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spk07: Hello, ladies and gentlemen, and thank you for your patience. The call will be getting shortly. The End The End Greetings. Welcome to the Brightcove first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Brian Deneau. Mr. Deneau, you may begin.
spk05: Good afternoon and welcome to BRYCO's first quarter 2021 earnings call. Today we will discuss the results announced in our press release issued after market close. With me on the call are Jeff Ray, BRYCO's chief executive officer, and Rob Nort, BRYCO's chief financial officer. During the call, we will make statements related to our business that may be considered forward-looking and are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. including statements concerning our financial guidance for the second fiscal quarter of 2021 and the full year 2021, expected profitability and positive free cash flow, our position to execute in 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 as the words such as we expect, we anticipate, upcoming, or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations, including the effects of the COVID-19 pandemic on our business operations, as well as its impact on general economic and financial market conditions. For discussion of 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 is updated by our other SEC filings. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation sketch showing GAAP versus non-GAAP results currently available in our press release issued after market closed today, which can be found on our website at www.brightcove.com. In terms of the agenda for today's call, Jeff will provide a summary review of our financial results, an update on our operations, and a review of our strategies. Rob will finish with additional detail regarding our first quarter 2021 results, as well as our outlook for the second quarter and full year 2021. With that, let me turn the call over to Jess.
spk04: Thanks, Brian, and thanks to everyone for joining today. I hope you and your families continue to stay healthy and safe. Video continues to be the most powerful medium to connect people on a global scale. I am so proud of the entire Brightco team and our ability to consistently meet our financial goals while delivering exceptional product innovation and customer experience. We're off to a very strong start to 2021 with record first quarter sales driven by impressive performances in each region. Our performance reflects that video is an essential and rapidly growing technology across both media companies and enterprises. These results reinforce that our strategy is highly relevant and our team is executing. We will continue to invest in innovation to provide the most comprehensive video delivery and optimization platform with solutions to satisfy multiple business use cases. We've created an optimum direct sales engine while building an extensive channel ecosystem, all while ensuring the success of every one of our customers. Turning to a summary of our financial results, for the first quarter, Revenue was $54.8 million, up 18% year-over-year and ahead of our guidance. Adjusted EBITDA was $8.6 million, up 132% year-over-year and well ahead of our guidance. In February, we hosted our inaugural Analyst Day. If you couldn't attend, there is a replay of the event on our Investor Relations website. During this event, we outlined our vision for the future of the market and our strategy for aggressive growth. This included three primary focus areas. First, a focus on innovation. Our goal is to create a highly differentiated platform powered by machine learning and AI to deliver superior video viewing experiences and business performance for our customers. This means broadcast quality reliable and secure video combined with high-performing analytics and purpose-built applications that solve specific business needs across a variety of use cases. Add to this an app community marketplace and our customers will have access to the most comprehensive video solutions for all their internal and external needs. Second, we discussed our expanded go-to-market strategy consisting of a highly scalable global direct sales engagement engine and an indirect selling model leveraging strategic channel partners globally. And third, we outlined our plans for growth of our customer success and renewals teams and how it will positively impact our customers and our retention. I'd like to provide some updates on the most recent progress we've made in each of these key areas. Let's start with technology innovation. Brightco prides itself on being a product driven company focused on solving the most complex customer challenges. Our goal is to deliver broadcast quality video to any device to audiences anywhere in the world in the most reliable and secure way possible. We recently released two new solutions that will deliver significant value for our customers. The first is playback