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

Steve Frankel - Dougherty Parker Lane - Stifel Brian Peterson - Raymond James Nick Altmann - Northland Capital Management. Glenn Mattson - Ladenburg Thalmann.

Greetings, and welcome to the Brightcove Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode; an interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Mr. Brian Denyeau. Thank you, You may begin..

Good afternoon, and welcome to Brightcove's fourth quarter and full year 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 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 2017 and the full year of 2017.

Expecting profitability, our position, executing our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain and up sell 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 fourth quarter 2016 results, as well as our guidance for the first quarter and full year 2017.

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

Thanks, Brian, and thanks to all of you for joining us today. Brightcove delivered strong fourth quarter results that capped an impressive year for the company.

We are excited about the underlying momentum in our business and believe our product innovation and shorten go-to-market efforts positioned the company well to achieve our long term revenue growth and profitability targets. I am pleased with the company’s performance in 2016. Our products innovations and the investments we made in sales and marketing.

At the beginning of 2016, we set a goal of delivering mid-teens, premium bookings growth for the full year and I am pleased to report that we achieved that target with full year bookings growth of 15%. As we mentioned last quarter, there was still work to do in the fourth quarter to reach our mid-teens goal for 2016.

However, the Brightcove team responded with an impressive fourth quarter bookings performance that included a sizeable and strategic seven figure media win and record performance by our digital marketing and enterprise group.

Looking at our results for the fourth quarter; total revenue was $38.6 million, up 10% year-over-year and within our guidance range of $38.5 million to $39 million. Adjusted EBITDA was $803,000 with non-GAAP operating loss of $309,000 and non-GAAP net income per diluted share of $0.03, all of which were below our guidance range.

Kevin will discuss later the items that impacted profitability in the quarter. For the full year we achieved the following results. Revenue was $150.3 million, up 12% year-over-year. Our full year revenue was more than $3 million ahead of the high end of our original guidance.

From a profitability perspective, we generated adjusted EBITDA of $5.7 million. Non-GAAP operating income of $1 million and non-GAAP net income per diluted share of $0.00. We also generated free cash flow of $5.9 million.

Looking back over 2016, we achieved a number of impressive and fundamentally important milestones that reflect positive momentum across the business and the opportunity the company has for even better performance in the coming years. We returned to double-digit revenue growth for each quarter of the year.

We signed a number of strategic seven figure deals in the media business, including the largest deal in the company’s history during the second quarter. Our performance in the media market in 2016 reflects the positive impact of the innovation and investments we’ve made across our product portfolio over the past two years.

We also had a strong year in our digital marketing and enterprise business. One of our primary goals during the year was investing in digital marketing and enterprise with additional sales reps, and building out our marketing machine to increase the velocity of our sales efforts.

We saw improvement in this business throughout the year capped by a terrific performance during the fourth quarter. We have done a good job of changing the perception of Brightcove to be a strategic vendor that customers partner with when they are looking to leverage video for improved business performance, customer experience and communication.

We made a concerted effort to find multiyear deals in 2016 and I’m very pleased to report that we increased both the number and total contract value of multiyear deals by more than 50% year-over-year. This locks in a future contract value above and beyond the next 12 months which enables better attention overtime.

We delivered a tremendous year of product innovation, including the loss of Brightcove’s social, support for 360 video with virtual reality in video cloud, as well as successful data programs for both our next generation dynamic delivery technology and our new live offering that combines cloud based live transcoding, real time clipping and frame accurate server side and insertion.

Our strength in product portfolio is being recognized by both customers and third party analysts like Gartner, Forrester as best-in-class and well positioned to solve the critical business issues facing media companies and digital marketers. More exciting innovation is coming in 2017 that will further extend Brightcove’s market leadership.

I’d like to take a moment to put this progress in the context of our overall long term objective. We continue to believe that we are targeting a dynamic, multibillion dollar opportunity, where we are well positioned win. Our long-term goal is to achieve 20% plus revenue growth and 15% to 20% adjusted EBITDA margins.

There is still more work to do to get where we want to be, for a strong performance in 2016 puts us in a much better position entering 2017 to achieve these objectives than we were a year ago. While I’m optimistic about the underlying momentum in the business, we will be facing a meaningful revenue headwind in 2017.

