Avid Technology, Inc.

Good afternoon, ladies and gentlemen, and welcome to Avid Technologies' third quarter 2021 earnings conference call. Today's call is being recorded. At this time, let me turn the call over to your host for today's call, Whit Rappold, Vice President of Investor Relations. Please go ahead.

Thank you, Christy. Good afternoon, everyone, and thank you for joining us today for Avid Technologies' third quarter 2021 earnings call for the period ending September 30th, 2021. My name is Whit Rethwell, AVID's Vice President, 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, the appendix of 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 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 third quarter results. We are pleased with our results in that we were able to significantly grow our revenue in Q3 due to the strong performance of our subscription business and by the continued strengthening recovery of our end markets which allows us to continue to deliver strong profitability and free cash flow. With this continued positive trajectory of the business, it is clear to us that our strategy is working and we are seeing the benefits. So let's get started as there's a lot we want to share with all of you today. During the third quarter, there are three main takeaways for the business performance that I would like to delve into with you. First, we delivered strong subscription revenue growth driven by both our creative tools and enterprise offerings. Next, we saw that the continued strengthening recovery of our end markets also contributed to robust overall growth. And finally, we continued to deliver consistent and healthy profitability with strong free cash flow conversion. Overall, we exceeded expectations for the third quarter, and as we enter the fourth quarter, which is historically our seasonally strongest quarter, we believe we are well positioned to finish 2021 on a high note, and our momentum gives us confidence as we look towards 2022. Now let me dig in a bit more and provide some more specifics on each of these areas. We saw strong growth in our overall subscription business in the third quarter, including solid performance across our creative tools and strong enterprise subscription sales. We signed several multi-year enterprise subscription agreements in the quarter with large media companies around the world, including with the BBC. And we continue to see sales of our Media Central and Media Composer Enterprise subscription offerings to both new and existing customers during the third quarter, including Endemol Shine and Canal Sur. Our strategy for moving Enterprise customers to subscription continues to pay off, and enterprises are adopting our subscription products well ahead of our expectations, and we do not expect this trend to slow down. As we move these Enterprise customers from perpetual and maintenance to subscription, We continue to see meaningful uplifts in our annual contract value. As we're at the early stage of this transition, we believe there remains significant opportunity ahead of us in growing our enterprise subscription business. Our creative tools continue to be an essential piece of our subscription growth, and during the third quarter, we continued strong net ads for creative tools. We believe that the creative tools year-over-year growth is recovering as the large COVID cohort of new ads from 2020 gets further behind us. Specifically, with regard to Pro Tools, we saw an acceleration in net ads in the third quarter versus the prior quarter, and we like the direction we're seeing so far. These enterprise subscription sales and net ads from creative individuals led to both healthy subscription license count and strong revenue growth. During the third quarter, the recovery of our end markets continued to strengthen, benefiting all business areas and product segments. This strength combined with the strong performance of our subscription business and our stable maintenance revenue stream led to double-digit revenue growth in Q3. We also realized an increase in annual contract value of over 20%, driven by the strong subscription revenue growth and a significant increase in the value of our long-term agreements from both new agreements signed and a significant increase in annual contract value of several agreements that were renewed in the quarter. The solid year-over-year growth of our integrated solutions business was driven by a slightly different mix this quarter. We saw strengthening of gross margins as volumes recovered and as management focused on improving the product mix overall. Our storage business continued to perform well as we see organizations continue to return to their facilities and productions head back towards normal globally. Demand for audio interfaces and control services was healthy and we continue to see strong demand for live sound solutions due to the return of many touring activities and live venues as COVID restrictions continue to be lifted. During the third quarter and for several consecutive quarters, we've continued to deliver consistent, healthy profitability and free cash flow. Improving overall gross margins and revenue growth combined with the benefits from operational efficiency continue to deliver solid profitability with an adjusted EBITDA margin of 16.8% in the quarter. And while certain cost-saving measures such as employee furloughs were temporary during the second and third quarters of 2020, we continue to remain diligent this year in our spending controls as we looked at smarter ways to manage our business. We did this while also investing in the digital transformation that is important for our future and also investing in innovation to fuel our growth plan. Both are important elements of our company strategy that was presented at our investor day event back in May. And finally, we once again delivered strong and steady free cash flow of 14 million in the quarter, which represented an over 150% increase quarter over quarter. Now let's talk about where we see things going forward from a business perspective. As we enter the fourth quarter, we believe we are well positioned to finish 2021 strong and enter 2022 with good momentum. We expect a continued solid growth trajectory of subscription net ads for our creative tools and anticipate continued strong enterprise software subscription sales. We will continue to innovate with new technologies, develop new solutions, and forge unique strategic partnerships that will contribute towards our strategic plan and that we believe will contribute to our growth expectations. We also plan to deliver a constant stream of new software releases that are designed to fuel our subscription business and contribute to its growth. And we expect continued expansion of our SaaS and cloud partnerships as we see the opportunity for adoption of more cloud-based workflows with enterprise organizations in support of our customers' demand for better enabling remote workers and more distributed workflows. Also, we will continue our efforts to improve efficiency and maintain the cost discipline that we have been so focused on the past couple of years. However, as I mentioned a moment ago, we will also be making strategic investments in support of our five-year growth plan. In closing, we will continue to carefully evaluate how we deploy our capital to enhance shareholder value while maintaining a healthy balance sheet. and whether this is through continued share buybacks or making selective strategic investments to accelerate our growth plan. With that, let me now turn the call over to Ken to review more of the financial details. Take it away, Ken.

