AVID 2020 ANNUAL REPORT
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Dear Fellow Stockholders,
2020 did not turn out as any of us would have predicted at the start of the year, with the global COVID-19 pandemic
impacting so many people, activities and businesses starting back in March of last year. We at Avid were not immune to
the unexpected challenges, but we believe that our speed and execution enabled us to not only navigate the situation
quite successfully, but also to produce strong financial results and to exit the year with two consecutive, sequentially
improving quarters.
Jeff Rosica
Chief Executive Officer
& President
In late March at the onset of COVID, we quickly adopted deep, temporary cost savings measures. At the same time, we
worked tirelessly with our customers to enable them to start working remotely to keep their creativity and business going
during difficult times—helping to further build customer loyalty and create some new business opportunities for the
company. These decisive actions, combined with the continued strong growth in our subscription revenue for our creative
software tools and from the introduction of subscription offerings for our enterprise software solutions during the second
half of the year, enabled us to deliver significant increases in net income and cash provided by operations during 2020,
even as total revenue was down from 2019.
We continue to be well positioned to benefit from the growth in audio and video content production and consumption
globally. Avid delivers premium software and integrated solutions that are used by the leading studios, broadcasters
and creative professionals for the production of high-quality film, TV, news, and music. Consumers continue to increase
the time they spend watching and listening to content—which accelerated further during the pandemic—and media
companies of all types continue to increase their spending on creating new content in order to satisfy the rising demand.
During 2020, we continued to focus on growing the recurring revenue portions of our business from our subscriptions,
maintenance and long-term agreements. These recurring revenue sources comprised 74% of our total revenue in 2020.
We also track the growth of this business through our Annual Contract Value, which was up 8% year-over-year at the
end of 2020.
We continue to see high growth rates in cloud-enabled software subscriptions for our creative tools including Media
Composer, Pro Tools and Sibelius, which grew by 58% during 2020, faster than they grew in 2019, and reached
296,000 total paid subscriptions at year end. During the third quarter we introduced a subscription version of our
MediaCentral platform for enterprise customers as well as new MediaCentral | Reporter, Collaborate and Connector
applications to enhance production team collaboration wherever they work. During the third and fourth quarters of 2020,
several enterprise customers adopted subscription licensing for MediaCentral and creative tools, which is a promising
development for the longer-term growth trajectory of subscriptions overall. Our subscription growth also benefitted from
multiple product enhancements to our creative tools during 2020.
While software continues to be the growing part of our business, Avid has a strong integrated solutions business as well,
delivering storage, audio control surfaces and other hardware-based solutions used in the production of media. We
released several new products during the year, including the Pro Tools | Carbon interface to enhance our opportunity in
the studio recording market, as well as the new Avid NEXIS 2020 storage system to help large and distributed teams work
more collaboratively. While sales of integrated solutions were negatively impacted by the COVID situation temporarily,
sales increased sequentially during the third and fourth quarters as the end markets for these products started to recover.
During 2020, we continued to roll out our cloud-based media production solutions, with installations at several large
media organizations, through our strategic alliance with Microsoft. We also continued to grow the early access user base
for our cloud video editing solution, Avid | Edit On Demand, with approximately sixty production companies and post
houses using it to work from home during COVID and ensure continuity of their business.
As we started to emerge from the COVID downturn during the third quarter, we implemented actions to continue many of
our temporary cost savings measures, enabling us to exit the year with a streamlined cost structure that positions us to
deliver improved profitability in 2021 and beyond.
Our 2020 performance, especially the continued growth of our recurring revenues in the face of the pandemic, combined
with our significant cost reductions and other operating improvements, demonstrates the strength of the company and
our determination to generate strong financial results. During the fourth quarter we also added new talent with deep
experience in SaaS/cloud and subscription businesses to help accelerate the company’s strategy and next phase of
growth. As we emerge from 2020, we believe we are well positioned to benefit from the gradual recovery from the global
situation brought on by COVID-19. We are happy with the resilience and execution that we demonstrated during the year,
and we look forward to continuing to work to strengthen the company, our culture, our innovation and most importantly
our financial results.
Sincerely,
Jeff Rosica
Chief Executive Officer & President
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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, 2020
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)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
04-2977748
(I.R.S. Employer
Identification No.)
Burlington
Massachusetts
01803
(Address of Principal Executive Offices, Including Zip Code)
75 Network Drive
(978) 640-6789
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.01 par value
Trading Symbol(s)
AVID
Name of each exchange on which registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No x
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
Securities Registered Pursuant to Section 12(g) of the Act: None
_______________________
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 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
Non-accelerated Filer
o
o
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
x
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately 301,016,458 based on the closing price of the Common Stock on the Nasdaq Global
Select Market on June 30, 2020. The number of shares outstanding of the registrant’s Common Stock as of March 5, 2021 was 44,490,187.
DOCUMENTS INCORPORATED BY REFERENCE
Document Description
Portions of the Registrant’s Proxy Statement for the 2021 Annual Meeting of Stockholders
10-K Part
III
AVID TECHNOLOGY, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Cautionary Note on Forward-Looking Statements
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Financial Information
Reports of Independent Registered Public Accounting Firms
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV.
ITEM 15.
INDEX TO EXHIBITS
SIGNATURES
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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:
•
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•
•
•
•
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the effects that the COVID-19 pandemic and its related consequences may have on the national and global economy and on our business and
operations, revenues, cash flows and profitability, and capital resources;
our ability to successfully implement our strategy, including our cost saving measures and other actions implemented in response to the
COVID-19 pandemic;
the anticipated trends and developments in our markets and the success of our products in these markets;
our ability to develop, market, and sell new products and services;
our business strategies and market positioning;
our ability to achieve our goal of expanding our market positions;
our ability to accelerate growth of our Cloud-enabled platform;
anticipated trends relating to our sales, financial condition or results of operations, including our shift to a recurring revenue model and
complex enterprise sales with long sales cycles;
the expected timing of recognition of revenue backlog as revenue, and the timing of recognition of revenues from subscription offerings;
our ability to successfully consummate acquisitions, or investment transactions and 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;
plans regarding repatriation of foreign earnings;
the outcome, impact, costs, and expenses of pending litigation or any new litigation or government inquiries to which we may become
subject;
the effect of the continuing worldwide macroeconomic uncertainty on our business and results of operations, including Brexit;
our compliance with covenants contained in the agreements governing our indebtedness;
our ability to service our debt and meet the obligations thereunder;
the effect of seasonal changes in demand for our products and services;
fluctuations in foreign exchange and interest rates;
the risk of restatement of our financial statements;
estimated asset and liability values and amortization of our intangible assets;
our ability to protect and enforce our intellectual property rights;
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
iii
•
worldwide political uncertainty, in particular the risk that the United States may withdraw from or materially modify international trade
agreements as discussed further in “Risk Factors” in Item 1A of this Form 10-K.
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
1
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, and the first ever America
Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigious Philo T. Farnsworth Award by the Television
Academy to honor Avid’s 30 years of continuous, transformative technology innovations, including products that have improved and accelerated the
editing and post production process for television.
For a discussion of the impact of the COVID-19 pandemic on our business, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Executive Overview - Impact of COVID-19 on Our Business" in Item 7 of this Form 10-K.
CORPORATE STRATEGY
Acceleration of digitization is 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. 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 even more critical today.
• Disparate mix of tools, skills, and workflows - Lack of commonality and a fragmented supplier landscape creates incompatibilities, inhibiting
agility, collaboration, sharing, and efficiency.
2
• Media technology budgets - Today’s economic realities are placing pressure on media technology budgets, while content output must increase
exponentially to deliver on the market requirements. 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 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. 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 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 Avid MediaCentral platform. This platform is an open, extensible and customizable foundation that streamlines and simplifies content workflows by
integrating all Avid or third-party products and services that run on top of it. The platform provides secure and protected access and enables fast and easy
creation, delivery, and monetization of content.
We work to ensure that we are meeting customer needs, staying ahead of industry trends, and investing in the right areas through a close and interactive
relationship with our customer base. The Avid Customer Association was established to be an innovative and influential media technology community. It
represents thousands of organizations and over 30,000 professionals from all levels of the industry including inspirational and award-winning thought
leaders, innovators, and storytellers. The Avid Customer Association fosters collaboration between Avid, its customers, and other industry colleagues to
help shape our product offerings and provide a means to shape our industry together.
A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings and long-term
agreements. We started offering subscription licensing options for some of our products and solutions in 2014 and by the end of 2020 had approximately
296,000 paid subscriptions. These licensing options offer choices in pricing and deployment to suit our customers’ needs. Our subscription offerings to date
have primarily been sold to creative professionals, though we expect to increase subscription sales to media enterprises going forward as we expand
offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term
agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SaaS
offerings, and channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.
Another key aspect of our strategy has been to implement programs to increase operational efficiencies and reduce costs. We are making significant
changes in business operations to better support the company’s strategy and overall performance. We are optimizing our go-to-market strategy, simplifying
it to address specific customer markets and help maximize our commercial success. We expect this will improve our effectiveness, increase efficiency, and
drive growth in our pipeline and ultimately revenue.
3
CUSTOMER MARKETS
We provide our solutions to the following markets:
• 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 consulting 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 storefront and on-line retailers, as
well as through our direct sales force, resellers, and our webstore.
PRODUCTS AND SERVICES
Overview
Avid’s growing product portfolio is rooted in providing open and extensible products that ensure 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. All of our key products
and solutions have been integrated into our MediaCentral Platform, which provides the industry’s most open, integrated, and efficient platform designed for
media. 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.
The standalone software portion of our product portfolio consists of our Creative Software Suite and the Enterprise Software Suite, representing a large
high-margin software and maintenance business.
Creative Software Solutions
The Creative Software Suite includes our Media Composer, Pro Tools, and Sibelius tools, as well the Artist Community platform, Avid Link, and the Avid
Marketplace, 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, HDR, and 4K workflows. We offer Media Composer through both subscription
and perpetual license offerings.
4
Pro Tools
Our Pro Tools digital audio workstation software facilitates the audio production process, including music and sound creation, recording, editing, signal
processing, integrated surround mixing, and mastering and reference video playback. The Pro Tools platform supports a wide variety of internally
developed and third-party software plug-ins and 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 have recently updated our Pro Tools
Hardware portfolio with new offerings including, Avid MTRX Studio and Avid Pro Tools Carbon. Pro Tools Carbon is our next generation music creation
hardware platform. We offer Pro Tools software through both subscription and perpetual license offerings.
Sibelius
Our Sibelius product allows users to create, edit, and publish musical scores. It is used by composers, arrangers, and other music professionals. Student
versions are also available to assist in the teaching of music composition and score writing. Sibelius music notation software offers sophisticated, yet easy-
to-use tools 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 using current web browsers and mobile devices. We offer Sibelius through both subscription
and perpetual license offerings.
Avid Link
Avid Link is a free mobile application for anyone wanting to connect with other artists, producers, mixers, composers, editors, videographers, movie
makers, and graphic designers, and to the Avid Marketplace. Available for Mac, Windows, iOS, and Android 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 vast 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 Suite is 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 an Editorial Management 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, Editorial Management
connects directly to Avid NEXIS storage to provide easy access to media with hyper-search functionality. Editorial Management 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
We have a strategic partnership with Microsoft to deliver Azure certified solutions to support end-to-end hybrid and cloud deployments of 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 post production and broadcast
5
environment. We believe our new SaaS and cloud offerings will allow our customers to (i) scale production while lowering costs, (ii) enable anytime
access, boosting efficiency and collaboration, and (iii) 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 are designed to 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 additional to on premise Avid NEXIS workflows, Avid
NEXIS Cloud provides on-line, nearline and archive storage tiers and is a key component of our SaaS offerings.
S6
Our S6 product line offers customers a range of complementary control surfaces and consoles, leveraging the open industry standard protocol EUCON
(Extended User Control) to provide open solutions that meet the needs of customers ranging from the independent professional to the high-end broadcaster.
Our Pro Tools | S6 control surface for sound recording, mixing, and editing was designed as a modular solution that scales to meet both current and future
customer requirements. S6 is designed for audio professionals in demanding production environments, delivering the performance needed to complete
projects faster while producing high quality mixes. Compact and portable, all control surfaces in the Artist line feature EUCON, allowing hands-on control
of the user’s applications. Finally, the free Pro Tools | Control iOS application enables customers to record and mix faster and easier than working with a
mouse and keyboard alone.
S1 and S4
In July 2019, we unveiled two new audio control surfaces, the Avid S4 and Avid S1, for professionals at smaller facilities and project studios. Avid S4
brings the power and workflows of Avid’s industry-leading Pro Tools S6 control surface to budget-conscious audio professionals and small- to mid-size
music and audio post facilities in an ergonomic and more compact package. The Avid S1 delivers 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.
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 mix and record
live productions of any size.
Maestro
6
Our Maestro product line offers customers comprehensive solutions for integrating virtual sets, augmented reality, and video wall control into existing
workflows, ideal for any type of production needs in news, sports, entertainment, and in-studio productions, 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 adding graphics capabilities across the entire product line, 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.
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, future-proof 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.
Customer Support
We offer a variety of service contracts and support plans 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. Support contracts typically include the right to the latest software
updates, call support, and, in some cases, hardware maintenance. Support contracts for individual products are sold bundled with initial product offerings or
as renewals once initial contracts have lapsed. Support contracts are also sold on an enterprise basis where a customer purchases support 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 includes the Avid Certification program which validates the skills and competency of Avid users, administrators, instructors,
support representatives, and developers.
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COMPETITION
The markets in which we serve our customers are highly competitive and subject to rapid change and declining average selling prices. 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.
Some of our principal competitors are substantially larger than we are and have greater financial, technical, marketing, and other resources than us. For a
discussion of these and other 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, and also through the Xchange
Market Platform, or XMP, with some of our key partners and distributors.
We have significant international operations with offices in 16 countries and the ability to reach approximately 171 countries through a combination of our
direct sales force and resellers. Sales to customers outside the United States accounted for 60%, 63% and 64% of our total net revenues in 2020, 2019 and
2018, respectively. Additional information about the geographic breakdown of our revenues and long-lived assets 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” 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. 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. For the risks associated with our use of contractors and sole-
source vendors, see “Risk Factors” in Item 1A of this Form 10-K.
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. An interruption in manufacturing capabilities at any of these
facilities, as a result of equipment failure or other reasons, could reduce, delay, or prevent the production of our products. Because some of our
manufacturing or our contract manufacturers’ operations are located outside of the United States, principally in Mexico, those manufacturing operations are
also subject to additional challenges and risks associated with international operations. For these and other risks associated with our 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 generic media platform for the media industry. Having helped establish the digital media technology industry,
we are building on a 30-year heritage of innovation and leadership in developing content-creation solutions and platforms. We have research and
development, or R&D, operations in seven 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 2020, 2019 and 2018
were $57.0 million, $62.3 million and $62.4 million, respectively, which represented 16%, 15% and 15% of our total net revenues, respectively. For the
risks associated with our use of partners for R&D projects, see “Risk Factors” in Item 1A of this Form 10-K.
Our philosophy is to 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; Munich, Germany; Kaiserslautern, Germany; Kfar
Saba, Israel; Szczecin, Poland; and Montreal, Canada. We also partner with a vendor in Kiev, Ukraine for outsourced R&D services.
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 February 1,
2021, we held 114 U.S. patents, with expiration dates through 2039, and had 11 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,
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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. Although we attempt to protect our intellectual property rights through patents, trademarks, copyrights,
licensing arrangements, maintaining certain technology as trade secrets, and other measures, there can be no assurance that any patent, trademark,
copyright, or other intellectual property rights owned by us will not be invalidated, circumvented or challenged, that such intellectual property rights will
provide competitive advantages to us, or that any of our pending or future patent applications will be issued with the claims, or the scope of the claims,
sought by us, if at all. Others may develop technologies that are similar or superior to our technology, duplicate our technology, or design around the
patents that we own. In addition, effective patent, copyright, and trade secret protection may be unavailable or limited in countries in which we do business
or may do business in the future. For these and other risks associated with the protection of our intellectual property, see “Risk Factors” in Item 1A of this
Form 10-K.
HISTORY
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.
HUMAN CAPITAL
We view our employees and our culture as key to our success. As of December 31, 2020, we had approximately 1,362 full-time employees and 263
external contractors located globally in 36 countries. Of these, 36% were located in the United States, Canada, and Latin America, 45% in Europe, Middle
East, and Africa, and 19% in Asia-Pacific.
The COVID-19 pandemic continues to impact lives and businesses around the world. We have taken proactive steps to help protect the health and safety of
our employees and maintain business continuity. A vast majority of our office workers continue to telecommute. Within our office areas we have
established a number of safety protocols, including face covering and physical distance requirements, enhanced cleaning, encouraging daily self-health
checks, and access to virtual primary care physicians. All of the actions above are overseen by Avid’s Crisis Management Team, a multi-functional, multi-
discipline team tasked with integrating all aspects of Avid’s COVID-19 response. In addition, we have created a TeamAvid Community, where employees
can virtually share communications, collaborate, and engage with each other from their remote locations. This was implemented as a way to keep
employees connected throughout the pandemic.
We believe in fostering great leaders. Through our Avid University platform, we have built the opportunity for employees to power their performance with
continuous learning and development courses to provide skills and coaching to employees on a variety of topics, such as leading and inspiring teams. We
believe this focus helps our employees grow as leaders and well-rounded individuals, and better positions Avid to operate our global business of
empowering media creators with innovative technology and collaborative tools to entertain, inform, educate, and enlighten the world. We also offer tuition
reimbursement for eligible classes at external education organizations that may not be covered under Avid University.
We also believe a critical component of our success is our company culture. We are focused on creating a company culture of integrity and respect, with the
goal of working together to drive our business to be creative, innovative and competitive. To achieve these objectives, we have adopted and regularly
communicate to our employees core values of People, Passion, and Performance. We believe in the power of an increasingly diverse, inclusive, and
collaborative team and we embrace and leverage the global community of TeamAvid.
To further that focus, Avid has implemented the Global Leadership Team, or GLT. The GLT is comprised of a group of global leaders throughout the
organization who are either key stakeholders in our business or an important beacon of our culture. The team meets monthly with the Executive and Senior
Management Teams to align on corporate strategy, culture and development.
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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
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 is causing worldwide concern and economic disruption, and has led to federal, state and local governments enacting various
restrictions in an attempt to limit the spread of the virus. This has included the declaration of states of emergency across the globe, and widespread school
and business closings affecting a large number of countries. 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 effect in many
cities and countries.
In these challenging and dynamic circumstances, Avid is working to protect its employees and the public, maintain business continuity and sustain its
operations. We have taken, and may take in the future, 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 has significantly increased economic and demand uncertainty. The outbreak and continued spread of COVID-19, along with
restrictions enacted to limit its spread, have caused economic disruptions and slowdowns in many countries. This economic downturn has caused a decline
in the media, entertainment, and sports industries which has, 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 impossible for a prolonged period of time, further impacting our
business.
The COVID-19 pandemic has also had an adverse impact on our operations and supply chain, and adverse impacts could continue during the pandemic. We
could experience interruptions as a result of employees or other key personnel of manufacturers, ours or those of third parties, becoming infected. Such
workplace interruptions have also been caused by preventive and precautionary measures that governments and we and other businesses, including our
third-party manufacturers, are taking, such as border closures, prolonged quarantines, and other travel restrictions. For example, we do not know if all of
our manufacturers will be able to continue producing materials for us or may be shut down. Any of the above circumstances will negatively impact the
ability of third parties on which we rely to manufacture our products or their components and our ability to perform critical functions, which 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-out, which would likely have a
material adverse effect on our business.
If the pandemic continues and economic conditions worsen, we expect to experience additional adverse impacts on our operations and revenues and our
collections of accounts receivable, which adverse impacts may be material. To address our liquidity, we obtained funding under the Paycheck Protection
Program, or PPP, and will continue to explore other options, including other programs that may be implemented by the U.S. government in response to the
COVID-19 pandemic. However, there can be no assurance that we will obtain any funds from these or future programs. We have also implemented cost
reduction measures, including halting all but essential travel spending, reducing discretionary spending, deferring certain investments, and reducing our
payroll expenses. Such cost reductions may not be sufficient and additionally may harm our ability to offer, promote, and deliver products and services at
the level expected by our customers and partners.
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Further, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which may increase the cost of capital and
adversely impact access to capital. If we experience further 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 impacts our results going forward will depend on future developments, which remain uncertain and cannot be predicted,
including, but not limited to, the duration and spread of COVID-19, its severity, the actions to contain the virus or treat its impact, and how quickly and to
what extent normal economic and operating conditions can resume. 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.
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 discussed in the preceding risk factor. We operate a complex, geographically dispersed business, which includes significant
personnel, customers and facilities in California near major earthquake fault lines. 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, act of war, 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.
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. There can be no
assurance that our efforts will be successful in the near future, or at all, or that our competitors will not 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.
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Our increased 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 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
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:
•
•
if new or current customers desire only perpetual licenses, we may not be successful in selling subscriptions;
although we intend to support our perpetual license business, the increased emphasis on a cloud strategy may raise concerns among our installed
customer base;
• we may be unsuccessful in achieving our target pricing;
•
•
• we may incur costs at a higher than forecasted rate as we enhance and expand our cloud operations.
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
Certain of our enterprise offerings have long and complex sales cycles, which could result in a loss of customers and lower revenues.
With our transition to leveraging the Avid MediaCentral platform in our sales process, we have experienced longer and more complex sales cycles for some
of our enterprise offerings. 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 longer and more complex sales cycles could result in a loss of customers and 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.
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,
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 economic 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
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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. 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 supply arrangements, and disruptions to these
arrangements 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. We consequently depend on sole-source suppliers for many hardware product components and
finished goods, including some critical items. 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, due to, among other things, macroeconomic events, political crises, or natural or environmental disasters or other occurrences, or they may
terminate our agreements or adversely modify supply terms or pricing. 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.
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 bundling with our products. To the extent we add additional third-party technology to our products and we are
unable to offset associated costs, our profit margins may decline, and our
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operating results may suffer. 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.
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.
Lengthy procurement lead times and unpredictable life cycles and customer demand for some of our products may result in significant inventory
risks.
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 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.
Potential acquisitions 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 returns on
investment, unanticipated costs and liabilities associated with the acquisition, and difficulty assimilating the operations, policies and personnel of the
acquired company.
Our revenues and operating results are difficult to predict and may fluctuate from period to period.
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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:
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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;
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.
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) 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.