Our largest customer, which represented 4% of our revenue in 2016 face significant economic and financing challenges in recent quarters but remained a customer in good standing despite these challenges.

In late Q4, we signed this customer to a reduced quarterly deal and as a result, we expect a greater than 90% revenue reduction from this customer in 2017. To be clear, this loss is not a reflection of Brightcove’s performance or underlying story.

The customer experienced significant growth in recent years, but ultimately struggled to convert viewership and customer engagement into a viable business going forward. Despite [ph] this headwind that Kevin will detail later, we expect to deliver double-digit total and subscription revenue growth by the end of 2017.

In addition, we are targeting overall bookings growth in the mid to high teens for 2017. While we do not plan to break up bookings by business unit, we do expect digital marketing and enterprise bookings to grow at an accelerated pace that could exceed 20% for the year.

Like last year, we will provide a quarterly update on whether we will remain on track relative to our company bookings target. I now like to take a few minutes to review the progress we’re making across each of our target market, starting with the digital marketing and enterprise business.

One of the exciting things we saw in 2016 was strong success and expanding opportunity to extend our focus beyond just digital marketing and into broader enterprise communication. This includes areas like internal communications, customer support, employee training and other used cases.

Like the digital marketing used case, the enterprise opportunity is truly horizontal across industry as a fragmented competitive set when it’s in the early stages of adoption. We did natural cross sell opportunity between digital marketing and enterprise, and have seen good wins in this area.

Expanding across selling efforts between digital marketing and the broader enterprise is the key focus for us going forward. As we look to 2017 we believe the digital marketing and enterprise market is quickly reaching an inflection point. Our focus this year is about driving faster velocity in this business.

We will continue to add sales capacity to this group and we remain optimistic that our recently introduced pricing peers will increase customer adoption and sales connectivity [ph] Digital marketing enterprise is a trend favoured and best going market where Brightcove has early market leadership and a favorable competitive environment.

We know we have the products, and the go-to-market team to deliver great results in this business. We are feeling very good about our ability to execute in this market and generate significant long-term growth.

During the fourth quarter, we signed new or extended deals with a range of industry-leading brands in our digital marketing and enterprise business, including BNP Paribas, Kennedy Center, Lifetime Fitness, Loews Hotel, McDonald’s, Quinnipiac University and U.S. Bank, among others.

There are couple of examples that illustrate a momentum in both digital marketing, enterprise wide internal used cases. Demand [ph] based, a leader in account based marketing technology chose Brightcove to go beyond their initial video marketing efforts with Youtube.

They will use Brightcove’s advanced functionality in the areas of social video, interactivity, market automation and analytics to drive both brand awareness and demand generation. A customer since 2012 [Indiscernible] video, marketing has grown significantly.

This quarter, they signed an extended contract to support additional video market activities and the expansion of video into corporate communications, internal training and associate engagement. Turning to the media business. We had a strong fourth quarter that capped off a great year for this business.

There is a lot of activity in this market as OTT operates, proliferate and the acceleration of code cutting makes an imperative that content providers engage their customers in new and innovative ways to monetize their content. In addition, we make great progress signing larger, tier 1 broadcasters and media companies during the year.

We are increasingly taking a solutions approach with these customers coupling our platform offerings with professional services engagement and this approach paid dividends.

We are finding the Tier 1 broadcasters and media companies are interested in a holistic offering that couples our value platform, with the skill and industry expertise of our professional services team.

This combination provides our customers with even more immersive end user experiences, better device reach and improved monetization through subscription or/at supporting models. While large media deals have complex and can be lumpy, with longer sales cycle, we are making great progress in winning some of these very large accounts.

Speaking of product innovation of media, during the fourth quarter, we are pleased to have released in limited availability, dynamic delivery previously codenamed Bolt [ph] our new backend infrastructure.

Online video, seriously [ph] work by creating a separate rendition of a video free streaming format, device endpoint and each DRM meeting potentially hundreds of renditions of a single video could be required. This obviously drove up processing and storage costs.

Dynamic delivery creates a few versions of the video that are processed on unadjusted high basis and seamlessly delivered to the end-user. This flexible large sector significantly lowers the cost and complexity of video delivery for customers, making it easier and more profitable for them to deliver digital content to the viewers across any device.

The customer feedback has been terrific and dynamic delivery is a significant competitive advantage for Brightcove. In the fourth quarter, we signed new or expanded agreements with a number of media customers.

