AVID TECHNOLOGY, INC. 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 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, oneGrammy Award , two Oscars, and the first ever America Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigiousPhilo T. Farnsworth Award by theTelevision 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 Avid 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. We started offering subscription licensing options for some of our products and solutions in 2014 and by the end of 2020 had approximately 296,000 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 are optimizing our go-to-market strategy, simplifying our strategy to address specific customer markets to help maximize our 29 --------------------------------------------------------------------------------
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 year endedDecember 31, 2020 is as follows (in thousands): Year Ended December 31, 2020 2019 Subscriptions$ 72,831 $ 45,181 Maintenance 124,175 130,443 Subscriptions and Maintenance
197,006 175,624
Perpetual Licenses 27,858 34,932
Software Licenses and Maintenance 224,864 210,556
Integrated Solutions 112,904 172,513
Professional Services and Training
22,698 28,719
Total Revenue $ 360,466 $ 411,788 Impact of COVID-19 on Our Business
We have operations in numerous countries, which exposes us to risks associated with public health crises such as the novel coronavirus (COVID-19) that was declared a pandemic by theWorld Health Organization . COVID-19 adversely impacted our business operations and results of operations for the second, third and fourth quarters of 2020, as described in more detail in 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 through 2021, 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, inMay 2020 we received$7.8 million of funding under theU.S. government's Paycheck Protection Program, or 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." 30 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our 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 regularly reevaluate our estimates and judgments, including those related to the following: revenue recognition and allowances for sales returns and exchanges; stock-based compensation; income tax assets and liabilities; and restructuring charges and accruals. 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 that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies most significantly affect the portrayal of our financial condition and involve our most difficult and subjective estimates and judgments.
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. See Note P to our Consolidated Financial Statements in Item 8 of this Form 10-K for disaggregated revenue schedules and further discussion regarding revenue and deferred revenue performance obligations and the timing of revenue recognition. 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, or SSP, of each distinct performance obligation. Our process for determining SSP for each performance obligation involves significant management judgment. In determining SSP, we maximize observable inputs and consider a number of data points, including: • the pricing of standalone sales (in the limited instances where available); • the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis; • contractually stated prices for deliverables that are intended to be sold on a standalone basis; • other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type. Determining SSP for performance obligations which we never sell separately also requires significant judgment. In estimating the SSP in these circumstances, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered separately and the prices a customer would likely be willing to pay. We only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other allowances that represent variable consideration under ASC 606, which we estimate based on historical return experience and other relevant factors, and record a corresponding refund liability as a component of accrued expenses and other current liabilities. Other forms of contingent revenue or variable consideration are infrequent.
While not a common practice for us, in the event we grant the customer the option to acquire additional products or services in an arrangement, we consider if the option provides a material right to the customer that it would not receive without entering into the contract (e.g., an incremental discount compared to the range of discounts typically given for similar products or services). If a
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--------------------------------------------------------------------------------material right is deemed to exist, we account for the option as a distinct performance obligation and recognize revenue when those future products or services are transferred or when the option expires.
We also record as revenue all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a component of cost of revenues. Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues. We present revenues net of any taxes collected from customers and remitted to government authorities. Our contracts rarely contain significant financing components as payments from customers are due within a short period from when our performance obligations are satisfied. We are applying the practical expedient for the deferral of sales commissions and other contract acquisition costs, which are expensed as incurred, because the amortization period would be one year or less.
Stock-Based Compensation
We account for stock-based compensation at fair value. The vesting of stock options and restricted stock awards may be based on time, performance, market conditions, or a combination of time, performance, and market conditions. In the future, we may grant stock awards, options, or other equity-based instruments allowed by our stock-based compensation plans, or a combination thereof, as part of our overall compensation strategy. We generally use the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting. The Black-Scholes option pricing model relies on a number of key assumptions to calculate estimated fair values. Our assumed dividend yield of zero is based on the fact that we have never paid cash dividends, we have no present intention to pay cash dividends, and our current credit agreement limits our ability to pay dividends. Our expected stock-price volatility assumption is based on actual historic stock volatility for periods equivalent to the expected term of the award. The assumed risk-free interest rate is theU.S. Treasury security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific historical experience, considering the exercise behavior of past grants and models the pattern of aggregate exercises. The fair values of restricted stock and restricted stock unit awards with time-based vesting are based on the intrinsic values of the awards at the date of grant as these awards have a purchase price of$0.01 per share. We have also issued stock option grants or restricted stock unit awards with vesting based on market conditions. Performance-based restricted stock units will vest based on achievement of our relative total shareholder return against the Russell 2000 Index over a three-year period. The fair values and derived service periods for all grants that include vesting based on market conditions are estimated using the Monte Carlo simulation method. For stock option grants that include vesting based on performance conditions, the fair values are estimated using the Black-Scholes option pricing model. For restricted stock unit awards that include vesting based on performance conditions, the fair values are estimated based on the intrinsic values of the awards at the date of grant as these awards have a purchase price of$0.01 per share.