restrictions, which provides customers with the ability to protect their content from being watched by unauthorized users. The Brightcove platform makes video readily available to anyone who should see it and inaccessible to anyone who should not. Whether content is for an internal or external audience, free or monetized, Brightcove playback restrictions provide the right level of security while still allowing viewers to access content from any device anywhere. Playback restrictions ensures that internal content remains confidential and that every view counts towards monetization investments while fully protecting our customers' content and helping maintain brand integrity. We also recently launched Brightco Virtual Events for Business, an intuitive, easy-to-use virtual event solution for highly repeatable mid-sized events. Virtual Events for Business is a virtual event creation marketing and delivery platform designed to easily service the rapidly expanding number of events hosted by organizations. The solution offers customizable event templates, interactive calls to action, post event archiving, multi-device support, and attendee interactivity features, as well as live clipping of event video to multiple social media channels. Additionally, virtual events for business include Zoom and Microsoft Teams integrations, a registration connector for Cvent, and user engagement analytics. Many enterprises are planning for life after COVID and want to continue to maximize the extended reach they have achieved with virtual events over the past year and a half. They recognize that video is an essential tool to connect with audiences across all aspects of their organizations. With Brightco Virtual Events for Business, we've made it simple for enterprises to hold high-volume, repeatable events. Let's turn now to our go-to-market execution and the broad base of customers leveraging video to achieve success across many different use cases. We had a solid sales quarter with several significant wins. Some notable examples include Box Inc., a cloud content management platform that enables organizations to make it easy to access information from anywhere and collaborate with anyone. Box chose Brightco to quickly and efficiently improve its video asset management and to get actionable analytics for its digital marketing team to improve campaign performance. The company also selected Brightco for our technology reputation in the market. They needed a strategic partner who could share insights into how the most successful brands in the industry leverage video to work harder and drive more impactful ROI. Giants Enterprises LLC, more commonly known as the San Francisco Giants, turned to Brightcove when they were looking for new ways to create regular engagement with seasoned ticket holders, casual fans, sponsors, and business partners around the world. With Brightcove, the giants will be able to create and manage several virtual events, both large and small, to interact with these different audiences. We signed a Brightcove beacon win with Multiscreen, the Singapore-based parent for Spool, an OTT provider with 47 million registered users in multiple regions worldwide. Spool originally developed a homegrown do-it-yourself streaming service that had become increasingly costly and complex to maintain as it scaled its business. The Spool team chose Brightco Beacon to significantly reduce costs, accelerate their ability to launch new web, iOS, and Android experiences, and improve customers' viewing experiences. Convini is an innovative and well-known commerce service in South Korea that directly connects famous restaurants with consumers by using short video clips to allow the restaurants to display and explain their food. As its business grew, Konbini chose Brightcove after it recognized its customers' expectations and support needs were not met by its previous streaming video provider. Now, Konbini is reaching more customers on a customized platform and delivering a much improved customer experience with Brightcove. Outside Magazine is an outdoors active lifestyle digital publisher with an extensive library of ad-supported video on-demand content viewed by enthusiasts around the world. After facing performance and quality issues with its previous video platform, Outside selected Brightco for the reliability of the video experience, robust advertising capabilities, strong analytics, playlist support, integration with third-party CMS providers, and excellent customer support services. In the first quarter, we welcomed many other new customers to Brightco, including Akamai Technologies, Nuco, which is a Merck company, GEDi Digital, and Hagerty. Additionally, we are proud of the continued commitment from Little League Baseball Incorporated, EMC Corporation, Tever, Forbes, Intercom Operations, Sephora, and Kraft Heinz, who recently renewed and expanded their contracts with us. We also had another impressive quarter of virtual events