BRIGHTCOVE INC.

(BCOV)
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BRIGHTCOVE INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

04/27/2022 | 05:28pm EDT

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


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form
10-Q
and our Annual Report on Form
10-K
for the year ended December 31, 2021.

Company Overview


We are a leading global provider of cloud-based services for video. We were
incorporated in Delaware in August 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 through Brightcove 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 March 31, 2022 and 2021 we had 678 and 652 employees, respectively.


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 ended March 31, 2021 to $53.4 million in
the three months ended March 31, 2022, due to a decrease in professional
services and other revenue.

Included in the consolidated net loss for the three months ended March 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 ended March 31, 2021 was stock-based compensation
expense and amortization of acquired intangible assets of $2.3 million and $766,
respectively.

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For the three months ended March 31, 2022 and 2021, our revenue derived from
customers located outside North America was 45% and 44%, respectively. We expect
the percentage of total net revenue derived from outside North America to
increase in future periods as we continue to expand our international
operations.

Key Metrics


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

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-go

contracts), 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.


Our

go-to-market

focus and growth strategy is to expand our premium customer base, as we believe
our premium customers represent a greater opportunity for our solutions. Premium
customers decreased 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 $199 or $499 per month, we disclose the average annual

subscription revenue per premium customer separately for Starter edition

      customers and all other premium customers.



  •   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 late February 2022, Russian military forces launched significant military
action against Ukraine, and sustained conflict and disruption in the region is
likely. Subsequent to the invasion, the U.S. and other countries imposed
economic sanctions against officials, individuals, regions, and industries in
Russia, Ukraine and Belarus. We do not have operations or customers in Russia or
Ukraine and none of our material vendors source their services to us from Russia
or Ukraine. We will continue to monitor the situation and comply with any
sanctions and restrictions imposed by the U.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 existing U.S. net deferred tax assets at December 31, 2021. We
maintain net deferred tax liabilities for temporary differences related to our
Japanese subsidiary.

During the three months ended March 31, 2022, we recorded a non-recurring
benefit of $1.0 million in the U.S. for the release of a portion of our
valuation allowance. This release of the valuation allowance is related to the
Wicket Acquisition completed in February 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 ended March 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 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.

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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 ended December 31, 2021, which we filed with the Securities and
Exchange Commission on February 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 ended December 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 March 31, 2022 and 2021


Total revenue decreased by 3%, or $1.4 million, in the three months ended
March 31, 2022 compared to the three months ended March 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.

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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 ended
March 31, 2022 compared to the three months ended March 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.

The U.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 ended March 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 ended
March 31, 2022 compared to the three months ended March 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 ended March 31, 2022
compared to a net income from operations of $6.1 million in the three months
ended March 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 ended March 31, 2022 compared to the
three months ended March 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 from
the United States, Canada and Mexico. International is comprised of revenue from
locations outside of North America. Depending on the timing of new customer
contracts, revenue mix from a geographic region can vary from period to period.

During the three months ended March 31, 2022, total revenue for North America
decreased $925, or 3%, compared to the three months ended March 31, 2021. In the
three months ended March 31, 2022, total revenue outside of North America
decreased $513, or 2%, compared to the three months ended March 31, 2021. The
decrease in revenue from international regions is primarily related to decrease
in revenue in Japan 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 ended March 31, 2022, cost of subscription and support
revenue increased by $1.3 million, or 8%, compared to the three months ended
March 31, 2021. The increase resulted primarily from an increase in content
delivery network and third-party software expenses compared in the three months
ended March 31, 2022 compared to the three months ended March 31, 2021. In the
three months ended March 31, 2022, cost of professional services and other
revenue decreased by $1.5 million, or 43%, compared to the three months ended
March 31, 2021. This decrease corresponds to the 55% decrease professional
services and other revenue in the three months ended March 31, 2022, compared to
the three months ended March 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 ended March 31,
2022 compared to 65% for the three months ended March 31, 2021. Subscription and
support gross profit remained relatively unchanged compared to the three months
ended March 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.

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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 March 31, 2022, merger-related expense increased by $594 primarily due to the Wicket Acquisition. There was no merger-related expense in the three months ended March 31, 2021.

Other expense (benefit).

 On March 28, 2022 our CEO retired. Pursuant to a Transition Agreement that was
entered into by the previous CEO and the Company in October 2021, the CEO, upon
retirement, would be paid his annual base compensation through December 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 of March 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.

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 $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 ended March 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 at March 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. At March 31, 2022 and December 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
in Japan and the United Kingdom. These earnings can be repatriated to the United
States tax-free but
could still be

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subject to foreign withholding taxes. On February 1, 2022, we acquired 100% of
the outstanding shares of Wicket 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.

© Edgar Online, source Glimpses

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