Q1 2022 Brightcove Inc Earnings Call
Greetings and welcome to Brightcove first quarter 2022 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Brian done your Investor Relations for Brightcove. Thank you you may begin.
Good afternoon, and welcome to Brightcove first quarter 2022 earnings call.
They will discuss the results announced in our press release issued after the market closed.
With me on the call are Marc Debevoise, Brightcove, Chief Executive Officer, and Rob Newark, Brightcove Chief Financial Officer.
During the call we will make statements related to our business that may be considered forward looking and are made 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 2022, and the full year 2022.
Expected profitability and positive free cash flow our position to execute on our go to market and growth strategy.
We're pleased to expand our leadership position, our ability to maintain and upsell existing customer as well as our ability to acquire new customers.
Forward looking statements may often be identified with 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 the representing our views as of any subsequent date.
These statements are subject to a variety of risks and uncertainties can cause actual results to differ materially from expectations.
And the effect of macroeconomic conditions currently affecting the global economy.
For a discussion of our material risks and other important factors that could affect our actual results.
Please refer to those contained in our 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 will refer to certain non-GAAP financial measures a reconciliation.
<unk> schedule, showing GAAP versus non-GAAP results currently available in our press release issued after market close today.
Do you mean found on our website at Www Dot Brightcove Dot com.
With that let me turn the call over to Mark.
Thanks, Brian and thank you all for joining us today I am delighted to be here hosting my first earnings call with Brightcove.
That's on the first part of my time with you today, introducing myself, Jerry and why I'm. So excited to be leading brightcove at this moment in our industry evolution.
I'll also give you an overview of our Q1 performance, including execution highlights before handing it over to Rob to go through the detailed financial results.
So this is my fifth week on the job 30th calendar day actually.
That's my first month here diving in and getting to better know our customers products and our team.
Frankly, I did a lot of diligence prior to taking this role and I plan to go much deeper in the coming weeks I already have a strong understanding of where we are with <unk>.
My deeper learning and listening process underway, we are developing a plan with a clearly defined vision and strategy for the future. One that will continue to see brightcove delivered tremendous value to its customers and enable us to generate meaningful growth.
I look forward to sharing this plan with investors during the third quarter for today I will simply say that I'm, even more excited and optimistic about the long term future of breakout, but I wasn't I accepted this job back in February and I'd like to talk a little bit about why.
I'm inspired by technology power to change industries and businesses.
Over 20 years at the intersection of Technology media and direct to consumer and streaming.
Finance and drive value for numerous digital media software companies as a technology investment banker during the web one point O era.
Moved towards web 2.0, I hope launched some of the earliest digital and streaming teams at NBC Universal and Starz Starz is actually my introduction of Brightcove as an early customer prior to 2010.
Brightcove help me do what it still does for many customers build a high growth direct to consumer streaming business quickly at scale without requiring massive internal resources.
This case building a multimillion dollar digital business from effectively nothing.
More recently as we moved from web two point out of the three pointed out I served as the Chief Digital officer of Viacom, and CBS and CEO and president of CBS Interactive.
In these roles I led the company's unified streaming digital and technology operations globally.
I was responsible for the company's direct to consumer streaming services, many of which I'll, let the founding of including Paramount CBS All access CBS then.
CBS sports HQ.
It was an incredible nearly 10 year journey, where I led a tremendous team responsible for transforming CBS and CBS is through the mobile and social and streaming of evolution for growing the digital business is from a few hundred million dollars in revenue for multiple billions in exceeding a 50% year over year growth rate for numerous years for.
We're driving an overwhelmingly desktop based business to a diversified mix of connected TV mobile and web traffic and diversifying it from a majority advertising business through a balanced subscription and advertising revenue generator.
Ultimately, we transformed our legacy broadcast or into a leading streaming and content company.
I've led team that developed some of the largest global streaming services and digital businesses produce major TV shows and films marketed these using small and large budgets and created meaningful strategic partnerships across the technology and video distribution ecosystem.
