Avid Technology, Inc.

Good afternoon, ladies and gentlemen, and welcome to Avid Technologies' first quarter 2021 earnings conference call. Today's call is being recorded. During today's call, all participants will be in a listen-only mode. Following today's presentation, we will open the floor for questions and instructions will be given at that time. Now, let me turn the call over to your host for today's call, Witt Rappel, VP of Investor Relations.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for Avid Technologies' first quarter 2021 earnings call for the period ending March 31st, 2021. My name is Whit Rappel, Avid's Vice President for Corporate Development and Investor Relations. With me this afternoon are Jeff Rosica, our Chief Executive Officer and President, and Ken Gayron, our Chief Financial Officer and EVP. In their prepared remarks, Jeff will provide an overview of our business, and then Ken will provide a detailed review of our financial and operating results, followed by time for your questions. We issued our earnings release earlier this afternoon, and we have prepared a slide presentation that we will refer to on this call. The press release and presentation are currently available on our website at ir.avid.com, and a replay of this call will be available on our website for a limited time. During today's call, management will reference certain non-GAAP financial metrics and operational metrics. In accordance with Regulation G, both the appendix to our earnings release today and our investor website contain a reconciliation of the most closely associated GAAP financial information to these non-GAAP measures and also definitions for the operational metrics used on this call and in the presentation. Unless otherwise noted, all figures noted by management during the call are non-GAAP figures except for revenue, which is always GAAP. In addition, certain statements made during today's presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our comments and answers to your questions on this call, as well as the accompanying slide deck, may include statements that are forward-looking and that pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. For more information, including a discussion of some of the key risks and uncertainty associated with these forward-looking statements, Please see our press release issued today and our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC. With that, let me turn the call over to our CEO and President, Jeff Rosica, for his remarks.

Thanks, Whit, and thanks to everyone for joining us to review AVID's first quarter results. Overall, we are quite pleased with our progress during the first quarter of 2021, where we returned to year-over-year revenue growth and generated strong improvement in recurring revenue, earnings, and free cash flow. At this point, we remain optimistic in our outlook for 2021. Last week, in fact, we spent time with the Strategic Advisory Board of our Customer Association, where we got to hear the many ways that our customers continue to adapt their business priorities and workflows in the current environment to a new normal. These valuable conversations and our first quarter performance reinforced our belief that the gradual market recovery that started in the third quarter of last year will continue into 2021. The discussions with our customers also suggest that many enterprises will be looking to move to subscription and SaaS solutions or cloud-based workflows over the next few years. Okay, so there's a lot we want to share with all of you today in our prepared remarks, so let's get started. During the first quarter, we continued to drive growth in our strategic revenue and saw continued strengthening in the end markets of our products and solutions. We worked closely with our customers as they adopted more distributed and remote workflows. We are also excited to have returned to year-over-year revenue growth in the quarter. Let's talk about a few key areas that contributed to that success. First is the growth in our subscription revenue, including strong performance across our creative tools, and the continuation of the recent uptick we are seeing with the adoption of our relatively new enterprise subscription offering. Our enterprise customers' buying habits are a bit seasonal based on a typical budgeting and maintenance renewal cycles, but they are embracing the new business models, which is great to see. Second, our integrated solutions business continues to show signs of gradual recovery, but remains below pre-pandemic levels. Solutions for individuals are rebounding nicely, But large-scale purchases by enterprise customers, while improving, are still yet to fully return to pre-pandemic levels, as many of these customers continue to wait to make some of these investments until they return to their offices or facilities. Live sound solutions are only just starting to show some signs of recovery, as the restrictions on events imposed during the pandemic are starting to lift in some key markets. And third, we significantly improved our year-over-year profitability and free cash flow because of the increase in revenue combined with expanded gross margin, the benefits of the more efficient operations and cost structure, and of course, lower interest expense from our recent refinancing. Now, let me talk about some of the business highlights for the quarter. As I mentioned earlier, we saw continued gradual recovery in our end markets, and we even exceeded our own expectations a bit. We are not saying we are at the end of the business impacts from the pandemic, but we are continuing to see more of our customers returning to