Q4 2019 Earnings Call
[music].
Greetings and welcome to the bright co fourth quarter fiscal year 2019 earnings call.
At this time, all participants are and I'll listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Brian Denyeau of I see our.
Good afternoon, and a lot when a bright colors fourth quarter 2019 earnings call.
Today, we will discuss the results announced in our press release issued after market close.
With me on the call today, or Jeff right, Brightcove, Chief Executive Officer, and Rob Norfleet Breakers, Chief Financial Officer.
During the call we will make statements related to our business to maybe considered forward looking at are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
These statements concerning our financial guidance for the first fiscal quarter of 20 to 24 year 2020.
Back to profitability and positive free cash flow.
Our position execute on a go to market and growth strategy.
Our ability to expand our leadership position our ability to maintain an upsell existing customers as well as our ability to acquire new customers.
Forward looking statements may often be identified with words, because we expect we anticipate upcoming or similar indication to future expectations.
These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date.
These statements are subject to a variety of risks and uncertainties in the cause actual results could differ materially from expectations.
Especially I'm sure other important factors that could affect or actual results. Please refer to those container that most recently filed annual report on form 10-K.
And it's updated by other FCC filings.
Also during the course of today's call, we refer to certain non-GAAP financial measures.
There's a reconciliation schedule showing GAAP versus non-GAAP results currently available on our press release issued after market close today.
Well she may be found on our website at www Dot dot com.
In terms of the agenda for todays call, Jeff will provide a summary of your financial results an update on our operations and a review of our strategy.
Rob will finish with additional details record regarding our fourth quarter results.
Well our outlook for the first quarter and full year 20 to 20.
With that let me turn the call over to Jeff.
Thanks, Brian and thanks to all of you for joining us today to discuss our fourth quarter and full year results. The fourth quarter marked an important milestone with the release of bright code became the first of our purpose built applications designed to enhance the user experience and deliver greater business value for customers.
In our target markets.
Right got Beacon and the rollout of other new products in our portfolio a line to the strategic plan. We have been working on since I joined the company I'm proud of the bright Coke team for delivering on these initiatives and we enter 2020 focused on our go to market execution to drive faster and more profitable growth.
Let's start by briefly reviewing our financial results for the quarter.
We delivered fourth quarter revenue of $47.6 million up 16% year over year, and adjusted EBITDA was $3.5 million, which is up from 1.4 million in the fourth quarter of 2018.
While our financial results were in line with our guidance expectations in fourth quarter, we experienced the challenging sales quarter as we discussed on our last earnings call, we decided to invest in an aggressive reorganization of our go to market team in the second half of the year, we executed on the reorganization as.
Quickly as we could in order to enter 2020 with a fully trained and product certified team.
These staff changes impacted our fourth quarter sales performance.
We had successfully completed all of the changes and now entered Twentytwenty with our go to market organization fully aligned to our strategic plan.
The challenging sales performance in the second half of 2019 will impact our revenue growth outlook for 2020, Rob will walk you through the details later on in this call, but we are targeting 4% to 6% revenue growth for the year.
We recognize the near term impact these actions had on our growth, but we believe they were necessary to improve bright codes overall operating and financial performance and will deliver the best long term results.
In 2020, we expect to deliver double digit reported backlog growth.
Let me explain what gives us confidence that we can drive improved sales growth this year.
First we enter this year with the best product portfolio in our history, we've made meaningful investments in recent years to strengthen our core platform, which we believe is the most performance in the market and deliver is by no means of reliability for our player. This strong foundation has enabled us.
To invest in applications for specific use cases that are designed with the business user in mind to drive faster adoption and quick time to value video is at the early stages of being democratized throughout the enterprise, which we think presents an exciting opportunity for brightcove to become.
These standard for enterprise video applications.
Right coat Beacon, our new SAS OTI T. platform that we launched at the end of October was the first of these new applications demand for OTI T. applications are growing rapidly, but they have historically been custom built with Bristol code that requires extensive time consuming professional.
All services engagements bright coke beacon changes the game by leveraging our extensive OTI t. experience to enable companies to quickly and cost effectively deliver premium video experiences across any device.
For example, as our customers use cases and business models of all they can adapt their monetization models from a bought the S bought through simple changes to their configuration settings that automatically update across all devices.
We've hit the ground running with bright cope Beacon, which has already generated number of sales in the fourth quarter and is positioned to be one of the most successful product launches in our history right Coke beacons. Early success is an exciting proof point that customers are looking for easy to use yet powerful solutions that.
