ITEM 1. UNAUDITED FINANCIAL STATEMENTS
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net revenues:
|
|
|
|
|
|
|
|
Products
|
$
|
36,850
|
|
|
$
|
35,775
|
|
|
$
|
107,295
|
|
|
$
|
98,121
|
|
Services
|
64,790
|
|
|
54,656
|
|
|
183,585
|
|
|
158,044
|
|
Total net revenues
|
101,640
|
|
|
90,431
|
|
|
290,880
|
|
|
256,165
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
Products
|
20,468
|
|
|
20,957
|
|
|
60,044
|
|
|
58,873
|
|
Services
|
15,269
|
|
|
11,217
|
|
|
43,379
|
|
|
34,322
|
|
Total cost of revenues
|
35,737
|
|
|
32,174
|
|
|
103,423
|
|
|
93,195
|
|
Gross profit
|
65,903
|
|
|
58,257
|
|
|
187,457
|
|
|
162,970
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
17,129
|
|
|
13,623
|
|
|
48,639
|
|
|
42,116
|
|
Marketing and selling
|
24,413
|
|
|
19,998
|
|
|
66,511
|
|
|
64,977
|
|
General and administrative
|
14,901
|
|
|
10,796
|
|
|
42,214
|
|
|
34,144
|
|
Restructuring costs, net
|
(88)
|
|
|
723
|
|
|
1,001
|
|
|
1,008
|
|
Total operating expenses
|
56,355
|
|
|
45,140
|
|
|
158,365
|
|
|
142,245
|
|
|
|
|
|
|
|
|
|
Operating income
|
9,548
|
|
|
13,117
|
|
|
29,092
|
|
|
20,725
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(1,646)
|
|
|
(4,566)
|
|
|
(5,547)
|
|
|
(15,437)
|
|
Other income, net
|
7,864
|
|
|
143
|
|
|
4,459
|
|
|
233
|
|
Income before income taxes
|
15,766
|
|
|
8,694
|
|
|
28,004
|
|
|
5,521
|
|
Provision for income taxes
|
991
|
|
|
707
|
|
|
1,832
|
|
|
1,546
|
|
Net income
|
$
|
14,775
|
|
|
$
|
7,987
|
|
|
$
|
26,172
|
|
|
$
|
3,975
|
|
|
|
|
|
|
|
|
|
Net income per common share – basic
|
$0.32
|
|
$0.18
|
|
$0.58
|
|
$0.09
|
Net income per common share – diluted
|
$0.32
|
|
$0.18
|
|
$0.56
|
|
$0.09
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding – basic
|
45,564
|
|
|
44,019
|
|
|
45,115
|
|
|
43,665
|
|
Weighted-average common shares outstanding – diluted
|
46,428
|
|
|
44,758
|
|
|
46,449
|
|
|
44,498
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net income
|
$
|
14,775
|
|
|
$
|
7,987
|
|
|
$
|
26,172
|
|
|
$
|
3,975
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(738)
|
|
|
995
|
|
|
(1,980)
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
14,037
|
|
|
$
|
8,982
|
|
|
$
|
24,192
|
|
|
$
|
5,089
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
50,485
|
|
|
$
|
79,899
|
|
Restricted cash
|
1,422
|
|
|
1,422
|
|
Accounts receivable, net of allowances of $1,422 and $1,478 at September 30, 2021 and December 31, 2020, respectively
|
58,125
|
|
|
78,614
|
|
Inventories
|
22,215
|
|
|
26,568
|
|
Prepaid expenses
|
6,766
|
|
|
6,044
|
|
Contract assets
|
22,612
|
|
|
18,579
|
|
Other current assets
|
2,335
|
|
|
2,366
|
|
Total current assets
|
163,960
|
|
|
213,492
|
|
Property and equipment, net
|
15,211
|
|
|
16,814
|
|
Goodwill
|
32,643
|
|
|
32,643
|
|
Right of use assets
|
25,202
|
|
|
29,430
|
|
Deferred tax assets, net
|
5,413
|
|
|
6,801
|
|
Other long-term assets
|
6,462
|
|
|
5,958
|
|
Total assets
|
$
|
248,891
|
|
|
$
|
305,138
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
22,413
|
|
|
$
|
21,823
|
|
Accrued compensation and benefits
|
26,320
|
|
|
29,105
|
|
Accrued expenses and other current liabilities
|
34,511
|
|
|
42,264
|
|
Income taxes payable
|
1,447
|
|
|
1,664
|
|
Short-term debt
|
9,159
|
|
|
4,941
|
|
Deferred revenue
|
76,658
|
|
|
87,974
|
|
Total current liabilities
|
170,508
|
|
|
187,771
|
|
Long-term debt
|
162,990
|
|
|
202,759
|
|
Long-term deferred revenue
|
10,109
|
|
|
11,284
|
|
Long-term lease liabilities
|
24,466
|
|
|
28,462
|
|
Other long-term liabilities
|
7,249
|
|
|
7,786
|
|
Total liabilities
|
375,322
|
|
|
438,062
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
Common stock, par value $0.01; authorized: 100,000 shares; issued: 45,693 shares at September 30, 2021 and 44,420 shares at December 31, 2020; outstanding: 45,281 shares at September 30, 2021 and 44,420 shares at December 31, 2020
|
454
|
|
|
442
|
|
Treasury stock
|
(11,169)
|
|
|
—
|
|
Additional paid-in capital
|
1,030,116
|
|
|
1,036,658
|
|
Accumulated deficit
|
(1,142,175)
|
|
|
(1,168,347)
|
|
Accumulated other comprehensive loss
|
(3,657)
|
|
|
(1,677)
|
|
Total stockholders’ deficit
|
(126,431)
|
|
|
(132,924)
|
|
Total liabilities and stockholders’ deficit
|
$
|
248,891
|
|
|
$
|
305,138
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Shares of
Common Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
Total
|
|
Issued
|
In
Treasury
|
|
Common
Stock
|
Paid-in
Capital
|
Accumulated
Deficit
|
Treasury
Stock
|
Comprehensive
Loss
|
Stockholders’
Deficit
|
Balances at January 1, 2021
|
44,420
|
—
|
|
442
|
1,036,658
|
(1,168,347)
|
—
|
(1,677)
|
(132,924)
|
|
|
|
|
|
|
|
|
|
|
Stock issued pursuant to employee stock plans
|
592
|
—
|
|
6
|
|
(7,712)
|
—
|
—
|
—
|
(7,706)
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
—
|
|
—
|
3,122
|
—
|
—
|
—
|
3,122
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
—
|
|
—
|
—
|
4,391
|
—
|
—
|
4,391
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
—
|
—
|
|
—
|
—
|
—
|
—
|
(1,457)
|
(1,457)
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2021
|
45,012
|
—
|
|
448
|
|
1,032,068
|
|
(1,163,956)
|
|
—
|
(3,134)
|
|
(134,574)
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued pursuant to employee stock plans
|
513
|
—
|
|
4
|
(5,973)
|
—
|
—
|
—
|
(5,969)
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
—
|
|
—
|
3,580
|
—
|
—
|
—
|
3,580
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
—
|
|
—
|
—
|
7,006
|
—
|
—
|
7,006
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
—
|
—
|
|
—
|
—
|
—
|
—
|
215
|
215
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2021
|
45,525
|
—
|
|
452
|
1,029,675
|
(1,156,950)
|
—
|
(2,919)
|
(129,742)
|
|
|
|
|
|
|
|
|
|
|
Stock issued pursuant to employee stock plans
|
168
|
—
|
|
2
|
(3,073)
|
—
|
—
|
—
|
(3,071)
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
—
|
(412)
|
|
—
|
—
|
—
|
(11,169)
|
—
|
(11,169)
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
—
|
|
—
|
3,514
|
—
|
—
|
—
|
3,514
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
—
|
|
—
|
—
|
14,775
|
—
|
—
|
14,775
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
—
|
—
|
|
—
|
—
|
—
|
—
|
(738)
|
(738)
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2021
|
45,693
|
(412)
|
|
454
|
1,030,116
|
(1,142,175)
|
(11,169)
|
(3,657)
|
(126,431)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Shares of
Common Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
Total
|
|
Issued
|
In
Treasury
|
|
Common
Stock
|
Paid-in
Capital
|
Accumulated
Deficit
|
Treasury
Stock
|
Comprehensive
Loss
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2020
|
43,150
|
—
|
|
430
|
1,027,824
|
(1,179,409)
|
—
|
(3,930)
|
(155,085)
|
|
|
|
|
|
|
|
|
|
|
Stock issued pursuant to employee stock plans
|
398
|
—
|
|
4
|
(1,818)
|
—
|
—
|
—
|
(1,814)
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
—
|
|
—
|
2,109
|
—
|
—
|
—
|
2,109
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
—
|
|
—
|
—
|
(5,857)
|
—
|
—
|
(5,857)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
—
|
—
|
|
—
|
—
|
—
|
—
|
(815)
|
(815)
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2020
|
43,548
|
—
|
|
434
|
1,028,115
|
(1,185,266)
|
—
|
(4,745)
|
(161,462)
|
|
|
|
|
|
|
|
|
|
|
Stock issued pursuant to employee stock plans
|
368
|
—
|
|
|
3
|
|
(538)
|
|
—
|
|
—
|
|
—
|
|
(535)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
2,726
|
|
—
|
|
—
|
|
—
|
|
2,726
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,845
|
|
—
|
|
—
|
|
1,845
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
934
|
|
934
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2020
|
43,916
|
—
|
|
437
|
1,030,303
|
(1,183,421)
|
—
|
(3,811)
|
(156,492)
|
|
|
|
|
|
|
|
|
|
|
Stock issued pursuant to employee stock plans
|
207
|
—
|
|
2
|
(1)
|
—
|
—
|
—
|
1
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
—
|
—
|
|
—
|
3,297
|
—
|
—
|
—
|
3,297
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
—
|
|
—
|
—
|
7,987
|
—
|
—
|
7,987
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
—
|
—
|
|
—
|
—
|
—
|
—
|
995
|
995
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2020
|
44,123
|
—
|
|
439
|
1,033,599
|
(1,175,434)
|
—
|
(2,816)
|
(144,212)
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 30,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
26,172
|
|
|
$
|
3,975
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
6,323
|
|
|
6,317
|
|
Allowance for doubtful accounts
|
401
|
|
|
1,349
|
|
Stock-based compensation expense
|
10,216
|
|
|
8,132
|
|
Non-cash provision for restructuring
|
841
|
|
|
653
|
|
Non-cash interest expense
|
386
|
|
|
3,408
|
|
Loss on extinguishment of debt
|
2,579
|
|
|
—
|
|
Gain on forgiveness of PPP loan
|
