Thank you for standing by. This is the conference operator. Welcome to the Brightcove First Quarter 2020 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Brian Denyeau. Please go ahead, sir..

Good afternoon and welcome to Brightcove's first quarter 2020 earnings call. Today, we will discuss the results announced in our press release issued after market close. With me on the call are Jeff Ray, Brightcove's Chief Executive Officer; and Rob Noreck, 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 second fiscal quarter of 2020, expected profitability and positive free cash flow, our position to execute on our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain and upsell existing customers as well as our ability to acquire new customers.

Forward-looking statements may 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 variety of risks and uncertainties that could cause actual results to differ materially from expectations. Including the effect of the COVID-19 pandemic on our business operations as well as the impact on general, economic and financial market conditions.

For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our most recently filed Annual Report on Form 10-K and as updated by our 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 on our press release issued after market close today, which can be found on our website at www.brightcove.com.

In terms of the agenda for today's call, Jeff will provide a summary review of our financial results, an update on our operations in our review of our strategy. Rob will then finish with additional details regarding our first quarter 2020 results, as well as our outlook for the second quarter of 2020. With that, let me turn the call over to Jeff..

Thanks Brian. And thanks to all of you for joining us today. The world has changed dramatically since our last earnings call with the unprecedented global health crisis due to the COVID-19 outbreak and a significant deterioration in the economy.

Our first priority as the management team is the health and safety of our employees, their families and our customers. We quickly moved to enable each of our employees to work from home and have adapted our global sales, demand generation and customer support efforts to align with customer needs.

I'm incredibly proud of how everyone at Brightcove has pulled together in challenging circumstances to ensure we continue to help our customers maintain business success.

Today I will update you on our solid performance during the first quarter, the progress we have made on our strategic plan, and how we are approaching the remainder of the year given the highly uncertain business environment. Recent events have demonstrated that video is vital for both enterprises and consumers.

We believe the product and platform investments we have made at recent years combined with our deep domain expertise position Brightcove well to benefit from this dynamic over time.

As a leadership team, it is our job to effectively manage through the near-term challenges ahead, while remaining focused on the significant long-term opportunities we are targeting. Turning to our financial results briefly for the first quarter.

We delivered first quarter revenue of $46.7 million, up 12% year-over-year, but below our guidance, driven by a large customer liquidation, which we will discuss later. Adjusted EBITDA was $3.7 million, which was up $2.4 million from the first quarter of 2019 in towards the high end of our guidance range.

Excluding the liquidation I just referenced, we had a solid first quarter with sales performance and retention in line with our internal targets. We had strong adoption of Brightcove products from several leading global enterprises and media organizations including Merck, New England Sports Network and Dell Inc.

I am particularly pleased with the performance of Brightcove Beacon our new OTT offering that built on its initial success in the fourth quarter.

We are seeing significant interest in Brightcove Beacon from a wide variety of content providers and regional broadcasters who need a powerful yet simple way to deliver a compelling OTT experience to their viewers.

Consumers are looking for a wider array of video content now more than ever before opening up exciting possibilities for content providers that did not exist even a few years ago.

Brightcove Beacon success demonstrates the significant market opportunity available when we marry our unmatched domain expertise with compelling and easy to use applications. Brightcove Beacon customer wins from the first quarter include OneX Media Network and Akin's Army. Brightcove signed a 3-year agreement with OneX Media Network in Ghana.

OneX will be acting as a content aggregator to some of the largest broadcasters in telcos in Ghana. Using Brightcove Beacon, the company will be launching five apps across web, iOS, Android, Android TV and Apple TV with live streaming and VOD. In total, five Brightcove Beacon apps, 10 channels of 24/7 live and 4000 hours of live events.

Akin's Army is a new upscale group fitness studio based out of New York City founded by two former soul cycle super instructors who have trained the likes of Beyonce, Oprah, and David Beckham. Launched in January, Akin's Army offers in studio classes and will offer at home workouts through mobile OTT apps.

Using Brightcove Beacon, the company will launch new apps this summer. The company selected Brightcove for its reliability and scalability, as well as Brightcove's reputation as a brand with which Akin's Army wants to be associated. We are also seeing good interest from digital marketers in solutions that are purpose-built for their needs.

They have a growing need to make video an integral part of their marketing campaigns, but lack the tools to do so in an easy, efficient and measurable manner.

We are continuing to invest in our marketing solutions to make it even easier to utilize video for marketing campaigns and make Brightcove an integral part of their digital marketing tech stack.

