Avid Technology Inc (AVID) 2008 Q3 法說會逐字稿

Good day and welcome everyone to the Avid Technology Third Quarter Earnings Release. (Operator Instructions) And now for opening remarks and introductions I would like to turn the call over to the Director of Investor Relations, Mr. Tom Fitzsimmons. Please go ahead, sir.

Good afternoon. I'm Tom Fitzsimmons, Director of Investor Relations for Avid Technology. I'd like to welcome you to today's call. With me today are Gary Greenfield Avid's Chairman and CEO, Ken Sexton Chief Financial Officer and Chief Administrative Officer and Joel Legon our Vice President of Finance who will join us for Q&A.

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 Avid's performance. 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 digital media industry.

Other important events and factors appear in Avid's filings with the US Securities and Exchange Commission. In addition, our forward-looking statements represent our estimates only as of today, October 23rd, 2008, and should be not be relied upon as representing our views at 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 those GAAP measures to those non-GAAP measures, are contained in the press release announcing this quarter's results, and are available in the Investor Relations section of our website at www.avid.com.

And now I'd like to turn the call over to Gary.

Thanks, Tom, and welcome everyone to our Third Quarter 2008 Results Conference call. I'll go over a few highlights of our third quarter, Ken will provide the financial details and then I'll provide an update on our progress and Avid's transformation. Ken will then wrap up with an update to our 2008 guidance and Ken, Joel and I will take your questions.

As we discussed on previous calls, Avid is in the midst of significant transformation. While Q3 presented challenges that Ken will cover, we are on the path to return Avid to sustained financial health. For the third quarter we reported revenue of $217.1 million, a loss of $0.12 per share on a non-GAAP EPS basis.

In the months since our last earning's call, the leadership team at Avid has been working with the employees to accelerate the effort needed to reach our goal of operating as a single Company. As part of that work, we identified a number of changes that would help us to become more physically fit. These include the implementation of more efficient and effective processes and the elimination of duplicative work efforts. At the same time we also took a hard look across the business to find the best way to integrate our various groups into a more customer-centric organization.

This work resulted in the identification of new roles, the redeployment of existing employees and the elimination of some positions. In addition, we have entered into an agreement to divest our Softimage 3D animation product line which is part of our Professional Video segment.

The staff reductions plus the pending transaction will affect about one-fifth of our employees and impact nearly all Avid locations and areas of the organization including customer operations, customer success, our Video and Audio Business Units and our administrative operations. These actions are an important step in our transformation as we re-set the cost base and unify our business into one Avid.

Regarding Avid's accomplishments during the quarter we made significant progress against the goals we outlined on our last call as a part of our corporate strategy. We introduced a number of new products, many of which have received industry awards, as have our customers who continue to earn prestigious industry recognition at award ceremonies like the Emmy's this past September.

In the third quarter we began shipping DS version 10 worldwide. This was a highly anticipated release for our customers. The new system runs on a high performance platform designed to help customers save time and money with a single application to create and finish high quality post production and broadcast content. Feedback on the latest version of the Avid DS workflow from customers has been positive.

At the recent AES show we previewed Digidesign's Pro Tools 8, the next evolution of our widely used music creation and audio production software which includes the video satellite feature an option that brings Avid high res video playback into the Pro Tools audio workflow. This release is important for two reasons. First, it was developed with valuable input from our customers; and second, it demonstrates our commitment to provide better interoperability of our own workflows for our customers.

We also signed a software developer's kit license agreement with RED an emerging camera manufacturer as part of our continued efforts to foster an open eco-system of workflows and interoperability with third party products.

Also in the third quarter we saw very good adoption of the editing solutions we introduced this past spring, Media Composer DX, NewsCutter DX and Symphony Nitris DX. We were proud to announce last month that CBS News used several of these systems to help produce HD coverage of the Democratic and Republican National Conventions in the CBS Evening News.

We also received affirmation of our commitment to innovation and customer responsiveness with the receipt of several awards. Business Week presented its 2008 IDEA Design Award to Avid for our innovative product design of the Digidesign 003 Factory System.

