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Edited Transcript of BCOV earnings conference call or presentation 29-Apr-20 9:00pm GMT

Q1 2020 Brightcove Inc Earnings Call

Cambridge May 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Brightcove Inc earnings conference call or presentation Wednesday, April 29, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hugh Jefferson Ray

Brightcove Inc. - CEO & Director

* Robert Noreck

Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer

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Conference Call Participants

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* Lee T. Krowl

B. Riley FBR, Inc., Research Division - Associate Analyst

* Michael James Latimore

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Steven Bruce Frankel

Dougherty & Company LLC, Research Division - Senior VP & Director of Research

* Brian Denyeau

ICR, LLC - SVP

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Brightcove First Quarter 2020 Earnings Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mr. Brian Denyeau. Please go ahead, sir.

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Brian Denyeau, ICR, LLC - SVP [2]

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Good afternoon, and welcome to Brightcove's First Quarter 2020 Earnings Call. Today, we will discuss the results announced in our press release issued after market close. With me on the call are Jeff Ray, Brightcove's Chief Executive and Rob Noreck, Brightcove's Chief Financial Officer.

During the call, we will make statements related to our business that may be considered forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the second fiscal quarter of 2020, expected profitability and positive free cash flow, our position to execute on our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain and upsell existing customers as well as our ability to acquire new customers. Forward-looking statements may be identified with the words as we expect, we anticipate, upcoming or similar indications of future expectations.

These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations, including the effect of the COVID-19 pandemic on our business operations as well as the impact on general economic and financial market conditions.

For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our most recently filed annual report on Form 10-K and as updated by our other SEC filings.

Also, during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available on our press release issued after market close today, which can be found on our website at www.brightcove.com.

In terms of the agenda for today's call, Jeff will provide a summary review of our financial results, an update on our operations and our review of our strategy. Rob will then finish with additional details regarding our first quarter 2020 results as well as our outlook for the second quarter of 2020.

With that, let me turn the call over to Jeff.

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [3]

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Thanks, Brian, and thanks to all of you for joining us today. The world has changed dramatically since our last earnings call with the unprecedented global health crisis due to the COVID-19 outbreak and a significant deterioration in the economy. Our first priority as a management team is the health and safety of our employees, their families and our customers. We quickly moved to enable each of our employees to work from home and have adapted our global sales, demand generation and customer support efforts to align with customer needs.

I am incredibly proud of how everyone at Brightcove has pulled together in challenging circumstances to ensure we continue to help our customers maintain business success. Today, I will update you on our solid performance during the first quarter, the progress we have made on our strategic plan and how we are approaching the remainder of the year given the highly uncertain business environment.

Recent events have demonstrated that video is vital for both enterprises and consumers. We believe the product and platform investments we have made in recent years, combined with our deep domain expertise, position Brightcove well to benefit from this dynamic over time.

As a leadership team, it is our job to effectively manage through the near-term challenges ahead, while remaining focused on the significant long-term opportunities we are targeting.

Turning to our financial results briefly for the first quarter. We delivered first quarter revenue of $46.7 million, up 12% year-over-year but below our guidance, driven by a large customer liquidation, which we will discuss later. Adjusted EBITDA was $3.7 million, which was up $2.4 million from the first quarter of 2019 and towards the high end of our guidance range. Excluding the liquidation, I just referenced, we had a solid first quarter with sales performance and retention in line with our internal targets. We had strong adoption of Brightcove products from several leading global enterprises and media organizations including Merck, New England Sports Network and Dell Inc.

I am particularly pleased with the performance of Brightcove Beacon, our new OTT offering, that built on its initial success in the fourth quarter. We are seeing significant interest in Brightcove Beacon from a wide variety of content providers in regional broadcasters, who need a powerful yet simple way to deliver a compelling OTT experience to their viewers.

Consumers are looking for a wider array of video content now more than ever before, opening up exciting possibilities for content providers that did not exist even a few years ago. Brightcove Beacon's success demonstrates the significant market opportunity available when we marry our unmatched domain expertise with compelling and easy-to-use applications.