(7,800)
|
|
|
—
|
|
Unrealized foreign currency transaction (gains) losses
|
(1,400)
|
|
|
219
|
|
Benefit from deferred taxes
|
1,388
|
|
|
997
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable
|
20,089
|
|
|
12,741
|
|
Inventories
|
4,353
|
|
|
788
|
|
Prepaid expenses and other assets
|
(1,343)
|
|
|
1,390
|
|
Accounts payable
|
590
|
|
|
(26,440)
|
|
Accrued expenses, compensation and benefits and other liabilities
|
(10,635)
|
|
|
7,752
|
|
Income taxes payable
|
(217)
|
|
|
81
|
|
Deferred revenue and contract assets
|
(16,525)
|
|
|
(12,519)
|
|
Net cash provided by operating activities
|
35,418
|
|
|
8,843
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchases of property and equipment
|
(4,750)
|
|
|
(5,619)
|
|
Net cash used in investing activities
|
(4,750)
|
|
|
(5,619)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds from revolving line of credit
|
—
|
|
|
22,000
|
|
Repayment on revolving line of credit
|
—
|
|
|
(22,000)
|
|
Proceeds from long-term debt
|
180,000
|
|
|
7,800
|
|
Repayment of debt
|
(208,142)
|
|
|
(1,474)
|
|
Payments for repurchase of common stock
|
(10,526)
|
|
|
—
|
|
Payments for repurchase of outstanding notes
|
—
|
|
|
(28,867)
|
|
Proceeds from the issuance of common stock under employee stock plans
|
363
|
|
|
252
|
|
Common stock repurchases for tax withholdings for net settlement of equity awards
|
(17,108)
|
|
|
(2,610)
|
|
Unwind capped call cash receipt
|
—
|
|
|
875
|
|
Prepayment penalty on extinguishment of debt
|
(1,169)
|
|
|
—
|
|
Payments for credit facility issuance costs
|
(2,574)
|
|
|
(289)
|
|
Net cash used in financing activities
|
(59,156)
|
|
|
(24,313)
|
|
|
|
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(927)
|
|
|
1,394
|
|
Net decrease in cash, cash equivalents and restricted cash
|
(29,415)
|
|
|
(19,695)
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
83,638
|
|
|
72,575
|
|
Cash, cash equivalents and restricted cash at end of period
|
54,223
|
|
|
52,880
|
|
Supplemental information:
|
|
|
|
Cash and cash equivalents
|
$
|
50,485
|
|
|
$
|
49,142
|
|
Restricted cash
|
$
|
1,422
|
|
|
$
|
1,664
|
|
Restricted cash included in other long-term assets
|
$
|
2,316
|
|
|
$
|
2,074
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
$
|
54,223
|
|
|
$
|
52,880
|
|
|
|
|
|
Cash paid (refunded) for income taxes
|
$
|
706
|
|
|
$
|
(659)
|
|
Cash paid for interest
|
$
|
6,354
|
|
|
$
|
13,579
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AVID TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements include the accounts of Avid Technology, Inc. and its wholly owned subsidiaries (collectively, “we” or “our”). These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for their fair statement. Interim results are not necessarily indicative of results expected for any other interim period or a full year. We prepared the accompanying unaudited condensed consolidated financial statements in accordance with the instructions for Form 10-Q and, therefore, include all information and footnotes necessary for a complete presentation of operations, comprehensive income, financial position, changes in stockholders’ deficit, and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated balance sheet as of December 31, 2020 was derived from our audited consolidated financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements. We filed audited consolidated financial statements as of and for the year ended December 31, 2020 in our Annual Report on Form 10-K for the year ended December 31, 2020, which included information and footnotes necessary for such presentation. The financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
The consolidated results of operations for the three or nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence.
The novel coronavirus (COVID-19) pandemic, together with the measures implemented or recommended by governmental authorities and private organizations in response to the pandemic, has had a material adverse impact to the Company's business, operating results and financial condition primarily due to reduced demand for our products and services which has led to lower net revenues.
The Company began experiencing a significant decline in international and domestic demand due to COVID-19 by the end of the first quarter of 2020, and this reduction in demand continued through the balance of 2020. These economic impacts were the result of, but not limited to:
•the postponement or cancellation of film and television productions, major sporting events, and live music events;
•delays in purchasing and projects by our enterprise customers and channel partners;
•disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and
•decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders.
Through 2021, our results have shown a gradual recovery towards pre-pandemic spending levels with the continuing positive signs of recovery from the impacts of the COVID-19 pandemic driven by vaccination and government stimulus programs, particularly in the United States. At the same time, certain countries continue to face challenges with renewed lockdowns and travel restrictions and there remains uncertainty relating to the ongoing spread and severity of the virus and its variants. While we are encouraged by the trends we have seen so far in 2021, to the extent that the pandemic continues to have negative impacts on economies, our results could be affected and uneven. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.
Our preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from our estimates.
Significant Accounting Policies - Revenue Recognition
We enter into contracts with customers that include various combinations of products and services, which are typically capable of being distinct and are accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectability is probable. We recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.
We often enter into contractual arrangements that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These arrangements may include a combination of products, maintenance, training, and professional services. We allocate the transaction price of the arrangement based on the relative estimated standalone selling price of each distinct performance obligation.
See Note 9 for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is intended to enhance and simplify aspects of the income tax accounting guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption permitted. Our adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements To Be Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.
2. NET INCOME PER SHARE
Net income per common share is presented for both basic income per share (“Basic EPS”) and diluted income per share (“Diluted EPS”). Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common share equivalents outstanding during the period.
The potential common shares that were considered anti-dilutive securities were excluded from the diluted earnings per share calculations for the relevant periods either because the sum of the exercise price per share and the unrecognized compensation cost per share was greater than the average market price of our common stock for the relevant periods, or because they were considered contingently issuable. The contingently issuable potential common shares result from certain stock options and restricted stock units granted to our employees that vest based on performance conditions, market conditions, or a combination of performance and market conditions.
The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
Options
|
—
|
|
|
390
|
|
Non-vested restricted stock units
|
930
|
|
|
3,220
|
|
Anti-dilutive potential common shares
|
930
|
|
|
3,610
|
|
The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding for the three and nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine month ended
|
|
September 30, 2021
|
September 30, 2020
|
|
September 30, 2021
|
September 30, 2020
|
Weighted common shares outstanding - basic
|
45,564
|
|
44,019
|
|
|
45,115
|
|
43,665
|
|
Net effect of common stock equivalents
|
864
|
|
739
|
|
|
1,334
|
|
833
|
|
Weighted common shares outstanding - diluted
|
46,428
|
|
44,758
|
|
|
46,449
|
|
44,498
|
|
3. FAIR VALUE MEASUREMENTS
Assets Measured at Fair Value on a Recurring Basis
We measure deferred compensation investments on a recurring basis. As of September 30, 2021 and December 31, 2020, our deferred compensation investments were classified as either Level 1 or Level 2 in the fair value hierarchy. Assets valued using quoted market prices in active markets and classified as Level 1 are money market and mutual funds. Assets valued based on other observable inputs and classified as Level 2 are insurance contracts.
