million under the Second A&R Credit Agreement’s revolving credit facility described below. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months from the filing of our annual report as well as for the foreseeable future. Refer to the contractual obligations discussion below, for our anticipated cash requirements related to contractual obligations.

In year ended December 31, 2021, we committed to a digital transformation initiative focused around modernizing our enterprise-wide infrastructure and technologies to benefit our customers and drive enhanced performance across the company. Over the next three years, we plan to invest significant funds and resources towards implementing these new technologies as part of this initiative. These expenditures will be a mix of capital expenditures which will flow through our investing operations as well as SAAS based software solutions which will increase our use of cash from operations.

Credit Agreement

On January 5, 2021, we entered into the Credit Agreement with JPMorgan Chase Bank, N.A., as the administrative agent, or the Agent, and the lenders party thereto, or the Lenders. Pursuant to the Credit Agreement, the Lenders agreed to provide us with (a) a term loan in the aggregate principal amount of $180.0 million, (or the “Term Loan”) and (b) a revolving credit facility of up to a maximum of $70.0 million in borrowings outstanding at any time, (the “Revolving Credit Facility”). We borrowed the full amount of the $180.0 million Term Loan on the closing date, but did not borrow any amount under the Revolving Credit Facility on the closing date. The borrowings under the Term Loan and cash on hand were used to repay outstanding borrowings under the Company’s prior financing agreement with Cerberus Business Finance, LLC, which was then terminated. Prior to the maturity of the Revolving Credit Facility, any amounts borrowed under the Revolving Credit Facility could be repaid and, subject to the terms and conditions of the Credit Agreement, reborrowed in whole or in part without penalty.

On February 25, 2022, the Company executed an Amended and Restated Credit Agreement (the “A&R Credit Agreement”) with JPMorgan Chase Bank, N.A. and the Lenders. The A&R Credit Agreement extended the term of the Term Loan by approximately one year to February 25, 2027, reduced the applicable interest rate margins by 0.25%, removed the LIBOR floor, moved the reference rate from LIBOR to SOFR, reset the principal amortization schedule, and eliminated the fixed charge coverage ratio. The A&R Credit Agreement contained a financial covenant to maintain a total net leverage ratio of no more than 4.00 to 1.00 initially, with step downs thereafter. Other terms of the A&R Credit Agreement remained substantially the same as the Credit Agreement. The Term Loan, as amended, had an initial interest rate of SOFR plus a 0.10% credit spread adjustment plus an applicable margin of 2.25%, with a 0% floor. The applicable margin for SOFR loans under the A&R Credit Agreement ranged from 1.75% to 3.0%, depending on the Company’s total net leverage ratio. Both the Term Loan and the Revolving Credit Facility would mature on February 25, 2027 under the A&R Credit Agreement.

On October 6, 2022, the Company executed the Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with JPMorgan Chase Bank, N.A. and the Lenders. Pursuant to the Second A&R Credit Agreement, the Lenders agreed to provide the Company with (a) an additional term loan in the aggregate principal amount of $20 million (of which approximately $19 million was used to pay off the Company’s outstanding drawings under the Revolving Credit Facility), and (b) an additional $50 million of available borrowing capacity under the Revolving Credit Facility, increasing the aggregate amount available to $120.0 million. The Second A&R Credit Agreement, amends and restates the Company’s existing A&R Credit Agreement, includes substantially similar terms and does not result in any changes to financial covenants, pricing or the maturity date of February 25, 2027.

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Financial terms and prepayments. Under the Second A&R Credit Agreement, interest accrues on outstanding borrowings under the Term Loan and the Revolving Credit Facility at a rate of the Alternate Base Rate, Adjusted Term SOFR Rate, the Adjusted EURIBO Rate, Adjusted TIBO Rate pr Adjusted Daily Simple RFR (each as defined in the Second A&R Credit Agreement), at the option of the Company, plus a spread of 0.75% to 2.00% with no floor with respect to the Alternate Base Rate, and a spread of 1.75% to 3.00% with no floor with respect to the Adjusted Term SOFR Rate, the Adjusted EUROIBO Rate, the Adjusted TIBO Rate or the Adjusted Daily Simple RFR, in each case depending on our total net leverage ratio. In addition, we have to pay the Lenders, on a quarterly basis, a commitment fee at a rate of 0.20% to 0.50%, depending on our leverage ratio, on the average daily amount equal to (1) the total revolving commitments under the Revolving Credit Facility less (2) total amount of the outstanding borrowings under the Revolving Credit Facility during the immediately preceding three month period. During the term of the Revolving Credit Facility, we are entitled to reduce the maximum amounts of the Lenders’ commitments under the Revolving Credit Facility. We are also able to prepay all or any portion of the borrowings under the Second A&R Credit Agreement on or prior to the stated maturity, subject to the payment of certain break funding amounts, if applicable. In addition, subject to exceptions we are required to prepay the Term Loan with proceeds we receive from specified events, including sales of assets, insurance proceeds and condemnation awards and the incurrence of certain indebtedness. The Term Loan requires quarterly principal payments equal to $2,387,500 from March 31, 2023 through March 31, 2024, $3,581,250 from June 30, 2024 through March 31, 2025, and $4,775,000 on June 30, 2025 and on the last day of each calendar quarter thereafter, with the remaining aggregate principal amount due at maturity.

