ne
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 2, 2024, there were
BRIGHTCOVE INC.
Table of Contents
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to adding employees; statements related to potential benefits of acquisitions; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q, and the risks discussed in our other Securities and Exchange Commission, or SEC, filings. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. However, any further disclosures made on related subjects in our subsequent reports filed with the
SEC should be consulted. Forward-looking statements in this Quarterly Report on Form 10-Q may include statements about:
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
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March 31, 2024 |
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December 31, 2023 |
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(in thousands, except share |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of $ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use asset |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liability |
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Deferred revenue |
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Total current liabilities |
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Operating lease liability, net of current portion |
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Other liabilities |
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Total liabilities |
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$ |
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(Note 8) |
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Stockholders’ equity: |
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Undesignated preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost; |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Brightcove Inc.
Condensed Consolidated Statements of Operations
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(in thousands, except share and per share data) |
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Revenue: |
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Subscription and support revenue |
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$ |
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$ |
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Professional services and other revenue |
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Total revenue |
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Cost of revenue: |
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Cost of subscription and support revenue |
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Cost of professional services and other revenue |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Merger-related |
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Gain on sale of assets |
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Total operating expenses |
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Income (loss) from operations |
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Other income (expense), net |
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( |
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Income (loss) before income taxes |
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Provision for income taxes |
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Net income (loss) |
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$ |
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$ |
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Net income (loss) per share—basic and diluted |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average shares—basic and diluted |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Brightcove Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(in thousands) |
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Net income (loss) |
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$ |
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$ |
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Other comprehensive income: |
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Foreign currency translation adjustments |
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Comprehensive income (loss) |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Brightcove Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(in thousands, except share data) |
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Shares of common stock issued |
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Balance, beginning of period |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units |
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Balance, end of period |
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Shares of treasury stock |
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Balance, beginning of period |
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Balance, end of period |
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Par value of common stock issued |
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Balance, beginning of period |
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$ |
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$ |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units |
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Balance, end of period |
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$ |
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$ |
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Value of treasury stock |
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Balance, beginning of period |
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$ |
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$ |
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Balance, end of period |
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$ |
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$ |
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Additional paid-in capital |
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Balance, beginning of period |
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$ |
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$ |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of tax |
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Stock-based compensation expense |
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Balance, end of period |
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$ |
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$ |
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Accumulated deficit |
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Balance, beginning of period |
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$ |
( |
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$ |
( |
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Net income (loss) |
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Balance, end of period |
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$ |
( |
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$ |
( |
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Accumulated other comprehensive loss |
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Balance, beginning of period |
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$ |
( |
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$ |
( |
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Foreign currency translation adjustment |
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( |
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Balance, end of period |
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$ |
( |
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$ |
( |
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Total stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(in thousands) |
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Operating activities |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Provision for reserves on accounts receivable |
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Gain on sale of assets |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Prepaid expenses and other current assets |
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( |
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( |
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Other assets |
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Accounts payable |
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( |
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Accrued expenses |
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( |
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Operating leases |
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( |
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Deferred revenue |
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Net cash provided by (used in) operating activities |
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Investing activities |
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Proceeds from sale of assets |
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Purchases of property and equipment |
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( |
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Capitalized internal-use software costs |
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Net cash provided by (used in) investing activities |
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Financing activities |
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Deferred acquisition payments |
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Other financing activities |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Cash paid for operating lease liabilities |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Brightcove Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data, unless otherwise noted)
1. Business Description and Basis of Presentation
Business Description
Brightcove Inc. (the “Company”) is a leading global provider of cloud services for video which enable its customers to publish, deliver, and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.
The Company is headquartered in Boston, Massachusetts and was incorporated in the state of Delaware on August 24, 2004.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2023 contained in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for the three months ended March 31, 2024 and 2023. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.
2. Quarterly Update to Significant Accounting Policies
Allowance for Doubtful Accounts
The following details the changes in the Company’s reserve allowance for estimated credit losses for accounts receivable for the period:
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Allowance for Credit Losses |
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(in thousands) |
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Balance as of December 31, 2023 |
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$ |
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Current provision for credit losses |
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Write-offs against allowance |
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Balance as of March 31, 2024 |
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$ |
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Estimated credit losses for unbilled trade accounts receivable were not material.
Recently Issued and Adopted Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, which improves the transparency and decision usefulness of income tax disclosures, specifically to enhance investors' ability to: (1) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. This guidance will be effective for the Company on January 1, 2025. The Company does not expect the application of this guidance to have a material impact on its consolidated financial statements.
9
3. Revenue from Contracts with Customers
The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which include initiation, set-up and customization services.
The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.
(in thousands) |
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Accounts Receivable, net |
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Contract Assets (current) |
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Deferred Revenue (current) |
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Deferred Revenue (non-current) |
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Total Deferred Revenue |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance at March 31, 2024 |
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Revenue recognized for the three months ended March 31, 2024 from amounts included in deferred revenue at the beginning of the period was approximately $
The assets recognized for costs to obtain a contract were $
Transaction Price Allocated to Future Performance Obligations
As of March 31, 2024, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $
4. Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 2024 consist of the following:
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March 31, 2024 |
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Description |
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Contracted |
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Cost |
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Fair Market |
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(in thousands) |
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Cash |
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Demand |
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$ |
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$ |
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Money market funds |
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Demand |
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Total cash and cash equivalents |
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$ |
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$ |
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Cash and cash equivalents as of December 31, 2023 consist of the following:
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December 31, 2023 |
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Description |
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Contracted |
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Cost |
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Fair Market |
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(in thousands) |
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Cash |
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Demand |
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$ |
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$ |
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Money market funds |
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Demand |
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Total cash and cash equivalents |
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$ |
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$ |
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10
5. Net Income (Loss) per Share
The Company calculates basic and diluted net income (loss) per common share by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. The Company has excluded other potentially dilutive shares, which includes the effects of the assumed exercise of any outstanding common stock options and the assumed vesting of restricted stock units, where dilutive.
