BRIGHTCOVE INC. (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 endedDecember 31, 2020 . Company Overview We are a leading global provider of cloud-based services for video. We were incorporated inDelaware inAugust 2004 . With our Emmy ® -winning technology and award-winning services, we help our customers realize the potential of video to address business-critical challenges. Customers rely on our suite of products, services, and expertise to reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices. We sell five core video products that help our customers use video to further their businesses in meaningful ways: (1) Video Cloud, our flagship product and the world's leading online video platform, enables our customers to quickly and easily distribute high-quality video to Internet-connected devices; (2) Brightcove Live, our industry-leading solution for live streaming, delivers high-quality viewer experiences at scale; (3) Brightcove Beacon, a purpose-built application that enables companies to launch premium OTT video experiences quickly and cost effectively, across devices and with the flexibility of multiple monetization models; (4) Brightcove Player, an exceptionally fast, cloud-based technology for creating and managing video experiences; and (5) Zencoder, a powerful, cloud-based video encoding technology. Customers can complement their use of our core products with modular technologies that provide enhanced capabilities such as (1) innovative ad insertion and video stitching through Brightcove SSAI; (2) efficient publication of videos to Facebook, Twitter, and YouTube through Brightcove Social; (3) an app for creating marketing campaigns with insightful data and industry benchmarks through Brightcove Campaign; (4) simple streaming of video communications to an app through Brightcove Engage; and (5) create branded video experience by accessing templates with built-in best practices throughBrightcove Gallery . We have also brought to market several video solutions, which are comprised of a suite of video technologies that address specific customer use-cases and needs: (1) Virtual Events Experience helps brands to transform events into customized virtual experiences; (2) Brightcove Video Marketing Suite, enables marketers to use video to drive brand awareness, engagement and conversion; and (3) Brightcove Enterprise Video Suite, provides an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos. Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, and go-to-market activities to support our long-term revenue growth. We believe these investments will help us address some of the challenges facing our business such as demand for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting price sensitivity. These investments include support for the expansion of our infrastructure within our hosting facilities, the hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of new products. We believe this strategy will help us retain our existing customers, increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold, research and development and general and administrative expenses as a percentage of total revenue. As ofSeptember 30, 2021 and 2020 we had 693 and 616 employees, respectively. We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grew from$143.7 million in the nine months endedSeptember 30, 2020 to$158.5 million in the nine months endedSeptember 30, 2021 , due to an increase in the average annual subscription revenue per premium customer. Included in the consolidated net income for the nine months endedSeptember 30, 2021 was stock-based compensation expense and amortization of acquired intangible assets of$7.2 million , and$2.3 million , respectively. Included in the consolidated net loss for the nine months endedSeptember 30, 2020 was merger-related expense, stock-based compensation expense, and amortization of acquired intangible assets of$5.8 million ,$6.7 million , and$2.6 million , respectively. 15 -------------------------------------------------------------------------------- Table of Contents For the nine months endedSeptember 30, 2021 and 2020, our revenue derived from customers located outsideNorth America was 44% and 45%, respectively. We expect the percentage of total net revenue derived from outsideNorth America to increase in future periods as we continue to expand our international operations. Key Metrics We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. The following table includes our key metrics for the periods presented: Nine Months Ended September 30, 2021 2020 Customers (at period end) Premium 2,265 2,267 Volume 940 1,114 Total customers (at period end) 3,205 3,381 Net revenue retention rate 97.1 % 93.8 % Recurring dollar retention rate 88 % 88 % Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands) $ 93.9 $ 87.3 Average annual subscription revenue per premium customer for Starter edition customers only (in thousands) $ 4.6 $ 4.5 Total backlog, excluding professional services engagements (in millions) $ 148.6 $ 144.2 Total backlog to be recognized over next 12 months, excluding professional services engagements (in millions) $ 115.0 $ 109.6 • Number of Customers
. We define our number of customers at the end of a particular quarter as the
number of customers generating subscription revenue at the end of the
quarter. We believe the number of customers is a key indicator of our market
penetration, the productivity of our sales organization and the value that
our products bring to our customers. We classify our customers by including
them in either premium or volume offerings. Our premium offerings include our
premium Video Cloud customers (Enterprise and Pro editions), our Zencoder
customers (other than Zencoder customers on
month-to-month
contracts and
pay-as-you-gocontracts), our SSAI customers, our Player customers, our OTT Flow customers
(OTT Flow is our partner-based OTT platform, which preceded Brightcove
Beacon), our Virtual Event Experience customers, our Video Marketing Suite
customers, our Enterprise Video Suite customers, our Brightcove Beacon
customers, Brightcove Engage customers and our Brightcove Campaign customers.
