ITEM 1.
|
FINANCIAL STATEMENTS
|
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(in thousands, except share
and per share data)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,056
|
|
|
$
|
36,813
|
|
Accounts receivable, net of allowance of $134 and $154 at September 30, 2017 and
December 31, 2016, respectively
|
|
|
26,296
|
|
|
|
21,575
|
|
Prepaid expenses
|
|
|
4,174
|
|
|
|
3,729
|
|
Other current assets
|
|
|
2,938
|
|
|
|
2,168
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
55,464
|
|
|
|
64,285
|
|
Property and equipment, net
|
|
|
9,005
|
|
|
|
9,264
|
|
Intangible assets, net
|
|
|
8,910
|
|
|
|
10,970
|
|
Goodwill
|
|
|
50,776
|
|
|
|
50,776
|
|
Deferred tax asset
|
|
|
123
|
|
|
|
121
|
|
Other assets
|
|
|
931
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,209
|
|
|
$
|
136,424
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,635
|
|
|
$
|
5,327
|
|
Accrued expenses
|
|
|
13,319
|
|
|
|
15,705
|
|
Capital lease liability
|
|
|
334
|
|
|
|
489
|
|
Equipment financing
|
|
|
104
|
|
|
|
307
|
|
Deferred revenue
|
|
|
37,376
|
|
|
|
34,665
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
57,768
|
|
|
|
56,493
|
|
Deferred revenue, net of current portion
|
|
|
166
|
|
|
|
91
|
|
Other liabilities
|
|
|
1,253
|
|
|
|
1,644
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
59,187
|
|
|
|
58,228
|
|
Commitments and contingencies
(Note 9)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares
issued
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 34,757,289 and 34,143,148 shares
issued at September 30, 2017 and December 31, 2016, respectively
|
|
|
35
|
|
|
|
34
|
|
Additional
paid-in
capital
|
|
|
236,628
|
|
|
|
230,788
|
|
Treasury stock, at cost; 135,000 shares
|
|
|
(871
|
)
|
|
|
(871
|
)
|
Accumulated other comprehensive loss
|
|
|
(843
|
)
|
|
|
(1,172
|
)
|
Accumulated deficit
|
|
|
(168,927
|
)
|
|
|
(150,583
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
66,022
|
|
|
|
78,196
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
125,209
|
|
|
$
|
136,424
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Brightcove Inc.
Condensed Consolidated Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except share and per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support revenue
|
|
$
|
36,496
|
|
|
$
|
36,203
|
|
|
$
|
106,266
|
|
|
$
|
105,936
|
|
Professional services and other revenue
|
|
|
2,991
|
|
|
|
2,186
|
|
|
|
9,546
|
|
|
|
5,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
39,487
|
|
|
|
38,389
|
|
|
|
115,812
|
|
|
|
111,641
|
|
Cost of revenue: (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription and support revenue
|
|
|
12,924
|
|
|
|
11,691
|
|
|
|
38,180
|
|
|
|
35,041
|
|
Cost of professional services and other revenue
|
|
|
3,580
|
|
|
|
2,086
|
|
|
|
10,120
|
|
|
|
5,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
16,504
|
|
|
|
13,777
|
|
|
|
48,300
|
|
|
|
40,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,983
|
|
|
|
24,612
|
|
|
|
67,512
|
|
|
|
71,147
|
|
Operating expenses: (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
7,820
|
|
|
|
7,704
|
|
|
|
24,293
|
|
|
|
22,385
|
|
Sales and marketing
|
|
|
14,551
|
|
|
|
13,334
|
|
|
|
44,356
|
|
|
|
39,845
|
|
General and administrative
|
|
|
5,961
|
|
|
|
5,126
|
|
|
|
17,228
|
|
|
|
14,190
|
|
Merger-related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,332
|
|
|
|
26,164
|
|
|
|
85,877
|
|
|
|
76,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,349
|
)
|
|
|
(1,552
|
)
|
|
|
(18,365
|
)
|
|
|
(5,294
|
)
|
Other income (expense), net
|
|
|
71
|
|
|
|
(5
|
)
|
|
|
523
|
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(5,278
|
)
|
|
|
(1,557
|
)
|
|
|
(17,842
|
)
|
|
|
(5,421
|
)
|
Provision for income taxes
|
|
|
118
|
|
|
|
61
|
|
|
|
305
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,396
|
)
|
|
$
|
(1,618
|
)
|
|
$
|
(18,147
|
)
|
|
$
|
(5,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares used in computing net loss per share
|
|
|
34,500,868
|
|
|
|
33,345,161
|
|
|
|
34,269,639
|
|
|
|
32,956,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Stock-based compensation included in above line items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription and support revenue
|
|
$
|
117
|
|
|
$
|
94
|
|
|
$
|
308
|
|
|
$
|
204
|
|
Cost of professional services and other revenue
|
|
|
70
|
|
|
|
69
|
|
|
|
189
|
|
|
|
158
|
|
Research and development
|
|
|
384
|
|
|
|
372
|
|
|
|
1,132
|
|
|
|
942
|
|
Sales and marketing
|
|
|
690
|
|
|
|
651
|
|
|
|
1,953
|
|
|
|
1,630
|
|
General and administrative
|
|
|
557
|
|
|
|
495
|
|
|
|
1,712
|
|
|
|
1,331
|
|
(2) Amortization of acquired intangible assets included in above line
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription and support revenue
|
|
$
|
508
|
|
|
$
|
507
|
|
|
$
|
1,523
|
|
|
$
|
1,523
|
|
Research and development
|
|
|
|
|
|
|
32
|
|
|
|
11
|
|
|
|
95
|
|
Sales and marketing
|
|
|
166
|
|
|
|
245
|
|
|
|
525
|
|
|
|
715
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Brightcove Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(5,396
|
)
|
|
$
|
(1,618
|
)
|
|
$
|
(18,147
|
)
|
|
$
|
(5,623
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
72
|
|
|
|
(13
|
)
|
|
|
329
|
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(5,324
|
)
|
|
$
|
(1,631
|
)
|
|
$
|
(17,818
|
)
|
|
$
|
(5,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,147
|
)
|
|
$
|
(5,623
|
)
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,607
|
|
|
|
5,901
|
|
Stock-based compensation
|
|
|
5,294
|
|
|
|
4,265
|
|
Provision for reserves on accounts receivable
|
|
|
152
|
|
|
|
233
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,816
|
)
|
|
|
(1,441
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,660
|
)
|
|
|
(1,720
|
)
|
Other assets
|
|
|
94
|
|
|
|
(200
|
)
|
Accounts payable
|
|
|
2,021
|
|
|
|
(17
|
)
|
Accrued expenses
|
|
|
(2,874
|
)
|
|
|
1,953
|
|
Deferred revenue
|
|
|
2,677
|
|
|
|
4,278
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(11,652
|
)
|
|
|
7,629
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Cash paid for purchase of intangible asset
|
|
|
|
|
|
|
(300
|
)
|
Purchases of property and equipment, net of returns
|
|
|
(990
|
)
|
|
|
(1,194
|
)
|
Capitalized
internal-use
software costs
|
|
|
(2,091
|
)
|
|
|
(2,940
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,081
|
)
|
|
|
(4,434
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
379
|
|
|
|
4,392
|
|
Payments of withholding tax on RSU vesting
|
|
|
(175
|
)
|
|
|
(216
|
)
|
Proceeds from equipment financing
|
|
|
|
|
|
|
604
|
|
Payments on equipment financing
|
|
|
(229
|
)
|
|
|
(196
|
)
|
Payments under capital lease obligation
|
|
|
(383
|
)
|
|
|
(682
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(408
|
)
|
|
|
3,902
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
384
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(14,757
|
)
|
|
|
7,555
|
|
Cash and cash equivalents at beginning of period
|
|
|
36,813
|
|
|
|
27,637
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
22,056
|
|
|
$
|
35,192
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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
September 30, 2017, 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 Managements Discussion and Analysis of Financial Condition and Results of Operations, contained in the Companys Annual
Report on Form
10-K
for the year ended December 31, 2016.
