optimization and efficiency. First, our goal is to transform the products and solutions we deliver to optimize our customers’ businesses, think driving more revenue, more audience or more content. And we also want to find the right tools and solutions to optimize our own business.

Second, we are focused on delivering meaningful efficiencies for our customers through our solutions think reducing costs on content delivery or maximizing quality of that delivery or minimizing downtime. And we want to find the right tools and solutions to find both cost savings and time efficiencies in our own business as well.

Our intention is not to build AI engines. The market has demonstrated to us that there are hundreds out there and more coming every day. Our strategy is rather to partner with the best-in-class AI engines and apply them to support our strategy.

Our differentiators will be first in how we strategically include our data and our customers’ data and content securely and responsibly in those AI engines and build solutions that give our customers control about what data goes into those AI models and when.

We believe the data and content managed in our systems will continuously inform and improve our AI-enabled solutions to make them more unique and specialized for our customers’ businesses over time.

Second, we will not just be delivering insights that enable our customers to take the right actions, but ultimately automate those actions as our systems continually learn, delivering an effectively intelligent platform [Technical Difficulty] have efficiency in our own business, including having recently announced advancements to our knowledge base, utilizing Amazon’s Q technology.

As Amazon’s CEO, Andy Jassy mentioned in his release last week, we partnered with AWS to evolve our award-winning customer service to deliver answers about our solutions using this AI engine and can now respond to customer needs even faster, making our teams more responsive, productive and efficient.

We believe AI will make our products and overall capabilities meaningfully better and ultimately, has the potential to be transformative for our business.

We believe AI can be a game changer for our customers in terms of delivering solutions around things like content generation and creation, monetization, search and discovery, audience engagement, recommendations and more. We also believe it can be a game changer for the optimization of our business, too.

I’m very excited about our strategy here and with numerous pilots currently underway, you should expect to hear more and more from us here going forward. Before I turn things over to John, let me wrap up by reiterating that we are off to a solid start in 2024. In Q1, we grew revenue.

We delivered meaningful adjusted EBITDA margins and added millions in cash to our balance sheet. We are executing with operational rigor around expenses and are confident in our ability to deliver strong growth in profitability and real cash generation.

We are working diligently to build a more predictable and consistent go-to-market engine, and we have a market-leading product suite and a clear vision of where we need to take it to deliver for our customers, especially in an AI-driven future. We believe these steps will deliver improved financial results over time.

And at our current valuation, we continue to believe Brightcove represents an incredibly attractive investment opportunity.

Finally, with the addition of John, we have completed the build-out of our new management team, and I’ve been incredibly pleased with the passion and purpose this team is instilling across the company and where we believe we can take it together.

I’m also personally excited to partner specifically with John and believe he is an excellent addition to this team. So with that, let me turn things over to him to introduce himself, walk through the financials and our guidance in a little bit more detail.

John?.

Thank you, Marc. And let me start by saying I am thrilled to be joining Brightcove. As I considered opportunities for my next role, Brightcove checked each of the boxes I was most focused on.

As a recognized leader in the streaming industry, Brightcove is well positioned in a large and growing market with two decades of technical innovation and an incredible roster of media and enterprise customers.

I strongly believe Brightcove is in a great position to build upon this history with a management team that is now laser focused on a strategy to deliver better operational and financial results. And as a new shareholder myself, I see substantial value and upside in our stock at these levels.

I’d now like to provide a detailed review of our first quarter results and then finish with our outlook for the second quarter and full year 2024. Total revenue in the first quarter was $50.5 million, above the high end of our guidance range and up 3% year-over-year. Breaking revenue down further.

If we exclude overages of $1.1 million in the quarter, revenue was $49.4 million, up 3.6% year-over-year. Subscription and support revenue, which includes overages, was $48 million, and professional services revenue was $2.5 million, up 2% and 28% year-over-year, respectively.

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 $127.3 million, flat over the prior quarter and a decrease of 1.6% year-over-year. Total backlog was $185.4 million, up 2.3% year-over-year and our highest total backlog ever.

Our record backlog reflects our success capturing multiyear commitments from our customers, which in turn improves our customer retention in the future periods and the predictability and visibility of our business. On a geographic basis, we generated 61% of our revenue in North America in the quarter and 39% internationally.

