UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 1-36254

__________________

Avid Technology, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

04-2977748

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

75 Network Drive

Burlington

Massachusetts

01803

Address of Principal Executive Offices, Including Zip Code

(978) 640-6789

Registrant's Telephone Number, Including Area Code

__________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

AVID

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 under the Exchange Act.


Large accelerated filer	o	Accelerated Filer	x
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Exchange Act).

Yes ☐ No x

The number of shares outstanding of the registrant’s Common Stock, as of ~~October 26, 2020,~~April 30, 2021, was ~~44,208,119.~~45,193,579.

AVID TECHNOLOGY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 2021

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	UNAUDITED ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~F INANCIAL STATEMENT S
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	2
	Condensed Consolidated Balance Sheets as of S e p ~~tember~~ ~~30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	3
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three ~~and~~ ~~nine~~months ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~	4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~	65
	Notes to ~~Unaudited~~ Unaud ited Condensed Consolidated Financial Statements	86
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2218
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3528
ITEM 4.	CONTROLS AND PROCEDURES	3528

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	3730
ITEM 1A.	RISK FACTORS	3730

ITEM 6.	EXHIBITS	3930

INDEX TO EXHIBITS		4031

SIGNATURE		4132

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that relate to future results or events are forward-looking statements. Forward-looking statements may be identified by use of forward-looking words, such as “anticipate,” “believe,” “confidence,” “could,” “estimate,” “expect,” “feel,” “intend,” “may,” “plan,” “should,” “seek,” “will,” and “would,” or similar expressions.

Forward-looking statements may involve subjects relating to, among others, the following:

•the effects that the COVID-19 pandemic and its related consequences may have on the national and global economy and on our business and operations, revenues, cash flows and profitability, and capital resources;

•our ability to successfully implement our strategy, including our cost saving measures and other actions implemented in response to the COVID-19 pandemic;

•the anticipated trends and developments in our markets and the success of our products in these markets;

•our ability to develop, market, and sell new products and services;

•our business strategies and market positioning;

•our ability to achieve our goal of expanding our market positions;

•our ability to accelerate growth of our Cloud-enabled platform;

•anticipated trends relating to our sales, financial condition or results of operations, including our shift to a recurring revenue model and complex enterprise sales with long sales cycles;

•the expected timing of recognition of revenue backlog as revenue, and the timing of recognition of revenues from subscription offerings;

•our ability to successfully consummate acquisitions, or investment transactions and successfully integrate acquired businesses;

•the anticipated performance of our products;

•our ability to maintain adequate supplies of products and components, including through sole-source supply arrangements;

•our plans ~~to repatriate~~regarding repatriation of foreign earnings;

•the outcome, impact, costs, and expenses of pending litigation or any new litigation or government inquiries to which we ~~are or~~may become subject;

•the effect of the continuing worldwide macroeconomic uncertainty on our business and results of operations, including Brexit;

•our compliance with covenants contained in the agreements governing our indebtedness;

•our ability to service our debt and meet the obligations thereunder;

•the effect of seasonal ~~factors;~~changes in demand for our products and services;

•fluctuations in foreign exchange and interest rates;

•the risk of restatement of our financial statements;

•estimated asset and liability ~~values and amortization of our intangible assets;~~values;

•our ability to protect and enforce our intellectual property rights;

•the expected availability of cash to fund our business and our ability to maintain adequate liquidity and capital resources, generally and in the wake of the COVID-19 pandemic; and

•worldwide political uncertainty, in particular the risk that the United States may withdraw from or materially modify international trade agreements.

Actual results and events in future periods may differ materially from those expressed or implied by forward-looking statements in this Form 10-Q. There are a number of factors that could cause actual events or results to differ materially from those indicated or implied by forward-looking statements, many of which are beyond our control, including the risk factors discussed herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, in Part II, Item 1A of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the U.S. Securities and Exchange Commission (“SEC”). In addition, the forward-looking statements contained in this Form 10-Q represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements, or otherwise.

We own or have rights to trademarks and service marks that we use in connection with the operation of our business. “Avid” is a trademark of Avid Technology, Inc. Other trademarks, logos, and slogans registered or used by us and our subsidiaries in the United States and other countries include, but are not limited to, the following: Avid, Avid NEXIS, AirSpeed, FastServe, MediaCentral, Media Composer, Pro Tools, and Sibelius. Other trademarks appearing in this Form 10-Q are the property of their respective owners.

PART I - FINANCIAL INFORMATION

ITEM 1. ~~CONDENSED CONSOLIDATED~~UNAUDITED FINANCIAL STATEMENTS

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data, unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Net revenues:	Net revenues:									Net revenues:
Products	Products	$	35,775	$	42,911	$	98,121	$	147,633	Products	$	33,267	$	34,711
Services	Services	54,656		50,550		158,044		147,848		Services	61,097		51,742
Total net revenues	Total net revenues	90,431		93,461		256,165		295,481		Total net revenues	94,364		86,453

Cost of revenues:	Cost of revenues:									Cost of revenues:
Products	Products	20,957		23,877		58,873		79,535		Products	19,493		20,962
Services	Services	11,217		11,726		34,322		36,408		Services	13,455		12,340
Amortization of intangible assets		0		0		0		3,738
Total cost of revenues	Total cost of revenues	32,174		35,603		93,195		119,681		Total cost of revenues	32,948		33,302
Gross profit	Gross profit	58,257		57,858		162,970		175,800		Gross profit	61,416		53,151

Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	13,623		14,860		42,116		46,325		Research and development	15,417		15,425
Marketing and selling	Marketing and selling	19,998		22,334		64,977		73,341		Marketing and selling	20,744		25,289
General and administrative	General and administrative	10,796		12,034		34,144		38,543		General and administrative	13,635		12,744
Amortization of intangible assets		0		0		0		695
Restructuring costs, net	Restructuring costs, net	723		229		1,008		518		Restructuring costs, net	1,074		145
Total operating expenses	Total operating expenses	45,140		49,457		142,245		159,422		Total operating expenses	50,870		53,603

Operating income		13,117		8,401		20,725		16,378
Operating income (loss)										Operating income (loss)	10,546		(452)

Interest and other expense, net	Interest and other expense, net	(4,423)		(5,519)		(15,204)		(23,994)		Interest and other expense, net	(5,673)		(5,283)
Income (loss) before income taxes	Income (loss) before income taxes	8,694		2,882		5,521		(7,616)		Income (loss) before income taxes	4,873		(5,735)
Provision for income taxes	Provision for income taxes	707		(283)		1,546		155		Provision for income taxes	482		122
Net income (loss)	Net income (loss)	$	7,987	$	3,165	$	3,975	$	(7,771)	Net income (loss)	$	4,391	$	(5,857)

Net income (loss) per common share – basic and diluted	Net income (loss) per common share – basic and diluted	$0.18		$0.07		$0.09		$(0.18)		Net income (loss) per common share – basic and diluted	$0.10		$(0.14)

Weighted-average common shares outstanding – basic	Weighted-average common shares outstanding – basic	44,019		42,913		43,665		42,510		Weighted-average common shares outstanding – basic	44,559		43,254
Weighted-average common shares outstanding – diluted	Weighted-average common shares outstanding – diluted	44,758		43,674		44,498		42,510		Weighted-average common shares outstanding – diluted	46,204		43,254

The accompanying notes are an integral part of the condensed consolidated financial statements.

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019				2021		2020
Net income (loss)	Net income (loss)	$	7,987	$	3,165	$	3,975	$	(7,771)	Net income (loss)		$	4,391	$	(5,857)

Other comprehensive loss:	Other comprehensive loss:									Other comprehensive loss:
Foreign currency translation adjustments	Foreign currency translation adjustments	995		(764)		1,114		(602)		Foreign currency translation adjustments		(1,457)		(815)

Comprehensive income (loss)	Comprehensive income (loss)	$	8,982	$	2,401	$	5,089	$	(8,373)	Comprehensive income (loss)		$	2,934	$	(6,672)

The accompanying notes are an integral part of the condensed consolidated financial statements.

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, unaudited)


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	49,142	$	69,085	Cash and cash equivalents	$	55,624	$	79,899
Restricted cash	Restricted cash	1,664		1,663		Restricted cash	1,422		1,422
Accounts receivable, net of allowances of $1,522 and $958 at September 30, 2020 and December 31, 2019, respectively		59,683		73,773
Accounts receivable, net of allowances of $1,522 and $1,478 at March 31, 2021 and December 31, 2020, respectively						Accounts receivable, net of allowances of $1,522 and $1,478 at March 31, 2021 and December 31, 2020, respectively	58,831		78,614
Inventories	Inventories	28,378		29,166		Inventories	27,616		26,568

Prepaid expenses	Prepaid expenses	10,526		9,425		Prepaid expenses	7,308		6,044
Contract assets	Contract assets	15,276		19,494		Contract assets	21,955		18,579
Other current assets	Other current assets	2,608		6,125		Other current assets	2,274		2,366
Total current assets	Total current assets	167,277		208,731		Total current assets	175,030		213,492
Property and equipment, net	Property and equipment, net	18,884		19,580		Property and equipment, net	15,931		16,814

Goodwill	Goodwill	32,643		32,643		Goodwill	32,643		32,643
Right of use assets	Right of use assets	30,408		29,747		Right of use assets	27,538		29,430
Long-term deferred tax assets, net		6,539		7,479
Deferred tax assets, net						Deferred tax assets, net	6,299		6,801
Other long-term assets	Other long-term assets	5,651		6,113		Other long-term assets	5,544		5,958
Total assets	Total assets	$	261,402	$	304,293	Total assets	$	262,985	$	305,138

LIABILITIES AND STOCKHOLDERS’ DEFICIT	LIABILITIES AND STOCKHOLDERS’ DEFICIT					LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	13,450	$	39,888	Accounts payable	$	19,220	$	21,823
Accrued compensation and benefits	Accrued compensation and benefits	30,452		19,524		Accrued compensation and benefits	25,675		29,105
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	34,758		36,759		Accrued expenses and other current liabilities	35,088		42,264
Income taxes payable	Income taxes payable	1,946		1,945		Income taxes payable	1,405		1,664
Short-term debt	Short-term debt	4,135		30,554		Short-term debt	9,156		4,941

Deferred revenue	Deferred revenue	70,858		83,589		Deferred revenue	86,172		87,974
Total current liabilities	Total current liabilities	155,599		212,259		Total current liabilities	176,716		187,771
Long-term debt	Long-term debt	204,074		199,034		Long-term debt	175,125		202,759

Long-term deferred revenue	Long-term deferred revenue	10,306		14,312		Long-term deferred revenue	11,334		11,284
Long-term lease liabilities	Long-term lease liabilities	29,473		28,127		Long-term lease liabilities	26,913		28,462
Other long-term liabilities	Other long-term liabilities	6,162		5,646		Other long-term liabilities	7,471		7,786
Total liabilities	Total liabilities	405,614		459,378		Total liabilities	397,559		438,062

Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)					Commitments and contingencies (Note 7)	0		0

Stockholders’ deficit:	Stockholders’ deficit:					Stockholders’ deficit:
Common stock	Common stock	439		430		Common stock	448		442
Additional paid-in capital	Additional paid-in capital	1,033,599		1,027,824		Additional paid-in capital	1,032,068		1,036,658
Accumulated deficit	Accumulated deficit	(1,175,434)		(1,179,409)		Accumulated deficit	(1,163,956)		(1,168,347)

Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,816)		(3,930)		Accumulated other comprehensive loss	(3,134)		(1,677)
Total stockholders’ deficit	Total stockholders’ deficit	(144,212)		(155,085)		Total stockholders’ deficit	(134,574)		(132,924)
Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	261,402	$	304,293	Total liabilities and stockholders’ deficit	$	262,985	$	305,138

The accompanying notes are an integral part of the condensed consolidated financial statements.

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(in thousands, unaudited)


Nine Months Ended September 30, 2020
Three Months Ended March 31, 2021									Three Months Ended March 31, 2021
										Shares of Common Stock	Additional			Accumulated Other	Total
										Outstanding	Common Stock	Paid-in Capital	Accumulated Deficit		Comprehensive Loss	Stockholders’ Deficit
Balances at January 1, 2021									Balances at January 1, 2021	44,420	442	1,036,658	(1,168,347)		(1,677)	(132,924)

Stock issued pursuant to employee stock plans									Stock issued pursuant to employee stock plans	592	6	(7,712)	—		—	(7,706)

Stock-based compensation									Stock-based compensation	—	—	3,122	—		—	3,122

Net income									Net income	—	—	—	4,391		—	4,391

Other comprehensive loss									Other comprehensive loss	—	—	—	—		(1,457)	(1,457)

Balances at March 31, 2021									Balances at March 31, 2021	45,012	448	1,032,068	(1,163,956)		(3,134)	(134,574)
	Shares of Common Stock			Additional			Accumulated Other	Total
	Outstanding	In Treasury	Common Stock	Paid-in Capital	Accumulated Deficit	Treasury Stock	Comprehensive Income (Loss)	Stockholders’ Deficit

Balances at January 1, 2020	43,150	0	430	1,027,824	(1,179,409)	0	(3,930)	(155,085)

Stock issued pursuant to employee stock plans	398	0	4	(1,818)	0	0	0	(1,814)

Stock-based compensation	—	—	—	2,109	—	—	—	2,109

Net loss	—	—	—	—	(5,857)	—	—	(5,857)

Other comprehensive loss	—	—	—	—	—	—	(815)	(815)

Balances at March 31, 2020	43,548	0	434	1,028,115	(1,185,266)	0	(4,745)	(161,462)

Stock issued pursuant to employee stock plans	368	0	3	(538)	0	0	0	(535)

Stock-based compensation	—	—	—	2,726	—	—	—	2,726

Net income	—	—	—	—	1,845	—	—	1,845

Other comprehensive income	—	—	—	—	—	—	934	934

Balances at June 30, 2020	43,916	0	437	1,030,303	(1,183,421)	0	(3,811)	(156,492)

Stock issued pursuant to employee stock plans	207	0	2	(1)	0	0	0	1

Stock-based compensation	—	—	—	3,297	—	—	—	3,297

Net income	—	—	—	—	7,987	—	—	7,987

Other comprehensive income	—	—	—	—	—	—	995	995

Balances at September 30, 2020	44,123	0	439	1,033,599	(1,175,434)	0	(2,816)	(144,212)