Our volume offerings include our Video Cloud Express customers and our
Zencoder customers on
month-to-month
contracts and
pay-as-you-go
contracts.
Ourgo-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 compared to the prior period due to some customers deciding to switch to in-house solutions or other third-party solutions and some customers acquired in the Ooyala acquisition deciding not to switch to our solution. 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 2021 and beyond as we continue to focus on the market for our premium solutions.
• Net Revenue Retention Rate
. We assess our ability to retain and expand customers using a metric we
refer to as our net revenue retention rate. We calculate the net revenue
retention rate by dividing: (a) the current annualized recurring revenue for
premium customers that existed twelve months prior by (b) the annualized
recurring revenue for all premium customers that existed twelve months prior.
We define annualized recurring revenue for premium customers as the aggregate
annualized contract value from our premium customer base, measured as of the
end of a given period. We typically calculate our net revenue retention rate
on a quarterly basis. For annual periods, we report net revenue retention
rate as the average of the net revenue retention rate for all fiscal quarters
included in the period. By dividing the retained recurring revenue by the
base recurring revenue, we measure our success in retaining and growing
installed revenue from the specific cohort of customers we served at the
beginning of the period. The recurring dollar retention rate focuses on
contracts up for renewal in a given quarter and only capturesexpansion/upsells at time of renewal, and is more susceptible to swings than
the net revenue retention rate. Accordingly, we plan to continue to report
the net revenue retention rate and discontinue reporting recurring dollar
retention rate after December 31, 2021 .
16-------------------------------------------------------------------------------- Table of Contents • Recurring Dollar Retention Rate
. We assess our ability to retain customers using a metric we refer to as our
recurring dollar retention rate. We calculate the recurring dollar retention
rate by dividing the retained recurring value of subscription revenue for a
period by the previous recurring value of subscription revenue for the same
period. We define retained recurring value of subscription revenue as the
committed subscription fees for all contracts that renew in a given period,
including any increase or decrease in contract value. We define previous
recurring value of subscription revenue as the recurring value from committed
subscription fees for all contracts that expire in that same period. We
typically calculate our recurring dollar retention rate on a monthly basis.
Recurring dollar retention rate provides visibility into our ongoing revenue.
• Average Annual Subscription Revenue Per Premium Customer
. We define average annual subscription revenue per premium customer as the
total subscription revenue from premium customers for an annual period,
excluding professional services revenue, divided by the average number of
premium customers for that period. We believe that this metric is important
in understanding subscription revenue for our premium offerings in addition
to the relative size of premium customer arrangements. As our Starter edition
has a price point of
subscription revenue per premium customer separately for Starter edition
customers and all other premium customers.
• Backlog
. We define backlog as the aggregate amount of transaction price that is
allocated to performance obligations that have not yet been satisfied,excluding professional service engagements. We believe that this metric is
important in understanding future business performance.
COVID-19
Update
While the implications of
the COVID-19 pandemic
remain uncertain, we plan to continue to make investments to support business
growth. We believe that the growth of our business is dependent on many factors,
including our ability to expand our customer base, increase adoption of our
product offerings within existing customers, develop new products and
applications to extend the functionality of our products and provide a high
level of customer service. We expect to invest in sales and marketing to support
customer growth. We also expect to invest in research and development as we
continue to introduce new products and applications to extend the functionality
of our products. We intend to maintain a high level of customer service and
support which we consider critical for our continued success. We also expect to
continue to incur general and administrative expenses to support our business
and to maintain the infrastructure required to be a public company. We expect to
use our cash flow from operations and, if necessary, our credit facility to fund
operations.
Components of Consolidated Statements of Operations
Revenue
Subscription and Support Revenue
- We generate subscription and support revenue from the sale of our products.
