BRIGHTCOVE INC. 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, 2019 . Company Overview We are a leading global provider of cloud-based services for video. We were incorporated inDelaware inAugust 2004 and our headquarters are inBoston, Massachusetts . Our suite of products and services reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices. Brightcove Video Cloud, or Video Cloud, our flagship product, is the world's leading online video platform. Video Cloud enables our customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Brightcove OTT Flow is a service for media companies and content owners to rapidly deploy high-quality, direct-to-consumer, live and on-demand video services across platforms. Brightcove Video Marketing Suite, or Video Marketing Suite, is a comprehensive suite of video technologies designed to address the needs of marketers to drive awareness, engagement and conversion. Brightcove Enterprise Video Suite, or Enterprise Video Suite, is an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos. We also have a number of modular solutions for customers, including Brightcove Zencoder, or Zencoder, which is a cloud-based video encoding service. Brightcove SSAI, or SSAI, is an innovative, cloud-based ad insertion and video stitching service that addresses the limitations of traditional online video ad insertion technology. Brightcove Player, or Player, is a cloud-based service for creating and managing video player experiences. InSeptember 2019 , we released Brightcove Beacon, which is a purpose-built app that enables companies to deliver and launch premium OTT video experiences quickly and cost effectively across mobile, web, smart TVs and connected TVs, all with the flexibility of multiple monetization models. InJanuary 2020 , we released Brightcove Campaign, which is a purpose-built app that enables marketers to easily create video-driven marketing campaigns that yield insightful data with the ability to compare video performance to a variety of industry benchmarks. Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, and go-to-market activities to support our long-term revenue growth. We believe these investments will help us address some of the challenges facing our business such as demand for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting price sensitivity. These investments include support for the expansion of our infrastructure within our hosting facilities, the hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of new products. We believe this strategy will help us retain our existing customers, increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold, research and development and general and administrative expenses as a percentage of total revenue. As ofSeptember 30, 2020 , we had 616 employees and 3,381 customers, of which 2,267 used our premium offerings and 1,114 used our volume offerings. As ofSeptember 30, 2019 , we had 596 employees and 3,720 customers, of which 2,362 used our premium offerings and 1,358 used our volume offerings. We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grew from$136.9 million in the nine months endedSeptember 30, 2019 to$143.7 million in the nine months endedSeptember 30, 2020 , primarily related to incremental revenue from the Ooyala acquisition that was completed onApril 1, 2019 and, to a lesser extent, an increase in sales of our premium offerings to both new and existing customers. Our consolidated net loss was$7.8 million and$15.2 million for the nine months endedSeptember 30, 2020 and 2019, respectively. Included in the consolidated net loss for the nine months endedSeptember 30, 2020 was merger-related expense, stock-based compensation expense, and amortization of acquired intangible assets of$5.8 million ,$6.7 million , and$2.6 million , respectively. Included in consolidated net loss for the nine months endedSeptember 30, 2019 was merger-related expense, stock-based compensation expense and amortization of acquired intangible assets of$8.1 million ,$4.5 million and$2.2 million , respectively. 16 -------------------------------------------------------------------------------- Table of Contents For the nine months endedSeptember 30, 2020 and 2019, our revenue derived from customers located outsideNorth America was 45% and 48%, 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.
• Number of Customers
. We define our number of customers at the end of a particular quarter as the
number of customers generating subscription revenue at the end of the
quarter. We believe the number of customers is a key indicator of our market
penetration, the productivity of our sales organization and the value that
our products bring to our customers. We classify our customers by including
them in either premium or volume offerings. Our premium offerings include our
premium Video Cloud customers (Enterprise and Pro editions), our Zencoder
customers (other than Zencoder
customers on month-to-month contracts and pay-as-you-go contracts), our
SSAI customers, our Player customers, our OTT Flow customers, our Video
Marketing Suite customers, our Enterprise Video Suite customers, our
Brightcove Beacon 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.
