Q1 2022 Avid Technology Inc Earnings Call
31 2022.
My name is Whit Rappolt Abbott's, Vice President for corporate development and Investor Relations. Please note that this call is being recorded today may four 2022 at 530 P M Eastern time.
With me. This afternoon are Jeff <unk>, our Chief Executive Officer, and President and Ken <unk>, Our Chief Financial Officer, and EVP and.
In their 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 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.
The press release and presentation are currently available on the events and presentations page of our Investor Relations website at IR Dot Abbott Dot com and shortly following the conclusion of this call a replay will be available on our IR 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 these non-GAAP measures and also definitions for the operational metrics used on this call and in the presentation.
Unless otherwise noted figures noted by management during the call are non-GAAP , except for revenue, which is always gap.
In addition.
Certain statements made during today's presentation contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, our comments and answers to your questions on this call as well as the accompanying slide deck may include statements that are forward looking and that pertain to future results or outcomes. These forward looking statements are.
Based on our current beliefs and information available as of today 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 most recent annual report on Form 10-K.
And quarterly reports on Form 10-Q filed with the SEC.
With that let me turn the call over to our CEO and President Jeff <unk> for his remarks, thanks, Whit and thanks to everyone, who joined US today to review average first quarter results.
We continue to have good success growing our subscription business as more enterprise customers adopt subscription licensing coupled with continued strength in subscriptions for creative individuals. While we continued to see strong customer demand and business activity across our portfolio. We have seen a tightening of supply for several components for our audio integrated solutions at the end of the.
Our first quarter that impacted our ability to meet that demand, resulting in first quarter revenue at the lower end of guidance.
We have been aggressively and proactively addressing these constraints and all of those global supply chain situation kitchen continues to present challenges, which could cause some uneven quarterly performance in the near term. We currently believe that these to be temporary for avid due to our proactive efforts to mitigate these effects and as such we are maintaining our full year guidance.
We also remain encouraged and confident in our growing subscription and healthy maintenance business, especially with several new innovations and exciting additions to our subscription offering planned to be released over the coming months.
In addition, we recently introduced several exciting new product enhancements for pro tools media composer, we just central and edit on demand and we have more plans as we continue to execute on our strategy for profitable growth.
Let me get into some of the details of our Q1 results.
Let's start with the three main key takeaways for average performance during the quarter.
First we delivered strong subscription growth, including another great quarter for enterprise subscription adoption, where we added 6100 media central Flex subscriptions in Q1, that's our largest quarterly increase today and.
And we continue to deliver sustained growth and another solid quarter performance for our creative tools subscriptions.
Next as I just mentioned, we continued to experience strong overall market conditions and healthy customer demand for our products and solutions.
Global supply chain constraints at the end of the quarter limited our ability to deliver some customer orders for certain parts of our integrated solutions portfolio.
With these intensifying supply chain headwinds late in the quarter, we would have easily shipped several million dollars more during Q1, which would have brought us well above the midpoint of our total revenue guidance.
And finally, even with the situation, we still delivered 7% year over year total revenue growth and expanding gross margin and adjusted EBITDA margin, which together drove continued year over year improvement in profitability.
Overall, we ended the quarter seeing continued strong market demand for our solutions as well as a significantly elevated backlog of integrated solutions orders, which gives us confidence in our full year 2022 targets.
Now, let me, taking a bit more and provide some specifics on each of these areas.
With sustained strong adoption of subscriptions by both new and existing customers for both our creative and enterprise subscriptions offerings, we saw solid growth in our overall subscription business in the first quarter.
We realized net adds of 21200 cloud enabled software subscriptions in this quarter.
Delivering year over year growth of 24% in the number of overall subscriptions.
Enterprise subscriptions continued to exceed our expectations, increasing our confidence in the growth trajectory of our subscription business.
As we've discussed on previous earnings calls, we expect to typically see around 120% to 140% uplift on conversion to subscription and we were at the high end of that range again during Q1.
And for R. R.
Our per seat pricing continues to improve as the enterprise subscription becomes a larger portion of the business.
Our creative tools.
We remain in a central piece of our subscription growth and during the first quarter. We had good net adds across all three of the creative tool product lines as we continue to innovate and further grow this business within current customers. While also successfully attracting more of the next generation creators.
Together. These factors resulted in 32, 5% year over year subscription revenue growth.
During the first quarter healthy demand and strong business activity continued within our existing markets and customers as well as a new customer segments.
Our success in converting enterprise customers to subscription is resulting in a reduction in maintenance revenue as expected and as we have previously discussed but the total subscription plus maintenance revenue grew at a healthy 12% year over year in the quarter, which contributed to the year over year growth in ACB.