Nine Months Ended September 30, 2019
Shares of
Common Stock Additional Accumulated
Other Total
Outstanding In
Treasury Common
Stock Paid-in
Capital Accumulated
Deficit Treasury
Stock Comprehensive
Income (Loss) Stockholders’
Deficit
Balances at January 1, 2019 42,339 (391) 423 1,028,924 (1,187,010) (5,231) (3,767) (166,661)
Stock issued pursuant to employee stock plans 0 391 0 (6,612) 0 5,231 0 (1,381)
Stock-based compensation — — — 1,738 — — — 1,738
Net loss — — — — (213) — — (213)
Other comprehensive loss — — — — — — (548) (548)
Partial retirement of convertible senior notes conversion feature — — — (23) — — — (23)
Partial unwind capped call cash receipt — — — 1 — — — 1
Balances at March 31, 2019 42,339 0 423 1,024,028 (1,187,223) 0 (4,315) (167,087)
Stock issued pursuant to employee stock plans 381 0 4 (204) 0 0 0 (200)
Stock-based compensation — — — 2,005 — — — 2,005
Net loss — — — — (10,723) — — (10,723)
Other comprehensive income — — — — — — 710 710
Partial retirement of convertible senior notes conversion feature — — — (554) — — — (554)
Partial unwind capped call cash receipt — — — 26 — — — 26
Balances at June 30, 2019 42,720 0 427 1,025,301 (1,197,946) 0 (3,605) (175,823)
Stock issued pursuant to employee stock plans 287 0 2 (1,550) 0 0 0 (1,548)
Stock-based compensation — — — 2,045 — — — 2,045
Net income — — — — 3,165 — — 3,165
Other comprehensive loss — — — — — — (764) (764)
Balances at September 30, 2019 43,007 0 429 1,025,796 (1,194,781) 0 (4,369) (172,925)


Three Months Ended March 31, 2020
	Shares of Common Stock	Additional			Accumulated Other	Total
	Outstanding	Common Stock	Paid-in Capital	Accumulated Deficit		Comprehensive Loss	Stockholders’ Deficit




























Balances at January 1, 2020	43,150	430	1,027,824	(1,179,409)		(3,930)	(155,085)

Stock issued pursuant to employee stock plans	398	4	(1,818)	—		—	(1,814)

Stock-based compensation	—	—	2,109	—		—	2,109

Net loss	—	—	—	(5,857)		—	(5,857)

Other comprehensive loss	—	—	—	—		(815)	(815)

Balances at March 31, 2020	43,548	434	1,028,115	(1,185,266)		(4,745)	(161,462)

The accompanying notes are an integral part of the condensed consolidated financial statements.

AVID TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	3,975	$	(7,771)	Net income (loss)	$	4,391	$	(5,857)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	6,317		11,469		Depreciation and amortization	2,119		2,142
Allowance for (recovery from) doubtful accounts		1,349		(156)
Allowance for doubtful accounts						Allowance for doubtful accounts	83		497
Stock-based compensation expense	Stock-based compensation expense	8,132		5,788		Stock-based compensation expense	3,122		2,109
Non-cash provision for restructuring	Non-cash provision for restructuring	653		0		Non-cash provision for restructuring	912		0
Non-cash interest expense	Non-cash interest expense	3,408		7,054		Non-cash interest expense	129		2,820
Loss on extinguishment of debt	Loss on extinguishment of debt	0		2,878		Loss on extinguishment of debt	2,579		0
Unrealized foreign currency transaction losses		219		237
Unrealized foreign currency transaction (gains) losses						Unrealized foreign currency transaction (gains) losses	(1,432)		51
Benefit from (provision for) deferred taxes	Benefit from (provision for) deferred taxes	997		(886)		Benefit from (provision for) deferred taxes	501		(207)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	12,741		14,192		Accounts receivable	19,702		13,311
Inventories	Inventories	788		788		Inventories	(1,048)		(3,435)
Prepaid expenses and other assets	Prepaid expenses and other assets	1,390		(3,526)		Prepaid expenses and other assets	(866)		(1,631)
Accounts payable	Accounts payable	(26,440)		(3,661)		Accounts payable	(2,604)		(4,858)
Accrued expenses, compensation and benefits and other liabilities	Accrued expenses, compensation and benefits and other liabilities	7,752		(13,035)		Accrued expenses, compensation and benefits and other liabilities	(9,887)		(5,323)
Income taxes payable	Income taxes payable	81		372		Income taxes payable	(259)		40
Deferred revenue and contract assets	Deferred revenue and contract assets	(12,519)		(12,631)		Deferred revenue and contract assets	(5,129)		(5,264)
Net cash provided by operating activities		8,843		1,112
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	12,313		(5,605)

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(5,619)		(5,629)		Purchases of property and equipment	(1,254)		(1,479)

Net cash used in investing activities	Net cash used in investing activities	(5,619)		(5,629)		Net cash used in investing activities	(1,254)		(1,479)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from revolving line of credit	Proceeds from revolving line of credit	22,000		0		Proceeds from revolving line of credit	0		22,000
Repayment on revolving line of credit		(22,000)		—

Proceeds from long-term debt	Proceeds from long-term debt	7,800		79,286		Proceeds from long-term debt	180,000		0
Repayment of debt	Repayment of debt	(1,474)		(1,113)		Repayment of debt	(203,554)		(351)

Payments for repurchase of outstanding notes		(28,867)		(76,269)
Proceeds from the issuance of common stock under employee stock plans		252		309

Common stock repurchases for tax withholdings for net settlement of equity awards	Common stock repurchases for tax withholdings for net settlement of equity awards	(2,610)		(3,444)		Common stock repurchases for tax withholdings for net settlement of equity awards	(7,706)		(1,818)
Unwind capped call cash receipt		875		27
Prepayment penalty on extinguishment of debt						Prepayment penalty on extinguishment of debt	(1,169)		0

Payments for credit facility issuance costs	Payments for credit facility issuance costs	(289)		(5,979)		Payments for credit facility issuance costs	(2,574)		0
Net cash used in financing activities		(24,313)		(7,183)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(35,003)		19,831

Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	1,394		(615)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(332)		(402)
Net decrease in cash, cash equivalents and restricted cash		(19,695)		(12,315)
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(24,276)		12,345
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	72,575		68,094		Cash, cash equivalents and restricted cash at beginning of period	83,638		72,575
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	52,880	$	55,779	Cash, cash equivalents and restricted cash at end of period	$	59,362	$	84,920
Supplemental information:	Supplemental information:					Supplemental information:
Cash and cash equivalents	Cash and cash equivalents	$	49,142	$	52,289	Cash and cash equivalents	$	55,624	$	81,182
Restricted cash	Restricted cash	1,664		1,664		Restricted cash	1,422		1,663
Restricted cash included in other long-term assets	Restricted cash included in other long-term assets	2,074		1,826		Restricted cash included in other long-term assets	2,316		2,075
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	52,880	$	55,779	Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	59,362	$	84,920

Cash paid (refunded) for income taxes		$	(659)	$	941
Cash paid for income taxes						Cash paid for income taxes	$	281	$	391
Cash paid for interest	Cash paid for interest	$	13,579	$	7,780	Cash paid for interest	$	3,630	$	4,450

The accompanying notes are an integral part of the condensed consolidated financial statements.

AVID TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. FINANCIAL INFORMATION

The accompanying condensed consolidated financial statements include the accounts of Avid Technology, Inc. and its wholly owned subsidiaries (collectively, “we” or “our”). These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for their fair statement. Interim results are not necessarily indicative of results expected for any other interim period or a full year. We prepared the accompanying unaudited condensed consolidated financial statements in accordance with the instructions for Form 10-Q and, therefore, include all information and footnotes necessary for a complete presentation of operations, comprehensive income (loss), financial position, changes in stockholders’ deficit, and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated balance sheet as of December 31, ~~2019~~2020 was derived from our audited consolidated financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements. We filed audited consolidated financial statements as of and for the year ended December 31, ~~2019~~2020 in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which included information and footnotes necessary for such presentation. The financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

The consolidated results of operations for the three months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2020.~~2021. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business and consumer confidence.

The ~~COVID-19~~novel coronavirus (COVID-19) pandemic, together with the measures implemented or recommended by governmental authorities and private organizations in response to the pandemic, has ~~adversely affected~~had a material adverse impact to the ~~Company’s~~Company's business, operating results ~~of operations~~ and financial condition primarily due to reduced demand for our products and services which has led to lower net revenues.

The Company began experiencing a significant decline in international and domestic demand due to COVID-19 by the end of the first quarter of 2020, and this reduction in demand continued through the balance of 2020. These economic impacts ~~are~~were the result of, but not limited to:

•the postponement or cancellation of film and television productions, major sporting events, and live music events;

•delays in purchasing and projects by our enterprise customers and channel partners;

•disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and

•decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders.

~~These effects are expected~~Our results for the first quarter began to ~~continue, although~~show a gradual recovery towards pre-pandemic spending levels with the ~~full impact~~continuing positive signs of recovery from the impacts of the COVID-19 pandemic ondriven by vaccination and government stimulus programs, particularly in the ~~Company’s consolidated results of operations and financial condition over~~US. At the ~~longer term is uncertain. The Company is actively managing its business to respond to this health crisis and will~~same time, certain international countries around the globe continue to ~~evaluate~~face challenges with renewed lockdowns and travel restrictions and there remains uncertainty relating to the nature and extent of the impact. We expect that our business operations and results of operations will be adversely impacted by these developments for at least the balance of 2020, and possibly longer. To address actual and expected reductions in net revenues, we have reduced our discretionary spending and reduced payroll costs, including through temporary employee furloughs and pay cuts. In addition, in May 2020 we received $7.8 million of funding under the U.S. government’s Paycheck Protection Program (the “PPP”) in the form of a low-interest loan that may be forgiven under certain conditions. We may be required to take additional remedial steps, depending on the durationongoing spread and severity of the ~~pandemic and its impact on our operations and cash flows, which could include, among other things (and where allowed~~virus. While we are encouraged by the ~~lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through~~trends we saw in the issuance of additional equity or debt securities or the incurrence of additional borrowings, (iv) disposing of certain assets or businesses, or (v) seeking additional funding under various programs implemented by the U.S. government in responsefirst quarter, to the ~~COVID-19 pandemic. Such remedial actions, which may not~~extent that the pandemic continues to have negative impacts on economies, our results could be available on favorable terms or at all, could have a material adverse impact on our business, and/or could result in non-compliance with financial covenants in our financing agreements with lenders which, in the absence of a waiver or amendment, could result in an event of default under such financing agreements, which could permit acceleration of the outstanding indebtednessaffected and require us to repay such indebtedness before the scheduled due date. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months as well as for the foreseeable

~~future.~~ We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations and results of operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by COVID-19 on our business are expected to evolve rapidly.uneven. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

Our preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from our estimates.

Significant Accounting Policies - Revenue Recognition

We enter into contracts with customers that include various combinations of products and services, which are typically capable of being distinct and are accounted for as separate performance obligations. We account for a contract when (i) it has approval and commitment from both parties, (ii) the rights of the parties have been identified, (iii) payment terms have been identified, (iv) the contract has commercial substance, and (v) ~~collectibility~~collectability is probable. We recognize revenue upon transfer of control of promised products or services to customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts, in an amount that reflects the consideration we expect to receive in exchange for those products or services.

We often enter into contractual arrangements that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These arrangements may include a combination of products, ~~support,~~maintenance, training, and professional services. We allocate the transaction price of the arrangement based on the relative estimated standalone selling price of each distinct performance obligation.

See Note 9 for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

On January 1, ~~2019,~~2021, we adopted ~~ASC 842 using the modified retrospective transition approach, as provided by ASU No. 2018-11,~~ ~~Leases - Targeted Improvements~~ (“ASU 2018-11”). We elected the package of practical expedients permitted under the transition guidance. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under previous U.S. GAAP.

The primary impact of ASC 842 is that substantially all of our leases are recognized on the balance sheet, by recording right-of-use assets and short-term and long-term lease liabilities, both of which are material to our consolidated balance sheet. The new standard does not have a material impact on our consolidated statement of operations and cash flows, and the effect of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019 is immaterial.

~~Recent Accounting Pronouncements To Be Adopted~~

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued~~ ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is intended to enhance and simplify aspects of the income tax accounting guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption permitted. ~~The Company is currently evaluating the~~Our adoption of ASU 2019-12 did not have a material impact ~~this guidance may have~~ on ~~its~~our consolidated financial ~~statements and related disclosures.~~statements.

Recent Accounting Pronouncements To Be Adopted

In March 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the

expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

2. NET INCOME (LOSS) PER SHARE

Net income (loss) per common share is presented for both basic income (loss) per share (“Basic EPS”) and diluted income (loss) per share (“Diluted EPS”). Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common share equivalents outstanding during the period.

The potential common shares that were considered anti-dilutive securities were excluded from the diluted earnings per share calculations for the relevant periods either because the sum of the exercise price per share and the unrecognized compensation cost per share was greater than the average market price of our common stock for the relevant periods, or because they were considered contingently issuable. The contingently issuable potential common shares result from certain stock options and restricted stock units granted to our employees that vest based on performance conditions, market conditions, or a combination of performance and market conditions.

The following table sets forth (in thousands) potential common shares that were considered anti-dilutive securities at ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020:


		September 30, 2020	September 30, 2019		March 31, 2021	March 31, 2020
Options	Options	390	594	Options	0	465
Non-vested restricted stock units	Non-vested restricted stock units	3,220	2,699	Non-vested restricted stock units	1,040	3,069
Anti-dilutive potential common shares	Anti-dilutive potential common shares	3,610	3,293	Anti-dilutive potential common shares	1,040	3,534

The following table sets forth (in thousands) the basic and diluted weighted common shares outstanding for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021:

Three months ended Nine months ended
Weighted common shares outstanding - basic 44,019 43,665
Net effect of common stock equivalents 739 833
Weighted common shares outstanding - diluted 44,758 44,498


Weighted common shares outstanding - basic			44,559
Net effect of common stock equivalents			1,645
Weighted common shares outstanding - diluted			46,204

3. FAIR VALUE MEASUREMENTS

Assets Measured at Fair Value on a Recurring Basis

We measure deferred compensation investments on a recurring basis. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, our deferred compensation investments were classified as either Level 1 or Level 2 in the fair value hierarchy. Assets valued using quoted market prices in active markets and classified as Level 1 are money market and mutual funds. Assets valued based on other observable inputs and classified as Level 2 are insurance contracts.

