UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 2021
OR
☐ | 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:
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, MA02210
(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(§ (§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
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||
Non-accelerated | ☐ | 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
As of October 21, 2021,July 29, 2022, there were 41,090,87641,897,964 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
BRIGHTCOVE INC.
Table of Contents
Page | ||||
4 | ||||
4 | ||||
2021 | 4 | |||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
9 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 31 | |||
32 | ||||
33 | ||||
33 | ||||
33 | ||||
34 | ||||
35 | ||||
36 |
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
SEC should be consulted. Forward-looking statements in this Quarterly Report on Form
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
September 30, 2021 | December 31, 2020 | |||||||
(in thousands, except share and per share data) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 45,285 | $ | 37,472 | ||||
Accounts receivable, net of allowance of $443 and $648 at September 30, 2021 and December 31, 2020, respectively | 28,138 | 29,305 | ||||||
Prepaid expenses | 8,965 | 5,760 | ||||||
Other current assets | 11,411 | 12,978 | ||||||
Total current assets | 93,799 | 85,515 | ||||||
Property and equipment, net | 18,777 | 15,968 | ||||||
Operating lease right-of-use | 5,668 | 8,699 | ||||||
Intangible assets, net | 8,213 | 10,465 | ||||||
Goodwill | 60,902 | 60,902 | ||||||
Other assets | 6,491 | 5,254 | ||||||
Total assets | $ | 193,850 | $ | 186,803 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 11,007 | $ | 10,456 | ||||
Accrued expenses | 21,082 | 25,397 | ||||||
Operating lease liability | 2,176 | 4,346 | ||||||
Deferred revenue | 61,739 | 58,741 | ||||||
Total current liabilities | 96,004 | 98,940 | ||||||
Operating lease liability, net of current portion | 3,734 | 5,498 | ||||||
Other liabilities | 1,536 | 2,763 | ||||||
Total liabilities | $ | 101,274 | 107,201 | |||||
Commitments and contingencies (Note 8) | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued | 0— | 0— | ||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; 41,175,854 and 40,152,021 shares issued at September 30, 2021 and December 31, 2020, respectively | 41 | 40 | ||||||
Additional paid-in capital | 295,464 | 287,059 | ||||||
Treasury stock, at cost; 135,000 shares | (871 | ) | (871 | ) | ||||
Accumulated other comprehensive loss | (600 | ) | (188 | ) | ||||
Accumulated deficit | (201,458 | ) | (206,438 | ) | ||||
Total stockholders’ equity | 92,576 | 79,602 | ||||||
Total liabilities and stockholders’ equity | $ | 193,850 | $ | 186,803 | ||||
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (in thousands, except share |
| |||||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 27,804 |
|
| $ | 45,739 |
|
Accounts receivable, net of allowance of $299 and $353 at June 30, 2022 and December 31, 2021, respectively |
|
| 32,567 |
|
|
| 29,866 |
|
Prepaid expenses |
|
| 10,911 |
|
|
| 7,792 |
|
Other current assets |
|
| 10,351 |
|
|
| 10,833 |
|
Total current assets |
|
| 81,633 |
|
|
| 94,230 |
|
Property and equipment, net |
|
| 32,538 |
|
|
| 20,514 |
|
Operating lease right-of-use asset |
|
| 19,048 |
|
|
| 24,891 |
|
Intangible assets, net |
|
| 12,088 |
|
|
| 9,276 |
|
Goodwill |
|
| 74,837 |
|
|
| 60,902 |
|
Other assets |
|
| 6,465 |
|
|
| 6,655 |
|
Total assets |
| $ | 226,609 |
|
| $ | 216,468 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 11,956 |
|
| $ | 11,039 |
|
Accrued expenses |
|
| 22,907 |
|
|
| 20,925 |
|
Operating lease liability |
|
| 2,595 |
|
|
| 2,600 |
|
Deferred revenue |
|
| 64,567 |
|
|
| 62,057 |
|
Total current liabilities |
|
| 102,025 |
|
|
| 96,621 |
|
Operating lease liability, net of current portion |
|
| 20,970 |
|
|
| 22,801 |
|
Other liabilities |
|
| 877 |
|
|
| 786 |
|
Total liabilities |
| $ | 123,872 |
|
|
| 120,208 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; |
|
| — |
|
|
| — |
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 42,029,575 and 41,384,643 shares issued at June 30, 2022 and December 31, 2021, respectively |
|
| 42 |
|
|
| 41 |
|
Additional paid-in capital |
|
| 308,307 |
|
|
| 298,793 |
|
Treasury stock, at cost; 135,000 shares |
|
| (871 | ) |
|
| (871 | ) |
Accumulated other comprehensive loss |
|
| (1,762 | ) |
|
| (662 | ) |
Accumulated deficit |
|
| (202,979 | ) |
|
| (201,041 | ) |
Total stockholders’ equity |
|
| 102,737 |
|
|
| 96,260 |
|
Total liabilities and stockholders’ equity |
| $ | 226,609 |
|
| $ | 216,468 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Brightcove Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Revenue: | ||||||||||||||||
Subscription and support revenue | $ | 49,226 | $ | 46,338 | $ | 148,667 | $ | 136,613 | ||||||||
Professional services and other revenue | 2,937 | 2,746 | 9,785 | 7,050 | ||||||||||||
Total revenue | 52,163 | 49,084 | 158,452 | 143,663 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of subscription and support revenue | 16,406 | 15,735 | 46,840 | 50,290 | ||||||||||||
Cost of professional services and other revenue | 2,247 | 2,363 | 8,205 | 6,349 | ||||||||||||
Total cost of revenue | 18,653 | 18,098 | 55,045 | 56,639 | ||||||||||||
Gross profit | 33,510 | 30,986 | 103,407 | 87,024 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 7,902 | 8,215 | 24,041 | 26,199 | ||||||||||||
Sales and marketing | 18,451 | 14,813 | 52,730 | 42,370 | ||||||||||||
General and administrative | 7,345 | 6,694 | 21,822 | 19,633 | ||||||||||||
Merger-related | 45 | 0 | 300 | 5,768 | ||||||||||||
Other (benefit) expense | — | — | (1,965 | ) | — | |||||||||||
Total operating expenses | 33,743 | 29,722 | 96,928 | 93,970 | ||||||||||||
(Loss) income from operations | (233 | ) | 1,264 | 6,479 | (6,946 | ) | ||||||||||
Other (expense) income, net | (319 | ) | 204 | (937 | ) | (291 | ) | |||||||||
(Loss) income before income taxes | (552 | ) | 1,468 | 5,542 | (7,237 | ) | ||||||||||
Provision for income taxes | 468 | 154 | 562 | 597 | ||||||||||||
Net (loss) income | $ | (1,020 | ) | $ | 1,314 | $ | 4,980 | $ | (7,834 | ) | ||||||
Net (loss) income per share—basic and diluted | ||||||||||||||||
Basic | $ | (0.02 | ) | $ | 0.03 | $ | 0.12 | $ | (0.20 | ) | ||||||
Diluted | $ | (0.02 | ) | $ | 0.03 | $ | 0.12 | $ | (0.20 | ) | ||||||
Weighted-average shares—basic and diluted | ||||||||||||||||
Basic | 40,934,689 | 39,682,337 | 40,570,817 | 39,319,703 | ||||||||||||
Diluted | 40,934,689 | 40,645,982 | 42,237,438 | 39,319,703 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands, except share and per share data) |
| |||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Subscription and support revenue |
| $ | 52,988 |
|
| $ | 48,602 |
|
| $ | 104,589 |
|
| $ | 99,441 |
|
Professional services and other revenue |
|
| 1,459 |
|
|
| 2,870 |
|
|
| 3,237 |
|
|
| 6,848 |
|
Total revenue |
|
| 54,447 |
|
|
| 51,472 |
|
|
| 107,826 |
|
|
| 106,289 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of subscription and support revenue |
|
| 16,943 |
|
|
| 14,756 |
|
|
| 33,925 |
|
|
| 30,434 |
|
Cost of professional services and other revenue |
|
| 1,761 |
|
|
| 2,468 |
|
|
| 3,759 |
|
|
| 5,958 |
|
Total cost of revenue |
|
| 18,704 |
|
|
| 17,224 |
|
|
| 37,684 |
|
|
| 36,392 |
|
Gross profit |
|
| 35,743 |
|
|
| 34,248 |
|
|
| 70,142 |
|
|
| 69,897 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 8,372 |
|
|
| 7,855 |
|
|
| 16,609 |
|
|
| 16,139 |
|
Sales and marketing |
|
| 17,961 |
|
|
| 18,130 |
|
|
| 36,249 |
|
|
| 34,279 |
|
General and administrative |
|
| 8,554 |
|
|
| 7,418 |
|
|
| 16,643 |
|
|
| 14,477 |
|
Merger-related |
|
| 153 |
|
|
| 255 |
|
|
| 747 |
|
|
| 255 |
|
Other expense (benefit) |
|
| 0 |
|
|
| 0 |
|
|
| 1,149 |
|
|
| (1,965 | ) |
Total operating expenses |
|
| 35,040 |
|
|
| 33,658 |
|
|
| 71,397 |
|
|
| 63,185 |
|
Income (loss) from operations |
|
| 703 |
|
|
| 590 |
|
|
| (1,255 | ) |
|
| 6,712 |
|
Other (expense) income, net |
|
| (825 | ) |
|
| 117 |
|
|
| (1,212 | ) |
|
| (618 | ) |
(Loss) income before income taxes |
|
| (122 | ) |
|
| 707 |
|
|
| (2,467 | ) |
|
| 6,094 |
|
Provision (benefit) for income taxes |
|
| 179 |
|
|
| (163 | ) |
|
| (529 | ) |
|
| 94 |
|
Net (loss) income |
| $ | (301 | ) |
| $ | 870 |
|
| $ | (1,938 | ) |
| $ | 6,000 |
|
Net (loss) income per share—basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.01 | ) |
| $ | 0.02 |
|
| $ | (0.05 | ) |
| $ | 0.15 |
|
Diluted |
| $ | (0.01 | ) |
| $ | 0.02 |
|
| $ | (0.05 | ) |
| $ | 0.14 |
|
Weighted-average shares—basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 41,723 |
|
|
| 40,615 |
|
|
| 41,580 |
|
|
| 40,386 |
|
Diluted |
|
| 41,723 |
|
|
| 42,209 |
|
|
| 41,580 |
|
|
| 42,391 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Brightcove Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands) | ||||||||||||||||
Net (loss) income | $ | (1,020 | ) | $ | 1,314 | $ | 4,980 | $ | (7,834 | ) | ||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments | (238 | ) | 345 | (412 | ) | 44 | ||||||||||
Comprehensive (loss) income | $ | (1,258 | ) | $ | 1,659 | $ | 4,568 | $ | (7,790 | ) | ||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net (loss) income |
| $ | (301 | ) |
| $ | 870 |
|
| $ | (1,938 | ) |
