Company Quick10K Filing
Quick10K
Brightcove
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.63 38 $364
10-Q 2019-06-30 Quarter: 2019-06-30
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-05-07 Shareholder Vote
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-04-01 Officers
8-K 2019-02-13 Enter Agreement, Earnings, Sale of Shares, Regulation FD, Exhibits
8-K 2018-12-14 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-12 Officers
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-07 Officers, Exhibits
8-K 2018-05-16 Shareholder Vote
8-K 2018-04-30 Officers, Regulation FD, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-04-11 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-02-22 Earnings, Exhibits
AZO Autozone 25,000
FFIN First Financial Bankshares 4,190
TCBI Texas Capital Bancshares 3,240
ARGO Argo Group 2,560
CLS Celestica 835
WSR Whitestone REIT 503
SDI Standard Diversified 349
CIDM Cinedigm 66
RCG Renn Fund 7
HYAC Haymaker Acquisition 0
BCOV 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-31.1 d777295dex311.htm
EX-31.2 d777295dex312.htm
EX-32.1 d777295dex321.htm

Brightcove Earnings 2019-06-30

BCOV 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d777295d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2019

OR

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission File Number: 001-35429

 

 

BRIGHTCOVE INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-1579162

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

290 Congress Street

Boston, MA 02210

(Address of principal executive offices)

(888) 882-1880

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.001 per share   BCOV   The NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐ (Do not check if a smaller reporting company)    Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of July 19, 2019 there were 38,278,656 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

BRIGHTCOVE INC.

Table of Contents

 

     Page  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

  

Condensed Consolidated Balance Sheets as of June  30, 2019 and December 31, 2018

     3  

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018

     4  

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018

     5  

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018

     6  

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

     7  

Notes to Condensed Consolidated Financial Statements

     8  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     31  

Item 4. Controls and Procedures

     32  

PART II. OTHER INFORMATION

     33  

Item 1. Legal Proceedings

     33  

Item 1A. Risk Factors

     33  

Item 5. Other Information

     33  

Item 6. Exhibits

     34  

Signatures

     35  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

Brightcove Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

     June 30, 2019     December 31, 2018  
    

(in thousands, except share

and per share data)

 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 21,209     $ 29,306  

Accounts receivable, net of allowance of $249 and $190 at June 30, 2019 and December 31, 2018, respectively

     33,576       23,264  

Prepaid expenses

     6,437       4,866  

Other current assets

     8,315       7,070  
  

 

 

   

 

 

 

Total current assets

     69,537       64,506  

Property and equipment, net

     9,976       9,703  

Operating lease right-of-use asset

     17,171       —    

Intangible assets, net

     14,387       5,919  

Goodwill

     55,537       50,776  

Other assets

     2,946       2,452  
  

 

 

   

 

 

 

Total assets

   $ 169,554     $ 133,356  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 7,061     $ 7,712  

Accrued expenses

     21,807       13,982  

Operating lease liability

     6,374       —    

Deferred revenue

     49,842       39,846  
  

 

 

   

 

 

 

Total current liabilities

     85,084       61,540  

Operating lease liability, net of current portion

     11,899       —    

Other liabilities

     474       1,202  
  

 

 

   

 

 

 

Total liabilities

     97,457       62,742  

Commitments and contingencies (Note 11)

    

Stockholders’ equity:

    

Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued

     —         —    

Common stock, $0.001 par value; 100,000,000 shares authorized; 38,219,843 and 36,752,469 shares issued at June 30, 2019 and December 31, 2018, respectively

     38       37  

Additional paid-in capital

     264,765       251,122  

Treasury stock, at cost; 135,000 shares

     (871     (871

Accumulated other comprehensive loss

     (892     (952

Accumulated deficit

     (190,943     (178,722
  

 

 

   

 

 

 

Total stockholders’ equity

     72,097       70,614  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 169,554     $ 133,356  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


Table of Contents

Brightcove Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2019     2018     2019     2018  
     (in thousands, except share and per share data)  

Revenue:

        

Subscription and support revenue

   $ 44,891     $ 37,867     $ 83,768     $ 75,734  

Professional services and other revenue

   $ 2,691       3,787     $ 5,650       7,114  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     47,582       41,654       89,418       82,848  

Cost of revenue:

        

Cost of subscription and support revenue

     19,381       13,125       33,551       26,581  

Cost of professional services and other revenue

     2,228       3,493       4,804       7,248  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     21,609       16,618       38,355       33,829  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     25,973       25,036       51,063       49,019  

Operating expenses:

        

Research and development

     7,629       7,743       15,023       15,518  

Sales and marketing

     16,827       15,265       31,083       28,499  

General and administrative

     5,979       7,045       11,240       12,435  

Merger-related

     2,620       —         5,552       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     33,055       30,053       62,898       56,452  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (7,082     (5,017     (11,835     (7,433

Other income (expense), net

     19       (481     (36     (210
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (7,063     (5,498     (11,871     (7,643

Provision for income taxes

     175       154       350       266  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (7,238   $ (5,652   $ (12,221   $ (7,909
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share - basic and diluted

   $ (0.19   $ (0.16   $ (0.33   $ (0.22
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of common shares used in computing net loss per share

     37,966,207       35,543,307       37,322,646       35,234,974  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


Table of Contents

Brightcove Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2019     2018     2019     2018  
     (in thousands)  

Net loss

   $ (7,238   $ (5,652   $ (12,221   $ (7,909

Other comprehensive income:

        

Foreign currency translation adjustments

     39       (320     60       (73
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (7,199   $ (5,972   $ (12,161   $ (7,982
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


Table of Contents

Brightcove Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share data)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2019     2018     2019     2018  
     (in thousands, except share data)  

Shares of common stock issued

        

Balance, beginning of period

     36,908,051       35,118,049       36,752,469       34,933,408  

Common stock issued upon acquisition

     1,056,763       —         1,056,763       —    

Issuance of common stock upon exercise of stock options and pursuant to restricted stock units

     255,029       934,842       410,611       1,119,483  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

     38,219,843       36,052,891       38,219,843       36,052,891  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares of treasury stock

        

Balance, beginning of period

     (135,000     (135,000     (135,000     (135,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

     (135,000     (135,000     (135,000     (135,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Par value of common stock issued

        

Balance, beginning of period

   $ 37     $ 35     $ 37     $ 35  

Common stock issued upon acquisition

     1       —         1       —    

Issuance of common stock upon exercise of stock options and pursuant to restricted stock units

     —         1       —         1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 38     $ 36     $ 38     $ 36  
  

 

 

   

 

 

   

 

 

   

 

 

 

Value of treasury stock

        

Balance, beginning of period

   $ (871   $ (871   $ (871   $ (871
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (871   $ (871   $ (871   $ (871
  

 

 

   

 

 

   

 

 

   

 

 

 

Additional paid-in capital

        

Balance, beginning of period

   $ 253,244     $ 241,109     $ 251,122     $ 238,700  

Common stock issued upon acquisition

     8,865       —         8,865       —    

Issuance of common stock upon exercise of stock options and pursuant to restricted stock units

     1,218       3,537       1,843       4,220  

Withholding tax on restricted stock units vesting

     —         (107     —         (113

Stock-based compensation expense

     1,438       1,878       2,935       3,610  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 264,765     $ 246,417     $ 264,765     $ 246,417  
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated deficit

        

Balance, beginning of period

   $ (183,705   $ (166,951   $ (178,722   $ (170,299

Net loss

     (7,238     (5,652     (12,221     (7,909

Impact of adoption of ASU 2014-09 as of January 1, 2018

     —         —         —         5,605  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (190,943   $ (172,603   $ (190,943   $ (172,603
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss

        

Balance, beginning of period

   $ (931   $ (562   $ (952   $ (809

Foreign currency translation adjustment

     39       (320     60       (73
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (892   $ (882   $ (892   $ (882
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

   $ 72,097     $ 72,097     $ 72,097     $ 72,097  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


Table of Contents

Brightcove Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

     Six Months Ended June 30,  
     2019     2018  
     (in thousands)  

Operating activities

    

Net loss

   $ (12,221   $ (7,909

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     3,934       3,434  

Stock-based compensation

     2,783       3,500  

Provision for reserves on accounts receivable

     253       23  

Changes in assets and liabilities:

