Wednesday, February 21, 2024

Subscription Boost in Avid Q4, FY 2022 Results

Avid has announced its financial results for the fourth quarter and full year ended December 31, 2022.

As reported, fourth quarter revenue was USD$116.1 million, a decrease of (2.5%) year-over-year, net income was $25.3 million, an increase of 66.0% year-over-year, Adjusted EBITDA was $24.8 million, a decrease of (0.6%) year-over-year, net income per common share was $0.57, an increase of $0.24 year-over-year, and Non-GAAP Earnings per Share was $0.45, a decrease of ($0.01) year-over year. Revenue was in the middle of its implied Q4 guidance range, Adjusted EBITDA was below our implied Q4 guidance range and Non-GAAP Earnings per Share was within its implied Q4 guidance range.

During the fourth quarter, the company recorded a one-time, non-cash adjustment to revenue of ($3.3 million) related to a corrective change in methodology for calculating standalone selling price for subscription term-based licenses in the amount of $0.1 million for FY 2020, ($2.1 million) for FY 2021 and ($1.3 million) for the nine months ending September 30, 2022, as outlined in our 10-K filed today. The adjustment related to the period from FY 2020 to FY 2022 and represented 0.3% of the total revenue over the three years. The adjustment also negatively impacted net income and Adjusted EBITDA in the fourth quarter, but had no impact on net cash provided by operating activities, Free Cash Flow or ARR.

Excluding the adjustment, fourth quarter revenue would have been $119.4 million, an increase of 0.3% year-over-year (or 4.4% at constant currency), net income would have been $27.7 million, an increase of 82.0% year-over year (or 97.3% at constant currency), Adjusted EBITDA would have been $27.2 million, an increase of 9.2% year-over year (or 17.9% at constant currency), net income per common share would have been $0.63, an increase of $0.30 year-over year (or an increase of $0.34 at constant currency) and Non-GAAP Earnings per Share would have been $0.51, an increase of $0.05 year-over-year (or an increase of $0.10 at constant currency). Excluding the adjustment, revenue and Non-GAAP Earnings per Share would have been in the high end of our implied Q4 guidance range and Adjusted EBITDA would have been within our implied Q4 guidance range.

The recurring components of the Company’s revenue remained strong during the fourth quarter as paid subscriptions reached 506,000 as of the end of 2022, an increase of 23.2% year-over-year. Subscription ARR was $141.3 million (as of December 31, 2022), an increase of 37.1% year-over-year, and total ARR was $244.9 million (as of December 31, 2022), an increase of 10.2% year-over-year. At constant currency, subscription ARR increased 38.8% year-over-year and total ARR increased 13.4% year-over-year. In the fourth quarter, integrated solutions revenue was $40.8 million, an increase of 55% sequentially, as we continued to work to resolve supply chain challenges. As a result of continued strong integrated solutions orders during the fourth quarter, the backlog of unshipped orders was reduced during the quarter but remained above what the company believes to be normal levels as of the end of 2022, at over $20 million.

Net cash provided by operating activities was $22.5 million in the fourth quarter and $48.0 million for FY 2022. Free Cash Flow was $18.3 million in the fourth quarter and $32.8 million for FY 2022. Free Cash Flow was lower year-over-year due to a greater use of cash in working capital, primarily from timing of cash billings related to multi-year enterprise subscriptions. In addition, higher capital expenditures, prepaid expenses due to temporary Digital Transformation Initiative (DTI) investments and capitalized software development also negatively impacted Free Cash Flow. The Company expects that Free Cash Flow will be higher in 2023, as outlined in our guidance below.