Business activity with our enterprise customers remains strong we closed 11, new enterprise subscription agreements, including with such notable brands as Fox and NFL films.
We also announced a strategic cloud agreement with Paramount global to support the reshaping of their content creation operations and driving towards art mutual vision of a common cloud based solution for content production across the industry ecosystem.
Even with the supply chain constraints that I mentioned earlier, we had seven 6% year over year growth in integrated solutions revenue helped by solid performance in our <unk> storage solutions we.
We saw good recovery in lifestyle as well as continued strength across the audio portfolio, but our total potential was limited and we ended the quarter with about $10 million more backlog of integrated solution orders than we typically carry from one quarter to the next.
We are proactively working to mitigate the effects of the global supply chain situation on our business.
Based on those efforts and on what we can see today. We currently expect to be able to begin catching up and meet customer demand as we head into the second half of 2022.
And I want to reiterate that we will continue to be diligent in managing ongoing risks present from the macro supply chain environment.
During the first quarter, we saw improved profitability as a result of a total revenue of over $100 million.
non-GAAP gross margin of 66, 8% was up 120 basis points year over year due to the continued shift of revenue towards more subscription and maintenance and improved hardware gross margin year over year.
The revenue growth combined with improved gross margin enabled us to deliver adjusted EBITDA margin of 19, 2% for the quarter and we delivered non-GAAP EPS growth of 17, 9% year over year.
We continued our focus on managing our costs, while also investing in technology innovation and digital transformation to fuel our strategic growth plan.
Several new software subscription introductions and other product innovations planned in the near term that will contribute to our revenue growth later this year.
Free cash flow was lower than last year due primarily to the use of cash for working capital that we expect to reverse in the second half as well as increased capex to support our digital transformation initiative.
Now, let's talk about where we see things going forward from a business perspective.
We've seen the healthy demand for products and solutions continue into the second quarter and we expect for this trend to continue based on the market signals we're seeing.
We've had several customer events recently that have reinforced this view.
We had our annual voice of the customer event with the avid customer Association in early April and listen to what they had to say around the industry's direction. Their most important business in technical needs as well as where they feel investments we made in 2022 and beyond.
And just last week, we met with many key clients and prospective customers at the Nab show our first major in person trade show since early 2020.
I was involved in dozens of customer meetings at the show that reaffirmed for me the strong customer demand for our solutions and our innovation roadmap.
Also at <unk> together with Microsoft we previewed our new enhancements to our avid edit on demand SaaS offering that includes an innovative over the shoulder experience with media composer streaming directly to an integrated with Microsoft teams and.
And the addition of average new media Central stream ingest and play out solution also available on the edit on demand SaaS service.
We also just released new versions of pro tools last week as well as introducing a rehearing of the subscription price points.
Adding a new paid pro tools artist subscription offering targeted at aspiring music creators that replaces the first premium tier we have now discontinued as.
As part of the pricing reached hearing we have added a new higher priced subscription tier called pro tools flex.
It's targeted at enterprise customers and higher end applications.
We believe that these moves will help to both expand our total market opportunity in the wider music creation segment.
And optimize our business opportunity at the higher end of the markets, where we will continue to deliver a greater value to our customers.
The initial numbers from the first week since the launch of pro tools retiring are encouraging.
We will continue to innovate with new technologies develop new solutions and <unk> unique strategic partnerships that will contribute towards our strategic plan.
We have additional new products in our pipeline to meet the market and customer demands and to help drive our growth we.
We will continue our efforts to improve efficiency and maintain the cost discipline that we've been so focused on the past couple of years, but we will also continue to make strategic investments in support of our five year growth plan.
We have a very experienced supply chain hardware engineering teams and as I said before they have been taking proactive measures to minimize the impacts of the macro supply chain issues. We are aggressively looking for and securing alternative sources of supply and we're doing selective hardware board redesigns, where necessary to improve our optionality for alternative component.
That can help us meet the demand.
We currently expect these headwinds to moderate over time, but they could continue to create uncertainty and unevenness in the near term.
As a result of this we are being prudent and are providing a wider than normal guidance range for Q2 total revenue and earnings, but we are keeping a normal guidance range for subscription and maintenance revenue, which we expect to continue its growth trajectory. Most importantly, we are maintaining our full year 2022 guidance as we believe the supply constraints.
<unk> will moderate in the second half due to the efforts of our teams as I mentioned.
So all of this for the full year 2022, we expect to deliver continued profitable growth and improving free cash flow.
So with that let me now turn the call over to Ken to review more of the financial details and taking a weekend.
Thank you, Jeff and good afternoon, everyone during.
