Brian Denyeau - ICR David Mendels - CEO Kevin Rhodes - EVP and CFO.

Parker Lane - Stifel Steve Frankel - Dougherty Eric Lemus - Raymond James.

Greetings, and welcome to the Brightcove Fourth Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now turn the conference over to your host Brian Denyeau of ICR. Thank you, you may now begin..

Good afternoon, and welcome to Brightcove’s Fourth Quarter 2015 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, Brightcove’s 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 2016 and the full year of 2016, expected profitability, our position execute on our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain an upsell existing customers, and 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 expectation. These statements reflect our views only as of today 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 have caused actual results to differ materially from expectations.

For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our most recently filed Annual Report on Form 10-K and as updated by our other SEC filings. Also during the course of today’s call, we will refer to certain non-GAAP financial measures.

There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after market closed today, which can be found on our website at www.brightcove.com.

In terms of the agenda for today’s call, David will provide a summary review of our financial results and market opportunity, as well as an update on our operations. Kevin will then finish with additional details regarding our fourth quarter 2015 results, as well as our guidance for the first quarter and full year 2016.

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

Thanks, Brian, and thanks to all of you for joining us today. We delivered strong fourth quarter results that exceeded our guidance on both revenue and profitability. Our performance in the second half of the year demonstrated significant improvement in our business across all key metrics.

We enter 2016 with a much improved product portfolio, marketing messaging and go-to-market execution across each of our businesses. We are very optimistic that we can build upon these positive improvements as we execute against the substantial market opportunity we are targeting.

In short I am feeling good about where are right now and the results show. Looking at our results for the quarter, total revenue was $35.1 million up 12% year-over-year and above the high end of our guidance range of $34.3 million. Adjusted EBITDA was $3.3 million with non-GAAP op income of $2.3 million and net income per diluted share of $0.05.

All of which were well ahead of guidance. For the full year revenue was $134.7 million, up 8% on a reported basis and 11% on a constant currency basis. Full year revenue was also ahead of our original guidance.

From a profitability perspective, we generated adjusted EBITDA of $8 million, non-GAAP operating income of $2.4 million and net income per diluted share of $0.03. I’m very pleased with the profitability improvements during the second half of the year as evidenced by the more than $5 million increase in adjusted EBITDA compared to 2014.

The fourth quarter was a strong finish to a good year of Brightcove. We made significant progress across a number of key objectives that position the company for improved performance overtime. We delivered accelerating revenue growth each quarter in 2015.

We achieved non-GAAP operating profitability in the third quarter, a quarter earlier than we originally guided. We’ve made significant strides in refining and executing on our go-to-market strategy in our media and digital marketing businesses, which is helping drive our improved performance.

Our business value messaging focuses on Brightcove’s ability to support new business models and increase add delivery rates to drive better revenue performance for media companies and enable digital marketers to drive improved demand generation, customer engagement and ultimately conversion.

We are addressing the core business needs for our customers and we are seeing this messaging resonate in the market. We had a great year of product innovation including the new video cloud. Brightcove Audience, Brightcove Lift and Jump Start for Apple TV. 2015 was the most innovative year for Brightcove since we’ve been a public company.

We feel great about our product leadership position, our product roadmap and how our product portfolio is now tightly aligned with our go-to-market focus.

The changes we made in our product portfolio and our go-to-market efforts were significant and designed to position the company to achieve its long-term financial objectives, including a target revenue growth rate of 15% to 20% and increasing profitability in the coming years.

Our performance in the second half of 2015 demonstrated that strategy is working and can drive higher growth in the future.

Based on the success we are seeing, the strength of our product portfolio and the positive trends in the video market we are hiring in sales and marketing to take advantage of this opportunity in order to drive greater bookings growth in 2016.

We had been cautious about making these additional hires until we validated our strategy, but based on the trends we see we are confident they will position the company to drive improved growth going forward.

We strongly believe this is the right move for the business, but it will take time for the impact of this additional sales capacity to positively impact revenue growth given the nature of ratable subscription software model.

Kevin will review our guidance in more detail later, but at a high level we expect to deliver mid-teens growth in bookings during 2016. This will support higher revenue growth in 2017 and beyond. I’d like to take a few minutes to review two business units and provide some color on why we’re increasingly optimistic about our growth opportunity.

The media market continues to transform rapidly with high quality content coming from an increasing range of producer. Amazon’s Golden Globe win for its original series Mozart in the Jungle, is just the latest example of this phenomenon.

Traditional broadcasters recognize that they need to adapt the changing content landscape and customer preferences for over the top or OTT and on-demand viewing options. This change in dynamics is driving tremendous innovation in the market and presents great opportunities for Brightcove.

