Posts Tagged ‘SEC Filings’

As Media Companies Increase Cloud and IAAS Deployments, Amazon Reveals Scale of AWS

Analysis | Posted by Joe Zaller
Apr 28 2015

In a change that provides increased visibility into its cloud business, Amazon.com now breaks out the performance of Amazon Web Services (AWS) as a separate segment in its quarterly financial reporting.

This is a significant development for the media technology sector because AWS has become synonymous with discussions of Infrastructure as a Service (IaaS) and public cloud usage by media companies.  The topic has matured in the past few years and is now a central part of future technology strategies at media organizations.

However, Amazon  did not specifically address how much AWS revenue was attributable to the media industry.

Amazon reported that AWS revenue in the first quarter of 2015 was $1.57 billion, up 49% versus the same period a year ago. The reported figures for AWS consist of sales of compute, storage, database, and other AWS service offerings across all customer verticals.

AWS operating income in the first quarter of 2015 was $265m (a 16.9% operating margin), up 8% versus the same period a year ago. Excluding the favorable impact from foreign exchange, AWS segment operating income decreased 13%.

 

Amazon AWS Q1 2015 TTM Revenue and Operating Income - with source

 

In a letter to shareholders, Amazon CEO Jeff Bezos said AWS is “a $5 billion business and still growing fast — in fact it’s accelerating.”

Management attributed the growth to a rise in customer usage, though partially offset by reduction in pricing to customers.

The impact of pricing decreases is material.  AWS disclosed ‘usage’ growth in the fourth quarter of 2014 of 90% year-over-year. Though not a like-for-like comparison, it is a directional guidance for the gap between usage and revenue caused by pricing decreases.

 

Amazon Q1 2015 AWS Segment Results

 

On the company’s earnings call, Amazon SVP and CFO Tom Szkutak highlighted how the company continues to drive down the cost of AWS, saying “In terms of AWS, we’ve had 48 price decreases since inception. The team is doing a terrific job in terms of working on behalf of customers to pass on savings as they see it. So our model over the long-term really has been to innovate and to use our scale and position to be able to pass savings along to customers.”

For the first quarter of 2015, AWS contributed approximately 7% of the Company’s total revenue.  This was an increase versus the 5% of revenue AWS represented during the first quarter of 2014.  Despite representing only 7% of Amazon’s revenue, AWS contributed almost 38% of the Company’s operating income.  This is because AWS is a meaningfully more profitable business than Amazon’s traditional online retail operations.  AWS operating margins were nearly 17% in Q1 2015, which compares favorably to Amazon’s other businesses that in aggregate had operating margins of 2% during the first quarter.  A focus on operating margins ignores the interest expense attributable to the financing of equipment for AWS, which is not disclosed.

Even though growth was substantial at AWS during 2015, there is some curiosity around how the business scaled.  While revenue increased by 49%, operating income increased only 8% since operating expenses increased 61% over the same period.  The Company attributed the expense offset to investments in technology infrastructure to support business growth.  Some caution is necessary before drawing broader conclusions on how the business will scale since we have only limited data points at this time.

Additional disclosures in Amazon’s filings are illustrative of the level of investment in technology infrastructure.  The Company’s capital expenditures (cash) were $871 million in Q1 2015 and $1.1 billion in Q1 2014. A majority of this investment was attributable to AWS.  Property and equipment acquired under capital leases (non-balance sheet items) were $954 million in Q1 2015 and $716 million during Q1 2014. Again, the investments are primarily due to investments in technology infrastructure for AWS.

Discussing the ongoing investment required for the AWS business, Szkutak told analysts “from our perspective its business that’s still really in day one. A lot of potential innovation in front of us we believe. And so you can see we’re putting a lot of CapEx obviously there and including capital leases and we think over time we will be able to generate significant free cash flow with stronger ROICs.”

Whatever percentage a majority represents the resulting aggregate investment is considerable.  Media companies leveraging AWS are benefiting from a technology infrastructure built by investments made possible from expansive operations in other industries.  To put the scale of Amazon’s infrastructure in context to the media technology sector, consider the Company’s 2014 cash capital expenditures and equipment purchases under capital leases totaled a combined $8.9 billion (AWS is the largest driver of this spend, but does not consume all of this number).  This figure represents approximately one-third of all annual product sales in the media and broadcast technology sector based on the latest results of the IABM DC Global Market Valuation Report (www.iabmdc.com).

In his shareholder letter, Bezos said that even though AWS is highly capital-intensive, it is far less capital-intensive than the model it’s replacing.  Bezos cites utilization rates for internal data centers as almost always below 20%.  By aggregating workloads across customers AWS can then achieve much higher utilization rates and correspondingly improved capital efficiency.

This point was highlighted on the earnings call by Brian Olsavsky, VP and CFO of Amazon’s global consumer business, who said “It’s probably is worth adding that, although prices are factor, the primary factor for customers choosing with AWS is really around their ability to move quickly and to be nimble and agile. And so we’re very pleased with the kind of continued adoption and usage growth we’ve seen and obviously the benefits of AWS around their ability — customer’s ability — to be nimble as a primary factor.

CFO Szkutak added that the 48 price decreases since the launch of AWS is “one factor customers save a lot of money, but the primary motivator is really around the innovation that AWS enables and the ability for developers to move really quickly.”

Speed and agility are increasingly important to media companies, yet the specialized technology products used in media workflows often have low utilization rates – especially those used for certain types of news and sports applications.  In an environment where media companies are focused on greater efficiencies in technology infrastructure, improving these rates are a natural place to start.

The amount of revenue attributable to media and entertainment use cases is left to the imagination.  Amazon has stated publicly AWS has more than a million active customers.  Companies using AWS range across all sizes and business segment.  Media and entertainment examples include Netflix, Major League Baseball, PBS, and News Corp. During his fireside chat keynote at Shifting Media Economics: Impact on Strategy, Finance, and Technology” the annual conference co-produced by Devoncroft and organizers of the NAB Show, Bob Bowman President of MLB Advanced Media had high praise for AWS as a technology supplier.

