Archive for the ‘Quarterly Results’ Category

ATEME Grows 21.5% in 1H 2016; Cites UHD Adoption

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 17 2016

Video compression specialist ATEME announced first half 2016 revenue of €14.98 million, an increase of 21.5% versus the first half of 2015. ATEME_Black-960x218

On a quarterly basis, Q1 2016 had revenue €7.4 million, a 12.2% increase over Q1 2015.  Revenues for the second quarter of 2016 were €7.5 million, a 32.3% year-over-year improvement.

Management cited the renewed confidence of media clients as a market driver along with an accelerating adoption of 4K / UHD.  Several examples of 4K / UHD were given including TF1 and M6 broadcasting eight soccer matches from the 2016 European Football Championship and the broadcasting of the semifinals rounds of the French Open Tennis tournament.

ATEME highlighted its first major orders for the Company’s next-generation compression solution, TITAN (launched in early 2016).   Those major orders were with DirecTV and an unnamed Tier1 cable operator in the US, along with Arcana (Malaysian satellite operator) and FPT Telecom (Vietnam).

Revenue by Geography:

  • Revenues for the EMEA region during the first half of 2016 were €8.1 million, a 19.8% increase over 1H 2015. As a percentage of total sales, EMEA was 54% of revenue during 1H 2016, which compares to 55% during 1H 2015.
  • The USA / Canada region contributed revenue of €4.1 million, a 47.4% rise over the year-earlier period. USA / Canada was 27.3% percent of total sales in the period versus 22.8% during 1H 2015.
  • Latin America was responsible for €1.47 million of revenue during the first half, a slight decline of -0.7% versus 1H 2015. For 1H 2016, Latin America accounted for 9.8% of total sales, compared to 12.0% during 1H 2015.
  • Asia Pacific accounted for €1.23 million of revenue, a decline of -1.1% versus the first half of 2015. The Asia Pacific region contributed 8.2% of total sales during 1H 2016, versus 10.0% during 1H 2015.

The strong growth in the EMEA and USA / Canada regions was attributed to investments made in prior periods including the opening of a new office in Denver.

The revenue results were announced in a press release.  The full operating results will publish in late September.  In the press release ATEME expressed an expectation of reducing operating loss during 1H 2016 from the €2.5 million loss recorded in the first half of 2015.

 

Business Outlook:

Commenting on the first half results, ATEME President Michel Artieres stated, “”The first half of 2016 marked an important stage in our commercial development in the United States where activity increased by almost 50%. The contracts secured during this period confirm the potential of our new TITAN software with major operators in both the US and Europe; sales of TITAN will further underpin growth over the second half in a market driven by the rise in video consumption around the world and the increasing penetration of Ultra High Definition (UHD). As such, we are confident in our ability to continue to improve our operating performance.”

 

 

Related Content:

Press Release: Ateme 1H 2016 Results

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

NeuLion Announces Aggressive Sales Expansion with Q2 Earnings Release

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 16 2016

NeuLion, technology product and service provider for digital distribution, announced second quarter of 2016 financial results.  NeuLion,_Inc_-729822400065GAAP revenue for Q2 2016 was $24.1 million, an increase of 6.2% versus Q2 2015, and a decrease of 8.4% compared to Q1 2016.

NeuLion’s acquisition of Saffron Digital was completed on June 3, 2016, so less than a month of Saffron’s sales were included in the quarter’s results.  Saffron was a $14.7 million (USD) annual revenue business in 2014.

Gross margins (exclusive of depreciation and amortization) were 83.0% for Q2 2016, an increase of 200 basis points versus the year-earlier period, and an increase of 100 basis points against the preceding quarter.  The margin improvement was attributed to lower costs with technology licenses in NeuLion’s consumer electronics products.

Operating loss for Q2 2016 was $0.3 million, which compares to an operating loss of $2.5 million during Q2 2015, and operating income of $3.4 in Q1 2016.

Net loss for the second quarter of 2016 was $0.8 million, which compares to a loss of $3.2 million in Q2 2015, and net income of $2.1 million during Q1 2016.

Selling, general and administrative (“SG&A”) expenses were $12.9 million for the quarter, an increase of 13.2% versus Q2 2015, and an increase of 8.4% when measured against the preceding quarter.  SG&A expense as a percentage of revenue were 54.0% for Q2 2016.  In the comparable periods, SG&A was 50.0% of sales in Q2 2015 and 45.0% in Q1 2016.

In NeuLion’s prepared remarks for the quarter, President and Chief Executive Officer Roy Reichbach highlighted the Company’s plans to invest in sales and marketing.  “Our technology is best in class and now is the time to match our sales and marketing prowess with our technology development skills” said Mr. Reichback.  The investment in sales resources calls for the hiring of 22 or more new sales personnel.  This will add to the headcount of 22 at the end of the second quarter.

Research and development (“R&D”) expense was $5.3 million for Q2 2016, a 29.3% decrease on a year-over-year basis, and an increase of 20.5% against the preceding quarter.  The year-over-year decline stems from synergies achieved in the integration of DivX.  R&D expense represented 22.0% of the quarter’s revenue, in comparison to 33.0% in Q2 2015 and 17.0% in Q1 2016.

Cash and cash equivalents ended the quarter at $46.1 million.  This compares to a cash balance of $61.5 million at the end of the prior quarter.  A major contributor to the decline was the $7.5 million of upfront cash consideration used in the Saffron acquisition.

NeuLion had 524 full time employees at the end of Q2 2016.  This is up from 498 total employees as of the end of the preceding quarter.

Revenue by Service and Product Offerings:

  • NeuLion Digital Platform revenue was $15.9 million for Q2 2016, an increase of 2.6% over Q2 2015 revenue, and a decrease of 13.1% compared to Q1 2016. Excluding revenues related to the NHL and Rogers – which have declined based on the MLBAM and NHL partnership – NeuLion grew its Digital Platform revenues 12% year-over-year.
  • DivX and MainConcept product lines contributed GAAP revenue of $8.2 million for Q2 2016, a 13.9% increase over Q2 2015, and an increase of 2.5% versus Q1 2016.

Revenue by Geography:

  • Revenues from North America were $14.9 million for the quarter, an increase of 0.9% on a year-over-year basis and a decrease of 18.7% on a sequential basis. North America accounted for 62.0% of total sales in the quarter, compared to 65.0% in Q2 2015 and 70.0% in Q1 2016.
  • Europe contributed revenue of $2.3 million in second quarter of 2016, representing a 13.0% increase versus Q2 2015 and a 19.2% increase against Q1 2016. For the quarter, Europe was 10.0% of sales.  During Q2 2015 Europe accounted for 9.0% of sales and in the preceding quarter Europe represented 7.0% of total sales.
  • Revenues in Asia were $6.9 million for the quarter, an increase of 17.6% versus Q2 2015, and an increase of 14.7% against Q1 2016. As a percentage of sales, Asia contributed 29.0% of revenue in the quarter.  This compares to a contribution of 26.0% in Q2 2015 and 23.0% in Q1 2016.