Income Tax Assets and Liabilities
We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes compared to the amounts used for income tax purposes. We regularly review our deferred tax assets for recoverability with consideration for such factors as historical losses, projected future taxable income, and the expected timing of the reversals of existing temporary differences. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes the remaining deferred tax assets, based largely on the history ofU.S. tax losses, warrant a valuation allowance based on the weight of available negative evidence. We also determined that a full valuation allowance is warranted on a portion of our foreign deferred tax assets. Our assessment of the valuation allowance on ourU.S. and foreign deferred tax assets could change in the future based on our levels of pre-tax income and other tax-related adjustments. Reversal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of reversal. To the extent some or all of our valuation allowance is 32 --------------------------------------------------------------------------------
reversed, future financial statements would reflect an increase in non-cash income tax expense until such time as our deferred tax assets are fully utilized.
The amount of income taxes we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We have taken and will continue to take tax positions based on our interpretation of such tax laws. There can be no assurance that a taxing authority will not have a different interpretation of applicable law and assess us with additional taxes. Should we be assessed with additional taxes, it could have a negative impact on our results of operations or financial condition. We account for uncertainty in income taxes recognized in our financial statements by applying a two-step process to determine the amount of tax provision or benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination by the taxing authorities based on the technical merits of the position. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of provision or benefit to recognize in the financial statements. The amount of provision or benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Our provision for income taxes includes the effects of any resulting tax reserves, referred to as unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Restructuring Charges and Accruals
Based on our policies for the calculation and payment of severance benefits, we account for employee-related restructuring charges as an ongoing benefit arrangement in accordance with ASC Topic 712, Compensation - Nonretirement Postemployment Benefits. Severance-related charges are accrued when it is determined that a liability has been incurred, which is when the expected severance payments are probable and can be reasonably estimated.
Restructuring charges require significant estimates and assumptions, including
severance period assumptions. Our estimates involve a number of risks and
uncertainties, some of which are beyond our control, including future real
estate market conditions and our ability to successfully enter into subleases or
termination agreements with terms as favorable as those assumed when arriving at
our estimates. We monitor these estimates and assumptions on at least a
quarterly basis for changes in circumstances and any corresponding adjustments
to the accrual are recorded in our statement of operations in the period when
such changes are known.
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--------------------------------------------------------------------------------RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated statements of operations as a percentage of net revenues for the periods indicated:
Year Ended December 31,
2020 2019 2018
Net revenues:
Product revenues 39.1 % 50.4 % 49.6 %
Services revenues 60.9 % 49.6 % 50.4 %
Total net revenues 100.0 % 100.0 % 100.0 %
Cost of revenues 36.7 % 39.5 % 42.1 %
Gross margin 63.3 % 60.5 % 57.9 %
Operating expenses:
Research and development 15.8 % 15.1 % 15.1 %
Marketing and selling 24.3 % 24.3 % 24.5 %
General and administrative 13.0 % 13.0 % 13.3 %
Amortization of intangible assets - % 0.2 % 0.4 %
Restructuring costs, net 1.4 % 0.1 % 1.2 %
Total operating expenses 54.5 % 52.7 % 54.6 %
Operating income 8.8 % 7.8 % 3.3 %
Interest and other expense, net (5.3) % (7.2) % (5.6) %
Income (loss) before income taxes 3.5 % 0.6 % (2.3) %
(Benefit from) provision for income taxes 0.4 % (1.2) % 0.3 %
Net income (loss) 3.1 % 1.8 % (2.6) %
Net Revenues
Our net revenues are derived mainly from sales of video and audio 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
orders for large, complex solutions, as well as the services associated with
them, can fluctuate from quarter to quarter and cause significant volatility in
our quarterly and annual operating results. See the risk factors discussed in
Part I - Item 1A under the heading "Risk Factors" of this Form 10-K.
Net Revenues for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Net Revenues $ % Net Revenues
Video products and solutions $ 77,232 $ (53,993) (41.1)% $ 131,225
Audio products and solutions 63,530 (12,690) (16.6)% 76,220
Total products and solutions 140,762 (66,683) (32.1)% 207,445
Services 219,704 15,361 7.5% 204,343
Total net revenues $ 360,466 $ (51,322) (12.5)% $ 411,788
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Net Revenues for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
2019 Change 2018
Net Revenues $ % Net Revenues
Video products and solutions $ 131,225 $ (1,051) (0.8)% $ 132,276
Audio products and solutions 76,220 3,389 4.7% 72,831
Total products and solutions 207,445 2,338 1.1% 205,107
Services 204,343 (3,832) (1.8)% 208,175
Total net revenues $ 411,788 $ (1,494) (0.4)% $ 413,282 The following table sets forth the percentage of our net revenues attributable to geographic regions for the periods indicated:
Year Ended December 31,
2020 2019 2018
United States 40% 37% 36%
Other Americas 7% 8% 7%
Europe, Middle East and Africa 39% 39% 42%
Asia-Pacific 14% 16% 15%
Video Products and Solutions Revenues
2020 Compared to 2019
Video products and solutions revenues decreased$54.0 million , or 41.1%, for 2020, compared to 2019. The decrease in video revenues was primarily due to customers shifting from perpetual Media Composer licenses to subscription-based licenses. In addition, there was a decrease in revenue due to overall lower sales as a result of COVID-19.
