Avid Technology Inc (AVID) 2007 Q4 法說會逐字稿

Good day, and welcome everyone to the Avid Technology Fourth Quarter 2007 Earnings Results Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to the Director of Investor Relations, Mr. Dean Ridlon. Please go ahead, sir.

Thank you, and good afternoon, everyone. I'm Dean Ridlon, Avid Technology, Inc.'s Investor Relations Director. I'd like to welcome you to today's call.

Before we begin, please note that this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about projected growth of existing or new markets and anticipated results of operations.

There are a number of factors that could cause actual events or results to differ materially from those indicated by such statements, such as competitive factors, including Avid's ability to anticipate customer needs, pricing pressures, our ability to execute our strategic plan, and adverse changes in general economic or market conditions, particularly in the content creation industry.

Other important events and factors appear in Avid's filings with the U.S. Securities and Exchange Commission. In addition, our forward-looking statements represent our estimates only as of today, January 31, 2008, and should not be relied upon as representing our views as of any subsequent date. Avid undertakes no obligation to review or update these forward-looking statements.

During this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. The most directly comparable financial measures calculated in accordance with GAAP and a reconciliation of GAAP measures to these non-GAAP measures are contained in the press release announcing this quarter's results and available in the Investor's section of our website, www.avid.com.

And now I'd like to introduce Gary Greenfield, Avid's Chairman and CEO.

Thank you, Dean. I'd like to welcome you to our fourth quarter 2007 results conference call and my first earnings call as Avid's CEO. With me on the call are Joel Legon, our CFO, and Ken Sexton, our Chief Administrative Officer.

Briefly looking at our results, fourth quarter revenue was 258.5 million, up year-on-year and sequentially. However, our strong revenue performance was offset by a lower gross margin percentage and higher operating expenses, both sequentially and year-on-year. As a result, non-GAAP net income for the fourth quarter was $0.42 per diluted share, a disappointing level of profitability.

Now, I'd like to turn it over to Joel to go over our financial results in detail.

Thank you, Gary, and good afternoon, everyone. Though we had strong revenue in Q4, there were several items that adversely impacted our bottom line. Revenue for Q4 was $258.5 million, the highest quarterly revenue in Avid's history. GAAP income before income taxes was $6.9 million and our GAAP tax provision was $3 million, resulting in net income of $3.9 million, or $0.09 per diluted share on 41.3 million average diluted shares outstanding.

Our earnings release provides a table of certain items that are included in our GAAP results. For Q4, these items totaled $13.3 million and consisted of amortization, stock-based compensation, restructuring costs, other costs, and related tax adjustments. When we measure the performance of our business units and disclose our business segment results externally, we do not include these items. Adding the $13.3 million in charges to our GAAP earnings results in non-GAAP net income of $17.2 million for the fourth quarter. Using fully diluted shares outstanding of 41.3 million, non-GAAP earnings per share was $0.42. GAAP gross margins were 47.5%, including 3.6 million of amortization, 1.5 million of restructuring costs, and 307,000 of stock based compensation. Without these charges, gross margins would be 49.6%.

Gross margin percentage in all three of our business units declined sequentially. Professional video gross margin percentage was affected by the mix of business during the quarter that included certain transactions with less than typical gross margins as a result of the inclusion of third party product components.

Audio's gross margins were lower primarily due to higher air freight expenses associated with shipping M-Audio product. Consumer gross margins were negatively affected by the write-off of inventory related to the discontinuation of an OEM product and our PCTV hardware business, a minor contributor to the unit's revenue.

Operating expenses increased from the third quarter in part due to the write-off of certain capital investments related to changes in our video division's development strategy, which we believe will improve our engineering efficiency and ultimately benefit our customers. In addition, operating expenses were affected by higher than expected costs related to the change in our executive management. Our tax rate was also higher than usual in Q4 due to the number of large deals in Europe where our tax rate is higher.

Now, let's talk about the operating performance of our three business segments. Professional video had revenue of $133.3 million and an operating margin of 7.7%, audio was $86 million with an operating margin of 11%, and consumer revenue was $39.2 million with an operating margin loss of 1.7%. In addition to interest, we exclude the following items from our business segment results in Q4 - $7 million of non-cash amortization of intangibles, $3.9 million of non-cash stock compensation, $2.8 million of restructuring charges related to a final true-up of the inventory write-down related to the decision to exit the transmission server business and charges related to vacating space in Mountain View and Montreal, $228,000 for other costs, and $600,000 of tax adjustments for the items mentioned above.