Thank you, Jeff, and good afternoon, everyone. We are pleased with our business and financial results for the third quarter of 2021. Our continued year-over-year revenue growth is driven by an acceleration of our subscription business and strong performance of our maintenance and integrated solutions revenues allowed us to deliver strong profits in pre-cash flow. Our focus for the remainder of 2021 will be to continue building our subscription revenue, improve renewal rates in our maintenance business, and increase the non-recurring portions of the business related to integrated solutions. We are confident in our momentum and will continue to invest prudently in R&D in certain areas of our back office to support our long-term business plan centered on expanding our subscription business by approximately a 30% CAGR through 2025 and improving overall free cash flow and free cash flow conversion. With that, let's now turn to the details of our third quarter financial results. We are encouraged by the continued growth of our subscription base, which reached a new high in paid subscriptions. This includes not only individual creative tool subscriptions, but also the addition of multi-seat subscriptions that are being sold by our channel partners into educational institutions, as well as our enterprise subscriptions. Our total subscription count reached approximately 389,000 at the end of the third quarter, an increase of 35% year over year. In the third quarter, we added roughly 19,300 net new subscriptions with enterprise subscriptions adoption on top of the continued growth in creative licenses, including an acceleration of net ads and pro tools in the quarter. As we closed our books for the third quarter, we adjusted the numbers we are reporting for cloud and native software subscriptions as we discovered there were certain multi-seat licenses that will be counted as one subscription instead of the actual number of acted and paid seats under the multi-seat license. The impact of this change is an increase in our subscription count of 6% or approximately 23,100 in the third quarter of 2021 and a similar amount in each of the past four quarters. We have shown in the chart the adjusted count going back to the third quarter of 2020. There is no revenue impact because of this change and it did not materially alter the trends or growth rates and subscriptions as all quarters were understated by a relatively similar amount. Subscription growth was strong for all creative tools, with Pro Tools up 29% year-over-year, Media Composer up 41% year-over-year, and Sibelius up 35% year-over-year. Now moving to the composition of our revenues. The continued growth in the number of paid subscriptions for our creative tools, as well as new subscriptions for Media Central, drove continued year-over-year growth in subscription revenue during the third quarter, reaching $28 million, an increase of 56.4% year-over-year. We see momentum as enterprises are adopting our subscription model faster than we had previously estimated, with several large enterprise customers moving from perpetual to subscription during the third quarter, with a favorable uplift in overall revenue to Avid. Although Q3 was a strong quarter for converting enterprises to subscription, we continue to expect that the fourth quarter and first quarter of each fiscal year to provide the largest opportunity for enterprise subscription conversions given the renewal cycle of enterprise maintenance contracts that have weighted more towards the calendar year end. Maintenance continues to be a strong contributor to revenue despite the transition to subscription. Maintenance revenue was $30.7 million during the third quarter, down 0.4% year-over-year, and up 0.9% sequentially. Maintenance revenue remained stable as we saw improving renewal rates on our maintenance contracts in contribution from the stronger product sales, offset by the transition of certain enterprise customers from maintenance to subscription. Total subscription and maintenance revenue increased year-over-year by 20.5% in the third quarter. The subscription revenue growth was diluted by the slight decline in maintenance revenue, but combined subscription and maintenance revenue came in above our guidance for the third quarter. Perpetual license revenue was 5.7 million, down 37% year-over-year in the third quarter, as we continue to deemphasize perpetual licenses and focus on strategic subscription revenue. Even with the declining perpetual revenue, total software revenue from combined subscription and perpetual licenses