Management Discussion and Analysis:

NeuLion’s earnings release highlighted several notable customer projects and related milestones.

EFL Digital, responsible for the digital business of the English Football League, selected NeuLion as its digital platform.  Sky Sports selected NeuLion as the technology provider for its live OTT event services.  Also in the quarter, NeuLion worked with the UFC to deliver a live OTT 4K pay-per-view event.

Responding to an analyst’s question, EVP Marketplace Strategy Chris Wagner added commentary on NeuLion’s work with the UFC, stating,

“…the momentum for 4K delivery, we’re seeing that. I mean UFC delivered over the top, a pay-per-view that earned in round numbers about $60, which gave the fan the ability to get HD or 4K.

So what we see from content rights holders and content owners is a move to start to organize their events, create some 4K content, definitely it’s going to be delivered over the top…The MVPDs like it because it’s broadband and it’s their most profitable product. Fans love it. The feedback that we got from people who bought the digital tickets for 4K and watched on their Sony was pretty significant. We know we had – the average engagement time was essentially the entire fight.

So the rights holders know that the quality matters to consumers. I think you’ll see a positioning around 4K content. If you really want that quality, you know perhaps it’s charged differently and more expensive than lower forms of quality. UFC has done that with HD for a while now with different price points. But we’re seeing all of our content rights holders and owners of sort of think through how they’re going to focus and deliver on 4K.”

 

Related Content: 

Press Release: NeuLion Q2 2016 Results

Transcript: NeuLion Q2 2016 Earnings Call (Seeking Alpha)

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Harman Professional Solutions Declines in FY2016. Growth Expected in FY2017

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 15 2016

Harman announced fiscal fourth quarter and full year fiscal 2016 results for the period ending June 30, 2016. harmanlogo

Harman’s Professional Solution division contains the operations of several established audio, lighting, and automation solution brands, including AKG, AMX, JBL, Martin, Soundcraft, and Studer.  These solutions are used in the broadcast sector along with several related verticals such as Installed Sound and Touring.

During Harman’s investor day, management provided a revenue split by vertical for fiscal 2015 in the Professional Solutions division.  Broadcast contributed less than 5% of the division’s revenue, with the Touring and Installed Sound markets responsible for approximately two-thirds of the division.

Fiscal Year 2016 Results:

The Professional Solution division had revenue of $1,014 for fiscal year 2016, a decrease of 3.3% versus fiscal year 2015. On a constant currency basis, revenue decreased 1.0% on a year-over-year basis.  For the full year, Professional Solutions contributed 15.0% of Harman’s total revenue, compared to 17.0% during 2015.

The decrease in sales for the Professional Solutions division was attributed to the combination of unfavorable currency impacts, Harman’s continued channel reorganization toward solution sales, and lower demand in both Brazil and certain European geographies.

Gross margins for the division were 38.1% for 2016, a decrease of 269 basis points compared to 2015.

Selling, General, and Administrative (“SG&A”) expense were $317 million for the Professional Solutions division, a decrease of 2.8% versus the year prior.

The Professional Solutions division had operating income of $70 million for the year, a decrease of 31.4% compared to 2015.  This equates to operating margin of 6.9% during 2016 and 9.7% in 2015.

EBITDA (Earnings before interest taxes depreciation and amortization) was $105 million for 2016, a decrease of 22.8% against 2015.  EBITDA margin was 10.3%, which compares to 13.0% during 2015.  Both EBITDA and Operating Income exclude restructuring, non-recurring, and acquisition-related costs of $22 million and $19 million recorded during 2016 and 2015, respectively.

Fourth Quarter of Fiscal Year 2016 Results:

Revenue in the fiscal fourth quarter of 2016 for the Professional Solution division was $286 million, an increase of 0.4% versus the fiscal fourth quarter of 2015, and an increase of 23.3% compared to FY Q3 2016. For FY Q4 2016, Professional Solutions contributed 15.0% of Harman’s total revenue, compared to 17.0% during FY Q4 2015, and 14.5% in FY Q3 2016.

During FY Q4 2016, gross margins for the division were 36.0%, a decrease of 360 basis points compared to FY Q4 2015, and an increase of 249 basis points against FY Q3 2016.

SG&A was $86 million for the Professional Solutions division, flat versus FY Q4 2015, and an increase of 14.7% versus the preceding quarter, FY Q3 2016.

Operating income for the division during the quarter was $17 million, a decrease of 37.0% compared to FY Q4 2015, and a substantial increase over the $3 million of operating income in FY Q3 2016.  Operating margin for FY Q4 2016 was 6.1%, compared to 9.4% in FY Q4 2015 and 1.1% in FY Q3 2016.

EBITDA was $26 million for FY Q4 2016, a decrease of 27.8% against FY Q4 2015, and an increase of 116.7% over the preceding quarter.  EBITDA margin was 9.1% for the quarter.  This represents a decrease of 370 basis points and an increase of 409 basis points versus FY Q4 2015 and FY Q3 2016, respectively.

Management Commentary on Professional Solutions Division:

In discussing the fiscal year results, Harman’s Chairman and CEO Dinesh Paliwal highlighted the new solution-based go-to-market strategy and cost reduction actions in its European operation – both enacted during the 2016 fiscal year.  Commenting on expectations for Fiscal 2017 for the Professional Solutions division, Mr. Paliwal stated, “we are focused on taking additional steps to improve cost structure in North America. We are already seeing encouraging signs of momentum in the Enterprise segment. Not only have we booked several significant awards in corporate, government and education markets, we will also launch a number of integrated solutions to support these focused verticals. We expect these actions will help restore Professional to historic levels of growth and profitability” (Sourced from Seeking Alpha transcript).

The below slide from Harman’s earnings presentation highlights some of the notable developments for the Professional Solutions division during the 2016 fiscal year.

harman-slide

In addition to the above, the Professional Solutions division announced a new President, Mohit Parasher, in May 2016.

 

Business Outlook:

Management’s guidance for the Professional Solutions division in FY2017 is revenue of $1,045 million and EBITDA of $140 million.  This expectation translates to year-over-year revenue growth of 3% and EBITDA margin improvement of 309 basis points.

Responding to a question about Professional Solutions on Harman’s conference call with analysts, Mr. Paliwal elaborated on expectations for the division as follows,

“We have built a robust portfolio of audio, video, lighting and automation. And we have expanded our customer segment to corporate, government and education beyond traditional recording studios and touring sound. This business has a four-pronged turnaround strategy, which I feel very comfortable with. The number one starts with leadership, sense of urgency. We have fixed that. Number two, we are addressing our channels, channels we are going some market direct, some we are going indirect. But we are training the channels to sell the solutions to enterprise and entertainment segment.

