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Brightcove Announces Financial Results for Third Quarter Fiscal Year 2018

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Brightcove
Inc.
(NASDAQ:BCOV), the leading provider of cloud services for
video, today announced financial results for the third quarter ended
September 30, 2018.

"Brightcove made continued progress in the third quarter on the
strategic priorities that we believe will return the company to strong
levels of consistent growth and profitability. In the near-term, the
positive changes we are making to our product development, demand
generation and go-to-market efforts caused some modest disruption to
sales," said Jeff Ray, Brightcove's chief executive officer.

Ray continued, "We have completed a thorough review of our end markets
and identified several sub-segments that are all exhibiting strong
growth and an increased interest in deploying video to drive better
business performance. We are now tightly aligning our product, demand
generation and sales efforts in these areas. We are confident our
strategy will deliver meaningfully improved financial results and
generate significant value for shareholders."

Third Quarter 2018 Financial Highlights:

  • Revenue for the third quarter of 2018 was $41.1 million, an
    increase of 4% compared to $39.5 million for the third quarter of
    2017. Subscription and support revenue was $37.4 million, compared to
    $36.5 million for the third quarter of 2017.
  • Gross profit for the third quarter of 2018 was $24.8 million,
    representing a gross margin of 60% compared to a gross profit of $23.0
    million for the third quarter of 2017. Non-GAAP gross profit for the
    third quarter of 2018 was $25.4 million, representing a non-GAAP gross
    margin of 62%, compared to a non-GAAP gross profit of $23.7 million
    for the third quarter of 2017. Non-GAAP gross profit and non-GAAP
    gross margin exclude stock-based compensation expense and the
    amortization of acquired intangible assets.
  • Loss from operations was $3.1 million for the third quarter of
    2018, compared to a loss from operations of $5.3 million for the third
    quarter of 2017. Non-GAAP loss from operations, which excludes
    stock-based compensation expense, the amortization of acquired
    intangible assets and executive severance, was $607,000 for the third
    quarter of 2018, compared to non-GAAP loss from operations of $2.2
    million during the third quarter of 2017.
  • Net loss was $3.5 million, or $0.10 per diluted share, for the
    third quarter of 2018. This compares to a net loss of $5.4 million, or
    $0.16 per diluted share, for the third quarter of 2017. Non-GAAP net
    loss, which excludes stock-based compensation expense, the
    amortization of acquired intangible assets and executive severance,
    was $968,000 for the third quarter of 2018, or $0.03 per diluted
    share, compared to non-GAAP net loss of $2.2 million for the third
    quarter of 2017, or $0.06 per diluted share.
  • Adjusted EBITDA was $575,000 for the third quarter of 2018,
    compared to an adjusted EBITDA loss of $889,000 for the third quarter
    of 2017. Adjusted EBITDA excludes stock-based compensation expense,
    executive severance, the amortization of acquired intangible assets,
    depreciation expense, other income/expense and the provision for
    income taxes.
  • Cash flow used in operations was $488,000 for the third quarter
    for 2018, compared to cash flow used in operations of $4.9 million for
    the third quarter of 2017.
  • Free cash flow was negative $1.6 million after the company
    invested $1.1 million in capital expenditures and capitalization of
    internal-use software during the third quarter of 2018. Free cash flow
    was negative $6.2 million for the third quarter of 2017.
  • Cash and cash equivalents were $26.9 million as of September
    30, 2018 compared $27.5 million at June 30, 2018.

A Reconciliation of GAAP to Non-GAAP results has been provided in the
financial statement tables included at the end of this press release. An
explanation of these measures is also included below under the heading
"Non-GAAP Financial Measures."

