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, 2021 .
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; and (4) 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; (3) Brightcove Enterprise Video Suite, provides an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos; and (4) Brightcove CorpTV ™ , provides a new way to deliver marketing videos, product announcements, training programs, and other live and on-demand content in a branded experience for companies. 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
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue decreased from$54.8 million in the three months endedMarch 31, 2021 to$53.4 million in the three months endedMarch 31, 2022 , due to a decrease in professional services and other revenue. Included in the consolidated net loss for the three months endedMarch 31, 2022 was stock-based compensation expense and amortization of acquired intangible assets of$3.5 million and$817 , respectively. Included in the consolidated net income for the three months endedMarch 31, 2021 was stock-based compensation expense and amortization of acquired intangible assets of$2.3 million and$766 , respectively. 17
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For the three months endedMarch 31, 2022 and 2021, our revenue derived from customers located outsideNorth America was 45% and 44%, respectively. We expect the percentage of total net revenue derived from outsideNorth America to increase in future periods as we continue to expand our international operations.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
The following table includes our key metrics for the periods presented:
Three Months Ended March 31,
2022 2021
Customers (at period end)
Premium 2,299 2,273
Volume 832 1,039
Total customers (at period end) 3,131 3,312
Net revenue retention rate 97.8 % 98.8 % Recurring dollar retention rate 91 % 85 % Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)$ 96.5 $ 97.0 Average annual subscription revenue per premium customer for Starter edition customers only (in thousands) $ 4.6 $ 4.3 Total backlog, excluding professional services engagements (in millions)$ 159.2 $ 147.6 Total backlog to be recognized over next 12 months, excluding professional services engagements (in millions)$ 128.7 $ 117.1 • 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, our Brightcove Engage customers, our Brightcove CorpTV
™
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 2022 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.
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• R
ecurring 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 and Geopolitical Events While the future trends of the COVID-19 pandemic remain uncertain, we have not experienced a significant disruption during the pandemic. We will continue to monitor COVID-19's effect on our employees, customers, vendors and the regions we operate in. In lateFebruary 2022 , Russian military forces launched significant military action againstUkraine , and sustained conflict and disruption in the region is likely. Subsequent to the invasion, theU.S. and other countries imposed economic sanctions against officials, individuals, regions, and industries inRussia ,Ukraine andBelarus . We do not have operations or customers inRussia orUkraine and none of our material vendors source their services to us fromRussia orUkraine . We will continue to monitor the situation and comply with any sanctions and restrictions imposed by theU.S. government.
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.
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.
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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, Brightcove CorpTV ™ , 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 three months of 2021 to the first three months of 2022. In future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases. Cost of revenue as a percentage of revenue could fluctuate from period to period depending on the number of our professional services engagements and any associated costs relating to the delivery of subscription services and the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue, in any particular quarterly or annual period.
Operating Expenses
We classify our operating expenses as follows:
Research and Development
. Research and development expenses consist primarily of personnel and related
expenses for our research and development staff, including salaries, benefits,
incentive compensation and stock-based compensation, in addition to the costs
associated with contractors and allocated overhead. We have focused our research
and development efforts on expanding the functionality and scalability of our
products and enhancing their ease of use, as well as creating new product
offerings. We expect research and development expenses to increase in absolute
dollars as we intend to continue to periodically release new features and
functionality, expand our product offerings, continue the localization of our
products in various languages, upgrade and extend our service offerings, and
develop new technologies. Over the long term, we believe that research and
development expenses as a percentage of revenue will decrease, but will vary
depending upon the mix of revenue from new and existing products, features and
functionality, as well as changes in the technology that our products must
support, such as new operating systems or new Internet-connected devices.