Risks Related to Our Intellectual Property
Our intellectual property and trade secrets are valuable assets that may be subject to 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 of our products to protect our intellectual property and trade
secrets. 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. While we may seek to engage with those potentially infringing our intellectual property to
negotiate a license for use, we also may seek legal recourse. As noted in more detail above, the legal regimes of certain foreign jurisdictions in which we
operate may not protect our intellectual property or trade secrets to the same extent as do the laws of the United States. If our intellectual property or trade
secrets are 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
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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.
Because of technological change in our industry, extensive and sometimes uncertain patent coverage, and the rapid issuance of new patents, it is possible
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 be able to withstand any third-party claims or rights against their use. We have
received claims and have been subject to litigation alleging that we infringe patents owned by third parties, and we may in the future be subject to such
claims and litigation. 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 or services that incorporate the challenged intellectual property;
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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.
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.
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, or New Credit Facility,
governed by the credit agreement, dated January 5, 2021, among us, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, or
the Credit Agreement. We have the ability to borrow up to $70.0 million under the New 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 crisis, 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 New Credit Facility and therefore reduce available funds under the New 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 Credit Agreement may limit our activities.
The 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 and make other restricted payments, and
create liens. We are also required to comply on an ongoing basis with certain financial covenants, including a maximum total net leverage ratio and a
minimum fixed charge coverage ratio. Our ability to comply with these restrictions and covenants in the future is uncertain and could be affected by the
levels of our cash flows from
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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 Credit Agreement, which could permit acceleration of the outstanding term loans and New Credit Facility borrowings under the Credit
Agreement and require us to repay such indebtedness before its scheduled due date. Certain events of default under the 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 Credit Agreement.
Our substantial indebtedness could adversely affect our business, cash flow and results of operations.
As of December 31, 2020, we had $207.7 million of indebtedness, including borrowings under our Financing Agreement, which was terminated in
connection with our entry into the Credit Agreement. This substantial level of indebtedness may:
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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 Credit
Agreement that bear interest at variable rates or when our indebtedness is being refinanced;
limit our ability to obtain additional financing; and
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.
We cannot make any assurance that our cash flow from operations, combined with any additional borrowings available to us, will 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 adopt 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 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.
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, 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
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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.
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 to
work remotely, such as due to the COVID-19 pandemic, 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 many other causes such as power failures, earthquakes, fire, or
other natural disasters. 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 unfold with increasing speed 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 remediation costs, including
costs associated with repairing our information systems, implementing further data protection measures, engaging third-party experts and consultants, 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 significantly harm our brand and reputation and ability to attract and retain existing and potential users,
customers, advertisers, and content providers.
Our international operations expose us to legal, regulatory and other risks.
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 60%, 63% and 64% of our total net revenues in 2020, 2019 and 2018,
respectively. We also conduct significant research and development activities overseas, including through third-party development vendors. For example, a
portion of our research and development is outsourced to contractors operating in Kiev, Ukraine, we have customer support activities in the Philippines,
and we have operations in Poland and Israel.
Our international operations expose us to a variety of risks, including:
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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;
reduced or varied protection for intellectual property rights in some countries;
regional economic downturns;
economic, social, and political instability, security concerns, and the risk of war;
fluctuations in foreign currency exchange rates;
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 that may prevent or limit our ability to repatriate income earned in foreign markets.
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Additionally, recent legal developments in Europe have created compliance uncertainty regarding certain transfers of personal data from Europe to the
United States. For example, 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, and cash flows. The majority of our international
sales are transacted in euros. To hedge against the dollar/euro exchange exposure of the resulting forecasted payables, receivables and cash balances, we
may enter into foreign currency contracts. The success of our hedging programs depends on the accuracy of our forecasts of transaction activity in foreign
currency. To the extent that these forecasts are over- or understated during periods of currency volatility, we may experience currency gains or losses. Our
hedging activities, if enacted, may only offset a portion of the adverse financial impact resulting from unfavorable movement in dollar/euro exchange rates,
which could adversely affect our financial position or results of operations.
Furthermore, the significance to our business 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 the solvency of these countries
and the stability of 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 with 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.
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. 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 increase the risk that we could violate the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar
foreign anti-corruption laws.
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We operate in several 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 not foster strict compliance with anti-corruption laws, including China. Our continued operation and expansion outside the United States
could increase 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 assure you 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.
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 and cultural,
and time zone differences complicate effective management of contractors that are 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 contract, while
others operate on a purchase order basis, where we do not have the benefit of written 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. Protection of
these assets in certain 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.
Our success depends in part on our ability to hire and retain competent and skilled management and technical, sales, and other personnel.
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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. Also, if we
fail to maintain an 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 or more opportunities to work with cutting-edge
technology 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. Refer to risk factor “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”
for the impact COVID-19 may have on this risk factor.
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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 the 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 March 5, 2021 was 240. 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
Credit Agreement restricts our ability to declare and pay dividends in cash on our capital stock under certain circumstances. Our Credit Agreement permits
us to pay up to $30.0 million of 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 Credit Agreement has occurred and is continuing; provided that
the $30.0 million cap does not apply if our total net leverage ratio is less than or equal to 2.50 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, 2015 through December 31,
2020 with the cumulative return during the period for:
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the Nasdaq Composite Index (all companies traded on Nasdaq Capital, Global or Global Select Markets),
the 2019 Avid Peer Group Index, and
the 2020 Avid Peer Group Index (see details following the graph).
This comparison assumes the investment of $100 on December 31, 2015 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 the Avid Peer Groups
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 2020 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, Limelight Networks Inc., Microstrategy, Inc., OneSpan Inc.,
Progress Software Corporation, Ribbon Communications Inc., Shutterstock, Inc., Telenav Inc., and Zix Corporation.
The Avid Peer Group Index is weighted based on market capitalization.
26
ITEM 6. SELECTED FINANCIAL DATA
The selected condensed consolidated financial data below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Financial Information,” included elsewhere in this Form 10-
K. The selected condensed consolidated financial data as of December 31, 2020, 2019, 2018, 2017, and 2016 and for the years ended December 31, 2020,
2019, 2018, 2017, and 2016 has been derived from our audited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
(in thousands, except per share data)
2020
(1)
For the Year Ended December 31,
(1)
2018
(1)
2017
(2)
2019
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Marketing and selling
General and administrative
Amortization of intangible assets
Restructuring costs, net
Total operating expenses
Operating income
Interest and other expense, net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share – basic
Net income (loss) per share – diluted
Weighted-average common shares outstanding – basic
Weighted-average common shares outstanding – diluted
$
$
$
$
$
360,466
132,146
228,320
$
411,788
162,713
249,075
$
413,282
174,118
239,164
$
419,003
176,887
242,116
57,018
87,637
47,052
—
5,046
196,753
31,567
(19,133)
12,434
1,372
11,062
0.25
0.25
43,822
44,878
$
$
$
62,343
99,944
53,362
694
629
216,972
32,103
(29,578)
2,525
(5,076)
7,601
0.18
0.17
42,649
43,495
$
$
$
62,379
101,273
55,230
1,450
5,148
225,480
13,684
(23,087)
(9,403)
1,271
(10,674)
(0.26)
(0.26)
41,662
41,662
$
$
$
68,212
106,257
53,892
1,450
7,059
236,870
5,246
(18,668)
(13,422)
133
(13,555)
(0.33)
(0.33)
41,020
41,020
$
$
$
2016
(2)
511,930
179,207
332,723
81,564
110,338
61,471
2,498
12,837
268,708
64,015
(18,671)
45,344
(2,875)
48,219
1.20
1.20
40,021
40,176
(1) As a result of our adoption of Accounting Standards Codification, or ASC, Topic 606 effective January 1, 2018 using the modified retrospective method, prior period amounts have not
been adjusted to conform with ASC 606 and therefore may not be comparable. See our policy on “Revenue Recognition” in Note B to our Consolidated Financial Statements in Item
8 of this Form 10-K.
(2) Our revenues and operating results have been affected by the deferral of revenues from customer transactions occurring prior to 2011. On January 1, 2011, we adopted Accounting
Standards Update, or ASU, No. 2009-14. Substantially all revenue arrangements prior to January 1, 2011 were generally recognized on a ratable basis over the service period of
Implied Maintenance Release PCS. Subsequent to January 1, 2011, product revenues are generally recognized upon delivery and Implied Maintenance Release PCS and other service
and support elements are recognized as services are rendered.
27
CONSOLIDATED BALANCE SHEET DATA:
(in thousands)
Cash, cash equivalents and marketable securities
Working capital (deficit)
Total assets (1)
Deferred revenues (current and long-term amounts)
Long-term liabilities (1)
Total stockholders’ deficit
2020
2019
As of December 31,
2018
2017
2016
$
$
79,899
25,721
305,138
99,258
250,291
(132,924)
$
69,085
(3,528)
304,293
97,901
247,119
(155,085)
$
56,103
8,923
265,843
99,601
244,831
(166,661)
$
57,223
(61,753)
234,684
194,613
287,174
(268,570)
44,948
(86,931)
249,581
225,684
281,556
(269,911)
(1) On January 1, 2019, we adopted ASC Topic 842, Leases, or ASC 842, using the modified retrospective transition approach, as provided by ASU No. 2018-11, Leases - Targeted
Improvements, or ASU 2018-11. We elected the package of practical expedients permitted under the transition guidance. Results for reporting periods beginning after January 1, 2019
are presented under ASC 842, while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under previous GAAP. The primary
impact of ASC 842 is that substantially all of our leases are recognized on the balance sheet, by recording right-of-use assets and short-term and long-term lease liabilities. The new
standard does not have a material impact on our consolidated statement of operations and cash flows, and the effects of applying ASC 842 as a cumulative-effect adjustment to
retained earnings as of January 1, 2019 is immaterial.
28
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, and the first ever America
Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigious Philo T. Farnsworth Award by the Television
Academy to honor Avid’s 30 years of continuous, transformative technology innovations, including products that have improved and accelerated the
editing and post production process for television.
Operations Overview
Our strategy for connecting creative professionals and media enterprises with audiences in a powerful, efficient, collaborative, and profitable way leverages
our Avid MediaCentral Platform - the open, extensible, and customizable foundation that streamlines and simplifies content workflows by integrating all
Avid or third-party products and services that run on top of it. The platform provides secure and protected access, and enables fast and easy creation,
delivery, and monetization of content.
We work to ensure that we are meeting customer needs, staying ahead of industry trends, and investing in the right areas through a close and interactive
relationship with our customer base. The Avid Customer Association was established to be an innovative and influential media technology community. It
represents thousands of organizations and over 30,000 professionals from all levels of the industry including inspirational and award-winning thought
leaders, innovators, and storytellers. The Avid Customer Association fosters collaboration between Avid, its customers, and other industry colleagues to
help shape our product offerings and provide a means to shape our industry together.
A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings and long-term
agreements. We started offering subscription licensing options for some of our products and solutions in 2014 and by the end of 2020 had approximately
296,000 paid subscriptions. These licensing options offer choices in pricing and deployment to suit our customers’ needs. Our subscription offerings to date
have primarily been sold to creative professionals, though we expect to increase subscription sales to media enterprises going forward as we expand
offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term
agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SaaS
offerings, and channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.
Another key aspect of our strategy has been to implement programs to increase operational efficiencies and reduce costs. We are making significant
changes in business operations to better support the company’s strategy and overall performance. We are optimizing our go-to-market strategy, simplifying
our strategy to address specific customer markets to help maximize our
29
commercial success, which we expect will improve effectiveness, while increasing efficiency and driving growth of our pipeline and ultimately revenue.
A summary of our revenue sources for the year ended December 31, 2020 is as follows (in thousands):
Subscriptions
Maintenance
Subscriptions and Maintenance
Perpetual Licenses
Software Licenses and Maintenance
Integrated Solutions
Professional Services and Training
Total Revenue
$
$
Year Ended December 31,
2020
2019
72,831
124,175
197,006
27,858
224,864
112,904
22,698
360,466
$
$
45,181
130,443
175,624
34,932
210,556
172,513
28,719
411,788
Impact of COVID-19 on Our Business
We have operations in numerous countries, which exposes us to risks associated with public health crises such as the novel coronavirus (COVID-19) that
was declared a pandemic by the World Health Organization. COVID-19 adversely impacted our business operations and results of operations for the
second, third and fourth quarters of 2020, as described in more detail in Results of Operations below. We expect the evolving COVID-19 pandemic to
continue to have an adverse impact on our business and results of operations, as the ongoing pandemic is likely to continue to depress economic activity
and reduce the demand for our products and services, as well as disrupt supply chains. Although the duration and severity of the COVID-19 pandemic, and
resulting economic impacts, remain uncertain, we expect that our business operations and results of operations, will be adversely impacted through 2021,
and possibly longer. These economic impacts are the result of, but not limited to:
•
•
•
•
the postponement or cancellation of film and television productions, major sporting events, and live music events;
delays in purchasing and projects by our enterprise customers and channel partners;
disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and
decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders.
We are focused on navigating the challenges presented by COVID-19, with a primary focus on preserving our liquidity and managing our cash flows by
taking preemptive action to enhance our ability to meet our short-term liquidity needs. To address actual and expected reductions in net revenues, we have
reduced our discretionary spending, revisited our investment strategies, and reduced payroll costs, including through temporary employee furloughs and
pay cuts. In addition, in May 2020 we received $7.8 million of funding under the U.S. government’s Paycheck Protection Program, or PPP, in the form of a
low-interest loan that may be forgiven under certain conditions. We may be required to take additional steps to preserve our liquidity depending on the
duration and severity of the pandemic and its impact on our operations and cash flows. For further discussion of these issues, see “Liquidity and Capital
Resources.”
30
CRITICAL ACCOUNTING POLICIES AND 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; stock-based compensation;
income tax assets and liabilities; and restructuring charges and accruals. 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 policies most significantly affect the portrayal of our financial condition and involve our most difficult and
subjective estimates and judgments.
Revenue Recognition
We enter into contracts with customers that include various combinations of products and services, which are typically capable of being distinct and are
accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of
the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectability is probable. We
recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on
the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.
See Note P to our Consolidated Financial Statements in Item 8 of this Form 10-K for disaggregated revenue schedules and further discussion regarding
revenue and deferred revenue performance obligations and the timing of 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, support, 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 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.
While not a common practice for us, in the event we grant the customer the option to acquire additional products or services in an arrangement, we consider
if the option provides a material right to the customer that it would not receive without entering into the contract (e.g., an incremental discount compared to
the range of discounts typically given for similar products or services). If a
31
material right is deemed to exist, we account for the option as a distinct performance obligation and recognize revenue when those future products or
services are transferred or when the option expires.
We also record as revenue all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a component of cost of
revenues. Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues.
We present revenues net of any taxes collected from customers and remitted to government authorities.
Our contracts rarely contain significant financing components as payments from customers are due within a short period from when our performance
obligations are satisfied.
We are applying the practical expedient for the deferral of sales commissions and other contract acquisition costs, which are expensed as incurred, because
the amortization period would be one year or less.
Stock-Based Compensation
We account for stock-based compensation at fair value. The vesting of stock options and restricted stock awards may be based on time, performance,
market conditions, or a combination of time, performance, and market conditions. In the future, we may grant stock awards, options, or other equity-based
instruments allowed by our stock-based compensation plans, or a combination thereof, as part of our overall compensation strategy.
We generally use the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting. The Black-Scholes
option pricing model relies on a number of key assumptions to calculate estimated fair values. Our assumed dividend yield of zero is based on the fact that
we have never paid cash dividends, we have no present intention to pay cash dividends, and our current credit agreement limits our ability to pay dividends.
Our expected stock-price volatility assumption is based on actual historic stock volatility for periods equivalent to the expected term of the award. The
assumed risk-free interest rate is the U.S. Treasury security rate with a term equal to the expected life of the option. The assumed expected life is based on
company-specific historical experience, considering the exercise behavior of past grants and models the pattern of aggregate exercises. The fair values of
restricted stock and restricted stock unit awards with time-based vesting are based on the intrinsic values of the awards at the date of grant as these awards
have a purchase price of $0.01 per share.
We have also issued stock option grants or restricted stock unit awards with vesting based on market conditions. Performance-based restricted stock units
will vest based on achievement of our relative total shareholder return against the Russell 2000 Index over a three-year period. The fair values and derived
service periods for all grants that include vesting based on market conditions are estimated using the Monte Carlo simulation method. For stock option
grants that include vesting based on performance conditions, the fair values are estimated using the Black-Scholes option pricing model. For restricted
stock unit awards that include vesting based on performance conditions, the fair values are estimated based on the intrinsic values of the awards at the date
of grant as these awards have a purchase price of $0.01 per share.
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 remaining deferred tax assets, based largely on the history of U.S. tax losses, warrant a 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.
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
32
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.
The amount of income taxes we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We have taken and will
continue to take tax positions based on our interpretation of such tax laws. There can be no assurance that a taxing authority will not have a different
interpretation of applicable law and assess us with additional taxes. Should we be assessed with additional taxes, it could have a negative impact on our
results of operations or financial condition.
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.
Restructuring Charges and Accruals
Based on our policies for the calculation and payment of severance benefits, we account for employee-related restructuring charges as an ongoing benefit
arrangement in accordance with ASC Topic 712, Compensation - Nonretirement Postemployment Benefits. Severance-related charges are accrued when it is
determined that a liability has been incurred, which is when the expected severance payments are probable and can be reasonably estimated.
Restructuring charges require significant estimates and assumptions, including severance period assumptions. Our estimates involve a number of risks and
uncertainties, some of which are beyond our control, including future real estate market conditions and our ability to successfully enter into subleases or
termination agreements with terms as favorable as those assumed when arriving at our estimates. We monitor these estimates and assumptions on at least a
quarterly basis for changes in circumstances and any corresponding adjustments to the accrual are recorded in our statement of operations in the period
when such changes are known.
33
RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated statements of operations as a percentage of net revenues for the periods indicated:
Net revenues:
Product revenues
Services revenues
Total net revenues
Cost of revenues
Gross margin
Operating expenses:
Research and development
Marketing and selling
General and administrative
Amortization of intangible assets
Restructuring costs, net
Total operating expenses
Operating income
Interest and other expense, net
Income (loss) before income taxes
(Benefit from) provision for income taxes
Net income (loss)
Net Revenues
2020
Year Ended December 31,
2019
2018
39.1 %
60.9 %
100.0 %
36.7 %
63.3 %
15.8 %
24.3 %
13.0 %
— %
1.4 %
54.5 %
8.8 %
(5.3)%
3.5 %
0.4 %
3.1 %
50.4 %
49.6 %
100.0 %
39.5 %
60.5 %
15.1 %
24.3 %
13.0 %
0.2 %
0.1 %
52.7 %
7.8 %
(7.2)%
0.6 %
(1.2)%
1.8 %
49.6 %
50.4 %
100.0 %
42.1 %
57.9 %
15.1 %
24.5 %
13.3 %
0.4 %
1.2 %
54.6 %
3.3 %
(5.6)%
(2.3)%
0.3 %
(2.6)%
Our net revenues are derived mainly from sales of video and audio products and solutions for digital media content production, management and
distribution, and related professional services and maintenance contracts. We also sell individual licenses for our software products through our webstore.
We commonly sell large, complex solutions to our customers that, due to their strategic nature, have long lead times where the timing of order execution
and fulfillment can be difficult to predict. In addition, the rapid evolution of the media industry is changing our customers’ needs, businesses, and revenue
models, which is influencing their short-term and long-term purchasing decisions. As a result of these factors, the timing and amount of product revenue
recognized related to orders for large, complex solutions, as well as the services associated with them, can fluctuate from quarter to quarter and cause
significant volatility in our quarterly and annual operating results. See the risk factors discussed in Part I - Item 1A under the heading “Risk Factors” of this
Form 10-K.
Net Revenues for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
Video products and solutions
Audio products and solutions
Total products and solutions
Services
Total net revenues
2020
Net Revenues
$
$
77,232 $
63,530
140,762
219,704
360,466 $
Change
$
(53,993)
(12,690)
(66,683)
15,361
(51,322)
%
(41.1)%
(16.6)%
(32.1)%
7.5%
(12.5)%
2019
Net Revenues
$
$
131,225
76,220
207,445
204,343
411,788
34
Video products and solutions
Audio products and solutions
Total products and solutions
Services
Total net revenues
Net Revenues for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
2019
Net Revenues
Change
$
$
$
131,225 $
76,220
207,445
204,343
411,788 $
(1,051)
3,389
2,338
(3,832)
(1,494)
%
(0.8)%
4.7%
1.1%
(1.8)%
(0.4)%
2018
Net Revenues
$
$
132,276
72,831
205,107
208,175
413,282
The following table sets forth the percentage of our net revenues attributable to geographic regions for the periods indicated:
United States
Other Americas
Europe, Middle East and Africa
Asia-Pacific
Video Products and Solutions Revenues
2020 Compared to 2019
Year Ended December 31,
2019
37%
8%
39%
16%
2020
40%
7%
39%
14%
2018
36%
7%
42%
15%
Video products and solutions revenues decreased $54.0 million, or 41.1%, for 2020, compared to 2019. The decrease in video revenues was primarily due
to customers shifting from perpetual Media Composer licenses to subscription-based licenses. In addition, there was a decrease in revenue due to overall
lower sales as a result of COVID-19.
2019 Compared to 2018
Video products and solutions revenues decreased $1.1 million, or 0.8%, for 2019, compared to 2018. The decrease in video revenues was due to customers
shifting from perpetual Media Composer licenses to subscription-based licenses.
Audio Products and Solutions Revenues
2020 Compared to 2019
Audio products and solutions revenues decreased $12.7 million, or 16.6%, for 2020, compared to 2019. The decrease in audio revenues was primarily due
to lower sales as a result of COVID-19,which negatively impacted revenues for the reasons discussed above under “Executive Overview – Impact of
COVID-19 on our Business.”
2019 Compared to 2018
Audio products and solutions revenues increased $3.4 million, or 4.7%, for 2019, compared to 2018. The increase in audio revenues was primarily due to
Pro Tools subscription increases and higher Control Surface sales and the S1 and S4 product launches in Q4.
35
Services Revenues
2020 Compared to 2019
Services revenues are derived primarily from maintenance contracts, subscription services, as well as professional services and training. The $15.4 million,
or 7.5%, increase in services revenues in 2020 was primarily due to strong growth in our subscription services, partially offset by lower professional
services revenue due to the negative effects of COVID-19.
2019 Compared to 2018
The $3.8 million, or 1.8%, decrease in services revenues for 2019, compared to 2018, was primarily due to a decline in maintenance from the end of sale of
maintenance on certain legacy storage systems at the end of 2018 and a decline in professional services revenue from exiting lower margin work.