During the first quarter, we continued our profitable growth driven by robust performance in our subscription business and our growing recurring revenue.
Our focus for the remainder of 2022 will be to further build our high margin subscription revenue and continue to stay on track with our long term model.
We expect these efforts to result in continued improvement in our key financial metrics, including stronger profitability and free cash flow through 2022.
With that let's now turn to the details of our first quarter financial results.
We are encouraged by the continued growth of our paid subscription base. Our total cloud based software subscription count reached approximately 431800 at the end of the first quarter.
An increase of 24, 1% year over year we.
We had the largest quarterly increase to date and enterprise subscriptions and creative tools subscription growth was healthy and solid.
Media Central subscriptions grew to approximately 19300, an increase of about 6100 during the first quarter, representing a sequential growth rate of 47%.
The sequential increase in enterprise subscriptions furthers, our confidence in the transition of our existing customer base to subscriptions.
Subscriptions for our creative tools increased by approximately 15100 during the first quarter.
Subscription growth was solid for all creative tools with year over year growth of 20%.
Now moving to the composition of our revenues.
The consistent growth in the number of paid subscriptions drove continued growth in subscription revenue during the first quarter, which reached $33 million, an increase of 32, 5% year over year.
As we have previously discussed our subscription revenue can show sequential volatility due to the size of certain enterprise agreements and the impact of ASC 606 revenue recognition.
As we will discuss in more detail during our Investor day on May 24, the shift to enterprise subscription customers also continues to increase our per seat revenue a trend expected to continue in our model.
Maintenance continues to be a solid part of the business and during the first quarter maintenance revenue was $28 3 million down 5% year over year.
As expected as we are successfully converting many of our enterprise customers to subscription offerings, we are seeing a reduction and the related maintenance revenue from those customers.
We saw benefits from the maintenance price increases we implemented in 2021 as part of the strategy to encourage subscription conversion.
Our fiscal 2022, we expect maintenance revenue to continue to come down incrementally as we convert additional customers to subscription and as we introduced new subscription offerings this year, including avid nexis storage.
Total subscription and maintenance revenue increased year over year by 12% in the first quarter.
As we have previously discussed there is some quarter to quarter variability in our enterprise subscription business.
We expect subscription and maintenance revenue to grow 19% year over year in the second quarter using the midpoint of our guidance range, which equates to 16% growth for the first half of the year in line with our 2022 financial model and strategic plan.
Perpetual license revenue was $5 2 million a decrease of 26% year over year as we continue to deemphasize perpetual licenses and focus on strategic subscription revenue.
Even with the decline in perpetual revenue total software revenue from subscription and perpetual licenses increase year over year by 19, 5% in the first quarter.
The subscription revenue growth significantly exceeded the decline in perpetual revenue.
Our integrated solutions business remained healthy with integrated solutions revenue of $28 2 million in the first quarter, an increase of seven 6% year over year.
As Jeff mentioned, several integrated solutions products were impacted by supply chain issues limiting our ability to meet customer demand at the end of the quarter.
We ended the quarter with approximately $10 million more backlog than normal and integrated solutions orders, primarily related to pro tools hardware audio control surfaces and live sound consoles.
We believe we will recover the majority of this backlog over the next couple of quarters.
But risks remain from macro supply chain headwinds so the recovery could be uneven and we have factored this into our Q2 and full year 2022 guidance.
Integrated solutions growth was solid in live sound consoles graphics and video servers in the quarter.
<unk> product revenue was up year over year due to continued strong demand as many venues in concerts have opened and had further upside limited by the supply chain issues.
Revenue from graphics solutions increased year over year due to several large deals and a video service revenue also had strong product sales in the quarter and saw year over year growth as well.
Audio control services revenue and pro tools hardware revenue were impacted by supply chain issues, resulting in backlog being carried over into the second quarter and a decline in year over year revenue.
Revenue from our storage products was solid and in line with our internal plan.
The balance of our revenue comes from our professional and learning services business.
Professional services revenue continued to be steady at $6 million in the first quarter, a decrease of 6% year over year.
Total combined integrated solutions perpetual and professional services revenue was $39 4 million in the first quarter basically flat year over year.
Now moving to recurring revenue and annual contract value.
Our strategy in recent years to focus on recurring revenue sources continues to pay off and is driving improved gross margins and greater predictability in our business.
As of the first quarter LTM recurring revenue was 79% of total revenue up from 75% a year ago.
The LTM recurring revenue percentage increased due to the strong subscription revenue growth and higher revenue under long term agreements as more of our channel revenue is coming from strategic purchase agreements with our strong channel partners.
Annual contract value was $339 million at the end of the first quarter up 12, 3% year over year.
