Brian Denyeau - Senior Vice President of Technology Software David R. Mendels - Chief Executive Officer and Director Kevin Rhodes - Chief Financial Officer and Executive Vice President.

Dan Bergstrom - RBC Capital Markets, LLC, Research Division Parker Lane Juan Molta.

Greetings, and welcome to the Brightcove Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to Mr. Brian Denyeau of ICR. Thank you Mr. Denyeau, you may now begin..

Good afternoon, and welcome to Brightcove's Fourth Quarter 2014 earnings call. Today, we'll be discussing the results announced in our press release issued after the market closed today. With me on the call today are David Mendels, Chief Executive Officer; and Kevin Rhodes, Brightcove's Chief Financial Officer.

During the call, 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 2015 and the full year of 2015, our position to execute on our growth strategy, our ability to expand our leadership position and our ability to maintain existing and 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 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.

For a 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 as updated by our subsequently filed quarterly reports on Form 10-Q and our other SEC filings.

Also, during the course of today's call, we will refer to certain non-GAAP financial measures. There's a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after the close of market today, which is located on our website at www.brightcove.com.

In terms of the agenda for today's call, Dave will provide a summary review of our financial results, market opportunity as well as an update on our operations. Kevin will then finish with additional details regarding our fourth quarter and full year 2014 results as well as our guidance for the first quarter and full year 2015.

With that, let me turn the call over to David..

Accuweather; CBS; Television Properties; Entertainment Tonight; Insider; and the Jeff Probst show; Caracol Television SA; Crunchyroll, the leading global service for Japanese anime and Asian media; Fairfax Media Management; First Communications, the publisher of Good Housekeeping, Car and Driver and Seventeen magazine, among others; NOVA Enterntainment, which was formally DMG radio Australia, the fastest-growing entertainment company and largest FM radio station in Australia; and Fort Hardy[ph], among others.

Let me share a few examples of our success in digital media, including Caracol Television. It's one of Columbia's largest private television networks and they switched to Brightcove from one of our competitors, due to our robust product portfolio and ability to support video on demand, catch-up TV and live video events.

We're seeing strong customer interest in developing markets, where the growth in mobile communications is opening up newer opportunities to increase the amount of content available to viewers. Fairfax Media Limited is one of Australia's largest diversified media company.

The group's operation include newspapers, magazines, radio and digital media, operating in Australia and New Zealand. Fairfax Media has chosen Brightcove to support short-form and long-form ad-funded video on demand initiatives.

This is a great example of traditional media companies embracing new monetization strategies as well as our continued strength in the Australia and New Zealand markets.

An exciting example of a new digital media use case is Fort Hardy in the U.K., which operates [indiscernible], the largest fan-driven media brand in football, that delivers the latest news and analysis from over 2,000 contributors worldwide.

The site, which publishes 200 to 300 articles daily and targets a network of over 200 team communities in Europe, Asia and South America and includes multilingual support in 10 languages, will take advantage of Brightcove technology to support video experiences across devices.

Next-generation customers like Fort Hardy [ph] are creating entirely new ways to engage consumers on a topic they care the most about. And they recognize video as an essential element of a compelling user experience. Overall, I'm excited about our progress in our digital media business unit and I'm confident we will build on this momentum in 2015.

In the digital marketing business, we also delivered a solid fourth quarter performance that reflected improvements in our messaging and sales methodology to position Brightcove as the video technology component for our brand's marketing technology stack.

There's a fundamental shift underway inside marketing organizations towards a more quantitative, science-based approach to marketing. CMOs today, are in many cases, the driving force behind many of the IP investments that companies are making.

They have budget dollars to spend in technologies that can help deliver greater customer engagement and brand affinity that ultimately drive greater sales. We believe our services and digital video expertise can deliver the customer experience that these CMOs are demanding.

And we continue to make good progress across our entire go-to-market organization to position Brightcove as a go-to vendor for these customers.

During the quarter, we signed new deals or upsells with additional marquee brands including Accenture, the Bunnings Group, Bristol Meyers Squibb company, Ford Motor Company, FujiFilm, Herman Miller, Kickstarter, Kohler, Novartis Pharmaceuticals, Sean Edison, Tableau Software and Vodafone, among others.

Many of these customers signed on to our Video Marketing Suite this quarter. Let me highlight a few of these customer wins. Novartis was looking to upgrade a web experience, where doctors can go for information related to their oncology drugs.

