Avid Technology, Inc.

Good afternoon, ladies and gentlemen, and welcome to Avid, excuse me, Avid Technologies' fourth quarter and full year 2021 earnings call. Today's call is being recorded. If you would like to ask a question on today's call, you may do so by pressing star one on your touchtone telephone. Star one for questions. Now let me turn the call over to our host for today's call, Whit Rappel, VP of Investor Relations at Avid. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for Avid Technologies' fourth quarter and full year 2021 earnings call for the period ending December 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 the 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 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 thank you for joining us to review Avid's fourth quarter and full year 2021 results. I'm delighted to report that we ended 2021 with strong fourth quarter performance and good momentum heading into 2022. During the fourth quarter, we continue to exceed our expectations for adoption of subscription solutions by our enterprise customers, and we continue to see solid growth in subscriptions for our creative tools. This strength in our subscription business combined with the growing storage and all you integrate solutions revenue and stable maintenance revenue allowed us to deliver continued improvement in profitability and strong free cash flow. During, due to our strong Q4 performance, we beat our 2021 guidance for both subscription and maintenance revenue and total revenue and delivered non-gap EPS towards the high end of guidance, which I believe shows that our strategy is clearly working and will continue to provide benefits as we move into 2022. Let me now share some of the details with you. During the fourth quarter, the three key takeaways of our business performance were the following. First, we had a very strong subscription quarter with accelerating enterprise subscription, which exceeds our expectations, along with continued steady and robust new subscriber additions for creative tools. Next, the healthy demand for our solutions by new and existing customers, combined with our good overall execution, sustained our overall revenue growth trends. And finally, the strong revenue performance, combined with our continued focus on the business fundamentals and profitability, resulted in very healthy EBITDA margin, net income, and free cash flow. Overall, the strength in our subscription business, combined with the growing sales of storage and audio-integrated solutions and stable maintenance revenue, enabled us to end 2021 with strong Q4 performance and good momentum heading into 2022. Now let me dig a bit more and provide some specifics on each of these three areas. We delivered a great quarter again for enterprise subscriptions, which is now driving the second leg of growth for our overall subscription business. It continued to exceed our expectations, increasing our confidence that our enterprise customer base is ready to make the move to subscription and motivating us to make several additional products available at subscription during 2022 ahead of our initial plans. Q4 was also another solid quarter for creative tool subscription growth with steady net subscriber ads as we continue to enhance the products, refine our go-to-market tactics, and improve our customer experience capabilities. Overall, our net increase in subscription count accelerated in the quarter to over 21,700 with growth in all our product lines, including a healthy contribution from both Media Composer Enterprise and Media Central Flex based on delivery of some key customer request enhancements. As one customer example, NBCUniversal began their migration through subscription for both Media Composer and Media Central, which, among other things, were used in their productions of the recent Winter Olympics and Super Bowl 56. This was just one example from many customers' successes around the globe in the fourth quarter. We do look forward to sharing details about additional customers as we're able to. During the fourth quarter, we delivered $119.1 million in revenue and 14.2% year-over-year growth, continuing the trend with our fourth consecutive quarter of revenue growth. Overall customer demand was healthy as the recovery of our end markets across all geographies strengthened, benefiting all business areas and product segments. We realized steady performance from maintenance with improved renewal rates for both software and integrated solutions maintenance. and to benefit from the price increases that we implemented earlier in 2021. We experienced very healthy demand for integrated solutions, including our best quarterly storage revenue since 2019. Demand for our audio integrated solutions was also strong, including control services, audio I.O., and live sound consoles. However, along with many organizations around the world, we have had to contend with global supply chain challenges. Our team has done a good job navigating the situation in Q4 and we were thus able to meet our plan for integrated solutions in the quarter while protecting and optimizing our gross margins by implementing certain proactive price increases late in 2021. We will remain diligent looking forward as the global supply chain is expected to continue to be challenging in the near term, but I have confidence as our team has shown to be quite effective at managing the situation to this point. During the fourth quarter, strong revenue performance combined with our continued focus on expense controls resulted in very healthy margins, improved profitability, and strong free cash flow. The growth of our higher margin software and maintenance business and the improved integrated solutions gross margins and volumes helped to drive an increase in overall gross margin. As a result of our year-end performance and the strong overall performance of our commercial teams, we did spend more on sales commissions and had additional bonus accrual in the quarter. But at the same time, we still expanded our profitability while also increasing our investments in technology and product innovation to drive future