As ofSeptember 30, 2020 , we had 3,381 customers, of which 2,267 used our premium offerings and 1,114 used our volume offerings. As ofSeptember 30, 2019 , we had 3,720 customers, of which 2,362 used our premium offerings and 1,358 used our volume offerings. Our go-to-market focus and growth strategy is to expand our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. 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 2020 and beyond as we continue to focus on the market for our premium solutions.
• Recurring Dollar Retention Rate
. We assess our ability to retain customers using a metric we refer to as our
recurring dollar retention rate. We calculate the recurring dollar retention
rate by dividing the retained recurring value of subscription revenue for a
period by the previous recurring value of subscription revenue for the same
period. We define retained recurring value of subscription revenue as the
committed subscription fees for all contracts that renew in a given period,
including any increase or decrease in contract value. We define previous
recurring value of subscription revenue as the recurring value from committed
subscription fees for all contracts that expire in that same period. We
typically calculate our recurring dollar retention rate on a monthly basis.
Recurring dollar retention rate provides visibility into our ongoing revenue.
During the nine months ended
dollar retention rate was 88% and 89%, respectively.
• Average Annual Subscription Revenue Per Premium Customer. We define average annual subscription revenue per premium customer as the
total subscription revenue from premium customers for an annual period,
excluding professional services revenue, divided by the average number of
premium customers for that period. We believe that this metric is important
in understanding subscription revenue for our premium offerings in addition
to the relative size of premium customer arrangements. As our Starter edition
has a price point of
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. As of
2020, the total backlog for subscription and support contracts was
approximately
expected to be recognized over the next 12 months. As of
the total backlog for subscription and support contracts was approximately
$125.7 million , of which approximately$100.6 million was expected to be recognized over the next 12 months. 17
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The following table includes our key metrics for the periods presented:
Nine Months Ended
September 30,
2020 2019
Customers (at period end)
Premium 2,267 2,362
Volume 1,114 1,358
Total customers (at period end) 3,381 3,720
Recurring dollar retention rate 88 %
89 % Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)
$ 87.3
$ 4.5
$ 144.2
$ 100.6 COVID-19 Update While the implications of the COVID-19 pandemic remain uncertain, we plan to continue to make investments to support business growth. We believe that the growth of our business is dependent on many factors, including our ability to expand our customer base, increase adoption of our product offerings within existing customers, develop new products and applications to extend the functionality of our products and provide a high level of customer service. We expect to invest in sales and marketing to support customer growth. We also expect to invest in research and development as we continue to introduce new products and applications to extend the functionality of our products. We intend to maintain a high level of customer service and support which we consider critical for our continued success. We also expect to continue to incur general and administrative expenses to support our business and to maintain the infrastructure required to be a public company. We expect to use our cash flow from operations and, if necessary, our credit facility to fund operations. See the section titled "Risk Factors" included under Part II, Item 1A below for further discussion of the possible impact of the COVID-19 pandemic on our business. Components of Consolidated Statements of Operations Revenue Subscription and Support Revenue - We generate subscription and support revenue from the sale of our products. Video Cloud is offered in two product lines. The first product line is comprised of our premium product editions. All premium editions include functionality to publish and distribute video to Internet-connected devices, with higher levels of premium editions providing additional features and functionality. Customer arrangements are typically one year contracts, which include a subscription to Video Cloud, basic support and a pre-determined amount of video streams, bandwidth, transcoding and storage. We also offer gold support or platinum support to our premium customers for an additional fee, which includes extended phone support. The pricing for our premium editions is based on the value of our software, as well as the number of users, accounts and usage, which is comprised of video streams, bandwidth, transcoding and storage. Should a customer's usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. The second product line is comprised of our volume product edition. Our volume editions target small and medium-sized businesses, or SMBs. The volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage requirements and do not typically require advanced features and functionality. We discontinued the lower level pricing options for the