Fourth Quarter 2022 Financial and Business Highlights

  • Paid Cloud-enabled software subscriptions increased by approximately 23,100 during the quarter to approximately 506,000 as of December 31, 2022, an increase of 23.2% year-over-year.
  • Subscription ARR was $141.3 million, an increase of 37.1% year-over-year. At constant currency, Subscription ARR increased 38.8% year-over-year.
  • Total ARR was $244.9 million, an increase of 10.2% year-over-year. At constant currency, ARR increased 13.4% year-over-year.
  • Subscription revenue was $42.5 million, an increase of 24.6% year-over-year. At constant currency, subscription revenue increased 29.6% year-over-year. Excluding the one-time adjustment in the quarter, subscription revenue would have increased 34.3% year-over-year and 39.2% year-over-year at constant currency.
  • Subscription and maintenance revenue was $68.9 million, an increase of 5.3% year-over-year. At constant currency, Subscription and maintenance revenue increased 9.3% year-over-year. Excluding the one-time adjustment in the quarter, subscription and maintenance revenue would have increased 10.3% year-over-year and 14.3% year-over-year at constant currency.
  • Total revenue was $116.1 million, a decrease of (2.5%) year-over-year. At constant-currency, total revenue increased 1.7% year-over-year. Excluding the one-time adjustment in the quarter, total revenue would have increased 0.3% year-over-year and 4.4% year-over-year at constant currency.
  • Gross margin was 64.2%, a decrease of (160 basis points) year-over-year and Non-GAAP Gross Margin was 64.6%, a decrease of (160 basis points) year-over-year.
  • Operating expenses were $58.0 million, a decrease of (5.2%) year-over-year. Non-GAAP Operating Expenses were $52.5 million, a decrease of (5.9%) year-over-year.
  • Net income was $25.3 million, an increase of 66.0% year-over-year, due in part to a one-time non-cash tax benefit of $11.3 million in Q4 2022. Net income was 21.8% of revenue. Non-GAAP Net Income was $19.9 million, a decrease of (4.5%) year-over-year. Non-GAAP Net Income was 17.2% of revenue. Excluding the one-time adjustment in the quarter, net income would have increased 82.0% year-over-year and 97.3% year-over-year at constant currency, and Non-GAAP Net Income would have increased 7.1% year-over-year and 17.9% year-over-year at constant currency.
  • Adjusted EBITDA was $24.8 million, a decrease of (0.6%) year-over-year. At constant-currency, Adjusted EBITDA increased 8.0% year-over-year. Adjusted EBITDA Margin was 21.4%, an increase of 40 basis points year-over-year. Excluding the one-time adjustment in the quarter, Adjusted EBITDA increased 9.2% year-over-year and 17.9%
    year-over-year at constant currency.
  • Net income per common share was $0.57, an increase of $0.24 year-over-year, due in part to the one-time non-cash tax benefit in Q4 2022 mentioned above. Non-GAAP Earnings per Share was $0.45, a decrease of ($0.01) year-over-year. Excluding the one-time adjustment in the quarter, Net income per common share would have increased $0.30 year-over-year and $0.34 year-over-year at constant currency, and Non-GAAP Earnings per Share would have increased $0.05 year-over-year and $0.10 year-over-year at constant currency.
  • Net cash provided by operating activities was $22.5 million in the quarter, a decrease of ($4.6) million compared to the prior year period.
  • Free Cash Flow was $18.3 million in the quarter, a decrease of ($6.7) million compared to the fourth quarter of 2022, due to the items mentioned above.
  • The Company repurchased 364,760 shares for $9.3 million during the fourth quarter, under the $115 million share repurchase authorization announced on September 9, 2021.

