Q4 2019 Earnings Call
Thank you. Good afternoon, everyone and thank you for joining us today for Avid technology fourth-quarter and full-year 2019 earnings call. My name is Whitney. It's vice president for corporate wage and investor relations with me this afternoon or Jeff Rosetta our chief executive officer and president and Ken gear on our Chief Financial Officer and EVP and they're prepared remarks. Jeff will provide an overview of our business and then Ken will provide a detailed review of our financial and operating results followed by time for your questions.
We issued our earnings release earlier this afternoon and we have prepared a slide presentation that we will refer to on this call the press release and presentation are currently available on our website at 6. And the replay of this call will be available on our website for a limited time.
During today's call management will reference certain non-gaap Financial metrics and operational metrics in accordance with regulation G both the appendix to our earnings release today and our investor website contain a Reconciliation of the most closely associated gaap financial information to the non-gaap measures and also definitions for the operational measures used on this call and in the presentation unless otherwise noted all figures noted by management during the call our non-gaap figures.
Certain statements made during today's presentation contains forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995 are comments and answers to your questions on this call, as well as the accompanying slide that may include statements that are forward-looking and that pertained the future results or outcomes actual future results or occurrences, May differ materially from these forward-looking statements for more information including a discussion of some of the key risks and uncertainties associated with these forward-looking statements. Please see our press release issued today and our 10-K for the year ending December 31st, 2019 filed with the SEC with that let me turn the call over to our CEO and president geoffroy for his remarks and thanks everyone for joining us today to review average wage or and pull your 2019 goals along with average CFO can Garen in our prepared remarks will discuss the improved trajectory of our business and the key achievements resulting from the Strategic plans first lay down.
fire leadership team
2018 including significant new product deliveries throughout the year marketing Innovation with our customers as well as improvements and how we're executing our business will also discuss how these accomplishments off into our plans give us confidence that will make further progress in 2020 and Beyond I'll begin with my key takeaways for Q4 and 2019 overall in 2915 average higher profitability and drove very positive momentum in several areas including continued growth in high-quality recurring revenue streams that are strategically important to the business going forward, including subscriptions maintenance and long-term agreements our progress last year was driven by our continued focus on enhancing our already strong position with our customers and by realizing new opportunities to our pipeline of innovative new products deliveries and expansion of our subscription offerings to all customers the subscription momentum that we saw in H2 and which we expect to continue into. Yep.
20 has been driven by the investor.
Is we're making in refreshing our core creative software.
Are improving trajectory continued to be well supported by high growth rates in new paid users subscriptions for our creative tools media composer Pro Tools and sibelius which were at approximately a chef 88,000 at year-end an increase of about seventeen thousand users in Q4 and 40,000 users in the second half of the Year during Q4 several Enterprise customers also adopted subscription licensing for these products part of our subscriptions expansion strategy, which we view as a promising development for the longer-term growth trajectory of subscriptions over all the maintenance business also performed well and continued to show underlying strength during Q4, excluding the headwind of ending the sale of service contracts on certain Legacy storage systems at the end of 2018 and non-cash related maintenance revenues. We actually recorded year-over-year growth of 2.6% in the quarter for maintenance in addition Abbott's Integrated Solutions category.
made Solid Revenue
Options across categories including media storage servers and Graphics to our focus on delivering Innovations for Music Creation and professional audio including enhancements to the Integrated Solutions Palm. Oh, you're released in 2019. We made significant strides in capturing New Opportunities and growing market share in recording mixing and live sound. I'm pleased to say that our product strategies returned our audio business to growth and I will remind you that we're just getting started in refreshing this portfolio to drive further growth and improve profitability in the segment of our business.
We have also started to see the benefits from the transition of our supply chain, which stabilized and the new factories fully supported our production needs for Q4 including bringing into full production major issue products in the quarter. This is obviously good news for the company coming out of the difficulties. We had a supply chain transition earlier last year as such during the first half of 2020. We took to achieve significant levels of both cogs and Optics savings from our supply chain improvements. Additionally, we expect to benefit from reductions and working capital levels primarily related to inventory levels over the course of twenty twenty. Our sales was larger Enterprise media companies performed well in Q4 for fighting solid growth versus the same quarter last year as well as significant sequential Improvement month sales a small to medium-sized Enterprises improved sequentially, but we're flat year-over-year.
what we experienced some
Can you add softness and our Enterprise platform software sales of our production graphics and video Service Solutions were up year-over-year and sales of storage was quite solid and delivered sequential quarterly grown, but basically flat year-over-year going forward while we see an improving situation with Enterprise customers. We believe that we may continue to encounter occasional lumpiness in this customer segment Palm Coast margin was up substantially year-over-year from Iowa driven by our new products and an improvement mix as well as benefiting from the cost structure improvements from our smart savings initiatives, which are dramatically improve our profitability metrics.
From a regional perspective. We saw further strengthening in both Amy and a pact with both regions delivering strong results across the year. Additionally while America's was challenged throughout most of 2019 the region did return to growth in Q4.