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, 2016 contained in the Companys Annual Report on Form
10-K
and include
all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Companys financial position for the three and nine months ended September 30, 2017 and 2016. 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 September 30, 2017, the Companys significant accounting policies and estimates, which are
detailed in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016, have not changed, except for the adoption of Accounting Standards Update (ASU)
No. 2016-09,
Compensation Stock Compensation
, which is discussed further in Note 7.
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 Companys accounts receivable.
At September 30, 2017 and December 31, 2016, no individual customer accounted for 10% or more of net accounts receivable. For the
three and nine months ended September 30, 2017 and 2016, no individual customer accounted for 10% or more of total revenue.
7
3. Concentration of Other Risks
The Company is dependent on certain content delivery network providers who provide digital media delivery functionality enabling the
Companys
on-demand
application service to function as intended for the Companys customers and ultimate
end-users.
The disruption of these services could have
a material adverse effect on the Companys 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. Management determines the appropriate classification of investments at the time of purchase, and
re-evaluates
such determination at each balance sheet date. The Company did not have any short-term
or long-term investments at September 30, 2017 or December 31, 2016.
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 September 30, 2017 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Description
|
|
Contracted
Maturity
|
|
|
Amortized
Cost
|
|
|
Fair Market
Value
|
|
|
Balance Per
Balance Sheet
|
|
Cash
|
|
|
Demand
|
|
|
$
|
13,916
|
|
|
$
|
13,916
|
|
|
$
|
13,916
|
|
Money market funds
|
|
|
Demand
|
|
|
|
8,140
|
|
|
|
8,140
|
|
|
|
8,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
|
|
|
$
|
22,056
|
|
|
$
|
22,056
|
|
|
$
|
22,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of December 31, 2016 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Description
|
|
Contracted
Maturity
|
|
Amortized
Cost
|
|
|
Fair Market
Value
|
|
|
Balance Per
Balance Sheet
|
|
Cash
|
|
Demand
|
|
$
|
23,942
|
|
|
$
|
23,942
|
|
|
$
|
23,942
|
|
Money market funds
|
|
Demand
|
|
|
12,871
|
|
|
|
12,871
|
|
|
|
12,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
|
$
|
36,813
|
|
|
$
|
36,813
|
|
|
$
|
36,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Options outstanding
|
|
|
4,106
|
|
|
|
4,152
|
|
|
|
4,134
|
|
|
|
4,419
|
|
Restricted stock units outstanding
|
|
|
2,111
|
|
|
|
1,752
|
|
|
|
1,945
|
|
|
|
1,604
|
|
Warrants
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
26
|
|
8
6. Fair Value of Financial Instruments
The following tables set forth the Companys financial instruments carried at fair value using the lowest level of input as of
September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
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
|
|
$
|
8,140
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,140
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
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
|
|
$
|
12,871
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,871
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Expected life in years
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
6.1
|
|
|
|
6.1
|
|
Risk-free interest rate
|
|
|
2.11
|
%
|
|
|
1.35
|
%
|
|
|
2.08
|
%
|
|
|
1.41
|
%
|
Volatility
|
|
|
42
|
%
|
|
|
45
|
%
|
|
|
42
|
%
|
|
|
45
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of stock options granted
|
|
$
|
3.03
|
|
|
$
|
4.98
|
|
|
$
|
3.07
|
|
|
$
|
4.17
|
|
9
The Company recorded stock-based compensation expense of $1,818 and $1,681 for the three months
ended September 30, 2017 and 2016, respectively, and $5,294 and $4,265 for the nine months ended September 30, 2017 and 2016, respectively. In July 2017, the Company entered into a separation agreement with its former Chief Executive
Officer (CEO), which accelerated the vesting schedule of certain existing stock-based awards held by the CEO. The incremental stock-based compensation expense as a result of the modification of these stock-based awards was $186 for the
three months ended September 30, 2017. Further, the vesting schedule of certain other stock-based awards held by the CEO accelerates upon a change in control of the Company on or prior to December 31, 2017, which would result in an
additional $220 of stock-based compensation expense upon such change in control. As of September 30, 2017, there was $20,389 of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a
weighted-average period of 2.26 years.
On January 1, 2017, the Company adopted ASU
No. 2016-09.
ASU
2016-09
identifies areas for simplification involving several aspects of accounting for share based payments, including income tax consequences,
classification of awards as either equity or liabilities, an option to make a policy election to recognize gross share based compensation expense with actual forfeitures recognized as they occur as well as certain classification changes on the
statement of cash flows. In connection with the adoption of this standard, the Company changed its accounting policy to record actual forfeitures as they occur, rather than estimating forfeitures by applying a forfeiture rate. As this policy change
was applied prospectively, prior periods have not been adjusted. The Company recorded a cumulative effect adjustment in the three months ended March 31, 2017, which increased accumulated deficit and additional
paid-in-capital
by $197.
The following is a summary of the status of the Companys stock
options as of September 30, 2017 and the stock option activity during the nine months ended September 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (In Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding at December 31, 2016
|
|
|
4,150,584
|
|
|
$
|
7.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
472,727
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(198,555
|
)
|
|
|
1.91
|
|
|
|
|
|
|
$
|
1,159
|
|
Canceled
|
|
|
(270,498
|
)
|
|
|
8.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
4,154,258
|
|
|
$
|
7.32
|
|
|
|
6.48
|
|
|
$
|
4,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
2,275,052
|
|
|
$
|
7.22
|
|
|
|
4.93
|
|
|
$
|
3,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Companys common stock on September 30, 2017 of $7.20 per share, or the date of exercise, as
appropriate, and the exercise price of the underlying options.
