Q2 2024 Brightcove Inc Earnings Call
And of the private Securities Litigation Reform Act of 1995 as amended including statements concerning our financial guidance for the third fiscal quarter of 2024, and the full year 2020 for expected revenue profitability and free cash flow or.
Our position to execute on our go to market and growth strategy, our ability to expand our leadership position.
Our ability to maintain and upsell existing customers as well as our ability to acquire new customers.
Forward looking statements may often be identified with words, such as we expect we anticipate upcoming or similar indications of future expectations.
These statements reflect management's belief 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 uncertainties and changes in circumstances that are difficult to predict and many of which are outside of our control.
For a discussion on 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, and as updated by our subsequent S. E C filings.
Also during the course of today's presentation, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the most directly comparable GAAP financial measures versus non-GAAP measures available in our press release issued after market close today, which can be found on our website at www Dot Brightcove dotcom.
Thank you all for joining today I'm, Marc Debevoise CEO here at Brightcove and with me today at Brightcove CFO John Wagner.
As always we're pleased to be streaming is to you on our own video cloud platform.
Today, we'll discuss our second quarter results provide an update on our strategic progress and update our view for the second half of the year and beyond.
I'll begin with a quick overview of the strong financial results, we delivered in Q2, which were meaningfully above the high end of our guidance range.
Total revenue for Q2 was $49 2 million above the high end of our guidance range.
All revenue and revenue, excluding overages were modestly down year over year. This was expected as we anniversary the large Yahoo, new business deal of Q1 2023.
Adjusted EBITDA was $3 8 million meaningfully above the high end of our guidance range and up slightly year over year. It was especially strong given we shifted our standard merit pay increases this year to Q2 versus Q1 in 2023.
I am pleased by our ability to exceed our guidance for Q2 across the board, including another strong profitability quarter.
So specifically pleased with our year to date first half financial performance for a few reasons.
First and foremost we are well on our way to deliver on our full year guidance across the board revenue EBITDA and free cash flow revs.
Revenue in the first half was flat year over year, but on a constant currency basis revenue actually grew roughly a $1 million in the first half.
On EBITDA, we were up dramatically year over year, delivering nearly $9 million in EBITDA in the first half of this year versus just under $1 million in the first half of 2023.
And it would have been even better on a constant currency basis.
We are clearly delivering on our commitment to disciplined expense management, while continuing to invest in our key strategic priorities.
On free cash flow, we generated nearly a million in the first half and expect to continue to generate cash through the rest of 2024 and added $5 5 million in cash to our balance sheet taking into account the positive impact of the patent sale in Q1, and some negative FX impact across the first half.
Ultimately, we hope you take away from our results is that we have transformed our business to be structurally EBITDA positive and free cash flow generative.
Laid the foundation for future growth.
Digging into our business and sales performance in the quarter. It was in line with our expectations. However, the mix of business was a little different than we've seen in the recent quarters.
Positively we had our best add on sales performance in well over a year in Q2.
Add on sales in Q2 were approximately 25% above our trailing four quarter average and above last quarter in the year ago quarter and average add on deal sizes were the largest they've been in six quarters. This helped deliver record <unk> again this quarter at $99000.
This was all driven by strong upsell and cross sell activity combined with improved entitlement add ons, primarily in international markets.
One key thing that's been missing in recent quarters has been this add on entitlement growth, which we saw return this quarter from numerous global media companies.
Speaker Change: Is it broad based yet and we still have other customers going through entitlement downgrades to rightsize their entitlement base, but the quarter did see a reversal of recent trends.
We also saw a modest increase in Overages, which is another data point that gives us some optimism we are getting through and closer to working through this down sell cycle.
Another important part of our add on strategy is to diversify our sales opportunities with purpose built use case specific solutions.
To that end, we continue to make progress building pipeline in signing some nice wins with marketing studio communication studio and also now with the new sales used case.
But we're still relatively early and widely selling some of these newer offerings.
Overall Q2 was a net positive and improving the performance of our add on sales and getting that part of the business closer to stabilization, but it remains early to say that we are all the way where we want to be.
Conversely, our new business performance was a little more mixed in the quarter, we signed quality wins with enterprise and media customers and continue to be pleased with the size of our new business transactions, which remained in line with our stronger more recent quarters. However.
However, we did find that the new business environment was more challenging this quarter as it progressed.
Interest and demand signals remain positive, but we saw sales cycles generally get longer and experienced an increase in the number of deals that pushed out of the quarter.
Speaker Change: The most notable amongst our larger potential customers.
We believe this is largely a function of a more challenging software spending environment, which has been noted by a number of SaaS companies in recent months. We do believe we can execute better than we did in Q2, including this third quarter.
From an expense perspective, we were pleased with our progress in driving productivity and efficiency across the business for.
For example, non-GAAP operating expenses were down 6% year over year in Q2.
We are confident that we can hold expenses relatively flat in the coming quarters, while continuing to invest in our key focus areas that we expect will return the business to consistent revenue growth.
Expanding margins over time as a core focus for us and we believe we have a number of levers to deliver that outcome.
This environment was more challenging this quarter as it progressed.
Speaker Change: One of those newer levers is AI.
Speaker Change: The team has been working to identify ways to utilize AI to improve our overall efficiency and specifically that of our platform to improve gross margins.
Interest and demand signals remain positive, but we saw sales cycles generally get longer and experienced an increase in the number of deals that pushed out of the quarter.
As I mentioned last quarter, we partnered with AWS to evolve our award winning customer service and success to deliver answers about our solutions using Amazon's Q technology, making our teams more responsive productive and efficient.
It was most notable amongst our larger potential customers.
While we believe this is largely a function of more challenging software spending environment, which has been noted by a number of SaaS companies in recent months. We do believe we can execute better than we did in Q2, including this third quarter.
That is just the beginning are bearing fruit for us in terms of time and efficiency savings.