2019 Compared to 2018
Video products and solutions revenues decreased$1.1 million , or 0.8%, for 2019, compared to 2018. The decrease in video revenues was due to customers shifting from perpetual Media Composer licenses to subscription-based licenses.
Audio Products and Solutions Revenues
2020 Compared to 2019
Audio products and solutions revenues decreased$12.7 million , or 16.6%, for 2020, compared to 2019. The decrease in audio revenues 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." 2019 Compared to 2018 Audio products and solutions revenues increased$3.4 million , or 4.7%, for 2019, compared to 2018. The increase in audio revenues was primarily due to Pro Tools subscription increases and higher Control Surface sales and the S1 and S4 product launches in Q4. 35 --------------------------------------------------------------------------------
Services Revenues
2020 Compared to 2019
Services revenues are derived primarily from maintenance contracts, subscription services, as well as professional services and training. The$15.4 million , or 7.5%, increase in services revenues in 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.
2019 Compared to 2018
The$3.8 million , or 1.8%, decrease in services revenues for 2019, compared to 2018, was primarily due to a decline in maintenance from the end of sale of maintenance on certain legacy storage systems at the end of 2018 and a decline in professional services revenue from exiting lower margin work.
Revenue Backlog
AtDecember 31, 2020 , we had revenue backlog of approximately$435.5 million , of which approximately$231.3 million is expected to be recognized in the next 12 months, compared to$440.2 million of revenue backlog atDecember 31, 2019 . Revenue backlog, as we define it, consists of firm orders received and includes both (i) orders where the customer has paid in advance of our performance obligations being fulfilled, and (ii) orders for future product deliveries or services that have not yet been invoiced by us. Revenue backlog associated with arrangement consideration paid in advance primarily consists of deferred revenue related to (i) the undelivered portion of annual support contracts and (ii) Implied Maintenance Release PCS performance obligations. Revenue backlog associated with orders for future product deliveries and services where cash has not been received primarily consists of (i) product orders received but not yet shipped, (ii) professional services not yet rendered, and (iii) future years of multi-year support agreements not yet billed. Our definition of backlog includes contractual commitments with customers that specify minimum future purchases, however, since these contractual arrangements do not specify which specific products and services must be purchased to fulfill these commitments, they do not meet the definition of an unfulfilled remaining performance obligation under GAAP. Orders included in revenue backlog may be reduced, canceled, or deferred by our customers. The expected timing of the recognition of revenue backlog as revenue is based on our current estimates and could change based on a number of factors, including (i) the timing of delivery of products and services, (ii) customer cancellations or change orders, or (iii) changes in the estimated period of time Implied Maintenance Release PCS is provided to customers. As there is no industry standard definition of revenue backlog, our reported revenue backlog may not be comparable with other companies. Revenue backlog as of any particular date should not be relied upon as indicative of our net revenues for any future period.
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 included in cost of revenues represents the amortization of developed technology assets acquired as part of acquisitions and is described further in the Amortization of Intangible Assets section below.
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Costs of Revenues for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Costs $ % Costs
Products $ 84,222 $ (25,577) (23.3)% $ 109,799
Services 47,924 (1,252) (2.5)% 49,176
Amortization of intangible assets - (3,738) (100.0)% 3,738
Total cost of revenues 132,146 (30,567) (18.8)% 162,713
Gross profit $ 228,320 $ (20,755) (8.3)% $ 249,075
Costs of Revenues for the Years Ended December 31, 2019 and 2018
(dollars in thousands)
2019 Change 2018
Costs $ % Costs
Products $ 109,799 $ (959) (0.9)% $ 110,758
Services 49,176 (6,384) (11.5)% 55,560
Amortization of intangible assets 3,738 (4,062) (52.1)% 7,800
Total costs of revenues 162,713 (11,405) (6.6)% 174,118
Gross profit $ 249,075 $ 9,911 4.1% $ 239,164
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 such as disk drives, and currency exchange-rate fluctuations. Our total
gross margin percentage for 2020, compared to 2019, increased due to a shift
toward more higher margin subscription offerings and positive supply chain
initiatives.
Gross Margin % for
the Years Ended
2020 Gross (Decrease) Increase in 2019 Gross Increase in 2018 Gross
Margin % Gross Margin % Margin % Gross Margin % Margin %
Products 40.2% (6.9)% 47.1% 1.1% 46.0%
Services 78.2% 2.3% 75.9% 2.6% 73.3%
Total Gross Margin 63.3% 2.8% 60.5% 2.6% 57.9%
2020 Compared to 2019
The products gross margin percentage for 2020 decreased (6.9)% from 2019, due to
a change in mix in products sold as well as the decrease in overall revenue due
to COVID-19. The services gross margin percentage increased 2.3% from 2019 due
to an increase in our high margin subscription business.
2019 Compared to 2018
The products gross margin percentage for 2019 increased to 47.1% from 46.0% for
2018. The change was primarily due to cost savings resulting from our programs
to reduce costs and increase operational efficiencies.