We had a strong performance from our media business unit during the fourth quarter across both traditional broadcasters and emerging content providers such as the rapidly emerging eSports category.

We’ve seen exciting early customer interest in our latest version of video cloud which is faster, more flexible and modular in order to meet the changing needs of today’s market.

Our go-to-market effort in the media business also steadily improved over the course of the year particularly in North America and the Japan and Asia markets where we have been successful in expanding and increasing the tenure of our sales gain. Overall 2015 was a pivotal year for our media business.

As we finish the multi-year product monetization and refresh cycle focused on making our solutions more modular, faster and easier to use. With the product refresh now complete in 2016 we’ll focus more of our R&D investments in new innovation that will further our leadership and differentiation in this complex and highly demanding market.

In the fourth quarter we signed new or expanded agreements with a number of the year customers. Notable names include Azubu, CatchPlay a Taiwan based distributor of independent film.

CBS Shows, Entertainment Tonight, The Insider and the Jeff Probst Show, Australia’s National Rugby League, Publishers Clearing House, Readers’ Digest, RLJ Entertainment, Tony DADC New Media Solutions, Tennis Australia and in Japan Yomiuri TV a sister company of Nippon Television.

Let me highlight a few examples to illustrate how we’ve been successful in winning these deals.

RLJ Entertainment a premier independent owner, developer and distributor of entertainment content in North America, the United Kingdom and Australia where Brightcove powers all three of RLJ’s [indiscernible] properties, Acorn TV, Urban Movie Channel, UMC and Acacia TV.

We continue to grow our business with RLJ as we helped the company to deliver compelling OTT experiences for the new Apple TV. RLJ is a long-time customer who views Brightcove as a strategic partner that delivers superior service with video cloud, our APIs and our professional services team.

Since our announcement of Jump Start for Apple TV in September we’ve already run business to deliver apps for 12 of our customers on the new Apple TV platform and see significant opportunities in our pipeline.

Publishers Clearing House is the well-known direct marketing company that markets merchandise and magazine subscriptions through sweep states, price based games and lottery websites.

Publishers Clearing House had been using another technology vendor, but was dissatisfied with its inability to support Real Box [ph] an iOS and Android video rewards app that allows users to earn points for watching content with the pre-roll advertisement.

Publishers Clearing House was impressed by our native mobile player SPKs, and our global support offering and we are now powering the video experience for Publishers Clearing House’s Native Apps which went live in the App Stores in December.

Lastly we renewed and grew an important relationship to power the video experiences for CBS, Entertainment Tonight, The Insider and The Jeff Probst Show. As part of the content portfolio of a preeminent company in television syndication posting one the largest television distribution libraries in the world.

These video experiences require sophisticated integration with the customers’ internal systems and work force. In this area our industry expertise, modular and flexible product architecture reputation continue to differentiate us. Turning to the digital marketing business.

In the fourth quarter we made good progress and our efforts to position Brightcove as an integral part of the next generation digital marketing stack. Brands of all sizes are increasingly embracing the improved customer engagement and data driven marketing opportunities that cloud-based marketing technologies can provide.

Video has been recognized to the entire 80 year history of televisions as the most impactful medium to reach customers. And we increasingly see digital marketers looking for ways to increase the use of video in their online marketing campaign.

We’ve introduced major product releases in the past 12 to 18 months, including the video marketing suite, Brightcove Gallery and Brightcove Audience that are easy to use purpose built solutions for digital marketer. Customer response to these products has been terrific and we see clear evidence that there is a substantial opportunity in this market.

A major reason for optimism in this market is our continued success in up selling existing customer. The progress we’ve made in our go-to-market messaging and product portfolio in digital marketing give us the confidence to make the sales and marketing hires I referenced earlier.

We are very pleased with the productivity of the sales reps and the marketing organization we have in this group today. Our focus in 2016 is on increasing our sales capacity and customer acquisition velocity, which we are confident will generate accelerating growth going forward.

During the fourth quarter we signed new or expanded deals with a range of industry leading brand in our digital marketing business, including AMC Entertainment, , Amgen, BAFTA, Baxter Healthcare, Cars.com, Cargill, Consumer Reports, Demandware, Ford Motor Company, IHS, Northern Trust, Sapporo Breweries, Starwood, Tribeca Film Festival, University of Pittsburgh Medical Center, and Weight Watchers.

The video marketing suite continues to be a significant driver for both upsell and growth as highlighted by three example. Amgen is one of the world’s leading independent biotech companies with brands and medicines that reach millions of patients across the globe.

The company corporates video into its many branded sites and use its video as a critical way to describe its products to consumer.