To Amazon’s credit, the company participates at industry exhibitions including the recent NAB Show and the team is similarly visible at other industry events.  We are evangelists for broader IT vendors engaging with the industry vendor community and customer community.  Such focus has proven episodic from many large IT vendors historically, so it will be interesting to track Amazon’s engagement with interested parties in the sector going forward – a $5 billion business has many distractions.

AWS specifically and cloud vendors more broadly, are benefiting from a secular trend toward cloud usage among media and entertainment sector.  Included below is a slide taken from a Devoncroft presentation at the recent NAB Show; it offers context on the adoption of cloud by media companies. One of the benefits of having seven years of Big Broadcast Survey data is the ability to reflect on year-over-year trend information – even if the data is in the form of broadcaster commentary.  As illustrated in the below, the ‘cloud’ benefited from an embrace by technology purchasers during the 2013 calendar year.

cloud evolution

 

This increasing adoption and deployment of cloud technologies and services is in stark contrast with perspectives provided only a few years earlier.

Of course, any discussion of Cloud naturally transitions to a discussion of security given the recent high-profile security breaches.  We heard this multiple times from at the recent 2015 NAB Show during conversations with major media companies, broadcasters, and service providers.

Security of media assets in the cloud was also an important topic at “Shifting Media Economics: Impact on Strategy, Finance, and Technology” the annual conference co-produced by Devoncroft and organizers of the NAB Show. During a panel session featuring senior technology buyers from major North American media companies, it was observed by participants that businesses such as AWS are likely spending far more time, money, and resources on security than even the largest stand-alone media company could muster.

Whether such logic is extensible will translate into a shift of media infrastructure to public cloud providers such as AWS remains to be seen.

Our research shows that while many in the media industry are using AWS today for a variety of tasks, most high value content is currently being managed via private cloud implementations.

An interesting data point on the subject of private versus public cloud adoption in media was offered by Avid CEO Louis Hernandez, Jr. at the Jefferies Growth Conference earlier this year.  While describing how the company’s licensing models are evolving at different customer types, Hernandez said “Our large enterprise clients are sticking with on premise [implementations]… [they] are moving to a floating license and flexing in a pre-negotiated subscription on a project basis. Who’s buying cloud and subscriptions? Individuals.”

Nevertheless, AWS is a formidable business.  Amazon’s ability to continually invest the huge sums needed to greater compute, network, and storage performance at ever-lower prices can undoubtedly drive increased efficiencies for media companies.  Thus the market potential for AWS in the media space is potentially vast.  In his letter to shareholders, Jeff Bezos summed up as follows, “I believe AWS is one of those dreamy business offerings that can be serving customers and earning financial returns for many years into the future…I believe AWS is market-size unconstrained.”

 

 

Related Content:

Press Release: Amazon.com Announces First Quarter Sales Up 15% to $22.72 Billion

Q1 2015 Amazon.com, Inc. Earnings Conference Call Slides

Amazon Q1 2015 Form 10-Q Filing

Amazon.com Q1 2015 Letter to Shareholders

Industry Thought Leaders to Discuss “Shifting Media Economics: Impact on Strategy, Finance, and Technology” at 2015 NAB Show

 

© Devoncroft Partners 2009 – 2015. All Rights Reserved.

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ChyronHego Taken Private by PE Firm, Delisted from NASDAQ

Annual Results, Broadcast technology vendor financials, Broadcast Vendor M&A, Quarterly Results, SEC Filings | Posted by Joe Zaller
Mar 09 2015

ChyronHego LogoVector Capital has completed the previously announced $120m deal to acquire ChyronHego and take it private.

Under the terms of the deal, ChyronHego stockholders will receive $2.82 per share in cash, and ChyronHego common stock has ceased trading on the NASDAQ Stock Exchange.

According the definitive proxy statement, the purchase of ChyronHego will be funded by a combination of equity and debt financing.

Equity financing will be provided by Vector Capital and its affiliates, who have committed to pay approximately $49.3m towards the acquisition, and related expenses.

Debt financing is being provided by Silicon Valley Bank (SVB) and Apollo Investment Corporation (Apollo) in the form of a $50m senior secured five-year term loan, which is expected have interest of “either (i) the Eurodollar Base Rate plus 5.625% (subject to a 1.0% floor with respect to the Eurodollar Base Rate), or (ii) at the Adjusted Base Rate (defined as the highest of (w) 2.75% of (x) the Wall Street Journal Prime Rate and (y) the Federal Funds Rate plus 0.50%) plus 3.875%.”

Separately, SVB and Apollo have also providing a $7m senior secured revolving credit facility that has the same terms as the senior five-year term loan. ChyronHego will use the revolving credit facility for working capital and capital expenditures and other general corporate purposes.

In its last quarter as a public company (Q3 2014), ChyronHego posted a net loss of $2.6m on revenue of $14m.

During the first nine months of 2014, ChryronHego posted a net loss of $2.8m on revenue of $43.3m.

For the trailing twelve months (TTM) ended September 30, 2014, ChyronHego had revenue of $58m, comprised of $27.2m of product revenue and $30.8m of service revenue.

In a securities filing, ChyronHego said it ended 2014 with approximately $5.4m in cash and equivalents; and projected that its revenue for the full year 2014 would be $59m.

“We are delighted to be working with Vector Capital,” said Johan Apel, President and Chief Executive at ChyronHego. “As a private company, ChyronHego will be ideally positioned to reinforce the company’s leadership in news, sports and live production solutions. The Vector team has a strong track record of success in acquiring and operating innovative technology companies, and our partnership with them will enable us to reach new levels of scale, technological capabilities and customer service.”