|
The following table summarizes the restricted stock unit
activity during the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Unvested by December 31, 2016
|
|
|
1,902,577
|
|
|
$
|
7.84
|
|
Granted
|
|
|
1,154,473
|
|
|
|
6.91
|
|
Vested and issued
|
|
|
(415,586
|
)
|
|
|
7.64
|
|
Canceled
|
|
|
(229,030
|
)
|
|
|
8.02
|
|
|
|
|
|
|
|
|
|
|
Unvested by September 30, 2017
|
|
|
2,412,434
|
|
|
$
|
7.40
|
|
|
|
|
|
|
|
|
|
|
8. Income Taxes
For the three months ended September 30, 2017 and 2016, the Company recorded income tax expense of $118 and $61, respectively. For the
nine months ended September 30, 2017 and 2016, the Company recorded income tax expense of $305 and $202, respectively. The income tax expense relates principally to the Companys 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 Accounting Standards Codification (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 September 30, 2017 and
10
December 31, 2016. Based on the level of historical income in Japan and future projections, the Company believes it is probable it will realize the benefits of its future deductible
differences. As such, the Company has not recorded a valuation allowance against its net deferred tax assets in Japan as of September 30, 2017 and December 31, 2016. The Companys income tax return reporting periods since
December 31, 2012 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
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 May 22, 2017, a lawsuit was filed against Brightcove and two individuals by Ooyala, Inc. (Ooyala) and Ooyala Mexico S. de
R.L. de C.V. (Ooyala Mexico). The lawsuit, which was filed in the United States District Court for the District of Massachusetts, concerns allegations that the two individuals, who are former employees of Ooyala Mexico, misappropriated
customer information and other trade secrets and used that information in working for Brightcove. The complaint was amended on June 1, 2017 to remove claims against the two former employees of Ooyala Mexico. The remaining claims against
Brightcove are for violation of the Defend Trade Secrets Act of 2016 (18 U.S.C. §1836), violation of the Massachusetts trade secret statute (M.G.L. c. 93, §42), violation of Massachusetts Chapter 93A (M.G.L. c. 93A, §11), and tortious
interference with advantageous business relationships. Ooyala and Ooyala Mexico also filed a motion for preliminary injunction (amended at the same time the complaint was amended), seeking to enjoin Brightcove from using any of the allegedly
misappropriated information or communicating with customers whose information was allegedly taken, and seeking the return of any information that was taken. On June 16, 2017, Brightcove filed an opposition to the motion for preliminary
injunction, and also moved to dismiss the lawsuit. Brightcoves motion to dismiss was denied on September 6, 2017. The court has not ruled on Ooyalas motion for preliminary injunction. On October 18, 2017, the court granted the
parties motion to stay the litigation, and the litigation is currently stayed. 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 Companys customers, in connection with patent, copyright, trade secret, or other intellectual property or personal
right infringement claim by third parties with respect to the Companys technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. Based on when customers first subscribe for the
Companys 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 September 30, 2017, 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 Companys 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 November 19, 2015, the
Company entered into an amended and restated loan and security agreement with a lender (the Loan Agreement) providing for up to a $20.0 million asset based line of credit (the Line of Credit). Under the Line of Credit,
the Company can borrow up to $20.0 million. Borrowings under the Line of Credit are secured by substantially all of the Companys assets, excluding our intellectual property. Outstanding amounts under the Line of Credit accrue interest at
a rate equal to the prime rate or the LIBOR rate plus 2.5%. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at
least $15.0 million, the Company must also maintain a minimum net income threshold based on
non-GAAP
operating measures. Failure to comply with these
11
covenants, or the occurrence of an event of default, could permit the lender 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. The Company was in compliance with all covenants under the Line of Credit as of September 30, 2017. As the Company has not drawn on the Line of Credit, there are no amounts outstanding as of
September 30, 2017.
On December 31, 2015, the Company entered into an equipment financing agreement with a lender (the
December 2015 Equipment Financing Agreement) to finance the purchase of $604 in computer equipment. In February 2016, the Company drew down $604 under the December 2015 Equipment Financing Agreement, and the liability was recorded at
fair value using a market interest rate. The Company is repaying its obligation over a two year period through January 2018, and the amount outstanding was $104 as of September 30, 2017.
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
22,726
|
|
|
$
|
23,246
|
|
|
$
|
68,205
|
|
|
$
|
68,913
|
|
Europe
|
|
|
6,097
|
|
|
|
6,412
|
|
|
|
18,177
|
|
|
|
18,843
|
|
Japan
|
|
|
4,129
|
|
|
|
4,243
|
|
|
|
12,416
|
|
|
|
11,447
|
|
Asia Pacific
|
|
|
6,363
|
|
|
|
4,136
|
|
|
|
16,490
|
|
|
|
11,495
|
|
Other
|
|
|
172
|
|
|
|
352
|
|
|
|
524
|
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
39,487
|
|
|
$
|
38,389
|
|
|
$
|
115,812
|
|
|
$
|
111,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers
located in the United States was $21,131 and $21,793 during the three months ended September 30, 2017 and 2016, respectively, and $63,744 and $64,615 during the nine months ended September 30, 2017 and 2016, respectively. Other than the
United States and Japan, no other country contributed more than 10% of the Companys total revenue during the three and nine months ended September 30, 2017 and 2016.
As of September 30, 2017 and December 31, 2016, 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) issued ASU
No. 2014-09,
Revenue
from Contracts with Customers (Topic 606)
(ASU
2014-09),
which modifies how all entities recognize revenue, and consolidates into one ASC Topic (ASC Topic 606,
Revenue from Contracts with
Customers
) the current guidance found in ASC Topic 605
,
and various other revenue accounting standards for specialized transactions and industries. ASU
2014-09
outlines a comprehensive five-step
revenue recognition model based on the principle 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 or services. ASU
2014-09
may be applied using either a full retrospective approach, under which all years included in the financial statements will be presented under the revised
guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative
catch-up
adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity at the date of adoption.
In August 2015, the FASB issued ASU
2015-14,
Revenue from Contracts with Customers (Topic 606):
Deferral of Effective Date
, which defers the effective date of ASU
2014-09
by one year. ASU
2014-09
is now effective for annual reporting periods beginning after
December 15, 2017, including interim periods within those annual reporting periods. The Company has developed an implementation plan to adopt this new guidance. As part of this plan, the Company is currently assessing the impact of the new
guidance on its results of operations. Based on the Companys procedures performed to date, nothing has come to its attention that would indicate that the adoption of ASU
2014-09
will have a material
impact on its revenue recognition on cloud offerings; however, further analysis is required and the Company will continue to evaluate this assessment throughout 2017. While the Company is still evaluating the impact that this guidance will have on
its financial statements and related disclosures, the Companys preliminary assessment is that there will be an impact relating to the accounting for costs to acquire a contract. Under the standard, the Company will be required to capitalize
certain costs, primarily commission expense to sales representatives, on its consolidated balance sheet and amortize such costs over the period of performance for the underlying customer contracts. The Company is still evaluating the impact of
capitalizing costs to execute a contract.
12
The Company intends to adopt ASU
2014-09
on
January 1, 2018. The Company has elected to apply the modified retrospective method of adoption.
In February 2016, the FASB issued
ASU
2016-02,
Leases (Topic 842), Amendments to the FASB Accounting Standards Codification
, which replaces the existing guidance for leases. ASU
2016-02
requires
the identification of arrangements that should be accounted for as leases by lessees. In general, lease arrangements exceeding a twelve month term must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU
2016-02,
a
right-of-use
asset and lease obligation will be recorded for all leases, whether operating or financing, while the income
statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU
2016-02
must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU
2016-02
requires the use of the modified retrospective method, which will require adjustment to all
comparative periods presented in the consolidated financial statements. This guidance is effective for annual and interim periods beginning after December 15, 2018 and requires retrospective application. The Company is currently assessing the
impact that adopting ASU
2016-02
will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments
, which reduces the diversity in how certain transactions are classified in the statement of cash flows. ASU
2016-15
is effective for public companies for annual and
interim periods beginning after December 15, 2017. Early adoption is permitted. The guidance requires application using a retrospective transition method. The adoption of ASU
2016-15
is not expected to
have a material effect on the Companys consolidated financial statements or disclosures.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
, which requires an entity to reconcile and explain the period-over-period change in total cash, cash equivalents and restricted cash within its
statement of cash flows. ASU
2016-18
is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. A reporting entity must apply the amendments in ASU
2016-18
using a full retrospective approach. The adoption of ASU
2016-18
is not expected to have a material effect on the Companys consolidated financial statements or
disclosures.
13
ITEM 2.
|
MANAGEMENTS 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, 2016.
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 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, 2016 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 worlds 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 Perform, or Perform, is a cloud-based service for creating and managing video
player experiences. Brightcove Video Marketing Suite, or Video Marketing Suite, is a comprehensive suite of video technologies designed to address the needs of marketers to drive awareness, engagement and conversion. Brightcove Lift, or Lift, is a
solution designed to defeat ad blockers, optimize ad delivery and deliver a premium
TV-like
viewing experience across connected platforms. Brightcove OTT Flow, powered by Accedo, or OTT Flow, is a service for
media companies and content owners to rapidly deploy high-quality,
direct-to-consumer,
live and
on-demand
video services across
platforms. Brightcove Enterprise Video Suite, or Enterprise Video Suite, is an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos.