Novartis chose the Brightcove Video Marketing Suite to create Oncology VU, a video-based gallery experience that will leverage its growing library of oncology-related videos for its network of doctors. Ford Motor Company had previously been deploying Brightcove to effectively utilize video in its North American marketing efforts.

During the quarter, we signed a new agreement with Ford to extend that success across all 4 global markets. The company plans on deploying the Brightcove Video Marketing Suite with a goal of strengthening brand awareness, by increasing the company's video presence on ford.com as well as across its social media outlets. And Bunnings Group.

The leading retailer of home improvement and outdoor living products in Australia and New Zealand chose to partner with Brightcove because the company had outgrown YouTube and wanted more flexibility and ability to customize the user experience, and provide exceptional quality to a broad range of devices.

Each of these digital marketing use cases are exciting examples of how video can be a powerful enabler of enhanced customer experiences, that can deliver greater engagement and knowledge to ultimately drive better revenue performance.

An important focus for the company is to raise our brand awareness among current and prospective customers about how Brightcove can be a critical element in their efforts to generate better revenue growth and customer engagement.

To that end, I'm excited to announce that Neil Lieberman has joined Brightcove -- the Brightcove executive team as our new Chief Marketing Officer, and will be responsible for managing our corporate marketing strategy as well as driving Brightcove's worldwide branding and positioning.

Neil has more than 30 years of marketing and business development experience, and I'm confident in his ability to build brand awareness among prospective customers and drive increased engagement among existing customers. Lastly, I'm pleased to announce that Chet Kapoor has recently been appointed to our Board of Directors.

Chet is portfolio manager and managing member of the Tenzing Global management firm, one of Brightcove's largest and longtime shareholders. We believe Chet's significant financial expertise and in-depth knowledge of the technology and media industries will further enhance the strength of our board.

In summary, Brightcove delivered a strong finish to 2014 and we're excited to build upon that momentum in 2015. We made significant progress in positioning the company to deliver a greater value to our customers by enabling improved business performance of their digital assets.

We believe we are is still at the early stages of this market and we're focused on maximizing this opportunity in order to drive long-term shareholder value. With that, I'd like to turn the call over to Brightcove's new Chief Financial Officer, Kevin Rhodes.

Kevin?.

Thank you, David, and good afternoon, everyone. I'm excited about my new role here at Brightcove and I look forward to meeting our analysts and investors and sharing our progress in repositioning the company.

I joined Brightcove because I believe that the company has a compelling set of products, we operate in a trend-favor market, and we deliver a compelling value to those who want to engage their audience in video content.

I also believe that we can drive tremendous business value for media, digital marketing and enterprise customers with our industry-leading technology and thought leadership.

I've been impressed with what I've learned in the company in the last 2 months here, and I'm confident that we can deliver meaningful improvements in both the top and bottom line performance going forward. With that, I'll begin by reviewing our financial results for the fourth quarter and full year and I'll finish with our outlook for 2015.

As David mentioned, we are pleased with our fourth quarter revenue and operating results, which exceeded our guidance on both the top and bottom line. Our total revenue in the fourth quarter was $31.4 million, up from $29.7 million in the fourth quarter of 2013 and ahead of our guidance of $30.3 million to $30.8 million.

Subscription and support revenue of $30.6 million was up 12% year-over-year. Adjusting for the $1.4 million impact of Rovio, our subscription and support revenue growth was actually 19% year-over-year. Now let me add some color around our revenue mix.

In the fourth quarter, our premium offerings generated 92% of total revenue, with our volume offerings generating 98% of total revenue. On a geographic basis, we generated 63% of our revenue in North America during the quarter, which was up 15% year-over-year.

Europe generated 22% of our revenue, a 17% decrease from last year, however, it was flat when adjusted for Rovio. And Japan and Asia-Pac, generated the remaining 15% of revenue during the quarter and was up 11% year-over-year.

From a vertical perspective, our media business unit represented 46% of our revenue in the quarter and grew 15% year-over-year. Our growth in media is being driven by our increased focus on this vertical and the new product introductions we've made in recent quarters. Our digital marketing business represented 54% of our fourth quarter revenue.

This was down 1% on a reported basis and was up 8% when adjusted for Rovio. Let me now turn to the supplemental metrics that we share on a quarterly basis, starting with streams. Our year-to-date average monthly video streams as of December 31, was 1.5 billion, consistent with the end of the third quarter and up 57% year-over-year.

