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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Avid Technology, Inc.    AVID

AVID TECHNOLOGY, INC.

(AVID)
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AVID TECHNOLOGY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/30/2020 | 03:04pm EST

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 16 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 33,000 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.
We started offering subscription licensing options for some of our products and
solutions in 2014 and by September 30, 2020, had approximately 269,000 paid
subscriptions. These licensing options offer choices in pricing and deployment
to suit our customers' needs. Our subscription offerings to date have primarily
been sold to creative professionals, though 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.

Another key aspect of our strategy has been to implement programs to increase
operational efficiencies and reduce costs. We are making significant changes in
business operations to better support the company's strategy and overall
performance. We have implemented a number of spending control initiatives, with
an emphasis on non-personnel costs, to reduce the overall cost structure while
still investing in key areas that will drive growth. We have also revamped our
supply chain and logistics, and in 2019 completed our move to a lean model that
leverages a new supplier and distribution network. We are optimizing our go-to-
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market strategy, simplifying our strategy to address specific customer markets
to help maximize our commercial success, which we expect will improve
effectiveness, while increasing efficiency and driving growth of our pipeline
and ultimately revenue.

A summary of our revenue sources for the nine months ended September 30, 2020 and 2019 is as follows (in thousands):

                                               Three Months Ended September
                                                            30,                        Nine Months Ended September 30,
                                                  2020               2019                  2020                   2019
Software licenses                             $  26,879$ 18,968$        69,457$  54,751
Maintenance                                      30,826             33,361                   93,190              97,018
Software licenses and maintenance                57,705             52,329                  162,647             151,769
% of total revenue                                   64   %             56  %                    64   %              51  %
Integrated solutions                             26,803             34,240                   76,956             122,221
Professional services & training                  5,923              6,892                   16,562              21,491
Total revenue                                 $  90,431$ 93,461$       256,165$ 295,481

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
second and third quarter of 2020, as described in more detail under the Results
of Operations below. We expect the evolving COVID-19 pandemic to continue to
have an adverse impact on our business and results of operations, as the ongoing
pandemic is likely to continue to depress economic activity and reduce the
demand for our products and services, as well as disrupt supply chains. Although
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, will be adversely impacted for at least the balance of 2020, and
possibly longer. 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.

We are focused on navigating the challenges presented by COVID-19, with a
primary focus on preserving our liquidity and managing our cash flows by taking
preemptive action to enhance our ability to meet our short-term liquidity needs.
To address actual and expected reductions in net revenues, we have reduced our
discretionary spending, revisited our investment strategies, and reduced payroll
costs, including through temporary employee furloughs and pay cuts. In addition,
in May 2020 we received $7.8 million of funding under the U.S. government's PPP
in the form of a low-interest loan that may be forgiven under certain
conditions. 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."

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
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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, 2019 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) collectibility 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, support, 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.

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 Term Loan, and the terms and geographic locations
of our facilities.

See Note 5 for further discussion on our leases.

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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, 2020 and 2019:
                                                     Three Months Ended September 30,                   Nine Months Ended September 30,
                                                      2020                      2019                     2020                      2019
Net revenues:
Product                                                    39.6  %                  45.9  %                   38.3  %                  50.0  %
Services                                                   60.4  %                  54.1  %                   61.7  %                  50.0  %
Total net revenues                                        100.0  %                 100.0  %                  100.0  %                 100.0  %
Cost of revenues                                           35.6  %                  38.1  %                   36.4  %                  40.5  %
Gross margin                                               64.4  %                  61.9  %                   63.6  %                  59.5  %
Operating expenses:
Research and development                                   15.1  %                  15.9  %                   16.4  %                  15.7  %
Marketing and selling                                      22.1  %                  23.9  %                   25.4  %                  24.8  %
General and administrative                                 11.9  %                  12.9  %                   13.3  %                  13.0  %
Amortization of intangible assets                             -  %                     -  %                      -  %                   0.2  %
Restructuring costs, net                                    0.8  %                   0.2  %                    0.4  %                   0.2  %
Total operating expenses                                   49.9  %                  52.9  %                   55.5  %                  53.9  %
Operating income                                           14.5  %                   9.0  %                    8.1  %                   5.6  %
Interest and other expense, net                            (4.9) %                  (5.9) %                   (5.9) %                  (8.1) %
Income (loss) before income taxes                           9.6  %                   3.1  %                    2.2  %                  (2.5) %
Provision for (benefit from) income taxes                   0.8  %                  (0.3) %                    0.6  %                   0.1  %
Net income (loss)                                           8.8  %                   3.4  %                    1.6  %                  (2.6) %



