Avid 2014 Annual Report Download - page 46

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40
Costs of Revenues for the Years Ended December 31, 2013 and 2012
(dollars in thousands)
2013 Change 2012
Costs $ % Costs
Products $ 159,264 $ (23,500) (12.9)% $ 182,764
Services 63,177 (493) (0.8)% 63,670
Amortization of intangible assets 1,468 (1,106) (43.0)% 2,574
Total costs of revenues 223,909 (25,099) (10.1)% 249,008
Gross profit $ 339,503 $ (47,192) (12.2)% $ 386,695
Gross Margin Percentage
Gross margin percentage, which is net revenues less costs of revenues divided by net revenues, fluctuates based on factors such as
the mix of products sold, the cost and proportion of third-party hardware and software included in the systems sold, the offering
of product upgrades, price discounts and other sales-promotion programs, the distribution channels through which products are
sold, the timing of new product introductions, sales of aftermarket hardware products such as disk drives and currency exchange-
rate fluctuations. Our total gross margin percentage for 2014 increased slightly to 61.4%, from 60.3% for 2013. The increase in
gross margin was primarily due to the cost reduction initiatives, partially offset by the impact of the previously discussed lower
amortization of deferred revenues attributable to transactions executed on or before December 31, 2010.
Gross Margin % for the Years Ended December 31, 2014, 2013 and 2012
2014 Gross
Margin %
(Decrease)
Increase in
Gross Margin % 2013 Gross
Margin %
(Decrease)
Increase in
Gross Margin % 2012 Gross
Margin %
Products 62.0% 2.3% 59.7% (2.1)% 61.8%
Services 60.0% (2.4)% 62.4% 3.0% 59.4%
Total Gross Margin 61.4% 1.1% 60.3% (0.5)% 60.8%
2014 Compared to 2013
The increase in products gross margin percentage from continuing operations for 2014, compared to 2013, was driven by the cost
reduction initiatives, partially offset by the impact of the previously discussed lower amortization of deferred revenues
attributable to transactions executed on or before December 31, 2010.
The decrease in services gross margin percentage from continuing operations for 2014, compared to 2013, was due to lower
services revenues on relatively fixed costs. As previously discussed, the revenues recognized from the amortization of deferred
revenues (that is, the recognition of revenue backlog) attributable to transactions executed on or before December 31, 2010 will
continue to decline until the related deferred revenue balance are largely amortized by 2016. These revenues have 100% margins,
because the timing of the recognition of the deferred costs did not change as a result of our restatement, and our gross margin
percentages will be negatively impacted as these revenues decline.
2013 Compared to 2012
Our products gross margin percentage from continuing operations for 2013, compared to 2012, was negatively impacted by the
effect of the amortization of our deferred revenue balances as discussed above.
The increase in services gross margin percentage from continuing operations for 2013, compared to 2012, was driven by a
significant increase in services revenues from maintenance contracts, which have higher gross margins than professional services
and training, as well as margin improvement for professional services resulting from enhanced productivity.