    

Accounts receivable

     (7,688     296  

Prepaid expenses and other current assets

     (1,892     (488

Other assets

     (435     (276

Accounts payable

     58       924  

Accrued expenses

     7,924       (62

Operating leases

     (162     —    

Deferred revenue

     3,565       812  
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (3,881     254  

Investing activities

    

Cash paid for acquisition, net of cash acquired

     (3,300     —    

Purchases of property and equipment

     (401     (958

Capitalized internal-use software costs

     (2,372     (1,813
  

 

 

   

 

 

 

Net cash used in investing activities

     (6,073     (2,771

Financing activities

    

Proceeds from exercise of stock options

     1,843       4,221  

Other financing activities

     (117     (332
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,726       3,889  

Effect of exchange rate changes on cash and cash equivalents

     131       (51
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (8,097     1,321  

Cash and cash equivalents at beginning of period

     29,306       26,132  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 21,209     $ 27,453  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid for operating lease liabilities

   $ 1,814     $ —    
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing activities

    

Fair value of shares issued for acquisition of a business

   $ 8,866     $ —    
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


Table of Contents

Brightcove Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data, unless otherwise noted)

1. Business Description and Basis of Presentation

Business Description

Brightcove Inc. (the Company) is a leading global provider of cloud services for video which enable its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.

The Company is headquartered in Boston, Massachusetts and was incorporated in the state of Delaware on August 24, 2004. At June 30, 2019, the Company had twelve wholly-owned subsidiaries: Brightcove UK Ltd, Brightcove Singapore Pte. Ltd., Brightcove Korea, Brightcove Australia Pty Ltd, Brightcove Holdings, Inc., Brightcove Kabushiki Kaisha (Brightcove KK), Zencoder Inc. (Zencoder), Brightcove FZ-LLC, Cacti Acquisition LLC, Brightcove India Pte. Ltd, Brightcove S. de R.L. de C.V. and Othello Acquisition Corporation.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, other than the changes to accounting for leases as described in Note 14, 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, 2018 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 for the three and six months ended June 30, 2019 and 2018. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than those disclosed in this Report on Form 10-Q.

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements. As described in Management’s Discussion and Analysis, the Company implemented a significant accounting policy upon the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), Amendments to the FASB Accounting Standards Codification (“ASC 842”). As of June 30, 2019, other than the changes to leases, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, have not changed.

2. Business Combinations

On April 1, 2019, pursuant to an Asset Purchase and Sale Agreement (the “Purchase Agreement”), the Company completed its acquisition of the online video platform assets of Ooyala, Inc. and certain of its subsidiaries (“Ooyala”), a provider of cloud video technology, in exchange for common stock of the Company and cash (the “Acquisition”). At the closing, the Company issued 1,056,763 unregistered shares of common stock of the Company valued at $8.9 million and paid $3.3 million in cash, which comprised $5.75 million of purchase consideration less $2.4 million of working capital adjustments. Pursuant to the Purchase Agreement, approximately $2.65 million of the cash consideration was placed into an escrow account to secure payment of any claims of indemnification for breaches or inaccuracies in the Sellers’ representations and warranties, covenants and agreements.

 

8


Table of Contents

The Acquisition was accounted for using the purchase method of accounting in accordance with Accounting Standards Codification 805 — Business Combinations. Accordingly, the results of operations of Ooyala have been included in the accompanying condensed consolidated financial statements since the date of acquisition. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the Acquisition, which remain preliminary as of June 30, 2019, and using assumptions that the Company’s management believes are reasonable given the information currently available. The Company is in the process of completing its valuation of its intangible assets, accounts receivable, deferred revenue and the valuation of the acquired deferred tax assets and liabilities. The final allocations of the purchase price to intangible assets, accounts receivable, deferred revenue, goodwill and any deferred tax assets and liabilities may differ materially from the information presented in these unaudited condensed consolidated financial statements.

The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. Definitive allocations are being performed and finalized based on certain valuations and other studies performed by the Company with the services of outside valuation specialists.

During the three and six months ended June 30, 2019, the Company incurred $2.6 million and $5.6 million, respectively, of merger-related costs related to the Acquisition.

The excess of the purchase price over the estimated amounts of net assets as of the effective date of the acquisition was allocated to goodwill in accordance with the accounting guidance. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Acquisition. These benefits include the acquired workforce and with the Company’s direct sales force and larger channel coverage, the Company anticipates significant cross-selling opportunities. The goodwill is expected to be currently deductible for tax purposes.

The total purchase price for Ooyala has been allocated as follows:

 

Accounts receivable

   $ 2,904  

Other tangible assets

     620  

Identifiable intangible assets

     9,765  

Goodwill

     4,762  

Deferred revenue

     (6,475

Other liabilites

     (206
  

 

 

 

Total estimated purchase price

   $ 11,370  
  

 

 

 

The following are the identifiable intangible assets acquired and their respective useful lives, as determined based on preliminary valuations:

 

     Amount      Useful Life  

Customer relationships

   $ 9,127        7  

Developed technology

     638        1  
  

 

 

    

Total

   $ 9,765     
  

 

 

    

The preliminary fair value of the intangible assets has been estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.

 

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The estimated remaining amortization expense for the remainder of 2019 and for each of the five succeeding years and thereafter is as follows:

 

Year Ending December 31,

   Amount  

2019

   $ 1,456  

2020

     1,463  

2021

     1,304  

2022

     1,304  

2023

     1,304  

2024 and thereafter

     2,934  
  

 

 

 

Total

   $ 9,765  
  

 

 

 

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Ooyala, on a pro forma basis, as though the Company had acquired Ooyala at the beginning of the periods presented. The pro forma information for all periods presented also includes the effects of business combination accounting resulting from the acquisition.

 

     Three Months
Ended June 30,
     Six Months Ended June 30,  
     2018      2019      2018  

Total revenue

   $ 49,269      $ 97,033      $ 98,078  

Net loss

     (6,965      (10,762      (7,936

Earnings per share - basic and diluted

     (0.19      (0.28      (0.22

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.

 

     Accounts
Receivable, net
     Contract Assets
(current)
     Deferred
Revenue
(current)
     Deferred
Revenue
(non-current)
     Total Deferred
Revenue
 

Balance at December 31, 2018

   $ 23,264      $ 1,640      $ 39,846      $ 146      $ 39,992  

Balance at June 30, 2019

     33,576        2,208        49,842        283        50,125  

Revenue recognized during the three and six months ended June 30, 2019 from amounts included in deferred revenue at the beginning of the period was approximately $11.6 million and $31.2 million, respectively. During the three and six months ended June 30, 2019, the Company did not recognize revenue from performance obligations satisfied or partially satisfied in previous periods.

The assets recognized for costs to obtain a contract were $5.9 million as of both June 30, 2019 and December 31, 2018. Amortization expense recognized during the three and six months ended June 30, 2019 related to costs to obtain a contract was $1.8 million and $3.7 million, respectively. Amortization expense recognized during the three and six months ended June 30, 2018 related to costs to obtain a contract was $2.0 million and $3.8 million, respectively.

Transaction Price Allocated to Future Performance Obligations

As of June 30, 2019, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $134.2 million, of which approximately $107.6 million is expected to be recognized over the next 12 months. The Company expects to recognize substantially all of the remaining unsatisfied performance obligations by December 2022.

 

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4. Concentration of Credit Risk

The Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit standing. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.

At June 30, 2019 and December 31, 2018, no individual customer accounted for 10% or more of accounts receivable, net. For the three and six months ended June 30, 2019 and 2018, no individual customer accounted for 10% or more of total revenue.

5. Concentration of Other Risks

The Company is dependent on certain content delivery network providers who provide digital media delivery functionality enabling the Company’s on-demand application service to function as intended for the Company’s customers and ultimate end-users. The disruption of these services could have a material adverse effect on the Company’s business, financial position, and results of operations.

6. Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Management determines the appropriate classification of investments at the time of purchase, and re-evaluates such determination at each balance sheet date. The Company did not have any short-term or long-term investments at June 30, 2019 or December 31, 2018.

Cash and cash equivalents primarily consist of cash on deposit with banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.