The following tables summarize our deferred compensation investments measured at fair value on a recurring basis (in thousands):


				Fair Value Measurements at Reporting Date Using									Fair Value Measurements at Reporting Date Using
		September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:	Financial assets:									Financial assets:
Deferred compensation assets	Deferred compensation assets	$	487	$	261	$	226	$	0	Deferred compensation assets	$	371	$	97	$	274	$	0


				Fair Value Measurements at Reporting Date Using									Fair Value Measurements at Reporting Date Using
		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:	Financial assets:									Financial assets:
Deferred compensation assets	Deferred compensation assets	$	1,156	$	338	$	818	$	0	Deferred compensation assets	$	522	$	282	$	240	$	0

Financial Instruments Not Recorded at Fair Value

The carrying amounts of our other financial assets and liabilities including cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.

4. INVENTORIES

Inventories consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Raw materials	Raw materials	$	7,885	$	9,036	Raw materials	$	8,126	$	8,223
Work in process	Work in process	316		371		Work in process	320		353
Finished goods	Finished goods	20,177		19,759		Finished goods	19,170		17,992
Total	Total	$	28,378	$	29,166	Total	$	27,616	$	26,568

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, finished goods inventory included ~~$1.7~~$1.1 million and ~~$1.5~~$1.2 million, respectively, associated with products shipped to customers and deferred labor costs for arrangements where revenue recognition had not yet commenced.

5. LEASES

We have entered into a number of facility leases to support our research and development activities, sales operations, and other corporate and administrative functions in North America, Europe, and Asia, which qualify as operating leases under U.S. GAAP. We also have a limited number of equipment leases that qualify as either operating or finance leases. We determine if contracts with vendors represent a lease or have a lease component under U.S. GAAP at contract inception. Our leases have remaining terms ranging from less than one year to eight years. Some of our leases include options to extend or terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Operating lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. As our leases generally do not provide an implicit rate, we

use an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. ~~We used an~~As of March 31, 2021, the weighted average incremental borrowing rate ~~of 6% as of January 1, 2019,~~was 6.0% and the adoption date of ASC 842, for our leases that commenced prior to that date. The operating leases are included in “Right of use assets,” “Accrued expenses and other current liabilities,” and “Long-termweighted average remaining lease ~~liabilities” on our condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.~~term was 6.3 years.

Finance lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. Each lease agreement provides an implicit discount rate used to determine the present value of future payments. ~~The~~As of March 31, 2021, the weighted-average discount rate iswas 2.3% ~~as of September 30, 2020,~~and the ~~commencement date for our leases. The finance leases are included in “Other assets” and “Other long-term liabilities” on our condensed consolidated balance sheet as of September 30, 2020.~~weighted average remaining lease term was 2.5 years.

~~The weighted-average remaining lease term of our operating leases is 6.6 years as of September 30, 2020.~~ Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. Our total operating lease costs were ~~$2.2~~$1.9 million and ~~$2.4~~$2.6 million for the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019, respectively. Our total operating lease costs were $7.2 million and $7.2 million for the nine months ended September 30, 2020 and September 30, 2019~~ respectively. Related cash payments were ~~$2.0~~$2.1 million and ~~$2.4~~$2.6 million for the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019,~~ respectively. Related cash payments were $6.9 million and $7.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. For the nine months ended September 30, 2020, right of use assets obtained in exchange for new operating lease liabilities was $5.7 million. Operating lease costs are included within research and development, marketing and selling, and general and administrative lines on the condensed consolidated statements of operations, and the related cash payments are included in the operating cash flows on the condensed consolidated statements of cash flows. Finance lease costs, short-term lease costs, variable lease costs, and sublease income are not material.

The table below reconciles the undiscounted future minimum lease payments for operating and finance leases under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheets as of ~~September 30, 2020~~March 31, 2021 (in thousands):

Year Ending December 31, Operating Leases Finance Leases
2020 (excluding nine months ended September 30, 2020) $ 2,067 $ 12
2021 7,590 289
2022 6,472 255
2023 5,579 226
2024 4,875 0
Thereafter 16,637 0
Total future minimum lease payments $ 43,220 $ 782
Less effects of discounting (7,837) (27)
Total lease liabilities $ 35,383 $ 755


Year Ending December 31,	Operating Leases		Finance Leases
2021 (excluding three months ended March 31, 2021)	$	5,530	$	252
2022	6,478		255
2023	5,560		230
2024	4,917		0
2025	5,041		0
Thereafter	11,709		0
Total future minimum lease payments	$	39,235	$	737
Less effects of discounting	(6,929)		(19)
Total lease liabilities	$	32,306	$	718

Supplemental balance sheet information related to leases was as follows (in thousands):


Operating Leases	~~September 30, 2020~~March 31, 2021
Right of use assets	$	~~30,408~~27,538

Accrued expenses and other current liabilities	~~(5,910)~~(5,393)
~~Operating~~Long-term lease liabilities ~~(LT)~~	~~(29,473)~~(26,913)
Total lease liabilities	$	~~(35,383)~~(32,306)


Finance Leases	~~September 30, 2020~~March 31, 2021
Other assets	$	~~737~~614

Accrued expenses and other current liabilities	~~(220)~~(266)
Other long-term liabilities	~~(535)~~(452)
Total lease liabilities	$	~~(755)~~(718)

6. OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

Deferred compensation	Deferred compensation	$	5,335	$	5,186	Deferred compensation	$	5,533	5,818
Finance leases		535		0
Other		292		460
Finance lease liabilities						Finance lease liabilities	452		472
Other long-term liabilities						Other long-term liabilities	1,486		1,496
Total	Total	$	6,162	$	5,646	Total	$	7,471	$	7,786

7. COMMITMENTS AND CONTINGENCIES

Commitments

We entered into a long-term agreement to purchase a variety of information technology solutions from a third party in the second quarter of 2020, which included an unconditional commitment to purchase a minimum of $32.2 million of products and services over the initial five years of the agreement. We have purchased ~~$0.6~~$5.1 million of products and services pursuant to this agreement as of ~~September 30, 2020.~~March 31, 2021.

We have letters of credit that are used as security deposits in connection with our leased Burlington, Massachusetts office space. In the event of default on the underlying leases, the landlords would, at ~~September 30, 2020,~~March 31, 2021, be eligible to draw against the letters of credit to a maximum of ~~$1.3~~$0.7 million in the aggregate. The letters of credit are subject to aggregate reductions provided that we are not in default under the underlying leases and meet certain financial performance conditions. In no case will the letters of credit amounts for the Burlington leases be reduced to below ~~$1.2~~$0.7 million in the aggregate throughout the lease periods.

We also have letters of credit in connection with security deposits for other facility leases totaling $0.6 million in the aggregate, as well as letters of credit totaling ~~$1.9~~$1.6 million that otherwise support our ongoing operations. These letters of credit have various terms and expire during ~~2020~~2021 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.

Substantially all of our letters of credit are collateralized by restricted cash included in the caption “Restricted cash” and “Other long-term assets” on our condensed consolidated balance sheets as of ~~September 30, 2020.~~March 31, 2021.

Contingencies

Our industry is characterized by the existence of a large number of patents and frequent claims and litigation regarding patent and other intellectual property rights. In addition to the legal proceedings described ~~above,~~below, we are involved in legal proceedings from time to time arising from the normal course of business activities, including claims of alleged infringement of intellectual property rights and contractual, commercial, employee relations, product or service performance, or other matters. We do not believe these matters will have a material adverse effect on our financial position or results of operations. However, the outcome of legal proceedings and claims brought against us is subject to significant

uncertainty. Therefore, our financial position or results of operations may be negatively affected by the unfavorable resolution of one or more of these proceedings for the period in which a matter is resolved. Our results could be materially adversely affected if we are accused of, or found to be, infringing third parties’ intellectual property rights.

Following the termination of our former Chairman and Chief Executive Officer on February 25, 2018, we received a notice alleging that we breached the former executive’s employment agreement. On April 16, 2019 we received an additional notice again alleging we breached the former executive’s employment agreement. We have since been in communications with our former Chairman and Chief Executive Officer’s counsel. While we intend to defend any claim vigorously, when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible losses that could occur as a result of this matter.

On July 14, 2020, we sent a notice to a customer demanding sums that we believe are due to Avid pursuant to a contract. On October 7, 2020, the customer sent a notice to us denying any legal liability and demanding payment for breach of contract resulting from various alleged delays by us. While we intend to defend any claim vigorously when and if a claim is actually filed, we are currently unable to estimate an amount or range of any reasonably possible losses that could occur related to this matter.

We consider all claims on a quarterly basis and based on known facts assess whether potential losses are considered reasonably possible, probable, and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our condensed consolidated financial statements. We record a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.

At ~~September 30, 2020~~March 31, 2021 and as of the date of filing of these condensed consolidated financial statements, we believe that, other than as set forth in this note, no provision for liability nor disclosure is required related to any claims because: (a) there is no reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim, (b) a reasonably possible loss or range of loss cannot be estimated, or (c) such estimate is immaterial.

Additionally, we provide indemnification to certain customers for losses incurred in connection with intellectual property infringement claims brought by third parties with respect to our products. These indemnification provisions generally offer perpetual coverage for infringement claims based upon the products covered by the agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions is theoretically unlimited. To date, we have not incurred material costs related to these indemnification provisions; accordingly, we believe the estimated fair value of these indemnification provisions is immaterial. Further, certain of our arrangements with customers include clauses whereby we may be subject to penalties for failure to meet certain performance obligations; however, we have not recorded any related material penalties to date.

We provide warranties on externally sourced and internally developed hardware. For internally developed hardware, and in cases where the warranty granted to customers for externally sourced hardware is greater than that provided by the manufacturer, we record an accrual for the related liability based on historical trends and actual material and labor costs. The following table sets forth the activity in the product warranty accrual account for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
Accrual balance at beginning of year		$	1,337	$	1,706
Accrual balance at beginning of period						Accrual balance at beginning of period	$	1,095	$	1,337
Accruals for product warranties	Accruals for product warranties	1,030		732		Accruals for product warranties	466		384
Costs of warranty claims	Costs of warranty claims	(1,003)		(1,016)		Costs of warranty claims	(374)		(357)
Accrual balance at end of period	Accrual balance at end of period	$	1,364	$	1,422	Accrual balance at end of period	$	1,187	$	1,364

The warranty accrual is included in the caption “accrued expenses and other current liabilities” in our condensed consolidated balance sheet.

8. RESTRUCTURING COSTS AND ACCRUALS

In October 2020, we committed to a restructuring plan in order to undergo a strategic reorganization of our business. The strategic reorganization involved significant changes in business operations to better support our strategy and overall performance. The restructuring plan related to our strategic reorganization is expected to be substantially completed in 2021.

During the three months ended March 31, 2021, we recorded restructuring charges of $1.1 million for employee severance costs related to approximately 23 positions eliminated during the first quarter of 2021.

During the three months ended ~~September 30,~~March 31, 2020 ~~and~~ ~~September 30, 2019~~, we recorded restructuring charges of ~~$0.7~~$0.1 million ~~and $0.2 million, respectively,~~ for employee severance cost adjustments.

~~During the nine months ended September 30, 2020 and~~ ~~September 30, 2019~~ ~~we recorded restructuring charges of $1.0 million and $0.5 million respectively.~~

~~Restructuring Summary~~

~~The following table sets forth restructuring expenses recognized for the three and nine months ended September 30, 2020 and 2019 (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Employee $ 723 $ 202 $ 911 $ 473
Facility 0 0 97 5
Total facility and employee charges 723 202 1,008 478
Other 0 27 0 40
Total restructuring charges, net $ 723 $ 229 $ 1,008 $ 518

The following table sets forth the activity in the restructuring accruals for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 (in thousands):

Employee

Accrual balance as of December 31, ~~2019~~2020

~~155~~3,687

Restructuring charges and revisions

~~911~~912

Cash payments

~~(258)~~(2,438)

Foreign exchange impact on ending balance

(36)

Accrual balance as of ~~September 30, 2020~~

~~808~~

~~Less: current portion~~

~~808~~

~~Long-term accrual balance as of September 30, 2020~~March 31, 2021

02,125

The employee restructuring accrual at ~~September 30, 2020~~March 31, 2021 represents severance costs to former employees that will be paid out within 12 months, and is, therefore, included in the caption “accrued expenses and other current liabilities” in our condensed consolidated balance sheets as of ~~September 30, 2020.~~March 31, 2021.

On January 1, 2019, we had facilities restructuring accruals of $0.1 million included in the caption “accrued expenses and other current liabilities” and $0.2 million included in the caption “other long-term liabilities," which were reclassified upon the adoption of ASC 842 to the right of use asset account.

9. REVENUE

Disaggregated Revenue and Geography Information

Through the evaluation of the discrete financial information that is regularly reviewed by the chief operating decision makers (our chief executive officer and chief financial officer), we have determined that we have 1 reportable segment.

