ne
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
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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(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 |
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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 November 8, 2024, there were
BRIGHTCOVE INC.
Table of Contents
2
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 II of this Quarterly Report on Form 10-Q, and the risks discussed in our other Securities and Exchange Commission, or SEC, filings. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. However, any further disclosures made on related subjects in our subsequent reports filed with the SEC should be consulted. Forward-looking statements in this Quarterly Report on Form 10-Q may include statements about:
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
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September 30, 2024 |
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December 31, 2023 |
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(in thousands, except share |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of $ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use asset |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liability |
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Deferred revenue |
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Total current liabilities |
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Operating lease liability, net of current portion |
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Other liabilities |
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Total liabilities |
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$ |
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$ |
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(Note 8) |
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Stockholders’ equity: |
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Undesignated preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost; |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Brightcove Inc.
Condensed Consolidated Statements of Operations
(unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(in thousands, except share and per share data) |
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Revenue: |
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Subscription and support revenue |
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$ |
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$ |
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$ |
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$ |
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Professional services and other revenue |
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Total revenue |
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Cost of revenue: |
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Cost of subscription and support revenue |
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Cost of professional services and other revenue |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Merger-related |
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Gain on sale of assets |
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Total operating expenses |
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Loss from operations |
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Other income, net |
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Loss before income taxes |
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Provision for income taxes |
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Net loss |
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$ |
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$ |
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$ |
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Net loss per share—basic and diluted |
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$ |
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$ |
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$ |
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Weighted-average number of common shares used in computing net loss per share |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Brightcove Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(in thousands) |
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Net loss |
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$ |
( |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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Comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Brightcove Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(in thousands, except share data) |
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Shares of common stock issued |
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Balance, beginning of period |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units |
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Balance, end of period |
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Shares of treasury stock |
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Balance, beginning of period |
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Balance, end of period |
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Par value of common stock issued |
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Balance, beginning of period |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units |
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Balance, end of period |
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$ |
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$ |
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$ |
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$ |
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Value of treasury stock |
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Balance, beginning of period |
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$ |
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$ |
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$ |
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$ |
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Balance, end of period |
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$ |
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$ |
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$ |
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$ |
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Additional paid-in capital |
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Balance, beginning of period |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of tax |
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( |
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Stock-based compensation |
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Withholding tax on restricted stock |
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( |
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Balance, end of period |
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$ |
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$ |
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$ |
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$ |
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Accumulated deficit |
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Balance, beginning of period |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss |
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( |
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( |
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( |
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( |
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Balance, end of period |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Accumulated other comprehensive loss |
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Balance, beginning of period |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Foreign currency translation adjustment |
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Balance, end of period |
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$ |
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$ |
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$ |
( |
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$ |
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Total stockholders’ equity |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Nine Months Ended September 30, |
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2024 |
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2023 |
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(in thousands) |
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Operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Provision for reserves on accounts receivable |
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Gain on sale of assets |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Prepaid expenses and other current assets |
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( |
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Other assets |
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Accounts payable |
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( |
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Accrued expenses |
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( |
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Operating leases |
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Deferred revenue |
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Net cash provided by operating activities |
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Investing activities |
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Gain on sale of assets |
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Purchases of property and equipment |
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Capitalized internal-use software costs |
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Net cash used in investing activities |
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Financing activities |
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Deferred acquisition payments |
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Other financing activities |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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Net increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Cash paid for operating lease liabilities |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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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 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, deliver, and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.
The Company is headquartered in Boston, Massachusetts and was incorporated in the state of Delaware on August 24, 2004.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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, 2023 contained in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for the three and nine months ended September 30, 2024 and 2023. 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:
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Allowance for Credit Losses |
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(in thousands) |
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Balance as of December 31, 2023 |
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$ |
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Current provision for credit losses |
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Write-offs against allowance |
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( |
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Recoveries |
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( |
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Balance as of September 30, 2024 |
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$ |
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Estimated credit losses for unbilled trade accounts receivable were not material.
Recently Issued and Adopted Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, which improves the transparency and decision usefulness of income tax disclosures, specifically to enhance investors' ability to: (1) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. This guidance will be effective for the Company on January 1, 2025. The Company does not expect the application of this guidance to have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. ASU No. 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments included in this ASU apply to all public entities that are required to
9
report segment information in accordance with Topic 280, including those with a single reportable segment. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expenses categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company only has
3. Revenue from Contracts with Customers
The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which include initiation, set-up and customization services.
The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.
(in thousands) |
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Accounts Receivable, net |
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Contract Assets (current) |
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Deferred Revenue (current) |
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Deferred Revenue (non-current) |
|
|
Total Deferred Revenue |
|
|||||
Balance at December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Balance at September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenue recognized for the three and nine months ended September 30, 2024 from amounts included in deferred revenue at the beginning of the period was approximately $
The assets recognized for costs to obtain a contract were $
Transaction Price Allocated to Future Performance Obligations
As of September 30, 2024, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $
4. Cash and Cash Equivalents
Cash and cash equivalents as of September 30, 2024 consisted of the following:
|
|
September 30, 2024 |
|
|||||||
Description |
|
Contracted |
|
Cost |
|
|
Fair Market |
|
||
|
|
(in thousands) |
|
|||||||
Cash |
|
Demand |
|
$ |
|
|
$ |
|
||
Money market funds |
|
Demand |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
|
|
$ |
|
|
$ |
|
||
10
Cash and cash equivalents as of December 31, 2023 consisted of the following:
|
|
December 31, 2023 |
|
|||||||
Description |
|
Contracted |
|
Cost |
|
|
Fair Market |
|
||
|
|
(in thousands) |
|
|||||||
Cash |
|
Demand |
|
$ |
|
|
$ |
|
||
Money market funds |
|
Demand |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
|
|
$ |
|
|
$ |
|
||
5. Net Loss per Share
The Company calculates basic and diluted net loss per common share by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has excluded other potentially dilutive shares, which includes the effects of the assumed exercise of any outstanding common stock options and the assumed vesting of restricted stock units, where the effect would be anti-dilutive.
The following outstanding common shares have been excluded from the computation of dilutive net loss per share as of the periods indicated:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(shares in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Options outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
6. Stock-based Compensation
In 2022, the Company adopted the 2022 Inducement Plan (“2022 Plan”). The 2022 Plan provides for the grant of “employment inducement awards” within the meaning of NASDAQ Listing Rule 5635(c)(4). In connection with the commencement of his employment, the Company granted
For restricted stock units with market-based performance conditions, the cost of the awards is recognized as the requisite service is rendered by the employee, regardless of when, if ever, the market-based performance conditions are satisfied. The Monte-Carlo simulation model is used to estimate fair value of market-based performance restricted stock units. The Monte-Carlo simulation model calculates multiple potential outcomes for an award and establishes a fair value based on the most likely outcome. Key assumptions for the Monte-Carlo simulation model include the risk-free rate, expected volatility, expected dividends and the correlation coefficient.