Brightcove Beacon customer wins from the first quarter include OneX Media Network and Akin's Army. Brightcove signed a 3-year agreement with OneX Media Network in Ghana. OneX will be acting as a content aggregator for some of the largest broadcasters and telcos in Ghana. Using Brightcove Beacon, the company will be launching 5 apps across web, iOS, Android, Android TV and Apple TV with live streaming and VOD. In total, 5 Brightcove Beacon apps, 10 channels of 24/7 live and 4,000 hours of live events.

Akin's Army is a new upscale group fitness studio based out of New York City, founded by 2 former sole cycle super instructors who have trained the likes of Beyoncé, Oprah and David Beckham. Launched in January, Akin's Army offers in-studio classes and will offer at-home workouts through mobile OTT apps. Using Brightcove Beacon, the company will launch new apps this summer. The company selected Brightcove for its reliability and scalability as well as Brightcove's reputation as a brand with which Akin's Army wants to be associated.

We are also seeing good interest from digital marketers and solutions that are purpose-built for their needs. They have a growing need to make video an integral part of their marketing campaigns, but lack the tools to do so in an easy, efficient and measurable manner. We are continuing to invest in our marketing solutions to make it even easier to utilize video for marketing campaigns and make Brightcove an integral part of their digital marketing tech stack.

In line with our market segment strategy, we recently introduced Brightcove Engage, our new purpose-built internal communications app and Brightcove Continuum, a new business continuity suite to support business communications functions across the enterprise. Both of these offerings help customers address urgent and timely needs.

Brightcove Engage, which we released in early April is the third purpose-built application we have launched in the past 7 months. Part of the product road map we outlined last year, Brightcove Engage is the latest example of the steady progression of new innovation we have introduced to the market. With Brightcove Engage, organizations can quickly and easily build branded mobile experiences to securely broadcast company-wide live events, like town halls as well as on-demand video, such as onboarding tutorials or internal news directly to an employee's mobile device without needing to utilize expensive and time-consuming developer and IT resources.

At a time when many companies have their entire workforce working from home and experiencing rapidly changing business conditions, being able to keep employees informed and engaged has never been more important. Early examples of how customers are planning to use Brightcove Engage include Wendy's, which will share real-time updates and crew member appreciation across its more than 200,000 global employees. FEEL CONNECTION, a Japanese-based lifestyle and fitness brand, specializes in group cycling exercise classes, with over 40 studios located across the region. FEEL CONNECTION will streamline the onboarding of new hires and training of its large team of instructors on how to use the organization's bicycles as well as how to conduct classes. And Barbri, a 50-year veteran of the law school experience, helping bar examinees make the leap from law student to lawyer will use Brightcove Engage to provide video-based training to law students and the professors who help prepare those students for the bar exam.

We released Brightcove Continuum in direct response to market need to use video solutions to adjust how they work in response to COVID-19. Brightcove Continuum is an all-in-one suite of video technologies that enables organizations to conduct critical business activities virtually and remain productive when their employees, partners and customers are unable to meet face to face.

Brightcove's strong reputation for scalability, reliability and most importantly, security, make us a trusted partner for customers that are looking to use video in critical ways to keep their businesses moving forward. Brightcove Continuum brings serious video technology to help organizations thrive, which is central to our mission to help our customers and communities stay better connected through video.

Another problem facing many customers as they adapt to the impact of COVID-19 is an increased need for live video as part of their overall communications and engagement objectives. To support these customers and help them through this difficult time, Brightcove is offering 53 hours of HD live video for 90 days to support the community and help it avoid disruptions to its operations.

Since we launched this live stream offer, over 20 organizations have signed up. Organizations like the San Francisco Ballet and Maricopa County Library. And global companies, including UBS and Talkdesk are able to reach their audiences through the power of live video.