powered by Brightco, highlighted by the fantastic success of the, quote, 100% digital, end quote, South by Southwest Online and South by Southwest EDU online events. Using Brightcove, South by Southwest streamed and monetized close to 650 hours of live and pre-recorded content with Brightcove Beacon and our cloud playout technology across five different channels. South by Southwest also provided expanded viewing options that lasted weeks longer than the traditional festival, further extending the reach and impact of its broadcast quality content. After the event concluded, a South by Southwest team member said, quote, Brightco's reputation of leadership in the industry went a long way in achieving buy-in from filmmakers and talent. The video technology enabled us to accommodate the creativity of our creators and audiences. Brightco is more than a vendor, definitely a partner. We are looking forward to doing it again together next year, end quote. As we increase the value we deliver to customers, a growing number of them are becoming passionate advocates for Brightco. As a result, we hosted several virtual events where customers joined us to share their views and experiences with video and the impact it has on a broad range of industries, including Freightways, the Seattle Symphony, Reverie, USA Volleyball, the Vegas Golden Knights, USGA, the Atlanta Symphony, Adobe, and Synopsys. One of the primary investment areas we highlighted during Analyst Day as part of our go-to-market strategy was expanding our partner channel. We made significant progress this past quarter, signing 10 new partners, including several in Europe and Asia, to expand our presence in these regions. Most recently, we announced our partnership with L2, a solution provider for arts and cultural institutions. L2 will integrate Brightcove with Tessitura and Stripe to provide a seamless interface that enables cultural organizations to allow viewers to purchase and stream performances instantly. Over the past year, performing arts and cultural organizations were impacted by the pandemic and stay-at-home orders. These organizations worldwide turned to Brightcove to help reach audiences and monetize their content in a way they have never done before, through video. The L2 partnership extends our reach in this critical market. It demonstrates that cultural organizations recognize video's positive long-term impact and broad audience reach, and that it will be a strategic part of their growth even post-COVID. Scaling our indirect channel is a key strategic priority and the biggest incremental revenue growth opportunity in our business. We are delighted with the progress we have made with the channel and are confident in our ability to substantially increase its sales contribution over the next few years to 30 to 50% of bookings. I'd like to finish by providing an update on our work to develop a best-in-class renewals business. As mentioned on our last call, we appointed a new team to lead our renewals business and implemented a new organizational structure. The team has delivered on several important items in the first quarter, including completing a thorough segmentation of our customers based on their needs and support levels, which allows for more touch points throughout the customer journey, building a community and advocacy program to better connect our customer base. The focus of these community groups is on both product and industry needs, and we already have virtual events scheduled with customers in the coming months. And moving forward, we will allocate additional resources and invest in our customer onboarding process with new programs available to all customers worldwide. We are confident these changes, combined with the strategic priorities I mentioned earlier, will significantly impact our renewals business by making BrightCode an increasingly valuable part of our customers' businesses. We are applying the same principles that we used with our product and go-to-market teams, and we're confident that we will have the same level of success. As I've noted previously, it will take time for the impact of these changes to be apparent, but we expect investors will begin to see sustainable improvement in the second half of this year. I'd like to wrap up by reiterating what an exciting time this is for Brightcove and how proud I am of our team. Video continues to increase in importance for media companies and enterprises, and they are turning to Brightcove as their strategic partner. Our product portfolio is the best it's ever been, and we have an aggressive development roadmap that we believe will enhance the value we deliver for customers. We have an exceptionally strong team showing evidence of execution in all areas of our business. We are in a great position to accelerate revenue growth, expand margins, and create value for our shareholders over time. With that, let me turn the call over to Rob to walk you through the numbers. Rob?