On March 20, 2023, the Company granted
The weighted-average assumptions utilized to determine the weighted-average fair value of options are presented in the following table:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average fair value of options granted during the period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Risk-free interest rate |
|
|
|
|
|
|
|
|
|
|
|
|||||
Expected volatility |
|
|
|
|
|
|
|
|
|
|
|
|||||
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
||||
11
As of September 30, 2024, there was $
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of subscription and support revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of professional services and other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following is a summary of the stock option activity during the nine months ended September 30, 2024.
|
|
Number of |
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
$ |
|
|||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canceled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercisable at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The following table summarizes the restricted stock unit activity for our service-based awards (“S-RSU”) and our performance-based awards (“P-RSU”) during the nine months ended September 30, 2024:
|
|
S-RSU Shares |
|
|
Weighted |
|
|
P-RSU Shares |
|
|
Weighted |
|
|
Total RSU Shares |
|
|
Weighted |
|
||||||
Unvested at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vested and issued |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Canceled |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Unvested at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
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.
12
The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of September 30, 2024 and December 31, 2023, based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, because, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences.
8. Commitments and Contingencies
Legal Matters
The Company, from time to time, is party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company based on the status of proceedings at this time.
Guarantees and Indemnification Obligations
The Company typically enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection with patent, copyright, trade secret, or other intellectual property or personal right infringement claims by third parties with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. Based on historical experience and information known as of September 30, 2024, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.
In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.
9. Debt
On
13
10. Segment Information
Geographic Data
Total revenue from unaffiliated customers by geographic area, based on the location of the customer, was as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $
Other than the United States, no other country contributed more than
11. Goodwill and intangible assets
During the three months ended September 30, 2024, indicators of potential impairment were identified, which included a continued decline in the Company's stock price and market capitalization.
The Company reviewed its quantitative analysis for its definite-lived intangible assets as of October 31, 2023, that used undiscounted cash flow models, and determined that the assumptions used in the undiscounted cash flow model were still applicable as of September 30, 2024 and that there was
As the Company has
14
12. Restructuring and Other
During the three months ended March 31, 2023, the Company took 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 $
During the three months ended March 31, 2024, the Company took 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 $
During the three months ended March 31, 2024, the Company incurred costs of approximately $
13. Gain on Sale of Assets
During the three months ended March 31, 2024, the Company sold a certain number of its patents to a third party for $
During the three months ended June 30,2024 and September 30, 2024 the Company did
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except share and per share data, unless otherwise noted)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023.
Company Overview
We are a global leader in cloud-based streaming technology and services with a vision to be the world's most trusted streaming technology company. Brightcove’s software platform and suite of solutions include a breadth and depth of offerings that meet the needs of media and enterprise customers in a variety of industries across the globe with their use of streaming video, and serve as a guide in optimizing and maturing their streaming strategies. Leading companies across industries rely on our products, solutions, services, and industry expertise to grow their streaming businesses, monetize their content via streaming use-cases, expand and engage their audiences (both external and internal), and reduce the cost and complexity associated with storing, publishing, delivering, distributing, measuring, and monetizing content across streaming channels and devices.
With deep industry expertise and an understanding of how streaming video helps generate positive business outcomes, our proven platform combines functionality designed to meet the needs and goals of our customers with the additional flexibility for customers to customize solutions to meet their own unique requirements.
Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, and go-to-market activities to support our long-term revenue growth. We believe these investments will help us address some of the challenges facing our business such as demand for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting price sensitivity. These investments include support for the expansion of our infrastructure within our hosting facilities, the hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of new products. We believe this strategy will help us retain our existing customers, increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold, research and development and general and administrative expenses as a percentage of total revenue.
As of September 30, 2024, and 2023, we had 621 and 671 employees, respectively.
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue decreased from $151.0 million in the nine months ended September 30, 2023 to $149.7 million in the nine months ended September 30, 2024, due to a decrease in subscription and support revenue, offset by an increase in professional services revenue.
Included in the consolidated net loss for the nine months ended September 30, 2024 was stock-based compensation expense, amortization of acquired intangible assets, and restructuring expense of $8.0 million, $2.8 million, and $2.4 million, respectively. Included in the consolidated net loss for the nine months ended September 30, 2023 was merger-related expense, stock-based compensation expense, amortization of acquired intangible assets and restructuring expense of $0.3 million, $10.4 million, $3.0 million and $2.8 million, respectively.
For the three months ended September 30, 2024 and 2023, our revenue derived from customers located outside North America was 40% and 39%, respectively. For the nine months ended September 30, 2024 and 2023, our revenue derived from customers located outside of North America was 39% and 40%, respectively. We expect the percentage of total net revenue derived from outside North America to remain relatively unchanged or decrease in future periods due to fluctuations in exchange rates and a decrease in usage-based fees.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
16
The following tables include our key metrics for the periods presented:
|
|
September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Customers |
|
|
|
|
|
|
||
Premium |
|
|
1,923 |
|
|
|
2,077 |
|
Volume |
|
|
469 |
|
|
|
541 |
|
Total customers |
|
|
2,392 |
|
|
|
2,618 |
|
Total backlog, excluding professional services engagements (in millions) |
|
$ |
183.2 |
|
|
$ |
174.2 |
|
Total backlog to be recognized over next 12 months, excluding |
|
$ |
122.4 |
|
|
$ |
121.0 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net revenue retention rate |
|
|
93.6 |
% |
|
|
92.7 |
% |
|
|
92.9 |
% |
|
|
93.6 |
% |
Recurring dollar retention rate |
|
|
80.2 |
% |
|
|
85.4 |
% |
|
|
82.7 |
% |
|
|
86.7 |
% |
Average annual subscription revenue per premium customer, |
|
$ |
101.4 |
|
|
$ |
95.9 |
|
|
$ |
99.5 |
|
|
$ |
93.3 |
|
Average annual subscription revenue per premium customer |
|
$ |
4.2 |
|
|
$ |
3.8 |
|
|
$ |
4.3 |
|
|
$ |
3.9 |
|
Our go-to-market focus and growth strategy is to expand our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Premium customers decreased in the three months ended September 30, 2024 compared to the prior period due to some customers deciding to switch to in-house solutions or other third-party solutions. Volume customers decreased in recent periods primarily due to our discontinuation of the promotional Video Cloud Express offering. As a result, we have experienced attrition of this base level offering without a corresponding addition of customers. We expect customers using our volume offerings to continue to decrease in 2024 and beyond as we continue to focus on the market for our premium solutions.
17
Geopolitical Events
Worldwide economic uncertainties and negative trends, including financial and credit market fluctuations, uncertainty in the banking sector, rising interest rates, political unrest and social strife, such as continued Russian military action against Ukraine, and the current armed conflict in Israel and the Gaza Strip, a potential U.S. federal government shutdown, and other impacts from the macroeconomic environment have, and could continue to, affect our business, financial condition and results of operations. While we have continued to invest in business growth, our business is dependent on many factors and these macroeconomic conditions have caused and may in the future affect the rate of spending on software products and the demand for video to support virtual events.