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Sales and Marketing . Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. Our sales and marketing expenses have increased in absolute dollars in each of the last three years. We intend to continue to invest in sales and marketing and expand the sale of our product offerings within our existing customer base, build brand awareness and sponsor additional marketing events. Accordingly, we expect sales and marketing expense to continue to be our most significant operating expense in future periods. Over the long term, we believe that sales and marketing expense as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing customers and from small, medium-sized and enterprise customers, as well as changes in the productivity of our sales and marketing programs. General and Administrative . General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, information technology and human resources functions, including salaries, benefits, incentive compensation and stock-based compensation. General and administrative expenses also include the costs associated with professional fees, insurance premiums, other corporate expenses and allocated overhead. Over the long term, we believe that general and administrative expenses as a percentage of revenue will decrease.
Merger-related
. Merger-related costs consist of expenses related to mergers and acquisitions, integration costs and general corporate development activities.
Other Expense (Benefit) . Reflects other operating benefits, costs that do not directly relate to the operating activities listed above.
Other (Expense) Income, net
Other (expense) income 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 existingU.S. net deferred tax assets atDecember 31, 2021 . We maintain net deferred tax liabilities for temporary differences related to our Japanese subsidiary. During the three months endedMarch 31, 2022 , we recorded a non-recurring benefit of$1.0 million in theU.S. for the release of a portion of our valuation allowance. This release of the valuation allowance is related to the Wicket Acquisition completed inFebruary 2022 and the creation of deferred tax liabilities in purchase accounting that serve as a source of income for our pre-existing deferred tax assets.
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 endedMarch 31, 2022 and 2021, we recorded$3.5 million and$2.3 million , respectively, of stock-based compensation expense. We expect stock-based compensation expense to increase in absolute dollars in future periods.
Foreign Currency Translation
With regard to our international operations, we frequently enter into transactions in currencies other than theU.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 theU.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 intoU.S. dollars. 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.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe 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. 21
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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 endedDecember 31, 2021 , which we filed with theSecurities and Exchange Commission onFebruary 18, 2022 .
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 endedDecember 31, 2021 . Three Months Ended March 31, 2022 2021 (in thousands, except share and per share data) Revenue: Subscription and support revenue $ 51,601 $ 50,839 Professional services and other revenue 1,778 3,978 Total revenue 53,379 54,817 Cost of revenue: Cost of subscription and support revenue 16,982 15,678 Cost of professional services and other revenue 1,998 3,490 Total cost of revenue 18,980 19,168 Gross profit 34,399 35,649 Operating expenses: Research and development 8,237 8,284 Sales and marketing 18,288 16,149 General and administrative 8,089 7,059 Merger-related 594 - Other (benefit) expense 1,149 (1,965 ) Total operating expenses 36,357 29,527 (Loss) income from operations (1,958 ) 6,122 Other (expense), net (387 ) (735 ) (Loss) income before income taxes (2,345 ) 5,386 (Benefit) provision for income (708 ) 257 Net (loss) income $ (1,637 ) $ 5,130 Net (loss) income per share-basic and diluted Basic $ (0.04 ) $ 0.13 Diluted $ (0.04 ) $ 0.12 Weighted-average shares-basic and diluted Basic 41,436 40,154 Diluted 41,436 42,480
Overview of Results of Operations for the Three Months Ended
Total revenue decreased by 3%, or$1.4 million , in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to a decrease in professional services and other revenue by 55% or$2.2 million . Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. 22
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Subscription and support revenue remained relatively unchanged. Our revenue from premium offerings decreased by$1.3 million , or 2%, in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . 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. TheU.S. dollar has strengthened against the Japanese Yen and the Euro when compared against exchange rates during the prior year period of comparison. In constant currency, our total revenue for the three months endedMarch 31, 2022 would have been approximately$54.6 million . The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of$0.7 million and Euro of$0.3 million . Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison. Our gross profit decreased by$1.3 million , or 4%, in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to a decrease in revenue and an increase in the cost of subscription and support revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery. Loss from operations was$2.0 million in the three months endedMarch 31, 2022 compared to a net income from operations of$6.1 million in the three months endedMarch 31, 2021 . This is primarily due to a decrease in revenue of$1.4 million , the decrease in gross profit of$1.7 million and an increase in operating expenses in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase in operating expenses is primarily the result of the current period's merger-related and other expenses, in aggregate, of$1.3 million as compared to a benefit of approximately$2.0 million in the prior year. Revenue Three Months Ended March 31, 2022 2021 Change Percentage of Percentage of Revenue by Product Line Amount Revenue Amount
Revenue Amount %
(in thousands, except percentages)
Premium $ 52,772 99 % $ 54,022 99 % $ (1,250 ) (2 )%
Volume 607 1 795 1 (188 ) (24 )
Total $ 53,379 100 % $ 54,817 100 % $ (1,438 ) (3 )%
During the three months ended March 31, 2022 , revenue decreased by $1.4 million ,
or 3%, compared to the three months ended March 31, 2021 , primarily due to a
decrease in revenue from our premium offerings. The decrease in premium revenue
of $1.3 million , or 2%, is primarily the result of a 55% decrease in
professional services and other revenue. In the three months ended March 31,
2022 , volume revenue decreased by $188 , or 24%, compared to the three months
ended March 31, 2021 , as we continue to focus on the market for our premium
solutions.