Notable names include Barstool Sports, Comicbook.com, Dallas Mavericks, Discovery Networks in Asia, Forbes, The National HotRod Association, Playboy Enterprises, Sony Pictures - India, and Snap Inc. Two of the deals that we signed during the quarter were particularly exciting wins that reflect a changing reality for the global media market.

The first was a seven figure win with the Asian subsidiary of one of the world’s most successful Pay TV services. This customer turned to Brightcove to help introduce a major expense in of its OTT service to subscribers across Asia.

The customer’s existing OTT offering was built on a DIY infrastructure that was not meeting its needs and was becoming increasingly difficult and expensive to maintain.

This win is a further evidence of our strong market position in Asia-Pacific is example of how our best of fleet suite of products combined with Brightcove services can deliver a robust, more flexible and lower cost solution than DIY including at the high end of the market.

It’s important to note that the dynamic delivery was the key differentiator during the sales process and integral to our selection. We are also excited to announce that we have signed a significant contract renewal with Snap Inc. to help power it’s discover service.

As we all know, Snap has created a highly engaged community of millions where video is an important part of the user experience. Brightcove is working with Snap to help deliver a high performance viewing experience for premium content from a wide range of publishers.

We are thrilled to be working with Snap and believe that this win highlights Brightcove’s ability to meet the needs of one of the fastest growing and most sophisticated consumer services in the world.

To summarize, we delivered a strong fourth quarter bookings performance that reflected the significant improvement we saw in our business throughout 2016. We enter 2017 with a stronger product portfolio and go-to-market team that we believe can deliver even better performance overtime.

We are pleased with all that we have accomplished, but we are not done. We are focussed on even better execution this year in order to create greater value for our customers and our shareholders. 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 delivered a solid fourth quarter performance. I will begin by reviewing the fourth quarter and the full year financials and then finish with our outlook for the first quarter and the full year 2017.

Our total revenue in the fourth quarter was $38.6 million, up 10% from $35.1 million in the fourth quarter 2015. Breaking revenue down a bit further, our subscription and support revenue was $36.1 million and that was up 6% year-over-year and professional service revenue for the quarter was $2.5 million.

Now let me add some color around the revenue mix. On a geographic basis, we generated 52% of our revenue in North America during the quarter. Europe generated 17% of our revenue in Japan and Asia Pac generated 21% of our revenue during the quarter.

From a vertical perspective, our media business represented 56% of our revenue in the quarter and our digital marketing and enterprise business represented 39% of revenue in the quarter, while our volume business represented 5%. Let me turn to the supplemental metrics that we share on a quarterly basis.

Our reoccurring dollar retention rate in the fourth quarter was 93%, which was within our target range of low to mid 90s. Our retention rate in the fourth quarter was negatively impacted by the reduction in spend from our largest customer which Dave mentioned earlier.

Excluding the impact of that customer, our retention rate in the quarter would have been 101%. Looking at our customer account, we ended the fourth quarter with 4,571 customers, of which 2007 were classified as premium customers.

As we discussed in prior calls, last year, our digital marketing business unit introduced a new start [ph] addition of our product designed to enable enterprises to easily adopt pico [ph] for smaller initial projects, and then grow with us as needed. Starter packages can be purchased in a self-service manner for as little as $199 or $499 per month.

Going forward, we will break out our ARPU for starter versus the rest of our premium customer base, since it’s low price point can skew the overall average, and make it harder to discern the trends in our ARPU metrics. So breaking down ARPU within our premium customer base, our starter customers averaged about $4500 in annualized revenue.

Excluding the starter customers, our other premium customers averaged $71,000 in revenue, which is up 3% year-over-year. On a GAAP basis, our gross profit was $23.3 million. Operating loss was $3.7 million and loss per share was $0.13 in the quarter.

Turning to our non-GAAP numbers, our non-GAAP gross profit in the fourth quarter was $24.8 million compared to $24 million in the year ago period, and represented a gross profit margin of 64%. Subscription and support revenue represented approximately 93% of our total revenue and generated a 68% margin in the quarter.

In our non-GAAP reconciliation of gross margin you will notice a onetime $845,000 charge related to the closure of two data centers in the fourth quarter. Moving our operations to the cloud is a strategic priority for the company, which we plan to complete in early 2018.

