Avid: Starting to burn through cash

On August 13, Avid issued a press release that provided a timeline for the release of its restated financial results.  Comparing the figures with a past press release, it is possible to guestimate Avid’s cash burn.

  • On Dec 31, 2014 Avid’s cash balance was $48M.
  • On June 30, 2014 Avid’s cash balance was $23.0M with $5.0M of debt.  So $18M after subtracting debt.

In the 2 quarters, Avid burned through $30M of cash.  It may need to start drawing down its line of credit with Wells Fargo by the end of the year.

Some of Avid’s expenses are one-time expenses relating to the restatement.  There are also expenses related to the ongoing SEC and DOJ inquiries.  If these unusual expenses go away then Avid’s cash burn may diminish.  If you take the cost estimates of the restatement given in the press releases at face value, then the company presumably spent between $13 and $20M during the 2 quarters.  The operating business will have therefore burned through $10M to $17M in cash.  Adding on the projection of $12M-$14M of restatement costs remaining, the company will have net cash of $5M to -$4M by the end of 2014.

Personally, I think that Avid’s losses will accelerate.  Its competitors have been improving their products at a much faster pace while current management continues to run this business into the ground.

In my opinion, the company still has some good assets but has terrible management.  It would make a good activist/turnaround target.  Thankfully, Wall Street has not figured this out.  As far as potential private acquirers go, one Autodesk manager does not seem particularly interested in buying Avid.  A FXGuide.com interview with Stig Gruman (Autodesk Media and Entertainment’s VP of sales) states:

When we asked if AVID was for sale, he pointed out, any company is for sale at the right price, and that it appeared that AVID’s restructuring had been “tough road for them for a number of years”, harder and taken longer than they had expected. So speaking personally he commented that “I’m not sure I am looking for more challenging businesses to deal with (!)”, especially in the area of editing products.

*Disclosure:  I am short Avid.  If the stock falls, I may or may not cover my position to free up margin for a better short idea.  Avid is not the worst of the worst.

Links

You can find my previous posts on Avid by looking at posts tagged Avid.  Or, use the search function.

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6 thoughts on “Avid: Starting to burn through cash

  1. The risk/reward is wildly skewed to the upside and I would argue that someone who’s short hasn’t done the work and/or Just Doesn’t Get It. Your posts have numerous factual inaccuracies and illogical interpretations that I wont spend my time explaining. Everything is getting better with this company.

    You should re-read the first sentence of your disclaimer, then think again about how you’ve repeatedly said that this is not a great short. I’ll be back to troll you when this is much higher 🙂

      • Well that was fast. Business is doing well without management even able to focus on operating performance yet. You are demonstrably wrong, but I stay stick with the short anyway, let it ride out of spite! The market thanks you for donating liquidity.

    • The drop in net income is not a big deal. The difference is non-cash.

      The main effect of the restatement is that past profits have been pushed into the future. The past years look worse than the current/future years.

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