<unk> benefited from strong year over year growth in subscription revenue and increased HCV from strategic purchasing agreements with our channel partners.
ACB is impacted by revenue recognition under ASC 606, which does create some unevenness on a sequential basis due to the seasonality in our subscription revenue.
Now, let's look at our operating results for the first quarter of 2022.
Total revenue in the first quarter was $100 6 million up six 7% year over year at.
At constant currency, our first quarter 2022 revenue would have increased 9% year over year as FX was a headwind in the quarter.
non-GAAP gross margin was 66, 8% for the first quarter up 120 basis points year over year.
Our high margin subscription business made up a larger share of revenue in integrated solutions gross margin increase year over year, resulting in the improving gross margin.
non-GAAP operating expenses were $49 7 million in the first quarter of $3 $4 million increase year over year due mainly to investments to support product innovation to drive our long term model as well as $600000 increase in travel associated with our commercial efforts and a 500.
Onetime expense for an asset write off.
Adjusted EBITDA was $19 3 million in the first quarter up 9% or $1 $6 million year over year, driven by the improvement in both revenue and non-GAAP gross margin adjusted.
Adjusted EBITDA margin was 19, 2% in the first quarter, an improvement of 50 basis points compared to the prior period.
non-GAAP earnings per share was 33 for the first quarter.
Up 5% year over year, reflecting the increase in operating income and the reduced share count due to share repurchases.
Excluding the onetime asset write offs discussed above our non-GAAP earnings per share would have been 34.
Now, let's look at the rest of our results for the first quarter of 2022.
Our strategy of investing in innovation to drive higher quality recurring revenue together with effective cost controls and reducing interest expense has resulted in sustained trend of profitable growth.
Free cash flow was $4 7 million in the quarter down $6 million year over year, primarily due to the $9 million use of cash for working capital compared to the first quarter of 2021.
Relating mainly to a reduction in accounts payable and deferred revenue and to an increase in prepaid expenses related to our digital transformation efforts.
Free cash flow was also lower year over year due to a $2 million increase in capital expenditures, primarily related to our digital transformation and growth investments.
Now moving to our leverage and liquidity.
The growth in adjusted EBITDA and free cash flow has enabled us to continue reducing our leverage which was two two times total debt to EBITDA in Q1, and one seven times net debt to EBITDA.
At the end of the at the end of February we also amended our credit facility, which reduced the interest rate spread by 25 basis points and extended the maturity of our loan to 2027.
During the first quarter, we repurchased approximately 354000 shares for $10 8 million and through May 3rd we have repurchased an additional 46000 shares for $1 5 million, bringing total repurchases to $1 3 million shares for 37 4 million.
Under the $115 million authorization announced in September 2021.
We believe that repurchasing our shares at these prices is a good use of capital to enhance shareholder returns given the confidence we have in our long term business model and in the 2025 targets. We provided at our May 2021 Investor day.
We will continue to deploy our free cash flow responsibly, and we will continue to look at strategic tuck in acquisitions as well as share repurchases as ways to drive long term shareholder value.
We ended the quarter with $41 million in cash and had $111 million in total liquidity, including our Undrawn revolver.
Let's now turn to our guidance as Jeff said, we are confident in the underlying strength in our business as we progress through 2022.
We expect continued growth in subscription revenue from expected strong performance in enterprise subscription business solid performance from our creative tools and contributions from new subscription product introductions, including the new tiers for pro tools artist that Jeff mentioned previously.
In addition, we expect to be able to recover most of the Q1 backlog from our integrated solutions during 2022.
We believe avid is well positioned to drive further improvements in free cash flow due to the continued movement of our business to higher margin recurring revenue streams and a continued focus on managing our cost base.
For the second quarter of 2022, our total revenue guidance is $92 million to $104 million a wider range than normal.
The wider range is solely related to the supply chain risks to integrated solutions revenue, we discussed earlier.
Our guidance for second quarter, 2022 subscription and maintenance revenue is 60% to $64 million representing at the mid point, 19% year over year growth in the second quarter and 16% growth for the first half of 2022.
Our guidance for second quarter of 2022 non-GAAP earnings per share is 19 to 32.
Assuming 45 5 million shares outstanding.
Our guidance for second quarter, adjusted EBITDA is $13 5 million to $19 5 million.
At this time, we are also affirming the guidance for full year 2022 that we issued on March one 2022 as we currently believe that the supply chain impacts to our integrated solutions revenue will moderate through the year.
Our guidance for 2022, total revenue remains $430 million to $450 million or.
Our guidance for 2022 subscription and maintenance revenue remains $266 million to $274 million, a range, which represents year over year growth of 17% at the midpoint.