In line with our market segment strategy, we recently introduced Brightcove Engage, our new purpose-built internal communications app and Brightcove Continuum, a new business continuity suite to support business communication functions across the enterprise. Both of these offerings help customers address urgent and timely needs.

Brightcove Engage, which we released in early April is the third purpose-built application we have launched in the past seven months. Part of the product roadmap we outlined last year, Brightcove Engage is the latest example of the steady progression of new innovation we have introduced to the market.

With Brightcove Engage organizations can quickly and easily build branded mobile experiences to securely broadcast companywide live events like town halls, as well as on-demand video such as onboarding tutorials or internal news directly to an employee's mobile device without needing to utilize expensive and time-consuming developer and IT resources.

At a time when many companies have their entire workforce working from home and experiencing rapidly changing business conditions, being able to keep employees informed and engaged has never been more important.

Early examples of how customers are planning to use Brightcove Engage include Wendy's, which will share real time updates in crew member appreciation, across its more than 200,000 global employees.

FEEL CONNECTION, a Japanese-based lifestyle and fitness brand, specializes in group cycling exercise classes with over 40 studios located across the region. FEEL CONNECTION will streamline the on boarding of new hires and training of its large team of instructors on how to use the organization's bicycles, as well as how to conduct classes.

And Barbri, a 50-year veteran of the law school experience, helping our examinees make the leap from law student to lawyer. We will use Brightcove Engage to provide video based training to law students and the professors who help prepare those students for the BAR exam.

We released Brightcove Continuum in direct response to market need to use video solutions to adjust how they work in response to COVID-19.

Brightcove Continuum is an all in one suite of video technologies that enables organizations to conduct critical business activity virtually and remain productive when their employees, partners and customers are unable to meet face-to-face.

Brightcove's strong reputation for scalability, reliability and most importantly security, make us a trusted partner for customers that are looking to use video in critical ways to keep their businesses moving forward.

Brightcove Continuum brings serious video technology to help organizations thrive, which is central to our mission to help our customers and communities stay better connected through video.

Another problem facing many customers as they adapt to the impact of COVID-19 is an increased need for live video as part of their overall communications and engagement objectives.

To support these customers and help them through this difficult time, Brightcove is offering 53 hours of HD live video for 90 days to support the community and help it avoid disruptions to its operations. Since we launched this live stream offer over 20 organizations have signed up.

Organizations like the San Francisco Ballet and Maricopa County Library. And global companies including, UBS and Talkdesk, are able to reach their audiences through the power of live video.

We're also adapting and innovating in our go-to-market efforts due to the global COVID-19 pandemic and to protect the health and safety of our customers, employees and broader community, our play 2020 event will not have a physical component in Boston this year.

Instead, we will launch PLAY TV, our new streaming experience filled with must watch content from the world of video. PLAY TV is built on Brightcove Beacon and will launch in May. It will be available globally at no cost on mobile devices and the web and there will be a variety of ways to engage with PLAY TV content 24/7.

You can watch live speakers or choose videos from a channel programming guide or similar to Netflix, pick videos based on your area of interest. All PLAY TV content will be updated on an ongoing basis and will become a trusted resource for people interested in video to turn to again and again.

We are already seeing a lot of interest in PLAY TV and look forward to bringing exciting video content to viewers across the world. I would now like to highlight some important customer wins and renewals from the first quarter. In the first quarter, Dell had two renewals, one for Dell Technologies and one for Dell Inc., a heritage Ooyala customer.

Dell Technologies uses Brightcove for quarterly town halls, conferences and other events. Dell Inc. uses Brightcove to deliver product videos, how to and support videos. With both Dell Technologies and Dell Inc. Brightcove supports internal and external video needs across the company.

A multiyear Brightcove customer Merck is one of the largest pharmaceutical brands in the world.

Merck uses Brightcove video to market its wide range of advancements in product using Video Marketing Suite, Enterprise, Gallery and a wholly dedicated account to distributing content in China, Merck sees Brightcove as a strategic partner as it continues to expand its use of video.

A new win, New England Sports Network, NESN is using Brightcove to power its own OTT apps. NESN chose Brightcove because of our strong reputation in the market and it's compelling need to move from a previous vendor. Our scalability, reliability and reputation help to secure the deal.

Nike uses Brightcove video for it's external video marketing activities. In the past quarter, Nike renewed its relationship with Brightcove with a significant increase in deal size. This renewal and increase is due to Nike's trust in Brightcove's infrastructure to always be reliable into securely stream external videos.