| $ | 6,000 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
| (857 | ) |
|
| 35 |
|
|
| (1,100 | ) |
|
| (174 | ) |
Comprehensive (loss) income |
| $ | (1,158 | ) |
| $ | 905 |
|
| $ | (3,038 | ) |
| $ | 5,826 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Brightcove Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands, except share data) | ||||||||||||||||
Shares of common stock issued | ||||||||||||||||
Balance, beginning of period | 40,946,572 | 39,543,991 | 40,152,021 | 39,042,787 | ||||||||||||
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units | 229,282 | 387,256 | 1,023,833 | 888,460 | ||||||||||||
Balance, end of period | 41,175,854 | 39,931,247 | 41,175,854 | 39,931,247 | ||||||||||||
Shares of treasury stock | ||||||||||||||||
Balance, beginning of period | (135,000 | ) | (135,000 | ) | (135,000 | ) | (135,000 | ) | ||||||||
Balance, end of period | (135,000 | ) | (135,000 | ) | (135,000 | ) | (135,000 | ) | ||||||||
Par value of common stock issued | ||||||||||||||||
Balance, beginning of period | $ | 41 | $ | 39 | $ | 41 | $ | 39 | ||||||||
Issuance of common stock upon exercise of stock options | 0 | 0 | 0 | 0 | ||||||||||||
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units | 0 | 1 | 0 | 1 | ||||||||||||
Balance, end of period | $ | 41 | $ | 40 | $ | 41 | $ | 40 | ||||||||
Value of treasury stock | ||||||||||||||||
Balance, beginning of period | $ | (871 | ) | $ | (871 | ) | $ | (871 | ) | $ | (871 | ) | ||||
Balance, end of period | $ | (871 | ) | $ | (871 | ) | $ | (871 | ) | $ | (871 | ) | ||||
Additional paid-in capital | ||||||||||||||||
Balance, beginning of period | $ | 292,775 | $ | 281,255 | $ | 287,059 | $ | 276,365 | ||||||||
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units, net of tax | 194 | 794 | 825 | 792 | ||||||||||||
Stock-based compensation expense | 2,495 | 2,072 | 7,580 | 6,964 | ||||||||||||
Balance, end of period | $ | 295,464 | $ | 284,121 | $ | 295,464 | $ | 284,121 | ||||||||
Accumulated deficit | ||||||||||||||||
Balance, beginning of period | $ | (200,438 | ) | $ | (209,773 | ) | $ | (206,438 | ) | $ | (200,625 | ) | ||||
Net income (loss) | (1,020 | ) | 1,314 | 4,980 | (7,834 | ) | ||||||||||
Balance, end of period | $ | (201,458 | ) | $ | (208,459 | ) | $ | (201,458 | ) | $ | (208,459 | ) | ||||
Accumulated other comprehensive loss | ||||||||||||||||
Balance, beginning of period | $ | (362 | ) | $ | (1,086 | ) | $ | (188 | ) | $ | (785 | ) | ||||
Foreign currency translation adjustment | (238 | ) | 345 | (412 | ) | 44 | ||||||||||
Balance, end of period | $ | (600 | ) | $ | (741 | ) | $ | (600 | ) | $ | (741 | ) | ||||
Total stockholders’ equity | $ | 92,576 | $ | 74,090 | $ | 92,576 | $ | 74,090 | ||||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands, except share data) |
| |||||||||||||
Shares of common stock issued |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
|
| 41,685,163 |
|
|
| 40,412,577 |
|
|
| 41,384,643 |
|
|
| 40,152,021 |
|
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units |
|
| 344,412 |
|
|
| 533,995 |
|
|
| 644,932 |
|
|
| 794,551 |
|
Balance, end of period |
|
| 42,029,575 |
|
|
| 40,946,572 |
|
|
| 42,029,575 |
|
|
| 40,946,572 |
|
Shares of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
|
| (135,000 | ) |
|
| (135,000 | ) |
|
| (135,000 | ) |
|
| (135,000 | ) |
Balance, end of period |
|
| (135,000 | ) |
|
| (135,000 | ) |
|
| (135,000 | ) |
|
| (135,000 | ) |
Par value of common stock issued |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | 42 |
|
| $ | 40 |
|
| $ | 41 |
|
| $ | 41 |
|
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Common stock issued upon acquisition |
|
|
|
|
| 1 |
|
|
| 1 |
|
|
| 0 |
| |
Balance, end of period |
| $ | 42 |
|
| $ | 41 |
|
| $ | 42 |
|
| $ | 41 |
|
Value of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | (871 | ) |
| $ | (871 | ) |
| $ | (871 | ) |
| $ | (871 | ) |
Balance, end of period |
| $ | (871 | ) |
| $ | (871 | ) |
| $ | (871 | ) |
| $ | (871 | ) |
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | 304,506 |
|
| $ | 290,403 |
|
| $ | 298,793 |
|
| $ | 287,059 |
|
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units, net of tax |
|
| (1 | ) |
|
| (378 | ) |
|
| 99 |
|
|
| 631 |
|
Stock-based compensation expense |
|
| 3,809 |
|
|
| 2,750 |
|
|
| 7,435 |
|
|
| 5,085 |
|
Withholding tax on restricted stock |
|
| (7 | ) |
|
| 0 |
|
|
| (7 | ) |
|
| 0 |
|
Common stock issued upon acquisition |
|
| 0 |
|
|
| 0 |
|
|
| 1,987 |
|
|
| 0 |
|
Balance, end of period |
| $ | 308,307 |
|
| $ | 292,775 |
|
| $ | 308,307 |
|
| $ | 292,775 |
|
Accumulated deficit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | (202,678 | ) |
| $ | (201,308 | ) |
| $ | (201,041 | ) |
| $ | (206,438 | ) |
Net (loss) income |
|
| (301 | ) |
|
| 870 |
|
|
| (1,938 | ) |
|
| 6,000 |
|
Balance, end of period |
| $ | (202,979 | ) |
| $ | (200,438 | ) |
| $ | (202,979 | ) |
| $ | (200,438 | ) |
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | (905 | ) |
| $ | (397 | ) |
| $ | (662 | ) |
| $ | (188 | ) |
Foreign currency translation adjustment |
|
| (857 | ) |
|
| 35 |
|
|
| (1,100 | ) |
|
| (174 | ) |
Balance, end of period |
| $ | (1,762 | ) |
| $ | (362 | ) |
| $ | (1,762 | ) |
| $ | (362 | ) |
Total stockholders’ equity |
| $ | 102,737 |
|
| $ | 91,145 |
|
| $ | 102,737 |
|
| $ | 91,145 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Operating activities | ||||||||
Net income (loss) | $ | 4,980 | $ | (7,834 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 6,284 | 6,497 | ||||||
Stock-based compensation | 7,234 | 6,724 | ||||||
Provision for reserves on accounts receivable | 246 | 461 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 710 | (1,433 | ) | |||||
Prepaid expenses and other current assets | (914 | ) | (6,414 | ) | ||||
Other assets | (1,273 | ) | (1,247 | ) | ||||
Accounts payable | 79 | 104 | ||||||
Accrued expenses | (4,402 | ) | 3,410 | |||||
Operating leases | (903 | ) | (13 | ) | ||||
Deferred revenue | 2,707 | 8,667 | ||||||
Net cash provided by operating activities | 14,748 | 8,922 | ||||||
Investing activities | ||||||||
Purchases of property and equipment | (1,625 | ) | (2,163 | ) | ||||
Capitalized internal-use software costs | (4,657 | ) | (5,108 | ) | ||||
Net cash used in investing activities | (6,282 | ) | (7,271 | ) | ||||
Financing activities | ||||||||
Proceeds from exercise of stock options | 2,200 | 1,207 | ||||||
Deferred acquisition payments | (475 | ) | — | |||||
Proceeds from debt | — | 10,000 | ||||||
Debt paydown | — | (5,000 | ) | |||||
Other financing activities | (1,375 | ) | (448 | ) | ||||
Net cash provided by financing activities | 350 | 5,759 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (1,003 | ) | 163 | |||||
Net increase in cash and cash equivalents | 7,813 | 7,573 | ||||||
Cash and cash equivalents at beginning of period | 37,472 | 22,759 | ||||||
Cash and cash equivalents at end of period | $ | 45,285 | $ | 30,332 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for operating lease liabilities | $ | 3,505 | $ | 5,087 | ||||
Cash paid for income taxes | $ | 681 | $ | 993 | ||||
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Operating activities |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (1,938 | ) |
| $ | 6,000 |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 4,227 |
|
|
| 4,278 |
|
Stock-based compensation |
|
| 7,123 |
|
|
| 4,901 |
|
Provision for reserves on accounts receivable |
| 70 |
|
|
| 276 |
| |
Changes in assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (2,394 | ) |
|
| (2,634 | ) |
Prepaid expenses and other current assets |
|
| (2,612 | ) |
|
| (1,337 | ) |
Other assets |
|
| 161 |
|
|
| (1,000 | ) |
Accounts payable |
|
| (834 | ) |
|
| 105 |
|
Accrued expenses |
|
| (1,183 | ) |
|
| (6,053 | ) |
Operating leases |
|
| 4,007 |
|
|
| (960 | ) |
Deferred revenue |
|
| 2,630 |
|
|
| 3,801 |
|
Net cash provided by operating activities |
|
| 9,257 |
|
|
| 7,377 |
|
Investing activities |
|
|
|
|
|
| ||
Cash paid for acquisition, net of cash acquired |
|
| (13,215 | ) |
|
| 0 |
|
Purchases of property and equipment |
|
| (5,791 | ) |
|
| (808 | ) |
Capitalized internal-use software costs |
|
| (6,479 | ) |
|
| (2,977 | ) |
Net cash used in investing activities |
|
| (25,485 | ) |
|
| (3,785 | ) |
Financing activities |
|
|
|
|
|
| ||
Proceeds from exercise of stock options |
|
| 100 |
|
|
| 1,980 |
|
Deferred acquisition payments |
|
| 0 |
|
|
| (475 | ) |
Other financing activities |
|
| (7 | ) |
|
| (1,348 | ) |
Net cash provided by financing activities |
|
| 93 |
|
|
| 157 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (1,800 | ) |
|
| (834 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (17,935 | ) |
|
| 2,915 |
|
Cash and cash equivalents at beginning of period |
|
| 45,739 |
|
|
| 37,472 |
|
Cash and cash equivalents at end of period |
| $ | 27,804 |
|
| $ | 40,387 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
Cash paid for operating lease liabilities |
| $ | 1,270 |
|
| $ | 3,165 |
|
Cash received for lease inducement |
| $ | 2,772 |
|
| $ | 0 |
|
Cash paid for income taxes |
| $ | 275 |
|
| $ | 471 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Brightcove Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data, unless otherwise noted)
1. Business Description and Basisof 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 together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form2020.