We also received the Best Buy BRAVO! Award For Excellence in the Musical Instruments Category in recognition of M-Audio's collaborative spirit, technical innovation and customer responsiveness.

More important than the receipt of these awards by Avid are the awards bestowed on our customers. This past summer the top 28 highest grossing movies were created using at least one Avid system and 31 Emmy Award Winning television programs in the outstanding picture editing, outstanding sound editing mixing and outstanding program categories similarly relied on Avid products. These awards and accomplishments are great examples of our continued technological innovation and commitment to our customers and business partners.

Ken will now discuss our Q3 financial results in more detail. Ken?

Thank you, Gary, and good afternoon everyone. As Gary mentioned earlier, revenue for the third quarter was $217.1 million down sequentially in year-on-year. The GAAP net loss was $66.4 million or $1.80 per share on 37 million average shares outstanding. Operating expenses for the third quarter included a non-cash charge of $51 million for the impairment of the goodwill and other intangible assets associated with the acquisition of Pinnacle Systems in 2005.

As part of our ongoing strategic review of the business we concluded that the fair value of the Consumer Business segment had declined below the book value resulting in this impairment charge.

As in prior quarters, our earnings release provides a table of certain items that are excluded from our non-GAAP results. These items total $62 million and include impairment charges, amortization of intangibles, stock-based compensation, restructuring costs and related taxes. Adding back these charges to our GAAP net loss results in a non-GAAP net loss of $4.4 million for the third quarter and a loss of $0.12 per share on a non-GAAP basis.

Our GAAP gross margins were 47.3% including $1.2 million of amortization of intangibles and $321,000 of stock-based compensation. Without these charges, gross margins would have been 48.1%.

Our non-GAAP gross margins were down year-on-year and sequentially.

Gary earlier mentioned we faced some challenges in this quarter. In particular, this year's third quarter gross margin was negatively affected by a $2.2 million charge for inventory obsolescence related to our consumer hardware product lines, a $2.5 million increase in revenue reserves related to a planned increase in our Pro Tools upgrade pricing and a $1.2 million charge related to the resolution of a legal matter. Collectively, these three items negatively impacted gross margins by almost $6 million or 2.1 percentage points. The planned increase in upgrading upgrade pricing should benefit in future quarters after the next release of Pro Tools.

The Company's operating expenses for the quarter excluding impairment charges, amortization, stock-based compensation restructuring was $107.2 million. This was down about $2 million sequentially but up 5% year-on-year.

To assist our shareholders in understanding our results, we continue to separately report our business transformation costs. Transformation costs including third party consulting, severance, recruiting and retention costs included in our operating expenses for the third quarter were approximately $2.3 million of these costs which were excluded from restructuring or $0.06 per share. Year-to-date cost of this nature are approximately $7.1 million or $0.19 per share.

Our non-GAAP operating loss which excludes impairment, amortization stock-based comp and restructuring but includes transformational costs was $2.8 million for the quarter. As previously noted, after taxes and interest our non-GAAP net loss was $4.4 million.

The agreement to sell Softimage 3D product line to Autodesk was signed today and we expect to close on the sale before the end of 2008. Sale proceeds for this agreement are $35 million subject to certain closing adjustments.

As Gary mentioned earlier, we are enacting a reduction in force across the Company during the fourth quarter which will eliminate about 410 positions. In addition, about 90 additional positions will be directly impacted by the divestment of Softimage 3D product line. The majority of this restructuring should be completed by the end of 2008.

We would now like to focus on the operating performance for our three business segments. Please note that the following items are excluded from the business unit results. Interest income up $507,000, $21 million of corporate infrastructure costs and operating expenses, $51.3 million related to impairment charges, $4.6 million of non-cash amortization of intangibles, $4.4 million of non-cash stock-based comp and $2.1 million of restructuring charges primarily related to severance costs and the related income taxes for the above items.

While we began steps near mid-year to organize around two businesses, Audio and Video, for the remainder of the year we will continue to report our businesses in our three traditional segments - Professional Video, Consumer Video and Audio.

Starting with Professional Video, revenue for the third quarter was $117.2 million, up 1% sequentially and down 1% year-on-year.