We expect to save approximately $900,000 per year by closing these two data centers which will benefit gross profit margin going forward, starting in Q1. Non-GAAP loss from operations was $390,000 in the fourth quarter, compared to non-GAAP income from operations of $2.3 million in the fourth of 2015.

Our profitability was below expectations for the quarter and was impacted by two primary items. First, we have proximally $400,000 and higher commission expense in the quarter related to our multiyear deals and bookings performance.

We pay higher commission on multiyear deals and the number and size of transactions that we close in the quarter skewed more heavily to multiyear transactions than we expected at the start of the quarter, and thus increase our commission expense.

Second, our management bonus for 2016 included escalators for overachievement of revenue and profitability, but only if we met our bookings target.

These bonus escalators were not certain prior to the fourth quarter, so we could not accrue any portion of the accelerator until we actually achieve the bookings target, which we did at the end of the year, as a result we accrued approximately $900,000 in overachievement bonus during the fourth quarter.

I would also note that management bonus pool was reduced due to lower profitability for the full year. As you look to 2017 we have made changes to our compensation plans that will continue to inset sale reps, design multiyear contracts that will reduce the variability and commission expense.

Adjusted EBITDA was $803,000 which compares to $3.3 million in the year ago period and was impacted by the same items that I noted above. Non-GAAP loss per share was $0.03 based on 33.9 million weighted average shares outstanding, this compares to earnings per share of $0.05 on 33.7 million weighted average shares in a year ago period.

Looking at our full year 2016 results, total revenue was $150.3 million, up 12% year-over-year and well ahead of the original full-year guidance we provided on our fourth quarter call last year.

Non-GAAP gross profit was $97.8 million, non-GAAP income from operations was $1 million and non-GAAP earnings per share with breakeven based on 34.6 million weighted average shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $36.8 million, an increase of $1.6 million compared to the third quarter.

It generated $3.4 million in cash from operations during the fourth quarter with $1 million in capital expenditures and capitalized internal-use software we generate free cash flow of $2.4 million in the fourth quarter.

For the full year we generate $11.1 million in cash flow from operations and $5.9 million in free cash flow after taking into account $5.2 million in capital expenditures and capitalized internal-use software. This was within our guidance range for the full year and it’s a second consecutive year that we had positive free cash flow.

I’d now like to finish by providing a financial outlook for the first quarter and full year 2017. For the full year 2017 we expect revenue to be in a range of $163 million to $167 million, which represents year-over-year growth of approximately 9% to 11%.

As David mentioned we expect to achieve double-digit year-over-year revenue growth and total and subscription revenue by the end of the year. This includes approximately a $5 million headwind related to the loss customer revenue that David referenced earlier.

To provide some context, total revenue would have been expected to be 12% to 15% adjusted for the impact of this customer. We expect professional services revenue to be in a range of $9 million to $10 million for the full year. I would note that our guidance does not assume any material foreign exchange impact for 2017.

In terms of profitability, we are forecasting full-year non-GAAP operating income to be in a range of $3.5 million to $6 million, an adjusted EBIT is target to be in a range of $7.5 million to $10 million. In addition, we expect non-GAAP net income per share of $0.07 to$0.14, based on 35.5 million weighted average shares outstanding.

Lastly, we are estimating free cash flow of $4 million to $6 million for the full year. For the first quarter we are targeting revenue of $37 million to $37.75 million including approximately $2.6 million of professional services revenue. Despite the decline in revenue is driven primarily by the loss of the large customer revenue as described earlier.

We expect the first part quarter to represent the low point in the growth for the year and we expect to see sequential acceleration throughout the year and that we would exit the year in double-digit revenue growth rate. From our profitability perspective we expect a non-gap operating loss of $1 million to $1.

5 million for the first quarter, adjusted EBITDA is anticipated to be in a range of zero to $500,000. Non-GAAP net loss per share is expected to be in a range of $0.03 to $0.05 based on 35.2 million weighted average shares outstanding. And with that, we’ll now take your questions. Operator, we are ready to begin Q&A..

At this time we’ll be conducting a question-and-answer session. [Operator Instructions]. And our first question comes from Steve Frankel from Dougherty. Please go ahead..

Good afternoon. So, maybe just because you said so quickly the first time and I was a little late coming on the call. Let's go back through the large customer and the reduction in their run rate.

And from that what will help you accelerate revenue as we go through the year?.