Revenue Backlog
At December 31, 2020, we had revenue backlog of approximately $435.5 million, of which approximately $231.3 million is expected to be recognized in
the next 12 months, compared to $440.2 million of revenue backlog at December 31, 2019. 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 support contracts and (ii) Implied Maintenance Release PCS performance
obligations. 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 support 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:
•
•
• warehousing;
•
•
•
•
procurement of components and finished goods;
assembly, testing, and distribution of finished products;
customer support related to maintenance;
royalties for third-party software and hardware included in our products;
amortization of technology; and
providing professional services and training.
Amortization of technology included in cost of revenues represents the amortization of developed technology assets acquired as part of acquisitions and is
described further in the Amortization of Intangible Assets section below.
36
Costs of Revenues for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
2020
Costs
84,222 $
47,924
—
132,146
Change
$
(25,577)
(1,252)
(3,738)
(30,567)
%
(23.3)%
(2.5)%
(100.0)%
(18.8)%
228,320 $
(20,755)
(8.3)%
$
$
Costs of Revenues for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
2019
Costs
109,799 $
49,176
3,738
162,713
Change
$
(959)
(6,384)
(4,062)
(11,405)
%
(0.9)%
(11.5)%
(52.1)%
(6.6)%
249,075 $
9,911
4.1%
$
$
2019
Costs
109,799
49,176
3,738
162,713
249,075
2018
Costs
110,758
55,560
7,800
174,118
239,164
$
$
$
$
Products
Services
Amortization of intangible assets
Total cost of revenues
Gross profit
Products
Services
Amortization of intangible assets
Total costs of revenues
Gross profit
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. Our total gross margin percentage for 2020, compared to 2019, increased due to a
shift toward more higher margin subscription offerings and positive supply chain initiatives.
Gross Margin % for the Years Ended December 31, 2020, 2019 and 2018
2020 Gross
Margin %
40.2%
78.2%
63.3%
(Decrease) Increase
in
Gross Margin %
(6.9)%
2.3%
2.8%
2019 Gross
Margin %
47.1%
75.9%
60.5%
Increase in
Gross Margin %
1.1%
2.6%
2.6%
2018 Gross
Margin %
46.0%
73.3%
57.9%
Products
Services
Total Gross Margin
2020 Compared to 2019
The products gross margin percentage for 2020 decreased (6.9)% from 2019, due to a change in mix in products sold as well as the decrease in overall
revenue due to COVID-19. The services gross margin percentage increased 2.3% from 2019 due to an increase in our high margin subscription business.
2019 Compared to 2018
The products gross margin percentage for 2019 increased to 47.1% from 46.0% for 2018. The change was primarily due to cost savings resulting from our
programs to reduce costs and increase operational efficiencies.
37
Operating Expenses and Operating Income
Operating Expenses and Operating Income for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
Research and development expenses
Marketing and selling expenses
General and administrative expenses
Amortization of intangible assets
Restructuring costs, net
Total operating expenses
Operating income
2020
Expenses
57,018 $
87,637
47,052
—
5,046
196,753 $
Change
$
(5,325)
(12,307)
(6,310)
(694)
4,417
(20,219)
%
(8.5)%
(12.3)%
(11.8)%
(100.0)%
702.2%
(9.3)%
31,567 $
(536)
(1.7)%
$
$
$
Operating Expenses and Operating Income for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
Research and development expenses
Marketing and selling expenses
General and administrative expenses
Amortization of intangible assets
Restructuring costs, net
Total operating expenses
Operating income
Research and Development Expenses
2019
Expenses
Change
$
62,343 $
99,944
53,362
694
629
216,972 $
(36)
(1,329)
(1,868)
(756)
(4,519)
(8,508)
%
(0.1)%
(1.3)%
(3.4)%
(52.1)%
(87.8)%
(3.8)%
32,103 $
18,419
134.6%
$
$
$
2019
Expenses
62,343
99,944
53,362
694
629
216,972
32,103
2018
Expenses
62,379
101,273
55,230
1,450
5,148
225,480
13,684
$
$
$
$
$
$
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. R&D expenses decreased $5.3 million, or 8.5%, during the year ended December 31, 2020, compared to 2019. The table
below provides further details regarding the changes in components of R&D expense.
Year-Over-Year Change in R&D Expenses for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
Personnel-related
Consulting and outside services
Facilities and information technology
Computer hardware and supplies
Other expenses
Total research and development expenses decrease
2020 (Decrease)/Increase
From 2019
2019 (Decrease)/Increase
From 2018
$
(3,984)
(196)
(368)
(933)
156
(5,325)
$
$
%
(10.1)%
(2.2)%
(3.4)%
(42.3)%
18.2%
(8.5)%
$
2,745
(1,477)
(1,651)
267
82
(36)
$
$
%
7.5%
(14.1)%
(13.2)%
13.8%
11.3%
(0.1)%
38
2020 Compared to 2019
The decrease in personnel-related expenses for 2020, compared to 2019, was primarily due to a decrease in salary expense as a result of our temporary
furloughs and pay cuts and reduced travel expenses as a result of COVID-19. The decrease in all other expense categories for 2020 compared to the same
periods in 2019 were primarily due to our initiatives to increase operational efficiencies and reduce costs as a response to COVID-19.
2019 Compared to 2018
The decreases in all R&D expense categories, except personnel-related, for 2019, compared to 2018, were primarily the result of our programs to increase
operational efficiencies and reduce costs. The increase in personnel-related expense was due to an increase in salary expense.
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. Marketing and selling expenses decreased
$12.3 million, or 12.3%, during the year ended December 31, 2020, compared to 2019. 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 Years Ended December 31, 2020 and 2019
(dollars in thousands)
Foreign-exchange (gains) and losses
Personnel-related
Consulting and outside services
Facilities and information technology
Advertising and promotions
Other expenses
Total marketing and selling expenses decrease
2020 Compared to 2019
2020 (Decrease)/Increase
From 2019
2019 (Decrease)/Increase
From 2018
$
(150)
(6,286)
(545)
(1,116)
(4,787)
577
(12,307)
$
$
%
(26.9)%
(6.3)%
(5.1)%
(4.4)%
(79.6)%
9.1%
(12.3)%
$
102
(2,132)
1,129
596
(1,530)
506
(1,329)
$
$
%
22.5%
(2.1)%
9.5%
2.3%
(20.3)%
7.1%
(1.3)%
For the year ended December 31, 2020, net foreign-exchange losses, which are included in marketing and selling expenses, were $0.4 million, compared to
losses of $0.6 million for 2019. The foreign-exchange losses result from foreign currency denominated transactions and the revaluation of foreign currency
denominated assets and liabilities. The decrease in personnel-related expenses for 2020 compared to 2019 was primarily due to decreases in salary expense
as a result of our temporary furloughs and pay cuts and reduced travel expenses as a result of COVID-19. The decrease in all other expense categories for
2020 compared to 2019 were primarily due to our initiatives to increase operational efficiencies and reduce costs as a response to COVID-19.
2019 Compared to 2018
For the year ended December 31, 2019, net foreign-exchange losses, which are included in marketing and selling expenses, were $0.6 million, compared to
losses of $0.5 million for 2018. The foreign-exchange losses result from foreign currency denominated transactions and the revaluation of foreign currency
denominated assets and liabilities. The decrease in personnel-related expenses for 2019 compared to 2018, was primarily due to decreases in incentive-
based compensation accrual and decreased travel expenses as a result of our smart spending initiative. The increase in consulting and outside services for
2019 compared to 2018 was primarily the result of increased webstore fees due to higher transactions on our webstore. The decrease in advertising and
promotions expenses for 2019 compared to 2018 was primarily the result of our programs to increase operational efficiencies and reduce costs.
39
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. Information systems and facilities costs
reported within G&A expenses are net of allocations to other expenses categories. G&A expenses decreased $6.3 million, or 11.8%, during the year ended
December 31, 2020, compared to 2019. The table below provides further details regarding the changes in components of G&A expense.
Year-Over-Year Change in G&A Expenses for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
Consulting and outside services
Personnel-related
Facilities and information technology
Other expenses
Total general and administrative expenses decrease
2020 Compared to 2019
2020 (Decrease)/Increase
From 2019
2019 (Decrease)/Increase
From 2018
$
(5,163)
(816)
(522)
191
(6,310)
$
$
%
(32.3)%
(3.5)%
(6.4)%
3.2%
(11.8)%
$
(1,023)
(1,117)
(313)
585
(1,868)
$
$
%
(6.0)%
(4.6)%
(3.7)%
10.6%
(3.4)%
The decrease in personnel-related expenses for 2020, compared to 2019, was primarily due to a decrease in salary expense as a result of our temporary
furloughs and pay cuts and reduced travel expenses as a result of COVID-19. The decrease in all other expense categories for 2020 compared to the same
periods in 2019, were primarily due to our initiatives to increase operational efficiencies and reduce costs as a response to COVID-19.
2019 Compared to 2018
The decrease in consulting and outside services expenses for 2019, compared to 2018, was primarily the result of decreases in litigation expenses and
contractors costs. The decrease in personnel-related expenses for 2019 compared to 2018 was due to decreases in incentive-based compensation accrual.
The decrease in facilities and information technology was primarily the result of our cost efficiency program.
Amortization of Intangible Assets
Intangible assets result from acquisitions and include developed technology, customer-related intangibles, trade names, and other identifiable intangible
assets with finite lives. These intangible assets are amortized using the straight-line method over the estimated useful lives of such assets, which are
generally two years to 12 years. Amortization of developed technology is recorded within cost of revenues. Amortization of customer-related intangibles,
trade names, and other identifiable intangible assets is recorded within operating expenses.
As of June 30, 2019, intangible assets were fully amortized. See Note G, Intangible Assets and Goodwill, to our Consolidated Financial Statements in Item
8 of the Form 10-K for further information regarding our identifiable intangible assets.
Restructuring Costs, Net
In February 2016, we committed to a restructuring plan that encompassed a series of measures intended to allow us to more efficiently operate in a leaner,
more directed cost structure. These included reductions in our workforce, consolidation of facilities, transfers of certain business processes to lower cost
regions, and reductions in other third-party services costs. 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. We have also implemented programs to increase operational efficiencies and reduce costs as
a result of COVID-19.
40
During the year ended December 31, 2020, we recorded $4.9 million of severance costs for 93 positions that were eliminated during 2020.
During the year ended December 31, 2019, we recorded $0.6 million of severance costs for 54 positions that were eliminated during 2019.
During the year ended December 31, 2018, we recorded $3.6 million of severance costs for 84 positions that were eliminated during 2018 and the first
quarter of 2019, $1.1 million of leasehold improvement write-off resulting from the consolidation of our facilities in Burlington, Massachusetts, and $0.1
million of facilities restructuring related adjustments.
Interest and Other Expense, Net
Interest and other expense, net, generally consists of interest income and interest expense.
Interest and Other Income (Expense) for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
Interest income
Interest expense
Other income (expense), net
Total interest and other expense, net
2020
Income
(Expense)
$
$
70 $
(20,071)
868
(19,133) $
Change
$
34
6,641
3,770
10,445
%
94.4%
(24.9)%
(129.9)%
(35.3)%
Interest and Other Income (Expense) for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
Interest income
Interest expense
Other income (expense), net
Total interest and other expense, net
2020 Compared to 2019
2019
Income
(Expense)
$
$
36 $
(26,712)
(2,902)
(29,578) $
Change
$
(159)
(3,238)
(3,094)
(6,491)
%
(81.5)%
13.8%
(1,611.5)%
28.1%
2019
Income
(Expense)
36
(26,712)
(2,902)
(29,578)
2018
Income
(Expense)
195
(23,474)
192
(23,087)
$
$
$
$
The decrease in interest expense for 2020 compared to 2019 was due to the repayment of our outstanding convertible notes on June 15, 2020 as well as
savings on our term loan interest under our credit facility due to the decrease in the LIBOR rate over 2020. 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.
2019 Compared to 2018
The increase in interest expense for 2019 compared to 2018, was due to the additional $100.0 million term loan we obtained in 2019 and fees related to the
refinancing. 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.
41
Provision for (Benefit from) Income Taxes
Provision for (Benefit from) Income Taxes for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
Provision for (benefit from) income taxes
$
1,372 $
6,448
2020
Benefit
Change
$
Provision for Income Taxes for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
2019
Provision
Change
$
(Benefit from) provision for income taxes
$
(5,076) $
(6,347)
%
(127.0)%
%
(499.4)%
2019
Provision
(5,076)
2018
Provision
1,271
$
$
Our effective tax rate, which represents our tax provision as a percentage of income before tax, was 11.0%, (201.0)%, and (13.5)%, respectively, for 2020,
2019, and 2018.
The increase in our 2020 provision was primarily driven by a non-recurring benefit in our 2019 provision. Our 2019 provision included the removal of
valuation allowances on some of our foreign net operating loss carryforwards. During the year ended December 31, 2019 we determined that our Irish
subsidiary had reached a level of sustained profitability sufficient enough to release a significant portion of the valuation allowance on its net operating loss
carryforward. Accordingly, we recorded a $6.0 million benefit related to a valuation allowance against the Irish net operating loss carryforward deferred tax
asset. Additionally, during the year ended December 31, 2019 we completed a legal entity reorganization that reduced the number of our German
subsidiaries. This reorganization allowed us to remove a valuation allowance on the net operating loss carryforward deferred tax asset of one of the
surviving German entities. Accordingly, we recorded a benefit of $1.5 million, which is net of a reserve for a related uncertain tax position. The year over
year increase driven by the non-recurring combined benefit was partially offset by a decrease in the provision due to release of a reserve for an uncertain
tax position in our Israel subsidiary due to an audit settlement and changes in the jurisdictional mix of earnings.
The decrease in our 2019 provision was driven by the removal of valuation allowances on our Irish and German net operating loss carryforwards, as noted
above, which totaled a combined benefit of $7.5 million. The combined benefit was partially offset by an increase in the provision due to changes in the
jurisdictional mix of earnings including the now ongoing taxability of our earnings in Ireland and Germany which results in a non-cash tax expense.
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 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.
The Coronavirus Aid, Relief, and Economic Act, or CARES Act, includes several income tax provisions such as net operating loss, or NOL, carryback and
carryforward benefits and other tax deduction benefits. As noted previously, the U.S. deferred tax asset has a full valuation; accordingly, these NOL and
other benefit provisions had no impact on our financial statements for the period ended December 31, 2020. The CARES Act accelerates the alternative
minimum tax, or AMT, credit refund originally enacted by the Tax Cut and Jobs Act in 2017. As of December 31, 2020, we have received the cash from the
IRS associated with this refund receivable which had been recorded as a long-term asset at December 31, 2019.
42
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Sources of Cash
Our principal source of liquidity is cash and cash equivalents, which totaled $79.9 million as of December 31, 2020. 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, capital expenditures, and obligations
under our cost efficiency program. 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 Credit Agreement, and draws of up to a maximum of $70.0 million under the Credit
Agreement’s revolving credit facility. 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.
One key aspect of our strategy has been to implement programs to increase operational efficiencies and reduce costs. We are making significant changes in
business operations to better support the company’s strategy and overall performance. We are optimizing our go-to-market strategy, simplifying our
strategy to address specific customer markets to help maximize our commercial success, which we expect will improve effectiveness, while increasing
efficiency and driving growth of our pipeline and ultimately revenue. We believe these collective efforts will continue to improve our efficiency as an
organization, increasing gross margins and overall profitability.
Financing Agreement
On February 26, 2016, we entered into the Financing Agreement , or the Financing Agreement, with the lenders party thereto. Pursuant to the Financing
Agreement, the lenders agreed to provide us with (a) a term loan in the aggregate principal amount of $100.0 million, or the Term Loan, and (b) a revolving
credit facility of up to a maximum of $5.0 million in borrowings outstanding at any time, or the Credit Facility. On November 9, 2017, we entered into an
amendment to the Financing Agreement which increased the aggregate principal amount of the term loan to $115.0 million and increased the commitments
under the revolving credit facility to $10.0 million. On May 10, 2018, we entered into a further amendment to the Financing Agreement that extended the
maturity of the Financing Agreement to May 2023, and increased the aggregate principal amount of the term loan to $137.7 million and increased the
commitments under the revolving credit facility to $22.5 million.
On April 8, 2019, we entered into an amendment to the Financing Agreement. The amendment provided for an additional delayed draw term loan
commitment in the aggregate principal amount of $100.0 million, or the Delayed Draw Funds, for the purpose of funding the purchase of a portion of the
Notes in a tender offer. On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. We used $72.7 million of the Delayed
Draw Funds for the purchase of a portion of the Notes, $0.6 million for the Notes interest payment, and $6.0 million for the payment of refinancing fees.
On June 18, 2019, we repaid $20.7 million of the Delayed Draw Funds. The $79.3 million Delayed Draw Funds borrowed would have matured on May 10,
2023 under the Financing Agreement.
On May 19, 2020, we entered into an amendment to the Financing Agreement which increased the leverage ratio that the Company was required to
maintain such that following the effective date of this amendment, the Company was required to maintain a leverage ratio of no greater than 6.00:1.00 for
each of the quarters ending June 30, 2020 and September 30, 2020, 5.75:1.00 for each of the quarters ending December 31, 2020 and March 31, 2021,
5.25:1.00 for the quarter ending June 30, 2021, 5.00:1.00 for the quarter ending September 30, 2021, 4.50:1.00 for the quarter ending December 31, 2021,
4.30:1.00 for the quarter ending March 31, 2022, 4.00:1.00 for each of the quarters ending June 30, 2022 and September 30, 2022, and 3.75:1.00 for each
of the quarters ending December 31, 2022 and March 31, 2023. The amendment also reset the prepayment premium to 1.5% of the principal amount of the
loans prepaid through the end of 2020, 0.5% of the principal amount of the loans prepaid through the end of 2021, and 0.0% thereafter.
Effective with the May 19, 2020 amendment to the Financing Agreement, interest accrued on outstanding borrowings at a rate of either the LIBOR Rate (as
defined in the Financing Agreement) plus 6.25% or a Reference Rate (as defined in the Financing
43
Agreement) plus 5.75%, at the option of the Company. Prior to the effective date of such Amendment, the applicable margin with respect to the LIBOR
Rate was 6.25% and the applicable margin with respect to the Reference Rate was 5.25%.
Credit Agreement (New Credit Facility)
On January 5, 2021, we entered into the Credit Agreement, or the Credit Agreement, among us, the Lenders party thereto, and JPMorgan Chase Bank,
N.A., as the administrative agent, or the Agent. 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 New Term Loan and (b) a revolving credit facility of up to a maximum of $70.0 million in borrowings
outstanding at any time, or the New Credit Facility. We borrowed the full amount of the New Term Loan, or $180.0 million, on the closing date, but did not
borrow any amount under the New Credit Facility on the closing date. The borrowings under the New Term Loan and cash on hand were used to repay
outstanding borrowings under the Financing Agreement in connection the termination of the Financing Agreement, as described above. Prior to the
maturity of the New Credit Facility, any amounts borrowed under the New Credit Facility may be repaid and, subject to the terms and conditions of the
Credit Agreement, reborrowed in whole or in part without penalty.
Financial terms and prepayments. Under the Credit Agreement, interest accrues on outstanding borrowings under the New Term Loan and the New Credit
Facility at a rate of the Adjusted LIBO Rate, the Adjusted EURIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement), at the
option of the Company, plus a spread of 2.00% to 3.25% for Adjusted LIBO Rate and Adjusted EURIBO Rate loans, with a 0.25% LIBOR floor, and
1.00% to 2.25% for Alternate Base Rate loans, in each case depending on our leverage ratio. In addition, we must pay to 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 New Credit Facility less (2) total amount of the outstanding borrowings under the New Credit Facility during the immediately preceding quarter.
During the term of the New Credit Facility, we are entitled to reduce the maximum amounts of the Lenders’ commitments under the New Credit Facility.
We may prepay all or any portion of the borrowings under the Credit Agreement prior to the stated maturity, subject to the payment of certain break
funding amounts, if applicable. In addition, subject to exceptions we will be 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 New Term Loan requires
quarterly principal payments commencing in March 2021 equal to 5.0% of the original principal amount of the New Term Loan in years 1 and 2, 7.5% of
the original principal amount of the New Term Loan in year 3, and 10% of the original principal amount of the New Term Loan in years 4 and 5, 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 on substantially all of
our assets to secure the obligations of all obligors under the New Term Loan and the New Credit Facility. Avid Worldwide provided a guarantee of all our
obligations under the Credit Agreement. Our future subsidiaries (other than certain foreign and immaterial subsidiaries) are also required to become a party
to the applicable security agreements and guarantee the obligations under the Credit Agreement.
Representations and restrictive covenants. The Credit Agreement contains representations, warranties and restrictive covenants that are customary for an
agreement of this kind, including, for example, covenants that restrict 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 Credit Agreement contains customary events of default under which our payment obligations may be accelerated. These events of
default include, among others, failure to pay amounts payable under the 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 Credit Agreement contains two 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 to (y) consolidated
EBITDA, not to exceed 4.00 to 1:00 for the fiscal quarters ending March 31, 2021 through June 30, 2021; 3.75 to 1.00 for the fiscal quarters ending
September 30, 2021 through December 31, 2021; 3.50 to 1.00 for the fiscal quarters ending March 31, 2022 through June 30, 2022; 3.25 to 1.00 for the
fiscal quarters ending September
44
30, 2022 through December 31, 2022; and 3.00 to 1.00 for fiscal quarters ending on or after March 31, 2023. The Company is also required to maintain a
fixed charge coverage ratio not less than 1.20 to 1.00 at the end of each fiscal quarter ending on or after March 31, 2021. The Credit Agreement’s fixed
charge coverage ratio is generally defined as the ratio of (x) consolidated EBITDA minus unfinanced capital expenditures, cash tax expense and certain
restricted payments to (y) consolidated fixed charges.
Our ability to satisfy the maximum total net leverage covenant and the minimum fixed charge coverage ratio covenant in the future is dependent on our
ability to increase bookings and billings above 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) dramatic changes in the media industry and the impact it has on our customers, (iii) the impact of new and anticipated product
launches and features, (iv) volatility in currency rates, and (v) in the three most recent quarters, the economic impacts of the COVID-19 pandemic.
In the event bookings and billings 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 additional debt or equity
funding 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 maximum total net leverage ratio or the minimum fixed charge coverage ratio
and are unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Credit Agreement, which could permit
acceleration of the outstanding indebtedness under the Credit 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 that secure our borrowings under the Credit Agreement.
2.00% Convertible Senior Notes
On June 15, 2015, we issued $125.0 million aggregate principal amount of our 2.00% Convertible Senior Notes due 2020, or the Notes. In connection with
the offering of the Notes, on June 9, 2015, we entered into a capped call derivative transaction with a third party, or the Capped Call.
