Avid Posts Q3 Loss, Announces Further Restructuring - Broadcasting & Cable

Avid Posts Q3 Loss, Announces Further Restructuring

Will unload Softimage 3D business, cut 20% of workforce.
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Editing and video storage supplier Avid posted a net loss for the third quarter of $66.4 million, or $1.80 per share, compared to a net lost of $5.9 million, or $.14 per share, for the same period in 2007. The Tewksbury, Mass.-based company also announced that it will be eliminating 500 positions, representing 20% of its overall workforce, as it continues to restructure under CEO Gary Greenfield, a turnaround specialist who joined Avid in late 2007.

Ninety of the positions to be eliminated come from Avid’s Montreal-based Softimage 3D animation business, which Avid has agreed to sell to Autodesk for roughly $35 million in a deal that should close by year-end. Avid originally acquired Softimage from Microsoft in 1998 for $285 million in cash and stock, but the division, which contributed about $4 million in revenues in the last quarter, is no longer considered a “strategic fit for our business,” says Greenfield.

The remaining 410 positions will come from all locations and departments of Avid. Avid will take a restructuring charge for the layoffs of roughly $21 to $24 million, says Chief Financial Officer Ken Sexton, which will most likely be recorded in the fourth quarter.

The net loss for the third quarter of 2008 included goodwill and intangible asset impairment charges associated with the 2005 Pinnacle acquisition, amortization, stock-based compensation, restructuring charges and related tax adjustments totaling $62.0 million.

“We remain committed to returning a new, leaner Avid to sustained profitability,” said Sexton in Thursday’s earnings call. Sexton also announced that due to the uncertain timing of the Softimage divestiture and other restructuring activities, Avid will not be providing financial guidance for the rest of 2008.

Greenfield said that Avid is seeing good takeup of the new editing products it announced last April, including new versions of its flagship Media Composer and NewsCutter editors. The company recorded $117 million in revenues for its professional video division for the quarter, down 1% compared to the same period a year ago.

Overall, Avid recorded $217.1 million in revenues for the third quarter, compared to $226.8 million for the same period in 2007. Revenue for the nine-month period ended September 30, 2008 was $638.2 million, compared to revenue of $671.1 million for the same period in 2007.

At September 30, 2008, Avid’s cash balance was $122.4 million, down $102.0 million since the end of 2007. During the first quarter of 2008, the company used $93.2 million in cash to repurchase 4.3 million shares of common stock under a previously-announced share buyback program.

The share buyback drew the ire of JP Morgan analyst Paul Coster during the earnings call, who called the Avid board’s decision to buy back shares before further restructuring “a bad mistake.”

When asked by another analyst about what impact Avid is seeing from the current economic downturn, Greenfield said that Avid hadn’t seen any change in plans from major networks, as there technology investment tends to be project-driven, such as building new studios.

However, Greenfield said that Avid is seeing an impact at the local station level, as call-letter stations are holding off on new capital investments. He noted that over-the-air advertising is down overall, particularly in the automobile category, and that local stations haven’t done as well as in previous election years because a good chunk of political dollars have gone to the Web. That creates uncertainty among local stations about spending money on new gear.

“They’re saying we don’t know, we’re watching,” said Greenfield.

In early trading Friday, Avid shares were down $3.11 to $13, a drop of 19.3%.

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