Amgen has been a video marketing suite customer for the past year and half in the United States and in the fourth quarter they decided to standardized on Brightcove across its global footprint due to our scale, global support organization and our strong marketing focus.

Northern Trust is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals.

The company was looking for a video solution for its intranet and upgraded to video marketing suite to leverage video clouds capabilities and additionally to use gallery to publish internal video set.

In addition as users both Eloqua and Marketo, Northern Trust family audience module to be an attractive option to connect external marketing videos to its marketing automation platforms.

Demandware is an industry leading cloud platform that is a digital backbone for hundreds of retail brands around the world, powering commerce across web, mobile, social and store channel.

The company was an existing express customer that upgraded to video marketing suite drive by the potential to integrated its marketing videos with a use of Eloqua and the opportunity used gallery to build the video wall to engage Demandware’s prospects and influence the buyer’s journey.

This win with Demandware is a further example of our success with technology companies who understand video’s high value in B2B marketing. Looking ahead we see a lot of momentum for both our businesses as online video continues to expand and reach and complexity.

Our annual customer conference play on May 16th and 17th will be used to capture and amplify that momentum across our base through a data half of pure presentations, product demonstrations and technical sessions that showcase best practices. Bring our customer community gather and highlight the Brightcove ecosystem.

We are excited about our upcoming user conferece and expect to double the attendance from last year to this year. To summarize, our strong fourth quarter performance capped an important year for Brightcove. We make significant progress in all areas to position the company to generate accelerating growth and profitability overtime.

We feel very good about the progress we’ve made and our ability to do even better in order to drive long-term shareholder value. With that let me turn the call over to Kevin, to walk you through the numbers. .

Thank you, David and good afternoon, everyone. As David mentioned, we are pleased with our results for the quarter. I’ll begin by reviewing our fourth quarter and then move to full year financial results and then finish with our outlook for the first quarter and the full year.

Our total revenue in the fourth quarter was $35.1 million up 12% from $31.4 million in the fourth quarter of 2014 and above the high end of our guidance of $34.3 million. Breaking revenue down further our subscription and support revenue of $34.1 million was up 12% year-over-year and professional services revenue for the quarter was $1 million.

Our strong revenue performance in the quarter was driven impart by overages, which were above our guidance by approximately $600,000. These overages also had the positive effect of enhancing our bottom line profit results.

The strong fourth quarter overage performance was due to number of large customers who are at the end of their contract cycle in the fourth quarter. We anticipate overages will turn to our historical range going forward. Now let me add some color around our revenue mix.

In the fourth quarter, our premium offerings generated 94% of our total revenue, while our volume offerings generated 6% of our total revenue. On a geographic basis, we generated 64% of our revenue in North America during the quarter. Europe generated 17% of our revenue and Japan and Asia-Pac generated the remaining 19% of revenue during the quarter.

Europe had a better fourth quarter and we are executing against the plan that we believe will result in improved performance during 2016. From a vertical perspective, our media business represented 49% of our revenue in the quarter and our digital marketing business represented the remaining 51% of our revenue in the quarter.

Let me now turn to our supplemental metrics that we share on a quarterly basis. Our reoccurring dollar retention rate in the fourth quarter was 98%, which compares favorably to our target range in the low to mid-90s. This is a second quarter in a row that we’ve delivered a retention rate above our target range.

Looking at our customer count, we ended the fourth quarter with 5,047 customers of which 1,863 were classified as premium customers. Our average revenue per premium customer continue to increase, up to $69,000 per year which is up 15% year-over-year.

Moving down the P&L, our non-GAAP gross profit in the fourth quarter was $24 million up from $20.8 million in the year ago period and represented a gross margin of 68%. Subscription and support revenue represented approximately 97% of our total revenue and generated a 70% gross margin in the quarter.

Non-GAAP income from operations was $2.3 million in the fourth quarter compared to a loss of $980,000 in the fourth quarter of 2014 and was well ahead of our guidance of $600,000 to $1.1 million. Profitability was positively impacted by the revenue over performance related to overages.

Adjusted EBITDA was $3.3 million a significant increase from $703,000 in the year ago period and it was above our guidance range of $1.9 million to $2.4 million. Non-GAAP earnings per share was $0.05 based on 33.7 million weighted average shares outstanding and was well ahead of our guidance range of $0.01 to $0.02 per share.

This compares to a loss per share of $0.05 based on 32.3 million weighted average shares in the year ago period. On a GAAP basis, our gross profit was $23.3 million; operating loss of $214,000 and earnings per share was $0.01 in the quarter.