business as usual and making key investments. Growth in our subscription business continued to be strong, with subscription revenue up more than 78% year over year. In our creative tools business, we continue to see strong ads in the number of paid subscribers, with more than 28,000 net subscription ads in the first quarter. We also benefited this quarter from the continued uptake in the recently launched subscription licensing for enterprise customers. We saw increased adoption across a broad set of enterprises that included broadcasters, studios, sports franchises, government institutions, and a major telco. We're also realizing improved economics from these enterprises, including an increase in wallet share from some of our largest customers. Another trend we began to see is our ability to go into adjacent markets outside of the traditional media entertainment industry, where the need for video content production with accompanying media management capabilities is quite strong and was made even more possible by the tighter integration of our media central platform and Nexus storage products with Adobe Premiere Pro. And finally, during the first quarter, we realized the benefits of the more permanent elements of the cost structure improvements and operational efficiency programs that we put in place last year. I'm very pleased with the continued diligence in this area by the entire AVID team, which contributed to the robust free cash flow of more than $11 million in the first quarter and the significant year-over-year improvement in our adjusted EBITDA. Let me now talk a bit about where we see things going forward from a business perspective. As I mentioned earlier, last week we spent some time meeting with dozens of our customers, and we also had the opportunity to bring in some young creatives and students to hear directly from them about what they are seeing. I love hearing directly from our customers and users, which we call our voice of the customer sessions, because it helps us to validate and sharpen our strategic plans, as well as offers us direct feedback on the trends our customers are seeing today. We also learn directly what their current requirements are and ultimately better understand where the most attractive market opportunities are for the future. We were encouraged to hear that their views of the market recovery were very aligned with our own expectations of a continued recovery trend for most end markets. They all spoke about issues and challenges they are still having, but for the most part agreed that things are starting to head back to normal. Although it will be a new normal, and it will be different than it was before, we expect we'll get back to full production for the TV and film studios, and we will see live events coming back as well later this year. We did hear that the pandemic has accelerated their move to the cloud, and we talked to them specifically about new business models like SaaS and subscription for the enterprise. From those discussions and other key indicators, we do see the trend continuing as enterprise customers make the transition from perpetual to subscription licensing models and from less on-prem infrastructures to more SaaS or cloud-based solutions to support their business requirements. In early March, we delivered the GA version of our cloud-based editing solution we call Avid Edit on Demand, which had previously only been available as an early access program. Since the launch, we've seen good uptake in not only the number of customers, but also in the use cases and types of customers that are embracing this new SaaS offering. We saw television studios looking at this tool to be used for new program development, and we experienced studios wanting to take advantage of the bursting capabilities that Edit on Demand provides them. So we are quite pleased with the initial increased uptake of this solution and expect that to continue throughout the year. Our teams will continue to drive new innovations in our SaaS offerings, as well as look at new opportunities to solve industry challenges based on new business requirements. What our early adopters have shown us is that we do need to make additional investments in the areas of digital infrastructure and scalable operational processes for our SaaS and cloud-based offerings. So that'll be a key area that we will invest in going forward. And our new CTO, Kevin Riley, is already working on the plans to make this happen. We also have a digital transformation initiative underway to address the digital customer experience requirements for today and the future, especially as we continue to expand the high growth areas of our business, including subscriptions and SaaS, as well as continue to lean into our e-commerce and digitally enabled channel go-to-market to attract the next generation of users and pursue new market opportunities. To support our focus on growth investments for the future, we will be de-emphasizing efforts on some of our less profitable areas and reducing our investment in some lower margin products and services, primarily impacting the integrated solutions part of our business. Let me end my remarks by saying that we will continue to focus on improving efficiency and maintaining the cost reduction initiatives that we rolled out last year. We believe the new products and features we have recently introduced, combined with the operational improvements we have made during the past several quarters, positions us well for future growth, and improve profitability as we move forward through 2021 and beyond. So let me now turn the call over to Ken to review more of the financial details. Take it away, Ken.