Q4 2020 Brightcove Inc Earnings Call
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Greetings and welcome to the Brightcove fourth quarter and fiscal year 'twenty 'twenty earnings call. At this time all participants are in a listen only mode. A brief 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. Other reminder of this conference is being run.
It is now my pleasure to introduce your host Brian Daniel Thank you, Brian you may begin.
Good afternoon, and welcome to Brightcove as the fourth quarter 2020 earnings call today, we'll discuss the results announced on our press release issued after market close with me on the call are Jeff Ray Brightcove, Chief Executive Officer, and Rob nor of Brightcove Chief Financial Officer.
During the call we will make statements related to our business that maybe considered forward looking and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 995.
Including statements concerning our financial guidance for the first fiscal quarter of point of 21, and the full year 'twenty and 'twenty, one expected profitability and profit positive free cash flow our position to execute on our go to market and growth strategy, our ability to expand our leadership position, our ability to maintain and upsell existing customers as well as our ability to acquire new customers.
Forward looking statements may often be identified with the words, such as we expect we anticipate upcoming or similar indications of 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 of could cause actual results to differ materially from expectations, including the effects of the COVID-19 pandemic on our business operations as well as the impact on general economic and financial market conditions.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to those contained on our most recently filed annual report on form 10-K.
And as updated by our other SEC filings on.
Also during the course of today's call, we will refer to certain non-GAAP financial measures.
The reconciliation schedule showing GAAP versus non-GAAP results currently available on our press release issued after market close today, which can be found on our website at www Dot Brightcove dot com.
In terms of the agenda for today's call, Jeff will provide the summary of you of our financial results and update on our operations and a review of our strategy.
Rob will finish the additional details regarding our fourth quarter of 'twenty when the results as well as our outlook for the first quarter on full year of 2021.
With that let me turn the call over to Jeff.
Thanks, Brian and thanks to all of you for joining today I Hope all of you on your families continue to remain healthy and safe.
The fourth quarter was an excellent finish to a terrific year for Brightcove, we delivered the strongest fourth quarter bookings performance in the Companys history, driven by continued momentum across all parts of the business. We are helping drive videos of proliferation across global enterprises, enabling better engagement with employees.
Customers and partners. We are also benefiting from the growing number of content creators looking for ways to distribute and monetize their content at global scale. These trends are still in the early stages of adoption, which puts brightcove and of great position to deliver strong sustainable and profitable.
Growth for years to come.
Turning briefly to our financial results for the fourth quarter, we delivered revenue of $53 $7 million up 13% year over year and well ahead of our guidance.
This represents our fastest organic growth rate since the third quarter of 2016.
Adjusted EBITDA was $6 8 million up 92% year over year and also well ahead of our guidance and free cash flow was $10 9 million, our strongest ever free cash flow quarter.
And for the full year 2020, we delivered revenue of 197 $4 million up 7% year over year, and adjusted EBITDA was $25 million, a 10% margin debt more than doubled from 2019 and free cash flow was $12 6 million.
Yeah.
The forward looking at the quarter in detail I would like to spend a moment reviewing some of the highlights from the full year the P.
Pandemic has presented enterprises and content providers with numerous challenges and our team delivered some of these challenges included managing and engaging employees in an entirely virtual environment for.
Finding new ways to develop and deepen customer relationships transitioning in person events, the compelling virtual live of bad experiences.
Porting rapid growth in streaming video content as people stayed home and watched more than ever before.
And the adjusting to the profound disruption faced by our customers in live sports and those with AD supported models.
Brightcove led the way as organizations around the world use the power of video to address these challenges and capitalize on major changes in the market. One example is how content providers leveraged brightcove beacon to quickly launch new OTT solution to take advantage of the massive shift towards watching long form content.
On mobile devices.
The growth in video reinforced that scale is one of the most important reasons customers choose brightcove, we look at scale very differently than most of our competitors. They talk about scale of supporting tens or hundreds of thousands of viewers at Brightcove. We have built the platform designed to.