The following table is a summary of our revenues by type for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020

Products and solutions net revenues	Products and solutions net revenues	$	35,775	$	42,911	$	98,121	$	147,633	Products and solutions net revenues	$	33,267	$	34,711
Subscription services	Subscription services	17,907		10,297		48,292		29,339		Subscription services	24,868		13,958
Support services		30,826		33,361		93,190		97,018
Maintenance										Maintenance	29,852		31,794
Professional services, training and other services	Professional services, training and other services	5,923		6,892		16,562		21,491		Professional services, training and other services	6,377		5,990

Total net revenues	Total net revenues	$	90,431	$	93,461	$	256,165	$	295,481	Total net revenues	$	94,364	$	86,453

The following table sets forth our revenues by geographic region for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Revenues:	Revenues:									Revenues:
United States	United States	$	36,190	$	31,267	$	105,166	$	110,697	United States	$	39,471	$	36,090
Other Americas	Other Americas	4,505		9,471		15,841		23,232		Other Americas	5,179		5,450
Europe, Middle East and Africa	Europe, Middle East and Africa	37,537		40,579		99,478		115,171		Europe, Middle East and Africa	36,523		33,235
Asia-Pacific	Asia-Pacific	12,199		12,144		35,680		46,381		Asia-Pacific	13,191		11,678
Total net revenues	Total net revenues	$	90,431	$	93,461	$	256,165	$	295,481	Total net revenues	$	94,364	$	86,453

Contract Asset

Contract asset activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 was as follows (in thousands):


	~~September 30, 2020~~
~~Contract asset at January 1, 2020~~	$	~~19,494~~
~~Revenue in excess of billings~~	~~22,045~~
~~Customer billings~~	~~(26,263)~~
~~Contract asset at September 30, 2020~~	$	~~15,276~~


	March 31, 2021		March 31, 2020
Contract asset at beginning of year	$	18,579	$	19,494
Revenue in excess of billings	14,395		7,878
Customer billings	(11,019)		(5,210)
Contract asset at end of period	$	21,955	$	22,162

Deferred Revenue

Deferred revenue activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 was as follows (in thousands):


	~~September 30, 2020~~
~~Deferred revenue at January 1, 2020~~	$	~~97,901~~
~~Billings deferred~~	~~47,723~~
~~Recognition of prior deferred revenue~~	~~(64,460)~~
~~Deferred revenue at September 30, 2020~~	$	~~81,164~~


	March 31, 2021		March 31, 2020
Deferred revenue at beginning of period	$	99,259	$	97,901
Billings deferred	31,132		28,687
Recognition of prior deferred revenue	(32,885)		(31,176)
Deferred revenue at end of period	$	97,506	$	95,412

A summary of the significant performance obligations included in deferred revenue ~~as of September 30, 2020~~ is as follows (in thousands):


	~~September 30, 2020~~March 31, 2021
Product	$	~~5,133~~6,852
Subscription	~~3,320~~5,718
~~Support~~Maintenance contracts	~~61,596~~75,174
Implied PCS	~~8,860~~7,652
Professional services, training and other	~~2,255~~2,110
Deferred revenue at ~~September 30, 2020~~March 31, 2021	$	~~81,164~~97,506

Remaining Performance Obligations

For transaction prices allocated to remaining performance obligations, we apply practical expedients and do not disclose quantitative or qualitative information for remaining performance obligations (i) that have original expected durations of one year or less and (ii) where we recognize revenue equal to what we have the right to invoice and that amount corresponds directly with the value to the customer of our performance to date.

Historically, for many of our products, we had an ongoing practice of making when-and-if-available software updates available to customers free of charge for a period of time after initial sales to customers. The expectation created by this practice of providing free Software Updates represents an implied obligation of a form of post-contract customer support (“Implied PCS”) which represents a performance obligation. While we have ceased providing Implied PCS on new product offerings, we continue to provide Implied PCS for older products that were predominately sold in prior years. Revenue attributable to Implied PCS performance obligations is recognized over time on a ratable basis over the period that Implied PCS is expected to be provided, which is typically six years. We have remaining performance obligations of ~~$8.9~~$7.7 million attributable to Implied PCS recorded in deferred revenue as of ~~September 30, 2020.~~March 31, 2021. We expect to recognize revenue for these remaining performance obligations of ~~$1.1~~$2.5 million for the remainder of ~~2020~~2021 and ~~$3.3~~$2.1 million, ~~$2.0~~$1.4 million, ~~$1.2~~$0.9 million and ~~$0.8~~$0.5 million for the years ending December 31, ~~2021,~~ 2022, 2023, 2024, and ~~2024,~~2025, respectively, and ~~$0.5~~$0.3 million thereafter.

As of ~~September 30, 2020,~~March 31, 2021, we had approximately ~~$53.7~~$49.5 million of transaction price allocated to remaining performance obligations for certain enterprise agreements that have not yet been fully invoiced. Approximately ~~$48.1~~$44.2 million of these performance obligations were unbilled as of ~~September 30, 2020.~~March 31, 2021. Remaining performance obligations represent obligations we must deliver for specific products and services in the future where there is not yet an enforceable right to invoice the customer. Our remaining performance obligations do not include contractually committed minimum purchases that are common in our strategic purchase agreements with resellers since our specific obligations to deliver products or services is not yet known, as customers may satisfy such commitments by purchasing an unknown combination of current or future product offerings. While the timing of fulfilling individual performance obligations under the contracts can vary dramatically based on customer requirements, we expect to recognize the ~~$53.7~~$49.5 million in roughly equal installments through 2026.

Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations due to contract breach, contract amendments, and changes in the expected timing of delivery.

1714

10. LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Term Loan, net of debt issuance costs of $2,846 at September 30, 2020 and $3,334 at December 31, 2019		$	199,159	$	200,105
Notes, net of unamortized original issue discount and debt issuance costs of $0 at September 30, 2020 and $680 at December 31, 2019		0		28,187
Term Loan, net of unamortized issuance costs and debt discount of $2,445 and $2,579 at March 31, 2021 and December 31, 2020, respectively						Term Loan, net of unamortized issuance costs and debt discount of $2,445 and $2,579 at March 31, 2021 and December 31, 2020, respectively	$	175,305	$	198,629
PPP Loan	PPP Loan	7,800		0		PPP Loan	7,800		7,800
Other long-term debt	Other long-term debt	1,250		1,296		Other long-term debt	1,176		1,271
Total debt	Total debt	208,209		229,588		Total debt	184,281		207,700
Less: current portion	Less: current portion	4,135		30,554		Less: current portion	9,156		4,941
Total long-term debt	Total long-term debt	$	204,074	$	199,034	Total long-term debt	$	175,125	$	202,759

The following table summarizes the contractual maturities of our borrowing obligations as of ~~September 30, 2020~~March 31, 2021 (in thousands):


Fiscal Year	Fiscal Year	Term Loan		PPP Loan		Other Long-Term Debt		Total		Fiscal Year	Credit Agreement		PPP Loan		Other Long-Term Debt		Total
2020		$	797	$	0	$	36	$	833
2021	2021	4,781		0		153		4,934		2021	$	6,750	0		116		$	6,866
2022	2022	6,375		7,800		164		14,339		2022	9,000		7,800		164		16,964
2023	2023	190,052		0		176		190,228		2023	13,500		0		176		13,676
2024	2024	0		0		188		188		2024	18,000		0		188		18,188
2025										2025	18,000		0		202		18,202
Thereafter	Thereafter	0		0		533		533		Thereafter	112,500		0		330		112,830
Total before unamortized discount	Total before unamortized discount	202,005		7,800		1,250		211,055		Total before unamortized discount	177,750		7,800		1,176		186,726
Less: unamortized discount and issuance costs	Less: unamortized discount and issuance costs	2,846		0		0		2,846		Less: unamortized discount and issuance costs	2,445		0		0		2,445
Less: current portion of long-term debt	Less: current portion of long-term debt	3,985		0		150		4,135		Less: current portion of long-term debt	9,000		0		156		9,156
Total long-term debt	Total long-term debt	$	195,174	$	7,800	$	1,100	$	204,074	Total long-term debt	$	166,305	$	7,800	$	1,020	$	175,125

~~Term Loan and~~ Credit ~~Facility~~Agreement

On ~~February 26, 2016, we~~January 5, 2021, the Company entered into a ~~financing agreement~~Credit Agreement (the ~~“Financing~~“Credit Agreement”) with ~~Cerberus Business Finance, LLC,~~JPMorgan Chase Bank, N.A. as collateral and administrative agent, and ~~the~~a syndicate of banks, as lenders ~~party thereto~~thereunder (the “Lenders”). ~~The~~Pursuant to the Credit Agreement, the Lenders ~~originally~~ agreed to provide usthe Company with (a) a term loan in the aggregate principal amount of ~~$100.0~~$180.0 million (the “Term Loan”), and (b) a revolving credit facility (the “Credit Facility”) of up to a maximum of ~~$5.0~~$70.0 million in borrowings outstanding at any time. WeThe Credit Facility, which was undrawn at closing, can be used for working capital, other general corporate purposes and for other permitted uses. The proceeds from the Term Loan, plus available cash on hand, were used to repay outstanding borrowings of $201 million under the Company’s prior financing agreement with Cerberus Business Finance, LLC( the “Financing Agreement”), which was then terminated. As a result of this termination, the Company incurred a loss on extinguishment of debt of $3.7 million as a result of writing off $2.6 million of remaining unamortized issuance costs as well as a $1.1 million prepayment penalty.

The Term Loan has an initial interest rate of LIBOR plus an applicable margin of 3.00%, with a 0.25% LIBOR floor. The applicable margin on the Term Loan and the Credit Facility ranges from 2.00% to 3.25%, depending on leverage. The effective interest rate for the period was 3.25%.

The Term Loan requires quarterly principal payments commencing in March 2021 equal to 5.0% of the original principal amount of the Term Loan in years 1 and 2, 7.5% of the original principal amount of the Term Loan in year 3, and 10% of the original principal amount of the Term Loan in years 4 and 5, with the remaining aggregate principal amount due at maturity.

The Company granted a security interest on substantially all of ~~our~~their assets to secure the obligations under the Credit Facility and the Term Loan.

The Credit Agreement contains two financial covenants: (i) a requirement to maintain a total net leverage ratio, as defined in the Credit Agreement, of no more than 4.00 to 1.00 through June 30, 2021, with step downs thereafter, and (ii) a requirement to maintain a fixed charge covenant ratio, as defined in the Credit Agreement, of no less than 1.20 to 1.00. Both the Term Loan and the revolving Credit ~~Facility.~~Facility mature on January 5, 2026. We were in compliance with the Credit Agreement covenants as of March 31, 2021.

In association with the Credit Agreement, the Company incurred $2.5 million of issuance discounts and an immaterial amount of issuance costs. The Term Loan ~~requires us to use 50% of excess cash flow, as defined in~~discount and issuance costs will be amortized over the ~~Financing Agreement, to repay outstanding principal~~five year life of the loans under the Financing Agreement. The Financing Agreement contains customary representations and warranties, covenants, mandatory prepayments, and events of default under which our payment obligations may be accelerated.

~~On November 9, 2017, we entered into an amendment and borrowed an additional $15.0 million term loan and increased the amount available under the~~ Credit ~~Facility by $5.0 million.~~

On May 10, 2018, we entered into an amendment to the Financing Agreement, which extended the maturity of the Financing Agreement to May 2023, and increased the Term Loan by $22.7 million and the amount available under the Credit Facility by $12.5 million, for an aggregate amount available of $22.5 million.

On April 8, 2019, we entered into an amendment to the Financing Agreement. The amendment provided for an additional delayed draw term loan commitment in the aggregate principal amount of $100.0 million (the “Delayed Draw Funds”) for the purpose of funding the purchase of a portion of Notes in the Offer described below. On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. We used $72.7 million of the Delayed Draw Funds for the purchase of a portion of our Notes, $0.6 million for the Notes interest payment, and $6.0 million for the payment of refinancing fees. On June 18, 2019, we repaid $20.7 million of the Delayed Draw Funds. The $79.3 million Delayed Draw Funds borrowed and that remain outstanding will mature on May 10, 2023 under the terms of the Financing Agreement. The amendment also modified the covenant that requires us to maintain a leverage ratio (defined to mean the ratio of (a) the sum of indebtedness under the Term Loan and Credit Facility and non-cash collateralized letters of credit to (b) consolidated EBITDA under the Term Loan and Credit Facility) based on the level of availability of our Credit Facility plus unrestricted cash on-hand. The Financing Agreement amendment effective April 8, 2019 was accounted for as a debt modification, and therefore, $1.6 million of the refinancing fees paid directly to the Lenders was recorded ~~as deferred debt issuance costs, and $4.4 million of the refinancing fees paid to the third parties was expensed.~~

~~On May 7, 2020, we entered into an amendment to the Financing Agreement. The amendment modified certain definitions in the Financing Agreement to reflect our incurrence of a loan under the PPP.~~

On May 19, 2020, we entered into an amendment to the Financing Agreement. The amendment increased the applicable margin with respect to the interest rate of reference rate loans from 5.25% to 5.75% and of LIBOR rate loans from 6.25% to 6.75%. The amendment also increased the leverage ratio that the Company is required to maintain such that following the effective date of this amendment, the Company is required to maintain a leverage ratio of no greater than 6.00:1.00 for each of the quarters ending June 30, 2020 and September 30, 2020, 5.75:1.00 for each of the quarters ending December 31, 2020 and March 31, 2021, 5.25:1.00 for the quarter ending June 30, 2021, 5.00:1.00 for the quarter ending September 30, 2021, 4.50:1.00 for the quarter ending December 31, 2021, 4.30:1.00 for the quarter ending March 31, 2022, 4.00:1.00 for each of the quarters ending June 30, 2022 and September 30, 2022, and 3.75:1.00 for each of the quarters ending December 31, 2022 and March 31, 2023. The amendment also resets the prepayment premium to 1.5% of the principal amount of the loans prepaid through the end of 2020, 0.5% of the principal amount of the loans prepaid through the end of 2021, and 0.0% thereafter.

~~We recorded $3.8 million and $12.2~~$1.4 million of interest expense on the Term Loan during ~~the~~ three ~~and nine~~ months ended ~~September 30, 2020, respectively. We recognized $0.4 million and $0.8 million~~March 31, 2021. As of ~~interest expense related to the Credit Facility during the three and nine months ended September 30, 2020, respectively. We~~March 31, 2021, there were ~~in compliance with the Financing Agreement covenants as of September 30, 2020.~~

~~At June 30, 2020, we had $22.0 million outstanding~~no amounts drawn under the Credit Facility. ~~During September 2020, we repaid the outstanding balance of $22.0 million under the Credit Facility, and as of September 30, 2020 no amounts were drawn under the facility.~~

PPP Loan

On May 11, 2020, the Company received $7.8 million of proceeds in connection with its incurrence of a loan under the ~~PPP~~Paycheck Protection Program (“PPP”) which was created through the Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The application for these funds requires the Company to, in good faith, certify that the ~~current~~ economic uncertainty at the time of application made the loan request necessary to support the ongoing operations of the Company. This certification further ~~requires~~required the Company to take into account ~~our current~~its then-current business activity and ~~our~~ ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on ~~our~~its future adherence to the forgiveness criteria. The loan has a fixed interest rate of 1% and matures ~~in two years.~~on May 11, 2022. Interest payments are deferred ~~for six months.~~until a forgiveness decision is returned by the SBA. We recognized an immaterial amount of interest expense related to the loan during the three months ended ~~September 30, 2020.~~March 31, 2021.

