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

Steve Frankel - Dougherty & Company Glen Mattson - Ladenburg Thalmann Sameet Sinha - B.Riley & Company Mike Latimore - Northland Capital Markets.

Greetings, and welcome to the Brightcove Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode; and a question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr.

Brian Denyeau of ICR. Thank you, Mr. Denyeau, please go ahead..

Good afternoon, and welcome to Brightcove's third quarter 2016 earnings call. Today I'll be discussing the results announced in our press release issued after 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 fourth fiscal quarter of 2016 and the full year of 2016.

This central deployment of our product and functionality, industry and market trends, expected profitability, 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 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 cause actual results to differ materially from expectations.

For discussion, the material risks and other important factors that could affect our actual results, please refer to those contained in the 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 third quarter 2016 results, as well as our guidance for the fourth 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 to review Brightcove's third quarter results which were highlighted by solid revenue growth, profitability, and free cash flow. Looking at our results through the quarter; total revenue was $38.4 million, up 13% year-over-year and above the high end of our guidance range.

Adjusted EBITDA was $2 million with non-GAAP income from operations of $913,000 leading to non-GAAP net income per diluted share of $0.02, all of which were in line with our guidance.

From a top line perspective, we have exceeded our quarterly guidance in all three quarters during 2016 and as Kevin will describe in detail in a moment we are again raising our full year 2016 expectation in this regard. A component of our third quarter revenue performance was greater than anticipated overages [ph] and professional services.

From a profitability perspective, were modestly lowering our full year guidance as we have made investments throughout the year which are intended to drive our growth and they are coming in a bit higher than we had originally planned. We are making great progress in positioning Brightcove for long-term success.

I spent a lot of time on the road with customers and they love what we've done and where we are going from a product perspective. This is reflected in our most recent Net Promoter Score which showed significant improvement year-over-year and was our highest ever.

It is both gratifying and exciting to get such positive feedback, and it tells us that our strategic course is the right one. During the quarter, we made continued progress from both, a go-to-market and a product perspective in our digital marketing and media business unit.

The improvements we have made so far this year are meaningful and encouraging but there are still more to do and additional improvements we need to make across the organization.

Through the third quarter, we have achieved mid-teens bookings growth but we are facing a challenging fourth quarter comparable that may make it difficult to achieve our full year goal. The tremendous progress we have made in updating and enhancing our product portfolio is a big reason we are confident in our ability to achieve our long-term goals.

We're proud to announce in this regard that we have received the top rating from three of the leading industry analysts within the last several weeks. Earlier this week, Forrester named Brightcove a leader in its way for sales and marketing online video platforms.

Forrester noted that Brightcove has established a platform of faster grade technologies for the use of video in sales and marketing operations. They concluded that Brightcove is perfect fit for companies with sophisticated video marketing needs.

At the end of September, Ovum, a leading analyst house covering the intersection of the telecom, media, and IT markets named Brightcove the global market leader among OVPs for premium content owners.

In decision metric support, Ovum pointed to Brightcove's developer friendly HTML file player, highly diversified video monetization roadmap and steadily expanding geographical footprint as the key reasons behind our ability to maintain global market leadership.

Finally in August, Frost & Sullivan recognized Brightcove once again with its 2016 market leadership award for OVPs. Frost & Sullivan specifically highlighted the work we've done in refreshing and expanding our product portfolio to give customers 'holistic market leading solutions for online video management'.

We are not resting on the success and are executing against an exciting product roadmap that would deliver even greater value to customers. As we've discussed previously, we're particularly excited about our new dynamic delivery platform, code named Bolt [ph] which will be released in the coming quarters.

A complete refresh of our back-end infrastructure, both dynamic delivery capability will allow for just in time video packaging, and that will enable customers to create one version of a video that can be delivered to any device instead of creating separate versions of a video based on each necessary streaming format, end point device or DRM requirement.

Bolt is a major step forward in the market that will lower a customer's total cost of ownership while making it faster and easier to deliver and monetize new digital content across current and future devices. Our new social product is being delivered to the market in the next two weeks.

Brightcove Social is the first solution for marketers and media organizations to manage and publish need of video across multiple social channels, optimize and edit video for each platform and aggregate video analytics from the different platforms in a single location.