The following tables summarize our deferred compensation investments measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
September 30,
2021
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
Deferred compensation assets
|
$
|
372
|
|
|
$
|
99
|
|
|
$
|
273
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
December 31, 2020
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
Deferred compensation assets
|
$
|
522
|
|
|
$
|
282
|
|
|
$
|
240
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Not Recorded at Fair Value
The carrying amounts of our other financial assets and liabilities including cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.
4. INVENTORIES
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Raw materials
|
$
|
6,710
|
|
|
$
|
8,223
|
|
Work in process
|
304
|
|
|
353
|
|
Finished goods
|
15,201
|
|
|
17,992
|
|
Total
|
$
|
22,215
|
|
|
$
|
26,568
|
|
As of September 30, 2021 and December 31, 2020, finished goods inventory included $1.6 million and $1.2 million, respectively, associated with products shipped to customers and deferred labor costs for arrangements where revenue recognition had not yet commenced.
5. LEASES
We have entered into a number of facility leases to support our research and development activities, sales operations, and other corporate and administrative functions in North America, Europe, and Asia, which qualify as operating leases under U.S. GAAP. We also have a limited number of equipment leases that qualify as either operating or finance leases. We determine if contracts with vendors represent a lease or have a lease component under U.S. GAAP at contract inception. Our leases have remaining terms ranging from less than one year to seven years. Some of our leases include options to extend or terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
Operating lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. As our leases generally do not provide an implicit rate, we use an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. As of September 30, 2021, the weighted average incremental borrowing rate was 6.0% and the weighted average remaining lease term was 6.0 years.
Finance lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. Each lease agreement provides an implicit discount rate used to determine the present value of future payments. As of September 30, 2021, the weighted-average discount rate was 2.3% and the weighted average remaining lease term was 2.0 years.
Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total operating lease costs were $1.7 million and $2.2 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $5.4 million and $7.2 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. Related cash payments were $1.9 million and $2.0 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and were $5.8 million and $6.9 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. Short term lease costs were $0.4 million and $1.0 million for the three and nine months ended September 30, 2021, respectively. Short term lease costs for the three and nine months ended September 30, 2020 were immaterial. Operating lease costs are included within research and development, marketing and selling, and general and administrative lines on the condensed consolidated statements of operations, and the related cash payments are included in the operating cash flows on the condensed consolidated statements of cash flows. Finance lease costs, variable lease costs, and sublease income are not material.
The table below reconciles the undiscounted future minimum lease payments for operating and finance leases under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheets as of September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating Leases
|
Finance Leases
|
2021 (excluding nine months ended September 30, 2021)
|
$
|
1,847
|
|
$
|
167
|
|
2022
|
6,549
|
|
255
|
|
2023
|
5,613
|
|
226
|
|
2024
|
4,942
|
|
—
|
|
2025
|
5,031
|
|
—
|
|
Thereafter
|
11,695
|
|
—
|
|
Total future minimum lease payments
|
$
|
35,677
|
|
$
|
648
|
|
Less effects of discounting
|
(6,004)
|
|
(13)
|
|
Total lease liabilities
|
$
|
29,673
|
|
$
|
635
|
|
Supplemental balance sheet information related to leases was as follows (in thousands):
|
|
|
|
|
|
Operating Leases
|
September 30, 2021
|
Right of use assets
|
$
|
25,202
|
|
|
|
Accrued expenses and other current liabilities
|
(5,207)
|
|
Long-term lease liabilities
|
(24,466)
|
|
Total lease liabilities
|
$
|
(29,673)
|
|
|
|
|
|
|
|
Finance Leases
|
September 30, 2021
|
Other assets
|
$
|
490
|
|
|
|
Accrued expenses and other current liabilities
|
(246)
|
|
Other long-term liabilities
|
(389)
|
|
Total lease liabilities
|
$
|
(635)
|
|
6. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
$
|
5,407
|
|
|
$
|
5,818
|
|
Finance lease liabilities
|
389
|
|
|
472
|
|
Other long-term liabilities
|
1,453
|
|
|
1,496
|
|
Total
|
$
|
7,249
|
|
|
$
|
7,786
|
|
7. COMMITMENTS AND CONTINGENCIES
Commitments
We entered into a long-term agreement to purchase a variety of information technology solutions from a third party in the second quarter of 2020, which included an unconditional commitment to purchase a minimum of $32.2 million of products and services over the initial five years of the agreement. We have purchased $9.2 million of products and services pursuant to this agreement as of September 30, 2021.
We have letters of credit that are used as security deposits in connection with our leased Burlington, Massachusetts office space. In the event of default on the underlying leases, the landlords would, at September 30, 2021, be eligible to draw against the letters of credit to a maximum of $0.7 million in the aggregate. The letters of credit are subject to aggregate reductions provided that we are not in default under the underlying leases and meet certain financial performance conditions. In no case will the letters of credit amounts for the Burlington leases be reduced to below $0.7 million in the aggregate throughout the lease periods.
We also have letters of credit in connection with security deposits for other facility leases totaling $0.6 million in the aggregate, as well as letters of credit totaling $1.9 million that otherwise support our ongoing operations. These letters of credit have various terms and expire during 2021 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.
Substantially all of our letters of credit are collateralized by restricted cash included in the caption “Restricted cash” and “Other long-term assets” on our condensed consolidated balance sheets as of September 30, 2021.
Contingencies
Our industry is characterized by the existence of a large number of patents and frequent claims and litigation regarding patent and other intellectual property rights. In addition to the legal proceedings described below, we are involved in legal proceedings from time to time arising from the normal course of business activities, including claims of alleged infringement of intellectual property rights and contractual, commercial, employee relations, product or service performance, or other matters. We do not believe these matters will have a material adverse effect on our financial position or results of operations. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, our financial position or results of operations may be negatively affected by the unfavorable resolution of one or more of these proceedings for the period in which a matter is resolved. Our results could be materially adversely affected if we are accused of, or found to be, infringing third parties’ intellectual property rights.
Following the termination of our former Chairman and Chief Executive Officer on February 25, 2018, we received a notice alleging that we breached the former executive’s employment agreement. On April 16, 2019, we received an additional notice again alleging we breached the former executive’s employment agreement. We have since been in communications with our former Chairman and Chief Executive Officer’s counsel. While we intend to defend any claim vigorously, when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible losses that could occur as a result of this matter.
On July 14, 2020, we sent a notice to a customer demanding sums that we believe are due to Avid pursuant to a contract. On October 7, 2020, the customer sent a notice to us denying any legal liability and demanding payment for breach of contract resulting from various alleged delays by us. While we intend to defend any claim vigorously when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible losses that could occur related to this matter.
We consider all claims on a quarterly basis and based on known facts assess whether potential losses are considered reasonably possible, probable, and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our condensed consolidated financial statements. We record a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
At September 30, 2021 and as of the date of filing of these condensed consolidated financial statements, we believe that, other than as set forth in this note, no provision for liability nor disclosure is required related to any claims because: (a) there is no reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim, (b) a reasonably possible loss or range of loss cannot be estimated, or (c) such estimate is immaterial.
Additionally, we provide indemnification to certain customers for losses incurred in connection with intellectual property infringement claims brought by third parties with respect to our products. These indemnification provisions generally offer perpetual coverage for infringement claims based upon the products covered by the agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions is theoretically unlimited. To date, we have not incurred material costs related to these indemnification provisions; accordingly, we believe the estimated fair value of these indemnification provisions is immaterial. Further, certain of our arrangements with customers include clauses whereby we may be subject to penalties for failure to meet certain performance obligations; however, we have not recorded any related material penalties to date.
We provide warranties on externally sourced and internally developed hardware. For internally developed hardware, and in cases where the warranty granted to customers for externally sourced hardware is greater than that provided by the manufacturer, we record an accrual for the related liability based on historical trends and actual material and labor costs. The following table sets forth the activity in the product warranty accrual account for the nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
Accrual balance at beginning of period
|
$
|
1,095
|
|
|
$
|
1,337
|
|
Accruals for product warranties
|
988
|
|
|
1,030
|
|
Costs of warranty claims
|
(900)
|
|
|
(1,003)
|
|
Accrual balance at end of period
|
$
|
1,183
|
|
|
$
|
1,364
|
|
The warranty accrual is included in the caption “accrued expenses and other current liabilities” in our condensed consolidated balance sheet.
8. RESTRUCTURING COSTS AND ACCRUALS
In October 2020, we committed to a restructuring plan in order to undergo a strategic reorganization of our business. The strategic reorganization involved significant changes in business operations to better support our strategy and overall performance. The restructuring plan related to our strategic reorganization is expected to be substantially completed in 2021.
During the three months ended September 30, 2021, we recorded recoveries of $0.1 million due to employee severance cost adjustments. During the nine months ended September 30, 2021, we recorded restructuring charges of $1.0 million for employee severance costs related to approximately 24 positions eliminated throughout 2021.
During the three months and nine months ended September 30, 2020, we recorded restructuring charges of $0.7 million and $1.0 million, respectively, for employee severance costs.