Sure. First of all, hi, thank you. This is David tries to speak with you. So, I'm not sure I understood your question. The first part wasn’t clear what the actual question is..

So I guess the actual question is just to make sure I understood this correctly. So your 4% customer didn't go away but it significantly reducing its run rate to the point of $5 million in annual subscription revenue.

Did I understand that correctly?.

That’s correct, yes..

Okay. So let’s move on from there.

And then you're talking about exiting the year at double-digit both subscription revenue run rate growth and total revenue growth, right?.

That’s right..

Okay.

What do you think products like dynamic delivery and social due to ARPU and do you sell those in only at the renewal time or is the sales force actively going to everybody trying to get those in even when the contract isn’t necessarily up for renewal?.

I’ll answer the second part first, its sum of both. We tend to do more transactions where we add-on components at time of renewal, in some cases what that mean we end up doing early renewal, but we do sell add on components off cycle as well.

So both occur probably more often than not you know those kind of things tend to come together at time of renewal because they just the nature of the way the organization engages with the customer and go through that process of working on the contract and all of those different thing.

On the first question, how they affect ARPU? Its little bit early to say, I think that clearly social is an add-on that will over time should increase ARPU for some customers and we've gotten really good early reception. It’s still pretty early, it’s not like we sold that to most of our customers, but it’s an incremental value proposition.

I think just as importantly it will help with retention dollars, in some cases where getting a better retention number or retaining a customer who might otherwise not continue with Brightcove.

Dynamic delivery up here a little bit more a mix picture, on the one hand it create additional value and there will be target associate with that value, because dynamic delivery is the way we’ll do a multi-year end delivery, its the way we’ll do server-side ad insertion and those are value-added thing that we will charge with, but it also going to help us reduce some of the commodity cost associate with storage and delivery as well.

And so, I think it will increase ARPU but it will also make that ARPU more defensible and more renewable over the long-term, because it moves value from sort of what I call commodity element like cost of storage to something that’s really sticky like our way that we do server-side ad insertion..

Okay, great.

And were overages in a quarter?.

2.9 million, Steve..

And I know we have a session every quarter because they seem to run higher than normal what do you define normal as these days?.

That’s a fair question, because we went a little hot during 2016 and they actually grew fairly significantly through the end of the year. Part of the bookings achievement that we had here towards the end of the year also secures some of those overages into future contract value.

So we actually think that overages will start to come down in 2017 at least initially in the first part of the year and we could see it being more the low twos..

Okay. Thanks. And I’ll pass for time and I’ll come back in the next round. Thank you..

Thanks very much..

Our next question is from Tom Roderick from Stifel. Please go ahead..

Hi. It’s actually Parker Lane on for Tom. Thanks for taking my questions.

First one from me, I saw you gave an ARPU for the starter product, but I was wondering if you could dig a little deeper into that and let us know how many customers you have there or just a little metric around the scale of that business today and what sort of future opportunity you see in 2017 for starter?.

Sure. Let me do my best to give you some direction there. So first of all, we did break it out and we sort of hinted that we were thinking about doing this in a prior call, because we have multiple strategies for growing the business.

One is obviously selling customers more value and increasing ARPU over time as they grow and as they buy more valuable and increasing products from us.

But the other is growing the number of new customers that we bring in and doing that with a low friction self-service product that people can get started at a project level before they ready to make an enterprise platform decision.

And so the challenge that we saw is that we – as we introduce that new product is that we’ll create a muddy story where we simultaneously raising and lowering ARPU and you couldn’t actually discern anything, so that’s why broke it out.

We are breaking out that the number of starter customers per se but I can tell you its still very early days, it’s not a significant scale, it’s not a big part of the business.

We could probably folded in and it wouldn’t made a material difference, but we decided that its the right thing to do for the long-term, because as that scale start distort that ARPU and you won’t be able to tell, how the big customer growing, at the same time, you’re bringing in a bunch of new customers with these lower price points to see for new logo that are just getting started.

Does that make sense?.

Yes. Just to be clear.

Are those of those customers included in the net new premium figure?.

Yes. They are. So the key thing here is that these are the same target customers of our business that they have been. We’re still targeting large enterprises that have the opportunity to be significant customers. Were not – this is in fact small medium business endeavour.