From an expense perspective, we were pleased with our progress in driving productivity and efficiency across the business for.
Speaker Change: Now turning our sights on ways, we can use AI internally, including some of our own AI technologies like context aware and coating.
For example, non-GAAP operating expenses were down 6% year over year in Q2.
Speaker Change: We believe this can help improve our gross and operating margins over time.
We are confident that we can hold expenses relatively flat in the coming quarters, while continuing to invest in our key focus areas that we expect will return the business to consistent revenue growth.
As I mentioned, we did sign a number of exciting new business add on and renewal transactions in Q2 across a wide range of industries and geographies.
Expanding margins overtime as a core focus for us and we believe we have a number of levers to deliver that outcome.
This included networks and streaming services like Candela Reals television Asahi television <unk> Virgin Media Media 24, seven network Sky, Mexico, <unk> Gaya Telecom back in television New Zealand.
One of those newer levers is AI.
The team has been working to identify ways to utilize AI to improve our overall efficiency and specifically that of our platform to improve gross margins.
One media win I would like to highlight was an important multiyear nearly seven figure annual new business cut new customer deal with a north American television network, who is replacing a significant portion of its existing video tech delivery stack with breakout.
As I mentioned last quarter, we partner with AWS to above our award winning customer service and success to deliver answers about our solutions using Amazon Q technology.
Making our teams more responsive productive and efficient.
This will be a great example of the flexibility and cost efficiency of our platform and that it can provide any streaming company and was a strong competitive win.
But it's just the beginning are bearing fruit for us in terms of time and efficiency savings.
We're now turning our sights on ways, we can use AI internally, including some of our own AI technologies like context aware and coating.
We expect to see more opportunities in this part of the market going forward.
Additionally, we closed deals with content brands like BBC Studios, Debmar Mercury, United World Wrestling, and Duke and media. We also had a number of renewals and add ons that continued our success in sports, including Raycom Sports Atlantic Coast Conference Wimbledon. The ATP Tour PGA of America Formula E Canadian Football League and Japanese sports streaming leader institution.
We believe this can help improve our gross and operating margins over time.
As I mentioned, we did sign a number of exciting new business add on and renewal transactions in Q2 across a wide range of industries and geographies.
This included networks and streaming services like Candela real TV Asahi television <unk> Virgin Media Media 24, seven network Sky, Mexico, <unk> Gaya Telecom back and television New Zealand.
Speaker Change: We're also proud to be coming to the end of a successful Summer Olympics, which we helped support the streaming efforts of numerous customers over the past few weeks. In addition to enabling the streaming of the UEFA Euro and Copa America finals, just a few weeks ago.
One media win I would like to highlight was an important multiyear nearly seven figure annual new business, new customer deal within North American television network, who is replacing a significant portion of its existing video tech delivery stack with Brightcove.
Plus we continued our success in the arts vertical with the Queensland Performing Arts Center. The Academy of Motion Picture Arts and Sciences, The British film Institute, the met Opera and the Lincoln Center Chamber Music Society.
This will be a great example of the flexibility and cost efficiency of our platform and that it can provide any streaming company and was a strong competitive win.
There are also three recent customer go lives that are great. Examples of the broader opportunity we see in the media streaming market.
We expect to see more opportunities in this part of the market going forward.
Jake: Jake on the largest cable company in Japan recently launched its newest streaming service J Com's animal watch, which broadcast content from across Japan, zoos and aquariums to its millions of subscribers.
Additionally, we closed deals with content brands like BBC Studios, Debmar Mercury, United World Wrestling, and Duke and media. We also had a number of renewals and add ons that continued our success in sports, including Raycom Sports Atlantic Coast Conference Wimbledon. The ATP Tour PGA of America Formula E Canadian Football League and Japanese sports streaming leader institution.
Jake: <unk> is a big media company expanding with alternative ideas and this concept represents a number of additional growth opportunities for us over time.
Speaker Change: Freight picks a new free Eva streaming service focused on horror thriller and true crime successfully launched on Brightcove platform as well.
We're also proud to be coming to the end of a successful Summer Olympics, which will be helped support the streaming efforts of numerous customers over the past few weeks. In addition to enabling the streaming of the UEFA Euro and Copa America final is just a few weeks ago.
Speaker Change: This is a great example of how independent media companies can meet the demand for specialized content with a top tier viewing experience from brightcove much faster and for less money than building it on their own.
Plus we continued our success in the arts vertical with the Queensland Performing Arts Center. The Academy of Motion Picture Arts and Sciences Division Film Institute, the met Opera and the Lincoln Center Chamber Music Society.
Speaker Change: Sun stream of new streaming service offering family friendly movies music and educational content also lunchtime Brightcove sunscreen was drawn to our ability to provide an intuitive personalize your experience and best in class analytics that will enable them to make it easier for their customers to find the content They love.
There are also three recent customer go lives that are great. Examples of the broader opportunity we see in the media streaming market.
Jake: Jake on the largest cable company in Japan recently launched its newest streaming service J Com's animal watch, which broadcast content from across Japan, zoos and aquariums to its millions of subscribers.
Speaker Change: Both Sun stream and for apex are great. Examples of that next set of streaming for riders, we often talk about that will become more important as the streaming industry matures.
Speaker Change: In the enterprise space, We also signed a meaningful set of new add on and renewal deals with BTB software companies like <unk> AMD Autodesk Broadcom Darkey signed HP, Palo Alto networks and service now consumer and retail customers like Nestle Longchamp end cars Dot Com health care companies like Express scripts Blue Cross Blue Shield and Pfizer financial.
<unk> is a big media company expanding with alternative ideas and this concept represents a number of additional growth opportunities for us over time.
<unk>, a new free Eva streaming services focused on horror thriller and true crime successfully launched on Brightcove platform as well.
