Q4 2022 Avid Technology Inc Earnings Call
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 Relations website contain a reconciliation of the most closely associated GAAP financial information to the non-GAAP measures and also definitions for the operational.
<unk> 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.
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 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 filed with the SEC with that let me turn the call over to our CEO and President Jeff <unk> for his remarks. Thanks.
Thanks, Whit and thanks to everyone joining us today to review average fourth quarter and fiscal year 2022 results. There is a lot to talk about today, so let's dive right into the details.
We again realized solid overall business performance in the quarter as we continue to see healthy market conditions and strong customer demand for avid solutions and ended the year with good momentum as we head into 2023.
I'm very pleased with the results for Q4 as the business continued to perform quite well with the continued growth of our recurring revenue streams, driven by strong subscription revenue growth and robust growth in the quarter.
As we benefit from subscription, becoming a considerably larger portion of our business and the concurrent acceleration of enterprise subscriptions as part of the normal financial closing process for 2022 and consultation with our independent Auditor, We review the assumptions and methodology, we were using around standard standalone selling price or SSP, which.
As a key component used for determining the revenue recognition for subscriptions.
After reviewing in detail the various assumptions that we used historically for the SSB calculations across all of our subscription Skus, we reviewed our methodologies because each other they sorry, we've revised our methodologies and we will be using these going forward.
As a technical accounting matter in line with these revised methodologies, we booked a onetime noncash corrective adjustments in Q4, which proved up the effect of these SSP calculations going back to 2020.
The onetime adjustment adversely impacted reported revenue by $3 3 million and adjusted EBITDA and non-GAAP net income by $2 4 million in the fourth quarter.
Ken will explain in more details how these numbers related to the impact of periods.
Now this is purely accounting headwind was immaterial in the context of the entirety of the past three years, however, because the period prior period true up it had an impact on our reported Q4 results you will see that our press release and earnings materials seek to allow investors to make what we believe to be an apples to apples comparisons for the relevant periods.
In 2022.
If not for this accounting adjustment, we would have delivered revenue and non-GAAP EPS at the high end of our guidance and adjusted EBITDA within our guidance.
In an effort to simplify our story for investors given the complexity of ASC 606, accounting and SSP methodologies. We are pleased to introduce <unk> as a guidance metric this quarter as.
As we have discussed with investors over the past year. We believe that this metric will be useful for investors and better understanding of the real underlying growth trajectory of our subscription business. Ken will review all of this in detail in a few minutes.
We ended 2022 with terrific momentum in Q4 was another strong bookings quarter across all geographies and markets.
One other important takeaway is that in the fourth quarter integrated solutions revenue increased 55% sequentially. As we are beginning to make good progress in working to resolve the challenges of the global supply chain situation on our business.
As a result of continued strong integrate solutions orders received during the fourth quarter. The backlog of Unshipped orders was reduced during the quarter, but remained above normal levels at the end of 2022 at over $20 million.
Let me now discuss some more specifics around our business performance.
Recurring revenue components of the company's business, which are obviously is quite strategic for the company remained strong during the fourth quarter largely driven by the continued strong performance of our subscription business for both enterprises and creative.
As I talked about previously <unk> has become a better metric for us as a subscription and SaaS business continues to grow giving us a more valuable measurement of performance.
Subscription.
$141 3 million at the end of 2022, an increase of 37, 1% year over year and total <unk> was $244 9 million, an increase of 10, 2% year over year.
At constant currency subscription <unk> increased 38, 8% year over year and total <unk> increased 13, 4% year over year.
Subscription revenue during the fourth quarter was $42 5 million, an increase of 24, 6% year over year.
Constant currency subscription revenue increased 29, 6% year over year.
Excluding the one time accounting adjustment in the quarter that I spoke about earlier subscription revenue increased 34, 3% year over year, and 39, 2% year over year at constant currency.
New subscriber growth for both our enterprise solutions and creative tools continues to grow nicely with paid cloud enabled software subscriptions, increasing by 23100 during the quarter.
It is quite noteworthy that we ended exceeded one 5 million paid cloud enabled software subscriptions as of December 31, 2022, an increase of over 23% year over year. This is an exciting and important milestone for the company.
Our enterprise subscription business is a fast growing and quite valuable part of our business today and will be into the future.
The shift to subscription for our enterprise clients has been quite successful and we continue to outpace our own expectations. Our sales team continues to be very effective in moving our customers towards our enterprise subscription offerings with over 50, new agreements signed just this past quarter, most of which are multiyear agreements with accounts like global and Brazil network.
10 in Australia, and Amy networks here in the U S.
Our enterprise subscription agreements are quite valuable for the company, especially with the multi year contractual commitment with these enterprise customers as well as a robust uplifts and increase in IRR that we are realizing.
This is also motivate us to accelerate at the end of our perpetual license options, which is the right business decision for the company, though it does create a bit of a near term comparative headwind.
With that said, our enterprise subscription agreements with the inherent multi year contractual elements have different timing characteristics for cash conversion than annual or monthly subscriptions.