David Fishman, Managing Director at Vector Capital, who will join ChyronHego’s Board of Directors, said: “We believe that as a private company with Vector’s financial support ChyronHego will be well positioned to capitalize on the significant opportunities in broadcast graphics creation, play-out and real time data visualization. Over time, we are confident the company will be well positioned to capitalize on the exciting trends in the sports, news and live television markets.”

“We welcome ChyronHego to the Vector family,” said Nick Lukens, Vice President at Vector. “We are very excited to roll up our sleeves and get to work with the talented team at ChyronHego. Through our partnership with management, we are committed to strengthening and expanding ChyronHego’s market leading product and service capabilities.”

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Related Content:

Press Release: Vector Capital Completes Acquisition of ChyronHego

Certificate of Merger

ChyronHego Makes Revealing Disclosures About “Going-Private” Transaction

Broadcast Vendor M&A: ChyronHego to be Taken Private by Vector Capital in $114 Million Deal

ChyronHego 8-K: Additional Disclosures Regarding Vector Transactions

ChyronHego: Definitive Proxy Statement on Vector Take-Private Transaction

ChyronHego Investor Presentation March 2014

ChyronHego Investor FAQ and Introduction to Vector Capital

Agreement and Plan of Merger: ChyronHego Corporation, Vector CH Holdings (Cayman), L.P., And CH Merger Sub, Inc.

ChyronHego SEC Filing: Entry into a Material Definitive Agreement with Vector Capital

ChyronHego One Year Stock Price Chart

Broadcast Vendor M&A: Vizrt to be Taken Private in $374 Million All-Cash Deal

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© Devoncroft Partners 2009 – 2015. All Rights Reserved.

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ChyronHego Makes Revealing Disclosures About “Going-Private” Transaction

Analysis, Annual Results, Broadcast technology vendor financials, Broadcast Vendor M&A | Posted by Joe Zaller
Feb 27 2015

ChyronHego_Logo

In November 2014 broadcast graphics specialist ChyronHego entered into a definitive agreement to be taken private by Vector Capital in an all-cash deal that valued ChyronHego at an equity value of approximately $114m, or $2.82 per share.

Shortly thereafter, six lawsuits challenging the proposed acquisition of the company were filed in the Supreme Court of the State of New York, which were subsequently consolidated into a single case.

The consolidated case alleges that the company’s directors “breached their fiduciary obligations in connection with their approval of the Merger Agreement by entering into a transaction that is coercive and constitutes an unfair and inequitable subversion of shareholders’ rights, and that the entity defendants aided and abetted those breaches.”

ChyronHego and Vector Capital recently entered into a memorandum of understanding (MOU) with respect to a proposed settlement of case, and agreed to provide more information relating to the proposed deal to take ChyronHego private.

According to a recent filing with securities regulators, ChyronHego has now disclosed additional information regarding the proposed deal, including the following:

  • Beginning in November 2013, ChyronHego’s board authorized ChyronHego’s President and Chief Executive Officer Johan Apel to explore ChyronHego’s strategic alternatives

 

  • ChyronHego and Vector Capital entered into a confidentiality agreement in February 2014

 

  • Discussions on the potential of ChryonHego’s management rolling over equity as part of the transaction did not occur with certain other interested parties.

 

  • During a Special Committee (consisting of Independent ChyronHego Directors) meeting in July 2014, the Company’s bankers were informed “Mr. Apel was not happy being the Chief Executive Officer of a publicly traded company.”

 

  • During the “go-shop period,” ChyronHego executives met with two interested parties, neither of which decided to make an offer

 

  • Additional information was provided on the valuation metrics used in the Company’s analysis of the purchase price offered by Vector.

 

 

Excerpts from ChyronHego Definitive Proxy Statement

The broader proxy statement is a lengthy read covering the historical events leading to the proposed transaction, ChyronHego’s rationale for entering the transaction, and additional information on the perspective of the board and management.

Several excerpts are worth highlighting:

  • Since November 2014, ChyronHego’s investment bankers contacted 85 potential buyers: 20 strategic buyers and 65 private equity buyers. Only nine potential buyers entered into confidentiality agreements to review more detailed materials.  None submitted bids for ChyronHego

 

  • In considering the merger, ChyronHego’s board noted the “significant increase in competition in competition in the broadcast graphics creation, playout and real-time data visualization industry over the past two years, which had led in some instances to pricing pressure and discounting on ChyronHego’s products and services, and consistent competition for clients and customers with other companies, such as Vizrt, that were increasingly well-capitalized.”

 

  • The board had concerns on ChyronHego’s access to capital as a small, public company. “Members of the Board believed, based on their experience with the capital markets, that issuers with small market capitalizations and insignificant levels of coverage by investment analysts generally have a more difficult time raising meaningful amounts capital on terms that are not punitively dilutive to their shareholders.”

 

  • ChyronHego provided the following financial projections to Vector Capital:

 

ChyronHego Projections to Vector

 

  • Financing for the transaction will include a rollover of existing management shares in an aggregate value of $23.3 million, an equity contribution by Vector Capital of $49.3 million, a $50 million senior secured loan, and an up to $7 million of senior secured revolving credit loan.

 

 

Thoughts on Transaction

Taken together the disclosures outline a lengthy and thorough process run by ChyronHego’s board and management to seek a buyer or other strategic alternative for the company.

On the question of valuation, the market has spoken.  As a reference, the transaction values ChyronHego at 19.2X LTM (last twelve months) EBITDA and 1.8x LTM revenue. A review of the public disclosures referenced above offers sensible statements by the board and management on concerns of access to greater resources, competitive positioning, and disadvantages of remaining public.

However, shareholder frustration is understandable given the proposed take-private price per share is lower than the 52-week high stock price.