And the third is cost leadership. You know us in HARMAN, we are really paranoid about cost every year and automotive is a good training ground. So, we already took some very strong actions last year. We shut down two factories in Europe in high cost and we moved into a brand-new factory in Hungary and that we already set over 100 basis point of bottom-line improvement, which is already starting to happen. So, we will have that this year to improve.

And then of course we have whole slew of new integrated products being launched this year which absolutely are going to fit the segment strategy for corporate, government, education and entertainment and enterprise” (Sourced from SeekingAlpha transcript).

 

Related Content:

Press Release: Harman FYQ4 2016 Results

Presentation: Harman FYQ4 2016 Results

Earnings Transcript: Harman FYQ4 2016 Results (SeekingAlpha)

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Vitec Group Acquires two Businesses, Grows Broadcast 10% in 1H 2016

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 15 2016

The Vitec Group, which owns more than a dozen brands in the broadcast industry as well as technical services company Bexel, released its results for the first half of 2016.  Vitec Group Logo

Total revenue for 1H 2016 was £171.1 million, an increase of 9.7% versus 1H 2015, and an increase of 5.7% when compared to 2H 2015.  Operating profit was £12.6 million, a decrease of 8.7% versus 1H 2015, and a 41.7% decrease against 2H 2015.  On a constant currency basis, revenue increased 3.1% and operating profit increased 5.2% on a year-over-year basis.

Operating profit declined despite the revenue growth because of non-repeat, high-margin Haigh-Farr antennas contracts in the comparison period (1H 2015) and a greater mix of lower margin broadcast services business during the first six months of 2016.

Operating profit is reported before costs associated with the acquisition of business ($2.7 million during 1H 2016), restructuring (£2.8 million in 1H 2016), and also the £0.7 million gain on sale of The Vitec Group’s manufacturing facility in Bury St Edmunds.  Vitec indicated the restructuring activities initiated in 2015 resulted in savings of £2.5 million in the first six months of the year.

Vitec Acquisitions:

Vitec acquired two businesses in the first half of 2016.  In January Vitec purchased Provak Foto Film Video B.V., a Netherlands distributor partner for cash consideration of £0.9 million.  On April 12, 2016, Vitec’s Broadcast Division acquired Offhollywood Digital for upfront cash consideration of £1.6 million along with contingent compensation of up to $8.0 million (USD) if gross profit targets are met for the periods to December 2018.  Offhollywood Digital provides camera-back modules for RED cameras along with related services.

Vitec often structures its acquisitions with contingent consideration.  During the period Vitec made yet another payment in the amount of £2.8 million on the earn-out related to the 2013 acquisition of Teradek.

Vitec Broadcast Division:

Vitec’s broadcast brands serve various parts of the broadcast industry: Anton/Bauer, Autocue, Autoscript, Bexel, Camera Corps, Haigh-Farr, Litepanels, OConnor, Paralinx, Petrol Bags, Sachtler, SmallHD, Teradek, The Camera Store, and Vinten.

Vitec reports the results of its Broadcast Division separate from its Photographic division. For the first half of 2016, the Broadcast Division represented 60.0% of The Vitec Group’s total sales.  In 1H 2015 and 2H 2015 the Broadcast Division accounted for 60.0% and 59.0%, respectively.

The below slide is taken from the Vitec Group earnings presentation and offers a summary on the key developments with the Broadcast Division in the first half of 2016.

Vitec-slide

The Broadcast Division had revenue of £102.3 million in 1H 2016, an increase of 10.0% versus 1H 2015 (an increase of 4.0% on constant currency basis), and an increase of 6.6% compared to the preceding period, 2H 2015.

In the Company’s release, management noted strength in the US market, which offset a more challenging environment in the EMEA region.

Positive currency benefits from a weaker British pound accounted for 60% of the Broadcast Division’s growth in 1H 2016.  Given the currency volatility stemming from the recent EU referendum in the UK, The Vitec Group expects to realize a net currency benefit in the second half of 2016.  Management indicated the hedges it maintains on the GBP to USD and GBP to EUR exchange rates will also delay part of the impact of a weaker GBP into the 2017 fiscal year.

Product sales for the Broadcast Division were £78.7 million for 1H 2016, an increase of 0.5% over 1H 2015, and a decrease of 4.0% over 2H 2015.  As a percentage of Broadcast Revenue, Products sales accounted for 76.9% of revenue in 1H 2016.  This compares to 84.6% in 1H 2015 and 85.4% during 2H 2015.

Within Product sales management highlighted the increased sales of wireless transmitters and receivers, camera monitors, and mobile power.  The US market was especially strong for broadcast battery products.  These results were offset by a decrease in large camera support sales.

Services sales from Vitec’s Bexel subsidiary were £23.6 million in 1H 2016, an increase of 66.2% versus 1H 2015, and an increase of 62.8% against 2H 2015.  Services represented 23.1% of Broadcast revenue during 1H 2016.  In 1H 2015 Services were 15.4% of sales and during 2H 2015 Services were 15.1% of Broadcast Revenue.

The strong growth in Services was due to a large contract with the NFL for project management and support to upgrade the communication infrastructure for all 31 NFL stadiums. The contract includes the pass-through of low margin products impacting the profitability of the Broadcast Division.

Operating profit for the Broadcast Division in 1H 2016 was £8.5 million, a decrease of 12.4% versus the 1H 2015 result (down 10.0% on constant currency basis), and a decrease of 34.6% against 2H 2015. In addition to the greater concentration with Services, operating profit was also negatively impacted by Vitec’s continued investment in the development of its wireless products and camera monitor business.

Operating margin for the Broadcast Division was 8.3% during the first half of 2016, a decrease of 220 basis points against 1H 2015, and a decrease of 600 basis points compared to 2H 2015.

 

Business Outlook:

Commenting on the first half results and outlook for the full year, Group Chief Executive Stephen Bird offered the following, “The Board’s expectations for the full year are unchanged. We anticipate that the Group’s performance in the second half of the year will benefit from the Rio 2016 Olympics, full year savings from the previously announced restructuring plans, and, potentially, from weaker Sterling.”

 

Related Content:

Press Release: Vitec Group 1H 2016 Results

Presentation: Vitec Group 1H 2016 Results

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

SES Announces 1H 2016 Results; MX1 a €240 million Annual Revenue Business

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 14 2016

Satellite service provider SES reported 1H 2016 results for its Video business of €665.7 million, an increase of 0.8% versus 1H 2015, and an increase of 4.1% when compared to the second half of 2015.  On a constant currency basis the Video business grew 0.3% on a year-over-year basis.    SESLogo

For the first half of 2016, the Video division contributed 70% of SES’s total revenue, an increase compared to the 66% contribution in 1H 2015, and the 67% contribution for the full year 2015.