<unk> put some near term pressure on our cash flow due to the timing or a J curve effect on cash billings. This pressure will ease as we complete the initial conversion of our enterprise customers to subscription and does not change our assumptions and our long term model. Ken will also discuss this cash conversion dynamic in more detail during his remarks.
Overall, we continue to see healthy customer demand for media central and associated apps with significant net new subscription adds during Q4 as enterprise customers continued to embrace our subscription offering and have been investing in enabling new remote production workflows and addressing the growing demand for content creation in television and film.
<unk>.
In our creative tools segment, we saw continued solid stream of net subscription adds both in pro tools and media composer that contributed to our subscription revenue growth.
We did experience a slight pullback in the number of net subscriptions for <unk> in the quarter.
Was mainly in the lower price tiers. So ultimately we still ended with strong subscription revenue growth for civilians.
Our new pro tools tiered offerings continued to bring US new next generation music creators in support of our long term strategy. We continue to see subscriber growth in the newer low end artist here, which shows our decision to offer a lower priced offering was the right thing to do.
And pro tools intro, new free tier announced last September has registered over 150000 activations to date it.
It continues to become a strong new acquisition vehicle for future subscribers. As we are seeing good initial conversion rates to paid subscribers. We expect this to be a great growth engine for us in 2023.
And finally recurring revenue was 84, 5% of total revenue for 2022, which was up 650 basis points from the prior year.
Now, let me take a couple of minutes to discuss a few of the key outcomes from fiscal year 2022.
I'm proud of how the team executed throughout 2022 and delivered growth in both revenue and profitability. Despite numerous macro headwinds, including an unfavorable foreign currency exchange rates and a difficult global supply chain environment during the year.
In 2022, we released several innovative new product releases, including excess edge embark studio Nexus F series subscription carbon pre venue stage 48 and for our creative users. We delivered several important updates to pro tools and media composer.
Addressing shifting market requirements with the highly anticipated initial enhancements for picture and sound workflows and several new plug in options for music creators.
With the market dynamics for our customers.
They've experienced this past year, our priority was to shift and support their changing business and technology requirements and we continue to address new competitive challenges and next generation user requirements, while meeting our near term growth and profitability objectives.
For the full year in 2022 subscription revenue was $151 3 million an increase of 37, 1% year over year, excluding the one time adjustment booked in Q4 subscription revenue would have increased over 42% year over year and over 47% year over year at constant currency.
As I mentioned before enterprise subscriptions performed well ahead of expectations as we saw a high level of demand for our enterprise customers throughout the year, making the transition to subscription has seen significant momentum with customers such as Amazon Studios Fox ITV news Paramount Global NFL films.
Creative tools also saw consistent growth throughout the year.
Realize a total of 95400 net additions for paid cloud enabled software subscriptions in 2022, which was right in line with our long term model and our strategic growth plan.
Total revenue for the fiscal year 2022 came in at $417 4 million, an increase of five 3% as measured on a constant currency basis.
Excluding the onetime adjustment in the fourth quarter total revenue would have increased over 6% year over year on a constant currency basis.
Most importantly, we continued to deliver improved profitability in 2022, delivering adjusted EBITDA of $81 6 million and adjusted EBITDA margin was 19, 5% an increase of 110 basis points year over year.
Excluding the one time adjustment in the fourth quarter adjusted EBITDA would have increased 11, 3% year over year, and 21, 3% year over year at constant currency.
And finally, we continued our approach to strategic capital deployment to optimize shareholder value throughout the year end and over the course of 2022.
The company repurchased two 2 million shares for $52 8 million, including purchasing 360000 shares for $9 3 million in the fourth quarter.
As we enter 2023, we feel confident in the underlying performance of the business as our product innovations continue to drive healthy market and customer demand.
Like most organizations will need to be proactive in navigating global macroeconomic situations that may unfold during the year, but we have carefully considered that in our full year and first quarter guidance for 2023.
As youll see in our guidance, we expect to deliver continued growth in revenues profitability and free cash flow for 2023.
We anticipate continued strength of our subscription business for both creative tools and enterprises with additional contribution from new subscription solutions coming to market during the year.
We expect to deliver sustained subscription revenue growth and a double digit increase in both subscription and <unk>.
And total <unk> for 2023.
In our creative tools business, we have additional exciting music creation innovations coming this summer that will contribute to pro tools growth and.
In enterprise, we've converted about one third of our customers to subscription and we expect that the innovations we have delivered and have planned for later this year will contribute to drive enterprise subscription growth.
The ongoing transition of our enterprise customer base to subscription will continue to impact free cash flow in the near term, but longer term will stabilize as I mentioned earlier with the J curve effect of that business on cash flow.
Regarding our continued recovery from the impacts of the global supply chain situation on top of our progress that we made in Q4, where we resumed volume shipments of our lifestyle and in control services. We do anticipate working through much of the remaining supply chain impacts. We're currently seeing by mid year.
Pacifically, we expect to resume volume shipments for additional audio products in the second quarter that we do not foresee much additional progress during Q1.
Again, this has been factored into our guidance.
As always we will continue our efforts and remain disciplined to improve efficiency and carefully manage our cost structure. While we also continue to make investments in new strategic innovations as well as our digital transformation and supportive of our long term strategic growth plan.