Cash and cash equivalents as of June 30, 2019 consist of the following:

 

     June 30, 2019  

Description

   Contracted
Maturity
     Amortized Cost      Fair Market
Value
     Balance Per
Balance Sheet
 

Cash

     Demand      $ 21,064      $ 21,064      $ 21,064  

Money market funds

     Demand        145        145        145  
     

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

      $ 21,209      $ 21,209      $ 21,209  
     

 

 

    

 

 

    

 

 

 

Cash and cash equivalents as of December 31, 2018 consist of the following:

 

     December 31, 2018  

Description

   Contracted
Maturity
     Amortized Cost      Fair Market
Value
     Balance Per
Balance Sheet
 

Cash

     Demand      $ 21,007      $ 21,007      $ 21,007  

Money market funds

     Demand        8,299        8,299        8,299  
     

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

      $ 29,306      $ 29,306      $ 29,306  
     

 

 

    

 

 

    

 

 

 

7. 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 include warrants to purchase common stock and outstanding common stock options and unvested restricted stock units, from the weighted-average number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses incurred. The following outstanding common shares have been excluded from the computation of dilutive net loss per share as of June 30, 2019 and 2018 (in thousands).

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2019      2018      2019      2018  

Options outstanding

     2,632        3,656        2,638        3,710  

Restricted stock units outstanding

     3,244        2,458        3,178        2,330  

 

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8. Fair Value of Financial Instruments

The following tables set forth the Company’s financial instruments carried at fair value using the lowest level of input as of June 30, 2019 and December 31, 2018:

 

     June 30, 2019  
     Quoted Prices in
Active
Markets for
Identical Items
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total  

Assets:

           

Money market funds

   $ 145      $ —        $ —        $ 145  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 145      $ —        $ —        $ 145  
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2018  
     Quoted Prices in
Active
Markets for
Identical Items
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total  

Assets:

           

Money market funds

   $ 8,299      $ —        $ —        $ 8,299  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 8,299      $ —        $ —        $ 8,299  
  

 

 

    

 

 

    

 

 

    

 

 

 

9. Stock-based Compensation

The weighted-average fair value of options granted during the three months ended June 30, 2019 and 2018 was $4.53 and $4.27 per share, respectively. The weighted-average fair value of options granted during the six months ended June 30, 2019 and 2018 was $4.36 and $4.22 per share, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2019     2018     2019     2018  

Expected life in years

     6.1       6.1       6.2       6.1  

Risk-free interest rate

     2.38     2.88     2.42     2.87

Volatility

     44     43     44     43

Dividend yield

     —         —         —         —    

The Company recorded stock-based compensation expense of $1,359 and $1,832 for the three months ended June 30, 2019 and 2018, respectively. The Company recorded stock-based compensation expense of $2,783 and $3,500 for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, there was $17,525 of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.80 years. The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three and six months ended June 30, 2019 and 2018:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2019      2018      2019      2018  

Stock-based compensation included in above line items:

           

Cost of subscription and support revenue

   $ 95      $ 119      $ 214      $ 233  

Cost of professional services and other revenue

     68        46        152        86  

Research and development

     269        303        532        649  

Sales and marketing

     351        783        809        1,448  

General and administrative

     576        581        1,076        1,084  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,359      $ 1,832      $ 2,783      $ 3,500  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following is a summary of the stock option activity during the six months ended June 30, 2019.

 

     Number of
Shares
     Weighted-Average
Exercise Price
     Weighted-Average
Remaining
Contractual
Term (In Years)
     Aggregate
Intrinsic
Value (1)
 

Outstanding at December 31, 2018

     2,737,655      $ 8.57        

Granted

     546,038        9.58        

Exercised

     (260,295      7.08         $ 555  

Canceled

     (396,875      9.54        
  

 

 

          

Outstanding at June 30, 2019

     2,626,523      $ 8.78        7.42      $ 4,423  
  

 

 

          

Exercisable at June 30, 2019

     1,185,526      $ 8.40        5.48      $ 2,609  
  

 

 

          

 

(1)

The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on June 30, 2019 of $10.33 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.

The following table summarizes the restricted stock unit activity during the six months ended June 30, 2019:

 

     Shares      Weighted
Average Grant
Date Fair Value
 

Unvested by December 31, 2018

     3,033,582      $ 8.07  

Granted

     809,590        9.44  

Vested and issued

     (150,316      8.05  

Canceled

     (505,550      7.87  
  

 

 

    

 

 

 

Unvested by June 30, 2019

     3,187,306      $ 8.42  
  

 

 

    

 

 

 

10. Income Taxes

For the three months ended June 30, 2019 and 2018, the Company recorded income tax expense of $175 and $154, respectively. For the six months ended June 30, 2019 and 2018, the Company recorded income tax expense of $350 and $266, respectively. The income tax expense relates principally to the Company’s foreign operations.

The Company is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of June 30, 2019 and December 31, 2018, as based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences. The Company maintains net deferred tax liabilities for temporary differences related to its foreign subsidiaries.

11. Commitments and Contingencies

Legal Matters

On January 30, 2019, Uniloc 2017 LLC (“Uniloc”) filed a complaint against the Company and its subsidiary, Brightcove Holdings, Inc. in the United States District Court for the District of Delaware. The complaint alleges that the Company infringed four patents and seeks monetary damages and other relief. The Company answered the complaint on March 25, 2019 and Uniloc filed an amended complaint on April 9, 2019. The Company filed an answer to the amended complaint on April 23, 2019. The Company cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint, nor can the Company reasonably estimate the potential loss, if any.

On or about June 24, 2019, Dynamic Data Technologies, LLC (“DDT”) filed a complaint against the Company and its subsidiary, Brightcove Holdings, Inc., in the United States District Court for the District of Delaware. The complaint alleges that the Company infringed patents owned by DDT and seeks monetary damages and other relief. The Company has not yet answered or otherwise responded to the complaint. The Company cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint, nor can the Company reasonably estimate the potential loss, if any.

 

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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 June 30, 2019, 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.

12. Debt

On December 14, 2018, the Company entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset based line of credit (the “Line of Credit”). Under the Line of Credit, the Company can borrow up to $30.0 million. Borrowings under the Line of Credit are secured by substantially all of the Company’s assets, excluding its intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows: (i) for prime rate advances, the greater of (A) the prime rate and (B) 4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4%. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at least $15.0 million, the Company must also maintain a minimum net income threshold based on non-GAAP operating measures. Failure to comply with these covenants, or the occurrence of an event of default, could permit the lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. The Company was in compliance with all covenants under the Line of Credit as of June 30, 2019 and there are no borrowings outstanding as of June 30, 2019.

13. Segment Information

Geographic Data

Total revenue from unaffiliated customers by geographic area, based on the location of the customer, was as follows:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2019      2018      2019      2018  

Revenue:

           

North America

   $ 25,708      $ 22,839      $ 47,521      $ 45,517  

Europe

     8,167        6,734        14,636        13,047  

Japan

     5,146        5,468        11,334        10,855  

Asia Pacific

     8,091        6,456        15,363        13,167  

Other

     470        157        564        262  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 47,582      $ 41,654      $ 89,418      $ 82,848  
  

 

 

    

 

 

    

 

 

    

 

 

 

North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $23,966 and $21,570 during the three months ended June 30, 2019 and 2018, respectively. Revenue from customers located in the United States was $44,372 and $42,824 during the six months ended June 30, 2019 and 2018, respectively. Other than the United States and Japan, no other country contributed more than 10% of the Company’s total revenue during the three and six months ended June 30, 2019 and 2018.

 

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As of June 30, 2019 and December 31, 2018, property and equipment at locations outside the U.S. was not material.

14. Recently Issued and Adopted Accounting Standards

Effective January 1, 2019, the Company adopted ASC 842, which replaced the existing guidance for leases using the transition method introduced by ASU 2018-11, which adjusts the January 1, 2019 balance for the cumulative effects of the change in accounting.

Under ASC 842, a right-of-use asset and lease liability is recorded for all leases and the statement of operations reflects the lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASC 842 is calculated using the applicable incremental borrowing rate at the date of adoption. The adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities of $19.6 million and $20.9 million, respectively, as of January 1, 2019. Additionally, the Company reversed its deferred rent liability of $1.3 million as a result of the adoption. The adoption of the lease standard did not result in a cumulative catch-up adjustment to the opening balance of retained earnings.