The following table sets forth the activity in the restructuring accruals for the nine months ended September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
Accrual balance as of December 31, 2020
|
$
|
3,687
|
|
|
|
|
|
|
|
|
|
Restructuring charges and revisions
|
838
|
|
|
|
|
|
|
|
|
|
Cash payments
|
(3,778)
|
|
|
|
|
|
|
|
|
|
Foreign exchange impact on ending balance
|
(24)
|
|
|
|
|
|
|
|
|
|
Accrual balance as of September 30, 2021
|
$
|
723
|
|
|
|
|
|
|
|
|
|
The employee restructuring accrual at September 30, 2021 represents severance costs to former employees that will be paid out within 12 months, and is, therefore, included in the caption “accrued expenses and other current liabilities” in our condensed consolidated balance sheets as of September 30, 2021.
9. REVENUE
Disaggregated Revenue and Geography Information
Through the evaluation of the discrete financial information that is regularly reviewed by the chief operating decision makers (our chief executive officer and chief financial officer), we have determined that we have one reportable segment.
The following table is a summary of our revenues by type for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and solutions net revenues
|
$
|
36,850
|
|
|
$
|
35,775
|
|
|
$
|
107,295
|
|
|
$
|
98,121
|
|
Subscription services
|
28,008
|
|
|
17,907
|
|
|
74,384
|
|
|
48,292
|
|
Maintenance
|
30,702
|
|
|
30,826
|
|
|
90,997
|
|
|
93,190
|
|
Professional services, training and other services
|
6,080
|
|
|
5,923
|
|
|
18,204
|
|
|
16,562
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
101,640
|
|
|
$
|
90,431
|
|
|
$
|
290,880
|
|
|
$
|
256,165
|
|
The following table sets forth our revenues by geographic region for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenues:
|
|
|
|
|
|
|
|
United States
|
$
|
45,026
|
|
|
$
|
36,190
|
|
|
$
|
126,084
|
|
|
$
|
105,166
|
|
Other Americas
|
5,222
|
|
|
4,505
|
|
|
15,030
|
|
|
15,841
|
|
Europe, Middle East and Africa
|
38,782
|
|
|
37,537
|
|
|
109,400
|
|
|
99,478
|
|
Asia-Pacific
|
12,610
|
|
|
12,199
|
|
|
40,366
|
|
|
35,680
|
|
Total net revenues
|
$
|
101,640
|
|
|
$
|
90,431
|
|
|
$
|
290,880
|
|
|
$
|
256,165
|
|
Contract Asset
Contract asset activity for the nine months ended September 30, 2021 and 2020 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
Contract asset at beginning of year
|
$
|
18,579
|
|
|
$
|
19,494
|
|
Revenue in excess of billings
|
43,757
|
|
|
22,045
|
|
Customer billings
|
(39,724)
|
|
|
(26,263)
|
|
Contract asset at end of period
|
$
|
22,612
|
|
|
$
|
15,276
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
Deferred revenue activity for the nine months ended September 30, 2021 and 2020 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
Deferred revenue at beginning of period
|
$
|
99,258
|
|
|
$
|
97,901
|
|
Billings deferred
|
56,846
|
|
|
47,723
|
|
Recognition of prior deferred revenue
|
(69,337)
|
|
|
(64,460)
|
|
Deferred revenue at end of period
|
$
|
86,767
|
|
|
$
|
81,164
|
|
A summary of the significant performance obligations included in deferred revenue is as follows (in thousands):
|
|
|
|
|
|
|
September 30, 2021
|
Product
|
$
|
4,364
|
|
Subscription
|
7,380
|
|
Maintenance contracts
|
66,676
|
|
Implied PCS
|
6,400
|
|
Professional services, training and other
|
1,947
|
|
Deferred revenue at September 30, 2021
|
$
|
86,767
|
|
Remaining Performance Obligations
For transaction prices allocated to remaining performance obligations, we apply practical expedients and do not disclose quantitative or qualitative information for remaining performance obligations (i) that have original expected durations of one year or less and (ii) where we recognize revenue equal to what we have the right to invoice and that amount corresponds directly with the value to the customer of our performance to date.
Historically, for many of our products, we had an ongoing practice of making when-and-if-available software updates available to customers free of charge for a period of time after initial sales to customers. The expectation created by this practice of providing free Software Updates represents an implied obligation of a form of post-contract customer support (“Implied PCS”) which represents a performance obligation. While we have ceased providing Implied PCS on new product offerings, we continue to provide Implied PCS for older products that were predominately sold in prior years. Revenue attributable to Implied PCS performance obligations is recognized over time on a ratable basis over the period that Implied PCS is expected to be provided, which is typically six years. We have remaining performance obligations of $6.4 million attributable to Implied PCS recorded in deferred revenue as of September 30, 2021. We expect to recognize revenue for these remaining performance obligations of $0.7 million for the remainder of 2021 and $2.2 million, $1.5 million, $1.0 million and $0.6 million for the years ending December 31, 2022, 2023, 2024, and 2025, respectively, and $0.4 million thereafter.
As of September 30, 2021, we had approximately $40.7 million of transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately $32.0 million of these performance obligations were unbilled as of September 30, 2021. Remaining performance obligations represent obligations
we must deliver for specific products and services in the future where there is not yet an enforceable right to invoice the customer. Our remaining performance obligations do not include contractually committed minimum purchases that are common in our strategic purchase agreements with resellers since our specific obligations to deliver products or services is not yet known, as customers may satisfy such commitments by purchasing an unknown combination of current or future product offerings. While the timing of fulfilling individual performance obligations under the contracts can vary dramatically based on customer requirements, we expect to recognize the $40.7 million in roughly equal installments through 2026.
Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations due to contract breach, contract amendments, and changes in the expected timing of delivery.
10. LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Term Loan, net of unamortized issuance costs and debt discount of $2,188 and $2,579 at September 30, 2021 and December 31, 2020, respectively
|
$
|
171,062
|
|
|
$
|
198,629
|
|
PPP loan
|
—
|
|
|
7,800
|
|
Other long-term debt
|
1,087
|
|
|
1,271
|
|
Total debt
|
$
|
172,149
|
|
|
$
|
207,700
|
|
Less: current portion
|
9,159
|
|
|
4,941
|
|
Total long-term debt
|
$
|
162,990
|
|
|
$
|
202,759
|
|
The following table summarizes the contractual maturities of our borrowing obligations as of September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Credit Agreement
|
|
Other Long-Term Debt
|
|
Total
|
2021
|
$
|
2,250
|
|
|
39
|
|
|
$
|
2,289
|
|
2022
|
9,000
|
|
|
162
|
|
|
9,162
|
|
2023
|
13,500
|
|
|
174
|
|
|
13,674
|
|
2024
|
18,000
|
|
|
186
|
|
|
18,186
|
|
2025
|
18,000
|
|
|
200
|
|
|
18,200
|
|
Thereafter
|
112,500
|
|
|
326
|
|
|
112,826
|
|
Total before unamortized discount
|
173,250
|
|
|
1,087
|
|
|
174,337
|
|
Less: unamortized discount and issuance costs
|
2,188
|
|
|
—
|
|
|
2,188
|
|
Less: current portion of long-term debt
|
9,000
|
|
|
159
|
|
|
9,159
|
|
Total long-term debt
|
$
|
162,062
|
|
|
$
|
928
|
|
|
$
|
162,990
|
|
Credit Agreement
On January 5, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as collateral and administrative agent, and a syndicate of banks, as lenders thereunder (the “Lenders”). Pursuant to the Credit Agreement, the Lenders agreed to provide the Company with (a) a term loan in the aggregate principal amount of $180.0 million (the “Term Loan”) and (b) a revolving credit facility (the “Credit Facility”) of up to a maximum of $70.0 million in borrowings outstanding at any time. The Credit Facility, which was undrawn at closing, can be used for working capital, other general corporate purposes and for other permitted uses. The proceeds from the Term Loan, plus available cash on hand, were used to repay outstanding borrowings of $201 million under the Company’s prior financing
agreement with Cerberus Business Finance, LLC ( the “Financing Agreement”), which was then terminated. As a result of this termination, the Company incurred a loss on extinguishment of debt of $3.7 million as a result of writing off $2.6 million of remaining unamortized issuance costs as well as a $1.1 million prepayment penalty.
The Term Loan has an initial interest rate of LIBOR plus an applicable margin of 3.00%, with a 0.25% LIBOR floor. The applicable margin on the Term Loan and the Credit Facility ranges from 2.00% to 3.25%, depending on leverage. The effective interest rate for the three months ended September 30, 2021 was 2.86%.
The Term Loan requires quarterly principal payments which commenced in March 2021 equal to 5.0% of the original principal amount of the Term Loan in years one and two, 7.5% of the original principal amount of the Term Loan in year three, and 10% of the original principal amount of the Term Loan in years four and five, with the remaining aggregate principal amount due at maturity.
The Company granted a security interest on substantially all of its assets to secure the obligations under the Credit Facility and the Term Loan.