increased year-over-year by 25% in the third quarter. Our integrated solutions business remained healthy with integrated solutions revenue of $31.2 million in the third quarter, an increase of 16.3% year-over-year, and roughly flat sequentially. The year-over-year growth was driven by recovery in audio hardware control surfaces, live sound consoles, and storage. Pro Tools audio hardware revenue increased year over year in the third quarter, driven by sales of the Carbon interface. Audio control services revenue increased nicely year over year, as many large studios continued to add new capacity. Live sound product revenue was up year over year as well, due to the continued global market recovery as many venues and concerts have opened. Revenue from our storage products was also up slightly year over year as the end markets continue to improve. The balance of our revenue comes from our professional and learning services business. Professional service revenue was $6.1 million in the third quarter, an improvement of 2.7% year over year. Now moving to recurring revenue and annual contract value. Our strategy in recent years to focus on recurring revenue sources continues to pay off. In the third quarter, LTM recurring revenue was 77% of total revenue, up from 71% in the third quarter of 2020. The LTM recurring revenue percentage increased due to the higher subscription revenue and revenue under long-term agreements, as well as from lower non-recurring product revenue in the last 12 months compared to the prior 12 months. Annual contract value was $328 million at the end of the quarter. up 21% year-over-year. ACV benefited from strong year-over-year growth in subscription revenue, stable maintenance revenue, and improvement in contribution from strategic purchasing agreements with our channel partners. During the quarter, we added two new strategic purchasing agreements, which added $3.5 million of total contract value, and we successfully renewed five strategic purchasing agreements, contributing to the sequential and year-over-year growth in ACV. Total contract value for the agreements renewed in the third quarter increased 27%, signifying the improving conditions in the overall market and the confidence our strategic partners place in AVID to support their growth. Now let's look at the rest of our results for the third quarter. Total revenue was 101.6 million in the third quarter, an increase of 12.4% year-over-year and a 7.1% sequential increase. and was above the top end of our third quarter guidance. Year-to-date revenue through the nine months ended September 3rd of 2021 was $209.9 million, a 13.6% improvement over the prior year period. At constant currency, our third quarter 2021 revenue increased 11% year-over-year. Non-GAAP gross margin was 65.3% for the third quarter, up 40 basis points year-over-year and 140 basis points sequentially. The high margin subscription business made up a larger share of revenue in the third quarter, which aided in delivering higher gross margin, both year-over-year and sequentially. Non-GAAP operating expenses for the quarter were $51.3 million, a $10 million increase year-over-year and $4.3 million sequentially. Non-GAAP operating expenses increased in the third quarter to support continued innovation in the growth in the business and included a $2 million bonus accrual true-up giving the improving performance of the business. With the company's strong recent performance, we slightly increased our R&D innovation expenses to help accelerate our growth plan, especially for our high-margin subscription offerings. Please remember that in the third quarter of 2020, non-GAAP operating expenses benefited from a significant temporary cost savings initiative put in place due to COVID, including a $6 million from temporary employee furloughs affecting year-over-year comparisons. While many of the temporary cost-saving efforts are no longer in effect, we have continued to exercise similar discipline in managing our expense structure. We are targeting fiscal year end 2021 total non-GAAP operating expenses of approximately $196 million as we continue to benefit from the cost-saving measures put in place at the end of 2020. Non-income per share was 27 cents for the third quarter, flat year-over-year, reflecting the higher gross profit on higher revenue and $2.9 million of lower interest expense this year, offsetting the benefits last year from temporary operating expense savings as described above. Adjusted EBITDA was $17 million in the third quarter, down 11.9% or $2.3 million year-over-year, reflecting