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--------------------------------------------------------------------------------Operating Expenses and Operating Income
Operating Expenses and Operating Income for the Years
Ended
(dollars in thousands)
2020 Change 2019
Expenses $ % Expenses
Research and development expenses $ 57,018 $ (5,325) (8.5)% $ 62,343
Marketing and selling expenses 87,637 (12,307) (12.3)% 99,944
General and administrative expenses 47,052 (6,310) (11.8)% 53,362
Amortization of intangible assets - (694) (100.0)% 694
Restructuring costs, net 5,046 4,417 702.2% 629
Total operating expenses $ 196,753 $ (20,219) (9.3)% $ 216,972
Operating income $ 31,567 $ (536) (1.7)% $ 32,103
Operating Expenses and Operating Income for the Years
Ended
(dollars in thousands)
2019 Change 2018
Expenses $ % Expenses
Research and development expenses $ 62,343 $ (36) (0.1)% $ 62,379
Marketing and selling expenses 99,944 (1,329) (1.3)% 101,273
General and administrative expenses 53,362 (1,868) (3.4)% 55,230
Amortization of intangible assets 694 (756) (52.1)% 1,450
Restructuring costs, net 629 (4,519) (87.8)% 5,148
Total operating expenses $ 216,972 $ (8,508) (3.8)% $ 225,480
Operating income $ 32,103 $ 18,419 134.6% $ 13,684 Research and Development Expenses
Research and development, or R&D, expenses include costs associated with the development of new products and the enhancement of existing products, and consist primarily of employee salaries and benefits, facilities costs, depreciation, costs for consulting and temporary employees, and prototype and other development expenses. R&D expenses decreased$5.3 million , or 8.5%, during the year endedDecember 31, 2020 , compared to 2019. The table below provides further details regarding the changes in components of R&D expense. Year-Over-Year Change in R&D
Expenses for the Years Ended
(dollars in thousands)
2020 (Decrease)/Increase 2019 (Decrease)/Increase
From 2019 From 2018
$ % $ %
Personnel-related $ (3,984) (10.1)% $ 2,745 7.5%
Consulting and outside services (196) (2.2)% (1,477) (14.1)%
Facilities and information technology (368) (3.4)% (1,651)
(13.2)%
Computer hardware and supplies (933) (42.3)% 267 13.8%
Other expenses 156 18.2% 82 11.3%
Total research and development expenses decrease $ (5,325) (8.5)% $ (36) (0.1)%
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2020 Compared to 2019
The decrease in personnel-related expenses for 2020, compared to 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 all other expense categories for 2020 compared to the same periods in 2019 were primarily due to our initiatives to increase operational efficiencies and reduce costs as a response to COVID-19.
2019 Compared to 2018
The decreases in all R&D expense categories, except personnel-related, for 2019, compared to 2018, were primarily the result of our programs to increase operational efficiencies and reduce costs. The increase in personnel-related expense was due to an increase in salary expense.
Marketing and Selling Expenses
Marketing and selling expenses consist primarily of employee salaries 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$12.3 million , or 12.3%, during the year endedDecember 31, 2020 , compared to 2019. The table below provides further details regarding the changes in components of marketing and selling expense. Year-Over-Year Change in Marketing and
Selling Expenses for Years Ended
(dollars in thousands)
2020 (Decrease)/Increase 2019 (Decrease)/Increase
From 2019 From 2018
$ % $ %
Foreign-exchange (gains) and losses $ (150) (26.9)% $ 102 22.5%
Personnel-related (6,286) (6.3)% (2,132) (2.1)%
Consulting and outside services (545) (5.1)% 1,129 9.5%
Facilities and information technology (1,116) (4.4)% 596 2.3% Advertising and promotions (4,787) (79.6)% (1,530) (20.3)% Other expenses 577 9.1% 506 7.1% Total marketing and selling expenses decrease $ (12,307) (12.3)% $ (1,329) (1.3)% 2020 Compared to 2019 For the year endedDecember 31, 2020 , net foreign-exchange losses, which are included in marketing and selling expenses, were$0.4 million , compared to losses of$0.6 million for 2019. The foreign-exchange losses result from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities. The decrease in personnel-related expenses for 2020 compared to 2019 was primarily due to decreases 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 all other expense categories for 2020 compared to 2019 were primarily due to our initiatives to increase operational efficiencies and reduce costs as a response to COVID-19.