Our guidance for 2022 non-GAAP earnings per share remains $1 40 to $1 51, assuming $46 2 million shares outstanding.
Our guidance for 2022, adjusted EBITDA remains $84 million to $94 million or.
Our guidance for 2022 free cash flow remains $60 million to $67 million, which we expect will be more weighted to the second half of the year due to the backlog of integrated solution orders.
Lastly, we'll be hosting an investor day on Tuesday may 24th 2022.
At the Investor Day, we will provide further detail on avid business, our strategy and our progress under our long term model, we invite all investors to attend the online event information.
Information can be found on our Investor Relations website.
With that I'd like to turn the call back to wet.
Thank you, Jeff and Ken that concludes our prepared our prepared remarks, and we are now happy to take questions on hold on while we prepare the queue.
Our first question is from <unk> <unk> from Northland Securities to be followed by some odd Simona <unk> go ahead.
Thanks, a lot.
Bob.
So.
Netflix earnings was just two weeks ago, but are you seeing any signs of softening video production pipeline as a result of what appears the Netflix calling back on programming.
Yes, it's a good question I think the simple answer is no.
And I can say that pretty shortly because we just finished going to NAV.
And having our voice of customer sessions now, we really haven't seen anything.
Net Netflix.
Early bellwether to this whole move to the streaming services, but there is so many players in this space and so much competition, even on a global basis, we're still seeing a very healthy pipeline of opportunities.
Across the globe and quite frankly, even in the U S and what's happening here.
Okay, Great certainly your unchanged guidance would indicate that is the case.
And then regarding the March quarter results.
The cost of our subscription plus maintenance come at $61 million, which is.
Towards the lower end of the $60 million of $64 million that you guys have provided.
Hey, Neil good questions and thank you for that question.
So.
Our business continues to make solid and subscription and maintenance.
When we look at the underlying trends we came in.
With our subscription business.
Very solid on the enterprise side with strong wins with some large customers as well as continued.
Momentum on the creative side.
The maintenance revenue was impacted by.
By lower product sales in the quarter.
Related.
From the supply chain.
But that result below our product sales.
<unk>, a maintenance component and because of the delay in the backlog.
Of those certain product sales maintenance revenue was impacted slightly in the quarter. So.
Although the subscription business did very well maintenance did have an impact.
Because of the product sales.
And we were slightly below the midpoint of our guidance, but we continue to believe that that backlog on the integrated solutions will ship, we will get the associated maintenance for it in our subscription business continues to be very solid we're very excited about the new product introductions and Thats why we feel very good about the <unk>.
Year end subscription and maintenance guidance.
I see okay that makes sense and then.
Guidance on subscription and maintenance.
Secondly, flattish Q over Q, but I believe in the past.
Called out that Q2 and Q3.
Tend to have.
Our seasonally softer relative to Q1 and Q4.
Especially sensors, because a significant portion of subscription revenue as term based subscription.
So what gives you confidence that.
This will indeed be flash QQ given that what you.
Stroke like called out some seasonality here.
Great question.
It comes down to the new product introductions.
The pro tools.
New subscription offerings.
We have been encouraged by the initial success.
So we feel good about also the enterprise business in the second quarter.
As well as strong growth in the core creative tools. So all of those elements give me confidence that we will continue to drive.
I would say improving subscription revenue through the year.
And our our team is very excited about these new introductions and that innovation will drive very strong subscription growth for the year.
For our company. So we're very excited about the new new innovation.
Got it great. Thank you for taking my questions.
Thank you Neil.
Our next question.
Hold on please.
Our next question is from <unk> <unk> from Jefferies to be followed by Jack Vander Ark. Some odd. Please go ahead.
Please go ahead.
Apologies for that.
Upgraded me to a panelist disconnect demand yet.
And no matter, how many years go by.
We will never particularly with you Matt I appreciate it.
A few questions for me.
It's great to hear from you guys, but.
On the new pricing tiers, Jeff I'm just curious.
What do you think about the philosophy, but on creating a lower priced entry point for new hobby attached should we think about that impacting the funnel and then how are you guys thinking about maybe the upgrade opportunity for the higher priced tiers that you're talking about it's kind of along both.
But the north and South strategy, yes, good good question and to your to the point you made is a good question spot is in the middle tier, which we call studio. That's our that's our traditionally it's been our highest volume tiers that middle tier that used to be called pro tools without a nomenclature Nenets protocols center, we've actually even strengthen that product, which.
We think is going to really help even in that space, but part of what we did with the retiring is that we have eliminated the first premium offering we felt like that had really kind of played out really well for us but it was over time, we are seeing that we needed to kind of even change our strategy. Because we were seeing that there was a real demand.
