Good afternoon and welcome to Brightcove’s Second 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 third fiscal quarter of 2023 and the full year 2023, expected profitability and 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 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 on 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 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..

the first, continued weakness in add-on sales activity, especially in our largest territory of North America and especially with our media customer base on entitlements. And second, some of our newer initiatives are taking longer or require some adjustments in order to begin driving meaningful revenue.

As we discussed last quarter, the slowing rate of usage growth in the streaming market and the increased capacity purchased by many customers during COVID, has led to lower overages and an increase in flat to down renewals and fewer add-on increases in entitlement spending.

Since add-on bookings are historically a sizable majority of our bookings in a quarter, the decline in this part of the business is offsetting our strong new business growth. This dynamic was more pronounced than we anticipated last quarter, and our updated forecast anticipates similar dynamics to the second quarter for the remainder of 2023.

We continue to believe this weakness will be temporary as we work through our renewal cycle, and we keep bringing additional products and services to market that we can up-sell to our customer base. The other dynamic impacting growth is the expected impact from some of our newer initiatives taking longer than initially expected.

At our Investor Day last year, we laid out a number of strategic initiatives we were working on. Several of them are working quite well, including super serving strategically large customers, the introduction of Communication Studio and the launching of our FAST offering.

We talked about the large deal pipeline already and the FAST and Communication Studio have both developed millions in pipeline as well, and we expect will generate additional revenue over the coming quarters. Several of the other initiatives are falling into 3 other current states though.

The first, either delivered and driving new conversations but not necessarily immediate pipeline; second, deals that are in discussion but not necessarily shaping up like standard pipeline; and third, areas where the dialogue with customers has us reshaping the initiative or pausing to focus on areas that can make us money sooner.

This is always a portfolio approach, and we’re seeing that play out now that we’re deep enough into the development of these initiatives. Given this dynamic, we are pulling back on some, revamping others and doubling down where we see real immediate opportunity.

In closing, I want to make a point about our markets and why we believe we are on the right track long term. Streaming has become the dominant form of media consumption over the past decade, larger than broadcast and cable now. It continues to grow and is expected to be a $250 billion market by 2026.

The media portion of the market is definitely in transition, and that plays to some of our strengths. IDC said it clearly in their market guide recently, that media companies can no longer focus on in-house solutions as investors continue to apply pressure on ROI results.

They must seek out key strategic vendor partners that are aligned on road maps and vision and can no longer afford to spend time gluing together and maintaining integrations with a multitude of technology vendors." We agree. Not to mention the needs of the growing number of services comprising what we call the next set of up-and-coming services.

For enterprises, video is becoming an indispensable part of how they work, whether it be for driving marketing goals like purchase intent and conversion, or for delivering for employees as companies manage communications in the now durable hybrid and anywhere work models.

The bottom line is that I believe we are pointed in the right direction with the right solutions. Our new business strength in both enterprise and media gives me confidence. We believe by Q4, we will demonstrate that we can grow this business and do it with positive and growing EBITDA and free cash flow as well.

It’s important to recognize we are making significant changes across many parts of this business in people, processes and solutions. In some cases, that has required more change than initially expected, but it doesn’t change our confidence in the long-term potential.

We acknowledge that forecasting the timing of when each aspect of the strategy will begin positively impacting the business has been challenging. But the progress made to date and our detailed plan to drive further improvement gives us confidence it will.

The streaming market and our solutions for it, presents an incredibly attractive opportunity for Brightcove, our customers and to generate more profitable growth for our shareholders. With that, I’m going to turn the call over to Rob for a deeper dive on Q2 in the numbers, and I’ll be back for Q&A.

Rob?.

lower add-on revenue and bookings, a more muted benefit from some of our newer initiatives than originally expected and a $700,000 reduction in our professional services revenue forecast. In terms of profitability, our updated outlook is being driven by the changes to the revenue outlook.

We are taking a disciplined approach to our spending and implemented aggressive steps to streamline expenses in April.

We believe it’s premature to take action at this time, given the encouraging new business activity Marc discussed, in our view that we’ll begin to see positive revenue impact from some of our newer strategic initiatives in the coming quarters. Even with our reduced guidance, we expect mid-single-digit revenue growth in the fourth quarter.

We also expect that we will be adjusted EBITDA and free cash flow positive each quarter going forward.

We continue to be confident in our strategic plan and believe we’ll begin to see that reflected in our financial results in the coming quarters as our newer initiatives gain traction and the near-term headwinds we are currently working through subside.

The level and scale of customer engagements we are having is a clear indication that we are targeting the right part of the market. Our focus for the remainder of the year is to execute on our strategic priorities as quickly as possible to position the business for improved top and bottom line results in 2024 and beyond.

With that, we will now take your questions..

Thank you, everyone, for joining us this afternoon. We’ll begin our Q&A with questions from Steve Frankel, Rosenblatt Securities.

