UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
|
|
x |
|
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30,
2015
OR
o |
|
Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 |
For the transition period from
to
Commission File Number: 001-35429
BRIGHTCOVE INC.
(Exact name of registrant as specified
in its charter)
Delaware |
|
20-1579162 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
290 Congress Street
Boston, MA 02210
(Address of principal executive offices)
(888) 882-1880
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).Yes x No
o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer o |
|
Accelerated filer x |
|
|
|
Non-accelerated filer o (Do not check if a smaller |
|
Smaller reporting company o |
reporting company)
|
|
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso
Nox
As of July 27, 2015 there were 32,581,937
shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.
BRIGHTCOVE INC.
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
(in thousands, except share and per share data)
| |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 21,238 | | |
$ | 22,916 | |
Accounts receivable, net of allowance of $196 and $181 at June 30, 2015 and December 31, 2014, respectively | |
| 19,235 | | |
| 21,463 | |
Prepaid expenses and other current assets | |
| 5,254 | | |
| 4,342 | |
Deferred tax asset | |
| 19 | | |
| 109 | |
Total current assets | |
| 45,746 | | |
| 48,830 | |
Property and equipment, net | |
| 10,598 | | |
| 10,372 | |
Intangible assets, net | |
| 15,319 | | |
| 16,898 | |
Goodwill | |
| 50,776 | | |
| 50,776 | |
Restricted cash, net of current portion | |
| 201 | | |
| 201 | |
Other assets | |
| 1,031 | | |
| 507 | |
Total assets | |
$ | 123,671 | | |
$ | 127,584 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 2,883 | | |
$ | 1,618 | |
Accrued expenses | |
| 9,795 | | |
| 11,722 | |
Capital lease liability | |
| 1,080 | | |
| 1,159 | |
Equipment financing | |
| 697 | | |
| — | |
Deferred revenue | |
| 28,808 | | |
| 29,640 | |
Total current liabilities | |
| 43,263 | | |
| 44,139 | |
Deferred revenue, net of current portion | |
| 122 | | |
| 64 | |
Other liabilities | |
| 3,199 | | |
| 2,618 | |
Total liabilities | |
| 46,584 | | |
| 46,821 | |
Commitments and contingencies (Note 9) | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued | |
| — | | |
| — | |
Common stock, $0.001 par value; 100,000,000 shares authorized; 32,563,134 and 32,424,554 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively | |
| 33 | | |
| 32 | |
Additional paid-in capital | |
| 217,370 | | |
| 214,524 | |
Accumulated other comprehensive loss | |
| (822 | ) | |
| (776 | ) |
Accumulated deficit | |
| (139,494 | ) | |
| (133,017 | ) |
Total stockholders’ equity | |
| 77,087 | | |
| 80,763 | |
Total liabilities and stockholders’ equity | |
$ | 123,671 | | |
$ | 127,584 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
Brightcove Inc.
Condensed Consolidated Statements of
Operations
(unaudited)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands, except share and per share data) | |
Revenue: | |
| | | |
| | | |
| | | |
| | |
Subscription and support revenue | |
$ | 31,917 | | |
$ | 29,929 | | |
$ | 63,728 | | |
$ | 59,304 | |
Professional services and other revenue | |
| 931 | | |
| 1,074 | | |
| 2,005 | | |
| 2,804 | |
Total revenue | |
| 32,848 | | |
| 31,003 | | |
| 65,733 | | |
| 62,108 | |
Cost of revenue: (1) (2) | |
| | | |
| | | |
| | | |
| | |
Cost of subscription and support revenue | |
| 10,357 | | |
| 9,109 | | |
| 20,703 | | |
| 18,629 | |
Cost of professional services and other revenue | |
| 1,201 | | |
| 1,315 | | |
| 2,447 | | |
| 3,062 | |
Total cost of revenue | |
| 11,558 | | |
| 10,424 | | |
| 23,150 | | |
| 21,691 | |
Gross profit | |
| 21,290 | | |
| 20,579 | | |
| 42,583 | | |
| 40,417 | |
Operating expenses: (1) (2) | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 7,267 | | |
| 6,792 | | |
| 15,087 | | |
| 13,361 | |
Sales and marketing | |
| 11,903 | | |
| 12,095 | | |
| 22,742 | | |
| 23,441 | |
General and administrative | |
| 5,209 | | |
| 5,148 | | |
| 10,370 | | |
| 9,862 | |
Merger-related | |
| 62 | | |
| 521 | | |
| 76 | | |
| 2,388 | |
Total operating expenses | |
| 24,441 | | |
| 24,556 | | |
| 48,275 | | |
| 49,052 | |
Loss from operations | |
| (3,151 | ) | |
| (3,977 | ) | |
| (5,692 | ) | |
| (8,635 | ) |
Other expense, net | |
| (429 | ) | |
| (294 | ) | |
| (653 | ) | |
| (406 | ) |
Loss before income taxes | |
| (3,580 | ) | |
| (4,271 | ) | |
| (6,345 | ) | |
| (9,041 | ) |
Provision for income taxes | |
| 66 | | |
| 56 | | |
| 132 | | |
| 123 | |
Net loss | |
$ | (3,646 | ) | |
$ | (4,327 | ) | |
$ | (6,477 | ) | |
$ | (9,164 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share - basic and diluted | |
$ | (0.11 | ) | |
$ | (0.13 | ) | |
$ | (0.20 | ) | |
$ | (0.29 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted-average number of common shares used in computing net loss per share | |
| 32,548,123 | | |
| 32,145,231 | | |
| 32,522,049 | | |
| 31,594,541 | |
| |
| | | |
| | | |
| | | |
| | |
(1) Stock-based compensation included in above line items: | |
| | | |
| | | |
| | | |
| | |
Cost of subscription and support revenue | |
$ | 51 | | |
$ | 50 | | |
$ | 71 | | |
$ | 110 | |
Cost of professional services and other revenue | |
| 19 | | |
| 16 | | |
| 52 | | |
| 68 | |
Research and development | |
| 226 | | |
| 178 | | |
| 660 | | |
| 574 | |
Sales and marketing | |
| 463 | | |
| 512 | | |
| 921 | | |
| 1,145 | |
General and administrative | |
| 577 | | |
| 741 | | |
| 1,085 | | |
| 1,350 | |
| |
| | | |
| | | |
| | | |
| | |
(2) Amortization of acquired intangible assets included in above line items: | |
| | | |
| | | |
| | | |
| | |
Cost of subscription and support revenue | |
$ | 508 | | |
$ | 507 | | |
$ | 1,015 | | |
$ | 930 | |
Research and development | |
| 31 | | |
| 41 | | |
| 63 | | |
| 72 | |
Sales and marketing | |
| 250 | | |
| 316 | | |
| 501 | | |
| 581 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
Brightcove Inc.
Condensed Consolidated Statements of
Comprehensive Loss
(unaudited)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | |
Net loss | |
$ | (3,646 | ) | |
$ | (4,327 | ) | |
$ | (6,477 | ) | |
$ | (9,164 | ) |
Other comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| (8 | ) | |
| 82 | | |
| 46 | | |
| 197 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (3,654 | ) | |
$ | (4,245 | ) | |
$ | (6,431 | ) | |
$ | (8,967 | ) |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
Brightcove Inc.
Condensed Consolidated Statements of
Cash Flows
(unaudited)
| |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | |
| |
(in thousands) | |
Operating activities | |
| | | |
| | |
Net loss | |
$ | (6,477 | ) | |
$ | (9,164 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 4,802 | | |
| 3,958 | |
Stock-based compensation | |
| 2,789 | | |
| 3,247 | |
Provision for reserves on accounts receivable | |
| 167 | | |
| 41 | |
Amortization of premium on investments | |
| — | | |
| 1 | |
Loss on disposal of equipment | |
| 44 | | |
| 91 | |
Changes in assets and liabilities, net of effect of acquisition: | |
| | | |
| | |
Accounts receivable | |
| 2,035 | | |
| 2,261 | |
Prepaid expenses and other current assets | |
| (878 | ) | |
| (1,755 | ) |
Other assets | |
| (530 | ) | |
| 1,188 | |
Accounts payable | |
| 1,332 | | |
| (3,177 | ) |
Accrued expenses | |
| (2,127 | ) | |
| (4,416 | ) |
Deferred revenue | |
| (726 | ) | |
| 3,515 | |
Net cash provided by (used in) operating activities | |
| 431 | | |
| (4,210 | ) |
Investing activities | |
| | | |
| | |
Cash paid for acquisition, net of cash acquired | |
| — | | |
| (9,100 | ) |
Maturities of investments | |
| — | | |
| 3,060 | |
Purchases of property and equipment | |
| (2,441 | ) | |
| (1,487 | ) |
Capitalized internal-use software costs | |
| (336 | ) | |
| (875 | ) |
Decrease in restricted cash | |
| — | | |
| 113 | |
Net cash used in investing activities | |
| (2,777 | ) | |
| (8,289 | ) |
Financing activities | |
| | | |
| | |
Proceeds from exercise of stock options | |
| 58 | | |
| 555 | |
Proceeds from equipment financing | |
| 1,704 | | |
| — | |
Payments on equipment financing | |
| (404 | ) | |
| — | |
Payments under capital lease obligation | |
| (627 | ) | |
| (524 | ) |
Net cash provided by financing activities | |
| 731 | | |
| 31 | |
Effect of exchange rate changes on cash | |
| (63 | ) | |
| 206 | |
Net decrease in cash and cash equivalents | |
| (1,678 | ) | |
| (12,262 | ) |
Cash and cash equivalents at beginning of period | |
| 22,916 | | |
| 33,047 | |
Cash and cash equivalents at end of period | |
$ | 21,238 | | |
$ | 20,785 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing activities | |
| | | |
| | |
Fair value of shares issued for acquisition of a business | |
$ | — | | |
$ | 30,615 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash financing activities | |
| | | |
| | |
Purchase of equipment and support under capital lease | |
$ | 746 | | |
$ | — | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
Brightcove Inc.
Condensed Consolidated Statements of
Cash Flows - (continued)
(unaudited)
| |
Six
Months Ended June 30, | |
| |
2015 | | |
2014 | |
| |
(in
thousands) | |
Supplemental disclosure of cash flow related to asset purchase agreement | |
| | | |
| | |
In connection with the asset purchase agreement with Unicorn Media, Inc. on January 31, 2014, the following transactions occurred: | |
| | | |
| | |
Fair value of assets acquired | |
$ | — | | |
$ | 44,373 | |
Liabilities assumed related to acquisition | |
| — | | |
| (4,645 | ) |
Total purchase price | |
| — | | |
| 39,728 | |
Less fair value of common stock issued in connection with acquisition | |
| — | | |
| (30,615 | ) |
Less cash and cash equivalents acquired | |
| — | | |
| (13 | ) |
Cash paid for acquisition, net of cash acquired | |
$ | — | | |
$ | 9,100 | |
The accompanying notes are
an integral part of these condensed consolidated financial statements.
Brightcove Inc.
Notes to Condensed Consolidated Financial
Statements
(unaudited)
(in thousands, except share and per share
data, unless otherwise noted)
1. Business Description and Basis of Presentation
Business Description
Brightcove Inc. (the Company) is a leading
global provider of cloud services for video which enable its customers to publish and distribute video to Internet-connected devices
quickly, easily and in a cost-effective and high-quality manner.
The Company is headquartered in Boston,
Massachusetts and was incorporated in the state of Delaware on August 24, 2004. At June 30, 2015, the Company had nine wholly-owned
subsidiaries: Brightcove UK Ltd, Brightcove Singapore Pte. Ltd., Brightcove Korea, Brightcove Australia Pty Ltd, Brightcove Holdings,
Inc., Brightcove Kabushiki Kaisha (Brightcove KK), Zencoder Inc. (Zencoder), Brightcove FZ-LLC, and Cacti Acquisition LLC.
Basis of Presentation
The accompanying interim condensed consolidated
financial statements are unaudited. These condensed consolidated financial statements and notes should be read in conjunction with
the audited consolidated financial statements and related notes, together with Management’s Discussion and Analysis of Financial
Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31,
2014.
The accompanying unaudited condensed consolidated
financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted
accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion
of management, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the
audited consolidated financial statements for the year ended December 31, 2014 contained in the Company’s Annual Report on
Form 10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s
financial position for the three and six months ended June 30, 2015 and 2014. These interim periods are not necessarily indicative
of the results to be expected for any other interim period or the full year.
The Company considers events or transactions
that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for
certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.
The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent
events requiring disclosure, other than those disclosed in this Report on Form 10-Q.
The accompanying condensed consolidated
financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these
notes to the condensed consolidated financial statements. As of June 30, 2015, the Company’s significant accounting policies
and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, have
not changed.
2. Concentration of Credit Risk
The Company has no significant off-balance
sheet risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Financial instruments that
potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit
standing. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally
insured limits. The Company routinely assesses the creditworthiness of its customers. The Company generally has not experienced
any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral.
Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable
in the Company’s accounts receivable.
At June 30, 2015 and December 31, 2014,
no individual customer accounted for 10% or more of net accounts receivable. For the three and six months ended June 30, 2015 and
2014, no individual customer accounted for 10% or more of total revenue.