Collateral and guarantees. We and our subsidiary, Avid Technology Worldwide, Inc., or Avid Worldwide, granted a security interest in substantially all of our assets to secure the obligations of all obligors under the Term Loan and the Revolving Credit Facility. Avid Worldwide provided a guarantee of all our obligations under the Second A&R Credit Agreement. Our future subsidiaries (other than foreign subsidiaries and certain immaterial subsidiaries) are also required to become a party to the applicable security agreements and guarantee the obligations under the Second A&R Credit Agreement.

Representations and restrictive covenants. The Second A&R Credit Agreement contains representations, warranties and restrictive covenants that are customary for an agreement of that kind, including, for example, covenants that limited or restricted us from incurring additional indebtedness, granting liens, making investments and restricted payments, making acquisitions, entering into swap agreements, paying dividends, making payments of or amending the terms of certain subordinated indebtedness, engaging in sale and leaseback transactions, and engaging in transactions with affiliates.

Events of default. The Second A&R Credit Agreement contains customary events of default under which our payment obligations could be accelerated. These events of default include, among others, failure to pay amounts payable under the Second A&R Credit Agreement when due, breach of representations and warranties, failure to perform covenants, a change of control, default or acceleration of material indebtedness, certain judgments and certain impairments to the collateral.

Financial covenants. The Company is required to maintain a maximum total net leverage ratio, generally defined as the ratio of (x) consolidated total indebtedness minus liquidity maintained in the United States up to $25 million as of the end of each fiscal quarter to (y) consolidated EBITDA for the period of four consecutive fiscal quarters ending as of such date, not to exceed 3.75 to 1:00 as of the end of the fiscal quarters ending September 30, 2022 through December 31, 2022; 3.50 to 1.00 as of the end of the fiscal quarters ending March 31, 2023 through June 30, 2023; 3.25 to 1.00 as of the end of the fiscal quarters ending September 30, 2023 through December 31, 2023; and 3.00 to 1.00 as of the end of fiscal quarters ending on or after March 31, 2024.

Our ability to satisfy the maximum total net leverage ratio covenant in the future depends on our ability to maintain profitability and cash flow in line with prior results. This includes our ability to maintain bookings and billings in line with levels experienced over the last 12 months. In recent quarters, we have experienced volatility in bookings and billings resulting from, among other things, (i) our transition towards subscription and recurring revenue streams and the resulting decline in traditional upfront product sales, (ii) the rapid evolution of the media industry resulting in changes to our customers’ needs, (iii) the impact of new and anticipated product launches and features, and (iv) volatility in currency rates.

In the event revenues in future quarters are lower than we currently anticipate, we may be forced to take remedial actions which could include, among other things (and where allowed by the lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through the issuance of additional equity or debt securities or the incurrence of additional borrowings, or (iv) disposing of certain assets or businesses. Such remedial actions, which may not be available on favorable terms or at all, could have a material adverse impact on our business. If we are not in compliance with the net leverage ratio covenant and are unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Second A&R Credit Agreement, which could permit acceleration of the outstanding indebtedness under the Second A&R Credit
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Agreement and require us to repay such indebtedness before the scheduled due date. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Second A&R Credit Agreement.


Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2022, 2021, and 2020 (in thousands):
 Year Ended December 31,
202220212020
Net cash provided by operating activities$48,019 $62,489 $39,555 
Net cash used in investing activities(15,251)(6,819)(5,692)
Net cash used in financing activities(52,700)(77,735)(24,549)
Effect of foreign currency exchange rates on cash and cash equivalents(1,772)(1,016)1,748 
Net (decrease) increase in cash, cash equivalents and restricted cash$(21,704)$(23,081)$11,062 

Cash Flows from Operating Activities

Cash provided by operating activities aggregated $48.0 million for the year ended December 31, 2022. The decrease compared to the prior year was primarily due to a change in working capital. Our contract assets increased as a result of growth in subscription licensing of our enterprise software solutions, with certain agreements having multi-year term.

