Q1 2021 Brightcove Inc Earnings Call

April 28, 2021

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Yes.

Hello, Ladies and gentlemen, and thank you for your patience the call will be getting shortly.

[music].

Greetings and welcome to the Brightcove first quarter 2021 earnings call. At this time all participants are in a listen only mode of course.

And the 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 Bryan Dan you. Mr. Donahue you may begin.

Afternoon, and walking the Brightcove first quarter 2021 earnings call.

Today I will be the will discuss the results announced on our press release issued after market closed within the call of Jeff Wright, Brightcove, Chief Executive Officer, and Rob <unk> for breakfast Chief Financial Officer.

During the call we will make statements related to our business that may be considered forward looking every day.

Pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the second fiscal quarter of 2021, and the full year 2020 one.

Expected profitability and positive free cash flow.

For 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.

All of our ability to acquire new customers.

Forward looking statements may often be identified of the words, such as we expect we anticipate upcoming or similar indications of future expectations.

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 that 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 of Chilean risks and other important factors that could affect our actual results.

Please refer to those contained on most recently filed annual report on form 10-K.

And as updated by our other SEC filings.

Also during the course of today's call, we refer to certain non-GAAP financial measures.

The reconciliation scheduled 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 a summary review of our financial results and update on the operations and a review of our strategy.

Rob will finish with additional details regarding our first quarter of 2021 of the results as all of our outlook for the second quarter and full year 2021 does that let me turn the call over to Jeff.

Thanks, Brian and thanks to everyone for joining today I Hope you and your families continue to stay healthy and safe.

Video continues to be the most powerful medium to connect people on a global scale I am so proud of the entire brightcove team and our ability to consistently meet our financial goals, while delivering exceptional product innovation and customer experience we're on.

Off to a very strong start to 2021 with record first quarter sales driven by impressive performances in each region. Our performance reflects the video is on its central and rapidly growing technology across both media companies and enterprises the.

These results reinforce that our strategy is highly relevant and our team is executing we will continue to invest in innovation to provide the most comprehensive video delivery on optimization platform.

With solutions to satisfy multiple business use cases, we've created on optimum direct sales engine, while building of extensive channel ecosystem, all while ensuring the success of every one of our customers.

Turning to a summary of our financial results for the first quarter revenue was $54 $8 million up 18% year over year and ahead of our guidance adjusted EBITDA was $8 $6 million up 132% year over year and well ahead of our.

Guidance.

In February we hosted our inaugural analyst day if.

If you couldn't attend there is a replay of the event on our Investor Relations website.

During this event, we outlined our vision for the future of the market and our strategy for aggressive growth. This included three primary focus areas.

Our focus on innovation.

Our goal is to create a highly differentiated platform powered by machine learning and AI to deliver superior video viewing experiences and business performance for our customers.

This means broadcast quality reliable and secure video combined with high performing analytics and purpose built applications.

Specific business needs across a variety of use cases.

Add to this an app community marketplace and our customers will have access to the most comprehensive video solutions for all of their internal and external needs.

And third we outlined our plans for growth of our customer success and renewals teams and how it will positively impact our customers and our retention.

I'd like to provide some updates on the most recent progress we've made in each of these key areas.

Let's start with technology innovation.

Brightcove prides itself on being a product driven company focused on solving the most complex customer challenges.

Our goal is to deliver broadcast quality video to any device to audiences anywhere in the world and the most reliable and secure way possible.

We recently released two new solutions that will deliver significant value for our customers the.

The first is playback restrictions, which provides customers with the ability to protect their content from being watched by unauthorized users. The brightcove platform makes video readily available to anyone who should see it and inaccessible to anyone who should not.

Where the content is for an internal or external audience free or monetize brightcove play back restrictions provide the right level of security, while still allowing viewers to access content from any device anywhere.

Playback restrictions ensures the internal content remains confidential and debt every deal counts towards monetization of investments, while fully protecting our customers' content and helping maintain brand integrity.

We also recently launched Brightcove virtual events for business and intuitive easy to use virtual event solution for highly repeatable mid size the beds virtual event for business as a virtual event creation marketing and delivery platform designed to easily service the rapidly expanding number of.

Events hosted by organizations the.

The solution offers customizable templates interactive calls to action post event archiving multi device support and a 10 day interactivity features as well as live clipping of event video to multiple social media channels.

Additionally, virtual events for business includes zoom and Microsoft teams integration.

Our registration connector for seabed and user engagement analytics. Many enterprises are planning for life after COVID-19 and want to continue to maximize the extended reach they have achieved with virtual events over the past year and a half.

They recognize that video is an essential tool the connect with audiences across all aspects of the organization.

With Brightcove virtual events for business, we have made it simple for enterprises to hold high volume repeatable events.

Let's turn now to our go to market execution, and the broad base of customers leveraging video to achieve success across many different use cases.

We had a solid sales quarter with several significant wins. Some notable examples include box Inc. A cloud content management platform that enables organizations to make it easy to access information from anywhere and collaborate with anyone box.

Fox chose brightcove to quickly and efficiently improve its video asset management and to get actionable analytics for its digital marketing team to improve campaign performance the.

Company also selected Brightcove for our technology reputation in the market.

They needed a strategic partner, who could share insights into how the most successful brands in the industry leverage video to work harder and drive more impactful ROI.