As I mentioned, professional video revenue was approximately $133 million, the highest quarterly revenue ever for the unit, up over $14 million from Q3. This performance was helped by the recognition of more large broadcast deals during the quarter. The unit's run rate business was off sequentially as they were coming off particularly strong U.S. government business in Q3. Professional video operating profits increased approximately $300,000 sequentially to $10.3 million. Video gross margin as a percentage of revenue was down roughly two points sequentially, primarily due to high third party content. Expenses increased $4.6 million with engineering asset write-off mentioned earlier accounting for almost half the increase.

Year-over-year, video revenue was up significantly, gross margin percentage was level, and operating expenses were up. As a result, professional video operating profits in Q4 2007 were nearly $5 million higher than in Q4 2006.

Audio revenue in Q4 was up both sequentially and year-over-year. The increased revenue was due to solid performance from all three audio lines. Audio operating profits increased sequentially from $7.8 million to $9.4 million, or 10.9% of revenue, as higher revenue more than offset the impact of lower gross margin percentage and higher operating expenses.

As I mentioned earlier, audio's gross margin percentage was lower primarily due to the M-Audio related expenses. Operating expenses increased sequentially primarily due to higher compensation related costs. Year-over-year, increased revenue was offset by lower gross margin percentage and higher operating expenses resulting in a $5.5 million decline in audio operating profits from 14.9 million in Q4 of 2006. The reasons for the year-over-year decline in gross margin percentage and increase in operating expenses are essentially the same as the sequential explanations.

Reflecting holiday seasonality, consumer revenue was up sequentially to $39.2 million. Although gross margin percentage was down sequentially and operating expenses were up modestly, the consumer operating loss decreased sequentially to $700,000 from a $1.9 million loss in Q3.

Year-over-year, revenue was up 3%, but significantly lower gross margin percentage and modest increases and operating expenses resulted in consumer's bottom line moving from a positive contribution to a loss. I'd like to reiterate that the primary factor behind the decline in gross margin percentage was the write-off of inventory related to the discontinuation of the OEM PCTV hardware product. Without this write-off, consumer would have posted a positive contribution for the fourth quarter.

In addition, like many other consumer oriented businesses, our consumer unit's fourth quarter results were adversely affected by the deteriorating macroeconomic environment. In total, results for the fourth quarter of 2007 were revenue of $258.5 million, non-GAAP gross margins of 49.6%, and non-GAAP operating expenses of $109.1 million. Operating profits increased sequentially to $19.1 million, or 7.4% of revenue. Year-over-year, higher revenue was more than offset by a lower gross margin percentage and increased operating expenses, resulting in non-GAAP operating profit declining from $21.3 million in Q4 2006.

Turning to the balance sheet, we had strong results. Our cash balance increased by over $27 million to $224 million at December 31, primarily due to operating cash flow. At the beginning of the year, we said our goal was to reduce inventory by $20 million from the $144 million balance at December 31, 2006. Through focused inventory management in each of our business units we beat that goal and our December 31, 2007 inventory balance was $117.3 million, a decrease of nearly $27 million from the year-end 2006 balance.

DSOs declined to 48 days, however, this is unusually low due to the recognition of several large broadcast deals during the quarter for which payment had already been received.

I'd now like to hand things back to Gary for a discussion of the operations in each of our businesses. Gary?

Hey, thanks, Joel. As Joel mentioned, the completion and acceptance of several large deals in our broadcast professional video segment brought higher revenue, but lower margins. Large enterprise deals were particularly strong for us in Europe led by receipt and acceptance at TV2 Nordic, YLE in Finland, and Irish broadcaster, RTE. Services were up significantly based in large part on the strong business we did in larger enterprise deals.

During the fourth quarter, we also announced that we would not be exhibiting at the National Association of Broadcasters show in April. NAB is the largest and most highly industry market event and it came as a surprise to many in the industry that we would not have a booth. However, after significant customer dialogue and research, the Company determined that our customers in the professional video segment were clear in telling us that we need to listen more and engage with them in new ways. The same Avid doing the same trade show wasn't going to either accomplish our marketing objectives or enable our customers to provide more direct feedback.