Video Cloud is offered in two product lines. The first product line is comprised
of our premium product editions. All premium editions include functionality to
publish and distribute video to Internet-connected devices, with higher levels
of premium editions providing additional features and functionality. Customer
arrangements are typically
one-year
contracts, which include a subscription to Video Cloud, basic support
and a pre-determined
amount of video streams, bandwidth, transcoding and storage. We also offer gold,
platinum and platinum plus support to our premium customers for an additional
fee. The pricing for our premium editions is based on the value of our software,
as well as the number of users, accounts and usage, which is comprised of video
streams, bandwidth, transcoding and storage. Should a customer's usage exceed
the contractual entitlements, the contract will provide the rate at which the
customer must pay for actual usage above the contractual entitlements. The
second product line is comprised of our volume product edition. Our volume
editions target
small and medium-sized businesses, or
SMBs. The volume editions provide customers with the same basic functionality
that is offered in our premium product editions but have been designed for
customers who have lower usage requirements and do not typically require
advanced features and functionality. We discontinued the lower level pricing
options for the Express edition of our volume offering and expect the total
number of customers using the Express edition to continue to decrease. Customers
who purchase the volume editions generally
enter into month-to-month agreements.
Volume customers are generally billed on a monthly basis and pay via a credit
card.
Virtual Events Experience, Brightcove Live and Brightcove Player are offered to
customers on a subscription basis. Customer arrangements are
typically one-year contracts,
which include a subscription to Virtual Events Experience, Brightcove Live or
the Brightcove Player, basic support and
a pre-determined amount
of video streams, bandwidth, transcoding, and storage and only video streams for
Brightcove Player. We also offer gold, platinum, and platinum plus support to
our Virtual Events Experience, Brightcove Live and Brightcove Player customers
for an additional fee. The pricing for these products is based on the value of
our software, as well as, the number of users, accounts and usage. Should a
customer's usage exceed the contractual entitlements, the contract will provide
the rate at which the customer must pay for actual usage above the contractual
entitlements.
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Zencoder is offered to customers on a subscription basis, with either committed
contracts or
pay-as-you-go
contracts. The pricing is based on usage, which is comprised of minutes of video
processed. The committed contracts include a fixed number of minutes of video
processed. Should a customer's usage exceed the contractual entitlements, the
contract will provide the rate at which the customer must pay for actual usage
above the contractual entitlements. Zencoder customers are considered premium
customers other than Zencoder customers
on month-to-month contracts
or pay-as-you-go contracts,
which are considered volume customers.
Brightcove Beacon and Brightcove Campaign are each offered to customers on a
subscription basis, with varying levels of functionality, usage entitlements and
support based on the size and complexity of a customer's needs. Customer
arrangements are typically
one-year
contracts.
Video Marketing Suite and Enterprise Video Suite are offered to customers on a
subscription basis in Starter, Pro and Enterprise editions. The Pro and
Enterprise customer arrangements are typically
one-year
contracts, which typically include a subscription to Video Cloud, Gallery,
Brightcove Social (for Video Marketing Suite customers) or Brightcove Live (for
Enterprise Video Suite customers), basic support and a
pre-determined
amount of video streams or plays (for Video Marketing Suite customers), viewers
(for Enterprise Video Suite customers), bandwidth and storage or videos. We also
generally offer gold support or platinum support to these customers for an
additional fee, which includes extended phone support. The pricing for our Pro
and Enterprise editions is based on the number of users, accounts and usage,
which is comprised of video streams or plays, viewers, bandwidth and storage or
videos. Should a customer's usage exceed the contractual entitlements, the
contract will provide the rate at which the customer must pay for actual usage
above the contractual entitlements, or will require the customer to upgrade its
package upon renewal. The Starter edition provides customers with the same basic
functionality that is offered in our Pro and Enterprise editions but has been
designed for customers who have lower usage requirements and do not typically
seek advanced features and functionality. Customers who purchase the Starter
edition may enter into
one-year
agreements or
month-to-month
agreements. Starter customers with
month-to-month
agreements are generally billed on a monthly basis and pay via a credit card.
All Brightcove Beacon, OTT Flow, Brightcove Campaign, Brightcove Live, SSAI,
Player, Virtual Events Experience, Video Marketing Suite and Enterprise Video
Suite customers are considered premium customers.
Professional Services and Other Revenue
- Professional services and other revenue consists of services such as
implementation, software customizations and project management for customers who
subscribe to our premium editions. These arrangements are priced either on a
fixed fee basis with a portion due upon contract signing and the remainder due
when the related services have been completed, or on a time and materials basis.
Cost of Revenue
Cost of subscription, support and professional services revenue primarily
consists of costs related to supporting and hosting our product offerings and
delivering our professional services. These costs include salaries, benefits,
incentive compensation and stock-based compensation expense related to the
management of our data centers, our customer support team and our professional
services staff. In addition to these expenses, we incur third-party service
provider costs such as data center and content delivery network, or CDN,
expenses, allocated overhead, depreciation expense and amortization of
capitalized internal-use software
development costs and acquired intangible assets. We allocate overhead costs
such as rent, utilities and supplies to all departments based on relative
headcount. As such, general overhead expenses are reflected in cost of revenue
in addition to each operating expense category. The costs associated with
providing professional services are significantly higher as a percentage of
related revenue than the costs associated with delivering our subscription and
support services due to the labor costs of providing professional services.
