Brightcove Inc.

Good afternoon and welcome to Brightco's second quarter 2024 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 as amended and including statements concerning our financial guidance for the third fiscal quarter of 2024 and the full year 2024, expected revenue, profitability, and free cash flow, our position to execute on our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain and upsell existing customers, 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 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 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 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.brightcove.com.

Thank you all for joining us today. I'm Mark Debevoise, CEO here at Bright Cove, and with me today is Bright Cove CFO John Wagner. As always, we're pleased to be streaming this 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. While 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. This was especially strong given we shifted our standard merit pay increases this year to Q2 versus Q1 in 2023. I'm pleased by our ability to exceed our guidance for Q2 across the board, including another strong profitability quarter. I'm also 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. Revenue in the first half was flat year over year, but on a constant currency basis, revenue actually grew roughly a million dollars 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 impacts 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 and 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 and the year-ago quarter. And average add-on deal sizes were the largest they've been in six quarters. This helped deliver record ARPU again this quarter at $99,000. This was all driven by strong upsell and cross-sell 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. This isn't broad-based yet, and we still have other customers going through entitlement downgrades to right-size 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 downsell 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 and signing some nice wins with Marketing Studio, Communication Studio, and also now with a new sales use case. We are still relatively early in widely selling some of these newer offerings. Overall, Q2 was a net positive in 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, we did find that the new business environment was more challenging this quarter as it progressed. Customer 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. This is most notable amongst our larger potential customers. While 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 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 is a core focus for us, and we believe we have a number of levers to deliver that outcome. 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. 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. That is just the beginning of 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 encoding. 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 Canela, Reels, TV Asahi, TVB, TVer, Virgin Media, Media 24, Seven Networks, Sky Mexico, Coupang, Gaia, Tele-Quebec, and TV New Zealand. One media win I would like to highlight was an important multi-year, nearly seven-figure annual new business, new customer deal with a North American television network who is replacing a significant portion of its existing video tech delivery stack with Brightcove. 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. We expect to see more opportunities in this part of the market going forward. Additionally, we closed deals with content brands like BBC Studios, Dead Bar Mercury, United World Wrestling, and Jukin Media. We also had a number of renewals and add-ons that continued our success in sports, including Raycon Sports Atlantic Coast Conference, Wimbledon, the ATP Tour, PGA of America, Formula E, Canadian Football League, and Japanese sports streaming leader, Undo Tushin. 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. 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. There are also three recent customer go-lives that are great examples of the broader opportunity we see in the media streaming market. JCOM, the largest cable company in Japan, recently launched its newest streaming service, JCOM's Animal Watch, which broadcasts content from across Japan's zoos and aquariums to its millions of subscribers. JCOM is a big media company expanding with alternative ideas, and this concept represents a number of additional growth opportunities for us over time. FrightPix, a new free AVOD streaming service focused on horror, thriller, and true crime, successfully launched on Brightcove's platform as well. This is a great example of how independent media companies can meet the demand for specialized content with a top-tier viewing experience from Brightco much faster and for less money than building it on their own. Sunstream, a new streaming service offering family-friendly movies, music, and educational content, also launched on Brightco. Sunstream was drawn to our ability to provide an intuitive, personalized viewer experience and best-in-class analytics that will enable them to make it easier for their customers to find the content they love. Both Sunstream and FrightPix are great examples of that next set of streaming providers we often talk about that will become more important as the streaming industry matures. In the enterprise space, we also signed a meaningful set of new add-on and renewal deals with B2B software companies like Acquia, AMD, Autodesk, Broadcom, DocuSign, HP, Palo Alto Networks, and ServiceNow. Consumer and retail customers like Nestle, Longchamp, and Cars.com. Healthcare companies like Express Scripts, Blue Cross Blue Shield, and Pfizer. financial and business services companies like McKinsey, Invesco, E&Y, RBC, and Temasek, and the public sector and nonprofit and educational customers like the 9-11 Memorial and Museum, APAC, the Paley Center, Oxford University Press, Kaplan, and then other sizable enterprises including Airstream, Chevron, Marriott, and Havas. From a product perspective, there were two interesting wins in the quarter that were excellent examples of our evolution into a true engagement leader and business driver for enterprises. These examples also demonstrate how we can revamp and redeploy existing product capabilities to address new use cases. I like to think of it as leveraging our horizontal platform capabilities, but with use case specific and vertical solutions to deliver value for enterprises. This expands our market opportunity and is a highly efficient way to leverage our investment in R&D. The first example is a win with Palo Alto Networks. They are a long-time Brightcove customer that is expanding its thought leadership capabilities by launching Palo Alto Networks TV, which is built on our brightcove.tv offering previously called Corp TV. 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 B2B and B2C marketing, always on to engage their target audiences more deeply. The second is a sizeable win with a longtime global real estate services customer that recently engaged us to enable their nearly 30,000 agents and affiliates to send personalized and branded videos at scale to elevate and promote their luxury home portfolio in a unique and differentiated way. 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. 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. It's effectively a new sales use case similar to marketing or communication studio today. 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 this sales use case. Our go-to-market teams are seeing momentum with this capability and beginning to offer it across other verticals, as I previously mentioned. This vertical use case specific approach is 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. While 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. Continued innovation is foundational to our success and is a significant reason why Brightfield is the most trusted streaming technology company and engagement leader for enterprises. The latest validation of our technical strength was Braco being named a leader in Aragon Research's 2024 Research Globe for Enterprise Video for the third consecutive year. And we're not stopping. We have innovated and thrived 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. 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 and AI is customer-driven and focused on how we can drive growth and opportunity for them, be it engagement, audience, or revenue, and increase their efficiency, be it in cost or time savings. Our differentiation will be in AI being straightforward and being integrated into our video cloud platform and also continuing to integrate our platform with our customers' other related systems. In keeping our customers' data and content secure and only included in the backend engines they approve. In utilizing best-in-class partners for the backend engines and keeping the customer interaction in our platform, effectively securing our role at the app layer. and using the data we have to predict outcomes with our insights engine and then automating those actions for our customers. I'm excited to say we now have beta products in flight 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. 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. 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. 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. We are highly focused on the things we can control and positioning the business to return to consistent revenue growth and further margin expansion. While 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. And with that, let me turn things over to John to walk through the financials and our guidance in more detail. John?