Express edition of our volume offering and expect the total number of customers using the Express edition to continue to decrease. Customers who purchase the volume editions generally enter into month-to-month agreements. Volume customers are generally billed on a monthly basis and pay via a credit card. 18 -------------------------------------------------------------------------------- Table of Contents Zencoder is offered to customers on a subscription basis, with either committed contracts or pay-as-you-go contracts. The pricing is based on usage, which is comprised of minutes of video processed. The committed contracts include a fixed number of minutes of video processed. Should a customer's usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. Zencoder customers are considered premium customers other than Zencoder customers on month-to-month contracts or pay-as-you-go contracts, which are considered volume customers. SSAI is offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer's needs. Player is offered to customers on a subscription basis. Customer arrangements are typically one-year contracts, which include a subscription to Player, basic support and a pre-determined amount of video streams. We also offer gold support or platinum support to our Player customers for an additional fee, which includes extended phone support. The pricing for Player is based on the number of users, accounts and usage, which is comprised of video streams. Should a customer's usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. OTT Flow, Brightcove Beacon and Brightcove Campaign are each offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer's needs. Customer arrangements are typically one-year contracts. Video Marketing Suite and Enterprise Video Suite are offered to customers on a subscription basis in Starter, Pro and Enterprise editions. The Pro and Enterprise customer arrangements are typically one-year contracts, which typically include a subscription to Video Cloud, Gallery, Brightcove Social (for Video Marketing Suite customers) or Brightcove Live (for Enterprise Video Suite customers), basic support and a pre-determined amount of video streams or plays (for Video Marketing Suite customers), viewers (for Enterprise Video Suite customers), bandwidth and storage or videos. We also generally offer gold support or platinum support to these customers for an additional fee, which includes extended phone support. The pricing for our Pro and Enterprise editions is based on the number of users, accounts and usage, which is comprised of video streams or plays, viewers, bandwidth and storage or videos. Should a customer's usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements, or will require the customer to upgrade its package upon renewal. The Starter edition provides customers with the same basic functionality that is offered in our Pro and Enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. Customers who purchase the Starter edition may enter into one-year agreements or month-to-month agreements. Starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card. All Brightcove Beacon, Brightcove Campaign, SSAI, Player, OTT Flow, Video Marketing Suite and Enterprise Video Suite customers are considered premium customers. Professional Services and Other Revenue - Professional services and other revenue consists of services such as implementation, software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed, or on a time and materials basis. Cost of Revenue Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or CDN, expenses, allocated overhead, depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services. 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 19 -------------------------------------------------------------------------------- Table of Contents 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. 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 and fluctuates based on the activity in the period. Other Income (Expense), net Other income (expense) consists primarily of interest expense from our credit facility, 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, 2019 . 20 -------------------------------------------------------------------------------- Table of Contents 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 endedSeptember 30, 2020 and 2019, we recorded$2.0 million and$1.7 million , respectively, of stock-based compensation expense. For the nine months endedSeptember 30, 2020 and 2019, we recorded$6.7 million and$4.5 million , respectively, of stock-based compensation expense. We expect stock-based compensation expense to increase in absolute dollars in future periods. Foreign Currency Translation With regard to our international operations, we frequently enter into transactions in currencies other than 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. 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, 2019 , which we filed with theSecurities and Exchange Commission onFebruary 27, 2020 . Results of Operations As described above in "COVID-19 Update", the ultimate extent of the impact of any epidemic, pandemic, outbreak or other public health crisis on our results of operations will depend on future developments, which are highly uncertain, including new information that may emerge concerning the severity of the current COVID-19 pandemic or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot fully predict the extent to which our business and results of operations will be affected; however we expect the COVID-19 pandemic to continue to impact our operations in several ways. Our discussion of these risks is detailed in the section titled "Risk Factors" included under Part II, Item 1A below. 