3. Concentration of Other Risks
The Company is dependent on certain content
delivery network providers who provide digital media delivery functionality enabling the Company’s on-demand application
service to function as intended for the Company’s customers and ultimate end-users. The disruption of these services could
have a material adverse effect on the Company’s business, financial position, and results of operations.
4. Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Investments not classified
as cash equivalents with maturities less than one year from the balance sheet date are classified as short-term investments, while
investments with maturities in excess of one year from the balance sheet date are classified as long-term investments. Management
determines the appropriate classification of investments at the time of purchase, and re-evaluates such determination at each balance
sheet date.
Cash and cash equivalents primarily consist
of cash on deposit with banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost,
which approximates their fair market value.
Cash and cash equivalents as of June 30,
2015 consist of the following:
| |
June 30, 2015 |
Description | |
Contracted Maturity | |
Amortized Cost | | |
Fair Market Value | | |
Balance Per Balance Sheet | |
Cash | |
Demand | |
$ | 11,662 | | |
$ | 11,662 | | |
$ | 11,662 | |
Money market funds | |
Demand | |
| 9,576 | | |
| 9,576 | | |
| 9,576 | |
Total cash and cash equivalents | |
| |
$ | 21,238 | | |
$ | 21,238 | | |
$ | 21,238 | |
Cash and cash equivalents as of December
31, 2014 consist of the following:
| |
December 31, 2014 |
Description | |
Contracted Maturity | |
Amortized Cost | | |
Fair Market Value | | |
Balance Per Balance Sheet | |
Cash | |
Demand | |
$ | 13,342 | | |
$ | 13,342 | | |
$ | 13,342 | |
Money market funds | |
Demand | |
| 9,574 | | |
| 9,574 | | |
| 9,574 | |
Total cash and cash equivalents | |
| |
$ | 22,916 | | |
$ | 22,916 | | |
$ | 22,916 | |
5. Net Loss per Share
The following potentially dilutive common
stock equivalent shares have been excluded from the computation of weighted-average shares outstanding as their effect would have
been anti-dilutive (in thousands):
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Options outstanding | |
| 4,113 | | |
| 3,717 | | |
| 4,108 | | |
| 3,511 | |
Restricted stock units outstanding | |
| 934 | | |
| 962 | | |
| 925 | | |
| 1,153 | |
Warrants | |
| 28 | | |
| 28 | | |
| 28 | | |
| 28 | |
6. Fair Value of Financial Instruments
The following tables set forth the Company’s
financial instruments carried at fair value using the lowest level of input as of June 30, 2015 and December 31, 2014:
| |
June 30, 2015 | |
| |
Quoted Prices in Active Markets for Identical Items (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | | |
Total | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Money market funds | |
$ | 9,576 | | |
$ | — | | |
$ | — | | |
$ | 9,576 | |
Restricted cash | |
| — | | |
| 201 | | |
| — | | |
| 201 | |
Total assets | |
$ | 9,576 | | |
$ | 201 | | |
$ | — | | |
$ | 9,777 | |
| |
December 31, 2014 | |
| |
Quoted Prices in Active Markets for Identical Items (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | | |
Total | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Money market funds | |
$ | 9,574 | | |
$ | — | | |
$ | — | | |
$ | 9,574 | |
Restricted cash | |
| — | | |
| 201 | | |
| — | | |
| 201 | |
Total assets | |
$ | 9,574 | | |
$ | 201 | | |
$ | — | | |
$ | 9,775 | |
7. Stock-based Compensation
The fair value of stock options granted
was estimated at the date of grant using the following weighted-average assumptions:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Expected life in years | |
| 6.1 | | |
| 6.1 | | |
| 6.2 | | |
| 6.2 | |
Risk-free interest rate | |
| 1.81 | % | |
| 2.19 | % | |
| 1.82 | % | |
| 2.17 | % |
Volatility | |
| 46 | % | |
| 52 | % | |
| 48 | % | |
| 53 | % |
Dividend yield | |
| — | | |
| — | | |
| — | | |
| — | |
Weighted-average fair value of stock options granted | |
$ | 3.28 | | |
$ | 4.14 | | |
$ | 3.66 | | |
$ | 5.25 | |
The Company recorded stock-based compensation
expense of $1,336 and $1,497 for the three months ended June 30, 2015 and 2014, respectively, and $2,789 and $3,247 for the six
months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, there was $10,089 of unrecognized stock-based compensation
expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.91 years. The
following is a summary of the status of the Company’s stock options as of June 30, 2015 and the stock option activity during
the six months ended June 30, 2015.
| |
Number of Shares | | |
Exercise Price Per Share | | |
Weighted Average Exercise Price Per Share | | |
Weighted Average Remaining Contractual Term (Years) | | |
Aggregate Intrinsic Value (1) | |
Outstanding at December 31, 2014 | |
| 4,077,074 | | |
$ | 0.31 - 16.88 | | |
$ | 7.02 | | |
| | | |
| | |
Granted | |
| 451,664 | | |
| 6.97 - 8.13 | | |
| 7.63 | | |
| | | |
| | |
Exercised | |
| (33,101 | ) | |
| 0.31 - 7.21 | | |
| 1.75 | | |
| | | |
$ | 189 | |
Canceled | |
| (345,936 | ) | |
| 5.97 - 16.88 | | |
| 9.19 | | |
| | | |
| | |
Outstanding at June 30, 2015 | |
| 4,149,701 | | |
$ | 0.31 - 16.88 | | |
$ | 6.95 | | |
| 6.92 | | |
$ | 6,167 | |
Exercisable at June 30, 2015 | |
| 2,127,368 | | |
$ | 0.31 - 16.88 | | |
$ | 5.92 | | |
| 4.96 | | |
$ | 5,520 | |
Vested or expected to vest at June 30, 2015 (2) | |
| 3,620,718 | | |
$ | 0.31 - 16.88 | | |
$ | 6.82 | | |
| 6.60 | | |
$ | 5,996 | |
(1) |
The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on June 30, 2015 of $6.86 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options. |
|
|
(2) |
This represents the number of vested options as of June 30, 2015 plus the number of unvested options expected to vest as of June 30, 2015 based on the unvested options outstanding at June 30, 2015 adjusted for an estimated forfeiture rate. |
The following table summarizes the restricted
stock unit award activity during the six months ended June 30, 2015:
| |
Shares | | |
Weighted Average Grant Date Fair Value | |
Unvested by December 31, 2014 | |
| 915,458 | | |
$ | 8.61 | |
Granted | |
| 208,750 | | |
| 7.62 | |
Vested and issued | |
| (105,479 | ) | |
| 7.31 | |
Canceled | |
| (29,717 | ) | |
| 10.36 | |
Unvested by June 30, 2015 | |
| 989,012 | | |
$ | 8.06 | |
8. Income Taxes
For the three months ended June 30,
2015 and 2014, the Company recorded income tax expense of $66 and $56, respectively. For the six months ended June 30, 2015
and 2014 the Company recorded income tax expense of $132 and $123, respectively. The income tax expense relates principally to
the Company’s foreign operations.
The Company has evaluated the positive
and negative evidence bearing upon the realizability of its U.S. net deferred tax assets. As required by the provisions of ASC
740, Income Taxes, management has determined that it is more-likely-than-not that the Company will not utilize the benefits
of federal and state U.S. net deferred tax assets for financial reporting purposes. Accordingly, the net deferred tax assets are
subject to a valuation allowance at June 30, 2015 and December 31, 2014. The Company’s income tax return reporting periods
since December 31, 2011 are open to income tax audit examination by the federal and state tax authorities. In addition, because
the Company has net operating loss carryforwards, the Internal Revenue Service is permitted to audit earlier years and propose
adjustments up to the amount of net operating losses generated in those years. There are currently no federal, state or foreign
audits in progress.
9. Commitments and Contingencies
Leases
The Company’s contractual obligations
as of December 31, 2014 are summarized in our Annual Report on Form 10-K for the year ended December 31, 2014. In addition to the
obligations outlined in the Company’s Annual Report on Form 10-K, during June 2015, the Company entered into capital lease
arrangements for computer equipment and support for a total obligation of $793. The lease arrangements expire through June 2018.
Future minimum rental commitments under these incremental capital leases at June 30, 2015 are as follows:
Year Ending December 31 | |
Capital Lease Commitments | |
2015 | |
$ | 132 | |
2016 | |
| 264 | |
2017 | |
| 264 | |
2018 | |
| 121 | |
Less – interest on capital leases | |
| 45 | |
| |
$ | 736 | |
At June 30, 2015, total assets under these
incremental capital leases was $746 and related accumulated amortization was $42.
Legal Matters
The Company, from time to time, is party
to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have
a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company based on the
status of proceedings at this time.
On August 27, 2012, a complaint was filed
by Blue Spike, LLC naming the Company in a patent infringement case (Blue Spike, LLC v. Audible Magic Corporation, et al., United
States District Court for the Eastern District of Texas). The complaint alleges that the Company has infringed U.S. Patent No.
7,346,472 with a listed issue date of March 18, 2008, entitled “Method and Device for Monitoring and Analyzing Signals,”
U.S. Patent No. 7,660,700 with a listed issue date of February 9, 2010, entitled “Method and Device for Monitoring and Analyzing
Signals,” U.S. Patent No. 7,949,494 with a listed issue date of May 24, 2011, entitled “Method and Device for Monitoring
and Analyzing Signals” and U.S. Patent No. 8,214,175 with a listed issue date of July 3, 2012, entitled “Method and
Device for Monitoring and Analyzing Signals.” The complaint seeks an injunction enjoining infringement, damages and pre-
and post-judgment costs and interest. The Company answered and filed counterclaims against Blue Spike on December 3, 2012. The
Company amended its answer and counterclaims on July 15, 2013. This complaint is subject to indemnification by one of the Company’s
vendors. The Company cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint,
nor can the Company reasonably estimate the potential loss, if any.
Guarantees and Indemnification Obligations
The Company typically enters into indemnification
agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the
indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection
with patent, copyright, trade secret, or other intellectual property or personal right infringement claim by third parties with
respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after execution
of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future
payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently
the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the
contract. Based on historical experience and information known as of June 30, 2015, the Company has not incurred any costs for
the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent
infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification
is required by the Company’s contract with any such customer.
In certain circumstances, the Company warrants
that its products and services will perform in all material respects in accordance with its standard published specification documentation
in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product
or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes
the estimated fair value of these agreements is immaterial.
10. Debt
On March 31, 2011, the Company entered
into a loan and security agreement with a lender (the “Loan Agreement”) providing for up to an $8.0 million asset based
line of credit (the “Line of Credit”). Under the Line of Credit, the Company can borrow up to the lesser of (i) $8.0
million or (ii) 80% of the Company’s eligible accounts receivable. Borrowing availability under the Line of Credit changes
based upon the amount of eligible receivables, concentration of eligible receivables and other factors. The Company has the ability
to obtain letters of credit. Borrowings under the Line of Credit are secured by substantially all of the Company’s assets.
Outstanding amounts under the Line of Credit accrue interest at a rate equal to the prime rate plus 1.5%. Advances under the Line
of Credit were due on March 31, 2013, and interest and related finance charges are payable monthly. On April 29, 2013, the Company
amended the Line of Credit to increase the aggregate amount of borrowings that may be outstanding under the Company’s asset-based
line of credit from $8.0 million to $10.0 million and to extend the maturity date to March 30, 2015.
On October 3, 2014, the Company amended
the Line of Credit and entered into the Third Loan Modification Agreement (the “Modification Agreement”) to (i) increase
the aggregate amount of borrowings that may be outstanding under the Company’s Line of Credit from $10.0 million to $20.0
million, (ii) increase the aggregate Facility Amount (as defined in the Loan Agreement) available pursuant to the Loan Agreement
from $12.5 million to $25.0 million, (iii) provide for an unused line fee of 0.25% of the average unused portion of the Maximum
Availability Amount (as defined in the Loan Agreement) per year and (iv) extend the maturity date to October 3, 2016. The interest
rate decreased from the prime rate plus 1.5% to the prime rate plus 0.75%. At June 30, 2015 and December 31, 2014, the Company
had no amounts outstanding under the Line of Credit.
Under the Modification Agreement, the Company
must comply with certain financial covenants, including maintaining a minimum asset coverage ratio, a minimum net income threshold
based on non-GAAP operating measures and a minimum net cash balance at certain points throughout the year. The interest rate will
increase to the prime rate plus 2.25% if the Company is not able to meet the minimum asset coverage ratio. Failure to comply with
these covenants, or the occurrence of an event of default, could permit the Lenders under the Line of Credit to declare all amounts
borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. In addition, the
Line of Credit is secured by substantially all of the Company’s assets and places limits on the Company and its subsidiaries
ability to incur debt or liens and engage in sale-leaseback transactions, make loans and investments, incur additional indebtedness,
engage in mergers, acquisitions and asset sales, transact with affiliates and alter its business. The Company was in compliance
with all covenants under the Line of Credit as of June 30, 2015.