Pursuant to the CARES Act and implementing rules and regulations, the Company ~~may apply~~has applied to the SBA for the full amount of the PPP loan to be ~~forgiven in whole or in part beginning no sooner than seven weeks from the date of initial disbursement.~~forgiven. The Company ~~intends to use~~has used the proceeds of the PPP loan for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, the Company cannot assure

that it will be eligible for forgiveness of the loan, in whole or in part. Any PPP loan balance remaining following forgiveness by the SBA will be fully ~~re-amortized over the remaining term of the loan.~~

~~2.00% Convertible Senior Notes due 2020 (“Notes”)~~

~~On June 15, 2015, we issued $125.0 million aggregate principal amount of our Notes in an offering conducted in accordance with Rule 144A under the Securities Act.~~

During 2017, we purchased 2,000 of our 125,000 outstanding Notes and settled $2.0 million of the Notes for $1.7 million in cash. We recorded $2.0 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial lossrepaid on ~~the extinguishment of debt.~~

During 2018, we purchased an additional 16,247 of our 123,000 outstanding Notes and settled another $16.2 million of the Notes for $14.7 million in cash. We recorded $16.2 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial gain on the extinguishment of debt.

On January 22, 2019, we purchased an additional 3,900 of our 106,753 outstanding Notes and settled another $3.9 million of the Notes for $3.6 million in cash. We recorded $3.9 million extinguishment of debt, an immaterial amount of equity reacquisition, and an immaterial gain on the extinguishment of debt.

On April 11, 2019, we announced the commencement of a cash tender offer (the “Offer”) for any and all of our outstanding Notes. On May 9, 2019, as of the expiration of the Offer, Notes with an aggregate principal amount of $74.0 million were validly tendered. We accepted for purchase all Notes that were validly tendered at the expiration of the Offer at a purchase price equal to $982.50 per $1,000 principal amount of Notes, and settled the Offer on May 13, 2019 for $72.7 million in cash. We repurchased 73,986 Notes, recorded $74.0 million extinguishment of debt, $0.6 million of equity reacquisition, and $2.9 million loss on the extinguishment of debt. In connection with the Offer, the number of options under the Capped Call was reduced to 28,867 to mirror the remaining principal outstanding for the Notes, and an immaterial partial unwind cash payment was received in May 2019.

~~On June, 15, 2020,~~or before the maturity date of the Notes, we fully repaid the outstanding principal and unpaid interest on the Notes. The Notes paid interest semi-annually on June 15 and December 15 of each year at an annual rate of 2.00%. Total interest expense for the nine months ended September 30, 2020 was $1.0 million, reflecting the coupon and accretion of the discount.loan.

11. STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Information with respect to the Company’s option shares granted under all of our stock incentive plans for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was as follows:

Time-Based Shares Performance-Based Shares Total Shares Weighted-
Average
Exercise
Price Weighted-
Average
Remaining
Contractual
Term (years) Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at January 1, 2020 565,000 0 565,000 $7.57
Granted 0 0 0 $0
Exercised (175,355) 0 (175,355) $7.73
Forfeited or canceled 0 0 0 $0
Options outstanding at September 30, 2020 389,645 0 389,645 $7.51 0.54 $413
Options vested at September 30, 2020 or expected to vest 389,645 $7.51 0.54 $413
Options exercisable at September 30, 2020 389,645 $7.51 0.54 $413


	Total Number of Options	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at January 1, 2021	246,000	$7.48
Granted	0	$0
Exercised	(235,000)	$7.47
Forfeited or canceled	0	$0
Options outstanding at March 31, 2021	11,000	$7.70	0.38	$148

2016

Information with respect to ~~our~~the Company’s non-vested restricted stock units for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was as follows:


		Non-Vested Restricted Stock Units
		Time-Based Shares	Performance-Based Shares	Total Shares	Weighted- Average Grant-Date Fair Value	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)		Number of Restricted Stock Units	Weighted- Average Grant-Date Fair Value	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)	Shares Retained to Cover Statutory Minimum Withholding Taxes
Non-vested at January 1, 2020		2,087,933	554,265	2,642,198	$6.40
Non-vested at January 1, 2021								Non-vested at January 1, 2021	2,114,879	$7.01			—
Granted	Granted	1,424,480	578,316	2,002,796	$6.92			Granted	201,259	21.80			—
Vested	Vested	(991,552)	(328,673)	(1,320,225)	$6.23			Vested	(327,110)	6.17			(130,552)
Forfeited	Forfeited	(104,473)	0	(104,473)	$7.16			Forfeited	(19,692)	7.37			—
Non-vested at September 30, 2020		2,416,388	803,908	3,220,296	$6.77	1.03	$27,534
Expected to vest				3,220,296	$6.77	1.03	$27,534
Outstanding at March 31, 2021								Outstanding at March 31, 2021	1,969,336	$8.65	0.79	$41,553

Information with respect to the Company’s non-vested performance-based restricted stock units for the three months ended March 31, 2021 was as follows:



	Number of Performance-based Restricted Stock Units	Weighted- Average Grant-Date Fair Value	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)	Shares Retained to Cover Statutory Minimum Withholding Taxes
Non-vested at January 1, 2021	653,428	$6.74			—
Granted	397,048	15.07			—
Vested	(471,112)	5.81			(196,703)
Forfeited	0	0			—
Non-vested at March 31, 2021	579,364	$13.20	1.55	$12,225

Stock-based compensation was included in the following captions in ~~our~~the Company’s condensed consolidated statements of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Cost of products revenues $ 150 $ 103 $ 370 $ 244
Cost of services revenues 283 82 539 177
Research and development expenses 546 305 1,199 762
Marketing and selling expenses 739 532 1,761 1,276
General and administrative expenses 1,579 1,023 4,263 3,329
$ 3,297 $ 2,045 $ 8,132 $ 5,788


	Three Months Ended March 31,
	2021		2020
Share-based compensation expense by type:

Time-based Restricted Stock Units	$	2,437	$	1,567
Performance-based Restricted Stock Units	$	656	$	516
ESPP	$	29	$	26
Total share-based compensation expense	$	3,122	$	2,109


	Three Months Ended March 31,
	2021		2020
Cost of products revenues	$	142	$	102
Cost of services revenues	298		98
Research and development expenses	521		294
Marketing and selling expenses	602		441
General and administrative expenses	1,559		1,174
Total share-based compensation expense	$	3,122	$	2,109

2117

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Business Overview

We develop, market, sell, and support software and integrated solutions for video and audio content creation, management and distribution. We are a leading technology provider that powers the media and entertainment industry. We do this by providing an open and efficient platform for digital media, along with a comprehensive set of tools and workflow solutions. Our solutions are used in production and post-production facilities; film studios; network, affiliate, independent and cable television stations; recording studios; live-sound performance venues; advertising agencies; government and educational institutions; corporate communications departments; and by independent video and audio creative professionals, as well as aspiring professionals. Projects produced using our tools, platform, and ecosystem include feature films, television programming, live events, news broadcasts, sports productions, commercials, music, video, and other digital media content. With over one million creative users and thousands of enterprise clients relying on our technology platforms and solutions around the world, Avid enables the industry to thrive in today’s connected media and entertainment world.

Our mission is to empower media creators with innovative technology and collaborative tools to entertain, inform, educate, and enlighten the world. Our clients rely on Avid’s products and solutions to create prestigious and award-winning feature films, music recordings, television shows, live concerts, sporting events, and news broadcasts. Avid has been honored for technological innovation with 1618 Emmy Awards, one Grammy Award, two Oscars, and the first ever America Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigious Philo T. Farnsworth Award by the Television Academy to honor Avid’s 30 years of continuous, transformative technology innovations, including products that have improved and accelerated the editing and post production process for television.

Operations Overview

Our strategy for connecting creative professionals and media enterprises with audiences in a powerful, efficient, collaborative, and profitable way leverages our creative software tools, including Pro Tools for audio and Media Composer for video, and our MediaCentral Platform - the open, extensible, and customizable foundation that streamlines and simplifies content workflows by integrating all Avid or third-party products and services that run on top of it. The platform provides secure and protected access, and enables fast and easy creation, delivery, and monetization of content.

We work to ensure that we are meeting customer needs, staying ahead of industry trends, and investing in the right areas through a close and interactive relationship with our customer base. The Avid Customer Association was established to be an innovative and influential media technology community. It represents thousands of organizations and over ~~33,000~~30,000 professionals from all levels of the industry including inspirational and award-winning thought leaders, innovators, and storytellers. The Avid Customer Association fosters collaboration between Avid, its customers, and other industry colleagues to help shape our product offerings and provide a means to shape our industry together.

A key element of our strategy is our transition to a recurring revenue-based model through a combination of subscription offerings and long-term agreements. ~~We started offering subscription licensing options for some~~As of ~~our products and solutions in 2014 and by September 30, 2020,~~March 31, 2021, we had approximately ~~269,000~~324,000 paid subscriptions. These licensing options offer choices in pricing and deployment to suit our customers’ needs. Our subscription offerings to date have ~~primarily~~mostly been sold to creative professionals, ~~though~~although in the third quarter of 2020 we introduced subscription offerings for our enterprise software solutions. We expect to increase subscription sales to media enterprises going forward as we expand offerings and move through customer upgrade cycles, which we expect will further increase recurring revenue on a longer-term basis. Our long-term agreements are comprised of multi-year agreements with large media enterprise customers to provide specified products and services, including SaaS offerings, and channel partners and resellers to purchase minimum amounts of products and service over a specified period of time.

Another key aspect of our strategy has been to implement programs to increase operational efficiencies and reduce costs. We are making significant changes in business operations to better support the company’s strategy and overall performance. We have implemented a number of spending control initiatives, with an emphasis on non-personnel costs, to reduce the overall cost structure while still investing in key areas that will drive growth. We have also revamped our supply chain and logistics, and in 2019 completed our move to a lean model that leverages a new supplier and distribution network. We are optimizing our ~~go-to-~~

~~market~~go-to-market strategy, simplifying our strategy to address specific customer markets to help maximize our commercial success, which we expect will improve effectiveness, while increasing efficiency and driving growth of our pipeline and ultimately revenue.

A summary of our revenue sources for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ is as follows (in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2020			2019			2020			2019				2021		2020
Software licenses		$	26,879		$	18,968		$	69,457		$	54,751
Subscriptions														Subscriptions	$	24,868	$	13,958
Maintenance	Maintenance	30,826			33,361			93,190			97,018			Maintenance	29,852		31,794
Software licenses and maintenance		57,705			52,329			162,647			151,769
% of total revenue		64		%	56		%	64		%	51		%
Subscriptions and Maintenance														Subscriptions and Maintenance	54,720		45,752
Perpetual Licenses														Perpetual Licenses	7,058		5,372
Software Licenses and Maintenance														Software Licenses and Maintenance	61,778		51,124
Integrated solutions	Integrated solutions	26,803			34,240			76,956			122,221			Integrated solutions	26,209		29,339
Professional services & training	Professional services & training	5,923			6,892			16,562			21,491			Professional services & training	6,377		5,990
Total revenue	Total revenue	$	90,431		$	93,461		$	256,165		$	295,481		Total revenue	$	94,364	$	86,453

Impact of COVID-19 on Our Business

We have operations in a number of countries, which exposes us to risks associated with public health crises such as the novel coronavirus (COVID-19) that was declared a pandemic by the World Health Organization. COVID-19 adversely impacted our business operations and results of operations for the second and third quarter of 2020, as described in more detail under the Results of Operations below. We expect the evolving COVID-19 pandemic to continue to have an adverse impact on our business and results of operations, as the ongoing pandemic is likely to continue to depress economic activity and reduce the demand for our products and services, as well as disrupt supply chains. Although the duration and severity of the COVID-19 pandemic, and resulting economic impacts, remain uncertain, we expect that our business operations and results of operations, will be adversely impacted for at least the balance of 2020, and possibly longer.year ended 2020. These economic impacts are the result of, but not limited to:

•the postponement or cancellation of film and television productions, major sporting events, and live music events;

•delays in purchasing and projects by our enterprise customers and channel partners;

•disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and

•decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders.

~~We are focused on navigating~~Our results for the ~~challenges presented~~first quarter began to show a gradual recovery towards pre-pandemic spending levels with the continuing positive signs of recovery from the impacts of the COVID-19 pandemic driven by ~~COVID-19, with a primary focus on preserving our liquidity~~vaccination and managing our cash flows by taking preemptive action to enhance our ability to meet our short-term liquidity needs. To address actual and expected reductions in net revenues, we have reduced our discretionary spending, revisited our investment strategies, and reduced payroll costs, including through temporary employee furloughs and pay cuts. In addition, in May 2020 we received $7.8 million of funding under the U.S. government’s PPPgovernment stimulus programs, particularly in the ~~form~~US. At the same time, certain international countries around the globe continue to face challenges with renewed lockdowns and travel restrictions and there remains uncertainty relating to the ongoing spread and severity of ~~a low-interest loan~~the virus. While we are encouraged by the trends we saw in the first quarter, to the extent that ~~may~~the pandemic continues to have negative impacts on economies, our results could be ~~forgiven under certain conditions.~~affected and uneven. We may be required to take additional steps to preserve our liquidity depending on the duration and severity of the pandemic and its impact on our operations and cash flows.For further discussion of these issues, see “Liquidity and Capital ~~Resources.”~~Resources” below.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.

We believe that our critical accounting policies and estimates are those related to revenue recognition and allowances for sales returns and exchanges, discount rates used for lease liabilities, stock-based compensation, income tax assets and liabilities, and

restructuring charges and accruals. We believe these policies and estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies and Estimates” and below. There have been no significant changes to the identification of the accounting policies and estimates that are deemed critical.

Revenue Recognition

See Note 9 “Revenue” of our Notes to Condensed Consolidated Financial Statements under Part 1, Item 1 of this Form 10-Q for disaggregated revenue schedules and further discussion on revenue and deferred revenue performance obligations and the timing of revenue recognition.

Leases

We have operating leases for facilities and certain equipment in North America, Europe, and Asia. Our operating lease right-of-use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As our leases generally do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. An average incremental borrowing rate of 6% as of January 1, 2019, the adoption date of ASC 842, was used for our leases that commenced prior to that date. We determined that the rate of 6% is appropriate for our operating leases after we considered an estimated incremental borrowing rate provided by our bank, the interest rate of our ~~Term Loan,~~prior credit facility, and the terms and geographic locations of our facilities.

See Note 5 “Leases” of our Notes to Condensed Consolidated Financial Statements under Part 1, Item 1 of this Form 10-Q for further discussion on our leases.