Three Months Ended March 31,
2022 2021 Change
Percentage of Percentage of
Revenue by Type Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 51,601 97 % $ 50,839 93 % $ 762 1 %
Professional services and other 1,778 3 3,978 7 (2,200 ) (55 )
Total $ 53,379 100 % $ 54,817 100 % $ (1,438 ) -3 %
During the three months ended March 31, 2022 , subscription and support revenue
remained relatively unchanged compared to the three months ended March 31, 2021 .
In addition, professional services and other revenue decreased by $2.2 million ,
or 55%, 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,
2022 2021 Change
Percentage of Percentage of
Revenue by Geography Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
North America $ 29,461 55 % $ 30,386 56 % $ (925 ) (3 )%
Europe 9,105 17 8,923 16 182 2
Japan 7,261 14 7,708 14 (447 ) (6 )
Asia Pacific 7,436 14 7,659 14 (223 ) (3 )
Other 116 - 141 - (25 ) (18 )
International subtotal 23,918 45 24,431 44 (513 ) (2 )
Total $ 53,379 100 % $ 54,817 100 % $ (1,438 ) (3 )%
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For purposes of this section, we designate revenue by geographic regions based upon the locations of our customers.North America is comprised of revenue fromthe United States ,Canada andMexico . International is comprised of revenue from locations outside ofNorth 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 endedMarch 31, 2022 , total revenue forNorth America decreased$925 , or 3%, compared to the three months endedMarch 31, 2021 . In the three months endedMarch 31, 2022 , total revenue outside ofNorth America decreased$513 , or 2%, compared to the three months endedMarch 31, 2021 . The decrease in revenue from international regions is primarily related to decrease in revenue inJapan which was due to unfavorable changes in exchange rates as compared to the prior year period of comparison. Cost of Revenue Three Months Ended March 31, 2022 2021 Change Percentage of Percentage of Related Related Cost of Revenue Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Subscription and support$ 16,982 33 %$ 15,678 31 %$ 1,304 8 % Professional services and other 1,998 112 3,490 88 (1,492 ) (43 ) Total$ 18,980 36 %$ 19,168 35 %$ (188 ) (1 )% In the three months endedMarch 31, 2022 , cost of subscription and support revenue increased by$1.3 million , or 8%, compared to the three months endedMarch 31, 2021 . The increase resulted primarily from an increase in content delivery network and third-party software expenses compared in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . In the three months endedMarch 31, 2022 , cost of professional services and other revenue decreased by$1.5 million , or 43%, compared to the three months endedMarch 31, 2021 . This decrease corresponds to the 55% decrease professional services and other revenue in the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . Gross Profit Three Months Ended March 31, 2022 2021 Change Percentage of Percentage of Related Related Gross Profit Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Subscription and support$ 34,619 67 %$ 35,161 69 %$ (542 ) (2 )% Professional services and other (220 ) (12 ) 488 12 (708 ) (145 )% Total$ 34,399 64 %$ 35,649 65 %$ (1,250 ) (4 )% The overall gross profit percentage was 64% for the three months endedMarch 31, 2022 compared to 65% for the three months endedMarch 31, 2021 . Subscription and support gross profit remained relatively unchanged compared to the three months endedMarch 31, 2021 . Professional services and other gross profit decreased$708 , or 145%. The decrease in gross profit dollars for professional services and other revenue was due to the 55% decrease in professional services and other revenue. 24
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Operating Expenses
Three Months Ended March 31,
2022 2021 Change
Percentage of Percentage of
Operating Expenses Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Research and development $ 8,237 15 % $ 8,284 15 % $ (47 ) (1 )%
Sales and marketing 18,288 34 16,149 29 2,139 13
General and administrative 8,089 15 7,059 13 1,030 15
Merger-related 594 1 - - 594 N/A
Other (benefit) expense 1,149 2 (1,965 ) (4 ) 3,114 (158 )
Total $ 36,357 68 % $ 29,527 54 % $ 6,830 23 %
Research and Development
.