spk03: Thank you, Jeff, and good afternoon, everyone. I will begin with a detailed review of our first quarter, and then I will finish with our outlook for the second quarter and the full year of 2021. Total revenue in the first quarter was $54.8 million, which was above our guidance range. Breaking revenue down further, subscription and support revenue was $50.8 million, and professional services revenue was $4 million. 12-month backlog, which we define as the aggregate amount of committed subscription revenue related to future performance obligations in the next 12 months, was $117.1 million. This represents a 17% year-over-year increase. On a geographic basis, we generated 56% of our revenue in North America during the quarter and 44% internationally. Breaking down international revenue a little more, Europe generated 16% of our revenue, and Japan and Asia Pacific generated 28% of revenue during the quarter. Let me now turn to the supplemental metrics we share on a quarterly basis. Our recurring dollar retention rate in the first quarter was 85%, which was below our target range of low to mid 90s. We had two relatively large media customers that downgraded or did not renew during the quarter. Jeff outlined the progress we have made operationally to improve our renewals performance. There was a natural lag between when these changes are implemented and when they begin to positively impact our retention rate. We expect our retention rate to be under continued pressure in Q2 before we see sustainable improvement in the second half of the year. Our customer count at the end of the first quarter was 3,312, of which 2,273 were classified as premium customers. Looking at our ARPU within our premium customer base, our annualized revenue for a premium customer was $97,000, which was up 15% year-over-year and excludes our entry-level pricing for starter customers, which averaged $4,300 in annualized revenue. Looking at our results on a GAAP basis, our gross profit was $35.6 million, operating income was $6.1 million, and net income per share was 12 cents for the quarter. Turning to our non-GAAP results, our non-GAAP gross profit in the first quarter was $36.2 million, compared to $28.8 million in the year-ago period, and represented a gross margin of 66%, which was up nicely from 62% in the first quarter of 2020. Subscription and support revenue represented approximately 93% of our total revenue and generated a 70% gross margin in the quarter, compared to a 64% gross margin in the first quarter of 2020. Non-GAAP income from operations was $7.2 million in the first quarter, compared to $2.3 million in the first quarter of 2020. Adjusted EBITDA was $8.6 million in the first quarter, compared to $3.7 million in the year-ago period, and above the high end of our guidance range for the quarter. Adjusted EBITDA margin was 16% in the quarter, an all-time high, investing in our key growth areas while improving our profitability as an important part of our strategy, and we are pleased with the progress we have made to date. Non-GAAP diluted net income per share was 15 cents, based on 42.5 million weighted average shares outstanding. This compares to net income per share of $0.04 on 39.4 million weighted average shares outstanding in the year-ago period. Turning to the balance sheet and cash flow, we enter the quarter with cash and cash equivalents of $35.2 million. We used $604,000 in cash flows from operations, and free cash flow was a negative $2.1 million. After taking into account $1.5 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 2021. For the second quarter, we are targeting revenue of $49.5 million to $50.5 million, including $1.5 million of overages and approximately $2.7 million of professional services revenue. From a profitability perspective, we expect non-GAAP operating income to be $1 million to $2 million, and adjusted EBITDA to be between $2.4 million and $3.4 million. Non-GAAP net income per share is expected to be in the range of 2 cents to 4 cents based on 42.9 million weighted average shares outstanding. As a reminder, our revenue guidance reflects the retention dynamics in the first quarter I discussed earlier. We expect quarterly subscription revenue to return to sequential growth starting in the third quarter. For the full year, we are maintaining our previous guidance. We continue to target revenue of $211 million to $217 million, including $6 million of overages and approximately $12.5 million of professional services revenue. From a profitability perspective, we expect non-GAAP operating income of $20 million to $25 million and adjusted EBITDA to be between $25.5 million and $30.5 million. Non-GAAP net income per share is expected to be in the range of $0.43 to $0.54, based on 43.1 million weighted average shares outstanding. For the full year, we are now targeting free cash flow of $15.5 million to $20.5 million. The reduction in our cash flow guidance is primarily driven by the weakening Japanese yen. To wrap up, BRYCO delivered another strong performance in the first quarter. We are executing well against our strategic priorities and increasing the value we deliver to our customers. We believe this positions us well to drive even better top and bottom line performance as we continue making progress towards our goal of being a Rule of 40 company. With that, we will now take your questions. Operator, we are ready to begin Q&A.
spk07: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press SARB1 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 keys. Our first question is from Mike Lattimore with Northland Capital Markets. Please proceed with your question.
spk06: Thanks. Yeah. Congratulations on the great start to the year here. Thanks, Mike. Let's see. I think last quarter you said you would expect about, I think it was 3.1 million of revenue churn this year. Is that still roughly what you're thinking about?
spk03: Yeah, I think that was, we called that out specifically to two customers that we knew were churning. The reality is in the first quarter, it was a little bit heavier than that. But as we said in the prepared remarks, as we go forward in the year, we expect that in Q3 we'll return to quarter-over-quarter sequential growth on the subscription revenue.
