What’s the truth about Avid’s Financial Position?

There’s been a lot of speculation about Avid’s Financial Position – some of it by me for sure – that I decided to spend a little time examining the most recent accounts I could find to work out what the facts are.

I should preface this by saying that Avid have postponed their full year 2012 (and 4th quarter) figures:

…to evaluate its current and historical accounting treatment related to bug fixes, upgrades and enhancements to certain products which the Company has provided to certain customers.

This puts them in breach of NASDAQ rules, and they have received the expected letter from NASDAQ letting them know they’re in breach of the rules. It’s hardly a big deal: they have until the end of May to file a response, explaining how they will have the accounts ready before September (when there would be a problem).

I doubt that any reevaluation as above will materially affect Avid’s cash in bank.

For about ten years of my life back in Australia I was a Fellow of the Australian Institute of Company Directors (reservered for those on five or more corporate boards) and back then was pretty good at looking at company accounts.

On that face of it, the first three quarters of 2012 don’t look much brighter than a year earlier: the net loss for the 9 months to Sept 30 2012 is $69,617,000, an increase from the same period a year earlier when the loss was $23,477,000. And that is the official loss for the company, but because of a set of rules known as the Generally Accepted Accounting Principles (or GAAP) not all losses are cash losses.

For example, when a company buys an asset it has a value at the time of purchase. The cash balance goes down by the purchase price, and the asset (balance) goes up by the purchase price. However, over time, that asset loses value (at different rates for different types of assets), so each year the company depreciates the asset. This reduces the value of the asset on the balance sheet, and the drop in value (depreciation) is charged to the Profit and Loss account. Yet no money has left the bank.

Avid provide a reconciliation between GAAP and non-GAAP figures, which is useful to assess the performance of the company on a cash basis. Better but still not brilliant: the nine months to Sep 30 2012, accumulated loss is still $14,560,000.

While GAAP gives us a good long term picture of the health of a company  and non-GAAP gives a good idea of the health of the company as it would be without being burdened with a history, it doesn’t really help us determine whether or not Avid has the cash to survive. This is where there is good news.

While total assets have fallen by about $48 million, the one we most care about – Cash and Cash Equivalents – went up from $32,885,000 at Dec 31, 2011, to $71,359,00, although there is a balancing $29 million drop in accounts receivable. That is still a net increase of about $20 million in the bank.

Overall Avid’s current assets are down just under $7 million for the 9 months to Sep 30, but current assets still sit over $250 million. Total assets are on the books at around $555 million but  most of that are “intangible assets” like “goodwill” at $238 million. Essentially the value of the Avid brand. This continues to have value as long as we all believe it has value. The sad reality is that goodwill can evaporate if outside events force a change in the industry.

For reference, on April 19, 2013 Avid’s NASDAQ value is $244,450,551. The market does not (currently) value the Avid brand and intangible assets as highly as Avid does. The NASDAQ valuation is only slightly higher than the value of current assets.

Short to mid term I see no problem with Avid’s financial position. Keep watching the cash-in-bank and current asset figures: they tell us most about ongoing viability. I think the results also attest that Gary Greenfield did a pretty good job turning Avid around.