The following table sets forth the computations of basic and diluted income (loss) per share:
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Three Months Ended March 31, |
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(in thousands) |
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2024 |
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2023 |
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Net income (loss) |
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$ |
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$ |
( |
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Weighted average shares used in computing basic earnings per share |
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Effect of weighted average dilutive stock-based awards |
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- |
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Weighted average shares used in computing diluted earnings per share |
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Net income (loss) per share—basic and diluted |
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Basic |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
( |
) |
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The following outstanding common shares have been excluded from the computation of dilutive net income (loss) per share as of the periods indicated because such securities are anti-dilutive:
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Three Months Ended March 31, |
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(shares in thousands) |
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2024 |
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2023 |
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Options outstanding |
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Restricted stock units outstanding |
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6. Stock-based Compensation
In 2022, the Company adopted the 2022 Inducement Plan (“2022 Plan”). The 2022 Plan provides for the grant of “employment inducement awards” within the meaning of NASDAQ Listing Rule 5635(c)(4). In connection with the commencement of employment of the Company's CEO, the Company granted
For restricted stock units with market-based performance conditions, the cost of the awards is recognized as the requisite service is rendered by the employee, regardless of when, if ever, the market-based performance conditions are satisfied. The Monte-Carlo simulation model is used to estimate fair value of market-based performance restricted stock units. The Monte-Carlo simulation model calculates multiple potential outcomes for an award and establishes a fair value based on the most likely outcome. Key assumptions for the Monte-Carlo simulation model include the risk-free rate, expected volatility, expected dividends and the correlation coefficient.
On March 20, 2023, the Company granted
11
The weighted-average assumptions utilized to determine the weighted-average fair value of options are presented in the following table:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Weighted-average fair value of options granted during the period |
|
$ |
|
|
$ |
|
||
Risk-free interest rate |
|
|
|
|
|
|||
Expected volatility |
|
|
% |
|
|
|||
Expected dividend yield |
|
|
|
|
|
|
||
As of March 31, 2024, there was $
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Stock-based compensation: |
|
|
|
|
|
|
||
Cost of subscription and support revenue |
|
$ |
|
|
$ |
|
||
Cost of professional services and other revenue |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The following is a summary of the stock option activity during the three months ended March 31, 2024.
|
|
Number of |
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
$ |
|
|||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canceled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercisable at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The following table summarizes the restricted stock unit activity for our service-based awards (“S-RSU”) and our performance-based awards (“P-RSU”) during the three months ended March 31, 2024:
|
|
S-RSU Shares |
|
|
Weighted |
|
|
P-RSU Shares |
|
|
Weighted |
|
|
Total RSU Shares |
|
|
Weighted |
|
||||||
Unvested at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vested and issued |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Canceled |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Unvested at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
12
7. Income Taxes
The income tax expense relates principally to the Company’s foreign operations.
The Company is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.
The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of March 31, 2024 and December 31, 2023, based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences.
8. Commitments and Contingencies
Legal Matters
The Company, from time to time, is party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company based on the status of proceedings at this time.
Guarantees and Indemnification Obligations
The Company typically enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection with patent, copyright, trade secret, or other intellectual property or personal right infringement claims by third parties with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. Based on historical experience and information known as of March 31, 2024, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.
In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.
9. Debt
On
13
10. Segment Information
Geographic Data
Total revenue from unaffiliated customers by geographic area, based on the location of the customer, was as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue: |
|
|
|
|
|
|
||
North America |
|
$ |
|
|
$ |
|
||
Europe |
|
|
|
|
|
|
||
Japan |
|
|
|
|
|
|
||
Asia Pacific |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $
Other than the United States and Japan, no other country contributed more than
11. Goodwill and intangible assets
During the three months ended March 31, 2024, indicators of potential impairment were identified, which included a continued decline in the Company's stock price and market capitalization.
The Company reviewed its quantitative analysis for its definite-lived intangible assets as of October 31, 2023, that used undiscounted cash flow models, and determined that the assumptions used in the undiscounted cash flow model were still applicable as of March 31, 2024 and that there was
As the Company has
Conditions that could trigger future impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn in customers’ industries, increased competition, a significant reduction in our stock price for a sustained period or a reduction of our market capitalization relative to net book value. These factors could have a negative material impact to the fair value of the Company's reporting unit and could result in a future impairment charge.
14
12. Restructuring and Other
During the three months ended March 31, 2023, the Company took an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result certain headcount reductions were necessary. The Company incurred approximately $
During the three months ended March 31, 2024, the Company took an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result certain headcount reductions were necessary. The Company has incurred approximately $
During the three months ended March 31, 2024, the Company incurred costs of approximately $
13. Gain on Sale of Assets
During the three months ended March 31, 2024, the Company sold a certain number of its patents to a third party for $
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except share and per share data, unless otherwise noted)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023.