We believe Brightcove Social will be a real differentiator for us in the marketplace. Another area of focus is on building and expanding an ecosystem of partners and technology integrations that place Brightcove as the video platform of choice for customers who are deploying a next-generation digital marketing stock.

We made additional progress in this area during the quarter with new integration to salesforce.com. The Brightcove Video Connect for Salesforce integration enables source Salesforce users to increase their engagement with customers, prospects, and employees throughout the buying cycle.

This is a great example of how we're able to expand used cases for Brightcove across the enterprise which increases the number of potential users and the value we can deliver to customers. I'd now like to take a few minutes to review the progress we're making across each of our target markets, starting with the media business.

We continue to see new opportunities emerge around the world as proliferation of high speed mobile broad gang connectivity makes online video for OTT offerings a high priority for traditional broadcast and content providers.

In area of increasing focus for Brightcove in the media sector is Latin America where we had several notable wins during the quarter and in expanding pipeline of opportunities. We're investing to build on the success by hiring our first Regional Director for Latin America and opening an office in Mexico City.

We see good opportunity in the region for both of our business units, but particularly in media in the early stages.

Brightcove signed newer expanded customer wins in the third quarter that reflect the breadth of opportunity around the world; Aernow, Expansion SA in Latin America, Baadl Technologies in India, Spuul in Singapore, Book Walker in Japan, Valnet in Canada, Next Interactive Media in France, UKTV in the UK, Fairfax Media in Australia, highlighted stronger outside the United States.

Genius, Sony, Time Inc., CRTV, Legacy Research Group, and RLJ Entertainment demonstrate our success in the U.S. market. Next Interactive Media is a French news and sports channel reaching audiences across France, North America, and North Africa.

A long time Brightcove customer, it recently increased their relationship with us in order to expand the number of live and on-demand channel they deliver across desktops, mobile, and connected devices.

They were relying Brightcove to simplify and manage the growing technical complexity of their video offerings in order to quickly bring new content to customers and effectively monetize their digital video assets.

Genius is a crowd sourced service annotate musical lyrics or any other text-related content that lives on the web; or as they describe themselves, an interactive guide to human culture. Given its musical heritage, Video was the natural element of its website.

To capitalize on potential partnership opportunities, genius decided it needed to look beyond the functionality provided by YouTube. Genius choose Brightcove Video Cloud because of its functionality, flexibility and integration capabilities.

Turning to our digital marketing business; we're continuing to see customers allocating increasing portion of their budget dollars towards next-generation digital marketing solutions and video in particular.

Video has a compelling ROI driving improved performance across the customer journey from awareness, to engagement, conversion, retention and advocacy; and that results in greater sales and more loyal customers. We're focused on how we can build on the momentum in this market and drive even faster adoption and sales velocity.

We're pleased with the number and quality of the sales reps we've hired in our digital marketing group this year, and getting our wrap fully ramped and productive is a key milestone. We are seeing good initial results.

During the third quarter, we saw newer expanded deals with a range of industry-leading brands in our digital marketing and enterprise business, including Aviva, Eaton Corp., Enterprise Holdings, Gaiam, John Wiley & Sons, Kaplan Test Prep & Admissions, Vantiv, ServiceNow, Smithfield Foods, and The Church of Jesus Christ of Latter-Day Saints, among others.

Enterprise Holdings which is the largest car rental company in the world and includes the enterprise, national, and brands choose Brightcove to power its growing investment in brand awareness through video.

Enterprise felt that it reached the limits of its brand building efforts through YouTube and was looking for a way to maintain more control over the viewer experience on it's on my web property. It shows Brightcove for it's easy to use functionality, seamless integration into its existing CMS system.

And because Brightcove Social will enable them to manage process YouTube presents as well. ServiceNow has steadily expanded its use of Video throughout its operation and found itself in a situation where it was utilizing multiple vendors across a number of used cases.

The complexity of managing and dealing with multiple vendors have become unworthy and ServiceNow is looking to standardize on a single solution.

Brightcove's broad functionality, integrations with key elements of ServiceNow, existing marketing technology stack, especially Eloqua and Adobe Experience Manager lip service now to select Brightcove for external marketing and internal communication and training activity. Lastly, I'm pleased to announce an organizational change within Brightcove.