On April 11, 2019, we announced the commencement of a cash tender offer, or the Offer, for any and all of our outstanding Notes. On May 9, 2019, as of
the expiration of the Offer, Notes with an aggregate principal amount of $74.0 million were validly tendered. We accepted for purchase all Notes that were
validly tendered at the expiration of the Offer at a purchase price equal to $982.50 per $1,000 principal amount of Notes, and settled the Offer on May 13,
2019 for $72.7 million in cash. We recorded $74.0 million extinguishment of debt, $0.6 million of equity reacquisition, and $2.9 million loss on the
extinguishment of debt. In connection with the Offer, the number of options under the Capped Call was reduced to 28,867 to mirror the remaining principal
outstanding for the Notes, and an immaterial partial unwind cash payment was received in May 2019.
On June 15, 2020, the maturity date of the Notes, we fully repaid the outstanding principal and unpaid interest on the Notes. In connection with such
repayment, the Capped Call was unwound.
Paycheck Protection Program Loan
On May 11, 2020, we received $7.8 million of proceeds in connection with its incurrence of a loan under the Paycheck Protection Program, or PPP. The
loan has a fixed interest rate of 1% and matures in two years. Interest payments are deferred for six months. On November 17, 2020 we applied to the SBA
for the PPP loan to be forgiven in full. We believe we used the proceeds of the PPP loan for purposes consistent with the PPP. While we currently believe
that our use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure that we will be eligible for forgiveness of the loan,
in whole or in part. Any PPP loan balance remaining following forgiveness by the SBA will be fully repaid on or before the maturity date of the loan.
The CARES Act allowed employers to defer the deposit and payment of the employer's share of Social Security payroll taxes that would otherwise have
been owed from the date of enactment of the legislation through December 31, 2020. The legislation requires that the deferred taxes be paid over a two-
year period, with half the amount required to be paid by December 31, 2021,
45
and the other half by December 31, 2022. As of December 31, 2020, we have recorded the payment deferral within “Accrued compensation and benefits”
and “Other long-term liabilities” on the balance sheet.
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2020, 2019, and 2018 (in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of foreign currency exchange rates on cash and cash equivalents
Net increase in cash, cash equivalents and restricted cash
Cash Flows from Operating Activities
2020
Year Ended December 31,
2019
2018
$
$
39,555 $
(5,692)
(24,549)
1,748
11,062 $
19,641 $
(7,185)
(7,644)
(331)
4,481 $
15,822
(9,917)
2,536
(780)
7,661
Cash provided by operating activities aggregated $39.6 million for the year ended December 31, 2020. The improvement compared to prior years was
primarily attributable to lower operating expenses as the result of our programs to increase operational efficiencies and reduce costs.
Cash Flows from Investing Activities
For the year ended December 31, 2020, the net cash flow used in investing activities reflected $5.7 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.
Cash Flows from Financing Activities
For the year ended December 31, 2020, net cash flows used in financing activities were primarily the result of the repayment of our Notes, partially offset
by borrowings under the PPP loan.
CONTRACTUAL AND COMMERCIAL OBLIGATIONS
The following table outlines our contractual payment obligations as of December 31, 2020 (in thousands):
Term Loan
PPP Loan
Other long-term debt
Operating leases
Unconditional purchase obligations
Total
Less than
1 Year
1 – 3 Years
3 – 5 Years
After
5 Years
201,208
7,800
1,271
44,684
8,971
263,934 $
$
4,781
—
160
8,558
8,971
22,470 $
196,427
7,800
356
13,454
—
218,037 $
—
—
409
10,896
—
11,305 $
—
—
346
11,776
—
12,122
46
Other contractual arrangements that may result in cash payments consisted of the following at December 31, 2020 (in thousands):
Stand-by letters of credit
Total
$
3,698
3,698 $
Less than
1 Year
1 – 3 Years
3 – 5 Years
After
5 Years
850
850 $
1,949
1,949 $
—
— $
899
899
As described above, all outstanding borrowings under the Financing Agreement were repaid in January 2021, in connection with the termination of the
Financing Agreement and the entry into the Credit Agreement.
Any portion of the PPP Loan that is not forgiven, must be repaid by May 2022. See more details in Note Q, Long-Term Debt and Credit Agreement, to our
Consolidated Financial Statements in Item 8 of this Form 10-K.
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 $3.0 million of products and services pursuant to this agreement as of December 31, 2020.
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, 2020, be eligible to draw against the letters of credit to a maximum of $1.3
million in the aggregate. The letters of credit are subject to aggregate reductions provided that we are not in default of the underlying leases and meet
certain financial performance conditions. In no case will the letters of credit amounts for the Burlington leases be reduced to below $1.2 million in the
aggregate throughout the lease periods.
In addition, we have letters of credit in connection with security deposits for other facility leases totaling $0.6 million in the aggregate, as well as letters of
credit totaling $1.9 million that otherwise support our ongoing operations. These letters of credit have various terms and expire during 2021 and beyond,
while some of the letters of credit may automatically renew based on the terms of the underlying agreements.
OFF-BALANCE SHEET ARRANGEMENTS
We do not engage in off-balance sheet financing arrangements or have any variable-interest entities. At December 31, 2020, we did not have any off-
balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
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.
Recently 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
47
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, 2020, 2019, and 2018, we recorded net losses of $0.4 million, $0.6 million, and $0.5 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, 2020, would not have a significant impact on our financial position, results of operations or cash flows.
Interest Rate Risk
We borrowed $100.0 million under the Term Loan on February 26, 2016, and an additional $15.0 million and $22.7 million under the Term Loan on
November 9, 2017 and May 10, 2018, respectively. Until January 5, 2021, we also maintained a revolving Credit Facility that allowed us to borrow up to
$22.5 million. On April 8, 2019, we entered into an amendment to the Financing Agreement, which provided for an additional delayed draw term loan
commitment in the aggregate principal amount of $100.0 million, or the Delayed Draw Funds. Under the terms of the amendment effective May 19, 2020,
interest accrued on the Delayed Draw Funds, outstanding borrowings under the Term Loan and the Credit Facility at a rate of either the LIBOR Rate (as
defined in the Financing Agreement) plus 6.75% or a Reference Rate (as defined in the Financing Agreement) plus 5.75%, at our option. A hypothetical
10% increase or decrease in interest rates paid on outstanding borrowings under the Financing Agreement would not have had a material impact on our
financial position, results of operations or cash flows. As described above, all outstanding borrowings under the Financing Agreement were repaid in
January 2021, in connection with the termination of the Financing Agreement and the entry into the Credit Agreement.
On June 15, 2015, we issued $125.0 million aggregate principal amount of our Notes pursuant to the terms of an indenture. We purchased $2.0 million of
the Notes during 2017, $16.2 million during 2018, $3.9 million on January 22, 2019, and an additional $74.0 million through a cash tender offer on May
13, 2019. Interest accrued on the Notes at an annual rate of 2.00%, payable semi-annually on June 15 and December 15 of each year. On June 15, 2020, the
maturity date of the Notes, we fully paid the outstanding principal and unpaid interest on the Notes.
Under the Credit Agreement entered into on January 5, 2021, interest accrues on outstanding borrowings at a rate of the Adjusted LIBO Rate, the Adjusted
EURIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement), at the option of the Company, plus a spread of 2.00% to 3.25% for
Adjusted LIBO Rate and Adjusted EURIBO Rate loans, with a 0.25% LIBOR floor, and 1.00% to 2.25% for Alternate Base Rate loans, in each case
depending on our leverage ratio. A hypothetical 10% increase or decrease in interest rates paid on outstanding borrowings under the Credit Agreement
would not have had a material impact on our financial position, results of operations or cash flows.
48
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
AVID TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
50
52
53
54
55
56
57
49
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, 2020 and
2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years
in the period ended December 31, 2020, 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, 2020 and 2019, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 9, 2021 expressed an unqualified opinion
thereon.
Change in Accounting Principle
As discussed in Note H to the consolidated financial statements, on January 1, 2019, the Company changed its method of accounting for leases due to the
adoption of ASU 2016-02, Leases (ASC 842) using the modified retrospective transition approach, as provided by ASU No. 2018-11, Leases - Targeted
Improvements.
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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates 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 matter 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 matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Enterprise Agreements
50
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 relative estimated stand-alone selling price. Once
the transaction price is allocated to the individual 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 described in Note P.
We identified the process of the determination of performance obligations and the related stand-alone selling price for each performance obligation present
in these enterprise 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, and assess the related estimated stand-alone selling price and
transaction price allocation.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Evaluating the design of and testing the operating effectiveness of certain controls related to management's identification, assessment, and review
of distinct performance obligations, including the related stand-alone selling price, within enterprise agreements.
Evaluating management’s accounting policies and practices, including the reasonableness of management’s judgments and assumptions related to:
(i) the identification of each performance obligation and its pattern of delivery, and (ii) determination of the stand-alone selling price of each
performance obligation identified and related transaction price allocation.
Testing a sample of enterprise agreements together with their underlying order documents to evaluate: (i) the appropriate identification of each
distinct performance obligation and its respective pattern of revenue recognition, and (ii) the appropriate determination of the stand-alone selling
price.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2016.
Boston, Massachusetts
March 9, 2021
51
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net revenues:
Products
Services
Total net revenues
Cost of revenues:
Products
Services
Amortization of intangible assets
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Marketing and selling
General and administrative
Amortization of intangible assets
Restructuring costs, net
Total operating expenses
Operating income
Interest income
Interest expense
Other income (loss), net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per common share – basic
Net income (loss) per common share – diluted
Weighted-average common shares outstanding – basic
Weighted-average common shares outstanding – diluted
The accompanying notes are an integral part of the consolidated financial statements.
52
$
$
$
$
Year Ended December 31,
2019
2020
2018
$
$
$
$
140,762
219,704
360,466
84,222
47,924
—
132,146
228,320
57,018
87,637
47,052
—
5,046
196,753
31,567
70
(20,071)
868
12,434
1,372
11,062
0.25
0.25
43,822
44,878
$
$
$
$
207,445
204,343
411,788
109,799
49,176
3,738
162,713
249,075
62,343
99,944
53,362
694
629
216,972
32,103
36
(26,712)
(2,902)
2,525
(5,076)
7,601
0.18
0.17
42,649
43,495
205,107
208,175
413,282
110,758
55,560
7,800
174,118
239,164
62,379
101,273
55,230
1,450
5,148
225,480
13,684
195
(23,474)
192
(9,403)
1,271
(10,674)
(0.26)
(0.26)
41,662
41,662
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive (loss) income:
Foreign currency translation adjustments
Comprehensive income (loss)
The accompanying notes are an integral part of the consolidated financial statements.
53
Year Ended December 31,
2019
2020
2018
11,062
$
7,601
$
(10,674)
2,253
(163)
(1,341)
13,315
$
7,438
$
(12,015)
$
$
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Current assets:
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowances of $1,478 and $958 at December 31, 2020 and 2019, respectively
Inventories
Prepaid expenses
Contract assets
Other current assets
Total current assets
Property and equipment, net
Goodwill
Right of use assets
Deferred tax assets, net
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable
Accrued compensation and benefits
Accrued expenses and other current liabilities
Income taxes payable
Short-term debt
Deferred revenues
Total current liabilities
Long-term debt
Long-term deferred revenues
Long-term lease liabilities
Other long-term liabilities
Total liabilities
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; 44,597 shares issued, and 44,420 shares and 43,150 shares
outstanding at December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
The accompanying notes are an integral part of the consolidated financial statements.
54
December 31,
2020
2019
79,899 $
1,422
78,614
26,568
6,044
18,579
2,366
213,492
16,814
32,643
29,430
6,801
5,958
305,138 $
21,823 $
29,105
42,264
1,664
4,941
87,974
187,771
202,759
11,284
28,462
7,786
438,062
69,085
1,663
73,773
29,166
9,425
19,494
6,125
208,731
19,580
32,643
29,747
7,479
6,113
304,293
39,888
19,524
36,759
1,945
30,554
83,589
212,259
199,034
14,312
28,127
5,646
459,378
—
—
442
1,036,658
(1,168,347)
(1,677)
(132,924)
305,138 $
430
1,027,824
(1,179,409)
(3,930)
(155,085)
304,293
$
$
$
$
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands)
Shares of
Common Stock
Issued
42,339
In
Treasury
Common
Stock
(983)
$
423 $
Additional
Paid-in
Capital
1,035,808 $
Accumulated
Deficit
(1,284,703) $
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Deficit
Treasury
Stock
(17,672) $
(2,426) $
(268,570)
Balances at January 1, 2018
Cumulative-effect adjustment due to adoption of ASC
Topic 606
Stock issued pursuant to employee stock plans
Stock-based compensation
Net loss
Other comprehensive loss
Partial retirement of convertible senior notes conversion
feature
—
—
—
—
—
—
—
592
—
—
—
—
—
—
—
—
—
—
Partial unwind capped call cash receipt
Balances at December 31, 2018
—
42,339
—
(391)
$
—
423 $
Stock issued pursuant to employee stock plans
811
391
Stock-based compensation
Net income
Other comprehensive loss
Partial retirement of convertible senior notes conversion
feature
Partial unwind capped call cash receipt
Balances at December 31, 2019
Stock issued pursuant to employee stock plans
Stock-based compensation
Net income
Other comprehensive income
Balances at December 31, 2020
—
—
—
—
—
43,150
1,270
—
—
—
44,420
—
—
—
—
—
—
—
—
—
—
—
$
$
7
—
—
—
—
—
430 $
12
—
—
—
442 $
The accompanying notes are an integral part of the consolidated financial statements.
55
—
108,367
—
(13,084)
6,258
—
—
(74)
16
—
—
(10,674)
—
—
—
1,028,924 $
(1,187,010) $
(8,508)
7,958
—
—
(577)
27
—
—
7,601
—
—
—
1,027,824 $
(1,179,409) $
(1,830)
10,664
—
—
—
—
11,062
—
1,036,658 $
(1,168,347) $
12,441
—
—
—
—
—
(5,231) $
5,231
—
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
(1,341)
108,367
(643)
6,258
(10,674)
(1,341)
—
(74)
—
(3,767) $
—
—
—
(163)
—
16
(166,661)
(3,270)
7,958
7,601
(163)
(577)
—
(3,930) $
27
(155,085)
—
—
—
(1,818)
10,664
11,062
2,253
(1,677) $
2,253
(132,924)
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Year Ended December 31,
2019
2020
2018
$
11,062 $
7,601 $
(10,674)
Depreciation and amortization
Provision for doubtful accounts
Loss on convertible notes extinguishment
Stock-based compensation expense
Non-cash provision for restructuring
Non-cash interest expense
Unrealized foreign currency transaction losses (gains)
(Benefit from) provision for deferred taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses, compensation and benefits and other liabilities
Income taxes payable
Deferred revenue and contract assets
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Decrease in other long-term assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from revolving line of credit
Repayment on revolving line of credit
Proceeds from long-term debt
Repayment of debt
Payments for repurchase of outstanding notes
Proceeds from the issuance of common stock under employee stock plans
Common stock repurchases for tax withholdings for net settlement of equity awards
Partial retirement of the convertible notes conversion feature and capped call option unwind
Payments for credit facility issuance costs
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental information:
Cash and cash equivalents
Restricted cash
Restricted cash included in other long-term assets
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
Cash (refunded) paid for income taxes, net
Cash paid for interest
Non-cash transaction – property and equipment included in accounts payable or accruals
The accompanying notes are an integral part of the consolidated financial statements.
56
8,505
1,298
—
10,664
5,046
3,651
1,570
827
(6,124)
2,598
6,176
(18,141)
10,432
(281)
2,272
39,555
(5,692)
—
(5,692)
22,000
(22,000)
7,800
(2,250)
(28,867)
547
(2,365)
875
(289)
(24,549)
13,634
208
2,878
7,958
—
6,143
971
(6,309)
(6,227)
3,790
(44)
626
(6,892)
91
(4,787)
19,641
(7,185)
—
(7,185)
—
—
79,292
(1,438)
(76,269)
309
(3,586)
27
(5,979)
(7,644)
1,748
11,062
72,575
83,637 $
79,899 $
1,422
2,316
83,637 $
(391) $
17,499 $
— $
(331)
4,481
68,094
72,575 $
69,085 $
1,663
1,827
72,575 $
783 $
12,262 $
23 $
$
$
$
$
$
$
$
$
21,142
119
—
6,258
1,083
8,987
(996)
113
(6,689)
(551)
5,832
9,148
(8,853)
38
(9,135)
15,822
(9,936)
19
(9,917)
—
—
22,688
(18,451)
—
355
(998)
(58)
(1,000)
2,536
(780)
7,661
60,433
68,094
56,103
8,500
3,491
68,094
(2,791)
14,505
220
AVID TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BUSINESS
Description of Business
Avid Technology, Inc. (“Avid”, “we” or “us”) develops, markets, sells, and supports 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.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include our accounts and our wholly owned subsidiaries. Intercompany balances and transactions have been
eliminated.
Basis of Presentation and Use of Estimates
Our preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ
from our estimates.
Revenue Recognition
We enter into contracts with customers that include various combinations of products and services, which are typically capable of being distinct and are
accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of
the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectability is probable. We
recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on
the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.
See Note P for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of 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, support, 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;
57
•
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 ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) and 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.
While not a common practice for us, in the event we grant the customer the option to acquire additional products or services in an arrangement, we consider
if the option provides a material right to the customer that it would not receive without entering into the contract (e.g., an incremental discount compared to
the range of discounts typically given for similar products or services). If a material right is deemed to exist, we account for the option as a distinct
performance obligation and recognize revenue when those future products or services are transferred or when the option expires.
We also record as revenue all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a component of cost of
revenues. Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues.
We present revenues net of any taxes collected from customers and remitted to government authorities.
Our contracts rarely contain significant financing components as payments from customers are due within a short period from when our performance
obligations are satisfied.
We are applying the practical expedient for the deferral of sales commissions and other contract acquisition costs, which are expensed as incurred, because
the amortization period would be one year or less.
Allowance for Sales Returns and Exchanges
We maintain allowances for estimated potential sales returns and exchanges from our customers, which represents variable consideration under ASC 606.
We record a provision for estimated returns and other allowances as a reduction of revenues in the same period that related revenues are recorded based on
historical experience and specific customer analysis. Use of management estimates is required in connection with establishing and maintaining a sales
allowance for expected returns and other credits. The allowance also includes rebates offered through our partner program. If actual returns differ from the
estimates, additional allowances could be required.
The following table sets forth the activity in the allowance for sales returns and exchanges for the years ended December 31, 2020, 2019, and 2018 (in
thousands):
Allowance for sales returns and exchanges – beginning of year
Additions and adjustments to the allowance
Deductions against the allowance
Allowance for sales returns and exchanges – end of year
2020
Year Ended December 31,
2019
2018
$
$
8,230 $
10,746
(9,670)
9,306 $
9,003 $
15,999
(16,772)
8,230 $
9,916
12,121
(13,034)
9,003
The allowance for sales returns and exchanges reflects an estimate of amounts invoiced that will not be collected, as well as other allowances and credits
that have been or are expected to offset the trade receivables. The allowance for sales returns and exchanges is recorded as a component of accrued
expenses and other current liabilities as of December 31, 2018, December 31, 2019 and December 31, 2020.
58
Allowances for Doubtful Accounts
We maintain allowances for estimated losses from bad debt resulting from the inability of our customers to make required payments for products or
services. When evaluating the adequacy of the allowances, we analyze accounts receivable balances, historical bad debt experience, customer
concentrations, customer credit worthiness, and current economic trends. To date, actual bad debts have not differed materially from management’s
estimates.
The following table sets forth the activity in the allowance for doubtful accounts for the years ended December 31, 2020, 2019, and 2018 (in thousands):
Allowance for doubtful accounts – beginning of year
Bad debt expense
Reduction in allowance for doubtful accounts
Allowance for doubtful accounts – end of year
Translation of Foreign Currencies
2020
Year Ended December 31,
2019
2018
$
$
958 $
1,298
(778)
1,478 $
1,339 $
208
(589)
958 $
1,226
119
(6)
1,339
The functional currency of each of our foreign subsidiaries is the local currency, except for the Irish manufacturing branch and Orad Hi-Tech Systems Ltd.
(“Orad”) that we acquired in June 2015. The functional currency for both the Irish manufacturing branch and Orad is the U.S. dollar due to the extensive
interrelationship of the operations of the Irish branch, Orad, and the U.S. parent, and the high volume of intercompany transactions among the two
subsidiaries and the parent. The assets and liabilities of the subsidiaries whose functional currencies are currencies other than the U.S. dollar are translated
into U.S. dollars at the current exchange rate in effect at the balance sheet date. Income and expense items for these entities are translated using rates that
approximate those in effect during the period. Cumulative translation adjustments are included in accumulated other comprehensive income (loss), which is
reflected as a separate component of stockholders’ deficit. We do not record tax provisions or benefits for the net changes in the foreign currency
translation adjustment as we intend to permanently reinvest undistributed earnings in our foreign subsidiaries.
The U.S. parent company, Irish manufacturing branch, and Orad, all of whose functional currency is the U.S. dollar, carry certain monetary assets and
liabilities denominated in currencies other than the U.S. dollar. These assets and liabilities typically include cash, accounts receivable, and intercompany
operating balances denominated in foreign currencies. These assets and liabilities are remeasured into the U.S. dollar at the current exchange rate in effect
at the balance sheet date. Foreign currency transaction and remeasurement gains and losses are included within marketing and selling expenses in the
results of operations.
The U.S. parent company and various other wholly owned subsidiaries have long-term intercompany loan balances denominated in foreign currencies that
are remeasured into the U.S. dollar at the current exchange rate in effect at the balance sheet date. Such loan balances are not expected to be settled in the
foreseeable future. Any gains and losses relating to these loans are included in the accumulated other comprehensive income (loss), which is reflected as a
separate component of stockholders’ deficit.
We have significant international operations and, therefore, our revenues, earnings, cash flows, and financial position are exposed to foreign currency risk
from foreign-currency-denominated receivables, payables, sales and expense transactions, and net investments in foreign operations. We derive more than
half of our revenues from customers outside the United States. The 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 risks that changes in foreign currency could adversely affect our revenues, net
income (loss), cash flow, and financial position. Foreign currency transaction and remeasurement losses and gains are included within marketing and
selling expenses in the results of operations. For the year ended December 31, 2020, 2019, and 2018 we recorded net losses of $0.4 million, $0.6 million,
and $0.5 million respectively, that resulted from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and
liabilities.