21 -------------------------------------------------------------------------------- Table of Contents 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, 2019 . Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (in thousands, except share and per share data) Revenue: Subscription and support revenue$ 46,338 $ 45,424 $ 136,613 $ 129,192 Professional services and other revenue 2,746 2,010 7,050 7,660 Total revenue 49,084 47,434 143,663 136,852 Cost of revenue: Cost of subscription and support revenue 15,735 16,686 50,290 50,237 Cost of professional services and other revenue 2,363 1,628 6,349 6,432 Total cost of revenue 18,098 18,314 56,639 56,669 Gross profit 30,986 29,120 87,024 80,183 Operating expenses: Research and development 8,215 8,127 26,199 23,150 Sales and marketing 14,813 14,567 42,370 45,650 General and administrative 6,694 6,245 19,633 17,485 Merger-related - 2,539 5,768 8,091 Total operating expenses 29,722 31,478 93,970 94,376 Loss from operations 1,264 (2,358 ) (6,946 ) (14,193 ) Other income (expense), net 204 (441 ) (291 ) (477 ) Loss before income taxes 1,468 (2,799 ) (7,237 ) (14,670 ) Provision for income taxes 154 171 597 521 Net income (loss)$ 1,314 $ (2,970 ) $ (7,834 ) $ (15,191 ) Net income (loss) per share-basic and diluted Basic$ 0.03 $ (0.08 ) $ (0.20 ) $ (0.40 ) Diluted$ 0.03 $ (0.08 ) $ (0.20 ) $ (0.40 ) Weighted-average shares-basic and diluted Basic 39,682,337 38,564,314 39,319,703 37,738,739 Diluted 40,645,982 38,564,314 39,319,703 37,738,739 Overview of Results of Operations for the Three Months EndedSeptember 30, 2020 and 2019 Total revenue increased by 3%, or$1.7 million , in the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 due to an increase in subscription and support revenue of 2%, or$914,000 , primarily due to an increase in revenue from our premium offerings. The increase was also due to an increase in professional services and other revenue of 37%, or$736,000 . Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our revenue from premium offerings increased by$1.7 million , or 4%, in the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue. Our gross profit increased by$1.9 million , or 6%, in the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , primarily due to an increase in revenue and a decrease in costs of revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery. Income from operations was$1.3 million in the three months endedSeptember 30, 2020 compared to a loss of$2.4 million in the three months endedSeptember 30, 2019 . This is primarily due to a decrease in costs of revenue and merger related expenses in the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . As ofSeptember 30, 2020 , we had$30.3 million of unrestricted cash and cash equivalents, an increase of$7.6 million from$22.8 million atDecember 31, 2019 , due primarily to$8.9 million of cash provided by operating activities and$5.0 million in net proceeds from debt. These increases were offset by$5.1 million in capitalized internal-use software costs, and$2.2 million in capital expenditures. 22 --------------------------------------------------------------------------------
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Revenue
Three Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Revenue by Product Line Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Premium $ 48,175 98 % $ 46,462 98 % $ 1,713 4 %
Volume 909 2 972 2 (63 ) (6 )
Total $ 49,084 100 % $ 47,434 100 % $ 1,650 3 %
During the three months ended September 30, 2020 , revenue increased by
$1.7 million , or 3%, compared to the three months ended September 30, 2019 ,
primarily due to an increase in revenue from our premium offerings, which
consists of subscription and support revenue as well as professional services
and other revenue. The increase in premium revenue of $1.7 million , or 4%, is
primarily the result of a 5% increase in average annual subscription revenue per
premium customer during the three months ended September 30, 2020 compared to
the three months ended September 30, 2019 . In the three months ended
September 30, 2020 , volume revenue decreased by $63,000 , or 6%, compared to the
three months ended September 30, 2019 .
Three Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Revenue by Type Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 46,338 94 % $ 45,424 96 % $ 914 2 %
Professional services and other 2,746 6 2,010 4 736 37
Total $ 49,084 100 % $ 47,434 100 % $ 1,650 3 %
During the three months ended September 30, 2020 , subscription and support
revenue increased by $914,000 , or 2%, compared to the three months ended
September 30, 2019 . The increase was primarily related to a 5% increase in
average annual subscription revenue per premium customer during the three months
ended September 30, 2020 compared to the three months ended September 30, 2019 .
In addition, professional services and other revenue increased by $736,000 , or
37%, compared to the corresponding quarter in the prior year. Professional
services and other revenue will vary from period to period depending on the
number of implementations and other projects that are in process.
