Brightcove Inc. (NASDAQ:BCOV) Q1 2024 Earnings Call Transcript

Brightcove Inc. (NASDAQ:BCOV) Q1 2024 Earnings Call Transcript May 9, 2024

Brightcove Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Marc DeBevoise: Thank you all for joining today to discuss our First Quarter Results. I am Marc DeBevoise, Brightcove’s CEO. And with me today is Brightcove’s new CFO, John Wagner. First, I’d like to say we’re thrilled to welcome John to Brightcove. He’s a seasoned executive with more than two decades of experience in the technology industry, most recently as the CFO of online insurance marketplace, EverQuote. Before that, John held senior leadership roles at Carbonite, Constant Contact, NuoDB and Salesnet. John has an impressive track record delivering improvements in growth and profitability, and I’m excited to add his expertise to our leadership team. You’ll hear more on the numbers from John in a few moments, but I’ll begin with a quick overview of our high-level financial results for Q1.

Total revenue for Q1 was $50.5 million, which exceeded the high end of our guidance range and represents 3% year-over-year revenue growth. Revenue, excluding overages, which we believe is the most helpful way for investors to evaluate our performance was $49.4 million and grew even faster at 3.6%. Adjusted EBITDA was $5 million at the high end of our guidance and delivered the third consecutive quarter of double-digit adjusted EBITDA margin. And finally, we ended the quarter with $22.9 million in cash and cash equivalents, up $4.3 million sequentially. This reflects better-than-expected operating cash flow performance in our typically seasonally lowest quarter, and the proceeds from a strategic decision to monetize a portion of our patent portfolio.

Going a little deeper on the strategic transaction. During the quarter, we successfully monetized a portion of our patent portfolio with a leading publicly traded firm for $6 million. This included approximately 40% of our 150 plus patents and approximately 30% of our patent families. We believe this was a meaningful value-enhancing transaction for several reasons. First, by monetizing this portion of our patent portfolio, we meaningfully increased the amount of cash on our balance sheet, an attractive way for us to realize previously unrealized and typically unrealizable value. Second, we received a perpetual license back to all of our patents as part of the deal. This enables us to continue using all of the technology covered by these patents in our products for all of our current and future customers.

So no changes in terms of the benefits we received from owning these patents and no changes to our product capabilities or the value we deliver to and for our customers. Third, by executing this transaction, we will benefit from the acquirer potentially pursuing licensing and/or enforcement activities in the market with our competitors and/or non-Brightcove users, which like most companies in our position, we have not previously pursued historically. So this transaction effectively serves as a way to realize the value of a portion of our patent portfolio upfront, while also potentially providing the benefits of patent enforcement in the marketplace that we would not otherwise pursue. Finally, we continue to have an extensive remaining patent portfolio and an R&D team that generates new products and patents, all that we believe continue to differentiate us, can generate additional business opportunities, help defend our recurring revenue base and may deliver us more capital and return on investment in the future.

We believe this transaction is a great example of how we will pursue creative opportunities to unlock value for shareholders while also strengthening our business. We also believe it is yet another factor in demonstrating the continued rationality of our current market valuation. With the stock currently trading at less than 0.4x enterprise value to forward revenue and below 4x enterprise value to forward adjusted EBITDA, we believe our market capitalization is completely disconnected from our intrinsic value. We believe the core asset value of our intellectual property, our customer base and our software alone exceeds our current market value. And add to that our nearly $200 million of annual revenue, the overwhelming majority of it recurring, a record backlog of over $185 million and an efficient and profitable business model, and this disconnect becomes even more apparent.

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Q&A Session

With a resilient operating plan that we expect will deliver on our profitability targets for 2024 in any conceivable scenario, we continue to strongly believe our shares reflect a very compelling investment opportunity. Turning to our performance in the quarter. We had strong financial performance while also seeing a continuation of some of the business trends we saw throughout much of 2023. First, we had a relatively strong revenue quarter. We topped the high end of our guidance on revenue and saw a 3% growth in overall revenue and 3.6% growth in revenue, excluding overages. The recurring revenue portion of our business has strengthened as we’ve continued to see overages at their lower than historically typical levels, and our backlog hit a record high.

While we don’t expect to maintain this type of revenue growth in each quarter this year, our goal remains to drive more consistent revenue growth in the future, especially with regards to the recurring subscription revenue we drive. We also had another strong profitability quarter. We hit 10% adjusted EBITDA margins for the third straight quarter, maintaining cost discipline across our business while continuing to opportunistically invest in our key growth initiatives is our top priority this year. We will continue to look for ways to improve productivity and efficiency in all aspects of our operations. I’m pleased with the results so far and believe we are well on track to deliver our goal of 25% or greater adjusted EBITDA growth and 40% to 50% free cash flow conversion of that adjusted EBITDA in 2024.

