Brightcove Inc.

Good afternoon and welcome to Brightcove's fourth quarter and the full fiscal year 2023 earnings presentation. Today, we'll discuss the results announced in our press release issued after the market closed. During today's presentation, we will make statements related to our business that may be considered forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the first fiscal quarter of 2024 and the full year 2024, expected profitability and 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 with words such as we expect, we anticipate, upcoming, or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views 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 effect of macroeconomic conditions currently affecting the global economy. 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 other SEC filings. Also, during the course of today's presentation, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release, issued after market close today, which can be found on our website at www.brightcove.com.

Thank you for joining.

I'm Marc Debevoise, CEO of Brightcove, and with me today is Rob Norick, Brightcove's CFO. We're pleased to be streaming this to you via our video cloud platform to discuss our fourth quarter and full year 2023 results, provide an update on our strategic progress, and share our view on our future. I'll begin with a quick overview of the strong financial results we delivered in Q4, which were above the midpoint of our guidance range. Revenue for Q4 was $50.2 million, up 2% year-over-year and above the midpoint of our guidance. Adjusted EBITDA was $5.5 million, up over 3x year-over-year, delivering our second consecutive quarter of double-digit adjusted EBITDA margins and near the high end of our guidance. And we generated $1.4 million in free cash flow while delivering over $2 million in cash to the balance sheet. I am very pleased we delivered on expectations in Q4, returned the company to top-line growth in the near term, and did that while driving meaningful adjusted EBITDA, adjusted EBITDA margins, and cash flow. Our priority is to continue to focus on the things that we can control. That means first and foremost being disciplined on expenses and generating consistent, substantial adjusted EBITDA and free cash flow. Our Q4 results are a good indication of our inherent scalability and efficiency. Building upon our recent profitability is one of our primary goals for 24. As Rob will detail later, we expect to grow adjusted EBITDA by 25% and convert 40 to 50% of that into free cash flow in 24. We're also pleased to have returned to top line growth in the quarter. Our revenue grew 2% year over year, and revenue excluding overages was even better, up 3% year over year, as overages hit their lowest point since 2012. We believe evaluating our top-line performance excluding overages is the most helpful way for investors to evaluate our progress. Looking at our 2023 performance, there were some clear positive trends for our future. We drove a meaningful increase in new business, up approximately 55% year over year. We did this by delivering larger new deals with average annual contract values on new business up over 200% year over year. We saw continued strength in the Americas, where we are farthest along in executing our strategic priorities. And our success in media was clear with large strategic deals like Yahoo and the NHL, and we believe we can build on that to give in our best of breed solutions. We also saw similar new business strength in enterprise, signing numerous larger new business wins throughout the year, And with more use case specific solutions, we are confident we can grow larger, more strategic customer relationships. We were successful in our move to super serve larger and higher value customers and saw average annual contract values increase 5% year over year and ARPU rise 8% year over year. Lastly, we executed more multi-year deals than ever, up over 25% year over year, which will pay off long term with a more secure recurring revenue base and is demonstrated in our total subscription backlog growth up meaningfully at nearly 20% year-over-year to its highest point in our 20-year history. All of these are great indicators of our value and for our long-term business. And as you can tell, we were especially pleased with our new business performance in 23 and how it validates our focus areas in terms of both product and go-to-market. New business will ultimately be the foundation upon which we build consistent top-line growth over time. We're also seeing growing traction in specific end markets. For example, in Q4, we had strong new business performance in our sports vertical, adding meaningful new logos, including the PGA of America, Moto America, and the Saudi Pro League. Breakup was chosen because we helped these companies scale their streaming capabilities from fan engagement activities all the way to streaming major national and global live events. Our Q4 wins expand our sizable sports customer base. In Q4 alone, in addition to these new logos, we signed renewals our add-on business with the NHL, MLS, F1, and the LPGA. We also support Rogers Communications and Sky Mexico, which are large multi-channel distributors, both of whom renewed or added business with us in this quarter, and many of their executions are in sports as well. I'm excited