Three Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Revenue by Geography Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
North America $ 27,515 56 % $ 24,904 53 % $ 2,611 10 %
Europe 8,435 17 8,178 17 257 3
Japan 5,688 12 5,391 11 297 6
Asia Pacific 7,211 15 8,646 18 (1,435 ) (17 )
Other 235 - 315 1 (80 ) (25 )
International subtotal 21,569 44 22,530 47 (961 ) (4 )
Total $ 49,084 100 % $ 47,434 100 % $ 1,650 3 %
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.
23
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During the three months ended September 30, 2020 , total revenue for North
America increased by $2.6 million , or 10%, compared to the three months ended
September 30, 2019 . In the three months ended September 30, 2020 , total revenue
outside of North America decreased by $961,000 , or 4%, compared to the three
months ended September 30, 2019 . The decrease in revenue from international
regions is primarily related to decreases in revenue in Asia Pacific .
Cost of Revenue
Three Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Related Related
Cost of Revenue Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 15,735 34 % $ 16,686 37 % $ (951 ) (6 )%
Professional services and other 2,363 86 1,628 81 735 45
Total $ 18,098 37 % $ 18,314 39 % $ (216 ) (1 )%
In the three months ended September 30, 2020 , cost of subscription and support
revenue decreased by $951,000 , or 6%, compared to the three months ended
September 30, 2019 . The decrease resulted primarily from the transition of
acquired Ooyala customers to our technology. Specifically, there were decreases
in employee-related expenses, maintenance, third party software costs, partner
commissions, intangible amortization, and contractor expenses of $305,000 ,
$152,000 , $152,000 , $142,000 , $133,000 and $124,000 , respectively. These
decreases were offset by an increase in network hosting services of $266,000 .
In the three months ended September 30, 2020 , cost of professional services and
other revenue increased by $735,000 , or 45%, compared to the three months ended
September 30, 2019 . This increase corresponds to increases in professional
services and other revenue and the related increases in contractor expense and
employee-related expenses of $634,000 and $212,000 , respectively.
Gross Profit
Three Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Related Related
Gross Profit Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 30,603 66 % $ 28,738 63 % $ 1,865 6 %
Professional services and other 383 14 382 19 1 0 %
Total $ 30,986 63 % $ 29,120 61 % $ 1,866 6 %
The overall gross profit percentage was 63% and 61% for the three months ended
September 30, 2020 and 2019, respectively. Subscription and support gross profit
increased by $1.9 million , or 6%, compared to the three months ended
September 30, 2019 . It is likely that gross profit, as a percentage of revenue,
will fluctuate quarter by quarter due to the timing and mix of subscription and
support revenue and professional services and other revenue, and the type,
timing and duration of service required in delivering certain projects.
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Operating Expenses
Three Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Operating Expenses Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Research and development $ 8,215 17 % $ 8,127 17 % $ 88 1 %
Sales and marketing 14,813 30 14,567 31 246 2
General and administrative 6,694 14 6,245 13 449 7
Merger-related - - 2,539 5 (2,539 ) (100 )
Total $ 29,722 61 % $ 31,478 66 % $ (1,756 ) (6 )%
Research and Development
.
In the three months ended September 30, 2020 , research and development expense
increased by $88,000 , or 1%, compared to the three months ended September 30,
2019 primarily due to an increase in contractor expense of $724,000 . This
increase was offset by decreases in recruiting and employee-related expenses of
$308,000 and $251,000 , respectively. We expect our research and development
expense as a percentage of revenue to decrease as a result of restructuring
activities taken in 2020.
Sales and Marketing
.
In the three months ended September 30, 2020 , sales and marketing expense
increased by $246,000 , or 2%, compared to the three months ended September 30,
2019 primarily due to increases in contractor expense, commission and
stock-based compensation of $827,000 , $264,000 and $166,000 , respectively. These
increases were offset by decreases in travel and employee-related expenses of
$833,000 and $172,000 , respectively. We expect that our sales and marketing
expense will increase as a percent of revenue and in absolute dollars along with
our revenue as we continue to expand sales coverage and build brand awareness
through what we believe are cost-effective channels.
General and Administrative
.