<unk> enterprises LLC more commonly known as of the San Francisco Giants turned to Brightcove. When they were looking for new ways to create regulatory engagement with season ticket holders casual fans sponsors and business partners around the world with Brightcove, the Giants will be able to create and Matt.

<unk> several virtual events, both large and small to interact with the different audiences.

We signed of Brightcove beacon win with multi screen the.

The Singapore based parent for school on OTT provider with 47 million registered users and multiple regions worldwide spool. Originally developed of homegrown do it yourself streaming service that had become increasingly costly and complex to maintain as it's scaled its business the spool.

The team chose Brightcove beacon to significantly reduce costs accelerate their ability to launch new web iOS and Android experiences and improved customers using experiences.

<unk> is an innovative and well known commerce service in South Korea debt directly connect famous restaurants with consumers by using short video clips to allow the restaurants to display and explain their food.

This business grew comping the chose Brightcove after it recognized its customers' expectations and support needs were not met by its previous streaming video provider.

Now company is reaching more customers on a customized platform and delivering a much improved customer experience with brightcove.

Outside magazine as an outdoor as the active lifestyle digital publisher with an extensive library of AD supported video on demand content viewed by enthusiasts around the world.

After facing performance and quality issues with its previous video platform outside selected Brightcove for the reliability of the video experience robust advertising capabilities strong analytics.

<unk> support integration with third party CMS providers and excellent customer support services.

In the first quarter, we welcomed many other new customers for Brightcove, including Akamai technologies.

<unk> co, which is of Mark company GE.

<unk> digital and Haggerty.

Additionally, we are proud of the continued commitment from Little League Baseball incorporated.

M C Corporation, Teva, Forbes Entercom operations, Sephora, and Kraft, Heinz who recently renewed and expanded their contracts with us.

We also had another impressive quarter of virtual events powered by Brightcove highlighted by the fantastic success of the quote 100% digital end quote.

By southwest online and south by southwest EU online events.

Using brightcove south by southwest streamed and monetize close to 650 hours of live and pre recorded content with Brightcove Beacon and our cloud play out technology across five different channels.

South by southwest also provided expanded viewing options that lasted weeks longer than the traditional festival for.

Further extending the reach and impact of its broadcast quality content.

After the event concluded of south by southwest team members. The quote Brightcove reputation of leadership in the industry went on.

A long way in achieving buy in from filmmakers and talent. The video technology enabled us to accommodate the creativity of our creators and audiences brightcove is more than a vendor definitely of partner, we're looking forward to doing it again together next year end quote.

As we increase the value we deliver to customers of growing number of them are becoming passionate advocates for brightcove.

As a result, we hosted several virtual events, where customers joined us to share their views net experiences with video and the impact it has on a broad range of industries, including freight ways. The.

Seattle Symphony Reverie, USA volleyball, the Vegas Golden Knights, USGA, the Atlanta Symphony Adobe and Synopsys.

One of the primary investment areas, we highlighted during analyst day as part of our go to market strategy was expanding our partner channel. We made significant progress this past quarter, signing 10, new partners, including several in Europe, and Asia to expand our presence in these regions. Most recently we have.

Our partnership with the held to a solution provider for arts and cultural institutions.

<unk> will integrate brightcove with tessitura and strike to provide a seamless interface that enables cultural organizations to allow viewers to purchase and stream performance instantly.

Over the past year, performing arts and cultural organizations were impacted by the pandemic and stay at home orders.

These organizations worldwide turned to brightcove to help reach audiences and monetize their content in a way they have never done before through video the.

The <unk> partnership extends our reach in this critical market the <unk>.

Demonstrates of cultural organizations recognize videos positive long term impact and broad audience reach and then it will be of strategic part of their growth even post COVID-19.

Scaling our indirect channel is a key strategic priority and the biggest incremental revenue growth opportunity in our business. We are delighted with the progress we have made with the channel and are confident in our ability to substantially increase the sales contribution over the next few years to 30% to 50% of bookings.

<unk>.

I'd like to finish by providing an update on our work to develop a best in class renewals business.

As mentioned on our last call, we appointed a new team to lead our renewals business and implemented a new organizational structure the.

The team has delivered on several important items in the first quarter, including completing a thorough segmentation of our customers based on their needs and support levels, which allows for more touch points throughout the customer journey building of community and advocacy program to better connect our customer base.

The focus of these community groups is on both product and industry needs and we already have virtual events scheduled with customers in the coming months.

And moving forward, we will allocate additional resources and invest in our customer on boarding process with new programs available to all customers worldwide.

We are applying the same principles that we used with our product and go to market teams and we are confident that we will have the same level of success.

As I have 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.

I'd like to wrap up by reiterating what an exciting time. This is for Brightcove and how proud I am of our team video continues to increase in importance for media companies and enterprises and they are turning to brightcove as their strategic partner.

Our product portfolio is the best it's ever been and we have on aggressive development roadmap that we believe will enhance the value we deliver for customers.

We have an exceptionally strong team showing evidence of execution in all areas of our business. We are in a great position to accelerate revenue growth.

Spanned margins and create value for our shareholders over time.

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 first quarter and then I'll finish with our outlook for the second quarter and the full year of 2021.

Total revenue in the first quarter was $54 $8 million, which was above our guidance range.

Breaking revenue down further subscription and support revenue was $50 8 million of professional services revenue was $4 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 $117 1 million.

This represents a 17% year over year increase.

On a geographic basis, we generated 56% of our revenue in North America during the quarter and 44% internationally.