Cost of revenue increased in absolute dollars from the first nine months of 2020
to the first nine months of 2021. In future periods we expect our cost of
revenue will increase in absolute dollars as our revenue increases. Cost of
revenue as a percentage of revenue could fluctuate from period to period
depending on the number of our professional services engagements and any
associated costs relating to the delivery of subscription services and the
timing of significant expenditures. To the extent that our customer base grows,
we intend to continue to invest additional resources in expanding the delivery
capability of our products and other services. The timing of these additional
expenses could affect our cost of revenue, both in terms of absolute dollars and
as a percentage of revenue, in any particular quarterly or annual period.
Operating Expenses
We classify our operating expenses as follows:
Research and Development
. Research and development expenses consist primarily of personnel and related
expenses for our research and development staff, including salaries, benefits,
incentive compensation and stock-based compensation, in addition to the costs
associated with contractors and allocated overhead. We have focused our research
and development efforts on expanding the
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functionality and scalability of our products and enhancing their ease of use,
as well as creating new product offerings. We expect research and development
expenses to increase in absolute dollars as we intend to continue to
periodically release new features and functionality, expand our product
offerings, continue the localization of our products in various languages,
upgrade and extend our service offerings, and develop new technologies. Over the
long term, we believe that research and development expenses as a percentage of
revenue will decrease, but will vary depending upon the mix of revenue from new
and existing products, features and functionality, as well as changes in the
technology that our products must support, such as new operating systems or new
Internet-connected devices.
Sales and Marketing
. Sales and marketing expenses consist primarily of personnel and related
expenses for our sales and marketing staff, including salaries, benefits,
incentive compensation, commissions, stock-based compensation and travel costs,
amortization of acquired intangible assets, in addition to costs associated with
marketing and promotional events, corporate communications, advertising, other
brand building and product marketing expenses and allocated overhead. Our sales
and marketing expenses have increased in absolute dollars in each of the last
three years. We intend to continue to invest in sales and marketing and expand
the sale of our product offerings within our existing customer base, build brand
awareness and sponsor additional marketing events. Accordingly, we expect sales
and marketing expense to continue to be our most significant operating expense
in future periods. Over the long term, we believe that sales and marketing
expense as a percentage of revenue will decrease, but will vary depending upon
the mix of revenue from new and existing customers and from
small, medium-sized and
enterprise customers, as well as changes in the productivity of our sales and
marketing programs.
General and Administrative
. General and administrative expenses consist primarily of personnel and related
expenses for executive, legal, finance, information technology and human
resources functions, including salaries, benefits, incentive compensation and
stock-based compensation. General and administrative expenses also include the
costs associated with professional fees, insurance premiums, other corporate
expenses and allocated overhead. Over the long term, we believe that general and
administrative expenses as a percentage of revenue will decrease.
Merger-related
. Merger-related costs consist of expenses related to mergers and acquisitions,
integration costs and general corporate development activities.
Other (Benefit) Expense
. Reflects other operating benefits, costs that do not directly relate to the
operating activities listed above.
Other Income (Expense), net
Other income (expense) consists primarily of interest income earned on our cash,
cash equivalents, and foreign exchange gains and losses.
Income Taxes
As part of the process of preparing our consolidated financial statements, we
are required to estimate our taxes in each of the jurisdictions in which we
operate. We account for income taxes in accordance with the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
based on temporary differences between the financial reporting and income tax
bases of assets and liabilities using statutory rates. In addition, this method
requires a valuation allowance against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. We have provided a valuation allowance
against our existing U.S. net deferred tax assets at December 31, 2020 . 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 September 30, 2021 and 2020, we recorded
$2.3 million and $2.0 million , respectively, of stock-based compensation
expense. We expect stock-based compensation expense to increase in absolute
dollars in future periods.
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Foreign Currency Translation
With regard to our international operations, we frequently enter into
transactions in currencies other than the U.S. dollar. As a result, our revenue,
expenses and cash flows are subject to fluctuations due to changes in foreign
currency exchange rates, particularly changes in the euro, British pound,
Australian dollar, and Japanese yen. In periods when the U.S. dollar declines in
value as compared to the foreign currencies in which we conduct business, our
foreign currency-based revenue and expenses generally increase in value when
translated into U.S. dollars. We expect the percentage of total net revenue
derived from outside North America to increase in future periods as we continue
to expand our international operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States . The preparation of these
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. We base our
estimates on historical experience and on various other 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.