The new standard provided various practical expedients, which were assessed to determine the ultimate impact of the new standard upon adoption. The Company elected the package of practical expedients, which permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) any initial direct costs for any existing leases as of the effective date. The Company also elected the practical expedients to not apply the recognition requirements in the standard to a lease that at commencement date has a lease term of twelve months or less and does not contain a purchase option that it is reasonably certain to exercise and to not separate lease and related non-lease components.

The Company leases its facilities under non-cancelable operating leases. Right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Many of the Company’s lessee agreements include options to extend the lease, which are not included in the minimum lease terms unless they are reasonably certain to be exercised.

The Company’s operating lease expense was $1,913 and $3,820 for the three and six months ended June 30, 2019. The Company’s operating lease expense was $2,020 and $4,023 for the three and six months ended June 30, 2018, respectively.

During the three months ended June 30, 2019 the Company entered into a new lease in its Singapore location with a lease liability of $779.

The weighted-average remaining non-cancelable lease term for our operating leases was three years at June 30, 2019. The weighted-average discount rate was 4.0% at June 30, 2019.

The Company’s operating leases expire at various dates through 2024. The following shows the undiscounted cash flows for the remainder of 2019 and remaining years under operating leases at June 30, 2019:

 

Year Ending December 31,

   Operating
Lease
Commitments
 

2019

   $ 3,593  

2020

     6,115  

2021

     5,392  

2022

     2,302  

2023

     1,104  

2024 and thereafter

     985  
  

 

 

 
   $ 19,491  
  

 

 

 

15. Restructuring

During the three months ended June 30, 2019 the Company committed to an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result certain headcount reductions were necessary. The Company has incurred approximately $752 in restructuring charges in the three months ended June 30, 2019. The restructuring charges reflect post-employment benefits, and the Company does not expect to incur any

 

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additional restructuring charges related to this action. The restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $186 – Cost of subscription and support revenue; $107 - Cost of professional services and other revenue; $421 – Sales and Marketing; and $38 – Research and Development. These amounts are reflected in Accrued Expenses in the Condensed Consolidated Statements of Operations as of June 30, 2019. The Company expects to pay the entire amount by September 30, 2019.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018.

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 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, our Annual Report on Form 10-K for the year ended December 31, 2018 and the risks discussed in our other 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.

Company Overview

We are a leading global provider of cloud-based services for video. We were incorporated in Delaware in August 2004 and our headquarters are in Boston, Massachusetts. Our suite of products and services reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices.

Brightcove Video Cloud, or Video Cloud, our flagship product released in 2006, is the world’s leading online video platform. Video Cloud enables our customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Brightcove Zencoder, or Zencoder, is a cloud-based video encoding service. Brightcove SSAI, or SSAI, is an innovative, cloud-based ad insertion and video stitching service that addresses the limitations of traditional online video ad insertion technology. Brightcove Player, or Player, is a cloud-based service for creating and managing video player experiences. Brightcove OTT Flow, or OTT Flow, is a service for media companies and content owners to rapidly deploy high-quality, direct-to-consumer, live and on-demand video services across platforms. Brightcove Video Marketing Suite, or Video Marketing Suite, is a comprehensive suite of video technologies designed to address the needs of marketers to drive awareness, engagement and conversion. Brightcove Enterprise Video Suite, or Enterprise Video Suite, is an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos.

Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, 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.

 

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Table of Contents

On April 1, 2019, we purchased the online video platform assets of Ooyala, Inc. (“Ooyala”), which included the online video platform customers, Ooyala’s technology and Ooyala’s operations in Guadalajara, Mexico. We discuss the effect of the Ooyala transaction, when applicable, in our discussion and analysis of the financial condition and results of operations below. We plan on transitioning the acquired customers to our technology as we feel that our cloud-based services will add value to the acquired customers.

As of June 30, 2019, we had 547 employees and 3,761 customers, of which 2,350 used our premium offerings and 1,411 used our volume offerings. As of June 30, 2018, we had 494 employees and 3,936 customers, of which 2,204 used our premium offerings and 1,732 used our volume offerings.

We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grew from $82.8 million in the six months ended June 30, 2018 to $89.4 million in the six months ended June 30, 2019, primarily related to $6.2 million of incremental revenue from the Ooyala acquisition and, to a lesser extent, an increase in sales of Video Cloud to both new and existing customers. Our consolidated net loss was $12.2 million and $7.9 million for the six months ended June 30, 2019 and 2018, respectively. Net income from the Ooyala acquisition was $363,000 in the six months ended June 30, 2019. Included in the consolidated net loss for the six months ended June 30, 2019 was merger-related expense, stock-based compensation expense, and amortization of acquired intangible assets of $5.6 million, $2.8 million, and $1.3 million, respectively. Included in consolidated net loss for the six months ended June 30, 2018 was stock-based compensation expense and amortization of acquired intangible assets of $3.5 million and $1.3 million, respectively.

For the six months ended June 30, 2019 and 2018, our revenue derived from customers located outside North America was 47% and 45%, respectively. We expect the percentage of total net revenue derived from outside North America to increase in future periods as we continue to expand our international operations.

Key Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

 

 

Number of Customers. We define our number of customers at the end of a particular quarter as the number of customers generating subscription revenue at the end of the quarter. We believe the number of customers is a key indicator of our market penetration, the productivity of our sales organization and the value that our products bring to our customers. We classify our customers by including them in either premium or volume offerings. Our premium offerings include our premium Video Cloud customers (Enterprise and Pro editions), our Zencoder customers (other than Zencoder customers on month-to-month contracts and pay-as-you-go contracts), our SSAI customers, our Player customers, our OTT Flow customers, our Video Marketing Suite customers and our Enterprise Video Suite customers. Our volume offerings include our Video Cloud Express customers and our Zencoder customers on month-to-month contracts and pay-as-you-go contracts.

As of June 30, 2019, we had 3,761 customers, of which 2,350 used our premium offerings and 1,411 used our volume offerings. As of June 30, 2018, we had 3,936 customers, of which 2,204 used our premium offerings and 1,732 used our volume offerings. 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. 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 2019 and beyond as we continue to focus on the market for our premium solutions.

 

 

Recurring Dollar Retention Rate. We assess our ability to retain customers using a metric we refer to as our recurring dollar retention rate. We calculate the recurring dollar retention rate by dividing the retained recurring value of subscription revenue for a period by the previous recurring value of subscription revenue for the same period. We define retained recurring value of subscription revenue as the committed subscription fees for all contracts that renew in a given period, including any increase or decrease in contract value. We define previous recurring value of subscription revenue as the recurring value from committed subscription fees for all contracts that expire in that same period. We typically calculate our recurring dollar retention rate on a monthly basis. Recurring dollar retention rate provides visibility into our ongoing revenue. During the six months ended June 30, 2019 and 2018, the recurring dollar retention rate was 90% and 99%, respectively.

 

 

Average Annual Subscription Revenue Per Premium Customer. We define average annual subscription revenue per premium customer as the total subscription revenue from premium customers for an annual period, excluding professional services revenue, divided by the average number of premium customers for that period. We believe that this metric is important in understanding subscription revenue for our premium offerings in addition to the relative size of premium customer arrangements. As our Starter edition has a price point of $199 or $499 per month, we disclose the average annual subscription revenue per premium customer separately for Starter edition customers and all other premium customers.

 

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Backlog. We define backlog as the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied, excluding professional service engagements. We believe that this metric is important in understanding future business performance. As of June 30, 2019, the total backlog for subscription and support contracts was approximately $134.2 million, of which approximately $107.6 million is expected to be recognized over the next 12 months. As of June 30, 2018, the total backlog for subscription and support contracts was approximately $109.4 million, of which approximately $86.3 million was expected to be recognized over the next 12 months.