2019 Compared to 2018
For the year endedDecember 31, 2019 , net foreign-exchange losses, which are included in marketing and selling expenses, were$0.6 million , compared to losses of$0.5 million for 2018. The foreign-exchange losses result from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities. The decrease in personnel-related expenses for 2019 compared to 2018, was primarily due to decreases in incentive-based compensation accrual and decreased travel expenses as a result of our smart spending initiative. The increase in consulting and outside services for 2019 compared to 2018 was primarily the result of increased webstore fees due to higher transactions on our webstore. The decrease in advertising and promotions expenses for 2019 compared to 2018 was primarily the result of our programs to increase operational efficiencies and reduce costs. 39 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative, or G&A, expenses consist primarily of employee salaries 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 G&A expenses are net of allocations to other expenses categories. G&A expenses decreased$6.3 million , or 11.8%, during the year endedDecember 31, 2020 , compared to 2019. The table below provides further details regarding the changes in components of G&A expense. Year-Over-Year Change in G&A
Expenses for the Years Ended
(dollars in thousands)
2020 (Decrease)/Increase 2019 (Decrease)/Increase
From 2019 From 2018
$ % $ %
Consulting and outside services $ (5,163) (32.3)% $ (1,023) (6.0)%
Personnel-related (816) (3.5)% (1,117) (4.6)%
Facilities and information technology (522) (6.4)% (313) (3.7)%
Other expenses 191 3.2% 585 10.6%
Total general and administrative expenses decrease $ (6,310) (11.8)% $ (1,868) (3.4)%
2020 Compared to 2019
The decrease in personnel-related expenses for 2020, compared to 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 all other expense categories for 2020 compared to the same periods
in 2019, were primarily due to our initiatives to increase operational
efficiencies and reduce costs as a response to COVID-19.
2019 Compared to 2018
The decrease in consulting and outside services expenses for 2019, compared to 2018, was primarily the result of decreases in litigation expenses and contractors costs. The decrease in personnel-related expenses for 2019 compared to 2018 was due to decreases in incentive-based compensation accrual. The decrease in facilities and information technology was primarily the result of our cost efficiency program.
Amortization of Intangible Assets
Intangible assets result from acquisitions and include developed technology, customer-related intangibles, trade names, and other identifiable intangible assets with finite lives. These intangible assets are amortized using the straight-line method over the estimated useful lives of such assets, which are generally two years to 12 years. Amortization of developed technology is recorded within cost of revenues. Amortization of customer-related intangibles, trade names, and other identifiable intangible assets is recorded within operating expenses. As ofJune 30, 2019 , intangible assets were fully amortized. See Note G, Intangible Assets andGoodwill , to our Consolidated Financial Statements in Item 8 of the Form 10-K for further information regarding our identifiable intangible assets. Restructuring Costs, Net InFebruary 2016 , we committed to a restructuring plan that encompassed a series of measures intended to allow us to more efficiently operate in a leaner, more directed cost structure. These included reductions in our workforce, consolidation of facilities, transfers of certain business processes to lower cost regions, and reductions in other third-party services costs. InOctober 2020 , we committed to a restructuring plan in order to reorganize the business to better support the company's strategy and overall performance. We have also implemented programs to increase operational efficiencies and reduce costs as a result of COVID-19. 40 --------------------------------------------------------------------------------
During the year ended
During the year ended
During the year endedDecember 31, 2018 , we recorded$3.6 million of severance costs for 84 positions that were eliminated during 2018 and the first quarter of 2019,$1.1 million of leasehold improvement write-off resulting from the consolidation of our facilities inBurlington, Massachusetts , and$0.1 million of facilities restructuring related adjustments.
Interest and Other Expense, Net
Interest and other expense, net, generally consists of interest income and interest expense.
Interest and Other Income (Expense) for the Years Ended December 31, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Income Income
(Expense) $ % (Expense)
Interest income $ 70 $ 34 94.4% $ 36
Interest expense (20,071) 6,641 (24.9)% (26,712)
Other income (expense), net 868 3,770 (129.9)% (2,902)
Total interest and other expense, net
(35.3)%$ (29,578) Interest and Other Income (Expense) for the Years
Ended
(dollars in thousands)
2019 Change 2018
Income Income
(Expense) $ % (Expense)
Interest income $ 36 $ (159) (81.5)% $ 195
Interest expense (26,712) (3,238) 13.8% (23,474)
Other income (expense), net (2,902) (3,094) (1,611.5)% 192
Total interest and other expense, net
28.1% $ (23,087)
2020 Compared to 2019
The decrease in interest expense for 2020 compared to 2019 was due to the
repayment of our outstanding convertible notes on June 15, 2020 as well as
savings on our term loan interest under our credit facility due to the decrease
in the LIBOR rate over 2020. See Note Q, Long-Term Debt and Credit Agreement, to
our Consolidated Financial Statements in Item 8 of this Form 10-K for further
information.
2019 Compared to 2018
The increase in interest expense for 2019 compared to 2018, was due to the
additional
41
--------------------------------------------------------------------------------Provision for (Benefit from) Income Taxes
Provision for (Benefit from) Income Taxes for the Years
Ended
(dollars in thousands)
2020 Change 2019
Benefit $ % Provision
Provision for (benefit from) income taxes
(127.0)%$ (5,076) Provision for Income Taxes for the Years Ended December 31, 2019 and 2018 (dollars in thousands) 2019 Change 2018 Provision $ % Provision
(Benefit from) provision for income taxes
(499.4)% $ 1,271
Our effective tax rate, which represents our tax provision as a percentage of
income before tax, was 11.0%, (201.0)%, and (13.5)%, respectively, for 2020,
2019, and 2018.