SES’s acquisition of RR Media was not completed until July 6, 2016.   As such, no revenues from RR Media were included in SES Video’s first half results.  RR Media generated €63.2 million of revenue during the first half of 2016.

SES merged the former RR Media business with its SES Platform Services subsidiary.  The new subsidiary was rebranded MX1.

Update on MX1 Subsidiary

During SES’s investor day, Management disclosed the combined MX1 business is a €240 million annual revenue business with a backlog of €500 million (or two years of annual revenue).  The regional revenue breakdown is 70% Europe and 30% outside of Europe. Half of MX1’s revenue is generated by the resell of satellite capacity – with SES acting as the satellite service provider for 50% of this capacity.

For the full year 2016 the acquisition of the former RR Media business is expected to contribute €70 million of revenue to SES’s Video business (before eliminating intercompany revenue).

On the Company’s earnings call with analysts, SES’s CEO Karim Michael Sabbagh offered an anecdote on the SES’s initial synergies with RR Media by relaying a recent briefing by Avi Cohen, CEO of MX1 (and former CEO of RR Media) to the board of SES.  “…he [Avi] mentioned three key multimedia clients with whom they have served.  And he said had it not been for SES, we would not have signed them… this speaks for itself when you have the kind of capabilities that they have, that we have and the kind of market access that we have through our almost three decade long experience with these clients” said Mr. Sabbagh.

Update on Satellite Channel Developments

In its earnings presentation, SES reviewed data points on the channel growth over its satellite network during first half of 2016.

Total channels for SES’s Video business was 7,463 at the end of 1H 2016, representing an increase of 4.2% on a year-over-year basis, and sequential growth of 2.7% since the end of 2015.

HDTV channels distributed by SES grew 9.5% to 2,442 (32.7% of total channels).  60% of all channels are now broadcast in the MPEG-4 compression standard.  This compares to 54% in first half of 2015 and 60% at the end of 2015.

The channel count for Ultra HD (UHD) is now 16, versus eight at the end of 2015 and zero a year earlier.  Management highlighted the May 2016 announcement with Viasat to launch an Ultra HD sports channel.  The new channel will launch in Scandinavia in August 2016.

International markets outside of Europe and North America, including the faster growing markets of Latin America, Asia-Pacific, the Middle East and Africa, made up 38% of TV channels over SES satellites.  The channel count in this region grew by 1.7% during the first half of the year to a total of 2,850 channels.

The below slide from SES’s investor presentation illustrates channel and geographic growth of the Video business.

SES-slide 

Related Content

Press Release: SES first half of 2016 Results

Presentation: SES first half of 2016 Results

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Brightcove Grows Over 24% in Media Vertical during Q2

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 12 2016

Brightcove, a provider of cloud services for video, reported revenue for the second quarter of 2016 of $37 million, a 13% increase over the second quarter of 2015, and a 1.9% increase over the preceding quarter, Q1 2016.  The revenue result was above management’s guidance of $35.8 million to $36.3 million issued during the first quarter of 2016.  brightcove

Commenting on the results, David Mendels, Chief Executive Officer at Brightcove stated, “Brightcove delivered strong second quarter results that met or exceeded our expectations from both a revenue and profitability perspective.  We are excited by the positive momentum we are seeing across our business, highlighted by the signing of multi-year, multi-million dollar contracts with two media customers, including our first 8 figure contract.”

During Brightcove’s subsequent call with earnings analyst, Mr. Mendels elaborated on the two media deals (noted above) landed during the quarter.  Both are large Japanese media companies (no additional details were provided).  One of the deals has a total committed value of more than $10 million over a 3.5 year period.

Brightcove provides services across several industry verticals including media.  Management disclosed its media business represented 51% of revenue for the quarter.  This compares to 46% during Q2 2015 and 51% Q1 2016.  These figures imply a year-over-year growth in the media vertical of 24.7% by Brightcove.

It is important to note Brightcove maintains a broad definition of media.  New or expanded customers in the media segment for the quarter included AMC and OTT service provider Pluto TV, as well as organizations such as Woven Digital and Yelp.

Gross margins for the quarter were 64%, a slight decline versus the 64.8% gross margins during Q2 2015, and a slight increase over the 63.4% gross margins from the preceding quarter.

Brightcove recorded a loss from operations of $2.2 million for the second quarter of 2016, compared to a loss of $3.2 million for Q2 2015, and a loss of $1.5 million in Q1 2016.

Net loss was $2.4 million for the quarter or $0.07 per diluted share. This compares to a net loss of $3.6 million or $0.11 per diluted share in Q2 2015 and a net loss of $1.6 million or $0.05 per diluted share in the preceding quarter, Q1 2016.

While Brightcove is not generating an accounting profit, it is generating cash.  Operating cash flow for the quarter was $2.0 million, an increase over the $385,000 generated during Q2 2015. In the preceding quarter, Q1 2016, operating cash flow was $2.9 million.

Revenue by Customer Type:

During the quarter, 95% of Brightcove’s revenue came from the Company’s premium offerings versus its volume offerings.  The volume offerings consist of Video Cloud express customers and Zencoder customers on month-to-month and pay-as-you-go contracts.

For the quarter the number of premium customers increased to 1,926 (as of June 30, 2016) from 1,910 at the end of the first quarter.  Average revenue per premium customer was $69,000 in the quarter, an increase of 8% when compared to last year’s quarter, and flat versus the first quarter of 2016.

Revenue by Service Type:

  • Subscription and support revenue contributed $35.1 million in the quarter, an increase of 10% versus the year-earlier period, and a 1.2% increase over the preceding quarter. On a percentage basis, Subscription and support revenue accounted for almost 95% of revenue in quarter.  This compares to 97.1%% of revenue for Q2 2015 and 95.5% for Q1 2016.
  • Professional services revenue was $1.9 million during the quarter, an increase of 101.9% over Q2 2015, and a 19% increase over Q1 2016. As a percentage of sales, Professional services contributed 5% of the total revenue for the quarter.  For Q2 2015, professional services accounted for 2.9% of sales and during Q1 2016 it was 4.5% of sales.

Revenue by Geography:

  • Revenues in North America were $22.6 million for the quarter, an increase of 7.4% against the year-over-year period, and a 1.9% decrease versus the preceding quarter. As a percentage of sales, North America was responsible for 61.2% of Brightcove’s revenue in the quarter, compared to 64.1% in Q2 2015 and 63.4% in Q1 2016.
  • The European region contributed $6.4 million, a decrease of 1.6% versus Q2 2015, and a 5.3% increase when compared to the preceding quarter. On a percentage basis, Europe accounted for 17.2% of total sales during Q2 2016, in comparison to 19.6% in Q2 2015, and 16.7% during Q1 2016.
  • Revenues in Asia Pacific (including Japan) were $7.7 million for the quarter, a 57.3% increase over Q2 2015, and a 12.2% increase against the preceding quarter. Asia-Pacific represented 20.8% of total sales in the quarter, compared to 14.9% during Q2 2015 and 18.4% in Q1 2016.