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, 20202021 contained in the Company’s Annual Report on FormSeptemberJune 30, 20212022 and 2020.2021. 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 |
| |
|
| (in thousands) |
| |
Balance as of December 31, 2021 |
| $ | 353 |
|
Current provision for credit losses |
|
| 70 |
|
Write-offs against allowance |
|
| (124 | ) |
Balance as of June 30, 2022 |
| $ | 299 |
|
Allowance for Credit Losses | ||||
(in thousands) | ||||
Balance as of December 31, 2020 | $ | 648 | ||
Current provision for credit losses | 303 | |||
Write-offs against allowance | (451 | ) | ||
Recoveries | (57 | ) | ||
Balance as of September 30, 2021 | $ | 443 | ||
Estimated credit losses for unbilled trade accounts receivable were not material.
Other Expense (Benefit) Expense
Other expense (benefit) expense,, reflects other operating costs (or benefits) that do not directly relate to research and development, sales and marketing, general and administrative, and merger related.
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“CARES Act”"CARES Act"). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain refundable employee
9
retention credits. In the first quarter of 2021, the Company recognized a benefit of $1,965$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, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10,Government Assistance (Topic 740)832): SimplifyingDisclosure by Business Entities about Government Assistance, which improves the Accountingtransparency of government assistance received by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for Income Taxes
In December 2019,October 2021, the FASB issued ASU2019-12,“Income Taxes 2021-08, Business Combinations (Topic 740)805): Simplifying the Accounting for Income Taxes.”Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU2019-12amends ASC 740 to simplify 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). The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. Effective January 1, 2022, the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations and interim calculations, and adding guidance to reduce complexity in the accounting standard under the FASB’s simplification initiative. Upon adoption, the amendments in
Company early adopted ASU2019-12are applied 2021-08 on a prospective basis to all periods presented.basis. The Company adoptedimpact of adoption of this standard on the new guidance under ASUCompany’s consolidated financial statements was not 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
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 June 30, 2022 |
|
| 32,567 |
|
|
| 2,006 |
|
|
| 64,567 |
|
|
| 285 |
|
|
| 64,852 |
|
Accounts Receivable, | Contract (current) | Deferred Revenue (current) | Deferred Revenue (non- current) | Total Deferred Revenue | ||||||||||||||||
Balance at December 31, 2020 | $ | 29,305 | $ | 2,078 | $ | 58,741 | $ | 811 | $ | 59,552 | ||||||||||
Balance at September 30, 2021 | 28,138 | 2,311 | 61,739 | 50 | 61,789 |
Revenue recognized for the three and ninesix months ended SeptemberJune 30, 20212022 from amounts included in deferred revenue at the beginning of the period was approximately $8.2$15.3 million and $54.9$48.1 million respectively. During the three and ninesix months ended SeptemberJune 30, 2021,2022, 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 $12.0$11.9 million as of SeptemberJune 30, 20212022 and $13.3$12.2 million as of December 31, 2020.2021. Amortization expense recognized for the three and ninesix months ended SeptemberJune 30, 2022 related to costs to obtain a contract was $2.6 million and $5.1 million, respectively. Amortization expense recognized for the three and six months ended June 30, 2021 related to costs to obtain a contract was $3.3$3.2 million and $9.6$6.3 million, respectively. Amortization expense recognized for the three and nine months ended September 30, 2020 related to costs to obtain a contract was $2.0 million and $5.5 million, respectively.
Transaction Price Allocated to Future Performance Obligations
As of SeptemberJune 30, 2021,2022, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $148.6$151.9 million, of which approximately $115.0$121.6 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.
10
4. Cash and Cash Equivalents
Cash and cash equivalents as of SeptemberJune 30, 20212022 consist of the following:
|
| June 30, 2022 |
| |||||||
Description |
| Contracted |
| Cost |
|
| Fair Market |
| ||
|
| (in thousands) |
| |||||||
Cash |
| Demand |
| $ | 27,763 |
|
| $ | 27,763 |
|
Money market funds |
| Demand |
|
| 41 |
|
|
| 41 |
|
Total cash and cash equivalents |
|
|
| $ | 27,804 |
|
| $ | 27,804 |
|
September 30, 2021 | ||||||||||||
Description | Contracted Maturity | Cost | Fair Market Value | |||||||||
Cash | Demand | $ | 45,244 | $ | 45,244 | |||||||
Money market funds | Demand | 41 | 41 | |||||||||
Total cash and cash equivalents | $ | 45,285 | $ | 45,285 | ||||||||
Cash and cash equivalents as of December 31, 20202021 consist of the following:
|
| December 31, 2021 |
| |||||||
Description |
| Contracted |
| Cost |
|
| Fair Market |
| ||
|
| (in thousands) |
| |||||||
Cash |
| Demand |
| $ | 45,698 |
|
| $ | 45,698 |
|
Money market funds |
| Demand |
|
| 41 |
|
|
| 41 |
|
Total cash and cash equivalents |
|
|
| $ | 45,739 |
|
| $ | 45,739 |
|
December 31, 2020 | ||||||||||||
Description | Contracted Maturity | Cost | Fair Market Value | |||||||||
Cash | Demand | $ | 37,431 | $ | 37,431 | |||||||
Money market funds | Demand | 41 | 41 | |||||||||
Total cash and cash equivalents | $ | 37,472 | $ | 37,472 | ||||||||
5. Net (Loss) EarningsIncome per Share
The Company calculates basic and diluted (loss) earnings (loss) per common share by dividing the (loss) earnings (loss) amount by the number of common shares outstanding during the period. The calculation of diluted earnings per common share includes the effects of the assumed exercise of any outstanding stock options and the assumed vesting of shares of restricted stock awards, where dilutive.
The following table set forth the computations of basic and diluted (loss) earnings per share:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net (loss) income |
| $ | (301 | ) |
| $ | 870 |
|
| $ | (1,938 | ) |
| $ | 6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares used in computing basic earnings per share |
|
| 41,723 |
|
|
| 40,615 |
|
|
| 41,580 |
|
|
| 40,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of weighted average dilutive stock-based awards |
|
| 0 |
|
|
| 1,594 |
|
|
| 0 |
|
|
| 2,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares used in computing diluted earnings per share |
|
| 41,723 |
|
|
| 42,209 |
|
|
| 41,580 |
|
|
| 42,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income per share—basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.01 | ) |
| $ | 0.02 |
|
| $ | (0.05 | ) |
| $ | 0.15 |
|
Diluted |
| $ | (0.01 | ) |
| $ | 0.02 |
|
| $ | (0.05 | ) |
| $ | 0.14 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Net (loss) income | $ | (1,020 | ) | $ | 1,314 | $ | 4,980 | $ | (7,834 | ) | ||||||
Weighted average shares used in computing basic earnings per share | 40,934,689 | 39,682,337 | 40,570,817 | 39,319,703 | ||||||||||||
Effect of weighted average dilutive stock-based awards | 0 | 963,645 | 1,666,621 | 0 | ||||||||||||
Weighted average shares used in computing diluted earnings per share | 40,934,689 | 40,645,982 | 42,237,438 | 39,319,703 | ||||||||||||
Net (loss) income per share—basic and diluted | ||||||||||||||||
Basic | $ | (0.02 | ) | $ | 0.03 | $ | 0.12 | $ | (0.20 | ) | ||||||
Diluted | $ | (0.02 | ) | $ | 0.03 | $ | 0.12 | $ | (0.20 | ) |
The following outstanding common shares have been excluded from the computation of dilutive (loss) earnings per share as of the periods indicated because such securities are anti-dilutive:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(shares in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Options outstanding |
|
| 1,548 |
|
|
| 145 |
|
|
| 1,548 |
|
|
| 122 |
|
Restricted stock units outstanding |
|
| 5,892 |
|
|
| 68 |
|
|
| 5,892 |
|
|
| 68 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(shares in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Options outstanding | 1,803 | 1,570 | 147 | 2,234 | ||||||||||||
Restricted stock units outstanding | 3,185 | 155 | 56 | 3,264 |
6. Stock-based Compensation
On March 28, 2022, Marc DeBevoise began as the Company’s CEO. Effective February 8, 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
11
“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.
The weighted-average assumptions utilized to determine the weighted-average fair value of options are presented in the following table:
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Weighted-average fair value of options granted during the period |
| $ | 0 |
|
| $ | 7.72 |
|
Risk-free interest rate |
|
| 0 |
|
|
| 1.16 | % |
Expected volatility |
|
| 0 |
|
|
| 48 | % |
Expected life (in years) |
|
| — |
|
|
| 6.2 |
|
Expected dividend yield |
|
| 0 |
|
|
| 0 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Weighted-average fair value of options granted during the period | $ | 6.29 | $ | 4.86 | $ | 7.51 | $ | 4.01 | ||||||||
Risk-free interest rate | 1.14 | % | 0.33 | % | 1.16 | % | 0.76 | % | ||||||||
Expected volatility | 48 | % | 47 | % | 48 | % | 46 | % | ||||||||
Expected life (in years) | 6.2 | 5.9 | 6.2 | 6.1 | ||||||||||||
Expected dividend yield | 0 | 0 | 0 | 0 |
As of SeptemberJune 30, 2021,2022, there was $23.6$39 million of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.282.74 years. The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three and six months ended SeptemberJune 30, 20212022 and 2020:2021:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
| |||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of subscription and support revenue |
| $ | 144 |
|
| $ | 187 |
|
| $ | 253 |
|
| $ | 344 |
|
Cost of professional services and other revenue |
|
| 139 |
|
|
| 118 |
|
|
| 258 |
|
|
| 186 |
|
Research and development |
|
| 935 |
|
|
| 531 |
|
|
| 1,657 |
|
|
| 853 |
|
Sales and marketing |
|
| 899 |
|
|
| 762 |
|
|
| 1,842 |
|
|
| 1,499 |
|
General and administrative |
|
| 1,527 |
|
|
| 1,011 |
|
|
| 2,864 |
|
|
| 2,019 |
|
Other expense (benefit) |
|
| - |
|
|
| — |
|
|
| 249 |
|
|
| 0 |
|
|
| $ | 3,644 |
|
| $ | 2,609 |
|
| $ | 7,123 |
|
| $ | 4,901 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Stock-based compensation: | ||||||||||||||||
Cost of subscription and support revenue | $ | 157 | $ | 139 | $ | 501 | $ | 452 | ||||||||
Cost of professional services and other revenue | 113 | 63 | 299 | 233 | ||||||||||||
Research and development | 408 | 142 | 1,261 | 839 | ||||||||||||
Sales and marketing | 583 | 768 | 2,082 | 2,440 | ||||||||||||
General and administrative | 1,072 | 896 | 3,091 | 2,760 | ||||||||||||
$ | 2,333 | $ | 2,008 | $ | 7,234 | $ | 6,724 | |||||||||
The following is a summary of the stock option activity during the ninesix months ended SeptemberJune 30, 2021.
Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (In Years) | Aggregate Intrinsic Value (1) | |||||||||||||
Outstanding at December 31, 2020 | 2,110,486 | $ | 9.19 | |||||||||||||
Granted | 92,905 | 16.05 | ||||||||||||||
Exercised | (254,502 | ) | 8.65 | $ | 2,724 | |||||||||||
Canceled | (145,930 | ) | 10.17 | |||||||||||||
Outstanding at September 30, 2021 | 1,802,959 | $ | 9.56 | 5.94 | $ | 4,177 | ||||||||||
Exercisable at September 30, 2021 | 1,313,116 | $ | 8.96 | 5.23 | $ | 3,522 | ||||||||||
|
| Number of |
|
| Weighted-Average |
|
| Weighted-Average |
|
| Aggregate |
| ||||
Outstanding at December 31, 2021 |
|
| 1,681,477 |
|
| $ | 9.59 |
|
|
|
|
|
|
| ||
Granted |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
| ||
Exercised |
|
| (15,900 | ) |
|
| 6.31 |
|
|
|
|
| $ | 33,483 |
| |
Canceled |
|
| (117,286 | ) |
|
| 12.11 |
|
|
|
|
|
|
| ||
Outstanding at June 30, 2022 |
|
| 1,548,291 |
|
| $ | 9.42 |
|
|
| 5.28 |
|
| $ | 82,101 |
|
Exercisable at June 30, 2022 |
|
| 1,350,807 |
|
| $ | 9.08 |
|
|
| 4.90 |
|
| $ | 81,296 |
|
12
The following table summarizes the restricted stock unit activity for our service-based awardsninesix months ended SeptemberJune 30, 2021:2022:
|
| S-RSU Shares |
|
| Weighted |
|
| P-RSU Shares |
|
| Weighted |
|
| Total RSU Shares |
|
| Weighted |
| ||||||
Unvested at December 31, 2021 |
|
| 2,915,720 |
|
| $ | 11.66 |
|
|
| 1,021,172 |
|
| $ | 11.04 |
|
|
| 3,936,892 |
|
| $ | 11.50 |
|
Granted |
|
| 2,755,385 |
|
|
| 7.31 |
|
|
| 500,000 |
|
|
| 8.11 |
|
|
| 3,255,385 |
|
|
| 7.43 |
|
Vested and issued |
|
| (416,525 | ) |
|
| 12.18 |
|
|
| — |
|
|
| — |
|
|
| (416,525 | ) |
|
| 12.18 |
|
Canceled |
|
| (599,184 | ) |
|
| 10.37 |
|
|
| (284,298 | ) |
|
| 12.80 |
|
|
| (883,482 | ) |
|
| 11.15 |
|
Unvested at June 30, 2022 |
|
| 4,655,396 |
|
| $ | 9.21 |
|
|
| 1,236,874 |
|
| $ | 9.46 |
|
|
| 5,892,270 |
|
| $ | 9.26 |
|
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, 2020 | 2,000,416 | $ | 10.40 | 1,587,801 | $ | 10.30 | 3,588,217 | $ | 10.35 | |||||||||||||||
Granted | 1,039,266 | 14.44 | 64,011 | 12.65 | 1,103,277 | 14.33 | ||||||||||||||||||
Vested and issued | (546,818 | ) | 9.11 | (181,910 | ) | 8.74 | (728,728 | ) | 9.01 | |||||||||||||||
Canceled | (411,567 | ) | 11.38 | (365,909 | ) | 9.50 | (777,476 | ) | 10.49 | |||||||||||||||
Unvested at September 30, 2021 | 2,081,297 | $ | 12.56 | 1,103,993 | $ | 10.97 | 3,185,290 | $ | 12.00 | |||||||||||||||
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 three months ended March 31, 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. 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 SeptemberJune 30, 2021,2022, 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.
13
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$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%4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4%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$15.0 million, the Company must also maintain a minimum net income threshold based on2023.2023. The Company was in compliance with all applicable covenants under the Line of Credit as of SeptemberJune 30, 20212022 and there were 0 borrowings outstanding as of SeptemberJune 30, 2021.2022.
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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
North America |
| $ | 30,019 |
|
| $ | 29,398 |
|
| $ | 59,480 |
|
| $ | 59,784 |
|
Europe |
|
| 10,128 |
|
|
| 9,547 |
|
|
| 19,233 |
|
|
| 18,470 |
|
Japan |
|
| 5,077 |
|
|
| 5,370 |
|
|
| 12,338 |
|
|
| 13,078 |
|
Asia Pacific |
|
| 9,060 |
|
|
| 7,016 |
|
|
| 16,496 |
|
|
| 14,675 |
|
Other |
|
| 163 |
|
|
| 141 |
|
|
| 279 |
|
|
| 282 |
|
Total revenue |
| $ | 54,447 |
|
| $ | 51,472 |
|
| $ | 107,826 |
|
| $ | 106,289 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue: | ||||||||||||||||
North America | $ | 29,420 | $ | 27,515 | $ | 89,204 | $ | 78,553 | ||||||||
Europe | 9,689 | 8,435 | 28,159 | 25,323 | ||||||||||||
Japan | 6,185 | 5,688 | 19,263 | 17,344 | ||||||||||||
Asia Pacific | 6,746 | 7,211 | 21,421 | 21,795 | ||||||||||||
Other | 123 | 235 | 405 | 648 | ||||||||||||
Total revenue | $ | 52,163 | $ | 49,084 | $ | 158,452 | $ | 143,663 | ||||||||
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $27.6$28.2 million and $25.6$27.5 million for the three months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively. Revenue from customers located in the United States was $83.6 million and $72.5 million for the nine months ended September 30, 2021 and 2020, respectively.
Other than the United States and Japan, no other country contributed more than 10%10% of the Company’s total revenue during the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
11. Business Combinations
Other Business Combinations
On February 1, 2022, the Company acquired 100% of Septemberthe 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 three months ended June 30, 20212022, the Company paid $0.1 million of cash consideration held back to the sellers for the satisfaction of certain representations and December 31, 2020, propertywarranties.
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 equipment at locations outsideintangible assets acquired and liabilities assumed based upon the U.S. was not material.
14
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 and six months ended June 30, 2022, the Company incurred $0.2 million and $0.7 million, respectively, 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 |
|
| 13,935 |
|
Deferred revenue |
|
| (1,033 | ) |
Deferred tax liabilities |
|
| (1,009 | ) |
Other liabilities |
|
| (95 | ) |
Total estimated purchase price |
| $ | 17,015 |
|
The following are the identifiable intangible assets acquired and their respective useful lives, as determined based on preliminary valuations:
|
| Amount |
|
| Useful Life |
| ||
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 six months ended June 30, 2022 were as follows:
15
Balance as of January 1, 2022 |
| $ | 60,902 |
|
Wicket acquisition |
|
| 13,935 |
|
Balance as of June 30, 2022 |
| $ | 74,837 |
|
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 Form2020.
Company Overview
We are a leading global provider of cloud-based services for video. We were incorporated in Delaware in August 2004. With our Emmy®
We sell five core video products that help our customers use video to further their businesses in meaningful ways: (1) Video Cloud, our flagship product and the world’s leading online video platform, enables our customers to quickly and easily distribute high-quality video to Internet-connected devices; (2) Brightcove Live, our industry-leading solution for live streaming, delivers high-quality viewer experiences at scale; (3) Brightcove 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, an exceptionally fast, cloud-based technology for creating and managing video experiences; and (5) Zencoder, a powerful, cloud-based video encoding technology.
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; (2) efficient publication of videos to Facebook, Twitter, and YouTube through Brightcove Social; (3) an app for creating marketing campaigns with insightful data and industry benchmarks through Brightcove Campaign; (4) simple streaming of video communications to an app through Brightcove Engage; and (5)(4) create branded video experience by accessing templates with
We have also brought to market several video solutions, which are comprised of a suite of video technologies that address specific customerand (3) Brightcove Enterprise Video Suite, provides an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos.
Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales,
As of SeptemberJune 30, 20212022 and 20202021 we had 693703 and 616670 employees, respectively.
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grewincreased from $143.7 million$106.3 in the ninesix months ended SeptemberJune 30, 20202021 to $158.5 million$107.8 in the ninesix months ended SeptemberJune 30, 2021,2022, due to an increase in subscription and support revenue. This increase was due to an increase in the average annual subscription revenue per premium customer.
Included in the consolidated net incomeloss for the ninesix months ended SeptemberJune 30, 20212022 was stock-based compensation expense and amortization of acquired intangible assets of $7.2$7.1 million and $2.3$1.6 million, respectively. Included in the consolidated net lossincome for the ninesix months ended SeptemberJune 30, 20202021 was merger-related expense, stock-based compensation expense and amortization of acquired intangible assets of $5.8$0.3 million, $6.7$4.9 million and $2.6$1.5 million, respectively.
17
For the ninethree and six months ended SeptemberJune 30, 20212022 and 2020,2021, our revenue derived from customers located outside North America was 44%45% and 45%44%, and 43% and 43%, respectively. 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.
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:
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Customers (at period end) |
|
|
|
|
|
| ||
Premium |
|
| 2,301 |
|
|
| 2,280 |
|
Volume |
|
| 636 |
|
|
| 983 |
|
Total customers (at period end) |
|
| 2,937 |
|
|
| 3,263 |
|
Net revenue retention rate |
|
| 96.4 | % |
|
| 98.2 | % |
Recurring dollar retention rate |
|
| 87.5 | % |
|
| 86.0 | % |
Average annual subscription revenue per premium customer, |
| $ | 96.6 |
|
| $ | 94.4 |
|
Average annual subscription revenue per premium customer |
| $ | 4.2 |
|
| $ | 4.5 |
|
Total backlog, excluding professional services engagements (in millions) |
| $ | 151.9 |
|
| $ | 152.8 |
|
Total backlog to be recognized over next 12 months, excluding |
| $ | 121.6 |
|
| $ | 119.8 |
|
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Customers (at period end) | ||||||||
Premium | 2,265 | 2,267 | ||||||
Volume | 940 | 1,114 | ||||||
Total customers (at period end) | 3,205 | 3,381 | ||||||
Net revenue retention rate | 97.1 | % | 93.8 | % | ||||
Recurring dollar retention rate | 88 | % | 88 | % | ||||
Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands) | $ | 93.9 | $ | 87.3 | ||||
Average annual subscription revenue per premium customer for Starter edition customers only (in thousands) | $ | 4.6 | $ | 4.5 | ||||
Total backlog, excluding professional services engagements (in millions) | $ | 148.6 | $ | 144.2 | ||||
Total backlog to be recognized over next 12 months, excluding professional services engagements (in millions) | $ | 115.0 | $ | 109.6 |
Our20212022 and beyond as we continue to focus on the market for our premium solutions.