Overall, I'm pleased with the progress we made for the full year and carries the business but we remain focused on ways. We can continue the Improvement. We're continuing to work toward achieving the right cost and margin structure to position going forward average software subscription business again delivered impressive results as a Cornerstone of our business strategy. We are heartened by the consistently strong performance of this part of our our software subscriptions were up 50% year-over-year in Q4 as mentioned earlier and have it had about a hundred eighty eight thousand paid subscriptions at your end wage strong both in new users across all of our creative products are midyear introduction of many closer 2019 was well-received and helped Drive additional subscription growth on top of the continued strong performer of the other products in the sweet. We're particularly pleased to report that Q4 was the second consecutive quarter of accelerated subscription subscriber growth with an overall growth in subscriptions of about 17.
thousand and this and that this except
Pretty gross occurred following the price increases we implemented at the end of Q2 2019. Our subscription buildings were up over all by 66% year-over-year in Q4 this grow up in use to track subscriptions and reflects the Leading Edge of subscriptions option by Enterprise customers with three Enterprise, uh, three Enterprises adoptions description licensing for their business in the quarter month subscription. Revenue was up 54% year-over-year in Q4 closely tracking the growth in subscriptions. We continue to be greatly encouraged by the performance resulting from our subscription strategy and expect this strong subscription Trend to continue in twenty-twenty as we expand our Enterprise subscriptions offerings and our sales efforts as well as from the continued Healthy Growth that we continue to Thursday for the individual creative professional segment.
Moving on to the highlights of average Q4 performance. We continue to demonstrate that our plans and strategic changes have made a meaningful contribution toward improving performance in our key metrics month total revenue in the fourth quarter was up 3.2% year-over-year anybody in from ongoing growth in our creative software subscriptions business and our audio Integrated Solutions business and continue age relative strength in our maintenance business the combined subscription and maintenance Revenue was up 10.3% year-over-year as the fast growth in subscription Revenue far exceed any headwinds outlined previous life in our maintenance revenues LTM recurring Revenue Grew From 56% at the end of 2018 the 62% at year end so are making good progress towards our longer-term charge a cheating 70% or greater recurring Revenue as outlined at our recent investor date.
non-gaap gross
Improved to 63.2% in the fourth quarter represent an increase of 240 basis points as we saw gross margin Improvement in hardware and Professional Services. I'm pleased that wage significant progress in our margin Improvement programs ahead of fully realizing the complete benefits of our supply chain transition improvements.
Among the factors contributing to our queue for performance was average strong attraction with Enterprise customers. Some of the key wins included The Finnish National broadcaster Wiley was chose media-centric wage and the New Media composer Enterprise Edition to support their roughly 500 end users across the group as well the television network al-arabiya which selected an avid media composer Thursday. We just Central Cloud ux Nexus and other Avid products in replacement of a key competitors Newsroom system and at La film school. They signed a multi-year subscription agreement to bring tools immediate goals are to its students.
Our full-year 2019 performance, especially through growth and our recurring Revenue.
Highlights the growing resilience of our organization in responding to the difficulties that can arise in our business including typical industry seasonality and challenges resulting from the comprehensive supply chain application that we executed on last year total revenue in 2019 was relatively flat year-over-year as a shrink. We saw in subscriptions and Audio Solutions were moderated by the time we faced in certain areas, including Hardware maintenance special services and the impact of foreign currency Revenue was down 4% in 2019 on a constant currency basis our total revenue for 2019 grew 1% gross margin improved the 61.5% on a full year basis of 170 basis points year-over-year on favorable mix ship software and the initial benefits of our supply chain improvements as well as positive impacts from higher-margin new products introduced in the year.
It just leave it was $56 for the year up nearly 18% over 2018 primarily benefiting from improved gross margin as well as lower operating expenses due to our smart saving if free cash flow increased by 112% year-over-year to 12.5 million as we continue to work to improve the free cash flow conversion from adjust the attack took believe that we will continue to deliver improved free cash flow conversion during 2020.
That income per share was $0.51 for the year an increase of $0.26 / 2018 reflecting the improvements and our operating performance during 2019. And on a gaap basis, we had that income per share of $0.17 our first full year of profitability since 2016 and our first year with both gaap profitability and positive free cash flow since 2012 or 2019 performance supports our confidence in the performance trajectory of the business to deliver more profitable recurring revenue and more sustainable growth. Ken will provide additional detail on the quarter of a full year in his prepared remarks. I'm pleased that have it has entered twenty-twenty with significant momentum resulted from the execution of our long-term strategic plans are focused on improving our operational execution and our delivery of new products to which the market has responded quite positively I'd like to take a moment here to comment on the mid nineteen outbreak, which is impacted so many around the world wage.
First concern is to do what we can.
In order to ensure the safety and well-being of our community including especially our employees while we continue to proceed as usual with our business. We're also executing on a practice plan and taking proper cautionary measures including potentially adjusting Avid strategy for hosting and participating in major industry conferences and other events in the near-term.
Overall, we remain optimistic about the long-term demand for our products and solutions that said while we do not currently see any material impacts of the business today the rapidly evolving coronavirus situation could result in negative impacts to short-term demand for the product side of our business that are non-recurring in nature, which we feel we have factored into our q1 guidance at this point. We don't see any significant supply chain issues related to our manufacturing plans as we've now completed moved from our previous supply chain Partners in China and Thailand to our new partners in Mexico and the United States off again while there is a potential for the evolving code 19 situation to create disruptions for parts of our business. We currently remain optimistic about 20 20 overall, especially in light of our high-quality wage revenue streams, including our subscription business, which we believe will continue to show very strong growth in 2020 our maintenance business, which we believe will continue to be relatively stable and long-term agreement wage.