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, 2020 , which we filed with the Securities and
Exchange Commission on February 24, 2021 .
Results of Operations
The following tables set forth our results of operations for the periods
presented. The data has been derived from the unaudited condensed consolidated
financial statements contained in this Quarterly Report on Form
10-Q
which, in the opinion of our management, reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position and results of operations for the interim periods presented. The
period-to-period
comparison of financial results is not necessarily indicative of future results.
This information should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form
10-K
for the year ended December 31, 2020 .
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Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands, except share and per share data)
Revenue:
Subscription and support
revenue $ 49,226 $ 46,338 $ 148,667 $ 136,613
Professional services and
other revenue 2,937 2,746 9,785 7,050
Total revenue 52,163 49,084 158,452 143,663
Cost of revenue:
Cost of subscription and
support revenue 16,406 15,735 46,840 50,290
Cost of professional services
and other revenue 2,247 2,363 8,205 6,349
Total cost of revenue 18,653 18,098 55,045 56,639
Gross profit 33,510 30,986 103,407 87,024
Operating expenses:
Research and development 7,902 8,215 24,041 26,199
Sales and marketing 18,451 14,813 52,730 42,370
General and administrative 7,345 6,694 21,822 19,633
Merger-related 45 - 300 5,768
Other (benefit) expense - - (1,965 ) -
Total operating expenses 33,743 29,722 96,928 93,970
(Loss) income from operations (233 ) 1,264 6,479 (6,946 )
Other (expense) income, net (319 ) 204 (937 ) (291 )
(Loss) income before income
taxes (552 ) 1,468 5,542 (7,237 )
Provision for income taxes 468 154 562 597
Net (loss) income $ (1,020 ) $ 1,314 $ 4,980 $ (7,834 )
Net (loss) income per
share-basic and diluted
Basic $ (0.02 ) $ 0.03 $ 0.12 $ (0.20 )
Diluted $ (0.02 ) $ 0.03 $ 0.12 $ (0.20 )
Weighted-average shares-basic
and diluted
Basic 40,934,689 39,682,337 40,570,817 39,319,703
Diluted 40,934,689 40,645,982 42,237,438 39,319,703
Overview of Results of Operations for the Three Months Ended September 30, 2021
and 2020
Total revenue increased by 6%, or $3.1 million , in the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 due to
an increase in subscription and support revenue of 6%, or $2.9 million ,
primarily due to an increase in average revenue per premium customer of 6.9%.
Professional services and other revenue also increased by 7% or $191 .
Professional services and other revenue will vary from period to period
depending on the number of implementations and other projects that are in
process. In addition, our revenue from premium offerings grew by $3.3 million ,
or 7%, in the three months ended September 30, 2021 compared to the three months
ended September 30, 2020 . Our ability to continue to provide the product
functionality and performance that our customers require will be a major factor
in our ability to continue to increase revenue.
Our gross profit increased by $2.5 million , or 8%, in the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 ,
primarily due to an increase in revenue and our transition of acquired Ooyala
customers to our technology during 2020, which resulted in reduced costs. Our
ability to continue to maintain our overall gross profit will depend primarily
on our ability to continue controlling our costs of delivery.
Loss from operations was $0.2 million in the three months ended September 30,
2021 compared to a loss from operations of $1.3 million in the three months
ended September 30, 2020 . This is primarily due to an increase in revenue of
$3.1 million and the improvement of gross profit on subscription and support
revenue in the three months ended September 30, 2021 compared to the three
months ended September 30, 2020 .
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Revenue
Three Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Revenue by Product Line Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Premium $ 51,466 99 % $ 48,175 98 % $ 3,291 7 %
Volume 697 1 909 2 (212 ) (23 )
Total $ 52,163 100 % $ 49,084 100 % $ 3,079 6 %
During the three months ended September 30, 2021 , revenue increased by
$3.1 million , or 6%, compared to the three months ended September 30, 2020 ,
primarily due to an increase in revenue from our premium offerings. The increase
in premium revenue of $3.3 million , or 7%, is primarily the result of increased
premium subscription offerings to our customers as the average annual
subscription revenue per premium customer increased 6.9% compared to the prior
period. In the three months ended September 30, 2021 , volume revenue decreased
by $212 , or 23%, compared to the three months ended September 30, 2020 , as we
continue to focus on the market for our premium solutions.