We're also adapting and innovating in our go-to-market efforts. Due to the global COVID-19 pandemic and to protect the health and safety of our customers, employees and broader community, our PLAY 2020 event will not have a physical component in Boston this year. Instead, we will launch PLAY TV, our new streaming experience filled with must-watch content from the world of video. PLAY TV is built on Brightcove Beacon and will launch in May. It will be available globally at no cost on mobile devices and the web. And there will be a variety of ways to engage with PLAY TV content 24/7. You can watch live speakers or choose videos from a channel programming guide or similar to Netflix, pick videos based on your area of interest.

All PLAY TV content will be updated on an ongoing basis. And will become a trusted resource for people interested in video to turn to again and again. We are already seeing a lot of interest in PLAY TV and look forward to bringing exciting video content to viewers across the world.

I would now like to highlight some important customer wins and renewals from the first quarter. In the first quarter, Dell had 2 renewals: one for Dell Technologies and one for Dell Inc., a heritage Ooyala customer. Dell Technologies uses Brightcove for quarterly town halls, conferences and other events. Dell Inc. uses Brightcove to deliver product videos, how-to and support videos. With both Dell Technologies and Dell Inc., Brightcove supports internal and external video needs across the company.

A multiyear Brightcove customer, Merck is one of the largest pharmaceutical brands in the world. Merck uses Brightcove video to market its wide range of advancements in products using Video Marketing Suite, Enterprise, Gallery and a wholly dedicated account to distributing content in China, Merck sees Brightcove as a strategic partner as it continues to expand its use of video.

A new win, New England Sports Network, NESN, is using Brightcove to power its OTT apps. NESN chose Brightcove because of our strong reputation in the market, and its compelling need to move from a previous vendor. Our scalability, reliability and reputation helped secure the deal. Nike uses Brightcove video as its external video marketing activities. In the past quarter, Nike renewed its relationship with Brightcove with a significant increase in deal size. This renewal and increase is due to Nike's trust in Brightcove's infrastructure to always be reliable and to securely stream external videos. Our expanded agreement with Nike is a great example of the proactive selling effort we are striving for.

I want to congratulate the sales team on this win. It's a great example of the tremendous talent we have brought to Brightcove and the positive impact of our new sales strategies.

Looking ahead, our performance in the first quarter and the market reception for our new products are an encouraging validation of our strategy. We recognize that we now face a much different economy compared to the beginning of the year. I would like to outline for you how we are thinking about the remainder of 2020.

I would note that COVID-19 represents an unprecedented challenge for all of us and is changing market dynamics more quickly than we have ever seen. We have been quick to react to customer, market and employee needs, and we plan to continue to do so. This is our view as of now, and we will continue to evaluate and adjust as needed if conditions warrant.

From a demand perspective, we are getting mixed signals from the market. Positively, we are seeing an increase in the number of inbound inquiries from prospective enterprise and media customers about what our video offerings can provide to their businesses. We are fortunate to have already completed the build-out and enablement training of our sales organization. I am pleased with how our teams are engaging with these prospects and believe we are set up well to accelerate growth as the high levels of uncertainty in the market begin to recede.

In the near term, the level of disruption in the market is expected to make it more challenging to close new business in the second quarter and possibly longer.

In addition, some existing media and content customers are facing significant headwinds in their own businesses, as a result of the pandemic or other market conditions, and these headwinds may pose some risk to certain renewals. For example, in late March, we learned that HOOQ, a new OTT provider in Asia, was going into liquidation.

From a strategy perspective, we have 3 priorities: the safety and well-being of our employees, their families and our customers; protecting the cash flow of the business; and maintaining our ability to execute against our long-term strategy. Regarding protecting cash flow, we will experience some natural cost savings due to lower travel and entertainment expenses and lower variable marketing expenses as we move events like our annual play conference to a virtual format.

As we discussed last quarter, we are focused on driving productivity improvements across all spending categories, and that remains true today. Regarding our ability to execute, we will continually evaluate current areas of spend and reallocate resources as needed to fund our growth initiatives. Our focus areas for investment are enhancing the capabilities of our portfolio of purpose-built applications and identifying new potential opportunities.

