Good afternoon and welcome to Brightcove’s First Quarter 2023 Earnings Presentation. Today, we’ll discuss the results announced in our press release issued after the market closed.

During today’s presentation, 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 2023 and the full year 2023, 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 often be identified with words such as, we expect, we anticipate, upcoming or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations, including the effect of macroeconomic conditions currently affecting the global economy.

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 presentation, we’ll 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..

Thank you all for joining today. I am Marc DeBevoise, CEO of Brightcove and with me today is Rob Noreck, Brightcove's CFO. We're pleased to be streaming this to you to discuss our first quarter results, provide an update on our strategic initiatives progress, and share our view on the near-term and long-term future for Brightcove.

I'll begin with a quick overview of our financial results for Q1. Total revenue for Q1 was $49.1 million in line with our guidance range. Adjusted EBITDA was negative $2.7 million below our guidance range.

This miss [ph] EBITDA was driven primarily by unplanned higher headcount costs with us having quicker than expected success in hiring key roles, while experiencing lower than expected and historically low attrition.

While we made strong progress on many of our key strategic initiatives and have exciting early proof points of the long-term opportunity, including closing our largest new business deal ever and continued strength in our new business growth, our overall performance in Q1 was not up to our expectations.

This weaker performance is driving our revised view of the near-term revenue opportunity and our approach to the related cost profile we need to have going forward. Specifically in the short-term on revenue, we are seeing two key trends driving our revised forecast.

One, lengthening sales cycles, especially with larger, new and add-on customer opportunities that are simply taking longer to get done given the current economic environment. And two, a recent and meaningful drop-off in demand for add-on entitlements with existing customers.

Entitlements which are variable components of our deals like streams, bandwidth storage, et cetera, have historically represented the majority of our add-on business. In recent months, we have seen a meaningful drop-off in overages. This is when usage exceeds contractual entitlement commitments.

These overages have traditionally driven the add-on conversations on entitlements and are now -- and we're now seeing a subsequent drop-off in sales of those add-on entitlements.

While usage is still growing, albeit at a slower pace than recent years, it's become more clear that the usage spike during COVID drove a general right-sizing of our customers' contractual entitlements that they are still growing into.

We believe these challenges are short-term in nature, given the trajectory of our new business revenue, the long-term growth of streaming, and our renewed focus on selling additional solutions to existing customers. That said, these challenges will delay our path to renewed revenue growth.

The net result is a lowering of our full year forecasted revenue, but a continued belief and commitment that we will exit this year on a path to our long-term growth and profitability targets.

We're especially committed with regard to adjusted EBITDA profitability and cash flow generation as evidenced by the changes we are making to our cost structure, which I'll walk through now. Recognizing both the revenue and cost challenges coming out of Q1, we have decided to make meaningful changes to our cost model to run more efficiently.

In short, we are reducing overall expenditures by over $13 million on an annual run rate basis. This will result in over $10 million of savings for the remainder of this year. The form of these changes are a 10% reduction in headcount and meaningful reductions in marketing spend and other cost areas.

We took extreme care to make these cuts strategically and focused on areas where we could work differently and more efficiently or targeting spending that was not clearly focused on future revenue growth. We've already executed the majority of these changes and communicated with the majority of affected employees.

Additionally, our Chief Marketing Officer left the company in April and we do not intend to immediately fill this position. We have reorganized the marketing groups on an interim basis under our revenue and strategy leadership in an effort to drive efficiency as we seek a new CMO or alternative long-term structure.

This type of change, especially in terms of the job loss aspect for our teammates, is never easy and not a course of action any leadership team hopes for. That said, we committed to an adjusted EBITDA range of $16 million to $19 million for 2023, and to be a generator of cash. We intend to deliver on those commitments.

We want to be crystal clear that we will run this business with a rigorous focus on the returns we generate on our investments for shareholders. We believe streamlining our cost structure now will enable us to operate more efficiently while continuing to invest in key areas that support our strategy and growth plans.

