10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
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:
001-35429
 
 
BRIGHTCOVE INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
20-1579162
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
290 Congress Street
Boston, MA 02210
(Address of principal executive offices)
(888)
882-1880
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
 
Symbol(s)
 
Name of each exchange
 
on which registered
Common Stock, par value $0.001 per share
 
BCOV
 
The NASDAQ Global Market
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
 
 
 
Yes
 
 
 
 
 
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
filer
 
 
 
(Do not check if a smaller reporting company)
 
Smaller reporting company
 
             
 
     
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).   
 
Yes  
    No  
As of July 
20
, 2020 there were 39,414,408 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
 
 

Table of Contents
BRIGHTCOVE INC.
Table of Contents
 
 
  
Page
 
  
     
  
     
  
 
4
 
  
 
5
 
  
 
6
 
  
 
7
 
  
 
8
 
  
 
9
 
   
  
 
16
 
   
  
 
30
 
   
  
 
32
 
   
  
 
32
 
   
  
 
32
 
   
  
 
33
 
   
  
 
35
 
   
  
 
36
 
   
  
 
37
 
 
2

Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form
10-Q
that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to adding employees; statements related to potential benefits of acquisitions; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Item 1A of Part I of this Quarterly Report on Form
10-Q,
and the risks discussed in our other Securities and Exchange Commission, or SEC, filings. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Forward-looking statements in this Quarterly Report on Form
10-Q
may include statements about:
 
 
 
our ability to achieve profitability;
 
 
 
our competitive position and the effect of competition in our industry;
 
 
 
our ability to retain and attract new customers;
 
 
 
our ability to penetrate existing markets and develop new markets for our services;
 
 
 
our ability to retain or hire qualified accounting and other personnel;
 
 
 
our ability to successfully integrate acquired businesses, including the online video platform assets of Ooyala, Inc. and certain of its subsidiaries that we acquired during 2019;
 
 
 
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
 
 
 
our ability to maintain the security and reliability of our systems;
 
 
 
our estimates with regard to our future performance and total potential market opportunity;
 
 
 
our expectations regarding the potential impact of the
COVID-19
pandemic on our business, operations, and the markets in which we and our partners and customers operate;
 
 
 
our estimates regarding our anticipated results of operations, future revenue, bookings growth, capital requirements and our needs for additional financing; and
 
 
 
our goals and strategies, including those related to revenue and bookings growth.
 
3

Table of Contents
PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
June 30, 2020
 
 
December 31, 2019
 
 
(in thousands, except share
and per share data)
 
Assets
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
  $
27,753
    $
22,759
 
Accounts receivable, net of allowance of $651 and $904 at June 30, 2020 and December 31, 2019, respectively
   
26,794
     
31,181
 
Prepaid expenses
   
8,986
     
5,171
 
Other current assets
   
8,340
     
6,713
 
                 
Total current assets
   
71,873
     
65,824
 
Property and equipment, net
   
14,726
     
12,086
 
Operating lease
right-of-use
asset
   
13,340
     
16,912
 
Intangible assets, net
   
12,090
     
13,875
 
Goodwill
   
60,902
     
60,902
 
Other assets
   
3,524
     
3,268
 
                 
Total assets
  $
176,455
    $
172,867
 
                 
Liabilities and stockholders’ equity
 
 
 
 
 
 
Current liabilities:
   
     
 
Accounts payable
  $
11,283
    $
9,917
 
Accrued expenses
   
20,556
     
20,925
 
Operating lease liability
   
5,687
     
6,174
 
Deferred revenue
   
54,647
     
49,260
 
                 
Total current liabilities
   
92,173
     
86,276
 
Operating lease liability, net of current portion
   
8,618
     
11,701
 
Debt
   
5,000
     
—  
 
Other liabilities
   
1,100
     
767
 
                 
Total liabilities
   
106,891
     
98,744
 
Commitments and contingencies
(Note 10)
   
   
Stockholders’ equity:
   
     
 
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued
   
—  
     
—  
 
Common stock, $0.001 par value; 100,000,000 shares authorized; 39,543,991 and 39,042,787 shares issued at June 30, 2020 and December 31, 2019, respectively
   