Overall, I continue to feel good about the opportunities ahead for Brightcove. A customer recently shared that the team remoteness of the pandemic brought into focus the power of video and its vital role in keeping human connections across the organization. I'm proud of the platform and purpose-built applications we have developed to address the most important video needs in the market. Combined with this industry-leading innovation and our strong and fully aligned product, sales and marketing teams, I'm confident we will navigate the challenging situation ahead and come out on the other side with an even stronger position to drive breakout growth.

I'm proud of the Brightcove team and their clear focus on supporting our customers and making them successful in this difficult time.

With that, let me turn the call over to Rob to walk you through the numbers. Rob?

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [4]

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Thank you, Jeff, and good afternoon, everyone. I want to start by expressing my sympathy to all of those impacted by the COVID-19 crisis and extending my thanks to all of the front line workers who are helping the world deal with this crisis. I will begin with a detailed review of our first quarter, walk through our short-term response to the current situation, and then I will finish with our outlook for the second quarter of 2020.

As Jeff mentioned, in late March, we learned that HOOQ, our largest customer, had gone into liquidation. The loss of HOOQ reduced both our revenue and adjusted EBITDA by $1.2 million in the quarter. In addition, the customer loss had a meaningful impact on our 12-month backlog and our recurring dollar retention rate. Total revenue in the first quarter was $46.7 million, which is below our guidance range. We were tracking slightly above the high end of our range through late March prior to learning of HOOQ's insolvency. Breaking revenue down further, subscription and support revenue was $44.7 million and professional services revenue was $2 million. 12-month backlog, which we define as the aggregate amount of committed subscription revenue related to future performance obligations in the next 12 months, was $100.5 million. This represents a 9% year-over-year increase, 4% of which was organic growth. Adjusting for the $3.9 million of existing backlog related to HOOQ that was written down during the quarter, backlog grew 13%.

On a geographic basis, we generated 54% of our revenue in North America during the quarter and 46% internationally. Breaking down international revenue a little more, Europe generated 18% of our revenue, and Japan and Asia Pacific generated 28% of revenue during the quarter.

Let me now turn to the supplemental metrics we share on a quarterly basis. Our recurring dollar retention rate in the first quarter was 88%, which was below our target range of low to mid-90s. Excluding the impact of HOOQ, recurring dollar retention rate was 95%. Our focus on customer success and improving our retention processes are having a positive impact on our business. Our customer count at the end of the first quarter was 3,498 of which 2,293 were classified as premium customers. Looking at our ARPU within our premium customer base, our annualized revenue per premium customer was $84,600, which was up 9% year-over-year and excludes our entry-level pricing for starter customers, which averaged $4,500 in annualized revenue.

Looking at our results on a GAAP basis. Our gross profit was $28 million, operating loss was $7.1 million and loss per share was $0.20 for the quarter. Turning to our non-GAAP results. Our non-GAAP gross profit in the quarter was $28.8 million compared to $25.5 million in the year ago period and represented a gross margin of 62%. Subscription and support revenue represented approximately 96% of our total revenue and generated a 64% gross margin in the quarter compared to a 65% gross margin in the first quarter of 2019. Non-GAAP income from operations was $2.3 million in the first quarter compared to non-GAAP income from operations of $19,000 in the first quarter of 2019. Adjusted EBITDA was $3.7 million in the first quarter compared to $1.3 million in the year ago period and at the high end of our guidance range for the quarter. Without the impact of HOOQ, we would have beaten the top end of our guidance range significantly. Our profitability performance reflects the positive impact of our focus on driving productivity improvements throughout the company.

Non-GAAP net income per share was $0.04 based on 39.4 million weighted average shares outstanding. This compares to a net loss per share of $0.01 on 36.7 million weighted average shares outstanding in the year ago period.

Turning to the balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $32.1 million. During the quarter, we drew down $10 million from our existing $30 million revolving credit facility. While we are adequately capitalized, we believed it was prudent to place some additional liquidity on our balance sheet given the uncertain economic situation.