We have named Andy Feinberg as Brightcove's President and Chief Operating Officer. As COO, Andy will be responsible for both of our business units and all of our customer-facing operations globally.

Andy has served as our President of International Operations, and together with his team has been a driving force behind our strong international grow over this past year. We believe his talents can be leveraged even further worldwide.

To summarize, Brightcove delivered solid third quarter financial results, a much improved product offering and go-to-market messaging is resonating with customers and we are focused on building on that success going forward. With that, let me turn the call over to Kevin to walk you through the numbers.

Kevin?.

Thank you, David and good afternoon everyone. Let's start by reviewing our third quarter results and then I'll finish with our outlook for the fourth quarter and full year. Our total revenue in the third quarter was $38.4 million, a 13% increase from the third quarter of 2015 above the high end of our guidance of $37.5 million.

Breaking revenue down further, our subscription and support revenue of $36.2 million was up 9% year-over-year and professional services revenue for the quarter was $2.2 million, up 235% year-over-year.

Driving the revenue over performance we generated $3 million of overages during the quarter which were higher than anticipated, and $400,000 of professional services revenue was above our guidance. While we are pleased with our performance, we do not anticipate this level of overages and to continue in the future.

Now let me add some color around our revenue mix. In the third quarter, our premium offerings generated 95% of total revenue while our volume offerings generated 5% of total revenue. On a geographic basis, we generated 61% of our revenue in the quarter in North America, and 39% internationally.

Within international, Europe generated 17% of our revenue, and Japan and Asia Pac generated the remaining 22% of revenue during the quarter. This quarter we are introducing a reclassification of our split between our media and digital marketing enterprise business units.

Traditionally, we have reported the mix based on a customer's SIC code, including all of our legacy volume business which is a small and declining part of our overall revenue.

In order to provide better clarity and transparency into our business, going forward we will now report the split based on business unit and we will also separate out volume revenue. We have provided historical results stock to the first quarter of 2015 and now it provide investors with trend data in our earnings release today.

From a vertical perspective, our media business represented 57% of our revenue in the quarter; and our digital marketing enterprise business represented 38% of our revenue, while volume business represented the remaining 5% of our revenue. Let me now turn to the supplemental metrics that we share on a quarterly basis.

Our recurring dollar retention rate in the third quarter was 97%, above our traditional target of low to mid 90% range. Looking at our customer account, we ended the third quarter with 4,647 customers of which 1,981 customers were classified as premium. Our average revenue premium customer was $70,000, which is up 4% year-over-year.

On a GAAP basis, gross profit was $24.6 million, operating loss was $1.6 million, and loss per share was $0.05 in the quarter. Turning to our non-GAAP results; gross profit in the third quarter was $25.3 million, up from $22.9 million in the year ago period, that represented a gross profit margin of 66%.

So description and support revenue represented approximately 94% of our total revenue and generated a 69% gross margin in the quarter. Professional services; gross profit with $169,000 or 8% of revenue in the quarter. Non-GAAP from operations was $913,000 compared to $1.3 million in the third quarter of 2015, and was in line with our guidance range.

Adjusted EBITDA was $2 million compared to $2.7 million in the year ago quarter, and was also in line with our guidance range. Comparing our results year-over-year, we meet investments and sales marketing and R&D to accelerate our revenue growth.

Non-GAAP income per diluted share was $0.02 based on $35.6 million weighted average shares outstanding and in line with our guidance range of $0.01 to $0.03 per share. This compares to income per share of $0.03 on $33.5 million weighted average shares outstanding and the year ago period.

Turning to our balance sheet and cash flow; we continued to generate strong cash flow in the quarter, ending the quarter with cash and cash equivalents of $35.2 million which is an increase of $11.4 million in cash as compared to the prior year quarter, and an increase of $5 million sequentially.

During the third quarter, we generated $2.6 million in cash flow from operations with $1.4 million in capital expenditures and capitalized internal use software; we generated free cash flow of $1.2 million for the quarter compared to $3.1 million of free cash flow in the year ago period.