But even those large enterprise don’t necessarily start with the enterprise-wide purchase. In many cases there’s a departmental purchase whether just using video for a project and this is way to get someone started, so we get our foot in the door first.

And then obviously that’s an opportunity for us to go back in and figure out how to turn that into an enterprise-wide opportunity..

Got it.

And then on the seven-figure media daily announce, can you talk a little bit about what products are actually deployed there and what future opportunity you see with some of the newer things you’ve mentioned?.

Well, it was just a fantastic win, I mean, it just really exciting. We didn’t – we weren’t able to give you the name because that customer has not launched and they have not given us permission to release their information. So, I hope you forgive to that, but it’s a really exciting customer that everyone on this call knows well, so that’s exciting.

We sell them basically they’re using of the suite, a video cloud, they’re definitely an early adopter of the dynamic delivery technology, that was an important part of why were able to win. That was true also in the earlier in the year when we talk about some of the big media win.

What that technology does, it gives us a much more flexible way of solving this really complex problem of doing multi device delivery with multiple DRMs and by that it mean, digital rights management security software across all the different devices that people care about for these OTT services.

And so I think we now have some evidence with a couple of really big Tier 1 accounts that technology is a bit of a game changer on our competitiveness and able to win the -- ability to win the deal..

Got it. Thanks guys..

Our next question comes from Sameet Sinha from B.Riley & Company. Please go ahead..

Hi, Sameet..

Hi. This [Indiscernible] filling in, Sameet tied up on another call, but I just had couple of questions. First with the adoption of HTML 5 towards the early part of the year, what’s the competitive landscape for you guys? Is it heated up particularly both on small and large competition? And then I do have a follow-up..

Sure. The competitive landscape and we’ve talked about this probably on many of our calls over the last one and two and three years, it’s a very competitive landscape. There’s many different competitors, the competitors in the media business are somewhat different than the competitors on the digital market and enterprise business.

They also can be different geographically will face different competitor, for example in Germany or Japan sometimes we do in the United States. So it’s characteristic of an early stage market fill with many competitors, most of which are very small. There are some larger companies that play in parts of this as well.

I don't think the introduction HTML 5 per se changed the competitive landscape is that what you’re asking.

I will say that you know the media business in particular is competitive, digital market enterprise we face competition but I think we’re – its a little bit less intensely competitive and we have a very strong, strong position there, we have strong position in both markets, but I think its slightly less competitive market on the digital market enterprise side of the business.

We do believe and all of the research we see from third party like problem solving that we are the largest player. Problem solving I think with about a quarter ago gave up their award, their market share leadership award. It is since that we have market leadership with 90% share.

Its more fragmented market than that, but I think we’re the leading independent player in the market that it remains competitive, but over time we believe that that will consolidate leadership, and then we have leadership position to continue to grow our leadership and take more and more share and that’s what we intend to do..

Got it. And then my second question just tie to margins particularly your EBITDA guidance, I understand that you do have some flow-through from that customer loss and then you mentioned you also have kind of an impacts from incentives tie to commissions.

How -- is there anything else that’s causing margins to kind of tick down for Q1 and the full year? And then also how does that kind of with that tick down how is that offset by the data center savings as implied by your commentary you know what kind of going forward?.

Surely, it’s Kevin Rhodes. So the full-year guidance on EBITDA right now is $7.5 million to $10 million. As you can appreciate, we do have to absorb the revenue loss from that large customer in the first quarter.

And so that's where our guidance for the first quarter has got EBITDA much lower to the 0 to $500,000 for the first quarter, but it will start to tick up throughout the year. We feel good about our guidance for the full-year and think that we can achieve that. That gives you a kind of a sense of that.

In terms of the closures, the data closures that we had. As I mentioned in the prepared remarks it’s about $900,000 add back throughout the year. Its rateable throughout the year savings from that from those two data closures, so effectively a one year payback even sooner than that and then we end up getting future savings beyond that. .

And then was there any major impact from FX in Q4?.

Not tremendously for us in terms of Q4, there is some, but it wasn't enough for us really to call out at this point. We've got about 72% of our revenue is all coming from U.S. dollars and the remaining is coming outside the United States.

So we’ve got some impact on Yen and some on Euro and obviously the British pound as well because we got a London office, but that's about it..

Got it. Thank you..

You’re welcome..

Our next question comes from Terry Tillman from Raymond James. Please go ahead..