Steve?.

Good afternoon. Marc, maybe start with a little look at the economy.

What are you seeing out there? And how is that impacting the business?.

Thanks, Steve. The good news is that on the big deal side, we are winning things like Yahoo and the NHL because we provide a unique benefit to companies of that size and scale that we can deliver a better total cost of ownership than pretty much anybody else out there, and we deliver something that can actually improve their operating cost profile.

So we saw a 5 to 6x ROI, for example, we delivered to Yahoo there. So I think because of the pressure on those companies to do things for less, we can actually win meaningful sizable new business up market. But it has a double-edged sword, right? We’ve certainly seen the pressures on the add-on side of our business.

I think those are both economic, right? In the lengthening sales cycles, we see either in bigger deals or sometimes mid-sized deals or add-ons to some of our customers.

And then look, there is definitely something in our business where the sales coming out of COVID in a year post entitlements were purchased by many of our especially North American media customers that they’re still growing into. And as they grow into those and we hit those renewal cycles, they’re either renewing flat to down.

And I think we’re going to age through that cycle here in the next few quarters, but it certainly has been a headwind we’ve been combating here over the past few..

Okay. And then you mentioned a couple of initiatives that are working really well.

How about some specifics on what’s not working and what do you need to do going forward?.

For sure. I think there’s a couple of initiatives that have taken long enough to come to this stage where we’re actually, I wouldn’t say pausing, but at least pulling back on resource commitment to them. We had an initiative called like a CDN switching initiative, sort of supply that to customers and see if that would benefit them.

We found that us just solving the CDM problem as a better solution for them right now, and they don’t need that sort of technology. So we’ve backed away from that pretty quickly. The second thing I’d say is our advisory practices. We’re sort of in between on those. We have a media advisory practice and an enterprise advisory practice.

We have a small number of people focused on it, but we have not ramped the hiring there as we’re waiting to see if we can really build that out. And then finally, I’d bring up ad monetization, which has been going well in terms of setting it up. But in terms of that, actually producing revenue for us here in the back half.

I think it’s going to come more in the flavor of services we provide to companies. It will still come in that inventory, but I think that inventory is going to take much longer to scale than I think we originally expected, which I think is fine. I think we have the right approach.

We’re helping customers we’re getting in more conversations because we have that capability, but I think it’s going to be a more service-style approach here in the next couple of quarters rather than pure inventory and benefiting from moving that inventory for our customers..

Okay.

And then maybe how long do you think it takes for the halo effect from Yahoo to help you land a couple more deals like that?.

Yes. Like we said, that pipeline has been building, not just starting on Monday when we were able to announce Yahoo as that customer but for over a year now.

And we have a dozen plus, if not, almost two dozen opportunities, I think greater than $0.5 million or $1 million, certainly a number in seven figures that we’ve not seen in recent years or quarters.

So we’re very optimistic that the opportunities that we’re seeing there are we’re going to close here in the near-term, right, in the next quarter or two. And that gives us great visibility into where that could play out over the next year or so.

And we view it as a pipeline, we are going to continue to build sort of it’s a flywheel, right? As we win more, I think more people will have that confidence, we can provide better rates on entitlements as we grow and scale. And it certainly gives us an advantage that I think nobody else has. So I think we’re in a great spot there over the long run.

It’s just those deals are not things that we can sort of wish and to fruition earlier than those companies are ready to move on those larger deals..

And then the last question is, do you fundamentally still believe once you get this thing on the right track that you can grow the business double digits on the top line..

We do. We certainly do think that 10% plus growth target is there for us. I think we are going to start to see the results of what we’ve been doing here in Q4. You’ll start to see that growth come back again. And we want to do it on an EBITDA, and we’re going to do it on an EBITDA positive and free cash flow positive basis.

And so I think you’ll see that start to happen in Q4 and into next year over time. And we certainly do think we can grow at that speed. And I think we’re trying to do it, frankly, at this point without that add-on entitlement growth that we’ve been having for years in the past, and we’ve seen this dip in the last couple of quarters.

But I think my long-term view there is that, that will come back. We will effectively lap that renewal cycle over time here, probably in the next two to four quarters. And I think after that, we should see sort of that come back as we built out our cross-sell, upsell muscle a little bit stronger..

Great. Thank you..

Thanks, Steve. And we’ll take our next question from Mike Latimore at Northland Securities..

Great. Thanks very much. Yes, I was interested in a little more color on the media pipeline.

Can you talk a little bit about what you’re seeing there? Are you – are the opportunities largely replacing other vendors or replacing DIYs? Is there any kind of concentration in one of those two categories? And also, is the opportunity in the media pipeline more kind of the full stack or more selling a component?.

Great news, it’s a mix of almost all those things, right, because it’s enough different and differentiated deals that I see a little bit of everything there.