Speaker Change: This is a great example of how independent media companies that can meet the demand for specialized content with a top tier viewing experience from brightcove much faster and for less money and building it on their own.
Speaker Change: In business services companies like Mckinsey Invesco, even why RBC and Temasek and in public sector and nonprofit and educational customers like the 911 Memorial and Museum APAC. The Paley Center, Oxford University Press Kaplan and then other sizeable enterprises, including Airstream, Chevron Marriott and have us.
Speaker Change: Sunshine, the new streaming service offering family friendly movies music and educational content also launched on Brightcove Sun stream was drawn to our ability to provide an intuitive personalize your experience and best in class analytics that will enable them to make it easier for their customers to find the content They love.
Speaker Change: From a product perspective, there were two interesting wins in the quarter that were excellent examples of our evolution into a true engagement leader in business driver for enterprises.
Speaker Change: Both sunscreen and <unk> are great. Examples of that next set of streaming providers, we often talk about that will become more important as the streaming industry matures.
These examples also demonstrate how we can revamp and redeploy existing product capabilities to address new use cases, I'd like to think of it as leveraging our horizontal platform capabilities, but we'd use case specific and vertical solutions to deliver value for enterprises.
Speaker Change: In the enterprise space, We also signed a meaningful set of new add on and renewal deals with BTB software companies like aqueous AMD Autodesk Broadcom Darkey signed HP, Palo Alto networks and service now consumer and retail customers like Nestle Longchamp and cars Dot Com health care companies like Express scripts Blue Cross Blue Shield and Pfizer financial.
This expands our market opportunity and is a highly efficient way to leverage our investment in R&D.
First example is a win with Palo Alto networks, there a long time brightcove customer that is expanding its thought leadership capabilities by launching Palo Alto Networks' TV, which is built on our Brightcove Dot TV offering previously called Corp television.
Speaker Change: In business services companies like Mckinsey Invesco, Ian why RBC, and Temasek and public sector and nonprofit and educational customers like the 911 Memorial and Museum APAC Paley Center, Oxford University Press Kaplan and then other sizeable enterprises, including Airstream, Chevron Marriott and have us.
Similar to how we have utilized brightcove play TV to evangelize, our thought leadership positions to the world Palo Alto Networks' TV will be their own digital streaming channel for beta B and B to C marketing always onto engage their target audiences more deeply.
From a product perspective, there were two interesting wins in the quarter that were excellent examples of our evolution into a true engagement leader in business driver for enterprises.
The second is a sizable win with a long time global real estate services customer that recently engaged us to enable their nearly 30000 agents and affiliates to send personalized and branded videos at scale to elevate and promote their luxury home portfolio and a unique and differentiated way.
Speaker Change: These examples also demonstrate how we can revamp and redeploy existing product capabilities to address new use cases.
Speaker Change: I like to think of it as leveraging our horizontal platform capabilities, but we'd use case specific and vertical solutions to deliver value for enterprises.
Speaker Change: We believe this use case with this customer alone represents a seven figure growth opportunity for us as we expand our relationship with their various subsidiaries.
Speaker Change: This expands our market opportunity and it's a highly efficient way to leverage our investment in R&D.
Speaker Change: The first example is a win with Palo Alto networks. There a long time brightcove customer that is expanding its thought leadership capabilities by launching Palo Alto Networks' TV, which is built on our Brightcove dot TV offering previously called Court TV.
Beyond real estate, we see this use case with an opportunity to expand in financial services insurance and any organization with large distributed sales and support teams that can leverage personalized videos to better engage and communicate with their audiences.
Effectively a new sales used case similar to marketing or communication studio today.
Speaker Change: Similar to how we have utilized brightcove play TV to evangelize, our thought leadership positions to the world Palo Alto Networks' TV will be their own digital streaming channel for <unk> and DTC marketing always onto engage their target audience is more deeply.
Speaker Change: For us it's taking advantage of the majority of what we've already developed with a bit of tweaking and customization and now purpose built for the sales use case.
Our go to market teams are seeing momentum with this capability I mean getting to offer it across other verticals as I previously mentioned.
Speaker Change: The second is a sizable win with a long time global real estate services customer that recently engaged us to enable their nearly 30000 agents and affiliates to send personalized and branded videos at scale to elevate them promote their luxury home portfolio and a unique and differentiated way.
This vertical use case specific approaches a strategy. We are focused on moving forward and are specifically pursuing it with our go to market teams to find new and repeatable revenue motions.
Additionally, we've been pursuing a multi year deal strategy to better align with customers over the long term and deliver us a more predictable and growing annual recurring revenue base.
Speaker Change: We believe this use case with this customer alone represents a seven figure growth opportunity for us as we expand our relationship with their various subsidiaries.
Oh, we're not all the way, where we want to be yet the record 12 month or greater subscription backlog this quarter of $59 million and near record total subscription backlog of over $180 million are strong leading indicators of where we are headed with a very strong recurring revenue base and seeking to improve net revenue retention over time.
Speaker Change: Beyond real estate, we see this use case with an opportunity to expand in financial services insurance and any organization with large distributed sales and support teams that can leverage personalized videos to better engage and communicate with their audiences.
Speaker Change: Effectively a new sales used case similar to marketing or communication studio today.
Speaker Change: <unk> is taking advantage of the majority of what we've already developed with a bit of tweaking and customization and now purpose built for the sales use case.
Continued innovation is foundational to our success and is a significant reason why brightcove as the most trusted streaming technology company and engagement leader for enterprises.
Speaker Change: Go to market teams are seeing momentum with this capability I mean getting to offer it across other verticals as I previously mentioned.
Speaker Change: The latest validation of our technical strength was breaker being named a leader in Aragon Research as 2020 for research Globe for Enterprise video for the third consecutive year.
Speaker Change: This vertical use case specific approach as a strategy. We are focused on moving forward and are specifically pursuing it with our go to market teams to find new and repeatable revenue motions.