Scale to tens of millions of viewers our customers tell us all the time that we are the only platform on the market, but it's close to being capable of providing broadcast quality experiences with 99.95% playback uptime.
At the same time customers all of sudden need sophisticated yet easy to use solutions like Brightcove beacon of Brightcove virtual event experiences to utilize video for very specific business needs. Our success with these products reinforce the growing number of ways to deploy video is a core part of business.
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The combination of of powerful platform and purpose built applications is unique and a key differentiator for brightcove, our discussions with customers have made it clear that the product innovations introduced over the past 18 months have significantly increased the value, we deliver and brightcove stir.
T J importance.
It's not just our customers who are recognizing the value of our technology. We were thrilled when Brightcove was recently recognized by the National Academy of television Arts and Sciences, with two technology and Engineering Emmy Awards Brightcove as the only online video platform to win and we were recognized.
Alongside some of the largest streaming companies in the world, including Netflix Disney and Google.
This is just the latest recognition of our product innovation. We have filed over 175 patent cases and have been awarded more than 85 patents globally far more than our for closest competitors combined.
One of our other major achievements in 2020 was the improved performance of our go to market team we.
We've made significant changes and investments across all aspects of our sales and marketing team to develop a repeatable predictable go to market motion.
This deliberate reflect results in 2020, and we believe it can generate even better performance in the future.
One of the most exciting aspects of our performance in 2020 was our consistency.
The fourth quarter was our third straight quarter of significant bookings growth with notable performances in North America, and Japan, and balanced contribution between new and existing customers. We also delivered on our goal of profitable growth with our second consecutive quarter of double digit adjusted.
EBITDA margins and it's on.
I mentioned earlier Q4 was our fastest organic revenue growth period in years. This is the type of financial performance, we expect to deliver on a consistent basis.
I'd like to highlight a few of our exciting wins in the quarter.
M M. A global holdings recently launched the new mixed martial Arts league to provide fans with studio based MMA event to satisfy the exploding global demand for fights and combat sports content and man made global signed a three year Brightcove Beacon contract.
The content to its viewers around the world. The OTT platform will be of subscription video on demand service for live streamed MMA content available on iOS Android and the web.
Rainbow Media holdings has been of Brightcove customer for more than a decade, and we built a strong relationship with the company while supporting its S fought initiatives across multiple channels Rainbow Media Holdings recently went through a rigorous RFP process to determine which video provider you would use to consolidate.
AMC networks Tech stack of.
Channel the Brightcove did not previously support.
We were selected to replace the income, but one of the world's largest cable providers due to our new innovations, including cloud play out enhanced life capabilities.
Our M G O blocking offline playback of the monetization among others.
Other organizations, taking advantage of the scale and reliability of the Brightcove platform include Ford Motor Company, Intel AP sales Force and Meredith Corporation among others.
We also continued to have great success with live virtual events and are now considered an industry leader.
Of these recognize that virtual events can dramatically increase their reach and allow for an ongoing customer relationship that is more engaging that of standalone one to two day live of bet.
The past year has made it clear that of hybrid model will be the standard when the world begins to reopen and live gatherings return of two significant events happening right now using brightcove are the annual family reunion of bad hosted by Keller Williams, the world's largest real estate technology franchise.
It is expected to have more than 50000 attendees and the Australian open the first Grand Slam of 'twenty 'twenty, one that is hosted by our customer tennis, Australia.
One, particularly notable recent events powered by the Brightcove platform was of live concert for a well known Japanese music group. There was streamed by millions of people. This was the highly publicized the bet the generated tens of millions of dollars in ticket revenue. We don't believe there is another platform in the <unk>.
World that can come close to supporting this kind of scale.
An important part of our success in the quarter was the great momentum in our channel program partner bookings more than doubled year over year and represented nearly 20% of total bookings. We also signed more than 20, new partners, including a number of managed service providers that want to leverage the brightcove plat.
For them as part of their solution offerings.
From a product perspective, we recently introduced two notable capabilities that increase the value and stickiness of our platform. The first is brightcove cloud play out, which solves the growing challenge customers face when they want to stitch together pre recorded and live content, our drag and drop.
