UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-35429

BRIGHTCOVE INC.

(Exact name of registrant as specified in its charter)

Delaware

20-1579162

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

281 Summer Street

Boston, MA 02210

(Address of principal executive offices)

(888) 882-1880

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	BCOV	The NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 28, 2022,~~July 27, 2023, there were ~~42,072,217~~43,250,780 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

BRIGHTCOVE INC.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION		4
Item 1. Financial Statements (Unaudited)		4
Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022		4
Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		5
Condensed Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		6
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		7
Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022		8
Notes to Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1715

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3129

Item 4. Controls and Procedures		3330

PART II. OTHER INFORMATION		3331

Item 1. Legal Proceedings		3331

Item 1A. Risk Factors		3331

Item 5. Other Information		3432

Item 6. Exhibits		3534

Signatures		3635

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to adding employees; statements related to potential benefits of acquisitions; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Item 1A of Part III of this Quarterly Report on Form 10-Q, and the risks discussed in our other Securities and Exchange Commission, or SEC, filings. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. However, any further disclosures made on related subjects in our subsequent reports filed with the

SEC should be consulted. Forward-looking statements in this Quarterly Report on Form 10-Q may include statements about:

•

our ability to achieve profitability;

•

our competitive position and the effect of competition in our industry;

•

our ability to retain and attract new customers;

•

our ability to penetrate existing markets and develop new markets for our services;

•

our ability to retain or hire qualified accounting and other personnel;

•

our ability to successfully integrate acquired businesses;

•

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

•

our ability to maintain the security and reliability of our systems;

•

our estimates with regard to our future performance and total potential market opportunity;

•

our estimates regarding our anticipated results of operations, future revenue, bookings growth, capital requirements, our needs for additional financing and broader economic challenges, including interest rate fluctuations; and

•

our goals and strategies, including those related to revenue and bookings growth.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Brightcove Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
	(in thousands, except share and per share data)						(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents	$	31,348		$	45,739		$	19,093		$	31,894
Accounts receivable, net of allowance of $355 and $353 at September 30, 2022 and December 31, 2021, respectively		31,891			29,866
Accounts receivable, net of allowance of $436 and $294 at June 30, 2023 and December 31, 2022, respectively								29,850			26,004
Prepaid expenses		8,976			7,792			9,804			8,700
Other current assets		10,338			10,833			12,476			10,722
Total current assets		82,553			94,230			71,223			77,320
Property and equipment, net		36,579			20,514			42,994			39,677
Operating lease right-of-use asset		19,387			24,891			17,604			18,671
Intangible assets, net		11,296			9,276			8,244			10,279
Goodwill		74,859			60,902			74,859			74,859
Other assets		6,564			6,655			6,285			7,007
Total assets	$	231,238		$	216,468		$	221,209		$	227,813
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,060		$	11,039		$	15,752		$	11,326
Accrued expenses		23,730			20,925			19,960			26,877
Operating lease liability		4,028			2,600			4,384			4,157
Deferred revenue		65,067			62,057			69,615			61,597
Total current liabilities		105,885			96,621			109,711			103,957
Operating lease liability, net of current portion		21,073			22,801			19,060			20,528
Other liabilities		963			786			838			981
Total liabilities	$	127,921			120,208		$	129,609			125,466
Commitments and contingencies (Note 8)
Stockholders’ equity:
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued		—			—			—			—
Common stock, $0.001 par value; 100,000,000 shares authorized; 42,193,504 and 41,384,643 shares issued at September 30, 2022 and December 31, 2021, respectively		42			41
Common stock, $0.001 par value; 100,000,000 shares authorized; 43,376,006 and 42,449,677 shares issued at June 30, 2023 and December 31, 2022, respectively								43			42
Additional paid-in capital		311,283			298,793			321,870			314,825
Treasury stock, at cost; 135,000 shares		(871	)		(871	)		(871	)		(871	)
Accumulated other comprehensive loss		(2,478	)		(662	)		(1,435	)		(1,593	)
Accumulated deficit		(204,659	)		(201,041	)		(228,007	)		(210,056	)
Total stockholders’ equity		103,317			96,260			91,600			102,347
Total liabilities and stockholders’ equity	$	231,238		$	216,468		$	221,209		$	227,813

The accompanying notes are an integral part of these condensed consolidated financial statements.

Brightcove Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	(in thousands, except share and per share data)												(in thousands, except share and per share data)
Revenue:
Subscription and support revenue	$	51,814		$	49,226		$	156,403		$	148,667		$	49,013		$	52,988		$	96,115		$	104,589
Professional services and other revenue		2,130			2,937			5,367			9,785			1,975			1,459			3,936			3,237
Total revenue		53,944			52,163			161,770			158,452			50,988			54,447			100,051			107,826
Cost of revenue:
Cost of subscription and support revenue		18,247			16,406			52,172			46,840			16,603			16,943			34,868			33,925
Cost of professional services and other revenue		1,816			2,247			5,575			8,205			1,898			1,761			3,900			3,759
Total cost of revenue		20,063			18,653			57,747			55,045			18,501			18,704			38,768			37,684
Gross profit		33,881			33,510			104,023			103,407			32,487			35,743			61,283			70,142
Operating expenses:
Research and development		7,931			7,902			24,540			24,041			10,345			8,372			20,211			16,609
Sales and marketing		19,023			18,451			55,272			52,730			19,034			17,961			38,499			36,249
General and administrative		7,748			7,345			24,391			21,822			9,405			8,554			19,469			16,643
Merger-related		—			45			747			300			45			153			190			747
Other expense (benefit)		—			—			1,149			(1,965	)
Other expense														—			—			—			1,149
Total operating expenses		34,702			33,743			106,099			96,928			38,829			35,040			78,369			71,397
Loss (income) from operations		(821	)		(233	)		(2,076	)		6,479
Other (expense) income, net		(668	)		(319	)		(1,880	)		(937	)
(Loss) income before income taxes		(1,489	)		(552	)		(3,956	)		5,542
(Loss) income from operations														(6,342	)		703			(17,086	)		(1,255	)
Other expense, net														422			(825	)		(121	)		(1,212	)
Loss before income taxes														(5,920	)		(122	)		(17,207	)		(2,467	)
Provision (benefit) for income taxes		191			468			(338	)		562			317			179			744			(529	)
Net (loss) income	$	(1,680	)	$	(1,020	)	$	(3,618	)	$	4,980
Net (loss) income per share—basic and diluted
Net loss													$	(6,237	)	$	(301	)	$	(17,951	)	$	(1,938	)
Net loss per share—basic and diluted
Basic	$	(0.04	)	$	(0.02	)	$	(0.09	)	$	0.12		$	(0.14	)	$	(0.01	)	$	(0.42	)	$	(0.05	)
Diluted	$	(0.04	)	$	(0.02	)	$	(0.09	)	$	0.12		$	(0.14	)	$	(0.01	)	$	(0.42	)	$	(0.05	)
Weighted-average shares—basic and diluted
Basic		41,972			40,935			41,712			40,571			43,059			41,723			42,795			41,580
Diluted		41,972			40,935			41,712			42,237			43,059			41,723			42,795			41,580

The accompanying notes are an integral part of these condensed consolidated financial statements.

Brightcove Inc.

Condensed Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	(in thousands)												(in thousands)
Net (loss) income	$	(1,680	)	$	(1,020	)	$	(3,618	)	$	4,980
Net loss													$	(6,237	)	$	(301	)	$	(17,951	)	$	(1,938	)
Other comprehensive income:
Foreign currency translation adjustments		(716	)		(238	)		(1,816	)		(412	)		(30	)		(857	)		158			(1,100	)
Comprehensive (loss) income	$	(2,396	)	$	(1,258	)	$	(5,434	)	$	4,568
Comprehensive loss													$	(6,267	)	$	(1,158	)	$	(17,793	)	$	(3,038	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Brightcove Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	(in thousands, except share data)												(in thousands, except share data)
Shares of common stock issued
Balance, beginning of period		42,029,575			40,946,572			41,384,643			40,152,021			42,992,371			41,685,163			42,449,677			41,384,643
Issuance of common stock upon exercise of stock options and vesting of restricted stock units		163,929			229,282			808,861			1,023,833			383,635			344,412			926,329			644,932
Balance, end of period		42,193,504			41,175,854			42,193,504			41,175,854			43,376,006			42,029,575			43,376,006			42,029,575
Shares of treasury stock
Balance, beginning of period		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)
Balance, end of period		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)		(135,000	)
Par value of common stock issued
Balance, beginning of period	$	42		$	41		$	41		$	41		$	43		$	42		$	42		$	41
Issuance of common stock upon exercise of stock options and vesting of restricted stock units														—			—			1			—
Common stock issued upon acquisition		—			—			1			—			—			—			—			1
Balance, end of period	$	42		$	41		$	42		$	41		$	43		$	42		$	43		$	42
Value of treasury stock
Balance, beginning of period	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)
Balance, end of period	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)	$	(871	)
Additional paid-in capital
Balance, beginning of period	$	308,314		$	292,775		$	298,793		$	287,059		$	318,293		$	304,506		$	314,825		$	298,793
Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of tax		(8	)		194			91			825			—			(1	)		(226	)		99
Stock-based compensation expense		2,977			2,495			10,412			7,580			3,608			3,809			7,302			7,435
Withholding tax on restricted stock														(31	)		(7	)		(31	)		(7	)
Common stock issued upon acquisition		—			—			1,987			—			—			—			—			1,987
Balance, end of period	$	311,283		$	295,464		$	311,283		$	295,464		$	321,870		$	308,307		$	321,870		$	308,307
Accumulated deficit
Balance, beginning of period	$	(202,979	)	$	(200,438	)	$	(201,041	)	$	(206,438	)	$	(221,770	)	$	(202,678	)	$	(210,056	)	$	(201,041	)
Net (loss) income		(1,680	)		(1,020	)		(3,618	)		4,980
Net loss														(6,237	)		(301	)		(17,951	)		(1,938	)
Balance, end of period	$	(204,659	)	$	(201,458	)	$	(204,659	)	$	(201,458	)	$	(228,007	)	$	(202,979	)	$	(228,007	)	$	(202,979	)
Accumulated other comprehensive loss
Balance, beginning of period	$	(1,762	)	$	(362	)	$	(662	)	$	(188	)	$	(1,405	)	$	(905	)	$	(1,593	)	$	(662	)
Foreign currency translation adjustment		(716	)		(238	)		(1,816	)		(412	)		(30	)		(857	)		158			(1,100	)
Balance, end of period	$	(2,478	)	$	(600	)	$	(2,478	)	$	(600	)	$	(1,435	)	$	(1,762	)	$	(1,435	)	$	(1,762	)
Total stockholders’ equity	$	103,317		$	92,576		$	103,317		$	92,576		$	91,600		$	102,737		$	91,600		$	102,737

The accompanying notes are an integral part of these condensed consolidated financial statements.

Brightcove Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2022			2021			2023			2022
	(in thousands)						(in thousands)
Operating activities
Net (loss) income	$	(3,618	)	$	4,980
Adjustments to reconcile net loss to net cash provided by operating activities:
Net loss							$	(17,951	)	$	(1,938	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		7,141			6,284			8,008			4,227
Stock-based compensation		9,969			7,234			7,030			7,123
Provision for reserves on accounts receivable	166				246		222				70
Changes in assets and liabilities:
Accounts receivable		(1,871	)		710			(4,219	)		(2,394	)
Prepaid expenses and other current assets		(1,351	)		(914	)		(1,882	)		(2,612	)
Other assets		38			(1,273	)		802			161
Accounts payable		863			79			3,376			(834	)
Accrued expenses		(242	)		(4,402	)		(5,474	)		(1,183	)
Operating leases		5,202			(903	)		(174	)		4,007
Deferred revenue		3,452			2,707			8,440			2,630
Net cash provided by operating activities		19,749			14,748
Net cash (used in) provided by operating activities								(1,822	)		9,257
Investing activities
Cash paid for acquisition, net of cash acquired		(13,215	)		—			—			(13,176	)
Purchases of property and equipment		(8,617	)		(1,625	)		(1,328	)		(1,884	)
Capitalized internal-use software costs		(9,678	)		(4,657	)		(7,233	)		(2,882	)
Net cash used in investing activities		(31,510	)		(6,282	)		(8,561	)		(17,942	)
Financing activities
Proceeds from exercise of stock options		142			2,200			—			100
Deferred acquisition payments		—			(475	)		(1,700	)		—
Other financing activities		(50	)		(1,375	)		(256	)		(7	)
Net cash provided by financing activities		92			350
Net cash (used in) provided by financing activities								(1,956	)		93
Effect of exchange rate changes on cash and cash equivalents		(2,722	)		(1,003	)		(462	)		(1,800	)
Net (decrease) increase in cash and cash equivalents		(14,391	)		7,813
Net decrease in cash and cash equivalents								(12,801	)		(10,392	)
Cash and cash equivalents at beginning of period		45,739			37,472			31,894			45,739
Cash and cash equivalents at end of period	$	31,348		$	45,285		$	19,093		$	35,347
Supplemental disclosure of cash flow information
Cash paid for operating lease liabilities	$	1,548		$	3,505		$	1,804		$	1,270
Cash received for lease inducement	$	3,437		$	—			—			2,772
Cash paid for income taxes	$	527		$	681		$	821		$	275

The accompanying notes are an integral part of these condensed consolidated financial statements.

Brightcove Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data, unless otherwise noted)

1. Business Description and Basis of Presentation

Business Description

Brightcove Inc. (the “Company”) is a leading global provider of cloud services for video which enable its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.