Our Softimage product line contributed approximately $4 million to the revenue in this segment. We continue to be pleased with the market acceptance of our latest editor release and this segment had a second quarter sequential improvement in gross margins.

Professional Video contribution margin was $15 million or approximately 13% of revenue which was approximately $4 million higher than last year.

Now turning to Consumer Video, revenue for the quarter was $27.6 million, down 13% sequentially and about 10% year-on-year. The year-on-year change was related to lower hardware sales while the sequential decrease was primarily in our software editing product line.

Consumer Video lost approximately $5 million in the quarter. Included in this loss was over $3 million of costs related to inventory provisions and a legal settlement which I mentioned earlier.

In Audio, revenue was $72 million in the third quarter which is down sequentially and year-on-year. We experienced some weakness in our higher priced audio offerings which we believe is attributable to the uncertain economic climate.

Audio's contribution margin for the third quarter was $8 million or 11% of revenue.

Now turning the balance sheet, we entered the quarter with cash of $122 million, down $16 million since June 30th, 2008, and $102 million since the end of last year. The year-to-date increase includes approximately $93 million used to repurchase shares in the first quarter of 2008.

Inventory turns were $3.7 million and days sales outstanding and receivables were 46 days. Inventory ratios improved over last year and last quarter while DSOs were flat sequentially but did improve year-on-year. Our deferred revenue was flat sequentially and down modestly year-on-year.

I'd now like to hand things back over to Gary who will discuss the status of our transformation. Gary?

Thanks, Ken. I'd like to expand a bit on the rationale behind our announcements today. During our earnings call in July I spoke about our three-phased transformation - get healthy, build momentum and unlock new sources of growth. As for the get healthy phase, we discussed the need to streamline our product portfolio and invest where we have critical mass, significant share or where we get leverage.

As we transform Avid, we are focused on serving customers in our core Video and Audio segments and we've determined that Softimage 3D animation product line is not a strategic fit for our business. The Softimage 3D product line has performed well in the video games market. However, this market is not a focus for Avid going forward as we concentrate on market segments best aligned with our core product and service capabilities. We will continue to evaluate our product offerings with the major product rationalizations to be complete by the end of 2008.

Now turning to our restructuring, we took a hard look across the entire business to find ways to integrate all of our various groups and to a more customer-centric organization. While I won't go into specific details about each function, I would like to make a couple of key points.

Kirk Arnold, the head of our Customer Operations Group, announced the next level of integration for sales, marketing and professional services. Kirk specifically put together her team with customers in mind and has realigned her group in order to present a more unified Avid presence in the market.

As part of that effort, we have also established a new customer market segment strategy specifically designed to help us bring a more unified Audio and Video approach to searching customer groups which will allow us to capitalize on new opportunities across a broad spectrum of customers.

In Q3 we took important steps forward in combining our Professional and Consumer Video Businesses. This consolidation effort will allow us to better leverage our development efforts in the video editing space and reduce redundant efforts. Our Audio Business has just about completed the consolidation of various processes and systems across Audio. These important steps will allow us to better act as one Company with a focus on our customers.

All in all, we're making good progress against our strategy. We're delivering on our commitments to our customers and business partners. We still have a lot of work to do but we knew coming into this year that our transformation would not happen overnight.

I'd like to turn the call back to Ken.

Thank you, Gary. At the end of the last quarter we provided revenue and EPS guidance for 2008. As I'm sure you can appreciate, there are a number of moving pieces involved in transforming the Company and attempting to increase longer term shareholder value including the following.

First is the impact of the pending divestiture. Since this transaction will be accounted for as a discontinued product line the associated revenue and earnings will be included in our results until the closing date. Although I expect this transaction to be completed in 2008, I cannot predict the exact closing date.

Second, is the impact of transformational activity in our continuing products. We are making significant changes in the organization which may have some impact on our Q4 business. Please note that some of the costs related to the Q4 transformational activities could be charged to operations or restructuring depending on their nature.