the improved revenue and gross profit this year, offset by the temporary operating expense savings last year. Adjusted EBITDA improved to $1.2 million sequentially, and year-to-date through the nine months ended September 30th, adjusted EBITDA was $50.5 million, up 37% from $37 million in the prior year period. Free cash flow was $14 million in the third quarter, down $1.5 million year-over-year, and up $8.5 million sequentially due to the improved operating results and favorable working capital trends. Year-to-date free cash flow was strong at $30.7 million through the nine months ended September 30, 2021, up from $3.2 million from the same period last year. The growth in our subscription business and increase in our recurring revenue percentage continues to make our free cash flow less variable quarter-to-quarter. Working capital is a source of cash of $2.9 million a quarter. We are continuing to see improvement in AVID's working capital cycle as our business moves more to software and annual paid upfront subscriptions. Capital expenditures were 2.5 million during the third quarter, up slightly from the third quarter of 2020. As we have previously mentioned, we expect that capital expenditures will increase during the fourth quarter of 2021 as we'll be investing to improve our internal operations and support our expanding subscription business. Now let's turn to the balance sheet. The cash balance at September 30th remained strong at 50.5 million. down 2.9 million from June 30th. Cash benefited from the free cash flow during the quarter, but also reflects the use of 10.5 million to repurchase shares during the third quarter. Accounts receivable decreased 1.6 million year-over-year due to improved collections. Net inventory decreased 6.2 million year-over-year due to the shift in the business towards software and subscription. Accounts payable increased 8.9 million year-over-year due to third quarter 2020 cost reduction initiatives, coupled with a moderate spend increase associated with our revenue growth. Total debt decreased to $172.1 million at the end of the third quarter. Net debt was $121.7 million at the end of the third quarter. Our strong free cash flow and growth in LTM-adjusted EBITDA resulted in net debt to LTM-adjusted EBITDA of 1.7 times at the end of the quarter, down from 2.7 times in the prior year period. Overall, we are pleased with the health of our balance sheet as the reductions to long-term debt and total leverage provide the company more flexibility to operate and grow its business and to explore capital allocation alternatives to drive long-term shareholder value. During the third quarter, we repurchased approximately 412,000 shares for 11.2 million. Additionally, through November 8th, we repurchased an additional 8.8 million of our shares, bringing total repurchases to date of $20 million under our $115 million authorization we announced in September. We believe that share purchases are an important method for returning capital to our shareholders and provide a good return given our confidence in the long-term plan. Let us now turn to guidance. Given the continued market recovery coupled with our performance in the third quarter that was ahead of our total revenue in our subscription and maintenance revenue guidance, We are raising our full year 2021 guidance for subscription and maintenance revenue. We are raising the high end and tightening the range for our full year guidance for total revenue. We are tightening the range towards the high end of guidance on our full year 2021 guidance for non-GAAP net income per share, adjusted EBITDA, and free cash flow that we revised on August 3rd, 2021. We are providing full year 2021 guidance as follows. We are raising our full year 2021 revenue guidance to 398 million to 404 million, a range which represents year-over-year revenue growth of 11.2% at the midpoint. We are raising our subscription and maintenance revenue guidance for the full year 2021 to 225 million to 230 million, a range which represents year-over-year growth of 15% at the midpoint. We are tightening our non-GAAP net income per share guidance for the full year 2021 to $1.18 to $1.26, assuming 46.3 million shares outstanding. We are tightening our adjusted EBITDA guidance for the full year 2021 to $73 million to $78 million. We are also tightening our guidance for full year 2021 free cash flow to $52 million to $57 million, as our year-to-date free cash flow performance and our trajectory gives us confidence in our 2021 free cash flow. With that, I would like to turn the call back to Whit.