Three Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Revenue by Type Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 49,226 94 % $ 46,338 96 % $ 2,888 6 %
Professional services and other 2,937 6 2,746 4 191 7
Total $ 52,163 100 % $ 49,084 100 % $ 3,079 6 %
During the three months ended September 30, 2021 , subscription and support
revenue increased by $2.9 million , or 6%, compared to the three months ended
September 30, 2020 . The increase was primarily related to an increase in the
average annual subscription revenue per premium customer of 6.9% during the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020 . In addition, professional services and other revenue
increased by $191 , or 7%, compared to the corresponding quarter in the prior
year. Professional services and other revenue will vary from period to period
depending on the number of implementations and other projects that are in
process.
Three Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Revenue by Geography Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
North America $ 29,420 56 % $ 27,515 56 % $ 1,905 7 %
Europe 9,689 19 8,435 17 1,254 15
Japan 6,185 12 5,688 12 497 9
Asia Pacific 6,746 13 7,211 15 (465 ) (6 )
Other 123 - 235 - (112 ) (48 )
International subtotal 22,743 44 21,569 44 1,174 5
Total $ 52,163 100 % $ 49,084 100 % $ 3,079 6 %
For purposes of this section, we designate revenue by geographic regions based
upon the locations of our customers. North America is comprised of revenue from
the United States , Canada and Mexico . International is comprised of revenue from
locations outside of North America . Depending on the timing of new customer
contracts, revenue mix from a geographic region can vary from period to period.
During the three months ended September 30, 2021 , total revenue for North
America increased $1.9 million , or 7%, compared to the three months ended
September 30, 2020 . In the three months ended September 30, 2021 , total revenue
outside of North America increased $1.2 million , or 5%, compared to the three
months ended September 30, 2020 . The increase in revenue from international
regions is primarily related to increases in revenue in Europe .
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Cost of Revenue
Three Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Related Related
Cost of Revenue Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 16,406 33 % $ 15,735 34 % $ 671 4 %
Professional services and other 2,247 77 2,363 86 (116 ) (5 )
Total $ 18,653 36 % $ 18,098 37 % $ 555 3 %
In the three months ended September 30, 2021 , cost of subscription and support
revenue increased by $671 , or 4%, compared to the three months ended
September 30, 2020 . The increase resulted primarily from the 6% increase in
subscription and support revenue in the three months ended September 30, 2021
compared to the three months ended September 30, 2020 . In the three months ended
September 30, 2021 , cost of professional services and other revenue decreased by
$116 , or 5%, compared to the three months ended September 30, 2020 . This
decrease corresponds to a decrease in contractor expenses of $216 in the three
months ended September 30, 2021 , compared to the three months ended
September 30, 2020 .
Gross Profit
Three Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Related Related
Gross Profit Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 32,820 67 % $ 30,603 66 % $ 2,217 7 %
Professional services and other 690 23 383 14 307 80 %
Total $ 33,510 64 % $ 30,986 63 % $ 2,524 8 %
The overall gross profit percentage was 64% for the three months ended
September 30, 2021 compared to 63% for the three months ended September 30,
2020 . Subscription and support gross profit increased $2.2 million , or 7%,
compared to the three months ended September 30, 2020 . The increase in gross
profit dollars for subscription and support revenue was due to incremental costs
from the acquisition of Ooyala in the three months ended September 30, 2020
which did not recur in the three months ended September 30, 2021 .
Operating Expenses
Three Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Operating Expenses Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Research and development $ 7,902 15 % $ 8,215 17 % $ (313 ) (4 )%
Sales and marketing 18,451 35 14,813 30 3,638 25
General and administrative 7,345 14 6,694 14 651 10
Merger-related 45 - - - 45 N/A
Total $ 33,743 65 % $ 29,722 61 % $ 4,021 14 %
Research and Development
.
In the three months ended September 30, 2021 , research and development expense
decreased by $313 or 4%, compared to the three months ended September 30, 2020
primarily due to a decrease in rent and contractor expenses of $315 and $292
respectively. These decreases were offset by an increase in stock-based
compensation of $267 , as well as various other expenses that, in the aggregate,
increased by approximately $27 . We expect our research and development expense
as a percentage of revenue to remain relatively unchanged.
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Sales and Marketing
.
