Avid Technology, Inc.

Good afternoon, ladies and gentlemen, and welcome to Avid Technologies' second quarter 2021 earnings conference call. Today's call is being recorded. At this time, all lines are in a listen-only mode. After the presentation, the call will be open for questions. You may press star 1 on your telephone keypad if you would like to ask a question. And if you're on speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Now let me turn the call over to your host for today's call, Whit Rappel, VP of Investor Relations.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for Avid Technologies' second quarter 2021 earnings call for the period ending June 30th, 2021. My name is Witt 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 This presentation and our investor website contain a reconciliation of the most closely associated GAAP financial information to the 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 today 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 uncertainties 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 second quarter results. We are pleased with the continued progress this quarter as we saw sequential revenue growth and strong year-over-year growth in revenue, earnings, adjusted EBITDA, and free cash flow. At this point, we remain confident in our outlook for 2021 and we have raised our full year 2021 free cash flow guidance and reaffirmed all other full year 2021 guidance items. Now there's a lot we want to share with all of you today, so let's get started. During the second quarter, the three main takeaways that I would like to review with you are first, we continue to have robust year over year growth in our subscription business. Second, the gradual recovery we have seen in our integrated solutions business since late 2020 accelerated during the second quarter. And third, we continue to deliver healthy profitability and free cash flow. These factors helped us to deliver a strong first half of 2021 and give us confidence in our ability to achieve the full year 2021 guidance that we gave earlier this year. Now let me dig in a bit more and provide some additional specifics on each of these three areas. First, we saw sustained, robust year-over-year growth in our overall subscription business, including solid performance across our creative tools and continued strong adoption of our enterprise subscription offerings. Cloud-based software subscriptions grew 43.2% year-over-year as both individuals and enterprise customers continued to embrace the new business models, which is great to see. Subscriptions for our creative tools continued their strong overall growth trajectory. As the anniversary of the start of COVID passed, we saw increased purchases of certain creative tools during the initial months of the pandemic, and as many customers adapted to remote work and stay-at-home restrictions. Demand for these products remained strong and growing, and we continue to innovate and invest in marketing to drive sustained growth in our creative tools. During the second quarter, we saw strong adoption of Media Central subscription offerings. We see global enterprises increasingly use subscription licensing to centralize license management, as well as to ensure that their organizations are on the most recent releases of our software. We added several new Media Central Enterprise subscriptions with marquee enterprise customers during the second quarter. The annual price of a Media Central seat subscription is generally multiples of the average annual price of one of our creative solutions, depending on the configuration. So this growth is especially encouraging, and we're just getting started. with our enterprise customers. In addition, we saw increased adoption contribution from our Avid Edit on Demand SaaS offering and other cloud-based solutions, and the sales pipeline for these products remained strong. Next, during the second quarter, the recovery from the impacts of COVID, which we have seen since the third quarter last year, really strengthened. The year-over-year and sequential recovery in our integrated solutions business was driven by strength in many product areas. Our storage business saw an increase in purchases of on-premise hardware by customers as their production schedules gradually returned to normal levels and they resume investing in capacity and updates to the latest technology to support their more distributed work environments. We also saw a strong increase in live sound solutions due to the return of many music festivals and touring activities as restrictions have loosened up in certain parts of the world. While they're still not back to pre-pandemic levels, LiveSound revenues were higher than in any quarter since the start of the pandemic. Our other audio integrated solutions, including control services and audio interfaces, also continued to grow nicely. The recovering integrated solutions volumes, particularly higher margin storage, also contributed to a significantly improved quarterly gross margin for integrated solutions overall. And third, during the second quarter, we continued to deliver healthy profitability and free cash flow. We realized strong revenue growth during the second quarter, driven by the ongoing recovery of our markets and the new product innovations we've delivered in recent periods, resulting in nearly 20% year-over-year revenue growth. Revenue growth combined with the benefits from the cost structure improvements and operational efficiency programs that we put in place last year drove year-over-year improvement in our profitability. Now, while certain of these cost-saving measures were temporary during Q2 and Q3 2020, we have remained diligent in our spending controls as we continue to look at smarter ways to manage our business, resulting in a year-over-year increase in adjusted EBITDA and 108% year-over-year increase in non-GAAP EPS. Additionally, we delivered strong positive free cash flow in what is typically a weaker free cash flow quarter. Now, let me end my prepared remarks by talking a bit about where we see things going forward from a business perspective. We are expecting to see the gradual recovery from COVID globally to continue through the second half of 2021. However, we do remain cautious as a recovery in integrated solutions could be uneven due to the impact of the COVID Delta variant or other factors. We expect creative individual subscriptions to continue on a solid growth trajectory driven by new product offerings and innovations. We continue to deliver new subscription software solutions, including one we announced late last week, Sibelius for Mobile, which fully integrates the Sibelius music notation experience across the world of mobile and desktop, and permits users to work on their iOS device, their laptop, or both. Our recent notable releases include new feature-rich Pro Tools and Media Composer software releases, and adding the capability to now publish Dolby Atmos music tracks to Apple Music from our Avid Play service. Enterprise subscription continues to strengthen and we expect will become a larger part of our overall subscription business, largely driven by Media Central, but also from expanding deployments of our creative tools across many of our enterprise customers around the globe. As we continue to add new innovations and educate our customers about the benefits of the subscription offerings, we expect to see continued robust growth and we expect continued success in getting customers to adopt and expand their usage of our cloud solutions, including edit on demand, which was introduced at the end of the first quarter. Finally, we continue our efforts to improve efficiency and maintain the cost discipline that we've been so focused on for the past 15 months. We have reduced spending on our certain legacy products, allowing us to increase spending on new product innovations in our growing subscription and cloud areas. In addition, as we have discussed previously, we are making certain investments to support our digital transformation and various infrastructure improvements to enable us to more profitably scale our subscription and SaaS business. We believe the new products and features we have recently introduced, combined with the operational improvements we made during the past several quarters, position us well for further growth and improved profitability while generating strong free cash flow as we move forward through 2021 and beyond. So now with that, let me turn the call over to Ken to review more of the financial details. So take it away, Ken.