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 each quarter
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, 2019.
                              Net Revenues for the Three Months Ended September 30, 2020 and 2019
                                                     (dollars in thousands)
                                                   2020                            Change                             2019
                                               Net Revenues              $                     %                  Net Revenues

Products and solutions                       $      35,775$  (7,136)              (16.6)%             $      42,911
Services                                            54,656              4,106                 8.1%                     50,550
Total net revenues                           $      90,431$  (3,030)               (3.2)%             $      93,461




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                               Net Revenues for the Nine Months Ended September 30, 2020 and 2019
                                                     (dollars in thousands)
                                                   2020                            Change                             2019
                                               Net Revenues              $                     %                  Net Revenues

Products and solutions                       $      98,121          $
(49,512)              (33.5)%             $     147,633
Services                                           158,044             10,196                 6.9%                    147,848
Total net revenues                           $     256,165$ (39,316)              (13.3)%             $     295,481



The following table sets forth the percentage of our net revenues attributable
to geographic regions for the three and nine months ended September 30, 2020 and
2019:
                                                     Three Months Ended September 30,                           Nine Months Ended September 30,
                                                   2020                              2019                    2020                              2019
United States                                       40%                              34%                      41%                              37%
Other Americas                                      5%                               10%                      6%                                8%
Europe, Middle East and Africa                      42%                              43%                      39%                              39%
Asia-Pacific                                        13%                              13%                      14%                              16%


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
decreased $7.1 million, or 16.6%, for the three months ended September 30, 2020,
and decreased $49.5 million, or 33.5% for the nine months ended September 30,
2020 compared to the same periods in 2019. The decrease for the three and nine
months ended September 30, 2020 was primarily due to lower sales as a result of
COVID-19,which negatively impacted revenues for the reasons discussed above
under "Executive Overview - Impact of COVID-19 on our Business."

Services Revenues


Services revenues are derived primarily from support services, subscription
services, professional services and training. Services revenues increased $4.1
million, or 8.1%, for the three months ended September 30, 2020, and increased
$10.2 million, or 6.9%, for the nine months ended September 30, 2020 compared to
the same periods in 2019. The increase for the three and nine months ended
September 30, 2020 was primarily due to strong growth in our subscription
services, partially offset by lower professional services revenue due to the
negative effects of COVID-19.

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;
•amortization of technology; and
•providing professional services and training.

Amortization of technology represents the amortization of developed technology assets acquired as part of acquisitions.





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Costs of Revenues and Gross Profit


               Costs of Revenues and Gross Profit for the Three Months 

Ended September 30, 2020 and 2019

                                                (dollars in thousands)
                                                2020                          Change                           2019
                                               Costs                $                     %                   Costs
Products                                    $  20,957$  (2,920)              (12.2)%             $  23,877
Services                                       11,217               (509)               (4.3)%                11,726

  Total cost of revenues                    $  32,174$  (3,429)               (9.6)%             $  35,603

Gross profit                                $  58,257$     399                 0.7%              $  57,858



                  Costs of Revenues and Gross Profit for the Nine Months 

Ended September 30, 2020 and 2019

                                                   (dollars in thousands)
                                                    2020                           Change                           2019
                                                   Costs                $                      %                   Costs
Products                                        $  58,873$ (20,662)               (26.0)%             $  79,535
Services                                           34,322             (2,086)               (5.7)%                 36,408
Amortization of intangible assets                       -             (3,738)              (100.0)%                 3,738
  Total cost of revenues                        $  93,195$ (26,486)               (22.1)%             $ 119,681

Gross profit                                    $ 162,970$ (12,830)               (7.3)%              $ 175,800

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,
2019.