Thank you, Jeff. Thank you, Ken. That concludes our prepared remarks, and we are now happy to take your questions. Operator, please go ahead.

Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. If you're calling from a speakerphone, please make sure your mute function is off to ensure your signal can reach our equipment. And again, if you'd like to ask a question, please press star one. First, we'll take Steven Frankel from Collier's. Your line is open.

Good afternoon, and thanks for the opportunity to ask a question. I just wanted to drill down on the subscription numbers a little bit. You guys have made great progress here. And last quarter, you broke out the Media Central numbers. And so looking at what you disclosed here, it seems like the creative ads were about 17,000 sequentially versus 38,000 in the prior quarter. Am I looking at this correctly?

Yeah. Steve, that's correct. We did increase our license count by 19,300 from Q3 to Q2. And the creative ads were roughly over 17,000 of that with the balance in Media Central. Okay.

And if we look back to Q2 over Q1, was there any change that 38,000 seats added in creative with the restatement, or that's still the right number?

No, the trends with our license count continue to be similar with the new reporting that we just provided at this point.

So I guess another way to go at it is, is this kind of the new level we should think about for sequential growth for the creatives? Are we through the COVID bump, obviously? And the organic ability of this business to add subscribers is somewhere here in the 20,000 a quarter pace at this point.

In general, we feel good about the direction of the ads, and especially, you know, I think if you look at the Pro Tools, which accelerated in terms of net ads, obviously COVID did have an impact as that cohort came up for new one Q2, but that is now abated and we see an acceleration of those net ads. And we feel good about the direction of the business at this point in the quarter for the fourth quarter. As a result of the business, we've increased our guidance for subscription and maintenance revenue.

And can you give us any insight on churn trends now that we're through COVID?

Yeah, I would say the retention rate is actually slightly improving, and as we're coming out at the end of COVID, and we feel good about the direction of the business and the subscription business, and that's why we feel confident about increasing our guidance and all of our key metrics.

Okay, and then on the integrated solutions business, the whole world's talking about supply chain challenges. What's the supply chain like for your hardware business?

I see this, Jeff. I think I'll answer that. Look, I think we're all facing a tighter component supply environment in the marketplace. So far, I'll say that our team is doing a very good job to navigate that, and our team is staying ahead of it at this point. And so we're quite pleased with what they've been able to achieve. We obviously are going to be careful on the long-term horizon. Obviously, keep a close eye, but right now, So far, our team's done a pretty good job to mitigate everything, and so far, so good. I should say that also component costs are going up. I mean, that is a real-world situation. We are making appropriate price adjustments. We actually did a price increase that was public about a month ago. We increased our storage prices around 8% to 10%, both to protect margins but also, to be honest, to optimize our margins in our product. And we'll continue to look at that very closely to make sure that we can, again, protect and even further optimize our margins of our integrated solutions.

Great. And one last question. Just some insight into the lower gross margins in that software business on a year-over-year basis. Is that a mixed issue towards enterprise, or is there something else that's resulting in that?

In terms of gross margins, first of all, gross margins and software improved sequentially. And year over year, we did add some more, I would say, professionals in customer care to help with driving improving renewal rates and driving the top line. Those costs are in cost of sales and are impacting the gross margins slightly year over year. More investment was made this year in that effort.

Okay, great. I'll jump back into the queue. Thank you.

And next we'll take Josh Nichols from B Reilly. Your line is open.

Yeah, thanks for taking my question. Great to see such a rapid acceleration in the subscription growth for this quarter. I was curious if you could maybe help me frame it. Clearly a lot of growth with enterprise contributing for the subscription base this quarter. But, you know, you mentioned 4Q and 1Q. there's supposed to be even bigger opportunities there. Could you kind of help frame how we should think about the opportunities and what you did in 3Q on the enterprise side relative to the potential for 4Q and 1Q?

Hey, Joshua, thanks. First of all, I think that our general sense of things have been that Q4 and Q1 are always going to be the strongest, naturally the strongest quarters, especially for enterprise customers that we're converting from a maintenance and perpetual program to subscription, and that will be true I think what we found, though, is that in Q2 and definitely in Q3 again, we are seeing a really great adoption take up well beyond our expectations for enterprise customers and even new customers that we've either recaptured or have moved early. So we've seen a lot of strength in that part of the business. That strength will continue, we think, for quite a while. Clearly, Q4 and Q1 will be very strong too, we believe. Of course, I don't want to, you know, we're not giving specific guidance other than I think, you know, our guidance on the subscription revenue should probably be, subscription and maintenance revenue should probably be a pretty good hint of what we see going forward. I will also say just on the creative tools, You know, we saw, obviously, as Ken talked about, the cohort on creative tools. We've seen very good performance in Q3 on the creative tools side, and especially pro tools, we did see acceleration of the number of net ads in Q3 that we saw versus Q2. So, again, like we said, we see a good trajectory there.

