Avid Revenue Drops Nine Percent in Q1 2012 Due to Weakness in Consumer Business

Posted by Joe Zaller
Apr 27 2012

Avid reported that its revenue for the first quarter of 2012 was $152.1m, down 9% versus the same period a year ago, and down 18% compared to the previous quarter.

The results were inline with Avid’s negative pre-announcement earlier this month. Prior to the company’s pre-announcement, the consensus analyst estimate for the quarter was revenue of $161.1m.

Avid said the results were preliminary and pending an investigation of prior tax and accounting treatment of an intercompany loan made in 2007 between two of its international subsidiaries, which could impact Avid’s final financial results for the first quarter of 2012 and the results of prior periods. Based on the current status of its review, which is in its initial stages and subject to change, Avid currently believes that the impact of this matter could increase tax expenses by approximately $4.5m. Avid also currently believes it would recover approximately $3.8m of this amount in a subsequent period, resulting in a net tax expense of approximately $700,000 on a cumulative basis.

The company’s results were hurt by continued weakness in the consumer enthusiast (CE) segment.  Avid said its CE business, which historically accounted for approximately 20% of its overall revenue, contributed approximately 17% of total revenue in the first quarter of 2012.

Avid said its CE business was down 27% versus the same period a year ago. On the company’s conference call with equity analysts, the company provided more detail on the consumer business than it has previously disclosed.  Avid said its CE business is largely handled through retail distribution and focuses on solutions for consumers.  In the first quarter of 2012, the product mix in the CE segment was approximately 85% audio and 15% video. The audio portion of the CE business was negatively impacted by product transitions and the discontinuation of certain underperforming products, as well as by weakness in consumer demand.  Year-over-year weakness in CE video revenue was attributed to a very strong Q1 last year when Avid introduced Avid Studio and Pinnacle Studio v15.

On a geographic basis, the company said it experienced year-over-year growth in APAC during the quarter, but that sales in Europe and the Americas declined versus last year.

The GAAP net loss for the first quarter was $15.6m, compared to a GAAP net loss of $5.1m last year, and GAAP net income of $1.2m last quarter. On a non-GAAP basis the net loss for the quarter was $9.4m, compared to non-GAAP net loss of $840,000 last year and non-GAAP net income $14.6m last quarter.

Gross margins in the quarter were 50%, versus 52.1% last year, and 54.1% last quarter.  Avid CFO Ken Sexton attributed the reduced gross margins to lower revenue to cover fixed manufacturing and logistics costs, product mix weighted towards lower margin products, and incentives that were offered during the quarter to help sell older products. Service gross margins were up 8% versus last year.

Operating expenses were $91.3m, up $1.2m versus last year. Compensation expenses declined by almost $5m versus last year, primarily as a result of the company’s restructuring program that was announced in October of 2011.  Avid disclosed that it has reduced its headcount by 212 people since the end of September 2011.  The company currently has 1,790 employees and 447 contractors. The cost savings from the headcount reduction was offset by $2.3m of merit pay increases and professional service charges relating to SEC filings.

The GAAP operating loss for the quarter was $15.2m, compared to a GAAP operating loss of $3.4m last year. On a non-GAAP basis the operating loss for the quarter was $8.5m, versus a non-GAAP operating profit of $940,000 last year.


Highlights for the fourth quarter:

  • Video revenue in the quarter was $84m, down 11% versus the same period a year ago, and down 28% versus the previous quarter. Video revenue accounted for 55% of the total revenue during the quarter, versus 63% last quarter. Although service revenue was strong in video, Avid had a 20% decline in video product sales versus last year. In the pro video market, overall video editing unit sales were up by more than 30% versus last year, but because of a larger percentage of software sales, the overall the revenue from these sales was 30% lower than the same period a year ago due to lower hardware sales. Shared storage and workflow systems were strong in the quarter, growing 8% versus last year.


  • Audio revenue in the quarter was $68.1m, down 5% versus the same period a year ago, and down 1% versus the previous quarter. Although Avid had a significant revenue decline in consumer audio, professional audio sales were up 8% versus the same quarter a year ago, thanks to strong demand for Pro Tools HD and associated hardware. Avid’s Live audio systems business was up over 15% versus last year.


  • Revenue from products was $119.9m, a decrease of 13% versus the same period a year ago, and a decrease of 19% versus the previous quarter Product revenue accounted for 79% of the total revenue during the quarter, versus 80% as last quarter.


  • Service revenue in the quarter (including maintenance support, professional services revenue, and training) was $32.2m, an increase of 11% versus last year and down 14% versus last quarter.



Avid CFO Ken Sexton said he expects the company’s revenue for 2012 to be “relatively flat to a modest growth” versus 2011, but that demand in the creative enthusiast business will remain challenging in 2012. The company expects gross margins and non-GAAP operating margins to improve during the year.  Despite the slow start to the year, Sexton reaffirmed the guidance he gave last quarter saying he expects non-GAAP operating margins to be 5% of revenue for the year (versus 2.2% of revenue in 2011) assuming the company’s 2012 revenue is relatively flat with 2011.  Sexton said that “based on these expectations, we could report break even for our GAAP net income for the full year 2012.”


“While revenues were down from last year primarily related to the creative enthusiast portion of our business, we see positive signs in the post and professional and our media enterprise markets as customers seek to become more competitive by moving to more seamless workflows,” said Gary Greenfield, chairman and CEO of Avid. “Our balance sheet is solid, ending the quarter with $50 million of cash and we remain committed to delivering sustained profitability.”



Related Content:

Press Release: Avid Announces Results for First Quarter 2012

Avid Pre-Announces Nine Percent Revenue Decline in Q1 2012 Due to Lower Sales in Consumer Segment

Previous Quarter: Avid Posts First GAAP Net Profit Since 2007 in Q4 2011, Driving Shares Up 20 Percent

Previous Year: Avid Reports 5th Consecutive Quarter of Year-on-Year Revenue Growth

Avid 2011 10-K Filing

Avid 8-K Filing Details Executive Bonus Plan

Avid To Cut Workforce by 10%, Close Facility, Take Q4 Charge of $10m-11m

Avid One of Five Companies Google Should Buy in 2012 – Forbes

Avid Brings Its “Pro-sumer” Video Editing App to iPad


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