Our gross margin percentage for the three months ended September 30, 2020 increased to 64.4% from 61.9% for the three months September 30, 2019 and increased to 63.6% from 59.5% for the nine months ended September 30, 2020 compared to the same period in 2019. This increase was primarily due to an increased mix of subscriptions, partially offset by lower gross margin percentage in all other areas of the business due to lower volumes.

              Gross Margin % for the Three Months Ended September 30, 2020 and 2019
                     2020 Gross                                                  2019 Gross
                      Margin %                       Change                       Margin %
    Products           41.4%                         (3.0)%                        44.4%
    Services           79.5%                          2.7%                         76.8%
    Total              64.4%                          2.5%                         61.9%



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              Gross Margin % for the Nine Months Ended September 30, 2020 and 2019
                      2020 Gross                                                 2019 Gross
                       Margin %                       Change                      Margin %
     Products           40.0%                         (6.1)%                       46.1%
     Services           78.3%                          2.9%                        75.4%
     Total              63.6%                          4.1%                        59.5%


Operating Expenses and Operating Income


               Operating Expenses and Operating Income for the Three Months 

Ended September 30, 2020 and 2019

                                                   (dollars in thousands)
                                                      2020                          Change                           2019
                                                    Expenses              $                     %                  Expenses
Research and development                          $  13,623$  (1,237)               (8.3)%             $  14,860
Marketing and selling                                19,998             (2,336)              (10.5)%                22,334
General and administrative                           10,796             (1,238)              (10.3)%                12,034

Restructuring costs, net                                723                494                215.7%                   229
Total operating expenses                          $  45,140$  (4,317)               (8.7)%             $  49,457

Operating income                                  $  13,117$   4,716                56.1%              $   8,401



                Operating Expenses and Operating Income for the Nine Months 

Ended September 30, 2020 and 2019

                                                    (dollars in thousands)
                                                      2020                           Change                           2019
                                                    Expenses              $                      %                  Expenses
Research and development                          $  42,116$  (4,209)               (9.1)%              $  46,325
Marketing and selling                                64,977             (8,364)               (11.4)%                73,341
General and administrative                           34,144             (4,399)               (11.4)%                38,543
Amortization of intangible assets                         -               (695)              (100.0)%                   695
Restructuring costs, net                              1,008                490                 94.6%                    518
Total operating expenses                          $ 142,245$ (17,177)               (10.8)%             $ 159,422

Operating income                                  $  20,725$   4,347                 26.5%              $  16,378

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 decreased $1.2 million, or 8.3%, for
the three months ended September 30, 2020, and decreased $4.2 million, or 9.1%,
for the nine months
                                       28
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ended September 30, 2020 compared to the same period in 2019. 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, 2020 and 2019

                                             (dollars in thousands)
                                                                                   2020 Increase (Decrease)
                                                                                           From 2019
                                                                                     $                   %
Personnel-related                                                                    (203)               (2.3) %
Facilities and information technology                                                (123)               (4.8) %
Consulting and outside services                                                      (399)              (16.7) %
Other                                                                                (512)              (56.3) %
Total R&D expenses decrease                                                    $   (1,237)               (8.3) %



                  Change in R&D Expenses for the Nine Months Ended

September 30, 2020 and 2019

                                             (dollars in thousands)
                                                                                   2020 Increase (Decrease)
                                                                                           From 2019
                                                                                     $                   %
Personnel-related                                                                  (2,826)               (9.8) %
Facilities and information technology                                                (504)               (6.0) %
Consulting and outside services                                                      (266)               (3.9) %
Other                                                                                (613)              (27.9) %
Total R&D expenses decrease                                                    $   (4,209)               (9.1) %