Our cash balance also included approximately $4 million from the proceeds of stock option exercises. I'd now like to finish by providing our business outlook for the fourth quarter and full year 2016.

For the fourth quarter we are expecting revenue to be in a range of $38.5 million to $39 million, including approximately $2.3 million of professional services revenue. From a profitability perspective, we expect non-GAAP operating income of $1 million to $1.5 million for the fourth quarter.

Non-GAAP net income per share is expected to range from $0.02 to $0.03 based on $36 million weighted average shares outstanding. Adjusted EBITDA is expected to be in a range of $2.3 million to $2.8 million in the fourth quarter.

For the full year 2016, we are raising our revenue guidance to be in a range of $150.1 million to $150.6 million which represents year-over-year growth of 11% to 12%.

In terms of profitability, our non-GAAP operating income is expected to be in a range of $2.3 million to $2.8 million and adjusted EBITDA is expected to be in a range of $7.1 million to $7.6 million. In addition, we expect non-GAAP net income per share of $0.05 to $0.06 based on $34.8 million weighted average shares outstanding.

We now expect free cash flow to be in a range of $5.7 million to $6.7 million for the full year. The primary driver of our updated profitability guidance is higher commissions, the way to multi-year transactions.

From a commission perspective, we are insisting our reps to sign multi-year deals with increased financial commitment from customers and we pay our reps based on the highest annual ACB in the contract. We signed more of these deals than we originally anticipated.

While this shift will have a short-term impact on our profitability, we believe the benefit from more multi-year commitments is a positive for our business overall. In summary, Brightcove delivered strong third quarter financial results and we are pleased with the accomplishments we delivered so far this year.

With that, I would now like to open up the call for questions. Operator, we are ready to begin Q&A..

[Operator Instructions] And our first question comes from the line of Tom Roderick from Stifel. Please go ahead..

It's actually Parker Lennon [ph] for Tom, thanks for taking my question. The first quarter you've shown year-over-year growth in the European region and about a year and a half now.

Just wondering if you can discuss some of the developments in that region; how your sales efforts have been? How you feel about leadership there?.

Sure. First of all, thank you very much for joining us. Good to speak with you Parker and thank you to everyone on the call. It was a strong Q3 and appreciate everyone joining us today for this call. As for Europe, yes, I appreciate you noticing that.

We've put in place new leadership, let's see - about five quarters ago we asked Andy Feinberg to step into President, International; and then he made some changes and brought in Mark Blair to head-up our European team at the beginning of this year.

Mark has been a really seasoned professional leading our operations; first in Australia, and then across the Asia Pacific region. And Mark has - I think successfully helped stabilize the ship in many ways, bringing some new people, built some new customer relationships and we're quite pleased with the progress.

I think we still have a lot of work to do; we haven't achieved everything we'd like. I think there is a lot of opportunity in Europe, and so hopefully we'll see a good progress in progress there over the next many quarters as well..

All right.

And in terms of the investments you've made in the business and your future plans this year; how much more hiring do you think there is to be done on the sales front? And what do you see now in terms of the average ramp time for some of the sales reps to get up to speed and sell into your core markets?.

Sure. We haven't finished our annual planning process for 2017 yet. So how many people we will hire - we still have some work we're doing on all the modeling and planning for all of that but I think there is definitely room there.

We think we're in two really exciting markets; both the digital market enterprise space and the media space; there is opportunity in both markets - significant opportunity and much larger than we are today, that we are in our strongest business than ever in terms of our product offering and our competitiveness.

And so I definitely think there is room for us to continue to ramp and grow salesforce and that can penetrate new regions, that can continue to expand our reach - that can continue to grow our existing customers.

We did mention specifically in the script that were adding sales for the first time in Mexico City to cover the Latin America region, and we're excited about that; large continent and lots of opportunities there. And so I think we've had some good wins there without having a focused team, and we think we can continue to grow that.

So I think you'll definitely see sales growth from us. I can't give you exact numbers but I think there are opportunities. In terms of the Rev time, it depends a little bit on where they are in the company and what they're focused on.

The Rev time for sort of the big deal guys and I should say the big deal people because it's both men and women; on the media side it is - good couple of quarters, two/three quarters that - and you really start to see a big impact after a year and the second year.