Operating Expenses by Type:

  • Research and development (“R&D”) expenses were $7.3 million in the quarter, flat versus Q2 2015, and a decrease of 1.3% against the preceding quarter. Expressed as a percentage of total sales, R&D costs were 19.6% of revenue in the quarter, which compares to 22.1% during Q2 2015 and 20.4% in Q1 2016
  • Sales and marketing (“S&M”) costs were $13.9 million for Q2 2016, a 17.4% year-over-year increase and an 11.2% sequential increase. S&M was 37.8% of total sales during the quarter.  In the year-earlier period S&M was 36.3% of sales, and for the preceding quarter S&M represented 34.5% of total sales
  • General and administrative (“G&A”) expenses were $4.5 million during the quarter, a decrease of 13.9% from the year-earlier period and flat against the preceding quarter. In terms of overall revenue, G&A was 12.1% of sales in Q2 2015.  This compares to 15.8% in Q2 2015 and 12.6% in Q1 2016

As of the end of the quarter on June 30, 2016 Brightcove’s cash, cash equivalents, and investments was $30.2 million.  It was $29.3 million at March 31, 2016.

The Company finished the quarter with 450 employees.  At this same time last year, Brightcove had 420 employees.

Financial Guidance:

Management is providing revenue guidance for the upcoming third quarter of 2016 in the range of $37.0 million to $37.5 million.

Also as part of the earnings release, Management raised 2016 revenue guidance.  For the full year, revenue is now anticipated in the range of $148.3 million to 149.3 million.  If achieved, this revenue ranges would represent annual year-over-year growth of 10% to 11%.

 

Related Content:

Press Release: Brightcove Q2 2016 Earnings Release

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Dolby Q3 Outperforms; Management Offers Updates on Atmos and Vision Adoption

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 11 2016

Dolby announced revenue for its third fiscal quarter (ending July 1, 2016) of $277.6 million, up 19.8% versus the year earlier period, and an increase of 1.2% versus the preceding quarter, Q2 2016 .  Dolby_logo.svg

GAAP net income for the quarter was $63.6 million or $0.62 earnings per share (diluted).  This represents a 79% increase over the net income for the fiscal third quarter of 2015 of $35.5 million ($0.34 earnings per share), and a sequential decline of 5.6% against the preceding quarter.

GAAP Gross Margins were 91.1% for the quarter, an increase over the gross margins of 89.3% from the year earlier period and equivalent to the gross margins recorded during fiscal Q2 2016.  Operating margins were 29%, an increase over the 19% from fiscal Q3 2015 and a slight decline against the 29% operating margins during the preceding quarter.

Management guidance from the preceding quarter was for revenue in the range of $260 million to $275 million, gross margins between 89% and 90%, and earnings per share between $0.47 and $0.53. Dolby’s actual results exceed guidance in all areas.

The financial outperformance against guidance was attributed to increased adoption in the mobile and Digital Media Adapters (“DMAs”) and the timing of customer payments skewing toward the recently completed quarter.

Revenue by Type:

Dolby reports revenue across licensing, product, and service activities.  Product revenues consists primarily of sales of Digital Cinema Servers and Dolby Cinema Audio Products.

  • Licensing revenue for FQ3 2016 was $253.0 million, an increase of 23.5% versus FQ3 2015 and a 1.5% increase versus FQ2 2016.
  • Product revenue was $20.6 million, a decline of 8.7% compared to the year earlier period, and an increase of 2.8% versus FQ2 2016 results. Year-over-year declines are consistent with the broader cinema equipment market, which has been impacted by the recent completion of the conversion from film to digital.
  • Services revenue were $3.9 million during the fiscal third quarter, a decrease of 7.7% against FQ2 2015 and a decrease of 20.6% versus the fiscal second quarter’s results.

Product gross margins for FQ2 2016 were 31.7%, a substantial increase over the 11.4% gross margins from FQ3 2015 and a slight increase over the 30.3% gross margins in FQ2 2016.  According to Dolby’s SEC filing, the higher product gross margins stemmed from lower charges for excess and obsolete inventory along with reduced manufacturing variances.

Licensing Revenue by Customer Vertical:

Licensing revenue in the Broadcast vertical for televisions and set-top box sales was 39% of total licensing revenue or $98.7 million.  On an aggregate basis, Broadcast licensing grew 4.7% versus FQ3 2015, though declined 12.0% versus the preceding quarter, FQ2 2016.  As a percentage of total licensing revenue, Broadcast contributed 46% in FQ3 2015 and 45% during the FQ2 2016.

The remainder of Dolby’s licensing revenue is attributable to PC, Mobile, Consumer Electronics, and Other (Video game consoles, automobile entertainment, and audio conferencing).

Management attributed the sequential drop in Broadcast licensing to normal seasonality.  The year-over-year increase for Broadcast was due to emerging market transition to digital broadcast.  In particular in China where China Telecom and China Unicom specified Dolby Audio on their respective 4K IPTV set-top boxes.

Update on Dolby Atmos, Doly Cinema, and Dolby Vision:

As part of the earning release, Dolby disclosed several data points on the growing adoption of Dolby Atmos, the Company’s next-generation immersion audio technology.

There are now nearly 2,000 screens worldwide where Dolby Atmos is installed or committed.  Over 490 Dolby Atmos titles have been announced or released.  In the television sector during the quarter, the French Rugby League Final was delivered by Orange in Dolby Atmos and Comcast announced plans to deliver Dolby Atmos content later this year.

Management also provided an update on the progress of Dolby Cinema, a premium branded cinema. There are now more than 30 Dolby Cinema locations open and another 220 Dolby Cinema locations are scheduled for roll out around the world.  Dolby Cinema exhibitor partners include AMC (US), Wanda and Jackie Chan (China), Vue (Netherlands), and Cineplex (Austria).

In its call with analysts, Dolby’s management cited several developments with Dolby Vision, the Company’s high dynamic range imaging technology.

Since its launch in May, there have been 50 Dolby Vision theatrical titles announced or released.  Examples include the recent high-profile films Star Trek Beyond and The Legend of Tarzan.  

Lionsgate, Universal Pictures, Sony Pictures, and Warner Bros have all announced plans to create Dolby Vision content for the home.  Management is anticipating up to 100 Dolby Vision titles available for home entertainment by the end of 2016.