During the first quarter, we generated $2.4 million in cash flow from operations and free cash flow was negative $300,000 after taking into account $2.7 million in capital expenditures and capitalized internal-use software. As Jeff mentioned, we have 3 priorities for the company as we navigate the COVID-19 crisis: The safety and well-being of our employees, their families and our customers; protecting the cash flow of the business; and maintaining our ability to execute against our long-term growth strategy. With those priorities in mind, we took several immediate actions this quarter. These actions included: moving to a fully remote work-from-home workforce in mid-March as the crisis accelerated around the world; eliminating all travel in the short term and all nonessential travel for the remainder of the year; implementing a substantial pause in hiring until we have better visibility into the long-term impacts of the current crisis; and freezing salaries across the organization for the remainder of the year.

We believe that these actions put us in position to continue to execute on our longer-term strategy while protecting our employees, customers and overall health of the business. I'd now like to finish by providing our thinking at how we are approaching the rest of 2020 and then finishing with an update to our guidance.

The high level of uncertainty related to the COVID-19 pandemic and the associated economic impact will make it more difficult to close new business in the second quarter and potentially longer than expected at the beginning of the year. It will also introduce a level of risk as part of our existing customer base that was unanticipated. We have a diverse customer portfolio. However, certain segments are under extreme stress given the current market conditions. These segments include areas such as live sports, where all sporting events are canceled, AVOD OTT models, where ad revenue is dropping in viewership and costs are rising, and those industries directly impacted by the crisis, such as airlines and retail.

While the near-term environment presents challenges, I want to reiterate Jeff's earlier comments that we are seeing good demand trends from some of our core targeted customer segments, such as OTT, direct-to-consumer and corporate communications. We believe this positions us to begin growing faster as the current uncertainty in the market shades. Since the crisis began, we have been stress-testing our models and running numerous scenarios with varying assumptions. Given the uncertainty of the duration of the health crisis and the timing of any economic recovery, there is a wide range of outcomes for the year. I don't believe there's a realistic way to assign probabilities to any of these assumptions at this time. As a result, we are withdrawing our expectations for the full year 2020 and will only be guiding for the second quarter. We will reassess providing a full year outlook on our next earnings call.

We are continually evaluating the business and have plans in place to take further actions if circumstances warrant. To be clear, in the various scenarios we ran, we have sufficient liquidity. For the second quarter, we are targeting revenue of $44.5 million to $46 million, including approximately $2.2 million of professional services revenue. From a profitability perspective, we expect non-GAAP operating income to be a loss of $200,000 to $1.7 million and adjusted EBITDA to be between a loss of $500,000 to a gain of $1 million. Non-GAAP net loss per share is expected to be in a range of $0.01 to $0.05 based on 39.3 million weighted average shares outstanding.

To summarize, we made good progress on our strategic initiatives to reach our goals of breakout growth and improve profitability. We are responding to the unprecedented challenges posed by COVID-19 with a strategic approach that protects our employees, customers and the business. We are focused on executing against our plan and are confident of our ability to work through the current situation and drive faster growth in the future.

With that, we will now take your questions. Operator, we are ready to begin Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Lee Krowl with B. Riley FBR.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [2]

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And appreciate all the detail things considered with this macro backdrop. I wanted to start out first just with a quick housekeeping question as it relates to overall usage. Could you maybe just comment on overages in the quarter?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [3]

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Yes, sure. Thanks, Lee. Overages in the quarter were about $2 million. So a little bit higher than the original forecast of $1.6 million. Going into the guide for the rest of the year, we brought those back down to $1.6 million for the quarter.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [4]

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Got it. And then as it relates to your second quarter guidance, would you anticipate overages to remain elevated? And then second part of the quarterly guidance, is there any assumption for potential bankruptcies or liquidations similar to what you saw with HOOQ in Q1?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [5]

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Yes. So I'll take both of those. In terms of the guidance for the quarter, what we've put back into the guidance is $1.6 million for the overage number. That's down from the $2 million quarter over quarter. We're certainly seeing usage increase given the overall crisis, but I want to be a little conservative there as it depends on where our customers are in the contracts. And given the overall macro environment, I don't want to get out over my skis.