growth. Overall, we had a strong adjusted EBITDA margin of 21% in the fourth quarter and a very strong conversion of free cash flow, yielding $25 million in free cash flow in Q4. Now let's quickly look at the highlights from fiscal year 2021. We generated strong total revenue growth of 13.7% with contributions from all our business and product areas and across all geographies. Subscription continues to be the main driver of growth, and we surpassed 100 million in subscription revenue for the year, and we are now at over, or I should say, about 411,000 paid subscriptions, both of which are key strategic metrics that exceed our expectations set at the beginning of the year. Enterprises continue to demonstrate their interest in adopting our subscription offerings, with 40 new enterprise subscription agreements in 2021, bringing the total at year end to over 50. but we've still only transitioned a small fraction of our overall enterprise customer base to subscription with less than 10% transition so far. And we expect to be successful in bringing on many more enterprise subscription customers during 2022 and beyond. We released several important features and updates to our products during the year. We delivered Media Central updates to fulfill several large customer commitments and new products such as Media Central Sync for media and metadata backup, and Media Central Stream to enable ingests from IP-based sources. And in support of our openness, we delivered the ability to work more closely with Adobe, including Photoshop and After Effects on our Media Central platform. For creative tool users, we delivered several important updates to Pro Tools and Media Composer addressing shifting market requirements. For next generation music notation users, We launched Sibelius for mobile during the third quarter, resulting in new users around the world using Sibelius directly from their iOS mobile devices. With the market dynamics our customers have experienced this past year, our priority was to shift and support their changing technology requirements. The need for more remote production capabilities and cloud-based workflows became our focus with new technology innovations, such as Avid's on-demand SaaS-based post-production solution. And we have many more exciting innovations planned in 2022 that we believe will resonate with the market and our customers. While we continue our trend of improving business fundamentals, we are making necessary investments to support future growth. We increased our R&D investment during the year to support our innovation roadmap. In 2021, we began our digital transformation journey, starting to update many of our internal systems to enable us to support our business into the future. We saw the first benefits of the digital transformation investment in our customer experience area with improved support for customer engagement, which is an important element of our subscription strategy. We did all this while delivering an improved bottom line performance with $1.25 in non-GAAP EPS, and we generated $55.7 million in free cash flow, a year-over-year increase of 64.4%, and our highest free cash flow since 2007. As a result, we initiated a share repurchase program in September to return a portion of our free cash flow to our investors. Given the confidence that we have in our strategy and long-term plan, we believe that the share buybacks are a good use of capital at the recent prices. During 2021, we repurchased 25.1 million worth of these shares. Now let's talk about where we see things going forward from a business perspective. As we look to Q1 2022 and fiscal year 2022, We expect continued healthy end market demand driven by growing consumer requirements for high quality audio and video content, creating additional demand for Avid's unique technology solutions. We've been increasing our investment in product innovation, and we're planning to launch additional innovative subscription and cloud-based offerings to tap additional growth opportunities. We launched Nexus Edge during the first week in February, a new software subscription solution for remote collaboration for TV and film post-production teams and have seen promising initial market reaction to this innovative solution. We will also be offering Nexus Storage as a subscription later in 2022, separating the value of the storage management software from the base storage appliance, along with news production graphics as a subscription, just to name a few. We expect to continue the sustained growth in our subscription business based on the success we've seen to date with both enterprises and creative individuals. We expect that many more of our current enterprise customers, as well as new enterprise customers, will be interested in adopting our subscription offerings. And as we mentioned previously, we're planning to expand our enterprise subscription offerings to support this growth across 2022. We also expect that our creative tools will continue their growth. To further optimize this part of our subscription business, we're currently investigating new pricing and product tiers for our creative tools, as we look to expand our market opportunities and deliver more solutions for attracting more next-generation music creators. Expect more news on this front in the coming few months. We will continue our discipline and our execution and our spending while we continue to increase certain investments to support needed innovation, new product development, and our digital transformation initiative. We have an experienced team that is addressing the supply chain challenges to ensure that we can meet our targets for the year. And we are doing these things while looking to continue expanding our gross margin and adjusted EBITDA margin. In closing, we expect continued strong margins, profitability, and free cash flow conversion. We will continue our emphasis on execution and a focus on operational improvements while already factoring our best estimates of the potential impacts of supply chain constraints into our planning for 2022. With that, let me now turn the call over to Ken to review more of the financial details. Take it away, Ken.