Our philosophy for the next few years will continue to be to invest in our product strategy and development, sales, and
go-to-market
activities to support our long-term revenue growth. We believe these investments will help us address some of the challenges facing our business such as demand
for our products by existing and potential customers, rapid technological change in our industry, increased competition and resulting price sensitivity. These investments include support for the expansion of our infrastructure within our hosting
facilities, the hiring of additional technical and sales personnel, the innovation of new features for existing products and the development of new products. We believe this strategy will help us retain our existing customers, increase our average
annual subscription revenue per premium customer and lead to the acquisition of new customers. Additionally, we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold, research and development
and general and administrative expenses as a percentage of total revenue.
14
As of September 30, 2017, we had 506 employees and 4,210 customers, of which 2,097 used our
volume offerings and 2,113 used our premium offerings. As of September 30, 2016, we had 471 employees and 4,647 customers, of which 2,666 used our volume offerings and 1,981 used our premium offerings.
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grew
from $111.6 million in the nine months ended September 30, 2016 to $115.8 million in the nine months ended September 30, 2017, primarily related to an increase in revenue from professional services engagements and to a lesser
extent our subscription-based software as a service. Our consolidated net loss was $18.1 million and $5.6 million for the nine months ended September 30, 2017 and 2016, respectively. Included in consolidated net loss for the nine
months ended September 30, 2017 was stock-based compensation expense and amortization of acquired intangible assets of $5.3 million and $2.1 million, respectively. Included in consolidated net loss for the nine months ended
September 30, 2016 was stock-based compensation expense and amortization of acquired intangible assets of $4.3 million and $2.3 million, respectively.
For the nine months ended September 30, 2017 and 2016, our revenue derived from customers located outside North America was 41% and 38%,
respectively. We expect the percentage of total net revenue derived from outside North America to increase in future periods as we continue to expand our international operations.
Key Metrics
We regularly review a number
of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
|
|
Number of Customers
. We define our number of customers at the end of a particular quarter as the number of customers generating subscription revenue at the end of the quarter. We believe the number of customers
is a key indicator of our market penetration, the productivity of our sales organization and the value that our products bring to our customers. We classify our customers by including them in either premium or volume offerings. Our premium offerings
include our premium Video Cloud customers (Enterprise and Pro editions), our Zencoder customers (other than Zencoder customers on
month-to-month
contracts and
pay-as-you-go
contracts), our Once customers, our Perform customers, our Video Marketing Suite customers, our Lift customers, our OTT
Flow customers and our Enterprise Video Suite customers. Our volume offerings include our Video Cloud Express customers and our Zencoder customers on
month-to-month
contracts and
pay-as-you-go
contracts.
|
As of September 30, 2017, we had 4,210 customers, of which 2,097 used our volume offerings and 2,113 used our premium offerings. As of
September 30, 2016, we had 4,647 customers, of which 2,666 used our volume offerings and 1,981 used our premium offerings. During 2013, we shifted our
go-to-market
focus and growth strategy to expanding our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Volume customers decreased since 2013 primarily due to our discontinuation of the promotional
Video Cloud Express offering. As a result, we have experienced attrition of this base level offering without a corresponding addition of customers. We expect customers using our volume offerings to continue to decrease in 2017 and beyond as we
continue to focus on the market for our premium solutions and adjust Video Cloud Express price levels.
|
|
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. The recurring dollar retention rate decreased from 97% during the nine months
ended September 30, 2016 to 90% during the nine months ended September 30, 2017. The decrease is primarily due to the loss of certain customers as well as a reduction in contract value, based on certain commodity elements being repriced
within our media market.
|
|
|
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. We began selling our Starter edition to customers in the second quarter of 2016. We consider Starter to be a premium offering and thus include Starter customers as premium customers. Our Starter edition has a price
point of $199 or $499 per month, and as of the first quarter of 2017, sales of our Starter edition have reached such a level that we have determined that the overall average annual subscription revenue per premium customer is a more meaningful
metric if we exclude revenue from Starter edition customers. As such, we now disclose the average annual subscription revenue per premium customer separately for Starter edition customers and all other premium customers.
|
15
The following table includes our key metrics for the periods presented:
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|
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Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Customers (at period end)
|
|
|
|
|
|
|
|
|
Volume
|
|
|
2,097
|
|
|
|
2,666
|
|
Premium
|
|
|
2,113
|
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
Total customers (at period end)
|
|
|
4,210
|
|
|
|
4,647
|
|
|
|
|
|
|
|
|
|
|
Recurring dollar retention rate
|
|
|
90
|
%
|
|
|
97
|
%
|
Average annual subscription revenue per premium customer, excluding Starter edition customers (in
thousands)
|
|
$
|
70.0
|
|
|
$
|
70.0
|
|
Average annual subscription revenue per premium customer for Starter edition customers only (in
thousands)
|
|
$
|
5.0
|
|
|
$
|
4.0
|
|
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 and
IP-restricted
players. 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 (which includes storage). We also offer gold support or platinum support to our premium customers for an additional fee, which includes extended phone
support. The pricing for our premium editions is based on the value of our software, as well as the number of users, accounts and usage, which is comprised of video streams, bandwidth and managed content. Should a customers 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 believe that our bundled pricing approach has made it easier for our customers to purchase all of the
elements required to manage, store and deliver their video assets to their viewers. Pricing for some of the
non-software
elements of our products, howeversuch as bandwidth and managed content (primarily
storage)has been subject to moderate but consistent pricing pressure as a result of competition among bandwidth and cloud infrastructure providers. This pricing pressure has not historically had a meaningful impact on our results of
operations. During the nine months ended September 30, 2017, we experienced an unexpected, significant increase in the impact of the price competition among bandwidth and cloud infrastructure providers in the markets for these increasingly
commoditized
non-software
services. As a result, our recurring dollar retention rate decreased in the nine months ended September 30, 2017. We have taken steps to reduce the portion of our revenue that is
subject to such pricing pressure by bringing new solutions, such as Dynamic Delivery (formerly known as Bolt), to market. We believe that these new solutions increase the value of our software platform to customers and allow us to retain a larger
portion of the customers total contract value while reducing the revenue related to
non-software
elements. However, as a result of the impact of the commoditization of the
non-software
elements, we now expect that our subscription revenue growth rate will be impacted through the first quarter of 2018.
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 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 customers usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. Zencoder
customers are considered premium customers other than Zencoder customers on
month-to-month
contracts or
pay-as-you-go
contracts, which are considered volume customers.
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 customers needs.
16
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 or platinum 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 customers 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 and Enterprise Video Suite are offered to customers on a subscription basis in Starter, Pro and Enterprise editions. The
Pro and Enterprise customer arrangements are typically
one-year
contracts, which typically include a subscription to Video Cloud, Gallery, Brightcove Social (for Video Marketing Suite customers) or Brightcove
Live (for Enterprise Video Suite customers), basic support and a
pre-determined
amount of video streams or plays, bandwidth and managed content or videos. We also generally offer gold support or platinum
support to these customers for an additional fee, which includes extended phone support. The pricing for our Pro and Enterprise editions is based on the number of users, accounts and usage, which is comprised of video streams or plays, bandwidth and
managed content or videos. Should a customers 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 Starter edition provides
customers with the same basic functionality that is offered in our Pro and Enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. Customers who
purchase the Starter edition may enter into
one-year
agreements or
month-to-month
agreements. Starter customers with
month-to-month
agreements are generally billed on a monthly basis and pay via a credit card.