On the digital marketing business, majority of those people are more inside sales with shorter sales cycles and so you start to see a good ramp in more like a little bit of productivity even in the first quarter but really two to three quarters and those guys are usually pretty well ramped..

All right, thank you guys..

And our next question comes from line of Steve Frankel from Dougherty. Please proceed..

Good afternoon, a couple of questions.

Let's start with the trend towards multi-year deals, and obviously that helps improve your visibility and your confidence in the business but from the customer perspective, is it more aggressive pricing that gets them to lock-in or what's the attraction from their side?.

I think that - the attraction is - we are able to really work with some of our larger customers to really get into a partnership or strategic vendor mode where we get out of being used in a tactical way for a project and start to be viewed more as a strategic vendor.

And many of large companies really prefer that multi-year relationships in order to have stable vendor relationships and be able to build the partnership and build the relationship; so I think that's really a primary factor.

Clearly, when people - the typical sale of negotiating strategy is buy more, get a little bit of a better deal; and there is some of that. But we're not typically discounting heavily in order to drive people into multi-year deals, there is a small amount of that but it's not a major factor that really skews the business in a significant way..

And in terms of the premium ARPU which is still growing nicely, although at a little slower rate than the last couple of quarters.

In this quarter in particular it driven by the large number of customers that you signed and I assume given the number that probably was heavily slanted towards additional marketing side?.

Yes, well put. I can have a little bit there which is - the - we added - I think it was 55 net customers; so that changes the denominator and so that naturally leads to this. As we go forward, this is the topic we've been talking a little bit about as to what's the right metric and the right way to talk about this.

I don't think we have the answer yet but just to give you a little bit of color.

As we continue to mature the two different businesses; the business dynamics are a little bit different where the media business growth is driven by fairly large deals and fairly significant deals and we've talked about some very, very large deals over the last few quarters.

Whereas the digital marketing business is driven by a much higher volume of smaller deals and in particular as we've talked about several times over the course of the year, the introduction of new entry level price indeed really get people started at that first project and not wait for them to make an enterprise purchase.

And those price points could be much lower; so we could have two dynamics here that make this metric a little bit hard to predict which is - big deals on the media side which is obviously promising but a large volume of smaller deals on the digital marketing side which is also promising but the two of those make the ARPU growth rate a little bit harder to predict going forward, so we're going to have to think a little bit about that and how we give you guys some - a better understanding in future quarters..

And could you give us an update on that in free level product that you introduced a couple of quarters ago? How is that going relative to your expectations? And have you - when do you think you start to get upsells from that?.

So far, so good. But we got off maybe to a little bit slower start than we wanted by a quarter or maybe a quarter or few months in terms of really being able to get it out very broadly.

So we introduced a new entry level pricing to our sales team to have an offering several quarters ago and that has driven some of the new customer growth and that's great.

But we - only just yesterday, not time for this call which is purely coincidence, the timing here, but only just yesterday it sort of made that available in an e-commerce sort of self-service website on a global basis.

So that's really going to reduce friction for people that accommodate and looking for a service; a video service on a project level and they want to get started fast, they've got a credit card.

And so I think that's going to start maybe a little bit in the fourth quarter but I think you'll see a lot more in 2017 until we ramp up the number of people that enter at that point.

In terms of how long it takes to get up sell, I think with the new offering it's premature for us to give you specifics, and we just don't have enough data, the sample size is still too small. But I can - I will say that we've seen some customers up sell within a quarter or two and other customers - it's really I'd say, round the year.

It really depends on why they're buying us? What's the used case is? What the opportunity is within the account? But there is absolutely - there are opportunities where you can really think about that edgy level pricing, it's all the paid trial and once they actually start to use you which could be - within months, not quarters; you can get an up sell.

And other cases where obviously it will take a little bit longer..

And let me just sneak one last quick one in; this is the first time you hedged a little bit around that goal of mid-teens - bookings growth for the year? Have you - and I understand Q4 is a tough competitive; have you seen something quarter-to-date that makes you incrementally more cautious or are you just trying to be cautious in general with what was a pretty ambitious goal as you've given where you started the year?.