Enterprise customers and partners which we expect will continue to expand We Believe continued growth in these high-quality revenue streams will drive improve margins.
Agar main focus on driving efficiencies in our operations from a cost perspective or continuing to work on our on further operational and cost efficiencies additionally with a good progress on average time transitioning to 4. We're now poised to read more of the financial and operational benefits from that strategy in 2020. Thus we anticipate significant Improvement in adjusted ebitda off cash flow conversion and therefore greater free cash flows in 2020 during 2019. Abdun veiled released a range of brand new products and major enhancements to Art category wage being Solutions. We dramatically stepped up our Innovation for the professional audio Community to help them do their best work and return audio business to growth in Q4. We ramped up shipments of our new home audio control surface and launch our new lower-cost S1 audio control surface. Then at The NAMM Show at the beginning of 2020. We debated a number of new integrated Audio Solutions and enhanced version.
For software creative tools several which are entering the market this quarter encouraged by this progress. We're accelerating our pace of product Innovation to continue to benefit customers of all types and building in Chrome strong engine to help fuel average growth. Additionally. We are increasingly enthusiastic about the long-term prospects from Enterprise customers, moving their media production operations into the cloud and SAS Thai Palm. We continue to to expect modest near-term growth among those looking to become early adopters of cloud-based workflows for their feature films and T shows archiving another business critical applications. Just create a market-leading position based on our initial commercial success and pilot appointments at several large media organizations. All of these factors make our management team wage board confident both an average present position and our expectations for this year and Beyond based on consistently profitable and predictable financial model built on growing recurring revenue streams. So with birth
I'll hand the call over to the average. CFO can get run to share details behind our key for a full year 2019.
Performance and our outlook for 2020 so over to you again. Thank you Jeff in good afternoon. Everyone as noted above Jeff and I are referring to non-gaap figures unless noted overall. We are pleased with the progress in business model as we exit 2019 our focus in 2020 will be to continue to drive higher quality recurring Revenue all improving gross margin and profitability through aggressive promotion of our creative subscription software tools selective price increases across our portfolio of products and connect you to focus on driving efficiencies in our cost structure. We expect these efforts to result in continued improvement in our key financial metrics, including stronger free cash flow conversion and 20,000 in subsequent years with that. Let's now get into the details of our fourth quarter Financial results.
Gap Revenue was 116.3 Million during the fourth quarter up, 3.2% year-over-year primarily from strength and subscriptions in audio Hardware, as well as stabilizing maintenance and improvements and storage and Graphics combined subscription and maintenance Revenue was 49.3 Million up 10.3% year-over-year as the 54% growth rate in subscription Revenue far exceeded the decline in maintenance Revenue, excluding the decline in maintenance from the Sun setting Legacy storage systems at the end of 2018 maintenance. Revenue would have been up 2.6% sequentially maintenance Revenue stabilized and was flat at thirty three point four million for the fourth quarter.
during
The fourth quarter of the supply chain recovered from the challenges we face in the third quarter as the new contract manufacturer based in Mexico, when we brought on board earlier in 2019, am able to fully meet the demand during the fourth quarter during the quarter. We launched production of the new S10 control surface and ramp the production of the new S4 audio control surface introduced at the end of the third quarter. We look forward to achieving additional cost benefits and improvements in working capital levels from the supply chain transition as we move forward into twenty gross margin was 63.2% for the fourth quarter up 240 basis points year-over-year. The increase was due to a more favorable Revenue mix of a margin subscription and maintenance Revenue a 440 basis-point Improvement in Integrated Solutions, gross. Margin that benefited from supply chain transition and overall mix dead.
Plus a $500.
a basis point Improvement in Professional Services gross margin
Operating expenses for the quarter or fifty four point four million a four point two million dollar increase over fourth quarter of 2018. The increase in operating expenses was due to age increased investment in R&D to support our twenty-twenty product roadmap increase Web Store transaction fees of approximately $700,000 driven by higher subscription involved in our expanding e-commerce business higher sales commissions of approximately 1 million dollars in the quarter related to strong fourth-quarter sales performance in our Europe and a pack markets and a good point six million dollar increase in bonus accrual quarter-over-quarter as the fourth quarter of 2018 had a bonus accrual credit while the fourth quarter of 2019 had bonus expense due to be improved performance during the quarter. We believe the higher year-over-year bonus in sales commissions are temporary anomalies in our fourth quarter expenses will not reoccur in the first quarter of 2012.
I just
Ebitda was strong at twenty one point two million in the quarter reflecting a margin of 18% in which was down slightly year-over-year non-gaap. Net income per share was $0.28 for the fourth quarter flat year-over-year free cash flow in the quarter was roughly flat to last year free cash flow in the fourth quarter was impacted by the timing of Billings during the month that resulted in elevated level of accounts receivable at year-end. If not for the timing of these Billings We Believe free cash or would have been two to four million dollars higher in the quarter now to fiscal 2019 results.