Allow any content provider to deliver a world class Oh P.T. experience to their viewers.
One of these early adopters is tele came back a Canadian French language public educational television network.
Well use brightcove beacon to help launched their new direct to consumer OTI t. offerings bright cope with selected because of our reliability and leadership position in the market as well as our ability to reach the target audiences on a broad range of devices.
In addition to Brightcove Beacon, we also introduced bright Cove campaign earlier this quarter, our new purpose built application focused on demand generation marketing.
Right Coke campaign enables marketers to easily create video driven marketing campaigns that yield insightful data with the ability to compare video performance against a variety of industry benchmarks.
Marketers can now generate maintain and optimize campaigns and boost overall marketing efficiency all from one out built to seamlessly fit into their daily workflows and existing business tools.
Right Coke campaign is our first product built from the ground up with design thinking principles, meaning that our user experience team went on site to our customer locations to understand how they work and then designed to product with their specific needs in mind. The result is a product.
Unlike any product we have ever built.
Right Coke campaign is a great example of how customer success and enablement is at the center of everything we do.
Both demand debates and airstream are examples of early adopters of this product. These new customers sided brightcove campaigns ease of use out of the box integration with critical marketing technologies, such as Hubspot and the analytics capabilities to quickly see how their video content is performing.
And I understand who is engaging with it.
Overall early feedback on the Brightcove campaign product has been very positive and we're optimistic it will drive additional growth as we move through 2020.
Our commitment to innovation continues with the impending release of our third purpose built application in the coming months, we will continue to push the pace of innovation in 2020 and beyond with additional capabilities that create value for our customers.
The second thing contributing to sales growth in 2020 is that our sales organization Buildout is now complete and we have substantially upgraded our capabilities.
We've implemented a new sales leadership team under our Chief revenue Officer, Rick Hanson over the past six to nine months. We've attracted many new sales reps to the company in that timeframe, who have at least a decade of enterprise software selling experience. We've invested heavily in sales training and certification that led.
Bridges, the strong foundation these reps brain to Brightcove with a deep understanding of the business value of our new products.
We've also instituted a strategic account team that will focus on driving more comprehensive customer engagements compared to our traditional approach of selling department by Department.
We're seeing video use cases rapidly expand within enterprises, but to date most are not looking at their video deployments companywide we.
We believe Brightcove is any unique position to be the partner of choice for enterprises video needs and this will be a key focus for our sales organization in Twentytwenty.
We are confident this sales approach will drive more strategic multiproduct multiyear transactions that increases the number of brightcove users within the enterprise.
Our new application portfolio also gives us an exciting opportunity to build out a true channel strategy for the first time.
Last quarter, we talked about how we joined market as large point program and recently, we were excited to make bright coats solutions available on the ADW s. marketplace.
At this time. It is also importantly, we make meaningful progress on profitability.
We believe there is a significant opportunity to drive productivity gains across all parts of the organization and increase the return we generate on our existing spend we have the ability to continue investing in exciting new product innovation and accelerate revenue growth at current spending levels.
We are at the scale and maturity, where we can generate consistent profitable growth.
I would now like to highlight some great wins from the fourth quarter that reflect our positive momentum in the market.
Docusign, the world's leading E signature solution company needed a video provider that could scale with its rapidly growing business and flawlessly distribute video internally and externally and bright coke what the obvious choice.
Additionally, the company needed a trusted and reliable partner to livestream its global Docusign momentum events, Docusign look to brightcove, replacing its old provider because of our reliability and scalability.
Mob kitchen is a new and fast growing UK based cook rebrand that originally started on Instagram for students looking for low cost and healthy recipes.
Chose bright code for our highly reliable and customize about player that would improve the viewing experience on their new website Brightcove analytics will also help them judge the success of their contact.
Format is a subsidiary set up by Air Asia to diversify its revenue streams. After it launches format will be a new online destination for travel food and cultural content across the C. N region video is a key part of their strategy and format.
Peter to partner, who is reliable and has expertise and monetization and engaging user experiences. Additionally, brightcove local support and extensive VAPI eyes played a role in their choice.
Racket 10 incorporated the Japanese electronic Commerce and online retail company that uses video across its properties, including the largest online shopping platform in Japan.
Record 10 has been a longstanding customer brightcove as we enabled the company to stream and manage a large number of videos across its web sites with this recent renewal they have increased their financial commitment with bright code for another three years with Brightcove to further expand the use of videos.
Across their digital properties.