As a reminder, video streams have not historically been a good predictor of revenue, and streamed volume indicates use of video content across our platform, which has always been significant.

Beginning in 2015, we will no longer be providing average stream data on a quarterly basis as we do not believe that provides investors with much insight into the underlying performance of our business.

With our increased focus on the premium market, we believe that average subscription revenue per premium customer is a better metric to focus on, in order to gain a better insight into the trends of our business. In the fourth quarter, the average annuals subscription revenue per premium customer was approximately $60,000, up 7% year-over-year.

As we anticipated, our recurring dollar retention rate rebounded in the fourth quarter, coming above our target at 101%. The strength at our recurring dollar retention rate was driven by strong upsell activity in the quarter, particularly in the media segment.

This metric was 93% on a 4-quarter moving-average basis and above our target range in the low- to mid-90s. Looking at our customer count, we ended the fourth quarter with 5,770 customers with 1,863 of those customers being classified as premium customers. We continue to focus on ways to drive higher adoption of our services across our customer base.

But at the same time, we are developing modularity in our product offerings to ensure all prospective customers have access to our best-of-breed products. Moving down to P&L. Our non-GAAP gross profit in the fourth quarter was $20.8 million, up from $20.1 million in the year-ago period and a gross margin of 66%.

Subscription and support revenue represented approximately 97% of our total revenue and generated 69% gross margin in the quarter. Non-GAAP loss from operations was $1 million in the fourth quarter compared to income from operations of $1.7 million in the fourth quarter of 2013, and better than our guidance of a loss of $2.2 million to $2.5 million.

The earnings outperformance in the quarter was largely a result of better-than-expected revenue in the quarter combined with strong expense management. Non-GAAP loss per share was $0.05 based on 32.3 million weighted average shares outstanding, which was better than our guidance of a loss of $0.08 to $0.09 per share.

This compares to earnings per share of $0.05 on 30.9 million weighted average shares in the year-ago period. On a GAAP basis, our gross profit was $20.2 million; operating loss was $3.4 million; and our net loss per share was $0.12 in the quarter. Looking at our full year 2014 results. Total revenue was $125 million, which grew 14% year-over-year.

Non-GAAP gross profit was $83.6 million. Non-GAAP loss from operations was $2.5 million and non-GAAP loss per share was $0.13 based on 31.9 million weighted average shares outstanding. Turning to the balance sheet and cash flow. I'm particularly pleased with our cash performance in the quarter.

We ended the quarter with cash -- gaining cash equivalents of $22.9 million, which was a $1.2 million increase from $21.7 million on September 30. And our deferred revenue balance at the end of the quarter was $29.7 million, up 25% year-over-year.

We generated $3.1 million in cash flow from operations this quarter and invested $1.1 million in capital expenditures and capitalized internal-use software during the quarter, which equates to positive free cash flow of $2 million for the quarter. This compares to $1 million of free cash flow in the year-ago period.

For the full year, free cash flow from operations was negative $3.1 million compared to positive $3.4 million in 2013. I'd now like to finish by providing our financial outlook for the first quarter and full year of 2015.

For the full year 2015, we are expecting revenue in the range of $131.5 million to $134.5 million, which represents year-over-year growth of 5% to 8%. Excluding Rovio, revenue growth would be in the 8% to 10% range. We are forecasting professional services revenue will represent approximately $1 million in revenue per quarter throughout the year.

We expect the first quarter to represent the low point for revenue growth during the year and that revenue growth will accelerate in the remaining quarters of the year. We anticipate exiting 2015 at a double-digit revenue growth rate.

In terms of non-GAAP profitability, we reaffirm our expectation to become profitable in the fourth quarter of 2015, and we are forecasting to finish the year with non-GAAP operating loss in a range of $1 million to $3 million and non-GAAP net loss per share of $0.07 to $0.14, based on 32.8 million weighted average shares outstanding.

We are targeting free cash flow of 0 to $2 million for the full year. For modeling perspective, the first quarter will be the biggest use of cash during the year, due to the timing of bonus and year-end commission payments as well as the timing of capital purchases.

During the first quarter, we are targeting revenue at $31.8 million to $32.3 million, which is revenue growth of 8% to 9% after adjusting for the loss of Rovio. From a profitability perspective, we're expecting non-GAAP operating loss of $800,000 to $1.3 million for the first quarter.