The increase in our 2020 provision was primarily driven by a non-recurring
benefit in our 2019 provision. Our 2019 provision included the removal of
valuation allowances on some of our foreign net operating loss carryforwards.
During the year ended December 31, 2019 we determined that our Irish subsidiary
had reached a level of sustained profitability sufficient enough to release a
significant portion of the valuation allowance on its net operating loss
carryforward. Accordingly, we recorded a $6.0 million benefit related to a
valuation allowance against the Irish net operating loss carryforward deferred
tax asset. Additionally, during the year ended December 31, 2019 we completed a
legal entity reorganization that reduced the number of our German subsidiaries.
This reorganization allowed us to remove a valuation allowance on the net
operating loss carryforward deferred tax asset of one of the surviving German
entities. Accordingly, we recorded a benefit of $1.5 million , which is net of a
reserve for a related uncertain tax position. The year over year increase driven
by the non-recurring combined benefit was partially offset by a decrease in the
provision due to release of a reserve for an uncertain tax position in our
Israel subsidiary due to an audit settlement and changes in the jurisdictional
mix of earnings.
The decrease in our 2019 provision was driven by the removal of valuation
allowances on our Irish and German net operating loss carryforwards, as noted
above, which totaled a combined benefit of $7.5 million . The combined benefit
was partially offset by an increase in the provision due to changes in the
jurisdictional mix of earnings including the now ongoing taxability of our
earnings in Ireland and Germany which results in a non-cash tax expense.
We have significant accumulated deferred tax assets including the tax effects of
net operating losses and tax credit carryovers. The realization of the net
deferred tax assets is dependent upon the generation of sufficient future
taxable income in the applicable tax jurisdictions. We regularly review our
deferred tax assets for recoverability with consideration for such factors as
historical losses, projected future taxable income, the expected timing of the
reversals of existing temporary differences, and tax planning strategies. ASC
Topic 740, Income Taxes, requires us to record a valuation allowance when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Management believes the remaining deferred tax assets, based
largely on the history of U.S. tax losses, warrant a valuation allowance based
on the weight of available negative evidence. We have also determined that a
full valuation allowance is warranted on a portion of our foreign deferred tax
assets.
The Coronavirus Aid, Relief, and Economic Act, or CARES Act, includes several
income tax provisions such as net operating loss, or 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 December 31, 2020 . The CARES Act accelerates the alternative minimum tax,
or AMT, credit refund originally enacted by the Tax Cut and Jobs Act in 2017. As
of December 31, 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 .
42--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Sources of Cash
Our principal source of liquidity is cash and cash equivalents, which totaled$79.9 million as ofDecember 31, 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. 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 expect to operate the business and execute our strategic initiatives principally with funds generated from operations, remaining net proceeds from the term loan borrowings under the Credit Agreement, and draws of up to a maximum of$70.0 million under the Credit Agreement's revolving credit facility. 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 from the filing of our annual report as well as for the foreseeable future. One 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 are optimizing our go-to-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. We believe these collective efforts will continue to improve our efficiency as an organization, increasing gross margins and overall profitability.
Financing Agreement
OnFebruary 26, 2016 , we entered into the Financing Agreement , or the Financing Agreement, with the lenders party thereto. Pursuant to the Financing Agreement, the lenders agreed to provide us with (a) a term loan in the aggregate principal amount of$100.0 million , or the Term Loan, and (b) a revolving credit facility of up to a maximum of$5.0 million in borrowings outstanding at any time, or the Credit Facility. OnNovember 9, 2017 , we entered into an amendment to the Financing Agreement which increased the aggregate principal amount of the term loan to$115.0 million and increased the commitments under the revolving credit facility to$10.0 million . OnMay 10, 2018 , we entered into a further amendment to the Financing Agreement that extended the maturity of the Financing Agreement toMay 2023 , and increased the aggregate principal amount of the term loan to$137.7 million and increased the commitments under the revolving credit facility to$22.5 million . OnApril 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 , or the Delayed Draw Funds, for the purpose of funding the purchase of a portion of the Notes in a tender offer. OnMay 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 the Notes,$0.6 million for the Notes interest payment, and$6.0 million for the payment of refinancing fees. OnJune 18, 2019 , we repaid$20.7 million of the Delayed Draw Funds. The$79.3 million Delayed Draw Funds borrowed would have matured onMay 10, 2023 under the Financing Agreement. OnMay 19, 2020 , we entered into an amendment to the Financing Agreement which increased the leverage ratio that the Company was required to maintain such that following the effective date of this amendment, the Company was required to maintain a leverage ratio of no greater than 6.00:1.00 for each of the quarters endingJune 30, 2020 andSeptember 30, 2020 , 5.75:1.00 for each of the quarters endingDecember 31, 2020 andMarch 31, 2021 , 5.25:1.00 for the quarter endingJune 30, 2021 , 5.00:1.00 for the quarter endingSeptember 30, 2021 , 4.50:1.00 for the quarter endingDecember 31, 2021 , 4.30:1.00 for the quarter endingMarch 31, 2022 , 4.00:1.00 for each of the quarters endingJune 30, 2022 andSeptember 30, 2022 , and 3.75:1.00 for each of the quarters endingDecember 31, 2022 andMarch 31, 2023 . The amendment also reset the prepayment premium to 1.5% of the principal amount of the loans prepaid through the end of 2020, 0.5% of the principal amount of the loans prepaid through the end of 2021, and 0.0% thereafter. Effective with theMay 19, 2020 amendment to the Financing Agreement, interest accrued on outstanding borrowings at a rate of either the LIBOR Rate (as defined in the Financing Agreement) plus 6.25% or a Reference Rate (as defined in the Financing 43 --------------------------------------------------------------------------------
Agreement) plus 5.75%, at the option of the Company. Prior to the effective date of such Amendment, the applicable margin with respect to the LIBOR Rate was 6.25% and the applicable margin with respect to the Reference Rate was 5.25%.