Thanks for the question; I think it's an important question. We - I don't really want to comment on quarter-to-date, I don't think there is anything there. To be honest, I think we're being - I would say appropriately cautious. It's a big comparable, we have a lot of work to do; it's not a gemmy [ph].

And because the fourth quarter is both our largest quarter and our toughest comparable, we thought that even though year-to-date we're very pleased with achieving that goal that there was some risk and we wanted to make sure that people were appropriately cautious..

Okay, thank you..

Our next question comes from the line of Glen Mattson with Ladenburg Thalmann. Please go ahead..

I'm curious with the significant number of M&A activity going on in the marketplace; is that something that you kind of - I don't know, is this something that you think about or concerned about at all that - potentially some of your customers are - a big customer could be snatched away by another entity that can deliver video.

And I would just - any thoughts on that with regards to the marketplace?.

Sure, thanks for joining us, good question. You know, that has happened from time to time where we've sold through a given company, they've got bought by a company that uses a competitor of ours and we've lost a contract.

In fact, inverse has also happened where a company that happens to be a customer of Brightcove buys a company that might be using a competitor and that becomes an opportunity for us. So I'm not sure that in itself is a significant variable in how we project our business..

Okay.

On the new product with the code Bolt [ph], I guess - I missed when you said it was going to be released - did you say over the coming quarters?.

Yes, that's what we said. The product is being used already in sort of early mode by one of our largest customers worldwide. And we're very excited about that, so we're starting to get that kicked out and get it working in production.

By the end of the year and early next year, we'll be rolling that out a little bit more and then over the coming quarter that will become the new standard back end for all of Brightcove..

So would you mention the pent-up demand for this product at all as you see it now?.

Yes, I think the impact of this product is different on different segments of our customer base and that's important to understand. It will have a positive impact in our ability to flexibly deliver video in a high quality way while minimizing costs for all our customers. So that's good news for every customer.

In terms of pent-up demand, the place where it's going to have the biggest impact is the large media customers doing complex deployment of Video to many devices, and they have to deal with different CRMs, different caption types; and so that's where I think it will have the biggest impact.

And I think there is actually a little bit of pent-up demand in that phase, I think a lot of large Tier 1 entertainment companies and alike, and content owners are struggling with the complexity of delivering video to all these different devices with all the different security model.

Now that said I don't want to make you think that means it's an easy sale and we closed the whole bunch in the first quarter.

Hopefully we'll get some good progress every quarter next year but while - that's where the pent-up demand is, it's also - those are the most complex customers who take a little while to adopt technology because they have very, very high requirements or complex requirements and integration needs..

And on the social product is there - anticipation of a strong uptake early on? Have you done field test?.

Yes, I think we'll see some pretty significant uptake. Fairly quickly, it's an easy product to adopt, it's going to be a nice impact economically; in some cases by getting people to upgrade in the video marketing suite. In other cases, by people buying the social product more as a central add-on but it's fairly easy to adopt product for customers.

I think we had quite a few customers in the beta program, we've been getting positive feedback. So I expect we'll start to see some uptake this quarter..

And just one last one, on the weaker - slightly lower probability for Q4; is that just solely attributable to higher selling expense related to the multi-year deals?.

It's a combination of that, we also had a couple of - I'll call it the higher expenses in the quarter that we are more one-time expenses around some consultants that we use that sort of thing more in the pricing side.

But generally speaking, when I think about not only conditions within the quarter but I also think about the commissions that we had last quarter; so my commentary in the prepared remarks was more broadly speaking - talking about the full year and profitability on the full year as it relates to commissions..

Okay. In general, that's been something that you've been trying to drive as the multi-year deal. So I guess you've had more success maybe than you planned but it's - overall, a good problem….

Yes, exactly..

Okay, great. Thanks guys..

Our next question comes from the line of Sameet Sinha from B.Riley. Please go ahead..

Thank you. So I'm going to ask a couple of questions about the bookings commentary that you made.

So you have - how many quarters of tough comps do you have for that metric? It seems like there is one - maybe one quarter, maybe two, if you can elaborate on that? And secondly, you're appropriately cautious when you speak about that? Does that prevent you from reaching that goal that you had put out there of accelerating revenue growth in 2017?.