59
Cash, Cash Equivalents and Marketable Securities
We measure cash equivalents and marketable securities at fair value on a recurring basis. The cash equivalents and marketable securities consist primarily
of money market investments, mutual funds, and insurance contracts held in deferred compensation plans. The money market investments and mutual
funds held in our deferred compensation plan in the U.S. are reported at fair value within other current assets using quoted market prices with the gains and
losses included as other income (expense) in our statement of operations. The insurance contracts held in the deferred compensation plans for employees in
Israel and Germany are reported at fair value within other long-term assets using other observable inputs. Other than the investments held in our deferred
compensation plans, we held no marketable securities at December 31, 2020 or 2019.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, restricted cash, and accounts receivable.
We place our cash and cash equivalents with financial institutions that management believes to be of high credit quality. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers that make up our customer base and their dispersion across different regions.
No individual customer accounted for 10% or more of our total net revenues or net accounts receivable in the periods presented.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Management regularly reviews inventory
quantities on hand and writes down inventory to our realizable value to reflect estimated obsolescence or lack of marketability based on assumptions about
future inventory demand and market conditions. Inventory in the digital-media market, including our inventory, is subject to rapid technological change or
obsolescence; therefore, utilization of existing inventory may differ from our estimates.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset. We typically depreciate
our property and equipment using the following minimum and maximum useful lives:
Computer and video equipment and software, including internal use software
Manufacturing tooling and testbeds
Office equipment
Furniture, fixtures, and other
Depreciable Life
Minimum
2 years
3 years
3 years
3 years
Maximum
5 years
5 years
5 years
8 years
We capitalize certain development costs incurred in connection with our internal use software. Costs incurred in the preliminary stages of development are
expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized until the software is
substantially complete and ready for its intended use. Capitalized costs are recorded as part of property and equipment. Maintenance and training costs are
expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally three years.
Leasehold improvements are amortized over the shorter of the useful life of the improvement or the remaining term of the lease. Expenditures for
maintenance and repairs are expensed as incurred. Upon retirement or other disposition of assets, the cost and related accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is reflected in “other income, net” in the results of operations.
Acquisition-Related Intangible Assets and Goodwill
Acquisition-related intangible assets consisted of customer relationships, developed technology, trade names, and non-compete agreements. These assets
were determined to have either finite or indefinite lives. For finite-lived intangible assets, amortization was straight-line over the estimated useful lives of
such assets, which are generally two years to 12 years. Straight-line
60
amortization was used because we cannot reliably determine a discernible pattern over which the economic benefits would be realized. We do not have any
indefinite-lived intangible assets.
We account for goodwill under ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. We concluded that we have only one reporting unit and
stockholders’ deficit of $132.9 million as of December 31, 2020. According to the guidance, the goodwill of reporting units with zero or negative carrying
values will not be impaired.
Long-Lived Assets
We periodically evaluate our long-lived assets for events and circumstances that indicate a potential impairment. A long-lived asset is assessed for
impairment when the undiscounted expected future cash flows derived from that asset are less than its carrying value. The cash flows used for this analysis
take into consideration a number of factors including past operating results, budgets and economic projections, market trends, and product development
cycles. The amount of any impairment would be equal to the difference between the estimated fair value of the asset, based on a discounted cash flow
analysis, and its carrying value.
Advertising Expenses
All advertising costs are expensed as incurred and are classified as marketing and selling expenses. Advertising expenses were not material in the periods
presented.
Research and Development Costs
Research and development costs are expensed as incurred. Development costs for software to be sold that are incurred subsequent to the establishment of
technological feasibility, but prior to the general release of the product, are capitalized. Upon general release, these costs are amortized using the straight-
line method over the expected life of the related products, generally 12 to 36 months. The straight-line method generally results in approximately the same
amount of expense as that calculated using the ratio that current period gross product revenues bear to total anticipated gross product revenues. We
periodically evaluate the assets, considering a number of business and economic factors, to determine if an impairment exists. No amounts have been
capitalized during 2020, 2019, and 2018 as the costs incurred subsequent to the establishment of technological feasibility have not been material.
Income Taxes
We account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in our financial statements or tax returns. 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. Deferred tax assets are regularly reviewed 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. We are
required 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.
We account for uncertainty in income taxes recognized in our financial statements by applying a two-step process to determine the amount of tax 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 benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a
greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves
(“unrecognized tax benefits”) that are considered appropriate, as well as the related net interest and penalties.
61
Accounting for Stock-Based Compensation
Our stock-based employee compensation plans allow us to grant stock awards, options, or other equity-based instruments, or a combination thereof, as part
of our overall compensation strategy. For stock-based awards granted, we record stock-based compensation expense based on the grant date fair value over
the requisite service periods for the individual awards, which generally equal the vesting periods. The vesting of stock-based award grants may be based on
time, performance conditions, market conditions, or a combination of time, performance and market conditions. We account for forfeitures when they
occur.
Product Warranties
We provide warranties on externally sourced and internally developed hardware. The warranty period for all of our products is generally 90 days to one
year, but can extend up to five years depending on the manufacturer’s warranty or local law. For internally developed hardware and in cases where the
warranty granted to customers for externally sourced hardware is greater than that provided by the manufacturer, we record an accrual for the related
liability based on historical trends and actual material and labor costs. At the end of each quarter, we reevaluate our estimates to assess the adequacy of the
recorded warranty liabilities and adjusts the accrued amounts accordingly.
Computation of Net Income (Loss) Per Share
Net income (loss) per share is presented for both basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS is
based on the weighted-average number of common shares outstanding during the period, excluding non-vested restricted stock held by employees. Diluted
EPS is based on the weighted-average number of common and potential common shares outstanding during the period. Potential common shares result
from the assumed exercise of outstanding stock options and non-vested restricted stock and restricted stock units, the proceeds and remaining unrecorded
compensation expense of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method. For periods
when we report a loss, all potential common stock is considered anti-dilutive. For periods when we report net income, potential common shares with
combined purchase prices and unamortized compensation costs in excess of our average common stock fair value for the related period or that are
contingently issuable are considered anti-dilutive. Our convertible senior notes were issued in 2015, and we apply the treasury stock method in measuring
the dilutive impact of those potential common shares to be issued.
Accounting for Restructuring Plans
We record facility-related and contract termination restructuring charges in accordance with ASC Topic 420, Liabilities: Exit or Disposal Cost Obligations.
Based on our policies for the calculation and payment of severance benefits, we account for employee-related restructuring charges as an ongoing benefit
arrangement in accordance with ASC Topic 712, Compensation - Nonretirement Postemployment Benefits. Prior to January 1, 2019, we recognized facility-
related restructuring charges upon exiting all or a portion of a leased facility and meeting cease-use and other requirements. The amount of restructuring
charges were based on the fair value of the lease obligation for the abandoned space, which included a sublease assumption that could be reasonably
obtained. Upon adoption of ASC 842 on January 1, 2019, we had facilities restructuring accruals which were reclassified to the right of use asset account.
We revisit right of use (“ROU”) asset value and assess liability based on vacancy and sub-lease in accordance with ASC Topic 842 Leases (“ASC 842”).
Related Party Transactions
From time to time we enter into arrangements with parties which may be affiliated with us, executive officers, and members of our board of directors.
These transactions are primarily comprised of sales transactions in the normal course of business and are immaterial to the financial statements for all
periods presented.
Leases
We have entered into a number of facility leases to support our research and development activities, sales operations, and other corporate and
administrative functions in North America, Europe, and Asia, which qualify as operating leases under U.S. GAAP. We also have a limited number of
equipment leases that also qualify as operating leases. We determine if contracts with vendors
62
represent a lease or have a lease component under U.S. GAAP at contract inception. During 2020, we also entered into a limited number of equipment
leases that qualify as finance leases. Our leases have remaining terms ranging from less than one year to seven years. We lease corporate office space in
Burlington, Massachusetts, which expires in May 2028. Some of our leases include options to extend or terminate the lease prior to the end of the agreed
upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that
we will exercise such options.
Operating lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the
lease commencement date. As our leases generally do not provide an implicit rate, we use an estimated incremental borrowing rate in determining the
present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to
borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. The
operating leases are included in “Right of use assets,” “Accrued expenses and other current liabilities,” and “Long-term lease liabilities” on our
consolidated balance sheets.
Finance lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the
lease commencement date. Each lease agreement provides an implicit discount rate used to determine the present value of future payments. The finance
leases are included in “Other assets”, “Accrued expenses and other current liabilities” and “Other long-term liabilities” on our condensed consolidated
balance sheet.
Lease costs are included within research and development, marketing and selling, and general and administrative lines on the consolidated statements of
operations, and the related cash payments are included in the operating cash flows on the consolidated statements of cash flows. Short-term lease costs,
variable lease costs, finance lease costs, and sublease income are not material.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Related to the adoption of ASC Topic 842 Leases (“ASC 842”), and for leases executed subsequent to the adoption of ASC 842 our policy elections are as
follows:
Separation of lease and non-lease
components
Short-term policy
Non-lease components are excluded from our right of use (“ROU”) assets and lease liabilities and expensed as
incurred.
We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-
term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is
recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not
include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on
the consolidated balance sheets.
Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-13 ("ASU 2016-13") "Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires the measurement and recognition of
expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss
model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary
impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as
a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. We adopted ASU 2016-13 using the
modified retrospective approach as of January 1, 2020. The cumulative effect upon adoption was not material to our consolidated financial statements.
Recent Accounting Pronouncements to be Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-
12”). ASU 2019-12 is intended to enhance and simplify aspects of the income tax accounting guidance in ASC 740 as part of the FASB's simplification
initiative. This guidance is effective for fiscal years and interim periods
63
within those years beginning after December 15, 2020 with early adoption permitted. The Company has determined the impact this guidance may have on
its consolidated financial statements and related disclosures is immaterial.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-
04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease
the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates
to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively
through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related
disclosures.
C. NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is presented for both Basic EPS and Diluted EPS. Basic EPS is based on the weighted-average number of common
shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common shares equivalents outstanding
during the period.
The potential common shares that were considered anti-dilutive securities were excluded from the diluted earnings per share calculations for the relevant
periods either because the sum of the exercise price per share and the unrecognized compensation cost per share was greater than the average market price
of our common stock for the relevant periods, or because they were considered contingently issuable. The contingently issuable potential common shares
result from certain stock options and restricted stock units granted to our employees that vest based on performance conditions, market conditions, or a
combination of performance and market conditions.
When there is a loss from continuing operations, potential common shares should not be included in the computation of Diluted EPS because the exercise
or conversion of any potential shares increases the number of shares in the denominator and results in a lower loss per share. Therefore, all outstanding
stock options and restricted stock units at December 31, 2018 are anti-dilutive and not included in the EPS calculation.
The following table sets forth (in thousands) common shares considered anti-dilutive securities at December 31, 2020, 2019 and 2018.
Options
Non-vested restricted stock units
Anti-dilutive potential common shares
December 31, 2020 December 31, 2019 December 31, 2018
892
2,945
3,837
565
2,642
3,207
4
737
741
The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding at December 31, 2020, 2019, and 2018:
Weighted common shares outstanding - basic
Net effect of common stock equivalents
Weighted common shares outstanding - diluted
2020
2019
2018
43,822
1,056
44,878
42,649
846
43,495
41,662
—
41,662
On June 15, 2015, we issued $125.0 million aggregate principal amount of our 2.00% convertible senior notes due 2020 (the “Notes”) in an offering
conducted in accordance with Rule 144A under the Securities Act of 1933. The Notes were convertible into cash, shares of our common stock, or a
combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment. In connection with the offering
of the Notes, we entered into a capped call transaction with a third party (the “Capped Call”) (see Note Q, Long-Term Debt and Credit Agreement). We use
the treasury stock method in computing the dilutive impact of the Notes. The Notes are convertible into shares but our stock price was less than the
conversion price at December 31, 2019 and 2018, and therefore, the Notes are excluded from diluted income per share. The Capped Call is
64
not reflected in diluted net income (loss) per share as it will always be anti-dilutive. The Notes were fully paid on June 15, 2020 when they came due.
D. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
We measure deferred compensation investments on a recurring basis. At December 31, 2020 and 2019, our deferred compensation investments were
classified as either Level 1 or Level 2 in the fair value hierarchy. Assets valued using quoted market prices in active markets and classified as Level 1 are
money market and mutual funds. Assets valued based on other observable inputs and classified as Level 2 are insurance contracts. The assets held at fair
value are included in “Other current assets” and “Other long-term assets” on our condensed consolidated balance sheet as of December 31, 2020.
The following tables summarize our deferred compensation investments measured at fair value on a recurring basis (in thousands):
Fair Value Measurements at Reporting Date Using
Significant
Other
Observable
Inputs (Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2020
Financial Assets:
Deferred compensation investments
Financial Assets:
Deferred compensation investments
Financial Instruments Not Recorded at Fair Value
$
522 $
282 $
240 $
—
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2019
$
1,156 $
338 $
818 $
—
The carrying amounts of our other financial assets and liabilities including cash, accounts receivable, accounts payable, and accrued liabilities approximate
their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.
E. INVENTORIES
Inventories consisted of the following at December 31, 2020 and 2019 (in thousands):
Raw materials
Work in process
Finished goods
Total
December 31,
2020
2019
$
$
8,223 $
353
17,992
26,568 $
9,036
371
19,759
29,166
At December 31, 2020 and 2019, finished goods inventory included $1.2 million and $1.5 million, respectively, associated with products shipped to
customers or deferred labor costs for arrangements where revenue recognition had not yet commenced.
65
F. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2020 and 2019 (in thousands):
Computer and video equipment and software
Manufacturing tooling and testbeds
Office equipment
Furniture, fixtures and other
Leasehold improvements
Less: accumulated depreciation and amortization
Total
December 31,
2020
2019
$
$
137,489 $
4,781
4,957
10,133
36,784
194,144
177,330
16,814 $
133,695
4,209
4,963
10,425
37,440
190,732
171,152
19,580
We capitalize certain development costs incurred in connection with our internal use software. For the year ended December 31, 2020, we capitalized $1.6
million of contract labor and internal labor costs related to internal use software, and recorded the capitalized costs in computer and video equipment and
software. There were $2.2 million of contract labor and internal labor costs capitalized for the year ended December 31, 2019. Internal use software is
amortized on a straight line basis over its estimated useful life of three years, and we recorded $3.1 million and $1.9 million of amortization expense during
2020 and 2019, respectively.
Depreciation and amortization expense related to property and equipment was $8.5 million and $9.2 million for the years ended December 31, 2020 and
2019, respectively.
G. INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
Amortization expense related to intangible assets in the aggregate was $0.0 million, $4.4 million, and $9.3 million for the years ended December 31, 2020,
2019, and 2018, respectively. As of June 30, 2019, intangible assets were fully amortized.
Goodwill
The acquisition of Orad resulted in goodwill of $32.6 million in 2015. Through the evaluation of the discrete financial information that is regularly
reviewed by the chief operating decision makers (our chief executive officer and chief financial officer), we have determined that we have one reportable
segment. We have stockholders’ deficit of $132.9 million as of December 31, 2020. As the goodwill of our reporting unit has a negative carrying value, it
will not be impaired.
H. LEASES
We used an average incremental borrowing rate of 6% as of January 1, 2019, the adoption date of ASC 842, for our leases that commenced prior to that
date. The weighted-average remaining lease term of our operating leases is six years as of December 31, 2020. Lease costs for minimum lease payments is
recognized on a straight-line basis over the lease term. Our total lease costs were $9.1 million for the year ended December 31, 2020 and related cash
payments were $9.0 million for the year ended December 31, 2020. For the year December 31, 2020, right of use assets obtained in exchange for new
operating lease liabilities was $5.7 million.
The accompanying consolidated results of operations reflect rent expense on a straight-line basis over the term of the leases. Total expense under operating
leases was $10.2 million, $10.3 million, and $9.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.
66
The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases with terms of more than one year to the total
lease liabilities recognized on the consolidated balance sheets as of December 31, 2020 (in thousands):
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less effects of discounting
Total lease liabilities
Reported as of December 31, 2020
Current lease liabilities included in accrued expenses and other current liabilities
Long-term lease liabilities
Other long-term liabilities
Total lease liabilities
Operating Leases
Finance Leases
7,774
6,603
5,665
4,946
5,071
11,758
41,817
(7,485)
34,332 $
5,870
28,462
—
34,332 $
$
$
289
255
226
—
—
—
770
(23)
747
275
—
472
747
Included in the operating lease commitments below are obligations under leases for which we have vacated the underlying facilities as part of various
restructuring plans. These leases expire at various dates through 2026 and represent an aggregate obligation of $2.0 million. We received $0.8 million, $1.3
million, and $1.2 million of sublease income during the years ended December 31, 2020, 2019, and 2018, respectively. The future minimum lease
commitments under non-cancelable leases at December 31, 2020 were as follows (in thousands):
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
Operating Leases
8,558
7,259
6,195
5,383
5,513
11,776
44,684
$
$
$
$
$
$
$
Finance lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the
lease commencement date. Each lease agreement provides an implicit discount rate used to determine the present value of future payments. The weighted-
average discount rate is 2.3% as of September 30, 2020, the commencement date for our leases. The finance leases are included in “Other assets” and
“Other long-term liabilities” on our condensed consolidated balance sheet as of December 31, 2020.
67
I. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31, 2020 and 2019 (in thousands):
Consulting and professional fees
Operating lease liabilities - short term
Accrued royalties
Accrued warranty
Employee restructuring
Sales return & allowance
Other (individual items less than 5% of total current liabilities)
Total
J. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at December 31, 2020 and 2019 (in thousands):
Finance lease liabilities
Deferred compensation
Other long-term liabilities
Total
K. COMMITMENTS AND CONTINGENCIES
Commitments
December 31,
2020
2019
$
$
1,136 $
5,870
3,302
1,095
3,687
9,306
17,868
42,264 $
1,025
6,645
1,549
1,337
157
8,230
17,816
36,759
December 31,
2020
2019
472
5,818
1,496
7,786 $
—
5,186
460
5,646
$
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-year term of the agreement.
We have purchased $3.0 million pursuant to this agreement as of December 31, 2020 to develop Azure-certified solutions.
We have letters of credit that are used as security deposits in connection with our leased Burlington, Massachusetts office space. In the event of default on
the underlying leases, the landlords would, at December 31, 2020, be eligible to draw against the letters of credit to a maximum of $1.3 million in the
aggregate. The letters of credit are subject to aggregate reductions provided that we are not in default under the underlying leases and meets certain
financial performance conditions. In no case will the letters of credit amounts for the Burlington leases be reduced to below $1.2 million in the aggregate
throughout the lease periods.
We also have letters of credit in connection with security deposits for other facility leases totaling $0.6 million in the aggregate, as well as letters of credit
totaling $1.9 million that otherwise support our ongoing operations. These letters of credit have various terms and expire during 2021 and beyond, while
some of the letters of credit may automatically renew based on the terms of the underlying agreements.
We have future minimum lease commitments under non-cancelable leases totaling $44.7 million which are described in detail in Note H, Leases.
68
Purchase Commitments and Sole-Source Suppliers
At December 31, 2020, we entered into purchase commitments for certain inventory and other goods used in our normal operations. The purchase
commitments covered by these agreements are for a period of less than 1 year and in the aggregate total $9.0 million.
We depend on sole-source suppliers for certain key hardware components of our products. 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. We
procure product components and build inventory based on forecasts of product life cycle and customer demand. If we are unable to provide accurate
forecasts or manage inventory levels in response to shifts in customer demand, we may have insufficient, excess, or obsolete product inventory.
Contingencies
Our industry is characterized by the existence of a large number of patents and frequent claims and litigation regarding patent and other intellectual
property rights. In addition to the legal proceedings described above, we are involved in legal proceedings from time to time arising from the normal course
of business activities, including claims of alleged infringement of intellectual property rights and contractual, commercial, employee relations, product or
service performance, or other matters. We do not believe these matters will have a material adverse effect on our financial position or results of operations.
However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, our financial position or results of
operations may be negatively affected by the unfavorable resolution of one or more of these proceedings for the period in which a matter is resolved. Our
results could be materially adversely affected if we are accused of, or found to be, infringing third parties’ intellectual property rights.
Following the termination of our former Chairman and Chief Executive Officer on February 25, 2018, we received a notice alleging that we breached the
former employee’s employment agreement. On April 16, 2019 we received an additional notice again alleging we breached the former employee’s
employment agreement. We have since been in communications with our former Chairman and Chief Executive Officer’s counsel. While we intend to
defend any claim vigorously, when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible losses
that could occur as a result of this matter.
On July 14, 2020, we sent a notice to a customer demanding sums that we believe are due to Avid pursuant to a contract. On October 7, 2020, the customer
sent a notice to us denying any legal liability and demanding payment for breach of contract resulting from various alleged delays by us. While we intend
to defend any claim vigorously when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible
losses that could occur related to this matter.
We consider all claims on a quarterly basis and based on known facts assesses whether potential losses are considered reasonably possible, probable, and
estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our consolidated financial
statements.
We record a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated and
such amount is material. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of
legal counsel, and other information and events pertaining to a particular case.
At December 31, 2020 and as of the date of filing of these consolidated financial statements, we believe that, other than as set forth in this note, no
provision for liability nor disclosure is required related to any claims because: (a) there is no reasonable possibility that a loss exceeding amounts already
recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is
immaterial.
Additionally, we provide indemnification to certain customers for losses incurred in connection with intellectual property infringement claims brought by
third parties with respect to our products. These indemnification provisions generally offer perpetual coverage for infringement claims based upon the
products covered by the agreement and the maximum potential amount of future payments we could be required to make under these indemnification
provisions is theoretically unlimited. To date, we
69
have not incurred material costs related to these indemnification provisions; accordingly, we believe the estimated fair value of these indemnification
provisions is immaterial. Further, certain arrangements with customers include clauses whereby we may be subject to penalties for failure to meet certain
performance obligations; however, we have not recorded any related material penalties to date.
We provide warranties on externally sourced and internally developed hardware. For internally developed hardware and in cases where the warranty
granted to customers for externally sourced hardware is greater than that provided by the manufacturer, we record an accrual for the related liability based
on historical trends and actual material and labor costs. The following table sets forth the activity in the product warranty accrual account for the years
ended December 31, 2020, 2019, and 2018 (in thousands):
Accrual balance at January 1, 2018
Accruals for product warranties
Cost of warranty claims
Accrual balance at December 31, 2018
Accruals for product warranties
Cost of warranty claims
Accrual balance at December 31, 2019
Accruals for product warranties
Cost of warranty claims
Accrual balance at December 31, 2020
L. CAPITAL STOCK
Preferred Stock
$
$
2,545
858
(1,697)
1,706
973
(1,342)
1,337
1,065
(1,307)
1,095
We have authorized up to one million shares of preferred stock, $0.01 par value per share, for issuance. Each series of preferred stock shall have such
rights, preferences, privileges, and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges, and liquidation
preferences, as may be determined by our board of directors (the “Board”).
