The company just published preliminary results for the first quarter. $152 million in sales fell far below the $160 million expected by Wall Street analysts. Management sees a GAAP operating loss of $15 million, which would be the weakest result since the spring of 2009.
The culprit of Avid’s disappointing numbers is a 30% year-over-year drop in sales to the enthusiast market. That’s where Avid sells tools for making music and movies to amateurs like you and me, helping us make and manage media with somewhat simplified versions of the professional tools. That’s a price-sensitive market that doesn’t play well with attempts to ratchet up gross margins. I’m surprised that Avid didn’t see that backlash coming.
Avid appears to have found a way to avoid dealing with the “backlash” by dropping out of the consumer space entirely. I’m not sure if this makes sense for Avid or not. Certainly the company believes it does, but to sell a division that contributes $91 million in revenue each year, for just $17 million (a ratio of five times earnings) isn’t exactly bold leadership.
The company’s cash balance on March 31, 2012 was $49.7 million. The proceeds from the sale of these product lines should offset most of the restructuring charges paid in 2012.
Now it should be kept in mind that Avid have had only one (mildly) positive quarter of the last 22 quarters. Fortunately most of the losses have been non-cash accounting losses, meaning that the $67 million Avid will now have “cash on hand” will keep them alive for another couple of years, even without the much-promised turnaround.
“The changes we are announcing today make Avid a more focused and agile company,” said Gary Greenfield, CEO of Avid. “By streamlining and simplifying operations, we expect to deliver improved financial performance and partner more closely with our enterprise and professional customers. Our objective remains to provide these customers with the innovative solutions that allow them to create the most listened to, most watched and most loved media in the world. I’m excited about our future prospects.”
With Avid’s niche – most definitely studio film and broadcast/cable television editing – rapidly becoming a small market compared with the explosion of editing for video that is now being done, doubling down on that market will either prove to be a focused, great move (as Gary Greenfield says), or will be the final push that moves Avid out of relevance in the NLE space.
Always remembering that NLE products have been a diminishing portion of Avid’s consolidated net revenue over the last couple of years: down now from 14% three years ago to just 12% now. The rest of the income is from services and “big iron” hardware that drives big media production facilities.