Credit Agreement (New Credit Facility)
OnJanuary 5, 2021 , we entered into the Credit Agreement, or the Credit Agreement, among us, the Lenders party thereto, andJPMorgan Chase Bank, N.A ., as the administrative agent, or the Agent. Pursuant to the Credit Agreement, the Lenders agreed to provide us with (a) a term loan in the aggregate principal amount of$180.0 million , or the New Term Loan and (b) a revolving credit facility of up to a maximum of$70.0 million in borrowings outstanding at any time, or the New Credit Facility. We borrowed the full amount of the New Term Loan, or$180.0 million , on the closing date, but did not borrow any amount under the New Credit Facility on the closing date. The borrowings under the New Term Loan and cash on hand were used to repay outstanding borrowings under the Financing Agreement in connection the termination of the Financing Agreement, as described above. Prior to the maturity of the New Credit Facility, any amounts borrowed under the New Credit Facility may be repaid and, subject to the terms and conditions of the Credit Agreement, reborrowed in whole or in part without penalty. Financial terms and prepayments. Under the Credit Agreement, interest accrues on outstanding borrowings under the New Term Loan and the New Credit Facility at a rate of the Adjusted LIBO Rate, the Adjusted EURIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement), at the option of the Company, plus a spread of 2.00% to 3.25% for Adjusted LIBO Rate and Adjusted EURIBO Rate loans, with a 0.25% LIBOR floor, and 1.00% to 2.25% for Alternate Base Rate loans, in each case depending on our leverage ratio. In addition, we must pay to the Lenders, on a quarterly basis, a commitment fee at a rate of 0.20% to 0.50%, depending on our leverage ratio, on the average daily amount equal to (1) the total revolving commitments under the New Credit Facility less (2) total amount of the outstanding borrowings under the New Credit Facility during the immediately preceding quarter. During the term of the New Credit Facility, we are entitled to reduce the maximum amounts of the Lenders' commitments under the New Credit Facility. We may prepay all or any portion of the borrowings under the Credit Agreement prior to the stated maturity, subject to the payment of certain break funding amounts, if applicable. In addition, subject to exceptions we will be required to prepay the Term Loan with proceeds we receive from specified events, including sales of assets, insurance proceeds and condemnation awards and the incurrence of certain indebtedness. The New Term Loan requires quarterly principal payments commencing inMarch 2021 equal to 5.0% of the original principal amount of the New Term Loan in years 1 and 2, 7.5% of the original principal amount of the New Term Loan in year 3, and 10% of the original principal amount of the New Term Loan in years 4 and 5, with the remaining aggregate principal amount due at maturity. Collateral and guarantees. We and our subsidiary,Avid Technology Worldwide, Inc. , or Avid Worldwide, granted a security interest on substantially all of our assets to secure the obligations of all obligors under the New Term Loan and the New Credit Facility. Avid Worldwide provided a guarantee of all our obligations under the Credit Agreement. Our future subsidiaries (other than certain foreign and immaterial subsidiaries) are also required to become a party to the applicable security agreements and guarantee the obligations under the Credit Agreement. Representations and restrictive covenants. The Credit Agreement contains representations, warranties and restrictive covenants that are customary for an agreement of this kind, including, for example, covenants that restrict us from incurring additional indebtedness, granting liens, making investments and restricted payments, making acquisitions, entering into swap agreements, paying dividends, making payments of or amending the terms of certain subordinated indebtedness, engaging in sale and leaseback transactions, and engaging in transactions with affiliates. Events of default. The Credit Agreement contains customary events of default under which our payment obligations may be accelerated. These events of default include, among others, failure to pay amounts payable under the Credit Agreement when due, breach of representations and warranties, failure to perform covenants, a change of control, default or acceleration of material indebtedness, certain judgments and certain impairments to the collateral. Financial covenants. 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 inthe United States up to$25 million to (y) consolidated EBITDA, not to exceed 4.00 to 1:00 for the fiscal quarters endingMarch 31, 2021 throughJune 30, 2021 ; 3.75 to 1.00 for the fiscal quarters endingSeptember 30, 2021 throughDecember 31, 2021 ; 3.50 to 1.00 for the fiscal quarters endingMarch 31, 2022 throughJune 30, 2022 ; 3.25 to 1.00 for the fiscal quarters ending September 44 -------------------------------------------------------------------------------- 30, 2022 throughDecember 31, 2022 ; and 3.00 to 1.00 for fiscal quarters ending on or afterMarch 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 afterMarch 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 maximum total net leverage covenant and the minimum fixed charge coverage ratio covenant in the future is dependent on our ability to increase bookings and billings above levels experienced over the last 12 months. In recent quarters, we have experienced volatility in bookings and billings 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. In the event bookings and billings in future quarters are lower than we currently anticipate, we may be forced to take remedial actions which could include, among other things (and where allowed by the Lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising additional debt or equity funding 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 maximum total net leverage ratio or the minimum fixed charge coverage ratio 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 that secure our borrowings under the Credit Agreement.