I know before you kind of called it out, certain quarters, like, how much of that is coming through, like, are you seeing a lot coming from, like, e-commerce or other things? I'm just curious, like, on the sales channels and how some of these customers are coming in on the subscription side, whether it's like direct or whatnot?

Yeah, good question. I think we're continuing to see growth in our e-commerce engine, our digital direct engine, but what's happening, we see is our channel partners are getting more and more positive around the migration to subscription models. And so we're seeing a really significant improvement in our channel performance around subscription. And then both our direct sales team and our higher end channel partners play a big role in our enterprise description business too.

And that last question for me, so it sounds like good acceleration that you're seeing in the creative tool space and enterprise tracking ahead of expectations. If you kind of want to head on, I was curious for like the potential ARPU lift that you see as you move some of these people over from perpetual, I would expect that would more than offset any decline that you're seeing there. Then is there any kind of margin profile benefit that you get when you move people over to subscription or them versus creative?

So as we move the enterprises from perpetual to subscription, we're getting a bigger share wallet. We are providing more value, but we are getting an uplift on the total revenue dollars, you know, we've seen uplifts of 200%, but, you know, I think in general 120 to 140% is probably the average that we've been discussing with the market, and we continue to reaffirm that in our models. And as those dollars come in, they provide very strong margins, and you can see, you know, the nice uptick that we've been having as we move more of the revenue dollars to subscription given the historical performance of the company's gross margins. And we see that continuing as we think about our long-term plan in terms of driving more of the revenue dollars to the subscription line. And we're very confident in that outlook.

Thanks, guys. Thanks, Josh. Thank you, Josh.

And our next question comes from Nihal Chokshi from Northland Capital Markets. Your line is open.

Thank you, and congrats on the strong acceleration of subscription results and well above guidance results. You guys both have mentioned multiple times that you saw an acceleration in Pro Tools net ads, but I don't think you have provided the driver behind why that happened. Any thoughts there?

I think a couple of things. I think, number one, we're seeing, I think a team is doing a really good job on both very important metrics. One is net ad or gross ads and people they're attracting to bring in our digital marketing efforts and our marketing efforts overall have been going well. Also, our channel has been performing better in this space. Combined with the fact that we've been doing, as I was talking about before, a lot of work on making sure we minimize churn. And, you know, obviously we have a big churn metric as we talked about the cohort from 2020s, you know, terrific numbers. And that's starting to get in our rear view mirror now. But I think in general teams has done a great job in continuing to focus. And we will not stop focusing on acquisition and churn reduction.

Excellent. Great. And then, so you had an implied 4-2-21 guidance for maintenance and subscription. and now you have more or less an explicit 4Q21 guidance for maintenance and subscription. The way I read that is you've got about a million-dollar increase on that, on the maintenance and subscription, despite a huge 3Q beat of about $6 million at the midpoint. So is this due to basically you have a higher base of subscriptions exiting Q3 than expected, and then you're also looking at a pull forward of enterprise deals that got recognized into Q3 rather than Q4?

I would say, hey, we're pleased with our Q3 performance as we look at our guidance for Q4. If you look at kind of our performance, what we set out as guidance, we typically see that as an area that we want to overachieve. So at this point, when we look at Q4, we feel good about what we've laid out publicly, and we're going to work very hard to overachieve the midpoint and get towards the higher end. But at this point, This is where we feel is reasonable for the market to assume, and we're going to work to continue to drive overall performance on those numbers.

Okay, great. And then my final question is that you also did mention that you're seeing increasing value of long-term agreements. What is the primary driver of that increasing value of the LTAs?

Yeah, this is behind the aisles, Jeff. So I think as Ken said in his prepared remarks, and I think also in a previous question, is that we've seen really great success with our strategic partner agreements, and these are purchase agreements we have with some of our largest, most strategic channel partners. The program has been very successful for us, but it's also been successful for them, and it's helped to grow their business and focusing on Avid, having them focus strategically on Avid has been a real benefit, again, for both of us. And so as that program has been delivering success, it's allowed our commercial team to really drive big increases in the commitments year on year and to basically grow the business with these partners. So I would say it's just great success of the program. And it's good to see these renewals come in very strong as they come in.

