Brightcove Announces Financial Results for First Quarter Fiscal Year 2017

BOSTON--(BUSINESS WIRE)--Brightcove Inc. (Nasdaq: BCOV), the leading provider of cloud services for video, today announced financial results for the first quarter ended March 31, 2017.

“Brightcove reported mixed first quarter financial results with revenue in line with expectations but non-GAAP EPS below guidance primarily due to a revenue mix shift and unanticipated one-time costs associated with a large client’s impending OTT service launch,” said David Mendels, Chief Executive Officer of Brightcove. “In addition, while we had strong year-over-year bookings performance in the quarter, we experienced a significant and unanticipated decrease in our revenue retention rate, among media customers, primarily due to changes in the market for the non-software elements of content delivery and storage.”

Mendels added, “Despite this challenge, we are optimistic that we will return to double-digit revenue growth in 2018, as we benefit from the positive impact from our bookings momentum and execute on a multi-faceted product and pricing strategy that will improve our revenue retention rate. We believe we are at the early stages of a multi-billion market opportunity with media and digital marketing and enterprise customers who are finding new and innovative ways to leverage their digital assets to improve business performance. We remain confident in our ability to achieve our long-term financial objectives, which we believe will create significant value for long-term shareholders.”

First Quarter 2017 Financial Highlights:

• Revenue for the first quarter of 2017 was $37.6 million, an increase of 4% compared to $36.3 million for the first quarter of 2016. Subscription and support revenue was $34.2 million, compared to $34.7 million for the first quarter of 2016.
• Gross profit for the first quarter of 2017 was $22.4 million, representing a gross margin of 59%, compared to a gross profit of $23.0 million for the first quarter of 2016. Non-GAAP gross profit for the first quarter of 2017 was $23.0 million, representing a non-GAAP gross margin of 61%, compared to a non-GAAP gross profit of $23.6 million for the first quarter of 2016. 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 $5.1 million for the first quarter of 2017, compared to a loss from operations of $1.5 million for the first quarter of 2016. Non-GAAP loss from operations, which excludes stock-based compensation expense, the amortization of acquired intangible assets and merger-related expenses, was $2.6 million for the first quarter of 2017, compared to non-GAAP income from operations of $714,000 during the first quarter of 2016.
• Net loss was $5.1 million, or $0.15 per diluted share, for the first quarter of 2017. This compares to a net loss of $1.6 million, or $0.05 per diluted share, for the first quarter of 2016. Non-GAAP net loss, which excludes stock-based compensation expense, the amortization of acquired intangible assets and merger-related expenses, was $2.6 million for the first quarter of 2017, or $0.08 per diluted share, compared to non-GAAP net income of $638,000 for the first quarter of 2016, or $0.02 per diluted share.
• Adjusted EBITDA loss was $1.6 million for the first quarter of 2017, compared to adjusted EBITDA of $2.0 million for the first quarter of 2016. Adjusted EBITDA excludes stock-based compensation expense, the amortization of acquired intangible assets, merger-related expenses, depreciation expense, other income/expense and the provision for income taxes.
• Cash flow used in operations was $6.6 million for the first quarter for 2017, compared to cash flow from operations of $3.0 million for the first quarter of 2016.
• Free cash flow was negative $7.6 million after the company invested $1.0 million in capital expenditures and capitalization of internal-use software during the first quarter of 2017. Free cash flow was $1.3 million for the first quarter of 2016.
• Cash and cash equivalents were $29.2 million as of March 31, 2017 compared to $36.8 million at December 31, 2016.

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 First Quarter and Recent Highlights:

• Average annual subscription revenue per premium customer was $67,000 in the first quarter of 2017, excluding starter customers who had average annualized revenue of $4,800 per customer. This compares to $69,000 in the comparable period in 2016.
• Recurring dollar retention rate was 85% in the first quarter of 2017, which was below our historical target of the low to mid 90% range.
• Ended the quarter with 4,411 customers, of which 2,021 were premium.
• New digital marketing customers and digital marketing customers who expanded their relationship during the quarter included: Allianz Global Investors, Daimler Trucks North America, Hitachi High-Tech Solutions Corporation, Kyocera Document Solutions, Macy’s Inc., Morningstar Inc., Salomon, and TD Bank, among others.
• New media customers and media customers who expanded their relationship during the quarter included: Conde Nast Japan, Discovery Network Asia, News UK, New York Post, Total Sports Asia, TV Tokyo Communications Corporation, and Young Hollywood, among others.
• Launched Brightcove Live, an API-driven platform that augments scalable live streaming with server-side ad insertion, cloud DVR, content encryption, on-the-fly clipping and seamless VOD asset creation. Brightcove Live benefits media companies by allowing them to deliver and monetize broadcast-like experiences for live events and 24/7 channels while reducing the cost and complexity of live streaming.
• Added Diane Hessan to its board of directors. Diane is currently the Chairman of C Space, an innovative market research company, and previously served as the company’s CEO for 13 years prior to its acquisition by Omnicom in 2011. Diane has also served on numerous other boards, including Panera, Eastern Bank, Beth Israel Deaconess Medical Center, Mass Challenge and Tufts University. She received her B.A. in Economics from Tufts University and her M.B.A. from Harvard Business School.