Other Third Quarter and Recent Highlights:

  • Average annual subscription revenue per premium customer was $74,000
    in the third quarter of 2018, excluding starter customers who had
    average annualized revenue of $4,600 per customer. This compares to
    $73,000 in the comparable period in 2017.
  • Recurring dollar retention rate was 94% in the third quarter of 2018,
    which was in line with our historical target of the low to mid-90
    percent range.
  • Ended the quarter with 3,867 customers, of which 2,227 were premium.
  • New customers and customers who expanded their relationship during the
    quarter include: FM Global, 3M, University of Kansas Hospital
    Authority, Smithfield Foods, Barstool Sports, Quebecor, Pop Media
    Networks, LLC, ODK Media, Inc., Gaia, David Yurman, Mary Kay, H&M, San
    Francisco Ballet, The National September 11 Memorial & Museum, and
    Village Roadshow Australia, among others.
  • Frost & Sullivan recognized Brightcove with its 2018 Global Company of
    the Year Award. Our robust platform offering, brand reputation and
    expanding global footprint were noted as giving Brightcove a distinct
    edge in the highly fragmented OVP market.
  • Brightcove Context Aware Encoding won a CSI Award at the recent
    International Broadcasters Conference for best digital processing
    technology. This patent-pending technology was recognized as the
    fastest, most innovative approach to solving the complex problem of
    video delivery and beat out AWS' Elemental technology, among others.
  • The Technology Services Industry Association recognized Brightcove as
    a Certified Staff Support Excellence Center for the 5th year in a row.
    This award recognizes Brightcove's dedication to excellence and the
    unparalleled commitment the company makes to ensure a best-in-class
    experience for every customer, on every inquiry.

Business Outlook

Based on information as of today, November 1, 2018, the Company is
issuing the following financial guidance:

Fourth Quarter 2018:

  • Revenue is expected to be in the range of $41.0 million to
    $41.5 million, including approximately $3.3 million of professional
    services revenue.
  • Non-GAAP loss from operations is expected to be in the range of
    $500,000 to $1.0 million, which excludes stock-based compensation of
    approximately $1.7 million and the amortization of acquired intangible
    assets of approximately $400,000.
  • Adjusted EBITDA is expected to be in the range of $200,000 to
    $700,000, which excludes stock-based compensation of approximately
    $1.7 million, the amortization of acquired intangible assets of
    approximately $400,000, depreciation expense of approximately $1.2
    million and other income/expense and the provision for income taxes of
    approximately $300,000.
  • Non-GAAP net loss per diluted share is expected to be $0.03 to
    $0.04, which excludes stock-based compensation of approximately $1.7
    million and the amortization of acquired intangible assets of
    approximately $400,000, and assumes approximately 36.6 million
    weighted-average shares outstanding.

Full Year 2018:

  • Revenue is expected to be in the range of $165.0 million to
    $165.5 million, including approximately $14.0 million of professional
    services revenue.
  • Non-GAAP loss from operations is expected to be in the range of
    $2.9 million to $3.4 million, which excludes stock-based compensation
    of approximately $6.7 million, executive severance of approximately
    $1.2 million and the amortization of acquired intangible assets of
    approximately $2.3 million.
  • Adjusted EBITDA is expected to be in the range of $1.0 million
    to $1.5 million, which excludes stock-based compensation of
    approximately $6.7 million, executive severance of approximately $1.2
    million, the amortization of acquired intangible assets of
    approximately $2.3 million, depreciation expense of approximately $4.4
    million and other income/expense and the provision for income taxes of
    approximately $1.1 million.
  • Non-GAAP net loss per diluted share is expected to be $0.12 to
    $0.13, which excludes stock-based compensation of approximately $6.7
    million, executive severance of approximately $1.2 million and the
    amortization of acquired intangible assets of approximately $2.3
    million, and assumes approximately 35.8 million weighted-average
    shares outstanding.