Breaking down international revenue, a little more Europe generated 16% of our revenue and Japan and Asia Pacific generated 28 percentage of revenue during the quarter.

Let me now turn of the supplemental metrics, we share on a quarterly basis.

Our recurring dollar retention rate in the first quarter was 85%, which was below our target range of low to mid nineties. We had two relatively large media customers that downgraded or did not renew during the quarter.

Jeff outlined the progress we have made operationally to improve our renewals performance.

There is a natural lag between when these changes are implemented and when they begin to positively impact our retention rate.

We expect our retention rate to be under continued pressure on Q2 before we see sustainable improvement in the second half of the year.

Our customer count at the end of the first quarter was 3312 of.

2000, and 273 were classified as premium customers.

Looking at our <unk> within our premium customer base, our annualized revenue per premium customer was $97000, which was up 15% year over year and excludes our entry level pricing for starter customers, which averaged $4300 in annualized revenue.

Looking at our results on a GAAP basis, our gross profit was $35 6 million operating income was $6 1 million and net income per share was <unk> 12 for the quarter.

Turning to our non-GAAP results, our non-GAAP gross profit in the first quarter was $36 2 million for.

Repaired of $28 $8 million from a year ago period, and represented a gross margin of 66%, which was up nicely from 62% in the first quarter of 2020.

Subscription and support revenue represented approximately 93% of our total revenue and generated a 70% gross margin in the quarter compared to a 64% gross margin in the first quarter of 2020.

Non-GAAP income from operations was $7 $2 million on the first quarter compared to $2 3 million in the first quarter of 2020.

Adjusted EBITDA was $8 $6 million on the first quarter compared to $3 7 million in the year ago period and above the high end of our guidance range for the quarter.

Adjusted EBITDA margin was 16% in the quarter, an all time high investing in our key growth areas, while improving our profitability as an important part of our strategy and we're pleased with the progress we've made the date.

Non-GAAP diluted net income per share was <unk> 15.

Based on $42 5 million weighted average shares outstanding.

This compares to net income per share of <unk> on $39 4 million weighted average shares outstanding in the year ago period.

Turning to the balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $35 2 million.

We used $604000 on cash flow from operations and free cash flow was a negative $2 1 million after taking the new $1 $5 million on capital expenditures and capitalized internal use software.

I would like to finish by providing our guidance for the second quarter and full year 2021.

For the second quarter, we are targeting revenue of $49 5 million to $50 5 million, including $1 $5 million of Overages and approximately $2 $7 million of professional services revenue.

From a profitability perspective, we expect non-GAAP operating income to be $1 million for $2 million and adjusted EBITDA to be between $2 4 million and $3 $4 million.

Non-GAAP net income per share is expected to be in the range of two sets of <unk> based on $42 9 million weighted average shares outstanding.

As a reminder, our revenue guidance reflects the retention dynamics in the first quarter I discussed earlier, we expect quarterly subscription revenue returned to sequential growth starting in the third quarter.

For the full year, we are maintaining our previous guidance, we continue to target revenue of $211 million to $217 million, including $6 million of Overages and approximately $12 $5 million of professional services revenue.

From a profitability perspective, we expect non-GAAP operating income of 20 million to $25 million and adjusted EBITDA to be between $25 5 million from $30 5 million.

Non-GAAP net income per share is expected to be in the range of 43 to 54.

Based on $43 1 million weighted average shares outstanding for.

For the full year, we're now targeting free cash flow of $15 $5 million for $25 million.

The reduction in our cash flow guidance is primarily driven by the weakening weakening Japanese yen.

To wrap up Brightcove delivered another strong performance in the first quarter.

We are executing well against our strategic priorities and increasing the value we deliver to our customers.

We believe this positions us well to drive even better top and bottom line performance as we continue making progress towards our goal of being a rule of 40 company.

With that we will now take your questions. Operator, we are ready to begin Q&A.

Thank you at this time, we will be conducting a question answer session. If you'd like to ask the question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to turn we'll get questions on the Q for par.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Our first question is from Mike Latimore with Northland Capital markets. Please proceed with your question.

Thanks, Yeah, congratulations on the great start to the year here.

Thanks, Mike.

I think the last quarter. You said you would expect the by I think it was $3 1 million of revenue churn this year or is that still roughly what you are thinking about.

Yes, I think the that was that we called that out specifically to customers that we knew were churning. The reality is in the first quarter. It was a little bit of heavier than that.

But as we said in the in the prepared remarks as we go forward in the year, we expect that in Q3 will return to quarter over quarter sequential growth on the subscription revenue.

Yes.

Got it.

And then.

And any comment on.

Bookings I think last quarter, you said, there was a record bookings quarter.

Our bookings in the first quarter relative to say normal first quarter bookings.

Yes, it was actually our best first quarter ever from a booking standpoint.

Great.

And then.

On.

From the channel standpoint.

<unk>.

I think you did 20%.

Last quarter.

Does the channel performed this quarter.

Yes. So we saw good traction in terms of the number of channel partners that we signed we talked about on the script that we signed about 10, New channel partners, but we were a little bit down quarter over quarter in terms of the percentage of business that rolled through the channel.

As we look at that though it's not indicative of where we see the channel going we continue to see the channel driving 30% to 50% of our.

New bookings in the future.

Great and then just lastly on virtual events and you just sort of qualitative commentary on the demand or the pipeline you're seeing there.

Yes.

Hey, it's Jeff how are you doing Mike.

Okay.