Stock Incentive Plans
There is an aggregate of 9,440,000 of our shares of $0.01 par value per share common stock authorized and reserved for issuance under the Avid
Technology, Inc. Amended and Restated 2014 Stock Incentive Plan (the “Plan”). The Plan was originally adopted by the Board on September 14, 2014 and
approved by our stockholders on October 29, 2014. In connection with the approval of the Plan, our Amended and Restated 2005 Stock Incentive Plan has
been closed; no additional awards may be granted under that Plan. Shares available for issuance under the Plan totaled 246,000 as of December 31, 2020.
Under the Plan, we may grant stock awards or options to purchase our common stock to employees, officers, directors, and consultants. The exercise price
for options generally must be no less than market price on the date of grant. Awards may be performance-based where vesting or exercisability is
conditioned on achieving performance objectives, time-based, or a combination of both. Current option grants become exercisable over various periods,
typically three years to four years for employees and one year for non-employee directors, and have a maximum term of seven years to ten years. Restricted
stock and restricted stock unit awards with time-based vesting typically vest over three years to four years for employees and one year for non-employee
directors.
We use the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting. The Black-Scholes model relies on
a number of key assumptions to calculate estimated fair value. The assumed dividend yield of zero is based on the fact that we have never paid cash
dividends and has no present expectation to pay cash dividends and our current credit agreement limits our ability to pay dividends. The expected volatility
is based on actual historic stock volatility for periods equivalent to the expected term of the award. The assumed risk-free interest rate is the U.S. Treasury
security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific historical experience considering
the exercise behavior of past grants and models the pattern of aggregate exercises.
70
The fair value of restricted stock and restricted stock unit awards with time-based vesting is based on the intrinsic value of the awards at the date of grant,
as the awards have a purchase price of $0.01 per share.
We also issue option grants or restricted stock unit awards with vesting based on market conditions. Performance-based restricted stock units will vest
based on achievement of our relative total shareholder return against the Russell 2000 Index over a three-year period. The fair values and derived service
periods for all grants that include vesting based on market conditions are estimated using the Monte Carlo valuation method. For stock option grants that
include vesting based on performance conditions, the fair values are estimated using the Black-Scholes option pricing model. For restricted stock unit
awards that include vesting based on performance conditions, the fair values are estimated based on the intrinsic values of the awards at the date of grant, as
the awards have a purchase price of $0.01 per share.
Information with respect to options granted under all stock option plans for the year ended December 31, 2020 was as follows:
Options Outstanding at December 31, 2017
Granted
Exercised
Forfeited or Expired
Options Outstanding at December 31, 2018
Granted
Exercised
Forfeited or Expired
Options outstanding at December 31, 2019
Granted
Exercised
Forfeited or Expired
Options outstanding at December 31, 2020
Exercisable at:
December 31, 2018
December 31, 2019
December 31, 2020
Total Number of
Options
2,290,017
—
—
(1,398,125)
891,892
—
(70,006)
(256,886)
565,000
—
(319,000)
—
246,000
Weighted-
Average
Exercise
Price
$9.65
—
—
10.42
$8.46
—
7.39
10.70
$7.57
—
7.65
—
$7.48
Weighted-
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in thousands)
2.31
1.55
—
—
1.17
$
571
0.44
$
1,358
891,892
565,000
246,000
$8.46
$7.57
$7.48
1.55
1.17
0.44
$—
$571
$1,358
71
The cash received from stock options exercised during the years ended December 31, 2020 and 2019 were $1.6 million and $0.5 million. No stock options
were exercised during 2018
Information with respect to non-vested time-based restricted stock units for the year ended December 31, 2020 was as follows:
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Number of Restricted Stock
Units
1,809,138
1,783,728
(688,106)
(926,084)
1,978,676
1,320,536
(991,819)
(219,460)
2,087,933
1,518,714
(1,193,553)
(298,215)
2,114,879
Weighted-
Average
Grant-Date
Fair Value
$5.49
5.08
5.61
5.42
$5.12
7.33
5.16
5.98
$6.41
7.20
6.33
6.52
7.01
Shares Retained to Cover
Statutory Minimum
Withholding Taxes
213,531
307,005
403,798
Information with respect to non-vested performance-based restricted stock units for the year ended December 31, 2020 was as follows:
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Number of Performance-
based Restricted Stock Units
1,254,110
771,124
—
(1,059,091)
966,143
411,043
(666,451)
(156,470)
554,265
578,316
(328,673)
(150,480)
653,428
Weighted-
Average
Grant-Date
Fair Value
$4.54
4.84
—
4.82
$4.48
7.11
4.48
4.64
$6.39
6.64
5.80
7.11
6.74
Shares Retained to Cover
Statutory Minimum
Withholding Taxes
—
280,613
133,596
The weighted-average grant date fair value of time and performance-based restricted stock units granted during the years ended December 31, 2020, 2019,
and 2018 was $7.05, $7.28, and $5.01, respectively. The total weighted-average fair value of time and performance-based restricted stock units vested
during the years ended December 31, 2020, 2019, and 2018 was $9.5 million, $8.1 million, and $3.9 million, respectively.
72
Employee Stock Purchase Plan
On February 27, 2008, the Board approved our Second Amended and Restated 1996 Employee Stock Purchase Plan (the “ESPP”). On May 27, 2008 our
stockholders approved an increase of the number of shares of our common stock authorized for issuance under the Second Amended and Restated ESPP
from 1,700,000 to 2,500,000 shares. In May 2018, we registered an aggregate of 650,000 of our shares of $0.01 par value per share common stock, which
have been authorized and reserved for issuance under the Avid Technology, Inc. Second Amended and Restated ESPP.
Our Second Amended and Restated ESPP offers our shares for purchase at a price equal to 85% of the closing price on the applicable offering period
termination date. Shares issued under the ESPP are considered compensatory. Accordingly, we are required to measure fair value and record compensation
expense for share purchase rights granted under the ESPP. In July 2015, the Board of Directors approved an amendment to the ESPP to change the
subscription period from three to six months and accordingly to adjust the payroll cap to $5,000 per plan period. A total of 519,182 shares remained
available for issuance under the ESPP at December 31, 2020.
We use the Black-Scholes option pricing model to calculate the fair value of shares issued under the ESPP. The Black-Scholes model relies on a number of
key assumptions to calculate estimated fair values. The following table sets forth the weighted-average key assumptions and fair value results for shares
issued under the ESPP during the years ended December 31, 2020, 2019, and 2018:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
Weighted-average fair value of shares issued (per share)
2020
0.00%
0.82%
72.1%
0.50
$1.40
Year Ended December 31,
2019
0.00%
2.37%
48.6%
0.49
$1.04
2018
0.00%
1.85%
55.3%
0.50
$0.94
The following table sets forth the quantities and average prices of shares issued under the ESPP for the years ended December 31, 2020, 2019, and 2018:
Shares issued under the ESPP
Average price of shares issued
2020
61,750
$8.67
Year Ended December 31,
2019
69,179
$7.48
2018
117,653
$4.22
We did not realize a material tax benefit from the tax deductions for stock option exercises, vested restricted stock units and shares issued under the ESPP
during the years ended December 31, 2020, 2019, or 2018.
Stock-Based Compensation Expense
Stock-based compensation was included in the following captions in our consolidated statements of operations for the years ended December 31, 2020,
2019, and 2018, respectively (in thousands):
73
Share-based compensation expense by type:
Stock Options
Time-based Restricted Stock Units
Performance-based Restricted Stock Units
ESPP
Total Share-based compensation expense
Cost of products revenues
Cost of service revenues
Research and development expenses
Marketing and selling expenses
General and administrative expenses
Total
2020
Year Ended December 31,
2019
2018
— $
8,340
2,211
113
10,664 $
— $
5,900
1,964
94
7,958 $
2020
Year Ended December 31,
2019
2018
513 $
826
1,725
2,176
5,424
10,664 $
343 $
274
1,068
1,797
4,476
7,958 $
—
4,011
2,146
101
6,258
128
194
667
1,540
3,729
6,258
$
$
$
$
At December 31, 2020, there was $13.1 million of total unrecognized compensation cost related to non-vested stock-based compensation awards granted
under our stock-based compensation plans. We expect this amount to be amortized approximately as follows: $8.3 million in 2021, $3.7 million in 2022,
and $1.1 million in 2023. At December 31, 2020, the weighted-average recognition period of the unrecognized compensation cost was approximately one
year.
M. EMPLOYEE BENEFIT PLANS
Employee Benefit Plans
We have a Section 401(k) plan, which we refer to as the 401(k) plan, that covers substantially all U.S. employees. The 401(k) plan allows employees to
make contributions up to a specified percentage of their compensation. We may, upon resolution by our board of directors, make discretionary contributions
to the plan. Our contributions to the 401(k) plan totaled $0.5 million in 2020, and $1.6 million in both 2019 and 2018.
In addition, we have various retirement and post-employment plans covering certain international employees. Certain plans allow us to match employee
contributions up to a specified percentage as defined by the plans. Our contributions to these plans totaled $1.4 million, $1.3 million, and $1.7 million in
2020, 2019, and 2018 respectively.
Deferred Compensation Plans
We maintain a nonqualified deferred compensation plan (the “Deferred Plan”). The Deferred Plan covers senior management and members of the Board. In
November 2013, the Board determined to indefinitely suspend the Deferred Plan and not offer participants the opportunity to participate in the Deferred
Plan as of 2014. The benefits payable under the Deferred Plan represent an unfunded and unsecured contractual obligation to pay the value of the deferred
compensation in the future, adjusted to reflect deemed investment performance. Payouts are generally made upon termination of employment with us. The
assets of the Deferred Plan, as well as the corresponding obligations, were approximately $0.3 million and $0.3 million at December 31, 2020 and 2019,
respectively, and were recorded in “other current assets” and “accrued compensation and benefits” at those dates.
In connection with the acquisition of a business in 2010, we assumed the assets and liabilities of a deferred compensation arrangement for a single
individual in Germany. The arrangement represents a contractual obligation to pay a fixed euro amount for a period specified in the contract. In connection
with the acquisition of Orad, we assumed the assets and liabilities of a deferred compensation arrangement for employees in Israel. Our assets and
liabilities related to the arrangements consisted of assets recorded in “other long-term assets” of $0.2 million at December 31, 2020 and $0.8 million at
December 31, 2019,
74
representing the value of related insurance contracts and investments, and liabilities recorded as “long-term liabilities” of $5.8 million at December 31,
2020 and $5.2 million at December 31, 2019, representing the fair value of the estimated benefits to be paid under the arrangements.
N. INCOME TAXES
On December 22, 2017, the tax act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,
commonly known as the Tax Cuts and Jobs Act (the “TCJA”), was signed into law. The TCJA changed many aspects of U.S. corporate income taxation
and included reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed
repatriated earnings of foreign subsidiaries.
As part of U.S. international tax reform, the TCJA imposes a transition tax on certain accumulated foreign earnings aggregated across all non-U.S.
subsidiaries, net of foreign deficits. We were in an aggregate net foreign deficit position for U.S. tax purposes, and therefore not liable for the transition tax.
Additionally, TCJA repealed the alternative minimum tax (“AMT”) and made existing AMT credit carryovers refundable. Accordingly, at December 31,
2017, we recorded a deferred tax benefit and income tax receivable for our existing AMT credit in the amount of $0.8 million.
The global intangible low-taxed income (“GILTI”) provisions of the TCJA impose a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations. Under U.S. GAAP, we can make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable
income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the measurement of our
deferred taxes (the “deferred method”). During the year ended December 31, 2018 we made a policy election to record tax effects of GILTI as an expense
under the period cost method.
The CARES Act includes several income tax provisions such as net operating loss (“NOL”) carryback and carryforward benefits and other tax deduction
benefits. As noted previously, the U.S. deferred tax asset has a full valuation; accordingly, these NOL and other benefit provisions had no impact on our
financial statements for the period ended December 31, 2020. The CARES Act accelerates the alternative minimum tax (“AMT”) credit refund originally
enacted by the TCJA. As of December 31, 2020, we have received the cash from the Internal Revenue Service associated with this refund receivable which
had been recorded as a long-term asset at December 31, 2019.
75
Income (loss) before income taxes and the components of the income tax provision (benefit) consisted of the following for the years ended December 31,
2020, 2019, and 2018 (in thousands):
Income (loss) from operations before income taxes:
United States
Foreign
Total income (loss) from operations before income taxes
Provision for (Benefit from) income taxes:
Current tax expense (benefit):
Federal
State
Foreign benefit of net operating losses
Other foreign
Total current tax expense
Deferred tax (benefit) expense:
Federal
Other foreign
Total deferred tax (benefit) expense
Total provision for (benefit from) income taxes
2020
Year Ended December 31,
2019
2018
$
$
$
$
9,182 $
3,252
12,434 $
— $
133
(883)
1,295
545
—
827
827
1,372 $
4,311 $
(1,786)
2,525 $
(4) $
58
(462)
1,632
1,224
—
(6,300)
(6,300)
(5,076) $
(1,940)
(7,463)
(9,403)
(1)
59
(206)
1,372
1,224
—
47
47
1,271
76
Net deferred tax assets (liabilities) consisted of the following at December 31, 2020 and 2019 (in thousands):
Deferred tax assets:
Tax credit and net operating loss carryforwards
Allowances for bad debts
Difference in accounting for:
Revenues
Costs and expenses
Inventories
Acquired intangible assets
Long-term lease liabilities
Gross deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities:
Difference in accounting for:
Revenues
Costs and expenses
Inventories
Basis difference convertible notes
Right of use asset
Gross deferred tax liabilities
Net deferred tax assets
Recorded as:
Deferred tax assets, net
Deferred tax liabilities, net
Net deferred tax assets
December 31,
2020
2019
$
254,745 $
47
6,659
23,217
1,466
62
7,432
293,628
(278,785)
14,843
—
(626)
(92)
—
(7,324)
(8,042)
6,801 $
6,801
—
6,801 $
$
$
267,049
69
2,651
19,400
2,282
187
7,605
299,243
(281,568)
17,675
(1,052)
(1,527)
—
(326)
(7,291)
(10,196)
7,479
7,479
—
7,479
Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the
net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. During the year ended
December 31, 2019 we determined that our Irish subsidiary has reached a level of sustained profitability sufficient enough to release a significant portion of
the valuation allowance on its net operating loss carryforward. Accordingly, we reversed a $6.0 million valuation allowance against the Irish subsidiary’s
net operating loss carryforward deferred tax asset. Additionally, during the year ended December 31, 2019 we completed a legal entity reorganization that
reduced the number of our German subsidiaries. This reorganization allowed us to reverse a valuation allowance on the net operating loss carryforward
deferred tax asset of one of the surviving German entities resulting in an increase to the deferred tax asset, net of a provision for related uncertain tax
position, of $1.5 million. Management believes the remaining deferred tax assets, based largely on the history of U.S. tax losses, warrant a valuation
allowance based on the weight of available negative evidence.
For U.S. federal and state income tax purposes at December 31, 2020, we had tax credit carryforwards of $48.6 million, which will expire between 2021
and 2040, and net operating loss carryforwards of $719.9 million, the majority of which will expire between 2021 and 2037.
The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue
Code. We completed an assessment at December 31, 2020 regarding whether there may have been a
77
Section 382 ownership change and concluded that it is more likely than not that none of our net operating loss and tax credit amounts are subject to any
Section 382 limitation.
Additionally, we have foreign net operating loss carryforwards of $107.0 million and capital loss carryforwards of $1.6 million, each with an indefinite
carryforward period and tax credit carryforwards of $6.2 million that begin to expire in 2030. We have determined there is uncertainty regarding the
realization of a portion of these assets and have recorded a valuation allowance against $63.8 million of net operating losses, $1.6 million of capital losses
and $6.2 million of tax credits at December 31, 2020.
Our assessment of the valuation allowance on the 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.
The following table sets forth a reconciliation of our income tax provision (benefit) to the statutory U.S. federal tax amount for the years ended
December 31, 2020, 2019, and 2018:
Statutory tax
Tax credits utilized and expired
Foreign operations
Change in uncertain tax positions
Non-deductible expenses and other
Change in valuation allowance
Provision for (benefit from) income taxes
2020
Year Ended December 31,
2019
2018
$
$
2,611 $
1,356
981
(474)
425
(3,527)
1,372 $
530 $
815
921
11,185
2,474
(21,001)
(5,076) $
(1,975)
1,277
1,854
58
301
(244)
1,271
The increase in our statutory tax is driven by the increase in our income from operations before taxes. The change in our tax credits is driven by expiring
U.S. research and development tax credits exceeding current year tax credits generated. Changes in the jurisdictional mix of our foreign profitability drives
the change in the taxes on foreign operations. The changes in our uncertain tax positions relates to the 2020 settlement of an audit issue in our Israel
subsidiary and in 2019 to our German net operating loss carryforward. As noted above, the deferred tax asset recorded for the German net operating loss
carryforward is recorded net of this uncertain tax position. The changes in our non-deductible expenses was primarily driven by compensation deduction
limitations under Internal Revenue Code section 162(m) in both 2020 and 2019. The 2020 decrease in our valuation allowance was primarily driven by the
decrease of U.S. deferred tax assets and in 2019 by reversal of valuation allowances on our foreign net operating loss carryforwards. In 2019, we have
determined that our Irish subsidiary has reached a level of sustained profitability sufficient enough to release a significant portion of the valuation
allowance on its net operating loss carryforward. Accordingly, we recorded a $6.0 million benefit related to a valuation allowance against the Irish
subsidiary net operating loss carryforward deferred tax asset. Additionally, the reorganization of our German subsidiaries allowed us to reverse a valuation
allowance on the net operating loss carryforward deferred tax asset of one of the surviving German entities. We recorded a gross benefit of $12.6 million
for this release and correspondingly recorded an $11.1 million charge for a related uncertain tax position resulting in a net benefit of $1.5 million.
As a result of TCJA and the current U.S. taxation of deemed repatriated earnings, the additional taxes that might be payable upon repatriation of foreign
earnings are not significant. However, we do not have any current plans to repatriate these earnings because the underlying cash will be used to fund the
ongoing operations of the foreign subsidiaries.
A tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and
penalties as applicable on unrecognized tax positions. At December 31, 2018 and 2019, our unrecognized tax benefits and related accrued interest and
penalties related to an audit issue at our subsidiary in Israel in the amount of $1.8 million, of which $1.8 million would affect our income tax provision and
effective tax rate if recognized. Additionally, during 2019 we had an increase in our unrecognized tax positions of $11.1 million related to our German
subsidiary net operating loss carryforward; this increase relates to the German subsidiary’s legal entity reorganization mentioned above. During 2020, we
reversed the accrual for the unrecognized tax position related to the audit issue at our subsidiary in Israel due to the settlement of the issue. The total
decreases to the value of our unrecognized tax benefits during 2020, including the impacts of any foreign
78
currency revaluations, were $(0.8) million. The balance of the unrecognized benefit at December 31,2020 relates only to the unrecognized tax position
related to our German subsidiary net operating loss carryforward.
The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2020,
2019, and 2018 (in thousands):
Unrecognized tax benefits at January 1, 2018
Decreases for tax positions taken during a prior period
Unrecognized tax benefits at December 31, 2018
Increases for tax positions taken during a prior period
Unrecognized tax benefits at December 31, 2019
Decreases for tax positions taken during a prior period
Unrecognized tax benefits at December 31, 2020
$
$
1,841
(78)
1,763
11,248
13,011
(818)
12,193
We recognize interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax
positions at December 31, 2020 and 2019 were $0 million and $0.4 million, respectively.
The tax years 2010 and forward remain open to examination by taxing authorities in the jurisdictions in which we operate. The most significant operating
jurisdictions include: the United States, Ireland, the Netherlands, Germany, Israel, Japan, and the United Kingdom.
O. RESTRUCTURING COSTS AND ACCRUALS
2016 Restructuring Plan
In February 2016, we committed to a restructuring plan that encompassed a series of measures intended to allow us to more efficiently operate in a leaner,
more directed cost structure. These included reductions in our workforce, consolidation of facilities, transfers of certain business processes to lower cost
regions, and reductions in other third-party services costs.
During the year ended December 31, 2019, we recorded restructuring costs of $0.6 million. The restructuring charges for the year ended December 31,
2019 included $0.6 million of severance costs related to approximately 54 positions eliminated during 2019.
During the year ended December 31, 2018, we recorded restructuring costs of $5.1 million. The restructuring charges for the year ended December 31,
2018 included $3.6 million for the severance costs related to approximately 84 positions eliminated during 2018 and the first quarter of 2019, recoveries of
$(0.1) million of facility restructuring accrual adjustments, and $1.1 million of leasehold improvement write-off resulting from the consolidation of our
facilities in Burlington, Massachusetts.
2020 Restructuring Plan
In October 2020, we committed to a restructuring plan in order to undergo a strategic reorganization of our business. We are making significant changes in
business operations to better support our strategy and overall performance.
During the year ended December 31, 2020, we recorded restructuring costs of $5 million. The restructuring charges for the year ended December 31,
2020 were a result of severance costs related to approximately 93 positions eliminated during 2020.
79
Restructuring Summary
The following table sets forth restructuring expenses recognized for the years ended December 31, 2020, 2019, and 2018 (in thousands):
Employee
Facility
Total facility and employee charges
Other
Total restructuring charges, net
Year Ended December 31,
2019
2020
2018
$
$
4,949 $
97
5,046
—
5,046 $
599 $
5
604
25
629 $
3,641
(104)
3,537
1,611
5,148
The following table sets forth the activity in the restructuring accruals for the years ended December 31, 2020, 2019, and 2018 (in thousands).
Employee-
Related
Facilities-
Related
Total
Accrual balance at December 31, 2017
Restructuring charges and revisions
Accretion
Cash payments
Foreign exchange impact on ending balance
Accrual balance at December 31, 2018
Restructuring charges and revisions
Accretion
Cash payments
Foreign exchange impact on ending balance
Effect of adoption of ASC 842
Accrual balance at December 31, 2019
Restructuring charges and revisions
Accretion
Cash payments
Foreign exchange impact on ending balance
Accrual balance at December 31, 2020
Less: current portion
$
$
$
1,998 $
3,641
—
(3,099)
1
2,541 $
599
—
(2,964)
(21)
—
155 $
4,949
—
(1,461)
44
3,687
3,687
Long-term accrual balance as of December 31, 2020
$
— $
2,479 $
(104)
103
(2,159)
(1)
318 $
—
—
—
—
(318)
— $
—
—
—
—
—
—
— $
4,477
3,537
103
(5,258)
—
2,859
599
—
(2,964)
(21)
(318)
155
4,949
—
(1,461)
44
3,687
3,687
—
The employee-related accruals at December 31, 2020 represent severance costs to former employees that will be paid out within 12 months, and are,
therefore, included in the caption “accrued expenses and other current liabilities” in our consolidated balance sheets.