Okay, great. Just to be clear, is it a reflection of your enterprise customers adopting increasing functionality?

No, it's all the above. I think channel partners, our channel partners sell to all levels of customers. They sell the large enterprise, they sell those small and medium sized businesses, and they also sell the individual creatives or creative teams. And we're seeing that success and growth across all those segments. I think the partners are, I think it's two things. One is that I think they're getting more strategic with Avid and they're getting more focused on delivering results for Avid, which is good again, good for us, good for them. They also though are more and more embracing the move to subscription. And that's really allowing them to go out and drive business and not just, you know, convert customers, but drive new business for Avid. So I think it's been real successful for them. So I'd say it's all the above now. It's across.

Great. Okay. Thank you for that clarification. Okay.

And next we'll go to Jack Vander Aard from Maxim Group. Your line is open.

Great. Hey guys, thanks. Great results. Thanks for taking my questions. Um, I, uh, a lot of my questions have been answered, but, um, let me just touch on, you guys, you guys each spoke kind of in your prepared remarks about integrated solutions, um, in, in pretty granular detail. My key takeaway was I didn't hear anything really negative. Um, and so first I guess, is this a fair takeaway? Not, not much negative across any of those categories. And then two, for greater context, can you maybe just compare how the recent revenue performance from storage, live sound, audio control, you know, some of these categories that were maybe struggling during COVID, how that compares to levels pre-COVID? Or are they just improving? Or are they above those levels? Thanks.

Yeah, I think it's all the above. I think we have. Remember that last year we talked about our strategic pivot and part of what we did to to improve margins. And just as we're working through what happened in the world and COVID, there's some product lines that we actually, as we talked about, reduced or de-emphasized in that. So it's hard to do an apples to apples comparisons. I would say, though, that the businesses are returning to not all of them, but most are returning to pre-COVID levels. as much as you can compare them, because again, we we've trimmed some of those product lines a bit and really to focus on the most profitable growing parts of that business going forward. But I'd say in some categories, we're seeing it, you know, back to free COVID levels, other like live sound still have a little bit of a ways to go. And so it's kind of, you know, I'd say, look, I think it's, it's been our expectations, which is great. Things are returning, you know, in a very robust way now. So I'd say overall we're happy with directionally where it's going. But remember that we are being more careful with that part of our business on a go-forward basis because we want to really maximize the opportunities that are more margin, better margins and higher growth potential. We've been de-emphasizing those things that don't fit that picture.

Okay, great. And then maybe just kind of an unrelated topic, but given the recent buzz in the market with all the announcements of the metaverse and NFTs prior to that and how kind of all this is creating new worlds and new opportunities to create content, create all sorts of creative innovations. How are you guys, are you guys involved at all? Is there a place for Avid in the metaverse and all the new stuff that's being created in the blockchain universe as well? Just are you guys involved in this at all? Is there an opportunity there or are you guys staying in the physical world?

Well, yeah, I mean, well, I'd say we are in the virtual world, too. I mean, a lot of content that's created virtually is created, you know, with Avid tools. I'm not sure I can answer it directly on the metaverse. And I think that's obviously a very new subject. I think clearly where they are using, you know, high quality content in those areas, it gives us an opportunity to participate, though I'm not sure Avid is squarely in the middle of that space. As far as NFTs, no, today we don't see that. space I will say that um you know from uh you know things like blockchain Etc those Technologies are important for us as we look at security and some of the strategic areas we're looking at as a company but I wouldn't say that we're necessarily right in the middle of let's say the nft uh movement it is interesting to see though I will say people like Fox and others have been implementing nfts associated with some of their content to create opportunities That's a good trend. Hopefully that's very successful for Fox and others that do that because that obviously makes the content itself more valuable too.

Got it. I appreciate the call. That's it for me, guys. Thanks.

Thanks. And with no further questions, we'll turn it back to Jeff Rosica for closing remarks.

Well, thank you again for your participation and all of your questions. As I mentioned before, let me leave you with the message that we believe we're well positioned to finish 2021 strong and our momentum gives us confidence as we look out to 2022 and beyond. So with that, thanks again and goodbye for now.

And that does conclude our call for today. Thank you for your participation. You may now disconnect.