Breaking down international revenue a bit more, Europe generated 16% of our revenue and Japan and Asia Pacific generated 23% of revenue in the quarter. Let me now turn to the supplemental metrics we share on a quarterly basis.

Recurring dollar retention rate in the first quarter was 85%, which was down from 94% in the previous quarter due primarily to the loss of a large media customer as a result of their company’s acquisition that we previewed last quarter.

As a reminder, this metric only captures renewals in the quarter and upsells at the time of renewal and does not factor in the impact of add-ons during the contract term or multiyear agreements, both of which meaningfully improve our dollar retention.

Net revenue retention in the quarter was 92%, which compares to 95% in the previous quarter and 94% in the first quarter of 2023. This decline was primarily due to the previously mentioned acquisition-related loss of a large customer, as well as lower add-on sales performance in the prior year.

Net revenue retention did benefit from a growing number of multiyear customer commitments essentially locking in renewals at each contract anniversary. Our customer count at the end of first quarter was 2,502, of which 1,992 were classified as premium customers.

Looking at our ARPU within our premium customer base, our annualized revenue per premium customer was $98,000 and excludes our entry-level pricing for starter customers, which averaged $4,300 in annualized revenue.

This represented a growth of 2% over the previous quarter and 10% compared to the first quarter of 2023 and tied an all-time quarterly record. The strong growth in ARPU reflects a combination of our strategy to focus on super serving larger customers and that attrition is mostly concentrated amongst lower ARPU customers.

Looking at our results on a GAAP basis. Our gross profit was $30.9 million for the quarter, giving us a gross margin of 61.1%, which is an improvement over 58.7% in the first quarter of 2023.

Operating and net income were both positive for the quarter at $2 million and $1.6 million, respectively, as we benefited from a $6 million gain in operations from the sale of patents that Marc detailed earlier. Net income per share was $0.04 for the quarter based on 44.1 million weighted average shares outstanding.

Turning to our non-GAAP results, which exclude the positive impact of our patent sale in addition to our traditional add-backs. Our non-GAAP gross profit in the quarter was $31.7 million compared to $29.6 million in the first quarter of 2023 and represented a gross margin of 63% compared to 60% in the year ago period.

Non-GAAP operating income was $1 million in the first quarter compared to non-GAAP operating loss of $5.6 million in the first quarter of 2023. Adjusted EBITDA was $5 million, representing adjusted EBITDA margin of 10% at the high end of our guidance range provided last quarter.

This is our third consecutive quarter of double-digit adjusted EBITDA margins. The ongoing strength in adjusted EBITDA reflects our continued benefit of prior cost savings actions and our ongoing expense discipline.

Profitability in the quarter was stronger than a typical first quarter due in part to shifting our annual employee merit pay increase to Q2 this year. Non-GAAP diluted net income per share was $0.01 based on 44.1 million weighted average shares outstanding.

This compares to net loss per share of $0.15 based on 42.5 million weighted average shares outstanding in the year ago period. Turning to the balance sheet and cash flow.

We ended the quarter with cash and cash equivalents of $22.9 million, which is up from $18.6 million at December 31, reflecting a net increase of cash of $4.3 million in the quarter, driven by $6 million of proceeds from our patent sale.

Free cash flow for the quarter was negative $1 million after taking into account $3 million in capital expenditures and capitalized internal use software and excludes the proceeds from our patent sale.

This free cash flow performance was better-than-expected, and we would have generated positive free cash flow if you exclude the portion of our restructuring expense paid in the quarter. I’d like to finish by providing our guidance for the second quarter and the full year 2024.

For the second quarter, we are targeting revenue of between $47.5 million and $48.5 million, including approximately $800,000 of overages and approximately $1.8 million of professional services revenue.

From a profitability perspective, we expect non-GAAP operating loss to be between $2 million and $1 million and positive adjusted EBITDA to be between $2 million and $3 million. Non-GAAP net income per share is expected to be in the range of a loss of $0.05 to $0.03 based on 44.6 million weighted average shares outstanding.

For the full year, we are maintaining our revenue guidance we provided last quarter of $195 million to $198 million, which includes an estimate of $3.5 million of overage revenue, approximately $8 million of professional services revenue.