The demand solid.

And as we talk to customers.

No discussion about well when we come out of COVID-19, we're going to just go back for live events, we're not going to do virtual event to the more we continue to see interest in making that's part and parcel, but what they do and in fact, that's why we announced the new virtual events for business week. We found that we were overly complicating things. This is one of the.

Dangerous of have Inc.

Media quality broadcast quality technology as it can be kind of overwhelming when we go on to talk to the CMO or someone on the CMO staff about events and so we said, let's let's make this a lot simpler easier to understand let's bundle. This in a way that they can easily consume it also lets us go after a little bit more of the mid market.

Business. So we're feeling good about about where we are with that we also have a pretty aggressive product.

The pipeline in terms of of new features and enhancements of the product teams committed to so we know what we need to do to enhance the functionality of the features we also have a great partner community that rounds out the kit, so where there are gaps that we cant fill we have great partners that are stepping into.

To do that.

Great.

Great Great sounds good good luck this year.

Hey, thanks for often running.

Thank you. Our next question is from Steven Frankel with caller you May proceed with your question.

Good afternoon, Rob can we just start and get a little more clarity on this retention issue you had telegraphed.

Yeah.

For the two customers that were going away in Q2, leading to that sequential down tick.

So are we to read into the Q1 number there were some other customers that churned off.

As well in Q1.

Yeah, that's right and I talked about that in the script, where there were actually two additional.

Media customers, one of which downgraded in the.

A similar situation to NH for last year, when they brought a portion of the business in house and one of which was actually a consolidation on <unk>.

Platforms within the company at post merger.

Right.

Okay, and then we have two more to go through.

In Q2, and then as you look at your portfolio of media customers do you think you're through a lot of this churn or is it something.

It's just the nature of the Beast with media consolidation that youre going to have the deal with this kind of going forward.

Yes, this is Jeff Hey, Stephen.

Yes, there's certainly churn in media there is I mean, you see it every day right sounds like Verizon announced today.

But.

I'm excited about the way, we're getting control of this for the things that we can control the.

We had sent a message to everybody last summer that we were going to really address the renewals from the ground up.

On the cross and we've done that we are now fully deployed with the new renewal strategy, New organization model, new people and leadership roles new processes.

Much more precision and tracking out of rolling 12 month risk assessment of our largest customers be it enterprise or media. So that we do a better job of anticipating of predicting that and heading that often in the past better use of technology and best practices and and as Rob said.

We expect that fit while we're excited about where the team is in their progress against the plan. We don't see this really helping us until the second half of the year.

Okay, and then <unk> was surprisingly strong given last quarter was boosted by that.

Japanese one time event.

Oh do we contribute the sequential stress.

Two.

The south by southwest or you're just doing a good job of kind of selling larger initial package.

And then yes.

It goes on.

Good day.

Yes, Steve It really wasn't south by southwest South by southwest bought more of a kind of annual license. They didn't really buy just for the short period of the event because they launched that on Beacon is the.

Follow on content and follow on access to that content. So that revenue didn't take place in Q1, what you saw on the first quarter was continued growth in kind of those initial new deals, but also expansion with our current customers.

Okay, Great that's healthy sign.

And then give us some color on.

The margin pressure in Q2, obviously, yes, you've got the revenue step down in the subscription and support side, but the.

There is low.

Sort of margin pressure, there maybe more than I would've thought.

What's behind that Q2.

Yeah, I think Theres two things one is obviously the revenue step down right we're not per.

Pulling back on operating expenses in the second quarter in line with that and the second piece is we're continuing to invest in sales and marketing right. We see the opportunity in front of us and we're continuing to make those investments. So we can capitalize on that.

Okay, and then lastly, what were overages in the quarter.

Overages of right around $2 $2 million.

Thank you.

Our final question is from Eric Martin <unk> with Lake Street Capital markets. Please proceed with your question.

Yes.

Moving to the.

The additional turnover.

Sure initiatives that you talked about for Q1 I understand the Dow.

Great and somebody takes it in house, but just wondering on the platform consolidation was that consolidating two of an in house platform also over that day.

The consolidated to a competitor's platform.

Yes, it was consulting to a mix of platforms across it was a joint OTT and then some video delivery sales.

The consolidated two really of competitor not an in house platform and again it was around one company had two platforms and the parent company one.

Okay.

Alright, and then as I look at the kind of implied for 2021, just backing off of the services guidance from the full year guidance.

And then knowing that we're going to kind of trough here in Q2 on the subscription and then.

Raise their head back up in Q3, it does look like a pretty substantial implied step up I'm wondering that guidance that you've got the debt.

As we decline here in Q2, do we spread that subscription step up.

Kind of equally across quarters or does it kind of pop back up in Q3 and maintain.

Yeah, I would think you would see a relatively consistent step from Q2 to three three and then Q3 to four.

Okay.

And then the.

When you talk to I think Geoff you may have touched on this but we're talking about virtual events for business for virtual event creation and I think last summer you had a product for a capability platform whenever the terminology virtual event experiences.

Is that what you mean this is kind of.

Templates version of the same product that came out a year ago that was more of a toolbox.

And this makes it easier to two.

By the end to deploy it.

We've done enough of these now to know where the sweet spot is we also know where our partners products do a great job of augmenting where our GAAP SAR.

And so we're just collectively taking that experience and putting it together also this time around.

I think we've just got a stronger marketing organization that knows how to use better precision in targeting those those cmo's in those businesses that will find this attractive so it's the collective experience and.