Components of Consolidated Statements of Operations
Revenue
Subscription and Support Revenue — We generate subscription and support revenue from the sale of our products.
Our products are generally offered to customers on a subscription-based SaaS model, with varying levels of functionality, support, and usage entitlements that depend on the use case of our customers. Customer arrangements are typically one-year contracts, which include a subscription to our software, access to basic support and a pre-determined amount of usage entitlements. The pricing is based on the value of our software, the level of support, and the amount of usage entitlements. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. We also offer enhanced support packages for an additional fee.
Our Video Cloud Express edition, which targets SMBs, and our Zencoder customers on month-to-month contracts or pay-as-you-go contracts, are considered volume customers. All other customers are considered premium customers.
Professional Services and Other Revenue — Professional services and other revenue consists of services such as implementation, software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed, or on a time and materials basis.
Cost of Revenue
Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or CDN, expenses, allocated overhead, depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services.
Cost of revenue decreased in absolute dollars from the first nine months of 2023 to the first nine months of 2024. In future periods we expect our costs of revenue in absolute dollars to correlate with the change in revenue. 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.
18
Operating Expenses
We classify our operating expenses as follows:
Research and Development. Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, incentive compensation and stock-based compensation, in addition to the costs associated with contractors and allocated overhead. We have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use, as well as creating new product offerings. We expect, over the long term, that research and development expenses will increase in absolute dollars as we intend to continue to periodically release new features and functionality, expand our product offerings, continue the localization of our products in various languages, upgrade and extend our service offerings, and develop new technologies. Over the long term, we believe that research and development expenses as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing products, features and functionality, as well as changes in the technology that our products must support, such as new operating systems or new Internet-connected devices.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. We intend to continue to invest in sales and marketing and expand the sale of our product offerings within our existing customer base, build brand awareness and sponsor additional marketing events. Accordingly, over the long term, we expect sales and marketing expense to continue to be our most significant operating expense in future periods. Over the long term, we believe that sales and marketing expense as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing customers and from small, medium-sized and enterprise customers, as well as changes in the productivity of our sales and marketing programs.
General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, information technology and human resources functions, including salaries, benefits, incentive compensation and stock-based compensation. General and administrative expenses also include the costs associated with professional fees, insurance premiums, other corporate expenses and allocated overhead. Over the long term, we believe that general and administrative expenses as a percentage of revenue will decrease.
Merger-related. Merger-related costs consist of expenses related to mergers and acquisitions, integration costs and general corporate development activities.
Gain on Sale of Assets. During the three months ended March 31, 2024, we sold a certain number of our patents to a third party for $6.0 million. We retain the perpetual right to use these patents for our current customers. We also retained the perpetual right to use these patents in our offerings to prospective customers, with certain time-limited exceptions. We have no obligation to maintain or develop the patents.
Other Income, net
Other income, net 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. and foreign net deferred tax assets at September 30, 2024 and December 31, 2023.
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.
19
For the three months ended September 30, 2024 and 2023, we recorded $2.6 million and $3.4 million, respectively, of stock-based compensation expense. For the nine months ended September 30, 2024 and 2023, we recorded $8.0 million and $10.4 million, respectively, of stock-based compensation expense. We expect stock-based compensation expense to increase in absolute dollars in future periods.
Foreign Currency Translation
With regard to our international operations, we frequently enter into transactions in currencies other than the U.S. dollar. As a result, our revenue, expenses and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound, Australian dollar, and Japanese yen. In periods when the U.S. dollar declines in value as compared to the foreign currencies in which we conduct business, our foreign currency-based revenue and expenses generally increase in value when translated into U.S. dollars. During the nine months ended September 30, 2024, the U.S. dollar increased in value as compared to the Japanese Yen, and our Japanese Yen-based revenues decreased in value when translated into U.S. dollars. We expect the percentage of total net revenue derived from outside North America to increase in future periods as we continue to expand our international operations. Should the U.S. dollar continue to increase in value, our future percentage of total net revenue derived from outside North America may remain relatively unchanged or decrease.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
We consider the assumptions and estimates associated with revenue recognition, income taxes, business combinations, intangible assets and goodwill to be our critical accounting policies and estimates. We discuss any assumptions and estimates that could have a material effect on the results of operations in the applicable section of this discussion and analysis of the financial condition and results of operations. Please see Note 11 for a discussion of our evaluation of impairment of goodwill as of September 30, 2024.
For a detailed explanation of the judgments made in these areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which we filed with the Securities and Exchange Commission on February 22, 2024.
Results of Operations
The following tables set forth our results of operations for the periods presented. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily
20
indicative of future results. This information should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands, except share and per share data) |
|
|||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscription and support revenue |
|
$ |
47,963 |
|
|
$ |
48,571 |
|
|
$ |
143,329 |
|
|
$ |
144,686 |
|
Professional services and other revenue |
|
|
1,987 |
|
|
|
2,409 |
|
|
|
6,349 |
|
|
|
6,345 |
|
Total revenue |
|
|
49,950 |
|
|
|
50,980 |
|
|
|
149,678 |
|
|
|
151,031 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of subscription and support revenue |
|
|
16,574 |
|
|
|
16,892 |
|
|
|
50,658 |
|
|
|
51,760 |
|
Cost of professional services and other revenue |
|
|
1,804 |
|
|
|
2,369 |
|
|
|
6,749 |
|
|
|
6,269 |
|
Total cost of revenue |
|
|
18,378 |
|
|
|
19,261 |
|
|
|
57,407 |
|
|
|
58,029 |
|
Gross profit |
|
|
31,572 |
|
|
|
31,719 |
|
|
|
92,271 |
|
|
|
93,002 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
8,742 |
|
|
|
8,730 |
|
|
|
26,566 |
|
|
|
28,941 |
|
Sales and marketing |
|
|
16,393 |
|
|
|
17,222 |
|
|
|
49,927 |
|
|
|
55,721 |
|
General and administrative |
|
|
9,241 |
|
|
|
7,941 |
|
|
|
27,607 |
|
|
|
27,410 |
|
Merger-related |
|
|
— |
|
|
|
117 |
|
|
|
— |
|
|
|
307 |
|
Gain on sale of assets |
|
|
— |
|
|
|
— |
|
|
|
(6,000 |
) |
|
|
— |
|
Total operating expenses |
|
|
34,376 |
|
|
|
34,010 |
|
|
|
98,100 |
|
|
|
112,379 |
|
Loss from operations |
|
|
(2,804 |
) |
|
|
(2,291 |
) |
|
|
(5,829 |
) |
|
|
(19,377 |
) |
Other income, net |
|
|
139 |
|
|
|
130 |
|
|
|
150 |
|
|
|
9 |
|
Loss before income taxes |
|
|
(2,665 |
) |
|
|
(2,161 |
) |
|
|
(5,679 |
) |
|
|
(19,368 |
) |
Provision for income taxes |
|
|
292 |
|
|
|
260 |
|
|
|
949 |
|
|
|
1,004 |
|
Net loss |
|
$ |
(2,957 |
) |
|
$ |
(2,421 |
) |
|
$ |
(6,628 |
) |
|
$ |
(20,372 |
) |
Overview of Results of Operations for the Three Months Ended September 30, 2024 and 2023
Total revenue decreased by 2%, or $1.0 million, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to a decrease in subscription and support revenue of 1% or $0.6 million, primarily due to a decrease in revenue from our premium offerings. Our revenue from premium offerings decreased by $1.0 million, or 2%, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to a decrease in the number of our customers, a decrease in usage-based fees outside of North America, and to a lesser extent, foreign exchange. Professional services and other revenue decreased by 18%, or $0.4 million, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.