18
COVID-19
While the implicationsfuture trends ofplan tohave not experienced a significant disruption during the pandemic. We will continue to make investmentsmonitor COVID-19’s effect on our employees, customers, vendors 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 to support business growth.the invasion, the U.S. and other countries imposed economic sanctions against officials, individuals, regions, and industries in Russia, Ukraine and Belarus. We believe that the growthdo not have operations or customers in Russia or Ukraine and none of our business is dependent on many factors, including our abilitymaterial vendors source their services to expand our customer base, increase adoption of our product offerings within existing customers, develop new products and applications to extend the functionality of our products and provide a high level of customer service.us from Russia or Ukraine. We expect to invest in sales and marketing to support customer growth. We also expect to invest in research and development as wewill continue to introduce new productsmonitor the situation and applications to extendcomply with any sanctions and restrictions imposed by the functionality of our products. We intend to maintain a high level of customer service and support which we consider critical for our continued success. We also expect to continue to incur general and administrative expenses to support our business and to maintain the infrastructure required to be a public company. We expect to use our cash flow from operations and, if necessary, our credit facility to fund operations.
Components of Consolidated Statements of Operations
Revenue
Subscription and Support Revenue
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
Virtual Events Experience, Brightcove Live and Brightcove Player are offered to customers on a subscription basis. Customer arrangements are
Zencoder is offered to customers on a subscription basis, with either committed contracts or
19
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
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
All Brightcove Beacon, Brightcove CorpTV™, OTT Flow, Brightcove Campaign, Brightcove Live, SSAI, Player, Virtual Events Experience, Video Marketing Suite, and Enterprise Video Suite customers are considered premium customers.
Professional Services and Other Revenue
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
Cost of revenue increased in absolute dollars from the first ninesix months of 20202021 to the first ninesix months of 2021.2022. 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
20
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
General and Administrative
Merger-related
Other Expense (Benefit) Expense
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, 2020.2021. We maintain net deferred tax liabilities for temporary differences related to our Japanese subsidiary.
During the six months ended June 30, 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 SeptemberJune 30, 20212022 and 2020,2021, we recorded $2.3$3.6 million and $2.0$2.6 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
21
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 six months ended June 30, 2022, the U.S. dollar increased in value as compared to the foreign currencies in which we conduct business, and our foreign currency-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.
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.
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 Form2020,2021, which we filed with the Securities and Exchange Commission on February 24, 2021.
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
22
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 Form2020.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Revenue: | ||||||||||||||||
Subscription and support revenue | $ | 49,226 | $ | 46,338 | $ | 148,667 | $ | 136,613 | ||||||||
Professional services and other revenue | 2,937 | 2,746 | 9,785 | 7,050 | ||||||||||||
Total revenue | 52,163 | 49,084 | 158,452 | 143,663 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of subscription and support revenue | 16,406 | 15,735 | 46,840 | 50,290 | ||||||||||||
Cost of professional services and other revenue | 2,247 | 2,363 | 8,205 | 6,349 | ||||||||||||
Total cost of revenue | 18,653 | 18,098 | 55,045 | 56,639 | ||||||||||||
Gross profit | 33,510 | 30,986 | 103,407 | 87,024 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 7,902 | 8,215 | 24,041 | 26,199 | ||||||||||||
Sales and marketing | 18,451 | 14,813 | 52,730 | 42,370 | ||||||||||||
General and administrative | 7,345 | 6,694 | 21,822 | 19,633 | ||||||||||||
Merger-related | 45 | — | 300 | 5,768 | ||||||||||||
Other (benefit) expense | — | — | (1,965 | ) | — | |||||||||||
Total operating expenses | 33,743 | 29,722 | 96,928 | 93,970 | ||||||||||||
(Loss) income from operations | (233 | ) | 1,264 | 6,479 | (6,946 | ) | ||||||||||
Other (expense) income, net | (319 | ) | 204 | (937 | ) | (291 | ) | |||||||||
(Loss) income before income taxes | (552 | ) | 1,468 | 5,542 | (7,237 | ) | ||||||||||
Provision for income taxes | 468 | 154 | 562 | 597 | ||||||||||||
Net (loss) income | $ | (1,020 | ) | $ | 1,314 | $ | 4,980 | $ | (7,834 | ) | ||||||
Net (loss) income per share—basic and diluted | ||||||||||||||||
Basic | $ | (0.02 | ) | $ | 0.03 | $ | 0.12 | $ | (0.20 | ) | ||||||
Diluted | $ | (0.02 | ) | $ | 0.03 | $ | 0.12 | $ | (0.20 | ) | ||||||
Weighted-average shares—basic and diluted | ||||||||||||||||
Basic | 40,934,689 | 39,682,337 | 40,570,817 | 39,319,703 | ||||||||||||
Diluted | 40,934,689 | 40,645,982 | 42,237,438 | 39,319,703 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands, except share and per share data) |
| |||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Subscription and support revenue |
| $ | 52,988 |
|
| $ | 48,602 |
|
| $ | 104,589 |
|
| $ | 99,441 |
|
Professional services and other revenue |
|
| 1,459 |
|
|
| 2,870 |
|
|
| 3,237 |
|
|
| 6,848 |
|
Total revenue |
|
| 54,447 |
|
|
| 51,472 |
|
|
| 107,826 |
|
|
| 106,289 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of subscription and support revenue |
|
| 16,943 |
|
|
| 14,756 |
|
|
| 33,925 |
|
|
| 30,434 |
|
Cost of professional services and other revenue |
|
| 1,761 |
|
|
| 2,468 |
|
|
| 3,759 |
|
|
| 5,958 |
|
Total cost of revenue |
|
| 18,704 |
|
|
| 17,224 |
|
|
| 37,684 |
|
|
| 36,392 |
|
Gross profit |
|
| 35,743 |
|
|
| 34,248 |
|
|
| 70,142 |
|
|
| 69,897 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 8,372 |
|
|
| 7,855 |
|
|
| 16,609 |
|
|
| 16,139 |
|
Sales and marketing |
|
| 17,961 |
|
|
| 18,130 |
|
|
| 36,249 |
|
|
| 34,279 |
|
General and administrative |
|
| 8,554 |
|
|
| 7,418 |
|
|
| 16,643 |
|
|
| 14,477 |
|
Merger-related |
|
| 153 |
|
|
| 255 |
|
|
| 747 |
|
|
| 255 |
|
Other expense (benefit) |
|
| — |
|
|
| — |
|
|
| 1,149 |
|
|
| (1,965 | ) |
Total operating expenses |
|
| 35,040 |
|
|
| 33,658 |
|
|
| 71,397 |
|
|
| 63,185 |
|
Income (loss) from operations |
|
| 703 |
|
|
| 590 |
|
|
| (1,255 | ) |
|
| 6,712 |
|
Other (expense) income, net |
|
| (825 | ) |
|
| 117 |
|
|
| (1,212 | ) |
|
| (618 | ) |
(Loss) income before income taxes |
|
| (122 | ) |
|
| 707 |
|
|
| (2,467 | ) |
|
| 6,094 |
|
Provision (benefit) for income taxes |
|
| 179 |
|
|
| (163 | ) |
|
| (529 | ) |
|
| 94 |
|
Net (loss) income |
| $ | (301 | ) |
| $ | 870 |
|
| $ | (1,938 | ) |
| $ | 6,000 |
|
Net (loss) income per share—basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.01 | ) |
| $ | 0.02 |
|
| $ | (0.05 | ) |
| $ | 0.15 |
|
Diluted |
| $ | (0.01 | ) |
| $ | 0.02 |
|
| $ | (0.05 | ) |
| $ | 0.14 |
|
Weighted-average shares—basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 41,723 |
|
|
| 40,615 |
|
|
| 41,580 |
|
|
| 40,386 |
|
Diluted |
|
| 41,723 |
|
|
| 42,209 |
|
|
| 41,580 |
|
|
| 42,391 |
|
Overview of Results of Operations for the Three Months Ended SeptemberJune 30, 20212022 and 2020
Total revenue increased by 6%, or $3.1$3.0 million, in the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 20202021 due to an increase in subscription and support revenue of 6%,9% or $2.9$4.4 million, primarily due to an increase in revenue from our premium offerings. The increase in revenue from our premium offerings was due to an increase in the average annual subscription revenue per premium customer of 6.9%.and an increase in usage-based fees. Professional services and other revenue also increaseddecreased by 7%49% or $191.$1.4 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. In addition, ourOur revenue from premium offerings grewincreased by $3.3 million, or 7%, in the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 2020.2021. 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 three months ended June 30, 2022 would have been approximately $56.2 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of $634 and Euro of $687. 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 by $2.5$1.5 million, or 8%4%, in the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 2020,2021, primarily due to an increase in revenuesubscription and our transition of acquired Ooyala customers to our technology during 2020, which resulted in reduced costs.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.
Income from operations was $0.2$0.7 million in the three months ended SeptemberJune 30, 20212022 compared to a lossincome from operations of $1.3$0.6 million in the three months ended SeptemberJune 30, 2020.2021. This is primarily due to an increase in revenue of $3.1$3.0 million and thean improvement
23
of gross profit on subscription and support revenue in the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 2020.
Revenue
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenue by Product Line | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Premium | $ | 51,466 | 99 | % | $ | 48,175 | 98 | % | $ | 3,291 | 7 | % | ||||||||||||
Volume | 697 | 1 | 909 | 2 | (212 | ) | (23 | ) | ||||||||||||||||
Total | $ | 52,163 | 100 | % | $ | 49,084 | 100 | % | $ | 3,079 | 6 | % | ||||||||||||
|
| Three Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Revenue by Product Line |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Premium |
| $ | 53,998 |
|
|
| 99 | % |
| $ | 50,694 |
|
|
| 99 | % |
| $ | 3,304 |
|
|
| 7 | % |
Volume |
|
| 449 |
|
|
| 1 |
|
|
| 778 |
|
|
| 1 |
|
|
| (329 | ) |
|
| (42 | ) |
Total |
| $ | 54,447 |
|
|
| 100 | % |
| $ | 51,472 |
|
|
| 100 | % |
| $ | 2,975 |
|
|
| 6 | % |
During the three months ended SeptemberJune 30, 2021,2022, revenue increased by $3.1$3.0 million, or 6%, compared to the three months ended SeptemberJune 30, 2020,2021, primarily due to an increase in revenue from our premium offerings. The increase in premium revenue of $3.3 million, or 7%, is primarily the result of increased premium subscription offerings to our customers as the increase in average annual subscription revenue per premium customer increased 6.9% compared to the prior period.and an increase in usage-based fees. In the three months ended SeptemberJune 30, 2021,2022, volume revenue decreased by $212,$329, or 23%42%, compared to the three months ended SeptemberJune 30, 2020,2021, as we continue to focus on the market for our premium solutions.