Company Overview
We are a global leader in cloud-based streaming technology and services with a vision to be the world's most trusted streaming technology company. Brightcove’s software platform and suite of solutions include a breadth and depth of offerings that meet the needs of media and enterprise customers in a variety of industries across the globe with their use of streaming video, and serve as a guide in optimizing and maturing their streaming strategies. Leading companies across industries rely on our products, solutions, services, and industry expertise to grow their streaming businesses, monetize their content via streaming use-cases, expand and engage their audiences (both external and internal), and reduce the cost and complexity associated with storing, publishing, delivering, distributing, measuring, and monetizing content across streaming channels and devices.
With deep industry expertise and an understanding of how streaming video helps generate positive business outcomes, our proven platform combines functionality designed to meet the needs and goals of our customers with the additional flexibility for customers to customize solutions to meet their own unique requirements.
Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, and go-to-market activities to support our long-term revenue growth. We believe these investments will help us address some of the challenges facing our business such as demand for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting price sensitivity. These investments include support for the expansion of our infrastructure within our hosting facilities, the hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of new products. We believe this strategy will help us retain our existing customers, increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold, research and development and general and administrative expenses as a percentage of total revenue.
As of March 31, 2024 and 2023 we had 648 and 736 employees, respectively.
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue increased from $49.1 million in the three months ended March 31, 2023 to $50.5 million in the three months ended March 31, 2024, due to an increase in subscription and support revenue.
Included in the consolidated net income for the three months ended March 31, 2024 was stock-based compensation expense, amortization of acquired intangible assets, and restructuring and other expenses of $2.2 million, $0.9 million, and $1.8 million, respectively. Included in the consolidated net income for the three months ended March 31, 2023 was merger-related expense, stock-based compensation expense, amortization of acquired intangible assets, and restructuring expense of $0.1 million, $3.5 million, $1.0 million, and $0.4 million, respectively.
For the three months ended March 31, 2024 and 2023, our revenue derived from customers located outside North America was 39% and 41%, respectively. We expect the percentage of total net revenue derived from outside North America to remain relatively unchanged or decrease in future periods due to fluctuations in exchange rates and a decrease in usage-based fees.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
16
The following table includes our key metrics for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Customers (at period end) |
|
|
|
|
|
|
||
Premium |
|
|
1,992 |
|
|
|
2,180 |
|
Volume |
|
|
510 |
|
|
|
559 |
|
Total customers (at period end) |
|
|
2,502 |
|
|
|
2,739 |
|
Net revenue retention rate |
|
|
92.3 |
% |
|
|
93.7 |
% |
Recurring dollar retention rate |
|
|
84.6 |
% |
|
|
88.4 |
% |
Average annual subscription revenue per premium customer, |
|
$ |
98.0 |
|
|
$ |
89.4 |
|
Average annual subscription revenue per premium customer |
|
$ |
4.3 |
|
|
$ |
3.9 |
|
Total backlog, excluding professional services engagements (in millions) |
|
$ |
185.4 |
|
|
$ |
181.3 |
|
Total backlog to be recognized over next 12 months, excluding |
|
$ |
127.3 |
|
|
$ |
129.3 |
|
Our go-to-market focus and growth strategy is to expand our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Premium customers decreased in the three months ended March 31, 2024 compared to the prior period due to some customers deciding to switch to in-house solutions or other third-party solutions. Volume customers decreased in recent periods primarily due to our discontinuation of the promotional Video Cloud Express offering. As a result, we have experienced attrition of this base level offering without a corresponding addition of customers. We expect customers using our volume offerings to continue to decrease in 2024 and beyond as we continue to focus on the market for our premium solutions.
17
Geopolitical Events
Worldwide economic uncertainties and negative trends, including financial and credit market fluctuations, uncertainty in the banking sector, rising interest rates, political unrest and social strife, such as continued Russian military action against Ukraine, and the current armed conflict in Israel and the Gaza Strip, a potential U.S. federal government shutdown, and other impacts from the macroeconomic environment have, and could continue to, affect our business, financial condition and results of operations. While we have continued to invest in business growth, our business is dependent on many factors and these macroeconomic conditions have caused and may in the future affect the rate of spending on software products and the demand for video to support virtual events.
Components of Consolidated Statements of Operations
Revenue
Subscription and Support Revenue — We generate subscription and support revenue from the sale of our products.
Our products are generally offered to customers on a subscription-based SaaS model, with varying levels of functionality, support, and usage entitlements that depend on the use case of our customers. Customer arrangements are typically one-year contracts, which include a subscription to our software, access to basic support and a pre-determined amount of usage entitlements. The pricing is based on the value of our software, the level of support, and the amount of usage entitlements. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. We also offer enhanced support packages for an additional fee.
Our Video Cloud Express edition, which targets SMBs, and our Zencoder customers on month-to-month contracts or pay-as-you-go contracts, are considered volume customers. All other customers are considered premium customers.
Professional Services and Other Revenue — Professional services and other revenue consists of services such as implementation, software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed, or on a time and materials basis.
Cost of Revenue
Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or CDN, expenses, allocated overhead, depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services.