In constant currency, our total revenue for the three months ended September 30, 2024 would have been approximately $50.0 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of $0.1 million. Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison.
Our gross profit decreased by $0.1 million, or 0%, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the decrease in usage-based fees in subscription and support revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery and our revenue from premium offerings.
Loss from operations was $2.8 million in the three months ended September 30, 2024 compared to a loss of $2.3 million in the three months ended September 30, 2023. This is primarily due to a decrease in total revenue of $1.0 million and an increase of $0.4 million to operating expenses. The increase in the loss from operations was partially offset by a decrease in cost of revenue of $0.9 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
21
Revenue
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Product Line |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Premium |
|
$ |
49,663 |
|
|
|
99 |
% |
|
$ |
50,667 |
|
|
|
99 |
% |
|
$ |
(1,004 |
) |
|
|
(2 |
)% |
Volume |
|
|
287 |
|
|
|
1 |
|
|
|
313 |
|
|
|
1 |
|
|
|
(26 |
) |
|
|
(8 |
) |
Total |
|
$ |
49,950 |
|
|
|
100 |
% |
|
$ |
50,980 |
|
|
|
100 |
% |
|
$ |
(1,030 |
) |
|
|
(2 |
)% |
During the three months ended September 30, 2024, revenue decreased by $1.0 million, or 2%, compared to the three months ended September 30, 2023, primarily due to a decrease in revenue from our premium offerings. The decrease in premium revenue of $1.0 million, or 2%, is the result of a decrease in the number of our customers, a decrease in usage-based fees outside of North America, and to a lesser extent, foreign exchange. In the three months ended September 30, 2024, volume revenue did not change materially compared to the three months ended September 30, 2023, as we continue to focus on the market for our premium solutions.
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Type |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
47,963 |
|
|
|
96 |
% |
|
$ |
48,571 |
|
|
|
95 |
% |
|
$ |
(608 |
) |
|
|
(1 |
)% |
Professional services and other |
|
|
1,987 |
|
|
|
4 |
|
|
|
2,409 |
|
|
|
5 |
|
|
|
(422 |
) |
|
|
(18 |
) |
Total |
|
$ |
49,950 |
|
|
|
100 |
% |
|
$ |
50,980 |
|
|
|
100 |
% |
|
$ |
(1,030 |
) |
|
|
(2 |
)% |
During the three months ended September 30, 2024, subscription and support revenue decreased compared to the three months ended September 30, 2023 primarily due to a decrease in revenue from our premium offerings as described above. Professional services and other revenue decreased by $0.4 million, or 18%, 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, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Geography |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
North America |
|
$ |
30,153 |
|
|
|
60 |
% |
|
$ |
30,507 |
|
|
|
60 |
% |
|
$ |
(354 |
) |
|
|
(1 |
)% |
Europe |
|
|
8,126 |
|
|
|
16 |
|
|
|
8,236 |
|
|
|
16 |
|
|
|
(110 |
) |
|
|
(1 |
) |
Japan |
|
|
4,249 |
|
|
|
9 |
|
|
|
4,798 |
|
|
|
9 |
|
|
|
(549 |
) |
|
|
(11 |
) |
Asia Pacific |
|
|
7,418 |
|
|
|
15 |
|
|
|
7,331 |
|
|
|
14 |
|
|
|
87 |
|
|
|
1 |
|
Other |
|
|
4 |
|
|
|
— |
|
|
|
108 |
|
|
|
0 |
|
|
|
(104 |
) |
|
|
(96 |
) |
International subtotal |
|
|
19,797 |
|
|
|
40 |
|
|
|
20,473 |
|
|
|
39 |
|
|
|
(676 |
) |
|
|
(3 |
) |
Total |
|
$ |
49,950 |
|
|
|
100 |
% |
|
$ |
50,980 |
|
|
|
99 |
% |
|
$ |
(1,030 |
) |
|
|
(2 |
)% |
For purposes of this section, we designate revenue by geographic regions based upon the locations of our customers. North America is comprised of revenue from the United States, Canada and Mexico. International is comprised of revenue from locations outside of North America. Depending on the timing of new customer contracts, revenue mix from a geographic region can vary from period to period.
During the three months ended September 30, 2024, total revenue for North America decreased by $0.4 million, or 1%, compared to the three months ended September 30, 2023. During the three months ended September 30, 2024, total revenue outside of North America decreased by $0.7 million, or 3%, compared to the three months ended September 30, 2023. The decrease in revenue in Japan was primarily driven by a decrease in average revenue per premium customer as customer usage-based fees were less in the current period. The decreases in Asia Pacific and Europe were due equally to a decrease in customers and a decrease in average revenue per premium customer as usage-based fees decreased.
22
Cost of Revenue
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Cost of Revenue |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
16,574 |
|
|
|
35 |
% |
|
$ |
16,892 |
|
|
|
35 |
% |
|
$ |
(318 |
) |
|
|
(2 |
)% |
Professional services and other |
|
|
1,804 |
|
|
|
91 |
|
|
|
2,369 |
|
|
|
98 |
|
|
|
(565 |
) |
|
|
(24 |
) |
Total |
|
$ |
18,378 |
|
|
|
37 |
% |
|
$ |
19,261 |
|
|
|
38 |
% |
|
$ |
(883 |
) |
|
|
(5 |
)% |
In the three months ended September 30, 2024, cost of subscription and support revenue decreased $0.3 million, or 2%, compared to the three months ended September 30, 2023. The decrease resulted primarily from a decrease in IT and infrastructure costs of $1.2 million and was partially offset by an increase in depreciation and amortization expense, partner commissions costs, and employee costs of $0.5 million, $0.2 million and $0.2 million respectively.
In the three months ended September 30, 2024, cost of professional services and other revenue decreased $0.6 million, or 24%, compared to the three months ended September 30, 2023. The decrease resulted primarily from a decrease in consulting expenses of $0.6 million.