The functionality allows customers to quickly and easily stitch together different types of the video into a high quality broadcast like TV experience when a M. C learned about this capability they decided to adopt it as quickly as possible cloud play out was also one of the capabilities south by southwest.
West online was the most excited about when they chose brightcove.
From the second is Brightcove prebuilt integration into the zoom App now available in the zoom marketplace. We've received feedback from many customers that for certain events like the remote town hall, they need the scalability reliability and security of the Brightcove platform through the familiarity of the zoom App.
With this new integration participants can now use the zoom app to capture video and then broadcast of hundreds of thousands of viewers on the Brightcove platform.
We also further strengthened our management team with the addition of Jennifer Griffin's Smith.
Brightcove, New Chief marketing officer focused on scaling our global go to market strategy, driving greater brand awareness with thought leadership and driving incremental pipeline growth.
Jennifer has a 20 plus year track record of success working with technology innovators to bring solutions to market the drive customer adoption and advocacy, including most recently as the CMO of al crust go software and previously a CMO for software AG avid technology.
And progress software.
While we accomplished much in 2020, we know the best is still to come for Brightcove. It's important to recognize how far we have already come in the past few years in 2017, our combined revenue growth and adjusted EBITDA margin was barely above zero.
In 2020 debt increased to 17, we entered 2021 with the strategy proven to work out of market opportunity that has never been more attractive.
Our focus in 2021 is to build upon the success and make significant progress towards our goal of being a rule of 30 and ultimately our rule of 40 company.
There are three key initiatives that we are focused on this year.
The first is to complete the process of building a best in class renewals business last summer I told you that our top strategic priority was building renewals business the delivered retention rates in line with leading SaaS companies.
Pleased to say that we have hired new leadership for our renewals business and implemented a new organizational structure that will drive better performance as I've noted previously it will take time for the impact of these changes to be apparent, but we expect investors will begin to see sustainable improvement in the second half of this year.
The second is to continue investing in our partner channel the launch of a formal channel partner program and New Master license program was one of our biggest successes in 2020, we entered the year with no real channel the speak up and by the fourth quarter. It was an important growth contributor in 'twenty and 'twenty. One we are in.
Spanning this program to accommodate global reach more partner types and additional technical support and marketing programs we.
Make partners can represent 30% to 50% of our business over the long term.
We believe the mature channel program is the most significant opportunity to accelerate growth and enhanced profitability for brightcove.
And the third is the leverage our data assets with machine learning the breadth depth and reach of our platform provides us with an incredibly rich dataset that we believe represent untapped potential we have identified a number of ways to utilize machine learning to leverage our rich data to.
Deliver greater value for our customers by per.
Providing greater insight the contact utilization and user and subscriber interest we will enable our customers to fully maximize the benefits of video in their operations.
We have an extensive innovation pipeline focused on machine learning that we will began to introduce in 2021.
I'll finish by saying this is an exciting time for Brightcove 'twenty 'twenty was videos evolutionary moment and its importance to enterprises will only continue to grow.
The hard work of everyone in this company and preparing us for this moment is paying off.
Financially our guidance represents a meaningful step towards our long term targets. We believe we will generate significant shareholder value by continuing to successfully execute on our strategic plan.
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 the detailed review of our fourth quarter, and then I will finish with our outlook for the first quarter and the full year 2021.
Total revenue in the fourth quarter was $53 $7 million, which is well above our guidance range.
Taking revenue down further subscription and support revenue was $50 $7 million of professional services revenue was $3 million subscription.
Subscription and support revenue in the quarter benefited from $1 $2 million of non recurring revenue related to our live event held in the quarter and strong overages of $2 $3 million.
12 month backlog, which we define as the aggregate amount of committed subscription revenue related to future performance obligations. In the next 12 months was the $114 $7 million. This represents a 14% year over year increase.
On a geographic basis, we generated 54 per cent of our revenue in North America during the quarter and 46 per cent internationally.