Cost of revenue decreased in absolute dollars from the first three months of 2023 to the first three months of 2024. 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:
18
Research and Development. Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, incentive compensation and stock-based compensation, in addition to the costs associated with contractors and allocated overhead. We have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use, as well as creating new product offerings. We expect, over the long term, that research and development expenses will increase in absolute dollars as we intend to continue to periodically release new features and functionality, expand our product offerings, continue the localization of our products in various languages, upgrade and extend our service offerings, and develop new technologies. Over the long term, we believe that research and development expenses as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing products, features and functionality, as well as changes in the technology that our products must support, such as new operating systems or new Internet-connected devices.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. We intend to continue to invest in sales and marketing and expand the sale of our product offerings within our existing customer base, build brand awareness and sponsor additional marketing events. Accordingly, over the long term, we expect sales and marketing expense to continue to be our most significant operating expense in future periods. Over the long term, we believe that sales and marketing expense as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing customers and from small, medium-sized and enterprise customers, as well as changes in the productivity of our sales and marketing programs.
General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, information technology and human resources functions, including salaries, benefits, incentive compensation and stock-based compensation. General and administrative expenses also include the costs associated with professional fees, insurance premiums, other corporate expenses and allocated overhead. Over the long term, we believe that general and administrative expenses as a percentage of revenue will decrease.
Merger-related. Merger-related costs consist of expenses related to mergers and acquisitions, integration costs and general corporate development activities.
Gain on Sale of Assets. During the three months ended March 31, 2024, we sold a certain number of our patents to a third party for $6.0 million. We retain the perpetual right to use these patents for our current customers. We also retained the perpetual right to use these patents in our offerings to prospective customers, with certain time-limited exceptions. We have no obligation to maintain or develop the patents.
Other Expense, net
Other expense, net consists primarily of interest income earned on our cash, cash equivalents, and foreign exchange gains and losses.
Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We account for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have provided a valuation allowance against our existing U.S. net deferred tax assets at December 31, 2023. We maintain net deferred tax liabilities for temporary differences related to our Japanese subsidiary.
Stock-Based Compensation Expense
Our cost of revenue, research and development, sales and marketing, and general and administrative expenses include stock-based compensation expense. Stock-based compensation expense represents the grant date fair value of outstanding stock options and restricted stock awards, which is recognized as expense over the respective stock option and restricted stock award service periods. For the three months ended March 31, 2024 and 2023, we recorded $2.2 million and $3.5 million, respectively, of stock-based compensation expense. We expect stock-based compensation expense to decrease in absolute dollars in future periods.
19
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. Should the U.S. dollar continue to increase in value, our future percentage of total net revenue derived from outside North America may remain relatively unchanged or decrease.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
We consider the assumptions and estimates associated with revenue recognition, income taxes, business combinations, intangible assets and goodwill to be our critical accounting policies and estimates. We discuss any assumptions and estimates that could have a material effect on the results of operations in the applicable section of this discussion and analysis of the financial condition and results of operations. Please see Note 11 for a discussion of our evaluation of impairment of goodwill as of March 31, 2024.
For a detailed explanation of the judgments made in these areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which we filed with the Securities and Exchange Commission on February 22, 2024.
Results of Operations
The following tables set forth our results of operations for the periods presented. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily
20
indicative of future results. This information should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands, except share and per share data) |
|
|||||
Revenue: |
|
|
|
|
|
|
||
Subscription and support revenue |
|
$ |
47,969 |
|
|
$ |
47,102 |
|
Professional services and other revenue |
|
|
2,512 |
|
|
|
1,961 |
|
Total revenue |
|
|
50,481 |
|
|
|
49,063 |
|
Cost of revenue: |
|
|
|
|
|
|
||
Cost of subscription and support revenue |
|
|
16,807 |
|
|
|
18,265 |
|
Cost of professional services and other revenue |
|
|
2,815 |
|
|
|
2,002 |
|
Total cost of revenue |
|
|
19,622 |
|
|
|
20,267 |
|
Gross profit |
|
|
30,859 |
|
|
|
28,796 |
|
Operating expenses: |
|
|
|
|
|
|
||
Research and development |
|
|
8,849 |
|
|
|
9,866 |
|
Sales and marketing |
|
|
16,454 |
|
|
|
19,465 |
|
General and administrative |
|
|
9,544 |
|
|
|
10,064 |
|
Merger-related |
|
|
— |
|
|
|
145 |
|
Gain on sale of assets |
|
|
(6,000 |
) |
|
|
— |
|
Total operating expenses |
|
|
28,847 |
|
|
|
39,540 |
|
Income (loss) from operations |
|
|
2,012 |
|
|
|
(10,744 |
) |
Other income (expense), net |
|
|
(38 |
) |
|
|
(543 |
) |
Income (loss) before income taxes |
|
|
1,974 |
|
|
|
(11,287 |
) |
Provision for income taxes |
|
|
400 |
|
|
|
427 |
|
Net income (loss) |
|
$ |
1,574 |
|
|
$ |
(11,714 |
) |
Net income (loss) per share—basic and diluted |
|
|
|
|
|
|
||
Basic |
|
$ |
0.04 |
|
|
$ |
(0.28 |
) |
Diluted |
|
$ |
0.04 |
|
|
$ |
(0.28 |
) |
Weighted-average shares—basic and diluted |
|
|
|
|
|
|
||
Basic |
|
|
43,983 |
|
|
|
42,528 |
|
Diluted |
|
|
44,098 |
|
|
|
42,528 |
|
Overview of Results of Operations for the Three Months Ended March 31, 2024 and 2023
Total revenue increased by 3%, or $1.4 million, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to an increase in subscription and support revenue of 2% or $0.9 million and an increase in professional services and other revenue of 28%, or $0.6 million. The increase in subscription and support revenue was primarily due to an increase in revenue from our premium offerings. Our revenue from premium offerings increased by $1.5 million, or 3%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.