On June 1, 2015, the Company entered into
an equipment financing agreement with a lender (the “Equipment Financing Agreement”) to finance the purchase of $1.7
million in computer equipment and support. The liability relating to the Equipment Financing Agreement was recorded at fair value
using a market interest rate. The Company is repaying its obligation under the Equipment Financing Agreement over a two year period
through May 31, 2017, and the amount outstanding was $1.3 million as of June 30, 2015.
11. Segment Information
Geographic Data
Total revenue from unaffiliated customers
by geographic area, based on the location of the customer, was as follows:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenue: | |
| | | |
| | | |
| | | |
| | |
North America | |
$ | 21,070 | | |
$ | 18,481 | | |
$ | 41,518 | | |
$ | 36,495 | |
Europe | |
| 6,456 | | |
| 7,730 | | |
| 13,186 | | |
| 16,357 | |
Japan | |
| 1,986 | | |
| 2,012 | | |
| 4,045 | | |
| 3,933 | |
Asia Pacific | |
| 2,907 | | |
| 2,543 | | |
| 6,109 | | |
| 4,876 | |
Other | |
| 429 | | |
| 237 | | |
| 875 | | |
| 447 | |
| |
| | | |
| | | |
| | | |
| | |
Total revenue | |
$ | 32,848 | | |
$ | 31,003 | | |
$ | 65,733 | | |
$ | 62,108 | |
North America is comprised of revenue from
the United States, Canada and Mexico. During the three months ended June 30, 2015 and 2014, revenue from customers located
in the United States was $19,743 and $17,318, respectively, and $38,750 and $33,736, respectively, during the six months ended
June 30, 2015 and 2014 During the three and six months ended June 30, 2015 and 2014, no other country contributed more
than 10% of the Company’s total revenue.
As of June 30, 2015 and December 31, 2014,
property and equipment at locations outside the U.S. was not material.
12. Recently Issued and Adopted Accounting Standards
In May 2014, the Financial Accounting Standards
Board (FASB) and the International Accounting Standards Board jointly issued Accounting Standards Update (ASU) No. 2014-9, Revenue
from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common revenue standard
for GAAP and International Financial Reporting Standards. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods and services. This ASU is effective for public entities for annual
and interim periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective application,
with early adoption not permitted. Accordingly, the standard is effective for the Company on January 1, 2018. The Company
is currently evaluating the adoption method it will apply and the impact that this guidance will have on its financial statements
and related disclosures. Early adoption is not permitted under GAAP.
In August 2014, the FASB issued ASU No.
2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 requires
management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise
substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements
are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and earlier
application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15, but the adoption is not
expected to have a material effect on our consolidated financial statements or disclosures.
In February 2015, the FASB issued updated
accounting guidance on consolidation requirements. This update changes the guidance with respect to the analysis that a reporting
entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted.
The Company does not expect adoption of this guidance will have a material impact on our financial statements.
In April 2015, the FASB issued ASU 2015-03,
Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, which provides
that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the
carrying amount of the related debt liability, rather than classifying the costs separately in the balance sheet as a deferred
charge. The ASU aims to reduce complexity. The standard is effective for the Company on January 1, 2017. The Company is currently
evaluating the impact of the adoption of ASU 2015-03 on its consolidated financial statements, but does not expect the adoption
of this standard to have any impact on its consolidated financial statements.
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements
and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended
December 31, 2014.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains
“forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize
or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended, or Exchange Act. Such forward-looking statements include any expectation of earnings, revenue or other
financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect
our operating results; statements related to adding employees; statements related to potential benefits of the acquisition of substantially
all of the assets of Unicorn Media, Inc. and certain of its subsidiaries; statements related to future capital expenditures; statements
related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly
to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified
by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “will,”
“plan,” “project,” “seek,” “should,” “target,” “will,”
“would,” and similar expressions or variations intended to identify forward-looking statements. These statements are
based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking
statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled
“Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K
for the year ended December 31, 2014 and the risks discussed in our other SEC filings. Furthermore, such forward-looking statements
speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements
to reflect events or circumstances after the date of such statements.
Company Overview
We are a leading global provider of cloud-based
services for video. We were incorporated in Delaware in August 2004 and our headquarters are in Boston, 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 released in 2006, 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
Zencoder, or Zencoder, is a cloud-based video encoding service. Brightcove Once, or Once, is an innovative, cloud-based ad insertion
and video stitching service that addresses the limitations of traditional online video ad insertion technology. Brightcove Gallery,
or Gallery, released in May 2014, is a cloud-based service that enables customers to create and publish video portals. Brightcove
Perform, or Perform, released in September 2014, is a cloud-based service for creating and managing video player experiences. Brightcove
Video Marketing Suite, or Video Marketing Suite, released in May 2014, is a comprehensive suite of video technologies designed
to address the needs of marketers to drive awareness, engagement and conversion.
Our philosophy for the next few years will
continue to be to invest in our product strategy and development, sales, and go-to-market to support our long-term revenue growth
and profitability. We believe these investments will help us address some of the challenges facing our business such as demand
for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting
price sensitivity. These investments include support for the expansion of our infrastructure within our hosting facilities, the
hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of
new products. We believe this strategy will help us retain our existing customers, increase our average annual subscription revenue
per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve
economies of scale which will reduce our cost of goods sold, research and development and general and administrative expenses as
a percentage of total revenue.
As of June 30, 2015, we had 420 employees
and 5,404 customers, of which 3,557 used our volume offerings and 1,847 used our premium offerings. As of June 30, 2014, we had
401 employees and 5,995 customers, of which 4,162 used our volume offerings and 1,833 used our premium offerings. We have decided
to prioritize our premium product editions over our volume product editions. Our premium product editions have higher prices, the
customers of our premium product editions use more of our solutions, and we believe that our premium customers represent a greater
opportunity for our solutions.
We generate revenue by offering our products
to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grew from $62.1 million in the six months
ended June 30, 2014 to $65.7 million in the six months ended June 30, 2015, primarily as a result of continued adoption of Video
Cloud across our customer base. Our consolidated net loss was $6.5 million and $9.2 million for the six months ended June 30, 2015
and 2014, respectively. Included in consolidated net loss for the six months ended June 30, 2015 was stock-based compensation expense
and amortization of acquired intangible assets of $2.8 million and $1.6 million, respectively. Included in consolidated net loss
for the six months ended June 30, 2014 was stock-based compensation expense, amortization of acquired intangible assets and merger-related
expenses of $3.2 million, $1.6 million and $2.4 million, respectively.
For the six months ended June 30, 2015
and 2014, our revenue derived from customers located outside North America was 36% and 41%, respectively.
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 on annual contracts, our Once customers, our Gallery customers, our Perform customers and our Video Marketing Suite customers. Our volume offerings include our Video Cloud Express customers, and our Zencoder customers on month-to-month contracts, pay-as-you-go contracts, or contracts for a period of less than one year. |
|
|
|
|
|
As of June 30, 2015, we had 5,404 customers, of which 3,557 used our volume offerings and 1,847 used our premium offerings. As of June 30, 2014, we had 5,995 customers, of which 4,162 used our volume offerings and 1,833 used our premium offerings. We have shifted our go-to-market focus and growth strategy to growing our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Volume customers decreased during the six months ended June 30, 2015 primarily due to our discontinuation of the promotional Video Cloud Express offering. As a result, we experienced attrition of this base level offering without a corresponding addition of customers. We expect customers using our volume offerings to continue to decrease during the remainder of 2015 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 six months ended June 30, 2015 and 2014, the recurring dollar retention rate was
90% and 93%, 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. |
The following table includes our key metrics
for the periods presented:
| |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | |
Customers (at period end) | |
| | | |
| | |
Volume | |
| 3,557 | | |
| 4,162 | |
Premium | |
| 1,847 | | |
| 1,833 | |
| |
| | | |
| | |
Total customers (at period end) | |
| 5,404 | | |
| 5,995 | |
| |
| | | |
| | |
Recurring dollar retention rate | |
| 90 | % | |
| 93 | % |
Average annual subscription revenue per premium customer (in thousands) | |
$ | 63.4 | | |
$ | 59.9 | |
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, Pro and Enterprise. All Pro and Enterprise editions include
functionality to publish and distribute video to Internet-connected devices. The Enterprise edition provides additional features
and functionality such as a multi-account environment with consolidated billing, IP address filtering, the ability to produce live
events with DVR functionality and advanced upload acceleration of content. 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, and managed
content. We also offer gold support to our premium customers for an additional fee, which includes extended phone support. The
pricing for our premium editions is based on the number of users, accounts and usage, which is comprised of video streams, bandwidth
and managed content. 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, which we refer to as our Express edition. Our Express edition targets small and medium-sized businesses, or SMBs.
The Express edition provides customers with the same basic functionality that is offered in our premium product editions but has
been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. We
have discontinued the lower level pricing options for the Express edition and expect the total number of customers using the Express
edition to continue to decrease. Customers who purchase the Express edition generally enter into month-to-month agreements. Express
customers are generally billed on a monthly basis and pay via a credit card.
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. Customers of Zencoder on annual contracts are considered premium customers. Customers on month-to-month
contracts, pay-as-you-go contracts, or contracts for a period of less than one year, are considered volume customers.
Once 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.
Gallery is offered to customers of our premium
Video Cloud editions on a subscription basis. A customer’s usage of Gallery counts against the pre-determined amount of video
streams, bandwidth and managed content included with their Video Cloud Pro or Enterprise contract. 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. We also offer gold support to our Gallery customers for an additional fee, which includes extended phone
support.
Perform is offered to customers on a subscription
basis. Customer arrangements are typically one-year contracts, which include a subscription to Perform, basic support and a pre-determined
amount of video streams. We also offer gold support to our Perform customers for an additional fee, which includes extended phone
support. The pricing for Perform 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.
Video Marketing Suite is offered to customers
on a subscription basis. Customer arrangements are typically one-year contracts, which include a subscription to Video Cloud, the
Video Cloud Live Module, Gallery, basic support and a pre-determined amount of video streams or plays, bandwidth and managed content.
We also offer gold support to our Video Marketing Suite customers for an additional fee, which includes extended phone support.
The pricing for Video Marketing Suite is based on the number of users, accounts and usage, which is comprised of video streams
or plays, bandwidth and managed content. 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.
All Once, Gallery, Perform and Video Marketing
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. As such, the implementation and professional services
costs relating to an arrangement with a new customer are more significant than the costs to renew a customer’s subscription
and support arrangement.
Cost of revenue increased in absolute dollars
from the first six months of 2014 to the first six months of 2015. In future periods we expect our cost of revenue will increase
in absolute dollars as our revenue increases. We also expect that cost of revenue as a percentage of revenue will decrease over
time as we are able to achieve economies of scale in our business. However, cost of revenue as a percentage of revenue could fluctuate
from period to period depending on the growth of our professional services business and any associated costs relating to the delivery
of subscription services and the timing of significant expenditures. To the extent that our customer base grows, we intend to continue
to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional
expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue, in any particular
quarterly or annual period.
Operating Expenses
We classify our operating expenses as follows:
Research and Development. Research
and development expenses consist primarily of personnel and related expenses for our research and development staff, including
salaries, benefits, incentive compensation and stock-based compensation, in addition to the costs associated with contractors and
allocated overhead. We have focused our research and development efforts on expanding the functionality and scalability of our
products and enhancing their ease of use, as well as creating new product offerings. We expect research and development expenses
to increase in absolute dollars as we intend to continue to periodically release new features and functionality, expand our product
offerings, continue the localization of our products in various languages, upgrade and extend our service offerings, and develop
new technologies. Over the long term, we believe that research and development expenses as a percentage of revenue will decrease,
but will vary depending upon the mix of revenue from new and existing products, features and functionality, as well as changes
in the technology that our products must support, such as new operating systems or new Internet-connected devices.
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 fiscal years. We intend to continue to invest in sales and marketing and increase the number of sales representatives
to add new customers and expand the sale of our product offerings within our existing customer base, build brand awareness and
sponsor additional marketing events. Accordingly, in future periods we expect sales and marketing expense to increase in absolute
dollars and continue to be our most significant operating expense. 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, in addition to
the costs associated with professional fees, insurance premiums, other corporate expenses and allocated overhead. In future periods
we expect general and administrative expenses to increase in absolute dollars as we continue to incur additional personnel and
professional services costs in order to support the growth of our business. Over the long term, we believe that general and administrative
expenses as a percentage of revenue will decrease.
Merger-related. Merger-related
costs consisted of transaction expenses incurred as part of the Unicorn acquisition as well as costs associated with the retention
of key employees of Unicorn and Zencoder. Approximately $1.5 million is required to be paid to retain certain key employees from
the Unicorn acquisition over a two-year period from the date of acquisition of Unicorn as services are performed. The period in
which these services are to be performed varies by employee. Additionally, approximately $2.5 million was required to be paid to
retain certain key employees from the Zencoder acquisition over a two-year period from the date of acquisition of Zencoder as services
were performed. Given that the retention amount is related to a future service requirement, the related expense is being recorded
as merger-related compensation expense in the consolidated statement of operations over the expected service period.