The decrease in personnel-related expenses for the three and nine months ended
September 30, 2020, compared to the same periods in 2019, was primarily due to a
decrease in salary expense as a result of our temporary furloughs and pay cuts
and reduced travel expenses as a result of COVID-19. The decrease in facilities
and information technology expenses and other expenses for the three and nine
months ended September 30, 2020, compared to the same periods in 2019, were
primarily due to our programs to increase operational efficiencies and reduce
costs. The decrease in consulting and outside services for the three and nine
months ended September 30, 2020 compared to the same periods in 2019 were
primarily the result of R&D labor costs utilized for the production of our
customer funded development projects which increased in volume this year.

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 decreased $2.3
million, or 10.5%, for the three months ended September 30, 2020, and decreased
$8.4 million, or 11.4%, for the nine months ended September 30, 2020 compared to
the same period in 2019. The tables below provide further details regarding the
changes in components of marketing and selling expenses.
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Change in Marketing and Selling Expenses for the Three Months Ended September 30, 2020 and 2019

                                             (dollars in thousands)
                                                                               2020 Increase (Decrease) From 2019
                                                                                     $                    %
Personnel-related                                                                     (574)               (2.5) %
Advertising and promotions                                                          (1,032)              (88.9) %
Foreign exchange (gains) and losses                                                   (212)              (75.1) %
Other                                                                                 (518)               (5.3) %
Total marketing and selling expenses increase                                  $    (2,336)              (10.5) %


Change in Marketing and Selling Expenses for the Nine Months Ended September 30, 2020 and 2019

                                             (dollars in thousands)
                                                                               2020 Increase (Decrease) From 2019
                                                                                     $                    %
Personnel-related                                                                   (4,140)               (5.8) %
Advertising and promotions                                                          (4,213)              (79.5) %
Foreign exchange (gains) and losses                                                     60                 6.2  %
Other                                                                                  (71)               (0.4) %
Total marketing and selling expenses increase                                  $    (8,364)              (11.4) %



The decrease in personnel-related expenses for the three and nine months ended
September 30, 2020, compared to the same periods in 2019, were primarily due to
a decrease in salary expense as a result of our temporary furloughs and pay cuts
and reduced travel expenses as a result of COVID-19. The decrease in advertising
and promotions expenses as well as other expenses for the three and nine months
ended September 30, 2020, compared to the same periods in 2019, were primarily
the result of our programs to reduce costs in response to COVID-19 and the
cancellation of certain trade shows in 2020. The decrease in foreign exchange
translations for the three months ended September 30, 2020, compared to the same
period in 2019, was due to more foreign exchange losses resulted 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 decreased $1.2 million, or 10.3%, for
the three months ended September 30, 2020, and decreased $4.4 million, or 11.4%,
for the nine months ended September 30, 2020 compared to the same period in
2019. The tables below provide further details regarding the changes in
components of G&A expenses.
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                   Change in G&A Expenses for the Three Months Ended September 30, 2020 and 2019
                                              (dollars in thousands)
                                                                                          2020 Decrease
                                                                                            From 2019
                                                                                      $                     %
Personnel-related                                                                      1,360                29.6  %
Consulting and outside services                                                       (2,493)              (57.0) %
Other                                                                                   (105)               (3.5) %
Total G&A expenses decrease                                                    $      (1,238)              (10.3) %



                   Change in G&A Expenses for the Nine Months Ended September 30, 2020 and 2019
                                              (dollars in thousands)
                                                                                          2020 Decrease
                                                                                            From 2019
                                                                                      $                     %
Personnel-related                                                                        737                 4.5  %
Consulting and outside services                                                       (4,206)              (35.3) %
Other                                                                                   (930)               (8.6) %
Total G&A expenses decrease                                                    $      (4,399)              (11.4) %