Gross Profit
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Gross Profit |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
31,389 |
|
|
|
65 |
% |
|
$ |
31,679 |
|
|
|
65 |
% |
|
$ |
(290 |
) |
|
|
(1 |
)% |
Professional services and other |
|
|
183 |
|
|
|
9 |
|
|
|
40 |
|
|
|
2 |
|
|
|
143 |
|
|
|
358 |
|
Total |
|
$ |
31,572 |
|
|
|
63 |
% |
|
$ |
31,719 |
|
|
|
62 |
% |
|
$ |
(147 |
) |
|
|
0 |
% |
The overall gross profit percentage was 63% and 62% for the three months ended September 30, 2024 and 2023, respectively. The increase in gross profit percentage was due to the aforementioned decreases in cost of revenues partially offset by the decrease in subscription and support revenue. Subscription and support gross profit decreased $0.3 million, or 1%, compared to the three months ended September 30, 2023. Professional services and other gross profit increased by $ 0.1 million, or 358%, compared to the three months ended September 30, 2023. We expect 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
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Operating Expenses |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Research and development |
|
$ |
8,742 |
|
|
|
18 |
% |
|
$ |
8,730 |
|
|
|
17 |
% |
|
$ |
12 |
|
|
|
0 |
% |
Sales and marketing |
|
|
16,393 |
|
|
|
33 |
|
|
|
17,222 |
|
|
|
34 |
|
|
|
(829 |
) |
|
|
(5 |
) |
General and administrative |
|
|
9,241 |
|
|
|
19 |
|
|
|
7,941 |
|
|
|
16 |
|
|
|
1,300 |
|
|
|
16 |
|
Merger-related |
|
|
— |
|
|
|
— |
|
|
|
117 |
|
|
|
— |
|
|
|
(117 |
) |
|
|
(100 |
) |
Total |
|
$ |
34,376 |
|
|
|
69 |
% |
|
$ |
34,010 |
|
|
|
67 |
% |
|
$ |
366 |
|
|
|
1 |
% |
Research and Development. In the three months ended September 30, 2024, research and development expense remained largely consistent as compared to the three months ended September 30, 2023. We expect research and development costs in absolute dollars to remain relatively steady in the remainder of 2024.
23
Sales and Marketing. In the three months ended September 30, 2024, sales and marketing expense decreased by $0.8 million, or 5%, compared to the three months ended September 30, 2023 primarily due to a decrease in employee-related expenses of $0.7 million. We expect sales and marketing expense in absolute dollars to decrease during the remainder of 2024.
General and Administrative. In the three months ended September 30, 2024, general and administrative expense increased by $1.3 million, or 16%, compared to the three months ended September 30, 2023 primarily due to increases in in employee-related costs, including contractor expenses, legal fees, and depreciation expense of $0.5 million, $0.4 million, and $0.3 million, respectively. We expect general and administrative expenses in absolute dollars to increase modestly during the remainder of 2024.
Merger-Related. In the three months ended September 30, 2024, merger-related expenses decreased by $0.1 million, or 100%, due to costs incurred in connection with merger-related activities incurred in 2023 which did not recur in 2024.
Overview of Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Total revenue decreased by 1%, or $1.4 million, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to a decrease in subscription and support revenue of 1% or $1.4 million, primarily due to a decrease in revenue from our premium offerings. Our revenue from premium offerings decreased by $1.3 million, or 1%, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Professional services and other revenue remained largely consistent in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.
In constant currency, our total revenue for the nine months ended September 30, 2024 would have been approximately $151.0 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of $1.3 million. Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison.
Our gross profit decreased by $0.7 million, or 1%, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to a decrease in subscription and support revenue, as well as an increase in amortization expense related to our capitalized internal-use software. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery and our revenue from premium offerings.
Loss from operations was $5.8 million in the nine months ended September 30, 2024 compared to a loss from operations of $19.4 million in the nine months ended September 30, 2023. This is primarily due to a decrease in operating expenses of $14.3 million, offset by a decrease in gross profit of $0.7 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Revenue
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Product Line |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Premium |
|
$ |
148,792 |
|
|
|
99 |
% |
|
$ |
150,046 |
|
|
|
99 |
% |
|
$ |
(1,254 |
) |
|
|
(1 |
)% |
Volume |
|
|
886 |
|
|
|
1 |
|
|
|
985 |
|
|
|
1 |
|
|
|
(99 |
) |
|
|
(10 |
) |
Total |
|
$ |
149,678 |
|
|
|
100 |
% |
|
$ |
151,031 |
|
|
|
100 |
% |
|
$ |
(1,353 |
) |
|
|
(1 |
)% |
During the nine months ended September 30, 2024, revenue decreased by $1.4 million, or 1%, compared to the nine months ended September 30, 2023, primarily due to a decrease in revenue from our premium offerings. The decrease in premium revenue of $1.3 million, or 1%, is the result of a decrease in the number of our customers and in the average revenue per premium customer. In
24
the nine months ended September 30, 2024, volume revenue did not change materially compared to the nine months ended September 30, 2023, as we continue to focus on the market for our premium solutions.
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Type |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
143,329 |
|
|
|
96 |
% |
|
$ |
144,686 |
|
|
|
96 |
% |
|
$ |
(1,357 |
) |
|
|
(1 |
)% |
Professional services and other |
|
|
6,349 |
|
|
|
4 |
|
|
|
6,345 |
|
|
|
4 |
|
|
|
4 |
|
|
|
0 |
|
Total |
|
$ |
149,678 |
|
|
|
100 |
% |
|
$ |
151,031 |
|
|
|
100 |
% |
|
$ |
(1,353 |
) |
|
|
(1 |
)% |
During the nine months ended September 30, 2024, subscription and support revenue decreased by $1.4 million, or 1%, compared to the nine months ended September 30, 2023, due to the aforementioned decrease in revenue premium offerings. Professional services and other revenue remained nearly the same 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.
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Geography |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
North America |
|
$ |
91,363 |
|
|
|
61 |
% |
|
$ |
90,303 |
|
|
|
60 |
% |
|
$ |
1,060 |
|
|
|
1 |
% |
Europe |
|
|
24,207 |
|
|
|
16 |
|
|
|
24,338 |
|
|
|
16 |
|
|
|
(131 |
) |
|
|
(1 |
) |
Japan |
|
|
13,150 |
|
|
|
9 |
|
|
|
14,922 |
|
|
|
10 |
|
|
|
(1,772 |
) |
|
|
(12 |
) |
Asia Pacific |
|
|
20,662 |
|
|
|
14 |
|
|
|
21,191 |
|
|
|
14 |
|
|
|
(529 |
) |
|
|
(2 |
) |
Other |
|
|
296 |
|
|
|
— |
|
|
|
277 |
|
|
|
0 |
|
|
|
19 |
|
|
|
7 |
|
International subtotal |
|
|
58,315 |
|
|
|
39 |
|
|
|
60,728 |
|
|
|
40 |
|
|
|
(2,413 |
) |
|
|
(4 |
) |
Total |
|
$ |
149,678 |
|
|
|
100 |
% |
|
$ |
151,031 |
|
|
|
100 |
% |
|
$ |
(1,353 |
) |
|
|
(1 |
)% |
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 nine months ended September 30, 2024, total revenue for North America increased by $1.1 million, or 1%, compared to the nine months ended September 30, 2023. During the nine months ended September 30, 2024, total revenue outside of North America decreased by $2.4 million, or 4%, compared to the nine months ended September 30, 2023. The decrease in revenue in Japan was primarily driven by the strengthening of the U.S. dollar against the Japanese Yen. The decrease in Asia Pacific was due to a decrease in customers and a decrease in average revenue per premium customer as usage-based fees decreased.