Other Expense
Other expense consists primarily of interest
income earned on our cash, cash equivalents and investments, foreign exchange gains and losses, interest expense payable on our
debt, loss on disposal of equipment and changes in the fair value of the warrants issued in connection with a line of credit.
Income Taxes
As part of the process of preparing our
consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We account
for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are
recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using
statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have provided a valuation
allowance against our existing net deferred tax assets at June 30, 2015, with the exception of the deferred tax assets related
to Brightcove KK.
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 fair value of outstanding stock options and restricted stock awards, which is recognized as expense over
the respective stock option and restricted stock award service periods. For the three months ended June 30, 2015 and 2014, we recorded
$1.3 million and $1.5 million, respectively, of stock-based compensation expense. For the six months ended June 30, 2015 and 2014,
we recorded $2.8 million and $3.2 million, respectively, of stock-based compensation expense. We expect stock-based compensation
expense to increase in absolute dollars in future periods.
Foreign Currency Translation
With regard to our international operations,
we frequently enter into transactions in currencies other than the U.S. dollar. As a result, our revenue, expenses and cash flows
are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound,
Australian dollar, and Japanese yen. For the three months ended June 30, 2015 and 2014, 40% and 44%, respectively, of our revenue
was generated in locations outside the United States. For the six months ended June 30, 2015 and 2014, 41% and 46%, respectively,
of our revenue was generated in locations outside the United States. During the three months ended June 30, 2015 and 2014, 27%
and 32%, respectively, of our revenue was in currencies other than the U.S. dollar, as were some of the associated expenses. During
the six months ended June 30, 2015 and 2014, 27% and 33%, respectively, of our revenue was in currencies other than the U.S. dollar,
as were some of the associated expenses. In periods when the U.S. dollar declines in value as compared to the foreign currencies
in which we conduct business, our foreign currency-based revenues and expenses generally increase in value when translated into
U.S. dollars. We expect our foreign currency-based revenue to increase in absolute dollars and as a percentage of total revenue.
Critical Accounting Policies and Estimates
Our consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different
assumptions or conditions.
We consider the assumptions and estimates
associated with revenue recognition, allowance for doubtful accounts, software development costs, income taxes, business combinations,
intangible assets, goodwill and stock-based compensation to be our critical accounting policies and estimates. There have been
no material changes to our critical accounting policies since December 31, 2014.
For a detailed explanation of the judgments
made in these areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in our Annual Report on Form 10-K for the year ended December 31, 2014, which we filed with the Securities and Exchange Commission
on March 5, 2015.
We believe that our significant accounting
policies, which are more fully described in the notes to our unaudited condensed consolidated financial statements included in
this Quarterly Report on Form 10-Q, have not materially changed from those described in the notes to our audited consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Results of Operations
The following tables set forth our results
of operations for the periods presented. The data has been derived from the unaudited condensed consolidated financial statements
contained in this Quarterly Report on Form 10-Q which, in the opinion of our management, reflect all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods
presented. The period-to-period comparison of financial results is not necessarily indicative of future results. This information
should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2014.
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands, except percentages and per share data) | |
Revenue: | |
| | | |
| | | |
| | | |
| | |
Subscription and support revenue | |
$ | 31,917 | | |
$ | 29,929 | | |
$ | 63,728 | | |
$ | 59,304 | |
Professional services and other revenue | |
| 931 | | |
| 1,074 | | |
| 2,005 | | |
| 2,804 | |
| |
| | | |
| | | |
| | | |
| | |
Total revenue | |
| 32,848 | | |
| 31,003 | | |
| 65,733 | | |
| 62,108 | |
Cost of revenue: | |
| | | |
| | | |
| | | |
| | |
Cost of subscription and support revenue | |
| 10,357 | | |
| 9,109 | | |
| 20,703 | | |
| 18,629 | |
Cost of professional services and other revenue | |
| 1,201 | | |
| 1,315 | | |
| 2,447 | | |
| 3,062 | |
| |
| | | |
| | | |
| | | |
| | |
Total cost of revenue | |
| 11,558 | | |
| 10,424 | | |
| 23,150 | | |
| 21,691 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 21,290 | | |
| 20,579 | | |
| 42,583 | | |
| 40,417 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 7,267 | | |
| 6,792 | | |
| 15,087 | | |
| 13,361 | |
Sales and marketing | |
| 11,903 | | |
| 12,095 | | |
| 22,742 | | |
| 23,441 | |
General and administrative | |
| 5,209 | | |
| 5,148 | | |
| 10,370 | | |
| 9,862 | |
Merger-related | |
| 62 | | |
| 521 | | |
| 76 | | |
| 2,388 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 24,441 | | |
| 24,556 | | |
| 48,275 | | |
| 49,052 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (3,151 | ) | |
| (3,977 | ) | |
| (5,692 | ) | |
| (8,635 | ) |
Other expense, net | |
| (429 | ) | |
| (294 | ) | |
| (653 | ) | |
| (406 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (3,580 | ) | |
| (4,271 | ) | |
| (6,345 | ) | |
| (9,041 | ) |
Provision for income taxes | |
| 66 | | |
| 56 | | |
| 132 | | |
| 123 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (3,646 | ) | |
| (4,327 | ) | |
| (6,477 | ) | |
| (9,164 | ) |
Net loss per share - basic and diluted | |
$ | (0.11 | ) | |
$ | (0.13 | ) | |
$ | (0.20 | ) | |
$ | (0.29 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted-average number of common shares used in computing net loss per share | |
| 32,548,123 | | |
| 32,145,231 | | |
| 32,522,049 | | |
| 31,594,541 | |
Overview of Results of Operations for the Three Months Ended
June 30, 2015 and 2014
Total revenue increased by 6%, or $1.8
million, in the three months ended June 30, 2015 compared to the three months ended June 30, 2014 due to an increase in subscription
and support revenue of 7%, or $2.0 million, offset partially by a decrease in professional services and other revenue of 13%, or
$143,000. The increase in subscription and support revenue resulted primarily from an increase in the number of our premium customers,
which was 1,847 as of June 30, 2015, an increase of 1% from 1,833 customers as of June 30, 2014, as well as an increase in revenue
from existing customers. In addition, our revenue from premium offerings grew by $2.1 million, or 7%, in the three months ended
June 30, 2015 compared to the three months ended June 30, 2014. These increases are offset by a $1.0 million reduction in revenue
due to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months ended June
30, 2014. 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 $711,000,
or 3%, in the three months ended June 30, 2015 compared to the three months ended June 30, 2014, primarily due to an increase in
revenue. With the continued growth in our total revenue, our ability to maintain our overall gross profit will depend on our ability
to continue controlling our costs of delivery.
Loss from operations was $3.2 million in
the three months ended June 30, 2015 compared to $4.0 million in the three months ended June 30, 2014. Loss from operations in
the three months ended June 30, 2015 included stock-based compensation expense and amortization of acquired intangible assets of
$1.3 million and $789,000, respectively. Loss from operations in the three months ended June 30, 2014 included stock-based compensation
expense, amortization of acquired intangible assets and merger-related expenses of $1.5 million, $864,000 and $521,000, respectively.
We expect operating income to improve from increased sales to both new and existing customers and from improved efficiencies throughout
our organization as we continue to grow and scale our operations.
As of June 30, 2015, we had $21.2 million
of unrestricted cash and cash equivalents, a decrease of $1.7 million from $22.9 million at December 31, 2014, due primarily to
$2.4 million in capital expenditures, $627,000 in payments under capital lease obligations, and $404,000 in payments on an equipment
financing. These decreases were offset by $1.7 million in proceeds from an equipment financing.
Revenue
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Revenue
by Product
Line | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Premium | |
$ | 30,524 | | |
| 93 | % | |
$ | 28,463 | | |
| 92 | % | |
$ | 2,061 | | |
| 7 | % |
Volume | |
| 2,324 | | |
| 7 | | |
| 2,540 | | |
| 8 | | |
| (216 | ) | |
| (9 | ) |
Total | |
$ | 32,848 | | |
| 100 | % | |
$ | 31,003 | | |
| 100 | % | |
$ | 1,845 | | |
| 6 | % |
During the three months ended June 30,
2015, revenue increased by $1.8 million, or 6%, compared to the three months ended June 30, 2014, primarily due to an increase
in revenue from our premium offerings, which consist of subscription and support revenue, as well as professional services and
other revenue. The increase in premium revenue of $2.1 million, or 7%, is partially the result of a 6% increase in the average
annual subscription revenue per premium customer during the three months ended June 30, 2015 and a 1% increase in the number of
premium customers from 1,833 at June 30, 2014 to 1,847 at June 30, 2015. These increases are offset by a $1.0 million reduction
in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months
ended June 30, 2015. In the three months ended June 30, 2015, volume revenue decreased by $216,000, or 9%, compared to the three
months ended June 30, 2014, due primarily to the discontinuation of entry-level Video Cloud Express offerings.
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Revenue by Type | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Subscription and support | |
$ | 31,917 | | |
| 97 | % | |
$ | 29,929 | | |
| 97 | % | |
$ | 1,988 | | |
| 7 | % |
Professional services and other | |
| 931 | | |
| 3 | | |
| 1,074 | | |
| 3 | | |
| (143 | ) | |
| (13 | ) |
Total | |
$ | 32,848 | | |
| 100 | % | |
$ | 31,003 | | |
| 100 | % | |
$ | 1,845 | | |
| 6 | % |
In the three months ended June 30, 2015,
subscription and support revenue increased by $2.0 million, or 7%, compared to the three months ended June 30, 2014. The increase
was primarily related to the continued growth of our customer base for our premium offerings including sales to both new and existing
customers and a 6% increase in the average annual subscription revenue per premium customer. These increases are offset by a $1.0
million reduction in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during
the three months ended June 30, 2015. Professional services and other revenue decreased by 13%, or $143,000, due to a decrease
in the number of professional service engagements that were related to projects and implementations supporting subscription sales.
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 June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Revenue by Geography | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
North America | |
$ | 21,070 | | |
| 64 | % | |
$ | 18,481 | | |
| 60 | % | |
$ | 2,589 | | |
| 14 | % |
Europe | |
| 6,455 | | |
| 20 | | |
| 7,730 | | |
| 25 | | |
| (1,275 | ) | |
| (16 | ) |
Japan | |
| 1,986 | | |
| 6 | | |
| 2,012 | | |
| 6 | | |
| (26 | ) | |
| (1 | ) |
Asia Pacific | |
| 2,908 | | |
| 9 | | |
| 2,543 | | |
| 8 | | |
| 365 | | |
| 14 | |
Other | |
| 429 | | |
| 1 | | |
| 237 | | |
| 1 | | |
| 192 | | |
| 81 | |
International subtotal | |
| 11,778 | | |
| 36 | | |
| 12,522 | | |
| 40 | | |
| (744 | ) | |
| (6 | ) |
Total | |
$ | 32,848 | | |
| 100 | % | |
$ | 31,003 | | |
| 100 | % | |
$ | 1,845 | | |
| 6 | % |
For purposes of this section, we designate
revenue by geographic regions based upon the locations of our customers. North America is comprised of revenue from the United
States, Canada and Mexico. International is comprised of revenue from locations outside of North America. Depending on the timing
of new customer contracts, revenue mix from a geographic region can vary from period to period.
In the three months ended June 30, 2015,
total revenue for North America increased $2.6 million, or 14%, compared to the three months ended June 30, 2014. The increase
in revenue for North America resulted primarily from an increase in subscription and support revenue from our premium offerings.
In the three months ended June 30, 2015, total revenue outside of North America decreased $744,000, or 6%, compared to the three
months ended June 30, 2014. The decrease in revenue from International regions is primarily related to a $1.0 million reduction
in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months
ended June 30, 2014. This decrease was offset by an increase in subscription and support revenue from our premium offerings.
Cost of Revenue
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Cost of Revenue | |
Amount | | |
Percentage
of Related
Revenue | | |
Amount | | |
Percentage
of Related
Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Subscription and support | |
$ | 10,357 | | |
| 32 | % | |
$ | 9,109 | | |
| 30 | % | |
$ | 1,248 | | |
| 14 | % |
Professional services and other | |
| 1,201 | | |
| 129 | | |
| 1,315 | | |
| 122 | | |
| (114 | ) | |
| (9 | ) |
Total | |
$ | 11,558 | | |
| 35 | % | |
$ | 10,424 | | |
| 34 | % | |
$ | 1,134 | | |
| 11 | % |
In the three months ended June 30, 2015,
cost of subscription and support revenue increased $1.2 million, or 14%, compared to the three months ended June 30, 2014. The
increase resulted primarily from an increase in network hosting services, content delivery network expenses, depreciation expenses
and employee-related expenses of $486,000, $300,000, $184,000 and $160,000, respectively.
In the three months ended June 30, 2015,
cost of professional services and other revenue decreased $114,000, or 9%, compared to the three months ended June 30, 2014. The
decrease resulted primarily from a decrease in employee-related expenses of $133,000.