The Company is headquartered in Boston, Massachusetts and was incorporated in the state of Delaware on August 24, 2004.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, ~~2021~~2022 contained in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.

2. Quarterly Update to Significant Accounting Policies

Allowance for Doubtful Accounts

The following details the changes in the Company’s reserve allowance for estimated credit losses for accounts receivable for the period:


	Allowance for Credit Losses			Allowance for Credit Losses
	(in thousands)			(in thousands)
Balance as of December 31, 2021	$	353
Balance as of December 31, 2022				$	294
Current provision for credit losses		166			222
Write-offs against allowance		(164	)		(80	)
Balance as of September 30, 2022	$	355
Balance as of June 30, 2023				$	436

Estimated credit losses for unbilled trade accounts receivable were not material.

Other Expense ~~(Benefit)~~.

Other expense, ~~(benefit),~~ reflects other operating costs ~~(or benefits)~~ that do not directly relate to research and development, sales and marketing, general and administrative, and merger related. The Company did not incur expenses of this nature during the three and six months ended June 30, 2023.

On March 28, 2022, the Chief Executive Officer (“CEO”) of the Company retired. Pursuant to a Transition Agreement that was entered into by the CEO and the Company in October 2021, the Company recorded $1.1 million of expense reflecting both wages and stock compensation in the first quarter of 2022.

~~On March 27, 2020, in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief,~~

Recently Issued and Economic Security Act which was amended by the Consolidated Appropriations Act in December of 2020 (the "CARES Act"). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain refundable employeeAdopted Accounting Pronouncements

~~retention credits. In the first quarter of 2021, the Company recognized a benefit of $2.0~~ million from the CARES Act related to employee retention credits. The Company recognizes such government relief when it is reasonably assured that it qualifies for the relief, the underlying expense has been incurred and it is probable that the Company will receive it. Credits associated with government relief are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expense the related costs for which the relief is intended to compensate.

~~Recently Issued and Adopted Accounting Pronouncements~~

In ~~November 2021,~~March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2021-10,~~2023-01, Leases~~Government Assistance~~ (Topic ~~832)~~842): ~~Disclosure by Business Entities about Government Assistance~~Common Control Arrangements, which improves the transparency of government assistance received by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on an entity's financial statements. Effective January 1, 2022, the
Company adopted ASU 2021-10 on a prospective basis. Please see ~~Other Expense (Benefit)~~ ~~section of these Notes~~amends Accounting Standards Codification ("ASC") 842 with respect to ~~Condensed Consolidated Financial Statements for government assistance received by the Company in 2021.~~

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606).arrangements between related parties under common control. The guidance is effective for interim and annual periods beginning after December ~~15, 2022,~~25, 2023, with early adoption permitted. ~~Effective January 1, 2022,~~The Company does not expect the ~~Company early adopted ASU 2021-08 on a prospective basis. The~~ impact of the adoption of this standard on the Company’s consolidated financial statements ~~was not~~to be material.

3. Revenue from Contracts with Customers

The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which include initiation, set-up and customization services.

The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.

(in thousands)

Accounts Receivable, net

Contract Assets (current)

Deferred Revenue (current)

Deferred Revenue (non-current)

Total Deferred Revenue

Balance at December 31, 2021

$
29,866

$
2,375

$
62,057

$
114

$
62,171

Balance at September 30, 2022

31,891

2,094

65,067

405

65,472


(in thousands)	Accounts Receivable, net		Contract Assets (current)		Deferred Revenue (current)		Deferred Revenue (non-current)		Total Deferred Revenue
Balance at December 31, 2022	$	26,004	$	1,786	$	61,597	$	360	$	61,957
Balance at June 30, 2023		29,850		2,266		69,615		257		69,872

Revenue recognized for the three and ~~nine~~six months ended ~~September~~June 30, 2023 from amounts included in deferred revenue at the beginning of the period was approximately $17.0 million and $47.6 million, respectively. Revenue recognized for the three and six months ended June 30, 2022 from amounts included in deferred revenue at the beginning of the period was approximately $~~9.1~~15.3 million and $~~57.2~~48.1 million, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company did not recognize a material amount of revenue from performance obligations satisfied or partially satisfied in previous periods.

The assets recognized for costs to obtain a contract were $~~11.4~~13.2 million as of ~~September~~June 30, ~~2022~~2023 and $~~12.2~~12.4 million as of December 31, ~~2021.~~2022 and are recorded in other current assets and other assets. Amortization expense recognized for the three and ~~nine~~six months ended ~~September~~June 30, 2023 related to costs to obtain a contract was $2.5 million and $5.0 million, respectively, and is included in operating expenses for the respective period. Amortization expense recognized for the three and six months ended June 30, 2022 related to costs to obtain a contract was $~~2.7~~2.6 million and $~~7.7~~5.1 million, ~~respectively. Amortization expense recognized~~respectively, and is included in operating expenses for the ~~three and nine months ended September 30, 2021 related to costs to obtain a contract was $3.3~~ ~~million and $9.6~~ ~~million, respectively.~~respective period.

Transaction Price Allocated to Future Performance Obligations

As of ~~September~~June 30, ~~2022,~~2023, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $~~144.1~~176.7 million, of which approximately $~~113.8~~124.8 million is expected to be recognized over the next 12 months. The Company expects to recognize substantially all of the remaining unsatisfied performance obligations by ~~December 2024.~~June 2026.

4. Cash and Cash Equivalents

Cash and cash equivalents as of ~~September~~June 30, ~~2022~~2023 consist of the following:


	September 30, 2022					June 30, 2023
Description	Contracted Maturity	Cost		Fair Market Value		Contracted Maturity	Cost		Fair Market Value
	(in thousands)					(in thousands)
Cash	Demand	$	31,307	$	31,307	Demand	$	19,050	$	19,050
Money market funds	Demand		41		41	Demand		43		43
Total cash and cash equivalents		$	31,348	$	31,348		$	19,093	$	19,093

Cash and cash equivalents as of December 31, ~~2021~~2022 consist of the following:


	December 31, 2021					December 31, 2022
Description	Contracted Maturity	Cost		Fair Market Value		Contracted Maturity	Cost		Fair Market Value
	(in thousands)					(in thousands)
Cash	Demand	$	45,698	$	45,698	Demand	$	31,852	$	31,852
Money market funds	Demand		41		41	Demand		42		42
Total cash and cash equivalents		$	45,739	$	45,739		$	31,894	$	31,894

5. Net ~~(Loss) Income~~Loss per Share

The Company calculates basic and diluted ~~(loss) earnings~~net loss per common share by dividing the ~~(loss) earnings amount~~net loss by the number of common shares outstanding during the period. The ~~calculation of diluted earnings per~~Company has excluded other potentially dilutive shares, which include outstanding common ~~share includes the effects of the assumed exercise of any outstanding~~ stock options and ~~the assumed vesting of shares of~~unvested restricted stock ~~awards, where dilutive.~~

~~The following table set forth~~units, from the ~~computations~~number of ~~basic and diluted (loss) earnings per share:~~common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses incurred.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2022

2021

2022

2021

Net (loss) income

$
(1,680
)

$
(1,020
)

$
(3,618
)

$
4,980

Weighted average shares used in computing basic earnings per share

41,972

40,935

41,712

40,571

Effect of weighted average dilutive stock-based awards

-

-

-

1,667

Weighted average shares used in computing diluted earnings per share

41,972

40,935

41,712

42,237

Net (loss) income per share—basic and diluted

Basic

$
(0.04
)

$
(0.02
)

$
(0.09
)

$
0.12

Diluted

$
(0.04
)

$
(0.02
)

$
(0.09
)

$
0.12

The following outstanding common shares have been excluded from the computation of dilutive ~~(loss) earnings~~net loss per share as of the periods ~~indicated because such securities are anti-dilutive:~~indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(shares in thousands)	2022		2021		2022		2021		2023		2022		2023		2022
Options outstanding		1,463		1,803		1,463		147		2,939		1,548		2,939		1,548
Restricted stock units outstanding		5,705		3,185		5,705		56		6,198		5,892		6,198		5,892

6. Stock-based Compensation

~~On March 28, 2022, Marc DeBevoise began as the Company’s CEO. Effective February 8,~~In 2022, the Company adopted the 2022 Inducement Plan (“2022 Plan”). The 2022 Plan provides for the grant of “employment inducement awards” within the meaning of NASDAQ Listing Rule 5635(c)(4). In connection with the commencement of his employment, the Company

granted 800,000 restricted stock units to the CEO under the 2022 Plan, of which 300,000 are subject solely to service-based vesting conditions (the “RSUs”) and 500,000 are subject to both market-based and service-based vesting conditions (the “PSUs”). The RSUs vest in equal annual installments over three years following March 28, 2022. ~~The market-based vesting conditions applicable to the PSUs are achieved only if the volume weighted average price of the Company’s common stock during any~~ 20 ~~consecutive trading day period in the~~ ~~four year~~ ~~performance period following the CEO’s start date, March 28, 2022, equals or exceeds stock price hurdles ranging from $12.50~~ ~~to $30.00, increasing in seven increments of $2.50. The percentage of the award that is earned upon achievement of each stock price hurdle is~~ 10~~% of the PSUs for each of the first two achievement tiers,~~ ~~12.5% for each of the next four achievement tiers and~~ 15~~% for each of the final two achievement tiers. The PSUs vest~~ 50~~% upon achievement of a stock price hurdle and~~ 50~~% upon the earlier of the one-year anniversary of such achievement date or March 28, 2025, subject to the CEO’s continued employment through the applicable vesting date.~~

For restricted stock units with market-based performance conditions, the cost of the awards is recognized as the requisite service is rendered by the employee, regardless of when, if ever, the market-based performance conditions are satisfied. The Monte-Carlo simulation model is used to estimate fair value of market-based performance restricted stock units. The Monte-Carlo simulation model calculates multiple potential outcomes for an award and establishes a fair value based on the most likely outcome. Key assumptions for the Monte-Carlo simulation model include the risk-free rate, expected volatility, expected dividends and the correlation coefficient.

On March 20, 2023, the Company granted 1,563,688 premium-priced options to some of its employees under its 2021 Stock Incentive Plan. The options have a strike price of $7.00 and vest in equal installments over three years following March 10, 2023. The binomial lattice model is used to estimate the fair value of the premium-priced options. The binomial lattice model calculates multiple potential outcomes for option exercises and establishes a fair value based on the most likely outcome. Key assumptions for the binomial lattice model include share price, volatility, the early exercise multiple, risk-free rate, expected dividends, and number of time steps.

The weighted-average assumptions utilized to determine the weighted-average fair value of options are presented in the following table:


	Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021			2023		2022		2023		2022

Weighted-average fair value of options granted during the period	$	—	$	7.51		$	—	$	—	$	1.75	$	—
Risk-free interest rate		—		1.16	%		—		—	3.4 - 4.8%			—
Expected volatility		—		48	%		—		—	47.9 - 55.5%			—
Expected life (in years)		—		6.2
Expected dividend yield		—		—			—		—		—		—

As of ~~September~~June 30, ~~2022,~~2023, there was $~~34.5~~34.6 million of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of ~~2.57~~2.66 years. The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

(in thousands)

Stock-based compensation:

Cost of subscription and support revenue

$
132

$
157

$
385

$
501

Cost of professional services and other revenue

76

113

334

299

Research and development

378

408

2,035

1,261

Sales and marketing

1,015

583

2,857

2,082

General and administrative

1,245

1,072

4,109

3,091

Other expense (benefit)

-

—

249

0

$
2,846

$
2,333

$
9,969

$
7,234


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Stock-based compensation:
Cost of subscription and support revenue	$	129	$	144	$	267	$	253
Cost of professional services and other revenue		92		139		192		258
Research and development		551		935		1,239		1,657
Sales and marketing		931		899		2,100		1,842
General and administrative		1,784		1,527		3,232		2,864
Other expense		-		—		-		249
	$	3,487	$	3,644	$	7,030	$	7,123

The following is a summary of the stock option activity during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.


	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value (1)		Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value (1)
Outstanding at December 31, 2021		1,681,477		$	9.59
Outstanding at December 31, 2022											1,419,767		$	9.39	3.55		$	4.00
Granted		—			—						1,563,688
Exercised		(22,650	)		6.25			$	37,545		—			—				—
Canceled		(196,291	)		11.32						(44,563	)		10.72
Outstanding at September 30, 2022		1,462,536		$	9.39		5.06	$	75,429
Exercisable at September 30, 2022		1,316,567		$	9.08		4.73	$	75,429
Outstanding at June 30, 2023											2,938,892		$	8.10		6.55		—
Exercisable at June 30, 2023											1,313,886		$	9.19		2.72	$	—

(1)

The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on ~~September~~June 30, ~~2022~~2023 of $~~6.30~~4.01 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.