P. REVENUE
Revenue Components and Performance Obligations
80
Video Products and Solutions
We offer a wide range of video products and solutions in connection with our sales of storage and workflow solutions, our media management solutions,
and our video creative tools, which include our Media Composer, NEXIS, Airspeed, Maestro, and MediaCentral product lines that consist of software
licenses or integrated hardware and software solutions. We sell these products to customers under a contract or signed quote and payment terms are
generally 30 to 60 days from delivery. Each individual product sold to a customer represents a distinct performance obligation for us and revenue is
recognized at the point in time when control of the product transfers, which is typically when the product is shipped to the customer or, in the case of
certain software licenses, when the software license term commences and is accessible by the customer.
Audio Products and Solutions
We offer a wide range of audio products and solutions in connection with our sales of digital audio software and workstation solutions and our control
surfaces, consoles and live-sound systems, which include our Pro Tools, Pro Tools HD, Pro Tools | S6, VENUE | S6L, and Sibelius product lines that
consist of software licenses or integrated hardware and software solutions. We sell these products to customers under a contract or signed quote and
payment terms are generally 30 to 60 days from delivery. Each individual product sold to a customer represents a distinct performance obligation for us and
revenue is recognized at the point in time when control of the product transfers, which is typically when the product is shipped to the customer or, in the
case of certain software licenses, when the software license term commences and is accessible by the customer.
Subscription Services
We offer subscription versions of many of our software products with monthly, annual and multi-year terms. While we are beginning to offer subscription
versions for most of our product portfolio in connection with our cloud strategy, current subscription sales primarily consist of our Media Composer, Pro
Tools, and Sibelius offerings. We sell these products to customers under standard terms and conditions and payment is due upfront, except for webstore
transactions which are billed monthly. Contract assets for annual and multi-year subscriptions billed monthly are recorded on our balance sheet upon
customer commitment, net of expected early cancellations where we estimate variable consideration based on historical experience. 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 estimated SSP of the right to use the licensed software is
recognized at a point in time once control has been transferred and the customer has the ability to access the software. Stand-ready performance obligations
related to Software Updates and call support are satisfied over time and revenue is recognized ratably over the term of the subscription.
Support Services
We offer support contracts, which are typically annual, for our video and audio products. Support contracts for individual products are sold bundled with
initial product offerings or as renewals once initial contracts have lapsed. Support contracts are also sold on an enterprise basis where a customer purchases
support for all Avid products owned. Support contracts are provided under our standard terms and conditions and payment is due in advance of the support
being provided. Support contracts include stand-ready performance obligations to provide (i) Software Updates, (ii) call support, and (iii) hardware
maintenance. Support contract performance obligations are satisfied over time and revenue is recognized ratably over the term of the support contract.
Historically, for many of our products, we had an ongoing practice of making when-and-if-available Software Updates available to customers free of charge
for a period of time after initial sales to customers. The expectation created by this practice represents an implied performance obligation of a form of post-
contract customer support (“Implied Maintenance Release PCS”) which represents a performance obligation. While we have ceased providing Implied
Maintenance Release PCS on new product offerings, we continue to provide Implied Maintenance Release PCS for older products that were predominately
sold in prior years. Revenue attributable to Implied Maintenance Release PCS performance obligations is recognized over time on a ratable basis over the
period that Implied Maintenance Release PCS is expected to be provided, which is typically six years.
Professional Services, Training, and Other
We sell a variety of professional services, training, and other services that complement product and support offerings. Professional services consist
primarily of standard configuration, commissioning (i.e., setting up equipment purchased) and on-air
81
support (i.e., monitoring a customer’s production environment available during initial system go-live, live sporting events, etc.) and providing
customization services for some of our products. We also offer training and certification programs for many of our products and workflows. Other revenues
include shipping and handling charges and reimbursable travel expenses. We sell professional services, training and other services under a contract or
signed quote, and for larger projects, statements of work that outline the customer’s specifications and requirements. Services are primarily sold on a time
and materials basis, however, fixed fee arrangements are also executed from time to time. Payments are generally billed upon completion of the service or,
for larger projects, on an installment basis as services are rendered. While the nature of service deliverables can vary significantly, each service deliverable
generally represents a distinct performance obligation and revenue is recognized over time, typically in proportion of the total hours incurred as a
percentage of total estimated hours required to complete the project.
Enterprise Agreements
From time to time, we enter into enterprise wide agreements whereby the customer agrees to purchase specified products and services from us 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 relative estimated SSP. Once the transaction price is allocated to individual
performance obligations, the components are recognized in the respective categories of revenue above consistent with the timing of the recognition of
performance obligations described therein.
Disaggregated Revenue and Geography Information
The following is a summary of our revenues by type for the years ended December 31, 2020, 2019, and 2018 (in thousands):
Video products and solutions net revenues
Audio products and solutions net revenues
Products and solutions net revenues
Subscription services
Support services
Professional services, training and other services
Services net revenues
Total net revenues
2020
Year Ended December 31,
2019
2018
$
$
77,232 $
63,530
140,762
72,831
124,175
22,698
219,704
360,466 $
131,225 $
76,220
207,445
45,181
130,443
28,719
204,343
411,788 $
132,276
72,831
205,107
35,888
139,205
33,082
208,175
413,282
The following table sets forth our revenues by geographic region for the years ended December 31, 2020, 2019, and 2018 (in thousands):
Revenues:
United States
Other Americas
Europe, Middle East and Africa
Asia-Pacific
Total net revenues
Contract Asset
2020
Year Ended December 31,
2019
2018
$
$
143,518 $
24,026
142,370
50,552
360,466 $
152,012 $
32,783
161,764
65,229
411,788 $
150,877
27,494
172,238
62,673
413,282
Contract asset activity for the years ended December 31, 2020 and 2019 was as follows (in thousands):
82
Contract asset at January 1, 2020
Revenue in excess of billings
Customer billings
Contract asset at December 31, 2020
December 31, 2020
December 31, 2019
$
$
19,494 $
32,005
(32,920)
18,579 $
16,513
30,715
(27,734)
19,494
The decrease in contract assets during the year ended December 31, 2020 is due to the timing of payments due under our enterprise network agreements
which predominately are payable annually, whereas performance obligations are fulfilled on a continuous basis partially offset by continued growth in our
subscription offerings.
Deferred Revenue
Deferred revenue activity for the years ended December 31, 2020 and 2019 was as follows (in thousands):
Deferred revenue at January 1, 2020
Billings deferred
Recognition of prior deferred revenue
Deferred revenue at December 31, 2020
December 31, 2020
December 31, 2019
$
$
97,901 $
72,633
(71,276)
99,258 $
99,601
76,665
(78,365)
97,901
A summary of the performance obligations included in deferred revenue as of December 31, 2020 is as follows (in thousands):
Product
Subscription
Support Contracts
Implied Maintenance Release PCS
Professional services, training and other
Deferred revenue at December 31, 2020
Remaining Performance Obligations
December 31, 2020
6,636
5,736
75,555
8,426
2,905
99,258
$
$
For transaction prices allocated to remaining performance obligations, we apply practical expedients and do not disclose quantitative or qualitative
information for remaining performance obligations (i) that have original expected durations of one year or less and (ii) where we recognize revenue equal
to what we have the right to invoice and that amount corresponds directly with the value to the customer of our performance to date.
We have remaining performance obligations of $8.4 million attributable to Implied Maintenance Release PCS recorded in deferred revenue as of
December 31, 2020. We expect to recognize revenue for these remaining performance obligations of $3.4 million, $2.1 million, $1.4 million, $0.9 million,
and $0.5 million for the years ended December 31, 2021, 2022, 2023, 2024, and 2025, respectively, and $0.1 million thereafter.
As of December 31, 2020, we had approximately $46.2 million of transaction price allocated to remaining performance obligations for certain enterprise
agreements that have not yet been invoiced and are therefore not recorded as deferred revenue on our balance sheet. Unbilled remaining performance
obligations represent obligations we have to deliver for specific products and services in the future where there is not yet an enforceable right to invoice the
customer. Our unbilled remaining performance obligations do not include contractually committed minimum purchases that are common in our strategic
purchase agreements with resellers since our specific obligations to deliver products or services is not yet known, as customers may satisfy such
commitments by purchasing an unknown combination of current or future product offerings. While the timing of fulfilling individual performance
obligations under the contracts can vary dramatically based on customer requirements, we expect to recognize the $53.3 million in installments through
2026.
83
Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations due to contract breach,
contract amendments and changes in the expected timing of delivery.
Q. LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consisted of the following (in thousands):
Term loan, net of unamortized debt issuance costs of $2,579 at December 31, 2020 and $3,334 at December 31,
2019, respectively
Notes, net of unamortized original issue discount and debt issuance costs of $0 at December 31, 2020 and $680
at December 31, 2019, respectively
PPP Loan
Other long-term debt
Total debt
Less: current portion
Total long-term debt
December 31,
2020
December 31,
2019
$
198,629 $
200,105
—
7,800
1,271
207,700
4,941
202,759 $
28,187
—
1,296
229,588
30,554
199,034
$
The following table summarizes the maturities of our borrowing obligations as of December 31, 2020 (in thousands):
Fiscal Year
Term Loan
PPP Loan
Other Long-
Term Debt
Total
2021
2022
2023
2024
2025
Thereafter
Total before unamortized discount
Less: unamortized discount and issuance costs
Less: current portion of long-term debt
Total long-term debt
2.00% Convertible Senior Notes due 2020
$
$
4,781 $
6,375
190,052
—
—
—
201,208
2,579
4,781
193,848 $
— $
7,800
—
—
—
—
7,800
—
—
7,800 $
160 $
172
184
197
212
346
1,271
—
160
1,111 $
4,941
14,347
190,236
197
212
346
210,279
2,579
4,941
202,759
On June 15, 2015, we issued $125.0 million aggregate principal amount of our 2.00% Convertible Senior Notes, or the Notes, due 2020 in an offering
conducted in accordance with Rule 144A under the Securities Act of 1933. The net proceeds from the offering were $120.3 million after deducting the
offering expenses.
Interest accrued on the Notes at an annual rate of 2.00%, payable semi-annually on June 15 and December 15 of each year. Additional interest was payable
upon the occurrence of certain events of default relating to our failure to deliver certain documents or reports to the Trustee, our failure to timely file any
document or report required pursuant to Section 13 or 15(d) of the Exchange Act, or if the Notes were not freely tradable as of one year after the last date
of original issuance of the Notes. The Notes were convertible into cash, shares of our common stock, or a combination of cash and shares of common
stock, at our election, based on an initial conversion rate, subject to adjustment, of 45.5840 shares per $1,000 principal amount of Notes, which is equal to
an initial conversion price of $21.94 per share. Prior to December 15, 2019, the Notes were convertible only in the following circumstances: (1) during any
calendar quarter commencing after September 30, 2015, if the last reported sale price of our common stock is greater than or equal to 130% of the
applicable conversion price for at least 20 trading days during a period
84
of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) during the five business day period after any five
consecutive trading day period (the “Measurement Period”) in which the trading price per $1,000 principal amount of Notes for each trading day in the
Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day; or
(3) upon the occurrence of specified corporate transactions. On or after December 15, 2019 until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders had the right to convert their Notes at any time, regardless of the foregoing circumstances. We were not
permitted to redeem the Notes prior to their maturity.
The Notes were senior unsecured obligations. Upon the occurrence of certain specified fundamental changes, the holders had the right to require us to
repurchase all or a portion of the Notes for cash at 100% of the principal amount of the Notes being purchased, plus any accrued and unpaid interest.
In accounting for the Notes at issuance, we allocated proceeds from the Notes into debt and equity components according to the accounting standards for
convertible debt instruments that may be fully or partially settled in cash upon conversion. The initial carrying amount of the debt component, which
approximates its fair value, was estimated by using an interest rate for nonconvertible debt, with terms similar to the Notes. The excess of the principal
amount of the Notes over the fair value of the debt component was recorded as a debt discount and a corresponding increase in additional paid-in capital.
The debt discount is accreted to the carrying value of the Notes over their term as interest expense using the interest method. Upon issuance of the Notes,
we recorded $96.7 million as debt and $28.3 million as additional paid-in capital in stockholders’ equity. The effective interest rate used to estimate the fair
value of the debt was 7.66%.
We incurred transaction costs of $4.7 million relating to the issuance of the Notes. In accounting for these costs, we allocated the costs of the offering
between debt and equity in proportion to the fair value of the debt and equity recognized. The transaction costs allocated to the debt component of
approximately $3.6 million were recorded as a direct deduction from the face amount of the Notes and are being amortized as interest expense over the
term of the Notes using the interest method. The transaction costs allocated to the equity component of approximately $1.1 million were recorded as a
decrease in additional paid-in capital.
During 2017, we purchased 2,000 of our 125,000 outstanding Notes and settled $2.0 million of the Notes for $1.7 million in cash. We recorded $2.0 million
extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial loss on the extinguishment of debt.
During 2018, we purchased an additional 16,247 of our 123,000 outstanding Notes and settled another $16.2 million of the Notes for $14.7 million in cash.
We recorded $16.2 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial gain on the extinguishment of debt.
On January 22, 2019, we purchased an additional 3,900 of our 106,753 outstanding Notes and settled another $3.9 million of the Notes for $3.6 million in
cash.
On April 11, 2019, we announced the commencement of a cash tender offer (the “Offer”) for any and all of our outstanding Notes. On May 9, 2019, as of
the expiration of the Offer, Notes with an aggregate principal amount of $74.0 million were validly tendered. We accepted for purchase all Notes that were
validly tendered at the expiration of the Offer at a purchase price equal to $982.5 per $1,000 principal amount of Notes, and settled the Offer on May 13,
2019 for $72.7 million in cash. We repurchased 73,986 Notes, recorded $74.0 million extinguishment of debt, $0.6 million of equity reacquisition, and a
$2.9 million loss on the extinguishment of debt. In connection with the Offer, the number of options under the Capped Call was reduced to 28,867 to mirror
the remaining principal outstanding for the Notes, and an immaterial partial unwind cash payment was received in May 2019.
On June, 15, 2020, the maturity date of the Notes, we fully repaid the outstanding principal and unpaid interest on the Notes. In connection with such
repayment, we unwound the Capped Call.
For the years ended December 31, 2020 and 2019, we recorded debt discount accretion of $0.7 million and $3.3 million, respectively, as interest expense in
our statement of operations. Total interest expense for the years ended December 31, 2020 and 2019 was $0.9 million and $4.4 million, respectively,
reflecting the coupon and accretion of the discount.
Capped Call Transaction
85
In connection with the offering of the Notes, on June 9, 2015, we entered into a capped call derivative transaction with a third party (the “Capped Call”).
The Capped Call was designed generally to reduce the potential dilution to the common stock and/or offset any cash payments we may have been required
to make in excess of the principal amount upon conversion of the Notes in the event that the market price per share of the common stock is greater than the
strike price of the Capped Call. The Capped Call had a strike price of $21.94 and a cap price of $26.00 and was exercisable by us when and if the Notes
were converted. We paid $10.1 million for the Capped Call and recorded the payment as a decrease to additional paid-in capital.
In connection with the repurchase of 96,133 of the Notes in 2017, 2018, and 2019, we entered into partial unwind agreements with the third party, as a
result of which the number of options under the original Capped Call transaction was reduced from 125,000 to 28,867. The capped call expired on June 15,
2020.
Financing Agreement
On February 26, 2016, we entered into a Financing Agreement (the “Financing Agreement”) with Cerberus Business Finance, LLC, as collateral and
administrative agent, and the lenders party thereto (the “Lenders”). The Lenders agreed to provide us with (a) a term loan in the aggregate principal amount
of $100.0 million (the “Term Loan”) and (b) a revolving credit facility (the “Credit Facility”) of up to a maximum of $5.0 million in borrowings
outstanding at any time. We granted a security interest on substantially all of our assets to secure the obligations under the Credit Facility and the Term
Loan. We were permitted to prepay all or any portion of the Term Loan prior to its stated maturity, subject to the payment of certain fees based on the
amount repaid. The Term Loan also required us to use 50% of excess cash, as defined in the Financing Agreement, to repay outstanding principal of the
loans under the Financing Agreement. The Financing Agreement contained customary representations and warranties, covenants, mandatory prepayments,
and events of default under which our payment obligations would have been be accelerated. We were in compliance with the Financing Agreement
covenants as of December 31, 2020.
On November 9, 2017, we entered into an amendment to the Financing Agreement. The amendment extended an additional $15.0 million term loan to us,
thereby increasing the aggregate principal amount of the Term Loan to $115.0 million. The amendment also increased the amount of available revolving
credit by $5.0 million to an aggregate amount of $10.0 million. The amendment also granted us the ability to use up to $15.0 million to purchase Notes and
modified the definition of consolidated EBITDA used in the Leverage Ratio calculation to adjust for expected changes in deferred revenue due to the
adoption of ASC 606.
On May 10, 2018, we entered into an amendment to the Financing Agreement that extended the maturity of the Financing Agreement to May 2023, and
increased the Term Loan by $22.7 million and the amount available under the Credit Facility by $12.5 million to an aggregate amount of $22.5 million.
On April 8, 2019, we entered into an amendment to the Financing Agreement. The amendment provided for an additional delayed draw term loan
commitment in the aggregate principal amount of $100.0 million, or the Delayed Draw Funds, for the purpose of funding the purchase of a portion of the
Notes in a tender offer. On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. We used $72.7 million of the Delayed
Draw Funds for the purchase of a portion of the Notes, $0.6 million for the Notes interest payment, and $6.0 million for the payment of refinancing fees.
On June 18, 2019, we repaid $20.7 million of the Delayed Draw Funds. The $79.3 million Delayed Draw Funds borrowed would have matured on May 10,
2023 under the Financing Agreement.
The Financing Agreement amendment effective April 8, 2019 was accounted for as a debt modification, and therefore, $1.6 million of the refinancing fees
paid directly to the Lenders was recorded as deferred debt issuance costs, and $4.4 million of the refinancing fees paid to the third parties was expensed.
The Company drew down $22.0 million under the Credit Facility during March 2020. During September 2020, we repaid the outstanding balance of $22.0
million under the Credit Facility, and as of December 31, 2020 there were no amounts outstanding under the Credit Facility. We recognized $0.8 million of
interest related to the Facility during the year ended December 31, 2020. We recorded $16.2 million of interest expense on the Term Loan for the year
ended December 31, 2020.
As a subsequent event, all borrowings under the Financing Agreement were repaid in full and the Financing Agreement was terminated on January 5, 2021
in connection with the Company entering into the Credit Agreement.
86
Credit Agreement
On January 5, 2021 the Company entered into Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. and a syndicate of banks, as
collateral and administrative agent, and the lenders party thereto (the “New Lenders”). Pursuant to the Credit Agreement, the New Lenders agreed to
provide the Company with (a) a term loan in the aggregate principal amount of $180 million (the “New Term Loan”) and (b) a revolving credit facility (the
“New Credit Facility”) of up to a maximum of $70 million in borrowings outstanding at any time. The proceeds from the New Term Loan, plus available
cash on hand, were used to repay outstanding borrowings of $201 million under the Company’s existing credit facility with Cerberus Business Finance,
LLC, which was then terminated. The new revolving credit facility, which was undrawn at closing, can be used for working capital, other general corporate
purposes and for other permitted uses.
The New Term Loan has an initial interest rate of LIBOR plus an applicable margin of 3.00%, with a 0.25% LIBOR floor. The applicable margin on the
term loan and the revolving credit facility ranges from 2.00% to 3.25%, depending on leverage.
The New Term Loan requires quarterly principal payments commencing in March 2021 equal to 5.0% of the original principal amount of the New Term
Loan in years 1 and 2, 7.5% of the original principal amount of the New Term Loan in year 3, and 10% of the original principal amount of the New Term
Loan in years 4 and 5, with the remaining aggregate principal amount due at maturity.
The Company granted a security interest on substantially all of their assets to secure the obligations under the New Credit Facility and the New Term Loan.
The Credit Agreement contains two financial covenants: (i) a requirement to maintain a total net leverage ratio, as defined in the credit agreement, of no
more than 4.00 to 1.00 through June 30, 2021, with step downs thereafter, and (ii) a requirement to maintain a fixed charge covenant ratio, as defined in the
credit agreement, of no less than 1.20 to 1.00. Both the New Term Loan and the revolving New Credit Facility mature on January 5, 2026.
PPP Loan
On May 11, 2020, the Company received $7.8 million of proceeds in connection with its incurrence of a loan under the PPP which was created through the
Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The application for
these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing
operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other
sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and
the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness
of such loan based on our future adherence to the forgiveness criteria. The loan has a fixed interest rate of 1% and matures in two years. Interest payments
are deferred for six months. We recognized an immaterial amount of interest expense related to the loan during the year ended December 31, 2020.
Pursuant to the CARES Act and implementing rules and regulations, the Company has applied to the SBA for the PPP loan to be forgiven. The Company
has used the proceeds of the PPP loan for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will
meet the conditions for forgiveness of the loan, the Company cannot assure that it will be eligible for forgiveness of the loan, in whole or in part. Any PPP
loan balance remaining following forgiveness by the SBA will be fully repaid on or before the maturity date of the loan.
87
R. QUARTERLY RESULTS (UNAUDITED)
The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all normal
recurring adjustments necessary for a fair presentation of such information.