We are also maintaining our full year guidance from a profitability perspective and expect non-GAAP operating loss to be between $3 million and $1 million and positive adjusted EBITDA to be between $14 million and $16 million.

Non-GAAP net loss per share is expected to be in the range of $0.10 to $0.05 based on 44.6 million weighted average shares outstanding. Lastly, we are maintaining our full year free cash flow guidance, which is expected to be between $5.6 million and $8 million. And we note this does not include the additional $6 million we received this year.

In addition, we expect to be free cash flow positive for each of the remaining quarters of the year, building modestly in Q2 and Q3 and further improving in Q4. A few things to keep in mind as you think about our guidance. First, foreign exchange rates have moved against us since the beginning of the year.

On a constant currency basis, our revenue and adjusted EBITDA guidance would have both been more than $1 million higher for the full year. Second, there are a couple of points I would like to make, specifically as it relates to Q2.

The sequential decline in quarterly revenue is driven by a few factors, including lower subscription revenue due to the Q1 M&A-related customer loss referenced earlier, a $700,000 decrease in professional services revenue and headwinds from unfavorable FX and lower revenue overages, both of which are expected to be several hundred thousand dollars.

In terms of Q2 profitability, the sequential decline from Q1 is driven by a combination of lower revenue, as well as an increase in expenses related to the timing of our annual employee merit pay increase. To wrap up, we had a solid start to the year in Q1.

We delivered revenue growth, double-digit adjusted EBITDA margins, and we strengthened our balance sheet with additional cash. We are focused on executing on our key strategic priorities that we expect will result in consistent revenue growth in the future.

We are off to a strong start against our profitability and free cash flow targets, and we are confident we will deliver significant improvement in both these metrics for the full year 2024, as outlined in our guidance. Please give us a moment to transition to Q&A, and we’ll be back to discuss our results further..

We are now going to take questions compiled from our analysts..

Great. We’ll take our first set of questions from Steve Frankel of Rosenblatt Securities. Despite a better-than-expected performance in Q1, you’re guiding for revenue declines in the second quarter.

Does this decline a function of the lost customer you discussed in the 4Q call? Or have you seen additional customer churn?.

So, I guess, I’d start by saying we had a strong revenue quarter in Q1. We were pleased with the fact that we were able to deliver some upside against our guidance. As you look at Q2, we are guiding for a sequential decline in revenue. I think you’ve got the first major piece of that if we walk through the – from Q1 to Q2.

First component is that, large media customer that churned in Q1 related to their own M&A. I’d say the second component is within professional services. Our guide implies about $700,000 less in professional services in Q2. And then lastly, I would mention two components, which would be the headwinds we’re seeing within FX, as well as lower overages.

Q1 was a relatively strong quarter for overage. We expect a few hundred thousand dollars less in Q2..

Steve’s next question is, can you provide an update on the company’s large deal pipeline, particularly in media?.

Yes. I think we feel very good about the pipeline and how it’s been building over time. We’ve certainly closed the number of what I would call high $100,000 annual value deals in Q1. I think we see more of those coming down the pike.

I think we also see numerous, let’s call them, 7-figure plus millions of dollars types of deals in each of the next potentially a few quarters. As we’ve always said, the challenge is knowing exactly when we can bring those deals to conclusion because it’s not always effectively within our control, the same way sort of smaller deals can be.

We feel really good about how that’s been building. I think you’ll hear more from us in from Q2 and into Q3 and in Q4 for the rest of the year, and that’s going to be really the upside potential we see to our guidance if we can land more of those in the sequential quarters..

And Steve’s final question is, what will it take to get the business to a point where it can consistently grow revenue?.

Yes.

I believe getting that add-on business back to sort of the historical levels we’ve seen, and we’re doing a lot of things, as we said on the call, to go after that, right? That’s about building our muscle and our enablement with our sales team to go sell those existing products up and into our existing customer base rather than the entitlement fueled growth we had over those previous years.

And then if that entitlement growth does come back, you’ll really start to see that growth kick in. But we believe we’re doing the right things on the add-on side to bring that back. I feel pretty confident in the new business side. I think we’re doing well there.

I think if those big deals also can come in more than one or two a quarter, but really start to cook at a higher rate per quarter. I think we start to see some really consistent growth there. So that is our goal to get back to that consistent growth. You’ve seen us do a couple of quarters here of 3% ish.