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RESULTS OF OPERATIONS

The following table sets forth certain items from our condensed consolidated statements of operations as a percentage of net revenues for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net revenues:	Net revenues:									Net revenues:
Product	Product	39.6	%	45.9	%	38.3	%	50.0	%	Product	35.3	%	40.2	%
Services	Services	60.4	%	54.1	%	61.7	%	50.0	%	Services	64.7	%	59.8	%
Total net revenues	Total net revenues	100.0	%	100.0	%	100.0	%	100.0	%	Total net revenues	100.0	%	100.0	%
Cost of revenues	Cost of revenues	35.6	%	38.1	%	36.4	%	40.5	%	Cost of revenues	34.9	%	38.5	%
Gross margin	Gross margin	64.4	%	61.9	%	63.6	%	59.5	%	Gross margin	65.1	%	61.5	%
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	15.1	%	15.9	%	16.4	%	15.7	%	Research and development	16.3	%	17.8	%
Marketing and selling	Marketing and selling	22.1	%	23.9	%	25.4	%	24.8	%	Marketing and selling	22.0	%	29.3	%
General and administrative	General and administrative	11.9	%	12.9	%	13.3	%	13.0	%	General and administrative	14.5	%	14.7	%
Amortization of intangible assets		—	%	—	%	—	%	0.2	%

Restructuring costs, net	Restructuring costs, net	0.8	%	0.2	%	0.4	%	0.2	%	Restructuring costs, net	1.1	%	0.2	%
Total operating expenses	Total operating expenses	49.9	%	52.9	%	55.5	%	53.9	%	Total operating expenses	53.9	%	62.0	%
Operating income		14.5	%	9.0	%	8.1	%	5.6	%
Operating income (loss)										Operating income (loss)	11.2	%	(0.5)	%
Interest and other expense, net	Interest and other expense, net	(4.9)	%	(5.9)	%	(5.9)	%	(8.1)	%	Interest and other expense, net	(6.0)	%	(6.1)	%
Income (loss) before income taxes	Income (loss) before income taxes	9.6	%	3.1	%	2.2	%	(2.5)	%	Income (loss) before income taxes	5.2	%	(6.6)	%
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	0.8	%	(0.3)	%	0.6	%	0.1	%	Provision for (benefit from) income taxes	0.5	%	0.1	%
Net income (loss)	Net income (loss)	8.8	%	3.4	%	1.6	%	(2.6)	%	Net income (loss)	4.7	%	(6.7)	%

Net Revenues

Our net revenues are derived mainly from sales of products and solutions for digital media content production, management and distribution, and related professional services and maintenance contracts. We also sell individual licenses for our software products through our webstore. We commonly sell large, complex solutions to our customers that, due to their strategic nature, have long lead times where the timing of order execution and fulfillment can be difficult to predict. In addition, the rapid evolution of the media industry is changing our customers’ needs, businesses, and revenue models, which is influencing their short-term and long-term purchasing decisions. As a result of these factors, the timing and amount of product revenue recognized each quarter related to these large orders, as well as the services associated with them, can fluctuate from quarter to quarter and cause significant volatility in our quarterly operating results. For a discussion of these factors, see the risk factors discussed in Part I, - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.


Net Revenues for the Three Months Ended September 30, 2020 and 2019
Net Revenues for the Three Months Ended March 31, 2021 and 2020									Net Revenues for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)	(dollars in thousands)								(dollars in thousands)
		2020		Change			2019			2021		Change			2020
		Net Revenues		$		%	Net Revenues			Net Revenues		$		%	Net Revenues

Products and solutions	Products and solutions	$	35,775	$	(7,136)	(16.6)%	$	42,911	Products and solutions	$	33,267	$	(1,444)	(4.2)%	$	34,711
Services	Services	54,656		4,106		8.1%	50,550		Services	61,097		9,355		18.1%	51,742
Total net revenues	Total net revenues	$	90,431	$	(3,030)	(3.2)%	$	93,461	Total net revenues	$	94,364	$	7,911	9.2%	$	86,453

Net Revenues for the Nine Months Ended September 30, 2020 and 2019

Net Revenues for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Net Revenues $ % Net Revenues
Products and solutions $ 98,121 $ (49,512) (33.5)% $ 147,633
Services 158,044 10,196 6.9% 147,848
Total net revenues $ 256,165 $ (39,316) (13.3)% $ 295,481

The following table sets forth the percentage of our net revenues attributable to geographic regions for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended March 31,
		2020	2019	2020	2019		2021	2020
United States	United States	40%	34%	41%	37%	United States	42%	42%
Other Americas	Other Americas	5%	10%	6%	8%	Other Americas	5%	6%
Europe, Middle East and Africa	Europe, Middle East and Africa	42%	43%	39%	39%	Europe, Middle East and Africa	39%	38%
Asia-Pacific	Asia-Pacific	13%	13%	14%	16%	Asia-Pacific	14%	14%

Products and Solutions Revenues

Our products and solutions revenues are derived primarily from sales of our storage and workflow solutions, media management solutions, video creative tools, digital audio software and workstation solutions, and our control surfaces, consoles, and live-sound systems. Products and solutions revenues decreased ~~$7.1~~$1.4 million, or ~~16.6%~~4.2%, for the three months ended ~~September 30, 2020, and decreased $49.5 million, or 33.5% for the nine months ended September 30, 2020~~March 31, 2021, compared to the same ~~periods~~period in ~~2019.~~2020. The decrease for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 was primarily due to lower sales as a result of COVID-19,which negatively impacted products and solutions revenues for the reasons discussed above under “Executive Overview – Impact of COVID-19 on ~~our~~Our Business.”

Services Revenues

Services revenues are derived primarily from ~~support~~maintenance contracts, subscription services, ~~subscription services,~~and professional services and training. Services revenues increased ~~$4.1~~$9.4 million, or ~~8.1%~~18.1%, for the three months ended ~~September 30, 2020, and increased $10.2 million, or 6.9%, for the nine months ended September 30, 2020~~March 31, 2021, compared to the same ~~periods~~period in ~~2019. The~~2020. This increase ~~for the three and nine months ended September 30, 2020~~ was primarily due to strong growth in our subscription services, partially offset by lower professional services revenue due to the negative effects of COVID-19.

Cost of Revenues, Gross Profit and Gross Margin Percentage

Cost of revenues consists primarily of costs associated with:

•procurement of components and finished goods;

•assembly, testing and distribution of finished products;

•warehousing;

•customer support related to maintenance;

•royalties for third-party software and hardware included in our products;

•~~amortization of technology;~~ and

•providing professional services and training.

~~Amortization~~Costs of ~~technology represents the amortization of developed technology assets acquired as part of acquisitions.~~Revenues and Gross Profit


Costs of Revenues and Gross Profit for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)
	2021		Change			2020
	Costs		$		%	Costs
Products	$	19,493	$	(1,469)	(7.0)%	$	20,962
Services	13,455		1,115		9.0%	12,340

Total cost of revenues	$	32,948	$	(354)	(1.1)%	$	33,302

Gross profit	$	61,416	$	8,265	15.6%	$	53,151

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~~Costs of Revenues and Gross Profit~~

Costs of Revenues and Gross Profit for the Three Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Costs $ % Costs
Products $ 20,957 $ (2,920) (12.2)% $ 23,877
Services 11,217 (509) (4.3)% 11,726
Total cost of revenues $ 32,174 $ (3,429) (9.6)% $ 35,603
Gross profit $ 58,257 $ 399 0.7% $ 57,858

Costs of Revenues and Gross Profit for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Costs $ % Costs
Products $ 58,873 $ (20,662) (26.0)% $ 79,535
Services 34,322 (2,086) (5.7)% 36,408
Amortization of intangible assets — (3,738) (100.0)% 3,738
Total cost of revenues $ 93,195 $ (26,486) (22.1)% $ 119,681
Gross profit $ 162,970 $ (12,830) (7.3)% $ 175,800

Gross Margin Percentage

Gross margin percentage, which is net revenues less costs of revenues divided by net revenues, fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-promotion programs, the distribution channels through which products are sold, the timing of new product introductions, sales of aftermarket hardware products, and currency exchange-rate fluctuations. For a discussion of these factors, see the risk factors discussed in Part I, - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Our gross margin percentage for the three months ended ~~September 30, 2020~~March 31, 2021 increased to ~~64.4%~~65.1% from ~~61.9%~~61.5% for the three months ~~September 30, 2019 and increased to 63.6% from 59.5% for the nine months~~ ended ~~September 30,~~March 31, 2020, compared to the same period in ~~2019.~~2020. This increase was primarily due to ~~an increased mix~~subscription offerings representing a greater portion of ~~subscriptions,~~revenues, partially offset by lower gross margin percentage in all other areas of the business due to lower volumes.


Gross Margin % for the Three Months Ended September 30, 2020 and 2019
Gross Margin % for the Three Months Ended March 31, 2021 and 2020					Gross Margin % for the Three Months Ended March 31, 2021 and 2020
		2020 Gross Margin %	Change	2019 Gross Margin %		2021 Gross Margin %	Change	2020 Gross Margin %
Products	Products	41.4%	(3.0)%	44.4%	Products	41.4%	1.8%	39.6%
Services	Services	79.5%	2.7%	76.8%	Services	78.0%	1.8%	76.2%
Total	Total	64.4%	2.5%	61.9%	Total	65.1%	3.6%	61.5%

Gross Margin % for the Nine Months Ended September 30, 2020 and 2019
2020 Gross
Margin % Change 2019 Gross
Margin %
Products 40.0% (6.1)% 46.1%
Services 78.3% 2.9% 75.4%
Total 63.6% 4.1% 59.5%

Gross Margin % for the Nine Months Ended September 30, 2020 and 2019

Operating Expenses and Operating Income


Operating Expenses and Operating Income for the Three Months Ended September 30, 2020 and 2019
Operating Expenses and Operating Income (Loss) for the Three Months Ended March 31, 2021 and 2020									Operating Expenses and Operating Income (Loss) for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)	(dollars in thousands)								(dollars in thousands)
		2020		Change			2019			2021		Change			2020
		Expenses		$		%	Expenses			Expenses		$		%	Expenses
Research and development	Research and development	$	13,623	$	(1,237)	(8.3)%	$	14,860	Research and development	$	15,417	$	(8)	(0.1)%	$	15,425
Marketing and selling	Marketing and selling	19,998		(2,336)		(10.5)%	22,334		Marketing and selling	20,744		(4,545)		(18.0)%	25,289
General and administrative	General and administrative	10,796		(1,238)		(10.3)%	12,034		General and administrative	13,635		891		7.0%	12,744

Restructuring costs, net	Restructuring costs, net	723		494		215.7%	229		Restructuring costs, net	1,074		929		640.7%	145
Total operating expenses	Total operating expenses	$	45,140	$	(4,317)	(8.7)%	$	49,457	Total operating expenses	$	50,870	$	(2,733)	(5.1)%	$	53,603

Operating income		$	13,117	$	4,716	56.1%	$	8,401
Operating income (loss)									Operating income (loss)	$	10,546	$	10,998	(2,433.2)%	$	(452)

Operating Expenses and Operating Income for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Change 2019
Expenses $ % Expenses
Research and development $ 42,116 $ (4,209) (9.1)% $ 46,325
Marketing and selling 64,977 (8,364) (11.4)% 73,341
General and administrative 34,144 (4,399) (11.4)% 38,543
Amortization of intangible assets — (695) (100.0)% 695
Restructuring costs, net 1,008 490 94.6% 518
Total operating expenses $ 142,245 $ (17,177) (10.8)% $ 159,422
Operating income $ 20,725 $ 4,347 26.5% $ 16,378

Operating Expenses and Operating Income (Loss) for the Nine Months Ended September 30, 2020 and 2019

Research and Development Expenses

Research and development (“R&D”) expenses include costs associated with the development of new products and the enhancement of existing products, and consist primarily of employee compensation and benefits, facilities costs, depreciation, costs for consulting and temporary employees, and prototype and other development expenses. R&D expenses decreased ~~$1.2 million,~~$8

thousand, or ~~8.3%~~0.1%, for the three months ended ~~September 30, 2020, and decreased $4.2 million, or 9.1%, for the nine months~~

~~ended September 30, 2020~~March 31, 2021, compared to the same period in ~~2019.~~2020. The tables below provide further details regarding the changes in components of R&D expenses.


Change in R&D Expenses for the Three Months Ended September 30, 2020 and 2019
Change in R&D Expenses for the Three Months Ended March 31, 2021 and 2020						Change in R&D Expenses for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
		2020 Increase (Decrease) From 2019					2021 Increase (Decrease) From 2020
		$		%			$		%
Personnel-related		(203)		(2.3)	%
Facilities and information technology	Facilities and information technology	(123)		(4.8)	%	Facilities and information technology	121		4.3	%
Consulting and outside services	Consulting and outside services	(399)		(16.7)	%	Consulting and outside services	(132)		(5.6)	%
Other	Other	(512)		(56.3)	%	Other	3		—	%
Total R&D expenses decrease	Total R&D expenses decrease	$	(1,237)	(8.3)	%	Total R&D expenses decrease	$	(8)	(0.1)	%

Change in R&D Expenses for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Increase (Decrease)
From 2019
$ %
Personnel-related (2,826) (9.8) %
Facilities and information technology (504) (6.0) %
Consulting and outside services (266) (3.9) %
Other (613) (27.9) %
Total R&D expenses decrease $ (4,209) (9.1) %


Change in R&D Expenses for the Nine Months Ended September 30, 2020 and 2019

The decrease in personnel-related expenses for the three and nine months ended September 30, 2020, compared to the same periods in 2019, was primarily due to a decrease in salary expense as a result of our temporary furloughs and pay cuts and reduced travel expenses as a result of COVID-19. The decreaseincrease in facilities and information technology expenses ~~and other expenses~~ for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared to the same ~~periods~~period in ~~2019,~~2020, were primarily due toincreased investment in our ~~programs to increase operational efficiencies and reduce costs.~~information technology infrastructure offset by a reduction in our facilities related spending. The decrease in consulting and outside services for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021, compared to the same ~~periods~~period in ~~2019 were~~2020, was primarily the result of R&D labor costs utilized for the production of our customer funded development projects which increased in volume this year. The other expenses remained flat for the three months ended March 31, 2021, compared to the same period in 2020, which was primarily the result of our programs to reduce costs in response to COVID-19 offset by an increase in our incentive-based compensation.

Marketing and Selling Expenses

Marketing and selling expenses consist primarily of employee compensation and benefits for selling, marketing and pre-sales customer support personnel, commissions, travel expenses, advertising and promotional expenses, web design costs, and facilities costs. Marketing and selling expenses decreased ~~$2.3~~$4.5 million, or ~~10.5%~~18.0%, for the three months ended ~~September 30, 2020, and decreased $8.4 million, or 11.4%, for the nine months ended September 30, 2020~~March 31, 2021, compared to the same period in ~~2019.~~2020. The tables below provide further details regarding the changes in components of marketing and selling expenses.