Gross Profit
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Gross Profit | |
Amount | | |
Percentage of Related Revenue | | |
Amount | | |
Percentage of Related Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Subscription and support | |
$ | 21,560 | | |
| 68 | % | |
$ | 20,820 | | |
| 70 | % | |
$ | 740 | | |
| 4 | % |
Professional services and other | |
| (270 | ) | |
| (29 | ) | |
| (241 | ) | |
| (22 | ) | |
| (29 | ) | |
| (12 | ) |
Total | |
$ | 21,290 | | |
| 65 | % | |
$ | 20,579 | | |
| 66 | % | |
$ | 711 | | |
| 3 | % |
The overall gross profit percentage was
65% and 66% for the three months ended June 30, 2015 and 2014, respectively. Subscription and support gross profit increased $740,000,
or 4%, compared to the three months ended June 30, 2014. Professional services and other gross profit decreased $29,000, or 12%,
compared to the three months ended June 30, 2014. 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
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Operating Expenses | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Research and development | |
$ | 7,267 | | |
| 22 | % | |
$ | 6,792 | | |
| 21 | % | |
$ | 475 | | |
| 7 | % |
Sales and marketing | |
| 11,903 | | |
| 36 | | |
| 12,095 | | |
| 39 | | |
| (192 | ) | |
| (2 | ) |
General and administrative | |
| 5,209 | | |
| 16 | | |
| 5,148 | | |
| 17 | | |
| 61 | | |
| 1 | |
Merger-related | |
| 62 | | |
| - | | |
| 521 | | |
| 2 | | |
| (459 | ) | |
| (88 | ) |
Total | |
$ | 24,441 | | |
| 74 | % | |
$ | 24,556 | | |
| 79 | % | |
$ | (115 | ) | |
| - | % |
Research and Development.
In the three months ended June 30, 2015, research and development expense increased by $475,000, or 7%, compared to
the three months ended June 30, 2014 primarily due to increases in employee-related, recruiting and rent expenses of $303,000,
$77,000 and $63,000, respectively. In future periods, we expect that our research and development expense will continue to increase
in absolute dollars as we continue to add employees, develop new features and functionality for our products, introduce additional
software solutions and expand our product and service offerings.
Sales and Marketing. In the
three months ended June 30, 2015, sales and marketing expense decreased by $192,000, or 2%, compared to the three months ended
June 30, 2014 primarily due to a decrease in marketing programs of $333,000. This decrease was offset by an increase in employee-related
expenses of $119,000. We expect that our sales and marketing expense will increase 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. We expect
that such increases may fluctuate from period to period, however, due to the timing of marketing programs.
General and Administrative.
In the three months ended June 30, 2015, general and administrative expense increased by $61,000, or 1%, compared to the three
months ended June 30, 2014 primarily due to increases in outside accounting and legal fees and depreciation expenses of $154,000
and $143,000, respectively. These increases were offset by decreases in stock-based compensation and employee-related expense of
$164,000 and $110,000, respectively. In future periods, we expect general and administrative expense will increase in absolute
dollars as we add personnel and incur additional costs related to the growth of our business and operations.
Merger-related. In the three
months ended June 30, 2015, merger-related expenses decreased $459,000, or 88%, compared to the three months ended June 30, 2014
primary due to a $119,000 decrease in costs incurred in connection with closing the acquisition of substantially all of the assets
of Unicorn. There was also a decrease in the costs associated with the retention of certain employees of Unicorn and in the costs
associated with the retention of certain employees of Zencoder of $275,000 and $65,000, respectively.
Other Expense, Net
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Other Expense | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Interest income, net | |
$ | 1 | | |
| - | % | |
$ | 2 | | |
| - | % | |
$ | (1 | ) | |
| (50 | )% |
Interest expense | |
| (24 | ) | |
| - | | |
| (26 | ) | |
| - | | |
| 2 | | |
| 8 | |
Other expense, net | |
| (406 | ) | |
| (1 | ) | |
| (270 | ) | |
| (1 | ) | |
| (136 | ) | |
| (50 | ) |
Total | |
$ | (429 | ) | |
| (1 | )% | |
$ | (294 | ) | |
| (1 | )% | |
$ | (135 | ) | |
| (46 | )% |
In the three months ended June 30, 2015,
interest income, net, decreased by $1,000 compared to the corresponding period of the prior year. The decrease is primarily due
to a lower average cash balance as interest income is generated from the investment of our cash balances, less related bank fees.
The interest expense during the three months
ended June 30, 2015 is primarily comprised of interest paid on capital leases and an equipment financing. The increase in other
expense, net during the three months ended June 30, 2014 was primarily due to an increase in foreign currency exchange losses of
$136,000 upon collection of foreign denominated accounts receivable.
Provision for Income Taxes
| |
Three Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Provision for Income Taxes | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Provision for income taxes | |
$ | 66 | | |
| - | % | |
$ | 56 | | |
| - | % | |
$ | 10 | | |
| 18 | % |
In the three months ended June 30, 2015,
provision for income taxes increased by $10,000 or 18%, compared to the three months ended June 30, 2014 primarily due to increases
income tax expenses related to foreign jurisdictions.
Overview of Results of Operations for the Six Months Ended
June 30, 2015 and 2014
Total revenue increased by 6%, or $3.6
million, in the six months ended June 30, 2015 compared to the six months ended June 30, 2014 due to an increase in subscription
and support revenue of 7%, or $4.4 million, offset partially by a decrease in professional services and other revenue of 28%, or
$799,000. The increase in subscription and support revenue resulted primarily from an increase in the number of our premium customers,
which was 1,847 as of June 30, 2015, an increase of 1% from 1,833 customers as of June 30, 2014, as well as an increase in revenue
from existing customers. In addition, our revenue from premium offerings grew by $3.9 million, or 7%, in the six months ended June
30, 2015 compared to the six months ended June 30, 2014. These increases are offset by a $1.8 million reduction in revenue due
to changes in foreign exchange rates compared to the exchange rates that were in effect during the six months ended June 30, 2014.
Our ability to continue to provide the product functionality and performance that our customers require will be a major factor
in our ability to continue to increase revenue.
Our gross profit increased by $2.2 million,
or 5%, in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to an increase in revenue.
Our ability to continue to maintain our overall gross profit will depend on our ability to continue controlling our costs of delivery. Loss
from operations was $5.7 million in the six months ended June 30, 2015 compared to $8.6 million in the six months ended June 30,
2014. Loss from operations in the six months ended June 30, 2015 included stock-based compensation expense and amortization of
acquired intangible assets of $2.8 million and $1.6 million, respectively. Loss from operations in the six months ended June 30,
2014 included stock-based compensation expense, amortization of acquired intangible assets and merger-related expenses of $3.2
million, $1.6 million and $2.4 million, respectively. We expect operating income to improve from increased sales to both new and
existing customers and from improved efficiencies throughout our organization as we continue to grow and scale our operations.
As of June 30, 2015, we had $21.2 million
of unrestricted cash and cash equivalents, a decrease of $1.7 million from $22.9 million at December 31, 2014, due primarily to
$2.4 million in capital expenditures, $627,000 in payments under capital lease obligations and $404,000 in payments on an equipment
financing. These decreases were offset by $1.7 million in proceeds from an equipment financing.
Revenue
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Revenue by Product Line | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Premium | |
$ | 60,989 | | |
| 93 | % | |
$ | 57,060 | | |
| 92 | % | |
$ | 3,929 | | |
| 7 | % |
Volume | |
| 4,744 | | |
| 7 | | |
| 5,048 | | |
| 8 | | |
| (304 | ) | |
| (6 | ) |
Total | |
$ | 65,733 | | |
| 100 | % | |
$ | 62,108 | | |
| 100 | % | |
$ | 3,625 | | |
| 6 | % |
During the six months ended June 30, 2015,
revenue increased by $3.6 million, or 6%, compared to the six months ended June 30, 2014, primarily due to an increase in revenue
from our premium offerings, which consist of subscription and support revenue, as well as professional services and other revenue.
The increase in premium revenue of $3.9 million, or 7%, is partially the result of a 6% increase in the average annual subscription
revenue per premium customer during the six months ended June 30, 2015 and a 1% increase in the number of premium customers from
1,833 at June 30, 2014 to 1,847 at June 30, 2015. These increases are offset by a $1.8 million reduction in revenue due to changes
in foreign exchange rates compared to the exchange rates that were in effect during the six months ended June 30, 2014. In the
six months ended June 30, 2015, revenue from our volume offerings decreased by $304,000, or 6%, compared to the six months ended
June 31, 2014, due primarily to the discontinuation of entry-level Video Cloud Express offerings.
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Revenue by Type | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Subscription and support | |
$ | 63,728 | | |
| 97 | % | |
$ | 59,304 | | |
| 95 | % | |
$ | 4,424 | | |
| 7 | % |
Professional services and other | |
| 2,005 | | |
| 3 | | |
| 2,804 | | |
| 5 | | |
| (799 | ) | |
| (28 | ) |
Total | |
$ | 65,733 | | |
| 100 | % | |
$ | 62,108 | | |
| 100 | % | |
$ | 3,625 | | |
| 6 | % |
In the six months ended June 30, 2015,
subscription and support revenue increased by $4.4 million, or 7%, compared to the six months ended June 30, 2014. The increase
was primarily related to the continued growth of our customer base for our premium offerings including sales to both new and existing
customers and a 6% increase in the average annual subscription revenue per premium customer during the six months ended June 30,
2015. Professional services and other revenue decreased by 28%, or $799,000, compared to the six months ended June 30, 2014. Professional
services and other revenue will vary from period to period depending on the number of implementations and other projects that are
in process.
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Revenue by Geography | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
North America | |
$ | 41,518 | | |
| 64 | % | |
$ | 36,495 | | |
| 59 | % | |
$ | 5,023 | | |
| 14 | % |
Europe | |
| 13,186 | | |
| 20 | | |
| 16,357 | | |
| 26 | | |
| (3,171 | ) | |
| (19 | ) |
Japan | |
| 4,045 | | |
| 6 | | |
| 3,933 | | |
| 6 | | |
| 112 | | |
| 3 | |
Asia Pacific | |
| 6,109 | | |
| 9 | | |
| 4,876 | | |
| 8 | | |
| 1,233 | | |
| 25 | |
Other | |
| 875 | | |
| 1 | | |
| 447 | | |
| 1 | | |
| 428 | | |
| 96 | |
International subtotal | |
| 24,215 | | |
| 36 | | |
| 25,613 | | |
| 41 | | |
| (1,398 | ) | |
| (5 | ) |
Total | |
$ | 65,733 | | |
| 100 | % | |
$ | 62,108 | | |
| 100 | % | |
$ | 3,625 | | |
| 6 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
For purposes of this section, we designate
revenue by geographic regions based upon the locations of our customers. North America is comprised of revenue from the United
States, Canada and Mexico. International is comprised of revenue from locations outside of North America. Depending on the timing
of new customer contracts, revenue mix from a geographic region can vary from period to period.
In the six months ended June 30, 2015,
total revenue for North America increased $5.0 million, or 14%, compared to the six months ended June 30, 2014. The increase in
revenue for North America resulted primarily from an increase in subscription and support revenue from our premium offerings. In
the six months ended June 30, 2015, total revenue outside of North America decreased $1.4 million, or 5%, compared to the six months
ended June 30, 2014. The decrease in revenue from International regions is primarily related to a $1.8 million reduction in revenue
due to changes in foreign exchange rates compared to the exchange rates that were in effect during the six months ended June 30,
2014. These decreases were offset by an increase in subscription and support revenue from our premium offerings.
Cost of Revenue
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Cost of Revenue | |
Amount | | |
Percentage of Related Revenue | | |
Amount | | |
Percentage of Related Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Subscription and support | |
$ | 20,703 | | |
| 32 | % | |
$ | 18,629 | | |
| 31 | % | |
$ | 2,074 | | |
| 11 | % |
Professional services and other | |
| 2,447 | | |
| 122 | | |
| 3,062 | | |
| 109 | | |
| (615 | ) | |
| (20 | ) |
Total | |
$ | 23,150 | | |
| 35 | % | |
$ | 21,691 | | |
| 35 | % | |
$ | 1,459 | | |
| 7 | % |
In the six months ended June 30, 2015,
cost of subscription and support revenue increased $2.1 million, or 11%, compared to the six months ended June 30, 2014. The increase
resulted primarily from an increase in the content delivery network expenses, depreciation expense, employee-related expenses,
and the cost of third-party software integrated with our service offering of $673,000, $479,000, $371,000 and $202,000, respectively.
There were also increases in maintenance expenses, amortization of capitalized internal-use software development costs and amortization
of acquired intangible assets of $88,000, $86,000 and $85,000, respectively.
In the six months ended June 30, 2015,
cost of professional services and other revenue decreased $615,000, or 20%, compared to the six months ended June 30, 2014. The
decrease resulted primarily from decreases in contractor and employee-related expenses of $387,000 and $269,000, respectively.