39
     
39
 
Additional
paid-in
capital
   
281,255
     
276,365
 
Treasury stock, at cost; 135,000 shares
   
(871
)    
(871
)
Accumulated other comprehensive loss
   
(1,086
)    
(785
)
Accumulated deficit
   
(209,773
)    
(200,625
)
                 
Total stockholders’ equity
   
69,564
     
74,123
 
                 
Total liabilities and stockholders’ equity
  $
176,455
    $
172,867
 
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents
Brightcove Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
(in thousands, except share and
per share data)
   
 
 
 
Revenue:
   
     
     
     
 
Subscription and support revenue
  $
45,617
    $
44,891
    $
90,275
    $
83,768
 
Professional services and other revenue
   
2,309
     
2,691
    $
4,304
     
5,650
 
                                 
Total revenue
   
47,926
     
47,582
     
94,579
     
89,418
 
Cost of revenue:
   
     
     
     
 
Cost of subscription and support revenue
   
17,807
     
19,381
     
34,555
     
33,551
 
Cost of professional services and other revenue
   
2,092
     
2,228
     
3,986
     
4,804
 
                                 
Total cost of revenue
   
19,899
     
21,609
     
38,541
     
38,355
 
                                 
Gross profit
   
28,027
     
25,973
     
56,038
     
51,063
 
Operating expenses:
   
     
     
     
 
Research and development
   
9,131
     
7,629
     
17,984
     
15,023
 
Sales and marketing
   
13,383
     
16,827
     
27,557
     
31,083
 
General and administrative
   
6,407
     
5,979
     
12,939
     
11,240
 
Merger-related
   
259
     
2,620
     
5,768
     
5,552
 
                                 
Total operating expenses
   
29,180
     
33,055
     
64,248
     
62,898
 
                                 
Loss from operations
   
(1,153
)    
(7,082
)    
(8,210
)    
(11,835
)
Other (expense) income, net
   
(27
)    
19
     
(495
)    
(36
)
                                 
Loss before income taxes
   
(1,180
)    
(7,063
)    
(8,705
)    
(11,871
)
Provision for income taxes
   
115
     
175
     
443
     
350
 
                                 
Net loss
  $
(1,295
)   $
(7,238
)   $
(9,148
)   $
(12,221
)
                                 
Net loss per share
 -
basic and diluted
  $
(0.03
)   $
(0.19
)   $
(0.23
)   $
(0.33
)
 
                                 
Weighted-average number of common shares used in computing net loss per share
   
39,291,649
     
37,966,207
     
39,136,394
     
37,322,646
 
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents
Brightcove Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
(in thousands)
   
 
 
 
Net loss
  $
(1,295
)   $
(7,238
)   $
(9,148
)   $
(12,221
)
Other comprehensive income:
   
     
     
     
 
Foreign currency translation adjustments
   
158
     
39
     
 
(
301
)
   
60
 
                                 
Comprehensive loss
  $
(1,137
)   $
(7,199
)   $
(9,449
)   $
(12,161
)
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Table of Contents
Brightcove Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share data)
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
(in thousands, except share data)
   
 
 
 
Shares of common stock issued
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
   
39,105,853
     
36,908,051
     
39,042,787
     
36,752,469
 
Common stock issued upon acquisition
   
—  
     
1,056,763
     
—  
     
1,056,763
 
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units
   
438,138
     
255,029
     
501,204
     
410,611
 
                                 
Balance, end of period
   
39,543,991
     
38,219,843
     
39,543,991
     
38,219,843
 
                                 
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
  $
39
    $
37
    $
39
    $
37
 
Common stock issued upon acquisition
   
—  
     
1
     
—  
     
1
 
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units
   
  
     
—  
     
—  
     
—  
 
                                 
Balance, end of period
  $
39
    $
38
    $
39
    $
38
 
                                 
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
  $
279,114
    $
253,244
    $
276,365
    $
251,122
 
Common stock issued upon acquisition
   
—  
     
8,865
     
—  
     
8,865
 
Withholding tax on restricted stock units vesting
   
(396
)    
—  
     
(396
)    
—  
 
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units
   
358
     
1,218
     
394
     
1,843
 
Stock-based compensation expense
   
2,179
     
1,438
     
4,892
     
2,935
 
                                 
Balance, end of period
  $
281,255
    $
264,765
    $
281,255
    $
264,765
 
                                 
Accumulated deficit
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
  $
(208,478
)   $
(183,705
)   $
(200,625
)   $
(178,722
)
Net loss
   