The Credit Agreement contains two financial covenants: (i) a requirement to maintain a total net leverage ratio, as defined in the Credit Agreement, of no more than 4.00 to 1.00 through June 30, 2021, with step downs thereafter, and (ii) a requirement to maintain a fixed charge coverage ratio, as defined in the Credit Agreement, of no less than 1.20 to 1.00. Both the Term Loan and the revolving Credit Facility mature on January 5, 2026. We were in compliance with the Credit Agreement covenants as of September 30, 2021.
In connection with the Credit Agreement, the Company incurred $2.5 million of issuance discounts and an immaterial amount of issuance costs. The Term Loan discount and issuance costs will be amortized over the five year life of the Credit Agreement. We recorded $1.3 million and $4.1 million of interest expense on the Term Loan for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, there were no amounts drawn under the Credit Facility.
PPP Loan
On May 11, 2020, the Company received $7.8 million of proceeds in connection with its incurrence of a loan under the Paycheck Protection Program (“PPP”) which was created through the Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The application for these funds required the Company to, in good faith, certify that the economic uncertainty at the time of application made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account its then-current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, was dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. On July 6, 2021, the Company received notification from the Lender that the SBA approved the Company’s PPP loan forgiveness application for the entire PPP loan balance of $7.8 million plus all accrued interest. The Company recorded the forgiveness of $7.8 million of principal as a gain on forgiveness of debt, included in the Statements of Operations as other income.
11. STOCKHOLDERS’ EQUITY
Stock-Based Compensation
Information with respect to the Company’s option shares granted under all of our stock incentive plans for the nine months ended September 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Options outstanding at January 1, 2021
|
|
|
246,000
|
|
|
$7.48
|
|
|
|
|
Granted
|
|
|
—
|
|
|
—
|
|
|
|
|
Exercised
|
|
|
(246,000)
|
|
|
7.48
|
|
|
|
|
Forfeited or canceled
|
|
|
—
|
|
|
—
|
|
|
|
|
Options outstanding at September 30, 2021
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information with respect to the Company’s non-vested restricted stock units for the nine months ended September 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Shares Retained to Cover Statutory Minimum Withholding Taxes
|
Non-vested at January 1, 2021
|
|
|
2,114,879
|
|
|
$7.01
|
|
|
|
|
|
—
|
|
Granted
|
|
|
452,759
|
|
|
28.99
|
|
|
|
|
|
—
|
|
Vested
|
|
|
(1,269,341)
|
|
|
6.76
|
|
|
|
|
|
(414,070)
|
|
Forfeited
|
|
|
(41,123)
|
|
|
9.25
|
|
|
|
|
|
—
|
|
Outstanding at September 30, 2021
|
|
|
1,257,174
|
|
|
$15.09
|
|
0.92
|
|
$36,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information with respect to the Company’s non-vested performance-based restricted stock units for the nine months ended September 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Performance-based Restricted Stock Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Shares Retained to Cover Statutory Minimum Withholding Taxes
|
Non-vested at January 1, 2021
|
|
|
653,428
|
|
|
$6.74
|
|
|
|
|
|
—
|
|
Granted
|
|
|
397,048
|
|
|
15.07
|
|
|
|
|
|
—
|
|
Vested
|
|
|
(471,112)
|
|
|
5.81
|
|
|
|
|
|
(196,703)
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
Non-vested at September 30, 2021
|
|
|
579,364
|
|
|
$13.20
|
|
1.04
|
|
$16,749
|
|
|
Stock-based compensation was included in the following captions in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Share-based compensation expense by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based Restricted Stock Units
|
$
|
2,507
|
|
|
$
|
2,515
|
|
|
$
|
7,528
|
|
|
$
|
6,032
|
|
Performance-based Restricted Stock Units
|
977
|
|
|
756
|
|
|
2,599
|
|
|
2,021
|
|
ESPP
|
30
|
|
|
26
|
|
|
89
|
|
|
79
|
|
Total share-based compensation expense
|
$
|
3,514
|
|
|
$
|
3,297
|
|
|
$
|
10,216
|
|
|
$
|
8,132
|
|
`
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Cost of products revenues
|
$
|
132
|
|
|
$
|
150
|
|
|
$
|
423
|
|
|
$
|
370
|
|
Cost of services revenues
|
311
|
|
|
283
|
|
|
938
|
|
|
539
|
|
Research and development expenses
|
340
|
|
|
546
|
|
|
1,270
|
|
|
1,199
|
|
Marketing and selling expenses
|
639
|
|
|
739
|
|
|
1,858
|
|
|
1,761
|
|
General and administrative expenses
|
2,092
|
|
|
1,579
|
|
|
5,727
|
|
|
4,263
|
|
Total share-based compensation expense
|
$
|
3,514
|
|
|
$
|
3,297
|
|
|
$
|
10,216
|
|
|
$
|
8,132
|
|
On September 9, 2021, our Board of Directors approved the repurchase of up to $115.0 million of our outstanding shares. This authorization does not have a prescribed expiration date. As of September 30, 2021, approximately $103.8 million of the $115.0 million share repurchase authorization remained available. The Company has no obligation to repurchase any amount of its common stock, and the program may be suspended or discontinued at any time. For the three months ended September 30, 2021, the Company repurchased 412,175 shares of its common stock for $11.2 million. These amounts may differ from the repurchases of common stock amounts in the condensed consolidated statements of cash flows due to unsettled share repurchases at the end of a period.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
Business Overview
We develop, market, sell, and support software and integrated solutions for video and audio content creation, management and distribution. We are a leading technology provider that powers the media and entertainment industry. We do this by providing an open and efficient platform for digital media, along with a comprehensive set of tools and workflow solutions. Our solutions are used in production and post-production facilities; film studios; network, affiliate, independent and cable television stations; recording studios; live-sound performance venues; advertising agencies; government and educational institutions; corporate communications departments; and by independent video and audio creative professionals, as well as aspiring professionals. Projects produced using our tools, platform, and ecosystem include feature films, television programming, live events, news broadcasts, sports productions, commercials, music, video, and other digital media content. With over one million creative users and thousands of enterprise clients relying on our technology platforms and solutions around the world, Avid enables the industry to thrive in today’s connected media and entertainment world.
Our mission is to empower media creators with innovative technology and collaborative tools to entertain, inform, educate, and enlighten the world. Our clients rely on Avid’s products and solutions to create prestigious and award-winning feature films, music recordings, television shows, live concerts, sporting events, and news broadcasts. Avid has been honored for technological innovation with 18 Emmy Awards, one Grammy Award, two Oscars, and the first ever America Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigious Philo T. Farnsworth Award by the Television Academy to honor Avid’s 30 years of continuous, transformative technology innovations, including products that have improved and accelerated the editing and post production process for television.
Operations Overview
Our strategy for connecting creative professionals and media enterprises with audiences in a powerful, efficient, collaborative, and profitable way leverages our creative software tools, including Pro Tools for audio and Media Composer for video, and our MediaCentral Platform - the open, extensible, and customizable foundation that streamlines and simplifies content workflows by integrating all Avid or third-party products and services that run on top of it. The platform provides secure and protected access, and enables fast and easy creation, delivery, and monetization of content.
We work to ensure that we are meeting customer needs, staying ahead of industry trends, and investing in the right areas through a close and interactive relationship with our customer base. The Avid Customer Association was established to be an innovative and influential media technology community. It represents thousands of organizations and over 30,000 professionals from all levels of the industry including inspirational and award-winning thought leaders, innovators, and storytellers. The Avid Customer Association fosters collaboration between Avid, its customers, and other industry colleagues to help shape our product offerings and provide a means to shape our industry together.
A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings and long-term agreements. As of September 30, 2021, we had approximately 389,000 paid subscriptions. Starting in the third quarter of 2021, subscription count includes all paid and active seats under multi-seat licenses. These licensing options offer choices in pricing and deployment to suit our customers’ needs. Our subscription offerings to date have mostly been sold to creative professionals, although in the third quarter of 2020 we introduced subscription offerings for our enterprise software solutions. We expect to increase subscription sales to media enterprises going forward as we expand offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SaaS offerings, and channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.
During the third quarter of 2021, Avid began implementing a Digital Transformation which focuses on optimizing systems, processes, and back-office functions with the objective of improving our operations related to our digital and subscription business. Over the next four years, we plan to significantly invest in transforming our enterprise-wide infrastructure and technologies to benefit customers and drive enhanced performance across the company.