about our traction here and the potential for our future in this vertical. While new business was strong in 23, overage declines and lower add-on sales were and remain headwinds. Overage declines were one of our largest issues in terms of growth in 23, delivering a $7 million drag to revenue this year. Overages will always be a part of our business, but we believe the steps we've taken to restructure this unpredictable part of our business by bringing contractual entitlements more in line with actual usage and engaging in more multi-year agreements will minimize its risks to our growth going forward. Overage declines are expected to be a much smaller $1 to $2 million headwind in 2024, a meaningful improvement year over year. While lower add-ons were a significant headwind in 23 as well, we are hopeful those will begin to abate over the course of 2024. This hope is based on some early signs of improvement in Q4. We have shifted our focus to developing non-entitlement upgrade paths to drive add-on business in addition to more historically typical entitlement growth. We specifically saw two indicators in Q4. One, more tenured enterprise customers upgrading to Marketing Studio, helping drive ARPU up. And two, some return to entitlement growth from a few larger media customers. While our add-on business is not yet back to year-over-year growth, it was an improvement over recent quarters. While it's challenging to predict how this will exactly play out in 2024, we're optimistic we can build upon these indicators. We believe our focus on developing non-entitlement upgrade paths will help return our add-on business to growth. From the hundreds of add-on and renewal deals in Q4, in addition to the list of sports customers I mentioned, we saw a wide range of media, technology, healthcare, finance, and other large companies adding or renewing business with us. This included media companies like Al Jazeera, the American Motion Picture Association, the Criterion Collection, Reels Channel, Sky New Zealand, Starz, and Tever. Technology companies like Autodesk, Avid, Bose, Broadcom, DocuSign, Palo Alto Networks, Pegasystems, Tableau, a Salesforce company, ServiceNow, and VMware. Healthcare and pharma companies like Cigna, Johnson & Johnson, and Merck, finance companies like Fitch, RBC, Jefferies, and U.S. Bank, and other large companies like Airstream, Cargill, Christie's, Corning, Hydric & Struggles, Subaru, and Subway. Our blue chip customer base is one of our greatest assets, and our goal for 2024 is to continue to serve them well and find the right ways to grow our business with them, entitlement-based and non-entitlement alike. Before I discuss our view on our end markets and priorities for 24, I think it's important to highlight the strategic progress we made to improve our business during 2023. First, we made significant changes to our cost structure. We reduced our annualized expense run rate meaningfully by taking proactive measures to right-size the business. This involved COGS optimizations, operational transformations, and team reductions. Most recently, we took additional actions to reduce costs, including reducing CAD count by approximately 5% at the beginning of Q1 2024. This further aligns our expense structure with our near-term revenue outlook. Second, we built out our senior management team. In Q4, we were thrilled to add Jim Norton as our new chief revenue officer and Kathy Klingler as our new chief marketing officer, and to promote David Beck to the newly created role of chief operating officer. Jim joined us from Flowcode, where he served as CRO and has extensive experience in media, advertising, and marketing technology sales. Kathy most recently was the global head of marketing communications and customer experience for Rapid7. Third, we also made important progress on several of our key strategic growth initiatives. We were pleased with the success we had super serving our largest and most strategic potential customers. Signing and successfully launching Yahoo in the NHL during the year was great validation that our platform has a substantial market opportunity to be a foundational technology for very large streaming entities. We continue to have a meaningful pipeline of these large opportunities in both media and enterprise, and we are an organization that knows how to win and service them well. We also accelerated our product innovation. 2023 was BrightCub's most innovative year in a long time. We successfully launched Calm Studio and Marketing Studio for Enterprise and introduced a number of important solutions for media, including ad monetization, break-up analytics and insights, a new quality of experience solution, and multiple enhancements to our industry-leading video players and play out solutions. Our expanded product portfolio solves a growing number of key business problems facing our customers and provides break-up with more ways to add value. We have now created multiple upgrade paths for our existing customers that will create a powerful expansion motion that will diversify and strengthen add-on sales. We are also now executing and will accelerate on a commitment to an AI-driven future. Our customers entrust us with their video libraries, some of the largest unstructured datasets that exist. This provides us with a unique opportunity to support them with our secure platform