The increase in personnel-related expenses for the three and nine months ended
September 30, 2020, compared to the same periods in 2019, were primarily due to
an increase in our incentive-based compensation, offset by a decrease in salary
expense as a result of our temporary furloughs and pay cuts and reduced travel
expenses as a result of COVID-19. The decrease in consulting and outside
services for the three and nine months ended September 30, 2020, compared to the
same periods in 2019, were primarily due to lower audit fees and as a result of
our programs to reduce costs in response to COVID-19. The decrease in other
expenses for the three and nine months ended September 30, 2020, compared to the
same periods in 2019, were primarily due to our programs to increase operational
efficiencies and reduce costs.

Provision (Benefit) for Income Taxes

              Provision (Benefit) for Income Taxes for the Three Months 

Ended September 30, 2020 and 2019

                                                 (dollars in thousands)
                                                 2020                          Change                           2019
                                                                      $                     %
Provision for income taxes                   $     707$      990               349.8%             $    (283)



                   Provision for Income Taxes for the Nine Months Ended 

September 30, 2020 and 2019

                                                (dollars in thousands)
                                                 2020                          Change                          2019
                                                                     $                     %
Provision for income taxes                   $   1,546$   1,391               897.4%             $     155



During the three months ended September 30, 2019, we completed a legal entity
reorganization that reduced the number of our German subsidiaries. This allowed
us to remove a valuation allowance on the net operating loss carryforward
deferred tax asset of one of the surviving German entities resulting in a net
income tax benefit of $0.9 million. This non-recurring prior year benefit was a
significant driver of the increase in our income tax provision in both the three
and nine month periods ended September 30, 2020.

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The additional increase in our income tax provision for the three and nine month
periods ended September 30, 2020 compared to the same periods in 2019 was
primarily driven by an overall increase in pre-tax income and a related deferred
tax expense recorded in our Irish branch of $0.7 million and $0.9 million for
the respective periods. The Irish deferred tax expense was partially offset by
lower foreign provisions due to changes in the jurisdictional mix of earnings.
No benefit was provided for the tax loss generated in the United States due to a
full valuation on the deferred tax asset. In addition, the estimated annual
effective tax rate excluded the United States due to its pre-tax loss position.

The CARES Act includes several income tax provisions such as net operating loss
("NOL") carryback and carryforward benefits and other tax deduction benefits. As
noted previously, the U.S. deferred tax asset has a full valuation; accordingly
these NOL and other benefit provisions had no impact on our financial statements
for the period ended September 30, 2020. The CARES Act accelerates the
alternative minimum tax ("AMT") credit refund originally enacted by the Tax Cut
and Jobs Act in 2017. As of September 30, 2020, we have received the cash from
the IRS associated with this refund receivable which had been recorded as a
long-term asset at December 31, 2019.


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LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Sources of Cash

Our principal sources of liquidity include cash and cash equivalents totaling $49.1 million as of September 30, 2020. 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. We repaid the remaining amount due under the Notes of $28.9 million on June 15, 2020, the maturity date.