Breaking down international revenue of a little more Europe generated 16% of our revenue and Japan and Asia Pacific generated 29 per cent 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 91 per cent, which was in our target range of low to mid nineties, we still have more work to do to build of consistent renewals business that's true.
I've mentioned this is the key strategic priority for us and an area we are investing significant resources.
We have implemented the operational changes required, but this metric may potentially be below our target rate in the first half of the year before we see for the full impact of the changes we are making in the second half of 'twenty 'twenty one.
Our customer count at the end of the fourth quarter was 3330 of which 2279 were classified as premium customers.
Looking at our ARPA within our premium customer base, our annualized revenue for premium customer was $97000, which was up 17% year over year and excludes our entry level pricing for starter customers, which averaged 4000 and $400 in annualized revenue.
Looking at our results on a GAAP basis, our gross profit was $34 $2 million operating income was $1 $6 million and net income per share was five cents for the quarter.
Turning to our non-GAAP results, our non-GAAP gross profit in the fourth quarter was $34 $8 million compared to $29 $7 million in the year ago period and represented a gross margin of 65 per cent.
We are pleased with the improvement in gross margin in the second half of the year, which reflects better cost efficiencies improved revenue performance and the diversification of our business and the less video delivery of intensive use cases.
Subscription and support revenue represented approximately 94 per cent of our total revenue and generated a 68% gross margin in the quarter compared with 64% gross margin in the fourth quarter of 2019.
Non-GAAP income from operations was $5 $4 million in the fourth quarter compared to $2 $2 million in the fourth quarter of 2019.
Adjusted EBITDA was $6 $8 million in the fourth quarter compared to $3 5 million in the year ago period and above the high end of our guidance range for the quarter.
Adjusted EBITDA margin was 13% in the quarter, an all time by the end up more than 500 basis points year over year.
Our profitability performance in the fourth quarter and for the full year for important demonstration of of the scalability of our business model.
The combination of cost discipline and targeted investment in our growth initiatives positions us well to generate continued margin expansion going forward.
Non-GAAP net income per share was <unk> 14 cents based on 41.6 million weighted average shares outstanding. This compares to net income per share of <unk>.
$39 7 million weighted average shares outstanding in the year ago period.
Looking at our full year 2020 results total revenue was $197 $4 million up 7% year over year.
On a GAAP basis gross profit was $121.3 million operating loss was $5 3 million and loss per share was 15 cents based on $39 5 million weighted average shares outstanding.
On the non-GAAP basis gross profit was $123 $7 million income from operations was $15 $2 million adjusted EBITDA was $25 million and net income per share was 36 cents based on $40 4 million weighted average shares outstanding.
Turning to the balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $37 $5 million during the quarter, we paid down the remaining $5 million debt had been outstanding on our $30 million revolving credit facility.
We generated $12 $4 million of cash flow from operations and free cash flow was $10 $9 million after taking into account $1.5 million of capital expenditures and capitalized internal use software.
The best quarterly cash flow performance in our history.
I would like the finish by providing our guidance for the first quarter and full year 2021.
As Jeff indicated we entered 2021 with great momentum in our business, we are generating significant sales growth driven by the strength of our product portfolio and go to market team and the increased strategic importance of video to enterprises.
We expect to have another strong sales year in 'twenty 'twenty. One so we remain mindful of the potential impact of the continued uncertainty in the macro environment may have on customer spending and have incorporated that into our outlook.
Our growth expectations for 'twenty 'twenty. One also reflects the meaningful trend that we expect to occur in the first half of the year.
This is related to several legacy customers that are moving to do it yourself solutions.
Altogether these customers represent approximately $3 $1 million of subscription revenue that is expected to come out of our run rate by June 30th.
As we have mentioned building a strong renewals business is a key priority this year and we're confident the leadership and processes. We have put in place will be successful.
For the first quarter, we are targeting revenue of $53 million, the $54 million, including $1 $5 million of Overages and approximately $3 $7 million of professional services revenue.
From a profitability perspective, we expect non-GAAP operating income to the $4 million for <unk>.