And for a.
An offering that was more than <unk>, but not the full pro tools and so we created an artist here it isn't just about how we've.
Tier the features and functions, but we also have created a new experienced net product. The <unk> product has a new entry user experience for the user. It's also comes with.
Crucell and since sell some new.
Tools, we put in there and we've really created a product that has we think the right price points and the right feature set and there's more to come. We're just getting started in that music creations here, but we did as our first entry since prior pro tools.
We think that's going to really help us.
Significantly expand the funnel and go after a broader part of the Tam, which I know we've talked about in previous calls and at our Investor Day last year. This is our first step as we are really building out a more aggressive music creation strategy and so the artist product is our again, our first step there on the higher end, which is traditionally post audio postproduction for television and film.
And higher end music recording studios, we've brought that tear up in price actually it's about it's $200 more per year and so in that tier we are going to be putting more we have put more value in there we're going to continue to put more value in there because we do believe the higher end of the market.
Is looking for more value and will pay for that value and so I think theres, a real opportunity here to not only get more per user.
And proceeds at the higher end, but allows us to go after a wider market opportunity in the music creation, especially for Nexgen music creators I hope that answered your question.
Yes definitely.
Very helpful and then.
<unk>.
Maybe another one around.
NAV conference yes.
Going back in person again, I'm curious if you're finding what you could call. It the lead Gen efficacy our ROI.
The spend around that to be the same as you did.
Let's call it pre pre 2020, and maybe how we should think about that influencing where youre allocating marketing dollars or sales and marketing dollars. Okay.
Next couple of quarters, yes, very good question and a topic that we talked about a lot internally. So we will never go back to the marketing spend like it was we will never be spending at the level that we used to have trade shows even if we go to <unk>. As example, this year our investment I'm, giving you rough number I don't have the exact numbers in front of me, but it was probably around the 10th of the.
Cost of what we did prior to the pandemic and so what we really did this NAV was focused on more of meeting center.
Just an environment to meet key customers and to meet new prospects.
And I think the ROI and what we did this year for NAV will turn out to be quite good much better than we saw prior to the pandemic.
We may at some point put exhibits back on the show floor, but will never go to the size of scale, we used to because.
I think.
Our marketing dollars are better spent on a lot more digital focused and more data driven marketing and not just dropping a lot of money at a trade show. So we're going to be very careful going forward. Even if we are going to these trade shows.
I will say that we really like what we saw at <unk>. We had at the same level of meetings that we've had traditionally at <unk>.
And without having the big costs of the.
The exhibit on the show floor.
And I think as I said to Mike Mike.
<unk> remarks.
We really feel good about the feedback we're getting from those customers and what we see as opportunities going forward for this year and even beyond.
That's great to hear and then Ken maybe maybe.
Model related questions.
I know there are a lot of things that are in the companies can draw, but many of them are off of out of the control just any thing we should think about in terms of the guidance framework for Q2, and the rest of the year versus maybe what you've done over the past few quarters. I know you guys are navigating the last couple of years about as well as it can but yet.
Anything that you changed just based on let's call it an uptick in uncertainty out there.
Thank you for the question.
Really.
Due solely to the.
Supply chain conditions, we felt it was appropriate to widen the guidance for the second quarter in terms of the range on both the top line.
And profitability.
Again solely related to supply chain.
We firmly believe that.
The backlog will be recovered.
And we will achieve our year end numbers the health of the business in terms of.
Orders coming in is very strong.
At this point.
That's the macro supply chain conditions that is resulting in a widening of the guidance for Q2, but we feel very strong about achieving the year end numbers at this point the business and the conditions in the environment and the strong demand for our products gives me high confidence for the full year.
Perfect and then last one for me and I promise I'll turn it over to the next analyst.
Retention.
You're now lapping.
It's a very strong cohorts over the last couple of years.
<unk>.
We could tie to retention dynamic.
Whether it's subscription tier vessel absorption type would be helpful.
Yes. So at this point the retention continues to be solid for the company.
I would say that in general we will spend a little more time talking about certain metrics on it in the Investor day, but.
We feel like the investments that we made and customer success management.
Have paid off.
We're seeing improving I would call it.
NPS scores in certain of our products.
So and that translates into I would say a reduction that we're seeing in the bookings.
On our creative tools, so we feel really good about those trends.
And then second our enterprise customer base is extremely sticky.
Have not had any loss of any enterprise subscription customers as they've come on to our subscription model, so very very strong metrics.
Metrics in that regard.
Great. Thanks for all the questions and look forward to hearing more at the analyst day.
Thanks, Bob Thanks, so much.
Our next question is from Jack Vander <unk> from Maxim.