Let me get the first two questions then we'll go to any further. On the first one, I was only referring to Q4 as a particularly tough comp in that - a year ago Q4 was a strong quarter, so that's what I mean by a tough comp in comparison. So Q4 does stand out among the four quarters of the year and that's why I call that.

As for your second question, I don't think we are at risk of - we're not concerned about whether or not we're accelerating revenue year-on-year; I think we're on-track for that.

The specific point we made was - as it relates to - we have talked about achieving mid-teens bookings growth for the year and we achieved that for the first two quarters of the year, we're very pleased with that.

As we look to Q4, it's a tough comp and it's also just - it's our largest quarter of the year; and so we wanted to be a little bit appropriately cautious about that..

Fair enough. Thank you.

Can you talk about gross margin trends as you see - I mean it seems like gross margins - non-GAAP gross margins increased sequentially, is that a trend that we should see going forward? I mean I think you're going to play catch up with the increased utilization rates that you've seen in the first two quarters of the year?.

Yes. So there are some seasonality in particular like in Q2 where we had - the play conference which is the annual user conference we have; we typically see that in Q2. And then Q3 and Q4, typically stronger quarters from a profitability perspective from Q2, and you've seen that over the last several years.

We're looking at margins being slightly better in Q4 over Q3; I wouldn't read too much into that in terms of that - the trend, if you will, going forward - it's just part and parcel of the user conference being in Q2 and then continuing to execute in Q3, Q4..

Okay, thank you..

And our next question comes from the line of Mike Latimore with Northland Capital Markets. Please go ahead sir..

Thanks.

I guess just following up on that last question; I guess just to be clear - you feel like you're on-track for an improving growth rate next year or just higher revenues next year?.

We are not yet guiding next year. We're still working out of annual planning process and we'll get to that in our next call. But fundamentally, our long-term - and I think about this from multi-year perspective, our story is very consistent with everything we've been saying now for quite a few quarters.

I wouldn't say exactly how but quite a few quarters we've been saying we believe there is a very large opportunity, we believe we can accelerate revenue growth, and that we believe we can do that while remaining profitable and improving our profitable overtime..

And then in terms of the [indiscernible] customer ads, how many of those customers are on these multi-year deals?.

I don't think we've broken that out. So - it's a good number, it's obviously a number that's up but I don't think we've broken that off per se..

Okay.

And can you give me as a final sort of headcount at the end of the third quarter?.

Headcount for the third quarter was 471..

And that's up from 450, is that right?.

Yes. 451 it was - yes..

And then in terms of the fourth quarter guidance, what do we assume from an over standpoint - we assume normal overage or did you notice much over - I need just a little clarity on that..

Well, we always have assumed overages every quarter, of course they are hard to predict. And so we are not assuming the same level of overages that we had in Q3 and Q4. We don't guide that overages on a quarterly basis but I would just say that we're not expecting them to be as high as they were in Q3..

Lastly, you announced two large deals in the second quarter - when do you think those will start coming into revenue?.

I think that they have both started to come into revenue. That is typically the case; we signed contracts with - say it's an annual contract, we recognized revenue on a ratable basis, on a daily basis from when we signed the contract. Now that said, with some of these large contracts that are multi-year deals, there is sort of a ramp built-in.

So you don't necessarily get all that revenue impact in that first year, that's something that you'll start to see more off in the second year.

So for example, a deal that we signed in say Q2 will see certainly some revenue from the day we signed it for the first twelve months; and then we might see a steep function as we recognize the year two revenue on a ratable basis - on a daily basis for year two.

Does that make sense?.

Yes. Thanks a lot..

There are no further questions at this time. I'll turn the call back over to Mr. Mendels for any closing remarks..

Hello, I want to thank everyone again for joining us on the call. We had a strong Q3. We're pleased with the momentum. I think in particular we're pleased with the innovation in new products that we've been able to bring to market.

And we're excited, we've get a lot of hard work in front of us in Q4 but we're excited about our long-term opportunities and looking forward to talking again in about 90 days. Thank you very much..

Ladies and gentlemen, this does conclude our teleconference for today. We thank you for your time and participation. And you may disconnect your lines at this time. Have a wonderful rest of the day..