Cash Flows from Investing Activities

For the year ended December 31, 2022, the net cash flow used in investing activities reflected $15.3 million used for the purchase of property and equipment. Our purchases of property and equipment largely consist of computer hardware and software to support R&D activities, and leasehold improvements. In addition, in 2022 we increased spending on the development of internal-use software as we upgrade and improve our back-office applications, as well as development of our cloud related infrastructure.

Cash Flows from Financing Activities

For the year ended December 31, 2022, net cash flows used in financing activities were primarily the result of our stock repurchase program and our common stock repurchases for tax withholdings for net settlement of equity awards. This was offset by $20 million cash provided from a new term loan as part of our Second A&R Credit Agreement in October 2022.

CONTRACTUAL OBLIGATIONS

The following table outlines our contractual payment obligations as of December 31, 2022 (in thousands):
 
 
Total
Less than
1 Year
 
2 – 5 Years
After
5 Years
Term Loan$184,338 $9,550 $174,788 $— 
Other long-term debt815 160 655 — 
Operating leases31,337 6,901 22,631 1,805 
Unconditional purchase obligations29,123 29,123 — — 
 $245,613 $45,734 $198,074 $1,805 
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Other contractual arrangements that may result in cash payments consisted of the following at December 31, 2022 (in thousands):
 
 
Total
Less than
1 Year
 
2 – 5 Years
After
5 Years
Stand-by letters of credit3,143 1,382 1,062 699 
 $3,143 $1,382 $1,062 $699 
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 $19.9 million of products and services pursuant to this agreement as of December 31, 2022.

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

In addition, we have letters of credit in connection with security deposits for other facility leases totaling $0.5 million in the aggregate, as well as letters of credit totaling $2.0 million that otherwise support our ongoing operations. These letters of credit have various terms and expire during 2023 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.


RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncement

See Note B, Summary of Significant Accounting Policies, to our Consolidated Financial Statements in Item 8 of the Form 10-K for a description of recently adopted accounting standards.

Recent Accounting Pronouncement to be Adopted

See Note B, Summary of Significant Accounting Policies, to our Consolidated Financial Statements in Item 8 of the Form 10-K for a description of certain issued accounting standards that have not been adopted and may impact our financial statements in future reporting periods.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have significant international operations and derive more than half of our revenues from customers outside the United States. This business is, for the most part, transacted through international subsidiaries and generally in the currency of the end-user customers. Therefore, we are exposed to the changes in foreign currency exchange rates that could adversely affect our revenues, net income and cash flow.

For the year ended December 31, 2022, 2021, and 2020, we recorded net losses of $1.4 million, $1.3 million, and $0.4 million, respectively, that resulted from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities.

A hypothetical change of 10% in appreciation or depreciation of foreign currency exchange rates from the quoted foreign currency exchange rates as of December 31, 2022, would not have a significant impact on our results of operations. For this purpose, “significant” means an impact of more than a 20% change.

Interest Rate Risk

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The Second A&R Credit Agreement had an initial interest rate of SOFR plus a 0.10% credit spread adjustment plus an applicable margin of 2.5%, with a 0% floor. The applicable margin for SOFR loans under the Second A&R Credit Agreement ranges from 1.75% to 3.0%, depending on the Company’s total net leverage ratio. A hypothetical 10% increase or decrease in interest rates paid on outstanding borrowings under the Second A&R Credit Agreement would not have a material impact on our financial position, results of operations, or cash flows.



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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION

AVID TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
 Page
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8: 
  
  
  
  
  
  
  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Avid Technology, Inc.
Burlington, Massachusetts

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Avid Technology, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2023 expressed an adverse opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition – Identification of performance obligations in certain contracts

As described in Note B, the Company enters into contracts with customers that include various combinations of products and services, which are generally capable of being distinct and if distinct would be accounted for as separate performance obligations. These arrangements may include a combination of products, support, training, and professional services. Additionally, as described in Note P, the Company, from time to time, enters into enterprise agreements whereby the customer agrees to purchase specified products and services over an extended period of time, often for a single fixed contractual price. For such agreements, management identifies each performance obligation in the contract and allocates the total contract price to each performance obligation based on the relative estimated standalone selling price. Once the transaction price is allocated to the individual
44


performance obligations, the components are recognized in the respective categories of revenue consistent with the timing of the recognition of the Company’s identified performance obligations.