The U.S. dollar has strengthened against the Japanese Yen and weakened against the British Pound when compared against exchange rates during the prior year period of comparison. In constant currency, our total revenue for the three months ended March 31, 2024 would have been approximately $51.0 million. The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of $0.6 million and British Pound of $0.1 million. Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison.
Our gross profit increased by $2.1 million, or 7%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to an increase in subscription and support revenue, as well as a decrease in our cost of revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery.
Income from operations was $2.0 million in the three months ended March 31, 2024 compared to a loss from operations of $10.7 million in the three months ended March 31, 2023. This is primarily due to a decrease in operating expenses of $10.7 million (including a gain on sale of assets of $6.0 million) and an increase in gross profit of $2.1 million in the three months ended March 31,
21
2024 compared to the three months ended March 31, 2023. The decrease in operating expenses is primarily due to the gain on sale of assets.
Revenue
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Product Line |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Premium |
|
$ |
50,190 |
|
|
|
99 |
% |
|
$ |
48,736 |
|
|
|
99 |
% |
|
$ |
1,454 |
|
|
|
3 |
% |
Volume |
|
|
291 |
|
|
|
1 |
|
|
|
327 |
|
|
|
1 |
|
|
|
(36 |
) |
|
|
(11 |
) |
Total |
|
$ |
50,481 |
|
|
|
100 |
% |
|
$ |
49,063 |
|
|
|
100 |
% |
|
$ |
1,418 |
|
|
|
3 |
% |
During the three months ended March 31, 2024, revenue increased by $1.4 million, or 3%, compared to the three months ended March 31, 2023, primarily due to an increase in revenue from our premium offerings. The increase in premium revenue of $1.5 million, or 3%, is the result of an increase in the average revenue per premium customer. The increase in average revenue per premium customer was primarily due to premium customers buying more of our offerings. In the three months ended March 31, 2024, volume revenue did not change materially compared to the three months ended March 31, 2023, as we continue to focus on the market for our premium solutions.
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Type |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
47,969 |
|
|
|
95 |
% |
|
$ |
47,102 |
|
|
|
97 |
% |
|
$ |
867 |
|
|
|
2 |
% |
Professional services and other |
|
|
2,512 |
|
|
|
5 |
|
|
|
1,961 |
|
|
|
300 |
% |
|
|
551 |
|
|
|
28 |
|
Total |
|
$ |
50,481 |
|
|
|
100 |
% |
|
$ |
49,063 |
|
|
|
100 |
% |
|
$ |
1,418 |
|
|
|
3 |
% |
During the three months ended March 31, 2024, subscription and support revenue increased by $0.9 million, or 2%, compared to the three months ended March 31, 2023, due to the aforementioned increase in average revenue per premium customer. Professional services and other revenue increased by $0.6 million, or 28%, 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 March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Revenue by Geography |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
North America |
|
$ |
30,964 |
|
|
|
61 |
% |
|
$ |
29,101 |
|
|
|
59 |
% |
|
$ |
1,863 |
|
|
|
6 |
% |
Europe |
|
|
7,916 |
|
|
|
16 |
|
|
|
8,187 |
|
|
|
17 |
|
|
|
(271 |
) |
|
|
(3 |
) |
Japan |
|
|
4,832 |
|
|
|
10 |
|
|
|
5,196 |
|
|
|
11 |
|
|
|
(364 |
) |
|
|
(7 |
) |
Asia Pacific |
|
|
6,569 |
|
|
|
13 |
|
|
|
6,494 |
|
|
|
13 |
|
|
|
75 |
|
|
|
1 |
|
Other |
|
|
200 |
|
|
|
— |
|
|
|
85 |
|
|
|
— |
|
|
|
115 |
|
|
|
135 |
|
International subtotal |
|
|
19,517 |
|
|
|
39 |
|
|
|
19,962 |
|
|
|
41 |
|
|
|
(445 |
) |
|
|
(2 |
) |
Total |
|
$ |
50,481 |
|
|
|
100 |
% |
|
$ |
49,063 |
|
|
|
100 |
% |
|
$ |
1,418 |
|
|
|
3 |
% |
For purposes of this section, we designate revenue by geographic regions based upon the locations of our customers. North America is comprised of revenue from the United States, Canada and Mexico. International is comprised of revenue from locations outside of North America. Depending on the timing of new customer contracts, revenue mix from a geographic region can vary from period to period.
During the three months ended March 31, 2024, total revenue for North America increased by $1.9 million, or 6%, compared to the three months ended March 31, 2023. During the three months ended March 31, 2024, total revenue outside of North America decreased by $0.4 million, or 2%, compared to the three months ended March 31, 2023. The decrease in revenue in Japan was primarily driven by the strengthening of the U.S. dollar against the Japanese Yen. The decrease in Europe was due equally to a decrease in customers and a decrease in average revenue per premium customer as usage-based fees decreased.