Non-GAAP net loss per share is expected to be in a range of $0.04 to $0.05 based on 32.5 million weighted average shares outstanding. Overall, the fourth quarter was a solid finish to the year and we're confident the strategy we have in place will drive improved operational and financial performance over the course of 2015 and beyond.

With that, we'll now take your questions. Operator, we are ready to begin Q&A..

[Operator Instructions] Our first question is from Dan Bergstrom of RBC Capital Markets..

Could you talk about any FX impact in the quarter and the guidance next year?.

Sure. We have about 40% of our overall revenue coming from different parts of the world. From an FX perspective, it was about $300,000 of impact on the quarter..

Okay.

And that's -- you've obviously accounted for that in the guidance?.

That's correct..

And then, the ARPU for premium customers for $60,000, it's been kind of in that range for the entirety of fiscal year '14.

What are some drivers here that could move that higher? Is it largely just moving to the marketing cloud on the video platform?.

Hi, this is David. First of all, thanks for joining us today. Yes, number of drivers that we're excited about. Q4 was a good quarter for us in a lot of ways, but among other things a record quarter in deals over a $100k.

As we've talked about, some of those larger deals are lumpy and they take a while to close, but we had good traction in the fourth quarter and we're very optimistic about our ability to keep driving larger deals throughout 2015.

If you break it out and you'll look at the digital media side and the digital marketing side, we see lots of opportunities in both to drive larger deals, as we go to customers that are scaling up very high-scale consumer services like, I talked about in the call, Fairfax Media, Caracol TV; those turn out to be larger deals.

And then on the digital marketing side, as we become more integrated into the fundamental marketing toolset that our customers are using and they scale up from using from a project to using us across an enterprise, and Ford Motor company will be an example of a company that did that in Q4, adopting the Video Marketing Suite but also adopting us on a global basis instead of just on a regional basis.

We do see a lot of opportunities to continue to grow that. So it's definitely a goal of ours to continue to focus on the opportunities where we can create the most value and which in turn, will become larger opportunities for us..

Great. And then you mentioned 6-figure deals that are in success in the fourth quarter.

I'm assuming there's still a robust amount of those in the pipeline like there's been in the past several quarters?.

Yes..

The next question is from Parker Lane with Stifel..

It's Parker Lane in for Tom Roderick.

Just wondering if you guys could discuss your relationship with the Oracle Eloqua marketing automation system and some of the benefits that provides your customers or your new player?.

Great. question. Thank you and thanks for joining the call today.

So just to put this in context for folks who aren't really immersed in the whole marketing automation space and the marketing text space that's going on, what we've seen over the last, I don't know, 5, 6,7 years is the emergence of this whole new category of software called marketing automation.

And what it's really about is, how do I get the right content in front of my audience at the right time.

Whether that's through e-mail, through landing pages, through webpages, through mobile applications and the like and then, how do I take the metrics from that, the viewership and the usage of that, and drive that back into my system to score those leads and then drive the next piece of content.

And Oracle Eloqua is 1 of top, if not the top, marketing automation system in the market. It's a key part if not the central part of what Oracle talked about as the marketing cloud. And so it's a really important technology for us. We happen to be customers and users of the technology as well and we have over 200 customers in common.

And so what we're doing with them, and we announced this, we started this last year at our Brightcove PLAY conference, but we've continued to invest, we're doing more.

We're looking forward to the upcoming Oracle Modern Marketer event at the end of this quarter, for example, is build out an integration where customers of Eloqua and Brightcove can instrument their videos, so that the leads -- lead information and the analytic information from the video flows directly into the leads scoring system of Eloqua.

So I can create landing pages that include video for example, where I could send out a video link in an e-mail and then track all the way through my lead scoring system in Eloqua, who watched which videos, how long they watched, did they watch only 25% of the video or 100% of the video, and then based on that data I can drive decisions about, okay, what's the next e-mail to send or the next video to show.

And so the combination of the 2 could be really powerful for a marketer that is trying to move a prospect through what they call the funnel, right? From awareness, to demand, to conversion, to loyalty. And you can move people through that whole marketing funnel very effectively with video and tools like Eloqua..

Great.

And then could you provide an update -- I've missed the customer numbers again?.