Fundamentally, we remain confident that the strategic plan we are executing will enable us to deliver on our long-term financial targets of consistent double-digit revenue growth and 20% adjusted EBITDA margins.

Next, I'll provide more color on the dynamics we are seeing on the revenue side of our business and highlight key progress against our strategic plan, including some examples of early success with our strategy. First, regarding revenue and specifically new business revenue. The bottom line for two quarters now new business has been healthy.

In fact, Q1 incredibly healthy. Let's start with a very large customer win in the quarter as we landed a big one, an eight figure mid seven figure per year, multi-year deal with a major digital media company to replace the majority of their video streaming capabilities. This is the largest new business deal we've ever done at Brightcove.

Well, we can't name the company yet. We will in the future and anticipate this will be a fantastic case study for what we can do for large media entities. This was a win against two kinds of competitors. First, a meaningful expert internal team, and second, all other streaming technology providers.

Approved our value and believe we are enabling this customer to reap tens of millions in savings in the coming years and likely generate an ROI of five to 10X the cost of Brightcove. This is exactly what we meant when we said our go-to-market strategy was focused on super serving large customers.

It came in through strong executive relationships and our platform and technology want us this opportunity, top of great sales, product and engineering execution in the testing phases. Congratulations to our teams on this strategy affirming deal. With this deal, new business was at an all-time quarterly high, up 325% versus the year ago quarter.

And what gets us even more excited and confident about our future is that excluding this big deal, we saw new business growth over 35% versus the year ago quarter. That's coming up 40% growth in new business in Q4. Historically, new business has only represented 20% to 30% of total bookings in a quarter.

Q4 and Q1 were over 35% excluding this large deal. As we continue to execute on our strategy, we are clearly pursuing a more balanced mix of new and add-on selling.

Since implementing our focus upmarket a few quarters ago, we've also seen much higher average deal sizes in new business with that average up 3X this quarter versus the year ago quarter and up two to 3X each quarter for the past three. So we're doing bigger deals and more overall new business driving the potential for real long-term growth.

The other side of the story is our add-on sales to existing customers, and we're having challenges there, as I described earlier, driven by the combination of two factors. One, a lengthening of sales cycles driven by what we believe is short-term and macroeconomic uncertainty.

And two, an increase in flat or down renewals where we are retaining the customers, but at a flatter, lower level of spend. The silver lining here is that the overwhelming majority of customers are remaining on Brightcove in these renewals and still see growth in their usage, albeit slower than previous years.

Put simply, these customers entitlement commitments are right sized for the current usage trajectory. So while these dynamics are weighing on revenue growth near-term, ultimately we believe our business model will be stronger and more predictable as pure entitlements add-ons and overages become a smaller portion of our revenue.

Strategically, we clearly recognize it is critical we expand our product portfolio regularly with additional solutions that broaden our value proposition and provide additional sales opportunities with existing customers. Using our strategic framework, these are the more end-to-end and accelerate and incubate parts of our strategy.

We've made great progress here across our portfolio of both media and enterprise customers announcing in Q1 and early Q2, several new solutions that we're focused on. One, driving new revenue for our customers; two, easing the launch of new business lines, distribution points or streaming channels for those customers.

Three, delivering more and better analytics and insights to help those customers manage their businesses; and four, expanding our use cases, which should enable more cross-sell and upsell opportunities.

These solution announcements in Q1 and Q2 included Brightcove Ad Monetization, our new service and operations team designed to improve content monetization for media companies in partnership with Magnite.

A partnership with Frequency, a leading provider of fast, free ad supported streaming TV products to launch an integrated solution, enabling customers to seamlessly create linear experiences distributed across fast MVPD and virtual MVPD distribution channels globally.

Brightcove Communication Studio are video first solution purpose built for HR and communications professionals and enterprise focused eCommerce integrations with Shopify, Salesforce, Sales Cloud and Instagram that allow our customers to distribute and analyze video across each of these platforms to drive leads our revenue.