(1,295
)    
(7,238
)    
(9,148
)    
(12,221
)
                                 
Balance, end of period
  $
(209,773
)   $
(190,943
)   $
(209,773
)   $
(190,943
)
                                 
Accumulated other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
  $
(1,244
)   $
(931
)   $
(785
)   $
(952
)
Foreign currency translation adjustment
   
158
     
39
     
(301
)    
60
 
                                 
Balance, end of period
  $
(1,086
)   $
(892
)   $
(1,086
)   $
(892
)
 
                                 
Total stockholders’ equity
  $
69,564
    $
72,097
    $
69,564
    $
72,097
 
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
(in thousands)
 
Operating activities
 
 
 
 
 
 
Net loss
  $
(9,148
)   $
(12,221
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   
     
 
Depreciation and amortization
   
4,357
     
3,934
 
Stock-based compensation
   
4,716
     
2,783
 
Provision for reserves on accounts receivable
   
401
     
253
 
Changes in assets and liabilities:
   
     
 
Accounts receivable
   
4,055
     
(7,688
)
Prepaid expenses and other current assets
   
(5,357
)    
(1,892
)
Other assets
   
(300
)    
(435
)
Accounts payable
   
2,038
     
58
 
Accrued expenses
   
(577
)    
7,924
 
Operating leases
   
3
     
(162
)
Deferred revenue
   
5,112
     
3,565
 
                 
Net cash provided by (used in) operating activities
   
5,300
     
(3,881
)
Investing activities
 
 
 
 
 
 
Purchases of property and equipment
   
(1,197
)    
(401
)
Cash paid for acquisition, net of cash acquired
   
—  
     
(3,300
)
Capitalized
internal-use
software costs
   
(3,839
)    
(2,372
)
                 
Net cash used in investing activities
   
(5,036
)    
(6,073
)
Financing activities
 
 
 
 
 
 
Proceeds from exercise of stock options
   
394
     
1,843
 
Proceeds from debt
   
10,000
     
—  
 
Debt paydown
   
(5,000
)    
—  
 
Other financing activities
   
(429
)    
(117
)
                 
Net cash provided by financing activities
   
4,965
     
1,726
 
Effect of exchange rate changes on cash and cash equivalents
   
(235
)    
131
 
                 
Net increase (decrease) in cash and cash equivalents
   
4,994
     
(8,097
)
 
Cash and cash equivalents at beginning of period
   
22,759
     
29,306
 
                 
Cash and cash equivalents at end of period
  $
 
27,753
    $
21,209
 
                 
Supplemental disclosure of
non-cash
investing activities
 
 
 
 
 
 
Fair value of shares issued for acquisition of a business
  $
—  
    $
8,866
 
Supplemental disclosure of cash flow information
 
 
 
 
 
 
Cash paid for operating lease liabilities
  $
3,561
    $
 
3,718
 
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
Brightcove Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data, unless otherwise noted)
1. Business Description and Basis of Presentation
Business Description
Brightcove Inc. (the Company) is a leading global provider of cloud services for video which enable its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These 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 Form
10-K
for the year ended December 31, 2019.
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, other than the changes to accounting for credit losses as described in Note 13, 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, 2019 contained in the Company’s Annual Report on Form
10-K
and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than those disclosed in this Report on Form
10-Q.
As described in Note 13, the Company implemented a significant accounting policy upon the adoption of Accounting Standards Update (“ASU”)
 2016-13,
 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 (“ASC 326”). As of June 30, 2020, other than the changes to the accounting for credit losses, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form
 10-K
 for the year ended December 31, 2019, have not changed.
2. Revenue from Contracts with Customers
The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which include initiation,
 set-up
 and customization services.
The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.
                                         
 
Accounts
Receivable, net
 
 
Contract Assets
(current)
 
 
Deferred
Revenue
(current)
 
 
Deferred
Revenue
(non-current)
 
 
Total Deferred
Revenue
 
Balance at December 31, 2019
  $
31,181
    $
1,871
    $
49,260
    $
299
    $
49,559
 
Balance at June 30, 2020
   
26,794
     
2,017
     
54,647
     
92
     
54,739
 
 
 