Our fourth quarter GAAP results reflect the impact of an escrow settlement claim related to the Unicorn acquisition that resulted in the return of 135,000 Brightcove shares back into our treasury account. As a result, we recorded an $871,000 gain, which was recognized in the other income section in our P&L.

Looking at our full year 2015 results, total revenue was $34.7 million up 8% year-over-year and was ahead of our original full year guidance that we provided on our fourth quarter call last year.

Non-GAAP gross profit was $90.6 million non-GAAP income from operations was $2.4 million and non-GAAP earnings per share was $0.03 based on 33.6 million weighted average shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $27.6 million, an increase of $4.7 million compared to the prior quarter. For the full year we generated $9.1 million in cash flow from operations.

With $2.9 million in capital expenditures and capitalized internal used software we generated free cash flow of $6.2 million for the year, which compares to a negative $3.1 million of free cash flow in the year ago period. I’d now like to finish by providing our financial outlook for the first quarter and full year 2016.

For the full year 2016, we expect revenue to be in a range of $145 million to $147 million, which represents year-over-year growth of 8% to 9%. Included in this range, professional services revenue is expected to be $5 million to $5.5 million for the year. As David mentioned earlier, we are focused on delivering mid-teens bookings growth in 2016.

I’d like to provide some additional context on the building momentum of our business and why we are confident that we can achieve our bookings growth target. We exited 2015 with improved bookings momentum and we have an expanding pipeline of opportunities that gives us the confidence that this momentum will continue throughout 2016.

Delivering against our bookings plan would position us to exit the year with significant momentum that will lead to acceleration and revenue growth in 2017 and beyond. This is consistent with our view that we have the opportunity to achieve 15% to 20% revenue growth in the coming years.

I would note that our guidance does not assume any material foreign exchange impact for 2016. It is based on exchange rates as of today. In terms of profitability, we are forecasting full year non-GAAP operating income to be in a range of $2 million to $3.5 million and adjusted EBITDA is targeted to be in a range of $8 million to $9.5 million.

In addition we expect non-GAAP net income per share of $0.02 to $0.07 based on 34.2 million weighted average shares outstanding. Our guidance anticipates our profitability will be at or above the level that we generated in 2015 even as we make additional sales and marketing hires that David referenced earlier.

Lastly we are estimating free cash flow of $5 million to $7 million for the full year. For the first quarter we are targeting revenue of $34.7 million to $35.2 million, including approximately $1.3 million of professional services revenue.

From a profitability perspective, we expect a non-GAAP operating income to be breakeven to $500,000 in the first quarter. Non-GAAP net income per share is expected to be in a range of a loss of one penny to income of one penny based on 33.8 million weighted average shares outstanding.

In the first quarter adjusted EBITDA is anticipated to be in a range of $1.4 million to $1.9 million. There are few things to keep in mind with regard to our first quarter guidance. On a sequential basis, the $600,000 of incremental overages that we had in the fourth quarter does not carry forward into revenue during the first quarter of 2016.

In addition from an EBITDA perspective the first quarter will be higher expense quarter due to some hires that we’ve already made plus salary increases, payroll tax limits resetting and slightly higher marketing expense in the first quarter. In summary, we are very pleased with our performance in the fourth quarter and for the full year 2015.

Not only did we achieve, but exceeded our financial goals that we had set for ourselves at the beginning of the year and we are encouraged by the activity that we are seeing across both of our business units.

We believe that we have the right products and the right strategy in place to drive increased growth and profitability going forward and we are confident in our ability to enhance shareholder value in the long-term. And with that we’ll now take your question. Operator we are ready to begin questions and answers..

Thank you. [Operator Instructions] Our first question from Tom Roderick from Stifel..

Hi, it’s Parker Lane for Tome Roderick. I was wondering if there are any specific target that you could share on your overall hiring plans for 2016 and if you have an update on where your sales organization stand today in terms of total sales reps? Thanks..

First of all hi Parker and hello to everyone who are joining us on the call today, this is David Mendels, I wanted to thank you for joining us. It’s was a strong quarter, we are excited about what we are here to talk about. So look forward to your questions.

Kevin do you want to speak to the numbers on the sales force?.

Sure. I don’t want to get specifically into the number of headcount that we’re hiring for the year Parker we just don’t guide on head count for the year.

I would tell you that we are planning to make hires within our sales and marketing organization that certainly going to help us build to that mid-teens bookings growth that we are looking to do this year. So that’s part of it.

In terms of the sales organization that we have today as you might recall we made some investments over the last year and we hire some more people in it. We feel very good about our sales and marketing organization today in both business units, in both media and digital marketing and we love the teams there. We think that they are doing very well.