And finally, our Quality of Experience product launch from our analytics and insights team that measures beyond standard video metrics to the actual performance of the content experience of each customer.

This product relies deeply on our use of machine learning to construct tolerances and analysis of start time, stall rate, error rate, and other metrics. As a side note, QoE is a great example of where we have built and refined ML models on top of existing engines to deliver better analytics and insights for our customers.

We currently use AI, artificial intelligence, or ML machine learning models to fulfill capabilities like our auto captioning feature or our context aware and coding solution. Longer term though, we get even more excited about how this can help us and our customers beyond the video experience with the content itself.

We are in discussions with some of the largest AI players and how we might leverage their engines with our customers in terms of automated content generation and discovery. No hype cycle announcements from us today, but we believe long-term there is a great opportunity here for us and our customers.

From a go-to-market perspective, super serving our largest and most strategic customers has been the first key priority, and as I mentioned earlier, I'm thrilled with our incredible progress here, especially in new business.

Also, from a go-to-market perspective, partnering in the broader market is key, and we've started to deliver on this through deals with the likes of Roku, Magnite, Frequency, and the eCommerce integrations I mentioned.

We're also working more closely with our cloud partners, AWS and Google, to find the best ways to partner, to drive new and expanded opportunities via their broader customer bases and teams.

Progress so far in 2023 on our strategy shows we are starting to get more traction in the market, but also have much more ahead to accomplish to drive renewed growth. I remain confident that our strategy will provide us with numerous opportunities for future success.

That confidence in our ability to grow faster and more profitably long-term is also driven by how we see the market evolving and how our strategy will enable us to benefit from those trends. Most importantly, overall streaming usage continues to grow, even if at a slower pace post-COVID, but other dynamics in our end markets drive our belief too.

On the media side of our business, large streamers are shifting focus to strategies that balance growth with greater focus on profitability. Our ability to provide the streaming experience their users are accustomed to at scale and at a far more attractive cost is definitely resonating.

We've demonstrated this in action each of the last few quarters, especially with the largest new customer deal in Q1. Emerging streamers globally are seeing strong growth in users and subscribers and have been and will continue to need platforms like Brightcove to cost effectively scale their businesses.

And creators and producers are also now looking outside their core platforms like YouTube for new growth. We're working on a number of opportunities in this space and have leaned in by recently adding VidCon, the world's leading conference for creators as a customer.

On the enterprise side of our business, the importance of streaming video continues to grow and driving businesses forward. We believe companies who can effectively leverage streaming video develop one, a closer and more engaged consumer experience; two, greater demand generation and sales activity; and three, increased customer loyalty.

Customers leveraging video to drive better experiences across their own digital platforms and third-party destinations are using Brightcove. And the ongoing shifts in hybrid working environments has made offsite employee engagement and communication an increasingly important priority for enterprises too.

Our customers are leveraging Brightcove for a variety of workplace uses from employee training to hybrid worker engagement to sales enablement. Streaming video really is the future and even the now of work.

To wrap up, before turning it over to Rob, I want to reiterate that despite the near-term challenges, we are making significant progress improving our long-term business. We're going after end markets that are both growing and heading in our direction long-term. Our new business engine is working. Our customers remain committed to us.

Our product and engineering teams are innovating and delivering with greater velocity and regularity. And we're seeking and finding strong partnerships.

In the near-term, we will double down on operational excellence and focus on the things we can control, especially managing costs, but do feel strongly that we have the right pieces in place for Brightcove to be a significantly more profitable and larger company over time.

We'll continue to invest in, iterate and strengthen our strategic plan and do so diligently and responsibly so we ensure we deliver the long-term financial performance our shareholders expect, all with the continued vision of being the most trusted streaming technology company in the world.

With that, I'm going to turn the call over to Rob for a deeper dive on Q1 and the numbers, and I'll be back for Q&A..