Lift is offered to customers on a subscription basis. Customer arrangements are typically one year contracts, which include a subscription to
Lift, basic support and a
pre-determined
amount of video streams. We also offer gold support or platinum support to our Lift customers for an additional fee, which includes extended phone support. The pricing
for Lift is based on the number of users, accounts and usage, which is comprised of video streams. Should a customers usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage
above the contractual entitlements.
OTT Flow 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 customers needs. Customer arrangements are typically
one-year
contracts.
All Once, Perform, Video Marketing Suite, Enterprise Video Suite, Lift and OTT Flow customers are considered premium customers.
Professional Services and Other Revenue
Professional services and other revenue consists of services such as implementation,
software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services
have been completed, or on a time and materials basis.
Cost of Revenue
Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product
offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional
services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or CDN, expenses, allocated overhead, depreciation expense and amortization of capitalized
internal-use
software development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead
expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering
our subscription and support services due to the labor costs of providing professional services.
Cost of revenue increased in absolute
dollars from the first nine months of 2016 to the first nine months of 2017. 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.
17
Operating Expenses
We classify our operating expenses as follows:
Research and Development
. Research and development expenses consist primarily of personnel and related expenses for our research
and development staff, including salaries, benefits, incentive compensation and stock-based compensation, in addition to the costs associated with contractors and allocated overhead. We have focused our research and development efforts on expanding
the functionality and scalability of our products and enhancing their ease of use, as well as creating new product offerings. We expect research and development expenses to increase in absolute dollars as we intend to continue to periodically
release new features and functionality, expand our product offerings, continue the localization of our products in various languages, upgrade and extend our service offerings, and develop new technologies. Over the long term, we believe that
research and development expenses as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing products, features and functionality, as well as changes in the technology that our products must
support, such as new operating systems or new Internet-connected devices.
Sales and Marketing
. Sales and marketing expenses
consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in
addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. Our sales and marketing expenses have increased in absolute
dollars in each of the last three years. We intend to continue to invest in sales and marketing and 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 acquisition of substantially all
of the assets of Unicorn Media, Inc. and certain of its subsidiaries, or Unicorn, as well as costs associated with the retention of key employees of Unicorn. Approximately $1.5 million was required to be paid to retain certain key employees
from the Unicorn acquisition. The period in which these services were performed varies by employee. Given that the retention amount was related to a future service requirement, the related expense was recorded as merger-related compensation expense
in the consolidated statements of operations over the expected service period.
Other Expense
Other expense consists primarily of interest income earned on our cash, cash equivalents, foreign exchange gains and losses and interest
expense payable on our debt.
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 September 30, 2017, with the exception of the deferred tax assets related to Brightcove KK.
18
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 September 30, 2017 and 2016, we recorded $1.8 million and $1.7 million, respectively, of stock-based compensation expense. For the nine months ended September 30, 2017 and 2016, we recorded $5.3 million and
$4.3 million, respectively, of stock-based compensation expense. We expect stock-based compensation expense to increase in absolute dollars in future periods.
Foreign Currency Translation
With regard
to our international operations, we frequently enter into transactions in currencies other than the U.S. dollar. As a result, our revenue, expenses and cash flows are subject to fluctuations due to changes in foreign currency exchange rates,
particularly changes in the euro, British pound, Australian dollar, and Japanese yen. For the three months ended September 30, 2017 and 2016, 46% and 43%, respectively, of our revenue was generated in locations outside the United States. For
the nine months ended September 30, 2017 and 2016, 45% and 42%, respectively, of our revenue was generated in locations outside the United States. During the three months ended September 30, 2017 and 2016, 28% and 29%, respectively, of our
revenue was in currencies other than the U.S. dollar, as were some of the associated expenses. During each of the nine months ended September 30, 2017 and 2016, 28% 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 revenue 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, 2016.
For a detailed explanation of the judgments made in these areas, refer to Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form
10-K
for the year ended December 31, 2016, which we filed with the Securities and Exchange Commission on
February 21, 2017.
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, 2016.
19
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, 2016.
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|
|
|
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|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except share and per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support revenue
|
|
$
|
36,496
|
|
|
$
|
36,203
|
|
|
$
|
106,266
|
|
|
$
|
105,936
|
|
Professional services and other revenue
|
|
|
2,991
|
|
|
|
2,186
|
|
|
|
9,546
|
|
|
|
5,705
|
|
|
|
|
|
|
|
|
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|
|
Total revenue
|
|
|
39,487
|
|
|
|
38,389
|
|
|
|
115,812
|
|
|
|
111,641
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription and support revenue
|
|
|
12,924
|
|
|
|
11,691
|
|
|
|
38,180
|
|
|
|
35,041
|
|
Cost of professional services and other revenue
|
|
|
3,580
|
|
|
|
2,086
|
|
|
|
10,120
|
|
|
|
5,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
16,504
|
|
|
|
13,777
|
|
|
|
48,300
|
|
|
|
40,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,983
|
|
|
|
24,612
|
|
|
|
67,512
|
|
|
|
71,147
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
7,820
|
|
|
|
7,704
|
|
|
|
24,293
|
|
|
|
22,385
|
|
Sales and marketing
|
|
|
14,551
|
|
|
|
13,334
|
|
|
|
44,356
|
|
|
|
39,845
|
|
General and administrative
|
|
|
5,961
|
|
|
|
5,126
|
|
|
|
17,228
|
|
|
|
14,190
|
|
Merger-related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,332
|
|
|
|
26,164
|
|
|
|
85,877
|
|
|
|
76,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,349
|
)
|
|
|
(1,552
|
)
|
|
|
(18,365
|
)
|
|
|
(5,294
|
)
|
Other income (expense), net
|
|
|
71
|
|
|
|
(5
|
)
|
|
|
523
|
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(5,278
|
)
|
|
|
(1,557
|
)
|
|
|
(17,842
|
)
|
|
|
(5,421
|
)
|
Provision for income taxes
|
|
|
118
|
|
|
|
61
|
|
|
|
305
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,396
|
)
|
|
$
|
(1,618
|
)
|
|
$
|
(18,147
|
)
|
|
$
|
(5,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares used in computing net loss per share
|
|
|
34,500,868
|
|
|
|
33,345,161
|
|
|
|
34,269,639
|
|
|
|
32,956,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview of Results of Operations for the Three Months Ended September 30, 2017 and 2016
Total revenue increased by $1.1 million, or 3%, in the three months ended September 30, 2017 compared to the three months ended
September 30, 2016 due to an increase in professional services and other revenue of 37%, or $805,000, and an increase in subscription and support revenue of 1%, or $293,000. The increase in professional services revenue was primarily related to
the size and number of professional services engagements during the three months ended September 30, 2017 compared to the corresponding quarter in the prior year. The increase in subscription and support revenue was primarily related to the
continued growth of our customer base for our premium offerings including sales to both new and existing customers. The increases are offset by the loss of a major customer, during the first quarter of 2017, and a $556,000 reduction in revenue due
to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months ended September 30, 2016. In addition, our revenue from premium offerings grew by $1.6 million, or 4%, in the three months
ended September 30, 2017, compared to the three months ended September 30, 2016. 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 decreased by $1.6 million, or 7%, in the three months ended September 30, 2017 compared to
the three months ended September 30, 2016, primarily due to increases in the cost of subscription and support revenue and the cost of professional services revenue without corresponding increases in revenue. Cost of professional services
revenue increased due to a higher level of contractor costs and project hours during the three months ended September 30, 2017 compared to that of the three months ended September 30, 2016. Our ability to improve our overall gross profit
will depend primarily on our ability to continue controlling our
20
costs of delivery. Loss from operations was $5.3 million in the three months ended September 30, 2017 compared to $1.6 million in the three months ended September 30, 2016.