 
 
 
 
 
 
 
 
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Table of Contents
Revenue recognized during the three and six months ended June 30, 2020 from amounts included in deferred revenue at the beginning of the period was approximately $13.7 million and $38.9 million, respectively. During the three and six months ended June 30, 2020, 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 $7.4 million as of June 30, 2020 and $5.9 million as of December 31, 2019. Amortization expense recognized during the three and six months ended June 30, 2020 related to costs to obtain a contract was $1.8 million and $3.4 million, respectively. Amortization expense recognized during the three and six months ended June 30, 2019 related to costs to obtain a contract was $1.8 million and $3.7 million, respecti
v
ely.
Transaction Price Allocated to Future Performance Obligations
As of June 30, 2020, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $136.9 million, of which approximately $108.8
 
million is expected to be recognized over the next 12 months. The Company expects to recognize substantially all of the remaining unsatisfied performance obligations by December 2024.
3. Concentration of Credit Risk
The Company has no significant
 off-balance
 sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, trade accounts receivable and unbilled trade accounts receivable.
The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit standing. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.
Please
see
Note 13 for more detail on how the Company assesses credit risk for trade accounts receivable and unbilled trade accounts receivable under ASC 326.
4. Concentration of Other Risks
The Company is dependent on certain content delivery network providers who provide digital media delivery functionality enabling the Company’s
 on-demand
 application service to function as intended for the Company’s customers and ultimate
 end-users.
 The disruption of these services could have a material adverse effect on the Company’s business, financial position, and results of operations.
5. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Management determines the appropriate classification of investments at the time of purchase, and
 re-evaluates
 such determination at each balance sheet date. The Company did not have any short-term or long-term investments at June 30, 2020 or December 31, 2019. The increase in cash and cash equivalents is primarily the result of the Company’s borrowing
, net of repayment
s
,
$5.0 million under an existing line of credit, as described in Note 11.
Cash and cash equivalents primarily consist of cash on deposit with banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.
Cash and cash equivalents as of June 30, 2020 consist of the following:
                                 
 
June 30, 2020
 
Description
 
Contracted
Maturity
 
 
Cost
 
 
Fair Market
Value
 
 
Balance Per
Balance Sheet
 
Cash
   
Demand
    $
27,712
    $
27,712
    $
27,712
 
Money market funds
   
Demand
     
41
     
41
     
41
 
                                 
Total cash and cash equivalents
   
    $
27,753
    $
27,753
    $
27,753
 
                                 
 
 
 
 
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Cash and cash equivalents as of December 31, 2019 consist of the following:
 
December 31, 2019
 
Description
 
Contracted
Maturity
 
 
Cost
 
 
Fair Market
Value
 
 
Balance Per
Balance Sheet
 
Cash
   
Demand
    $
22,718
    $
22,718
    $
22,718
 
Money market funds
   
Demand
     
41
     
41
     
41
 
                                 
Total cash and cash equivalents
   
    $
22,759
    $
22,759
    $
22,759
 
                                 
6. Net Loss per Share
The Company calculates basic and diluted net loss per common share by dividing the net loss by the number of common shares outstanding during the period. The Company has excluded other potentially dilutive shares, which include warrants to purchase common stock and outstanding common stock options and unvested restricted stock units, from the number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses incurred. The following outstanding common shares have been excluded from the computation of dilutive net loss per share as of June 30, 2020 and 2019.
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Options outstanding
   
2,372
     
2,624
     
2,372
     
2,624
 
Restricted stock units outstanding
   
3,580
     
3,187
     
3,580
     
3,187
 
7. Fair Value of Financial Instruments
The Company’s financial instruments carried at fair value were less than $0.1 million as of June 30, 2020 and December 31, 2019
.
8. Stock-based Compensation
The weighted-average fair value of options granted during the three months ended June 30, 2020 and 2019 was $3.76 and $4.53 per share, respectively. The weighted-average fair value of options granted during the six months ended June 30, 2020 and 2019 was $3.48 and $4.36 per share, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Expected life in years
   