Thank you, Marc and good afternoon, everyone. I will begin with a detailed review of our first quarter, and then I will finish with our outlook for the second quarter and the full year of 2023. Total revenue in the first quarter was $49.1 million, which was in line with our guidance range.

Breaking revenue down further, subscription and support revenue was $47.1 million, and professional services was $2 million. Overage revenue in the quarter was $1.4 million.

Revenue came in at the lower end of our guidance range due to a handful of small items in the quarter, including slightly lower overage and professional services revenue, one-time credits to customers, and the timing of when deals were signed within the quarter.

12-month backlog, which we define as the aggregate amount of committed subscription revenue related to future performance obligations in the next 12 months, was $129.3 million. This represents a slight year-over-year increase. Total backlog was $181.2 million, a 14% increase year-over-year.

The strength in total backlog was driven by a higher percentage of multi-year bookings, including the large media win Marc referenced earlier. On a geographic basis, we generated 59% of our revenue in North America during the quarter and 41% internationally.

Breaking down international revenue a little more, Europe generated 17% of our revenue, and Japan and Asia-Pacific generated 24% of revenue during the quarter. Let me now turn to the supplemental metrics we share on a quarterly basis.

Net revenue retention in the quarter was 94%, which compares to 94% in the fourth quarter of 2022, and 98% in the first quarter of 2022. Since the beginning of 2019, net revenue retention has ranged from 92% to 100%. We expect that as we continue to make improvements in our renewals business, this metric will consistently be over 100% over time.

Recurring dollar retention rate in the first quarter was 88%, which was below our target range of low to mid 90s. Gross retention in the quarter was in line with our expectations. As Marc mentioned, add-on sales to existing customers was lower than expected, which more directly impacts this metric.

Our customer count at the end of the first quarter was 2,739 of which 2,180 were classified as premium customers. Looking at our ARPU within our premium customer base, our annualized revenue per premium customer was $89,400 and excludes our entry level pricing for starter customers, which average $3,900 in annualized revenue.

This compares to $96,500 in the first quarter of 2022. As a reminder, our overage revenue is factored into this calculation and the slowdown in overages is putting pressure on our ARPU. Looking at our results on a GAAP basis. Our gross profit was $28.8 million. Operating loss was $10.7 million, and net loss per share was $0.28 for the quarter.

Turning to our non-GAAP results. Our non-GAAP gross profit in the first quarter was $29.6 million compared to $35 million in the year ago period, and represents a gross margin of 60%, which was down from 66% in the first quarter of 2022.

The decrease in margin is driven primarily by higher amortization of internal use software and higher cloud compute costs related to new services. Non-GAAP loss from operations was $5.6 million in the first quarter compared to positive $3.8 million in the first quarter of 2022.

Adjusted EBITDA was negative $2.7 million in the first quarter compared to positive $5.1 million in the year ago period and below our guidance range. The primary driver in the lower than expected profitability was higher headcount costs due to success in strategic hiring and attrition rates that were more than 50% lower than our historical levels.

Non-GAAP diluted net loss per share was $0.15 based on 42.5 million weighted average shares outstanding. This compares to net income per share of $0.10 on 41.9 million weighted average shares outstanding in the year ago period. Turning into the balance sheet and cash flow.

We experienced a short-term impact from the collapse of SVB, Silicon Valley Bank, who was our primary US banking partner. We ended the quarter with cash and cash equivalents of $12.5 million.

We used $12.6 million in cash flow from operations and free cash flow was negative $17.5 million after taking into account $4.9 million in capital expenditures and capitalized internal use software.

While we expected to use cash in our first quarter in our plan for the year, SVB's collapsed significantly impacted cash collections at the end of the quarter by approximately $7 million to $10 million creating atypical results, which we do not expect to reoccur.

SVB was one of our primary banking partners used by our treasury operations to accept customer payments and it took time to direct customers to other financial institutions, specifically Bank of America for much of our US-based receivables.

This was entirely a matter of timing and the majority of the cash collections delayed by this banking transition have already been collected. On a go-forward basis, we'll be operating with multiple US banking partners in addition to our existing international banking partners.

