By Godson Umejiego, Bureau Chief, The Americas
The world’s most trusted streaming technology company, Brightcove Inc. (BCOV), has announced financial results for the first quarter ended March 31, 2023.
“In the first quarter, we made important progress on our strategic initiatives and saw strength in our new business growth. This new business performance, including signing our largest ever new business deal with a leading global media company, helps demonstrate the long-term opportunity ahead for Brightcove. However, certain near-term revenue challenges, including lengthening sales cycles and lower overages and entitlement commitments, are driving the need for us to take meaningful steps to improve our cost structure to ensure we operate the business efficiently and achieve our full year profitability targets,” said Brightcove’s Chief Executive Officer, Marc DeBevoise.
DeBevoise added, “We believe the challenges we are facing are short-term and primarily impacted by recent economic uncertainty. We remain confident that our strategic plan, combined with these changes, will enable us to achieve our long-term financial goals.”
First Quarter 2023 Financial Highlights:
Revenue for the first quarter of 2023 was US$49.1 million, a decrease of 8 per cent compared to US$53.4 million for the first quarter of 2022. Subscription and support revenue was US$47.1 million, a decrease of 9 per cent compared to US$51.6 million for the first quarter of 2022.
Gross profit for the first quarter of 2023 was US$28.8 million, representing a gross margin of 59 per cent, compared to a gross profit of US$34.4 million, representing a gross margin of 64 per cent for the first quarter of 2022. Non-GAAP gross profit for the first quarter of 2023 was US$29.6 million, representing a non-GAAP gross margin of 60 per cent, compared to a non-GAAP gross profit of US$35.0 million, representing a non-GAAP gross margin of 66 per cent for the first quarter of 2022. Non-GAAP gross profit and non-GAAP gross margin exclude stock-based compensation expense and the amortization of acquired intangible assets.
Loss from operations was US$10.7 million for the first quarter of 2023, compared to loss from operations of US$2.0 million for the first quarter of 2022. Non-GAAP operating loss, which excludes stock-based compensation expense, the amortization of acquired intangible assets, merger-related and restructuring expenses and other (benefit) expense, was US$5.6 million for the first quarter of 2023, compared to non-GAAP operating income of US$3.8 million during the first quarter of 2022.
Net loss was US$11.7 million, or a loss of US$0.28 per diluted share, for the first quarter of 2023. This compares to a net loss of US$1.6 million, or US$0.04 per diluted share, for the first quarter of 2022. Non-GAAP net loss, which excludes stock-based compensation expense, the amortization of acquired intangible assets, merger-related and restructuring expenses and other (benefit) expense, was US$6.6 million for the first quarter of 2023, or a loss of US$0.15 per diluted share, compared to non-GAAP net income of US$4.2 million for the first quarter of 2022, or US$0.10 per diluted share.
Adjusted EBITDA was negative US$2.7 million for the first quarter of 2023, compared to adjusted EBITDA of US$5.1 million for the first quarter of 2022. Adjusted EBITDA excludes stock-based compensation expense, merger-related and restructuring expenses, other (benefit) expense, the amortization of acquired intangible assets, depreciation expense, other income/expense and the provision for income taxes.
Cash flow used by operations was US$12.6 million for the first quarter of 2023, compared to cash flow used by operations of US$690,000 for the first quarter of 2022.
Free cash flow was negative US$17.5 million after the company invested US$4.9 million in capital expenditures and capitalization of internal-use software during the first quarter of 2023. Free cash flow was negative US$5.5 million for the first quarter of 2022.
Cash and cash equivalents were US$12.5 million as of March 31, 2023 compared to US$31.9 million on December 31, 2022. The low cash balance was driven by the collapse of Silicon Valley Bank (SVB) on March 10, 2023, which meaningfully delayed the timing of cash collections at the end of the quarter while we directed customers to make payments to another financial institution. As of May 3, 2023, the majority of this cash has already been collected.
A Reconciliation of GAAP to Non-GAAP results has been provided in the financial statement tables included at the end of this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”
Other First Quarter and Recent Highlights/Updates:
New business was a record-high in the first quarter, up 325 per cent YoY, driven by the largest new business deal in our history. Excluding that deal, new business was up 35 per cent YoY. Notable new customers signed in the first quarter include, A24 Films, Blackdoctor.org, Broadcom, Harvest Ministries, LeMaitre, One 31 and The Capra Project.
Notable customers who renewed or expanded their relationship with Brightcove during the first quarter include: American Academy of Orthopedic Surgeons, Audacy, BouncTV, Dell, Express Scripts, Forbes Media, Harley Davidson, Herbalife, Little League Baseball, Merck, Motorola Solutions, Nikon Instruments, Phillips Auctioneers, SkyWest Airlines, The 33rd Team and TVB USA.
Net revenue retention in the quarter was 94 per cent, which compares to 94 per cent in the fourth quarter of 2022 and 98 per cent in the first quarter of 2022.
Recurring dollar retention rate was 88 per cent in the first quarter of 2023, versus our historical target of the low to mid-90 per cent range.