Instead, we are investing these dollars in a series of programs designed to have a more direct dialog with our customers around the world and across the year rather than just one week in Las Vegas. While we will not be exhibiting at NAB, we will certainly be present in Las Vegas that week with a series of customer-focused activities, including scheduled meetings, two customer events, and other opportunities to interact with our products and staff.

In looking at the macro trends in the broadcast and professional video markets, the writers' strike is obviously on the minds of many of our customers and is having an effect on the industry as a whole. Our business has not been negatively affected as of yet, because equipment buying cycles are not necessarily tied to production schedules and some customers are taking advantage of open time in the facilities to do equipment upgrades. However, a prolonged strike may very well affect our business. We are watching the situation very carefully and we hope for a speedy settlement.

Turning to our audio segment, Digidesign, M-Audio, and Sibelius, each group, both sequentially and year-on-year, combined for a record quarterly revenue in the business unit. Successful new product launches of high end audio systems and new M-Audio products contributed to the strong revenue, although margins were down year-over-year due to operational costs. Among the new products launched in the quarter were new versions of our flagship Pro Tools software. D24, a new control surface targeted at mid-size facilities and larger product studios, the second generation of our very successful Micro Track hand-held digital recorder, and a new guitar amp and cabinet emulator called [Eleven].

The Pro Tools launch is particularly noteworthy as we had more than 10,000 customers purchase upgrades in the first 25 days on the market. At the lower end of our market, we saw sales increase in every M-Audio product category, again driven primarily, but not exclusively, by new product introductions.

Rounding out the audio business, our Sibelius line of music [learning] and notation products also had a best ever revenue quarter on the strength of sales of the flagship Sibelius 5 notation software, which was released in the summer.

Finally, in our consumer video segment, we are continuing to build on the successful launch of our Pinnacle 11 editing software and our strength in the PCTV segment with number one market share in video editing and either number one or number two position in TV viewing, depending on the month and the geography in question.

Overall, strong sales in the U.S. were partially offset by a 2% year-on-year decline in Europe, resulting in modest overall growth year-on-year. While we're encouraged by the stronger second half 2007 has shown in our consumer products, we're also aware of the macroeconomic trends and their potential effect on consumer spending. So we will be watching the sector closely. We will work to maintain our share gains from the second half of 2007 and launch a number of new products to continue our growth in 2008.

As an example, we recently launched Pinnacle Video Transfer at the Consumer Electronics Show earlier this month to great reviews. PVT allows a user to record video from cable, satellite, over the air broadcast, or even a video game session for playback on a video iPod without the need for a computer. Called by one reviewer, "fiendishly simple to use," the device will appeal to the strategically important segment of casual users who are not video editing enthusiasts, while conversely providing an opportunity for us to upsell video editing capability to those who want to edit their videos for posting online.

I'd now like to share some of my initial impressions of the Company. I'm excited to be here. I have visited all of our major locations in the United States and spend time with a couple dozen of our customers. This is a company whose products are at the core of the entertainment industry with passionate customers who care deeply about Avid and want us to succeed. Our products are central to these customers completing their jobs. Some aren't very happy with us right now and we take their concerns very seriously. At the same time, we have many loyal customers that see Avid's family of products and services as the key to their own success.

I believe that by focusing on making our customers successful we will win in the marketplace and ultimately deliver the most value to our shareholders. Clearly, we have a lot of work to do. I'm not yet in a position to provide a specific detailed plan, but some themes are emerging. We need to improve our overall efficiency. We need to become more customer centric. And we need to better leverage the strength that we have in our brands and our market position across the audio, video, and consumer spaces.

I'd now like to introduce Ken Sexton, who recently joined us as Executive Vice President and Chief Administrative Officer. Ken comes to Avid with more than 30 years of business leadership experience, primarily in the technology sector. Ken and I have over the years worked together for over 12 years and look forward to his contribution to Avid's transformation. Ken will now provide thoughts about our outlook.

Thank you, Gary. The plan going forward is to provide annual guidance with quarterly updates. With that in mind, I'd like to share our initial thoughts regarding the business outlook for 2008. We expect 2008 to be a transitional year as Avid works to become a more profitable and customer focused organization. Additionally, we see 2008 revenue somewhat flat with 2007 levels. Because of planned investments in the business, 2008 non-GAAP earnings are expected to be 30% to 40% below 2007 levels. We expect to incur losses early in 2008 followed by sequential revenue and earnings improvements as the year progresses. This concludes our remarks. Now we would be happy to take your questions.