We currently hold a line of credit with SVB First Citizens, and are exploring options for the best line of credit partner and structure in the future. I would now like to provide the details of how we are approaching guidance and the factors that are driving both our revenue and profitability guidance for the year.

As Marc mentioned, we are seeing short-term headwinds that are putting downward pressure on our revenue results. Specifically, two key trends are driving our revised point of view. First, we are seeing lengthening sales cycle, especially at our larger target customers.

Larger new and add-on opportunities that we've closed recently or currently in pipeline are simply taking longer to get done as customers manage through the uncertain macroeconomic environment. And second, a recent meaningful drop-off in demand for add-on entitlements with existing customers.

Offsetting the short-term trends, we are seeing our strategic initiatives begin to bear fruit. The pushup market to larger customers and the more end-to-end platform are showing initial signs of success.

We closed our largest new business deal in the company's history, saw a return to growth on our 12-month subscription backlog and saw double-digit growth in our total subscription backlog. The combination of short-term headwinds and the traction of our strategic initiatives is informing both the Q2 and full year guidance we are providing for revenue.

For the second quarter, we are targeting revenue of $50 million to $51 million, including $1 million of overages and approximately $2 million of professional services.

For the full year, we are revising our revenue down to a range of $204 million to $209 million, including $4.4 million of overages and approximately $8.8 million of professional services revenue. With the lower revenue guidance for the year, we still remain committed to an adjusted EBITDA of $16 million to $19 million in 2023.

We believe it is critical to manage the business profitably and with positive free cash flow. In order to achieve these goals, we have taken the following actions. First, we are reducing our headcount by approximately 10%, which will result in approximately $2 million in severance costs in the second quarter.

And second, we have meaningfully cut costs in several areas of the organization, including marketing, real estate and travel expenses. These savings are designed to reduce operating costs, improve operating margins, and drive our focus on key growth and strategic priorities.

We expect these changes to drive over $10 million of expense savings in the remainder of 2023 and to drive over $13 million in expense savings on an annual basis. These cost savings actions enable us to maintain our adjusted EBITDA and free cash flow outlooks for the year despite the reduction in our revenue guidance.

For the second quarter, we expect a non-GAAP operating loss between $1.3 million and $300,000, and adjusted EBITDA to be between $1.8 million and $2.8 million. Non-GAAP net loss per share is expected to be in the range of $0.04 to $0.01 based on 43.1 million weighted average shares outstanding.

For the full year, we are maintaining our outlook on profitability, and we expect non-GAAP operating income of $3 million to $6 million and adjusted EBITDA to between $16 million and $19 million. Non-GAAP net income per share is expected to be in the range of $0.03 to $0.10 based on 43.4 million weighted average shares outstanding.

For the full year, we continue to target free cash flow of breakeven to $5 million or $17.5 million to $22.5 million from Q2 to Q4, as we drive increased profitability in the second half of the year and our investments in internally developed software return to the levels prior to 2022 of $2 million to $3 million per quarter.

We are confident that while the results of our long-term investments may be delayed, we are seeing initial signs of success. We are committed to driving profitable growth and expect Brightcove to return to growth and meaningful profitability in the second half of this year.

In fact, if you look at our Q2 and revised full year guidance, it shows that we plan to exit 2023 at a meaningful growth rate on revenue, and now at an improved EBITDA margin, while being set up to be a meaningful generator of cash going forward.

That type of second half performance in 2023 will put us on the path to the long-term targets we set out last November and are reiterating today, consistent double-digit revenue growth and 20%-plus adjusted EBITDA margins. With that, we'll now take your questions. Please give us a moment to prepare Q&A..

Thank you everyone for joining us this afternoon. We'll open questions from Steve Frankel, Rosenblatt Securities..

Hi. Good afternoon. Marc, let's start with this large media win you had in the quarter.

Can you talk to us about the path to going from the professional services related to that contract to getting to the recurring revenue piece?.