The following table includes our key metrics for the periods presented:

 

     Six Months Ended June 30,  
     2019     2018  

Customers (at period end)

    

Premium

     2,350       2,204  

Volume

     1,411       1,732  
  

 

 

   

 

 

 

Total customers (at period end)

     3,761       3,936  
  

 

 

   

 

 

 

Recurring dollar retention rate

     90     99

Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)

   $ 80.8     $ 74.9  

Average annual subscription revenue per premium customer for Starter edition customers only (in thousands)

   $ 4.5     $ 4.9  

Total backlog, excluding professional services engagements (in thousands)

   $ 134.2     $ 109.4  

Total backlog to be recognized over next 12 months, excluding professional services engagements (in thousands)

   $ 107.6     $ 86.3  

Components of Consolidated Statements of Operations

Revenue

Subscription and Support Revenue — We generate subscription and support revenue from the sale of our products.

Video Cloud is offered in two product lines. The first product line is comprised of our premium product editions. All premium editions include functionality to publish and distribute video to Internet-connected devices, with higher levels of premium editions providing additional features and functionality. Customer arrangements are typically one year contracts, which include a subscription to Video Cloud, basic support and a pre-determined amount of video streams, bandwidth, transcoding and storage. We also offer gold support or platinum support to our premium customers for an additional fee, which includes extended phone support. The pricing for our premium editions is based on the value of our software, as well as the number of users, accounts and usage, which is comprised of video streams, bandwidth, transcoding and storage. 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. The second product line is comprised of our volume product edition. Our volume editions target small and medium-sized businesses, or SMBs. The volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage requirements and do not typically require advanced features and functionality. We discontinued the lower level pricing options for the Express edition of our volume offering and expect the total number of customers using the Express edition to continue to decrease. Customers who purchase the volume editions generally enter into month-to-month agreements. Volume customers are generally billed on a monthly basis and pay via a credit card.

Zencoder is offered to customers on a subscription basis, with either committed contracts or pay-as-you-go contracts. The pricing is based on usage, which is comprised of minutes of video processed. The committed contracts include a fixed number of minutes of video processed. 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. Zencoder customers are considered premium customers other than Zencoder customers on month-to-month contracts or pay-as-you-go contracts, which are considered volume customers.

SSAI is offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer’s needs.

Player is offered to customers on a subscription basis. Customer arrangements are typically one-year contracts, which include a subscription to Player, basic support and a pre-determined amount of video streams. We also offer gold support or platinum support to our Player customers for an additional fee, which includes extended phone support. The pricing for Player is based on the number of users, accounts and usage, which is comprised of video streams. 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.

 

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OTT Flow is offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer’s needs. Customer arrangements are typically one-year contracts.

Video Marketing Suite and Enterprise Video Suite are offered to customers on a subscription basis in Starter, Pro and Enterprise editions. The Pro and Enterprise customer arrangements are typically one-year contracts, which typically include a subscription to Video Cloud, Gallery, Brightcove Social (for Video Marketing Suite customers) or Brightcove Live (for Enterprise Video Suite customers), basic support and a pre-determined amount of video streams or plays (for Video Marketing Suite customers), viewers (for Enterprise Video Suite customers), bandwidth and storage or videos. We also generally offer gold support or platinum support to these customers for an additional fee, which includes extended phone support. The pricing for our Pro and Enterprise editions is based on the number of users, accounts and usage, which is comprised of video streams or plays, viewers, bandwidth and storage or videos. 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, or will require the customer to upgrade its package upon renewal. The Starter edition provides customers with the same basic functionality that is offered in our Pro and Enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. Customers who purchase the Starter edition may enter into one-year agreements or month-to-month agreements. Starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card.

All SSAI, Player, OTT Flow, Video Marketing Suite and Enterprise Video Suite 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 increased in absolute dollars from the first six months of 2018 to the first six months of 2019. In future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases. Cost of revenue as a percentage of revenue could fluctuate from period to period depending on the number of our professional services engagements and any associated costs relating to the delivery of subscription services and the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue, in any particular quarterly or annual period.

Operating Expenses

We classify our operating expenses as follows:

Research and Development. 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 research and development expenses to 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.

 

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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. Our sales and marketing expenses have increased in absolute dollars in each of the last three years. 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, 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 consisted of expenses incurred during the three and six months ended June 30, 2019 of $2.6 million and $5.6 million, respectively, as part of the acquisition of the online video platform assets of Ooyala Inc. and certain of its subsidiaries, or Ooyala and costs related to the transition of Ooyala customers to the Company’s technology.

Other Income (Expense), net

Other expense consists primarily of interest income earned on our cash, cash equivalents, and foreign exchange gains and losses.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We account for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have provided a valuation allowance against our existing U.S. net deferred tax assets at December 31, 2018. We maintain net deferred tax liabilities for temporary differences related to our foreign subsidiaries.

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 fair value of outstanding stock options and restricted stock awards, which is recognized as expense over the respective stock option and restricted stock award service periods. For the three months ended June 30, 2019 and 2018, we recorded $1.4 million and $1.8 million, respectively, of stock-based compensation expense. For the six months ended June 30, 2019 and 2018, we recorded $2.8 million and $3.5 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. We expect the percentage of total net revenue derived from outside North America to increase in future periods as we continue to expand our international operations.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other

 

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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, leases, income taxes, business combinations, intangible assets and goodwill to be our critical accounting policies and estimates.

We adopted ASC 842 on January 1, 2019. Refer to Note 14 for further information on our critical accounting policy relating to leases.

Other than the adoption of the new leases standard, there have been no material changes to our critical accounting policies since December 31, 2018.

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, 2018, which we filed with the Securities and Exchange Commission on February 21, 2019.

Other than the changes to the accounting for leases under ASC 842, we believe that our significant accounting policies have not materially changed from those described in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

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 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, 2018.

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2019      2018      2019      2018  
     (in thousands, except share and per share data)  

Revenue:

           

Subscription and support revenue

   $ 44,891      $ 37,867      $ 83,768      $ 75,734  

Professional services and other revenue

     2,691        3,787        5,650        7,114  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     47,582        41,654        89,418        82,848  

Cost of revenue:

           

Cost of subscription and support revenue

     19,381        13,125        33,551        26,581  

Cost of professional services and other revenue

     2,228        3,493        4,804        7,248  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenue

     21,609        16,618        38,355        33,829  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     25,973        25,036        51,063        49,019  

Operating expenses:

           

Research and development

     7,629        7,743        15,023        15,518  

Sales and marketing

     16,827        15,265        31,083        28,499  

General and administrative

     5,979        7,045        11,240        12,435  

Merger-related

     2,620        —          5,552        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     33,055        30,053        62,898        56,452  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (7,082      (5,017      (11,835      (7,433

Other income (expense), net

     19        (481      (36      (210
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (7,063      (5,498      (11,871      (7,643

Provision for income taxes

     175        154        350        266  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (7,238    $ (5,652    $ (12,221    $ (7,909
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share - basic and diluted

   $ (0.19    $ (0.16    $ (0.33    $ (0.22
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average number of common shares used in computing net loss per share

     37,966,207        35,543,307        37,322,646        35,234,974  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Overview of Results of Operations for the Three Months Ended June 30, 2019 and 2018

Total revenue increased by 14%, or $5.9 million, in the three months ended June 30, 2019 compared to the three months ended June 30, 2018 due to an increase in subscription and support revenue of 19%, or $7.0 million, primarily related to the acquired Ooyala customers. Substantially all of the revenue from the Ooyala acquisition is subscription and support revenue. This increase was offset by a decrease in professional services and other revenue of 29% or $1.1 million. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. In addition, our revenue from premium offerings grew by $6.1 million, or 15%, in the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase in revenue from premium customers was also primarily due to the Ooyala acquisition. 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.

Our gross profit increased by $937,000, or 4%, in the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to an increase in revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery.

Loss from operations was $7.1 million in the three months ended June 30, 2019 compared to $5.0 million in the three months ended June 30, 2018.

As of June 30, 2019, we had $21.2 million of unrestricted cash and cash equivalents, a decrease of $8.1 million from $29.3 million at December 31, 2018, due primarily to $3.9 million of cash used in operating activities, $3.3 million for the acquisition of Ooyala, $2.4 million in capitalized internal-use software costs and $400,000 in capital expenditures. These decreases were offset by proceeds from exercises of stock options of $1.8 million.