The following table summarizes the restricted stock unit activity for our service-based awards (“S-RSU”) and our performance-based awards (“P-RSU”) during the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


	S-RSU Shares			Weighted Average Grant Date Fair Value		P-RSU Shares			Weighted Average Grant Date Fair Value		Total RSU Shares			Weighted Average Grant Date Fair Value		S-RSU Shares			Weighted Average Grant Date Fair Value		P-RSU Shares			Weighted Average Grant Date Fair Value		Total RSU Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2021		2,915,720		$	11.66		1,021,172		$	11.04		3,936,892		$	11.50
Unvested at December 31, 2022																	4,538,349		$	8.19		672,858		$	8.62		5,211,207		$	8.27
Granted		3,292,536			7.20		500,000			8.11		3,792,536			7.32		2,777,229			4.69		—			—		2,777,229			4.69
Vested and issued		(573,704	)		11.91		—			—		(573,704	)		11.91		(932,003	)		8.32		—			—		(932,003	)		8.32
Canceled		(1,107,609	)		10.20		(343,176	)		13.04		(1,450,785	)		10.87		(703,107	)		8.15		(155,688	)		10.14		(858,795	)		8.51
Unvested at September 30, 2022		4,526,943		$	8.74		1,177,996		$	9.22		5,704,939		$	8.84
Unvested at June 30, 2023																	5,680,468		$	6.46		517,170		$	8.45		6,197,638		$	6.63

7. Income Taxes

The income tax expense relates principally to the Company’s foreign operations.

The Company is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences.

During the ~~nine~~six months ended ~~September~~June 30, 2022, the Company recorded a benefit of $1.0 million in the U.S. for the release of a portion of the Company’s valuation allowance. This release of the valuation allowance is related to the acquisition of Wicket Labs, Inc. (“Wicket Acquisition”), completed in February 2022, and the creation of deferred tax liabilities in purchase accounting that serve as a source of income for the Company’s pre-existing deferred tax assets.

8. Commitments and Contingencies

Legal Matters

The Company, from time to time, is party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company based on the status of proceedings at this time.

Guarantees and Indemnification Obligations

The Company typically enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection with patent, copyright, trade secret, or other intellectual property or personal right infringement claims by third parties with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. Based on historical experience and information known as of ~~September~~June 30, ~~2022,~~2023, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.

In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.

9. Debt

On December 28, 2020, the Company entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset-based line of credit (the “Line of Credit”). Borrowings under the Line of Credit are secured by substantially all of the Company’s assets, excluding its intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows: (i) for prime rate advances, the greater of (A) the prime rate and (B) 4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4%. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at least $15.0 million, the Company must also maintain a minimum net income threshold based on non-GAAP operating measures. Failure to comply with these covenants, or the occurrence of an event of default, could permit the lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. The Line of Credit agreement will expire on December 28, 2023. The Company was in compliance with all applicable covenants under the Line of Credit as of ~~September~~June 30, ~~2022~~2023 and there were no borrowings outstanding as of ~~September~~June 30, ~~2022.~~2023.

10. Segment Information

Geographic Data

Total revenue from unaffiliated customers by geographic area, based on the location of the customer, was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Revenue:
North America	$	29,864	$	29,420	$	89,344	$	89,204	$	30,694	$	30,019	$	59,795	$	59,480
Europe		8,847		9,689		28,080		28,159		7,915		10,128		16,102		19,233
Japan		4,842		6,185		17,180		19,263		4,928		5,077		10,124		12,338
Asia Pacific		10,312		6,746		26,808		21,421		7,366		9,060		13,860		16,496
Other		79		123		358		405		85		163		170		279
Total revenue	$	53,944	$	52,163	$	161,770	$	158,452	$	50,988	$	54,447	$	100,051	$	107,826

North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $~~28.2~~28.6 million and $~~27.6~~28.2 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Revenue from customers located in the United States was $~~84.1~~55.5 million and $~~83.6~~55.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

~~Other than the United States and Korea, no other country contributed more than~~ 10~~% of the Company's total revenue for the three months ended September 30, 2022.~~ Other than the United States and Japan, no other country contributed more than 10% of the Company's total revenue ~~during~~for the three and six months ended June 30, 2023 and June 30, 2022.

11. Restructuring

During the three months ended ~~September 30, 2021. Other than~~March 31, 2023, the ~~United States~~Company took an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and ~~Japan, no other country contributed more than~~facilitating cost efficiencies and savings. As a result certain headcount reductions were necessary. The Company has incurred approximately $0.4 million in restructuring charges in the three months ended March 31, 2023. The restructuring charges reflect post-employment benefits, and the Company does not expect to incur any additional restructuring charges related to this action. As of March 31, 2023, the restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $0.2 million - General and Administrative; $0.1 million – Research and Development; and $0.1 million – Sales and Marketing. The Company paid the entire amount by March 31, 2023.

On April 28, 2023, the Company authorized a restructuring that is designed to reduce operating costs, improve operating margins and focus on key growth and strategic priorities (the "Plan"). The Plan includes a reduction of the Company's current workforce by approximately 10%. The Company has incurred approximately $2.3 million in restructuring charges in the three months ended June 30, 2023 in connection with the Plan. The restructuring charges reflect post-employment benefits. For the three months ended June 30, 2023 the restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $1.1 million in Sales and Marketing; $0.8 million in Research and Development; $0.3 million in General and administrative and $0.1 million in Cost of Revenue. The Company has paid approximately $1.8 million of the ~~Company’s total revenue during~~restructuring charges as of June 30, 2023 and expects to pay the ~~nine months ended~~remaining amounts by September 30, ~~2022 and 2021.~~2023.

~~11. Business Combinations~~

~~Other Business Combinations~~

~~On February 1, 2022, the Company acquired~~ ~~100~~% of the outstanding shares of Wicket Labs, Inc. (“Wicket Labs”) a provider of subscriber and content insights, in exchange for common stock of the Company and cash, (“Wicket Acquisition”). At the closing, the Company issued ~~212,507~~ ~~unregistered shares of common stock of the Company valued at approximately $2.0~~ ~~million and approximately $13.2~~ ~~million in cash. Pursuant to the merger agreement, approximately $1.8~~ million of the cash consideration was held back to secure payment of any claims of indemnification for breaches or inaccuracies in the sellers’ representations and warranties, covenants and agreements. During the nine months ended September 30, 2022, the Company paid $~~0.1~~ ~~million of cash consideration held back to the sellers for the satisfaction of certain representations and warranties.~~

~~The Wicket Acquisition was accounted for using the purchase method of accounting in accordance with Accounting Standards Codification 805~~ ~~— Business Combinations~~. Accordingly, the results of operations of the acquired company have been included in the accompanying condensed consolidated financial statements since the date of acquisition. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the Wicket Acquisition, and using assumptions that the Company’s management believes are reasonable given the information currently available. The Company is in the process of completing its valuation of its intangible assets, accounts receivable, deferred revenue and the valuation of the acquired deferred tax assets and liabilities. The final allocations of the purchase price to intangible assets, accounts receivable, deferred revenue, goodwill and any deferred tax assets and liabilities may differ materially from the information presented in these unaudited condensed consolidated financial statements.

~~During the three months ended September 30, 2022, the Company did~~ no~~t incur merger-related costs related to the Wicket Acquisition. During the nine months ended September 30, 2022, the Company incurred $0.7~~ ~~million of merger-related costs related to the Wicket Acquisition.~~

The excess of the purchase price over the estimated amounts of net assets as of the effective date of the acquisition was allocated to goodwill in accordance with the accounting guidance. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Wicket Acquisition. These benefits include the acquired workforce and opportunities to expand the Company’s offerings in target market segments that use subscriber and content insights to make decisions. The goodwill is expected to be non-deductible for tax purposes.

~~The total purchase price for the Wicket Acquisition has been allocated as follows:~~

Cash

$
53

Accounts receivable and other assets

782

Identifiable intangible assets

4,382

Goodwill

13,957

Deferred revenue

(1,033
)
Deferred tax liabilities

(1,009
)
Other liabilities

(95
)
Total estimated purchase price

$
17,037

~~The following are the identifiable intangible assets acquired and their respective useful lives, as determined based on preliminary valuations:~~

Amount

Useful Life
(in years)

Developed technology

$
4,200

6

Customer relationships

182

5

Total

$
4,382

~~The~~ preliminary fair value of the intangible assets has been estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.

~~The estimated amortization expense for 2022 and for each of the five succeeding years and thereafter is as follows:~~

Year Ending December 31,

Amount

2022

$
614

2023

736

2024

736

2025

736

2026

736

2027 and thereafter

824

Total

$
4,382

Pro forma results of operations for the Wicket Acquisition have not been presented because the effect of the acquisition is not material to the Company's consolidated financial results. Revenue and earnings attributable to acquired operations since the date of the acquisition are included in the Company's consolidated statements of operations.

~~The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 were as follows:~~

Balance as of January 1, 2022

$
60,902

Wicket acquisition

13,957

Balance as of September 30, 2022

$
74,859

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(in thousands, except share and per share data, unless otherwise noted)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Company Overview

We are a leading global provider of cloud-based streaming services ~~for video.~~with a mission to be the most trusted streaming technology company in the world. We were incorporated in Delaware in August 2004. With our Emmy®-winning technology and award-winning services, we help our customers realize the potential of video to address business-critical challenges. Customers rely on our suite of products, services, and expertise to reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices.

We sell ~~five~~six core video products that help our customers use video to further their businesses in meaningful ways: (1) Brightcove Video Cloud™, or Video Cloud, our flagship product and the world’s leading online video streaming platform, enables our customers to quickly and easily distribute high-quality video to Internet-connected devices; (2) Brightcove ~~Live,~~Live™, our industry-leading solution for live streaming, delivers high-quality viewer experiences at scale; (3) Brightcove ~~Beacon,~~Beacon®, a purpose-built application that enables companies to launch premium OTT video experiences quickly and cost effectively, across devices and with the flexibility of multiple monetization models; (4) Brightcove ~~Player,~~Player™, an exceptionally fast, cloud-based technology for creating and managing video experiences; ~~and~~ (5) ~~Zencoder,~~Zencoder®, a powerful, cloud-based video encoding ~~technology.~~technology; and (6) Brightcove Audience Insights™, a business intelligence platform that provides actionable intelligence on viewers and subscribers.

Customers can complement their use of our core products with modular technologies that provide enhanced capabilities such as (1) innovative ad insertion and video stitching through Brightcove ~~SSAI;~~SSAI™; (2) ~~efficient publication~~improving their ad monetization strategies to earn more revenue through the use of ~~videos to~~the Brightcove Ad Monetization™; (3) efficiently managing their video presence across social networks, including Facebook, Twitter, YouTube, and ~~YouTube~~LinkedIn, through the use of Brightcove ~~Social; (3)~~Social™; (4) an app for creating marketing campaigns with insightful data and industry benchmarks through Brightcove ~~Campaign; and (4) create~~Campaign™; (5) creating branded video experience by accessing templates with built-in best practices through Brightcove ~~Gallery.~~Gallery™; and (6) providing tools that enable our customers to make their video experiences interactive for their viewers with interaction options through Brightcove Interactivity.

We have also brought to market several video solutions, which are comprised of a suite of video technologies that address specific customer use-cases and needs: (1) ~~Virtual Events Experience helps brands to transform events into customized virtual experiences; (2)~~Brightcove Marketing Studio™, which includes Brightcove Video Marketing ~~Suite,~~Suite™, enables marketers to use video to drive brand awareness, engagement and conversion; ~~(3)~~(2) Brightcove Communications Studio™, which includes Brightcove Enterprise Video Suite™, or Enterprise Video Suite, provides an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos; ~~and (4)~~(3) Brightcove ~~CorpTV~~™,CorpTV™ provides a new way to deliver marketing videos, product announcements, training programs, and other live and on-demand content in a branded experience for ~~companies.~~companies; and (4) Brightcove Virtual Events™ helps brands transform events into bespoke virtual experiences.

Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, and go-to-market activities to support our long-term revenue growth. We believe these investments will help us address some of the challenges facing our business such as demand for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting price sensitivity. These investments include support for the expansion of our infrastructure within our hosting facilities, the hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of new products. We believe this strategy will help us retain our existing customers, increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold, research and development and general and administrative expenses as a percentage of total revenue.

As of ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022, we had ~~703~~682 and ~~693~~703 employees, respectively.

We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue ~~increased~~decreased from ~~$158.5~~$107.8 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~$161.8~~$100.1 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, due to ~~an increase~~a decrease in subscription and support revenue. This ~~increase~~decrease was due to ~~an increase in usage-based fees and~~a decrease in the average annual subscription revenue per premium customer during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to the prior period and ~~an increase~~a decrease in ~~usage-based fees during the three months ended September 30, 2022 as compared to the prior period.~~premium offering customers.

Included in the consolidated net loss for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was merger-related expense, stock-based compensation expense, ~~and~~ amortization of acquired intangible assets, and restructuring expense of ~~$10.0~~$0.2 million, $7.0 million, $2.0 million, and ~~$2.4~~$2.3 million, respectively. Included in the consolidated net ~~income~~loss for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was merger-related expense, stock-based compensation expense and amortization of acquired intangible assets of ~~$0.3~~$0.7 million, ~~$7.2~~$7.1 million, and ~~$2.3~~$1.5 million, respectively.

For the three ~~and nine~~ months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, our revenue derived from customers located outside North America was ~~44%~~40% and 45%, respectively. For the six months ended June 30, 2023 and ~~44%~~2022, our revenue derived from customers located outside of North Americas was 40% and 44%, respectively. We expect the percentage of total net revenue derived from outside North America to remain relatively unchanged or decrease in future periods due to fluctuations in exchange rates and a decrease in usage-based fees.