Conference Call Information

Brightcove will host a conference call today, November 1, 2018, at 5:00
p.m. (Eastern Time) to discuss the Company's financial results and
current business outlook. A live webcast of the call will be available
at the "Investors" page of the Company's website,
http://investor.brightcove.com
. To access the call, dial
877-407-3982 (domestic) or 201-493-6780 (international). A replay of
this conference call will be available for a limited time at
844-512-2921 (domestic) or 412-317-6671 (international). The replay
conference ID is 13683410. A replay of the webcast will also be
available for a limited time at
http://investor.brightcove.com
.

About Brightcove

Brightcove
Inc.
(NASDAQ:BCOV) is the leading global provider of powerful cloud
solutions for managing, delivering, and monetizing video experiences on
every screen. A pioneering force in the world of online video since the
company's founding in 2004, Brightcove's award-winning technology,
unparalleled services, extensive partner ecosystem, and proven global
scale have helped thousands of companies in over 70 countries achieve
better business results with video. To learn more, visit www.brightcove.com.

Forward-Looking Statements

This press release includes certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995,
including statements concerning our financial guidance for the fourth
fiscal quarter of 2018 and full year 2018, our position to execute on
our growth strategy, and our ability to expand our leadership position
and market opportunity. These forward-looking statements include, but
are not limited to, plans, objectives, expectations and intentions and
other statements contained in this press release that are not historical
facts and statements identified by words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" or
words of similar meaning. These forward-looking statements reflect our
current views about our plans, intentions, expectations, strategies and
prospects, which are based on the information currently available to us
and on assumptions we have made. Although we believe that our plans,
intentions, expectations, strategies and prospects as reflected in or
suggested by those forward-looking statements are reasonable, we can
give no assurance that the plans, intentions, expectations or strategies
will be attained or achieved. Furthermore, actual results may differ
materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors that are beyond our
control including, without limitation: our history of losses; our
limited operating history; expectations regarding the widespread
adoption of customer demand for our products; the effects of increased
competition and commoditization of services we offer, including data
delivery and storage; our ability to expand the sales of our products to
customers located outside the U.S.; keeping up with the rapid
technological change required to remain competitive in our industry; our
ability to retain existing customers; our ability to manage our growth
effectively and successfully recruit additional highly-qualified
personnel; the price volatility of our common stock; and other risks set
forth under the caption "Risk Factors" in our most recently filed Annual
Report on Form 10-K, as updated by our subsequently filed Quarterly
Reports on Form 10-Q and our other SEC filings. We assume no obligation
to update any forward-looking statements contained in this document as a
result of new information, future events or otherwise.

Non-GAAP Financial Measures

Brightcove has provided in this release the non-GAAP financial measures
of non-GAAP gross profit, non-GAAP gross margin, non-GAAP income (loss)
from operations, non-GAAP net income (loss), adjusted EBITDA and
non-GAAP diluted net income (loss) per share. Brightcove uses these
non-GAAP financial measures internally in analyzing its financial
results and believes they are useful to investors, as a supplement to
GAAP measures, in evaluating Brightcove's ongoing operational
performance. Brightcove believes that the use of these non-GAAP
financial measures provides an additional tool for investors to use in
evaluating ongoing operating results and trends and in comparing its
financial results with other companies in Brightcove's industry, many of
which present similar non-GAAP financial measures to investors. As
noted, the non-GAAP financial results discussed above of non-GAAP gross
profit, non-GAAP gross margin, non-GAAP income (loss) from operations,
non-GAAP net income (loss) and non-GAAP diluted net income (loss) per
share exclude stock-based compensation expense, the amortization of
acquired intangible assets and executive severance. The non-GAAP
financial results discussed above of adjusted EBITDA is defined as
consolidated net income (loss), plus stock-based compensation expense,
the amortization of acquired intangible assets, executive severance,
depreciation expense, other income/expense, including interest expense
and interest income, and the provision for income taxes. Executive
severance represents severance paid to the former interim CEO of the
company as well as former key executives. Non-GAAP financial measures
have limitations as an analytical tool and should not be considered in
isolation from, or as a substitute for, financial information prepared
in accordance with GAAP. Investors are encouraged to review the
reconciliation of these non-GAAP measures to their most directly
comparable GAAP financial measures. As previously mentioned, a
reconciliation of our non-GAAP financial measures to their most directly
comparable GAAP measures has been provided in the financial statement
tables included below in this press release. The Company's earnings
press releases containing such non-GAAP reconciliations can be found on
the Investors section of the Company's web site at http://www.brightcove.com.