Moreover, the company had previously communicated growth levels and market sizing estimates inconsistent with observable data points in the broadcast technology sector.

For example, the chart below is from ChyronHego’s March 2014 investor presentation, which was still on the company’s website at the time of writing, implies that company believes its addressable market is more than $1 billion.

 

ChyronHego TAM Estimate from 3-14 Investor Presentation

 

On ChyronHego’s Q2 2014 earnings call, CEO Johan Apel confirmed management’s view that the total addressable market was approximately $1 billion, comprised of $250m of broadcast graphics products, and $750m of services. This reiterated estimates made by previous management about the company’s addressable market on its Q2 2008, Q4 2011, and Q2 2012 earnings calls.

However, it is reasonable to conclude ChyronHego was in the process of communicating updated expectations of growth and market sizing.  To their credit, management had already reversed ground and communicated the need to seek other approaches to generate increased in shareholder value.  This led to a series of M&A transactions responsible for substantial all of ChyronHego’s recent growth.

Shareholders will vote on the proposed take-private deal at a special meeting of the company, which is scheduled to be held on March 6, 2015.

In the third quarter of 2014, ChyronHego posted a net loss of $2.6m on revenue of $14m. During the first nine months of 2014, ChryronHego posted a net loss of $2.8m on revenue of $43.3m.  For the trailing twelve months (TTM) ended September 30, 2014, ChyronHego had revenue of $58m, comprised of $27.2m of product revenue and $30.8m of service revenue

Assuming the transaction closes, it will be interesting to track developments of ChyronHego with its new owners Vector Capital.

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Related Content:

Broadcast Vendor M&A: ChyronHego to be Taken Private by Vector Capital in $114 Million Deal

ChyronHego 8-K: Additional Disclosures Regarding Vector Transactions

ChyronHego: Definitive Proxy Statement on Vector Take-Private Transaction

ChyronHego Investor Presentation March 2014

ChyronHego Investor FAQ and Introduction to Vector Capital

Agreement and Plan of Merger: ChyronHego Corporation, Vector CH Holdings (Cayman), L.P., And CH Merger Sub, Inc.

ChyronHego SEC Filing: Entry into a Material Definitive Agreement with Vector Capital

ChyronHego One Year Stock Price Chart

Broadcast Vendor M&A: Vizrt to be Taken Private in $374 Million All-Cash Deal

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© Devoncroft Partners 2009 – 2015. All Rights Reserved.

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Avid Releases First Financial Results in Nearly Two Years, Revenue Down 11.4 Percent in 2013

Broadcast technology vendor financials, Quarterly Results, SEC Filings | Posted by Joe Zaller
Sep 12 2014

Avid released financial results for the first time in nearly two years, following a protracted audit of it historic accounting treatment of software upgrades, dating back to 2009, which were made available to certain of its customers at no-charge.

The company has now completed the audit, and released financial results for both 2012 and 2013.  Avid has also released re-stated results for 2009-2011, which reflect the results of the audit.

For the full year 2013, Avid’s revenue was $563.4m, down 11.4% versus the previous year.

GAAP net income for the full year 2013 was $21.2m, down sharply from $92.9m in 2012. Non-GAAP income from continuing operations was $57.2 million or $1.46 per share. The company attributed the decline in revenue and net income to the larger portion of revenue from periods prior to 2011 being amortized in 2012 as compared to 2013 due changes in accounting rules.

The results for 2012 and 2013 are shown below, along with re-stated results from 2009-2011.

 

Avid restated earnings

 

“As a result of our restatement and in accordance with GAAP, revenue that had originally been recognized in earlier periods is now being recognized ratably over an extended timeframe,” said Avid EVP and CFO John Frederick. “The amount of revenue earned or to be earned over the entire period of recognition essentially remains unchanged from the amount we historically recognized. There was no change to the cash characteristics of the transactions being restated nor to the Company’s liquidity directly relating to these transactions. As a result of the restatement, the balance sheet reflects a significant increase in deferred revenue, which will be recognized in revenue over a number of years and will provide significant visibility into our future revenues. The revenue recognized from deferred revenue originating in periods prior to 2011 will continue in declining amounts through 2016, creating downward pressure on revenue growth until 2017.”

“We have worked diligently for well over a year on the restatement and are delighted to have completed the process,” said Louis Hernandez, Jr., president and CEO of Avid. “Throughout this period, we have put a premium on maintaining our focus on continued innovation for our customers and reasserting our commitment to being a strategic leader for the media industry with our Avid Everywhere vision. I’m encouraged by the progress we’ve made in executing against our three phase transformational strategy, and specifically with the growth in bookings over the past few quarters. Now that we have completed the restatement process, we are excited to continue our work on the transformation and feel the momentum building.”

Following the filing of Avid’s first quarter 2014 financial report, Avid plans to apply for relisting on the NASDAQ stock exchange, and hopes to be relisted on the NASDAQ stock exchange sometime after becoming current with its SEC reporting obligations. In the interim, Avid stock will continue to trade on OTC Markets — OTC Pink Tier under the trading symbol AVID.

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Avid 2013 10-K Filing

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Avid Says its 2009 – 2011 Financial Statements No Longer Reliable

Avid Delays Release of Q4 and Full Year 2012 Results, Shares Fall

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© Devoncroft Partners 2009 – 2014. All Rights Reserved.

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Avid Nears Completion of Accounting Audit, Says Normal Financial Reporting Cycle to Resume in Q3 2014

Broadcast technology vendor financials, Quarterly Results, SEC Filings | Posted by Joe Zaller
Aug 13 2014

Avid, which since February 2013 has been conducting an internal investigation into its current and historical accounting treatment related to software updates, said in a regulatory filing that in approximately four weeks, it expects to have completed its accounting audit and filed its annual report (Form 10-K) for the fiscal year ended December 31, 2013.