A summary of our revenue sources for the three and nine months ended September 30, 2021 and 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Subscriptions
|
$
|
28,008
|
|
|
$
|
17,907
|
|
|
$
|
74,384
|
|
|
$
|
48,292
|
|
Maintenance
|
30,702
|
|
|
30,826
|
|
|
90,997
|
|
|
93,190
|
|
Subscriptions and Maintenance
|
58,710
|
|
|
48,733
|
|
|
165,381
|
|
|
141,482
|
|
Perpetual Licenses
|
5,678
|
|
|
8,972
|
|
|
18,596
|
|
|
21,165
|
|
Software Licenses and Maintenance
|
64,388
|
|
|
57,705
|
|
|
183,977
|
|
|
162,647
|
|
Integrated solutions
|
31,172
|
|
|
26,803
|
|
|
88,699
|
|
|
76,956
|
|
Professional services & training
|
6,080
|
|
|
5,923
|
|
|
18,204
|
|
|
16,562
|
|
Total revenue
|
$
|
101,640
|
|
|
$
|
90,431
|
|
|
$
|
290,880
|
|
|
$
|
256,165
|
|
Impact of COVID-19 on Our Business
We have operations in a number of countries, which exposes us to risks associated with public health crises such as the novel coronavirus (COVID-19) that was declared a pandemic by the World Health Organization. COVID-19 adversely impacted our business operations and results of operations for the year ended 2020. These economic impacts are the result of, but not limited to:
•the postponement or cancellation of film and television productions, major sporting events, and live music events;
•delays in purchasing and projects by our enterprise customers and channel partners;
•disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and
•decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders.
Our results for the first nine months of 2021 reflect a gradual recovery towards pre-pandemic spending levels with the continuing positive signs of recovery from the impacts of the COVID-19 pandemic driven by vaccination and government stimulus programs, particularly in the US. At the same time, certain countries continue to face challenges with renewed lockdowns and travel restrictions and there remains uncertainty relating to the ongoing spread and severity of the virus and its variants. While we are encouraged by the trends we have seen so far in 2021, to the extent that the pandemic continues to have negative impacts on economies, our results could be affected and uneven. We may be required to take additional steps to preserve our liquidity depending on the duration and severity of the pandemic and its impact on our operations and cash flows. For further discussion of these issues, see “Liquidity and Capital Resources” below.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.
We believe that our critical accounting policies and estimates are those related to revenue recognition and allowances for sales returns and exchanges, discount rates used for lease liabilities, stock-based compensation, income tax assets and liabilities, and restructuring charges and accruals. We believe these policies and estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for the year ended December 31, 2020 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies and Estimates” and below. There have been no significant changes to the identification of the accounting policies and estimates that are deemed critical.
Revenue Recognition
We enter into contracts with customers that include various combinations of products and services, which are typically capable of being distinct and are accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) collectability is probable. We recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.
We often enter into contractual arrangements that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These arrangements may include a combination of products, maintenance, training, and professional services. We allocate the transaction price of the arrangement based on the relative estimated standalone selling price of each distinct performance obligation.
See Note 9 “Revenue” of our Notes to Condensed Consolidated Financial Statements under Part 1, Item 1 of this Form 10-Q for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.
Leases
We have operating leases for facilities and certain equipment in North America, Europe, and Asia. Our operating lease right-of-use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As our leases generally do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. An average incremental borrowing rate of 6% as of January 1, 2019, the adoption date of ASC 842, was used for our leases that commenced prior to that date. We determined that the rate of 6% is appropriate for our operating leases after we considered an estimated incremental borrowing rate provided by our bank, the interest rate of our prior credit facility, and the terms and geographic locations of our facilities.
See Note 5 “Leases” of our Notes to Condensed Consolidated Financial Statements under Part 1, Item 1 of this Form 10-Q for further discussion on our leases.
RESULTS OF OPERATIONS
The following table sets forth certain items from our condensed consolidated statements of operations as a percentage of net revenues for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net revenues:
|
|
|
|
|
|
|
|
Product
|
36.3
|
%
|
|
39.6
|
%
|
|
36.9
|
%
|
|
38.3
|
%
|
Services
|
63.7
|
%
|
|
60.4
|
%
|
|
63.1
|
%
|
|
61.7
|
%
|
Total net revenues
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of revenues
|
35.2
|
%
|
|
35.6
|
%
|
|
35.6
|
%
|
|
36.4
|
%
|
Gross margin
|
64.8
|
%
|
|
64.4
|
%
|
|
64.4
|
%
|
|
63.6
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
16.9
|
%
|
|
15.1
|
%
|
|
16.7
|
%
|
|
16.4
|
%
|
Marketing and selling
|
24.0
|
%
|
|
22.1
|
%
|
|
22.9
|
%
|
|
25.4
|
%
|
General and administrative
|
14.7
|
%
|
|
11.9
|
%
|
|
14.5
|
%
|
|
13.3
|
%
|
Restructuring costs, net
|
(0.1)
|
%
|
|
0.8
|
%
|
|
0.3
|
%
|
|
0.4
|
%
|
Total operating expenses
|
55.4
|
%
|
|
49.9
|
%
|
|
54.4
|
%
|
|
55.5
|
%
|
Operating income
|
9.4
|
%
|
|
14.5
|
%
|
|
10.0
|
%
|
|
8.1
|
%
|
Interest expense, net
|
(1.6)
|
%
|
|
(5.0)
|
%
|
|
(1.9)
|
%
|
|
(6.0)
|
%
|
Other income, net
|
7.7
|
%
|
|
0.1
|
%
|
|
1.5
|
%
|
|
0.1
|
%
|
Income before income taxes
|
15.5
|
%
|
|
9.6
|
%
|
|
9.6
|
%
|
|
2.2
|
%
|
Provision for income taxes
|
1.0
|
%
|
|
0.8
|
%
|
|
0.6
|
%
|
|
0.6
|
%
|
Net income
|
14.5
|
%
|
|
8.8
|
%
|
|
9.0
|
%
|
|
1.6
|
%
|
Net Revenues
Our net revenues are derived mainly from sales of products and solutions for digital media content production, management and distribution, and related professional services and maintenance contracts. We also sell individual licenses for our software products through our webstore. We commonly sell large, complex solutions to our customers that, due to their strategic nature, have long lead times where the timing of order execution and fulfillment can be difficult to predict. In addition, the rapid evolution of the media industry is changing our customers’ needs, businesses, and revenue models, which is influencing their short-term and long-term purchasing decisions. As a result of these factors, the timing and amount of product revenue recognized related to these large orders, as well as the services associated with them, can fluctuate from quarter to quarter and cause significant volatility in our quarterly operating results. For a discussion of these factors, see the risk factors discussed in Part I, Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
Net Revenues
|
|
$
|
|
%
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and solutions
|
$
|
36,850
|
|
|
$
|
1,075
|
|
|
3.0%
|
|
$
|
35,775
|
|
Services
|
64,790
|
|
|
10,134
|
|
|
18.5%
|
|
54,656
|
|
Total net revenues
|
$
|
101,640
|
|
|
$
|
11,209
|
|
|
12.4%
|
|
$
|
90,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
Net Revenues
|
|
$
|
|
%
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and solutions
|
$
|
107,295
|
|
|
$
|
9,174
|
|
|
9.3%
|
|
$
|
98,121
|
|
Services
|
183,585
|
|
|
25,541
|
|
|
16.2%
|
|
158,044
|
|
Total net revenues
|
$
|
290,880
|
|
|
$
|
34,715
|
|
|
13.6%
|
|
$
|
256,165
|
|
The following table sets forth the percentage of our net revenues attributable to geographic regions for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
United States
|
44%
|
|
40%
|
|
43%
|
|
41%
|
Other Americas
|
5%
|
|
5%
|
|
5%
|
|
6%
|
Europe, Middle East and Africa
|
38%
|
|
42%
|
|
38%
|
|
39%
|
Asia-Pacific
|
13%
|
|
13%
|
|
14%
|
|
14%
|
Products and Solutions Revenues
Our products and solutions revenues are derived primarily from sales of our storage and workflow solutions, media management solutions, video creative tools, digital audio software and workstation solutions, and our control surfaces, consoles, and live-sound systems. Products and solutions revenues increased $1.1 million, or 3.0%, for the three months ended September 30, 2021, and increased $9.2 million, or 9.3%, for the nine months ended September 30, 2021, compared to the same periods in 2020. The increase for the three and nine months ended September 30, 2021 was primarily due to higher sales as a result of the economy recovering from the COVID-19 pandemic, which negatively impacted products and solutions revenues in 2020 for the reasons discussed above under “Executive Overview – Impact of COVID-19 on Our Business.”
Services Revenues
Services revenues are derived primarily from maintenance contracts, subscription services, and professional services and training. Services revenues increased $10.1 million, or 18.5%, for the three months ended September 30, 2021, and increased $25.5 million, or 16.2% for the nine months ended September 30, 2021 compared to the same periods in 2020. The increase for the three and nine months ended September 30, 2021 was primarily due to increased subscription services and professional services as a result of the economy recovering from the COVID-19 pandemic, which negatively impacted products and solutions revenues in 2020 for the reasons discussed above under “Executive Overview – Impact of COVID-19 on Our Business.”
Cost of Revenues, Gross Profit and Gross Margin Percentage
Cost of revenues consists primarily of costs associated with:
•procurement of components and finished goods;
•assembly, testing and distribution of finished products;
•warehousing;
•customer support related to maintenance;
•royalties for third-party software and hardware included in our products; and
•providing professional services and training.