Applying that knowing kind of where this market is headed.

In addition to this.

And serious investment from R&D, and engineering and continuing to add more functionality and features in the.

In the products.

Mhm.

Okay, Alright, I appreciate the the.

The answers there thanks for taking my questions.

Hey, Thank you Eric Thanks, Eric.

Thank you ladies and gentlemen, we have reached the end of the question answer session I will now turn the call over to Jeff Ray for closing remarks.

Thank you again.

Or what a great quarter. It was it was a lot of fun seeing everything to come together, we know we still have some challenges in renewals, we recognize that last summer and I believe we are well on the path to resolving that and while I've talked a lot about the things we're doing in renewals team I just will remind you that there are there are four legs to this.

Stool as we fix it so it's more than just.

Building out a much much stronger renewals team and process. It's also continued aggressive investment in enterprise class applications debt.

Have specific solutions that solve specific business problems those are naturally more sticky.

Also expanding the App developer community because of the platform is built on open Apis and we offer SDK that makes it very easy to go out and recruit App developers, who extend what we do and ultimately make the products more sticky and then finally, you'll just start seeing a whole lot more later this year about the investments that were.

Making of data analytics and machine learning, so the particularly our media companies every month, we'll get more and more valuable actionable data from their use of our video. So we feel great about the year I am proud of what the team has done and for.

For us it's back to business. Thank you, everyone and continue to stay safe.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great evening.

Yeah.

[music].

Greetings and welcome to the Brightcove first quarter 2021 earnings call. At this time all participants are in a 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 will now turn the conference over to your host Ryan Daniels, Mr. Daniel You may begin.

Good afternoon and work on the Brightcove first quarter 2021 earnings call.

So that will be the will discuss the results announced on our press release issued after market closed within the call are Jeff Wright, Brightcove, Chief Executive Officer, and Rob <unk> for Brightcove Chief Financial Officer.

During the call we will make statements related to our business of maybe considered forward looking for it.

Pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Including statements concerning our financial guidance for the second fiscal quarter of 2021, and the full year 2020 one.

We expect the profitability and 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.

Those of our ability to acquire new customers.

Forward looking statements may often be identified of 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 rest of uncertainty as the could cause actual results to differ materially from expectations, including.

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 of Chilean risks and other important factor of that could affect our actual results. Please.

Please refer to those contained on most recently filed annual report on form 10-K.

As updated by our other SEC filings.

Also during the course of today's call, we refer to certain non-GAAP financial measures the.

A reconciliation schedule showing GAAP versus non-GAAP results of 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 a summary of view of our financial results and update on the operations and a review of our strategy.

Rob will finish with additional details regarding our first quarter of 2020 on the results as all of our outlook for the second quarter and full year 2021.

With that let me turn the call over to Jeff.

Thanks, Brian and thanks to everyone for joining today I Hope you and your families continue to stay healthy and safe.

With record first quarter sales driven by impressive performances in each region. Our performance reflects the video is on its central and rapidly growing technology across both media companies and enterprises the.

With solutions to satisfy multiple business use cases, we've created on optimum direct sales engine, while building on extensive channel ecosystem, all while ensuring the success of every one of our customers.

Turning to a summary of our financial results for the first quarter revenue was $54 $8 million up 18% year over year and ahead of our guidance adjusted EBITDA was $8 6 million up 132% year over year and well ahead of our.

Guidance.

In February we hosted our inaugural Analyst day, if you Couldnt of 10, there is a replay of the event on our Investor Relations website.

During this event, we outlined our vision for the future of the market and our strategy for aggressive growth. This included three primary focus areas first our focus on innovation.

Our goal is to create a highly differentiated platform powered by machine learning and AI to deliver superior video viewing experiences and business performance for our customers.

This means broadcast quality reliable and secure video combined with high performing analytics and purpose built applications net.

Specific business needs across a variety of use cases.

Add to this on App community marketplace, and our customers will have access to the most comprehensive video solutions for all of their internal and external needs.

Second we discussed our expanded go to market strategy, consisting of a highly scalable global direct sales engagement engine and an indirect selling model leveraging strategic channel partners globally, and third we outlined our plans for growth of our customer success and renewals teams and how it.

Will positively impact our customers and our retention.

I'd like to provide some updates on the most recent progress we've made in each of these key areas let's.

Let's start with technology innovation.

Brightcove prides itself on being a product driven company focused on solving the most complex customer challenges. Our goal is to deliver broadcast quality video to any device to audiences anywhere in the world and the most reliable and secure way possible.

We recently released two new solutions that will deliver significant value for our customers the.

Where the content is for an internal or external audience free or monetize brightcove playback restrictions provide the right level of security, while still allowing viewers to access content from any device anywhere.

Playback restrictions insurers that internal content remains confidential and debt every deal counts towards monetization of investments, while fully protecting our customers' content and helping maintain brand integrity.

We also recently launched Brightcove virtual events for business and intuitive easy to use virtual event solution for highly repeatable mid sized events virtual events for business as a virtual event creation marketing and delivery platform designed to easily service the rapidly expanding number of.

Events hosted by organizations the.

The solution offers customizable event templates interactive calls to action post event archiving multi device support and the 10 day interactivity features as well as live flipping of event video to multiple social media channels.

Additionally, virtual event for business includes zoom and Microsoft teams integration.

Aspects of the organization.

With Brightcove virtual events for business, we have made it simple for enterprises to hold high volume repeatable events.