We worked in 2015 on our go-to-market and feel like we’ve really kind of pawn that at this point and now we are ready to put the capacity in place on the sales side in order to drive more bookings and obviously more growth..

All right. And then as you look at the average revenue per premium a nice job 15% year-over-year.

What would you say the biggest driver behind that jump was this year and what pace could we expect to see that sort of trend in 2016?.

Sure. First of all on the year in 2015, I think there is only two drivers and I’ll over simplify here for a bit. But on the media sized it’s signing some large deals. There are a lot of people doing a lot of online video. We had a very successful year with some very significant customers and that drives up that average revenue for premium customer.

On the digital marketing and enterprise side it’s the upsell business. We have really focus the go-to-market a key part of the go-to-market around upselling our customers who bought video cloud into the video marketing suite, upselling them on the value of our new products like Brightcove Gallery, Brightcove Auidence.

We’ve done a good job in sort of helping customer's grow from using us at a departmental level to an enterprise level to sort of a global level and so we’ve seen a very strong business for us on the digital marketing side of people significantly increasing their usage of Brightcove. In terms of guiding going forward that’s not a number we guide.

We’ve been trending up nicely for the last four quarters. You’ve been tracking and I know. So we’ll see how that continues this year and how it aligns with our strategy..

Alright, thanks. Great quarter..

Thank you..

Thank you. Our next question comes from Steve Frankel from Dougherty..

Good afternoon. I assuming the big uptick in professional services year-on-year is a sign that you are engaged with the large media customers and you are going to help get them launched.

What if anything can you do to improve the profitability or the narrow the losses on [indiscernible] which traditionally has been a loss leader for you guys or is that’s just the nature of the beast?.

Hi, Steve. So your first assumption is correct. We are engaged with some large media properties and we are helping them build sort of integrated solutions on top of our platform and deliver great consumer experiences. So that’s exciting.

We have broken through as you can see in the fourth quarter above breakeven that has traditionally been a pretty severely negative margin part of our business and we are very pleased with the management of that and now we’ve gotten that up above breakeven we think we can sustain that in 2016..

Okay.

And this notion of mid-teens bookings growth, is that based on the pipeline that you have today or it’s what we have today plus if ramp these new sales people and they are productive by the end of the year we get there?.

Yes and yes, pipeline doing analysis of the capacity as we add headcount, general momentum and feedback we’re getting customers in the market and obviously working closely with our sales leadership to look at what we think is possible. .

And will we see teens booking growth as soon as the first half of the year?.

We’re not breaking it out quarter-by-quarter, but we certainly expect to start the year strong. .

Okay, thank you. .

Thank you our next question comes from Eric Lemus from Raymond James. .

Hey guys, thanks for taking the question. Can we just drill down a little bit more on your increase in sales and marketing spend? As far as those new sales people that are coming on.

Where exactly are they going to be focused on which particular segment? And is that more of a hunter mentality for those sales people?.

Yes it’s there will be a number of different roles, but the biggest cluster is in the North America Digital Marketing Group. We’re adding hunters and farmers both inside and outside reps. We think that there is a significant opportunity to drive new logo business as well as drive more business in our installed base.

And so we’ll be hiring quite significantly there. And then in addition to that there is a few hires in the media team and certainly couple of hires in each of the international regions is expected as well..

Okay.

And then has there been any change in the competitive environment?.

There is no particular change, I would say what I said in the past which is it’s a very fragmented competitive environment. There is a one competitor that we compete with in any significant percentage of our deals. We compete with lots of different people and lots of different deals that they’re spread out by use case; they’re spread out by geography.

And there is a wide range of competitors from sort of niche providers to large systems integrators that are trying to provide complete managed services for accounts in the market. And so in that regard the market continues to be fragmented, highly competitive.

We continue to believe we are in a very strong position as a leading standalone player in the market..

And then let me comment on that too David. One of the things that got me excited about the performance in 2015 of our sales organization is they did a very good job of having some nice competitive takeaways not only North America, but also internationally as well.

And we feel like we’re building a little bit of a momentum around the products that we have, the platform that we have and all of that combined together with the go-to-market leads us to a better position competitively..

Okay, great. That’s helpful.

And then my last question, looking out through the year, is there any particular quarter where there is increased seasonality in renewals?.

Yes we have more of our contracts in the fourth quarter of year as that’s a higher renewal quarter for us. .

Okay, thanks. .

Thank you. At this time we have no further questions. I will turn the call back over to David Mendels for closing comments. .

Well as I hope you’ve heard, we had a good quarter we’re excited about the year. We appreciate all of you who joined us today and we look forward to talk to you again in 90 days. Thank you very much..

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..