Hi. This is Brian Peterson for Terry. Kevin just wanted to make sure I understand the impact from the large customer. You mentioned 4% revenue, but then an 8% impact on retention. Just want to know what the bridge is for that delta.

And I’m trying to understand with the 93% retention metric that almost implies that the impact was more in the fourth quarter than the first quarter.

So I just want to understand when these new economics actually took place?.

Yes. So some of the economics, the reduction in revenues, data curve in the fourth quarter, so that’s where you’re seeing some drag on revenue in the fourth quarter. I think we mentioned, it’s basically $5 million of reduction in revenue throughout 2017 compared to 2016.

It was a little bit more waited is I think about the revenue from 2016 earlier in the year it was higher, but then came a little bit throughout the year.

We didn’t have any real sense that the customer was going to go away at that point, but the revenue did trickle down throughout 2016, but then towards the end of the year, we had a much larger drop..

Got it. Understood. And maybe one for you David, just on the digital marketing segment, obviously some pretty solid bookings this quarter. What’s the right way for us to think about the long term growth in that segment if we think about maybe kind of the three to five year outlook? Thanks..

Sure. We’re excited. I hope that came across because that certainly how we feel. We believe it’s an extremely large market.

It basically every large enterprise in the world, that it is multiple use cases within those enterprises, obviously over the last three years you heard us mostly talk about the digital marketing use cases, using video for branding and marketing and ecommerce and demand generation, but its also can be employee training and CEO communication and channel training, and e-learning use cases inside the enterprise.

And so, we’re very pleased with the business we have. We think we can expand all of our customers as we continue to provide more application value to solve more use cases, as well continue to grow new customers pretty significantly.

So I think we indicated here that our sales, our bookings growth for the year for the company we sort of gave a high-level indication that we think that we’ll be in the mid to high-teen which is a tick up from what we had said in the beginning of last year where we said mid-teens.

But on top of that we added that we think that digital marketing group will probably outperform that and could grow 20% or higher. I think that could be a 20% plus revenue growth business, so in the three to five year timeframe that’s actually something I think the company can be in a long-term timeframe.

But in particular I think that visits can be a much more significant grower, generate a lot more revenue for the company and obviously if you think about it, it potentially be a much more significant driver of profit as well because those customers tend to value the software for different reasons to media customers and they often use it, the utilization costs and the cost of storage and delivery tends to be a little lower with those customers..

Great. Thanks David..

Thank you..

[Operator Instructions] Our next question comes from Mike Latimore from Northland Capital Management. Please go ahead..

Yes. Hey, guys, this is Nick Altmann on for Mike. Thanks for taking my questions.

What was sales headcount at year-end and then I guess what percent increase if any do you guys expect for 2017?.

Thanks for the question. We don’t really give out sales headcount.

I can tell you that we add to sales headcount throughout 2016, so that certainly something we’ve talked about before but we actually didn't get out the actual number of sales headcount partially because its competitive information and partially mostly, actually its because its competitive information..

But we can say, again, without breaking up the individual numbers we will be adding sales people again this year..

Yes, sure..

Maybe not quite at the rate we did last year, but we do believe there’s a lot of opportunity. We believe that in many regions and that we’re -- a primary getting item is not product, its not competition, its not market, it’s simply our own capacity and so we’re absolutely going to be adding some hedge in the few areas.

We’re adding some geographies we talked about. Last time I think we mentioned raving up Latin America operation out of Mexico City and we’re also looking at entering India as well. And so, we do think there’s a significant opportunity around the world and we want to make sure that we fast to go after it..

Okay. Thanks. And then your revenue guidance implies subscription revenue to re-accelerate in the second half.

Can you guys just talk about how much visibility you have there?.

Well, we have decent amount of visibility in that. We understand what our contracts are and how they unwind. We didn't do a number of multiyear deals last year and you heard us talking about that earlier in terms of that was significant focus for us, its driving up the multiyear deal.

We talked about the fact that that deal in the second quarter that was the largest deal in the company’s history is one that how to ramp over multiple years and so we understand how that will kick in and be recognize over the course of this year.

So I think we have reasonably good visibility and our forecasting methodology is essentially unchanged on a year-to-year basis. If you think about what could drive revenue over the course of the year, it unwinding bookings and that’s the most predictable part.