Key Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

The following table includes our key metrics for the periods presented:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2022			2021			2023			2022
Customers (at period end)
Premium		2,271			2,265			2,131			2,301
Volume		629			940			560			636
Total customers (at period end)		2,900			3,205			2,691			2,937
Net revenue retention rate		93.4	%		97.1	%		94.5	%		96.4	%
Recurring dollar retention rate		95.1	%		88.0	%		86.3	%		87.5	%
Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)	$	96.3		$	93.9		$	93.0		$	96.6
Average annual subscription revenue per premium customer for Starter edition customers only (in thousands)	$	2.7		$	4.6		$	4.1		$	4.2
Total backlog, excluding professional services engagements (in millions)	$	144.1		$	148.6		$	176.7		$	151.9
Total backlog to be recognized over next 12 months, excluding professional services engagements (in millions)	$	113.8		$	115.0		$	124.8		$	121.6

•

Number of Customers. We define our number of customers at the end of a particular quarter as the number of customers generating subscription revenue at the end of the quarter. We believe the number of customers is a key indicator of our market penetration, the productivity of our sales organization and the value that our products bring to our customers. We classify our customers by including them in either premium or volume offerings. Our premium offerings include our premium Video Cloud customers (Enterprise and Pro editions), our Zencoder customers (other than Zencoder customers on month-to-month contracts and pay-as-you-go contracts), our SSAI customers, our Player customers, our OTT Flow customers (OTT Flow is our partner-based OTT platform, which preceded Brightcove Beacon), our Brightcove Virtual ~~Event Experience~~Events customers, our ~~Video~~Brightcove Marketing ~~Suite~~Studio customers, our ~~Enterprise Video Suite~~Brightcove Communications Studio customers, our Brightcove Beacon customers, our Brightcove ~~Engage~~Engage™ customers, our Brightcove ~~CorpTV™ customers,~~CorpTV, and our Brightcove ~~Campaign~~Campaign™ customers. Our volume offerings include our Video Cloud Express customers and our Zencoder customers on month-to-month contracts and pay-as-you-go contracts.

Our go-to-market focus and growth strategy is to expand our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Premium customers ~~increased~~decreased in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the prior period due to ~~this strategy, although~~ some customers ~~are~~ deciding to switch to in-house solutions or other third-party solutions. Volume customers decreased in recent periods primarily due to our discontinuation of the promotional Video Cloud Express offering. As a result, we have experienced attrition of this base level offering without a corresponding addition of customers. We expect customers using our volume offerings to continue to decrease in ~~2022~~2023 and beyond as we continue to focus on the market for our premium solutions.

•

Net Revenue Retention Rate. We assess our ability to retain and expand customers using a metric we refer to as our net revenue retention rate. We calculate the net revenue retention rate by dividing: (a) the current annualized recurring revenue for premium customers that existed twelve months prior by (b) the annualized recurring revenue for all premium customers that existed twelve months prior. We define annualized recurring revenue for premium customers as the aggregate annualized contract value from our premium customer base, measured as of the end of a given period. We typically calculate our net revenue retention rate

on a quarterly basis. For annual periods, we report net revenue retention rate as the average of the net revenue retention rate for all fiscal quarters included in the period. By dividing the retained recurring revenue by the base recurring revenue, we measure our success in retaining and growing installed revenue from the specific cohort of customers we served at the beginning of the period. The recurring dollar retention rate focuses on contracts up for renewal in a given quarter and only captures expansion/upsells at time of renewal, and is more susceptible to swings than the net revenue retention rate.

•

Recurring Dollar Retention Rate. We assess our ability to retain customers using a metric we refer to as our recurring dollar retention rate. We calculate the recurring dollar retention rate by dividing the retained recurring value of subscription revenue for a period by the previous recurring value of subscription revenue for the same period. We define retained recurring value of subscription revenue as the committed subscription fees for all contracts that renew in a given period, including any increase or decrease in contract value. We define previous recurring value of subscription revenue as the recurring value from committed subscription fees for all contracts that expire in that same period. We typically calculate our recurring dollar retention rate on a monthly basis. Recurring dollar retention rate provides visibility into our ongoing revenue.

•

Average Annual Subscription Revenue Per Premium Customer. We define average annual subscription revenue per premium customer as the total subscription revenue from premium customers for an annual period, excluding professional services revenue, divided by the average number of premium customers for that period. We believe that this metric is important in understanding subscription revenue for our premium offerings in addition to the relative size of premium customer arrangements. As our Starter edition has a price point of $199 or $499 per month, we disclose the average annual subscription revenue per premium customer separately for Starter edition customers and all other premium customers.

•

Backlog. We define backlog as the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied, excluding professional service engagements. We believe that this metric is important in understanding future business performance.

Restructuring

On April 28, 2023, we authorized a restructuring that was designed to reduce operating costs, improve operating margins and focus on key growth and strategic priorities (the "Plan"). The Plan included a reduction of our workforce by approximately 10%. The $2.3 million in restructuring charges recorded in the three months ended June 30, 2023 reflect post-employment benefits. The restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $1.1 million in Sales and Marketing; $0.8 million in Research and Development; $0.3 million in General and administrative and $0.1 million in Cost of Revenue.

COVID-19 and Geopolitical Events

~~While~~Worldwide economic uncertainties and negative trends, including financial and credit market fluctuations, uncertainty in the ~~future trends~~banking sector, rising interest rates, political unrest and social strife, such as continued Russian military action against Ukraine, the conditions of the COVID-19 pandemic ~~remain uncertain,~~and its aftermath, and other impacts from the macroeconomic environment have, and could continue to, affect our business, financial condition and results of operations. While we have ~~not experienced a significant disruption during~~continued to invest in business growth, our business is dependent on many factors and these macroeconomic conditions have caused and may in the ~~pandemic. We will continue to monitor COVID-19’s effect~~future affect the rate of spending on ~~our employees, customers, vendors~~software products and the ~~regions we operate in.~~

~~In late February 2022, Russian military forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is likely. Subsequent~~demand for video to the invasion, the U.S. and other countries imposed economic sanctions against officials, individuals, regions, and industries in Russia, Ukraine and Belarus. We do not have operations or customers in Russia or Ukraine and none of our material vendors source their services to us from Russia or Ukraine. We will continue to monitor the situation and comply with any sanctions and restrictions imposed by the U.S. government.support virtual events.

Components of Consolidated Statements of Operations

Revenue

Subscription and Support Revenue — We generate subscription and support revenue from the sale of our products.

Video Cloud is offered in two product lines. The first product line is comprised of our premium product editions. All premium editions include functionality to publish and distribute video to Internet-connected devices, with higher levels of premium editions providing additional features and functionality. Customer arrangements are typically one-year contracts, which include a subscription to Video Cloud, basic support and a pre-determined amount of video streams, bandwidth, transcoding and storage. We also offer gold, platinum and platinum plus support to our premium customers for an additional fee. The pricing for our premium editions is based on the value of our software, as well as the number of users, accounts and usage, which is comprised of video streams, bandwidth, transcoding and storage. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. The second product line is comprised of our volume product edition. Our volume editions target small and medium-sized businesses, or SMBs. The volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage requirements and do not typically require advanced features and functionality. We discontinued the lower level pricing options for the Express edition of our volume offering and expect the total number of customers using the Express edition to continue to decrease.

Customers who purchase the volume editions generally enter into month-to-month agreements. Volume customers are generally billed on a monthly basis and pay via a credit card.

Brightcove Virtual Events, ~~Experience,~~ Brightcove Live and Brightcove Player are offered to customers on a subscription basis. Customer arrangements are typically one-year contracts, which include a subscription to Brightcove Virtual Events, ~~Experience,~~ Brightcove Live or the Brightcove Player, basic support and a pre-determined amount of video streams, bandwidth, transcoding, and storage and only video streams for Brightcove Player. We also offer gold, platinum, and platinum plus support to our Brightcove Virtual Events, ~~Experience,~~ Brightcove Live and Brightcove Player customers for an additional fee. The pricing for these products is based on the value of our software, as well as, the number of users, accounts and usage. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements.

Zencoder is offered to customers on a subscription basis, with either committed contracts or pay-as-you-go contracts. The pricing is based on usage, which is comprised of minutes of video processed. The committed contracts include a fixed number of minutes of video processed. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which

the customer must pay for actual usage above the contractual entitlements. Zencoder customers are considered premium customers other than Zencoder customers on month-to-month contracts or pay-as-you-go contracts, which are considered volume customers.

Brightcove Beacon and Brightcove Campaign are each offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer’s needs. Customer arrangements are typically one-year contracts.

Video Marketing Suite and Enterprise Video Suite are offered to customers on a subscription basis in Starter, Pro and Enterprise editions. The Pro and Enterprise customer arrangements are typically one-year contracts, which typically include a subscription to Video Cloud, Gallery, Brightcove Social (for Video Marketing Suite customers) or Brightcove Live (for Enterprise Video Suite customers), basic support and a pre-determined amount of video streams or plays (for Video Marketing Suite customers), viewers (for Enterprise Video Suite customers), bandwidth and storage or videos. We also generally offer gold support or platinum support to these customers for an additional fee, which includes extended phone support. The pricing for our Pro and Enterprise editions is based on the number of users, accounts and usage, which is comprised of video streams or plays, viewers, bandwidth and storage or videos. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements, or will require the customer to upgrade its package upon renewal. The Starter edition provides customers with the same basic functionality that is offered in our Pro and Enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. In 2022, we also discontinued the lower pricing option for our Starter edition. Customers who purchase the Starter edition may enter into one-year agreements or month-to-month agreements. Starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card.

Brightcove Audience Insights is offered to customers on a subscription basis, with varying levels of functionality and entitlements. Customer arrangements are typically one-year contracts, and include basic support and an initial integration of the platform with third party data sources identified by the customer. Customers can choose to activate a module focusing on active viewers of their content, active subscribers to their service, or both. The pricing for Brightcove Audience Insights is based on module(s) selected and is based on the number of active viewers and/or active subscribers. Should a customer's usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements.

All Brightcove Beacon, Brightcove ~~CorpTV™,~~CorpTV, OTT Flow, Brightcove Campaign, Brightcove Live, SSAI, Player, Brightcove Audience Insights, Brightcove Virtual Events, ~~Experience,~~ Video Marketing Suite, and Enterprise Video Suite customers are considered premium customers.

Professional Services and Other Revenue — Professional services and other revenue consists of services such as implementation, software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed, or on a time and materials basis.

Cost of Revenue

Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or

CDN, expenses, allocated overhead, depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services.

Cost of revenue increased in absolute dollars from the first ~~nine~~six months of ~~2021~~2022 to the first ~~nine~~six months of ~~2022.~~2023. In future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases. Cost of revenue as a percentage of revenue could fluctuate from period to period depending on the number of our professional services engagements and any associated costs relating to the delivery of subscription services and the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue, in any particular quarterly or annual period.

Operating Expenses

We classify our operating expenses as follows:

Research and Development. Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, incentive compensation and stock-based compensation, in addition to the costs associated with contractors and allocated overhead. We have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use, as well as creating new product offerings. We expect research and development expenses to increase in absolute dollars as we intend to continue to periodically release new features and functionality, expand our product offerings, continue the localization of our products in various languages, upgrade and extend our

service offerings, and develop new technologies. Over the long term, we believe that research and development expenses as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing products, features and functionality, as well as changes in the technology that our products must support, such as new operating systems or new Internet-connected devices.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. Our sales and marketing expenses have increased in absolute dollars in each of the last three years. We intend to continue to invest in sales and marketing and expand the sale of our product offerings within our existing customer base, build brand awareness and sponsor additional marketing events. Accordingly, we expect sales and marketing expense to continue to be our most significant operating expense in future periods. Over the long term, we believe that sales and marketing expense as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing customers and from small, medium-sized and enterprise customers, as well as changes in the productivity of our sales and marketing programs.

General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, information technology and human resources functions, including salaries, benefits, incentive compensation and stock-based compensation. General and administrative expenses also include the costs associated with professional fees, insurance premiums, other corporate expenses and allocated overhead. Over the long term, we believe that general and administrative expenses as a percentage of revenue will decrease.

Merger-related. Merger-related costs consist of expenses related to mergers and acquisitions, integration costs and general corporate development activities.

Other Expense ~~(Benefit)~~. Reflects other operating ~~benefits,~~ costs that do not directly relate to the operating activities listed above.

Other ~~(Expense) Income,~~Expense, net

Other ~~(expense) income~~expense consists primarily of interest income earned on our cash, cash equivalents, and foreign exchange gains and losses.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We account for income taxes in accordance with the asset and liability method. Under this method,

deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have provided a valuation allowance against our existing U.S. net deferred tax assets at December 31, ~~2021.~~2022. We maintain net deferred tax liabilities for temporary differences related to our Japanese subsidiary.

During the ~~nine months ended September 30,~~first quarter of 2022, we recorded a non-recurring benefit of $1.0 million in the U.S. for the release of a portion of our valuation allowance. This release of the valuation allowance is related to the Wicket Acquisition completed in February 2022 and the creation of deferred tax liabilities in purchase accounting that serve as a source of income for our pre-existing deferred tax assets.

Stock-Based Compensation Expense

Our cost of revenue, research and development, sales and marketing, and general and administrative expenses include stock-based compensation expense. Stock-based compensation expense represents the grant date fair value of outstanding stock options and restricted stock awards, which is recognized as expense over the respective stock option and restricted stock award service periods. For the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, we recorded ~~$2.8~~$3.5 million and ~~$2.3~~$3.6 million, respectively, of stock-based compensation expense. For the six months ended June 30, 2023 and 2022, we recorded $7.0 million and $7.1 million, respectively, of stock-based compensation expense. We expect stock-based compensation expense to increase in absolute dollars in future periods.