spk06: Got it. And then maybe any comment on bookings? I think last quarter you said there was a record bookings quarter. How are bookings in first quarter relative to, say, normal first quarter bookings?
spk03: Yeah, it was actually our best first quarter ever from a booking standpoint.
spk06: Great. And then from a channel standpoint, I think you did 20% last quarter. How did the channel perform this quarter?
spk03: So we saw good traction in terms of the number of channel partners that we signed. We talked about in the script that we signed about 10 new channel partners, but we were a little bit down quarter over quarter in terms of the percentage of business that rolled through the channel. As we look at that, though, it's not indicative of where we see the channel going. We continue to see the channel driving 30% to 50% of our new bookings in the future.
spk06: Great. And then just last, on virtual events, any just sort of qualitative commentary on the demand or the pipeline you're seeing there?
spk04: Hey, it's Jeff. How are you doing, Mike? Hi, Jeff. Good. Demand's solid, and as we talk to customers, there's no discussion about, well, when we come out of COVID, we're going to just go back to live events. We're not going to do virtual events anymore. We continue to see interest in making this part and parcel to what they do, and in fact, that's why we announced the new virtual events for business. We found that we were overly complicating things. This is one of the dangers of having things you know, media quality broadcast quality technologies. It can be kind of overwhelming when we go in to talk to the CMO or someone on the CMO staff about events. And so we said, let's, let's make this a lot simpler, easier to understand. Let's bundle this in a way that they can easily consume it. And it also lets us go after a little bit more of the mid market business. So we're feeling good about, about where we are with that. We also have a pretty aggressive product, uh, pipeline in terms of new features and enhancements that the product team's committed to so we know what we need to do to enhance the functionality of the features. We also have a great partner community that rounds out the kit. So where there are gaps that we can't fill, we have great partners that are stepping in to do that.
spk06: Great, great. Sounds good. Good luck this year.
spk04: Hey, thanks. Off and running. Thanks, Mike.
spk07: Thank you. Our next question is from Steven Frankel with Collier. You may proceed with your question.
spk02: Good afternoon. Rob, can we just start and get a little more clarity on this retention issue? You had telegraphed the two customers that were going away in Q2 leading to that sequential down tick. So are we to read into the Q1 number? There were some other customers that turned off as well in Q1?
spk03: Yeah, that's right. And I talked about that in the script where there were actually two additional media customers, one of which downgraded in a similar situation to NH4 last year when they brought a portion of the business in-house, and one of which was actually a consolidation on platforms within a company at post-merger.
spk02: Okay. And then we have two more to go through in Q2. And then as you look at your portfolio of media customers. Do you think you're through a lot of this churn or is this something that is just the nature of the beast with media consolidation and you're going to have to deal with this going forward?
spk04: This is Jeff. Hey, Stephen. Yeah, there's certainly churn in media. I mean, you see it every day, right? You saw what Verizon announced today. But I'm excited about the way we're getting control of this, for the things that we can control. We had sent a message to everybody last summer that we were going to really address renewals from the ground up and across, and we've done that. We are now fully deployed with the new renewal strategy, new organization model, new people in leadership roles, new processes. Much more precision in tracking out a rolling 12-month risk assessment of our largest customers, be it enterprise or media, so that we do a better job of anticipating and predicting that and heading that off in the past. Better use of technology and best practices. And as Rob said, we expect that while we're excited about where the team is in their progress against the plan, we don't see this really helping us until the second half of the year.
spk02: Okay. And then ARPU was surprisingly strong given last quarter was boosted by that Japanese one-time event. Do we contribute the sequential strength to South by Southwest or you're just doing a good job of kind of selling a larger initial package
spk03: Yeah, Steve, it really wasn't South by Southwest. South by Southwest bought more of a kind of annual license. They didn't really buy just for the short period of the event because they launched that on Beacon. There's the follow-on content and follow-on access to that content. So that revenue didn't all take place in Q1. What you saw in the first quarter was continued growth in kind of those initial new deals, but also expansion with our current customers.