In terms of the second question, I think we're addressing that through widening the range a little bit to give us a little bit more downside protection if there are any economic trends that continue.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [6]

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Got it. And then a few puts and takes, obviously, HOOQ being one of them, but also some positives with customer engagement. You started kind of the year really emphasizing double-digit bookings growth. Now the world has changed, but is there still confidence that perhaps absent the near-term headwinds of HOOQ as well as some uncertainty around renewals that perhaps you could see that double-digit bookings growth in the second half again?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [7]

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Yes, it's a good point. Obviously, we're not quoting bookings. We're now tracking the backlog. But as we said, we feel very good about where the sales team is. The sales team really came together. We've got the right sales leaders around the world. We've got the right people in place, the training, the discipline, the metrics, they all came together, and we saw that in the first quarter. We can't control the market, but we feel very, very good about the things that we can control going into this year.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [8]

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Got it. And then last question for me. Obviously, you've debuted multiple significant product launches. As it relates to the rest of the year in terms of product pipeline, are there any other products on tap or at least in the pipeline to launch before year-end? Or is the focus what you've kind of released since last September?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [9]

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At this point in time, we feel pretty good about what we've done. We've put a lot of innovation out there, more than we have for many, many years. And we think that we've addressed all the sweet spots of the target markets in doing this. Now it's up to us to execute. It's up to marketing to build a strong pipeline and get the word out. It's up to sales to close those deals. We'll continue to do a lot of product enhancements. We'll continue to focus on making sure our platform is the most reliable and most secure in the world. We feel like we have really everything we need right now to position ourselves for breakout growth this year. I feel very good about that.

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Operator [10]

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The next question comes from Steven Frankel of Dougherty.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [11]

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Jeff, just to follow up on the sales productivity question. Throughout 2019, you seem to have an issue with renewals? And are you saying now that ex HOOQ, the basic mechanics of making sure accounts get renewed and you drive upside, that piece of the business you feel is in the right place now?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [12]

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We feel good about where we are. We can't control customers' insolvency, of course, and we're grateful that as we look at the portfolio, we really don't have any big customers that are having significant -- if they were to fail or leave, have a significant impact on the business. So we feel good about that diversity of the customers that we have. We also feel good about the sales force and their ability to go out and acquire business and get bigger deals on average, too. So we -- again, we feel very, very good about the things that we can control more than we have in a long time.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [13]

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And in terms of the sequential decline in premium customers, how much of that was Ooyala customers that just decided not to convert to you and went away versus churn in the traditional Brightcove base?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [14]

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We didn't have much Ooyala -- yes, go ahead, Rob.

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [15]

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I was going to say the same thing. There wasn't a ton of Ooyala churn that came out of that. The reality is it is the lower end customers that we're churning off, as you can tell from the script that the ASPs are continuing to trend in the right direction, up sequentially quarter-over-quarter and up 9% year-over-year.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [16]

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Okay. And then, Rob, while you've got the microphone. Could you address the gross margin decline sequentially? There was a theory that once you got people off the legacy Ooyala platform, we'd see a lift in gross margins. What's driving that decline? And how do you get gross margins back up again?

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [17]

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Yes. The reality is quarter-over-quarter, in particular, I didn't talk about this directly in the script though, is that's almost directly related to HOOQ. We lost about $1 million of that $1.2 million right out of the subscription top line but we provided the service for the entire quarter.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [18]

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Okay. So that -- assuming Q2, you don't lose another large customer, gross margins look more like they did in the back half of 2019?

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [19]

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That's the intent. Yes.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [20]

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Okay. And Jeff, last quarter, you talked about spending an incremental, I think it was $1.5 million to potentially create another product. It sounds like from your earlier comment that you decided not to go forward with that investment at this time.

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [21]

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Well, we like the results we got. This is a case where, where can you get the best return in the least amount of time with the least impact on the business. And we feel very good about the results that we got from that research. It makes us feel good about the long-term future of the business. For now, we want to be opportunistic. We like the products that are out there. We're getting good feedback from the market. And the right thing for us to do is to take advantage of that immediate opportunity but again, that does set us up well for the longer term too, when we decide to pull that trigger.