And we're not stopping we have innovated and thrive through a series of technological revolutions from the dawn of the Internet and streaming media to the digital transformation shaping major industries and enterprises and now to an era defined by engagement automation and the rise of AI.
Speaker Change: Additionally, we have been pursuing a multi year deal strategy to better align with customers over the long term and deliver a more predictable and growing annual recurring revenue base.
Speaker Change: We're not all the way, where we want to be yet the record 12 month or greater subscription backlog this quarter of $59 million and near record total subscription backlog of over $180 million are strong leading indicators of where we are headed with a very strong recurring revenue base and seeking to improve net revenue retention over time.
Speaker Change: Last quarter I briefly introduced our approach and strategy to our future AI product suite extremely excited to say, we've made tremendous progress and expect to announce our broad capability AI suite later in Q3 and are in process with over a dozen customers on piloting its capabilities.
Our strategy in AI is customer driven and focused on how we can drive growth and opportunity for them being engagement audience or revenue and increase their efficiency be it in cost or time savings or.
Speaker Change: Continued innovation is foundational to our success and is a significant reason why brightcove as the most trusted streaming technology company and engagement leader for enterprises.
Speaker Change: Our differentiation will be in AI being straight forward and being integrated into our video cloud platform and also continuing to integrate our platform with our customers other related systems and.
Speaker Change: The latest validation of our technical strength was break of being named a leader in Aragon Research as 2020 for research Globe for Enterprise video for the third consecutive year.
Speaker Change: And we're not stopping we have innovated and thrive through a series of technological revolutions from the dawn of the Internet and streaming media to the digital transformation shaping major industries and enterprises and now to an era defined by engagement automation and the rise of AI.
Speaker Change: And keeping our customers' data and content secure and only included in the backend engine they approve.
Speaker Change: And utilizing best in class partners for the backend engine and keeping the customer interaction and our platform effectively securing our role at the App layer.
Speaker Change: And using the data we have to predict outcomes with our insights engine and then automating those actions for our customers.
Speaker Change: Last quarter I briefly introduced our approach and strategy to our future AI product suite.
Speaker Change: I'm excited to say we have now.
Speaker Change: STREAMWAY excited to say, we've made tremendous progress and expect to announce our broad capability AI suite later in Q3 and are in process with over a dozen customers on piloting its capabilities.
Now have beta product inflight on numerous parts of our AI suite and over a dozen customers agreed to test and are already actively using at least one of its modules.
Speaker Change: Our strategy in AI is customer driven and focused on how we can drive growth and opportunity for them be engagement audience or revenue and increase their efficiency be it in cost or time savings.
Speaker Change: Stay tuned later this quarter, we will announce the full depth and breadth of our AI suite. The way, we intend to use its predictive capabilities to increase engagement and revenue for our customers and save them time and money.
Speaker Change: Our differentiation will be in AI being straightforward being integrated into our video cloud platform and also continuing to integrate our platform with our customers other related systems and.
Before I turn the presentation over to John Let me finish by reiterating that we had a solid first half of the year and are well positioned to deliver on our full year targets.
Speaker Change: And keeping our customers' data and content sure and only included in the backend engine they approve.
John Wagner: We've made good progress building out a more consistent predictable demand generation and sales motion and continue to push the pace of innovation, all while operating with prudent expense discipline.
Speaker Change: And utilizing best in class partners for the backend engine and keeping the customer interaction and our platform effectively securing our role at the App layer.
John Wagner: We are highly focused on the things, we can control and positioning the business to return to consistent revenue growth and further margin expansion.
Speaker Change: And using the data we have to predict outcomes with our insights engine and then automating those actions for our customers.
We're pleased that our share price has increased since our last earnings call. We continue to believe we trade at a significant discount to our intrinsic value and that our stock represents an incredibly attractive investment opportunity.
Speaker Change: I'm excited to say we have now.
Speaker Change: Now have beta products inflight on numerous parts of our AI suite and over a dozen customers agreed to test and are already actively using at least one of its modules.
And with that let me turn things over to Jon to walk through the financials and our guidance in more detail John.
Speaker Change: Stay tuned later this quarter, we will announce the full depth and breadth of our AI suite. The way, we intend to use its predictive capabilities to increase engagement and revenue for our customers and save them time and money.
Jon: Thank you Mark I'll begin with a detailed review of our second quarter results and then finish with our outlook for the third quarter and full year 2024.
John Wagner: Total revenue in the second quarter was $49 $2 million above the high end of our guidance range and down 3% year over year.
Speaker Change: Before I turn the presentation over to John Let me finish by reiterating that we had a solid first half of the year and are well positioned to deliver on our full year targets.
John Wagner: Breaking revenue down further if we exclude overages of $1.3 million in the quarter revenue was $47 $9 million down approximately 4% year over year.
John: We've made good progress building out a more consistent predictable demand generation and sales motion and continue to push the pace of innovation, all while operating with prudent expense discipline.
John: We're highly focused on the things, we can control and positioning the business to return to consistent revenue growth and further margin expansion.
John Wagner: Subscription and support revenue, which includes Overages was $47 $4 million and professional services revenue was $1 $8 million down, 3% and 6% year over year, respectively.
Speaker Change: We are pleased that our share price has increased since our last earnings call. We continue to believe we trade at a significant discount to our intrinsic value and that our stock represents an incredibly attractive investment opportunity.
John Wagner: 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 $123 $3 million, a decrease of 1% year over year.
Jon: And with that let me turn things over to Jon to walk through the financials and our guidance in more detail John.
Jon: Thank you Mark I'll begin with a detailed review of our second quarter results and then finish with our outlook for the third quarter and full year 2024.
John Wagner: Total backlog was $182 $2 million up 3% year over year, including a record backlog of $59 million related to the portion of committed revenue in the period greater than 12 months in the future.