As we've shown in the past few years. This team manages proactively with speed and tight controls to ensure we deliver year over year improvements in profitability. While we also focus on both near term and long term growth.
We are continuing to develop new management talent for our future, including hiring a new general manager of our audio and music solutions business last year.
Other initiatives last month, we announced a voluntary retirement program that we believe will help to ensure that we are able to continue to drive cost efficiencies. While also infusing our organization with additional new talent and skills that we need to execute towards our future.
<unk> thousand 23, we will continue our emphasis on good execution and improving profitability, while remaining hyper focused on driving growth in our recurring revenue, including subscription and SaaS.
I am excited about the talented team we have assembled here and strategic innovation big bets that we have in development.
Also have confidence in this management team has a proven ability to proactively manage any macro headwinds that we may encounter and continue our focus on delivering improved shareholder value.
So with that let me now turn the call over to Ken to review more of the financial details, but when you can.
Thank you, Jeff and good afternoon, everyone.
Overall, we had a solid quarter with strong growth in our subscription business, including 37% growth year over year in subscription IRR and 10, 2% year over year growth in total <unk>.
At constant currency subscription <unk> increased 38, 8% year over year and total <unk> grew 13, 4% year over year as FX was a headwind in the quarter.
As Jeff mentioned avid booked a negative $3 3 million noncash adjustment to revenue in Q4 related to a change in methodology for our standalone selling price for a subscription term based licenses.
This is due largely to the evolving nature of assessing SSP and some of the new observable inputs that impacted our assumptions for SSD.
The reason for the correction is that we saw our enterprise subscription business accelerate at a faster rate than anticipated in 2021 and 2022.
And with this development, we updated our methodology for SSP in the fourth quarter of 2022.
This adjustment is one time and represented immaterial corrective change for prior periods, consisting of positive 100000 related to 2020 negative $2 $1 million related to 2021 and negative $1 3 million for the nine months ended September 32022.
This one time noncash adjustment is immaterial in terms of our overall revenue as it represents 30 basis points of total revenue for the period from 2020 to 2022.
However, it did adversely impact our fourth quarter results as the adjustment negatively impacted revenue by $3 3 million in EBITDA by $2 4 million respectively. As all prior period changes were booked in Q4 dollars 22.
However, when you exclude this one time noncash revenue adjustment and the associated bonus adjustment, we would have delivered revenue and non-GAAP EPS at the high end of our guidance range and adjusted EBITDA within the implied range.
As we look forward the new methodology is expected to have an immaterial impact to our fiscal 'twenty three results and we have factored this into our 2023 guidance.
Given the corrected accounting methodology, we feel even more strongly that IRR, which reflects the actual annualized contract value for subscription and maintenance customer agreements is the most important metric when assessing the health of our growing subscription business as such we are introducing <unk> guidance.
To help investors evaluate the future trends for average subscription and maintenance business.
With that let's now turn to the details of our fourth quarter and fiscal year 2022 financial results.
We are encouraged by the continued growth of our paid subscription base, our total subscription count exceeded a half a million dollars at the end of the fourth quarter, an increase of 23% year over year.
Creative subscription growth was solid and enterprise subscription performance in the fourth quarter continued to exceed our expectations.
We added approximately 12800, new creative subscription users, reflecting growth of 15, 7% year over year.
At September 2022, we introduced pro tools intro, a new introductory free version aimed to capture aspiring music creators and further build the rapidly expanding pro tools ecosystem.
We have seen more than a 150000 sign ups approaches and true to date, increasing the pool of users to potentially convert to paid subscriptions as we move forward.
Moving to our enterprise business media Central subscriptions grew to approximately 45900, an increase of about 10300 during the fourth quarter.
Representing year over year growth of 249% the.
The increase in enterprise subscriptions furthers, our confidence in the transition of our existing customer base to subscription.
We believe we have converted about one third of the existing media central professional customer to subscription in terms of dollars. During the first two years of availability. So we still have a lot of opportunity ahead.
As our enterprise subscription business continues to become a more meaningful part of our subscription mix. It is positively impacting our overall price per seat as the price of it enterprise seat as a multiple of the price of a creative suite.
Now moving to annual revenue.
Recurring revenue in LTM recurring revenue.
Annual recurring revenue based on the annualized <unk> of subscription and maintenance bookings was $245 million in the fourth quarter, an increase of $23 million or 10% year over year, and 13% year over year at constant currency.
Growth in <unk> was due to a subscription <unk> growth of 37% as we continued to convert maintenance customers to subscription at healthy uplift plus add new customers at.
At constant currency subscription <unk> increased 39% year over year.
Our focus on growing our recurring revenue continues to drive greater predictability in our business and results and improvements in gross margin over time.
As of the fourth quarter LTM recurring revenue was 84, 5% of total revenue up from 78% a year ago and in line with our long term model.
Now, let's look at our the results for the fourth quarter of 2022, beginning with the components of our revenue.
The consistent growth in a number of paid subscriptions drove continued growth in our subscription revenue during the fourth quarter, which reached $42 5 million, an increase of 25% year over year and 30% on a constant currency basis.