To wrap up 2019 with an important here for Brightcove, we stabilized the business developed exciting new applications and revamped our go to market team.
We have now substantially completed the work needed to position the company for success.
2020 is the year that we will bring this hard work together and start to drive faster growth and improved profitability I have never felt more confident about our opportunity for success I look forward to updating you on our progress throughout the year.
With that let me turn the call over to Rob to walk you through the numbers Rob.
Thank you, Jeff and good afternoon, everyone I will begin with a detailed review of our fourth quarter, and then I'll finish with our outlook for the first quarter and the full year 2020.
Total revenue in the fourth quarter was $47.6 million, which is within our guidance range breaking revenue down further subscription and support revenue was $44.6 million and professional services revenue was $3 million.
12 month backlog, which we define at the aggregate amount of committed subscription revenue related to future performance obligations in the next 12 months was $100.6 billion.
This represents an 11% year over year increase overall, 2% organically. We believe 12 month backlog is a useful metric for investors to track our performance on our strategic initiatives.
On a geographic basis, we generated 52% ever revenue in North America during the quarter and 48% internationally.
Breaking down international revenue, a little more Europe generated 19% of our revenue in Japan in Asia Pacific generated 29% of revenue during the quarter.
Let me now turn to the supplemental metrics, we share on a quarterly basis.
Our recurring dollar retention rate in the fourth quarter was 89%, which was below our target range of low to mid nineties.
The largest driver of the lower retention rate was lower upsells at the time of renewal.
Selecting in part some on the sales changes Jeff referenced earlier.
Our customer count at the end of the fourth quarter was 3595 of which the 2338 were classified as premium customers.
Looking at our ARPU within our premium customer base, our annualized revenue per premium customer was $83400, which was up 11% year over year and excludes our entry level pricing for starter customers, which averaged $4600 an annualized revenue.
Looking at our results on a GAAP basis, our gross profit was $28.8 million operating loss was $6.9 million loss per share was 17 cents for the quarter.
Turning to our non-GAAP results, our non-GAAP gross profit in the fourth quarter was $29.7 billion compared to $24.8 million and a year ago period and represented a gross margin of 62%.
Subscription and support revenue, representing approximately 94% of total revenue and generated a 64% gross margin in the quarter compared to a 65% gross margin in the fourth quarter of 2018.
Non-GAAP income from operations was $2.2 million in the fourth quarter compared to non-GAAP income from operations of $237000 in the fourth quarter of 2018.
Adjusted EBITDA was $3.5 million into fourth quarter compared to $1.4 million in a year ago period within our guidance range for the quarter.
Non-GAAP net income per share was six cents based on 39.7 million weighted average shares outstanding.
This compares to breakeven on 37.4 million weighted average shares outstanding and a year ago period.
Looking at our full year 2019 results total revenue was $184.5 million up 12% year over year on a GAAP basis gross profit was $109 million operating loss was $21.1 million loss per share was 58 cents based on 38 million weighted average shares outstanding.
On a non-GAAP basis gross profit was $111.6 million income from operations was $3.6 billion. Adjusted EBITDA was $8.8 million and net income per share was seven cents based on 39.1 million weighted average shares outstanding.
Turning to the balance sheet cash flow, we ended the quarter with cash and cash equivalence of $22.8 million during the fourth quarter, we generated $2.1 million in cash flow from operations and free cash outflows $336000 after taking into account $2.4 million and capital expenditures and capitalized internal use software.
Now I'd like to finish by providing our guidance for the first quarter and full year 2020.
I would like to start with our outlook for the full year as Jeff mentioned, the proactive changes we made to our sales organization that second half in 2018, well way at our revenue growth in 2020.
Given our ratable revenue recognition model investors will proceed the positive impact of the changes we have made to the business in our reported backlog metrics.
As Jeff mentioned, we're targeting double digit reported backlog growth in 2020.
Which will position us to drive faster revenue growth in 2021 and beyond.
Well the full year 2020, we're targeting revenue of $192 million to $196 million.
This includes approximately $11 million a professional services revenue.
We are anticipating approximately $1.6 million of overdue revenue per quarter or $6.4 million for the year. This compares to $7.4 million in 2019.
In terms of profitability, we expect non-GAAP operating income of $8.7 million to $12.7 million, an adjusted EBITDA, a $14 million to $18 million.
In addition, we expect non-GAAP net income per share 19 cents to 29 cents based on 40.2 million weighted average shares outstanding at the midpoint, our adjusted EBITDA guidance reflects 350 basis points of margin expansion.