Let's turn now to our go to market execution, and the broad base of customers leveraging video to achieve success across many different use cases.

We had a solid sales quarter with several significant wins. Some notable examples include box Inc. A class.

<unk> content management platform that enables organizations to make it easy to access information from anywhere and collaborate with anyone.

Box chose brightcove to quickly and efficiently improve its video asset management and to get actionable analytics for its digital marketing team to improve campaign performance. The company also selected Brightcove for our technology reputation in the market day.

The needed a strategic partner, who could share insights into how the most successful brands in the industry leverage video to work harder and drive more impactful ROI.

Giants enterprises, LLC more commonly known as of the San Francisco Giants turned to Brightcove. When they were looking for new ways to create regular engagement with season ticket holders casual fans sponsors and business partners around the world with Brightcove, the Giants will be able to create an <unk>.

Managing several virtual events, both large and small to interact with the different audiences.

We signed of Brightcove Beacon win with multi screen, the Singapore based parent for spool on OTT provider with $40 7 million registered users and multiple regions worldwide spool. Originally developed of homegrown do it yourself streaming service that has become increasingly costly and com.

Plex, the maintain as it's scaled its business the <unk>.

<unk> team chose Brightcove beacon to significantly reduce costs accelerate their ability to launch new web iOS and Android experiences and improve customers using experiences.

<unk> is an innovative and well known commerce service in South Korea debt directly connects famous restaurants with consumers by using short video clips to allow the restaurants to display and explain their food.

As its business grew <unk> chose brightcove after it recognized its customers' expectations and support needs were not met by its previous streaming video provider now company is reaching more customers on a customized platform and delivering a much improved customer experience with brightcove.

Outside magazine as an outdoor as the active lifestyle digital publisher with an extensive library of AD supported video on demand content.

<unk> bye enthusiasts around the world.

After facing performance and quality issues with its previous video platform outside selected Brightcove for the reliability of the video experience robust advertising capabilities strong analytics platelets support integration with third party CMS providers and excellent customer support services.

In the first quarter, we welcomed many other new customers for Brightcove, including Akamai technologies, New co which is of Mark company.

The <unk> digital and aggregate.

Additionally, we are proud of the continued commitment from Little League Baseball incorporated.

<unk> Corporation, Teva, Forbes Entercom operations, Sephora, and Kraft, Heinz who recently renewed and expanded their contracts with us.

We also had another impressive quarter of virtual events powered by Brightcove highlighted by the fantastic success of the quote 100% digital and quote south by southwest online and south by southwest EU online events using.

Using brightcove south by southwest streamed and monetize close to 650 hours of live and pre recorded content with Brightcove Beacon and our cloud play out technology across five different channels.

South by southwest also provided expanded viewing options that lasted weeks longer than the traditional festival for.

Further extending the reach and impact of its broadcast quality content.

After the event concluded of south by southwest team members. The quote Brightcove reputation of leadership in the industry went on.

As we increase the value we deliver to customers of growing number of them are becoming passionate advocates for brightcove.

As a result, we hosted several virtual events, where customers joined us to share their views and experiences with video and the impact it has on a broad range of industries, including freight weights the.

Seattle Symphony Reverie, USA volleyball, the Vegas Golden Knights, USGA, the Atlanta Symphony Adobe and Synopsys.

Our partnership with Al two of solution provider for arts and cultural institutions.

<unk> will integrate brightcove with tessitura and strive to provide a seamless interface that enables cultural organizations to allow viewers to purchase and stream performance instantly.

Over the past year, performing arts and cultural organizations were impacted by the pandemic and stay at home orders. These organizations worldwide turned to brightcove to help reach audiences and monetize their content in a way they have never done before through video the.

The <unk> partnership extends our reach in this critical market. It demonstrates of cultural organizations recognize videos positive long term impact and broad audience reach and then it will be of strategic part of their growth even post COVID-19.

Scaling our indirect channel is a key strategic priority and the biggest incremental revenue growth opportunity in our business. We are delighted with the progress we have made with the channel and are confident in our ability to substantially increase its sales contribution over the next few years to 30% to 50% of bookings.

I'd like to finish by providing an update on our work to develop a best in class renewals business as mentioned on our last call. We appointed a new team to lead our renewals business and implemented a new organizational structure.

The focus of these community groups is on both product and industry needs and we already have virtual events scheduled with customers in the coming months.

And moving forward, we will allocate additional resources and invest in our customer on boarding process with new programs available to all customers worldwide.

We are confident these changes combined with the strategic priorities I mentioned earlier will significantly impact our renewals business by making brightcove, an increasingly valuable part of our customers' businesses. We are applying the same principles that we use with our product and go to market teams and we're confident.

On it that we will have the same level of success.

As I've noted previously it will take time for the impact of these changes to be apparent, but we expect the investors will begin to see sustainable improvement in the second half of this year.

Of an aggressive development roadmap that we believe will enhance the value we deliver for customers. We have an exceptionally strong team showing evidence of execution in all areas of our business. We are in a great position to accelerating revenue growth.

Expand margins and create value for our shareholders over time.

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 first quarter and then ill finish with our outlook for the second quarter and the full year of 2021.

Total revenue in the first quarter was $54 $8 million, which was above our guidance range.

Breaking revenue down further subscription and support revenue was $50 $8 million and professional services revenue was $4 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 $117 $1 million. This.

<unk> of 17% year over year increase.