Excluding the onetime noncash revenue adjustment of $3 3 million in the quarter subscription revenue would have increased 34, 3% year over year, and 39, 2% year over year at constant currency.
Maintenance continues to be a solid part of the business during the fourth quarter maintenance revenue was $26 5 million down 16% year over year.
As we continue to successfully convert our enterprise customers to subscription offerings at healthy uplift in excess of 140%. We are seeing a reduction in the related software maintenance revenue from those customers.
Total subscription and maintenance revenue increased year over year by 5% in the fourth quarter and 9% on a constant currency basis.
Excluding the onetime noncash revenue adjustment in the quarter subscription and maintenance revenue would have increased 10, 3% year over year, and 14, 3% year over year at constant currency.
In the fourth quarter integrated solutions revenue was $40 8 million, a decrease of 4% year over year, but 55% higher than during the previous quarter as we continue to resolve supply chain issues through finding alternative sources of supply selective redesigns and other means.
Total combined integrated solutions perpetual and professional services revenue was $47 2 million in the fourth quarter.
Total revenue in the fourth quarter was $116 1 million down two 5% year over year and up 2% at constant currency.
Excluding the onetime noncash revenue adjustment in the quarter total revenue would have increased 3% year over year, and four 4% year over year at constant currency.
non-GAAP gross margin was 64, 6% for the fourth quarter down 160 basis points year over year and down 30 basis points at constant currency.
We were successful at shipping a large portion of our live sound backlog in Q4, but this did impact our overall gross margins for the quarter.
Also the onetime noncash revenue adjustment in the quarter adversely impacted non-GAAP gross margin by 80 basis points in the quarter.
non-GAAP operating expenses were $52 5 million in the fourth quarter of $3 $3 million decrease year over year.
The impact of FX favorably impacted our operating expense in the quarter as our global cost base does provide a partial hedge against currency fluctuations.
Also our bonus accrual was reduced by 700000 in the quarter as a result of the onetime noncash accounting adjustment.
Adjusted EBITDA was $24 8 million in the fourth quarter down 150000 year over year, when adjusting for the FX impact to both revenue and cost adjusted EBITDA was negatively impacted by approximately $2 $1 million in the quarter.
Excluding the onetime noncash revenue adjustment in the quarter and the adjustments to the bonus adjusted EBITDA would have been $2 4 million higher than the reported results at $27 2 million in the quarter and on a constant currency basis, adjusted EBITDA would have been $29 2 million in the quarter.
Finally, non-GAAP earnings per share was <unk> 45 in the fourth quarter down <unk> <unk> year over year, when adjusting for the FX impact to both revenue and costs non-GAAP earnings per share was <unk> 49.
Excluding the onetime noncash revenue adjustment and bonus adjustment in the quarter non-GAAP earnings per share would have been 51.
And on a constant currency basis, non-GAAP EPS would have been 55.
Next let's look at the results for our full year 2020, beginning with the components of our revenue.
For the full year subscription revenue was $151 3 million up 40% year over year and 45% on a constant currency basis, excluding the onetime noncash revenue adjustment in the fourth quarter subscription revenue increased 43% year over year and 48% year over year at constant.
<unk>.
For the full year maintenance revenue was $109 8 million down 10% year over year subscription and maintenance revenue saw 13% growth for the full year 2022, and 16% at constant currency, which is in line with our long term plan.
Excluding the onetime noncash revenue adjustment in the fourth quarter FY 'twenty to subscription and maintenance revenue would have increased 14, 6% year over year, and 17, 8% year over year at constant currency.
Perpetual license revenue was $11 1 million for the full year 2022, a decrease of 53% year over year as we continue to deemphasize perpetual licenses and focus on strategic subscription revenue.
Integrated solutions revenue was $123 3 million and full year, 2022 down, 6% or $7 $8 million year over year.
Due to the supply chain headwinds related to certain parts of our audio business.
Although we are seeing improvements in our backlog in the quarter as anticipated as we resolved certain supply chain issues. We continue to see strong orders and as a result, we ended the year with over $20 million of backlog at 12 31 2022.
Total revenue for the full year 2022 was $417 4 million up 2% year over year and 5% at constant currency.
Excluding the onetime noncash revenue adjustment in the fourth quarter total revenue would have increased two 6% year over year and six 1% year over year at constant currency.
As reported we were in the low end of our guidance range for revenue, but we would have delivered revenue at the high end of the range. When you exclude this one time noncash revenue adjustment.
Now, let us turn to the rest of the P&L for the full year 2022.
Our strategy of investing in innovation to drive higher quality recurring revenue together with effective cost controls has resulted in sustained trend of margin expansion and continued profitable growth.
non-GAAP gross margin was 66, 2% for the year up 90 basis points compared to 2021 is our high margin subscription business made up a larger share of our revenue.
We continue to expect improving gross margin and our long term model as our subscription business continues to be a bigger piece of our overall mix.
Excluding the onetime noncash revenue adjustment in the quarter non-GAAP gross margin would have increased 120 basis points year over year, and 230 basis points at constant currency.
non-GAAP operating expenses were $203 3 million for the full year 2022, a $2 $9 million increase year over year.
non-GAAP operating expenses were 48% of revenue in 2022 down from 48, 9% of revenue in 2021.