Maybe the one thing you didn’t mention is what I would call, new project growth, right? There are companies out there that want to head into a new space, launch a new service do something different than they’ve done in the past, and they’re turning to us to help advise them on what to do, how to build it and then whether we can help them build it together and use our platform to do it at scale very, very quickly.

So I’d say there’s sort of new projects, there’s rip and replace sort of the do-it-yourself model, can we rip and replace a large portion of that infrastructure. There are slices of that infrastructure that we can replace.

There are land and expand where we go in with a piece and have some growth there and some of the larger companies didn’t do either other divisions or other areas of our stack that we can grow. So it’s multifaceted, and each company is its own beast, so to speak, in terms of how they approach the market.

And I think we are seeing unique opportunities, especially in the North American market, where we have all flavors of that. And I think what we’re trying to leverage now is how do we build that new business pipeline in a much more global fashion..

Got it.

And then on the Yahoo deal, how is that deployment going? And when is that supposed to be complete?.

We’re actively deploying, it’s literally hundreds, if not 1,000, I think, properties across their full entity that we’re enabling. So it’s – will take some time to fully implement probably through most of this year, but we are in the middle of it. We are already live on a number of things, and it’s going very, very well.

I have an episode of play, which is our video series that we launched on our video service, where I talked to the President and GM of their home ecosystem business. And I think we talked a little bit about the breadth and depth of their properties there.

And when we talk to them on that call, they felt very good about where we were in terms of implementation already..

Great. And just last, gross margins.

How should we think about those in the second half of the year here?.

Yes. I think about the second half much closer to the second quarter than the combined first half where we saw that lower first quarter. Team has done a great job driving efficiency across our top to bottom tech stack, working with our vendors to drive better pricing for us. So as you look at the second half, think more like the second quarter. .

Okay. Thanks a lot..

Thanks, Mike. And with that, we’ll hand it over to Eric Martinuzzi from Lake Street Capital Markets for our final questions..

Yes.

Could you revisit the cash expectations for 2023? What was the number again? And then, how does it flow through Q3, Q4?.

Yes. So cash expectations for the year now are kind of a negative $4 million to breakeven for the full year. If you remember, we had that $17.5 million free cash flow burn in the first quarter. We just saw $7.1 million. So you can think about the back half of the year kind of averaging between those two quarters with a little bit of improvement in Q4..

Okay.

And then you talked about partners, one of the new ones that took note was PubMatic, explain to me how that is different or similar versus Magnite?.

Yes. Our first partnership in the ad business was with Magnite and SpringServe. And SpringServe is the ad-serving technology we’re using to deliver for our partners when they ask that from us.

So I think of SpringServe as the core ad serving Magnite, it has SSP that stitches in there and can help demand or supply that we throw into the system with demand.

PubMatic is doing the same thing as effectively Magnite but brings a different set and a broader set of advertisers to the mix for our customer base and should help boost demand that we can deliver from the supply we throw into that marketplace.

But like I said, I think it’s going to take us a little bit of time to get that supply to really flow through from the customers we have. The dialogues we’re having are fantastic with many of our customers. It’s helping us win deals. But I think it’s going to take a little bit longer to have revenue generate in meaningful chunks off of those customers.

And I think a services approach we’re going to have in the back half of the year on how we can supply a operations and add audits and those types of things through our team are going to be the way we see revenue sooner..

Okay. And then on the new business generation, you’re obviously having some success here, but the growth in deal size is historically larger deal size means longer time line.

Can you juxtapose kind of the large deal flow between the media side versus the enterprise side?.

Yes. I think the great news is that the large deal pipeline is building on both sides of the business. It’s slightly different in terms of scale, right? You’re going to see fewer seven-figure deals on the enterprise side, although there are a handful that are possible and mostly six-figure deals when we talk about moving upmarket.

And on the media side, you can see a number of seven-figure deals in that mix for us in the pipeline. So we’re excited about where that takes us.

And it’s just a slightly different go-to-market motion, right? We’re selling multiple products into the enterprise side, sell marketing product, we sell a communications product and solution, and we can go and customize those in different ways for different types of companies.

As on the media side, we have a full suite and really a question of are we doing that full thing for someone or are we picking and choosing a use case in terms of how they’re doing it. So it really does depend customer to customer and territory to territory..

Got it. Thank you..

Thanks, Eric.

Marc?.

Great. Thank you very much for the questions. We appreciate you joining the call.

Hopefully, what your takeaways are that we are on the right track and the right market and that we have the right solutions for our customers that you can see the new business success is helping us get confidence in where we’re headed over the long run and that we hope to deliver and we plan to deliver in Q4, the growth that we’ve been talking about, along with EBITDA and free cash flow positive version of that growth.

So we’re excited to do that over the back half of the year. Thanks so much for joining. We look forward to speaking to you next quarter, and we’ll talk again. Thanks..