Because of its 18 month-long internal accounting audit, the company has not been able to file financial results with securities regulators since the third quarter of 2012.

This delay ultimately resulted in Avid’s stock being delisted from The NASDAQ Stock Market on February 25, 2014.

But with today’s announcement, it appears that the audit is nearly completed.

Avid now says that its 2013 Form 10-K will include results for the fiscal year ended December 31, 2012 and restated results for the fiscal year ended December 31, 2011. The company said it also intends to file its Form 10-Q for each of the three-month periods ended March 31, June 30 and September 30, 2013 concurrently with the 2013 Form 10-K filing.

The company will then file its Form 10-Q for the period ended March 31, 2014 approximately one week after filing the 2013 Form 10-K and file Form 10-Q for the period ended June 30, 2014 approximately 40 days later.

Avid then expects to be back to a normal reporting cycle beginning with the reporting of results for the third quarter of 2014.

When the Avid does report its financials, it will bring an end to a process that began in February 2013 when the company announced that it would delay the announcement of its Q4 and full year 2012 results in order “to provide additional time for the company to evaluate its current and historical accounting treatment related to bug fixes, upgrades and enhancements to certain products which the company has provided to certain customers.”

That news came just two weeks after Avid named Louis Hernandez, Jr. to replace Gary Greenfield as the company’s president and CEO.

In May of 2013, Avid said that, as a result of its internal review, the company had determined that its financial statements from 2009 – 2011 are no longer reliable, and must be restated “because of errors in the application of US GAAP.”

At issue is the historic accounting treatment the company applied for certain software upgrades, dating back to 2009, which were made available to certain of its customers at no-charge. Avid management said in August 2013 that it has now determined that these upgrades should have been accounted for as “implied post-contract customer support” under US GAAP accounting rules.

The problem is that Avid has had a lot of transactions since 2009, and each one must be reviewed.

In January 2014, the company said it had made significant progress toward completion of the restatement, including evaluating transactions over an eight-and-a-half year period, encompassing a review of approximately 5 million transaction lines and 700 software releases.

Not only is this a time-consuming process, it’s also expensive. In January 2014, Avid said its cash expenditures in 2014 related to the ongoing accounting evaluation through completion of the evaluation will amount to approximately $25m to $34m.

On June 30, 2014 Avid’s cash and debt balances were $23m and $5m respectively, $48m no debt at on December 31, 2013.

Avid says it expects remaining payments related to the restatement as of July 1, 2014 to amount to approximately $12m to $14m.

Despite its well-publicized financial woes over the past few years, our market research during this same period shows that Avid continues to enjoy a strong brand reputation and customer loyalty, particularly among broadcasters and large media companies.

It’s also interesting to note that, while it may be a coincidence, the timing of Avid planned release of its historic financials more or less exactly coincides with the AvidConnect Europe event, and the 2014 IBC trade show in Amsterdam.

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Related Content:

Press Release: Avid Announces Timeline for Restatement

Avid to be Delisted from NASDAQ on February 25, 2014

Avid Receives Anticipated NASDAQ Delist Letter

New Avid Rights Agreement Will Cause “Substantial Dilution” to Potential Acquirers

Avid Unlikely to Regain Compliance with NASDAQ Listing Requirements by March 2014 Deadline

Avid Technology and Computershare Trust Company as Rights Agent, Rights Agreement Dated as of January 6, 2014

Avid Receives Additional Notice of Potential NASDAQ Delisting

Avid Delays Filing of Q2 2013 Financial Results and Form 10-Q

New Avid Bonus Plan Contemplates “Reorganization Event”

Avid Says its 2009 – 2011 Financial Statements No Longer Reliable

Avid Delays Release of Q4 and Full Year 2012 Results, Shares Fall

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© Devoncroft Partners 2009 – 2014. All Rights Reserved.

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Avid Receives Additional Notice of Potential NASDAQ Delisting

Broadcast technology vendor financials, Quarterly Results, SEC Filings | Posted by Joe Zaller
Aug 19 2013

Avid announced that it has received an additional notification from the NASDAQ Listing Qualifications Department that the company remains non-compliant with NASDAQ Listing Rule 5250(c)(1) due to the delay in filing its Form 10-Q for the quarter ended June 30, 2013.

Failure to regain compliance with Listing Rule 5250(c)(1) could serve as a basis for the delisting of the Avid’s stock from the NASDAQ Global Select Market.

Avid said it anticipated the receipt of the letter, and that the notification has no immediate effect on the listing of Avid’s common stock on the NASDAQ Global Select Market.

The NASDAQ notification requires Avid to submit an update to its original plan to regain compliance with NASDAQ’s filing requirements for continued listing by August 21, 2013.

Avid says it intends to submit such an update to its original plan by the required date.

If NASDAQ accepts Avid’s plan, the company could be given until September 16, 2013, to regain compliance.

If NASDAQ does not accept Avid’s plan, Avid will have the opportunity to appeal that decision to a NASDAQ Hearings Panel.

The latest notification stems from Avid’s previously announced internal audit of the way it historically accounted for certain software upgrades delivered to certain customers.  When this process has been completed, Avid will restate its financial results the fiscal years ended December 31, 2011, 2010 and 2009 and for the quarterly periods ended March 31, 2012 and 2011, June 30, 2012 and 2011, and September 30, 2012 and 2011

As a result of the ongoing audit, Avid is currently unable to file its annual report on Form 10-K for the year ended December 31, 2012 and quarterly reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013.

Avid says it is working diligently to complete the accounting evaluation, the restatements and the filings as soon as possible.