Okay.
For the full year of 2022, adjusted EBITDA was $81 6 million up eight 1% driven by the improvement in both revenue and non-GAAP gross margin.
When adjusting for the FX impact to both revenue and costs adjusted EBITDA was negatively impacted by $7 $4 million in the year and would have resulted in a 17, 9% growth at constant currency.
Excluding the onetime noncash revenue adjustment and the associated bonus adjustment in the fourth quarter. Adjusted EBITDA would have been $84 million, an increase of 11, 3% year over year and on a constant currency basis. Adjusted EBITDA would have been $91 6 million, an increase of 21, 21% year over year.
We ended 22 in a strong financial position with net debt to EBITDA of one eight times.
Finally, non-GAAP earnings per share was $1 41 for the year up 12, 8%, reflecting the improved operating income during full year 2022.
When adjusting for the FX impact to both revenue and costs non-GAAP earnings per share would have been $1 56 <unk>.
Excluding the onetime and noncash revenue adjustment and bonus adjustment in the fourth quarter non-GAAP earnings per share would have been $1 47, an increase of 18% year over year in constant currency of $1 62, an increase of 30% year over year.
Now moving to free cash flow free cash flow was $18 3 million in the quarter down $6 $7 million year over year due to a smaller contribution from working capital and timing of receivables collections at the end of Q4 as more of our quarter's billings were at the end of the quarter compared to the.
Fourth quarter of 2021.
For the full year 2022 free cash flow was $32 8 million.
The following factors account for the change in our free cash flow generated in 2022 versus 2021.
First on a positive note higher adjusted EBITDA in 2022 from strengthen our enterprise subscription offset by unfavorable foreign exchange rates.
Second greater use of cash in working capital in 2022, primarily from timing of cash billings related to multi year enterprise subscriptions and.
And third higher capital expenditures and prepaid expenses in 2022 due to temporary DTI investments in capitalized software development to support our long term growth plan.
Free cash flow as adjusted for the <unk>.
Exclusion of cash cost of restructuring was $33 7 million for full year 'twenty two free cash flow conversion from adjusted EBITDA was 40% in 2022.
Avon's management is focused on improving its free cash flow conversion in 2023, we will continue that.
Growth initiatives to drive our subscription revenue, but we'll be very prudent and overall expense management as we look to reduce investments in other areas to improve our free cash flow in 2023.
Also we expect working capital to be more of a benefit in 2023, which should assist to free cash flow along with the improvements we see in our profitability.
We expect to incur restructuring costs of $7 million in the year and our guidance will reflect the add back of those costs.
Finally, we continued to execute corporate actions to enhance long term shareholder value.
During the fourth quarter, we repurchased 365000 shares for $9 3 million, reflecting an average price of 25.
<unk> 45 per share for full year 2022, we repurchased two four.
4 million shares for $52 $8 million, reflecting an average price of $25 95 per share.
Additionally, during the first quarter of 2023 through February 28, we also repurchased 14500 shares for $400000, bringing the total repurchase to $2 9 million shares or $78 3 million under the $115 million authorization announced in September 2021.
We will continue to deploy capital prudently and then most responsible way to drive long term shareholder value.
Let's now turn to guidance as.
As Jeff said, we are confident in the underlying strength in our business, including the healthy demand for our solutions that we are seeing.
We expect continued strong growth in our subscription revenue from continued solid performance in our creative tools and enterprise subscription business.
We also expect to see improved performance in our integrated solutions beginning in the second quarter of 2023, as we expect a more meaningful reduction in our backlog at that time.
Before I go through the guidance numbers, our assumption on FX rates as of pound USD exchange rate of one two to one and a euro USD exchange rate of 105 to one.
In terms of guidance for the first quarter of 2023, our guidance for <unk> at the end of the period is $247 million to $251 million.
For first quarter 2023, our total revenue guidance is 97% to $105 million.
Overall, our guidance for Q1 assumes a small improvement in our backlog of integrated solutions orders as we believe at this time, we will be resolving the remaining supply chain issues in Q2, and ultimately converting backlog to revenue in Q2 and in Q3 of 2023.
Our guidance for the first quarter 2023 subscription and maintenance revenue is $63 million to $67 million or.
Our guidance for first quarter 2023, adjusted EBITDA of $16 million to $20 million.
Our guidance for first quarter 2023, non-GAAP earnings per share is 21 to 29 <unk>.
Assuming $44 2 million shares outstanding.
At this time, we are also providing guidance for the full year 2023.
Our guidance for 2023 <unk> at the end of the period is $270 million to $280 million, a range, which represents year over year revenue growth of 12, 3% at the midpoint.
Our guidance for 2023 total revenue is $447 million to $472 million of range, which represents year over year revenue growth of 10, 1% at the midpoint.
Our guidance for 2023 subscription and maintenance revenue is $292 million to $302 million of range, which represents year over year growth of 13, 7% at the midpoint our.
Our guidance for 2023, adjusted EBITDA is $95 million to $105 million.