Business Outlook

Based on information as of today, May 4, 2017, the Company is issuing the following financial guidance:

Second Quarter 2017:

• Revenue is expected to be in the range of $37.0 million to $37.8 million, including approximately $2.5 million of professional services revenue.
• Non-GAAP loss from operations is expected to be in the range of $4.2 million to $5.0 million, which excludes stock-based compensation of approximately $1.6 million and the amortization of acquired intangible assets of approximately $700,000.
• Adjusted EBITDA loss is expected to be in the range of $3.0 million to $3.8 million, which excludes stock-based compensation of approximately $1.6 million, the amortization of acquired intangible assets of approximately $700,000, depreciation expense of approximately $1.2 million and other income/expense and the provision for income taxes of approximately $150,000.
• Non-GAAP net loss per diluted share is expected to be $0.13 to $0.15, which excludes stock-based compensation of approximately $1.6 million and the amortization of acquired intangible assets of approximately $700,000, and assumes approximately 34.2 million weighted-average shares outstanding.

Full Year 2017:

• Revenue is expected to be in the range of $151.0 million to $155.0 million. Professional services is expected to be in a range of $10.0 million to $11.0 million.
• Non-GAAP loss from operations is expected to be in the range of $6.0 million to $9.0 million, which excludes stock-based compensation of approximately $7.3 million and the amortization of acquired intangible assets of approximately $2.7 million.
• Adjusted EBITDA loss is expected to be in the range of $1.5 million to $4.5 million, which excludes stock-based compensation of approximately $7.3 million, the amortization of acquired intangible assets of approximately $2.7 million, depreciation expense of approximately $4.5 million and other income/expense and the provision for income taxes of approximately $400,000.
• Non-GAAP net loss per diluted share is expected to be $0.19 to $0.28, which excludes stock-based compensation of approximately $7.3 million and the amortization of acquired intangible assets of approximately $2.7 million, and assumes approximately 34.3 million weighted-average shares outstanding.

Conference Call Information

Brightcove will host a conference call today, May 4, 2017, 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 855-327-6837 (domestic) or 631-891-4304 (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 10002855. 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 delivering and monetizing video across connected devices. The company offers a full suite of products and services that reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices. Brightcove has thousands of customers in over 70 countries that rely on the company’s cloud solutions to successfully publish high-quality video experiences to audiences everywhere. 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 second fiscal quarter of 2017 and full year 2017, 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 merger-related expenses. 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, merger-related expenses, depreciation expense, other income/expense, including interest expense and interest income, and the provision for income taxes. Merger-related expenses include fees incurred in connection with closing an acquisition in addition to fees associated with the retention of key employees. 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)
			March 31, 2017			December 31, 2016
Assets
Current assets:
	Cash and cash equivalents		$	29,168		$	36,813
	Accounts receivable, net of allowance			22,438			21,575
	Prepaid expenses and other current assets			8,186			5,897
		Total current assets		59,792			64,285
Property and equipment, net				9,273			9,264
Intangible assets, net				10,259			10,970
Goodwill				50,776			50,776
Deferred tax asset				127			121
Other assets				980			1,008
		Total assets	$	131,207		$	136,424
Liabilities and stockholders' equity
Current liabilities:
	Accounts payable		$	6,014		$	5,327
	Accrued expenses			11,956			15,705
	Capital lease liability			418			489
	Equipment financing			257			307
	Deferred revenue			35,909			34,665
		Total current liabilities		54,554			56,493
Deferred revenue, net of current portion				62			91
Other liabilities				1,491			1,644
		Total liabilities		56,107			58,228
Stockholders' equity:
	Common stock			34			34
	Additional paid-in capital			232,782			230,788
	Treasury stock, at cost			(871	)		(871	)
	Accumulated other comprehensive loss			(992	)		(1,172	)
	Accumulated deficit			(155,853	)		(150,583	)
Total stockholders’ equity				75,100			78,196
		Total liabilities and stockholders' equity	$	131,207		$	136,424