Revenue

 

     Three Months Ended June 30,              
     2019     2018     Change  

Revenue by Product Line

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

Premium

   $ 46,627        98   $ 40,483        97   $ 6,144       15

Volume

     955        2       1,171        3       (216     (18
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 47,582        100   $ 41,654        100   $ 5,928       14
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

During the three months ended June 30, 2019, revenue increased by $5.9 million, or 14%, compared to the three months ended June 30, 2018, primarily due to an increase in revenue from our premium offerings, which consists of subscription and support revenue as well as professional services and other revenue. The increase in premium revenue of $6.1 million, or 15%, is partially the result of a 7% increase in the number of premium customers acquired in the Ooyala acquisition. Premium customers increased from 2,204 at June 30, 2018 to 2,350 at June 30, 2019. In the three months ended June 30, 2019, volume revenue decreased by $216,000, or 18%, compared to the three months ended June 30, 2018, as we continue to focus on the market for our premium solutions.

 

     Three Months Ended June 30,              
     2019     2018     Change  

Revenue by Type

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

Subscription and support

   $ 44,891        94   $ 37,867        91   $ 7,024       19

Professional services and other

     2,691        6       3,787        9       (1,096     (29
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 47,582        100   $ 41,654        100   $ 5,928       14
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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In the three months ended June 30, 2019, subscription and support revenue increased by $7.0 million, or 19%, compared to the three months ended June 30, 2018. The increase was primarily related to the 7% increase in the number of premium customers from the Ooyala acquisition. Premium customers increased from 2,204 at June 30, 2018 to 2,350 at June 30, 2019 and the average annual subscription revenue per premium customer increased 7% during the three months ended June 30, 2019. In addition, professional services and other revenue decreased by $1.1 million, or 29%, 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 June 30,              
     2019     2018     Change  

Revenue by Geography

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

North America

   $ 25,708        54   $ 22,839        55   $ 2,869       13
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Europe

     8,167        17       6,734        16       1,433       21  

Japan

     5,146        11       5,468        14       (322     (6

Asia Pacific

     8,091        17       6,456        15       1,635       25  

Other

     470        1       157        —         313       199  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

International subtotal

     21,874        46       18,815        45       3,059       16  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 47,582        100   $ 41,654        100   $ 5,928       14
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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.

In the three months ended June 30, 2019, total revenue for North America increased $2.9 million, or 13%, compared to the three months ended June 30, 2018. In the three months ended June 30, 2019, total revenue outside of North America increased $3.1 million, or 16%, compared to the three months ended June 30, 2018. The increase in revenue from international regions is primarily related to increases in revenue in Asia Pacific and Europe.

Cost of Revenue

 

     Three Months Ended June 30,              
     2019     2018     Change  

Cost of Revenue

   Amount      Percentage of
Related
Revenue
    Amount      Percentage of
Related
Revenue
    Amount     %  
     (in thousands, except percentages)  

Subscription and support

   $ 19,381        43   $ 13,125        35   $ 6,256       48

Professional services and other

     2,228        83       3,493        92       (1,265     (36
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 21,609        45   $ 16,618        40   $ 4,991       30
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

In the three months ended June 30, 2019, cost of subscription and support revenue increased $6.3 million, or 48%, compared to the three months ended June 30, 2018. The increase resulted primarily from increases in network hosting services, content delivery network, third party software integrated with our service offering, and maintenance expenses of $3.2 million, $1.6 million, $486,000 and $409,000 respectively. These increased primarily due to incremental costs from the Ooyala acquisition. There were also increases in partner commissions, amortization of capitalized internal-use software development, and employee-related expenses of $378,000, $255,000, and $159,000 respectively. These increases were offset by a decrease in intangible amortization expense of $106,000. The decrease in intangible amortization expense is due the ending of useful life in the second half of 2018 of acquired technology intangible assets, partially offset by incremental intangible amortization from the Ooyala acquisition.

In the three months ended June 30, 2019, cost of professional services and other revenue decreased $1.3 million, or 36%, compared to the three months ended June 30, 2018. This decrease corresponds to a decrease in contractor expense of $1.2 million.

 

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Gross Profit

 

     Three Months Ended June 30,               
     2019     2018     Change  

Gross Profit

   Amount      Percentage of
Related
Revenue
    Amount      Percentage of
Related
Revenue
    Amount      %  
     (in thousands, except percentages)  

Subscription and support

   $ 25,510        57   $ 24,742        65   $ 768        3

Professional services and other

     463        17       294        8       169        57
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 25,973        55   $ 25,036        60   $ 937        4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The overall gross profit percentage was 55% and 60% for the three months ended June 30, 2019 and 2018, respectively. Subscription and support gross profit increased $768,000, or 3%, compared to the three months ended June 30, 2018. The decrease in gross profit percentage for subscription and support revenue was due to the Ooyala acquisition. We are currently in the process of transitioning the acquired Ooyala customer base to our platform and expect the gross profit percentage for subscription and support revenue on these acquired customers to increase and approach the gross profit percentages we have historically achieved. It is likely that gross profit, as a percentage of revenue, will fluctuate quarter by quarter due to the progress of our transitioning of Ooyala customers, 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 June 30,              
     2019     2018     Change  

Operating Expenses

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

Research and development

   $ 7,629        16   $ 7,743        19   $ (114     (1 )% 

Sales and marketing

     16,827        35       15,265        37       1,562       10  

General and administrative

     5,979        13       7,045        17       (1,066     (15

Merger-related

     2,620        6       —          —         2,620       nm  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 33,055        69   $ 30,053        72   $ 3,002       10
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

nm – not material

Research and Development. In the three months ended June 30, 2019, research and development expense decreased by $114,000, or 1%, compared to the three months ended June 30, 2018 primarily due to a decrease in employee-related expense of $384,000. This decrease was offset in part of an increased in computer maintenance and support expense of $174,000. We expect our research and development expense to remain relatively unchanged.

Sales and Marketing. In the three months ended June 30, 2019, sales and marketing expense increased by $1.6 million, or 10%, compared to the three months ended June 30, 2018 primarily due to increases in employee-related, travel, and intangible amortization expenses from the Ooyala acquisition of $967,000, $878,000, and $312,000, respectively. These increases were offset in part by a decrease in stock-based compensation of $432,000. We expect that our sales and marketing expense will increase in absolute dollars along with our revenue, as we continue to expand sales coverage and build brand awareness through what we believe are cost-effective channels.

General and Administrative. In the three months ended June 30, 2019, general and administrative decreased by $1.1 million compared to the three months ended June 30, 2018 primarily due to decreases in executive severance, contractor, and recruiting expenses of $730,000, $490,000, and $171,000, respectively. These decreases were offset by increases in outside accounting and legal fee expense and bad debt expense of $194,000 and $173,000, respectively. In future periods, we expect general and administrative expense to remain relatively unchanged.

Merger-Related. In the three months ended June 30, 2019, merger-related expenses increased by $2.6 million primarily due to costs incurred in connection with the acquisition of the online video platform assets of Ooyala and the transition of Ooyala customers to our offering. In future periods, we expect merger-related expense related to Ooyala to decrease.

 

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Table of Contents

Overview of Results of Operations for the Six Months Ended June 30, 2019 and 2018

Total revenue increased by 8%, or $6.6 million, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018 due to an increase in subscription and support revenue of 11%, or $8.0 million, primarily related to the acquired Ooyala customers and, to a lesser extent, the continued growth of our customer base for our premium offerings including sales to both new and existing customers. This increase was offset by a decrease in professional services and other revenue of 21% or $1.5 million. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. In addition, our revenue from premium offerings grew by $7.1 million, or 9%, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase in revenue from premium customers was also primarily due to the Ooyala acquisition. 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.

Our gross profit increased by $2.0 million, or 4%, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to an increase in revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery.

Loss from operations was $11.8 million in the six months ended June 30, 2019 compared to $7.4 million in the six months ended June 30, 2018.