For cash flow, we expect full year free cash flow in a range of $3 million to $5 million.
Turning to the first quarter, we are targeting revenue of $46.8 million to $47.8 million, including approximately $2.6 million of professional services revenue.
<unk> profitability perspective, we expect non-GAAP operating income of $1.3 million to $2.3 million, an adjusted EBITDA of $2.8 million to $3.8 million non-GAAP net income per share is expected to be in the range of three cents to five cents based on 39.7 million weighted average shares outstanding.
To wrap up we continue to make progress executing on our strategic initiatives.
2020, with the strongest product portfolio in our history, we have the products and go to market team in place that can begin driving better bookings performance. This year will set the stage for faster revenue growth in 2021 and be out of the same time, we're committed to delivering meaningful improvements in adjusted EBITDA margin as we focus on delivering consistent profitable growth.
With that we'll now take your questions operator, we're ready to begin cuda.
Thank you at this time, we will be conducting a question and answer session you.
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One moment, please while we poll for questions.
[noise] [noise] first question comes from the line of Lee crowd of B. Riley FBR. Please proceed with your question.
Great. Thanks for taking my questions guys.
Just want to sort of first on customer attention and turn it looks like you kind of had kind of a year end.
Roll off of customers, maybe just talk about the dynamics there.
Maybe you know the mix between just an outright loss and perhaps maybe some executional issues as you reorganized and then.
Maybe just kind of reiterate kind of the steps you guys are taking to improve overall retention.
Yeah. This is rob thanks for a thanks right. Thanks for the question you know in terms of the retention rate I talked about in the script, a little but the real issue with that retention rate was the upsells at the time, a renewal and it was kind of a sales execution issue related to the changes that we're making in on the sales team go forward, we expect that.
Do you know for the year end up in that low to mid Ninetys range as you got the execution model in place for the sales team that we're looking to get.
Got it and then.
No.
As we lap the comparison for our first just perhaps a housekeeping item revenue on oil in the quarter and then also just can you remind us as we as we lap the year over year comparison away all of our most of those customers been worked through a contract cycle or do you kind of phase.
Renewal wall as we execute Q1.
Yeah. So for the quarter were just about $6 million for reality.
And then in terms of where we are you know were mostly through the lab. So they're just factored into our revenue guidance for the year at this point most of the customers are either on break of paper at this point or will be on within Q1.
Got it and then.
Just last question for me.
You know just curious on your thoughts.
Around these newer products do they did they tend to have a 12 month renewal cycle or you kind of highlighted that reputation is shifting out to a three year contract is that.
Something new or are you planning on extending the duration of contracts beyond one year and maybe just talk about the monetization elements to that as you think about ARPU.
Yeah. It as we think about it there's a couple of aspects. There. One is the products do tend to be a little bit stickier. So you know, we're expecting that retention rate for those customers to be higher going forward as we move towards those real value added products and the second piece of that is really from a sales execution standpoint, they put real emphasis on going.
And it's starting that conversation with a multiyear deal.
And then always working back down to it to a one year deal. If that's what we need to get to that to when the customer, but so it's a combination of stickier products and kind of the sales execution of going in and leading with that multiyear deal to start.
Got it thanks for taking my questions guys.
Thank you.
As a reminder, if he would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Steven Frankel of Dougherty and company. Please proceed with your question.
Good afternoon, I'd like to go back a little bit on the on the last question and in terms of the churn I understand the lack of upsells that that drove the retention rate, but in terms of the number of premium customers you add it looked like there was a decent sequential drop maybe you could characterize.
For us.
Kinds of customers, you're losing size the customers, you're losing or.
Any other insight into that part of the equation.
Yeah. Thanks, Steve in terms of the size of the customers that were losing that there's nothing unusual happening with those customers you can see from our ARPU that we were roughly flat with last quarter. So we're maintaining that 83000 to 84000 dollar ARPU for the customers and we really don't.
Focus on the customer count as much as we focus on the overall bookings in driving revenue through the customers.
[noise] and and and again on that churn.
What is it mostly in the legacy base as opposed to the U.S. dollar base, you've done a decent job of retaining those customers and.
Dying to follow up to that.
Yeah, I know in terms of the all the customers, we're where we need to be in on the plan.
And I know one of things you talked about the last couple of quarters was you were going to get those who love customers onto the break code.
Platform, which was going to drive margin expansion in subscription and support and that Didnt happen. In Q4 is that a function of not getting everybody cut over or there's something else going.