Because of these ongoing changes in our business as well as any other potential changes in the future, we do not believe it is appropriate to provide guidance for the remainder of 2008. In addition, we remain somewhat cautious regarding the overall economic environment. Although we will not be providing guidance at this time, we can provide you with estimates of major items which will be impacting our results in the coming quarter.

The restructuring charges for the reduction in force of about $21 million to $24 million will mostly be charged to fourth quarter with the remainder impacting the first quarter or first half of 2009.

The gain realized in the sale of Softimage is estimated to be in the range of $30 million to $35 million and will be recognized in the fourth quarter assuming the transaction closes in 2008.

We remain committed to returning the new leaner Avid to improved sustained profitability. We continue to believe we can reach 10% non-GAAP operating margins in 2010 and make meaningful progress in 2009.

We also have plans to discuss our new operating model in greater detail at our investor day being held in Boston on Monday, October 27th. This event will also be available via webcast on our public website.

This concludes our remarks. Now we would be happy to take your questions.

Thank you very much, sir. (Operator Instructions) Steve Frankel, Canaccord Adams.

Gary, I want to talk about the Consumer Business for a minute. You took the inventory charges there. Can you tell us what's that Consumer Business going to look like going forward? What's the right profile? Is it a software focused business now? Are we out of the hardware business?

Steve, that's a great question. First of all, as a Company and not just in the Consumer Business, as I've commented as part of our strategy, we're emphasizing software as far as our future. That doesn't mean we won't still have some hardware components. And that applies whether it be Professional Video or Consumer Video or our Audio. But our hardware will be, will be closely related to our software, aka something that is needed for our software as opposed to just unrelated or standalone hardware.

We have combined Consumer Video and Professional Video into a single operational unit inside the Company and they are called [Lipchevsky], as you know. And literally as we speak, Paul and his team are taking a look at the operational synergies and the things that make sense as well as what Dave Lebolt, who is our CTO, refers to as aspirational ladder and you'll hear a little bit about it on Monday about -- that we've done for Pro Tools doing the same thing for Video.

So I don't want to tell you that we will have no hardware. I will tell you that we will certainly be less -- there will be a stronger emphasis on the hardware that makes the software work as opposed to standalone.

I will use as an example, you asked about Consumer, but I think it's worthwhile to comment on DS as an example. In the case of DS where typically people are editing in a single format as an example versus Media Composer, in fact we released DS10 using an AJA board which is from a third party vendor as opposed to proprietary hardware.

So that's an example of the increasing emphasis on software. Our customers still need hardware but there was no reason for Avid to provide proprietary hardware in that particular case. And I think you've been seeing some of that types of things occurring throughout all of our lines.

And if I could ask a couple follow-ups. What's the channel inventory situation like in Consumer?

Let Joel or Ken take that one.

The channel inventory in Consumer would be in the range of about $15 million to $20 million in total.

And how does that compare to, for example, a year ago?

Joel, there hasn't been a significant change in the inventory in the channels over that period of time.

No. You can tell by our reserves. They really haven't changed that much.

Right. So it's about the same as it was last year and, in fact, I asked that question prior to joining and it was right in that same range last year.

And what are your broadcast customers telling you about the current environment? Are you seeing projects delayed or pushed out?

Well, broadcast is a pretty broad category and we actually just had a customer advisory board and that's the first customer advisory board that's certainly been done in the memories of people here last week up in New York, Steve. And that was obviously a key question on our minds is, it's how you're seeing that.

For the national networks, I would say that they really haven't -- they are very project driven and we'll be showing you some statistics on this. They are very project driven so when you say, "Let's go do a studio," you can't do half of a studio and other events drive that cycles, etc., or drive that type of thing.

Where we are seeing an impact is at the local station level, the letter stations. The letter stations, by the way, are saying, "We don't know. We're watching." As you all know, advertising, traditional advertising, over the air advertising, is down particularly in the auto industry. When you hear it's down in the auto industry you've got to think local station. If you think about what you see on your local TV station it's all local car dealers and/or local retail what you see. And this year, as you're probably aware, there hasn't been much local political advertising. Most of that money has gone onto the web.