And our guidance for 2023 non-GAAP earnings per share is $1 53 to $1 75, assuming 43 5 million shares outstanding.
And our guidance for 2023 free cash flow as adjusted is $50 million to $60 million, which includes $7 million in cash restructuring our 2023 free cash flow guidance reflects the improvements in profitability and improvement in working capital slightly offset by higher cash interest costs due to the higher base rates and higher cash restructuring.
Costs.
With that I'd like to turn the call back to Whit.
Thank you Jeff. Thank you Ken that concludes our prepared remarks, and we're now happy to take questions.
Our first question is from Josh Nichols B Riley to be followed by some odd Simona Josh. Please go ahead.
Yeah. Thanks for taking my question and walking through the onetime adjustment seems like everything was in line or a little bit better.
After adjusting for the noncash items looking forward, though I'm just kind of curious have you seen any change in either adoption or the sales cycle within the prosumer or the enterprise market I know thats, a big concern for a lot of people given.
What other tech companies have reported with the softening macro environment.
Got it.
Good question, Josh This is Jeff So I think.
As I said in my prepared remarks, we have looked out at the landscape and we've been very.
Careful in our guidance and what we've set for 2023. So we have taken that into consideration I would say, it's I think what you see from our guidance. It's still very I think it's still very solid I think overall, we're not seeing a significant change we're seeing in the sales cycle is slow down a little bit and of course, we have modeled into our guidance.
A little bit of being careful about the assumptions for 'twenty, three but I think so far we've seen really good momentum and a lot of our customers subscriptions as a real benefit for them to move to it and to move to some solution. So I think I think we've talked about before I think we're going to see on our subscription software business that will continue to perform I think very strongly.
We may see a little less capital investments this year, which really hurts our hardware business, though again, we factored that into our guidance.
Thanks, So things for the year seem in line, even though you're seeing a little bit more conservative.
I'll look on things like subscription adoption, but I kind of wanted to take a step back here.
I know you mentioned you plan on working through that $20 million backlog, but other opportunities as we think about later this year, particularly things like AWS commercialization with cloud storage like what's factored into that for later this year. This summer as that turns out and is there upside potential there.
I think on anything SaaS, we've been fairly conservative.
On our assumptions for SaaS, we have seen the industry migrate pretty carefully our software subscriptions one thing they've been very quick to move to that I think in real SaaS software as a service where the reserve that all up in the cloud.
That was coming on board later this year and so we will we have modeled some of that in Josh, but we've been very careful about what we've modeled in so I hope there's some upside I think we will speak to that later, but at the moment I think we've been pretty prudent in how we've modeled that.
I think there's going to be some great opportunities as we look forward and converting customers.
Great and then last question for me.
Yes release last month right about.
How you are now enhancing the interoperability.
Media composer Pro tools could you talk a little bit about what's the long term opportunity the gap that bill's how long the mill feed.
Fully finished at it and how they can differentiate your ears.
Good very good question Josh.
The work is just in the first deliverable, we had actually three phases of our three horizons as we call. It on the work that we're doing there. So first of all what this is.
Or it is.
Pretty much the industry standard, especially at the high end of television and film and both picture mean video editing with media composer and sound, which is the audio.
Portion of it.
Which is pro tools.
Of the of this film or television show, but one of the thing is as a company as.
As complexity of productions of increase and as they're producing a lot more deliverables a lot faster in today's world of media Theres a lot of complexity in how they.
Work back and forth between the picture elements of that sound elements of these TV shows or films.
So it's a lot of workflow work and a lot of.
Intense work that they do so what we're doing is innovating in new ways on how these two areas work together between our two products and how they work together for the production of film and television programs.
It does uniquely differentiated this because we have such a strong position. These space as we create new opportunity as we create strength I think for the company in this space through this innovation. It clearly continues to I think cement us in a very strong position at the high end in these markets, but we also are going to be solving some pretty important problems for these.
Customers and we will be generating higher price points are higher <unk> from these customers as we look forward.
We haven't started to bring those prices up yet we want to see more of the value of those innovations that we are developing come to market and then we will be looking to bring prices up in those markets as we're delivering that value to these customers and they are benefiting substantially in their own cost savings or efficiencies that they're getting from it.
As far as the phases.
First phase has been done this horizon was horizon, one as we call. It was launched already in December .
The second horizon is coming this summer I don't have an exact date, but it will be mid this year and the third horizon. We plan for early next year, but we haven't.
We haven't fully gone public with that.
Yes.
Thanks, everyone.
Okay. Thanks, Jeff Thanks, Josh if I could ask people to just limit themselves to one follow up that'd be great. Our next question is from some odd Simona at Jefferies to be followed by Nate I'll talk to you. Some odd. Please go ahead.
Hey, guys. This is Jeremy sailor on personal auto.
Thank you for taking my questions.
So it's great to see that.
It's great to see that new guidance.
How should we think about the seasonality of net new going forward are there any trends there we should be mindful of yes. So I think in general our Ah is typically strongest.
Seasonally in Q4, just because of.
That's usually the strongest part of our cycle in terms of.
Maintenance renewals that drive our enterprise business. So that's where you would you would expect.
Higher growth.
In that quarter.