   
Brightcove Inc.
Condensed Consolidated Balance Sheets
(in thousands)
   
 
September 30, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 26,855 $ 26,132
Accounts receivable, net of allowance 24,040 25,236
Prepaid expenses and other current assets   11,871     7,036  
Total current assets 62,766 58,404
Property and equipment, net 10,153 9,143
Intangible assets, net 6,340 8,236
Goodwill 50,776 50,776
Deferred tax asset 87 87
Other assets   2,288     969  
Total assets $ 132,410   $ 127,615  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,041 $ 6,142
Accrued expenses 15,065 13,621
Capital lease liability 154 228
Equipment financing - 26
Deferred revenue   39,516     39,370  
Total current liabilities 59,776 59,387
Deferred revenue, net of current portion 278 244
Other liabilities   1,117     1,228  
Total liabilities 61,171 60,859
 
Stockholders' equity:
Common stock 37 35
Additional paid-in capital 249,176 238,700
Treasury stock, at cost (871 ) (871 )
Accumulated other comprehensive loss (998 ) (809 )
Accumulated deficit   (176,105 )   (170,299 )
Total stockholders' equity   71,239     66,756  
Total liabilities and stockholders' equity $ 132,410   $ 127,615  
 
       
Brightcove Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Revenue:
Subscription and support revenue $ 37,442 $ 36,496 $ 113,176 $ 106,266
Professional services and other revenue   3,679     2,991     10,793     9,546  
Total revenue 41,121 39,487 123,969 115,812
Cost of revenue: (1) (2)
Cost of subscription and support revenue 13,142 12,924 39,723 38,180
Cost of professional services and other revenue   3,176     3,580     10,424     10,120  
Total cost of revenue   16,318     16,504     50,147     48,300  
Gross profit   24,803     22,983     73,822     67,512  
Operating expenses: (1) (2)
Research and development 8,314 7,820 23,832 24,293
Sales and marketing 14,009 14,551 42,508 44,356
General and administrative   5,621     5,961     18,056     17,228  
Total operating expenses   27,944     28,332     84,396     85,877  
Loss from operations (3,141 ) (5,349 ) (10,574 ) (18,365 )
Other (expense) income, net   (217 )   71     (427 )   523  
Net loss before income taxes (3,358 ) (5,278 ) (11,001 ) (17,842 )
Provision for income taxes   144     118     410     305  
Net loss $ (3,502 ) $ (5,396 ) $ (11,411 ) $ (18,147 )
 
Net loss per share—basic and diluted $ (0.10 ) $ (0.16 ) $ (0.32 ) $ (0.53 )
 
Weighted-average shares—basic and diluted 36,212 34,501 35,564 34,270
 
(1) Stock-based compensation included in above line items:
Cost of subscription and support revenue $ 140 $ 117 $ 373 $ 308
Cost of professional services and other revenue 69 70 155 189
Research and development 283 384 932 1,132
Sales and marketing 437 690 1,885 1,953
General and administrative 593 557 1,677 1,712
 
 
(2) Amortization of acquired intangible assets included in the above
line items:
Cost of subscription and support revenue $ 382 $ 508 $ 1,397 $ 1,523
Research and development - - - 11
Sales and marketing 166 166 499 525
 