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Related Content:

Avid 8-K Filing: Receipt of Anticipated NASDAQ Letter

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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ChyronHego Avoids NASDAQ Delisting as Shareholder Equity Rises After Merger

Broadcast technology vendor financials, Broadcast Vendor M&A, Quarterly Results, SEC Filings | Posted by Joe Zaller
Aug 13 2013

ChyronHego, said in a regulatory filing that the company believes that it has regained compliance with NASDAQ Listing Rule 5450(b)(1)(A), which requires companies listed on the NASDAQ Global Market to maintain a minimum of $10,000,000 in stockholders’ equity.

On August 9, 2013, Chyron received a letter from NASDAQ stating that the Exchange has determined Chyron now complies with the continued listing requirement for shareholders’ equity, subject to the Chyron providing evidence of its compliance upon filing its quarterly report on Form 10-Q for the quarter ended June 30, 2013.

This notification formally puts to rest an issue that Chyron has been dealing with for the past six months.

In March 2013, Chyron received notice of potential delisting from NASDAQ because its stockholder’s equity has fallen below the minimum $10m threshold set by rules of the Exchange.

At that time, Chyron explained that its stockholder’s equity fell below the $10m threshold at the end of 2012 because it took a $19.5m accounting charge against deferred tax assets. Because this allowance reduced the company’s shareholders’ equity by $19.5m, Chyron company ended the year 2012 with shareholders’ equity of about $1.9m, which put it in violation of NASDAQ’s listing requirement.

In accordance with NASDAQ Listing Rules, Chyron had 45 calendar days from the date of the notice to submit to NASDAQ a plan to regain compliance with its listing requirement.

In April 2013 Chyron submitted to NASDAQ its plan to regain compliance with the minimum stockholders’ equity requirement. NASDAQ granted Chyron an extension to regain compliance with the stockholders’ equity requirement until August 15, 2013, by which date the company will be required to file its quarterly report on Form 10-Q for the quarter ended June 30, 2013.

A key factor in Chyron’s plan to regain compliance was the company’s then-proposed merger with Hego, which has now been successfully completed.

Under the terms of the Chyron – Hego Stock Purchase Agreement Chyron paid $1,000 in cash and issued 12,199,431 shares of its common stock to the former Hego stockholders in exchange for all of the issued and outstanding shares of Hego. The issuance of the 12,199,431 shares, at a value of $1.36 per share at the closing of the transaction, resulted in an increase in the Company’s shareholders’ equity of approximately $16.6m.

The company says that as a result of the Hego merger, and following the release of Chyron’s Q2 2013 results, its shareholders’ equity was approximately $17.9m June 30, 2013, comfortable above the minimum threshold set by NASDAQ.

Following the announcement of its Q2 2013 earnings, Chyron filed an 8-K with regulators that disclosing that it has received a letter NASDAQ  stating that once the company files its Form 10-Q for the period ended June 30, 2013, it will officially be compliant with all NASDAQ listing requirements.

In the same filing, Chyron published its management incentive compensation plan for the second half of 2013.  The company says that it terminated its previous 2013 incentive plan and adopted a new plan that include new executive officers and management and aligns the interests of all members of management, including certain members of management that became executive officers of the Company upon the consummation of the business combination with Hego during the second quarter of 2013.

On Chyron’s Q2 2013 earnings call, company CEO Michael Wellesley-Wesley briefly discussed the delisting, saying “As instructed by NASDAQ, we notified the SEC directly and, thus, the NASDAQ indirectly this morning via a current report on Form 8-K that was filed at the SEC before market opened of our compliance with NASDAQ’s minimum shareholders equity requirement and we now consider the matter closed.”

Wellesley-Wesley has long assured shareholders that the company would do whatever it takes to avoid delisting.

On the company’s Q1 2013 earnings call in May 2013 he said: “The bottom line is this – these shares are not going to be delisted. There are all kinds of ways that we can get back in compliance. We’ll make sure that we don’t get delisted.”

With this latest filing, it looks as though Wellesley-Wesley has made good on his promise to ChyronHego shareholders.

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Related Content:

Chyron 8-K Filing: Notice of Renewed Compliance with NASDAQ Listing Rule 5450(b)(1)(A)

Chyron 8-K Filing: Company believes it has regained compliance with NASDAQ’s shareholders’ equity requirement

ChyronHego Corporation: Second Half of 2013 Management Incentive Compensation Plan

Hego Merger Drives 39 Percent Revenue Increase for Chyron in Q2 2013

Chyron Q2 2013 Earnings Call Transcript

Chyron Revenue Up 2 Percent in Q1 2013, Gives Update on Merger, Layoffs, and Potential NASDAQ Delisting

Chyron Lays Off 20 Employees, Says it will Save $3 Million per Year

Chyron Receives Another Delisting Notice From NASDAQ

More Broadcast Vendor M&A: Chyron to Acquire Hego Group in All-Stock Deal

Chyron – Hego Stock Purchase Agreement

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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Avid Delays Filing of Q2 2013 Financial Results and Form 10-Q

Broadcast technology vendor financials, Quarterly Results, SEC Filings | Posted by Joe Zaller
Aug 13 2013

Avid said that due to an ongoing internal audit of past treatment of software upgrades, it “is not able to complete and cannot file its quarterly report on Form 10-Q for the quarter ended June 30, 2013 by the prescribed due date or by August 14, 2013.” The disclosure was made in a regulatory filing with the SEC. The company has also delayed the filing of its Q2 2013 earnings.

The focus of Avid’s internal audit is the past accounting treatment of certain software upgrades that the company previously made available to certain of its customers at no-charge. Avid management has now determined that these upgrades should have been accounted for as “implied post-contract customer support” under US GAAP accounting rules.

As a result, Avid is currently in the process of restating its financial statements for the fiscal years ended December 31, 2011, 2010 and 2009 and for its quarterly periods ended September 30, 2012 and 2011, June 30, 2012 and 2011, and March 31, 2012 and 2011.