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenue by Type | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Subscription and support | $ | 49,226 | 94 | % | $ | 46,338 | 96 | % | $ | 2,888 | 6 | % | ||||||||||||
Professional services and other | 2,937 | 6 | 2,746 | 4 | 191 | 7 | ||||||||||||||||||
Total | $ | 52,163 | 100 | % | $ | 49,084 | 100 | % | $ | 3,079 | 6 | % | ||||||||||||
|
| Three Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Revenue by Type |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Subscription and support |
| $ | 52,988 |
|
|
| 97 | % |
| $ | 48,602 |
|
|
| 94 | % |
| $ | 4,386 |
|
|
| 9 | % |
Professional services and other |
|
| 1,459 |
|
|
| 3 |
|
|
| 2,870 |
|
|
| 6 | % |
|
| (1,411 | ) |
|
| (49 | ) |
Total |
| $ | 54,447 |
|
|
| 100 | % |
| $ | 51,472 |
|
|
| 100 | % |
| $ | 2,975 |
|
|
| 6 | % |
During the three months ended SeptemberJune 30, 2021,2022, subscription and support revenue increased by $2.9 million, or 6%, compared to the three months ended SeptemberJune 30, 2020. The increase was primarily related to an increase in the average annual subscription revenue per premium customer of 6.9% during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. In addition, professional2021. Professional services and other revenue increaseddecreased by $191,$1.4 million, or 7%49%, 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, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenue by Geography | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
North America | $ | 29,420 | 56 | % | $ | 27,515 | 56 | % | $ | 1,905 | 7 | % | ||||||||||||
Europe | 9,689 | 19 | 8,435 | 17 | 1,254 | 15 | ||||||||||||||||||
Japan | 6,185 | 12 | 5,688 | 12 | 497 | 9 | ||||||||||||||||||
Asia Pacific | 6,746 | 13 | 7,211 | 15 | (465 | ) | (6 | ) | ||||||||||||||||
Other | 123 | — | 235 | — | (112 | ) | (48 | ) | ||||||||||||||||
International subtotal | 22,743 | 44 | 21,569 | 44 | 1,174 | 5 | ||||||||||||||||||
Total | $ | 52,163 | 100 | % | $ | 49,084 | 100 | % | $ | 3,079 | 6 | % | ||||||||||||
|
| Three Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Revenue by Geography |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
North America |
| $ | 30,019 |
|
|
| 55 | % |
| $ | 29,398 |
|
|
| 57 | % |
| $ | 621 |
|
|
| 2 | % |
Europe |
|
| 10,128 |
|
|
| 19 |
|
|
| 9,547 |
|
|
| 19 |
|
|
| 581 |
|
|
| 6 |
|
Japan |
|
| 5,077 |
|
|
| 9 |
|
|
| 5,370 |
|
|
| 10 |
|
|
| (293 | ) |
|
| (5 | ) |
Asia Pacific |
|
| 9,060 |
|
|
| 17 |
|
|
| 7,016 |
|
|
| 14 |
|
|
| 2,044 |
|
|
| 29 |
|
Other |
|
| 163 |
|
|
| — |
|
|
| 141 |
|
|
| — |
|
|
| 22 |
|
|
| 16 |
|
International subtotal |
|
| 24,428 |
|
|
| 45 |
|
|
| 22,074 |
|
|
| 43 |
|
|
| 2,354 |
|
|
| 11 |
|
Total |
| $ | 54,447 |
|
|
| 100 | % |
| $ | 51,472 |
|
|
| 100 | % |
| $ | 2,975 |
|
|
| 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 SeptemberJune 30, 2021,2022, total revenue for North America increased $1.9 million,by $621, or 7%2%, compared to the three months ended SeptemberJune 30, 2020.2021. In the three months ended SeptemberJune 30, 2021,2022, total revenue outside of North America increased $1.2by $ 2.35 million, or 5%11%, compared to the three months ended SeptemberJune 30, 2020.2021. The increase in revenue from international regions is primarily related to increasesan increase in usage-based revenue in Europe.
24
Cost of Revenue
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Cost of Revenue | Amount | Percentage of Related Revenue | Amount | Percentage of Related Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Subscription and support | $ | 16,406 | 33 | % | $ | 15,735 | 34 | % | $ | 671 | 4 | % | ||||||||||||
Professional services and other | 2,247 | 77 | 2,363 | 86 | (116 | ) | (5 | ) | ||||||||||||||||
Total | $ | 18,653 | 36 | % | $ | 18,098 | 37 | % | $ | 555 | 3 | % | ||||||||||||
|
| Three Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Cost of Revenue |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Subscription and support |
| $ | 16,943 |
|
|
| 32 | % |
| $ | 14,756 |
|
|
| 30 | % |
| $ | 2,187 |
|
|
| 15 | % |
Professional services and other |
|
| 1,761 |
|
|
| 121 |
|
|
| 2,468 |
|
|
| 86 |
|
|
| (707 | ) |
|
| (29 | ) |
Total |
| $ | 18,704 |
|
|
| 34 | % |
| $ | 17,224 |
|
|
| 33 | % |
| $ | 1,480 |
|
|
| 9 | % |
In the three months ended SeptemberJune 30, 2021,2022, cost of subscription and support revenue increased by $671,$ 2.2 million, or 4%15%, compared to the three months ended SeptemberJune 30, 2020.2021. The increase resulted primarily from the 6%an increase in subscriptioncontent delivery network and support revenuenetwork hosting services expenses in the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 2020.2021. In the three months ended SeptemberJune 30, 2021,2022, cost of professional services and other revenue decreased by $116,by$ 0.7 million, or 5%29%, compared to the three months ended SeptemberJune 30, 2020.2021. This decrease corresponds to athe 49% decrease in contractor expenses of $216professional services and other revenue in the three months ended SeptemberJune 30, 2021,2022, compared to the three months ended SeptemberJune 30, 2020.
Gross Profit
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Gross Profit | Amount | Percentage of Related Revenue | Amount | Percentage of Related Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Subscription and support | $ | 32,820 | 67 | % | $ | 30,603 | 66 | % | $ | 2,217 | 7 | % | ||||||||||||
Professional services and other | 690 | 23 | 383 | 14 | 307 | 80 | % | |||||||||||||||||
Total | $ | 33,510 | 64 | % | $ | 30,986 | 63 | % | $ | 2,524 | 8 | % | ||||||||||||
|
| Three Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Gross Profit |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Subscription and support |
| $ | 36,045 |
|
|
| 68 | % |
| $ | 33,846 |
|
|
| 70 | % |
| $ | 2,199 |
|
|
| 6 | % |
Professional services and other |
|
| (302 | ) |
|
| (21 | ) |
|
| 402 |
|
|
| 14 |
|
|
| (704 | ) |
|
| (175 | )% |
Total |
| $ | 35,743 |
|
|
| 66 | % |
| $ | 34,248 |
|
|
| 67 | % |
| $ | 1,495 |
|
|
| 4 | % |
The overall gross profit percentage was 64%66% for the three months ended SeptemberJune 30, 20212022 compared to 63%67% for the three months ended SeptemberJune 30, 2020.2021. Subscription and support gross profit increased $2.2 million or 7%,in the three months ended June 30, 2022 compared to the three months ended SeptemberJune 30, 2020.2021. The increase in gross profit dollars for subscription and support revenue was due to incremental costs from the acquisition of Ooyala9% increase in subscription and support revenue. Professional services and other gross profit decreased $704, or 175%. The decrease in gross profit dollars for professional services and other revenue was due to the three months ended September 30, 2020 which did not recur49% decrease in the three months ended September 30, 2021.
Operating Expenses
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Operating Expenses | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Research and development | $ | 7,902 | 15 | % | $ | 8,215 | 17 | % | $ | (313 | ) | (4 | )% | |||||||||||
Sales and marketing | 18,451 | 35 | 14,813 | 30 | 3,638 | 25 | ||||||||||||||||||
General and administrative | 7,345 | 14 | 6,694 | 14 | 651 | 10 | ||||||||||||||||||
Merger-related | 45 | — | — | — | 45 | N/A | ||||||||||||||||||
Total | $ | 33,743 | 65 | % | $ | 29,722 | 61 | % | $ | 4,021 | 14 | % | ||||||||||||
|
| Three Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Operating Expenses |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Research and development |
| $ | 8,372 |
|
|
| 15 | % |
| $ | 7,855 |
|
|
| 15 | % |
| $ | 517 |
|
|
| 7 | % |
Sales and marketing |
|
| 17,961 |
|
|
| 33 |
|
|
| 18,130 |
|
|
| 35 |
|
|
| (169 | ) |
|
| (1 | ) |
General and administrative |
|
| 8,554 |
|
|
| 16 |
|
|
| 7,418 |
|
|
| 14 |
|
|
| 1,136 |
|
|
| 15 |
|
Merger-related |
|
| 153 |
|
|
| — |
|
|
| 255 |
|
|
| — |
|
|
| (102 | ) |
|
| (40 | ) |
Other expense (benefit) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
| |
Total |
| $ | 35,040 |
|
|
| 64 | % |
| $ | 33,658 |
|
|
| 65 | % |
| $ | 1,382 |
|
|
| 4 | % |
Research and Development
Sales and Marketing
25
by an increase in marketing campaigns, employee-related and commission expenses of $1.8 million, $1.6 million, and $1.2 million, respectively. These increases were offset by a decrease in rent and contractor expenses of $435 and $627, respectively. The remaining decrease was due to various other expenses that, in aggregate, decreased by approximately $46.$816. We expect that our sales and marketing expense will increase in absolute dollars for the remainder of 20212022 as compared to the prior period as we will continue to invest in these activities to support revenue growth.
General and Administrative
Merger-Related
Provision (benefit) for Income taxes.In the three months ended June 30, 2022, provision (benefit) for income taxes expense remained relatively unchanged compared to the three months ended June 30, 2021.
Overview of Results of Operations for the NineSix Months Ended SeptemberJune 30, 20212022 and 2020
Total revenue increased by 10%1%, or $14.8$1.5 million, in the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 20202021 due to an increase in subscription and support revenue of 9%5%, or $12.1$5.1 million, primarily due to an increase in revenue from our premium offerings.offerings during the three months ended June 30, 2022 as described in the results of operations for that period. Professional services and other revenue also increaseddecreased by 39%53%, or $2.7$3.6 million, compared to the corresponding period 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. Our revenue from premium offerings grew by $15.3$2.1 million, or 11%2%, in the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020.2021. 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 six months ended June 30, 2022 would have been approximately $110.8 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of $1.3 million and Euro of $982. 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 by $16.4 million, or 19%,remained relatively unchanged in the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020, due to an increase in revenue and an improvement in subscription and support gross profit. The increase in revenue is due to an increase in our average revenue per premium customer. The improvement in subscription and support gross profit was primarily due to transition of acquired Ooyala customers to our technology during 2020, which reduced costs.2021. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery.