John: Total revenue in the second quarter was $49 2 million above the high end of our guidance range and down 3% year over year.
Jon: Breaking revenue down further if we exclude overages of one $3 million in the quarter.
John Wagner: On a geographic basis, we generated 61% of our revenue in North America in the quarter and 39% internationally.
John: Revenue was $47 $9 million down approximately 4% year over year.
John: Subscription and support revenue, which includes Overages was $47 $4 million and professional services revenue was $1 8 million down, 3% and 6% year over year, respectively.
John Wagner: Taking down international revenue a bit more Europe generated 17% of revenue in Japan, and Asia Pacific generated 22% of revenue in the quarter.
John Wagner: Turning to the supplemental metrics, we share on a quarterly basis.
John: 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 $123 3 million a decrease of 1% year over year.
John Wagner: Our recurring dollar retention rate in the second quarter was 83%, which was down from 85% in the previous quarter due in part to the trend we've seen in recent quarters of reductions and entitlements at contract renewal, especially with our longer duration contracts that originated during the pandemic.
John: Total backlog was $182 $2 million up 3% year over year, including a record backlog of $59 million.
John Wagner: As a reminder, this metric only captures renewals in the quarter and up sells at the time of renewal and does not factor in the impact of add ons during the contract term or multiyear agreements both of which meaningfully improve our dollar retention.
John: Related to the portion of committed revenue in the period greater than 12 months in the future.
John: On a geographic basis, we generated 61% of our revenue in North America in the quarter and 39% internationally.
John Wagner: Net revenue retention rate, which provides a more complete view of year over year revenue retention, including the benefit of our growing multiyear customer commitments was 93% in the quarter, which compares to 92% in the previous quarter and 95% in the second quarter of 2023.
Jon: Breaking down international revenue a bit more Europe generated 17% of revenue in Japan, and Asia Pacific generated 22% of revenue in the quarter.
John: Turning to the supplemental metrics, we share on a quarterly basis.
John: Recurring dollar retention rate in the second quarter was 83%, which was down from 85% in the previous quarter due in part to the trend we've seen in recent quarters of reductions and entitlements at contract renewal, especially with our longer duration contracts originated during the pandemic.
John Wagner: On a constant currency basis net revenue retention was 94% in both quarters.
John Wagner: Retention is benefiting in part from our growing mix of multiyear commitments.
Our customer count at the end of the second quarter was 2444 of which 1958 were classified as premium customers.
John: As a reminder, this metric only captures renewals in the quarter and Upsells at the time of renewal and does not factor in the impact of add ons during the contract term or multiyear agreements both of which meaningfully improve our dollar retention.
John Wagner: Looking at our <unk> within our premium customer base, our annualized revenue per premium customer was a record $99000 and excludes our entry level pricing for starter customers, which averaged $4800 in annualized revenue.
John: Net revenue retention rate, which provides a more complete view of year over year revenue retention <unk>.
John: Including the benefit of our growing multiyear customer commitments.
So we don't expect our pud to always increase in a linear manner as it has in recent quarters. We do think strong ARPA is a reflection of our strategy to some focus on and super serve larger customers with more sophisticated requirements, where we are able to win grow and retain customers more effectively.
John: It was 93% in the quarter.
John: Which compares to 92% in the previous quarter and 95% in the second quarter of 2023.
John: On a constant currency basis net revenue retention was 94% in both quarters.
John: Retention is benefiting in part from our growing mix of multiyear commitments.
John Wagner: Looking at our results on a GAAP basis, our gross profit was $29 8 million for the quarter, giving us a gross margin of 61% compared to 64% in the second quarter of 2023.
John: Our customer count at the end of the second quarter was 2444 of which 1958 were classified as premium customers.
Operating loss was $5 million and net loss per share was <unk> 12 cents based on $44 7 million weighted average shares outstanding.
John: Looking at our <unk> within our premium customer base, our annualized revenue per premium customer was a record $99000 and excludes our entry level pricing for starter customers, which averaged $4800 in annualized revenue.
John Wagner: Turning to our non-GAAP results.
Our non-GAAP gross profit in the quarter was $30 $6 million compared to $33 4 million in the second quarter of 2023 and represented a gross margin of 62% compared to 66% in the year ago period.
John: So we don't expect <unk> to always increase in a linear manner as it has in recent quarters. We do think strong ARPA is a reflection of our strategy to focus on and super serve larger customers with more sophisticated requirements, where we are able to win grow and retain customers more effectively.
John Wagner: non-GAAP operating loss was 477000 in the second quarter compared to non-GAAP operating income of 537000 in the second quarter of 2023.
John Wagner: Adjusted EBITDA was $3 $8 million, representing an adjusted EBITDA margin of 8% and above the high end of our guidance range.
John: Looking at our results on a GAAP basis, our gross profit was $29 8 million for the quarter, giving us a gross margin of 61% compared to 64% in the second quarter of 2023.
The ongoing strength in adjusted EBITDA reflects our continued benefit of prior cost saving actions and our ongoing expense discipline.
John: Operating loss was $5 million and net loss per share was <unk> 12 cents based on $44 7 million weighted average shares outstanding.
John Wagner: non-GAAP diluted net loss per share was <unk> based on $44 7 million weighted average shares outstanding. This compares to net income per share of <unk> based on $43 1 million weighted average shares outstanding in the year ago period.
John: Turning to our non-GAAP results are.
John: Our non-GAAP gross profit in the quarter was $36 million compared to $33 4 million in the second quarter of 2023 and represented a gross margin of 62% compared to 66% in the year ago period.
Turning to the balance sheet and cash flow.
John Wagner: We ended the quarter with cash and cash equivalents of $24 $2 million and remain debt free free.
John: non-GAAP operating loss was 477000 in the second quarter compared to non-GAAP operating income of 537000 in the second quarter of 2023.