Gap Revenue was 411.8 million and 2019 down 2.4% year-over-year as growth in subscriptions and Integrated Solutions or offset by deadlines and maintenance and Professional Services as well as from FX headwinds due to the relative strength of the u.s. Dollar versus the Euro and pound during the year on a constant currency basis red and 2019 was up 1% year-over-year. Also, when you exclude the impact in non-cash Revenue in from Sun setting of our maintenance formulated to our Legacy Storage a business overall, Revenue would have been up 1.8% combined subscription and maintenance Revenue was 175.6 Million up 2.3% year-over-year as the benefits off the 26% growth in subscription Revenue, exceeded the impact of the 6% decline in maintenance Revenue due mainly to the Legacy Storage end of service issue discussed above wage.
putting the sunsetting of our Legacy store
Non cash Revenue mentioned previously subscription and maintenance Revenue in 2019 was up 5.8%
gross margin was 61.5% for the year up 170 basis points year-over-year. The increase was due primarily to 140 basis point increase in software and maintenance gross. Margin 110 basis point Improvement Integrated Solutions, gross. Margin, which benefited from the supply chain transition in a 610 basis-point Improvement in Professional Services with Martin.
Operating expenses for the area or two hundred six point six million five point 1 million lower than 2018 the Improvement in operating expenses are primarily due to the benefits of the smart save program adjusted. Ebitda was $56 for the year up 18% adjusted ebitda benefited from higher gross margin and Improvement in operating expenses non-wage income per share with $0.51 for the year up twenty-six cents or 104% year-over-year as the improvements in gross margin and operating expenses benefited our non-gaap net income.
free cash flow with
12.5 million and 2019 up 112% somewhere the increase in non-gaap. Net income free cash flow benefited from the Improvement and operating income now moving to the composition of our Revenue in the fourth quarter revenue from subscriptions was 15.8 Million up 54% year-over-year earlier in 2019 subscription Revenue growth on a year-over-year basis was negatively impacted as a result of higher reserves taken against certain subscription revenues starting at the end of 2018 and the fourth quarter of the year-over-year comparisons normal life and subscription Revenue growth more closely match the subscription license grow moving forward. We expect subscription Revenue growth too closely track subscription license growth. We added over 17,000 subscriptions for our creative software Solutions during the fourth quarter in our total subscription now exceeds hundred eighty-seven thousand media composer and song.
tool subscriptions
Both grew by more than 50% year-over-year Additionally the price increases we Implement in the third quarter have had the intended effect of influencing customers to select annual paid up from the contracts, which we believe are higher-quality Revenue stream for Avid one compared to monthly paid subscriptions. We have seen the share of annual paid upfront subscriptions increased to above 15% of the total revenues in the share of months and months subscriptions decreased to below 14% at the end of the fourth quarter from a cash perspective Billings for subscription price increase 66% year-over-year in the fourth quarter above the growth rate in subscriptions due in part to the price increases in the third quarter in the increase in customers who are selecting an agent paid upfront contracts.
Pause subscription Revenue continues to grow Perpetual license Revenue was down 3.4 million year-over-year due to weakness and media Central Perpetual sales into a month of our customers selecting subscriptions rather than Perpetual licenses for our creative software products in the fourth quarter of 2018 media Central Perpetual Revenue had been favorably I acted buy a new feature release in the third quarter of 2018 benefiting fourth quarter 2018 media Central Revenue additional product enhancements to media center of a payment for 2020 which should benefit our media Central Business in that time. Maintenance. Revenue was thirty three point four million during the fourth quarter flat sequentially and down 2.7% year-over-year. We are starting to see the re-emergence of the underlying trend of increasing installed base of product and hardware and software products as well.
elective price increases that
Took effect in July to build the maintenance Revenue base, but we should also continue to see some impacts of the end of support for the Legacy storage systems Solutions continued off and then the slowly declining non-cash Revenue that comes through the maintenance line, excluding a non-cash revenue in the Legacy Storage maintenance Revenue discussed above maintenance Revenue grew 2.6% per year in the fourth quarter.
Gross margin on software licenses and maintenance was 85.6% in the quarter up 30 basis points year-over-year. The company's Hardware integrated software Revenue recovered strongly in the wage order and was Fifty Point three million in the quarter up 6.3% year-over-year and up 16.1 million. Sequentially this Revenue line benefit for the strength in our audio Hardware products choosing the new S one and S4. Audio control surfaces in the improved performance of the new supply chain partner as well as the sequential recovery and storage and Graphics products gross margin from The Hearth products and integrated software was 43.1% in the fourth quarter up 440 basis points, cuz the higher production volumes better absorbed manufacturing overhead in the quarter the balance of our Revenue comes from a Professional Services business Professional Services. Revenue was seven point two million in the fourth quarter down 8% year-over-year as we are being more strategic and selective in the Professional Services business wage.
board gross margin on professional
Services was 18.8% in the quarter cup 520 basis points year-over-year.
Now looking at 2019 on a year-over-year basis and 2019 revenue from software subscriptions was 45.2 Million up 26% as the full year 2019 result was compacted by the revenue Reserve change discussed above during the year. We added 62,000 subscriptions for Creative software Solutions, and we saw the rate accelerate during the week from 10 to $12,000 per quarter and the first half of the year two Seventeen to twenty $2,000 per quarter in the second half of the year. We expect to see quarterly variation in the number of new subscriptions based on the multiple factors, including timing of new releases seasonal buying patterns and promotions.