Change in Marketing and Selling Expenses for the Three Months Ended September 30, 2020 and 2019
Change in Marketing and Selling Expenses for the Three Months Ended March 31, 2021 and 2020						Change in Marketing and Selling Expenses for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
		2020 Increase (Decrease) From 2019					2021 Increase (Decrease) From 2020
		$		%			$		%
Personnel-related	Personnel-related	(574)		(2.5)	%	Personnel-related	(633)		(3.8)	%
Advertising and promotions	Advertising and promotions	(1,032)		(88.9)	%	Advertising and promotions	(219)		(31.1)	%
Foreign exchange (gains) and losses	Foreign exchange (gains) and losses	(212)		(75.1)	%	Foreign exchange (gains) and losses	(535)		(113.3)	%
Consulting and outside services						Consulting and outside services	(1,752)		(71.0)	%
Other	Other	(518)		(5.3)	%	Other	(1,406)		(28.4)	%
Total marketing and selling expenses increase		$	(2,336)	(10.5)	%
Total marketing and selling expenses decrease						Total marketing and selling expenses decrease	$	(4,545)	(18.0)	%

Change in Marketing and Selling Expenses for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Increase (Decrease) From 2019
$ %
Personnel-related (4,140) (5.8) %
Advertising and promotions (4,213) (79.5) %
Foreign exchange (gains) and losses 60 6.2 %
Other (71) (0.4) %
Total marketing and selling expenses increase $ (8,364) (11.4) %


Change in Marketing and Selling Expenses for the Nine Months Ended September 30, 2020 and 2019

The decrease in personnel-related expenses for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared to the same ~~periods~~period in ~~2019, were~~2020, was primarily due to a decrease in salary expense as a result of ~~our temporary furloughs and pay cuts~~a reduction in work force and reduced travel expenses as a result of ~~COVID-19.~~COVID-19 partially offset by an increase in our incentive-based compensation. The decrease in advertising and promotions expenses as well as other expenses for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared to the same ~~periods~~period in ~~2019,~~2020, were primarily the result of our programs to reduce costs in response to ~~COVID-19~~COVID-19. The decrease in consulting and outside services was due to the cancellation of certain trade shows and internal meetings in ~~2020.~~2021. The decrease in foreign exchange translations for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the same period in ~~2019,~~2020, was due to more foreign exchange ~~losses resulted~~gains from

foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities. These foreign exchange changes were primarily due to the euro-dollar exchange rate volatility.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of employee compensation and benefits for administrative, executive, finance and legal personnel, audit, legal and strategic consulting fees, and insurance, information systems and facilities costs. Information systems and facilities costs reported within general and administrative expenses are net of allocations to other expenses categories. G&A expenses ~~decreased $1.2~~increased $0.9 million, or ~~10.3%~~7.0%, for the three months ended ~~September 30, 2020, and decreased $4.4 million, or 11.4%, for the nine months ended September 30, 2020~~March 31, 2021, compared to the same period in ~~2019.~~2020. The tables below provide further details regarding the changes in components of G&A expenses.


Change in G&A Expenses for the Three Months Ended September 30, 2020 and 2019
Change in G&A Expenses for the Three Months Ended March 31, 2021 and 2020						Change in G&A Expenses for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
		2020 Decrease From 2019					2021 Decrease From 2020
		$		%			$		%
Personnel-related	Personnel-related	1,360		29.6	%	Personnel-related	1,055		18.5	%
Consulting and outside services	Consulting and outside services	(2,493)		(57.0)	%	Consulting and outside services	(69)		(1.8)	%
Other	Other	(105)		(3.5)	%	Other	(95)		(3.0)	%
Total G&A expenses decrease		$	(1,238)	(10.3)	%
Total G&A expenses increase						Total G&A expenses increase	$	891	7.0	%

Change in G&A Expenses for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Decrease
From 2019
$ %
Personnel-related 737 4.5 %
Consulting and outside services (4,206) (35.3) %
Other (930) (8.6) %
Total G&A expenses decrease $ (4,399) (11.4) %


Change in G&A Expenses for the Nine Months Ended September 30, 2020 and 2019

The increase in personnel-related expenses for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared to the same ~~periods~~period in ~~2019, were~~2020, was primarily due to an increase in our incentive-based ~~compensation, offset by a decrease in salary expense as a result of our temporary furloughs and pay cuts and reduced travel expenses as a result of COVID-19.~~compensation. The decrease in consulting and outside services and other for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared to the same ~~periods~~period in ~~2019,~~2020, were primarily ~~due to lower audit fees and as~~ a result of our programs to reduce costs in response to COVID-19. ~~The decrease in other expenses~~

Provision for ~~the three and nine months ended September 30, 2020, compared to the same periods in 2019, were primarily due to our programs to increase operational efficiencies and reduce costs.~~Income Taxes


Provision for Income Taxes for the Three Months Ended March 31, 2021 and 2020
(dollars in thousands)
	2021		Change			2020
			$		%
Provision for income taxes	$	482	$	360	(295.1)%	$	122

~~Provision (Benefit)~~

Provision for Income Taxes for the Nine Months Ended September 30, 2020 and 2019

We had a tax provision of 9.9% and (2.1%) as a percentage of income and loss before tax for ~~Income Taxes~~

Provision (Benefit) for Income Taxes for the Three Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Change 2019
$ %
Provision for income taxes $ 707 $ 990 349.8% $ (283)

Provision for Income Taxes for the Nine Months Ended September 30, 2020 and 2019
(dollars in thousands)
2020 Change 2019
$ %
Provision for income taxes $ 1,546 $ 1,391 897.4% $ 155

~~During~~ the three months ended September 30, 2019, we completed a legal entity reorganization that reduced the number of our German subsidiaries. This allowed us to remove a valuation allowance on the net operating loss carryforward deferred tax asset of one of the surviving German entities resulting in a net income tax benefit of $0.9 million. This non-recurring prior year benefit was a significant driver of theMarch 31, 2021 and 2020, respectively. The increase in ~~our income tax provision in both~~ the ~~three and nine month periods ended September 30, 2020.~~

~~The additional increase in our income~~ tax provision for the three ~~and nine month periods~~months ended ~~September 30, 2020~~March 31, 2021, compared to the same ~~periods~~period in ~~2019 was~~2020, is primarily ~~driven by an overall~~due to the increase in worldwide pre-tax income and a related deferred tax expense recorded in our Irish branch of $0.7 million and $0.9 million for the respective periods. The Irish deferred tax expense was partially offset by lower foreign provisions due to changes in the jurisdictional mix of earnings.income. No benefit was provided for the tax loss generated in the United States due to a full valuation on the deferred tax asset. ~~In addition, the estimated annual effective tax rate excluded the United States due to its pre-tax loss position.~~

The CARES Act includes several income tax provisions such as net operating loss (“NOL”) carryback and carryforward benefits and other tax deduction benefits. As noted previously, the U.S. deferred tax asset has a full valuation; accordingly these NOL and other benefit provisions had no impact on our financial statements for the period ended September 30, 2020. The CARES Act accelerates the alternative minimum tax (“AMT”) credit refund originally enacted by the Tax Cut and Jobs Act in 2017. As of September 30, 2020, we have received the cash from the IRS associated with this refund receivable which had been recorded as a long-term asset at December 31, 2019.

3225

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Sources of Cash

Our principal sources of liquidity include cash and cash equivalents totaling ~~$49.1~~$55.6 million as of ~~September 30, 2020.~~March 31, 2021, as well as the availability of borrowings of up to $70.0 million under our revolving Credit Facility. We have generally funded operations in recent years through the use of existing cash balances, supplemented from time to time with the proceeds of long-term debt and borrowings under our credit facilities. ~~We repaid the remaining amount due under the Notes of $28.9 million on June 15, 2020, the maturity date.~~

On ~~April 8, 2019,~~January 5, 2021, we entered into ~~an amendment~~the Credit Agreement with JPMorgan Chase Bank, N.A. and a syndicate of banks, as collateral and administrative agent, and the Lenders. Pursuant to the ~~Financing Agreement. The amendment provided for an additional delayed draw term loan commitment in~~Credit Agreement, the ~~aggregate principal amount of $100.0 million (the “Delayed Draw Funds”) for the purpose of funding the purchase of a portion of Notes in the Offer described in Note 10~~Lenders agreed to our financial statements in Item 1 above. On May 2, 2019, we received the Delayed Draw Funds under the Financing Agreement. We used $72.7 million of the Delayed Draw Funds for the purchase of a portion of our Notes, $0.6 million for the Notes interest payment, and $6.0 million for the payment of refinancing fees. On June 18, 2019, we repaid $20.7 million of the Delayed Draw Funds. The $79.3 million Delayed Draw Funds borrowed and that remain outstanding will mature on May 10, 2023 under the terms of the Financing Agreement. The amendment also modified the covenant that requiresprovide us ~~to maintain a leverage ratio (defined to mean the ratio of (a) the sum of indebtedness under~~with the Term Loan and the Credit ~~Facility and non-cash collateralized letters~~Facility. We borrowed the full amount of ~~credit to (b) consolidated EBITDA under~~ the Term Loan, ~~and Credit Facility) based~~or $180.0 million, on the ~~level~~closing date, but did not borrow any of ~~availability of our~~the $70.0 million available under the Credit Facility on the closing date. The proceeds from the Term Loan, plus ~~unrestricted~~available cash ~~on-hand (the “Leverage Ratio Covenant”). On May 19, 2020, we entered into an amendment~~on hand, were used to repay outstanding borrowings of $201.0 million under the Company’s prior credit facility with Cerberus Business Finance, LLC, which was then terminated. Prior to the ~~Financing~~maturity of the Credit Facility, any amounts borrowed under the Credit Facility may be repaid and, subject to the terms and conditions of the Credit Agreement, ~~which~~ ~~increased the leverage ratio that the Company is required to maintain such that following the effective date of this amendment, the~~reborrowed in whole or in part without penalty. The Credit Agreement contains two financial covenants. The Company is required to maintain a maximum total net leverage ratio, generally defined as the ratio of ~~no greater than 6.00:~~(x) consolidated total indebtedness minus liquidity maintained in the United States up to $25 million to (y) consolidated EBITDA, not to exceed 4.00 to 1.00 for ~~each of~~ the fiscal quarters ending ~~June 30, 2020 and September 30, 2020, 5.75:1.00 for each of the quarters ending December 31, 2020 and~~ March 31, 2021 ~~5.25:~~through June 30, 2021; 3.75 to 1.00 for the ~~quarter ending June 30, 2021, 5.00:1.00 for the quarter~~fiscal quarters ending September 30, 2021 ~~4.50:~~through December 31, 2021; 3.50 to 1.00 for the ~~quarter ending December 31, 2021, 4.30:1.00 for the quarter~~fiscal quarters ending March 31, 2022 ~~4.00:~~through June 30, 2022; 3.25 to 1.00 for ~~each of~~ the fiscal quarters ending ~~June 30, 2022 and~~ September 30, 2022 through December 31, 2022; and ~~3.75:~~3.00 to 1.00 for ~~each of the~~fiscal quarters ending ~~December 31, 2022 and~~on or after March 31, 2023. AsThe Company is also required to maintain a fixed charge coverage ratio not less than 1.20 to 1.00 at the end of ~~September 30, 2020, we were in compliance with all covenants under~~each fiscal quarter ending on or after March 31, 2021. The Credit Agreement’s fixed charge coverage ratio is generally defined as the ~~Financing Agreement.~~ratio of (x) consolidated EBITDA minus unfinanced capital expenditures, cash tax expense and certain restricted payments to (y) consolidated fixed charges.

Our ability to satisfy the ~~Leverage Ratio Covenant~~two financial covenants in the future is dependent on our ability to maintain profitability at or above levels experienced over the last 12 months. In recent quarters, we have experienced volatility in revenues resulting from, among other things, (i) our transition towards subscription and recurring revenue streams and the resulting decline in traditional upfront product sales, (ii) dramatic changes in the media industry and the impact it has on our customers, (iii) the impact of new and anticipated product launches and features, (iv) volatility in currency rates, and (v) in the ~~three~~four most recent quarters, the economic impacts of the COVID-19 pandemic. If revenues were to decrease from the levels of the last 12 months, we would need to reduce expenses to maintain the required level of profitability. In light of the COVID-19 pandemic, we are closely monitoring our current and expected future liquidity levels and covenant compliance.

As discussed above, while the duration and severity of the COVID-19 pandemic, and resulting economic impacts, remain uncertain, we expect that our business operations and results of operations ~~will~~may be ~~adversely impacted~~affected and uneven by these developments for at least the balance of ~~2020, and possibly longer.~~2021. To address actual and expected reductions in net revenues, we have reduced our discretionary spending and reduced payroll ~~costs, including through temporary employee furloughs and pay cuts.~~costs. In addition, in May 2020 we received $7.8 million of funding under the PPP in the form of a low-interest loan that may be forgiven under certain conditions. We may be required to take additional remedial steps, depending on the duration and severity of the pandemic and its impact on our operations, which could include, among other things (and where allowed by the lenders), (i) further cost reductions, (ii) seeking replacement financing, (iii) raising funds through the issuance of additional equity or debt securities or the incurrence of additional borrowings, (iv) disposing of certain assets or businesses, or (v) seeking additional funding under various programs implemented by the U.S. government in response to the COVID-19 pandemic. Such remedial actions, which may not be available on favorable terms or at all, could have a material adverse impact on our business. If we are not in compliance with the ~~Leverage Ratio Covenant~~covenants and are unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the ~~Financing~~Credit Agreement, which could permit acceleration of the outstanding indebtedness under the ~~Financing~~Credit Agreement and require us to repay such indebtedness before the scheduled due date. If an event of default were to occur, we might not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the ~~Financing~~Credit Agreement.

On May 11, 2020, we received $7.8 million of proceeds in connection with ~~its~~our incurrence of a loan under the PPP. The loan has a fixed interest rate of 1% and matures ~~in two years.~~on May 11, 2022. Interest payments are deferred ~~for six months. We may apply~~until a forgiveness decision is returned by the SBA. Pursuant to the CARES Act and implementing rules and regulations, we have applied to the SBA for the full

amount of the PPP loan to be ~~forgiven in whole or in part beginning no sooner than seven weeks from the date of initial disbursement.~~forgiven. We~~intend to use~~ have used the proceeds of the PPP loan for purposes consistent with the PPP. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure that we will be eligible for forgiveness of the loan, in whole or in part. Any PPP loan balance remaining following forgiveness by the SBA will be fully ~~re-amortized over~~repaid on or before the ~~remaining term~~maturity date of the loan.