In the three months ended September 30, 2021 , sales and marketing expense
increased by $3.6 million , or 25%, compared to the three months ended
September 30, 2020 , primarily due to an increase in marketing campaigns,
employee-related, and commission expenses of $1.8 million , $1.6 million , and
$1.2 million , respectively. These increases were offset by a decrease in rent
and contractor expenses of $435 and $627 , respectively. The remaining decrease
was due to various other expenses that, in aggregate, decreased by approximately
$46 . We expect that our sales and marketing expense will increase in absolute
dollars for the remainder of 2021 as compared to the prior period as we will
continue to invest in these activities to support revenue growth.
General and Administrative
.
In the three months ended September 30, 2021 , general and administrative expense
increased by $651 , or 10%, compared to the three months ended September 30,
2020 , primarily due to increases in outside professional services, employee-
related, and stock-based compensation expenses of $244 , $193 , and $176 ,
respectively. The remaining increase was due to various other expenses that, in
aggregate, increased by approximately $38 . In future periods, we expect general
and administrative expense to remain relatively unchanged.
Merger-Related
.
In the three months ended September 30, 2021 , merger-related expenses remained
relatively unchanged, compared to the three months ended September 30, 2020 .
Overview of Results of Operations for the Nine Months Ended September 30, 2021
and 2020
Total revenue increased by 10%, or $14.8 million , in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 due to
an increase in subscription and support revenue of 9%, or $12.1 million ,
primarily due to an increase in revenue from our premium offerings. Professional
services and other revenue also increased by 39%, or $2.7 million , compared to
the corresponding period 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. Our revenue from premium
offerings grew by $15.3 million , or 11%, in the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 . Our ability to
continue to provide the product functionality and performance that our customers
require will be a major factor in our ability to continue to increase revenue.
Our gross profit increased by $16.4 million , or 19%, in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 , due to
an increase in revenue and an improvement in subscription and support gross
profit. The increase in revenue is due to an increase in our average revenue per
premium customer. The improvement in subscription and support gross profit was
primarily due to transition of acquired Ooyala customers to our technology
during 2020, which reduced costs. 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 $6.5 million in the nine months ended September 30,
2021 compared to a loss from operations of $6.9 million in the nine months ended
September 30, 2020 . This is primarily due to the aforementioned increase in
revenue of $14.8 million and decreases in costs of revenue of $1.6 million in
the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020 .
Revenue
Nine Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Revenue by Product Line Amount Revenue Amount
Revenue Amount %
(in thousands, except percentages)
Premium $ 156,182 99 % $ 140,904 98 % $ 15,278 11 %
Volume 2,270 1 2,759 2 (489 ) (18 )
Total $ 158,452 100 % $ 143,663 100 % $ 14,789 10 %
During the nine months ended September 30, 2021 , revenue increased by
$14.8 million , or 10%, compared to the nine months ended September 30, 2020 ,
primarily due to an increase in revenue from our premium offerings, which
consists of subscription and support revenue as well as professional services.
The increase in premium revenue of $15.3 million , or 11%, is primarily the
result of an 8% increase in average annual subscription revenue per premium
customer during the nine months ended September 30, 2021 compared to the nine
months ended September 30, 2020 . This increase in average annual subscription
revenue per premium customer is primarily due to premium customers ordering more
of our products.
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During the nine months ended September 30, 2021 , volume revenue decreased by
$489 or 18%, compared to the nine months ended September 30, 2020 , as we
continue to focus on the market for our premium solutions.
Nine Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Revenue by Type Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 148,667 94 % $ 136,613 95 % $ 12,054 9 %
Professional services and other 9,785 6 7,050 5 2,735 39
Total $ 158,452 100 % $ 143,663 100 % $ 14,789 10 %
During the nine months ended September 30, 2021 , subscription and support
revenue increased by $12.1 million , or 9%, compared to the nine months ended
September 30, 2020 . The increase was primarily related to an 8% increase in
average annual subscription revenue per premium customer.
In addition, professional services and other revenue increased by $2.7 million ,
or 39%, compared to the corresponding period in the prior year. This increase
was driven by one particular project that was completed in the three months
ended March 31, 2021 . Professional services and other revenue will vary from
period to period depending on the number of implementations and other projects
that are in process.
Nine Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Revenue by Geography Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
North America $ 89,204 56 % $ 78,553 55 % $ 10,651 14 %
Europe 28,159 18 25,323 18 2,836 11
Japan 19,263 12 17,344 12 1,919 11
Asia Pacific 21,421 14 21,795 15 (374 ) (2 )
Other 405 - 648 - (243 ) (38 )
International subtotal 69,248 44 65,110 45 4,138 6
Total $ 158,452 100 % $ 143,663 100 % $ 14,789 10 %
During the nine months ended September 30, 2021 , total revenue for North America
increased $10.7 million , or 14%, compared to the nine months ended September 30,
2020 . The increase was due to revenue from our premium offerings.