We also had a solid new business quarter with quality new logo wins with both media and enterprise customers, new business tracked above the average of the trail of the last 3 quarters, and we saw continued improvement in overall deal value and average deal sizes versus last quarter. North America remains our best-performing region, and we continue to work on driving similar results globally. We continue to grow and expand our large deal pipeline with an impressive cross-section of traditional media, large and midsized streaming services and large enterprises as well. Our new CRO, Jim Norton is laser-focused on shepherding these types of larger opportunities through our pipeline over the course of 2024. On that last point, we had a meaningful 6-figure win in the quarter in enterprise and are focused on a number of others on the horizon in this area.

On the media side, we continue to believe larger entities outsourcing, at least a part of their streaming technology stack to us is a compelling operational and financial investment, but also continue to see these sales cycles be generally longer and less predictable in their nature. However, our retention and add-on business remained a drag to growth due to the same dynamics that we experienced over the course of 2023. As we mentioned last quarter, we had a meaningful customer in Japan churn in Q1 as expected due to an M&A event and subsequent platform consolidation on the acquirers’ do-it-yourself streaming stack. We also saw continued historically muted add-on demand with our existing customers. As we have discussed previously, an important part of our strategy is to develop a number of purpose-built solutions that will provide customers multiple upgrade paths to expand their spend with Brightcove.

This is a more sustainable and value-added approach than our traditional entitlement-based add-on business. We continue to see positive signs of customer interest in marketing studio, where more existing video cloud enterprise customers are upgrading each quarter, and we still have more work to do to develop a consistent demand and flywheel for marketing and communication studio, but we believe we’re headed in the right direction. It’s still too early to predict the timing of sustained improvement in our add-on business, but returning it to growth remains a key priority. On the customer front, we signed a number of new business add-on and renewal transactions in Q1 across a wide range of industries and geographies. This included media companies like AMPAS, the home of the Oscars; Acun Medya, a leading Turkish media company; Watch iT, a leading streamer in Egypt; and CNET Media Group, as well as meaningful add-on business with leading streaming services in Japan, Korea with Coupang; Mexico with Sky Mexico; New Zealand with Sky New Zealand and Brazil with SBT.

We also closed deals with sports organizations like Ironman, Netball Australia and Little League Baseball and added more to our deals with the NHL, MLS and MotoAmerica. On the enterprise side, we closed deals with finance, health care, auto and consulting companies like Apollo, AARP, Booz Allen, Cigna, Franklin Templeton, General Motors, HSBC, McKinsey, Mizuho, Navy Federal Credit Union, PIMCO, Prudential Life Insurance, TD Bank and UnitedHealthcare, and also technology companies like Dell, Intel, Motorola and Swisscom. We also had a meaningful 6-figure win in the quarter with a leading media group in Japan and APAC that expanded their engagement with Brightcove in preparation for this summer’s Olympics. We are set to support numerous company streaming needs for the Olympics this year, and we believe this is a great indication of the opportunity for live content on our platform and showcases our ability to scale reliably and in mission-critical situations, and we will look to translate this success into other sports and live-centric opportunities.

On the product side, we had a highly productive quarter in terms of partnerships and innovation. Each of these things expands the value we can deliver to customers and our growth opportunities. Accelerating the pace of innovation is a core priority for us, and this quarter’s announcements are a strong indication we are delivering on that goal. Our recent product announcements included a new strategic partnership with Google Ad Manager to enhance our Ad Monetization service. Through this partnership, Brightcove’s customers will be able to utilize Google Ad Manager as their ad management platform fully integrated as part of Brightcove, as well as generate demand from Google’s ad products. The combination will make it easier for customers to monetize content, expand the number of impressions Brightcove can serve on behalf of our customers and ultimately increase competition in the value delivered for our customers’ inventory.

We also launched Publisher Insights, which expands upon our Audience Insights offering to provide real-time analytics for news organizations and other content providers focused on real-time driven content. This is a great example of delivering purpose-built solutions that address the specific high-value needs of certain customers. We launched Cloud Playout 2.0 as well, which enhances customers’ ability to build new fast light channels in minutes with their existing content catalog and live stream portfolio. Building upon the initial success of Cloud Playout, Version 2.0 will help media companies be even better at extending their reach and engagement, monetizing their content more efficiently, managing their linear bot and live event play-outs and better assess viewing habits and content performance.