In the three months ended September 30, 2020 , general and administrative expense
increased by $449,000 , or 7%, compared to the three months ended September 30,
2019 primarily due to increases in restructuring expense and stock-based
compensation of $395,000 and $298,000 , respectively. These increases were offset
by a decrease in bad debt expense of $246,000 . In future periods, we expect
general and administrative expense to remain relatively unchanged.
Merger-Related
.
In the three months ended September 30, 2020 , merger-related expenses decreased
by $2.5 million primarily due to costs incurred during the three months ended
September 30, 2019 associated with the transition of acquired customers to our
technology and general merger and related activities.
Overview of Results of Operations for the Nine Months Ended September 30, 2020
and 2019
Total revenue increased by 5%, or $6.8 million , in the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019 due to
an increase in subscription and support revenue of 6%, or $7.4 million ,
primarily due to the acquired Ooyala customers and, to a lesser extent, due to
an increase in revenue from our premium offerings. Substantially all of the
revenue from the Ooyala acquisition is subscription and support revenue. This
increase was offset by a decrease in professional services and other revenue of
8% or $610,000 . Professional services and other revenue will vary from period to
period depending on the number of implementations and other projects that are in
process. Our revenue from premium offerings grew by $6.9 million , or 5%, in the
nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019 . Our ability to continue to provide the product functionality
and performance that our customers require will be a major factor in our ability
to continue to increase revenue.
Our gross profit increased by $6.8 million , or 9%, in the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019 ,
primarily due to an increase in revenue. Our ability to continue to maintain our
overall gross profit will depend primarily on our ability to continue
controlling our costs of delivery.
Loss from operations was $6.9 million in the nine months ended September 30,
2020 compared to $14.2 million in the nine months ended September 30, 2019 . This
is primarily due to an increase in revenue and a decrease in marketing expenses
in the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019 .
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Revenue
Nine Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Revenue by Product Line Amount Revenue Amount
Revenue Amount %
(in thousands, except percentages)
Premium $ 140,904 98 % $ 133,970 98 % $ 6,934 5 %
Volume 2,759 2 2,882 2 (123 ) (4 )
Total $ 143,663 100 % $ 136,852 100 % $ 6,811 5 %
During the nine months ended September 30, 2020 , revenue increased by
$6.8 million , or 5%, compared to the nine months ended September 30, 2019 ,
primarily due to an increase in revenue from our premium offerings, which
consists of subscription and support revenue as well as professional services
and other revenue, driven by customers obtained as part of the Ooyala
acquisition. The increase in premium revenue of $6.9 million , or 5%, is
primarily the result of a 6% increase in average annual subscription revenue per
premium customer during the nine months ended September 30, 2020 compared to the
nine months ended September 30, 2019 . In the nine months ended September 30,
2020 , volume revenue decreased by $123,000 , or 4%, compared to the nine months
ended September 30, 2019 , as we continue to focus on the market for our premium
solutions.
Nine Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Revenue by Type Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 136,613 95 % $ 129,192 94 % $ 7,421 6 %
Professional services and other 7,050 5 7,660 6 (610 ) (8 )
Total $ 143,663 100 % $ 136,852 100 % $ 6,811 5 %
During the nine months ended September 30, 2020 , subscription and support
revenue increased by $7.4 million , or 6%, compared to the nine months ended
September 30, 2019 . The increase was primarily related to the acquired Ooyala
customers and a 6% increase in average annual subscription revenue per premium
customer during the nine months ended September 30, 2020 compared to the nine
months ended September 30, 2019 . In addition, professional services and other
revenue decreased by $610,000 , or 8%, 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.
Nine Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Revenue by Geography Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
North America $ 78,553 55 % $ 72,425 53 % $ 6,128 8 %
Europe 25,323 18 22,814 17 2,509 11
Japan 17,344 12 16,725 12 619 4
Asia Pacific 21,795 15 24,009 17 (2,214 ) (9 )
Other 648 - 879 1 (231 ) (26 )
International subtotal 65,110 45 64,427 47 683 1
Total $ 143,663 100 % $ 136,852 100 % $ 6,811 5 %
During the nine months ended September 30, 2020 , total revenue for North America
increased by $6.1 million , or 8%, compared to the nine months ended
September 30, 2019 . In the nine months ended September 30, 2020 , total revenue
outside of North America increased by $683,000 , or 1%, compared to the nine
months ended September 30, 2019 . The increase in revenue from international
regions is primarily related to increases in revenue in Europe and Japan , offset
by a decrease in revenue in Asia Pacific .
