Avid Technology, Inc. (AVID)

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Avid Technology Inc. (AVID)

Q1 2008 Earnings Call

April 24, 2008 5:00 pm ET

Executives

Dean Ridlon - Director of IR

Gary Greenfield - Chairman and CEO

Joel Legon - CFO

Ken Sexton - CAO

Analysts

Paul Coster - JP Morgan

Steven Frankel - Canaccord Adams

Jim Ricchiuti - Needham & Company

Mike Olson - Piper Jaffray

Alan Davis - DA Davidson

Andrew Abrams - Avian Securities

Chuck Goldblum - Emancipation Capital

Jeff Lipton - Connected Capital

Presentation

Operator

Good day and welcome everyone to the Avid Technology First Quarter Earnings Results Conference Call. Today's call is being recorded.

For opening remarks and introductions, I'd like to turn the call over to the Director of Investor Relations, Mr. Dean Ridlon. Please go ahead, sir.

Dean Ridlon

Thank you, and good afternoon. I'm Dean Ridlon, Avid Technology, Inc.'s Investor Relations Director. I'd like to welcome you to today's call.

Before we begin, please note that this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about Avid's future performance.

There are a number of factors that could cause actual events or results to differ materially from those indicated by such statements, such as competitive factors, including Avid's ability to anticipate customer needs, pricing pressures, our ability to execute our strategic plan, and adverse changes in general economic or market conditions, particularly in the content creation industry.

Other important events and factors appear in Avid's filings with the U.S. Securities and Exchange Commission. In addition, our forward-looking statements represent our estimates only as of today, April 24, 2008, and should not be relied upon as representing our views as of any subsequent date. Avid undertakes no obligation to review or update these forward-looking statements.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. The most directly comparable financial measures calculated in accordance with GAAP and a reconciliation of GAAP measures to these non-GAAP measures are contained in the press release announcing this quarter's results and available in the Investor's section of our website, www.avid.com.

And now I'd like to introduce Gary Greenfield, Avid's Chairman and CEO.

Gary Greenfield

Thank you, Dean. I'd like to welcome you to our first quarter 2008 results conference call. With me on the call are Joel Legon, our CFO and Ken Sexton our Chief Administrative Officer.

As you know, Ken and I, along with several other executives are relatively new to Avid's management team. That said, I believe that as a team and as a company, we've already made significant progress towards our goal of becoming a customer-centric business with accelerated growth and improved operating margins.

Understandably, the majority of our efforts to transform the business will not impact the financial results until future quarters, as we are not looking for quick, one-time payoffs, but rather long-term increases in shareholder value. But we are fully engaged on this transformation and are already making progress.

At the high level, we are conducting a strategic review of all of our businesses, focusing on our loyal passionate customers to ensure we're delivering the highest quality products they require, re-energizing our dedicated employees, working to transform our operating model to make it more efficient and optimizing our capital structure. All of these initiatives support our goal of becoming a customer-centric business with accelerated growth and improved operating margins, which will lead to higher shareholder value.

Now, I'd like to turn it over to Joel to go over our financial results in detail. Joel?

Joel Legon

Thank you, Gary and good afternoon, everyone. Before I discuss the results, I wanted to highlight a change in our financial presentation. Historically, we've allocated to each of our three business units a percentage of certain corporate operating expenses such as finance, human resources, legal, and some information technology.

Beginning this quarter, we are reporting a contribution margin for each business unit that excludes these corporate infrastructure costs and operating expenses to provide a clearer view on the operating performance of each business unit. We are also presenting our 2007 comparative results using this methodology.

Now, let's look at the quarter. Revenues to Q1 were $198.3 million and our GAAP net loss was $21.1 million or $0.54 per share on 39.4 million Avid shares outstanding. Our earnings release provides a table of certain items that are excluded from our non-GAAP results.

For Q1, these items totaled is $9.4 million and consisted of amortization, stock-based compensation, restructuring costs, and related tax adjustments.

When we measure the performance of our business units and disclose our business segments' results externally, we do not include these items. Adding the $9.4 million in charges to our GAAP loss, results in a non-GAAP net loss of $11.7 million for the first quarter. Using shares outstanding of $39.4 million, non-GAAP loss per share was $0.30.

During the quarter, we invested approximately $3.5 million or $0.09 per share to assist in the transformation of our business. These investments included approximately $2 million related to strategic consultants assisting management.

Also included in approximately $1.5 million of management transition expenses such as severance and recruitment fees. GAAP gross margins were 46.7% including $3.3 million of amortization and $230,000 of stock-based compensation. Without these charges, grow margins would have been 48.4%.

While gross margin percentage for both audio and consumer video increase sequentially, these improvements were offset by a decline in professional video. Professional video gross margin percentage was affected primarily by lower revenue on fixed over head.

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