Obviously, we’re going to take that back here in a quarter, but I believe the goal here is to get to that – back to that type of growth, if not greater, by the end of the year..

Okay. We’ll take our next set of questions from Eric Martinuzzi of Lake Street Capital Markets. Your prior outlook did not anticipate any recovery in add-on or usage business in 2024.

Have you seen any green shoots either in Q1 or in the month of April?.

I think we have seen some. I think as we’ve said, sort of that entitlement business has not come rolling back, and we’ve sort of said that from the beginning, and that was implied in our guidance for ‘24.

We have seen some meaningful success in upgrading our enterprise customer base from what I would call existing video cloud accounts into marketing studio and now that we have Com Studio fully complete rolling that out as an upgrade potential for many of our customers.

And I think we’re going to see more there, nothing we want to sort of let out at this point. We’re sort of early days in terms of the number of quarters we’ve had to go in and sell that to our existing customer base, but I do believe there’s going to be a greater opportunity to up that add-on business with those products on the enterprise side.

And then on the media side, it’s going to be about those existing pitches of total cost of ownership and really the excellence we deliver from a quality perspective to try to grow those add-ons with our existing customer base on that front..

Eric’s next question, can you compare and contrast the demand environment in your pipeline between media accounts and your traditional enterprise accounts?.

Yes, I think the demand environment in media is very big deal-driven for us. We have a decent number of customers in this space, especially on a global stage, but it’s really going to be about which big ones can be really upsell, either in big new things they’re doing or in big new customers we can bring on.

So that’s where that big deal pipeline that was asked about earlier really comes into play. On the enterprise side, much more volume-based. We have a great customer base, over 1,500 enterprise customers. We’re really trying to figure out how we can build those add-ons into that business.

And so, like I talked about earlier, as we built these products to be those upsell use cases, can we get customers into those. And I think that will build from there. Again, from a new business perspective on enterprise, I think we feel relatively good. We’ve got some decent throughput on volume. We’d always love to see more.

If I were critiquing one area, it’s really that North America is doing relatively well for us. And as soon as we can get international up to that sort of same speed, which I believe we can, that’s when you’ll start to see that growth come and that’s how those pipelines will build even more..

And Eric’s final question is, you rolled through a 5% reduction in force in the first quarter.

Are you done with cost cuts? Or are there still fine-tuning to the cost structure to be done?.

I’d say we have no plans to make further – take further actions like we did in Q1 of this year or Q1 of last year. I would say, I think we are seeing the benefit of those actions, both in our adjusted EBITDA this quarter at 10%, as well as our guidance for a 25% year-over-year improvement in adjusted EBITDA.

But I think we feel pretty confident where we are in terms of the business and making sure that we’re resourced and rightsized for both our strategy and our go-to-market. So I think you wouldn’t see anything such as that.

But I think you would continue to see us be very judicious about resources in the business, continue to be very disciplined about the way we manage operational expenses. If there was one area that we would call out, it would probably be our technology spend within cost of goods sold, where we’ve made progress in the past.

We think there’s probably more impact that we can have in that area. That would be an area that we will probably try to optimize further. But generally, I think we feel pretty good about where we are in the business and our ability to meet our financial targets that we’ve laid out this year..

Great. Well said, John. So with that, I don’t think we have any further questions. First, I want to thank you all for joining us. We hope the takeaways we’re leaving you with today that we had a strong start to 2024, growing revenue and EBITDA, meeting or beating the high end of our guidance and strengthening our debt-free balance sheet all through Q1.

But our recurring revenue model is secure as ever with the highest backlog in our history at the end of the quarter that we are reiterating our full year guidance and commitment to executing with operational rigor and delivering strong growth and profitability and real cash generation each quarter going forward.

And that we have a market-leading product suite and a clear innovation path for an AI-driven future that we believe can deliver more consistent growth going forward.

And lastly, that we believe our current market capitalization is disconnected from the fundamentals and intrinsic value and believe Brightcove represents an incredibly attractive investment opportunity at this level. With that, I’ll thank my partner, John here for closing out his first earnings call with us here at Brightcove.

And with that, we’ll both look forward to speaking with you next quarter..