Revenue

 

     Six Months Ended June 30,              
     2019     2018     Change  

Revenue by Product Line

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

Premium

   $ 87,508        98   $ 80,435        97   $ 7,073       9

Volume

     1,910        2       2,413        3       (503     (21
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 89,418        100   $ 82,848        100   $ 6,570       8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

During the six months ended June 30, 2019, revenue increased by $6.6 million, or 8%, compared to the six months ended June 30, 2018, primarily due to an increase in revenue from our premium offerings, which consists of subscription and support revenue as well as professional services and other revenue. The increase in premium revenue of $7.1 million, or 9%, is partially the result of a 7% increase in the number of premium customers from the Ooyala acquisition. Premium customers increased from 2,204 at June 30, 2018 to 2,350 at June 30, 2019. In the six months ended June 30, 2019, volume revenue decreased by $503,000, or 21%, compared to the six months ended June 30, 2018, as we continue to focus on the market for our premium solutions.

 

     Six Months Ended June 30,              
     2019     2018     Change  

Revenue by Type

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

Subscription and support

   $ 83,768        94   $ 75,734        91   $ 8,034       11

Professional services and other

     5,650        6       7,114        9       (1,464     (21
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 89,418        100   $ 82,848        100   $ 6,570       8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

In the six months ended June 30, 2019, subscription and support revenue increased by $8.0 million, or 11%, compared to the six months ended June 30, 2018. The increase was primarily related to a 7% increase in the number of premium customers acquired in the Ooyala acquisition. Premium customers increased from 2,204 at June 30, 2018 to 2,350 at June 30, 2019 and average annual subscription revenue per premium customer increased 8% during the six months ended June 30, 2019. In addition, professional services and other revenue decreased by $1.5 million, or 21%, 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.

 

     Six Months Ended June 30,               
     2019     2018     Change  

Revenue by Geography

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount      %  
     (in thousands, except percentages)  

North America

   $ 47,521        53   $ 45,517        55   $ 2,004        4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Europe

     14,636        16       13,047        16       1,589        12  

Japan

     11,334        13       10,855        13       479        4  

Asia Pacific

     15,363        17       13,167        16       2,196        17  

Other

     564        1       262        —         302        115  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International subtotal

     41,897        47       37,331        45       4,566        12  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 89,418        100   $ 82,848        100   $ 6,570        8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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.

In the six months ended June 30, 2019, total revenue for North America increased $2.0 million, or 4%, compared to the six months ended June 30, 2018. In the six months ended June 30, 2019, total revenue outside of North America increased $4.6 million, or 12%, compared to the six months ended June 30, 2018. The increase in revenue from international regions is primarily related to increases in revenue in Asia Pacific and Europe.

Cost of Revenue

 

     Six Months Ended June 30,              
     2019     2018     Change  

Cost of Revenue

   Amount      Percentage of
Related
Revenue
    Amount      Percentage of
Related
Revenue
    Amount     %  
     (in thousands, except percentages)  

Subscription and support

   $ 33,551        40   $ 26,581        35   $ 6,970       26

Professional services and other

     4,804        85       7,248        102       (2,444     (34
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 38,355        43   $ 33,829        41   $ 4,526       13
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

In the six months ended June 30, 2019, cost of subscription and support revenue increased $7.0 million, or 26%, compared to the six months ended June 30, 2018. The increase resulted primarily from increases in network hosting services, content delivery network and third-party software integrated with our service offering expenses of $3.6 million, $1.3 million, and $894,000, respectively. These increases were primarily due to incremental costs associated with the Ooyala acquisition. There were also increases in amortization of capitalized internal-use software development, partner commissions, and maintenance expenses of $715,000, $657,000, and $438,000, respectively. These increases were offset by decreases in intangible amortization, contractor, and rent expense of $358,000, $87,000, and $73,000 respectively.

In the six months ended June 30, 2019, cost of professional services and other revenue decreased $2.4 million, or 34%, compared to the six months ended June 30, 2018. This decrease corresponds to a decrease in contractor expense of $2.5 million.

 

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Table of Contents

Gross Profit

 

     Six Months Ended June 30,               
     2019     2018     Change  

Gross Profit

   Amount      Percentage of
Related
Revenue
    Amount     Percentage of
Related
Revenue
    Amount      %  
     (in thousands, except percentages)  

Subscription and support

   $ 50,217        60   $ 49,153       65   $ 1,064        2

Professional services and other

     846        15       (134     (2     980        (731
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ 51,063        57   $ 49,019       59   $ 2,044        4
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The overall gross profit percentage was 57% and 59% for the six months ended June 30, 2019 and 2018, respectively. Subscription and support gross profit increased $1.1 million, or 2%, compared to the six months ended June 30, 2018. The decrease in gross profit percentage for subscription and support revenue was due to the Ooyala acquisition. We are currently in the process of transitioning the acquired Ooyala customer base to our platform and expect the gross profit percentage for subscription and support revenue on these acquired customers to increase and approach the gross profit percentages we have historically achieved. It is likely that gross profit, as a percentage of revenue, will fluctuate quarter by quarter due to the progress of our transitioning of Ooyala customers, 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

 

     Six Months Ended June 30,              
     2019     2018     Change  

Operating Expenses

   Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Amount     %  
     (in thousands, except percentages)  

Research and development

   $ 15,023        17   $ 15,518        19   $ (495     (3 )% 

Sales and marketing

     31,083        35       28,499        34       2,584       9  

General and administrative

     11,240        13       12,435        15       (1,195     (10

Merger-related

     5,552        6       —          —         5,552       nm  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 62,898        70   $ 56,452        68   $ 6,446       11
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

nm – not material

Research and Development. In the six months ended June 30, 2019, research and development expense decreased by $495,000, or 3% compared to the six months ended June 30, 2018 primarily due to decreases in employee-related and stock based compensation expenses of $745,000 and $118,000, respectively. These decreases were offset in part by increases in computer maintenance and support and recruiting expenses of $260,000 and $118,000, respectively. We expect our research and development expense to remain relatively unchanged.

Sales and Marketing. In the six months ended June 30, 2019, sales and marketing expense increased by $2.6 million, or 9%, compared to the six months ended June 30, 2018 primarily due to increases in employee-related, travel, and intangible amortization expenses of $1.4 million, $1.1 million, and $306,000, respectively. There were also increases in conference, marketing programs, and computer and maintenance expenses of $283,000, 189,000, and $103,000, respectively. These increases were offset in part by decreases in stock based compensation and recruiting expenses of $639,000 and $100,000, respectively. We expect that our sales and marketing expense will increase in absolute dollars along with our revenue, as we continue to expand sales coverage and build brand awareness through what we believe are cost-effective channels.

General and Administrative. In the six months ended June 30, 2019, general and administrative decreased by $1.2 million or 10%, compared to the six months ended June 30, 2018 primarily due to decreases in employee-related, contractor, and recruiting expenses of $955,000, $438,000 and $117,000, respectively. These decreases were offset by increases in bad debt expenses and outside accounting and legal fees of $230,000 and $106,000, respectively. In future periods, we expect general and administrative expense to remain relatively unchanged.

Merger-Related. In the six months ended June 30, 2019, merger-related expenses increased by $5.6 million primarily due to costs incurred in connection with the acquisition of the online video platform assets of Ooyala and the transition of Ooyala customers to our offering. In future periods, we expect merger-related expense related to Ooyala to decrease.

 

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Table of Contents

Liquidity and Capital Resources

Cash and cash equivalents.

Our cash and cash equivalents at June 30, 2019 were held for working capital purposes and were invested primarily in money market funds. We do not enter into investments for trading or speculative purposes. At June 30, 2019 and December 31, 2018, we had $12.7 million and $9.9 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 will still be subject to foreign withholding taxes. On April 1, 2019, we completed the acquisition of the online video platform assets of Ooyala in exchange for 1,056,763 unregistered shares of our common stock and $3.3 million in cash. 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.

 

     Six Months Ended June 30,  

Condensed Consolidated Statements of Cash Flow Data

   2019      2018  
     (in thousands)  

Cash flows (used in) provided by operating activities

     (3,881      254  

Cash flows used in investing activities

     (6,073      (2,771

Cash flows provided by financing activities

     1,726        3,889  

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 (used in) provided by operating activities.