Sure. 5,770 was the total customer count and 1,863 were premium customers..

[Operator Instructions] Our next question is from Sameet Sinha with B. Riley..

This is Juan Molta for Sameet.

A question here, what parts of operating expenses do you require continued investments in 2015, and where can we see leverage on that?.

Yes. I'll take a stab at it and let Dave follow-up. There are areas, certainly, as we look at 2015 and we are investing more is we continue to invest within our R&D and within our sales and marketing. Clearly, we're looking at trying to drive more growth. We're still trying to drive that growth with a balance of profitability.

So we're trying to make sure that we've got that. But we do believe that there are certain areas of the business in the sales and marketing area that we can add to, beef up our sales within media as well as in the digital marketing side. As you just saw today, we added a CMO, Niel, who's coming in. So he's certainly going to help on that side as well.

And then on the R&D side to continue to improve and innovate our products.

Dave?.

Yes, I would just add that the market's still early. We're excited about growth, we're excited about innovation. And so we're continuing to invest in our own go-to-market operation.

We want to be talking to everyone in the market about the opportunities, partnering with companies in the marketing automation space, getting out and continuing to grow our business around the world. And then on the innovation side, while we've made incredible progress and the industry has made incredible progress, there's a lot to do.

We're seeing new devices come out all the time. We're still working on how do we optimize the video delivery experience and the consumer experience.

How do we create better advertising experiences that will help our media customers to generate more revenue, how do we tie in to the marketing automation systems and other marketing tools that our customers are using, so that they can get more value out of their video, not just play the video, but use the video as a fundamental part of how they drive their business.

And so as Kevin pointed out, we're continuing to invest in sales and marketing and in products..

Okay. Perfect.

And excuse this question, I hope it's clear and I'm still new to your story, but when you're moving towards modularizing your products, can we see a near-term decline in the average revenue per customer? And would that be offset by higher adoption rates but it would be neutral to revenue?.

Yes. Good question. No problem at all. It's an excellent question. I don't think at a macro level that, that will lead to a decline in the average revenue per customer.

The customers that are interested in buying us in a modular way tend to be the larger more sophisticated customers, for example, some of the largest broadcasters in the world, that have complex back-end systems, that have pre-existing investments in parts of the stack, maybe they have encoding but not players.

And so those tend to be fairly large deals even though they're modular.

And it also, given that we have a very large customer base without a whole lot of customer concentration, even though this is a very important trend for us to drive new business and more deeply penetrate our customers, it's probably not going to have a material impact on any averages anyway..

Okay. Perfect. And going back to what the gentleman from Stifel asked about the Oracle Eloqua. I assume he had a question about the new player? Can you comment at all? I don't think I heard anything about its adoption.

I don't know if you can comment on existing customer penetration date -- rate?.

Sure. Well, let me just start for folks who are in the call who may not be as familiar. We did introduce the new Brightcove player, mid-late last year. We then -- we first introduced it as a new standalone service that we call Brightcove Perform.

Then we also announced that it's now usable together with our Video Cloud end-to-end suite for video publishing. There's a lot of things that are exciting about the new player, but the most important, we think, is swift performance.

You don't want to have the wait for the video, anyone who studied the e-commerce or any kind of web activity over the last 20 years knows that milliseconds matter. They really do. And what we're seeing is that our player can load up to 70% faster than our competitors.

We see that -- and very importantly, even more pronounced on mobile devices and on cellular networks and the like and that's really important. And so, it's a real benefit. The faster you load, the more people watch, and the longer they watch, the more results our customers get from using Brightcove.

That's 1 of many aspects of the player that I'll speak to, is the performance. In terms of adoption, I don't have any numbers for you. I apologize for that. We're definitely seeing some great customers adopt it, saw some really nice customers launch, Smithsonian TV is a nice example, you can go check that out online right now. It looks really cool..

And we have no further questions in the queue at this time. I would like to turn the floor back over to management for any additional or closing remarks..

I just want to thank everyone for joining the call. Just to recap, we feel pretty excited about what we were able to achieve in Q4. We feel like we wrapped up the year pretty nicely. We're excited about 2015. There is still a lot of opportunity in this market, a lot of growth.

We're seeing exciting things happening, both in the market and in the opportunities for innovation and product. So we're looking forward to a great year. And we look forward to talking to you again on the next conference call, if not before. Thank you very much..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for you participation..