Maintenance Revenue was 130.4 million and 2019 down 6.3% Year-over-year. The Legacy Storage impact was 6.9 million and the impact from wage increasing on cash. Revenue was one point seven million. We see both issues having a much smaller impact than 20/20 excluding these two factors maintenance Revenue was flat in 2019 compared to 2018 till subscription and maintenance Revenue increased by 4% in 2019 as a subscription growth exceeded the maintenance decline while subscription rep continues to grow Perpetual license Revenue was down 3.5 million year-over-year due to a portion of customers selecting subscriptions rather than Perpetual licenses for our creative software product gross margin from software license and maintenance was 85.6% during 2019 up 140 basis points over 2018.
the company's hard
An integrated software Revenue was 172.5 million and 2019 up 5.7 million you over a year or 3.5% benefiting from the strength of audio Hardware products as well as your over your improvements in both storage and graphics.
Gross margin from the hardware products and integrated software with 39.9% in 2019 up 110 basis points over 2018 as the benefits from the supply change region transfer start to be visible in the fourth quarter after being a drag on gross margin in the third quarter Professional Services Revenue was 28.7 and 2019 down 4.4 months or 13% year-over-year as we are being more strategic and selective in our Professional Services business gross. Margin. Our Professional Services was 14.8% in 2019 up 610 basis points year-over-year. We generate approximately 45% more gross margin dollars from our Professional Services business in 2019 than the prior-year do to improve scoping in business selection.
now moving to
Recurring revenue and a CV the percentage of our revenue does recurring continues to steadily increase with a 12 months ending December thirty first, nineteen sixty 2% of the total revenue was roaring from 56% in the 12 months ending December Thirty One 2018 recurring Revenue percentage increase due to increase subscription Revenue in Revenue under long-term agreements with feeding the decline in our maintenance Revenue stream. We expect recurring Revenue percentage to continue increasing over time given that growth we're seeing in subscriptions and our focus of adding new long-term agreement and we believe will be well on our way to achieving 7% recurring Revenue in the next several quarters annual contract value was $200 million at the end of the fourth quarter of up 13% year-over-year benefiting from our strategy to focus on higher-margin software subscriptions and long-term agreements and from stabilizing maintenance Revenue.
Now moving to the balance sheet at December Thirty One 2019. We had a cash balance of 69.1 million up from 52.3 million at the end of Q3 2019 and up thirteen million from the fifty six point 1 million at the end of 2018 cash balance increased due to free cash flow during the year offset and part by debt repurchases and refinancing cause we ended the year with 73.8 million of accounts receivable up six million from the from the period ended 2018 do the timing of Billings during the fourth quarter bath inventory was 29.2 Million at the end of the fourth quarter down three million from September 30th and down 3.8 million over December Thirty One 2018 inventory legs were down during the initial benefits from the supply chain transition. We expect inventory levels to continue to move down over the next few quarters as our new manufacturing partner reaches volume production wage.
we take advantage of the new leads of
by change
contract assets increased three million during 2019 to 19.5 million primary from the increase in annual paid monthly subscriptions deferred revenue was ninety-seven point nine million at December $31.29 down 1.7 million from December Thirty One Hundred 2018. Due to decreases of four point nine four point five million in I PCS non-cash to program in four million in Professional Services to program new offset in part by increases of 6.2 million in maintenance deferred revenue and $400,000 in product and subscription. Mm Revenue
At the end of 2019 long term debt was $199 million down six hundred thousand from September 30th from amortization of our Term Loan and down 21.6 months from December Thirty One 2018. Do the reclassification of the remaining $28 million dollars in convertible notes due June 2022 a current liability. We plan to retire Thursday evening convertible notes or prior to June 15th 2020 from cash on hand.
We again.
Complaint with our leverage ratio at the end of the fourth quarter and have significant cushion with our comments, which we expect to continue moving forward during the next few quarters during the last few months as we saw improvement in our credit metrics Avid has seen a material Improvement in in these areas and today our net debt to adjusted ebitda ratio is 2.9 times a significant improvement from 4 and 1/2 * 18 months ago given a vast Improvement and profitability and more favorable credit metrics We Believe have it is well positioned to lower its cost of debt over time. We continue to track carefully the multiple options available after today.
Any such reduction in the cost of funding should result in favorable reduction in our annual cash interest expense and Improvement in free cash flow. Our objective will be to continue to strengthen our balance sheet of 20/20 by paying down debt and reducing cash interest expense. Let's now turn to guidance.
we have
Confident in the underlying strength in our business as we enter 20/20 that said We are continuing to carefully track any potential impact of the evolving covet nineteen situation in our office our transition of our supply chain out of Southeast. Asia during 2019 has lessened any impact. We may have otherwise felt today. However, as a situation involves there could be potential risk to our q1 results any of which to the extent realize would likely be timing differences as opposed to permanent in nature off accordingly. We have widened our guidance ranges for the quarter to the downside given risk of covet 19.
Recall also that in the first quarter of 2019. We benefited from a large multi-million dollar storage order that is likely not going to Record courier this quarter off given this for the first quarter of 2020. We are guiding revenue of $95 billion to $105 billion.
Q 12020 subscription plus Revenue guidance in the written materials is 43 million to 47 million. However, our official guidance for subscription a maintenance is 44 to 45.5 million for q1 2020 as there was a scrivener's error in our press release for this Revenue category gave you 120 adjusted ebitda guidance is 10 million to sixty million.