So I'd say that seeing broadcasting as a whole the national level and I literally just returned from Europe last night. We asked the question over in Europe as well. They'll remain heavily project. We're being very cautious in the local station market.

Thank you.

Paul Coster, JPMorgan Chase & Company.

Can I just make sure I understood a few things here. The restructuring charge of $21 million to $24 million, you're expecting to take all of that in the fourth quarter and there will be more in the first half of '09 or some of that $21 million to $24 million may slip into the first half of '09?

Some of that will definitely slip into the first half. That was supposed to be an all up charge related primarily to the personnel adjustments we talked about.

What were the revenues associated with Softimage?

It's not -- it was $4 million for the quarter.

And am I correct in thinking that the Softimage team is basically located up in the Montreal location? You'll be closing that location in its entirety?

So you are correct in the first sense that the Softimage 3D animation team is located up in Montreal. We also -- that is where the vast majority of our DS team, the DS10 that I just talked about, and we're very committed behind what's called Online in the editing business and that team will continue up in Montreal.

Got it. And then looking at the segment contribution you have this corporate and other expense line which I see went up sequentially. What is it and is that going to also be attended to? Because it's great seeing the operating margin segments improving but that's kind of like a really heavy load. Isn't it? What's happening with that?

Well, as we mentioned, we've been taking reductions really across the whole Company. By the way, that is where the majority of the transformational-type costs would be incurred but that is really for the most part the G&A support functions across the Company.

But obviously with some of the actions that I just mentioned, those are areas we really need to get not only the operating margins on a direct basis down but we also need to get the overall support costs down.

The cash has to be a consideration for investors. Obviously $21 million approximately of cash is going to go out the door in severance and the like. It is -- the $21 million to $24 million, is it all cash charges or is it going to be non-cash as well?

That's a cash charge. That's going to be a cash charge for the most part. Yes.

What are you --

Of course, remember we will be bringing in cash in the Softimage transaction in the sales proceeds although we, again, that's subject to certain adjustments and we won't receive it all on day one but the vast majority of it we should receive at closing.

So for those of us who are sort of a little bit confused here, the Company went through a strategic review, resolved a strategy, you even came out with some guidance last quarter and now it feels like you've gone through another review and the strategy has gone through a second iteration. Basically it wasn't fixed last quarter or was it understood to be a two phased process or am I just completely off base here?

Well, I think this is exactly what we spelled out in the July call. We said that we had, in fact, we said that we had, first of all, a three phased process - get healthy, build momentum and unlock new sources of growth. But we also said specifically that based on that strategy we were going to take a look at our product lines. That process continues. As Ken commented it will be completed by the end of the year so this is not a new strategy. It's, in fact, the implementation of the strategy that -- it's the implementation of the strategy that we spelled out.

Who decided, the Board presumably decided to do the share buy back ahead of all of this restructuring. What was the rationale for that?

Well, first of all we spoke of that before hand and the share repurchase was approved. It was approved actually prior to my joining the Company. But it was a -- it was obviously because of the belief in the future of the Company and where the market was priced and the excess cash that we had on the balance sheet.

Well, the Board made a bad mistake, obviously. Right. Thank you. Appreciate it.

Andrew Abrams, Avian Securities.

Can you go through the pinnacle impairment? If you look at Pinnacle as a standalone, meaning what it was when you bought it, what in Pinnacle is still left after the impairment? Can you walk through what that still looks like?

First off the comment that the impairment relates to intangibles so nothing is gone as a result of it. And what the intangibles would be is you have goodwill, you have trademarks and customer lists and you basically have to, through various assumptions, make a valuation estimate of what you believe it's worth and then you adjust your intangibles accordingly. So it's not a specific asset necessarily that you can relate each one of those to. You're looking at the business in total but you're also looking at some subcomponents of it.

It's basically, in simplest terms, the idea is what do you feel that you could, on an open market, get for that business. That's what you're trying to approximate using these calculations.

Yes. That's the theory. And as of we sit here today, we still have a little bit more than $30 million of intangibles related to that acquisition from 2005 sitting on the books.

And without you tipping hour hand, does this give you room to piece things out of Pinnacle that still exist that needed to be written down before they could be disposed of?