22
Cost of Revenue
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Cost of Revenue |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
16,807 |
|
|
|
35 |
% |
|
$ |
18,265 |
|
|
|
39 |
% |
|
$ |
(1,458 |
) |
|
|
(8 |
)% |
Professional services and other |
|
|
2,815 |
|
|
|
112 |
|
|
|
2,002 |
|
|
|
102 |
|
|
|
813 |
|
|
|
41 |
|
Total |
|
$ |
19,622 |
|
|
|
39 |
% |
|
$ |
20,267 |
|
|
|
41 |
% |
|
$ |
(645 |
) |
|
|
(3 |
)% |
In the three months ended March 31, 2024, cost of subscription and support revenue decreased by $1.5 million, or 8%, compared to the three months ended March 31, 2023. The decrease resulted primarily from a decrease in network hosting services and content delivery network expenses of $1.1 million and $962, respectively. These increases were offset by an increase in amortization expenses of $804. The remaining increase was due to various other expenses that, in aggregate, increased by approximately $200.
In the three months ended March 31, 2024, cost of professional services and other revenue increased by $813, or 41%, compared to the three months ended March 31, 2023. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process.
Gross Profit
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Gross Profit |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Subscription and support |
|
$ |
31,162 |
|
|
|
65 |
% |
|
$ |
28,837 |
|
|
|
61 |
% |
|
$ |
2,325 |
|
|
|
8 |
% |
Professional services and other |
|
|
(303 |
) |
|
|
(12 |
) |
|
|
(41 |
) |
|
|
(2 |
) |
|
|
(262 |
) |
|
|
639 |
% |
Total |
|
$ |
30,859 |
|
|
|
61 |
% |
|
$ |
28,796 |
|
|
|
59 |
% |
|
$ |
2,063 |
|
|
|
7 |
% |
The overall gross profit percentage was 61% and 59% for the three months ended March 31, 2024 and 2023, respectively. The increase in gross profit percentage was due to the aforementioned increase in subscription and support revenue. Subscription and support gross profit increased $2.3 million, or 8%, compared to the three months ended March 31, 2023. Professional services and other gross profit decreased by $0.3 million, or 639%, compared to the three months ended March 31, 2023. It is likely that gross profit, as a percentage of revenue, will fluctuate quarter by quarter due to the timing and mix of subscription and support revenue and professional services and other revenue, and the type, timing and duration of service required in delivering certain projects.
Operating Expenses
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||||||||||
Operating Expenses |
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
Percentage of |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Research and development |
|
$ |
8,849 |
|
|
|
18 |
% |
|
$ |
9,866 |
|
|
|
20 |
% |
|
$ |
(1,017 |
) |
|
|
(10 |
)% |
Sales and marketing |
|
|
16,454 |
|
|
|
33 |
|
|
|
19,465 |
|
|
|
40 |
|
|
|
(3,011 |
) |
|
|
(15 |
) |
General and administrative |
|
|
9,544 |
|
|
|
19 |
|
|
|
10,064 |
|
|
|
21 |
|
|
|
(520 |
) |
|
|
(5 |
) |
Merger-related |
|
|
— |
|
|
|
— |
|
|
|
145 |
|
|
|
— |
|
|
|
(145 |
) |
|
|
(100 |
) |
Gain on sale of assets |
|
|
(6,000 |
) |
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,000 |
) |
|
nm% |
|
|
Total |
|
$ |
28,847 |
|
|
|
57 |
% |
|
$ |
39,540 |
|
|
|
81 |
% |
|
$ |
(10,693 |
) |
|
|
(27 |
)% |
Research and Development. In the three months ended March 31, 2024, research and development expense decreased by $1.0 million, or 10%, compared to the three months ended March 31, 2023 primarily due to a decrease in employee-related expenses, stock based compensation expense, and contractor expenses of $242, $373, and $191, respectively. The remaining decrease was due to
23
various other expenses that, in aggregate, decreased by approximately $211. We expect research and development costs in absolute dollars to remain relatively steady in 2024.
Sales and Marketing. In the three months ended March 31, 2024, sales and marketing expense decreased by $3.0 million, or 15%, compared to the three months ended March 31, 2023 primarily due to a decrease in employee-related expenses (including restructuring), stock based compensation expense, marketing programs expenses, travel expenses, and contractor expenses of $1.2 million, $815, $261, $451, and $334, respectively. These increases were offset by various other expenses that, in aggregate, increased by approximately $50. We expect sales and marketing expense in absolute dollars to decrease during the remainder of 2024.
General and Administrative. In the three months ended March 31, 2024, general and administrative decreased by $520 or 5%, compared to the three months ended March 31, 2023 primarily due to a decrease in consultant expenses of $638. This decrease was offset by various other expenses that, in aggregate, increased by approximately $118. We expect general and administrative expenses in absolute dollars to increase during the remainder of 2024, primarily as a result of the restructuring of a portion of our Boston, MA office.
Merger-Related. In the three months ended March 31, 2024, merger-related expenses decreased by $145 due to costs incurred in the three months ended March 31, 2023 which did not recur in 2024.
Gain on Sale of Assets. In the three months ended March 31, 2024, we sold a number of our patents for $6.0 million.
Liquidity and Capital Resources
Cash and cash equivalents.