At this time, we are also reaffirming our 2020 annual guidance that we provided at our investor day in November our 2020 Revenue guidance remains 417 million to 430 million. Our twenty-twenty subscription plus maintenance guidance remains a hundred eighty two hundred ninety million our 2020 adjusted ebitda guidance remained 66 to 74 million thoughts are 20 20 free cash flow guidance remains 27 to $35 billion in our 2029 gaap. Net income per share guidance. It's $0.84 to $0.93 per share a with that I'll turn the call back to it.
Thank you, Jeff and Ken that concludes our prepared remarks, and we are now happy to take your questions operator, please go ahead. Yes, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment again, press * 1 to ask a question will pause for just a moment to allow everyone an opportunity to signal for questions.
And our first question comes from Samad semaj with Jeffries I get evening and thanks for taking my questions. Maybe I'll just take off high. I'll kick off with them. You know, the I think the big news in in the last few months there of of 2019 was the agreement with Disney and Microsoft and I'm just curious if maybe you're seeing tell one from other customers now approaching AVID for four similar type of deals and maybe just what kind of momentum you're seeing there. And then as a as a a kind of telling from that just generally our customer acquisition Behavior looks like on the Enterprise side then I have a couple of questions.
Yeah, absolutely.
So, this is Jeff. So I think you know things are continue to go. Well, I mean that we could do to work with Disney obviously on their on their front both as I mentioned in my comments though. We're not able to mention mention them at the moment. We are busy with other media companies and we're pretty far along in the work with those companies in in doing similar activities. What we did do any so we we like the progress we're seeing. Um, I think it's it's going quite well as we mentioned, you know in the near-term the the contribution Revenue perspective will be mild but we do see that building rather quickly as we look forward over the next couple of years. I'd say if you off as far as the activity it is building a situation that's happening right now with the the current coronavirus situation does play well, I think into a cloud strategy may be a lot of companies are worried about business continuity and how they have, you know, remote workers enabled that's a strength of additive. I know we've talked before about the remote collaboration capabilities of tools off.
And the cloud only takes that um, uh even further and so it really does I think bring the light for people that business continuity is important how you're going to have workers work more remotely is important.
I think plays extremely well into our strategy so as much as I don't want to, you know benefit from a from a crisis, but I think it does remind the industry of what you know cloud and quite frankly what we can do in this life guard. That's benefit. I think in general nineteen as I mentioned in in the larger Enterprises performed quite well in Q4. We we saw definitely in a sequential Improvement in terms of the small and medium though. They were flat year-on-year the larger ones though. Did we did see some to be a solid growth year-on-year so execution why I think we've seen a lot of great momentum from those customers off as I said, I think they'll be some lumpiness in this market we expect that to happen from time to time, but it's more about timing. So overall we're feeling good about that side of our business.
Great, and you know obviously I I've heard the comments that that were in the script around and guidance and factoring in the current market uncertainty. Yes, I guess maybe could you help us understand one of the companies made any changes whether it's telling sales people that they can't travel or change any, you know, customer meetings just that we can kind of think about behavioral change. And then in that vein, you know, I guess I think about guidance. Can I heard you say that one Q you narrowed the range or that you widened the range, but if we think about it, what's going on with Cove in nineteen is it fair to assume guidance would probably probably wage modestly bumped up for for twenty $20.
so
Missed the first part now. I can't answer the the guidance part. So on the on the behavioral change. Yes, as I said, it's the number one priority is the safety of our employees with our contractors and I think their customers to you want to make sure that you know, we're taking care of our own staff, but we're also making sure our staff isn't isn't, you know, mistakenly, you know being a carrier of something. So we're being careful. We have moved to business I think business-critical or business important travel. So we're doing what's necessary to execute on our customers projects. I know the sales team is doing what's necessary to execute on the business office, but we are being more careful. We're using more virtual remote technology to connect with customers and to to do a lot of the selling and even and especially for internal means we've moved to a 2 a.m. To video conferencing on almost exclusively some really been real disruption. We use a lot of remote tools already in our selling and in in the we're company works. So that's not a massive wage.
Change we've just had people lean little.
Bit more into that in the near-term. I don't tend if you want to speak to them. So on the guidance peace smod first, you know, we're reaffirming our full-year guidance as disclosing November analyst meeting as overall. We feel good about the direction of average business, you know are improving recurring revenue streams and the rapid expansion of our subscription business, you know, a current assessment is that given, you know, move of our supply chain from from China to Mexico, you know, we're going to have minimal supply chain risk in the short-term our first quarter guidance step that we provided, you know, reflects some of the uncertainty with respect to covert 19, which could have, you know, a timing impact on receipt of certain potential orders, but this would be a temporary issue and as a result, we've widened the range by two million dollars. So, you know, that's that's uh, you know, uh wage
something that we did with respect to to q1, but overall we feel good about
The direction of the business and reaffirm full-year guidance, so he may one more for me and I'll pass it along but just maybe you know, you mentioned on retiring the the rest of the The 20/20 convert. So I guess you know, the free cash flow is ramping nicely. I know there's some Investments the company wants to make but maybe I should we think about Capital Management given to pull back in the stock the free cash flow generation improving nicely. Maybe just the philosophy around that for for the intermediate-term. Yeah. So we have significant liquidity from the 69 million of cash off an additional free cash flow generate plus, you know over twenty million dollars of revolver capacity to comfortably meet the convert maturity of $29 off. So in terms of that payment, you know, we have sufficient resources in terms of our balance sheet want to continue to deliver and improve the company through improvements of free cash flow and dead.