Loss from operations in the three months ended September 30, 2017 included stock-based compensation expense and amortization of acquired intangible assets of $1.8 million and $674,000, respectively. Loss from operations in the three months
ended September 30, 2016 included stock-based compensation expense and amortization of acquired intangible assets of $1.7 million and $784,000, respectively. In future periods, 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 September 30, 2017, we had $22.1 million of unrestricted cash and cash equivalents, a decrease of $14.7 million from
$36.8 million at December 31, 2016, due primarily to $11.7 million of cash used in operating activities, $2.1 million in capitalized
internal-use
software costs, and $990,000 in capital
expenditures. There were also cash outflows of $383,000 in payments under capital lease obligations, $229,000 for payments on equipment financing and $175,000 in payments of withholding tax on RSU vesting.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenue by Product Line
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Premium
|
|
$
|
38,149
|
|
|
|
97
|
%
|
|
$
|
36,518
|
|
|
|
95
|
%
|
|
$
|
1,631
|
|
|
|
4
|
%
|
Volume
|
|
|
1,338
|
|
|
|
3
|
|
|
|
1,871
|
|
|
|
5
|
|
|
|
(533
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,487
|
|
|
|
100
|
%
|
|
$
|
38,389
|
|
|
|
100
|
%
|
|
$
|
1,098
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended September 30, 2017, revenue increased by $1.1 million, or 3%, compared
to the three months ended September 30, 2016, primarily due to an increase in revenue from our premium offerings, which consists of subscription and support revenue, as well as professional services and other revenue. The increase in premium
revenue of $1.6 million, or 4%, is partially the result of a 7% increase in the number of premium customers from 1,981 at September 30, 2016 to 2,113 at September 30, 2017, in addition to an $805,000, or 37%, increase in professional
services revenue. The increases are offset in part by the loss of a major customer and a $556,000 reduction in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months ended
September 30, 2016. In the three months ended September 30, 2017, volume revenue decreased by $533,000, or 28%, compared to the three months ended September 30, 2016, as we continue to focus on the market for our premium solutions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenue by Type
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Subscription and support
|
|
$
|
36,496
|
|
|
|
92
|
%
|
|
$
|
36,203
|
|
|
|
94
|
%
|
|
$
|
293
|
|
|
|
1
|
%
|
Professional services and other
|
|
|
2,991
|
|
|
|
8
|
|
|
|
2,186
|
|
|
|
6
|
|
|
|
805
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,487
|
|
|
|
100
|
%
|
|
$
|
38,389
|
|
|
|
100
|
%
|
|
$
|
1,098
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
In the three months ended September 30, 2017, subscription and support revenue increased by
$293,000, or 1%, compared to the three months ended September 30, 2016. 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. These
increases are offset in part by the loss of a major customer and a $556,000 reduction in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months ended September 30, 2016. In
addition, professional services and other revenue increased by $805,000, or 37%, primarily related to the size and number of professional services engagements during the three months ended September 30, 2017 compared to the corresponding
quarter in the prior year. During the three months ended September 30, 2017, the increase in professional services revenue was primarily related to an increase in OTT application development projects. Professional services and other revenue
will vary from period to period depending on the number of implementations and other projects that are in process.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenue by Geography
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
North America
|
|
$
|
22,726
|
|
|
|
58
|
%
|
|
$
|
23,246
|
|
|
|
61
|
%
|
|
$
|
(520
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
6,097
|
|
|
|
15
|
|
|
|
6,412
|
|
|
|
16
|
|
|
|
(315
|
)
|
|
|
(5
|
)
|
Japan
|
|
|
4,129
|
|
|
|
11
|
|
|
|
4,243
|
|
|
|
11
|
|
|
|
(114
|
)
|
|
|
(3
|
)
|
Asia Pacific
|
|
|
6,363
|
|
|
|
16
|
|
|
|
4,136
|
|
|
|
11
|
|
|
|
2,227
|
|
|
|
54
|
|
Other
|
|
|
172
|
|
|
|
|
|
|
|
352
|
|
|
|
1
|
|
|
|
(180
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International subtotal
|
|
|
16,761
|
|
|
|
42
|
|
|
|
15,143
|
|
|
|
39
|
|
|
|
1,618
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,487
|
|
|
|
100
|
%
|
|
$
|
38,389
|
|
|
|
100
|
%
|
|
$
|
1,098
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2017, total revenue for North America
decreased $520,000, or 2%, compared to the three months ended September 30, 2016. The reduction in revenue for North America is primarily related to the loss of a major customer in the first quarter of 2017 partially offset by increases in
sales to new and existing customers. In the three months ended September 30, 2017, total revenue outside of North America increased $1.6 million, or 11%, compared to the three months ended September 30, 2016. The increase in revenue
from international regions is primarily related to an increase in revenue in Asia Pacific. The increase in revenue from Asia Pacific is primarily related to an increase in revenue from professional services engagements related to OTT application
development projects. These increases were partially offset by a $556,000 reduction in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the three months ended September 30, 2016.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Cost of Revenue
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Subscription and support
|
|
$
|
12,924
|
|
|
|
35
|
%
|
|
$
|
11,691
|
|
|
|
32
|
%
|
|
$
|
1,233
|
|
|
|
11
|
%
|
Professional services and other
|
|
|
3,580
|
|
|
|
120
|
|
|
|
2,086
|
|
|
|
95
|
|
|
|
1,494
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,504
|
|
|
|
42
|
%
|
|
$
|
13,777
|
|
|
|
36
|
%
|
|
$
|
2,727
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three months ended September 30, 2017, cost of subscription and support revenue increased
$1.2 million, or 11%, compared to the three months ended September 30, 2016. The increase resulted primarily from increases in network hosting services, amortization, and partner commission expenses of $509,000, $350,000, and $248,000,
respectively. There were also increases in maintenance expense, employee-related expense, and costs associated with third-party software integrated with our service offering of $174,000, $106,000, and $105,000, respectively. These increases were
partially offset by decreases in depreciation expense and bandwidth costs in the amounts of $162,000 and $127,000, respectively.
22
In the three months ended September 30, 2017, cost of professional services and other
revenue increased $1.5 million, or 72%, compared to the three months ended September 30, 2016. This increase corresponds to the increase in professional services revenue and resulted primarily from increases in contractor and
employee-related expenses of $1.2 million and $258,000, respectively.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Gross Profit
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Subscription and support
|
|
$
|
23,572
|
|
|
|
65
|
%
|
|
$
|
24,512
|
|
|
|
68
|
%
|
|
$
|
(940
|
)
|
|
|
(4
|
)%
|
Professional services and other
|
|
|
(589
|
)
|
|
|
(20
|
)
|
|
|
100
|
|
|
|
5
|
|
|
|
(689
|
)
|
|
|
(689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,983
|
|
|
|
58
|
%
|
|
$
|
24,612
|
|
|
|
64
|
%
|
|
$
|
(1,629
|
)
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The overall gross profit percentage was 58% and 64% for the three months ended September 30, 2017 and
2016, respectively. The decrease is primarily due to a shift in the mix of revenue as there was an increase in revenue from professional services engagements, which has a lower gross margin than subscription and support revenue. Subscription and
support gross profit decreased $940,000, or 4%, compared to the three months ended September 30, 2016 due to the loss of a major customer. Professional services and other gross profit decreased $689,000, or 689% compared to the three months
ended September 30, 2016 due to the increase in mix of contractor expenses versus internal expenses in order to support various professional services projects. 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 September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Operating Expenses
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
Research and development
|
|
$
|
7,820
|
|
|
|
20
|
%
|
|
$
|
7,704
|
|
|
|
20
|
%
|
|
$
|
116
|
|
|
|
2
|
%
|
Sales and marketing
|
|
|
14,551
|
|
|
|
37
|
|
|
|
13,334
|
|
|
|
35
|
|
|
|
1,217
|
|
|
|
9
|
|
General and administrative
|
|
|
5,961
|
|
|
|
15
|
|
|
|
5,126
|
|
|
|
13
|
|
|
|
835
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,332
|
|
|
|
72
|
%
|
|
$
|
26,164
|
|
|
|
68
|
%
|
|
$
|
2,168
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
.