Gross Profit
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Gross Profit | |
Amount | | |
Percentage of Related Revenue | | |
Amount | | |
Percentage of Related Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Subscription and support | |
$ | 43,025 | | |
| 68 | % | |
$ | 40,675 | | |
| 69 | % | |
$ | 2,350 | | |
| 6 | % |
Professional services and other | |
| (442 | ) | |
| (22 | ) | |
| (258 | ) | |
| (9 | ) | |
| (184 | ) | |
| (71 | ) |
Total | |
$ | 42,583 | | |
| 65 | % | |
$ | 40,417 | | |
| 65 | % | |
$ | 2,166 | | |
| 5 | % |
The overall gross profit percentage was
65% for the six months ended June 30, 2015 and 2014. Subscription and support gross profit increased $2.4 million, or 6%, compared
to the six months ended June 30, 2014. Professional services and other gross profit decreased $184,000, or 71%, compared to the
six months ended June 30, 2014. 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
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Operating Expenses | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Research and development | |
$ | 15,087 | | |
| 23 | % | |
$ | 13,361 | | |
| 22 | % | |
$ | 1,726 | | |
| 13 | % |
Sales and marketing | |
| 22,742 | | |
| 34 | | |
| 23,441 | | |
| 38 | | |
| (699 | ) | |
| (3 | ) |
General and administrative | |
| 10,370 | | |
| 16 | | |
| 9,862 | | |
| 16 | | |
| 508 | | |
| 5 | |
Merger-related | |
| 76 | | |
| - | | |
| 2,388 | | |
| 4 | | |
| (2,312 | ) | |
| (97 | ) |
Total | |
$ | 48,275 | | |
| 73 | % | |
$ | 49,052 | | |
| 80 | % | |
$ | (777 | ) | |
| (2 | )% |
Research and Development.
In the six months ended June 30, 2015, research and development expense increased by $1.7 million, or 13%, compared
to the six months ended June 30, 2014 primarily due to increases in employee-related, rent, recruiting and travel expenses
of $1.1 million, $282,000, $132,000 and $111,000, respectively. These expenses were offset by a decrease in computer maintenance
and support expense of $107,000.
Sales and Marketing. In
the six months ended June 30, 2015, sales and marketing expense decreased $699,000, or 3%, compared to the six months ended
June 30, 2014 primarily due to decrease in marketing programs, stock-based compensation, employee-related and commission expenses
of $631,000, $224,000, $211,000 and $126,000, respectively. These expenses were offset by increases in contractor expenses, and
travel expenses of $204,000 and $136,000, respectively.
General and Administrative.
In the six months ended June 30, 2015, general and administrative expense increased by $508,000, or 5%, compared
to the six months ended June 30, 2014 primarily due to an increase in outside accounting and legal fees, depreciation, contractor
and bad debt expenses of $365,000, $311,000, $213,000 and $125,000, respectively. These expenses were offset by decreases in stock-based
compensation and employee-related expenses of $265,000 and $158,000, respectively.
Merger-related. In the six
months ended June 30, 2015, merger-related expenses decreased $2.3 million, or 97%, compared to the six months ended June 30, 2014.
$1.6 million of the decrease relates to costs that were incurred in connection with the closing of the acquisition of substantially
all of the assets of Unicorn, during the six months ended June 30, 2014, without corresponding costs during the six months ended
June 30, 2015. There was also a decrease in the costs associated with the retention of certain employees of Unicorn and in the
costs associated with the retention of certain employees of Zencoder of $486,000 and $181,000, respectively.
Other Expense, Net
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Other Expense | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Interest income, net | |
$ | 2 | | |
| — | % | |
$ | 9 | | |
| — | % | |
$ | (7 | ) | |
| (78 | )% |
Interest expense | |
| (40 | ) | |
| — | | |
| (45 | ) | |
| — | | |
| 5 | | |
| 11 | |
Other expense, net | |
| (615 | ) | |
| (1 | )% | |
| (370 | ) | |
| (1 | )% | |
| (245 | ) | |
| (66 | ) |
Total | |
$ | (653 | ) | |
| (1 | )% | |
$ | (406 | ) | |
| (1 | )% | |
$ | (247 | ) | |
| (61 | )% |
In the six months ended June 30, 2015,
interest income, net, decreased by $7,000 compared to the corresponding period of the prior year. The decrease is primarily due
to lower average cash balances as interest income is generated from the investment of our cash balances, less related bank fees.
The interest expense during the six months
ended June 30, 2015 is primarily comprised of interest paid on capital leases and an equipment financing. The increase in other
expense, net during the six months ended June 30, 2015 was primarily due to an increase in foreign currency exchange losses of
$249,000 upon collection of foreign denominated accounts receivable.
Provision for Income Taxes
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Provision for Income Taxes | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
% | |
| |
(in thousands, except percentages) | |
Provision for income taxes | |
$ | 132 | | |
| — | % | |
$ | 123 | | |
| — | % | |
$ | 9 | | |
| 7 | % |
In the six months ended June 30, 2015,
provision for income taxes increased by $9,000 compared to the corresponding period of the prior year, and was primarily comprised
of income tax expenses related to foreign jurisdictions.
Liquidity and Capital Resources
In connection with our initial public offering
in February 2012, we received aggregate proceeds of approximately $58.8 million, including the proceeds from the underwriters’
exercise of their overallotment option, net of underwriters’ discounts and commissions, but before deducting offering expenses
of approximately $4.3 million. Prior to our initial public offering, we funded our operations primarily through private placements
of preferred and common stock, as well as through borrowings of $7.0 million under our bank credit facilities. In February 2012,
we repaid the $7.0 million balance under our bank credit facilities. All of the preferred stock was converted into shares of our
common stock in connection with our initial public offering.
| |
Six Months Ended June 30, | |
Condensed Consolidated Statements of Cash Flow Data | |
2015 | | |
2014 | |
| |
(in thousands) | |
Purchases of property and equipment | |
$ | (2,441 | ) | |
$ | (1,487 | ) |
Depreciation and amortization | |
| 4,802 | | |
| 3,958 | |
Cash flows provided by (used in) operating activities | |
| 431 | | |
| (4,210 | ) |
Cash flows used in investing activities | |
| (2,777 | ) | |
| (8,289 | ) |
Cash flows provided by financing activities | |
| 731 | | |
| 31 | |
Cash, cash equivalents and investments.
Our cash and cash equivalents at June 30,
2015 were held for working capital purposes and were invested primarily in money market funds. We do not enter into investments
for trading or speculative purposes. At June 30, 2015 and December 31, 2014, restricted cash was $201,000 and was held in certificates
of deposit as collateral for letters of credit related to the contractual provisions of our corporate credit cards and the contractual
provisions with a customer. At June 30, 2015 and December 31, 2014, we had $3.6 million and $3.3 million, respectively, of cash
and cash equivalents held by subsidiaries in international locations, including subsidiaries located in Japan and the United Kingdom.
It is our current intention to permanently reinvest unremitted earnings in such subsidiaries or to repatriate the earnings only
when tax effective. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated working capital
and capital expenditure needs over at least the next 12 months.
Accounts receivable, net.
Our accounts receivable balance fluctuates
from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of
our billing activity, cash collections, and changes to our allowance for doubtful accounts. In many instances we receive cash payment
from a customer prior to the time we are able to recognize revenue on a transaction. We record these payments as deferred revenue,
which has a positive effect on our accounts receivable balances. We use days’ sales outstanding, or DSO, calculated on a
quarterly basis, as a measurement of the quality and status of our receivables. We define DSO as (a) accounts receivable, net of
allowance for doubtful accounts, divided by total revenue for the most recent quarter, multiplied by (b) the number of days in
that quarter. DSO was 53 days at June 30, 2015 and 63 days at December 31, 2014.
Cash flows provided by (used in) operating
activities.
Cash provided by operating activities consists
primarily of net loss adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense,
the provision for bad debts and the effect of changes in working capital and other activities. Cash provided by operating activities
during the six months ended June 30, 2015 was $431,000 and consisted of $6.5 million of net loss offset by non-cash expenses of
$2.8 million for stock-based compensation expense and $4.8 million for depreciation and amortization expense. Uses of cash included
a decrease in accrued expenses and deferred revenue of $2.1 million and $726,000, respectively, and an increase in prepaid expenses and
other current assets of $878,000. These outflows were offset in part by a decrease in accounts receivable of $2.0 million and an
increase in accounts payable of $1.3 million.
Cash flows used in investing activities.
Cash used in investing activities during
the six months ended June 30, 2015 was $2.8 million, consisting primarily of $2.4 million in capital expenditures to support the
business and $336,000 for the capitalization of internal-use software costs.
Cash flows provided by financing activities.
Cash provided by financing activities for
the six months ended June 30, 2015 was $731,000, consisting of proceeds received from an equipment financing and the exercise of
common stock options of $1.7 million and $58,000, respectively, offset partially by payments under capital lease and the equipment
financing of $627,000 and $404,000, respectively.
Credit facility borrowings.
On March 30, 2011, we entered into a loan
and security agreement with Silicon Valley Bank, or SVB, providing for an asset-based line of credit. Under this loan and security
agreement, we could borrow up to the lesser of (i) $8.0 million or (ii) 80% of our eligible accounts receivable. The amounts owed
under the loan and security agreement are secured by substantially all of our assets, excluding our intellectual property. Amounts
owed under the loan and security agreement were due on March 31, 2013, and interest and related finance charges were payable monthly.
On April 29, 2013, we amended our loan
and security agreement with SVB to increase the aggregate amount of borrowings that may be outstanding under our asset-based line
of credit from $8.0 million to $10.0 million and to extend the maturity date to March 30, 2015.
On October 3, 2014, we further amended
our loan and security agreement with SVB pursuant to the Third Loan Modification Agreement (the “Modification Agreement”)
to (i) increase the aggregate amount of borrowings that may be outstanding under our asset-based line of credit from $10.0 million
to $20.0 million, (ii) increase the aggregate Facility Amount (as defined in the loan and security agreement) available pursuant
to the loan and security agreement from $12.5 million to $25.0 million, (iii) provide for an unused line fee of 0.25% of the average
unused portion of the Maximum Availability Amount (as defined in the loan and security agreement) per year and (iv) extend the
maturity date to October 3, 2016. The interest rate decreased from the prime rate plus 1.5% to the prime rate plus 0.75%. Under
the Modification Agreement, we must comply with certain financial covenants, including maintaining a minimum asset coverage ratio,
a minimum net income threshold based on non-GAAP operating measures and a minimum net cash balance at certain points throughout
the year. The interest rate will increase to the prime rate plus 2.25% if we are not able to meet the minimum asset coverage ratio.
We had no outstanding borrowings under this line of credit at June 30, 2015. We were in compliance with all covenants under the
loan and security agreement as of June 30, 2015.
On June 1, 2015, we entered into an equipment
financing agreement with a lender (the “Equipment Financing Agreement”) to finance the purchase of $1.7 million in
computer equipment and support. The liability relating to the Equipment Financing Agreement was recorded at fair value using a
market interest rate. We are repaying our obligation under the Equipment Financing Agreement over a two year period through May
31, 2017, and the amount outstanding was $1.3 million as of June 30, 2015.
Net operating loss carryforwards.
As of December 31, 2014, we had federal and
state net operating losses of approximately $132.6 million and $63.8 million, respectively, which are available to offset future
taxable income, if any, through 2034. Included in the federal and state net operating losses are deductions attributable to excess
tax benefits from the exercise of non-qualified stock options of $12.1 million and $7.7 million, respectively. The tax benefits
attributable to these net operating losses are credited directly to additional paid-in capital when realized. The Company has not
realized any such tax benefits through December 31, 2014. We had research and development tax credits of $4.6 million and $2.8
million, respectively, which expire in various amounts through 2034. Our net operating loss and tax credit amounts are subject
to annual limitations under Section 382 change of ownership rules of the U.S. Internal Revenue Code of 1986, as amended. In 2013,
we completed an assessment to determine whether there may have been a Section 382 ownership change and determined that it is more
likely than not that our net operating and tax credit amounts as disclosed are not subject to any material Section 382 limitations.
In assessing our ability to utilize our
net deferred tax assets, we considered whether it is more likely than not that some portion or all of our net deferred tax assets
will not be realized. Based upon the level of our historical U.S. losses and future projections over the period in which the net
deferred tax assets are deductible, at this time, we believe it is more likely than not that we will not realize the benefits of
these deductible differences. Accordingly, we have provided a valuation allowance against our net deferred tax assets as of June
30, 2015 and December 31, 2014.
Contractual Obligations and Commitments
Our principal commitments consist primarily
of obligations under our leases for our office space and contractual commitments for capital leases and equipment financing as
well as hosting and other support services. Other than these lease obligations and contractual commitments, we do not have commercial
commitments under lines of credit, standby repurchase obligations or other such debt arrangements.
Our contractual obligations as of December
31, 2014 are summarized in our Annual Report on Form 10-K for the year ended December 31, 2014. In addition to the obligations
outlined in our Annual Report on Form 10-K, we had $736,000 of capital lease obligations and $1.3 million of equipment financing
obligations as of June 30, 2015.
Recent Accounting Pronouncements
For information on recent accounting pronouncements,
see Recently Issued and Adopted Accounting Standards in the notes to the condensed consolidated financial statements appearing
elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any special purpose entities
or off-balance sheet arrangements.