2.00% Convertible Senior Notes
On
OnApril 11, 2019 , we announced the commencement of a cash tender offer, or the Offer, for any and all of our outstanding Notes. OnMay 9, 2019 , as of the expiration of the Offer, Notes with an aggregate principal amount of$74.0 million were validly tendered. We accepted for purchase all Notes that were validly tendered at the expiration of the Offer at a purchase price equal to$982.50 per$1,000 principal amount of Notes, and settled the Offer onMay 13, 2019 for$72.7 million in cash. We recorded$74.0 million extinguishment of debt,$0.6 million of equity reacquisition, and$2.9 million loss on the extinguishment of debt. In connection with the Offer, the number of options under the Capped Call was reduced to 28,867 to mirror the remaining principal outstanding for the Notes, and an immaterial partial unwind cash payment was received inMay 2019 .
On
Paycheck Protection Program Loan
OnMay 11, 2020 , we received$7.8 million of proceeds in connection with its incurrence of a loan under the Paycheck Protection Program, or PPP. The loan has a fixed interest rate of 1% and matures in two years. Interest payments are deferred for six months. OnNovember 17, 2020 we applied to the SBA for the PPP loan to be forgiven in full. We believe we used 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 repaid on or before the maturity date of the loan. The CARES Act allowed employers to defer the deposit and payment of the employer's share ofSocial Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation throughDecember 31, 2020 . The legislation requires that the deferred taxes be paid over a two-year period, with half the amount required to be paid byDecember 31, 2021 , 45 --------------------------------------------------------------------------------
and the other half by
Cash Flows
The following table summarizes our cash flows for the years ended
Year
Ended
2020 2019 2018
Net cash provided by operating activities $ 39,555 $ 19,641 $ 15,822
Net cash used in investing activities (5,692) (7,185) (9,917)
Net cash (used in) provided by financing activities (24,549)
(7,644) 2,536
Effect of foreign currency exchange rates on cash and cash equivalents
1,748 (331) (780)
Net increase in cash, cash equivalents and restricted
cash $ 11,062 $ 4,481 $ 7,661 Cash Flows from Operating Activities
Cash provided by operating activities aggregated
Cash Flows from Investing Activities
For the year ended
Cash Flows from Financing Activities
For the year ended
CONTRACTUAL AND COMMERCIAL OBLIGATIONS
The following table outlines our contractual payment obligations as of
Less than After
Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
Term Loan 201,208 4,781 196,427 - -
PPP Loan 7,800 - 7,800 - -
Other long-term debt 1,271 160 356 409 346
Operating leases 44,684 8,558 13,454 10,896 11,776
Unconditional purchase obligations 8,971 8,971 - - -
$ 263,934 $ 22,470 $ 218,037 $ 11,305 $ 12,122
46--------------------------------------------------------------------------------
Other contractual arrangements that may result in cash payments consisted of the
following at
Less than After
Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
Stand-by letters of credit 3,698 850 1,949 - 899
$ 3,698 $ 850 $ 1,949 $ - $ 899
As described above, all outstanding borrowings under the Financing Agreement
were repaid in January 2021 , in connection with the termination of the Financing
Agreement and the entry into the Credit Agreement.
Any portion of the PPP Loan that is not forgiven, must be repaid by
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$3.0 million of products and services pursuant to this agreement as ofDecember 31, 2020 . We have letters of credit that are used as security deposits in connection with our leasedBurlington, Massachusetts headquarters office space. In the event of default on the underlying leases, the landlords would, atDecember 31, 2020 , be eligible to draw against the letters of credit to a maximum of$1.3 million in the aggregate. The letters of credit are subject to aggregate reductions provided that we are not in default of the underlying leases and meet certain financial performance conditions. In no case will the letters of credit amounts for theBurlington leases be reduced to below$1.2 million in the aggregate throughout the lease periods. In addition, we 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.
OFF-BALANCE SHEET ARRANGEMENTS
We do not engage in off-balance sheet financing arrangements or have any
variable-interest entities. At
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncement
See Note B, Summary of Significant Accounting Policies, to our Consolidated Financial Statements in Item 8 of the Form 10-K for a description of recently adopted accounting standards.
Recently Accounting Pronouncement to be Adopted
See Note B, Summary of Significant Accounting Policies, to our Consolidated Financial Statements in Item 8 of the Form 10-K for a description of certain issued accounting standards that have not been adopted and may impact our financial statements in future reporting periods.
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