spk02: Okay, great. That's a healthy sign. And then give us some color on the margin pressure in Q2. Obviously, yes, you've got the revenue step down in the subscription and support side, but there is a lot of margin pressure there, maybe more than I would have thought. What's behind that in Q2?
spk03: I think there's two things. One is obviously the revenue step down. We're not pulling back on operating expenses in the second quarter in line with that. And the second piece is we're continuing to invest in sales and marketing. We see the opportunity in front of us and we're continuing to make those investments so we can capitalize on that.
spk02: Okay.
spk03: And then lastly, what were overages in the quarter? Overages were right around $2.2 million.
spk02: Thank you.
spk04: Thank you. Thank you.
spk07: Our final question is from Eric Martinuzzi with Lake Street Capital Markets. Please proceed with your question.
spk01: Yeah, I wanted to dive into the additional turnover or churn issues that you talked about for Q1. I understand, you know, you have a downgrade and somebody takes it in-house, but just wondering on the platform consolidation, was that consolidating to an in-house platform also or was that a consolidating to a competitor's platform?
spk03: Yeah, it was consolidating to a mix of platforms across. It was a joint OTT and then some video delivery. So it was consolidating to really a competitor, not an in-house platform. And again, it was around one company had two platforms and the parent company one.
spk01: Okay. All right. And then as I look at the kind of implied for 2021 just backing off the services guidance from the full year guidance and then knowing that we're going to kind of trough here in Q2 on the subscription and then raise our head back up in Q3. It does look like a pretty substantial implied step up. I'm wondering that guidance that you've got, does that, you know, as we decline here in Q2, do we spread that subscription step up kind of equally across quarters, or does it kind of pop back up in Q3 and maintain?
spk03: Yeah, I would think you would see a relatively consistent step from Q2 to Q3 and then Q3 to Q4. Okay.
spk01: And then when you talk, I think, Jeff, you may have touched on this, but we're talking about virtual events for business for virtual event creation. And I think last summer you had a product or a capability platform, whatever the terminology, virtual event experiences. Is that what you mean? This is kind of a templates version of that same product that came out a year ago that was more of a toolbox?
spk04: This makes it just easier to buy it and to deploy it. We've done enough of these now to know where the sweet spot is. We also know where our partners' products do a great job of augmenting where our gaps are. And so we're just collectively taking that experience and putting it together. Also, this time around, I think we've just got a stronger marketing organization that knows how to use better precision in targeting customers. those CMOs and those businesses that will find this attractive. So it's that collective experience and applying that, knowing kind of where this market is headed. And again, in addition to this, serious investment from R&D and engineering in continuing to add more functionality and features in the products.
spk01: Okay. All right. I appreciate the answers there. Thanks for taking my questions.
spk04: Hey, thank you, Eric. Thanks, Eric.
spk07: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Jeff Ray for closing remarks.
spk04: Thank you. Again, boy, what a great quarter. It was a lot of fun seeing everything come together. We know we still have some challenges in renewals. We recognized that last summer, and I believe we're well on the path to resolving that. And while I've talked a lot about the things we're doing in renewals team, I just will remind you that there are four legs to this stool as we fix this. It's more than just building out a much, much stronger renewals team and process. It's also continued aggressive investment in enterprise class applications that have specific solutions that solve specific business problems. Those are naturally more sticky. Also expanding the app developer community because the platform is built on open APIs and we offer SDKs. That makes it very easy to go out and recruit app developers who extend what we do and ultimately make the products more sticky. And then finally, you'll just start seeing a whole lot more later this year about the investments that we're making in data analytics and machine learning so that particularly our media companies, every month we'll get more and more valuable actionable data from their use of our video. So we feel great about the year. I'm proud of what the team has done. And for us, it's back to business. Thank you, everyone, and continue to stay safe.
spk07: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.
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