Because the work required to review and restate historical transactions has not yet been completed, the company says it is not in a position at this time to compare results of operations for the quarters ended June 30, 2012 and 2013 respectively, resulting in the delayed filing of its 10-Q for the second quarter of 2013.

It’s worth noting that the work being done by the company is an internal accounting review that focuses on the timing of revenue recognition, not the validity or overall amount of revenue received.

Avid says that although the restatement adjustments will impact previously reported revenue and operating results for prior periods, they are “not expected to affect the amount of total revenue ultimately to be earned, or the amount or timing of cash received or to be received, from the sales transactions or the company’s liquidity or cash flow for any prior period.”

After reviewing current and previous regulatory filings, it appears that the crux of the matter is that in past periods Avid recognized the revenue received for the software upgrades in question at the time the upgrade was performed, rather than over the “implied post-contract customer support period” specified in GAAP accounting rules.

Given the fact that Avid is presumably be going back over every single transaction for the three-year period from 2009 to 2011, this process is going to take some time.

Indeed, the audit has been ongoing for many months and has already resulted in the delayed filing of Avid’s Q4 2012 results, 2012 10-K filing, and Q1 2013 results.  In May 2013, the company received notice of potential delisting from the NASDAQ stock market for failure to submit its 10-K filing for 2012.

Avid has not disclosed the value of the software upgrades in question. It also says that at this time it “cannot estimate the full impact of the adjustments of revenue and costs, and the related impact on income taxes, on any previously issued financial statements for any individual reporting period, although it may be significant.”  Avid also said that “the timing of recognition of certain costs related to these customer arrangements may also be impacted, along with the timing of related income taxes.”

Avid has not disclosed how much it has spent on the ongoing audit. However, in July 2013, the company said in a filing that “expects that additional cash expenditures related to the ongoing accounting evaluation through the fiscal year ending December 31, 2013 will amount to approximately $11 million to $14 million.”  This includes up to $1.7 million for a potential Remediation Bonus that will be paid once the company has filed its 2012 Form 10-K with securities regulators.

During this process, Avid has made significant changes to its finance team during the past six months.  In July 2012 the company said that Karl Johnsen, the company’s chief accounting officer & controller has left the company. In April 2013 Avid announced that John Frederick, who joined the company in February 2013 as Chief of Staff became CFO, replacing Ken Sexton, who has been Avid’s CFO since 2008 under previous CEO Gary Greenfield. Prior to joining Avid, Frederick was the Corporate EVP and CFO at Open Solutions, where he served under current Avid CEO Louis Hernandez.

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Related Content:

Avid for NT 10-Q: Notice of Delayed Filing of Form 10-Q for the Period Ended June 30, 2013

New Avid Bonus Plan Contemplates “Reorganization Event”

Avid 8-K July 25 2013 — VP Finance Transition and Remediation Bonus

Avid 2013 Remediation Bonus Plan

Amended and Restated 2005 Stock Incentive Plan

Avid Replaces Chief Accounting Officer

Avid Replaces Chief Financial Officer

Avid Says its 2009 – 2011 Financial Statements No Longer Reliable

Avid Delays Release of Q4 and Full Year 2012 Results, Shares Fall

Avid Receives Notice of Potential Delisting From NASDAQ for Failure to Submit 10-K Filing

Greenfield Resigns from Avid Board of Directors

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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Bankruptcy Court Approves Kit Digital Restructuring, Company to Rebrand as “Piksel” Before IBC 2013

broadcast industry technology trends, Broadcast technology vendor financials, SEC Filings | Posted by Joe Zaller
Aug 06 2013

After more than a year of rumor, speculation, management changes, and shareholder lawsuits, it appears that the Kit Digital roller coaster ride is finally coming to an end – with a successful outcome for company management.

The one-time high-flying online video delivery provider announced that its Plan of Reorganization under Chapter 11 will be confirmed by the U.S. Bankruptcy Court for the Southern District of New York.

KIT digital filed for voluntary bankruptcy protection in April 2013 “to cleanse itself of legacy issues, including financial, legal and regulatory matters.”

At that time, the company filed a Reorganization Plan with the Court under which it would go into bankruptcy, be recapitalized by a “plan sponsor group” of investors, and emerge as profitable, debt-free business.

According to the Reorganization Plan, the company entered Chapter 11 with the intention of closing at least eight loss-making subsidiaries, while retaining four of its profitable subsidiaries: Ioko 365, Polymedia, KIT digital France and KIT digital Americas.  In its filings with the Court, Kit disclosed that the aggregate revenue generated in 2012 by these four remaining business was approximately $134.5 million.

With the new announcement, it appears the company’s Reorganization Plan has now been approved by the Bankruptcy Court.

Kit says that once it emerges from Chapter 11, it will change its name to “Piksel,” and re-brand in time for the IBC trade show in September 2013.

If the company can overcome the “legacy baggage” of Kit Digital, Piksel may turn out to be a formidable player in the broadcast industry once it is fully up and running later this year.

According to Court documents, Piksel will have more 800 employees and revenues in excess of $100m, making it one of the largest players in the industry broadcast industry, where the majority of its business comes from.  After emerging from Chapter 11, it’s also likely that the company will have little debt.

More importantly, Piksel will operate in an area where broadcasters and media companies are increasingly focusing their attention, the management and delivery of multi-screen video services.  Not only does the new company have core technical expertise in this area, it also boasts a large professional services organization capable of specifying and implementing complex multi-screen deployments, and a 24×7 network monitoring operation, which is offered as a service to clients who do not want to build their own multi-platform NOC.

It remains to be seen how well the company will fare once it comes out of Chapter 11, but Peter Heiland, who became interim CEO of Kit Digital in August 2012, provide a few clues in his upbeat statement about the company’s future. “Piksel is set to emerge as a healthy, dynamic company with a great mix of talented employees, market-leading customers, profitable assets, and sufficient liquidity for operations and investments,” he said.