Brightcove Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
	Three Months Ended March 31,
	2017			2016
Revenue:
Subscription and support revenue	$	34,242		$	34,653
Professional services and other revenue		3,330			1,639
Total revenue		37,572			36,292
Cost of revenue: (1) (2)
Cost of subscription and support revenue		12,154			11,675
Cost of professional services and other revenue		3,064			1,589
Total cost of revenue		15,218			13,264
Gross profit		22,354			23,028
Operating expenses: (1) (2)
Research and development		8,194			7,426
Sales and marketing		13,901			12,535
General and administrative		5,391			4,577
Merger-related		-			21
Total operating expenses		27,486			24,559
Loss from operations		(5,132	)		(1,531	)
Other income (expense), net		138			(31	)
Net loss before income taxes		(4,994	)		(1,562	)
Provision for income taxes		79			45
Net loss	$	(5,073	)	$	(1,607	)
Net loss per share—basic and diluted
Basic	$	(0.15	)	$	(0.05	)
Diluted		(0.15	)		(0.05	)
Weighted-average shares—basic and diluted
Basic		34,056			32,725
Diluted		34,056			32,725
(1) Stock-based compensation included in above line items:
Cost of subscription and support revenue	$	102		$	42
Cost of professional services and other revenue		60			57
Research and development		407			389
Sales and marketing		746			482
General and administrative		475			489
(2) Amortization of acquired intangible assets included in the above line items:
Cost of subscription and support revenue	$	508		$	508
Research and development		11			31
Sales and marketing		193			226

Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
	Three Months Ended March 31,
Operating activities	2017			2016
Net loss	$	(5,073	)	$	(1,607	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		1,734			2,014
Stock-based compensation		1,790			1,459
Provision for reserves on accounts receivable		222			91
Changes in assets and liabilities:
Accounts receivable		(1,011	)		541
Prepaid expenses and other current assets		(2,221	)		(2,069	)
Other assets		37			(156	)
Accounts payable		695			(1,039	)
Accrued expenses		(3,870	)		844
Deferred revenue		1,102			2,917
Net cash (used in) provided by operating activities		(6,595	)		2,995
Investing activities
Cash paid for purchase of intangible asset		-			(125	)
Purchases of property and equipment, net of returns		(378	)		(843	)
Capitalization of internal-use software costs		(603	)		(810	)
Net cash used in investing activities		(981	)		(1,778	)
Financing activities
Proceeds from exercise of stock options		79			43
Payments of withholding tax on RSU vesting		(118	)		(86	)
Proceeds from equipment financing		-			604
Payments on equipment financing		(76	)		(48	)
Payments under capital lease obligation		(174	)		(278	)
Net cash (used in) provided by financing activities		(289	)		235
Effect of exchange rate changes on cash and cash equivalents		220			203
Net (decrease) increase in cash and cash equivalents		(7,645	)		1,655
Cash and cash equivalents at beginning of period		36,813			27,637
Cash and cash equivalents at end of period	$	29,168		$	29,292

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) Income From Operations, Non-GAAP Net (Loss) Income and Non-GAAP Net (Loss) Income Per Share
(in thousands, except per share amounts)
		Three Months Ended March 31,
		2017			2016
GROSS PROFIT:
GAAP gross profit		$	22,354		$	23,028
	Stock-based compensation expense		162			99
	Amortization of acquired intangible assets		508			508
Non-GAAP gross profit		$	23,024		$	23,635
LOSS FROM OPERATIONS:
GAAP loss from operations		$	(5,132	)	$	(1,531	)
	Stock-based compensation expense		1,790			1,459
	Merger-related expenses		-			21
	Amortization of acquired intangible assets		712			765
Non-GAAP (loss) income from operations		$	(2,630	)	$	714
NET LOSS:
GAAP net loss		$	(5,073	)	$	(1,607	)
	Stock-based compensation expense		1,790			1,459
	Merger-related expenses		-			21
	Amortization of acquired intangible assets		712			765
Non-GAAP net (loss) income		$	(2,571	)	$	638
GAAP diluted net loss per share		$	(0.15	)	$	(0.05	)
Non-GAAP diluted net (loss) income per share		$	(0.08	)	$	0.02
Shares used in computing GAAP diluted net (loss) income per share			34,056			32,725
Shares used in computing Non-GAAP diluted net (loss) income per share			34,056			33,630

Brightcove Inc.
Calculation of Adjusted EBITDA
(in thousands)
		Three Months Ended March 31,
		2017			2016
Net loss		$	(5,073	)	$	(1,607	)
	Other (income) expense, net		(138	)		31
	Provision for income taxes		79			45
	Merger-related expenses		-			21
	Depreciation and amortization		1,734			2,014
	Stock-based compensation expense		1,790			1,459
Adjusted EBITDA		$	(1,608	)	$	1,963