I've also managed transformation and most importantly, built and developed great teams to achieve real growths, driven by delivering exceptional customer value.
I intend to do the same here a breakdown.
These experiences have shaped my point of view on the future of the industry as well I firmly believe we are still in the early days of the streaming and connected device Revolution.
Still early and empowering everyone from enterprises marketers to content creators and producers to generate and distribute video content on their own terms.
We're especially early in companies and brands, including those outside the media business owning and operating their own media channel.
I believe all companies will need to distribute video to connect with their audiences and customers. Because there is no more powerful medium and video to tell their story and deliver their messages.
We believe this is a huge and growing market with video generating over three quarters of the world's internet traffic today, and it's not slowing down.
Brightcove has a long history of being a leader in video technology and pushing the industry forward, we streamed over 51 billion minutes or 860 million hours in the first quarter of 2022, that's incredible it's massive bigger than many of the major media companies.
We have a platform that can scale to handle almost any streaming volume and do it in the most secure way on recruiting that everyday.
Before taking this role I did a deep dive into break those products performance and customers and I know that we have some of the most advanced technology on the market.
This puts us in a great position, especially when it's combined with our thousands of global customers hundreds of the most talented people in the industry 90, plus patents and numerous industry recognition and awards.
Put simply I joined Brightcove because of where we had been who we are and the opportunity in front of us.
We are at a true inflection point for the industry and this company. The World has transformed almost every entertainment and information source has moved to streaming streaming is the future and it's not just for media organizations, but other enterprises too.
We live in a world where people now expect video in all aspects of their journey as consumers and employees.
Every organization now needs to think and act like a media company and when I say every organization I need it all companies will use video to monetize sell products and services and engage with their audiences.
These trends provide brightcove with an incredible opportunity the proven power of our platform in a history of delivering massive amounts of video reliably and securely for a broad array of enterprises gives us great insight.
My focus in the months ahead is to ensure that brightcove is completely aligned from a product and solutions go to market and talent perspective, so that we can become one of the primary winners in the streaming market.
I am very confident brightcove can become a much larger faster growing and profitable business in the years ahead.
Thrilled to be leading this great team and I am excited for its future.
So hopefully that gives you a sense of who I am my background why I chose to join Brightcove and where I believe we will take it.
With that let's shift gears to Q1.
Revenue was $53 4 million above the high end of our guidance of 51 and a half million.
Adjusted EBITDA was $5 1 million also ahead of the high end of our guidance.
We had a solid first quarter I. Thank the team for keeping their eye on the ball and exceeding expectations during a time of real transition.
Our current financial performance is not indicative of the long term potential I see for this business.
My priority as CEO is returning this company to meaningful growth.
And I, absolutely believe Brightcove has the capacity and the capability to do so.
With that I'd like to share some additional highlights from the quarter.
And earlier in one of the reasons I joined us as our incredible customer base, we serve a broad range of companies from leading global media company of the digital publishers to broadcasters to leading sports and event distributors to major enterprises numerous political forgive.
To give you some context for just how impressive our customer bases and forgive me that due to certain customer agreements were not always able to give specific names.
<unk> powered video for more than 25% of the companies in the Fortune 1003 of the top 10 automotive brands worldwide.
Of the top five luxury retail brands by revenue one of the top E Commerce and video platforms in Asia Pacific.
Leading venture backed edutainment platform, one of the largest home improvement retailers and we powered one of the largest livestream concerts, reaching over a million concurrent viewers and for the past two years Brightcove has helped customers during some of the largest sporting event from Japan, and China that showcase amazing athletes from around the world and major golf tournaments in the U S as well.
Do you also see from this list is we have plenty of room to grow.
So let's cover some customers I can talk about I'm delighted with this highlight mix of new business and expansion wins and wins from fantastic brands from around the world in Q1.