Our cash and cash equivalents at March 31, 2024 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. At March 31, 2024 and December 31, 2023, we had $9.0 million and $8.3 million, respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located in Japan and the United Kingdom. These earnings can be repatriated to the United States tax-free but could still be subject to foreign withholding taxes. During the quarter ended March 31, 2024, we received $6.0 million of cash consideration for the sale of patents. During the quarter ended March 31, 2023, cash flows used in operating activities were impacted by the placement of Silicon Valley Bank into Federal Deposit Insurance Corporation receivership. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated working capital and capital expenditure needs over at least the next 12 months.
|
|
Three Months Ended March 31, |
|
|||||
Condensed Consolidated Statements of Cash Flow Data |
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Cash flows provided by (used in) operating activities |
|
$ |
2,027 |
|
|
$ |
(12,632 |
) |
Cash flows provided by (used in) investing activities |
|
$ |
3,001 |
|
|
$ |
(4,882 |
) |
Cash flows used in financing activities |
|
$ |
(239 |
) |
|
$ |
(1,925 |
) |
Accounts receivable, net.
Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our billing activity, cash collections, and changes to our allowance for doubtful accounts. In many instances we receive cash payment from a customer prior to the time we are able to recognize revenue on a transaction. We record these payments as deferred revenue, which has a positive effect on our accounts receivable balances.
Cash flows provided by operating activities.
Cash provided by operating activities consists primarily of net loss adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense, the provision for bad debts and the effect of changes in working capital and other activities. Cash used in operating activities during the three months ended March 31, 2024 was $2.0 million. The cash used in operating activities primarily resulted from net non-cash charges of $1.0 million and net changes in our operating assets and liabilities of $443, and net income of $1.6 million. Net non-cash expenses mainly consisted of $6.0 million for gain on sale of patents, $4.9 million for depreciation and amortization and $2.2 million for stock-based compensation. Cash outflows resulting from changes in our operating assets and liabilities consisted primarily of increases in accounts receivable and prepaid expenses and other current assets of $1.8 million and $898, respectively, as well as decreases in accounts payable of $3.7 million. These outflows were offset by decreases in other assets, accrued expenses, and deferred revenue of $465, $1.7 million, and $3.9 million, respectively.
24
Cash flows provided by investing activities.
Cash provided by investing activities during the three months ended March 31, 2024 was $3.0 million, consisting of $6.0 million of proceeds received from the sale of patents, offset by $2.2 million for the capitalization of internal-use software costs and $970 in capital expenditures to support the business.
Cash flows used in financing activities.
Cash used in financing activities for the three months ended March 31, 2024 was $239 from other financing activities.
Credit facility.
On November 1, 2023, we entered into a loan modification agreement to our existing amended and restated loan and security agreement with a lender (the “Loan Agreement”), for the extension of the maturity date of amounts due under our Second Restated Loan Agreement with the lender until three years from the date of the Loan Agreement, providing for up to a $30.0 million asset-based line of credit (the “Line of Credit”). Borrowings under the Line of Credit are secured by substantially all of our assets, excluding our intellectual property. We were in compliance with all covenants under the Line of Credit as of March 31, 2024. As we have not currently drawn on the Line of Credit, there are no amounts outstanding as of March 31, 2024.
Net operating loss carryforwards.
As of December 31, 2023, we had federal net operating losses of approximately $154.0 million, of which $108.3 million are available to offset future taxable income, if any, through 2037 and $45.7 million which are available to offset future taxable income indefinitely. As of December 31, 2023, we had state net operating losses of approximately $76.5 million, of which $73.4 million are available to offset future taxable income, if any, through 2041 and $3.1 million, which are available to offset future taxable income indefinitely. We also had federal and state research and development tax credits of $10.7 million and $6.3 million, respectively, which expire in various amounts through 2043. The net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules under the U.S. Internal Revenue Code of 1986, as amended.
In assessing our ability to utilize our net deferred tax assets, we considered whether it is more likely than not that some portion or all of our net deferred tax assets will not be realized. Based upon the level of our historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, we believe it is more likely than not that we will not realize the benefits of these deductible differences. Accordingly, we have provided a valuation allowance against our U.S. deferred tax assets as of March 31, 2024 and December 31, 2023.
Contractual Obligations and Commitments
Our principal commitments consist primarily of obligations under our leases for our office, as well as content delivery network services, hosting and other support services. During 2022 and 2023, we renewed and amended agreements with our primary providers of content delivery network services, hosting and other support services. The terms of the agreements comprised, respectively: 1) a minimum commitment of $93.2 million over three years and 2) a minimum commitment of $6.6 million over two years. Other than these lease obligations and contractual commitments, we do not have commercial commitments under lines of credit, standby repurchase obligations or other such debt arrangements, nor do we have any off-balance sheet arrangements.
Our contractual obligations as of December 31, 2023 are summarized in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Recently Issued and Adopted Accounting Standards in Note 2 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Anticipated Cash Flows
We expect to incur significant operating costs, particularly related to services delivery costs, sales and marketing and research and development, for the foreseeable future in order to execute our business plan. We anticipate that such operating costs, as well as planned capital expenditures will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenue and our ability to manage infrastructure costs.
25
We believe our existing cash and cash equivalents and credit facility will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new products and enhancements, and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents, and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to acquire businesses, technologies and products that will complement our existing operations. In the event funding is required, and especially if interest rates continue to rise, we may not be able to obtain bank credit arrangements or equity or debt financing on terms acceptable to us or at all. Increased foreign exchange rate fluctuations, inflationary pressures, interest rate increases or other factors could also adversely impact our ability to access capital as and when needed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands, except share and per share data, unless otherwise noted)
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily foreign exchange risks, interest rate and inflation.