$5 million and adjusted EBITDA to be between $5 $4 million and $6 $4 million.
Non-GAAP net income per share is expected to be in the range of nine cents to 11 cents based.
Based on 41 9 million weighted average shares outstanding.
Please keep in mind as you look at our sequential expectations for the first quarter that there was $1.9 million of revenue recognized in the fourth quarter that is not in our run rate for the first quarter.
For the full year, we are targeting revenue of $211 million for $217 million, including $6 million of Overages and approximately $12 $5 million of professional services revenue from.
From a profitability perspective, we expect non-GAAP operating income of $20 million of $25 million and adjusted EBITDA to be between $25 $5 million and $35 million.
Non-GAAP net income per share as the expected to be in the range of 44 cents the 56 cents.
Just on 42.2 million weighted average shares outstanding.
Our adjusted EBITDA guidance reflects the third consecutive year of annual growth.
The full year, we're now targeting free cash flow of $17 $5 million for $22 $5 million.
To summarize we had an excellent fourth quarter, we continue to execute very well through the challenging economic environment. I believe we are well positioned to build upon our recent successes to generate faster more profitable growth.
With that we will now take your questions on.
Later, we are ready to begin Q&A.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line of it then the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up of your handset before pressing the star.
Yes.
One moment, please while we poll for questions.
Thank you. Our first question comes from Mike Latimore with Northland Capital markets. Please proceed with your question.
Great. Thanks, and congrats on the great execution of this year.
Thanks, Mike.
Thanks, Mike.
Yeah, I apologize if I missed this but did you comment on fourth quarter bookings you know how that came in relative to total you had on the last couple of quarters.
Yeah.
Yeah, we did of as Jeff mentioned, it was our strongest fourth quarter ever.
Okay got it and.
How much did.
On the virtual or live events contribute to the the bookings.
Yeah, we don't really break it out on a product by product basis, but we had a good mix of virtual events are beacon product and then our legacy products with video cloud.
Okay great.
And then as the as you think about.
Growth for this year.
Can you give any color on the relative contribution of the ARPA growth versus new customer adds any is it going to skew one way or another.
Yeah, we're not really optimized the off on optimizing for the customer count growth. So I think it's gonna be a good combination of both as we head through the year, particularly on the back half of the year as we are as we start seeing the benefits of our renewals business improvement.
Got it and then I guess.
The last you've mentioned the.
The channel started to make us on contribution I believe I guess can you give any more color on channel contribution reported here.
Yeah, as we talked about on the call. It was about 20 per cent of the bookings in the fourth quarter.
And as you know as we go forward, we're trying to get that into the 30% to 50 per cent range in the future.
We believe there's real opportunity with the channel to grow the business.
And reach markets that we might otherwise not with our direct sales force.
Okay.
Great I guess just lastly.
The largest customer is still about two per cent of revenue.
Yes, that's right.
Okay.
Thanks, Good luck on us here.
Thanks.
Mike.
Thank you. Our next question comes from Steven Frankel with Colliers. Please proceed with your <unk> good afternoon.
Good afternoon, and congratulations on a great way to finish the year.
Obviously, the retention rate was surprisingly strong in the quarter. After the cautious language you had given in the last couple of quarters.
Could you give us some insight as to whether that was driven by.
Some some big Upsells are right on what what's the dynamic there that that led to the outperformance or is it just the timing issue. When the things you were worried about are now happening in Q2 and not in Q4.
There was some timing and just some some mix and the ability of the team to upsell.
But as I said I'm not going to feel good about the predictability and the consistency of our renewals until we get into the second half of.
Of of this year, that's that's what I believe we will have this under control.
Okay and on the big step up in our two of which was another thing that the pops out in the quarter or is that driven by a couple of large deals in particular or is that just the way. The team is executing now that these engagements are more meaningful than they were six months or nine months.
Hey, Bill.
Yes, the that's really driven by one large deal on the quarter. It in the script, we talked about the $1 $2 million of revenue in the quarter from a from a live event and that's really what's pulling that <unk>.