Our expanded agreement with Nike is a great example of the proactive selling effort we are striving for. I want to congratulate the sales team on this win. It's a great example of the tremendous talent we have brought to Brightcove and the positive impact of our new sales strategies.

Looking ahead, our performance in the first quarter and the market reception for our new products are an encouraging validation of our strategy. We recognize that we now face a much different economy compared to the beginning of the year. I would like to outline for you how we are thinking about the remainder of 2020.

I would note that COVID-19 represents an unprecedented challenge for all of us and is changing market dynamics more quickly than we have ever seen. We have been quick to react to customer, market and employee needs and we plan to continue to do so. This is our view as of now and we will continue to evaluate and adjust as needed if conditions warrant.

From a demand perspective, we are getting mixed signals from the market. Positively, we are seeing an increase in the number of inbound inquiries from perspective enterprise and media customers about what our video offerings can provide to their businesses.

We are fortunate to have already completed the build-out and enablement training of our sales organization. I am pleased with how our teams are engaging with these prospects and believe we are set up well to accelerate growth, as the high levels of uncertainty in the market begin to receive.

In the near-term, the level of disruption in the market is expected to make it more challenging to close new business in the second quarter and possibly, longer. In addition, some existing media and content customers are facing significant headwinds in their own businesses, as a result of the pandemic or other market conditions.

And these headwinds may pose some risk to certain renewals. For example, in late March, we learned that HOOQ a new OTT provider in Asia was going into liquidation. From a strategy perspective, we have three priorities.

The safety and well-being of our employees, their families and our customers, protecting the cash flow of the business and maintaining our ability to execute against our long-term strategy.

Regarding protecting cash flow, we will experience some natural cost savings due to lower travel and entertainment expenses and lower variable marketing expenses, as we move events like our annual play conference to a virtual format. As we discussed last quarter, we are focused on driving productivity improvements across all spending categories.

And that remains true today. Regarding our ability to execute we will continually evaluate certain areas of spend and reallocate resources as needed to fund our growth initiatives. Our focus areas for investment are enhancing the capabilities of our portfolio of purpose-built applications and identifying new potential opportunities.

Overall, I continue to feel good about the opportunities ahead for Brightcove. A customer recently shared that the team remoteness of the pandemic brought into focus the power of video and it's vital role in keeping human connections across the organization.

I'm proud of the platform and purpose-built applications we have developed to address the most important video needs in the market.

Combined with this industry-leading innovation and our strong and fully aligned product sales and marketing teams, I'm confident we will navigate the challenging situation ahead and come out on the other side with an even stronger position to drive breakout growth.

I'm proud of the Brightcove team and their clear focus on supporting our customers and making them successful in this difficult time. With that let me turn the call over to Rob to walk you through the numbers.

Rob?.

moving to a fully remote work from home workforce in mid-March as a crisis accelerated around the world, eliminating all travel in the short term and all non-essential travel for the remainder of the year, implementing a substantial pause in hiring until we have better visibility in the long-term impacts of the current crisis and freezing salaries across the organization for the remainder of the year.

We believe that these actions put us in position to continue to execute on our longer-term strategy while protecting our employees, customers and overall health of the business. I'd now like to finish by providing our thinking and how we are approaching the rest of 2020 and then finishing with an update to our guidance.

The high level of uncertainty related to the COVID-19 pandemic and the associated economic impact will make it more difficult to close new business in the second quarter and potentially longer than expected at the beginning of the year. We will also introduce a level of risk the part of our existing customer base that was unanticipated.

We have a diverse customer portfolio. However, certain segments are in extreme stress, given the current market conditions.

These segments include areas such as live sports, where all sporting events are canceled, AVOD OTT models, where ad revenue is dropping in viewership and costs are rising and those industries directly impacted by the crisis such as airlines and retail.

While the near-term environment presents challenges, I want to reiterate Jeff's earlier comment that we are seeing good demand trends from some of our core targeted customer segments such as OTT, direct to consumer, and corporate communications. We believe this positions us to begin growing faster as the current uncertainty in the market phase.

Since the crisis began, we have been stress testing our models and running numerous scenarios with varying assumptions. Given the uncertainty of the duration of the health crisis and the timing of any economic recovery, there is a wide range of outcomes for the year.

I don't believe there is a realistic way to assign probabilities to any of these assumptions at this time. As a result, we are withdrawing our expectations for the full year 2020 and we will only be guiding for the second quarter. We will reassess providing a full year outlook on our next earnings call.

We are continually evaluating the business and have plans in place to take further actions if circumstances warrant. To be clear, in the various scenarios we ran we have sufficient liquidity. For the second quarter, we are targeting revenue of $44.5 million to $46 million including approximately $2.2 million of professional services revenue.