Dolby Vision has made further progress with television set manufacturers.  The second largest TV manufacturer in the world, LG now includes Dolby Vision in its full lineup of 2016 OLED and Super UHD LCD TVS.  Vizio (2nd largest in TV Manufacturer in US) now has Dolby Vision in its R-series, P-series, and M-series of televisions.  In addition, Dolby Vision TVs are now shipping from Skyworks, the third largest TV manufacturer in the world.

In the over-the-top (“OTT”) sector, Dolby Vision is now streaming from Amazon, Netflix, and Vudu.

Financial Guidance

Management guidance for the fiscal fourth quarter is revenue in the range of $220 million to $230 million, gross margins between 88% and 89%, and earnings per share between $0.16 and $0.22.  Broadcast licensing is anticipated to represent 45% of total revenue during FQ4 2016.

Commenting on the quarter’s results, Kevin Yeaman, President and CEO, Dolby Laboratories stated, “Q3 results were strong, and we continued to build momentum with our new initiatives. We opened our first Dolby Cinema locations in China, grew the number of Dolby Vision televisions in market, and added a new Dolby Voice partner.”

 

Related Content:

Press Release: Dolby Fiscal Q3 2016 Earnings Release

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

AWS Continues Strong Growth and Margin Expansion in Q2

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 11 2016

Amazon reported results for the second quarter of 2016.  Since the first quarter of 2015, Amazon has been reporting the individual results of Amazon Web Services (AWS).  AWS had revenue of $2.88 billion in the quarter, a 58% increase over the year-earlier quarter, and an increase of 12.4% against the preceding quarter, Q1 2016.  For the trailing twelve months ending in the second quarter AWS generated $9.9 billion in revenue.  Amazon_AWS_Logo

AWS represented 9.5% of Amazon’s total sales for the quarter, an increase from the 7.8% contribution for Q1 2015, and an increase from the 8% contribution in Q1 2016.

While AWS represented 9.5% of sales from Amazon in the quarter, it contributed 56% of Amazon’s total operating income.  Operating income for the quarter was $718 million, a 135% year-over-year increase, and an 18.8% increase over the first quarter.

Operating margins for AWS in the quarter were 24.8%, a substantial increase over the 16.7% operating margins during Q2 2015, and an increase over the 23.5% margins in Q1 2016. The reporting of operating income includes a burden for stock-based compensation.  The margin expansion is reflecting efficiencies from AWS ever-growing infrastructure.

The reported revenue for AWS consists of the more than 70 services now offered from the AWS platform across including the sales of compute, storage, and database.  Amazon does not specifically address how much AWS revenue was attributable to the media industry.  However, the AWS figures are a great data point for better understanding the broader adoption of cloud services.

Speaking at the 2016 NAB Show Cloud Innovation Conference, Bhavik Vyas Global Alliance & Segment Leader in Media & Entertainment for AWS, offered several examples of media companies using AWS infrastructure for media operations.  The below slide is from Mr. Vyas’s presentation.

Bhavik-slide

 

The below chart from Amazon’s Q2 2016 earnings presentation illustrates the growth of revenue and operating income for AWS over the past year.

AWS-slide

Management attributed the growth in AWS revenue and profitability to increased customer usage and cost structure productivity.  This was partially offset by continued pricing decreases and increased spending on technology infrastructure.

Operating margins don’t capture the cash flow impact of capital expenditures and payments attributable to the financing of equipment for AWS, which is not disclosed directly.  It is a very capital intensive business.

Additional information from Amazon’s filings are illustrative of the significant level of investment in technology infrastructure attributed to AWS.  The Company’s total capital expenditures (cash) were $1.7 billion during the quarter, an increase of 42% versus both year-earlier period and the preceding quarter.  According to Amazon’s SEC filings, “This primarily reflects additional investments in support of continued business growth due to investments in technology infrastructure (the majority of which is to support AWS) and additional capacity to support our fulfillment operations.”

Cash capital expenditures do not account for property and equipment acquired under capital lease obligation (non-balance sheet items).  Property and equipment acquired under capital leases were $1.4 billion in Q2 2016, flat versus Q2 2015, and an increase of 60% against Q1 2016. Amazon attributes this spend to “investments in support of continued business growth primarily due to investments in technology infrastructure for AWS.”

On Amazon’s call with earnings analyst, Brian Olsavsky, SVP and Chief Financial Officer, responded to a question on the market rates of cloud adoption as follows, “We think still very early. Again, we like our position, our industry leading position in the cloud space, and we’re working on things that would incent more and more customers to accelerate their cloud conversion. The lower prices and services that we offer, and as I said, we’ll work on things that will make it easier and easier for customers to work with us with their hybrid data centers or transfer their volume to us.”

 

Related Content:

Press Release: Amazon Q2 2016 Earnings

Presentation: Amazon Q2 2016 Earnings

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

 

Harmonic Exceeds Revenue Guidance for Q2. Anticipates Double-Digit Operating Margins by Q4

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 10 2016

Harmonic announced revenue for second quarter of 2016 of $109.5 million, an increase of 6% versus Q2 2015 and an increase of 33% versus the preceding quarter Q1 2016.  Guidance for Q2 2016 had been for revenue in the range of $102 million – $107 million.  Meaning, the quarter’s revenue result exceeded the high-end of previous guidance. Harmonic_Logo

The quarter’s growth was primarily the result of revenue contribution from the Thomson Video Networks (“TVN”) acquisition, which closed in late February.  TVN contributed approximately $18 million in revenue for the quarter.  Management is expecting TVN to contribute $55 million to $60 million for the full year.

Included below is a slide from Harmonic’s earning presentation, which highlights several updates with the Company’s Video Business.  Of particular note, Harmonic’s VOS platform – for software bundles, COTS servers, and pure virtual machines – exceeded 75% of video encoding sales during the quarter.

harmonic-slide

GAAP gross margins were 46.9% for the second quarter, a 599 basis point decline versus the 52.8% recorded in Q2 2015 and a 288 basis point decline when compared to the 49.7% gross margins in Q1 2016.  Harmonic attributed the gross margin declines to a less favorable product mix and delays in recognizing software and services revenue.

For the quarter, Harmonic recorded a GAAP net loss of $20.4 million or $(0.27) per diluted share.  This compares to a net loss of $0.3 million or ($0.01) per share in Q2 2015 and a net loss of $25.2 million or ($0.33) per share in Q1 2016. This brings Harmonic’s GAAP net loss for the first six months of 2016 to $45.6 million.

The GAAP figures include several non-cash items or one-item items such as restructuring charges, amortization of intangibles, stock-based compensation, and inventory write-downs.  On a non-GAAP basis Harmonic’s net loss for the first six months of 2016 was $8.4 million.  One of the larger one-time items are charges related to the restructuring and integration of TVN.  Management is anticipating these costs in the in the range of $22 million to $24 million for 2016.