Yeah.
Okay.
Okay.
And then.
The the.
Rule of 30 is that something you're still desire to do.
You know by that March deadline that you have or.
Do you think it takes you longer to get there.
Yeah, it's a it's a absolutely it's our goal I don't believe that we do.
Deserve the right to say were of high performing SaaS company until we cross that and then pursue the the next target I'm not kind of put a date on it but as I've said all along.
We're treating that with the greatest level of urgency we pay attention to it when we put our business planning together and our investment strategy with an eye towards as we've said over and over again profitable growth. We believe that we can solidly grow the top line and we can do it in a very profitable way by by presenting.
Solutions for which customers see the value and will pay a premium it is now starting to pay off and we're not going to turn back.
Great.
Executing really well and then.
Do you see any meaningful change in your mix between media and enterprise customers as we go through this year.
The next year or are you indifferent as to where the customer comes from.
Well I don't I wouldn't call it indifferent I love all of our customers.
And there is there an awesome opportunity in media as well as an enterprise the.
Power of media and I think sometimes it gets a bad rap because there is a move in giant media to do more DIY, we've been living with that and we're not out of the woods, yet, but the power of media as they demand broadcast quality and so as a result, it's in the DNA of the technology stack.
It's how engineering and product define the core attributes of of new features and functionality that we're going to deliver we're going to deliver almost 200, new features and functions. This year, that's what the product roadmap says and over and over again everything is done with the gold.
Towards high performance scalability, while still protecting privacy and protecting our customers' IP. So we we love both aspects of the business and the unique demands from from both sets of customers.
Great. Thank you.
Thank you.
Okay.
Thank you. Our next question comes from Eric.
Martin Newsy with Lake Street Capital markets. Please proceed with your question.
Hi, congrats on the quarter as well and a question about your outlook for the pro services revenue.
I've been modeling that at about 10 million of year and it looks like at least for Q1, we've got a 3.7 million and then Youre looking at $12 5 million for the year I'm wondering if you could give me a little bit more detail on what's going on with the pro services.
Yes, so two things in the first quarter, it's really related to one large deal that we closed that's going to be delivered this quarter.
And then as you think about professional services on a go forward basis, well, it's not you know it's not the core component of what we do we are of SaaS business, but we do believe that professional services allows us the opportunity to get into the customers know the customers and become stickier with the customers. So I expect it to increase a little bit as we grow the overall business.
Okay.
Okay, and then for one of the gross margins.
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I'm curious to know if there's any change there I think historically, you've talked about kind of shooting for 10%.
Sent on the Pro services and then I think it was 66 or for a little higher on the.
The.
So for it services what are you thinking about for the year on gross margins.
Yeah. So on the professional services side, we're thinking low to mid teens from a margin standpoint.
We've talked about that as an area that when Jeff and I started wasn't being run profitably. We are going to continue to run that profitably, but we don't see it as a the huge margin drivers as I talked about our purpose of professional services getting into the customer and make them sticky.
From the subscription side as you saw we were closer to 68 this quarter, that's going to be volatile as we go through the year.
Can imagine some of our some of our Cogs are on the Houston based siding.
Depending on how the customers leverage the platform may skew that a point or two here of there. So we do expect that to stay above.
Above that 65 range, but it's going to be a little vial sales, you've got sort of the year.
Got it thanks for taking my questions.
Yep. Thanks.
Thanks, Eric.
There are no further questions at this time I would like to turn the floor back over to Jeff Ray for any closing comments.
Thank you Paul and thank you everyone for your support in us and belief in US. It really came together in the fourth quarter. We carry that momentum forward. I also wanted to just stress that no. One inside this company as complacent or feels like now we have achieved success.
We can relax on cruise if anything this is a stronger call to action, so youre going to see the our focus on doing things with even greater urgency.
I appreciate your support and we are very excited about the new year.
As always we ask you to continue to stay safe.
Stay healthy as we get through this pandemic together. Thank you all goodbye.
Yeah.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful evening.