Thank you. (OPERATOR INSTRUCTIONS.) Our first question comes from Jim Ricchiuti with Needham and Company.

Yes, thank you. A question just with respect to the revenue guidance that you've given for the year. Are you assuming that the revenues will be down in each of the business units? Any granularity you can give us in terms of how you are viewing the three business areas in '08?

So right now we don't have that level of guidance. We're prepared to come back at--in Q2 and give much further guidance on that, or further details. But this is not in any particular BU. This is basic--we're looking at flat across the Company right now.

Joe, just with respect to some of the margin pressure that--some of the issues that surfaced in Q4, some of that I would think goes away in Q1. For instance, some of the issues you faced with M-Audio or you--do you have that behind you?

We believe so. So some of that was I guess production related--production schedule related with the air freight. And we're comfortable we have that behind us now, so that we'll be able to plan this out a bit better and use the boat method of transportation versus air freight, which is much more expensive.

And lastly, can you give us any feel for how much of the backlog is left--in the broadcast area is left to be converted over? It sounds like you made some progress in Q4 with a few of the European deals. How much is left?

So basically, our backlog is pretty fluid. There's ins and outs every quarter and we believe we've removed a lot of the what we used to call "stuck in the backlog" items. But we've discussed backlog previously because it was having an impact on our results. The Q3 software release for our video products has allowed us to close some of the big deals in the backlog. And given this movement, we don't feel that backlog is a significant issue anymore and that needs to be focused on in discussing our results. So going forward we're going to not be discussing backlog specifically as it trends to a more fluid and natural backlog of transactions that come in and out on a more normal basis.

And Gary, a question for you, just in terms of are there any big picture views you can give us just with respect to Avid's cost structure and how you might be looking at sizing that over the course of the year to match what you see as the business outlook?

Well, Jim, as I mentioned, I've been here just a little over 30 days as you know since I've been announced. And I've really been digging my head in trying to understand the financial picture, trying to understand our customers--our customers' needs and uses. I think that as I commented in the key themes that were emerging, efficiency is one of those key things. I think Ken, Joel, and I will all be working together as--in the next few weeks to try to size that. But I have not put a number on that. Clearly, what our goal is is not to just have increasing profitability over this year in the future, but to get to stronger margins. I talked about that a little bit back in December as well, but have not put a number around that at this stage.

Okay, thanks.

Thanks, Jim.

(OPERATOR INSTRUCTIONS.) And we have a question from Andrew Abrams with Avian Securities.

I wonder, Joel, if you could--I don't mean to harp on this backlog issue--but if you could just talk a little bit about the remaining backlog. Is a lot of that third party equipment or are we getting down to the point where the third party equipment isn't going to make a difference anymore?

We don't--so, Andy, we don't believe there's a lot of third party equipment transactions left in our deal. We had a couple this year that, as we said, affected our margins, but--where we were the [primes]. But that is not typical and we do not have a lot of that in our backlog.

And if you characterized what you have or what you're looking at going forward in--not only in backlog, but what you're taking in backlog, is there a lot of--I mean, we've had this discussion before about doing third party business as a function of keeping clients happy. Would you expect that to continue to decrease down to almost nothing or is there a level that we have to kind of figure it's going to stay at?

So again, it's not our typical business model to be using a lot of third party products. When customers want us to be the prime, we do that, but that is not our typical model.

Okay. And Gary, I know you have been there long enough that you can probably give us an answer to this. But is there a particular area of focus that you guys are looking at in order--either in order to rationalize or in order to really spend focus on in terms of your customer contact? Is it going to be more broadcast, most post, more consumer? Is there an issues in audio that you feel that you guys need to work on? Is there any color you can kind of give us at this point?

Well, I think, Andy, you sort of summed it up in your (inaudible) sort of color at this stage and sort of [context]. As I mentioned in my sort of initial observations, I literally visited a couple dozen customers, maybe more, and spent some time with them. And what I can tell you is in terms of the end user customer of--the end user customer of the consumer products, of course, I haven't spent any time with those. It would be more the intermediaries, of course.

