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.