Versus earlier periods in the year. So that's what we saw this this this year and expect that next year.
Got it.
Size of the relative impact of enterprise customers that any way or this quarter versus previous quarters, and how does that how is that trending.
Yes, so in terms of the trend the trend is very positive as we as we look at our.
As we look at our IRR in terms of subscription of our subscription <unk> was up.
40% when we look at that that piece of growth sure we group our creative.
Closer to.
Low <unk>, but the enterprise was was in the 60% to 70% growth rate, which puts balance to the 40% AOR growth.
Okay.
Understood. Thanks for taking my questions My pleasure Thanks, Jeremy.
Our next question is from Nick <unk> at Northland to be followed by Paul Chung May help. Please go ahead.
Okay.
Yeah.
They're already there.
I'm here now can you hear me, yes, we can now.
Okay great.
So you may have already answered this I know you've pointed out that created it came in at 12800.
I think that's a pretty big step down from the prior quarter net add of 20000 under accretive net ads, what's a narrative behind that.
Yes, I talked about.
Now, it's Jeff I talked about this a bit during my prepared remarks, it really was a pullback a bit on the <unk> area Pro tools media composer performed quite well for the number of creative net adds that we added in the quarter, but we saw a bit of a pullback on <unk> really around the lower priced skus.
It was it was a few thousand that we saw pullback on our lower priced skews heavily around students and education, we may see some of that come back, but we did see.
Quite a bit of that pullback in the quarter. It was our lower priced skus. So even with that we still had very favorable subscription revenue from <unk> for the quarter, but that was really that headwind youre seeing is really around the sibelius product line.
But just to be clear you mean that sebelius subscribers was actually down Q over Q due to these lower priced skus within the.
Students section the number of the number of net adds was down significantly. So we still grow we still grew and Sebelius. It's just the growth rate in terms of net adds slowed versus the prior quarter and as Jeff said.
It's in the lower price Skus.
With Sibelius and.
Obviously, when you look at the revenue growth for the quarter.
It was very strong.
In terms of total revenue and total subscription IRR growth so again.
Again these are the lower price skus.
That had a deceleration, but we still had growth.
And Neal just as Jeff just to be clear the number you compared before with sequential Theres always a sequential there was between Q3 and Q4, because Q3 is a big quarter for turn on of subscriptions for US education. So we really look at quarter on quarter perspective, but still if you look at Q4 last year.
It's not quite as strong as Q4 last year, but that is related to civilians.
Understood. Okay, and then what is your expectation sort of accretive net adds on an annual.
Wise basis.
Yeah, so in terms of the.
And in terms of how we're looking obviously are we seeing in Q1, we're obviously, we're trending positive to where we were last year. So we're already starting off.
In good shape, so we should have.
Creative ads in Q1 that are going to be positive to last year or similar to last year right in that area and we expect to continue to drive our long term plan of.
Having.
I would say.
Total subscription adds of.
90% to 190.
90000 to 100000 per year, which is what our long term plan is and have double digit growth.
<unk> will be a big chunk of that of that growth.
In terms of net adds as well as enterprise so.
That's what our long term model is and we're already seeing that Q1.
As already.
Kind of on plan in terms of the trends for through Q1 dollars 23.
Great. Thank you. That's my follow up question, so ill get back in the queue. Thanks Neal. Thank you Danielle. Thanks now our next question is from Paul Chung Jpmorgan to be followed by Jeff and Paul. Please go ahead.
Thanks for taking my question. So can you just talk about kind of the pace of revenues.
Margin expansion relative to your long term targets for bias from 'twenty five.
Your revenue guide here in Spain is suggesting kind of a breakdown here low $400 million you've seen in the past.
Expansion in EBITDA.
EBITDA margins as well could you see some upside too.
'twenty three progression across both gross margins and operating margins year to date.
Yeah, so in terms of.
Growth, we feel really good about first the guide that we've put out there we think it's.
It's well balanced and we have.
We ended Q4 with a very strong bookings quarter.
I think in general we see.
Growth at.
At 10%, we talked about in earnings and the Investor Day high single digit growth. So we're on plan in terms of that long term model.
And then in terms of.
Growth of the subscription business.
Our growth in Q4 was was was aligned with that long term model slightly over 40% and that actually beat the long term model.
We expect subscription to have very strong growth next year in our subscription and maintenance business to grow.
Very nicely aligned with our long term model. So we talked about mid teens growth.
And that's what we see.
So I think the growth is.
Isn't in front of US we have.
A great solid creative business that continues to grow and we have one third of the enterprise customers converted so the opportunities ahead of us.
In terms of in terms of driving that and we and our sales team is very well incentivized to achieve those targets.
And then on the integrated solutions sure this year with the backlog.
Some challenges, but we expect that to mainly be resolved in Q2, and then that revenue to come in in Q2 and Q3. So we expect recovery in the integrated solutions business.
It will complement the strong growth in our subscription and maintenance business to drive a 10% year over year growth.
Every year I would say on the margin.
Progression.
We've seen solid progression in both gross margin and EBITDA margin.
As we drive the subscription business.
We usually generate.
Gross margin improvements of 200 basis points per year.