During the nine months ended September 30, 2021 , total revenue outside of North
America increased $4.1 million , or 6%, compared to the nine months ended
September 30, 2020 . The increase in revenue from international regions is
primarily related to increased sales of our premium offerings to existing
customers in Japan and Europe .
Cost of Revenue
Nine Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Related Related
Cost of Revenue Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 46,840 32 % $ 50,290 37 % $ (3,450 ) (7 )%
Professional services and other 8,205 84 6,349 90 1,856 29
Total $ 55,045 35 % $ 56,639 39 % $ (1,594 ) (3 )%
In the nine months ended September 30, 2021 , cost of subscription and support
revenue decreased $3.5 million , or 7%, compared to the nine months ended
September 30, 2020 . The decrease resulted primarily from incremental costs from
the acquisition of Ooyala in the nine months ended September 30, 2020 which did
not recur in the nine months ended September 30, 2021 .
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In the nine months ended September 30, 2021 , cost of professional services and
other revenue increased $1.9 million , or 29%, compared to the nine months ended
September 30, 2020 . This increase corresponds to an increase in contractor
expenses of $1.7 million in the nine months ended September 30, 2021 compared to
the nine months ended September 30, 2020 .
Gross Profit
Nine Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Related Related
Gross Profit Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 101,827 68 % $ 86,323 63 % $ 15,504 18 %
Professional services and other 1,580 16 701 10 879 125
Total $ 103,407 65 % $ 87,024 61 % $ 16,383 19 %
The overall gross profit percentage was 65% and 61% for the nine months ended
September 30, 2021 and 2020, respectively. Subscription and support gross profit
increased $15.5 million , or 18%, compared to the nine months ended September 30,
2020 . 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
Nine Months Ended September 30,
2021 2020 Change
Percentage of Percentage of
Operating Expenses Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Research and development $ 24,041 15 % $ 26,199 18 % $ (2,158 ) (8 )%
Sales and marketing 52,730 33 42,370 29 10,360 24
General and administrative 21,822 14 19,633 14 2,189 11
Merger-related 300 0 5,768 4 (5,468 ) (95 )
Other (benefit) expense (1,965 ) (1 ) - - (1,965 ) N/A
Total $ 96,928 61 % $ 93,970 65 % $ 2,958 3 %
Research and Development
.
In the nine months ended September 30, 2021 , research and development expense
decreased by $2.2 million , or 8%, compared to the nine months ended
September 30, 2020 primarily due to a decrease in employee-related and rent
expenses of $1.6 million and $1.0 million , respectively. These decreases were
partially offset by an increase in stock-based compensation expense of $423 .
Sales and Marketing
.
In the nine months ended September 30, 2021 , sales and marketing expense
increased by $10.4 million , or 24%, compared to the nine months ended
September 30, 2020 primarily due to increases in marketing campaigns, commission
and employee-related expenses of $4.7 million , $4.1 million , and $3.8 million ,
respectively. These increases were offset by decreases in rent, contractor and
travel expenses of $1.2 million , $550 and $404 , respectively.
General and Administrative
.
In the nine months ended September 30, 2021 , general and administrative
increased by $2.2 million or 11%, compared to the nine months ended
September 30, 2020 primarily due to increases in outside accounting and legal
fees, employee-related, stock-based compensation, and contractor expenses of
$995 , $669 , $330 and $297 , respectively.
Merger-Related
.
In the nine months ended September 30, 2021 , merger-related expenses decreased
$5.5 million due to costs incurred in connection with general merger and related
activities in 2020 which did not recur in the current period.
Other (benefit) expense
.
On March 27, 2020 , in response to the
COVID-19
pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic
Security Act, which was amended by the Consolidated Appropriations Act in
December of 2020 (the "CARES Act"). The CARES Act provides numerous tax
provisions and other stimulus measures, including the creation of certain
employee retention credits. In the first quarter of 2021, we recognized a
benefit of $1,965 from the CARES Act related to employee retention credits. The
benefit was recorded as Other (benefit) expense.
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Table of Contents Liquidity and Capital Resources Cash and cash equivalents. Our cash and cash equivalents atSeptember 30, 2021 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. AtSeptember 30, 2021 andDecember 31, 2020 , we had$14.5 million and$17.1 million , respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located inJapan and theUnited Kingdom . These earnings can be
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