On April 8, 2019, we entered into an amendment to the Financing Agreement. The
amendment provided for an additional delayed draw term loan commitment in the
aggregate principal amount of $100.0 million (the "Delayed Draw Funds") for the
purpose of funding the purchase of a portion of Notes in the Offer described in
Note 10 to our financial statements in Item 1 above. On May 2, 2019, we received
the Delayed Draw Funds under the Financing Agreement. We used $72.7 million of
the Delayed Draw Funds for the purchase of a portion of our Notes, $0.6 million
for the Notes interest payment, and $6.0 million for the payment of refinancing
fees. On June 18, 2019, we repaid $20.7 million of the Delayed Draw Funds. The
$79.3 million Delayed Draw Funds borrowed and that remain outstanding will
mature on May 10, 2023 under the terms of the Financing Agreement. The amendment
also modified the covenant that requires us to maintain a leverage ratio
(defined to mean the ratio of (a) the sum of indebtedness under the Term Loan
and Credit Facility and non-cash collateralized letters of credit to (b)
consolidated EBITDA under the Term Loan and Credit Facility) based on the level
of availability of our Credit Facility plus unrestricted cash on-hand (the
"Leverage Ratio Covenant"). On May 19, 2020, we entered into an amendment to the
Financing Agreement which increased the leverage ratio that the Company is
required to maintain such that following the effective date of this amendment,
the Company is required to maintain a leverage ratio of no greater than
6.00:1.00 for each of the quarters ending June 30, 2020 and September 30, 2020,
5.75:1.00 for each of the quarters ending December 31, 2020 and March 31, 2021,
5.25:1.00 for the quarter ending June 30, 2021, 5.00:1.00 for the quarter ending
September 30, 2021, 4.50:1.00 for the quarter ending December 31, 2021,
4.30:1.00 for the quarter ending March 31, 2022, 4.00:1.00 for each of the
quarters ending June 30, 2022 and September 30, 2022, and 3.75:1.00 for each of
the quarters ending December 31, 2022 and March 31, 2023. As of September 30,
2020, we were in compliance with all covenants under the Financing Agreement.

Our ability to satisfy the Leverage Ratio Covenant 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 three 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 will be adversely impacted by these
developments for at least the balance of 2020, and possibly longer. To address
actual and expected reductions in net revenues, we have reduced our
discretionary spending and reduced payroll costs, including through temporary
employee furloughs and pay cuts. In addition, in May 2020 we received $7.8
million of funding under the PPP in the form of a low-interest loan that may be
forgiven under certain conditions. 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, (iv) disposing of certain
assets or businesses, or (v) seeking additional funding under various programs
implemented by the U.S. government in response to the COVID-19 pandemic. 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 Leverage Ratio Covenant and are unable to obtain an amendment or waiver,
such noncompliance may result in an event of default under the Financing
Agreement, which could permit acceleration of the outstanding indebtedness under
the Financing 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 Financing
Agreement.

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On May 11, 2020, we received $7.8 million of proceeds in connection with its
incurrence of a loan under the PPP. The loan has a fixed interest rate of 1% and
matures in two years. Interest payments are deferred for six months. We may
apply to the SBA for the PPP loan to be forgiven in whole or in part beginning
no sooner than seven weeks from the date of initial disbursement. We intend to
use the proceeds of the PPP loan for purposes consistent with the PPP. While we
currently believe that our use of the loan proceeds will meet the conditions for
forgiveness of the loan, we cannot assure that we will be eligible for
forgiveness of the loan, in whole or in part. Any PPP loan balance remaining
following forgiveness by the SBA will be fully re-amortized over the remaining
term of the loan.

Our cash requirements vary depending on factors such as the growth of the
business, changes in working capital, capital expenditures, and obligations
under our cost efficiency program. 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 expected to evolve rapidly.
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,

                                                                           2020                   2019
Net cash provided by operating activities                           $          8,843          $    1,112
Net cash used in investing activities                                         (5,619)             (5,629)
Net cash used in financing activities                                        (24,313)             (7,183)

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

                                                            1,394                (615)

Net decrease in cash, cash equivalents and restricted cash $

(19,695) $ (12,315)

Cash Flows from Operating Activities

Cash provided by operating activities aggregated $8.8 million for the nine months ended September 30, 2020. The increase in cash provided by operations compared to the nine months ended September 30, 2019 was primarily due to decreased operating expenses and a change in working capital.

Cash Flows from Investing Activities


For the nine months ended September 30, 2020, net cash flows used in investing
activities reflected $5.6 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, 2020, net cash flows used in financing
activities were primarily the result of the repayment of our Notes, partially
offset by borrowings under the PPP loan.

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 Condensed Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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