Building an Entertainment Software Powerhouse with Jeff Rosica, CEO of Avid Technology, Inc. (NASDAQ: AVID)

My guest on this episode is Jeff Rosica, the CEO of Avid Technology, a 1.2 billion dollar market cap company that sells software and hardware for digital media production and management. For decades, Avid’s products have been considered the gold standard in the entertainment industry. In fact, its Media Composer and Pro Tools products are used to make many of the movies you see and to create the songs you listen to.

Jeff Rosica was Avid’s Chief Sales Office and became the CEO in 2018. Since then he has overseen the company’s transition to a SaaS, or software-as-a-Service business model. After a few fits and starts, the company has started to deliver on its margin and cash flow targets as the benefits of the business model transition are flowing through the financial statement. Given the company’s recent success and my desire to better understand Avid’s journey, I thought it would be a great time to catch up with Jeff and discuss:

- What moving from perpetual licenses to a subscription software business really looks like internally

- How the company is approaching a world where people can create great content on their iPhones

- Whether or not having activist shareholders involved in the company can be helpful

- And how to balance the different cultures within engineering and sales teams

This episode of Compounders: The Anatomy of a Multibagger is sponsored by Tegus, an innovative and disruptive company that is changing the way professional investors work. For more information, please visit: https://www.tegus.co/

Key Takeaways:

- You can’t fix a business without first fixing the culture. Without the right people, you have nothing

- Fear the innovators more than you fear the incumbents. If you aren’t willing to cannibalize your own business to innovate, you’ll never win against the ankle biters.

- Listening to alternative perspectives is incredibly important and often activist investors can be those voices.

- With the right underpinning of a solid company, you can change a company incredibly quickly—and probably even faster than you would think. You might regret certain things you do if you move fast, but you’ll always really regret the things you didn’t change and improve.

Time stamps:

1:20 – Introduction

2:50 – Being named interim CEO with no forewarning

4:55 – Communicating your strategy as a new CEO

6:02 - Was being CEO always part of the plan?

8:10 – What it took to fix a broken culture

9:49 – Building a media creation tool in the age of iPhones and accessible software

12:55 – Competing with innovative ankle biters as the incumbent

15:55 – Balancing the dreams of engineers with the realities of the business

18:34 – How COVID has changed consumer needs for media creation

21:07 – Moving from a perpetual license business to a modern SaaS structure

23:27 – Fixing a company first and then thinking about M&A

26:50 – Capital allocation strategy now that M&A is on the table

29:23 – How activist shareholders have helped AVID

35:13 – Maintaining bargaining power even against the largest customers

37:17 – Remaining focused in a world with geographically diverse opportunities

39:18 – Managing rising stakeholder expectations during a period of rapid growth

41:00 – Incentivizing an organization to achieve stretch goals

43:48 – COVID’s long term effects on a tradeshow-focused industry

47:49 – Mistakes made and lessons learned as a brand new CEO

51:07 – Expanding an organization’s focus from the short run to the long term

53:05 – Jeff’s ideal legacy

54:37 – Knowing when a company is ready to take on new initiatives

56:29 – Getting better at communicating with stakeholders regarding ESG

59:05 – Lessons learned in trying to get the right people on the bus

1:01:45 – Why industry consolidation has always been 1 year away

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All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.