Cost of Revenue
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Cost of Revenue |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
50,658 |
|
|
|
35 |
% |
|
$ |
51,760 |
|
|
|
36 |
% |
|
$ |
(1,102 |
) |
|
|
(2 |
)% |
Professional services and other |
|
|
6,749 |
|
|
|
106 |
|
|
|
6,269 |
|
|
|
99 |
|
|
|
480 |
|
|
|
8 |
|
Total |
|
$ |
57,407 |
|
|
|
38 |
% |
|
$ |
58,029 |
|
|
|
38 |
% |
|
$ |
(622 |
) |
|
|
(1 |
)% |
In the nine months ended September 30, 2024, cost of subscription and support revenue decreased $1.1 million, or 2%, compared to the nine months ended September 30, 2023. The decrease resulted primarily from a decrease in third-party service provider costs of $4.0 million. This decrease was offset by an increase in depreciation and amortization expense, and partner commission expenses of $1.9 million, and $0.9 million respectively.
25
In the nine months ended September 30, 2024, cost of professional services and other revenue increased $0.5 million, or 8%, compared to the nine months ended September 30, 2023. The increase resulted primarily from an increase in consulting expenses of $0.8 million. This increase was offset by a decrease in employee costs of $0.3 million.
Gross Profit
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Gross Profit |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
92,671 |
|
|
|
65 |
% |
|
$ |
92,926 |
|
|
|
64 |
% |
|
$ |
(255 |
) |
|
|
0 |
% |
Professional services and other |
|
|
(400 |
) |
|
|
(6 |
) |
|
|
76 |
|
|
|
1 |
|
|
|
(476 |
) |
|
nm |
|
|
Total |
|
$ |
92,271 |
|
|
|
62 |
% |
|
$ |
93,002 |
|
|
|
62 |
% |
|
$ |
(731 |
) |
|
|
(1 |
)% |
nm: not meaningful
The overall gross profit percentage was 62% and 62% for the nine months ended September 30, 2024 and 2023, respectively. Subscription and support gross profit did not change materially compared to the nine months ended September 30, 2023. Professional services and other gross profit decreased by $0.5 million compared to the nine months ended September 30, 2023. The negative professional services and other gross profit of $0.4 million for the nine months ended September 30, 2024 was driven by the utilization of, and inefficiencies within our services resources. We expect 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, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Operating Expenses |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Research and development |
|
$ |
26,566 |
|
|
|
18 |
% |
|
$ |
28,941 |
|
|
|
19 |
% |
|
$ |
(2,375 |
) |
|
|
(8 |
)% |
Sales and marketing |
|
|
49,927 |
|
|
|
33 |
|
|
|
55,721 |
|
|
|
37 |
|
|
|
(5,794 |
) |
|
|
(10 |
) |
General and administrative |
|
|
27,607 |
|
|
|
18 |
|
|
|
27,410 |
|
|
|
18 |
|
|
|
197 |
|
|
|
1 |
|
Merger-related |
|
|
— |
|
|
|
— |
|
|
|
307 |
|
|
|
— |
|
|
|
(307 |
) |
|
|
(100 |
) |
Gain on sale of assets |
|
|
(6,000 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,000 |
) |
|
nm |
|
|
Total |
|
$ |
98,100 |
|
|
|
66 |
% |
|
$ |
112,379 |
|
|
|
74 |
% |
|
$ |
(14,279 |
) |
|
|
(13 |
)% |
nm: not meaningful
Research and Development. In the nine months ended September 30, 2024, research and development expense decreased by $2.4 million, or 8%, compared to the nine months ended September 30, 2023 primarily due to a decrease in employee costs, consulting expenses, and depreciation and amortization expenses of $2.0 million, $0.3 million, and $0.1 million respectively. These decreases were offset by an increase in software and hardware costs of $0.1 million. We expect research and development costs in absolute dollars to remain steady in the remainder of 2024.
Sales and Marketing. In the nine months ended September 30, 2024, sales and marketing expense decreased by $5.8 million, or 10%, compared to the nine months ended September 30, 2023 primarily due to a decrease in employee costs, marketing and related costs, various operational costs and recruiting costs of $3.1 million, $1.2 million, $0.7 million, and $0.7 million, respectively. The $0.7 million decrease in various operational costs includes a decrease of $0.3 million of IT costs driven by lower hardware/software expenses. We expect sales and marketing expense in absolute dollars to decrease in the remainder of 2024.
General and Administrative. In the nine months ended September 30, 2024, general and administrative expense increased by $0.2 million, or 1%, compared to the nine months ended September 30, 2023 primarily due to an increase of $1.2 million in depreciation expense, driven by the commencement of Oracle Fusion depreciation in January 2024. The increase is offset by a decrease in employee-related expenses of $0.9 million. The $0.9 million reduction in employee-related costs reflects a $0.9 million decrease in stock-based compensation and a $0.4 million reduction in contractor expenses, partially offset by $0.4 million in higher restructuring charges. We expect general and administrative expenses in absolute dollars to increase modestly during the remainder of 2024.
26
Merger-Related. In the nine months ended September 30, 2024, merger-related expenses decreased by $0.3 million, or 100%, due to costs incurred in connection with merger-related activities in 2023 which did not recur in 2024.
Gain on Sale of Assets. In the nine months ended September 30, 2024, we sold a number of our patents for $6.0 million.
Liquidity and Capital Resources
Cash and cash equivalents.
Our cash and cash equivalents at September 30, 2024 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. At September 30, 2024 and December 31, 2023, we had $14.0 million and $8.3 million, respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located in Japan and the United Kingdom. These earnings can be repatriated to the United States tax-free but could still be subject to foreign withholding taxes. During the quarter ended March 31, 2024, we received $6.0 million of cash consideration for the sale of patents. During the quarter ended September 30, 2023, cash flows used in operating activities were impacted by the placement of Silicon Valley Bank into Federal Deposit Insurance Corporation receivership. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated working capital and capital expenditure needs over at least the next 12 months.
|
|
Nine Months Ended September 30, |
|
|||||
Condensed Consolidated Statements of Cash Flow Data |
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Cash flows provided by operating activities |
|
$ |
9,453 |
|
|
$ |
306 |
|
Cash flows used in investing activities |
|
$ |
(989 |
) |
|
$ |
(12,857 |
) |
Cash flows used in financing activities |
|
$ |
(239 |
) |
|
$ |
(1,956 |
) |
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 loss adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense, the provision for bad debts and the effect of changes in working capital and other activities. Cash provided by operating activities during the nine months ended September 30, 2024 was $9.5 million. The cash provided by operating activities primarily resulted from net non-cash charges of $17.2 million, net changes in our operating assets and liabilities of $1.1 million, and a net loss of $6.6 million. Net non-cash expenses mainly consisted of $15.2 million for depreciation and amortization and $8.0 million for stock-based compensation, offset by the impact of the gain on sale of assets of $6.0 million. Cash outflows resulting from changes in our operating assets and liabilities consisted primarily of an increase in prepaid expenses and other current assets of $0.4 million, a decrease in accounts payable of $5.6 million, a decrease in deferred revenue of $4.9 million, and a decrease in operating leases of $0.4 million. These cash outflows were offset by decreases in accounts receivable and other assets of $5.7 million and $0.3 million, respectively, and an increase in accrued expenses of $4.2 million. The increase in cash flows provided by operating activities in the nine months ended September 30, 2024 compared to the prior period is primarily due to a reduction in net loss of $13.7 million and cash favorable changes in operating assets and liabilities of $1.0 million, offset by a decrease of $5.6 million in non-cash charges and non-operating cash flows associated with the sale of assets.