Foreign Currency Translation

With regard to our international operations, we frequently enter into transactions in currencies other than the U.S. dollar. As a result, our revenue, expenses and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound, Australian dollar, and Japanese yen. In periods when the U.S. dollar declines in value as compared to the foreign currencies in which we conduct business, our foreign currency-based revenue and expenses generally increase in value when translated into U.S. dollars. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the U.S. dollar increased in value as compared to the ~~foreign currencies in which we conduct business,~~Japanese Yen, and our ~~foreign currency-based~~Japanese Yen-based revenues decreased in value when translated into U.S. dollars. We expect the percentage of total net revenue derived from outside North America to increase in future periods as we continue to expand our international operations. Should the U.S. dollar continue to increase in value, our future percentage of total net revenue derived from outside North America may remain relatively unchanged or decrease.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We consider the assumptions and estimates associated with revenue recognition, income taxes, business combinations, intangible assets and goodwill to be our critical accounting policies and estimates. We discuss any assumptions and estimates that could have a material effect on the results of operations in the applicable section of this discussion and analysis of the financial condition and results of operations.

For a detailed explanation of the judgments made in these areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which we filed with the Securities and Exchange Commission on February ~~18, 2022.~~23, 2023.

Results of Operations

The following tables set forth our results of operations for the periods presented. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily

2220

indicative of future results. This information should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	(in thousands, except share and per share data)												(in thousands, except share and per share data)
Revenue:
Subscription and support revenue	$	51,814		$	49,226		$	156,403		$	148,667		$	49,013		$	52,988		$	96,115		$	104,589
Professional services and other revenue		2,130			2,937			5,367			9,785			1,975			1,459			3,936			3,237
Total revenue		53,944			52,163			161,770			158,452			50,988			54,447			100,051			107,826
Cost of revenue:
Cost of subscription and support revenue		18,247			16,406			52,172			46,840			16,603			16,943			34,868			33,925
Cost of professional services and other revenue		1,816			2,247			5,575			8,205			1,898			1,761			3,900			3,759
Total cost of revenue		20,063			18,653			57,747			55,045			18,501			18,704			38,768			37,684
Gross profit		33,881			33,510			104,023			103,407			32,487			35,743			61,283			70,142
Operating expenses:
Research and development		7,931			7,902			24,540			24,041			10,345			8,372			20,211			16,609
Sales and marketing		19,023			18,451			55,272			52,730			19,034			17,961			38,499			36,249
General and administrative		7,748			7,345			24,391			21,822			9,405			8,554			19,469			16,643
Merger-related		—			45			747			300			45			153			190			747
Other expense (benefit)		—			—			1,149			(1,965	)
Other expense														—			—			—			1,149
Total operating expenses		34,702			33,743			106,099			96,928			38,829			35,040			78,369			71,397
(Loss) income from operations		(821	)		(233	)		(2,076	)		6,479
Other (expense) income, net		(668	)		(319	)		(1,880	)		(937	)
(Loss) income before income taxes		(1,489	)		(552	)		(3,956	)		5,542
Loss from operations														(6,342	)		703			(17,086	)		(1,255	)
Other expense, net														422			(825	)		(121	)		(1,212	)
Loss before income taxes														(5,920	)		(122	)		(17,207	)		(2,467	)
Provision (benefit) for income taxes		191			468			(338	)		562			317			179			744			(529	)
Net (loss) income	$	(1,680	)	$	(1,020	)	$	(3,618	)	$	4,980
Net (loss) income per share—basic and diluted
Net loss													$	(6,237	)	$	(301	)	$	(17,951	)	$	(1,938	)
Net loss per share—basic and diluted
Basic	$	(0.04	)	$	(0.02	)	$	(0.09	)	$	0.12		$	(0.14	)	$	(0.01	)	$	(0.42	)	$	(0.05	)
Diluted	$	(0.04	)	$	(0.02	)	$	(0.09	)	$	0.12		$	(0.14	)	$	(0.01	)	$	(0.42	)	$	(0.05	)
Weighted-average shares—basic and diluted
Basic		41,972			40,935			41,712			40,571			43,059			41,723			42,795			41,580
Diluted		41,972			40,935			41,712			42,237			43,059			41,723			42,795			41,580

Overview of Results of Operations for the Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

Total revenue ~~increased~~decreased by 3%6%, or ~~$1.8~~$3.5 million, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021~~2022 due to ~~an increase~~a decrease in subscription and support revenue of 5%8% or ~~$2.6~~$4.0 million, primarily due to ~~an increase~~a decrease in revenue from our premium offerings. ~~The increase in revenue from our premium offerings was due to an increase in usage-based fees.~~ Our revenue from premium offerings ~~increased~~decreased by ~~$2.1~~$3.4 million, or 4%6%, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021.~~2022 due to a decrease in the number of our customers, a decrease in usage-based fees outside of North America, and to a lesser extent, foreign exchange. Professional services and other revenue ~~decreased~~increased by ~~27%~~35%, or ~~$0.8~~$0.5 million, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021.~~2022. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.

~~The U.S. dollar has strengthened against the Japanese Yen, British Pound and the Euro when compared against exchange rates during the prior year period of comparison.~~ In constant currency, our total revenue for the three months ended ~~September~~June 30, ~~2022~~2023 would have been approximately ~~$56.5~~$51.6 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of ~~$1.2 million, Euro of $584, and British Pound of $535.~~$0.6 million. Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison.

Our gross profit ~~increased~~decreased by ~~$0.4~~$3.3 million, or 1%9%, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021,~~2022, primarily due to ~~an increase~~the decrease in usage-based fees in subscription and support revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of ~~delivery.~~delivery and our revenue from premium offerings.

2321

Loss from operations was ~~$0.8~~$6.3 million in the three months ended ~~September~~June 30, ~~2022~~2023 compared to a ~~loss~~profit of ~~$0.2~~$0.7 million in the three months ended ~~September~~June 30, ~~2021.~~2022. This is primarily due to an increase in operating expenses of ~~$959, offset by an increase~~$3.8 million, primarily due to restructuring charges of $2.3 million, and the aforementioned decrease in gross profit of ~~$371~~$3.3 million in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021.~~2022.

Revenue


	Three Months Ended September 30,																Three Months Ended June 30,
	2022					2021					Change						2023					2022					Change
Revenue by Product Line	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%			Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Premium	$	53,562		99	%	$	51,466		99	%	$	2,096			4	%	$	50,643		99	%	$	53,998		99	%	$	(3,355	)		(6	)%
Volume		382		1			697		1			(315	)		(45	)		345		1			449		1			(104	)		(23	)
Total	$	53,944		100	%	$	52,163		100	%	$	1,781			3	%	$	50,988		100	%	$	54,447		100	%	$	(3,459	)		(6	)%

During the three months ended ~~September~~June 30, ~~2022,~~2023, revenue ~~increased~~decreased by ~~$1.8~~$3.5 million, or 3%6%, compared to the three months ended ~~September~~June 30, ~~2021,~~2022, primarily due to ~~an increase~~a decrease in revenue from our premium offerings. The ~~increase~~decrease in premium revenue of ~~$2.1~~$3.4 million, or 4%6%, is the result of ~~an increase~~a decrease in the number of our customers, a decrease in usage-based ~~fees.~~fees outside of North America, and to a lesser extent, foreign exchange. In the three months ended ~~September~~June 30, ~~2022,~~2023, volume revenue decreased by ~~$315,~~$0.1 million, or ~~45%~~23%, compared to the three months ended ~~September~~June 30, ~~2021,~~2022, as we continue to focus on the market for our premium solutions.


	Three Months Ended September 30,																Three Months Ended June 30,
	2022					2021					Change						2023					2022					Change
Revenue by Type	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%			Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Subscription and support	$	51,814		96	%	$	49,226		94	%	$	2,588			5	%	$	49,013		96	%	$	52,988		97	%	$	(3,975	)		(8	)%
Professional services and other		2,130		4			2,937		600	%		(807	)		(27	)		1,975		4			1,459		3			516			35
Total	$	53,944		100	%	$	52,163		100	%	$	1,781			3	%	$	50,988		100	%	$	54,447		100	%	$	(3,459	)		-6	%

During the three months ended ~~September~~June 30, ~~2022,~~2023, subscription and support revenue ~~increased~~decreased compared to the three months ended ~~September~~June 30, ~~2021.~~2022 primarily due to a decrease in revenue from our premium offerings as described above. Professional services and other revenue ~~decreased~~increased by ~~$0.8~~$0.5 million, or ~~27%~~35%, compared to the corresponding quarter in the prior year. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process.

Three Months Ended September 30,

2022

2021

Change

Revenue by Geography

Amount

Percentage of
Revenue

Amount

Percentage of
Revenue

Amount

%

(in thousands, except percentages)

North America

$
29,864

56
%

$
29,420

56
%

$
444

2
%
Europe

8,847

16

9,689

19

(842
)

(9
)
Japan

4,842

9

6,185

12

(1,343
)

(22
)
Asia Pacific

10,312

19

6,746

13

3,566

53

Other

79

—

123

—

(44
)

(36
)
International subtotal

24,080

44

22,743

44

1,337

6

Total

$
53,944

100
%

$
52,163

100
%

$
1,781

3
%


	Three Months Ended June 30,
	2023					2022					Change
Revenue by Geography	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)
North America	$	30,694		60	%	$	30,019		55	%	$	675			2	%
Europe		7,915		16			10,128		19			(2,213	)		(22	)
Japan		4,928		10			5,077		9			(149	)		(3	)
Asia Pacific		7,366		14			9,060		17			(1,694	)		(19	)
Other		85		—			163		0			(78	)		(48	)
International subtotal		20,294		40			24,428		45			(4,134	)		(17	)
Total	$	50,988		100	%	$	54,447		100	%	$	(3,459	)		(6	)%

For purposes of this section, we designate revenue by geographic regions based upon the locations of our customers. North America is comprised of revenue from the United States, Canada and Mexico. International is comprised of revenue from locations outside of North America. Depending on the timing of new customer contracts, revenue mix from a geographic region can vary from period to period.

During the three months ended ~~September~~June 30, ~~2022,~~2023, total revenue for North America increased by ~~$444,~~$0.7 million, or 2%, compared to the three months ended ~~September~~June 30, ~~2021. In~~2022. During the three months ended ~~September~~June 30, ~~2022,~~2023, total revenue outside of North America ~~increased~~decreased by ~~$1.3~~$4.1 million, or 6%17%, compared to the three months ended ~~September~~June 30, ~~2021.~~2022. The ~~increase~~decrease in revenue ~~from international regions is~~in Japan was primarily ~~related to an increase in usage-based revenue in Asia Pacific. These increases were offset~~driven by a decrease ~~of $1.3~~in average revenue per premium customer as customer usage-based fees were less in the current period.

2422

~~million, or 22%,~~The decreases in ~~total~~Asia Pacific and Europe were due equally to a decrease in customers and a decrease in average revenue ~~for Japan due to changes in foreign currency exchange rates between the U.S. dollar and the Japanese Yen in the three months ended September 30, 2022.~~per premium customer as usage-based fees decreased.

Cost of Revenue


	Three Months Ended September 30,																Three Months Ended June 30,
	2022					2021					Change						2023					2022					Change
Cost of Revenue	Amount		Percentage of Related Revenue			Amount		Percentage of Related Revenue			Amount			%			Amount		Percentage of Related Revenue			Amount		Percentage of Related Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Subscription and support	$	18,247		35	%	$	16,406		33	%	$	1,841			11	%	$	16,603		34	%	$	16,943		32	%	$	(340	)		(2	)%
Professional services and other		1,816		85			2,247		77			(431	)		(19	)		1,898		96			1,761		121			137			8
Total	$	20,063		37	%	$	18,653		36	%	$	1,410			8	%	$	18,501		36	%	$	18,704		34	%	$	(203	)		(1	)%

In the three months ended ~~September~~June 30, ~~2022,~~2023, cost of subscription and support revenue ~~increased by $ 1.8~~decreased $0.3 million, or ~~11%~~2%, compared to the three months ended ~~September~~June 30, ~~2021.~~2022. The decrease resulted primarily from a decrease in content delivery network expense of $1.7 million, offset by an increase in amortization expense of $1.3 million. The remaining decrease was due to various other expenses that, in aggregate, decreased by approximately $60.

In the three months ended June 30, 2023, cost of professional services and other revenue increased $0.1 million, or 8%, compared to the three months ended June 30, 2022. The increase resulted primarily from an increase in ~~content delivery network and network hosting services~~contractor expenses of $304, offset by a decrease in ~~the three months ended September 30, 2022 compared~~employee-related expenses of $84. The remaining decrease was due to ~~the three months ended September 30, 2021. In the three months ended September 30, 2022, cost of professional services and~~various other ~~revenue~~expenses that, in aggregate, decreased by $0.4 million, or 19%, compared to the three months ended September 30, 2021. This decrease corresponds to the 27% decrease professional services and other revenue in the three months ended September 30, 2022, compared to the three months ended September 30, 2021.approximately $83.