Sure. It's actually a majority recurring revenue type of deal. That one specifically, some -- I believe there's some small services in there, but majority of it is implementation and support services. And the rest is recurring software revenue.

It's going to take a bit of time to implement on their side because it's a large implementation, but it'll happen over the next few quarters. And hence the reason for sort of not disclosing the partners, they're making a lot of changes on their side and those type of things.

And then we'll work with them on how we can put together a case study on the initiative. And we're really excited about kicking off the partnership with them and the long-term that we're going to have with this partner..

Does that imply that we won't see meaningful revenue from that deal this year? And it's more of a 2024 event?.

No, you will see meaningful revenue -- sorry, Rob, go ahead..

You will see meaningful revenue. It's a big piece of step up in revenue from Q1 to Q2, that's included in the guide..

Okay.

And then on the Magnite partnership, can you talk to us about some early feedback and what's the timing to get that to be a contributor to your revenue growth?.

Yeah. So we've announced the partnership in early Q1. We really launched, let's call it, go-to-market on getting, partners involved later in the quarter. We now have partners launched on the service. Brightcove Ad Monetization is the name of the service. And we will start to have inventory flowing through now. I would not expect meaningful revenue in Q2.

It'll be relatively de minimis because it's going to be a handful of partners for the quarter with inventory. And we're really looking to the back half of this year to ramp it as we ramp the number of customers that have come onto the service and then the fill that we can do there.

So like any other sort of startup ad business, just going to take time to get the inventory flowing. But our goal is by the back half of the year to start having revenue we can talk about..

Okay.

And in terms of the pipeline of other large deals, do you get the sense that to execute on those, you're need to -- you're going to need to get this first one launched and people need to see that win? Or do you think you can convince other customers to do this without that extra push?.

I think both, right? I think we can absolutely and will and have been convincing other, maybe not as big as that one, but there are going to be other big ones like that, that are in the mix. There are some that I believe are existing customers that we can take up to that kind of mix.

We have small or medium sized relationships with almost -- with dozens of the largest companies in the world in this space. We believe we can expand those as well. So my take is just those sales cycles on these larger deals are -- they're quarters long, not months long.

And when we get into the sort of discovery phase and how much we can do with them, so I think it's just taking us a little longer than we had hoped as we think about those sales cycles on more of those deals. But we absolutely think there are more out there, in the near and long-term..

Okay.

And then, Rob, on gross margins, should we assume that gross margins going to stay in this level until you get revenue growing meaningfully?.

Yeah. I think you should start to see improvements in gross margins starting in Q2, and we're pushing on that over the course of the year. You'll see revenue growth impacting that, but we've also got internal initiatives to focus on it..

Okay. Great. Thank you..

Yep..

Thanks..

And next we'll take questions from Mike Latimore at Northland Securities..

Great. Thanks very much. On the new bookings or the new logo bookings, let's say, have been really strong for several quarters. Obviously, this quarter was big as well.

Couldn't tell if you said that that is starting to slow a little bit, or is the momentum continuing there?.

Well, it was a record new business corridor, up 325%. I would absolutely expect that to slow down from 325% growth, that will not happen unless we have another large customer come in that way. The -- excluding that large deal was 35% growth in Q1, it was 40% growth in Q4.

So I think -- I don't think, we didn't necessarily look at it as that percentage growth going up or down, but just that it's a really healthy percentage, right? And a healthy percentage growth over the previous year. As long as that's healthy, we're feeling good. And we see -- we're seeing good traction there.

We're not going to -- you're not necessarily seeing that slowing down per se, that the new business piece is working. I think the place we were focused is obviously is the add-on is a different story..

Got it. Okay.

And then on the add-ons, is there a noticeable difference there between say the enterprise market versus the media market in the add-on business you're seeing?.

I think we're seeing America's enterprise look pretty similar in terms of new business growth, and in add-on, it's actually a little bit better, because it's a little less -- a little more resilient versus entitlement add-ons, right? It's not so dependent on pure traffic growth and usage growth being the way we upgrade those businesses.