to improve their business performance, grow their revenue, and reduce their costs. Today, we are harnessing the power of AI across various parts of our portfolio. These include our analytics and insights platform to help customers make the right content decisions, our Emmy-winning context-aware encoding platform to reduce storage and bandwidth costs for many customers up to 25% to 50%, and our overall video cloud platform to simplify workflows, especially around ingest, metadata creation, and automated smart transcription. We also expanded via partnerships in content production, distribution, and monetization. Signed several important partnerships in 23, ramping up our capabilities in ad monetization, fast, OTT distribution, and enhanced accessibility. In Q4, we also announced an expanded partnership with Social Live, a leading video content creation and production management platform, to further enhance and support our communications and live studio solutions. These partnerships are good examples of how we can quickly expand our product capabilities or sales reach via third parties. Our broad efforts in 23 have made Braco a stronger, more resilient company as we enter 2024. Our confidence in our strategy is driven in large part by the trends in the media and enterprise and markets we serve and the dynamics of streaming overall. Streaming is a dynamic, rapidly evolving, and growing market. Overall streaming usage grew 21% in the US in 23, according to Nielsen, and is poised for continued growth in 24 and beyond. The Summer Olympics and global elections in over 60 countries covering roughly half the world's population will be sizable catalysts for streamers across the globe. And we believe continued expansion in global enterprise usage will add to this as well. In the media market, streaming was the US's core long-form content consumption method in 23, now 10% ahead of each of cable and broadcast. This indicates to us that streaming will be the battlefield for eyeballs in media over the coming decade or more. With big companies, they continue to be hyper-focused on driving streaming profitability, predominantly via content cost reductions and layoffs so far. In 24, we believe they will seek to explore new revenue and cost savings ideas. First, we believe many streamers will continue to transform their go-to-market to include new monetization models like ad tiers, more content modalities, think live versus on-demand, more content types, think entertainment versus sports versus news, and more distribution channels and partnerships, including bundles, packages, and new endpoints. Look no further than the recent joint venture announcement between ESPN, Fox, and Warner Brothers Discovery in sports as a great example of content providers experimenting with new distribution price points and economic models to try to broaden their consumer reach. On the cost side, we believe many will seek more efficiency in programming via optimization through analytics and insights, AI, and data-driven models. We also believe they will look to reduce spending on in-house technology and teams with a view towards outsourcing for efficiency over the long term. Many larger studios now also appear open to license content to others, creating the potential for more new streaming services to be created. And while the news media and Wall Street tend to focus on Netflix and a few larger services as an indicator of the overall streaming market, that's not the whole story. In the US alone, there are over 1,500 streaming channels currently with more growth expected. While multichannel and broadcast models have proven to be more durable in Europe and Asia to date, we expect streaming to expand further across a broader range of countries and regions as well. The large streamers have effectively pulled back on many of their global expansion plans, giving even more opportunity to regional leaders, like our customers, Coupang in Korea, Tever in Japan, Seven Network in Australia, SkyMass in Mexico, and many more who have large and growing streaming businesses in their regions. We believe the leading media companies in each region will have successful streaming plays, as will numerous entities ranging from individual sports leagues and teams, specific niche content services, all the way to the content creators themselves. Shifting to our enterprise markets, the permanence of hybrid or remote work has forever changed internal communications. The future of work will require tools that make it easy to provide compelling and informative content to employees wherever and whenever. Despite many return to office announcements in 23, according to Owl Labs, 33% of U.S. workforce remains hybrid and remote, with a 78% majority reporting they prefer work from home at least one day a week. In-person communications never scaled in large distributed companies, and internal communication programs have notoriously ignored frontline and field workers due to difficulties reaching them. These trends are leading organizations to invest in streaming video platforms both for internal use and for commercial content focused on driving business results. Streaming video is becoming the preferred way for consumers to engage with brands. Executing streaming video content well in a way that drives engagement and ensures a brand's reputation and potentially drives new