Free cash flow for the quarter was $1 $8 million after taking into account $2 $2 million in capital expenditures and capitalized internal use software.
John: Adjusted EBITDA was $3 $8 million.
I'll finish by providing our guidance for the third quarter and the full year 2024.
John: Representing an adjusted EBITDA margin of 8% and above the high end of our guidance range.
John Wagner: For the third quarter, we are targeting revenue of between 48 and $49 million, including approximately $800000 of Overages and approximately $1 $8 million of professional services revenue.
John: Ongoing strength in adjusted EBITDA reflects our continued benefits of prior cost saving actions.
John: Our ongoing expense discipline.
John: non-GAAP diluted net loss per share was <unk> <unk> based on $44 7 million weighted average shares outstanding.
John Wagner: From a profitability perspective, we expect non-GAAP operating loss to be between two and $1 million and positive adjusted EBITDA to be between two five and $3 $5 million.
John: This compares to net income per share of <unk> based on $43 1 million weighted average shares outstanding in the year ago period.
John: Turning to the balance sheet and cash flow.
John Wagner: non-GAAP net income per share is expected to be in the range of a loss of five cents to three cents based on 45 million weighted average shares outstanding.
John: We ended the quarter with cash and cash equivalents of $24 2 million and remained debt free free.
John: Free cash flow for the quarter was $1 8 million after taking into account $2 $2 million in capital expenditures and capitalized internal use software.
For the full year, we are increasing our revenue guidance to $195.5 million to $198 million, which includes an estimate of approximately $4 million of overage revenue and approximately $8 million of professional services revenue.
John: I'll finish by providing our guidance for the third quarter and the full year 2024.
John: For the third quarter, we are targeting revenue of between 48 and $49 million.
John Wagner: This reflects our strong first half performance and absorbs the FX headwind from the first half of the year.
John: Including approximately $800000 of Overages and approximately $1 $8 million of professional services revenue.
John Wagner: We are increasing our full year guidance from a profitability perspective, and expect non-GAAP operating expense to be between two five and $1 million and positive adjusted EBITDA to be between $14 five and $16 million based on our continued commitment to our top line guidance as well as our.
John: From a profitability perspective, we expect non-GAAP operating loss to be between two and $1 million and positive adjusted EBITDA to be between two five and $3 5 million.
John: non-GAAP net income per share is expected to be in the range of a loss of <unk> to three <unk>.
John Wagner: Commitment to manage the business to 20% to 30% EBITDA growth or more.
John: Based on 45 million weighted average shares outstanding.
non-GAAP loss per share is expected to be in the range of eight cents to five.
John: For the full year, we are increasing our revenue guidance to $195.5 million to $198 million, which includes an estimate of approximately $4 million of overage revenue and approximately $8 million of professional services revenue.
John Wagner: Based on $44 7 million weighted average shares outstanding.
John Wagner: Lastly, we are maintaining our full year free cash flow guidance, which is expected to be between five six and $8 million we.
John Wagner: We expect to be free cash flow positive for each of the remaining quarters of the year modestly in Q3 and more significantly in Q4.
John: This reflects our strong first half performance and absorbs the FX headwind from the first half of the year.
John: We are increasing our full year guidance from a profitability perspective, and expect non-GAAP operating expense to be between two five and $1 million and positive adjusted EBITDA to be between $14 five and $60 million based on our continued commitment to our top line guidance as well as our <unk>.
A few things to keep in mind as you think about our guidance, we are increasing our full year guidance. Despite unfavorable foreign exchange rates that impacted our revenue in the first half of the year by nearly $1 million from the original time that we gave our full year guidance.
The rates have turned more favorably in recent days, we are both absorbing the unfavorable trends from the first half of the year and taking into account some uncertainty with respect to the rates for the remainder of the year in our guidance.
John: Fitment to manage the business to 20% to 30% EBITDA growth or more.
John: non-GAAP loss per share is expected to be in the range of <unk> <unk> to <unk>.
John Wagner: Despite this first half FX headwind, we are raising the low end of all of our full year guidance ranges.
John: Based on $44 7 million weighted average shares outstanding.
John: Lastly, we are maintaining our full year free cash flow guidance, which is expected to be between five six and $8 million.
To wrap up we are pleased with the results in Q2 exceeding the high end of our guidance range on both the top and bottom line, while generating meaningful free cash flow.
John: We expect to be free cash flow positive for each of the remaining quarters of the year modestly in Q3 and more significantly in Q4.
John Wagner: We're focused on executing on our key strategic areas that we expect will return the business to consistent revenue growth in the future.
John: A few things to keep in mind as you think about our guidance, we are increasing our full year guidance. Despite unfavorable foreign exchange rates that impacted our revenue in the first half of the year by nearly $1 million from the original time that we gave our full year guidance.
John Wagner: We will continue to deliver on our commitment to disciplined expense management, which will position us well to deliver on our profitability and free cash flow targets this year and in future.
Speaker Change: Please give us a moment to transition to Q&A and we'll be back to discuss our results further.
John: The rates have turned more favorably in recent days, we are both absorbing the unfavorable trends from the first half of the year.
John: And taking into account some uncertainty with respect to the rates for the remainder of the year in our guidance.
Speaker Change: And our first question will come from Max Mccandless with Lake Street capital markets.
Max Mccandless: Hey, guys. Thanks for taking my questions and then we talk about.
John: Despite this first half FX headwind, we are raising the low end of all of our full year guidance ranges.
Max Mccandless: Your commentary about growth going forward I would like to know what your pipeline words for these new business deals I know you said it was mixed I believe or what was that growth rate in Q2, and then I guess do you think you have a pipeline in place for 2025, we could potentially return to work.
John: To wrap up we.
John: We're pleased with the results in Q2 exceeding the high end of our guidance range on both the top and bottom line, while generating meaningful free cash flow.