We identified the determination of performance obligations in certain agreements as a critical audit matter. Auditing these transactions was especially challenging and complex due to the effort required to identify the substantial number of varying performance obligations present in each agreement.

The primary procedures we performed to address this critical audit matter included:

Evaluating management’s accounting policies and practices, including the reasonableness of management’s judgments and assumptions related to the identification of each performance obligation and its pattern of delivery.
Assessing the Company’s agreements based on magnitude and complexity to identify agreements for testing together with their underlying order documents to evaluate management’s identification of each distinct performance obligation and its respective pattern of revenue recognition.

Revenue Recognition - Standalone selling price on term-based subscription contracts

As described in Note P to the consolidated financial statements, the Company sells subscription versions of many of their software products with monthly, annual and multi-year terms. Subscription services have several performance obligations, including a right to use the software and stand-ready performance obligations to (i) provide unspecified bug fixes and software enhancements, or software updates, and (ii) call support when and if needed. The Company allocates the transaction price of the arrangement based on the relative estimated standalone selling price of each distinct performance obligation.

We identified management’s methodology to estimate the standalone selling price of the right to use the software included in term-based subscription agreements as a critical audit matter. The estimation of the standalone selling price of the right to use the software, which the Company does not sell separately, requires significant management judgment due to the limited observable inputs available and impacts the amount and timing of revenue recorded. Auditing these judgments and management’s methodology required increased auditor effort.

The primary procedures we performed to address this critical audit matter included:
Evaluating management’s estimation of the standalone selling price of stand-ready performance obligations sold in subscription contracts based on historical sales of similar services sold on a renewal basis.
Evaluating management’s judgments with respect to the relationship between the right to use the software and the other stand ready obligations included in the contract based on the nature of the product and term of the license.
Assessing the reasonableness of changes made to the Company’s methodology with respect to the estimation of the standalone selling price of performance obligations sold on term-based subscription contracts as well as the allocation of the total transaction price.

Income Taxes Valuation Allowance in the United States

As described in Notes B and N to the consolidated financial statements, the Company reduces its deferred tax assets by a valuation allowance, if based upon the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Additionally, as described in Note N to the Company’s consolidated financial statements, the Company has approximately $15.85 million of net deferred income tax assets. Included in this amount is a significant domestic net deferred tax asset, fully offset by a valuation allowance. In general, the ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. Management believes that as a result of the long history of U.S. book and tax losses and various other economic factors, a valuation allowance is appropriate based on the weight of available negative evidence.

We identified accounting for income taxes, specifically management’s evaluation of whether its domestic deferred tax assets are realizable as a critical audit matter. Significant management judgments are required in evaluating and weighing the collective positive and negative evidence, which is both objectively verifiable and subjective, that are used to assess the realizability of deferred tax assets. Specifically, the upward trend of domestic earnings in recent years further increases the level of judgement required by management in assessing the weight of all available positive and negative evidence. Auditing management’s assessment involved especially complex auditor judgment due to the nature and extent of audit effort required to address this matter, including the need to involve professionals with specialized skill and knowledge.

The primary procedures we performed to address this critical audit matter included:
45


Evaluating the appropriateness and accuracy of the gross deferred tax assets and deferred tax liabilities by testing amounts for accuracy and assessing significant changes by nature of the tax item.
Evaluating the reasonableness of management’s weighing of all available positive and negative evidence, both objectively verifiable and subjective, including
i.the Company’s assessment of its ability to carryback losses or credits,
ii.reversals of existing gross deferred tax assets and liabilities,
iii.management’s assessment of available tax-planning strategies, and
iv.management’s assessment and consideration of recent current performance relative to past historical performance of the Company and their conclusion that this outweighs the Company’s ability to rely on forecasted future income, and whether the information was materially consistent with evidence obtained in other areas of the audit.
Utilizing professionals with specialized knowledge and skills in accounting for income taxes to assist in the evaluation of the positive and negative evidence considered and the analysis of the realizability of deferred tax assets

/s/ BDO USA, LLP

We have served as the Company's auditor since 2016.