In the three months ended September 30, 2017, research and
development expense increased by $116,000, or 2%, compared to the three months ended September 30, 2016 primarily due to increases in computer maintenance and support and employee-related expenses of $146,000 and $141,000, respectively. In
future periods, we expect that our research and development expense will 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 September 30, 2017, sales and
marketing expense increased by $1.2 million, or 9%, compared to the three months ended September 30, 2016 primarily due to employee-related expense, marketing programs, commission expense, and computer maintenance and support expenses of
$865,000, $296,000, $108,000 and $106,000, respectively. These increases were partially offset by a decrease in recruiting and relocation expense of $154,000. 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 September 30, 2017, general and administrative
expense increased by $835,000, or 16%, compared to the three months ended September 30, 2016 primarily due to increases in employee-related expense and outside legal fees of $836,000 and $185,000 respectively. These increases were offset by
decreases in contractor and recruiting and relocation expenses of $137,000 and $115,000 respectively. In future periods, we expect general and administrative expense to remain relatively unchanged.
23
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Other Income (Expense)
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Interest income, net
|
|
$
|
30
|
|
|
|
|
%
|
|
$
|
24
|
|
|
|
|
%
|
|
$
|
6
|
|
|
|
25
|
%
|
Interest expense
|
|
|
(6
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
9
|
|
|
|
(60
|
)
|
Other income (expense), net
|
|
|
47
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
61
|
|
|
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71
|
|
|
|
|
%
|
|
$
|
(5
|
)
|
|
|
|
%
|
|
$
|
76
|
|
|
|
(1520
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three months ended September 30, 2017, interest income, net, increased by $6,000, or 25%, compared
to the corresponding period of the prior year.
The interest expense during the three months ended September 30, 2017 is primarily
comprised of interest paid on capital leases and an equipment financing. The increase in other income (expense), net during the three months ended September 30, 2017 was primarily due to foreign currency exchange gains recorded during the three
months ended September 30, 2017 upon collection of foreign denominated accounts receivable, compared to losses recorded in the corresponding period of the prior year.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Provision for Income Taxes
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
118
|
|
|
|
|
%
|
|
$
|
61
|
|
|
|
|
%
|
|
$
|
57
|
|
|
|
93
|
%
|
In the three months ended September 30, 2017 and 2016, the provision for income taxes was primarily
comprised of income tax expenses related to foreign jurisdictions.
Overview of Results of Operations for the Nine Months Ended September 30, 2017
and 2016
Total revenue increased by $4.2 million, or 4%, in the nine months ended September 30, 2017 compared to the nine
months ended September 30, 2016 due to an increase in professional services and other revenue of 67%, or $3.8 million. The increase in professional services revenue was primarily related to the size and number of professional services
engagements during the nine months ended September 30, 2017, compared to the corresponding period in the prior year. Subscription and support revenue remained relatively unchanged during the nine months ended September 30, 2017, compared
to the corresponding period in the prior year. In addition, our revenue from premium offerings grew by $5.6 million, or 5%, in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016 primarily
due to an 7% increase in the number of premium customers from 1,981 at September 30, 2016 to 2,113 at September 30, 2017. These increases are offset by a $1.9 million reduction in revenue due to changes in foreign exchange rates
compared to the exchange rates that were in effect during the nine months ended September 30, 2016.
Our gross profit decreased by
$3.6 million, or 5%, in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to increases in the cost of subscription and support revenue and the cost of professional services
revenue without corresponding increases in revenue. Cost of subscription and support revenue increased due to additional costs incurred in order to support the launch of a major customer during the second quarter of 2017. Cost of professional
services revenue increased due to a higher level of contractor costs and project hours during the nine months ended September 30, 2017 compared to that of the nine months ended September 30, 2016. Our ability to improve our overall gross
profit will depend primarily on our ability to continue controlling our costs of delivery. Loss from operations was $18.4 million in the nine months ended September 30, 2017 compared to $5.3 million in the nine months ended
September 30, 2016. Loss from operations in the nine months ended September 30, 2017 included stock-based compensation expense and amortization of acquired intangible assets of $5.3 million and $2.1 million, respectively. Loss
from operations in the nine months ended September 30, 2016 included stock-based compensation expense and amortization of acquired intangible assets of $4.3 million and $2.3 million, respectively.
24
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenue by Product Line
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Premium
|
|
$
|
111,505
|
|
|
|
96
|
%
|
|
$
|
105,899
|
|
|
|
95
|
%
|
|
$
|
5,606
|
|
|
|
5
|
%
|
Volume
|
|
|
4,307
|
|
|
|
4
|
|
|
|
5,742
|
|
|
|
5
|
|
|
|
(1,435
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,812
|
|
|
|
100
|
%
|
|
$
|
111,641
|
|
|
|
100
|
%
|
|
$
|
4,171
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2017, revenue increased by $4.2 million, or 4%, compared
to the nine months ended September 30, 2016, primarily due to an increase in revenue from our premium offerings, which consists of subscription and support revenue, as well as professional services and other revenue. The increase in premium
revenue of $5.6 million, or 5%, is partially the result of a 7% increase in the number of premium customers from 1,981 at September 30, 2016 to 2,113 at September 30, 2017, in addition to a $3.8 million, or 67%, increase in
professional services revenue. The increases are offset by the loss of a major customer and a $1.9 million reduction in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the nine months
ended September 30, 2016. In the nine months ended September 30, 2017, volume revenue decreased by $1.4 million, or 25%, compared to the nine months ended September 30, 2016, as we continue to focus on the market for our premium
solutions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenue by Type
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Subscription and support
|
|
$
|
106,266
|
|
|
|
92
|
%
|
|
$
|
105,936
|
|
|
|
95
|
%
|
|
$
|
330
|
|
|
|
0
|
%
|
Professional services and other
|
|
|
9,546
|
|
|
|
8
|
|
|
|
5,705
|
|
|
|
5
|
|
|
|
3,841
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,812
|
|
|
|
100
|
%
|
|
$
|
111,641
|
|
|
|
100
|
%
|
|
$
|
4,171
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2017, subscription and support revenue was relatively unchanged
compared to the nine months ended September 30, 2016. In addition, professional services and other revenue increased by $3.8 million, or 67%, primarily related to the size and number of professional services engagements during the nine
months ended September 30, 2017 compared to the corresponding quarter in the prior year. During the nine months ended September 30, 2017, the increase in professional services revenue was primarily related to an increase in OTT application
development projects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenue by Geography
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
North America
|
|
$
|
68,205
|
|
|
|
59
|
%
|
|
$
|
68,913
|
|
|
|
62
|
%
|
|
$
|
(708
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
18,177
|
|
|
|
16
|
|
|
|
18,843
|
|
|
|
17
|
|
|
|
(666
|
)
|
|
|
(4
|
)
|
Japan
|
|
|
12,416
|
|
|
|
11
|
|
|
|
11,447
|
|
|
|
10
|
|
|
|
969
|
|
|
|
8
|
|
Asia Pacific
|
|
|
16,490
|
|
|
|
14
|
|
|
|
11,495
|
|
|
|
10
|
|
|
|
4,995
|
|
|
|
43
|
|
Other
|
|
|
524
|
|
|
|
|
|
|
|
943
|
|
|
|
1
|
|
|
|
(419
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International subtotal
|
|
|
47,607
|
|
|
|
41
|
|
|
|
42,728
|
|
|
|
38
|
|
|
|
4,879
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,812
|
|
|
|
100
|
%
|
|
$
|
111,641
|
|
|
|
100
|
%
|
|
$
|
4,171
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
25
In the nine months ended September 30, 2017, total revenue for North America decreased
$708,000, compared to the nine months ended September 30, 2016. The reduction in revenue for North America is primarily related to the loss of a major customer in the first quarter of 2017 partially offset by increases in sales to new and
existing customers. In the nine months ended September 30, 2017, total revenue outside of North America increased $4.9 million, or 11%, compared to the nine months ended September 30, 2016. The increase in revenue from international
regions is primarily related to an increase in revenue in Asia Pacific and Japan. The increase in revenue from Asia Pacific and Japan is primarily related to an increase in revenue from professional services engagements related to OTT application
development projects. These increases were partially offset by a $1.9 million reduction in revenue due to changes in foreign exchange rates compared to the exchange rates that were in effect during the nine months ended September 30, 2016.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Cost of Revenue
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Subscription and support
|
|
$
|
38,180
|
|
|
|
36
|
%
|
|
$
|
35,041
|
|
|
|
33
|
%
|
|
$
|
3,139
|
|
|
|
9
|
%
|
Professional services and other
|
|
|
10,120
|
|
|
|
106
|
|
|
|
5,453
|
|
|
|
96
|
|
|
|
4,667
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,300
|
|
|
|
42
|
%
|
|
$
|
40,494
|
|
|
|
36
|
%
|
|
$
|
7,806
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2017, cost of subscription and support revenue increased
$3.1 million, or 9%, compared to the nine months ended September 30, 2016. The increase resulted primarily from increases in content delivery network, network hosting, and amortization expenses related to internal-use software of $929,000,
$864,000, and $851,000, respectively. There were also increases in partner commission, maintenance, and employee-related expenses of $519,000, $378,000, and $296,000, respectively, as well as increases in costs associated with third-party software
integrated with our service offering, contractor expense, and stock-based compensation expenses of $135,000, $117,000 and $104,000, respectively. These increases were partially offset by decreases in depreciation and bandwidth expenses of $814,000
and $244,000, respectively.