So I'd say, domestic enterprise is probably stronger from an add-on perspective than, let's say, global media, for example..

That makes sense. Okay.

And then, in terms of just the cash position, where do you see that sort of bottoming this year?.

Yeah. I think we're going to be generating cash at the free cash flow line every quarter going forward. This is definitely a bottom. You saw the AR pop pretty significantly from $26 million at the end of Q4 to 40 -- over $40 million at the end of Q1, really driven by that SVB collapse.

So we expect to collect the majority of that cash as we go through the second quarter and expect to be generating cash going forward..

Got it. Okay. Great. And then, any changes or new nuances to your strategy around adding ancillary services? You've got Ad Monetization consulting, couple areas there.

Anything -- any change in that strategy?.

No. I think the goal from the product and solution side is to be regular in terms of how we're delivering, right? So I think the -- I don't know, if it's the previous strategy, the company, but the way the company was delivering historically was sort of like one or maybe two big things a year and would sort of put it all in on those things.

I think our revised strategy here is to have a set of initiatives. There was a dozen and have a bunch of things that were going after that will deliver over a period of quarter. So if you look at -- for us here at Q4, we really started to launch communication studio.

We announced it a little later, but that's when we started to talk to customers about it. You can talk about monetization in Q1, you can talk about now our fast partnership with Frequency here at the beginning of Q2. Our quality of experience launch, a little bit a week or so later in Q2. And there'll be more coming, over the coming weeks.

And then, some of the increased eCommerce integrations that we rolled out were early Q2, I think late Q1, early Q2. So the idea here is to keep adding things on a regular basis and at more velocity with incremental things. So our team can go out and do more cross-sell and upsell.

We're going to need it, right, given the challenges on the entitlement base. And so I think now we're going to hopefully start to see that bear fruit over the second half of the year..

Yeah. Yeah. Yeah. Great. Thank you..

Thanks Mike. And we'll move on to Max Michaelis from Lake Street Capital.

Max?.

Knowing that the two factors, elongated sales cycles and then lower entitlement spend.

Want to know if you -- your current guide for 2023 bakes in any recovery towards the back half of the year?.

Yeah. Not materially. And if you think about any recovery that we're going to get, even if it's in Q4, it's really not going to impact this year's revenue. That's really going to flow through 2024 if that recovery does start..

Okay.

And then, next thing is, when did you guys start to notice this lower spend in the quarter?.

In terms of the add-on?.

Yeah. In terms of the entitlement spend? Yeah. You mentioned earlier..

Yeah. As we talked about it, we started the quarter with a strong pipeline, and those sales cycles are starting elongate, so it happened a little bit later in the quarter..

Okay. And then I know retention NR was flat at 94% in Q1.

Anything you can point to in Q2 in terms of strengths, maybe uptick in that number at all?.

Yeah. I think, the big piece there is that I talked about on the call, we had a really strong gross renewal rate this quarter. And the impact on the net and the flatness of the net was really related to the lack of add-ons. So I'd expect that to stay flat over the next couple of quarters..

Okay. Thank you..

Thanks Max..

End of Q&A:.

Well, with that I'll say thank you all for joining today. Hopefully, despite the challenges we're facing, you see our commitment to delivering a return on investment, the investments we're making for shareholders. You see our strength in new business that we're excited about going forward. Large customers are turning and staying with us.

You can see the product delivery is becoming more regular and consistent. We're excited about where that's headed. And hopefully soon we've made the right changes to the business going forward given the challenges we're facing to be able to have the right position for the long-term, especially with regards to adjusted EBITDA and free cash flow.

And then finally, we're committed to the long-term strategy because we believe it's the right thing for the business and for the industry long-term and believe it will deliver outsize returns over the long run for our shareholders. So we're excited about that. With that, I'll thank you for joining us today and look forward to seeing you next quarter..