In the three months ended March 31, 2022 , research and development remained
relatively unchanged compared to the three months ended March 31, 2021 . We
expect our research and development expense as a percentage of revenue to remain
relatively unchanged.
Sales and Marketing
.
In the three months ended March 31, 2022 , sales and marketing expense increased
by $2.1 million , or 13%, compared to the three months ended March 31, 2021 ,
primarily due to an increase in employee-related, contractor, and rent expenses
of $1.5 million , $282 , and $305 , respectively. We expect that our sales and
marketing expense will increase in absolute dollars for the remainder of 2022 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 March 31, 2022 , general and administrative expense
increased by $1.0 million , or 15%, compared to the three months ended March 31,
2021 , primarily due to increases in agency, employee-related, and stock-based
compensation expenses of $212 , $285 , and $330 , respectively. The remaining
increase was due to various other expenses that, in aggregate, increased by
approximately $200 . In future periods, we expect general and administrative
expense to remain relatively unchanged.
Merger-Related
.
In the three months ended
Other expense (benefit).
OnMarch 28, 2022 our CEO retired. Pursuant to a Transition Agreement that was entered into by the previous CEO and the Company inOctober 2021 , the CEO, upon retirement, would be paid his annual base compensation throughDecember 31, 2022 and his 2022 annual bonus, the bonus amount to be determined by the Company's 2022 performance. In accordance with generally accepted accounting principles we determined that the remaining base compensation and the current estimate of the 2022 annual bonus should be accrued and the expense recognized as ofMarch 28, 2022 . The total of$1.1 million is reflected in Accrued Expenses on the Company's Condensed Consolidated Balance Sheets . The$1.1 million in expense also reflects$0.2 million of stock-based compensation expense as a result of the modification of certain awards pursuant to the Transition Agreement. OnMarch 27, 2020 , in response to the COVID-19 pandemic, theU.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$2.0 million from the CARES Act related to employee retention credits. The benefit was recorded as Other (benefit) expense.
(Benefit) Provision for Income Taxes.
We recorded an income tax benefit of$708 in the three months endedMarch 31, 2022 as compared to income tax expense of$257 in the prior period. The benefit is due to the release of$1.0 million of our valuation allowance as a result of deferred tax liabilities resulting from the Wicket Acquisition, which was a non-tax deductible transaction. The benefit of$1.0 million was offset by state and foreign tax expense provisions.
Liquidity and Capital Resources
Cash and cash equivalents.
Our cash and cash equivalents atMarch 31, 2022 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. AtMarch 31, 2022 andDecember 31, 2021 , we had$13.0 million and$13.8 million , respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located inJapan and theUnited Kingdom . These earnings can be repatriated tothe United States tax-free but could still be 25
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subject to foreign withholding taxes. OnFebruary 1, 2022 , we acquired 100% of the outstanding shares ofWicket Labs , in exchange for 212,507 unregistered shares of our common stock valued at approximately$2 million and approximately$13.2 million in cash. Approximately$1.8 million of the cash consideration was held back to secure payment of any claims of indemnification for breaches or inaccuracies in the Sellers' representations and warranties, covenants and agreements. 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.
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