Heiland went on to say that the new company will “leverage its solutions expertise; the flexibility of which will be driven by a suite of software applications, industry partnerships, and world-class professional and managed services.”  He also acknowledged the people who helped the company through what was presumably a traumatic period, saying “I would like to thank all of those who dedicated so much time and effort, including our employees and advisors, to helping us complete our restructuring.”

KIT digital will officially rebrand as Piksel on August 29, 2013.

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Related Content:

Press Release: KIT digital Restructuring Approved; Prepares to Exit Bankruptcy and Change Name to Piksel

Kit Digital Announces $6 Million Settlement of Securities Lawsuits

KIT Digital Files For Chapter 11 Bankruptcy, Plans to Re-Emerge as “Healthier, Focused Company” by IBC 2013

KIT Digital: Chapter 11 Plan of Reorganization

KIT Digital: Voluntary Petition for Chapter 11 & List of 30 Largest Unsecured Creditors

KIT Digital: Declaration of Fabrice Hamaide in Support of Debtor’s Chapter 11 Petition

KIT Digital Delisted by NASDAQ, Will Not Appeal

Activist Investor Heiland Becomes CEO at KIT Digital

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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New Avid Bonus Plan Contemplates “Reorganization Event”

Broadcast technology vendor financials, Quarterly Results | Posted by Joe Zaller
Aug 01 2013

Avid recently established a new employee bonus plan, whereby payments will be triggered upon the earlier of:

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(i)            filing by the Company of its Annual Report on Form 10-K with respect to the year ended December 31, 2012 (the “10-K Filing Date”);

 

(ii)           immediately prior to consummation of a Reorganization Event (as defined in the Company’s Amended and Restated 2005 Stock Incentive Plan);

              

(iii)          with respect to Participants who are not officers of the Company (as defined in Rule 16a-1 promulgated pursuant to the Securities Exchange Act of 1934, as amended) as of such date, March 31, 2014; and

              

(iv)          with respect to Participants who are officers of the Company (as defined in Rule 16a-1 promulgated pursuant to the Securities Exchange Act of 1934, as amended) as of March 31, 2014, such date on or subsequent to March 31, 2014 as may be determined in the sole discretion of the Committee.

 

According to the terms of the program,  “In no event shall a Bonus Payment Date be subsequent to December 31, 2014, and the Plan shall terminate upon the earlier of (x) all Bonus Payments being made pursuant to the Plan and (y) December 31, 2014.”

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Companies establish bonus schemes all the time, and at a total of $1.7m, this one is nothing unusual for a company of Avid’s size and available cash ($56.1m as of June 30, 2013).

So what’s the big deal?

It’s entirely possible that there is no big deal here.  The company will file its delayed Form 10-K with the SEC and carry on as usual.

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However, it is interesting to note that Avid has specifically said a potential time for bonus payments is:

 “immediately prior to consummation of a Reorganization Event (as defined in the Company’s Amended and Restated 2005 Stock Incentive Plan)”

 

According to Avid’s Amended and Restated 2005 Stock Incentive Plan (found in Appendix C of this document):

“(1)    Definition.    A “Reorganization Event” shall mean:

(i) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled,

(ii) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or

(iii) any liquidation or dissolution of the Company.”

 

It’s widely known that Avid is in the middle of a major accounting review.

Avid replaced its CFO in April 2013, and announced in July 2013 that it has also replaced its  Chief Accounting Officer.

 

In February 2013, Avid delayed the release of its Q4 and full year 2012 results, saying it needed “additional time for the company to evaluate its current and historical accounting treatment related to bug fixes, upgrades and enhancements to certain products which the company has provided to certain customers.”

 

In March 2013 the company received notice of potential delisting from NASDAQ for failure to submit its 2012 10-K filing to the SEC.

 

In May 2013, Avid said that following an internal investigation into its current and historical accounting treatment related to software updates, the company concluded that its “unaudited interim consolidated financial statements for the quarterly periods ended (i) September 30, 2012 and 2011, (ii) June 30, 2012 and 2011, and (iii) March 31, 2012 and 2011, as well as its audited consolidated financial statements for the years ended December 31, 2011, 2010 and 2009 should no longer be relied upon because of errors in the application of US GAAP.”

At that time Avid said it is “working diligently to complete the review and continues to focus its efforts on completing the Form 10-K filing as soon as possible,” and that it intends to submit a plan to NASDAQ staff as to how it intends to regain compliance with continued listing requirements.

 

There’s no doubt that these public disclosures, along with a raft of shareholder lawsuits related to the company’s accounting review are probably making it a bit stressful at Avid these days.

But as they say: “the show must go on,” and Avid’s employees must continue to serve the needs of their customers with a “business as usual” mentality, despite what must be a very distracting time for the company.  Thus it’s only logical that the Avid would seek to reward and retain its key employees through the new bonus pool.

It also seems logical that Avid would be considering all its options during a time like this, and judging by the language of the bonus agreement the company is planning for a variety of outcomes – three of which include business as usual and no change in corporate structure or company ownership.

In the event that something does happen to trigger a “Reorganization Event,” as defined by the company’s Amended and Restated 2005 Stock Incentive Plan, it’s probably safe to assume this is far more likely to be a merger or sale than  a liquidation of the company, which at the end of the day is another “business as usual” outcome.

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Related Content:

Avid 2013 Remediation Bonus Plan

Amended and Restated 2005 Stock Incentive Plan

Avid Replaces Chief Accounting Officer

Avid Replaces Chief Financial Officer

Avid Says its 2009 – 2011 Financial Statements No Longer Reliable

Avid Delays Release of Q4 and Full Year 2012 Results, Shares Fall

Avid Receives Notice of Potential Delisting From NASDAQ for Failure to Submit 10-K Filing

Greenfield Resigns from Avid Board of Directors

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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