AVID TECHNOLOGY, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
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EXECUTIVE OVERVIEW
Company presentation
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 18 Emmy Awards, oneGrammy Award , two Oscars, and the first ever America Cinema Editors Technical Excellence Award. In 2018, Avid was named the recipient of the prestigiousPhilo T. Farnsworth Award by theTelevision 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.
Overview of operations
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 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. As ofSeptember 30, 2021 , we had approximately 389,000 paid subscriptions. Starting in the third quarter of 2021, subscription count includes all paid and active seats under multi-seat licenses. These licensing options offer choices in pricing and deployment to suit our customers' needs. Our subscription offerings to date have mostly been sold to creative professionals, 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. During the third quarter of 2021, Avid began implementing a Digital Transformation which focuses on optimizing systems, processes, and back-office functions with the objective of improving our operations related to our digital and subscription business. Over the next four years, we plan to significantly invest in transforming our enterprise-wide infrastructure and technologies to benefit customers and drive enhanced performance across the company. 20 --------------------------------------------------------------------------------
A summary of our sources of income for the past three and nine months
Three Months Ended
September
30,
Nine months ended
2021 2020 2021 2020 Subscriptions$ 28,008 $ 17,907 $ 74,384 $ 48,292 Maintenance 30,702 30,826 90,997 93,190 Subscriptions and Maintenance 58,710 48,733 165,381 141,482 Perpetual Licenses 5,678 8,972 18,596 21,165 Software Licenses and Maintenance 64,388 57,705 183,977 162,647 Integrated solutions 31,172 26,803 88,699 76,956 Professional services & training 6,080 5,923 18,204 16,562 Total revenue$ 101,640 $ 90,431 $ 290,880 $ 256,165
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 theWorld Health Organization . COVID-19 adversely impacted our business operations and results of operations for the year ended 2020. These economic impacts are the result of, but not limited to: â¢the postponement or cancellation of film and television productions, major sporting events, and live music events; â¢delays in purchasing and projects by our enterprise customers and channel partners; â¢disruption to the supply chain caused by distribution and other logistical issues, including disruptions arising from government restrictions; and â¢decreased productivity due to travel restrictions, work-from-home policies or shelter-in-place orders. Our results for the first nine months of 2021 reflect 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 vaccination and government stimulus programs, particularly in the US. At the same time, certain countries continue to face challenges with renewed lockdowns and travel restrictions and there remains uncertainty relating to the ongoing spread and severity of the virus and its variants. While we are encouraged by the trends we have seen so far in 2021, to the extent that the pandemic continues to have negative impacts on economies, our results could be 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" 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 endedDecember 31, 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. 21 --------------------------------------------------------------------------------
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) 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, 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 "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 inNorth America ,Europe , andAsia . 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 ofJanuary 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 prior credit facility, and the terms and geographic locations of our facilities.
See Note 5 âLeasesâ of our notes to the condensed consolidated financial statements in Part 1, Item 1 of this Form 10-Q for a more in-depth discussion of 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 endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net revenues: Product 36.3 % 39.6 % 36.9 % 38.3 % Services 63.7 % 60.4 % 63.1 % 61.7 % Total net revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 35.2 % 35.6 % 35.6 % 36.4 % Gross margin 64.8 % 64.4 % 64.4 % 63.6 % Operating expenses: Research and development 16.9 % 15.1 % 16.7 % 16.4 % Marketing and selling 24.0 % 22.1 % 22.9 % 25.4 % General and administrative 14.7 % 11.9 % 14.5 % 13.3 % Restructuring costs, net (0.1) % 0.8 % 0.3 % 0.4 % Total operating expenses 55.4 % 49.9 % 54.4 % 55.5 % Operating income 9.4 % 14.5 % 10.0 % 8.1 % Interest expense, net (1.6) % (5.0) % (1.9) % (6.0) % Other income, net 7.7 % 0.1 % 1.5 % 0.1 % Income before income taxes 15.5 % 9.6 % 9.6 % 2.2 % Provision for income taxes 1.0 % 0.8 % 0.6 % 0.6 % Net income 14.5 % 8.8 % 9.0 % 1.6 % 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 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 endedDecember 31, 2020 . Net Revenues for the Three Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Change 2020 Net Revenues $ % Net Revenues Products and solutions$ 36,850 $ 1,075 3.0%$ 35,775 Services 64,790 10,134 18.5% 54,656 Total net revenues$ 101,640 $ 11,209 12.4%$ 90,431 23
-------------------------------------------------------------------------------- Net Revenues for the Nine Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Change 2020 Net Revenues $ % Net Revenues Products and solutions$ 107,295 $ 9,174 9.3%$ 98,121 Services 183,585 25,541 16.2% 158,044 Total net revenues$ 290,880 $ 34,715 13.6%$ 256,165 The following table sets forth the percentage of our net revenues attributable to geographic regions for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 United States 44% 40% 43% 41% Other Americas 5% 5% 5% 6% Europe, Middle East and Africa 38% 42% 38% 39% Asia-Pacific 13% 13% 14% 14%
Products and solutions Turnover
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 increased$1.1 million , or 3.0%, for the three months endedSeptember 30, 2021 , and increased$9.2 million , or 9.3%, for the nine months endedSeptember 30, 2021 , compared to the same periods in 2020. The increase for the three and nine months endedSeptember 30, 2021 was primarily due to higher sales as a result of the economy recovering from the COVID-19 pandemic, which negatively impacted products and solutions revenues in 2020 for the reasons discussed above under "Executive Overview - Impact of COVID-19 on Our Business."