Boston, Massachusetts
March 1, 2023



46


AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Year Ended December 31,
 202220212020
Net revenues:   
Subscription$151,330 $108,443 $72,831 
Maintenance109,845 122,411 124,175 
Integrated solutions & other156,238 179,090 163,460 
Total net revenues417,413 409,944 360,466 
Cost of revenues:   
Subscription23,504 14,963 6,870 
Maintenance19,913 22,981 21,651 
Integrated solutions & other99,558 106,196 103,625 
Total cost of revenues142,975 144,140 132,146 
Gross profit274,438 265,804 228,320 
Operating expenses:   
Research and development66,904 65,559 57,018 
Marketing and selling95,977 95,494 87,637 
General and administrative57,189 57,372 47,052 
Restructuring costs, net513 1,116 5,046 
Total operating expenses220,583 219,541 196,753 
Operating income53,855 46,263 31,567 
Interest income45 6 70 
Interest expense(9,395)(7,155)(20,071)
Other income, net832 4,841 868 
Income before income taxes45,337 43,955 12,434 
(Benefit from) Provision for income taxes(9,904)2,567 1,372 
Net income$55,241 $41,388 $11,062 
Net income per common share – basic$1.24 $0.92 $0.25 
Net income per common share – diluted$1.23 $0.89 $0.25 
Weighted-average common shares outstanding – basic44,531 45,101 43,822 
Weighted-average common shares outstanding – diluted44,856 46,303 44,878 

The accompanying notes are an integral part of the consolidated financial statements.
47


AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 Year Ended December 31,
 202220212020
Net income$55,241 $41,388 $11,062 
Other comprehensive (loss) income:
    Foreign currency translation adjustments(1,767)(2,436)2,253 
Comprehensive income$53,474 $38,952 $13,315 

The accompanying notes are an integral part of the consolidated financial statements.
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AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
20222021
ASSETS  
Current assets:  
Cash and cash equivalents$35,247 $56,818 
Restricted cash2,413 2,416 
Accounts receivable, net of allowances of $601 and $1,456 at December 31, 2022 and 2021, respectively
76,849 77,046 
Inventories20,981 19,922 
Prepaid expenses8,360 5,464 
Contract assets32,295 18,903 
Other current assets2,826 1,953 
Total current assets178,971 182,522 
Property and equipment, net23,684 16,028 
Goodwill32,643 32,643 
Right of use assets21,395 24,143 
Deferred tax assets, net15,859 5,210 
Other long-term assets14,901 13,454 
Total assets$287,453 $274,000 
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities:  
Accounts payable$45,904 $26,854 
Accrued compensation and benefits22,602 35,458 
Accrued expenses and other current liabilities36,031 37,552 
Income taxes payable62 868 
Short-term debt9,710 9,158 
Deferred revenues, short term76,308 87,475 
Total current liabilities190,617 197,365 
Long-term debt172,958 160,806 
Long-term deferred revenues17,842 10,607 
Long-term lease liabilities20,470 23,379 
Other long-term liabilities4,348 5,917 
Total liabilities406,235 398,074 
Commitments and contingencies (Note K)
Stockholders’ deficit:
Preferred stock, $0.01 par value, 1,000 shares authorized; no shares issued or outstanding
  
Common stock, $0.01 par value, 100,000 shares authorized; 46,681 and 45,828 shares issued, and 43,771 shares and 44,954 shares outstanding at December 31, 2022 and 2021, respectively
462 455 
Treasury stock at cost, 2,911 and 874 shares at December 31, 2022 and 2021, respectively.
(77,933)(25,090)
Additional paid-in capital1,036,287 1,031,633 
Accumulated deficit(1,071,718)(1,126,959)
Accumulated other comprehensive loss(5,880)(4,113)
Total stockholders’ deficit(118,782)(124,074)
Total liabilities and stockholders’ deficit$287,453 $274,000 
The accompanying notes are an integral part of the consolidated financial statements.
49


AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands)
 Shares of
Common Stock
  Additional Accumulated
Other
Total
 IssuedIn
Treasury
Common
Stock
Treasury
Stock
Paid-in
Capital
Accumulated
Deficit
Comprehensive
Income (Loss)
Stockholders’
Deficit
Balances at December 31, 201943,150  $430 $ $1,027,824 $(1,179,409)$(3,930)$(155,085)
Stock issued pursuant to employee stock plans, net of shares withheld for employee tax obligations1,270  12  (1,830)— — (1,818)
Stock-based compensation— — — — 10,664 — — 10,664 
Net income— — — — — 11,062 — 11,062 
Other comprehensive income— — — — — — 2,253 2,253 
Balances at December 31, 202044,420  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 obligations1,408 — 13 — (18,762)— — (18,749)
Repurchase of common stock— (874)— (25,090)— — — (25,090)
Stock-based compensation— — — — 13,737 — — 13,737 
Net income— — — — — 41,388 — 41,388 
Other comprehensive loss— — — — — — (2,436)(2,436)
Balances at December 31, 202145,828 (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 obligations853 — 7 — (11,901)— — (11,894)
Repurchase of common stock— (2,037)— (52,843)— — — (52,843)
Stock-based compensation— — — —