   
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
Nine Months Ended September 30,
Operating activities 2018 2017
Net loss $ (11,411 ) $ (18,147 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 5,164 5,607
Stock-based compensation 5,022 5,294
Provision for reserves on accounts receivable 99 152
Changes in assets and liabilities:
Accounts receivable 1,998 (4,816 )
Prepaid expenses and other current assets (118 ) (1,660 )
Other assets (355 ) 94
Accounts payable (1,262 ) 2,021
Accrued expenses 1,964 (2,874 )
Deferred revenue   (1,335 )   2,677  
Net cash used in operating activities   (234 )   (11,652 )
 
Investing activities
Purchases of property and equipment, net of returns (1,322 ) (990 )
Capitalization of internal-use software costs   (2,527 )   (2,091 )
Net cash used in investing activities   (3,849 )   (3,081 )
 
Financing activities
Proceeds from exercise of stock options 5,440 379
Payments of withholding tax on RSU vesting (142 ) (175 )
Payments on equipment financing (26 ) (229 )
Payments under capital lease obligation   (260 )   (383 )
Net cash provided by (used in) financing activities   5,012     (408 )
 
Effect of exchange rate changes on cash and cash equivalents   (206 )   384  
 
Net increase (decrease) in cash and cash equivalents 723 (14,757 )
Cash and cash equivalents at beginning of period   26,132     36,813  
Cash and cash equivalents at end of period $ 26,855   $ 22,056  
 
       
Brightcove Inc.
Reconciliation of GAAP Gross Profit, GAAP Loss From Operations,
GAAP Net Loss and GAAP Net Loss Per Share to
Non-GAAP Gross Profit, Non-GAAP Loss From Operations, Non-GAAP
Net Loss and Non-GAAP Net Loss Per Share
(in thousands, except per share amounts)
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
GROSS PROFIT:
GAAP gross profit $ 24,803 $ 22,983 $ 73,822 $ 67,512
Stock-based compensation expense 209 187 528 497
Amortization of acquired intangible assets   382     508     1,397     1,523  
Non-GAAP gross profit $ 25,394   $ 23,678   $ 75,747   $ 69,532  
LOSS FROM OPERATIONS:
GAAP loss from operations $ (3,141 ) $ (5,349 ) $ (10,574 ) $ (18,365 )
Stock-based compensation expense 1,522 1,818 5,022 5,294
Amortization of acquired intangible assets 548 674 1,896 2,059
Executive severance   464     700     1,199     700  
Non-GAAP loss from operations $ (607 ) $ (2,157 ) $ (2,457 ) $ (10,312 )
NET LOSS:
GAAP net loss $ (3,502 ) $ (5,396 ) $ (11,411 ) $ (18,147 )
Stock-based compensation expense 1,522 1,818 5,022 5,294
Amortization of acquired intangible assets 548 674 1,896 2,059
Executive severance   464     700     1,199     700  
Non-GAAP net loss $ (968 ) $ (2,204 ) $ (3,294 ) $ (10,094 )
GAAP diluted net loss per share $ (0.10 ) $ (0.16 ) $ (0.32 ) $ (0.53 )
Non-GAAP diluted net loss per share $ (0.03 ) $ (0.06 ) $ (0.09 ) $ (0.29 )
 
Shares used in computing GAAP diluted net loss per share 36,212 34,501 35,564 34,270
Shares used in computing Non-GAAP diluted net loss per share 36,212 34,501 35,564 34,270
 
                   
Brightcove Inc.
Calculation of Adjusted EBITDA
(in thousands)
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2018   2017 2018   2017
Net loss $ (3,502 ) $ (5,396 ) $ (11,411 ) $ (18,147 )
Other expense (income), net 217 (71 ) 427 (523 )
Provision for income taxes 144 118 410 305
Depreciation and amortization 1,730 1,942 5,164 5,607
Stock-based compensation expense 1,522 1,818 5,022 5,294
Executive severance   464     700     1,199     700  
Adjusted EBITDA $ 575   $ (889 ) $ 811   $ (6,764 )
 

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