Service revenues
Services revenues are derived primarily from maintenance contracts, subscription services, and professional services and training. Services revenues increased$10.1 million , or 18.5%, for the three months endedSeptember 30, 2021 , and increased$25.5 million , or 16.2% for the nine months endedSeptember 30, 2021 compared to the same periods in 2020. The increase for the three and nine months endedSeptember 30, 2021 was primarily due to increased subscription services and professional services as a result of the economy recovering from the COVID-19 pandemic, which negatively impacted products and solutions revenues in 2020 for the reasons discussed above under "Executive Overview - Impact of COVID-19 on Our Business."
Cost of revenue, gross margin and percentage of gross margin
Cost of revenues consists primarily of costs associated with: â¢procurement of components and finished goods; â¢assembly, testing and distribution of finished products; â¢warehousing; â¢customer support related to maintenance; â¢royalties for third-party software and hardware included in our products; and â¢providing professional services and training. 24
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Revenue costs and gross profit
Costs of Revenues and Gross Profit for the Three Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Change 2020 Costs $ % Costs Products$ 20,468 $ (489) (2.3)%$ 20,957 Services 15,269 4,052 36.1% 11,217 Total cost of revenues$ 35,737 $ 3,563 11.1%$ 32,174 Gross profit$ 65,903 $ 7,646 13.1%$ 58,257 Costs of Revenues and Gross Profit for the Nine Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Change 2020 Costs $ % Costs Products$ 60,044 $ 1,171 2.0%$ 58,873 Services 43,379 9,057 26.4% 34,322 Total cost of revenues$ 103,423 $ 10,228 11.0%$ 93,195 Gross profit$ 187,457 $ 24,487 15.0%$ 162,970 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 endedDecember 31, 2020 . Our gross margin percentage for the three months endedSeptember 30, 2021 increased to 64.8% from 64.4% and for the nine months endedSeptember 30, 2021 increased to 64.4% from 63.6%, compared to the same periods in 2020. These increases were primarily due to increased products and subscription revenue as a result of higher volumes, slightly offset by the increase in our stock based compensation expense and reduction in professional services revenue while maintaining the same cost structure. Gross Margin % for the Three Months Ended September 30, 2021 and 2020 2021 Gross 2020 Gross Margin % Change Margin % Products 44.5% 3.1% 41.4% Services 76.4% (3.1)% 79.5% Total 64.8% 0.4% 64.4% 25
-------------------------------------------------------------------------------- Gross Margin % for the Nine Months Ended September 30, 2021 and 2020 2021 Gross 2020 Gross Margin % Change Margin % Products 44.0% 4.0% 40.0% Services 76.4% (1.9)% 78.3% Total 64.4% 0.8% 63.6%
Operating expenses and operating income
Operating Expenses and Operating Income for the Three
Ended months
(dollars in thousands) 2021 Change 2020 Expenses $ % Expenses Research and development$ 17,129 $ 3,506 25.7%$ 13,623 Marketing and selling 24,413 4,415 22.1% 19,998 General and administrative 14,901 4,105 38.0% 10,796 Restructuring costs, net (88) (811) (112.2)% 723 Total operating expenses$ 56,355 $ 11,215 24.8%$ 45,140 Operating income$ 9,548 $ (3,569) (27.2)%$ 13,117 Operating Expenses and Operating Income for the Nine Months
Ended
(dollars in thousands) 2021 Change 2020 Expenses $ % Expenses Research and development$ 48,639 $ 6,523 15.5%$ 42,116 Marketing and selling 66,511 1,534 2.4% 64,977 General and administrative 42,214 8,070 23.6% 34,144 Restructuring costs, net 1,001 (7) (0.7)% 1,008 Total operating expenses$ 158,365 $ 16,120 11.3%$ 142,245 Operating income$ 29,092 $ 8,367 40.4%$ 20,725
Research and development costs
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 increased$3.5 million , or 25.7%, for the three months endedSeptember 30, 2021 and$6.5 million , or 15.5%, for the nine months ended 26 --------------------------------------------------------------------------------
Change in R&D Expenses for the Three Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Increase From 2020 $ % Personnel-related 1,615 18.4 % Facilities and information technology 878 35.7 % Consulting and outside services 645 32.3 % Other 368 92.4 % Total R&D expenses decrease$ 3,506 25.7 % Change in R&D Expenses for the Nine Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Increase From 2020 $ % Personnel-related 3,585 13.7 % Facilities and information technology 1,484 18.9 % Consulting and outside services 536 7.8 % Computer hardware 480 55.4 % Other 438 124.5 % Total R&D expenses decrease$ 6,523 15.5 % The increase in facilities and information technology expenses and personnel-related expenses for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily the result of the wind-down of our employee furlough program, which was implemented in the second and third quarters of 2020 to reduce costs in response to COVID-19. The increase in consulting and outside services for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily the result of increased use if external contractors utilized for research and development efforts. The increase in computer hardware and other expenses for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily the result of increased hardware purchases to aid in the testing of our new product developments and prototypes.