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Operator [22]

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(Operator Instructions) The next question comes from Mike Latimore of Northland Capital Markets.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [23]

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Can you give a little more color on maybe what your top 10 customers contribute as a percent of revenue and what your largest customer is?

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [24]

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Yes. Sure. Our largest customer is just under 2%, and our top 10 customers are 14% of revenue.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [25]

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Great. And you touched on a little bit, but your ARPU has increased nicely year-over-year. What are the sort of main contributing factors there?

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [26]

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I think it's a number of things. Like, I think we've got -- sorry, for most calls. Jeff, why don't you take that one?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [27]

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We both want to answer.

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [28]

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Jeff, go ahead.

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [29]

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Take it, Rob, and then I'll correct you if you're wrong. Go ahead, Rob.

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Robert Noreck, Brightcove Inc. - Executive VP, CFO & Principal Accounting Officer [30]

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Thank you. Yes, Mike, Jeff talked about it in his script. We're seeing real productivity improvements from the sales force. We've got the sales force where we want their performance to be, and they're continuing to go after our existing customers and expanding and going after larger deals from the new business.

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [31]

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Yes. I'll expand on that just a little bit. Not disagreeing. Rob is correct. But it wasn't that long ago when the focus was let's just get the renewal or if a customer reaches out to us and wants to add something, let's do it. Now the sales force is very actively using that opportunity to open doors. If you're interested in this portion, introduce us to other parts of the business, here are the things that we can do for other parts of the business. And that's reaping some really, really nice rewards, and we've only started with that. Lots of opportunities in the enterprises in which we're already present.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [32]

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Got it. And you made a comment about getting a decent amount of inbound for specific products. I guess, is the new customer pipeline actually higher now? Or -- just trying to tend to read that comment again.

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [33]

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I -- the pipeline is growing. And a lot of it has to do with the work that we did in getting new products out there that's getting some good traction. And obviously, there is a bump coming from COVID-19 as enterprises, in particular, recognize that they've got to find a way to -- I mean, just fundamentally, from a survival standpoint, maintain business continuity. But also they're witnessing the fact that they can close business. They can engage with suppliers and employees. They can improve the quality of engagement with video. Where that takes us, we'll see. Again, as Rob noted, it's tempered with the fact that we don't. We also need our customers to remain healthy. And some customers are struggling right now with COVID.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [34]

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Yes. Last question. In terms of the customers that are struggling, are they more on the media side or enterprise side. I know you don't break those categories anymore, but are either of those categories, those historic categories weaker right now?

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [35]

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They would -- they look exactly like you would expect it to look like. Those companies that have a heavy reliance on AVOD have seen advertising revenues drop. At the same time, they're optimistic that when we come out of this that, that will pick up again. They're certainly seeing impact from that. And then very, very clearly, those customers that did live streaming of sports events are struggling right now. They feel good about the fact that they're positioned well when this comes back. They think that the viewership will come back with a vengeance, but they can't make that happen on their own. Those 2 probably are the ones that we're working with most closely.

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Operator [36]

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(Operator Instructions) There are no more questions at this time. I would now like to hand it over to Mr. Jeff Ray for closing remarks.

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Hugh Jefferson Ray, Brightcove Inc. - CEO & Director [37]

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Thank you, operator. Thanks, everyone, for dialing in. Again, it was an incredible amount of momentum and some exciting wins as we went into the quarter. We certainly didn't see COVID-19 coming. No one did. In spite of that, very, very solid results. And again, the things that we can control, we've never felt better about that. For now, what's most important is to support the safety and health of our employees, to make sure that cash flows continue to remain positive and strong, and to pay attention to the long-term health of the business. We think we've struck the right balance. We feel very, very good about those parts of the business that are in our control. And we are definitely executing at a much, much higher rate. Thanks, everyone. Stay safe and stay healthy.

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Operator [38]

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Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.