For our Pro Tools products and for our broadcast--for our video products, I've spent quite a bit of time with both [post] and broadcast as we go through that. And there's a lot of--there--what I've discovered is there's a lot of opportunity in both. I think there's--in the pure video editing I think there's a strong desire to do a move toward collaboration, and this is color, this is my just general sense as we go through it. A lot of desire to move towards collaboration. How do we edit in a collaborative environment, multipurposing for the new range of digital media that is out there, working together, of course, in the broadcast area. Only a small--a very small percentage of the broadcast world has gone digital. It will take them several years because of capital equipment cycles that are out there.

So I think that you will see a renewed emphasis on--a renewed emphasis on both. And I think that's--I attended our kickoff for our video unit a couple of weeks ago here in North America. I think you'll see us going down both lines, not emphasizing one--not overemphasizing one over the other as we go there. What I have discovered is that there are a lot of our customers that use both Pro Tools and do use our video products. And we're looking at ways we can make that an even better outcome for our customers there. So those are--that's just some color at this stage of the game. But that's some of the stuff that I've learned from our customers as we're out there and--as I mentioned, our customers are clearly passionate that clearly they're--if I were to say that they're unhappy with us, they're looking for us to help them even more. And I think we're taking a look at what that means with them along with dimensions that we described--that I described.

If also we could just for a second, and I don't know whether, Gary, you're better at this or maybe Joel, talk about duplication in terms of product development or general R&D. I mean, you guys have a lot of different lines, all of which are under the Avid name but are almost run separately, at least as far as I can understand. Is there a concerted effort to kind of put some of those R&D groups together and instead of having six guys working on six different projects and then kind of looking at each other when the projects are done, kind of having maybe two projects or three projects working with a number of different people from each of those organizations.

Yes. I think to answer the question, conservative would be too strong of a word that (inaudible) we're working. There were some initiatives begun even before I got here in terms of to be able to do that--to be able to have fungible resources you have to have common development practices. It's not just about having great people or even similar products. It's about common development practices. It's about common development infrastructure, et cetera. And there were some initiatives begun already about--with great cooperation amongst the--among the business units for how to do that.

First, within the individual business units. For example, within M-Audio Digi within the audio business unit, and then going the next step further, then how can we go to a common software development infrastructure across business units. As we take a look at taking advantage of some of the--some additional global locations that's also important. And we are taking a look as we take a look at those global locations of having a [tool] resource that would service all the divisions and not be product line or division specific.

I think that the--at the end of the day, developers are tied to projects and we want to find the best people out there. And they just assume even with standard practices that you can just have--suddenly assign three people from one business unit to another because of expertise or whatever--audio and video expertise or both very high skilled--require high skill level. They are very different in terms of signal processing versus video processing and video playback, as an example.

So there's some initial efforts. I'm stepping up that effort. And the question I think Jim asked me about opportunity for efficiencies and savings, I do think that engineering, which you highlighted, Andy, will be one of the areas that we will take a look and see how we can be more efficient in that area.

Great. Well, thank you. I appreciate it.

And next we will hear from Chris Rowen with Soleil Associates.

Hi, Joel. Can you just go over that guidance again? I want to make sure I got it right. Did you say earnings would be 30% to 40% below '07 levels?

Yes, that--this is Ken speaking. That's what I said. The non-GAAP earnings would be 30 to 40% of 2007 levels on flat revenue.

Not able to work through that in my model quick enough to ask the question. But I mean, if we assume flat revenue and flat expenses would we get that degree of drop or are you expecting expenses to actually go up?

We're expecting expenses to actually go up during that--.

--Yes, so what we talked about on the last call, Chris, was that we have a number of these initiatives that we're looking at across the Company and Gary alluded to that in R&D. Well, this is basically, as we talked about last time, working to become--you use the--get the power of the Company and become more of a corporation versus a federation of independent acquired entities.

That's right.

And we're looking to use the power of the Company across many areas, not just R&D. We talked about supply chain last time. We talked about shared services across G&A and a number of areas. So that requires investment.

I think that's right. I think as you all very well know, as companies transition to global locations, technology transfer, et cetera, you have a tendency to increase your costs in the short term to ensure that it's a proper transition. But you should--it should be clear that all of our investments are designed to drive increased profitability in the Company. And we are very focused on, obviously, our leadership position in our respective markets, but we are equally or more so focused on profitability of the Company.