Financial instruments
Financial instruments meeting fair value disclosure requirements consist of cash equivalents, accounts receivable and accounts payable. The fair value of these financial instruments approximates their carrying amount.
Foreign currency exchange risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound and Japanese yen. Except for revenue transactions in Japan, we enter into transactions directly with substantially all of our foreign customers.
Percentage of revenues and expenses in foreign currency is as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues generated in locations outside the United States |
|
|
43 |
% |
|
|
45 |
% |
Revenues in currencies other than the United States dollar (1) |
|
|
24 |
% |
|
|
27 |
% |
Expenses in currencies other than the United States dollar (1) |
|
|
17 |
% |
|
|
17 |
% |
|
|
Three Months Ended March 31, 2024 |
|
|
Three Months Ended March 31, 2023 |
|
||||||||||
|
|
Revenues |
|
|
Expenses |
|
|
Revenues |
|
|
Expenses |
|
||||
Euro |
|
|
6 |
% |
|
|
1 |
% |
|
|
7 |
% |
|
|
0 |
% |
British pound |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Japanese Yen |
|
|
10 |
|
|
|
2 |
|
|
|
11 |
|
|
|
2 |
|
Other |
|
|
2 |
|
|
|
8 |
|
|
|
3 |
|
|
|
9 |
|
Total |
|
|
24 |
% |
|
|
17 |
% |
|
|
27 |
% |
|
|
17 |
% |
As of March 31, 2024 and December 31, 2023, we had $5.8 million and $6.6 million, respectively, of receivables denominated in currencies other than the U.S. dollar. We also maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements.
In addition, although our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under “other income (expense), net”, while exchange rate fluctuations on long-term intercompany accounts are recorded as a component of other comprehensive loss, as they are considered part of our net investment.
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Currently, our largest foreign currency exposures are the British pound primarily because our European operations have a higher proportion of our local currency denominated expenses, in addition to the Japanese Yen as result of our ongoing operations in Japan. During the three months ended March 31, 2024 the U.S. dollar has strengthened by approximately 11% compared to the Japanese Yen, and has weakened by approximately 4.3% compared to the British Pound, compared to the three months ended March 31, 2023. Relative to foreign currency exposures existing at March 31, 2024, a further 20% unfavorable movement in foreign currency exchange rates would expose us to losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the three months ended March 31, 2024, we estimated that a 20% unfavorable movement in foreign currency exchange rates would have decreased revenues by $2.4 million, decreased expenses by $1.9 million and decreased operating income by $0.5 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 March 31, 2024.
Interest rate risk
We had cash and cash equivalents totaling $22.9 million at March 31, 2024. Cash and cash equivalents were invested primarily in cash and are held for working capital purposes. We do not use derivative financial instruments in our investment portfolio. Declines in interest rates, however, would reduce future interest income. We did not incur interest expense in the three months ended March 31, 2024. An unfavorable movement of 10% in the interest rate on the Line of Credit would not have had a material effect on interest expense.
Inflation Risk
We do not believe that inflation has had a material effect on our business. However, if our costs, in particular personnel, sales and marketing and hosting costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of March 31, 2024, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We, from time to time, are party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on our consolidated financial position, results of operations or cash flows based on the status of proceedings at this time.
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ITEM 1A. RISK FACTORS
You should carefully consider the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under the heading “Part I — Item 1A. Risk Factors,” together with the additional risk factor included below and all of the other information in this Quarterly Report on Form 10-Q. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
We depend on the experience and expertise of our executive officers, senior management team and key technical employees, and the loss of any key employee could have an adverse effect on our business, financial condition and results of operations.
Our success depends upon the continued service of our executive officers, senior management team and key technical employees, as well as our ability to continue to attract and retain additional highly qualified personnel. Each of our executive officers, senior management team, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team or key personnel might significantly delay or prevent the achievement of our business objectives and could materially harm our business and our customer relationships. On April 10, 2024, Robert Noreck stepped down from his position as our Chief Financial Officer (“CFO”) upon our Board’s election of John Wagner as CFO. Mr. Noreck will serve as a consultant, assisting with the transition of his responsibilities until September 30, 2024, at which time Mr. Noreck’s services to us will terminate. Leadership transitions can be inherently difficult to manage, and if we have an inadequate transition of our CFO, it may cause disruption to our business, including to our relationships with customers, vendors and employees. In addition, because of the nature of our business, the loss of any significant number of our existing engineering, project management and sales personnel could have an adverse effect on our business, financial condition and results of operations.
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)
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ITEM 6. EXHIBITS
Exhibits |
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3.1 (1) |
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3.2 (2) |
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4.1 (3) |
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10.1† (4) |
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Amended and Restated Form of Director and Officer Indemnification Agreement. |
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10.2† (5) |
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Employment Agreement, dated April 8, 2024 by and between the Registrant and John Wagner. |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1^ |
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101.INS |
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Inline XBRL Instance Document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104* |
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Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
^ Furnished herewith.
† Indicates a management contract or any compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BRIGHTCOVE INC. |
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(Registrant) |
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Date: May 8, 2024 |
By: /s/ Marc DeBevoise |
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Marc DeBevoise |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: May 8, 2024 |
By: /s/ John Wagner |
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John Wagner |
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Chief Financial Officer |
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(Principal Financial Officer) |
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