FY 2022 Financial and Business Highlights

  • Paid Cloud-enabled software subscriptions increased during the year by approximately 95,400 to approximately 506,000 as of December 31, 2022, an increase of 23.2% year-over-year.
  • Subscription revenue was $151.3 million, an increase of 39.5% year-over-year. At constant currency, subscription revenue increased 44.7% year-over-year. Excluding the one-time adjustment in the fourth quarter, subscription revenue would have increased 42.6% year-over-year and 47.7% year-over-year at constant currency.
  • Subscription and maintenance revenue was $261.2 million, up 13.1% year-over-year. At constant currency, Subscription and maintenance revenue increased 16.4% year-over-year. Excluding the one-time adjustment in the fourth quarter, subscription and maintenance revenue would have increased 14.6% year-over-year and 17.8% year-over-year at constant currency.
  • Total revenue was $417.4 million, an increase of 1.8% year-over-year. At constant-currency, total revenue increased 5.3% year-over-year. Excluding the one-time adjustment in the fourth quarter, total revenue would have increased 2.6%
    year-over-year and 6.1% year-over-year at constant currency.
  • Gross margin was 65.7%, an increase of 90 basis points year-over-year. Non-GAAP Gross Margin was 66.2%, an increase of 90 basis points year-over-year.
  • Operating expenses were $220.6 million, an increase of 0.5% year-over-year. Non-GAAP Operating Expenses were $203.3 million, an increase of 1.4% year-over-year.
  • Net income was $55.2 million, an increase of 33.5% year-over-year, due in part to the one-time non-cash tax benefit in Q4 2022 mentioned above. Net income was 13.2% of revenue. Non-GAAP Net Income was $63.3 million, an increase of 9.3% year-over-year. Non-GAAP Net Income was 15.2% of revenue. Excluding the one-time adjustment in the quarter, net income would have increased 39.4% year-over year and 59.2% year-over-year at constant currency, and Non-GAAP Net Income would have increased 13.5% year-over-year and 26.4% year-over-year at constant currency.
  • Adjusted EBITDA was $81.6 million, an increase of 8.1% year-over-year. At constant-currency, Adjusted EBITDA increased 17.9% year-over-year. Adjusted EBITDA Margin was 19.5%, an increase of 110 basis points year-over-year. Excluding the one-time adjustment in the fourth quarter, Adjusted EBITDA would have increased 11.3% year-over-year and 21.3% year-over-year at constant currency.
  • Net income per common share was $1.23, an increase of $0.34 year-over-year, due in part to the one-time non-cash tax benefit in Q4 2022 mentioned above. Non-GAAP Earnings per Share was $1.41, an increase of $0.16 year-over-year. Excluding the one-time adjustment in the quarter, Net income per common share would have increased $0.40
    year-over-year and $0.55 year-over-year at constant currency, and Non-GAAP Earnings per Share would have increased $0.22 year-over-year and $0.37 year-over-year at constant currency.
  • Net cash provided by operating activities was $48.0 million in 2022, a decrease of (23.2%) year-over-year.
  • Free Cash Flow was $32.8 million in 2022, a decrease of (41.1%) year-over-year, due to the items mentioned above.
  • LTM Recurring Revenue % was 84.5% of the Company’s revenue for the year-ended 2022, up from 78.0% for the prior year period.
  • The Company repurchased 2,036,524 shares for $52.8 million during 2022, under the $115 million share repurchase authorisation announced on September 9, 2021.

Jeff Rosica, Avid’s Chief Executive Officer and President, stated, “We remain pleased with the overall business performance in the fourth quarter as we continue to see strong growth in our software subscription business for both creative and enterprise customers. Our customers continue to adopt our enterprise subscription offerings, which, combined with creative subscription growth, resulted in solid growth in ARR. In addition, we continued making progress in resolving supply chain challenges in our integrated solutions that we experienced throughout 2022.” Mr. Rosica added, “While the one-time, non-cash adjustment to revenue we took in the fourth quarter impacted our results for the quarter, absent this adjustment, we would have been at the high-end of our implied Q4 guidance range for revenue and Non-GAAP Earnings per Share, and so, as we start 2023, we are confident in the underlying performance of the business as our product innovations continue to drive strong customer demand for our solutions.”

Ken Gayron, Executive Vice President and Chief Financial Officer of Avid, said, “We continued to make substantial progress in driving our higher gross margin subscription and maintenance revenue during the fourth quarter, which together accounted for 59% of our total revenue in the quarter. This growth, combined with lower operating expenses, enabled us to deliver solid profitability in 2022 and, we believe, positions us well as we enter 2023.” Mr. Gayron continued, “Given the importance of ARR as a measure of the growth of our subscription and maintenance business, we have added ARR to our forward guidance for Q1 and FY 2023. Additionally, given our high confidence in our strategy and long-term model, we continued to repurchase shares in the fourth quarter under the Company’s share repurchase program.”

First Quarter and Full Year 2023 Guidance

For the first quarter of 2023, Avid is providing guidance for ARR, Revenue, Subscription & Maintenance Revenue, Non-GAAP Earnings per Share, and Adjusted EBITDA. For the full year 2023, Avid is providing guidance for ARR, Revenue, Subscription & Maintenance Revenue, Non-GAAP Earnings per Share, Adjusted EBITDA, and Free Cash Flow, as adjusted.

2023 Non-GAAP Earnings per Share assumes 43.5 million shares outstanding. Free Cash Flow, as adjusted, excludes $7.0 million expected cash costs for restructuring.

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