I guess my question is given the trajectory of the revenues over the last couple of years are you expecting that at some point Avid's going to be at much higher revenue levels than we are now and that's why you're comfortable. I mean, if we'd just seen [at first blush] that you would actually be coming in and maybe telling us this quarter you don't know what you're going to do yet and the next quarter tell us you're going to cut expenses so you can be profitable at these revenues, if they're indeed going to be flat.

So to address that question is I think I've spent some time with the management team both in terms of the budget planning for this year, as well as their confidence in the forecast for the quarter. And I think that's what the revenue numbers reflect. The--and as I also commented on, we do--we will have an increasing focus on revenue. I don't have a two or three-year projection. I can't possibly give you a two or three-year projection at this stage of the game. I do have a lot of confidence in the time I've spent with management about what we're doing for this year. I think you will see increased profitability, as Ken mentioned, during the course of the year. And at this stage, we're providing some year--we're providing yearly guidance. And to get--to go from the position that we were talking about earlier in the year to the end of the year, you can work through the model on that.

I would add to what Gary said going back to what we said on the last call. So this--you can look at the initiatives and look at where we're taking--doing right now is part of it is operational focused on being more efficient and effective in a number of the areas where we spend money, and there's also a strategic piece to that. And with Gary onboard now, we're getting more involved in the strategic side and that's the piece that will drive how we face the customer and what we do in the marketplace around driving revenue. So there's two components to what we called Avid 20/20 last time - operational and strategic.

Okay. All right. Well, good luck.

And next we will hear from Samir Spheka with Metro West Capital Management.

I'm having difficulty building a bridge from where you are in the guidance that you have provided. So I guess if I look at it roughly, what you talked about, you are going to be doing 3 to 4% operating margin next year. Is that fair?

Yes.

Okay. So even if you told us a year out and maybe in the next year out, based on the investments you are making, once you get this working as one corporation, what are the sustainable margins do you think in this business?

Samir, I don't want to really comment on what that is yet, because I haven't--we're not there yet. But I think it's fair to say that we think the margin's a sustainable margin and I certainly don't plan on throwing out next year as we take a look at that (inaudible) the sustainable margin is significantly higher than where we are and we will be driving the Company towards that goal. I don't have a number in mind at this stage of the game.

At some point we will talk about what that number might be going downstream. In terms of a similar question that Andy, Chris, and yourself have asked--Jim, is sort of the timing. It's--to make sure we do the proper investments, but also proper reductions in expenses here, I want to be sure we're doing it surgically and we don't--not only grow the Company, but we don't impede the progress of the Company.

So you will--I think you can anticipate that Joel, myself, Ken, and the rest of the management team will all be very focused in on that and it will take a little while, a short time, but a little while to figure that out, and then to begin implementing that during the course of the first half of this year.

Okay. Then--so would you be able to in three to six months I guess identify for us what are the expenses that you are making which are so-called investments? When it's almost like instead of cutting expenses you are investing in the future to get to that--whatever that future margin goal is. So hopefully, some of those expenses would be one-time in nature.

That's right. As an example, when you take advantage of global locations there is an overlap. There is an overlap as you do technology transfer, as an example. And that's--you can call it a one-time expense or you can call it an overlap expense, call it whatever your want. But it certainly leads to an ultimate reduction in expenses, as one example of the types of things that you might be doing that are out there.

We are making some strategic investments in education, as an example, making sure that we drive a broader--a company-wide approach to education where we--as you know, Sibelius in particular is very strong in the education market. Our video products are in most of the leading film schools and cinematics schools, et cetera. That's an example of strategic investment. We actually believe that as we have a go to market that's company-wide on that, we can ultimately reduce our cost in that. But we have to do some transition into--we have to do some transition to that and to GAAP--to GAAP reporting. That does show up in the--or even non-GAAP it shows up in the operating numbers there. So I can assure you there is no loss of focus on profitability here.

One last question. So even in this quarter when you talked about some of these write-offs that you have taken, can you quantify how much of that is the net amount, so that we can at least figure out what the profitability in the business is and how much are these write-offs that you have taken in different businesses?

Well, I would summarize somewhere around $0.12 to $0.13 of those specific items I mentioned related to this quarter that you're referring to. The cost of that was around $0.12 to $0.13.

$0.12 to $0.13? Okay. That's all the different segments basically?

