Brightcove Inc. (NASDAQ:BCOV) Q3 2023 Earnings Call Transcript

Brightcove Inc. (NASDAQ:BCOV) Q3 2023 Earnings Call Transcript November 1, 2023

Brightcove Inc. beats earnings expectations. Reported EPS is $0.05, expectations were $0.02.

Operator: Good afternoon, and welcome to Brightcove’s Third Quarter 2023 Earnings Presentation. Today, we’ll discuss the results announced in our press release issued after the market closed. During today’s presentation, we will make statements related to our business that may be considered forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the fourth fiscal quarter of 2023 and the full year 2023, expected profitability and free cash flow, our position to execute on our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain and upsell existing customers, as well as our ability to acquire new customers.

Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations, including the effect of macroeconomic conditions currently affecting the global economy. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our most recently filed annual report on Form 10-K and as updated by our other SEC filings. Also during the course of today’s presentation, we will refer to certain non-GAAP financial measures.

There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after market closed today, which can be found on our website at www.brightcove.com.

Marc DeBevoise: Thank you all for joining. I’m Marc DeBevoise, CEO here at Brightcove. And with me today is Rob Noreck, Brightcove’s CFO. We’re pleased to be streaming this to you to discuss our third quarter results, provide an update on our strategic progress and share our view on our future. I’ll begin with a quick overview of the strong financial results we delivered in Q3. Total revenue for Q3 was $51 million at the high end of our guidance range. And adjusted EBITDA was $5.5 million, exceeding the high end of our guidance range, growing 12% year-over-year and delivering double-digit margins at a 11%. We are pleased to have delivered financial results that met or exceeded our outlook. Importantly, revenue excluding overages, which represents the vast majority of our revenue, grew year-over-year in Q3 as expected to do so in Q4 as well.

This is an important indication of the strategic plan we have been executing against is headed in the right direction. We are focused on building upon this to deliver improved and more consistent financial results over time. We are equally, if not more pleased with our adjusted EBITDA performance in the quarter, which returned to double-digit margins and grew double digits year-over-year. This performance reflects the structural changes and cost savings initiatives we instituted in Q2, and is a clear demonstration of our commitment to run this business in a consistently profitable manner. We are highly focused on the things that we can control, including identifying ways to improve our cost structure going forward while continuing to invest in those key growth areas that we believe can drive consistent results.

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Q&A Session

It’s our intention to sustain similar adjusted EBITDA margins going forward, keeping in mind some natural seasonality and fluctuations in expenses over the course of the year. I’ll now discuss our in-quarter business results, which were similar to the trends we saw in the first half of the year. I’ll break down the positive trends of continued strength in new business, the breadth of that new business across our end markets and in striking more multiyear deals helping our long-term business. I’ll also discuss the continued challenges in overages and add-on entitlements and the things we’re doing to improve results in those areas as well. As in the first half of 2023, new business in Q3 continued to be a strength, growing more than 65% year-over-year with average contract values up 2x to 3x versus the year ago quarter.

This is consistent with what we have seen throughout the year, with new business up over 140% overall year-to-date and 35% excluding the impact of the large Yahoo transaction in Q1. I’ll note that this new business strength is primarily being driven by performance in our Americas region, where we are furthest along in implementing and executing our strategic priorities. The key focus in the coming quarters is extending the learnings and success we are having in new business in the Americas to our other global markets. We’re also pleased with the end market breadth of new business performance in the quarter and year-to-date. In particular, we’re seeing strength in our enterprise new business in addition to the media strength we’ve noted previously.

This breadth is important because it reflects strong demand for our enterprise use cases, which I will discuss in more detail later, and positions potentially future larger media wins as a source of upside as we continue to execute on our strategy to win and super serve strategically large accounts. This strength in new business performance is the catalyst that has returned our revenue, excluding overages, back to gross in the quarter. Not only does this represent the vast majority of our business, but it’s also what we have the most control over, and it is what we are laser-focused on growing. Our positive results in new business have been offset in the near term, largely by the continued weakness in overages and the typically associated entitlements business – entitlement-based add-on business that comes with them.

Overages, which are not specifically indicative of the underlying health of our business and typically reflect our customers’ new content strategies, unpredictable consumer demand or conservative customer usage assumptions, these remain on track to be approximately $5 million this year. This is over $7 million lower than overages were in 2022, giving us a meaningful nearly 4% headwind to overall revenue growth in 2023. We’re getting closer to working our way through this overhang by partnering with customers to more accurately gauge their usage and sign them to multiyear contracts that provide improved visibility for both parties. With a focus on this in the last two quarters, we’ve now signed 20% to 25% more multiyear contracts in 2023 than either of the previous two years.

We believe this will deliver a better long-term financial model for us and our customers, delivering us more predictable revenues and then more predictable costs. In Q3, this lower overage activity continued to push our year-over-year add-on business performance down, as a significant portion of our historical add-on business was for the additional entitlements associated with higher overages. This is similar to what we experienced in the first half of the year, and we are continuing to shift our add-on focus away from predominantly entitlement field growth. While we expect to be able to sell additional entitlements to our growing customers, especially our media customers, we are focused on enabling a customer journey that more effectively enables add-on sales of products and services as well.