Followed by Josh Nichols Jack go ahead. Please.
Jack It looks like Youre still muted.
Okay.
There you go.
Okay very good.
I think I did it three times you can have really good yeah, hi, Jeff.
Hey, guys great I appreciate the update.
I look forward to learn more at the Investor day of course.
So I will just jump into a few questions.
Jeff can you can you maybe talk about what youre hearing from your kind of covered a little bit of this but just specifically talk about what youre hearing from your existing enterprise customers that are not on that subscription model yet.
How are those discussions evolving any anecdotal kind of data points illustrate how demand shaping up and timing of additional conversions.
That's a good question Jack.
Generally I would say the view is very positive I would say both from the customers. We're talking to is as we obviously our commercial team as they were engaging in these customer meetings during <unk> and just day to day and our commercial activities. The response of customers is quite strong we've been pleasantly surprised we had originally I think we've talked about before where we originally thought that the <unk>.
<unk> would be a little bit.
Slower maybe not quite as the pace that we're at what we're seeing is really really good response from these customers and and the commercial team also tells us that they're seeing really good response from customers. So I think at this point I don't see any insight to our success of converting customers to subscription and the economics that is Ken has talked about.
Before the economics, we're getting on these on these conversions are very helpful. We're delivering a lot more value to these customers and they like what theyre getting but also for us it obviously drives.
<unk> economics and quite frankly.
Larger percentage of their share of wallet.
So it's been going well and the feedback is really good I think we're also hearing to move to cloud is accelerating.
Kevin Our CTO is sitting next to me here he jokes that only one customer has said that they're not interested in cloud every customers really looking very carefully about first making the move to subscription and getting themselves on a more flexible business model and then over time moving different workflows to a to a real SaaS environments. So we see a lot of really.
Good runway ahead of us for the enterprise customers.
That's great. That's helpful color and maybe just to follow up on enterprise subscription, so 19300, or so it's up 46% sequentially clearly.
<unk> growth there how many of these subscriptions are.
Or from new customers to avid and maybe how many are from conversions of previously existing customers.
Yes.
<unk> pretty much again, I'm going to give you a rough guidance it really tracks pretty much as a company around 10% to 15% of our business comes into to new customers and which I think.
Similarly tracks that we're still early in the subscription enterprise subscription migration, so I wouldn't want to put.
<unk> data points, but we are seeing subscription as a very successful.
Business offering that helps US go after new customers and our funnel is looking really good and both for our conversion already has been good but we're seeing really strong and building funnel. We also are seeing obviously converting current customers, but one of the good things about our current customers as we are using this as an opportunity to as I said grow share of wallet and so we see an opportunity.
Our current customers to expand our footprint and to expand what we're doing in those customers and many times pushing out competitors.
We may have a large footprint, but competitors could have ancillary footprint within our within our customer base and we're losing this also as a way to really drive a higher share in each of the accounts.
Very helpful color and then maybe just one for Ken maybe.
Approximately the approximate $10 million or more of backlog from integrated solutions at the end of the quarter exiting the quarter can you provide some more color on what specific products solutions. Those those are related to and looking at the inventory on hand, which is it seems like lower than it was than normal when you exited the quarter just do you have the inventory to.
Satisfied that backlog as at all related to specific kind of product category, just any more color would be helpful.
Yes, so again.
$10 million of backlog, let me kind of talk about the components, it's mainly in the audio business.
I would say half of it is in pro tools hardware.
So obviously very very.
Unique to the pro tools equal system.
The other half is in live sound and control surfaces.
So that's probably.
Those three through three categories are 90% of the backlog, 95% of the backlog, we have some servers and graphics in the hardware side that is a very small amount, but it's largely related to the to the audio business.
In terms of the inventory and how we're positioned.
Again the team the supply chain team here at avid is first class again, a lot of experience wider relationships.
We're looking at ways to deliver this backlog by looking at alternative suppliers as well as product Redesigns.
And I feel very confident that we'll be able to deliver it in 2022.
It could be a little uneven as we go through the quarters, but.
I'm very confident in being able to adult to deliver.
Most of this backlog in 2022, it probably will shift shift more to the second half of the year and you can see that in our guidance, but that's kind of where I expect.
The backlog to resolve itself and I feel very confident in our supply chain team in terms of navigating through this with them.
And I feel very confident about the year end guidance.
Okay Fantastic well I appreciate the time guys I'll jump back in the queue.
Thanks sure. Thanks Jack.
And our next question is from Josh Nichols of B Riley Securities Josh.
Josh. Please go ahead.
Yeah. Thanks for taking my question.
Just a thought.
Can you hear me, yes, we can hug Hello.
Just to follow up.
