Avid announced that its revenue for the third quarter of 2012 was $127.2m, down 23% versus the same period a year ago, and down 19% versus the previous quarter. The GAAP net loss for the third quarter was $17.4m, or $0.45 per share, compared to a GAAP net loss of $7.6m, or $0.20 per share, last year, and a GAAP net loss of $39.0m, or $1.01 per share, last quarter.
The results were at the high end of the range provided by the company last week when it pre-announced a profit warning for the quarter. At that time Avid attributed the lower than expected results to “sales execution in the Americas region and some transitional issues related to the implementation of the strategic actions announced by the company in July 2012.”
On a non-GAAP basis, the net loss for the third quarter of 2012 was $3m, or $0.08 per share, compared to non-GAAP net income of $842,000, or $0.02 per share, for the third quarter of 2011, and a non-GAAP net loss of $4.1m, or $0.11 per share, last quarter.
Excluding revenue attributable to Avid’s legacy consumer products that were divested earlier this year, Q3 2011 revenue from the professional audio and video business was $123m down 14% compared to on-going revenue for the third quarter of 2011. Last quarter, Avid’s pro audio and video revenue was $143.7m.
GAAP gross margins were 52.6%, down from 54% last year, and up significantly from 46.9% last quarter. Non-GAAP gross margins were 53.2%, down 1% percentage points versus last year, and up from 49.6% last quarter. Avid CFO Ken Sexton said margins were impacted by exchange rates and the final sell-through of divested products still in the channel at the time of the sale of Avid’s consumer businesses. Sexton believes gross margins will improve over time because the divested consumer products had lower gross margins than the rest of the portfolio, so the company should experience margin expansion in the future.
GAAP operating expenses in the quarter was $83.3m down 10% year-over-year. Non-GAAP operating expenses were $68.9m, down 18% versus last year and down 16% versus last quarter q primarily as a result of divestment of consumer businesses
The GAAP operating loss for the third quarter of 2012 was $16.4m, and the non-GAAP operating loss for the third quarter was $2.2m.
The company ended the quarter with 1,480 employees and 360 full-time contractors, a net decline of 360 staff versus the previous quarter.
At the end of the quarter, Avid had a cash balance of $71m, up approximately $12m versus last quarter.
“During the third quarter we completed the majority of the changes we announced earlier this summer,” said Gary Greenfield, chairman and CEO of Avid. “Despite the transitional issues we experienced in the quarter, we remain focused on executing the business strategy we outlined in July as the path to returning the business to sustained profitability.”
Highlights for the third quarter of 2012:
On a geographic basis:
- Revenue in the Americas was down 19% versus last year, due to slow sales to media and enterprise customers, and sales execution issues in the region
- European revenue was down 6% on a year-over-year basis. However the company said that when the changes in exchange rates are excluded, revenue from Europe was up 7% versus last year and up 1% versus the previous quarter. The company said it had relatively strong sales to European media and enterprise customers during the third quarter of 2012.
- Revenue from the Asia-Pacific region was down for the quarter, but is essentially flat for the year on a constant currency basis.
On a segment basis:
- Video revenue from ongoing products in the quarter was $81.8m, down 18% versus the same period a year ago, and down 15% versus the previous quarter. Video revenue accounted for 64% of total revenue in the quarter versus 61% last quarter. Video product revenue during the quarter was $46.1m, down 24% versus last year and down 26% versus last quarter. The company attributed the lower video product revenue to weaker sales to media and enterprise customers in the Americas, and the continued transition of the company’s professional editing platform from hardware based systems to software-only solutions
- Revenue from products was $89m, a decrease of 32% versus the same period a year ago, and a decrease of 29% versus the previous quarter. Product revenue accounted for 70% of the total revenue during the quarter, versus 80% last quarter.
- Ongoing audio revenue in the quarter was $42m, down 15% versus last year and down 13% versus last quarter. Sexton said that almost half the year-over-year decline in audio was related to entry-level professional audio interfaces, and that the company’s flagship Pro Tools HD platform continues to grow with strong adoption of HDX hardware.
- Service revenue in the quarter (including maintenance support, professional services revenue, and training) was $36.3m, an increase of 10% versus last year and up 6% versus last quarter. The company said that most of its service revenue is related to professional video products and was therefore not impacted by the divestiture of Avid’s consumer product businesses. Service revenue was 29% of overall ongoing revenue for the quarter.
Although Avid did not provide specific forward looking guidance, the company said it expects revenue in the fourth quarter to improve relative to Q3, but be down compared to Q4 2011, further impacting the company’s expected GAAP net loss for the full year.
Sexton pointed out that the divestment of the consumer business and the recent restructuring had lowered the company’s operating expenses and improved its operating leverage. The company expects these actions will result in a 15% to 20% decrease in non-GAAP operating expenses in Q4 2012. As a results of this, Avid expects to report a non-GAAP operating profit for the fourth quarter, but might not reach breakeven for the full year 2012.
The full-year 2012 non-GAAP operating profit or loss excludes $55m to $60m of charges relating to stock-based compensation, amortization of intangibles, restructuring, divestitures, acquisitions, and loss on assets held for sale.
Last quarter, the company said that if product revenue in the second half of 2012 comes in was flat with 2011, Avid would report revenue non-GAAP operating margins in the low teens for the period and 5% for the full year, and post a GAAP net loss of $30m to $36m. Earlier this year the company said it believed it could break even for the year on a GAAP basis.
Press Release: Avid Announces Results for Third Quarter 2012
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