You know, obviously we see an opportunity to reduce our interest expense over time and the company will be evaluating different options in the capital markets to execute upon Thursday during 2020.
Great. That's how I'll get back in the queue.
And our next question comes from with Maxim group. Yeah, thanks and great quarter of great stats here on the guidance from the scripture maintenance. I think typically you guys The Flash to my rescue decline, but you're guiding towards it's like growth here. So I think that's above the high end of the historical Norm. What is the driver of this here?
Yes, so I would say on the subscription and maintenance, you know our Q4 results were up, you know, 10.3% in Q4 as we see today. We see that continuing in q1 and we believe that the guide.
That we provided which is tighter at forty four to Forty Five Point. Forty forty five point five million is is the right range for us as often do we see subscription, um moving in the right direction, but you know our maintenance Revenue were having less of an impact from the non-cash peace in that Legacy Storage a product that is running off. So we see maintenance overall relatively stable and then the significant growth in subscription which leads us to you know, High single-digit guidance for key one month sounds like you're expecting the rate of subscription adds to maintain and to Tina's range. Is that correct teenage style. But yeah, I would say we feel good about the recent performance and subscription the last two quarters and for that to continue in q1
Okay and going on that so you did have 66% subscription Billings growth that's on 50% growth and you did mention you expect on going strong growth here. So, can you help bracket what you think that means? And what time frame are we talking about? Are we talking about 10% to 20% 30% 40% or are we getting sustained a 60% subscription building just give some bracket in here for us and also time frame on that Packaging.
So, you know, we the subscription and maintenance growth of 10% in the last quarter, you know was driven by the strong, you know, obviously subscription growth in the quarter month. We see that Trend, you know continuing in 2020, you know, we guided subscription plus maintenance kind of in the high single digits for the year. I'm feeling very good about that at this point given the the elements that we're seeing in our subscription business and are stabilizing maintenance at this point. We're reaffirming that subscription and maintenance number and we'll look up to revisit that as we move through the year, but I feel very good about the high-quality revenues moving in the right direction for a bit at this point.
Okay, and then finally a CV accelerator 13% year-over-year growth from 4% in the prior quarter and year-to-date average of around 40% as well. And I think that's due to the subscription acceleration as well as a growth in the lta's. Um, so can you give you a little more color on the LTS? Where was it the end of the quarter and remind us where it was a quarter ago and the year-ago numbers?
So I would say first just on the on also on your subscription point, you know, the subscription Revenue continues to be you know was impacted by the by that Revenue wage now normalized.
And that's what we expect. So that should be a catalyst is to hire subscription go for the year in terms of the the ACV. We did see a 13% increase year-over-year off and what I would when you look at the components of it subscription was the main driver and then the LTA were were up from home. I would say, you know in the neighborhood of 15% of the year, right? Thank you very much. Yep. Again. If you would like to ask a question, please press the star key followed by the one key on your telephone keypad.
Our next question comes from Steve and Franco di good afternoon. I understand your comments around the supply chain given that you've moved production out of China wage. Uh, but what about critical component? How many of those come from China and what's your visibility in terms of your supply the components? You need to hit your few one number?
This is Jeff Paul. Answer it. Um, look over all we feel good about that. There are obviously some components and subassemblies to come from China. We're in good shape on those. We've got the commits that we need right now. We're looking at the first half that we have the commits that we need and or they're on hand. So we're in we're in good shape. They're they're either again. The reader committed are on hand and we have very little action to come relatively comes out of China even in cases where we had situations in China. We looked at we worked on backup plans fuel source. So I think we're okay. I mean the maybe small things that we have to deal with it overall. We're feeling that we're feeling good at this point.
Okay, and on going back to the LT a subject kind of either in terms of the number or the dollar value. However, you want to address it in in l t a month in Q4 on a year-over-year basis. He gave us the full-year number but kind of what what are the activities look like in Q4? And how was that relative to your expectations?
well
I mean, we're not publishing the exact numbers. I'll say that there was a several million dollar improvements in Q4 from lta's. You know, we we in this area we had as I mentioned a couple of them were mentioned in my comments. Um, so there was two rivers in those comments. I made we just see a a solid trend of that area growing with Enterprise agreements or Enterprise license agreements or helping Rosa long-term Trend as I mentioned La Film School while we both signed multi-year agreements around that regard where there are others. We also sign that we were able to mention yet. I think we we make good progress in the quarter and we're happy with it to 4 can be a strong LT a quarter because a lot of people will sign up for new agreements for the for the coming year. So q 4 and q1 could be, you know, rather good for us in that regard. I just began just because people have a tendency to sign up at your end or the start of the year.
Okay, and and how should we think about the year-over-year decline in contracts fully committed backlog?