Cash flows used in investing activities.
Cash used in investing activities during the nine months ended September 30, 2024 was $1.0 million, consisting primarily of a gain in the sale of assets of $6.0 million, offset by $5.7 million in cash used for the capitalization of internal-use software costs and $1.3 million in cash used for capital expenditures to support the business. The increase in cash flows used in investing activities is primarily due to the gain on the sale of assets in 2024.
27
Cash flows used in financing activities.
Cash used in financing activities for the nine months ended September 30, 2024 was $0.2 million, due to other financing activities.
Credit facility.
On November 1, 2023, we entered into a loan modification agreement to our existing amended and restated loan and security agreement with a lender (the “Loan Agreement”), for the extension of the maturity date of amounts due under our Second Restated Loan Agreement with the lender until three years from the date of the Loan Agreement, providing for up to a $30.0 million asset-based line of credit (the “Line of Credit”). Borrowings under the Line of Credit are secured by substantially all of our assets, excluding our intellectual property. We were in compliance with all covenants under the Line of Credit as of September 30, 2024. As we have not currently drawn on the Line of Credit, there are no amounts outstanding as of September 30, 2024.
Net operating loss carryforwards.
As of December 31, 2023, we had federal net operating losses of approximately $154.0 million, of which $108.3 million are available to offset future taxable income, if any, through 2037, and $45.7 million are available to offset future taxable income indefinitely. As of December 31, 2023, we had state net operating losses of approximately $76.5 million, of which $73.4 million are available to offset future taxable income, if any, through 2041, and $3.1 million are available to offset future taxable income indefinitely. We also had federal and state research and development tax credits of $10.7 million and $6.3 million, respectively, which expire in various amounts through 2043. The net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules under the U.S. Internal Revenue Code of 1986, as amended.
In assessing our ability to utilize our net deferred tax assets, we considered whether it is more likely than not that some portion or all of our net deferred tax assets will not be realized. Based upon the level of our historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, we believe it is more likely than not that we will not realize the benefits of these deductible differences. Accordingly, we have provided a valuation allowance against our U.S. deferred tax assets as of September 30, 2024 and December 31, 2023.
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 2022 and 2023, we renewed and amended agreements with our primary providers of content delivery network services, hosting and other support services. The terms of the agreements comprised, respectively: 1) a minimum commitment of $93.2 million over three years and 2) a minimum commitment of $6.6 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, 2023 are summarized in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Recently Issued and Adopted Accounting Standards in Note 2 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Anticipated Cash Flows
We expect to incur significant operating costs, particularly related to services delivery costs, sales and marketing and research and development, for the foreseeable future in order to execute our business plan. We anticipate that such operating costs, as well as planned capital expenditures will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenue and our ability to manage infrastructure costs.
We believe our existing cash and cash equivalents and credit facility will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new products and enhancements, and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents, and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt
28
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 increased foreign exchange rate fluctuations, inflationary pressures, interest rate increases or other factors could also adversely impact our ability to access capital as and when needed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands, except share and per share data, unless otherwise noted)
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily foreign exchange risks, interest rate and inflation.
Financial instruments
Financial instruments meeting fair value disclosure requirements consist of cash equivalents, accounts receivable and accounts payable. The fair value of these financial instruments approximates their carrying amount.
Foreign currency exchange risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound, and Japanese yen. Except for revenue transactions in Japan, we enter into transactions directly with substantially all of our foreign customers.
Percentage of revenues and expenses in foreign currency is as follows:
|
|
Three Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues generated in locations outside the United States |
|
|
45 |
% |
|
|
44 |
% |
Revenues in currencies other than the United States dollar (1) |
|
|
24 |
% |
|
|
23 |
% |
Expenses in currencies other than the United States dollar (1) |
|
|
17 |
% |
|
|
17 |
% |
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues generated in locations outside the United States |
|
|
44 |
% |
|
|
45 |
% |
Revenues in currencies other than the United States dollar (1) |
|
|
24 |
% |
|
|
25 |
% |
Expenses in currencies other than the United States dollar (1) |
|
|
17 |
% |
|
|
17 |
% |
|
|
Three Months Ended September 30, 2024 |
|
|
Three Months Ended September 30, 2023 |
|
||||||||||
|
|
Revenues |
|
|
Expenses |
|
|
Revenues |
|
|
Expenses |
|
||||
Euro |
|
|
6 |
% |
|
|
2 |
% |
|
|
6 |
% |
|
|
1 |
% |
British pound |
|
|
7 |
|
|
|
5 |
|
|
|
6 |
|
|
|
5 |
|
Japanese Yen |
|
|
8 |
|
|
|
1 |
|
|
|
9 |
|
|
|
2 |
|
Other |
|
|
3 |
|
|
|
9 |
|
|
|
2 |
|
|
|
9 |
|
Total |
|
|
24 |
% |
|
|
17 |
% |
|
|
23 |
% |
|
|
17 |
% |
|
|
Nine Months Ended September 30, 2024 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||
|
|
Revenues |
|
|
Expenses |
|
|
Revenues |
|
|
Expenses |
|
||||
Euro |
|
|
6 |
% |
|
|
1 |
% |
|
|
6 |
% |
|
|
1 |
% |
British pound |
|
|
6 |
|
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
Japanese Yen |
|
|
9 |
|
|
|
2 |
|
|
|
10 |
|
|
|
2 |
|
Other |
|
|
3 |
|
|
|
9 |
|
|
|
3 |
|
|
|
8 |
|
Total |
|
|
24 |
% |
|
|
17 |
% |
|
|
25 |
% |
|
|
17 |
% |
29
As of September 30, 2024, and December 31, 2023, we had $4.6 million and $6.6 million, respectively, of receivables denominated in currencies other than the U.S. dollar. We also maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements.
In addition, although our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under “other (expense) income, net”, while exchange rate fluctuations on long-term intercompany accounts are recorded as a component of other comprehensive loss, as they are considered part of our net investment.