(In thousands, except per share data)
2020
2019
Quarter Ended
Net revenues
Cost of revenues
Amortization of intangible assets
Gross profit
Operating expenses:
Research and development
Marketing and selling
General and administrative
Amortization of intangible assets
Restructuring costs (recoveries), net
Total operating expenses
Operating income (loss)
Interest and other expense, net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share – basic
Net income (loss) per share – diluted
Dec. 31
Sept. 30
June 30
Mar. 31
Dec. 31
Sept. 30
June 30
Mar. 31
$
$
104,301
38,951
—
65,350
14,902
22,660
12,908
—
4,038
54,508
10,842
(3,929)
6,913
(174)
7,087
0.16
0.16
$
$
$
$
$
$
90,431
32,174
—
58,257
13,623
19,998
10,796
—
723
45,140
13,117
(4,423)
8,694
707
7,987
0.18
0.18
$
$
$
$
79,281
27,719
—
51,562
13,068
19,690
10,604
—
140
43,502
8,060
(5,498)
2,562
717
1,845
0.04
0.04
$
$
$
$
86,453
33,302
—
53,151
15,425
25,289
12,744
—
145
53,603
(452)
(5,283)
(5,735)
122
(5,857)
(0.14)
(0.13)
$
$
116,306
43,033
—
73,273
16,018
26,603
14,816
—
113
57,550
15,723
(5,584)
10,139
(5,231)
15,370
0.36
0.35
$
$
$
$
$
$
93,461
35,603
—
57,858
14,860
22,334
12,034
—
229
49,457
8,401
(5,519)
2,882
(283)
3,165
0.07
0.07
$
$
$
$
$
98,701
40,253
1,788
56,660
103,319
40,087
1,950
61,282
15,180
26,129
12,722
331
(269)
54,093
2,567
(13,290)
(10,723)
—
(10,723)
(0.25)
(0.25)
$
$
$
16,285
24,878
13,788
363
558
55,872
5,410
(5,185)
225
438
(213)
(0.01)
(0.01)
Weighted-average common shares outstanding – basic
Weighted-average common shares outstanding – diluted
44,288
45,541
44,019
44,758
43,719
44,180
43,254
44,101
43,060
43,737
42,913
43,674
42,560
42,560
42,046
42,046
88
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure
controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and
procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to
our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of December 31, 2020. Management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our management concluded that, as of December 31, 2020, these disclosure
controls and procedures were effective at a reasonable level of assurance.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the
Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial
officers, or persons performing similar functions, and effected by our board of directors, management, and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
GAAP, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material effect on the financial statements.
Because of inherent limitations, no matter how well designed and operated, internal control over financial reporting may not prevent or detect
misstatements and can only provide reasonable assurance of achieving the desired control objectives. In addition, the design of internal control over
financial reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits
of possible controls and procedures relative to their costs.
Our Chief Executive Officer and Chief Financial Officer have performed an evaluation of our internal control over financial
reporting under the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over
financial reporting was effective at December 31, 2020. Based on the results of this evaluation, we have concluded that our internal control over financial
reporting was effective at December 31, 2020.
89
Our independent registered public accounting firm, BDO USA, LLP, has audited our consolidated financial statements and has issued an attestation report
on our internal control over financial reporting as of December 31, 2020, which report is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in
designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any
system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate
for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.
90
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Avid Technology, Inc.
Burlington, Massachusetts
Opinion on Internal Control over Financial Reporting
We have audited Avid Technology, Inc. and subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss),
stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 9,
2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal Control over Financial Reporting”. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Boston, Massachusetts
March 9, 2021
91
ITEM 9B. OTHER INFORMATION
Not Applicable.
92
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
We have adopted a Code of Business Conduct and Ethics applicable to all our employees, including our principal executive officer, principal financial
officer, and principal accounting officer. We will provide any person, without charge, with a copy of our Code of Business Conduct and Ethics upon written
request to Avid, 75 Network Drive, Burlington, MA 01803, Attention: Corporate Secretary. Our Code of Business Conduct and Ethics is also available in
the Investor Relations section of our website at www.avid.com. If we were to amend or waive any provision of our Code of Business Conduct and Ethics
applicable to any of our principal executive officers, our principal financial officer, our principal accounting officer, or any person performing similar
functions, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our Internet
website set forth above rather than by filing a Form 8-K.
The remainder of the response to this item will be contained in our Proxy Statement for our 2021 Annual Meeting of Stockholders, or the 2021 Proxy
Statement, under the captions “Directors,” “Executive Officers,” “Delinquent 16(a) Reports,” “Board Committees,” and “Director Nomination Process,” all
of which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be contained in our 2021 Proxy Statement under the captions “Director Compensation,” “Executive Compensation,”
“Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The response to this item will be contained in our 2021 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and
Management” and is incorporated herein by reference.
The disclosures required for securities authorized for issuance under equity compensation plans will be contained in the 2021 Proxy Statement under the
caption “Equity Compensation Plan Information” and are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The response to this item will be contained in our 2021 Proxy Statement under the captions “Board Committees” and “Related Person Transaction Policy”
and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The response to this item will be contained in our 2021 Proxy Statement under the caption “Independent Registered Public Accounting Firm Fees” and is
incorporated herein by reference.
93
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1.
FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
- Reports of Independent Registered Public Accounting Firms
- Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018
- Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019, and 2018
- Consolidated Balance Sheets as of December 31, 2020 and 2019
- Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2020, 2019, and 2018
- Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
- Notes to Consolidated Financial Statements
(a) 3.
LISTING OF EXHIBITS. The list of exhibits, which are filed or furnished with this report or are incorporated herein by reference, is set forth in
the Exhibit Index immediately preceding the exhibits and is incorporated herein by reference.
94
EXHIBIT INDEX
Incorporated by Reference
Filed with
this Form
10-K
Form or
Schedule
8-K
SEC Filing
Date
July 27, 2005
SEC File
Number
000-21174
10-Q
8-K
10-K
S-1
8-K
10-K
8-K
November 14, 2005
000-21174
October 21, 2011
March 9, 2020
000-21174
001-36254
March 11, 1993*
033-57796
January 7, 2014
000-21174
March 9, 2020
001-36254
November 25, 2009
000-21174
8-K
November 25, 2009
000-21174
10-K
10-K
10-K
10-K
10-Q
10-K
10-K
10-K
10-Q
10-K
10-K
February 29, 2008
March 16, 2010
000-21174
000-21174
September 12, 2014
001-36254
March 27, 1998
May 14, 1997
February 29, 2008
March 16, 2005
March 16, 2005
August 7, 2008
September 12, 2014
000-21174
000-21174
000-21174
000-21174
000-21174
000-21174
001-36254
September 12, 2014
001-36254
10-K
September 12, 2014
001-36254
Exhibit
No.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
10.1
10.2
#10.3
#10.4
#10.5
#10.6
#10.7
#10.8
#10.9
#10.10
#10.11
#10.12
#10.13
#10.14
Description
Certificate of Amendment of the Third Amended and
Restated Certificate of Incorporation of the Registrant
Third Amended and Restated Certificate of Incorporation of
the Registrant
Amended and Restated By-Laws of the Registrant
Amendment to Amended and Restated By-Laws of the
Registrant
Specimen Certificate representing the Registrant’s Common
Stock
Amended Certificate of Designations, Preferences and Rights
of Series A Junior Participating Preferred Stock
Description of Securities Registered Under Section 12 of the
Securities Exchange Act of 1934
Network Drive at Northwest Park Office Lease dated as of
November 20, 2009 between Avid Technology, Inc. and
Netview 5 and 6 LLC (for premises at 65 Network Drive,
Burlington, Massachusetts)
Network Drive at Northwest Park Office Lease dated as of
November 20, 2009 between Avid Technology, Inc. and
Netview 1,2,3,4 & 9 LLC (for premises at 75 Network Drive,
Burlington, Massachusetts)
1993 Director Stock Option Plan, as amended
Second Amended and Restated 1996 Employee Stock
Purchase Plan, as amended
Amendment No #2 to Second Amended and Restated 1996
Employee Stock Purchase Plan, as amended
1997 Stock Option Plan
1997 Stock Incentive Plan, as amended
Second Amended and Restated Non-Qualified Deferred
Compensation Plan
1998 Stock Option Plan
Amended and Restated 1999 Stock Option Plan
Amended and Restated 2005 Stock Incentive Plan
Amendment No. 1 to Amended and Restated 2005 Stock
Incentive Plan
Form of Incentive Stock Option Agreement under the
Registrant’s Amended and Restated 2005 Stock Incentive
Plan
Form of Nonstatutory Stock Option Agreement under the
Registrant’s Amended and Restated 2005 Stock Incentive
Plan
95
#10.15
#10.16
#10.17
#10.18
#10.19
#10.20
#10.21
#10.22
#10.23
#10.24
#10.25
#10.26
#10.27
#10.28
10.29
10.30
#10.31
10.32
10.33
#10.34
Form of Nonstatutory Stock Option Agreement for Outside
Directors under the Registrant’s Amended and Restated 2005
Stock Incentive Plan
Form of Restricted Stock Unit Agreement under the
Registrant’s Amended and Restated 2005 Stock Incentive
Plan
Form of Restricted Stock Unit Agreement for Outside
Directors under the Registrant’s Amended and Restated 2005
Stock Incentive Plan
Form of Stock Option Agreement for UK Employees under
the HM Revenue and Customs Approved Sub-Plan for UK
Employees under the Registrant’s Amended and Restated
2005 Stock Incentive Plan
Form of Nonstatutory Stock Option Grant Terms and
Conditions (under the 1997 Stock Incentive Plan)
Form of Incentive Stock Option Grant Terms and Conditions
(under the 1997 Stock Incentive Plan)
2014 Stock Incentive Plan
Form of Restricted Stock Unit Agreement under the
Registrant’s Amended and Restated 2014 Stock Incentive
Plan
Form of NSO Agreement under the Registrant’s 2014 Stock
Incentive Plan
Form of ISO/NSO Agreement under the Registrant’s 2014
Stock Incentive Plan
Form of Executive Officer Employment Letter as of January
1, 2012
Summary of 2013 Annual Executive Incentive Program
2013 Remediation Bonus Plan
Summary of 2014 Annual Executive Incentive Program
Agreement and Plan of Merger, dated as of April 12, 2015,
by and among Orad Hi-Tech Solutions
Form of Voting and Support Agreement between Avid
Technology, Inc. and certain shareholders of Orad Hi-Tech
Solutions Ltd.
Summary of Avid Technology, Inc.’s 2015 Executive Bonus
Plan
Indenture, dated as of June 15, 2015, between Avid
Technology, Inc. and Wells Fargo Bank, National
Association (including the form of 2.00% Convertible Senior
Notes due 2020)
Base capped call transaction confirmation, dated as of June
9, 2015, by and between Jefferies International Limited and
Avid Technology, Inc., in reference to the 2.00% Convertible
Senior Notes due 2020
Second Amended and Restated 1996 Employee Stock
Purchase Plan, as amended July 2015
96
8-K
8-K
8-K
8-K
8-K
8-K
10-K
10-K
10-K
10-K
10-K
10-K
8-K
10-Q
8-K
8-K
July 8, 2008
000-21174
July 8, 2008
000-21174
July 8, 2008
000-21174
July 8, 2008
000-21174
February 21, 2007
000-21174
February 21, 2007
000-21174
March 16, 2015
March 16, 2015
001-36254
001-36254
March 16, 2015
001-36254
March 16, 2015
001-36254
February 29, 2012
000-21174
September 12, 2014
July 25, 2013
September 23, 2014
April 13, 2015
001-36254
000-21174
001-36254
001-36254
April 13, 2015
001-36254
10-Q
8-K/A
May 8, 2015
001-36254
June 16, 2015
001-36254
8-K/A
June 16, 2015
001-36254
10-Q
November 6, 2015
001-36254
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
Financing Agreement, dated February 26, 2016, among Avid
Technology, Inc., the Lenders named therein
Amendment No. 1 to Financing Agreement, dated February
26, 2016, among Avid Technology, Inc., the Lenders named
therein
Standstill Agreement, dated February 16, 2018, among Avid
Technology, Inc., and Cove Street Capital, LLC
Amendment No. 2 to Financing Agreement, dated February
26, 2016, among Avid Technology, Inc., the Lenders named
therein
Amendment No. 3 to Financing Agreement, dated February
26, 2016, among Avid Technology, Inc., the Lender named
therein
Amendment No. 4 to Financing Agreement, dated February
26, 2016, among Avid Technology, Inc., the Lender named
therein
Amendment No. 1 to Network Drive at Northwest Park
Office Lease, dated as of December 3, 2018 between Avid
Technology Inc. and Network Drive Owner LLC (for
premises at 75 Network Drive, Burlington, Massachusetts)
Amendment No. 1 to Network Drive at Northwest Park
Office Lease, dated as of December 3, 2018 between Avid
Technology Inc. and Network Drive Owner LLC (for
premises at 65 Network Drive, Burlington, Massachusetts)
Amendment No. 5 to Financing Agreement, dated April 8,
2019, among Avid Technology, Inc., the Lender named
therein
Paycheck Protection Note, dated May 7, 2020, in favor of
Citizens Bank N.A.
Amendment #1 to Employment Agreement between Avid
Technology, Inc. and Jeff Rosica, Dated April 1, 2020
Amendment #1 to Employment Agreement between Avid
Technology, Inc. and Kenneth Gayron, Dated April 1, 2020
Amendment #1 to Employment Agreement between Avid
Technology, Inc. and Jason Duva, Dated April 1, 2020
Amendment to Contract of Employment between Avid
Technology Europe Limited and Tom Cordiner Dated April
1, 2020
Amendment No. 7 to Financing Agreement, dated February
26, 2016, among Avid Technology, Inc. and the Lenders
named therein.
Credit Agreement, dated as of January 5, 2021, among Avid
Technology, Inc., each of the lenders and financial
institutions party thereto, and JPMorgan Chase Bank, N.A.,
as administrative agent.
97
10-K
8-K
8-K
10-K
March 15, 2016
001-36254
March 20, 2017
001-36254
February 21, 2018
001-36254
March 16, 2018
001-36254
10-K
March 16, 2018
001-36254
8-K
8-K
May 15, 2018
001-36254
December 7, 2018
001-36254
8-K
December 7, 2018
001-36254
8-K
8-K
10-Q
10-Q
10-Q
10-Q
8-K
8-K
April 11, 2019
001-36254
May 7, 2020
001-35254
May 7, 2020
001-35254
May 7, 2020
001-35254
May 7, 2020
001-35254
May 7, 2020
001-35254
May 19, 2020
001-36254
January 5, 2021
001-36254
21
23.1
31.1
31.2
32.1
**101.INS
**101.SCH
**101.CAL
**101.DEF
**101.LAB
**101.PRE
Subsidiaries of the Registrant
Consent of BDO USA, LLP
Certification of Principal Executive Officer pursuant to Rules
13a-14 and 15d-14 under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rules
13a-14 and 15d-14 under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
______________________________________
X
X
X
X
X
X
X
X
X
X
X
#
*
**
Management contract or compensatory plan identified pursuant to Item 15(a)3.
Effective date of Form S-1.
Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is deemed not filed or a part of a
registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of
section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections.
98
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVID TECHNOLOGY, INC.
(Registrant)
SIGNATURES
By:
/s/ Jeff Rosica
Jeff Rosica
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 9, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By:
/s/ Jeff Rosica
Jeff Rosica
President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Kenneth Gayron
Kenneth Gayron
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
By:
/s/ Garrard Brown
Garrard Brown
Vice President and Chief Accounting
Officer
(Principal Accounting Officer)
Date: March 9, 2021
Date: March 9, 2021
Date: March 9, 2021
99
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
NAME
/s/ Peter Westley
Peter Westley
/s/ Jeff Rosica
Jeff Rosica
/s/ Christian A. Asmar
Christian A. Asmar
/s/ Robert M. Bakish
Robert M. Bakish
/s/ Paula E. Boggs
Paula E. Boggs
/s/ Elizabeth M. Daley
Elizabeth M. Daley
/s/ Nancy Hawthorne
Nancy Hawthorne
/s/ Michelle Munson
Michelle Munson
/s/ Daniel B. Silvers
Daniel B. Silvers
/s/ John P. Wallace
John P. Wallace
TITLE
DATE
Chairman of the Board of Directors
March 9, 2021
President and Chief Executive Officer
March 9, 2021
Director
Director
Director
Director
Director
Director
Director
Director
100
March 9, 2021
March 9, 2021
March 9, 2021
March 9, 2021
March 9, 2021
March 9, 2021
March 9, 2021
March 9, 2021
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 2020
AVID SYSTEMS, INC. (California)
AVID CV LLC (Delaware)
AVID TECHNOLOGY WORLDWIDE, INC. (Delaware)
AVID TECHNOLOGY (AUSTRALIA) PTY LTD (Australia)
AVID TECHNOLOGY CANADA CORP. (Canada)
AVID TECHNOLOGY (BEIJING) CO., LTD (China)
AVID TECHNOLOGY EUROPE LIMITED (England)
INTEGRATED BROADCAST SERVICES LIMITED (IBIS) (England)
IVSM LIMITED (England)
AVID TECHNOLOGY S.A.R.L. (France)
GETRIS SAS (France)
AVID TECHNOLOGY GMBH (Germany)
AVID TECHNOLOGY HOLDING GMBH (Germany)
AVID NORTH ASIA LIMITED (Hong Kong)
ORAD HI-TEC SYSTEMS (NORTH ASIA) LIMITED (Hong Kong)
AVID TECHNOLOGY (INDIA) PRIVATE LIMITED (India)
JIM LTD. (Israel)
ORAD HI-TEC SYSTEMS LTD. (Israel)
ORADNET LTD. (Israel)
AVID TECHNOLOGY K.K. (Japan)
AVID TECHNOLOGY MEXICO, S. DE R.L. DE C.V. (Mexico)
AVID GENERAL PARTNER B.V. (Netherlands)
AVID TECHNOLOGY C.V. (Netherlands)
AVID TECHNOLOGY HOLDING B.V. (Netherlands)
AVID TECHNOLOGY INTERNATIONAL B.V. (Netherlands)
ORAD NETHERLANDS B.V. (Netherlands)
AVID TECHNOLOGY POLAND SP. Z.O.O (Poland)
AVID TECHNOLOGY (S.E. ASIA) PTE LTD (Singapore)
AVID TECHNOLOGY S.L. (Spain)
ORAD HI-TEC SYSTEMS IBERIA SL (Spain)
AVID NORDIC A.B. (Sweden)
AVID TECHNOLOGY SERVICES TAIWAN CO., LTD (Taiwan)
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Avid Technology, Inc.
Burlington, Massachusetts
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-42569, 333-56631, 333-60181,
333-73321, 333-87539, 333-33674, 333-37952, 333-48338, 333-48340, 333-64016, 333-75470, 333-151202, 333-200139, 333-218677, 333-
225279) of Avid Technology, Inc. of our reports dated March 9, 2021, relating to the consolidated financial statements, and the effectiveness
of Avid Technology, Inc.’s internal control over financial reporting, which appear in this Annual Report on Form 10-K.
/s/ BDO USA, LLP
Boston, Massachusetts
March 9, 2021
EXHIBIT 31.1
1.
2.
3.
4.
I, Jeff Rosica, certify that:
I have reviewed this Annual Report on Form 10-K of Avid Technology, Inc.;
CERTIFICATION
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 9, 2021
/s/ Jeff Rosica
Jeff Rosica
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
1.
2.
3.
4.
I, Kenneth Gayron, certify that:
I have reviewed this Annual Report on Form 10-K of Avid Technology, Inc.;
CERTIFICATION
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 9, 2021
/s/ Kenneth Gayron
Kenneth Gayron
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of Avid Technology, Inc. (the “Company”) for the year ended December 31, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeff Rosica, President and Chief Executive Officer of the
Company, and Kenneth Gayron, Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section
1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 9, 2021
Date: March 9, 2021
/s/ Jeff Rosica
Jeff Rosica
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kenneth Gayron
Kenneth Gayron
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
A certification furnished pursuant to this item will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise
subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the
Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
(This page has been left blank intentionally.)
Consolidated Statements of Operations Data
(in $ thousands except per share data)
Year ended December 31,
2020
2019
2018
Net revenues
Net (loss) income
Net (loss) income per share (diluted)
Consolidated Balance Sheet Data
(in thousands except employee data)
$360,466
$411,788
$11,062
$0.25
$7,601
$0.17
$413,282
($10,674)
($0.26)
As of December 31,
Cash and cash equivalents
Total assets
Total stockholders’ deficit
Employees
2020
$79,899
$305,138
($132,924)
1,362
2019
$69,085
$304,293
($155,085)
1,429
2018
$56,103
$265,843
($166,661)
1,446
Avid Corporate Headquarters
75 Network Drive
Worldwide Offices
Beijing
Madrid
Berkeley
Burlington
Cologne
Dubai
Dublin
Fremont
Helsinki
Hilversum
Malmo
Montreal
Munich
New York
Paris
Santa Clara
Singapore
Stockholm
Kaiserslautern
Szczecin
Kfar Saba
London
Los Angeles
Taguig City
Tokyo
Burlington, MA 01803
tel 978 640 6789
www.avid.com
Independent Registered
Public Accountants
BDO USA, LLP
Boston, MA
Transfer Agent and Registrar
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Shareholder website
www.computershare.com
Shareholder online inquiries
www.computershare.com
Common Shares
Traded on
The Nasdaq Global Select Market
under the symbol “AVID”
Shareholder Inquiries
Inquiries related to the Company,
its activities, or its securities should
be addressed to:
Whit Rappole
Investor Relations
75 Network Drive
Burlington, MA 01803
ir@avid.com
© 2021 Avid Technology, Inc. All rights reserved. Product features, specifications, system requirements and
availability are subject to change without notice. Avid, the Avid logo, and other Avid trademarks are either
registered trademarks or trademarks of Avid Technology, Inc. or its subsidiaries in the United States and/or other
countries. Other trademarks appearing in this Annual Report are the property of their respective owners.
Board of Directors
Peter M. Westley
Chair, Avid Technology, Inc.
Managing Partner,
Blum Capital Partners, LP
Christian A. Asmar
Co-Founder and Managing Partner,
Impactive Capital LP
Robert M. Bakish
President and Chief Executive Officer,
ViacomCBS
Paula E. Boggs
Founder and Owner, Boggs Media LLC
Dr. Elizabeth M. Daley
Dean, School of Cinematic Arts,
University of Southern California
Nancy Hawthorne
Partner, Hawthorne Financial Advisors
Michelle Munson
Co-Founder and Chief Executive Officer,
Eluvio, Inc.
Jeff Rosica
Chief Executive Officer and President,
Avid Technology, Inc.
Daniel B. Silvers
Founder and Managing Member,
Matthews Lane Capital Partners LLC
Chief Executive Officer,
Leisure Acquisition Corp.
Executive Vice President and
Chief Strategy Officer,
Inspired Entertainment, Inc.
John P. Wallace
Managing Partner
W.W.E., LLC
Executive Officers
Jeff Rosica
Chief Executive Officer and President
Kenneth L. Gayron
Chief Financial Officer and
Executive Vice President
Tom Cordiner
Chief Revenue Officer and
Senior Vice President
Dana Ruzicka
General Manager,
Audio and Music Solutions and
Senior Vice President
Timothy Claman
General Manager,
Video, Post, and Storage Solutions and
Senior Vice President
Lior Netzer
General Manager,
Media Platform and Cloud Solutions and
Senior Vice President
Kevin W. Riley
Chief Technology Officer and
Senior Vice President
Garrard Brown
Chief Accounting Officer and
Vice President
Avid
75 Network Drive
Burlington, MA 01803 USA
www.avid.com