From a profitability perspective, we expect non-GAAP operating income to be a loss of $200,000 to $1.7 million and adjusted EBITDA to be between a loss of $500,000 to a gain of $1 million. Non-GAAP net loss per share is expected to be in a range of $0.01 to $0.05 based on $39.3 million weighted average shares outstanding.

To summarize, we made good progress on our strategic initiatives to reach our goals, a breakout growth and improved profitability. We are responding to the unprecedented challenges posed by COVID-19 with the strategic approach that protects our employees, customers and the business.

We are focused on executing against our plan and are confident of our ability to work through the current situation and drive faster growth in the future. With that, we will now take your questions. Operator, we are ready to begin Q&A..

[Operator Instructions] The first question comes from Lee Krowl with B. Riley FBR. Please go ahead..

Great. Thanks for taking my questions, and appreciate all the detail things considered with this macro backdrop. I wanted to start out first just with a quick housekeeping question, as it relates to overall usage.

Could you maybe just comment on overages in the quarter?.

Yes, sure. Thanks, Lee. Overages in the quarter were about $2 million, a little bit higher than the original forecast of $1.6 million. Going into the guide for the rest of the year, we've brought those back down to $1.6 million for the quarter..

Got it.

And then as it relates to your second quarter guidance, would you anticipate overages to remain elevated? And then second part of the quarterly guidance, is there any assumption for potential bankruptcies or liquidations similar to what you saw with HOOQ in Q1?.

Yes. I'll take both of those. In terms of the guidance for the quarter, what we've put back into the guidance is $1.6 million for the overage number, but down from the $2 million quarter-over-quarter.

We're certainly seeing usage increased given the overall crisis, but I want to be a little conservative there, as it depends on where customers are in the contracts, and given the overall macro environment, I don't want to get out of my skis.

In terms of the second question, I think we're addressing that through widening the range a little bit to give us a little bit more downside protection if there are any economic trends that continue..

Got it. And then a few puts and takes, obviously HOOQ being one of them, but also some positive with customer engagements. You started kind of the year really emphasizing double digit bookings growth.

Now the world has changed, but is there still confidence that perhaps apps in the near term headwinds of HOOQ, as well as some uncertainty around renewals that perhaps you could see that double-digit bookings growth in the second half again..

Yes, good point. We obviously were not quoting bookings. We're now tracking to backlog, but as we said, we feel very good about where the sales team is. The sales team really came together. We've got the right sales leaders around the world.

We've got the right people in place, the training, the discipline, the metrics, they all came together and we saw that in the first quarter. We can't control the market, but we feel very, very good about the things that we can control, going into this year..

Got it. And then last question from me, obviously you've debuted multiple significant product launches. As it relates to the rest of the year in terms of product pipeline, are there any other products on tap or at least in the pipeline to launch before year-end or is to focus, what you've kind of release since last September..

At this point in time, we feel pretty good about what we've done. We've put a lot of innovation out there more than we have for many, many years and we think that we've addressed all the sweet spots of the target markets in doing this.

Now it's up to us to execute this up the marketing to build a strong pipeline and get the word out, it's up to sales to close those deals. We'll continue to do a lot of profit enhancements. We'll continue to focus on making sure our platform is the most reliable and most secure in the world.

We feel like we have really everything we need right now to position ourselves for breakout growth this year, feel very good about that..

The next question comes from Steven Frankel of Dougherty. Please go ahead..

Jeff, just to follow-up on the sales productivity question throughout 2019 you seemed to have an issue with the renewals and are you saying now that ex HOOQ the basic mechanics of making sure accounts get renewed and you drive upside.

That piece of the business you feel is in the right place now?.

We feel good about where we are. We can't control our customers’ insolvency, of course and we're grateful that as we look at the portfolio. We really don't have any big customers that are having significant, if they were to fail or leave have a significant impact on the business. So, we feel good about that diversity of the customers that we have.

We also feel good about the sales force and their ability to go out and acquire business and get bigger deals on average to. So we - again we feel very, very good about the things that we can control more than we have in a long-time..

And in terms of the sequential decline in premium customers, how much of that was below our customers that just decided not to convert to you and went away versus churn in the traditional Brightcove base?.

Yes, go ahead. Rob..

Going to say the same thing, there wasn't - sort of a Ooyala churn that came out of that. The reality is, it is the lower end customers that we're churning off as you can tell from the script that the ASPs are continuing to trend in the right direction, up sequentially quarter-over-quarter and up 9% year-over-year..