In its conference call with analyst, Harmonic confirmed it remains on track to realize $20 – $22 million of annual synergy savings from the integration of TVN.  The full impact of these savings will begin with the start of 2017.  Management believes the savings, combined with higher revenue levels will result in the Company achieving double-digit non-GAAP operating profit in Q4 2016.

“…as a percent of revenue our OpEx in Q3 and Q4 will be lower and particular in Q4 we’ll be at probably I think the lowest point that Harmonic has had for OpEx as a percent of revenue in a number of years and I think the most important point is with the operating expense run rate that we expect to have we will be in a position to generate double-digit operating profit in 2017 without a significant increase in revenue” said Harmonic’s CEO Patrick Harshman on the Company’s earnings call with management.

Bookings for the second quarter of 2016 were $117.3 million, an increase of 18.1% versus the year earlier period, and a 7.0% increase versus the preceding quarter.

The Company’s total backlog and deferred revenue was $190 million, up 57.7% and 5.8%over Q2 2015 and Q1 2016, respectively.  This is the highest level of backlog and deferred revenue in Harmonic history.

On a geographic basis:

  • Revenue from the Americas region contributed $57.7 million for the quarter, a decrease of 4.4% versus the prior year and a sequential increase of 17.8% against the preceding quarter. Americas accounted for 53% of Harmonic’s revenue for Q2 2016, a decline versus the 58% from Q2 2015, and also a decline when compared to the 59% contribution recorded in Q1 2016
  • Revenue from the EMEA region was $33.4 million for Q2 2016, an increase of 22.3% versus Q2 2015, and a substantial increase of 68.5% against the preceding quarter. The EMEA region was responsible for 31% of Harmonic’s revenue in the quarter, an increase versus the 27% contribution from Q2 2015, and a further increase from the 25% contribution in Q1 2016.  The strong performance in EMEA is likely attributable to the TVN acquisition.  At the time of the acquisition 50% of TVN’s revenue came from the EMEA region.
  • APAC revenue was $17.6 million during the quarter, a 14.4% increase against Q2 2015, and a 35.6% increase against Q1 2016. APAC represented 16% of Harmonic’s revenue for the quarter, a slight increase versus the 15% contribution in Q2 2015, and equivalent to the contribution in Q1 2016

On a product line basis:

  • Video products revenue for the quarter was $62.2 million, an increase of 10.8% compared to Q2 2015, and a significant increase of 6% versus Q1 2016. As a percent of total sales, video products represented 57% of revenue in Q2 2016.  This compares to 54% in year-earlier period Q2 2015 and 54% in the preceding quarter Q1 2016.  TVN contributed $18 million to Video products revenue in the quarter.  Management is expected continued sequential growth from Video products in Q3 and Q4.
  • Cable Edge revenue was $15.8 million during the quarter, a decrease of 26.2% versus Q2 2015, though an increase of 17.3% compared to the preceding quarter. Cable Edge represented 14% of revenue in Q2 2016, a decrease versus the 21% contribution in Q2 2015, and a decrease against the 16% of revenue recorded in Q1 2016.  A continued near-term decline of Harmonic’s legacy EdgeQAM technology is anticipated.  Harmonic remains on schedule to ship its CableOS product line in the fourth quarter of this year.
  • Services and support revenue amounted to $30.9 million in Q2 2016, an increase of 20.2% against Q2 2015, and an increase of 27.5% versus Q1 2016. Service and support revenue was 29% of revenue for Q2 2016, an increase over the 25% from Q2 2015, and a decrease against the 30% from Q1 2016

On a segment basis:

  • Broadcast and Media sales were $43.8 million during the quarter, a year-over-year increase of 12.2%, and a substantial rise of 43.4% against the preceding quarter. Broadcast and Media was responsible for 40% of revenue for the second quarter of 2016, a slight percent increase from the 38% in both Q2 2015 and Q1 2016.
  • Service Provider sales were $64.9 million in the second quarter, a 1.4% year-over-year increase, and an increase of 26.6% versus Q1 2016. Service Provider represented 60% of revenue in the quarter, a slight decrease from 62% contribution in Q2 2015, and a decrease from the 62% contribution during Q1 2016.

Operating Expenses:

  • Research and development (“R&D”) expense was $26.5 million for the quarter, an increase of 21.5% compared to Q2 2015, and an increase of 12.5% against Q1 2016. Expressed as a percentage of total revenue, R&D expense represented 24.3% of sales in the quarter.  This is up from 21.2% in Q2 2015, though down from the 28.8% in Q1 2016.
  • SG&A expense was $36.5 million for the quarter, an increase of 16.7% versus Q2 2015, and a rise of 11.1% compared to Q1 2016. As a percentage of total sales, SG&A was 33.5% of revenue in the quarter.  This compares to 30.3% in Q2 2015 and 40.2% in Q1 2016.

The increases in both operating expense categories was driven by the integration of TVN operations.

The Company’s cash position ended the second quarter of 2016 at $65.3 million, down from $76.2 million from the end of Q1 2016.  The decrease in cash was primarily due to an increase in accounts receivable.

Harmonic ended the second quarter with 1,403 employees, up from 1,019 at the end of Q1 2016.  The TVN acquisition added approximately 438 employees.

Business outlook:

For Q3 2016 management is anticipating total revenue in the range of $104.5M – $109.5M and GAAP gross margins of 50.0% – 51.0%.  Operating loss is expected between $12.5 million and $10.5 million with net loss of between $12.5 million to $10.5 million.

Video revenue is expected to contribute between $92.5 million and $95.5 million in the upcoming quarter with Cable Edge accounting for revenue of $12.0 million to $14.0 million.

Also, as part of the earning release, Management increased full year guidance to a GAAP revenue expectation of $408 million to $418 million for 2016.  Video revenue is now anticipated between $348 million to $353 million and Cable Edge revenue is expected between $60.0 million and $65.0 million.

Commenting on quarter’s results, Mr. Harshman stated, “So putting it all together here, our strong order book, positive market demand trends, and strong internal execution enable us to remain confident in delivering the double digit operating profit we targeted in Q4 as we exit the year.”

 

 

Related Content:

Press Release: Harmonic Q2 2016 Earnings Announcement

Press Release: Harmonic Q2 2016 Earnings Presentation

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Avid has Strong Q2, Raises Full-Year Guidance

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 08 2016

Avid Technology announced Q2 2016 GAAP revenue of $134.1 million, a year-over-year increase of 22.1% against Q2 2015, and a decline of 6.5% versus Q1 2016.  Avid Logo_ white background

Approximately 60% of the year-over-year growth is attributable to a change in the accounting treatment of revenue recognized for the release of the latest Pro Tools version 12.5.  The ability to more quickly recognize revenue reflects Avid’s progress over the past two years of eliminating the practice of implied support for products and transitioning to explicit support and recurring revenue models.

