Brightcove Inc. (NASDAQ:BCOV) Q4 2023 Earnings Call Transcript

Brightcove Inc. (NASDAQ:BCOV) Q4 2023 Earnings Call Transcript February 22, 2024

Brightcove Inc. beats earnings expectations. Reported EPS is $0.04, expectations were $-0.05. BCOV isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Rob Noreck: Good afternoon and welcome to Brightcove’s Fourth Quarter and Full Fiscal Year 2023 Earnings Presentation. Today we’ll discuss the results announced in our press release issued after the market closed. During today’s presentation, we will make statements within [indiscernible] business that may be considered forward-looking and are made pursuant to the Safe Harbor provisions Private Securities Litigation Reform Act of 1995 including statements concerning our financial guidance for the first fiscal quarter of 2024 and full year 2024, expected profitability and free cash flow, our position to execute on our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain and upsell existing customers, as well as our ability to acquire new customers.

Forward-looking statements may often be identified with words such as we expect we anticipate, upcoming or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations, including the effect of macroeconomic conditions currently affecting the global economy. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our most recently filed annual report on Form 10-K and as updated by our other SEC filings. Also, during the course of today’s presentation, we will refer to certain non-GAAP financial measures.

There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release, issued after market closed today, which can be found on our website at www.brightcove.com.

Marc DeBevoise: Thank you for joining. I’m Marc DeBevoise, CEO of Brightcove; and with me today is Rob Noreck, Brightcove’s CFO. We’re pleased to be streaming this to you via our Video Cloud platform to discuss our fourth quarter and full year 2023 results, provide an update on our strategic progress, and share our view on our future. I’ll begin with a quick overview of the strong financial results we delivered in Q4, which were above the midpoint of our guidance range. Revenue for Q4 was $50.2 million, up 2% year-over-year and above the midpoint of our guidance. Adjusted EBITDA was $5.5 million, up over 3x year-over-year, delivering our second consecutive quarter of double-digit adjusted EBITDA margins and near the high end of our guidance.

And we generated $1.4 million in free cash flow, while delivering over $2 million in cash to the balance sheet. I’m very pleased we delivered on expectations in Q4, return the company to top line growth in the near-term, and did that while driving meaningful adjusted EBITDA, adjusted EBITDA, margins and cash flow. Our priority is to continue to focus on the things that we can control. That means, first and foremost, being disciplined on expenses and generating consistent, substantial adjusted EBITDA, and free cash flow. Our Q4 results are a good indication of our inherent scalability and efficiency. Building upon our recent profitability is one of our primary goals for 2024. As Rob will detail later, we expect to grow adjusted EBITDA by 25% and convert 40% to 50% of that into free cash flow in 2024.

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Q&A Session

We’re also pleased to have returned to top line growth in the quarter. Our revenue grew 2% year-over-year and revenue excluding overages was even better, up 3% year-over-year as overages hit their lowest point since 2012. We believe evaluating our top line performance, excluding overages, is the most helpful way for investors to evaluate our progress. Looking at our 2023 performance, there were some clear positive trends for our future. We drove a meaningful increase in new business, up approximately 55% year-over-year. We did this by delivering larger new deals with average annual contract values on new business up over 200% year-over-year. We saw continued strength in the Americas where we are furthest along in executing our strategic priorities.

And our success in media was clear with large strategic deals like Yahoo! and the NHL, and we believe we can build on that given our best-of-breed solutions. We also saw similar new business strength in enterprise signing numerous larger new business wins throughout the year. And with more use case specific solutions, we are confident we can grow larger, more strategic customer relationships. We were successful in our move to super serve larger and higher-value customers and saw average annual contract values increase 5% year-over-year and ARPU rise 8% year-over-year. Lastly, we executed more multiyear deals than ever, up over 25% year-over-year, which will pay-off long-term with a more secure recurring revenue base and is demonstrated in our total subscription backlog growth up meaningfully at nearly 20% year-over-year to its highest point in our 20-year history.

All of these are great indicators of our value and for our long-term business. And as you can tell, we were especially pleased with our new business performance in 2023 and how it validates our focus areas in terms of both product and go-to-market. New business will ultimately be the foundation upon which we build consistent top line growth over time. We’re also seeing growing traction in specific end markets. For example, in Q4, we had strong new business performance in our sports vertical, adding meaningful new logos, including PGA of America, Moto America, and the Saudi Pro League. Brightcove was chosen because we help these companies scale their streaming capabilities from fan engagement activities, all the way to streaming major national and global live events.

Our Q4 wins expand our sizable sports customer base. In Q4 alone, in addition to these new logos, we signed renewals or add-on business with the NHL, MLS, F1, and the LPGA. We also support Rogers Communications in Sky Mexico, which are large multichannel distributors, both of them renewed or added business with us in this quarter, and many of their executions are in sports as well. I’m excited about our traction here and the potential for our future in this vertical. While new business was strong in 2023, overage declines and lower add-on sales were and remain headwinds. Overage declines were one of our largest issues in terms of growth in 2023, delivering a $7 million drag to revenue this year. Overages will always be a part of our business, but we believe the steps we’ve taken to restructure this unpredictable part of our business by bringing contractual entitlements more in line with actual usage and engaging in more multiyear agreements, will minimize its risk to our growth going forward.

Overage declines are expected to be a much smaller $1 million to $2 million headwind in 2024, a meaningful improvement year-over-year. While lower add-ons were a significant headwind in 2023 as well, we are hopeful those will begin to abate over the course of 2024. This hope is based on some early signs of improvement in Q4. We have shifted our focus to developing non entitlement upgrade paths to drive add-on business in addition to more historically typical entitlement growth. We specifically saw two indicators in Q4: one, more tenured enterprise customers upgrading to marketing studio, helping drive ARPU up; and two, some return to entitlement growth from a few larger media customers. While our add-on business is not yet back to year-over-year growth, it was an improvement over recent quarters.

While it’s challenging to predict how this will exactly play out in 2024, we’re optimistic we can build upon these indicators. We believe our focus on developing non-entitlement upgrade path will help return our add-on business to growth. From the hundreds of add-on and renewal deals in Q4, in addition to the list of sports customers I mentioned, we saw a wide range of media, technology, health care, finance and other large companies adding or renewing business with us. This included media companies like Aljazeera, the American Motion Picture Association, the Criterion Collection, Reels Channels, Sky New Zealand, Starz, and Tver. Technology companies like Autodesk, Avid, Bowes, Broadcom, DocuSign, Palo Alto Networks, Pegasystems, Tableau, a sales force company, ServiceNow, and VMware.

Health care and pharma companies like Cigna, Johnson & Johnson, and Merck. Finance companies like Fitch, RBC, Jefferies, and U.S. Bank. And other large companies like Airstream, Cargill, Christies, Corning, Heidrick & Struggles, Subaru, and Subway. Our blue-chip customer base is one of our greatest assets, and our goal for 2024 is to continue to serve them well and find the right ways to grow our business with them, entitlement-based and non-entitlement alike. Before I discuss our view on our end markets and priorities for 2024, I think it’s important to highlight the strategic progress we made to improve our business during 2023. First, we made significant changes to our cost structure. We reduced our annualized expense run rate meaningfully by taking proactive measures to right-size the business.