12-month Backlog (which we define as the aggregate amount of committed subscription revenue related to future performance obligations in the next 12 months) was US$129.3 million. This represents a slight year-over-year increase over US$128.7 million at the end of the first quarter of 2022. Total backlog was US$181.3 million, a 14 per cent increase year-over-year over US$159.2 million at the end of the first quarter 2022. The strength in total backlog was driven by a higher percentage of multi-year bookings, including the large media win referenced earlier.
Average annual subscription revenue per premium customer was US$89,400 in the first quarter of 2023, excluding starter customers who had average annualized revenue of US$3,900 per customer. The average annual subscription revenue per premium customer compares to US$96,500 in the first quarter of 2022.
Ended the first quarter of 2023 with 2,739 customers, of which 2,180 were premium.
Launched Brightcove Ad Monetization, a new advertising monetization service for media companies to generate additional revenue from their advertising strategy. Brightcove Ad Monetization helps media companies maximize measurable returns on advertising with actionable insights and supports the monetization of live and video-on-demand (VOD) content with improved yield optimization to fill unsold ad inventory and increase revenue.
Entered into a partnership with Frequency, a cloud-based video platform powering linear channel creation for content providers. As a leader in free ad-supported streaming TV (FAST) channel solutions, Frequency’s integration into Brightcove’s award-winning video platform allows customers to seamlessly create, launch and manage linear FAST channels to expand their reach and increase their revenue.
Launched Brightcove Communications Studio, our video-first solution purpose-built for HR and communications professionals.
Launched Enterprise-focused eCommerce integrations with Shopify, Salesforce Sales Cloud and Instagram that allow our customers to distribute and analyze video across each of these leading platforms to drive leads or revenue.
Business Outlook:
Based on information as at May 3, 2023, the Company is issuing the following business updates and financial guidance
Second Quarter 2023 Business Update:
On April 28, 2023, the Board of Directors of Brightcove authorized a restructuring that is designed to reduce operating costs, improve operating margins and focus on key growth and strategic priorities. The restructuring includes a reduction of the company’s workforce by approximately 10 per cent. We expect the restructuring will result in over US$10M of savings for 2023 and over US$13M in savings on an annual run-rate basis. The Company estimates that it will incur charges of approximately US$2.0 million related to employee severance costs and intends to exclude these charges from its non-GAAP financial measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP income (loss) from operations, non-GAAP net income (loss), adjusted EBITDA and non-GAAP diluted net income (loss) per share.
On May 1, 2023, Brightcove terminated its Sales Agreement with Cowen and Company LLC related to the ATM offering filed in conjunction with our 10K filing in February 2023. Brightcove previously announced that, in light of current market conditions, Brightcove did not intend to make sales under the ATM Programme and suspended the ATM Programme. Brightcove ultimately determined to exercise its option to terminate the Sales Agreement due to such conditions. Through the Termination Date, Brightcove made no sales under the ATM Programme.
Second Quarter 2023 Guidance:
Revenue is expected to be in the range of US$50.0 million to US$51.0 million, including approximately US$2.1 million of professional services revenue and US$1.0 million of overages.
Non-GAAP loss from operations is expected to be in the range of (US$1.3) million to (US$0.3) million, which excludes stock-based compensation of approximately US$3.4 million, the amortization of acquired intangible assets of approximately US$1.0 million, and restructuring expense of approximately US$2.0 million.
Adjusted EBITDA is expected to be in the range of US$1.8 million to US$2.8 million, which excludes stock-based compensation of approximately US$3.4 million, the amortization of acquired intangible assets of approximately US$1.0 million, restructuring expense of approximately US$2.0 million, depreciation expense of approximately US$3.0 million, and other (income) expense and the provision for income taxes of approximately US$0.3 million.
Non-GAAP net loss per diluted share is expected to be (US$0.04) to (US$0.01), which excludes stock-based compensation of approximately US$3.4 million, the amortization of acquired intangible assets of approximately US$1.0 million, restructuring expense of approximately US$2.0 million, and assumes approximately 43.1 million weighted-average shares outstanding.
Full Year 2023 Guidance:
Revenue is expected to be in the range of US$204.0 million to US$209.0 million, including approximately US$8.8 million of professional services revenue and US$4.4 million of overages.
Non-GAAP income from operations is expected to be in the range of US$3.0 million to US$6.0 million, which excludes stock-based compensation of approximately US$13.9 million, the amortization of acquired intangible assets of approximately US$4.1 million, merger-related expense of approximately US$0.1 million, and restructuring expense of US$2.4 million.
Adjusted EBITDA is expected to be in the range of US$16.0 million to US$19.0 million, which excludes stock-based compensation of approximately US$13.9 million, the amortization of acquired intangible assets of approximately US$4.1 million, merger-related expense of approximately US$0.1 million, restructuring expense of US$2.4 million, depreciation expense of approximately US$13.2 million, and other (income) expense and the provision for income taxes of approximately US$1.8 million.
Non-GAAP earnings per diluted share is expected to be US$0.03 to US$0.10, which excludes stock-based compensation of approximately US$13.9 million, the amortization of acquired intangible assets of approximately US$4.1 million, merger-related expense of approximately US$0.1 million, restructuring expense of US$2.4 million, and assumes approximately 43.4 million weighted-average shares outstanding.