Anticipated Cash Flows
We expect to incur significant operating
costs, particularly related to services delivery costs, sales and marketing and research and development, for the foreseeable future
in order to execute our business plan. We anticipate that such operating costs, as well as planned capital expenditures will constitute
a material use of our cash resources. As a result, our net cash flows will depend heavily on the level of future sales, changes
in deferred revenue and our ability to manage infrastructure costs.
We believe our existing cash and cash equivalents
will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. Our future working capital
requirements will depend on many factors, including the rate of our revenue growth, our introduction of new products and enhancements,
and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents,
short and long-term investments and cash flow from operating activities are insufficient to fund our future activities, we may
need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need
to raise additional funds in the event we determine in the future to acquire businesses, technologies and products that will complement
our existing operations. In the event funding is required, we may not be able to obtain bank credit arrangements or equity or debt
financing on terms acceptable to us or at all.
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Quantitative and Qualitative Disclosures about Market Risk
We have operations both within the United
States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily
foreign exchange risks, interest rate and inflation.
Financial instruments
Financial instruments meeting fair value
disclosure requirements consist of cash equivalents, accounts receivable and accounts payable. The fair value of these financial
instruments approximates their carrying amount.
Foreign currency exchange risk
Our results of operations 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. Except for revenue transactions in Japan, we enter into transactions directly with substantially
all of our foreign customers.
Percentage of revenues and expenses in
foreign currency is as follows:
| |
Three Months Ended June 30, | |
| |
2015 | | |
2014 | |
Revenues generated in locations outside the United States | |
| 40 | % | |
| 44 | % |
Revenues in currencies other than the United States dollar (1) | |
| 27 | % | |
| 32 | % |
Expenses in currencies other than the United States dollar (1) | |
| 15 | % | |
| 15 | % |
| |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | |
Revenues generated in locations outside the United States | |
| 41 | % | |
| 46 | % |
Revenues in currencies other than the United States dollar (1) | |
| 27 | % | |
| 33 | % |
Expenses in currencies other than the United States dollar (1) | |
| 14 | % | |
| 15 | % |
|
(1) |
Percentage of revenues and expenses denominated in foreign currency for the three and six months ended June 30, 2015 and 2014: |
| |
Three Months Ended June 30, 2015 | | |
Three Months Ended June 30, 2014 | |
| |
Revenues | | |
Expenses | | |
Revenues | | |
Expenses | |
Euro | |
| 7 | % | |
| 2 | % | |
| 13 | % | |
| 2 | % |
British pound | |
| 9 | | |
| 5 | | |
| 8 | | |
| 7 | |
Japanese Yen | |
| 6 | | |
| 3 | | |
| 6 | | |
| 3 | |
Other | |
| 5 | | |
| 5 | | |
| 5 | | |
| 3 | |
Total | |
| 27 | % | |
| 15 | % | |
| 32 | % | |
| 15 | % |
| |
Six Months Ended June 30, 2015 | | |
Six Months Ended June 30, 2014 | |
| |
Revenues | | |
Expenses | | |
Revenues | | |
Expenses | |
Euro | |
| 7 | % | |
| 2 | % | |
| 14 | % | |
| 2 | % |
British pound | |
| 9 | | |
| 6 | | |
| 8 | | |
| 7 | |
Japanese Yen | |
| 6 | | |
| 3 | | |
| 6 | | |
| 3 | |
Other | |
| 5 | | |
| 3 | | |
| 5 | | |
| 3 | |
Total | |
| 27 | % | |
| 14 | % | |
| 33 | % | |
| 15 | % |
As of June 30, 2015 and December 31, 2014,
we had $5.5 million and $6.9 million, respectively, of receivables denominated in currencies other than the U.S. dollar. We also
maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements.
In addition, although our foreign subsidiaries
have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations.
Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under
“other income (expense), net”, while exchange rate fluctuations on long-term intercompany accounts are recorded in
our consolidated balance sheets under “accumulated other comprehensive income” in stockholders’ equity, as they
are considered part of our net investment and hence do not give rise to gains or losses.
Currently, our largest foreign currency
exposures are the euro and British pound, primarily because our European operations have a higher proportion of our local currency
denominated expenses. Relative to foreign currency exposures existing at June 30, 2015, a 10% unfavorable movement in foreign currency
exchange rates would expose us to significant losses in earnings or cash flows or significantly diminish the fair value of our
foreign currency financial instruments. For the six months ended June 30, 2015, we estimated that a 10% unfavorable movement in
foreign currency exchange rates would have decreased revenues by $1.8 million, decreased expenses by $1.0 million and decreased
operating income by $797,000. The estimates used assume that all currencies move in the same direction at the same time and the
ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from
current levels. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates,
the impact to revenue of a change in foreign currency exchange rates is recognized over time, and the impact to expenses is more
immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is incurred.
All of the potential changes noted above are based on sensitivity analyses performed on our financial results as of June 30, 2015
and 2014.
Interest rate risk
We had unrestricted cash and cash equivalents
totaling $21.2 million at June 30, 2015. Cash and cash equivalents were invested primarily in money market funds and are held for
working capital purposes. We do not use derivative financial instruments in our investment portfolio. Declines in interest rates,
however, would reduce future interest income. We incurred $24,000 and $40,000 of interest expense during the three and six months
ended June 30, 2015, respectively, related to interest paid on capital leases and our equipment financing. While we continue to
incur interest expense in connection with our capital leases and equipment financing, the interest expense is fixed and not subject
to changes in market interest rates. In the event that we borrow under our line of credit, which bears interest at the prime rate
plus 0.25%, the related interest expense recorded would be subject to changes in the prime rate of interest.
Inflation risk
We do not believe that inflation has had
a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant
inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure
to do so could harm our business, financial condition and results of operations.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of June 30, 2015, our management, with
the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2015, our disclosure controls and procedures
were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, including ensuring that such material information is accumulated by and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control
over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange
Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
On August 27, 2012, a complaint was filed
by Blue Spike, LLC naming us in a patent infringement case (Blue Spike, LLC v. Audible Magic Corporation, et al., United States
District Court for the Eastern District of Texas). The complaint alleges that we have infringed U.S. Patent No. 7,346,472 with
a listed issue date of March 18, 2008, entitled “Method and Device for Monitoring and Analyzing Signals,” U.S. Patent
No. 7,660,700 with a listed issue date of February 9, 2010, entitled “Method and Device for Monitoring and Analyzing Signals,”
U.S. Patent No. 7,949,494 with a listed issue date of May 24, 2011, entitled “Method and Device for Monitoring and Analyzing
Signals” and U.S. Patent No. 8,214,175 with a listed issue date of July 3, 2012, entitled “Method and Device for Monitoring
and Analyzing Signals.” The complaint seeks an injunction enjoining infringement, damages and pre- and post-judgment costs
and interest. We answered and filed counterclaims against Blue Spike on December 3, 2012. We amended our answer and counterclaims
on July 15, 2013. This complaint is subject to indemnification by one of our vendors. We cannot yet determine whether it is probable
that a loss will be incurred in connection with this complaint, nor can we reasonably estimate the potential loss, if any.
In addition, we are, from time to time,
party to litigation arising in the ordinary course of our business. Management does not believe that the outcome of these claims
will have a material adverse effect on our consolidated financial position, results of operations or cash flows based on the status
of proceedings at this time.
You should carefully consider the risks
described in our annual report on Form 10-K for the fiscal year ended December 31, 2014, under the heading “Part I — Item
1A. Risk Factors”, together with all of the other information in this Quarterly Report on Form 10-Q. Our business, prospects,
financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to
us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition
or operating results could differ materially from the plans, projections and other forward-looking statements included in the section
titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere
in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks,
and, as a result, you may lose all or part of your investment.
Our policy governing transactions in our
securities by directors, officers and employees permits our officers, directors and certain other persons to enter into trading
plans complying with Rule 10b5-1 under the Exchange Act. We have been advised that our Chairman, Jeremy Allaire, and our Chief
Executive Officer, David Mendels have each entered into a trading plan in accordance with Rule 10b5-1 and our policy governing
transactions in our securities. Generally, under these trading plans, the individual relinquishes control over the transactions
once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before,
simultaneously with, or immediately after significant events involving our company.
We anticipate that, as permitted by Rule
10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish
trading plans in the future. We intend to disclose the names of executive officers and directors who establish a trading plan in
compliance with Rule 10b5-1 and the requirements of our policy governing transactions in our securities in our future quarterly
and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. However, we undertake no obligation
to update or revise the information provided herein, including for revision or termination of an established trading plan.
Exhibits |
|
|
3.1(1) |
|
Eleventh Amended and Restated Certificate of Incorporation. |
3.2(2) |
|
Amended and Restated By-Laws. |
4.1(3) |
|
Form of Common Stock certificate of the Registrant. |
10.1** |
|
Letter Agreement between the Registrant and Paul Goetz related to Mr. Goetz’s resignation and separation from employment with the Registrant. |
31.1^ |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2^ |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1^ |
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
|
XBRL Instance Document. |
101.SCH |
|
XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
(1) |
Filed as Exhibit 3.2 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference. |
(2) |
Filed as Exhibit 3.3 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference. |
(3) |
Filed as Exhibit 4.1 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference. |
^ |
Furnished herewith. |
** |
Indicates a management contract or any compensatory plan, contract or arrangement |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
BRIGHTCOVE INC. |
|
|
(Registrant) |
|
|
|
Date: July 30, 2015 |
|
By: |
|
|
/s/ David Mendels |
|
|
|
|
|
David Mendels |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
Date: July 30, 2015 |
|
By: |
|
|
/s/ Kevin R. Rhodes |
|
|
|
|
|
Kevin R. Rhodes |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 10.1
![](tlogo.jpg)
July 9, 2015
Paul Goetz
12 West End Ave
Westborough, MA 01581
Separation Notice and Agreement
Dear Paul:
This letter confirms the terms of your separation from employment
with Brightcove Inc. (“Brightcove” or the “Company”). It also provides you with answers to
certain questions you may have about your benefits. Finally, it also describes a proposed agreement between you, Paul Goetz
(hereinafter, “you” or “Employee”), and the Company.
1. Termination
of Employment.
Subject to your agreement to the provisions
of Section 4, your employment with the Company shall terminate effective July 31, 2015 (the “Separation Date”).
You agree to perform your current job responsibilities in a professional, diligent and workmanlike manner through the Separation
Date and you shall continue to receive your salary and all benefits for which you have enrolled through the Separation Date. From
and after the Separation Date, you shall no longer be an employee of the Company, you shall have no authority to act for or on
behalf of Brightcove and, except as described below, you shall not have any additional duties or responsibilities, provided that
you agree to be generally available to respond to questions from the Company and/or for other transition-related items. Except
as described in this letter, following the Separation Date, the Company shall not be required to pay you any further compensation,
whether in the form of salary, bonus, commission, or otherwise. Except as set forth in this letter, you shall not be entitled to
any benefits.
2. Final
Paycheck, Reimbursements, Sales Incentive Plan.
Upon your Separation Date, you will receive
one check in the amount of $12,500, less applicable withholdings, representing payment of your salary through the Separation Date.
The Company shall also reimburse you for any outstanding, reasonable business expenses that you have incurred on the Company’s
behalf through the Separation Date, after the Company’s timely receipt of appropriate documentation pursuant to the Company’s
business expense reimbursement policy. In addition, within thirty (30) days following your Sepration Date, you will receive a check
representing payment for all amounts you have earned pursuant to the applicable terms of the Company’s Sales Incentive Plan
for Q2 2015.
3. Benefits.
You have the right to continue certain health
insurance benefits under the Company’s group health plan at your own expense after the Separation Date under the law known
as “COBRA.” You and/or your dependents are entitled to elect COBRA coverage (usually for up to 18 months or more) under
your existing plan(s). We will send to you a package describing your rights under COBRA in more detail, which will include forms
for you to complete to enroll in COBRA.
Paul Goetz
July 9, 2015
Page 2
4. Separation
Payment.
This Section 4 proposes an agreement (the “Agreement”)
between you and the Company. The purpose of this Agreement is to permit you to receive an additional payment in connection with
your separation from the Company, and to establish an amicable arrangement for ending your employment relationship, including releasing
the Company and related persons or entities from any claims. If you agree to the terms of this Agreement, you acknowledge that
you are entering into this Agreement voluntarily. It is common in employment separation agreements for the departing employee to
release the employer from any possible claims, even if the employer believes, as is the case here, that no such claims exist. The
specific terms of the release are set forth in Section 4(b). By entering into this Agreement, you understand that the Company is
not admitting in any way that it violated any legal obligation that it owed to you.