Loss from operations was $6.5$1.3 million in the ninesix months ended SeptemberJune 30, 20212022 compared to a lossincome from operations of $6.9$6.7 million in the ninesix months ended SeptemberJune 30, 2020.2021. This is primarily due to the aforementionedan increase in revenueoperating expenses of $14.8 million and decreases in costs of revenue of $1.6$8.2 million in the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020.
Revenue
Nine Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenue by Product Line | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Premium | $ | 156,182 | 99 | % | $ | 140,904 | 98 | % | $ | 15,278 | 11 | % | ||||||||||||
Volume | 2,270 | 1 | 2,759 | 2 | (489 | ) | (18 | ) | ||||||||||||||||
Total | $ | 158,452 | 100 | % | $ | 143,663 | 100 | % | $ | 14,789 | 10 | % | ||||||||||||
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Revenue by Product Line |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Premium |
| $ | 106,770 |
|
|
| 99 | % |
| $ | 104,716 |
|
|
| 99 | % |
| $ | 2,054 |
|
|
| 2 | % |
Volume |
|
| 1,056 |
|
|
| 1 |
|
|
| 1,573 |
|
|
| 1 |
|
|
| (517 | ) |
|
| (33 | ) |
Total |
| $ | 107,826 |
|
|
| 100 | % |
| $ | 106,289 |
|
|
| 100 | % |
| $ | 1,537 |
|
|
| 1 | % |
During the ninesix months ended SeptemberJune 30, 2021,2022, revenue increased by $14.8$1.5 million, or 10%1%, compared to the ninesix months ended SeptemberJune 30, 2020,2021, primarily due to an increase in revenue from our premium offerings, which consists of subscription and support revenue as well as professional services. The increase in premium revenue of $15.3$2.1 million, or 11%2%, is primarily the result of an 8%2% increase in average annual subscription revenue per premium customer during the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020.2021. This increase in average annual subscription revenue per premium customer is primarily due to premium customers ordering more of our products.
26
During the ninesix months ended SeptemberJune 30, 2021,2022, volume revenue decreased by $489$517 or 18%33%, compared to the ninesix months ended SeptemberJune 30, 2020,2021, as we continue to focus on the market for our premium solutions.
Nine Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenue by Type | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Subscription and support | $ | 148,667 | 94 | % | $ | 136,613 | 95 | % | $ | 12,054 | 9 | % | ||||||||||||
Professional services and other | 9,785 | 6 | 7,050 | 5 | 2,735 | 39 | ||||||||||||||||||
Total | $ | 158,452 | 100 | % | $ | 143,663 | 100 | % | $ | 14,789 | 10 | % | ||||||||||||
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Revenue by Type |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Subscription and support |
| $ | 104,589 |
|
|
| 97 | % |
| $ | 99,441 |
|
|
| 94 | % |
| $ | 5,148 |
|
|
| 5 | % |
Professional services and other |
|
| 3,237 |
|
|
| 3 |
|
|
| 6,848 |
|
|
| 6 |
|
|
| (3,611 | ) |
|
| (53 | ) |
Total |
| $ | 107,826 |
|
|
| 100 | % |
| $ | 106,289 |
|
|
| 100 | % |
| $ | 1,537 |
|
|
| 1 | % |
During the ninesix months ended SeptemberJune 30, 2021,2022, subscription and support revenue increased by $12.1$5.1 million, or 9%5%, compared to the ninesix months ended SeptemberJune 30, 2020.2021. The increase was primarily related to an 8%a 2% increase in average annual subscription revenue per premium customer.
In addition, professional services and other revenue increaseddecreased by $2.7$3.6 million, or 39%53%, compared to the corresponding period in the prior year. This increase was driven by one particular project that was completed in the three months ended March 31, 2021. 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, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenue by Geography | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
North America | $ | 89,204 | 56 | % | $ | 78,553 | 55 | % | $ | 10,651 | 14 | % | ||||||||||||
Europe | 28,159 | 18 | 25,323 | 18 | 2,836 | 11 | ||||||||||||||||||
Japan | 19,263 | 12 | 17,344 | 12 | 1,919 | 11 | ||||||||||||||||||
Asia Pacific | 21,421 | 14 | 21,795 | 15 | (374 | ) | (2 | ) | ||||||||||||||||
Other | 405 | — | 648 | — | (243 | ) | (38 | ) | ||||||||||||||||
International subtotal | 69,248 | 44 | 65,110 | 45 | 4,138 | 6 | ||||||||||||||||||
Total | $ | 158,452 | 100 | % | $ | 143,663 | 100 | % | $ | 14,789 | 10 | % | ||||||||||||
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Revenue by Geography |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
North America |
| $ | 59,480 |
|
|
| 56 | % |
| $ | 59,784 |
|
|
| 56 | % |
| $ | (304 | ) |
|
| (1 | )% |
Europe |
|
| 19,233 |
|
|
| 18 |
|
|
| 18,470 |
|
|
| 17 |
|
|
| 763 |
|
|
| 4 |
|
Japan |
|
| 12,338 |
|
|
| 11 |
|
|
| 13,078 |
|
|
| 12 |
|
|
| (740 | ) |
|
| (6 | ) |
Asia Pacific |
|
| 16,496 |
|
|
| 15 |
|
|
| 14,675 |
|
|
| 14 |
|
|
| 1,821 |
|
|
| 12 |
|
Other |
|
| 279 |
|
|
| — |
|
|
| 282 |
|
|
| — |
|
|
| (3 | ) |
|
| (1 | ) |
International subtotal |
|
| 48,346 |
|
|
| 44 |
|
|
| 46,505 |
|
|
| 43 |
|
|
| 1,841 |
|
|
| 4 |
|
Total |
| $ | 107,826 |
|
|
| 100 | % |
| $ | 106,289 |
|
|
| 100 | % |
| $ | 1,537 |
|
|
| 1 | % |
During the ninesix months ended SeptemberJune 30, 2021,2022, total revenue for North America increased $10.7 million, or 14%,remained relatively unchanged compared to the ninesix months ended SeptemberJune 30, 2020. The increase was due to revenue from our premium offerings.
During the ninesix months ended SeptemberJune 30, 2021,2022, total revenue outside of North America increased $4.1$1.8 million, or 6%4%, compared to the ninesix months ended SeptemberJune 30, 2020.2021. The increase in revenue from international regions is primarily related to increased sales of our premium offerings to existing customersan increase in Japan and Europe.
Cost of Revenue
Nine Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Cost of Revenue | Amount | Percentage of Related Revenue | Amount | Percentage of Related Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Subscription and support | $ | 46,840 | 32 | % | $ | 50,290 | 37 | % | $ | (3,450 | ) | (7 | )% | |||||||||||
Professional services and other | 8,205 | 84 | 6,349 | 90 | 1,856 | 29 | ||||||||||||||||||
Total | $ | 55,045 | 35 | % | $ | 56,639 | 39 | % | $ | (1,594 | ) | (3 | )% | |||||||||||
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Cost of Revenue |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Subscription and support |
| $ | 33,925 |
|
|
| 32 | % |
| $ | 30,434 |
|
|
| 31 | % |
| $ | 3,491 |
|
|
| 11 | % |
Professional services and other |
|
| 3,759 |
|
|
| 116 |
|
|
| 5,958 |
|
|
| 87 |
|
|
| (2,199 | ) |
|
| (37 | ) |
Total |
| $ | 37,684 |
|
|
| 35 | % |
| $ | 36,392 |
|
|
| 34 | % |
| $ | 1,292 |
|
|
| 4 | % |
In the ninesix months ended SeptemberJune 30, 2021,2022, cost of subscription and support revenue decreasedincreased $3.5 million, or 7%11%, compared to the ninesix months ended SeptemberJune 30, 2020.2021. The decreaseincrease resulted primarily from incremental costs froman increase in content delivery network, network hosting services, and third-party software integration expenses of $1.7 million, $1.5 million, and $1.0 million, respectively. These increases were offset by a decrease in partner commissions of $807. The remaining increase was due to various other expenses that, in aggregate, increased by approximately $70.
27
In the acquisition of Ooyala in the ninesix months ended SeptemberJune 30, 2020 which did not recur in the nine months ended September 30, 2021.
Gross Profit
Nine Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Gross Profit | Amount | Percentage of Related Revenue | Amount | Percentage of Related Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Subscription and support | $ | 101,827 | 68 | % | $ | 86,323 | 63 | % | $ | 15,504 | 18 | % | ||||||||||||
Professional services and other | 1,580 | 16 | 701 | 10 | 879 | 125 | ||||||||||||||||||
Total | $ | 103,407 | 65 | % | $ | 87,024 | 61 | % | $ | 16,383 | 19 | % | ||||||||||||
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Gross Profit |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Subscription and support |
| $ | 70,664 |
|
|
| 68 | % |
| $ | 69,007 |
|
|
| 69 | % |
| $ | 1,657 |
|
|
| 2 | % |
Professional services and other |
|
| (522 | ) |
|
| (16 | ) |
|
| 890 |
|
|
| 13 |
|
|
| (1,412 | ) |
|
| (159 | ) |
Total |
| $ | 70,142 |
|
|
| 65 | % |
| $ | 69,897 |
|
|
| 66 | % |
| $ | 245 |
|
|
| 0 | % |
The overall gross profit percentage was 65% and 61%66% for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Subscription and support gross profit increased $15.5$1.7 million, or 18%2%, compared to the ninesix months ended SeptemberJune 30, 2020.2021. Professional services and other gross profit decreased by $1.4 million, or 159%, compared to the six months ended June 30, 2021. 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, | ||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Operating Expenses | Amount | Percentage of Revenue | Amount | Percentage of Revenue | Amount | % | ||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Research and development | $ | 24,041 | 15 | % | $ | 26,199 | 18 | % | $ | (2,158 | ) | (8 | )% | |||||||||||
Sales and marketing | 52,730 | 33 | 42,370 | 29 | 10,360 | 24 | ||||||||||||||||||
General and administrative | 21,822 | 14 | 19,633 | 14 | 2,189 | 11 | ||||||||||||||||||
Merger-related | 300 | 0 | 5,768 | 4 | (5,468 | ) | (95 | ) | ||||||||||||||||
Other (benefit) expense | (1,965 | ) | (1 | ) | — | — | (1,965 | ) | N/A | |||||||||||||||
Total | $ | 96,928 | 61 | % | $ | 93,970 | 65 | % | $ | 2,958 | 3 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
Operating Expenses |
| Amount |
|
| Percentage of |
|
| Amount |
|
| Percentage of |
|
| Amount |
|
| % |
| ||||||
|
| (in thousands, except percentages) |
| |||||||||||||||||||||
Research and development |
| $ | 16,609 |
|
|
| 15 | % |
| $ | 16,139 |
|
|
| 15 | % |
| $ | 470 |
|
|
| 3 | % |
Sales and marketing |
|
| 36,249 |
|
|
| 34 |
|
|
| 34,279 |
|
|
| 32 |
|
|
| 1,970 |
|
|
| 6 |
|
General and administrative |
|
| 16,643 |
|
|
| 15 |
|
|
| 14,477 |
|
|
| 14 |
|
|
| 2,166 |
|
|
| 15 |
|
Merger-related |
|
| 747 |
|
|
| 1 |
|
|
| 255 |
|
|
| — |
|
|
| 492 |
|
|
| 193 |
|
Other (benefit) expense |
|
| 1,149 |
|
|
| 1 |
|
|
| (1,965 | ) |
|
| (2 | ) |
|
| 3,114 |
|
|
| (158 | ) |
Research and Development
Sales and Marketing
General and Administrative
Merger-Related
Other (benefit) expense. On March 28, 2022 our CEO retired. Pursuant to a Transition Agreement that was entered into by the previous CEO and related activitiesthe Company in 2020 which did not recur inOctober 2021, the CEO, upon retirement, would be paid his annual base compensation through
28
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 period.