In the nine months ended September 30, 2017, cost of professional services and other revenue increased
$4.7 million, or 86%, compared to the nine months ended September 30, 2016. This increase corresponds to the increase in professional services revenue and resulted primarily from increases in contractor, employee-related and travel
expenses of $3.3 million, $1.0 million, and $123,000, respectively.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Gross Profit
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
Percentage of
Related
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Subscription and support
|
|
$
|
68,086
|
|
|
|
64
|
%
|
|
$
|
70,895
|
|
|
|
67
|
%
|
|
$
|
(2,809
|
)
|
|
|
(4
|
)%
|
Professional services and other
|
|
|
(574
|
)
|
|
|
(6
|
)
|
|
|
252
|
|
|
|
4
|
|
|
|
(826
|
)
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67,512
|
|
|
|
58
|
%
|
|
$
|
71,147
|
|
|
|
64
|
%
|
|
$
|
(3,635
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The overall gross profit percentage was 58% and 64% for the nine months ended September 30, 2017 and
2016, respectively. The decrease is primarily due to a shift in the mix of revenue as there was an increase in revenue from professional services engagements, which has a lower gross margin than subscription and support revenue. Subscription and
support gross profit decreased $2.8 million, or 4%, compared to the nine months ended September 30, 2016 due to additional costs incurred in order to support the launch of a major customer during the second quarter of 2017. In addition,
professional services and other gross profit decreased $826,000, or 328% compared to the nine months ended September 30, 2016 due to the increase in mix of contractor expenses versus internal expenses in order to support various professional
services projects.
26
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Operating Expenses
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Research and development
|
|
$
|
24,293
|
|
|
|
21
|
%
|
|
$
|
22,385
|
|
|
|
20
|
%
|
|
$
|
1,908
|
|
|
|
9
|
%
|
Sales and marketing
|
|
|
44,356
|
|
|
|
38
|
|
|
|
39,845
|
|
|
|
36
|
|
|
|
4,511
|
|
|
|
11
|
|
General and administrative
|
|
|
17,228
|
|
|
|
15
|
|
|
|
14,190
|
|
|
|
13
|
|
|
|
3,038
|
|
|
|
21
|
|
Merger-related
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85,877
|
|
|
|
74
|
%
|
|
$
|
76,441
|
|
|
|
68
|
%
|
|
$
|
9,436
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
.
In the nine months ended September 30, 2017, research and
development expense increased by $1.9 million, or 9%, compared to the nine months ended September 30, 2016 primarily due to increases in employee-related, computer maintenance and support, contractor, and stock-based compensation expenses
of $1.7 million, $291,000, $290,000, and $190,000, respectively. These increases were partially offset by a decrease in recruiting expense of $294,000.
Sales and Marketing
.
In the nine months ended September 30, 2017, sales and marketing expense increased by
$4.5 million, or 11%, compared to the nine months ended September 30, 2016 primarily due to employee-related expense, marketing programs, and commission expense of $2.6 million, $899,000 and $502,000, respectively. There were also
increases in computer maintenance and support, travel, and stock-based compensation expenses of $367,000, $339,000, and $323,000, respectively. These increases were partially offset by decreases in recruiting and relocation, contractor, and
intangible amortization expenses of $258,000, $201,000, and $190,000, respectively.
General and Administrative
.
In
the nine months ended September 30, 2017, general and administrative expense increased by $3.0 million, or 21%, compared to the nine months ended September 30, 2016 primarily due to increases in employee-related expense, outside legal
fees, and stock-based compensation expense of $1.5 million, $990,000 and $381,000, respectively. There were also increases in
tax-related,
commission, travel, and computer maintenance and support expenses
of $263,000, $184,000, $142,000 and $122,000 respectively. These expenses were partially offset by decreases in recruiting and relocation and contractor expenses of $206,000 and $203,000 respectively.
Merger-related
.
In the nine months ended September 30, 2016, merger-related expenses of $21,000 related to costs
associated with the retention of certain employees of Unicorn. No such expense was incurred during the nine months ended September 30, 2017.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Other Income (Expense)
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Interest income, net
|
|
$
|
92
|
|
|
|
|
%
|
|
$
|
74
|
|
|
|
|
%
|
|
$
|
18
|
|
|
|
24
|
%
|
Interest expense
|
|
|
(22
|
)
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
29
|
|
|
|
(57
|
)
|
Other income (expense), net
|
|
|
453
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
603
|
|
|
|
(402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
523
|
|
|
|
|
%
|
|
$
|
(127
|
)
|
|
|
|
%
|
|
$
|
650
|
|
|
|
(512
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2017, interest income, net, increased by $18,000, or 24%, compared
to the corresponding period of the prior year. The increase is primarily due to a higher average cash balance as interest income is generated from the investment of our cash balances, less related bank fees.
The interest expense during the nine months ended September 30, 2017 is primarily comprised of interest paid on capital leases and an
equipment financing. The increase in other income (expense), net during the nine months ended September 30, 2017 was primarily due to foreign currency exchange gains recorded during the nine months ended September 30, 2017 upon collection
of foreign denominated accounts receivable, compared to losses recorded in the corresponding period of the prior year.
27
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Provision for Income Taxes
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
Percentage of
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Provision for income taxes
|
|
$
|
305
|
|
|
|
|
%
|
|
$
|
202
|
|
|
|
|
%
|
|
$
|
103
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2017 and 2016, the provision for income taxes 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.