On the last point.
So clearly the approach tools hardware is kind of most of the backlog is yes could you dive into a little bit like some of the specific components that are cause of this where.
Those components being sourced.
And then also you mentioned a few times that you have a lot of confidence that you'll be able to fulfill this demand.
What is what are you seeing in the market in terms of additional supply coming onto what it may be that makes you so confident of that.
Going to be able to kind of fill that gap.
Yes, good good question as well I didn't that but I'll try to I'll try to laid out so first of all.
The ESC the challenges now I will say in general I think youre hearing that from other companies the supply chain environment or the supply environment does have constraints I mean, we don't have as much ups in any product. We don't have as much upside flexibility. We used to have that that's a little more limited in the near term.
But specifically where were having trouble.
Up to the demand because we've got very good of demand across all of our products.
It's really around again, the audio it's pro tools audio Io somewhat not all of it but some of the pro tools <unk> hardware, it's a lot of our control services in our lifestyle the component it really varies.
Josh it's in some cases, it's chipsets around network connectivity.
Which are more difficult in the market today, we even have some sources of power supplies that are short and we're waiting for power supply has to come from in this case China.
And even the situation in China isn't helping because theyre not getting a lot of confirmations yet on when some of these power supplies will arrive.
And we've got other things with other drivers that are behind screens or there is different components is generally <unk>.
Availability is most of it though there is certain things that we were managing our team is knocking down 99% of our 95% of the problems. It's just there's a few that they can't we haven't been able to resolve a fully and it only takes one chip in a product for us not be able to ship that product. So we are we are they are sky.
During the world and working aggressively and Theyre largely successful, though and a few other than a few cases to get the supply so lot of its chip related.
There what we are doing is in areas, where we don't have confidence that the supply situation in a particular chip is going to resolve itself. Then we are doing in those cases specific spins or <unk> of the hardware boards associated or let's say of the network connectivity chip or something we'll redesign that out and do and all.
One and what that does for US is in those cases, where we see higher risk on the horizon. It gives us optionality. It gives us as I said in my prepared remarks, we can have two network connection boards as an example, with using different chips and depending on what we can get a hold of we can build with either one and so it's really just opening up the window in the aperture.
For us that we can.
Rely on on a greater set of chips, then just maybe a more narrow choice of im answering that correctly.
And it's and it's something that we've got to make sure. We've got visibility out a couple of years on this stuff and that's important.
Again I think.
Important thing Josh is we're not passively just sitting by waiting for the supply chain situation that cleared up we are being quite aggressive on how we can in the near term get this resolved.
It does take time, sometimes they get the supply.
Under our in our in our door, but it also has the Redesigns do take a few months, but once we do that it gives us a lot more optionality. So we are we are doing what needs to be done to get this resolved.
Last question for me.
I'm looking at I know <unk> can be a little bit tougher for subscription.
More business with <unk>.
Just looking at the guide here kind of implies back of the envelope calculation like.
40% to 50% year over year subscription growth, which is above where it has the last.
Two quarters is that because you're up against an easier comp or not or are you seeing.
More demand for the cloud solutions, so that theres, probably a little bit less seasonality than you may have used to see that business, what's driving that yes.
So I would say.
It's really a combination of both so we do have an easier comp last Q2.
We were earlier in the enterprise selling cycle.
So now that we've got.
By year and a half of continued aggressive.
Calling efforts and our enterprise customers we expect.
Got to be.
A lot more successful than the prior Q2, and our team already has a great funnel too.
Look at those those opportunities.
And drive execution and close those opportunities in the quarter.
So.
As a result, we do expect.
Subscription growth to be very strong in Q2.
And again, our subscription and maintenance growth.
Which was 12% the guide that we provided.
Is closer to 19% at the midpoint, so we expect to come in.
And the second in the first half of the year.
High teens growth for the full year and Thats driven by the subscription growth and.
And remember we also have new innovation.
Whether it's the pro tools.
<unk> that we have encouraging results.
And.
New enterprise products that are in the Nexus area as well as graphics and servers. So.
No.
So that's why I feel good about.
The strong growth that we.
In terms of realizing that the Q2 guidance given all those factors.
Sounds good that's all for me.
Great. Thank you that concludes the Q&A session I will now turn it back to Jeff for closing remarks.
Well. Thank you again for your participation and your good questions in closing we believe we will continue to see strong demand across the end markets for our solutions and we are managing through the temporary supply chain headwinds to enable avid to continue to achieve our company strategy and our long term growth and profitability targets as we move forward through 2022 and beyond.
I Hope you will join us on May 24th for our annual Investor Day and details for the event are available shortly on our IR website.
Thank you and have a good evening.