On March 27, 2020, in response to the“CARES Act”"CARES Act"). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain employee retention credits. In the first quarter of 2021, we recognized a benefit of $1,965 from the CARES Act related to employee retention credits. The benefit was recorded as Other (benefit) expense.
Liquidity and Capital Resources
Cash and cash equivalents.
Our cash and cash equivalents at SeptemberJune 30, 20212022 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. At SeptemberJune 30, 20212022 and December 31, 2020,2021, we had $14.5$13.0 million and $17.1$13.8 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
Nine Months Ended September 30, | ||||||||
Condensed Consolidated Statements of Cash Flow Data | 2021 | 2020 | ||||||
(in thousands) | ||||||||
Cash flows provided by operating activities | $ | 14,748 | $ | 8,922 | ||||
Cash flows used in investing activities | $ | (6,282 | ) | $ | (7,271 | ) | ||
Cash flows provided by financing activities | $ | 350 | $ | 5,759 |
|
| Six Months Ended June 30, |
| |||||
Condensed Consolidated Statements of Cash Flow Data |
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Cash flows provided by operating activities |
| $ | 9,257 |
|
| $ | 7,377 |
|
Cash flows used in investing activities |
| $ | (25,485 | ) |
| $ | (3,785 | ) |
Cash flows provided by financing activities |
| $ | 93 |
|
| $ | 157 |
|
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 operating activities.
Cash provided by operating activities consists primarily of net income adjusted forninesix months ended SeptemberJune 30, 20212022 was $14.7$9.3 million. The cash flow provided by operating activities primarily resulted from net income of $5 million and net$13.7$11.4 million, offset by net changes in our operating assets and liabilities of $4.0$225 and a net loss of $1.9 million. Net$6.3$4.2 million for depreciation and amortization and $7.2$7.1 million for stock-based compensation. Cash outflows resulting from changes in our operating assets and liabilities consisted primarily of a decrease in accrued expenses of $4.4 million, an increase in other assetsaccounts receivable of $1.3$2.4 million, anand increase in prepaid expenses and other current assets of $914,$2.6 million, a decrease in operating leasesaccrued expenses of $903,$1.2 million, and a decrease in accounts payable of $834, offset by an increase in deferred revenue of $2.7$2.6 million, an increase in operating leases of $4.0 million, and a decrease in accounts receivableother assets of $710.$161. In summary, cash provided byused in operating activities has increased when compared to the prior period due to an increase ina net income, offset byloss, and decreases in working capital.
Cash used in investing activities during the ninesix months ended SeptemberJune 30, 20212022 was $6.3$25.5 million, consisting primarily of $4.7$13.2 million for cash paid for the acquisition of Wicket Labs, $6.5 million for the capitalization of$1.6$5.8 million in capital expenditures to support the business.
Cash flows provided by financing activities.
Cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20212022 was $350,$93, consisting primarily of $2.2 million in proceeds from the exercise of stock options, offset by $475 deferred acquisition payments and $1.4 million in other financing activities. Other financing activities reflects the repurchase of stock withheld for taxes for Section 16 executives’ vesting.
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 SeptemberJune 30, 2021.2022. As we have not currently drawn on the Line of Credit, there are no amounts outstanding as of SeptemberJune 30, 2021.
Net operating loss carryforwards.
As of December 31, 2020,2021, we had federal and state net operating losses of approximately $161.8 million and $82.4$89.2 million, respectively, which are available to offset future taxable income, if any, through 2039.2037 and 2041, respectively. We had federal and state net operating losses of approximately $23.9$37.6 million and $1.7$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 $7.8$9.0 million and $4.8$5.5 million, respectively, which expire in various amounts through 2039.2041. 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 SeptemberJune 30, 20212022 and December 31, 2020.
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, 20202021 are summarized in our Annual Report on Form2020.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see
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.
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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
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 June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenues generated in locations outside the United States |
|
| 48 | % |
|
| 47 | % |
Revenues in currencies other than the United States dollar (1) |
|
| 27 | % |
|
| 27 | % |
Expenses in currencies other than the United States dollar (1) |
|
| 18 | % |
|
| 17 | % |
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenues generated in locations outside the United States |
|
| 48 | % |
|
| 47 | % |
Revenues in currencies other than the United States dollar (1) |
|
| 28 | % |
|
| 28 | % |
Expenses in currencies other than the United States dollar (1) |
|
| 16 | % |
|
| 16 | % |
Three Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Revenues generated in locations outside the United States | 47 | % | 48 | % | ||||
Revenues in currencies other than the United States dollar (1) | 29 | % | 29 | % | ||||
Expenses in currencies other than the United States dollar (1) | 18 | % | 17 | % |
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Revenues generated in locations outside the United States | 47 | % | 50 | % | ||||
Revenues in currencies other than the United States dollar (1) | 29 | % | 30 | % | ||||
Expenses in currencies other than the United States dollar (1) | 17 | % | 16 | % |
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||
Revenues | Expenses | Revenues | Expenses | |||||||||||||
Euro | 8 | % | 2 | % | 8 | % | 1 | % | ||||||||
British pound | 6 | 5 | 6 | 6 | ||||||||||||
Japanese Yen | 12 | 3 | 12 | 3 | ||||||||||||
Other | 3 | 8 | 3 | 7 | ||||||||||||
Total | 29 | % | 18 | % | 29 | % | 17 | % |
Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||
Revenues | Expenses | Revenues | Expenses | |||||||||||||
Euro | 8 | % | 1 | % | 8 | % | 1 | % | ||||||||
British pound | 6 | 5 | 6 | 6 | ||||||||||||
Japanese Yen | 12 | 3 | 12 | 3 | ||||||||||||
Other | 3 | 8 | 4 | 6 | ||||||||||||
Total | 29 | % | 17 | % | 30 | % | 16 | % |
|
| Three Months Ended June 30, 2022 |
|
| Three Months Ended June 30, 2021 |
| ||||||||||
|
| Revenues |
|
| Expenses |
|
| Revenues |
|
| Expenses |
| ||||
Euro |
|
| 9 | % |
|
| 2 | % |
|
| 8 | % |
|
| 1 | % |
British pound |
|
| 6 |
|
|
| 5 |
|
|
| 6 |
|
|
| 5 |
|
Japanese Yen |
|
| 9 |
|
|
| 2 |
|
|
| 10 |
|
|
| 3 |
|
Other |
|
| 3 |
|
|
| 9 |
|
|
| 3 |
|
|
| 8 |
|
Total |
|
| 27 | % |
|
| 18 | % |
|
| 27 | % |
|
| 17 | % |
31
|
| Six Months Ended June 30, 2021 |
|
| Six Months Ended June 30, 2020 |
| ||||||||||
|
| Revenues |
|
| Expenses |
|
| Revenues |
|
| Expenses |
| ||||
Euro |
|
| 8 | % |
|
| 1 | % |
|
| 7 | % |
|
| 0 | % |
British pound |
|
| 6 |
|
|
| 5 |
|
|
| 6 |
|
|
| 5 |
|
Japanese Yen |
|
| 11 |
|
|
| 2 |
|
|
| 12 |
|
|
| 3 |
|
Other |
|
| 3 |
|
|
| 8 |
|
|
| 3 |
|
|
| 8 |
|
Total |
|
| 28 | % |
|
| 16 | % |
|
| 28 | % |
|
| 16 | % |
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, we had $7.5$7.8 million and $9.0$8.3 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, (expense), 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 six months ended June 30, 2022 the U.S. dollar has strengthened approximately 10% compared to the British pound and euro and over 15% compared to the Japanese Yen. Relative to foreign currency exposures existing at SeptemberJune 30, 2021,2022, a 10%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 ninesix months ended SeptemberJune 30, 2021,2022, we estimated that a 10%20% unfavorable movement in foreign currency exchange rates would have decreased revenues by $4.5$6.0 million, decreased expenses by $2.6$3.6 million and decreased operating income by $1.9$2.4 million. The estimates used assume that all currencies move in the same direction at the same time and the ratioSeptemberJune 30, 2021.
Interest rate risk
We had cash and cash equivalents totaling $45.3$27.8 million at SeptemberJune 30, 2021.2022. 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 SeptemberJune 30, 2021.2022. 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 SeptemberJune 30, 2021,2022, 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 RulesSeptemberJune 30, 2021,2022, our disclosure controls and procedures were effective in ensuring that material information
32
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
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 Form2020,2021, 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
Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the transitionsoftware 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, weakness in the planned retirementbanking sector, uncertainty over the future of our Chief Executive Officer (“CEO”)the Euro zone and volatility in the value of the pound sterling and the appointment of a new CEO, it could be viewed negatively by our customersEuro, including instability surrounding Brexit, and shareholdersinstability resulting from the ongoing conflict between Russia and could have an adverse impact on our business.
More recently, inflation rates, particularly in the U.S., have increased to levels not seen in several years and may continue to
rise , which may result in decreased demand for our products and services, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced government spending and volatility in financial performance. Itmarkets. Central banks worldwide, including the Federal Reserve in the U.S., have raised, and may also make it more difficultagain raise, interest rates in response to retainconcerns over rising inflation rates. There continues to be uncertainty in the changing market and hire key employees.
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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
We anticipate that, as permitted by Rule
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ITEM 6. EXHIBITS
Exhibits | ||
3.1 (1) | ||
3.2 (2) | ||
4.1 (3) | ||
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^ | ||
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | 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)
^ Furnished herewith.
35
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: | By: | |||||
/s/ Marc DeBevoise | ||||||
Marc DeBevoise | ||||||
Chief Executive Officer | ||||||
( | ||||||
Date: | By: | |||||
/s/ Robert Noreck | ||||||
Robert Noreck | ||||||
Chief Financial Officer | ||||||
( |
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