Avid did not disclose the amount of the growth attributable to revenue contribution from Orad, which was purchased in late June 2015.  As a reference, Orad had $10.4 million of revenue during Q1 2015.

Net income for the quarter was $13.0 million or $0.33 per share.  This compares to Q2 2016 net income of ($4.0) million or ($0.10) per share.  During the first quarter of 2016 Avid had net income of $20.9 million or $0.53 per share.

Gross margins (GAAP) for the quarter were 65.5%, an increase of 510 basis points when compared to the year earlier period, and a decrease of 420 basis points against the preceding quarter.

Operating income for Q2 2016 was $18.8 million, a substantial increase over the operating loss of $8.1 million in Q2 2015, though a decline of 26.8% versus Q1 2016.

R&D expense for the quarter were $21.4 million, an 8.1% decline against Q2 2015 R&D levels, and flat when compared to the first quarter of 2016.  As a percentage of revenue R&D expenses were 15.9% for the quarter, compared to 21.2% of total revenue in Q2 2015.

Sales and marketing costs for Q2 2016 were $30.2 million, representing an 8.0% decline versus Q2 2015 sales and marketing levels, and a decline of 4.4% versus Q1 2016.  Sales and marketing expenses were 22.5% of Q2 2016 revenue, a decline versus 29.9% of total revenue from the second quarter of 2015.

G&A expense was $16.8 million for Q2 2016, a decline of 3.5% versus the year-earlier quarter, and a decline of 5% against the preceding quarter.  Expressed in terms of total revenue, G&A expense was 12.5% of sales in Q2 2016 versus 15.9% in Q2 2015.

When considering the comparable period Q2 2015 figures do not include a full contribution of Orad’s operations (purchased in late June 2015), the decline across all operating expense categories – especially in sales – illustrates the impact of Avid’s recent 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 expense add backs for costs attributed to amortization, restructuring, restatements, stock-based compensation, acquisitions, integration activities, and efficiency program costs.  Adjusted EBITDA for the quarter was $29.4M, a substantial increase over the adjusted EBITDA of $1.4 million from Q2 2015.

Product and Services Revenue Breakdown

  • Product revenue for the quarter was $75.6 million, a slight decline of 0.7% versus the prior year, and a decline of 10.5% against the preceding quarter. Products represented 56.4% of overall revenue in the quarter, a decrease versus the 69.3% contribution during the second quarter of 2015.
    • Video solutions represented $44.5 million of Product sales, an increase of 3.9% versus the prior year. The primary cause of the increase in sales for the quarter was the contribution of revenues from the Orad acquisition.
    • Audio solution revenue for the quarter was $31.1 million, a decrease of 6.6% against the year-earlier period. Lower audio sales for the quarter were attributed to weaker Pro Tools sales.
  • Services revenue was $58.5 million, an increase of 73.9% versus the year-over-year period, and a slight decline of 0.8% against the preceding quarter. The rise in Services revenue was due to the accelerated revenue recognition associated with Pro Tools 12.5 sales.  For the quarter Services contributed 43.6% of total revenue, an increase versus the 30.6% contribution from Q2 2015.

Revenue by Geography

  • Revenues from the United States were $44.4 million for the quarter, an increase of 5.8% versus Q2 2015
  • Revenue contribution from Other Americas was $10.2 million, an increase of 54.2% on a year-over year basis
  • EMEA revenues were $58.9 million, a 25.3% increase against Q2 2015
  • The Asia-Pacific region contributed $20.5 million in revenue for the quarter, a rise of 44%

Update on Efficiency Initiative and Cash Generation

During the first quarter of 2016, Avid announced a $68 million (annualized) efficiency initiative.  As part of the Q2 2016 earnings release Avid’s management increased the efficiency target to $76 million.  A total of $57 million of the annualized savings have been achieved through the end of the second quarter.  The full savings are expected beginning in 2017.

Given the complexity of Avid’s financial statements, it is helpful to review the impact on the Company’s cash balance.  Cash used in operations for the quarter was $33.8 million.  This compares to cash used in operations of $30.8 in Q2 2015 and $11.2 million during the first quarter of 2016.

During Avid’s earlier first quarter release, Management cautioned the second quarter would experience negative cash flow between $27.5 million and $32.5 million.  It was attributable to a lower end of quarter accounts receivable balance for the first quarter, which was brought on by a decline in bookings.

Avid ended the quarter with $50.4 million in cash.  Avid had started the quarter with $87.8 million of cash.

Several factors have combined to make Avid’s financial disclosures difficult to comprehend, most notably the restatement in late 2014, which 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.  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.  (Much of the complexity will abate during the second half of 2016.)

In an effort to better communicate the results of Avid’s ongoing transformation, management references several new metrics.

Update on Transformation:

Below is a chart from Avid’s investor presentation for Q2 2016 illustrating several areas of progress on the market adoption of Avid’s Everywhere Platform.

avid-transformation

Commenting on the transformation progress, Avid CEO Louis Hernandez, Jr. stated, “Our financial results and operational performance this quarter underscore the progress we are making to transform our company into a service-platform business with strong positions in higher-growth categories and a greater proportion of recurring revenue. We have a clear path to complete this transformation by our target of mid-2017, which will enable us to accelerate growth, realize a more efficient cost structure, increase revenue visibility, and generate enhanced value for our shareholders over the long-term.”

Business Outlook:

Bookings for the quarter were $102.2 million, a decline of 13.3% versus Q2 2015, and a 4.3% increase compared to the first quarter of 2016.  The original guidance for Q2 2016 bookings was for $99 million to $115 million, so the results were in line with Q1 guidance.

For Q3 2016, management provided guidance of bookings between $100 million and $120 million.  The full backlog (post impact of restatement) was $464.7 million at the end of second quarter, a 14% decrease over the backlog at the end of the second quarter of 2015.  Avid has worked through much of the backlog introduced from the 2014 financial restatement.  The balance for the “pre-2011” backlog has been reduced to $8 million as of the end of the quarter.

Avid is expecting to begin generating adjusted free cash flow in the second half of 2016, starting with a breakeven cash flow result for the third quarter of 2016.  As part of the earnings release, Avid increased its full year guidance for 2016 (link to previous guidance) to the following,

avid-guidance

“We are raising our full-year guidance range for non-GAAP revenue and adjusted EBITDA. We are also improving our guidance range for non-GAAP operating expenses because we are increasing our annualized run-rate cost savings target to $76 million. We are on track to be cash flow positive for the full year as we continue to execute our efficiency program and growth initiatives. We are reaffirming guidance for bookings, although we expect to be at the lower end of the range, due to higher than expected volatility in the media enterprise marketsaid Mr. Hernandez.

 

Related Content:

Press Release on Avid’s Q2 2016 Earnings Results:

Earnings Presentation Avid Q2 2016 Results

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

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