And then, Rob you've got the microphone. Could you address the gross margin decline sequentially, there was the theory that since you got people off the legacy allow a platform which see lifting gross margins.

What's driving that decline and how do you get gross margins back up again?.

Yes, the reality is quarter-over-quarter in particular and I didn't talk about this directly in the script though as that's almost directly related to HOOQ. We lost about $1 million of that 1.2 right out of the subscription topline, but we provided the service for the entire quarter..

Okay.

So is that - assuming Q2 you don't lose another large customer, gross margins look more like they did in the back half of 2019?.

That's the intent. Yes..

Okay. And Jeff, last quarter you talked about spending an incremental like it was a $1.5 million to potentially create another product.

It sounds like from your earlier comment that you decided not to go forward with that investment at this time?.

We like the results we got. This is a case where, where can you get the best return in the least amount of time with the least impact on the business. And we feel very good about the results that we got from that research. It makes us feel good about the long-term future of the business.

For now, we want to be opportunistic, we like the products that are out there. We're getting good feedback from the market and the right thing for us to do is to take advantage of that immediate opportunity, but again that does set us up well for the longer term to when we decided to pull that trigger..

[Operator Instructions] The next question comes from Mike Latimore of Northland Capital Markets. Please go ahead..

Yes thanks a lot.

Can you give a little more color on, maybe what your top 10 customers contribute as a percent of revenue and what’s your largest customer results?.

Yes, sure. Our largest customer is just under 2%, our top 10 customers are 14% of revenue..

Great. And you touched on a little bit, but your ARPU has increased nicely year-over-year.

What are the sort of main contributing factors there?.

I think it's a number of things like, I think we've got. Jeff why don’t you take this one..

We both want to answer it..

Jeff go ahead..

Take it Rob and then I'll correct you, if you’re wrong. Go ahead Rob.

Right, thank you. Yes Mike Jeff talk about it in the script. We're seeing real productivity improvements from the sales force. We've got the sales force, where we want their performance to be and they're continuing to go after our existing customers and expanding and going after the larger deals from the new business. Jeff.

Yes, I'll expand on this just a little bit I’ll just agree Rob is correct, but it wasn't that long ago when the focus was let's just get a renewal or a customer reaches out to us and wants to add something let's do it. Now the sales force is very actively using that opportunity to open doors.

If you're interested in this portion introduce us to other parts of the business. Here are the things that we can do for other parts of the business. And that's rethink some reaping some really, really nice rewards and we've only started with that. Lots of opportunities in the enterprises in which we're already present..

And then you made a comment about getting a decent amount of inbound for specific products. I guess - is the new customer pipeline actually higher now or just trying to tend to read that comment again..

Yes the pipeline is growing, and a lot of it has to do with the work that we did in getting new products out there, that's getting some good traction.

And obviously, there is above coming from COVID-19 as enterprises in particular recognize that they've got to find a way to - I mean just fundamentally for survival standpoint, maintain business continuity.

But also they are witnessing the fact that they can close business, they can engage with suppliers and employees, they can improve the quality of engagement with video. Where that takes us, we'll see.

Again as Rob noted, it's tempered with the fact that we don't - we also need our customers to remain healthy and some customers are struggling right now with COVID..

Yes and last question.

In terms of the customers that are struggling, are they more on the media side or enterprise side? I know you don't break those categories anymore, but are either of those categories, those historic categories weaker?.

They look exactly like you would expect it to look like. Those companies that have a heavy reliance on AVOD have seen advertising revenues drop. At the same time, they are optimistic that when we come out of this that that will pick up again. They are certainly seeing impact from that.

And then very, very clearly those customers that did live streaming of sports events are struggling right now. They feel good about the fact that they're positioned well when this comes back they think that the viewership will come back with vengeance. But they can't make that happen on their own.

Those two probably are the ones that we're working with the most closely..

[Operator Instructions] There are no more questions at this time. I would now like to hand it over to Mr. Jeff Ray for closing remarks..

Thank you, operator. Thanks everyone for dialing in. Again, it was an incredible amount of momentum and some exciting wins as we went into the quarter. We certainly didn't see COVID-19 coming no one did in spite of that very, very solid results. And again, the things that we can't control, we've never felt better about that.

For now, what's most important is to support the safety and health of our employees, to make sure that cash flows continue to remain positive and strong and to pay attention to the long-term health of the business. We think we struck the right balance.

We feel very, very good about those parts of the business that are in our control and we are definitely executing at a much, much higher rate. Thanks everyone. Stay safe and stay healthy..

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..