Costs of Revenues and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Revenues and Gross Profit for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
Costs
|
|
$
|
|
%
|
|
Costs
|
Products
|
$
|
20,468
|
|
|
$
|
(489)
|
|
|
(2.3)%
|
|
$
|
20,957
|
|
Services
|
15,269
|
|
|
4,052
|
|
|
36.1%
|
|
11,217
|
|
Total cost of revenues
|
$
|
35,737
|
|
|
$
|
3,563
|
|
|
11.1%
|
|
$
|
32,174
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
65,903
|
|
|
$
|
7,646
|
|
|
13.1%
|
|
$
|
58,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Revenues and Gross Profit for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
Costs
|
|
$
|
|
%
|
|
Costs
|
Products
|
$
|
60,044
|
|
|
$
|
1,171
|
|
|
2.0%
|
|
$
|
58,873
|
|
Services
|
43,379
|
|
|
9,057
|
|
|
26.4%
|
|
34,322
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
$
|
103,423
|
|
|
$
|
10,228
|
|
|
11.0%
|
|
$
|
93,195
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
187,457
|
|
|
$
|
24,487
|
|
|
15.0%
|
|
$
|
162,970
|
|
Gross Margin Percentage
Gross margin percentage, which is net revenues less costs of revenues divided by net revenues, fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-promotion programs, the distribution channels through which products are sold, the timing of new product introductions, sales of aftermarket hardware products, and currency exchange-rate fluctuations. For a discussion of these factors, see the risk factors discussed in Part I, Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Our gross margin percentage for the three months ended September 30, 2021 increased to 64.8% from 64.4% and for the nine months ended September 30, 2021 increased to 64.4% from 63.6%, compared to the same periods in 2020. These increases were primarily due to increased products and subscription revenue as a result of higher volumes, slightly offset by the increase in our stock based compensation expense and reduction in professional services revenue while maintaining the same cost structure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin % for the Three Months Ended September 30, 2021 and 2020
|
|
2021 Gross
Margin %
|
|
Change
|
|
2020 Gross
Margin %
|
Products
|
44.5%
|
|
3.1%
|
|
41.4%
|
Services
|
76.4%
|
|
(3.1)%
|
|
79.5%
|
Total
|
64.8%
|
|
0.4%
|
|
64.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin % for the Nine Months Ended September 30, 2021 and 2020
|
|
2021 Gross
Margin %
|
|
Change
|
|
2020 Gross
Margin %
|
Products
|
44.0%
|
|
4.0%
|
|
40.0%
|
Services
|
76.4%
|
|
(1.9)%
|
|
78.3%
|
Total
|
64.4%
|
|
0.8%
|
|
63.6%
|
Operating Expenses and Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses and Operating Income for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
Expenses
|
|
$
|
|
%
|
|
Expenses
|
Research and development
|
$
|
17,129
|
|
|
$
|
3,506
|
|
|
25.7%
|
|
$
|
13,623
|
|
Marketing and selling
|
24,413
|
|
|
4,415
|
|
|
22.1%
|
|
19,998
|
|
General and administrative
|
14,901
|
|
|
4,105
|
|
|
38.0%
|
|
10,796
|
|
Restructuring costs, net
|
(88)
|
|
|
(811)
|
|
|
(112.2)%
|
|
723
|
|
Total operating expenses
|
$
|
56,355
|
|
|
$
|
11,215
|
|
|
24.8%
|
|
$
|
45,140
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
9,548
|
|
|
$
|
(3,569)
|
|
|
(27.2)%
|
|
$
|
13,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses and Operating Income for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
Expenses
|
|
$
|
|
%
|
|
Expenses
|
Research and development
|
$
|
48,639
|
|
|
$
|
6,523
|
|
|
15.5%
|
|
$
|
42,116
|
|
Marketing and selling
|
66,511
|
|
|
1,534
|
|
|
2.4%
|
|
64,977
|
|
General and administrative
|
42,214
|
|
|
8,070
|
|
|
23.6%
|
|
34,144
|
|
Restructuring costs, net
|
1,001
|
|
|
(7)
|
|
|
(0.7)%
|
|
1,008
|
|
Total operating expenses
|
$
|
158,365
|
|
|
$
|
16,120
|
|
|
11.3%
|
|
$
|
142,245
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
29,092
|
|
|
$
|
8,367
|
|
|
40.4%
|
|
$
|
20,725
|
|
Research and Development Expenses
Research and development (“R&D”) expenses include costs associated with the development of new products and the enhancement of existing products, and consist primarily of employee compensation and benefits, facilities costs, depreciation, costs for consulting and temporary employees, and prototype and other development expenses. R&D expenses increased $3.5 million, or 25.7%, for the three months ended September 30, 2021 and $6.5 million, or 15.5%, for the nine months ended
September 30, 2021, compared to the same periods in 2020. The tables below provide further details regarding the changes in components of R&D expenses.
|
|
|
|
|
|
|
|
|
|
|
|
Change in R&D Expenses for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021 Increase
From 2020
|
|
$
|
|
%
|
Personnel-related
|
1,615
|
|
|
18.4
|
%
|
Facilities and information technology
|
878
|
|
|
35.7
|
%
|
Consulting and outside services
|
645
|
|
|
32.3
|
%
|
Other
|
368
|
|
|
92.4
|
%
|
Total R&D expenses decrease
|
$
|
3,506
|
|
|
25.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in R&D Expenses for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021 Increase
From 2020
|
|
$
|
|
%
|
Personnel-related
|
3,585
|
|
|
13.7
|
%
|
Facilities and information technology
|
1,484
|
|
|
18.9
|
%
|
Consulting and outside services
|
536
|
|
|
7.8
|
%
|
Computer hardware
|
480
|
|
|
55.4
|
%
|
Other
|
438
|
|
|
124.5
|
%
|
Total R&D expenses decrease
|
$
|
6,523
|
|
|
15.5
|
%
|
The increase in facilities and information technology expenses and personnel-related expenses for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily the result of the wind-down of our employee furlough program, which was implemented in the second and third quarters of 2020 to reduce costs in response to COVID-19. The increase in consulting and outside services for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily the result of increased use if external contractors utilized for research and development efforts. The increase in computer hardware and other expenses for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily the result of increased hardware purchases to aid in the testing of our new product developments and prototypes.
Marketing and Selling Expenses
Marketing and selling expenses consist primarily of employee compensation and benefits for selling, marketing and pre-sales customer support personnel, commissions, travel expenses, advertising and promotional expenses, web design costs, and facilities costs. Marketing and selling expenses increased $4.4 million, or 22.1%, for the three months ended September 30, 2021, and increased $1.5 million, or 2.4%, for the nine months ended September 30, 2021, compared to the same periods in 2020. The tables below provide further details regarding the changes in components of marketing and selling expenses.
|
|
|
|
|
|
|
|
|
|
|
|
Change in Marketing and Selling Expenses for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021 Increase From 2020
|
|
$
|
|
%
|
Personnel-related
|
2,120
|
|
|
14.1
|
%
|
Advertising and promotions
|
819
|
|
|
633.8
|
%
|
Consulting and outside services
|
908
|
|
|
117.6
|
%
|
Foreign exchange (gains) and losses
|
534
|
|
|
769.2
|
%
|
Other
|
34
|
|
|
0.1
|
%
|
Total marketing and selling expenses decrease
|
$
|
4,415
|
|
|
22.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Marketing and Selling Expenses for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021 Increase (Decrease) From 2020
|
|
$
|
|
%
|
Personnel-related
|
4,481
|
|
|
10.0
|
%
|
Facilities and information technology
|
(1,556)
|
|
|
(13.5)
|
%
|
Advertising and promotions
|
1,182
|
|
|
108.8
|
%
|
Foreign exchange (gains) and losses
|
(204)
|
|
|
(20.1)
|
%
|
Consulting and outside services
|
(794)
|
|
|
(21.2)
|
%
|
Other
|
(1,575)
|
|
|
(59.1)
|
%
|
Total marketing and selling expenses increase
|
$
|
1,534
|
|
|
2.4
|
%
|
The increase in personnel-related expenses for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily due to an increase in salary expense as a result of the furlough program and reduced travel expenses in the 2020 periods in response to the COVID-19 pandemic. The increase in advertising and promotions expenses for the three and nine months ended September 30, 2021, compared to the same periods in 2020, were primarily the result of resuming our programs that were paused in 2020 in response to COVID-19. The increase in consulting and outside services for the three months ended September 30, 2021 are primarily due to an increased used of in external contractors to provide marketing and promotional support as well as assist in our digital transformation initiative. The decrease in consulting and outside services for the nine months ended September 30, 2021 was due to the cancellation of certain trade shows and internal meetings in 2021, which still took place during Q1 2020 before the COVID-19 pandemic began. The decrease in facilities and information technology and other for the nine months ended September 30, 2021 was primarily the result of a one-time bad debt expense in 2020 and a decrease in our facilities related costs as we continue to decrease our footprint. The change in foreign exchange translations for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was due to foreign exchange gains and losses from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities. These foreign exchange changes were primarily due to the euro-dollar exchange rate volatility.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist primarily of employee compensation and benefits for administrative, executive, finance and legal personnel, audit, legal and strategic consulting fees, and insurance, information systems and facilities costs. Information systems and facilities costs reported within general and administrative expenses are net of allocations to other expenses categories. G&A expenses increased $4.1 million, or 38.0%, for the three months ended September 30, 2021, and increased $8.1 million, or 23.6%, for the nine months ended September 30, 2021, compared to the same periods in 2020. The tables below provide further details regarding the changes in components of G&A expenses.