Yes. Of course, the Company--for those items we talked about, it was about $0.12 to $0.13.

And those are examples of things that we are now discontinuing and we won't be investing incremental R&D dollars in, as an example.

Are you going to be providing this similar sort of disclosure going forward every quarter till you are doing--implementing these steps?

Similar type of disclosure on--?

--Well, like what you did this quarter. I guess you plan to do that at least for the next one year, right? Like when you are talking about these investments that you are making--.

--So we should be clear that what we talked about were some expenses we had in the quarter. Those really weren't part of the 20/20 project that we're discussing. Those are items that we had during the quarter that were not typical. We're not expecting those to repeat.

Right.

I'd differentiate from that versus the 20/20 project that we are undertaking.

Right, okay. Thank you.

(OPERATOR INSTRUCTIONS.) And we have a follow-up from Jim Ricchiuti.

Yes, just with--I was wondering if you could give us any flavor, Joel, for the domestic business, how that performed, particularly in the video area in the quarter. And what I'm getting at, I'm just wondering if you're beginning to see any progress from a sales and certainly more from a profit standpoint from some of the changes you've made within the sale organization.

So what I can tell you is looking at our business, the European video business performed very well in the quarter. They had--a number of these large deals were focused in Europe. So where the U.S. was kind of run rate or even down a bit--it ticked down since last quarter, where in Q3 we had a number of things going on. If you look at it sequentially, with the high government business that comes into the third quarter for the video segment, it was really the European business this quarter that pushed our performance up. And--does that answer your question?

Yes. On a year-over-year basis then I assume the U.S. business was down what--?

--That's correct.

Can you give us a sense as to how much it was down?

Domestic was down--you talking about overall business?

Domestic video--domestic professional video. How much was that down?

It was down about 10%.

Okay. Thank you.

And next we will hear from Chuck Goldblum with Emancipation Capital.

Hi, guys. Hey, I wanted to clarify a few things. One, Joel, you just said that there were some--the write-offs this quarter--there was some element of them which were not Avid 20/20. What is the distinction there? I would imagine anything in the restructuring is part of the 20/20.

Chuck, let me clarify that a little bit. What Joel distinguished between was 20/20 investments and he wasn't giving the investment amount, nor do we intend to, by the way. What we're investing every quarter through 20/20--and he was talking about write-offs that may in fact, as you point out, were driven by our 20/20 initiatives. But he was just telling you how much those additional costs were associated with discontinuance of some product lines, some inventory write-downs, et cetera. The--is what he was differentiating between. And you're right, it's all 20/20 initiatives.

And to be clear, I didn't say they were restructuring amounts. They were interoperating expenses.

Correct.

Okay. And then, a follow-up on that would be, okay, there's a fair amount of these sort of one-time charges in nature, or maybe that's my characterization, that you're running through your non-GAAP operating numbers. For the purpose of--it seems there have been questions like this already. And for the purpose of the folks on the outside sort of following your progress, I don't know whether it comes through non-GAAP or through something else, is there some way that you guys sort of during this process will allow outside investors to follow the underlying profitability of the business sort of clean of all the juggling that's going on?

Well, Chuck, it's--we'll try our best to provide that clarity. As you know, GAAP and non-GAAP is--we--only for helping to understand the business do we even deal with non-GAAP numbers at all. And we want to be sure that we're--we stick to GAAP as much as possible. We--I know it's about transparency. We will try to be as transparency as we can within prudency.

Right. I guess my only point is I guess the joy of non-GAAP is that you get to make the rules, so long as you tell us what the rules are. And I would encourage you to use that opportunity to be as transparent as possible.

I appreciate that. And I wish it were as easy as that. But Joel helped provide some of that clarity with just answering the--answering the question earlier on.

Thank you.

Yes. We'll try.

And that was our intent with the--what we said on the call today. We did highlight those items for you.

Of course. Thanks.

And we have no further questions in the queue at this time. I'd like to turn the conference back over to our speakers for additional or closing remarks.

Well, thank you very--thanks a lot, everyone. And it's--I look forward to a few of you I have not met personally. And so, I look forward to that either here or, of course, at your site. Should you have any further questions, just give us a call. We're all available. And I look forward to giving you an update next quarter.

That does conclude today's conference. We do thank you for your participation. Have a great day.