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. Total revenue in the second quarter was $49.2 million, above the high end of our guidance range and down 3% year over year. 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. 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. Twelve-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. 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. On a geographic basis, we generated 61% of our revenue in North America in the quarter and 39% internationally. Breaking down international revenue a bit more, Europe generated 17% of revenue, and Japan and Asia Pacific generated 22% of revenue in the quarter. Turning to the supplemental metrics we share on a quarterly basis, 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 in entitlements at contract renewal, especially with our longer-duration contracts that originated during the pandemic. 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 multi-year agreements, both of which meaningfully improve our dollar retention. Net revenue retention rate, which provides a more complete view of year-over-year revenue retention, including the benefit of our growing multi-year customer commitments, was 93% in the quarter, which compares to 92% in the previous quarter and 95% in the second quarter of 2023. On a constant currency basis, net revenue retention was 94% in both quarters. Retention is benefiting in part from our growing mix of multi-year commitments. Our customer count at the end of the second quarter was 2,444, of which 1,958 were classified as premium customers. Looking at our ARPU within our premium customer base, our annualized revenue for premium customer was a record $99,000 and excludes our entry-level pricing for starter customers, which averaged $4,800 in annualized revenue. Though we don't expect ARPU to always increase in a linear manner as it has in recent quarters, we do think strong ARPU 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. 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. Operating loss was $5 million, and net loss per share was 12 cents, based on 44.7 million weighted average shares outstanding. 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. Non-GAAP operating loss was $477,000 in the second quarter compared to non-GAAP operating income of $537,000 in the second quarter of 2023. Adjusted EBITDA was $3.8 million, representing an adjusted EBITDA margin of 8% and above the high end of our guidance range. The ongoing strength in adjusted EBITDA reflects our continued benefit of prior cost-saving actions and our ongoing expense disciplines. Non-GAAP diluted net loss per share was 2 cents based on 44.7 million weighted average shares outstanding. This compares to net income per share of 1 cent based on 43.1 million weighted average shares outstanding in the year-ago period. Turning to the balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $24.2 million and remained debt-free. 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. I'll finish by providing our guidance for the third quarter and the full year 2024. For the third quarter, we are targeting revenue of between $48 and $49 million, including approximately $800,000 of overages and approximately $1.8 million of professional services revenue. From a profitability perspective, we expect non-GAAP operating loss to be between $2 and $1 million and positive adjusted EBITDA to be between $2.5 and $3.5 million. Non-GAAP net income per share is expected to be in the range of a loss of 5 cents to 3 cents based on 45 million weighted average shares outstanding. For the full year, we are increasing our revenue guidance to $195.5 to $198 million, which includes an estimate of approximately $4 million of overage revenue and approximately $8 million of professional services revenue. This reflects our strong first half performance and absorbs the FX headwind from the first half of the year. We are increasing our full-year guidance from a profitability perspective and expect non-GAAP operating expense to be between $2.5 and $1 million and positive adjusted EBITDA to be between $14.5 and $16 million based on our continued commitment to our top-line guidance as well as our commitment to manage the business to 20% to 30% EBITDA growth or more. Non-GAAP loss per share is expected to be in the range of $0.08 to $0.05, based on 44.7 million weighted average shares outstanding. Lastly, we are maintaining our full-year free cash flow guidance, which is expected to be between $5.6 and $8 million. 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. 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. Though 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. Despite this first-half FX headwind, we are raising the low end of all of our full-year guidance ranges. 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. We're focused on executing on our key strategic areas that we expect will return the business to consistent revenue growth in the future. 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. Please give us a moment to transition to Q&A, and we'll be back to discuss our results further. And our first question will come from Max Michaelis with Lake Street Capital Markets.