Those things are completely unrelated.

Thank you.

Mike Olson, Piper Jaffray & Company.

Couple of quick questions on the headcount stuff. So it's 410 headcount reduction plus another 90 from Softimage, so 500 total, is that right? So I guess does that take us down to 2,000 when it's all said and done?

No. It doesn't. We're at 2,711 today or, I mean, at the end of the quarter. And we said that some of this would happen in the beginning of next year, too.

Okay. But when it's all said and done, where do you think headcount will shake out?

Well, just doing that math it shakes out in the 2,200 range.

So it is 500?

In addition, which wasn't covered in here, we also had a reduction of about 80, 90 contractors during the period.

And then outside of the Softimage, is there any details as far as where the headcount reductions are coming from?

They are coming from -- it's across the board. We took a hard look at literally every part of the business and as we said we would be talking in some detail about what the model for the entire business model would look like for the Company on Monday. But literally every part of the business has been impacted.

I would say, as I commented, Kirk in particular took a very strong look at the customer operations as we went from having seven sales organizations to one shared sales organization. You can imagine, you don't need seven sales operations organizations. You don't need seven heads of geographies. You don't need seven of lots of things that were out there. And some of that consolidation has been occurring here in the course of the year but this certainly accelerated that process.

But that being said, is G&A, the development divisions, the combined video -- the Consumer and Professional Video into a single line, offered up some efficiencies as well so there's not a single part of the organization that has not contributed to the increased efficiency.

And then just one last one, you mentioned the 3D animation especially for gaming is a fairly strong market right now. It sounds like the revenue run rate was rather small for Softimage but can you just give us a flavor for what the growth rate was for that revenue stream?

It was pretty small. It was in the single -- I'd have to go and look on the actually quarter-on-quarter but --

It was growing but modest.

Single digits -- flat to single digits. It was part of the problem of, I think, Softimage -- the summer release that we released in July just got phenomenal reviews and it was just a great organization but it was just lost within the Avid family and I think it's going to be a part of a great company.

Thanks a lot.

Jim Ricchiuti, Needham & Company.

It sounds like you've got some major restructuring already underway in Professional Video and Consumer with video divesting some product lines and areas of the business. What about Audio? Is there something that we can expect some changes there, as well? You've talked about possibly eliminating some hardware.

Well, in the Audio division, Tex Schenkkan who runs the division has already been doing some changes. An example, during the quarter he consolidated -- Digidesign had its own speaker line under the Digidesign label and M-Audio had its own speaker line. So one of the things he did was consolidate any new speakers into the M-Audio which means the consolidation not only of go to market, it means a consolidation of the engineering talent, the family of speakers, etc.

There's a lot of -- in the case of Audio, first of all as we said we're taking a look at a lot of product lines throughout the Company, but certainly in the case of Audio there has been an effort under way to consolidate M-Audio and Digi, in particular, to be taking a look at reducing the number of skews that were out there. That's an effort that's certainly been ongoing over the course of -- ongoing over the course of the last year that's out there. So I think we will continue to focus on that. I would view that as more as trimming rather than anything radical.

And just getting back to the question of the broader economy and the impact that potentially you're seeing in that business, the question was posed about broadcast. I wonder if we could just talk a little bit about how your customers in Post or, as well as Audio, are reacting to the changed economic environment. I'm just trying to get a sense as to how much caution has been expressed by your customers since you've talked to us last at the end of Q2?

The answer to the question is a lot of -- everyone's a little apprehensive. I'd say that our customers are just like my neighbors. We're all a little just -- a little cautious about what might happen. If I were to take over the individual segments to give you a flavor, you asked about -- you all asked about broadcast and we answered that one.

In traditional Post (inaudible) there was just something on [Money], I was just reading on the web this afternoon on Money, it said basically the sense in Hollywood is that people are going to continue to do movies, continue to do episodic, the (inaudible) is to save money and this particular article talks about it from talent which is one thing.