That's what we should expect.
As we look forward, that's what we've modeled in the long term plan and Thats, what we generally have achieved.
As you go back.
And our business model transition and then in terms of cost management, we are investing for growth.
To drive that top line, but we're very prudent on other areas of the business. So as we drive gross margin improvement that does result in improvement in EBITA margin. So you should see the EBITA margins getting to the low twenty's as we as we talked about in our guidance.
So we feel really good about the opportunity ahead of us that will drive the revenue growth that we expect and the margin expansion given given where that growth is coming from in the subscription business and ultimately that drives our profitability.
Okay, great. Thanks, that's Super helpful. And then just on cash so I mean, you're seeing some lower conversion here in the guide.
Where could you see some upside to that projection because I assume you would get better in working cap.
Turnover this year, so repeat could you see upside in the cash restructuring of <unk> 7 million is that what's driving that cost of that included in the free cash flow guys well. Thank you.
Yes, so we expect free cash flow to.
To improve this coming year and only because of the improved profitability, but we expect working capital to be less of a headwind in terms of cash flow as we continue to drive collections of multiple years of enterprise business that is built up.
So we expect working capital to be less of a challenge this year.
And I think in general we feel good about the guidance that we have in terms of the restructuring we have.
Provided that as part of the guidance.
So the $7 million of restructuring is is in our guidance. So we.
We expect $50 million to $60 million. When you include the $7 million in restructuring and.
And cash flow.
Thank you.
Yeah.
Thanks, Paul and our final question comes from Jack Vander Ark Maxim. Please go ahead.
Okay, great. Thanks, I appreciate the update guys and thanks for taking my questions.
And we have just to kind of a loaded question on the enterprise subscriptions just to make the most of my time.
You mentioned, you've converted about one third of your enterprise customers to subscription wondering if you're able to sort of parse that out or split that between.
Existing enterprise customers.
Existing enterprise subscription customers expanding seats versus new enterprise conversions versus new to avid altogether customers. That's one question and then I have a follow up on slide six of the presentation about the 50, plus new enterprise subscription agreement secured what does that mean exactly and how does that relate to the.
The number of seats and what was that number last quarter.
Yeah. Good question Jack So on the on the question really about the.
Where we are so you actually I think loaded in a couple of different elements. There. The first one is when we think about conversions those are where we're converting existing customers who may be on a perpetual license subscription.
Perpetual license maintenance model, and we're converting them with an uplift to a subscription enterprise subscription model and so on that transition we're about 30% of the customers now a lot of customers early days with some of the larger dollar customers. So.
As we go as we get through the customer base, we're obviously going deeper and wider into the customer base as we as we move forward, but when we talk about that 30% or about one third that is we're talking about the conversion from customers. We also do have new customers coming onboard that like any business, we got new customers coming in and a piece of our business.
Generally I would say our company is around 10% to 15% is new customers coming into our business on any given year.
And I think that would be the same for subscription that I can't tell you I have the exact number for the quarter.
To give you here today, but it's about the assumptions. We have now you also asked about upgrades or expansions. We have done a couple of expansions already with some major customers and we'll continue to see a few of those of course throughout this year, but as we get to December This December quarter.
This is where we started to really remember December 'twenty. The December quarter of 2000, Twenty's. When we really started leaning into the enterprise subscription. So that's where some of the big renewals will start coming in we will see we believe we will see significant.
Improved economics, as we expand and upgrade people, but we are along the way due and expansions with customers. We've done several so far so so far overall the mix of what we've done is whats generating the business that we that we see is that makes sense.
And youre going to ask you about that.
Yes, very helpful color there and then yes in terms of I think it's on slide six there's 50 50, plus new enterprise subscription agreements in the quarter, what was that number last quarter. If you have it on hand, and then what is.
Do you have that the total amount you provide do you disclose that or I'm not sure. If that is the number you've disclosed yeah. So I'm going to have to look up that number. So I don't make a mistake off top my head because he is quarters, but the 50 new agreements. These are 50 different customer agreements that we've made throughout the year around the world and these are these are all <unk>.
Generally we've done some small customers, but they are generally large and medium customers that we're signing and some of them I named in my in my remarks, we don't need them. All just because we don't we only name them when they allow us to name them.
But these are varying sizes and types of <unk>.
Media companies and broadcasters and production companies.
Around the world.
I believe last quarter we.
We said in the mid Twenty's is the number we gave.
Q I appreciate it.
As Ken said Q4 is always going to be our strongest quarter in the maintenance business. We used to say that Q4, and Q1, where our biggest quarters I think what we've seen is Q4 is definitely always going to be an outlier is going to be a major quarter, but as far as Q1 through Q3.
We see a different pattern, there, where we've really been able to upgrade people to subscriptions throughout the year. So.
It's a little more even not quite as seasonal between Q1 and Q3 as it used to be.
Very helpful color. Thank you guys. Thanks, Jan Thanks, Jack.
That ends the Q&A session.
You all for your participation and your questions. We appreciate the time you've taken to join US on today's earnings call and we hope everybody has a wonderful evening. Thank you again and good night.
Yeah.
They are recording has stopped.