John: We're focused on executing on our key strategic areas that we expect will return the business to consistent revenue growth in the future.
Speaker Change: Yeah. Thanks, Thanks, Max I'll take that one yeah, obviously, we don't disclose specific pipeline of specific pipeline growth, but I think we can say that the certainly the big deal pipeline, which is much further out in sort of we can see farther into those deals. Although we don't know exactly when we can close them because they do have the longest sales cycle has maintained or grown in recent quarters. It's very it's meaningfully.
John: We will continue to deliver on our commitment to disciplined expense management.
John: Which will position us well to deliver on our profitability and free cash flow targets this year and in future.
Speaker Change: Please give us a moment to transition to Q&A and we'll be back to discuss our results for that.
John Wagner: And it continues to be something we are very optimistic about going forward and I think those type of larger chunkier deals could certainly drive us back to growth. The second thing I'll bring up is some of those new sort of product innovations and things we talked about the new sales use case. The addition of an AI portfolio. That's coming later this quarter, we certainly think those give us an up.
Speaker Change: And our first question will come from Max Mccandless with Lake Street capital markets.
Max Mccandless: Hey, guys. Thanks for taking my questions and then we talk about your commentary about growth going forward I would like to know what your pipeline rewards for these new business deals I know you said it was mixed I believe what was that growth rate in Q2, and then I guess do you think you have pipe.
John Wagner: Grade path for existing customers, but also things that could help bring in new customers and we're starting to pipe customers into those things already I haven't talked about that one sales used case that had even the existing customer has other units that we can go into and really expand there. So we think hitting those things over the next couple of quarters in building that pipeline will really give us the strength to.
Speaker Change: One in place for 2025, we could potentially return to work.
Speaker Change: Yeah. Thanks, Thanks, Max I'll take that one yeah, obviously, we don't disclose specific pipeline of specific pipeline growth, but I think we can say that the certainly the big deal pipeline, which is much further out and we can see farther into those deals. Although we don't know exactly when we can close them because they do have the longest sales cycle has maintained or grown in recent quarters is very meaningful.
Speaker Change: A guy hopefully the growth going into 'twenty, five, but obviously, we need to go execute over Q3 and Q4.
Speaker Change: To make that make that the truth.
Speaker Change: I'm curious what the sales cycle with the length of time for these larger deals is I'd be sure that or can you share that with US now yeah. So sometimes the larger media deals can take up to nine to 12 months and so we do see long sales cycles on some of the larger media side of the business, but some of those can also be on the on new business as shorter.
Speaker Change: Large and it continues to be something we are very optimistic about going forward I think those type of larger chunkier deals could certainly drive us back to growth.
Speaker Change: Second thing I'll bring up is some of those new sort of product innovations and things we talked about the new sales used case. The addition of an AI portfolio. That's coming later this quarter. We certainly think those give us an upgrade path for existing customers, but also things that can help bring in new customers and we're starting to pipe customers into those things already I haven't talked about that one.
John Wagner: Is sort of four to six we usually don't move a new business deal much faster than that I mean, it has happened, but that's not average obviously add on moves significantly differently right. We can do an add on in less than 30 days and sometimes those can be larger new projects cross sells upsells that can take months at a time, so add on business much shorter cycles, obviously, new business, a little bit longer cycle.
Speaker Change: <unk> sales used case that had even the existing customer has other units that we can go into and really expand there. So we think hitting those things over the next couple of quarters in building that pipeline will really give us the strength to guy hopefully to growth going into 'twenty five, but obviously, we need to go execute over Q3 and Q4.
John Wagner: <unk>.
John Wagner: And it usually does take sort of in that over a quarter from a new business perspective, but can be less than a quarter or a little over a quarter in terms of in terms of add on.
Speaker Change: I mean, so given your commentary on the call for me because that gotten longer than the average.
Speaker Change: To make that make that metrics.
Speaker Change: Yeah.
Speaker Change: I'm curious what the sales cycle with the length of time for these larger deals is have you shared that or can you share that with US now sometimes the larger media deals can take up to nine to 12 months and so we do see long sales cycles on some of the larger media side of the business, but some of those can also be on new business as short as sort of four to six.
Speaker Change: Yeah, I think with these push outs you've talked about no great. Great question, Max I think on the new business side, what we were suggesting is that we felt like we had a good number of deals and some of them just happened to push out of the quarter sort of predicting those exact close dates were hard take.
John Wagner: Take the the large new business deal, we talked about near seven figure media win with a U S. Television network that was kind of a Q1 deal that slipped a little bit into Q2 is the way I would describe that one and I think we had a number of those this quarter.
Speaker Change: We usually don't move a new business deal much faster than that I mean, it has happened, but that's not average obviously add on moves significantly differently right. We can do an add on in less than 30 days and sometimes those can be larger new projects cross sells upsells that can take months at a time, so add on business much shorter cycles, obviously, new business, a little bit longer cycles.
John Wagner: You know that we're still actively working on to make happen in this quarter.
John Wagner: Alright, guys. Thanks, congrats on the quarter. Thanks, Max Thanks Max.
Speaker Change: Our next set of questions comes from Steve Frankel with Rosenblatt Securities.
Speaker Change: And it usually does take sort of in that over a quarter from a new business perspective, but can be less than a quarter or a little over a quarter in terms of in terms of add on.
Steve Frankel: Thanks, guys growing revenue remains a challenge for Brightcove, what steps can you take between now and year end to position the company for a return to growth.
Speaker Change: I mean, so given your commentary the coffman because that gotten longer than the average.
Speaker Change: Yes, I think with these push outs you've talked about no great. Great question, Max I think on the new business side, what we were suggesting is that we felt like we had a good number of deals some of them just happen to push out of the quarter sort of predicting those exact close dates were hard.