But most of our changes that occur at Post occur -- well, first of all films. There's about 2,000 films produced a year. The films that are coming out now were really green lighted a couple years ago and the films that are going to come out in a couple years are going to be green lighted now and there seems to be ample money for those in Hollywood and that seems to be going on [fine]. That's not to say we're not keeping a strong eye out, a strong watch out there.

In the case of episodic TV, again, 22 episodes a season are going to be out there. They are going to produce those 22 episodes a season, they will look for increasing efficiencies which we actually think might benefit us because products like Media Composer, our DX series as an example, substantially reduces the time to edit a film because of its HD capabilities, it's (inaudible) support, I can go on and on, as we're going through that so potentially creates some opportunities on increased efficiencies. But, again, episodic is basically fixed. And, again, if we were to see something we probably won't see it until the first half of nest year because that's when those studios decide to do things is during the off -- is during the off time.

As you might recall we didn't see that last year because of the strike. We just don't have visibility but we're talking to our customers about it.

In the case of the Audio Business and in the case of the smaller Post commercial business -- run numbers by commercial mean, doing commercials. We are -- that one I would say there is intention out there. These are small businesses, they are dependent when they acquire our equipment on small business loans from their local bank. Credit is tight and we are seeing customers speak to that point. Some of our musical instrument lines and [my lines] which are really in essence consumers or low-ended professionals, we're seeing some concern expressed there and one of the reasons that we are cautious about the economic outlook.

So there is plusses and minuses. We can't point to anything specifically right now but I would say that there is certainly an expression of concern in the marketplace that's out there.

Can I also get some breakout as to how the business broke out during the quarter internationally and domestic?

We were about 53% international, 47% domestic.

So is there anything you can say about the -- the impact of currency in the quarter?

Well, we were, I would say, sequentially it was a little bit over $2 million, the FX impact on revenue to us, so it went down about $2 million negative impact.

Sequentially, okay. That's it. Thank you.

Alan Davis, D.A. Davidson & Company.

Just a couple questions. I guess I first had a question on kind of business activity and linearity and you kind of answered that in the last question. Just kind of make sure I have this right. It sounds like in Post with your larger customers you haven't seen a big change in activity but in Audio and your smaller Post customers you've seen a bit of a down tick. Would that be a fair characterization?

Yes. I would say that's fair. I mean, it's still early on but everyone knows the end of the quarter was just -- a lot of this was happening in the marketplace and people were being particularly cautious, particularly small businesses.

And then on the Consumer side over the last couple of months, how is the business activity there?

I would say the same thing. I would say it's been pretty cautious. We do typically -- we're going to see this quarter, we do typically see seasonality. Studio 12 has been well received since we released it in June. In fact, we just put out the 12.1 release last week and, again, it seems to be being received pretty well. But whether this will be in the Christmas stocking or not, it's hard to say at this stage of the game.

And can you give us a sense of the bottom line impact of Softimage over the past year or in the quarter?

Minimal. Close to nothing.

And then lastly, I wonder if I can get maybe just a broad sense of the operating cost savings from these fourth quarter actions?

Well, the full benefit of that, of course, won't occur until they've all been completed. But the savings on an annual basis or whatever going on into next year is going to be in excess of $50 million per year.

And that's just for what's happening in the next -- for the fourth quarter? Or is that over the entire year's cuts?

Well, it's -- the majority of the activity will happen in the fourth quarter. When I say "happen" some of the positions, the last day may be December 31st or something like that or it may be in December but the majority of those cost savings will be achieved by then. But there are some which are scheduled to go on into next year.

But that's, I just want to make sure that's in addition to the cuts you've made over the past six to nine months?

Correct.

Great. Thanks, gentlemen.

(Operator Instructions)

If there's no more questions why don't we go ahead and wrap up and I want to thank all of you for joining us today. If you should have any further questions, all of us will be available for follow-up after today's call and we certainly look forward to speaking with you next quarter.

In particular, though, I do hope to see many of you on Monday, October 27th. We really have a great program lined up and hope you'll have a chance to spend some time with us -- spend a few hours with us on Monday. Thanks.

That does conclude today's Avid Technology Conference call. We appreciate your participation and we hope you have a wonderful day.