Our cash requirements vary depending on factors such as the growth of the business, changes in working capital, and capital ~~expenditures, and obligations under our cost efficiency program.~~expenditures. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months as well as for the foreseeable future. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations and cash flows for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by COVID-19 on our business are ~~expected to evolve~~evolving rapidly. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):


		Nine Months Ended September 30,				Three Months Ended March 31,
		2020		2019				2021		2020
Net cash provided by operating activities		$	8,843	$	1,112
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	$	12,313	$	(5,605)
Net cash used in investing activities	Net cash used in investing activities	(5,619)		(5,629)			Net cash used in investing activities	(1,254)		(1,479)
Net cash used in financing activities		(24,313)		(7,183)
Net cash used in (provided by) financing activities							Net cash used in (provided by) financing activities	(35,003)		19,831
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash	Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash	1,394		(615)			Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash	(332)		(402)
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	$	(19,695)	$	(12,315)		Net decrease in cash, cash equivalents and restricted cash	$	(24,276)	$	12,345

Cash Flows from Operating Activities

Cash provided by operating activities aggregated ~~$8.8~~$12.3 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The increase in cash provided by operations compared to the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was primarily due to decreased operating expenses and a change in working capital.

Cash Flows from Investing Activities

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash flows used in investing activities reflected ~~$5.6~~$1.3 million used for the purchase of property and equipment. Our purchases of property and equipment largely consist of computer hardware and software to support R&D activities and information systems.

Cash Flows from Financing Activities

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash flows used in financing activities were primarily the result of ~~the repayment~~our refinancing activity and our common stock repurchases for tax withholdings for net settlement of ~~our Notes, partially offset by borrowings under the PPP loan.~~equity awards.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted

Our recently adopted and to be adopted accounting pronouncements are set forth in Note 1 “Financial Information” of our Notes to Unaudited Condensed Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

3427

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have significant international operations and derive more than half of our revenues from customers outside the United States. This business is, for the most part, transacted through international subsidiaries and generally in the currency of the end-user customers. Therefore, we are exposed to the changes in foreign currency exchange rates that could adversely affect our revenues, net income, and cash flow.

We recorded an immaterial net foreign exchange gain and a $0.5 million net foreign exchange loss ~~of $1.0 million and $1.0 million~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The foreign exchange gains and losses resulted from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities.

A hypothetical change of 10% in appreciation or depreciation of foreign currency exchange rates from the quoted foreign currency exchange rates as of ~~September 30, 2020,~~March 31, 2021 would not have a significant impact on our financial position, results of operations, or cash flows.

Interest Rate Risk

~~We borrowed $100.0 million under~~On January 5, 2021, the Term Loan on February 26, 2016, and an additional $15.0 million and $22.7 million under the Term Loan on November 9, 2017 and May 10, 2018, respectively. We also maintain a revolving Credit Facility that allows us to borrow up to $22.5 million. On April 8, 2019, weCompany entered into ~~an amendment~~the Credit Agreement with JPMorgan Chase Bank, N.A., as collateral and administrative agent, and a syndicate of banks, as lenders thereunder. Pursuant to the ~~Financing~~Credit Agreement, ~~which provides for an additional delayed draw term loan commitment in~~ the ~~aggregate principal amount of $100.0 million. On May 19, 2020, we entered into an amendment~~Lenders agreed to provide the ~~Financing Agreement. Under the terms of the amendment effective May 19, 2020, interest accrues on the outstanding borrowings under~~Company with the Term Loan and the Credit ~~Facility~~Facility. Under the Credit Agreement, interest accrues on outstanding borrowings at a rate of ~~either~~ the ~~LIBOR~~Adjusted LIBO Rate, ~~(as~~the Adjusted EURIBO Rate or the Alternate Base Rate (each as defined in the ~~Financing~~Credit Agreement) ~~plus 6.75% or a Reference Rate (as defined in the Financing Agreement) plus 5.75%~~, at the option of the Company, plus a spread of 2.00% to 3.25% for Adjusted LIBO Rate and Adjusted EURIBO Rate loans, with a 0.25% LIBOR floor, and 1.00% to 2.25% for Alternate Base Rate loans, in each case depending on our ~~option.~~leverage ratio. As of ~~September 30, 2020,~~March 31, 2021, we have ~~$202~~$178 million outstanding under the Term Loan. A hypothetical 10% increase or decrease in interest rates paid on outstanding borrowings under the ~~Financing~~Credit Agreement would not have a material impact on our financial position, results of operations, or cash flows.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of ~~September 30, 2020.~~March 31, 2021. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our management concluded that, as of ~~September 30, 2020,~~March 31, 2021, these disclosure controls and procedures were effective at a reasonable level of assurance.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarterly period ended ~~September 30, 2020,~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

3629

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 7 “Commitments and Contingencies” of our Notes to ~~Condensed~~UnauditedCondensed Consolidated Financial Statements under Part 1, Item 1 of this Form 10-Q regarding our legal proceedings. ~~Aside from the disclosure below, there have been no material developments from the disclosures contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.~~

ITEM 1A.RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in Part I, - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 in addition to the other information included in this Form 10-Q before making an investment decision regarding our common stock. If any of these risks actually occurs, our business, financial condition, or operating results would likely suffer, possibly materially, the trading price of our common stock could decline, and you could lose part or all of your investment.

There has been no material change to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2019 with the exception of the following risk factors:~~2020.

The outbreak of the novel coronavirus (“COVID-19”) and actions taken in response to it have adversely affected our business and are likely to continue to adversely affect our business, financial condition and results of operations.

The COVID-19 pandemic is causing worldwide concern and economic disruption, and has led to federal, state and local governments enacting various restrictions in an attempt to limit the spread of the virus. This has included the declaration of states of emergency across the globe, and widespread school and business closings affecting a large number of countries. It has also prompted limitations on social or public gatherings and other social distancing measures, such as office closures, shelter in place orders, working remotely, travel restrictions and quarantines, some of which continue in effect in many cities and countries.

In these challenging and dynamic circumstances, Avid is working to protect its employees and the public, maintain business continuity and sustain its operations. We have also taken, and may take in the future, further actions as required by government authorities or that we determine are in the best interests of our employees, customers, manufacturers, and suppliers that diminish our ability to promote our products and services, and deliver required on-site professional services, including on-site support to our customers and users and could negatively impact our business and results of operations.

The COVID-19 pandemic has significantly increased economic and demand uncertainty. The outbreak and continued spread of COVID-19 has caused an economic slowdown, and it is possible that it could cause a global recession. This economic downturn has caused a decline in the media, entertainment, and sports industries which has, in turn, reduced demand for our products and services. These factors are expected to continue to reduce demand for our products and services, possibly significantly, including causing delays in purchasing and projects by our enterprise customers and channel partners. Additionally, the provision of on-site professional service may be impossible for a prolonged period of time, further impacting our business.

The COVID-19 pandemic has also had an adverse impact on our operations and supply chain, and adverse impacts could continue during the pandemic. We could experience interruptions as a result of employees or other key personnel of manufacturers, ours or those of third parties, becoming infected. Such workplace interruptions have also been caused by preventive and precautionary measures that governments and we and other businesses, including our third-party manufacturers, are taking, such as border closures, prolonged quarantines, and other travel restrictions. For example, we do not know if all of our manufacturers will be able to continue producing materials for us or may be shut down. Any of the above circumstances will negatively impact the ability of third parties on which we rely to manufacture our products or their components and our ability to perform critical functions, which could significantly hamper our ability to supply our products to our customers. If we encounter delays or difficulties in the manufacturing process that disrupt our ability to

~~supply our products, we may not be able to satisfy customer demand or we may experience a product stock-out, which would likely have a material adverse effect on our business.~~

If the pandemic continues and economic conditions worsen, we expect to experience additional adverse impacts on our operations and revenues and our collections of accounts receivable, which adverse impacts may be material. To address our liquidity, we obtained funding under the PPP and will continue to explore other options, including other programs that may be implemented by the U.S. government in response to the COVID-19 pandemic. However, there can be no assurance that we will obtain any funds from these or future programs. We have also implemented cost reduction measures, including halting all but essential travel spending, reducing discretionary spending, deferring certain investments, and reducing our payroll expenses. Such cost reductions may not be sufficient and additionally may harm our ability to offer, promote, and deliver products and services at the level expected by our customers and partners.

Further, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. If we experience further deterioration in demand and our cash flows from operations decrease, we may require additional funding and may not be able to obtain such funding on favorable terms, or at all.

The degree to which COVID-19 impacts our results going forward will depend on future developments, which remain uncertain and cannot be predicted, including, but not limited to, the duration and spread of COVID-19, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our business and damage our results of operations and our liquidity position, possibly to a significant degree.

~~Failure of our information systems or those of third parties or breaches of data security could cause significant harm to our business.~~

Our systems and processes involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of employees, customers, and others. In addition, we rely on information systems controlled by third parties. Information system failures, network disruptions, and system and data security breaches, manipulation, destruction, or leakage, whether intentional or accidental, could impair our ability to provide services to our customers or otherwise harm our ability to conduct our business. Any such failures, disruptions or breaches could also impede the development, manufacture or shipment of products, interrupt or delay processing of transactions and reporting financial results, result in theft or misuse of our intellectual property or other assets, or result in the unintentional disclosure of personal, proprietary, sensitive, or confidential information of employees, customers, and others. With our development of Avid MediaCentral Platform, public and private marketplaces, cloud-based offerings and our evolution toward an enterprise subscription model that requires us to host increasing amounts of customer data, our and our customers’ data and financial and proprietary information could become more susceptible to such failures and data breaches. In addition, the need for substantial numbers of our employees to work remotely, such as due to the COVID-19 pandemic, could create additional data security risks.

Information system failures or unauthorized access could be caused by our failure to adequately maintain and enhance our systems and networks, external theft or attack, misconduct by our employees, contractors, vendors, or external bad actors, or many other causes such as power failures, earthquakes, fire, or other natural disasters. Cyber threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. We may have no current capability to detect certain vulnerabilities, which may allow them to persist in the environment over long periods of time. Cyber threats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and customers.

Any information system failures or unauthorized access to our network or systems could expose us, our customers, or the individuals affected to a risk of loss or misuse of this information, resulting in litigation and potential liability for us. In addition, we could incur substantial remediation costs, including costs associated with repairing our information systems, implementing further data protection measures, engaging third-party experts and consultants, and increased insurance premiums. In addition, significant or repeated reductions in the performance, reliability, security, or availability of our

information systems and network infrastructure could significantly harm our brand and reputation and ability to attract and retain existing and potential users, customers, advertisers, and content providers.

ITEM 6. EXHIBITS

The list of exhibits, which are filed or furnished with this Form 10-Q or are incorporated herein by reference, is set forth in the Exhibit Index immediately preceding the exhibits and is incorporated herein by reference.

3930

EXHIBIT INDEX

Incorporated by Reference

Exhibit
No.

Description

Filed with
this Form
10-Q

Form or
Schedule

SEC Filing
Date

SEC File
Number

3.1

Amend ed and Restated By-Laws , amended

8-K

March 31, 2017

001-36254

3.2

A mendment to the Amended and Restated By-Laws

10-K

March 9, 2020

001-36254

10.1

Credit Agreement, dated as of January 5, 2021, among Avid Technology, Inc., each of the lenders and financial institutions party thereto, and JPMorgan Chase Bank, N.A., as administrative agent.

8-K

January 5, 2021

001-36254

10.2

Summary of Avid Technology, Inc.’s 2021 Business Unit Bonus Plan Framework

31.1

Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*101.SCH

XBRL Taxonomy Extension Schema Document

*101.CAL

XBRL Taxonomy Calculation Linkbase Document

*101.DEF

XBRL Taxonomy Definition Linkbase Document

*101.LAB

XBRL Taxonomy Label Linkbase Document

*101.PRE

XBRL Taxonomy Presentation Linkbase Document

__________________________

* Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections.

4031

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AVID TECHNOLOGY, INC.

(Registrant)

Date:

~~October 30, 2020~~May 5, 2021

By:

/s/ Kenneth Gayron

Name:

Kenneth Gayron

Title:

Executive Vice President and Chief Financial Officer

4132


Nine Months Ended September 30, 2019
	Shares of Common Stock			Additional			Accumulated Other	Total
	Outstanding	In Treasury	Common Stock	Paid-in Capital	Accumulated Deficit	Treasury Stock	Comprehensive Income (Loss)	Stockholders’ Deficit




























Balances at January 1, 2019	42,339	(391)	423	1,028,924	(1,187,010)	(5,231)	(3,767)	(166,661)



Stock issued pursuant to employee stock plans	0	391	0	(6,612)	0	5,231	0	(1,381)

Stock-based compensation	—	—	—	1,738	—	—	—	1,738

Net loss	—	—	—	—	(213)	—	—	(213)

Other comprehensive loss	—	—	—	—	—	—	(548)	(548)

Partial retirement of convertible senior notes conversion feature	—	—	—	(23)	—	—	—	(23)

Partial unwind capped call cash receipt	—	—	—	1	—	—	—	1

Balances at March 31, 2019	42,339	0	423	1,024,028	(1,187,223)	0	(4,315)	(167,087)

Stock issued pursuant to employee stock plans	381	0	4	(204)	0	0	0	(200)

Stock-based compensation	—	—	—	2,005	—	—	—	2,005

Net loss	—	—	—	—	(10,723)	—	—	(10,723)

Other comprehensive income	—	—	—	—	—	—	710	710

Partial retirement of convertible senior notes conversion feature	—	—	—	(554)	—	—	—	(554)

Partial unwind capped call cash receipt	—	—	—	26	—	—	—	26

Balances at June 30, 2019	42,720	0	427	1,025,301	(1,197,946)	0	(3,605)	(175,823)

Stock issued pursuant to employee stock plans	287	0	2	(1,550)	0	0	0	(1,548)

Stock-based compensation	—	—	—	2,045	—	—	—	2,045

Net income	—	—	—	—	3,165	—	—	3,165

Other comprehensive loss	—	—	—	—	—	—	(764)	(764)

Balances at September 30, 2019	43,007	0	429	1,025,796	(1,194,781)	0	(4,369)	(172,925)