On a geographic basis, we generated 56% of our revenue in North America during the quarter and 44% internationally.

Breaking down international revenue, a little more Europe generated 16% of our revenue and Japan and Asia Pacific generated 28 percentage 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 first quarter was 85%, which was below our target range of low to mid nineties.

We had two relatively large media customers that downgraded or did not renew during the quarter.

Jeff outlined the progress we have made operationally to improve our renewals performance.

There is a natural lag between when these changes are implemented and when they begin to positively impact our retention rate.

We expect our retention rate to be under continued pressure on Q2 before we see sustainable improvement in the second half of the year.

Our customer count at the end of the first quarter was 3312 of which 2273 were classified as premium customers.

Looking at our results on a GAAP basis, our gross profit was $35 6 million op.

Operating income was $6 1 million and net income per share was <unk> 12 for the quarter.

Turning to our non-GAAP results, our non-GAAP gross profit in the first quarter was $36 $2 million.

Year to $28 $8 million from a year ago period, and represented a gross margin of 66%, which was up nicely from 62% in the first quarter of 2020.

Subscription and support revenue represented approximately 93% of our total revenue and generated a 70% gross margin in the quarter compared to a 64% gross margin in the first quarter of 2020.

Non-GAAP income from operations was $7 $2 million on the first quarter compared to $2 3 million in the first quarter of 2020.

Adjusted EBITDA was $8 $6 million on the first quarter compared to $3 7 million in the year ago period and above the high end of our guidance range for the quarter.

Adjusted EBITDA margin was 16% of the quarter, an all time high investing in our key growth areas, while improving our profitability is an important part of our strategy and we're pleased with the progress we've made the date.

Non-GAAP diluted net income per share was <unk> 15.

Based on $42 5 million weighted average shares outstanding the.

This compares to net income per share of <unk> <unk> on 39 4 million weighted average shares outstanding in the year ago period.

Turning to the balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $35 $2 million we.

We used $604000 on cash flow from operations and free cash flow was a negative $2 1 million after taking into account $1 $5 million on capital expenditures and capitalized internal use software.

I would like to finish by providing our guidance for the second quarter and full year 2021.

For the second quarter, we are targeting revenue of $49 5 million to $55 million, including $1 $5 million of Overages and approximately $2 $7 million of professional services revenue.

From a profitability perspective, we expect non-GAAP operating income.

The $1 million for $2 million and adjusted EBITDA to be between $2 4 million and $3 $4 million.

Non-GAAP net income per share is expected to be in the range of two sets of <unk> based on $42 9 million weighted average shares outstanding.

As a reminder, our revenue guidance reflects the retention dynamics in the first quarter I discussed earlier, we expect quarterly subscription revenue to return to sequential growth starting in the third quarter.

From a profitability perspective, we expect non-GAAP operating income of $20 million to $25 million and adjusted EBITDA to be between $25 $5 million from $35 million non.

Non-GAAP net income per share is expected to be in the range of 43 to 54.

Just on $43 1 million weighted average shares outstanding.

For the full year, we're now targeting free cash flow of $15 $5 million for $25 million.

The reduction in our cash flow guidance is primarily driven by the weakening weakening Japanese yen.

To wrap up Brightcove delivered another strong performance in the first quarter.

We're executing well against our strategic priorities and increasing the value we deliver to our customers.

We believe this positions us well to drive even better top and bottom line performance as we continue making progress towards our goal of being a rule of 40 company.

With that we will now take your questions. Operator, we are ready to begin Q&A.

Thank you at this time, we will be conducting the question answer session. If you'd like to ask the question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is on the question queue. You May press star two if he would like to turn we will get questions on the queue.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keyes.

Our first question is from Mike Latimore with Northland Capital markets. Please proceed with your question.

Thanks, Yeah, congratulations on the great start from the area here.

Thanks, Mike.

I think the last quarter. You said you would expect the bar I think it was $3 1 million of revenue churn. This year is that still roughly what you are thinking about.

Yes, I think that that was that we called that out specifically to customers that we knew were churning. The reality is in the first quarter. It was a little bit heavier than that.

But as we said in the in the prepared remarks as we go forward in the year, we expect that in Q3 will return to quarter over quarter sequential growth on the subscription revenue.

Yes.

Got it.

And then.

Maybe any comment on.

Bookings I think last quarter, you said, there was a record bookings quarter.

Our bookings in the first quarter relative to say normal first quarter bookings.

Yes, it was actually our best first quarter ever from a booking standpoint.

Great.

And then.

On.

From the channel standpoint.

I think you did 20%.

Last quarter like how does the channel performed this quarter.

As we look at that though it's not indicative of where we see the channel going we continue to see the channel driving 30% to 50% of our.

New bookings in the future.

Credit and then just lastly on virtual events any just sort of qualitative commentary on the demand or the pipeline you're seeing there.

Hey, it's Jeff how are you doing Mike.

Okay.

The demand is solid.

And as we talk to customers. There is no discussion about well when we come out of COVID-19, we're going to just go back for live events, we're not going to do virtual event to the more we continue to see interest in making that's part and parcel the what they do and in fact, that's why we announced the new virtual events for business week.

We found that we were overly complicating things. This is one of the dangers of have Inc. Media quality broadcast quality technology as it can be kind of overwhelming when we go on to talk to the CMO or someone on the CMO staff about events and so we said, let's let's make this a lot simpler easier to understand let's bundle.