revenue opportunities is now imperative for most companies. According to Wise Owl, 87% of marketers can directly attribute sales back to their video marketing efforts, with 82% of consumers on the other side reporting having been convinced to buy a good or service by watching a video. Also, according to 2023 Gartner Tech Marketing Benchmark Survey, video was the top asset type in 23 marketing plans and a top performing asset type for generating marketing qualified leads for tech orgs. Streaming video is now a key battlefront for marketers in terms of winning and retaining customers. So we believe the streaming driven business transformation will continue in 24 and beyond. And the technology platform we supply and the use case solutions we have built on top of it are at the forefront of what is supporting that transformation globally. As we look ahead to 24, we have validated our strategy in the market and have a clear view of the areas we need to focus on. Underlying each of our priorities is a sense of urgency and sharp focus on execution. We strongly believe in the ability of this business to perform meaningfully better than it has, and it's on all of us here to deliver that. Our key priorities for 2024 include delivering substantial improvements in profitability, Our guidance calls for 25% growth in adjusted EBITDA year over year. We also expect this adjusted EBITDA growth to translate at 40% to 50% conversion to improved free cash flow. We remain confident we will return to consistent revenue growth, but are cautious on when that will be given the macro environment, market dynamics, and the changes we are implementing across the business. So we believe it is important to generate improved profitability while continuing to invest in certain key growth areas. We are making focused investments in our most promising growth opportunities as well. Last year, we adjusted our sales organization to move to a hunter-gatherer model with certain reps focused on new logo acquisition and others focused on renewals and add-ons. We're now a year into this transformation and better aligned to execute in 24. New business was a clear strength in 23, and we will double down on this. Our investments in targeting the largest accounts have worked well, and this will remain a key focus. We have more work to do with add-ons, but feel very good about our ability to drive improvements. A top priority this year is to build out repeatable and predictable upsell sales motions. We're also still early in scaling and signing revenue driving channel partnerships, but expect to make progress on this area in 24. We are particularly focused in identifying new partners that can help us address the lower end of the enterprise market in a cost efficient manner. We will continue to drive product innovation. We have developed an impressive product development flywheel that leverages our market leadership in video with purpose-built solutions for specific use cases. We expect to build upon the success of Media Communications and Marketing Studio with advancements of features within them and new products for additional use cases alongside them. We will also increase our AI investments to embed more of it into existing solutions and bring more new products to market. We have a vast amount of structured and unstructured data via our management of our customers' video libraries, and also large amounts of contextual data via user engagement with those videos. Brightcove already leverages AI in various ways that I mentioned earlier. Our goals for 24 are to build out and partner for capabilities to advance our customers' businesses through AI, including generative AI solutions that help easily create and speed content creation and publishing, deliver content and advertising optimization tools to drive more revenue, and to continue to advance our storage and delivery capabilities to deliver more cost savings efficiencies. Finally, delivering on our targets. We are laser focused on consistently executing at a high level throughout 2024. We have the team and strategy in place to succeed, and it is on us to deliver a consistent track record of execution. We recognize we need to prove we can do this to our investors, and we intend to. Let me wrap by saying I'm incredibly excited about the opportunity ahead for Brightcove. We have made significant strides in strengthening our products and developing a go-to-market model that can be successful long-term. We are fortunate to be in a large and dynamic market and one we believe we can build more success in going forward. Now, before I hand the call over to Rob to review the numbers, as we described in our earnings release, we are announcing today the beginning of a CFO transition plan. Rob will be stepping down as our CFO by the end of May or earlier, depending on when we name his successor. We have initiated a search and expect to name a successor as soon as possible. Rob has been a highly valued team member of Braco for more than 12 years and nearly six as our CFO. He has been a great business partner to me and our entire team. On behalf of all of us at Braco, I want to thank Rob for all he's done for the company and also for helping us manage a smooth transition to a new CFO this year. So with that, I'm going to turn the call over to Rob for a deeper dive on Q4 and the numbers, and I'll be back for Q&A.