It’s also the new bookings that we generate especially in the first part of year and while we don't know what that will be yet we do enter the year with a feeling of momentum and strong pipeline.

Third, the impact of our professional services group and the timing of delivery because we recognize revenue there based on a percent complete or deliverables of project completion.

And then lastly it can be that overages or what we call uncommitted revenue number which can be -- we can have some visibility into but little bit less obviously than committed revenue. So those are all the different variables that come together to help us understand what’s going to happen over the course of the year.

And you can see our range this year from the beginning of year is slightly larger than last year and that just really has to do with our scaling up with the company I think. But I think we have pretty good visibility into how we achieve that range..

Got it. Okay, thank you..

Our next question comes from Glenn Mattson from Ladenburg Thalmann. Please go ahead..

Hi, I assume you may have hit on this already, I’m jumping back and forth on two calls, but you just mentioned that the feel in a momentum and positive feeling about the pipeline as far as new bookings for the year, I guess does that mainly reliant or not reliant but is that a result of some of the new offerings, is that kind of what’s helped build that momentum?.

It’s really across the board, product and engineering has delivered significant new innovations and offerings. We talked about social; we’ve talked about dynamic delivery. The new player that’s now in its second year but we continue to add value to that. There’s a wide range of things we’ll be adding this year.

The velocity and quality of our engineering deliverables are really strong. That’s one variable. Second is we’re seeing really strong feedback from customer on the roadmap in customer satisfaction surveys and the like.

Third is the addition of talent and capacity in our sales organization and the impact we are seeing from that, especially you know coming out of the year we’ve had a really strong end of the year, and yet we still enter the year with a different pipeline so we feel good about that.

So it’s really across the board, it’s the capacity, it’s the talent, it’s the product and then lastly it’s the market. We are and we happen for sometime sort of you know in a pretty fundamental shift in the way humans consume content and the way corporations deliver entertainment, news, weather, gossip, education you name it.

And so, we are still right in the middle of that and you know I don’t go to a customer that these days that I don’t walk out thinking boy, there’s more opportunity there. Literally every customer we call on we look at and we say, hey there’s an opportunity here to grow that.

So all those different things come together and they give us a pretty positive feeling about the business..

Thanks for that. And also maybe philosophically you talked in longer term that you think this could be a 20% revenue growth business just now.

I guess, I wonder you know why you – or how you get there, I guess it’s normal, more normal for a company as they get bigger to for the growth to slow, so you anticipate a market that has may be fewer competitors or something like that, how do you get to that thought process?.

Well, talk a little bit about what happened over the last three or four years, and we had retold a little bit if you go back three, four years and what I like to say, well we talked about here internally is we had to slowdown to speed up a little bit. We did have to rebuild some of the core technology and burn down engineering debt.

That’s typical when you come out of that start up phase and into a more mature company that a lot of that technology build really quickly as the start appears. You end up having to do something. So the result of that now has accelerated velocity, accelerated innovation, that’s point one.

The second thing was we did go through this pretty fundamental transformation strategic transformation. Starting a few years ago, where we went from being sort of a horizontal company with a single go-to-market team to really having this laser focus media companies and on that digital marketing and enterprise idea.

But that was a transformation, right. We had – we think how we went to market, we had to repackage and reprice somethings. We had to hire sales people and ramp sales people.

We had to get people with domain expertise in each of those areas and what we’ve seen now is that as that now has come into its own I really think it did in 2016, we are starting to see the velocity coming out of that. And so that makes us feel very bullish. And lastly, we think the market itself, it’s still relatively early.

There’s a lot of small players that aren’t going to make it. There’s lot of opportunities for us to share, there’s lot of companies that are just coming into the market now and just understanding the opportunity that where they can use online video to drive their business. And so, I think all these things come together.

Our belief in the long term hasn’t changed. I do think we slowed down a bit in order to speed up and I think we can start to do that..

Okay, thanks David. That’s helpful..

Thank you. This does conclude the question and answer session. I’d like to turn the floor back over to management for any closing comments..

I just want to thank everyone for joining us today. We exited the year on a strong note achieving that 15% mid-teens bookings growth that we had been striving for. So that was positive achievement for the company. As I mentioned, there is a strong feeling of momentum and opportunity in this market and we are looking forward to a great 2017.

So I want to thank you all for joining us, and we look forward to talking to you again in 90 days..

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