Avid 2015 Revenue and Profitability Decrease with Continued Transformation

Posted by Josh Stinehour
Mar 21 2016

Avid Technology announced full year 2015 results.  Management also provided long-term guidance for financial performance through 2018. Avid Logo_ white background

Total revenue for 2015 was $505.6 million, a decrease of 4.6% versus 2014 revenue.  Product revenue for the year was $336.4 million, a decline of 11.1% against 2014.  Products represented 66.5% of overall revenue in 2015.  Services revenue was $169.2 million, an increase of 11.6% versus the year prior.  Services contributed 33.5% of total revenue for the year.

Net income was $2.4 million or $0.06 per share.  This compares to 2014 net income of $14.7 million, which was $0.38 per share.

Gross margins for 2015 were 60.9%, a slight decline versus the 61.4% from 2014.

Operating income for 2015 was $6.9 million, a decrease of 64.6% versus 2014 operating income.  2015 Operating income included a restructuring cost of $6 million.

R&D expense for the year was $95.8 million, a 6.1% increase over 2014 R&D levels.  As a percentage of total revenue, R&D expenses were 18.9%, compared to 17% of total revenue in 2014.

Sales and marketing costs for 2015 were $122.5 million, representing a 7.8% decline versus 2014 sales and marketing levels.  Sales and marketing expenses were 24.2% of 2015 revenue, a slight decline versus 25.1% of total revenue in 2014.

G&A expense was $74.1 million for 2015, a decline of 8.7% versus the prior year.  Expressed in terms of total revenue, G&A expense was 14.6% of sales in 2015 versus 15.3% in 2014.

When considering the 2015 figures included six months of Orad’s operations, the decline in S&M and G&A illustrates the impact of anticipated cost synergies from the acquisition and Avid’s restructuring initiatives.

There are many one-time expenses and non-cash items in Avid’s income statement results.  To provide a more normalized view of profitability Avid cites adjusted EBITDA, which is defined as operating income plus add-backs for costs attributed to amortization, restructuring, restatements, stock-based compensation, acquisitions, integration activities, and efficiency program costs.  Adjusted EBITDA was 2015 $41.5M, a decline of 26% versus the same figure in 2014.

Cash used in operations for 2015 was $34 million.  The net effect of financing events, capital expenditures, and the Orad acquisition left Avid with $17.9 million of cash at the end of 2015.  The balance sheet does not account for the recent financing initiative announced by Avid in February.

Several factors have combined to complicate Avid’s financial disclosures. Most notable, the restatement in late 2014 introduced a considerable amount of amortized revenue from prior financial periods.  Though this revenue is now recognized in Avid’s income statement, it does not represent any actual cash received from clients.  In other words, it is non-cash revenue with 100% gross margins.  In aggregate, changes in deferred revenue represented a negative cash adjustment (versus net income) of $65 million in 2015 and $51.9 million in 2014.  Adding to this complexity are the effects of recent restructuring initiatives, the impact of the Orad acquisition, and the ongoing transition to a subscription model.

CEO Louis Hernandez, Jr. commented on these challenges during Avid’s earnings call, noting “…I know that it would be nicer if the financial expression were more clear and didn’t have the noise of a couple of the variables, the non-marketed products, the amortization, that pre-2010 revenue or that even the shift to recurring.”

Management is aware of this difficulty and has attempted to introduce new metrics to allow analysts to better understand the transition of the business.

Update on Transformation:

Highlighting the progress was bookings growth of 26% in Q4 2015 driven by the largest transaction in Avid history with Sinclair Broadcast Group and the positive impact of the Orad acquisition.  Bookings related to recurring revenue were approximately 38% of total 2015 bookings, a substantial increase over the 26% from 2014.

Below is a chart from Avid’s investor presentation illustrating the recent positive trend in Avid’s bookings in the context of the Company’s continued transformation.

Avid-transformation

Management also disclosed several metrics on the adoption of Avid’s MediaCentral platform.  At the end of 2015 MediaCentral had over 32,000 users, a 54% increase above 2014 levels.  More than 25,000 of the users are paying subscribers.  This represents an increase of 400% in paying subscribers since the beginning of 2015.

Business Outlook:

Contained in Avid’s earning release was full year guidance for 2016 along with longer term guidance for 2017 and 2018.  These figures are provided in the below tables taken from Avid’s earnings release.

Commenting on both 2015 performance and the business outlook, Louis Herandez, Jr added, “Avid is in the final stretches of its dramatic transformation and the benefits of Avid’s Platform approach to solving the media industry’s more pressing needs is reflected in both a solid close to 2015 and dramatically improved financial expectations for 2016 and beyond.  We are on track to complete the transformation and position Avid for long term sustainable and profitable growth with an improved financial model.”

Avid-tables

 

Related Content:

Press Release on Avid’s 2015 Financial Results

Presentation on Avid’s 2015 Financial Results

 

 

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