No that's really a function of not getting everyone cut over just yet we expect the majority of the customers to but yeah fully on the breakup platform by the end of Q1, Steve It's Jeff Ray we're tracking to plan on migrating those customers in fact.
We were a little bit ahead of the initial plan when we put the business model together and the customers that have migrated it come back and told US. It was good experience they like being at a more stable environment. We've also committed to a lot of enhancements to our core product to support features and functions that they had before.
And I'm pleased with the work that the engineering team had has a has delivered to satisfy those needs.
Okay and I you know, Jeff you keep using this term acceleration you said, probably a half dozen times in the script, but.
And with we're not seeing it in in the numbers and I know you've committed to at double digit a backlog growth, but maybe.
To give us some insight into how patient do we need to be is some of that backlog growth going to drive.
Relative acceleration as we get through this year or should we be taken a 2020, it's just a transition year, it's another tough slog Intel.
These new contracts start to kick in.
That's fair and believe me, we spent a lot of time on it and it was a hot topic with the board last week as we step back and kind of look at everything everything that can be touched and impact. It has been done and we stepped back and looked and asked ourselves if we missed anything and we have it the organizational.
Drug sure, bringing in the right leadership team, putting engineering product management cloud ops in Dev ops, all into one team putting marketing into one global team sales into one global team new demand Gen models, New sales model training enablement certification launch of new products to act.
Acquisition.
That's fully done.
The build out in completion of our first off shored site in Guadalajara, we feel good about that we're not satisfied with the results, but we also look at the fact that everything that we can touch we're touching the other thing that we did was we took the opportunity as we were putting the planning together because its share back in the fall of 19.
And to reassess our market segmentation work and our go to market strategy and the good news was one year on everything that we thought was going to deliver better results. Indeed, it's still the right markets in the right segment for us to be the thing that hurt us was the sale.
<unk> transformation, but again, we consciously said, let's let's complete this let's do it right, let's not do it in a halfhearted way, we believe in the product strategy.
We're excited about the products, we're bringing to market. We know that we've identified the rights segments, let's get this done yeah, let's rip off the Bandaid complete the work and go into the new year ready to grow and believe me. We all are working very hard to grow well beyond the expectations that we set with you and the.
Investor community.
And just last quarter or announce this incremental investment to think about another go to market module or prebuilt app, but are you going forward with that.
Yes. We are we were we were pleased with the outcome of the research and the validation.
Again, we spent time with the board going through that the board gave it to thumbs up which is good because we believe in that also I don't see that as having a material impact on 2020.
It's a strategy that will drive much higher sticky and that's because it's not just a focus on the o. VP. It's a focus on things that will deliver pretty profound ROI.
To the business.
Number one number two well open up new markets in new expansion opportunities and it's definitely something that we can go back into and sell into the base.
Strategic we won't get it done overnight, but it's the right thing to do and there's enough evidence in fact to support that.
And where usually I wasn't that bring out.
Jeff where are you on the var channel is that something that contributes to revenue in 2020 or that's another item that it's gotten pushed out a little further.
We found as we did the work on the and you said specifically the value add reseller market, we needed to have products that fit what vars can sell and so beacon is something that a relatively sophisticated Bart can sell and so now we have something.
It gives us an opportunity to engage with resellers.
Launching campaign campaign is definitely a product that resellers can sell and in fact, you know we're encouraged by the relationship with they w. after the opportunity to be on their marketplace. Because it definitely is something that that the community vws marketplace consumers can.
Take advantage of so we wanted to make sure that we just didn't go out and recruit resellers and not have products that deliver really immediate and sustainable.
Transactions for them.
Okay, and Rob a couple of questions for you.
What kind of the op expense growth rate is baked into this forecast is slow low single digit growth rate in opex.
Yeah year over year, where the guidance is basically flat on opex.
Okay, and then I missed the 12 month backlog number could you give that to me again.
For for the ended this year, yes.
100.6 million.
In the 12 month backlog or subscription.
100.6, alright, thank you.
Yep.
We have reached the end with the question answer session I will now turn the call back over to Jeff Ray for any closing remarks.
Alright, Thank you operator, and thank you everyone for joining in it was a tough challenging finish to the year, but again, we consciously made the right decisions to position ourselves for breakout profitable growth and believe me. This is our number one focus for this year, we feel good about the decisions. We've made we know we've got to.
Deliver that and the results thanks, everyone and have a good evening bye.
This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation have a great tech.