Cash (used in) 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 used in operating activities during the six months ended June 30, 2019 was $3.9 million. The cash flow used in operating activities primarily resulted from net losses of $12.2 million, partially offset by net non-cash charges of $7.0 million and changes in our operating assets and liabilities of $1.4 million. Net non-cash expenses consisted of depreciation and amortization and stock-based compensation of $3.9 million and $2.8 million respectively. Cash outflows also included increases in accounts receivable, prepaid expenses, other assets, and operating leases of $7.7 million, $1.9 million, $435,000 and $162,000 respectively. These outflows were partially offset by increases in accrued expenses and deferred revenue of $7.9 million and $3.6 million.

Cash flows used in investing activities.

Cash used in investing activities during the six months ended June 30, 2019 was $6.1 million, consisting primarily of $3.3 million used for the acquisition of Ooyala, $2.4 million for the capitalization of internal-use software costs and $400,000 in capital expenditures to support the business.

Cash flows provided by financing activities.

Cash provided by financing activities for the six months ended June 30, 2019 was $1.7 million, consisting of proceeds received on the exercise of common stock options of $1.8 million, offset in part by payments under finance lease obligation financing of $117,000.

Credit facility availability.

On December 14, 2018, we entered into an amended and restated loan and security agreement with a lender, or the “Loan Agreement”, providing for up to a $30.0 million asset based line of credit, or the “Line of Credit”. Borrowings under the Line of Credit are secured by substantially all of our assets, excluding our intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows; (i) for prime rate advances, the greater of (A) the prime rate and (B) 4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4%. Under the Loan Agreement, we must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at least $15.0 million, the Company must also maintain a minimum net income threshold based on non-GAAP operating measures.

 

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Table of Contents

Failure to comply with these covenants, or the occurrence of an event of default, could permit the Lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. We were in compliance with all covenants under the Line of Credit as of June 30, 2019 and there are no borrowings outstanding as of June 30, 2019.

Net operating loss carryforwards.

As of December 31, 2018, we had federal and state net operating losses of approximately $161.8 million and $76.8 million, respectively, which are available to offset future taxable income, if any, through 2038. We had federal and state net operating losses of approximately $13.8 million and $0.7 million, respectively, which are available to offset future taxable income, if any, indefinitely. We had federal and state research and development tax credits of $6.9 million and $4.4 million, respectively, which expire in various amounts through 2038. Our net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the U.S. Internal Revenue Code of 1986, as amended.

In assessing our ability to utilize our net deferred tax assets, we considered whether it is more likely than not that some portion or all of our net deferred tax assets will not be realized. Based upon the level of our historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, we believe it is more likely than not that we will not realize the benefits of these deductible differences. Accordingly, we have provided a valuation allowance against our U.S. deferred tax assets as of June 30, 2019 and December 31, 2018.

Contractual Obligations and Commitments

Our principal commitments consist primarily of obligations under our leases for our office space and contractual commitments for capital leases and equipment financing as well as content delivery network services, hosting and other support services. 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.

Our contractual obligations as of December 31, 2018 are summarized in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Recently Issued and Adopted Accounting Standards in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not have any special purpose entities or off-balance sheet arrangements.

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 will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new products and enhancements, and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to acquire businesses, technologies and products that will complement our existing operations. In the event funding is required, we may not be able to obtain bank credit arrangements or equity or debt financing on terms acceptable to us or at all.

 

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Table of Contents
ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily foreign exchange risks, interest rate and inflation.

Financial instruments

Financial instruments meeting fair value disclosure requirements consist of cash equivalents, accounts receivable and accounts payable. The fair value of these financial instruments approximates their carrying amount.

Foreign currency exchange risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound, Australian dollar and Japanese yen. Except for revenue transactions in Japan, we enter into transactions directly with substantially all of our foreign customers.

Percentage of revenues and expenses in foreign currency is as follows:

 

     Three Months Ended June 30,  
     2019     2018  

Revenues generated in locations outside the United States

     50     48

Revenues in currencies other than the United States dollar (1)

     29     32

Expenses in currencies other than the United States dollar (1)

     15     16
     Six Months Ended June 30,  
     2019     2018  

Revenues generated in locations outside the United States

     50     48

Revenues in currencies other than the United States dollar (1)

     32     31

Expenses in currencies other than the United States dollar (1)

     14     15

 

(1)

Percentage of revenues and expenses denominated in foreign currency for the three and six months ended June 30, 2019 and 2018:

 

     Three Months Ended June 30,
2019
    Three Months Ended June 30,
2018
 
     Revenues     Expenses     Revenues     Expenses  

Euro

     7     2     7     1

British pound

     7       5       7       6  

Japanese Yen

     11       3       12       4  

Other

     4       5       6       5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     29     15     32     16
     Six Months Ended June 30,
2019
    Six Months Ended June 30,
2018
 
     Revenues     Expenses     Revenues     Expenses  

Euro

     7     1     6     1

British pound

     7       5       7       6  

Japanese Yen

     13       4       13       4  

Other

     5       4       5       4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     32     14     31     15

As of June 30, 2019 and December 31, 2018, we had $6.8 million and $7.2 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.

 

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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 income (expense), net”, while exchange rate fluctuations on long-term intercompany accounts are recorded as a component of other comprehensive income (loss), as they are considered part of our net investment.

Currently, our largest foreign currency exposures are the euro and British pound, primarily because our European operations have a higher proportion of our local currency denominated expenses. Relative to foreign currency exposures existing at June 30, 2019, a 10% 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 six months ended June 30, 2019, we estimated that a 10% unfavorable movement in foreign currency exchange rates would have decreased revenues by $2.7 million, decreased expenses by $1.6 million and decreased operating income by $1.2 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 June 30, 2019.

Interest rate risk

We had cash and cash equivalents totaling $21.2 million at June 30, 2019. Cash and cash equivalents were invested primarily in money market funds 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. While we continue to incur interest expense in connection with our capital leases, the interest expense is fixed and not subject to changes in market interest rates. In the event that we borrow under our line of credit, the related interest expense recorded would be subject to changes in the rate of interest.

Inflation risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our 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, financial condition and results of operations.

 

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2019, 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 June 30, 2019, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required 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.

 

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PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

On January 30, 2019, Uniloc 2017 LLC (“Uniloc”) filed a complaint against us and our subsidiary, Brightcove Holdings, Inc. in the United States District Court for the District of Delaware. The complaint alleges that we infringed four patents and seeks monetary damages and other relief. We answered the complaint on March 25, 2019 and Uniloc filed an amended complaint on April 9, 2019. We filed an answer to the amended complaint on April 23, 2019. We cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint, nor can we reasonably estimate the potential loss, if any.

On or about June 24, 2019, Dynamic Data Technologies, LLC (“DDT”) filed a complaint against us and our subsidiary, Brightcove Holdings, Inc., in the United States District Court for the District of Delaware. The complaint alleges that we infringed patents owned by DDT and seeks monetary damages and other relief. We have not yet answered or otherwise responded to the complaint. We cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint, nor can we reasonably estimate the potential loss, if any.

In addition, we are, from time to time, party to litigation arising in the ordinary course of our 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, 2018, under the heading “Part I — Item 1A. Risk Factors,” together with all of the other information in this Quarterly Report on Form 10-Q. Our business, prospects, financial condition, or operating results could be 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.

 

ITEM 5.

OTHER INFORMATION

Our policy governing transactions in our securities by directors, officers and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving our company.

We anticipate that, as permitted by Rule 10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of executive officers and directors who establish a trading plan in compliance with Rule 10b5-1 and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. However, we undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.

 

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ITEM 6.

EXHIBITS

 

Exhibits

   
    3.1 (1)   Eleventh Amended and Restated Certificate of Incorporation.
    3.2 (2)   Amended and Restated By-Laws.
    4.1 (3)   Form of Common Stock certificate of the Registrant.
  31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1^   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

(1)

Filed as Exhibit 3.2 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

(2)

Filed as Exhibit 3.3 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

(3)

Filed as Exhibit 4.1 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

^

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.

 

  BRIGHTCOVE INC.
  (Registrant)
Date: July 24, 2019   By:  
    /s/ Jeff Ray
    Jeff Ray
    Chief Executive Officer
    (Principal Executive Officer)
Date: July 24, 2019   By:  
    /s/ Robert Noreck
    Robert Noreck
    Chief Financial Officer
    (Principal Financial Officer)

 

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