Gross Profit


	Three Months Ended September 30,																Three Months Ended June 30,
	2022					2021					Change						2023					2022						Change
Gross Profit	Amount		Percentage of Related Revenue			Amount		Percentage of Related Revenue			Amount			%			Amount		Percentage of Related Revenue			Amount			Percentage of Related Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Subscription and support	$	33,567		65	%	$	32,820		67	%	$	747			2	%	$	32,410		66	%	$	36,045			68	%	$	(3,635	)		(10	)%
Professional services and other		314		15			690		23			(376	)		(54	)%		77		4			(302	)		(21	)		379			125
Total	$	33,881		63	%	$	33,510		64	%	$	371			1	%	$	32,487		64	%	$	35,743			66	%	$	(3,256	)		(9	)%

The overall gross profit percentage was ~~63%~~64% and 66% for the three months ended ~~September~~June 30, 2023 and 2022, ~~compared to 64% for the three months ended September 30, 2021.~~respectively. The decrease in gross profit percentage was ~~primarily~~ due to the aforementioned ~~increase~~decreases in ~~content delivery network~~subscription and ~~network hosting services expenses in the three months ended September 30, 2022~~support revenue. Subscription and support gross profit decreased $3.6 million, or 10%, compared to the three months ended ~~September~~June 30, ~~2021. Subscription~~2022. Professional services and ~~support~~other gross profit increased ~~$0.7~~by $0.4 million, ~~in the three months ended September 30, 2022~~or 125%, compared to the three months ended ~~September~~June 30, ~~2021. The increase in~~2022. It is likely that gross profit, ~~dollars for~~as a percentage of revenue, will fluctuate quarter by quarter due to the timing and mix of subscription and support revenue ~~was due to the 5% increase in subscription~~ and ~~support revenue. Professional services and other gross profit decreased $376, or 54%. The decrease in gross profit dollars for~~ professional services and other revenue, ~~was due to~~and the ~~27% decrease~~type, timing and duration of service required in ~~professional services and other revenue.~~delivering certain projects.

Operating Expenses


	Three Months Ended September 30,																Three Months Ended June 30,
	2022					2021					Change						2023					2022					Change
Operating Expenses	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%			Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Research and development	$	7,931		15	%	$	7,902		15	%	$	29			0	%	$	10,345		20	%	$	8,372		15	%	$	1,973			24	%
Sales and marketing		19,023		35			18,451		35			572			3			19,034		37			17,961		33			1,073			6
General and administrative		7,748		14			7,345		14			403			5			9,405		18			8,554		16			851			10
Merger-related		—		—			45		—			(45	)		(100	)		45		—			153		—			(108	)		(71	)
Other expense (benefit)		—		—			—		—			—		NM
Total	$	34,702		64	%	$	33,743		65	%	$	959			3	%	$	38,829		76	%	$	35,040		64	%	$	3,789			11	%

2523

Research and Development. In the three months ended ~~September~~June 30, ~~2022,~~2023, research and development ~~did not materially change~~expense increased by $2.0 million, or 24%, compared to the three months ended ~~September~~June 30, ~~2021.~~2022 primarily due to an increase in employee-related expenses of $2.2 million, which includes $0.8 million of restructuring charges, offset by a decrease in contractor expenses of $125. The remaining increase was due to various other expenses that, in aggregate, increased by approximately $68. We expect ~~our~~ research and development ~~expense as a percentage~~costs in absolute dollars to decrease in the second half of ~~revenue to remain relatively unchanged.~~2023.

Sales and Marketing. In the three months ended ~~September~~June 30, ~~2022,~~2023, sales and marketing expense increased by ~~$572,~~$1.1 million, or 3%6%, compared to the three months ended ~~September~~June 30, ~~2021,~~2022 primarily due to an increase in employee-related expenses of ~~$696.~~$1.2 million which includes $1.1 million of restructuring charges. This increase was offset by a decrease in various other expenses that, in aggregate, decreased by approximately ~~$124.~~$100. We expect ~~that our~~ sales and marketing expense ~~will increase~~ in absolute dollars ~~for~~to decrease in the ~~remainder~~second half of ~~2022 as compared to the prior period as we will continue to invest in these activities to support revenue growth.~~2023.

General and Administrative. In the three months ended ~~September~~June 30, ~~2022,~~2023, general and administrative ~~expense~~ increased by ~~$403,~~$0.9 million, or 5%10%, compared to the three months ended ~~September~~June 30, ~~2021,~~2022 primarily due to increases in ~~consultants~~employee-related expenses, stock-based compensation, dues and ~~temporary help, stock-based compensation,~~subscriptions expenses, and bad debt ~~expenses~~expense of ~~$123, $174,~~$209, 258, $163, and ~~$127,~~$191, respectively. ~~These increases were offset by~~The remaining increase was due to various other expenses that, in aggregate, ~~decreased~~increased by approximately ~~$22. In future periods, we~~$30. We expect general and administrative ~~expense~~expenses in absolute dollars to ~~remain relatively unchanged.~~decrease in the second half of 2023.

Merger-Related. In the three months ended ~~September~~June 30, 2023, merger-related expenses decreased by $108, or 71%, due to costs incurred in connection with the Wicket Acquisition in 2022 ~~merger-related expense remained relatively unchanged compared to the three months ended September 30, 2021.~~

~~Provision (benefit) for Income taxes.In the three months ended September 30, 2022, provision (benefit) for income taxes expense remained relatively unchanged compared to the three months ended September 30, 2021.~~which did not recur in 2023.

Overview of Results of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

Total revenue ~~increased~~decreased by 2%7%, or ~~$3.3~~$7.8 million, in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 due to ~~an increase~~a decrease in subscription and support revenue of ~~5%,~~8% or ~~$7.7~~$8.5 million, primarily due to ~~an increase~~a decrease in revenue from our premium ~~offerings during the three months ended September 30, 2022 as described in the results of operations for that period.~~offerings. Our revenue from premium offerings ~~grew~~decreased by ~~$4.2~~$7.4 million, or 3%7%, in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Professional services and other revenue ~~decreased~~increased by ~~45%~~22%, or ~~$4.4~~$0.7 million, in the six months ended June 30, 2023 compared to the ~~corresponding period in the prior year.~~six months ended June 30, 2022. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.

~~The U.S. dollar has strengthened against the Japanese Yen and the Euro when compared against exchange rates during the prior year period of comparison.~~ In constant currency, our total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 would have been approximately ~~$167.2~~$101.9 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of ~~$2.6 million and Euro of $1.6~~$1.3 million. Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison.

Our gross profit ~~increased remained relatively unchanged~~decreased by $8.9 million, or 13%, in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022, primarily due to a decrease in subscription and support revenue, as well as an increase in amortization expense related to our capitalized internal-use software. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of ~~delivery.~~delivery and our revenue from premium offerings.

Loss from operations was ~~$2.1~~$17.1 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~income~~a loss from operations of ~~$6.5~~$1.3 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This is primarily due to an increase in operating expenses of ~~$8.2~~$7.0 million, and a decrease in gross profit of $8.9 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, 2021. The increase in operating expenses includes the recognition of Other expense of $1.1 million in the nine months ended September 30, 2022, compared to a $2.0 million Other benefit recognized in the nine months ended September 30, 2021.2022.

26Revenue


	Six Months Ended June 30,
	2023					2022					Change
Revenue by Product Line	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)
Premium	$	99,379		99	%	$	106,770		99	%	$	(7,391	)		(7	)%
Volume		672		1			1,056		1			(384	)		(36	)
Total	$	100,051		100	%	$	107,826		100	%	$	(7,775	)		(7	)%

~~Revenue~~

Nine Months Ended September 30,

2022

2021

Change

Revenue by Product Line

Amount

Percentage of
Revenue

Amount

Percentage of
Revenue

Amount

%

(in thousands, except percentages)

Premium

$
160,333

99
%

$
156,182

99
%

$
4,151

3
%
Volume

1,437

1

2,270

1

(833
)

(37
)
Total

$
161,770

100
%

$
158,452

100
%

$
3,318

2
%

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, revenue ~~increased~~decreased by ~~$3.3~~$7.8 million, or 2%7%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, primarily due to ~~an increase~~a decrease in revenue from our premium ~~offerings, which consists of subscription and support revenue as well as professional services.~~offerings. The ~~increase~~decrease in premium revenue of ~~$4.2~~$7.4 million, or 3%7%, is ~~due to an increase~~the result of a decrease in ~~usage-based revenue~~the number of our customers and ~~to a lesser extent, a 3% increase~~ in the average ~~annual subscription~~ revenue per premium ~~customer during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase~~customer. The decrease in average ~~annual subscription~~ revenue per premium customer is ~~primarily~~ due to ~~premium customers ordering more~~a decrease in usage-based fees outside of ~~our products.~~

~~During~~North America. In the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, volume revenue decreased by ~~$833~~$0.4 million, or ~~37%~~36%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as we continue to focus on the market for our premium solutions.


	Nine Months Ended September 30,																Six Months Ended June 30,
	2022					2021					Change						2023					2022					Change
Revenue by Type	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%			Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Subscription and support	$	156,403		97	%	$	148,667		94	%	$	7,736			5	%	$	96,115		96	%	$	104,589		97	%	$	(8,474	)		(8	)%
Professional services and other		5,367		3			9,785		6			(4,418	)		(45	)		3,936		4			3,237		3			699			22
Total	$	161,770		100	%	$	158,452		100	%	$	3,318			2	%	$	100,051		100	%	$	107,826		100	%	$	(7,775	)		(7	)%

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, subscription and support revenue ~~increased~~decreased by ~~$7.7~~$8.5 million, or 5%8%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021. The increase was related~~2022, due to ~~a 3% increase~~the aforementioned decrease in ~~average annual subscription~~ revenue ~~per~~ premium ~~customer and an increase in usage-based fees.~~

~~In addition, professional~~offerings outside North America. Professional services and other revenue ~~decreased~~increased by ~~$4.4~~$0.7 million, or ~~45%~~22%, compared to the corresponding ~~period~~quarter in the prior year. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process.


	Nine Months Ended September 30,																Six Months Ended June 30,
	2022					2021					Change						2023					2022					Change
Revenue by Geography	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%			Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
North America	$	89,344		55	%	$	89,204		56	%	$	140			0	%	$	59,795		60	%	$	59,480		55	%	$	315			1	%
Europe		28,080		17			28,159		18			(79	)		0			16,102		16			19,233		18			(3,131	)		(16	)
Japan		17,180		11			19,263		12			(2,083	)		(11	)		10,124		10			12,338		11			(2,214	)		(18	)
Asia Pacific		26,808		17			21,421		14			5,387			25			13,860		14			16,496		15			(2,636	)		(16	)
Other		358		—			405		—			(47	)		(12	)		170		—			279		0			(109	)		(39	)
International subtotal		72,426		45			69,248		44			3,178			5			40,256		40			48,346		44			(8,090	)		(17	)
Total	$	161,770		100	%	$	158,452		100	%	$	3,318			2	%	$	100,051		100	%	$	107,826		100	%	$	(7,775	)		(7	)%

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, total revenue for North America ~~remained relatively unchanged~~increased by $315, or 1%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~

2022. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, total revenue outside of North America ~~increased $3.2~~decreased by $8.1 million, or 5%17%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~increase~~decrease in revenue ~~from international regions is~~in Japan was primarily ~~related to an increase in usage-based revenue in Asia Pacific. These increases were offset~~driven by a decrease ~~of $2.1 million, or 11%,~~ in ~~total~~average revenue ~~for~~per premium customer as customer usage-based fees were less in the current period and, to a lesser extent, non-recurring customer events that occurred in the prior period. The decreases in Asia Pacific and Europe were due equally to a decrease in customers and a decrease in average revenue per premium customer as usage-based fees decreased.

27Cost of Revenue


	Six Months Ended June 30,
	2023					2022					Change
Cost of Revenue	Amount		Percentage of Related Revenue			Amount		Percentage of Related Revenue			Amount		%
	(in thousands, except percentages)
Subscription and support	$	34,868		36	%	$	33,925		32	%	$	943		3	%
Professional services and other		3,900		99			3,759		116			141		4
Total	$	38,768		39	%	$	37,684		35	%	$	1,084		3	%

~~Japan due to changes in foreign currency exchange rates between the U.S. dollar and the Japanese Yen in the nine months ended September 30, 2022.~~

~~Cost of Revenue~~

Nine Months Ended September 30,

2022

2021

Change

Cost of Revenue

Amount

Percentage of
Related
Revenue

Amount

Percentage of
Related
Revenue

Amount

%

(in thousands, except percentages)

Subscription and support

$
52,172

33
%

$
46,840

32
%

$
5,332

11
%
Professional services and other

5,575

104

8,205

84

(2,630
)

(32
)
Total

$
57,747

36
%

$
55,045

35
%

$
2,702

5
%

In the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, cost of subscription and support revenue increased ~~$5.3~~$0.9 million, or ~~11%~~3%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase resulted primarily from an increase in ~~content delivery network, network hosting services, third-party software integration, and~~employee-related expenses, amortization of capitalized internal-use software expenses, and network hosting services of ~~$2.1 million,~~$442, $2.6 million, ~~$1.2 million,~~ and ~~$267,~~$676, respectively. These increases were offset by a decrease in ~~partner commissions~~content delivery network expenses of ~~$1.3~~$2.6 million. The remaining increase ~~was due to~~offset by various other expenses that, in aggregate, increased by approximately ~~$300.~~$110.

In the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, cost of professional services and other revenue ~~decreased $2.6~~increased $0.1 million, or ~~32%~~4%, compared to the ~~nine~~six months ended ~~September~~Jun 30, ~~2021. This decrease corresponds to~~2022. The increase resulted primarily from an increase in contractor expenses of $495, offset by a decrease in ~~professional services and~~employee-related expenses of $210. The remaining increase was offset by various other ~~revenue of $4.4 million~~expenses that, in ~~the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.~~aggregate, decreased by $145.