This in a way that they can easily consume it also lets US go after a little bit more of the the mid market business. So we're feeling good about about where we are with that we also have a pretty aggressive product.

Pipeline in terms of new features and enhancements of the product teams committed to so we know what we need to do to enhance the functionality of the features we also have a great partner community that rounds out the kit, so where there are gaps that we cant fill we have great partners that are stuck.

And to do that.

Great Great sounds good good luck this year.

Hey, thanks for often running.

Thank you. Our next question is from Steven Frankel with caller you May proceed with your question.

Good afternoon, Rob can we just start and get a little more clarity on the retention issue you had telegraphed.

On the two customers that were going away in Q2 weeks of that sequential down tick.

So are we to read into the Q1 number there were some other customers that churned off.

As well in the Q1.

Yeah, that's right and I talked about that in the script, where there were actually two additional.

The media customers, one of which downgraded in the similar situations to NH for last year. When they brought a portion of the business in house and one of which was actually a consolidation on.

Platforms within the company.

Post merger.

Great.

Okay, and then we have two more to go through.

In Q2, and then as you look at your portfolio of media customers do you think you're through a lot of this churn or is this something that is just the nature of the beast with media consolidation that youre going to have the deal with this kind of going forward.

Yes, this is Jeff Hey, Stephen.

Yes, there's certainly churn in media there is I mean do you see it every day right you sound like Verizon announced today.

But.

I'm excited about the way, we're getting control of this for the things that we can control the.

We had sent a message to everybody last summer that we were going to really address the renewals from the ground up.

On the cross and we've done that we are now fully deployed with the new renewal strategy, New organization model, new people and leadership roles new processes.

Much more precision and tracking out of rolling 12 month risk assessment of our largest customers be it enterprise or media. So that we do a better job of of anticipating and predicting that and having that often in the past better use of technology and best practices and and as Rob said.

We expect that fit while we're excited about where the team is in their progress against the plan. We don't see this really helping us until the second half of the year.

Okay, and then <unk> was surprisingly strong given last quarter was boosted by that.

Japanese one time event.

Do we contribute the sequential strength too.

The south by southwest or you're just doing a good job of kind of selling larger initial package.

Then yes it does.

Yes, Steve It really wasn't south by southwest South by southwest bought more of a kind of annual license. They didn't really buy just for the short period of the event.

Because they launched that on Beacon is the <unk>.

Follow on content and follow on access to that content. So net revenue didn't all take place in Q1, what you saw on the first quarter was continued growth in kind of those initial new deals, but also expansion with our current customers.

Okay, Great that's healthy sign.

And then give us some color on.

The margin pressure in Q2, obviously, yes, you've got the revenue step down in the subscription and support side, but.

There is a lot of margin pressure, there maybe more than I would've thought I think whats behind that in Q2.

Yes, I think Theres two things one is obviously the revenue step down right, we're not pulling back on operating expenses in the second quarter in line with that and the second piece is we're continuing to invest in sales and marketing right. We see the opportunity in front of us and we are continuing to make those investments. So we can capitalize on that.

Okay, and then lastly, what were overages in the quarter.

Overages of right around $2 $2 million.

Thank you.

Sure.

Our final question is from Eric Martin <unk> with Lake Street Capital markets. Please proceed with your question.

Yes, I wanted to dive into the the additional turnover.

Sure initiatives that you talked about for Q1, I understand the downgrade and somebody takes it in house, but just wondering on the platform consolidation was that consolidating to an in house platform also over debt.

The consolidated two of competitors platform.

Yes, it was consolidated to a mix of platforms across it was the joint OTT and then some video delivery. So it was consolidated into really a competitor not an in house platform.

And again it was around one company had two platforms and the parent company one.

Okay.

Alright, and then as I.

Look at the kind of implied for 2021, just backing off the services guidance from the full year guidance.

And then knowing that we're going to kind of trough here in Q2 on the subscription and then.

Raise on our head back up in Q3, it does look like a pretty substantial.

<unk> step up I'm wondering the guidance that you've got debt.

As we decline here in Q2, do we spread that subscription step up.

Kind of equally across quarters or does it kind of pop back up in Q3 and maintain.

Yeah, I would think you would see a relatively consistent step from Q2 to three three and then Q3 to four.

Okay.

And then the.

When you're talking I think Geoff you may have touched on this but we're talking about.

Virtual events for business for virtual event creation and I think last summer you had a product for a capability platform whenever the terminology virtual event experiences.

That what you mean this is kind of.

Templates version of the same product that came out a year ago that was more of a toolbox.

And this makes it easier to two.

By the end to deploy it.

We've done enough of these now to know where the sweet spot is we also know where our partners products do a great job of augmenting where our GAAP SAR.

And so we're just collectively taking that experience and putting it together also this time around.

Applying that knowing kind of where this market is headed.

In addition to this.

And serious investment from R&D, and engineering and continuing to add more functionality and features in the.

In the products.

Mhm.

Okay, Alright, I appreciate the.

The answers there thanks for taking my questions.

Thank you Eric Thanks, Eric.

Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Jeff Ray for closing remarks.

Thank you again.

Stool as we fix assets more than just.

Building out a much much stronger renewals team and process. It's also continued aggressive investment in enterprise class applications debt.

Have specific solutions that solve specific business problems those are naturally more sticky.

For us it's back to business. Thank you, everyone and continue to stay safe.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great evening.

Q1 2021 Brightcove Inc Earnings Call

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