After a successful pure virtual event in 2021, we helped out by southwest delivered its hybrid experienced in 2022, enabling it to deliver their content to expanded audiences across numerous device platforms, including Apple TV Android TV fire TV.
Okay.
I'm Gonna have music, Japan move to Brightcove to provide you with an exceptional experience that they are dealing with security and contact playback issues from the free service that use previously.
Supplier of energy efficient technologies Danfoss has now leveraging brightcove to streamline workflows access actionable insights and reached new geographical markets.
Marketing software provider hotspot needed a reliable scalable and secure platform deliver its global hybrid of that theory to attendees worldwide and they turned to brightcove as well.
And long time customer Sky network television and New Zealand will continue to leverage brightcove to reach engaged audiences, while having the confidence that scale as viewer base grows with our latest privacy and security solutions in place.
One of the other highlights in my first few weeks has definitely been seeing us leveraging our own technology and how we operate.
I'm proud to highlight that play TV by Brightcove was named a 2022 Webby honoree in the App and software category for Best OTT service.
Due to the International Academy of Digital Arts and Sciences for this recognition and to the team behind the breakout.
Being recognized as a worthy honoree by this judging body composed of over 2000 industry expert from tech innovators and among the likes of Disney plus playing Apple TV plus and ITV in this category is a significant achievement replay TV.
And it's also an achievement for breakup Corp, television, which is the technology solution powering place ebay's IMAX.
I'm excited to add this to the two Emmys, we won last year.
Before I hand, it off to Rob I want to reiterate how excited I am to be leading this company a true leader in streaming video in its broadest application.
Especially exciting juncture in our industry. There is no better time to be a distributed decentralised video platform, especially for companies brands creators and individuals looking to capture their own streaming futures.
With that I'll turn it over to Rob now to walk you through the numbers and I'll be back for the Q&A. Thank you.
Thank you Mark 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 2022.
Total revenue in the first quarter was $53 $4 million, which was above our guidance range breaking revenue down further subscription and support revenue was $51 6 million and professional services revenue was $1 $8 million.
Backlog, which we define as the aggregate amount of committed subscription revenue related to future performance obligations. In the next 12 months was $128 7 million. This represents a 10% year over year increase on a geographic basis, we generated 55% of our revenue in North America during the quarter and 45% internationally.
Going down international revenue, a little more Europe generated 17% of our revenue and Japan and Asia Pacific generated 28% of the revenue during the quarter.
Let me now turn to the supplemental metrics, we share on a quarterly basis.
Recurring dollar retention rate in the fourth quarter was 91%.
And our target range of low to mid nineties based on Investor feedback, we will continue to provide this metric until further notice.
Revenue retention in the quarter was 98%, which compares to 93% from the fourth quarter of 2021 and 99% in the first quarter of 2021 since the beginning of 2019 net revenue retention has ranged from 92% to 100% we expected as we continue to make improvements in our renewals business. This metric will consistently.
The over 100% overtime.
Our customer count at the end of the first quarter was 3131 of which 2299 were classified as premium customers.
Looking at our <unk> within our premium customer base, our annualized revenue per premium customer was $96 $5000 and excludes our entry level pricing for starter customers, which averaged $4600 in annualized revenue.
Our ARPA was down year over year due to the impact of one time events in Japan last Q1, excluding these with US our first quarter 2021, carpool with $93 $5000 and were up 3% year over year.
Looking at our results on a GAAP basis, our gross profit was $34 4 million operating loss was $2 million and net loss per share was <unk> <unk> for the quarter.
Turning to our non-GAAP results, our non-GAAP gross profit in the first quarter was $35 million compared to $36 $2 million in the year ago period and represented a gross margin of 66% consistent with the first quarter of 2021 subscription.
And support revenue represented approximately 97% of our total revenue and generated a 68% gross margin in the quarter compared to a 70% gross margin in the first quarter of 2021.
non-GAAP income from operations was $3 $8 million in the first quarter compared to $7 $2 million in the first quarter of 2021 adjust.