Marketing and sales costs
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 increased$4.4 million , or 22.1%, for the three months endedSeptember 30, 2021 , and increased$1.5 million , or 2.4%, for the nine months endedSeptember 30, 2021 , compared to the same periods in 2020. The tables below provide further details regarding the changes in components of marketing and selling expenses. 27 --------------------------------------------------------------------------------
Change in marketing and sales expenses for the three months ended
(dollars in thousands) 2021 Increase From 2020 $ % Personnel-related 2,120 14.1 % Advertising and promotions 819 633.8 % Consulting and outside services 908 117.6 % Foreign exchange (gains) and losses 534 769.2 % Other 34 0.1 % Total marketing and selling expenses decrease$ 4,415 22.1 %
Change in marketing and sales expenses for the nine months ended
(dollars in thousands) 2021 Increase (Decrease) From 2020 $ % Personnel-related 4,481 10.0 % Facilities and information technology (1,556) (13.5) % Advertising and promotions 1,182 108.8 % Foreign exchange (gains) and losses (204) (20.1) % Consulting and outside services (794) (21.2) % Other (1,575) (59.1) % Total marketing and selling expenses increase$ 1,534 2.4 % The increase in personnel-related expenses for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily due to an increase in salary expense as a result of the furlough program and reduced travel expenses in the 2020 periods in response to the COVID-19 pandemic. The increase in advertising and promotions expenses for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, were primarily the result of resuming our programs that were paused in 2020 in response to COVID-19. The increase in consulting and outside services for the three months endedSeptember 30, 2021 are primarily due to an increased used of in external contractors to provide marketing and promotional support as well as assist in our digital transformation initiative. The decrease in consulting and outside services for the nine months endedSeptember 30, 2021 was due to the cancellation of certain trade shows and internal meetings in 2021, which still took place during Q1 2020 before the COVID-19 pandemic began. The decrease in facilities and information technology and other for the nine months endedSeptember 30, 2021 was primarily the result of a one-time bad debt expense in 2020 and a decrease in our facilities related costs as we continue to decrease our footprint. The change in foreign exchange translations for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was due to foreign exchange gains and losses 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 increased$4.1 million , or 38.0%, for the three months endedSeptember 30, 2021 , and increased$8.1 million , or 23.6%, for the nine months endedSeptember 30, 2021 , compared to the same periods in 2020. The tables below provide further details regarding the changes in components of G&A expenses. 28 -------------------------------------------------------------------------------- Change in G&A Expenses for the Three Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Increase From 2020 $ % Personnel-related 1,595 26.8 % Consulting and outside services 1,430 75.9 % Other 1,080 36.5 % Total G&A expenses increase$ 4,105 38.0 % Change in G&A Expenses for the Nine Months Ended
(dollars in thousands) 2021 Increase (Decrease) From 2020 $ % Personnel-related 4,306 25.1 % Consulting and outside services 2,472 32.0 % Facilities and information technology (1,161) (20.1) % Other 2,453 67.2 % Total G&A expenses decrease$ 8,070 23.6 % The increase in personnel-related expenses for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily due to increase in salary expense as a result of our furlough program and reduced travel expenses in the prior year in response to the COVID-19 pandemic. The increase in consulting and outside services and other for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily a result of resuming our programs that were previously paused in response to COVID-19. In addition, we have incurred expenses in 2021 related to our share repurchase program, business development activities, and our digital transformation initiative. Provision for Income Taxes Provision for Income Taxes for the Three Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Change 2020 $ % Provision for income taxes$ 991 $ 284 40.2%$ 707 Provision for Income Taxes for the Nine Months Ended September 30, 2021 and 2020 (dollars in thousands) 2021 Change 2020 $ % Provision for income taxes$ 1,832 $ 286 18.5%$ 1,546 The changes in the tax provision for the three month and nine-month periods endedSeptember 30, 2021 compared to the same periods in 2020 were driven primarily by changes in income before income taxes and the jurisdictional mix of earnings. No provision or benefit was provided inthe United States due to a full valuation on its deferred tax asset. 29 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and sources of liquidity
