Media software company Avid (Nasdaq: AVID) yesterday issued a business update in response to the coronavirus (COVID-19) pandemic. The Massachusetts company is still completing its review of its first quarter results, which it will report on May 7, 2020. Based on a preliminary review of results for the quarter, Avid expects that its subscription business will experience record growth this quarter in terms of net new cloud-enabled software subscriptions. However, the intensifying COVID-19 crisis during the second half of March negatively impacted product shipments during the first quarter. For the first quarter of 2020, Avid now expects its subscription and maintenance revenue will be between $44.5 million and $46.0 million, slightly above the prior guidance issued on March 7, 2020; its total revenue will be approximately 13% – 15% below the mid-point of the prior guidance; its Adjusted EBITDA will be adversely impacted by the reduced revenue and is expected to be positive, but significantly below the prior guidance, and Free Cash Flow is expected to be approximately negative $7 million due to slower collections and reduced billings in the second half of March.
Given the uncertainty about how the COVID-19 situation will continue to unfold and its duration, Avid is also withdrawing its full-year 2020 guidance. The company will share additional information with the release of its full first quarter 2020 results on May 7, 2020.
The COVID-19 situation rapidly evolved and intensified following the company’s Q4 2019 earnings report on March 7, 2020. During the first quarter, the recurring portions of the company’s business performed ahead of expectations with record subscription license counts, while maintenance and the contribution from long-term agreements with customers remained relatively stable. Avid’s customers include many leading television broadcast networks and station groups across the globe, and Avid solutions are relied upon by these customers to deliver news and other essential programming. However, the non-recurring portions of the company’s business depend significantly on sales activity during the last few weeks of the quarter.
The postponement or cancellation of many music festivals and major sporting events, and the suspension of many film and television productions, particularly during the second half of March, negatively impacted the company’s product sales. In addition, the travel restrictions put in place in many areas across the globe during March negatively impacted professional services revenue in the first quarter as the company’s ability to deliver certain professional services and to complete certain milestones at the end of the quarter was affected. In the first quarter, the company did not experience any material production issues related to its supply chain. However, Avid was recently notified by its contract manufacturing partners of an order by the Mexican government related to COVID-19 that restricts the partners’ ability to produce new products for the company through the end of April. These partners manufacture the company’s storage and audio/video console products. Avid believes it has positioned sufficient finished goods inventory as well as service spares to support the expected demand through the end of the second quarter, assuming no significant extension of the order by the Mexican government.
Avid is undertaking what it believes to be appropriate measures to safeguard its employees and workplaces, as well as to ensure its business continuity and customer support. In spite of the unanticipated challenges caused by the pandemic, Avid’s management believes the company’s long-term strategy has improved its ability to respond to the COVID 19 situation. Importantly, Avid’s shift towards Recurring Revenue-based business, its robust product innovation strategy to help customers move to secure cloud based offerings that can be accessed remotely, and its continued focus on improving its cost structure have all been instrumental in mitigating the impact of the COVID-19 situation on the Company.
“As the impacts of COVID-19 evolved rapidly and became highly visible across the global economy, generally, and the media business, specifically, during March, we saw an impact on our business during the second half of March, which typically contributes meaningfully to our quarterly results,” said Jeff Rosica, Chief Executive Officer and President of Avid. “Our strong quarterly growth in subscriptions is accelerating our transition towards more Recurring Revenue, which was 62% of our revenue during 2019, and is helping to provide some stability during the COVID-19 event.”
Mr. Rosica continued, “Avid serves the highly resilient and innovative media industry and we have been working in very close consultation with many of our customers to support their respective business continuity efforts. Avid has provided over 88,000 free 90-day additional licenses for our creative software tools to help many of our enterprise customers keep their operations producing content while their employees are temporarily working from home. In addition, we have enabled unique remote workflows utilizing advanced cloud-based solutions to help many of these same customers protect and expand their media workflows during the COVID-19 crisis. We’re very encouraged by the speed at which the industry has responded to the situation and is embracing the cloud-based solutions that Avid provides.”
Ken Gayron, Executive Vice President and Chief Financial Officer of Avid, said, “Given the headwinds that we have been experiencing in our non-recurring revenue since the middle of March, we are taking what we think are appropriate measures to aggressively reduce our cost structure to manage profitability and cash flow through this situation. With approximately $81 million in cash at March 31, we believe we have sufficient near-term liquidity to manage through the COVID-19 impact.”
Conference Call to Discuss First Quarter 2020 Results on May 7, 2020
Avid will host a conference call to discuss its financial results for the first quarter of 2020 on Thursday, May 7, 2020 at 5:00 p.m. ET. The call will be open to the public and can be accessed by dialing +1 323-994-2131 and referencing confirmation code 107655. You may also access the presentation slides and listen to the call on the Avid Investor Relations website. To listen via the website, go to the events tab at ir.avid.com for complete details prior to the start of the conference call. A replay of the call will also be available for a limited time on the Avid Investor Relations website shortly after the completion of the call.