Adjusted EBITDA was $5 $1 million in the first quarter compared to $8 $6 million in the year ago period and above the high end of our guidance range adjusted EBITDA margin was 10% in the quarter.
non-GAAP diluted net income per share was <unk> 10 says based on $41 9 million weighted average shares outstanding. This compares to net income per share of <unk> 15.
And $42 5 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 $26 $7 million, we used $690000 in cash flow from operation and free cash flow was a negative $5 $5 million after taking into account for $48 million in capital expenditures and capitalized internal use software.
I would like to finish by providing our guidance for the second quarter and full year 2022.
For the second quarter, we are targeting revenue of $51 5 million to $52 $5 million, including $2 million of Overages and approximately $1 $7 million of professional services revenue.
From a profitability perspective, we are expecting non-GAAP operating income to be $2 million to $3 million and adjusted EBITDA to be between $3 $7 million and $4 $7 million non-GAAP net income per share is expected to be in the range of four cents to success based on $42 3 million weighted average shares outstanding.
For the full year, we are targeting revenue of $210 million to $215 million, including $8 $4 million of overdose and approximately $7 $7 million of professional services revenue from a profitability perspective, we expect non-GAAP operating income of $9 million of $13 million and adjusted EBITDA to be between 17 million.
$21 million non-GAAP net income per share is expected to be in the range of 20 to 29 based on $42 4 million weighted average shares outstanding.
For the full year, we're now targeting free cash flow of $5 million to $10 million there.
There are a couple of things to keep in mind about our guidance.
First the strength of our subscription sales in the first quarter has increased our expectations for subscription revenue for the year by approximately $3 million. We now expect subscription revenue growth of 3% for the year whatever guidance up from 1%.
This enabled us to raise the midpoint of our revenue guidance range. Despite notable movements in foreign exchange rates, most notably the Japanese yen that represent a $600000 at $1.8 million revenue headwind in Q2, and the full year respectively.
Also our updated professional services revenue outlook of $7 $7 million is $1 $6 million below our prior outlook due to a higher proportion of bookings coming from our subscription business in the first quarter.
Finally, as Mark mentioned in his comments, we are working on our long term strategic plans, we will share any impact of this process on 2022, when we share our long term plans with you in Q3.
To wrap up Brightcove delivered solid first quarter results that show the value our solutions provide the customers every day, we are making progress on our strategic goals that overtime, we can deliver a consistent blend of revenue growth and meaningful margin expansion that can generate substantial value for shareholders with that we will now take your questions. Operator, we are ready to begin Q&A.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May 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 remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Eric Martin <unk> with Lake Street Capital. Please proceed with your question.
Thanks.
Welcome Mark.
Definitely good to hear your voice on the call and looking forward to your full fledged strategic plan in advance of that I do want to kind of focus.
<unk>.
Sort of what's on the table type question. There is a number of different avenues that a person can go go down when they're coming aboard as what I would characterize as a turnaround situation and I'm just curious to know.
As far as the things that Brightcove does now versus the things that you'll be talking about.
Six months from now.
Are the current operations.
It's a strategy really going to be more about refining current operations or our.
Strategic areas of focus divestitures.
M&A is it all on the table.
Well, thanks, Eric it's great to meet you as well and then talk to you on the call I would say.
First and foremost I joined the company because of the strength of the existing technology the incredible customer base.
Frankly, the incredible talented employee base, and then, especially my view on where this market is evolving towards.
And that is towards incredible growth continuing in the streaming market more broadly and I think in that market as both media and enterprise customers that brightcove would define them.
Today.
So I see the opportunity is pretty broad based.
That leads me down the path of as you said sort of leaving things on the table rather than taking things off the table.
I am very optimistic about where.
Both of those let's call end user markets are headed.