Gross Profit


	Six Months Ended June 30,
	2023					2022						Change
Gross Profit	Amount		Percentage of Related Revenue			Amount			Percentage of Related Revenue			Amount			%
	(in thousands, except percentages)
Subscription and support	$	61,247		64	%	$	70,664			68	%	$	(9,417	)		(13	)%
Professional services and other		36		1			(522	)		(16	)		558			107
Total	$	61,283		61	%	$	70,142			65	%	$	(8,859	)		(13	)%

Nine Months Ended September 30,

2022

2021

Change

Gross Profit

Amount

Percentage of
Related
Revenue

Amount

Percentage of
Related
Revenue

Amount

%

(in thousands, except percentages)

Subscription and support

$
104,231

67
%

$
101,827

68
%

$
2,404

2
%
Professional services and other

(208
)

(4
)

1,580

16

(1,788
)

(113
)
Total

$
104,023

64
%

$
103,407

65
%

$
616

1
%

The overall gross profit percentage was ~~64%~~61% and 65% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The decrease in gross profit percentage was due to the aforementioned ~~increases~~decreases in ~~content delivery network, network hosting services, third-party software integration,~~subscription and ~~amortization of capitalized internal-use software expenses.~~support revenue. Subscription and support gross profit ~~increased $2.4~~decreased $9.4 million, or 2%13%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Professional services and other gross profit ~~decreased~~increased by ~~$1.8~~$0.6 million, or ~~113%~~107%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. It is likely that gross profit, as a percentage of revenue, will fluctuate quarter by quarter due to the timing and mix of subscription and support revenue and professional services and other revenue, and the type, timing and duration of service required in delivering certain projects.

Operating Expenses



	Nine Months Ended September 30,																	Six Months Ended June 30,
	2022						2021						Change					2023					2022					Change
Operating Expenses	Amount		Percentage of Revenue				Amount			Percentage of Revenue			Amount		%			Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)																	(in thousands, except percentages)
Research and development	$	24,540		15	%		$	24,041			15	%	$	499		2	%	$	20,211		20	%	$	16,609		15	%	$	3,602			22	%
Sales and marketing		55,272		34		��		52,730			33			2,542		5			38,499		38			36,249		34			2,250			6
General and administrative		24,391		15				21,822			14			2,569		12			19,469		19			16,643		15			2,826			17
Merger-related		747		0				300			—			447		149			190		—			747		1			(557	)		(75	)
Other expense (benefit)		1,149		1				(1,965	)		(1	)		3,114		(158	)		—		—			1,149		1			(1,149	)		(100	)

Research and Development. In the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, research and development expense increased by ~~$499 ,~~$3.6 million, or 2%22%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 primarily due to an increase in ~~rent, amortization,~~employee-related expenses of $3.6 million, which includes $1.0 million of restructuring charges. We expect research and development costs in absolute dollars to decrease in the second half of 2023.

Sales and Marketing. In the six months ended June 30, 2023, sales and marketing expense increased by $2.3 million, or 6%, compared to the six months ended June 30, 2022 primarily due to an increase in employee-related expenses, agency expenses, and travel expenses of $2.6 million, $522, and $486, respectively. The $2.6 million increase in employee-related expenses reflects $1.2 million in restructuring charges These increases were offset by a decrease in marketing program expenses of $1.1 million and various other expenses that, in aggregate, decreased by approximately $250. We expect sales and marketing expense in absolute dollars to decrease in the second half of 2023.

General and Administrative. In the six months ended June 30, 2023, general and administrative increased by $2.8 million, or 17%, compared to the six months ended June 30, 2022 primarily due to increases in employee-related expenses, stock-based

compensation, travel expenses, contractor expenses, outside accounting and legal fees, computer maintenance and support expenses, dues and subscriptions expenses, and bad debt expense of ~~$235, $181,~~$808, $369, $198, $354, $448, $162, $161, and ~~$121,~~152, respectively. The $808 increase in employee-related expenses reflects approximately $500 in restructuring charges. These increases were offset by various other expenses that, in aggregate, decreased by approximately ~~$38.~~

~~Sales and Marketing~~. In the nine months ended September 30, 2022, sales and marketing expense increased by $2.5 million, or 5%, compared to the nine months ended September 30, 2021 primarily due to an increase in employee-related expenses, rent, and stock based compensation expenses of $3.0 million, $544, and $775, respectively. These increases were offset by a decrease in commissions of $2.0 million. The remaining increase was due to various other expenses that, in aggregate, increased by approximately $194.

~~General and Administrative~~. ~~In the nine months ended September 30, 2022,~~$173. We expect general and administrative ~~increased by $2.6 million or 12%, compared~~expenses in absolute dollars to decrease in the ~~nine months ended September 30, 2021 primarily due to increases in employee-related, stock-based compensation, contractor, and recruiting and relocation expenses~~second half of ~~$1.0 million, $1.0 million, $306, and $227, respectively. The remaining increase was due to various other expenses that, in aggregate, increased by approximately $8.~~2023.

Merger-Related. In the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, merger-related expenses ~~increased $447.0~~decreased by $557, or 75%, due to costs incurred in connection with the Wicket Acquisition in ~~2022.~~2022 which did not recur in 2023.

Other expense ~~(benefit)~~. On March 28, 2022 our CEO retired. Pursuant to a Transition Agreement that was entered into by the previous CEO and the Company in October 2021, the CEO, upon retirement, would be paid his annual base compensation through December 31, 2022 and his 2022 annual bonus, the bonus amount to be determined by the Company’s 2022 performance. In accordance with generally accepted accounting principles we determined that the remaining base compensation and the current estimate of the 2022 annual bonus should be accrued and the expense recognized as of March 28, 2022. The total expense of $1.1 million also ~~reflects~~reflected $0.2 million of stock-based compensation expense as a result of the modification of certain awards pursuant to the Transition Agreement. Of the total annual base compensation and bonus accrued, ~~$0.7 million~~no balance remains unpaid as of ~~September~~June 30, ~~2022 and is reflected in Accrued Expenses on the Company’s Condensed Consolidated Balance Sheets.~~

On March 27, 2020, in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, which was amended by the Consolidated Appropriations Act in December of 2020 (the "CARES Act"). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain employee retention credits.2023. In the ~~first quarter of 2021,~~six months ended June 30, 2023, we ~~recognized a benefit of $1,965 from the CARES Act related to employee retention credits. The benefit was recorded as Other (benefit) expense.~~did not incur additional other expenses.

Liquidity and Capital Resources

Cash and cash equivalents.

Our cash and cash equivalents at ~~September~~June 30, ~~2022~~2023 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$11.7~~$9.0 million and ~~$13.8~~$12.1 million, respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located in Japan and the United Kingdom. These earnings can be repatriated to the United States tax-free but could still be subject to foreign withholding taxes. ~~On February 1, 2022,~~During the quarter ended March 31, 2023, we acquired 100% of the outstanding shares of Wicket Labs, in exchange for 212,507 unregistered shares of our common stock valued at approximately $2 million and approximately $13.2 million in cash. Approximately $1.8paid $1.7 million of ~~the~~ cash consideration ~~was~~ held back to ~~secure payment~~sellers for the satisfaction of ~~any claims of indemnification for breaches or inaccuracies in the Sellers’~~certain representations and warranties ~~covenants and agreements.~~in relation to the Wicket Acquisition. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated working capital and capital expenditure needs over at least the next 12 months.

Nine Months Ended September 30,

Condensed Consolidated Statements of Cash Flow Data

2022

2021

(in thousands)

Cash flows provided by operating activities

$
19,749

$
14,748

Cash flows used in investing activities

$
(31,510
)

$
(6,282
)
Cash flows provided by financing activities

$
92

$
350


	Six Months Ended June 30,
Condensed Consolidated Statements of Cash Flow Data	2023			2022
	(in thousands)
Cash flows (used in) provided by operating activities	$	(1,822	)	$	9,257
Cash flows used in investing activities	$	(8,561	)	$	(17,942	)
Cash flows (used in) provided by financing activities	$	(1,956	)	$	93

Accounts receivable, net.

Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our billing activity, cash collections, and changes to our allowance for doubtful accounts. In many instances we receive cash payment from a customer prior to the time we are able to recognize revenue on a transaction. We record these payments as deferred revenue, which has a positive effect on our accounts receivable balances.

Cash flows ~~provided by~~used in operating activities.

Cash ~~provided by~~used in operating activities consists primarily of net ~~income~~loss adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense, the provision for bad debts and the effect of changes in working capital and other activities. Cash ~~provided by~~used in operating activities during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$19.7~~$1.8 million. The cash ~~provided by~~used in operating activities primarily resulted from net non-cash charges of ~~$17.2~~$15.3 million and net changes in our operating assets and liabilities of ~~$6.1~~$0.9 million, and a net loss of ~~$3.6~~$18.0 million. Net non-cash expenses mainly consisted of ~~$7.1~~$8.0 million for depreciation and amortization and ~~$10.0~~$7.0 million for stock-based compensation. Cash ~~inflows~~outflows resulting from changes in our operating assets and liabilities consisted primarily of ~~an increase in operating leases, deferred revenue, and accounts payable of $5.2 million, $3.4 million, and $863, respectively, offset by~~ increases in accounts receivable, ~~of $1.9 million and~~ prepaid expenses and other current assets, of ~~$1.4~~$4.2 million, $1.9 million, respectively, as well as decreases in accrued expenses of $5.5 million. ~~In summary,~~These cash outflows were offset by increases in deferred revenue and accounts payable of $8.4 million and $3.4 million, respectively. The decrease in cash flow provided by operating activities ~~has increased when~~in the six months ended June 30, 2023 compared to the prior period is primarily due ~~increases~~to the increase in ~~working capital.~~net loss.

Cash flows used in investing activities.

Cash used in investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$31.5~~$8.6 million, consisting primarily of ~~$13.2 million for cash paid for the acquisition of Wicket Labs, $9.7~~$7.2 million for the capitalization of internal-use software costs and ~~$8.6~~$1.3 million in capital expenditures to support the ~~majority~~business. The decrease in cash flows used in investing activities is primarily due to the acquisition of ~~which was related to leasehold improvements for our new headquarters.~~Wicket Labs in 2022.

Cash flows ~~provided by~~used in financing activities.

Cash ~~provided by~~used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$92, consisting~~$1.9 million, primarily ~~of proceeds~~ from ~~the exercise of stock options.~~deferred acquisition payments and other financing activities.

Credit facility.

On December 28, 2020, we entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset-based line of credit (the “Line of Credit”). Borrowings under the Line of Credit are secured by substantially all of our assets, excluding our intellectual property. We were in compliance with all covenants under the Line of Credit as of ~~September~~June 30, ~~2022.~~2023. As we have not currently drawn on the Line of Credit, there are no amounts outstanding as of ~~September~~June 30, ~~2022.~~2023.

Net operating loss carryforwards.

As of December 31, ~~2021,~~2022, we had federal and state net operating losses of approximately ~~$161.8~~$164.0 million and ~~$89.2~~$82.8 million, respectively, which are available to offset future taxable income, if any, through 2037 and 2041, respectively. We had federal and state net operating losses of approximately ~~$37.6~~$45.7 million and $3.1 million, respectively, which are available to offset future taxable income, if any, indefinitely. We had federal and state research and development tax credits of ~~$9.0~~$9.8 million and ~~$5.5~~$6.0 million, respectively, which expire in various amounts through 2041. Our net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the U.S. Internal Revenue Code of 1986, as amended.

In assessing our ability to utilize our net deferred tax assets, we considered whether it is more likely than not that some portion or all of our net deferred tax assets will not be realized. Based upon the level of our historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, we believe it is more likely than not that we will not realize the benefits of these deductible differences. Accordingly, we have provided a valuation allowance against our U.S. deferred tax assets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

Contractual Obligations and Commitments

Our principal commitments consist primarily of obligations under our leases for our office, as well as content delivery network services, hosting and other support services. During the second quarter of 2022 we renewed agreements with our primary providers of content delivery network services, hosting and other support services. The terms of the two agreements comprised: 1) a minimum

commitment of $90 million over three years and 2) a minimum commitment of $4.8 million over two years. Other than these lease obligations and contractual commitments, we do not have commercial commitments under lines of credit, standby repurchase obligations or other such debt arrangements, nor do we have any off-balance sheet arrangements.

Our contractual obligations as of December 31, ~~2021~~2022 are summarized in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Recently Issued and Adopted Accounting Standards in Note 2 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Anticipated Cash Flows

We expect to incur significant operating costs, particularly related to services delivery costs, sales and marketing and research and development, for the foreseeable future in order to execute our business plan. We anticipate that such operating costs, as well as planned capital expenditures will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenue and our ability to manage infrastructure costs.

We believe our existing cash and cash equivalents and credit facility will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new products and enhancements, and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents, and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to acquire businesses, technologies and products that will complement our existing operations. In the event funding is required, and especially if interest rates continue to
rise, we may not be able to obtain bank credit arrangements or equity or debt financing on terms acceptable to us or at all. Market volatility resulting from the COVID-19 coronavirus pandemic, increase foreign exchange rate fluctuations, inflationary pressures,
interest rate increases or other factors could also adversely impact our ability to access capital as and when needed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands, except share and per share data, unless otherwise noted)

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily foreign exchange risks, interest rate and inflation.

Financial instruments

Financial instruments meeting fair value disclosure requirements consist of cash equivalents, accounts receivable and accounts payable. The fair value of these financial instruments approximates their carrying amount.

Foreign currency exchange risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound, ~~Australian dollar~~ and Japanese yen. Except for revenue transactions in Japan, we enter into transactions directly with substantially all of our foreign customers.