Can you want to yeah, so in terms of backlog, you know, as we should move through there are progression of our business model and we have some multi-year agreements that that uh mature, you know, there there's a headwind on backlog that I said, we're growing the higher-margin elements our business which is subscription in that is resulting in really the growth rate in a in a CV. Additionally we talked about, you know, the lta's we're over 15% growth so that that's helping our racv. So we're focused on annual contract value. That's that when I start the year. We have two hundred eighty million under contract that that is growing year-on-year and then the recurring Revenue so that's our what I what I get comfortable with in terms of birth.
the forward-looking metrics
Along with our internal pipelines that are all positive. So that's why you know, we're focused on on those metrics as we as we look for in our business, you know, the the the multi-year contracts that mature as they go through that's just a timing issue when those renew. Okay, and then in I know you're not giving us a hard number of free cash flow in in q1 or or in the front half, but you know, how should we think of where the the flow of cash during the year? And I know in years past you've either moved down payment totally out of q1, or I think last year you split them between q1 and Q2. What are you thinking this year? And how does that impact what we're going to Thursday?
Yeah, I would say, you know Q one will be a positive free cash flow quarter and Q2 will be impacted by a bonus payment for a 2028 and then seasonally we generate you know, a lot of our free cash flow towards the end of the year. So, you know that cycle will likely continue. Um, but you know as a team we see the company's working capital improving this year, which was a drag on free cash flow for the year and based off of improving credit metrics in the decline in live War which is already declined a hundred fifty basis points since our analysts day, you know, we see that improve that those those elements will help our interest expense or cash into the expense. So those two elements plus the improving and profitability will drive much higher free cash flow conversion in 2020.
Okay, great. And then maybe just a little more around your thought process as to whether you participate in NAB or not. I know I noticed a couple more companies dropped out today.
Yeah, so this is Jeff received so well right now we're in active discussions with nav and the Avid customer Association board of directors to make a decision that we thinks the best interests of birth employees and customers or Partners. We expect to make an announcement later this week regarding our participation. Well, our participation had any be and what we'll be doing about connect so I I would say stay tuned but you know, generally I think we're going to you know, probably have to lean to be a little more safe with our decisions. Yeah right makes sense to me. All right. Thank you so much.
Yep. Thank you, Steve. And our next question comes from Josh Nichols would be Riley.
Yeah, thanks for taking my question a great to see the strong subscription Revenue growth and it looks like a fairly even split for subscriber growth between like the media composer and Protools wage. Um, do you expect that Cadence to kind of continue through 2020?
Well, I would say Protools up until the second half was the fastest growing, you know skew of the company had on subscription with that said with the New Media composer release that was done in Q2 the second half of this year. We've seen the media composer now in terms of the growth rate match Pro Tools, you know, if we should expect that to continue in the near-term and you know, we have a significant opportunity to continue to accelerate our growth rates in both of those scuse which which are you know, obviously have great brand recognition in the market. So we continue to be focused on adding functionality and in the marketing teams doing an incredible job supporting some digital marketing efforts that are driving down the acceleration of that group. I think if I can say well we'll see me composer will will be helped as it was in Q4 and and Q3 as we as we talked about we're expanding our subscription offering more to the name.
Right side and me composer.
Does benefit more than Pro Tools on that? So and we also if you remember we launched a new product called me closer Enterprise Edition, which has a lot of features very specific for cash prizes are a lot of our competitors don't have so that does help our subscription growth in that part of the business. I think we'll see that they'll be you know Peaks and valleys throughout the year with Enterprises, but I think that'll help generate the overall growth.
Great, and then press release and also on the call you talked about continuing to really invest in R&D with some of these new offerings outside of the media composer offering expecting a second half. Is there anything else that you could come to talk about that you have planned for release whether it's on the hardware or software side. Well, I would say we're not going to announce things that we haven't gone to the public with but I say that what we talked about investor day and I'll repeat that maybe a little more clarity you guys were invested in R&D clearly around our software Suites whether it be the audio Creative Suite video Creative Suite or the platform swage will continue to make our investments in those areas to innovate to keep driving the kind of growth was looking for inscription and in software overall in our integrated solution business, as you know, we're making a lot of work in the I've been doing a lot of work on the audio side with bringing our audio business back to growth and we see a huge opportunity there along with the fast growth of Pro Tools to really drive a lot of growth in that Auto.
On the business you'll continue to see new products coming on the audio front on the video front media front. You will see a lot of that R&D is around Cloud instead of necessarily a lot of hard to continue to innovate around storage and we have a lot of interesting Innovation around collaborative storage, but you
We'll also see us doing a lot of innovation on that side around cloud.
Thanks for the additional color on that. And then last question for me. Could you provide a little bit more detail on like the opposite side for for 1 q and how that's going to walk you through the year. I know that four Q There was a couple of one-time items. I think you mentioned and just want to make sure I get it right.
Yeah, so with respect to you know, the fourth quarter R&D Investments and the product robot that will continue Into twenty-twenty the Web Store transaction fee or up 700,000. We did transition to a new provider and we'll start seeing the Savings in that um and key 12020 I think and then commission's of the bonus. We're Judging Amy differences. We expect to objects to come down from Q4, uh to Q one by two three million dollars and absolute context dollars wage. Thanks.
Yep.
There are no further questions in the queue at this time.
Thank you. We appreciate your interest in Avid, and we look forward to speaking to you again in the future. Have a good evening everyone this concludes today's, thank you for your participation in a disconnect.
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