And I think there's just a tremendous opportunity and how streaming is going to continue to permeate our society more generally and I think that growth is what we're going to go figure out how to capture more us and capture more of it quickly.
And so the last one I will say is that.
This strategy will really dictate the tactics. So you say M&A is it on the table that table it really depends on where we end up.
With that strategic outlook, and where are the places we are going to focus.
And spend our time and energy towards towards going and I think that will make all the difference in how we lay out the tactics to achieve that strategy.
Okay and I realize you are only 30 days on the job here, but have you had a chance to meet with.
A significant number of customers and what are your observations. If you have had a chance to meet with any of them. Yeah I've met with a few I wish it was more but I think we're gaining more day by day and as again, it's 30 30 total days not even 30 business days. So we've got to give our customers a chance to come find me too. So that's great.
Great. So far I would say the responses I have gotten from the customers I talked to have been.
Incredibly strong I mean, many of our customers absolutely love the product and what we do for them and the efficiency with which we enable them to achieve.
Their goals and the broad based types of customers. We approach I think is really great I mean, having.
<unk> of customers in all of these end markets really does give us unique insight into the market and how it can grow so I'm very excited to meet more of them and more of them on a global basis, given that global reach that we have as well.
Yeah.
Okay, and then just your direct reports.
Are you going to be adding any.
Any significant members to the team.
What I'd say, it's still early I havent been really impressed with the talent at the company.
There are.
We are hiring across the board I would say there are areas that we're trying to add more talent and across the company at this point. So I am not purely focused on my direct but really more of the company in total and where we've taken and again I think the strategy will dictate the types of roles we may need to.
To change or add to the team.
Over time, so I sort of.
Give us a little bit more time on that as we come through but again I've been really impressed.
With the talent and I think combining that was my point of view on the market and where I think it can go I think we're going to come out with them.
Some things that'll get you really excited about the company if you haven't already.
Okay and then.
Yes.
I guess this is more for Rob.
<unk>.
The cash usage in the quarter seemed to be a little bit higher than I was expecting I understand you had the acquisition of <unk>.
In February but is there anything you can point out in that.
The $5 $5 million burn is maybe one time.
Yes, So you had the you.
Obviously, you had the acquisition of what good in February which was $13 2 million of cash that went out the door and then in the five and a half another thing that we had going on was we are building out a new office. So that is cash that went out the door in Q1 that we expect to recover from the landlord in Q2 with reimbursements and Thats about another $2 million of that oven.
Q1 is typically a cash burn quarter, when we look at things like annual bonuses getting paid out full year commissions getting paid out we do have some pretty significant.
Prepayments to some of our vendors that happened in the first quarter. So it.
Typically tends to be a lower cash flow quarter anyway and.
Just to reiterate we do expect to see a $5 million to $10 million.
Free cash flow for the year, which is what we guided in the first quarter as well.
Okay.
Right and then.
If I look at the <unk>.
Cost structure I understand we only hand.
Kind of two months of Wicked in Q1, but what can we expect for Opex for Q2.
Yes overall opex in Q2, you know as Mark said, we're making investments in head count across the organization and looking to fill roles across the yard so it's not going to be material movements, but it will be picking up as the year goes on.
Okay.
Alright, well, thanks for taking my questions and good luck mark thank.
Thank you I appreciate that.
Our next question comes from the line of Mike Latimore with Northland Capital markets. Please proceed with your question.
Great. Thank you nice to meet you Mark.
You too Mike.
So.
Your background a little bit.
More on the media side that enterprise it seems like I guess historically it feels like Brightcove has had a little more variability in their media business versus the enterprise I guess.
Any thoughts on.
What.
Is there going to be.
Significantly different strategy in media versus enterprise here do you need I don't know.
Different technologies.
<unk> enterprise just how do you think about those two separate buckets, maybe you don't have to think about the separately I know, but.
I'm curious your thought on that.
That's a great. It's a great question. Thanks.