Percentage of revenues and expenses in foreign currency is as follows:


	Three Months Ended September 30,						Three Months Ended June 30,
	2022			2021			2023			2022
Revenues generated in locations outside the United States		48	%		47	%		44	%		48	%
Revenues in currencies other than the United States dollar (1)		23	%		29	%		25	%		27	%
Expenses in currencies other than the United States dollar (1)		17	%		18	%		18	%		18	%


	Six Months Ended June 30,
	2023			2022
Revenues generated in locations outside the United States		45	%		48	%
Revenues in currencies other than the United States dollar (1)		25	%		28	%
Expenses in currencies other than the United States dollar (1)		17	%		16	%

Nine Months Ended September 30,

2022

2021

Revenues generated in locations outside the United States

48
%

47
%
Revenues in currencies other than the United States dollar (1)

28
%

29
%
Expenses in currencies other than the United States dollar (1)

16
%

17
%

(1)

Percentage of revenues and expenses denominated in foreign currency for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021						Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	Revenues			Expenses			Revenues			Expenses			Revenues			Expenses			Revenues			Expenses
Euro		6	%		2	%		8	%		2	%		6	%		1	%		9	%		2	%
British pound		6			5			6			5			6			6			6			5
Japanese Yen		9			2			12			3			10			2			9			2
Other		2			8			3			8			3			9			3			9
Total		23	%		17	%		29	%		18	%		25	%		18	%		27	%		18	%

Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2021

Revenues

Expenses

Revenues

Expenses

Euro

8
%

1
%

8
%

1
%
British pound

6

5

6

5

Japanese Yen

11

2

12

3

Other

3

8

3

8

Total

28
%

16
%

29
%

17
%


	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022
	Revenues			Expenses			Revenues			Expenses
Euro		6	%		1	%		8	%		1	%
British pound		6			6			6			5
Japanese Yen		10			2			11			2
Other		3			8			3			8
Total		25	%		17	%		28	%		16	%

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$5.5~~$6.4 million and ~~$8.3~~$6.9 million, respectively, of receivables denominated in currencies other than the U.S. dollar. We also maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements.

In addition, although our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under “other (expense) income, net”, while exchange rate fluctuations on long-term intercompany accounts are recorded as a component of other comprehensive ~~(loss) income,~~loss, as they are considered part of our net investment.

Currently, our largest foreign currency exposures are the euro and British pound primarily because our European operations have a higher proportion of our local currency denominated expenses, in addition to the Japanese Yen as result of our ongoing operations in Japan. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 the U.S. dollar has strengthened approximately ~~15%~~5%, 1%, and 11% compared to the British pound, ~~and~~ euro and ~~over 20%~~Japanese Yen, respectively, compared to the ~~Japanese Yen.~~six months ended June 30, 2022. Relative to foreign currency exposures existing at ~~September~~June 30, ~~2022,~~2023, a further 20% unfavorable movement in foreign currency exchange rates would expose us to losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we estimated that a 20% unfavorable movement in foreign currency exchange rates would have decreased revenues by ~~$8.5~~$5.0 million, decreased expenses by ~~$5.4~~$4.2 million and decreased operating income by ~~$3.1~~$0.9 million. The estimates used assume that all currencies move in the same direction at the same time and the ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates, the impact to revenue of a change in foreign currency exchange rates is recognized over time, and the impact to expenses is more immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is incurred. All of the potential changes noted above are based on sensitivity analyses performed on our financial results as of ~~September~~June 30, ~~2022.~~2023.

Interest rate risk

We had cash and cash equivalents totaling ~~$31.3~~$19.1 million at ~~September~~June 30, ~~2022.~~2023. Cash and cash equivalents were invested primarily in cash and are held for working capital purposes. We do not use derivative financial instruments in our investment portfolio. Declines in interest rates, however, would reduce future interest income. We did not incur interest expense in the three months ended ~~September~~June 30, ~~2022.~~2023. An unfavorable movement of 10% in the interest rate on the Line of Credit would not have had a material effect on interest expense.

Inflation Risk

We do not believe that inflation has had a material effect on our business. However, if our costs, in particular personnel, sales and marketing and hosting costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~September~~June 30, ~~2022,~~2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer

concluded that, as of ~~September~~June 30, ~~2022,~~2023, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We, from time to time, are party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on our consolidated financial position, results of operations or cash flows based on the status of proceedings at this time.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described in our annual report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, under the heading “Part I — Item 1A. Risk Factors,” together with the additional risk factor included below and all of the other information in this Quarterly Report on Form 10-Q. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

~~Weakened global economic conditions may harm~~Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our ~~industry,~~ business and its financial condition and results of operations.

~~Our overall performance depends in part on worldwide economic conditions. Global~~Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial ~~developments and downturns seemingly unrelated to us~~institutions, transactional counterparties or ~~the software industry may harm us. The U.S. and~~ other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, inflation and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weaknesscompanies in the ~~banking sector, uncertainty over the future~~financial services industry generally, or concerns or rumors about any events of the Euro zone and volatility in the value of the pound sterling and the Euro, including instability surrounding Brexit, and instability resulting from the ongoing conflict between Russia and Ukraine. The effect of the conflict between Russia and Ukraine, including any resulting sanctions, export controlsthese kinds or other ~~restrictive actions that may be imposed against governmental or other entities in, for example, Russia,~~similar risks, have in the past ~~contributed~~led and may in the future ~~contribute~~lead to ~~disruption,~~market-wide liquidity problems. In March and May of 2023, the Federal Deposit Insurance Corporation (“FDIC”) took control and was appointed receiver of Silicon Valley Bank (“SVB”), Signature Bank and First Republic Bank, respectively, after each bank was unable to continue its operations. We cannot predict the impact that the continued high market volatility and instability of the banking sector more broadly could have on economic activity and ~~volatility~~our business in ~~the global~~particular. The failure of other banks and financial institutions and measures taken, or not taken, by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.

33If the financial institutions with which we do business enter receivership or become insolvent in the future, there is no guarantee that the Department of the Treasury, the Federal Reserve and the FDIC will intercede to provide us and other depositors with access to balances in excess of the $250,000 FDIC insurance limit, that we would be able to access our existing cash, cash equivalents and investments, that we would be able to maintain any required letters of credit or other credit support arrangements, or that we would be able to adequately fund our business for a prolonged period of time or at all, any of which could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition. If any of our lenders or counterparties to any such instruments were to be placed into receivership, we may be unable to access such funds. We are party to an amended and restated loan and security agreement with SVB providing for up to a $30.0 million asset-based line of credit. In addition, if any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

~~markets. We have~~Changes in our business and operations, as well as ~~current~~organizational changes, have placed, and ~~potential new customers in Europe. If economic conditions in Europe and other key markets for our platform~~may continue to ~~remain uncertain~~place, significant demands on our management and infrastructure. If we fail to manage these changes effectively and successfully recruit additional highly-qualified employees, we may be unable to execute our business plan, maintain high levels of service or ~~deteriorate further, it~~address competitive challenges adequately.

Our business, headcount and operations have grown, both domestically and internationally, since our inception. In addition, we have seen organizational changes during that time, including the addition of several new members to our senior leadership team in the past several years, including our CEO. These organizational changes have placed, and will continue to place, a significant strain on our management, administrative, operational and financial infrastructure. While we expect to continue to grow headcount and operations over the long-term, on April 28, 2023, we authorized, and on May 3, 2023, we implemented, a restructuring that was designed to reduce operating costs, improve operating margins and focus on key growth and strategic priorities (the "Plan"). The Plan includes a reduction of the Company's workforce by approximately 10%. We may be unable to effectively manage the organizational changes we are making in connection with the Plan, which could result in difficulty or delays in delivering our products and services to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new products and services or enhancing existing products and services, reputational harm, difficulty in attracting new talent and retaining existing employees, loss of customers, or operational difficulties in executing sales strategies, any of which could adversely affect our ~~customers’~~business performance and operating results. Our success will depend in part upon the ability of our senior leadership team to manage the Company effectively. To do so, we must continue to recruit, hire, train, manage and integrate a significant number of qualified managers, technical personnel and employees in specialized roles within our company, including in technology, sales and marketing. If our new employees perform poorly, or ~~willingness~~if we are unsuccessful in recruiting, hiring, training, managing and integrating these new employees, or retaining these or our existing employees, our business may suffer.

In addition, to ~~subscribe~~manage the future growth of our business, headcount, operations and geographic expansion, we will need to continue to improve our ~~platform, delay prospective customers’ purchasing decisions,~~information technology infrastructure, operational, financial and management systems and procedures. Our expected capital investments and future headcount increases will increase our costs, which will make it more difficult for us to address any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully manage organizational changes or future growth we will be unable to successfully execute our business plan, which could have a negative impact on our business, financial condition or results of operations.

Our Plan and associated organizational changes may not adequately reduce our operating costs or improve operating margins, may lead to additional workforce attrition, and may cause operational disruptions.

The Company recorded $2.3 million in restructuring changes in connection with the ~~value~~Plan, consisting primarily of cash expenditures related to employee severance costs.

The estimates of the charges and expenditures that we expect to incur in connection with the Plan, and timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and we may experience delays and incur costs that are greater than we currently expect in connection with the Plan.

The Plan may yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, employee attrition beyond our intended reduction in force, a reduction in morale among our remaining employees, greater-than-anticipated costs incurred in connection with implementing the Plan, and the risk that we may not achieve the benefits from the Plan to the extent or ~~duration of their subscriptions or affect renewal rates,~~as quickly as we anticipate, all of which may have a material adverse effect on our results of operations or financial condition. These restructuring initiatives could ~~harm~~place substantial demands on our ~~operating results.~~

~~More recently, inflation rates, particularly~~management and employees, which could lead to the diversion of our management’s and employees’ attention from other business priorities. In addition, while certain positions have been eliminated in connection with the ~~U.S., have increased~~Plan, certain functions necessary to ~~levels not seen~~our reduced operations remain, and we may be unsuccessful in ~~several years~~distributing the duties and obligations of departed employees among our remaining employees or to external service providers, which could result in disruptions to our operations. We may ~~continue~~also discover that the workforce reduction and other restructuring efforts will make it difficult for us to ~~rise,~~pursue new opportunities and initiatives and require us to hire qualified replacement personnel, which may ~~result in decreased demand for~~require us to incur additional and unanticipated costs and expenses. We may further discover that, despite the implementation of our ~~products~~Plan, we may require additional capital to continue expanding our business, and ~~services, increases in~~we may be unable to obtain such capital on acceptable terms, if at all. Our failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our ~~operating costs including our labor costs, constrained credit~~business, financial condition, and liquidity, reduced government spending and volatility in financial markets. Central banks worldwide, including the Federal Reserve in the U.S., have raised, and may again raise, interest rates in response to concerns over rising inflation rates. There continues to be uncertainty in the changing market and economic conditions, including the possibilityresults of ~~additional measures that could be taken by the Federal Reserve and other domestic and foreign government agencies, related to the COVID-19 pandemic and concerns over inflation risk.~~operations.

ITEM 5. OTHER INFORMATION

Our policy governing transactions in our securities by directors, officers and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these

plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving our company.

On June 13, 2023, Ms. Kristin Frank, a member of the Board, terminated a trading arrangement she had previously adopted with respect to the sale of securities of the Company’s common stock (a “Rule 10b5-1 Trading Plan”). Ms. Frank’s Rule 10b5-1 Trading Plan was adopted on March 14, 2023, solely to enable her to manage the tax implications associated with the vesting of restricted stock units in 2023. Ms. Frank’s plan was set to terminate no later than June 30, 2023, and provided for the sale of 40% of the net vested shares received in connection with the vesting of restricted stock units in 2023. As of the date of termination of her Rule 10b5-1 Trading Plan, Ms. Frank had sold 8,058 shares of common stock under its terms.

We anticipate that, as permitted by Rule 10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of executive officers and directors who establish a trading plan in compliance with Rule 10b5-1 and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. However, we undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.

3433

ITEM 6. EXHIBITS


Exhibits


3.1 (1)		Eleventh Amended and Restated Certificate of Incorporation.

3.2 (2)		Amended and Restated By-Laws.

4.1 (3)		Form of Common Stock certificate of the Registrant.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1^		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

(1)

Filed as Exhibit 3.2 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

(2)

Filed as Exhibit 3.3 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

(3)

Filed as Exhibit 4.1 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

^ Furnished herewith.

3534

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BRIGHTCOVE INC.
	(Registrant)

Date: ~~November~~August 2, ~~2022~~2023	By:
	/s/ Marc DeBevoise

	Marc DeBevoise
	Chief Executive Officer
	(Principal Executive Officer)

Date: ~~November~~August 2, ~~2022~~2023	By:
	/s/ Robert Noreck

	Robert Noreck
	Chief Financial Officer
	(Principal Financial Officer)

3635


Cash	$	53
Accounts receivable and other assets		782
Identifiable intangible assets		4,382
Goodwill		13,957
Deferred revenue		(1,033	)
Deferred tax liabilities		(1,009	)
Other liabilities		(95	)
Total estimated purchase price	$	17,037


	Amount		Useful Life (in years)
Developed technology	$	4,200		6
Customer relationships		182		5
Total	$	4,382


Year Ending December 31,	Amount
2022	$	614
2023		736
2024		736
2025		736
2026		736
2027 and thereafter		824
Total	$	4,382


Balance as of January 1, 2022	$	60,902
Wicket acquisition		13,957
Balance as of September 30, 2022	$	74,859


	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	Revenues			Expenses			Revenues			Expenses
Euro		8	%		1	%		8	%		1	%
British pound		6			5			6			5
Japanese Yen		11			2			12			3
Other		3			8			3			8
Total		28	%		16	%		29	%		17	%