(a) Payment
Amount. With the understandings set forth in this Section 4, you and the Company agree that, subject to, in consideration of
and in exchange for the Company’s receipt of an executed and unrevoked copy of this Agreement, including specifically, among
other things, the release contained in Section 4(b), the Company shall provide you with the following benefits:
(i) The Company shall continue to
pay you your base salary at your final annual base salary rate of $300,000, less all legally required taxes and withholdings, for
a six (6) month period beginning as of the Separation Date (the “Continuation Period”). To avoid any doubt,
the last day of the salary Continuation Period shall be January 31, 2016;
(ii) The Company shall pay you, in
a lump sum within thirty (30) days following the Separation Date, the amount of $10,341.13, less applicable withholdings, which
reflects the equivalent of six (6) months of the Employer’s portion of COBRA payments grossed up;
(iii) For purposes of your Equity
Agreements, you shall cease having a “Business Relationship” (as defined in the Equity Agreements) with the Company
as of July 31, 2015. As set forth in your Equity Agreements, any stock options outstanding as of the Separation Date may be exercised,
to the extent exercisable on the Separation Date, for a period of three months from the Separation Date or until the Expiration
Date (as defined in the Equity Agreements), if earlier. For further clarification, the foregoing is for informaitonal purposes
and is not intended to alter, amend or add to your rights under the Equity Agreements.
(b) Release
of Any Claims. In consideration for, among other terms, the payment by the Company described in Section 4(a), to which
you acknowledge you would otherwise not be entitled, you voluntarily release and forever discharge the Company, its affiliated
and related entities, its and their respective predecessors, successors and assigns, its and their respective employee benefit
plans and fiduciaries of such plans, and the current and former officers, directors, shareholders, employees, attorneys, accountants
and agents of each of the foregoing in their official and personal capacities (collectively referred to as the “Releasees”)
generally from all claims, demands, debts, damages, causes of action, and liabilities of every name and nature, known or unknown
(“Claims”) that, as of the date you sign this Agreement, you have, ever had, now claim to have or ever claimed
to have had against any or all of the Releasees, specifically including any claim under the Age Discrimination in Employment
Act of 1967, as amended, or Chapter 151B of the Massachusetts General Laws, and also including, without limitation, all
Claims:
| · | relating to your employment by and termination of employment with the Company; |
Paul Goetz
July 9, 2015
Page 3
| · | of retaliation or discrimination under federal, state or local law (including, without limitation, Claims of age discrimination
or retaliation under the Age Discrimination in Employment Act, Claims of disability discrimination or retaliation under the Americans
with Disabilities Act, and Claims of discrimination or retaliation under Title VII of the Civil Rights Act of 1964); |
| · | under any other federal or state statute (including, without limitation, Claims under the Worker Adjustment and Retraining
Notification Act, the Family and Medical Leave Act, and the Fair Labor Standards Act); |
| · | of defamation or other torts; |
| · | of violation of public policy; |
| · | for wages, overtime pay, bonuses, incentive compensation, stock, stock options, restricted stock or other equity compensation,
vacation pay, holiday pay or any other compensation or benefits under federal, state or local law (including, without
limitation, the Massachusetts Wage Act, M.G.L. c. 149, § 148 et seq.) ; and |
| · | for damages or other remedies of any sort, including, without limitation, compensatory damages, punitive damages, injunctive
relief and attorney’s fees; |
provided, however, that: (i) this release shall not affect
your vested rights under the Company’s Section 401(k) plan or your rights under this Agreement; (ii) this release does
not limit your right to file, cooperate with or participate in an age discrimination proceeding before a state or federal Fair
Employment Practices Agency, provided that you waive any right to recover monetary benefits in such proceeding; and (iii) this
release does not apply to any claim that may arise out of actions, inactions or transactions that occur subsequent to the date
this Agreement is executed by both parties. You agree that you shall not seek or accept damages of any nature, other equitable
or legal remedies for your own benefit, attorney’s fees, or costs from any of the Releasees with respect to any Claim released
by this Agreement. As a material inducement to the Company to enter into this Agreement, you represent that you have not assigned
to any third party and you have not filed with any agency or court any Claim released by this Agreement. You further represent
that, upon receipt of the payments described in Section 2 above, you have been paid in full for any and all overtime pay, holiday
pay, vacation pay, bonuses, commissions and any and all other wages, compensation and/or benefits due to you from the Releasees.
5. Tax
Treatment.
The Company shall undertake to make deductions,
withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in
good faith determines that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement
shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require the Company
to make any payments to compensate you for any adverse tax effect associated with any payments or benefits or for any deduction
or withholding from any payment or benefit.
6. Return
of Property.
You confirm that you have returned to the Company
all Company property, including, without limitation, computer equipment, software, keys and access cards, credit cards, files and
any documents (including computerized data and any copies made of any computerized data or software) containing information concerning
the Company, its business or its business relationships (in the latter two cases, actual or prospective). You also commit to deleting
and finally purging any duplicates of files or documents that may contain Company information from any computer or other device
that remains your property after the Separation Date. In the event that you discover that you continue to retain any such property,
you shall return it to the Company immediately.
Paul Goetz
July 9, 2015
Page 4
7. Confidential
Information.
You understand and agree that you have been
employed in a position of confidence and trust and have had access to information concerning the Company that the Company treats
as confidential and the disclosure of which could negatively affect the Company’s interests (“Confidential Information”).
Confidential Information includes, without limitation, confidential financial information; business forecasts; inventions; improvements
and other intellectual property; trade secrets; know-how; designs, processes or formulae; confidential software; marketing or sales
information or plans; customer lists; and business plans, prospects and opportunities. You agree that you shall not use or disclose
any Confidential Information at any time without the written consent of the Company.
8. Confidentiality.
You agree to keep the existence and terms of
this Agreement (“Agreement-Related Information”) in the strictest confidence and not reveal, unless legally
compelled to do so, any Agreement-Related Information to any persons except your spouse, your attorney and your financial advisors,
and to them only provided that they first agree, for the benefit of the Company, to keep Agreement-Related Information confidential.
Nothing in this Section shall be construed to prevent you from disclosing Agreement-Related Information to the extent required
by a lawfully issued subpoena or duly issued court order; provided that you provide the Company with advance written notice
and a reasonable opportunity to contest such subpoena or court order.
Notwithstanding any other provision of this
Agreement to the contrary, the Employee may provide a copy of this Agreement to the Massachusetts Division of Unemployment Assistance
(“DUA”), or may utilize a copy of this Agreement in any proceeding relating to a claim for benefits with the
DUA.
9. Nondisparagement.
(a) You agree not to make any disparaging statements
concerning the Company or any of its affiliates or current or former officers, directors, shareholders, employees or agents. You
further agree not to take any actions or conduct yourself in any way that would reasonably be expected to affect adversely the
reputation or goodwill of the Company or any of its affiliates or any of its current or former officers, directors, shareholders,
employees or agents.
(b) The Company agrees not to make any disparaging
statements concerning you and will not knowingly take actions which would reasonably be expected to adversely affect your reputation.
Notwithstanding anything to the contrary herein, however, nothing shall limit the Company’s right to respond truthfully to
questions asked of it or its executives.
10. Outside
Inquiries.
The Company agrees that any inquiry from any
person as to the Employee’s status, position, and/or employment relationship or employment history with the Company shall
be referred to the Company’s Vice President, Human Resources (“VP”) or General Counsel (“General
Counsel”). The VP or General Counsel shall respond to such inquiry, other than inquiries seeking a job reference for
the Employee, by informing the inquirer of the Employee’s dates of employment and the job titles held, and that Company policy
precludes the provision of any further information to the inquirer. The VP or General Counsel shall make no other comments and
shall provide no documents containing further information.
Paul Goetz
July 9, 2015
Page 5
11. Legal
Representation.
This Agreement is a legally binding document
and its signature will commit the parties to its terms. You acknowledge that you have been advised to discuss all aspects of this
Agreement with your attorney, that you have carefully read and fully understand all of the provisions of this Agreement and that
you are voluntarily entering into this Agreement.
12. Absence
of Reliance.
In signing this Agreement, you are not relying
upon any promises or representations made by anyone at or on behalf of the Company except as set forth in this Agreement.
13. Enforceability.
If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this Agreement) shall to any extent be declared illegal
or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion
or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
14. Waiver.
No waiver of any provision of this Agreement
shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance
of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.
15. Enforcement.
(a) Jurisdiction.
You and the Company hereby agree that the Superior Court of the Commonwealth of Massachusetts and the United States District Court
for the District of Massachusetts shall have the exclusive jurisdiction to consider any matters related to this Agreement, including,
without limitation, any claim for violation of this Agreement. With respect to any such court action, you (i) submit to the jurisdiction
of such courts, (ii) consent to service of process, provided there is actual notice to the Employee of any such court action, and
(iii) waive any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction.
(b) Relief.
You agree that it would be difficult to measure any harm caused to the Company that might result from any breach by you of your
promises set forth in any section of this agreement, and that in any event money damages would be an inadequate remedy for any
such breach. Accordingly, you agree that if you breach, or propose to breach, any portion of your obligations, the Company shall
be entitled, in addition to all other remedies it may have, to an injunction or other appropriate equitable relief to restrain
any such breach, without showing or proving any actual damage to the Company and without the necessity of posting a bond. In the
event that the Company prevails in any action to enforce any section of this Agreement, then you also shall be liable to the Company
for attorney’s fees and costs incurred by the Company in enforcing such provision(s).
Paul Goetz
July 9, 2015
Page 6
16. Governing
Law; Interpretation.
This Agreement shall be interpreted and enforced
under the laws of the Commonwealth of Massachusetts, without regard to conflict of law principles. In the event of any dispute,
this Agreement is intended by the parties to be construed as a whole, to be interpreted in accordance with its fair meaning, and
not to be construed strictly for or against either you or the Company or the “drafter” of all or any portion of this
Agreement.
17. Entire
Agreement.
This Agreement, the Employee’s Nondisclosure
and Developments Agreement dated as of March 3, 2010, and the Employee’s Equity Agreements as referenced in Appendix A, constitute
the entire agreement between you and the Company with respect to the subject matter hereof and thereof and shall supersede any
previous agreements or understandings between you and the Company. You specifically agree and acknowledge that your Employment
Agreement, dated October 1, 2014, between you and the Company, is superseded hereby, terminated, and of no further force or effect,
and that no further obligations thereunder are owed to you by the Company under or in conneciton with your Eemployment Agreement.
18. Counterparts.
This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be taken to be an original, but all of which together shall
constitute one and the same document.
19. Time
for Consideration; Effective Date.
You understand that you have been given the
opportunity, if so desired, to consider this Separation Notice and Agreement for up to twenty-one (21) days before deciding whether
to sign it. If you signed this Separation Notice and Agreement before the expiration of that twenty-one (21) day period, you acknowledge
that such decision was entirely voluntary and that you had the opportunity to consider this agreement for the entire twenty-one
(21) day period. For a period of seven (7) days from the date of the execution of this Separation Notice and Agreement, you will
retain the right to revoke this Agreement by written notice received by the undersigned before the expiration of such period, and
you understand that this Separation Notice and Agreement shall not become effective or enforceable until the expiration of such
revocation period (the “Effective Date”). If you violate any of the provisions of this Separation Notice and
Agreement during the time that you are considering it or may revoke it, this offer will be null and void.
[Remainder of Page Intentionally Left Blank]
Paul Goetz
July 9, 2015
Page 7
Please indicate your agreement to the terms of this Agreement by
signing and returning to me the original of this letter.
Very truly yours,
BRIGHTCOVE INC. |
|
|
|
|
By: |
/s/ Kevin Rhodes |
|
Name: |
Kevin Rhodes |
|
|
|
|
Date: |
7/10/15 |
|
You are advised to consult with an attorney before signing this
Agreement. The foregoing is agreed to and accepted by:
By: |
/s/ Paul Goetz |
|
Name: |
Paul Goetz |
|
|
|
|
Date: |
7/10/15 |
|
Paul Goetz
July 9, 2015
Page 8
Exhibit A
| · | Incentive Stock Option Agreement dated May 14, 2010 |
| · | Non-Qualified Stock Option Agreement dated May 8, 2012 |
| · | Incentive Stock Option Agreement dated May 8, 2012 |
| · | Restricted Stock Unit Agreement dated May 8, 2012 |
| · | Restricted Stock Unit Agreement dated November 16, 2012 |
| · | Restricted Stock Unit Agreement dated February 5, 2013 |
| · | Incentive Stock Option Agreement dated February 4, 2014 |
| · | Restricted Stock Unit Agreement dated July 29, 2014 |
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)
OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, David Mendels, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Brightcove Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 30, 2015 |
|
By: |
|
|
|
|
|
/s/ David Mendels |
|
|
|
|
|
David Mendels |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)
OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Kevin R. Rhodes, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Brightcove Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 30, 2015 |
|
By: |
|
|
/s/ Kevin R. Rhodes |
|
|
|
|
|
Kevin R. Rhodes |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report
on Form 10-Q of Brightcove Inc. for the quarterly period ended June 30, 2015 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), David Mendels, as Chief Executive Officer of Brightcove Inc., hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Brightcove Inc.
Date: July 30, 2015 |
|
By: |
|
|
/s/ David Mendels |
|
|
|
|
|
David Mendels |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
In connection with the Quarterly Report
on Form 10-Q of Brightcove Inc. for the quarterly period ended June 30, 2015 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), Kevin R. Rhodes, as Chief Financial Officer of Brightcove Inc., hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Brightcove Inc.
Date: July 30, 2015 |
|
By: |
|
|
/s/ Kevin R. Rhodes |
|
|
|
|
|
Kevin R. Rhodes |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
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