Well first of all on the technology to take the last part first on the technology side. The great part is it the platform.
It is incredible and it is incredibly strong and I did a lot of diligence with a number of.
Folks that I know that if you use the product for you know over the last decade, and remember I was a customer about a decade ago. So I know the platform well and I would say the core platform is incredibly strong and handle effectively.
That's out there to date on the Internet So I'm very.
I took this job partially because of that technology strength.
I think the solutions, we provide are different for different end users different end markets and I think we've now gone into the enterprise side and some specific solutions that are working well and we for a long time been in the media side of the solution that works very very well I.
I think at other solutions for end users that are continually evolving and we're going to continue to evolve.
Our solutions for those end users over.
The longest term rate that's a forever.
Type of iteration that youre always going to be doing and I appreciate that about software development and about building and delivering technology like I have in the past. So we do think about those end users a little differently, but we don't think about the platform that definitely ready to just based on the same core and many of the same principle.
And then lastly, I'd say to go to market strategies are different and are they're very similar but they have different things that are unique to each of those markets and we play those out I think in a very specific and strong way and I think that's the part where I say, it's a media and enterprise. So it's really a streaming company and what I want to.
Make sure that we do is focus the go to market teams, the technology and product solutions and the talent to be a primary winner in that streaming market overall and that market is not limited to one or other of those customer base.
Yes.
And then it does seem like.
Periodically.
Breakout with having really strong media customer on ramp and then Haywood in sourcing technology I guess, how do you think about that dynamic.
To prevent that from happening.
I think I hear you look I think we've made.
Incredible strides on the customer retention side over the past year, let's say.
Those numbers, if you look at them as well I'm sure and the investments we've made in the customer success Department and the improvements there have been real and noticeable in the day notice on the on all sides of our business I'm very proud of that.
Fourth team I think they've done a great job there.
Second point I would make there is simply that there is.
Unique.
Things in the past that have happened where customers have effectively gone out and said we're going to do it ourselves that I think are changing in the market right youre going to see unique opportunities for those folks view us as a potential.
Place to combine the technology that can solve their problems rather than a technology that they have to.
He said graduate out of I think you actually may graduating into our technology and I think thats going to be a tremendous opportunity for the company.
Going forward, because I do think as you see certain companies getting to saturation levels in certain markets on their streaming potential they start to look at it similarly to how they looked at AD serving a decade ago right I had my own AD server, a decade ago, and I decided to find a vendor that was actually getting the intelligence.
Ross the market and could be better at it than I was and more efficient in delivering it I really do see breakout but that type of opportunity.
Okay. Thanks, and then.
This may come out with your.
Sort of strategy update, but I mean, as you think about.
The goals here or management incentives do you feel like it's going to be tied to.
Revenue growth.
The rule of 40 metric cash flow.
Any initial thoughts on that or does that come out of a strategy.
I think that'll come out of the strategy and the longer term.
No.
My deal that's actually tied to the stock price and I think thats going to be a big.
They can send it certainly for up to to get what is I believe a very undervalued company to be properly valued and then exceed the expectations.
Thank you all have for us so that we can increase that value over time, and certainly don't think its properly valued today.
There's incredible upside here I think for both.
Myself and all the other employees because they believe every employee and I'll double check this has stock and.
On shares in the company and I think Thats, a very very.
Very big opportunity for them.
It comes to the sort of cash incentives for a certain percentage of our employees I think we'll be talking about that further as we lay out the strategy and where we think hum.
Okay.
Okay. Thanks, a lot good luck.
Thank you.
There are no further questions I'd like to hand, the call back to management for closing remarks.
Thank you operator, and I want to thank our participants as well again just wanted to say how excited I am to be leading this company at this amazing time in our industry I truly believe we and our customers have an incredible opportunity ahead of us.
And frankly, we look forward to sharing more with you as we step into the future. So thanks for today and we'll talk soon.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.