|
|
|
|
|
|
|
|
|
|
|
|
Change in G&A Expenses for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021 Increase
From 2020
|
|
$
|
|
%
|
Personnel-related
|
1,595
|
|
|
26.8
|
%
|
Consulting and outside services
|
1,430
|
|
|
75.9
|
%
|
Other
|
1,080
|
|
|
36.5
|
%
|
Total G&A expenses increase
|
$
|
4,105
|
|
|
38.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in G&A Expenses for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021 Increase (Decrease)
From 2020
|
|
$
|
|
%
|
Personnel-related
|
4,306
|
|
|
25.1
|
%
|
Consulting and outside services
|
2,472
|
|
|
32.0
|
%
|
Facilities and information technology
|
(1,161)
|
|
|
(20.1)
|
%
|
Other
|
2,453
|
|
|
67.2
|
%
|
Total G&A expenses decrease
|
$
|
8,070
|
|
|
23.6
|
%
|
The increase in personnel-related expenses for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily due to increase in salary expense as a result of our furlough program and reduced travel expenses in the prior year in response to the COVID-19 pandemic. The increase in consulting and outside services and other for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily a result of resuming our programs that were previously paused in response to COVID-19. In addition, we have incurred expenses in 2021 related to our share repurchase program, business development activities, and our digital transformation initiative.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes for the Three Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
|
|
$
|
|
%
|
|
|
Provision for income taxes
|
$
|
991
|
|
|
$
|
284
|
|
|
40.2%
|
|
$
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes for the Nine Months Ended September 30, 2021 and 2020
|
(dollars in thousands)
|
|
2021
|
|
Change
|
|
2020
|
|
|
|
$
|
|
%
|
|
|
Provision for income taxes
|
$
|
1,832
|
|
|
$
|
286
|
|
|
18.5%
|
|
$
|
1,546
|
|
The changes in the tax provision for the three month and nine-month periods ended September 30, 2021 compared to the same periods in 2020 were driven primarily by changes in income before income taxes and the jurisdictional mix of earnings. No provision or benefit was provided in the United States due to a full valuation on its deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Sources of Cash
Our principal sources of liquidity include cash and cash equivalents totaling $50.5 million as of September 30, 2021, as well as the availability of borrowings of up to $70.0 million under our revolving Credit Facility. We have generally funded operations in recent years through the use of existing cash balances, supplemented from time to time with the proceeds of long-term debt and borrowings under our credit facilities.
In quarter ended September 30, 2021, we committed to a digital transformation initiative focused around modernizing our enterprise-wide infrastructure and technologies to benefit our customers and drive enhanced performance across the company. Over the next four years we plan to invest significant funds and resources towards implementing these new technologies.
On January 5, 2021, we entered into the Credit Agreement with JPMorgan Chase Bank, N.A. and a syndicate of banks, as collateral and administrative agent, and the Lenders. Pursuant to the Credit Agreement, the Lenders agreed to provide us with the Term Loan and the Credit Facility. We borrowed the full amount of the Term Loan, or $180.0 million, on the closing date, but did not borrow any of the $70.0 million available under the Credit Facility on the closing date. The proceeds from the Term Loan, plus available cash on hand, were used to repay outstanding borrowings of $201.0 million under the Company’s prior credit facility with Cerberus Business Finance, LLC, which was then terminated. Prior to the maturity of the Credit Facility, any amounts borrowed under the Credit Facility may be repaid and, subject to the terms and conditions of the Credit Agreement, reborrowed in whole or in part without penalty. The Credit Agreement contains two financial covenants. The Company is required to maintain a maximum total net leverage ratio, generally defined as the ratio of (x) consolidated total indebtedness minus liquidity maintained in the United States up to $25 million to (y) consolidated EBITDA, not to exceed 4.00 to 1.00 for the fiscal quarters ending March 31, 2021 through June 30, 2021; 3.75 to 1.00 for the fiscal quarters ending September 30, 2021 through December 31, 2021; 3.50 to 1.00 for the fiscal quarters ending March 31, 2022 through June 30, 2022; 3.25 to 1.00 for the fiscal quarters ending September 30, 2022 through December 31, 2022; and 3.00 to 1.00 for fiscal quarters ending on or after March 31, 2023. The Company is also required to maintain a fixed charge coverage ratio not less than 1.20 to 1.00 at the end of each fiscal quarter ending on or after March 31, 2021. The Credit Agreement’s fixed charge coverage ratio is generally defined as the ratio of (x) consolidated EBITDA minus unfinanced capital expenditures, cash tax expense and certain restricted payments to (y) consolidated fixed charges.
Our ability to satisfy the two financial covenants in the future is dependent on our ability to maintain profitability at or above levels experienced over the last 12 months. In recent quarters, we have experienced volatility in revenues resulting from, among other things, (i) our transition towards subscription and recurring revenue streams and the resulting decline in traditional upfront product sales, (ii) dramatic changes in the media industry and the impact it has on our customers, (iii) the impact of new and anticipated product launches and features, (iv) volatility in currency rates, and (v) in the four most recent quarters, the economic impacts of the COVID-19 pandemic. If revenues were to decrease from the levels of the last 12 months, we would need to reduce expenses to maintain the required level of profitability. In light of the COVID-19 pandemic, we are closely monitoring our current and expected future liquidity levels and covenant compliance.
As discussed above, while the duration and severity of the COVID-19 pandemic, and resulting economic impacts, remain uncertain, we expect that our business operations and results of operations may be affected and uneven by these developments for at least the balance of 2021. To address actual and expected reductions in net revenues, we have continued to keep our discretionary spending low. We may be required to take additional remedial steps, depending on the duration and severity of the pandemic and its impact on our operations, which could include, among other things (and where allowed by the lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through the issuance of additional equity or debt securities or the incurrence of additional borrowings, or (iv) disposing of certain assets or businesses. Such remedial actions, which may not be available on favorable terms or at all, could have a material adverse impact on our business. If we are not in compliance with the covenants and are unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Credit Agreement, which could permit acceleration of the outstanding indebtedness under the Credit Agreement and require us to repay such indebtedness before the scheduled due date. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Credit Agreement.
On May 11, 2020, we received $7.8 million of proceeds in connection with our incurrence of a loan under the PPP. The loan had a fixed interest rate of 1% and was to mature on May 11, 2022. Interest payments are deferred until a forgiveness decision is returned by the SBA. Pursuant to the CARES Act and implementing rules and regulations, we applied to the SBA for the full
amount of the PPP loan to be forgiven. On July 6, 2021, the Company received notification from the Lender that the SBA approved the Company’s PPP loan forgiveness application for the entire PPP loan balance of $7.8 million plus all accrued interest. The forgiveness of the PPP loan was recognized during the period ending September 30, 2021 within other income on our Statement of Operations.
Our cash requirements vary depending on factors such as the growth of the business, changes in working capital, and capital expenditures. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months as well as for the foreseeable future. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations and cash flows for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by COVID-19 on our business are constantly evolving. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
|
Net cash provided by operating activities
|
$
|
35,418
|
|
|
$
|
8,843
|
|
|
|
Net cash used in investing activities
|
(4,750)
|
|
|
(5,619)
|
|
|
|
Net cash used in financing activities
|
(59,156)
|
|
|
(24,313)
|
|
|
|
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash
|
(927)
|
|
|
1,394
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
$
|
(29,415)
|
|
|
$
|
(19,695)
|
|
|
|
Cash Flows from Operating Activities
Cash provided by operating activities aggregated $35.4 million for the nine months ended September 30, 2021. The increase in cash provided by operations compared to the nine months ended September 30, 2020 was primarily due to an increase in revenue and a change in working capital.
Cash Flows from Investing Activities
For the nine months ended September 30, 2021, net cash flows used in investing activities reflected $4.8 million used for the purchase of property and equipment. Our purchases of property and equipment largely consist of computer hardware and software to support R&D activities and information systems.
Cash Flows from Financing Activities
For the nine months ended September 30, 2021, net cash flows used in financing activities were primarily the result of our stock repurchase program and our common stock repurchases for tax withholdings for net settlement of equity awards. In addition, we paid down $28 million on our term loan as part of our refinancing activity in January 2021.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted
Our recently adopted and to be adopted accounting pronouncements are set forth in Note 1 “Financial Information” of our Notes to Unaudited Condensed Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.