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Cost of Revenue
Nine Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Related Related
Cost of Revenue Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 50,290 37 % $ 50,237 39 % $ 53 0 %
Professional services and other 6,349 90 6,432 84 (83 ) (1 )
Total $ 56,639 39 % $ 56,669 41 % $ (30 ) 0 %
In the nine months ended September 30, 2020 , cost of subscription and support
revenue increased by $53,000 compared to the nine months ended September 30,
2019 . The increase resulted primarily from incremental costs from the
acquisition of Ooyala.
In the nine months ended September 30, 2020 , cost of professional services and
other revenue decreased by $83,000 , or 1%, compared to the nine months ended
September 30, 2019 .
Gross Profit
Nine Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Related Related
Gross Profit Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 86,323 63 % $ 78,955 61 % $ 7,368 9 %
Professional services and other 701 10 1,228 16 (527 ) (43 )
Total $ 87,024 61 % $ 80,183 59 % $ 6,841 9 %
The overall gross profit percentage was 61% and 59% for the nine months ended
September 30, 2020 and 2019, respectively. Subscription and support gross profit
increased by $7.4 million , or 9%, compared to the nine months ended
September 30, 2019 . It is likely that gross profit, as a percentage of revenue,
will fluctuate quarter by quarter due to the timing and mix of subscription and
support revenue and professional services and other revenue, and the type,
timing and duration of service required in delivering certain projects.
Operating Expenses
Nine Months Ended September 30,
2020 2019 Change
Percentage of Percentage of
Operating Expenses Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Research and development $ 26,199 18 % $ 23,150 17 % $ 3,049 13 %
Sales and marketing 42,370 29 45,650 33 (3,280 ) (7 )
General and administrative 19,633 14 17,485 13 2,148 12
Merger-related 5,768 4 8,091 6 (2,323 ) (29 )
Total $ 93,970 65 % $ 94,376 69 % $ (406 ) 0 %
Research and Development
.
In the nine months ended September 30, 2020 , research and development expense
increased by $3.0 million , or 13%, compared to the nine months ended
September 30, 2019 primarily due to increases in employee-related, contractor,
computer maintenance and support and rent expense of $1.8 million , $1.1 million ,
$396,000 and $212,000 , respectively. These increases were offset by a decrease
in recruiting expense of $380,000 .
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Table of Contents Sales and Marketing . In the nine months endedSeptember 30, 2020 , sales and marketing expense decreased by$3.3 million , or 7%, compared to the nine months endedSeptember 30, 2019 primarily because our annual customer conference, which is normally held in May, was held virtually inMay 2020 due to COVID-19. There were decreases in travel-related, marketing program-related and employee-related expenses of$2.5 million ,$2.1 million and$1.0 million , respectively. These decreases were offset by increases in contractor expense, stock-based compensation, intangible amortization and computer maintenance and support of$1.1 million ,$1.0 million ,$316,000 and$288,000 , respectively. General and Administrative . In the nine months endedSeptember 30, 2020 , general and administrative increased by$2.1 million or 12%, compared to the nine months endedSeptember 30, 2019 primarily due to increases in stock-based compensation, employee-related and restructuring expenses of$1.1 million ,$765,000 and$519,000 , respectively. These increases were offset by a decrease in travel-related expenses of$229,000 . Merger-Related . In the nine months endedSeptember 30, 2020 , merger-related expenses decreased by$2.3 million primarily because of a decrease in costs associated with the transition of acquired customers to our technology which did not recur in the three months endedSeptember 30, 2020 . Liquidity and Capital Resources Cash and cash equivalents. Our cash and cash equivalents atSeptember 30, 2020 were held for working capital purposes. We do not enter into investments for trading or speculative purposes. AtSeptember 30, 2020 andDecember 31, 2019 , we had$16.4 million and$14.0 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 to the
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