6.3
     
6.1
     
6.2
     
6.2
 
Risk-free interest rate
   
0.62
%    
2.38
%    
1.03
%    
2.42
%
 
Volatility
   
48
%    
44
%    
46
%    
44
%
Dividend yield
   
—  
     
—  
     
—  
     
—  
 
As of June 30, 2020, there was $20.7 million of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.08 years. The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three and six months ended June 30, 2020 and 2019:
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Stock-based compensation:
   
     
     
     
 
Cost of subscription and support revenue
  $
123
    $
95
    $
313
    $
214
 
Cost of professional services and other revenue
   
90
     
68
     
170
     
152
 
Research and development
   
257
     
269
     
697
     
532
 
Sales and marketing
   
761
     
351
     
1,672
     
809
 
General and administrative
   
867
     
576
     
1,864
     
1,076
 
                                 
  $
2,098
    $
1,359
    $
4,716
    $
2,783
 
                                 
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The following is a summary of the stock option activity during the six months ended June 30, 2020.
 
Number of
Shares
 
 
Weighted-Average
Exercise Price
 
 
Weighted-Average
Remaining
Contractual
Term (In Years)
 
 
Aggregate
Intrinsic
Value (1)
 
Outstanding at December 31, 2019
   
2,479,423
    $
8.96
     
     
 
Granted
   
79,920
     
7.76
     
     
 
Exercised
   
(61,096
)    
6.48
     
    $
108
 
Canceled
   
(126,007
)    
9.00
     
     
 
                                 
Outstanding at June 30, 2020
   
2,372,240
    $
8.99
     
6.81
    $
852
 
                                 
Exercisable at June 30, 2020
   
1,368,007
    $
8.70
     
5.67
    $
740
 
                                 
(1) The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on June 30, 2020 of $7.88 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
The following table summarizes the restricted stock unit activity during the six months ended June 30, 2020:
 
Shares
 
 
Weighted
Average Grant
Date Fair Value
 
Unvested at December 31, 2019
   
3,626,364
    $
9.03
 
Granted
   
746,295
     
7.95
 
Vested and issued
   
(438,484
)    
8.92
 
Canceled
   
(353,932
)    
8.52
 
                 
Unvested at June 30, 2020
   
3,580,243
    $
8.81
 
                 
The aggregate fair value of vested and issued RSUs for the six months ended June 30, 2020 was $4.2 million.
9. Income Taxes
For the three months ended June 30, 2020 and 2019, the Company recorded income tax expense of $115 and $175, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded income tax expense of $443 and $350, respectively. 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 June 30, 2020 and December 31, 2019, 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.
10. 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.
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Table of Contents
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 June 30, 2020, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.
In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.
11. Debt
On December 14, 2018, the Company entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset based line of credit (the “Line of Credit”). Under the Line of Credit, the Company can borrow up to $30.0 million. Borrowings under the Line of Credit are secured by substantially all of the Company’s assets, excluding its intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows: (i) for prime rate advances, the greater of (A) the prime rate and (B) 4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4%. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at least $15.0 million, the Company must also maintain a minimum net income threshold based on
 non-GAAP
 operating measures.
Failure to comply with these covenants, or the occurrence of an event of default, could permit the lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. The Company was in compliance with all covenants under the Line of Credit as of June 30, 2020.
In March 2020, the Company borrowed $10.0 million on the Line of Credit in anticipation of any operating cash needs in light of
 COVID-19.
 
In June 2020 the Company
re
paid $5.0 million on the Line of Credit
.
 
The effective interest rate for the amounts borrowed on the Line of Credit was
4
% for the six months ended June 30, 2020. The Line of Credit matures in
December 2021
. The fair value of these borrowings,
net of amounts paid,
which are classified as Level 2, approximates their carrying value at June 30, 2020 as the instrument carries a variable rate of interest which reflects current market rates.
12. 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,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Revenue:
   
     
     
     
 