Our principal sources of liquidity include cash and cash equivalents totaling$50.5 million as ofSeptember 30, 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. In quarter endedSeptember 30, 2021 , we committed to a digital transformation initiative focused around modernizing our enterprise-wide infrastructure and technologies to benefit our customers and drive enhanced performance across the company. Over the next four years we plan to invest significant funds and resources towards implementing these new technologies. OnJanuary 5, 2021 , we entered into the Credit Agreement withJPMorgan Chase Bank, N.A . and a syndicate of banks, as collateral and administrative agent, and the Lenders. Pursuant to the Credit Agreement, the Lenders agreed to provide us with the Term Loan and the Credit Facility. We borrowed the full amount of the Term Loan, or$180.0 million , on the closing date, but did not borrow any of the$70.0 million available under the Credit Facility on the closing date. The proceeds from the Term Loan, plus available cash on hand, were used to repay outstanding borrowings of$201.0 million under the Company's prior credit facility withCerberus Business Finance, LLC , which was then terminated. Prior to the 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, 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 (x) consolidated total indebtedness minus liquidity maintained inthe United States up to$25 million to (y) consolidated EBITDA, not to exceed 4.00 to 1.00 for the fiscal quarters endingMarch 31, 2021 throughJune 30, 2021 ; 3.75 to 1.00 for the fiscal quarters endingSeptember 30, 2021 throughDecember 31, 2021 ; 3.50 to 1.00 for the fiscal quarters endingMarch 31, 2022 throughJune 30, 2022 ; 3.25 to 1.00 for the fiscal quarters endingSeptember 30, 2022 throughDecember 31, 2022 ; and 3.00 to 1.00 for fiscal quarters ending on or afterMarch 31, 2023 . The Company is also required to maintain a fixed charge coverage ratio not less than 1.20 to 1.00 at the end of each fiscal quarter ending on or afterMarch 31, 2021 . The Credit Agreement's fixed charge coverage ratio is generally defined as the 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 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 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 may be affected and uneven by these developments for at least the balance of 2021. To address actual and expected reductions in net revenues, we have continued to keep our discretionary spending low. 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, or (iv) disposing of certain assets or businesses. 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 covenants and are unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Credit Agreement, which could permit acceleration of the outstanding indebtedness under the 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 Credit Agreement. OnMay 11, 2020 , we received$7.8 million of proceeds in connection with our incurrence of a loan under the PPP. The loan had a fixed interest rate of 1% and was to mature onMay 11, 2022 . Interest payments are deferred until a forgiveness decision is returned by the SBA. Pursuant to the CARES Act and implementing rules and regulations, we applied to the SBA for the full 30 -------------------------------------------------------------------------------- amount of the PPP loan to be forgiven. OnJuly 6, 2021 , the Company received notification from the Lender that the SBA approved the Company's PPP loan forgiveness application for the entire PPP loan balance of$7.8 million plus all accrued interest. The forgiveness of the PPP loan was recognized during the period endingSeptember 30, 2021 within other income on our Statement of Operations. Our cash requirements vary depending on factors such as the growth of the business, changes in working capital, and capital 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 constantly evolving. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.
Cash flow
The following table summarizes our cash flows for the periods presented (in thousands):
Nine months ended
2021 2020 Net cash provided by operating activities $ 35,418$ 8,843 Net cash used in investing activities (4,750) (5,619) Net cash used in financing activities (59,156) (24,313)
Effect of exchange rates on cash, cash equivalents and restricted cash
(927) 1,394
Net decrease in cash, cash equivalents and restricted cash $
(29,415)
Cash flow from operating activities
Cash provided by operating activities aggregated$35.4 million for the nine months endedSeptember 30, 2021 . The increase in cash provided by operations compared to the nine months endedSeptember 30, 2020 was primarily due to an increase in revenue and a change in working capital.
Cash flow from investing activities
For the nine months endedSeptember 30, 2021 , net cash flows used in investing activities reflected$4.8 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 flow from financing activities
For the nine months endedSeptember 30, 2021 , net cash flows used in financing activities were primarily the result of our stock repurchase program and our common stock repurchases for tax withholdings for net settlement of equity awards. In addition, we paid down$28 million on our term loan as part of our refinancing activity inJanuary 2021 .
RECENT ACCOUNTING POSITION STATEMENTS
Recently adopted accounting positions and recent accounting positions to be adopted
Our recently adopted and to be adopted accounting positions are presented in note 1 âFinancial informationâ of our notes to the unaudited condensed consolidated financial statements in part I, item 1 of this form 10-Q.
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