Currently, our largest foreign currency exposures are the euro and British pound primarily because our European operations have a higher proportion of our local currency denominated expenses, in addition to the Japanese Yen as result of our ongoing operations in Japan. During the nine months ended September 30, 2024 the U.S. dollar has strengthened by approximately 3%, compared to the British pound, remained steady at 0% compared to the euro, and weakened by approximately 8.5% against the Japanese Yen, compared to the nine months ended September 30, 2023. Relative to foreign currency exposures existing at September 30, 2024, a further 20% unfavorable movement in foreign currency exchange rates would expose us to losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the nine months ended September 30, 2024, we estimated that a 20% unfavorable movement in foreign currency exchange rates would have decreased revenues by $7.1 million, decreased expenses by $5.4 million and decreased operating income by $1.7 million. The estimates used assume that all currencies move in the same direction at the same time and the ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates, the impact to revenue of a change in foreign currency exchange rates is recognized over time, and the impact to expenses is more immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is incurred. All of the potential changes noted above are based on sensitivity analyses performed on our financial results as of September 30, 2024.
Interest rate risk
We had cash and cash equivalents totaling $27.0 million at September 30, 2024. Cash and cash equivalents were invested primarily in cash and are held for working capital purposes. We do not use derivative financial instruments in our investment portfolio. Declines in interest rates, however, would reduce future interest income. We did not incur interest expense in the three months ended September 30, 2024. An unfavorable movement of 10% in the interest rate on the Line of Credit would not have had a material effect on interest expense.
Inflation Risk
We do not believe that inflation has had a material effect on our business. However, if our costs, in particular personnel, sales and marketing and hosting costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weakness in internal control over financial reporting described below.
Material Weakness in Internal Control
We identified a material weakness in our internal control related to ineffective information technology general controls, or ITGCs, in the areas of user access and program change management over our key accounting and reporting information technology, or IT, system. As a result, the related business process controls (specifically, the IT application controls and IT-dependent manual controls) that are dependent on the ineffective ITGCs, or that use data produced from the system impacted by the ineffective ITGCs, were also ineffective.
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The material weakness identified above did not result in any material misstatements in our financial statements or disclosures, and there were no changes to previously released financial results. Our management concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q, present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.
Remediation of Material Weakness
Our management is committed to maintaining a strong internal control environment. In response to the identified material weakness above, management intends to take comprehensive actions to remediate the material weakness in internal control over financial reporting.
The remediation actions include: (i) implementing additional training and awareness of ITGC policies with a focus on user access; (ii) increasing the extent of oversight and verification checks in the operation of user access and program change management controls and processes; and (iii) deploying tools and processes to support monitoring of user access and program change management.
We believe that these actions, when fully implemented, will remediate the material weakness. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We will continue to assess the effectiveness of our internal control over financial reporting and we intend to remediate the known material weakness prior to the end of the fiscal year 2024.
Changes in Internal Control over Financial Reporting
Except as described above, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Control
Our management, including our Principal Executive Officer and Principal Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We, from time to time, are party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on our consolidated financial position, results of operations or cash flows based on the status of proceedings at this time.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under the heading “Part I — Item 1A. Risk Factors,” together with the additional risk factor included below and all of the other information in this Quarterly Report on Form 10-Q. Our business, prospects, financial condition, or operating results could be
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harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
We depend on the experience and expertise of our executive officers, senior management team and key technical employees, and the loss of any key employee could have an adverse effect on our business, financial condition and results of operations.
Our success depends upon the continued service of our executive officers, senior management team and key technical employees, as well as our ability to continue to attract and retain additional highly qualified personnel. Each of our executive officers, senior management team, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team or key personnel might significantly delay or prevent the achievement of our business objectives and could materially harm our business and our customer relationships. On April 10, 2024, Robert Noreck stepped down from his position as our Chief Financial Officer (“CFO”) upon our Board’s election of John Wagner as CFO. Mr. Noreck served as a consultant, assisting with the transition of his responsibilities until September 30, 2024, at which time Mr. Noreck’s services to us terminated. Leadership transitions can be inherently difficult to manage, and if we have an inadequate transition of our CFO, it may cause disruption to our business, including to our relationships with customers, vendors and employees. In addition, because of the nature of our business, the loss of any significant number of our existing engineering, project management and sales personnel could have an adverse effect on our business, financial condition and results of operations.
We have identified a material weakness in our internal controls over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. During the six months ended June 30, 2024, we identified a material weakness in our internal control related to ineffective information technology general controls (“ITGCs”) in the areas of user access and program change management over our key accounting and reporting information technology (“IT”) system. As a result, the related business process controls (specifically, the IT application controls and IT-dependent manual controls) that are dependent on the ineffective ITGCs, or that use data produced from the system impacted by the ineffective ITGCs, were also ineffective. Although the material weakness identified above did not result in any material misstatements in our consolidated financial statements during the period covered by this report and there were no changes to previously released financial results, our management concluded that these control deficiencies constitute a material weakness and that our internal control over financial reporting was not effective as of June 30, 2024.
Our management, under the oversight of the Audit Committee of our Board of Directors and in consultation with outside advisors, has begun evaluating and implementing measures designed to remediate the material weakness. In particular, we are taking steps intended to remediate this material weakness by (i) implementing additional training and awareness of ITGC policies with a focus on user access; (ii) increasing the extent of oversight and verification checks in the operation of user access and program change management controls and processes; and (iii) deploying tools and processes to support monitoring of user access and program change management. The above controls need to operate for a sufficient period of time so that management can conclude that our controls are operating effectively. As such, the material weakness will not be considered remediated until management has concluded through the implementation of these remediation measures and testing that these controls are effective. However, we cannot assure you that the measures we are taking will be sufficient to remediate the material weakness or avoid the identification of additional material weaknesses in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our financial statements and could cause us to fail to meet our periodic reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our common stock. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)
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ITEM 6. EXHIBITS
Exhibits |
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3.1 (1) |
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3.2 (2) |
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4.1 (3) |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1^ |
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101.INS |
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Inline XBRL Instance Document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104* |
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Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
^ Furnished herewith.
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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.
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BRIGHTCOVE INC. |
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(Registrant) |
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Date: November 4, 2024 |
By: /s/ Marc DeBevoise |
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Marc DeBevoise |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: November 4, 2024 |
By: /s/ John Wagner |
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John Wagner |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Marc DeBevoise, certify that:
Date: November 4, 2024 |
By: |
/s/ Marc DeBevoise |
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Marc DeBevoise |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John Wagner, certify that:
Date: November 4, 2024 |
By: |
/s/ John Wagner |
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John Wagner |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Brightcove Inc. for the quarterly period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Marc DeBevoise, as Chief Executive Officer of Brightcove Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Brightcove Inc.
Date: November 4, 2024 |
By: |
/s/ Marc DeBevoise |
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Marc DeBevoise |
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Chief Executive Officer |
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(Principal Executive Officer) |
In connection with the Quarterly Report on Form 10-Q of Brightcove Inc. for the quarterly period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), John Wagner, as Chief Financial Officer of Brightcove Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Brightcove Inc.
Date: November 4, 2024 |
By: |
/s/ John Wagner |
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John Wagner |
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Chief Financial Officer |
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(Principal Financial Officer) |