North America
  $
26,039
    $
25,708
    $
51,038
    $
47,521
 
Europe
   
8,427
     
8,167
     
16,888
     
14,636
 
Japan
   
5,554
     
5,146
     
11,656
     
11,334
 
Asia Pacific
   
7,714
     
8,091
     
14,584
     
15,363
 
Other
   
192
     
470
     
413
     
564
 
                                 
Total revenue
  $
47,926
    $
47,582
    $
94,579
    $
89,418
 
                                 
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $23,992 and $23,966 during the three months ended June 30, 2020 and 2019, respectively. Revenue from customers
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located in the United States was $46,962 and $44,372 during the six months ended June 30, 2020 and 2019, respectively. Other than the United States and Japan, no other country contributed more than 10% of the Company’s total revenue during the three and six months ended June 30, 2020 and 2019.
As of June 30, 2020 and December 31, 2019, property and equipment at locations outside the U.S. was not material.
13. Recently Issued and Adopted Accounting Standards
In June 2016, the FASB issued ASU No.
 2016-13,
 which requires measurement and recognition of expected credit losses for financial assets held. Effective January 1, 2019, the Company adopted ASC 326 using the transition method introduced by ASU
 2016-13.
 The adoption of ASC 326 did not result in an adjustment to the estimated allowance as of December 31, 2019.
Under ASC 326, the Company changed its policy for assessing credit losses to include consideration of a broader range of information to estimate credit losses over the life of its financial assets. As of June 30, 2020, the financial assets of the Company within the scope of the assessment comprised trade accounts receivable (“AR”) and unbilled trade accounts receivable. Unbilled trade accounts receivable (“UAR”) is reflected in Other Current Assets on the Company’s Condensed Consolidated Balance Sheets and was $2.0 million as of June 30, 2020 and December 31, 2019.
The Company uses the aging method to estimate its expected credit losses on AR and UAR. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the aging method into risk pools. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. In the absence of current economic conditions and/or forecasts that may affect future credit losses, the Company has determined that recent historical experience provides the best basis for estimating credit losses. As of June 30, 2020, the Company estimates the life of its AR as
 5
0
-6
0
 days. This estimate is based on the Company’s historical experience for days sales outstanding (“DSO”).
The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. The historical analysis yielded one material risk factor, the geographical location of the customer. Specifically, historical experience showed that AR that was due from customers in the Asia Pacific region had experienced more credit losses than the other geographic areas listed in
Note
12. Europe and Japan had significantly less credit loss experience when compared to Asia Pacific while North America’s credit loss experience was commensurate with the proportion of total AR that North America’s AR comprised. There were no other significant risk characteristics identified in the review of historical experience.
The Company’s assessment of current economic conditions and reasonable and supportable forecasts included an assessment of customer industries affected by
 COVID-19.
 Based on available information, the Company identified the following customer industries as being significantly affected by
 COVID-19,
 in no particular order: restaurants, hospitality, tourism, sports, travel and consumer goods. The Company assessed the relevant and supportable information available and estimated and recorded approximately $0.2 million increase in the provision for credit losses due to
 COVID-19.
 The Company will continue to assess the
 COVID-19
 risk to its AR for the duration of the pandemic.
 
The following details the changes in the Company’s reserve allowance for estimated credit losses for AR for the period:
 
Allowance for Credit Losses
 
 
(in thousands)
 
Balance as of December 31, 2019
  $
904
 
Current provision for credit losses
   
310
 
Write-offs against allowance
   
(563
)
Recoveries
   
  
 
Balance as of June 30, 2020
  $
651
 
         
Estimated credit losses for UAR were not material.
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Estimating credit losses based on risk characteristics requires significant judgment by the Company. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they would be relevant to the existing characteristics of the company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company will have to continually review and update, when necessary, its historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.
14. Restructuring
During the first half of 2020, the Company committed to an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result, certain headcount reductions were necessary. The Company incurred approximately $1.1
million
and $1.3
 million
, respectively, in restructuring charges during the three and six months ended June 30, 2020. The restructuring charges reflect post-employment benefits and are reflected in the
Condensed Consolidated Statements of Operations
as follows: $1.1
 
million – Research and Development; $130
 thou
s
and
 -
 General and Administrative; $51
 
thousand– Cost of subscription and support:
 
and
$
23
thousand– Sales and Marketing. As of June 30, 2020 the Company had accrued
 
$
831
 
thousand related to this action, which is expected to be paid in the next three to four months.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form
10-Q
and our Annual Report on Form
10-K
for the year ended December 31, 2019.
Company Overview
We are a leading global provider of cloud-based services for video. We were incorporated in Delaware in August 2004 and our headquarters are in Boston, Massachusetts. Our suite of products and services reduce the cost and complexity associated with publishing, distributing, measuring and monetizing vide