Speaker Change: Thanks for that you know what I would say is returning to growth is our goal as our as our focus obviously, we've had some quarters of growth in seven quarters, a shrink in the first half of the year, we actually grew on a constant currency basis. Unfortunately, the currency moved against us on a revenue basis, we need to get that to consistency and get that to faster.
Speaker Change: Take the the large new business deal, we talked about the near seven figure media win with a U S. Television network that was kind of a Q1 deal that slipped a little bit into Q2 is the way I would describe that one and I think we had a number of those this quarter.
John Wagner: Over the next couple of quarters, it's always about bookings and retention rate can we book new business add on business with our existing customers and then retain them and the struggle for US has been we've always had sort of one or two of those working and not the third and I think you see that a little bit in Q2, right, where we had new business was a little below our expectations, but we felt like add on sort of made up for it and how does it have a good quarter.
Speaker Change: We're still actively working on to make happen in this quarter.
Speaker Change: Alright, guys. Thanks, congrats on the quarter. Thanks Max.
Speaker Change: Our next set of questions comes from Steve Frankel with Rosenblatt Securities.
John Wagner: We need to dial those things together and I think we're starting to put together the right go to market motions that can really make that happen again I would point you to existing use cases and new use cases, we've pointed to like that sales use case, that's coming out now adding on new product innovation that we can sell for upgrade paths for our customers like the AI pieces that will.
Steve Frankel: Thanks, guys growing revenue remains a challenge for Brightcove, what steps can be taken between now and year end position the company for a return to growth.
Speaker Change: Thanks for that what I would say is returning to growth.
Speaker Change: It is our goal as our as our focus obviously, we've had some quarters of growth in some quarters. The shrink in the first half of the year, we actually grew on a constant currency basis. Unfortunately, the currency moved against us on a revenue basis, we need to get that consistency and get that to.
John Wagner: Release later this quarter, and then really delivering on the value for our customers when their as they're coming back for entitlements and our hope is that that is a sustainable trend. So far we've got a quarter under our belt, where this is come back and our hope is that that's going to be more than a quarter. As we move forward you see those things line up and I did and I would say, that's how we lineup for growth coming through the back half.
Speaker Change: Oster.
Speaker Change: Over the next couple of quarters, it's always about bookings and retention rate can we booked new business add on business with our existing customers and then retain them and the struggle for US is that we've always had sort of one or two of those working in the third and I think you see that a little bit in Q2, right. We had new business was a little below our expectations, but we felt like add on sort of made up for it and how does it have a good quarter.
Speaker Change: And the last question is where are you in the process of working through the access entitlements that have been creating downward pressure on renewals.
Speaker Change: That's the challenging part is working through that at just as we were signing up you know sort of what I would say some international media companies coming back for more entitlements, we still had others hitting the end of their long term contract terms and downgrading for their own actual traffic needs right. They were effectively over bought or oversold coming out of COVID-19 with optimism on on.
Speaker Change: We need to dial those things together and I think we're starting to put together the right go to market motions that can really make that happen again I would point you to existing use cases and new use cases, we've pointed to like that sales use case, that's coming out now adding on new product innovation that we can sell for upgrade paths for our customers like the AI pieces that will run.
Speaker Change: There their storage and their usage and we've seen those downgrades continue they have been declining I believe for three to four straight quarters. Those downgrades are getting less impactful. So our hope is that that sort of dissipates over the rest of the year and that we can really get this company back to a consistent growth lever rather than a sort of one quarter growth in <unk>.
Speaker Change: Lease later this quarter and then really delivering on the value for our customers. When they are as they are coming back for entitlements and our hope is that that is a sustainable trend. So far we've got a quarter under our belts, where this is come back and our hope is that that's going to be more than a quarter as we move forward, you'll see those things line up and I would say, that's how we lineup for growth coming through the back half.
John Wagner: One quarter, not and Thats our goal.
John Wagner: Yeah.
Speaker Change: And the last question is where are you in the process of working through the access entitlements.
Speaker Change: Well. Thanks I appreciate all the questions guys I want to thank everyone for joining us today.
Speaker Change: There have been creating downward pressure on renewals.
John Wagner: John and I mentioned, we were extremely pleased with the Q2 results coming in above the high end of our guidance across the board. We had a strong first half with meaningful EBITDA growth modest revenue growth on a constant currency basis and delivered on our commitment to generate cash we're excited about the innovations in the customer opportunities on the horizon in the second half here and we're.
Speaker Change: That's the challenging part is working through that just as we were signing up sort of what I would say some international media companies coming back for more entitlements, we still had others hitting the end of their long term contract terms and downgrading for their own actual traffic needs right. They were effectively over bought or oversold coming out of COVID-19 with optimism.
Speaker Change: He used to be raising our guidance, especially given the current market conditions.
Speaker Change: On there their storage and their usage and we've seen those downgrades continue they have been declining I believe for three to four straight quarters. Those downgrades are getting less impactful. So our hope is that that sort of dissipates over the rest of the year and that we can really get this company back to a consistent growth lever rather than a sort of one quarter.
John Wagner: We obviously continue to believe our share price at this level provides a great opportunity for investors and we look forward to updating you on our progress next quarter. Thanks again for joining.
John Wagner: Yeah.
Speaker Change: Growth in one quarter.
Speaker Change: Not and Thats our goal.
Speaker Change: Okay.
Speaker Change: Well. Thanks I appreciate all the questions guys I want to thank you for joining us today.
Speaker Change: As John and I mentioned, we were extremely pleased with the Q2 results coming in above the high end of our guidance across the board.
Speaker Change: We had a strong first half with meaningful EBITDA growth modest revenue growth on a constant currency basis and delivered on our commitment to generate cash we're excited about the innovations in the customer opportunities on the horizon in the second half year, and we're pleased to be raising our guidance, especially given the current market conditions.
Speaker Change: I continue to believe our share price at this level provides a great opportunity for investors and we look forward to updating you on our progress next quarter. Thanks again for joining.
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